10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: March 31, 2016

OR

o 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: 1-34033

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)

11001 Bren Road East
Minnetonka, Minnesota	55343
(Address of principal executive offices)	(Zip Code)

(952) 912-3444

(Registrant’s telephone number, including area code)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.) Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

On April 27, 2016, there were 25,872,329 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 for the three and six months ended March 31, 2016 and 2015	1
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended March 31, 2016 and 2015	2
Condensed Consolidated Balance Sheets as of March 31, 2016 and September 30, 2015	3
Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2016 and 2015	4
Notes to Condensed Consolidated Financial Statements	5
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	32
ITEM 4. Controls and Procedures	33
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings	33
ITEM 1A. Risk Factors	33
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	33
ITEM 3. Defaults Upon Senior Securities	33
ITEM 4. Mine Safety Disclosures	34
ITEM 5. Other Information	34
ITEM 6. Exhibits	35

i

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DIGI INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three months ended March 31,						Six months ended March 31,
	2016			2015			2016			2015
	(in thousands, except per share data)
Revenue:
Hardware product	$	48,732		$	48,108		$	96,979		$	93,041
Service	1,430			2,293			3,442			4,578
Total revenue	50,162			50,401			100,421			97,619
Cost of sales:
Cost of hardware product	24,283			25,498			48,993			48,610
Cost of service	1,137			1,668			2,329			3,217
Total cost of sales	25,420			27,166			51,322			51,827
Gross profit	24,742			23,235			49,099			45,792
Operating expenses:
Sales and marketing	8,165			9,875			16,683			20,110
Research and development	7,757			7,280			15,595			14,363
General and administrative	5,065			4,349			9,126			9,124
Restructuring charge	102			412			753			412
Total operating expenses	21,089			21,916			42,157			44,009
Operating income	3,653			1,319			6,942			1,783
Other (expense) income, net:
Interest income, net	12			54			112			92
Other (expense) income, net	(284		)	1,324			(161		)	1,712
Total other (expense) income, net	(272		)	1,378			(49		)	1,804
Income from continuing operations, before income taxes	3,381			2,697			6,893			3,587
Income tax provision	1,155			1,035			1,536			907
Income from continuing operations	2,226			1,662			5,357			2,680
(Loss) income from discontinued operations, after income taxes	(89		)	(216		)	3,230			(1,573		)
Net income	$	2,137		$	1,446		$	8,587		$	1,107
Basic net income (loss) per common share:
Continuing operations	0.09			0.07			$	0.21		$	0.11
Discontinued operations	—			(0.01		)	$	0.13		$	(0.06	)
Total (1)	$	0.08		$	0.06		$	0.34		$	0.05
Diluted net income (loss) per common share:
Continuing operations	0.09			0.07			$	0.21		$	0.11
Discontinued operations	—			(0.01		)	$	0.12		$	(0.06	)
Total (1)	$	0.08		$	0.06		$	0.33		$	0.04
Weighted average common shares:
Basic	25,820			24,492			25,574			24,319
Diluted	25,998			25,273			26,116			24,816

(1) Earnings per share presented are calculated by line item and may not add due to the use of rounded amounts.

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

1

DIGI INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Three months ended March 31,						Six months ended March 31,
	2016			2015			2016			2015
	(in thousands)
Net income	$	2,137		$	1,446		$	8,587		$	1,107
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	1,421			(3,356		)	(446		)	(5,729		)
Change in net unrealized gain (loss) on investments	106			23			43			(6		)
Less income tax (provision) benefit	(39		)	(9		)	(16		)	2
Reclassification of realized loss (gain) on investments included in net income (1)	—			1			(7		)	1
Less income tax benefit (2)	—			—			3			—
Other comprehensive income (loss), net of tax	1,488			(3,341		)	(423		)	(5,732		)
Comprehensive income (loss)	$	3,625		$	(1,895	)	$	8,164		$	(4,625	)

(1) Recorded in Other income, net on our Condensed Consolidated Statements of Operations.

(2) Recorded in Income tax provision in our Condensed Consolidated Statements of Operations.

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

2

DIGI INTERNATIONAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31, 2016			September 30, 2015
	(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	67,270		$	45,018
Marketable securities	48,114			47,191
Accounts receivable, net	28,569			27,788
Inventories	25,684			31,877
Deferred tax assets	—			3,252
Receivable from sale of business	2,967			—
Other	4,326			3,435
Current assets of discontinued operations	—			1,624
Total current assets	176,930			160,185
Marketable securities, long-term	7,292			13,626
Property, equipment and improvements, net	13,986			14,339
Identifiable intangible assets, net	4,795			2,648
Goodwill	110,707			100,183
Deferred tax assets	7,685			6,255
Receivable from sale of business	1,939			—
Other	215			250
Non-current assets of discontinued operations	—			2,874
Total assets	$	323,549		$	300,360
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,280		$	6,673
Income taxes payable	236			828
Accrued compensation	6,993			10,156
Accrued warranty	944			1,014
Contingent consideration on acquired business	850			—
Other	4,376			3,037
Current liabilities of discontinued operations	—			1,481
Total current liabilities	20,679			23,189
Income taxes payable	1,366			1,546
Deferred tax liabilities	690			135
Contingent consideration on acquired business	9,672			—
Other non-current liabilities	736			457
Non-current liabilities of discontinued operations	—			95
Total liabilities	33,143			25,422
Contingencies (see Note 11)
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; 32,346,667 and 31,534,198 shares issued	323			315
Additional paid-in capital	234,699			227,367
Retained earnings	132,991			124,404
Accumulated other comprehensive loss	(23,036		)	(22,613		)
Treasury stock, at cost, 6,474,338 and 6,487,248 shares	(54,571		)	(54,535		)
Total stockholders’ equity	290,406			274,938
Total liabilities and stockholders’ equity	$	323,549		$	300,360

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

3

DIGI INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six months ended March 31,
	2016			2015
	(in thousands)
Operating activities:
Net income	$	8,587		$	1,107
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, equipment and improvements	1,405			1,445
Amortization of identifiable intangible assets	1,001			1,537
Stock-based compensation	1,719			2,222
Excess tax benefits from stock-based compensation	(202		)	—
Deferred income tax provision	1,397			2,212
Gain in insurance settlement related to property and equipment	—			(989		)
Gain on sale of business	(2,870		)	—
Bad debt/product return provision	168			518
Inventory obsolescence	834			476
Restructuring charge	753			518
Other	182			(27		)
Changes in operating assets and liabilities	(1,486		)	(7,459		)
Net cash provided by operating activities	11,488			1,560
Investing activities:
Purchase of marketable securities	(22,056		)	(22,099		)
Proceeds from maturities of marketable securities	27,509			19,763
Proceeds from sale of business	2,849			—
Acquisition of business, net of cash acquired	(2,860		)	—
Proceeds from insurance settlement related to property and equipment	—			1,014
Proceeds from sale of property and equipment	—			45
Purchase of property, equipment, improvements and certain other intangible assets	(1,209		)	(3,035		)
Net cash provided by (used in) investing activities	4,233			(4,312		)
Financing activities:
Excess tax benefits from stock-based compensation	202			—
Proceeds from stock option plan transactions	6,267			6,006
Proceeds from employee stock purchase plan transactions	494			505
Purchases of common stock	(503		)	(2,339		)
Net cash provided by financing activities	6,460			4,172
Effect of exchange rate changes on cash and cash equivalents	71			(3,253		)
Net increase (decrease) in cash and cash equivalents	22,252			(1,833		)
Cash and cash equivalents, beginning of period	45,018			47,490
Cash and cash equivalents, end of period	$	67,270		$	45,657
Supplemental schedule of non-cash investing and financing activities:
Receivable related to sale of business	$	4,906		$	—
Liability related to acquisition of business	$	(10,550	)	$	—

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

4

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 interim unaudited condensed consolidated financial statements included in this Form 10-Q have been prepared by Digi International Inc. (the “Company,” “Digi,” “we,” “our,” or “us”) pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto, including (but not limited to) the summary of significant accounting policies, presented in our Annual Report on Form 10-K for the year ended September 30, 2015 as filed with the SEC (“2015 Financial Statements”).

On October 23, 2015, we sold all of the outstanding stock of our wholly owned subsidiary, Etherios Inc. (Etherios) to West Monroe Partners, LLC. Because the sale of Etherios represented a strategic shift that will have a major effect on our operations and financial results, we have classified our Etherios business as discontinued operations and have therefore segregated its operating results from continuing operations in our Condensed Consolidated Statements of Operations for all periods presented. We have also segregated the assets and liabilities of Etherios on our Condensed Consolidated Balance Sheet for September 30, 2015.

During the first fiscal quarter ending December 31, 2015, we adopted Accounting Standards Update (“ASU”) 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” on a prospective basis. As required by ASU 2015-17, all deferred tax assets and liabilities are classified on a jurisdictional basis as non-current in our condensed consolidated balance sheets, which is a change from our historical presentation whereby certain of our deferred tax assets and liabilities were classified as current and the remainder were classified as non-current. Our prior periods were not retrospectively adjusted.

The condensed consolidated financial statements presented herein reflect, in the opinion of management, all adjustments which consist only of normal, recurring adjustments necessary for a fair statement of the condensed consolidated balance sheets and condensed consolidated statements of operations, comprehensive income (loss) and cash flows for the periods presented. The condensed consolidated results of operations for any interim period are not necessarily indicative of results for the full year. The year-end condensed consolidated balance sheet data were derived from our 2015 Financial Statements, but do not include all disclosures required by U.S. GAAP.

Contingent Consideration

We measure our contingent consideration liabilities recognized in connection with business combinations at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy as defined in ASC 320 “Investments - Debt and Equity Securities”. We used a probability-weighted discounted cash flow approach as a valuation technique to determine the fair value of the contingent consideration on the acquisition date. At each subsequent reporting period, the fair value is remeasured with the change in fair value recognized in general and administrative expense and interest expense in our Condensed Consolidated Statements of Operations. Amounts, if any, paid to the seller in excess of the amount recorded on the acquisition date will be classified as cash flows used in operating activities. Payments to the seller not exceeding the acquisition-date fair value of the contingent consideration will be classified as cash flows used in financing activities.

Recently Issued Accounting Pronouncements

Not Yet Adopted

In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”. This update includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016, which for us is the first fiscal quarter ending December 31, 2017. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements.

5

1. BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In March 2016, FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606)”. This update clarifies implementation guidance on principal-versus-agent considerations, including how an entity determines whether it is a principal or an agent for each specified good or service promised to the customer and how an entity determines the nature of each specified good or service. In addition, ASU 2016-08 updates the indicators in ASC 606-10-55-39 and revises the existing examples in ASC 606 to better illustrate the application of the principal-versus-agent guidance. This ASU is effective at the same time as those in ASU 2014-09 (as amended by ASU 2015-14), which for us is for our fiscal 2019, including interim periods within that reporting period. We are currently assessing the potential impact of adopting this ASU on our consolidated financial statements and related disclosures.

In February, 2016, FASB issued ASU 2016-02, “Leases (Topic 842)”, which amends the existing guidance to require lessees to recognize lease assets and lease liabilities from operating leases on the balance sheet. This ASU is effective using the modified retrospective approach for annual periods and interim periods within those annual periods beginning after December 15, 2018, which for us is the first fiscal quarter ending December 31, 2019. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In January 2016, FASB issued ASU 2016-01, “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 will require equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. The amendments in this update will also simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet and require these entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes. This ASU would also change the presentation and disclosure requirements for financial instruments. In addition, this ASU clarifies the guidance related to valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, which for us is the first fiscal quarter ending December 31, 2018. Early adoption is permitted for financial statements of fiscal years and interim periods that have not been issued. We are currently evaluating the impact of the adoption of ASU 2016-01.

In July 2015, FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory." This provision would require inventory that was previously recorded using first-in, first-out (FIFO) to be recorded at lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years, which for us will be the first fiscal quarter ending December 31, 2017. The amendments in this guidance should be applied prospectively with earlier application permitted as of the beginning of an interim or annual period. We are currently evaluating the impact of the adoption of ASU 2015-11 and whether it would have a material impact on our consolidated financial statements.

In April 2015, FASB issued ASU 2015-05, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The new standard provides guidance to customers about whether a cloud computing arrangement includes a software license. If the arrangement does include a software license, the software license element of the arrangement should be accounted for in the same manner as the acquisition of other software licenses. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, with early adoption permitted. We expect to adopt this guidance beginning with our fiscal quarter ending December 31, 2016. We do not expect this guidance to have a material impact on our consolidated financial statements.

In August 2014, FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern.” This guidance requires management to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. These amendments are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter, which for us, will be our annual period ended September 30, 2017. Early adoption is permitted. While we are evaluating the impact of the adoption of ASU 2014-15, we do not expect it to have an impact on our consolidated financial statements.

In May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This guidance provides a five-step analysis in determining when and how revenue is recognized so that an entity will recognize revenue when it transfers promised

6

1. BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

goods or services to customers in an amount that reflects what it expects in exchange for the goods and services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14 "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date" which approved a one-year deferral of the effective date of ASU 2014-09. As a result of this deferral, ASU 2014-09 is effective for our fiscal 2019, including interim periods within that reporting period. The FASB also agreed to allow us to choose to adopt the standard effective for our fiscal 2018. We will adopt the guidance beginning October 1, 2018 and are currently assessing the potential impact of adopting this ASU on our consolidated financial statements and related disclosures.

2. ACQUISITION

Acquisition of Bluenica Corporation

On October 5, 2015 we purchased all of the outstanding stock of Bluenica Corporation (“Bluenica”), a company focused on temperature monitoring of perishable goods in the food industry by using wireless sensors which are installed in grocery and convenience stores, restaurants, and in products during shipment and storage to ensure that quality, freshness and public health requirements are met.  This acquisition forms the basis for our Digi Cold Chain Solutions.

The terms of the acquisition included an upfront cash payment together with earn-out payments.  Cash of $2.9 million was paid at time of closing.  The earn-out payments are scheduled to be paid in installments over a four-year period based on revenue achievement of the acquired business. Each of the earn-out payments will be calculated based on the revenue performance of Digi Cold Chain solutions for each respective earn-out period. The cumulative amount of these earn-out payments will not exceed $11.6 million.  An additional payment, not to exceed $3.5 million, may also be due depending on revenue performance. The fair value of this contingent consideration was $10.4 million at the date of acquisition (see Note 7 to the Condensed Consolidated Financial Statements). We have determined that the earn-out will be considered as part of the purchase price consideration as there are no continuing employment requirements associated with the earn-out. Costs directly related to the acquisition, including legal, accounting and valuation fees, of approximately of $0.1 million have been charged directly to operations and are included in general and administrative expense in our Condensed Consolidated Statements of Operations in fiscal 2016.

The purchase price was allocated to the estimated fair value of assets acquired and liabilities assumed. The purchase price allocation resulted in the recognition of $11.0 million of goodwill. We believe that the acquisition resulted in the recognition of goodwill because this is a complementary acquisition for us and will provide a source of recurring revenue in a new vertically focused solutions business.

Bluenica’s operating results are included in our Condensed Consolidated Statements of Operations from October 6, 2015. The Condensed Consolidated Balance Sheet as of March 31, 2016 reflects the allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition.

The Bluenica acquisition has been accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed pursuant to the stock purchase agreement be recognized at fair value as of the acquisition date. Certain estimated values are not yet finalized (see below) and are subject to change, which could be significant. We will finalize the amounts recognized as information necessary to complete the analysis is obtained. We expect to finalize these amounts not later than the end of our third quarter of fiscal 2016. The amounts for deferred tax assets and liabilities, pending the finalization of final tax returns remain subject to change.

7

2. ACQUISITION (CONTINUED)

The following table summarizes the values of Bluenica assets acquired and liabilities assumed as of the acquisition date. To the extent previously discussed, such amounts are considered preliminary (in thousands):

Cash	$	2,888
Purchase price payable upon completion of diligence matters	115
Fair value of contingent consideration on acquired business	10,400
Total purchase price consideration	$	13,403
Fair value of net tangible assets acquired	$	129
Fair value of identifiable intangible assets acquired:
Purchased and core technology	2,000
Customer relationships	900
Goodwill	11,020
Deferred tax liabilities, net	(646		)
Total	$	13,403

The weighted average useful life for all the identifiable intangibles listed above is 5.6 years. For purposes of determining fair value, the purchased and core technology identified above is assumed to have a useful life of five years and the customer relationships are assumed to have useful live of seven years. Useful lives for identifiable intangible assets are estimated at the time of acquisition based on the periods of time from which we expect to derive benefits from the identifiable intangible assets.

We have determined that because the Bluenica acquisition is not material to our consolidated results of operations or financial position, pro forma financial information is not required to be presented.

3. DISCONTINUED OPERATIONS

On October 23, 2015, we sold all the outstanding stock of our wholly owned subsidiary, Etherios, Inc. (“Etherios”) to West Monroe Partners, LLC. We sold Etherios as part of a strategy to focus on providing highly reliable machine connectivity solutions for business-critical and mission-critical application environments. Etherios was included in our single operating segment.

Below is a summary of the gain on sale (in thousands):

Cash received	$	4,096
Less:
Employee related liabilities	(1,134		)
Working capital adjustment	(113		)
Net cash proceeds	2,849
Present value of receivable due on October 23, 2016	2,941
Present value of receivable due on October 23, 2017	1,922
Total fair value of consideration received	7,712
Less:
Net assets of Etherios	(3,383		)
Facility abandonment costs	(725		)
Transaction costs, primarily professional fees	(734		)
Gain on sale of discontinued operations, before income taxes	$	2,870

The terms of the sale agreement provide that West Monroe Partners LLC will pay us $3.0 million on October 23, 2016 and $2.0 million on October 23, 2017. The present value of these amounts is included within the total fair value of consideration received. These receivable amounts are unsecured and non-interest bearing. The carrying value of these receivables presented

8

3. DISCONTINUED OPERATIONS (CONTINUED)

on our Condensed Consolidated Balance Sheet at March 31, 2016 equals their fair values, which were determined using level 3 cash flow fair value measurement techniques.

Goodwill has been included in in the net assets of Etherios based on the relative fair value of Etherios compared to the fair value of the Company.

As a condition to the sale agreement, we retained the operating leases in the Dallas and Chicago locations. Digi is no longer using these facilities and has sublet the Dallas location to West Monroe Partners, LLC through April 30, 2016. In the second quarter of fiscal 2016, the sublease was extended through December 31, 2017. This sublease extension decreased the facility abandonment costs by $0.1 million in the above calculation of the gain on sale of discontinued operations. Also in connection with the sale, we assigned our San Francisco lease to West Monroe Partners, LLC. A remaining potential obligation exists in the event of a default under the assigned lease, however, we believe the likelihood of a liability related to this lease is remote. As of March 31, 2016, the future minimum lease payments for the San Francisco lease are approximately $0.1 million.

(Loss) income from discontinued operations, after tax, as presented in the Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2016 and 2015 is as follows (in thousands):

	Three months ended March 31,						Six months ended March 31,
	2016			2015			2016			2015
Service revenue	$	—		$	2,750		$	891		$	4,255
Cost of service	—			1,907			713			4,047
Gross profit	—			843			178			208
Operating expenses:
Sales and marketing	—			424			148			981
Research and development	—			499			103			978
General and administrative	—			191			43			604
Restructuring	—			106			—			106
Total operating expenses	—			1,220			294			2,669
Loss from discontinued operations, before income taxes	—			(377		)	(116		)	(2,461		)
(Loss) gain on sale of discontinued operations, before income taxes	(42		)	—			2,870			—
Total (loss) income from discontinued operations, before income taxes	(42		)	(377		)	2,754			(2,461		)
Income tax expense (benefit) on discontinued operations	47			(161		)	(476		)	(888		)
(Loss) income from discontinued operations, after income taxes	$	(89	)	$	(216	)	$	3,230		$	(1,573	)

Income tax benefit on discontinued operations for the six months ended March 31, 2016 was $0.5 million and primarily represents income tax benefits for deductible transaction costs, partially offset by a tax expense for equity awards for which we will not receive a tax deduction. For tax purposes, we expect that this transaction will result in a capital loss, as the tax basis of the Etherios stock was higher than the book basis of the assets that were sold. Since we do not expect to be able to utilize this capital loss in the five year carryforward period, a deferred tax asset offset by a full valuation allowance is expected to be recorded upon completion of the capital loss calculation.

9

3. DISCONTINUED OPERATIONS (CONTINUED)

At September 30, 2015, the carrying amounts of major classes of assets and liabilities of discontinued operations included in the Consolidated Balance Sheet was as follows (in thousands):

	September 30, 2015
Current assets:
Accounts receivable, net	$	1,417
Deferred tax assets	127
Other current assets	80
Total current assets	1,624
Property, equipment and improvements, net	18
Identifiable intangible assets, net	1,531
Goodwill	1,914
Deferred tax assets (1)	(589		)
Total assets of discontinued operations	$	4,498
Current liabilities:
Accounts payable	$	50
Accrued compensation	1,346
Other current liabilities	85
Total current liabilities	1,481
Other non-current liabilities	95
Total liabilities of discontinued operations	$	1,576

(1) As of September 30, 2015, the we had a net deferred income tax asset related to the United States federal jurisdiction. That net deferred income tax asset position included a deferred income tax liability of $589 thousand related to Etherios which was entirely in the United States federal tax jurisdiction.

The following table presents amortization, depreciation and purchases of property, equipment, improvements and certain other intangible assets of the discontinued operations related to Etherios (in thousands):

	Six months ended March 31,
	2016		2015
Amortization of identifiable intangible assets	$	30	$	241
Depreciation of property, equipment and improvements	$	—	$	14
Purchases of property, equipment, improvements and certain other intangible assets	$	—	$	(11	)

4. EARNINGS PER SHARE

Basic net income per common share is calculated based on the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares result from dilutive common stock options and restricted stock units.

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4. EARNINGS PER SHARE (CONTINUED)

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

	Three months ended March 31,						Six months ended March 31,
	2016			2015			2016		2015
Numerator:
Income from continuing operations	$	2,226		$	1,662		$	5,357	$	2,680
(Loss) income from discontinued operations, after income taxes	(89		)	(216		)	3,230		(1,573		)
Net income	$	2,137		$	1,446		$	8,587	$	1,107
Denominator:
Denominator for basic net income (loss) per common share — weighted average shares outstanding	25,820			24,492			25,574		24,319
Effect of dilutive securities:
Stock options and restricted stock units	178			781			542		497
Denominator for diluted net income (loss) per common share — adjusted weighted average shares	25,998			25,273			26,116		24,816
Basic net income (loss) per common share:
Continuing operations	$	0.09		$	0.07		$	0.21	$	0.11
Discontinued operations	$	—		$	(0.01	)	$	0.13	$	(0.06	)
Net income (1)	$	0.08		$	0.06		$	0.34	$	0.05
Diluted net income (loss) per common share:
Continuing operations	$	0.09		$	0.07		$	0.21	$	0.11
Discontinued operations	$	—		$	(0.01	)	$	0.12	$	(0.06	)
Net income (1)	$	0.08		$	0.06		$	0.33	$	0.04

(1) Earnings per share presented are calculated by line item and may not add due to the use of rounded amounts.

For the three months ended March 31, 2016 and 2015, there were 2,735,177 and 2,366,812 potentially dilutive shares, respectively, and for the six months ended March 31, 2016 and 2015, there were 1,495,104 and 3,496,463 potentially dilutive shares, respectively, related to stock options to purchase common shares that were not included in the above computation of diluted earnings per common share. This is because the options’ exercise prices were greater than the average market price of our common shares.

5. SELECTED BALANCE SHEET DATA

The following table shows selected balance sheet data (in thousands):

	March 31, 2016		September 30, 2015
Accounts receivable, net:
Accounts receivable	$	28,932	$	28,073
Less allowance for doubtful accounts	363		285
Accounts receivable, net	$	28,569	$	27,788
Inventories:
Raw materials	$	21,195	$	26,037
Work in process	519		598
Finished goods	3,970		5,242
Inventories	$	25,684	$	31,877

Inventories are stated at the lower of cost or market value, with cost determined using the first-in, first-out method.

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6. MARKETABLE SECURITIES

Our marketable securities consist of certificates of deposit, commercial paper, corporate bonds and government municipal bonds. We analyze our available-for-sale marketable securities for impairment on an ongoing basis. When we perform this analysis, we consider factors such as the length of time and extent to which the securities have been in an unrealized loss position and the trend of any unrealized losses. We also consider whether an unrealized loss is a temporary loss or an other-than-temporary loss based on factors such as: (a) whether we have the intent to sell the security, (b) whether it is more likely than not that we will be required to sell the security before its anticipated recovery, or (c) permanent impairment due to bankruptcy or insolvency.

In order to estimate the fair value for each security in our investment portfolio, we obtain quoted market prices and trading activity for each security where available. We obtain relevant information from our investment advisor and, if warranted, also may review the financial solvency of certain security issuers. As of March 31, 2016, 21 of our 59 securities that we held were trading below our amortized cost basis. We determined each decline in value to be temporary based upon the above described factors. We expect to realize the fair value of these securities, plus accrued interest, either at the time of maturity or when the security is sold. All of our current holdings are classified as available-for-sale marketable securities and are recorded at fair value on our consolidated balance sheet with the unrealized gains and losses recorded in accumulated other comprehensive income (loss). All of our current marketable securities will mature in less than one year and our non-current marketable securities will mature in less than three years. Our balance sheet classification of available for sale securities is based on our best estimate of when we expect to liquidate such investments and, presently, is consistent with the stated maturity dates of such investments. However, we are not committed to holding these investments until their maturity and may determine to liquidate some or all of these investments earlier based on our liquidity and other needs. During the six months ended March 31, 2016 and 2015, we received proceeds from our available-for-sale marketable securities of $27.5 million and $19.8 million, respectively.

At March 31, 2016 our marketable securities were (in thousands):

	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair Value (1)
Current marketable securities:
Corporate bonds	$	25,033	$	—	$	(31	)	$	25,002
Commercial paper	17,974		—		(14		)	17,960
Certificates of deposit	2,002		2		—			2,004
Government municipal bonds	3,153		—		(5		)	3,148
Current marketable securities	48,162		2		(50		)	48,114
Non-current marketable securities:
Certificates of deposit	7,260		32		—			7,292
Total marketable securities	$	55,422	$	34	$	(50	)	$	55,406

(1) Included in amortized cost and fair value is purchased and accrued interest of $209.

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6. MARKETABLE SECURITIES (CONTINUED)

At September 30, 2015 our marketable securities were (in thousands):

	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair Value (1)
Current marketable securities:
Corporate bonds	$	31,753	$	—	$	(39	)	$	31,714
Commercial paper	7,986		—		(1		)	7,985
Certificates of deposit	6,253		8		—			6,261
Government municipal bonds	1,232		—		(1		)	1,231
Current marketable securities	47,224		8		(41		)	47,191
Non-current marketable securities:
Corporate bonds	4,138		—		(12		)	4,126
Certificates of deposit	7,511		2		(6		)	7,507
Government municipal bonds	1,996		—		(3		)	1,993
Non-current marketable securities	13,645		2		(21		)	13,626
Total marketable securities	$	60,869	$	10	$	(62	)	$	60,817

(1) Included in amortized cost and fair value is purchased and accrued interest of $252.

The following tables show the fair values and gross unrealized losses of our available-for-sale marketable securities that have been in a continuous unrealized loss position deemed to be temporary, aggregated by investment category (in thousands):

	March 31, 2016
	Less than 12 Months					More than 12 Months
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate bonds	$	19,843	$	(30	)	$	3,002	$	(1	)
Commercial paper	17,960		(14		)	—		—
Government municipal bonds	3,084		(5		)	—		—
Total	$	40,887	$	(49	)	$	3,002	$	(1	)

	September 30, 2015
	Less than 12 Months					More than 12 Months
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate bonds	$	33,664	$	(52	)	$	—	$	—
Commercial paper	5,987		(1		)	—		—
Certificates of deposit	4,244		(6		)	499		(1		)
Government municipal bonds	3,159		(3		)	—		—
Total	$	47,054	$	(62	)	$	499	$	(1	)

7. FAIR VALUE MEASUREMENTS

Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used in measuring fair value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that

13

7. FAIR VALUE MEASUREMENTS (CONTINUED)

reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available in the circumstances.

The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable for the asset or liability and their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 may also include certain investment securities for which there is limited market activity or a decrease in the observability of market pricing for the investments, such that the determination of fair value requires significant judgment or estimation.

Fair value is applied to financial assets such as our marketable securities, which are classified and accounted for as available-for-sale and to financial liabilities for contingent consideration. These items are stated at fair value at each reporting period using the above guidance.

The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

	Total carrying  value at		Fair Value Measurements Using  Inputs Considered as
	March 31, 2016		Level 1		Level 2		Level 3
Assets:
Money market	$	29,578	$	29,578	$	—	$	—
Corporate bonds	25,002		—		25,002		—
Commercial paper	17,960		—		17,960		—
Certificates of deposit	9,296		—		9,296		—
Government municipal bonds	3,148		—		3,148		—
Total assets measured at fair value	$	84,984	$	29,578	$	55,406	$	—
Liabilities:
Contingent consideration on acquired business	10,522		$	—	$	—	$	10,522
Total liabilities measured at fair value	$	10,522	$	—	$	—	$	10,522

	Total carrying  value at		Fair Value Measurements Using  Inputs Considered as
	September 30, 2015		Level 1		Level 2		Level 3
Assets:
Money market	$	14,436	$	14,436	$	—	$	—
Corporate bonds	35,840		—		35,840		—
Commercial paper	7,985		—		7,985		—
Certificates of deposit	13,768		—		13,768		—
Government municipal bonds	3,224		—		3,224		—
Total assets measured at fair value	$	75,253	$	14,436	$	60,817	$	—

Our money market funds, which have been determined to be cash equivalents, are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets. We value our Level 2 assets using inputs that are based on market indices of similar assets within an active market. There were no transfers into or out of our Level 2 financial assets during the six months ended March 31, 2016.

The use of different assumptions, applying different judgment to matters that inherently are subjective and changes in future market conditions could result in different estimates of fair value of our securities or contingent consideration, currently and in

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7. FAIR VALUE MEASUREMENTS (CONTINUED)

the future. If market conditions deteriorate, we may incur impairment charges for securities in our investment portfolio. We may also incur changes to our contingent consideration liability as discussed below.

In connection with the Bluenica acquisition discussed in Note 2, we are required to make contingent payments over a period of up to four years, subject to Digi Cold Chain solutions achieving specified revenue thresholds. The fair value of the liability for contingent payments recognized upon acquisition was $10.4 million, and was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in this calculation included the discount rate and various probability factors. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period.

The following table presents a reconciliation of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended March 31, 2016 (in thousands):

	Three months ended March 31, 2016		Six months ended March 31, 2016
Fair value at beginning of period	$	10,400	$	—
Purchase price contingent consideration	—		10,400
Change in fair value of contingent consideration	122		122
Fair value at end of period	$	10,522	$	10,522

The change in fair value of contingent consideration for the acquisition of Bluenica is included in general and administrative and interest expense on our Condensed Consolidated Statements of Operations and reflects our estimate of the probability of achieving the relevant targets and is discounted based on our estimated discount rate. We have estimated the fair value of the contingent consideration based on the probability of achieving the specified revenue thresholds at 93.6% to 98.1% and a discount rate between 1.2% and 2.5%, reflecting the risk profiles of satisfying these thresholds. A significant increase (decrease) in our estimates of achieving the relevant targets or a significant increase (decrease) in the discount rates used could materially increase (decrease) the fair value of the contingent consideration liability.

8. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS, NET

Amortizable identifiable intangible assets were (in thousands):

	March 31, 2016							September 30, 2015
	Gross carrying amount		Accum. amort.			Net		Gross carrying amount		Accum. amort.			Net
Purchased and core technology	$	47,165	$	(45,352	)	$	1,813	$	45,449	$	(45,424	)	$	25
License agreements	18		(4		)	14		18		(4		)	14
Patents and trademarks	11,596		(10,710		)	886		11,377		(10,385		)	992
Customer relationships	17,817		(15,735		)	2,082		17,090		(15,473		)	1,617
Total	$	76,596	$	(71,801	)	$	4,795	$	73,934	$	(71,286	)	$	2,648

Amortization expense was $0.5 million and $0.6 million for the three month periods ended March 31, 2016 and 2015, respectively. Amortization expense was $1.0 million and $1.3 million for the six month periods ended March 31, 2016 and 2015, respectively. Amortization expense is recorded on our consolidated statements of operations within cost of sales and in general and administrative expense.

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8. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS, NET (CONTINUED)

Estimated amortization expense related to identifiable intangible assets for the remainder of fiscal 2016 and the five succeeding fiscal years is (in thousands):

2016 (six months)	$	988
2017	1,547
2018	1,110
2019	698
2020	328
2021	50

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

	Six months ended March 31,
	2016			2015
Beginning balance, October 1	$	100,183		$	101,484
Acquisition of Bluenica	11,020			—
Foreign currency translation adjustment	(496		)	(1,656		)
Ending balance, March 31	$	110,707		$	99,828

Goodwill is tested for impairment on an annual basis as of June 30, or more frequently if events or circumstances occur which could indicate impairment. The calculation of goodwill impairment requires us to make assumptions about the fair value of our one reporting unit, which historically has been approximated by using our market capitalization plus a control premium. Control premium assumptions require judgment and actual results may differ from assumed or estimated amounts.

Our test for potential goodwill impairment is a two-step approach. We estimate the fair value for our one reporting unit by comparing its fair value (market capitalization plus control premium) to our carrying value. If the carrying value of the reporting unit exceeds its estimated fair value, the second step of the goodwill impairment analysis requires us to measure the amount of the impairment loss. An impairment loss is calculated by comparing the implied fair value of the goodwill to its carrying amount. To calculate the implied fair value of goodwill, the fair value of the reporting unit’s assets and liabilities, excluding goodwill, is estimated. The excess of the fair value of the reporting unit over the amount assigned to its assets and liabilities, excluding goodwill, is the implied fair value of the reporting unit’s goodwill.

At June 30, 2015, our market capitalization was $238.6 million compared to our carrying value of $270.6 million. Our market capitalization plus our estimated control premium of 35% (discussed in the paragraphs below) resulted in a fair value in excess of our carrying value by a margin of 19%. We concluded that no impairment was indicated and we were not required to complete the second step of the goodwill impairment analysis. No goodwill impairment charges were recorded.

In June 2014, we performed a control premium study to determine the appropriate control premium to include in the calculation of fair value. We used a third party valuation firm to assist us in performing this control premium analysis. In order to estimate the range of control premiums appropriate for us, the following three methodologies were used: (1) analysis of individual transactions within our industry; (2) analysis of industry-wide data, and (3) analysis of global transaction data. Individual transactions in the Communication Equipment or Technology Hardware, Storage and Peripherals industries were used to find transactions of target companies that operated in similar markets and shared similar operating characteristics with us.  Transaction screening criteria included selection of transactions with the following characteristics:

•At least 50 percent of a target company’s equity sought by an acquirer,

•Target company considered operating (not in bankruptcy),

•Target company had publicly traded stock outstanding at the transaction date, and

•Transactions announced between June 30, 2009 and the valuation date.

In analyzing industry-wide data, transactions in the following three industries were identified that encompassed the products offered by us: Office Equipment and Computer Hardware, Communications, and Computer, Supplies and Services.  Finally, control premiums were considered for both domestic and international transactions. The control premium analysis resulted in a

16

8. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS, NET (CONTINUED)

range of control premium of 30 percent to 40 percent. We reviewed the data and concluded that a 35 percent control premium best represented the amount an investor would likely pay, over and above market capitalization, in order to obtain a controlling interest given the economic conditions at that time.

Based on our industry knowledge, including recent industry merger and acquisition activity, we concluded that the control premium study that was performed as of June 2014 was still an appropriate study to use for our June 30, 2015 goodwill impairment assessment.

If our stock price or control premium declines, the first step of our goodwill impairment analysis may fail. We have identified factors that could result in additional interim goodwill impairment testing. For example, we would perform the second step of the impairment testing if our stock price fell below certain thresholds for a significant period of time, or if our control premium significantly decreased. Events or circumstances may occur that could negatively impact our stock price, including changes in our anticipated revenues and profits and our ability to execute on our strategies. In addition, our control premium could decline due to changes in economic conditions in the technology industry or more generally in the financial markets. An impairment could have a material effect on our consolidated balance sheet and results of operations. We have had no goodwill impairment losses since the adoption of Accounting Standards Codification (ASC) 350, Intangibles-Goodwill and Others, in fiscal 2003.

9. INCOME TAXES

Income tax provision for continuing operations was $1.5 million for the six months ended March 31, 2016. Net tax benefits specific to the six months ended March 31, 2016 were $0.7 million resulting from the reinstatement of the federal research and development tax credit for calendar year 2015 and reversal of tax reserves due to the expiration of statutes of limitation from U.S. and foreign tax jurisdictions. For the six months ended March 31, 2016, our continuing operations effective tax rate before items specific to the period was less than the U.S. statutory rate due primarily in the mix of income between taxing jurisdictions, certain of which have lower statutory tax rates than the U.S., and certain tax credits in the U.S.

Income tax provision for continuing operations was $0.9 million for the six months ended March 31, 2015. Net tax benefits specific to the period of $0.5 million included a reversal of reserves due to the expiration of statutes of limitation from U.S. and foreign tax jurisdictions and the reinstatement of the federal research and development tax credit for calendar year 2014. For the six months ended March 31, 2015, our continuing operations effective tax rate before items specific to the period was more than the statutory rate primarily due to a mix of income between foreign jurisdictions, an adjustment for certain foreign income taxed at the U.S. rate, and lower than expected benefits associated with certain state tax credits.

Our effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and related statutory tax rate in each jurisdiction, and tax items specific to the period, such as settlements of audits. We expect that 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 for both U.S. and foreign jurisdictions.

During the first quarter of fiscal 2016, we adopted ASU 2015-17 on a prospective basis. As required by ASU 2015-17, all deferred tax assets and liabilities are classified on a jurisdictional basis as non-current in our condensed consolidated balance sheets, which is a change from our historical presentation whereby certain of our deferred tax assets and liabilities were classified as current and the remainder were classified as non-current. Our prior periods were not retrospectively adjusted.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is (in thousands):

Unrecognized tax benefits as of September 30, 2015	$	1,618
Increases related to:
Prior year income tax positions	60
Decreases related to:
Expiration of statute of limitations	(121		)
Unrecognized tax benefits as of March 31, 2016	$	1,557

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate is $1.5 million, after considering the impact of interest and deferred benefit items. We expect the change in the total amount of unrecognized tax benefits will be insignificant over the next 12 months.

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10. PRODUCT WARRANTY OBLIGATION

In general, we warrant our products to be free from defects in material and workmanship under normal use and service. The warranty periods generally range from one to five years. We typically have the option to either repair or replace products we deem defective with regard to material or workmanship. Estimated warranty costs are accrued in the period that the related revenue is recognized based upon an estimated average per unit repair or replacement cost applied to the estimated number of units under warranty. These estimates are based upon historical warranty incidents and are evaluated on an ongoing basis to ensure the adequacy of the warranty accrual.

The following table summarizes the activity associated with the product warranty accrual (in thousands) and is included on our Condensed Consolidated Balance Sheets within current liabilities:

	Balance at		Warranties		Settlements			Balance at
Period	January 1		issued		made			March 31
Three months ended March 31, 2016	$	968	$	172	$	(196	)	$	944
Three months ended March 31, 2015	$	950	$	206	$	(233	)	$	923
	Balance at		Warranties		Settlements			Balance at
Period	October 1		issued		made			March 31
Six months ended March 31, 2016	$	1,014	$	292	$	(362	)	$	944
Six months ended March 31, 2015	$	862	$	497	$	(436	)	$	923

We are not responsible for, and do not warrant that, custom software versions, created by original equipment manufacturer (OEM) customers based upon our software source code, will function in a particular way, will conform to any specifications or are fit for any particular purpose. Further, we do not indemnify these customers from any third-party liability as it relates to or arises from any customization or modifications made by the OEM customer.

11. CONTINGENCIES

On December 23, 2015, JSDQ Mesh Technologies LLC filed a complaint naming us as a defendant in federal court in the District of Delaware. The complaint included allegations against us and one other company pertaining to the infringement of four patents relating to mesh networking technology. On April 27. 2016, we settled a patent infringement claim. The settlement fully resolves the claim by JSDQ Mesh Technologies LLC with no future payment obligations.

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

12. STOCK-BASED COMPENSATION

Stock-based awards were granted under the 2016 Omnibus Incentive Plan (the “2016 Plan”) beginning February 1, 2016 and prior to that were granted under the 2014 Omnibus Incentive Plan (the “2014 Plan”). Stock-based awards were granted under the 2014 Plan during the six months ended March 31, 2015. Upon stockholder approval of the 2016 Plan, we ceased granting awards under any prior plan. The authority to grant options under the 2016 Plan and to set other terms and conditions rests with the Compensation Committee of the Board of Directors.

The 2016 Plan authorizes the issuance of up to 1,500,000 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 2016 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 November over a four-year period. Awards may be granted under the 2016 Plan until January 31, 2026. Options under the 2016 Plan can be granted as either incentive stock options (ISOs) or non-statutory stock options (NSOs). The exercise price of options and the grant date price of restricted stock shall be determined by our Compensation Committee but shall not be less than the fair market value of our common stock based on the closing price on the date of grant. Upon exercise, we issue new shares of stock.

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12. STOCK-BASED COMPENSATION (CONTINUED)

The 2014 Plan, under which grants ceased upon approval of the 2016 Plan, authorized the issuance of up to 2,250,000 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 included 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 2014 Plan typically vest over a four year service period and would expire if unexercised after eight years from the date of grant. RSUs that have been granted to directors typically vest in one year. RSUs that have been granted to executives and employees typically vested in November over a four-year period. Options under the 2014 Plan could be granted as either ISOs or NSOs. The exercise price of options and the grant date price of restricted stock was determined by our Compensation Committee but shall not be less than the fair market value of our common stock based on the closing price on the date of grant. Upon exercise, we issued new shares of stock.

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 the six months ended March 31, 2016, our employees forfeited 42,427 shares in order to satisfy $0.5 million of withholding tax obligations related to stock-based compensation, pursuant to terms of awards under our board and shareholder-approved compensation plans. As of March 31, 2016, there were approximately 1,342,807 shares available for future grants under the 2016 Plan.

Cash received from the exercise of stock options was $6.3 million during the six months ended March 31, 2016 and $6.0 million during the six months ended March 31, 2015. There were $0.2 million in excess tax benefits from stock-based compensation for the six months ended March 31, 2016. There were no excess tax benefits from stock-based compensation during the six months ended March 31, 2015.

We sponsor an Employee Stock Purchase Plan (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. Employee contributions to the Purchase Plan were $0.5 million during both the six month periods ended March 31, 2016 and 2015. Pursuant to the Purchase Plan, 55,343 and 72,306 common shares were issued to employees during the six months ended March 31, 2016 and 2015, respectively. Shares are issued under the Purchase Plan from treasury stock. As of March 31, 2016, 562,188 common shares were available for future issuances under the Purchase Plan.

Stock-based compensation expense is included in the consolidated results of operations as follows (in thousands):

	Three months ended March 31,						Six months ended March 31,
	2016			2015			2016			2015
Cost of sales	$	51		$	83		$	105		$	189
Sales and marketing	227			306			426			649
Research and development	147			196			295			388
General and administrative	478			453			888			996
Stock-based compensation before income taxes	903			1,038			1,714			2,222
Income tax benefit	(293		)	(361		)	(550		)	(775		)
Stock-based compensation after income taxes	$	610		$	677		$	1,164		$	1,447

Stock-based compensation cost capitalized as part of inventory was immaterial as of March 31, 2016 and September 30, 2015.

19

12. STOCK-BASED COMPENSATION (CONTINUED)

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

	Options Outstanding		Weighted Average Exercised Price	Weighted Average Contractual Term (in years)	Aggregate Intrinsic Value (1)
Balance at September 30, 2015	4,800		$10.21
Granted	505		11.51
Exercised	(667	)	9.78
Forfeited / Canceled	(589	)	11.09
Balance at March 31, 2016	4,049		$10.32	4.9	$	1,700
Exercisable at March 31, 2016	2,809		$10.50	4.1	$	981

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $9.43 as of March 31, 2016, which would have been received by the option holders had all option holders exercised their options as of that date. The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price.

The total intrinsic value of all options exercised during the six months ended March 31, 2016 was $1.7 million and during the six months ended March 31, 2015 was $0.8 million.

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:

	Six months ended March 31,
	2016	2015
Weighted average per option grant date fair value	$3.92	$2.91
Assumptions used for option grants:
Risk free interest rate	1.61% - 1.85%	1.77% - 1.85%
Expected term	6.00 years	6.00 years
Expected volatility	32%	35% - 36%
Weighted average volatility	32%	35%
Expected dividend yield	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 table above. 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; separate groups of grantees that have similar historical exercise behaviors are considered separately for valuation purposes. 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.

We use historical data to estimate pre-vesting forfeiture rates. The pre-vesting forfeiture rate used during the six months ended March 31, 2016 was 10.0%. As of March 31, 2016 the total unrecognized compensation cost related to non-vested stock options, net of expected forfeitures, was $3.5 million and the related weighted average period over which it is expected to be recognized is approximately 3.4 years.

20

12. STOCK-BASED COMPENSATION (CONTINUED)

A summary of our non-vested restricted stock units as of March 31, 2016 and changes during the six months then ended is presented below (in thousands, except per common share amounts):

	Number of Awards		Weighted Average Grant Date Fair Value
Nonvested at September 30, 2015	543		$	8.41
Granted	233		$	10.92
Vested	(165	)	$	8.36
Canceled	(99	)	$	8.09
Nonvested at March 31, 2016	512		$	9.64

As of March 31, 2016, the total unrecognized compensation cost related to non-vested restricted stock units was $3.6 million and the related weighted average period over which it is expected to be recognized is approximately 1.7 years.

13. RESTRUCTURING

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

	Q2 2016 Restructuring			Q1 2016 Restructuring
	Employee Termination Costs			Employee Termination Costs			Other			Total
Balance at September 30, 2015	$	—		$	—		$	—		$	—
Restructuring charge	—			480			171			651
Balance at December 31, 2015	—			480			171			651
Restructuring charge	78			—			24			102
Payments	(76		)	(113		)	(195		)	(384		)
Foreign currency fluctuation	—			13			—			13
Balance at March 31, 2016	$	2		$	380		$	—		$	382

Q1 2016 Restructuring

In November 2015, we approved a restructuring plan impacting our corporate staff. The plan most principally will close our Dortmund office and relocate certain employees to our Munich office. We also recorded a contract termination charge as we relocated our employees in our Minneapolis office to our corporate headquarters in Minnetonka in December 2015. We recorded a restructuring charge of $0.7 million that included $0.5 million of severance and $0.2 million of contract termination costs during the first quarter of fiscal 2016. This restructuring resulted in an elimination of approximately 10 positions. The payments associated with these charges are expected to be completed by the third quarter of fiscal 2016.

Q2 2016 Restructuring

In January 2016, we approved a restructuring plan impacting our wireless design services group. This restructuring resulted in an elimination of 5 positions. We recorded a restructuring charge of $0.1 million related to severance during the second quarter of fiscal 2016 and paid the majority of the severance during that same quarter.

21

14. SUBSEQUENT EVENT

On April 27, 2016 we settled a patent infringement claim with JSDQ Mesh Technologies LLC. For more detail see Note 11 to our Condensed Consolidated Financial Statements.

On April 26, 2016, our Board of Directors authorized a new program to repurchase up to $15.0 million of our common stock primarily to return capital to shareholders. This new repurchase authorization expires on May 1, 2017. Shares repurchased under the new program may be made through open market and privately negotiated transactions from time to time and in amounts that management deems appropriate. The amount and timing of share repurchases will depend upon market conditions and other corporate considerations.

22

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, 2015, as well as our subsequent reports on Forms 10-Q and 8-K and any amendments thereto.

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

The words “anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” or “will” or the negative thereof or other variations thereon or similar terminology, which are predictions of or indicate future events and trends and which do not relate to historical matters, identify forward-looking statements. Among other items, these statements relate to expectations of the business environment in which we operate, 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, including risks related to 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, 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 defend or settle satisfactorily any litigation, uncertainty in global economic conditions and economic conditions within particular regions of the world which could negatively affect product demand and the financial solvency of customers and suppliers, 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 or other similar business initiatives that may impact our operations and our ability to retain important employees, the ability to achieve the anticipated benefits and synergies associated with acquisitions or divestitures, 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, our Annual Report on Form 10-K for the year ended September 30, 2015, and subsequent quarterly reports on Form 10-Q and other filings, could cause the company’s future 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.

Presentation of Non-GAAP Financial Measures

This report includes Adjusted EBITDA from continuing operations, which is a non-GAAP measure. We understand that there are material limitations on the use of non-GAAP measures. Non-GAAP measures are not substitutes for GAAP measures, such as net income, for the purpose of analyzing financial performance. The disclosure of these measures does not reflect all charges and gains that were actually recognized by the company. Non-GAAP measures are not prepared in accordance with, or an alternative for measures prepared in accordance with, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, 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 and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. Additionally, we understand that Adjusted EBITDA from continuing operations 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.

We believe that the presentation of Adjusted EBITDA from continuing operations 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. EBITDA from continuing operations is used as an internal metric for executive compensation, as well as incentive compensation for the rest of the employee base, and it is monitored quarterly for these purposes.

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

CRITICAL ACCOUNTING POLICIES AND 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 our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues 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 are 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.

A description of our critical accounting policies and 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 year ended September 30, 2015. There have been no material changes to our critical accounting policies as disclosed in that report. An update to our critical accounting policy related to contingent consideration is included below:

We measure our contingent consideration liabilities recognized in connection with business combinations at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy as defined in ASC 320. “Investments - Debt and Equity Securities.” We use a probability-weighted discounted cash flow approach as a valuation technique to determine the fair value of the contingent consideration on the acquisition date. At each subsequent reporting period, the fair value is remeasured with the change in fair value recognized in general and administrative expense in our Condensed Consolidated Statements of Operations. Amounts paid in excess of the amount recorded on the acquisition date will be classified as cash flows used in operating activities. Payments not exceeding the acquisition-date fair value of the contingent consideration will be classified as cash flows used in financing activities.

OVERVIEW

We provide a wide range of wireless products for the Internet-of-Things (“IoT”), a cloud computing platform tailored to enable monitoring and remote control of devices and development services to help customers get to market fast with wireless devices and applications. Our solution set is capable of allowing any device to communicate with any application, anywhere in the world. We have a single operating and reporting segment. 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.

Our revenue consists of hardware product revenue and service revenue. Our hardware product offerings are comprised of our cellular routers and gateways, radio frequency (RF), embedded and network products. Our service offerings include wireless design services, Digi Device Cloud (which includes Digi Remote Manager™) and enterprise support services. Digi Cold Chain Solutions, which was formed in October 2015 through our acquisition of Bluenica Corporation (“Bluenica”), is also one of our service offerings. On October 23, 2015, we sold all the outstanding stock of our wholly owned subsidiary, Etherios, Inc. (“Etherios”) to West Monroe Partners, LLC. We sold our Etherios business as part of a strategy to focus on providing highly reliable machine connectivity solutions for business-critical and mission-critical application environments (see Note 3 to the Condensed Consolidated Financial Statements). This transaction was accounted for as a discontinued operation.

We utilize many financial, operational, and other metrics to evaluate our financial condition and financial performance. Below we highlight the metrics for the second quarter of fiscal 2016 that we feel are most important in these evaluations:

Revenue was $50.2 Million. Our revenue decreased $0.2 million, or 0.5%, compared to $50.4 million for the second quarter of fiscal 2015. This decrease was driven by a decline in service revenue of $0.8 million, or 37.6%. Product revenue performance increased by $0.6 million, or 1.3%, primarily due to an increase in embedded and network product categories that was partially offset by a decrease in revenue from RF and cellular products. Revenue was unfavorably impacted by $0.1 million due to the weakening of the Euro and British Pound compared to the U.S. Dollar.

Gross Margin was 49.3%. Our gross margin increased as a percentage of revenue to 49.3% in the second quarter of fiscal 2016 as compared to 46.1% in the second quarter of fiscal 2015. The increase in gross margin was due primarily to strong revenue performance in our embedded products, as well as increased revenue from legacy products included in our network category which both are traditionally higher margin products. We also realized manufacturing cost reductions associated with our cellular products.

24

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

Net income for the second fiscal quarter of 2016 was $2.1 million, or $0.08 per diluted share. Net income for the second fiscal quarter of 2015 was $1.4 million, or $0.06 per diluted share. Income from continuing operations for the second fiscal quarter of 2016 was $2.2 million, or $0.09 per diluted share, compared to $1.7 million, or $0.07 per diluted share, in the prior year comparable quarter. Loss from discontinued operations was $0.1 million, or $0.00 loss per diluted share, in the second fiscal quarter of 2016, compared to a loss of $0.2 million, or $0.01 loss per diluted share, for the prior year comparable quarter.

Adjusted EBITDA from Continuing Operations for the second fiscal quarter of 2016 was $4.6 Million, or 9.1% of total revenue. In the second fiscal quarter of fiscal 2015, Adjusted EBITDA from Continuing Operations was $3.0 million, or 5.9% of total revenue.

Below is a reconciliation of Income from Continuing Operations to Adjusted EBITDA from Continuing Operations (in thousands):

	Three months ended March 31,
	2016					2015
				% of total revenue					% of total revenue
Total revenue	$	50,162		100.0	%	$	50,401		100.0	%
Income from continuing operations	$	2,226				$	1,662
Recovery of insurance proceeds	—					(989		)
Interest income, net	(12		)			(54		)
Income tax provision	1,155					1,035
Depreciation and amortization	1,214					1,332
Adjusted EBITDA from continuing operations	$	4,583		9.1	%	$	2,986		5.9	%

CONSOLIDATED RESULTS OF OPERATIONS

The following table sets forth selected information derived from our interim condensed consolidated statements of operations (dollars in thousands):

	Three months ended March 31,										% incr.		Six months ended March 31,										% incr.
	2016					2015					(decr.)		2016					2015					(decr.)
Revenue:
Hardware product	$	48,732		97.1	%	$	48,108		95.5	%	1.3		$	96,979		96.6	%	$	93,041		95.3	%	4.2
Service	1,430			2.9		2,293			4.5		(37.6	)	3,442			3.4		4,578			4.7		(24.8	)
Total revenue	50,162			100.0		50,401			100.0		(0.5	)	100,421			100.0		97,619			100.0		2.9
Cost of sales:
Cost of hardware product	24,283			48.4		25,498			50.6		(4.8	)	48,993			48.8		48,610			49.8		0.8
Cost of service	1,137			2.3		1,668			3.2		(31.8	)	2,329			2.3		3,217			3.3		(27.6	)
Total cost of sales	25,420			50.7		27,166			53.9		(6.4	)	51,322			51.1		51,827			53.1		(1.0	)
Gross profit	24,742			49.3		23,235			46.1		6.5		49,099			48.9		45,792			46.9		7.2
Operating expenses	21,089			42.0		21,916			43.5		(3.8	)	42,157			42.0		44,009			45.1		(4.2	)
Operating income	3,653			7.3		1,319			2.7		177.0		6,942			6.9		1,783			1.8		289.3
Other (expense) income, net	(272		)	(0.6	)	1,378			2.7		(119.7	)	(49		)	—		1,804			1.8		(102.7	)
Income from continuing operations, before income taxes	3,381			6.7		2,697			5.5		25.4		6,893			6.9		3,587			3.7		92.2
Income tax provision	1,155			2.3		1,035			2.1		11.6		1,536			1.5		907			0.9		69.3
Income from continuing operations	2,226			4.4	%	1,662			3.3	%	33.9		5,357			5.4		2,680			2.7		99.9
(Loss) income from discontinued operations, after income taxes	(89		)	(0.1	)	(216		)	(0.4	)	(58.8	)	3,230			3.2		(1,573		)	(1.6	)	(305.3	)
Net income	$	2,137		4.3	%	$	1,446		2.9	%	47.8		$	8,587		8.6	%	$	1,107		1.1	%	675.7

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

REVENUE

Overview

Total revenue was $50.2 million for the second quarter of fiscal 2016 compared to $50.4 million for the second quarter of fiscal 2015, a decrease of $0.2 million or 0.5%. Service revenue decreased $0.8 million, or 37.6%, partially offset by an increase in product revenue of $0.6 million or 1.3%.

