What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2021-02-05 · 158 added, 109 removed, 182 unchanged (59% of the section changed)

7 unchanged sentences

Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions.

Among others, these include risks related to the ongoing COVID-19 pandemic and efforts to mitigate the same, risks related to the global economic downturn that commenced during the COVID-19 pandemic and the ability of companies like us to operate a global business in such conditions, the highly competitive market in which our company operates, rapid changes in technologies that may displace products sold by us, declining prices of networking products, our reliance on distributors and other third parties to sell our products, the potential for significant purchase orders to be canceled or changed, delays in product development efforts, uncertainty in user acceptance of our products, the ability to integrate our products and services with those of other parties in a commercially accepted manner, potential liabilities that can arise if any of our products have design or manufacturing defects, our ability to defend or settle satisfactorily any litigation, uncertainty in global economic conditions and economic conditions within particular regions of the world which could negatively affect product demand and the financial solvency of customers and suppliers, the impact of natural disasters and other events beyond our control that could negatively impact our supply chain and customers, potential unintended consequences associated with restructuring, reorganizations or other similar business initiatives that may impact our ability to retain important employees or otherwise impact our operations in unintended and adverse ways, the ability to achieve the anticipated benefits and synergies associated with acquisitions or divestitures and changes in our level of revenue or profitability which can fluctuate for many reasons beyond our control.

Among others, these include risks related to the ongoing COVID-19 pandemic and efforts to mitigate the same, risks related to global economic volatility and the ability of companies like us to operate a global business in such conditions, the current supply chain and shipping market pressures that are negatively impacting both manufacturing and distribution timelines as well as operating costs for a wide range of companies globally, the highly competitive market in which our company operates, rapid changes in technologies that may displace products sold by us, declining prices of networking products, our reliance on distributors and other third parties to sell our products, the potential for significant purchase orders to be canceled or changed, delays in product development efforts, uncertainty in user acceptance of our products, the ability to integrate our products and services with those of other parties in a commercially accepted manner, potential liabilities that can arise if any of our products have design or manufacturing defects, our ability to defend or settle satisfactorily any litigation, uncertainty in global economic conditions and economic conditions within particular regions of the world which could negatively affect product demand and the financial solvency of customers and suppliers, the impact of natural disasters and other events beyond our control that could negatively impact our supply chain and customers, potential unintended consequences associated with restructuring, reorganizations or other similar business initiatives that may impact our ability to retain important employees or otherwise impact our operations in unintended and adverse ways, the ability to achieve the anticipated benefits and synergies associated with acquisitions or divestitures and changes in our level of revenue or profitability which can fluctuate for many reasons beyond our control.

These and other risks, uncertainties and assumptions identified from time to time in our filings with the United States Securities and Exchange Commission, including without limitation, our Annual Report on Form 10-K for the year ended September 30, 2020, this filing on Form 10-Q and other filings, could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf.

16 unchanged sentences

These solutions are focused on the following vertical markets:

food service, retail, healthcare (primarily pharmacies), transportation/logistics and education.

food service, retail, healthcare, transportation/logistics and education.

These solutions are marketed as SmartSense by Digi ® .

3 unchanged sentences

The restructuring plan aligned the business segment's organization around product lines, each with a segment manager.

Under this plan, we recorded a charge of $0.7 million for employee termination charges and eliminated 19 employment positions primarily in the U.S.

during the first quarter of fiscal 2021.

Under this plan, we recorded charges of $0.9 million for employee termination charges and eliminated 19 employment positions primarily in the U.S.

during the first half of fiscal 2021.

We have grouped our products under the following categories:

Cellular Routers, Console Servers, OEM Solutions and Infrastructure Management.

Consequently, the measure of segment operating income (loss) used by our chief operating decision maker ("CODM") changed.

As a result, our disclosed measure of segment operating income (loss) has been updated.

For further detail on segment performance, see the Revenue by Segment, Cost of Goods Sold and Gross Profit by Segment and Operating Income (Loss) sections of this Item 2.

Consequently, the measure of segment operating profit used by our chief operating decision maker ("CODM") changed.

As a result, our disclosed measure of segment operating income has been updated.

For further detail on segment performance, see the Revenue by Segment, Cost of Goods Sold and Gross Profit by Segment and Operating Income sections of this Item 2.

