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Executives

John Seazholtz – Chairman of the Board

Bernie Sergesketter – Chief Executive Officer

Amy Forster – Chief Financial Officer

Tim Pillow – Chief Marketing and Strategy Officer

Tim Reedy – President and Chief Executive Officer of ConferencePlus

Brian Powers – Chief Executive Officer of Hellman & Friedman

Analysts

Carter Driscoll – CD Capital Partners

Todd Koffman – Raymond James & Associates, Inc.

David Weissman – Zacks Investment Research, Inc.

Brad Evans – Heartland Group Inc.

Mohammed Ahmad – Beeham Capital Management

Westell Technologies (WSTL) F1Q09 Earnings Call July 24, 2008 9:30 AM ET

Operator

Welcome to the first quarter FY'09 earnings call. (Operator Instructions)

Before we begin I would like to read Westell's Safe Harbor statement. Certain statements contained herein that are not historical facts or that contain the words believe, expect, intends, anticipate, estimate, may, well, should or derivatives thereof and other words with similar meaning are forward-looking statements that involve risks and uncertainties.

Actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, product demand and market acceptance risks, need for financing and economic downturn in the US economy and telecom market, the impact of competitive products or technologies, competitive pricing pressures, new product development, excess and obsolete inventory, commercialization and technological delays or difficulties including delays or difficulties in developing, producing, testing and selling new products and new technologies, the effect of Westell's accounting policies, the need for additional capital, the effect of economic conditions and trade, legal, social and economic risks, such as imports, licensing and trade restrictions and other risks more fully described in the Company's Form 10-K for the fiscal year ended March 31, 2008 under the section risk factors. The Company undertakes no obligation to publicly update these forward-looking statements to reflect current events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or otherwise.

I will now turn the call over to John Seazholtz, Chairman of the Board. Mr. Seazholtz, you may begin, sir.

John Seazholtz

Good morning and thank you for joining Westell Technologies First Quarter Fiscal 2009 Earnings Conference call.

Today's earnings call is being managed and hosted by our subsidiary ConferencePlus. Joining me today are Westell's Interim CEO Bernie Sergesketter, Westell's Chief Financial Officer Amy Forster, Westell's Chief Technology Officer Chris Shaver, Westell's Chief Marketing and Strategy Officer Tim Pillow and the President and CEO of ConferencePlus, Tim Reedy.

I am John Seazholtz, Westell Technologies' Chairman of the Board.

I wanted to take a few moments to introduce you to Westell's Interim CEO, Bernie Sergesketter. Bernie is an industry veteran with a track record of tremendous success over his 40 years in the telecom space. A significant part of that career was spent at AT&T including 18 years as a member of the senior management. Bernie is well qualified to head Westell as we work to establish a strong plan for growth and profitability.

Bernie has experience as a former member of Westell's Board of Directors and is knowledgeable on the issues we face as a Company today. He has the unanimous backing and confidence of the entire Board of Directors.

I would like to now turn the call over to Bernie and let him walk you through the quarter results. Bernie?

Bernie Sergesketter

Thank you, John. Good morning everyone and thank you for joining us today. As John indicated, I have been serving as Interim Chief Executive Officer since this past July 8th. Since then I have spent most of my time reacquainting myself with Westell's operations.

During my due diligence it is become clear that Westell's products are the sweet spot of a market quickly moving toward broader fiber-connectivity. Over the coming weeks I look forward to working with the Board of Directors to establish the right path for Westell to ensure future success and a timely return to profitable levels.

This morning we will first discuss our results for the quarter and then afterwards we will open the call up to your questions and take as many as time permits.

Yesterday the Company reported earnings results for the first fiscal quarter of 2009. Operationally our performance was in line with our expectations and previous guidance. The cost reduction initiatives Tom Mader put in place were the right ones and they have allowed us to increase our potential operating leverage and have enabled Westell to transform into a Company better able to be profitable under difficult customer pricing conditions.

These initiatives included product outsourcing, operational restructuring and selected work force reductions. These actions have allowed us to significantly cut payroll and overhead costs. We believe the value of these actions will be most apparent as we transition through the current product life cycle to begin to sell and deliver our new fiber-based products.

I would like to take a brief moment and walk you through each of our three business units and talk through some of the exciting things we see going on in each one. Let us start with ConferencePlus.

As many of you are aware, Westell actively sought to divest this unit during the first half of calendar year 2008. However, we were unable to come to agreeable terms with a potential buyer and as a result the divestiture did not occur. As the Company has previously indicated, we believe there is a solid economic value to this business and we remain unwilling to compromise this value in order to complete a deal.

Since the press release announcing that ConferencePlus would remain a part of ongoing operations was issued on June 17th, investors continue to ask whether this business is still up for sale. The short answer to this question is, not in the foreseeable future. Market and deal conditions are not advantageous to us realizing full value to this business and accordingly we are proceeding to grow this business on a standalone basis.

To that end, on June 30th ConferencePlus acquired a customer portfolio from iLink, an enhanced voice data service provider to help augment ConferencePlus current customer base. This deal is estimated to add $1 million in annual revenue.

As the price of oil and related transportation costs continue to rise, management believes the demand for conferencing services will increase and therefore anticipates it will continue searching for and evaluating similar strategic opportunities in the coming quarters.

It is clear that the conferencing network space will grow and we believe we can opportunistically acquire additional assets to further scale the business and expand our profitability.

Now on to our CNE business, home to many of Westell's DSL-based products. Historically this segment has been a strong revenue source for the Company. Related to this we are excited to report an initial order for over $20 million from Verizon for our UltraLine Series3 Gateway for their FiOS fiber-to-the-home customers. The UltraLine Series3 utilizes the latest fiber technology and contains capabilities such as video throughput that exceeds 100 megabits per second.

The UltraLine Series3 Gateway is a integral part of the triple play featuring internet, video and telephony capabilities. This is a strong product success in a market that will be a clear focus going forward. Our current timetable calls for us to begin shipping these orders next month, in August, with the intent of recognizing revenue in our fiscal third quarter of 2009 which is the calendar fourth quarter of 2008.

Additionally, we are planning to begin shipping orders for our ProLine modem products under the 22 state AT&T contract during our third fiscal quarter. Amy will provide more details on both of these exciting developments in her comments.

We expect the near term revenue in the current fiscal quarter for this segment to remain soft as the product mix continues to shift from our legacy DSL modem products towards our newer, latest technology offerings. We have indicated that this transition would take some time and that we thought it might be several quarters before our products will position in the sweet spot for additional significant revenue adds. We believe that time is quickly approaching.

These orders add to Westell's combined installed product base of over 20 million devices. This is a tremendous platform upon which to roll out products and services in adjacent vertical markets including home security, video monitoring, home control and media sharing.

We expect our new next generation products to contribute nearly 50% of fiscal year '09 CNE revenue.

Outside Plant - the strong results in this segment are best linked to the products that provide the necessary infrastructure to maintain ongoing communications. The products in this segment are the bridges and highways of the telecom industry and, just as highway infrastructure needs continuing maintenance and investment, so does telecom infrastructure. This type of business is not going away.

On our overall sales and marketing front we continue to explore our options with cable and wireless providers and are seeing good early results from our field trials with a major MSO in North America.

Before I turn the presentation over to Amy, I would like to close my portion of the call today with a few comments about the Company's near-term plans.

We are as frustrated with the current valuation as we perceive investors are and accordingly we believe a stock buyback is an excellent use of our capital at this time. As of next Monday our blackout restrictions will lift and we fully intend to take advantage of our existing share repurchase authorization.

Clearly, we are going to balance this short-term buying opportunity of our stock with the need for continued reinvestment in our product innovation cycle.

At September is annual meeting, I plan to discuss how we are going to achieve this balance and move towards faster growth and higher profitability. I cannot tell you today what that will entail but I can tell you that we are evaluating every aspect of our existing growth strategy to better understand what is working and what needs to be redesigned. We understand the importance of focusing and establishing an operational and strategic plan today that yields sustained business sets for the future.

And with that, I will turn the call over to our CFO, Amy Forster, who will discuss our financial results. Amy?

Amy Forster

Thank you, Bernie. Westell reported a net loss for the first quarter of fiscal 2009, of $5.5 million or $0.08 per diluted share compared to a net loss of $916,000 or $0.01 per diluted share for the first quarter of last year.

Total revenue from continued operations for the June 2008 quarter was $38.1 million compared to $44.2 million in the last quarter and $58.4 million in the first quarter of last year. These numbers exclude revenue from our subsidiary Westell Limited which is shown as "discontinued operations" in our financial statements.

Revenue by product line for the June quarter compared to the March quarter were as follows.

Customer networking equipment revenue decreased 37% to $10.7 million from $16.9 million. Outside plant equipment revenue increased 13% to $14.9 million from $13.2 million and Conferencing Services revenue decreased 11% to $12.5 million from $14.1 million.

