Westell Technologies, Inc.
Q2 2017 Earnings Call Transcript

Published: 6 Nov 2016

[Operator:]

Good morning, and welcome to the Westell Second Quarter Fiscal Year 2017 Earnings Call. My name is Hilda and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference call is being recorded. I will now turn the call over to Tom Minichiello, Westell's Chief Financial Officer. Tom, you may begin.

[Tom Minichiello:]

Thank you, Hilda. Good morning, and welcome to our conference call to discuss the fiscal year 2017 second quarter results for Westell Technologies. The news release we issued last night is posted on our website, westell.com. On this call, I will introduce you to Kirk Brannock, who a little more than a month ago was appointed President and CEO of Westell Technologies. I will then update you on our business and financial results for the quarter, and we will conclude by taking questions. Before we begin, please note that our presentation and discussion contain forward-looking statements about future results, performance or achievements, financial and otherwise. Words such as should, believe, expect, trend and similar expressions are intended to identify such forward-looking statements. These statements reflect management's current expectations, estimates and assumptions. These forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause Westell's actual results, performance or achievements to differ materially from those discussed. A description of factors that may affect our future results is provided in the company's SEC filings, including Form 10-K for the fiscal year ended March 31, 2016 under the section Risk Factors. The forward-looking statements made in this presentation are being and made as of the date and time of this conference call. Westell disclaims any obligation to update or revise any forward-looking statements based on new information, future events or other factors. Please also note that we present non-GAAP financial information in our news releases, because we believe that non-GAAP measures provide meaningful supplemental information to both management and investors. The non-GAAP information reflects the company's core ongoing operating performance and facilitates comparisons across reporting periods. Our discussion of results today will include non-GAAP financial measures. We provide reconciliations to the most comparable GAAP measures in our news release. As I just mentioned, Kirk Brannock joined Westell a little more than a month ago, and I really should say re-joined because Kirk served as a member of Westell's Board of Directors from 2011 to 2014. Kirk is a 30-year industry veteran with leadership experience at AT&T, SBC and Ameritech. So he brings a valuable customer perspective to Westell. Kirk's track record and proven ability to deliver bottom-line results, while enhancing customer satisfaction makes him, we believe the right choice for Westell. So with that, it's my pleasure to introduce you to Kirk Brannock.

[Kirk Brannock:]

Thank you, Tom and good morning, everyone. I'm Kirk Brannock, and as Tom said, I returned to Westell and I'm happy to be here. I first got to know Westell as a customer during my time with Ameritech, SBC and AT&T. Over 30 years, it was my experience that Westell had great people, high quality products and a commitment to customer satisfaction. Later, I got to know the company from the perspective of a Board Member and was impressed on how Westell was able to transition its product portfolio from wireline to wireless. Today I'm delighted to be at Westell as we transition to profitability. Starting earlier this year, Westell has taken important steps to return to profitability, and you can clearly see the positive results in our second quarter performance. Tom will go over the details shortly, but quarterly non-GAAP operating expenses are down significantly versus the prior quarter, which in-turn resulted in an even greater improvement in the bottom-line. In mid-October, we began the process of consolidating our In-Building Wireless, final assembly and test operations with Spinnaker, a contract manufacturer located in New Hampshire. Spinnaker has been our partner since 2000, and streamlining operations is an important part in our path to profitability. While we've done some good work, we're not finished. My first goal is to get our operating expenses down further to a level where we can sustain profitability at current business volumes. The next order of business is to review our product portfolio and marketing strategy. There are a number of areas that makes sense for Westell, for example, the In-Building public safety market is a real opportunity, and we have already achieved initial traction with our Public Safety Repeater introduced earlier this year. We have additional products optimized for public safety in the pipeline. I also like the idea of the Internet of Things. Our challenge is to explore ways to further help customers adapt to a world of ever increasing machine-to-machine communication, while branching out to solve problems with other existing and new customers. Finding success in IoT applications has the potential to widen and diversify our customer base. That's where I really see initial growth opportunities for Westell. To be successful, we must return to sustained profitability as well as clearly identify markets that make sense for Westell with solutions that will drive top and bottom-line growth. Just a little bit about my style. I'm action oriented, results driven and I like to win. My preference is to interact with all stakeholders, and I look forward to meeting you in person and hearing your thoughts on Westell's future direction. We have a lot to do, and I'm optimistic that working together, that Westell team can get the business back on track. Having said that, I'll now turn it back to Tom.

