Good day, and welcome to the Topgolf Callaway Brands' Fourth Quarter 2024 Conference Call. All participants will be in listen-only mode. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Katina Metzidakis, Investor Relations. Please go ahead.

Good afternoon and welcome to Topgolf Callaway Brands' fourth quarter earnings conference call. I'm Katina Metzidakis, Vice President of Investor Relations and Corporate Communications. Joining me on today's call are Chip Brewer, our President and Chief Executive Officer; and Brian Lynch, our Chief Financial Officer and Chief Legal Officer; and Artie Starrs, Chief Executive Officer of Topgolf. Earlier today, the company issued a press release announcing its fourth quarter and full year 2024 financial results. Our earnings presentation as well as our earnings press release are both available on our Investor Relations website under the Financial Results tab. Aside from revenue, the financial numbers reported and discussed on today's call are non-GAAP measures. We identify these non-GAAP measures in the presentation and reconcile the measures to the corresponding GAAP measures in accordance with Regulation G. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. Please review the safe harbor statements contained in the presentation and the press release for a more complete description. With that, I'd like to turn the call over to Mr. Brewer.

Thank you, Katina. Good afternoon everyone and thank you for joining our call today. Starting on Slide 4, Q4 was a strong quarter for our company as both our Golf Equipment business and TravisMathew delivered year-over-year growth on the top and bottom line and Topgolf delivered better than expected same venue sales on improving traffic trends as well as record Q4 venue level margins. For the full year, Golf Equipment delivered another year of excellent brand performance maintaining its leadership position in U.S. golf club market share and driving record share in golf ball. In Active Lifestyle, TravisMathew delivered another strong brand and financial year while the team at Jack Wolfskin right sized their business, so it is now positioned for profitability going forward. At Topgolf, despite top line pressure, they delivered $337 million in EBITDA and approximately 34% venue level EBITDA margins, which were flat versus 2023 and up 500 basis points versus 2019. Topgolf also impressively delivered over $100 million in free cash flow. Additionally, our total company free cash flow of $203 million was also above expectations, thus further strengthening our financial position, a point Brian will cover in more detail during his comments. I view all of this as evidence of our enviable brand positions as well as the dedication of our employees whom I would like to publicly thank for their commitment to our company. As we look forward to 2025 in our guidance, on the product side of our business we remain confident in the health of our Golf Equipment category, our brand position in it and our 2025 product lineup. We expect the TravisMathew brand to deliver year-over-year growth on both the top and bottom line and Jack Wolfskin to return to profitability. At the same time, we are facing year-over-year headwinds from…

Thanks Chip. As Chip mentioned, Topgolf generated over $100 million of free cash flow, marking our second consecutive year of positive cash generation. While same venue sales growth isn't where we would like it to be, continued operational improvements and new venue development helped us deliver adjusted EBITDA of $337 million, which represents growth of 11% versus 2024. I'd like to share our performance for each of our key focus areas along with what to expect for 2025 starting with same venue sales. Same venue sales remained pressured in the fourth quarter at down 8% with walk in or 1-2 bay down 10% and our 3+ bay events down 5%. While sales were down, we saw sequential improvement driven by better traffic and better than expected holiday events with traffic up year-over-year for 3+ bay during November and December. A big thank you to our events team for delivering these results. While spend per visit drove most of the decline in same venue sales in Q4, this was driven by check management including lower F&B spend from lower alcohol attachment. Chip mentioned our Q1 2025 same venue sales trends have been softer than expected so far in part due to the LA fires and unusually severe cold weather. Approximately half of the business quarter-to-date has experienced what we would characterize as unfavorable weather year-over-year. Approximately a quarter has been neutral and a quarter has been favorable. Year-to-date, same venue sales with favorable weather is up high single digits. Neutral weather are down low- to mid-single digits, but those seeing unfavorable weather are down high teens. Winter weather always causes volatility, but this year has been particularly negative versus prior year and the historical averages in our markets. In total, our Q1 guide for down 10% to 13% incorporates approximately five…

Thanks, Artie. Now turning to Golf Equipment. The sport of golf remains strong. In 2024, rounds played grew 2% year-over-year, marking the fifth consecutive year where rounds played have exceeded $500 million. Furthermore, interest in the game and participation continued to increase with U.S. on-course golf participation up $1.5 million to $28.1 million. Additionally, U.S. sell-through and industry golf shipments both grew low-single digits as well. Our Golf Equipment business performed exceptionally well from a brand perspective in 2024 and our global revenues were up slightly on a currency-neutral basis. Our tour staff had multiple wins, including one women’s and two men’s majors. Our club brand continued to lead in the technology and innovation ratings, and our golf ball brand showed continued improvement in its overall brand rating and the number of people that rated it as their favorite ball. Our U.S. dollar market share place us as the number one club brand for the third consecutive year and the ninth out of the last 10 years. We were number one in total clubs, drivers, fairway woods and hybrids and AI Smoke was the number one model in drivers, fairway woods and irons. We also had a very successful year in putters, driven by our Ai-ONE product line. In Golf Ball, we maintained our position as the number two golf ball on the back of a successful launch of our Chrome Tour brand. As you can see on Slide 8, we have a long-term track record of steadily growing our share in this category. Looking forward, in January, we announced some exciting new launches. In golf clubs, our new elite product line is our most complete lineup in memory, delivering new technology and outstanding performance from top to bottom. Turning to Putters. During Q4, we launched our square-to-square product line…

Thank you, Chip, and good afternoon, everyone. Before jumping into our financial results for the quarter, I want to note that our GAAP results were impacted by the $1.45 billion non-cash accounting charge related to the impairment of the Topgolf goodwill and intangible assets. You may recall that the implied negotiated price for the Topgolf merger was $1.987 billion, payable in common stock but the purchase price for accounting purposes was impacted by the stock price increase between signing and closing. And as a result, we recorded a $3.1 billion purchase price, even though no additional shares were issued. Following the impairment, the remaining carrying value of the Topgolf assets on our books is $1.6 billion. Importantly, this non-cash charge does not impact our liquidity or operational flexibility. Now turning to Q4 financial results. Q4 consolidated revenues of $924 million increased 3% year-over-year. This increase was largely driven by increased revenue on Golf Equipment with the Active Lifestyle segment up slightly and Topgolf revenue consistent with the prior year. Q4 adjusted EBITDA of $101 million increased 45% driven by improved operating results across each segment. Moving to segment performance. At Topgolf, Q4 revenue was approximately flat at $439 million. Revenue from new venues opened since Q4 last year offset an 8% decrease in same venue sales. The same venue sales results included better than expected performance in both the 3+ bay events business and the walk-in 1-2 bay business. Topgolf Q4 operating income was $27 million, up $4 million compared to the prior year, while adjusted EBITDA increased 14% year-over-year to $84 million. The adjusted EBITDA growth was driven primarily by improved venue level margins. EBITDA margins for the quarter exceeded expectations and represented a record high in Q4. Moving to the Golf Equipment segment. Revenue was up 13% to…

Thank you. [Operator Instructions] The first question comes from Matthew Boss with JPMorgan. Please go ahead.

Great, thanks. And I appreciate all the color. Chip and maybe, Artie, could you elaborate on same venue sales trends when the weather has been neutral at Topgolf. Maybe just walk through the expected progression in 2025? Or what constraints do you see from returning to positive same venue sales in the back half of the year?

Sure. I'll take it. Thanks, Matt. Yes. So the sort of the neutral weather markets, which we characterize as it's approximately the same year-over-year. They're currently running down to down low mid to single digits. So an improvement from what we had seen in Q4. And we obviously have easier laps balance of year. So when we set the guidance and we look at the base trends, we’re comfortable with that. I’m pretty excited about what we’re seeing in these model markets in terms of how the consumer is responding to some of the value messaging that we have in place. Some of the traffic numbers we’re seeing are extremely exciting. But I think the base guidance that we put forward, Matt, is really – this is the trend of the business that’s not weather impacted, and we have a lot of conviction in that. The final thing I would add is that in Q4, our teams just did an extraordinary job of improving player metrics, and that’s continued in Q1. So when I think about the base trends, improving player metrics and introducing some more value that’s profitable in the market. I feel good about the guide.

Great. And then maybe, Chip, on Golf Equipment, could you speak to initial reception of the Elyte launch in clubs, Square 2 Square and putters. And just if you could elaborate on drivers of the 2025 organic forecast in this segment?

Sure. We’re really proud of the Elyte product line and have just recently launched it out there and are excited about the prospects for the year. We do have a little bit more challenging year from a share perspective because of the launch of all of the big four OEMs this year, which is not something that happens every year. But very proud of our product line and optimistic as the year develops. And as we get it into hitting base, we’re hearing great performance feedback and we find that that’s our time to shine. On the Square 2 Square product line, we launched that in Q4. That’s that zero-torque design. And that’s done exceptionally well. That’s a category that’s hot in the golf market right now. We think we have a better design and approach to it. And so clearly something that we see that has energy. Did that answer the question, Matt?

Yes, it does. Best of luck.

Thank you.

The next question comes from Alex Perry with Bank of America. Please go ahead.

Hi. Thanks for taking my questions here. Just first, the corporate events comp accelerated nicely in the quarter. Can you talk about the key drivers there? Were there any strategy changes that you think helped drive the acceleration in the corporate events comp? And then what is the outlook for corporate events versus walk-in for 2025? Are you continuing to see green shoots on the corporate side? Thanks.

Yes. Thank you very much, Alex. The teams did a great job in Q4, and I’ll put it into two – sort of two buckets. The first is we gave a bit more flexibility. These events and corporate events by and large are sold locally. So you’re competing with other local establishments. And we give the teams a bit more flexibility in terms of product design, length, duration, the menu and price, and that paid, I think, significant dividends. The second thing I would say is we’re a business that’s got some nice scale now. We’re in most of the large DMAs, and we’re able to bubble up a lot of those learnings in the local market. I’ll provide one specific example where we had a few venues that were selling to a national retailer in their holiday parties very well. And we had some other venues that we’re getting some resistance and we’re able to take those learnings into the home office for that national retailer and ended up tripling our sales with that group. So I’d say it’s a competitive advantage we have at Topgolf where at the local level, we’ve got super energized teams, and we’ve given them some more flexibility. And then in the home office, we put in, I think, more rigorous and better structure and making sure that these learnings are getting into the right places at the right time. In terms of 2025 and the guidance, we expect walk-in to be a little bit better than events this year. The weather has impacted both channels year-to-date. I think the one thing I will say, the holiday events still seem to be a real source of strength for us, and we expect that to continue in 2025.

Really helpful. And then my follow-up is on the core golf equipment biz. Can you talk about the expectation for the core business to be down year-over-year? Is it mostly just the function of a tough year from a market share perspective given some of the competitive launches or is there anything to do with channel inventory levels? I guess what drives the core business down year-over-year and in 2025?

It's mostly FX. So if you wanted to pick the one largest as we mentioned, it's in the core business, there's $60 million of headwind from FX alone. And then beyond that, if you're looking at the golf equipment, we talked about the launch cadence this year, where we have more of our big competitors launching than in last year. And we also have less launches planned of our own in the second half of the year. And then in active lifestyle, we've intentionally scaled back the Jack Wolfskin business as we've resized that business and restructured it for profitability going forward.

Very helpful. Best of luck going forward.

Yes. Thank you.

The next question comes from Joe Altobello with Raymond James. Please go ahead.

Thanks, guys. Good afternoon. On the core business, I guess I'll stay there for a second. So if I take a step back and I look at that business, I think in 2019, your core business did about $210 million of EBITDA I'll call it a $1.7 billion of revenue. And the EBITDA guide for this year is below that on roughly $600 million of incremental revenue. So I understand the FX headwinds year-over-year, but has something changed structurally with that business to cause profitability to come down materially in six years?

No, Joe. Nothing structural at all. FX is again the primary driver of that. And we'll work through the FX over time. It's a lagging process there where we – the markets don't take enough price to offset initially, but they will over time, and we've worked through these cycles in the past. There are some other changes obviously throughout that the TravisMathew business is now bigger. The Jack Wolfskin business is smaller, but nothing structural. And again, on an organic basis, just normalizing for FX in the one-year period and the FX would be more dramatic relative to 2019 significantly. So we're still driving 6% improvement in EBITDAR on lower revenues. So structurally, I think we're in good shape and headwinds that we'll work through.

Got it. Just to follow-up on that. The top cost free cash flow guidance in 2025, I apologize if you missed it?

We didn't provide specific guidance, Joe, on cash flow, but we gave you the elements of that in the earnings deck, including the CapEx and EBITDA, including VFCI for each of the segments.

Okay. Thank you.

[Operator Instructions] The next question comes from Megan Clapp with Morgan Stanley. Please go ahead.

Hi, good evening. Thanks so much. I have a question for Artie and then maybe a follow-up for Chip and Brian. So first question on Artie, again, a lot of helpful detail on kind of the initiatives you're undertaking to improve same venue sales. So thank you for that, and it's nice to hear that you've had some positive early learnings. But I guess if you just take a step back, same venue sales have been negative for six quarters and you've talked about a lot of initiatives that you've been working on with us over the last several quarters. So as you kind of take a step back from a high level, can you just provide some perspective on really what's changing as you look to 2025 relative to the last several quarters? And maybe related to that, when you think about to Matt's question earlier, inflecting to positive same venue sales at some point in the future. How much do you really think is in your control versus needing a little bit of macro help? I guess you mentioned lower alcohol attach rates in the quarter. I'm not sure if that was new or not, but is there anything you're seeing just in the macro that suggests it could be kind of a tougher battle in 2025?

Yes, we'd certainly love to see the macros improve, but we think we're going to get same venue sales going even if that doesn't happen. And what I tell you versus last year, what's different? Number one, the consumer environment's different and two, how we're tackling it is different. Most notably, if I look at the first half of last year when we were applying some promotions and targeted value on maybe specific digital channels and specific sort of shoulder parts of the business, we drove some incrementality a couple points with the Free 30 and the Free Play promotions. But this year we're really providing value when our players can truly use it, which is Sunday and late night, which is two ownable equities for us. We've done a bunch of research in terms of why players love Topgolf, why they come to Topgolf. Where do we have a competitive advantage? Those are two segments and two parts of the business where we have bays to sell. And it's very profitable for us to provide the price point that we're targeting. The other thing is the price point sharp. So how we price, which is by the hour, just saying 30 bucks is in this environment for six people, that's five bucks a player. And that's extraordinary value. The beauty of this for us, if you take Sunday for example, Sunday is 15% of our business. Gameplay is half the business. So, we're basically putting 7%, 7% to 8% of the business on a nice promotional value. But what we're seeing come out of it is larger group sizes, strong, it's early, but in some respects stronger F&B spend. So, the groups that are coming, they're socializing, they're spending more when they come. And, the traffic numbers are extremely encouraging and the sales as well. In terms of a couple other things that I didn't get into much detail in my script on, but the beginning of Q2, because people come into the venue, really gameplay is like the anchor price, if you want to think of it that way. That's what kind of gets people in. We've done some deep statistical work on how our F&B prices compare and how people are navigating the menu and we're rolling out a simplified menu with some targeted pricing moves inside the menu that we don't expect that the player to see, but we expect to yield some comp growth and higher margins. And we saw sequential traffic improvement through most of last year and before the weather hit was continuing. So, I sort of feel like with this value construct, with some of the F&B work we're doing, we've got a strong slate of new news to get people excited about coming to Topgolf. I'm very optimistic.

Great, thank you. And then just a follow-up for Chip or Brian. I know you said no update on the spin, but just when you announced the spin, I think the expectation was to get to 3x or under leverage within 12 months of the spin. Since then, just given kind of the headwinds you talked about, your EBITDA expectations are lower. So, can you just update us on how we should be thinking about your expectations for pro forma leverage of that core business? And can you still get to 3x within 12 months?

Sure. Megan. Again, we're not giving specific guidance, but we're very pleased with the way we finished Q4 with our cash flow – is very strong. We expect to be cash flow positive for the total company and Topgolf in 2025. And in a spin situation, we would use. Our intention is to have a retained stake that we would use to help us delever. So, we feel very good about where we are now and where we're headed.

Yes. Megan, I'll just add that as a board and a management team, we're going to ensure that both businesses are in strong financial and strategic positions at the time of separation. There are a lot of different paths for that and that's a commitment of ours.

Okay, thank you.

This concludes the question-and-answer session. I would like to turn the conference back over to Chip Brewer for any closing remarks. Please go ahead.

I would just thank everybody for tuning in today on the call. We appreciate your time and we look forward to continuing to keep you updated as the opportunities present in the May call, if not before. Thank you so much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.