Callaway Golf Company

Good day and thank you for standing by. Welcome to the Callaway Golf Company Q1 2022 Earnings Call. At this time, all participants are in the listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. During the Q&A session, we ask that you please limit your questions to one and a follow-up to allow as many participants as possible to ask a question. I would now like to hand the conference over to your speaker today, Lauren Scott, Director of Investor Relations.

Thank you. Please go ahead. Thank you, Ashley, and good afternoon, everyone. Welcome to Callaway's first quarter 2022 earnings conference call. I'm Lauren Scott, the company's Director of Investor Relations. Joining me as speakers on today's call are Chip Brewer, our President and CEO, and Brian Lynch, our Chief Financial Officer. Patrick Burke, Calloway's SVP of Global Finance, and Jennifer Thomas, our Chief Accounting Officer, are also in the room today for Q&A. Earlier today, the company issued a press release announcing its first quarter 2022 financial results. In addition, there's a presentation that accompanies today's prepared remarks and may make it easier for you to follow the call. This earnings presentation, as well as the earnings press release, are both available on the company's investor relations website under the financial results tab. Most of the financial numbers reported and discussed on today's call are based on U.S. generally accepted accounting principles. In the instances where we report non-GAAP measures, we have reconciled the non-GAAP measures to the corresponding GAAP measures at the back of the presentation 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. We encourage you to review the safe harbor statements contained in the presentation and the press release for a more complete description. And with that, I would now like to turn the call over to Chip Brewer.

