Zovio (ZVOI)
OTHER OTC:ZVOI
Risk Overview Q3, 2022
Risk Distribution
42% Finance & Corporate
29% Legal & Regulatory
9% Tech & Innovation
7% Production
7% Macro & Political
5% Ability to Sell
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Zovio Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q3, 2022
Main Risk Category
Finance & Corporate
With 23 Risks
Finance & Corporate
With 23 Risks
Number of Disclosed Risks
55
+9
From last reportS&P 500 Average: 31
55
+9
From last reportS&P 500 Average: 31
Recent Changes
9Risks added
0Risks removed
0Risks changed
Since Sep 2022
9Risks added
0Risks removed
0Risks changed
Since Sep 2022
Number of Risk Changed
0
-1
From last reportS&P 500 Average: 3
0
-1
From last reportS&P 500 Average: 3
See the risk highlights of Zovio in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 55
Finance & Corporate
Total Risks: 23/55 (42%)Above Sector Average
Share Price & Shareholder Rights15 | 27.3%
Share Price & Shareholder Rights - Risk 1
We cannot assure you as to the amount of distributions, if any, to be made to our stockholders under our Plan of Dissolution.Added
Share Price & Shareholder Rights - Risk 2
Liquidating distributions to stockholders could be substantially reduced and/or delayed due to uncertainty regarding the resolution of certain potential tax claims, litigation matters and other unresolved contingent liabilities of the Company.Added
Whether any remaining assets or cash of the Company can be used to make liquidating distributions to stockholders would depend on whether claims for which we have set aside reserves are resolved or satisfied at amounts less than such reserves and whether a need has arisen to establish additional reserves. We cannot assure stockholders that our liabilities can be resolved for less than the amounts we have reserved, or that unknown liabilities that have not been accounted for will not arise. As a result, we may continue to hold back funds and delay additional liquidating distributions to stockholders. It is important for us to retain sufficient funds to pay the expenses and liabilities actually owed to our creditors, because under the DGCL, if the we fail to do so, each stockholder could be held liable for the repayment to creditors, out of the amounts previously distributed to such stockholder in the Dissolution from us or from any liquidating trust or trusts, of such stockholder's pro rata share of such excess (up to the full amount actually received by such stockholder in Dissolution).
Share Price & Shareholder Rights - Risk 3
We cannot predict the timing of the distributions to stockholders.Added
Under the DGCL, before a dissolved corporation may make any distribution to its stockholders, it must pay or make reasonable provision to pay all of its claims and obligations, including all contingent, conditional or unmatured contractual claims known to the corporation. The precise amount and timing of any distributions to our stockholders will depend on and could be delayed or diminished due to many factors, including without limitation:
- whether a claim is resolved for more than the amount of reserve established for such claim pursuant to the Court Order;- whether we are unable to resolve claims with creditors or other third parties, or if such resolutions take longer than expected;- whether a creditor or other third party seeks an injunction against the making of additional distributions to stockholders on the basis that the amounts to be distributed are needed to satisfy our liabilities or other obligations to the extent not previously reserved for;- whether due to new facts and developments, a new claim, as the Board reasonably determines, requires additional funds to be reserved for its satisfaction; and - whether the expenses we incur in the winding-up process, including expenses of personnel required and other operating expenses (including legal, accounting and other professional fees), necessary to dissolve and liquidate the Company are more than anticipated.
As a result of these and other factors, it might take significant time to resolve these matters, and as a result we are unable to predict the timing of distributions, if any are made, to our stockholders.
Share Price & Shareholder Rights - Risk 4
The amount of cash available to distribute to our stockholders depends on our ability to successfully execute our monetization strategy and dispose of all or substantially all of our assets.Added
Our efforts to enhance stockholder value through our monetization strategy may not be successful, which would significantly reduce, or eliminate, the cash or value of other non-cash assets available for distribution to our stockholders. We cannot assure you that our efforts to enhance stockholder value through the conduct of our monetization strategy will succeed. There will be risks associated with any potential transactions, including whether we will attract potential acquirers for the Company, its assets or its remaining operating subsidiary or business, and whether offers made by such potential acquirors, if any, will be at valuations that we deem reasonable. Moreover, we are not able to predict how long it will take to implement our monetization strategy, the delay of which may impact the timing of the Dissolution. The timing and terms of any transaction in furtherance of our monetization strategy will depend on a variety of factors, many of which are beyond our control. A delay in, or failure to complete, any such transaction could have a material effect on our stock price and the amount of any potential distributions to our stockholders.
In addition, our ability to successfully complete our monetization strategy could be materially negatively affected by economic conditions generally, both in the United States and elsewhere around the world, including public health risks such as COVID-19. We are exploring and evaluating potential transactions, the success or timing of which may be impacted by further COVID-19 variants and/or a general economic slowdown or recession. In order to successfully monetize our assets, we must identify and complete one or more transactions with third parties. Even if we are able to identify potential transactions in furtherance of our monetization strategy, such buyers may be operationally constrained or unable to locate financing on attractive terms or at all, which risk may be heightened due to the uncertainty of COVID-19 and its impact and/or a general economic slowdown or recession. Additionally, if financing is unavailable to potential buyers of our Company or assets, or if potential buyers are unwilling to engage in various transactions due to the uncertainty in the market or rising interest rates, our ability to complete such acquisition would be significantly impaired.
Any negative impact on such third parties due to any of the foregoing events could cause costly delays and have a material adverse effect on our ability to return value to our stockholders, including our ability to realize full value from a sale or other disposition of our assets as part of our monetization strategy. Any such negative impacts could also reduce the amount of cash or other property we are able to distribute to our shareholders.
