What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-02 compared with 2023-08-04 · 85 added, 119 removed, 144 unchanged (59% of the section changed)

5 unchanged sentences

This discussion contains forward-looking statements that are based on management’s current expectations and assumptions.

These statements often can be identified by the use of forward-looking terminology such as "assume," "believe," "anticipate," "intend," "estimate," "target," "may," "will," "expect," "plan," "potential," "project," "should," or "continue," or the negative thereof or other variations thereon or similar terminology.

Among other items, these statements relate to expectations of the business environment in which Digi operates, projections of future performance, perceived marketplace opportunities and statements regarding our mission and vision.

These statements often can be identified by the use of forward-looking terminology such as "anticipate," "assume," "believe," "continue," "estimate," "expect," "intend," "may," "plan," "potential," "project," "should," "target," or "will" or the negative thereof or other variations thereon or similar terminology.

Among other items, these statements relate to expectations of the business environment in which Digi operates, projections of future performance, inventory levels, perceived marketplace opportunities, interest expense and statements regarding our mission and vision.

Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions.

Among others, these include risks related to the ongoing supply chain and transportation challenges impacting businesses globally, risks related to ongoing inflationary pressures around the world and the monetary policies of governments globally as well as present concerns about a potential recession and the ability of companies like us to operate a global business in such conditions as well as negative effects on product demand and the financial solvency of customers and suppliers in such conditions, risks arising from the present war in Ukraine, the highly competitive market in which our company operates, rapid changes in technologies that may displace products sold by us, declining prices of networking products, our reliance on distributors and other third parties to sell our products, the potential for significant purchase orders to be canceled or changed, delays in product development efforts, uncertainty in user acceptance of our products, the ability to integrate our products and services with those of other parties in a commercially accepted manner, potential liabilities that can arise if any of our products have design or manufacturing defects, our ability to integrate and realize the expected benefits of acquisitions, our ability to defend or settle satisfactorily any litigation, the impact of natural disasters and other events beyond our control that could negatively impact our supply chain and customers, potential unintended consequences associated with restructuring, reorganizations or other similar business initiatives that may impact our ability to retain important employees or otherwise impact our operations in unintended and adverse ways, and changes in our level of revenue or profitability which can fluctuate for many reasons beyond our control.

Among others, these include risks related to ongoing and varying inflationary and deflationary pressures around the world and the monetary policies of governments globally as well as present concerns about a potential recession, the ability of companies like us to operate a global business in such conditions as well as negative effects on product demand and the financial solvency of customers and suppliers in such conditions, risks related to ongoing supply chain challenges that continue to impact businesses globally, risks related to cybersecurity, risks arising from the present wars in Ukraine and the Middle East, the highly competitive market in which our company operates, rapid changes in technologies that may displace products sold by us, declining prices of networking products, our reliance on distributors and other third parties to sell our products, the potential for significant purchase orders to be canceled or changed, delays in product development efforts, uncertainty in user acceptance of our products, the ability to integrate our products and services with those of other parties in a commercially accepted manner, potential liabilities that can arise if any of our products have design or manufacturing defects, our ability to integrate and realize the expected benefits of acquisitions, our ability to defend or settle satisfactorily any litigation, the impact of natural disasters and other events beyond our control that could negatively impact our supply chain and customers, potential unintended consequences associated with restructuring, reorganizations or other similar business initiatives that may impact our ability to retain important employees or otherwise impact our operations in unintended and adverse ways, and changes in our level of revenue or profitability which can fluctuate for many reasons beyond our control.

These and other risks, uncertainties and assumptions identified from time to time in our filings with the United States Securities and Exchange Commission, including without limitation, those set forth in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended September 30, 2023, subsequent filings, as well as this filing on Form 10-Q and other filings, could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf.

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IoT Products & Services and IoT Solutions.

Our IoT Products & Services segment offers products and services that help OEMs, enterprise and government customers create and deploy secure IoT connectivity solutions.

From embedded and wireless modules to console servers as well as enterprise and industrial routers, we provide a wide variety of communication sub-assemblies and finished products to meet our customers' IoT communication requirements.

