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: Competitive and Reputational Risks
−Removed: We face intense competition from established companies that may have significant advantages over us and our products.
−Removed: The market for our products is intensely competitive.
−Removed: Certain of our competitors and potential competitors have or may develop greater financial, technological, manufacturing, marketing and personnel resources than us either generally or relative to the product sets they sell in competition to us.
−Removed: Further, there are numerous companies competing with us in various segments of the market for our products, and their products may have advantages over our products in areas such as conformity to existing and emerging industry standards, interoperability with other products, management and security capabilities, performance, price, ease of use, scalability, reliability, flexibility, product features and technical support.
−Removed: Our current and potential competitors have or may develop one or more of the following significant advantages over us in the product areas where they compete with us:
−Removed: • tighter focus on an individual product or product category;
−Removed: • greater financial, technical and marketing resources;
−Removed: • barriers to transition to our products;
−Removed: • higher brand recognition across larger geographic regions;
−Removed: • more comprehensive product features and functionality;
−Removed: • longer-standing cooperative relationships with OEM and end-user customers;
−Removed: • superior customer service capacity and quality;
−Removed: • longer operating history;
−Removed: • larger customer base.
−Removed: We cannot provide assurance that we will be able to compete successfully with our current and potential competitors.
−Removed: Such competitors may be able to more quickly develop or adapt to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products.
−Removed: Additionally, it is probable that new competitors or new alliances among existing competitors could emerge and rapidly acquire significant market share.
−Removed: Our dependence on new product development and the rapid technological change that characterizes our industry make us susceptible to loss of market share resulting from competitors’ product introductions and enhancements, service capabilities and similar risks.
−Removed: Our industry is characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions, short product life cycles in certain instances and rapidly changing customer requirements.
−Removed: The introduction of products and enhancements embodying new technologies that can disrupt one or more markets in which we compete and the emergence of new industry standards or regulations impacting our industry can render existing products obsolete or unmarketable.
−Removed: 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 to achieve widespread customer acceptance of such modified products could cause us to lose market share and cause our revenue to decline.
−Removed: Further, if our competitors offer better service capabilities associated with the implementation and use of their products, our business could be impacted negatively.
−Removed: We may experience delays in developing and marketing product enhancements or new products that respond to technological change, evolving industry standards or regulations and changing customer requirements.
−Removed: There can be no assurance that we will not experience difficulties that could delay or prevent the successful development, introduction, and marketing of these products or product enhancements, or that our new products and product enhancements will meet the requirements of the marketplace adequately and achieve any significant or sustainable degree of market acceptance in existing or additional markets.
−Removed: In addition, the future introductions or announcements of products by us or one of our competitors embodying new technologies or changes in industry standards or regulations or customer requirements could render our then-existing products obsolete or unmarketable.
−Removed: This risk may become more pronounced as new competitors emerge in markets where we sell our products, especially if these competitors have more resources than us to develop and market new products and technologies and provide related services.
−Removed: 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: 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.
Operational Risks
−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.
+Added: Global Supply Chain and Freight Transportation Disruptions
+Added: As we previous disclosed, like many companies, we are experiencing disruptions in our supply chain for a variety of reasons that we believe were initially triggered by the ongoing COVID-19 pandemic.
+Added: Among others these reasons include:
+Added: labor force disruptions, container ship backlogs, physical container shortages at locations important for the global supply chain, energy disruptions in China and elsewhere and material and component shortages.
+Added: We also are monitoring policy actions by the Chinese government that could cause other disruptions in the supply and production of components and products.
+Added: Collectively these issues have led to shortfalls in available components we need to make products as well as increased costs to obtain components, to make products and to transport components and products.
+Added: It has also lengthened the timelines for us to fulfill customer orders.
+Added: The severity of the disruptions is continuously changing, meaning the impact on our ability to meet demand for particular products in a timely manner has been subject to ebb and flow.
+Added: Some of these disruptions have been material with respect to certain of our products.
+Added: We are taking steps to attempt to mitigate the impact of disruptions such as placing inventory demand further out into the future to secure our allocations of components, negotiating and engaging with suppliers to reserve components, encouraging customers to place orders earlier than normal due to longer lead times and attempting (in conjunction with customers) to influence political leaders to assure components needed to make products that are essential to the health and well-being of society are prioritized to our customer’s needs by suppliers.
+Added: Many of our suppliers are also experiencing supply chain disruptions which in turn disrupt our operations.
+Added: At present, we are unable to predict neither the duration or severity, nor the impact on our business and financial results of these disruptions, which could be material.
We depend on manufacturing relationships and on limited-source suppliers, and any disruptions in these relationships may cause damage to our customer relationships.
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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: Further, the COVID-19 pandemic has created stress on many supply chains globally.
−Removed: This has had some impact on our own ability to procure certain inventory and services, most notably in our IoT Solutions segment.
−Removed: While none of these impacts related to the pandemic have been material to date, it is possible they may be in the future.
+Added: As an example, Ventus relies almost exclusively on a manufacturer in China for the production of the hardware it provides to its customers.
+Added: Further, as discussed elsewhere, the COVID-19 pandemic and other factors have created stress on many supply chains globally.
+Added: This has impacted on our own ability to procure certain inventory and services, in both of our business segments.
+Added: Some of these impacts have been material and it is possible additional material impacts could occur in the future.
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 such as the ongoing pandemic.
+Added: In addition, the availability of many of the components we need 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.
As an example of force majeure, a fire in November 2014 disrupted the operations at one of our contract manufacturers in Thailand.
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.
+Added: Any extended interruption in the supply of any of the key components or the availability of manufacturing services that currently are obtained from limited sources could disrupt our operations and have a material adverse effect on our customer relationships and profitability.
+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 may require 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.
Our participation in a services and solutions model, using hardware and cloud-based services, presents execution and competitive risks.
We participate in a services and solutions model that uses both hardware and cloud-based services.
−Removed: Our SmartSense by Digi ® offerings deploy hardware, software and cloud-based hosting.
−Removed: In other areas of our business we offer our own internally developed hosted services and cloud-based platform, software applications, and supporting products and services.
+Added: Both our SmartSense by Digi® and recently acquired Ventus offerings deploy hardware, software and cloud-based hosting.
+Added: In other areas of our business we offer hosted services and cloud-based platform, software applications, and supporting products and services.
We also employ significant human and financial resources to develop and deploy these offerings.
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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.
−Removed: 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.
+Added: Certain customers and potential customers that use these offerings have also been adversely impacted by the COVID-19 pandemic which started during calendar year 2020 and the resulting global economic downturn 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.
Whether we are successful in this business model depends on a number of factors, including:
−Removed: • our ability to put in place the infrastructure to deploy and evolve our solutions effectively and continuously;
+Added: • our ability to establish the infrastructure to deploy and evolve our solutions effectively and continuously;
• the features and functionality of our offerings relative to competing offerings as well as our ability to market effectively;
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Our ability to sustain and grow our business depends in large part on the success of our channel partner distributors and resellers.
−Removed: A substantial part of our revenue is generated through sales by channel partner distributors and resellers.
+Added: A substantial portion of our revenue is generated through sales by channel partner distributors and resellers.
Further, in recent years we have been taking steps to expand our relationship with certain distributors who have global reach.
−Removed: This effort may increase the percent of our revenue driven through channel partners or heighten our reliance on certain channel partners to drive sales.
+Added: These expanison efforts may increase the percent of our revenue driven through channel partners or heighten our reliance on certain channel partners to drive sales.
To the extent our channel partners are unsuccessful selling our products or if we are unable to obtain and retain a sufficient number of high-quality channel partners, our operating results could be materially and adversely affected.
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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
−Removed: 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 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.
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.
−Removed: 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: 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 outbreak of the COVID-19 respiratory illness caused by a novel coronavirus first identified in Wuhan, Hubei Province, China in 2020.
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.
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We could also be exposed to litigation as a result of any consummated or unconsummated acquisition.
−Removed: The business of Accelerated, which we acquired in fiscal 2018, is subject to significant customer concentration.
+Added: The businesses of Accelerated, which we acquired in fiscal 2018, and Ventus, which we acquired in fiscal 2022, are subject to significant customer concentration.
In the second quarter of fiscal 2018, we acquired Accelerated.
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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.
+Added: In the first quarter of fiscal 2022, we acquired Ventus.
+Added: While Ventus has many customers, its business historically has been significantly concentrated on its relationships with fewer than twenty customers.
+Added: Any disruption or difficulties in securing or renewing contractual relationships with any of these customers, maintaining such relationships on favorable terms or any other disruption in our business with one or more of these customers could have an adverse impact on our business, results of operations, financial condition and prospects.
SmartSense by Digi® remains 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
−Removed: have not been used historically.
+Added: SmartSense by Digi® primarily was formed through acquisitions of four businesses, the last of which was completed in October 2017, 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.
The operation of SmartSense by Digi® will be subject to significant additional risks that are not necessarily related to our legacy products and services.
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• 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.
−Removed: This need for ease of deployment has only been heightened by the COVID-19 pandemic that commenced during 2020.
+Added: The customer desire for ease of deployment has 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.
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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: 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: Governments continue to impose 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: Ongoing power outages in Asia and Europe could also have a material adverse effect ability to obtain components for our products from our foreign suppliers.
+Added: Additional challenges could occur if these suppliers allocate materials and components to other customers.
+Added: Finally, the Chinese government recently has implemented policies that adversely have impacted various industries in that nation and it is possible they may take actions in the future that are adverse to suppliers who we rely upon.
+Added: 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.
+Added: Our future growth may be dependent in part upon our ability to increase sales in international markets.
+Added: These sales are subject to a variety of risks, including fluctuations in currency exchange rates, tariffs, import restrictions and other trade barriers, unexpected changes in regulatory requirements, longer accounts receivable payment cycles, potentially adverse tax consequences, and export license requirements.
+Added: In addition, we are subject to the risks inherent in conducting business internationally, including political and economic instability and unexpected changes in diplomatic and trade relationships.
+Added: In many markets where we operate business and cultural norms are different than those in the United States and practices that may violate laws and regulations applicable to us like the Foreign Corrupt Practices Act ("FCPA") and the UK Anti-Bribery Act ("UKBA") are more commonplace.
+Added: Although we have implemented policies and procedures with the intention of ensuring compliance with these laws and regulations, our employees, contractors and agents, as well as channel partners involved in our international sales, may take actions in violation of our policies.
+Added: Many of our vendors and strategic business allies also have international operations and are subject to the risks described above.
+Added: Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if one or more of our business partners are not able to
+Added: successfully manage these risks.
+Added: There can be no assurance that one or more of these factors will not have a material adverse effect on our business strategy and financial condition.
+Added: Our failure to comply effectively with regulatory laws pertaining to our foreign operations could have a material adverse effect on our revenue and profitability.
+Added: We are required to comply with U.S.
+Added: government export regulations in the sale of our products to foreign customers, including requirements to properly classify and screen our products against a denied parties list prior to shipment.
+Added: We are also required to comply with the provisions of the FCPA and all other anti-corruption laws, such as UKBA, of all other countries in which we do business, directly or indirectly, including compliance with the anti-bribery prohibitions and the accounting and recordkeeping requirements of this law.
+Added: Violations of the FCPA or other similar laws could trigger sanctions, including ineligibility for U.S.
+Added: government insurance and financing, as well as large fines.
+Added: 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.
+Added: Competitive and Reputational Risks
+Added: We face intense competition from established companies that may have significant advantages over us and our products.
+Added: The market for our products is intensely competitive.
+Added: Certain of our competitors and potential competitors have or may develop greater financial, technological, manufacturing, marketing and personnel resources than us either generally or relative to the product sets they sell in competition to us.
+Added: Further, there are numerous companies competing with us in various segments of the market for our products, and their products may have advantages over our products in areas such as conformity to existing and emerging industry standards, interoperability with other products, management and security capabilities, performance, price, ease of use, scalability, reliability, flexibility, product features and technical support.
+Added: Our current and potential competitors have or may develop one or more of the following significant advantages over us in the product areas where they compete with us:
+Added: • tighter focus on an individual product or product category;
+Added: • greater financial, technical and marketing resources;
+Added: • barriers to transition to our products;
+Added: • higher brand recognition across larger geographic regions;
+Added: • more comprehensive product features and functionality;
+Added: • longer-standing cooperative relationships with OEM and end-user customers;
+Added: • superior customer service capacity and quality;
+Added: • longer operating history;
+Added: • larger customer base.
+Added: We cannot provide assurance that we will be able to compete successfully with our current and potential competitors.
+Added: Such competitors may be able to more quickly develop or adapt to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products.
+Added: Additionally, it is probable that new competitors or new alliances among existing competitors could emerge and rapidly acquire significant market share.
+Added: Our dependence on new product development and the rapid technological change that characterizes our industry make us susceptible to loss of market share resulting from competitors’ product introductions and enhancements, service capabilities and similar risks.
+Added: Our industry is characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions, short product life cycles in certain instances and rapidly changing customer requirements.
+Added: The introduction of products and enhancements embodying new technologies that can disrupt one or more markets in which we compete and the emergence of new industry standards or regulations impacting our industry can render existing products obsolete or unmarketable.
+Added: 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.
+Added: Failure by us to modify our products to support new alternative technologies or failure
+Added: to achieve widespread customer acceptance of such modified products could cause us to lose market share and cause our revenue to decline.
+Added: Further, if our competitors offer better service capabilities associated with the implementation and use of their products, our business could be impacted negatively.
+Added: We may experience delays in developing and marketing product enhancements or new products that respond to technological change, evolving industry standards or regulations and changing customer requirements.
+Added: There can be no assurance that we will not experience difficulties that could delay or prevent the successful development, introduction, and marketing of these products or product enhancements, or that our new products and product enhancements will meet the requirements of the marketplace adequately and achieve any significant or sustainable degree of market acceptance in existing or additional markets.
+Added: In addition, the future introductions or announcements of products by us or one of our competitors embodying new technologies or changes in industry standards or regulations or customer requirements could render our then-existing products obsolete or unmarketable.
+Added: This risk may become more pronounced as new competitors emerge in markets where we sell our products, especially if these competitors have more resources than us to develop and market new products and technologies and provide related services.
+Added: 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.
+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.
Strategic Risks
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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
−Removed: if they fail to execute on business initiatives, are accused of breaking the law or otherwise suffer reputational harm for other reasons.
+Added: We also have limited, if any, control as to
+Added: 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.
All of these factors could materially and adversely impact our business and results of operations.
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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.
−Removed: 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.
−Removed: We are 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: Lead times also could be impacted by the COVID-19 pandemic which has disrupted many supply chains globally.
−Removed: 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: We are dependent on third parties to manufacture our products which could have adverse impacts on our business if such manufacturers encounter operating restraints or if we do not properly forecast customer demand.
+Added: We are reliant on third parties to manufacture our products in countries such as China, Mexico and Thailand.
+Added: The ability of these manufacturers to provide us with the timely provision of finished products is subject to a number of disruptions beyond their control such as, among others:
+Added: the availability of components from suppliers, labor shortages caused by the ongoing COVID-19 pandemic, energy shortages such as those recently encountered in China, changes in government regulations or other factors.
+Added: If we do not properly forecast customer demands for products any lengthening in lead times or disruptions in service could result in lost revenues and adversely impact our business, results of operation, financial condition and prospects.
The loss of key personnel could prevent us from executing our business strategy.
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.
+Added: Competition for such personnel is intense, and in the current environment of large numbers of workers leaving their current employment for new opportunities, there can be no assurance that we will be successful in retaining qualified personnel.
Failure to attract and retain key personnel could result in our failure to execute our business strategy.
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If this occurs, our revenue may be reduced, thereby having a negative impact on our results of operations.
−Removed: In addition, we may be forced to increase our allowance for doubtful accounts and our days sales outstanding may increase, which would have a negative impact on our cash position, liquidity and financial condition.
+Added: In addition, we may be forced to increase our allowance for credit losses and our days sales outstanding may increase, which would have a negative impact on our cash position, liquidity and financial condition.
To the extent we incur debt, we may be unable to adhere to financial covenants or to service the debt.
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Some of the hardware products we sell are approaching the end of their product life cycles.
−Removed: mature hardware products have sold historically at higher gross margins than our other product and service offerings.
+Added: These mature hardware products have sold historically at higher gross margins than our other product and service offerings.
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.
+Added: In addition, rising prices for goods and services due to inflation along with ongoing cost pressures in our industry create downward pressure on the prices at which we and other manufacturers can sell hardware products.
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.
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 still at early stages of adoption by customers and their sales growth is not necessarily predictable or assured.
+Added: While part of our longer term strategy is to sell software applications and IoT solutions such as SmartSense by Digi® and our newly acquired Ventus offerings, 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.
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.
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It is possible we will see revenue fluctuations in this business based upon the scale of new deployments in different financial periods.
+Added: Our Ventus operations could be subject to similar issues with respect to new or potential new customers.
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.
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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.
−Removed: 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.
−Removed: The Revolving Loan includes a $10 million letter of credit loan and $10 million swingline loan, the outstanding amounts of which decrease the
−Removed: available commitment.
−Removed: 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.
−Removed: The remaining outstanding balance will be repaid in full after five years.
−Removed: 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: On November 1, 2021, Digi entered into a second amended and restated credit agreement consisting of a $350 million term loan B secured loan (the "Term Loan") and a $35 million revolving credit facility (the "Revolving Credit Facility", and together with the Term Loan, the "Loan").
