What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2022-02-04 · 115 added, 89 removed, 172 unchanged (54% of the section changed)

9 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 impacts of the present global supply chain and transportation difficulties affecting business 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 integrate and realize the expected benefits of acquisitions such as our recently completed acquisition of Ventus., 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 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, risks arising from the present war in Ukraine, the impacts of the present global supply chain and transportation difficulties affecting business 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 integrate and realize the expected benefits of acquisitions such as our recently completed acquisition of Ventus, 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, 2021, 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.

14 unchanged sentences

In addition, this segment provides our customers with a device management platform and other professional services to enable customers to capture and manage data from devices connected to networks.

In the past this segment has benefited from significant one-time project based deployments.

During the pandemic we saw a decrease in proposals for such projects.

Recently we have seen some resumption of opportunities to make these project based sales, most notably in the areas mass transit and smart cities.

While there is no assurance we will be chosen for any such deployments, we view this renewed activity as a positive development for this segment.

Demand generally has been strong for many products in this segment during fiscal 2022 and has driven record sales bookings and backlogs that we are constrained to meet at present because of supply chain challenges.

On October 7, 2020, our Board of Directors approved a reorganization of our IoT Products & Services business segment.

11 unchanged sentences

food service, healthcare (primarily pharmacies and hospitals) and supply chain.

We initially formed, expanded and enhanced our SmartSense by Digi business through four acquisitions.Our recent acquisition of Ventus makes us a leader in the provision of Managed Network-as-a-Service ("MNaaS") solutions that simplify the complexity of enterprise wide area network ("WAN") connectivity for our customers and provides us with a significant base of high margin subscription based recurring revenue.

We initially formed, expanded and enhanced our SmartSense by Digi business through four acquisitions.

Our recent acquisition of Ventus makes us a leader in the provision of Managed Network-as-a-Service ("MNaaS") solutions that simplify the complexity of enterprise wide area network ("WAN") connectivity for our customers and provides us with a significant base of high margin subscription based recurring revenue.

Ventus’s portfolio includes cellular wireless and fixed line WAN solutions for an array of connectivity applications in banking, healthcare, retail, gaming, hospitality and other sectors.

Given our belief in the potential of this segment, we intend to make targeted investments in this segment designed to enhance its performance over time.

We compete for customers on the basis of existing and planned product features, service and software application capabilities, company reputation, brand recognition, technical support, alliance relationships, quality and reliability, product development capabilities, price and availability.

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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 2022 that we feel are most important in these evaluations:

• Consolidated revenue was $84.3 million, an increase of 15% over the first quarter of fiscal 2021.

• Consolidated gross profit was $47.9 million, an increase of 17% over the first quarter of fiscal 2021.

• Consolidated operating income was $3.8 million, compared to a net operating loss of $0.1 million for the first quarter of fiscal 2021.

• Net income was $1.2 million, compared to a net loss of $0.3 million in the first fiscal quarter of fiscal 2021.

• Diluted earnings (loss) per share was $0.03, compared to $(0.01).

• Adjusted EBITDA was $17.0 million, or 20.1% of total revenue, compared to $13.0 million, or 17.7% of total revenue

Below we highlight the metrics for the second quarter of fiscal 2022 that we feel are most important in these evaluations, with comparisons to the second quarter of fiscal 2021:

• Consolidated revenue was $94.7 million, an increase of 23%.

• Consolidated gross profit was $52.0 million, an increase of 28%.

• Consolidated operating income was $7.6 million, an increase of 124%.

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

in the first fiscal quarter of fiscal 2021.

• Adjusted net income and adjusted net income per share was $12.7 million, or $0.36 per diluted share, compared to $9.9 million, or $0.32 per diluted share in the first fiscal quarter of fiscal 2021, an increase of 13%.

Recent Events Impacting First Quarter Results

• Net income was $2.8 million, a decrease of 3%.

• Diluted earnings per share was $0.08, compared to $0.09.

• Adjusted EBITDA was $19.5 million, or 20.6% of total revenue, compared to $11.7 million, or 15.1%.

• Adjusted net income and adjusted net income per share was $14.5 million, or $0.41 per diluted share, compared to $8.6 million, or $0.27 per diluted share, an increase of 52%.

Recent Events Impacting Second Quarter Results

Acquisition of Ventus

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In the first quarter of fiscal 2022, the preliminary purchase price allocation was recorded, including related determinations of fair value and income tax implications.

As a result, we recorded $117 million of goodwill on our condensed consolidated balance sheets.

The results of operations following the acquisition date are now included in our first fiscal quarter 2022 results within our IoT Solutions segment.

As a result, we recorded $117 million of goodwill and $211 million of other intangibles on our condensed consolidated balance sheets.

The results of operations following the acquisition date are now included in our first and second fiscal quarters 2022 results within our IoT Solutions segment.

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) 2021 2020 (decr.)

Three months ended March 31, % incr.

Six months ended March 31, % incr.

($ in thousands) 2022 2021 (decr.) 2022 2021 (decr.)

Revenue $ 94,713 100.0 % $ 77,301 100.0 % 22.5 % $ 178,970 100.0 % $ 150,447 100.0 % 19.0 %

2 unchanged sentences

Operating expenses 44,420 46.9 37,087 48.0 19.8 88,502 49.5 78,252 52.0 13.1

Operating income 3,799 4.4 (146) (0.2) NM

Other expense, net (5,000) (5.9) (594) (0.8) NM

Operating income 7,564 7.9 3,370 4.4 124.5 11,363 6.3 3,224 2.1 252.5

Other expense, net (4,324) (4.6) (168) (0.2) NM (9,324) (5.2) (762) (0.5) NM

Income before income taxes 3,240 3.4 3,202 4.1 1.2 2,039 1.1 2,462 1.6 (17.2)

Income tax benefit (2,388) (2.8) (433) (0.6) NM

Net income (loss) $ 1,187 1.4 % $ (307) (0.4) % NM

Income tax expense (benefit) 393 0.4 274 0.4 43.4 (1,995) (1.1) (159) (0.1) NM

Net income $ 2,847 3.0 % $ 2,928 3.8 % (2.8) $ 4,034 2.3 % $ 2,621 1.7 % 53.9

REVENUE BY SEGMENT

Three months ended December 31, % incr.

($ in thousands) 2021 2020 (decr.)

Three months ended March 31, % incr.

Six months ended March 31, % incr.

($ in thousands) 2022 2021 (decr.) 2022 2021 (decr.)

IoT Products & Services $ 71,370 75.4 % $ 65,632 84.9 % 8.7 % $ 137,114 76.6 % $ 127,412 84.7 % 7.6

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IoT Products & Services

IoT Products & Services revenue increased 6.4% for the three months ended December 31, 2021 as compared to the same period in the prior fiscal year.

IoT Products & Services revenue increased 8.7% and 7.6% for the three and six months ended March 31, 2022, respectively, as compared to the same periods in the prior fiscal year.

This primarily was a result of:

• increased sales of our Cellular and OEM products.

• increased sales of console server and cellular products driven by demand for data center and edge based deployments.

This increase was partially offset by:

• decreased sales of our Console Servers, Infrastructure Management portfolio and Technical Services.

• decreased sales of certain embedded products, most notably in the second fiscal quarter.

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

IoT Solutions

IoT Solutions revenue increased 62.9% for the three months ended December 31, 2021, as compared to the same periods in the prior fiscal year.

IoT Solutions revenue increased 100.0% and 81.7% for the three and six months ended March 31, 2022, respectively, as compared to the same periods in the prior fiscal year.

This primarily was a result of:

• increased recurring revenue from our November 2021 acquisition of Ventus, as well as growth in both SmartSense and Ventus in the first fiscal quarter;

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

• an increase in sites serviced primarily as a result of our acquisition of Ventus, as we service nearly 271,000 sites as of December 31, 2021, including the newly acquired Ventus endpoints, compared to 75,000 sites as of December 31, 2020.

This increase was partially offset by:

• decreased customer implementation sales in SmartSense.

• increased recurring revenue from our November 2021 acquisition of Ventus and

• organic sales growth across the Solutions business, resulting in an increase of nearly 10,000 additional sites served with noted strength in the areas of gaming, healthcare and point of sale.

These increases were partially offset by:

• decreased customer implementation sales.

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) 2022 2021 inc.

(decr.) 2022 2021 inc.

Cost of Goods Sold

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Total cost of goods sold $ 42,729 45.1 % $ 36,844 47.7 % (260) $ 79,105 44.2 % $ 68,971 45.8 % (160)

Three months ended December 31, Basis point

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

($ in thousands) 2022 2021 inc.

