Callaway Golf (CALY) risk factors, FY2024 10-K

Other

1. 01Certain Factors Affecting Topgolf Callaway Brands

Risks Related to our Industry and Business

1. 02Unfavorable economic conditions, including as a result of inflation or otherwise, could have a negative impact on consumer discretionary spending and therefore negatively impact our results of operations, financial condition and cash flows
2. 03Our revenue growth and profitability are impacted by our same venue sales, which have recently declined, and there are material risks to our ability to increase such sales
3. 04We generate a substantial portion of our revenues from the sale of golf-related products, including golf clubs, golf balls, golf-related soft goods and golf accessories
4. 05We may have limited opportunities for future growth in sales of golf clubs and golf balls
5. 06We may face increased labor costs or labor shortages, in particular with respect to our Topgolf venues business, that could slow growth and adversely affect our business, results of operations and financial condition
6. 07A severe or prolonged economic downturn could adversely affect our customers’ financial condition, their levels of business activity and their ability to pay trade obligations
7. 08We face intense competition in each of our markets and operating segments, and if we are unable to compete effectively, it could have a material adverse effect on our business, results of operations, financial condition and growth prospects
8. 09Our retail operations are subject to various factors that pose risks and uncertainties and which could adversely impact our financial condition and operating results
9. 10The growth strategy for our Topgolf business depends in part on our ability to open new venues in existing and new markets
10. 11New venues, once opened, may not be profitable or may close, which would adversely affect our business as well as our financial condition and results of operations and ability to execute our growth strategy
11. 12If we are unable to successfully manage the frequent introduction of new products that satisfy changing consumer preferences or trends, it could significantly and adversely impact our financial performance and prospects for future growth
12. 13Our expanding active lifestyle business and our Topgolf venues business are subject to pressures from changing consumer tastes and preferences on a global level and, as a result, we are dependent on our ability to timely introduce products and services that anticipate and/or satisfy such preferences
13. 14On a consolidated basis, no single customer accounted for more than 10% of our consolidated revenues in 2024, 2023, or 2022. Our top five customers accounted for approximately 11% of our consolidated revenues in 2024, and approximately 12% of our consolidated revenue in 2023 and 2022
14. 15Consolidation of retailers or concentration of retail market share among a few retailers may increase and concentrate our credit risk, putting pressure on our margins and our ability to sell products relating to our golf equipment and active lifestyle business segments
15. 16Changes in equipment standards under applicable Rules of Golf, including new rules intended to reduce distances through limitations on golf ball specifications, could adversely affect our business
16. 17Our sales and business could be materially and adversely affected if professional athletes, celebrities and other endorsers do not endorse or use our products, or if the professional athletes, celebrities and other endorsers using our products receive less or negative publicity
17. 18Our business depends on strong brands and related reputations, and if we are not able to maintain and enhance our brands or preserve our strong reputation, including as a result of actions taken by Topgolf franchisees, our sales may be adversely affected
18. 19International political instability and terrorist activities may decrease demand for our products and services and disrupt our business
19. 20Our business could be harmed by the occurrence of natural disasters, pandemics or other emergencies
20. 21Our business is subject to both seasonal and non-seasonal fluctuations, unusual or severe weather conditions and droughts which could result in fluctuations in our operating results and stock price
21. 22Any significant changes in U.S. trade or other policies that restrict imports or increase import tariffs could have a material adverse effect on our results of operations
22. 23Our current senior management team and other key executives are critical to our success, and the loss of, and failure to adequately replace, any such individual could significantly harm our business
23. 24Certain of our stockholders, if they choose to act together, have the ability to significantly control or influence all matters submitted to stockholders for approval

Risks Related to Operations, Manufacturing, and Technology

1. 25We have significant international operations and therefore exposed to risks associated with doing business globally
2. 26We have significant international sales and purchases, and unfavorable changes in foreign currency exchange rates could have a significant negative impact on our results of operations and cash flows
3. 27The costs and availability of finished products, product components, raw materials and ingredients could affect our operating results
4. 28Any difficulties from strategic acquisitions that we pursue or consummate could adversely affect our business, financial condition and results of operations
5. 29If we inaccurately forecast demand for our products, we may manufacture either insufficient or excess quantities, which, in either case, could adversely affect our financial performance
6. 30We may not be able to obtain and maintain licenses and permits necessary to operate our Topgolf business and our venues in compliance with applicable laws, regulations and other requirements, which could adversely affect our business, results of operations and financial condition
7. 31We depend on a limited number of suppliers for some of the components of our products, and the loss of any of these suppliers could harm our business
8. 32A significant disruption in the operations of our manufacturing and assembly facilities could have a material adverse effect on our sales, profitability and results of operations
9. 33A disruption in the service or a significant increase in the cost of our primary delivery and shipping services for our products and component parts or a significant disruption at shipping ports could have a material adverse effect on our business
10. 34Instances of food-borne illness and outbreaks of disease could negatively impact our Topgolf business
11. 35Guest complaints, litigation on behalf of guests or Playmakers or other proceedings may adversely affect our business, results of operations and financial condition
12. 36Our venue operations are susceptible to the availability and cost of food commodities and other supplies, some of which are available from a limited number of suppliers, which subjects us to possible risks of shortages, interruptions and price fluctuations
13. 37Cybersecurity incidents, including cyber-attacks, unauthorized access to, or accidental disclosure of, personal information including payment card information, that we or our vendors collect or store on our behalf may result in significant expense and negatively impact our reputation and business
14. 38Moreover, we have acquired and continue to acquire companies with cybersecurity vulnerabilities and/or are similarly susceptible to the risks described above, which exposes us to significant cybersecurity, operational, and financial risks
15. 39We may be subject to products liability, warranty and recall claims, and our insurance coverage may not cover such claims
16. 40Our growth initiatives require significant capital investments and there can be no assurance that we will realize a positive return on these investments
17. 41Some of our products and services in the Topgolf business contain open source software, which may pose particular risks to our proprietary software, technologies, products, and services in a manner that could harm our business
18. 42Failure to adequately enforce our intellectual property rights could adversely affect our reputation and sales
19. 43We may become subject to intellectual property claims or lawsuits that could cause us to incur significant costs or pay significant damages or that could prohibit us from selling our products
20. 44Our international growth strategy for Topgolf depends in large part on the success of our franchisees and on their ability to open new venues. Our franchisees face challenges that could adversely affect their ability to open new venues and venue operations and, consequently, our business and reputation
21. 45If our franchisees are not able to successfully open new venues, or if there is any significant adverse change in these and other circumstances or conditions relating to franchisee operations, our operations, financial performance, and condition could be materially adversely affected
22. 46Sales of our products by unauthorized retailers or distributors could adversely affect our authorized distribution channels and harm our reputation
23. 47We rely on research and development, technical innovation and high quality products to successfully compete
24. 48Our business is subject to risks associated with leasing property subject to long-term, non-cancelable leases

Risks Related to Regulations

1. 49Compliance with and changes in data privacy laws, regulations, standards and other requirements, and any actual or perceived failure by us to comply with such requirements, may adversely affect our business
2. 50Regulations related to “conflict minerals” require us to incur additional expenses and could limit the supply and increase the cost of certain metals used in manufacturing our products
3. 51We could be adversely affected by any violations of economic sanctions laws and regulations, the FCPA, the U.K. Bribery Act, and other foreign anti-bribery laws
4. 52We are subject to environmental, health and safety laws and regulations, which could subject us to liabilities, increase our costs or restrict our operations in the future

Risks Related to Tax and Financial Matters

1. 53Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability
2. 54Our ability to utilize all or a portion of our U.S. net operating losses and certain other tax attributes may be subject to limitations
3. 55We may need to raise additional funds from time to time through public or private debt or equity financings in order to execute our growth strategy, including the growth strategy for our Topgolf business prior to the separation
4. 56Increases in interest rates could increase the cost of servicing our indebtedness and have an adverse effect on our results of operations and cash flows
5. 57Goodwill and intangible assets represent a significant portion of our total assets, and any impairment of these assets could negatively impact our results of operations and shareholders’ equity

Risks Related to the Separation and Our Relationship with Topgolf

1. 58The separation of our business into two independent companies may not be completed on the currently contemplated timeline, or at all, and may not achieve the intended benefits
2. 59As a separate, publicly traded company, Callaway may not enjoy the same benefits that we do when consolidated with Topgolf
3. 60Our customers, prospective customers, suppliers or other companies with whom we conduct business may conclude that our financial stability as a separate, publicly traded company is insufficient to satisfy their requirements for doing or continuing to do business with them
4. 61If the distribution, together with certain related transactions, fails to qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code, we and our stockholders could incur significant tax liabilities
5. 62After the distribution, certain of Callaway’s executive officers and directors may have actual or potential conflicts of interest because of their equity interests in Topgolf
6. 63Topgolf may compete with Callaway
7. 64We may not achieve some or all of the expected benefits of the separation, and the separation may adversely affect our business
8. 65We may have received better terms from unaffiliated third parties than the terms we will receive in our agreements with Topgolf
9. 66Callaway may fail to perform under various transaction agreements that will be executed as part of the separation
10. 67Our insurance policies may not provide adequate levels of coverage against all claims and we may incur losses that are not covered by our insurance
11. 68If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our financial condition and results of operations could be adversely affected