What changed in this filing

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Item 1. Financial Statements

2022-05-06 compared with 2022-02-04 · 154 added, 120 removed, 469 unchanged (37% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended December 31,

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

2022 2021 2022 2021

(in thousands, except per share data)

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Total operating expenses 44,420 37,087 88,502 78,252

Operating income (loss) 3,799 ( 146 )

Operating income 7,564 3,370 11,363 3,224

Other expense, net:

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Total other expense, net ( 4,324 ) ( 168 ) ( 9,324 ) ( 762 )

Loss before income taxes ( 1,201 ) ( 740 )

Income tax benefit ( 2,388 ) ( 433 )

Net income (loss) $ 1,187 $ ( 307 )

Net income (loss) per common share:

Income before income taxes 3,240 3,202 2,039 2,462

Income tax provision (benefit) 393 274 ( 1,995 ) ( 159 )

Net income $ 2,847 $ 2,928 $ 4,034 $ 2,621

Net income per common share:

Basic $ 0.08 $ 0.09 $ 0.12 $ 0.09

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three months ended December 31,

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

2022 2021 2022 2021

(in thousands)

Net income (loss) $ 1,187 $ ( 307 )

Other comprehensive (loss) income:

Net income $ 2,847 $ 2,928 $ 4,034 $ 2,621

Other comprehensive income (loss):

Foreign currency translation adjustment 52 ( 267 ) ( 160 ) 1,605

Other comprehensive (loss) income ( 212 ) 1,872

Other comprehensive income (loss) 52 ( 267 ) ( 160 ) 1,605

Comprehensive income $ 2,899 $ 2,661 $ 3,874 $ 4,226

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CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2021 September 30, 2021

March 31, 2022 September 30, 2021

(in thousands, except share data)

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Inventories 51,672 43,921

Income taxes receivables 10,738 2,698

Other current assets 7,358 3,869

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended December 31,

Six months ended March 31,

(in thousands)

Operating activities:

Net income (loss) $ 1,187 $ ( 307 )

Adjustments to reconcile net income to net cash (used for) provided by operating activities:

Net income $ 4,034 $ 2,621

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation of property, equipment and improvements 3,292 2,164

2 unchanged sentences

Deferred income tax provision 2,160 682

Loss on sale of property and equipment 4 70

Change in fair value of contingent consideration — 5,772

2 unchanged sentences

Restructuring charge 109 894

Other ( 122 ) ( 8 )

Changes in operating assets and liabilities (net of acquisitions) ( 37,272 ) ( 4,829 )

Net cash (used for) provided by operating activities ( 9,885 ) 8,312

Net cash (used in) provided by operating activities ( 4,004 ) 21,297

Investing activities:

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Payments on long-term debt ( 107,050 ) ( 15,625 )

Payments for contingent consideration — ( 4,200 )

Proceeds from issuance of stock, net of offering expenses — 73,830

Proceeds from stock option plan transactions 5,598 6,620

1 unchanged sentence

Taxes paid for net share settlement of share-based payment options and awards ( 6,408 ) ( 1,865 )

Net cash provided by (used for) financing activities 252,724 ( 12,793 )

Net cash provided by financing activities 242,810 59,997

Effect of exchange rate changes on cash and cash equivalents ( 666 ) 148

Net decrease in cash and cash equivalents ( 105,244 ) ( 4,866 )

Net (decrease) increase in cash and cash equivalents ( 111,046 ) 73,060

Cash and cash equivalents, beginning of period 152,432 54,129

2 unchanged sentences

Transfer of inventory to property, equipment and improvements $ ( 1,215 ) $ ( 1,399 )

Contingent consideration recognized related to acquisition of business $ — $ ( 8,000 )

Tenant improvement allowance $ — $ ( 1,000 )

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Additional Accum.

Additional Other Total

Common Stock Treasury Stock Paid-In Retained Comprehensive Stockholders'

(in thousands) Shares Par Value Shares Value Capital Earnings Loss Equity

Balances, December 31, 2020 36,090 $ 361 6,412 $ ( 56,333 ) $ 285,536 $ 170,023 $ ( 21,945 ) $ 377,642

Net income — — — — — 2,928 — 2,928

Other comprehensive loss — — — — — — ( 267 ) ( 267 )

Issuance of common stock, net of offering expenses 4,025 40 — — 73,790 — — 73,830

Employee stock purchase plan issuances — — ( 18 ) 157 128 — — 285

Taxes paid for net share settlement of share-based payment awards — — 19 ( 419 ) — — — ( 419 )

Issuance of stock under stock award plans 327 3 — — 2,673 — — 2,676

Stock-based compensation expense — — — — 2,477 — — 2,477

Balances, March 31, 2021 40,442 $ 404 6,413 $ ( 56,595 ) $ 364,604 $ 172,951 $ ( 22,212 ) $ 459,152

Balances, September 30, 2020 35,513 $ 355 6,353 $ ( 55,109 ) $ 279,741 $ 170,330 $ ( 23,817 ) $ 371,500

Net loss — — — — — ( 307 ) — ( 307 )

Net income — — — — — 2,621 — 2,621

Other comprehensive income — — — — — — 1,605 1,605

Issuance of common stock, net of offering expenses 4,025 40 — — 73,790 — — 73,830

Employee stock purchase plan issuances — — ( 43 ) 379 240 — — 619

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Stock-based compensation expense — — — — 4,222 — — 4,222

Balances, March 31, 2021 40,442 $ 404 6,413 $ ( 56,595 ) $ 364,604 $ 172,951 $ ( 22,212 ) $ 459,152

Balances, December 30, 2021 41,413 $ 414 6,447 $ ( 58,100 ) $ 372,797 $ 181,879 $ ( 22,958 ) $ 474,032

Net income — — — — — 2,847 — 2,847

Other comprehensive income — — — — — — 52 52

Employee stock purchase plan issuances — — ( 19 ) 173 177 — — 350

Taxes paid for net share settlement of share-based payment options and awards — — 19 ( 383 ) — — — ( 383 )

Issuance of stock under stock award plans 112 1 — — 1,363 — — 1,364

Stock-based compensation expense — — — — 2,242 — — 2,242

Balances, March 31, 2022 41,525 $ 415 6,447 $ ( 58,310 ) $ 376,579 $ 184,726 $ ( 22,906 ) $ 480,504

Balances, September 30, 2021 40,653 $ 407 6,391 $ ( 56,535 ) $ 370,699 $ 180,692 $ ( 22,746 ) $ 472,517

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Employee stock purchase plan issuances — — ( 37 ) 334 337 — — 671

Taxes paid for net share settlement of share-based payment options and awards — — 74 ( 1,726 ) ( 4,299 ) — — ( 6,025 )

Taxes paid for net share settlement of share-based payment awards — — 93 ( 2,109 ) ( 4,299 ) — — ( 6,408 )

Issuance of stock under stock award plans 872 8 — — 5,583 — — 5,591

Stock-based compensation expense — — — — 4,259 — — 4,259

Balances, December 31, 2021 41,413 $ 414 6,447 $ ( 58,100 ) $ 372,797 $ 181,879 $ ( 22,958 ) $ 474,032

Balances, March 31, 2022 41,525 $ 415 6,447 $ ( 58,310 ) $ 376,579 $ 184,726 $ ( 22,906 ) $ 480,504

The accompanying notes are an integral part of the condensed consolidated financial statements.

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The quarterly results of operations are not necessarily indicative of the results to be expected for the full year.

Potential Impacts of COVID-19 on our Business

The impact of the coronavirus ("COVID-19") pandemic continues to unfold.

The extent of the pandemic's effect on our operational and financial performance will depend in large part on future developments, which cannot be reasonably estimated at this time.

Future developments include the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact both within and outside the jurisdictions where we operate, the impact on governmental programs and budgets, the development of treatments or vaccines, and the timing and level of resumption of widespread economic activity.

Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations.

Potential Impacts of Macroeconomic Conditions on our Business

Our business is effected by present macroeconomic conditions including the ongoing pandemic, supply chain disruptions, the war in Ukraine and inflation.

The impact of each of these items is volatile and continues to evolve.

The extent of impact stemming from any individual factor or combination of factors on our operational and financial performance will depend in large part on future developments, which cannot be reasonably estimated at this time and could vary in scope and severity both individually and collectively based upon actions taken by governments and other entities to mitigate impacts both within and outside jurisdictions where we operate.

For a more detailed discussion see Part I, Item 1 in our Annual Report on Form 10-K for the year ended September 30, 2021 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of this Form 10-Q.

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We believe this is a complementary acquisition for us as it significantly enhances our IoT Solutions segment by enhancing Digi's service portfolio and immediately extends the company's market reach with a Managed Network-as-a-Service ("MNaaS") solutions offering.

