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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

☑ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2023
OR

☐ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .
Commission file number: 001-34033
DIGI INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)

Delaware |  | 41-1532464
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)

9350 Excelsior Blvd. | Suite 700 |  |
Hopkins | Minnesota |  | 55343
(Address of principal executive offices) |  | (Zip Code)

(952) 912-3444
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
Common Stock, par value $.01 per share |  | DGII |  | The Nasdaq Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer |  | ☐ |  | Accelerated filer |  | ☑
Non-accelerated filer |  | ☐ |  | Smaller reporting company |  | ☐
Emerging growth company |  | ☐ |  |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
On July 26, 2023, there were 35,969,438 shares of the registrant's $.01 par value Common Stock outstanding.

INDEX

| Page
PART I. FINANCIAL INFORMATION |
ITEM 1. Unaudited Financial Statements: |
Condensed Consolidated Statements of Operations | 1
Condensed Consolidated Statements of Comprehensive Income | 2
Condensed Consolidated Balance Sheets | 3
Condensed Consolidated Statements of Cash Flows | 4
Condensed Consolidated Statements of Stockholders’ Equity | 5
Notes to Condensed Consolidated Financial Statements | 6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk | 26
ITEM 4. Controls and Procedures | 27
PART II. OTHER INFORMATION |
ITEM 1. Legal Proceedings | 28
ITEM 1A. Risk Factors | 28
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds | 28
ITEM 3. Defaults Upon Senior Securities | 28
ITEM 4. Mine Safety Disclosures | 29
ITEM 5. Other Information | 29
ITEM 6. Exhibits | 29

i

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIGI INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

| Three months ended June 30, |  | Nine months ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (in thousands, except per share data)
Revenue: |  |  |  |  |  |  |
Product | $ | 81,714 |  |  | $ | 77,627 |  |  | $ | 247,288 |  |  | $ | 210,592 |
Service | 30,522 |  |  | 25,890 |  |  | 85,398 |  |  | 71,895 |
Total revenue | 112,236 |  |  | 103,517 |  |  | 332,686 |  |  | 282,487 |
Cost of sales: |  |  |  |  |  |  |
Cost of product | 40,650 |  |  | 38,435 |  |  | 120,480 |  |  | 102,157 |
Cost of service | 6,814 |  |  | 6,352 |  |  | 20,985 |  |  | 19,043 |
Amortization | 953 |  |  | 1,304 |  |  | 3,009 |  |  | 3,996 |
Total cost of sales | 48,417 |  |  | 46,091 |  |  | 144,474 |  |  | 125,196 |
Gross profit | 63,819 |  |  | 57,426 |  |  | 188,212 |  |  | 157,291 |
Operating expenses: |  |  |  |  |  |  |
Sales and marketing | 20,974 |  |  | 18,230 |  |  | 60,421 |  |  | 51,325 |
Research and development | 14,945 |  |  | 13,968 |  |  | 44,194 |  |  | 41,199 |
General and administrative | 15,424 |  |  | 15,254 |  |  | 46,983 |  |  | 43,430 |
Total operating expenses | 51,343 |  |  | 47,452 |  |  | 151,598 |  |  | 135,954 |
Operating income | 12,476 |  |  | 9,974 |  |  | 36,614 |  |  | 21,337 |
Other expense, net: |  |  |  |  |  |  |
Interest expense, net | (6,603) |  |  | (5,296) |  |  | (18,967) |  |  | (14,657) |
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 provision (benefit) | (839) |  |  | 456 |  |  | (679) |  |  | (1,539) |
Net income | $ | 6,727 |  |  | $ | 4,126 |  |  | $ | 18,405 |  |  | $ | 8,160 |
Net income per common share: |  |  |  |  |  |  |
Basic | $ | 0.19 |  |  | $ | 0.12 |  |  | $ | 0.51 |  |  | $ | 0.23 |
Diluted | $ | 0.18 |  |  | $ | 0.12 |  |  | $ | 0.50 |  |  | $ | 0.23 |
Weighted average common shares: |  |  |  |  |  |  |
Basic | 35,889 |  |  | 35,131 |  |  | 35,761 |  |  | 34,900 |
Diluted | 36,817 |  |  | 35,740 |  |  | 36,838 |  |  | 35,740 |

The accompanying notes are an integral part of the condensed consolidated financial statements.
1

Table of Contents
DIGI INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

| Three months ended June 30, |  | Nine months ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (in thousands)
Net income | $ | 6,727 |  |  | $ | 4,126 |  |  | $ | 18,405 |  |  | $ | 8,160 |
Other comprehensive (loss) income: |  |  |  |  |  |  |
Foreign currency translation adjustment | (109) |  |  | (1,359) |  |  | 1,358 |  |  | (1,519) |
Other comprehensive (loss) income | (109) |  |  | (1,359) |  |  | 1,358 |  |  | (1,519) |
Comprehensive income | $ | 6,618 |  |  | $ | 2,767 |  |  | $ | 19,763 |  |  | $ | 6,641 |

The accompanying notes are an integral part of the condensed consolidated financial statements.
2

Table of Contents
DIGI INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

| June 30, 2023 |  | September 30, 2022
| (in thousands, except share data)
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 29,580 |  |  | $ | 34,900 |
Accounts receivable, net | 47,964 |  |  | 50,450 |
Inventories | 83,605 |  |  | 73,223 |
Income taxes receivable | 2,751 |  |  | 3,764 |
Other current assets | 3,454 |  |  | 3,871 |
Total current assets | 167,354 |  |  | 166,208 |
Property, equipment and improvements, net | 29,590 |  |  | 27,594 |
Intangible assets, net | 283,288 |  |  | 302,064 |
Goodwill | 342,292 |  |  | 340,477 |
Operating lease right-of-use assets | 13,643 |  |  | 15,299 |
Other non-current assets | 3,893 |  |  | 2,253 |
Total assets | $ | 840,060 |  |  | $ | 853,895 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |
Current liabilities: |  |  |
Current portion of long-term debt | $ | 15,523 |  |  | $ | 15,523 |
Accounts payable | 21,503 |  |  | 32,373 |
Accrued compensation | 15,665 |  |  | 14,576 |
Unearned revenue | 24,164 |  |  | 19,803 |
Current portion of operating lease liabilities | 3,431 |  |  | 3,196 |
Other current liabilities | 8,733 |  |  | 11,036 |
Total current liabilities | 89,019 |  |  | 96,507 |
Income taxes payable | 1,866 |  |  | 2,441 |
Deferred tax liabilities | 3,171 |  |  | 9,666 |
Long-term debt | 194,556 |  |  | 222,448 |
Operating lease liabilities | 14,793 |  |  | 16,978 |
Other non-current liabilities | 5,072 |  |  | 4,342 |
Total liabilities | 308,477 |  |  | 352,382 |
Commitments and Contingencies (See Note 13) |  |  |
Stockholders' equity: |  |  |
Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued and outstanding | — |  |  | — |
Common stock, $.01 par value; 60,000,000 shares authorized; 42,408,154 and 41,950,732 shares issued | 424 |  |  | 420 |
Additional paid-in capital | 398,845 |  |  | 385,244 |
Retained earnings | 218,480 |  |  | 200,075 |
Accumulated other comprehensive loss | (24,696) |  |  | (26,054) |
Treasury stock, at cost, 6,451,904 and 6,412,812 shares | (61,470) |  |  | (58,172) |
Total stockholders' equity | 531,583 |  |  | 501,513 |
Total liabilities and stockholders' equity | $ | 840,060 |  |  | $ | 853,895 |

The accompanying notes are an integral part of the condensed consolidated financial statements.
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DIGI INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

| Nine months ended June 30,
| 2023 |  | 2022
|  |  | (Restated) (1)
| (in thousands)
Operating activities: |  |  |
Net income | $ | 18,405 |  |  | $ | 8,160 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation of property, equipment and improvements | 4,997 |  |  | 4,993 |
Amortization | 20,449 |  |  | 23,638 |
Stock-based compensation | 9,852 |  |  | 6,402 |
Deferred income tax (benefit) provision | (6,495) |  |  | 2,363 |
Other | (2,098) |  |  | 1,045 |
Changes in operating assets and liabilities (net of acquisitions) | (17,306) |  |  | (15,385) |
Net cash provided by operating activities | 27,804 |  |  | 31,216 |
Investing activities: |  |  |
Acquisition of businesses, net of cash acquired | — |  |  | (347,553) |
Purchase of property, equipment, improvements and certain other intangible assets | (3,842) |  |  | (4,218) |
Net cash used in investing activities | (3,842) |  |  | (351,771) |
Financing activities: |  |  |
Proceeds from long-term debt | — |  |  | 350,000 |
Payments of debt issuance costs | — |  |  | (13,443) |
Payments on long-term debt | (29,375) |  |  | (129,369) |
Proceeds from stock option plan transactions | 2,616 |  |  | 6,739 |
Proceeds from employee stock purchase plan transactions | 1,689 |  |  | 1,100 |
Taxes paid for net share settlement of share-based payment options and awards | (3,850) |  |  | (6,476) |
Net cash (used in) provided by financing activities | (28,920) |  |  | 208,551 |
Effect of exchange rate changes on cash and cash equivalents | (362) |  |  | 1,087 |
Net decrease in cash and cash equivalents | (5,320) |  |  | (110,917) |
Cash and cash equivalents, beginning of period | 34,900 |  |  | 152,432 |
Cash and cash equivalents, end of period | $ | 29,580 |  |  | $ | 41,515 |
Supplemental disclosures of cash flow information: |  |  |
Interest paid | $ | 20,519 |  |  | $ | 9,415 |
Income taxes paid, net | 4,666 |  |  | 4,666 |
Supplemental schedule of non-cash investing and financing activities: |  |  |
Transfer of inventory to property, equipment and improvements | (3,175) |  |  | (1,742) |
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 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.
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DIGI INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)

|  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |
|  |  |  |  |  |  |  |  |  | Additional |  |  |  | Other |  | Total
|  | Common Stock |  | Treasury Stock |  | Paid-In |  | Retained |  | Comprehensive |  | Stockholders'
(in thousands) |  | Shares |  | Par Value |  | Shares |  | Value |  | Capital |  | Earnings |  | (Loss) Income |  | Equity
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 loss |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,359) |  |  | (1,359) |
Employee stock purchase plan issuances |  | — |  |  | — |  |  | (23) |  |  | 213 |  |  | 217 |  |  | — |  |  | — |  |  | 430 |
Taxes paid for net share settlement of share-based payment awards |  | — |  |  | — |  |  | 3 |  |  | (68) |  |  | — |  |  | — |  |  | — |  |  | (68) |
Issuance of stock under stock award plans |  | 152 |  |  | 2 |  |  | — |  |  | — |  |  | 1,144 |  |  | — |  |  | — |  |  | 1,146 |
Stock-based compensation expense |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,143 |  |  | — |  |  | — |  |  | 2,143 |
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 |
Other comprehensive loss |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,519) |  |  | (1,519) |
Employee stock purchase plan issuances |  | — |  |  | — |  |  | (60) |  |  | 547 |  |  | 554 |  |  | — |  |  | — |  |  | 1,101 |
Taxes paid for net share settlement of share-based payment awards |  | — |  |  | — |  |  | 96 |  |  | (2,177) |  |  | (4,299) |  |  | — |  |  | — |  |  | (6,476) |
Issuance of stock under stock award plans |  | 1,024 |  |  | 10 |  |  | — |  |  | — |  |  | 6,727 |  |  | — |  |  | — |  |  | 6,737 |
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 |
Net income |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 6,727 |  |  | — |  |  | 6,727 |
Other comprehensive loss |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (109) |  |  | (109) |
Employee stock purchase plan issuances |  | — |  |  | — |  |  | (18) |  |  | 173 |  |  | 347 |  |  | — |  |  | — |  |  | 520 |
Taxes paid for net share settlement of share-based payment options and awards |  | — |  |  | — |  |  | 6 |  |  | (197) |  |  | — |  |  | — |  |  | — |  |  | (197) |
Issuance of stock under stock award plans |  | 83 |  |  | 1 |  |  | — |  |  | — |  |  | 943 |  |  | — |  |  | — |  |  | 944 |
Stock-based compensation expense |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,519 |  |  | — |  |  | — |  |  | 3,519 |
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 |
Net income |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 18,405 |  |  | — |  |  | 18,405 |
Other comprehensive income |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,358 |  |  | 1,358 |
Employee stock purchase plan issuances |  | — |  |  | — |  |  | (58) |  |  | 553 |  |  | 1,137 |  |  | — |  |  | — |  |  | 1,690 |
Taxes paid for net share settlement of share-based payment awards |  | — |  |  | — |  |  | 97 |  |  | (3,851) |  |  | — |  |  | — |  |  | — |  |  | (3,851) |
Issuance of stock under stock award plans |  | 458 |  |  | 4 |  |  | — |  |  | — |  |  | 2,612 |  |  | — |  |  | — |  |  | 2,616 |
Stock-based compensation expense |  | — |  |  | — |  |  | — |  |  | — |  |  | 9,852 |  |  | — |  |  | — |  |  | 9,852 |
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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DIGI INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements of Digi International Inc. ("we", "us", "our", "Digi" or "the Company") have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission applicable to interim financial statements. While these financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles ("GAAP") for complete financial statements. These financial statements should be read in conjunction with the financial statement disclosures in Part I, Item 1 of our Annual Report on Form 10-K for the year ended September 30, 2022 (the "2022 Financial Statements"). We use the same accounting policies in preparing quarterly and annual financial statements. The quarterly results of operations are not necessarily indicative of the results to be expected for the full year.
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
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 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. We also corrected $3.2 million of amortization of debt issuance costs previously included in payments on long-term debt within financing activities and changes in operating assets and liabilities (net of acquisitions) within operating activities to amortization within operating activities. There was no impact to the condensed consolidated balance sheets, condensed consolidated statements of operations or condensed consolidated statements of comprehensive income as a result of these corrections. The Company determined that this restatement was not material to the condensed consolidated financial statements.
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3. 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 June 30, |  | Nine months ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Numerator: |  |  |  |  |  |  |
Net income | $ | 6,727 |  |  | $ | 4,126 |  |  | $ | 18,405 |  |  | $ | 8,160 |
Denominator: |  |  |  |  |  |  |
Denominator for basic net income per common share — weighted average shares outstanding | 35,889 |  |  | 35,131 |  |  | 35,761 |  |  | 34,900 |
Effect of dilutive securities: |  |  |  |  |  |  |
Stock options and restricted stock units | 928 |  |  | 609 |  |  | 1,077 |  |  | 840 |
Denominator for diluted net income per common share — adjusted weighted average shares | 36,817 |  |  | 35,740 |  |  | 36,838 |  |  | 35,740 |
Net income per common share, basic | $ | 0.19 |  |  | $ | 0.12 |  |  | $ | 0.51 |  |  | $ | 0.23 |
Net income per common share, diluted | $ | 0.18 |  |  | $ | 0.12 |  |  | $ | 0.50 |  |  | $ | 0.23 |

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 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.
4. SELECTED BALANCE SHEET DATA
The following table shows selected balance sheet data (in thousands):

| June 30, 2023 |  | September 30, 2022
Accounts receivable, net: |  |  |
Accounts receivable | $ | 54,362 |  |  | $ | 58,967 |
Less allowance for credit losses | 2,173 |  |  | 3,285 |
Less reserve for future credit returns and pricing adjustments | 4,225 |  |  | 5,232 |
Accounts receivable, net | $ | 47,964 |  |  | $ | 50,450 |
Inventories: |  |  |
Raw materials | $ | 34,015 |  |  | $ | 39,189 |
Work in process | 100 |  |  | 592 |
Finished goods | 49,490 |  |  | 33,442 |
Inventories | $ | 83,605 |  |  | $ | 73,223 |

5. FAIR VALUE MEASUREMENTS
Financial assets and liabilities are classified in the following fair value hierarchy based on the lowest level input that is significant to the fair value measurement: Level 1 (unadjusted quoted prices in active markets for identical assets or liabilities); Level 2 (observable market inputs, other than quoted prices included in Level 1); 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 June 30, 2023 or September 30, 2022.
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5. 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 June 30, |  | Nine months ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Fair value at beginning of period | $ | — |  |  | $ | 6,200 |  |  | $ | — |  |  | $ | 6,200 |
Change in fair value of contingent consideration | — |  |  | — |  |  | — |  |  | — |
Fair value at end of period | $ | — |  |  | $ | 6,200 |  |  | $ | — |  |  | $ | 6,200 |

In connection with our acquisition of Haxiot, Inc. ("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 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 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 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.
6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Amortizable intangible assets were (in thousands):

| June 30, 2023 |  | September 30, 2022
| Gross carrying amount |  | Accum. amort. |  | Net |  | Gross carrying amount |  | Accum. amort. |  | Net
Purchased and core technology | $ | 85,080 |  |  | $ | (58,927) |  |  | $ | 26,153 |  |  | $ | 85,016 |  |  | $ | (55,854) |  |  | $ | 29,162 |
License agreements | 112 |  |  | (112) |  |  | — |  |  | 112 |  |  | (112) |  |  | — |
Patents and trademarks | 39,903 |  |  | (19,344) |  |  | 20,559 |  |  | 39,711 |  |  | (17,666) |  |  | 22,045 |
Customer relationships | 309,241 |  |  | (72,665) |  |  | 236,576 |  |  | 309,212 |  |  | (58,355) |  |  | 250,857 |
Non-compete agreements | 600 |  |  | (600) |  |  | — |  |  | 600 |  |  | (600) |  |  | — |
Order backlog | 1,000 |  |  | (1,000) |  |  | — |  |  | 1,000 |  |  | (1,000) |  |  | — |
Total | $ | 435,936 |  |  | $ | (152,648) |  |  | $ | 283,288 |  |  | $ | 435,651 |  |  | $ | (133,587) |  |  | $ | 302,064 |

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 (three months) | $ | 7,142 |
2024 | 25,238 |
2025 | 21,782 |
2026 | 20,593 |
2027 | 20,593 |
2028 | 20,411 |

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6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET (CONTINUED)
The changes in the carrying amount of goodwill by reportable segments are (in thousands):

| Nine months ended June 30, 2023
| IoT Products & Services |  | IoT Solutions |  | Total
Balance on September 30, 2022 | $ | 172,931 |  |  | $ | 167,546 |  |  | $ | 340,477 |
Foreign currency translation adjustment | 1,815 |  |  | — |  |  | 1,815 |
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, 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 IoT Solutions: SmartSense and Ventus. Each of these segments was tested individually for impairment during our annual impairment test completed in the third fiscal quarter of fiscal 2023.
Assumptions and estimates to determine fair values under the income and market approaches are complex and often subjective. They can be affected by a variety of factors. These include external factors such as industry and economic trends. They also include internal factors such as changes in our business strategy and our internal forecasts. 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, 2023, the fair value of goodwill exceeded the carrying value for all six reporting units and no impairment was recorded.
7. INDEBTEDNESS
On November 1, 2021, we entered into a second amended and restated credit agreement with BMO Harris Bank N.A. ("BMO"). This agreement provides us with a senior secured credit facility (the "Credit Facility") consisting of a $350 million term loan B secured loan (the “Term Loan Facility”) and a $35 million revolving credit facility (the “Revolving Loan Facility”) with an uncommitted option to increase incremental loans under the Credit Facility, subject to an incremental cap. The Revolving Loan Facility includes a $10 million letter of credit subfacility and $10 million swingline subfacility. Digi may use proceeds of the Revolving Loan Facility in the future for general corporate purposes. This loan replaced our syndicated senior secured credit agreement with BMO that was entered into on March 15, 2021 and replaced the remaining balance of our revolver with this new term loan. This prior agreement provided us with a committed credit facility ("Prior Credit Facility") consisting of a $200 million revolving loan.
On December 22, 2021, Digi entered into a third amended and restated credit agreement with BMO. Digi refinanced the Term Loan Facility and Revolving Loan Facility under its existing credit agreement entered into on November 1, 2021, but did not receive any additional proceeds from nor modify the amounts of any facilities or subfacilities contained within that credit agreement.
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7. INDEBTEDNESS (CONTINUED)
Following the December amendment, borrowings under the Term Loan Facility bear interest at a rate per annum equal to LIBOR with a floor of 0.50% for an interest period of one, three or six months as selected by Digi, reset at the end of the selected interest period (or a replacement benchmark rate if LIBOR is no longer available) plus 5.00% or a base rate plus 4.00%. The base rate is determined by reference to the highest of BMO’s prime rate, the Federal Funds Effective Rate plus 0.50%, or the one-month LIBOR for U.S. dollars plus 1.00%. The applicable margin for loans under the Revolving Credit Facility is in a range of 4.00% to 3.75% for LIBOR loans and 3.00% to 2.75% for base rate loans, depending on Digi’s consolidated leverage ratio. In addition to paying interest on the outstanding balance under the Credit Facility, we are required to pay a commitment fee on the non-utilized commitments thereunder, which is also reported in interest expense. Digi elected an interest period of one month for the months of December 2021 through April 2022 and a period of six months effective May 1, 2022. 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. 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. Of this amount $1.9 million was written off and included in interest expense upon the entry into the new amendment and $0.4 million is being amortized over the term of the amended loan and reported in interest expense. Digi incurred an additional $11.7 million and $1.7 million in debt issuance costs relating to the November 1, 2021 and December 22, 2021 amendments, respectively. These amounts are being amortized over the term of the amended loan and reported in interest expense.
The Term Loan is payable in quarterly installments, with the balance remaining due on November 2, 2028. The Revolving Loan is due in a lump sum payment at maturity on November 2, 2028, if any amounts are drawn. The fair value of the Term Loan and Revolving Loan approximated carrying value at 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 |
Less unamortized issuance costs |  | (10,546) |  |  | (12,029) |
Less current maturities of long-term debt |  | (15,523) |  |  | (15,523) |
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 June 30, 2023 (in thousands):

Fiscal year |  | Amount
2023 (three months) |  | $ | 4,375 |
2024 |  | 17,500 |
2025 |  | 17,500 |
2026 |  | 17,500 |
2027 |  | 17,500 |
2028 |  | 146,250 |
Total long-term debt |  | $ | 220,625 |

Covenants and Security Interest
The agreements governing the Revolving Loan Facility contain a number of covenants. Among other provisions, these covenants require us to maintain a certain financial ratio (net leverage ratio and minimum fixed charge ratio). 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.
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8. SEGMENT INFORMATION
We have two reportable segments: IoT Products & Services and IoT Solutions. IoT Products & Services is structured to include four operating segments, each with a segment manager. These four operating segments are:
•Cellular Routers - box devices (fully enclosed) that provide connectivity typically in a place where the device can be plugged in exclusively using cellular communications;
•Console Servers - similar to cellular routers except they are exclusively for edge computing installations and data center applications (also exclusively using cellular communications);
•OEM Solutions - Original Equipment Manufacturers ("OEM") will be a chip, rather than a boxed device. This can come in the form of a stand-alone module or from a systems-on-module ("SOM"). While cellular connectivity is used, other communication protocols can be used such as Zigbee, Bluetooth or Radio-Frequency ("RF") based on application; and
•Infrastructure Management - includes battery operated, cellular enabled connect sensors as well as other types of console server applications that are more Digi Accelerated Linux ("DAL") based than Console Servers. This operating segment has some products that do not use cellular communications, but a large part of this segment does use cellular communications.
Following the acquisition of Ventus on November 1, 2021, IoT Solutions is now comprised of two operating segments:
•SmartSense - offers wireless temperature and other condition-based monitoring services for perishable goods such as food or medicine, as well as employee task management services.
•Ventus - provides Managed Network-as-a-Service ("MNaaS") solutions that simplify the complexity of enterprise wide area network ("WAN") connectivity via wireless and fixed line solutions.
The operating segments included in each reportable segment have similar qualitative and quantitative factors, which allow us to aggregate them under each reportable segment. The qualitative factors include similar nature of products and services, production process, type or class of customers and methods used to distribute the products. The quantitative factors include similar operating margins. Our CEO is our Chief Operating Decision Maker and reviews and makes business decisions using consolidated information including operating income and gross profit.
Summary operating results for each of our segments were (in thousands):

|  | Three months ended June 30, |  | Nine months ended June 30,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
Revenue |  |  |  |  |  |  |  |
IoT Products & Services |  | $ | 87,358 |  |  | $ | 79,758 |  |  | $ | 257,593 |  |  | $ | 216,872 |
IoT Solutions |  | 24,878 |  |  | 23,759 |  |  | 75,093 |  |  | 65,615 |
Total revenue |  | $ | 112,236 |  |  | $ | 103,517 |  |  | $ | 332,686 |  |  | $ | 282,487 |
Gross Profit |  |  |  |  |  |  |  |
IoT Products & Services |  | $ | 47,229 |  |  | $ | 42,643 |  |  | $ | 140,367 |  |  | $ | 116,779 |
IoT Solutions |  | 16,590 |  |  | 14,783 |  |  | 47,845 |  |  | 40,512 |
Total gross profit |  | $ | 63,819 |  |  | $ | 57,426 |  |  | $ | 188,212 |  |  | $ | 157,291 |
Operating Income (Loss) |  |  |  |  |  |  |  |
IoT Products & Services |  | $ | 12,096 |  |  | $ | 10,881 |  |  | $ | 37,744 |  |  | $ | 24,046 |
IoT Solutions |  | 380 |  |  | (907) |  |  | (1,130) |  |  | (2,709) |
Total operating income |  | $ | 12,476 |  |  | $ | 9,974 |  |  | $ | 36,614 |  |  | $ | 21,337 |
Depreciation and Amortization |  |  |  |  |  |  |  |
IoT Products & Services |  | $ | 3,108 |  |  | $ | 3,471 |  |  | $ | 9,446 |  |  | $ | 10,633 |
IoT Solutions |  | 4,896 |  |  | 5,276 |  |  | 14,516 |  |  | 14,760 |
Total depreciation and amortization |  | $ | 8,004 |  |  | $ | 8,747 |  |  | $ | 23,962 |  |  | $ | 25,393 |

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8. SEGMENT INFORMATION (CONTINUED)
Total expended for property, plant and equipment was (in thousands):

|  | Nine months ended June 30,
|  | 2023 |  | 2022
IoT Products & Services |  | $ | 362 |  |  | $ | 1,722 |
IoT Solutions* |  | 3,291 |  |  | 2,496 |
Total expended for property, plant and equipment |  | $ | 3,653 |  |  | $ | 4,218 |

* 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):

|  | June 30, 2023 |  | September 30, 2022
IoT Products & Services |  | $ | 387,371 |  |  | $ | 390,128 |
IoT Solutions |  | 423,109 |  |  | 428,867 |
Unallocated* |  | 29,580 |  |  | 34,900 |
Total assets |  | $ | 840,060 |  |  | $ | 853,895 |

*Unallocated consists of cash and cash equivalents.
9. REVENUE
Revenue Disaggregation
The following table summarizes our revenue by geographic location of our customers (in thousands):

| Three months ended June 30, |  | Nine months ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
North America, primarily the United States | $ | 82,953 |  |  | $ | 83,282 |  |  | $ | 244,227 |  |  | $ | 223,315 |
Europe, Middle East & Africa | 16,352 |  |  | 12,265 |  |  | 52,643 |  |  | 37,139 |
Rest of world | 12,931 |  |  | 7,970 |  |  | 35,816 |  |  | 22,033 |
Total revenue | $ | 112,236 |  |  | $ | 103,517 |  |  | $ | 332,686 |  |  | $ | 282,487 |

The following table summarizes our revenue by the timing of revenue recognition (in thousands):

| Three months ended June 30, |  | Nine months ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Transferred at a point in time | $ | 86,393 |  |  | $ | 80,858 |  |  | $ | 258,967 |  |  | $ | 220,049 |
Transferred over time | 25,843 |  |  | 22,659 |  |  | 73,719 |  |  | 62,438 |
Total revenue | $ | 112,236 |  |  | $ | 103,517 |  |  | $ | 332,686 |  |  | $ | 282,487 |

Contract Balances
Contract Related Assets
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.
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9. REVENUE (CONTINUED)
Contract Assets
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 June 30, 2023 and September 30, 2022.
Contract Liabilities
The timing of revenue recognition may differ from the timing of invoicing to customers. Customers are invoiced for subscription services on a monthly, quarterly or annual basis. Contract liabilities consist of unearned revenue related to annual or multi-year contracts for subscription services and related implementation fees, as well as product sales that have been invoiced, but not yet fulfilled.
Our contract liabilities were $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.
10. INCOME TAXES
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.
Our effective tax rate will vary based on a variety of factors. These factors include our overall profitability, the geographical mix of income before taxes and related statutory tax rate in each jurisdiction, and tax items discretely related to the period, such as settlements of audits. We may record other benefits or expenses in the future that are specific to a particular quarter such as expiration of statutes of limitation, the completion of tax audits, or legislation that is enacted in both U.S. and foreign jurisdictions.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is (in thousands):

Unrecognized tax benefits as of September 30, 2022 | $ | 3,316 |
Decreases related to: |
Expiration of statute of limitations | (649) |
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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11. PRODUCT WARRANTY OBLIGATION
The following tables summarize the activity associated with the product warranty accrual (in thousands) and is included on our condensed consolidated balance sheets within other current liabilities:

| Balance at |  | Warranties |  | Settlements |  | Balance at
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 |  | June 30
Nine months ended June 30, 2023 | $ | 886 |  |  | $ | 303 |  |  | $ | (335) |  |  | $ | 854 |
Nine months ended June 30, 2022 | $ | 707 |  |  | $ | 295 |  |  | $ | (250) |  |  | $ | 752 |

12. LEASES
All of our leases are operating leases and primarily consist of leases for office space. For any lease with an initial term in excess of 12 months, the related lease assets and lease liabilities are recognized on the condensed consolidated balance sheets as either operating or financing leases at the inception of an agreement where it is determined that a lease exists. 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. Leases with an expected term of 12 months or less are not recorded on the condensed consolidated balance sheets. Instead we recognize lease expense for these leases on a straight-line basis over the lease term.
Operating lease assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments. These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date. We generally use a collateralized incremental borrowing rate based on information available at the commencement date, including the lease term, in determining the present value of future payments. When determining our right-of-use assets, we generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised.
Our leases typically require payment of real estate taxes and common area maintenance and insurance. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term.
The following table shows the supplemental balance sheet information related to our leases (in thousands):

|  | Balance Sheet Location |  | June 30, 2023 |  | September 30, 2022
Assets |  |  |  |  |  |
Operating leases |  | Operating lease right-of-use assets |  | $ | 13,643 |  |  | $ | 15,299 |
Total lease assets |  |  |  | $ | 13,643 |  |  | $ | 15,299 |
Liabilities |  |  |  |  |  |
Operating leases |  | Current portion of operating lease liabilities |  | $ | 3,431 |  |  | $ | 3,196 |
Operating leases |  | Operating lease liabilities |  | 14,793 |  |  | 16,978 |
Total lease liabilities |  |  |  | $ | 18,224 |  |  | $ | 20,174 |

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12. LEASES (CONTINUED)
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 June 30, |  | Nine months ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Operating lease cost | $ | 907 |  |  | $ | 954 |  |  | $ | 2,678 |  |  | $ | 2,836 |
Variable lease cost | 361 |  |  | 287 |  |  | 1,013 |  |  | 828 |
Short-term lease cost | 26 |  |  | 27 |  |  | 69 |  |  | 83 |
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 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%.
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 June 30, 2023 (in thousands):

Fiscal year |  | Amount
2023 (three months) |  | $ | 1,131 |
2024 |  | 4,007 |
2025 |  | 3,537 |
2026 |  | 3,114 |
2027 |  | 2,042 |
2028 |  | 1,897 |
Thereafter |  | 5,704 |
Total future undiscounted lease payments |  | 21,432 |
Less imputed interest |  | (3,208) |
Total reported lease liability |  | $ | 18,224 |

13. COMMITMENTS AND CONTINGENCIES
We lease certain of our buildings and equipment under non-cancelable lease agreements. Please refer to Note 12 to our condensed consolidated financial statements for additional information.
In the normal course of business, we presently are, 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, competitors and/or former 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. In addition, the costs associated with defending ourselves in litigation may be significant regardless of whether the claim has merit.
14. STOCK-BASED COMPENSATION
Stock-based awards granted in the first fiscal quarter of 2023 were granted under the amended and restated 2021 Omnibus Incentive Plan (the "2021 Plan"). Such awards made in the first quarter of fiscal 2022 were granted under the 2021 Plan before it was amended and restated at our annual meeting in January, 2022. Shares subject to awards under the 2021 Plan or any prior plans that are forfeited, canceled, returned to us for failure to satisfy vesting requirements, settled in cash or otherwise terminated without payment also will be available for grant under the 2021 Plan. The authority to grant options under the 2021 Plan and set other terms and conditions rests with the Compensation Committee of the Board of Directors.
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14. STOCK-BASED COMPENSATION (CONTINUED)
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. When employees make this election, we retain a portion of shares issuable under the award. Tax withholding obligations are otherwise fulfilled by the employee paying cash to us for the withholding. 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. The ESPP allows eligible participants the right to purchase common stock on a quarterly basis at the lower of 85% of the market price at the beginning or end of each three-month offering period. 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 $1.7 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 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 June 30, |  | Nine months ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Cost of sales | $ | 160 |  |  | $ | 125 |  |  | $ | 463 |  |  | $ | 342 |
Sales and marketing | 1,089 |  |  | 660 |  |  | 3,012 |  |  | 1,828 |
Research and development | 469 |  |  | 252 |  |  | 1,386 |  |  | 890 |
General and administrative | 1,801 |  |  | 1,106 |  |  | 4,991 |  |  | 3,342 |
Stock-based compensation before income taxes | 3,519 |  |  | 2,143 |  |  | 9,852 |  |  | 6,402 |
Income tax benefit | (760) |  |  | (460) |  |  | (2,096) |  |  | (1,360) |
Stock-based compensation after income taxes | $ | 2,759 |  |  | $ | 1,683 |  |  | $ | 7,756 |  |  | $ | 5,042 |

Stock Options
The following table summarizes our stock option activity (in thousands, except per common share amounts):

|  | Options Outstanding |  | Weighted Average Exercise Price |  | Weighted Average Contractual Term (in years) |  | Aggregate Intrinsic Value (1)
Balance on September 30, 2022 |  | 1,790 |  |  | $17.29 |  |  |  |
Granted |  | 66 |  |  | 40.63 |  |  |  |
Exercised |  | (182) |  |  | 22.77 |  |  |  |
Forfeited / Canceled |  | (34) |  |  | 20.76 |  |  |  |
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.
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14. 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 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:

| Nine months ended June 30,
| 2023 |  | 2022
Weighted average per option grant date fair value | $19.88 |  | $10.03
Assumptions used for option grants: |  |  |
Risk free interest rate | 3.50% - 3.98% |  | 1.25% - 3.00%
Expected term | 6.00 years |  | 6.00 years
Expected volatility | 46% |  | 45% - 46%
Weighted average volatility | 46% |  | 46%
Expected dividend yield | — |  | —

The fair value of each option award granted during the periods presented was estimated using the Black-Scholes option valuation model that uses the assumptions noted in the above table. Expected volatilities are based on the historical volatility of our stock. We use historical data to estimate option exercise and employee termination information within the valuation model. The expected term of options granted is derived from the vesting period and historical information and represents the period of time that options granted are expected to be outstanding. The risk-free rate used is the zero-coupon U.S. Treasury bond rate in effect at the time of the grant whose maturity equals the expected term of the option.
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 June 30, 2023 and changes during the nine months then ended (in thousands, except per common share amounts):