Share Price & Shareholder Rights - Risk 5
Our stockholders may be liable to our creditors for part or all of the amount received from us in our liquidating distributions if reserves are inadequate.Added
If the Dissolution becomes effective, we may establish a contingency reserve designed to satisfy any additional claims and obligations that may arise. Any contingency reserve may not be adequate to cover all of our claims and obligations. Under the DGCL, if we fail to create an adequate contingency reserve for payment of our expenses, claims and obligations, each stockholder could be held liable for payment to our creditors for claims brought during the three-year period after we file the Certificate of Dissolution with the Secretary of State, up to the lesser of (i) such stockholder's pro rata share of amounts owed to creditors in excess of the contingency reserve and (ii) the amounts previously received by such stockholder in dissolution from us and from any liquidating trust or trusts. Accordingly, in such event, a stockholder could be required to return part or all of the distributions previously made to such stockholder in Dissolution, and a stockholder could receive nothing from us under the Plan of Dissolution. Moreover, if a stockholder has paid taxes on amounts previously received, a repayment of all or a portion of such amounts received could result in a situation in which such repayment does not result in a commensurate refund of such taxes paid.
Share Price & Shareholder Rights - Risk 6
The directors and officers of the Company will continue to receive benefits from the Company following the Dissolution.Added
Subsequent to the shareholder meeting held on October 25, 2022, it was determined that the directors of the company would no longer receive compensation for their roles on the board. Following the effective date of the Dissolution, we will continue to indemnify each of our current and former directors and officers to the extent permitted under the DGCL and the Company's certificate of incorporation, bylaws and agreements as in effect at the time of the filing of the Certificate of Dissolution. In addition, we intend to maintain directors' and officers' insurance coverage throughout the wind down period.
Share Price & Shareholder Rights - Risk 7
We will continue to incur the expenses of complying with public company reporting requirements.Added
We have an obligation to continue to comply with the applicable reporting requirements of the Exchange Act, even though compliance with such reporting requirements is economically burdensome. In order to curtail expenses, we currently intend, after the filing of the Certificate of Dissolution, to seek relief from the SEC from the reporting requirements under the Exchange Act. However, the SEC may not grant any such relief, in which case we would be required to continue to bear the expense of being a public reporting company.
Share Price & Shareholder Rights - Risk 8
Stockholders may not be able to recognize a loss for U.S. federal income tax purposes until they receive a final distribution from us.Added
Distributions made pursuant to the Plan of Dissolution are intended to be treated as received by a stockholder in exchange for the stockholder's shares of our common stock. Accordingly, the amount of any such distribution allocable to a block of shares of our common stock owned by a U.S. stockholder will reduce the stockholder's tax basis in such shares, but not below zero. Any excess amount allocable to such shares will be taxable as capital gain. Such gain generally will be taxable as long-term capital gain if the shares have been held for more than one year. Any tax basis remaining in a share of our common stock following the final liquidating distribution by the Company will be treated as a capital loss. The deductibility of capital losses is subject to limitations. You should consult your tax advisor as to the particular tax consequences of the Dissolution to you, including the applicability of any U.S. federal, state, local and non-U.S. tax laws.
Share Price & Shareholder Rights - Risk 9
Following the Sale Transaction, we are subject to various risks and uncertainties arising out of the changes in the structure of our operations, any of which could materially and adversely affect our business and operations, and our stock price.Following the Sale Transaction, various aspects of our operations have changed in important ways. We are no longer the owner and operator of a regulated institution of higher education, but we are now an education technology service provider. While the services we provide were part of our business prior to the Sale Transaction, we have no experience operating solely as an education technology service provider to third parties.
Initially, substantially all of our revenue is derived pursuant to the Services Agreement. Accordingly, Global Campus' ability to increase its enrollment and tuition and fee revenue, and our ability to continue to perform the services necessary to enable Global Campus to achieve such goals, will be critical to the success of our services business.
If we are unable to successfully re-focus our business to providing education technology services to third-party education providers, or if the Services Agreement fails to achieve the anticipated levels of performance, then our business, financial condition and results of operations, as well as our stock price, could be materially and adversely affected.
Share Price & Shareholder Rights - Risk 10
The price of our common stock has fluctuated significantly in the past and may continue to do so in the future. As a result, you could lose all or part of your investment.Volatility in the market price of our common stock may prevent you from being able to sell your shares at or above the price you paid for your shares. The market price of our common stock has fluctuated significantly in the past, and may continue to fluctuate significantly for a variety of different reasons, including, without limitation:
- developments regarding the accreditation or state licensing of our university partners;- our quarterly or annual earnings or those of other companies in our industry;- public reaction to our press releases, corporate communications and SEC filings;- changes in earnings estimates or recommendations by research analysts who track our common stock or the stocks of other companies in our industry;- seasonal variations in our student enrollment;- new laws or regulations or new interpretations of laws or regulations applicable to our industry or business;- negative publicity, including government hearings and other public lawmaker or regulator criticism, regarding our industry or business;- changes in enrollment;- changes in accounting standards, policies, guidance, interpretations or principles;- litigation involving our company or investigations or audits by regulators into the operations of our company or our competitors;- sales of common stock by our directors, executive officers and significant stockholders; and - changes in general conditions in the United States and global economies or financial markets, including those resulting from war, incidents of terrorism or responses to such events.
In addition, in recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. Changes may occur without regard to the operating performance of these companies. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company.
Share Price & Shareholder Rights - Risk 11
Sales of outstanding shares of our common stock into the market in the future could cause the market price of our stock to drop significantly, even if our business is doing well.If our stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. At December 31, 2021, 33.5 million shares of our common stock were outstanding. In addition, as of December 31, 2021, there were 1.2 million shares of our common stock underlying outstanding stock options and 4.9 million shares of our common stock underlying outstanding stock awards, including restricted stock units and performance stock units. All shares subject to outstanding stock options are eligible for sale in the public market to the extent permitted by the provisions of the applicable stock option agreement and Rule 144 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold in the public market, the trading price of our common stock could decline. Under Rule 144, shares held by non-affiliates for more than six months may generally be sold without restriction, other than a current public information requirement, and may be sold freely without any restrictions after one year. Shares held by affiliates may also be sold under Rule 144 after one year, subject to applicable restrictions, including volume and manner of sale limitations.
Share Price & Shareholder Rights - Risk 12
If securities or industry analysts change their recommendations regarding our common stock adversely or cease to cover our company, or if our operating results do not meet their expectations, our stock price could decline.The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business or industry. If one or more of these analysts ceases coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrades our common stock, or if our operating results do not meet their expectations, our stock price could decline.
Share Price & Shareholder Rights - Risk 13
Your percentage ownership in the Company may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote.Subject to the rules of the Nasdaq Stock Market LLC ("NASDAQ"), our board has the authority, without any action or vote of our stockholders, to issue all or any part of our authorized but unissued shares of capital stock. At December 31, 2021, there were 300.0 million shares of common stock authorized for issuance under our certificate of incorporation, 33.5 million shares of which were outstanding. At December 31, 2021, there were 20.0 million shares of preferred stock authorized for issuance under our certificate of incorporation, no shares of which were outstanding. Issuances of common stock or voting preferred stock would reduce the influence of our current stockholders over matters on which our stockholders vote and, in the case of issuances of preferred stock, would likely result in the rights of our current stockholders being subject to the prior rights of holders of that preferred stock.
Share Price & Shareholder Rights - Risk 14
Our common stock has relatively low trading volume, compared to many other public companies.Our common stock trades on the NASDAQ. Our average daily trading volume over these various mediums is relatively low, particularly when compared to many larger public companies. This low trading volume can cause our common stock price to fluctuate significantly and can make it difficult for investors to buy or sell our common stock quickly and efficiently, compared to companies with a larger publicly traded float and higher average daily trading volumes.
Share Price & Shareholder Rights - Risk 15
Provisions in our certificate of incorporation and bylaws and Delaware law may discourage, delay or prevent a change of control of our company or changes in our management and, therefore, may depress the trading price of our stock.Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our stock by acting to discourage, delay or prevent a change of control of our company or changes in our board that the stockholders of our company may deem advantageous. These provisions:
- authorize the issuance of "blank check" preferred stock by our board to increase the number of outstanding shares to discourage a takeover attempt;- provide for a classified board (three classes);- provide that stockholders may only remove directors for cause;- provide that any vacancy on our board, including a vacancy resulting from an increase in the size of the board, may only be filled by the affirmative vote of a majority of our directors then in office, even if less than a quorum;- provide that a special meeting of stockholders may only be called by our board or by our chief executive officer;- provide that action by written consent of the stockholders may be taken only if the board first approves such action, whenever the vote of stockholders is required at a meeting for any corporate action, the meeting and vote of stockholders may be dispensed with, and the action may be taken without such meeting and vote, if a written consent is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at the meeting of stockholders; provided that, notwithstanding the foregoing, we will hold an annual meeting of stockholders in accordance with NASDAQ rules for so long as our shares are listed on the NASDAQ, and as otherwise required by the bylaws;- provide that the board is expressly authorized to make, alter or repeal our bylaws; and - establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.
Additionally, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested" stockholder for a period of three years following the date on which the stockholder became an "interested" stockholder.
Accounting & Financial Operations3 | 5.5%
Accounting & Financial Operations - Risk 1
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.Accounting & Financial Operations - Risk 2
We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment in our common stock is if the price of our common stock appreciates.We do not expect to pay dividends on shares of our common stock in the foreseeable future and we intend to use our cash position to grow our business. Consequently, your only opportunity to achieve a positive return on your investment in our common stock will be if the market price of our common stock appreciates.
Accounting & Financial Operations - Risk 3
Changes in accounting principles and guidance could result in unfavorable accounting charges or effects.We prepare our consolidated financial statements in accordance with GAAP. These principles are subject to interpretation by the SEC and various bodies formed to create and interpret appropriate accounting principles and guidance. A change in these principles or guidance, or in their interpretations, may have a material effect on our results and disclosures, as well as our processes and related controls. For additional information, see Note 2, "Summary of Significant Accounting Policies - Recent Accounting Pronouncements" to our annual consolidated financial statements included elsewhere in this report.
