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Item 1. Financial Statements

2022-08-05 compared with 2022-05-06 · 118 added, 104 removed, 519 unchanged (30% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

Three months ended June 30, Nine months ended June 30,

2022 2021 2022 2021

33 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

Three months ended June 30, Nine months ended June 30,

2022 2021 2022 2021

1 unchanged sentence

Net income $ 4,126 $ 3,157 $ 8,160 $ 5,778

Other comprehensive income (loss):

Other comprehensive (loss) income:

Foreign currency translation adjustment ( 1,359 ) 463 ( 1,519 ) 2,068

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

Other comprehensive (loss) income ( 1,359 ) 463 ( 1,519 ) 2,068

Comprehensive income $ 2,767 $ 3,620 $ 6,641 $ 7,846

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2022 September 30, 2021

June 30, 2022 September 30, 2021

(in thousands, except share data)

3 unchanged sentences

Inventories 61,687 43,921

Income taxes receivables 10,738 2,698

Income taxes receivable 9,784 2,698

Other current assets 4,562 3,869

40 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended March 31,

Nine months ended June 30,

(in thousands)

1 unchanged sentence

Net income $ 8,160 $ 5,778

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

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation of property, equipment and improvements 4,993 3,211

9 unchanged sentences

Changes in operating assets and liabilities (net of acquisitions) ( 34,618 ) 3,144

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

Net cash provided by operating activities 15,454 42,084

Investing activities:

25 unchanged sentences

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

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

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

Net income — — — — — 3,157 — 3,157

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

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

Other comprehensive income — — — — — — 463 463

Other — — — — — 8 — 8

Employee stock purchase plan issuances — — ( 18 ) 160 137 — — 297

2 unchanged sentences

Stock-based compensation expense — — — — 2,110 — — 2,110

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

Balances, June 30, 2021 40,512 $ 405 6,401 $ ( 56,554 ) $ 367,253 $ 176,116 $ ( 21,749 ) $ 465,471

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

2 unchanged sentences

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

Other — — — — — 8 — 8

Employee stock purchase plan issuances — — ( 61 ) 540 376 — — 916

2 unchanged sentences

Stock-based compensation expense — — — — 6,331 — — 6,331

Balances, June 30, 2021 40,512 $ 405 6,401 $ ( 56,554 ) $ 367,253 $ 176,116 $ ( 21,749 ) $ 465,471

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

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

Net income — — — — — 4,126 — 4,126

Other comprehensive income — — — — — — 52 52

Other comprehensive loss — — — — — — ( 1,359 ) ( 1,359 )

Employee stock purchase plan issuances — — ( 23 ) 213 217 — — 430

2 unchanged sentences

Stock-based compensation expense — — — — 2,143 — — 2,143

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

Balances, June 30, 2022 41,677 $ 417 6,427 $ ( 58,165 ) $ 380,083 $ 188,852 $ ( 24,265 ) $ 486,922

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

5 unchanged sentences

Stock-based compensation expense — — — — 6,402 — — 6,402

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

Balances, June 30, 2022 41,677 $ 417 6,427 $ ( 58,165 ) $ 380,083 $ 188,852 $ ( 24,265 ) $ 486,922

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

23 unchanged sentences

The acquisition was funded through a combination of cash on hand and debt financing under a $ 350 million credit facility committed by BMO Harris Bank N.A.

For tax purposes, this acquisition is treated as an asset acquisition.

For tax purposes, this acquisition was treated as an asset acquisition.

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.

10 unchanged sentences

Total $ 350,000

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 condensed consolidated balance sheet as of June 30, 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.

This preliminary allocation was updated in the third fiscal quarter of 2022 to reflect information not available previously.

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.

5 unchanged sentences

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

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

Three months ended June 30, Nine months ended June 30,

2022 2021 2022 2021

2 unchanged sentences

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

Net income for the nine months ended June 30, 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 per common share calculations (in thousands, except per common share data):

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

Three months ended June 30, Nine months ended June 30,

2022 2021 2022 2021

7 unchanged sentences

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.

For the three months ended June 30, 2022 and 2021, 939,101 and 994,096 shares outstanding were excluded, respectively.

For the nine months ended June 30, 2022 and 2021, 778,573 and 864,744 were excluded, respectively.

SELECTED BALANCE SHEET DATA

17 unchanged sentences

Inputs Considered as

March 31, 2022 Level 1 Level 2 Level 3

June 30, 2022 Level 1 Level 2 Level 3

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

5 unchanged sentences

Total liabilities measured at fair value $ 6,200 $ — $ — $ 6,200

In connection with our acquisition of Opengear, we agreed to make contingent payments, based upon certain revenue thresholds.

