COGNEX CORP 10-Q

ITEM 1A. RISK FACTORS For a complete list of factors that could affect the Company’s business, results of operations, and financial condition, see the risk factors discussion provided in Part I—Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The following information updates, and should be read in conjunction with, Part I - Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Our business has been, and is expected to continue to be, adversely affected by the recent COVID-19 pandemic. The COVID-19 (also referred to as “coronavirus”) outbreak, which was first reported in China in the beginning of 2020, developed into a global pandemic in March 2020. The COVID-19 outbreak had a modest adverse impact on our business in the first quarter of 2020, primarily near the end of the quarter. This impact expanded and accelerated into the second quarter, as we noted lower demand for our products in certain industries, additional disruptions to our supply chain, longer customer delivery times, higher delivery costs, and further shutdowns of customer facilities. Although these conditions have improved in the third quarter of 2020, certain industries we serve continue to be adversely impacted by the global pandemic, most notably the automotive industry which was our largest industry in terms of revenue in fiscal year 2019. Furthermore, the impact of the pandemic could worsen in any of our major industries or geographies in the future, resulting in deteriorating economic and business conditions and adverse effects on our business, results of operations and/or financial condition. We face several risks and uncertainties related to the impact of COVID-19 on our business. It is difficult for us to quantify the duration and severity of this impact due to many factors beyond our control and knowledge, including changing governmental regulations and the scope and duration of social distancing and commercial restrictions. These risks and uncertainties include, among others: • our customers may further delay or cancel orders for our products, • additional customer facilities may be shut down for extended periods of time , resulting in our inability to deliver products, perform on-site services, or make on-site sales visits, • our customers may not have sufficient cash flow or access to financing to purchase our products, • our customers may not pay us within agreed upon terms or may default on their payments altogether, • our vendors may be unable to fulfill their delivery obligations to us within acceptable lead times for extended periods of time, which may force us to seek alternative sources of supply at higher costs, • our contract manufacturers may experience interruptions that result in delivery delays and higher costs for our products, • we may experience manufacturing delays and higher costs in the event of a supply disruption from a single-source vendor, • we may experience extended customer delivery times and higher delivery costs, • our distribution centers in Natick, Massachusetts and Cork, Ireland may be forced to operate with a significantly reduced workforce or be forced to shut down altogether due to government regulations or health concerns, • our online sales and marketing efforts may be less effective than face-to-face activities, resulting in fewer customer acquisitions and lower sales from new products, • challenges involved in working from home may delay certain of our new product introductions , • lower demand for our products may result in charges for excess and obsolete inventory if we are unable to sell inventory that is either already on hand or committed to purchase, • lower cash flows may result in impairment charges for acquired intangible assets or goodwill, • our investment portfolio of debt securities may be exposed to material credit losses, and • a decline in our stock price may make stock-based awards a less attractive form of compensation and a less attractive form of retention for our employees. 35 These risks and uncertainties could have a material adverse effect on the continuity of our business and our results of operations and financial condition. The impact of COVID-19 also may exacerbate other risks discussed in Part I - Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, any of which could have a material adverse effect on our business, results of operations and financial condition. This situation is continuously changing and additional impacts on our business may arise of which we are not currently aware. Our restructuring activities may result in disruption to our business and may not generate the anticipated cost savings. In May 2020, our Board of Directors approved a restructuring plan intended to reduce our operating costs, optimize our business model, and address the impact of the COVID-19 pandemic. These actions, which included workforce reductions and office closures, were designed to generate an aggregate annualized cost savings of approximately $25,000,000 versus our original planned cost structure. Our ability to achieve the anticipated cost savings and other benefits from these actions within the expected timeframe is subject to many estimates and assumptions. These estimates and assumptions are subject to significant economic, competitive, and other uncertainties, many of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our business and results of operations could be adversely affected. In addition, although we currently expect to continue to make investments in strategic areas, these restructuring actions may nevertheless negatively impact programs we believe are important to the long-term success of our company, such as the ability to accelerate time to market for new products. In addition, our ability to provide a high level of service to our customers may be negatively impacted by these actions, particularly in regions where we have downsized our operations.