The majority of the revenue decline was in our CNE products which declined $6.2 million from last quarter and $20.4 million from the same quarter of last year. The current quarter decline compared to last quarter resulted primarily from a decrease in units of legacy products sold to Verizon.

Also, revenue in the first quarter of fiscal 2008 included sales to BellSouth which we did not have in the first quarter of fiscal 2009.

We expect CNE revenue to grow in fiscal year 2009 as we start to ship the UltraLine Series3 Gateway to Verizon and ProLine modems to AT&T. We have initial orders of UltraLine Series3 representing over $20 million of revenue and we expect to receive more orders in the short-term for delivery in the current year.

While these shipments are expected to commence in the current quarter, the revenue recognition will be deferred until those unit are installed at end customer sites which is expected in our third fiscal quarter.

The first quarter ConferencePlus revenue decline was due primarily to the loss of revenue of its second largest customer. We anticipate revenue will decline an additional 13% in the current quarter due to this decline combined with seasonality as European and other countries vacation in the month of August.

The Company took actions in July to reduce and align costs at ConferencePlus as a result of this lower revenue that resulted in the termination of approximately 23 employees.

The equipment segment gross margin from continuing operations in the quarter was 28% compared to 17% in the prior quarter and 25% in the June 2007 quarter. The increase from last quarter was due primarily to excess and obsolete inventory expensed in the prior quarter and more efficient overhead absorption as well as a higher mix of OSP product in the current quarter. We expect equipment margin in the second quarter to be in the high 20's.

Service segment gross margin was 45% in the current quarter and 48% in the prior quarter and 50% in the first quarter of last year. The decline in the current quarter is due primarily to lower revenue.

We expect service margin to be in the high 40's for the second quarter.

Operating expenses for the current and last quarter were $18 million excluding restructuring Westell Limited and goodwill impairment expense. Operating expenses for the second quarter are expected to be $20 million and include $670,000 of severance expense and $800,000 of non-cash, stock-based compensation expense resulting from the immediate vesting of restricted stock to our former CEO.

Some other important points of interest for the quarter are as follows.

Just prior to the quarterly blackout the Company announced a $10 million share buyback program and purchased 29,000 shares under this program in the fourth quarter of fiscal 2008. The Company has been unable to purchase their shares since then due to an event-specific blackout imposed related to the ConferencePlus sale process and now, due to the quarterly blackout. We intend to commence buying again on Monday when the blackout period ends.

Cash and short-term investments excluding Contineo cash at the end of June was $59 million compared to a balance in March of $66 million. The decrease in the current quarter was due primarily to the payment of year-end bonuses, accrued severance and the distribution of a former CEO's deferred compensation.

Capital expenditures for the quarter were $1.2 million, non-cash items include depreciation expense of $1 million and tangible asset amortization of $460,000, and stock-based compensation expense of $375,000. And Verizon represented 31% of revenue for the quarter and AT&T was 16%.

I will conclude my remarks with a discussion of our guidance for the second quarter ending September 30th, 2008. We expect revenue for the second quarter to be in a range of $37 million to $39 million and we expect to incur a loss within a range of $0.10 to $0.11 per share with a full valuation allowance recorded on tax benefits generated in the period.

As a reminder, although we will start shipping our new UltraLine Series3 product in the current quarter, we will not recognize revenue on these shipments until all revenue recognition criteria are met.

I will now open the floor to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Carter Driscoll, CD Capital.

Carter Driscoll - CD Capital Partners

I would like to dig into some of these things. Obviously you guys are going to be restricted on what you can say about certain things before you actually address the change, obviously, at the top but I want to start with the order from Verizon. Can you talk about what you anticipate or how long that order will take to be fulfilled? Obvious it is going to be dependent largely upon custom installation, runrate, do you have an anticipation whether that should take three months, six months? How do you monitor that on an ongoing basis?

Amy Forster

Carter, this is Amy, so the question that I heard you say was, "How long will it take to fulfill Verizon orders that we have on the books?"

Carter Driscoll - CD Capital Partners

That is correct.

Amy Forster

As we stated in our scripted section, we currently have over $20 million of orders on the books and we expect to ship all of those in the current year and we also believe that we will receive more orders in the current year. We also believe that we are the first vendor to deploy this next generation VHR to Verizon and it is our goal to be the dominant supplier.

But what I would like to do is I would like to let Tim Pillow kind of talk more about the general market, FiOS market opportunity. Tim can you take that for me?