Total revenue was $100.4 million for the six months ended March 31, 2016, an increase of $2.8 million or 2.9%, compared to $97.6 million for the same period in the prior fiscal year. Product revenue increased $3.9 million or 4.2%, partially offset by a decline in service revenue of $1.1 million or 24.8%.

No significant changes were made to our pricing strategy that impacted revenue during the six months ended March 31, 2016 as compared to the same period in the prior fiscal year. As foreign currency rates fluctuate, we may from time to time adjust the prices of our products and services.

Hardware Products

Beginning in the first quarter of fiscal 2016, we transitioned away from reporting revenue in terms of growth and mature hardware products and now report four product categories: Cellular routers and gateways, RF, Embedded and Network. We believe this is a more meaningful presentation and reflects how we are monitoring our revenue.

Our cellular product category includes our cellular routers and all gateways. Our RF product category includes our XBee^® modules as well as other RF Solutions.  Our Embedded product category includes Digi Connect^® and Rabbit^® embedded systems on module and single board computers.  Our network product category, which has the highest concentration of mature products, includes console and serial servers and USB connected products.

	Three months ended March 31,								% incr.		Six months ended March 31,								% incr.
($ in thousands)	2016				2015				(decr.)		2016				2015				(decr.)
Cellular routers and gateways	$	12,910	26.5	%	$	14,859	30.9	%	(13.1	)	$	25,070	25.8	%	$	28,559	30.7	%	(12.2	)
RF	7,879		16.2		10,027		20.8		(21.4	)	17,065		17.6		17,174		18.5		(0.6	)
Embedded	13,795		28.3		11,977		24.9		15.2		26,923		27.8		23,204		24.9		16.0
Network	14,148		29.0		11,245		23.4		25.8		27,921		28.8		24,104		25.9		15.8
Total product revenue	$	48,732	100.0	%	$	48,108	100.0	%	1.3		$	96,979	100.0	%	$	93,041	100.0	%	4.2

Cellular router and gateway revenue decreased $2.0 million and $3.5 million, or 13.1% and 12.2%, for the three and six months ended March 31, 2016, respectively, compared to same periods a year ago. The decreases were primarily due to large customer projects completed in fiscal 2015, primarily in Europe, Middle East and Africa (“EMEA”) and Latin America that were not replaced in fiscal 2016. This was partially offset by an increase in new project business in North America in the second quarter of fiscal 2016. The cellular router and gateway revenue is driven by large customer projects that may not carry into future periods and may result in revenue fluctuations from quarter to quarter.

RF products revenue decreased $2.1 million, or 21.4%, for the three months ended March 31, 2016, compared to the same period in the prior fiscal year. Revenue in the second quarter of fiscal 2015 benefited from orders that were delayed from the first fiscal quarter of 2015 due to the fire at our subcontract manufacturer’s location. RF product revenue decreased by $0.1 million, or 0.6%, for the six months ended March 31, 2016 as compared to the same period in the prior fiscal year. This decrease was due to lower sales in the North American region, partially offset by a large customer project in our Latin American region in the first quarter of fiscal 2016.

Embedded product revenue increased $1.8 million and $3.7 million, or 15.2% and 16.0%, for the three and six months ended March 31, 2016, respectively, compared to the same periods a year ago. The increases were primarily due to higher sales of our embedded modules in North America and EMEA as significant customers have begun moving to production of their products that use our modules.

Network products revenue increased by $2.9 million and $3.8 million, or 25.8% and 15.8%, for the three and six months ended March 31, 2016, respectively, compared to the same periods a year ago. The increases were primarily due to large terminal server sales to significant customers, which we expect to decrease later in this fiscal year. Most of our network products are in

26

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

the mature phase of their product life cycle. We expect that revenue from these products will generally decrease in the future, however revenue may fluctuate from quarter to quarter due to the timing of specific customer purchases.

Services

Our service offerings include Digi Cold Chain Solutions, wireless design services, revenue generated from the Digi Device Cloud platform and enterprise support services. Revenue from our service offerings was $1.4 million and $2.3 million for the three months ended March 31, 2016 and 2015, respectively, a decrease of $0.8 million, or 37.6%. Service offering revenue was $3.4 million an $4.6 million for the six months ended March 31, 2016 and 2015, respectively, a decrease of $1.2 million, or 24.8%. The decrease in services revenue was driven primarily in wireless design services, partially offset by revenue from Digi Cold Chain Solutions which was acquired during the first quarter of fiscal 2016. Historically revenue from our service offerings have fluctuated from quarter to quarter and we expect that trend to continue.

Revenue by Geographic Location

The following summarizes our revenue by geographic location of our customers:

	Three months ended March 31,				$ incr.		% incr.		Six months ended March 31,				$ incr.		% incr.
($ in thousands)	2016		2015		(decr.)		(decr.)		2016		2015		(decr.)		(decr.)
North America, primarily United States	$	33,332	$	29,638	3,694		12.5		$	63,900	$	58,846	5,054		8.6
Europe, Middle East & Africa	10,965		12,383		(1,418	)	(11.5	)	21,982		23,614		(1,632	)	(6.9	)
Asia	5,025		5,714		(689	)	(12.1	)	10,149		11,117		(968	)	(8.7	)
Latin America	840		2,666		(1,826	)	(68.5	)	4,390		4,042		348		8.6
Total revenue	$	50,162	$	50,401	(239	)	(0.5	)	$	100,421	$	97,619	2,802		2.9

Revenue in North America increased by $3.7 million and $5.1 million, or 12.5% and 8.6%, for the three and six months ended March 31, 2016, respectively, compared to the same periods a year ago. The increases for both comparable periods was a result of higher sales in network, cellular and embedded products, partially offset by a decrease in RF products and service revenue.

Revenue in EMEA decreased by $1.4 million and $1.6 million, or 11.5% and 6.9%, for the three and six months ended March 31, 2016, respectively, compared to the same periods a year ago. The decreases were primarily driven by an unfavorable impact on total revenue of $0.1 million and $0.8 million for the three and six months ended March 31, 2016, respectively, compared to the same period a year ago, due to the weakening of the Euro and British pound compared to the U.S. Dollar (see Foreign Currency Risk in Part I, Item 3, of this Form 10-Q).

Revenue in Asia decreased by $0.7 million and $1.0 million, or 12.1% and 8.7%, for the three and six months ended March 31, 2016, respectively, compared to the same periods a year ago. Revenue decreases for both comparable periods were primarily due to decreased volume of network products.

Revenue in Latin America decreased by $1.8 million, or 68.5%, for the three months ended March 31, 2016, compared to the same period a year ago. The decrease was primarily related to completion of a large cellular project in the prior fiscal year. Latin America revenue increased $0.3 million, or 8.6%, for the six months ended March 31, 2016, compared to the same period a year ago, primarily due to a large RF project in the first quarter of fiscal 2016, partially offset by a decline in cellular products revenue.

GROSS PROFIT

Gross profit for the three months ended March 31, 2016 and 2015 was $24.7 million and $23.2 million, respectively, an increase of $1.5 million, or 6.5%. Gross profit for the six months ended March 31, 2016 and 2015 was $49.1 million and $45.8 million, respectively, an increase of $3.3 million, or 7.2%.

Hardware product gross profit was $24.4 million, or 50.2%, and $22.6 million, or 47.0%, for the three months ended March 31, 2016 and 2015, respectively. Hardware product gross profit was $48.0 million, or 49.5%, and $44.4 million, or 47.8%, for the six months ended March 31, 2016 and 2015, respectively. The increase in both the quarter and year-to-date periods was due primarily to strong revenue performance in our embedded modules, as well as increased revenue from legacy products included in our network category which are traditionally higher margin products. We also realized manufacturing cost reductions associated with our cellular products.

27

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

Service gross profit was $0.3 million, or 20.5%, and $0.6 million, or 27.3% for the three months ended March 31, 2016 and 2015, respectively. Service gross profit was $1.1 million, or 32.3%, and $1.4 million, or 29.7% for the six months ended March 31, 2016 and 2015, respectively. The decreases in the three-month and six-month comparable periods primarily were a result of amortization costs for purchased and core technology associated with our Cold Chain Solutions acquisition in the first quarter of fiscal 2016.

Historically, our service gross profit varies from quarter to quarter, and we expect that trend to continue for the foreseeable future as our wireless product design and development service margins are dependent on the utilization rates of our personnel.

OPERATING EXPENSES

The following summarizes our total operating expenses in dollars and as a percentage of total revenue:

	Three months ended March 31,								$ incr.			Six months ended March 31,								$ incr.
($ in thousands)	2016				2015				(decr.)			2016				2015				(decr.)
Sales and marketing	$	8,165	16.3	%	$	9,875	19.6	%	$	(1,710	)	$	16,683	16.6	%	$	20,110	20.6	%	$	(3,427	)
Research and development	7,757		15.5	%	7,280		14.5	%	477			15,595		15.5	%	14,363		14.7	%	1,232
General and administrative	5,065		10.0	%	4,349		8.6	%	716			9,126		9.1	%	9,124		9.4	%	2
Restructuring	102		0.2	%	412		0.8	%	(310		)	753		0.8	%	412		0.4	%	341
Total operating expenses	$	21,089	42.0	%	$	21,916	43.5	%	$	(827	)	$	42,157	42.0	%	$	44,009	45.1	%	$	(1,852	)

Sales and marketing expenses decreased $1.7 million and $3.4 million for the three and six months ended March 31, 2016, respectively, compared to the same period a year ago. The decreases in both comparable periods was mostly related to a decrease in compensation-related expenses as a result of reduced headcount. We also had a decrease in travel and entertainment expenses and marketing expenses.

Research and development expenses increased $0.5 million and $1.2 million for the three and six months ended March 31, 2016, respectively, compared to the same period a year ago, primarily due to compensation-related expenses related to an increase in the number of U.S. based engineers and development and certification expenses.

General and administrative expenses increased $0.7 million for the three months ended March 31, 2016, compared to the same period a year ago. The increase was related to professional fees, partially offset by a decrease in compensation-related expenses. General and administrative expenses remained at $9.1 million for the six months ended March 31, 2016 compared to the same period a year ago. Professional fees increased as compared to the six months ended March 31, 2015, offset by a decrease in compensation-related expenses as we incurred CEO transition expenses in fiscal 2015.

Restructuring expense was $0.1 million and $0.8 million for the three and six months ended March 31, 2016, respectively, pertaining to our corporate staff and related employee termination costs associated with the merging of our Dortmund, Germany office into our Munich, Germany office and contract termination charges associated with the consolidation of our Minneapolis office into our Minnetonka headquarters (see Note 13 to our Condensed Consolidated Financial Statements). Restructuring expense was $0.4 million for both the three and six months ended March 31, 2015, respectively, relating to our India operations.

OTHER (EXPENSE) INCOME, NET

We recorded a decrease in other income of $1.6 million for the three months ended March 31, 2016, compared to the same period a year ago. During the second quarter of fiscal 2015 we recorded $1.0 million in insurance proceeds relating to the replacement of our capital equipment destroyed in the fire at our subcontract manufacturer’s location. We also recorded a $0.6 million decrease related to foreign currency losses as the U.S. Dollar weakened against primarily the Euro and Yen. Other (expense) income, net decreased $1.9 million for the six months ended March 31, 2016, compared to the same period a year ago primarily as a result of $1.0 million in the aforementioned insurance proceeds recorded in the prior fiscal year and a $0.9 million decrease related to foreign currency losses as the U.S. Dollar weakened against primarily the Euro and Yen.

28

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

INCOME TAXES

Income tax provision for continuing operations was $1.5 million for the six months ended March 31, 2016. Net tax benefits specific to the six months ended March 31, 2016 were $0.7 million resulting from the reinstatement of the federal research and development tax credit for calendar year 2015 and reversal of tax reserves due to the expiration of statutes of limitation from U.S. and foreign tax jurisdictions. For the six months ended March 31, 2016, our continuing operations effective tax rate before items specific to the period was less than the U.S. statutory rate due primarily in the mix of income between taxing jurisdictions, certain of which have lower statutory tax rates than the U.S., and certain tax credits in the U.S.

Income tax provision for continuing operations was $0.9 million for the six months ended March 31, 2015. Net tax benefits specific to the period of $0.5 million included a reversal of reserves due to the expiration of statutes of limitation from U.S. and foreign tax jurisdictions and the reinstatement of the federal research and development tax credit for calendar year 2014. For the six months ended March 31, 2015, our continuing operations effective tax rate before items specific to the period was more than the statutory rate primarily due to a mix of income between foreign jurisdictions, an adjustment for certain foreign income taxed at the U.S. rate, and lower than expected benefits associated with certain state tax credits.

Our effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and related statutory tax rate in each jurisdiction, and tax items specific to the period, such as settlements of audits. We expect that 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 for both U.S. and foreign jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations and capital expenditures principally with funds generated from operations. At March 31, 2016, cash, cash equivalents and short-term marketable securities were $115.4 million compared to $92.2 million at September 30, 2015. At March 31, 2016, our cash, cash equivalents and marketable securities, including long-term marketable securities, were $122.7 million.

Our working capital (total current assets less total current liabilities) was $156.3 million at March 31, 2016. At September 30, 2015, our working capital was $137.0 million, which included $3.2 million of working capital related to current deferred taxes. As a result of adopting ASU 2015-17 prospectively in the first quarter of fiscal 2016, all deferred tax assets and liabilities are classified on a jurisdictional basis as non-current in our condensed consolidated balance sheets, which is a change from our historical presentation whereby certain of our deferred tax assets and liabilities were classified as current and the remainder was classified as non-current. We presently anticipate total fiscal 2016 capital expenditures will be approximately $4.8 million, of which we spent $1.2 million.

Net cash provided by operating activities was $11.5 million and $1.6 million for the six months ended March 31, 2016 and 2015, respectively, a net increase of $9.9 million, resulting from changes in working capital of $6.0 million, partially offset by an increase in net income after adjustments for non-cash items of $3.9 million. The increase in cash provided by operating assets and liabilities of $6.0 million was primarily driven by a $8.5 million increase related to inventory reduction and a $3.4 million decrease in accrued liabilities for compensation accruals. Included in operating cash flows for the six months ended March 31, 2015 was $0.8 million of net cash outflows related to Etherios. We expect that the disposition of Etherios will have a positive impact on our operating cash flow in future periods.

Net cash provided by investing activities was $4.2 million during the six months ended March 31, 2016 compared to net cash used by investing activities of $4.3 million during the six months ended March 31, 2015, a net increase in cash flows of $8.5 million. The increase in cash flows is related to additional maturities of $7.8 million for marketable securities, proceeds from the sale of Etherios of $2.8 million, and $1.8 million less capital expenditures during the first six months of fiscal 2016 compared to the prior year comparable period. This was partially offset by cash used for the acquisition of Bluenica of $2.9 million and proceeds from an insurance settlement in fiscal 2015 of $1.0 million.

Net cash provided by financing activities was $6.5 million and $4.2 million during the six months ended March 31, 2016 and 2015, respectively, a net increase of $2.3 million. During the first six months of fiscal 2016, we had $0.5 million more proceeds from stock option plan and employee stock purchase plan transactions compared to the same period a year ago and $1.8 million fewer purchases of common stock.

29

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

We generally expect positive cash flows from operations and believe that our current cash, cash equivalents and short-term marketable securities balances, cash generated from operations and our ability to secure debt and/or equity financing will be sufficient to fund our business operations and capital expenditures for the next twelve months and beyond.

Recently Issued Accounting Pronouncements

Not Yet Adopted

In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”. This update includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016, which for us is the first fiscal quarter ending December 31, 2017. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements.

In March 2016, FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606)”. This update clarifies implementation guidance on principal-versus-agent considerations, including how an entity determines whether it is a principal or an agent for each specified good or service promised to the customer and how an entity determines the nature of each specified good or service. In addition, ASU 2016-08 updates the indicators in ASC 606-10-55-39 and revises the existing examples in ASC 606 to better illustrate the application of the principal-versus-agent guidance. This ASU is effective at the same time as those in ASU 2014-09 (as amended by ASU 2015-14), which for us is for our fiscal 2019, including interim periods within that reporting period. We are currently assessing the potential impact of adopting this ASU on our consolidated financial statements and related disclosures.

In February, 2016, FASB issued ASU 2016-02, “Leases (Topic 842)”, which amends the existing guidance to require lessees to recognize lease assets and lease liabilities from operating leases on the balance sheet. This ASU is effective using the modified retrospective approach for annual periods and interim periods within those annual periods beginning after December 15, 2018, which for us is the first fiscal quarter ending December 31, 2019. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In January 2016, FASB issued ASU 2016-01, “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 will require equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. The amendments in this update will also simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet and require these entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes. This ASU would also change the presentation and disclosure requirements for financial instruments. In addition, this ASU clarifies the guidance related to valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, which for us is the first fiscal quarter ending December 31, 2018. Early adoption is permitted for financial statements of fiscal years and interim periods that have not been issued. We are currently evaluating the impact of the adoption of ASU 2016-01.

In July 2015, FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory." This provision would require inventory that was previously recorded using first-in, first-out (FIFO) to be recorded at lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years, which for us will be the first fiscal quarter ending December 31, 2017. The amendments in this guidance should be applied prospectively with earlier application permitted as of the beginning of an interim or annual period. We are currently evaluating the impact of the adoption of ASU 2015-11 and whether it would have a material impact on our consolidated financial statements.

In April 2015, FASB issued ASU 2015-05, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The new standard provides guidance to customers about whether a cloud computing arrangement includes a software license. If the arrangement does include a software license,

30

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

the software license element of the arrangement should be accounted for in the same manner as the acquisition of other software licenses. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, with early adoption permitted. We expect to adopt this guidance beginning with our fiscal quarter ending December 31, 2016. We do not expect this guidance to have a material impact on our consolidated financial statements.

In August 2014, FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern.” This guidance requires management to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. These amendments are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter, which for us, will be our annual period ended September 30, 2017. Early adoption is permitted. While we are evaluating the impact of the adoption of ASU 2014-15, we do not expect it to have an impact on our consolidated financial statements.

In May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This guidance provides a five-step analysis in determining when and how revenue is recognized so that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods and services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14 "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date" which approved a one-year deferral of the effective date of ASU 2014-09. As a result of this deferral, ASU 2014-09 is effective for our fiscal 2019, including interim periods within that reporting period. The FASB also agreed to allow us to choose to adopt the standard effective for our fiscal 2018. We will adopt the guidance beginning October 1, 2018 and are currently assessing the potential impact of adopting this ASU on our consolidated financial statements and related disclosures.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

Our exposure to interest rate risk relates primarily to our investment portfolio. Our marketable securities are classified as available-for-sale and are carried at fair value. Our investments consist of money market funds, certificates of deposit, commercial paper, corporate bonds and government municipal bonds. Our investment policy specifies the types of eligible investments and minimum credit quality of our investments, as well as diversification and concentration limits which mitigate our risk. We do not use derivative financial instruments to hedge against interest rate risk because the majority of our investments mature in less than one year.

FOREIGN CURRENCY RISK

We are exposed to foreign currency transaction risk associated with certain sales transactions being denominated in Euros, British Pounds, Japanese Yen or Canadian Dollars and in certain cases, transactions in U.S. Dollars in our foreign entities. We are also 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 have not implemented a formal hedging strategy to reduce foreign currency risk as we continue to mitigate this risk with natural hedging strategies such as mitigating our net asset position in non-functional currencies.

For the six months ended March 31, 2016 and 2015, we had approximately $36.5 million and $38.8 million, respectively, of revenue from foreign customers including export sales. Of these sales, $11.2 million and $11.1 million, respectively, were denominated in foreign currency, predominantly Euros and British Pounds. In future periods, we expect a significant portion of sales will continue to be made in both Euros and British Pounds.

Total revenue was unfavorably impacted by foreign currency translation of $0.1 million and $0.8 million for the three and six months ended March 31, 2016, respectively, as compared to the same period in the prior fiscal year.

The table below compares the average monthly exchange rates of the Euro, British Pound, Japanese Yen and Canadian Dollar to the U.S. Dollar:

	Six months ended March 31,		% increase
	2016	2015	(decrease)
Euro	1.0991	1.1910	(7.7	)%
British Pound	1.4757	1.5514	(4.9	)%
Japanese Yen	0.0085	0.0086	(1.2	)%
Canadian Dollar	0.7384	NA	NA

A 10% change from the first six months of fiscal 2016 average exchange rate for the Euro, British Pound, Japanese Yen and Canadian Dollar to the U.S. Dollar would have resulted in a 1.1% increase or decrease in revenue and a 2.3% increase or decrease in stockholders’ equity due to foreign currency translation. The above analysis does not take into consideration any pricing adjustments we might consider in response to changes in such exchange rates.

CREDIT RISK

We have some 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.

Investments are made in accordance with our investment policy and consist of money market funds, certificates of deposit, commercial paper, corporate bonds and government municipal bonds. The fair value of our investments contains an element of credit exposure, which could change based on changes in market conditions. If market conditions deteriorate or if the issuers of these securities experience credit rating downgrades, we may incur impairment charges for securities in our investment portfolio. All of our securities are held domestically.

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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 the Company’s internal control over financial reporting during the quarterly period ended March 31, 2016 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The disclosures set forth in Note 11 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q are incorporated herein by reference.

ITEM 1A. RISK FACTORS

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, 2015.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On April 26, 2016, our Board of Directors authorized a new program to repurchase up to $15.0 million of our common stock primarily to return capital to shareholders. This new repurchase authorization expires on May 1, 2017. Shares repurchased under the new program may be made through open market and privately negotiated transactions from time to time and in amounts that management deems appropriate. The amount and timing of share repurchases will depend upon market conditions and other corporate considerations.

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 second quarter of fiscal 2016:

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
January 1, 2016 - January 31, 2016	9,524	$10.4754	—	$0.00
February 1, 2016 - February 29, 2016	—	—	—	$0.00
March 1, 2016 - March 31, 2016	—	—	—	$0.00
Total	9,524	$10.4754	—	$0.00

(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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

33

ITEM 4. MINE SAFETY DISCLOSURES

None

ITEM 5. OTHER INFORMATION

None

34

ITEM 6. EXHIBITS

Exhibit No.		Description
3	(a)	Restated Certificate of Incorporation of the Company, as amended (1)
3	(b)	Amended and Restated By-Laws effective December 17, 2014 (2)
4	(a)	Share Rights Agreement, dated as of April 22, 2008, between the Company and Wells Fargo Bank, N.A., as Rights Agent (3)
4	(b)	Form of Amended and Restated Certificate of Powers, Designations, Preferences and Rights of Series A Junior Participating Preferred Shares (4)
10	(a)	Digi International Inc. 2016 Omnibus Incentive Plan (5)*
10	(a)(i)	Form of (Director) Restricted Stock Unit Award Agreement (for awards under Digi International Inc. 2016 Omnibus Incentive Plan)*
10	(a)(ii)	Form of (Executive) Restricted Stock Unit Award Agreement (for awards under Digi International Inc. 2016 Omnibus Incentive Plan)*
10	(a)(iii)	Form of (Employee) Restricted Stock Unit Award Agreement (for awards under Digi International Inc. 2016 Omnibus Incentive Plan)*
10	(a)(iv)	Form of Notice of Grant of Stock Options and Option Agreement (for grants under Digi International Inc. 2016 Omnibus Incentive Plan)*
31	(a)	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31	(b)	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32		Section 1350 Certification
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Calculation Linkbase Document
101.DEF		XBRL Taxonomy Definition Linkbase Document
101.LAB		XBRL Taxonomy Label Linkbase Document
101.PRE		XBRL Taxonomy Presentation Linkbase Document

*Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-Q.

______________

35

(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 (File No. 0-17972)

(2) Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed December 5, 2014 (File No. 1-34033)

(3) Incorporated by reference to Exhibit 4(a) to the Company’s registration statement on Form 8-A filed on April 25, 2008 (File No. 1-34033)

(4) Incorporated by reference to Exhibit 4(b) to the Company’s registration statement on Form 8-A filed on April 25, 2008 (File No. 1-34033)

(5) Incorporated by reference to Appendix A to the Company’s definitive proxy statement on Schedule 14A filed December 11, 2015 (File No. 1-34033)

36

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:	May 3, 2016	By:	/s/ Michael C. Goergen
			Michael C. Goergen
			Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Authorized Officer)

37

Exhibit Number		Document Description	Form of Filing
2		Stock Purchase Agreement dated as of October 23, 2015	Incorporated by Reference
3	(a)	Restated Certificate of Incorporation of the Company, as Amended	Incorporated by Reference
3	(b)	Amended and Restated By-Laws effective December 17, 2014	Incorporated by Reference
4	(a)	Share Rights Agreement, dated as of April 22, 2008, between the Company and Wells Fargo Bank, N.A., as Rights Agent	Incorporated by Reference
4	(b)	Form of Amended and Restated Certificate of Powers, Designations, Preferences and Rights of Series A Junior Participating Preferred Shares	Incorporated by Reference
10	(a)	Digi International Inc. 2016 Omnibus Incentive Plan	Incorporated by Reference
10	(a)(i)	Form of (Director) Restricted Stock Unit Award Agreement (for awards under Digi International Inc. 2016 Omnibus Incentive Plan)	Filed Electronically
10	(a)(ii)	Form of (Executive) Restricted Stock Unit Award Agreement (for awards under Digi International Inc. 2016 Omnibus Incentive Plan)	Filed Electronically
10	(a)(iii)	Form of (Employee) Restricted Stock Unit Award Agreement (for awards under Digi International Inc. 2016 Omnibus Incentive Plan)	Filed Electronically
10	(a)(iv)	Form of Notice of Grant of Stock Options and Option Agreement (for grants under Digi International Inc. 2016 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.INS		XBRL Instance Document	Filed Electronically
101.SCH		XBRL Taxonomy Extension Schema Document	Filed Electronically
101.CAL		XBRL Taxonomy Calculation Linkbase Document	Filed Electronically
101.DEF		XBRL Taxonomy Definition Linkbase Document	Filed Electronically
101.LAB		XBRL Taxonomy Label Linkbase Document	Filed Electronically
101.PRE		XBRL Taxonomy Presentation Linkbase Document	Filed Electronically

38

EX-10.AI

Exhibit 10(a)(i)

Digi International Inc.