Costs directly related to the acquisition of $ 3.1 million incurred fiscal year to date 2022 have been charged to operations and are included in general and administrative expense in our condensed statements of operations.

Costs directly related to the acquisition of $ 4.0 million incurred fiscal year to date 2022 have been charged to operations and are included in general and administrative expense in our condensed consolidated statements of operations.

These acquisition costs include legal, accounting, valuation and investment banking fees.

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Total $ 350,000

The condensed consolidated balance sheet as of December 31, 2021 reflects the preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition.

Given the timing of the Ventus acquisition, the estimated fair value of the net assets acquired, liabilities assumed and identifiable intangible assets are preliminary and remain subject to change.

The condensed consolidated balance sheet as of March 31, 2022 reflects the preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition.

The estimated fair value of the net assets acquired, liabilities assumed and identifiable intangible assets are preliminary and remain subject to change, as preliminary purchase price allocation has not yet been completed.

Included in the fair value of net tangible assets acquired was $ 0.9 million of right-of-use asset included in other non-current assets and $ 0.9 million of lease liability included in other current liabilities and other non-current liabilities associated with Ventus’s operating leases.

Due to the timing of the acquisition, preliminary purchase price allocation has not yet been completed.

The preliminary weighted average useful life for all the identifiable intangibles listed above is estimated to be 19.2 years.

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The following consolidated pro forma information is presented as if the acquisition had occurred on October 1, 2020 (in thousands):

Three months ended December 31,

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

2022 2021 2022 2021

Net sales $ 94,713 $ 90,363 $ 184,035 $ 175,351

Net income ( 3,653 ) ( 7,783 )

Net income (loss) 2,578 2,058 ( 1,075 ) ( 5,725 )

Pro forma net income has been adjusted to include interest expense related to debt incurred as a result of the acquisition, amortization on the fair value of the intangibles acquired and remove any costs incurred with the sale transaction.

Net income for the three months ended December 31, 2020 was adjusted to include acquisition-related costs of $ 3.1 million.

Net income for the six months ended March 31, 2021 was adjusted to include acquisition-related costs of $3.1 million.

EARNINGS PER SHARE

The following table is a reconciliation of the numerators and denominators in the net income (loss) per common share calculations (in thousands, except per common share data):

Three months ended December 31,

Net income (loss) $ 1,187 $ ( 307 )

The following table is a reconciliation of the numerators and denominators in the net income per common share calculations (in thousands, except per common share data):

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

2022 2021 2022 2021

Net income $ 2,847 $ 2,928 $ 4,034 $ 2,621

Denominator for basic net income per common share — weighted average shares outstanding 35,015 30,900 34,785 30,129

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Denominator for diluted net income per common share — adjusted weighted average shares 35,608 32,223 35,710 31,436

Net income (loss) per common share, basic $ 0.03 $ ( 0.01 )

Net income (loss) per common share, diluted $ 0.03 $ ( 0.01 )

For the three months ended December 31, 2021 and 2020, there were 35,160 and 547,045 potentially dilutive shares, respectively.

These potentially dilutive shares were related to stock options to purchase common shares that were not included in the above computation of diluted earnings per common share since the options' exercise prices were greater than the average market price of our common shares.

In addition, due to the net loss for the three months ended December 31, 2020, there were 1,157,727 common stock options and restricted stock units that were not included in the above computation of diluted earnings per share.

Net income per common share, basic $ 0.08 $ 0.09 $ 0.12 $ 0.09

Net income per common share, diluted $ 0.08 $ 0.09 $ 0.11 $ 0.08

Digi excludes certain stock options and restricted stock unit awards that would have an anti-dilutive effect on our diluted net income per share calculation.

For the three months ended March 31, 2022 and 2021, 1,129,393 and 994,096 shares outstanding were excluded, respectively.

For the six months ended March 31, 2022 and 2021, 735,611 and 864,744 were excluded, respectively.

SELECTED BALANCE SHEET DATA

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Inputs Considered as

December 31, 2021 Level 1 Level 2 Level 3

March 31, 2022 Level 1 Level 2 Level 3

Contingent consideration on acquired business $ 6,200 $ — $ — $ 6,200

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As a result, we reduced contingent consideration by $ 2.1 million in the third fiscal quarter of 2021.

The fair value of the remaining liability for contingent consideration for the acquisition of Haxiot was $ 5.9 million at December 31, 2021.

The fair value of the remaining liability for contingent consideration for the acquisition of Haxiot was $ 5.9 million at March 31, 2022.

In connection with our acquisition of Ctek, we agreed to make contingent earn-out payments, based upon certain revenue thresholds.

The fair value of the remaining liability for contingent consideration for the acquisition of Ctek was $ 0.3 million at December 31, 2021.

The fair value of the remaining liability for contingent consideration for the acquisition of Ctek was $ 0.3 million at March 31, 2022.

The following table presents a reconciliation of the contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):

Three months ended December 31,

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

2022 2021 2022 2021

Fair value at beginning of period $ 6,200 $ 10,000 $ 6,200 $ 4,228

Contingent consideration recognized for acquired business — 8,000 — 8,000

Contingent consideration payments — ( 10,000 ) — ( 10,000 )

Change in fair value of contingent consideration — — — 5,772

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The change in fair value of contingent consideration reflects our estimates of the probabilities of achieving the relevant targets and is discounted based on our estimated discount rate.

The fair value of the contingent consideration at December 31, 2021 is based on the probability of achieving the specified revenue thresholds for Haxiot and Ctek.

The fair value of the contingent consideration at March 31, 2022 is based on the probability of achieving the specified revenue thresholds for Haxiot and Ctek.

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Amortizable intangible assets were (in thousands):

December 31, 2021 September 30, 2021

March 31, 2022 September 30, 2021

amount Accum.

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Total $ 435,806 $ ( 120,009 ) $ 315,797 $ 224,643 $ ( 106,614 ) $ 118,029

Amortization expense was $ 6.3 million and $ 4.0 million for the three months ended December 31, 2021 and 2020, respectively.

Amortization expense was $ 7.0 million and $ 3.9 million for the three months ended March 31, 2022 and 2021, respectively and $ 13.4 million and $ 7.9 million for the six months ended March 31, 2022 and 2021, respectively.

Amortization expense is recorded on our condensed consolidated statements of operations within cost of sales and in general and administrative expense.

Estimated amortization expense related to intangible assets for the remainder of fiscal 2022 and the five succeeding fiscal years is (in thousands):

2022 (nine months) $ 20,717

2022 (six months) $ 13,716

2023 $ 24,996

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The changes in the carrying amount of goodwill by reportable segments are (in thousands):

Three months ended December 31,

Six months ended March 31, 2022

Products and Services IoT

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Foreign currency translation adjustment ( 413 ) 161 ( 252 )

Balance at December 31, 2021 $ 175,283 $ 167,215 $ 342,498

Balance at March 31, 2021 $ 174,252 $ 167,393 $ 341,645

Goodwill represents the excess of cost over the fair value of net identifiable assets acquired.

Goodwill is quantitatively tested for impairment on an annual basis as of June 30, or more frequently if events or circumstances occur which could indicate impairment.

We continue to have 2 reportable segments, our IoT Products & Services segment and our IoT Solutions segment (see Note 8 ).

We continue to have two reportable segments, our IoT Products & Services segment and our IoT Solutions segment (see Note 8 ).

Effective with the reorganization announcement on October 7, 2020, our IoT Products & Services business is now structured to include four reporting units under the IoT Products & Services segment, each with a reporting manager:

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We had four reporting units along with our IoT Solutions segment that were tested individually for impairment during our third quarter fiscal 2021 annual impairment test.

Following our acquisition of Ventus in November, 2021, we have 2 reporting units within our IoT Solutions segment that will be tested for impairment during our Fiscal 2022 annual impairment test in addition to the 4 reporting units included in IoT Products & Services.

Following our acquisition of Ventus in November, 2021, we have two reporting units within our IoT Solutions segment that will be tested for impairment during our Fiscal 2022 annual impairment test in addition to the four reporting units included in IoT Products & Services.

GOODWILL AND OTHER INTANGIBLE ASSETS, NET (CONTINUED)

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At June 30, 2021, fair value exceeded the carrying value by more than 20% for all five reporting units.

Implied fair values for both reporting units were each calculated on a standalone basis using a weighted combination of the income approach and market approach.

Implied fair values for each reporting unit was calculated on a standalone basis using a weighted combination of the income approach and market approach.

The implied fair values of each reporting unit were added together along with our unallocated assets to get an indicated value of total equity to which a range of indicated value of total equity was derived.

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In addition to paying interest on the outstanding balance under the Credit Facility, we are required to pay a commitment fee on the non-utilized commitments thereunder which is also reported in interest expense.

Our weighted average interest rate at December 31, 2021 was 4.58 %.

Our weighted average interest rate at March 31, 2022 was 4.93 %.

The debt issuance costs and remaining balance under the Prior Credit Facility totaled $ 2.3 million at November 1, 2021.

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The Revolving Loan is due in a lump sum payment at maturity on December 22, 2026.

The fair value of the Term Loan and Revolving Loan approximated carrying value at December 31, 2021.

The fair value of the Term Loan and Revolving Loan approximated carrying value at March 31, 2022.

In December 2021, Digi made a one-time payment of $ 50 million against the term loan.

In March 2022, Digi made a one-time payment of $ 11 million against the term loan.

INDEBTEDNESS (CONTINUED)

The following table is a summary of our long-term indebtedness at December 31, 2021 and September 30, 2021 (in thousands):

Balance at December 31, 2021 Balance at September 30, 2021

The following table is a summary of our long-term indebtedness at March 31, 2022 and September 30, 2021 (in thousands):

Balance at March 31, 2022 Balance at September 30, 2021

Revolving Loan $ — $ 48,118

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Total long-term debt, net of current portion $ 260,208 $ 45,799

The following table is a summary of future maturities of our aggregate long-term debt at December 31, 2021 (in thousands):

The following table is a summary of future maturities of our aggregate long-term debt at March 31, 2022 (in thousands):

Fiscal year Amount

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Among other provisions, these covenants require us to maintain a certain financial ratio (net leverage ratio and minimum fixed charge ratio).

At December 31, 2021, had no amounts drawn on the Revolving Loan Facility.

At March 31, 2022, we had no amounts drawn on the Revolving Loan Facility.

Amounts borrowed under the Credit Facility are secured by substantially all of our assets.

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Summary operating results for each of our segments were (in thousands):

Three months ended December 31,

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

2022 2021 2022 2021

IoT Products & Services $ 71,370 $ 65,632 $ 137,114 $ 127,412

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Total expended for property, plant and equipment was (in thousands):

Three months ended December 31,

Six months ended March 31,

IoT Products & Services $ 1,664 $ 1,287

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Total expended for property, plant and equipment $ 1,664 $ 1,287

* Excluded from this amount is $699 and $882 of transfers of inventory to property plant and equipment for subscriber assets for the three months ended December 31, 2021 and 2020, respectively.

* Excluded from this amount is $ 1,215 and $ 1,399 of transfers of inventory to property plant and equipment for subscriber assets for the six months ended March 31, 2022 and 2021, respectively.

SEGMENT INFORMATION (CONTINUED)

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The following table summarizes our revenue by geographic location of our customers (in thousands):

Three months ended December 31,

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

2022 2021 2022 2021

North America, primarily the United States $ 73,790 $ 56,423 $ 140,033 $ 110,441

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The following table summarizes our revenue by the timing of revenue recognition (in thousands):

Three months ended December 31,

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

2022 2021 2022 2021

Transferred at a point in time $ 72,656 $ 69,144 $ 139,191 $ 133,332

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In these cases, we retain the ownership of the equipment that the customer uses.

The total net book value of subscriber assets of $ 9.8 million and $ 1.9 million as of December 31, 2021 and September 30, 2021, respectively, are included in property, equipment and improvements, net.

The December 31, 2021 balance includes $ 8.1 million acquired in the acquisition of Ventus.

Depreciation expense for these subscriber assets, which is included in cost of sales, was $ 0.8 million and $ 0.5 million for the three months ended December 31, 2021 and December 31, 2020, respectively.

We depreciate the cost of this equipment over its useful life (typically three years ).

The total net book value of subscriber assets of $ 9.6 million and $ 1.9 million as of March 31, 2022 and September 30, 2021, respectively, are included in property, equipment and improvements, net.

The March 31, 2022 balance includes $ 8.1 million acquired in the acquisition of Ventus.

Depreciation expense for these subscriber assets, which is included in cost of sales, was $ 1.1 million and $ 0.5 million for the three months ended March 31, 2022 and March 31, 2021, respectively and $ 1.9 million and $ 1.0 million for the six months ended March 31, 2022 and March 31, 2021, respectively.

We depreciate the cost of this equipment over its useful life.

Contract Liabilities

The timing of revenue recognition may differ from the timing of invoicing to customers.

Customers are invoiced for subscription services in advance on a monthly, quarterly or annual basis.

Contract liabilities consist of unearned revenue related to annual or multi-year contracts for subscription services and related implementation fees.

These pertain to our IoT Solutions segment and our Digi Remote Manager ® services in our IoT Products & Services segment.

Customers are invoiced for subscription services on a monthly, quarterly or annual basis.

Contract liabilities consist of unearned revenue related to annual or multi-year contracts for subscription services and related implementation fees, as well as product sales that have been invoiced, but not yet fulfilled.

REVENUE (CONTINUED)

Changes in unearned revenue were (in thousands):

Three months ended December 31,

Unearned revenue, beginning of period $ 15,488 $ 9,341

Unearned revenue assumed from Ventus acquisition 2,100 —

Billings 27,181 14,267

Revenue recognized ( 20,459 ) ( 10,542 )

Unearned revenue, end of period $ 24,310 $ 13,066

Our contract liabilities were $ 24.8 million and $ 16.4 million at March 31, 2022 and 2021, respectively.

The March 31, 2022 balance includes $ 2.1 million assumed from the Ventus acquisition completed in November 2021.

Of the $ 24.3 million and $ 13.1 million balances as of December 31, 2021 and 2021, Digi recognized $ 5.0 million and $ 4.0 million in the three months ended March 31, 2022 and 2021, respectively.

Of the $ 15.5 million and $ 9.3 million balances as of September 30, 2021 and 2020, Digi recognized $ 10.0 million and $ 7.3 million in the six months ended March 31, 2022 and 2021, respectively.

Remaining Transaction Price

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This includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods.

As of December 31, 2021, approximately $ 24.3 million of revenue is expected to be recognized from remaining performance obligations for subscription contracts.

As of March 31, 2022, approximately $ 24.8 million of revenue is expected to be recognized from remaining performance obligations.

We expect to recognize revenue on approximately $ 21.3 million of remaining performance obligations over the next twelve months .

Revenue from the remaining performance obligations we expect to recognize over a range of two to seven years .

Our income tax benefit was $ 2.4 million for the three months ended December 31, 2021.

Included in this benefit was a net tax benefit discretely related to the three months ended December 31, 2021 of $ 2.2 million.

Our income tax benefit was $ 2.0 million for the six months ended March 31, 2022.

Included in this benefit was a net tax benefit discretely related to the six months ended March 31, 2022 of $ 2.2 million.

This benefit primarily was the result of excess tax benefits recognized on stock compensation.

Income tax benefit was $ 0.4 million for the three months ended December 31, 2020.

Included in this benefit was a net tax benefit discretely related to the three months ended December 31, 2020 of $ 0.3 million.

Income tax benefit was $ 0.2 million for the six months ended March 31, 2021.

Included in this benefit was a net tax benefit discretely related to the six months ended March 31, 2021 of $ 0.8 million.

This benefit primarily was the result of excess tax benefits recognized on stock compensation.

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Expiration of statute of limitations ( 68 )

Unrecognized tax benefits as of December 31, 2021 $ 2,840

The total amount of unrecognized tax benefits at December 31, 2021 that, if recognized, would affect our effective tax rate was $ 2.6 million, after considering the impact of interest and deferred benefit items.

Unrecognized tax benefits as of March 31, 2022 $ 2,840

The total amount of unrecognized tax benefits at March 31, 2022 that, if recognized, would affect our effective tax rate was $ 2.7 million, after considering the impact of interest and deferred benefit items.

We expect that the total amount of unrecognized tax benefits will decrease by approximately $ 0.7 million over the next 12 months.

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Balance at Warranties Settlements Balance at

Period October 1 issued made December 31

Three months ended December 31, 2021 $ 707 $ 71 $ ( 120 ) $ 658

Three months ended December 31, 2020 $ 942 $ 123 $ ( 100 ) $ 965

Period January 1 issued made March 31

Three months ended March 31, 2022 $ 658 $ 124 $ ( 92 ) $ 690

Three months ended March 31, 2021 $ 965 $ 66 $ ( 108 ) $ 923

Balance at Warranties Settlements Balance at

Period October 1 issued made March 31

Six months ended March 31, 2022 $ 707 $ 195 $ ( 212 ) $ 690

Six months ended March 31, 2021 $ 942 $ 189 $ ( 208 ) $ 923

All of our leases are operating leases and primarily consist of leases for office space.

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We have elected to combine lease and non-lease components for all classes of assets.

Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheets.

Leases with an expected term of twelve months or less are not recorded on the condensed consolidated balance sheets.

Instead we recognize lease expense for these leases on a straight-line basis over the lease term.

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These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date.

We generally use a collateralized incremental borrowing rate based

on information available at the commencement date, including the lease term, in determining the present value of future payments.

We generally use a collateralized incremental borrowing rate based on information available at the commencement date, including the lease term, in determining the present value of future payments.

When determining our right-of-use asset, we generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised.

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The following table shows the supplemental balance sheet information related to our leases (in thousands):

Balance Sheet Location December 31, 2021 September 30, 2021

Balance Sheet Location March 31, 2022 September 30, 2021

Operating leases Operating lease right-of-use assets $ 15,435 $ 15,684

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Total lease liabilities $ 20,515 $ 21,001

LEASES (CONTINUED)

The following were the components of our lease cost which is recorded in both cost of goods sold and selling, general and administrative expense (in thousands):

Three months ended December 31,

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

2022 2021 2022 2021

Operating lease cost $ 945 $ 897 $ 1,882 $ 1,758

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The following table presents supplemental information related to operating leases (in thousands):

Three months ended December 31,

Six months ended March 31,

Cash paid for amounts included in the measurement of operating lease liabilities $ — $ 1,784

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Non-cash tenant improvement allowance $ — $ 1,000

LEASES (CONTINUED)

At December 31, 2021 the weighted average remaining lease term of our operating leases was 8.4 years and the weighted average discount rate for these leases was 3.1 %.

The table below reconciles the undiscounted cash flows for each of the first five years as well as all the remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet as of December 31, 2021 (in thousands):

At March 31, 2022 the weighted average remaining lease term of our operating leases was 8.5 years and the weighted average discount rate for these leases was 2.7 %.

Fiscal year Amount

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STOCK-BASED COMPENSATION

Stock-based awards were granted under the 2021 Omnibus Incentive Plan (the "2021 Plan") beginning January 29, 2021.

Stock-based awards were granted under the 2021 Omnibus Incentive Plan (as amended and restated, the "2021 Plan") beginning January 29, 2021.

Prior to that date, such awards made in fiscal 2021 were granted under the 2020 Omnibus Incentive Plan (the "2020 Plan").

Upon stockholder approval of the 2021 Plan, we ceased granting awards under the 2020 Plan.

Upon stockholder approval of the 2021 Plan on January 29, 2021, we ceased granting awards under the 2020 Plan.

On January 28, 2022, the stockholders approved the amendment and restatement of the 2021 Plan.

Shares subject to awards under the 2020 Plan or any prior plans that are forfeited, canceled, returned to us for failure to satisfy vesting requirements, settled in cash or otherwise terminated without payment also will be available for grant under the 2021 Plan.

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The 2021 Plan is scheduled to expire on January 28, 2032.

STOCK-BASED COMPENSATION (CONTINUED)

under the 2021 Plan can be granted as either incentive stock options or non-statutory stock options.

Options under the 2021 Plan can be granted as either incentive stock options or non-statutory stock options.

The exercise price of options and the grant date price of RSUs and PSUs is determined by our Compensation Committee but will not be less than the fair market value of our common stock based on the closing price as of the date of grant.

Upon exercise of options or settlement of vested restricted stock units or performance stock units, we issue new shares of stock.

As of December 31, 2021, there were approximately 755,017 shares available for future grants under the 2021 Plan.

Cash received from the exercise of stock options was $ 4.2 million and $ 3.9 million for the three months ended December 31, 2021 and December 31, 2020, respectively.

As of March 31, 2022, there were approximately 1,781,574 shares available for future grants under the 2021 Plan.

Cash received from the exercise of stock options was $ 5.6 million and $ 6.6 million for the six months ended March 31, 2022 and March 31, 2021, respectively.

Our equity plans and corresponding forms of award agreements generally have provisions allowing employees to elect to satisfy tax withholding obligations through the delivery of shares.

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Tax with withholding obligations otherwise occur by the employee paying cash to us for the withholding.

During the three months ended December 31, 2021 and 2020, our employees forfeited 611,415 shares and 83,928 shares, respectively, in order to satisfy respective withholding tax obligations of $ 6.0 million and $ 1.4 million, respectively.

During the six months ended March 31, 2022 and 2021, our employees forfeited 630,181 shares and 83,928 shares, respectively, in order to satisfy respective withholding tax obligations of $ 6.4 million and $ 1.9 million, respectively.