[Tom Minichiello:]

Thank you, Kirk. Let me begin with the summary of some of the highlights of our fiscal 2Q 2017 earnings release. Starting with revenue, as we expected and indicated during our last earnings conference call, our second quarter revenue increased when compared to the first quarter, up significantly, in fact, by 20% to $17.8 million. Further, revenues up sequentially across all three business segments. Let's start with IBW, where revenue was $6.6 million, a 9% sequential quarter increase. This increase was driven primarily by higher sales of our Universal DAS Interface Tray or UDIT active DAS conditioner. We are now selling our DAS conditioners to all four major national wireless service providers, as well as to several large neutral host operators. We are now seeing continued strong demand for UDIT from several of these customers that are either, A, rolling out large DAS deployments at a relatively aggressive pace or, B, replacing passive DAS conditioners from older deployments in favor of the higher density UDIT that saves space and can be remotely monitored. On the Repeater front, similar to the prior quarter, revenues were again, relatively strong in 2Q 2017 including continued order momentum with integrators and channel partners for the new 0.5 watt public safety repeater we announced earlier this year. Next is ISMS, where revenue was $5.1 million, a 23% sequential quarter increase, driven primarily by higher deployment services revenue at one of our existing customers. Product sales were also up sequentially, as we are gaining some market share for our remote units within this same account. Finally, CNS, where revenue was $6 million, a 32% sequential quarter increase. This increase was due primarily to higher sales of integrated cabinets, where we were in the final stages of a multi-year project with the neutral host operator. We also saw sequential quarter revenue increases for our power distribution product line, driven by several new configuration wins. In addition, sales of our tower mounted amplifiers rebounded this quarter, after a strike-related work stoppage at one customer resulted in a down period in the prior quarter. On the expense side, I'd like to give an update on the $11 million expense reduction plan, we announced in July. You may recall this plan consisted of estimated annual reductions of $8.5 million in operating expenses and $2.5 million in cost to goods sold. As expected and as noted during our conference calls in July and August, we have now completed actions related to the operating expense portion of this plan. Further, as mentioned in yesterday's news release and as Kirk just alluded to, the transition of our IBW final assembly and test operations to Spinnaker is now underway. We expect to complete this final phase of the $11 million plan, which improves cost to goods sold in future quarters before the end of the calendar year. Moreover, we are going beyond this plan and currently taking additional expense reduction actions across all areas of the business. To put things in perspective, it should be noted that less than a year ago, our quarterly non-GAAP operating expenses stood at an annualized run rate of $45 million, when we reported $11.2 million in our third quarter of fiscal 2016. Compare that to the $31 million annualized run rate based on the just reported $7.8 million for 2Q 2017, that's a $14 million reduction or 31%, the lowest level since the March 2013 quarter, which was followed up by a year in which Westell generated a positive non-GAAP operating margin of 7.7%. Our goal now is to bring non-GAAP OpEx down even more, in a range between $28 million to $26 million annualized. At a 40% gross margin, this lowers our non-GAAP breakeven to a quarterly revenue level in the range of $17.5 million to $16.3 million. I'd now like to move on and provide some color on 2Q 2017 earnings and cash flow. We reported a consolidated GAAP net loss for 2Q 2017 of $5.8 million or $0.09 per share, which represents a significant improvement when compared with a net loss in the prior quarter of $7.8 million or $0.13 per share. On a non-GAAP basis, net loss for 2Q was $1.1 million or $0.02 per share, again, a substantial improvement when compared with a net loss of $3.6 million or $0.06 per share in the prior quarter. While the 20% revenue increase and the lower expenses noted above were drivers for the improved results, the 2Q 2017 GAAP results were adversely affected by $2.6 million of restructuring charges, of which $1 million was a non-cash charge for the consolidation of leased space in Aurora and Manchester, 900,000 was for employee severance and 700,000 was for restructuring advisory services. Moving to our strong balance sheet, we have cash and cash equivalents that totaled $20.9 million at September 30, 2016 and we have zero debt. Cash used for operating activities in 2Q 2017 was $4.1 million. However, please note that this included $2.7 million due to an increased customer receivable balance at quarter-end as a result of the sequential revenue increase, and 500,000 for employee severance payments in connection with our actions to reduce expenses. Near-term, the goal is to maintain our cash at or above $20 million, and grow from there. Let me now say a few words about NASDAQ's minimum $1 per share listing requirement. It's Westell's intent to continue to stay listed on NASDAQ, and we have taken swift actions to quickly position the company to return to profitability, which we believe should increase value and result in regaining compliance for continued listing. Should we not regain compliance during the current 180-day compliance period, which ends on December 28, 2016, the company believes it will meet NASDAQ's requirements for an additional 180-day period to comply. This would extend the deadline to June 26, 2017. As we continue to aggressively build on the momentum we've already achieved in positioning the company to quickly return to profitability, we are confident this will generate higher value and result in continuing to stay listed on NASDAQ. In addition, now that our business has rebounded from a tough period in the April to June quarter, and we are resetting our costs and expenses to a level where we can grow profitability, we are working to expand our visibility, including more active engagement with new analyst and investors. We plan on presenting at two conferences in early December, the Drexel Hamilton Emerging Growth Conference in New York City on December 1st and the LD Micro Conference in Los Angeles on December 8. Look for future announcements and we hope to see you at these events. Before we move on to your questions, let me summarize. We are resetting our costs and expenses in line with current business volumes, so that we can return to profitability. We are maintaining and gaining share in markets we currently operating in across the entire spectrum of customers, service providers, neutral host operators, integrators, OEMs, distribution channel partners and in select international markets. And we are investing in the In-Building public safety market and further analyzing industry trends and our product strategy to determine areas in/or adjacent to our core competencies where we believe Westell has the highest percentage for success. So with that, we'd now like to open up the call for your questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. We have a question from Mike Latimore from Northland Capital Management.