Tim Pillow

Sure. That would be great, Amy. So I guess the important thing as Amy points out is certainly the initial stocking orders that we have received are going to be shipped on the customers' shelves, if you would, ready to go into service over the next several months which is pleasing. And we actually, in addition to the initial stocking orders that we have received, we have now begun to receive some runrate orders. Again, consistent with their roll-out to customers in a set of targeted geographies.

The way they do this, Carter, as you might imagine is they do have -- continue to have two suppliers in this segment. We are, as Amy alludes, to be the first to introduce their second generation product so that has some uniqueness in terms of its ability to handle video streams, which of course is very important to FiOS with its ability to provide quality of service and superior wireless performance.

Carter Driscoll - CD Capital Partners

Can I interrupt for just one second, Tim, so I better understand this. So this is a unique product currently you have versus the other supplier, right now, to Verizon. So I guess what I am trying to better understand is how do they determine which of their new installs will get this modem? Is it all new installs going forward or is it people -- is it customers that indicate to Verizon that they might be on a particular service tier with them?

Tim Pillow

The way that they are actually managing their deployment is on a geographic basis. So they will award this business based on those geography allocations initially. And then over time as the other supplier introduces their second generation product they will make ongoing decisions relative to the percent of business awarded to each supplier.

Carter Driscoll - CD Capital Partners

But for right now you have the first product in the market?

Tim Pillow

That is correct.

Carter Driscoll - CD Capital Partners

For the second generation.

Tim Pillow

Correct.

Carter Driscoll - CD Capital Partners

Do you have an anticipation of when that competitor might introduce their second generation product?

Tim Pillow

We do. I do not want to talk out of school about my competition but suffice it to say that we believe we have a half a year lead, if you would, relative to the competitor.

Carter Driscoll - CD Capital Partners

You also mentioned that you have a second service provider that is utilizing the UltraLine Series3. Could you qualify that service provider as a tier 1, tier 2 or tier 3?

Tim Pillow

That is a tier 1 provider. It is a smaller, more regional provider. But they are similarly providing a full play high-speed internet, voice and video service to their subscriber and have selected our UltraLine Series3 to be the broadband home router, if you would, as part of those deployments.

Carter Driscoll - CD Capital Partners

So it is the same type of geography that Verizon's footprint covers?

Tim Pillow

It is not.

Carter Driscoll - CD Capital Partners

Well, thank you for that. I appreciate that color.

If I could just maybe move over to the Outside Plant business for a second. You obviously had, I think, very strong success in that marketplace to date. You tend to be, I would argue, the strongest player left in that marketplace.

Can you talk about some of the newer opportunities or some of the drivers currently for that business? Is it the enclosures? Is it just continued infrastructure, replacement cycle? And then maybe you could just talk briefly about the competitive situation and what still exists there?

Bernie Sergesketter

Carter we have with us today, and everyone on the call, Brian Powers who heads up that Outside Plant business unit for us so, Brian, I would like you to address that, please.

Brian Powers

Thank you, Bernie. I am pleased to kind of be the person that is taking the lead on the Outside Plant Systems business unit here at Westell. When coming in and picking up this responsibility we had a flat to decline business that has been being reported probably quarter-over-quarter, year-over-year in this business, primarily focused on the Telco's within the US.

And coming into this position I had no interest in managing a flat to decline business so the opportunities really lie in a refocus and repackaging of the products that were formerly NSA, now Outside Plant, to include enclosures, cabinets, next generation cabinets, to include demarcation, hand-off panels, to include remote monitoring devices as well as fuse panels and power distribution.

And those products lend themselves into other markets that we had not been addressing in the past which include the MSOs, the utility markets and the cable -- or the wireless carrier. So we are energized, we are focusing on growing that business into newer markets and we plan to also grow into a more international market. We are making headway in steps into Canada at the moment. But we will go on beyond Canada.

Carter Driscoll - CD Capital Partners

And can you talk just briefly about the competitive situation? It does not seem like there is a lot standing in your way right now.

Brian Powers

There are a number of competitors but being that we are kind of at the bottom of the totem pole, we have every opportunity to take market share away from people that are already in that space. There is some strong competition but we believe we have some flexibility with fast customization and unique time to market advantages as well as price advantages.

Carter Driscoll - CD Capital Partners

Can you talk about your customer concentration? Are there any issues there?

Brian Powers

My objective is to get more diversified. Today we sell to the major -- every major RBOC within the US. We sell to most of the distributors that serve most of the IOCs but our plan is to now expand into the MSOs, wireless and utility markets including OEM equipment manufacturers like the Alcatels and Tellabs and Atrium's of the world.