(decr.) 2022 2021 inc.

IoT Products & Services $ 38,461 53.9 % $ 34,457 52.5 % 140 $ 74,136 54.1 % $ 70,136 55.0 % (90)

2 unchanged sentences

IoT Product & Services

IoT Products & Services gross profit margin decreased 349 basis points for the three months ended December 31, 2021 as compared to the same period in the prior fiscal year.

IoT Products & Services gross profit margin increased 140 basis points for the three months ended March 31, 2022 as compared to the same period in the prior fiscal year.

This increase primarily was a result of:

• changes in product and customer mix, partially offset by increased production and distribution costs due to the continuing supply chain challenges.

IoT Products & Services gross profit margin decreased 90 basis points for the six months ended March 31, 2022 as compared to the same period in the prior fiscal year.

This decrease primarily was a result of:

• changes in product and customer mix and increased production and distribution costs due to the continuing supply chain challenges.

• changes in product and customer mix, as well as increased production and distribution costs due to the continuing supply chain challenges.

IoT Solutions

The IoT Solutions gross profit margin increased (1,895) basis points for the three months ended December 31, 2021 as compared to the same periods in the prior fiscal year.

The IoT Solutions gross profit margin increased 650 basis points for the three months ended March 31, 2022 as compared to the same periods in the prior fiscal year.

This increase primarily was a result of:

• increased recurring subscription revenue, including growth from the acquisition of Ventus, which typically has high gross margin.

• increased recurring subscription revenue, including growth from the acquisition of Ventus, which typically has a high gross margin.

The IoT Solutions gross profit margin increased 1,230 basis points for the six months ended March 31, 2022 as compared to the same periods in the prior fiscal year.

This increase primarily was a result of:

• increased recurring subscription revenue, including growth from the acquisition of Ventus, which typically has a high gross margin.

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

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) 2022 2021 incr.

(decr.) incr.

(decr.) 2022 2021 incr.

(decr.) incr.

Operating Expenses

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NM means not meaningful

The $2.9 million increase in operating expenses in the first quarter of fiscal 2022 from the first quarter of fiscal 2021 primarily was the result of:

• an incremental $3.3 million in M&A expense related to the Ventus acquisition in November 2021;

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

• $4.7 million in incremental operating expenses from recent acquisitions including Haxiot, Ctek and Ventus.

These increases were partially offset by:

• a decrease of $5.8 million in contingent consideration expenses;

• A decrease of $0.6 million in restructuring charges.

OPERATING INCOME (LOSS)

Operating income was $3.8 million for the three months ended December 31, 2021, compared to an operating loss of $0.1 million for the three months ended December 31, 2020.

IoT Product & Services provided operating income of $4.1 million for the three months ended December 31, 2021 compared to $1.3 million for the three months ended December 31, 2020, an increase of $2.8 million, or 224.3%.

Drivers for the changes in operating income for the quarter are described above in the revenue, gross profit and operating expenses details.

IoT Solutions had an operating loss of $(0.3) million for the three months ended December 31, 2021 compared to an operating loss of $(1.4) million for the three months ended December 31, 2020, an increase of $1.1 million, or (77.6)%.

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

The $7.3 million increase in operating expenses in the second quarter of fiscal 2022 from the second quarter of fiscal 2021 primarily was the result of:

• incremental operating expenses from recent acquisitions including Haxiot, Ctek and Ventus.

The $10.3 million increase in operating expenses in the first half of fiscal 2022 from the first half of fiscal 2021 primarily was the result of:

• incremental operating expenses from our recent acquisitions of Haxiot, Ctek and Ventus.

This increase was partially offset by:

• $5.8 million in contingent consideration expenses in prior year and a decrease in restructuring charges.

OPERATING INCOME

Operating income was $7.6 million for the three months ended March 31, 2022, compared to $3.4 million for the three months ended March 31, 2021.

Operating income was $11.4 million for the six months ended March 31, 2022, compared to $3.2 million for the six months ended March 31, 2021.

IoT Product & Services provided operating income of $9.0 million for the three months ended March 31, 2022 compared to $4.6 million for the three months ended March 31, 2021, an increase of $4.5 million, or 97.4%.

IoT Product & Services provided operating income of $13.2 million for the six months ended March 31, 2022 compared to $5.9 million for the six months ended March 31, 2021, an increase of $7.3 million, or 125.0%.

