Topgolf Callaway Brands Corp. (NYSE:MODG) Q4 2024 Earnings Conference Call February 24, 2025 5:00 PM ET Company Participants Katina Metzidakis – Vice President-Investor Relations and Corporate Communications Chip Brewer – President and Chief Executive Officer Brian Lynch – Chief Financial Officer and Chief Legal Officer Artie Starrs – Chief Executive Officer-Topgolf Conference Call Participants Matthew Boss – JPMorgan Alex Perry – Bank of America Joe Altobello – Raymond James Megan Clapp – Morgan Stanley Op ...

Financial Data and Key Metrics Changes - Q4 consolidated revenues reached $924 million, a 3% year-over-year increase, driven by growth in Golf Equipment and slight increases in Active Lifestyle, while Topgolf revenue remained flat [60][71] - Adjusted EBITDA for Q4 was $101 million, reflecting a 45% increase due to improved operating results across all segments [60][72] - Full year free cash flow was $203 million, exceeding expectations and strengthening the company's financial position [9][69] Business Line Data and Key Metrics Changes - Golf Equipment revenue increased by 13% to $225 million in Q4, attributed to successful product launches and strong sales [63] - Topgolf generated $439 million in revenue for Q4, with same venue sales down 8%, but offset by revenue from new venues [60][61] - Active Lifestyle segment saw a 1% increase in Q4 revenue, primarily driven by TravisMathew's apparel sales [64] Market Data and Key Metrics Changes - U.S. on-course golf participation rose by 1.5 million to 28.1 million, indicating growing interest in golf [43] - Rounds played in golf grew by 2% year-over-year, marking the fifth consecutive year of exceeding 500 million rounds [43] Company Strategy and Development Direction - The company is focused on separating Topgolf, evaluating options for a spin-off or sale, with all options still on the table [16][76] - Emphasis on improving same venue sales at Topgolf, with initiatives aimed at enhancing player experience and operational efficiency [41][42] - The Golf Equipment segment aims to grow revenues slightly faster than the overall golf market, with expectations for gross margin improvements [12][49] Management's Comments on Operating Environment and Future Outlook - Management acknowledged headwinds from foreign exchange and incentive compensation, projecting a $75 million negative impact on core business EBITDA [10][11] - Despite challenges, management remains optimistic about the future, expecting to navigate short-term headwinds and return to growth [56][76] Other Important Information - The company recorded a non-cash accounting charge of $1.45 billion related to the impairment of Topgolf goodwill and intangible assets, which does not affect liquidity [58][59] - The company anticipates 2025 revenue to decline by approximately 3% year-over-year at the midpoint of guidance, primarily due to foreign exchange impacts [70][71] Q&A Session Summary Question: Could you elaborate on same venue sales trends when the weather has been neutral at Topgolf? - Management indicated that neutral weather markets are currently running down low to mid-single digits, with expectations for improvement in 2025 due to easier comparisons and positive consumer response to value messaging [78][79] Question: Can you speak to the initial reception of the Elyte launch in clubs and the drivers of the 2025 organic forecast in this segment? - Management expressed pride in the Elyte product line and noted that while competition is strong, they are optimistic about performance as the year progresses [82][83] Question: Can you talk about the key drivers behind the acceleration in corporate events comp? - Management highlighted increased flexibility in event offerings and the ability to leverage learnings from various venues as key drivers for the acceleration in corporate events [89][90] Question: What drives the core business down year-over-year in 2025? - Management attributed the decline primarily to foreign exchange impacts, with additional challenges from competitive launches and reduced product launches in the second half of the year [94][96] Question: Can you provide an update on expectations for pro forma leverage of the core business? - Management stated that while specific guidance was not provided, they are confident in their cash flow position and plan to use retained stakes to help delever post-separation [120][121]

Core Insights - Topgolf Callaway Brands reported revenue of $924.4 million for the quarter ended December 2024, marking a year-over-year increase of 3% and exceeding the Zacks Consensus Estimate of $883.15 million by 4.67% [1] - The company experienced an EPS of -$0.33, which is a slight decline from -$0.30 a year ago, but it surpassed the consensus EPS estimate of -$0.40 by 17.50% [1] Revenue Performance by Category - Gear, Accessories & Other: $69.30 million, below the average estimate of $78.33 million, with a year-over-year decline of 9.8% [4] - Apparel: $191.30 million, exceeding the average estimate of $177.17 million, with a year-over-year increase of 5.2% [4] - Venues: $420 million, slightly above the average estimate of $401.59 million, with a year-over-year change of -0.5% [4] - Topgolf: $439 million, surpassing the average estimate of $419.97 million, with no change year-over-year [4] - Other business lines: $19 million, exceeding the average estimate of $18.37 million, with a year-over-year increase of 13.1% [4] - Golf Equipment: $224.80 million, above the average estimate of $207.17 million, with a year-over-year increase of 12.7% [4] - Active Lifestyle: $260.60 million, slightly above the average estimate of $255.50 million, with a year-over-year increase of 0.7% [4] - Golf Balls: $46 million, exceeding the average estimate of $45.17 million, with a year-over-year increase of 17.4% [4] - Golf Clubs: $178.80 million, above the average estimate of $162 million, with a year-over-year increase of 11.6% [4] - Services: $435.30 million, exceeding the average estimate of $418.11 million, with no change year-over-year [4] - Products: $489.10 million, above the average estimate of $461.58 million, with a year-over-year increase of 5.9% [4] Stock Performance - Over the past month, shares of Topgolf Callaway have returned -12.6%, compared to a -0.5% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Topgolf Callaway Brands outperformed expectations in Q4 2024, but faced challenges from a significant goodwill impairment charge. Topgolf Callaway Brands (MODG -4.42%), a leading company in the golf and active lifestyle industries, reported its Q4 2024 earnings on Feb. 24, 2025. The company's adjusted EPS exceeded expectations at -$0.33 compared to an anticipated -$0.40. Revenue of $924.4 million also surpassed the forecast of $884 million. Despite this outperformance, the quarter was marred by a substantia ...

