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Income Taxes
 12 Months Ended
Sep. 30, 2025
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
10. INCOME TAXES
The components of income before income taxes are (in thousands):
Year ended September 30,
202520242023
United States$47,517 $19,088 $21,149 
International2,400 3,770 3,769 
Income before income taxes$49,917 $22,858 $24,918 
10. INCOME TAXES (CONTINUED)
The components of the income tax expense are (in thousands):
Year ended September 30,
202520242023
Current:
Federal$12,263 $9,149 $9,894 
State2,318 1,995 1,955 
Foreign1,110 832 598 
Deferred:
Federal(5,563)(11,189)(12,131)
Foreign(1,015)(434)(168)
Income tax (benefit) expense$9,113 $353 $148 
Net deferred tax liability consists of (in thousands):
As of September 30,
20252024
Non-current deferred tax asset$5,131 $16,141 
Non-current deferred tax liability(164)(1,308)
Net deferred tax asset (liability)$4,967 $14,833 
Depreciation and amortization$(5,075)$(4,735)
Lease asset(1,927)(2,283)
Lease liability2,783 3,183 
Inventories5,737 6,614 
Compensation costs6,308 5,552 
Deferred Revenue10,863 7,595 
Other accruals5,839 5,805 
Tax credit carryforwards4,488 3,531 
Net operating loss carryforwards9,840 323 
Valuation allowance(3,217)(3,317)
Identifiable intangible assets(57,926)(25,533)
Research and development costs27,254 18,098 
Net deferred tax asset (liability)$4,967 $14,833 
As of September 30, 2025, we had $2.8 million of tax carryforwards (net of reserves) related to state research and development tax credits. We also had $38.7 million of US federal net operating losses, $37.3 million of State net operating losses, U.S. foreign tax credits of $0.1 million and foreign tax credits of $0.1 million. The increase in net operating losses is primarily from the acquisition of Jolt. Digi is currently analyzing the impacts of section 382 on the utilization of these net operating losses. The majority of our state research and development tax credits have a 15-year carryforward period. The majority of our non-U.S. net operating losses and tax credit carryforwards have an unlimited carryforward period. Our non-U.S. tax credit carryforwards will expire in 2034. Our valuation allowance for certain U.S. and foreign attributes was $3.2 million and $3.3 million at September 30, 2025 and September 30, 2024, respectively. The decrease in valuation allowance is primarily the result of reduction in reserves against R&D credits. The deferred tax assets realized could vary if there are differences in the timing or amount of future reversals of existing deferred tax liabilities or changes in the amounts of future taxable income. If future taxable income projections are not realized, an additional valuation allowance may be required. This would be reflected as income tax expense at the time that any such change in future taxable income is determined.
10. INCOME TAXES (CONTINUED)
The reconciliation of the statutory federal income tax amount to our income tax benefit is (in thousands):
Year ended September 30,
202520242023
Statutory income tax amount$10,494 $4,800 $5,233 
Increase (decrease) resulting from:
State taxes, net of federal benefits601 401 636 
Employee stock purchase plan141 159 165 
Foreign operations1,412 1,751 984 
Non-deductible executive compensation734 519 373 
Utilization of research and development tax credits(4,000)(5,224)(4,678)
ASU 2016-09 excess stock compensation(673)(47)(1,678)
Changes from provision to return1,123 (791)181 
Adjustment of tax contingency reserves465 491 238 
U.S. deduction for foreign export sales(1,724)(1,827)(1,419)
Other, net540 121 113 
Income tax (benefit) expense$9,113 $353 $148 
A reconciliation of the beginning and ending amount of unrecognized tax benefits is (in thousands):
Year ended September 30,
202520242023
Unrecognized tax benefits at beginning of fiscal year$3,602 $3,162 $3,316 
Increases related to:
Prior year income tax positions579 71 100 
Current year income tax positions726 768 858 
Decreases related to:
Prior year income tax positions(92)— (159)
Expiration of statute of limitations(503)(399)(953)
Unrecognized tax benefits at end of fiscal year$4,312 $3,602 $3,162 
The total amount of unrecognized tax benefits ("UTB") at September 30, 2025 that, if recognized, would affect our effective tax rate was $4.1 million. We expect that it is reasonably possible that the total amounts of UTB will decrease by approximately $0.1 million over the next 12 months due to the expiration of various statutes of limitations. Of the $4.3 million of UTB, $3.0 million is included in non-current income taxes payable and $1.3 million is included with non-current deferred tax assets on the consolidated balance sheets at September 30, 2025.
We recognize interest and penalties related to income tax matters in income tax expense. During fiscal 2025 and 2024, there were insignificant amounts of interest and penalties related to income tax matters in income tax expense. We accrued $0.1 million in interest and penalties related to unrecognized tax benefits as of September 30, 2025 and 2024. These accrued interest and penalties are included in our non-current income taxes payable on our consolidated balance sheets.
10. INCOME TAXES (CONTINUED)
We operate in multiple tax jurisdictions both in the U.S. and outside of the U.S. and face audits from various tax authorities regarding transfer pricing, tax credits, and other matters. Accordingly we must determine the appropriate allocation of income to each of these jurisdictions. This determination requires us to make several estimates and assumptions. Tax audits associated with the allocation of this income, and other complex issues, may require an extended period of time to resolve and may result in adjustments to our income tax balances in those years that are material to our consolidated balance sheets and results of operations.
We file a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to state and local or non-U.S. income tax examinations by tax authorities for years before fiscal year 2021.
On July 4, 2025, the One Big Beautiful Bill Act was signed into law in the U.S., which contains a broad range of tax reform provisions affecting businesses. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. This legislation had no material impact to our consolidated financial statements for the fiscal year ended September 30, 2025.
At September 30, 2025, the majority of undistributed foreign earnings were taxed under the one time transition tax and the global intangible low-taxed income ("GILTI") provision of the Tax Cuts and Jobs Act of 2017. Additionally, the previously un-taxed accumulated undistributed foreign earnings from prior fiscal years are still permanently reinvested and, as such, we have not accrued additional U.S. tax. It is our position that the earnings of our foreign subsidiaries are to be reinvested indefinitely to fund current operations and provide for future international expansion opportunities and only repatriate earnings to the extent that U.S. taxes have already been recorded. As of September 30, 2025, we are permanently reinvested with respect to previously non-taxed accumulated earnings in all jurisdictions.
Although we have no current need to repatriate historical foreign earnings that have not been taxed in the U.S., if we change our assertion from indefinitely reinvesting undistributed foreign earnings, we would have to accrue applicable taxes. The amount of any taxes and the application of any tax credits would be determined based on the income tax laws at the time of such repatriation. Under current tax law, we estimate the unrecognized tax liability to be immaterial.