[Mike Latimore:]

Hi, thanks. Nice to see the rebound this quarter. I guess, you talked a little bit about focusing on the public safety market, can you talk some about the channel you use there, you currently use or you need to expand the channel to capture more opportunity and I assume this is kind of tied into this sort of the ESInet initiatives across variety of states?

[Kirk Brannock:]

Yes, Mike. This is Kirk Brannock, and I'll answer your question about public safety. I am excited about the growth in public safety. Today, we estimate that market to be about $250 million and growing roughly at a 15% CAGR rate. We expected to grow to about $500 million and so really this is an area we have a lot of focus on in Westell. When you look at how we're kind of aligned, we count on a couple of large carriers a lot. When you look at our revenue, we're really - our quarter’s kind of rise and fall in the past on who I worked for before AT&T and Verizon. But when you look at this market, it's much, much different and our strategy will be to utilize integrators and this is more of an enterprise play. We believe that if we can get in with the integrators and there's a lot of work going on now with the integrators, that's the key to getting to this market and being first. Clearly, FirstNet, when that decision is made as far as who is going to be awarded that contract that will allow us also some business in the carrier space, but our strategy right now is to not only work the integrators, but plan on seeing some growth with FirstNet. Did I answer your question?

[Mike Latimore:]

Yeah. That's great and it sounds like you have the product you need for this market already, or is there more penetration in the products?

[Kirk Brannock:]

Good question. Good question. We have launched 0.5 watt public safety product and that is available, it's FirstNet compliant. However, there are a couple of other products, I won't go into a lot of detail for competitive reasons that are also in that family of products that we think hit a sweet-spot in a niche in this market.

[Tom Minichiello:]

Hey, Mike, I would just add a little bit more to that in terms of the product, the 0.5 watt that Kirk just talked about. If you go back, you can see we announced that back in February of this year, and started selling it in the beginning of this fiscal year in April. And we're happy with our progress with that product and that's really our initial entry into this market, and we plan to build on that. But we've had good traction thus far, and we're encouraged by what we see.

[Mike Latimore:]

Got it. And then Kirk when you talk about the IoT space, are you specifically referencing your ISM business there or.

[Kirk Brannock:]

Yes, we are. Yes, we are. We think most of the opportunities are in the ISM space, when it comes to customers via new applications as far as monitoring various network elements, so absolutely, it's in that space.

[Mike Latimore:]

Got it. And then in terms of this last quarter, Tom, do you have a couple of - or did you have a couple of 10% customers, and maybe a little more color on that?

[Tom Minichiello:]

Yeah, sure. We had two that were greater than 10%, Mike, and then we had a third one that was just under.

[Mike Latimore:]

Okay. And then, obviously, you made sequential growth this quarter. I guess can you give any color on what sort of bookings trends you're seeing so far in the December quarter or just seasonality generally?

