What changed in this filing

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Item 1. Financial Statements

2021-08-06 compared with 2021-05-07 · 130 added, 100 removed, 579 unchanged (28% 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,

2021 2020 2021 2020

33 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

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

2021 2020 2021 2020

3 unchanged sentences

Foreign currency translation adjustment 463 681 2,068 ( 1,120 )

Comprehensive income (loss) $ 2,661 $ ( 480 ) $ 4,226 $ 2,388

Change in net unrealized gain on investments — — — 18

Less income tax expense — — — ( 5 )

Other comprehensive income (loss) 463 681 2,068 ( 1,107 )

Comprehensive income $ 3,620 $ 2,447 $ 7,846 $ 2,871

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

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2021 September 30, 2020

June 30, 2021 September 30, 2020

(in thousands, except share data)

45 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended March 31,

Nine months ended June 30,

(in thousands)

1 unchanged sentence

Net income $ 5,778 $ 3,978

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

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

Depreciation of property, equipment and improvements 3,211 3,472

9 unchanged sentences

Changes in operating assets and liabilities (net of acquisitions) 3,144 ( 6,920 )

Net cash provided by (used in) operating activities 21,297 ( 12,683 )

Net cash provided by operating activities 42,084 19,153

Investing activities:

26 unchanged sentences

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

Balances December 31, 2019 35,226 $ 352 6,431 $ ( 55,702 ) $ 272,393 $ 162,127 $ ( 22,855 ) $ 356,315

Balances March 31, 2020 35,364 $ 354 6,410 $ ( 55,563 ) $ 274,780 $ 164,131 $ ( 25,339 ) $ 358,363

Net income — — — — — 1,766 — 1,766

4 unchanged sentences

Stock-based compensation expense — — — — 1,882 — — 1,882

Balances, March 31, 2020 35,364 $ 354 6,409 $ ( 55,563 ) $ 274,780 $ 164,131 $ ( 25,339 ) $ 358,363

Balances, June 30, 2020 35,405 $ 354 6,373 $ ( 55,248 ) $ 276,960 $ 165,897 $ ( 24,658 ) $ 363,305

Balances, September 30, 2019 34,608 $ 346 6,367 $ ( 54,339 ) $ 266,567 $ 161,919 $ ( 25,515 ) $ 348,978

5 unchanged sentences

Stock-based compensation expense — — — — 5,323 — — 5,323

Balances, June 30, 2020 35,405 $ 354 6,373 $ ( 55,248 ) $ 276,960 $ 165,897 $ ( 24,658 ) $ 363,305

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

Balances, December 31, 2020 36,090 $ 361 6,412 $ ( 56,333 ) $ 285,536 $ 170,023 $ ( 21,945 ) $ 377,642

Net income — — — — — 3,157 — 3,157

Other comprehensive loss — — — — — — 463 463

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

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

3 unchanged sentences

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

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

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

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

6 unchanged sentences

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

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

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

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

32 unchanged sentences

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

Due to the timing of the acquisition, the impact of the Haxiot acquisition on our results of operations for the six days in March 2021 is immaterial, so results of operations for March 2021 will be included in our third quarter of fiscal 2021 results within our IoT Products & Services segment.

The results of operations are now included in our third quarter of fiscal 2021 results 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 $ 7.1 million of cash on hand.

The future earn-out payments are based on revenue performance from Haxiot for the annual periods ending December 31, 2021 and December 31, 2022.

The cumulative amount of these earn-outs for the annual periods ending December 31, 2021 and December 31, 2022, will not exceed $ 3.0 million and $ 5.0 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.

As a result, we preliminarily recorded $ 15.1 million of goodwill and accrued the maximum $ 8.0 million of contingent consideration on our balance sheet as of March 31, 2021.

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 $3.0 million and $2.9 million, respectively.

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

As a result, we adjusted goodwill to $ 8.6 million and adjusted contingent consideration to $ 5.9 million on our balance sheet at June 30, 2021.

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

1 unchanged sentence

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.

