Westell Technologies, Inc. :WSTL-US: Earnings Analysis: Q4, 2017 By the Numbers : June 1, 2017

Westell Technologies, Inc. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Westell Technologies, Inc. – ADTRAN, Inc., NETGEAR, Inc., Cisco Systems, Inc., Juniper Networks, Inc., Emerson Electric Co., TE Connectivity Ltd., CommScope Holding Co., Inc. and Corning Inc (ADTN-US, NTGR-US, CSCO-US, JNPR-US, EMR-US, TEL-US, COMM-US and GLW-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 15.39 million, Net Earnings of USD -0.56 million.
  • Gross margins widened from 31.52% to 36.47% compared to the same period last year, operating (EBITDA) margins now 5.97% from -13.00%.
  • Year-on-year change in operating cash flow of 59.74% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 15.39 14.98 17.78 14.82 20.9
Revenue Growth (%YOY) -26.4 -25.88 -30.31 -31.31 12.31
Earnings (mil) -0.56 -1.81 -5.81 -7.77 -5.08
Earnings Growth (%YOY) 89.05 62.33 -134.94 -87.72 61.36
Net Margin (%) -3.61 -12.06 -32.68 -52.43 -24.29
EPS -0.01 -0.03 -0.09 -0.13 -0.08
Return on Equity (%) -4.25 -13.57 -41.03 -49.35 -29.39
Return on Assets (%) -3.32 -10.45 -32.37 -38.87 -23.06

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Market Share Versus Profits

Revenues History
Earnings History

WSTL-US‘s change in revenue this period compared to the same period last year of -26.40% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that WSTL-US is holding onto its market share. Also, for comparison purposes, revenues changed by 2.69% and earnings by 69.23% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 31.52% to 36.47% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -13.00% to 5.97% compared to the same period last year. For comparison, gross margins were 32.60% and EBITDA margins were 1.28% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

WSTL-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 209.29, compared to last year’s level of 200.32 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

WSTL-US‘s change in operating cash flow of 59.74% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -21.43% to -3.33% and (2) one-time items. The company’s pretax margins are now -3.37% compared to -24.42% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Westell Technologies, Inc.

Company Profile

Westell Technologies, Inc. provides in-building wireless, intelligent site management, cell site optimization, and outside plant solutions, which focuses on innovation and differentiation at the edge of telecommunication networks, where end users connect. It operates through three segments: In-Building Wireless, Intelligent Site Management & Services and Communications Network Solutions. The In-Building Wireless segment solutions include distributed antenna systems conditioners, digital repeaters and bi-directional amplifiers, system components and antennas, all used by wireless service providers and neutral party hosts to tune radio frequency signals that helps extend coverage to areas not served well by traditional cell sites. The Intelligent Site Management & Services segment provides intelligent site management solutions, which includes a suite of remote devices which provides machine to machine communications that enable operators to remotely monitor, manage, and control site infrastructure and support systems. Its service offerings include support agreements and deployment services. The Communications Network Solutions segment provides outside plant solutions, which includes a range of essential outdoor network infrastructure offerings, including integrated cabinets, power distribution products, copper and fiber network connectivity panels, and T1 network interface units. It also provides cell site optimization solutions including tower mounted amplifiers, outdoor hardened units mounted on cell towers, enabling wireless service providers to improve the overall performance of a cell site, including increasing data throughput and reducing dropped connections. The company was founded in October 1980 and is headquartered in Aurora, IL.

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