Driven Brands Holdings (DRVN) risk factors, FY2024 10-K

Risks Relating to Our Business

1. 01Competition may harm our business and results of operations
2. 02Changes in consumer preferences and perceptions, and in economic, market, and other conditions could adversely affect our business and results of operations
3. 03Our business is affected by the financial results of our franchisees
4. 04Our business is affected by advances in automotive technology
5. 05Certain restrictions may prevent us from providing our services and products to customers
6. 06Increases in operating costs, including labor and commodity costs and interest rates have, and may again in the future, adversely affect our results of operations
7. 07High levels of economic inflation may increase our operating costs, influence demand for our products, and impact the profitability of our business
8. 08Our locations may experience difficulty hiring and retaining qualified personnel, resulting in higher labor costs
9. 09Insurance coverage may not be adequate, and increased self-insurance and other insurance costs could adversely affect our results of operations
10. 10Increases in supply costs could adversely affect our results of operations
11. 11Tariffs imposed by the U.S. and/or other governments and geopolitical uncertainty could increase our supply costs, which could materially and adversely affect our business and results of operations
12. 12Decreases in our product sourcing revenue could adversely affect our results of operations
13. 13adverse effect on our sales and profit margins, which in turn could materially and adversely affect our business and results of operations
14. 14We depend on key suppliers, including international suppliers, to deliver timely high-quality products at quantities and prices required for our businesses
15. 15Supply chain shortages and interruptions could adversely affect our business
16. 16Our business depends on the willingness of suppliers, distributors, and service providers to supply our locations with goods and services pursuant to customary credit arrangements which may be available in the future on less favorable terms or not at all
17. 17Our failure to build and maintain relationships with insurance partners could adversely affect our business
18. 18Substantially all of the assets of the Company are pledged as security under the terms of our Indebtedness
19. 19We may not be able to execute on our plans to open additional locations and enter new markets
20. 20Should we and our franchisees not succeed in opening additional locations or improving existing locations, there may be adverse impacts to our growth strategy and to our ability to generate additional profits, which in turn could materially and adversely affect our business and results of operations
21. 21Our acquisitions, dispositions, and strategic investments involve risks
22. 22Our business may be adversely impacted by our indebtedness, including additional leverage in connection with acquisitions and other capital expenditure initiatives
23. 23Our business is subject to seasonality
24. 24Our business may be adversely impacted by the geographic concentration of our locations
25. 25Our operations are subject to various risks and uncertainties, including adverse economic conditions or a debt crisis, which could adversely affect our business
26. 26Our success depends on the effectiveness of our marketing and advertising programs
27. 27Our failure or our franchisees and independent operators’ failure to comply with health, employment, and other federal, state, local, and provincial laws, rules, and regulations may lead to losses and harm our brands
28. 28In addition to the risk of adverse legislation or regulations being enacted in the future, we cannot predict how existing or future laws or regulations will be administered or interpreted. Further, we cannot predict the amount of future expenditures that may be required to comply with any such laws or regulations
29. 29Our locations are subject to certain environmental laws and regulations
30. 30Complaints or litigation may adversely affect our business and reputation
31. 31We may have product liability exposure that adversely affects our results of operations
32. 32We are subject to payment-related risks
33. 33Catastrophic events may disrupt our business in a manner that adversely affects our business
34. 34Instability, disruption, or destruction caused by civil insurrection or social unrest may affect the markets in which we operate, our suppliers, customers, sales of products, and customer service
35. 35We and our franchisees lease or sublease the land and buildings where a number of our locations are situated, which could expose us to possible liabilities and losses
36. 36Our current locations may become unattractive, and attractive new locations may not be available for a reasonable price, if at all, which could adversely affect our business
37. 37Our financial performance could be materially adversely affected if we fail to retain, or effectively respond to a loss of, key executives

Risks Related to Intellectual Property and Technology

1. 38We depend on our intellectual property to protect our brands, we may fail to establish trademark rights in the countries we operate and litigation to enforce or defend our intellectual property rights may be costly
2. 39If franchisees and other licensees do not observe the required quality and trademark usage standards, our brands may suffer reputational damage, which could in turn adversely affect our business
3. 40We may become subject to third-party infringement claims or challenges to intellectual property validity
4. 41could harm our business and cause a decline in our results of operations and financial condition, which in turn may materially and adversely affect our business and results of operations
5. 42We do not own certain software that is used in operating our business and our proprietary platforms and tools incorporate open-source software
6. 43We are heavily dependent on information systems and technology, and any significant failure, interruption, or security incident could impair our ability to efficiently operate our business or timely or accurately prepare financial reports
7. 44The occurrence of cyber incidents, or a deficiency in cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise, corruption, or loss of data, and/or damage to our employee and business relationships, all of which could lead to loss and harm our business
8. 45Changing regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information, and harm our brands in a manner that adversely affects our business

Risks Relating to the Franchisees

1. 46A majority of our locations are owned and operated by franchisees and, as a result, we are highly dependent upon our franchisees
2. 47Franchisee changes in control may adversely impact franchisee operations
3. 48Franchise documents are subject to termination and non-renewal
4. 49We may not be able to retain franchisees or maintain the quality of existing franchisees
5. 50Our location development plans under development agreements may not be implemented effectively by franchisees
6. 51There is no assurance that franchisees’ development and construction of locations will be completed, or that any such development will be completed in a timely manner. There is no assurance that present or future development plans will perform in accordance with expectations
7. 52Our franchisees are an integral part of our business. Franchisees will be subject to specified product quality standards and other requirements pursuant to the related franchise agreements to protect our brands and to optimize their performance

Risks Related to our Indebtedness

1. 53Our substantial indebtedness could adversely affect our financial condition
2. 54In addition, the financial and other covenants we agreed to in our debt agreements may limit our ability to incur additional indebtedness, make investments, and engage in other transactions, and the leverage may cause potential lenders to be less willing to loan funds to us in the future
3. 55The documents governing our indebtedness have restrictive terms and our failure to comply with any of these terms could put us in default, which would have an adverse effect on our business and prospects
4. 56The Securitization Senior Notes Indenture governing the securitized debt facility may restrict the cash flow from the entities subject to the securitization to us and our subsidiaries and, upon the occurrence of certain events, cash flow would be further restricted

Risks Related to Ownership of Our Common Stock

1. 57Our stock price may fluctuate significantly
2. 58Our ability to raise capital in the future may be limited
3. 59We are a holding company and rely on dividends, distributions, and other payments, advances, and transfers of funds from our subsidiaries to meet our obligations
4. 60We are required to make payments under a Tax Receivable Agreement for certain tax benefits, which amounts are expected to be material
5. 61Our Principal Stockholders collectively have significant influence over us, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote
6. 62We are a “controlled company” within the meaning of NASDAQ rules and, as a result, qualify for exemptions from certain corporate governance requirements that we have relied on in the past and may do so in the future
7. 63Our organizational documents and Delaware law may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium on their shares
8. 64Our certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities
9. 65Future sales of our common stock in the public market, or the perception in the public market that such sales may occur, could reduce our stock price