What changed in this filing

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Item 1A. Risk Factors

2021-08-25 compared with 2020-08-27 · 261 added, 158 removed, 276 unchanged (60% of the section changed)

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In that case, the market price of the Company’s common stock could decline.

Our sales cycle may be lengthy, and the timing of sales, along with additional services such as warehousing, inventory management, installation and implementation of our products within our customers’ networks, may extend over more than one period, which can make our operating results difficult to predict.

Risk Factors Summary

The following is a summary of the principal risks that could adversely affect our business, operations and financial results.

Business and Operational Risk Factors

• Our sales cycle may be lengthy, and the timing of sales, along with additional services such as network design, installation and implementation of our products within our customers’ networks, may extend over more than one period, which can make our operating results difficult to predict.

• The ongoing global COVID-19 pandemic could adversely affect our business, financial condition and results of operations.

• We may undertake further restructuring activities, which may adversely impact our operations, and we may not realize all of the anticipated benefits of these activities or any potential future restructurings.

Any restructuring activities may harm our business.

• We must continue to increase our revenues and/or reduce costs if we hope to maintain profitability.

• Our quarterly results may be volatile, which can adversely affect the trading price of our common stock.

• Our success will depend on new products introduced to the marketplace in a timely manner, successfully completing product transitioning and achieving customer acceptance.

• We rely on various third-party service partners to help complement our global operations, and failure to adequately manage these relationships could adversely impact our financial results and relationships with customers.

• We must respond to rapid technological change and comply with evolving industry standards and requirements for our products to be successful.

• Our average sales prices may decline in the future.

• Credit and commercial risks and exposures could increase if the financial condition of our customers declines.

• Our restructuring actions could harm our relationships with our employees and impact our ability to recruit new employees.

• Our business could be adversely affected if we are unable to attract and retain key personnel.

• We face strong competition for maintaining and improving our position in the market, which can adversely affect our revenue growth and operating results.

• Our ability to sell our products and compete successfully is highly dependent on the quality of our customer service and support, and our failure to offer high quality service and support could have a material adverse effect on our sales and results of operations.

• Product performance problems, including undetected errors in our hardware or software, or deployment delays could harm our business and reputation.

• If we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs, which would adversely affect our business and results of operations.

• If we fail to effectively manage our contract manufacturer relationships, we could incur additional costs or be unable to timely fulfill our customer commitments, which would adversely affect our business and results of operations and, in the event of an inability to fulfill commitments, would harm our customer relationships.

• We depend on sole or limited sources for some key components and failure to receive timely delivery of any of these components could result in deferred or lost sales.

• Because a significant amount of our revenue may come from a limited number of customers, the termination of any of these customer relationships may adversely affect our business.

• We continually evaluate strategic transaction opportunities which could involve merger, divestiture, sale and/or acquisition activities that could disrupt our operations and harm our operating results.

• If we fail to develop and maintain distribution and licensing relationships, our revenue may decrease.

Financial and Macroeconomic Risk Factors

• Due to the volume of our international sales, we may be susceptible to a number of political, economic and geographic risks that could harm our business.

• We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.

• The effects of global financial and economic conditions in certain markets has had, and may continue to have, significant effects on our customers and suppliers, and has in the past, and may in the future have, a material adverse effect on our business, operating results, financial condition and stock price.

• Changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation in any country in which we operate;

the loss of a major tax dispute;

a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries;

or other factors could cause volatility in our effective tax rate and could adversely affect our operating results.

• O ur ability to use net operating loss carryforwards to offset future taxable income for U.S.

federal income tax purposes and other tax benefits may be limited.

• We may be adversely affected by fluctuations in currency exchange rates.

Legal and Regulatory Risk Factors

• Continued tension in U.S.-China trade relations may adversely impact our supply chain operations and business.

• Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) could adversely affect our financial condition and results of operations, and could require a significant expenditure of time, attention and resources, especially by senior management.

• If we are unable to adequately protect our intellectual property rights, we may be deprived of legal recourse against those who misappropriate our intellectual property.

• If sufficient radio frequency spectrum is not allocated for use by our products, or we fail to obtain regulatory approval for our products, our ability to market our products may be restricted.

• Our business is subject to changing regulation of corporate governance, public disclosure and anti-bribery measures which have resulted in increased costs and may continue to result in additional costs or potential liabilities in the future.

• There are inherent limitations on the effectiveness of our controls.

• Our products are used in critical communications networks which may subject us to significant liability claims.

• We may be subject to litigation regarding our intellectual property.

