Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2017



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-27266

Westell Technologies, Inc.

(Exact name of registrant as specified in its charter)



DELAWARE		36-3154957
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

750 North Commons Drive, Aurora, IL		60504
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (630) 898-2500

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check or mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	¨	Accelerated Filer	¨

Non-Accelerated Filer	¨	Smaller Reporting Company	x

		Emerging Growth Company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of January 26, 2018:

Class A Common Stock, $0.01 Par Value – 12,117,569 shares Class B Common Stock, $0.01 Par Value – 3,484,287 shares

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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

FORM 10-Q INDEX



		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited) - As of December 31, 2017, and March 31, 2017	3
	Condensed Consolidated Statements of Operations (Unaudited) - Three and nine months ended December 31, 2017, and 2016	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) - Three and nine months ended December 31, 2017, and 2016	5
	Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - Nine months ended December 31, 2017	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine months ended December 31, 2017, and 2016	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	25
Item 4.	Controls and Procedures	25
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 6.	Exhibits	27
SIGNATURES		28

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained herein that are not historical facts or that contain the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “plan,” “should,” or derivatives thereof and other words of 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, customer spending patterns, need for financing and capital, economic weakness in the United States (“U.S.”) economy and telecommunications market, the effect of international economic conditions and trade, legal, social and economic risks (such as import, licensing and trade restrictions), the impact of competitive products or technologies, competitive pricing pressures, customer product selection decisions, product cost increases, component supply shortages, 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 technologies), the ability to successfully consolidate and rationalize operations, the ability to successfully identify, acquire and integrate acquisitions, effects of the Company’s accounting policies, retention of key personnel and other risks more fully described in the Company's Form 10-K for the fiscal year ended March 31, 2017, under Item 1A - 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.

Trademarks

The following terms used in this filing are the Company's trademarks: ClearLink®, Kentrox®, Optima Management System®, UDIT®, WESTELL TECHNOLOGIES®, and Westell®. All other trademarks appearing in this filing are the property of their holders.

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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)



	(unaudited)
	December 31, 2017			March 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	21,492		$	21,778
Short-term investments	4,537			—
Accounts receivable (net of allowance of $90 at December 31, 2017, and March 31, 2017)	11,070			12,075
Inventories	9,464			12,511
Prepaid expenses and other current assets	864			1,409
Total current assets	47,427			47,773
Land, property and equipment, gross	9,023			16,062
Less accumulated depreciation and amortization	(7,393		)	(14,078		)
Land, property and equipment, net	1,630			1,984
Intangible assets, net	12,482			15,624
Tax receivable, non-current	697			—
Other non-current assets	80			160
Total assets	$	62,316		$	65,541

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,494		$	4,163
Accrued expenses	3,528			4,273
Accrued restructuring	166			1,171
Deferred revenue	1,931			2,359
Total current liabilities	8,119			11,966
Deferred revenue non-current	912			1,102
Accrued restructuring non-current	—			63
Other non-current liabilities	341			236
Total liabilities	9,372			13,367
Commitments and contingencies (Note 9)
Stockholders’ equity:
Class A common stock, par $0.01, Authorized – 109,000,000 shares Outstanding – 12,117,569 and 12,015,043⁽¹⁾ shares at December 31, 2017, and March 31, 2017, respectively	121			120			⁽¹	⁾
Class B common stock, par $0.01, Authorized – 25,000,000 shares Issued and outstanding – 3,484,287⁽¹⁾ shares at December 31, 2017, and March 31, 2017	35			35			⁽¹	⁾
Preferred stock, par $0.01, Authorized – 1,000,000 shares Issued and outstanding – none	—			—
Additional paid-in capital	417,408			416,422			⁽¹	⁾
Treasury stock at cost – 4,628,795 and 4,440,600⁽¹⁾ shares at December 31, 2017, and March 31, 2017, respectively	(35,891		)	(35,335		)
Cumulative translation adjustment	—			608
Accumulated deficit	(328,729		)	(329,676		)
Total stockholders’ equity	52,944			52,174
Total liabilities and stockholders’ equity	$	62,316		$	65,541

⁽¹⁾ All common stock (except authorized shares), equity share, and per share amounts have been retroactively adjusted to reflect a one-for-four reverse stock split, which was effective June 7, 2017.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



	Three months ended December 31,							Nine months ended December 31,
	2017			2016				2017				2016
Revenue
Products	$	11,754		$	12,746			$	43,396			$	42,240
Services	1,921			2,237				4,085				5,339
Total revenue	13,675			14,983				47,481				47,579
Cost of revenue
Products	7,114			7,807				26,060				27,788			⁽¹⁾
Services	485			1,122				1,303				2,805
Total cost of revenue	7,599			8,929				27,363				30,593			⁽¹⁾
Gross profit	6,076			6,054				20,118				16,986			⁽¹⁾
Operating expenses
Research and development	1,542			2,414				6,023				10,018
Sales and marketing	1,950			1,943				6,278				8,220
General and administrative	1,502			1,777				5,022				6,340
Intangible amortization	1,047			1,212				3,142				3,613
Restructuring	—			490				165				3,055
Long-lived assets impairment	—			—				—				1,181
Total operating expenses	6,041			7,836				20,630				32,427
Operating profit (loss)	35			(1,782		)		(512		)		(15,441		)
Other income, net	79			(15		)		799			⁽²⁾	76
Income (loss) before income taxes	114			(1,797		)		287				(15,365		)
Income tax benefit (expense)	685		⁽³⁾	(10		)		660			⁽³⁾	(20		)
Net income (loss)	$	799		$	(1,807	)		$	947			$	(15,385	)
Net income (loss) per share:
Basic	$	0.05		$	(0.12	)	⁽⁴⁾	$	0.06			$	(1.00	)	⁽⁴⁾
Diluted	$	0.05		$	(0.12	)	⁽⁴⁾	$	0.06			$	(1.00	)	⁽⁴⁾
Weighted-average number of common shares outstanding:
Basic	15,504			15,391			⁽⁴⁾	15,482				15,315			⁽⁴⁾
Effect of dilutive securities: restricted stock, restricted stock units, performance stock units and stock options ⁽⁵⁾	251			—				197				—
Diluted	15,755			15,391			⁽⁴⁾	15,679				15,315			⁽⁴⁾

⁽¹⁾ The nine months ended December 31, 2016, includes $1.6 million of E&O expense for ClearLink DAS inventory and pipeline inventory. See Note 2.

⁽²⁾During the quarter ended September 30, 2017, the Company dissolved the NoranTel legal entity, which triggered a one-time foreign currency gain with the reversal of a cumulative translation adjustment. See Note 1.

⁽³⁾During the quarter ended December 31, 2017, the Company had income tax benefit from the release of the tax valuation allowance associated with previously generated alternative minimum tax (AMT) credits due to the enacted Tax Reform. See Note 8.

⁽⁴⁾All common stock (except authorized shares), equity share, and per share amounts have been retroactively adjusted to reflect a one-for-four reverse stock split, which was effective June 7, 2017.

⁽⁵⁾ The Company had 0.2 million and 0.4 million shares represented by common stock equivalents for the three and nine months ended December 31, 2017, and 1.0 million and 1.3 million shares represented by common stock equivalents for the three and nine months ended December 31, 2016, which were not included in the computation of average dilutive shares outstanding because they were anti-dilutive. In periods with a net loss from continuing operations, the basic loss per share equals the diluted loss per share as all common stock equivalents are excluded from the per share calculation.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)



	Three months ended December 31,					Nine months ended December 31,
	2017		2016			2017			2016
Net income (loss)	$	799	$	(1,807	)	$	947		$	(15,385	)
Other comprehensive income (loss):
Foreign currency translation adjustment ⁽¹⁾	—		—			(608		)	—
Total comprehensive income (loss)	$	799	$	(1,807	)	$	339		$	(15,385	)

⁽¹⁾ During the quarter ended September 30, 2017, the Company dissolved the NoranTel legal entity, which triggered a one-time foreign currency gain with the reversal of a cumulative translation adjustment. See Note 1.

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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)



	Common Stock Class A			Common Stock Class B		Additional Paid-in Capital			Treasury Stock			Cumulative Translation Adjustment			Accumulated Deficit			Total Stockholders’ Equity
Balance, March 31, 2017 ⁽¹⁾	$	120		$	35	$	416,422		$	(35,335	)	$	608		$	(329,676	)	$	52,174
Net income	—			—		—			—			—			947			947
Translation adjustment ⁽²⁾	—			—		—			—			(608		)	—			(608		)
Common stock issued	3			—		(2		)	—			—			—			1
Purchase of treasury stock	(2		)	—		—			(556		)	—			—			(558		)
Stock-based compensation	—			—		988			—			—			—			988
Balance, December 31, 2017	$	121		$	35	$	417,408		$	(35,891	)	$	—		$	(328,729	)	$	52,944

The accompanying notes are an integral part of these Consolidated Financial Statements.

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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Nine months ended December 31,
	2017			2016
Cash flows from operating activities:
Net income (loss)	$	947		$	(15,385	)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization	3,747			4,714
Long-lived assets impairment	—			1,181
Stock-based compensation	988			1,346
Loss on sale of fixed assets	10			11
Restructuring	165			3,055
Deferred taxes	(697		)	20
Gain on disposal of foreign operations	(608		)	—
Exchange rate loss (gain)	(20		)	44
Changes in assets and liabilities:
Accounts receivable	1,025			5,098
Inventories	3,047			509
Prepaid expenses and other current assets	545			494
Other assets	80			(7		)
Deferred revenue	(618		)	686
Accounts payable and accrued expenses	(3,542		)	(6,802		)
Net cash provided by (used in) operating activities	5,069			(5,036		)
Cash flows from investing activities:
Maturities of held-to-maturity short-term debt securities	—			12,621
Maturities of other short-term investments	474			—
Purchases of held-to-maturity short-term debt securities	—			(2,066		)
Purchases of other short-term investments	(5,011		)	—
Purchases of property and equipment	(261		)	(527		)
Net cash provided by (used in) investing activities	(4,798		)	10,028
Cash flows from financing activities:
Purchases of treasury stock	(558		)	(146		)
Payment of contingent consideration	—			(175		)
Net cash provided by (used in) financing activities	(558		)	(321		)
Gain (loss) of exchange rate changes on cash	1			2
Net increase (decrease) in cash and cash equivalents	(286		)	4,673
Cash and cash equivalents, beginning of period	21,778			19,169
Cash and cash equivalents, end of period ⁽¹⁾	$	21,492		$	23,842

⁽¹⁾ As of December 31, 2017, the Company has $4.5 million of short-term investments in addition to cash and cash equivalents. See Note 10.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

Reverse Stock Split

All common stock, equity, share and per share amounts in the financial statements and notes have been retroactively adjusted to reflect a one-for-four reverse stock split, which was effective June 7, 2017.

Description of Business

Westell Technologies, Inc. (the Company) is a holding company. Its wholly owned subsidiary, Westell, Inc., designs and distributes telecommunications products, which are sold primarily to major telephone companies. During the second quarter ended September 30, 2017, the Company dissolved Noran Tel, Inc. (NoranTel) a wholly owned subsidiary of Westell, Inc. NoranTel's operations have been fully incorporated into Westell, Inc. As a result of the wind-up of NoranTel, the Company recognized a one-time $0.6 million foreign currency translation gain, which is presented in Other income, net on the Condensed Consolidated Statements of Operations.

Basis of Presentation and Reporting

The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. The Condensed Consolidated Financial Statements have been prepared using generally accepted accounting principles (GAAP) in the United States for interim financial reporting, and consistent with the instructions of Form 10-Q and Article 10 of Regulation S-X and, accordingly, they do not include all of the information and footnotes required in the annual consolidated financial statements and accompanying footnotes. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2017. All intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, the unaudited interim financial statements included herein reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s condensed consolidated financial position and the results of operations, comprehensive income (loss) and cash flows at December 31, 2017, and for all periods presented. The results of operations for the periods presented are not necessarily indicative of the results that may be expected for fiscal year 2018.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and that affect revenue and expenses during the periods reported. Estimates are used when accounting for the allowance for uncollectible accounts receivable, net realizable value of inventory, product warranty accrued, relative selling prices, stock-based compensation, intangible assets fair value, depreciation, income taxes, and contingencies, among other things. Actual results could differ from those estimates.

U.S. Tax Reform

See Note 8, Income Taxes for a discussion of the impact of the recently enacted U.S. Tax Reform legislation.

Recently Adopted Accounting Pronouncements

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (ASU 2015-11). The core principle of the guidance is that an entity should measure inventory at the "lower of cost and net realizable value" and options that currently exist for "market value" will be eliminated. The ASU defines net realizable value as the "estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation." The Company adopted ASU 2015-11 on April 1, 2017. The adoption of this ASU did not have a material impact to the Company's Consolidated Financial Statements or related disclosures.

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Recently Issued Accounting Pronouncements Not Yet Adopted

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09). ASU 2017-09 clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The standard is effective for annual periods, and interim periods within those annual reporting periods, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the potential impact ASU 2017-09 will have on the Company's Consolidated Financial Statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). ASU 2016-16 requires the recognition of current and deferred income taxes for intra-entity asset transfers when the transaction occurs. ASU 2016-16 is effective for annual periods, and interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted. ASU 2016-16 is effective for the Company in the first quarter of fiscal 2019, and the Company is currently in the process of evaluating the potential impact of adoption of this updated authoritative guidance on the Company's Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flow (Topic 230) (ASU 2016-15). This update is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The update provides new guidance regarding the classification of debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies,

distributions received from equity method investments, beneficial interests in securitized transactions, and separately identifiable cash flows and application of the predominance principle. This standard will be effective for financial statements issued by public companies for annual periods, and interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption of the standard is permitted. The standard will be applied in a retrospective approach for each period presented. The Company does not anticipate any immediate impact to the Company upon adoption of ASU 2016-15 as the Company currently does not have any debt.

In February 2016, the FASB issued ASU 2016-02, Leases (ASU 2016-02). In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842) (ASU 2017-13), which provides additional implementation guidance on the previously issued ASU 2016-02. ASU 2016-02 requires lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease term of more than one year. ASU 2016-02 is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The new standard requires a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting for leases that expire prior to the date of initial application. The Company is currently evaluating the impact that ASU 2016-02 will have on the Company's Consolidated Financial Statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASU 2014-09), that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. ASU 2014-09 is initially scheduled to become effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period; early adoption is not permitted. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) — Deferral of the Effective Date (ASU 2015-14), which defers the effective date of ASU 2014-09 for one year and permits early adoption as early as the original effective date of ASU 2014-09. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. In 2016, the FASB issued additional guidance to clarify the implementation guidance (ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients:and ASU 2016-20 (Topic 606) Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842). In November 2017, the FASB issued ASU 2017-14, Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from

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Contracts with Customers (Topic 606). These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09.

The Company commenced the assessment of ASU 2014-09 during the first quarter of fiscal year 2018 and developed a project plan to guide the implementation. This project plan includes analyzing the standard’s impact on the Company’s contract portfolio, comparing historical accounting policies and practices to the requirements of the new standard and identifying potential differences from applying the requirements of the new standard to its contracts. The Company will draft an updated accounting policy, evaluate new disclosure requirements and identify and implement appropriate changes to business processes, systems and controls to support recognition and disclosure under the new standard. The Company continues to evaluate the impact this new standard will have on the current contracts with customers. The Company expects to adopt this new standard effective April 1, 2018, using the modified retrospective method that may result in a cumulative effect adjustment as of the date of adoption. The Company expects to complete its analysis on the impact to its Consolidated Financial Statements prior to the first quarter of fiscal year 2019. The Company will continue to monitor additional changes, modifications, clarifications or interpretations related to this guidance and the impact it will have on the Company's Consolidated Financial Statements and related disclosures.

Significant Accounting Policy Update

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount less payment discounts and estimated allowance for doubtful accounts. The Company provides allowances for doubtful accounts related to accounts receivable for estimated losses resulting from the inability of its customers to make required payments. The Company takes into consideration the overall quality of the receivable portfolio along with specifically identified customer risks. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations to the Company, the Company provides allowances for bad debts against amounts due to reduce the net realized receivable to the amount it reasonably believes will be collected. In certain of the Company’s contracts, contractual billings do not coincide with revenue recognized on the contract. Unbilled accounts receivable represent revenue recorded in excess of amounts billable pursuant to contract provisions and, generally, become billable at contractually specified dates. Unbilled amounts are expected to be collected within one year. As of December 31, 2017 there was $220,000 of unbilled accounts receivable on the Condensed Consolidated Balance Sheets presented in Accounts Receivable. There was no unbilled accounts receivable as of March 31, 2017.

Note 2. Restructuring Charges

In the nine months ended December 31, 2017, the Company recorded a restructuring expense of $0.2 million related to employee termination costs that spanned all three segments (the 2018 restructuring).

In the second quarter of fiscal year 2017, the Company approved a restructuring plan (the 2017 restructuring), including discontinuing development of the ClearLink Distributed Antenna System (DAS), a general reduction of headcount that spanned all three segments, and consolidation of facilities in Manchester, NH and Aurora, IL. The Company recognized a restructuring expense of $0.5 million and $3.1 million in the three and nine months ended December 31, 2016. The 2017 restructuring costs totaled $3.2 million in the twelve months ended March 31, 2017, inclusive of non-cash charges of approximately $1.2 million related to losses on leased facilities, $1.3 million of employee termination costs, and $0.7 million of other associated costs. In the nine months ended December 31, 2016, a $1.2 million impairment charge of fixed assets and $1.6 million of E&O expense for ClearLink DAS inventory and pipeline inventory, associated with the IBW segment was recognized. The planned restructuring was substantially completed by March 31, 2017.

As of December 31, 2017, $0.2 million of the restructuring costs, related to the office space from the 2017 restructuring, are unpaid and accrued on the Condensed Consolidated Balance Sheets presented in Accrued restructuring. As of March 31, 2017, $1.2 million and $63,000 of the restructuring costs, primarily related to the office space from the 2015 restructuring and 2017 restructuring, were unpaid and accrued on the Condensed Consolidated Balance Sheets presented in Accrued restructuring and Accrued restructuring non-current, respectively. The restructuring costs are expected to be paid in full by the first quarter of fiscal year 2019 concurrent with the termination date of the contractual lease in Manchester, NH.

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Total liability for restructuring charges and their utilization for the nine months ended December 31, 2017, are summarized as follows:



	Nine months ended December 31, 2017
(in thousands)	Employee-related			Other costs			Total
Liability at beginning of period	$	—		$	1,234		$	1,234
Charged	165			—			165
Paid	(165		)	(1,068		)	(1,233		)
Liability at end of period	$	—		$	166		$	166

Note 3. Interim Segment Information

Segment information is presented in accordance with a “management approach", which designates the internal reporting used by the chief operating decision-maker (CODM) for making decisions and assessing performance as the source of the Company's reportable segments. Westell’s Chief Executive Officer is the CODM. The CODM continues to define segment profit as gross profit less research and development expenses. The accounting policies of the segments are the same as those for Westell Technologies, Inc. described in the summary of significant accounting policies included in the Company's Annual Report on Form 10-K for year ended March 31, 2017.

The Company’s three reportable segments are as follows:

In-Building Wireless (IBW) Segment

The IBW segment solutions enable cellular coverage in stadiums, arenas, malls, buildings, and other indoor areas not served well or at all by the existing "macro" outdoor cellular network. For commercial service, the IBW segment solutions include distributed antenna systems (DAS) conditioners and digital repeaters. For the public safety market, the IBW segment solutions include half-watt and two-watt repeaters and a battery backup unit. The Company’s IBW segment also offers ancillary products that consist of passive system components and antennas for both the commercial and public safety markets.

Intelligent Site Management and Services (ISMS) Segment

The ISMS segment solutions include a suite of remote units which provide machine-to-machine (M2M) communications that enable operators to remotely monitor, manage, and control site infrastructure and support systems. Remote units can be and often are combined with the Company’s Optima management software system. The Company also offers support agreement services (i.e., maintenance) and deployment services (i.e., installation).

Communications Network Solutions (CNS) Segment

The CNS segment solutions include a broad range of outdoor network infrastructure offerings consisting of integrated cabinets, power distribution products, copper and fiber connectivity panels, T1 network interface units (NIUs), and tower mounted amplifiers (TMAs).

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Segment information for the three and nine months ended December 31, 2017, and 2016, is set forth below:



	Three months ended December 31, 2017
(in thousands)	IBW			ISMS			CNS			Total
Revenue	$	5,223		$	5,802		$	2,650		$	13,675
Cost of revenue	2,754			2,642			2,203			7,599
Gross profit	2,469			3,160			447			6,076
Gross margin	47.3		%	54.5		%	16.9		%	44.4		%
Research and development	750			547			245			1,542
Segment profit	$	1,719		$	2,613		$	202		4,534
Operating expenses:
Sales and marketing										1,950
General and administrative										1,502
Intangible amortization										1,047
Operating profit (loss)										35
Other income, net										79
Income tax benefit (expense)										685			⁽¹⁾
Net income (loss)										$	799

	Three months ended December 31, 2016
(in thousands)	IBW			ISMS			CNS			Total
Revenue	$	6,224		$	5,525		$	3,234		$	14,983
Cost of revenue	3,713			2,730			2,486			8,929
Gross profit	2,511			2,795			748			6,054
Gross margin	40.3		%	50.6		%	23.1		%	40.4		%
Research and development	1,307			805			302			2,414
Segment profit	$	1,204		$	1,990		$	446		3,640
Operating expenses:
Sales and marketing										1,943
General and administrative										1,777
Intangible amortization										1,212
Restructuring										490
Operating profit (loss)										(1,782		)
Other income, net										(15		)
Income tax benefit (expense)										(10		)
Net income (loss)										$	(1,807	)
⁽¹⁾ During the quarter ended December 31, 2017, the Company had income tax benefit from the release of the tax valuation allowance associated with previously generated alternative minimum tax (AMT) credits due to the enacted Tax Reform. See Note 8.

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	Nine months ended December 31, 2017
(in thousands)	IBW			ISMS			CNS			Total
Revenue	$	20,098		$	14,662		$	12,721		$	47,481
Cost of revenue	10,965			7,157			9,241			27,363
Gross profit	9,133			7,505			3,480			20,118
Gross margin	45.4		%	51.2		%	27.4		%	42.4		%
Research and development	3,656			1,635			732			6,023
Segment profit	$	5,477		$	5,870		$	2,748		14,095
Operating expenses:
Sales and marketing										6,278
General and administrative										5,022
Intangible amortization										3,142
Restructuring										165
Operating profit (loss)										(512		)
Other income, net										799			⁽²⁾
Income tax benefit (expense)										660			⁽¹⁾
Net income (loss)										$	947


	Nine months ended December 31, 2016
(in thousands)	IBW			ISMS			CNS			Total
Revenue	$	18,989		$	14,773		$	13,817		$	47,579
Cost of revenue	13,251			7,552			9,790			30,593			⁽³⁾
Gross profit	5,738			7,221			4,027			16,986			⁽³⁾
Gross margin	30.2		%	48.9		%	29.1		%	35.7		%	⁽³⁾
Research and development	5,265			3,336			1,417			10,018
Segment profit (loss)	$	473		$	3,885		$	2,610		6,968
Operating expenses:
Sales and marketing										8,220
General and administrative										6,340
Intangible amortization										3,613
Restructuring										3,055
Long-lived assets impairment										1,181
Operating profit (loss)										(15,441		)
Other income, net										76
Income tax benefit (expense)										(20		)
Net income (loss)										$	(15,385	)

⁽¹⁾ During the quarter ended December 31, 2017, the Company had income tax benefit from the release of the tax valuation allowance associated with previously generated alternative minimum tax (AMT) credits due to the enacted Tax Reform. See Note 8.

⁽²⁾ During the quarter ended September 30, 2017, the Company dissolved the NoranTel legal entity, which triggered a one-time foreign currency gain with the reversal of a cumulative translation adjustment. See Note 1.

⁽³⁾ The nine months ended December 31, 2016, includes E&O expense for ClearLink DAS inventory and pipeline inventory. See Note 2.

Segment asset information is not reported to or used by the CODM.

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Note 4. Inventories

Inventories are stated at the lower of first-in, first-out cost or market value. The components of inventories are as follows:



(in thousands)	December 31, 2017		March 31, 2017
Raw materials	$	3,148	$	3,871
Finished goods	6,316		8,640
Total inventories	$	9,464	$	12,511

Note 5. Stock-Based Compensation

The Westell Technologies, Inc. 2015 Omnibus Incentive Compensation Plan (the 2015 Plan) was approved at the annual meeting of stockholders on September 16, 2015. The 2015 Plan replaced the Westell Technologies, Inc. 2004 Stock Incentive Plan (the 2004 Plan). If any award granted under the 2015 Plan or the 2004 Plan is canceled, terminates, expires, or lapses for any reason, any Shares subject to such award shall again be available for the grant of an award under the 2015 Plan. Shares subject to an award shall not again be made available for issuance under the Plan if such Shares are: (a) shares delivered to or withheld by the Company to pay the grant or purchase price of an award, or (b) shares delivered to or withheld by the Company to pay the withholding taxes related to an award. The stock options, restricted stock awards, and restricted stock units (RSUs) awarded under the 2015 Plan generally vest in equal annual installments over 3 years for employees and 1 year for independent directors. The stock options, restricted stock awards, and RSUs awarded under the 2004 Plan vest in equal annual installments over 4 years. Performance stock units (PSUs) earned vest over the performance period. Certain awards provide for accelerated vesting if there is a change in control (as defined in the 2015 Plan), or when provided within individual employment contracts. The Company accounts for forfeitures as they occur. The Company issues new shares for stock awards under the 2015 Plan.

The following table is a summary of total stock-based compensation expense resulting from stock options, restricted stock, RSUs and PSUs, during the three and nine months ended December 31, 2017, and 2016:



	Three months ended December 31,				Nine months ended December 31,
(in thousands)	2017		2016		2017		2016
Stock-based compensation expense	$	316	$	253	$	988	$	1,346
Income tax benefit	—		—		—		—
Total stock-based compensation expense, after taxes	$	316	$	253	$	988	$	1,346

Stock Options

Stock option activity for the nine months ended December 31, 2017, is as follows:



	Shares		Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value ⁽¹⁾ (in thousands)
Outstanding on March 31, 2017	362,396		$	4.89	5.4	$	39
Granted	100,000		3.06
Exercised	—		—
Forfeited	(199,483	)	3.72
Expired	(61,018	)	5.82
Outstanding on December 31, 2017	201,895		$	4.86	4.6	$	76


⁽¹⁾	The intrinsic value for the stock options is calculated based on the difference between the exercise price of the underlying awards and the Westell Technologies’ closing stock price as of the respective reporting date.

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Restricted Stock

The following table sets forth restricted stock activity for the nine months ended December 31, 2017:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2017	34,375		$	4.11
Granted	104,636		3.01
Vested	(66,250	)	3.30
Forfeited	—		—
Non-vested as of December 31, 2017	72,761		$	3.26

RSUs

The following table sets forth the RSU activity for the nine months ended December 31, 2017:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2017	373,886		$	4.48
Granted	552,000		2.89
Vested	(137,162	)	5.05
Forfeited	(239,193	)	3.64
Non-vested as of December 31, 2017	549,531		$	3.11

PSUs

The following table sets forth the PSU activity for the nine months ended December 31, 2017:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2017 (at target)	76,053		$	3.56
Granted, at target	40,000		3.06
Vested	(49,686	)	2.30
Forfeited	(58,867	)	2.79
Non-vested as of December 31, 2017 (at target)	7,500		$	15.30

Note 6. Product Warranties

The Company’s products carry a limited warranty ranging from one to five years for the products within the IBW segment, typically one year for products within the ISMS segment, and one to seven years for products within the CNS segment. The specific terms and conditions of those warranties vary depending upon the customer and the products sold. Factors that affect the estimate of the Company’s warranty reserve include: the number of units shipped, anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the reserve as necessary. The current portions of the warranty reserve are $162,000 and $163,000 as of December 31, 2017, and March 31, 2017, respectively, and are presented on the Condensed Consolidated Balance Sheets in Accrued expenses. The non-current portions of the warranty reserves are $287,000 and $232,000 as of December 31, 2017, and March 31, 2017, respectively, and are presented on the Condensed Consolidated Balance Sheets in Other non-current liabilities.

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The following table presents the changes in the Company’s product warranty reserve:



	Three months ended December 31,						Nine months ended December 31,
(in thousands)	2017			2016			2017			2016
Total product warranty reserve at the beginning of the period	$	446		$	460		$	395		$	436
Warranty expense to cost of revenue	42			12			160			80
Utilization	(39		)	(2		)	(106		)	(46		)
Total product warranty reserve at the end of the period	$	449		$	470		$	449		$	470

Note 7. Variable Interest Entity and Guarantee

The Company has a 50% equity ownership in AccessTel Kentrox Australia PTY LTD (AKA). AKA distributes network management solutions provided by the Company and the other 50% owner to one customer. The Company holds equal voting control with the other owner. All actions of AKA are decided at the board level by majority vote. The Company evaluated ASC 810, Consolidations, and concluded that AKA is a variable interest entity (VIE) and the Company has a variable interest in the VIE. The Company has concluded that it is not the primary beneficiary of AKA and, therefore, consolidation is not required. As of December 31, 2017, and March 31, 2017, the carrying amount of the Company's investment in AKA was approximately $61,000 and $111,000, respectively, which is presented on the Condensed Consolidated Balance Sheets within Other non-current assets. The Company received a cash dividend payment of $59,000 from AKA during the three months ended September 30, 2017.

The Company's revenue from sales to AKA for the three months ended December 31, 2017, and 2016, was $1.5 million and $0.3 million, respectively. The Company's revenue from sales to AKA for the nine months ended December 31, 2017 and 2016, was $3.2 million and $2.0 million, respectively. Accounts receivable from AKA was $1.0 million and $0.5 million as of December 31, 2017, and March 31, 2017, respectively. Deferred revenue, which primarily relates to AKA maintenance contracts, was $1.5 million and $2.8 million as of December 31, 2017, and March 31, 2017, respectively. The Company also has provided an unlimited guarantee for the performance of the other 50% owner in AKA, which primarily provides support and engineering services to the customer. This guarantee was put in place at the request of the AKA customer. The guarantee, which is estimated to have a maximum potential future payment of $0.7 million, will stay in place as long as the contract between AKA and the customer is in place. The Company would have recourse against the other 50% owner in AKA in the event the guarantee is triggered. The Company determined that it could perform on the obligation it guaranteed at a positive rate of return and, therefore, did not assign value to the guarantee. The Company's exposure to loss as a result of its involvement with AKA, exclusive of lost profits, is limited to the items noted above.

Note 8. Income Taxes

At the end of each interim period, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year and uses that rate to provide for income taxes on a current year-to-date basis before discrete items. If a reliable estimate cannot be made, the Company may make a reasonable estimate of the annual effective tax rate, including use of the actual effective rate for the year-to-date. The impact of discrete items is recorded in the quarter in which they occur. The Company utilizes the liability method of accounting for income taxes and deferred taxes, which are determined based on the differences between the financial statements and tax basis of assets and liabilities given the enacted tax laws. The Company evaluates the need for valuation allowances on the net deferred tax assets under the rules of ASC 740, Income Taxes. In assessing the realizability of the Company's deferred tax assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will be realized through the generation of future taxable income. In making this determination, the Company assessed all of the evidence available at the time, including recent earnings, forecasted income projections and historical performance. The Company determined that the negative evidence outweighed the objectively verifiable positive evidence and previously recorded a full valuation allowance against deferred tax assets. The Company will continue to reassess realizability going forward.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The Act significantly revises the future ongoing U.S. corporate income tax by, among other things, lowering the U.S. corporate federal income tax rate from 34% to 21% effective January 1, 2018. As a result, a blended federal rate of 30.75% is required for the current year income tax expense. Further, the Company is required to re-measure, through income tax expense, its deferred tax assets and liabilities using the enacted rate at which the items are expected to be recovered or settled. During the third quarter, the Company recorded provisional amounts as a result of the re-measurement of the Company’s net deferred tax asset did not result in income tax expense due to the Company’s full valuation allowance position.

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Total net deferred tax assets decreased by $14.3 million, which includes a reclassification of the federal alternative minimum tax (“AMT”) credit to long term receivable, discussed below. As of December 31, 2017, the Company had net deferred tax assets of approximately $38.6 million before a valuation allowance of $38.6 million.

The final transition impacts of the Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Act, any legislative action to address questions that arise because of the Act, any changes in accounting standards for income taxes or related interpretations in response to the Act, or any updates or changes to estimates the Company has utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates. The Securities Exchange Commission has issued guidance that allows for a measurement period of up to one year after the enactment date of the Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments in our Form 10-K for our current fiscal year ending March 31, 2018.

As of December 31, 2017, the Company has $697,000 of AMT credit carryforward, which does not expire and is now carried as a tax receivable since, under new federal tax law, the Company expects to recover the entire amount by 2022 via a tax refund. Previously, there was a valuation allowance against the entire AMT credit carryforward. In the third quarter, the Company is reversing the portion of the valuation allowance related to the AMT credit carryforward, resulting in a discrete tax benefit of $697,000.

The Company recorded $685,000 and $660,000 of income tax benefit in the three and nine months ended December 31, 2017, respectively, using an effective income tax rate of 1.76% plus discrete items including the AMT tax benefit described above. The Company recorded $10,000 and $20,000 of income tax expense in the three and nine months ended December 31, 2016, respectively, using an effective rate of (0.13)% plus discrete items. The effective rate in both periods is impacted by the intraperiod allocation as a result of income or loss from continuing operations, and states which base tax on gross margin and not pretax income.

Note 9. Commitments and Contingencies

Litigation and Contingency Reserves

The Company and its subsidiaries are involved in various assertions, claims, proceedings and requests for indemnification concerning intellectual property, including patent infringement suits involving technologies that may be incorporated in the Company’s products, which are being handled and defended in the ordinary course of business. These matters are in various stages of investigation and litigation, and they are being vigorously defended. Although the Company does not expect that the outcome in any of these matters, individually or collectively, will have a material adverse effect on its financial condition or results of operations, litigation is inherently unpredictable. Therefore, judgments could be rendered, or settlements entered, that could adversely affect the Company’s operating results or cash flows in a particular period. The Company routinely assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability, and it records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable. As of December 31, 2017, and March 31, 2017, the Company has not recorded any contingent liability attributable to existing litigation.

In the ordinary course of operations, the Company receives claims where the Company believes an unfavorable outcome is possible and/or for which is probable and no estimate of possible losses can currently be made. A significant customer was a defendant in patent infringement claims and is asserting possible indemnity rights under contracts with the Company. The customer has settled one matter, which has been dismissed, and won summary judgment of all claims in the other. The customer has informed the Company that the customer intends to seek to recover from the Company a share of the settlement and defense costs. The Company has not been involved in any settlement discussions nor informed by the customer of any settlement details and therefore management is currently unable to estimate a range of potential loss associated with this claim with any degree of certainty, and the Company is not yet able to calculate the exposure to this claim, which will vary depending upon the settlement reached by the customer and the Company's contribution ratio.

Note 10. Short-term Investments

As of December 31, 2017, the Company owned Certificates of Deposit amounting to $4.5 million held at cost. There were no short-term investments as of March 31, 2017.

Note 11. Fair Value Measurements

Fair value is defined by ASC 820, Fair Value Measurements and Disclosures (ASC 820), as the price that would be received upon selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement

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date. ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:


•	Level 1 – Quoted prices in active markets for identical assets and liabilities.


•	Level 2 – Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.


•	Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company’s money market funds are measured using Level 1 inputs.

The following table presents available-for-sale securities measured at fair value on a recurring basis as of December 31, 2017:



(in thousands)	Total Fair Value of Asset or Liability		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Balance Sheet Classification
Assets:
Money market funds	$	12,724	$	12,724	—	—	Cash and cash equivalents

The following table presents available-for-sale securities measured at fair value on a recurring basis as of March 31, 2017:



(in thousands)	Total Fair Value of Asset or Liability		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Balance Sheet Classification
Assets:
Money market funds	$	17,162	$	17,162	—	—	Cash and cash equivalents

The fair value of the money market funds approximates their carrying amounts due to the short-term nature of these financial assets.

Note 12. Share Repurchases

In May 2017, the Board of Directors authorized a new share repurchase program whereby the Company may repurchase up to an aggregate of $2.0 million of its outstanding Class A Common Stock (the 2017 authorization). The 2017 authorization is in addition to the $0.1 million that was remaining from the August 2011 $20.0 million authorization (the 2011 authorization). There were 133,608 shares repurchased under the 2011 and 2017 authorizations during the nine months ended December 31, 2017 at a weighted average purchase price of $2.98 per share. There were no shares repurchased under the 2011 authorization during the nine months ended December 31, 2016. There was approximately $1.7 million remaining for additional share repurchases under the 2017 authorization as of December 31, 2017.

Additionally, in the nine months ended December 31, 2017, and December 31, 2016, the Company repurchased 54,572 and 44,005 shares of Class A Common Stock, respectively, from certain employees that were surrendered to satisfy the minimum statutory tax withholding obligations on the vesting of restricted stock, RSUs and PSUs. These repurchases were not included in the authorized share repurchase programs and had a weighted-average purchase price of $2.89 and $3.32 per share, respectively.

Note 13. Intangible Assets

Intangible assets include customer relationships, trade names, developed technology and other intangibles. Intangible assets with determinable lives are amortized over their estimated useful lives. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an

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impairment loss is recorded for the excess of the asset’s carrying amount over its fair value. Intangible asset impairment charges are presented in Intangible amortization on the Condensed Consolidated Statements of Operations.

As a result of the Company reorganizing its reporting structure in the first quarter of fiscal year 2017, the Company reassigned assets and liabilities to reporting units. During the third quarter of fiscal year 2017, the Company experienced triggering events that resulted in the Company testing its intangible assets for impairment. In evaluating whether it is more likely than not that the fair value of the Company's reporting units were less than their carrying value, the Company assessed all relevant events and circumstances and determined that, due to the overall financial performance of the Company and recent change in reporting structure, indicators of impairment were present.

The Company performed an evaluation to test IBW, ISMS and CNS intangible assets for recoverability and concluded there was no impairment during the nine months ended December 31, 2016, for the IBW and ISMS the reporting units. During the third quarter of fiscal 2017, CNS revenue declined more than previously forecasted. As a result, the CNS reporting unit did not pass the recoverability test, therefore the Company completed the second step of the evaluation, which compares the implied fair value of the intangible assets as determined using the multiple-period excess earnings method and the distributor model, with the carrying value to determine the amount of the impairment loss. As a result of that impairment evaluation, the Company concluded that the customer list acquired from the previous ANTONE acquisition for its TMA products was impaired and recorded an impairment charge of $31,000 during the quarter ended December 31, 2016.

There was no intangible asset impairment during the nine months ended December 31, 2017, for the IBW, ISMS and CNS reporting units.

Note 14. Accrued Expenses

The components of accrued expenses are as follows:



(in thousands)	December 31, 2017		March 31, 2017
Accrued compensation	$	731	$	1,256
Accrued contractual obligation	1,445		1,445
Other accrued expenses	1,352		1,572
Total accrued expenses	$	3,528	$	4,273

Note 15. Land, Property, and Equipment

Long-lived assets consist of property and equipment. Long-lived assets that are held and used should be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived assets might not be recoverable. Due to a significant adverse change in the business climate connected to the ClearLink DAS development project, the Company determined indicators of impairment were present as of June 30, 2016. The Company determined that equipment related to development and manufacturing of this product was fully impaired and recorded an impairment charge of $1.2 million in the nine months ended December 31, 2016. Long-lived asset impairment charges are presented in Long-lived assets impairment on the Condensed Consolidated Statements of Operations. See Note 2 Restructuring Charges.

There was no long-lived asset impairment during the nine months ended December 31, 2017.

The components of fixed assets are as follows:



(in thousands)	December 31, 2017			March 31, 2017
Land	$	672		$	672
Machinery and equipment	1,603			1,698
Office, computer and research equipment	5,473			6,012
Leasehold improvements	1,275			7,680
Land, property and equipment, gross	$	9,023		$	16,062
Less accumulated depreciation and amortization	(7,393		)	(14,078		)
Land, property and equipment, net	$	1,630		$	1,984

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The significant decrease in the gross fixed assets and accumulated depreciation is primarily related to the disposals of fully depreciated leasehold improvements associated with a building operating lease that ended on September 30, 2017.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion should be read together with the Condensed Consolidated Financial Statements and the related Notes thereto and other financial information appearing elsewhere in this Form 10-Q. All references herein to the term “fiscal year” shall mean a year ended March 31 of the year specified.

Westell Technologies, Inc., (the Company) is a leading provider of high-performance wireless infrastructure solutions focused on innovation and differentiation at the edge of communication networks where end users connect. The Company’s portfolio of products and solutions enable service providers and network operators to improve performance and reduce operating expenses. With millions of products successfully deployed worldwide, Westell is a trusted partner for transforming networks into high performance, reliable systems.

The Company’s three reportable segments are as follows:

In-Building Wireless (IBW) Segment

Intelligent Site Management and Services (ISMS) Segment

Communications Network Solutions (CNS) Segment

Customers

The Company’s customer base for its products includes communications service providers, systems integrators, neutral-host operators, and distributors. Due to the stringent customer quality specifications and regulated environments in which customers operate, the Company must undergo lengthy approval and procurement processes prior to selling most of its products. Accordingly, the Company must make significant up-front investments in product and market development prior to actual commencement of sales of new products. The prices for the Company's products vary based upon volume, customer specifications, and other criteria, and are subject to change for a variety of reasons, including cost and competitive factors.

To remain competitive, the Company must continue to invest in new product development and/or in targeted sales and marketing efforts to launch new product features and lines. Failure to increase revenues from new products, whether due to lack of market acceptance, competition, technological change, purchasing decisions, meeting technical specifications or otherwise, could have a material adverse effect on the Company's business and results of operations. The Company expects to continue to evaluate new product opportunities and invest in product research and development activities.

In view of the Company’s reliance on the communications infrastructure market for revenues, the project nature of the business, the unpredictability of orders, and pricing pressures, the Company believes that period-to-period comparisons of its financial results should not be relied upon as an indication of future performance. The Company has experienced quarterly fluctuations in customer ordering and purchasing activity due primarily to the project-based nature of the business and to budgeting and procurement patterns toward the end of the calendar year or the beginning of a new calendar year. While these factors can result in the greatest fluctuations in the Company's third and fourth fiscal quarters, this is not always consistent and may not always correlate to financial results.

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Other Matters

During the fourth quarter of fiscal year 2017, the Company executed a new three-year lease beginning in October 2017 for approximately 83,000 square feet, a portion of our current Aurora, Illinois headquarters facility. The reduced footprint is more suitable to our current operation and is expected to generate cash savings of approximately $2.0 million annually compared to the lease which expired on September 30, 2017.

On May 17, 2017, the Company issued a press release announcing that the Company’s Board of Directors approved a share repurchase program of up to $2.0 million of its Class A common stock.

Effective June 7, 2017, the Company effected a reverse stock split of its outstanding Class A and Class B Common Stock at a ratio of one-for-four. The reverse stock split is intended to increase the per share trading price of Westell’s common stock to satisfy the $1.00 minimum bid price requirement for continued listing on the NASDAQ Capital Market. All common stock, equity, share and per share amounts in the financial statements and notes have been retroactively adjusted to reflect the reverse stock split.

Results of Operations

Below is a table that compares revenue for the three and nine months ended December 31, 2017, and 2016, by segment.

Revenue



	Three months ended December 31,							Nine months ended December 31,
(in thousands)	2017		2016		Change			2017		2016		Change
IBW	$	5,223	$	6,224	$	(1,001	)	$	20,098	$	18,989	$	1,109
ISMS	5,802		5,525		277			14,662		14,773		(111		)
CNS	2,650		3,234		(584		)	12,721		13,817		(1,096		)
Consolidated revenue	$	13,675	$	14,983	$	(1,308	)	$	47,481	$	47,579	$	(98	)

IBW revenue was $5.2 million and $20.1 million in the three and nine months ended December 31, 2017, compared to $6.2 million and $19.0 million in the same periods in the prior year. The decrease in revenue in the three months ended December 31, 2017 was due primarily to a decrease in sales of DAS conditioners, commercial repeaters, and system components, partially offset by an increase in public safety products. The increase in revenue for the nine months ended December 31, 2017, was primarily driven by increases in sales of DAS conditioners, public safety products, and system components, partially offset by a drop in sales of commercial repeaters. While the market for our Universal DAS Interface Tray (UDIT), a stand-alone active DAS conditioner, remains strong, the market is expected to shift to where the primary function of stand-alone conditioners, attenuating the RF signal, is integrated into larger network elements, such as the DAS head-end. It is also expected that the market for commercial repeaters will either remain flat or continue to decline, as customers continue to shift to other forms of commercial in-building coverage, such as small cells. The IBW public safety market is expected to grow as local municipalities pass and enforce ordinances that define in-building cellular communication coverage for public safety in buildings.