In fiscal 2021, our key operating objectives include:

• continued growth of our SmartSense by Digi ® business that is the base of our IoT Solutions segment;

• delivering growth within our IoT Products & Services segment through new product introductions;

• delivering growth within our IoT Products & Services segment through new product introductions and efforts to grow recurring revenue streams;

• identification of strategic growth initiatives through acquisition.

• optimizing our reduced fixed cost footprint with third-party manufacturing.

We utilize many financial, operational, and other metrics to evaluate our financial condition and financial performance.

Below we highlight the metrics for the first quarter of fiscal 2021 that we feel are most important in these evaluations:

• Consolidated revenue increased $10.8 million, or 17.4% in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020.

Product revenue increased by $8.4 million, or 15.4%, in the first quarter of fiscal 2021 compared to the same period a year ago.

Services revenue increased by $2.4 million, or 30.6%, in the first quarter of fiscal 2021 compared to the same period a year ago.

• Gross margin increased as a percentage of revenue to 56.1% in the first quarter of fiscal 2021 as compared to 48.9% in the first quarter of fiscal 2020.

• Net loss for the first fiscal quarter of 2021 was $0.3 million, or $0.01 loss per diluted share.

Net income for the first fiscal quarter of 2020 was $0.2 million, or $0.01 per diluted share.

Below we highlight the metrics for the second quarter of fiscal 2021 that we feel are most important in these evaluations:

• Consolidated revenue increased $3.9 million, or 5.2% in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020.

Product revenue increased by $1.3 million, or 2.0%, in the second quarter of fiscal 2021 compared to the same period a year ago.

Services revenue increased by $2.6 million, or 32.9%, in the second quarter of fiscal 2021 compared to the same period a year ago.

• Gross margin decreased as a percentage of revenue to 52.3% in the second quarter of fiscal 2021 as compared to 52.6% in the second quarter of fiscal 2020.

• Net income for the second fiscal quarter of 2021 was $2.9 million, or $0.09 per diluted share.

Net income for the second fiscal quarter of 2020 was $2.0 million, or $0.07 per diluted share.

Adjusted net income and adjusted net income per share was $8.6 million, or $0.27 per diluted share.

In the first fiscal quarter of fiscal 2020, adjusted net income and adjusted net income per share was $4.5 million, or $0.15 per diluted share.

• Adjusted EBITDA for the first fiscal quarter of 2021 was $13.0 million, or 17.7% of total revenue.

In the first fiscal quarter of fiscal 2020, Adjusted EBITDA was $6.7 million, or 10.7% of total revenue.

In the second fiscal quarter of fiscal 2020, adjusted net income and adjusted net income per share was $7.5 million, or $0.25 per diluted share.

• Adjusted EBITDA for the second fiscal quarter of 2021 was $11.7 million, or 15.1% of total revenue.

In the second fiscal quarter of fiscal 2020, Adjusted EBITDA was $10.8 million, or 14.7% of total revenue.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Acquisition of Haxiot, Inc.

On March 26, 2021, we acquired Haxiot, Inc.

("Haxiot") a Dallas-based provider of low power wide area ("LPWA") wireless technology.

We funded the closing of the acquisition with $7.1 million cash on hand and preliminarily accrued the maximum $8.0 million of contingent consideration on our balance sheet as of March 31, 2021.

Due to the timing of the acquisition, the impact of the Haxiot acquisition on our results of operations for the six days in March 2021 is immaterial, so results of operations for March 2021 will be included in our third quarter of fiscal 2021 results within our IoT Products & Services segment.

Public Offering of Common Stock

During the second quarter of fiscal 2021 we sold 4,025,000 shares of our common stock and received net proceeds of $73.8 million.

Amended and Restated Credit Agreement

On March 15, 2021, we entered into an amended and restated credit agreement with BMO Harris Bank N.A.

This agreement provides us with a senior secured credit facility (the "Credit Facility") consisting of a $200 million revolving loan (the "Revolving Loan").

This loan replaced our syndicated senior secured credit agreement with BMO that was entered into on December 13, 2019 and replaced the remaining balance of our term loan with this new revolver.

Potential Impacts of COVID-19 on Our Business and Operations

As is the case with many businesses, the ongoing pandemic and related global economic downturn creates significant uncertainty regarding the nearer term outlook for the markets where we provide products and services.

The pandemic and the economic downturn it triggered represents a fluid situation that presents a wide range of potential impacts on our own business and those of our customers, vendors and other business partners.

