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Item 1. Financial Statements

2023-08-04 compared with 2023-05-05 · 104 added, 107 removed, 445 unchanged (32% 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,

2023 2022 2023 2022

17 unchanged sentences

Interest expense, net ( 6,603 ) ( 5,296 ) ( 18,967 ) ( 14,657 )

Other income, net 47 139 64 37

Other income (expense), net 15 ( 96 ) 79 ( 59 )

Total other expense, net ( 6,588 ) ( 5,392 ) ( 18,888 ) ( 14,716 )

Income before income taxes 5,888 4,582 17,726 6,621

Income tax (benefit) provision ( 70 ) 393 160 ( 1,995 )

Income tax provision (benefit) ( 839 ) 456 ( 679 ) ( 1,539 )

Net income $ 6,727 $ 4,126 $ 18,405 $ 8,160

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

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

2023 2022 2023 2022

1 unchanged sentence

Net income $ 6,727 $ 4,126 $ 18,405 $ 8,160

Other comprehensive income (loss):

Other comprehensive (loss) income:

Foreign currency translation adjustment ( 109 ) ( 1,359 ) 1,358 ( 1,519 )

Other comprehensive income (loss) 178 52 1,467 ( 160 )

Other comprehensive (loss) income ( 109 ) ( 1,359 ) 1,358 ( 1,519 )

Comprehensive income $ 6,618 $ 2,767 $ 19,763 $ 6,641

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2023 September 30, 2022

June 30, 2023 September 30, 2022

(in thousands, except share data)

45 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended March 31,

Nine months ended June 30,

(Restated) (1)

32 unchanged sentences

Accrual for purchase of property, equipment, improvements and certain other intangible assets $ ( 157 ) $ ( 69 )

(1) As described in Note 2 to these condensed consolidated financial statements, we have restated the condensed consolidated statement of cash flows for the six months ended March 31, 2022.

(1) As described in Note 2 to these condensed consolidated financial statements, we have restated the condensed consolidated statements of cash flows for the nine months ended June 30, 2022.

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

4 unchanged sentences

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

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

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

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

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

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

Net income — — — — — 8,160 — 8,160

4 unchanged sentences

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

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

Balances, March 31, 2023 42,325 $ 423 6,464 $ ( 61,446 ) $ 394,036 $ 211,753 $ ( 24,587 ) $ 520,179

Balances, December 31, 2022 42,199 $ 422 6,465 $ ( 60,973 ) $ 389,390 $ 205,854 $ ( 24,765 ) $ 509,928

Net income — — — — — 6,727 — 6,727

Other comprehensive income — — — — — — 178 178

Other comprehensive loss — — — — — — ( 109 ) ( 109 )

Employee stock purchase plan issuances — — ( 18 ) 173 347 — — 520

2 unchanged sentences

Stock-based compensation expense — — — — 3,519 — — 3,519

Balances, March 31, 2023 42,325 $ 423 6,464 $ ( 61,446 ) $ 394,036 $ 211,753 $ ( 24,587 ) $ 520,179

Balances, June 30, 2023 42,408 $ 424 6,452 $ ( 61,470 ) $ 398,845 $ 218,480 $ ( 24,696 ) $ 531,583

Balances, September 30, 2022 41,950 $ 420 6,413 $ ( 58,172 ) $ 385,244 $ 200,075 $ ( 26,054 ) $ 501,513

5 unchanged sentences

Stock-based compensation expense — — — — 9,852 — — 9,852

Balances, March 31, 2023 42,325 $ 423 6,464 $ ( 61,446 ) $ 394,036 $ 211,753 $ ( 24,587 ) $ 520,179

Balances, June 30, 2023 42,408 $ 424 6,452 $ ( 61,470 ) $ 398,845 $ 218,480 $ ( 24,696 ) $ 531,583

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

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RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Our condensed consolidated statement of cash flows for the six months ended March 31, 2022 has been restated for errors made with regard to the cash flow classification of debt issuance costs and debt issuance cost amortization.

Our condensed consolidated statement of cash flows for the nine months ended June 30, 2022 has been restated for errors made with regard to the cash flow classification of debt issuance costs and debt issuance cost amortization.

Immaterial Correction of Prior Period Financial Statements

Subsequent to the issuance of the Company's financial statements for the quarter ended March 31, 2022, the Company made certain corrections in the condensed consolidated statements of cash flows related to the debt issuance costs associated with our second and third amended and restated credit agreement entered into in November and December 2021, respectively.

Subsequent to the issuance of the Company's financial statements for the quarter ended June 30, 2022, the Company made certain corrections in the condensed consolidated statements of cash flows related to the debt issuance costs associated with our second and third amended and restated credit agreement entered into in November and December 2021, respectively.

We corrected $ 13.4 million of debt issuance cost previously recorded within changes in operating assets and liabilities (net of acquisitions) within the operating activities and correctly presented the cash outflows as payments of debt issuance costs within financing activities.

4 unchanged sentences

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,

2023 2022 2023 2022

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, 2023 and 2022, 609,017 and 1,129,393 shares outstanding were excluded, respectively.

For the six months ended March 31, 2023 and 2022, 416,307 and 735,611 shares outstanding were excluded, respectively.

For the three months ended June 30, 2023 and 2022, 599,957 and 939,101 shares outstanding were excluded, respectively.

For the nine months ended June 30, 2023 and 2022, 477,521 and 778,573 shares outstanding were excluded, respectively.

SELECTED BALANCE SHEET DATA

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and Level 3 (unobservable inputs that cannot be corroborated by observable market data).

There were no assets or liabilities that are measured at fair value on a recurring basis as of March 31, 2023 or September 30, 2022.

There were no assets or liabilities that are measured at fair value on a recurring basis as of June 30, 2023 or September 30, 2022.

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):

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

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

2023 2022 2023 2022

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("Haxiot") in March 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 Haxiot was $ 0.0 million at March 31, 2023 and September 30, 2022.

The fair value of the remaining liability for contingent consideration for the acquisition of Haxiot was $ 0.0 million at June 30, 2023 and September 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 $ 0.0 million at March 31, 2023 and September 30, 2022.

The fair value of the remaining liability for contingent consideration for the acquisition of Ctek was $ 0.0 million at June 30, 2023 and September 30, 2022.

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, 2023 is based on the probability of achieving the specified revenue thresholds for Ctek.

As of March 31, 2023, contingent consideration associated with Ctek remains subject to future performance through December 31, 2023.

The fair value of the contingent consideration at June 30, 2023 is based on the probability of achieving the specified revenue thresholds for Ctek.

As of June 30, 2023, contingent consideration associated with Ctek remains subject to future performance through December 31, 2023.

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Amortizable intangible assets were (in thousands):

March 31, 2023 September 30, 2022

June 30, 2023 September 30, 2022

amount Accum.

7 unchanged sentences

Total $ 435,936 $ ( 152,648 ) $ 283,288 $ 435,651 $ ( 133,587 ) $ 302,064

Amortization expense was $ 6.2 million and $ 7.0 million for the three months ended March 31, 2023 and 2022.

Amortization expense was $ 12.7 million and $ 13.4 million for the six months ended March 31, 2023 and 2022, respectively.

Amortization expense was $ 6.3 million and $ 7.0 million for the three months ended June 30, 2023 and 2022, respectively.

Amortization expense was $ 19.0 million and $ 20.4 million for the nine months ended June 30, 2023 and 2022, 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 2023 and the five succeeding fiscal years is (in thousands):

2023 (six months) $ 13,317

2023 (three months) $ 7,142

GOODWILL AND OTHER INTANGIBLE ASSETS, NET (CONTINUED)

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

Three months ended March 31, 2023

Nine months ended June 30, 2023

Products & Services IoT

2 unchanged sentences

Foreign currency translation adjustment 1,815 — 1,815

Balance on March 31, 2023 $ 174,200 $ 167,662 $ 341,862

Balance on June 30, 2023 $ 174,746 $ 167,546 $ 342,292

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

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

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

Our IoT Products & Services business is structured to include four reporting units under the IoT Products & Services segment, each with a reporting manager:

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

Our IoT Products & Services segment is structured to include four reporting units, each with a reporting manager:

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

Following our acquisition of Ventus in November 2021, we have two reporting units within our IoT Solutions segment:

Following our acquisition of Ventus in November 2021, we have two reporting units within IoT Solutions:

SmartSense and Ventus.

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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 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.

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

If our future operating results do not meet current forecasts or 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 within either of our segments, we may be required to record future impairment charges for goodwill.

Results of our Fiscal 2023 Annual Impairment Test

As of June 30, 2023, 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, $ 64.6 million of goodwill for the OEM Solutions reporting unit, $ 20.4 million of goodwill for the Infrastructure Management reporting unit, $ 48.9 million of goodwill for the SmartSense reporting unit and $ 118.6 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.

This range was compared to the total market capitalization of $ 852.0 million as of June 30, 2022.

This implied a range of control (deficit)/ premiums of ( 5.6 )% to 7.9 %.

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.

At June 30, 2023, the fair value of goodwill exceeded the carrying value for all six reporting units and no impairment was recorded.

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

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Following the expiration of the election on October 31, 2022, Digi elected an interest period of one month, effective on November 1, 2022 and has elected the same periods each subsequent month.

Our weighted average interest rate at March 31, 2023 was 8.62 %.

Following the discontinuation of LIBOR on June 30, 2023, borrowings under the Term Loan Facility will be subject to the Secured Overnight Financing Rate (SOFR).

Our weighted average interest rate for our Term Loan Facility as of June 30, 2023 was 10.16 %.

Our weighted average Revolving Loan Facility commitment fee was 0.20 % as of June 30, 2023.

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

4 unchanged sentences

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 March 31, 2023.

Digi made early payments against the term loan of $ 0.6 million and $ 61.3 million in six months ended March 31, 2023 and 2022, respectively.

The following table is a summary of our long-term indebtedness at March 31, 2023 and September 30, 2022 (in thousands):

Balance on March 31, 2023 Balance on September 30, 2022

The fair value of the Term Loan and Revolving Loan approximated carrying value at June 30, 2023.

Digi made early payments against the term loan of $ 16.3 million and $ 81.3 million in nine months ended June 30, 2023 and 2022, respectively.

The following table is a summary of our long-term indebtedness at June 30, 2023 and September 30, 2022 (in thousands):

Balance on June 30, 2023 Balance on September 30, 2022

Term loan $ 220,625 $ 250,000

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Total long-term debt, net of current portion $ 194,556 $ 222,448

The following table is a summary of future maturities of our aggregate long-term debt at March 31, 2023 (in thousands):

The following table is a summary of future maturities of our aggregate long-term debt at June 30, 2023 (in thousands):

Fiscal year Amount

2023 (six months) $ 8,750

2023 (three months) $ 4,375

Total long-term debt $ 220,625

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, 2023, we had no amounts drawn on the Revolving Loan Facility.

At June 30, 2023, we had no amounts drawn on the Revolving Loan Facility.

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

2 unchanged sentences

IoT Products & Services and IoT Solutions.

Our IoT Products & Services business is structured to include four operating segments, each with a segment manager.

IoT Products & Services is structured to include four operating segments, each with a segment manager.

These four operating segments are:

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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,

2023 2022 2023 2022

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

Six months ended March 31,

Nine months ended June 30,

IoT Products & Services $ 362 $ 1,722

1 unchanged sentence

Total expended for property, plant and equipment $ 3,653 $ 4,218

* Excluded from this amount is $ 2,685 and $ 1,215 of transfers of inventory to property plant and equipment for subscriber assets for the six months ended March 31, 2023 and 2022, respectively.

* Excluded from these amounts are $ 3,175 and $ 1,742 of transfers of inventory to property plant and equipment for subscriber assets for the nine months ended June 30, 2023 and 2022, respectively.

Total assets for each of our segments were (in thousands):

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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,

2023 2022 2023 2022

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,

2023 2022 2023 2022

4 unchanged sentences

Contract Related Assets

Our contract related assets consist of subscriber assets, which are equipment that we provide to customers pursuant to subscription-based contracts.

In these cases, we retain the ownership of the equipment that the customer uses and charge them subscription fees to receive our end-to-end solutions.

The total net book value of subscriber assets of $ 17.3 million and $ 16.5 million as of March 31, 2023 and September 30, 2022, respectively, are included in property, equipment and improvements, net.

Depreciation expense for these subscriber assets, which is included in cost of sales, was $ 0.9 million and $ 1.1 million for the three months ended March 31, 2023 and 2022, respectively.

Depreciation expense for these subscriber assets $ 1.8 million and $ 1.9 million for the six months ended March 31, 2023 and 2022, respectively.

Our contract related assets consist of subscriber assets.

Subscriber assets are equipment that we provide to customers pursuant to subscription-based contracts.

In these cases, we retain the ownership of the equipment a customer uses and charge the customer subscription fees to receive our end-to-end solutions.

The total net book value of subscriber assets of $ 16.9 million and $ 16.5 million as of June 30, 2023 and September 30, 2022, respectively, are included in property, equipment and improvements, net.

Depreciation expense for these subscriber assets, which is included in cost of sales, was $ 1.0 million and $ 0.4 million for the three months ended June 30, 2023 and 2022, respectively.

Depreciation expense for these subscriber assets was $ 2.8 million and $ 2.3 million for the nine months ended June 30, 2023 and 2022, respectively.