ISMS revenue was $5.8 million and $14.7 million in the three and nine months ended December 31, 2017, respectively, compared to $5.5 million and $14.8 million in the same respective periods in the prior year. The increase in revenue in the three months ended December 31, 2017 was driven primarily by increased sales of remote units. The decrease in revenue for the nine months ended December 31, 2017, was primarily due to a decrease in service revenue (both deployment and support), partially offset by increased product revenue (both remote units and Optima software). Due to the fact that our ISMS business is project-based, it is difficult to make a determination on future trends.

CNS revenue was $2.7 million and $12.7 million in the three and nine months ended December 31, 2017, respectively, compared to $3.2 million and $13.8 million in the same respective periods in the prior year. The decrease in revenue in the three months ended December 31, 2017 was driven primarily by lower sales of T1 NIUs. The decrease in revenue for the nine months ended December 31, 2017, was primarily due to lower sales of TMAs, T1 NIUs, and copper and fiber connectivity panels, and was partially offset by increased sales of integrated cabinets. We expect sales of integrated cabinets, which are heavily project-based, to remain uneven, while sales of power distribution panels are expected to remain steady. We expect T1 NIU and TMA revenue to decrease over time as these products are in declining markets.

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Gross Margin



	Three months ended December 31,						Nine months ended December 31,
	2017		2016		Change		2017		2016		Change
IBW	47.3	%	40.3	%	7.0	%	45.4	%	30.2	%	15.2	%
ISMS	54.5	%	50.6	%	3.9	%	51.2	%	48.9	%	2.3	%
CNS	16.9	%	23.1	%	(6.2	)%	27.4	%	29.1	%	(1.7	)%
Consolidated gross margin	44.4	%	40.4	%	4.0	%	42.4	%	35.7	%	6.7	%

The consolidated gross margins increased in the three and nine months ended December 31, 2017 compared to the same periods in the prior year. The increases were driven primarily by the IBW segment margin increases, which were largely due to the outsourcing of final assembly and test operations, plus in the nine month period ended December 31, 2016, a one-time charge of $1.4 million for obsolete inventory associated with the Company’s decision to discontinue the ClearLink DAS program in the quarter ended June 30, 2016. The ISMS and CNS segment gross margin changes were primarily attributable to product revenue mix changes within each of those segments as noted above.

Research and Development



	Three months ended December 31,							Nine months ended December 31,
(in thousands)	2017		2016		Change			2017		2016		Change
IBW	$	750	$	1,307	$	(557	)	$	3,656	$	5,265	$	(1,609	)
ISMS	547		805		(258		)	1,635		3,336		(1,701		)
CNS	245		302		(57		)	732		1,417		(685		)
Consolidated research and development expense	$	1,542	$	2,414	$	(872	)	$	6,023	$	10,018	$	(3,995	)

Consolidated research and development expenses decreased by $0.9 million and $4.0 million in the three and nine months ended December 31, 2017, respectively, compared to the same periods in the prior year. The decreases were part of the Company’s resetting of its expense structure, which included R&D expense reductions across all three segments to a level more suitable to current revenues.

Sales and Marketing



	Three months ended December 31,						Nine months ended December 31,
(in thousands)	2017		2016		Change		2017		2016		Change
Consolidated sales and marketing expense	$	1,950	$	1,943	$	7	$	6,278	$	8,220	$	(1,942	)

Sales and marketing expense was flat and decreased $1.9 million in the three and nine months ended December 31, 2017, respectively, compared to same periods in the prior fiscal year. The decrease in the nine months ended December 31, 2017, was part of the Company’s recent resetting of its expense structure, including lower payroll and headcount related expenses in our sales and marketing organization.

General and Administrative



	Three months ended December 31,							Nine months ended December 31,
(in thousands)	2017		2016		Change			2017		2016		Change
Consolidated general and administrative expense	$	1,502	$	1,777	$	(275	)	$	5,022	$	6,340	$	(1,318	)

Consolidated general and administrative expense decreased $0.3 million and $1.3 million in the three and nine months ended December 31, 2017, respectively, compared to the same periods in the prior fiscal year. These decreases were part of the Company’s recent resetting of its expense structure, including lower payroll and headcount related expenses across the various G&A functions, including information technology, accounting and finance, auditing, human resources, and legal.

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Intangible amortization



	Three months ended December 31,							Nine months ended December 31,
(in thousands)	2017		2016		Change			2017		2016		Change
Consolidated intangible amortization	$	1,047	$	1,212	$	(165	)	$	3,142	$	3,613	$	(471	)

The intangible assets consist of product technology, customer relationships, trade names, and backlog derived from acquisitions. The decrease in the three and nine months ended December 31, 2017, compared to the same periods in the prior fiscal year resulted primarily from repeater product intangibles from the acquisition of Cellular Specialties, Inc. becoming fully amortized.

Restructuring

Long-lived assets impairment

There were no long-lived assets impaired during the nine months ended December 31, 2017. Due to a significant adverse change in the business climate connected to the ClearLink DAS development project, the Company determined indicators of impairment were present as of June 30, 2016. The Company determined that equipment related to development and manufacturing of this product was fully impaired and recorded an impairment charge of $1.2 million during the nine months ended December 31, 2016. The three and nine months ended December 31, 2016, also include a $31,000 intangible impairment charge associated with the customer list acquired from the previous ANTONE acquisition for TMA products sold in the CNS segment which is presented in the Intangible amortization line on the Statement of Operations.

Other income, net



	Three months ended December 31,							Nine months ended December 31,
(in thousands)	2017		2016			Change		2017		2016		Change
Consolidated other income (expense)	$	79	$	(15	)	$	94	$	799	$	76	$	723

Other income, net contains interest income earned on cash and cash equivalents and foreign currency gains and losses. During the nine months ended December 31, 2017, the Company recorded a non-recurring foreign currency gain of $0.6 million related to the wind-down of the NoranTel legal entity. The remaining foreign currency impacts related primarily to the receivables and cash denominated in Australian and Canadian currencies.

Income tax expense

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enactment date of the Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments in our Form 10-K for our current fiscal year ending March 31, 2018.

As of December 31, 2017, the Company has $697,000 of federal alternative minimum tax ("AMT") credit carryforward, which does not expire and is now carried as a tax receivable since, under new federal tax law, the Company expects to recover the entire amount by 2022 via a tax refund. Previously, there was a valuation allowance against the entire AMT credit carryforward. In the third quarter, the Company is reversing the portion of the valuation allowance related to the AMT credit carryforward, resulting in a discrete tax benefit of $697,000.

The Company recorded $685,000 and $660,000 of income tax expense in the three and nine months ended December 31, 2017, respectively, using an effective income tax rate of 1.76% plus discrete items including the AMT tax benefit described above. The Company recorded $10,000 and $20,000 of income tax expense in the three and nine months ended December 31, 2016, respectively, using an effective rate of (0.13)% plus discrete items. The effective rate in both periods is impacted by the intraperiod allocation as a result of income or loss from continuing operations, and states which base tax on gross margin and not pretax income.

Net income (loss)

Net income was $0.8 million and $0.9 million in the three and nine months ended December 31, 2017, respectively. Net loss was $1.8 million and $15.4 million in the three and nine months ended December 31, 2016, respectively. The changes were a result of the cumulative effects of the variances identified above.

Liquidity and Capital Resources

Overview

At December 31, 2017, the Company had $21.5 million in cash and cash equivalents consisting of bank deposits and money market funds that invest only in government securities. As of December 31, 2017, the Company also had $4.5 million in short-term investments which consisted of certificate of deposits.

