What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-11-23 compared with 2021-11-24 · 27 added, 40 removed, 201 unchanged (25% of the section changed)

7 unchanged sentences

We are exposed to market risks related to fluctuations in interest rates on amounts borrowed under the Credit Facility.

As of September 30, 2021, we had no amounts outstanding under our Term Loan and $48.1 million outstanding under our Revolving Loan.

Prior to May 4, 2020, borrowings under the Credit Facility bore interest rates based on an underlying variable benchmark plus applicable margin based on our total leverage ("ABR");

this interest rate was reset quarterly.

Effective May 4, 2020, borrowings under the Credit Facility bear a variable interest rate of LIBOR plus an applicable margin spread from 3.25% to 1.25%.

The amount of the applicable margin spread is a function of our leverage ratio and is reset monthly.

As of September 30, 2022, we had $250.0 million outstanding under our Term Loan and $0.0 million outstanding under our Revolving Loan.

Borrowings under the Term Loan Facility bear interest at a rate per annum equal to LIBOR with a floor of 0.50% for an interest period of one, three or six months as selected by Digi, reset at the end of the selected interest period (or a replacement benchmark rate if LIBOR is no longer available) plus 5.00% or a base rate plus 4.00%.

The base rate is determined by reference to the highest of BMO’s prime rate, the Federal Funds Effective Rate plus 0.5%, or the one-month LIBOR for U.S.

dollars plus 1.00%.

The applicable margin for loans under the Revolving Credit Facility is in a range of 4.00-3.75% for LIBOR loans and 3.00 to 2.75% for base rate loans, depending on Digi’s consolidated leverage ratio.

Based on the balance sheet position for both the Term Loan and Revolving Loan at September 30, 2022, the annualized effect of a 25 basis point change in interest rates would increase or decrease our interest expense by $0.6 million.

1 unchanged sentence

For our Credit Facility, interest rate changes generally do not affect the fair value of the debt instruments, but do impact future earnings and cash flows, assuming other factors are held constant.

If interest rates remain elevated, we will continue to see interest expenses that are higher than historical amounts.

FOREIGN CURRENCY RISK

7 unchanged sentences

We have not implemented a formal hedging strategy.

The table below compares the average monthly exchange rates of the Euro, British Pound, Japanese Yen and Canadian Dollar:

The table below compares the average monthly exchange rates of the Euro, British Pound Canadian Dollar, Indian Rupee and Australian Dollar:

Fiscal year ended

3 unchanged sentences

British Pound 1.1377 1.2718 (10.5) %

Japanese Yen 0.0093 0.0093 — %

Canadian Dollar 0.7768 0.7911 (1.8) %

A 10.0% change from the 2021 average exchange rate for the Euro, British Pound, Yen and Canadian Dollar to the U.S.

Indian Rupee 0.0130 0.0131 (0.8) %

Australian Dollar 0.7105 0.7510 (5.4) %

A 10.0% change from the 2022 average exchange rate for the Euro, British Pound Canadian Dollar, Indian Rupee and Australian Dollar to the U.S.

Dollar would have resulted in an immaterial increase or decrease in fiscal 2022 annual revenue and a 1.2% increase or decrease in stockholders' equity at September 30, 2022.

3 unchanged sentences

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 248 )

Consolidated Statements of Operations

4 unchanged sentences

Notes to the Consolidated Financial Statements

Summary of Significant Accounting Policies

Goodwill and Other Identifiable Intangible Assets, Net

Segment Information and Major Customers

Selected Balance Sheet Data

Fair Value Measurements

Product Warranty Obligation

Restructuring

Stockholder's Equity

Stock-Based Compensation

Employee Benefit Plans

Commitments and Contingencies

Subsequent Events

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

14 unchanged sentences

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

6 unchanged sentences

We have served as the Company’s auditor since 2016.

Minneapolis, Minnesota

Cincinnati, Ohio

November 23, 2022

18 unchanged sentences

General and administrative 58,527 40,830 36,140

Restructuring charge (reversal) 995 117 ( 87 )

Change in fair value of contingent consideration ( 6,200 ) 5,772 ( 128 )

Restructuring charge 275 995 117

Total operating expenses 178,066 156,129 132,655

Operating income 38,220 10,528 11,317

Other (expense) income, net:

Other expense, net:

Interest income 11 10 304

Interest expense ( 19,701 ) ( 1,395 ) ( 3,592 )

Other (expense) income, net ( 144 ) ( 566 ) 442

Total other (expense) income, net ( 1,529 ) ( 3,854 ) 1,073

Other income (expense), net 98 ( 144 ) ( 566 )

Total other expense, net ( 19,592 ) ( 1,529 ) ( 3,854 )

Income before income taxes 18,628 8,999 7,463

Income tax (benefit) expense ( 1,367 ) ( 948 ) 1,187

Income tax benefit ( 755 ) ( 1,367 ) ( 948 )

Net income $ 19,383 $ 10,366 $ 8,411

13 unchanged sentences

Net income $ 19,383 $ 10,366 $ 8,411

Other comprehensive income (loss), net of tax:

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustment ( 3,308 ) 1,071 1,698

Change in net unrealized gain (loss) on investments — — 19

Less income tax (expense) benefit — — ( 5 )

Other comprehensive income (loss), net of tax 1,071 1,698 ( 1,989 )

Other comprehensive (loss) income, net of tax ( 3,308 ) 1,071 1,698

Comprehensive income $ 16,075 $ 11,437 $ 10,109

9 unchanged sentences

Inventories 73,223 43,921

Deferred tax assets 3,764 2,698

Other current assets 3,871 3,869

3 unchanged sentences

Goodwill 340,477 225,522

Deferred tax assets 439 389

Operating lease right-of-use assets 15,299 15,684

7 unchanged sentences

Unearned revenue 19,803 13,589

Contingent consideration on acquired businesses 20 4,228

Current portion of operating lease liabilities 3,196 2,633

33 unchanged sentences

Depreciation of property, equipment and improvements 6,644 4,343 4,545

Amortization of identifiable intangible assets 16,534 14,754 8,818

Amortization 30,928 16,534 14,754

Stock-based compensation 8,578 8,135 7,237

Deferred income tax provision ( 3,387 ) ( 4,598 ) ( 3,357 )

Loss (gain) on sale of property, equipment and improvements 89 — ( 4,392 )

Loss on sale of property, equipment and improvements 4 89 —

Change in fair value of contingent consideration ( 6,200 ) 5,772 ( 128 )

11 unchanged sentences

Investing activities:

Proceeds from maturities of marketable securities — — 4,750

Acquisition of businesses, net of cash acquired ( 347,554 ) ( 19,108 ) ( 136,098 )

Proceeds from sale of property, equipment and improvements — — 10,096

Purchase of property, equipment, improvements and certain other intangible assets ( 1,974 ) ( 2,257 ) ( 899 )

Net cash (used in) provided by investing activities ( 21,365 ) ( 136,997 ) 5,511

Net cash used in investing activities ( 349,528 ) ( 21,365 ) ( 136,997 )

Financing activities:

Proceeds from long-term debt 350,000 617 119,018

Payments of debt issuance costs ( 13,443 ) — —

Payments on long-term debt ( 148,118 ) ( 15,624 ) ( 55,893 )

6 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents 1,474 ( 297 ) 253

Net increase (decrease) in cash and cash equivalents 98,303 ( 38,663 ) 34,778

Net (decrease) increase in cash and cash equivalents ( 117,532 ) 98,303 ( 38,663 )

Cash and cash equivalents, beginning of period 152,432 54,129 92,792

11 unchanged sentences

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

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk