What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-11-23 compared with 2021-11-24 · 195 added, 264 removed, 762 unchanged (38% of the section changed)

9 unchanged sentences

Net income — — — — — 8,411 — 8,411

Other comprehensive loss — — — — — — ( 1,989 ) ( 1,989 )

Other comprehensive income — — — — — — 1,698 1,698

Employee stock purchase plan issuances — — ( 118 ) 1,021 44 — — 1,065

5 unchanged sentences

Other comprehensive income — — — — — — 1,071 1,071

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

Other — — — — — ( 4 ) — ( 4 )

Employee stock purchase plan issuances — — ( 79 ) 694 520 — — 1,214

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Net income — — — — — 19,383 — 19,383

Other comprehensive income — — — — — — 1,071 1,071

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

Other — — — — — ( 4 ) — ( 4 )

Other comprehensive loss — — — — — — ( 3,308 ) ( 3,308 )

Employee stock purchase plan issuances — — ( 80 ) 726 774 — — 1,500

Taxes paid for net share settlement of share-based payment awards — — 117 ( 2,120 ) — — — ( 2,120 )

Taxes paid for net share settlement of share-based payment awards and options — — 102 ( 2,363 ) ( 4,299 ) — — ( 6,662 )

Issuance of stock under stock award plans 1,297 13 — — 9,492 — — 9,505

66 unchanged sentences

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

We have four reporting units along with our IoT Solutions segment that have been tested individually for impairment.

Following our acquisition of Ventus in the first fiscal quarter of 2022, IoT Solutions is comprised of two reporting units;

Ventus and SmartSense.

We have six reporting units that have been tested individually for impairment.

Due to the reorganization on October 7, 2020 (see Note 10 ), we performed an interim impairment test in addition to our annual test as of June 30, 2021.

Our goodwill impairment tests as of October 7, 2020 and June 30, 2021 indicated no impairment (see Note 3 ).

Our goodwill impairment tests as of June 30,2022, June 30, 2021 and October 7, 2020 indicated no impairment (see Note 3 ).

During the fourth quarter of fiscal 2022, we assessed various qualitative factors to determine whether or not an additional goodwill impairment assessment was required as of September 30, 2022, and we concluded that no additional impairment assessment was required.

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We measure our contingent consideration liabilities recognized in connection with business combinations at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy as defined in ASC 820 "Fair Value Measurement".

We used a probability-weighted discounted cash flow approach as a valuation technique to determine the fair value of the contingent consideration on the acquisition date.

At each subsequent reporting period, the fair value is re-measured with the change in fair value recognized in general and administrative expense in our Consolidated

We used a probability-weighted discounted cash flow approach as a valuation technique to

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

determine the fair value of the contingent consideration on the acquisition date.

At each subsequent reporting period, the fair value is re-measured with the change in fair value recognized in general and administrative expense in our Consolidated

Statements of Operations.

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Estimated sales returns for our distributor stock rotation program are accounted for under the guidance of ASC 845 Nonmonetary Transactions .

Equipment revenue from SmartSense by Digi ® within our IoT Solutions segment is recognized upon shipment of the equipment to a customer.

Installation service charges from these sales are recorded when the product is installed.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Equipment revenue from SmartSense by Digi and Ventus within our IoT Solutions segment is recognized upon shipment of the equipment to a customer.

Installation service charges from these sales are recorded when the product is installed.

Subscription and Support Services Revenue

Our SmartSense by Digi ® subscription revenue is recorded on a monthly basis.

Our SmartSense by Digi and Ventus subscription revenue is recorded on a monthly basis.

These subscriptions are generally in a range from one year to five years , and may contain an evergreen renewal provision.

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Professional services revenue is derived from our Digi Wireless Design Services contracts on either on a time-and-materials or a fixed-fee basis.

These revenues, which are included in our IoT Products & Services segment are recognized as the services are performed for time-and-materials contracts, or when milestones are achieved and accepted by the customer for fixed-fee contracts.

These revenues, which are included in our IoT Products & Services segment are recognized as the services are performed for time-and-materials contracts or as invoiced for fixed-fee contracts..

Contracts with Multiple Performance Obligations

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These obligations may include:

delivery of monitoring equipment that the customer either purchases out-right or uses while we retain ownership, monitoring services, providing condition alerts of assets being monitored, and recertification of sensor equipment.

delivery of monitoring equipment that the customer purchases out-right, monitoring services, providing condition alerts of assets being monitored, and recertification of sensor equipment.

When we retain ownership of the equipment, we charge an implementation fee to the customer so they can begin using the equipment.

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Gains and losses on foreign currency exchange transactions, as well as translation gains or losses on transactions denominated in currencies other than an entity’s functional currency, are reflected in the statement of operations.

During fiscal 2021, 2020 and 2019 there were net transaction (losses) gains of $( 0.1 ) million, $( 0.6 ) million and $ 0.4 million, respectively that were recorded in other income, net.

During fiscal 2022, 2021 and 2020 there were net transaction gains (losses) of $ 0.1 million, $( 0.1 ) million and $( 0.6 ) million, respectively that were recorded in other income, net.

We manage our net asset or net liability position for U.S.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Potential Impacts of COVID-19 on our Business

The impact of the coronavirus ("COVID-19") pandemic coIntinues 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.

For a more detailed discussion see Part I, Item 1 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of this Form 10-K.

Recent Accounting Developments

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820).

The updated guidance changes the disclosure requirements on fair value measurements.

We adopted this standard in the first quarter of fiscal 2021.

This standard did not have a material impact on our consolidated financial statements.

