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Executives

Brian Cooper – CFO

Rick Gilbert - Chairman, President and CEO

Analysts

Mike Latimore - Northland Capital

Gregory Burns – Sidoti & Company

Greg Mesniaeff - Kaufman Brothers

Jeff Linroth – Leaving It Better, LLC.

Peter Schleider – RKB Capital

Mitchell Almy - McAdams Wright Ragen

Westell Technologies, Inc. (WSTL) F2Q2012 Earnings Call October 20, 2011 9:30 AM ET

Operator

Welcome to the second quarter fiscal year 2012 earnings call. My name is John, and I will be operator for today’s call. 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 is being recorded. I will now turn the call over to Mr. Brian Cooper, Chief Financial Officer. Mr. Cooper, you may begin.

Brian Cooper

Thank you, John. I want to welcome everyone to our conference call covering the results for Westell Technologies during our fiscal year 2012 second quarter, which ended September 30. We issued our earnings news release last night and you can find a copy posted on our recently renovated website, westell.com. This morning Rick Gilbert and I will update you on the business and our financial results.

Before we begin, please note that our presentation and discussion contains forward-looking statements about future results, performance or achievements, financial and otherwise. Words such as believe, expect, anticipate, estimate, plan, outlook, 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, 2011 under the section Risk Factors.

The forward-looking statements made in this presentation are being 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.

Our presentation today also will include non-GAAP financial measures. We provided reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our website, westell.com.

Now, I would like to turn the call over to Rick Gilbert, Chairman, President, and Chief Executive Officer of Westell.

Rick Gilbert

Good morning, and thank you, for joining Westell Technologies’ second quarter fiscal 2012 earnings conference call. I am Rick Gilbert, Westell’s Chairman and CEO. During this call, I’ll discuss recent developments in the business, and then turn the call over to Brian Cooper, who will discuss the second quarter results in more detail. At the end of the call, Brian and I will answer your questions.

During the second quarter, on consolidated revenues of $31.2 million, we recorded earnings per-share of $0.05 on a fully diluted basis, as compared to $0.07 for the second quarter of last year. The $0.05 EPS includes about $0.03 derived from various one-time items. Brian, will describe these items later on during the call.

During Q2, we increased cash and short-term investments to $111.2 million and we repurchased 917,000 shares of Westell stock under the Board’s authorized program at a total cost of $2.5 million. I’ll focus the rest of my comments on the second quarter performance of our three business units, compared subsequently with our performance the last quarter.

During the second quarter, Customer Networking Solutions increased revenues by 24% and generated $1.1 million of additional operating profit when compared to last quarter. The revenue was mostly due to continued shipments of the ProLine modems and VersaLink gateways to Verizon per our contractual agreements. We also performed some product screening and rework services for Verizon Association with previously shipped UltraLine Series3 gateways. Reduced expenses also help drive the bottom line.

As we look to the future, it’s important to note that our contractually-agreed shipments to Verizon will be completed during the current quarter as originally planned. There are roughly $6 million of these shipments scheduled for our fiscal third quarter.

The Homecloud project continues in the developing phase. During the second quarter, we experienced a delay in the program, and we now expect commercial release sometime during the first calendar quarter of 2012.

Outside Plant System experienced a weak quarter, with revenues down 30% and operating profits down 86% when compared to last quarter. These results were unexpected as we entered the quarter with our internal forecast showing modest quarter-to-quarter growth.

However, during the second quarter, we experienced weak demand pretty much across the entire product line. We believe labor actions, merger actions, [inaudible] and inventory management of the large carriers during the quarter had an adverse effect on our results.

But we also believe the primary cause for the weak orders was an accelerated shift from T1 technology to Ethernet technology for the backhaul of cellular traffic. This technology change is significant and we expect it to have a continuing impact in the coming quarters, so that Outside Plant clearly needs to replace some T1 revenue with revenue from new products.

To that end, Outside Plant has been actively developing new products over the past two years. We have launched and begun sales of a number of these products during the past few months, and several have been formally announced in the Westell press releases in recent weeks.

New products include additional items in the eSmartES Ethernet product line, a new span powering unit for our fiber multiplexers, and a new line of competitive drop-in fuse panels. I want to note that due to the nature of carrier sales, [inaudible] products are approved and ramp up. We expect most new products will require some time to produce meaningful revenue. However, we’ve seen a positive reception, and in some cases already have product approval from major carriers for these products.

Finally, we need more focus on Outside Plant sales channels. And to accomplish that goal, I’ve asked Brian Powers to take the position of VP of Sales. In order to maintain focus on new product development, I’ve also asked Chris Shaver to replace Brian as General Manager of Outside Plant System Division. These changes are permanent and effective immediately. I believe Chris and Brian will form a very powerful management team to lead Outside Plant to future success.

In Q2, ConferencePlus experienced a typical summer quarter with revenues down 6% and profits down 20% compared to last quarter. This performance is consistent with normal seasonality in the business, and was anticipated in our internal plan, as there are fewer revenue days during the summer [inaudible], and during vacation season, demand for conferencing services decreases, especially in Europe.

In summary, Westell experienced a second quarter in which two of our three divisions performed as expected, while Outside Plant experienced a downward shift in both revenue and profit. Looking forward, we expect the current quarter will also be challenging for Outside Plant. However, I want to make it clear that our stated strategy of growing Outside Plant through the addition of new products that are either developed internally or obtained through acquisition, remains unchanged. And the successful execution of that strategy, combined with our strong cash position and careful control of expenses, should yield good results despite challenging economic conditions.

With that, I’d like to turn the call over to our CFO Brian Cooper, who will discuss our financial results in more detail, before we open the call for your questions.

Brian Cooper

Thanks, Rick. I will start by referring listeners to our press release, which is available on westell.com and which contains additional results and supporting information regarding the quarter and fiscal year-to-date. I will focus my remarks on information regarding the quarter.

Let me start with our consolidated results under our U.S. Generally Accepted Accounting Principles, or GAAP. For the quarter, consolidated revenue was $31.2 million compared to $51.1 million in the fiscal second quarter last year.

We also reported consolidated GAAP net income of $3.5 million or $0.05 per diluted share for the fiscal second quarter. This compares with $4.8 million or $0.07 per diluted share in the second quarter of fiscal 2011.

These results have been effected by a few unusual items, which we call out and adjust for on the final page of the earnings press release. These items include, first, the sale of CNS assets and business to NETGEAR, which closed on April 15. The remaining CNS business is much smaller, which is the primary reason for the year-over-year decline in consolidated revenue.

Second, we released valuation allowance against our tax assets in the fourth quarter ending March 31, 2011, which means we now report earnings on a fully tax-effected basis. The effective income tax rate on our financial statement before discrete tax items, increased from a negligible level a year ago, to about 39%.

Taxes in the current quarter also reflect a $2.1 million discrete tax benefit, non-recurring in nature, from the release of a reserve against an income tax asset. Neither the change in valuation allowance nor the reserve change affects cash tax payments.

Finally, we also reported a $325,000 gain on the sale of an Internet domain name that we were not using in the business. That item is also non-recurring in nature, and that gain is included [inaudible]. We’ve adjusted for these items in our non-GAAP numbers to help provide a clearer picture of the underlining business.

On this non-GAAP basis, net income for the quarter was $1.2 million or $0.02 per share compared against $2.9 million or $0.04 per share a year ago. From a business unit perspective, CNS reported $10.3 million of revenue in the quarter compared with $24.6 million in the prior year quarter.

CNS revenue after April 15 this year excludes the customers who are transferred to NETGEAR. And the quarter reflects only our continuing sales to Verizon. As we have discussed, those continuing product sales are on a committed basis, and are expected to conclude by the end of our third quarter.