This litigation could be costly to defend and resolve and could prevent us from using or selling the challenged technology.

• System security risks, data protection breaches, and cyber-attacks could compromise our proprietary information, disrupt our internal operations and harm public perception of our security products, which could cause our business and reputation to suffer and adversely affect our stock price.

General Risk Factors

• Natural disasters or other catastrophic events could have an adverse effect on our business.

• We cannot guarantee that our stock repurchase program will be fully implemented or that it will enhance long-term stockholder value.

• Anti-takeover provisions of Delaware law, the Plan, and provisions in our Amended and Restated Certificate of Incorporation, as amended, and Amended and Restated Bylaws could make a third-party acquisition of us difficult.

For a more complete discussion of the material risks facing our business, see below.

Business and Operational Risk Factors

Our sales cycle may be lengthy, and the timing of sales, along with additional services such as network design, installation and implementation of our products within our customers’ networks, may extend over more than one period, which can make our operating results difficult to predict.

We experience difficulty in accurately predicting the timing of the sale of products and amounts of revenue generated from sales of our products, primarily in developing countries.

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Our typical product sales cycle, which results in our products being designed into our customers’ networks, can take 12 to 24 months.

A number of factors contribute to the length of the sales cycle, including technical evaluations of our products, the design process required to integrate our products into our customers’ networks and warehousing and inventory management services that may be requested by certain large customers.

A number of factors contribute to the length of the sales cycle, including technical evaluations of our products and the design process required to integrate our products into our customers’ networks.

The completion of services such as installation and testing of the customer’s networks and the completion of all other suppliers’ network elements are subject to the customer’s timing and efforts and other factors outside our control, each of which may prevent us from making predictions of revenue with any certainty and could cause us to experience substantial period-to-period fluctuations in our operating results.

Additionally, in anticipation of product orders, we may incur substantial costs before the sales cycle is complete and before we receive any customer payments.

Specifically, warehousing and inventory management services can affect our operating results in any period due to the costs associated with providing such services and the fact that the timing of the revenue recognition may be delayed.

In the event that a sale is not completed or is canceled or delayed, we may have already incurred substantial expenses, making it more difficult for us to become profitable or otherwise negatively impacting our financial results.

Because of the challenges of our lengthy sales cycle, our recognition of revenue from our selling efforts may be substantially delayed, our ability to forecast our future revenue may be more limited and our revenue may fluctuate significantly from quarter to quarter.

Due to the volume of our international sales, we may be susceptible to a number of political, economic and geographic risks that could harm our business.

We are highly dependent on sales to customers outside the U.S.

In fiscal 2020, our sales to international customers accounted for 38% of total revenue.

Significant portions of our international sales are in less developed countries.

Our international sales are likely to continue to account for a large percentage of our products and services revenue for the foreseeable future.

As a result, the occurrence of any international, political, economic or geographic event could result in a significant decline in revenue.

In addition, compliance with complex foreign and U.S.

laws and regulations that apply to our international operations increases our cost of doing business in international jurisdictions.

These numerous and sometimes conflicting laws and regulations include internal control and disclosure rules, data privacy and filtering requirements, anti-corruption laws, such as the Foreign Corrupt Practices Act, and other local laws prohibiting corrupt payments to governmental officials, and anti-competition regulations, among others.

Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries, and could also materially affect our brand, our international expansion efforts, our ability to attract and retain employees, our business, and our operating results.

Although we have implemented policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate our policies.

Some of the risks and challenges of doing business internationally include:

• unexpected changes in regulatory requirements;

• fluctuations in international currency exchange rates including its impact on unhedgeable currencies and our forecast variations for hedgeable currencies;

• imposition of tariffs and other barriers and restrictions;

• management and operation of an enterprise spread over various countries;

• the burden of complying with a variety of laws and regulations in various countries;

• application of the income tax laws and regulations of multiple jurisdictions, including relatively low-rate and relatively high-rate jurisdictions, to our sales and other transactions, which results in additional complexity and uncertainty;

• the conduct of unethical business practices in developing countries;

• general economic and geopolitical conditions, including inflation and trade relationships;

• restrictions on travel to locations where we conduct business, including those imposed due to COVID-19;

• war and acts of terrorism;

• kidnapping and high crime rate;

• natural disasters;

• availability of U.S.

dollars especially in countries with economies highly dependent on resource exports, particularly oil;

• changes in export regulations.

While these factors and the impacts of these factors are difficult to predict, any one or more of them could adversely affect our business, financial condition and results of operations in the future.

Due to the challenges from our lengthy sales cycle, our recognition of revenue from our selling efforts may be substantially delayed, our ability to forecast our future revenue may be more limited and our revenue may fluctuate significantly from quarter to quarter.

The ongoing global COVID-19 pandemic could adversely affect our business, financial condition and results of operations.

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The COVID-19 pandemic has, and is expected to continue to have, an impact on our operations, supply chains and distribution systems.

The extent to which the COVID-19 pandemic continues to affect our business, prospects and results of operations will depend on future developments, many of which are highly uncertain, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating activities can resume.

Management is actively monitoring the impact of COVID-19 on the Company’s financial condition, liquidity, operations, suppliers, industry, and workforce.

The extent to which the COVID-19 pandemic continues to affect our business, prospects and results of operations will depend on future developments, many of which are highly uncertain, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, including ongoing vaccination efforts, any new variant strains of the underlying virus and how quickly and to what extent normal economic and operating activities can resume.

Management continues to monitor the impact of COVID-19 on the Company’s financial condition, liquidity, operations, suppliers, industry, and workforce.

Our first priority remains the health and safety of our employees and their families.

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Our sites support essential businesses and remain operational.

are maintaining social distancing for workers on-site and have enhanced cleaning protocols and usage of personal protective equipment, where appropriate.

We are maintaining social distancing for workers on-site and have enhanced cleaning protocols and usage of personal protective equipment, where appropriate.

There is no certainty that such measures will be sufficient to mitigate the risks posed by COVID-19, and our ability to perform critical functions could be harmed as a result.

The impact to our supply chain lead times and ability to fulfill orders was minimal for the second half of fiscal 2020.

However, depending on pandemic-related factors like the uncertain duration of temporary manufacturing restrictions as well as our ability to perform field services during shelter in place orders, we could/may continue to experience constraints and delays in fulfilling customer orders in future periods.

Depending on pandemic-related factors like the uncertain duration of temporary manufacturing restrictions as well as our ability to perform field services during shelter in place orders, we could/may continue to experience constraints and delays in fulfilling customer orders in future periods.

While the ultimate effects of the pandemic on our business are uncertain, the pandemic and related government actions, including restrictions on travel, temporary closure of businesses and stay at home orders have, and are likely to continue to have, an adverse impact on global economic conditions and consumer confidence and spending, which could materially affect demand for our products.

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The financial results for the fiscal year reflect some of the reduced activity experienced during the period in various locations around the world and are not necessary indicative of the results for the next fiscal period or fiscal year.

To the extent the COVID-19 pandemic continues to adversely affect the global economy, and/or adversely affects our business, operations or financial performance, it may also have the effect of increasing the likelihood and/or magnitude of other risks described in the “Risk Factors” set forth in this Item 1A.

The negative effects of COVID-19 on the global economy may adversely affect our business, results of operations and financial condition.

Our business and operating results are affected by the global business environment and economic conditions, including changes in interest rates, availability of capital from credit providers, consumer confidence, rates of inflation, geopolitical issues and other macro-economic factors.

The United States and global economies continue to experience a period of economic and financial uncertainty, in part due to COVID-19 and the related public health actions taken by many governments and businesses.

The pandemic is negatively affecting, and is expected to continue to negatively affect, at least in the short term, global economic conditions, and a continued economic downturn could lead to decreased customer demand, inability to execute installs and/or service, or the inability of our customers to pay for our products, the inability of suppliers to deliver the components necessary to manufacture our products, and reduced access to capital from credit providers and through the capital markets, among other things, which could adversely affect our business, results of operations and financial condition.

Additionally, a prolonged economic downturn may exacerbate certain other risks described in the “Risk Factors” set forth in this Item 1A that affect our business, results of operations and financial condition.

Natural disasters or other catastrophic events could have an adverse effect on our business.

Natural disasters, such as hurricanes, earthquakes, fires, and floods, could adversely affect our operations and financial performance.

Such events could result in physical damage to one or more of our facilities, the temporary closure of one or more of our facilities or those of our suppliers, a temporary lack of an adequate work force in a market, a temporary or long-term disruption in the supply of products from local or overseas suppliers, a temporary disruption in the transport of goods from overseas, and delays in the delivery of goods.

Public health issues, whether occurring in the United States or abroad, could disrupt our operations, disrupt the operations of suppliers or customers, or have an adverse impact on customer demand.

As a result of any of these events, we may be required to suspend operations in some or all of our locations, which could have an adverse effect on our business, financial condition, results of operations, and cash flows.

These events could also reduce demand for our products or make it difficult or impossible to receive components from suppliers.

Although we maintain business interruption insurance and other insurance intended to cover some or all of these risks, such insurance may be inadequate, whether because of coverage amount, policy limitations, the financial viability of the insurance companies issuing such policies, or other reasons.

Tension in U.S.-China trade relations may adversely impact our supply chain operations and business.

government has taken certain actions that change U.S.

trade policies, including recently-imposed tariffs affecting certain products manufactured in China.

Some components manufactured by our Chinese suppliers are subject to tariffs if imported into the United States.

In addition, the Chinese government has taken certain reciprocal actions, including recently imposed tariffs affecting certain products manufactured in the United States.

Certain of our products manufactured in our U.S.

operations have been included in the tariffs imposed on imports into China from the United States.

Although some of the products and components we import are affected by the tariffs, at this time, we do not expect these tariffs to have a material impact on our business, financial condition or results of operations.

It is unknown whether and to what extent additional new tariffs (or other new laws or regulations) will be adopted that increase the cost of importing and/or exporting products and components from China to the United States and vice versa.

Further, the effect of any such new tariffs or retaliatory actions on our industry and customers is unknown and difficult to predict.

As additional new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or if China or other affected countries take retaliatory trade actions, such changes could have a material adverse effect on our business, financial condition, results of operations or cash flows.

An economic downturn, whether related to COVID-19 or otherwise, could lead to decreased customer demand, inability to execute installs and/or service, or the inability of our customers to pay for our products, the inability of suppliers to deliver the components necessary to manufacture our products, and reduced access to capital from credit providers and through the capital markets, among other things, which could adversely affect our business, results of operations and financial condition.

To the extent the COVID-19 pandemic adversely affects the global economy moving forward, and/or adversely affects our business, operations or financial performance, it may also have the effect of increasing the likelihood and/or magnitude of other risks described in the “Risk Factors” set forth in this Item 1A.

We may undertake further restructuring activities, which may adversely impact our operations, and we may not realize all of the anticipated benefits of these activities or any potential future restructurings.

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For example, if we consolidate additional facilities in the future, we may incur additional restructuring and related expenses, which could have a material adverse effect on our business, financial condition or results of operations.

We must increase our revenues and/or reduce costs if we hope to maintain profitability.

We must continue to increase our revenues and/or reduce costs if we hope to maintain profitability.

As measured under U.S.

generally accepted accounting principles (“U.S.

GAAP”), we recorded net income attributable to our stockholders of $0.3 million in fiscal 2020, compared to $9.7 million in fiscal 2019 and $1.8 million in fiscal 2018.

GAAP”), we recorded net income of $110.1 million in fiscal 2021, compared to $0.3 million in fiscal 2020 and $9.7 million in fiscal 2019.

We generated cash from operations of $17.3 million, $17.5 million and $2.9 million in fiscal 2021, 2020 and 2019, respectively.

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In order to counter pricing pressures, we invested heavily in product improvements to reduce unit costs and enhance product features, decreased overall company expenses, and worked with our vendors to attain more favorable pricing.

If we are unable to reduce product unit costs associated with enhanced product features, including payments to contract manufacturers and other suppliers, or achieve the projected cost reductions, we may not achieve profitability.

We cannot be certain that these actions or others that we may take will allow us to maintain operating profitability or net income as determined under U.S.

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Accordingly, we cannot provide assurances that we will be able to achieve profitability in the future or that if profitability is attained, that we will be able to sustain profitability, particularly on a quarter-to-quarter basis.

We cannot guarantee that our stock repurchase program will be fully implemented or that it will enhance long-term stockholder value.

In May 2018, our Board of Directors approved a stock repurchase program for the repurchase of up to $7.5 million.

The repurchase program has been suspended temporarily since February 2020.

Our repurchase program even if fully implemented, may not enhance long-term stockholder value.

During fiscal 2020 and 2019, we repurchased $1.8 million and $2.3 million of our common stock in the open market respectively.

As of July 3, 2020, $3.4 million remained available for repurchase under our stock repurchase program.

Our success will depend on new products introduced to the marketplace in a timely manner, successfully completing product transitioning and achieving customer acceptance.

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If we fail to develop or introduce, on a timely basis, new products or product enhancements or features that achieve market acceptance, our business may suffer.

Additionally, we work closely with a variety of third-party partners to develop new product features and new platforms.

Additionally, we work closely with a variety of third-

party partners to develop new product features and new platforms.

Should our partners face delays in the development process, then the timing of the rollout of our new products may be significantly impacted which may negatively impact our revenue and gross margin.

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In addition, products or technologies developed by others may render our products non-competitive or obsolete and result in significant reduction in orders from our customers and the loss of existing and prospective customers.

Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) could adversely affect our financial condition and results of operations, and could require a significant expenditure of time, attention and resources, especially by senior management.

Our accounting and financial reporting policies conform to U.S.

GAAP, which are periodically revised and/or expanded.

The application of accounting principles is also subject to varying interpretations over time.

Accordingly, we are required to adopt new or revised accounting standards or comply with revised interpretations that are issued from time to time by various parties, including accounting standard setters and those who interpret the standards, such as the FASB and the SEC and our independent registered public accounting firm.

New financial accounting standards which may be adopted by FASB could result in significant changes to our accounting and/or financial reporting practices that could adversely affect our financial condition and results of operations.

We rely on various third-party service partners to help complement our global operations, and failure to adequately manage these relationships could adversely impact our financial results and relationships with customers.

We rely on a number of third-party service partners, both domestic and international, to complement our global operations.

We rely upon these partners for certain installation, maintenance, logistics and support functions.

In addition, as our customers increasingly seek to rely on vendors to perform additional services relating to the design, construction and operation of their networks, the scope of work performed by our service partners is likely to increase and may include areas where we have less experience providing or managing such services.

We must successfully identify, assess, train and certify qualified service partners in order to ensure the proper installation, deployment and maintenance of our products.

The vetting and certification of these partners can be costly and time-consuming, and certain partners may not have the same operational history, financial resources and scale as we have.

Moreover, certain service partners may provide similar services for other companies, including our competitors.

We may not be able to manage our relationships with our service partners effectively, and we cannot be certain that they will be able to deliver services in the manner or time required, that we will be able to maintain the continuity of their services, or that they will adhere to our approach to ethical business practices.

Our service partners may also experience challenges in providing services to us as a result of the impact of the COVID-19 pandemic.

We may also be exposed to a number of risks or challenges relating to the performance of our service partners, including:

• delays in recognizing revenue;

• liability for injuries to persons, damage to property or other claims relating to the actions or omissions of our service partners;

• our services revenue and gross margin may be adversely affected;

• our relationships with customers could suffer.

If we do not effectively manage our relationships with third-party service partners, or if they fail to perform these services in the manner or time required, our financial results and relationships with our customers could be adversely affected.

We must respond to rapid technological change and comply with evolving industry standards and requirements for our products to be successful.

The optical transport networking equipment market is characterized by rapid technological change, changes in customer requirements and evolving industry standards.

We continually invest in research and development to sustain or enhance our existing products, but the introduction of new communications technologies and the emergence of new industry standards or requirements could render our products obsolete.

Further, in developing our products, we have made, and will continue to make, assumptions with respect to which standards or requirements will be adopted by our customers and competitors.

If the standards or requirements adopted by our prospective customers are different from

those on which we have focused our efforts, market acceptance of our products would be reduced or delayed, and our business would be harmed.

We are continuing to invest a significant portion of our research and development efforts in the development of our next-generation products.

We expect our competitors will continue to improve the performance of their existing products and introduce new products and technologies and to influence customers’ buying criteria so as to emphasize product capabilities that we do not, or may not, possess.

To be competitive, we must anticipate future customer requirements and continue to invest significant resources in research and development, sales and marketing, and customer support.

If we do not anticipate these future customer requirements and invest in the technologies necessary to enable us to have and to sell the appropriate solutions, it may limit our competitive position and future sales, which would have an adverse effect on our business and financial condition.

We may not have sufficient resources to make these investments and we may not be able to make the technological advances necessary to be competitive.

Our average sales prices may decline in the future.

We are experiencing, and are likely to continue to experience, declining sales prices.

We have experienced, and could continue to experience, declining sales prices.

This price pressure is likely to result in downward pricing pressure on our products and services.

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Pursuant to these contracts, we may deliver products and services representing an important portion of the contract price before receiving any significant payment from the customer.

As a result of the financing that may be provided to customers and our commercial risk exposure under long-term contracts, our business could be adversely affected if the

financial condition of our customers erodes.

As a result of the financing that may be provided to customers and our commercial risk exposure under long-term contracts, our business could be adversely affected if the financial condition of our customers erodes.

Over the past few years, certain of our customers have filed with the courts seeking protection under the bankruptcy or reorganization laws of the applicable jurisdiction or have experienced financial difficulties.

Our customers’ financial conditions face additional challenges in many emerging markets, where our customers are being affected not only by recession, but by deteriorating local currencies and a lack of credit and, more broadly, by the COVID-19 pandemic and related economic effects.

Upon the financial failure of a customer, we may experience losses on credit extended to such customer, losses relating to our commercial risk exposure and the loss of the customer’s ongoing business.

If customers fail to meet their obligations to us, we may experience reduced cash flows and losses in excess of reserves, which could materially adversely impact our results of operations and financial position.

We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.

We believe that our existing cash and cash equivalents, the available line of credit under our credit facility and future cash collections from customers will be sufficient to provide for our anticipated requirements for working capital and capital expenditures for the next 12 months and the foreseeable future.

However, it is possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our longer-term capital needs.

If this occurs, we may need to sell assets, reduce capital expenditures, or obtain additional equity or debt financing.

We have no assurance that additional financing will be available on terms favorable to us, or at all.

If adequate funds are not available or are not available on acceptable terms if and when needed, our business, financial condition and results of operations could be harmed.

If we raise additional funds through the issuance of equity or convertible debt securities, the ownership of our existing stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders.

Our business requires extensive credit risk management that may not be adequate to protect against customer nonpayment.

A risk of non-payment by customers is a significant focus of our business.

We expect a significant amount of future revenue to come from international customers in developing countries.

We do not generally expect to obtain collateral for sales, although we require letters of credit or credit insurance as appropriate for international customers.

For information regarding the percentage of revenue attributable to certain key customers, see “Risk Factors - Business and Operational Risk Factors - Because a significant amount of our revenue may come from a limited number of customers, the termination of any of these customer relationships may adversely affect our business.” Our historical accounts receivable balances have been concentrated in a small number of significant customers.

Unexpected adverse events impacting the financial condition of our customers, bank failures or other unfavorable regulatory, economic or political events in the countries in which we do business may impact collections and adversely impact our business, require increased bad debt expense or receivable write-offs and adversely impact our cash flows, financial condition and operating results, which could also result in a breach of our bank covenants.

Our restructuring actions could harm our relationships with our employees and impact our ability to recruit new employees.

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If we do not effectively help our customers quickly resolve issues or provide effective ongoing support, it could adversely affect our ability to sell our products to existing customers as well as demand for maintenance and renewal contracts and could harm our reputation with existing and potential customers.

Product performance problems, including undetected errors in our hardware or software, or deployment delays could harm our business and reputation.

The development and production of products with high technology content is complicated and often involves problems with hardware, software, components and manufacturing methods.

Complex hardware and software systems, such as our products, can often contain undetected errors or bugs when first introduced or as new versions are released.

In addition, errors associated with components we purchase from third parties, including customized components, may be difficult to resolve.

We have experienced issues in the past in connection with our products, including failures due to the receipt of faulty components from our suppliers and performance issues related to software updates.

From time to time we have had to replace certain components or provide software remedies or other remediation in response to errors or bugs, and we may have to do so again in the future.

In addition, performance issues can be heightened during periods where we are developing and introducing multiple new products to the market, as any performance issues we encounter in one technology or product could impact the performance or timing of delivery of other products.

Our products may also suffer degradation of performance and reliability over time.

If reliability, quality, security or network monitoring problems develop, a number of negative effects on our business could result, including:

• reduced orders from existing customers;

• declining interest from potential customers;

• delays in our ability to recognize revenue or in collecting accounts receivables;

• costs associated with fixing hardware or software defects or replacing products;

• high service and warranty expenses;

• delays in shipments;

• high inventory excess and obsolescence expense;

• high levels of product returns;

• diversion of our engineering personnel from our product development efforts;

• payment of liquidated damages, performance guarantees or similar penalties.

Because we outsource the manufacturing of certain components of our products, we may also be subject to product performance problems as a result of the acts or omissions of third parties, and we may not have adequate compensating remedies against such third parties.

From time to time, we encounter interruptions or delays in the activation of our products at a customer’s site.

These interruptions or delays may result from product performance problems or from issues with installation and activation, some of which are outside our control.

If we experience significant interruptions or delays that we cannot promptly resolve, the associated revenue for these installations may be delayed or confidence in our products could be undermined, which could cause us to lose customers, fail to add new customers, and consequently harm our financial results.

If we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs, which would adversely affect our business and results of operations.

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Our contract manufacturers also have other customers and may not have sufficient capacity to meet all of their customers’ needs, including ours, during periods of excess demand.

The effects of global financial and economic conditions in certain markets has had, and may continue to have, significant effects on our customers and suppliers, and has in the past, and may in the future have, a material adverse effect on our business, operating results, financial condition and stock price.

The effects of global financial and economic conditions in certain markets include, among other things, significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions and/or fluctuations in equity and currency values worldwide.

Economic conditions in certain markets have adversely affected and may continue to adversely affect our customers’ access to capital and/or willingness to spend capital on our products, and/or their levels of cash liquidity and/or their ability and/or willingness to pay for products that they will order or have already ordered from us, or result in their ceasing operations.

Further, we have experienced an increasing number of our customers, principally in emerging markets, requesting longer payment terms, lease or vendor financing arrangements, longer terms for the letters of credit securing purchases of our products and services, which could potentially negatively impact our orders, revenue conversion cycle, and cash flows.

In seeking to reduce their expenses, we have also seen significant pressure from our customers to lower prices for our products as they try to improve their operating performance and procure additional capital equipment within their reduced budget levels.

To the extent that we lower prices on our products and services, our orders, revenues, and gross margins may be negatively impacted.

Additionally, certain emerging markets are particularly sensitive to pricing as a key differentiator.

Where price is a primary decision driver, we may not be able to effectively compete, or we may choose not to compete due to unacceptable margins.

In addition, economic conditions in certain markets could materially adversely affect our suppliers’ access to capital and liquidity with which to maintain their inventories, production levels, or product quality, could cause them to raise prices or lower production levels, or result in their ceasing operations.

Further, with respect to our credit facility discussed under “Liquidity, Capital Resources and Financial Strategies” in Item 7 of this Annual Report on Form 10-K, if continued uncertain economic conditions adversely affect Silicon Valley Bank, our ability to access the funds available under our credit facility could be materially adversely affected.

The potential effects of these economic factors are difficult to forecast and mitigate.

As a consequence, our operating results for a particular period are difficult to predict and prior results are not necessarily indicative of results to be expected in future periods.

Any of the foregoing effects could have a material adverse effect on our business, results of operations, and financial condition and could adversely affect our stock price.

If we fail to effectively manage our contract manufacturer relationships, we could incur additional costs or be unable to timely fulfill our customer commitments, which would adversely affect our business and results of operations and, in the event of an inability to fulfill commitments, would harm our customer relationships.

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Should this occur, our operating results, cash flows and financial condition could be materially adversely affected.

Changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation in any country in which we operate;

the loss of a major tax dispute;

a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries;

or other factors could cause volatility in our effective tax rate and could adversely affect our operating results.

We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions.

Our future effective tax rate may be adversely affected by a number of factors, many of which are outside of our control, including:

• the jurisdictions in which profits are determined to be earned and taxed;

• adjustments to estimated taxes upon finalization of various tax returns;

• increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairment of goodwill in connection with acquisitions;

• our ability to utilize net operating loss;

• changes in available tax credits;

• changes in share-based compensation expense;

• changes in the valuation of our deferred tax assets and liabilities;

• changes in domestic or international tax laws, treaties, rulings, regulations or agreements or the interpretation of such tax laws, treaties, rulings, regulations or agreements, including the impact of the Tax Cuts and Jobs Act of 2017;

• the resolution of issues arising from tax audits with various tax authorities, including the loss of a major tax dispute;

• local tax authority challenging our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries;

• the tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations between reporting periods;

• taxes that may be incurred upon a repatriation of cash from foreign operations.

Any significant increase in our future effective tax rates could impact our results of operations for future periods adversely.

O ur ability to use net operating loss carryforwards to offset future taxable income for U.S.

federal income tax purposes and other tax benefits may be limited.

Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) imposes an annual limitation on the amount of taxable income that may be offset if a corporation experiences an “ownership change” as defined in Section 382 of the Code.

An ownership change occurs when a company’s “five-percent shareholders” (as defined in Section 382 of the Code) collectively increase their ownership in the company by more than 50 percentage points (by value) over a rolling three-year period.

Additionally, various states have similar limitations on the use of state net operating losses (“NOL”) following an ownership change.

If we experience an ownership change, our ability to use our NOLs, any loss or deduction attributable to a “net unrealized built-in loss” and other tax attributes (collectively, the “Tax Benefits”) could be substantially limited, and the timing of the usage of the Tax Benefits could be substantially delayed, which could significantly impair the value of the Tax Benefits.

There is no assurance that we will be able to fully utilize the Tax Benefits and we could be required to record an additional valuation allowance related to the amount of the Tax Benefits that may not be realized, which could adversely impact our result of operations.

We believe that these Tax Benefits are a valuable asset for us.

On March 3, 2020, the Board approved a Tax Benefit Preservation Plan (the “Plan”) in an effort to protect our Tax Benefits during the effective period of the Plan.

Further, on March 3, 2020, the Board adopted certain rights to the agreement which are intended to preserve the Tax Benefits by restricting certain transfers of our common stock.

The Company expects to submit the Plan to a stockholder vote at the Company’s 2020 Annual Meeting of Stockholders.

Although the Plan and the Charter Amendments are intended to reduce the likelihood of an “ownership change” that could adversely affect us, there is no assurance that the restrictions on transferability in the Plan and the Charter Amendments will prevent all transfers that could result in such an “ownership change.” There also can be no assurance that the transfer restrictions in the Charter Amendments will be enforceable against all of our stockholders absent a court determination confirming such enforceability.

The transfer restrictions may be subject to challenge on legal or equitable grounds.

The Plan and the Charter Amendments could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, us or a large block of our common stock.

A third party that acquires 4.9% or more of our common stock could suffer substantial dilution of its ownership interest under the terms of the Plan through the issuance of common stock or common stock equivalents to all stockholders other than the acquiring person.

The acquisition may also be void under the Charter Amendments.

The foregoing provisions may adversely affect the marketability of our common stock by discouraging potential investors from acquiring our stock.

In addition, these provisions could delay or frustrate the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, or impede an attempt to acquire a significant or controlling interest in us, even if such events might be beneficial to us and our stockholders.

Our customers may not pay for products and services in a timely manner, or at all, which would decrease our cash flows and adversely affect our working capital.

Our business requires extensive credit risk management that may not be adequate to protect against customer nonpayment.

A risk of non-payment by customers is a significant focus of our business.

We expect a significant amount of future revenue to come from international customers in developing countries.

We do not generally expect to obtain collateral for sales, although we require letters of credit or credit insurance as appropriate for international customers.

For information regarding the percentage of revenue attributable to certain key customers, see the risks discussed in the following risk factor.

Our historical accounts receivable balances have been concentrated in a small number of significant customers.

Because a significant amount of our revenue may come from a limited number of customers, the termination of any of these customer relationships may adversely affect our business.

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and utility, pipeline, railroad and other industrial enterprises that operate broadband wireless networks.

During fiscal 2019 and 2018, we had one customer in Africa, MTN Group, that accounted for 11% and 13% of our total revenue, respectively.

No customer accounted for more than 10% of our total revenue in fiscal 2020.

During fiscal 2019 we had one customer in Africa, MTN Group, that accounted for 11% of our total revenue, respectively.

No customer accounted for more than 10% of our total revenue in fiscal 2021 or 2020.

Although we have a large customer base, during any given quarter a small number of customers may account for a significant portion of our revenue.

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The loss of any existing customer, a significant reduction in the level of sales to any existing customer, the consolidation of existing customers, or our inability to gain additional customers could result in declines in our revenue or an inability to grow revenue.

We continually evaluate strategic transaction opportunities which could involve merger, restructuring, divestiture, sale and/or acquisition activities that could disrupt our operations and harm our operating results.

We continually evaluate strategic transaction opportunities which could involve merger, divestiture, sale and/or acquisition activities that could disrupt our operations and harm our operating results.

Our growth depends upon market growth, our ability to enhance our existing products and our ability to introduce new products on a timely basis.

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Even when an acquired or acquiring company has already developed and marketed products, there can be no assurance that product enhancements will be made in a timely fashion or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to such products.

If we fail to develop and maintain distribution and licensing relationships, our revenue may decrease.

Although a majority of our sales are made through our direct sales force, we also market our products through indirect sales channels such as independent agents, resellers, OEMs and systems integrators.

These relationships enhance our ability to pursue major contract awards and, in some cases, are intended to provide our customers with easier access to financing and a greater variety of equipment and service capabilities, which an integrated system provider should be able to offer.

We may not be able to maintain our current relationships or develop new ones.

If additional relationships are developed, they may not be successful.

Furthermore, as we consider increasing licensing revenue based on upgraded technology, we may not be successful in transitioning customers to the planned software upgrades.

Our inability to establish or maintain these distribution and licensing relationships could restrict our ability to market our products and thereby result in significant reductions in revenue.

If these revenue reductions occur, our business, financial condition and results of operations would be harmed.

Financial and Macroeconomic Risk Factors

Due to the volume of our international sales, we may be susceptible to a number of political, economic and geographic risks that could harm our business.

We are highly dependent on sales to customers outside the U.S.

In fiscal 2021, our sales to international customers accounted for 34% of total revenue.