[Tom Minichiello:]

Yeah, sure, Mike. So at this point in the quarter, when last quarter we were on this call, we were at about the same point in time during that quarter. And so far, what I can tell you is we're seeing about the same or similar order momentum basically through the first five weeks of the quarter. And we are definitely encouraged by the demand for our UDIT product, it's - it was building up steam this past quarter, as we talked about in the prepared remarks. We don't see any let-up there, and so we continue to see strong demand for the active conditioner. And then we have a quarter this quarter, where our ISM business is typically stronger than in other quarters. And on the flip side, we've got the CNS business, which due to the yearend and entering the winter months, typically goes the other way. But on balance, we're encouraged by what we see for the quarter. So far the momentum is very similar to the quarter just ended.

[Mike Latimore:]

Got it. Great. Thanks a lot.

[Operator:]

We have a question from Todd Brady from Oppenheimer.

[Todd Brady:]

Good morning, and welcome aboard Kirk.

[Kirk Brannock:]

Thank you.

[Todd Brady:]

Tom, first question for you. You had mentioned in your prepared remarks, you wanted to maintain cash at $20 million or more going forward. Would we insinuate that this quarter that's achievable? How likely is that? Secondly, Kirk, can you talk about the international opportunities for Westell? I know that with everything that's been going on in the company that sort of has been put on the back burner, and I know that that's not a big part of the business, but what are your thoughts about what you're looking at within the Westell portfolio and the branch and the opportunities to grow the business internationally? Thank you. A - Tom Minichiello. Good morning, Todd. Hey, we'll take your questions in the order asked, so I'll take the first one on the cash. The answer is yes, we are driving to the same level of cash or better this quarter, and it's always going to depend on, in most cases two factors, in this case three factors. It's going to depend on our operating profit for the quarter, number one. Number two, it's going to depend on our working capital, which we're vigorously managing inventory and other items in working capital, along with balancing customer needs. And then the third item that will have a play in the quarter will be some of the one-time charges that we took this quarter that will actually get paid out in the third fiscal quarter. But overall, from where we see, we're driving towards profitability on the P&L and if we manage the others as well as we know we can do it, we should see a flat to slightly increase in cash.

[Todd Brady:]

Good.

[Kirk Brannock:]

And let me take, Todd, the question regarding international business and our focus. When you look at the three segments, I mean clearly In-Building Wireless side with our launch of the public safety product that's pretty much going to be in the domestic markets. However, when you look at where we're at with our sales organization, we have two dedicated sales people that are aligned to the international market, specifically, Latin America and we are seeing on the revenue side growth within Latin America, predominantly in two areas. One being on our intelligent site monitoring side, we're seeing growth there. We have also a partner, I think you know with the AccessTel in Australia. But right now, we've got a lot of focus on Latin America. The good thing is we have clear accountability in Latin America and I foresee that to continue. In some regards, they're actually ahead of us on technology, it's sometimes tough to break into that market. It's pretty much knocking on doors and - but we had a good win with - in Mexico related to Nextel. So we think we've got some opportunity there.

[Todd Brady:]

I appreciate your time. Thank you very much.

[Operator:]

We have a question from Greg Mesniaeff from Drexel Hamilton.

[Greg Mesniaeff:]

Yes. Thank you and good morning. Tom, I have a question or two for you. In the press release, you referenced several times that gross margins were impacted negatively sequentially due to a less favorable sales mix, can you elaborate on that a little bit? Thanks.

[Tom Minichiello:]

Yes, sure, Greg. The two areas that impacted it were deployment services revenue and our integrated cabinets where they accounted for a larger percentage of the mix in the revenue this quarter and our mix - when it moves, it certainly has an impact on the gross margin rate. So it's really those two that factored in. But we're still year-to-date non-GAAP 38.7%, 40% has always been and continues to be our goal and not only are we doing things on the product side to help that as you probably could read in the press release as well. We have taken actions to reduce cost to goods sold going forward and that will help that rate tremendously.

[Greg Mesniaeff:]

Got you. Now, my other question is you had made comments on the call earlier about things you may do to maintain your - to comply with the listing requirement from NASDAQ. Without really prodding you on what specifically you are going to do, perhaps a reverse stock split or something along those lines, how much more complicated is that given your dual stock class [ph] capital structure?

