Multiple risk factors exist which could have a material effect on our operations, results of operations, financial position, liquidity, capital resources and common stock.
−Removed: Risks Relating to Our Business
+Added: Competitive and Reputational Risks
We face intense competition from established companies that may have significant advantages over us and our products.
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Our future success will depend on our ability to enhance our existing products, to introduce new products to meet changing customer requirements and emerging technologies, and to demonstrate the performance advantages and cost-effectiveness of our products over competing products.
−Removed: Failure by us to modify our products to support new alternative technologies or failure
−Removed: to achieve widespread customer acceptance of such modified products could cause us to lose market share and cause our revenue to decline.
+Added: Failure by us to modify our products to support new alternative technologies or failure to achieve widespread customer acceptance of such modified products could cause us to lose market share and cause our revenue to decline.
Further, if our competitors offer better service capabilities associated with the implementation and use of their products, our business could be impacted negatively.
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There can be no assurance that the introduction or announcement of new product offerings by us or one or more of our competitors will not cause customers to defer their purchase of our existing products, which could cause our revenue to decline.
−Removed: We intend to continue to devote significant resources to our research and development, which, if not successful, could cause a decline in our revenue and harm our business.
−Removed: We intend to continue to devote significant resources to research and development in the coming years to enhance our existing product offerings and develop additional product offerings.
−Removed: For fiscal 2019, 2018, and 2017, respectively, our research and development expenses were 14.8%, 14.6% and 15.8% of our revenue.
−Removed: If we are unable to enhance existing products and develop new products, applications and services as a result of our research and development efforts, if we encounter delays in deploying these enhanced or new products, applications and services, or if the products, applications and services we enhance or develop are not successful, our business could be harmed.
−Removed: Even if we enhance existing products and develop new products, applications and services that are accepted by our target markets, the net revenue from these products, applications and services may not be sufficient to justify our investment in research and development.
−Removed: Many of our products, applications and services have been developed through a combination of internally developed technologies and acquired technologies.
−Removed: Our ability to continue to develop products, applications and services could be partially dependent on finding and acquiring new technologies in the marketplace.
−Removed: Even if we identify new technologies that we believe would be complementary to our internally developed technologies, we may not be successful in obtaining those technologies or integrating them effectively with our existing technologies.
+Added: Our failure to compete successfully in our highly competitive market could result in reduced prices and loss of market share.
+Added: The market in which we operate is characterized by rapid technological advances and evolving industry standards.
+Added: The market can be affected significantly by new product introductions and marketing activities of industry participants.
+Added: In addition, the amount of competition we face in the marketplace may change and grow as the market for our industry grows and new entrants enter the marketplace.
+Added: Present and future competitors may be able to identify new markets and develop products more quickly, which are superior to those developed by us.
+Added: Such competitors may adapt new technologies faster, devote greater resources to research and development, promote products more aggressively and price products more competitively than us.
+Added: Competition may also intensify, or we may no longer be able to compete effectively in the markets in which we compete.
+Added: Operational Risks
+Added: The long and variable sales cycle for certain of our products and services makes it more difficult for us to predict our operating results and manage our business.
+Added: The sale of our products and services can involve a significant technical evaluation and commitment of capital and other resources by potential customers and end users, as well as delays frequently associated with end users’ internal procedures to deploy new technologies and to test and accept new technologies.
+Added: For these and other reasons, the sales cycle associated with certain of our products is typically lengthy and is subject to a number of significant risks, such as end users’ internal purchasing reviews, that are beyond our control.
+Added: Because of the lengthy sales cycle and the large size of certain customer orders, if orders forecasted for a specific customer are not realized or delayed, our operating results could be materially adversely affected.
+Added: We depend on manufacturing relationships and on limited-source suppliers, and any disruptions in these relationships may cause damage to our customer relationships.
+Added: We procure all parts and certain services involved in the production of our products and subcontract most of our product manufacturing to outside firms that specialize in such services.
+Added: Although most of the components of our products are available from multiple vendors, we have several single-source supplier relationships, either because alternative sources are not available or because the relationship is advantageous to us.
+Added: Further, the COVID-19 pandemic has created stress on many supply chains globally.
+Added: This has had some impact on our own ability to procure certain inventory and services, most notably in our IoT Solutions segment.
+Added: While none of these impacts related to the pandemic have been material to date, it is possible they may be in the future.
+Added: There can be no assurance that our suppliers will be able to meet our future requirements for products and components in a timely fashion.
+Added: In addition, the availability of many of these components to us is dependent in part on our ability to provide our suppliers with accurate forecasts of our future requirements.
+Added: Delays or lost revenue could be caused by other factors beyond our control, including late deliveries by vendors of components, or force majeure events such as the ongoing pandemic.
+Added: As an example of force majeure, a fire in November 2014 disrupted the operations at one of our contract manufacturers in Thailand.
+Added: If we are required to identify alternative suppliers for any of our required components, qualification and pre-production periods could be lengthy and may cause an increase in component costs and delays in providing products to customers.
+Added: Any extended interruption in the supply of any of the key components currently obtained from limited sources could disrupt our operations and have a material adverse effect on our customer relationships and profitability.
Our participation in a services and solutions model, using hardware and cloud-based services, presents execution and competitive risks.
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While we believe we have a strong foundation to compete, it is uncertain whether our strategies will attract the users or generate the revenue required to be successful.
+Added: Certain customers and potential customers in this segment have also been adversely impacted by the COVID-19 pandemic which started during calendar year 2020 and the resulting global economic downturn which could impede our ability to win and retain customers.
We have and expect to encounter competition from other solutions providers, some of whom may have more significant resources than us with which to compete.
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It is possible, one or more of our important channel partners may stop selling our products completely.
−Removed: Our channel partner sales structure could subject us to lawsuits, potential liability and reputational harm if, for example, any of our channel partners misrepresents the functionality of our products or services to customers, or violates laws or our corporate policies.
