Topgolf Callaway Brands (MODG) - 2024 Q4 - Earnings Call Transcript

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]