Costs directly related to the acquisition of $ 0.2 million incurred in the second quarter of fiscal 2021 have been charged to operations and are included in general and administrative expense in our condensed statements of operations.

Costs directly related to the acquisition of $ 0.2 million incurred fiscal year to date 2021 have been charged to operations and are included in general and administrative expense in our condensed 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 and liabilities assumed as of the acquisition date (in thousands).

Contingent consideration 5,900

Total $ 13,046

Fair value of net tangible assets acquired $ 124

Identifiable intangible assets:

Customer relationships 3,900

Purchased and core technology 1,050

Trademarks 500

Deferred tax liability on identifiable intangible assets ( 1,145 )

Goodwill 8,617

Total $ 13,046

Acquisition of Opengear, Inc.

17 unchanged sentences

Total $ 153,158

The Condensed Consolidated Balance Sheet as of March 31, 2021 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 condensed consolidated balance sheet as of June 30, 2021 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.

EARNINGS PER SHARE

The following table is a reconciliation of the numerators and denominators in the net income per common share calculations (in thousands, except per common share data):

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

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

2021 2020 2021 2020

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Net income per common share, diluted $ 0.09 $ 0.06 $ 0.18 $ 0.13

For the three months ended March 31, 2021 and 2020, there were 37,248 and 713,980 potentially dilutive shares, respectively.

For the six months ended March 31, 2021 and 2020, there were 37,248 and 592,780 potentially dilutive shares, respectively.

For the three months ended June 30, 2021 and 2020, there were 41,540 and 2,241,860 potentially dilutive shares, respectively.

For the nine months ended June 30, 2021 and 2020, there were 37,248 and 1,146,581 potentially dilutive shares, respectively.

These potentially dilutive shares were related to stock options to purchase common shares that were not included in the above computation of diluted earnings per common share since the options' exercise prices were greater than the average market price of our common shares.

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Inputs Considered as

March 31, 2021 Level 1 Level 2 Level 3

Preliminary contingent consideration on acquired business $ 8,000 $ — $ — $ 8,000

June 30, 2021 Level 1 Level 2 Level 3

Contingent consideration on acquired business $ 5,900 $ — $ — $ 5,900

Total liabilities measured at fair value $ 5,900 $ — $ — $ 5,900

9 unchanged sentences

We paid the first installment payment of $ 3.5 million in the third quarter of fiscal 2019.

The earn-out period for this acquisition ended on January 22, 2020.

We paid the final installment of $ 2.4 million in the third quarter of fiscal 2020.

The earn-out period for this acquisition ended on January 22, 2020.

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

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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 condensed consolidated financial statements).

Due to the timing of the acquisition, we recorded a preliminary amount of the contingent consideration of $ 8.0 million at March 31, 2021 which is subject to change as part of our completion of purchase accounting.

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

As a result, we adjusted goodwill to $ 8.6 million and adjusted contingent consideration to $ 5.9 million on our balance sheet at June 30, 2021.

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,

2021 2020 2021 2020

4 unchanged sentences

Fair value at end of period $ 5,900 $ 4,228 $ 5,900 $ 4,228

* The change in fair value for the three months ended June 30, 2021, totaling ($ 2,100 ) represents an adjustment to our preliminary purchase price of Haxiot that does not impact our condensed consolidated statement of operations.

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.

Due to the timing of the acquisition, the fair value of the contingent consideration at March 31, 2021 is preliminary and based on the probability of achieving the specified revenue thresholds at 100 % for Haxiot.

Due to the timing of the acquisition, the fair value of the contingent consideration at June 30, 2021 is based on the probability of achieving the specified revenue thresholds for Haxiot.

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Amortizable intangible assets were (in thousands):

March 31, 2021 September 30, 2020

June 30, 2021 September 30, 2020

amount Accum.

6 unchanged sentences

Total $ 231,617 $ ( 116,635 ) $ 114,982 $ 225,059 $ ( 103,811 ) $ 121,248

Amortization expense was $ 3.9 million and $ 4.1 million for the three months ended March 31, 2021 and 2020, respectively, and $ 7.9 million and $ 6.6 million for the six months ended March 31, 2021 and 2020, respectively.

