What changed in this filing

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Item 1A. Risk Factors

2023-11-22 compared with 2022-11-23 · 119 added, 111 removed, 260 unchanged (47% of the section changed)

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Operational Risks

Global Supply Chain and Freight Transportation Disruptions

As we previously 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 and that have now been exacerbated by the ongoing war in Ukraine.

Among others these reasons include:

labor force disruptions, container ship backlogs, physical container shortages at locations important for the global supply chain, energy disruptions in Europe, China and elsewhere, global increases in inflation and material and component shortages.

We also are monitoring policy actions by the Chinese and Russian governments as well as the evolving implementation of economic sanctions against Russia that could cause other disruptions in the supply and production of components and products.

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.

It has also lengthened the timelines for us to fulfill customer orders.

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.

Some of these disruptions have been material with respect to certain of our products.

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.

Many of our suppliers are also experiencing supply chain disruptions which in turn disrupt our operations.

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.

We depend on manufacturing relationships and a broad set of suppliers, some of whom provide us with limited-source components and parts, and disruptions in these relationships may cause damage to our customer relationships or otherwise negatively impact our business.

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.

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As an example, Ventus relies almost exclusively on a manufacturer in China for the production of the hardware it provides to its customers.

Further, as discussed elsewhere, a range of factors have created stress on many supply chains globally.

This has impacted on our own ability to procure certain inventory and services, in both

of our business segments.

Some of these impacts have been material and it is possible additional material impacts could occur in the future.

Further, in recent years supply chains globally have experienced

stress due to a range of factors.

This continues to impact our own ability to procure certain inventory and services.

These disruptions also caused us to order significant amounts of inventory as we were uncertain whether we would otherwise be able to procure necessary parts and components to meet customer needs.

As a result, we have held elevated levels of inventory compared to historical norms.

The impacts of these circumstances driven by supply chain stress have been material in some instances 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.

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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.

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.

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.

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We also employ significant human and financial resources to develop and deploy these offerings.

As we work to grow and scale these offerings, these investments have and can adversely impacted our gross margins and profitability and may continue to do so in the future.

As we work to grow and scale these offerings, these investments have impacted previously and may impact adversely in the future our gross margins and profitability.

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.

Certain customers and potential customers that use these offerings have also been adversely impacted by the COVID-19 pandemic that began in 2020 and the resulting global economic downturn.

This 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.

Certain customers and potential customers that use these offerings were adversely impacted by the Covid-19 pandemic and the resulting global economic downturn.

Any future economic slowdown 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.

Whether we are successful in this business model depends on a number of factors, including:

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• deploying complete end-to-end solutions that meet the needs of the marketplace generally as well as the particular requirements of our customers more effectively and efficiently than competitive solutions.

Our ability to sustain and grow our business depends in large part on the success of our channel partner distributors and resellers.

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.

Our ability to sustain and grow our business depends in large part on the success of our third party distributors and resellers.

A substantial portion of our revenue is generated through sales by third party distributors and resellers.

Further, for several years we have been taking steps to expand our relationship with certain distributors who have global reach.

These expansion 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.

In addition, our channel partners may market, sell and support products and services that are competitive with ours, and may devote more resources to the marketing, sales and support of such products.

These channel partners may have incentives to promote our competitors’ products in lieu of our products, particularly for our competitors with larger volumes of orders, more diverse product offerings and longer relationships with our distributors and resellers.

It is possible, one or more of our important

channel partners may stop selling our products completely.

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.

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.

Any of the above absences, disruptions or restrictions could impact our sales and operating results negatively.

If these absences, disruptions or restrictions are significant and material it is possible our business continuity could be jeopardized.

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.

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.

In addition, our distributors and resellers may market, sell and support products and services that are competitive with ours, and

they may devote more resources to the marketing, sales and support of such products.

These distributors and resellers may have incentives to promote our competitors’ products in lieu of our products, particularly for our competitors with larger volumes of orders, more diverse product offerings and longer relationships with our distributors and resellers.

It is possible one or more of our important distributors and resellers may stop selling our products completely.

Our distributor and reseller sales structure could subject us to lawsuits, potential liability and reputational harm if, for example, any of these parties 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 through distributors and resellers effectively, our business and operating results could be materially and adversely affected.

Acquisitions could disrupt our business and seriously harm our financial condition.

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We could also be exposed to litigation as a result of any consummated or unconsummated acquisition.

The businesses of Accelerated, which we acquired in fiscal 2018, Opengear, which we acquired in fiscal 2019, and Ventus, which we acquired in fiscal 2022, are subject to significant customer concentration.

In 2018, we acquired Accelerated.

While Accelerated has many customers, its business historically has been highly dependent on its relationship with a single telecommunications carrier customer.

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.

In the first quarter of fiscal 2019, we acquired Opengear.

While Opengear has many customers, its business historically has been significantly concentrated on its relationships with a few large customers.

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.

In the first quarter of fiscal 2022, we acquired Ventus.

While Ventus has many customers, its business historically has been significantly concentrated on its relationships with fewer than twenty customers.

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.

Certain parts of our business are subject to customer concentrations.

Several of our acquired businesses historically have depended on relationships with one or a small number of customers or have a significant number of customers that are from particular industries.

Any disruption in their business with those customers, whether as a result of changes in demand for the customer’s services, adverse changes in the customer’s industry generally or other challenges in securing or renewing contracts, could have a material adverse impact on our business, results of operations, financial condition and prospects.

For example, we acquired Accelerated in fiscal 2018.

Although Accelerated has many customers, its business historically has been highly dependent on its relationship with a single telecommunications carrier customer.

We acquired Opengear in fiscal 2019.

Although Opengear has many customers, its business historically has been significantly concentrated on its relationships with a few large customers.

We acquired Ventus in fiscal 2022.

Although Ventus has many customers, its business historically has been significantly concentrated on its relationships with fewer than twenty customers and it also serves a significant number of customers in the financial and gaming terminal industries.

Likewise, our SmartSense by Digi business services a significant number of customers in the pharmaceutical, medical facility and retail food industries.

Both Ventus and SmartSense by Digi produce significant ARR.

Any disruption or difficulties in any of the industries these businesses serve could have an adverse impact on our business, results of operations (including, but not limited to, ARR), financial condition and prospects.

In addition, some larger customers may demand discounts and rebates.

As a result, our future revenue opportunities may be limited, and we may face pricing pressures, which in turn could adversely impact our gross margin and our profitability.

The loss of, reduction in, or pricing discounts associated with orders from any key customer would significantly reduce our revenue and harm our business.

Furthermore, delays in payment and/or extended payment terms from any of our key or larger customers could have a material negative impact on our cash flows and working capital to support our business operations.

SmartSense by Digi remains subject to the risks faced by a business operating in an emerging market.

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.

Additional risks that relate to SmartSense by Digi, include, but are not limited to:

As a result, our future revenue opportunities with these customers may be limited, and we may face pricing pressures, which in turn could adversely impact our gross margin and our profitability.

The loss of, reduction in, or pricing discounts associated with orders from key customers may significantly reduce our revenue and harm our business.

Furthermore, delays in payment and/or extended payment terms from larger customers

could have a disproportionate and material negative impact on our cash flows and working capital to support our business operations.

The businesses of our IoT Solutions segment are subject to the risks faced by businesses operating in emerging markets.

SmartSense by Digi is operated in an emerging market where technology-based solutions to monitor the condition of perishable goods as well as the completion of employee tasks have not been used historically.

Similarly, our Ventus business is operating in an evolving marketplace where the breadth of companies with collections of assets that require connectivity and general monitoring is evolving.

The operation of each of these businesses can therefore be subject to significant additional risks that are not necessarily related to our more established products and services.

Additional risks that relate to IoT Solutions, include, but are not limited to:

• SmartSense by Digi offerings are deployed in part to help assure perishable goods are safely preserved.

This presents a potential risk of loss in the event of a malfunction or failure of our offerings.

• 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.

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.

In light of these risks and uncertainties, we may not be able to establish or maintain the market share of SmartSense by Digi, integrate it successfully into our other operations or take full advantage of businesses we have acquired or may acquire in the future.

There can be no assurance that we will recover our investments in SmartSense by Digi or that we will realize significant and consistent profits from this business.

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.

Ventus's offering is deployed so that dispersed collections of critical, operational assets requiring network connectivity (such as ATMs, lottery terminals, etc.) are fully operational.

In each case, there is a potential risk of loss in the event of a malfunction or failure in our offerings.

• SmartSense by Digi has a limited history with us in a marketplace that is relatively early in its development and has numerous competitors.

Although Ventus has a longer operating history and some of the marketplaces in which it operates are quite mature, new use cases continue to emerge as businesses increasingly rely on self-service devices in their operations with customers.

We cannot provide assurances we will be successful in operating and continuing to grow either of these businesses.

• Our ability to succeed with the offerings of these businesses 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.

We may face challenges and delays in the development of these businesses as the marketplace for products and services evolves to meet the needs and desires of customers.

In light of these risks and uncertainties, we may not be able to establish or maintain the market share of these businesses or take full advantage of businesses we may acquire in the future related to either of these businesses.

There can be no assurance that we will recover our investments in SmartSense by Digi or Ventus or that we will realize ongoing and consistent profits from these businesses.

Also, there can be no assurance that diverting our management’s attention to these businesses 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.

From time to time, we are subject to claims and litigation regarding intellectual property rights or other claims pertaining to our business, which could seriously harm us and require us to incur significant costs.

The communications technology industry is characterized by frequent litigation regarding patent and other intellectual property rights.

From time to time, we receive notification of a third-party claim that our products allegedly infringe intellectual property rights owned by others.

In addition, in the ordinary course of business from time to time we receive other third-party claims that may include, but are not limited to, commercial relationships, employment disputes, contractual disputes or alleged issues with the use of our products or services.

Any litigation to determine the validity of third-party infringement claims or other litigation claims made against us, whether or not determined in our favor or settled by us, may be costly and divert the efforts and attention of our management and technical personnel from productive tasks.

This could have a material adverse effect on our ability to operate our business and service the needs of our customers.

There can be no assurance that any claims by third parties, regardless if they have merit, will not materially adversely affect our business, operating results, financial condition or prospects.

In the event of an adverse ruling in any such matter, we may be required to pay substantial damages, cease engaging in or make alterations to certain business activities, cease the manufacture, use and sale of infringing products, discontinue the use of certain processes or be required to obtain a license under the intellectual property rights of the third party claiming infringement.

There can be no assurance with respect to an infringement claim that a license would be available on reasonable terms or at all.

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.

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.

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 2019.

Any of the above absences, disruptions or restrictions could impact our sales and operating results negatively.

If these absences, disruptions or restrictions are significant and material it is possible our business continuity could be jeopardized.

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.

Risks Relating to Our Foreign Operations

Our use of suppliers in other parts of the world involves risks that could negatively impact us.

We purchase a number of components from suppliers in other parts of the world.

Product delivery times may be extended due to the distances involved, requiring more lead time in ordering.

In addition, ocean freight delays may occur as a result of labor problems, weather delays, expediting orders for third parties or customs issues.

Our use of suppliers in other parts of the world as well as our purchases of components containing certain materials involves risks that could negatively impact us.

We purchase many components from suppliers in other parts of the world.

Product delivery times may be extended due to the distances involved or events beyond our control, requiring more lead time in ordering.

In addition, ocean freight delays may occur as a result of labor problems, weather delays, expediting orders for third parties, customs issues or other events beyond our control.

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.

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The Chinese government in recent years 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.

Finally, sanctions against and actions of the Russian government resulting from the war in Ukraine may be adverse to suppliers who we rely upon.

Sanctions against and actions of the Russian government resulting from the war in Ukraine may be adverse to suppliers who we rely upon.

Finally, the introduction of new regulations by governments may also impact the availability, delivery or certain components or our ability to use certain components because of, among other potential reasons, the materials those components may contain or the location of the supplier of the component or certain materials contained in the component.

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.

Our future growth may be dependent in part upon our ability to increase sales in international markets.

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.

These sales are subject to a variety of risks, including fluctuations in currency exchange rates, tariffs, import restrictions and other trade barriers, unexpected or very burdensome changes in regulatory requirements, longer accounts receivable payment cycles, potentially adverse tax consequences, and export license requirements.

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.

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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.

Many of our vendors and strategic business allies also have international operations and are subject to the risks described above.

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.

Many of our vendors and strategic business allies also have international operations and are subject to the above described risks.

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 relations are not able to successfully manage these risks.

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.

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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.

Violations of the FCPA or other similar laws could trigger sanctions, including ineligibility for U.S.

Violations of export regulations, the FCPA or other similar laws or other laws and regulations could trigger sanctions, including ineligibility for U.S.

government insurance and financing, as well as large fines.

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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.

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.

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 or new regulations, interoperability with other products, management and security capabilities, performance, price, ease of use, scalability, reliability, flexibility, product features and technical support.

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:

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We cannot provide assurance that we will be able to compete successfully with our current and potential competitors.

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.

Such competitors may be able to more quickly develop or adapt to new or emerging technologies and changes in customer requirements, changes in regulatory requirements or devote greater resources to the development, promotion and sale of their products.

Additionally, it is probable that new competitors or new alliances among existing competitors could emerge and rapidly acquire significant market share.

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.

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.

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.

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.

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 as well as potential regulatory changes, and to demonstrate the performance advantages and cost-effectiveness of our products over competing products.

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.

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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.

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.

obsolete or unmarketable.

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.

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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.

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.

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 marketed effectively or sold via the relationship.

Our failure to anticipate or manage product transitions effectively could have a material adverse effect on our revenue and profitability.

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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.

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.

Furthermore, the introduction of new or enhanced products because of customer requirement, regulation or otherwise may require 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.

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.

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.

We are reliant on third parties to manufacture our products in countries such as China, Mexico and Thailand.

We are reliant on third parties to manufacture our products in countries such as Mexico, Thailand, Taiwan and China.

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:

the availability of components from suppliers, labor shortages such as those caused by the ongoing COVID-19 pandemic, energy shortages such as those from time to time encountered in China, changes in government regulations or other factors.

the availability of components from suppliers, labor shortages, energy shortages such as those from time to time encountered in China, changes in government regulations, tensions with foreign governments or other factors.

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.

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If worldwide economic conditions experience a significant downturn, these conditions may make it difficult or impossible for our customers and suppliers to accurately forecast and plan future business activities, which may cause them to slow or suspend spending on products and services.

Our customers may find it difficult to gain sufficient credit in a timely manner, which could result in an impairment of their ability to place orders with us or to make timely payments to us for previous purchases.

Our customers or suppliers may find it difficult to gain sufficient credit or service existing credit in a timely manner, which could result in an impairment of their ability to process or place orders with us, deliver inventory or services to us in the case of suppliers or to make timely payments to us for previous purchases in the case of customers.

If this occurs, our revenue may be reduced, thereby having a negative impact on our results of operations.

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To the extent we incur debt, we may be unable to adhere to financial covenants or to service the debt.

We cannot predict either the timing or duration of an economic downturn in the economy, should one occur.

These risks associated with credit and debt are more pronounced for the parties with whom we do business and ourselves in the current environment which has seen interest rates rise rapidly, especially if they remain elevated for an extended period of time We cannot predict either the timing or duration of an economic downturn in the economy, should one occur.

Any downturn could have a material adverse impact on our business, results of operations, financial condition and prospects.

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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.

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.

While part of our longer term strategy is to sell software applications and IoT solutions such as SmartSense by Digi and 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.

Part of our longer term strategy is to sell software applications and IoT solutions such as SmartSense by Digi and Ventus offerings as well as selling hardware together with bundled services on a subscription basis.

These sales may provide recurring revenues at relatively high gross margins, but these types of offerings are still in the earlier stages of adoption by customers.

As such, their sales growth is not necessarily predictable or assured.

Our gross margins therefore may be subject to decline unless we can implement cost reduction initiatives effectively to offset the impact of these factors.

Our revenue may be subject to fluctuations based on the level of significant large project-based purchases.

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In addition, in our SmartSense by Digi and Ventus businesses certain customers have outsized deployments relative to other customers.

It is possible we will see revenue fluctuations in this business based upon the scale of new deployments in different financial periods.

It is possible we will see revenue fluctuations in these businesses based upon the scale of new deployments in different financial periods.

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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The $35 million revolving credit facility, which presently is undrawn, includes a $10 million letter of credit subfacility and $10 million swingline subfacility.

Amounts under the Term Loan are being repaid in quarterly installments on the last day of each fiscal quarter, with an annual amortization rate of 5% of the original aggregate principal amount of the term loans, commencing on June 30, 2022.

Amounts under the Term Loan are being repaid in quarterly installments on the last day of each fiscal quarter, with an annual

amortization rate of 5% of the original aggregate principal amount of the term loans, commencing on June 30, 2022.

The remaining outstanding balance under the Term Loan is due to be repaid in full after seven years.

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Technology and Cybersecurity Risks

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.

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 or that we rely on to conduct our operations.

These risks may increase our costs and could damage our brand and reputation.

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 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.

We have completed a number of acquisitions in recent years and have inherited a range of different systems that store, convey and potentially process data and in some cases we may be delayed or choose not to integrate these systems into similar systems used in other parts of our business.

Further many of our business applications that we rely upon to operate our business now exist within cloud platforms that are managed by third parties.

These factors may add to the risk of breach by third parties.

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.

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.

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.

Despite available security measures and other precautions, the infrastructure and transmission methods used by our products and services or otherwise associated with our operations may be vulnerable to interception, attack or other disruptive problems.

Continued high-profile data breaches at other companies evidence an external environment that is becoming increasingly hostile to information security.

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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.

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.

Further, as the regulatory focus on privacy and data security issues continues to increase and worldwide laws and regulations concerning the protection of information continue to 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.

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.

In addition, cybersecurity is an issue that is becoming increasingly regulated.

As regulations take effect or evolve it is possible we may encounter issues being fully compliant with these legal standards which could result in material adverse effects on our business.

Risks Related to Our Intellectual Property

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Our failure to adequately protect our proprietary rights could have a material adverse effect on our competitive position and our business.

From time to time, we are subject to claims and litigation regarding intellectual property rights or other claims, which could seriously harm us and require us to incur significant costs.

The communications technology industry is characterized by frequent litigation regarding patent and other intellectual property rights.

From time to time, we receive notification of a third-party claim that our products infringe intellectual property rights owned by others.

Any litigation to determine the validity of third-party infringement claims, whether or not determined in our favor or settled by us, may be costly and divert the efforts and attention of our management and technical personnel from productive tasks.

This could have a material adverse effect on our ability to operate our business and service the needs of our customers.

There can be no assurance that any infringement claims by third parties, regardless if they have merit, will not materially adversely affect our business, operating results, financial condition or prospects.

In the event of an adverse ruling in any such matter, we may be required to pay substantial damages, cease the manufacture, use and sale of infringing products, discontinue the use of certain processes or be required to obtain a license under the intellectual property rights of the third party claiming infringement.

There can be no assurance that a license would be available on reasonable terms or at all.

Government and Political Risks

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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.

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.

Our failure to comply effectively with the requirements of applicable legislation and regulation, including but not limited to environmental rules and regulations, could have a material adverse effect on our revenue and profitability.

Production and marketing of products in certain states and countries may subject us to environmental and other regulations.

In addition, certain states and countries may pass new regulations requiring our products to meet certain requirements to use environmentally friendly components.

The European Union has issued two directives relating to chemical substances in

electronic products.

In addition, certain states and countries may pass new regulations requiring our products to meet certain requirements to use environmentally friendly components or to avoid the procurement of materials and components from certain places in the world.

For instance, the European Union has issued two directives relating to chemical substances in electronic products.

The Waste Electrical and Electronic Equipment Directive 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.

The Restrictions of Hazardous Substances Directive bans the use of certain hazardous 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 .

In the future, various governments may adopt further environmental compliance programs or other rules or regulations that may impact our business operations .

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.

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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.

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.

Similar uncertainty among our customers, suppliers and other business partners could cause them to terminate, or not to renew or enter into, arrangements with us.

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Natural disasters, wars and other events beyond our control could impact our supply chain and customers negatively resulting in an adverse impact to our revenue and profitability.

Certain of our components and other materials used in producing our products are from regions susceptible to natural disasters or other events beyond our control, such as the COVID-19 pandemic or the ongoing war in Ukraine.

Certain of our components and other materials used in producing our products are from regions susceptible to natural disasters or other events beyond our control, such as the Covid-19 pandemic that was highly disruptive to businesses during the last few

years or the ongoing wars in Ukraine and the Middle East.

These and other events beyond our control can adversely impact our supply chains and our business.

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UNRESOLVED STAFF COMMENTS

CYBERSECURITY

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What changed 10-K

Item 1A. Risk Factors