We also benefited from some revenues on ancillary products and services for screening and rework provided to Verizon, as Rick has already noted.

CNS gross margin was [inaudible] compared with 16% in last year’s second quarter. Gross profit was $2.3 million, down $1.7 million versus Q2 last year. Operating expenses were $1.2 million down $2.7 million.

Expenses include funding for the development of Homecloud at a run rate of about $2.5 million per year. On this basis, CNS produced operating income of $1.1 million for the quarter.

As Rick explained, the Outside Plant Systems business unit experienced a weak quarter with revenue of $10.4 million. That is down 35% compared with last year’s Q2. Gross margin declined to 37.8% as a result of a unfavorable mix of products and lower overhead absorption on the lower revenues.

As a result of the lower revenue and margin, gross profit of $3.9 million was $3.4 million lower than in last year’s Q2.

Operating expenses of $3.5 million were up a half a million dollars. This spending reflects our ongoing investments in new products. There are also increased allocations of operating expenses that had been shared with CNS, amounting to about $200,000 in the quarter.

Outside Plant operating income was $400,000 for the quarter compared with $4.3 million in the same quarter last year.

ConferencePlus’s top line improved 1% versus Q2 last year, to $10.5 million. Gross profit was $5.1 million, expenses were $3.9 million, and operating profit was $1.2 million. All about the same as last year.

Finally, consolidated operating expenses for the second quarter were $9.5 million, which is $2 million lower than in last year’s quarter, and $1.1 million lower subsequently. The reduction primarily reflects the effects [inaudible] sale transaction.

Turning to the balance sheet and cash flow, total cash and short-term investments were $111.2 million, up slightly during the quarter. The company made tax payments during the quarter of $2.8 million that included amounts related to the gain on the CNS sale transaction.

We also repurchased approximately 900,000 shares of the company’s common stock at a cost of $2.5 million. Including the board authorization that was announced on August 29, 2011, there was approximately $21 million remaining as of September 30, for share repurchases under existing authorizations.

That completes our overview of the quarter, so we are ready to open the lines for questions. John.

Question-and-Answer Session

Operator

(Operator instructions). Standing by for questions. And our first questions comes from Mike Latimore from Northland Capital. Please go ahead.

Mike Latimore - Northland Capital

Thanks. Good morning, guys.

Rick Gilbert

Good morning, Mike.

Mike Latimore - Northland Capital

Rick, did you say that your – some of your new products have been approved by a major carrier?

Rick Gilbert

Yes. You know, two of the categories that I mentioned, the spam powering units and the fuse panels have been approved by major carriers and we have started making sells.

Mike Latimore - Northland Capital

And then on the ethernet products, do you see the number of Tier 2, Tier 3 carriers, you know, sort of buying that first followed by Tier 1, or how do you think about the ethernet pattern there?

Rick Gilbert

Well, I think – the first thing I’d say about the ethernet is that we really think our solution is a very optimal solution, especially for carriers that have already installed a lot of our enclosures and cabinets. And so our primary focus, obviously are the larger carriers in North America. And we think the business case is extremely good for selling those products to the large carriers. That said, as I said in the formal remarks, there’s – it takes a while to go through the approval processes in those carriers, especially for products like that. And we will also focus on some of the smaller carriers that we sell the T1 equipment to know as well, and likely we’ll see approvals happen with the smaller carriers first.

Mike Latimore - Northland Capital

And then in the Outside Plant revenue, how much of that roughly is through wireless backhaul among your [inaudible]?

Rick Gilbert

Well, I mean, over 50% of our products in Outside Plant are directly attributable one way or another to the backhaul of cellular traffic and that includes not just the T1s but the cabinets and enclosures and a variety of other products, including spam power units and fuse panels, for instance. And so, it’s a big part of our business.

Mike Latimore - Northland Capital

Okay, and then this last one. One the cost side, how do you think about just overall operating costs going forward? I heard – do you see it getting trim, stable, growing a little bit?

Rick Gilbert

Well, we’re certainly dedicated to our stated strategy of putting new products out into the field. And as you know, we’ve done some investment in Outside Plant to make sure that we can develop products internally. We’re starting to see the benefits of that. We are also working on focusing on [inaudible] of new products. And that all costs some money. We’re probably – we’re really going to stick the course on those investments. We think that that’s the right thing to do.

But we’ve always been very, very careful on cost control and we’ll balance those two things.

Mike Latimore - Northland Capital

Thank you.

Rick Gilbert

Thanks, Mike.

Operator

Our next question comes from Greg Burns from Sidoti and Company. Please go ahead.

Gregory Burns – Sidoti & Company

Hi. Good morning. Thanks for taking the questions.

Rick Gilbert

Good morning, Greg.

Gregory Burns – Sidoti & Company

In terms of the ethernet products, who are you competing against for sales into that market? And given the timeframe it’s going to take to get approval, are you, you know, are you chasing this market or are you behind? Are you kind of missing some of the early opportunities here?

Rick Gilbert

Well, we believe we’re competing against, you know, at AT&T, I think CNA is the primary vendor that’s being used right now for ethernet backhaul. At Verizon, I think Canoga Perkins is one of the key vendors that they’re using. We have seen other smaller players with smaller carriers as well. And that is, certainly with these products, one of the challenges of the big carriers because they already have solutions they’re deploying.

And to answer the second part of your question, we are a bit behind because our products have just come out. They have a business case for our products versus their current products, we think is extremely good, but when you’re the second one to the market you still have to work through getting approvals as a second vendor and get through the labs and such. There’s probably a little less pressure of a large carrier to get a second vendor as it perhaps was to get a first vendor through.

So that’s the challenge we have to work with. What we have going for us, as I said, is a very good business case and a lot of install base of cabinets and enclosures that are quite compatible with our solution. I hope that answers your question, Greg.

Gregory Burns – Sidoti & Company

It does. Thanks. And then just on the softness in the OSP segment, outside of the ethernet products, the labor and merger issues that you’ve mentioned, has that kind of alleviated in the quarter or are you seeing improvement outside of the ethernet segment of the business?

Rick Gilbert

Well, I want to make it clear that we, you know, we think that the labor activities, the merger activities and the tight inventory controls were the minor part of the weakness. The major part, I think, really was the shift from T1 to ethernet.

The labor and merger activities, I think, [inaudible], you know, certainly the obvious labor issue was the Verizon strike, and then those people are back at work now. That’s helpful.

I think the tight inventory controls at carriers is something that is going to continue. We’re at the end of the year for those guys. They always have tight inventory controls near the end of the year and indications we see from reports of other publically traded telecom equipment suppliers is they’re also seeing the same kind of inventory control issues. So I suspect that probably continues.

Gregory Burns – Sidoti & Company

Okay, and lastly on Homecloud, for a lot of the, you know, new consumer cloud applications coming out, namely iCloud, do you see your market opportunities changing in that space? Has it diminished? Is it greater? How’s that market evolving?

Rick Gilbert

Well, I think that – I think that what we see is, obviously, cloud computing is extremely important. Remember, Homecloud instantiates a local cloud and so it actually leverages on the weaknesses of things like iCloud, the security and privacy concerns people have on some of the macro-cloud solutions is exactly why we’re building Homecloud.

We do see entrants in – related to our space where some of the network addressable storage people and others are developing products that have Homecloud-like if you will, attributes. We’re convinced that we have an excellent solution. We just simply need to get it to market and we’re continuing to work on it.

Gregory Burns – Sidoti & Company

Okay. Thank you.

Operator

Our next question comes from Greg Mesniaeff from Kaufman Brothers. Please go ahead.

Greg Mesniaeff - Kaufman Brothers

Yeah, hi, Rick. I was wondering if you can talk about the OSP opportunity beyond the Tier 1 carriers, particularly in the utilities market and other adjacent markets?

Rick Gilbert

Sure. One of the things we did when we – thanks for the question, Greg. One of the things we did when we developed the ethernet product line, our primary focus in developing the ethernet product line was the backhaul of cellular traffic and that’s what the E SmartJack product and some of the cabinets we produced for the E SmartJack were targeted.

As we developed that, we also developed a line of hardened switches, ethernet switches that can be taken into utility markets, energy markets, oil companies; places where you need a hardened ethernet and where we would compete directly against vendors like RuggedCom and Sixnet and others. We have, you know, made the initial sales in our ethernet lines, they’ve actually been made in those markets. So we are intrigued by that. We’d like to move forward on that and we have done some hiring in the sales side to focus on those markets specifically.

Greg Mesniaeff - Kaufman Brothers

Then to get back to the issue of the labor issues over Verizon, how much of an impact was that on the OSP business in the beginning of the quarter?

Rick Gilbert

Well, I think the impact was basically, that a lot of the people that do the ordering process is the standard purchasing that’s done on a daily basis. If Verizon was disrupted, not just for us, but for everybody, it was because those people were doing strike duties. And so they were disrupted for a month to a month and a half because there was training before the strike and then the duties and then getting back to work and getting ramped up again.

So there was an effect. Again, I don’t want to overstate the effect because we think the bigger effect for us was the more rapid shift in technology.

Greg Mesniaeff - Kaufman Brothers

Got it. Now, as – I’m assuming your product development initiatives are continuing in the OSP business, and if that’s the case, what kind of modeling assumptions can you guide us to for R&D spending in that area?

Rick Gilbert

Well, Greg, I think we have pretty much the team that we want working on it, so I think our expenses would stay roughly in line with where they have been in the last couple quarters.

Greg Mesniaeff - Kaufman Brothers

Got you. Thank you.

Operator

(Operator Instructions). Our next question comes from Jeff Linroth from Leaving It Better, LLC. Please go ahead.

Jeff Linroth – Leaving It Better, LLC.

Good morning.

Rick Gilbert

Good morning, Jeff.

Jeff Linroth – Leaving It Better, LLC.

Where are you – qualitatively, where are you in terms of our progress toward the release of Homecloud products and the size of the opportunity compared to what you thought say at the beginning of this calendar year?

Rick Gilbert

Well, we’re a lot further along toward the release.

Jeff Linroth – Leaving It Better, LLC.

I wonder if you’re where you thought you would be? Are you about where you thought you would be…

Rick Gilbert

No, no. No, Jeff, honestly, we thought we’d have it out by now. If we go back to the beginning of the year, we you know, without going through all the details, we ran into some issues as we were bringing our hardware up to get it to where we wanted it. That’s all finished. The hardware works perfectly now. The software is what’s being completed and the delay we experienced in this quarter was fairly minor but it was still a delay. Our goal is to – when we do put the product out, put a product out that we can really be proud of and we’re going to take the time to do that right now. It looks like what we’re going to do, put the product out in a limited commercial release in the beginning of 2012.

And in terms of the opportunity for the product, what we’ve always said about this product is, you know, we have to take it to market on a retail basis in a limited basis to get it out there, make sure it works the way we want and also at the same time, take it to carriers both on the wire line side and the cable side, [inaudible] introduce it if we can to their customer base, which will take more time.

It’s hard to size a market for a brand new product and we’ve always said that this is a – a high-risk program but we are very excited around here about the technology and we believe that the direction of this program makes a lot of sense, which is why we continue to invest in it.

Jeff Linroth – Leaving It Better, LLC.

Sure. And one more. Again, a qualitative question. How would you characterize the level of interest and proactive inquiry that you are receiving from your prospective sales channels? Are they kind of tapping you on the shoulder, asking you how it’s going or are they kind of passive, just receiving reports from you? How would you characterize their – the nature of their waiting for this?

Rick Gilbert

Well, to the extent [inaudible] people, which we’ve done a very limited basis, we’ve had very positive feedback. As we’ve encountered delays in the program, we’ve sort of ratcheted back a little bit on taking it out to perspective sales channels because we didn’t want to get people excited about something and then have delays.

Right now, we’re focused on finishing the product, and as I said, again, in that product on a limited basis in the retail channels.

It’s also difficult to move this forward until we have a finished product, Jeff, because you know, people are – understand the concept and now they want to see how it works. So we want – we really do need to get that completed before we start investing on the sales and marketing side of this.

Jeff Linroth – Leaving It Better, LLC.

And that’s kind of what I was probing for, was a qualitative judgement about how patient they have been and how – but you gave me what I needed. Thank you for that.

And lastly, as you compare, again, thinking back to perhaps the beginning of this year, perhaps the timing of the launch and the study has been changed, but in terms of your internal forecast for what you believe will happen in the first year, would you say that they are as good or better as they were, or possibly a little less than they were? Has there been any significant change in what you think is going to happen when it does come?

Rick Gilbert

Are you speaking specifically of Homecloud?

Jeff Linroth – Leaving It Better, LLC.

Yes.

Rick Gilbert

Well, our internal forecast for Homecloud, we’re always pretty minimal because we, you know, our view was that we didn’t want to count on something that was, you know, a brand new product area and a brand new technology. It’s hard to predict what the market would be. So qualitatively, I’ll say that we haven’t changed our view.

Jeff Linroth – Leaving It Better, LLC.

Wonderful. That’s all I needed. I really appreciate you taking my questions.

Operator

Our next question comes from the line of Peter Schleider with RKB Capital Management. Please go ahead.

Peter Schleider – RKB Capital

Hi, Rick. Hi, Brian.

Rick Gilbert

Good morning, Peter.

Peter Schleider – RKB Capital

Could you help us a little bit on how much of the substitution technology substitution we saw in OS Plant in the quarter and maybe how much is left to go? Do you feel like you stabilized it at sort of a lower level or was there a good – was there a good month within the quarter and then the lights went out in the last two and we shouldn’t – and we should expect sort of some continued deterioration before things get better?

Rick Gilbert

Well, it’s obviously an excellent question because we experienced something we didn’t expect in the quarter. As I’ve said in my earlier remarks, we came into the quarter with an estimate that actually showed modest quarter-to-quarter growth and we ended up with something that was a dramatic drop. And as you say, most of it is related to the technology shift, T1 to ethernet. We knew we were going to see a shift, T1 to ethernet, that’s why we started building ethernet products a year and a half ago. And we just didn’t expect it would happen as rapidly as it has.

Now, the interesting part of your question is, have we reached sort of a plateau where it’s a step function down and then it says there? Are we going to see continuing declines. And you know, my expectation is that it probably will stabilize to some extent. But it’s hard to predict with Outside Plant. We were very surprised this quarter.

Brian Copper

And Peter, just to add, you know, as we talk about it here and what we think is happening in the marketplace, you know, we don’t have complete visibility, of course, but you know, Rick mentioned the transition in the technology. I think part of what – part of what happened is we had a little bit of a compound effect, is while that technology was changing and costs were being managed more carefully, the carriers, for a variety of reasons, inventory and so forth, that focused their investment in specific areas and probably exasperated the reduction in T1 products. But as Rick said, we don’t know exactly where the, you know, the wire level will be.

Rick Gilbert

Now, that said, you know, there was an interesting report relative to – from AdTran, relative to its HDSL business where they also saw a very significant drop this quarter. And they answered your question in the way that they thought that perhaps, you know, the water level had leveled off on that piece of business as well. So there is some significant relation between their HDSL business and our T1 business. So it will be interesting to see what happens to both companies.