Fourth Quarter and Full Year 2024 Earnings Conference Call February 24, 2025 Q4 2024 Highlights Topgolf's same venue sales, Adjusted EBITDA, Adjusted Free Cash Flow and venue margins all exceeded expectations in Q4. In 2024 the Callaway brand maintained its #1 position in U.S. market share in total golf clubs for the third consecutive year - and 9th time in the last 10 years - and achieved record U.S. market share in golf ball. IMPORTANT NOTICES Forward-looking Statements. During the presentation, any comme ...

Financial Performance - The Company reported a 3% increase in consolidated net revenue for Q4 2024, totaling $924.4 million, driven primarily by growth in the Golf Equipment segment [4]. - Adjusted EBITDA for Q4 2024 increased by 45.3% to $101.4 million, reflecting improved profitability in both the Topgolf and Golf Equipment segments [10]. - The Company experienced a GAAP net loss of $1,512.7 million for Q4 2024, largely due to a non-cash impairment charge of $1,452.0 million related to Topgolf's goodwill and intangible assets [2]. - Total operating cash flow increased by 5% to $382 million, while adjusted free cash flow rose by 27% to $203 million in Q4 2024 [3]. - For the full year 2024, net revenue decreased by 1.1% to $4,239.3 million, primarily due to declines in the Korea and Jack Wolfskin Europe businesses [11]. - Non-GAAP income from operations for Q4 2024 was $18.5 million, an increase of $27.2 million year-over-year, driven by improvements across all operating segments [8]. - Revenue remained flat at $439.0 million, with same venue sales declining by 8% [16]. - Total revenue for the year increased by $48.4 million to $1,809.4 million, despite a 9% decline in same venue sales [16]. - The company reported a net loss of $1,512.7 million for the twelve months ended December 31, 2024, compared to a net loss of $1,424.6 million in 2023, reflecting an increase of 6.2% [46]. - The company reported a total loss before income taxes of $1,473.2 million for the twelve months ended December 31, 2024, compared to a profit of $34.8 million in 2023 [44]. Segment Performance - The Golf Equipment segment reported a 12.7% increase in net revenue for Q4 2024, totaling $224.8 million [14]. - Topgolf's same venue sales, adjusted EBITDA, and venue margins all exceeded expectations in Q4 2024, indicating strong operational performance [3]. - Golf Clubs revenue grew by $18.6 million, or 11.6%, reaching $178.8 million, while Golf Balls revenue increased by $6.8 million, or 17.3%, totaling $46.0 million [43]. - Active Lifestyle segment revenue declined by $88.4 million, or 7.8%, totaling $1,047.9 million, while Topgolf revenue increased by $48.4 million, or 2.7%, reaching $1,809.4 million [44]. - Topgolf's segment operating income rose by $3.8 million, or 16.5%, to $26.9 million, contributing to a total segment operating income of $47.8 million, up 104.3% from the previous year [43]. Future Outlook - The company expects approximately $105 million in revenue headwinds and $120 million in Adjusted EBITDA headwinds for 2025 compared to 2024 [18]. - Consolidated net revenues for 2025 are estimated to be between $4.0 billion and $4.185 billion, down from $4.24 billion in 2024 [23]. - Topgolf same venue sales growth is expected to decline in the mid-single digits, compared to a 9% decline in 2024 [23]. Cash Flow and Liquidity - Available liquidity increased by $54.3 million to $796.9 million compared to December 31, 2023 [21]. - Cash flow from operating activities was $382.0 million, and Adjusted Free Cash Flow was $203.1 million [21]. - The company achieved a Consolidated Non-GAAP Adjusted Free Cash Flow of $203.1 million in 2024, an increase from $160.0 million in 2023 [49]. Impairments and Charges - Goodwill and intangible assets impairment for Q4 2024 was $1,452.0 million, significantly impacting the overall financial results [40]. - The company incurred $22.9 million in restructuring and reorganization charges during 2024, contributing to the overall financial losses [48]. - The total charges related to the impairment and abandonment of the Shankstars media game amounted to $12.7 million in 2024 [48]. - The company recognized non-cash goodwill and intangible assets impairment of $1,460.8 million in Q4 2024, primarily in the Topgolf operating segment [46]. Strategic Initiatives - The company plans to pursue a separation of the Topgolf business, with anticipated benefits and operational performance for the two independent companies post-separation [34]. - The company expects to continue investments in the business, focusing on brand momentum and demand for golf and outdoor activities [34]. - The planned separation of Topgolf and other strategic initiatives are expected to influence future financial results and market positioning [49].

Group 1 - The merger of Topgolf Callaway Brands Corp. was completed during the pandemic golf boom, leading to significant growth for the company [1] - Topgolf contributed approximately 40% of the overall revenue of the newly formed company [1] - Economic conditions normalized in FY23, resulting in tightening that may impact future performance [1]

Core Viewpoint - Topgolf Callaway Brands Corp. plans to release its fourth quarter and full year 2024 financial results on February 24, 2025, after market close, followed by a conference call to discuss the results and outlook [1]. Group 1 - The financial results announcement will be accompanied by a conference call at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) [1]. - A live webcast and presentation will be available through the Investor Relations section of the Company's website [1]. - A replay of the conference call will be accessible online approximately two hours after the event concludes [2]. Group 2 - Topgolf Callaway Brands Corp. is a tech-enabled Modern Golf and active lifestyle company, offering golf equipment, apparel, and entertainment [3]. - The Company has a diverse portfolio of global brands, including Topgolf, Callaway Golf, TravisMathew, Toptracer, Odyssey, OGIO, and Jack Wolfskin [3]. - The concept of "Modern Golf" encompasses both on-course and off-course golf experiences, creating a dynamic and inclusive ecosystem [3].

Core Insights - Topgolf is launching a new experience called Block Party, inspired by Marvel Studios' "Captain America: Brave New World," which aims to enhance player engagement and excitement [1][7] - The event includes a national sweepstakes with thousands of daily prizes and a grand prize valued at $15,000, promoting increased foot traffic to Topgolf venues [2][4] - Limited-time menu items themed around the event will be available, enhancing the overall experience for players [5] Group 1: Event Details - The Block Party experience will run from February 14 to March 31, featuring special gameplay elements and a new club called The Sure Thing [1][6] - Players can win prizes by receiving special red golf balls during gameplay, which will lead to scratch-off tickets that guarantee a prize [3][4] - The grand prize includes a Marvel-themed trip to Washington D.C., $6,000 cash, and a Topgolf Platinum Elite Membership [4] Group 2: Marketing and Partnerships - The collaboration between Topgolf and Marvel Studios aims to merge the excitement of the Marvel Cinematic Universe with Topgolf's social gameplay [7] - Topgolf's VP of Global Partnerships emphasized the unique opportunity for fans to engage with their favorite franchise in an interactive setting [7] - The initiative is part of Topgolf's broader strategy to attract diverse audiences and enhance brand visibility through partnerships [8][9] Group 3: Company Overview - Topgolf operates over 100 venues globally, utilizing advanced Toptracer technology to modernize the golfing experience [8] - The company aims to hit 50 billion golf balls between 2022 and 2025, indicating ambitious growth targets [8] - Topgolf Callaway Brands Corp. encompasses a range of brands, positioning itself as a leader in the tech-enabled modern golf and active lifestyle market [9][10]

Core Insights - Five Iron Golf partners with Callaway Golf to launch Callaway Tour Fitting, a premium fitting experience aimed at enhancing golfers' equipment customization [1][3] - The partnership aims to make golf more accessible and enjoyable while helping players improve their game [3][4] Company Overview - Five Iron Golf operates 34 locations across 15 states and 5 countries, recognized for its advanced simulators and community atmosphere [6] - Callaway Golf is a leading manufacturer of premium golf equipment, committed to innovation and performance enhancement for golfers [8] Product Offering - Callaway Tour Fitting will be available at all Five Iron locations starting January 17, providing a golfer-centric fitting experience [3][6] - Fittings will be conducted by certified Five Iron coaches, creating a relaxed environment for golfers [6] - The fitting experience is priced at $99 per hour, making it more affordable compared to typical boutique fittings [6] Equipment and Technology - The fittings will feature the latest Callaway equipment, including the new Elyte family of golf clubs, with a wide range of club heads, shafts, and putters available [6] - Callaway's recently launched radar-friendly golf ball will also be integrated into the fitting experience, enhancing data precision for simulator golf [4][6] Market Positioning - The partnership positions Five Iron Golf as the first indoor golf brand to offer Tour-level fittings certified by a top equipment manufacturer [2][4] - The collaboration aims to capitalize on the growing popularity of indoor golf, providing golfers in metropolitan areas with more fitting options [6]