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

Our IoT Solutions segment primarily consists of our Managed Network-as-a-Service (“MNaaS”) business acquired last year via our acquisition of Ventus Wireless, LLC and affiliated entities (“Ventus”) and our SmartSense by Digi® business.

Ventus is a leader in the provision of MNaaS solutions that simplify the complexity of enterprise wide area network (“WAN”) connectivity for customers.

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

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

These solutions are focused on the following vertical markets:

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

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

In fiscal 2024, our key operating objectives include:

• continuing to transition to complete solutions with software and service offerings included with our products, as this drives Annualized Recurring Revenue ("ARR"), which provides more predictable and higher margin revenues;

• delivering a higher level of customer service across our businesses.

We utilize many financial, operational, and other metrics to evaluate our financial condition and financial performance.

Below we highlight the metrics for the third quarter of fiscal 2023 that we feel are most important in these evaluations, with comparisons to the third quarter of fiscal 2022:

• Consolidated revenue was $112 million, an increase of 8%.

Below we highlight the metrics for the first quarter of fiscal 2024 that we feel are most important in these evaluations, with comparisons to the first quarter of fiscal 2023:

• Consolidated revenue was $106 million, a decrease of 3%.

• Consolidated gross profit was $61 million, a decrease of 1%.

• Gross profit margin was 57.6%, an increase of 130 basis points.

Gross profit margin excluding amortization was 57.7%, an increase of 100 basis points.

• Net income per diluted share was $0.18, compared to $0.12, an increase of 50%.

• Adjusted net income and adjusted net income per share was $18.5 million, or $0.50 per diluted share, compared to $15.9 million, or $0.45 per diluted share, an increase of 11%.

• Adjusted EBITDA was $24 million, an increase of 16%.

• Net loss was $3 million, compared to net income of $6 million.

• Net loss per diluted share was $0.08, driven by the $0.26 impact of the term B debt issuance cost write off, compared to net income per diluted share of $0.16.

• Adjusted net income and adjusted net income per share was $17.6 million, or $0.48 per diluted share, compared to $17.8 million, or $0.48 per diluted share.

• Adjusted EBITDA was $23 million, or 22.0% of revenue, compared to $23 million or 21.4% of revenue.

• ARR was $108 million at quarter end, an increase of 13%.

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

CONSOLIDATED RESULTS OF OPERATIONS

The following table sets forth selected information derived from our interim condensed consolidated statements of operations:

Three months ended June 30, % incr.

Nine months ended June 30, % incr.

($ in thousands) 2023 2022 (decr.) 2023 2022 (decr.)

Three months ended December 31, % incr.

($ in thousands) 2023 2022 (decr.)

Revenue $ 106,089 100.0 % $ 109,306 100.0 % (2.9) %

4 unchanged sentences

Other expense, net (15,409) (14.5) (5,954) (5.4) 158.8

Income before income taxes 5,888 5.2 4,582 4.4 28.5 17,726 5.3 6,621 2.3 167.7

Income tax (benefit) expense (839) (0.7) 456 0.4 NM (679) (0.2) (1,539) (0.5) NM

Net income $ 6,727 6.0 % $ 4,126 4.0 % 63.0 % $ 18,405 5.5 % $ 8,160 2.9 % 125.6 %

Income before income taxes (3,276) (3.1) 6,009 5.5 NM

Income tax (benefit) expense (222) (0.2) 230 0.2 NM

Net income $ (3,054) (2.9) % $ 5,779 5.3 % NM

NM means not meaningful

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

REVENUE BY SEGMENT

Three months ended June 30, % incr.

Nine months ended June 30, % incr.

($ in thousands) 2023 2022 (decr.) 2023 2022 (decr.)

Three months ended December 31, % incr.

($ in thousands) 2023 2022 (decr.)

IoT Products & Services $ 82,023 77.3 % $ 84,342 77.2 % (2.7) %

2 unchanged sentences

IoT Products & Services

IoT Products & Services revenue increased 9.5% for the three months ended June 30, 2023, as compared to the same period in the prior fiscal year.