Thank you, Lauren. Good afternoon, everyone, and thank you for joining us today. To start, I want to thank all of the analysts and investors who joined us in person or online for our Investor Day on April 26th. I speak for our whole leadership team when I say that we enjoyed having the opportunity to interact with you and hope you walked away with a better understanding and appreciation of our business strategy and vision for the future. If you missed our event, I encourage you to review the materials on our IR website as you'll continue to hear us reference our growth framework as we track towards our long-term goals. Shifting to Q1, I'm pleased to report a very strong start to the year with all three of our business segments contributing to our success. Total net revenue was just over $1 billion, up 60% year over year on a reported basis, or up 31% on a pro forma basis, which includes top golf revenue for the full quarter of last year. Flow through to the bottom line was strong as well. with adjusted EBITDA of $170 million, up 33% on a reported basis or up 31% on a pro forma basis. These results clearly show the continued momentum in our business and give us increasing confidence as we look out over the full year and the long term. Shifting to our segment overview, I'll first start with Topgolf's Q1 results. The Topgolf team put up another outstanding quarter. At the time of our last earnings report in February, Topgolf's venue business had been impacted by the reduced traffic and a lighter events business due to Omicron. However, as the quarter progressed, this early softness was replaced by a strong resurgence in demand. In March alone, same venue sales versus 2019 were up approximately 10%, which drove full quarter same venue sales up 2%. thus beating our February earnings call forecast of down slightly. New venue openings remained on track in Q1 and continued to open extremely well. During the quarter, we opened one new owned and operated venue in Ontario, California, and one new franchise venue in Germany. Additionally, in mid-April, we opened our new El Segundo location in Los Angeles, California. I'm happy to report that all of these locations are exceeding expectations as the venues team continues to impress and our brand appears to be building momentum. As a result of these terrific results, we're increasing our same venue sales projections for Q2 and the balance of the year to up high single digits versus 2019. This would put our full year same venue sales up an impressive mid to high single digits. Operating margins also remain healthy, as Artie and the team have been able to take price as well as drive both increased event business and overall venue efficiencies. This combination is allowing our overall margins to outpace any inflationary pressures, all while maintaining a superior guest experience. Turning to the top tracer business, we installed 1,159 new bays in Q1, and believe we are on track for 8,000 or more bays this year. Feedback on the product and demand remains strong. Plus, we're building resources to ramp our installations. Taking a step back, I hope we can all agree that this is quickly becoming a proven business and that it has a track record of success across any size, geography, climate, you name it. Our ability to continue to put up quarter after quarter of successful results makes us increasingly confident in this unique business's long-term outlook as presented at the Investor Day. As we look out over the next few years, we believe Topgolf will be a significant source of long-term value creation. Already in 2022, it is forecast to be our largest segment by revenue this And even with the strong growth forecast across our other business segments, this segment alone is expected to account for more than half of our total adjusted EBITDA by 2025. Topgolf is the keystone of our modern golf thesis. It already is the dominant leader in the dynamic off-course golf industry, and we believe it will maintain this position given its significant growth prospects ahead. Moving to golf equipment. This business had another excellent quarter with revenue up 24% year over year. And as we mentioned at the investor conference, we expect this segment to be up 10% for the full year. We continue to see strong demand globally for golf equipment, especially from avid golfers. According to data tech in the US, despite comparatively poor weather conditions this year, Q1 hard goods sell-through was down just 2.8% versus 2021 and remained up 44.5% over 2019. Outside the U.S. and key markets such as Japan, Korea, and Europe, we saw Q1 hard goods sell-through up nicely year over year. Also, as the fitting portion of the season opens up, we are seeing market share gains for our 2022 products. especially our Rogue ST Drivers and Fairywoods, as well as our Chrome Soft golf balls. For Q1, we finished as the number one hard goods brand in the U.S., and in March, we delivered a new record U.S. golf ball market share of 22%. On the manufacturing side, our supply chain is continuing to perform well, and although supply has not yet caught up to demand, we believe our strong partnerships and Scale and regional diversification have provided and will continue to provide a competitive advantage in being able to deliver products to our customers. Lastly, the apparel, gear, and other segment had a strong quarter with positive momentum across all of our brands. Callaway's business has remained strong globally with our apparel business in Asia performing well and our gear business, namely golf bags and gloves, delivering both market share and revenue increases. As you may recall from Glenn Hickey's presentation during the investor day, increasing our market share in the soft goods category will be a key opportunity within the segment. So we're very pleased with these results. Meanwhile, Travis Matthew had another outstanding quarter, continuing the strong brand momentum across all channels. Our own retail comp store growth was up a stunning 50% in Q1. In addition, Travis Matthew announced last week that it's launching its first dedicated women's apparel collection. While this first rollout is more of a preliminary collection and not a major source of revenue yet, with women accounting for over 25% of the purchases made through Travis Matthew's direct-to-consumer channels, we are both confident in and excited about the opportunity here. Throughout this year, we plan to continue to test and expand the offering, and we have a more robust launch plan for 2023. As communicated at our investor relations day, we see the Travis Matthew brand eclipsing $300 million in revenue and $50 million in adjusted EBITDA by the end of this year. They have impressive momentum, and we see a clear path to continued growth ahead. Lastly, the Jack Wolfskin business continues to make good progress. Being a European-based brand, they are dealing with a number of macro headwinds, but I'm pleased to report that their new branding campaign and products are being very well received, both based on sell-through of the current products and pre-books for the future. We believe this brand is on strong footing and positioned for growth ahead. We outlined what we believe is compelling long-term vision for the brand and its financial objectives at our investor day. When looking at the segment on the whole, we expect the apparel, gear, and other segment to deliver approximately $1 billion in net sales for this full year. In closing, in light of the strong start to the year and our confidence in the key business drivers by segment, we are raising our financial outlook for the balance of the year We also want to take this moment to reiterate our belief that Callaway is a unique and compelling investment opportunity that will create long-term shareholder value. Our brands have momentum, and they operate in business segments that are attractively positioned in today's world. We are advantaged by scale within the modern golf industry with unmatched global reach to both the traditional golf consumer and the growing off-course player. Our High Barriers to Entry Act is a layer of protection against new competition, and our diversification allows us to mitigate the effects of any potential downturns in any one segment while also presenting attractive synergy opportunities. We are confident in our ability to deliver the growth projections laid out at the Investor Day and believe our 2025 target of surpassing $800 million in adjusted EBITDA will be achieved by continuing to execute our proven strategy for growth. As stated at the Investor Day, we don't have to do anything fundamentally different. We just have to continue to do the things that we've consistently shown that we can and are doing. And with that, I'll hand the call over to Brian to discuss our financials and outlook in more detail.