What changed in this filing

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Item 1A. Risk Factors

2024-03-12 compared with 2023-03-10 · 44 added, 49 removed, 251 unchanged (27% of the section changed)

The following risks and uncertainties may have a material affect on our business, prospects, financial condition, results of operations, and cash flows, and should be considered in connection with the other information contained in this Annual Report on Form 10-K.

The following risks and uncertainties may have a material effect on our business, prospects, financial condition, results of operations, and cash flows, and should be considered in connection with the other information contained in this Annual Report on Form 10-K.

If any of the events described below were to actually occur, our business, prospects, financial condition, results of operations, or cash flows could be adversely affected, and results could differ materially from expected and historical results.

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Risks Related to Our Operations

Pandemics, epidemics, disease outbreaks and other public health crises, such as the COVID-19 pandemic, could materially adversely impact our business, financial condition, results of operations and cash flows.

Pandemics, epidemics or disease outbreaks in the U.S.

or globally, including the COVID-19 pandemic, have disrupted, and may in the future disrupt, our business, which could materially affect our results of financial condition, results of operations and cash flows.

Any such events may adversely impact our global supply chain and global manufacturing operations and cause us to again suspend our operations in countries and states where we operate.

In particular, we have experienced, and could continue to experience, among other things:

(1) global supply disruptions, especially in China;

(2) labor disruptions;

(3) an inability to manufacture;

(4) an inability to sell and distribute our products to our customers;

(5) a decline in customer demand during and following the pandemic, whether as a result of our inability to satisfy customer demand in a timely manner due to raw material shortages, supply chain disruptions, inflationary cost pressures, or work stoppages experienced by one or more of our customers;

and (6) an impaired ability to access credit and the capital markets, especially in light of the rising interest rates.

Any new pandemic or other public health crises, or future public health crises, could have a material impact on our business, financial condition, results of operations and cash flows going forward.

To the extent any new pandemic or other public health crises adversely affects our business, financial condition, results of operation and cash flows, it may also have the effect of heightening other risks and uncertainties disclosed below.

We depend heavily on a relatively limited number of customers, and the loss of any major customer would have a material adverse effect on our business.

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We have a complex network of suppliers, owned and leased manufacturing locations, co-manufacturing locations, distribution networks, and information systems that support our ability to consistently provide our products to our customers.

Factors that are hard to predict or beyond our control, such as supply chain disruptions, weather, raw material shortages, natural disasters, fires or explosions, political unrest, terrorism, generalized labor unrest, or public health crises, such as the COVID-19 pandemic, could damage or disrupt our operations or our customers’, suppliers’, co-manufacturers’ or distributors’ operations.

Factors that are hard to predict or beyond our control, such as supply chain disruptions, weather, raw material shortages, natural disasters, fires or explosions, political unrest, terrorism, generalized labor unrest, including strikes at our suppliers, customers or end-users or public health crises could damage or disrupt our operations or our customers’, suppliers’, co-manufacturers’ or distributors’ operations.

These disruptions may require additional resources to restore our supply chain or distribution network.

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In addition, an open conflict or war across any region could affect our ability to obtain raw materials.

The current military conflict between Russia and Ukraine, and related sanctions, export controls or other actions that may be initiated by nations could adversely affect our business and our supply chain or our business partners or customers in other countries.

Although we currently do not source raw materials directly from Russia or Ukraine, if we are unable to source our products from the countries where we wish to purchase them, either because of the occurrence or threat of wars or other conflicts, regulatory changes or for any other reason, or if the cost of doing so increases, it could have a material adverse effect on our business, financial condition and results of operations.

The military conflicts (including the Russia/Ukraine conflict, the conflict in Israel and surrounding areas, and the Houthi movement in Yemen and the surrounding Red Sea region), and related sanctions, export controls or other actions that may be initiated by nations could adversely affect our business and our supply chain or our business partners or customers in other countries.

If we are unable to source our products from the countries where we wish to purchase them, either because of the occurrence or threat of wars or other conflicts, regulatory changes or for any other reason, or if the cost of doing so increases, it could have a material adverse effect on our business, financial condition and results of operations.

Disruptions in the supply of raw materials and components could temporarily impair our ability to manufacture our products for our customers or require us to pay higher prices to obtain these raw materials or components from other sources, which could have a material adverse effect on our business and our results of operations.

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In addition to the cost of fixing the parts affected by the component, a recall could result in the loss of a portion of or all of the customer’s business and damage our reputation.

A successful product recall claim requiring that we bear a substantial part of the cost of correction or the loss of a key customer could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.

A successful product

recall claim requiring that we bear a substantial part of the cost of correction or the loss of a key customer could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.

Our markets are highly competitive, and many of our competitors have significant advantages that could adversely affect our business.

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In addition, our customers may choose to purchase products from one of our competitors rather than pay the prices we seek for our products, which could adversely affect our business, prospects, financial condition, results of operations, or cash flows.

Any loss of key personnel and the inability to attract and retain qualified employees could have a material adverse impact on our operations.

The loss of key personnel and the inability to attract and retain qualified employees could have a material adverse impact on our operations.

We are dependent on the continued services of key executives and personnel.

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If we are unable to attract and retain qualified individuals or our costs to do so increase significantly, our operations would be materially adversely affected.

Any security breach or disruption to our information technology systems could materially adversely affect our business, financial condition, results of operations, and reputation.

A security breach or disruption to our information technology systems could materially adversely affect our business, financial condition, results of operations, and reputation.

We rely on proprietary and third-party information technology systems to process, transmit and store information and to manage or support our business processes.

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Our third-party service providers could also be the source of a cybersecurity attack on, or breach of, our information technology systems.

Techniques used in cybersecurity attacks to obtain unauthorized access, disable or sabotage information technology systems change frequently, as data breaches and other cybersecurity events have become increasingly commonplace, including as a result of the intensification of state-sponsored cybersecurity attacks during periods of geopolitical conflict, such as the ongoing conflict in Ukraine.

The security measures put in place by us and our service providers cannot provide absolute security and there can be no assurance that we or our service providers will not suffer a data security incident in the future, that unauthorized parties will not gain access to sensitive information stored on our or our service providers’ systems, that such access will not, whether temporarily or permanently, impact, interfere with, or interrupt our operations, or that any such incident will be discovered in a timely manner.

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Although impacts of past events have been immaterial, the impacts of such events in the future may materially and adversely affect our business, financial condition, or results of operations.

Our international operations and business, financial condition, and prospects may be adversely affected by the current military conflict between Russia and Ukraine, other future social and geopolitical instability and resulting domestic and foreign economic instability.

We are exposed to the risk of changes in social, geopolitical, legal, and economic conditions.

The global economy has been, and may continue to be, negatively impacted by Russia’s invasion of Ukraine.

As a result of Russia’s invasion of Ukraine, the

United States, the European Union, the United Kingdom, and other G7 countries, among other countries, have imposed substantial financial and economic sanctions on certain industry sectors and parties in Russia.

Broad restrictions on exports to Russia have also been imposed.

These measures include:

(i) comprehensive financial sanctions against major Russian banks;

(ii) additional designations of Russian individuals with significant business interests and government connections;

(iii) designations of individuals and entities involved in Russian military activities;

and (iv) enhanced export controls and trade sanctions limiting Russia’s ability to import various goods.

The negative impacts arising from the conflict and these sanctions and export restrictions, including those imposed by Russia, may include reduced consumer demand, supply chain disruptions and increased costs for transportation, energy, and raw materials.

Although none of our operations are physically located in Russia or Ukraine, further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which may adversely affect our business, financial condition, results of operations and prospects.

Pandemics, epidemics, disease outbreaks and other public health crises could materially adversely impact our business, financial condition, results of operations and cash flows.

Pandemics, epidemics or disease outbreaks in the U.S.

or globally have disrupted, and may in the future disrupt, our business, which could materially affect our results of financial condition, results of operations and cash flows.

Any such events may adversely impact our global supply chain and global manufacturing operations and cause us to again suspend our operations in countries and states where we operate.

In particular, we have experienced, and could continue to experience, among other things:

(1) global supply disruptions, especially in China;

(2) labor disruptions;

(3) an inability to manufacture;

(4) an inability to sell and distribute our products to our customers;

and (6) an impaired ability to access credit and the capital markets, especially in light of the rising interest rates.

Any new pandemic or other public health crises, or future public health crises, could have a material impact on our business, financial condition, results of operations and cash flows going forward.

Physical effects of climate change or legal, regulatory or market measures intended to address climate change could materially adversely affect our business and operations.

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Such developments could result in increased compliance costs and adverse impacts on raw material sourcing, manufacturing operations, and the distribution of our products, which could adversely affect our business and operations.

If we are unable to secure and maintain patent or other intellectual property protection for our intellectual property, our ability to compete will be harmed.

We rely upon patents, copyrights, trademarks, and trade secret laws to establish and maintain its proprietary rights for various trade names .

There can be no assurance that any of our patents, trademarks or other intellectual property rights will not be challenged, invalidated, or circumvented, or that any rights granted thereunder will provide competitive advantages to us.

In addition, there can be no assurance that patents will be issued from pending patent applications filed by us or that claims allowed on any future patents will be sufficiently broad to protect us from infringement.

Further, the laws of some foreign countries may not permit the protection of our proprietary rights to the same extent as do the laws of the U.S.

Risks Related to Legal and Regulatory Compliance

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New laws and regulations, including those which may relate to emissions of greenhouse gases, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.

Our medical devices are subject to regulation by numerous government agencies, including the Food and Drug Administration (“FDA”) and comparable agencies outside the U.S.

To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our medical devices.

Some of the medical devices that we produce may be subject to regulation by numerous government agencies, including the Food and Drug Administration (“FDA”) and comparable agencies outside the U.S.

To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of medical devices.

We cannot guarantee that we will be able to obtain marketing clearance for our new products or enhancements or modifications to existing products.

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• result in limitations on the proposed uses of our products.

Both before and after a product is commercially released, we have ongoing responsibilities under FDA regulations.

We are also subject to periodic inspections by the FDA to determine compliance with the FDA’s requirements, including primarily the quality system regulations and medical device reporting regulations.

We are subject to periodic inspections by the FDA to determine compliance with the FDA’s requirements, including primarily the quality system regulations and medical device reporting regulations.

The results of these inspections can include inspectional observations on FDA’s Form-483, warning letters, or other forms of enforcement.

Since 2009, the FDA has significantly increased its oversight of companies subject to its regulations, including medical device companies, by hiring new investigators and stepping up inspections of manufacturing facilities.

The FDA has also significantly increased the number of warning letters issued to companies.

If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize adulterated or misbranded medical devices, order a recall, repair, replacement or refund of such devices, refuse to grant pending pre-market approval applications or require certificates of foreign governments for exports, and/or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health.

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Our indebtedness could adversely affect our business, prospects, financial condition, results of operations, or cash flows.

As of December 31, 2022, we had $157.1 million of indebtedness outstanding and $35.3 million available for future borrowings under our asset backed credit facility (the “ABL Facility”).

The principal amount outstanding under our term loan facility (the “Term Loan Facility”) as of December 31, 2023, was $148.1 million, and based on the interest rate then in effect, annual cash interest payments would be approximately $18.3 million, with an additional $2.9 million accrued as paid-in-kind interest.

In addition, we have $26.4 million available for future borrowings under our asset backed credit facility (the “ABL Facility”).

Our debt obligations could have important consequences, including:

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In addition, the covenants in our debt agreements require us to meet specified financial ratios and satisfy other financial condition tests.

Our ability to meet those financial ratios and tests will depend on our ongoing financial and operating performance, which, in turn, will be subject to economic conditions and to financial, market, and competitive factors, many of which are beyond our control.

which are beyond our control.

A breach of any of these covenants could result in a default under one or more of our debt agreements and permit our lenders to cease making loans to us under our credit facility (as defined below) or to accelerate the maturity date of the indebtedness incurred thereunder.

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We cannot assure you that we will be successful in identifying attractive acquisition candidates or completing acquisitions on favorable terms in the future.

In addition, we may borrow funds or issue equity to acquire other businesses, increasing our interest expense and debt levels or diluting our existing stockholders’

ownership interest in us.

In addition, we may borrow funds or issue equity to acquire other businesses, increasing our interest expense and debt levels or diluting our existing stockholders’ ownership interest in us.

Our inability to acquire businesses, or to operate them profitably once acquired, could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

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Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact our business, prospects, financial condition, results of operations, or cash flows.

Additionally, we incurred a significant amount of debt in connection with our acquisitions in the past few years.

Finally, in relation to such acquisitions, we have significantly higher amounts of intangible assets.

These intangible assets will be subject to impairment testing, and we could incur a significant impact to our financial statements in the form of an impairment if assumptions and expectations related to our acquisitions are not realized.

The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and may result in unexpected liabilities.

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Our participation in joint ventures could expose us to additional risks from time to time.

We currently have a 49% investment in a Chinese joint venture and may participate in additional joint ventures from time to time.

We currently have a 49% investment in a Chinese joint venture (the “JV”) and may participate in additional joint ventures from time to time.

Our participation in joint ventures is subject to risks that may not be present with other methods of ownership, including:

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tax laws, tax rulings, or interpretations of existing laws could materially affect our business, cash flow, results of operations, and financial condition.

Unresolved Staff Comments

We currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the Federal Deposit Insurance Corporation (“FDIC”), and the loss of such assets could have a severe negative affect on our operations and liquidity.

On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver.

Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp.

were each swept into receivership.

A statement by the Department of the Treasury, the Federal Reserve and the FDIC stated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts.

Although we do not have any funds deposited with SVB or Signature Bank, we currently have our cash and cash equivalents held in deposit in accounts at certain FDIC-insured financial institutions, some of which include amounts in excess of the insurance coverage offered by the FDIC.

In the future, we may maintain our cash and cash equivalents at financial institutions in the United States in amounts that may be in excess of the FDIC insurance limit of $250,000.

Though to date, we have experienced no loss or lack of access to cash in our operating accounts, in the event of a failure of any of these financial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds the FDIC insurance limitation, which could have a material adverse effect upon our liquidity, financial condition and our results of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors