Topgolf Callaway Brands Corp.

Good day and welcome to Topgolf Brands Corp 2022 Third Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the store key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press store number one on your telephone keypad. To withdraw your question, please press store, then two. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Lauren Scott, Director of Investor Relations. Please go ahead.

Thank you, Ian, and good afternoon, everyone. Welcome to Topgolf Callaway Brands' third 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 Chief Executive Officer, and Brian Lynch, our Chief Financial Officer. Jennifer Thomas, our chief accounting officer, and Patrick Burke, our senior vice president of global finance, are also in the room today for Q&A. Earlier today, the company issued a press release announcing its third quarter 2022 financial results. In addition, there is 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 release, are both available under 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 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 to everyone on our call, and thank you for joining us today. I'm pleased to report another quarter of record results for Topgolf Callaway brands, driven by strength across all of our segments. Total net revenue in the third quarter was $989 million. up 15% year-over-year or up 21% on a currency-neutral basis, while adjusted EBITDA was $144 million, up 4% year-over-year or 23% on a currency-neutral basis. The strength of our results underscores our leadership position in the modern golf ecosystem and the positive trends we're seeing across our business. highlighted by increased traffic at our top golf venues, market share gains in our golf equipment business, and strong brand momentum in our active lifestyle segment. As we look to the balance of this year and into 2023, we are optimistic about our competitive positioning across each segment, the resiliency of our core consumers, and the embedded growth within our business. Over the long term, we believe we can deliver profitable growth across all of our segments, as well as a competitive advantage via the scale synergies of our combined enterprise. We remain confident that off-course golf will continue to be a key driver of growth in the modern golf ecosystem and, as our recent rebrand suggests, Topgolf is expected to be an even larger contributor to both top-line and bottom line growth. As you'll see in the outlook section, given Topgolf's strong embedded growth, we see that business contributing more than half of our EBITDA in the very near future, an impressive transformation that also demonstrates the long-term advantage of our diversified modern golf portfolio. Shifting to our segment overview, I'll first start with Topgolf's third quarter results. Topgolf venues delivered an impressive 11% same venue sales growth in Q3, driven by a roughly even mix of traffic growth and price. Social events were a particularly strong contributor this quarter, as the venues are increasingly gaining recognition as a preferred place to gather for group events and celebrations. Looking forward, we believe we can deliver 10% or higher same venue sales for Q4 as well, thus delivering high single-digit same-venue sales for the full year. Our strong results and expectations for the business demonstrate Topgolf's distinct position within the market and underscore its ability to thrive in today's environment. They have created a unique guest experience that makes it easier for players to engage with the sport of golf while being entertained and socializing with friends. We remain confident in the sustainable growth outlook for this business, and we believe we have multiple levers still available to positively impact future performance. For instance, we are continuing to roll out an enhanced digital platform aimed at increasing our reservation capabilities and bay utilization. In addition to digital enhancements, Topgolf is also launching an exciting marketing campaign in Q4 of this year. The campaign is intended to further increase both consumer awareness and demand. You'll begin to see increased advertisements in select markets as early as this month, with a nationwide rollout early next year. New venue development remains on schedule, with two new locations open in Q3 and six new venues scheduled to open in Q4, the most ever in a single quarter. By the end of the year, we'll have 81 total owned venues worldwide, and we're happy to report that our track record for new venues meeting or beating our financial targets remains outstanding. From an enterprise perspective, investing in the Topgolf venues continues to be our use of capital and one we remain enthusiastic about. The business model is proven. with venues delivering an impressive 40% to 50% year three cash on cash return. And we have a clear roadmap for the growth ahead of us, as we plan to successfully open 11 new venues a year and, at the same time, deliver positive same venue sales growth across existing venues. Top Tracer had a good quarter as well, with approximately 1,600 bays installed. For the full year, we now estimate that we will install between 7,000 and 8,000 new bays. Customer reaction to the product remains strong, and we continue to view this as a great long-term opportunity and a key source of synergy between Callaway and Topgolf. Lastly, we launched a new mobile game just last week called Shank Stars. While we have modest financial expectations for this new offering, We believe there will be attractive synergies across the Topgolf business as we leverage the content and characters from the game to enhance the experience at our venues and top tracer ranges. Moving to the golf equipment segment, according to Golf Data Tech, the U.S. golf equipment market is down only 2.3% through Q3 on a sell-through dollar basis and remains up an impressive 41% compared to 2016. This despite relatively poor weather and playable hours in the early part of this year. The market has clearly not declined meaningfully as many expected it to with COVID restrictions abating earlier this year. And we've been pleased with the fact that we gained market share as the year progressed. After a slow start to the year, our U.S. hard good market share year-to-date through Q3 was 23.8%, up 97 basis points year-over-year. It's clear that interest in golf remains high and that Callaway is outperforming the market, something I believe we have a track record of doing. With all this, the profitability of our golf equipment business remains high as well. To both protect and build on this position, we've made some key investments in this business over the last several years. For example, we made key additions to our tour team, such as John Rahm, and new women's world number one 19-year-old genothetical, as well as investing in our Callaway Next pipeline of up-and-coming young players. In R&D, we continue to invest in new capabilities that are establishing a leadership position in artificial intelligence capabilities, an area we believe will be differentiating for the future. In our supply chain, we made significant investments for both clubs and ball, including major upgrades in our chicken ball plant. These investments, along with our scale advantage, proven business model, and iconic brand position, put us in a strong position going forward. We continue to see this segment as a consistent performer over the long term, generating good growth and even better cash flows. The timing of this couldn't be better as it supports the Topgolf development and the attractive capital deployment opportunities we see there. Turning to our active lifestyle segment, the Callaway Apparel business in Asia turned in another strong quarter, as did both Travis Matthew and Jack Wolfskin. For Jack Wolfskin, in local currency, both China and Europe grew nicely during Q3. We are proud of this result, as investors will note that many of our competitors are struggling in those markets. We're also seeing excellent signs of brand health. As a recent third-party research study of consumer preferences showed Jack Wilson to be the number one brand associated with outdoor activities in Germany. And the brand just earned a prestigious ISPO product award, the gold standard in the outdoor industry for technical and sustainably conscious product design. Shifting to Travis Matthews, We continue to see outstanding brand momentum across all channels. The brand is delivering strong double-digit revenue and profit, and they are experiencing another promising pre-book season for spring-summer 2023. Our active lifestyle segment remains a highly profitable segment with excellent growth prospects. Turning now to our outlook, I'd like to give you some color on the balance of this year and due to the level of uncertainties out there and the difficulty that investors may have in quantifying them, an initial outlook for 2023. For 2022, we're raising our full-year profitability guidance for Topgolf and the total company, despite further FX pressures relative to our last guide. 2022 is clearly going to be another very strong year for us, with positive brand momentum and growth across all segments. Looking further forward, we, like most companies, are contemplating the impacts of a potential economic slowdown, further inflationary pressure, and foreign exchange movements. Looking at these in turn, while we're not immune from inflationary pressures or macroeconomic conditions, our consumers are passionate about traditional golf the Topgolf experience, and our apparel brands. They also generally have the means and desire to continue to enjoy these activities, even amid inflationary pressure or mild economic downturns. We feel this is a key point of strength for our businesses. Looking at only the FX, if current rates hold, it would be a meaningful headwind for us in 2023. However, we view this as a short- to mid-term issue as over longer periods, rates will either moderate or businesses will adjust. Even with all of the above, for 2023, we currently expect approximately 10% revenue growth and approximately $600 million in adjusted EBITDA, with Topgolf contributing a little more than half of this EBITDA. This keeps us on track with our long-term goals communicated at our investor day earlier this year. On an FX neutral basis, this would be equivalent to 13% revenue growth and approximately $665 million in adjusted EBITDA. As FX rates and business conditions inevitably continue to change, we will provide an updated forecast as well as our normal segment information and more specific business projections on our February earnings call. We're only providing this high-level snapshot at this time and only doing so to assist investors in what we believe are unique circumstances. Thank you, and I'll now turn the call to Brian for a review of our financials.