+Added: Our channel partner sales structure could subject us to lawsuits, potential liability and reputational harm if, for example, any of our channel partners misrepresents the functionality of
+Added: our products or services to customers, or violates laws or our corporate policies.
If we fail to manage our existing or future sales channel partners effectively, our business and operating results could be materially and adversely affected.
−Removed: Our gross margins may be subject to decline.
−Removed: Our gross margins have declined since 2016 and may be subject to further declines which could decrease our overall profitability and impact our financial performance adversely.
−Removed: Some of the hardware products we sell are approaching the end of their product life cycles.
−Removed: These mature hardware products have sold historically at higher gross margins than our other product and service offerings.
−Removed: We expect this general trend of declining sales for many of our mature products to continue and the pace of the decline may accelerate.
−Removed: In addition, ongoing cost pressures in our industry create downward pressure on the prices at which we and other manufacturers can sell hardware products.
−Removed: We have indicated that we would be willing to realize lower levels of gross margins from customers in return for long-term, binding purchase commitments.
−Removed: If this strategy were successful, it could apply downward pressure on our gross margins.
−Removed: While part of our longer term strategy is to sell software applications and IoT solutions such as SmartSense by Digi ™ , which may provide recurring revenues at relatively high gross margins, these types of offerings are at early stages of adoption by customers and their sales growth is not necessarily predictable or assured.
−Removed: As such, our gross margins may be subject to decline unless we can implement cost reduction initiatives effectively to offset the impact of these factors.
−Removed: Our revenue may be subject to fluctuations based on the level of significant large project-based purchases.
−Removed: No single customer has represented more than 10% of our revenue in any of the last three fiscal years.
−Removed: However, many of our customers make significant one-time hardware purchases for large projects that are not repeated.
−Removed: As a result, our revenue may be subject to significant fluctuations based on whether we are able to close significant project based sales opportunities.
−Removed: In addition, in our SmartSense by Digi business certain customers have outsized deployments relative to other customers.
−Removed: It is possible we will see revenue fluctuations in this business based upon the scale of new deployments in different financial periods.
−Removed: Our failure to complete one or a series of significant sales opportunities in a particular fiscal period could have a material adverse effect on our revenue for that period.
−Removed: Some of our products are sold into mature markets, which could limit our ability to continue to generate revenue from these products.
−Removed: Some of our hardware products are sold into mature markets that are characterized by a trend of declining demand.
−Removed: We have made targeted investments to provide enhanced and new products into these mature markets and believe this may mitigate declining demand.
−Removed: However, over the longer term, the overall market for these hardware products is expected to decrease due to the adoption of new technologies.
−Removed: As such, we expect that our revenue from these products will continue to decline over time.
−Removed: As a result, our future prospects depend in part on our ability to acquire or develop and successfully market additional products that address growth markets.
−Removed: Our ability to grow our business is dependent in part on strategic relationships we develop and maintain with third parties as well as our ability to integrate and assure use of our products and services in coordination with the products and services of certain strategic partners in a commercially acceptable manner.
−Removed: We believe that our ability to increase our sales depends in part on maintaining and strengthening relationships with parties such as telecommunications carriers, systems integrators, enterprise application providers, component providers and other strategic technology companies.
−Removed: Once a relationship is established, we likely will dedicate significant time and resources to it in an effort to advance our business interests and there is no assurance any strategic relationship will generate enough revenue
−Removed: to offset the significant resources we use to advance the relationship.
−Removed: Parties with whom we establish strategic relationships also work with companies that compete with us.
−Removed: We have limited, if any, control as to whether these parties devote adequate resources to promoting, selling, and implementing our products.
−Removed: Further, new or emerging technologies, technological trends or changes in customer requirements may result in certain companies with whom we maintain strategic relationships de-emphasizing their dealings with us or becoming potential competitors in the future.
−Removed: We also have limited, if any, control as to other business activities of these parties and we could experience reputational harm because of our association with such parties if they fail to execute on business initiatives, are accused of breaking the law or otherwise suffer reputational harm for other reasons.
−Removed: All of these factors could materially and adversely impact our business and results of operations.
−Removed: In some cases, we expect the establishment of a strategic relationship with a third party to result in integrations of our products or services with those of other parties.
−Removed: Identifying appropriate parties for these relationships as well as negotiating and documenting business agreements with them requires significant time and resources.
−Removed: We expect these agreements typically to be non-exclusive and not to prohibit the other party from working with our competitors or offering competing services.
−Removed: Once the relationship is established, we may encounter difficulties in combining our products and services in a commercially acceptable manner.
−Removed: We expect this dynamic, where our ability to generate sales is dependent on our products and services interacting with those sold by third parties, may become more common in the future.
−Removed: There can be no guarantee in any particular instance that we will be successful in making our products interact with those of other parties in a commercially acceptable manner and, even if we do, we cannot guarantee that the resulting products and services will be effectively marketed or sold via the relationship.
−Removed: Our failure to compete successfully in our highly competitive market could result in reduced prices and loss of market share.
−Removed: The market in which we operate is characterized by rapid technological advances and evolving industry standards.
−Removed: The market can be affected significantly by new product introductions and marketing activities of industry participants.
−Removed: In addition, the amount of competition we face in the marketplace may change and grow as the market for our industry grows and new entrants enter the marketplace.
−Removed: Present and future competitors may be able to identify new markets and develop products more quickly, which are superior to those developed by us.
−Removed: Such competitors may adapt new technologies faster, devote greater resources to research and development, promote products more aggressively and price products more competitively than us.
−Removed: Competition may also intensify, or we may no longer be able to compete effectively in the markets in which we compete.
−Removed: Our failure to anticipate or manage product transitions effectively could have a material adverse effect on our revenue and profitability.
−Removed: From time to time, we or our competitors may announce new or enhanced products that may replace or shorten the life cycles of our existing products.
−Removed: Announcements of currently planned or other new or enhanced products may cause customers to defer or stop purchasing our products until these products become available.
−Removed: Furthermore, the introduction of new or enhanced products requires us to manage the transition from older product inventories and ensure that adequate supplies of new or enhanced products can be delivered to meet customer demand.
−Removed: Our failure to anticipate the revenue declines associated with older products or manage transitions from older products effectively could result in inventory obsolescence and also have a material adverse effect on our revenue and profitability.
+Added: Our sales and operations globally face risks related to health epidemics or pandemics that could disrupt our operations and adversely impact our sales and operating results.
+Added: Our business operations and financial results could be adversely affected by the effects of a widespread outbreak of contagious disease or other material adverse widespread public health development, such as the recent outbreak of the COVID-19 respiratory illness caused by a novel coronavirus first identified in Wuhan, Hubei Province, China.
+Added: These effects could include the absence of one or more key employees or significant numbers or employees generally, disruptions or restrictions on our ability to maintain operations at one or more of our facilities, disruptions or restrictions to travel that is important to our operations, adverse impacts on our ability to distribute or deliver our products or services as well as temporary disruptions, restrictions or closures of the facilities of our suppliers or customers and their contract manufacturers.
+Added: Any of the above absences, disruptions or restrictions could impact our sales and operating results negatively.
+Added: If these absences, disruptions or restrictions are significant and material it is possible our business continuity could be jeopardized.
+Added: Depending on the location of any such disruption or restriction, there may not be a solution that will be easy to implement in a timely manner or without significant expense.
+Added: In addition, any significant outbreak of contagious diseases could materially and adversely affect the economies and financial markets of many countries or the entire world, resulting in an economic downturn that could affect demand for our products, likely impact our operating results and restrain our access to capital from lenders or other sources.
Acquisitions could disrupt our business and seriously harm our financial condition.
We will continue to consider acquisitions of businesses, products or technologies.
−Removed: In the event of any future acquisitions, we could issue stock that would dilute our current stockholders’ percentage ownership, incur debt, assume liabilities or incur large and immediate write-offs.
−Removed: For instance, in November 2019, we announced our expected acquisition of Opengear, Inc.
−Removed: that we intend to finance in part with debt.
+Added: In the event of any future acquisitions, we could issue stock that would dilute our current stockholders’ percentage ownership, incur additional debt, assume liabilities or incur large and immediate write-offs.
Our operation of any acquired business also involves numerous risks, including but not limited to:
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Any disruption or difficulties in securing or renewing contractual relationships with this customer, maintaining such relationship on favorable terms or any other disruption in our business with this customer could have an adverse impact on our business, results of operations, financial condition and prospects.
−Removed: We are subject to various cybersecurity risks, which are particularly acute in cloud-based technologies that we and other third parties operate that form a part of our solutions.
−Removed: These risks may increase our costs and could damage our brand and reputation.
−Removed: As we continue to direct a substantial portion of our sales and development efforts toward broader based solutions, such as SmartSense by Digi ™ and the Digi Remote Manager ® , we expect to store, convey and potentially process significant amounts of data produced by devices.
−Removed: Further many of our business applications now exist within cloud platforms that are managed by third parties, which also adds risk from breach of third parties.
−Removed: This data may include confidential or proprietary information, intellectual property or personally identifiable information of our customers or other third parties with whom they do business.
−Removed: It is important for us to maintain solutions and related infrastructure that are perceived by our customers and other parties with whom we do business as providing reasonable levels of reliability and security.
−Removed: Despite available security measures and other precautions, the infrastructure and transmission methods used by our products and services may be vulnerable to interception, attack or other disruptive problems.
−Removed: Continued high-profile data breaches at other companies evidence an external environment that is becoming increasingly hostile to information security.
−Removed: Improper disclosure of data or a perception that our data security is insufficient could harm our reputation, give rise to legal proceedings or subject our company to liability under laws that protect data, which may evolve and expand in scope over time.
−Removed: Any of these factors could result in increased costs and loss of revenue for us.
−Removed: If a cyberattack or other security incident were to allow unauthorized access to or modification of our customers’ data or our own data, whether due to a failure with our systems or related systems operated by third parties, we could suffer damage to our brand and reputation.
−Removed: The costs we would incur to address and fix these incidents could significantly increase our expenses.
−Removed: These types of security incidents could also lead to lawsuits, regulatory investigations and increased legal liability, including in some cases contractual costs related to customer notification and fraud monitoring.
−Removed: Further, as the regulatory focus on privacy and data security issues continues to increase and worldwide laws and regulations concerning the protection of information become more complex, the potential risks and costs of compliance to our business are expected to intensify.
−Removed: Our products operate with and are dependent on products and components across a broad ecosystem.
−Removed: If there is a security vulnerability in one of these components, and if there is a security exploit targeting it, we could face increased costs, reduced revenue, liability claims or damage to our reputation or competitive position.
−Removed: Our results may be adversely impacted by implementation of an Enterprise Resource Planning ("ERP") system.
−Removed: During fiscal 2019, we began the process of implementing NetSuite for our IoT Products & Services segment in order to have a single ERP for our Company.
−Removed: On October 1, 2019, this segment began operating under this ERP system.
−Removed: We do expect this implementation once completed will enhance internal processes, improve access to information and improve the control environment.
−Removed: However, the complexities of an ERP implementation and large-scale process changes associated with this implementation could result in business interruptions and reduced financial performance, adversely impacting our business.
−Removed: SmartSense by Digi ™ is subject to the risks faced by a business operating in an emerging market.
−Removed: SmartSense by Digi ™ primarily was formed through acquisitions of four businesses and is operated in an emerging market where technology based solutions to monitor the condition of perishable goods as well as the competition of employee tasks have not been used historically.
+Added: SmartSense by Digi ® remains subject to the risks faced by a business operating in an emerging market.
+Added: SmartSense by Digi ® primarily was formed through acquisitions of four businesses and is operated in an emerging market where technology based solutions to monitor the condition of perishable goods as well as the competition of employee tasks
+Added: have not been used historically.
The operation of SmartSense by Digi ® will be subject to significant additional risks that are not necessarily related to our legacy products and services.
3 unchanged sentences
This presents a potential risk of loss in the event of a malfunction or failure of our offerings.
−Removed: Although we have retained several key employees with experience in operating companies we have acquired to date, SmartSense by Digi™ has a limited history with us in a marketplace that is nascent in its development and has numerous competitors.
+Added: • SmartSense by Digi ® has a limited history with us in a marketplace that is nascent in its development and has numerous competitors.
We cannot provide assurances we will be successful in operating and continuing to grow this business.
• Our ability to succeed with the SmartSense by Digi ® offerings will depend in large part on our ability to provide customers with hardware and software products that are easy to deploy and offer features and functionality that address the needs of particular businesses.
+Added: This need for ease of deployment has only been heightened by the COVID-19 pandemic that commenced during 2020.
We may face challenges and delays in the development of this business as the marketplace for products and services evolves to meet the needs and desires of customers.
2 unchanged sentences
Also, there can be no assurance that diverting our management’s attention to this business will not have a material adverse effect on our other existing businesses, any of which may have a material adverse effect on our results of operations, financial condition and prospects.
+Added: Strategic Risks
+Added: We intend to continue to devote significant resources to our research and development, which, if not successful, could cause a decline in our revenue and harm our business.
+Added: We intend to continue to devote significant resources to research and development in the coming years to enhance our existing product offerings and develop additional product offerings.
+Added: For fiscal 2020, 2019, and 2018, respectively, our research and development expenses were 15.7%, 14.7% and 14.6% of our revenue.
+Added: If we are unable to enhance existing products and develop new products, applications and services as a result of our research and development efforts, if we encounter delays in deploying these enhanced or new products, applications and services, or if the products, applications and services we enhance or develop are not successful, our business could be harmed.
+Added: Even if we enhance existing products and develop new products, applications and services that are accepted by our target markets, the net revenue from these products, applications and services may not be sufficient to justify our investment in research and development.
+Added: Many of our products, applications and services have been developed through a combination of internally developed technologies and acquired technologies.
+Added: Our ability to continue to develop products, applications and services could be partially dependent on finding and acquiring new technologies in the marketplace.
+Added: Even if we identify new technologies that we believe would be complementary to our internally developed technologies, we may not be successful in obtaining those technologies or integrating them effectively with our existing technologies.
+Added: Our ability to grow our business is dependent in part on strategic relationships we develop and maintain with third parties as well as our ability to integrate and assure use of our products and services in coordination with the products and services of certain strategic partners in a commercially acceptable manner.
+Added: We believe that our ability to increase our sales depends in part on maintaining and strengthening relationships with parties such as telecommunications carriers, systems integrators, enterprise application providers, component providers and other strategic technology companies.
+Added: Once a relationship is established, we likely will dedicate significant time and resources to it in an effort to advance our business interests and there is no assurance any strategic relationship will generate enough revenue to offset the significant resources we use to advance the relationship.
+Added: Parties with whom we establish strategic relationships also work with companies that compete with us.
+Added: We have limited, if any, control as to whether these parties devote adequate resources to promoting, selling, and implementing our products.
+Added: Further, new or emerging technologies, technological trends or changes in customer requirements may result in certain companies with whom we maintain strategic relationships de-emphasizing their dealings with us or becoming potential competitors in the future.
+Added: We also have limited, if any, control as to other business activities of these parties and we could experience reputational harm because of our association with such parties
+Added: if they fail to execute on business initiatives, are accused of breaking the law or otherwise suffer reputational harm for other reasons.
+Added: All of these factors could materially and adversely impact our business and results of operations.
+Added: In some cases, we expect the establishment of a strategic relationship with a third party to result in integrations of our products or services with those of other parties.
+Added: Identifying appropriate parties for these relationships as well as negotiating and documenting business agreements with them requires significant time and resources.
+Added: We expect these agreements typically to be non-exclusive and not to prohibit the other party from working with our competitors or offering competing services.
+Added: Once the relationship is established, we may encounter difficulties in combining our products and services in a commercially acceptable manner.
+Added: We expect this dynamic, where our ability to generate sales is dependent on our products and services interacting with those sold by third parties, may become more common in the future.
+Added: There can be no guarantee in any particular instance that we will be successful in making our products interact with those of other parties in a commercially acceptable manner and, even if we do, we cannot guarantee that the resulting products and services will be effectively marketed or sold via the relationship.
+Added: Our failure to anticipate or manage product transitions effectively could have a material adverse effect on our revenue and profitability.
+Added: From time to time, we or our competitors may announce new or enhanced products that may replace or shorten the life cycles of our existing products.
+Added: Announcements of currently planned or other new or enhanced products may cause customers to defer or stop purchasing our products until these products become available.
+Added: Furthermore, the introduction of new or enhanced products requires us to manage the transition from older product inventories and ensure that adequate supplies of new or enhanced products can be delivered to meet customer demand.
+Added: Our failure to anticipate the revenue declines associated with older products or manage transitions from older products effectively could result in inventory obsolescence and also have a material adverse effect on our revenue and profitability.
+Added: We are dependent on third parties to manufacture our products which could have adverse impacts on our business if we do not properly forecast customer demand.
+Added: We are reliant on third parties to manufacture our products.
+Added: Among other potential impacts on our business and operations, this restructuring has lengthened the lead times on which we can produce many finished products that are available to meet customer demands.
+Added: Lead times also could be impacted by the COVID-19 pandemic which has disrupted many supply chains globally.
+Added: If we do not properly forecast customer demands for products these lengthened lead times could result in lost revenues and adversely impact our business, results of operation, financial condition and prospects.
+Added: The loss of key personnel could prevent us from executing our business strategy.
+Added: Our business and prospects depend to a significant degree upon the continuing contributions of our executive officers and key technical and other personnel.
+Added: Competition for such personnel is intense, and there can be no assurance that we will be successful in attracting and retaining qualified personnel.
+Added: Failure to attract and retain key personnel could result in our failure to execute our business strategy.
+Added: Risks Related to Economic and Market Conditions
Our consolidated operating results and financial condition may be adversely impacted by worldwide economic conditions and credit tightening.
6 unchanged sentences
Any downturn could have a material adverse impact on our business, results of operations, financial condition and prospects.
−Removed: The long and variable sales cycle for certain of our products and services makes it more difficult for us to predict our operating results and manage our business.
−Removed: The sale of our products and services can involve a significant technical evaluation and commitment of capital and other resources by potential customers and end users, as well as delays frequently associated with end users’ internal procedures to deploy new technologies and to test and accept new technologies.
−Removed: For these and other reasons, the sales cycle associated with certain of our products is typically lengthy and is subject to a number of significant risks, such as end users’ internal purchasing reviews, that are beyond our control.
−Removed: Because of the lengthy sales cycle and the large size of certain customer orders, if orders forecasted for a specific customer are not realized or delayed, our operating results could be materially adversely affected.
−Removed: We have become more dependent on third parties to manufacture our products which could have adverse impacts on our business if we do not properly forecast customer demand.
−Removed: During fiscal 2018, we restructured our manufacturing operations to become more reliant on third parties to manufacture our products.
−Removed: Among other potential impacts on our business and operations, this restructuring has lengthened the lead times on which we can produce many finished products that are available to meet customer demands.
−Removed: If we do not properly forecast
−Removed: customer demands for products these lengthened lead times could result in lost revenues and adversely impact our business, results of operation, financial condition and prospects.
−Removed: We depend on manufacturing relationships and on limited-source suppliers, and any disruptions in these relationships may cause damage to our customer relationships.
−Removed: We procure all parts and certain services involved in the production of our products and subcontract most of our product manufacturing to outside firms that specialize in such services.
−Removed: Although most of the components of our products are available from multiple vendors, we have several single-source supplier relationships, either because alternative sources are not available or because the relationship is advantageous to us.
−Removed: There can be no assurance that our suppliers will be able to meet our future requirements for products and components in a timely fashion.
−Removed: In addition, the availability of many of these components to us is dependent in part on our ability to provide our suppliers with accurate forecasts of our future requirements.
−Removed: Delays or lost revenue could be caused by other factors beyond our control, including late deliveries by vendors of components, or force majeure events.
−Removed: For instance, a fire in November 2014 disrupted the operations at one of our contract manufacturers in Thailand.
−Removed: If we are required to identify alternative suppliers for any of our required components, qualification and pre-production periods could be lengthy and may cause an increase in component costs and delays in providing products to customers.
−Removed: Any extended interruption in the supply of any of the key components currently obtained from limited sources could disrupt our operations and have a material adverse effect on our customer relationships and profitability.
−Removed: Our inability to obtain the appropriate telecommunications carrier certifications or approvals from governmental regulatory bodies could impede our ability to grow revenue in our wireless products.
−Removed: The sale of our wireless products in certain geographical markets is sometimes dependent on the ability to gain telecommunications carrier certifications and/or approvals by certain governmental bodies.
−Removed: Failure to obtain these approvals, or delays in receiving the approvals, could impact our ability to enter our targeted markets or to compete effectively or at all in these markets and could have an adverse impact on our business and prospects.
−Removed: We are dependent on wireless communication networks owned and controlled by others.
−Removed: Our revenue could decline if we are unable to deliver continued access to digital cellular wireless carriers that we depend on to provide sufficient network capacity, reliability and security to our customers.
−Removed: Our financial condition could be impacted if our wireless carriers increase the prices of their services or suffer operational or technical failures.
−Removed: Natural disasters could impact our supply chain and customers negatively resulting in an adverse impact to our revenue and profitability.
−Removed: Certain of our components and other materials used in producing our products are from regions susceptible to natural disasters.
−Removed: If we are unable to procure necessary materials, we could experience a disruption to our supply chain that would hinder our ability to produce our products in a timely manner.
−Removed: It also could cause us to seek other sources of supply which may be more costly or which we may not be able to procure on a timely basis.
−Removed: We also risk damage to any tooling, equipment or inventory at the supplier’s facilities.
−Removed: For instance, flooding in October 2011 and a fire in November 2014 disrupted the operations at one of our contract manufacturers in Thailand.
−Removed: In addition, our customers may not follow their normal purchasing patterns or temporarily cease purchasing from us due to impacts to their businesses in the region, creating unexpected fluctuations or decreases in our revenue and profitability.
−Removed: Natural disasters could have material adverse impacts on our business.
−Removed: Our use of suppliers in other parts of the world involves risks that could negatively impact us.
−Removed: We purchase a number of components from suppliers in other parts of the world.
−Removed: Product delivery times may be extended due to the distances involved, requiring more lead time in ordering.
−Removed: In addition, ocean freight delays may occur as a result of labor problems, weather delays, expediting orders for third parties or customs issues.
−Removed: Any extended delay in receipt of the component parts could eliminate anticipated cost savings and have a material adverse effect on our customer relationships and profitability.
−Removed: More recently, governments have announced the imposition of tariffs on various products and components which may impact the pricing of certain components and inventories and could have a material adverse effect on our competitive standing in the marketplace and our financial results.
+Added: Our gross margins may be subject to decline.
+Added: Our gross margins may be subject to declines which could decrease our overall profitability and impact our financial performance adversely.
+Added: Some of the hardware products we sell are approaching the end of their product life cycles.
+Added: mature hardware products have sold historically at higher gross margins than our other product and service offerings.
+Added: We expect this general trend of declining sales for many of our mature products to continue and the pace of the decline may accelerate.
+Added: In addition, ongoing cost pressures in our industry create downward pressure on the prices at which we and other manufacturers can sell hardware products.
+Added: We have indicated that we would be willing to realize lower levels of gross margins from customers in return for long-term, binding purchase commitments.
+Added: If this strategy were successful, it could apply downward pressure on our gross margins.
+Added: While part of our longer term strategy is to sell software applications and IoT solutions such as SmartSense by Digi ® , which may provide recurring revenues at relatively high gross margins, these types of offerings are still at early stages of adoption by customers and their sales growth is not necessarily predictable or assured.
+Added: As such, our gross margins may be subject to decline unless we can implement cost reduction initiatives effectively to offset the impact of these factors.
+Added: Our revenue may be subject to fluctuations based on the level of significant large project-based purchases.
+Added: No single customer has represented more than 10% of our revenue in any of the last three fiscal years.
+Added: However, many of our customers make significant one-time hardware purchases for large projects that are not repeated.
+Added: As a result, our revenue may be subject to significant fluctuations based on whether we are able to close significant project based sales opportunities.
+Added: In addition, in our SmartSense by Digi ® business certain customers have outsized deployments relative to other customers.
+Added: It is possible we will see revenue fluctuations in this business based upon the scale of new deployments in different financial periods.
+Added: Our failure to complete one or a series of significant sales opportunities in a particular fiscal period could have a material adverse effect on our revenue for that period.
+Added: Some of our products are sold into mature markets, which could limit our ability to continue to generate revenue from these products.
+Added: Some of our hardware products are sold into mature markets that are characterized by a trend of declining demand.
+Added: We have made targeted investments to provide enhanced and new products into these mature markets and believe this may mitigate declining demand.
+Added: However, over the longer term, the overall market for these hardware products is expected to decrease due to the adoption of new technologies.
+Added: As such, we expect that our revenue from these products will continue to decline over time.
+Added: As a result, our future prospects depend in part on our ability to acquire or develop and successfully market additional products that address growth markets.
+Added: Unanticipated changes in our tax rates could affect our future results.
+Added: Our future effective tax rates could be favorably or unfavorably affected by unanticipated changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws or our interpretation of such laws.
+Added: In addition, we may be subject to the examination of our income tax returns by the Internal Revenue Service and other U.S.
+Added: and international tax authorities.
+Added: We regularly assess the potential outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
+Added: There can be no assurance that the outcomes from these examinations will not have an adverse effect on our consolidated operating results and financial condition.
+Added: We may have additional tax liabilities.
+Added: We are subject to income taxes in the United States and many foreign jurisdictions.
+Added: Significant judgment is required in determining our worldwide provision for income taxes, including our reserves for uncertain tax positions.
+Added: In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain.
+Added: We regularly are under audit by tax authorities.
+Added: Although we believe our tax estimates are reasonable, the final determination of tax audits could be materially different from our historical income tax provisions and accruals.
+Added: The results of an audit could have a material effect on our consolidated financial position, results of operations, or cash flows in the period or periods for which that determination is made.
+Added: Credit and Liquidity Risks
+Added: Failure to comply with the covenants under our credit facility may have a material adverse effect on our ability to access additional capital and/or create an event of default.
+Added: In December 2019, we entered into a credit agreement (the “Credit Agreement”) with BMO, as administrative agent and collateral agent, BMO Capital Markets Corp., as joint lead arranger and sole book runner, Silicon Valley Bank, as joint lead arranger, and other lenders from time to time party thereto (collectively, the “Lenders”), which provides us with senior secured credit facilities totaling $150 million, consisting of (i) the Term Loan and (ii) the Revolving Loan.
+Added: The Revolving Loan includes a $10 million letter of credit loan and $10 million swingline loan, the outstanding amounts of which decrease the
+Added: available commitment.
+Added: Loans under the Term Loan will be repaid in quarterly installments on the last day of each fiscal quarter, with amortization of 5% in the first two years, 7.5% in the next two years and 10% in the final year.
+Added: The remaining outstanding balance will be repaid in full after five years.
+Added: If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the Credit Facility, we will be in default.
+Added: We are also required to comply with several financial covenants under the Credit Agreement.
+Added: Our ability to comply with such financial covenants may be affected by events beyond our control, which could result in a default under the Credit Agreement;
+Added: such default may have a material adverse effect on our business, financial condition, operating results or cash flows.
+Added: The Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict the ability of Digi and its subsidiaries to incur additional indebtedness, dispose of significant assets, make certain investments, including any acquisitions other than permitted acquisitions, make certain payments, enter into sale and leaseback transactions, grant liens on its assets or rate management transactions, subject to certain limitations.
+Added: These restrictions could adversely affect our business.
+Added: Foreign currency exchange rates may adversely affect our operating results.
+Added: We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates on transactions that are denominated in foreign currencies.
+Added: Because our financial statements are denominated in U.S.
+Added: Dollars and some of our revenue is denominated in a currency other than U.S.
+Added: Dollars, such as Euros, British Pounds, Yen and Canadian Dollars, our revenues and earnings may be adversely impacted if the U.S.
+Added: dollar strengthens significantly against these foreign currencies.
+Added: Negative conditions in the global credit markets may impair a portion of our investment portfolio.
+Added: Our investment portfolio may consist of certificates of deposit, commercial paper, money market funds, corporate bonds and government municipal bonds.
+Added: These marketable securities are classified as available-for-sale and are carried at fair market value.
+Added: Some of our investments could experience reduced liquidity and could result in an impairment charge should the impairment be considered as other-than-temporary.
+Added: This loss would be recorded in our Consolidated Statements of Operations, which could materially adversely impact our consolidated results of operations and financial condition.
+Added: Technology and Cybersecurity Risks
+Added: We are subject to various cybersecurity risks, which are particularly acute in cloud-based technologies that we and other third parties operate that form a part of our solutions.
+Added: These risks may increase our costs and could damage our brand and reputation.
+Added: As we continue to direct a substantial portion of our sales and development efforts toward broader based solutions, such as SmartSense by Digi ® and the Digi Remote Manager ® , we expect to store, convey and potentially process significant amounts of data produced by devices.
+Added: Further many of our business applications now exist within cloud platforms that are managed by third parties, which also adds risk from breach of third parties.
+Added: This data may include confidential or proprietary information, intellectual property or personally identifiable information of our customers or other third parties with whom they do business.
+Added: It is important for us to maintain solutions and related infrastructure that are perceived by our customers and other parties with whom we do business as providing reasonable levels of reliability and security.
+Added: Despite available security measures and other precautions, the infrastructure and transmission methods used by our products and services may be vulnerable to interception, attack or other disruptive problems.
+Added: Continued high-profile data breaches at other companies evidence an external environment that is becoming increasingly hostile to information security.
+Added: Improper disclosure of data or a perception that our data security is insufficient could harm our reputation, give rise to legal proceedings or subject our company to liability under laws that protect data, which may evolve and expand in scope over time.
+Added: Any of these factors could result in increased costs and loss of revenue for us.
+Added: If a cyberattack or other security incident were to allow unauthorized access to or modification of our customers’ data or our own data, whether due to a failure with our systems or related systems operated by third parties, we could suffer damage to our brand and reputation.
+Added: The costs we would incur to address and fix these incidents could significantly increase our expenses.
+Added: These types of security incidents could also lead to lawsuits, regulatory investigations and increased legal liability, including in some cases contractual costs related to customer notification and fraud monitoring.
+Added: Further, as the regulatory focus on privacy and data security issues continues to increase and worldwide laws and regulations concerning the protection of information become more complex, the potential risks and costs of compliance to our business are expected to intensify.
+Added: Our products operate with and are dependent on products and components across a broad ecosystem.
+Added: If there is a security vulnerability in one of these components, and if there is a security exploit targeting it, we could face increased costs, reduced revenue, liability claims or damage to our reputation or competitive position.
+Added: Risks Related to Our Intellectual Property
Our ability to compete could be jeopardized if we are unable to protect our intellectual property rights.
2 unchanged sentences
We enter into confidentiality agreements with our employees, and sometimes with our customers, potential customers and other third parties, and limit access to the distribution of our proprietary information.
−Removed: There can be no assurance that the steps taken by us in this regard will be adequate
−Removed: to prevent the misappropriation of our technology.
+Added: There can be no assurance that the steps taken by us in this regard will be adequate to prevent the misappropriation of our technology.
Our pending patent applications may be denied and any patents, once issued, may be circumvented by our competitors.
13 unchanged sentences
Any limitations on our ability to market our products, or delays and costs associated with redesigning our products or payments of license fees to third parties, or any failure by us to develop or license a substitute technology on commercially reasonable terms could have a material adverse effect on our business, operating results and financial condition.
+Added: Government and Political Risks
+Added: Our inability to obtain the appropriate telecommunications carrier certifications or approvals from governmental regulatory bodies could impede our ability to grow revenue in our wireless products.
+Added: The sale of our wireless products in certain geographical markets is sometimes dependent on the ability to gain telecommunications carrier certifications and/or approvals by certain governmental bodies.
+Added: Failure to obtain these approvals, or delays in receiving the approvals, could impact our ability to enter our targeted markets or to compete effectively or at all in these markets and could have an adverse impact on our business and prospects.
+Added: Our failure to comply effectively with the requirements of applicable environmental legislation and regulation could have a material adverse effect on our revenue and profitability.
+Added: Production and marketing of products in certain states and countries may subject us to environmental and other regulations.
+Added: In addition, certain states and countries may pass new regulations requiring our products to meet certain requirements to use environmentally friendly components.
+Added: The European Union has issued two directives relating to chemical substances in electronic products.
+Added: The Waste Electrical and Electronic Equipment Directive ("WEEE") makes producers of certain electrical and electronic equipment financially responsible for collection, reuse, recycling, treatment and disposal of equipment placed in the European Union market.
+Added: The Restrictions of Hazardous Substances Directive ("RoHS") bans the use of certain hazardous materials in electric and electrical equipment which are put on the market in the European Union.
+Added: In the future, various countries including the United States may adopt further environmental compliance programs .
+Added: If we fail to comply with these
+Added: regulations, we may not be able to sell our products in jurisdictions where these regulations apply, which could have a material adverse effect on our revenue and profitability.
+Added: Risks Relating to Our Foreign Operations
+Added: Our use of suppliers in other parts of the world involves risks that could negatively impact us.
+Added: We purchase a number of components from suppliers in other parts of the world.
+Added: Product delivery times may be extended due to the distances involved, requiring more lead time in ordering.
+Added: In addition, ocean freight delays may occur as a result of labor problems, weather delays, expediting orders for third parties or customs issues.
+Added: Any extended delay in receipt of the component parts could eliminate anticipated cost savings and have a material adverse effect on our customer relationships and profitability.
+Added: More recently, governments have announced the imposition of tariffs on various products and components which may impact the pricing of certain components and inventories and could have a material adverse effect on our competitive standing in the marketplace and our financial results.
We face risks associated with our international operations that could impair our ability to grow our revenue abroad as well as our overall financial condition.
14 unchanged sentences
Failure to comply with the aforementioned regulations could also deter us from selling our products in international jurisdictions, which could have a material adverse effect on our revenue and profitability.
−Removed: Foreign currency exchange rates may adversely affect our operating results.
−Removed: We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates on transactions that are denominated in foreign currencies.
−Removed: Because our financial statements are denominated in U.S.
−Removed: Dollars and some of our
−Removed: revenue is denominated in a currency other than U.S.
−Removed: Dollars, such as Euros, British Pounds, Yen and Canadian Dollars, our revenues and earnings may be adversely impacted if the U.S.
−Removed: dollar strengthens significantly against these foreign currencies.
−Removed: The loss of key personnel could prevent us from executing our business strategy.
−Removed: Our business and prospects depend to a significant degree upon the continuing contributions of our executive officers and key technical and other personnel.
−Removed: Competition for such personnel is intense, and there can be no assurance that we will be successful in attracting and retaining qualified personnel.
−Removed: Failure to attract and retain key personnel could result in our failure to execute our business strategy.
−Removed: Our failure to comply effectively with the requirements of applicable environmental legislation and regulation could have a material adverse effect on our revenue and profitability.
−Removed: Production and marketing of products in certain states and countries may subject us to environmental and other regulations.
−Removed: In addition, certain states and countries may pass new regulations requiring our products to meet certain requirements to use environmentally friendly components.
−Removed: The European Union has issued two directives relating to chemical substances in electronic products.
−Removed: The Waste Electrical and Electronic Equipment Directive ("WEEE") makes producers of certain electrical and electronic equipment financially responsible for collection, reuse, recycling, treatment and disposal of equipment placed in the European Union market.
−Removed: The Restrictions of Hazardous Substances Directive ("RoHS") bans the use of certain hazardous materials in electric and electrical equipment which are put on the market in the European Union.
−Removed: In the future, various countries including the United States may adopt further environmental compliance programs .
−Removed: If we fail to comply with these regulations, we may not be able to sell our products in jurisdictions where these regulations apply, which could have a material adverse effect on our revenue and profitability.
−Removed: Negative conditions in the global credit markets may impair a portion of our investment portfolio.
−Removed: Our investment portfolio may consist of certificates of deposit, commercial paper, money market funds, corporate bonds and government municipal bonds.
−Removed: These marketable securities are classified as available-for-sale and are carried at fair market value.
−Removed: Some of our investments could experience reduced liquidity and could result in an impairment charge should the impairment be considered as other-than-temporary.
−Removed: This loss would be recorded in our Consolidated Statements of Operations, which could materially adversely impact our consolidated results of operations and financial condition.
−Removed: Unanticipated changes in our tax rates could affect our future results.
−Removed: Our future effective tax rates could be favorably or unfavorably affected by unanticipated changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws or our interpretation of such laws.
−Removed: In addition, we may be subject to the examination of our income tax returns by the Internal Revenue Service and other U.S.
−Removed: and international tax authorities.
−Removed: We regularly assess the potential outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
−Removed: There can be no assurance that the outcomes from these examinations will not have an adverse effect on our consolidated operating results and financial condition.
−Removed: We may have additional tax liabilities.
−Removed: We are subject to income taxes in the United States and many foreign jurisdictions.
−Removed: Significant judgment is required in determining our worldwide provision for income taxes, including our reserves for uncertain tax positions.
−Removed: In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain.
−Removed: We regularly are under audit by tax authorities.
−Removed: Although we believe our tax estimates are reasonable, the final determination of tax audits could be materially different from our historical income tax provisions and accruals.
−Removed: The results of an audit could have a material effect on our consolidated financial position, results of operations, or cash flows in the period or periods for which that determination is made.
Risks Related to Our Common Stock
1 unchanged sentence
In fiscal 2017, we received an unsolicited takeover proposal and other companies in our industry have been the target of unsolicited takeover proposals in the past.
−Removed: In the event that a third party, such as a competitor, private equity firm or activist investor makes an unsolicited takeover proposal or proposes to change our governance policies or board of directors, or makes other proposals concerning our ownership structure or operations, our review and consideration of such proposals may be a
−Removed: significant distraction for our management and employees, and could require us to expend significant time and resources.
+Added: In the event that a third party, such as a competitor, private equity firm or activist investor makes an unsolicited takeover proposal or proposes to change our governance policies or board of directors, or makes other proposals concerning our ownership structure or operations, our review and consideration of such proposals may be a significant distraction for our management and employees, and could require us to expend significant time and resources.
Such proposals may create uncertainty for our employees and this uncertainty may adversely affect our ability to retain key employees, to hire new talent or to complete acquisitions we may desire to make.
1 unchanged sentence
Certain proposals may result in costly proxy contests or litigation that can disrupt our business operations or result in an adverse effect on our operating results.
−Removed: Management and employee distraction related to any such proposals also may adversely impact our ability to conduct our business optimally and pursue our strategic objectives.
+Added: Management and employee distraction related to any such proposals also may adversely impact
+Added: our ability to conduct our business optimally and pursue our strategic objectives.
Such proposals, or their withdrawal, could create uncertainty among investors and potential investors as to our future direction and affect the market price of our common stock without regard to our operational or financial performance.
19 unchanged sentences
If such growth does not materialize or our forecasts are not met (including forecasts established at the time of acquisition), our profits could be significantly reduced, and our market value may decline, which could result in an impairment of our goodwill.
+Added: As discussed in other risk factors, there could be circumstances beyond our control, such as impacts from the current COVID-19 pandemic that could exacerbate the conditions that would lead to such an impairment.
+Added: Risks Relating to Our Industry
+Added: We are dependent on wireless communication networks owned and controlled by others.
+Added: Our revenue could decline if we are unable to deliver continued access to digital cellular wireless carriers that we depend on to provide sufficient network capacity, reliability and security to our customers.
+Added: Our financial condition could be impacted if our wireless carriers increase the prices of their services or suffer operational or technical failures.
+Added: Natural disasters could impact our supply chain and customers negatively resulting in an adverse impact to our revenue and profitability.
+Added: Certain of our components and other materials used in producing our products are from regions susceptible to natural disasters.
+Added: If we are unable to procure necessary materials, we could experience a disruption to our supply chain that would hinder our ability to produce our products in a timely manner.
+Added: It also could cause us to seek other sources of supply which may be more costly or which we may not be able to procure on a timely basis.
+Added: We also risk damage to any tooling, equipment or inventory at the supplier’s facilities.
+Added: For instance, flooding in October 2011 and a fire in November 2014 disrupted the operations at one of
+Added: our contract manufacturers in Thailand.
+Added: In addition, our customers may not follow their normal purchasing patterns or temporarily cease purchasing from us due to impacts to their businesses in the region, creating unexpected fluctuations or decreases in our revenue and profitability.
+Added: Natural disasters could have material adverse impacts on our business.
UNRESOLVED STAFF COMMENTS
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.