Westell Technologies, Inc.

Fourth-quarter fiscal 2020 revenue was $6.2 million versus $7.2 million in the prior quarter. Consolidated gross margin was 32.8%, down from 38.8% in Q3. GAAP operating expenses were $4.9 million, including a $1 million non-cash impairment charge tied to IBW licensing rights; non-GAAP operating expenses were $3.5 million, down from $3.7 million. GAAP net loss was $2.8 million, or $0.18 per share, versus a $1.5 million loss, or $0.10 per share, in Q3; non-GAAP net loss was $1.3 million, or $0.09 per share, versus $850,000, or $0.05 per share. Cash was $20.9 million at March 31, 2020, down from $22 million at December 31, 2019. Management said next quarter revenue is expected to be similar to last quarter, non-GAAP operating expenses should run $3.4 million to $3.7 million per quarter, and next quarter should be toward the low end of that range.

Tim Duitsman framed the quarter as difficult because of the pandemic, with lower March orders and delayed deliveries from suppliers, but said Westell stayed operational as an essential business. He emphasized a three-part growth strategy centered on in-building wireless, remote monitoring, and rural broadband, and said the company is developing new products and adding customers in those areas. His tone was cautious and candid: he repeatedly said he could not project the rest of the year because of COVID uncertainty and supply-chain disruptions.

Jeniffer Jaynes said the quarter’s revenue decline was driven by lower ISM and IBW sales, partly offset by stronger CNS revenue. She pointed to gross margin compression to 32.8% from 38.8%, caused by a vendor purchase order cancellation fee, higher consumable and period costs, and fixed costs spread over lower revenue, while also noting higher-cost alternative sourcing and expediting fees could pressure margins in the near term. She also highlighted the $1 million non-cash IBW impairment charge, non-GAAP operating expenses of $3.5 million, cash of $20.9 million, and expected non-GAAP operating expenses of $3.4 million to $3.7 million per quarter going forward.

Analysts pressed management on whether the company could still reach profitability in the second half of fiscal 2021, but Duitsman said he was not sure and could not project the rest of the year. Questions also focused on cost cuts, PPP forgiveness, inventory turns, and whether Westell could compete in its current state; management said discretionary spending has been sharply reduced, the PPP loan will be applied for forgiveness, and the company can compete because it is close to customers and can build custom solutions quickly. Analysts also raised strategic alternatives and the dual-class structure; Duitsman said the board has discussed alternatives but made no decisions, and he argued the main focus should remain on building a profitable business.