In connection with our acquisition of Opengear, Inc.

in December 2019, we agreed to make contingent payments, based upon certain revenue thresholds.

We paid the final installment of $ 10.0 million during the second quarter of fiscal 2021.

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

In connection with our acquisition of Haxiot, Inc.

("Haxiot") in March 2021, we agreed to make contingent earn-out payments, based upon certain revenue thresholds.

In the fiscal third quarter of fiscal 2021, the preliminary purchase price allocation was updated, including related determination of fair value and income tax implications.

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 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 March 31, 2022.

The fair value of the remaining liability for contingent consideration for the acquisition of Haxiot was $ 5.9 million at June 30, 2022.

In connection with our acquisition of Ctek, Inc.

("Ctek") in July 2021, 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 June 30, 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 March 31, Six months ended March 31,

Three months ended June 30, Nine months ended June 30,

2022 2021 2022 2021

5 unchanged sentences

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 March 31, 2022 is based on the probability of achieving the specified revenue thresholds for Haxiot and Ctek.

The fair value of the contingent consideration at June 30, 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):

March 31, 2022 September 30, 2021

June 30, 2022 September 30, 2021

amount Accum.

7 unchanged sentences

Total $ 435,778 $ ( 126,964 ) $ 308,814 $ 224,643 $ ( 106,614 ) $ 118,029

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 was $ 7.0 million and $ 4.1 million for the three months ended June 30, 2022 and 2021, respectively and $ 20.4 million and $ 12.0 million for the nine months ended June 30, 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 (six months) $ 13,716

2022 (three months) $ 6,722

2023 $ 24,996

4 unchanged sentences

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

Six months ended March 31, 2022

Nine months ended June 30, 2022

Products and Services IoT

4 unchanged sentences

Foreign currency translation adjustment ( 1,402 ) ( 162 ) ( 1,564 )

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

Balance on June 30, 2022 $ 173,894 $ 167,814 $ 341,708

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

4 unchanged sentences

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 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.

Following our acquisition of Ventus in November, 2021, we have two reporting units within our IoT Solutions segment in addition to the four reporting units included in IoT Products & Services.

Assumptions and estimates to determine fair values under the income and market approaches are complex and often subjective.

They can be affected by a variety of factors.

These include external factors such as industry and economic trends.

They also include internal factors such as changes in our business strategy and our internal forecasts.

Changes in circumstances or a potential event could negatively affect the estimated fair values.

If our future operating results do not meet current forecasts or

GOODWILL AND OTHER INTANGIBLE ASSETS, NET (CONTINUED)

if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value of one or more of our reporting units, we may be required to record future impairment charges for goodwill.

Results of our Fiscal 2022 Annual Impairment Test

As of June 30, 2021, we had a total of $ 32.7 million of goodwill for the Enterprise Routers reporting unit, $ 60.2 million of goodwill for the Console Servers reporting unit, $ 63.4 million of goodwill for the OEM Solutions reporting unit, $ 15.4 million of goodwill for the Infrastructure Mgmt.

reporting unit and $ 49.5 million of goodwill for the IoT Solutions reporting unit.

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

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

As of June 30, 2022, we had a total of $ 32.7 million of goodwill for the Enterprise Routers reporting unit, $ 57.1 million of goodwill for the Console Servers reporting unit, $ 63.7 million of goodwill for the OEM Solutions reporting unit, $ 20.4 million of goodwill for the Infrastructure Management reporting unit, $ 49.5 million of goodwill for the SmartSense reporting unit and $ 118.3 million of goodwill for the Ventus.

At June 30, 2022, the fair value of goodwill exceeded the carrying value for all six reporting units.

SmartSense and Ventus fair values exceeded carrying values by less than 10%.

Implied fair value 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.

16 unchanged sentences

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 March 31, 2022 was 4.93 %.

Our weighted average interest rate at June 30, 2022 was 6.85 %.

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

2 unchanged sentences

These amounts will be amortized over the term of the amended loan and reported in interest expense.

The Term Loan is payable in quarterly installments, with the balance remaining due at December 22, 2028.

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 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.

The Term Loan is payable in quarterly installments, with the balance remaining due at November 2, 2028.

The Revolving Loan is due in a lump sum payment at maturity on November 2, 2028, if any amounts are drawn.

The fair value of the Term Loan and Revolving Loan approximated carrying value at June 30, 2022.

Digi made early payments against the term loan of $ 50 million in December 2021, $ 11.3 million in March 2022 and $ 20 million in June 2022.

