Topgolf Callaway Brands Corp

Previous wording

•Net income and diluted earnings per share excluding certain non-cash and non-recurring charges, as further detailed below.

Current wording

•Net income and diluted earnings per share excluding certain non-recurring charges, as further detailed below.

Previous wording

Our Topgolf operating segment is primarily comprised of Company-operated domestic and international Topgolf venues, which are equipped with technology-enabled hitting bays, multiple bars, dining areas and event spaces. Our Company-operated venues also offer advertising partnerships to corporate sponsors to feature their names and logos at Topgolf venues and on other media platforms. Revenue from Company-operated venues is primarily derived from the sale of food and beverage, gameplay, and events. As of June 30, 2024, we had 96 Company-owned and operated venues, including 90 Topgolf venues and two Company-owned BigShots venues, throughout the United States, and four Company-operated venues in the United Kingdom. In addition to our Company-operated venues, we also have five international franchised Topgolf venues from which we receive royalties.

Current wording

Our Topgolf operating segment is primarily comprised of Company-operated domestic and international Topgolf venues, which are equipped with technology-enabled hitting bays, multiple bars, dining areas and event spaces. Our Company-operated venues also offer advertising partnerships to corporate sponsors to feature their names and logos at Topgolf venues and on other media platforms. Revenue from Company-operated venues is primarily derived from the sale of food and beverage, gameplay, and events. As of September 30, 2024, we had 98 Company-operated venues, including 92 Topgolf venues and two Company-owned BigShots venues, throughout the United States, and four Company-operated venues in the United Kingdom. In addition to our Company-operated venues, we also have five international franchised Topgolf venues from which we receive royalties.

Previous wording

Our products and services are considered to be non-essential items and are therefore discretionary purchases for consumers. As a result, the demand for our products and services is highly sensitive to unfavorable macroeconomic conditions. Such unfavorable conditions could result in a decline in general consumer and corporate discretionary spending and as such, demand for our products and services may decline. While we generally try to mitigate the impact of such macroeconomic factors by closely monitoring changes in consumer retail spending behavior and through the implementation of various strategic initiatives, the continued fluctuation of these trends may have an adverse impact on our operating results depending on the severity and length of the changes.

Current wording

Our products and services are considered to be non-essential items and are therefore discretionary purchases for consumers. As a result, the demand for our products and services is sensitive to unfavorable macroeconomic conditions. In the third quarter of 2024, we continued to experience soft market conditions as macroeconomic factors, including sustained inflation and high interest rates, continued to put downward pressure on consumer and corporate discretionary spending. While we generally try to mitigate the impact of such macroeconomic factors by closely monitoring changes in consumer retail spending behavior and through the implementation of various strategic initiatives, the persistence of these trends may have an adverse impact on our operating results depending on the severity and length of the changes.

Previous wording

A significant portion of our business is conducted outside of the United States in currencies other than the U.S. dollar. Therefore, we enter into foreign currency forward contracts to mitigate the effects that changes in foreign currency rates may have on our financial results. While these foreign currency forward contracts can mitigate the effects of changes in foreign currency rates in the short-term, they do not eliminate those effects, which can be significant, and they do not mitigate their effects over the long-term. These effects include (i) the translation and remeasurement of results denominated in foreign currency into U.S. dollars for reporting purposes, (ii) the mark-to-market adjustments of certain intercompany balance sheet accounts denominated in foreign currencies and (iii) the mark-to-market adjustments of our foreign currency forward contracts. In general, our overall financial results are affected positively by a weaker U.S. dollar and negatively by a stronger U.S. dollar as compared to the foreign currencies in which we conduct our business. For thethree andsix months ended June 30, 2024, foreign currency fluctuations had an unfavorable impact of $10.8 million and $18.6 million on international net revenues, respectively.