Carter Driscoll - CD Capital Partners

I appreciate that, Brian. And just so I do not hog all the questions, I want to talk briefly about ConferencePlus. Obviously you cannot talk about – you have been inundated, I am sure, with questions about whether it is for sale or not and you have obviously address it already, maybe just a couple of clarification points.

Your largest customer -- is your largest customer above 50% of total sales today?

Bernie Sergesketter

Tim Reedy is with us. He is the CEO of ConferencePlus. Tim?

Tim Reedy

Yes. This is Tim Reedy and, no, our largest customer – we have reduced that concentration over time. It is now about 25% of our overall sales.

Carter Driscoll - CD Capital Partners

That is an excellent job. Can you talk about the number of 10% customers you do have in total?

Tim Reedy

Outside of that customer we are now -- the rest of our customers, I believe, are below 10% customers.

Carter Driscoll - CD Capital Partners

And then you did have a noticeable drop in the contribution margin and alluded to the fact that it was revenue driven. But you do believe that this will bounce back even with the decline in your forecasted sales for the next quarter? Can you talk about the moving parts there?

Tim Reedy

Sure. We have got some of it related to revenue but we are also actually in the middle of migrating our telecommunications infrastructure to a new provider which is going to give us some significant cost reductions. We have had a little bit of that in July. We completed a major move last night. We are going to be doing disconnect orders on some of our fixed infrastructure next Monday. So going into the month of August we should see a reduction in our telecommunication costs and see the full effect of that in September.

Carter Driscoll - CD Capital Partners

I appreciate that. And maybe just a couple questions for Amy and I will turn it over to some other folks. Amy, you mentioned the $20 million should be fulfilled, you believe, in this calendar year. And you talked about that being roughly 50% of fiscal '09 revenues. So it implies that the DSL business has slowed down noticeably. Is that a business that you believe can grow over fiscal '09 or is it kind of a blocking and tackling to keep that kind of a flat revenue growth rate?

Amy Forster

Right. So, Carter, the nut of your question is, "Are we going to grow CNE revenue in FRONT YARD'09?"

Carter Driscoll - CD Capital Partners

Yes. That is really it. Obviously, the wildcard is the FiOS business and maybe the attraction that you can migrate the UltraLine Series3 and other service providers but you still have a decent sized business in the old legacy DSL modem side. I am just trying to segment those two businesses and try to understand them better.

Amy Forster

Right. And I am going to be a little bit restrictive in my comments because I do not want to give forward-looking revenue guidance. But we have already stated that the legacy revenue for the current quarter is a little bit soft. But we are very excited about fulfilling the new UltraLine Series3 product and we expect substantial revenue from that in the second half of our year.

Carter Driscoll - CD Capital Partners

Now AT&T might be a contributor for the replacing territory? The (inaudible) territory in the December quarter? Did I see that correct in the script?

Amy Forster

Yes. So we anticipate that that will start shipping in the second half of the year. So both quarters will – we are anticipating will have AT&T revenue.

Carter Driscoll - CD Capital Partners

Was that more just demand driven on their side? Were they working down excess inventory from previous vendors? Is it them just trying to better match up their ordering pattern with demand?

Amy Forster

Tim, can you help me with that?

Tim Pillow

It really just has to do with them having completed their evaluation and the approval for use process and introducing us again as a second supplier, if you would.

Carter Driscoll - CD Capital Partners

So that just took a couple quarters longer than you had originally anticipated last year?

Tim Pillow

Correct.

Carter Driscoll - CD Capital Partners

Okay. And then just finally, do you have an anticipation of what cash burn might be in this quarter, Amy?

Amy Forster

Yes. And I was asked that last call and as you know I do not give a specific number but directionally I can tell you we have given guidance that we will lose money for the quarter and, in addition to that with the business growing, I anticipate that there will be additional cash usages for funding of working capital such as accounts receivable.

Carter Driscoll - CD Capital Partners

So it might be similarly and slightly higher to this quarter?

Amy Forster

Again, I do not want to give a specific number but directionally that is accurate.

Carter Driscoll - CD Capital Partners

Had to try! I will turn it over. Thanks very much, everyone, for answering my questions.

Operator

Todd Koffman, Raymond James.

Todd Koffman - Raymond James & Associates, Inc.

Thank you. Can I just get a clarification from a question that was already asked and that was with regard to this $20 million order that you received, you said you expect to ship against that order starting in August and finishing before the end of the calendar year 2008. Is that what you said?

Amy Forster

This is Amy. Yes. That is correct.