Drivers for the changes in operating income for the 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 $1.5 million for the three months ended March 31, 2022 compared to an operating loss of $1.2 million for the three months ended March 31, 2021, an increase of $0.3 million, or 22.4%.

IoT Solutions incurred an operating loss of $1.8 million for the six months ended March 31, 2022 compared to $2.6 million for the six months ended March 31, 2021, a decrease of $0.8 million, or 31.4%.

Drivers for the changes in operating loss for the both the quarter and year-to-date periods 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) 2022 2021 incr.

(decr.) incr.

(decr.) 2022 2021 incr.

(decr.) incr.

Other expense, net

Interest income $ 5 — % $ — — % $ 5 NM

Interest expense (4,903) (5.8) % (402) (0.5) % (4,501) NM

Other expense, net (102) (0.1) % (192) (0.3) % 90 NM

Total other expense, net $ (5,000) (5.9) % $ (594) (0.8) % $ (4,406) NM

NM means not meaningful

Other expense, net, increased $(4.4) million for the three months ended December 31, 2021, as compared to the same period in the prior fiscal year.

The increase was primarily a result of an increase to our interest expense as we refinanced our revolving loan with a new credit facility in November 2021 and wrote off a portion of the deferred financing fees associated with our prior credit facility.

Interest income $ 2 — % $ 1 — % $ 1 NM $ 7 — % $ 1 — % $ 6 NM

Interest expense (4,465) (4.7) % (246) (0.3) % (4,219) NM (9,368) (5.2) % (648) (0.4) % (8,720) NM

Other expense, net 139 0.1 % 77 0.1 % 62 NM 37 — % (115) (0.1) % 152 NM

Total other expense, net $ (4,324) (4.6) % $ (168) (0.2) % $ (4,156) NM $ (9,324) (5.2) % $ (762) (0.5) % $ (8,562) NM

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

Other expense, net, increased $4.2 million and $8.6 million for the three and six months ended March 31, 2022, respectively, as compared to the same period in the prior fiscal year.

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

9 unchanged sentences

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.

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

stock-based compensation, other non-operating income/expense, adjustments to estimates of contingent consideration, acquisition-related expenses and interest expense related to acquisition permits investors to compare results with prior periods that did not include these items.

We believe that providing historical and adjusted net income and adjusted net income per diluted share, respectively, exclusive of such items as reversals of tax reserves, discrete tax benefits, restructuring charges and reversals, intangible amortization, stock-based compensation, other non-operating income/expense, adjustments to estimates of contingent consideration, acquisition-related expenses and interest expense related to acquisition permits investors to compare results with prior periods that did not include these items.

Management uses the aforementioned non-GAAP measures to monitor and evaluate ongoing operating results and trends and to gain an understanding of our comparative operating performance.

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We believe this information helps compare operating results and corporate performance exclusive of the impact of our capital structure and the method by which assets were acquired.

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

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

1 unchanged sentence

(In thousands)

Three months ended December 31,

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

2022 2021 2022 2021

revenue % of total

Total revenue $ 94,713 100.0 % $ 77,301 100.0 % $ 178,970 100.0 % $ 150,447 100.0 %

1 unchanged sentence

Interest expense, net 4,463 245 9,361 647

Income tax benefit (2,388) (433)

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

Depreciation and amortization 8,784 5,002 16,646 10,052

4 unchanged sentences

Adjusted EBITDA $ 19,525 20.6 % $ 11,696 15.1 % $ 36,495 20.4 % $ 24,673 16.4 %

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

Reconciliation of Net Income and Net Income (Loss) 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 income (loss) and net income (loss) per diluted share $ 1,187 $ 0.03 $ (307) $ (0.01)

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

2022 2021 2022 2021

Net income and net income per diluted share $ 2,847 $ 0.08 $ 2,928 $ 0.09 $ 4,034 $ 0.11 $ 2,621 $ 0.08

Amortization 7,045 0.20 3,927 0.12 13,354 0.37 7,888 0.25

Stock-based compensation 2,242 0.06 2,477 0.08 4,259 0.12 4,222 0.13

Other non-operating expense 102 — 192 0.01

Other non-operating income (139) — (77) — (37) — 115 —

Acquisition expense 796 0.02 609 0.02 4,081 0.11 624 0.02

1 unchanged sentence

Restructuring charge — — 161 — 109 — 894 0.03

Interest expense related to acquisition 4,898 0.14 402 0.01

Interest expense, net 4,463 0.13 248 0.01 9,361 0.26 650 0.02

Tax effect from the above adjustments (1)

6 unchanged sentences

(1) The tax effect from the above adjustments assumes an estimated effective tax rate of 18.0% for fiscal 2022 and fiscal 2021 based on adjusted net income.

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

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

(2) For the three and six months ended March 31, 2022 and March 31, 2021, discrete tax benefits primarily are a result of excess tax benefits recognized on stock compensation.

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

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

LIQUIDITY AND CAPITAL RESOURCES

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During the first quarter of fiscal 2022, we repaid all outstanding balances under the credit facility entered into on March 21, 2021.

As of December 31, 2021, $35.0 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.

As of March 31, 2022, $35.0 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.

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.

We expect positive cash flows from operations for the foreseeable future.

Our first fiscal quarter operating cash flows were negatively impacted by changes in operating assets and liabilities (net of acquisitions) that we do not anticipate in future periods.

Our second fiscal quarter operating cash flows were negatively impacted by changes in operating assets and liabilities (net of acquisitions) that we do not anticipate in future periods.

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 statements of cash flows for the three months ended December 31, 2021 and 2020 is summarized:

Year ended September 30,

As follows, our condensed consolidated statements of cash flows for the six months ended March 31, 2022 and 2021 is summarized:

Six months ended March 31,

($ in thousands) 2022 2021

4 unchanged sentences

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

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

Cash flows used for operating activities increased $18.2 million primarily as a result of:

• an increased reduction in operating assets and liabilities (net of acquisitions) of $18.2 million.

This primarily was due to the capitalization of $13.5 million in costs related to the issuance of debt in November and an increase in inventory and;

Cash flows used in operating activities increased $25.3 million primarily as a result of:

• a decrease in operating assets and liabilities (net of acquisitions) during the period of $37.3 million compared to $4.8 million in the six months ended March 31, 2021 and

• a reduction of $5.8 million in contingent consideration fair value changes.

• partially offset by increases in net income, depreciation and amortization expenses and stock-based compensation expenses.

Cash flows used for investing activities increased $347.3 million primarily as a result of:

• an increase of $347.6 million related to the purchase of our November 2021 acquisition of Ventus (see Note 2 to the condensed consolidated financial statements),

• a partial offset to this increase was a reduction of $0.3 million related to purchases of property, equipment, and facilities improvements compared to the prior fiscal year.

These increases were partially offset by:

• increases in depreciation and amortization expenses, the provision for inventory obsolescence and net income.

Cash flows used in investing activities increased $340.8 million almost entirely as a result of:

• an increase of $340.4 million used for acquisitions, primarily related to our November 2021 acquisition of Ventus (see Note 2 to the condensed consolidated financial statements).

Cash flows from financing activities increased $182.8 million primarily as a result of:

• an increase of $350.0 million in proceeds from the Term Loan issued in November 2021 partially offset by payments of $45.8 million of the previous credit facility, an early payment of $50.0 million on the new issuance and the payment of compared to $15.6 million in debt payments in first fiscal quarter 2020 (see Note 7 to the condensed consolidated financial statements),

• partially offset by a $4.6 million increase in taxes paid for net share settlements.

• an increase of $350.0 million in proceeds from the Term Loan issued in November 2021.

This increase was partially offset by:

• $73.8 million in proceeds from stock issuance in Q2 2021,

• payments of $45.8 million upon the closing of the Term Loan issued in November 2021 to retire the previous credit facility, and

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

• early payments of $61 million on the new Term Loan issued in November 2021 compared to $15.6 million in debt payments in fiscal 2021 on the previous credit facility (see Note 7 to the condensed consolidated financial statements).

CONTRACTUAL OBLIGATIONS

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

The following table summarizes our contractual obligations at March 31, 2022:

Payments due by fiscal period

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

Our reserve for uncertain tax positions, including accrued interest and penalties, was $2.9 million as of December 31, 2021.

Our reserve for uncertain tax positions, including accrued interest and penalties, was $3.0 million as of March 31, 2022.

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.

2 unchanged sentences

For information on new accounting pronouncements, see Note 1 to our condensed consolidated financial statements.

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

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