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments .

The amendments in this update replace the incurred loss impairment methodology in current U.S.

GAAP with a methodology that reflects expected credit losses.

This update is intended to provide financial statement users with more decision-useful information about expected credit losses.

We adopted this standard in the first quarter of fiscal 2021, following the modified-retrospective approach.

This standard did not have a material impact on our consolidated financial statements.

Recently Adopted Accounting Pronouncements

In October 2021, FASB issued ASU 2021-08, Business Combinations (Topic 805):

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This update requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

ASU 2021-08 is effective for our fiscal year beginning after September 30, 2021.

We are currently evaluating the impact that adopting this new accounting standard would have on our condensed consolidated financial statements, but do not believe it will have a material effect.

We adopted this standard in the first quarter of fiscal 2022.

Potential Impacts of COVID-19 on our Business

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

While we have seen conditions improve towards pre-pandemic levels, 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 changes to 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 and the impact on governmental programs.

Due to the inherent uncertainty of the situation, we are unable to predict the likely impact of the COVID-19 pandemic on our future operations, but continually monitor the risk it presents to our business.

For a more detailed discussion see Part I, Item 1 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of this Form 10-K.

Fiscal 2022 Acquisition

Acquisition of Ventus

On November 1, 2021, we acquired Ventus for approximately $ 350 million in cash.

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 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.

Costs directly related to the acquisition of $ 4.4 million incurred in fiscal 2022 have been charged to operations and are included in general and administrative expense in our consolidated statements of operations.

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

The following table summarizes the fair values of Ventus assets acquired and liabilities assumed as of the acquisition date (in thousands):

Cash $ 350,000

Fair value of net tangible assets acquired $ 20,365

Identifiable intangible assets:

Customer relationships 179,000

Purchased and core technology 16,000

Trademarks 16,000

Goodwill 118,635

Total $ 350,000

The consolidated balance sheet as of September 30, 2022 reflects the final allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition.

The fair value of customer relationships was calculated using the excess earnings method, while purchased and core technology and patents were valued using the relief from royalty method.

These methodologies utilize future estimates including revenues attributable to customer relationships, tax rates, discount rates, royalty rates and obsolescence rates.

The final purchase price allocation includes an adjustment made in the fourth fiscal quarter of 2022 to reflect an update from our preliminary purchase price allocation to the valuation of the net

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACQUISITIONS (CONTINUED)

tangible assets acquired and goodwill resulting from the acquisition.

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’ operating leases.

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

For purposes of determining fair value, the existing customer relationships identified above are assumed to have a useful life of 20.5 years, purchased and core technology is assumed to have useful life of 11 years and trademarks are assumed a useful life of 13 years.

Useful lives for identifiable intangible assets are estimated at the time of acquisition based on the periods of time from which we expect to derive benefits from the identifiable intangible assets.

The identifiable intangible assets are amortized using the straight-line method which reflects the pattern in which the assets are expected to be consumed.

The fiscal 2022 consolidated results include $ 54.3 million in revenue contributed by the acquired Ventus business.

It is impracticable to quantify the amount of Ventus contribution to our consolidated net income due to the business structure management uses for reporting and allocating expenses to segments.

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

Year ended September 30,

Net sales $ 393,290 $ 360,820

Net income (loss) $ 14,274 $ ( 2,701 )

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 year ended September 30, 2021 was adjusted to include acquisition-related costs of $ 3.1 million.

Fiscal 2021 Acquisitions

Acquisition of Haxiot, Inc.

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

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

The results of operations are now included in our third quarter of fiscal 2021 results within our IoT Products & Services segment.

Acquisition of Haxiot

On March 26, 2021, we acquired Haxiot, a Dallas-based provider of low power wide area ("LPWA") wireless technology.

The results of operations are now included in our results within our IoT Products & Services segment.

We believe this is a complementary acquisition for us as it significantly enhances our IoT Products & Services segment by enhancing Digi's embedded systems portfolio and immediately extends the company's market reach with a complete LoRaWAN-based solutions offering.

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The future earn-out payments are based on Haxiot revenue performance and contractually are not to exceed $ 3.0 million and $ 5.0 million for the annual periods ending December 31, 2021 and December 31, 2022.

The fair value amount of these earn-outs for the annual periods ending December 31, 2021 and December 31, 2022 are $ — million and $ 5.9 million, respectively.

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

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

As a result, we adjusted goodwill to $ 8.6 million and adjusted contingent consideration to $ 5.9 million.

In the fourth fiscal quarter of 2022, it was determined that the revenue thresholds would not be met and the remaining balance was adjusted down by $ 5.9 million, resulting in a fair value of $ 0.0 million for contingent consideration relating to the acquisition of Haxiot at September 30, 2022 .

For tax purposes, this acquisition is treated as a stock acquisition.

The goodwill therefore is not deductible.

Costs directly related to the acquisition of $ 0.3 million have been charged to operations in 2021.

These costs are included in general and administrative expense in our consolidated statements of operations.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACQUISITIONS (CONTINUED)

Costs directly related to the acquisition of $ 0.3 million in fiscal 2021 have been charged to operations and are included in general and administrative expense in our consolidated statements of operations.

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

The following table summarizes the preliminary fair values of Haxiot assets acquired, net of $ 50 thousand of cash acquired, and liabilities assumed as of the acquisition date (in thousands).

The following table summarizes the fair values of Haxiot assets acquired, net of $ 50 thousand of cash acquired, and liabilities assumed as of the acquisition date (in thousands).

