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Stock-Based Compensation
 12 Months Ended
Sep. 30, 2024
Share-Based Payment Arrangement [Abstract]  
Stock-Based Compensation
11. STOCK-BASED COMPENSATION
Stock-based awards granted in 2024 were granted under the Digi International Inc. 2021 Omnibus Incentive Plan (as amended and restated, the "2021 Plan"). 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.
The 2021 Plan authorizes the issuance of up to 3,500,000 common shares in connection with awards of stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based full value awards or other stock-based awards. Eligible participants include our employees, our affiliates, non-employee directors of our Company and any consultant or advisor who is a natural person and provides services to us or our affiliates. Options that have been granted under the 2021 Plan typically vest over a four-year period and will expire if unexercised after seven years from the date of grant. Restricted stock unit awards ("RSUs") that have been granted to directors typically vest in one year. RSUs that have been granted to executives and employees typically vest in January over a four-year period. Performance stock unit awards ("PSUs") that have been granted to an executive will vest based on achievement of a cumulative adjusted earnings per share metric measured over a three-year period. Share-based compensation expenses recorded for this performance award is reevaluated at each reporting period based on the probability of achievement of the goal. The Amended Plan is scheduled to expire on January 28, 2032. Options under the Amended Plan can be granted as either incentive stock options or non-statutory stock options. The exercise price of options and the grant date price of RSUs and PSUs is determined by our Compensation Committee but will not be less than the fair market value of our common stock based on the closing price as of the date of grant. Upon exercise of options or settlement of vested RSUs or PSUs, we issue new shares of stock. As of September 30, 2024, there were approximately 1,953,397 shares available for future grants under the Amended Plan.
Stock-based awards granted in 2022 were granted under the 2021 Plan before amendments were made to increase the number of authorized shares. There were no other material changes to the plan made in the amendments.
Cash received from the exercise of stock options was $3.0 million, $3.9 million and $9.5 million for the year ended September 30, 2024, 2023 and 2022, respectively. Our stock option plans allow the net exercise of options. Shares with a value of $0.7 million, $0.2 million and $4.3 million were forfeited to satisfy tax withholding for the year ended September 30, 2024, 2023 and 2022, respectively.
11. STOCK-BASED COMPENSATION (CONTINUED)
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, having us retain a portion of shares issuable under the award or paying cash to us for the withholding. During fiscal 2024, 2023 and 2022 our employees forfeited 114,889, 106,012 and 102,392 shares, respectively in order to satisfy $2.9 million, $4.1 million and $2.4 million, respectively, of withholding tax obligations related to stock-based compensation, pursuant to terms of awards under our board and shareholder-approved compensation plans.
We sponsor an Employee Stock Purchase Plan, as amended and restated as of December 10, 2019 (the "Purchase Plan"), covering all domestic employees with at least 90 days of continuous service and who are customarily employed at least 20 hours per week. The Purchase Plan 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 Purchase Plan, ratified by our stockholders on January 29, 2020, increased the total number of shares to 3,425,000 that may be purchased under the plan. Employee contributions to the Purchase Plan were $2.2 million, $2.3 million and $1.5 million in fiscal 2024, 2023 and 2022, respectively. Pursuant to the Purchase Plan, 101,730, 82,621, and 80,225 shares of common stock were issued to employees during fiscal 2024, 2023 and 2022, respectively. Shares are issued under the Purchase Plan from treasury stock. As of September 30, 2024, 368,497 shares of common stock were available for future issuances under the Purchase Plan.
Stock-based compensation expense is included in the consolidated results of operations as (in thousands):
Year ended September 30,
202420232022
Cost of sales$698 $628 $466 
Sales and marketing4,617 4,107 2,503 
Research and development1,931 1,777 1,236 
General and administrative5,913 6,774 4,373 
Stock-based compensation before income taxes13,159 13,286 8,578 
Income tax benefit(2,783)(2,840)(1,819)
Stock-based compensation after income taxes$10,376 $10,446 $6,759 
Stock Options
Below is a summary of our stock options as of September 30, 2024 and changes during the twelve months then ended (in thousands, except per common share amounts):
Options OutstandingWeighted Average Exercise PriceWeighted Average Contractual Term (in years)Aggregate Intrinsic Value (1)
Balance on September 30, 20231,553 $18.52
Granted87 24.60
Exercised(199)28.04
Forfeited / Canceled(59)25.13
Balance on September 30, 20241,382 $19.013.07$12,414 
Exercisable on September 30, 20241,101 $17.602.65$11,321 
(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $27.53 as of September 30, 2024, which would have been received by the option holders had all option holders exercised their options as of that date.
The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. The total intrinsic value of all options exercised during each of the twelve months ended September 30, 2024, 2023 and 2022 was $5.6 million, $5.2 million and $20.3 million, respectively.
11. STOCK-BASED COMPENSATION (CONTINUED)
The table below 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:
Year ended September 30,
202420232022
Weighted average per option grant date fair value$12.45 $19.87 $10.37 
Assumptions used for option grants:
Risk free interest rate
3.78% - 4.68%
3.50% - 4.15%
1.25% - 3.00%
Expected term6.00 years6.00 years6.00 years
Expected volatility
46% - 48%
46%
45% - 46%
Weighted average volatility46%46%46%
Expected dividend yield0%0%0%
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 September 30, 2024, the total unrecognized compensation cost related to non-vested stock-based compensation arrangements was $2.8 million. The related weighted average period over which this cost is expected to be recognized was approximately 1.5 years.
As of September 30, 2024, the weighted average exercise price and remaining life of the stock options were (in thousands, except remaining life and exercise price):
Options OutstandingOptions Exercisable
Range of Exercise PricesOptions OutstandingWeighted Average Remaining Contractual Life (In Years)Weighted Average Exercise PriceNumber of Shares VestedWeighted Average Exercise Price
$10.33 - $11.87
224 1.25$11.64 224 $11.64 
$12.48 - $16.75
268 2.61$15.41 261 $15.37 
$17.10 - $17.53
134 2.68$17.22 127 $17.22 
$17.94 - $17.94
211 2.16$17.94 211 $17.94 
$18.20 - $21.53
205 4.21$21.00 128 $21.08 
$22.54 - $24.59
221 4.87$23.87 95 $23.47 
$25.15 - $41.16
96 4.65$35.51 55 $33.57 
$10.33 - $41.16
1,359 3.08$19.00 1,101 $17.60 
The total grant date fair value of shares vested was $3.0 million, $4.5 million and $3.0 million in each of fiscal 2024, 2023 and 2022, respectively.
11. STOCK-BASED COMPENSATION (CONTINUED)
Non-vested Stock Units
The following table presents a summary of our non-vested restricted stock units as of September 30, 2024 and changes during the twelve months then ended (in thousands, except per common share amounts):
RSUsPSUs
Number of AwardsWeighted Average Grant Date Fair ValueNumber of AwardsWeighted Average Grant Date Fair Value
Nonvested on September 30, 2023846 $30.56 135 $37.72 
Granted373 $25.17 141 $24.93 
Vested(287)$25.23 (30)$37.11 
Canceled(86)$28.81 (26)$29.61 
Nonvested on September 30, 2024846 $30.15 220 $30.55 
As of September 30, 2024, the total unrecognized compensation cost related to non-vested restricted stock units and performance stock units was $17.7 million and $1.8 million, respectively. The related weighted average period over which these costs are expected to be recognized was approximately 1.9 years and 0.2 years, respectively.