Tag Archives: Turnaround

Wireless Infrastructure Microcap Turnaround: Not the Westell You Knew > Decade Ago

Full disclosure – wireless telecom equipment co. Westell Technologies, Inc. (Nasdaq: WSTL ) is a new client of our our parent, investor relations firm Catalyst Global, but we wouldn’t write this if we didn’t think this idea would reflect well on CG Focus List

Westell Technologies, Inc. (WSTL) is an attractively valued, well funded turnaround story in wireless telecom infrastructure solutions. With the rapid growth in mobile devices & content access – Westell seems well positioned to help infrastructure providers meet this growing demand by better leveraging their existing resources in a cost effective manner.

Catalyst Global’s charge is to raise WSTL’s profile amongst small and microcap investors and as part of that effort, Westell will be presenting at the LD Micro “Main Event” Conference on Dec. 3rd in Los Angeles and at the Benchmark Company Micro Cap Conference in Chicago on December 10th.

Further, Westell will report Q2 results on Weds. Oct. 28th and host a call Thurs., Oct 29th at 9:30 a.m. ET: Q2 Call/Webcast Details – October 29th @ 9:30 am ET

Westell is progressing through a turnaround let by a talented and wholly new senior management team most of whom joined in 2015, including:

  • CEO – Tom Gruenwald (Tellabs & AT&T) – Feb. 2015
  • CFO – Tom Minichiello (Tellabs, United Technologies & Andrew) – 2013
  • SVP WWide Sales – Brian Brouillette (HP, Juniper & Net Optics) – 2015
  • SVP WWide Sales – Chuck Bernstein (TeleCommunication, Tellabs) – 2015
  • CTO – Mike Moran (Alcatel, Netscout, MacAfee & Tellabs) – 2015

Westell’s new team put up a solid performance in the June quarter (their Q1) and are working to achieve further top line and bottom line operating improvements – moving toward a breakeven revenue range of $25-$27M.

Westell’s new team is refocusing the company on new products, new customers and additional markets. They are also making significant headway in cost reductions and margin enhancements in an effort to return to profitability.

  • 
+16% sequential sales growth to $21.6M in Q1’16 (June) with improving gross margin vs. March sales of $18.6M but down from year-ago sales of $27.8M
  • Coming launch of new distributed antenna system will expand product offerings for rapidly growing market for in-building wireless solutions. In-building solutions involve improving the efficiency and quality of wireless service in buildings and other venues to better leverage the existing wireless towers & infrastructure. In-building addresses user experience as well as operator costs – making it a win-win area of opportunity.
  • Existing intelligent cell site management, cell site optimization and rugged outside plant cabinet product lines also offer solid growth potential.

One potential demand stimulus for WSTL could be phase 2 of the Connect America Fund (CAF) The second phase of CAF provides funding for ongoing support to deploy and maintain fixed-location broadband and voice services in high-cost areas at rates comparable to those offered in urban areas. Connect America Fund Background

Valuation: Westell FY 2015 revenues were $84.5M and its enterprise value is $33M, net of $37M in cash, for an EV/sales multiple of 0.4X compared to the average telecom equipment group multiple of 1.1X EV/sales.

Westell’s market cap is $70M with 61M shares outstanding [46.9M Class A & 13.9 Class B] based on recent price of $1.15 (with $0.61 cents per share in cash). WSTL also has $39M in deferred tax assets.

Institutional Ownership: WSTL has attracted solid value-oriented institutional interest with Cove Street, Heartland and Royce owning respectively 15%, 2% and 1.4% of shares outstanding, the latter two funds reflecting well on the underlying investment value of Westell.

Coverage: Just one analyst covers the Company currently – Mike Latimore of Northland Securities in Minneapolis. His report is available on Westell’s IR website.

Changes at Westell Remain Unknown: In closing, while we have found that the Company name has good investor recognition, it’s clear that investor perceptions are generally based on old news – often a decade or older when he Company was much more wireline focused and a major provider of DSL modems.

The prior team sold off the legacy businesses – except the outdoor equipment business – and through M&A built a portfolio of products focused on wireless. And now an entirely new team is rebuilding the sales & marketing effort while also investing in R&D for in-building wireless solutions, in an effort to rekindle growth, and honing in on efficiency and cost reduction opportunities to drive bottomline. The transformation so far in 2015 seems to remain a fairly low profile development.

Now it’s up to the team to execute and like most small companies, it’s probably more of a bumpy ride forward than a linear progression – but they do seem to be focused on the right things have have a solid set of initiatives that make sense for driving improved financial performance, all with a balance sheet that provides the company with as much time as it needs.

Should you have questions or wish to speak to management, please call Tanya Kamatu at Catalyst Global at 212 924 9800 or wstl@catalyst-ir.com

Thanks for reading.

CG Focus List

October 23, 2015