Contingent consideration 5,900

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The cumulative amount of these earn-outs for the annual periods will not exceed $ 0.5 million, $ 1.0 million and $ 1.5 million, respectively.

Due to the timing of the acquisition, the purchase price allocation, including related determinations of fair value and income tax implications, are in process.

In the fiscal fourth quarter of 2022, it was determined that the revenue thresholds would not be met and the remaining balance was adjusted down by $ 0.3 million, resulting in a fair value of $ 0.0 million for contingent consideration relating to the acquisition of Ctek at September 30, 2022.

For tax purposes, this acquisition is treated as a stock acquisition.

The goodwill therefore is not deductible.

Costs directly related to the acquisition of $ 0.3 million incurred in fiscal 2021 have been charged to operations and are included in general and administrative expense in our consolidated statements of operations.

Costs directly related to the acquisition of $ 0.3 million have been charged to operations in 2021.

These costs are included in general and administrative expense in our consolidated statements of operations.

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

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ACQUISITIONS (CONTINUED)

The following table summarizes the preliminary fair values of Ctek assets acquired and liabilities assumed as of the acquisition date (in thousands).

The following table summarizes the fair values of Ctek assets acquired and liabilities assumed as of the acquisition date (in thousands).

Cash $ 12,012

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Total $ 12,734

Fiscal 2020 Acquisition

Acquisition of Opengear, Inc.

On December 13, 2019, we completed our acquisition of Opengear, Inc.

("Opengear"), a New Jersey-based provider of secure IT infrastructure products and software.

Opengear results are included in our consolidated financial statements within our IoT Products & Services segment.

The terms of the acquisition included an upfront cash payment as well as contingent consideration comprised of future earn-out payments.

We funded the closing of the acquisition with cash of $ 148.1 million comprised of cash on hand and proceeds from our credit facility (see Note 7 to the consolidated financial statements).

The earn-out payments were based on revenue performance from Opengear for the twelve-month periods ended December 31, 2019 and ending December 31, 2020.

The cumulative amount of these earn-outs for the periods ended December 31, 2019 and December 31, 2020, could have been up to $ 5.0 million and $ 10.0 million, respectively.

We paid the first installment of $ 0.9 million for the period ended December 31, 2019 during the third quarter of fiscal 2020.

The final payment of $ 10.0 million for the period ended December 31, 2020 was paid during the second quarter of fiscal 2021 (see Note 6 to the consolidated financial statements).

During the first quarter of fiscal 2021, we recorded an out-of-period adjustment in connection with the purchase price accounting of Opengear.

This balance sheet adjustment resulted in a decrease in fair value of net tangible assets acquired of $ 1.1 million, a decrease of $ 0.3 million to non-current deferred tax liability and an increase to goodwill of $ 0.8 million.

Management assessed the impact of this adjustment and believes, after considering both quantitative and qualitative factors, that it is not material to our current or previously issued consolidated financial statements.

For tax purposes, this acquisition is treated as a stock acquisition.

The goodwill therefore is not deductible.

We believe this is a complementary acquisition for us as it significantly enhances our IoT Products & Services segment by providing secure, resilient access and automation to critical IT infrastructure.

Costs directly related to the acquisition of $ 0.3 million incurred in fiscal 2019, $ 2.7 million incurred in fiscal 2020 and $ 0.3 million incurred in fiscal 2021 have been charged directly to operations and are included in general and administrative expenses in our consolidated statements of operations.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACQUISITIONS (CONTINUED)

The following table summarizes the final fair values of Opengear assets acquired and liabilities assumed as of the acquisition date (in thousands):

Cash $ 148,058

Contingent consideration 5,100

Total $ 153,158

Fair value of net tangible assets acquired $ 18,096

Identifiable intangible assets:

Customer relationships 79,000

Purchased and core technology 18,100

Trademarks 8,000

Deferred tax liability on identifiable intangible assets ( 27,126 )

Goodwill 57,088

Total $ 153,158

The Consolidated Balance Sheet as of September 30, 2020 reflects the final allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition.

Included in the fair value of net tangible assets acquired are $ 1.4 million of right-of-use assets included in other non-current assets and $ 1.7 million of lease liability included in other current and non-current liabilities associated with Opengear's operating leases.

The weighted average useful life for all the identifiable intangibles listed above is estimated to be 13.4 years.

For purposes of determining fair value, the existing customer relationships identified above are assumed to have a useful life of 14.5 years, purchased and core technology is assumed to have useful life of 9.0 years and trademarks are assumed to have a useful life of 12.0 years.

Useful lives for identifiable intangible assets are estimated at the time of acquisition based on the periods of time from which we expect to derive benefits from the identifiable intangible assets.

The identifiable intangible assets are amortized using the straight-line method.

This reflects the pattern in which the assets are expected to be consumed.

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS, NET

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Amortization expense in cost of sales includes amortization for purchased and core technology and certain patents and trademarks.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS, NET (CONTINUED)

Amortization expense for fiscal years 2022, 2021 and 2020 was as follows (in thousands):

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2021 $ 16,534

2020 $ 14,754

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS, NET (CONTINUED)

Estimated amortization expense for the next five fiscal years is as follows (in thousands):

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2025 $ 21,520

2026 $ 20,593

2027 $ 18,582

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

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Acquisitions 13,472 — 13,472

Adjustments 847 — 847

Foreign currency translation adjustment 496 572 1,068

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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 4 ).

We continue to have two reportable segments, our IoT Products & Services segment and our IoT Solutions segment (see Note 4 ).

Effective with the reorganization announcement on October 7, 2020 (see Note 10 ), 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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Due to the reorganization, we performed our fiscal third quarter 2021 annual impairment test for those four reporting units along with our IoT Solutions segment.

