Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Mar. 31, 2019

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. If any award granted under the 2015 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 631,959 shares available for issuance under the 2015 Plan as of March 31, 2019. 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 non-employee directors. 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)	2019		2018
Cost (benefit) of revenue	$	47	$	30
Sales and marketing	369		272
Research and development	174		167
General and administrative	581		802
Stock-based compensation	1,171		1,271
Income tax benefit	—		—
Total stock-based compensation, after taxes	$	1,171	$	1,271

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 in both the fiscal years ended March 31, 2019 and 2018 related to stock options. There were no options exercised in fiscal years 2019 and 2018.

Option activity for the fiscal year ended March 31, 2019 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, 2018	197,936		$	4.87
Granted	100,000		$	3.14
Exercised	—		$	—
Forfeited	(1,460	)	$	4.66
Expired	(2,998	)	$	4.69
Outstanding on March 31, 2019	293,478		$	4.28	4.4	$	0
Exercisable on March 31, 2019	148,700		$	5.21	3.3	$	0

⁽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, 2019, 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 2.0 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,
	2019		2018
Input assumptions:
Expected volatility	61	%	60	%
Risk-free interest rate	2.8	%	1.7	%
Expected life	4 years		4 years
Expected dividend yield	0	%	0	%
Output weighted-average grant date fair value	$1.44		$1.41

Restricted Stock

Vesting of restricted stock is subject to continued employment with the Company. During fiscal years 2019 and 2018, non-employee directors received grants of 63,334 and 104,636 shares with a weighted-average grant date fair value of $2.86 and $3.01, 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, 2019:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2018	62,761		$3.35
Granted	63,334		$2.86
Vested	(62,761	)	$3.35
Forfeited	—		$0.00
Non-vested as of March 31, 2019	63,334		$2.86

The Company recorded $0.2 million and $0.3 million of expense in the fiscal years ended March 31, 2019 and 2018, respectively, related to restricted stock. As of March 31, 2019, 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 during both of the fiscal years ended March 31, 2019 and 2018.

Restricted Stock Units (RSUs)

In fiscal years 2019 and 2018, there were 412,500 and 570,000 shares with a weighted-average grant date fair value of $3.08 and $2.91, 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 for RSUs in both fiscal years 2019 and 2018. As of March 31, 2019, there was approximately $1.2 million of pre-tax unrecognized compensation expense related to the RSUs, which is expected to be recognized over a weighted-average period of 1.8 years. The total intrinsic fair value of RSUs vested was $0.6 million and $0.5 million during fiscal years 2019 and 2018, respectively.

The following table sets forth the RSUs activity for the fiscal year ended March 31, 2019:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2018	518,450		$3.03
Granted	412,500		$3.08
Vested	(189,445	)	$3.21
Forfeited	(76,378	)	$2.89
Non-vested as of March 31, 2019	665,127		$3.03

Performance-based RSUs (PSUs)

During fiscal year 2019, 50,000 PSUs were granted. Those PSUs will be earned based upon achievement of performance goals tied to growing revenue and non-GAAP profitability targets for the first, second, third, and fourth quarters of fiscal year 2019 and toward the annual fiscal year 2019 objective, but have a continued employment provision and will vest one year from the grant date. During fiscal year 2018, 40,000 PSUs were granted, but were all forfeited prior to vesting. Upon vesting, the PSUs convert into shares of Class A Common Stock of the Company on a one-for-one basis.

The Company recorded stock-based compensation expense of $14,000 and $40,000 for PSUs in fiscal years 2019 and 2018, respectively. The total intrinsic fair value of PSUs vested during fiscal years 2019 and 2018 was $0 and $141,000, respectively.

The following table sets forth the PSUs activity for the fiscal year ended March 31, 2019:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2018	—		$0.00
Granted	50,000		$3.14
Vested	—		$0.00
Forfeited	(45,000	)	$3.14
Non-vested as of March 31, 2019	5,000		$3.14