What changed in this filing

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Item 1A. Risk Factors

2024-11-22 compared with 2023-11-22 · 128 added, 116 removed, 263 unchanged (48% of the section changed)

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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, 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.

Further, in recent years supply chains globally have experienced stress due to a range of factors.

This has impacted 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.

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

The impacts of these circumstances driven by supply chain stress were 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, as well as availability of capital for deployments, 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.

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.

Both our SmartSense by Digi and Ventus offerings deploy hardware, software and cloud-based hosting.

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.

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 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:

• 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;

• our ability to engage in successful strategic relationships with third parties such as telecommunications carriers, component makers and systems integrators;

• our ability to meet service assurance commitments required by certain contracts;

• competing effectively for market share;

• 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 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 affected materially and adversely.

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.

We will continue to consider acquisitions of businesses, products or technologies.

While we may consider smaller acquisitions that present a lower level of the below stated risks, we publicly have signaled our intent to focus our efforts more on acquisitions that would enhance the scale our business.

Such acquisitions offer greater upside to our business, but also present greater risks.

In the event of any future acquisitions, we could issue stock that would dilute our current stockholders’ percentage ownership, incur additional debt, assume liabilities or incur large and immediate write-offs.

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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.

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

Both Ventus and SmartSense by Digi produce significant ARR.

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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.

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.

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 of 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 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.

Both our SmartSense by Digi and Ventus offerings as well as our Digi 360 and Digi LifeCycle Assurance offerings deploy hardware, software and cloud-based hosting.

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.

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.

In the past, 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:

• 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;

• our ability to engage in successful strategic relationships with third parties such as telecommunications carriers, component makers and systems integrators;

• our ability to meet service assurance commitments required by certain contracts;

• competing effectively for market share;

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 distributors and resellers or heighten our reliance on certain distributors and resellers to drive sales.

To the extent our distributors and resellers are unsuccessful selling our products or if we are unable to obtain and retain a sufficient number of high-quality distributors and resellers, our operating results could be affected materially and adversely.

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.

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

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.

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

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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.

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.

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.

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

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.

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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.

Technology and Cybersecurity Risks

We are subject to various cybersecurity risks, including risk to our products, solutions, and internal systems.

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

Our products and software may contain unknown security vulnerabilities that could be exploited by bad actors.

In addition, 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.

We also rely on cloud-based technologies for our solutions, as well as our internal systems.

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.

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 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.

Improper disclosure of data or a perception that our data security is insufficient could harm our reputation, give rise to legal proceedings or subject our company to liability under laws that protect data, which may evolve and expand in scope over time.

Any of these factors could result in increased costs and loss of revenue for us.

If a cyberattack or other security incident were to allow unauthorized access to or modification of our customers’ data or our own data, whether due to a failure with our systems or related systems operated by third parties, we could suffer damage to our brand and reputation.

The costs we would incur to address and fix these incidents could significantly increase our expenses.

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 data privacy and 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.

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.

Issues related to the of artificial intelligence may result in regulatory or legal action, damage our reputation, or harm our business.

We use tools and processes that incorporate artificial intelligence (“AI”) in various business processes.

We also are considering the incorporation of AI into some of our product and service offerings.

The field of AI is rapidly developing, and the global regulatory and legal landscape is evolving.

We seek to use AI responsibly and to manage ethical and legal issues associated with AI.

We may be unsuccessful in identifying and resolving these issues, which could give rise to legal or regulatory action, damage to our reputation, or harm to our business.

In addition, our competitors may be more effective at using AI in their operations, products and services, which may put us at a competitive disadvantage.

Risks Relating to Our Foreign Operations

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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.

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

The conflict in the Middle East may cause shipping disruptions and increased transport costs that could have a material adverse effect on our ability to obtain components from our foreign suppliers and our financial results.

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 or very burdensome 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, geopolitical tensions, 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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• higher brand recognition across larger geographic regions;

• more comprehensive product features and functionality;

• more comprehensive product features and functionality, including, but not limited to, with respect to product security;

• longer-standing cooperative relationships with OEM and end-user customers;

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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.

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 marketed effectively 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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Our business and prospects depend to a significant degree upon the continuing contributions of our executive officers and key technical and other personnel.

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.

retaining qualified personnel.

Failure to attract and retain key personnel could result in our failure to execute our business strategy.

Risks Related to Economic and Market Conditions

Our consolidated operating results and financial condition may be adversely impacted by worldwide economic conditions and credit tightening.

Our consolidated operating results and financial condition may be adversely impacted by worldwide economic and credit conditions.

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.

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

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.

These risks associated with credit and debt are more pronounced for the parties with whom we do business and ourselves in the current high interest rate environment which has seen interest rates rise rapidly.

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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We expect this general trend of declining sales for many of our mature products to continue and the pace of the decline may accelerate.

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.

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.

Part of our strategy is to sell software applications and IoT solutions such as SmartSense by Digi, Ventus offerings and hardware bundled with 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.

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The results of an audit could have a material effect on our consolidated financial position, results of operations, or cash flows in the period or periods for which that determination is made.

Risks Relating to Our Industry

We are dependent on wireless communication networks owned and controlled by others.

Our revenue could decline if we are unable to deliver continued access to digital cellular wireless carriers that we depend on to provide sufficient network capacity, reliability and security to our customers.

Our financial condition could be impacted if our wireless carriers increase the prices of their services or suffer operational or technical failures.

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 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.

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.

It also could cause us to seek other sources of supply which may be more costly or which we may not be able to procure on a timely basis.

We also risk damage to any tooling, equipment or inventory at the supplier’s facilities.

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.

Natural disasters, wars and other events beyond our control could have material adverse impacts on our business.

Credit and Liquidity Risks

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.

On December 22, 2021, Digi entered into a third amended and restated credit agreement, which amended and restated the second amended and restated credit agreement entered into on November 1, 2021, 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").

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.

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.

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

On December 7, 2023, Digi entered into a credit agreement (the “Credit Agreement”) with BMO Bank N.A.

(“BMO”), as administrative and collateral agent, BMO Capital Markets Corp., BofA Securities, Inc.

and MUFG Bank, Ltd., as joint lead arrangers and joint bookrunners, and the several banks and other financial institutions or entities from time to time party thereto as lenders (the “Lenders”).

The Credit Agreement provides Digi with a senior secured credit facility (the “Credit Facility”).

The Credit Facility includes a $250 million senior secured revolving credit facility (the “Revolving Loan”), with an uncommitted accordion feature that provides for additional borrowing capacity of up to the greater of $95 million or one hundred percent of trailing twelve month adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA").

The Credit Facility also contains a $10 million letter of credit sublimit and $10 million swingline sub-facility.

Digi may use the proceeds of the Credit Facility in the future for general corporate purposes.

Digi borrowed a total of $215 million under the Credit Facility to repay all obligations and to pay related fees and expenses under the Third Amended and Restated Credit Agreement dated as of December 22, 2021 (the “Prior Credit Facility”), by and among Digi, as the borrower, BMO, as administrative agent and collateral agent, BMO Capital Markets Corp., as sole lead arranger and bookrunner, and the other lenders from time-to-time party thereto.

The Prior Credit Facility consisted of a $350 million term loan B secured loan and a $35 million revolving credit facility that included a $10 million letter of credit subfacility and $10 million swingline subfacility.

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.

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such default may have a material adverse effect on our business, financial condition, operating results or cash flows.

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.

The 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.

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This loss would be recorded in our consolidated statements of operations, which could materially adversely impact our consolidated results of operations and financial condition.

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 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.

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.

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

Any of these factors could result in increased costs and loss of revenue for us.

The costs we would incur to address and fix these incidents could significantly increase our expenses.

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.

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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Government and Political Risks

Our inability to obtain the appropriate telecommunications carrier certifications or approvals from governmental regulatory bodies could impede our ability to grow revenue in our wireless products.

Our inability to obtain the appropriate telecommunications carrier certifications or approvals from governmental regulatory bodies as well as reconfiguration of communications protocols such as radio bands could impede our ability to grow revenue in our wireless products.

The sale of our wireless products in certain geographical markets is sometimes dependent on the ability to gain telecommunications carrier certifications and/or approvals by certain governmental bodies.

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 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 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.

Certain products rely on the current configuration of radio bands by FCC or other governmental regulatory bodies could require the redsign of existing and future products, which could have an adverse impact on our business.

Our failure to comply effectively with the requirements of applicable environmental, data privacy and security legislation and regulation could have a material adverse effect on our revenue and profitability.

Production, sale and marketing of products and services in certain states and countries may subject us to environmental, data privacy and security regulations.

For example, 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 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.

In addition, data privacy and security regulations have been enacted by both foreign governments and certain states in the US, such as GDPR and CCPA.

In the future, various governments may adopt further environmental, data privacy and security 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 and services in jurisdictions where these regulations apply or subject us to fines or penalties, which could have a material adverse effect on our revenue and profitability.

Risks Related to Our Common Stock

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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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Our market value is dependent upon certain factors, including continued future growth of our products, services and solutions.

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.

could result in an impairment of our goodwill.

As discussed in other risk factors, there could be circumstances beyond our control that could exacerbate the conditions that would lead to such an impairment.

Risks Relating to Our Industry

We are dependent on wireless communication networks owned and controlled by others.

Our financial condition could be impacted if our wireless carriers increase the prices of their services or suffer operational or technical failures.

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.

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.

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.

It also could cause us to seek other sources of supply which may be more costly or which we may not be able to procure on a timely basis.

We also risk damage to any tooling, equipment or inventory at the supplier’s facilities.

For instance, flooding in October 2011 and a fire in November 2014 disrupted the operations at one of our contract manufacturers in Thailand.

Natural disasters, wars and other events beyond our control could have material adverse impacts on our business.

UNRESOLVED STAFF COMMENTS

CYBERSECURITY

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What changed 10-K

Item 1A. Risk Factors