Peter Schleider – RKB Capital

Got it. Okay, well, thanks, that helps. I think it, you know, it’s – it’s best said that I’m trying to back solves into your expectations. If you had said, you know, you could probably triple this quarter’s operating income of $400,000 and still not consider it a really strong quarter. So I guess directionally, you know, what I’m trying to get at is, do you think that we’re better, worse, or about even from here until we see the kick in for the ethernet products. It sounds like what you’re saying is you’re – it’s just too tough to tell right now. Is that fair?

Rick Gilbert

It’s tough to tell, Peter. We have new products coming to market, too, so it all depends on how they take up, how the carrier’s spend evolves here over the next couple quarters. We know the technology is changing, that’s the one thing we do know.

Peter Schleider – RKB Capital

Okay, thank you very much.

Operator

Our next question comes from Mitchell Almy from McAdams. Please go ahead.

Mitchell Almy-McAdams Wright Ragen

Good morning.

Rick Gilbert

Good morning, Mitch.

Mitchell Almy-McAdams Wright Ragen

I just thought I’d bring up one thing that is worth mentioning. I have a very strong appreciation for, I guess the all agopolistic nature of your market and the lumpiness of the orders, and the difficulty when you have a limited number of large customers. But on the call you mentioned that the level of shipments from the OS division were sort of unexpectedly low, and there is sort of an incongruence when we consider the sales of stock by the founding family, in which we repurchased at $3.43 prior to the last quarter’s result. And then the continuing sales by insiders with the complete absence of insider buys coming in to [inaudible]. It argues that the weakness wasn’t exactly unexpected. And I guess as a shareholder, that sticks with me a little bit and I’d like to know what maybe, or if you have any thoughts on getting everybody here exactly on the same page in terms of having skin in the game and achieving investment results because I don’t think that insider selling, the level of earnings we had this quarter coupled with the level of insider, or coupled with the level of repurchase activity is a good long-term solution; that can’t play to a good end going forward. So if you could address that a little bit, I’d be appreciative.

Rick Gilbert

Yeah, Mitch, I’ll take a shot at it; I’m not sure it will satisfy you. First of all, there were no insider sales with knowledge of declines in the business, nothing anticipating that. Insiders sell for a variety of reasons. The main insider sale, as you noted was by the founding family, their trust. It was actually a relatively small sale, considering their holdings, and I think it was a matter of taking a little bit of money off the table probably, but that’s their decision. You know, there have been a few other insider sales, but they are not contemplating particular outcomes in the business.

Brian Cooper

Some of those insider sales are 10B-5 plans, right, that were put in place long ago.

Rick Gilbert

Yes.

Mitchell Almy-McAdams Wright Ragen

Understood. I have an appreciation for it. I think you know where I’m going with this. I don’t have any conclusion, it’s just hard on our end when you see this to – while you are at the same time contemplating making an acquisition. So I would hope that the same, you know, review process for an acquisition and spending shareholder’s money, who, you know we have an expectation of seeing a return, is done with a large level of stock ownership on the part of management making that decision. So that’s kind of where I’m going. I’m looking forward rather than backward, and want to know that everybody benefits the same way. So, I guess there is no real answer, I’m just getting that on the table, because it’s hard not to feel that way at this particular point in time.

Rick Gilbert

I would point out, that the ownership of stock by management has actually dramatically increased year to year.

Mitchell Almy-McAdams Wright Ragen

Thank you very much, and again, don’t discount my appreciation for the competitive nature of the business you are in.

Rick Gilbert

We understand, Mitch, and frankly, I have never seen a discussion of this where insiders hold enough stock. Investors always think it should be more and it can only be a certain level.

Mitchell Almy-McAdams Wright Ragen

Understood. Thank you.

Operator

We have no further questions at this time.

Rick Gilbert

In that case, thank you very much for joining the call. We look forward to next quarter’s earnings call. Thank you.

Operator

Thank you, ladies and gentlemen, this concludes today’s conference call. Thank you for participating, you may now disconnect.

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