The Company believes that the existing sources of liquidity and cash from operations will satisfy cash flow requirements for the foreseeable future.

Cash Flows

The Company’s operating activities generated cash of $5.1 million in the nine months ended December 31, 2017, which resulted primarily from $0.9 million in net income, adjusted for non-cash charges of $3.6 million of amortization, depreciation, restructuring, non-recurring foreign currency gain, loss on sale of fixed assets, release of tax valuation allowance related to the AMT tax credits and stock-based compensation expense and $0.5 million generated from net working capital. The Company’s investing activities used cash of $4.8 million, which resulted from investing in short-term investments and capital equipment purchases. In the nine months ended December 31, 2017, the Company’s financing activities used $0.6 million of cash resulting primarily from the purchase of treasury stock.

As previously mentioned, the Act reduces the corporate federal tax rate from 34% to 21% effective January 1, 2018. As a result of the Act, the Company was required to re-measure, through income tax expense, its deferred tax assets and liabilities using the enacted rate at which the items are expected to be recovered or settled. The re-measurement of Company’s net deferred tax asset did not result in income tax expense due to the Company’s full valuation allowance position. Total net deferred tax assets decreased in the quarter ended December 31, 2017, by $14.3 million, which includes a reclassification of the AMT credit to long term receivable, discussed in the tax expense section above. As of December 31, 2017, the Company had net deferred tax assets of approximately $38.6 million before a valuation allowance of $38.6 million.

Illinois enacted an income tax increase on July 6, 2017, however, due to the Company's full valuation allowance position, this rate change is not expected to have a profit or loss impact in the second quarter or any periods in the foreseeable future. The second quarter fiscal 2018 increase in the Company's net deferred tax assets related to the tax rate increase is $0.8 million, and there is a corresponding increase to the Company's valuation allowance.

Also, as of December 31, 2017, the Company had a $3.0 million tax contingency reserve related to uncertain tax positions, which is offset against deferred tax assets. The federal net operating loss carryforward begins to expire in fiscal year 2023. Realization of deferred tax assets associated with the Company’s future deductible temporary differences, net operating loss carryforwards and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration, among other factors. The Company weighed positive and negative evidence to assess the need for a valuation allowance

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against deferred tax assets and whether a tax benefit should be recorded when taxable losses are incurred. The existence of a valuation allowance does not limit the availability of tax assets to reduce taxes payable when taxable income arises. Management periodically evaluates the recoverability of the deferred tax assets and may adjust the valuation allowance against deferred tax assets accordingly.

Off-Balance Sheet Arrangements

The Company has a 50% equity ownership in AccessTel Kentrox Australia PTY LTD (AKA). AKA distributes network management solutions provided by the Company and the other 50% owner to one customer. The Company holds equal voting control with the other owner. All actions of AKA are decided at the board level by majority vote. The Company also has provided an unlimited guarantee for the performance of the other 50% owner in AKA, which primarily provides support and engineering services to the customer. This guarantee was put in place at the request of the AKA customer. The guarantee, which is estimated to have a maximum potential future payment of $0.7 million, will stay in place as long as the contract between AKA and the customer is in place. The Company would have recourse against the other 50% owner in AKA in the event the guarantee is triggered. The Company determined that it could perform on the obligation it guaranteed at a positive rate of return and, therefore, did not assign value to the guarantee. The Company received a cash dividend payment of $59,000 from AKA during the nine months ended December 31, 2017.

Critical Accounting Policies

A complete description of the Company’s significant accounting policies is discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017. There have been no material changes in the Company's critical accounting policies from those disclosed in the Annual Report on Form 10-K for the year ended March 31, 2017, except as described below.

Accounts Receivable and Allowance for Doubtful Accounts

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s senior management, including the Company’s chief executive officer and chief financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this quarterly report (the Evaluation Date). Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded as of the Evaluation Date that the Company’s disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in the Company’s Securities and Exchange Commission (SEC) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including the Company’s chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

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Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2017, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in various legal proceedings incidental to the Company’s business and its previously owned operations. In the ordinary course of operations, the Company receives claims where the Company believes an unfavorable outcome is possible and/or for which is probable and no estimate of possible losses can currently be made. A significant customer was a defendant in patent infringement claims and is asserting possible indemnity rights under contracts with the Company. The customer has settled one matter, which has been dismissed, and won summary judgment of all claims in the other. The customer has informed the Company that the customer intends to seek to recover from the Company a share of the settlement and defense costs. The Company has not been involved in any settlement discussions nor informed by the customer of any settlement details and therefore management is currently unable to estimate a range of potential loss associated with this claim with any degree of certainty, and the Company is not yet able to calculate the exposure to this claim, which will vary depending upon the settlement reached by the customer and the Company's contribution ratio.

ITEM 1A. RISK FACTORS

See “Risk Factors” in Part 1 – Item 1A of the Company's Annual Report on Form 10-K for the year ended March 31, 2017, for information about risk factors. There have been no material changes in the Company's risk factors from those disclosed in the Company's Annual Report on Form 10-K for the year ended March 31, 2017.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information about the Company’s repurchase activity for its Class A Common Stock during the three months ended December 31, 2017.



Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs (b)	Maximum Number (or Approximate Dollar Value) that May Yet Be Purchased Under the Programs (b)
October 1 - 31, 2017	18,024	$	2.8773	18,024	$	1,721,196
November 1 - 30, 2017	17,337	2.8376		2,100	1,715,121
December 1 - 31, 2017	66	3.9800		—	1,715,121
Total	35,427	$	2.8599	20,124	$	1,715,121

(a)

In the three months ended December 31, 2017, the Company repurchased 15,303 shares from employees that were surrendered to satisfy the minimum statutory tax withholding obligations on the vesting of restricted stock, restricted stock units and performance-based restricted stock units. These repurchases were not included in the authorized share repurchase program and had a weighted-average purchase price of $2.83 per share.

(b)

In May 2017, the Board of Directors authorized a new share repurchase program whereby the Company may repurchase up to an aggregate of $2.0 million of its outstanding Class A Common Stock in addition to the $0.1 million remaining from the August 2011 authorization. The August 2011 authorization was exhausted during the first quarter of fiscal year 2018 and there was approximately $1.7 million remaining under the May 2017 authorization as of December 31, 2017.

Items 3, 4 and 5 are not applicable and have been omitted.

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ITEM 6. EXHIBITS



	Exhibit Number		Description

	Exhibit 10.1		Resignation Letter of Matthew B. Brady, dated November 20, 2017 (incorporated by reference to Exhibit 10.1 of the Westell Technologies, Inc. Form 8-K filed on November 27, 2017).

	Exhibit 10.2		Offer Letter for Kirk R. Brannock, dated November 24, 2017 (incorporated by reference to Exhibit 10.2 of the Westell Technologies, Inc. Form 8-K filed on November 27, 2017).

	Exhibit 10.3		Form of Restricted Stock Unit Award Agreement for award granted to Kirk R. Brannock on November 30, 2017.

	Exhibit 10.4		Severance agreement for Jesse Swartwood, dated February 7, 2018.

	Exhibit 31.1		Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	Exhibit 31.2		Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	Exhibit 32.1		Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	Exhibit 101		The following financial information from the Quarterly Report on Form 10-Q for the period ended December 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss); (iv) the Condensed Consolidated Statements of Stockholders' Equity (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to the Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		WESTELL TECHNOLOGIES, INC.
		(Registrant)

DATE:	February 9, 2018	By:	/s/ Kirk R. Brannock
			Kirk R. Brannock
			Chief Executive Officer

		By:	/s/ Thomas P. Minichiello
			Thomas P. Minichiello
			Chief Financial Officer