This increase is attributable to growth in our OEM & IM product lines.

IoT Products & Services revenue increased 18.8% for the nine months ended June 30, 2023, as compared to the same period in the prior fiscal year.

This increase is attributable to growth in each of our product lines.

IoT Products & Services revenue decreased 2.7% for the three months ended December 31, 2023, as compared to the same period in the prior fiscal year.

This decrease was driven by decreases in sales volume of Console Server and Cellular products, partially offset by growth in sales of OEM products.

IoT Solutions

IoT Solutions revenue increased 4.7% for the three months ended June 30, 2023, as compared to the same period in the prior fiscal year.

This increase is primarily attributable to growth in SmartSense.

IoT Solutions revenue increased 14.4% for the nine months ended June 30, 2023, as compared to the same period in the prior fiscal year.

This increase is attributable to growth in each of our SmartSense and Ventus offerings, as well as fiscal 2022 results excluding October 2021 Ventus revenues that preceded the acquisition.

ARR was $104 million as of June 30, 2023, compared to $92 million as of June 30, 2022.

IoT Products & Services ARR was $22 million as of June 30, 2023, compared to $15 million as of June 30, 2022.

IoT Solutions ARR was over $82 million as of June 30, 2023, compared to $77 million as of June 30, 2022.

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

IoT Solutions revenue decreased 3.6% for the three months ended December 31, 2023, as compared to the same period in the prior fiscal year.

This decrease was primarily driven by one-time revenue reductions in Ventus, partially offset by increases in sales volume in SmartSense.

ARR was $108 million as of December 31, 2023, compared to $96 million as of December 31, 2022.

IoT Products & Services ARR was $23 million as of December 31, 2023, compared to $14 million as of December 31, 2022.

IoT Solutions ARR was $85 million as of December 31, 2023, compared to $82 million as of December 31, 2022.

COST OF GOODS SOLD AND GROSS PROFIT BY SEGMENT

Below are our segments' cost of goods sold and gross profit as a percentage of their respective total revenue:

Three months ended June 30, Basis point Nine months ended June 30, Basis point

Three months ended December 31, Basis point

($ in thousands) 2023 2022 inc.

(decr.) 2023 2022 inc.

Cost of Goods Sold

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Total cost of goods sold $ 44,989 42.4 % $ 47,785 43.7 % (130)

Three months ended June 30, Basis point Nine months ended June 30, Basis point

($ in thousands) 2023 2022 inc.

(decr.) 2023 2022 inc.

IoT Products & Services $ 43,859 53.5 % $ 46,021 54.6 % (110)

2 unchanged sentences

IoT Product & Services

IoT Products & Services gross profit margin increased 60 basis points for the three months ended June 30, 2023 as compared to the same period in the prior fiscal year.

IoT Products & Services gross profit margin increased 70 basis points for the nine months ended June 30, 2023 as compared to the same period in the prior fiscal year.

These increases were primarily a result of changes in product and customer mix.

IoT Products & Services gross profit margin decreased 110 basis points for the three months ended December 31, 2023 as compared to the same period in the prior fiscal year.

This decrease was driven primarily by decreased volume in Console Server, partially offset by increased sales and higher margin mix in OEM.

IoT Solutions

The IoT Solutions gross profit margin increased 450 basis points for the three months ended June 30, 2023 as compared to the same period in the prior fiscal year.

This increase primarily was a result of changes in product and customer mix.

The IoT Solutions gross profit margin increased 200 basis points for the nine months ended June 30, 2023 as compared to the same period in the prior fiscal year.

This increase primarily was a result of changes in product and customer mix partially offset by increased expenses for inventory reserves.

The IoT Solutions gross profit margin increased 950 basis points for the three months ended December 31, 2023 as compared to the same period in the prior fiscal year.

This increase was primarily the result of increased revenue and margins in SmartSense.

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

OPERATING EXPENSES

Below are our operating expenses and operating expenses as a percentage of total revenue:

Three months ended June 30, $ % Nine months ended June 30, $ %

Three months ended December 31, $ %

($ in thousands) 2023 2022 incr.