| RSUs |  | PSUs
| Number of Awards |  | Weighted Average Grant Date Fair Value |  | Number of Awards |  | Weighted Average Grant Date Fair Value
Nonvested on September 30, 2022 | 742 |  |  | $ | 19.14 |  |  | 27 |  |  | $ | 22.69 |
Granted | 457 |  |  | 40.07 |  |  | 113 |  |  | 40.66 |
Vested | (276) |  |  | 17.42 |  |  | (5) |  |  | 22.93 |
Canceled | (34) |  |  | 26.69 |  |  | — |  |  | — |
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our management's discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, as well as our subsequent reports on Form 10-Q and Form 8-K and any amendments to these reports.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-Q contains certain statements that are "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995, and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-Looking Statements
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. 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.
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, 2022, 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. Many of such factors are beyond our ability to control or predict. These forward-looking statements speak only as of the date for which they are made. We disclaim any intent or obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, the disclosure of contingent assets and liabilities and the values of purchased assets and assumed liabilities in acquisitions. We base our estimates on historical experience and various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
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A description of our critical accounting estimates was provided in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.
OVERVIEW
We are a leading global provider of business and mission-critical IoT connectivity products, services and solutions. Our business is comprised of two reporting segments: 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 2023, 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; and
•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%.
•Gross profit margin was 56.9%, an increase of 140 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%.
•ARR was $104 million at quarter end, an increase of 13%.
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ITEM 2. 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.)
Revenue | $ | 112,236 |  |  | 100.0 | % |  | $ | 103,517 |  |  | 100.0 | % |  | 8.4 | % |  | $ | 332,686 |  |  | 100.0 | % |  | $ | 282,487 |  |  | 100.0 | % |  | 17.8 | %
Cost of sales | 48,417 |  |  | 43.1 |  |  | 46,091 |  |  | 44.5 |  |  | 5.0 |  |  | 144,474 |  |  | 43.4 |  |  | 125,196 |  |  | 44.3 |  |  | 15.4 |
Gross profit | 63,819 |  |  | 56.9 |  |  | 57,426 |  |  | 55.5 |  |  | 11.1 |  |  | 188,212 |  |  | 56.6 |  |  | 157,291 |  |  | 55.7 |  |  | 19.7 |
Operating expenses | 51,343 |  |  | 45.7 |  |  | 47,452 |  |  | 45.8 |  |  | 8.2 |  |  | 151,598 |  |  | 45.6 |  |  | 135,954 |  |  | 48.1 |  |  | 11.5 |
Operating income | 12,476 |  |  | 11.1 |  |  | 9,974 |  |  | 9.6 |  |  | 25.1 |  |  | 36,614 |  |  | 11.0 |  |  | 21,337 |  |  | 7.6 |  |  | 71.6 |
Other expense, net | (6,588) |  |  | (5.9) |  |  | (5,392) |  |  | (5.2) |  |  | 22.2 |  |  | (18,888) |  |  | (5.7) |  |  | (14,716) |  |  | (5.2) |  |  | 28.4 |
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 | %

NM means not meaningful
REVENUE BY SEGMENT

| Three months ended June 30, |  | % incr. |  | Nine months ended June 30, |  | % incr.
($ in thousands) | 2023 |  | 2022 |  | (decr.) |  | 2023 |  | 2022 |  | (decr.)
Revenue |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
IoT Products & Services | $ | 87,358 |  |  | 77.8 | % |  | $ | 79,758 |  |  | 77.0 | % |  | 9.5 | % |  | $ | 257,593 |  |  | 77.4 | % |  | $ | 216,872 |  |  | 76.8 | % |  | 18.8 | %
IoT Solutions | 24,878 |  |  | 22.2 |  |  | 23,759 |  |  | 23.0 |  |  | 4.7 |  |  | 75,093 |  |  | 22.6 |  |  | 65,615 |  |  | 23.2 |  |  | 14.4 |
Total revenue | $ | 112,236 |  |  | 100.0 | % |  | $ | 103,517 |  |  | 100.0 | % |  | 8.4 | % |  | $ | 332,686 |  |  | 100.0 | % |  | $ | 282,487 |  |  | 100.0 | % |  | 17.8 | %

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 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
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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
($ in thousands) | 2023 |  | 2022 |  | inc. (decr.) |  | 2023 |  | 2022 |  | inc. (decr.)
Cost of Goods Sold |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
IoT Products & Services | $ | 40,129 |  |  | 45.9 | % |  | $ | 37,115 |  |  | 46.5 | % |  | (60) |  | $ | 117,226 |  |  | 45.5 | % |  | $ | 100,093 |  |  | 46.2 | % |  | (70)
IoT Solutions | 8,288 |  |  | 33.3 | % |  | 8,976 |  |  | 37.8 | % |  | (450) |  | 27,248 |  |  | 36.3 | % |  | 25,103 |  |  | 38.3 | % |  | (200)
Total cost of goods sold | $ | 48,417 |  |  | 43.1 | % |  | $ | 46,091 |  |  | 44.5 | % |  | (140) |  | $ | 144,474 |  |  | 43.4 | % |  | $ | 125,196 |  |  | 44.3 | % |  | (90)

| Three months ended June 30, |  | Basis point |  | Nine months ended June 30, |  | Basis point
($ in thousands) | 2023 |  | 2022 |  | inc. (decr.) |  | 2023 |  | 2022 |  | inc. (decr.)
Gross Profit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
IoT Products & Services | $ | 47,229 |  |  | 54.1 | % |  | $ | 42,643 |  |  | 53.5 | % |  | 60 |  | $ | 140,367 |  |  | 54.5 | % |  | $ | 116,779 |  |  | 53.8 | % |  | 70
IoT Solutions | 16,590 |  |  | 66.7 | % |  | 14,783 |  |  | 62.2 | % |  | 450 |  | 47,845 |  |  | 63.7 | % |  | 40,512 |  |  | 61.7 | % |  | 200
Total gross profit | $ | 63,819 |  |  | 56.9 | % |  | $ | 57,426 |  |  | 55.5 | % |  | 140 |  | $ | 188,212 |  |  | 56.6 | % |  | $ | 157,291 |  |  | 55.7 | % |  | 90

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 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.
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, |  | $ |  | %
($ in thousands) | 2023 |  | 2022 |  | incr. (decr.) |  | incr. (decr.) |  | 2023 |  | 2022 |  | incr. (decr.) |  | incr. (decr.)
Operating Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing | $ | 20,974 |  |  | 18.7 | % |  | $ | 18,230 |  |  | 17.6 | % |  | $ | 2,744 |  |  | 15.1 |  |  | $ | 60,421 |  |  | 18.2 | % |  | $ | 51,325 |  |  | 18.2 | % |  | $ | 9,096 |  |  | 17.7 | %
Research and development | 14,945 |  |  | 13.3 |  |  | 13,968 |  |  | 13.5 |  |  | 977 |  |  | 7.0 |  |  | 44,194 |  |  | 13.3 |  |  | 41,199 |  |  | 14.6 |  |  | 2,995 |  |  | 7.3 |
General and administrative | 15,424 |  |  | 13.7 |  |  | 15,254 |  |  | 14.7 |  |  | 170 |  |  | 1.1 |  |  | 46,983 |  |  | 14.1 |  |  | 43,430 |  |  | 15.4 |  |  | 3,553 |  |  | 8.2 |
Total operating expenses | $ | 51,343 |  |  | 45.7 | % |  | $ | 47,452 |  |  | 45.8 | % |  | $ | 3,891 |  |  | 8.2 |  |  | $ | 151,598 |  |  | 45.6 | % |  | $ | 135,954 |  |  | 48.1 | % |  | $ | 15,644 |  |  | 11.5 | %

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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OPERATING INCOME

| Three months ended June 30, |  |  |  |  |  | Nine months ended June 30, |  |  |
($ in thousands) | 2023 |  | 2022 |  |  |  | incr. (decr.) |  | 2023 | 2022 |  |  | incr. (decr.)
Operating Income (Loss) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
IoT Products & Services | $ | 12,096 |  |  | $ | 10,881 |  |  | $ | 1,215 |  |  | 11.2 |  |  | $ | 37,744 |  |  | $ | 24,046 |  |  | $ | 13,698 |  |  | 57.0 |
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 |

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.
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, |  | $ |  | %
($ in thousands) | 2023 |  | 2022 |  | incr. (decr.) |  | incr. (decr.) |  | 2023 |  | 2022 |  | incr. (decr.) |  | incr. (decr.)
Other expense, net |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net | (6,603) |  |  | (5.9) | % |  | (5,296) |  |  | (5.1) | % |  | (1,307) |  |  | 24.7 |  |  | (18,967) |  |  | (5.7) | % |  | (14,657) |  |  | (5.2) | % |  | (4,310) |  |  | 29.4 |
Other expense, net | 15 |  |  | — | % |  | (96) |  |  | (0.1) | % |  | 111 |  |  | NM |  | 79 |  |  | — | % |  | (59) |  |  | — | % |  | 138 |  |  | NM
Total other expense, net | $ | (6,588) |  |  | (5.9) | % |  | $ | (5,392) |  |  | (5.2) | % |  | $ | (1,196) |  |  | 22.2 |  |  | $ | (18,888) |  |  | (5.7) | % |  | $ | (14,716) |  |  | (5.2) | % |  | $ | (4,172) |  |  | 28.4 |

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).
INCOME TAXES
See Note 10 to the condensed consolidated financial statements for discussion of income taxes.
KEY BUSINESS METRIC
ARR represents the annualized monthly value of all billable subscription contracts, measured at the end of any fiscal period. ARR should be viewed independently of revenue and deferred revenue and is not intended to replace or forecast either of these items. Digi management uses ARR to manage and assess the growth of our subscription revenue business. We believe ARR is an indicator of the scale of our subscription business.
NON-GAAP FINANCIAL INFORMATION
This report includes adjusted net income, adjusted net income per diluted share and adjusted earnings before interest, taxes and amortization ("Adjusted EBITDA"), each of which is a non-GAAP financial measure.
Non-GAAP measures are not substitutes for GAAP measures for the purpose of analyzing financial performance. The disclosure of these measures does not reflect all charges and gains that actually were recognized by Digi. These non-GAAP measures are not in accordance with, or, an alternative for measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies or presented by us in prior reports. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. We believe these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. 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.
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ITEM 2. 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. Management uses the aforementioned non-GAAP measures to monitor and evaluate ongoing operating results and trends and to gain an understanding of our comparative operating performance. In addition, certain of our stockholders have expressed an interest in seeing financial performance measures exclusive of the impact of these matters, which while important, are not central to the core operations of our business. Management believes that Adjusted EBITDA, defined as EBITDA adjusted for stock-based compensation expense, acquisition-related expenses, restructuring charges and reversals and changes in fair value of contingent consideration is useful to investors to evaluate our core operating results and financial performance because it excludes items that are significant non-cash or non-recurring expenses reflected in the consolidated statements of operations. We believe that the presentation of Adjusted EBITDA as a percentage of revenue is useful because it provides a reliable and consistent approach to measuring our performance from year to year and in assessing our performance against that of other companies. 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.
Below are reconciliations from GAAP to non-GAAP information that we feel is important to our business:
Reconciliation of Net Income to Adjusted EBITDA
(In thousands)

| Three months ended June 30, |  | Nine months ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
|  |  | % of total revenue |  |  |  | % of total revenue |  |  |  | % of total revenue |  |  |  | % of total revenue
Total revenue | $ | 112,236 |  |  | 100.0 | % |  | $ | 103,517 |  |  | 100.0 | % |  | $ | 332,686 |  |  | 100.0 | % |  | $ | 282,487 |  |  | 100.0 | %
Net income | $ | 6,727 |  |  |  |  | $ | 4,126 |  |  |  |  | $ | 18,405 |  |  |  |  | $ | 8,160 |  |  |
Interest expense, net | 6,603 |  |  |  |  | 5,296 |  |  |  |  | 18,967 |  |  |  |  | 14,657 |  |  |
Income tax expense (benefit) | (839) |  |  |  |  | 456 |  |  |  |  | (679) |  |  |  |  | (1,539) |  |  |
Depreciation and amortization | 8,005 |  |  |  |  | 8,747 |  |  |  |  | 23,963 |  |  |  |  | 25,393 |  |  |
Stock-based compensation | 3,519 |  |  |  |  | 2,143 |  |  |  |  | 9,852 |  |  |  |  | 6,402 |  |  |
Restructuring charge | 95 |  |  |  |  | 105 |  |  |  |  | 141 |  |  |  |  | 214 |  |  |
Acquisition expense | 222 |  |  |  |  | 175 |  |  |  |  | 910 |  |  |  |  | 4,256 |  |  |
Adjusted EBITDA | $ | 24,332 |  |  | 21.7 | % |  | $ | 21,048 |  |  | 20.3 | % |  | $ | 71,559 |  |  | 21.5 | % |  | $ | 57,543 |  |  | 20.4 | %

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Reconciliation of Net Income and Net Income per Diluted Share to
Adjusted Net Income and Adjusted Net Income per Diluted Share
(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 |
Amortization | 6,252 |  |  | 0.17 |  |  | 7,046 |  |  | 0.20 |  |  | 18,966 |  |  | 0.51 |  |  | 20,400 |  |  | 0.57 |
Stock-based compensation | 3,519 |  |  | 0.10 |  |  | 2,143 |  |  | 0.06 |  |  | 9,852 |  |  | 0.27 |  |  | 6,402 |  |  | 0.18 |
Other non-operating income | (15) |  |  | — |  |  | 96 |  |  | — |  |  | (79) |  |  | — |  |  | 59 |  |  | — |
Acquisition expense | 222 |  |  | 0.01 |  |  | 175 |  |  | — |  |  | 910 |  |  | 0.02 |  |  | 4,256 |  |  | 0.12 |
Restructuring charge | 95 |  |  | — |  |  | 105 |  |  | — |  |  | 141 |  |  | — |  |  | 214 |  |  | 0.01 |
Interest expense, net | 6,603 |  |  | 0.18 |  |  | 5,296 |  |  | 0.15 |  |  | 18,967 |  |  | 0.51 |  |  | 14,657 |  |  | 0.40 |
Tax effect from the above adjustments (1) | (6,025) |  |  | (0.17) |  |  | (2,497) |  |  | (0.07) |  |  | (15,520) |  |  | (0.41) |  |  | (8,263) |  |  | (0.23) |
Discrete tax expenses (benefits) (2) | 1,125 |  |  | 0.03 |  |  | (556) |  |  | (0.02) |  |  | 2,874 |  |  | 0.08 |  |  | (2,746) |  |  | (0.07) |
Adjusted net income and adjusted net income per diluted share (3) | $ | 18,503 |  |  | $ | 0.50 |  |  | $ | 15,934 |  |  | $ | 0.45 |  |  | $ | 54,516 |  |  | $ | 1.48 |  |  | $ | 43,139 |  |  | $ | 1.21 |
Diluted weighted average common shares |  |  | 36,817 |  |  |  | 35,740 |  |  |  | 36,838 |  |  |  | 35,740

(1)The tax effect from the above adjustments assumes an estimated effective tax rate of 18.0% for fiscal 2023 and fiscal 2022 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.
(3)Adjusted net income per diluted share may not add due to the use of rounded numbers.
LIQUIDITY AND CAPITAL RESOURCES
Historically we have financed our operations and capital expenditures principally with funds generated from operations. In fiscal 2022 we issued debt to fund our acquisition of Ventus. 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. For additional information regarding the terms of our Credit Facility, including the Revolving Loan and its subfacilities, see Note 7 to our condensed consolidated financial statements.
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.
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ITEM 2. 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,
|  | 2023 |  | 2022
($ in thousands) |  |  |  | Restated (1)
Operating activities |  | $ | 27,804 |  |  | $ | 31,216 |
Investing activities |  | (3,842) |  |  | (351,771) |
Financing activities |  | (28,920) |  |  | 208,551 |
Effect of exchange rate changes on cash and cash equivalents |  | (362) |  |  | 1,087 |
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.
Cash flows used in investing activities decreased $347.9 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations at June 30, 2023:

|  | Payments due by fiscal period
($ in thousands) |  | Total |  | Less than 1 year |  | 1-3 years |  | 3-5 years |  | Thereafter
Operating leases |  | $ | 21,432 |  |  | $ | 4,136 |  |  | $ | 9,183 |  |  | $ | 5,658 |  |  | $ | 2,455 |
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 |
Total |  | $ | 337,201 |  |  | $ | 43,744 |  |  | $ | 82,174 |  |  | $ | 71,273 |  |  | $ | 140,010 |

The operating lease agreements 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. 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
For information on new accounting pronouncements, see Note 1 to our condensed consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to ongoing market risk related to changes in interest rates and foreign currency exchange rates.
INTEREST RATE RISK
We are exposed to market risks related to fluctuations in interest rates on amounts borrowed under the Credit Facility. As of June 30, 2023, we had $220.6 million outstanding under our Term Loan. Borrowings under the Term Loan Facility bear interest at a rate per annum equal to LIBOR with a floor of 0.50% for an interest period of one, three or six months as selected by Digi, reset at the end of the selected interest period (or a replacement benchmark rate if LIBOR is no longer available) plus 5.00% or a base rate plus 4.00%. The base rate is determined by reference to the highest of BMO’s prime rate, the Federal Funds Effective Rate plus 0.50%, or the one-month LIBOR for U.S. dollars plus 1.00%. The applicable margin for loans under the Revolving Credit Facility is in a range of 4.00% to 3.75% for LIBOR loans and 3.00% to 2.75% for base rate loans, depending on Digi’s consolidated leverage ratio. Digi bases the interest period election on an assessment of the interest rate environment conducted on a monthly basis. Digi presently expects to continue to elect a one month interest period, unless conditions change. Based on the balance sheet position for the Revolving Loan at June 30, 2023, the annualized effect of a 25 basis point change in interest rates would increase or decrease our interest expense by $0.6 million. 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). For additional information, see Note 7 to our condensed consolidated financial statements. For our Credit Facility, interest rate changes generally do not affect the fair value of the debt instruments, but do impact future earnings and cash flows, assuming other factors are held constant. If interest rates remain elevated, we will continue to see interest expenses that are higher than historical amounts.
FOREIGN CURRENCY RISK
We are not exposed to foreign currency transaction risk associated with sales transactions as the majority of our sales are denominated in U.S. Dollars. We are exposed to foreign currency translation risk as the financial position and operating results of our foreign subsidiaries are translated into U.S. Dollars for consolidation. We manage our net asset or net liability position for non-functional currency accounts, primarily the U.S. Dollar accounts in our foreign locations to reduce our foreign currency risk. We have not implemented a formal hedging strategy.
A 10% change in the average exchange rate for the Euro, British Pound, Australian Dollar and Canadian Dollar to the U.S. Dollar during the first nine months of fiscal 2023 would have resulted in a 1.0% increase or decrease in stockholders' equity due to foreign currency translation.
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CREDIT RISK
We have exposure to credit risk related to our accounts receivable portfolio. Exposure to credit risk is controlled through regular monitoring of customer financial status, credit limits and collaboration with sales management and customer contacts to facilitate payment.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting that occurred during the nine months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The disclosure set forth in Note 13 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q is incorporated herein by reference.
ITEM 1A. RISK FACTORS
Except as set forth below, there have been no material changes in our risk factors from those previously disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended September 30, 2022.
Certain parts of our business are subject to customer concentrations.
Several of our acquired businesses historically have depended on relationships with one or a small number of customers or have a significant number of customers that are from particular industries. Any disruption in their business with those customers, whether as a result of changes in demand for the customer’s services, adverse changes in the customer’s industry generally or other challenges in securing or renewing contracts, could have an adverse impact on our business, results of operations, financial condition and prospects.
For example, we acquired Accelerated in fiscal 2018. Although Accelerated has many customers, its business historically has been highly dependent on its relationship with a single telecommunications carrier customer.
We acquired Opengear in fiscal 2019. Although Opengear has many customers, its business historically has been significantly concentrated on its relationships with a few large customers.
We acquired Ventus in fiscal 2022. Although Ventus has many customers, its business historically has been significantly concentrated on its relationships with fewer than twenty customers and it also serves a significant number of customers in the financial and gaming terminal industries. Likewise, our SmartSense business services a significant number of customers in the pharmaceutical, medical facility and retail food industries. Both Ventus and SmartSense produce significant ARR. Any disruption or difficulties in any of the industries these businesses serve could have an adverse impact on our business, results of operations (including, but not limited to, ARR), financial condition and prospects.
In addition, some larger customers may demand discounts and rebates. As a result, our future revenue opportunities with these customers may be limited, and we may face pricing pressures, which in turn could adversely impact our gross margin and our profitability. The loss of, reduction in, or pricing discounts associated with orders from key customers may significantly reduce our revenue and harm our business. Furthermore, delays in payment and/or extended payment terms from larger customers could have a disproportionate and material negative impact on our cash flows and working capital to support our business operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents the information with respect to purchases made by or on behalf of Digi International Inc. or any "affiliated purchaser" (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the third quarter of fiscal 2023:

Period |  | Total Number of Shares Purchased(1) |  | Average Price Paid per Share |  | Total Number of Shares Purchased as Part of a Publicly Announced Program |  | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program
April 1, 2023 - April 30, 2023 |  | — |  |  | $ | — |  |  | — |  |  | $ | — |
May 1, 2023 - May 31, 2023 |  | 6,163 |  |  | $ | 31.64 |  |  | — |  |  | $ | — |
June 1, 2023 - June 30, 2023 |  | 23 |  |  | $ | 30.32 |  |  | — |  |  | $ | — |
|  | 6,186 |  | $ | 31.64 |  |  | — |  |  | $ | — |

(1) All shares reported were forfeited by employees in connection with the satisfaction of tax withholding obligations related to the vesting of restricted stock units.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
During the three months ended June 30, 2023, no director or officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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ITEM 6. EXHIBITS

Exhibit No. | Description | Method of Filing
3 |  | (a) | Restated Certificate of Incorporation of the Company, as amended (1) | Incorporated by Reference
3 |  | (b) | Amended and Restated By-Laws of the Company (2) | Incorporated by Reference
10 | (a) | Digi International Inc. 2021 Omnibus Incentive Plan, as amended and restated (3) | Incorporated by Reference
10 | (b) | Form of (Executive) Performance Stock Unit Award Agreement (for grants under Digi International Inc. 2021 Omnibus Incentive Plan) | Filed Electronically
31 |  | (a) | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | Filed Electronically
31 |  | (b) | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | Filed Electronically
32 |  |  | Section 1350 Certification | Filed Electronically
101 |  |  | The following materials from Digi International Inc.'s Quarterly Report on Form 10-Q for the fiscal period ended June 30, 2023, as filed with the Security and Exchange Commission, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Cash Flows; (v) Condensed Consolidated Statements of Stockholders' Equity; and (vi) the Notes to the Condensed Consolidated Financial Statements. | Filed Electronically
104 |  |  | The cover page from Digi International Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2023 is formatted in iXBRL (included in Exhibit 101). |

____________
* Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Digi agrees to furnish to the Commission a copy of any omitted schedule upon request.
** Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-Q.
(1)Incorporated by reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended September 30, 1993.
(2)Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on April 30, 2020.
(3)Incorporated by reference to Exhibit 99(a) to the Company's Registration Statement on Form S-8 filed on June 9, 2023.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | DIGI INTERNATIONAL INC. |
Date: | August 4, 2023 | By: | /s/ James J. Loch |
|  |  | James J. Loch |
|  |  | Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Authorized Officer) |

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