Following our acquisition of Ventus, IoT Solutions is comprised of two reporting units.

All six reporting units were included in our fiscal third quarter 2022 annual impairment test.

For our quantitative goodwill impairment tests, we determine the estimated fair value of each reporting unit and compare it to the carrying value of the reporting unit, including goodwill.

If the carrying amount of a reporting unit is higher than its estimated fair value, then an impairment loss must be recognized for the excess.

Fair values for the five reporting units were each estimated on a standalone basis using a weighted combination of the income approach and market approach.

Fair values for the six reporting units were each estimated on a standalone basis using a weighted combination of the income approach and market approach.

The income approach indicates the fair value of a business based on the value of the cash flows the business or asset can be expected to generate in the future.

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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 Management 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 both reporting units were each 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 reporting unit.

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.

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As a result, the market capitalization reconciliation analysis proved support for the reasonableness of the fair values estimated for each individual reporting unit.

Results of our October 7, 2020 Interim Impairment Test

As of October 7, 2020, we had a total of $ 32.7 million of goodwill for the Enterprise Routers reporting unit, $ 59.2 million of goodwill for the Console Servers reporting unit, $ 53.3 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 October 7, 2020, fair value exceeded the carrying value 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.

This range was compared to the total market capitalization of $ 472.7 million as of October 7, 2020.

This implied a range of control premiums of 5.0 % to 10.0 %.

This range of control premiums fell below the control premiums observed in the last five years in the communications equipment industry.

As a result, the market capitalization reconciliation analysis proved support for the reasonableness of the fair values estimated for each individual reporting unit.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Effective with the reorganization announcement on October 7, 2020 (see Note 10 ), our IoT Products & Services business is now structured to include four operating segments, each with a segment manager.

Following our acquisition of Ventus in the first fiscal quarter of 2022, IoT Solutions is comprised of two reporting units;

Ventus and SmartSense.

We have six reporting units that have been tested individually for impairment.

IoT Products & Services

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This operating segment has some products that do not use cellular communications, but a large part of this segment does use cellular communications.

As the four operating segments have similar qualitative and quantitative factors, they are aggregated under the IoT Products & Services reportable segment.

The qualitative factors include similar nature of products and services, production process, type or class of customers and methods used to distribute the products.

The quantitative factors include similar operating income and gross profit.

Our CODM reviews and makes business decisions which includes a primary review of operating income but also includes gross profit.

Starting in the quarter ended December 31, 2020, the shared general and administrative costs are now allocated to each operating segment.

Thus, our measure of segment profit or loss used by our CODM changed.

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

The change to the business segment operating income aligns with the update to how the CODM assesses performance and allocates resources for our business segments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEGMENT INFORMATION AND MAJOR CUSTOMERS (CONTINUED)

IoT Solutions

Our IoT Solutions segment offers wireless temperature and other condition-based monitoring services as well as employee task management services.

These solutions are focused on these vertical markets:

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

The solutions are marketed as SmartSense by Digi ® .

We initially formed, expanded and enhanced our IoT Solutions segment through four acquisitions, the last of which was completed in October 2017.

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 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.

We measure our segment results primarily by reference to revenue and gross profit.

IoT Solutions revenue includes product, service and subscription revenue.

The operating segments included in each reportable segment have similar qualitative and quantitative factors, which allow us to aggregate them under each reportable segment.

The qualitative factors include similar nature of products and services, production process, type or class of customers and methods used to distribute the products.

The quantitative factors include similar operating margins.

Our chief operating decision maker reviews and makes business decisions which includes a primary review of operating income but also includes gross profit.

Following the October 2020 reorganization, the shared general and administrative costs are now being allocated to each operating segment.

As a result, our disclosed measure of segment operating income has been updated for all periods presented to conform with this change.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEGMENT INFORMATION AND MAJOR CUSTOMERS (CONTINUED)

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

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export sales represented 22.1 %, 26.2 % and 25.1 % of revenue for the fiscal years ended September 30, 2022, 2021 and 2020.

No single customer exceeded 10% of revenue for any of the periods presented.

At September 30, 2020, we had one customer whose accounts receivable balance represented 17.2 % of total accounts receivable.

No single customer exceeded 10% of revenue or accounts receivable for any of the periods presented.

SELECTED BALANCE SHEET DATA

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There were no transfers into or out of our Level 2 financial assets during fiscal 2022.

The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

Fair Value Measurements at September 30, 2021 using:

Total carrying

September 30, 2021 Quoted price in

active markets

(Level 1) Significant other

observable inputs

(Level 2) Significant

unobservable inputs

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

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

There were no assets or liabilities that are measured at fair value on a recurring basis as of September 30, 2022.

The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2021 (in thousands):

Fair Value Measurements at September 30, 2021 using:

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We paid $ 0.5 million in fiscal 2017, no payments in fiscal 2018, $ 2.2 million in fiscal 2019 and the final installment of $ 2.9 million in fiscal 2020.

In connection with the November 2016 acquisition of FreshTemp ® , we were required to make a contingent payment after June 30, 2018, for revenue related to specific customer contracts signed by June 30, 2017.

The fair value of the liability for consideration recognized upon acquisition was $ 1.3 million.

We made a final payment of $ 0.2 million during fiscal 2019.

In connection our acquisition of TempAlert, we agreed to make contingent payments for the twelve month periods ending December 31, 2018 and December 31, 2019 based on the total Digi IoT Solutions segment revenue.

The fair value of the liability for contingent consideration was zero upon acquisition.

No contingent consideration was earned.

In connection with our acquisition of Accelerated, we agreed to make contingent payments, based upon certain sales thresholds of Accelerated products.

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In connection with our acquisition of Haxiot, we agreed to make contingent earn-out payments, based upon certain revenue thresholds (see Note 2 to the consolidated financial statements).

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.

In the 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 adjusted goodwill to $ 8.6 million and adjusted contingent consideration to $ 5.9 million on our balance sheet.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAIR VALUE MEASUREMENTS (CONTINUED)

In the fiscal fourth quarter of 2022, it was determined that the revenue thresholds would not be met and the remaining balance was adjusted down by $ 5.9 million.

The fair value of the remaining liability for contingent consideration for the acquisition of Haxiot was $ 0.0 million at September 30, 2022.

In connection with our acquisition of Ctek, we agreed to make contingent earn-out payments, based upon certain revenue thresholds (see Note 2 to the consolidated financial statements).

In the fiscal fourth quarter of 2022, it was determined that the revenue thresholds would not be met and the remaining balance was adjusted down by $ 0.3 million .

The fair value of the remaining liability for contingent consideration for the acquisition of Ctek was $ 0.0 million at September 30, 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAIR VALUE MEASUREMENTS (CONTINUED)

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):

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As of September 30, 2022, contingent consideration associated with Haxiot and Ctek remain subject to future performance through December 31, 2022 and 2023, respectively.

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

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

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

This prior agreement provided us with committed credit facilities ("Prior Credit Facility") totaling $ 150 million, which included a $ 50 million term loan and a $ 100 million revolving loan.

We may use the Revolving Loan for working capital, capital expenditures, restricted payments and acquisitions permitted under the agreement.

Borrowings under the Credit Facility bear a variable interest rate of LIBOR plus an applicable margin spread from 1.25 % to 3.25 %.

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

On November 1, 2021, we entered into a second amended and restated credit agreement with BMO Harris Bank N.A.

This agreement provides us with a senior secured credit facility (the "Credit Facility") consisting of a $ 350 million term loan B secured loan (the “Term Loan Facility”) and a $ 35 million revolving credit facility (the “Revolving Loan Facility”) with an uncommitted option to increase incremental loans under the Credit Facility, subject to an incremental cap.

The Revolving Loan Facility includes a $ 10 million letter of credit subfacility and $ 10 million swingline subfacility.

Digi may use proceeds of the Revolving Loan Facility in the future for general corporate purposes.

This loan replaced our syndicated senior secured credit agreement with BMO that was entered into on March 15, 2021 and replaced the remaining balance of our revolver with this new term loan.

This prior agreement provided us with committed credit facilities ("Prior Credit Facility") consisting of a $ 200 million revolving loan.

On December 22, 2021, Digi entered into a third amended and restated credit agreement with BMO.

Digi refinanced the Term Loan Facility and Revolving Loan Facility under its existing credit agreement entered into on November 1, 2021, but did not receive any additional proceeds from nor modify the amounts of any facilities or subfacilities contained within that credit agreement.

Following the December amendment, 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 0.50 %, 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 % to 3.75 % for LIBOR loans and 3.00 % to 2.75 % for base rate loans, depending on Digi’s consolidated leverage ratio.

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 September 30, 2022 was 6.85 %.

The debt issuance costs under the Prior Credit Facility totaled $ 2.6 million and is being amortized using the straight-line method over the term of the loan and reported in interest expense.

The credit facility amendment was determined to be a modification so the existing costs will continue to be amortized over the term of the new facility.

The balance remaining at September 30, 2021 was $ 2.3 million.

The Revolving Loan is due in a lump sum payment at maturity on March 15, 2026.

The fair value of the Revolving Loan approximated carrying value at September 30, 2021.

On November 1, 2021, Digi entered into a second amended and restated credit agreement consisting of a $ 350 million term loan B secured loan and a $ 35 million revolving credit facility (See Note 17 ).

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

Of this amount $ 1.9 million was written off and included in interest expense upon the entry into the new amendment and $ 0.4 million is being amortized over the term of the amended loan and reported in interest expense.

Digi incurred an additional $ 11.7 million and $ 1.7 million in debt issuance costs relating to the November 1, 2021 and December 22, 2021 amendments, respectively.

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 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 September 30, 2022.

Digi made early payments against the term loan of $ 50 million in December 2021, $ 11.3 million in March 2022, $ 20 million in June 2022 and $ 18.7 million in September 2022 for a total of $ 100 million in fiscal 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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The following table is a summary of our long-term indebtedness (in thousands):

As of September 30,

Year ended September 30,

Revolving loan $ — $ 48,118

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Fiscal year Amount

2023 $ 17,500

Total long-term debt $ 250,000

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PRODUCT WARRANTY OBLIGATION

The following table summarizes the activity associated with the product warranty accrual (in thousands) and is listed on our consolidated balance sheets within current liabilities:

The following table summarizes the activity associated with the product warranty accrual (in thousands) and is listed on our consolidated balance sheets within other current liabilities:

Balance at Warranties Settlements Balance at

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2020 $ 1,012 $ 666 $ ( 736 ) $ 942

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LEASES (CONTINUED)

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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Total lease cost $ 4,986 $ 4,725

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LEASES (CONTINUED)

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

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Weighted average discount rate - operating leases 2.86 %

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LEASES (CONTINUED)

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 Consolidated Balance Sheet as of September 30, 2022 (in thousands):

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RESTRUCTURING

Q1 FY2021 Restructuring

2021 Restructuring

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

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This restructuring was completed in the fourth quarter of fiscal 2020.

Manufacturing Transition

As announced in April 2018, we transferred the manufacturing functions of our Eden Prairie, Minnesota operations facility to existing contract manufacture suppliers.

As a result, 53 employment positions in total were eliminated, resulting in restructuring charges amounting to approximately $ 0.5 million for employee costs during the third and fourth quarters of fiscal 2018 in our IoT Product and Services segment.

The payments associated with these charges were completed in the first half of fiscal 2019.

2017 Restructuring

In May 2017, we approved a restructuring plan primarily impacting our France location, which is now closed.

We also eliminated certain employment positions in the U.S.

The restructuring was the result of a decision to consolidate our France operations to our Europe, Middle East and Africa ("EMEA") headquarters in Munich.

The total restructuring charges amounted to $ 2.5 million in fiscal 2017, which included $ 2.3 million of employee costs and $ 0.2 million of contract termination costs during the third quarter of fiscal 2017 in our IoT Product and Services segment.

These actions resulted in an elimination of 10 employment positions in the U.S.

and 8 employment positions in France.

The payments associated with these charges were completed during the first half of fiscal 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Below is a summary of the restructuring charges and other activity within the restructuring accrual (in thousands):

2021 Restructuring 2020 Restructuring Manufacturing Transition 2017 Restructuring

Employee Termination Costs Employee Termination Costs Employee Termination Costs Employee Termination Costs Other Total

Balance at September 30, 2018 $ — $ — $ 147 $ 293 $ 13 $ 453

Restructuring charge — — — — — —

Payments — — ( 108 ) ( 233 ) ( 18 ) ( 359 )

Reversals — — ( 39 ) ( 53 ) 5 ( 87 )

Foreign currency fluctuation — — — ( 7 ) — ( 7 )

2021 Restructuring 2020 Restructuring

Employee Termination Costs Employee Termination Costs Total

Balance at September 30, 2019 $ — $ — $ —

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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 $ 16.5 million and $ 1.9 million as of September 30, 2022 and September 30, 2021, respectively, are included in property, equipment and improvements, net.

The September 30, 2022 balance includes $ 14.7 million acquired in the acquisition of Ventus.

Depreciation expense for these subscriber assets, which is included in cost of sales, was $ 3.2 million and $ 1.9 million for the year ended September 30, 2022 and September 30, 2021, respectively.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

REVENUE (CONTINUED)

The total net book value of subscriber assets was $ 1.9 million at September 30, 2021 and $ 2.0 million at September 30, 2020 and is included in property, equipment and improvements, net.

Depreciation expense for these subscriber assets was $ 1.9 million, $ 1.5 million and $ 1.1 million for fiscal 2021, 2020 and 2019, respectively.

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

.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 for our IoT Solutions segment and our Digi Remote Manager ® services in our IoT Products & Services segment.

Changes in unearned revenue were:

Year ended September 30,

($ in thousands) 2021 2020 2019

Unearned revenue, beginning of period $ 9,341 $ 5,025 $ 3,933

Billings 48,972 35,213 43,071

Revenue recognized ( 42,825 ) ( 30,897 ) ( 41,979 )

Unearned revenue, end of period $ 15,488 $ 9,341 $ 5,025

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.

Our contract liabilities were $ 21.6 million and $ 15.5 million at September 30, 2022 and 2021, respectively.

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

Of the $ 15.5 million and $ 9.3 million balances as of September 30, 2021 and 2020, Digi recognized $ 13.2 million and $ 7.5 million in the year ended September 30, 2022 and 2021, respectively.

Remaining Transaction Price

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We expect to recognize revenue on approximately $ 19.8 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 years to seven years .

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

The components of income before income taxes are (in thousands):

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

The components of the income tax (benefit) expense are (in thousands):

The components of the income tax benefit are (in thousands):

Year ended September 30,

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INCOME TAXES (CONTINUED)

Net deferred tax (liability) asset consists of (in thousands):

Net deferred tax liability consists of (in thousands):

As of September 30,

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Identifiable intangible assets ( 24,308 ) ( 24,959 )

Net deferred tax (liability) asset $ ( 13,054 ) $ ( 16,782 )

Net deferred tax liability $ ( 9,666 ) $ ( 13,054 )

As of September 30, 2022, we had $ 3.0 million of tax carryforwards (net of reserves) related to state research and development tax credits.

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net operating losses have an unlimited carryforward period.

tax credit carryforwards will expire in 2034.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES (CONTINUED)

Our valuation allowance for certain U.S.

tax credit carryforwards will expire in 2034.Our valuation allowance for certain U.S.

and foreign locations was $ 3.0 million at September 30, 2022 and $ 2.2 million at September 30, 2021.

The decrease in valuation allowance is primarily the result of the expiring U.S.

capital loss carryforward of which had a corresponding valuation allowance.

The increase in valuation allowance is primarily the result of additional reserves against R&D credits.

The deferred tax assets realized could vary if there are differences in the timing or amount of future reversals of existing deferred tax liabilities or changes in the amounts of future taxable income.

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This would be reflected as income tax expense at the time that any such change in future taxable income is determined.

The reconciliation of the statutory federal income tax amount to our income tax (benefit) expense is (in thousands):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES (CONTINUED)

The reconciliation of the statutory federal income tax amount to our income tax benefit is (in thousands):

Year ended September 30,

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

The Tax Cuts & Jobs Act of 2017 was enacted in the U.S.

on December 22, 2017.

We applied the guidance in Staff Accounting Bulletin ("SAB") 118 when accounting for the enactment-date income tax effects of this act in fiscal 2018.

At September 30, 2018 we had not fully completed our accounting for the enactment effects of this act.

We, however, had recorded a provisional estimate of the tax expense related to the effects on our existing deferred tax balances and the one-time transition tax which totaled $ 3.0 million in fiscal 2018.

In the first quarter of fiscal 2019 we completed our accounting for the enactment date income tax effects of this act, and there were no significant adjustments to the provisional amounts recorded in fiscal 2018.

In addition, certain provisions of this act became effective for us in fiscal 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES (CONTINUED)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is (in thousands):

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We expect that it is reasonably possible that the total amounts of UTB will decrease by approximately $ 0.3 million over the next 12 months due to the expiration of various statutes of limitations.

Of the $ 2.9 million of UTB, $ 2.3 million is included in non-current income taxes payable and $ 0.6 million is included with non-current deferred tax assets on the consolidated balance sheets at September 30, 2021.

Of the $ 3.3 million of UTB, $ 2.4 million is included in non-current income taxes payable and $ 0.9 million is included with non-current deferred tax liabilities on the consolidated balance sheets at September 30, 2022.

We recognize interest and penalties related to income tax matters in income tax expense.

During fiscal 2022 and 2021, there were insignificant amounts of interest and penalties related to income tax matters in income tax expense.

We accrued interest and penalties related to unrecognized tax benefits of $ 0.1 million at both September 30, 2021 and 2020.

We accrued $ 0.1 million in interest and no penalties related to unrecognized tax benefits as of September 30, 2022 and 2021.

These accrued interest and penalties are included in our non-current income taxes payable on our consolidated balance sheets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES (CONTINUED)

We operate in multiple tax jurisdictions both in the U.S.

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Under current tax law, we estimate the unrecognized tax liability to be immaterial.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCKHOLDERS' EQUITY

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We received net proceeds of $ 73.8 million, net of transaction expenses of $ 0.3 million related to the public offering.

We intend to use the proceeds for working capital and general corporate purposes.

We may, in the future, use the proceeds to acquire or invest in complementary businesses, products and technologies.

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 amended and restated 2021 Omnibus Incentive Plan (the "Amended Plan") beginning January 29, 2022.

Prior to that date, such awards made in fiscal 2022 were granted under the 2021 Omnibus Incentive Plan (the "2021 Plan").

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

The authority to grant options under the 2021 Plan and set other terms and conditions rests with the Compensation Committee of the Board of Directors.

The 2021 Plan authorizes the issuance of up to 1,400,000 common shares in connection with awards of stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based full value awards or other stock-based awards.

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

Shares subject to awards under the 2021 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 Amended Plan.

The authority to grant options under the Amended Plan and set other terms and conditions rests with the Compensation Committee of the Board of Directors.

The Amended Plan authorizes the issuance of up to 2,400,000 common shares in connection with awards of stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based full value awards or other stock-based awards.

Eligible participants include our employees, our affiliates, non-employee directors of our Company and any consultant or advisor who is a natural person and provides services to us or our affiliates.

Options that have been granted under the 2021 Plan typically vest over a four -year period and will expire if unexercised after seven years from the date of grant.

Options that have been granted under the Amended Plan typically vest over a four -year period and will expire if unexercised after seven years from the date of grant.

Restricted stock unit awards ("RSUs") that have been granted to directors typically vest in one year.

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Share-based compensation expenses recorded for this performance award is reevaluated at each reporting period based on the probability of achievement of the goal.

The 2021 Plan is scheduled to expire on January 28, 2031.

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

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

Options under the Amended 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 September 30, 2021, there were approximately 1,413,615 shares available for future grants under the 2021 Plan.

The 2020 Plan, under which grants ceased upon approval of the 2021 Plan, authorized the issuance of up to 1,500,000 common shares in connection with awards of stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based full value awards or other stock-based awards.

Upon exercise of options or

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK-BASED COMPENSATION (CONTINUED)

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

As of September 30, 2022, there were approximately 1,793,203 shares available for future grants under the Amended Plan.

The 2021 Plan, under which grants ceased upon approval of the Amended Plan, authorized the issuance of up to 1,400,000 common shares in connection with awards of stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based full value awards or other stock-based awards.

Eligible participants included our employees, our affiliates, non-employee directors of our Company and any consultant or advisor who is a natural person and provided services to us or our affiliates.

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RSUs that were granted to executives and employees typically vested in January over a four -year period.

Awards may no longer be granted under the 2020 Plan as grants ceased upon approval of the 2021 Plan effective January 29, 2021 at the Annual Meeting of Stockholders.

Awards may no longer be granted under the 2021 Plan as grants ceased upon approval of the Amended Plan effective January 29, 2022 at the Annual Meeting of Stockholders.

The exercise price of options and the grant date price of restricted stock units was determined by our Compensation Committee but could be less than the fair market value of our common stock based on the closing price on the date of grant.

Cash received from the exercise of stock options was $ 8.5 million, $ 5.9 million and $ 4.9 million for the twelve months ended September 30, 2021, 2020 and 2019, respectively.

Cash received from the exercise of stock options was $ 9.5 million, $ 8.5 million and $ 5.9 million for the year ended September 30, 2022, 2021 and 2020, respectively.

Our stock option plans allow the net exercise of options.

Shares with a value of $ 4.3 million were forfeited to satisfy tax withholding for the year ended September 30, 2022, and no amounts were forfeited in fiscal 2021 or 2020.

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, having us retain a portion of shares issuable under the award or paying cash to us for the withholding.

During fiscal 2022, 2021 and 2020 our employees forfeited 102,392 , 116,195 and 103,492 shares, respectively in order to satisfy $ 2.4 million, $ 2.1 million and $ 1.8 million, respectively, of withholding tax obligations related to stock-based compensation, pursuant to terms of awards under our board and shareholder-approved compensation plans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK-BASED COMPENSATION (CONTINUED)

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 "Purchase Plan"), covering all domestic employees with at least 90 days of continuous service and who are customarily employed at least 20 hours per week.

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

The Purchase Plan allows eligible participants the right to purchase common stock on a quarterly basis at the lower of 85 % of the market price at the beginning or end of each three-month offering period.

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Stock-based compensation after income taxes $ 6,759 $ 6,380 $ 5,714

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK-BASED COMPENSATION (CONTINUED)

Stock Options

Below is a summary of our stock options as of September 30, 2022 and changes during the twelve months then ended (in thousands, except per common share amounts):

Options Outstanding Weighted Average Exercised Price Weighted Average Contractual Term (in years) Aggregate Intrinsic Value (1)

Options Outstanding Weighted Average Exercise Price Weighted Average Contractual Term (in years) Aggregate Intrinsic Value (1)

Balance at September 30, 2021 2,952 $ 13.20

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Forfeited / Canceled ( 205 ) 17.86

Balance at September 30, 2021 2,952 $ 13.20 3.6 $ 23,232

Exercisable at September 30, 2021 1,927 $ 11.55 2.5 $ 18,246

Balance on June 30, 2022 1,790 $ 17.29 4.7 $ 29,095

Exercisable at June30, 2022 846,530 $ 14.26 3.6 $ 16,325

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $ 33.54 as of September 30, 2022, which would have been received by the option holders had all option holders exercised their options as of that date.

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The total intrinsic value of all options exercised during each of the twelve months ended September 30, 2022, 2021 and 2020 was $ 20.3 million, $ 6.5 million and $ 3.7 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK-BASED COMPENSATION (CONTINUED)

The table below 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:

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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 September 30, 2021, the total unrecognized compensation cost related to non-vested stock-based compensation arrangements, net of expected forfeitures, was $ 5.7 million.

As of September 30, 2022, the total unrecognized compensation cost related to non-vested stock-based compensation arrangements was $ 7.1 million.

The related weighted average period over which this cost is expected to be recognized was approximately 1.8 years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK-BASED COMPENSATION (CONTINUED)

As of September 30, 2022, the weighted average exercise price and remaining life of the stock options were (in thousands, except remaining life and exercise price):

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The total grant date fair value of shares vested was $ 3.0 million, $ 2.6 million and $ 3.7 million in each of fiscal 2022, 2021 and 2020, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK-BASED COMPENSATION (CONTINUED)

Non-vested Stock Units

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Canceled ( 156 ) $ 17.46 — $ —

Nonvested at September 30, 2021 812 $ 15.72 18 $ 25.15

Nonvested at June 30, 2022 742 $ 19.14 27 $ 22.69

As of September 30, 2022, the total unrecognized compensation cost related to non-vested restricted stock units was $ 10.7 million.

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EMPLOYEE BENEFIT PLANS

We currently have a savings and profit sharing plan pursuant to Section 401(k) of the Internal Revenue Code (the Code), whereby eligible employees may contribute up to 25 % of their pre-tax earnings subject to certain limits under law.

We currently have a savings and profit sharing plan pursuant to Section 401(k) of the Internal Revenue Code, whereby eligible employees may contribute up to 25 % of their pre-tax earnings subject to certain limits under law.

We provide a match of 100 % on the first 3 % of each employee’s bi-weekly contribution and a 50 % match on the next 2 % of each employee’s bi-weekly contribution.

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In addition, we may make contributions to the plan at the discretion of the Board of Directors.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMMITMENTS AND CONTINGENCIES

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUBSEQUENT EVENTS

Acquisition of Ventus Holdings

On November 1, 2021, we acquired Ventus Networks, LLC for approximately $348 million in cash.

Ventus is a privately-held leader in MNaaS solutions that simplify the complexity of enterprise WAN connectivity.

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.

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

Second Amended and Restated Senior Secured Credit Facility

On November 1, 2021, Digi entered into a second amended and restated credit agreement consisting of a $ 350 million term loan B secured loan and a $ 35 million revolving credit facility.

The $ 35 million revolving credit facility, which presently has no outstanding balance, includes a $ 10 million letter of credit subfacility and $ 10 million swingline subfacility.

Amounts under the term loan will be repaid in quarterly installments on the last day of each fiscal quarter, with an annual amortization rate of 1 %.

The remaining outstanding balance is due to be repaid in full after seven years.

Borrowings under this credit facility bear a variable interest rate of LIBOR plus an applicable margin spread from 3.75 % to 4.00 %.

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

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.

If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the Loan, we will be in default.

We are also required to comply with several financial covenants under the Credit Agreement.

Our ability to comply with such financial covenants may be affected by events beyond our control, which could result in a default under the Credit Agreement;

such default may have a material adverse effect on our business, financial condition, operating results or cash flows.

The Term Loan contains some affirmative covenants and the Revolving Credit Facility contains customary affirmative and negative covenants, including covenants that restrict the ability of Digi and its subsidiaries to incur additional indebtedness, dispose of significant assets, make certain investments, including any acquisitions other than permitted acquisitions, make certain payments, enter into sale and leaseback transactions, grant liens on its assets or rate management transactions, subject to certain limitations.

These restrictions could adversely affect our business.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data