(decr.) incr.

(decr.) 2023 2022 incr.

(decr.) incr.

Operating Expenses

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Total operating expenses $ 48,967 46.2 % $ 49,558 45.3 % $ (591) (1.2) %

The $3.9 million increase in operating expenses in the third quarter of fiscal 2023 from the third quarter of fiscal 2022 was the result of incremental operating expenses, primarily from investments in Opengear and SmartSense, an increase in stock-based compensation and costs associated with ongoing litigation.

The $15.6 million increase in operating expenses in the nine months ended June 30, 2023 from the nine months ended June 30, 2022 was the result of incremental operating expenses, primarily from the acquisition of Ventus, investments in Opengear and SmartSense and an increase in stock-based compensation.

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

The $0.6 million decrease in operating expenses in the first quarter of fiscal 2024 from the first quarter of fiscal 2023 was primarily the result of decreases in general and administrative expenses, partially offset by increases in sales and marketing and research and development expenses.

OPERATING INCOME

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

Three months ended December 31,

($ in thousands) 2023 2022 incr.

2 unchanged sentences

IoT Products & Services $ 10,341 $ 12,683 $ (2,342) (18.5) %

IoT Solutions 380 (907) $ 1,287 NM (1,130) (2,709) $ 1,579 NM

Total gross profit $ 12,476 $ 9,974 $ 2,502 25.1 $ 36,614 $ 21,337 $ 15,277 71.6

IoT Solutions 1,792 (720) 2,512 NM

Total operating income $ 12,133 $ 11,963 $ 170 1.4 %

NM means not meaningful

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

Drivers for the changes in operating income for the periods presented are described above in the revenue and gross profit details.

OTHER EXPENSE, NET

Below are our other expenses, net and other expenses, net as a percentage of total revenue:

Three months ended June 30, $ % Nine months ended June 30, $ %

Three months ended December 31, $ %

($ in thousands) 2023 2022 incr.

(decr.) incr.

(decr.) 2023 2022 incr.

(decr.) incr.

Other expense, net

Interest expense, net $ (5,661) (5.3) % $ (5,971) (5.5) % $ 310 (5.2) %

Other expense, net 15 — % (96) (0.1) % 111 NM 79 — % (59) — % 138 NM

Debt issuance cost write off (9,722) (9.2) — — (9,722) 100.0

Other expense, net (26) — 17 — (43) NM

Total other expense, net $ (15,409) (14.5) % $ (5,954) (5.4) % $ (9,455) 158.8 %

NM means not meaningful

Other expense, net, increased $1.2 million for the three months ended June 30, 2023, as compared to the same period in the prior fiscal year.

Other expense, net, increased $4.2 million for the nine months ended June 30, 2023, as compared to the same period in the prior fiscal year.

The increases were primarily a result of an increase in our interest expense due to an increase in our effective interest rate (see Note 7 to the condensed consolidated financial statements).

Other expense, net, increased $9.5 million for the three months ended December 31, 2023, as compared to the same period in the prior fiscal year.

This increase was driven by the debt issuance cost expense realized upon the extinguishment of our prior credit facility (see Note 5 to the condensed consolidated financial statements for additional information).

See Note 8 to the condensed consolidated financial statements for discussion of income taxes.

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

KEY BUSINESS METRIC

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Additionally, Adjusted EBITDA does not reflect our cash expenditures, the cash requirements for the replacement of depreciated and amortized assets, or changes in or cash requirements for our working capital needs.

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

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

4 unchanged sentences

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

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

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

1 unchanged sentence

(In thousands)

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

2023 2022 2023 2022

revenue % of total

Three months ended December 31,

revenue % of total

Total revenue $ 106,089 100.0 % $ 109,306 100.0 %

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

Net (loss) income $ (3,054) $ 5,779

Interest expense, net 5,661 5,971

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

Debt issuance cost write off 9,722 —

Income tax (benefit) provision (222) 230

Depreciation and amortization 8,051 8,112

3 unchanged sentences

Adjusted EBITDA $ 23,306 22.0 % $ 23,364 21.4 %

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

Reconciliation of Net Income and Net Income per Diluted Share to

1 unchanged sentence

(In thousands, except per share amounts)

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

2023 2022 2023 2022

Net income and net income per diluted share $ 6,727 $ 0.18 $ 4,126 $ 0.12 $ 18,405 $ 0.50 $ 8,160 $ 0.23

Three months ended December 31,

Net (loss) income and net (loss) income per diluted share $ (3,054) $ (0.08) $ 5,779 $ 0.16

Amortization 6,238 0.17 6,463 0.18

Stock-based compensation 3,106 0.08 2,868 0.08

Other non-operating income (15) — 96 — (79) — 59 —

Other non-operating expense (income) 26 — (17) —

Acquisition expense (61) — 381 0.01

1 unchanged sentence

Interest expense, net 5,661 0.15 5,971 0.16

Debt issuance cost write off 9,722 0.26 — —

Tax effect from the above adjustments (1)

(3,913) (0.11) (4,869) (0.14)

Discrete tax expenses (benefits) (2)

Discrete tax (benefits) expenses (2)

(182) — 1,192 0.03

3 unchanged sentences

(1) The tax effect from the above adjustments assumes an estimated effective tax rate of 18.0% for fiscal 2024 and fiscal 2023 based on adjusted net income.

(2) For the three and nine months ended June 30, 2023 and 2022, discrete tax expenses (benefits) primarily are a result of changes in excess tax benefits recognized on stock compensation.

(2) For the three months ended December 31, 2023 and 2022, discrete tax (benefit) expense primarily are a result of changes in excess tax benefits recognized on stock compensation.

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

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

LIQUIDITY AND CAPITAL RESOURCES

2 unchanged sentences

Our liquidity requirements arise from our working capital needs, and to a lesser extent, our need to fund capital expenditures to support our current operations and facilitate growth and expansion.

On December 2, 2021, we entered into a third amended and restated credit agreement.

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.

The credit agreement consists 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.

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

As of June 30, 2023, $35.0 million remained available under the Revolving Loan, which included $10 million available for a letter of credit subfacility and $10 million available under a swingline subfacility, the outstanding amounts of which decrease the available commitment.

On December 7, 2023, we entered into a credit agreement.

The Credit Agreement provides Digi with a $250 million senior secured revolving credit facility, with an uncommitted accordion feature that provides for additional borrowing capacity of up to the greater of $95 million or one hundred percent of trailing twelve month adjusted earnings before interest, taxes, depreciation, and amortization.

The Credit Facility also contains a $10 million letter of credit sublimit and $10 million swingline sub-facility.

Digi used the proceeds to retire the remaining balance of the prior credit agreement may use the proceeds in the future for general corporate purposes.

For additional information regarding the terms of our Credit Facility, including the Revolving Loan and its subfacilities, see Note 5 to our condensed consolidated financial statements.

The Credit Agreement replaced our prior credit agreement that consisted of a $350 million term loan B secured loan and a $35 million revolving credit facility.

The $35 million revolving credit facility included a $10 million letter of credit subfacility and $10 million swingline subfacility.

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

We believe that our current cash and cash equivalents balances, cash generated from operations and our ability to borrow under our credit facility will be sufficient to fund our business operations and capital expenditures for the next 12 months and beyond.

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

Our condensed consolidated statements of cash flows for the nine months ended June 30, 2023 and 2022 is summarized as follows:

Nine months ended June 30,

($ in thousands) Restated (1)

Our condensed consolidated statements of cash flows for the three months ended December 31, 2023 and 2022 are summarized as follows:

Three months ended December 31,

($ in thousands) 2023 2022

Operating activities $ 18,672 $ 2,680

2 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents 1,851 228

Net increase (decrease) in cash and cash equivalents $ (5,320) $ (110,917)

(1) We have restated the condensed consolidated statement of cash flows for the six months ended March 31, 2022.

For additional information, see Note 2 to our condensed consolidated financial statements.

Cash flows from operating activities decreased $3.4 million primarily as a result of:

• an increase in operating assets and liabilities (net of acquisitions) in the nine months ended June 30, 2023 of $17.3 million compared to an increase of $15.4 million in the nine months ended June 30, 2022, and

• decreases in the provisions for deferred income tax, provisions for bad debt and amortization expense.

These changes were partially offset by:

• increases in net income and stock-based compensation expense.

Net decrease in cash and cash equivalents $ (145) $ (3,951)

Cash flows from operating activities increased $16.0 million primarily as a result of:

• a $0.4 million decrease in net operating assets for the first quarter of fiscal 2024 compared to a $15.4 million increase in the first quarter of fiscal 2023

• and a $9.7 million debt issuance cost write-off included in net loss in the first quarter of fiscal 2024.

These were partially offset by:

• a $8.8 million decrease in net income

• and a $1.2 million increase in deferred income tax benefit.

Cash flows used in investing activities decreased $0.7 million primarily as a result of:

• no amounts used for the acquisition of businesses in the nine months ended June 30, 2023 compared to $347.6 million used for acquisitions in the nine months ended June 30, 2022, primarily related to our November 2021 acquisition of Ventus, and

• a $0.3 million decrease in purchases of property, equipment, improvements and certain other intangible assets.

Cash flows from financing activities decreased $237.5 million primarily as a result of:

• no proceeds from debt in the nine months ended June 30, 2023 compared to $350.0 million in proceeds from the Term Loan issued in the nine months ended June 30, 2022, and

• a $3.5 million decrease in proceeds from stock issuances.

These changes were partially offset by:

• debt payments of $29.4 million in the nine months ended June 30, 2023 compared to $129.4 million the nine months ended June 30, 2022 (see Note 7 to the condensed consolidated financial statements),

• a decrease of $13.4 million in debt issuance cost payments, and

• a $2.6 million decrease in taxes paid for net share settlements.

• a decrease in purchases of property, equipment, improvements and certain other intangible assets.

Cash flows used in financing activities increased $14.5 million primarily as a result of:

• debt payments of $233 million in the first quarter of fiscal 2024, including $213.6 million to retire our prior credit facility, an early payment of $1.9 million against our prior credit facility and a payment of $17.5 million against our new credit facility, compared to debt payments of $4.4 million in the first quarter of fiscal 2023,

• increases in debt issuance costs,

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

• and decreases in proceeds from stock option plan and employee stock purchase plan transactions.

These were partially offset by:

• gross proceeds of $215.4 million from the issuance of a new credit facility and

• a decrease in taxes paid for net share settlement of share-based payment options and awards.

CONTRACTUAL OBLIGATIONS

The following table summarizes our contractual obligations at June 30, 2023:

The following table summarizes our contractual obligations at December 31, 2023:

Payments due by fiscal period

1 unchanged sentence

Operating leases $ 19,510 $ 4,079 $ 6,296 $ 3,890 $ 5,245

Term Loan 220,625 17,500 35,000 35,000 133,125

Interest on long-term debt 95,144 22,108 37,991 30,615 4,430

Revolving loan 196,000 — — 196,000 —

Total $ 215,510 $ 4,079 $ 6,296 $ 199,890 $ 5,245

The operating lease agreements included above primarily relate to office space.

The operating leases included above primarily relate to office space.

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

Our reserve for uncertain tax positions, including accrued interest and penalties, was $2.8 million as of June 30, 2023.

Our reserve for uncertain tax positions, including accrued interest and penalties, was $3.1 million as of December 31, 2023.

Due to the nature of the underlying liabilities and the extended time often needed to resolve income tax uncertainties, we cannot make reliable estimates of the amount or timing of future cash payments that may be required to settle these liabilities.

The above table also does not include those obligations for royalties under license agreements as these royalties are calculated based on future sales of licensed products and we cannot make reliable estimates of the amount of cash payments.

The table above also does not include those obligations for royalties under license agreements as these royalties are calculated based on future sales of licensed products and we cannot make reliable estimates of the amount of cash payments.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis