Item 1A. Risk Factors
Item 1A. Risk Factors
Other than described below, management believes that there have been no significant changes to the risk factors disclosed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, which risk factors are incorporated by reference herein.
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Our business and results of operations have been, and are expected to continue to be, impacted by the global COVID-19 pandemic.
Our business and results of operations have been adversely affected by the global COVID-19 pandemic and related events and we expect its impact to continue. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 pandemic on our businesses, and there is no guarantee that we will be able to address its adverse impacts fully or effectively. The impact to date has included periods of significant volatility in various markets and industries. The volatility has had, and we anticipate it will continue to have, an adverse effect on our customers and on our business, financial condition and results of operations, and may result in an impairment of our long-lived assets, including goodwill, increased credit losses and impairments of investments in other companies. In particular, the automotive market, as well as the broad consumer electronics industries, have been and we anticipate will continue to be impacted by the pandemic and/or other events beyond our control, and further volatility could have an additional negative impact on these industries, customers, and our business. For example, we anticipate approximately a 20% decline in our royalty revenue in 2020 from our products sold to the automotive market, such as HD Radio, as compared to the prior year. In addition, the COVID-19 pandemic may impact the financial conditions of our customers who may not be able to satisfy their obligations under our agreements timely or at all. For example, we recorded, in the first quarter of 2020, an incremental provision for credit losses of approximately $2.0 million due to heightened risk of nonpayment on existing accounts receivable as a result of the impaired financial condition and liquidity positions of certain of our customers.
In addition, actions by United States federal, state and foreign governments to address the COVID-19 pandemic, including travel bans, stay-at-home orders and school, business and entertainment venue closures, also had a significant adverse effect on the markets in which we conduct our businesses. COVID-19 poses the risk that our workforce, suppliers, and other partners may be prevented from conducting normal business activities for an indefinite period of time, including due to shutdowns or stay-at-home orders that may be requested or mandated by governmental authorities. We also implemented policies to allow our employees to work remotely as a result of the pandemic as we reviewed processes related to workplace safety, including social distancing and sanitation practices recommended by the Centers for Disease Control and Prevention. The impacts of the COVID-19 pandemic could also cause delays in obtaining new customers and executing renewals and could also impact our business as consumer behavior changes in response to the slowed economic conditions. Furthermore, our integration effort following the Mergers may be delayed or interrupted due to the operational challenges and various restrictions and limitations imposed on us as result of the COVID-19 pandemic, which may adversely affect the success of the integration and anticipated benefits of the Mergers.
The extent of impacts resulting from the COVID-19 pandemic and other events beyond our control will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the pandemic and actions taken to contain the coronavirus or its impact, among others. While some states and counties, including Santa Clara county where our headquarters is located, have announced a schedule to allow more businesses to reopen, we cannot predict when and to what extent business activities will resume, and there is no guarantee that these states and counties will not re-impose restrictions and closures if the pandemic cannot be brought under control, particularly in light of the recent global upswing in cases as the Northern Hemisphere enters the colder months. Even after the pandemic has subsided and economic activities gradually reopen and increase, we may continue to experience material and adverse impacts to our business, operating results, and financial condition as a result of the pandemic’s lasting global economic impact, including any recession that has occurred or may occur in the future. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our applicable business, operations or the global economy.
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