We sponsor an Employee Stock Purchase Plan as amended and restated as of December 10, 2019, October 29, 2013, December 4, 2009 and November 27, 2006 (the "ESPP"), covering all domestic employees with at least 90 days of continuous service and who are customarily employed at least 20 hours per week.

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The most recent amendments to the ESPP, ratified by our stockholders on January 29, 2020, increased the total number of shares to 3,425,000 that may be purchased under the plan.

ESPP contributions by employees were $ 0.3 million for the three months ended December 31, 2021 and December 31, 2020.

Pursuant to the ESPP, 17,936 and 25,246 common shares were issued to employees during the three months ended December 31, 2021 and December 31, 2020, respectively.

ESPP contributions by employees were $ 0.7 million and $ 0.6 million for the six months ended March 31, 2022 and March 31, 2021, respectively.

Pursuant to the ESPP, 36,987 and 25,246 common shares were issued to employees during the six months ended March 31, 2022 and March 31, 2021, respectively.

Shares are issued under the ESPP from treasury stock.

As of December 31, 2021, 615,134 common shares were available for future issuances under the ESPP.

As of March 31, 2022, 596,083 common shares were available for future issuances under the ESPP.

STOCK-BASED COMPENSATION (CONTINUED)

The following table shows stock-based compensation expense that is included in the consolidated results of operations (in thousands):

Three months ended December 31,

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

2022 2021 2022 2021

Cost of sales $ 131 $ 89 $ 217 $ 171

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Stock-based compensation after income taxes $ 1,772 $ 1,936 $ 3,359 $ 3,316

STOCK-BASED COMPENSATION (CONTINUED)

Stock Options

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Forfeited / Canceled ( 119 ) 16.85

Balance at December 31, 2021 2,262 $ 16.18 4.85 $ 19,000

Exercisable at December 31, 2021 1,008 $ 13.03 3.53 $ 11,636

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $ 24.57 as of December 31, 2021, which would have been received by the option holders had all option holders exercised their options as of that date.

Balance on March 31, 2022 2,173 $ 16.35 4.69 $ 11,887

Exercisable at March 31, 2022 1,035 $ 13.32 3.46 $ 8,519

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $ 21.52 as of March 31, 2022, which would have been received by the option holders had all option holders exercised their options as of that date.

The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price.

The total intrinsic value of all options exercised during the three months ended December 31, 2021 was $ 13.3 million and during the three months ended December 31, 2020 was $ 2.2 million.

The total intrinsic value of all options exercised during the six months ended March 31, 2022 was $ 13.9 million and during the six months ended March 31, 2021 was $ 5.1 million.

The following table shows the weighted average fair value, which was determined based upon the fair value of each option on the grant date utilizing the Black-Scholes option-pricing model and the related assumptions:

Three months ended December 31,

Six months ended March 31,

Weighted average per option grant date fair value $ 10.23 $ 7.42

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Expected dividend yield — —

STOCK-BASED COMPENSATION (CONTINUED)

The fair value of each option award granted during the periods presented was estimated using the Black-Scholes option valuation model that uses the assumptions noted in the above table.

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Treasury bond rate in effect at the time of the grant whose maturity equals the expected term of the option.

As of December 31, 2021, the total unrecognized compensation cost related to non-vested stock options was $ 4.8 million and the related weighted average period over which it is expected to be recognized is approximately 1.6 years.

STOCK-BASED COMPENSATION (CONTINUED)

As of March 31, 2022, the total unrecognized compensation cost related to non-vested stock options was $ 8.7 million and the related weighted average period over which it is expected to be recognized is approximately 1.8 years.

Non-vested Stock Units

The following table presents a summary of our non-vested restricted stock and performance stock units as of December 31, 2021 and changes during the three months then ended (in thousands, except per common share amounts):

The following table presents a summary of our non-vested restricted stock and performance stock units as of March 31, 2022 and changes during the six months then ended (in thousands, except per common share amounts):

Number of Awards Weighted Average Grant Date Fair Value Number of Awards Weighted Average Grant Date Fair Value

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Canceled ( 84 ) 16.15 — —

Nonvested at December 31, 2021 870 $ 18.42 15 $ 25.15

As of December 31, 2021, the total unrecognized compensation cost related to non-vested stock units was $ 9.5 million.

Nonvested at March 31, 2022 782 $ 18.62 15 $ 25.15

As of March 31, 2022, the total unrecognized compensation cost related to non-vested stock units was $ 12.8 million.

The related weighted average period over which this cost is expected to be recognized is approximately 1.7 years.

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 1. Financial Statements