As our products and services serve companies across a broad range of industries, in some instances we have seen demand increase while in others we have observed declines as a result of the societal impacts of the pandemic.

At present, the duration and severity of the pandemic and the resulting economic downturn remain unclear.

As is the case with many businesses, the ongoing pandemic and related global economic volatility creates significant uncertainty regarding the nearer term outlook for the markets where we provide products and services.

While the rollout of vaccines globally is underway, the pandemic and related economic volatility it triggered still represents a fluid situation that presents a wide and changing range of potential impacts on our own business and those of our customers, vendors and other business partners.

As our products and services serve companies across a broad range of industries, in some instances demand has increased or is returning to levels associated with pre-pandemic conditions while others continue to be depressed as a result of the societal impacts of the pandemic.

At present, while the rollout of vaccines does show promise of increased societal mobility and economic activity, the duration, severity and impact of the pandemic in various locations globally and the related economic volatility remain unclear.

Present State of Our Operations

During fiscal 2020, we took steps to lower our operating expenses as a result of the pandemic.

We continue to monitor the impacts of COVID-19 on our operations closely and could increase or take further steps to decrease expenses as we believe circumstances warrant.

Since the start of the pandemic there have not been any material changes to our assets on our balance sheet and, at present, we do not expect there to be material changes.

During the first fiscal quarter of 2021, we reviewed the potential impacts of the COVID-19 pandemic on goodwill and intangible assets and determined there to be no material impact at that time.

During fiscal 2020, we took steps to lower our operating expenses as a result of the pandemic and related economic volatility.

We continue to monitor the impacts of COVID-19 on our operations closely.

As conditions change we could take steps to increase or decrease expenses as we believe circumstances warrant.

Since the start of the pandemic there have not been any material adverse changes to our assets on our balance sheet and, at present, we do not expect there to be material adverse changes.

During the first half of fiscal 2021, we reviewed the potential impacts of the COVID-19 pandemic on goodwill and intangible assets and determined there to be no material impact at that time.

We also reviewed the potential impacts on future risks to the business as it relates to collections, returns and other business related items.

2 unchanged sentences

To date, travel restrictions and border closures have only had minor impacts on our ability to obtain inventory or manufacture or deliver products or services to our customers.

The impacts we have experienced have primarily impacted our IoT Solutions segment.

The impacts associated with border closures and travel restrictions related to COVID-19 that we have experienced primarily impacted our IoT Solutions segment and have improved with the passage of time.

We continue to monitor restrictions and border closures closely so we are positioned to mitigate the negative impacts of any future restrictions or closures.

It is possible, however, that future restrictions or closures could negatively harm our business.

A more recent issue impacting businesses globally that consume electronics components are significant shortages of materials.

Also, costs to ship goods, especially internationally, have recently increased significantly.

While we believe these issues are related to the pandemic and its economic impacts, the extent to which these issues are directly tied to the pandemic are not entirely clear.

Like many companies we have seen expanded lead times and higher costs to obtain necessary components.

We also have experienced higher shipping costs.

We believe these issues will have some negative impact on our operating results.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

While we are monitoring these issues closely, the exact potential impacts of these issues on our business and operating results are not entirely clear at this time.

Travel restrictions impacting people so far have not materially restrained our ability to assist our customers with on-site installation activities or product troubleshooting.

At present, we do not expect impacts on personal travel to be material to our business operations or financial results.

We have taken steps to restrain and monitor our operating expenses and therefore do not expect and such impacts to materially change the relationship between our costs and revenues.

At present, we do not expect impacts on personnel travel to be material to our business operations or financial results.

More recently, in fact, we have seen some increase in business related travel as significant numbers of individuals in certain parts of the world are being vaccinated.

We have taken steps to restrain and monitor our operating expenses and therefore do not expect such impacts to materially change the relationship between our costs and revenues.

Proactive Efforts to Mitigate the Negative Impacts of COVID-19

Like most companies, we have taken a range of actions with respect to how we operate to assure we comply with government restrictions and guidelines as well as best practices to protect the health and well-being of our employees and our ability to continue operating our business effectively.

To date, we have been able to operate our business effectively using these measures and to maintain all internal controls as documented and posted.

To date, we have been able to operate our business using these measures and to maintain effectively all internal controls as documented and posted.

We also have not experienced challenges in maintaining business continuity and do not expect to incur material expenditures to do so.