INDEBTEDNESS (CONTINUED)

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

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

Balance at June 30, 2022 Balance at September 30, 2021

Revolving Loan $ — $ 48,118

4 unchanged sentences

Total long-term debt, net of current portion $ 240,702 $ 45,799

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

The following table is a summary of future maturities of our aggregate long-term debt at June 30, 2022 (in thousands):

Fiscal year Amount

2022 (three months) $ 4,375

Total long-term debt $ 268,748

2 unchanged sentences

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

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

At June 30, 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.

5 unchanged sentences

• Cellular Routers - box devices (fully enclosed) that provide connectivity typically in a place where the device can be plugged in exclusively using cellular communications.

• Console Servers - similar to cellular routers except they are exclusively for edge computing installations and data center applications exclusively using cellular communications.

• Console Servers - similar to cellular routers except they are exclusively for edge computing installations and data center applications (also exclusively using cellular communications).

• OEM Solutions - Original Equipment Manufacturers ("OEM") will be a chip, rather than a boxed device.

This can come in the form of a stand-alone chip, or from a systems-on-module ("SOMs").

This can come in the form of a stand-alone module, or from a systems-on-module ("SOMs").

While cellular connectivity is used, other communication protocols can be used such as Zigbee, Bluetooth or Radio-Frequency ("RF") based on application.

3 unchanged sentences

Following the acquisition of Ventus on November 1, 2021, IoT Solutions is now comprised of two operating segments:

• SmartSense - offers wireless temperature and other condition-based monitoring services as well as employee task management services.

• SmartSense - offers wireless temperature and other condition-based monitoring services for perishable goods such as food or medicine, as well as employee task management services.

• Ventus - provides MNaaS solutions that simplify the complexity of enterprise wide area network ("WAN") connectivity via wireless and fixed line solutions.

6 unchanged sentences

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

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

Three months ended June 30, Nine months ended June 30,

2022 2021 2022 2021

14 unchanged sentences

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

Six months ended March 31,

Nine months ended June 30,

IoT Products & Services $ 1,722 $ 1,645

1 unchanged sentence

Total expended for property, plant and equipment $ 4,218 $ 1,645

* 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.

* Excluded from this amount is $ 1,742 and $ 1,624 of transfers of inventory to property plant and equipment for subscriber assets for the nine months ended June 30, 2022 and 2021, respectively.

SEGMENT INFORMATION (CONTINUED)

8 unchanged sentences

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

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

Three months ended June 30, Nine months ended June 30,

2022 2021 2022 2021

4 unchanged sentences

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

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

Three months ended June 30, Nine months ended June 30,

2022 2021 2022 2021

7 unchanged sentences

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

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.

The total net book value of subscriber assets of $ 15.8 million and $ 1.9 million as of June 30, 2022 and September 30, 2021, respectively, are included in property, equipment and improvements, net.

The June 30, 2022 balance includes $ 14.1 million acquired in the acquisition of Ventus.

Depreciation expense for these subscriber assets, which is included in cost of sales, was $ 0.4 million and $ 0.5 million for the three months ended June 30, 2022 and June 30, 2021, respectively and $ 2.3 million and $ 1.4 million for the nine months ended June 30, 2022 and June 30, 2021, respectively.

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

4 unchanged sentences

REVENUE (CONTINUED)

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.

Our contract liabilities were $ 22.6 million and $ 14.8 million at June 30, 2022 and 2021, respectively.

The June 30, 2022 balance includes $ 2.1 million assumed from the Ventus acquisition completed in November 2021.

Of the $ 24.8 million and $ 16.4 million balances as of March 31, 2022 and 2021, Digi recognized $ 5.4 million and $ 4.8 million in the three months ended June 30, 2022 and 2021, respectively.

Of the $ 15.5 million and $ 9.3 million balances as of September 30, 2021 and 2020, Digi recognized $ 12.0 million and $ 8.3 million in the nine months ended June 30, 2022 and 2021, respectively.

Remaining Transaction Price

1 unchanged sentence

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

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

As of June 30, 2022, approximately $ 22.6 million of revenue is expected to be recognized from remaining performance obligations.

We expect to recognize revenue on approximately $ 18.2 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 $ 2.0 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.

Our income tax benefit was $ 1.5 million for the nine months ended June 30, 2022.

Included in this benefit was a net tax benefit discretely related to the nine months ended June 30, 2022 of $ 2.7 million.

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

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.

Income tax expense was $ 0.2 million for the nine months ended June 30, 2021.

Included in this expense was a net tax benefit discretely related to the nine months ended June 30, 2021 of $ 1.0 million.

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

7 unchanged sentences

Expiration of statute of limitations ( 69 )

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.

Prior year income tax positions ( 10 )

Unrecognized tax benefits as of June 30, 2022 $ 2,829

The total amount of unrecognized tax benefits at June 30, 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.

2 unchanged sentences

Balance at Warranties Settlements Balance at

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

Period April 1 issued made June 30

Three months ended June 30, 2022 $ 690 $ 100 $ ( 38 ) $ 752

Three months ended June 30, 2021 $ 923 $ 16 $ ( 146 ) $ 793

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

Period October 1 issued made June 30

Nine months ended June 30, 2022 $ 707 $ 295 $ ( 250 ) $ 752

Nine months ended June 30, 2021 $ 942 $ 205 $ ( 354 ) $ 793

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

13 unchanged sentences

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

Balance Sheet Location March 31, 2022 September 30, 2021

Balance Sheet Location June 30, 2022 September 30, 2021

Operating leases Operating lease right-of-use assets $ 14,829 $ 15,684

5 unchanged sentences

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 March 31, Six months ended March 31,

Three months ended June 30, Nine months ended June 30,

2022 2021 2022 2021

4 unchanged sentences

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

Six months ended March 31,

Nine months ended June 30,

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

2 unchanged sentences

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

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 %.

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 March 31, 2022 (in thousands):

At June 30, 2022 the weighted average remaining lease term of our operating leases was 8.6 years and the weighted average discount rate for these leases was 2.8 %.

Fiscal year Amount

2022 (three months) $ 992

Thereafter 7,068

5 unchanged sentences

Please refer to Note 12 to our condensed consolidated financial statements for additional information.

In the normal course of business, we are presently, and expect in the future to be, subject to various claims and litigation with third parties such as non-practicing intellectual property entities as well as customers, vendors and/or employees.

There can be no assurance that any claims by third parties, if proven to have merit, will not materially adversely affect our business, liquidity or financial condition.

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

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.

As of June 30, 2022, there were approximately 1,757,566 shares available for future grants under the 2021 Plan.

Cash received from the exercise of stock options was $ 6.7 million and $ 7.0 million for the nine months ended June 30, 2022 and June 30, 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.

When employees make this election, we retain a portion of shares issuable under the award.

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

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.

Tax withholding obligations are otherwise fulfilled by the employee paying cash to us for the withholding.

During the nine months ended June 30, 2022 and 2021, our employees forfeited 96,860 shares and 109,516 shares, respectively, in order to satisfy respective withholding tax obligations of $ 2.2 million and $ 2.0 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.

1 unchanged sentence

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 $ 0.7 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.

ESPP contributions by employees were $ 1.1 million and $ 0.9 million for the nine months ended June 30, 2022 and June 30, 2021, respectively.

Pursuant to the ESPP, 60,481 and 61,302 common shares were issued to employees during the nine months ended June 30, 2022 and June 30, 2021, respectively.

Shares are issued under the ESPP from treasury stock.

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

As of June 30, 2022, 572,592 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 March 31, Six months ended March 31,

Three months ended June 30, Nine months ended June 30,

2022 2021 2022 2021

13 unchanged sentences

Forfeited / Canceled ( 162 ) 17.61

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.

Balance on June 30, 2022 2,042 $ 16.35 4.7 $ 11,887

Exercisable at June30, 2022 984 $ 13.74 3.5 $ 10,320

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $ 24.22 as of June 30, 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 six months ended March 31, 2022 was $ 13.9 million and during the six months ended March 31, 2021 was $ 5.1 million.

The total intrinsic value of all options exercised during the nine months ended June 30, 2022 was $ 15.6 million and during the nine months ended June 30, 2021 was $ 5.4 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:

Six months ended March 31,

Nine months ended June 30,

Weighted average per option grant date fair value $ 10.03 $ 7.45

12 unchanged sentences

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

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.

As of June 30, 2022, the total unrecognized compensation cost related to non-vested stock options was $ 8.0 million and the related weighted average period over which it is expected to be recognized is approximately 1.5 years.

Non-vested Stock Units

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):

The following table presents a summary of our non-vested restricted stock and performance stock units as of June 30, 2022 and changes during the nine 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

3 unchanged sentences

Canceled ( 130 ) 17.15 — —

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.

Nonvested at June 30, 2022 769 $ 18.71 27 $ 22.69

As of June 30, 2022, the total unrecognized compensation cost related to non-vested stock units was $ 11.6 million.

The related weighted average period over which this cost is expected to be recognized is approximately 2.4 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