Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Mar. 31, 2018

Stock-based Compensation:

Employee Stock Incentive Plans

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 will again be available for the grant of an award under the 2015 Plan. Shares subject to an award will not be made available again for issuance under the Plan if such shares are: (a) delivered to or withheld by the Company to pay the grant or purchase price of an award, or (b) delivered to or withheld by the Company to pay the withholding taxes related to an award. Any awards or portions thereof that are settled in cash and not in shares will not be counted against the foregoing Share limit. There are a total of 1,131,957 shares available for issuance under the 2015 Plan as of March 31, 2018. The stock options, restricted stock awards, and RSU awards granted under the 2015 Plan generally typically vest in equal annual installments over 3 years for employees and 1 year for independent directors. The stock options, restricted awards, and RSU awards under the 2004 Plan vest in equal annual installments over 4 years. PSUs earned generally vest over the performance period, as described below. 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 of stock for awards under the 2015 Plan.

Stock-Based Compensation

Total stock-based compensation is reflected in the Consolidated Statements of Operations as follows:



	Fiscal Year Ended March 31,
(in thousands)	2018		2017
Cost (benefit) of revenue	$	30	$	34
Sales and marketing	272		482
Research and development	167		163
General and administrative	802		915
Stock-based compensation	1,271		1,594
Income tax benefit	—		—
Total stock-based compensation, after taxes	$	1,271	$	1,594

Stock Options

Stock options that have been granted by the Company have an exercise price that is equal to the reported value of the Company’s stock on the grant date. The Company’s options have a contractual term of 7 years. Compensation expense is recognized on a straight-line basis over the vesting period for the award.

The Company uses the Black-Scholes model to estimate the fair value of employee stock options on the date of grant. That model employs parameters for which the Company has made estimates according to the assumptions noted below. Expected volatilities were based on historical volatilities of the Company’s stock. The expected option lives represent the period of time that options granted are expected to be outstanding based on historical trends. The risk-free interest rates were based on the United States Treasury yield curve for the expected term at the time of grant. The dividend yield was based on expected dividends at the time of grant, which has always been zero.

The Company recorded expense of $0.1 million and $0.3 million the fiscal year ended March 31, 2018 and 2017, respectively, related to stock options. There were no options exercised in fiscal years 2018 and 2017.

Option activity for the fiscal year ended March 31, 2018 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
Granted	100,000		$	3.06
Exercised	—		$	—
Forfeited	(200,317	)	$	3.73
Expired	(64,143	)	$	5.76
Outstanding on March 31, 2018	197,936		$	4.87	4.4	$	56
Exercisable on March 31, 2018	99,426		$	5.87	3.9	$	19

⁽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 reporting date.

As of March 31, 2018, there was $0.1 million of pre-tax stock option compensation expense related to non-vested awards not yet recognized, which is expected to be recognized over a weighted-average period of 1.1 years.

The fair value of each option was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:



	Fiscal Year Ended March 31,
	2018		2017
Input assumptions:
Expected volatility	60	%	50	%
Risk-free interest rate	1.7	%	1.1	%
Expected life	4 years		4 years
Expected dividend yield	0	%	0	%
Output weighted-average grant date fair value	$1.41		$1.68

Restricted Stock

Vesting of restricted stock is subject to continued employment with the Company. During fiscal years 2018 and 2017, non-employee directors received grants of 104,636 and 28,750 shares with a weighted-average grant date fair value of $3.01 and $2.40, respectively. The Company recognizes compensation expense restricted stock on a straight-line basis over the vesting periods for the award based on the market value of Westell Technologies stock on the date of grant.

The following table sets forth restricted stock activity for the fiscal year ended March 31, 2018:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2017	34,375		$4.10
Granted	104,636		$3.01
Vested	(76,250	)	$3.22
Forfeited	—		$0.00
Non-vested as of March 31, 2018	62,761		$3.35

The Company recorded $0.3 million and $0.0 million of expense in the fiscal years ended March 31, 2018 and 2017, respectively, related to restricted stock. As of March 31, 2018, there was $0.1 million of pre-tax unrecognized compensation expense, related to non-vested restricted stock, which is expected to be recognized over a weighted-average period of 0.4 years. The total intrinsic fair value of shares vested was $0.2 million and $0.1 million during the fiscal years ended March 31, 2018 and 2017, respectively.

Restricted Stock Units (RSUs)

In fiscal years 2018 and 2017, there were 570,000 and 470,376 shares with a weighted-average grant date fair value of $2.91 and $3.96, respectively, of RSUs awarded to certain key employees. These awards convert into shares of Class A Common Stock on a one-for-one basis upon vesting. The Company recognizes compensation expense on a straight-line basis over the vesting for the award based on the market value of Westell Technologies stock on the date of grant.

The Company recorded stock-based compensation expense of $0.9 million and $1.1 million for RSUs in fiscal years 2018 and 2017, respectively. As of March 31, 2018, there was approximately $1.1 million of pre-tax unrecognized compensation expense related to the RSUs, which is expected to be recognized over a weighted-average period of 1.7 years. The total intrinsic fair value of RSUs vested was $0.5 million during both fiscal years 2018 and 2017.

The following table sets forth the RSUs activity for the fiscal year ended March 31, 2018:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2017	373,886		$4.48
Granted	570,000		$2.91
Vested	(170,412	)	$4.93
Forfeited	(255,024	)	$3.60
Non-vested as of March 31, 2018	518,450		$3.03

Performance-based RSUs (PSUs)

During fiscal year 2018, 40,000 PSUs were granted, but were all forfeited prior to vesting. During fiscal year 2017, 56,250 and 65,581 PSUs were granted to the Interim Chief Executive Officer (CEO) and other key employees, respectively. The PSUs granted to the CEO contained vesting criteria based upon achievement of certain performance goals (either by reducing quarterly operating expenses in the third or fourth quarter to a certain level or achieving profitability in the third or fourth quarter on a non-GAAP basis) tied to the cost savings plan approved by the Board and the PSUs granted to employees had similar targets but required meeting such performance targets in both the third and fourth quarters. In the fourth quarter, the Compensation Committee reviewed the financial results for the third quarter determined that all 56,250 PSUs issued to the CEO met the performance standard and vested during the fourth quarter in fiscal year 2017. The PSUs granted to key employees have also been earned based upon the achievement of the performance goals, but have a continued employment provision and will vest one year from the grant date. Upon vesting, the PSUs converted into shares of Class A Common Stock of the Company on a one-for-one basis.

The Company recorded stock-based compensation expense of $40,000 and $0.2 million for PSUs in fiscal years 2018 and 2017, respectively. The total intrinsic fair value of PSUs vested during fiscal years 2018 and 2017 was $141,000 and $197,000, respectively.

The following table sets forth the PSUs activity for the fiscal year ended March 31, 2018:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2017	76,053		$3.56
Granted	40,000		$3.06
Vested	(49,686	)	$2.30
Forfeited	(66,367	)	$4.20
Non-vested as of March 31, 2018	—		$0.00