2016 Omnibus Incentive Plan

(Director) Restricted Stock Unit Award Agreement

Digi International, Inc. (the “Company”), pursuant to its 2016 Omnibus Incentive Plan (the “Plan”), hereby grants an Award of restricted Stock Units to you, the Participant named below. The terms and conditions of this Award are set forth in this Restricted Stock Unit Award Agreement (the “Agreement”), consisting of this cover page and the Terms and Conditions on the following pages, and in the Plan document, which has been provided to you. To the extent any capitalized term used in this Agreement is not defined, it shall have the meaning assigned to it in the Plan as it currently exists or as it is amended in the future.

Name of Participant:
Number of Restricted Stock Units:	Grant Date:__________, 20__
Vesting Schedule:
Vesting Date(s)	Number of Stock Units that Vest

By signing below, you agree to all of the terms and conditions contained in this Agreement and in the Plan document. You acknowledge that you have reviewed these documents and that they set forth the entire agreement between you and the Company regarding the grant to you of the number of Restricted Stock Units specified in the table above.

PARTICIPANT:	DIGI INTERNATIONAL INC.
	By:
	Title:

Digi International Inc.

2016 Omnibus Incentive Plan

(Director) Restricted Stock Unit Award Agreement

Terms and Conditions

1.Grant of Restricted Stock Units. The Company hereby grants to you, subject to the terms and conditions in this Agreement and the Plan, an Award of the number of restricted Stock Units (“Units”) specified on the cover page of this Agreement, each representing the right to receive one Share of the Company’s Stock. The Units granted to you will be credited to an account in your name maintained by the Company. This account shall be unfunded and maintained for book-keeping purposes only, with the Units simply representing an unfunded and unsecured obligation of the Company

2.Restrictions on Units. Neither this Award nor the Units subject to this Award may be sold, assigned, transferred, exchanged or encumbered other than by will or the laws of descent and distribution. Any attempted transfer in violation of this Section 2 shall be of no effect and shall result in the forfeiture of all Units. The Units and your right to receive Shares in settlement of the Units under this Agreement shall be subject to forfeiture as provided in Section 4 until satisfaction of the vesting conditions set forth in Section 3.

3.Vesting of Units.

(a)Scheduled Vesting. If you remain a member of the Board continuously from the Grant Date specified on the cover page of this Agreement, then the Units will vest in the numbers and on the dates specified in the Vesting Schedule on the cover page of this Agreement.

(b)Accelerated Vesting. Vesting of the Units may be accelerated during the term of the Award at the discretion of the Committee in accordance with Section 16.2 of the Plan and under the following circumstances:

(i)Upon a Change in Control, this Award shall become fully vested upon the occurrence of the Change in Control.

(ii)In the event the stockholders of the Company approve the complete dissolution or liquidation of the Company, this Award shall become fully vested immediately prior to the consummation of any such proposed action.

(iii)Upon your death or termination of your service as a member of the Board due to your disability (within the meaning of Section 22(e)(3) of the Code), this Award shall become fully vested.

(c)Change in Control. “Change in Control” means one of the following:

(i)any individual, entity or Group (a “Person”) becomes a “beneficial owner” (as defined in Rule 13d-3 or any successor rule under the Exchange Act), directly or indirectly, of 30% or more of the combined voting power of the Company’s voting securities, except that the following shall not constitute a Change in Control: (A) any acquisition or beneficial ownership by the Company or a Subsidiary; (B) any acquisition or beneficial ownership by any employee benefit plan (or related trust) sponsored or maintained by the Company or one or more Subsidiary; (C) any formation of a Group consisting solely of beneficial owners of the Company’s voting securities as of the effective date of this Plan, or any repurchase or other acquisition by the Company of its voting securities that causes any Person to become the beneficial owner of 30% or more of the Company’s voting securities, in either case so long as such Person does not acquire beneficial ownership of additional Company voting securities after the Person initially became the beneficial owner of 30% or more of the Company’s voting securities by one of the means described in this clause (C); or (D) any acquisition of beneficial

ownership by any entity with respect to which, immediately following such acquisition, more than 50% of the combined voting power of such entity’s then outstanding voting securities is beneficially owned, directly or indirectly, by all or substantially all of the Persons who beneficially owned the Company’s voting securities immediately prior to such acquisition in substantially the same proportions as their ownership of the Company’s voting securities immediately prior to such acquisition;

(ii)(ii)Individuals (A) who are, as of the effective date of the Plan, directors of the Company, or (B) who are elected as a directors of the Company subsequent to the Grant Date and whose initial election, or nomination for initial election by the Company’s stockholders, was approved by at least a majority of the then Continuing Directors (collectively, “Continuing Directors”) cease for any reason to constitute a majority of the members of the Board; or

(iii)The consummation of a Fundamental Change unless, immediately following such Fundamental Change, all or substantially all of the Persons who were the beneficial owners of the Company’s voting securities immediately prior to such Fundamental Change beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities of the surviving or acquiring entity (or its Parent) resulting from such Fundamental Change in substantially the same proportions as their ownership, immediately prior to such Fundamental Change, of the Company’s voting securities.

(iv)Notwithstanding the foregoing, to the extent that this Award constitutes a deferral of compensation subject to Code Section 409A, then no Change in Control shall be deemed to have occurred upon an event described in this Section 3(c) unless the event would also constitute a change in ownership or effective control of, or a change in the ownership of a substantial portion of the assets of, the Company under Code Section 409A.

4.Effect of Separation from Service as Director. Except as otherwise provided in accordance with Section 3(b), if you cease to be a member of the Board prior to the Vesting Date(s) specified on the cover page of this Agreement, you will forfeit all unvested Units.

5.Settlement of Units. After any Units vest pursuant to Section 3, the Company shall, as soon as practicable (but no later than March 15 of the year following the calendar year in which such Units vest), cause to be issued and delivered to you, or to your designated beneficiary or estate in the event of your death, one Share in payment and settlement of each vested Unit. Delivery of the Shares shall be effected by an appropriate entry in the stock register maintained by the Company’s transfer agent with a notice of issuance provided to you, or by the electronic delivery of the Shares to a brokerage account you designate, and shall be subject to compliance with all applicable legal requirements, including compliance with the requirements of applicable federal and state securities laws, and shall be in complete satisfaction and settlement of such vested Units.

6.No Stockholder Rights. The Units subject to this Award do not entitle you to any rights of a holder of the Company’s Stock. You will not have any of the rights of a stockholder of the Company in connection with the grant of Units subject to this Agreement unless and until Shares are issued to you in settlement of the Units as provided in Section 5.

7.Governing Plan Document. This Agreement and the Award are subject to all the provisions of the Plan, and to all interpretations, rules and regulations that may, from time to time, be adopted and promulgated by the Committee pursuant to the Plan. If there is any conflict between the provisions of this Agreement and the Plan, the provisions of the Plan will govern.

8.Choice of Law. This Agreement will be interpreted and enforced under the laws of the state of Minnesota (without regard to its conflicts or choice of law principles).

9.Binding Effect. This Agreement will be binding in all respects on your heirs, representatives, successors and assigns, and on the successors and assigns of the Company.

10.Discontinuance of Service. This Agreement does not give you a right to continued service with the Company or any Affiliate, and the Company or any such Affiliate may terminate your service at any time and otherwise deal with you without regard to the effect it may have upon you under this Agreement.

11.Section 409A of the Code. The award of Units as provided in this Agreement and any issuance of Shares or payment pursuant to this Agreement are intended to be exempt from Section 409A of the Code under the short-term deferral exception specified in Treas. Reg. § 1.409A-l(b)(4).

By signing the cover page of this Agreement, you agree to all the terms and conditions described above and in the Plan document.

EX-10.AII

Exhibit 10(a)(ii)

Digi International Inc.

2016 Omnibus Incentive Plan

(Executive) Restricted Stock Unit Award Agreement

Digi International, Inc. (the “Company”), pursuant to its 2016 Omnibus Incentive Plan (the “Plan”), hereby grants an Award of restricted Stock Units to you, the Participant named below. The terms and conditions of this Award are set forth in this Restricted Stock Unit Award Agreement (the “Agreement”), consisting of this cover page and the Terms and Conditions on the following pages, and in the Plan document, which has been provided to you. To the extent any capitalized term used in this Agreement is not defined, it shall have the meaning assigned to it in the Plan as it currently exists or as it is amended in the future.

Name of Participant:
Number of Restricted Stock Units:	Grant Date:__________, 20__
Vesting Schedule:
Vesting Date(s)	Number of Stock Units that Vest

By signing below, you agree to all of the terms and conditions contained in this Agreement and in the Plan document. You acknowledge that you have reviewed these documents and that they set forth the entire agreement between you and the Company regarding the grant to you of the number of Restricted Stock Units specified in the table above.

PARTICIPANT:	DIGI INTERNATIONAL INC.
	By:
	Title:

Digi International Inc.

2016 Omnibus Incentive Plan

(Executive) Restricted Stock Unit Award Agreement

Terms and Conditions

(a)Scheduled Vesting. If you remain employed (which includes other service relationships described in Section 5 of the Plan) by the Company or any of its Affiliates continuously from the Grant Date specified on the cover page of this Agreement, then the Units will vest in the numbers and on the dates specified in the Vesting Schedule on the cover page of this Agreement.

(b)Accelerated Vesting. Vesting of the Units may be accelerated during the term of the Award at the discretion of the Committee in accordance with Section 16.2 of the Plan. Upon your death or termination of employment due to your disability (within the meaning of Section 22(e)(3) of the Code), this Award shall become fully vested.

(c)Effect of Change in Control. The following provisions shall apply if a Change in Control (as defined in Section 3(d)) occurs while Units remain outstanding pursuant to this Award:

(1)If the surviving or successor entity (which may include the Company), or such entity’s parent corporation, continues, assumes or replaces this Award (with such adjustments as may be required or permitted by Section 17 of the Plan), this Award or its replacement shall remain outstanding and be governed by its terms, including Section 3(c)(3) below. For these purposes, this Award shall be considered assumed or replaced if, in connection with the Change in Control, either (i) the contractual obligations represented by the Award are expressly assumed by the surviving or successor entity (or its parent corporation) with appropriate adjustments to the number and type of securities subject to the Award that preserves the intrinsic value of the Award existing at the time of the Change in Control, or (ii) you have received a comparable equity-based award that preserves the intrinsic value of this Award existing at the time of the Change in Control and contains terms and conditions that are substantially similar to those of this Award.

(2)If and to the extent that this Award is not continued, assumed or replaced in connection with a Change in Control, then all outstanding Units shall fully vest at or immediately prior to the effective time of the Change in Control. The Committee may alternatively provide that this Award shall be canceled at or immediately prior to the effective time of the Change in Control in exchange for a payment to you in an amount equal to the fair market value (as determined in good faith by the Committee) of the consideration that would otherwise be received in the Change in Control transaction by a Company stockholder for the number of Shares for which outstanding Units could then be settled (or, if no consideration would be received by the Company’s stockholders in the Change of Control transaction, the fair market value (as determined in good faith by the Committee) of such number of Shares immediately prior to the Change in Control). Payment of any such amount may be made in such form, on such terms and subject to such conditions as the Committee determines in its discretion, which may or may not be the same as the form, terms and conditions applicable to payments to the Company’s stockholders in connection with the Change in Control, and may, in the Committee’s discretion, include subjecting such payments to escrow or holdback terms comparable to those imposed upon the Company’s stockholders under the Change in Control, or calculating and paying the present value of payments that would otherwise be subject to escrow or holdback terms.

(3)If and to the extent that this Award is continued, assumed or replaced under the circumstances described in Section 3(c)(1), and if within 12 months after the Change in Control you experience an Employment Termination Event (as defined in Section 3(e)), then this Award and any outstanding Units shall immediately vest in full.

(d)Change in Control. “Change in Control” means one of the following:

(i)any individual, entity or Group (a “Person”) becomes a “beneficial owner” (as defined in Rule 13d-3 or any successor rule under the Exchange Act), directly or indirectly, of 30% or more of the combined voting power of the Company’s voting securities, except that the following shall not constitute a Change in Control: (A) any acquisition or beneficial ownership by the Company or a Subsidiary; (B) any acquisition or beneficial ownership by any employee benefit plan (or related trust) sponsored or maintained by the Company or one or more Subsidiary; (C) any formation of a Group consisting solely of beneficial owners of the Company’s voting securities as of the effective date of the Plan, or any repurchase or other acquisition by the Company of its voting securities that causes any Person to become the beneficial owner of 30% or more of the Company’s voting securities, in either case so long as such Person does not acquire beneficial ownership of additional Company voting securities after the Person initially became the beneficial owner of 30% or more of the Company’s voting securities by one of the means described in this clause (C); or (D) any acquisition of beneficial ownership by any entity with respect to which, immediately following such acquisition, more than 50% of the combined voting power of such entity’s then outstanding voting securities is beneficially owned, directly or indirectly, by all or substantially all of the Persons who beneficially owned the Company’s voting securities immediately prior to such acquisition in substantially the same proportions as their ownership of the Company’s voting securities immediately prior to such acquisition;

(ii)individuals (A) who are, as of the effective date of the Plan, directors of the Company, or (B) who are elected as directors of the Company subsequent to the Grant Date and whose initial election, or nomination for initial election by the Company’s stockholders, was approved by at least a majority of the then Continuing Directors (collectively, “Continuing Directors”) cease for any reason to constitute a majority of the members of the Board; or

(iii)the consummation of a Fundamental Change unless, immediately following such Fundamental Change, all or substantially all of the Persons who were the beneficial owners of the Company’s voting securities immediately prior to such Fundamental Change beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities of the surviving or acquiring entity (or its Parent) resulting from such Fundamental Change in substantially the same proportions as their ownership, immediately prior to such Fundamental Change, of the Company’s voting securities.

(iv)Notwithstanding the foregoing, to the extent that this Award constitutes a deferral of compensation subject to Code Section 409A, then no Change in Control shall be deemed to have occurred upon an event described in this Section 3(d) unless the event would also constitute a change in ownership or effective control of, or a change in the ownership of a substantial portion of the assets of, the Company under Code Section 409A.

(e)Employment Termination Event. An “Employment Termination Event” will be deemed to have occurred upon either: (i) the involuntary termination of your employment for reasons other than Cause (as defined in Section 3(f)), or (ii) the voluntary termination of your employment for Good Reason (as defined in Section 3(g)).

(f)Cause. “Cause” means only the following: (i) your indictment or conviction of, or a plea of nolo contendere to, (A) any felony (other than any felony arising out of negligence), or any misdemeanor involving moral turpitude with respect to the Company, or (B) your commission any crime or offense involving dishonesty with respect to the Company; (ii) theft or embezzlement by you of Company property or commission of similar acts involving dishonesty or moral turpitude; (iii) repeated material negligence in the performance of your duties after you have received written notice of the same; (iv) your failure to devote substantially all

of your working time and efforts during normal business hours to the Company’s business; (v) your knowing engagement in conduct that is materially injurious to the Company; or (vi) your knowingly providing materially misleading information concerning the Company to the Company’s Board of Directors, any governmental body or regulatory agency or to any lender or other financing source or proposed financing source of the Company.

(g)Good Reason. “Good Reason” means only the following: (i) the failure of the Company to pay any material amount due to you under a prevailing Employment Agreement; (ii) a meaningful diminution, without Cause, as defined above, in your responsibilities or job functions unless approved by you; (iii) a material reduction in your total compensation potential as defined by annual base salary and cash compensation targets; or (iv) your relocation to an office location greater than 50 miles from your office location at the time of a Change in Control.

1.Effect of Termination of Employment. Except as otherwise provided in accordance with Sections 3(b) or 3(c)(3), if you cease to be employed by the Company or any of its Affiliates prior to the Vesting Date(s) specified on the cover page of this Agreement, you will forfeit all unvested Units.

2.Settlement of Units. After any Units vest pursuant to Section 3, the Company shall, as soon as practicable (but no later than March 15 of the year following the calendar year in which such Units vest), cause to be issued and delivered to you, or to your designated beneficiary or estate in the event of your death, one Share in payment and settlement of each vested Unit. Delivery of the Shares shall be effected by an appropriate entry in the stock register maintained by the Company’s transfer agent with a notice of issuance provided to you, or by the electronic delivery of the Shares to a brokerage account you designate, and shall be subject to the tax withholding provisions of Section 6 and compliance with all applicable legal requirements, including compliance with the requirements of applicable federal and state securities laws, and shall be in complete satisfaction and settlement of such vested Units.

3.Tax Consequences and Withholding. As a condition precedent to the delivery of Shares in settlement of the Units, you are required to make arrangements acceptable to the Company for payment of any federal, state, local or foreign withholding taxes that may be due as a result of the settlement of vested Units. The Company will retain a portion of the Shares that would otherwise be delivered to you in settlement of vested Units, which retained Shares shall have a Fair Market Value equal to the amount required to be withheld, unless you provide notice to the Company prior to the vesting date of the Units that you desire to pay cash or direct the Company (or any Affiliate) to withhold from payroll or other amounts payable to you any sums required to satisfy such withholding tax obligations, and otherwise agree to satisfy such obligations in accordance with the provisions of Section 15 of the Plan. Delivery of Shares upon the vesting of Units is subject to the satisfaction of applicable withholding tax obligations.

4.No Stockholder Rights. The Units subject to this Award do not entitle you to any rights of a holder of the Company’s Stock. You will not have any of the rights of a stockholder of the Company in connection with the grant of Units subject to this Agreement unless and until Shares are issued to you in settlement of the Units as provided in Section 5.

5.Plan Document. This Agreement and the Award are subject to all the provisions of the Plan, and to all interpretations, rules and regulations that may, from time to time, be adopted and promulgated by the Committee pursuant to the Plan. If there is any conflict between the provisions of this Agreement and the Plan, the provisions of the Plan will govern.

6.Choice of Law. This Agreement will be interpreted and enforced under the laws of the state of Minnesota (without to its conflicts or choice of law principles).

7.Effect. This Agreement will be binding in all respects on your heirs, representatives, successors and assigns, and on the successors and assigns of the Company.

8.Discontinuance of Employment. This Agreement does not give you a right to continued employment with the Company or Affiliate, and the Company or any such Affiliate may terminate your employment at any time and otherwise deal with you without regard to the effect it may have upon you under this Agreement.

9.Section 409A of the Code. The award of Units as provided in this Agreement and any issuance of Shares pursuant to this Agreement are intended to be exempt from Section 409A of the Code under the short-term deferral specified in Treas. Reg. § 1.409A-l(b)(4).

By signing the cover page of this Agreement or otherwise accepting this Award in a manner approved by the Company, you agree to all the terms and conditions contained in this Agreement and in the Plan document.

EX-10.AIII

Exhibit 10(a)(iii)

Digi International Inc.

2016 Omnibus Incentive Plan

Restricted Stock Unit Award Agreement

Digi International, Inc. (the “Company”), pursuant to its 2016 Omnibus Incentive Plan (the “Plan”), hereby grants an Award of restricted Stock Units to you, the Participant named below. The terms and conditions of this Award are set forth in this Restricted Stock Unit Award Agreement (the “Agreement”), consisting of this cover page and the Terms and Conditions on the following pages, and in the Plan document, which has been provided to you. To the extent any capitalized term used in this Agreement is not defined, it shall have the meaning assigned to it in the Plan as it currently exists or as it is amended in the future.

Name of Participant:
Number of Restricted Stock Units:	Grant Date:__________, 20__
Vesting Schedule:
Vesting Date(s)	Number of Stock Units that Vest

By signing below, you agree to all of the terms and conditions contained in this Agreement and in the Plan document. You acknowledge that you have reviewed these documents and that they set forth the entire agreement between you and the Company regarding the grant to you of the number of Restricted Stock Units specified in the table above.

PARTICIPANT:	DIGI INTERNATIONAL INC.
	By:
	Title:

Digi International Inc.

2016 Omnibus Incentive Plan

Restricted Stock Unit Award Agreement

Terms and Conditions

(a)Scheduled Vesting. If you remain employed (which includes other service relationships described in Section 5 of the Plan) by the Company or any of its Affiliates continuously from the Grant Date specified on the cover page of this Agreement, then the Units will vest in the numbers and on the dates specified in the Vesting Schedule on the cover page of this Agreement.

(b)Accelerated Vesting. Vesting of the Units may be accelerated during the term of the Award at the discretion of the Committee in accordance with Section 16.2 of the Plan. Upon your death or termination of employment due to your disability (within the meaning of Section 22(e)(3) of the Code), this Award shall become fully vested.

(c)Effect of Change in Control. The following provisions shall apply if a Change in Control (as defined in Section 3(d)) occurs while Units remain outstanding pursuant to this Award:

(1)If the surviving or successor entity (which may include the Company), or such entity’s parent corporation, continues, assumes or replaces this Award (with such adjustments as may be required or permitted by Section 17 of the Plan), this Award or its replacement shall remain outstanding and be governed by its terms, including Section 3(c)(3) below. For these purposes, this Award shall be considered assumed or replaced if, in connection with the Change in Control, either (i) the contractual obligations represented by the Award are expressly assumed by the surviving or successor entity (or its parent corporation) with appropriate adjustments to the number and type of securities subject to the Award that preserves the intrinsic value of the Award existing at the time of the Change in Control, or (ii) you have received a comparable equity-based award that preserves the intrinsic value of this Award existing at the time of the Change in Control and contains terms and conditions that are substantially similar to those of this Award.

(2)If and to the extent that this Award is not continued, assumed or replaced in connection with a Change in Control, then all outstanding Units shall fully vest at or immediately prior to the effective time of the Change in Control. The Committee may alternatively provide that this Award shall be canceled at or immediately prior to the effective time of the Change in Control in exchange for a payment to you in an amount equal to the fair market value (as determined in good faith by the Committee) of the consideration that would otherwise be received in the Change in Control transaction by a Company stockholder for the number of Shares for which outstanding Units could then be settled (or, if no consideration would be received by the Company’s stockholders in the Change of Control transaction, the fair market value (as determined in good faith by the Committee) of such number of Shares immediately prior to the Change in Control). Payment of any such amount may be made in such form, on such terms and subject to such conditions as the Committee determines in its discretion, which may or may not be the same as the form, terms and conditions applicable to payments to the Company’s stockholders in connection with the Change in Control, and may, in the Committee’s discretion, include subjecting such payments to escrow or holdback terms comparable to those imposed upon the Company’s stockholders under the Change in Control, or calculating and paying the present value of payments that would otherwise be subject to escrow or holdback terms.

(d)Change in Control. “Change in Control” means one of the following:

(i)any individual, entity or Group (a “Person”) becomes a “beneficial owner” (as defined in Rule 13d-3 or any successor rule under the Exchange Act), directly or indirectly, of 30% or more

of the combined voting power of the Company’s voting securities, except that the following shall not constitute a Change in Control: (A) any acquisition or beneficial ownership by the Company or a Subsidiary; (B) any acquisition or beneficial ownership by any employee benefit plan (or related trust) sponsored or maintained by the Company or one or more Subsidiary; (C) any formation of a Group consisting solely of beneficial owners of the Company’s voting securities as of the effective date of the Plan, or any repurchase or other acquisition by the Company of its voting securities that causes any Person to become the beneficial owner of 30% or more of the Company’s voting securities, in either case so long as such Person does not acquire beneficial ownership of additional Company voting securities after the Person initially became the beneficial owner of 30% or more of the Company’s voting securities by one of the means described in this clause (C); or (D) any acquisition of beneficial ownership by any entity with respect to which, immediately following such acquisition, more than 50% of the combined voting power of such entity’s then outstanding voting securities is beneficially owned, directly or indirectly, by all or substantially all of the Persons who beneficially owned the Company’s voting securities immediately prior to such acquisition in substantially the same proportions as their ownership of the Company’s voting securities immediately prior to such acquisition;

(ii)individuals (A) who are, as of the effective date of the Plan, directors of the Company, or (B) who are elected as directors of the Company subsequent to the Grant Date and whose initial election, or nomination for initial election by the Company’s stockholders, was approved by at least a majority of the then Continuing Directors (collectively, “Continuing Directors”) cease for any reason to constitute a majority of the members of the Board; or

(iii)the consummation of a Fundamental Change unless, immediately following such Fundamental Change, all or substantially all of the Persons who were the beneficial owners of the Company’s voting securities immediately prior to such Fundamental Change beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities of the surviving or acquiring entity (or its Parent) resulting from such Fundamental Change in substantially the same proportions as their ownership, immediately prior to such Fundamental Change, of the Company’s voting securities.

(iv)Notwithstanding the foregoing, to the extent that this Award constitutes a deferral of compensation subject to Code Section 409A, then no Change in Control shall be deemed to have occurred upon an event described in this Section 3(d) unless the event would also constitute a change in ownership or effective control of, or a change in the ownership of a substantial portion of the assets of, the Company under Code Section 409A.

1.Effect of Termination of Employment. If you cease to be employed by the Company or any of its Affiliates prior to the Vesting Date(s) specified on the cover page of this Agreement, you will forfeit all unvested Units.

2.Settlement of Units. After any Units vest pursuant to Section 3, the Company shall, as soon as practicable (but no later than March 15 of the year following the calendar year in which such Units vest), cause to be issued and delivered to you, or to your designated beneficiary or estate in the event of your death, one Share in payment and settlement of each vested Unit. Delivery of the Shares shall be effected by an appropriate entry in the stock register maintained by the Company’s transfer agent with a notice of issuance provided to you, or by the electronic delivery of the Shares to a brokerage account you designate, and shall be subject to the tax withholding provisions of Section 6 and compliance with all applicable legal requirements, including compliance with the requirements of applicable federal and state securities laws, and shall be in complete satisfaction and settlement of such vested Units.

3.Tax Consequences and Withholding. As a condition precedent to the delivery of Shares in settlement of the Units, you are required to make arrangements acceptable to the Company for payment of any federal, state, local or foreign withholding taxes that may be due as a result of the settlement of vested Units. The Company will retain a portion of the Shares that would otherwise be delivered to you in settlement of vested Units, which retained Shares

shall have a Fair Market Value equal to the amount required to be withheld, unless you provide notice to the Company prior to the vesting date of the Units that you desire to pay cash or direct the Company (or any Affiliate) to withhold from payroll or other amounts payable to you any sums required to satisfy such withholding tax obligations, and otherwise agree to satisfy such obligations in accordance with the provisions of Section 15 of the Plan. Delivery of Shares upon the vesting of Units is subject to the satisfaction of applicable withholding tax obligations.

4.No Stockholder Rights. The Units subject to this Award do not entitle you to any rights of a holder of the Company’s Stock. You will not have any of the rights of a stockholder of the Company in connection with the grant of Units subject to this Agreement unless and until Shares are issued to you in settlement of the Units as provided in Section 5.

5.Plan Document. This Agreement and the Award are subject to all the provisions of the Plan, and to all interpretations, rules and regulations that may, from time to time, be adopted and promulgated by the Committee pursuant to the Plan. If there is any conflict between the provisions of this Agreement and the Plan, the provisions of the Plan will govern.

6.Choice of Law. This Agreement will be interpreted and enforced under the laws of the state of Minnesota (without to its conflicts or choice of law principles).

7.Effect. This Agreement will be binding in all respects on your heirs, representatives, successors and assigns, and on the successors and assigns of the Company.

8.Discontinuance of Employment. This Agreement does not give you a right to continued employment with the Company or Affiliate, and the Company or any such Affiliate may terminate your employment at any time and otherwise deal with you without regard to the effect it may have upon you under this Agreement.

9.Section 409A of the Code. The award of Units as provided in this Agreement and any issuance of Shares pursuant to this Agreement are intended to be exempt from Section 409A of the Code under the short-term deferral specified in Treas. Reg. § 1.409A-l(b)(4).

By signing the cover page of this Agreement or otherwise accepting this Award in a manner approved by the Company, you agree to all the terms and conditions contained in this Agreement and in the Plan document.

EX-10.AIV

Exhibit 10(a)(iv)

Notice of Grant of Stock Options and Option Agreement	Digi International Inc. ID:  41-1532464 11001 Bren Road East Minnetonka, MN 55343
[Optionee] [Address] [City, State, County, Zip Code]	Option Number: Plan: 2016 Omnibus Incentive Plan ID:

Effective [date], you have been granted a Non-Qualified Stock Option to buy [number of shares] shares of Digi International Inc. (the Company) stock at $[per share exercise price] per share.

The total option price of the shares granted is $[aggregate exercise price]

Shares in each period will become fully vested on the date shown.

Shares	Vest Type	Full Vest	Expiration
By your signature and the Company’s signature below, you and the Company agree that these options are granted under and governed by the terms and conditions of the Company’s Stock Option Plan as amended and the Option Agreement, all of which are attached and made a part of this document.
_______________________________________________ Digi International Inc.		__________________________________________ Date
_______________________________________________ [Optionee]		__________________________________________ Date

DIGI INTERNATIONAL INC.

2016 OMNIBUS INCENTIVE PLAN

Terms and Conditions of an Award

These are the terms and conditions applicable to the INCENTIVE PLAN AWARD AGREEMENT between Digi International Inc., a Delaware corporation (the “Company”), and the participant (the “Participant”) listed on the cover page hereof (the “Cover Page”) effective as of the date of award. The Cover Page together with these terms and conditions of Incentive Plan Award Agreement constitute the “Incentive Plan Award Agreement.”

WHEREAS, the Company desires to carry out the purposes of its Digi International Inc. 2016 Omnibus Incentive Plan as amended from time to time (the “Plan”), by affording the Participant an opportunity to purchase Stock of the Company, par value $.01 per share (the “ Shares”), according to the terms set forth herein and on the Cover Page;

NOW THEREFORE, the Company hereby awards this Option to the Participant under the terms and conditions as follows:

1.Award of Option. Subject to the terms of the Plan, the Company hereby awards to the Participant the right and option (the “Option”) to purchase the number of Shares specified on the Cover Page, on the terms and conditions hereinafter set forth. The Option is not intended by the Company to be an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

2.Purchase Price. The purchase price of each of the Shares subject to the Option shall be the exercise price per share specified on the Cover Page, which price has been specified in accordance with the Plan and shall not be less than the Fair Market Value (as defined in paragraph 2.1(1) of the Plan) of a Share as of the date of grant.

3.Option Period.

(a)Subject to the provisions of paragraphs 5(a), 6(a) and 6(b) hereof, the Option shall become exercisable as to the number of Shares and on the dates specified in the exercise schedule on the Cover Page. The exercise schedule shall be cumulative; thus, to the extent the Option has not already been exercised and has not expired, terminated or been canceled, the Participant may at any time, and from time to time, purchase all or any portion of the Shares then purchasable under the exercise schedule.

(b)The Option and all rights to purchase Shares thereunder shall cease on the earliest of:

(i)the expiration date specified on the Cover Page (which date shall not be more than seven years after the date of grant);

(ii)the expiration of the period after the termination of the Participant’s employment (as defined in paragraph 6.4 of the Plan) within which the Option is exercisable as specified in paragraph 5(a); or

(iii)the date, if any, fixed for cancellation pursuant to paragraph 6(b) hereof.

Notwithstanding any other provision in this Incentive Plan Award Agreement, in no event may anyone exercise the Option, in whole or in part, after its original expiration date.

4.Manner of Exercising Option. Subject to the terms and conditions of this Incentive Plan Award Agreement, the Option may be exercised online with E*Trade at www.etrade.com/stockplans or by such other means as the Committee shall approve. In accordance with present practice, when your Option is awarded, a letter or email will be sent to you from E*Trade with instructions on how to activate your account with E*Trade so that you can view and exercise your Option online. If you are a director or officer of the Company, then you must contact E*Trade Executive Support at 1-800-775-2793 in order to exercise your Option.

5.Exercisability of Option After Termination of Employment.

(a)During the lifetime of the Participant, the Option may be exercised only while the Participant is employed (as defined in paragraph 5 of the Plan) by the Company or a parent or subsidiary thereof, and only if the Participant has been continuously so employed since the date of this Incentive Plan Award Agreement, except that:

(i)if the Participant is not a Non-Employee Director (as defined in paragraph 2.1(q) of the Plan), the Option shall continue to be exercisable for three months after termination of the Participant’s employment for any reason other than death, disability or cause, but only to the extent that the Option was exercisable immediately prior to the Participant’s termination of employment;

(ii)if the Participant is not a Non-Employee Director, in the event the Participant’s employment terminates because the Participant is disabled (within the meaning of Section 22(e)(3) of the Code), the Participant or his or her legal representative may exercise the Option (to the extent specified in paragraph 6(a) of this Incentive Plan Award Agreement) within one year after the termination of the Participant’s employment because of such disability;

(iii)if the Participant is not a Non-Employee Director and if the Participant dies while employed, or within three months after his or her termination of employment, the heirs or legatees of the Participant’s estate or the person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option (to the extent specified in paragraph 6(a)) within one year after the death of the Participant;

(iv)if the Participant is a Non-Employee Director, the Option shall continue to be exercisable after the Participant’s employment ends for the remaining term of the Option, but shall be exercisable only to the extent that the Option was exercisable immediately prior to the end of Participant’s employment, except that if the Participant’s employment ends because of death or disability, or the Participant dies within three months of his or her employment ending, the Option, whether or not previously exercisable, shall become exercisable to the extent specified in paragraph 6(a) of this Incentive Plan Award Agreement and shall continue to be exercisable after the Participant’s employment ends for the remaining term of the Option;

(v)if the Participant’s employment terminates due to cause (as defined in paragraph 20.1 of the Plan), the Option and all rights of the Participant hereunder shall terminate immediately; and

(vi)if the Participant’s employment terminates after a declaration pursuant to paragraph 6(b) of this Incentive Plan Award Agreement, the Participant may exercise the Option at any time permitted by such declaration.

If, during the term of the Option, the Participant’s status changes to or from that of a Non-Employee Director, the provisions of this paragraph 5(a) shall be applied to the Participant based on the Participant’s status as of the date the Option was awarded.

(b)Neither the transfer of the Participant between any combination of the Company and any Affiliate, nor a leave of absence awarded to the Participant and approved by the Committee, shall be deemed a termination of employment.

6.Acceleration of Option.

(a)Disability or Death. If paragraph 5(a)(ii), 5(a)(iii) or the exception clause of paragraph 5(a)(iv) of this Incentive Plan Award Agreement is applicable, the Option, whether or not previously exercisable, shall become immediately exercisable in full if the Participant shall have been employed continuously by the Company

or an Affiliate between the date the Option was granted and the date of such disability or, in the event of death, the date of such Participant’s death.

(b)Dissolution, Liquidation, Merger. In the event of (i) a proposed merger or consolidation of the Company with or into any other corporation, regardless of whether the Company is the surviving corporation, unless appropriate provision shall have been made for the protection of the Option by the substitution, in lieu of the Option, of an option to purchase appropriate voting stock (the “Survivor’s Stock”) of the corporation surviving any such merger or consolidation or, if appropriate, the parent corporation of the Company or such surviving corporation, or, alternatively, by the delivery of a number of shares of the Survivor’s Stock that has a Fair Market Value as of the effective date of such merger or consolidation equal to the product of (A) the excess of (x) the Event Proceeds per Share (as hereinafter defined) covered by the Option as of such effective date, over (y) the Option exercise price per Share, times (B) the number of Shares covered by the Option, or (ii) the proposed dissolution or liquidation of the Company (such merger, consolidation, dissolution or liquidation being herein called an “Event”), the Committee shall declare, at least ten days prior to the actual effective date of an Event, and provide written notice to the Participant of the declaration, that the Option, whether or not then exercisable, shall be canceled at the time of, or immediately prior to the occurrence of, the Event (unless it shall have been exercised prior to the occurrence of the Event) in exchange for payment to the Participant, within ten days after the Event, of cash equal to the amount (if any), for each Share covered by the canceled Option, by which the Event Proceeds per Share (as hereinafter defined) exceeds the exercise price per Share covered by the Option. At the time of the declaration provided for in the immediately preceding sentence, the Option shall immediately become exercisable in full and the Participant shall have the right, during the period preceding the time of cancellation of the Option, to exercise the Option as to all or any part of the Shares covered thereby. The Option, to the extent it shall not have been exercised prior to the Event, shall be canceled at the time of, or immediately prior to, the Event, as provided in the declaration, and this Plan shall terminate at the time of such cancellation, subject to the payment obligations of the Company provided in this paragraph 6(b). For purposes of this paragraph, “Event Proceeds per Share” shall mean the cash plus the fair market value, as determined in good faith by the Committee, of the non-cash consideration to be received per Share by the stockholders of the Company upon the occurrence of the Event.

7.Limitation on Transfer. During the lifetime of the Participant, only the Participant or his or her guardian or legal representative may exercise the Option. The Participant shall not assign or transfer the Option otherwise than by will or the laws of descent and distribution, and the Option shall not be subject to pledge, hypothecation, execution, attachment or similar process. Any attempt to assign, transfer, pledge, hypothecate or otherwise dispose of the Option contrary to the provisions hereof, and the levy of any attachment or similar process upon the Option, shall be null and void.

8.Stockholder Rights Before Exercise. The Participant shall have none of the rights of a stockholder of the Company with respect to any share subject to the Option until the share is actually issued to him or her upon exercise of the Option.

9.Adjustment For Changes in Capitalization. The Option is subject to adjustment for changes in capitalization as provided in paragraph 17 of the Plan.

10.Tax Withholding. The parties hereto recognize that the Company or a parent or subsidiary thereof may be obligated to withhold federal and state income taxes and social security or other taxes upon the Participant’s exercise of the Option. The Participant agrees that, at the time he or she exercises the Option, if the Company or a parent or subsidiary thereof is required towithhold such taxes, he or she will promptly pay in cash upon demand to the Company, or the parent or subsidiary having such obligation, such amounts as shall be necessary to satisfy such obligation; provided, however, that in lieu of all or any part of such a cash payment, the Committee may, but shall not be required to (or, in the case of an Participant who is a Non-Employee Director (as defined in the Plan), the Committee shall) permit the Participant to elect to cover all or any part of the required withholdings (up to the Participant’s minimum required tax withholding rate) through a reduction of the number of Shares delivered to the Participant or through a subsequent return to the Company of shares delivered to the Participant.

11.Interpretation of this Incentive Plan Award Agreement. All decisions and interpretations made by the Committee with regard to any question arising hereunder or under the Plan shall be binding and conclusive upon the Company and the Participant. In the event that there is any inconsistency between the provisions of this Incentive Plan Award Agreement and the Plan, the provisions of the Plan shall govern.

12.Discontinuance of Employment. This Incentive Plan Award Agreement shall not give the Participant a right to continued employment with the Company or any parent or subsidiary thereof, and the Company or any such parent or subsidiary thereof employing the Participant may terminate his or her employment and otherwise deal with the Participant without regard to the effect it may have upon him or her under this Incentive Plan Award Agreement.

13.General. The Company shall at all times during the term of this Option reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of this Incentive Plan Award Agreement. This Incentive Plan Award Agreement shall be binding in all respects on the Participant’s heirs, representatives, successors and assigns. This Incentive Plan Award Agreement is entered into under the laws of the State of Minnesota and shall be construed and interpreted thereunder.

DIGI INTERNATIONAL INC.

2016 OMNIBUS INCENTIVE PLAN

Addendum I

to

Terms and Conditions of Nonstatutory Stock Option Agreement

Paragraph 6, entitled “Acceleration of Option,” is amended to add new subparagraph (c), which provides as follows:

(c)Change in Control and Employment Termination Event. The Option, whether or not previously exercisable, shall become immediately exercisable in full upon the occurrence of any “Change in Control” that occurs contemporaneously with, or is followed within 12 months of the Change in Control by, an “Employment Termination Event”.

A “Change in Control” will be deemed to have occurred upon the occurrence of either of the following events:

(i) any person, as defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934 (the “Exchange Act”), becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated pursuant to the Exchange Act), directly or indirectly, of securities of the Company having 25% or more of the voting power in the election of directors of the Company, excluding, however, Participant (or a group of persons, including Participant, acting in concert); or

(ii) the occurrence within any period, commencing immediately after an Annual Meeting of Stockholders and continuing to and including the Annual Meeting of Stockholders occurring on or about the third anniversary date of the commencement of such period, of a change in the Board of Directors of the Company with the result that the Incumbent Members (as defined below) do not constitute a majority of the Company’s Board of Directors. The term “Incumbent Members” shall mean the members of the Board on the date of the commencement of such period, provided that any person becoming a director during such period whose election or nomination for election was approved by a majority of the directors who, on the date of such election or nomination for election, comprised the Incumbent Members shall be considered one of the Incumbent Members in respect of such period.

An “Employment Termination Event” will be deemed to have occurred upon either:

For purposes of this subparagraph (c), “Cause” means only the following:

(i) indictment or conviction of, or a plea of nolo contendere to, (A) any felony (other than any felony arising out of negligence), or any misdemeanor involving moral turpitude with respect to the Company, or (B) any crime or offense involving dishonesty with respect to the Company;

(ii) theft or embezzlement of Company property or commission of similar acts involving dishonesty or moral turpitude;

(iii) repeated material negligence in the performance of Participant’s duties after the Participant has received written notice of the same;

(iv) Participant’s failure to devote substantially all of his working time and efforts during normal business hours to the Company’s business;

(v) knowing engagement in conduct that is materially injurious to the Company; or

(vi) knowingly providing materially misleading information concerning the Company to the Company’s Board of Directors, any governmental body or regulatory agency or to any lender or other financing source or proposed financing source of the Company.

For purposes of this subparagraph (c), “Good Reason” means only the following:

(i) the failure of the Company to pay any material amount due to Participant under a prevailing Employment Agreement;

(ii) a meaningful diminution, without Cause, as defined above, in the responsibilities or job functions of the Participant unless approved by the Participant;

(iii) a material reduction in total compensation potential as defined by annual base salary and cash compensation targets; or

(iv) the relocation of Participant to an office location greater than 50 miles from his/her office location at the time of a Change in Control.

EX-31.A

Exhibit No. 31(a)

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ronald E. Konezny, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Digi International Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

May 3, 2016	/s/ Ronald E. Konezny
	Ronald E. Konezny
	President and Chief Executive Officer

EX-31.B

Exhibit No. 31(b)

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael C. Goergen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Digi International Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

May 3, 2016	/s/ Michael C. Goergen
	Michael C. Goergen
	Senior Vice President, Chief Financial Officer and Treasurer

EX-32

Exhibit No. 32

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Digi International Inc. (the Registrant) on Form 10-Q for the fiscal quarter ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof, each of the undersigned certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Quarterly Report on Form 10-Q complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

May 3, 2016
	/s/ Ronald E. Konezny
	Ronald E. Konezny
	President and Chief Executive Officer
	/s/ Michael C. Goergen
	Michael C. Goergen
	Senior Vice President, Chief Financial Officer and Treasurer

XML

Document and Entity Information - shares	6 Months Ended
	Mar. 31, 2016	Apr. 27, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	DIGI INTERNATIONAL INC.
Entity Central Index Key	0000854775
Current Fiscal Year End Date	--09-30
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		25,872,329

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended		6 Months Ended
		Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Revenue:
Hardware product		$ 48,732	$ 48,108	$ 96,979	$ 93,041
Service		1,430	2,293	3,442	4,578
Total revenue		50,162	50,401	100,421	97,619
Cost of sales:
Cost of hardware product		24,283	25,498	48,993	48,610
Cost of service		1,137	1,668	2,329	3,217
Total cost of sales		25,420	27,166	51,322	51,827
Gross profit		24,742	23,235	49,099	45,792
Operating expenses:
Sales and marketing		8,165	9,875	16,683	20,110
Research and development		7,757	7,280	15,595	14,363
General and administrative		5,065	4,349	9,126	9,124
Restructuring charge		102	412	753	412
Total operating expenses		21,089	21,916	42,157	44,009
Operating income		3,653	1,319	6,942	1,783
Other (expense) income, net:
Interest income, net		12	54	112	92
Other (expense) income, net		(284)	1,324	(161)	1,712
Total other (expense) income, net		(272)	1,378	(49)	1,804
Income from continuing operations, before income taxes		3,381	2,697	6,893	3,587
Income tax provision		1,155	1,035	1,536	907
Income continuing operations		2,226	1,662	5,357	2,680
(Loss) income from discontinued operations, after income taxes		(89)	(216)	3,230	(1,573)
Net income		$ 2,137	$ 1,446	$ 8,587	$ 1,107
Basic net income (loss) per common share:
Continuing operations, basic (USD per share)		$ 0.09	$ 0.07	$ 0.21	$ 0.11
Discontinued operations, basic (USD per share)		0.00	(0.01)	0.13	(0.06)
Total, basic (1) (USD per share)	[1],[2]	0.08	0.06	0.34	0.05
Diluted net income (loss) per common share
Continuing operations, diluted (USD per share)		0.09	0.07	0.21	0.11
Discontinued operations, diluted (USD per share)		0.00	(0.01)	0.12	(0.06)
Total, diluted (1) (USD per share)	[1],[2]	$ 0.08	$ 0.06	$ 0.33	$ 0.04
Weighted average common shares:
Basic (shares)		25,820	24,492	25,574	24,319
Diluted (shares)		25,998	25,273	26,116	24,816

[1] Earnings per share presented are calculated by line item and may not add due to the use of rounded amounts.

[2] Earnings per share presented are calculated by line item and may not add due to the use of rounded amounts.

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Statement of Comprehensive Income [Abstract]
Net income		$ 2,137	$ 1,446	$ 8,587	$ 1,107
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		1,421	(3,356)	(446)	(5,729)
Change in net unrealized gain (loss) on investments		106	23	43	(6)
Less income tax (provision) benefit		(39)	(9)	(16)	2
Reclassification of realized loss (gain) on investments included in net income (1)	[1]	0	1	(7)	1
Less income tax benefit (2)	[2]	0	0	3	0
Other comprehensive loss (income), net of tax		1,488	(3,341)	(423)	(5,732)
Comprehensive income (loss)		$ 3,625	$ (1,895)	$ 8,164	$ (4,625)

[1] Recorded in Other income, net on our Condensed Consolidated Statements of Operations.

[2] Recorded in Income tax provision in our Condensed Consolidated Statements of Operations.

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2016	Sep. 30, 2015
Current assets:
Cash and cash equivalents	$ 67,270	$ 45,018
Marketable securities	48,114	47,191
Accounts receivable, net	28,569	27,788
Inventories	25,684	31,877
Deferred tax assets	0	3,252
Receivable from sale of business	2,967	0
Other	4,326	3,435
Current assets of discontinued operations	0	1,624
Total current assets	176,930	160,185
Marketable securities, long-term	7,292	13,626
Property, equipment and improvements, net	13,986	14,339
Identifiable intangible assets, net	4,795	2,648
Goodwill	110,707	100,183
Deferred tax assets	7,685	6,255
Receivable from sale of business	1,939	0
Other	215	250
Non-current assets of discontinued operations	0	2,874
Total assets	323,549	300,360
Current liabilities:
Accounts payable	7,280	6,673
Income taxes payable	236	828
Accrued compensation	6,993	10,156
Accrued warranty	944	1,014
Contingent consideration on acquired business	850	0
Other	4,376	3,037
Current liabilities of discontinued operations	0	1,481
Total current liabilities	20,679	23,189
Income taxes payable	1,366	1,546
Deferred tax liabilities	690	135
Contingent consideration on acquired business	9,672	0
Other non-current liabilities	736	457
Non-current liabilities of discontinued operations	0	95
Total liabilities	$ 33,143	$ 25,422
Contingencies (see Note 11)
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued and outstanding	$ 0	$ 0
Common stock, $.01 par value; 60,000,000 shares authorized; 32,346,667 and 31,534,198 shares issued	323	315
Additional paid-in capital	234,699	227,367
Retained earnings	132,991	124,404
Accumulated other comprehensive loss	(23,036)	(22,613)
Treasury stock, at cost, 6,474,338 and 6,487,248 shares	(54,571)	(54,535)
Total stockholders' equity	290,406	274,938
Total liabilities and stockholders' equity	$ 323,549	$ 300,360

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Mar. 31, 2016	Sep. 30, 2015
Statement of Financial Position [Abstract]
Preferred stock, par value (USD per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (USD per share)	$ 0.01	$ 0.01
Common stock, shares authorized	60,000,000	60,000,000
Common stock, shares issued	32,346,667	31,534,198
Treasury stock, shares	6,474,338	6,487,248

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Operating activities:
Net income	$ 8,587	$ 1,107
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, equipment and improvements	1,405	1,445
Amortization of identifiable intangible assets	1,001	1,537
Stock-based compensation	1,719	2,222
Excess tax benefits from stock-based compensation	(202)	0
Deferred income tax provision	1,397	2,212
Gain on insurance settlement related to property and equipment	0	(989)
Gain on sale of business	(2,870)	0
Bad debt/product return provision	168	518
Inventory obsolescence	834	476
Restructuring charge	753	518
Other	182	(27)
Changes in operating assets and liabilities	(1,486)	(7,459)
Net cash provided by operating activities	11,488	1,560
Investing activities:
Purchase of marketable securities	(22,056)	(22,099)
Proceeds from maturities of marketable securities	27,509	19,763
Proceeds from sale of business	2,849	0
Acquisition of business, net of cash acquired	(2,860)	0
Proceeds from insurance settlement related to property and equipment	0	1,014
Proceeds from sale of property and equipment	0	45
Purchase of property, equipment, improvements and certain other intangible assets	(1,209)	(3,035)
Net cash provided by (used in) investing activities	4,233	(4,312)
Financing activities:
Excess tax benefits from stock-based compensation	202	0
Proceeds from stock option plan transactions	6,267	6,006
Proceeds from employee stock purchase plan transactions	494	505
Purchases of common stock	(503)	(2,339)
Net cash provided by financing activities	6,460	4,172
Effect of exchange rate changes on cash and cash equivalents	71	(3,253)
Net increase (decrease) in cash and cash equivalents	22,252	(1,833)
Cash and cash equivalents, beginning of period	45,018	47,490
Cash and cash equivalents, end of period	67,270	45,657
Supplemental schedule of non-cash investing and financing activities
Receivable related to sale of business	4,906	0
Liability related to acquisition of business	$ (10,550)	$ 0

XML

Basis of Presentation of Unaudited Interim Condensed Consolidated Financial Statements and Significant Accounting Policies

6 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANTACCOUNTING POLICIES

BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The interim unaudited condensed consolidated financial statements included in this Form 10-Q have been prepared by Digi International Inc. (the “Company,” “Digi,” “we,” “our,” or “us”) pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto, including (but not limited to) the summary of significant accounting policies, presented in our Annual Report on Form 10-K for the year ended September 30, 2015 as filed with the SEC (“2015 Financial Statements”).

On October 23, 2015, we sold all of the outstanding stock of our wholly owned subsidiary, Etherios Inc. (Etherios) to West Monroe Partners, LLC. Because the sale of Etherios represented a strategic shift that will have a major effect on our operations and financial results, we have classified our Etherios business as discontinued operations and have therefore segregated its operating results from continuing operations in our Condensed Consolidated Statements of Operations for all periods presented. We have also segregated the assets and liabilities of Etherios on our Condensed Consolidated Balance Sheet for September 30, 2015.

During the first fiscal quarter ending December 31, 2015, we adopted Accounting Standards Update (“ASU”) 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” on a prospective basis. As required by ASU 2015-17, all deferred tax assets and liabilities are classified on a jurisdictional basis as non-current in our condensed consolidated balance sheets, which is a change from our historical presentation whereby certain of our deferred tax assets and liabilities were classified as current and the remainder were classified as non-current. Our prior periods were not retrospectively adjusted.

The condensed consolidated financial statements presented herein reflect, in the opinion of management, all adjustments which consist only of normal, recurring adjustments necessary for a fair statement of the condensed consolidated balance sheets and condensed consolidated statements of operations, comprehensive income (loss) and cash flows for the periods presented. The condensed consolidated results of operations for any interim period are not necessarily indicative of results for the full year. The year-end condensed consolidated balance sheet data were derived from our 2015 Financial Statements, but do not include all disclosures required by U.S. GAAP.

Contingent Consideration

We measure our contingent consideration liabilities recognized in connection with business combinations at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy as defined in ASC 320 “Investments - Debt and Equity Securities”. We used a probability-weighted discounted cash flow approach as a valuation technique to determine the fair value of the contingent consideration on the acquisition date. At each subsequent reporting period, the fair value is remeasured with the change in fair value recognized in general and administrative expense and interest expense in our Condensed Consolidated Statements of Operations. Amounts, if any, paid to the seller in excess of the amount recorded on the acquisition date will be classified as cash flows used in operating activities. Payments to the seller not exceeding the acquisition-date fair value of the contingent consideration will be classified as cash flows used in financing activities.

Recently Issued Accounting Pronouncements

Not Yet Adopted

In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”. This update includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016, which for us is the first fiscal quarter ending December 31, 2017. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements.

1. BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In March 2016, FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606)”. This update clarifies implementation guidance on principal-versus-agent considerations, including how an entity determines whether it is a principal or an agent for each specified good or service promised to the customer and how an entity determines the nature of each specified good or service. In addition, ASU 2016-08 updates the indicators in ASC 606-10-55-39 and revises the existing examples in ASC 606 to better illustrate the application of the principal-versus-agent guidance. This ASU is effective at the same time as those in ASU 2014-09 (as amended by ASU 2015-14), which for us is for our fiscal 2019, including interim periods within that reporting period. We are currently assessing the potential impact of adopting this ASU on our consolidated financial statements and related disclosures.

In February, 2016, FASB issued ASU 2016-02, “Leases (Topic 842)”, which amends the existing guidance to require lessees to recognize lease assets and lease liabilities from operating leases on the balance sheet. This ASU is effective using the modified retrospective approach for annual periods and interim periods within those annual periods beginning after December 15, 2018, which for us is the first fiscal quarter ending December 31, 2019. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In January 2016, FASB issued ASU 2016-01, “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 will require equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. The amendments in this update will also simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet and require these entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes. This ASU would also change the presentation and disclosure requirements for financial instruments. In addition, this ASU clarifies the guidance related to valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, which for us is the first fiscal quarter ending December 31, 2018. Early adoption is permitted for financial statements of fiscal years and interim periods that have not been issued. We are currently evaluating the impact of the adoption of ASU 2016-01.

In July 2015, FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory." This provision would require inventory that was previously recorded using first-in, first-out (FIFO) to be recorded at lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years, which for us will be the first fiscal quarter ending December 31, 2017. The amendments in this guidance should be applied prospectively with earlier application permitted as of the beginning of an interim or annual period. We are currently evaluating the impact of the adoption of ASU 2015-11 and whether it would have a material impact on our consolidated financial statements.

In April 2015, FASB issued ASU 2015-05, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The new standard provides guidance to customers about whether a cloud computing arrangement includes a software license. If the arrangement does include a software license, the software license element of the arrangement should be accounted for in the same manner as the acquisition of other software licenses. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, with early adoption permitted. We expect to adopt this guidance beginning with our fiscal quarter ending December 31, 2016. We do not expect this guidance to have a material impact on our consolidated financial statements.

In August 2014, FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern.” This guidance requires management to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. These amendments are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter, which for us, will be our annual period ended September 30, 2017. Early adoption is permitted. While we are evaluating the impact of the adoption of ASU 2014-15, we do not expect it to have an impact on our consolidated financial statements.

In May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This guidance provides a five-step analysis in determining when and how revenue is recognized so that an entity will recognize revenue when it transfers promised

1. BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

goods or services to customers in an amount that reflects what it expects in exchange for the goods and services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14 "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date" which approved a one-year deferral of the effective date of ASU 2014-09. As a result of this deferral, ASU 2014-09 is effective for our fiscal 2019, including interim periods within that reporting period. The FASB also agreed to allow us to choose to adopt the standard effective for our fiscal 2018. We will adopt the guidance beginning October 1, 2018 and are currently assessing the potential impact of adopting this ASU on our consolidated financial statements and related disclosures.

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Acquisition

6 Months Ended

Mar. 31, 2016

Business Combinations [Abstract]

Acquisition

ACQUISITION

Acquisition of Bluenica Corporation

On October 5, 2015 we purchased all of the outstanding stock of Bluenica Corporation (“Bluenica”), a company focused on temperature monitoring of perishable goods in the food industry by using wireless sensors which are installed in grocery and convenience stores, restaurants, and in products during shipment and storage to ensure that quality, freshness and public health requirements are met.  This acquisition forms the basis for our Digi Cold Chain Solutions.

The terms of the acquisition included an upfront cash payment together with earn-out payments.  Cash of $2.9 million was paid at time of closing.  The earn-out payments are scheduled to be paid in installments over a four-year period based on revenue achievement of the acquired business. Each of the earn-out payments will be calculated based on the revenue performance of Digi Cold Chain solutions for each respective earn-out period. The cumulative amount of these earn-out payments will not exceed $11.6 million.  An additional payment, not to exceed $3.5 million, may also be due depending on revenue performance. The fair value of this contingent consideration was $10.4 million at the date of acquisition (see Note 7 to the Condensed Consolidated Financial Statements). We have determined that the earn-out will be considered as part of the purchase price consideration as there are no continuing employment requirements associated with the earn-out. Costs directly related to the acquisition, including legal, accounting and valuation fees, of approximately of $0.1 million have been charged directly to operations and are included in general and administrative expense in our Condensed Consolidated Statements of Operations in fiscal 2016.

The purchase price was allocated to the estimated fair value of assets acquired and liabilities assumed. The purchase price allocation resulted in the recognition of $11.0 million of goodwill. We believe that the acquisition resulted in the recognition of goodwill because this is a complementary acquisition for us and will provide a source of recurring revenue in a new vertically focused solutions business.

Bluenica’s operating results are included in our Condensed Consolidated Statements of Operations from October 6, 2015. The Condensed Consolidated Balance Sheet as of March 31, 2016 reflects the allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition.

The Bluenica acquisition has been accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed pursuant to the stock purchase agreement be recognized at fair value as of the acquisition date. Certain estimated values are not yet finalized (see below) and are subject to change, which could be significant. We will finalize the amounts recognized as information necessary to complete the analysis is obtained. We expect to finalize these amounts not later than the end of our third quarter of fiscal 2016. The amounts for deferred tax assets and liabilities, pending the finalization of final tax returns remain subject to change.

2. ACQUISITION (CONTINUED)

The following table summarizes the values of Bluenica assets acquired and liabilities assumed as of the acquisition date. To the extent previously discussed, such amounts are considered preliminary (in thousands):

Cash	$	2,888
Purchase price payable upon completion of diligence matters	115
Fair value of contingent consideration on acquired business	10,400
Total purchase price consideration	$	13,403
Fair value of net tangible assets acquired	$	129
Fair value of identifiable intangible assets acquired:
Purchased and core technology	2,000
Customer relationships	900
Goodwill	11,020
Deferred tax liabilities, net	(646		)
Total	$	13,403

The weighted average useful life for all the identifiable intangibles listed above is 5.6 years. For purposes of determining fair value, the purchased and core technology identified above is assumed to have a useful life of five years and the customer relationships are assumed to have useful live of seven years. Useful lives for identifiable intangible assets are estimated at the time of acquisition based on the periods of time from which we expect to derive benefits from the identifiable intangible assets.

We have determined that because the Bluenica acquisition is not material to our consolidated results of operations or financial position, pro forma financial information is not required to be presented.

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Discontinued Operations

6 Months Ended

Mar. 31, 2016

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

DISCONTINUED OPERATIONS

On October 23, 2015, we sold all the outstanding stock of our wholly owned subsidiary, Etherios, Inc. (“Etherios”) to West Monroe Partners, LLC. We sold Etherios as part of a strategy to focus on providing highly reliable machine connectivity solutions for business-critical and mission-critical application environments. Etherios was included in our single operating segment.

Below is a summary of the gain on sale (in thousands):

Cash received	$	4,096
Less:
Employee related liabilities	(1,134		)
Working capital adjustment	(113		)
Net cash proceeds	2,849
Present value of receivable due on October 23, 2016	2,941
Present value of receivable due on October 23, 2017	1,922
Total fair value of consideration received	7,712
Less:
Net assets of Etherios	(3,383		)
Facility abandonment costs	(725		)
Transaction costs, primarily professional fees	(734		)
Gain on sale of discontinued operations, before income taxes	$	2,870

The terms of the sale agreement provide that West Monroe Partners LLC will pay us $3.0 million on October 23, 2016 and $2.0 million on October 23, 2017. The present value of these amounts is included within the total fair value of consideration received. These receivable amounts are unsecured and non-interest bearing. The carrying value of these receivables presented

3. DISCONTINUED OPERATIONS (CONTINUED)

on our Condensed Consolidated Balance Sheet at March 31, 2016 equals their fair values, which were determined using level 3 cash flow fair value measurement techniques.

Goodwill has been included in in the net assets of Etherios based on the relative fair value of Etherios compared to the fair value of the Company.

As a condition to the sale agreement, we retained the operating leases in the Dallas and Chicago locations. Digi is no longer using these facilities and has sublet the Dallas location to West Monroe Partners, LLC through April 30, 2016. In the second quarter of fiscal 2016, the sublease was extended through December 31, 2017. This sublease extension decreased the facility abandonment costs by $0.1 million in the above calculation of the gain on sale of discontinued operations. Also in connection with the sale, we assigned our San Francisco lease to West Monroe Partners, LLC. A remaining potential obligation exists in the event of a default under the assigned lease, however, we believe the likelihood of a liability related to this lease is remote. As of March 31, 2016, the future minimum lease payments for the San Francisco lease are approximately $0.1 million.

(Loss) income from discontinued operations, after tax, as presented in the Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2016 and 2015 is as follows (in thousands):

	Three months ended March 31,						Six months ended March 31,
	2016			2015			2016			2015
Service revenue	$	—		$	2,750		$	891		$	4,255
Cost of service	—			1,907			713			4,047
Gross profit	—			843			178			208
Operating expenses:
Sales and marketing	—			424			148			981
Research and development	—			499			103			978
General and administrative	—			191			43			604
Restructuring	—			106			—			106
Total operating expenses	—			1,220			294			2,669
Loss from discontinued operations, before income taxes	—			(377		)	(116		)	(2,461		)
(Loss) gain on sale of discontinued operations, before income taxes	(42		)	—			2,870			—
Total (loss) income from discontinued operations, before income taxes	(42		)	(377		)	2,754			(2,461		)
Income tax expense (benefit) on discontinued operations	47			(161		)	(476		)	(888		)
(Loss) income from discontinued operations, after income taxes	$	(89	)	$	(216	)	$	3,230		$	(1,573	)

Income tax benefit on discontinued operations for the six months ended March 31, 2016 was $0.5 million and primarily represents income tax benefits for deductible transaction costs, partially offset by a tax expense for equity awards for which we will not receive a tax deduction. For tax purposes, we expect that this transaction will result in a capital loss, as the tax basis of the Etherios stock was higher than the book basis of the assets that were sold. Since we do not expect to be able to utilize this capital loss in the five year carryforward period, a deferred tax asset offset by a full valuation allowance is expected to be recorded upon completion of the capital loss calculation.

3. DISCONTINUED OPERATIONS (CONTINUED)

At September 30, 2015, the carrying amounts of major classes of assets and liabilities of discontinued operations included in the Consolidated Balance Sheet was as follows (in thousands):

	September 30, 2015
Current assets:
Accounts receivable, net	$	1,417
Deferred tax assets	127
Other current assets	80
Total current assets	1,624
Property, equipment and improvements, net	18
Identifiable intangible assets, net	1,531
Goodwill	1,914
Deferred tax assets (1)	(589		)
Total assets of discontinued operations	$	4,498
Current liabilities:
Accounts payable	$	50
Accrued compensation	1,346
Other current liabilities	85
Total current liabilities	1,481
Other non-current liabilities	95
Total liabilities of discontinued operations	$	1,576

(1) As of September 30, 2015, the we had a net deferred income tax asset related to the United States federal jurisdiction. That net deferred income tax asset position included a deferred income tax liability of $589 thousand related to Etherios which was entirely in the United States federal tax jurisdiction.

The following table presents amortization, depreciation and purchases of property, equipment, improvements and certain other intangible assets of the discontinued operations related to Etherios (in thousands):

	Six months ended March 31,
	2016		2015
Amortization of identifiable intangible assets	$	30	$	241
Depreciation of property, equipment and improvements	$	—	$	14
Purchases of property, equipment, improvements and certain other intangible assets	$	—	$	(11	)

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Earnings Per Share

6 Months Ended

Mar. 31, 2016

Earnings Per Share [Abstract]

EARNINGS PER SHARE

EARNINGS PER SHARE

Basic net income per common share is calculated based on the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares result from dilutive common stock options and restricted stock units.

4. EARNINGS PER SHARE (CONTINUED)

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

	Three months ended March 31,						Six months ended March 31,
	2016			2015			2016		2015
Numerator:
Income from continuing operations	$	2,226		$	1,662		$	5,357	$	2,680
(Loss) income from discontinued operations, after income taxes	(89		)	(216		)	3,230		(1,573		)
Net income	$	2,137		$	1,446		$	8,587	$	1,107
Denominator:
Denominator for basic net income (loss) per common share — weighted average shares outstanding	25,820			24,492			25,574		24,319
Effect of dilutive securities:
Stock options and restricted stock units	178			781			542		497
Denominator for diluted net income (loss) per common share — adjusted weighted average shares	25,998			25,273			26,116		24,816
Basic net income (loss) per common share:
Continuing operations	$	0.09		$	0.07		$	0.21	$	0.11
Discontinued operations	$	—		$	(0.01	)	$	0.13	$	(0.06	)
Net income (1)	$	0.08		$	0.06		$	0.34	$	0.05
Diluted net income (loss) per common share:
Continuing operations	$	0.09		$	0.07		$	0.21	$	0.11
Discontinued operations	$	—		$	(0.01	)	$	0.12	$	(0.06	)
Net income (1)	$	0.08		$	0.06		$	0.33	$	0.04

(1) Earnings per share presented are calculated by line item and may not add due to the use of rounded amounts.

For the three months ended March 31, 2016 and 2015, there were 2,735,177 and 2,366,812 potentially dilutive shares, respectively, and for the six months ended March 31, 2016 and 2015, there were 1,495,104 and 3,496,463 potentially dilutive shares, respectively, related to stock options to purchase common shares that were not included in the above computation of diluted earnings per common share. This is because the options’ exercise prices were greater than the average market price of our common shares.

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Selected Balance Sheet Data

6 Months Ended

Mar. 31, 2016

Selected Balance Sheet Data [Abstract]

SELECTED BALANCE SHEET DATA

SELECTED BALANCE SHEET DATA

The following table shows selected balance sheet data (in thousands):

	March 31, 2016		September 30, 2015
Accounts receivable, net:
Accounts receivable	$	28,932	$	28,073
Less allowance for doubtful accounts	363		285
Accounts receivable, net	$	28,569	$	27,788
Inventories:
Raw materials	$	21,195	$	26,037
Work in process	519		598
Finished goods	3,970		5,242
Inventories	$	25,684	$	31,877

Inventories are stated at the lower of cost or market value, with cost determined using the first-in, first-out method.

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Marketable Securities

6 Months Ended

Mar. 31, 2016

Marketable Securities [Abstract]

MARKETABLE SECURITIES

MARKETABLE SECURITIES

Our marketable securities consist of certificates of deposit, commercial paper, corporate bonds and government municipal bonds. We analyze our available-for-sale marketable securities for impairment on an ongoing basis. When we perform this analysis, we consider factors such as the length of time and extent to which the securities have been in an unrealized loss position and the trend of any unrealized losses. We also consider whether an unrealized loss is a temporary loss or an other-than-temporary loss based on factors such as: (a) whether we have the intent to sell the security, (b) whether it is more likely than not that we will be required to sell the security before its anticipated recovery, or (c) permanent impairment due to bankruptcy or insolvency.

In order to estimate the fair value for each security in our investment portfolio, we obtain quoted market prices and trading activity for each security where available. We obtain relevant information from our investment advisor and, if warranted, also may review the financial solvency of certain security issuers. As of March 31, 2016, 21 of our 59 securities that we held were trading below our amortized cost basis. We determined each decline in value to be temporary based upon the above described factors. We expect to realize the fair value of these securities, plus accrued interest, either at the time of maturity or when the security is sold. All of our current holdings are classified as available-for-sale marketable securities and are recorded at fair value on our consolidated balance sheet with the unrealized gains and losses recorded in accumulated other comprehensive income (loss). All of our current marketable securities will mature in less than one year and our non-current marketable securities will mature in less than three years. Our balance sheet classification of available for sale securities is based on our best estimate of when we expect to liquidate such investments and, presently, is consistent with the stated maturity dates of such investments. However, we are not committed to holding these investments until their maturity and may determine to liquidate some or all of these investments earlier based on our liquidity and other needs. During the six months ended March 31, 2016 and 2015, we received proceeds from our available-for-sale marketable securities of $27.5 million and $19.8 million, respectively.

At March 31, 2016 our marketable securities were (in thousands):

	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair Value (1)
Current marketable securities:
Corporate bonds	$	25,033	$	—	$	(31	)	$	25,002
Commercial paper	17,974		—		(14		)	17,960
Certificates of deposit	2,002		2		—			2,004
Government municipal bonds	3,153		—		(5		)	3,148
Current marketable securities	48,162		2		(50		)	48,114
Non-current marketable securities:
Certificates of deposit	7,260		32		—			7,292
Total marketable securities	$	55,422	$	34	$	(50	)	$	55,406

(1) Included in amortized cost and fair value is purchased and accrued interest of $209.

6. MARKETABLE SECURITIES (CONTINUED)

At September 30, 2015 our marketable securities were (in thousands):

	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair Value (1)
Current marketable securities:
Corporate bonds	$	31,753	$	—	$	(39	)	$	31,714
Commercial paper	7,986		—		(1		)	7,985
Certificates of deposit	6,253		8		—			6,261
Government municipal bonds	1,232		—		(1		)	1,231
Current marketable securities	47,224		8		(41		)	47,191
Non-current marketable securities:
Corporate bonds	4,138		—		(12		)	4,126
Certificates of deposit	7,511		2		(6		)	7,507
Government municipal bonds	1,996		—		(3		)	1,993
Non-current marketable securities	13,645		2		(21		)	13,626
Total marketable securities	$	60,869	$	10	$	(62	)	$	60,817

(1) Included in amortized cost and fair value is purchased and accrued interest of $252.

The following tables show the fair values and gross unrealized losses of our available-for-sale marketable securities that have been in a continuous unrealized loss position deemed to be temporary, aggregated by investment category (in thousands):

	March 31, 2016
	Less than 12 Months					More than 12 Months
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate bonds	$	19,843	$	(30	)	$	3,002	$	(1	)
Commercial paper	17,960		(14		)	—		—
Government municipal bonds	3,084		(5		)	—		—
Total	$	40,887	$	(49	)	$	3,002	$	(1	)

	September 30, 2015
	Less than 12 Months					More than 12 Months
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate bonds	$	33,664	$	(52	)	$	—	$	—
Commercial paper	5,987		(1		)	—		—
Certificates of deposit	4,244		(6		)	499		(1		)
Government municipal bonds	3,159		(3		)	—		—
Total	$	47,054	$	(62	)	$	499	$	(1	)

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Fair Value Measurements

6 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used in measuring fair value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that

7. FAIR VALUE MEASUREMENTS (CONTINUED)

reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available in the circumstances.

The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable for the asset or liability and their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 may also include certain investment securities for which there is limited market activity or a decrease in the observability of market pricing for the investments, such that the determination of fair value requires significant judgment or estimation.

Fair value is applied to financial assets such as our marketable securities, which are classified and accounted for as available-for-sale and to financial liabilities for contingent consideration. These items are stated at fair value at each reporting period using the above guidance.

The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

	Total carrying  value at		Fair Value Measurements Using  Inputs Considered as
	March 31, 2016		Level 1		Level 2		Level 3
Assets:
Money market	$	29,578	$	29,578	$	—	$	—
Corporate bonds	25,002		—		25,002		—
Commercial paper	17,960		—		17,960		—
Certificates of deposit	9,296		—		9,296		—
Government municipal bonds	3,148		—		3,148		—
Total assets measured at fair value	$	84,984	$	29,578	$	55,406	$	—
Liabilities:
Contingent consideration on acquired business	10,522		$	—	$	—	$	10,522
Total liabilities measured at fair value	$	10,522	$	—	$	—	$	10,522

	Total carrying  value at		Fair Value Measurements Using  Inputs Considered as
	September 30, 2015		Level 1		Level 2		Level 3
Assets:
Money market	$	14,436	$	14,436	$	—	$	—
Corporate bonds	35,840		—		35,840		—
Commercial paper	7,985		—		7,985		—
Certificates of deposit	13,768		—		13,768		—
Government municipal bonds	3,224		—		3,224		—
Total assets measured at fair value	$	75,253	$	14,436	$	60,817	$	—

Our money market funds, which have been determined to be cash equivalents, are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets. We value our Level 2 assets using inputs that are based on market indices of similar assets within an active market. There were no transfers into or out of our Level 2 financial assets during the six months ended March 31, 2016.

The use of different assumptions, applying different judgment to matters that inherently are subjective and changes in future market conditions could result in different estimates of fair value of our securities or contingent consideration, currently and in

7. FAIR VALUE MEASUREMENTS (CONTINUED)

the future. If market conditions deteriorate, we may incur impairment charges for securities in our investment portfolio. We may also incur changes to our contingent consideration liability as discussed below.

In connection with the Bluenica acquisition discussed in Note 2, we are required to make contingent payments over a period of up to four years, subject to Digi Cold Chain solutions achieving specified revenue thresholds. The fair value of the liability for contingent payments recognized upon acquisition was $10.4 million, and was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in this calculation included the discount rate and various probability factors. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period.

The following table presents a reconciliation of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended March 31, 2016 (in thousands):

	Three months ended March 31, 2016		Six months ended March 31, 2016
Fair value at beginning of period	$	10,400	$	—
Purchase price contingent consideration	—		10,400
Change in fair value of contingent consideration	122		122
Fair value at end of period	$	10,522	$	10,522

The change in fair value of contingent consideration for the acquisition of Bluenica is included in general and administrative and interest expense on our Condensed Consolidated Statements of Operations and reflects our estimate of the probability of achieving the relevant targets and is discounted based on our estimated discount rate. We have estimated the fair value of the contingent consideration based on the probability of achieving the specified revenue thresholds at 93.6% to 98.1% and a discount rate between 1.2% and 2.5%, reflecting the risk profiles of satisfying these thresholds. A significant increase (decrease) in our estimates of achieving the relevant targets or a significant increase (decrease) in the discount rates used could materially increase (decrease) the fair value of the contingent consideration liability.

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Goodwill and Other Identifiable Intangible Assets, Net

6 Months Ended

Mar. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS, NET

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS, NET

Amortizable identifiable intangible assets were (in thousands):

	March 31, 2016							September 30, 2015
	Gross carrying amount		Accum. amort.			Net		Gross carrying amount		Accum. amort.			Net
Purchased and core technology	$	47,165	$	(45,352	)	$	1,813	$	45,449	$	(45,424	)	$	25
License agreements	18		(4		)	14		18		(4		)	14
Patents and trademarks	11,596		(10,710		)	886		11,377		(10,385		)	992
Customer relationships	17,817		(15,735		)	2,082		17,090		(15,473		)	1,617
Total	$	76,596	$	(71,801	)	$	4,795	$	73,934	$	(71,286	)	$	2,648

Amortization expense was $0.5 million and $0.6 million for the three month periods ended March 31, 2016 and 2015, respectively. Amortization expense was $1.0 million and $1.3 million for the six month periods ended March 31, 2016 and 2015, respectively. Amortization expense is recorded on our consolidated statements of operations within cost of sales and in general and administrative expense.

8. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS, NET (CONTINUED)

Estimated amortization expense related to identifiable intangible assets for the remainder of fiscal 2016 and the five succeeding fiscal years is (in thousands):

2016 (six months)	$	988
2017	1,547
2018	1,110
2019	698
2020	328
2021	50

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

	Six months ended March 31,
	2016			2015
Beginning balance, October 1	$	100,183		$	101,484
Acquisition of Bluenica	11,020			—
Foreign currency translation adjustment	(496		)	(1,656		)
Ending balance, March 31	$	110,707		$	99,828

Goodwill is tested for impairment on an annual basis as of June 30, or more frequently if events or circumstances occur which could indicate impairment. The calculation of goodwill impairment requires us to make assumptions about the fair value of our one reporting unit, which historically has been approximated by using our market capitalization plus a control premium. Control premium assumptions require judgment and actual results may differ from assumed or estimated amounts.

Our test for potential goodwill impairment is a two-step approach. We estimate the fair value for our one reporting unit by comparing its fair value (market capitalization plus control premium) to our carrying value. If the carrying value of the reporting unit exceeds its estimated fair value, the second step of the goodwill impairment analysis requires us to measure the amount of the impairment loss. An impairment loss is calculated by comparing the implied fair value of the goodwill to its carrying amount. To calculate the implied fair value of goodwill, the fair value of the reporting unit’s assets and liabilities, excluding goodwill, is estimated. The excess of the fair value of the reporting unit over the amount assigned to its assets and liabilities, excluding goodwill, is the implied fair value of the reporting unit’s goodwill.

At June 30, 2015, our market capitalization was $238.6 million compared to our carrying value of $270.6 million. Our market capitalization plus our estimated control premium of 35% (discussed in the paragraphs below) resulted in a fair value in excess of our carrying value by a margin of 19%. We concluded that no impairment was indicated and we were not required to complete the second step of the goodwill impairment analysis. No goodwill impairment charges were recorded.

In June 2014, we performed a control premium study to determine the appropriate control premium to include in the calculation of fair value. We used a third party valuation firm to assist us in performing this control premium analysis. In order to estimate the range of control premiums appropriate for us, the following three methodologies were used: (1) analysis of individual transactions within our industry; (2) analysis of industry-wide data, and (3) analysis of global transaction data. Individual transactions in the Communication Equipment or Technology Hardware, Storage and Peripherals industries were used to find transactions of target companies that operated in similar markets and shared similar operating characteristics with us.  Transaction screening criteria included selection of transactions with the following characteristics:

•At least 50 percent of a target company’s equity sought by an acquirer,

•Target company considered operating (not in bankruptcy),

•Target company had publicly traded stock outstanding at the transaction date, and

•Transactions announced between June 30, 2009 and the valuation date.

In analyzing industry-wide data, transactions in the following three industries were identified that encompassed the products offered by us: Office Equipment and Computer Hardware, Communications, and Computer, Supplies and Services.  Finally, control premiums were considered for both domestic and international transactions. The control premium analysis resulted in a

8. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS, NET (CONTINUED)

range of control premium of 30 percent to 40 percent. We reviewed the data and concluded that a 35 percent control premium best represented the amount an investor would likely pay, over and above market capitalization, in order to obtain a controlling interest given the economic conditions at that time.

Based on our industry knowledge, including recent industry merger and acquisition activity, we concluded that the control premium study that was performed as of June 2014 was still an appropriate study to use for our June 30, 2015 goodwill impairment assessment.

If our stock price or control premium declines, the first step of our goodwill impairment analysis may fail. We have identified factors that could result in additional interim goodwill impairment testing. For example, we would perform the second step of the impairment testing if our stock price fell below certain thresholds for a significant period of time, or if our control premium significantly decreased. Events or circumstances may occur that could negatively impact our stock price, including changes in our anticipated revenues and profits and our ability to execute on our strategies. In addition, our control premium could decline due to changes in economic conditions in the technology industry or more generally in the financial markets. An impairment could have a material effect on our consolidated balance sheet and results of operations. We have had no goodwill impairment losses since the adoption of Accounting Standards Codification (ASC) 350, Intangibles-Goodwill and Others, in fiscal 2003.

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Income Taxes

6 Months Ended

Mar. 31, 2016

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income tax provision for continuing operations was $1.5 million for the six months ended March 31, 2016. Net tax benefits specific to the six months ended March 31, 2016 were $0.7 million resulting from the reinstatement of the federal research and development tax credit for calendar year 2015 and reversal of tax reserves due to the expiration of statutes of limitation from U.S. and foreign tax jurisdictions. For the six months ended March 31, 2016, our continuing operations effective tax rate before items specific to the period was less than the U.S. statutory rate due primarily in the mix of income between taxing jurisdictions, certain of which have lower statutory tax rates than the U.S., and certain tax credits in the U.S.

Income tax provision for continuing operations was $0.9 million for the six months ended March 31, 2015. Net tax benefits specific to the period of $0.5 million included a reversal of reserves due to the expiration of statutes of limitation from U.S. and foreign tax jurisdictions and the reinstatement of the federal research and development tax credit for calendar year 2014. For the six months ended March 31, 2015, our continuing operations effective tax rate before items specific to the period was more than the statutory rate primarily due to a mix of income between foreign jurisdictions, an adjustment for certain foreign income taxed at the U.S. rate, and lower than expected benefits associated with certain state tax credits.

Our effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and related statutory tax rate in each jurisdiction, and tax items specific to the period, such as settlements of audits. We expect that 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 for both U.S. and foreign jurisdictions.

During the first quarter of fiscal 2016, we adopted ASU 2015-17 on a prospective basis. As required by ASU 2015-17, all deferred tax assets and liabilities are classified on a jurisdictional basis as non-current in our condensed consolidated balance sheets, which is a change from our historical presentation whereby certain of our deferred tax assets and liabilities were classified as current and the remainder were classified as non-current. Our prior periods were not retrospectively adjusted.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is (in thousands):

Unrecognized tax benefits as of September 30, 2015	$	1,618
Increases related to:
Prior year income tax positions	60
Decreases related to:
Expiration of statute of limitations	(121		)
Unrecognized tax benefits as of March 31, 2016	$	1,557

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate is $1.5 million, after considering the impact of interest and deferred benefit items. We expect the change in the total amount of unrecognized tax benefits will be insignificant over the next 12 months.

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Product Warranty Obligation

6 Months Ended

Mar. 31, 2016

Product Warranties Disclosures [Abstract]

PRODUCT WARRANTY OBLIGATION

PRODUCT WARRANTY OBLIGATION

In general, we warrant our products to be free from defects in material and workmanship under normal use and service. The warranty periods generally range from one to five years. We typically have the option to either repair or replace products we deem defective with regard to material or workmanship. Estimated warranty costs are accrued in the period that the related revenue is recognized based upon an estimated average per unit repair or replacement cost applied to the estimated number of units under warranty. These estimates are based upon historical warranty incidents and are evaluated on an ongoing basis to ensure the adequacy of the warranty accrual.