Amortization expense was $ 4.1 million and $ 4.1 million for the three months ended June 30, 2021 and 2020, respectively, and $ 12.0 million and $ 10.7 million for the nine months ended June 30, 2021 and 2020, respectively.

Amortization expense is recorded on our condensed consolidated statements of operations within cost of sales and in general and administrative expense.

5 unchanged sentences

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

Six months ended March 31,

Nine months ended June 30,

Products and Services IoT

4 unchanged sentences

Foreign currency translation adjustment 882 851 1,733

Balance at March 31, 2021 $ 177,073 $ 50,460 $ 227,533

Balance at June 30, 2021 $ 170,710 $ 50,621 $ 221,331

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 9).

Effective with the reorganization announcement on October 7, 2020 (see Note 14), our IoT Products & Services business is now structured to include four operating segments, each with a segment manager:

We continue to have 2 reportable segments, our IoT Products & Services segment and our IoT Solutions segment (see Note 9).

Effective with the reorganization announcement on October 7, 2020 (see Note 14), our IoT Products & Services business is now structured to include four reporting units under the IoT Products & Services segment, each with a reporting manager:

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

We have concluded that these operating segments along with our IoT Solutions segment constitute separate reporting units and will be tested individually for impairment.

As of March 31, 2021, we have performed a qualitative assessment and concluded that there is no impairment or triggering events.

For our fiscal 2020 annual impairment test we concluded that the IoT Products & Services segment and the IoT Solutions segment constitute separate reporting units for purposes of the ASC 350-20-35 "Goodwill Measurement of Impairment" assessment and both units were tested individually for impairment.

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

Due to the reorganization on October 7, 2020 (see Note 14), we performed our fiscal third quarter 2021 annual impairment test by reporting unit.

As a result, we tested Cellular Routers, Console Servers, OEM Solutions, Infrastructure Management and IOT Solutions units which constitute separate reporting units for purposes of the ASC 350-20-35 "Goodwill Measurement of Impairment" assessment, which were tested individually for impairment in fiscal third quarter 2021.

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 both reporting units were each estimated on a standalone basis using a weighted combination of the income approach and market approach.

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.

GOODWILL AND OTHER INTANGIBLE ASSETS, NET (CONTINUED)

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Results of our Fiscal 2021 Annual Impairment Test

As of June 30, 2020, we had a total of $ 157.1 million of goodwill for the IoT Products & Services reporting unit and $ 49.6 million of goodwill for the IoT Solutions reporting unit.

At June 30, 2020, fair value exceeded the carrying value by more than 10% for both reporting units.

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

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

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

Implied fair values for both reporting units were each 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 to get an indicated value of total equity to which a range of indicated value of total equity was derived.

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 $ 686.3 million as of June 30, 2021.

This implied a range of control premiums of 17.0 % to 29.1 %.

This implied a range of control (deficit)/ premiums of ( 4.5 )% to 5.4 %.

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

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In addition to paying interest on the outstanding balance under the Credit Facility, we are required to pay a commitment fee on the non-utilized commitments thereunder which is also reported in interest expense.

Our weighted average interest rate at March 31, 2021 was 0.5 %.

The additional debt issuance costs in addition to the remaining balance 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.

Our weighted average interest rate at June 30, 2021 was 0.47 %.

The additional debt issuance costs and remaining balance 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 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 March 31, 2021.

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

INDEBTEDNESS (CONTINUED)

The following table is a summary of our long-term indebtedness at March 31, 2021 (in thousands):

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

Revolving loan $ 48,118

3 unchanged sentences

Total long-term debt, net of current portion $ 45,670

The following table is a summary of future maturities of our aggregate long-term debt at March 31, 2021 (in thousands):

2021 (six months) $ —

Total long-term debt $ 48,118

Covenants and Security Interest

1 unchanged sentence

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

At March 31, 2021, we were in compliance with our debt covenants.

At June 30, 2021, we were in compliance with our debt covenants.

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

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There four operating segments include:

These four operating segments include:

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

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

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

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

The shared general and administrative costs are now allocated to each operating segment.

2 unchanged sentences

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

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

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

2021 2020 2021 2020

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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 $ 1,645 $ 654

1 unchanged sentence

Total expended for property, plant and equipment $ 1,645 $ 693

* Excluded from this amount is $ 1,399 and $ 743 of transfers of inventory to property plant and equipment for subscriber assets for the six months ended March 31, 2021 and 2020, respectively.

* Excluded from this amount is $ 1,624 and $ 1,202 of transfers of inventory to property plant and equipment for subscriber assets for the nine months ended June 30, 2021 and 2020, 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,

2021 2020 2021 2020

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,

2021 2020 2021 2020

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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 $ 2.4 million and $ 2.0 million as of March 31, 2021 and September 30, 2020, respectively, are included in property, equipment and improvements, net.

Depreciation expense for these subscriber assets, which is included in cost of sales, was $ 0.5 million and $ 0.3 million for the three months ended March 31, 2021 and March 31, 2020, respectively and $ 1.0 million and $ 0.7 million for the six months ended March 31, 2021 and March 31, 2020, respectively.

The total net book value of subscriber assets of $ 2.2 million and $ 2.2 million as of June 30, 2021 and September 30, 2020, respectively, are included in property, equipment and improvements, net.

Depreciation expense for these subscriber assets, which is included in cost of sales, was $ 0.5 million and $ 0.4 million for the three months ended June 30, 2021 and June 30, 2020, respectively and $ 1.4 million and $ 1.1 million for the nine months ended June 30, 2021 and June 30, 2020, respectively.

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

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Changes in unearned revenue were (in thousands):

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

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

2021 2020 2021 2020

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

As of March 31, 2021, approximately $ 12.8 million of revenue is expected to be recognized from remaining performance obligations for subscription contracts.

June 30, 2021, approximately $ 14.8 million of revenue is expected to be recognized from remaining performance obligations for subscription contracts.

We expect to recognize revenue on approximately $ 13.0 million of remaining performance obligations over the next twelve months .

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

Our income tax benefit was $ 0.2 million for the six months ended March 31, 2021.

Included in this benefit was a net tax benefit discretely related to the six months ended March 31, 2021 of $ 0.8 million.

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

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

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

Income tax benefit was $ 1.0 million for the six months ended March 31, 2020.

Included in this benefit was a net tax benefit discretely related to the six months ended March 31, 2020 of $ 1.1 million.

Income tax benefit was $ 0.9 million for the nine months ended June 30, 2020.

Included in this benefit was a net tax benefit discretely related to the nine months ended June 30, 2020 of $ 1.1 million.

This benefit primarily was the result of excess tax benefits recognized on stock compensation and an adjustment of our state deferred tax rate due to the Opengear acquisition.

For the six months ended March 31, 2020, our effective tax rate before items discretely related to the period was less than the U.S.

For the nine months ended June 30, 2020, our effective tax rate before items discretely related to the period was less than the U.S.

statutory rate.

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Expiration of statute of limitations ( 209 )

Unrecognized tax benefits as of March 31, 2021 $ 2,546

The total amount of unrecognized tax benefits at March 31, 2021 that, if recognized, would affect our effective tax rate was $ 2.4 million, after considering the impact of interest and deferred benefit items.

Unrecognized tax benefits as of June 30, 2021 $ 2,391

The total amount of unrecognized tax benefits at June 30, 2021 that, if recognized, would affect our effective tax rate was $ 2.2 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 $ 0.1 million over the next 12 months.

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Balance at Warranties Settlements Balance at

Period January 1 issued made March 31

Three months ended March 31, 2021 $ 965 $ 66 $ ( 108 ) $ 923

Three months ended March 31, 2020 $ 999 $ 328 $ ( 467 ) $ 860

Period April 1 issued made June 30

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

Three months ended June 30, 2020 $ 860 $ 123 $ ( 96 ) $ 887

Balance at Warranties Settlements Balance at

Period October 1 issued made March 31

Six months ended March 31, 2021 $ 942 $ 189 $ ( 208 ) $ 923

Six months ended March 31, 2020 $ 1,012 $ 402 $ ( 554 ) $ 860

Period October 1 issued made June 30

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

Nine months ended June 30, 2020 $ 1,012 $ 525 $ ( 650 ) $ 887

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

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We have lease agreements that contain both lease and non-lease components.

We have elected to combine lease and non-lease components for all classes of assets.

We have elected to combine lease and non-lease

components for all classes of assets.

Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheets.

3 unchanged sentences

We generally use a collateralized incremental borrowing rate based

LEASES (CONTINUED)

on information available at the commencement date, including the lease term, in determining the present value of future payments.

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

Balance Sheet Location March 31,

Balance Sheet Location June 30,

2021 September 30,

Operating leases Other non-current assets $ 16,267 $ 14,334

Operating leases Operating lease right-of-use assets $ 16,342 $ 14,334

Total lease assets $ 16,342 $ 14,334

Operating leases Other current liabilities $ 2,714 $ 2,527

Operating leases Other non-current liabilities 18,842 16,193

Operating leases Current portion of operating lease liabilities $ 2,680 $ 2,527

Operating leases Operating lease liabilities 19,072 16,193

Total lease liabilities $ 21,752 $ 18,720

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,

2021 2020 2021 2020

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

Six months ended March 31,

Nine months ended June 30,

Cash paid for amounts included in the measurement of operating lease liabilities $ 1,784 $ 1,175

1 unchanged sentence

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

At March 31, 2021 the weighted average remaining lease term of our operating leases was 6.4 years and the weighted average discount rate for these leases was 4.5 %.

At June 30, 2021 the weighted average remaining lease term of our operating leases was 7.0 years and the weighted average discount rate for these leases was 4.5 %.

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 condensed consolidated balance sheet as of March 31, 2021 (in thousands):

Fiscal year Amount

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In the second quarter of fiscal 2021 we recorded an additional $ 0.2 million related to this restructuring.

In the third quarter of fiscal 2021 we recorded an additional $ 0.1 million related to this restructuring.

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

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Foreign currency fluctuation ( 39 )

Balance at March 31, 2021 $ 256

Balance at June 30, 2021 $ 357

COMMITMENTS AND CONTINGENCIES

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However, we will be providing DimOnOff reduced product pricing on a limited number of products for an amount substantially lower than what was claimed in the lawsuit.

In addition to the matter discussed above, in the normal course of business, we are subject to various claims and litigation.

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

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

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

As of March 31, 2021, there were approximately 1,352,093 shares available for future grants under the 2021 Plan.

Cash received from the exercise of stock options was $ 6.6 million and $ 4.7 million for the six months ended March 31, 2021 and March 31, 2020, respectively.

As of June 30, 2021, there were approximately 1,325,088 shares available for future grants under the 2021 Plan.

Cash received from the exercise of stock options was $ 7.0 million and $ 5.1 million for the nine months ended June 30, 2021 and June 30, 2020, 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 with withholding obligations otherwise occur by the employee paying cash to us for the withholding.

During the six months ended March 31, 2021 and 2020, our employees forfeited 102,588 shares and 95,209 shares, respectively, in order to satisfy respective withholding tax obligations of $ 1.9 million and $ 1.7 million.

During the nine months ended June 30, 2021 and 2020, our employees forfeited 109,516 shares and 95,997 shares, respectively, in order to satisfy respective withholding tax obligations of $ 2.0 million and $ 1.7 million.

We sponsor an Employee Stock Purchase Plan as amended and restated as of December 10, 2019, October 29, 2013, December 4, 2009 and November 27, 2006 (the "ESPP"), covering all domestic employees with at least 90 days of continuous service and who are customarily employed at least 20 hours per week.

1 unchanged sentence

The most recent amendments to the ESPP, ratified by our stockholders on January 29, 2020, increased the total number of shares to 3,425,000 that may be purchased under the plan.

ESPP contributions by employees were $ 0.6 million for the six months ended March 31, 2021 and $ 0.5 million for the six months ended March 31, 2020.

Pursuant to the ESPP, 43,106 and 53,085 common shares were issued to employees during the six months ended March 31, 2021 and March 31, 2020, respectively.

ESPP contributions by employees were $ 0.9 million for the nine months ended June 30, 2021 and $ 0.8 million for the nine months ended June 30, 2020.

Pursuant to the ESPP, 61,302 and 90,592 common shares were issued to employees during the nine months ended June 30, 2021 and June 30, 2020, respectively.

Shares are issued under the ESPP from treasury stock.

As of March 31, 2021, 668,608 common shares were available for future issuances under the ESPP.

As of June 30, 2021, 650,412 common shares were available for future issuances under the ESPP.

STOCK-BASED COMPENSATION (CONTINUED)

The following table shows stock-based compensation expense that is included in the consolidated results of operations (in thousands):

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

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

2021 2020 2021 2020

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Exercisable at March 31, 2021 1,949 $ 11.52 2.86 $ 16,745

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $ 18.99 as of March 31, 2021, which would have been received by the option holders had all option holders exercised their options as of that date.

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $ 20.11 as of June 30, 2021, which would have been received by the option holders had all option holders exercised their options as of that date.

The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price.

The total intrinsic value of all options exercised during the six months ended March 31, 2021 was $ 5.1 million and during the six months ended March 31, 2020 was $ 3.3 million.

The total intrinsic value of all options exercised during the nine months ended June 30, 2021 was $ 5.4 million and during the nine months ended June 30, 2020 was $ 3.4 million.

The following table shows the weighted average fair value, which was determined based upon the fair value of each option on the grant date utilizing the Black-Scholes option-pricing model and the related assumptions:

Six months ended March 31,

Nine months ended June 30,

Weighted average per option grant date fair value $ 7.45 $ 6.18

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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 March 31, 2021, the total unrecognized compensation cost related to non-vested stock options was $ 7.3 million and the related weighted average period over which it is expected to be recognized is approximately 2.9 years.

As of June 30, 2021, the total unrecognized compensation cost related to non-vested stock options was $ 6.8 million and the related weighted average period over which it is expected to be recognized is approximately 2.9 years.

Non-vested Stock Units

The following table presents a summary of our non-vested restricted stock and performance stock units as of March 31, 2021 and changes during the six months then ended (in thousands, except per common share amounts):

The following table presents a summary of our non-vested restricted stock and performance stock units as of June 30, 2021 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

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Nonvested at March 31, 2021 875 $ 15.48 18 $ 25.15

As of March 31, 2021, the total unrecognized compensation cost related to non-vested stock units was $ 12.2 million.

As of June 30, 2021, the total unrecognized compensation cost related to non-vested stock units was $ 10.8 million.

The related weighted average period over which this cost is expected to be recognized is approximately 1.6 years.

SUBSEQUENT EVENTS

Acquisition of Ctek, Inc.

On July 6, 2021, we acquired Ctek, Inc.

("Ctek"), a San Pedro, California-based provider that specializes in solutions for remote monitoring and industrial controls.

The results of operations of Ctek will be included in our fourth quarter fiscal 2021 results 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 $ 12.0 million of cash on hand.

The future earn-out payments are based on revenue performance outlined in the terms of the purchase agreement for the annual periods ending December 31, 2021, December 31, 2022 and December 31, 2023.

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.

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

The goodwill therefore is not deductible.

Through the acquisition of Ctek, Digi is uniquely positioned to provide customers with both battery and hardwired options for the control and monitoring of critical infrastructure, from complex off-shore oil rig locations to localized deployments such as municipal park lighting.

In addition, Ctek’s offering and existing client portfolio is set to further Digi’s reach in a rapidly expanding market.

Costs directly related to the acquisition of $ 0.2 million incurred in the third quarter of fiscal 2021 have been charged to operations and are included in general and administrative expense in our condensed statements of operations.

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

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