However, the impacts of the pandemic and efforts to mitigate the same have remained unpredictable and it remains possible that challenges may arise in the future.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

However, the impacts of the pandemic and efforts to mitigate the same remain fluid and it remains possible that challenges may arise in the future.

CONSOLIDATED RESULTS OF OPERATIONS

The following table sets forth selected information derived from our interim condensed consolidated statements of operations:

Three months ended December 31, % incr.

($ in thousands) 2020 2019 (decr.)

Three months ended March 31, % incr.

Six months ended March 31, % incr.

($ in thousands) 2021 2020 (decr.) 2021 2020 (decr.)

Revenue $ 77,301 100.0 % $ 73,447 100.0 % 5.2 $ 150,447 100.0 % $ 135,764 100.0 % 10.8

2 unchanged sentences

Operating expenses 37,087 48.0 34,917 47.5 6.2 78,252 52.1 65,864 48.5 18.8

Operating loss (146) (0.2) (483) (0.8) 69.8

Other expense, net (594) (0.8) (437) (0.7) NM

Loss before income taxes (740) (1.0) (920) (1.5) 19.6

Income tax benefit (433) (0.6) (1,128) (1.8) NM

Net (loss) income $ (307) (0.4) % $ 208 0.3 % (247.6)

Operating income 3,370 4.3 3,724 5.1 (9.5) 3,224 2.1 3,241 2.4 0.5

Other expense, net (168) (0.2) (1,595) (2.2) NM (762) (0.5) (2,032) (1.5) NM

Income before income taxes 3,202 4.1 2,129 2.9 50.4 2,462 1.6 1,209 0.9 (103.6)

Income tax expense (benefit) 274 0.4 125 0.2 NM (159) (0.1) (1,003) (0.7) NM

Net income $ 2,928 3.8 % $ 2,004 2.7 % 46.1 $ 2,621 1.7 % $ 2,212 1.6 % 18.5

REVENUE BY SEGMENT

Three months ended December 31, % incr.

($ in thousands) 2020 2019 (decr.)

Three months ended March 31, % incr.

Six months ended March 31, % incr.

($ in thousands) 2021 2020 (decr.) 2021 2020 (decr.)

IoT Products & Services $ 65,632 84.9 $ 66,890 91.1 (1.9) $ 127,412 84.7 % $ 121,503 89.5 % 4.9

2 unchanged sentences

IoT Products & Services

IoT Products & Services revenue increased 13.1% for the three months ended December 31, 2020 as compared to the same period in the prior fiscal year.

IoT Products & Services revenue decreased 1.9% for the three months ended March 31, 2021 as compared to the same period in the prior fiscal year.

This primarily was a result of:

• decreased sales of our cellular routers in the government transit sector primarily related to an existing customer in the prior year that was not repeated.

This decrease partially was offset by:

• increased sales within our embedded portfolio attributable to a large increase in demand from a specific medical device customer.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

IoT Products & Services revenue increased 4.9% for the six months ended March 31, 2021 as compared to the same period in the prior fiscal year.

This primarily was a result of:

• increased sales of our console servers primarily due to incremental revenue from our acquisition of Opengear in December 2019;

• increased sales of technical services.

• increased revenue from embedded and Xbee ® products.

This increase partially was offset by:

• decreased sales of our cellular routers primarily related to large sales to an existing customer for our cellular products in the prior year that was not repeated this year.

• decreased sales of our cellular routers in the government transit sector primarily related to an existing customer in the prior year that was not repeated this year.

IoT Solutions

IoT Solutions revenue increased 47.5% for the three months ended December 31, 2020 as compared to the same period in the prior fiscal year.

IoT Solutions revenue increased 78.0% and 61.5% for the three and six months ended March 31, 2021, respectively, as compared to the same periods in the prior fiscal year.

This primarily was a result of:

• additional new and existing customer deployments and equipment upgrades;

• an increase in recurring revenue from our subscription services as we service over 75,000 sites as of December 31, 2020, compared to nearly 67,000 sites as of December 31, 2019.

• new hardware installations with new and existing customers;

• increased recurring revenue from our subscription services as we service nearly 77,000 sites as of March 31, 2021, compared to nearly 67,000 sites as of December 2020.

COST OF GOODS SOLD AND GROSS PROFIT BY SEGMENT

Three months ended December 31, Basis point

Three months ended March 31, Basis point Six months ended March 31, Basis point

($ in thousands) 2021 2020 inc.

(decr.) 2021 2020 inc.

Cost of Goods Sold

2 unchanged sentences

Total cost of goods sold $ 36,844 47.7 % $ 34,806 47.4 % 30 $ 68,971 45.8 % $ 66,659 49.1 % (330)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Three months ended December 31, Basis point

Three months ended March 31, Basis point Six months ended March 31, Basis point

($ in thousands) 2021 2020 inc.

(decr.) 2021 2020 inc.

IoT Products & Services $ 34,457 52.5 % $ 35,460 53.0 % (50) $ 70,136 55.0 % $ 62,111 51.1 % 390

2 unchanged sentences

IoT Product & Services

IoT Products & Services gross profit margin increased 900 basis points for the three months ended December 31, 2020 as compared to the same period in the prior fiscal year.

IoT Products & Services gross profit margin decreased 50 basis points for the three months ended March 31, 2021 as compared to the same period in the prior fiscal year.

This decrease primarily was a result of:

• increased material overhead expenses associated with the production and distribution of our products as a result of global supply chain challenges.

IoT Products & Services gross profit margin increased 390 basis points for the six months ended March 31, 2021 as compared to the same period in the prior fiscal year.

This increase primarily was a result of:

• incremental gross profit from increased sales of our console servers, which have higher gross margins;

• a decrease in our cellular products gross profit which typically has lower gross margins;

• increased sales from our technical services, which typically has higher gross margins.

• incremental gross profit from our console servers due to the Opengear acquisition in December 2019;

• favorable product mix within our cellular router products.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

IoT Solutions

The IoT Solutions gross profit margin decreased 250 basis points for the three months ended December 31, 2020 as compared to the same period in the prior fiscal year.

This decrease primarily was a result of:

• higher portion of revenue attributed to hardware product sales, which carry a lower gross margin;

• increased freight and tariff charges incurred in first quarter of fiscal 2021;

• remediation and warranty claims in the first quarter of fiscal 2021 compared to the same period in the prior fiscal year.

This was partially offset by:

The IoT Solutions gross profit margin increased 290 basis points for the three months ended March 31, 2021 as compared to the same periods in the prior fiscal year.

This increase primarily was a result of:

• increased recurring subscription revenue, which typically has higher gross margins.

The IoT Solutions gross profit margin increased 20 basis points for the six months ended March 31, 2021 as compared to the same period in the prior fiscal year.

This increase primarily was a result of:

• increased recurring subscription revenue, which typically has higher gross margins.

This was partially offset by:

• increased revenue attributed to hardware product sales, which carry a lower gross margin;

• increased freight and tariff charges in the first half of fiscal 2021;

• increased remediation and warranty claims in the first quarter of fiscal 2021.

OPERATING EXPENSES

Below is our operating expenses and operating expenses as a percentage of total revenue:

Three months ended December 31, $ %

Three months ended March 31, $ % Six months ended March 31, $ %

($ in thousands) 2021 2020 incr.

(decr.) incr.

(decr.) 2021 2020 incr.

(decr.) incr.

Operating Expenses

2 unchanged sentences

General and administrative 10,134 13.1 % 8,791 12.0 % 1,343 15.3 24,549 16.3 % 17,346 12.8 % 7,203 41.5

Restructuring charge 733 1.0 % — — % 733 NM

Restructuring charge 161 0.2 % 38 — % 123 NM 894 0.6 % 38 — % 856 NM

Total operating expenses $ 37,087 48.0 % $ 34,917 47.5 % $ 2,170 6.2 $ 78,252 52.0 % $ 65,864 48.5 % $ 12,388 18.8

NM means not meaningful

The $10.2 million increase in operating expenses in the first quarter of fiscal 2021 from the first quarter of fiscal 2020 primarily was the result of:

• an increase of $5.5 million in earn-out expenses as a result of revenue from Opengear exceeding our previous estimate;

• an increase of $3.6 million in compensation related expenses primarily related to incremental salaries and bonuses from Opengear acquired in December 2019 and additional commission expense due to increased revenue performance of Opengear in the first quarter of fiscal 2021;

The $2.2 million increase in operating expenses in the second quarter of fiscal 2021 from the second quarter of fiscal 2020 primarily was the result of:

• an increase of $1.7 million in compensation related expenses primarily related to additional bonus and commission expense due to increased company performance;

• increased professional fees primarily associated with merger and acquisition expenses.

This increase partially was offset by:

• a decrease of $0.9 million in travel related expenses as events and travel were restricted due to the pandemic.

The $12.4 million increase in operating expenses in the first half of fiscal 2021 from the first half of fiscal 2020 primarily was the result of:

• an increase of $5.9 million in earn-out expenses primarily as a result of revenue from Opengear exceeding our previous estimate;

• an increase of $5.3 million in compensation related expenses primarily related to incremental salaries from the Opengear acquisition in December 2019, additional commission expense due to increased revenue performance of Opengear in the first quarter of fiscal 2021 and increased employee bonuses due to increased overall company performance;

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

• an increase in $1.1 million primarily related to incremental amortization due to the acquisition of Opengear acquired in December 2019;

• a $0.9 million increase in professional fees;

• a $0.7 million increase related to severance expense from the restructuring that took place during the first quarter of fiscal 2021.

• other increases primarily related to incremental amortization expenses due to the Opengear acquisition in December 2019, restructuring charges and maintenance agreements;

This increase partially was offset by:

• a decrease of $1.9 in acquisition expenses;

• a decrease of $0.8 million in travel related expenses as events and travel were restricted due to COVID-19.

OPERATING INCOME (LOSS)

Operating loss was $0.1 million for the first quarter of fiscal 2021, compared to an operating loss of $0.5 million for the first quarter of 2020.

IoT Product & Services provided operating income of $1.3 million in the first quarter of fiscal 2021 compared to $4.4 million in the first quarter of fiscal 2020, a decrease of $3.1 million, or 71.1%.

Included in the first quarter of fiscal 2021 was an earn-out adjustment of $5.8 million.

Other drivers for the decrease in operating income are described above in the revenue, gross profit and operating expenses details.

IoT Solutions had an operating loss of $1.4 million in the first quarter of fiscal 2021 compared to an operating loss of $4.9 million in the first quarter of fiscal 2020, an improvement of $3.5 million, or 71.0%.

• a decrease of $1.8 million in travel related expenses as events and travel were restricted due to the pandemic.

OPERATING INCOME

Operating income was $3.4 million for the second quarter of fiscal 2021, compared to $3.7 million for the second quarter of fiscal 2020.

Operating income was $3.2 million for the both the first half of fiscal 2021 and the first half of fiscal 2020.

IoT Product & Services provided operating income of $4.6 million in the second quarter of fiscal 2021 compared to $8.4 million in the second quarter of fiscal 2020, a decrease of $3.8 million, or 45.2%.

IoT Product & Services provided operating income of $5.9 million in the first half of fiscal 2021 compared to $12.8 million in the first half of fiscal 2020, a decrease of $6.9 million, or 54.1%.

Drivers for the decrease in operating income for both the quarter and year-to-date periods are described above in the revenue, gross profit and operating expenses details.

IoT Solutions had an operating loss of $1.2 million in the second quarter of fiscal 2021 compared to an operating loss of $4.6 million in the second quarter of fiscal 2020, an improvement of $3.4 million, or 73.8%.

IoT Solutions had an operating loss of $2.6 million in the first half of fiscal 2021 compared to an operating loss of $9.5 million in the first half of fiscal 2020, an improvement of $6.9 million, or 72.4%.

Drivers for the improvement in operating loss are described above in the revenue, gross profit and operating expenses details.

OTHER EXPENSE, NET

Three months ended December 31, $ %

Three months ended March 31, $ % Six months ended March 31, $ %

($ in thousands) 2021 2020 incr.

(decr.) incr.

(decr.) 2021 2020 incr.

(decr.) incr.

Other expense, net

Interest income $ 1 — % $ 50 0.1 % $ (49) (98.0) $ 1 — % $ 281 0.2 % $ (280) (99.6)

Interest expense (402) (0.5) % (432) (0.7) % 30 (6.9)

Interest expense (246) (0.3) % (1,734) (2.4) % 1,488 NM (648) (0.4) % (2,166) (1.6) % 1,518 (70.1)

Other expense, net 77 0.1 % 89 0.1 % (12) (13.5) (115) (0.1) % (147) (0.1) % 32 (21.8)

Total other expense, net $ (594) (0.8) % $ (437) (0.7) % $ (157) NM

Total other expense, net $ (168) (0.2) % $ (1,595) (2.2) % $ 1,427 NM $ (762) (0.5) % $ (2,032) (1.5) % $ 1,270 NM

NM means not meaningful

The $0.2 million increase in other expense, net in the first quarter of fiscal 2021 from the first quarter of fiscal 2020 primarily was the result of a decrease in interest income of $0.2 million related to the money market fund that was closed in December 2019.

Other expense, net, improved $1.4 million and $1.3 million for the three and six months periods ended March 31, 2021, respectively, as compared to the same periods in the prior fiscal year.

The improvement was primarily due to the decrease interest expense as we paid down our term loan and paid off our revolving loan under the prior Credit Facility and subsequently in March 2021, refinanced the balance of our term loan with a revolving loan.

(see Note 7 to the condensed consolidated financial statements).

See Note 11 to the condensed consolidated financial statements for discussion of income taxes.

6 unchanged sentences

In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles.

We believe that non-GAAP measures have limitations in that they do not

We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP.

We believe these

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

reflect all of the amounts associated with our results of operations as determined in accordance with GAAP.

We believe these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.

measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.

Additionally, Adjusted EBITDA does not reflect our cash expenditures, the cash requirements for the replacement of depreciated and amortized assets, or changes in or cash requirements for our working capital needs.

6 unchanged sentences

Below are reconciliations from GAAP to Non-GAAP information that we feel is important to our business:

Reconciliation of Net (Loss) Income to Adjusted EBITDA

Reconciliation of Net Income to Adjusted EBITDA

(In thousands)

Three months ended December 31,

Three months ended March 31, Six months ended March 31,

2021 2020 2021 2020

revenue % of total

Total revenue $ 77,301 100.0 % $ 73,447 100.0 % $ 150,447 100.0 % $ 135,764 100.0 %

Net (loss) income $ (307) $ 208

Net income $ 2,928 $ 2,004 $ 2,621 $ 2,212

Interest expense, net 245 1,684 647 1,885

10 unchanged sentences

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Reconciliation of Net (Loss) Income and Net (Loss) Income per Diluted Share to

Reconciliation of Net Income and Net Income per Diluted Share to

Adjusted Net Income and Adjusted Net Income per Diluted Share

(In thousands, except per share amounts)

Three months ended December 31,

Net (loss) income and net (loss) income per diluted share $ (307) $ (0.01) $ 208 $ 0.01

Three months ended March 31, Six months ended March 31,

2021 2020 2021 2020

Net income and net income per diluted share $ 2,928 $ 0.09 $ 2,004 $ 0.07 $ 2,621 $ 0.08 $ 2,212 $ 0.07

Amortization 3,927 0.12 4,116 0.14 7,888 0.25 6,564 0.22

12 unchanged sentences

Diluted weighted average common shares 32,223 29,486 31,436 29,585

30,532 29,614

(1) The tax effect from the above adjustments assumes an estimated effective tax rate of 18.0% for fiscal 2021 and 20.2% for fiscal 2020 based on adjusted net income.

(2) For the three months ended December 30, 2020, discrete tax benefits primarily are a result of excess tax benefits recognized on stock compensation.

For the three months ended December 31, 2019, discrete tax benefits were primarily a result of excess tax benefits on stock compensation and an adjustment of our state deferred tax rate due to the Opengear acquisition.

(2) For the three and six months ended March 31, 2021, discrete tax benefits primarily are a result of excess tax benefits recognized on stock compensation.

For the three months ended March 31, 2020, discrete tax benefits were primarily a result of excess tax benefits on stock compensation.

For the six months ended March 31, 2020, discrete tax benefits were primarily a result of excess tax benefits on stock compensation and an adjustment of our state deferred tax rate due to the Opengear acquisition.

(3) Adjusted net income per diluted share may not add due to the use of rounded numbers.

(4) Diluted weighted average common shares for the three months ended December 31, 2020 include 1,157,727 common stock options and restricted stock units due to the adjusted net income position.

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

Our liquidity requirements arise from our working capital needs, and to a lesser extent, our need to fund capital expenditures to support our current operations and facilitate growth and expansion.

In the first quarter of fiscal 2020, we incurred debt of $110 million associated with our acquisition of Opengear.

As of December 31, 2020, $100 million remained available under the Revolving Loan, which included $10 million available for a letter of credit subfacility and $10 million available under a swingline subfacility, the outstanding amounts of which decrease the available commitment.

During the first quarter of fiscal 2021, we repaid the final $15 million of the Revolving Loan.

On March 15, 2021, we entered into an amended and restated credit agreement consisting of a $200 million revolving loan.