Todd Koffman - Raymond James & Associates, Inc.

And so since -- you also said that you are not going to recognize revenue against those shipments in the current quarter. That it would -- is it fair to assume you expect if the shipments all happen before the end of the calendar year, you will recognize the full $20 million from that order in the December quarter of calendar 2008?

Amy Forster

That is fair, as well.

Todd Koffman - Raymond James & Associates, Inc.

And then, thank you, just one last follow-up. I am sort of guesstimating that that order is for roughly a couple 100,000 units, call it 250,000 units and when I look at the Verizon FiOS new net add number, it sort of reconciles which is leading me to believe that you are going to expect to capture, based on those two numbers, the 250,000 units and then the number they sign on, the majority of their business during that period or are they just going to build inventory and use your product over the next subsequent quarters? Just any color on that?

Bernie Sergesketter

Tim, do you want to address that?

Tim Pillow

Sure. So Verizon FiOS is public information for next year in the case that they expect to add over 2 million subscribers in calendar 2009 and we certainly expect to capture more than our fair share, if you would, of that addressable business. So that is extremely significant from a runrate perspective and if you look out into their 0'10 kind of timeframes they are talking about an excess of 2.5 to close to 3.0 million net adds per year being their target.

So, again, based on our product is performance, based on some of the differentiating features that we have alluded to in the second generation of product, we think we are strongly positioned to participate that in a very, very meaningful way.

Todd Koffman - Raymond James & Associates, Inc.

Very helpful. One last question, what would be the timing that you would expect to receive, then, a follow-on orders as it relates to those numbers you just threw out. Would that be before the end of calendar 2008 or is that more likely the follow-on order in calendar 2009?

Tim Pillow

We would expect to receive a further order or orders before the completion of this calendar year.

Todd Koffman - Raymond James & Associates, Inc.

Congratulations. Good luck.

Tim Pillow

Thanks very much.

Operator

Thank you. David Weissman, Zacks Investment.

David Weissman - Zacks Investment Research , Inc.

I have a couple questions. One is regarding the trend on the DSOs, the day sales outstanding, and were we not to about 44? Can you provide any visibility on what product lines or any events that might have taken place to bring that number up?

Amy Forster

Yes. This is Amy. Really a lot of the DSO data depends on payment -- timing of payments of accounts receivable. So I would say a large function of that calculation really can be swayed or skewed based on large payments and whether they come in before the quarter ends or after the quarter ends. So that is one factor of it. The other factor is that revenue is down for the quarter, as well. So when you annualize that and do that calculation I think that will push the number up a little bit.

David Weissman - Zacks Investment Research, Inc.

And based on the fact that we are expecting gross margins to dip into the 20%, I believe that is because of the new product lines being rolled out with the lower margins, cash burn continuing, my question is how are you going to be able to balance a buyback plan with maintaining the ongoing current stability of the balance sheet?

Amy Forster

So the question is, "How will we maintain the cash needs from a buyback versus an operational cash/cash need?"

David Weissman - Zacks Investment Research, Inc.

Correct.

Amy Forster

And the answer to that is, I am going to again really just talk about the upcoming quarter. We believe we have sufficient cash to balance both of those requirements in the quarter.

David Weissman - Zacks Investment Research, Inc.

And that is irregardless of what I heard about expansion outside the US, Canada, and it looks like you are moving outside those regions, as well?

Amy Forster

Yes. I do not think that really impacts our cash burn.

David Weissman - Zacks Investment Research, Inc.

Thank you.

Operator

Thank you. Brad Evans, Heartland.

Brad Evans – Heartland Group Inc.

I guess just as a follow-on to that last question, I guess I am just a little alarmed that you appear to be looking at just the next quarter and I think the production and the cash on a sequential basis as well as, again, the management team and the Board is seemingly low or high appetite for operating losses just seems incongruous with just looking at the next quarter. And I think the last question was more geared towards what is management doing to ensure a stable foundation from a liquidity perspective both from a balance sheet perspective as well as from every public company should try to make money.

And, clearly, the forecast is disappointing to see continued operating losses and negative cash flow. So can you just respond to – I am a little concerned why you are just looking at just the next quarter. Any response to that, please?

Amy Forster

Yes. I will take that Bernie. First of all, negative cash flow for the next quarter is something that I have commented on. We do look at more of a forward looking analysis internally but because we only give guidance for a quarter, that is what I am prepared to talk about on this call.

