ITEM 8.01 OTHER EVENTS
The Company is supplementing the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 with the following risk factor:
The continued spread of novel coronavirus disease 19 (“COVID-19"), or any similar widespread infectious disease outbreak, could harm our operations.
In January 2020, the World Health Organization (“WHO”) declared COVID-19 a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic. An outbreak and spread of COVID-19, or any similar widespread infectious disease outbreak, could harm our operations in a variety of ways, which may include the following, without limitation:
•While historically our revenues and earnings have been relatively predictable as a result of our recurring transaction-based business model, we anticipate the effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods.
•As the COVID-19 pandemic progresses in the United States and negatively affects business and citizen consumers who use the digital services we operate on behalf of our government partners, we have experienced a decrease in volumes for certain services. If certain of our high volume, commercially valuable services we operate on behalf of our government partners experience a further decrease in volumes, such as the driver history record service we operate in the vast majority of our enterprise states and the federal Pre-Employment Screening Program we operate on behalf of the Department of Transportation Federal Motor Carrier Safety Administration, our revenues and profits could decline.
•Several government agency partners are allowing citizens 60 to 90 day extensions for certain required filings and renewals. The actions have impacted the amount and timing of the revenues we recognize for these services, and we expect these trends to continue for at least the next several months. If our government partners were to reduce fees for digital services to its citizens, or allow for citizens to further defer the payment for licenses, permits or registrations, it may reduce or defer the portion of fees we earn for providing digital government services.
•We generate a portion of our revenue from in-person transactions at brick-and-mortar government agency offices (over-the-counter or “OTC”), many of which are currently closed. To the extent the locations where these OTC transactions take place remain closed, we would not be able to be able to execute transactions in this way. There can be no assurance that a decrease in OTC transactions would result in a proportional increase in online digital transactions for the same service, and thus our revenues and profits could decline.
•To the extent that transactions from digital sources increase as fewer citizens and businesses chose in-person transactions, it may strain our technological resources, which may require us to make additional IT infrastructure and bandwidth investments, which may require substantial financial resources and require significant management attention.
•The closing of local, state or national parks and recreation areas has reduced the fees we earn for providing digital reservations, permits, park entrance fees or other authorizations for park or recreation experiences. To the extent local, state or national parks and recreation areas remain closed or the threat of COVID-19 reduces demand for future travel,
the fees we earn on such digital reservations, permits, park entrance fees and other authorizations may continue to decline.
•In response to COVID-19 concerns, we have imposed strict travel restrictions, temporarily closed all our offices and shifted to remote operations to ensure social distancing and the health and safety of our employees which may have negative impacts on our business development efforts. Most of our government partners and potential government partners have implemented similar measures, which may limit our ability to provide or sell our services to them. Our government partners may also delay or cancel purchasing decisions or projects in light of uncertainties arising from the COVID-19 outbreak.
•Remote work-from-home restrictions makes us more dependent on certain technologies that allow us to operate our business remotely and collaborate without face-to-face meetings both internally and with our customers. To the extent we may experience a technological disruption in our work-from-home capabilities, we would anticipate a negative impact on our business operations. Further, to the extent supply chains are disrupted, it may become more difficult to provide necessary technology to our employees working from remote locations.
•If one of our key employees or executive officers were to contract an infectious disease that impacted their ability to work for an extended period, even with an adequate succession plan, it could harm our business until that employee or executive officer recovers or until a permanent replacement is found. Hiring and training new employees may require substantial resources and management attention, particularly in a remote workforce situation. Further, because we are self-insured for healthcare, the medical costs associated with treating our employees that contract an infectious disease such as COVID-19 could be significant.
•To the extent a widespread infectious disease outbreak such as COVID-19 impacts the economic conditions in the United States, our partners could have less funding for digital government services, which may reduce the revenues we recognize for those services.
•COVID-19 has negatively affected the economic conditions in the United States and resulted in the Federal Reserve lowering interest rates to near zero, which has reduced the interest income we earn on our investable cash and increased the amount of fees we pay for commercial banking services. Any reduction in the earnings credit rate set by our commercial banking partners, which a bank calculates on non-interest bearing customer deposits and uses to offset service charges, could further increase fees we pay for commercial banking services.
•The stock market has been unusually volatile during the COVID-19 outbreak and such volatility may continue, which may negatively affect our stock price.
The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions, whether the virus recurs seasonally, and the impact of these and other factors on our employees, government partners and vendors. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed.