What changed in this filing

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Item 1A. Risk Factors

2021-03-01 compared with 2020-02-26 · 117 added, 122 removed, 351 unchanged (41% of the section changed)

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These risk factors may not include all of the important factors that could affect our business or that could cause our future financial results to differ materially from historical or expected results or cause the market price of our common shares to fluctuate or decline.

Risks Relating to our Business

Risks Relating to O ur Business

Our results of operations could be adversely affected by economic and political conditions and the effects of these conditions on our customers’ businesses and levels of business activities.

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A severe and/or prolonged overall economic downturn or a negative or uncertain political climate could lead to weaknesses in our end markets and adversely affect our customers’ financial condition and the timing or levels of business activity of our customers and the industries we serve.

In particular, diminished growth expectations, economic and political uncertainty in Europe as Britain negotiates the terms of its withdrawal from the EU, and ongoing related negotiations, as well as political and economic uncertainty in the U.S.

adversely impacted our customers’ financial condition and ability to maintain product order levels, and have reduced the demand for our products in 2019.

Continued or worsening conditions in these or other markets could further reduce the demand for our products or depress pricing for our products and have a material adverse effect on our results of operations.

In particular, diminished growth expectations, economic and political uncertainty in regions across the globe and effects of the COVID-19 pandemic have adversely impacted our customers’ financial condition and ability to maintain product order levels and reduced the demand for our products in 2020.

Continued or worsening conditions could further reduce the demand for our products or depress pricing for our products and have a material adverse effect on our results of operations.

Changes in global economic conditions could also shift demand for products or services for which we do not have competitive advantages.

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In addition, if we are unable to successfully anticipate changes in economic and political conditions, we may be unable to effectively plan for and respond to those changes, and our business could be negatively affected.

The COVID-19 pandemic has adversely impacted and is expected to further adversely impact our business and results of operations.

In 2020, a strain of novel coronavirus disease, COVID-19, was declared a pandemic and spread across the world.

The outbreak and government measures taken in response have had a significant adverse impact, both direct and indirect, on our businesses and the economy.

We have experienced weakened demand from certain customers in the advanced industrial and medical end-markets, which has adversely affected and is expected to continue to adversely affect our revenues.

For example, healthcare providers have deferred elective medical procedures in order to focus on combatting the pandemic, which has significantly reduced demand for certain of our medical products.

Certain other customers have delayed their research and development programs, which has negatively affected the demand for some of our products.

If these trends continue, our revenues will continue to be negatively impacted.

We also faced difficulty sourcing some materials and components necessary to fulfill production requirements and meeting scheduled shipments due to shipping and transportation disruptions.

If these disruptions were to continue or worsen, our ability to manufacture our products or meet our customers’ schedules may be adversely affected and our business would be harmed.

Even if we are able to find alternate sources of supply for such materials or components, they may cost more or be of lower quality, which could affect our profitability, financial condition and business.

While the impact of the pandemic on our manufacturing capabilities and research and development activities has been limited to date, there can be no assurance that our ability to manufacture our products and to develop new products and technologies will not be disrupted in the future, due to sickness of employees, mandatory stay-at-home orders, travel restrictions, social distancing practices, supply interruptions or other potential disruptions.

We have also faced, and may face in the future, limitations on our employee resources as a result of various causes, including stay-at-home orders from local governments, sickness of employees or their families, or the desire of employees to avoid contact with large groups of people.

The pandemic has also diverted management resources and the prolonged work-from-home arrangements have increased business continuity and cybersecurity risks.

The COVID-19 pandemic continues to evolve.

The extent to which the outbreak impacts our business, liquidity and financial results will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the continued geographic spread of the disease, the duration of the pandemic, the location, duration and magnitude of future waves of infection, new mutations of the virus, delays in vaccine rollout, the effectiveness of vaccines against the virus and its mutations, travel restrictions and social distancing in the United States, the European Union, China and other countries, the duration and extent of business closures or business disruptions and the effectiveness of actions taken to contain and treat the disease.

If we or our customers experience prolonged shutdowns or other business disruptions in the future, our ability to conduct our business in the manner and within planned timelines could be materially adversely impacted, and our business and financial results may continue to be adversely affected.

Additionally, concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial and other capital markets.

There is no assurance that future resurgence of COVID-19 infections and further economic downturns will not cause volatilities in the capital markets, which may adversely impact our stock price and our ability to access capital markets, such as what occurred in March and April 2020.

Our business depends significantly upon our customers’ capital expenditures, which are subject to cyclical market fluctuations.

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We have experienced significant cyclical end market fluctuations in the past.

For example, in 2019, our sales into the advanced industrial end market declined as a result of a wide spread downturn in this end market that is continuing.

For example, in 2019 and 2020, our sales into the advanced industrial end market declined as a result of a widespread downturn in this end market that is continuing.

We cannot predict when slowdowns will recur or that the impact of such slowdowns will be more or less significant compared to historical fluctuations.

Our business success depends upon our ability to respond to fluctuations in product demand, but doing so may require us to incur costs despite limited visibility toward future business declines.

Our business success depends upon our ability to respond to fluctuations in product demand, but doing so may require us to incur costs despite limited visibility into future business declines.

During a period of increasing demand and rapid growth, we must be able to increase manufacturing capacity quickly.

Our inability to quickly increase production in response to a surge in demand could prompt customers to look for alternative sources of supply or leave our customers without a supply, both of which events could harm our reputation and make it difficult for us to retain our existing customers or to obtain new customers and have a material adverse effect on our business.

In periods of weak demand, we may be required to reduce costs while maintaining the ability to motivate and retain key employees at the same time.

In periods of weak demand, such as the recent environment, we have been, and may in the future be, required to reduce costs while maintaining the ability to motivate and retain key employees at the same time.

Additionally, to remain competitive, we must continually invest in research and development, which may inhibit our ability to reduce costs in a down cycle.

Long product lead-times create a risk that we may purchase or manufacture inventories of products that we are unable to sell.

Long product lead-times create a risk that we may purchase inventories or manufacture products that we are unable to sell.

The success of our business depends on our ability to continuously innovate and to manage transitions to new product innovations.

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changing product specifications and customer requirements;

inability to manufacture new products cost effectively;

difficulties in reallocating engineering resources and overcoming resource limitations;

changing market or competitive product requirements;

unanticipated engineering complexities;

changing market or competitive product requirements;

difficulties in reallocating engineering resources and overcoming resource limitations;

inability to manufacture new products cost effectively.

New products often take longer to develop, may have fewer features than originally considered desirable, and may have higher costs than initially estimated.

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fluctuations in our customers’ businesses;

decisions by customers to reduce their purchases of our products;

timing and recognition of revenues from customer orders;

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availability of parts from our suppliers and the manufacturing capacity of our subcontractors;

decisions by customers to reduce their purchases of our products;

changes in the prices of our products or of our competitors’ products;

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For instance, a customer that placed a large order in one period could subsequently experience a downturn in business and, as a result, could cancel an order or reduce the amount of products it purchases from us in future periods.

D elay s in shipment s near the end of a reporting period due to rescheduling or cancellation by customers or unexpected production delays experienced by us may cause revenue in the period to decline significantly and may have a material adverse effect on our operating results for that period.

Delays in shipments near the end of a reporting period due to rescheduling or cancellation by customers or unexpected production delays experienced by us may cause revenue in the period to decline significantly and may have a material adverse effect on our operating results for that period.

In addition, we or our competitors may raise or lower prices of products in response to market demands or competitive pressures.

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If we were to experience a significant period of disruption in information technology systems that involve our interactions with customers or suppliers, it could result in the loss of revenue and customers as well as significant response and mitigation costs, which would adversely affect our business.

In addition, security breaches of our information technology systems could result in the misappropriation or unauthorized disclosure of confidential information belonging to us or to our employees, partners, customers or suppliers, which could result in significant financial or reputational damage to us, as well as litigation, regulatory enforcement action, or other liability risks that could lead to substantial damages, fines, penalties and legal costs.

In addition, security breaches of our information technology systems could result in the misappropriation or unauthorized disclosure of confidential information belonging to us or to our employees, partners, customers or suppliers, which could result in significant financial or reputational damage to us, as well as litigation, regulatory enforcement actions, or other liabilities that could lead to substantial damages, fines, penalties and legal costs.

We also expend substantial amounts to protect our information technology systems, and if we were to experience a significant breach in security of our information technology systems, we may need to materially increase such expenditures, which would adversely affect our results of operations.

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and around the world, some of which place restrictions on our ability to process personal data across our business.

In particular, the General Data Protection Regulation (the “GDPR”), which became effective in May 2018, has caused more stringent data protection requirements in the EU.

In particular, the General Data Protection Regulation (the “GDPR”), which became effective in May 2018, has caused more stringent data protection requirements in the EU and the European Economic Area (“EEA”).

The GDPR imposes onerous accountability obligations requiring data controllers and processors to maintain a record of their data processing and implement policies as part of its mandated privacy governance framework.

It also requires data controllers to be transparent and disclose to data subjects how their personal information is to be used;

It also requires data controllers to be transparent and disclose to data subjects how their personal data is to be used;

imposes limitations on retention of personal data;

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In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease/change our use of data, enforcement notices, as well as potential civil claims, including class action type litigation where individuals suffered harm.

Relatedly, following the United Kingdom’s withdrawal from the EEA and the EU, and the expiration of the transition period, from January 1, 2021, companies have to comply with both the GDPR and the GDPR as incorporated into United Kingdom national law, the latter regime having the ability to separately fine up to the greater of £17.5 million or 4% of global revenue.

On January 1, 2021, the United Kingdom became a third country for the purposes of the GDPR.

Similarly, California has enacted the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020.

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The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.

The CCPA may increase our compliance costs and potential liability.

Additionally, the California Privacy Rights Act (the “CPRA”) was recently enacted in California.

The CPRA will impose additional data protection obligations on covered companies doing business in California, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data.

It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement.

The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required.

The CCPA and CPRA may increase our compliance costs and potential liability.

Many similar laws have been proposed at the federal level and in other states.

Any liability from our failure to comply with the requirements of these laws could adversely affect our financial condition and results of operations.

We have invested, and continue to invest, human and technology resources in our GDPR compliance efforts and our data privacy compliance efforts in general.

We have invested, and continue to invest, human and technology resources in our GDPR and CCPA compliance efforts and our data privacy compliance efforts in general.

These compliance efforts may be time-intensive and costly.

Despite those efforts, there is a risk that we may be subject to fines and penalties, litigation and reputational harm if we fail to protect the privacy of third party data or to comply with the GDPR or other applicable regimes.

As we transact a portion of our sales, and maintain significant cash balances, in foreign currencies, changes in interest rates, credit ratings or foreign currency rates could have a material adverse effect on our financial position, results of operations, and cash flows.

A portion of our revenue is derived from our European and Asian operations and includes transactions in Euros, British Pounds and Japanese Yen, while our products are mainly manufactured in the U.

S., the U.K., Germany and China.

Changes in foreign currency rates could have a material adverse effect on our financial position, results of operations, and cash flows.

A portion of our revenue is derived from our European and Asian operations and includes transactions in Euros, British Pounds and Japanese Yen, while our products are mainly manufactured in the U.S., the U.K., Germany and China.

In the event of a decline in the value of the Euro, British Pounds or Japanese Yen, we would typically experience a decline in our revenues and profit margins.

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While we use foreign currency contracts and other risk management techniques to hedge our foreign currency exposure, we cannot be certain that our efforts will be adequate to protect us against significant foreign currency fluctuations or that such efforts will not expose us to additional exchange rate risks.

Our reliance on international operations in foreign countries subjects us to risks not typically faced by companies operating exclusively in the U.S.

Our reliance on international operations subjects us to risks not typically faced by companies operating exclusively in the U.S.

During the year ended December 31, 2020, approximately 62% of our revenues were from customers outside of the U.S.

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problems with staffing and managing foreign operations in diverse cultures;

trade tariffs;

trade barriers and export/import controls;

trade tariffs, trade barriers and export/import controls;

transportation delays and interruptions;

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Such representatives or agents are not our employees and it may be more difficult to oversee their conduct, which may increase the risk of violations of anti-bribery laws.

Our facilities or operations could be adversely affected by events outside of our control, such as health epidemics.

We may be impacted by health epidemics or other events outside of our control.

For example, beginning in late 2019, a strain of novel coronavirus surfaced in China.

In January 2020, the World Health Organization declared the novel coronavirus outbreak a “Public Health Emergency of International Concern,” prompting precautionary government-imposed travel restrictions and temporary closures of business operations.

We have manufacturing, sales, and service offices in China and has significant direct and indirect customer exposure and supply chain exposure to the China market.

Our facility in Suzhou, China was closed for a brief period of time as a result of a local government mandate, before it reopened in February 2020.

The business interruption has negatively impacted our near-term results and may negatively impact our long-term results, depending on the length of the disruption.

These disruptions have come in the form of part shortages related to our supply chain, labor shortages, and disruptions in demand from our customers in and outside of China, which will negatively affect our revenue and profitability.

At this point in time, there is significant uncertainty

relating to the extent of the impact of the novel coronavirus on our business and potential impacts on our business in the future.

Infections may become more widespread, including to other countries where we have operations, and factory closures and travel restrictions may remain or worsen, all of which would worsen the negative impact on our business, financial condition and results of operations .

Increased outsourcing of components manufacturing to manufacturers outside the U.S.

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Increases in tariffs, trade restrictions or taxes on our products could have an adverse impact on our operations.

During the year ended December 31, 2019, approximately 59% of our revenues were from customers outside of the U.S.

We also manufacture certain of our products and purchase a portion of our raw materials and components from suppliers in China and other foreign countries.

The commerce we conduct in the international marketplace makes us subject to tariffs, trade restrictions and other taxes when the raw materials or components we purchase, and the products we ship, cross international borders.

Our sales channels and supply chain in the international marketplace make us subject to tariffs, trade restrictions and other taxes when the raw materials or components we purchase, and the products we sell, cross international borders.

Trade tensions between the U.S.

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exports to China.

Certain of the raw materials and components we purchase from China are or were subject to these tariffs, which has increased our manufacturing costs and could make our products less competitive than those of our competitors whose inputs are not subject to these tariffs.

Certain of the raw materials and components we purchase from China are or were subject to these tariffs, which have increased our manufacturing costs and have made our products less competitive than those of our competitors whose inputs are not subject to these tariffs.

Certain of our finished products manufactured in the U.S.

have been and may in the future be subject to retaliatory tariffs in China, which increases our cost and makes our products less competitive than those of our competitors whose products are not subject to such retaliatory tariffs.

In addition, the U.S.

administration previously threatened to impose tariffs on all products imported from China, which would impact all of our products and supplies imported from China to the U.S.;

and the Chinese government threatened to levy additional retaliatory tariffs on U.S.

manufactured goods.

If these were to occur, we may not be able to mitigate the impacts of these tariffs, and our business, results of operations and financial position would be materially adversely affected.

Products we sell into certain other foreign markets could also become subject to similar retaliatory tariffs, making our products uncompetitive to similar products not subjected to such import tariffs.

Although a temporary agreement has been reached between the U.S.

and Chinese governments to cease further escalation of trade tariffs, there is no guarantee that any of the existing tariffs will be repealed or reduced.

have been and may in the future be subject to retaliatory tariffs in China, which increase our cost and make our products less competitive than those of our competitors whose products are not subject to such retaliatory tariffs.

If heightened tariffs were to be imposed in the future, we may not be able to mitigate the impacts of such tariffs, and our business, results of operations and financial position could be materially adversely affected.

Products we sell into certain other foreign markets could also become subject to retaliatory tariffs, making our products uncompetitive to similar products not subjected to such import tariffs.

Further changes in U.S.

trade policies, tariffs, taxes, export restrictions or other trade barriers, or restrictions on raw materials or components may limit our ability to produce products, increase our manufacturing costs, decrease our profit margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase raw materials or components, which would have a material adverse effect on our business, results of operations and financial condition.

The U.K.’s withdrawal from the EU and the actions of the current U.S.

government may have a negative effect on global economic conditions, financial markets and our business, which could reduce the price of our common shares.

The U.K.’s withdrawal from the EU may have a negative effect on global economic conditions, financial markets and our business, which could reduce the price of our common shares.

We are a multinational company with worldwide operations, including business operations in the U.K., Germany and China.

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government, the U.K.

withdrew from the European Union on January 31, 2020 and entered into a transition period during which it will continue its ongoing and complex negotiations with the European Union relating to the future trading relationship between the parties.

Significant political and economic uncertainty remains about whether the terms of the relationship will differ materially from the terms before the withdrawal, as well as about the possibility that a so-called “no deal” separation will occur if negotiations are not completed by the end of the transition period.

These developments in turn may increase our costs and inhibit our sales of products, mobility of our personnel and our access to capital.

The policies of the current U.S.

government regarding U.S.

trade, tax and health care policies, among other things, have led to substantial uncertainty in global financial markets.

The current U.S.

government has withdrawn the U.S.

from the Trans-Pacific Partnership trade agreement, has re-negotiated the North American Free Trade Agreement (“NAFTA”) and has made various comments suggesting the possible re-negotiation of, or withdrawal from, other trade agreements, has imposed significant tariffs on imports from China and other countries, and has suggested the potential imposition of other significant new import barriers.

The current U.S.

government has also enacted comprehensive tax law reform and attempted to repeal the U.S.

Patient Protection and Affordable Care Act (the “PPACA”), and may continue to seek repeal of the PPACA.

These developments and the lack of clarity regarding future U.S.

tax, trade and health care policies have created significant uncertainty that could have a material adverse effect on global economic conditions and the stability of global financial markets.

Any major changes in these policies could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our common shares.

Because of the global nature of our business, and our strategy to increase our sales to the medical market, our business may be particularly impacted by any major changes in U.S.

trade, tax and health care policies.

withdrew from the European Union on January 31, 2020 and entered into a transition period.

On December 24, 2020, the UK and the EU announced that they had concluded their negotiations relating to their future trading relationship.

The agreed terms are contained in the EU—UK Trade and Cooperation Agreement (“TCA”), which became binding on both the EU and the UK on January 1, 2021.

While agreement on the

terms of the TCA has avoided a “no deal” Brexit scenario, and provides in principle for quota and tariff-free trading of goods, it is nevertheless expected that the TCA will result in the creation of non-tariff barriers (such as increased shipping and regulatory costs and complexities) to the trade in goods between the UK and the EU.

Further, the TCA does not provide for the continued free movement of services between the UK and the EU and imposes additional restrictions on the free movement of people between the UK and the EU.

The TCA also grants to each of the UK and the EU the ability, in certain circumstances, to unilaterally impose tariffs on one another.

In the event of such an imposition, any additional tariffs may have a material adverse impact on us as well as the stability of UK-EU trade more generally.

Any uncertainty as to UK or EU government policies and, in particular, whether any such policy may result in the imposition of reciprocal tariffs, may depress economic activity or have an adverse impact on our business and operations.

It remains to be seen whether the initial implementation of, and adjustment of UK-EU trading processes for, the TCA could increase our costs or otherwise negatively impact our sales of products, mobility of our personnel and our access to capital.

Others may violate our intellectual property rights and cause us to incur significant costs to protect our rights.

Our future success depends in part upon our intellectual property rights, including patents, trade secrets, know-how and continuing technological innovation.

Our future success depends in part upon the protection of our intellectual property rights, including patents, trade secrets, know-how and continuing technological innovation.

We do not have personnel dedicated to the oversight, organization and management of our intellectual property.

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It is possible that, despite our efforts, other parties may use, obtain or try to copy our technology and products.

There can be no assurance that other companies are not investigating or developing other technologies similar to ours, that any patents will be issued from any application filed by us, or that, if patents are issued, the claims allowed will be sufficient to deter or prohibit others from marketing similar products.

There can be no assurance that other companies are not investigating or developing other technologies similar to ours, that any patents will be issued from any applications filed by us, or that, if patents are issued, the claims allowed will be sufficient to deter or prohibit others from marketing similar products.

In addition, our patents may be challenged, invalidated or circumvented in a legal or administrative proceeding.

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Adverse consequences may also apply if we fail to avoid or successfully defend litigation for infringement or misappropriation of proprietary rights of third parties.

If a successful claim were brought against us and we were found to have infringed a third-party’s intellectual property rights, we could be required to pay substantial amounts for damages or be enjoined from using the technology deemed to be infringing, or from using, making or selling products deemed to be infringing, any of which could adversely affect our operating results.

We could be required to pay substantial amounts for damages or be enjoined from using the technology deemed to be infringing, or from using, making or selling products deemed to be infringing, any of which could adversely affect our operating results.

If we have supplied infringing products to third parties, we may be obligated to indemnify these third parties for any damages that they may be required to pay to the patent holder and for any losses that they may sustain as a result of the infringement.

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As part of our business strategy, we expect to broaden our product and service offerings by acquiring businesses, technologies, assets and product lines that, we believe, complement or expand our existing businesses.

In recent years, we have made a number of acquisitions, including the acquisitions of ARGES, Med X Change, Ingenia, Zettlex, WOM, Laser Quantum and ThingMagic, and we expect to continue to make acquisitions in the future.

In recent years, we have made a number of acquisitions, including the acquisitions of ARGES GmbH, Med X Change,Inc., Ingenia-CAT, S.L., and Zettlex Holdings Limited, and

we expect to continue to make acquisitions in the future.

We may fail to successfully identify appropriate acquisition candidates or integrate acquired businesses, products, technologies or personnel into our businesses and, as a result, may fail to realize the synergies, cost savings and other benefits expected from the acquisitions.

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Such revenues and profitability may even decline as we integrate operations into our businesses.

If revenues of acquired businesses decline or grow more slowly than we anticipate, or if their operating expenses are higher than we expect, we may not be able to sustain or increase their

profitability, in which case our financial condition will suffer and our stock price could decline.

If revenues of acquired businesses decline or grow more slowly than we anticipate, or if their operating expenses are higher than we expect, we may not be able to sustain or increase their profitability, in which case our financial condition will suffer and our stock price could decline.

In addition, through our acquisitions, we may assume liabilities, losses or costs for which we are not indemnified or insured or for which our indemnity or insurance is inadequate.

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The inability to successfully transition key management roles could have a material adverse effect on our operating results.

We have undertaken restructuring and realignment activities in the past, and we will continue to assess our operating structure in the future.

We have undertaken restructuring and realignment activities in the past, and we will continue to assess our operating and cost structure in the future.

These actions may not improve our financial position, and may ultimately prove detrimental to our operations and sales.

We have undertaken restructuring and realignment activities in the past, and we will continue to assess our operating structure in the future.

Our ability to reduce operating expenses is dependent upon the nature of the actions we take to reduce expenses and our subsequent ability to implement those actions and realize expected cost savings.

We may need to take additional restructuring actions, such as eliminating or consolidating certain of our facilities or operations, reducing our headcount, or eliminating certain positions for a variety of reasons, including deterioration in global economic conditions or significant declines in demand for our products.

We have undertaken restructuring and realignment activities in the past, and we will continue to assess our operating and cost structure in the future.

Our ability to reduce operating expenses and improve gross margin is dependent upon the nature of the actions we take and our subsequent ability to implement those actions and realize expected cost savings and gross margin improvements.

We are taking, and may need to take in the future, additional restructuring actions, such as eliminating or consolidating certain of our facilities or operations, reducing our headcount, or eliminating certain positions.

Failure to successfully implement such restructuring activities could adversely affect our ability to meet customer demand for our products and could increase the cost of production versus our projections, both of which could adversely impact our operating results.

Further, expenses and cost inefficiencies associated with our restructuring activities, including severance costs and the loss of trained employees with knowledge of our business and operations, could exceed our expectations and negatively impact our financial results.

We are also taking actions to improve our price realization, reduce our overhead and cost of poor quality, and improve our material productivity.

Failure to successfully implement these actions could negatively impact our ability to achieve our gross margin goals.

Product defects or problems with integrating our products with other vendors’ products used by our customers may seriously harm our business and reputation.

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The production of our products requires a wide variety of raw materials, key components and other goods that are generally available from alternate sources of supply.

However, certain critical raw materials, key components and other goods required for the production of some of our principal products are available from limited or single source of supply.

However, certain critical raw materials, key components and other goods required for the production of some of our principal products are available from limited or a single source of supply.

If a single source supplier decides to stop producing a key component for us, or if the receipt of certain limited source or single source materials is otherwise delayed, our relationship with customers may be harmed if such decisions or delays cause us to miss our scheduled shipment deadlines.

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There can be no assurance that we will receive the required approvals for new products or modifications to existing products on a timely basis or that any approval will not be subsequently withdrawn or conditioned upon extensive post-market study requirements.

In addition, on April 5, 2017, the European Parliament passed the Medical Devices Regulation (the “MDR”) which repeals and replaces the EU Medical Devices Directive.

As the MDR becomes effective on May 25, 2020, new medical devices will have to meet requirements of the MDR in order to be placed in the European market after the effective date.

Devices holding a certificate from a European Notified Body under the Medical Device Directive (93/42/EEC) have an additional grace period and may continue to be placed on the market until May 26, 2024.

Unlike directives, which must be implemented into the national laws of the EU member states, the regulations are directly applicable (i.e., without the need for adoption of EU member state laws implementing them) in all EU member states and are intended to eliminate current differences in the regulation of medical devices among EU member states.

The MDR, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the European Economic Area (the “EEA”) for medical devices and in vitro diagnostic devices and ensure a high level of safety and health while supporting innovation.

The MDR will, however, only become applicable three years after publication.

Once applicable, the new regulations will, among other things:

In April 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals and replaces the EU Medical Devices Directive and the Active Implantable Medical Devices Directive.

Unlike directives, which must be implemented into the national laws of the member states of EEA, the regulations would be directly applicable, i.e., without the need for adoption of EEA member state laws implementing them, in all EEA member states and are intended to eliminate current differences in the regulation of medical devices among EEA member states.

The Medical Devices Regulation (“MDR”), among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation.

The MDR was meant to become applicable in May 2020.

However, on April 23, 2020, the European Council and Parliament postponed the effective date of the MDR to May 2021.

Once applicable, the MDR will among other things:

strengthen the rules on placing devices on the market and reinforce surveillance once they are available;

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strengthen rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.

We face uncertainties as the MDR is rolled out and enforced by the European Commission and EU competent authorities, creating risks in several areas including the CE Marking process and data transparency in the upcoming years.

We face uncertainties as the MDR is rolled out and enforced by the European Commission and E U competent authorities, creating risks in several areas including the CE Marking process and data transparency in the upcoming years.

The FDA and other worldwide regulatory agencies actively monitor compliance with local laws and regulations through review and inspection of design and manufacturing practices, recordkeeping, reporting of adverse events, labeling and promotional practices.

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The FDA may also enjoin and restrain a company for certain violations of the FDCA and regulations pertaining to medical devices, or initiate action for criminal prosecution of such violations.

Any adverse regulatory action, depending on its magnitude, may restrict a company from effectively marketing and selling its products, may limit a company's ability to obtain future premarket clearances or approvals, and could results in a substantial modification to the company's business practices and operations.

Any adverse regulatory action, depending on its magnitude, may restrict a company from effectively marketing and selling its products, may limit a company's ability to obtain future premarket clearances or approvals, and could result in a substantial modification to the company's business practices and operations.

International sales of medical devices manufactured in the U.S.

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Over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their products.

In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our

Any new statutes, regulations , or revisions or reinterpretations of existing regulations may impose additional costs , lengthen regulatory review time for , or make it more difficult to obtain approval for, the manufactur ing , market ing or distribut ion of our products.

In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products.

Any new statutes, regulations, or revisions or reinterpretations of existing regulations may impose additional costs, lengthen regulatory review time for, or make it more difficult to obtain approval for, the manufacturing, marketing or distribution of our products.

Such changes could, among other things, require additional testing prior to obtaining clearance or approval, changes to manufacturing methods, recall, replacement or discontinuance of our products, or require additional record keeping.

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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment from Medicare, Medicaid, or other third-party payors;

the federal Health Insurance Portability and Accountability Act of 1996, or HIPPA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

federal civil and criminal false claims laws, including the False Claims Act, and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment from Medicare, Medicaid, or other third-party payors;

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

HIPAA as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, which imposes certain requirements relating to the privacy, security, and transmission of individually identifiable health information;

the federal physician “Sunshine Act” requirements under PPACA, which requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to Centers for Medicare & Medicated Services (the “CMS”) information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members;

state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payors, including commercial insurers;

state laws that require device manufacturers to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources;

state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures;

and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts.

the federal physician “Sunshine Act” requirements, which require manufacturers of drugs, devices, biologics, and medical supplies to report annually to Centers for Medicare & Medicaid Services (the “CMS”) information related to (i) payments

and other transfers of value to physicians (as defined by statute), certain other healthcare providers ( beginning in 2022 ) , and teaching hospitals, and (ii) ownership and investment interests held by physicians and their immediate family members;

state and foreign law equivalents of each of the above federal laws, such as (i) anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payors, including commercial insurers;

(ii) state laws that require device manufacturers to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources;

(iii) state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures;

and (iv) state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts.

Efforts to ensure that our business operations comply with applicable healthcare laws may involve substantial costs.

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Changes in government regulations related to our business or our products could reduce demand for our products or increase our expenses.

We are subject to many governmental regulations, including, but not limited to, the laser radiation safety regulations of the Radiation Control for Health and Safety Act administered by the National Center for Devices and Radiological Health, a branch of the FDA, and certain health regulations related to the manufacture of products using beryllium, an element used in some of our products.

We are subject to many governmental regulations, including, but not limited to, the laser radiation safety regulations of the Radiation Control for Health and Safety Act administered by the Center for Devices and Radiological Health, a branch of the FDA, and certain health regulations related to the manufacture of products using beryllium, an element used in some of our products.

Among other things, these regulations require us to file annual reports, to maintain quality control and sales records, to perform product testing, to distribute appropriate operating manuals, to conduct safety reviews, to incorporate design and operating features in products sold to end-users, and to certify and label our products.

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Compliance or the failure to comply with current and future environmental regulations could result in significant costs.

Our operations are subject to a variety of federal, state, local and international environmental regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during our manufacturing process or the recycling of products we manufacture.

Our operations are subject to a variety of federal, state, local and international environmental regulations relating to the manufacture of products using beryllium.

We are subject to regulations of the Environmental Protection Agency in the U.S.

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We may experience difficulties as we transition to these new or upgraded systems and processes, including loss of data and the ability to process customer orders, ship products, provide services and support to our customers, issue sales invoices, collect accounts receivable, fulfill contractual obligations, satisfy internal and external financial reporting requirements in a timely manner, or otherwise run our business.

We may also experience decreases in productivity as our personnel implement these systems and become familiar with the new systems.

In addition, as we are dependent upon our ability to gather and promptly transmit accurate information

to key decision makers, our business, results of operations and financial condition may be materially and adversely affected if our information technology infrastructure does not allow us to transmit accurate information, even for a short period of time.

We may also experience decreases in productivity as our personnel implement these systems and become proficient in the new systems.

In addition, as we are dependent upon our ability to gather and promptly transmit accurate information to key decision makers, our business, results of operations and financial condition may be materially and adversely affected if our information technology infrastructure does not allow us to transmit accurate information, even for a short period of time.

Furthermore, the transition, design and implementation of upgrades and new ERP systems may be much more costly than we anticipated.

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Adverse changes in our business, adverse changes in the assumptions used to determine the fair value of our reporting units, or the failure to grow our businesses may result in an impairment of our intangible assets, which could adversely affect our results of operations.

We are exposed to the credit risk of some of our customers and to credit exposures in weakened markets, which could adversely affect our results of operations.

Customers with liquidity issues may lead to additional bad debt expense.

There can be no assurance that our open credit customers will pay the amounts they owe to us or that the reserves we maintain will be adequate to cover such credit exposures.

In addition, to the extent that turmoil in the credit markets or increases in interest rates make it more difficult for some customers to obtain financing, their ability to pay may be adversely impacted.

Our customers’ failure to pay and/or our failure to maintain sufficient reserves could have a material adverse effect on our future cash flows and financial condition.

Our reliance upon third party distribution channels subjects us to credit, inventory, business concentration, and business failure risks beyond our control.

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As these third parties tend to have more limited financial resources than OEM and end-user customers, they generally represent sources of increased credit risk.

Any downturn in the business of our resellers, distributors, and systems integrators would in turn harm our results of operations and financial condition.

Any significant downturn in the business of our resellers, distributors, and systems integrators would in turn harm our results of operations and financial condition.

Our sales also depend upon the ability of our OEM customers to develop and sell systems that incorporate our products.

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federal income taxation even though it is a non-U.S.

Novanta, Inc.

is a holding company organized in Canada and is subject to Canadian tax laws.

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federal withholding tax on certain U.S.-sourced passive income items, such as dividends, royalties and certain types of interest.

Our effective tax rate is subject to fluctuation, which could impact our financial position and earnings per share.

Our effective tax rate is subject to fluctuation as the effective income tax rate for each year is a function of (a) taxable income levels in numerous tax jurisdictions, (b) our ability to utilize recognized deferred tax assets, (c) taxes, interest, and/or penalties resulting from tax audits and, (d) credits and deductions as a percentage of total taxable income.

From time to time, the U.S., foreign and state governments make substantive changes to tax rules where significant judgment is required to determine the impact of such changes on our provision for income taxes, which may result in increased costs.

Further, such tax law changes may cause our effective tax rate to fluctuate between periods.

Risks Relating to Our Common Shares and Our Capital Structure

We may require additional capital to adequately respond to business challenges or opportunities and repay or refinance our existing indebtedness, but this capital may not be available on acceptable terms or at all.

We may require additional capital to adequately respond to future business challenges or opportunities, including, but not limited to, the need to develop new products or enhance our existing products, maintaining or expanding research and development projects, the need to build inventory or to invest other cash to support business growth, and opportunities to acquire complementary businesses and technologies.

As of December 31, 2019, we had outstanding debt of $224.6 million under our amended and restated senior secured credit agreement (the “Third Amended and Restated Credit Agreement”) and $226.6 million available to be drawn under the revolving credit facility.

We may require additional capital to adequately respond to future business challenges or opportunities, including, but not limited to, the need to develop new products or enhance our existing products, the need to invest in cloud-based enterprise resource planning systems and other digital technology platforms to help accelerate the growth of our businesses, the need to build inventory or to invest other cash to support business growth, and opportunities to acquire complementary businesses and technologies.

As of December 31, 2020, we had outstanding debt of $204.8 million under our amended and restated senior secured credit agreement (as amended, the “Third Amended and Restated Credit Agreement”) and $395.2 million available to be drawn under the revolving credit facility.

If we are unable to satisfy the conditions in the Third Amended and Restated Credit Agreement or our needs exceed the amounts available under the revolving credit facility, we may need to engage in equity or debt financings to obtain additional funds.

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Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our borrowings thereunder.

General Risk Factors

The market price for our common shares may be volatile.

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conditions in the markets we serve;

trading phenomena such as “short squeeze”;

general market, political or economic conditions.

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These market fluctuations could adversely affect the price of our common shares.

Risks Relating to Our Internal Controls

Our effective tax rate is subject to fluctuation, which could impact our financial position and earnings per share.

Further, such tax law changes may cause our effective tax rate to fluctuate between periods.

We are exposed to the credit risk of some of our customers and to credit exposures in weakened markets, which could adversely affect our results of operations.

Customers with liquidity issues may lead to additional bad debt expense.

There can be no assurance that our open credit customers will pay the amounts they owe to us or that the reserves we maintain will be adequate to cover such credit exposures.

Our customers’ failure to pay and/or our failure to maintain sufficient reserves could have a material adverse effect on our future cash flows and financial condition.

If we fail to maintain appropriate internal controls in the future, we may not be able to report our financial results accurately, which may adversely affect our stock price and our business.

While our management and our independent registered public accounting firm concluded that our internal control over financial reporting was effective as of December 31, 2020, it is possible that material weaknesses may be identified in the future.

If we are unable to maintain effective internal controls, we may not have adequate, accurate or timely financial information, and we may be unable to meet our reporting obligations as a publicly traded company or to comply with the requirements of the SEC or the Sarbanes-Oxley Act of 2002.

This could result in a restatement of our financial statements, the imposition of sanctions, including the inability of registered broker dealers to make a market in our common shares, or investigation by regulatory authorities.

Any such action or other negative results caused by our inability to meet our internal control and financial reporting requirements or to comply with legal and regulatory requirements could adversely affect the trading price of our common shares and our business.

Material weaknesses in our internal control over financial reporting could also reduce our ability to obtain financing or could increase the cost of any financing we obtain.

As part of our growth strategy, we may make additional acquisitions of privately held businesses.

As part of our growth strategy, we intend to make additional acquisitions of privately held businesses.

Prior to becoming part of our consolidated company, the acquired businesses would not be required to implement or maintain the disclosure controls and procedures or internal control over financial reporting that are required of public companies.

We are required to integrate the acquired businesses into our consolidated company’s system of disclosure controls and procedures and internal control over financial reporting, but we cannot provide assurance as to how long the integration process may take for our recently acquired businesses or any businesses that we may acquire in the future.

Additionally, we may need to improve our internal control or those of any business we acquire and may be required to design enhanced processes and controls in order to make such improvements.

This could result in significant costs to us and could require us to divert substantial resources, including management time and attention, from other activities.

Any such action or other negative results caused by our inability to meet our internal control and financial reporting requirements or to comply with legal and regulatory requirements could adversely affect our business and the trading price of our common shares.

Material weaknesses in our internal control over financial reporting could also reduce our ability to obtain financing or could increase the cost of any financing we obtain.

Unresolved Staff Comments

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

What changed 10-K

Item 1A. Risk Factors