Westell says FCC's CAF-II program will provide boost to outside plant revenues

As Westell's service provider customers use funding from the FCC's Connect America Fund (CAF-II) program to extend broadband into rural areas, it could provide a stream of long-term revenue for the company's outside plant division.

Speaking to investors during a third-quarter earnings call, Tom Minichiello, CFO of Westell, said that his company is seeing a number of its wireline customers start to make orders for its outside plant equipment like its VirtualEdge line.

"There is the program that's called CAF2, the Connect America Fund and that funding precipitates build outs over a number of years," Minichiello said. "And some of those folks are good customers of ours and so we're starting to see that revenue come in and we know that revenue will last over time. And it helps us a lot because it lets us manage our supply chain better. And again, lets us plan over the – out into the future."

In August 2015, ten of the top wireline service providers accepted a total of $1.5 billion in CAF-II funding, an FCC reform initiative that promises to bring broadband to an estimated 23 million Americans in rural uncovered areas.

Since the initial grant awards, requirements for the second buildout's implementation have been altered from 4/1 Mbps speeds to 10/1 Mbps, however. This has raised concern as the FCC earlier this year also changed the earmark for what constitutes broadband to 25 Mbps.

But CAF-II is just one of many opportunities for Westell.

Driven by gains in its In-Building Wireless (IBW) segment and Communication Solutions Group (CSG) segment, overall company revenue for the quarter was $20.2 million, up 44 percent year-over-year, while down sequentially as expected.

Westell said that IBW and CSG segment revenues for third quarter of 2016 were up year-over-year by 60 percent and 34 percent, respectively.

Due to the increased demand for passive DAS conditioners, the IBW segment rose year-over-year to $8.7 million, but declined sequentially due to the expected seasonal slowdown in sales of its active DAS conditioner, the Universal DAS Interface Tray (UDIT).

Higher revenues across all of its product categories -- Intelligent Site Management (ISM), tower mounted amplifier (TMA), and outside plant – drove up the CSG's revenues 34 percent year-over-year to $11.5 million. However, the sequential decrease was driven by what Westell said is the typical seasonal slowdown in sales of TMAs.

In other product news, Westell's cell site optimization line of business introduced a new TMA product shortly after the close of its most recent quarter, as well as a slippery monitoring fixture for use at macro cell sites. It is also updating its repeater product line this quarter. 

"Our ISM and outside plant lines are gaining momentum and we've had an active DAS conditioner, the Universal DAS Interface Tray or UDIT, product that has gained excellent traction and customer acceptance," said Tom Gruenwald, CEO of Westell during the earnings call. "And now a second product, ClearLink DAS that's near roll out."

The third quarter of 2016 was a transitional time for Westell.

During this period, the vendor rebuilt its management team, including naming a new CTO and VPs of IBW and engineering and outside plant. It also added new products such as our new tower mounted amplifier (TMA), and is progressing with trials and testing of our new ClearLink DAS solution.

"Following the end of this most recent quarter, we completed the build out of our management team, announcing in January the appointment of two executives: A permanent head of our IBW business, Rick Good; a seasoned and accomplished in building wireless professional and the Senior VP of Engineering and Outside Plant, Oscar Hernandez; a top product development executive with excellent business prudential," Gruenwald said.

For more:
- see the earnings release
- here's the earnings transcript (reg req.)

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