Debt & Financing2 | 3.6%
Debt & Financing - Risk 1
We may need to raise additional funding, which may not be available on acceptable terms, or at all. If such financing is not available or not available on terms acceptable to us, it could adversely affect our ability to continue operations.Debt & Financing - Risk 2
An increase in interest rates could adversely affect our university partners' ability to attract and retain students.Interest rates have reached relatively low levels in recent years, creating a favorable borrowing environment for students. However, if Congress increases interest rates on Title IV loans, or if private loan interest rates rise, our university partners' students would have to pay higher interest rates on their loans. Any future increase in interest rates will result in a corresponding increase in educational costs to existing and prospective students. Higher interest rates could also contribute to higher default rates with respect to students' repayment of their education loans. Higher default rates may in turn adversely impact an institution's eligibility to participate in some or all Title IV programs, which could have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
Corporate Activity and Growth3 | 5.5%
Corporate Activity and Growth - Risk 1
Our financial results may suffer if we fail to successfully implement our restructuring plans and/or cost reduction initiatives aimed at right-sizing our operations to match revenue streams.Corporate Activity and Growth - Risk 2
If we fail to effectively identify, pursue and consummate acquisitions, either in the U.S. or outside of the U.S., our ability to grow could be impacted and our profitability may be adversely affected.Acquisitions are one component of our overall long-term growth strategy. The successful implementation of this strategy depends upon the Company's ability to identify suitable domestic and international acquisition candidates, acquire such businesses on acceptable terms and finance such acquisitions. There can be no assurance that such candidates will be available or, if such candidates are available, that the price will be attractive or that the Company will be able to identify, acquire or finance such businesses successfully. In addition, in pursuing such acquisition opportunities, the Company may compete with other entities with similar growth strategies; these competitors may be larger and have greater financial and other resources than the Company. Competition for these acquisition targets could also result in increased prices of acquisition targets and/or a diminished pool of companies available for acquisition. There may be particular difficulties and complexities (regulatory or otherwise) associated with our expansion into international markets, and our strategies may not succeed beyond our current markets. If we are unable to effectively address these challenges, our ability to execute this component of our long-term strategy will be impaired, which could have an adverse effect on our ability to grow and our profitability.
Corporate Activity and Growth - Risk 3
The acquisition, integration and growth of acquired businesses may present challenges that could harm our business.The successful integration and profitable operation of an acquired institution or business, including the realization of anticipated cost savings and additional revenue opportunities, can present challenges, and the failure to overcome these challenges can have an adverse effect on our business, financial condition, cash flows and results of operations. Some of these challenges include:
- the inability to maintain uniform standards, controls, policies and procedures;- distraction of management's attention from normal business operations during the integration process;- the inability to attract and/or retain key management personnel to operate the acquired entity;- the inability to obtain, or delay in obtaining, regulatory or other approvals necessary to operate the business;- the inability to correctly estimate the size of a target market or accurately assess market dynamics;- the inability to retain the clients of the acquired entity;- the lingering effects of poor client relations or service performance by the acquired entity, which also may negatively affect the Company's existing business;- the inability to fully realize the desired efficiencies and economies of scale;- expenses associated with the integration efforts; and - unidentified issues not discovered in the due diligence process, including legal contingencies.
An acquisition related to an institution or other educational business often requires various regulatory approvals. If we are unable to obtain such approvals, or we obtain them on unfavorable terms, our ability to consummate a transaction may be impaired or we may be unable to operate the acquired entity in a manner that is favorable to us. If we fail to properly evaluate an acquisition, we may be required to incur costs in excess of what we anticipated, and we may not achieve the anticipated benefits of such acquisition.
Legal & Regulatory
Total Risks: 16/55 (29%)Above Sector Average
Regulation11 | 20.0%
Regulation - Risk 1
Governmental proceedings or other claims and lawsuits asserting regulatory noncompliance could result in monetary liabilities or penalties, injunctions or loss of Title IV funding for students at our current or any future university partner.Regulation - Risk 2
Additional regulations or regulatory scrutiny resulting from action by the Department could result in increased compliance costs, fines, sanctions or lawsuits, which could have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.The Department released final regulations to clarify state authorization requirements for postsecondary institutions offering distance education that participate in federal student loan programs, as required by the Higher Education Act. Among other things, the final regulations (i) require institutions offering distance education to be authorized by each state in which they enroll students, if such authorization is required by the state, (ii) require institutions to document the state process for resolving student complaints regarding distance education programs, (iii) require public and individualized disclosures to enrolled and prospective students in distance education programs, including disclosures regarding adverse actions taken against the institution, the institution's refund policies and whether each of the institution's programs meet applicable state licensure or certification requirements, and (iv) require institutions to explain to students the consequences of moving to a state where the school is not authorized, which could include loss of eligibility for federal student aid. The final regulations recognize authorization through participation in a state authorization reciprocity agreement, as long as the agreement does not prevent a state from enforcing its own consumer laws.
We cannot predict the scope and content of the regulations that may emerge from these or other rulemaking activities that the Department initiates. The Departments actions could result in direct and indirect costs related to compliance, increased scrutiny, fines, liabilities, sanctions or lawsuits, which could have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
Regulation - Risk 3
Any action by Congress to revise the laws governing Title IV programs or to reduce funding for these programs could negatively impact our business.Congress must periodically reauthorize the Higher Education Act and annually determine the funding level for each Title IV program through the budget and appropriations process. The Higher Education Act's programs will continue year-to-year without explicit reauthorization as long as Congress appropriates funds for the programs. Congress may propose and pass revisions to the Higher Education Act between reauthorizations by using other legislative vehicles such as budget bills and appropriations bills, which could impact funding for student financial aid programs.
We cannot predict what legislation, if any, will arise out of the reauthorization of the Higher Education Act or other Congressional deliberations, or what impact any such legislation might have on the for-profit education sector and our business. However, any action by Congress that significantly reduces Title IV program funding or the eligibility of our current or any future university partners or students to participate in Title IV programs, or that requires us to modify our practices in ways that could increase our administrative costs and reduce our profit margin, would have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
Regulation - Risk 4
If our current or any future university partner fails to comply with applicable regulatory requirements, they could face monetary liabilities or penalties, operational restrictions, or loss of eligibility to participate in Title IV programs from which we derive most of our revenue.To participate in Title IV programs, an institution must be (i) legally authorized to operate in the state in which it is physically located, (ii) accredited by an accrediting agency recognized by the Department as a reliable indicator of educational quality and (iii) certified as an eligible institution by the Department. As a result, we are subject to extensive regulation by the Department, WSCUC, and state education agencies. These regulatory requirements cover many aspects of our operations. Given that the Department, WSCUC and state education agencies periodically revise their requirements and modify their interpretations of existing requirements, we cannot reliably predict how these regulatory requirements will be applied or whether we will be able to comply with all the requirements. If our current or any future university partner fails to comply with these regulatory requirements, the Department could impose sanctions on that institution, including monetary liabilities or penalties, operational restrictions, or loss of eligibility to participate in Title IV programs from which we derive most of our revenue. For additional information, see "Regulation - Department Regulation of Title IV Programs - Potential sanctions for noncompliance with Title IV regulations" in Part I, Item 1, "Business." If our current or future university partners were to lose eligibility to participate in Title IV programs or were to have such participation substantially curtailed, enrollments and our revenues, financial condition, cash flows and results of operations would be materially and adversely affected.