Bernie Sergesketter

Yes. Just to follow-up with what Amy said. That is always been our policy at Westell is to only give guidance for the next quarter. I want to assure you we are looking beyond this next quarter and, in fact, that is the primary responsibility that I have right now to do that long-range plan. And, as I mentioned in my prepared remarks, at September is annual Meeting I will discuss how we are going to achieve the balance and move towards both faster growth and higher profitability. We are definitely focused on the return to profitability.

Brad Evans - Heartland Group Inc.

Can you just talk about what tools you have at your disposal in the next few months to try to balance your costs with the current revenue runrate making an assumption that things maybe will not get better?

Bernie Sergesketter

The question is, what tools do we have to address return to profitability?

Brad Evans - Heartland Group Inc.

Yes. The question is, what tools do you have at your disposal to get your costs in line with your revenue runrate?

Bernie Sergesketter

Well, we have a product line that is, as I mentioned, it is in transition but we have what we believe are outstanding results in terms of customer acceptance of our newest technology and that we are a leader in the marketplace in terms of the fiber-based technology in terms of the CNE part of the business.

In terms of the Outside Plant business, we are profitable. We have got double-digit revenue growth and our -- have been profitable and continue to be very profitable with strong margins in that business. And on the ConferencePlus we have always had good profitability in the conferencing business. We think conferencing business with the energy crisis is going to grow and be a strong business. We have an outstanding group of professional, talented and motivated employees here and our outsourcing of product to Asia went well and continues to go well, no problems. So I think we have a strong set of tools.

Brad Evans - Heartland Group Inc.

I am sorry just to be belaboring on this point -- do you have, in your short tenure, do you have a brief understanding of where you might have opportunities to lower costs further?

Bernie Sergesketter

Well, I -- it would be premature for me to comment on that today. I have just been here since July 8th; but, yes, ideas are formulating and I will be prepared to address that in detail in September -- at the Annual Meeting September 18th. It is less than, what, it is seven weeks from now.

Brad Evans - Heartland Group Inc.

Would you expect negative -- when you look at the operating cash flows this quarter and your forecast for this quarter, would you expect to become cash flow positive or neutral as you look out to the second half of 2009?

Bernie Sergesketter

Well, again, our policy is not to comment on that and -- but we are in a strong cash position.

Brad Evans - Heartland Group Inc.

I guess the market is concern – we are on the road of what would be considered profitless prosperity, growth with no profitability and we are depleting our cash balances. You would think that with the stock trading at $0.80 might inspire a change in strategy or a change in your policy to perhaps provide some better visibility to investors so there is some certainty that the Company is taking actions to return to an operating cash flow positive performance. Do you have a thought on that at all? Is that a ridiculous request from a shareholder?

Bernie Sergesketter

No. It is a very reasonable request and that is exactly what we are about, exactly. And, as I just mentioned, I will report on that in detail in seven weeks.

Brad Evans - Heartland Group Inc.

I just have to tell you I find these results to be somewhat disappointing but more so in the fact that, again, as we have spoken privately, the Board is tolerance for the red ink and the bleeding of cash flow is profoundly confusing and frankly disappointing to me. And I am surprised that the Board seems to have very -- seems like they have a limited sense of urgency to restore shareholder value. And you would think the stock trading at $0.80 might inspire people to take some action but it sounds like you have not given us much to chew on here so I would urge you to do that.

Bernie Sergesketter

Thank you.

Operator

Carter Driscoll, CD Capital.

Carter Driscoll - CD Capital Partners

Just some housecleaning, Amy, what is headcount ending June and in anticipation for what it will be in September?

Amy Forster

Yes. Will you hold one second for me, please?

Carter Driscoll - CD Capital Partners

Sure.

Amy Forster

We ended headcount in June with 514 and we did additional cuts at ConferencePlus, as I indicated, of about 23 people. So we should see reductions in the current quarter.

Carter Driscoll - CD Capital Partners

I do not know if you ever provided splits in ConferencePlus and the equipment business. Can you do that or no?

Amy Forster

I can. Yes. At the end of June ConferencePlus was about 291 employees out of 514.

Carter Driscoll - CD Capital Partners

Thanks very much, guys. Good luck.

Bernie Sergesketter

Thank you, Carter.

Operator

(Operator Instructions) Mohammed Ahmad, Beeham Capital Management.

Mohammed Ahmad - Beeham Capital Management

Question is about ConferencePlus. Revenues have been somewhat stagnant over the several years, I guess. Could you talk to us more about the investments in ConferencePlus that grow the top line?

Bernie Sergesketter

Tim?

Tim Reedy

Yes. This is Tim Reedy. And we actually grew last fiscal year 11% on our revenue on a year-over-year basis so we had strong momentum in the past. We are going to take a little bit of a hit with our second largest customer this year but we are looking at different opportunities to grow the business not only organically but also through some acquisitions of smaller, either reseller bases or customers, bases that bring us potential for not only adding top line but significantly improving our bottom line and adding operating profit.

Mohammed Ahmad - Beeham Capital Management

And Amy, on the G&A line for this quarter, there was a normalized increase. I think you went over it but can you please go over it again if possible?

Amy Forster

Sure. I probably did not get into the specifics so let me help you with that. G&A this quarter compared to the same quarter last year was pretty flat. And in the prior quarter of last year we had some one-time costs for a consultant that was helping us outsource our manufacturing. In the current period we had some higher legal fees that were resulting from the FCC investigation. We are hoping that those fees will go down in the future. Does that answer your question, Mohammed?

Mohammed Ahmad - Beeham Capital Management

So the normalized increase was solely due to the legal fees?

Amy Forster

Yes, primarily.

Mohammed Ahmad - Beeham Capital Management

I see. I guess my last question is more of a big picture question. In the past, management has considered strategic alternatives for ConferencePlus and you know that review concluded recently. Given the current state of things in stock price, the nature of the business, the interim nature of the CEO position, is management or is the Board, I guess, willing to consider strategic alternatives for the business as a whole in order to restore shareholder value, touching base on the previous caller's (inaudible).

Bernie Sergesketter

John Seazholtz, would you like to address that?

John Seazholtz

As we said in our earlier remarks, we have looked forward to growing the ConferencePlus business. As a result of the fact that we were not successful in coming to an agreement on a final contract, we had a conceptual agreement but when we got to details, as always the case with two parties, we did not come to agreement there.

We are continuing to look at our alternatives. We intend to grow that business. As Bernie mentioned we have a small acquisition. We are continuing to explore that. Tim is aggressively working these issues and we intend to support him in growing that business.

And in regards to the CNE business, similarly as you heard in detail, while this quarter and next quarter are not recognizing the Verizon revenue, the rest of the year will. We expect a significant improvement in that picture based on our current plans.

Mohammed Ahmad - Beeham Capital Management

I hear you but the market thinks otherwise for the time being.

John Seazholtz

That may be but we have access to the specifics of -- that are in back of our remarks and stand by them.

Mohammed Ahmad - Beeham Capital Management

I hear you. I completely -- I hear what you are saying but just like you were willing to consider strategic alternatives for one side of the business or one part of the business, I mean, in order to restore shareholder value are you considering for the whole business or maybe keeping ConferencePlus and getting rid of CNE and the other business or actionable issues that might placate some shareholders or might restore confidence in the Company as a whole or in the Board?

John Seazholtz

Well, clearly our interest is in growing the business profitably and that says -- having said that, it does mean that all alternatives are up for consideration and that is part of what Bernie is doing his deep dive into.

Bernie Sergesketter

Yes. We will have, as I mentioned earlier, September 18th we will address what you are asking about in detail.

John Seazholtz

Let me make sure -- we are committed to grow this business and that is our path. We are not (inaudible) a detailed strategic plan. That would not be in our competitive interests. We are in very competitive markets so we are kind of constrained by our ability to describe in detail just to investors because, at the same time, what we tell you, we are telling our competitors.

Mohammed Ahmad - Beeham Capital Management

Sure. Thanks.

Bernie Sergesketter

Thank you.

Operator

Todd Koffman, Raymond James. Todd Koffman, your line is now open, please state your question.

Todd Koffman - Raymond James & Associates, Inc.

Can you hear me now? A loosely related question to that prior question. Was the decision to downsize the staff on ConferencePlus made before or after the decision to not divest this business? It seems odd that you are downsizing a business that you think is worth more than other parties thought.

Bernie Sergesketter

Tim?

Tim Reedy

Yes. This is Tim Reedy and the decision was made after any and all activities related to the potential divestiture of ConferencePlus and it was just really in relation to the loss of a bigger piece of the second largest customer than what we thought originally was going to happen. So we have less need for some of our frontline staff at this current point in time. But as market conditions change and we grow our revenue, we expect to be back in a hiring mode into the future.

Todd Koffman - Raymond James & Associates, Inc.

Thank you.

Operator

Thank you. There are no further questions at this time.

Bernie Sergesketter

Well, thank you everyone for joining us and as I mentioned before we will have a webcast at our Annual Meeting on September 18th. Thank you very much.

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