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Acquisitions | 12 Months Ended
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Sep. 30, 2021
Business Combinations [Abstract] |
ACQUISITIONS | ACQUISITIONS Fiscal 2021 Acquisitions Acquisition of Haxiot, Inc. On March 26, 2021, we acquired Haxiot, Inc. ("Haxiot"), a Dallas-based provider of low power wide area ("LPWA") wireless technology. The results of operations are now included in our third quarter of fiscal 2021 results within our IoT Products & Services segment. 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. 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 Haxiot revenue performance and contractually are not to exceed $3.0 million and $5.0 million for the annual periods ending December 31, 2021 and December 31, 2022. The fair value amount of these earn-outs for the annual periods ending December 31, 2021 and December 31, 2022 are $— million and $5.9 million, respectively. In the third quarter of fiscal 2021, the preliminary purchase price allocation was updated, including related determination of fair value and income tax implications. As a result, we adjusted goodwill to $8.6 million and adjusted contingent consideration to $5.9 million. For tax purposes, this acquisition is treated as a stock acquisition. The goodwill therefore is not deductible. 2. ACQUISITIONS (CONTINUED) Costs directly related to the acquisition of $0.3 million in fiscal 2021 have been charged to operations and are included in general and administrative expense in our consolidated statements of operations. These acquisition costs include legal, accounting, valuation and investment banking fees. The following table summarizes the preliminary fair values of Haxiot assets acquired, net of $50 thousand of cash acquired, and liabilities assumed as of the acquisition date (in thousands).
Cash |  | $ | 7,096 |
Contingent consideration |  | 5,900 |
Total |  | $ | 12,996 |
Fair value of net tangible assets acquired |  | $ | 86 |
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 |  | 8,605 |
Total |  | $ | 12,996 |
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 are included in our fourth quarter fiscal 2021 results within our IoT Products & Services segment. 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. 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. Costs directly related to the acquisition of $0.3 million incurred in fiscal 2021 have been charged to operations and are included in general and administrative expense in our consolidated statements of operations. These acquisition costs include legal, accounting, valuation and investment banking fees. 2. ACQUISITIONS (CONTINUED) The following table summarizes the preliminary fair values of Ctek assets acquired and liabilities assumed as of the acquisition date (in thousands).
Cash |  | $ | 12,012 |
Contingent consideration |  | 300 |
Working capital adjustment |  | 422 |
Total |  | $ | 12,734 |
Fair value of net tangible assets acquired |  | 397 |
Identifiable intangible assets: |  |
Customer relationships |  | 5,100 |
Purchased and core technology |  | 1,300 |
Trademarks |  | 70 |
Backlog |  | 1,000 |
Goodwill |  | 4,867 |
Total |  | $ | 12,734 |
Fiscal 2020 Acquisition Acquisition of Opengear, Inc. On December 13, 2019, we completed our acquisition of Opengear, Inc. ("Opengear"), a New Jersey-based provider of secure IT infrastructure products and software. Opengear results are included in our consolidated financial statements within our IoT Products & Services segment. The terms of the acquisition included an upfront cash payment as well as contingent consideration comprised of future earn-out payments. We funded the closing of the acquisition with cash of $148.1 million comprised of cash on hand and proceeds from our credit facility (see Note 7 to the consolidated financial statements). The earn-out payments were based on revenue performance from Opengear for the twelve-month periods ended December 31, 2019 and ending December 31, 2020. The cumulative amount of these earn-outs for the periods ended December 31, 2019 and December 31, 2020, could have been up to $5.0 million and $10.0 million, respectively. We paid the first installment of $0.9 million for the period ended December 31, 2019 during the third quarter of fiscal 2020. The final payment of $10.0 million for the period ended December 31, 2020 was paid during the second quarter of fiscal 2021 (see Note 6 to the consolidated financial statements). During the first quarter of fiscal 2021, we recorded an out-of-period adjustment in connection with the purchase price accounting of Opengear. This balance sheet adjustment resulted in a decrease in fair value of net tangible assets acquired of $1.1 million, a decrease of $0.3 million to non-current deferred tax liability and an increase to goodwill of $0.8 million. Management assessed the impact of this adjustment and believes, after considering both quantitative and qualitative factors, that it is not material to our current or previously issued consolidated financial statements. For tax purposes, this acquisition is treated as a stock acquisition. The goodwill therefore is not deductible. We believe this is a complementary acquisition for us as it significantly enhances our IoT Products & Services segment by providing secure, resilient access and automation to critical IT infrastructure. Costs directly related to the acquisition of $0.3 million incurred in fiscal 2019, $2.7 million incurred in fiscal 2020 and $0.3 million incurred in fiscal 2021 have been charged directly to operations and are included in general and administrative expenses in our consolidated statements of operations. These acquisition costs include legal, accounting, integration, valuation and investment banking fees. 2. ACQUISITIONS (CONTINUED) The following table summarizes the final fair values of Opengear assets acquired and liabilities assumed as of the acquisition date (in thousands):
Cash |  | $ | 148,058 |
Contingent consideration |  | 5,100 |
Total |  | $ | 153,158 |
Fair value of net tangible assets acquired |  | $ | 18,096 |
Identifiable intangible assets: |  |
Customer relationships |  | 79,000 |
Purchased and core technology |  | 18,100 |
Trademarks |  | 8,000 |
Deferred tax liability on identifiable intangible assets |  | (27,126) |
Goodwill |  | 57,088 |
Total |  | $ | 153,158 |
The Consolidated Balance Sheet as of September 30, 2020 reflects the final allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Included in the fair value of net tangible assets acquired are $1.4 million of right-of-use assets included in other non-current assets and $1.7 million of lease liability included in other current and non-current liabilities associated with Opengear's operating leases. The weighted average useful life for all the identifiable intangibles listed above is estimated to be 13.4 years. For purposes of determining fair value, the existing customer relationships identified above are assumed to have a useful life of 14.5 years, purchased and core technology is assumed to have useful life of 9.0 years and trademarks are assumed to have a useful life of 12.0 years. Useful lives for identifiable intangible assets are estimated at the time of acquisition based on the periods of time from which we expect to derive benefits from the identifiable intangible assets. The identifiable intangible assets are amortized using the straight-line method. This reflects the pattern in which the assets are expected to be consumed.

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