Topgolf Callaway Brands Corp.

Welcome to the Topgolf Callaway Brands Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Katina Metzikakis, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Andrea, and good afternoon, everyone. Welcome to Topgolf Callaway Brand's third quarter 2023 earnings conference call. I'm Katina Matsoudakis, the company's Vice President of Investor Relations and Corporate Communications. Joining me as speakers on today's call are Chip Brewer, our President and Chief Executive Officer, and Brian Lynch, our Chief Financial Officer and Chief Legal Officer. Earlier today, the company issued a press release announcing its third quarter 2023 financial results. In addition, there is an updated presentation with supplemental information that we have not shared in the past that may make it easier for you to follow along with this call. Because we are introducing some new concepts and metrics, we will plan to extend today's call to give additional time for our question and answer session. 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 the 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'd like to turn the call over to Chip.

Thank you, Katina. Good afternoon to everyone, and thank you for joining us today. Despite some volatility in Topgolf's same-venue sales, Q3 was a strong operating quarter. The team delivered solid results across all segments of our business and expects to deliver mid-single-digit growth in revenues and EBITDA for the full year. We are confident we will be free cash flow positive this year and have now begun to reduce our financial leverage. As we look across our business, we are encouraged by the fact that our golf consumer remains strong, as does the Callaway Equipment brand and product pipeline. Our active lifestyle segment continues to deliver growth in top line and operating margin. And at Topgolf, our confidence on venue economic returns remains very strong, We are delivering a compelling unit growth plan with new venues opening well and our venue margins continue to improve. An impressive and important proof point as this was delivered during a challenging same venue sales environment. Unfortunately, lower near-term sales in our venues as well as current foreign exchange rates result in lower forward projections at this time. As you would expect, we don't take these changes lightly and we did not intend to make a habit of them. Excluding 2020, this will be the first full-year earnings guide that we have missed in my 11-plus years of running this business. The teams quickly recognized the changing conditions and are now taking swift and decisive action to reduce costs, capture further synergies, and drive improved profitability. With these changes, we believe we have identified a clear path to de-risk our operating plans through a potentially softer consumer environment while maintaining both strong growth and positive cash flow. Given our strong financial resources and businesses that are well-positioned for long-term success, we remain strongly confident in our growth algorithm and the direction of our business. Let me now walk you through our business segment performance in Q3. I'll begin with Topgolf. starting with the three key performance drivers for our venue business, venue development, same venue sales growth, and venue margin expansion. We successfully opened four new venues thus far in Q4, including St. Louis Midtown, Memphis, and our first two venues in New England, in Canton, Massachusetts, outside of Boston, and Cranston, Rhode Island, outside of Providence. With seven venues open year to date, Topgolf remains on track to open 11 new venues in 2023. As usual, the new venues are performing well. While we're on this subject, I want to provide an update on our acquisition of Big Shots from Invited, the largest private golf and country club owner and operator in North America and a key strategic partner of Topgolf Callaway Brands. As part of this strategic transaction, we acquired the largest active competitor to Topgolf, including one new owned and operated venue, two franchisee relationships covering three venues, which we expect to convert to Top Tracer accounts in the near future, an enhanced and de-risked future pipeline, as we will now assume Big Shot's pipeline, some of which overlapped with ours, along with a preferred vendor agreement in which Topgolf Callaway Brands merchandise, including Callaway, Travis Matthew and OJO product will be prominently featured at invited more than 140 golf and country clubs, all for approximately the same price of building a single top golf venue. With the venue acquired through this transaction and the potential to add one additional venue in the first half of next year, we plan to build only eight to nine additional new venues in 2024. This change, along with the strategic assessment and resulting tightening of our other capital expenditure plans, will save us approximately $100 million in planned capital over the next two years. This will improve our already positive cash flow and accelerate our expected debt paydown schedule. It will therefore de-risk our business over the near to medium term, something we believe some investors will appreciate. Consistent with previous communication, we maintain high confidence in the venue returns, which remain at an 18% to 22% return on gross investment and a 50% to 60% cash-on-cash return based on targeted year five results. And thus, we expect to resume building approximately 11 venues per year again in 2025. Our projections support this new capital allocation plan as the best way to drive shareholder value And we believe we have more than enough capital available to support this growth plan. However, if business conditions necessitate it, we can pull back on these investments and all stakeholders should be confident we would do so. Moving to same venue sales. These were down 3% in Q3 due to weaker than expected demand, along with extreme heat that impacted our venues located in southern markets, including Texas, during a portion of the quarter. Our consumer or one to two-bay business, which as a reminder represents approximately 80% of our total business on an annual basis, was flat versus last year and remains up nicely versus 2019 levels. Our corporate events business declined approximately 17% year over year in Q3 as we continue to lap the post-COVID surge in demand we saw last year. That said, the corporate events business appears to have stabilized during the quarter, and the two-year stack using 2022 and 2019 was still up 4%. This two-year stack chart is included in our investor presentation on page 4. I believe it provides a helpful way to look at the performance year-to-date as it shows the lapse we are anniversarying and that the business remains up nicely versus pre-COVID on a two-year stack basis. Looking forward on same venue sales, after improving in September, our October results softened overall. But interestingly, we see a consistent trend of sales remaining strong on the weekends, as well as on Tuesdays where we offer half-off gameplay. The lower same venue sales we are seeing is largely confined to our events business, as well as Monday, Wednesday, and Thursday, where we are not providing either value or a special occasion. As you'll hear in a moment, this difference by day of the week is instructive for our action plan, and the fact that the events business is stabilizing is important for forward projections. But before I go there, let me unpack the Q4 forecast. For Q4, we're now forecasting corporate event demand down low teens year over year, which is consistent with actual current booking trends and would result in a two-year stack of approximately flat for this portion of our business. This decline is less than the corporate was down in Q2 and Q3 as we continue to see the business stabilizing. However, corporate is a higher percent of the sales mix this quarter, so it is more impactful to the total. We are forecasting the consumer portion, our one to two-bay business, down low single digits first last year for Q4, thus reflecting the results we saw in October. With this forecast, our two-year stack for consumer would be up high single digits versus 2019, as the consumer portion of our business, although slowing some, remains healthy versus historical levels. As a result, we're now guiding to down mid to high single digits for Q4 and slightly down for the full year. But please note that both of these are up nicely on a stacked basis. Moving to what we're going to do about it. Given the day of the week trends and also believing that in the current environment, consumers are being offered and are probably looking for greater value to tempt them out during the week, We are immediately doubling down on communicating our Tuesday value offering, and in test markets, we will be trialing additional value offerings aimed specifically at Wednesdays and Thursdays. We're also going to ramp up our cross-brand synergies by promoting Topgolf offers to both Callaway and Travis Matthew loyalists. In this clearly choppy environment, one of our relative strengths is that with expanding venue margins, and minimal current promotional activity, we have room to implement new promotions and still deliver strong four-wall returns at our venues. Furthermore, our recent digital efforts enable us to effectively target specific segments and days of the week. Speaking of digital, I'd like to thank and recognize the Topgolf team for the significant progress they're making here. And at the same time, I'm energized by the large runway for continued growth and improvement in front of us. The venue business ended Q3 with a total digital sales mix of nearly 36%, up from 34% in Q2 and only 5% pre-merger. We believe our long-term digital mix will be 60% or higher, and we set a strong foundation for this with the implementation of PI, our Bay Inventory Management System, which is now in all our venues except for Las Vegas. The next chapter for PIE involves more efficient stacking of our reservations to maximize utilization and offering more options on length of the reservation versus the standard two-hour option we offer today. This will effectively create more available inventory during peak hours, provide more value to the consumer, and more profit opportunities. And as more of our business is sold through reservations, we're working on further product innovation to offer add-ons and upsell things like food and beverage packages, better bay or floor location, potentially some services like introductory lessons, and maybe even upgraded equipment. Moving on to our third performance driver, venue margin expansion. The team just did an outstanding job here during Q3. The initiatives the team have been working on, such as PIE, as well as labor and COGS optimization, paid big dividends this quarter. And as a result, even with same venue sales below expectations and clearly a challenging operating environment, we were able to deliver EBITDA margins in the mid-30s and approximately 200 basis points above last year. This should provide confidence both in our ability to deliver margins in tough environments and and in our ability to hit our 35% full-year venue EBITDA margin target by 2025, if not sooner. Shifting gears to Top Tracer, golf's number one range technology is on pace to open just over 7,000 new bays this year, consistent with expectations. Market feedback and demand remain positive. Moving to our golf equipment segment. We're pleased with our results, which are largely in line with our expectations. We're also pleased to report that the U.S. golf consumer remains strong and engaged. As evidence of this, U.S. rounds played are up approximately 4% year-to-date through September. The Callaway brand continues to deliver excellent performance in both brand rating and market share. In the U.S., Callaway is the number one market share brand year-to-date in total woods, irons, fairywoods, drivers, and hybrids, and it maintains its brand leadership position in technology and innovation. Our paradigm driver has also had the most wins across worldwide tours, and we continue to grow our position in ball with market share sustaining approximately 20%, sales up 7% year-to-date, and an exciting new premium ball launch coming early next year. Turning to Asia, We've seen some softening in those markets during the second half of the year, but our business there is up for the full year on a currency-neutral basis, and our brand position and market share remains strong. That said, in reaction to the change in market conditions, we are lowering our sales and margin estimates for Q4 for this region. At this point, we do not see this as a significant concern for 2024, just something that bears mentioning and watching. In the U.S., field inventories and golf equipment remain in line with expectations, as does the promotional environment. Overall, a healthy market. Just last week, we launched a new exciting putter, Odyssey AI1, featuring a revolutionary new insert that our testing shows delivers up to 21% better distance control on putting. It's already made its way into the bags of players like Jon Rahm, Sam Burns, and Brian Lynch. We're excited about this new product and invite you to visit our website to see it for yourself. Looking further ahead, enthusiasm for and feedback from our recently completed 2024 product sales meetings and pre-lines with key customers have been very promising, and I look forward to providing you with updates on our upcoming product launches next quarter. Lastly, As you think about our golf equipment business going forward, I'd like to remind everyone of two important points. First, the golf equipment business has not historically been sensitive to mild recessions. And secondly, our brand and management team have a nice track record of performance that meets or beats the overall market, something we expect to do again this year. You can see evidence of both these points on slides 7 and 8 in the investor deck. Moving to active lifestyle, Travis Matthew continued to grow its top line by double digits, driven by continued brand momentum and new store openings. The growth here is bolstered by progress we're making on our new women's line, including a small but successful introduction of the line at Nordstrom's. Jack Wolfskin also posted encouraging results in the quarter, with solid growth despite a choppy macro environment in Europe. and the brand remains on track for growth in both revenue and profits in 2023. Now looking forward, let me briefly unpack the change in guidance. We're revising the midpoints of our 2023 revenue and EBITDA guidance to $4.25 billion and $580 million, respectively. The revision is primarily due to the lower same-venue sales at Topgolf. The slowing business conditions in Asia and the foreign exchange rate movement since last quarter had contributing but smaller impacts. As mentioned, we continue to expect to be cash flow positive this year, both at the corporate level and at Topgolf. With the above revisions, we've also done a thorough business review and refocused spend on our biggest strategic priorities, as well as accelerating synergies, lowering operating expense, including headcount, reducing capital expenditures, and developing more growth initiatives. Across OPEX and gross margin, we expect to realize savings of approximately $45 million per year. And as previously mentioned, we're reducing our planned CapEx spend by approximately $100 million over the next two years. These actions are aimed at de-risking our forward forecasts. Looking further forward, we're moving our target of at least 800 million in EBITDA from 2025 to 2026. The primary driver of this move is foreign exchange rates, as there's now 165 million revenue headwind and close to 100 million EBITDA headwind versus the rates we used in early 2022. And this, along with the economic trends we're currently experiencing, make this move appropriate at this time. To help better forecast our growth in cash flow, we're also introducing two concepts that were suggested to us by investors. The first of these is EBITDA, less cash venue financing interest. This calculation avoids the complication of us having both operating and finance leases by reducing EBITDA by the cost of both. It essentially captures all cash payments that resemble rent. which is a reasonable way to look at the business both from an EBITDA and a leverage perspective. The second is embedded cash flow, which is free cash flow before growth capex, or what our cash flow would be if we didn't continue to add new venues or retail stores. Embedded cash flow is what's available to either reinvest in future growth or return to shareholders. In conclusion and looking ahead, Topgolf Callaway Brands has strong underlying fundamentals, robust financial resources, and premium brands that have clear defensive moats, both individually and collectively. We operate primarily in the arena of modern golf, an attractive and growing market that benefits from positive long-term trends and structural growth. We're now making the important transition to the cash generation period of our economic journey. And although we're experiencing some short-term volatility, we're also taking steps to make sure we both stay cash flow positive and deliver strong growth going forward. As I look forward, I remain confident in our outlook and that our structure provides us both synergies and a long-term competitive advantage. I'll now turn the call over to Brian to provide detail on the financial side of our business.

Thank you, Chip, and good afternoon, everyone. Overall, we are pleased with our third quarter results, including our ability to deliver higher-than-expected EBITDA on softer-than-expected revenue. This is in part attributable to Topgap's continued improvements in venue profitability, as well as its management of labor costs. In preparation for potentially softer market conditions, we have taken action to reduce planned capital and operating expenditures while maintaining our long-term growth plans. Our financial position remains strong. Our available liquidity, which is comprised of cash and borrowing capacity under our credit facilities, has increased this year from $415 million at December 31st, 2022 to $734 million at September 30th, 2023. This is in large part due to the refinancing and additional borrowings we completed earlier this year. We remain focused on generating cash flow and managing leverage and have the flexibility to further reduce costs and cash outlays if necessary. Now moving to Q3 results. In the third quarter, revenue increased 5.3% year-over-year to $1.04 billion, which is about $9 million, or a little less than 1%, below the low end of our guidance range. Revenue increase versus Q3 2022 was driven primarily by growth at Topgolf as well as Travis Matthew and Jack Wolfskin. The majority of the shortfall versus our Q3 guidance is attributable to an approximate 3% decrease in same venue sales at Topgolf, below our guidance of 1% to 3% growth. Q3 non-GAAP operating income increased 5.1% to $85 million, consistent with our revenue growth. Q3 non-GAAP net income decreased $6.4 million year over year, primarily due to a $17 million increase in interest expense related to higher interest rates, additional term loan debt, and increased venue financing interest. Adjusted EBITDA of $163 million increased 13% compared to last year and exceeded the high end of our guidance range by approximately $9 million due primarily to continued venue margin expansion and reduction in planned operating expenses. turning to segment performance. In Q3, Topgolf revenue increased 8% to $448 million, driven by the addition of nine new venues since Q3 2022, and partially offset by a decline of approximately 3% in same venue sales during the quarter. Topgolf segment operating income increased 65% year-over-year to $39 million, and adjusted EBITDA increased 42% to $91 million, due to the increased revenue and continued venue margin expansion. The recently announced Big Shots acquisition is expected to be slightly accretive to Topgolf in 2024 and growing thereafter. This was both a strategic transaction and attractive from a financial point of view, but small on a relative scale basis. Our golf equipment segment results exceeded our revenue and operating income forecast. Golf equipment revenue declined 1% to $293 million, primarily due to an expected shift in equipment launch timing from Q3 to Q4 this year, and softness in Asia, as well as a 5% decline in golf ball sales due to the retail channel inventory catch-up in golf balls in Q3 2022. Golf equipment operating income was $35 million, a decrease of $14 million compared to the prior year. This is due to less launch product in Q3 this year versus last year, a return to normal promotional levels, and lower production volumes this year versus 2022, and thus less fixed cost absorption. The active lifestyle segment grew 8% to $300 million, driven by continued strong double-digit growth at Travis Matthew and solid growth at Jack Wolfskin. Operating income increased approximately 42% year-over-year, to $40 million, driven by a higher mix of margin-accretive direct-to-consumer sales, as well as tailwinds from lower freight costs. Moving to our balance sheet. As mentioned earlier, as of September 30, 2023, we have available liquidity of $734 million. Based on our modeling, we believe this liquidity position is more than sufficient to execute our business plan, even if the markets soften further. At quarter end, we had total net debt of $2.1 billion, which excludes convertible debt of approximately $258 million, compared to $1.5 billion at the end of Q3 2022. This increase relates primarily to incremental new venue financing and the additional $300 million of term loan debt. Excluding the venue financing REIT debt, net debt is $1.06 billion at the end of Q3 2023, versus $0.74 billion at the end of Q3 2022. Our net debt leverage, which excludes the convertible debt, was 3.8 times at September 30, 2023, compared to 4.1 times at June 30, 2023. The quarter-over-quarter improvement was driven by the increase in EBITDA and improved cash position. Internally, we find it helpful to look at our net leverage by excluding the venue financing REIT debt. This debt is essentially an interest-only loan with no principal repayment required. The interest payments are akin to rent, but accounting rules classify them as interest. When the venue financing REIT debt is excluded from debt and the corresponding REIT payments burden EBITDA as rent payments, our net debt leverage ratio is 2.1 times. We continue to review REITs as a capital-efficient way to finance our venues, Interest among REITs to partner with Topgolf remain strong, and we have signed leases or letters of intent in place for the venues in our 2024 pipeline that are intended to be REIT financed, with cap rates holding steady and in line with our expectations. There will be instances in the future where we choose to finance a venue here or there using our term loan debt, and there's generally no difference in cash flow or the resulting net debt at the enterprise level. Switching gears to working capital, consolidated net accounts receivable was $305 million at the end of Q3 2023, compared to $270 million at the end of Q3 2022. Non-top-off days sales outstanding increased slightly from 52 to 54 days. Our inventory balance decreased $222 million from $959 million at year-end 2022 to $737 million in Q3 of this year. This is in part due to seasonality, but also the team's concerted efforts to reduce inventory following the post-COVID surge last year. Inventory is expected to increase in Q4 due to normal seasonality as we prepare for new golf equipment product launches in 2024, but it will still be significantly lower than at the end of 2022. We expect inventory to decrease further in 2024 as our apparel businesses normalize their inventories. We are pleased with the overall reduction in inventory, and the quality of our inventory remains good. Capital expenditures for the first nine months were $389 million, and we received reimbursements of $188 million for net capital expenditures of $201 million, of which $152 million is related to TopGolf. For the full year, we expect total capex of approximately $240 million, net of expected REIT reimbursements, including $175 million for Topgolf, a $30 million reduction from our previous 2023 guidance. We have included in slide 16, our presentation today, an estimated detailed breakout of the CapEx for 2023 and CapEx assumptions going forward. Now moving to our outlook. As I mentioned earlier, given the trends we are seeing at Topgolf, in Asia, and with foreign currency exchange rates. We are lowering our full-year 2023 revenue guidance range to $4.24 to $4.26 billion, which at the midpoint would still represent 6% year-over-year revenue growth versus 2022. We are lowering our current adjusted EBITDA guidance range to $575 to $585 million, which at the midpoint represents 4% year-over-year growth. Most of the reduction from the prior forecast is related to Topgolf. At the Topgolf segment level, we are lowering our full-year revenue guide to approximately $1.75 billion for the year, or 13% growth versus 2022. Same venue sales is now expected to be down slightly versus prior year. Topgolf EBITDA guidance is also being lowered to a range of $280 to $290 million, which at midpoint represents 21% growth versus 2022. This reduction is attributable to the current trend in same venue sets. With regard to Q4, we still expect to grow revenue and adjusted EBITDA in the fourth quarter. We are estimating revenue of $847 to $872 million, which at the midpoint represents 1% growth versus the prior year. For Topgolf, we are estimating Q4 revenue to be approximately $423 million, which would represent 4% growth versus 2022. The top golf increase is expected to be driven by new venues, partially offset by a mid-to-high single-digit decline in same-venue sales compared to 2022. We're estimating consolidated Q4 adjusted EBITDA in the range of $48 to $58 million, which at the midpoint of guidance would represent 45% year-over-year growth. For Topgolf, we are estimating Q4 adjusted EBITDA of approximately $49 to $59 million compared to $43 million last year, a 25% increase. An important takeaway from our Q3 performance and Q4 forecast is that we're able to grow adjusted EBITDA even in challenging conditions. We have pushed out our investor-day goal of at least $800-plus million in adjusted EBITDA by one year to 2026. Foreign currency exchange rates have moved dramatically since that time. The change in rates had over a $165 million negative impact on revenue and close to a $100 million impact on EBITDA since then. While our overall performance had been covering the foreign exchange negative impact, the foreign exchange impact combined with softer market conditions This is causing us to push that goal out a year. As Chip mentioned, we are also providing today additional information about cash flow, including a new term we call embedded cash flow. Embedded cash flow is free cash flow less growth capex. For these purposes, growth capex is limited to new venues and new retail stores. We think it is important because it reflects the cash flow generation power of the current business. Investors can then separately evaluate whether our investment of that cash flow in growth capex is a good investment. We believe this is a better way to evaluate the company as to date the significant investment in growth capex may have overshadowed the cash generation power of the current business. It also has the benefit of eliminating some of the noise related to the timing of REIT reimbursements that can affect free cash flow on a quarterly basis. On slide 17, we provide a detailed breakdown of estimated cash flow for 2023 and assumptions for future cash flows. The short answer, however, is that we would expect to have approximately $150 million in embedded cash flow this year and growing to approximately $325 million in 2026 when we expect to have over $800 million in adjusted EBITDA. Thereafter, we would expect the embedded free cash flows to grow impressively at least 25% per year. Furthermore, as Topgolf's EBITDA-less cash venue financing interest starts to meaningfully outpace its capital requirements in 2026, we would expect to see meaningful growth in EPS at that time, especially as the incremental cash flows are used to pay down debt and reduce interest expense, and the relative pace of increase in depreciation and amortization expense slows. In 2024, however, given the current phase of the Topgolf growth cycle, EPS is forecast to decline because Topgap's growth in DNA and venue financing interest will be an $85 million headwind in 2024. In addition, at current rates, we expect to have a $30 million headwind from foreign currency translation and hedge gains in 2023 that are not assumed to repeat in 2024. EPS should grow in 2025 off of the 2024 base and then ramp from there. We are providing greater detail on all of this in our investor presentation on slides 17 to 19. For those interested, we have also provided in the appendix to the presentation an illustrative walk of venue four-wall EBITDA margin to total Topgolf segment level adjusted EBITDA. I know we have covered a lot today, and thank you for your patience. As you all well know, companies go through varying economic cycles over time. The favorable conditions are certainly more enjoyable but the strong companies that remain flexible can prosper in challenging conditions as well. I believe we are in the process of proving that. We are demonstrating revenue and EBITDA growth during softening conditions. We are taking action to manage costs, and we have sufficient liquidity not only to endure softer market conditions, but also to continue our growth plan. While we continue to monitor market conditions and adjust as necessary, our fundamental growth algorithm remains intact. We were also at an important inflection point in our TopGov journey. The first phase after we merged was an investment phase that required us to provide funding to accelerate growth through additional venue development. This phase resulted in rapid EBITDA growth, but with a negative impact on earnings per share and leverage due to the increased interest in depreciation and amortization expense associated with such investment. This phase was very successful. We significantly increased the number of new venues developed and at the same time increase the profitability of the venues, resulting in the rapid EBITDA growth. We are now in Phase 2 and expect to be in it through 2024. During this phase, Topgolf's cash flows increase, earnings per share stabilize, and leverage begins to gradually decrease. Thereafter, in Phase 3, Topgolf's cash flows accelerate as its cash flow begins to meaningfully exceed its capital requirements, allowing the company to pay down debt and increase its earnings per share as well. To conclude by way of a brief summary, first, we are demonstrating our ability to grow EBITDA under current conditions. Second, we have a solid financial position and sufficient liquidity to execute our growth plans, and as Chip mentioned, we are taking action to reduce costs in preparation for potentially softer market conditions, including approximately $45 million in cost savings across COGS and OPEX, and close to $100 million reduction in planned capital expenditures. And third, our long-term growth algorithm remains intact, and we are more than one year ahead of plan at the time of the merger. As a result, the total company will be free cash flow positive this year, and Topgolf is expected to be free cash flow positive this year as well, assuming receipt of all the REIT reimbursements that are expected by December 31st. We have made great progress and have a clear path to further growth. With that said, operator, we can now open the call for questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. In the interest of time, we ask that you please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble the roster. And our first question comes from Matthew Boss of JPMorgan. Please go ahead.

Great, thanks. So maybe to start off, Chip, is there a way to break down the 500 basis points, same-store sales, uh, miss versus planet top golf this quarter, maybe how much was macro, how much was execution. And then if we look at current business, what is the trend line that you've seen in October, maybe relative to the negative mid to high single digit comp guide for the fourth quarter?

Sure, Matt. Um, so if you look at Q3, um, you know, we provide you the two-year stacks on page four of the investor deck. And we saw a couple different things in Q3 relative to our expectations. We saw, you know, a little bit softer business both on the corporate side and on the consumer side than what we expected. And we also saw some you know, extreme heat throughout the southern markets where the same venue sales in the southern markets were significantly lower than the same venue sales in the northern markets. And we skew towards southern markets, for your information, during a big portion of the quarter, primarily in August with a little bit of shoulder around that. And that's, in essence, what we saw during Q3. September picked up a little bit versus August, but the general trends are covered there. Then in October, after picking up a little bit in September, we saw it dip down a little further. What we're projecting for the quarter is consistent both with what we actually saw in October and what the corporate bookings are showing us quarter to date. So we're using the actual results to do that forecast. And we're encouraged by the fact that we see the corporate side of the business stabilizing. We're encouraged by the fact that the consumer side of our business remains very strong on a two-year stack basis. and we're also encouraged by the fact that the business remains strong on weekends and on Tuesdays. So the nature of the issue is really confined to really a post-COVID surge that occurred in corporate events, and that is stabilizing, and we're working our way through that rationalization. And then a little bit of slowness that we're seeing on the consumer side that's during the really Monday, Wednesday, and Thursday. So we'll be targeting that specifically.

Great. And then, Brian, just could you outline the EBITDA margin expansion drivers in the fourth quarter despite the softer revenue outlook? And on the cost side, could you just elaborate on the expense savings identified today and the cadence of flow through from here?

Sure. I'll take the second one first. The cost savings are really, it's the input in COGS is a part of it, and then just a reduction in normal operating expenses. Unfortunately, that included some personnel reductions, and it included other SG&A costs, consulting, T&A. And so that's going into next year. Then on the, what was the first question?

The drivers of the EBITDA margin expansion in the fourth quarter, despite the softer revenue outline.

Yes, a lot of it will still be Topgolf outperforming with their venue margin. That's continued. They continue to make great progress there, which is what allowed us to exceed EBITDA, despite softer revenues. And primarily, that's the main part.

Yep.

Great. Best of luck.

The next question comes from Randy Connick of Jefferies. Please go ahead.

Hey, good afternoon, guys. You know, when I look at the guidance change, I think the EBITDA dollars at the midpoint are down 8%. The stock's down 15% in the after hours. And then when I look at the valuation implied even before the quarter print, You know, the stock multiple seems very dislocated from a core up here that just is in the golf equipment space. So I guess when I when I look at that and think about how the market is voting, do you think about or how do you think about potential strategic alternatives or do you consider that at all? How should we be thinking about that, given the where we are with the stock and how it kind of looks valuation wise? versus, uh, peers. And, and again, when you have a core business in Callaway producing solid numbers and good cashflow, uh, and then, you know, Topgolf is kind of weighing the business down with its, I guess, lack of cashflow, even though you, I think you said it's going to turn positive this year. So how, how we, how do you guys think about that? How should we be thinking about that? You know, uh, in a nutshell. Thanks.

Hey, Randy, this is Chip. Uh, Obviously, a fair question and something that we give considerable thought to. As you would expect, we're always focused first and foremost on our primary day job of running the business, executing the business strategy, controlling what we control to increase long-term economic value of the business. But at the same time, you know, we recognize that it's our fiduciary responsibility and just good business practice to regularly evaluate strategic options, uh, that could enhance shareholder value. Uh, that includes the changes in portfolio, whether that be sales or spin outs, et cetera. Um, we regularly do that. We, we've done that. Uh, we'll continue to do it and, uh, You know, we think that is a right business practice. We do that with both the engagement of our board of directors and outside advisors. You know, we also fundamentally believe our current structure provides us a competitive advantage, you know, and over the long term, our financial performance will be showing that. Thus, any strategic option would have to be viewed as superior to it, but we absolutely believe do as a regular course of business engage in those strategic assessments using both board and outside advisors.

Got it. And then my last question would be maybe give us some perspective on, you know, A, you've been in this business for, in this industry forever. You've been on the board of Topgolf for a number of years as well. Maybe give us some perspective on what you're thinking about as it relates to the the golf equipment industry and its kind of outlook over the next couple years based on your history in the industry on how that looks. And then maybe contrast that or, you know, see how it's similar or different with Topgolf based on, you know, your extensive tenure at the board level with that business for a number of years now before merging with it. So just give us that flavor. It would be very helpful as we think about the next couple years.

Happy to, and I'm going to overlook the you've been in the industry forever comment because it sounded a little bit like something to do with my age. But, you know, the golf equipment business and golf in general has never been healthier. You know, I can't be much more optimistic on the long-term fundamentals of golf. You can see it in every metric. You can see energy and momentum around the game. You see structural growth. You see more money being dedicated and invested in and around the game than you've ever seen. You may see more diversity. You never had off-course golf in a significant way, and now only top golf, not just all off-course golf, only top golf will be larger than on-course golf in the U.S., And so just fundamentally in a strong position, our brand's in a good position. Obviously, there's some concern about the consumer out there. We do not see any sign of consumer weakness in the golf equipment business, and our brand strength and momentum feels very good to me. So very strong on that side. And on Topgolf's side, it's a lot of the same. We obviously have some short-term same-venue sales volatility that we're working through. As I've stated, a lot of that is a post-COVID surge that was in the corporate and event side of our business that we're working through. If you took that out, this would just be noise and we would be nothing but strength, and it shows on the same-venue sales two-year stack data. And we clearly have the ability to, we think, address that and maintain our margins. On top of that, you know, we're opening venues successfully. We're increasing the margins of the business, even in a soft environment. I mean, we beat our EBITDA numbers despite the same venue sales miss. That's pretty impressive. So I feel very bullish about both of these businesses over the long term, and I We're going to do our best to make sure that the market sees those clearly as we deliver them.

Thanks so much.

The next question comes from Daniel Einbrough of Stevens.

Please go ahead.

Hey, good evening, everybody. Maybe to continue on the Topgolf side, as we think about what you just said, the ability to deliver EBITDA on a tougher top line, I guess, can you just provide more color and break down what the fixed first variable cost side of the venue side is here, especially as we think about how long this negative comp trend could last, trying to get a better sense for what the cost structure looks like there at Topgolf? And I didn't catch your answer to earlier question. Does the 4Q EBITDA guide include some of those $45 million of cost energies that you quantified?

I believe the cost synergies will be primarily next year. But in terms of the fixed-verse variable, Brian or Patrick, do you want to try to grab that one on the top golf side? Because obviously we've shown we can increase margins, Daniel, and we drove – 200 basis points improved year-over-year margin and mid-30s EBITDA margins out of Topgolf. The definition of fixed versus variable is very dependent on time. It can all be, other than the DLF debt, there's very little cash side that isn't variable over a longer period of time, but We believe that we're going to be able to continue to drive. We're confident, Daniel, we're going to continue to drive profits out of these, and we're showing that. I don't know, candidly, what else we could do on that front.

Labor expense is a significant portion of their venue expense, and most of that is flexible. You see hourly workers, so they can adjust up and down as the revenue goes up and down. They can adjust flexibly. And they do a great job of that, which is one of the reasons we've been able to grow the same venue margins. So they're pretty good at that. You saw that even during COVID in different places like that. They can reduce it significantly if they have to.

And that's really where they're also making efficiency progress, right? They're just utilizing that labor much more efficiently, right? So if you look at that ability, right, that is driving those EBITDAs to increase, even though you have a negative same venue sales comp.

And then, you know, the PI system, the last thing, Daniel, as we work around the room here, is obviously helping us drive the efficiency here, you know, having that in all venues. But Vegas, you know, that helps on multiple sides of the business but will unlock continued efficiency gains. You can see it in the data through Q3 as it starts to percolate through the system.

Understood. And then maybe a follow-up on the Topgolf consumer comp. So that did obviously decelerate, and you talked about kind of what you're seeing. Is that manifesting just in fewer visits? Is it smaller ticket per visit? Like are we seeing a trade down with less food attachment or less spending when people come? And then given that decelerating trend in recent months, I guess, can you talk about the decision to guide based on October? Again, I know weather comps get easier, but if the consumer keeps softening, I guess – How do you think about the risk to that consumer comp guidance for the fourth quarter that you guys have given? Thanks.

Sure.

First question, what we saw in Q3 was actually a slight increase in spend per visit, but so most of the miss was traffic. The traffic is spread over corporate and consumer, but traffic, not spend per visit. As mentioned, on the weekends and on those Tuesdays, our comps were up. So this is very isolated or targeted, but we're aware of a softening trend. I think if you had said that our comps were flat during the quarter, which is what our consumer comps would have been year over year, and up 8%, On a two-year stack basis, you know, still seems pretty good to me, but I just encourage you to look at it fully, not just one way. And what was the second part of the question again?

Just the risk as we see headline traffic slowing, and it sounds like that's not incorporated in the guide. Kind of how you think about the risk to the guide if the consumer continues to slow?

We did not forecast lower than what we're seeing, but we're not seeing lower than what we forecasted.

All right, understood. Appreciate the color, and best of luck. Thank you.

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

Thanks. Hey, guys. Good afternoon. Sticking with Topgolf, not surprisingly, I'm just curious what you think a good steady state run rate for same venue sales is. And I ask this because if we go back to when you guys acquired this business, The comps were fairly anemic, pretty low single digits. And this is the biggest pushback that I get, at least from investors on the stock, is what kind of value do we ascribe to this business if it doesn't comp? So help me to understand what you think a normal steady state run rate is for the same venue sales, and why would it be materially higher than what we saw pre-COVID? Yeah.

Well, we think, Joe, that we can deliver low single digits positive comps over time. There's going to be some volatility in those on a quarter-to-quarter basis, but we believe we can deliver low single digits same-venue sales comps. We believe there's momentum behind the game and the concept. We believe we'll have scale advantages in terms of our marketing muscle. This is a concept that is not weakening. But strengthening the national presence that we will have and scale advantages and, you know, all of the other positive tailwinds around golf, including top golf and off course golf, you know, are great indicators of that. And, you know, You know, the digital implementation that we're doing now, you know, will help unlock that as well. You know, back in the day, they were only 5% digital, right? That's not how the consumer wants to engage. We're scaling that. There's just a lot of different areas that we are confident we'll be able to pull the levers on and drive further improvement in the business. But that's not the only growth driver here. You know, Same venue sales is important, and we will deliver it. But this is a multi-unit venue growth. We have improving margins in all the venues. I mean, this is scaling on multiple basis here, and the same venue sales is one of those elements. It will be an important element. We will deliver on it. But, you know, focusing on it as if it was the only thing that mattered, I think might be misplaced.

No, understood. But it does matter to valuation, which is why I asked the question.

Absolutely. And I invite you to look at the two-year stacks as well as the one-quarter data. Okay.

And just to follow up on that very quickly, is 250 U.S. venues still the right number in your mind?

Yes, and probably, you know, more de-risked than it was previously.

Okay. Thank you. Thank you.

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

Hi. Thanks for taking my questions here. Maybe just first, can you talk to us about the financing environment and unit growth outlook for Topgolf? You mentioned maybe some changes in the way you finance the venues. How are you thinking about that? Have you seen any big change in cap rates? Sounds like maybe you're slowing down unit growth a bit in this environment with 8 to 9 next year versus the 11 this year. Just maybe some more color on the financing environment and unit growth outlook for Topgolf. Thanks.

Sure, Alex. This is Brian. First, I just want to clarify that the slowing the unit growth has nothing to do with the financing. That is just, as Chip mentioned, we were doing that. One, we just purchased another venue, and so it's really unrelated to the unit growth. The environment is reasonably stable for us. The interest remains strong. There's competition among the REITs for the business. The cap rates are holding steady. you know, the comment about, you know, we might choose here or there to self-finance a venue is only because once in a while you run into a venue where for land use restrictions or something else, the REITs might not be as interested, and then we will just do it ourselves. But for the most part, they are interested in our venues and want to partner with us.

And Alex, the change in the amount of venues that we're building next year is just our commitment to being cash flow positive and growing those cash flows in what is obviously a little bit more uncertain environment. And so we've always said when we've talked about capital allocation, right, that we invest in the business, but that we're also committed to positive cash flow, de-levering and balancing those two. And so you're seeing us making an adjustment just like we said we would. in the short term without getting off the great growth opportunity that the business has in the long run.

Perfect. That makes a lot of sense. And then just last year on this quarter, you provided some initial framing for next year. Any help there or at least qualitatively on sort of puts and takes that we should be considering as we start to put together our models here? Thanks.

Sure. The reality is we are preparing for a potentially softer consumer environment, but that's not a projection of the environment. That is just in case. We're not making any specific projections for 2024 at this time, other than that we'll be growing EBITDA, revenues, and cash flow. And our EPS will be going down because of the items that Brian mentioned. The EPS going down is just a short-term byproduct of the investments we've made along with the timing mismatch between accelerated DNA and resulting cash flows. We'll provide detailed 2024 guidance at our next earnings call. But as you heard me say, I feel very good about the long-term direction of this business, the near-term direction of the business, the mid-term direction of the business. Uh, there is clearly a one area of the business. We have a little volatility in one of our three growth drivers. Uh, we've got an action plan for that. And we have also, you know, in detail going through what we think is actually happening there, uh, you know, with the post COVID surge in events and remaining strength on the consumer side with clear path to, uh, improvement. So, um, Happy to go further with any other questions on that, but I think we're covering that.

The next question comes from Kate McShane of Goldman Sachs. Please go ahead.

Hi, thank you. Just a couple of questions from us. This has been asked about a couple of times, but looking to have a better value proposition for Wednesdays and Thursdays. Could you maybe remind us on how the Tuesday offering works, what it's done for your sales, and how you think about margins with regards to increasing this offering? And then we just wanted to ask, too, about the factory fire, if there's any update there and the impact on your bulk supply and Asia weakness. Thank you.

Sure, Kate. Good questions. Wednesday and Thursday – Well, let me start. Half-off gameplay on Tuesday is just what it sounds like. We have a rate that we charge for gameplay, and if you come on Tuesday, you pay half. And so that has been something that has been in place since 2019, pre-merger. Previous team put that in place. It has been in place for a long time. It... drives increased traffic on a day of the week where we otherwise would have a lot of extra capacity. And the margins are quite good. We're looking at some similar types of targeted promotions on Wednesday and Thursday. We'll be trialing those. We're not going to be rolling those out broadly to start with. It'll just be a trial. If We're going to make sure that those do what Tuesday did and essentially use extra capacity that is currently not utilized and drive incremental volume and then incremental margins and profitability. We'll have to watch that it doesn't cannibalize weekend traffic because that would be the only way that it could have any negative impact on profitability and the way we're currently structured and given the fact that we do very little promotion. But that's what we're headed with on that, and I'm sure we'll be updating you as we go, but we've got a pretty clear game plan and pretty good room to operate, and we've got margins that are naturally improving over time to help absorb this. In terms of the factory fire, the factory fire, obviously a tragic event at one of our key vendors in Taiwan called LaunchTech. It was a fire in one of their factories. It was located next to the factory that was dedicated to us. So we don't own any of the factories in Taiwan. but they had and do have a dedicated plant for our value golf balls located next to the factory that had this tragic fire. That building was destroyed, and unfortunately there was some loss of life and people injured, and our thoughts and prayers go out to all of them. They are not running that plant at this point in time. And our supply team has just done a wonderful job of finding other capacity, moving tooling around. And at this point, we do not think it will have a material impact on our business or supply. It should not be noticeable from a financial or a market perspective, given the strong efforts of our operations team. But it was a tragic event.

Thank you, and I just wanted to follow up on Asia. I know that's a smaller part of why you're reducing the guide today, but just any further commentary there about what you're seeing Q2 to Q3?

Yeah, we saw a little softness there, Kate, but it almost was, given the scale of our business, not worth mentioning, but we decided to mention it just for clarity and transparency. You know, we're still... up on a currency neutral basis year to date through Q3. Our market shares are good. You know, the Korea market was a little down. Japan is still decent, but had a little bit of slowing. Almost nothing to see here, Kate. But we're, on the other hand, bring it up, just keep an eye on it. Not as massive part of our business, but a nice part of our business. And had a small factor, as does FX rates in general, on our balance of year forecast. The primary issue and reduction for the balance of year forecast is the change in same venue sales at Topgolf, which we've talked about.

Thank you.

Thank you.

The next question comes from Casey Alexander of Compass Point Research and Trading. Please go ahead.

Good afternoon. I'll say, Chip, that we've been around forever, and unfortunately for me, that is a commentary on age for me. I'm going to start easy and then work a little harder with some of these questions. First of all, Very little commentary on Big Shots. Why was it available? How competitive was the process? What's the plan to finance it? Just a little more color surrounding that since it's kind of an unusual transaction.

It is an unusual transaction, Casey, and for reasons of confidentiality with what is a key strategic partner, you know, and You know, we're not going to be able to disclose, you know, too much about the process other than, as you would expect, I know the people it invited quite well. And, you know, in essence, this is a synergy that our structure provides, right? There is almost nobody else in the world that I can... There is nobody else in the world that I'm aware of that could... touch all the points on the positive basis that we could in making this deal work together. So, you know, one of the unique things about being the structure of our business and having the venue side as well as top tracer and our equipment and product businesses. In terms of financing it, it's $29 million, and given our scale... you know, we paid cash, but $29 million is relevant. But again, you know, our venues, when we invest in a venue, is often more than $29 million. And so no material impact from that basis. And we think it's a highly strategic and also will be a creative deal for both parties, we hope.

Secondly, in relation to the debt refinancing earlier this year, the company captured a couple extra hundred million in order to have a war chest for having to potentially self-finance some venues. But what I continue to hear from the company is that the cap rates haven't gone up and there's competition from the REITs for the venues. Is there some sort of a plan to take some of that and pitch it back in and pay down some of the debt? given the fact that it has seemed less necessary than it might have earlier, especially since the rate rise in the market appears to be, for all intents and purposes, close to about its peak?

Yeah, Casey, it's just a matter of timing on that. So it does give us financial flexibility. We, in essence, don't need it, but we're going to keep it for the short term just in case. You know, this is, you know, one of these periods of time where you have to plan for, you know, the best plan for the. But if we are wrong and the consumer weakens, we're going to be able to withstand any type of short term risk. So it's a it's a small price to pay. for the strength of position we have and the financial flexibility going forward. We have no concerns on the REITs right now. We have every REIT that we are trying to line up for next year is lined up. And yet, there will occasionally be a venue that we won't use REITs for. That's always been the case. There's no change in that plan. You can essentially assume that Roughly one per year, we will self-finance. We self-finance El Segundo. Those things do happen. We need the flexibility for that. And in today's environment, running too close to the edge would be foolish in our opinion, so we have a little bit of extra flexibility going into the near future.

Over time, we won't need it.

The next question comes from John David Kernan of P.D. Cowan Research. Please go ahead.

Yeah, hello. Thanks for taking my question. Sure. So, Brian, slide 18 on the very thorough deck you put out, Ernie's presentation deck, it looks like EPS ramps towards 57 cents in 2026, and I think a big chunk of the EPS hit is coming from the non-GAAP interest expense and other income reaching $290 million on this slide. I think it's slide 18. Maybe just talk to why that, I mean, you hinted on it earlier, but maybe talk to why that interest expense and that financing is going to rise to that level.

Well, it's part of the additional venue financing. So part of it is just the stage where we are. And you'll see it increase to 2026, and then you'll see it ramp from there. And so Topgolf has a lot of DNA and interest expense as it builds new venues. The DNA starts to fall off. And as we generate cash flow and pay down the corporate interest, the interest will, I mean, it assumes we pay down the debt. That goes up. We also assume one 25 basis point reduction in rate each year. which is, I think, conservative than some of the forward rates. Okay, got it.

And then just back to Topgolf itself, obviously sizable margin expansion year over year. How do we think about Topgolf EBIT and EBITDA margin as we get out of Q4 and into next year and into this 2026 period you're giving us pretty detailed metrics for us?

Yeah, we're not going to give a guide for next year. I would say over, they do believe they have extra, there's more room to go with regard to venue expansion. So that'll continue developing as they implement more initiatives.

Yeah, the margin, you know, we're telling you we'll hit 35% by 2025, and we're not too far from that right now. So hopefully that's fairly credible.

Yeah. Hey, John, and we did provide kind of an illustrative kind of walk from the four-wall margins to total Topgolf EBITDA. It's on slide 25 in the deck. And that is when we hit the 35% margin. So you get a good idea of what the EBITDA margin is and then really what the EBITDA margin, including the cash interest related to the venues, would be as well. So... So take a peek at that slide, and if you have more questions, let us know.

Will do. Thank you.

The next question comes from Eric Wold of B. Reilly Securities. Please go ahead.

Thank you. Thanks for the question. Just, I guess, one question, two parts on the kind of top golf. On the plan to open eight to nine venues next year that are potentially going to ramp back to 11, In 25, have any venues been completely removed from the pipeline, or are you merely just shifting everything back? And if anything has been removed, what drove those decisions? And I have a quick follow-up.

You know, we remove venues from the pipeline occasionally because permitting falls through, land issues, environmental surveillance. It's a regular course of business, if you would. where venues enter and exit your forward pipeline as you get further down the path of the development process. So yes, from that perspective, but only as a normal course of business, otherwise just shifting venues and no change in the TAM from that perspective. In fact, I believe the... you know, acquisition of invited de-risks and improves our probability of getting 250, if not more.

And then just a quick follow-up, I know it probably wouldn't be meaningful, but of the venues next year that were potentially shifted beyond any kind of, I assume those are committed locations, so any kind of, you know, I guess, you know, penalties, financial impacts, some kinds of late opening timing, kind of holding on to it a little bit longer.

No, nothing material. And, you know, what we're doing with this, you know, shift is conserving, you know, over 100 million of capital over the next two years, which will allow us to de-risk our cash flows. Our cash flows are projected positive this year. They're projected increase next year. This further de-risks that and should allow us to move quicker into a more meaningful debt pay down, whatever the operating environment is next year, which some investors have advised that they think would be a prudent move. And as we've assessed the situation, we believe is a good decision in the current circumstance. But then what we said is approximately 11%. Because what we're really doing is employing capital, right? So the number of venues isn't as important as how much capital we put into play and what the returns on that capital is. If you think about it, $400 million of gross capital venue build that is going to deliver 20% Rogi, that's what we're aiming for. Whether that is 10 venues or 12 venues or one venue opens in December versus January, that's noise. The deployment of capital, the pipeline, we feel really good about.

The next question comes from Megan Alexander of Morgan Stanley. Please go ahead. Hi, thanks for taking our questions.

I guess, you know, I just wanted a bigger picture and maybe more high-level information. Could you give us some perspective on how you're thinking about the dynamic between pricing and traffic in the top golf venues, both in the medium and longer term? I guess it seems like based on your comments that most of the same venue sales this year probably comes from price, and then next year is perhaps a tale of two halves to some degree on the traffic side. So I guess, you know, your comments on evaluating the value proposition and taking a look at, you know, the days of the week, except for Tuesday, like how do you think about what pricing and traffic should contribute to same venue sales over a longer period of time?

So Megan, the long and short of it is we expect to be able to drive both price and traffic over the longer period of time. And so, you know, we are seeing some volatility in the short term, but you know, And at the risk of confusing you, our consumer business traffic was up during the first half of the year. It was down slightly in Q3, or it was down in Q3, but our spend per visit was up. So, you know, the events business is just dealing with a COVID lap. So the traffic is down on a year-over-year basis on the events business. And as we work through that, we'll normalize it. But we believe we'll be able to drive, you know, an equal amount of price on traffic over the long run. You kind of see it in the two-year stack. I'm sure people are tired of hearing that, but that's, you do. And, you know, we're not, we haven't seen, you know, clearly there's some price sensitivity, we believe, during the weekdays, but not on the weekends. So we're seeing interesting trends, but what you do about those trends and where it will go forward I think is fair to clear.

Okay, that's helpful. And maybe just to follow up on the Big Shots acquisition, you know, three of the locations are franchised. I guess do you see an opportunity to perhaps test the franchise concept with those and longer term maybe think about franchising out in the U.S.? ?

Well, we're pretty pleased with our current returns that we're generating on the business, you know, with our owned and operated strategy. But clearly we have experience on the franchising side. We franchise the majority of our international business, and we'll have some experience with them. So we'll stay open-minded on that. But the primary plan at the moment is continue to be owned and operated in – the U.S. for certain, U.K., but we will pick up a couple venues that are franchised. We'll continue to operate those under the Big Shots, or they will with us as the franchisor, and we'll look forward to converting them to Top Tracer, and the other Big Shots venue that we did acquire, we'll convert that to a Topgolf facility.

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

I just want to thank everybody for tuning in today and participating in what was a longer call than normal. We obviously had a lot to cover, and we wanted to present some new information that we think will be helpful for evaluating our business. an unavoidable byproduct of needing to go through all of that and provide this information, which we think will be highly helpful to investors. We appreciate your interest, and we'll look forward to talking to you again in either follow-up calls or at our next earnings call in early 2024. Thank you.

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