Topgolf Callaway Brands (MODG) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights The company exceeded Q2 2025 expectations across all segments, driven by strong golf equipment demand and Topgolf initiatives, while strategically boosting liquidity through the Jack Wolfskin sale and raising full-year guidance for continuing businesses Second Quarter 2025 Performance Overview Topgolf Callaway Brands reported second-quarter 2025 financial results that met or exceeded expectations across all segments of its ongoing business, with consolidated revenue and Adjusted EBITDA surpassing forecasts - The Company met or beat expectations in all segments of its ongoing business[3] - Consolidated revenue and Adjusted EBITDA surpassed expectations[3] - Performance reflects continued consumer strength in golf equipment, benefits from gross margin and cost savings, and successful Topgolf value initiatives[3] Key Strategic Developments The company completed the sale of its Jack Wolfskin business, significantly boosting available liquidity by 48% year-over-year to over $1.1 billion, leading to updated guidance and an increased full-year outlook for continuing businesses - Completed the sale of Jack Wolfskin, strengthening available liquidity by 48% year-over-year to over $1.1 billion[5] - Updated total Company guidance to exclude Jack Wolfskin and raised full year 2025 financial outlook for continuing businesses[5] Consolidated Financial Performance Q2 2025 consolidated net revenues decreased 4.1% to $1,110.5 million, primarily due to the Jack Wolfskin sale, while GAAP net income significantly declined, and non-GAAP operating income remained flat despite tariffs GAAP Financial Results For Q2 2025, consolidated net revenues decreased by 4.1% to $1,110.5 million, primarily due to the Jack Wolfskin sale, while net income saw a significant 67.3% decrease to $20.3 million, largely impacted by non-recurring charges and higher expenses Q2 2025 GAAP Consolidated Financial Results (YoY Change) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | $ Change (Millions) | % Change | | :----------------------------- | :----------------- | :----------------- | :------------------ | :------- | | Net revenues | $1,110.5 | $1,157.8 | $(47.3) | (4.1)% | | Income from operations | $105.8 | $103.0 | $2.8 | 2.7% | | Net income | $20.3 | $62.1 | $(41.8) | (67.3)% | | Earnings per share - diluted | $0.11 | $0.32 | $(0.21) | (65.6)% | - Net income decreased by 67.3% primarily due to non-recurring charges from the Jack Wolfskin sale, increased foreign currency hedge losses, and higher income tax expense[10] Non-GAAP Financial Results On a non-GAAP basis for Q2 2025, net revenues decreased by 4.1% to $1,110.5 million, non-GAAP income from operations remained approximately flat at $121.2 million despite new tariffs, and non-GAAP net income decreased by 45.1% to $45.6 million Q2 2025 Non-GAAP Consolidated Financial Results (YoY Change) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | $ Change (Millions) | % Change | | :--------------------------- | :----------------- | :----------------- | :------------------ | :------- | | Net revenues | $1,110.5 | $1,157.8 | $(47.3) | (4.1)% | | Non-GAAP income from operations | $121.2 | $121.8 | $(0.6) | (0.5)% | | Non-GAAP Net income | $45.6 | $83.1 | $(37.5) | (45.1)% | | Non-GAAP Earnings per share - diluted | $0.24 | $0.42 | $(0.19) | (45.2)% | | Non-GAAP Adjusted EBITDA | $195.8 | $205.6 | $(9.8) | (4.8)% | - Non-GAAP income from operations was approximately flat year over year, despite absorbing new tariffs[9] - Non-GAAP net income decreased primarily due to increased foreign currency hedge losses and higher tax expense[10] Consolidated Results Commentary The consolidated net revenue decline of 4.1% was primarily attributed to decreases in the Active Lifestyle segment due to the Jack Wolfskin sale, though overall results exceeded expectations driven by strong Topgolf and Golf Equipment performance - Net revenue decrease primarily due to decreases in the Active Lifestyle segment from the Jack Wolfskin business sale[8] - Consolidated results exceeded expectations due to stronger performance in Topgolf and Golf Equipment segments[8] - The Company absorbed new tariffs while achieving approximately flat non-GAAP income from operations[9] Segment Performance Analysis Q2 2025 saw varied segment performance, with Active Lifestyle revenue declining due to the Jack Wolfskin sale, while total segment operating income increased, driven by Active Lifestyle's improved profitability Segment Net Revenues In Q2 2025, Topgolf revenue decreased by 1.8% to $485.3 million, Golf Equipment by 0.5% to $411.6 million, and Active Lifestyle by 14.4% to $213.6 million, primarily due to the Jack Wolfskin sale Q2 2025 Net Revenues by Segment (YoY Change) | Segment | Q2 2025 (Millions) | Q2 2024 (Millions) | % Change | | :--------------- | :----------------- | :----------------- | :------- | | Topgolf | $485.3 | $494.4 | (1.8)% | | Golf Equipment | $411.6 | $413.8 | (0.5)% | | Active Lifestyle | $213.6 | $249.6 | (14.4)% | H1 2025 Net Revenues by Segment (YoY Change) | Segment | H1 2025 (Millions) | H1 2024 (Millions) | % Change | | :--------------- | :----------------- | :----------------- | :------- | | Topgolf | $879.0 | $917.2 | (4.2)% | | Golf Equipment | $855.3 | $863.7 | (1.0)% | | Active Lifestyle | $468.5 | $521.1 | (10.1)% | Segment Operating Income In Q2 2025, total segment operating income increased by 2.7% to $152.2 million, driven by a significant 39.5% increase in Active Lifestyle's operating income to $20.5 million, largely due to the Jack Wolfskin sale Q2 2025 Segment Operating Income (YoY Change) | Segment | Q2 2025 (Millions) | Q2 2024 (Millions) | % Change | | :------------------------- | :----------------- | :----------------- | :------- | | Topgolf | $55.4 | $56.1 | (1.2)% | | Golf Equipment | $76.3 | $77.4 | (1.4)% | | Active Lifestyle | $20.5 | $14.7 | 39.5% | | Total Segment Operating Income | $152.2 | $148.2 | 2.7% | H1 2025 Segment Operating Income (YoY Change) | Segment | H1 2025 (Millions) | H1 2024 (Millions) | % Change | | :------------------------- | :----------------- | :----------------- | :------- | | Topgolf | $43.5 | $59.0 | (26.3)% | | Golf Equipment | $177.9 | $159.5 | 11.5% | | Active Lifestyle | $51.1 | $39.4 | 29.7% | | Total Segment Operating Income | $272.5 | $257.9 | 5.7% | Detailed Segment Commentary This section provides specific commentary on the performance drivers for each of the company's operating segments during the second quarter of 2025, highlighting key revenue and operating income changes Topgolf Segment Topgolf's Q2 2025 revenue decreased by 1.8% to $485.3 million, with a 6% decline in same venue sales partially offset by new venue revenue, while Adjusted EBITDA increased to $110.8 million due to cost reduction efforts - Segment revenue decreased 1.8% to $485.3 million, with a 6% decline in same venue sales partially offset by new venues[18] - Same venue sales of -6% were ahead of expectations, primarily due to improved traffic trends from new value initiatives[18] - Adjusted EBITDA increased $1.3 million to $110.8 million, reflecting ongoing cost reduction and labor efficiency initiatives[18] Golf Equipment Segment The Golf Equipment segment's Q2 2025 revenue decreased by 0.5% to $411.6 million, mainly due to a more competitive launch timing environment, with operating income decreasing to $76.3 million despite gross margin and cost savings initiatives - Revenue decreased 0.5% to $411.6 million, primarily due to a more competitive launch timing environment[14] - Segment operating income decreased $1.1 million to $76.3 million, with gross margin and cost savings largely offsetting incremental tariffs[14] Active Lifestyle Segment Active Lifestyle revenue decreased by $36.0 million to $213.6 million in Q2 2025, primarily due to the Jack Wolfskin business sale, but operating income increased by $5.8 million driven by the divestiture - Revenue decreased $36.0 million to $213.6 million, primarily due to the Jack Wolfskin business sale on May 31, 2025[14] - Operating income increased $5.8 million, primarily driven by the Jack Wolfskin sale, which typically incurs H1 seasonal losses[14] Financial Position and Cash Flow Inventory decreased to $608.9 million due to the Jack Wolfskin sale, significantly boosting available liquidity to $1,161.7 million, while H1 2025 cash flow from operations declined, but investing activities improved due to the divestiture Balance Sheet Highlights Inventory decreased by $38.2 million year-over-year to $608.9 million, primarily due to the Jack Wolfskin sale, while available liquidity significantly increased by $377.9 million to $1,161.7 million, driven by cash proceeds from the divestiture - Inventory decreased $38.2 million year-over-year to $608.9 million, primarily due to a $112.5 million decrease from the Jack Wolfskin sale[19] - Available liquidity increased $377.9 million to $1,161.7 million, driven by $290 million cash proceeds from the Jack Wolfskin sale, lease financing, and cash from operations[19] Cash Flow Highlights For the six months ended June 30, 2025, net cash provided by operating activities was $41.7 million, a decrease from the prior year, while net cash provided by investing activities significantly improved to $140.3 million, primarily due to $286.0 million in proceeds from the Jack Wolfskin sale H1 Cash Flow Summary (Millions) | Cash Flow Activity | H1 2025 | H1 2024 | | :--------------------------------- | :------ | :------ | | Net cash provided by operating activities | $41.7 | $151.4 | | Net cash provided by (used in) investing activities | $140.3 | $(174.0) | | Net cash provided by (used in) financing activities | $43.8 | $(52.3) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $233.5 | $(81.7) | | Cash and cash equivalents at end of period | $683.5 | $311.8 | - Proceeds from the sale of business line, net of cash retained, contributed $286.0 million to investing activities[39] Outlook and Guidance The company updated its full-year 2025 guidance to exclude Jack Wolfskin, reducing overall forecasts, but raised outlooks for continuing businesses and Topgolf due to strong Q2 performance and improved same venue sales Full Year 2025 Outlook The company updated its full-year 2025 guidance to reflect the exclusion of Jack Wolfskin, reducing forecasted revenue by $265 million and EBITDA by $26 million, but raised the outlook for continuing businesses and Topgolf due to better-than-expected Q2 performance 2025 Full Year Outlook (Current vs. Previous Estimate) | Metric | Current Estimate (Billions) | Previous Estimate (Billions) | 2024 As Reported (Billions) | | :--------------------------- | :-------------------------- | :--------------------------- | :-------------------------- | | Consolidated Net Revenues | $3.80 - $3.92 | $4.000 - $4.185 | $4.24 | | Topgolf Revenue | $1.71 - $1.77 | $1.680 - $1.790 | $1.81 | | Topgolf Same Venue Sales Growth | -6 to -9% | -6 to -12% | -9% | | Consolidated Adjusted EBITDA (Millions) | $430 - $490 | $415 - $505 | $588 | | Topgolf Adjusted EBITDA (Millions) | $265 - $295 | $240 - $300 | $337 | - Excluding Jack Wolfskin, the company increased the midpoint of its revenue guidance by approximately $30 million and Adjusted EBITDA guidance by approximately $25 million for continuing businesses[20] - Topgolf's full year same venue sales guidance midpoint increased to -7.5% from -9%[21] Third Quarter 2025 Outlook The company's Q3 2025 estimates reflect the Jack Wolfskin sale, with Consolidated Net Revenues projected between $880 - $920 million and Consolidated Adjusted EBITDA between $78 - $98 million, primarily due to forecasted decreases in Topgolf same venue sales and incremental tariffs Q3 2025 Outlook (Millions) | Metric | Q3 2025 Estimate (Millions) | Q3 2024 As Reported (Millions) | | :--------------------------- | :-------------------------- | :----------------------------- | | Consolidated Net Revenues | $880 - $920 | $1,010 | | Consolidated Adjusted EBITDA | $78 - $98 | $120 | - The decrease in Q3 Adjusted EBITDA is primarily related to forecasted decreases in Topgolf same venue sales and incremental tariffs[23] Guidance Updates and Rationale The company updated its guidance to exclude the Jack Wolfskin business, reducing full-year forecasted revenue by $265 million and EBITDA by $26 million, but raised the outlook for continuing businesses and Topgolf due to better-than-expected Q2 performance - Guidance updated to reflect the Jack Wolfskin business sale, reducing full year forecasted revenue by $265 million and EBITDA by $26 million[20] - Excluding Jack Wolfskin, the company increased the midpoint of its revenue guidance by approximately $30 million and Adjusted EBITDA guidance by approximately $25 million for continuing businesses[20] - Topgolf's revenue and Adjusted EBITDA guidance increased due to better than expected same venue sales performance in Q2[21] Corporate and Strategic Information Topgolf's CEO resigned, delaying its planned spin-off to 2026, while the company remains committed to separating its Modern Golf and active lifestyle businesses Topgolf Leadership and Separation Update Artie Starrs, Topgolf's CEO, announced his resignation effective September 2025, which will likely delay the planned spin-off of Topgolf to 2026, after a new CEO is appointed, though the company remains committed to the separation - Artie Starrs, Topgolf's CEO, resigned and is expected to remain through September 2025 for transition[19] - The Company remains committed to the separation of its Topgolf and Core businesses, pursuing a spin-off or sale of Topgolf[19] - A spin-off transaction is likely to occur in 2026, after a new CEO is in place, due to Mr. Starrs' departure[19] About Topgolf Callaway Brands Topgolf Callaway Brands Corp. (NYSE: MODG) is a tech-enabled Modern Golf and active lifestyle company, offering leading golf equipment, apparel, and entertainment through a portfolio of global brands encompassing both on-course and off-course golf experiences - Topgolf Callaway Brands Corp. is a tech-enabled Modern Golf and active lifestyle company[32] - The company's portfolio includes global brands like Topgolf, Callaway Golf, TravisMathew, Toptracer, Odyssey, and OGIO[32] - 'Modern Golf' refers to the dynamic and inclusive ecosystem of both on-course and off-course golf[32] Non-GAAP Measures and Disclosures This section defines non-GAAP financial measures like Constant Currency Basis and Adjusted EBITDA, and outlines forward-looking statements subject to various risks and uncertainties Non-GAAP Information Definitions This section defines key non-GAAP financial measures, including Constant Currency Basis for foreign exchange impacts, Non-Recurring and Non-cash Adjustments for specific one-time costs, and Adjusted EBITDA, which excludes various non-cash and non-recurring items - Constant Currency Basis estimates the impact of foreign currency exchange rate changes on financial results[25] - Non-Recurring and Non-cash Adjustments exclude certain non-cash amortization of acquired intangible assets and specific non-recurring costs, such as those related to the Jack Wolfskin sale or Transformation Plan[26] - Adjusted EBITDA excludes interest, taxes, depreciation, amortization, stock compensation, non-cash lease amortization, and other non-recurring and non-cash items[27] Forward-Looking Statements The report contains forward-looking statements regarding future plans, financial results, and growth opportunities, which are based on current expectations but are subject to various risks and uncertainties, meaning actual results may differ materially - Statements relating to future plans, financial results, performance, prospects, or growth opportunities are forward-looking statements[31] - These statements are based upon current information and expectations and are subject to various risks and unknowns, including global economic conditions, consumer demand, and transaction execution ability[31] - Readers are cautioned not to place undue reliance on these statements, as actual results may differ materially[31] Condensed Consolidated Financial Statements This section presents the condensed consolidated balance sheets, statements of operations, cash flows, detailed net revenues by category and region, and non-GAAP reconciliations for Q2 and H1 2025 Condensed Consolidated Balance Sheets As of June 30, 2025, total assets were $7,607.3 million, a slight decrease from December 31, 2024, with current assets increasing due to higher cash and accounts receivable, while inventories decreased, and long-term debt also saw changes Condensed Consolidated Balance Sheets (Millions) | Item | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | ASSETS | | | | Cash and cash equivalents | $683.5 | $445.0 | | Accounts receivable, net | $338.0 | $175.7 | | Inventories | $608.9 | $757.3 | | Total current assets | $1,881.3 | $1,600.7 | | Total assets | $7,607.3 | $7,636.1 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Convertible notes, net | $257.0 | — | | Total current liabilities | $1,015.7 | $825.9 | | Long-term debt, net | $1,195.1 | $1,457.9 | | Total shareholders' equity | $2,488.1 | $2,407.7 | Condensed Consolidated Statements of Operations For the three months ended June 30, 2025, total net revenues were $1,110.5 million, a decrease from the prior year, while income from operations increased slightly to $105.8 million, but net income significantly declined to $20.3 million Condensed Consolidated Statements of Operations (Millions, except per share data) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Total net revenues | $1,110.5 | $1,157.8 | | Income from operations | $105.8 | $103.0 | | Net income | $20.3 | $62.1 | | Earnings per common share: Diluted | $0.11 | $0.32 | Condensed Consolidated Statements of Cash Flow For the six months ended June 30, 2025, net cash provided by operating activities was $41.7 million, a decrease from the prior year, while net cash provided by investing activities significantly improved to $140.3 million, primarily due to $286.0 million in proceeds from a business line sale Condensed Consolidated Statements of Cash Flow (Millions) | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $41.7 | $151.4 | | Net cash provided by (used in) investing activities | $140.3 | $(174.0) | | Proceeds from sale of business line, net of cash retained | $286.0 | — | | Net cash provided by (used in) financing activities | $43.8 | $(52.3) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $233.5 | $(81.7) | Consolidated Net Revenues and Operating Segment Information This section provides detailed breakdowns of net revenues by category, region, and operating segment for both the three and six months ended June 30, 2025, compared to the prior year, alongside segment operating income information Q2 2025 Net Revenues by Category (Millions) | Category | 2025 | 2024 | Growth/(Decline) Dollars (Millions) | Percent | | :---------------------- | :------ | :------ | :-------------------------------- | :------ | | Venues | $468.0 | $473.7 | $(5.7) | (1.2%) | | Golf Clubs | $312.7 | $310.2 | $2.5 | 0.8% | | Golf Balls | $98.9 | $103.6 | $(4.7) | (4.5%) | | Apparel | $123.7 | $145.0 | $(21.3) | (14.7%) | | Gear, Accessories & Other | $89.9 | $104.6 | $(14.7) | (14.1%) | | Total net revenues | $1,110.5 | $1,157.8 | $(47.3) | (4.1%) | Q2 2025 Net Revenues by Region (Millions) | Region | 2025 | 2024 | Growth/(Decline) Dollars (Millions) | Percent | | :------------ | :------ | :------ | :-------------------------------- | :------ | | United States | $862.2 | $891.3 | $(29.1) | (3.3%) | | Europe | $105.3 | $114.1 | $(8.8) | (7.7%) | | Asia | $99.8 | $109.1 | $(9.3) | (8.5%) | | Rest of world | $43.2 | $43.3 | $(0.1) | (0.2%) | | Total net revenues | $1,110.5 | $1,157.8 | $(47.3) | (4.1%) | H1 2025 Operating Segment Information (Millions) | Segment | 2025 | 2024 | Growth/(Decline) Dollars (Millions) | Percent | | :------------------------- | :------ | :------ | :-------------------------------- | :------ | | Net revenues: | | | | | | Topgolf | $879.0 | $917.2 | $(38.2) | (4.2%) | | Golf Equipment | $855.3 | $863.7 | $(8.4) | (1.0%) | | Active Lifestyle | $468.5 | $521.1 | $(52.6) | (10.1%) | | Total net revenues | $2,202.8 | $2,302.0 | $(99.2) | (4.3%) | | Segment operating income: | | | | | | Topgolf | $43.5 | $59.0 | $(15.5) | (26.3%) | | Golf Equipment | $177.9 | $159.5 | $18.4 | 11.5% | | Active Lifestyle | $51.1 | $39.4 | $11.7 | 29.7% | | Total segment operating income | $272.5 | $257.9 | $14.6 | 5.7% | Supplemental Financial Information and Non-GAAP Reconciliation This section provides a reconciliation of GAAP to non-GAAP financial measures for both the three and six months ended June 30, 2025 and 2024, detailing adjustments for non-cash amortization, acquisition-related items, and other non-recurring charges, including a Topgolf Adjusted Segment EBITDA reconciliation Q2 2025 Non-GAAP Reconciliation (Millions, except per share data) | Item | GAAP 2025 | Non-Cash Amortization (Millions) | Non-Recurring Items (Millions) | Non-GAAP 2025 | | :------------------------- | :-------- | :------------------------------- | :----------------------------- | :------------ | | Income from operations | $105.8 | $(1.7) | $(13.7) | $121.2 | | Net income | $20.3 | $(1.3) | $(24.0) | $45.6 | | Earnings per share - diluted | $0.11 | $(0.01) | $(0.12) | $0.24 | H1 2025 Non-GAAP Reconciliation (Millions, except per share data) | Item | GAAP 2025 | Non-Cash Amortization (Millions) | Non-Recurring Items (Millions) | Non-GAAP 2025 | | :------------------------- | :-------- | :------------------------------- | :----------------------------- | :------------ | | Income from operations | $172.3 | $(4.3) | $(32.4) | $209.0 | | Net income | $22.4 | $(3.5) | $(40.0) | $65.9 | | Earnings per share - diluted | $0.12 | $(0.02) | $(0.20) | $0.35 | Q2 2025 Topgolf Adjusted Segment EBITDA Reconciliation (Millions) | Item | 2025 | 2024 | | :--------------------------------- | :----- | :----- | | Topgolf Segment operating income | $55.4 | $56.1 | | Non-GAAP depreciation and amortization expense | $51.1 | $49.1 | | Non-cash stock compensation expense | $1.6 | $1.2 | | Non-cash lease amortization expense | $2.7 | $3.1 | | Topgolf Adjusted Segment EBITDA | $110.8 | $109.5 |