Quarterly report pursuant to Section 13 or 15(d)

Interim Segment Information (Notes)

Interim Segment Information (Notes)

9 Months Ended

Dec. 31, 2017

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).

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.




	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.

^[1]

[1]	The nine months ended December 31, 2016, includes $1.6 million of E&O expense for ClearLink DAS inventory and pipeline inventory.