[Tom Minichiello:]

Well, Greg, I really - it probably that doesn't play into it. It's really - I mean, the stock is the stock. And so the price will, in my view, improve and grow largely based on our ability to return to profitability. I mean, we view that as really the driving item, and that's why we're focused on returning to profitability. We're focused on taking expenses out and resetting our cost structure to the realities of today's revenue to get us in a position where we can not only be profitable, but sustain it over time. To me, that's the driver that's going to naturally get us back over the $1 point.

[Greg Mesniaeff:]

Understood. Thank you. I'll follow-up later with a question. I'll get back in the queue.

[Tom Minichiello:]

Okay.

[Operator:]

We have a question from Marty Elbaum from Horizon Networks.

[Marty Elbaum:]

Hi Kirk, welcome aboard. We're really excited about having you aboard. Tom, congratulations, great job. It seems like you're doing all the right things and we're excited about seeing the future and the shareholder value increase. So once again, thank you for making the right moves.

[Kirk Brannock:]

Thanks, Marty.

[Tom Minichiello:]

Thanks, Marty. Thank you.

[Operator:]

Our next question comes from Eugene Robin from Cove Street Capital.

[Eugene Robin:]

Good morning.

[Kirk Brannock:]

Good morning.

[Eugene Robin:]

Well, Kirk, I mean, you were on the Board before, right? And you went through the Kentrox stuff, you went through the CSI. I think at least you call the beginning of that and then fast forward a couple years, and the company is a vague shadow of itself, relative to when you first came in. So what I'm kind of curious about is why now, what's so different about, I don't know, the dynamic or the asset base now that you would come back into the fold, I guess?

[Kirk Brannock:]

Hey, great - good question. Good question. When we - when I was initially on the Board, can't go into specifics, but I would tell you right now from my vantage point, the Kentrox and CSI acquisitions were good from the perspective that we got out of the wireline space and into the wireless space. We really needed to do that. But looking back, I would tell you, we paid too much, that's my opinion. I would tell you, I left the Board because I had some disagreements on how we were running this business. I left on my own, some of the things I recommended weren't done and it was kind of interesting when I got called back and said, we'd like you to run the business. When you look at the company and what has occurred over the last few years and my expertise is in managing organizations, looking at operating costs and there are a ton of opportunities in this business when it comes to managing operating costs. And so I think I can bring a breath of fresh air in that area. I'm all about driving the profitability, making the right long-term decisions. When I came on, one of the first questions I had was, well, hey, you're interim. Well, I'm not managing this business as if I'm interim, I'm managing this business to improve shareholder value. So from my perspective, it is a challenge. I came out of retirement to take this position, and I really think we have a good opportunity here, not only in managing business better from the cost side, but also becoming what I would call a niche player in some key new markets. And so that's probably the best answer I could give you right now. But I've been asked that question a lot, why would you come back to Westell. And I think there's a lot of opportunity here.

[Eugene Robin:]

Got it. I mean, optically right. If you just look at the entire year, the business, it's just every quarter, it basically shrinks. And I get it, right, you're - you guys need to cut it in order to preserve the cash and you guys are doing that, but fast forward a year and this company is going to be doing whatever $70 million to $80 million of revenue with a materially reduced balance sheet relative to where you were back in 2011. So I'm - what I'm kind of curious about is what's the point? I mean, there's just nothing - you're becoming more of a micro company with every passing moment. And I guess from your perspective, and I realize you've been here - you've been back only a month, but what do you do with this business mix that effectively has atrophied, right, over the course of the last 18 months? I mean, that - I guess that's our high level kind of strategy question, not just for you, but also for the Board.

[Kirk Brannock:]

Fair question. It's a fair question. One of the things we're presenting for the Board is kind of a three-year plan, where we estimate our revenues can be. And what I would say realistic, assumptions on where the business units can go. I believe the future of Westell is really in the IBW space with the public safety announcements that have been made. I do believe, we still have a lot of growth in the intelligent site monitoring area. And coming from AT&T, we weren't leveraging, in my opinion, all of the opportunities that we have across some of the larger carriers, there were pockets of our products that weren't being, I would say, sold where they could be. Things as simple as, are we selling the product for the right price? I mean, we're getting into those sort of details, very, very detailed discussions on margins. So I think it is a challenging environment, but we have to first return to profitability, which I think we've got a good plan to achieve that. And then at the same time, look at our revenue streams and say where are the growth areas. You're exactly right. Our revenue is lower than where it was a few years back, but I would say this, if we wouldn't have gotten into the wireless space, I'm not certain, we'd be here today.

