FRANKLIN COVEY CO

Current report

The loss of governmental funding and contributions from charitable organizations could harm our Education Division’s ability to grow and expand into new schools in the future.

Current report

Schools in the United States benefit from governmental funding initiatives, such as the Elementary and Secondary School Emergency Relief (ESSER) program, which provide additional funding for schools to pursue improvement programs such as The Leader in Me offering. In addition, we partner with charitable organizations to fund The Leader in Me programs in many schools across the country. Supported by numerous studies and endorsements, we believe The Leader in Me program provides meaningful and measurable improvement to the academic environment of schools, which enable the educational institutions to utilize governmental funding and attract additional support from charitable organizations to implement The Leader in Me offering. If governmental funding for school improvement expires or is reduced, or charitable organizations decide not to continue to support The Leader in Me schools, our results of operations, cash flows, and financial position may be adversely impacted.

Current report

Our work with governmental clients exposes us to additional risks that are inherent in the government contracting process.

Current report

Our clients include national, state, provincial, and local governmental entities, and our work with these governmental entities has various risks inherent in the governmental contracting process. These risks include, but are not limited to, the following:

Current report

Governmental entities typically fund projects through appropriated monies. While these projects are often planned and executed as multi-year projects, the governmental entities usually reserve the right to change the scope of, or terminate, these projects for lack of approved funding, budgetary changes, and other discretionary reasons. Changes in governmental priorities or other political developments, including disruptions in governmental operations, could result in reductions in the scope of, or in termination of, our existing contracts.

Current report

Governmental entities often reserve the right to audit our contract costs, including allocated indirect costs, and conduct inquiries and investigations of our business practices with respect to our government contracts. Findings from an audit may result in our being required to prospectively adjust previously agreed-upon rates for our work, which may adversely affect our future margins.

Current report

If a governmental client discovers improper activities in the course of audits or investigations, we may become subject to various civil and criminal penalties and administrative sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines and suspensions, or debarment from doing business with other agencies of that government.

Current report

Political and economic factors such as pending elections, the outcome of elections, revisions to governmental tax policies, sequestration, debt ceiling negotiations, and reduced tax revenues can affect the number and terms of new governmental contracts signed. For example, in the first three quarters of fiscal 2025, we have experienced decreased revenue due to delayed or canceled government contracts resulting from efficiency initiatives adopted by the current administration. Continued actions under such efficiency initiatives, as well as macroeconomic uncertainty created by such actions, may continue to adversely affect our revenue. In addition, the current administration’s adoption and adjustment of tariffs have created economic uncertainty and geopolitical tensions which have adversely affected our clients and, as a result, our results of operations.

Current report

The occurrences or conditions described above could affect not only our business with the particular governmental agency involved, but also our business with other agencies of the same or other governmental entities. Additionally, because of their visibility and political nature, governmental contracts may present a heightened risk to our reputation. Any of these factors could have an adverse effect on our business or our results of operations.