The following table summarizes the activity associated with the product warranty accrual (in thousands) and is included on our Condensed Consolidated Balance Sheets within current liabilities:

	Balance at		Warranties		Settlements			Balance at
Period	January 1		issued		made			March 31
Three months ended March 31, 2016	$	968	$	172	$	(196	)	$	944
Three months ended March 31, 2015	$	950	$	206	$	(233	)	$	923
	Balance at		Warranties		Settlements			Balance at
Period	October 1		issued		made			March 31
Six months ended March 31, 2016	$	1,014	$	292	$	(362	)	$	944
Six months ended March 31, 2015	$	862	$	497	$	(436	)	$	923

We are not responsible for, and do not warrant that, custom software versions, created by original equipment manufacturer (OEM) customers based upon our software source code, will function in a particular way, will conform to any specifications or are fit for any particular purpose. Further, we do not indemnify these customers from any third-party liability as it relates to or arises from any customization or modifications made by the OEM customer.

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Contingencies

6 Months Ended

Mar. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

CONTINGENCIES

CONTINGENCIES

On December 23, 2015, JSDQ Mesh Technologies LLC filed a complaint naming us as a defendant in federal court in the District of Delaware. The complaint included allegations against us and one other company pertaining to the infringement of four patents relating to mesh networking technology. On April 27. 2016, we settled a patent infringement claim. The settlement fully resolves the claim by JSDQ Mesh Technologies LLC with no future payment obligations.

In addition to the matter discussed above, in the normal course of business, we are subject to various claims and litigation. There can be no assurance that any claims by third parties, if proven to have merit, will not materially adversely affect our business, liquidity or financial condition.

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Stock-Based Compensation

6 Months Ended

Mar. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

Stock-based awards were granted under the 2016 Omnibus Incentive Plan (the “2016 Plan”) beginning February 1, 2016 and prior to that were granted under the 2014 Omnibus Incentive Plan (the “2014 Plan”). Stock-based awards were granted under the 2014 Plan during the six months ended March 31, 2015. Upon stockholder approval of the 2016 Plan, we ceased granting awards under any prior plan. The authority to grant options under the 2016 Plan and to set other terms and conditions rests with the Compensation Committee of the Board of Directors.

The 2016 Plan authorizes the issuance of up to 1,500,000 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 2016 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 November over a four-year period. Awards may be granted under the 2016 Plan until January 31, 2026. Options under the 2016 Plan can be granted as either incentive stock options (ISOs) or non-statutory stock options (NSOs). The exercise price of options and the grant date price of restricted stock shall be determined by our Compensation Committee but shall not be less than the fair market value of our common stock based on the closing price on the date of grant. Upon exercise, we issue new shares of stock.

12. STOCK-BASED COMPENSATION (CONTINUED)

The 2014 Plan, under which grants ceased upon approval of the 2016 Plan, authorized the issuance of up to 2,250,000 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 included 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 2014 Plan typically vest over a four year service period and would expire if unexercised after eight years from the date of grant. RSUs that have been granted to directors typically vest in one year. RSUs that have been granted to executives and employees typically vested in November over a four-year period. Options under the 2014 Plan could be granted as either ISOs or NSOs. The exercise price of options and the grant date price of restricted stock was determined by our Compensation Committee but shall not be less than the fair market value of our common stock based on the closing price on the date of grant. Upon exercise, we issued new shares of stock.

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 the six months ended March 31, 2016, our employees forfeited 42,427 shares in order to satisfy $0.5 million of withholding tax obligations related to stock-based compensation, pursuant to terms of awards under our board and shareholder-approved compensation plans. As of March 31, 2016, there were approximately 1,342,807 shares available for future grants under the 2016 Plan.

Cash received from the exercise of stock options was $6.3 million during the six months ended March 31, 2016 and $6.0 million during the six months ended March 31, 2015. There were $0.2 million in excess tax benefits from stock-based compensation for the six months ended March 31, 2016. There were no excess tax benefits from stock-based compensation during the six months ended March 31, 2015.

We sponsor an Employee Stock Purchase Plan (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. Employee contributions to the Purchase Plan were $0.5 million during both the six month periods ended March 31, 2016 and 2015. Pursuant to the Purchase Plan, 55,343 and 72,306 common shares were issued to employees during the six months ended March 31, 2016 and 2015, respectively. Shares are issued under the Purchase Plan from treasury stock. As of March 31, 2016, 562,188 common shares were available for future issuances under the Purchase Plan.

Stock-based compensation expense is included in the consolidated results of operations as follows (in thousands):

	Three months ended March 31,						Six months ended March 31,
	2016			2015			2016			2015
Cost of sales	$	51		$	83		$	105		$	189
Sales and marketing	227			306			426			649
Research and development	147			196			295			388
General and administrative	478			453			888			996
Stock-based compensation before income taxes	903			1,038			1,714			2,222
Income tax benefit	(293		)	(361		)	(550		)	(775		)
Stock-based compensation after income taxes	$	610		$	677		$	1,164		$	1,447

Stock-based compensation cost capitalized as part of inventory was immaterial as of March 31, 2016 and September 30, 2015.

12. STOCK-BASED COMPENSATION (CONTINUED)

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

	Options Outstanding		Weighted Average Exercised Price	Weighted Average Contractual Term (in years)	Aggregate Intrinsic Value (1)
Balance at September 30, 2015	4,800		$10.21
Granted	505		11.51
Exercised	(667	)	9.78
Forfeited / Canceled	(589	)	11.09
Balance at March 31, 2016	4,049		$10.32	4.9	$	1,700
Exercisable at March 31, 2016	2,809		$10.50	4.1	$	981

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $9.43 as of March 31, 2016, which would have been received by the option holders had all option holders exercised their options as of that date. The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price.

The total intrinsic value of all options exercised during the six months ended March 31, 2016 was $1.7 million and during the six months ended March 31, 2015 was $0.8 million.

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:

	Six months ended March 31,
	2016	2015
Weighted average per option grant date fair value	$3.92	$2.91
Assumptions used for option grants:
Risk free interest rate	1.61% - 1.85%	1.77% - 1.85%
Expected term	6.00 years	6.00 years
Expected volatility	32%	35% - 36%
Weighted average volatility	32%	35%
Expected dividend yield	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 table above. 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; separate groups of grantees that have similar historical exercise behaviors are considered separately for valuation purposes. 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.

We use historical data to estimate pre-vesting forfeiture rates. The pre-vesting forfeiture rate used during the six months ended March 31, 2016 was 10.0%. As of March 31, 2016 the total unrecognized compensation cost related to non-vested stock options, net of expected forfeitures, was $3.5 million and the related weighted average period over which it is expected to be recognized is approximately 3.4 years.

12. STOCK-BASED COMPENSATION (CONTINUED)

A summary of our non-vested restricted stock units as of March 31, 2016 and changes during the six months then ended is presented below (in thousands, except per common share amounts):

	Number of Awards		Weighted Average Grant Date Fair Value
Nonvested at September 30, 2015	543		$	8.41
Granted	233		$	10.92
Vested	(165	)	$	8.36
Canceled	(99	)	$	8.09
Nonvested at March 31, 2016	512		$	9.64

As of March 31, 2016, the total unrecognized compensation cost related to non-vested restricted stock units was $3.6 million and the related weighted average period over which it is expected to be recognized is approximately 1.7 years.

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Restructuring

6 Months Ended

Mar. 31, 2016

Restructuring and Related Activities [Abstract]

RESTRUCTURING

RESTRUCTURING

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

	Q2 2016 Restructuring			Q1 2016 Restructuring
	Employee Termination Costs			Employee Termination Costs			Other			Total
Balance at September 30, 2015	$	—		$	—		$	—		$	—
Restructuring charge	—			480			171			651
Balance at December 31, 2015	—			480			171			651
Restructuring charge	78			—			24			102
Payments	(76		)	(113		)	(195		)	(384		)
Foreign currency fluctuation	—			13			—			13
Balance at March 31, 2016	$	2		$	380		$	—		$	382

Q1 2016 Restructuring

In November 2015, we approved a restructuring plan impacting our corporate staff. The plan most principally will close our Dortmund office and relocate certain employees to our Munich office. We also recorded a contract termination charge as we relocated our employees in our Minneapolis office to our corporate headquarters in Minnetonka in December 2015. We recorded a restructuring charge of $0.7 million that included $0.5 million of severance and $0.2 million of contract termination costs during the first quarter of fiscal 2016. This restructuring resulted in an elimination of approximately 10 positions. The payments associated with these charges are expected to be completed by the third quarter of fiscal 2016.

Q2 2016 Restructuring

In January 2016, we approved a restructuring plan impacting our wireless design services group. This restructuring resulted in an elimination of 5 positions. We recorded a restructuring charge of $0.1 million related to severance during the second quarter of fiscal 2016 and paid the majority of the severance during that same quarter.

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Subsequent Event (Notes)

6 Months Ended

Mar. 31, 2016

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

SUBSEQUENT EVENT

On April 27, 2016 we settled a patent infringement claim with JSDQ Mesh Technologies LLC. For more detail see Note 11 to our Condensed Consolidated Financial Statements.

On April 26, 2016, our Board of Directors authorized a new program to repurchase up to $15.0 million of our common stock primarily to return capital to shareholders. This new repurchase authorization expires on May 1, 2017. Shares repurchased under the new program may be made through open market and privately negotiated transactions from time to time and in amounts that management deems appropriate. The amount and timing of share repurchases will depend upon market conditions and other corporate considerations.

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Basis of Presentation of Unaudited Interim Condensed Consolidated Financial Statements and Significant Accounting Policies (Policies)

6 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

Contingent Consideration

Contingent Consideration

We measure our contingent consideration liabilities recognized in connection with business combinations at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy as defined in ASC 320 “Investments - Debt and Equity Securities”. We used a probability-weighted discounted cash flow approach as a valuation technique to determine the fair value of the contingent consideration on the acquisition date. At each subsequent reporting period, the fair value is remeasured with the change in fair value recognized in general and administrative expense and interest expense in our Condensed Consolidated Statements of Operations. Amounts, if any, paid to the seller in excess of the amount recorded on the acquisition date will be classified as cash flows used in operating activities. Payments to the seller not exceeding the acquisition-date fair value of the contingent consideration will be classified as cash flows used in financing activities.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

Not Yet Adopted

In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”. This update includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016, which for us is the first fiscal quarter ending December 31, 2017. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements.

1. BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In March 2016, FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606)”. This update clarifies implementation guidance on principal-versus-agent considerations, including how an entity determines whether it is a principal or an agent for each specified good or service promised to the customer and how an entity determines the nature of each specified good or service. In addition, ASU 2016-08 updates the indicators in ASC 606-10-55-39 and revises the existing examples in ASC 606 to better illustrate the application of the principal-versus-agent guidance. This ASU is effective at the same time as those in ASU 2014-09 (as amended by ASU 2015-14), which for us is for our fiscal 2019, including interim periods within that reporting period. We are currently assessing the potential impact of adopting this ASU on our consolidated financial statements and related disclosures.

In February, 2016, FASB issued ASU 2016-02, “Leases (Topic 842)”, which amends the existing guidance to require lessees to recognize lease assets and lease liabilities from operating leases on the balance sheet. This ASU is effective using the modified retrospective approach for annual periods and interim periods within those annual periods beginning after December 15, 2018, which for us is the first fiscal quarter ending December 31, 2019. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In January 2016, FASB issued ASU 2016-01, “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 will require equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. The amendments in this update will also simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet and require these entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes. This ASU would also change the presentation and disclosure requirements for financial instruments. In addition, this ASU clarifies the guidance related to valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, which for us is the first fiscal quarter ending December 31, 2018. Early adoption is permitted for financial statements of fiscal years and interim periods that have not been issued. We are currently evaluating the impact of the adoption of ASU 2016-01.

In July 2015, FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory." This provision would require inventory that was previously recorded using first-in, first-out (FIFO) to be recorded at lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years, which for us will be the first fiscal quarter ending December 31, 2017. The amendments in this guidance should be applied prospectively with earlier application permitted as of the beginning of an interim or annual period. We are currently evaluating the impact of the adoption of ASU 2015-11 and whether it would have a material impact on our consolidated financial statements.

In April 2015, FASB issued ASU 2015-05, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The new standard provides guidance to customers about whether a cloud computing arrangement includes a software license. If the arrangement does include a software license, the software license element of the arrangement should be accounted for in the same manner as the acquisition of other software licenses. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, with early adoption permitted. We expect to adopt this guidance beginning with our fiscal quarter ending December 31, 2016. We do not expect this guidance to have a material impact on our consolidated financial statements.

In August 2014, FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern.” This guidance requires management to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. These amendments are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter, which for us, will be our annual period ended September 30, 2017. Early adoption is permitted. While we are evaluating the impact of the adoption of ASU 2014-15, we do not expect it to have an impact on our consolidated financial statements.

In May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This guidance provides a five-step analysis in determining when and how revenue is recognized so that an entity will recognize revenue when it transfers promised

1. BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

goods or services to customers in an amount that reflects what it expects in exchange for the goods and services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14 "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date" which approved a one-year deferral of the effective date of ASU 2014-09. As a result of this deferral, ASU 2014-09 is effective for our fiscal 2019, including interim periods within that reporting period. The FASB also agreed to allow us to choose to adopt the standard effective for our fiscal 2018. We will adopt the guidance beginning October 1, 2018 and are currently assessing the potential impact of adopting this ASU on our consolidated financial statements and related disclosures.

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Acquisition (Tables)

6 Months Ended

Mar. 31, 2016

Business Combinations [Abstract]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

The following table summarizes the values of Bluenica assets acquired and liabilities assumed as of the acquisition date. To the extent previously discussed, such amounts are considered preliminary (in thousands):

Cash	$	2,888
Purchase price payable upon completion of diligence matters	115
Fair value of contingent consideration on acquired business	10,400
Total purchase price consideration	$	13,403
Fair value of net tangible assets acquired	$	129
Fair value of identifiable intangible assets acquired:
Purchased and core technology	2,000
Customer relationships	900
Goodwill	11,020
Deferred tax liabilities, net	(646		)
Total	$	13,403

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Discontinued Operations (Tables)

6 Months Ended

Mar. 31, 2016

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations

At September 30, 2015, the carrying amounts of major classes of assets and liabilities of discontinued operations included in the Consolidated Balance Sheet was as follows (in thousands):

	September 30, 2015
Current assets:
Accounts receivable, net	$	1,417
Deferred tax assets	127
Other current assets	80
Total current assets	1,624
Property, equipment and improvements, net	18
Identifiable intangible assets, net	1,531
Goodwill	1,914
Deferred tax assets (1)	(589		)
Total assets of discontinued operations	$	4,498
Current liabilities:
Accounts payable	$	50
Accrued compensation	1,346
Other current liabilities	85
Total current liabilities	1,481
Other non-current liabilities	95
Total liabilities of discontinued operations	$	1,576

(1) As of September 30, 2015, the we had a net deferred income tax asset related to the United States federal jurisdiction. That net deferred income tax asset position included a deferred income tax liability of $589 thousand related to Etherios which was entirely in the United States federal tax jurisdiction.

(Loss) income from discontinued operations, after tax, as presented in the Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2016 and 2015 is as follows (in thousands):

	Three months ended March 31,						Six months ended March 31,
	2016			2015			2016			2015
Service revenue	$	—		$	2,750		$	891		$	4,255
Cost of service	—			1,907			713			4,047
Gross profit	—			843			178			208
Operating expenses:
Sales and marketing	—			424			148			981
Research and development	—			499			103			978
General and administrative	—			191			43			604
Restructuring	—			106			—			106
Total operating expenses	—			1,220			294			2,669
Loss from discontinued operations, before income taxes	—			(377		)	(116		)	(2,461		)
(Loss) gain on sale of discontinued operations, before income taxes	(42		)	—			2,870			—
Total (loss) income from discontinued operations, before income taxes	(42		)	(377		)	2,754			(2,461		)
Income tax expense (benefit) on discontinued operations	47			(161		)	(476		)	(888		)
(Loss) income from discontinued operations, after income taxes	$	(89	)	$	(216	)	$	3,230		$	(1,573	)

The following table presents amortization, depreciation and purchases of property, equipment, improvements and certain other intangible assets of the discontinued operations related to Etherios (in thousands):

	Six months ended March 31,
	2016		2015
Amortization of identifiable intangible assets	$	30	$	241
Depreciation of property, equipment and improvements	$	—	$	14
Purchases of property, equipment, improvements and certain other intangible assets	$	—	$	(11	)

Below is a summary of the gain on sale (in thousands):

Cash received	$	4,096
Less:
Employee related liabilities	(1,134		)
Working capital adjustment	(113		)
Net cash proceeds	2,849
Present value of receivable due on October 23, 2016	2,941
Present value of receivable due on October 23, 2017	1,922
Total fair value of consideration received	7,712
Less:
Net assets of Etherios	(3,383		)
Facility abandonment costs	(725		)
Transaction costs, primarily professional fees	(734		)
Gain on sale of discontinued operations, before income taxes	$	2,870

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Earnings Per Share (Tables)

6 Months Ended

Mar. 31, 2016

Earnings Per Share [Abstract]

Schedule of Calculation of Numerator and Denominator in Earnings Per Share

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

	Three months ended March 31,						Six months ended March 31,
	2016			2015			2016		2015
Numerator:
Income from continuing operations	$	2,226		$	1,662		$	5,357	$	2,680
(Loss) income from discontinued operations, after income taxes	(89		)	(216		)	3,230		(1,573		)
Net income	$	2,137		$	1,446		$	8,587	$	1,107
Denominator:
Denominator for basic net income (loss) per common share — weighted average shares outstanding	25,820			24,492			25,574		24,319
Effect of dilutive securities:
Stock options and restricted stock units	178			781			542		497
Denominator for diluted net income (loss) per common share — adjusted weighted average shares	25,998			25,273			26,116		24,816
Basic net income (loss) per common share:
Continuing operations	$	0.09		$	0.07		$	0.21	$	0.11
Discontinued operations	$	—		$	(0.01	)	$	0.13	$	(0.06	)
Net income (1)	$	0.08		$	0.06		$	0.34	$	0.05
Diluted net income (loss) per common share:
Continuing operations	$	0.09		$	0.07		$	0.21	$	0.11
Discontinued operations	$	—		$	(0.01	)	$	0.12	$	(0.06	)
Net income (1)	$	0.08		$	0.06		$	0.33	$	0.04

(1) Earnings per share presented are calculated by line item and may not add due to the use of rounded amounts.

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Selected Balance Sheet Data (Tables)

6 Months Ended

Mar. 31, 2016

Selected Balance Sheet Data [Abstract]

Schedule of Selected Balance Sheet Data

The following table shows selected balance sheet data (in thousands):

	March 31, 2016		September 30, 2015
Accounts receivable, net:
Accounts receivable	$	28,932	$	28,073
Less allowance for doubtful accounts	363		285
Accounts receivable, net	$	28,569	$	27,788
Inventories:
Raw materials	$	21,195	$	26,037
Work in process	519		598
Finished goods	3,970		5,242
Inventories	$	25,684	$	31,877

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Marketable Securities (Tables)

6 Months Ended

Mar. 31, 2016

Marketable Securities [Abstract]

Schedule of Marketable Securities

At March 31, 2016 our marketable securities were (in thousands):

	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair Value (1)
Current marketable securities:
Corporate bonds	$	25,033	$	—	$	(31	)	$	25,002
Commercial paper	17,974		—		(14		)	17,960
Certificates of deposit	2,002		2		—			2,004
Government municipal bonds	3,153		—		(5		)	3,148
Current marketable securities	48,162		2		(50		)	48,114
Non-current marketable securities:
Certificates of deposit	7,260		32		—			7,292
Total marketable securities	$	55,422	$	34	$	(50	)	$	55,406

(1) Included in amortized cost and fair value is purchased and accrued interest of $209.

6. MARKETABLE SECURITIES (CONTINUED)

At September 30, 2015 our marketable securities were (in thousands):

	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair Value (1)
Current marketable securities:
Corporate bonds	$	31,753	$	—	$	(39	)	$	31,714
Commercial paper	7,986		—		(1		)	7,985
Certificates of deposit	6,253		8		—			6,261
Government municipal bonds	1,232		—		(1		)	1,231
Current marketable securities	47,224		8		(41		)	47,191
Non-current marketable securities:
Corporate bonds	4,138		—		(12		)	4,126
Certificates of deposit	7,511		2		(6		)	7,507
Government municipal bonds	1,996		—		(3		)	1,993
Non-current marketable securities	13,645		2		(21		)	13,626
Total marketable securities	$	60,869	$	10	$	(62	)	$	60,817

(1) Included in amortized cost and fair value is purchased and accrued interest of $252.

Schedule of Unrealized Losses on Available-For-Sale Securities

The following tables show the fair values and gross unrealized losses of our available-for-sale marketable securities that have been in a continuous unrealized loss position deemed to be temporary, aggregated by investment category (in thousands):

	March 31, 2016
	Less than 12 Months					More than 12 Months
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate bonds	$	19,843	$	(30	)	$	3,002	$	(1	)
Commercial paper	17,960		(14		)	—		—
Government municipal bonds	3,084		(5		)	—		—
Total	$	40,887	$	(49	)	$	3,002	$	(1	)

	September 30, 2015
	Less than 12 Months					More than 12 Months
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate bonds	$	33,664	$	(52	)	$	—	$	—
Commercial paper	5,987		(1		)	—		—
Certificates of deposit	4,244		(6		)	499		(1		)
Government municipal bonds	3,159		(3		)	—		—
Total	$	47,054	$	(62	)	$	499	$	(1	)

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Fair Value Measurements (Tables)

6 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value of Assets Measured on Recurring Basis

The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

	Total carrying  value at		Fair Value Measurements Using  Inputs Considered as
	March 31, 2016		Level 1		Level 2		Level 3
Assets:
Money market	$	29,578	$	29,578	$	—	$	—
Corporate bonds	25,002		—		25,002		—
Commercial paper	17,960		—		17,960		—
Certificates of deposit	9,296		—		9,296		—
Government municipal bonds	3,148		—		3,148		—
Total assets measured at fair value	$	84,984	$	29,578	$	55,406	$	—
Liabilities:
Contingent consideration on acquired business	10,522		$	—	$	—	$	10,522
Total liabilities measured at fair value	$	10,522	$	—	$	—	$	10,522

	Total carrying  value at		Fair Value Measurements Using  Inputs Considered as
	September 30, 2015		Level 1		Level 2		Level 3
Assets:
Money market	$	14,436	$	14,436	$	—	$	—
Corporate bonds	35,840		—		35,840		—
Commercial paper	7,985		—		7,985		—
Certificates of deposit	13,768		—		13,768		—
Government municipal bonds	3,224		—		3,224		—
Total assets measured at fair value	$	75,253	$	14,436	$	60,817	$	—

Fair Value of Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

The following table presents a reconciliation of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended March 31, 2016 (in thousands):

	Three months ended March 31, 2016		Six months ended March 31, 2016
Fair value at beginning of period	$	10,400	$	—
Purchase price contingent consideration	—		10,400
Change in fair value of contingent consideration	122		122
Fair value at end of period	$	10,522	$	10,522

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Goodwill and Other Identifiable Intangible Assets, Net (Tables)

6 Months Ended

Mar. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Amortizable Identifiable Intangible Assets

Amortizable identifiable intangible assets were (in thousands):

	March 31, 2016							September 30, 2015
	Gross carrying amount		Accum. amort.			Net		Gross carrying amount		Accum. amort.			Net
Purchased and core technology	$	47,165	$	(45,352	)	$	1,813	$	45,449	$	(45,424	)	$	25
License agreements	18		(4		)	14		18		(4		)	14
Patents and trademarks	11,596		(10,710		)	886		11,377		(10,385		)	992
Customer relationships	17,817		(15,735		)	2,082		17,090		(15,473		)	1,617
Total	$	76,596	$	(71,801	)	$	4,795	$	73,934	$	(71,286	)	$	2,648

Schedule of Estimated Future Amortization Expense Related to Identifiable Intangible Assets

Estimated amortization expense related to identifiable intangible assets for the remainder of fiscal 2016 and the five succeeding fiscal years is (in thousands):

2016 (six months)	$	988
2017	1,547
2018	1,110
2019	698
2020	328
2021	50

Schedule of Changes in Carrying Amount of Goodwill

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

	Six months ended March 31,
	2016			2015
Beginning balance, October 1	$	100,183		$	101,484
Acquisition of Bluenica	11,020			—
Foreign currency translation adjustment	(496		)	(1,656		)
Ending balance, March 31	$	110,707		$	99,828

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Income Taxes (Tables)

6 Months Ended

Mar. 31, 2016

Income Tax Disclosure [Abstract]

Schedule of Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is (in thousands):

Unrecognized tax benefits as of September 30, 2015	$	1,618
Increases related to:
Prior year income tax positions	60
Decreases related to:
Expiration of statute of limitations	(121		)
Unrecognized tax benefits as of March 31, 2016	$	1,557

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Product Warranty Obligation (Tables)

6 Months Ended

Mar. 31, 2016

Product Warranties Disclosures [Abstract]

Schedule of Product Warranty Accrual

The following table summarizes the activity associated with the product warranty accrual (in thousands) and is included on our Condensed Consolidated Balance Sheets within current liabilities:

	Balance at		Warranties		Settlements			Balance at
Period	January 1		issued		made			March 31
Three months ended March 31, 2016	$	968	$	172	$	(196	)	$	944
Three months ended March 31, 2015	$	950	$	206	$	(233	)	$	923
	Balance at		Warranties		Settlements			Balance at
Period	October 1		issued		made			March 31
Six months ended March 31, 2016	$	1,014	$	292	$	(362	)	$	944
Six months ended March 31, 2015	$	862	$	497	$	(436	)	$	923

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Stock-Based Compensation (Tables)

6 Months Ended

Mar. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Stock-Based Compensation Expense

Stock-based compensation expense is included in the consolidated results of operations as follows (in thousands):

	Three months ended March 31,						Six months ended March 31,
	2016			2015			2016			2015
Cost of sales	$	51		$	83		$	105		$	189
Sales and marketing	227			306			426			649
Research and development	147			196			295			388
General and administrative	478			453			888			996
Stock-based compensation before income taxes	903			1,038			1,714			2,222
Income tax benefit	(293		)	(361		)	(550		)	(775		)
Stock-based compensation after income taxes	$	610		$	677		$	1,164		$	1,447

Schedule of Stock Option Activity

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

	Options Outstanding		Weighted Average Exercised Price	Weighted Average Contractual Term (in years)	Aggregate Intrinsic Value (1)
Balance at September 30, 2015	4,800		$10.21
Granted	505		11.51
Exercised	(667	)	9.78
Forfeited / Canceled	(589	)	11.09
Balance at March 31, 2016	4,049		$10.32	4.9	$	1,700
Exercisable at March 31, 2016	2,809		$10.50	4.1	$	981

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $9.43 as of March 31, 2016, 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.