[Eugene Robin:]

Got it. I guess, this is maybe more for Tom. But on the cash flow, net-net, if you just exclude the working capital swing, are you guys at roughly about a $1 million use a quarter right now at the current…?

[Tom Minichiello:]

Yeah. Yeah, Gene, that's a good read. You've interpreted it correctly. Because when you take the working capital swing out and the severance payments out, that's exactly where we were for 2Q. And as we drive the profitability, so it almost matches the non-GAAP operating profit and in fact, on an EBITDA adjusted basis, we were at 688k. So we're driving that number down towards the breakeven, breakthrough and get beyond and that's how we see ourselves maintaining and then growing the cash. Let me add one other bit to the previous question as Kirk was responding is, one thing to keep in mind here is that over the past couple of years, the company was being structured for a significantly larger amount of top-line revenue that did not materialize and as the result is we are where we are right now. We are changing that, we're doing things differently and our focus is on profitability and growing the bottom-line. And the way to do that in a company like Westell is to do what we're now doing, and that is to focus on markets that are of the size and scale where we can have success, where a lot of others in the industry may not be paying all that much attention to. If you go back and look at the successful years of this company that's what this company did. So we're getting into markets like the In-Building public safety, we're getting into - we're looking at other similar type of size and adjacent markets that are close to our knitting, where we have the core competencies to thrive and excel. And that's how you get value back into the company.

[Eugene Robin:]

Got it. And so just to get to that, whatever $26 million or $28 million OpEx range, how much more is it going to cost just in terms of, aside from just natural cash flow from ops feed [ph], the kind of quote-unquote one-time charges that are going to show up?

[Kirk Brannock:]

They'll - it’ll probably take us because we're in the middle of it right now, it will probably take us another, I would estimate around 300,000.

[Eugene Robin:]

Got it. Okay. So if nothing changes on the top-line, we're looking at another, let's say 2 million or so through the year to get to some sort of new cash level flash profitability level for the following year, correct?

[Kirk Brannock:]

Correct. Yeah. Well, in fact we're accelerating things here. We're in an aggressive mode Gene. And in fact, this whole Spinnaker situation where we consolidated our final assembly in test, if you recall under the original $11 million plan that was to be concluded by the end of March. We're not wasting time, there was no reason to wait till then when we further looked at it from a business standpoint and we've already started that and we're going to get that done by the middle of December. And all the other areas of cost reductions and the OpEx reductions that we're looking at, what we're driving towards is getting all, if not most of that done by the end of the calendar year. There may be some trickle effect or true-up of some restructuring reserves in the fourth quarter, but that's our goal.

[Eugene Robin:]

Got it. Well, I mean, I will just leave you with this. What really worries us right and again, we've been pretty vocal about it is that you guys are, you know from a [inaudible] you sell to three really big customers for the most part and those three big customers have CapEx budgets that vary with whatever they're doing, whether it's bidding for a spectrum or concentrating on the new shiny object over here or over there. So to say that there is a base level of revenue at X, it's really hard, right. And the worry here is that with every passing quarter, it just becomes harder and harder to see the light at the end of the tunnel. And you might have a successful quarter here and there, but in reality, taken as a whole, it's just a full event. And again this is, as I've said plenty of times, including at the meeting, there is nothing to do per say with management, there's just the realities of who you sell to. So thanks for taking all my questions and wish you guys a best of luck.

[Kirk Brannock:]

Well. Thank you. Thank you, Gene. We appreciate it. Thank you.

[Operator:]

We have a follow-up question from Todd Brady from Oppenheimer.

[Todd Brady:]

Tom, just to circle back on the cash and I appreciate Gene's questions on the cash. But if you actually strip out the cash, which you guys had on the balance sheet at the end of the September 30th timeframe and you take a look at the value of the company right now and you guys are talking about the prospects in the public safety market, really what the market is saying is that opportunity in the public safety market is slender on [ph] because $23 million market cap minus $20.8 million, really doesn't give you a much value at least in the eyes of the marketplace. So Kirk, is there any possibility of you maybe outlining, I know that you can't talk about, for competitive reasons, products that you guys currently have, but can you maybe address some levels of confidence that shareholders can have going forward as we get ready for the new year that would maybe help address this lack of value that the market is basically placing on your business, if you strip the cash out? Thank you.

