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Item 1A. Risk Factors

2023-07-12 compared with 2022-06-16 · 234 added, 219 removed, 190 unchanged (70% of the section changed)

The factors that are discussed below, as well as the matters that are generally set forth in this Form 10-K and the documents incorporated by reference herein, could materially and adversely affect the Company’s business, results of operations and financial condition.

Risks Relating to the COVID-19 Pandemic

We face risks related to actual or threatened health epidemics and other outbreaks, including the COVID-19 pandemic, which have and could have a material adverse effect on our operations, liquidity, financial conditions, and financial results.

A serious global pandemic, including the current pandemic caused by COVID-19 and variants of COVID-19, can adversely impact, shock and weaken the global economy.

Macroeconomic Risks

Our business is sensitive to global economic conditions, including recessions, inflation, and interest rate fluctuations.

Weakened global economic or recessionary conditions may adversely affect our industry, business and results of operations.

Our overall performance depends in part on worldwide economic conditions.

The United States and other key international economies have experienced downturns and recessions from time to time during which economic activity was impacted by falling demand for a variety of goods and services;

restricted credit;

poor liquidity;

reduced corporate profitability;

volatility in credit, equity and foreign exchange markets;

increased unemployment;

bankruptcies;

and overall uncertainty with respect to the economy.

These conditions affect consumer and entertainment spending and could adversely affect our customers’ ability or willingness to purchase our products, delay prospective customers’ purchasing decisions, reduce the value of their contracts, or affect attrition rates, all of which could adversely affect our operating results.

These demand fluctuations and various factors may reduce our ability to effectively utilize our capacity and impact our results of operations.

We rely on global supply chains, and inflationary pressures can increase our input costs faster than our ability to raise prices.

These could eliminate our ability to sell our products or receive parts and components through our global supply chains.

The rate of interest we pay on our asset-based lending facility with JPMorgan Chase Bank, N.A.

is correlated to the Standard Overnight Fund Rate (SOFR), which is determined by governmental policy decisions.

Increases in SOFR will increase the rate of any extended borrowing on this facility.

Geopolitical issues, conflicts, governmental actions and other global events could adversely affect our results of operations and financial condition.

Our business is subject to global political issues and conflicts and governmental actions.

Such factors can create trade restrictions, increase tariff costs, increase prices for raw materials and components used in our products, increase the cost of sales, decrease demand for our products, or cause other implications to our business operations.

These impacts could reduce profitability and could have a material adverse effect on our results of operations and financial condition if they escalate into geographies in which we do business, manufacture our products, or obtain raw materials and components for production.

For example, the continuing conflict arising from the invasion of Ukraine by Russia, or tensions between Taiwan, China, the United States or other countries, could adversely impact macroeconomic conditions, give rise to regional instability and result in heightened economic tariffs, sanctions and import-export restrictions from the United States and the international community in a manner that adversely affects our Company, including to the extent that any such actions cause material business interruptions or restrict our ability in these regions to conduct business with certain suppliers or vendors.

Additionally, such conflict or sanctions may significantly devalue various global currencies and have a negative impact on economies in geographies in which we do business.

We face risks related to actual or threatened health epidemics and other outbreaks, which have had and could have a material adverse effect on our operations, liquidity, financial conditions, and financial results.

A serious global pandemic can adversely impact, shock and weaken the global economy.

These impacts can amplify other risk factors and could have a material impact on our operations, liquidity, financial conditions, and financial results.

Pandemic-related risks impacting our business may include increased exposure to:

global regulatory, geopolitical, and societal changes;

rapid degradation of global economic conditions, creating an increase in the volatility and the timing and

level of orders;

supply chain disruptions, material shortages, and increases in the costs of components;

changes in labor force availability, which could reduce our ability to operate across our business in development, sales and marketing, production, installation, and ongoing service and support;

an increased risk of being subject to contract performance claims if we are unable to deliver according to the terms of our contracts or commitments and cannot claim force majeure to mitigate or eliminate our exposure to such claims;

increased geographic work restrictions that could impact our ability to market, sell, manufacture and/or install our products;

an increase in our exposure to claims or litigation relating to the pandemic;

limitations on our ability to meet the terms of our bank credit agreements that cause restrictions on our ability to access the liquidity under such agreements;

reduced access to and an increase in the cost of capital;

reduced access to surety bonds or bank guarantees to secure customer orders;

volatility and changes in foreign currency rates;

delayed timing of collections and/or decreased collectability of receivables and contract assets;

and a material reduction to the values of our assets including, but not limited to, inventory, investments in affiliates, deferred tax assets, goodwill, intangibles, and property and equipment.

The impact on our customers and suppliers and the range of governmental and community reactions to the pandemic are uncertain.

To the extent that our customers and suppliers are adversely impacted by a pandemic, this could reduce the availability, or result in delays in the delivery of materials or supplies, or result in delays in customer payments and orders, which in turn could materially interrupt our business operations and/or impact our liquidity.

Site closures or project delays have occurred and have required increased social distancing and health-related precautions in our factories and many work sites, which may cause additional project delays and additional costs to be incurred.

Pandemics could disrupt our operations due to absenteeism by infected or ill employees or other employees who elect not to come to work due to the illness or due to quarantines.

COVID-19 created constraints on supply chain operations and resulted in component part shortages due to global capacity constraints, such as the current global capacity constraint we are facing in the supply of component parts, particularly of semiconductor components.

