Leases

6 Months Ended

Mar. 31, 2023

All of our leases are operating leases and primarily consist of leases for office space. For any lease with an initial term in excess of 12 months, the related lease assets and lease liabilities are recognized on the condensed consolidated balance sheets as either operating or financing leases at the inception of an agreement where it is determined that a lease exists. We have lease agreements that contain both lease and non-lease components. We have elected to combine lease and non-lease components for all classes of assets. Leases with an expected term of 12 months or less are not recorded on the condensed consolidated balance sheets. Instead we recognize lease expense for these leases on a straight-line basis over the lease term.

Operating lease assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments. These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date. We generally use a collateralized incremental borrowing rate based on information available at the commencement date, including the lease term, in determining the present value of future payments. When determining our right-of-use assets, we generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised.

Our leases typically require payment of real estate taxes and common area maintenance and insurance. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term.

The following table shows the supplemental balance sheet information related to our leases (in thousands):


	Balance Sheet Location	March 31, 2023		September 30, 2022
Assets
Operating leases	Operating lease right-of-use assets	$	14,179	$	15,299
Total lease assets		$	14,179	$	15,299

Liabilities

Operating leases	Current portion of operating lease liabilities	$	3,346	$	3,196

Operating leases	Operating lease liabilities	15,519		16,978
Total lease liabilities		$	18,865	$	20,174

12. LEASES (CONTINUED)

The following were the components of our lease cost which is recorded in both cost of goods sold and selling, general and administrative expense (in thousands):


	Three months ended March 31,				Six months ended March 31,
	2023		2022		2023		2022
Operating lease cost	$	867	$	945	$	1,771	$	1,882
Variable lease cost	343		268		652		541
Short-term lease cost	18		28		43		56
Total lease cost	$	1,228	$	1,241	$	2,466	$	2,479

In November 2021, Digi acquired $0.9 million in right of-use assets and assumed $0.9 million in lease liabilities from the acquisition of Ventus that are included in the balances at March 31, 2022. Digi acquired $0.2 million in right-of-use assets in exchange for new operating lease liabilities in the three and six months ended March 31, 2023.

At March 31, 2023, the weighted average remaining lease term of our operating leases was 6.9 years and the weighted average discount rate for these leases was 4.5%.

The table below reconciles the undiscounted cash flows for each of the first five years as well as all the remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet as of March 31, 2023 (in thousands):


Fiscal year	Amount
2023 (six months)	$	2,033
2024	3,954
2025	3,501
2026	3,122
2027	2,043
2028	1,898
Thereafter	5,705
Total future undiscounted lease payments	22,256
Less imputed interest	(3,391)
Total reported lease liability	$	18,865