Current wording

A significant portion of our business is conducted outside of the United States in currencies other than the U.S. dollar. Therefore, we enter into foreign currency forward contracts to mitigate the effects that changes in foreign currency rates may have on our financial results. While these foreign currency forward contracts can mitigate the effects of changes in foreign currency rates in the short-term, they do not eliminate those effects, which can be significant, and they do not mitigate their effects over the long-term. These effects include (i) the translation and remeasurement of results denominated in foreign currency into U.S. dollars for reporting purposes, (ii) the mark-to-market adjustments of certain intercompany balance sheet accounts denominated in foreign currencies and (iii) the mark-to-market adjustments of our foreign currency forward contracts. In general, our overall financial results are affected positively by a weaker U.S. dollar and negatively by a stronger U.S. dollar as compared to the foreign currencies in which we conduct our business. For thethree andnine months ended September 30, 2024, foreign currency fluctuations had a favorable impact of $2.1 million and anunfavorable impact of $16.5 million on international net revenues, respectively.

Previous wording

The$22.5 million (1.3%) increase for the six months ended June 30, 2024 was primarily due to incremental revenues from the addition of new owned and operated Topgolf venues, partially offset by a decline in same venue sales at Topgolf primarily resulting from softer than anticipated foot traffic combined with a decline in the Active Lifestyle segment related to lower wholesale sales at TravisMathew due to a distributor sell-in during the first quarter of 2023 which did not recur in 2024.

Current wording

The $9.8 million (0.4%) increase for the nine months ended September 30, 2024 was primarily due to incremental revenues from the opening of new Company-operated Topgolf venues, partially offset by a decline in same venue sales combined with the decline in corporate channel wholesale sales at TravisMathew.

Previous wording

During the three and six months ended June 30, 2024, net revenues in Asia decreased$19.1 million (14.9%) and$51.7 million (17.9%) compared tothe three andsix months ended June 30, 2023, due tosoft market conditions in the golf equipment and apparel markets primarily in Korea, combined with unfavorable foreign currency impacts primarily in Japan.

Current wording

During the three and nine months ended September 30, 2024, net revenues in Asia decreased$3.7 million (2.8%) and$55.4 million (13.2%) compared tothe three andnine months ended September 30, 2023, primarily due to continued soft market conditions in the golf equipment and apparel markets in Korea, combined with unfavorable foreign currency impacts primarily in Japan and Korea. These decreases were partially offset by an increase in sales in the Jack Wolfskin China business.

Previous wording

During the three and six months ended June 30, 2024, net revenues in Rest of World decreased by$1.3 million (2.9%) and increased by$2.4 million (2.8%), respectively, compared tothe three and sixmonths ended June 30, 2023.

Current wording

During the three and nine months ended September 30, 2024, net revenues in Rest of World increased by$1.6 million (6.9%) and$4.0 million (3.6%), respectively, compared tothe three and nine months ended September 30, 2023, primarily due to increased Golf Equipment and Active Lifestyle sales in Canada and Australia.

Previous wording

Forthe three and six months ended June 30, 2024, foreign currency exchange rates had anunfavorable impact of $10.8 million and $18.6 million, respectively, on international net revenues.

Current wording

Forthe three and nine months ended September 30, 2024, foreign currency exchange rates had afavorable impact of $2.1 million and anunfavorable impact of$16.5 million, respectively, on international net revenues.

Previous wording

Cost of products is variable in nature and fluctuates relative to sales volumes. Cost of products includes raw materials and component costs, direct labor and manufacturing overhead, inbound freight, duties and shipping charges, and retail merchandise costs for products sold in retail shops within Topgolf venue facilities. During the three and six months ended June 30, 2024, cost of products decreased $12.5 million (3.2%) and$41.6 million (5.0%), respectively, compared to thethree and six months ended June 30, 2023, respectively. The decreases were primarily due to decreased sales in our Golf Equipment and Active Lifestyle operating segments.

Current wording

Cost of products is variable in nature and fluctuates relative to sales volumes. Cost of products includes raw materials and component costs, direct labor and manufacturing overhead, inbound freight, duties and shipping charges, and retail merchandise costs for products sold in retail shops within Topgolf venue facilities. During the three and nine months ended September 30, 2024, cost of products decreased $8.6 million (2.6%) and$50.2 million (4.3%), respectively, compared to thethree and nine months ended September 30, 2023, respectively. These decreases were primarily due to decreased sales in our Active Lifestyle operating segment, partially offset by increased freight costs in the Golf Equipment operating segment.

Previous wording

Cost of services, excluding depreciation and amortization (“cost of services”), includes the cost of food and beverages sold in our Topgolf venues as well as certain costs associated with our Toptracer ball-flight tracking technology, Swing Suite indoor multi-sport simulators and the WGT digital golf game. During the three and six months ended June 30, 2024, cost of services decreased $0.7 million (1.4%) and $3.5 million (3.7%), respectively, compared to the three and six months ended June 30, 2023, primarily due to lower cost of food and beverage combined with a favorable shift in revenue mix in 2024.

Current wording

Cost of services, excluding depreciation and amortization (“cost of services”), includes the cost of food and beverages sold in our Topgolf venues as well as certain costs associated with our Toptracer ball-flight tracking technology, Swing Suite indoor multi-sport simulators and the WGT digital golf game.

Previous wording

Other venue expenses primarily consist of depreciation and amortization, venue employee costs, rent, utilities, marketing and other costs associated with Topgolf venues. During the three and six months ended June 30, 2024, other venue expenses increased $22.3 million (7.0%) and $40.2 million (6.5%), respectively, compared tothe three andsix months ended June 30, 2023, primarily due to the addition of new Company owned and operated Topgolf venues since June 30, 2023, partially offset by operational efficiencies in the venues.

Current wording

Other venue expenses primarily consist of depreciation and amortization, venue employee costs, rent, utilities, marketing and other costs associated with Topgolf venues. During the three and nine months ended September 30, 2024, other venue expenses increased $13.5 million (4.3%) and $53.7 million (5.7%), respectively, compared tothe three andnine months ended September 30, 2023, primarily due to the addition of new Company-operated Topgolf venues since September 30, 2023, partially offset by operational efficiencies in the venues.

Previous wording

Selling, general and administrative (“SG&A”) expenses primarily consist of non-venue employee costs, advertising and promotional expense, legal and professional fees, tour expenses, travel expenses, building and rent expenses, depreciation charges (excluding those related to manufacturing, distribution, and venue operations), amortization, and other miscellaneous expenses. During the three and six months ended June 30, 2024, SG&A expenses decreased $20.1 million (7.2%) and $15.6 million (2.8%), respectively, compared tothe three and six months ended June 30, 2023.

Current wording

Selling, general and administrative (“SG&A”) expenses primarily consist of non-venue employee costs, advertising and promotional expense, legal and professional fees, tour expenses, travel expenses, building and rent expenses, depreciation charges (excluding those related to manufacturing, distribution, and venue operations), amortization, and other miscellaneous expenses. During the three and nine months ended September 30, 2024, SG&A expenses increased $8.1 million (3.3%) and decreased $7.5 million (0.9%), respectively, compared tothe three and nine months ended September 30, 2023.

Previous wording

The$15.6 million decrease for the six months ended June 30, 2024 was primarily related to lower employee costs due to restructuring and reorganization initiatives in our Topgolf operating segment that occurred during the fourth quarter of 2023, in addition to decreases in selling and marketing costs related to ambassador endorsements and performance bonuses, television and digital advertising and promotional expenditures. These decreases were partially offset by increases in computer software and IT costs related to software licenses and costs incurred for the implementation of new computer software in addition to costs incurred for cybersecurity.

Current wording

The$7.5 million decrease for the nine months ended September 30, 2024 was primarily related to lower employee costs in our Topgolf operating segment due to restructuring and reorganization initiatives which took place during the fourth quarter of 2023, in addition to decreases in selling and marketing costs related to ambassador endorsement agreements and tour player performance bonuses andtelevision and digital advertising expenditures. These decreases were partially offset by increases in computer software and equipment costs related to licenses and implementation costs for new computer software and cybersecurity programs.

Previous wording

Research and development expenses are comprised of costs to design, develop, test or improve our products and technology, and primarily include employee costs of personnel engaged in research and development activities, research costs and depreciation expense. During the three and six months ended June 30, 2024, research and development expenses increased $5.0 million (22.7%) and$5.4 million (12.1%), respectively, compared to thethree andsix months ended June 30, 2023, primarily driven by asset impairment charges related to the abandonment of the Shankstars media game, in addition to higher employee costs related to restructuring and severance costs.

Current wording

Research and development expenses are comprised of costs to design, develop, test or improve our products and technology, and primarily include employee costs of personnel engaged in research and development activities, research costs and depreciation expense. During the three and nine months ended September 30, 2024, research and development expenses decreased $0.6 million (2.7%) and increased$4.8 million (7.1%), respectively, compared to thethree andnine months ended September 30, 2023.

Previous wording

Venue pre-opening costs are primarily related to the costs associated with activities prior to the opening of new Company-operated Topgolf venues, and consist of, but are not limited to, labor, rent and occupancy costs, and travel and marketing expenses. These costs fluctuate based on the planned timing, size and location of new venues. During the three and six months ended June 30, 2024, venue pre-opening costs decreased $2.9 million (50.9%) and $3.4 million (36.2%), respectively, compared tothe three and six months ended June 30, 2023 due to fewer planned venue openings in 2024.

Current wording

Venue pre-opening costs are primarily related to the costs associated with activities prior to the opening of new Company-operated Topgolf venues, and consist of, but are not limited to, labor, rent and occupancy costs, and travel and marketing expenses. These costs fluctuate based on the planned timing, size and location of new venues. During the three and nine months ended September 30, 2024, venue pre-opening costs decreased $3.0 million (43.5%) and $6.4 million (39.3%), respectively, compared tothe three and nine months ended September 30, 2023 due to fewer planned venue openings in 2024.

Previous wording

Interest expense, net increased $5.3 million (10.3%) and $14.5 million (14.3%) during the three and six months ended June 30, 2024 as compared tothe three andsix months ended June 30, 2023, primarily due to an increase in venue financing interest as the result of the addition of new Topgolf venues, partially offset by decreased interest expense on our term loans as a result of the debt repricing that took place during the first quarter of 2024.

Current wording

Interest expense, net increased $5.4 million (10.3%) and $19.9 million (13.0%) during the three and nine months ended September 30, 2024 as compared tothe three andnine months ended September 30, 2023, primarily due to an increase in venue financing interest as the result of the opening of new Topgolf venues, partially offset by decreased interest expense on our term loan as a result of the debt repricing that took place during the first quarter of 2024 combined with lower outstanding balances.

Previous wording

Other income, net decreased $0.9 million (12.3%) during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, primarily due to acombined increase in net losses from foreign currency transactions and hedging contracts, partially offset by the receipt of a dividend from our investment in Full Swing.

Current wording

Other income, net decreased $4.2 million (80.8%) during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to an increase in net foreign currency losses, partially offset bythe receipt of dividends on our money market accounts.

Previous wording

Income taxes decreased $45.3 million to an income tax benefit of $4.7 million for the six months ended June 30, 2024, compared to an income tax benefit of $50.0 million forthesix months ended June 30, 2023. As a percentage of pre-tax income, our effective tax rate for the six months ended June 30, 2024 decreased to (7.4)% compared to (54.1)% in the comparable period of 2023. Our effective tax rate for the six months ended June 30, 2024 was impacted by forecasted U.S. tax credits we have accrued year to date. Our effective tax rate for the six months ended June 30, 2023 was impacted by the reversal of a significant portion of the valuation allowances on our deferred tax assets and other non-recurring items. Excluding the non-recurring items and the release of valuation allowances on our deferred tax assets, our effective tax rate would have been 0.5% and 13.8% for the six months ended June 30, 2024 and 2023, respectively. For further discussion see Note 11 "Income Taxes" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Current wording

Income taxes decreased $16.4 million to an income tax benefit of $19.4 million for the three months ended September 30, 2024, compared to an income tax benefit of $3.0 million forthe three months ended September 30, 2023. As a percentage of pre-tax income, our effective tax rate for the three months ended September 30, 2024 increased to 84.3% compared to (10.8)% in the comparable period of 2023. Our effective tax rate for the three months ended September 30, 2024 was impacted by valuation allowances accrued year-to-date associated with the forecasted mix of jurisdictional earnings, and forecasted U.S. income tax credits. Our effective tax rate for the three months ended September 30, 2023 was impacted by a change in the forecasted full year earnings.

Previous wording

Income taxes decreased $36.1 million to an income tax benefit of $9.7 million for the three months ended June 30, 2024, compared to an income tax benefit of $45.8 million forthe three months ended June 30, 2023. As a percentage of pre-tax income, our effective tax rate for the three months ended June 30, 2024 decreased to (18.5)% compared to (64.0)% in the comparable period of 2023. Our effective tax rate for the three months ended June 30, 2024 was impacted by forecasted U.S. tax credits we have accrued year to date. Our effective tax rate for the three months ended June 30, 2023 was impacted by reversing a significant portion of the valuation allowances on our deferred tax assets and other non-recurring items. Excluding the non-recurring items and the release of valuation allowances on our deferred tax assets, our effective tax rate would have been 10.6% and 9.7% for the three months ended June 30, 2024 and 2023, respectively. For further discussion see Note 11 "Income Taxes" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Current wording

Income taxes increased $28.9 million to an income tax benefit of $24.1 million for the nine months ended September 30, 2024, compared to an income tax benefit of $53.0 million forthe nine months ended September 30, 2023. As a percentage of pre-tax income, our effective tax rate for the nine months ended September 30, 2024 decreased to (58.9)% compared to (44.4)% in the comparable period of 2023. Our effective tax rate for the nine months ended September 30, 2024 was impacted by valuation allowances accrued year-to-date associated with the forecasted mix of jurisdictional earnings, and forecasted U.S. income tax credits. Our effective tax rate for the nine months ended September 30, 2023 was impacted by the reversal of a significant portion of the valuation allowances on our deferred tax assets and other non-recurring items.

Previous wording

On a non-GAAP basis, excluding the items described in the table above, our net income and diluted earnings per share for the three months ended June 30, 2024 would have been $83.1 million and $0.42 per share, respectively, compared to $75.6 million and $0.38 per share, respectively, for the same period in 2023. The increase in non-GAAP net income for the three months ended June 30, 2024 was primarily due a decrease in income taxes resulting from an income tax benefit in the current year compared to an income tax provision in the prior year, partially offset by a decrease in income from operations due to the net impact of lower net revenues and operating expenses combined with the unfavorable impact of fluctuations in foreign currencies, in addition to an increase in interest expense.

Current wording

On a GAAP basis, net income decreased to a net loss of $3.6 million for the three months ended September 30, 2024 compared to net income of $29.7 million for the three months ended September 30, 2023. Diluted loss per share was $(0.02) for the three months ended September 30, 2024 as compared to diluted earnings per share of $0.16 for the same period in 2023. On a non-GAAP basis, excluding the items described in the table above, our net income and diluted earnings per share for the three months ended September 30, 2024 would have been $4.3 million and $0.02 per share, respectively, compared to $35.8 million and $0.19 per share, respectively, for the same period in 2023. The decrease in GAAP and non-GAAP net income was primarily due to a decrease in segment operating income as discussed below, combined with the unfavorable impact of foreign currency fluctuations and an increase in interest expense.

Previous wording

The following table presents a reconciliation of our results for the six months ended June 30, 2024 and 2023 to our non-GAAP results for the same periods (in millions, except per share information):

Current wording

The following table presents a reconciliation of our results for the nine months ended September 30, 2024 and 2023 to our non-GAAP results for the same periods (in millions, except per share information):

Previous wording

On a non-GAAP basis, excluding the items described in the table above, our net income and diluted earnings per share for the six months ended June 30, 2024 would have been $97.5 million and $0.51 per share, respectively, compared to $106.0 million and $0.54 per share, respectively, for the same period in 2023. The decrease in non-GAAP net income for the six months ended June 30, 2024 was primarily due to a decrease in income from operations due to the impacts of lower revenues and operating expenses combined with the unfavorable impact of fluctuations in foreign currencies, in addition to an increase in interest expense. This decrease was partially offset by a decrease in income taxes resulting from an income tax benefit in the current year compared to an income tax provision in the prior year, in addition to an increase in other income.