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

2 unchanged sentences

Contract assets at Digi consist of products and services that have been fulfilled, but for which revenue has not yet been recognized.

Our contract asset balances were immaterial as of March 31, 2023 and September 30, 2022.

Our contract asset balances were immaterial as of June 30, 2023 and September 30, 2022.

Contract Liabilities

2 unchanged sentences

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 $ 25.7 million and $ 24.8 million at March 31, 2023 and 2022, respectively.

Of the $ 23.0 million and $ 24.3 million balances as of December 31, 2022 and 2021, Digi recognized $ 5.9 million and $ 5.0 million as revenue in the three months ended March 31, 2023 and 2022, respectively.

Of the $ 21.6 million and $ 15.5 million balances as of September 30, 2022 and 2021, Digi recognized $ 10.6 million and $ 10.0 million as revenue in the six months ended March 31, 2023 and 2022, respectively.

Remaining Transaction Price

As of March 31, 2023, we had approximately $ 106.5 million of remaining performance obligations on contracts with an original duration of one year or more.

Our contract liabilities were $ 26.5 million and $ 22.6 million at June 30, 2023 and 2022, respectively.

Of the $ 25.7 million and $ 24.8 million balances as of March 31, 2023 and 2022, Digi recognized $ 6.7 million and $ 5.4 million as revenue in the three months ended June 30, 2023 and 2022, respectively.

Of the $ 21.6 million and $ 15.5 million balances as of September 30, 2022 and 2021, Digi recognized $ 18.9 million and $ 12.0 million as revenue in the nine months ended June 30, 2023 and 2022, respectively.

Remaining Performance Obligation

As of June 30, 2023, we had approximately $ 154.7 million of remaining performance obligations on contracts with an original duration of one year or more.

We expect to recognize revenue on approximately $ 67.3 million of remaining performance obligations over the next 12 months.

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

Our income tax expense was $ 0.2 million for the six months ended March 31, 2023.

Included in this expense was a net tax benefit discretely related to the six months ended March 31, 2023 of $ 1.7 million.

Our income tax benefit was $ 0.7 million for the nine months ended June 30, 2023.

Included in this was a net tax benefit discretely related to the nine months ended June 30, 2023 of $ 2.9 million.

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

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Expiration of statute of limitations ( 649 )

Unrecognized tax benefits as of March 31, 2023 $ 2,667

The total amount of unrecognized tax benefits at March 31, 2023 that, if recognized, would affect our effective tax rate was $ 2.6 million, after considering the impact of interest and deferred benefit items.

Prior year income tax positions 100

Unrecognized tax benefits as of June 30, 2023 $ 2,767

The total amount of unrecognized tax benefits at June 30, 2023 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 $ 0.3 million over the next 12 months.

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Balance at Warranties Settlements Balance at

Period December 31 issued made March 31

Three months ended March 31, 2023 $ 922 $ 78 $ ( 164 ) $ 836

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

Period March 31 issued made June 30

Three months ended June 30, 2023 $ 836 $ 135 $ ( 117 ) $ 854

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

Balance at Warranties Settlements Balance at

Period September 30 issued made March 31

Six months ended March 31, 2023 $ 886 $ 168 $ ( 218 ) $ 836

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

Period September 30 issued made June 30

Nine months ended June 30, 2023 $ 886 $ 303 $ ( 335 ) $ 854

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

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

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

Balance Sheet Location March 31, 2023 September 30, 2022

Balance Sheet Location June 30, 2023 September 30, 2022

Operating leases Operating lease right-of-use assets $ 13,643 $ 15,299

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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,

2023 2022 2023 2022

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Total lease cost $ 1,294 $ 1,268 $ 3,760 $ 3,747

In November 2021, Digi acquired $ 0.9 million in right of-use assets and assumed $ 0.9 million in lease liabilities from the acquisition of Ventus that are included in the balances at March 31, 2022.

Digi acquired $ 0.2 million in right-of-use assets in exchange for new operating lease liabilities in the three and six months ended March 31, 2023.

At March 31, 2023, the weighted average remaining lease term of our operating leases was 6.9 years and the weighted average discount rate for these leases was 4.5 %.

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, 2023 (in thousands):

In November 2021, Digi acquired $ 0.9 million in right of-use assets and assumed $ 0.9 million in lease liabilities from the acquisition of Ventus that are included in the balances at June 30, 2022.

Digi acquired $ 0.1 million and $ 0.3 million in right-of-use assets in exchange for new operating lease liabilities in the three and nine months ended June 30, 2023, respectively.

At June 30, 2023, the weighted average remaining lease term of our operating leases was 6.7 years and the weighted average discount rate for these leases was 4.4 %.

Fiscal year Amount

2023 (six months) $ 2,033

2023 (three months) $ 1,131

Thereafter 5,704

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STOCK-BASED COMPENSATION (CONTINUED)

As of March 31, 2023, there were approximately 2,340,956 shares available for future grants under the 2021 Plan.

Cash received from the exercise of stock options was $ 1.7 million and $ 5.6 million for the six months ended March 31, 2023 and 2022, respectively.

As of June 30, 2023, there were approximately 2,325,333 shares available for future grants under the 2021 Plan.

Cash received from the exercise of stock options was $ 2.6 million and $ 6.7 million for the nine months ended June 30, 2023 and 2022, 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.

1 unchanged sentence

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

During the six months ended March 31, 2023 and 2022, our employees forfeited 90,985 shares and 630,181 shares, respectively, in order to satisfy respective withholding tax obligations of $ 3.7 million and $ 6.4 million, respectively.

During the nine months ended June 30, 2023 and 2022, our employees forfeited 97,171 shares and 96,860 shares, respectively, in order to satisfy respective withholding tax obligations of $ 3.9 million and $ 2.2 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 that may be purchased under the ESPP to 3,425,000 .

ESPP contributions by employees were $ 1.2 million and $ 0.7 million for the six months ended March 31, 2023 and 2022, respectively.

Pursuant to the ESPP, 39,979 and 36,987 common shares were issued to employees during the six months ended March 31, 2023 and 2022, respectively.

ESPP contributions by employees were $ 1.7 million and $ 1.1 million for the nine months ended June 30, 2023 and 2022, respectively.

Pursuant to the ESPP, 58,081 and 60,481 common shares were issued to employees during the nine months ended June 30, 2023 and 2022, respectively.

Shares are issued under the ESPP from treasury stock.

As of March 31, 2023, 512,869 common shares were available for future issuances under the ESPP.

As of June 30, 2023, 494,767 common shares were available for future issuances under the ESPP.

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,

2023 2022 2023 2022

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Forfeited / Canceled ( 34 ) 20.76

Balance on March 31, 2023 1,708 $ 18.23 4.5 $ 15,189

Exercisable on March 31, 2023 1,012 $ 15.60 3.6 $ 11,090

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $ 33.68 as of March 31, 2023, which would have been received by the option holders had all option holders exercised their options as of that date.

Balance on June 30, 2023 1,640 $ 18.43 4.1 $ 34,471

Exercisable on June 30, 2023 1,046 $ 15.99 3.5 $ 24,481

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $ 39.39 as of June 30, 2023, which would have been received by the option holders had all option holders exercised their options as of that date.

STOCK-BASED COMPENSATION (CONTINUED)

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, 2023 and 2022 was $ 2.6 million and $ 13.9 million, respectively.

The total intrinsic value of all options exercised during the nine months ended June 30, 2023 and 2022 was $ 4.1 million and $ 15.6 million, respectively.

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 $ 19.88 $ 10.03

Assumptions used for option grants:

Risk free interest rate minimum 3.77 % - 3.98 %

Risk free interest rate 3.50 % - 3.98 %

1.25 % - 3.00 %

Expected term 6.00 years 6.00 years

Expected volatility minimum 46 % 45 % - 46 %

Expected volatility 46 % 45 % - 46 %

Weighted average volatility 46 % 46 %

6 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, 2023, the total unrecognized compensation cost related to non-vested stock options was $ 6.5 million and the related weighted average period over which it is expected to be recognized is approximately 1.9 years.

As of June 30, 2023, the total unrecognized compensation cost related to non-vested stock options was $ 5.7 million and the related weighted average period over which it is expected to be recognized is approximately 1.6 years.

Non-vested Stock Units

The following table presents a summary of our non-vested restricted stock units and performance stock units as of March 31, 2023 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 units and performance stock units as of June 30, 2023 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 ( 34 ) 26.69 — —

Nonvested on March 31, 2023 892 $ 29.86 135 $ 37.72

As of March 31, 2023, the total unrecognized compensation cost related to non-vested stock units was $ 27.9 million.

Nonvested on June 30, 2023 889 $ 30.14 135 $ 37.72

As of June 30, 2023, the total unrecognized compensation cost related to non-vested stock units was $ 25.8 million.

The related weighted average period over which this cost is expected to be recognized is approximately 2.1 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