[Kirk Brannock:]

Right. Right. No, it's a fair question. And it was one of the decisions. When I looked at the business and said, hey, the stock is trading close to the cash value, is there really no value to this company? And when you look at Westell as a whole and you look at the public safety space, we have launched the one product. We are getting traction on that product, and we believe, and it's been mentioned more than once, you're so reliant on these large carriers, what can you do? The public safety growth will really not make us dependent on those carriers. And it is a big market, I mean it's a - what I said earlier, it's a $250 million market today and it's going to be for niche players. And that's where I think we can really focus our attention. And we've got without telling you specifically, three products in the works. We've had great reviews and acceptance as we've met with the folks that we know are going to play in that space, it's attention to detail on making sure we have the right integrators lined up, but it's an area that we have to, we have to succeed in that area. I mean, it's key. We have to succeed in that area. I mean, I feel really good about our OpEx plans. As I've - as you've heard I've only been here a month, but every day, the people I'm talking to in that space feel good about what we're going to offer, and it's very similar to when we saw some growth initially, where we got our product in first. And you got to get first to market, I mean that's key here. So that's really our plan is to try to grow that segment and I wouldn't take this job, if I didn't think the company was undervalued.

[Todd Brady:]

I wish you guys the best on the opportunity and the challenges you're faced with. Thank you.

[Kirk Brannock:]

Thank you, Todd.

[Operator:]

We have a follow-up question from Greg Mesniaeff from Drexel Hamilton.

[Greg Mesniaeff:]

On the product front, I was wondering, if you can give us some color on one of your products is the hardened Wi-Fi infrastructure product? And I see that product all the time near to the subway system by the way. I was wondering, given the current strong outlook for Wi-Fi and public spaces, I was wondering what are you doing to kind of get that product out into more municipalities and other areas? Thanks.

[Kirk Brannock:]

Yeah. Good question, Greg. Yeah, I like seeing it there too, when I'm in the city. And so that's the current project, that's been a roughly a three-year project, of which is now in the final stages that was what I was alluding to in the prepared script with regards to our integrated cabinet revenue for the quarter. We'll probably have the final cabinets shipped this quarter, but potentially some in the quarter between January and March. But that project is winding down, but that customer loves our cabinets, they love Westell as a vendor, we've - it's a strong relationship that we've built and we've got additional opportunities to do other things with them not only in New York, but in another city. But also in New York, there are opportunities we're working on right now with them that we'll continue to have business with them for years to come.

[Greg Mesniaeff:]

Great, thanks.

[Operator:]

We have a question from Bill Bryant [ph]. Please go ahead.

[Unidentified Analyst:]

Hi, I'm a private investor. And I just wanted to follow-up on some of the questions that have been raised about the diversity of the customer base and what’s your overall plan is for risk management around diversifying the revenue across different markets and customers. Any comments you can make in that regard would be a joy?

[Tom Minichiello:]

Yeah. Okay, yeah. Good morning, Bill. This is Tom. So as Kirk just mentioned, the one of the things that we like among several things about the In-Building public safety market is it gets us across a customer category called the integrators that we currently do business with some of our commercial repeaters and some of our DAS conditioners. But it - this will expand that. And as we grow that piece of our business, which is our goal to do with getting into the public safety market as well as continuing to serve the commercial market for In-Building, that will diversify the base. We also have initiatives of foot in this same segment of our business, the IBW segment, with distribution channel partners because some of these integrators, you know they go to the channels and the distributors to get their product, they all work differently. So we're going to diversify in that area with those two categories of customers. We also, with our DAS conditioners, the - especially the UDIT, we have - recently, the demand there has been strong from one of the service providers who in the past, who we hadn't done all that much business with, so that's - again, it's in the wireless service provider area, which is where we have concentration. But this is a customer that we haven't done as much business with in the past. And of course, then there is the neutral host operators, which we continue to grow with, and we have seen nice return for revenue in some of our international markets, like Mexico and Australia. So it's going to take a concerted effort across the entire product portfolio into all these other customer categories, as well as continuing to serve the two large service providers, we value all the business.

[Operator:]

[Operator Instructions] It looks like we have no further questions at this time. I will turn it back to Tom Minichiello for closing remarks.

[Tom Minichiello:]

Alright. Well, thank you, everyone. We appreciate you joining us today. And we look forward to speaking with you in the future. Thanks.

[Kirk Brannock:]

Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.