Current wording

On a GAAP basis, net income for the nine months ended September 30, 2024 decreased to $65.0 million compared to $172.1 million for the nine months ended September 30, 2023. Diluted earnings per share decreased to $0.35 for the nine months ended September 30, 2024 compared to $0.88 per share for the same period in 2023. On a non-GAAP basis, excluding the items described in the table above, our net income and diluted earnings per share for the nine months ended September 30, 2024 would have been $101.8 million and $0.54 per share, respectively, compared to $141.8 million and $0.73 per share, respectively, for the same period in 2023. The decrease in GAAP and non-GAAP net income was primarily due to a decrease in segment operating income as discussed below combined with an increase in interest expense, partially offset by an increase in other income. In addition, GAAP net income was negatively impacted by a lower income tax benefit in 2024 due to the reversal of a valuation allowance in 2023.

Previous wording

Operating Segment Results for the Three and Six Months Ended June 30, 2024 and 2023 (in millions, except percentages)

Current wording

Operating Segment Results for the Three and Nine Months Ended September 30, 2024 and 2023 (in millions, except percentages)

Previous wording

During the three and six months ended June 30, 2024, Active Lifestyle net revenues decreased $8.3 million (3.2%) and$57.0 million (9.9%), respectively, and operating income decreased$4.8 million (24.6%) and$17.4 million (30.6%), respectively, both compared to the same period in 2023.

Current wording

During the three and nine months ended September 30, 2024, Active Lifestyle net revenues decreased $33.3 million (11.1%) and$90.3 million (10.3%), respectively, and operating income decreased$20.6 million (51.5%) and$38.0 million (39.3%), respectively, both compared to the same period in 2023.

Previous wording

The decrease in net revenues in the firstsix months of 2024 was primarily driven by decreases in sales of Callaway, Jack Wolfskin and TravisMathew soft goods. The decrease in Callaway sales was primarily due to softer market conditions in Korea. The decline in Jack Wolfskin sales was primarily due to a decline in wholesale revenue resulting from higher field inventories. The decrease in sales of TravisMathew soft goods was primarily due to a corporate channel sell-in during the first quarter of 2023 which, as expected, did not recur in 2024, partially offset by direct-to-consumer growth in the retail and e-commerce channels. The decrease in operating income during the first six months of 2024 was largely due to the decreases in revenue discussed above, partially offset by improved gross margin resulting from favorable channel mix and lower input costs.

Current wording

The decrease in net revenues for the nine months ended September 30, 2024 was primarily driven by decreases in sales of Callaway, Jack Wolfskin and TravisMathew soft goods. The decrease in Callaway soft goods sales was primarily due to softer market conditions in Korea and the impact of unfavorable changes in foreign currency rates. The decline in Jack Wolfskin revenue was primarily due to a decline in wholesale channel sales resulting from soft market conditions in Europe, and the decrease at TravisMathew was primarily due to an expected decrease in corporate channel sales resulting from a sell-in during the first quarter of 2023, which did not recur in 2024, partially offset by direct-to-consumer growth in the retail and e-commerce channels. The decrease in operating income during the nine months ended September 30, 2024 was primarily due to the decreases in revenue and operating expense deleverage.

Previous wording

Our cash and cash equivalents, including restricted cash, decreased $81.7 million to $317.1 million at June 30, 2024 from $398.8 million at December 31, 2023. During the six months ended June 30, 2024, we used our cash and cash equivalents in addition to proceeds received from lease financings to fund operations, purchase capital expenditures, repurchase stock, and complete the BigShots acquisition. Additionally, during the second quarter of 2024, we made a $50.0 million partial repayment of the outstanding principal of our Term Loan B. We believe that our existing funds and existing sources of and access to capital and any future financings, as necessary, are adequate to fund our future operations. For further information related to our financing arrangements, see Note 6 “Financing Arrangements,” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 and “Liquidity and Capital Resources” in Part I, Item 2 of this Form 10-Q.

Current wording

Our cash and cash equivalents, including restricted cash, increased $48.7 million to $447.5 million at September 30, 2024 from $398.8 million at December 31, 2023. During the nine months ended September 30, 2024, we used our cash and cash equivalents in addition to proceeds received from lease financings to fund operations, purchase capital expenditures, repurchase stock, and complete the BigShots acquisition. Additionally, during the second quarter of 2024, we made a $50.0 million partial repayment of the outstanding principal of our Term Loan B. We believe that our existing funds and existing sources of and access to capital and any future financings, as necessary, are adequate to fund our future operations. For further information related to our financing arrangements, see Note 6 “Financing Arrangements,” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 and “Liquidity and Capital Resources” in Part I, Item 2 of this Form 10-Q.

Previous wording

Our accounts receivable balance fluctuates throughout the year as a result of the general seasonality of our business, and is also affected by the timing of new product launches. With respect to our Golf Equipment business, accounts receivable are generally the highest during the first and second quarters during the seasonal peak in the golf industry, and generally decline significantly during the third and fourth quarters as a result of an increase in cash collections combined with lower seasonal sales. Our Active Lifestyle accounts receivable balances are generally higher during the third and fourth quarters, primarily due to the seasonal concentration of sales for the Jack Wolfskin business during the fall and winter seasons. Our Topgolf venue business primarily records revenue and collects payment at point-of-sale, therefore, Topgolf’s accounts receivable balance is smaller than our other business segments and primarily consists of media partnership receivables. As of June 30, 2024, our consolidated net accounts receivable increased to $390.4 million from $200.5 million at December 31, 2023. The increase reflects the seasonality of our golf equipment sales. Net accounts receivable as of June 30, 2024 decreased $6.8 million compared to June 30, 2023, primarily due to decreased net sales.

Current wording

Our accounts receivable balance fluctuates throughout the year as a result of the general seasonality of our business, and is also affected by the timing of new product launches. With respect to our Golf Equipment business, accounts receivable are generally the highest during the first and second quarters during the seasonal peak in the golf industry, and generally decline significantly during the third and fourth quarters as a result of an increase in cash collections combined with lower seasonal sales. Our Active Lifestyle accounts receivable balances are generally higher during the third and fourth quarters, primarily due to the seasonal concentration of sales for the Jack Wolfskin business during the fall and winter seasons. Our Topgolf venue business primarily records revenue and collects payment at point-of-sale, therefore, Topgolf’s accounts receivable balance is smaller than our other business segments and primarily consists of media partnership receivables. As of September 30, 2024, our consolidated net accounts receivable increased to $286.4 million from $200.5 million at December 31, 2023. The increase reflects the seasonality of our golf equipment sales. Net accounts receivable as of September 30, 2024 decreased $18.2 million compared to September 30, 2023, primarily due to decreased net sales.

Previous wording

Our inventory balance fluctuates throughout the year as a result of the general seasonality of certain operating segments within our business, and is also affected by the timing of new product launches. With respect to our Golf Equipment business, the buildup of inventory generally begins during the fourth quarter and continues into the first quarter and beginning of the second quarter in order to meet increased demand during the golf season. Inventory levels are also impacted by the timing of new product launches as well as the success of new products. Active Lifestyle inventory levels start to increase during the second quarter and continue to increase into the third and fourth quarters primarily due to the seasonal nature of our Jack Wolfskin business, whose products are significantly geared towards the fall and winter seasons. Topgolf is primarily a service-based business which maintains lower inventory balances than our other business segments, primarily consisting of food and beverages as well as retail merchandise and Toptracer inventory. As of June 30, 2024, our inventory decreased $147.3 million to $647.1 million, compared to December 31, 2023, which reflects the general seasonality of our business combined with the sell-through of out-of-season inventory in our Active Lifestyle business. Our inventory decreased $192.7 million as of June 30, 2024, compared to June 30, 2023, also primarily due to inventory reduction initiatives.

Current wording

Our inventory balance fluctuates throughout the year as a result of the general seasonality of certain operating segments within our business, and is also affected by the timing of new product launches. With respect to our Golf Equipment business, the buildup of inventory generally begins during the fourth quarter and continues into the first quarter and beginning of the second quarter in order to meet increased demand during the golf season. Inventory levels are also impacted by the timing of new product launches as well as the success of new products. Active Lifestyle inventory levels start to increase during the second quarter and continue to increase into the third and fourth quarters primarily due to the seasonal nature of our Jack Wolfskin business, whose products are significantly geared towards the fall and winter seasons. Topgolf is primarily a service-based business which maintains lower inventory balances than our other business segments, primarily consisting of food and beverages as well as retail merchandise and Toptracer inventory. As of September 30, 2024, our inventory decreased $128.0 million to $666.4 million, compared to December 31, 2023, which reflects the general seasonality of our business combined with the sell-through of out-of-season inventory in our Active Lifestyle business. Our inventory decreased $70.1 million as of September 30, 2024, compared to September 30, 2023, also primarily due to inventory reduction initiatives.

Previous wording

Our ability to generate sufficient positive cash flows from operations is subject to many risks and uncertainties, including future economic trends and conditions, demand for our products, supply chain challenges, price inflation, foreign currency exchange rates, and other risks and uncertainties applicable to us and our business (see “Risk Factors” contained in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023).

Current wording

Our ability to generate sufficient positive cash flows from operations is subject to many risks and uncertainties, including future economic trends and conditions, demand for our products and services, supply chain challenges, price inflation, foreign currency exchange rates, and other risks and uncertainties applicable to us and our business (see “Risk Factors” contained in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023).

Previous wording

On March 19, 2024 we entered into an amendment to the 2023 Term Loan B in order to decrease the interest rate and future interest expense on the 2023 Term Loan B and on May 31, 2024, we made an additional discretionary $50.0 million principal payment on the 2023 Term Loan B. As of June 30, 2024, we had $783.8 million in cash and availability under our credit facilities, which is an increase of $136.4 million compared to June 30, 2023. Information about our credit facilities and long-term debt is presented in Note 6 “Financing Arrangements” in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, which is incorporated herein by this reference.

Current wording

On March 19, 2024 we entered into an amendment to the 2023 Term Loan B in order to decrease the interest rate and future interest expense on the 2023 Term Loan B and on May 31, 2024, we made an additional discretionary $50.0 million principal payment on the 2023 Term Loan B. As of September 30, 2024, we had $863.0 million in cash and availability under our credit facilities, which is an increase of $129.0 million compared to September 30, 2023. Information about our credit facilities and long-term debt is presented in Note 6 “Financing Arrangements” in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, which is incorporated herein by this reference.

Previous wording

As of June 30, 2024, approximately 43% of our cash was held in regions outside of the United States. We continue to maintain our indefinite reinvestment assertion with respect to most jurisdictions in which we operate because of local cash requirements to operate our business. If we were to repatriate cash to the United States outside of settling intercompany balances, we may need to pay incremental foreign withholding taxes which, subject to certain limitations, generate foreign tax credits for use against our U.S. tax liability, if any. Additionally, we may need to pay certain state income taxes.

Current wording

As of September 30, 2024, approximately 38% of our cash was held in regions outside of the United States. We continue to maintain our indefinite reinvestment assertion with respect to most jurisdictions in which we operate because of local cash requirements to operate our business. If we were to repatriate cash to the United States outside of settling intercompany balances, we may need to pay incremental foreign withholding taxes which, subject to certain limitations, generate foreign tax credits for use against our U.S. tax liability, if any. Additionally, we may need to pay certain state income taxes.

Previous wording

The duration of these indemnities, commitments and guarantees varies, and in certain cases may be indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation on the maximum amount of future payments we could be obligated to make. Historically, costs incurred to settle claims related to indemnities have not been material to our financial position, results of operations or cash flows. In addition, we believe the likelihood is remote that payments under the commitments and guarantees described above will have a material effect on our financial condition. The fair value of indemnities, commitments and guarantees that we issued during the six months ended June 30, 2024 was not material to our financial position, results of operations or cash flows.

Current wording

The duration of these indemnities, commitments and guarantees varies, and in certain cases may be indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation on the maximum amount of future payments we could be obligated to make. Historically, costs incurred to settle claims related to indemnities have not been material to our financial position, results of operations or cash flows. In addition, we believe the likelihood is remote that payments under the commitments and guarantees described above will have a material effect on our financial condition. The fair value of indemnities, commitments and guarantees that we issued during the nine months ended September 30, 2024 was not material to our financial position, results of operations or cash flows.

Previous wording

For the six months ended June 30, 2024, there have been no material changes to our critical accounting estimates from the information reported in our Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 29, 2024.

Current wording

For the nine months ended September 30, 2024, there have been no material changes to our critical accounting estimates from the information reported in our Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 29, 2024.