+Added: This Loan replaced our syndicated senior secured credit agreement with BMO that was entered into on March 15, 2021 and replaced the remaining balances of our term loan and revolver.
+Added: The $35 million revolving credit facility, which presently is undrawn, includes a $10 million letter of credit subfacility and $10 million swingline subfacility.
+Added: Amounts under the Term Loan will be repaid in quarterly installments on the last day of each fiscal quarter, with an annual amortization rate of 1%.
+Added: The remaining outstanding balance under the Term Loan is due to be repaid in full after seven years.
+Added: If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the Loan, we will be in default.
We are also required to comply with several financial covenants under the Credit Agreement.
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such default may have a material adverse effect on our business, financial condition, operating results or cash flows.
−Removed: 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: The Term Loan contains some affirmative covenants and the Revolving Credit Facility contains 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.
These restrictions could adversely affect our business.
−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 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.
Negative conditions in the global credit markets may impair a portion of our investment portfolio.
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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.
+Added: As we continue to direct a substantial portion of our sales and development efforts toward broader based solutions, such as SmartSense by Digi®, the Digi Remote Manager® and our newly acquired Ventus offerings, we expect to store, convey and potentially process significant amounts of data produced by devices.
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.
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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.
+Added: Further, as the regulatory focus on privacy and data security issues
+Added: 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.
Our products operate with and are dependent on products and components across a broad ecosystem.
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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.
+Added: The Restrictions of Hazardous Substances Directive ("RoHS") bans the use of certain hazardous
+Added: materials in electric and electrical equipment which are put on the market in the European Union.
In the future, various countries including the United States may adopt further environmental compliance programs .
−Removed: If we fail to comply with these
−Removed: 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: Risks Relating to Our Foreign Operations
−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.
−Removed: 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.
−Removed: Our future growth may be dependent in part upon our ability to increase sales in international markets.
−Removed: These sales are subject to a variety of risks, including fluctuations in currency exchange rates, tariffs, import restrictions and other trade barriers, unexpected changes in regulatory requirements, longer accounts receivable payment cycles, potentially adverse tax consequences, and export license requirements.
−Removed: In addition, we are subject to the risks inherent in conducting business internationally, including political and economic instability and unexpected changes in diplomatic and trade relationships.
−Removed: In many markets where we operate business and cultural norms are different than those in the United States and practices that may violate laws and regulations applicable to us like the Foreign Corrupt Practices Act ("FCPA") and the UK Anti-Bribery Act ("UKBA") are more commonplace.
−Removed: Although we have implemented policies and procedures with the intention of ensuring compliance with these laws and regulations, our employees, contractors and agents, as well as channel partners involved in our international sales, may take actions in violation of our policies.
−Removed: Many of our vendors and strategic business allies also have international operations and are subject to the risks described above.
−Removed: Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if one or more of our business partners are not able to successfully manage these risks.
−Removed: There can be no assurance that one or more of these factors will not have a material adverse effect on our business strategy and financial condition.
−Removed: Our failure to comply effectively with regulatory laws pertaining to our foreign operations could have a material adverse effect on our revenue and profitability.
−Removed: We are required to comply with U.S.
−Removed: government export regulations in the sale of our products to foreign customers, including requirements to properly classify and screen our products against a denied parties list prior to shipment.
−Removed: We are also required to comply with the provisions of the FCPA and all other anti-corruption laws, such as UKBA, of all other countries in which we do business, directly or indirectly, including compliance with the anti-bribery prohibitions and the accounting and recordkeeping requirements of this law.
−Removed: Violations of the FCPA or other similar laws could trigger sanctions, including ineligibility for U.S.
−Removed: government insurance and financing, as well as large fines.
−Removed: 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.
+Added: 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.
Risks Related to Our Common Stock
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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
−Removed: 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 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.
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Our market value is dependent upon certain factors, including continued future growth of our products, services and solutions.
−Removed: 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: If such growth does not materialize or our forecasts are not met (including forecasts
+Added: 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.
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.
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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.
+Added: Certain of our components and other materials used in producing our products are from regions susceptible to natural disasters beyond our control, such as the COVID-19 pandemic.
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.
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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
−Removed: our contract manufacturers in Thailand.
+Added: For instance, flooding in October 2011 and a fire in November 2014 disrupted the operations at one of our contract manufacturers in Thailand.
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.
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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.