Such a constraint could have caused and has caused lead times for our products to increase.

In an effort to halt the outbreak of a pandemic such as COVID-19, governments may place significant restrictions on travel, such as the restrictions placed by the Chinese government on travel within China, leading to extended business closures, including closures at some supplier facilities and our manufacturing facilities.

Although most of the restrictions on the operations of our suppliers and on us as a result of COVID-19 have been lifted or eased, we and our suppliers could continue to be disrupted by worker absenteeism, quarantines, office and factory closures, disruptions to ports and other shipping infrastructure, or other travel or health-related restrictions, and such restrictions could spread to other locations if the virus and its variants continues to spread or resurge.

If our supply chain operations are adversely affected or are curtailed by the outbreak of diseases such as COVID-19, our supply chain, manufacturing and product shipments will be delayed, which could adversely affect our business, operations and customer relationships.

We have sought and may need to continue to seek alternate sources of supply which may be more expensive, unavailable or may result in delays in shipments to us from our supply chain and subsequently to our customers.

Further, if our distributors’ or end user customers’ businesses are similarly affected, they might delay or reduce purchases from us, which could adversely affect our results of operations.

In addition, freight and logistics constraints caused in part by restrictions imposed by governments to combat the COVID-19 pandemic and additionally due to container and carriage shortages and increased fuel prices have resulted in increased costs and constrained available transport for us and our channel partners, all at a time when global demand has increased.

If our supply chain operations continue to be adversely affected or are curtailed by the outbreak of diseases such as COVID-19, our supply chain, manufacturing and product shipments will be delayed, which could adversely affect our business, operations and customer relationships.

The extent to which the COVID-19 pandemic or any other pandemic will impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of COVID-19 or another pandemic and its variants, future government actions in response to the crisis, the acceptance and effectiveness of the COVID-19 vaccines and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable.

We cannot at this time quantify or forecast the business impact of COVID-19, and there can be no assurance that the COVID-19 pandemic or any other health crisis will not have a material and adverse effect on our business, financial results and financial condition.

Risks Related to Our Business

Our business, operations, and financial results have been, and may continue to be, impacted by the COVID-19 pandemic.

Impacts on our business include, but are not limited to:

• Inability to meet our customers' demand due to disruptions in our manufacturing caused by delays and disruptions in obtaining certain raw material and other manufacturing components and because of restrictions affecting our ability to conduct work at sites during shutdowns;

• Rapid increases in raw material, components, and personnel related costs and expenses;

• Rapid declines and increases in demand for our products.

Unexpected events, including natural disasters, weather events, war, terrorist acts, and pandemics, may increase our cost of doing business or disrupt our operations.

We operate manufacturing operations in three locations in the United States - Brookings, South Dakota, Sioux Falls, South Dakota, and Redwood Falls, Minnesota, and we have production facilities in Ireland and China.

Unexpected events could result in damage to, and a complete or partial closure of, one or more of our manufacturing facilities, which could make it difficult to supply our customers with product and provide our employees with work, thereby adversely affecting our business, operating results or financial condition.

The occurrence of one or more unexpected events in the United States or in other countries in which we operate may disrupt our operations and the operations of our customers and suppliers.

Such events could create additional uncertainties, forcing customers to reduce, delay, or cancel already planned projects or cause our suppliers not to perform, resulting in parts and component shortages.

Risks Related to Our Business and Industry

We operate in highly competitive markets and face significant competition and pricing pressures.

If we are unable to keep up with the rapidly changing product developments and new technologies or if we cannot compete effectively, we could lose market share and orders, which would negatively impact our results of operations.

The electronic display industry is characterized by ongoing product improvement, innovations and development.

We compete against products produced in foreign countries and the United States.

Our competitors may develop lower-cost or lower-featured products, may be willing to charge lower prices to increase their market share, or market new and unique product, service and controller offerings.

Some competitors have more capital and other resources, which may allow them to take advantage of acquisition opportunities or adapt more quickly to changes in customer requirements.

Other competitors use sponsorships as a way to win business at a particular location or market.

In addition, our products compete with other forms of advertising, such as television, print media, digital and mobile, and fixed display signs.

To remain competitive, we must anticipate and respond quickly to provide products and services that meet our customers’ needs, enhance our existing products, introduce new products and features, and continue to price our products competitively.

We may be unable to protect our intellectual property rights effectively, or we may infringe upon the intellectual property rights of others, either of which may have a material adverse effect on our operating results and financial condition.

We rely on a variety of intellectual property rights we use in our products and services.

We may not be able to successfully preserve our intellectual property rights in the future, and these rights could be invalidated, circumvented or challenged.

In particular, the laws of certain countries in which our products are sold do not protect our products and intellectual property rights to the same extent as the laws of the United States.

If litigation is necessary in the future to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others, such litigation could result in substantial costs and diversion of resources even if we ultimately prevail.

In addition, intellectual property rights of others also have an impact on our ability to offer some of our products and services for specific uses or at competitive prices.

Competitors' patents or other intellectual property may limit our ability to offer products or services to our customers.

Any infringement or claimed infringement by us of the intellectual property rights of others could result in litigation and adversely affect our ability to continue to provide, or could increase the cost of providing, products and services.

If we fail to timely and effectively obtain shipments of raw materials and components from our suppliers or to send shipments of our manufactured product to our customers, our business and operating results could be adversely affected.

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We may not be able to obtain sufficient freight capacity on a timely basis and, therefore, may not be able to timely receive shipments of raw materials and components or deliver products to customers.

In addition, transportation availability has disrupted timeless of raw material and component shipments and customer shipments.

Such a constraint could have caused and has caused lead times for our products to increase.

Cost inflation in, and shortages of, raw materials, components, and related transportation and tariff costs has and can have a significant impact on our price competitiveness and/or ability to produce our products, which has and could cause harm to our sales, financial condition and results of operations.

Cost inflation and shortages of any raw materials and components used to manufacture our products has and can occur due to various factors (such as worldwide demand, natural disasters, logistic disruptions, war, and trade regulations).

COVID-19 created constraints on supply chain operations and resulted in component part shortages due to global capacity constraints, such as the current global capacity constraint we have been facing in the supply of component parts, particularly of semiconductor components.

In addition, transportation availability has disrupted the timeliness of raw material and component shipments and customer shipments.

Such a constraint could cause and has caused lead times for our products to increase.

Cost inflation in, and shortages of, raw materials, components, and related transportation and tariff costs have had and may continue to have a significant impact on our price competitiveness and/or ability to produce our products, which have caused and could continue to cause harm to our sales, financial condition and results of operations.

Cost inflation and shortages of any raw materials and components used to manufacture our products have and may continue to occur due to various factors, such as worldwide demand, natural disasters, logistic disruptions, war and other conflicts, and trade regulations.

Electronic and other components and materials used in our products are sometimes in short supply, which may impact our ability to meet customer demand.

Transportation costs and availability can fluctuate due to fluctuations in oil prices and other social, economic, and geopolitical factors.

If we experience shortages or increases in the prices we pay for raw materials and components and are unable to pass on those increases to our customers or are unable to manufacture our products at all or on a timely basis, it has and could negatively affect our business, financial condition or results of operations.

If we experience shortages or increases in the prices we pay for raw materials and components and are unable to pass on those increases to our customers or are unable to manufacture our products at all or on a timely basis, it could negatively affect our business, financial condition or results of operations as such conditions have in the past.

In addition to increased costs, these factors could delay delivery of products, which may result in the assessment of liquidated damages or other contractual damages that could negatively impact our profits.

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Specifically, we are impacted by the global inflation and shortage of semiconductors and related electronic components, other materials needed for production, and freight.

We are unable to predict the supply chain recovery or the impact to our business.

As a result of U.S.

Administrative trade actions in 2019, we experienced volatility in supply and increases in the prices of aluminum, electrical, and other components we use in our production.

Further trade disputes could make us subject to additional regulatory costs and challenges, affect global economic and market conditions, and contribute to volatility in foreign exchange markets, which we may be unable to effectively manage through our foreign exchange risk management program.

We continue to monitor the situation and evaluate ways to minimize these impacts through vendor negotiations, alternative sources, and potential price adjustments.

We estimate our financial results were adversely impacted by approximately $7.1 million, $2.9 million and $4.9 million of additional costs for tariffs in fiscal 2022, 2021 and 2020, respectively.

While supply chain disruptions from these factors have subsided over the last half of fiscal 2023 and we expect infrequent disruptions going forward from these factors, it is reasonably possible that future disruptions could occur that would have a material impact on our business.

Trade disruptions between countries could make us subject to additional regulatory costs and challenges, affect global economic and market conditions, and contribute to volatility in foreign exchange markets, which we may be unable to effectively manage through our foreign exchange risk management program.

We monitor for these types of situations and evaluate ways to minimize these impacts through vendor negotiations, alternative sources, and potential price adjustments.

We depend on a single-source or a limited number of suppliers for our raw materials and components from countries around the world.

The loss, an interruption, or a material change in our business relationships with our suppliers has and could cause a disruption in supply and a substantial increase in the costs of such materials.

Such changes has and could result in extended lead times or supply changes, which could disrupt or delay our scheduled product deliveries to our end user customers and may result in the loss of sales and end user customers and cause harm to our sales, financial condition, and results of operations.

Our suppliers are subject to the fluctuations in global economic cycles and conditions and other business risk factors which may impact their ability to operate their businesses.

The loss, an interruption, or a material change in our business relationships with our suppliers or in global supply chain conditions has had and could continue to cause a disruption in our supply chains and a substantial increase in the costs of such raw materials and components.

Such changes have and could continue to result in extended lead times or supply changes, which could disrupt or delay our scheduled product deliveries to our end user customers and may result in the loss of sales and end user customers and cause harm to our sales, financial condition, and results of operations.

The performance and financial condition of a supplier may cause us to alter our business terms, cease doing business with a particular supplier, or change our sourcing practices.

Our suppliers are subject to the fluctuations in global economic cycles and conditions and other business risk factors which may impact their ability to operate their businesses.

Our supply chain includes materials that are sourced or packaged directly or indirectly through Taiwan or China suppliers.

Geopolitical tensions and shipping disruptions can impact our suppliers ability to deliver components and raw materials.

An interruption from our suppliers of raw materials or components could affect our ability to manufacture our products until a new source of supply is located and, therefore, could have a material adverse effect on our business, financial condition or results of operations.

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Our future success and operating results will also depend upon our ability to attract, train, motivate and retain qualified personnel to maintain and grow capacity.

Although we intend to continue to provide competitive compensation packages to attract and retain qualified personnel, market conditions for pay levels and availability may impact our operations.

Although we intend to continue to provide competitive compensation packages to attract and retain qualified personnel, market conditions for pay levels and availability may negatively impact our operations.

We depend on third parties to complete some of our contracts.

Depending on a contract's scope of work, we may hire third-party subcontractors to perform on-site installation and service-related activities, hire manufacturers of structures or elements of structures related to on-site installation, hire contract manufacturers for certain product lines, or purchase specialty non-display related system elements from other companies.

Depending on a contract's scope of work, we may hire third-party subcontractors to perform on-site installation and service-related activities, hire manufacturers of structures or elements of structures related to on-site installations, hire contract manufacturers for certain product lines, or purchase specialty non-display related system elements from other companies.

If we are unable to hire qualified subcontractors, find qualified manufacturers for on-site elements, find qualified contract manufacturers, or purchase specialty non-display system elements, our ability to successfully complete a project could be impaired.

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We may not be able to utilize our capacity efficiently or accurately plan our capacity requirements, which may negatively affect our business and operating results.

We increase our production and services capacity and the overhead supporting order fulfillment based on anticipated market demand.

We increase and decrease our production and services capacity and the overhead supporting order fulfillment based on anticipated market demand.

Market demand, however, has not always developed as expected or remained at a consistent level.

This underutilization risk can potentially decrease our profitability and result in the impairment of certain assets.

These underutilization and overbooking capacity risks can potentially decrease our profitability and result in the impairment of certain assets.

The following factors are among those that could complicate capacity planning for market demand:

• changes in the demand for and mix of products that our customers buy;

• our ability to add and train our manufacturing staff in advance of demand;

• our ability scale down or to add and train our manufacturing and services staff in advance of demand changes;

• the market’s pace of technological change;

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• long lead times for our plant and equipment expenditures.

We operate in highly competitive markets and face significant competition and pricing pressures.

The electronic display industry is characterized by ongoing product improvement, innovations and development.

We compete against products produced in foreign countries and the United States.

Some competitors have more capital and other resources, which may allow them to take advantage of acquisition opportunities or adapt more quickly to changes in customer requirements.

Other competitors use sponsorships as a way to win business at a particular location or market.

In addition, our products compete with other forms of advertising, such as television, print media and fixed display signs.

To remain competitive, we must anticipate and respond quickly to provide products and services our customers’ needs, enhance our existing products, introduce new products and features, and continue to price our products competitively.

Our results of operations on a quarterly and annual basis have and are likely to continue to fluctuate and be substantially affected by the size and timing of large contract order awards.

Customer demand and the timing and size of large contracts create volatility in supply chain planning and capacity requirements to fulfill orders.

Awards of large contracts and their timing and amounts are difficult to predict, may not be repeatable, and are outside of our control.

Market demand has not always developed as expected or remained at a consistent level.

Adjusting supply chain material planning and production and services capacity to meet this varied demand can increase costs.

Large contracts or customer awards include projects for college and professional sports facilities

markets, the OOH niche, the transportation market, and the large spectacular niche.

These projects can have short delivery time frames.

Some factors that may cause our operating results to vary due to timing and size of the awards include:

• the timing of orders and related deliveries, including delays or cancellations of orders;

• our ability to obtain raw materials and components timely and at reasonable prices;

• our ability to adjust and utilize production and services capacity;

• our ability to engage third parties to support production and fulfillment;

• new product introductions;

• variations in product mix;

• customer financial wherewithal and the related economic conditions impacting their business.

Operating results in one or more quarters of a fiscal year may not be indicative of future operating results.

We enter into fixed-price contracts, which could reduce our profits if actual costs exceed estimated costs.

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In addition to increased costs, these factors could delay delivery of products, which may result in the assessment of liquidated damages or other contractual damages which would negatively impact our profits.

We evaluate changes in estimates on a contract-by-contract basis and disclose significant changes, if material, in the Notes to Consolidated Financial Statements.

The cumulative catch-up method is used to account for revisions in estimates.

Backlog may not be indicative of future revenue or profitability.

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If we receive relatively large orders in any given quarter, fluctuations in the levels of the quarterly backlog can result because the backlog may reach levels which may not be sustained in subsequent quarters.

Our results of operations on a quarterly and annual basis have and are likely to continue to fluctuate and be substantially affected by the size and timing of large contract order awards.

Customer demand and the timing and size of large contracts create volatility in supply chain planning and capacity requirements to fulfill orders.

Awards of large contracts and their timing and amounts are difficult to predict, may not be repeatable, and are outside of our control.

Market demand has not always developed as expected or remained at a

consistent level.

Adjusting supply chain material planning and production and services capacity to meet this varied demand can increase costs.

Large contracts or customer awards include projects for college and professional sports facilities markets, the OOH niche, the transportation market, and the large spectacular niche.

These projects can have short delivery time frames.

Some factors that may cause our operating results to vary due to timing and size of the awards include:

• the timing of orders and related deliveries, including delays or cancellations of orders;

• our ability to obtain raw materials and components timely and at reasonable prices;

• our ability to adjust and utilize production and services capacity;

• our ability to engage third parties to support production and fulfillment;

• new product introductions;

• variations in product mix;

• customer financial wherewithal and the related economic conditions impacting their business.

Operating results in one or more quarters or a fiscal year may not be indicative of future operating results.

Unanticipated events resulting in credit losses to us could have a material adverse impact on our financial results.

Significant portions of our sales are to customers who place large orders for custom products.

We closely monitor the creditworthiness of our customers and have not, to date, experienced significant credit losses.

We mitigate our exposure to credit risk, to some extent, by requiring deposits, payments prior to shipment, progress payments, payment bonds and letters of credit.

However, because some of our exposure to credit losses is outside of our control, unanticipated events resulting in credit losses could have a material adverse impact on our operating results.

Our actual results could differ from the estimates and assumptions we make to prepare our financial statements, which could have a material impact on our financial condition and results of operations.

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Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-K.

These estimates and assumptions affect the timing of net sales, costs, and profits or losses in applying the principles to contracts with customers under the cost incurred input method;

These estimates and assumptions affect the timing and amount of net sales, costs, and profits or losses in applying the principles to contracts with customers under over time method of recording revenue using the cost-to-cost input method;

credit losses for accounts receivables and contract assets;

the valuation of inventory;

estimated amounts for warranty costs;

estimated amounts for warranty and product maintenance agreement costs;

the calculation and valuation of our investments and deferred tax assets;

the valuation of our investment in unconsolidated subsidiaries;

the valuation of our investment in affiliates or unconsolidated subsidiaries;

fair value estimates used in goodwill and long-term assets testing;

and estimating the impact of uncertainties in the application of complex tax laws.

Although we believe these estimates and assumptions are reasonable under the circumstances, they are subject to significant uncertainties, some of which are beyond our control.

If management's estimates and assumptions change or are not correct, our financial condition or results of operation could be adversely affected.

estimating the impact of uncertainties in the application of complex tax laws;

and calculating share-based compensation expense.

Although we believe these estimates and assumptions are reasonable under the circumstances, they

are subject to significant uncertainties, some of which are beyond our control.

If management's estimates and assumptions change or are not correct, our financial condition or results of operations could be adversely affected.

Unanticipated warranty and other costs for defective products could adversely affect our financial condition, results of operations and reputation.

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The terms and conditions of our credit facilities impose restrictions limiting our ability to incur debt, contingent liabilities, lease obligations or liens;

make a substantial change of ownership;

or acquire or purchase a business or its assets.

to merge or consolidate with another company;

to dispose substantially all our assets ;

to acquire or purchase a business or its assets;

or to sell our assets.

Our credit facilities also impose certain financial covenants on us which restrict the level of cash dividends and capital expenditures.

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For additional information on financing agreements, see "Note 7.

Financing Agreements" of the Notes to our Consolidated Financial Statements included in this Form 10-K.

For the foreseeable future, it is anticipated that our cash on hand, marketable securities, cash provided by operating activities, and borrowings under our existing credit facilities should provide sufficient funds to finance our capital expenditures and working capital needs and otherwise meet operating expenses and debt service requirements.

Financing Agreements" and "Note 17.

Subsequent Events" of the Notes to our Consolidated Financial Statements included in this Form 10-K.

For the foreseeable future, it is anticipated that our cash on hand, marketable securities, cash provided by operating activities, and borrowings under our credit facilities should provide sufficient funds to finance our capital expenditures and working capital needs and otherwise meet operating expenses and debt service requirements.

However, if additional capital is required or we are unable to renew our existing credit facilities at all or on a timely basis, there can be no assurance we will be able to obtain such capital when needed or on satisfactory terms.

Also, market conditions can negatively impact our customers' ability to fund their projects and can impact our vendors, suppliers, and subcontractors and may not allow them to meet their obligations to us.

Unanticipated events resulting in credit losses to us could have a material adverse impact on our financial results.

Significant portions of our sales are to customers who place large orders for custom products.

We closely monitor the creditworthiness of our customers and have not, to date, experienced significant credit losses.

We mitigate our exposure to credit risk, to some extent, by requiring deposits, payments prior to shipment, progress payments, payment bonds and letters of credit.

However, because some of our exposure to credit losses is outside of our control, unanticipated events resulting in credit losses could have a material adverse impact on our operating results.

If we became unable to obtain adequate surety bonding or letters of credit, it could adversely affect our ability to bid on new work, which could have a material adverse effect on our future revenue and business prospects.

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In addition, bonding may be more difficult to obtain in the future or may be available only at significant additional cost as a result of general conditions that affect the insurance and bonding markets.

We rely on a variety of intellectual property rights we use in our products and services.

We may not be able to successfully preserve our intellectual property rights in the future, and these rights could be invalidated, circumvented or challenged.

In particular, the laws of certain countries in which our products are sold do not protect our products and intellectual property rights to the same extent as the laws of the United States.

If litigation is necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others, such litigation could result in substantial costs and diversion of resources even if we ultimately prevail.

In addition, intellectual property rights of others also have an impact on our ability to offer some of our products and services for specific uses or at competitive prices.

Competitors' patents or other intellectual property may limit our ability to offer products or services to our customers.

Geopolitical issues, conflicts and other global events could adversely affect our results of operations and financial condition.

Our business is subject to global political issues and conflicts.

Such political issues and conflicts could have a material adverse effect on our results of operations and financial condition if they escalate into geographies in which we do business or obtain materials for production.

In addition, changes in and adverse actions by various governments could have a material adverse effect on our results of operations and financial condition.

For example, the recent and continuing conflict arising from the invasion of Ukraine by Russia could adversely impact macroeconomic conditions, give rise to regional instability and result in heightened economic tariffs, sanctions and import-export restrictions from the U.S.

and the international community in a manner that adversely affects our Company, including to the extent that any such actions cause material business interruptions or restrict our ability in this region to conduct business with certain suppliers or vendors.

Additionally, such conflict or sanctions may significantly devalue various global currencies and have a negative impact on economies in geographies in which we do business.

Weakened global economic or recessionary conditions may adversely affect our industry, business and results of operations.

Our overall performance depends in part on worldwide economic conditions.

The United States and other key international economies have experienced downturns and recessions, including the COVID-19 related downturn, from time to time during which economic activity was impacted by falling demand for a variety of goods and services;

restricted credit;

poor liquidity;

reduced corporate profitability;

volatility in credit, equity and foreign exchange markets;

increased unemployment;

bankruptcies;

and overall uncertainty with respect to the economy.

Unexpected events, including natural disasters and pandemics, may increase our cost of doing business or disrupt our operations.

The occurrence of one or more unexpected events, including war, terrorist acts, pandemics, fires, tornadoes, floods, severe weather and natural disasters in the United States or in other countries in which we operate may disrupt our operations as well as the operations of our customers.

Such events could create additional uncertainties, forcing customers to reduce, delay, or cancel already planned projects.

These events could result in damage to, and a complete or partial closure of, one or more of our manufacturing facilities, which could make it difficult to supply our customers with product and provide our employees with work, thereby adversely affecting our business, operating results or financial condition.

Volatility in our business driven by global economic conditions and supply chain disruptions can have a negative effect on our liquidity and could cause us to express substantial doubt about our ability to continue as a going concern.

Global economic conditions and supply chain disruptions have and will continue to cause volatility in our cash flow, pricing, order volumes lead times, competitiveness, revenue cycles, and production costs.

Our ability to fund inventory levels, operations and capital expenditures in the future will be dependent on our ability to generate cash flow from operations in these conditions, to maintain or improve margins, and to use funds from our credit facility.

A determination that there is a substantial doubt about our ability to continue as a going concern can cause our existing and prospective suppliers, customers, and financing sources to not do business with us.

We previously disclosed that liquidity constraints conditions raised substantial doubt about the Company’s ability to continue in our second and third quarter of fiscal 2023 financial statements.

On May 11, 2023, we secured long-term financing.

During fiscal 2023, we recognized operating income of $21.4 million and generated $15.0 million in cash flows provided by operating activities, and we project we will have sufficient cash on hand and availability under the financing agreements to fund future operations.

Therefore, the events and conditions that gave rise to substantial doubt about our ability to continue as a going concern were resolved.

Acquisitions, investments, and divestitures pose financial, management and other risks and challenges.

We routinely invest in and explore investing in or acquiring other businesses and related assets to complement or enhance our business strategies.

These investments are often made to increase customer relations and market base, expand geographically, or obtain technological advances to support our solution portfolio.

Periodically, we may also consider disposing of these businesses, partial investments, assets, or other lines of business.

The financial, management and other risks and challenges associated with these activities include, but are not limited to, the following:

• diversion of management attention;

• difficulty with integrating acquired businesses;

• adverse impact on overall profitability if the expanded operations or investments in affiliates do not achieve the strategic benefits forecasted;

• potential loss or adverse relationship with or a change of key employees, customers, or suppliers of the acquired business;

• inability to effectively manage our expanded operations;

• difficulty with the integration of different corporate cultures;

• personnel issues;

• increased expenses;

• assumption of unknown liabilities and indemnification obligations;

• potential disputes with the buyers or sellers;

• the time involved in evaluating or modifying the financial systems of an acquired business and the establishment of appropriate internal controls;

• incorrect estimates made in the accounting for the transaction that cause misstatements of acquisition assets and liabilities;

• incorrect assumptions and estimates made in accounting for the value of such asset.

There can be no assurance that we will engage in any acquisitions or divestitures or that we will be able to do so on terms that will result in any expected benefits.

We have $20.7 million, net invested in affiliates as of April 29, 2023.

Our financial results are impacted negatively or positively from our proportionate share of our affiliates' financial performance.

Any reduction or impairment of the value of an investment and related acquired assets, goodwill, or investments in affiliates would result in charges against earnings, which would adversely affect our results of operations in future periods.

We recorded an impairment to the value of one of these investments by $4.5 million during fiscal year 2023.

If goodwill or other intangible assets in connection with our acquisitions become impaired, we could take significant non-cash charges against earnings.

We have pursued and will continue to seek potential acquisitions to complement and expand our existing businesses, increase our revenues and profitability, and expand our markets.

As a result of prior acquisitions, we have goodwill and intangible assets recorded in our consolidated balance sheets as described in "Note 4.

Goodwill and Intangible Assets" of the Notes to our Consolidated Financial Statements included in this Form 10-K.

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination.

Goodwill is not amortized and remains in our consolidated balance sheets indefinitely unless there is an impairment or a sale of a portion of the business.

Under current accounting guidelines, we must assess, at least annually, whether the value of goodwill and other intangible assets has been impaired.

Any reduction or impairment of the value of goodwill or other intangible assets will result in charges against earnings, which would adversely affect our results of operations in future periods.

We performed our annual impairment test on October 30, 2022 and concluded that the carrying value of the Live Events and International reporting units exceeded their respective fair values and consequently recorded a $4.6 million impairment charge.

We determined the fair value of the reporting units based on an income approach, using the present value of future discounted cash flows.

Significant estimates used to determine fair value include the weighted average cost of capital and financial forecasts.

The recognized impairment was primarily a result of our weighted average cost of capital being notably higher, which was driven by strains on our liquidity caused by disrupted supply chains and geopolitical conditions.

As a result, the present value of our future cash flows was lower, which caused the impairment charge.

Based on our annual impairment test, we concluded that the fair value of the Commercial and Transportation reporting units exceeded their respective carrying values and concluded no goodwill impairment existed for those reporting units.

The annual impairment test for fiscal years 2022 and 2021 concluded no goodwill impairment existed.

We may fail to continue to attract, develop and retain key management personnel, which could negatively impact our operating results.

We depend on the performance of our senior executives and key employees, including experienced and skilled technical personnel.

The loss of any of our senior executives could negatively impact our operating results and ability to execute our business strategy.

Our future success will also depend upon our ability to attract, train, motivate and retain qualified personnel.

Although we intend to continue to provide competitive compensation packages to attract and retain key personnel, some of our competitors for these employees have greater resources and more experience, making it difficult for us to compete successfully for key personnel.

If we cannot attract and retain sufficiently qualified technical employees for our research and development and manufacturing operations, we may be unable to achieve the synergies expected from mergers and acquisitions or to develop and commercialize new products or new applications for existing products.

Furthermore, possible shortages of key personnel, including engineers, could require us to pay more to hire and retain key personnel, thereby increasing our costs.

The outcome of pending and future claims, investigations or litigation can have a material adverse impact on our business, financial condition, and results of operations.

We are involved from time to time in a variety of litigation, investigations, inquires or similar matters arising in our business.

Litigation, investigations and regulatory proceedings are subject to inherent uncertainties, and unfavorable rulings and outcomes can and do occur.

Pending or future claims against us could result in professional liability, product liability, criminal liability, warranty obligations, indemnity claims, or other liabilities to the extent we are not insured against a loss or our insurance fails to provide adequate coverage.

Also, a well-publicized actual or perceived threat of litigation could adversely affect our reputation and reduce the demand for our products.

See "Note 16.

Commitments and Contingencies" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information on litigation obligations.

Information Systems, Legal, and Regulatory Risks

Our business depends on numerous complex information systems.

Any failure to maintain these systems, a network disruption, or breaches in data security that could cause a material adverse effect on our business.

We rely heavily on complex information systems for the successful operation of our business, for the support of our controller offerings, and for the collection and retention of business data.

Any failure of our digital systems, or any breach of our systems’ security measures, could adversely affect our operations, at least until our data can be restored and/or the breaches remediated.

Despite the security measures we have in place, our facilities and systems and those of our third-party service providers may be vulnerable to cybersecurity breaches, acts of vandalism, computer viruses, misplaced or lost data, ransomware attacks, programming issues, and/or human errors or other similar events.

Any misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information, whether by us or by our third-party service providers, could adversely affect our business and operations.

We could face significant fines and penalties under various global laws revolving around data loss, lack of adequate data protection or lack of required reporting.

Any disruption in our digital technologies could affect our business and operations, causing potentially significant expenses to recover and modify the data systems, to reimburse customers' losses, and to investigate and remediate any vulnerabilities, which could severely damage our reputation with customers, suppliers, employees and investors and expose us to risk of litigation and liability.

Our global operations expose us to global regulatory, geopolitical, economic and social changes and add additional risks and uncertainties which can harm our business, operating results, and financial condition.

Our United States and foreign operations, sales, earnings, and strategies for profitable growth can be adversely affected by global conditions and compliance with global regulations and governmental orders.

Our domestic and foreign operations, sales, earnings, and strategies for profitable growth can be adversely affected by global conditions and compliance with global regulations and governmental orders.

Global conditions include political developments;

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changes in foreign and domestic governmental regulations or requirements, treaty and trade relationships;

the imposition of government orders that differ among jurisdictions, including mandatory closures, work-from-home and lock-down orders and social distancing protocols, or other restrictions related to the COVID-19 pandemic;

the imposition of government orders that differ among jurisdictions, including mandatory closures, work-from-home and lock-down orders and social distancing protocols;

changes in monetary and fiscal policies;

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The likelihood of such occurrences and their overall effect on us vary greatly from country to country and are not predictable.

Our business involves the use of hazardous materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive and restrict how we do business.

Our business involves the blending, controlled storage, use and disposal of hazardous materials.

We and our suppliers are subject to federal, state, local and foreign laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials.

Although we believe the safety procedures we utilize for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials.

In the event of an accident, local, state, federal or foreign authorities may curtail the use of these materials and interrupt our business operations.

If we are subject to any liability as a result of activities involving hazardous materials, our business, financial condition and results of operations may be adversely affected, and our reputation may be harmed.

Our future results may be affected by compliance risks related to United States and other countries' anti-bribery and anti-corruption laws, trade controls, economic sanctions, and similar laws and regulations.

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These laws and regulations place restrictions on our operations, trade practices, partners, customers, and investments.

In particular, we and our operations are subject to U.S.

and foreign anti-corruption and trade control laws and regulations, such as the United States Foreign Corrupt Practices Act (the “FCPA”);

In particular, we and our operations are subject to United States and foreign anti-corruption and trade control laws and regulations, such as the United States Foreign Corrupt Practices Act (the “FCPA”);

the United Kingdom Bribery Act (the “Bribery Act”);

and export controls and economic sanctions programs, including those administered by the U.S.

Treasury Department’s Office of Foreign Assets Control (“OFAC”), the State Department’s Directorate of Defense Trade Controls (the “DDTC”), and the Bureau of Industry and Security of the U.S.

Department of Commerce.

anything of value, or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business, and other similar regulations in other areas of the world.

and export controls and economic sanctions programs, including those administered by the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”), the State Department’s Directorate of Defense Trade Controls (the “DDTC”), and the Bureau of Industry and Security of the United States Department of Commerce.

As part of our business, we deal with state-owned business enterprises, the employees of which are considered to be foreign officials for purposes of the FCPA's prohibition on United States companies from engaging in bribery, providing anything of value, or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business, and other similar regulations in other areas of the world.

In addition, the provisions of the Bribery Act apply to the bribery of foreign officials and to transactions with individuals that a government does not employ.

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Our expansion outside of the United States, and our development of new partnerships and joint venture relations worldwide, could increase the risk of violation of the FCPA, OFAC, the Bribery Act or similar laws and regulations.

As an exporter, we must comply with various laws and regulations relating to the export of products and technology from the U.S.

and other countries having jurisdiction over our operations and trade sanctions against embargoed countries and destinations administered by OFAC.

As an exporter, we must comply with various laws and regulations relating to the export of products and technology from the United States and other countries having jurisdiction over our operations and trade sanctions against embargoed

countries and destinations administered by OFAC.

Before shipping certain items, we must obtain an export license or verify that license exemptions are available.

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Repeat failures could carry more significant penalties.

Bribery, corruption, and trade laws and regulations, and the enforcement thereof, are increasing in frequency, complexity and severity on a global basis.

Violations of anti-corruption, anti-bribery and trade control laws and sanctions regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment, and could harm our reputation, create negative shareholder sentiment and affect our share value.

Anti-bribery, corruption, and trade laws and regulations, and the enforcement thereof, are increasing in frequency, complexity and severity on a global basis.

Violations of anti-corruption, anti-bribery and trade control laws and sanctions regulations are punishable by civil penalties, including fines;

the denial of export privileges;

asset seizures;

debarment from government contracts and revocations or restrictions of license;

as well as criminal fines and imprisonment, and could harm our reputation, create negative shareholder sentiment and affect our share value.

We have established policies and procedures with the intention of providing reasonable assurance of compliance with these laws and regulations and trained our employees to comply with these laws and regulations.

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In addition, various state and municipal governments, universities and other investors maintain prohibitions or restrictions on investments in companies that do business with sanctioned countries, persons and entities, which could adversely affect our reputation, business, financial condition and results of operations.

Global tax law changes may adversely affect our business, financial condition and results of operations.

We are subject to the income tax laws of the United States and its various state and local governments as well as several foreign tax jurisdictions.

Our future income taxes could be materially adversely affected by changes in the amount or mix of earnings amongst countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax rates or the interpretation of tax rules and regulations in jurisdictions in which we do business, changes in tax laws, or the outcome of income tax audits and any related litigation.

Tax Cuts and Jobs Act of 2017 is one such example of legislation that has impacted our effective tax rate.

Further changes in the tax laws of the United States and foreign jurisdictions could arise, including additional tax reform in the United States and the base erosion and profit shifting project undertaken by the Organization for Economic Co-operation and Development (“OECD”).

Both the United States tax reform and the OECD proposed recommendations, in some cases, would make substantial changes to numerous long-standing tax positions and principles.

These contemplated changes could increase tax uncertainty and may adversely affect our business, financial condition and results of operations.

Acquisitions, partial investments, and divestitures pose financial, management and other risks and challenges.

We routinely explore investing in or acquiring other businesses and related assets to complement or enhance our business strategies.

These investments are often made to increase customer relations and market base, expand geographically, or obtain technological advances to support our solution portfolio.

Periodically, we may also consider disposing of these businesses, partial investments, assets, or other lines of business.

The financial, management and other risks and challenges associated with these activities include, but are not limited to, the following:

• diversion of management attention;

• difficulty with integrating acquired businesses;

• adverse impact on overall profitability if the expanded operations do not achieve the strategic benefits forecasted;

• potential loss or adverse relationship with or a change of key employees, customers, or suppliers of the acquired business;

• inability to effectively manage our expanded operations;

• difficulty with the integration of different corporate cultures;

• personnel issues;

• increased expenses;

• assumption of unknown liabilities and indemnification obligations;

• potential disputes with the buyers or sellers;

• the time involved in evaluating or modifying the financial systems of an acquired business and the establishment of appropriate internal controls;

• incorrect estimates made in the accounting for the transaction that cause misstatements of acquisition assets and liabilities.

There can be no assurance that we will engage in any acquisitions or divestitures or that we will be able to do so on terms that will result in any expected benefits.

Our financial results are impacted negatively or positively from our proportionate share of our affiliates financial performance.