Regulation - Risk 5
If the University is found to have violated any regulatory requirement while we owned and operated it, we remain responsible for any liabilities arising from such violation, either directly or because of our obligation to indemnify Global Campus, and the payment of any such damages or fines could materially and adversely affect our business and operations, and our stock price.Following the Sale Transaction, we retained all liabilities associated with the University during the time we owned and operated it and agreed to indemnify Global Campus for such matters if the University is found liable for violations during such period, including regulatory non-compliance. Should violations be determined, we may be required to either pay such liabilities directly or indemnify Global Campus. Such payments could be substantial and could adversely affect us.
Regulation - Risk 6
If the Department does not recertify Global Campus to continue participating in the Title IV programs, Global Campus' students would lose their access to Title IV program funds, or there could be significant limitations as a condition of Global Campus' continued participation in the Title IV programs, and as a service provider, our business, financial condition and results of operations, as well as our stock price, could be materially and adversely affected.Institutions are required to seek recertification from the Department on a regular basis in order to continue their participation in Title IV programs. An institution must also apply for recertification by the Department if it undergoes a change in control, as defined by the Department regulations, and may be subject to similar review if it expands its operations or educational programs in certain ways. There can be no assurance that the Department will recertify Global Campus or that the Department will not impose conditions or other restrictions as a condition of granting Global Campus a provisional certification. If the Department does not renew, or withdraws, the certification of Global Campus to participate in the Title IV programs at any time, students would no longer be able to receive Title IV program funds. Similarly, the Department could renew Global Campus' certification, but restrict or delay its students' receipt of Title IV funds, limit the students to whom Global Campus could disburse funds, decline to approve Global Campus as a nonprofit institution for Title IV purposes, or place other restrictions on Global Campus.
Any of these outcomes could have a material adverse effect on us. We no longer own or operate the University, and we no longer participate in the Title IV programs as an institution. However, we face the risks discussed above in connection with providing services as a third-party education technology services provider, including adverse effects on our business and operations from a reduction or loss in our revenues under the Services Agreement.
Regulation - Risk 7
The failure of our current or any future university partners to maintain accreditation would denigrate the value of their educational programs and result in a loss of eligibility to participate in Title IV programs.An institution must be accredited by an accrediting agency recognized by the Department to participate in Title IV programs. WSCUC is recognized by the Department as a reliable authority regarding the quality of education and training provided by the institutions it accredits. To remain accredited, our university partners must continuously meet accreditation standards relating to, among other things, performance, governance, institutional integrity, educational quality, faculty, administrative capability, resources and financial stability. If a university partner fails to satisfy any of the standards of its accrediting agency, it could lose its accreditation. Loss of accreditation would denigrate the value of its educational programs and would result in its loss of eligibility to participate in Title IV programs, which would have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
Regulation - Risk 8
Our current or future university partners may lose eligibility to participate in Title IV programs or face other sanctions or fines if they are not compliant with the Higher Education Act for a variety of reasons.Our current or future university partners could lose eligibility to participate in Title IV programs or face other sanctions or fines if any of the following occur:
- An institution is not legally authorized to offer its educational programs by the states in which it is physically located. To maintain these authorizations and registrations, an institution must comply with applicable requirements under the statutes and rules of the applicable state.
- An institution derives more than 90% of its revenues from Title IV program funds for two consecutive fiscal years, as calculated in accordance with Department regulations. Any institution that violates the 90/10 rule for two consecutive fiscal years becomes ineligible to participate in Title IV programs for at least two fiscal years. In addition, an institution whose rate exceeds 90% for any single fiscal year will be placed on provisional certification and may be subject to other enforcement measures.
- An institution has too many students that default on their loans. For each federal fiscal year, the Department calculates a rate of student defaults over a three-year measuring period for each educational institution, which is known as a "cohort default rate." An institution may lose its eligibility to participate in the Direct Loan Program and the Federal Pell Grant Program if for each of the three most recent federal fiscal years 30% or more of its students who became subject to a repayment obligation in that federal fiscal year defaulted on such obligation by the end of the following federal fiscal year.
- An institution has a failure to demonstrate financial responsibility. To participate in Title IV programs, an eligible institution must satisfy specific measures of financial responsibility prescribed by the Department. One measure of financial responsibility is an institution's composite score, a number between negative 1.0 and positive 3.0. An institution's composite score must be at least 1.5 for the institution to be deemed financially responsible without the need for further Department oversight.
- An institution pays incentive compensation to persons or entities involved in certain recruiting, admissions or financial aid awarding activities. The Higher Education Act prohibits an institution from providing any commission, bonus or other incentive payment based directly or indirectly on securing enrollments or financial aid to any persons or entities involved in student recruiting or admissions activities or making decisions about the award of student financial assistance. The criteria for complying with the Department's rules prohibiting incentive compensation are not clear in all circumstances, and the Department will not review or approve compensation plans prior to their implementation.
- An institution engages in substantial misrepresentation regarding the nature of its educational programs, its financial charges or the employability of its graduates. If the Department determines an institution has engaged in substantial misrepresentation, the Department may (i) attempt to revoke the institution's program participation agreement if the institution is provisionally certified, (ii) impose limitations on the institution's participation in Title IV programs if the institution is provisionally certified, (iii) deny applications from the institution for approval of new programs or locations or other matters or (iv) initiate proceedings to fine the institution or limit, suspend or terminate its eligibility to participate in Title IV programs.
- An institution fails to correctly calculate the amount of unearned Title IV program funds that have been disbursed to students who withdraw from their educational programs before completion, and must return those unearned funds in a timely manner, generally within 45 days of the date the institution determines that the student has withdrawn. Failure to make timely returns of Title IV program funds for 5% or more of students sampled in the institution's annual financial aid compliance audit in either of its two most recently completed fiscal years can result in an institution having to post a letter of credit equal to 25% of the amount of unearned Title IV funds the institution was required to return for its most recently completed fiscal year. If unearned funds are not properly calculated and returned in a timely manner, an institution may also be subject to monetary liabilities or an action to impose a fine or to limit, suspend or terminate its participation in Title IV programs.
If any of the above were to occur and there was a loss of eligibility to participate in Title IV programs, there could be a material adverse effect on enrollments of our current or future university partners, and therefore on our revenues, financial condition, cash flows and results of operations.
Regulation - Risk 9
Changes to the 90/10 rule or related Title IV regulation could adversely impact our university partners, which in turn could adversely affect our revenues or our ability to grow.In March 2021, President Biden signed the American Rescue Plan Act ("ARPA") of 2021. The ARPA includes a major change in the 90/10 revenue test that provides for-profit institutions and their students access to the Federal Student Aid ("FSA") programs. Under the ARPA, the Higher Education Act would be modified to change the formula from counting only Title IV program funds on the '90 side' to instead include all "federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such institution" or collectively "federal education assistance funds." The 90/10 provision will be subject to negotiated rulemaking after October 2021, with an earliest effective date on or after January 1, 2023. Additionally, in June 2021, the Department held virtual public hearings to receive stakeholder feedback on potential issues for the upcoming negotiated rulemaking sessions. These issues include borrower defense to repayment for students, gainful employment requirements, and change in ownership and change in control of institutions of higher education among other topics. If these changes were to go into effect, it could adversely impact our university partners, which in turn could adversely affect our revenues or our ability to grow.
Regulation - Risk 10
The borrower defense to repayment regulations expand the circumstances in which students may assert a defense to repayment against an institution and could result in the imposition of significant restrictions on our university partners ability to operate.The Department has regulations regarding borrower defense to repayment. The regulations allow a borrower to assert a defense to repayment on the basis of a substantial misrepresentation, any other misrepresentation in cases where certain other factors are present, a breach of contract or a favorable non-default contested judgment against a school for its act or omission relating to the making of the borrower's loan or the provision of educational services for which the loan was provided. In addition, the financial responsibility standards contained in the regulations establish the conditions or events that trigger the requirement for an institution to provide the Department with financial protection in the form of a letter of credit or other security against potential institutional liabilities. Triggering conditions or events include, among others, certain state, federal or accrediting agency actions or investigations, and in the case of publicly traded companies, receipt of certain warnings from the SEC or the applicable stock exchange, or the failure to timely file a required annual or quarterly report with the SEC. The regulations also prohibit schools from requiring that students agree to settle future disputes through arbitration.
Under the borrower defense to repayment regulations, an institution could face claims by students based on the expanded circumstances in which students may assert a defense to repayment of their student loans, and the Department may be entitled to seek recoupment of student loans discharged pursuant to the regulations.
In July 2020, the Department notified the Company that the Department would be initiating a preliminary review of borrower defense applications from borrowers who made claims regarding the University. As part of the initial fact-finding process, the Department sent individual student claims to the University and allowed the institution to submit a response to the individual borrower's claim. The Company received and timely responded to each individual student claim and cannot predict the outcome of the Department's review at this time.
Regulation - Risk 11
Government regulations relating to the internet could increase our cost of doing business, affect our ability to grow or otherwise have a material adverse effect on our business.The increasing use of the internet and other online services has led and may lead to the adoption of new laws and regulatory practices in the United States or in foreign countries and to new interpretations of existing laws and regulations. These new laws and interpretations may relate to issues such as online privacy, copyrights, trademarks and service marks, sales taxes, fair business practices and the requirement that online education institutions qualify to do business as foreign corporations or be licensed in one or more jurisdictions where they have no physical location or other presence. New laws, regulations or interpretations related to doing business over the internet could increase our costs and materially and adversely affect enrollments.
Litigation & Legal Liabilities2 | 3.6%
Litigation & Legal Liabilities - Risk 1
We face litigation and legal proceedings that could have a material adverse effect on our revenues, financial condition, cash flows and results of operations.Litigation & Legal Liabilities - Risk 2
An institution must periodically seek recertification to participate in Title IV programs and may, in certain circumstances, be subject to review or other action by the Department in connection with such recertification.An institution must periodically seek recertification from the Department to continue to participate in Title IV programs and may, in certain circumstances, be subject to review or other action by the Department in connection with such recertification. The Department may review an institution's continued certification to participate in Title IV programs in the event of a change of control and may take emergency action to suspend an institution's certification without advance notice if it determines the institution is violating Title IV requirements and immediate action is necessary to prevent misuse of Title IV funds. If the Department revokes or does not renew the certifications to participate in Title IV programs, our university partner's students would no longer be able to receive Title IV funds, which would have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
Taxation & Government Incentives1 | 1.8%
Taxation & Government Incentives - Risk 1
If we are determined to have paid improper incentive compensation to our covered employees, or tuition sharing arrangements are deemed to violate the incentive compensation regulations, our business will be impaired.Environmental / Social2 | 3.6%
Environmental / Social - Risk 1
We are subject to laws and regulations as a result of our collection and use of personal information, and any violations of such laws or regulations, or any security or cybersecurity breach, theft or loss of such information, could adversely affect our business.Environmental / Social - Risk 2
We are required to comply with the Family Educational Rights and Privacy Act ("FERPA"), and failure to do so could harm our reputation and negatively affect our business.FERPA generally prohibits an institution of higher education participating in Title IV programs from disclosing personally identifiable information from a student's education records without the student's consent. Our university partners and their students disclose to us certain information that originates from or comprises a student education record under FERPA. As an entity that provides services to institutions participating in Title IV programs, we are indirectly subject to FERPA, and we may not transfer or otherwise disclose any personally identifiable information from a student record to another party other than in a manner permitted under the statute. If we violate FERPA, such violation could result in a material breach of contract with one or more of our university partners and could harm our reputation. Further, in the event that we disclose student information in violation of FERPA, the Department could require a university partner to suspend our access to its student information for at least five years.
Tech & Innovation
Total Risks: 5/55 (9%)Above Sector Average
Innovation / R&D1 | 1.8%
Innovation / R&D - Risk 1
Our success depends in part on our university partners' ability to update and expand the content of existing programs and to develop new programs and specializations on a timely basis and in a cost-effective manner.Trade Secrets1 | 1.8%
Trade Secrets - Risk 1
We may be unable to sufficiently protect our proprietary rights and we may encounter disputes from time to time relating to our use of the intellectual property of third parties.Cyber Security1 | 1.8%
Cyber Security - Risk 1
System disruptions and vulnerability from security risks to our technology infrastructure could damage our reputation and the reputation of our other subsidiaries, and negatively impact our business.Technology2 | 3.6%
Technology - Risk 1
A failure of our information systems to properly store, process and report relevant data may reduce our management's effectiveness, interfere with our regulatory compliance and increase our operating expenses.Technology - Risk 2
If we fail to maintain adequate systems and processes to detect and prevent fraudulent activity in student enrollment and financial aid, our business could be adversely impacted.We are susceptible to an increased risk of fraudulent activity by outside parties with respect to student enrollment and student financial aid programs. The potential for outside parties to perpetrate fraud in connection with the award and disbursement of Title IV program funds, including as a result of identity theft, may be heightened because we are an online education provider. Our systems and processes may not always be adequate in the face of increasingly sophisticated and ever-changing fraud schemes. We must maintain systems and processes to successfully identify and prevent fraudulent applications for enrollment and financial aid.
The Department's regulations require institutions that participate in Title IV programs to refer to the OIG credible information indicating that any applicant, employee, third-party servicer or agent of the institution that acts in a capacity that involves administration of Title IV programs has been engaged in any fraud or other illegal conduct involving Title IV programs. If the systems and processes that we have established to detect and prevent fraud are inadequate, the Department may find that we do not satisfy its "administrative capability" requirements. In addition, an institution's ability to participate in Title IV programs is conditioned on their maintaining accreditation by an accrediting agency that is recognized by the Department. Under the Higher Education Act, accrediting agencies that evaluate institutions offering distance learning programs, must require such institutions to have processes by which they establish that a student who registers for a distance education program is the same student who participates in and receives credit for the program. Any failure to satisfy the Department's administrative capability requirements or any loss of accreditation as a result of a failure to detect and prevent fraudulent activity could result in limits on or loss of Global Campus' eligibility to participate in Title IV programs and have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
Production
Total Risks: 4/55 (7%)Below Sector Average
Employment / Personnel2 | 3.6%
Employment / Personnel - Risk 1
We may not be able to retain our key personnel or hire and retain the personnel we need to sustain and grow our business.Employment / Personnel - Risk 2
If we are unable to hire new employees or to continue to develop existing employees responsible for student recruitment, the effectiveness of our new enrollment efforts would be adversely affected.We intend to (i) hire, develop and train additional employees responsible for new enrollment and (ii) retain and continue to develop and train our existing new enrollment personnel. Our ability to develop and maintain a strong new enrollment function may be affected by a number of factors, including our ability to integrate and motivate our enrollment service advisors, our ability to effectively train our enrollment service advisors, the length of time it takes new enrollment service advisors to become productive, regulatory restrictions on the method of compensating enrollment service advisors and the competition involved in hiring and retaining enrollment service advisors. If we are unable to hire new employees or retain and develop current employees responsible for new enrollment, it could have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
Supply Chain2 | 3.6%
Supply Chain - Risk 1
Our current or any future university partners failure to keep pace with changing market needs could harm their ability to attract students.Supply Chain - Risk 2
We rely on a third-party vendor to provide the online learning platform for students and related support and hosting.We have a license agreement with Instructure pursuant to which we license an online Canvas learning management system and platform for students at our university partners. We currently rely on Instructure for administrative support and hosting of the applicable systems. If Instructure ceases to operate or is unwilling or unable to work with us, or if our agreement with Instructure is otherwise terminated, the online learning platform for students at our university partners and related administrative support and hosting could be interrupted or become unavailable, which could have a material adverse effect on our business.
Macro & Political
Total Risks: 4/55 (7%)Below Sector Average
Economy & Political Environment4 | 7.3%
Economy & Political Environment - Risk 1
The Dissolution pursuant to the Plan of Dissolution may be disrupted and adversely impacted by the effects of natural disasters, political crises, public health crises, and other events outside of our control.Added
Economy & Political Environment - Risk 2
Our spending in the areas of new investments or other marketing opportunities may cause us to incur additional operating losses if we do not realize our expected revenues.Our spending is based in significant part on our estimates of future revenue and is largely fixed in the short term. As a result, we may be unable to adjust our spending in a timely manner if our revenue falls short of our expectations. Accordingly, any significant shortfall in revenues in relation to our expectations would have an immediate and material adverse effect on our profitability. We anticipate increasing operating expenses on new investments and marketing initiatives. Any such increase could cause material losses to the extent we do not generate additional revenues sufficient to cover those expenses.
Economy & Political Environment - Risk 3
A protracted economic slowdown and rising unemployment could lead to lower enrollment at our university partner.We believe that many students pursue postsecondary education to be more competitive in the job market. However, a protracted economic slowdown could increase unemployment and diminish job prospects generally. Diminished job prospects and heightened financial worries could affect the willingness of students to incur loans to pay for postsecondary education and to pursue postsecondary education in general. As a result, enrollments at our university partner could suffer.
In addition, many students borrow Title IV loans to pay for tuition, fees and other expenses. A protracted economic slowdown could negatively impact their ability to repay those loans which would negatively impact cohort default rates. Our university partner's students also are frequently able to borrow Title IV loans in excess of their tuition. The excess is received by such students as a stipend. However, if a student withdraws, our university partner must return any unearned Title IV funds,including stipends. A protracted economic slowdown could negatively impact such students' ability to repay those stipends. As a result, the amount of Title IV funds we would have to return without reimbursement from students could increase, and our results of operations could suffer.
Economy & Political Environment - Risk 4
We may be susceptible to a number of political, economic, and geographic risks that could harm our business. Significant disruptions in the global economic environment, as a result of a pandemic such as COVID-19, may adversely affect our business and financial results.The occurrence of certain political, economic or geographic events, such as natural disasters or a pandemic, including the outbreak of COVID-19 could result in a significant decline in our revenue. We are dependent on customers that are geographically diverse and could be negatively impacted if economic conditions in the U.S. and globally were negatively impacted. Such an occurrence could cause a decrease in our university partner's enrollment, including a decline in student retention.
The outbreak of COVID-19 continues to grow both in the U.S. and globally, and related government and private sector responsive actions could adversely affect our business operations, including continued work-from home orders. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the COVID-19 and the actions taken to contain it or treat its impact. We have asked our corporate employees whose jobs allow them to work remotely to do so, as deemed necessary. Such precautionary measures could create operational challenges as we adjust to a remote workforce, which could adversely impact our business. We are also dependent on customers that are geographically diverse and would be negatively impacted if economic conditions in the U.S. and globally continue to be negatively impacted and cause a decrease in our enrollment.
Ability to Sell
Total Risks: 3/55 (5%)Below Sector Average
Demand1 | 1.8%
Demand - Risk 1
A decline in the overall growth of enrollment in postsecondary institutions, or in the number of students seeking degrees online, could cause our university partners to experience a decline in enrollment.Sales & Marketing2 | 3.6%
Sales & Marketing - Risk 1
A large percentage of our revenue is attributable to our contractual relationship with Global Campus, and the loss of, or a decline in enrollment in, Global Campus programs could significantly reduce our revenue and impact our overall financial performance.Sales & Marketing - Risk 2
The Sale Transaction with the University of Arizona and Global Campus, is subject to certain terms and conditions that if not achieved, could disrupt our business.In connection with the closing of the Sale Transaction, the Company and Global Campus entered into a long-term Services Agreement pursuant to which the Company will provide recruiting, financial aid, counseling, institutional support, information technology, and academic support services to Global Campus. The Services Agreement has an initial term through June 30, 2036, subject to renewal options, although Global Campus has the right to terminate the Services Agreement after its fiscal year ending June 30, 2028 subject to the payment of a termination fee equal to one-hundred (100%) of the services fees paid to the Company in the trailing twelve (12) month period (payable half in cash and half in an unsecured note).
In return for providing services under the Services Agreement, Global Campus, after covering its direct costs of operations (which may not be increased by more than 2% per year), will pay to the Company services fees equal to the Company's direct costs to provide the services plus an additional amount equal to 19.5% of Global Campus's tuition and fees revenue. If, following its fiscal year ending June 30, 2028, Global Campus's tuition and fees revenue is $440.0 million or less, then the Company's revenue share percentage is subject to decrease on a sliding scale to between 18.1% and 15.5%, subject to increase back up to 19.5% if, in any subsequent fiscal year, Global Campus's tuition and fees revenue again exceeds $440.0 million. In addition, the parties to the Services Agreement have agreed on certain minimum profit levels to be achieved by Global Campus after payment of the Company's services fees of $0 for the period ending June 30, 2021, $0 for Global Campus' fiscal year ending June 30, 2022, $12.5 million for the fiscal year ending June 30, 2023, $25.0 million for the fiscal years ending June 30, 2024, 2025 and 2026, and $10.0 million for each fiscal year thereafter through the remainder of the initial term; subject to certain limitations, the Company is required to adjust its fees in any year to the extent necessary for Global Campus to achieve such minimum levels. In addition, in accordance with the conditions of the WSCUC approval, the Services Agreement incorporates identified key performance indicators, all as mutually agreed upon the parties.
On an annual basis, immaterial cash penalties could arise from not meeting individual key performance indicators. However, breaches of these key performance indicators over a multi-year period could have a material impact on our business, financial condition and results of operations.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.