Schedule of Valuation Assumptions

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:

	Six months ended March 31,
	2016	2015
Weighted average per option grant date fair value	$3.92	$2.91
Assumptions used for option grants:
Risk free interest rate	1.61% - 1.85%	1.77% - 1.85%
Expected term	6.00 years	6.00 years
Expected volatility	32%	35% - 36%
Weighted average volatility	32%	35%
Expected dividend yield	0	0

Schedule of Nonvested Restricted Stock Units

A summary of our non-vested restricted stock units as of March 31, 2016 and changes during the six months then ended is presented below (in thousands, except per common share amounts):

	Number of Awards		Weighted Average Grant Date Fair Value
Nonvested at September 30, 2015	543		$	8.41
Granted	233		$	10.92
Vested	(165	)	$	8.36
Canceled	(99	)	$	8.09
Nonvested at March 31, 2016	512		$	9.64

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Restructuring (Tables)

6 Months Ended

Mar. 31, 2016

Restructuring and Related Activities [Abstract]

Schedule of Restructuring Reserve

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

	Q2 2016 Restructuring			Q1 2016 Restructuring
	Employee Termination Costs			Employee Termination Costs			Other			Total
Balance at September 30, 2015	$	—		$	—		$	—		$	—
Restructuring charge	—			480			171			651
Balance at December 31, 2015	—			480			171			651
Restructuring charge	78			—			24			102
Payments	(76		)	(113		)	(195		)	(384		)
Foreign currency fluctuation	—			13			—			13
Balance at March 31, 2016	$	2		$	380		$	—		$	382

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Acquisition (Details) - USD ($) $ in Thousands		6 Months Ended
	Oct. 05, 2015	Mar. 31, 2016	Sep. 30, 2015	Mar. 31, 2015	Sep. 30, 2014
Business Acquisition [Line Items]
Goodwill		$ 110,707	$ 100,183	$ 99,828	$ 101,484
Bluenica Corporation
Business Acquisition [Line Items]
Cash paid at closing	$ 2,888
Earn-out payment installment period	4 years
Fair value of contingent consideration	$ 10,400
Acquisition costs		$ 100
Goodwill	$ 11,020
Weighted average use life of acquired intangibles	5 years 7 months 13 days
Purchased and Core Technology | Bluenica Corporation
Business Acquisition [Line Items]
Useful life of finite lived intangibles	5 years
Customer Relationships | Bluenica Corporation
Business Acquisition [Line Items]
Useful life of finite lived intangibles	7 years
Earn-out payments | Bluenica Corporation
Business Acquisition [Line Items]
Earn-out payment maximum	$ 11,600
Additional earn-out payment | Bluenica Corporation
Business Acquisition [Line Items]
Earn-out payment maximum	$ 3,500

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Acquisition (Assets Acquired and Liabilities Assumed) (Details) - USD ($) $ in Thousands	Oct. 05, 2015	Mar. 31, 2016	Sep. 30, 2015	Mar. 31, 2015	Sep. 30, 2014
Business Acquisition [Line Items]
Goodwill		$ 110,707	$ 100,183	$ 99,828	$ 101,484
Bluenica Corporation
Business Acquisition [Line Items]
Cash paid at closing	$ 2,888
Purchase price payable upon completion of diligence matters	115
Fair value of contingent consideration	10,400
Total purchase price consideration	13,403
Fair value of net tangible assets acquired	129
Goodwill	11,020
Deferred tax liabilities, net	(646)
Total assets acquired and liabilities assumed	13,403
Purchased and Core Technology | Bluenica Corporation
Business Acquisition [Line Items]
Fair value of identifiable intangible assets acquired	2,000
Customer Relationships | Bluenica Corporation
Business Acquisition [Line Items]
Fair value of identifiable intangible assets acquired	$ 900

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Discontinued Operations (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	Oct. 23, 2015	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015	Oct. 23, 2017	Oct. 23, 2016	Sep. 30, 2015
San Francisco
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Future minimum lease payments		$ 100		$ 100
Etherios, Inc. | Discontinued Operations, Disposed of by Sale
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Facility abandonment costs	$ 725	100
Income tax expense (benefit) on discontinued operations		$ 47	$ (161)	$ (476)	$ (888)
Etherios, Inc. | Discontinued Operations, Disposed of by Sale | United States Federal Tax Jurisdiction
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Deferred income tax liability								$ 589
Etherios, Inc. | Discontinued Operations, Disposed of by Sale | Forecast
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Deferred receivable from sale agreement						$ 2,000	$ 3,000

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Discontinued Operations (Gain on Sale Subject to Working Capital Adjustments) (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	Oct. 23, 2015	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Net cash proceeds				$ 2,849	$ 0
Etherios, Inc. | Discontinued Operations, Disposed of by Sale
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Cash received	$ 4,096
Employee related liabilities	(1,134)
Working capital adjustment	(113)
Net cash proceeds	2,849
Present value of receivable due on October 23, 2016	2,941
Present value of receivable due on October 23, 2017	1,922
Total fair value of consideration received	7,712
Less:
Net assets of Etherios	(3,383)
Facility abandonment costs	(725)	$ (100)
Transaction costs, primarily professional fees	(734)
Gain on sale of discontinued operations, before income taxes	$ 2,870	$ (42)	$ 0	$ 2,870	$ 0

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Discontinued Operations (Income (loss) from Discontinued Operations, Net of Tax) (Details) - Etherios, Inc. - Discontinued Operations, Disposed of by Sale - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	Oct. 23, 2015	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Service revenue		$ 0	$ 2,750	$ 891	$ 4,255
Cost of service		0	1,907	713	4,047
Gross profit		0	843	178	208
Operating expenses:
Sales and marketing		0	424	148	981
Research and development		0	499	103	978
General and administrative		0	191	43	604
Restructuring		0	106	0	106
Total operating expenses		0	1,220	294	2,669
Loss from discontinued operations, before income taxes		0	(377)	(116)	(2,461)
(Loss) gain on sale of discontinued operations, before income taxes	$ 2,870	(42)	0	2,870	0
Total (loss) income from discontinued operations, before income taxes		(42)	(377)	2,754	(2,461)
Income tax expense (benefit) on discontinued operations		47	(161)	(476)	(888)
(Loss) income from discontinued operations, after income taxes		$ (89)	$ (216)	$ 3,230	$ (1,573)

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Discontinued Operations (Assets and Liabilities of Discontinued Ops) (Details) - USD ($) $ in Thousands		Mar. 31, 2016	Sep. 30, 2015
Current assets:
Total current assets		$ 0	$ 1,624
Current liabilities:
Total current liabilities		$ 0	1,481
Etherios, Inc. | Discontinued Operations, Disposed of by Sale
Current assets:
Accounts receivable, net			1,417
Deferred tax assets			127
Other current assets			80
Total current assets			1,624
Property, equipment and improvements, net			18
Identifiable intangible assets, net			1,531
Goodwill			1,914
Deferred tax assets	[1]		(589)
Total assets of discontinued operations			4,498
Current liabilities:
Accounts payable			50
Accrued compensation			1,346
Other current liabilities			85
Total current liabilities			1,481
Other non-current liabilities			95
Total liabilities of discontinued operations			$ 1,576

[1] As of September 30, 2015, the we had a net deferred income tax asset related to the United States federal jurisdiction. That net deferred income tax asset position included a deferred income tax liability of $589 thousand related to Etherios which was entirely in the United States federal tax jurisdiction.

XML

Discontinued Operations (Amortization, Depreciation, and Purchase of PPE) (Details) - Etherios, Inc. - Discontinued Operations, Disposed of by Sale - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Amortization of identifiable intangible assets	$ 30	$ 241
Depreciation of property, equipment and improvements	0	14
Purchases of property, equipment, improvements and certain other intangible assets	$ 0	$ (11)

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Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		6 Months Ended
		Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Numerator:
Income continuing operations		$ 2,226	$ 1,662	$ 5,357	$ 2,680
(Loss) income from discontinued operations, after income taxes		(89)	(216)	3,230	(1,573)
Net income		$ 2,137	$ 1,446	$ 8,587	$ 1,107
Denominator:
Denominator for basic net income (loss) per common share — weighted average shares outstanding		25,820,000	24,492,000	25,574,000	24,319,000
Effect of dilutive securities:
Stock options and restricted stock units		178,000	781,000	542,000	497,000
Denominator for diluted net income (loss) per common share — adjusted weighted average shares		25,998,000	25,273,000	26,116,000	24,816,000
Basic net income (loss) per common share:
Continuing operations, basic (USD per share)		$ 0.09	$ 0.07	$ 0.21	$ 0.11
Discontinued operations, basic (USD per share)		0.00	(0.01)	0.13	(0.06)
Net income, basic (1) (USD per share)	[1],[2]	0.08	0.06	0.34	0.05
Diluted net income (loss) per common share
Continuing operations, diluted (USD per share)		0.09	0.07	0.21	0.11
Discontinued operations, diluted (USD per share)		0.00	(0.01)	0.12	(0.06)
Net income, diluted (1) (USD per share)	[1],[2]	$ 0.08	$ 0.06	$ 0.33	$ 0.04
Potentially dilutive securities excluded from computation of earnings per share		2,735,177	2,366,812	1,495,104	3,496,463

[1] Earnings per share presented are calculated by line item and may not add due to the use of rounded amounts.

[2] Earnings per share presented are calculated by line item and may not add due to the use of rounded amounts.

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Selected Balance Sheet Data (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Sep. 30, 2015
Accounts receivable, net:
Accounts receivable	$ 28,932	$ 28,073
Less allowance for doubtful accounts	363	285
Accounts receivable, net	28,569	27,788
Inventories:
Raw materials	21,195	26,037
Work in process	519	598
Finished goods	3,970	5,242
Inventories	$ 25,684	$ 31,877

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Marketable Securities (Details) $ in Thousands	6 Months Ended
	Mar. 31, 2016 USD ($) Security	Mar. 31, 2015 USD ($)
Schedule of Available-for-sale Securities [Line Items]
Number of securities below amortized cost basis	21
Number of securities	59
Proceeds from maturities of marketable securities | $	$ 27,509	$ 19,763
Current Assets
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, next twelve months, maximum year mature	1 year
Non-current Assets
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, year two through five, maximum year mature	3 years

XML

Marketable Securities (Fair Value to Amortized Cost) (Details) - USD ($) $ in Thousands		Mar. 31, 2016		Sep. 30, 2015
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, amortized cost basis		$ 55,422	[1]	$ 60,869	[2]
Available-for-sale securities, unrealized gains		34		10
Available-for-sale securities, unrealized losses		(50)		(62)
Available-for-sale marketable securities, fair value		55,406	[1]	60,817	[2]
Purchased and accrued interest		209		252
Current Assets
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, amortized cost basis		48,162	[1]	47,224	[2]
Available-for-sale securities, unrealized gains		2		8
Available-for-sale securities, unrealized losses		(50)		(41)
Available-for-sale marketable securities, fair value		48,114	[1]	47,191	[2]
Current Assets | Corporate Bonds
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, amortized cost basis		25,033	[1]	31,753	[2]
Available-for-sale securities, unrealized gains		0		0
Available-for-sale securities, unrealized losses		(31)		(39)
Available-for-sale marketable securities, fair value		25,002	[1]	31,714	[2]
Current Assets | Commercial Paper
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, amortized cost basis		17,974	[1]	7,986	[2]
Available-for-sale securities, unrealized gains		0		0
Available-for-sale securities, unrealized losses		(14)		(1)
Available-for-sale marketable securities, fair value		17,960	[1]	7,985	[2]
Current Assets | Certificates of Deposit
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, amortized cost basis		2,002	[1]	6,253	[2]
Available-for-sale securities, unrealized gains		2		8
Available-for-sale securities, unrealized losses		0		0
Available-for-sale marketable securities, fair value		2,004	[1]	6,261	[2]
Current Assets | Government municipal bonds
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, amortized cost basis		3,153	[1]	1,232	[2]
Available-for-sale securities, unrealized gains		0		0
Available-for-sale securities, unrealized losses		(5)		(1)
Available-for-sale marketable securities, fair value		3,148		1,231
Non-current Assets
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, amortized cost basis	[2]			13,645
Available-for-sale securities, unrealized gains				2
Available-for-sale securities, unrealized losses				(21)
Available-for-sale marketable securities, fair value	[2]			13,626
Non-current Assets | Corporate Bonds
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, amortized cost basis	[2]			4,138
Available-for-sale securities, unrealized gains				0
Available-for-sale securities, unrealized losses				(12)
Available-for-sale marketable securities, fair value	[2]			4,126
Non-current Assets | Certificates of Deposit
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, amortized cost basis		7,260	[1]	7,511	[2]
Available-for-sale securities, unrealized gains		32		2
Available-for-sale securities, unrealized losses		0		(6)
Available-for-sale marketable securities, fair value		$ 7,292	[1]	7,507	[2]
Non-current Assets | Government municipal bonds
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, amortized cost basis	[2]			1,996
Available-for-sale securities, unrealized gains				0
Available-for-sale securities, unrealized losses				(3)
Available-for-sale marketable securities, fair value	[2]			$ 1,993

[1] Included in amortized cost and fair value is purchased and accrued interest of $209

[2] Included in amortized cost and fair value is purchased and accrued interest of $252.

XML

Marketable Securities (Fair Value and Gross Unrealized Losses for AFS) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Sep. 30, 2015
Schedule of Available-for-sale Securities [Line Items]
Fair value of available-for-sale securities in continuous unrealized loss position for less than twelve months	$ 40,887	$ 47,054
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	(49)	(62)
Fair value of available-for-sale securities in continuous unrealized loss position for twelve months or longer	3,002	499
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	(1)	(1)
Corporate Bonds
Schedule of Available-for-sale Securities [Line Items]
Fair value of available-for-sale securities in continuous unrealized loss position for less than twelve months	19,843	33,664
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	(30)	(52)
Fair value of available-for-sale securities in continuous unrealized loss position for twelve months or longer	3,002	0
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	(1)	0
Commercial Paper
Schedule of Available-for-sale Securities [Line Items]
Fair value of available-for-sale securities in continuous unrealized loss position for less than twelve months	17,960	5,987
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	(14)	(1)
Fair value of available-for-sale securities in continuous unrealized loss position for twelve months or longer	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	0	0
Certificates of Deposit
Schedule of Available-for-sale Securities [Line Items]
Fair value of available-for-sale securities in continuous unrealized loss position for less than twelve months		4,244
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss		(6)
Fair value of available-for-sale securities in continuous unrealized loss position for twelve months or longer		499
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss		(1)
Government municipal bonds
Schedule of Available-for-sale Securities [Line Items]
Fair value of available-for-sale securities in continuous unrealized loss position for less than twelve months	3,084	3,159
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	(5)	(3)
Fair value of available-for-sale securities in continuous unrealized loss position for twelve months or longer	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	$ 0	$ 0

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Fair Value Measurements (Financial Assets and Liabilities) (Details) - USD ($) $ in Thousands	Mar. 31, 2016		Sep. 30, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	$ 55,406	[1]	$ 60,817	[2]
Fair Value, Inputs, Level 1 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets measured at fair value	29,578		14,436
Total liabilities measured at fair value	0
Fair Value, Inputs, Level 2 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets measured at fair value	55,406		60,817
Total liabilities measured at fair value	0
Fair Value, Inputs, Level 3 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets measured at fair value	0		0
Total liabilities measured at fair value	10,522
Liability | Fair Value, Inputs, Level 1 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Contingent consideration on acquired business	0
Liability | Fair Value, Inputs, Level 2 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Contingent consideration on acquired business	0
Liability | Fair Value, Inputs, Level 3 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Contingent consideration on acquired business	10,522
Money market | Fair Value, Inputs, Level 1 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	29,578		14,436
Money market | Fair Value, Inputs, Level 2 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0		0
Money market | Fair Value, Inputs, Level 3 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0		0
Corporate Bonds | Fair Value, Inputs, Level 1 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	0		0
Corporate Bonds | Fair Value, Inputs, Level 2 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	25,002		35,840
Corporate Bonds | Fair Value, Inputs, Level 3 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	0		0
Commercial Paper | Fair Value, Inputs, Level 1 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	0		0
Commercial Paper | Fair Value, Inputs, Level 2 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	17,960		7,985
Commercial Paper | Fair Value, Inputs, Level 3 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	0		0
Certificates of Deposit | Fair Value, Inputs, Level 1 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	0		0
Certificates of Deposit | Fair Value, Inputs, Level 2 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	9,296		13,768
Certificates of Deposit | Fair Value, Inputs, Level 3 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	0		0
Government municipal bonds | Fair Value, Inputs, Level 1 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	0		0
Government municipal bonds | Fair Value, Inputs, Level 2 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	3,148		3,224
Government municipal bonds | Fair Value, Inputs, Level 3 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	0		0
Estimate of Fair Value Measurement | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets measured at fair value	84,984		75,253
Total liabilities measured at fair value	10,522
Estimate of Fair Value Measurement | Money market | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	29,578		14,436
Estimate of Fair Value Measurement | Corporate Bonds | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	25,002		35,840
Estimate of Fair Value Measurement | Commercial Paper | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	17,960		7,985
Estimate of Fair Value Measurement | Certificates of Deposit | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	9,296		13,768
Estimate of Fair Value Measurement | Government municipal bonds | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale marketable securities	$ 3,148		$ 3,224

[1] Included in amortized cost and fair value is purchased and accrued interest of $209

[2] Included in amortized cost and fair value is purchased and accrued interest of $252.

XML

Fair Value Measurements (Reconciliation of Liability) (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Mar. 31, 2016	Mar. 31, 2016
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Fair value at beginning of period	$ 10,400	$ 0
Purchase price contingent consideration	0	10,400
Change in fair value of contingent consideration	122	122
Fair value at end of period	$ 10,522	$ 10,522

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Fair Value Measurements (Details) - Fair Value, Inputs, Level 3	6 Months Ended
	Mar. 31, 2016
Minimum
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs probability of payment	93.60%
Fair Value Inputs, Discount Rate	1.20%
Maximum
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs probability of payment	98.10%
Fair Value Inputs, Discount Rate	2.50%

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Goodwill and Other Identifiable Intangible Assets, Net (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Sep. 30, 2015
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	$ 76,596	$ 73,934
Accumulated amortization	(71,801)	(71,286)
Net	4,795	2,648
Purchased and Core Technology
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	47,165	45,449
Accumulated amortization	(45,352)	(45,424)
Net	1,813	25
License Agreements
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	18	18
Accumulated amortization	(4)	(4)
Net	14	14
Patents and Trademarks
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	11,596	11,377
Accumulated amortization	(10,710)	(10,385)
Net	886	992
Customer Relationships
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	17,817	17,090
Accumulated amortization	(15,735)	(15,473)
Net	$ 2,082	$ 1,617

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Goodwill and Other Identifiable Intangible Assets, Net (Amortization Expense) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Amortization expense			$ 1,001	$ 1,537
2016 six months	$ 988		988
2017	1,547		1,547
2018	1,110		1,110
2019	698		698
2020	328		328
2021	50		50
Cost of Sales and General and Administrative Expense
Finite-Lived Intangible Assets [Line Items]
Amortization expense	$ 500	$ 600	$ 1,000	$ 1,300

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Goodwill and Other Identifiable Intangible Assets, Net (Goodwill Rollforward) (Details) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Goodwill [Roll Forward]
Beginning balance	$ 100,183	$ 101,484
Acquisition of Bluenica	11,020	0
Foreign currency translation adjustment	(496)	(1,656)
Ending balance	$ 110,707	$ 99,828

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Goodwill and Other Identifiable Intangible Assets, Net (Additional Information) (Details) $ in Thousands	Jun. 30, 2014 industry	Mar. 31, 2016 USD ($)	Sep. 30, 2015 USD ($)	Jun. 30, 2015 USD ($)
Goodwill [Line Items]
Market capitalization				$ 238,600
Carrying value		$ 290,406	$ 274,938	$ 270,600
Control premium percent	35.00%
Percent fair value in excess of carrying value of goodwill				19.00%
Target companies equity benchmark	50.00%
Number of industries encompasses similar products | industry	3
Minimum
Goodwill [Line Items]
Control premium percent	30.00%
Maximum
Goodwill [Line Items]
Control premium percent	40.00%

XML

Income Taxes (Unrecognized Tax Benefits) (Details) $ in Thousands	6 Months Ended
	Mar. 31, 2016 USD ($)
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward]
Unrecognized tax benefits, beginning balance	$ 1,618
Increases related to Prior year income tax positions	60
Decreases related to Expiration of statute of limitations	(121)
Unrecognized tax benefits, ending balance	$ 1,557

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Income Tax Disclosure [Abstract]
Income tax provision	$ 1,155	$ 1,035	$ 1,536	$ 907
Income tax expense (benefit) specific to the period			(700)	$ (500)
Unrecognized tax benefits that would impact effective tax rate	$ 1,500		$ 1,500

XML

Product Warranty Obligation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Product Warranties Disclosures [Abstract]
Warranty period, minimum			1 year
Warranty period, maximum			5 years
Standard Product Warranty Accrual [Roll Forward]
Beginning balance	$ 968	$ 950	$ 1,014	$ 862
Warranties issued	172	206	292	497
Settlements made	(196)	(233)	(362)	(436)
Ending balance	$ 944	$ 923	$ 944	$ 923

XML

Contingencies Patent infringement (Details)	Dec. 23, 2015
Patent Infringement
Loss Contingencies [Line Items]
Number of patents allegedly infringed	4

XML

Stock-Based Compensation (Details) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Feb. 01, 2016	Jan. 27, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares Paid for Tax Withholding for Share Based Compensation	42,427
Tax withholding for share-based compensation	$ 500
Proceeds from stock option plan transactions	6,267	$ 6,006
Excess tax benefits from stock-based compensation	202	0
Total intrinsic value of all options exercised	$ 1,700	800
Forfeiture rate	10.00%
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation cost nonvested awards	$ 3,500
Weighted average period, unrecognized compensation cost, nonvested awards	3 years 4 months 24 days
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation cost nonvested restricted stock units	$ 3,600
Weighted average period, unrecognized compensation cost, nonvested awards	1 year 8 months 12 days
The 2016 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized			1,500,000
Number of shares available for future grants	1,342,807
The 2016 Plan | Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Expiration period	7 years
The 2014 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized				2,250,000
The 2014 Plan | Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Expiration period	8 years
The Purchase Plan | The Purchase Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of continuous days of service	90 days
Number of hours per week employed	20 hours
Percent of market value	85.00%
Offering period	3 months
Employee contributions	$ 500	$ 505
Common shares issued to employees	55,343	72,306
Shares available for future issuance	562,188
Director | The 2016 Plan | Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year
Director | The 2014 Plan | Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year
Executives and Employees | The 2016 Plan | Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Executives and Employees | The 2014 Plan | Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years

XML

Stock-Based Compensation (Stock-Based Compensation Expense) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation before income taxes	$ 903	$ 1,038	$ 1,714	$ 2,222
Income tax benefit	(293)	(361)	(550)	(775)
Stock-based compensation after income taxes	610	677	1,164	1,447
Cost of Sales
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation before income taxes	51	83	105	189
Sales and Marketing
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation before income taxes	227	306	426	649
Research and Development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation before income taxes	147	196	295	388
General and Administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation before income taxes	$ 478	$ 453	$ 888	$ 996

XML

Stock-Based Compensation (Options and Common Shares Reserved for Grant) (Details) - Stock Options $ / shares in Units, shares in Thousands, $ in Thousands	6 Months Ended
	Mar. 31, 2016 USD ($) $ / shares shares
Options Outstanding [Roll Forward]
Options Outstanding, Beginning Balance (in shares) | shares	4,800
Options Outstanding, Granted (in shares) | shares	505
Options Outstanding, Exercised (in shares) | shares	(667)
Options Outstanding, Forfeited / Canceled (in shares) | shares	(589)
Options Outstanding, Ending Balance (in shares) | shares	4,049
Options Outstanding, Exercisable (in shares) | shares	2,809
Weighted Average Exercise Price [Roll Forward]
Weighted Average Exercise Price, Beginning Balance	$ 10.21
Weighted Average Exercise Price, Granted	11.51
Weighted Average Exercise Price, Exercised	9.78
Weighted Average Exercise Price, Forfeited / Canceled	11.09
Weighted Average Exercise Price, Ending Balance	10.32
Weighted Average Exercise Price, Exercisable	$ 10.50
Weighted Average Remaining Contractual Term [Abstract]
Weighted Average Remaining Contractual Term, Outstanding	4 years 10 months 24 days
Weighted Average Remaining Contractual Term, Exercisable	4 years 1 month 6 days
Aggregate Intrinsic Value [Abstract]
Aggregate Intrinsic Value, Outstanding | $	$ 1,700	[1]
Aggregate Intrinsic Value, Exercisable | $	$ 981	[1]
Closing Stock Price	$ 9.43

[1] The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $9.43 as of March 31, 2016, 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.

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Stock-Based Compensation (Fair Value Assumptions) (Details) - Stock Options - $ / shares	6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average per option grant date fair value	$ 3.92	$ 2.91
Assumptions Used For Options Grants [Abstract]
Risk free interest rate, minimum	1.61%	1.77%
Risk free interest rate, maximum	1.85%	1.85%
Expected term	6 years	6 years
Expected volatility rate, minimum	32.00%	35.00%
Expected volatility rate, maximum		36.00%
Weighted average volatility	32.00%	35.00%
Expected dividend yield	0.00%	0.00%

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Stock-Based Compensation (Non-Vested Options) (Details) - Restricted Stock Units shares in Thousands	6 Months Ended
	Mar. 31, 2016 $ / shares shares
Nonvested Number of Restricted Stock Units [Roll Forward]
Number of Restricted Stock Units, Beginning Balance | shares	543
Number of Restricted Stock Units, Granted | shares	233
Number of Restricted Stock Units, Vested | shares	(165)
Number of Restricted Stock Units, Canceled | shares	(99)
Number of Restricted Stock Units, Ending Balance | shares	512
Nonvested Restricted Stock Units, Weighted Average Grant Date Fair Value per Common Share [Roll Forward]
Restricted Stock Units, Weighted Average Grant Date Fair Value per Common Share, Beginning Balance | $ / shares	$ 8.41
Restricted Stock Units, Weighted Average Grant Date Fair Value per Common Share, Granted | $ / shares	10.92
Restricted Stock Units, Weighted Average Grant Date Fair Value per Common Share, Vested | $ / shares	8.36
Restricted Stock Units, Weighted Average Grant Date Fair Value per Common Share, Canceled | $ / shares	8.09
Restricted Stock Units, Weighted Average Grant Date Fair Value per Common Share, Ending Balance | $ / shares	$ 9.64

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Restructuring (Details) $ in Thousands	3 Months Ended			6 Months Ended
	Mar. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Mar. 31, 2015 USD ($)	Mar. 31, 2016 USD ($) employee	Mar. 31, 2015 USD ($)	Sep. 30, 2015 USD ($)
Restructuring Cost and Reserve [Line Items]
Restructuring Reserve	$ 382	$ 651		$ 382		$ 0
Restructuring charge	102	651	$ 412	$ 753	$ 412
Payments for Restructuring	(384)
Restructuring Reserve, Translation Adjustment	13
Q1 2016 Restructuring
Restructuring Cost and Reserve [Line Items]
Number of employees eliminated | employee				10
Q2 2016 Restructuring
Restructuring Cost and Reserve [Line Items]
Number of employees eliminated | employee				5
Employee Termination Costs | Q1 2016 Restructuring
Restructuring Cost and Reserve [Line Items]
Restructuring Reserve	380	480		$ 380		0
Restructuring charge	0	480
Payments for Restructuring	(113)
Restructuring Reserve, Translation Adjustment	13
Employee Termination Costs | Q2 2016 Restructuring
Restructuring Cost and Reserve [Line Items]
Restructuring Reserve	2	0		2		0
Restructuring charge	78	0
Payments for Restructuring	(76)
Restructuring Reserve, Translation Adjustment	0
Other | Q1 2016 Restructuring
Restructuring Cost and Reserve [Line Items]
Restructuring Reserve	0	171		$ 0		$ 0
Restructuring charge	24	$ 171
Payments for Restructuring	(195)
Restructuring Reserve, Translation Adjustment	$ 0

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Subsequent Event (Details) $ in Millions	Apr. 26, 2016 USD ($)
Common Stock | Subsequent Event
Subsequent Event [Line Items]
Authorized amount under share repurchase program	$ 15.0