The $47.5 million term loan outstanding from the prior credit agreement was replaced by this new revolving loan along with additional proceeds of $0.6 million for a total of $48.1 million at March 31, 2021.

As of March 31, 2021, $151.9 million remained available under the Revolving Loan, which included $10 million available for a letter of credit subfacility and $10 million available under a swingline subfacility, the outstanding amounts of which decrease the available commitment.

During the first quarter of fiscal 2021, we repaid the final $15 million of the Revolving Loan under the prior credit agreement.

For additional information regarding the terms of our Credit Facility, including the Revolving Loan and its subfacilities, see Note 7 to our condensed consolidated financial statements.

1 unchanged sentence

We believe that our current cash and cash equivalents balances, cash generated from operations and our ability to borrow under our credit facility will be sufficient to fund our business operations and capital expenditures for the next twelve months and beyond.

As follows, our condensed consolidated statement of cash flows for the three months ended December 31, 2020 and 2019 is summarized:

Three months ended December 31,

As follows, our condensed consolidated statement of cash flows for the six months ended March 31, 2021 and 2020 is summarized:

Six months ended March 31,

($ in thousands) 2021 2020

3 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents 148 1,578

Net decrease in cash and cash equivalents $ (4,866) $ (43,720)

Net increase (decrease) in cash and cash equivalents $ 73,060 $ (34,706)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

2 unchanged sentences

This primarily was due to a decrease in accounts receivable due to ramped up collections in the current fiscal year in addition to increased accounts receivable in the prior fiscal year;

There was also an increase in accrued liabilities, partially offset by a decrease in accounts payable in the current fiscal year;

• a decrease in net income of $0.5 million, partially offset by non-cash adjustments of $7.9 million.

These non-cash adjustments include an accrual for additional earn-out provision.

• an increase in net income of $0.4 million and non-cash adjustments of $9.9 million.

These non-cash adjustments include an accrual for additional earn-out provision and increase depreciation and amortization.

Cash flows from investing activities increased $128.1 million primarily as a result of:

• an increase of $136.1 million related to the purchase of Opengear in the prior fiscal year,

• a partial offset to these decreases was $0.6 million related to additional purchases of property, equipment, and facilities improvements in the prior fiscal year.

• a partial offset to this decrease was $7.1 million related to the purchase of Haxiot in the current fiscal year and an additional $0.9 million related to purchases of property, equipment, and facilities improvements compared to the prior fiscal year.

Cash flows from financing activities decreased $52.9 million primarily as a result of:

• a decrease of $110.0 related to proceeds of long-term debt from the Revolving Loan and Term Loan in the prior fiscal year (see Note 7 to the condensed consolidated financial statements);

• a decrease of $15.6 million related to payments on long-term debt.

• a decrease of $109.4 related to proceeds of $110.0 long-term debt from the Revolving Loan and Term Loan in the prior fiscal year partially offset by proceeds of $0.6 million from the Revolving Loan in the current fiscal year (see Note 7 to the condensed consolidated financial statements);

• a decrease of $15.0 million related to additional payments on long-term debt;

• a decrease of $4.2 million related to the financing portion of acquisition earn-out payments for the Opengear acquisition;

• a partial offset to these decreases was an increase of $73.8 million due to the proceeds from issuance of common stock (see Note 8 to the condensed consolidated financial statements) and a $1.8 million increase in proceeds from stock award plans.

CONTRACTUAL OBLIGATIONS

The following table summarizes our contractual obligations at December 31, 2020:

The following table summarizes our contractual obligations at March 31, 2021:

Payments due by fiscal period

2 unchanged sentences

Contingent consideration $ 8,000 $ 3,000 $ 5,000 $ — $ —

Term loan $ 47,500 $ 2,500 $ 7,500 $ 37,500 $ —

Revolving loan $ 48,118 $ — $ — $ 48,118 $ —

Interest on long-term debt $ 4,903 $ 981 $ 1,961 $ 1,961 $ —

2 unchanged sentences

The table above does not include possible payments for uncertain tax positions.

Our reserve for uncertain tax positions, including accrued interest and penalties, was $2.6 million as of December 31, 2020.

Our reserve for uncertain tax positions, including accrued interest and penalties, was $2.6 million as of March 31, 2021.

Due to the nature of the underlying liabilities and the extended time often needed to resolve income tax uncertainties, we cannot make reliable estimates of the amount or timing of future cash payments that may be required to settle these liabilities.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis