Topgolf Callaway Brands Corp.

Good day, and welcome to Topgolf Callaway Brand's first quarter of 2024 earnings conference call. Please note that today's event is being recorded, and all participants will be in a listen-only mode during the call. Should you need any assistance at any time, 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. To ask a question, you may press star, then one on your telephone keypad. And to withdraw a question, please press star, then two. We ask that you please limit yourself to one question and one follow-up during the Q&A session. And with that, I would like to now turn the call over to Katina Metzodakis, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to Topgolf Callaway Brand's first quarter earnings conference call. I'm Katina Metzodakis, 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 first quarter financial results. We've also published an updated presentation. Our 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 US generally accepted accounting principles. In the instances where we report non-GAAP measures, we identify the 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. 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 Mr. Chip Brewer.

Thank you, Katina, and good afternoon, everyone. We appreciate everyone joining our call. I'm pleased to report strong Q1 results, continued brand strength across our portfolio, and improving operating efficiencies that are driving high confidence in a full-year EBITDA forecast and higher estimates for both EPS and cash flow. Focusing on Q1, our revenue of $1.14 billion was in line with guidance, as was Topgolf's same venue sales performance. As expected, we also gained market share in golf equipment based on compelling product launches in both clubs and balls. This on-track revenue performance, combined with stronger than anticipated operating efficiencies, some favorable timing of expenses, and currency hedge gains, delivering better-than-expected EBITDA of $161 million and EPS of 9 cents in the quarter. We also delivered better-than-anticipated cash flow. As we look towards the full year, we are lowering our full-year revenue expectations by $80 million, a little under 2% of full-year expected revenues, due to an approximate $45 million reduction in and expected Jack Wolfskin revenues due to challenging market conditions in its European business, as well as an additional currency headwind since our last call of approximately $35 million. Even with this revenue change, we remain confident in our overall full-year EBITDA forecast based on our currency hedging programs, improving operating margins at both our venues and our golf equipment business, as well as confidence in our core brands and market conditions. We are also increasing our full-year EPS by 5 cents per share and raising our free cash flow and embedded free cash flow estimates by approximately $60 million and $40 million, respectively. In short, we remain on track for our organic revenue growth targets in our key brands, our overall EBITDA growth targets, and we are ahead of schedule in delivering operating efficiencies, cash flow, and EPS, as well as now beginning the process of paying downturn debt. As I see it, the fundamental engine of our business continues to strengthen. Moving to our business segment performance. Topgolf continues to make strides on our three key performance drivers, same-venue sales growth, venue margin and returns, and new venue development. As I will walk you through in a moment, we have multiple initiatives in place to lay the foundation for durable growth, attractive venue returns, and the expansion of our footprint. All of which are highly complimentary to the product side of our business. First, Q1 same venue sales of down 7% was in line with our expectations. As a reminder, Q1 was impacted by a post-COVID surge in our corporate events business in early 2023, as well as extreme cold weather during January of this year, which we highlighted during our February earnings call. Our Q1 same venue sales stabilized after the January weather normalized. As we drive towards positive same venue sales growth, we are executing against three key areas of opportunity, digital, experience, and value. Digital is the most rapidly developing opportunity for us to drive sales at Topgolf, and I'm pleased that our digital revenue penetration in Q1 increased to 35% versus 33% from the same period last year. And the percentage of visitors that come through digital channels is now 62%, up 710 basis points year over year. Our new and evolving digital and commercial teams are getting smarter every day, unlocking key insights and driving results. Building on this, I'm pleased to report that our cross-brand consumer data platform is now live, ahead of schedule, and we expect this will greatly improve our ability to gather player insights, tailor more compelling products and offerings, and importantly, serve as the backbone necessary for a Topgolf Callaway brand loyalty program slated to be in trial mode at Topgolf by the end of this year. Our second area of opportunity to drive same venue sales is experience. We are continuing to uncover new ways to improve the player experience and offer more curated products. Towards this end, during Q1, we introduced Block Party, our first new Topgolf game since Angry Birds, which launched back in 2020. One of the great aspects of this new game is that it's fun for all player skill levels, as you score points by hitting the ball literally anywhere in the outfield. Player response has been extremely positive so far. and we intend to invest in media to support greater awareness as we enter our peak summer months. On the Synergy front, we held Callaway club fitting events in venues across the country during the week of the Masters. We also implemented the Callaway Club Upgrade Program, which allows players to upgrade their Topgolf gaming experience by upgrading to our latest Callaway clubs in all venues. And all venues now sell and promote our new Chrome Tour golf ball, as well as Callaway's seasonal decorated golf ball offerings. Our goal is to ensure that the Callaway brand is top of mind for the on-course golfers that visit Topgolf every day. A number we believe is approximately 40% of all U.S. golfers annually, as well as the new beginner golfers that Topgolf is creating. Value is our third sales growth opportunity. As you are aware, we launched an in-app only half-off gameplay promo on Mondays and Wednesdays in Q1 and also promoted our half-off Tuesdays. We've been pleased with the results, but perhaps more importantly, this offering was a first step towards a broader strategy to build a compelling portfolio of value offerings for our players. Looking ahead, Topgolf's commercial and digital team will continue to test and learn what works best, and our new consumer data platform will make it easier for them to gain insights as well as take action. To this end, this summer's primary value offering will be our new Free 30 campaign, which offers players 30 free additional minutes of gameplay when they book a bay online during specified hours on weekdays. The booking requires a small reservation fee consistent with our other reservation products. We believe this will increase what we know are more valuable digital consumers. And based on trial results to date, this offering is expected to be more effectively drive visits. With the help of our new consumer data platform, we will also be experimenting with passes and bundled offers to drive repeat visits within 60 to 90 days of an initial visit. It's worth mentioning that you can count on us to communicate these programs in a thoughtful manner so that they increase both our bottom line as well as our top line. And this communication will increasingly be digital, personalized, and effective. Looking forward for Q2, we are forecasting same venue sales to be down low single digits a nice improvement from Q1. This takes into account a slower than expected first three weeks of April as we, like many other companies, struggled with slow sales associated with year-over-year spring break and Easter timing. As we've moved past this period, over the past two weeks, sales trends have returned to more normalized and expected levels. However, we are now slightly behind our full-year targets And given the choppy market conditions we have seen and could continue to see, we're widening our full year same venue sales guidance from approximately flat to a new range of slightly positive down low single digits. Most importantly, we have confidence in same venue sales improving in the second half of the year as our biggest marketing spend and consumer programs go live starting Memorial Day and compares versus last year become easier. And to be clear, our internal goal is for us to transition back to positive same venue sales in the second half of this year. The teams have been working hard for this, and now that the unusual laps are behind us, they believe they will start to deliver improved results. I, for one, am confident in their direction and remain convinced that we'll be able to grow same venue sales low single digits or better over the long term. Shifting to margin expansion. In Q1, we again saw strong margin performance, including 180 basis point year-over-year increase in our venue level EBITDA margin. We continue to benefit from our PI inventory management system and new labor model, which have both now been rolled out system-wide and are delivering clear results. In addition to the efficiency gains, our Q1 margin also benefited from a shift in timing of our marketing spend to focus more on post-memorial day programs and products. We continue to feel confident in and are consistently proving our ability to drive venue operating margins over the long term and in all kinds of market conditions. With this, we remain on track to hit our 35% EBITDA margin target for the full year. Furthermore, as the profitability of our venues continue to increase and same venue sales transitions back to growth, our already attractive venue returns will become even stronger than they are today. This positions us extremely well as we continue to grow our footprint against a backdrop of significant white space. Speaking of white space and our new venue's growth opportunity, in January, we purchased a Big Shots venue in Bryan, Texas. In April, we opened a new venue in Durham, North Carolina. And just last week, we opened in Montebello, California. The Montebello venue is in our most densely populated trade area and represents our second public-private partnership. It's quite unique in that it is adjacent to two municipally-owned Greengrass golf courses, one, a traditional nine-hole course, and the second, a new par-3 nine-hole course with night lighting. While we don't own or operate these courses, we believe they will be synergistic with our venue in driving interest and excitement. We are now 92 owned and operated venues in the US, four internationally-owned venues, and over 100 globally when you include franchisees, a testament to the strength of the business and strong execution by our world-class real estate team. Today, we are also updating our venue opening expectations for 2024 due to a delay in permitting, which will push a venue plan for New Braunfels, Texas, that we expected to open in late Q4 into 2025. We now expect to add seven venues in 2024 versus the eight previously communicated, a change that should be largely immaterial to both our 2024 and long-term financial outlook. Looking ahead, excluding this year where we intentionally pulled back to accelerate cash flow, we remain confident in our ability to average 10 new venues per year over the foreseeable future. We also remain confident in our TAM of 250 venues in the United States with a similar number available internationally. Turning to golf equipment, I'm pleased to report the Callaway brand continues to shine. In Q1, thanks to the incredible work from our teams across R&D, supply chain, sales, marketing, and corporate, we gained share year over year in both golf ball and clubs. In Q1, Callaway held its position as the number one U.S. market share brand in driver, fairy woods, and hybrid. And focusing on our latest club launch, AI Smoke Woods achieved the number one U.S. model market share position in driver, fairy woods, and irons. In Q1, we also gained the number one U.S. dollar market share position in putter, a position we have not enjoyed for some time and a testament to the strength of our AI1 putter launch. Golf balls also show nice growth, especially in the premium or tour category, where Callaway achieved a new record US market share of 11% and also delivered an overall share of 19.3%, up 120 basis points year over year. That said, the strong feedback we've received on the new Chrome Tour product performance gives us conviction that we have further room to grow and hopefully more record market shares to report in the future. We're going to be driving this with strong advertising as well as field activation via our Chrome Tour speed and spin challenges. I'm very pleased with the performance of our new launches and will look forward to providing more color on the sell-through performance on our next earnings call. In other categories, we continue to see strong package set sales, which leads us to believe that the positive momentum we have seen over the last several years with new entrants into the game of golf continues. And finally, I'd also like to highlight that in Q1, we saw record 16% share in Golf Glove, leveraging our brand and distribution strength. Looking at the golf equipment business by geography, The U.S. market and our business both remain strong, with field inventories and consumer demand both in line with expectations. The European market started the year a little slower than expected due to poor weather conditions in the U.K., but we gained share and appear well-positioned to continue to do so. The Japan market overall is up slightly on a constant currency basis, but our business in Q1 was down in real terms due to the currency trends, as well as lower sell-in volumes this year versus last year as retailers are being more conservative. And lastly, the career market has been tough thus far in 2024, with sales down double digits as well as currency headwinds. As we look towards the balance of the year, it's worth mentioning that we have both more and larger product launches planned for the second half of this year than we had in 2023, and thus our growth will be more second half weighted. This was always part of our plan and consistent with similar fall launches and product cadences that we've done in previous years. We remain on track to grow the golf equipment segment for the full year, and we continue to feel good about the overall health of golf globally. Turning to our active lifestyle segment, as expected and communicated on our last call, Active Lifestyle was the one segment that was down year over year in Q1. It is also now expected to be down for the full year. We are pleased with our Q1 performance at Travis Matthew, which was in line with expectations, but as expected, down versus Q1 last year. As a reminder, as mentioned during our February call, we lapped a corporate channel sell-in that occurred primarily in Q1 last year and was significant relative to the size of this brand. Excluding this impact, underlying sales trends remain healthy and growing. We also remain on track to open approximately 10 stores this year with seven leases already signed. Travis Matthew also celebrated the one-year anniversary of our women's launch, and we remain confident in our ability to continue to grow that business. We're also pleased with the relaunch of our shoe business under the Travis Matthew brand. Finally, Jack Wolfskin remained under pressure in Q1 largely due to a tough macro environment, including an over-inventory channel and soft overall market conditions in Europe. As a result, we are lowering our full-year revenue expectations for this brand. However, I think it's worth noting that despite this market pressure, we still expect positive EBITDA growth and performance in 2024. We also continue to be pleased with the brand's performance in China. Looking forward, we're certainly not accepting of the status quo. Earlier this year, we transitioned to a new European leadership team, which has been proactively taking action to stabilize this business, return it to profitability, and drive future growth. There has been considerable progress already made with more to come in the next few months. Although this business is a relatively small portion of our annual revenues and an even smaller portion of our annual profit, we will update you further on these actions and our progress during our Q2 call. In closing, I'd like to thank the Topgolf Callaway Brands teams for their hard work and solid execution. Overall, we feel good about our start to 2024 and the strength of our core brands and markets. We remain confident in our EBITDA targets for this year and are taking up our cash flow and EPS targets, as well as starting the process of paying down debt. Perhaps most importantly, we believe the fundamental engine of our company is continuing to strengthen, and we feel great about a long-term direction and opportunity. With that, I'll turn the call over to Brian.

Thank you, Chip, and good afternoon, everyone. As Chip mentioned, despite some unfavorable foreign currency rates and some revenue softness in our Jack Wolfskin business, we had a strong start to the year overall. We had better than expected adjusted EBITDA and EPS on in-line revenue. Our cash used in operations improved by $79 million compared to Q1 last year. Our 2024 golf equipment product launches, including AI Smoke Woods and Irons and the Chrome Tour golf balls, were well received at all levels and grew market share. Our inventory reduction initiatives were successful, with our consolidated inventory decreasing $227 million since Q1 last year. We successfully repriced our term loan B, reducing our interest rate by 60 basis points and saving approximately $7 million on an annualized basis based on current debt levels. We also repurchased an additional 1 million shares of our common stock since our last earnings call. And today we announced plans to pay down $50 million of the term loan debt at the end of May. All in all, a very good quarter in what appears to still be a choppy consumer environment. I mentioned during our last call that 2024 would be an investment year. and I want to provide a little color on what we have accomplished year to date. I am pleased to announce that in March we successfully transitioned to our new Workday Enterprise Management System across most of our business globally. This will improve access to and management of human capital data, which has become extremely important post-merger now that we have over 30,000 employees. And it will also enhance our training, career development, and recruitment processes. Separately, in early April, we launched our consumer data platform. The CDP will enable us to better understand consumer behavior, preferences, and trends across our brands. We will leverage these insights to drive more impactful personalized strategy and engagements with our consumers. I want to recognize and thank our teams for their hard work bringing this to life. Now turning to our first quarter results. Consolidated revenues decreased 2% year-over-year to $1.144 billion, which was in line with our Q1 guidance range. This decrease is attributable to a 15% year-over-year decrease in our active lifestyle business. As mentioned last quarter, we had to lap an approximate $35 million corporate channel inventory filling that occurred in the first half of 2023, and our Travis Matthew business that did not repeat in 2024. Most of this impact was in Q1. These results were partially offset by the 5% year-over-year growth at Topgolf and 1% year-over-year growth in golf equipment. Currencies negatively impacted consolidated revenue by approximately $8 million, most of which impacted the golf equipment segment, which grew 3% on a constant currency basis. Non-GAAP first quarter net income decreased approximately $17 million compared to last year, largely due to increased DNA and interest expense related to new Topgolf venue development. Adjusted EBITDA of $161 million increased 2% compared to last year and exceeded the high end of our guidance range due to strong venue margins at Topgolf, timing of OPEX, which shifted into the balance of the year, and some incremental FX gains. Moving to segment performance, at Topgolf, Q1 revenue grew 5% driven primarily by new venues, partially offset by a 7% decline in same-venue sales, which was in line with expectations given the post-COVID surge in the corporate events business in Q1 2023, as Chip mentioned earlier. Topgolf operating income was $3 million in the first quarter, up slightly compared to the prior year, while adjusted EBITDA increased $12 million to $60 million. The adjusted EBITDA improvement was driven primarily by the continued improvement in venue execution and margin, as well as increased revenue. Venues continued to benefit from PIE, as well as the new labor model, which has now been rolled out system-wide. Top golf margins in Q1 also benefited from a shift in the timing of marketing spend, to be more weighted toward the summer to support our exciting summer programs. We have confidence in same venue sales improving in the second half of the year, given the upcoming marketing and consumer programs Chip mentioned, and as the most challenging same venue sales comps in 2023 are now behind us. Our internal goal is to transition back to positive same venue sales during the second half of the year. Moving to Q1 results for golf equipment, revenue increased 1% year-over-year to $450 million, primarily due to strong momentum from our recent club and ball launches, partially offset by unfavorable changes in foreign currency rates and softness in Asia. Importantly, our core U.S. golf equipment business revenue grew high single digits. Golf equipment operating income of $82 million increased 1% year-over-year due to the increased revenue. Interactive lifestyle segment, Q1 revenue decreased 15% year-over-year, primarily due to lapping the corporate channel fill-in at Travis Matthew that I mentioned earlier. In addition, our Jack Wolfskin business, which represents less than 10% of our total sales, is facing challenging market conditions in Europe, including high retail inventory levels and overall soft market conditions. As a result, we expect that business to be down for the full year. As Chip mentioned, we have a new management team, and we are actively working to optimize that business. Operating income decreased to $25 million compared to $37 million in the prior year. This decrease was driven by the lower sales. Turning to the balance sheet, I'd like to highlight the term debt repricing we successfully completed in March, which lowered the interest rate on our Term Loan B by 60 basis points and resulted in annualized interest savings of $7 million based on current principal levels. In addition, since our last earnings call, we've repurchased 1 million shares in open market transactions for a total cost of $16 million. We also continue to have ample liquidity, which is comprised of cash on hand and borrowing capacity under our credit facilities. As of March 31st, 2024, our available liquidity increased $94 million to $720 million compared to the prior year due to better cash flow generation as the company continues to manage costs and more efficiently manage working capital, especially with regards to inventory. Given our strengthened cash flow outlook and strong liquidity position, we now plan to pay down $50 million of the principal amount of our term loan debt at the end of the month. At quarter end, we had total net debt of $2.4 billion, which excludes convertible debt of approximately $258 million, compared to $2.2 billion in Q1 2023. This increase is attributable to increased venue financing debt related to new venues. As a reminder, we think it is also helpful to evaluate our net leverage position by excluding the venue financing REIT debt, which is akin to capitalized rent, with no additional principal or bullet repayment required. Excluding the REIT debt, our REIT adjusted net debt is $1.1 billion, compared to $1.3 billion as of Q1 2023. Our net debt leverage, which excludes convertible debt, was 4.0 times at March 31, 2024, compared to 4.1 times in the prior year. This change was driven by increased EBITDA and improved cash flow, which more than offset the increased venue financing debt. Our readjusted net debt leverage ratio is 2.2 times compared to 2.5 times in the prior year. We feel very comfortable at these leverage levels. Our inventory balance decreased $227 million, or 24%, from $930 million as of Q1 2023 to $703 million at the end of Q1 2024. a significant achievement by our teams who have worked diligently to manage inventory to more reasonable levels after a post-COVID surge. We feel good about our current level and overall quality of our inventory. Capital expenditures for the first three months of 2024 were $65 million, and we received reimbursements of $27 million from our rearrangements for net capital expenditures of $38 million, of which $28 million is related to Topgolf. Now turning to our balance of year outlook. As mentioned earlier, given the unfavorable change in FX rates and the softness in the Jack Wolfskin Europe business, we are lowering our full year 2024 revenue guidance range by $80 million to a range of $4.435 billion to $4.475 billion. Approximately $35 million of this decrease is attributable to FX and the other $45 million to Jack Wolfskin. Despite the drop in revenue guidance, we remain confident in our adjusted EBITDA guidance, given the strength of our core business and FX hedging program. As a result, we are reiterating our full-year adjusted EBITDA guidance of $620 to $640 million. By segment at Topgolf, we continue to guide to approximately $1.96 billion in revenue and approximately $350 million in adjusted EBITDA, which is unchanged from prior guidance. As Chip mentioned, we are slightly adjusting our top golf same-menu sales growth expectations to a range of slightly up to down low single digits, which includes an anticipated improvement in trends in the second half of the year as our summer initiatives take hold and also as year-over-year comparisons become easier. In golf equipment, even after taking into account the increased FX headwinds, we expect to grow revenue in this segment this year given the strength of our product lines and incremental second half launches. It is important to highlight that overall, our new product launches will be more weighted towards the back half of 2024 versus last year, when new launches were more Q2 weighted. We also continue to expect profits to be up in this segment for the year. In active lifestyle, given unfavorable FX rates and the softness in the Jack Wolfskin business, we expect revenue and operating income to be down year over year in this segment. As a result of the repricing of our Term Loan B, anticipated debt pay down, and higher cash flow outlook, we are raising our full year EPS guidance range by 5 cents to 31 cents to 39 cents. Our debt repricing will provide approximately 2.5 cents benefit in 2024. The $50 million expected pay down in debt should also provide approximately 1 cent benefit this year, and the balance is related to higher expected income when investing the increased cash flow. Shifting gears, as compared to prior guidance, free cash flow is expected to improve by approximately $60 million due to working capital improvements, lower cash interest, and a shift in timing of growth capex to next year. We are also forecasting better than expected EBITDA free cash flow and embedded free cash flow versus prior guidance due to working capital improvements in our golf equipment and active lifestyle segments. As a result, Free cash flow and embedded free cash flow are expected to be approximately $165 million and $265 million, respectively, which represents a $60 million and $40 million improvement versus prior guidance, respectively. We expect total net capex to be $20 million lower than our previous guidance of $200 million due to timing of Topgolf growth capex mentioned above. Now turning to Q2 specifically. In Q2, we expect consolidated revenue at $1.18 to $1.20 billion versus $1.18 billion in Q2 2023, or in other words, flat to up slightly. We estimate adjusted EBITDA to be in the range of $191 to $201 million, compared to $206 million in the prior year. In Q2 at Topgolf, we expect to be up in revenue and operating income year over year, due to the new venues since Q2 last year. In Q2 golf equipment, we are being impacted by the shift in timing of launches from Q2 last year to the second half of 2024. In Q2 last year, we launched our big berth of woods and irons, which is an approximate $30 million impact compared to Q2 this year. As a result, we expect this segment to be down in revenue and operating income year over year for the second quarter, but as previously mentioned, up for the full year. In Q2 in Active Lifestyle, we expect to be down in revenue year-over-year, as Travis Matthew will be lapping the remaining portion of the corporate channel fill-in. And separately, market conditions in Europe and our Jack Wilson business are expected to remain soft in Q2. As a result, we would expect to be down in operating income as well in this segment. Overall, we are pleased with our start to the year and confident in the strength of our core business. As a result, we feel comfortable committing to paying down the $50 million of term loan debt. We are optimistic for the balance of the year. We will now open the call for questions. Operator, over to you.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. And if you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, you may press star, then 2. And again, we ask that you please limit yourself to one question and one follow-up during Q&A. At this time, we will take our first question, which will come from Matthew Boss with J.P. Morgan. Please go ahead.

Great, thanks. So maybe just to kick off, Chip, could you elaborate on market share gains that you cited, customer response, and maybe wholesale feedback from your AI Smoke and Chrome Tour ball launches? Just any change in the growth assumptions for golf equipment this year outside of foreign exchange?

Yeah. Hey, Matt. The market share gains for AI Smoke and the strength of the brand remains quite strong. So if you look at our U.S. market share, which is the most accurately and clearly identified and reported share, You know, we were up 210 basis points in the hard goods segment, which combines clubs and ball. We were up 230 basis points in clubs, and we were up 120 basis points in ball with a record market share in the premium category. And then I mentioned all the number one brand positions that we have and the number one model positions for AI Smoke. quite pleased with the strength of the brand and the market reception. And then we have a very robust and strong second half product pipeline and plan that we mentioned in all of our scripts as well.

Great. And then maybe as a follow-up on Topgolf, could you just elaborate on the choppy conditions that you're seeing in or maybe just drivers of the April softness between traffic or price? And then just how best to rank the initiatives in place as the year progresses to return to positive comps in the back half?

Sure. You know, so, you know, we've had two periods of, you know, marked volatility this year in our same venue sales results. Matt, we had the January... period where it was strictly weather, you know, extremely cold weather. And yes, it's always cold in January, but it was extremely, you know, more than normal. And, you know, we saw a marked drop in performance then. And then we saw a similar but, you know, severe drop in the first three weeks of April. It timed with the Easter and spring break. And so basically those periods shifted in timing and there was less spring break time available, you know, prior to Easter this year in a condensed period that had an impact on our same venue sales. So we saw traffic down in that period significantly and, you know, weakness in that period. Outside of those periods of volatility, the trends have been pretty good, really. You know, our, our Three-plus bay is stabilizing, and the one-to-two bay is stable and periods flat to slightly up mostly. So it's a positive story and a story that we have seen for some time right now. We have a lot coming in terms of initiatives. We have a new ad campaign. We're moving some of our marketing spend. We have a new game. We have other new energy we're bringing throughout the summer. We have a new value offering that we're testing now called Free 30, bundles and passes that we're going to be implementing, some event offerings. We're really building our focus and capability around this same venue sales, but we're doing it in a way that I believe is prudent so that we're not going to damage the long-run brand or profitability of the business. We're going to continue to deliver on the things that matter most, the cash flows. And you've seen what a nice track record we have on the overall profitability of the venues, et cetera. But we have quite a bit coming. We've had some periods of... Volatility, and when you look past those, you know, a lot of reasons where we like the trends and feel confident in the long-term outlook.

Great color, Chip. Best of luck.

Thank you.

And our next question will come from Alex Perry with Bank of America. Please go ahead.

All right. Thanks for taking my questions here. I guess just first, how should we think about the corporate events business versus walk-in and QQM for the rest of the year, especially given the events comps get much easier in the second quarter? Thanks.

Alex, it's really a consistent story that you're going to see and you've seen over many quarters now. The events business is clearly stabilizing and gliding towards black. After we get it to flat, we're going to go grow it. But right now, we saw a massive surge in that business that was essentially post-COVID. There had been some reversion of that. We see it clearly stabilizing now, and we're feeling good about the trend. The one-to-two bay, we have had those two periods of volatility that I called out. Other than that, flat to slightly up with a number of initiatives that we're calling out and working on to continue to drive improvement. And we're confident in the direction of same venue sales. We believe it will continue to improve.

That's really helpful. And then just my follow-up on the Topgolf full-year revenue guidance. I think you kept the revenue guide the same but sort of lowered the implied midpoint of the same venue sales guidance and have, you know, one less venue versus the prior guide, albeit it was supposed to come at the end of the year. Is there, you know, is there anything there? Is this, you know, sort of better new venue ramp or is it, you know, more sort of rounding things?

More rounding, Alex. The, you know, we have enough room in the results to, you know, we've didn't move the same venue as his guide materially, in my opinion, and the overall results and the guide had enough room.

Perfect. That's very helpful. Best of luck going forward.

Thank you.

Our next question will come from Megan Alexander with Morgan Stanley. Please go ahead.

Hey, good afternoon. Thanks so much. I don't want to harp on it, but maybe just to put a finer point on those questions around the Topgolf Same Venue Sales Guide. Is it fair to assume that you're running down low single digits quarter to date, but that the last few weeks were maybe better than that? And then it seems like the reason for maybe widening the range and bringing it down a little bit is that just things were a bit choppy in April, but you were also, you know, including positive at the high end now. So is that just a reflection of, you know, you're perhaps a little bit more confident in the initiatives driving an improvement in the back half?

Megan, we were worse than that in the first three weeks of April. So those were, you know, markedly down. And, you know, since that, over the last two weeks, You know, we have been, you know, it is stabilized and is performing consistent with our expectations and, you know, how we've been planning the business. And all of that is, you know, without, with a lot of dry powder still to come, right, with all of these initiatives that we're talking about that are going to really start to ramp end of May, early June. Right. But the April period was, you know, down, you know, I think high single digits or something in that range. And that put us a little behind for the full year. And the rest of the guide changes just us being somewhat conservative. You know, there's an opportunity for us to, you know, outperform this. we've got to recognize that we've had some volatility and that, you know, the consumer out there, you know, is getting a lot of other value offerings and we may or may not strengthen as the year goes on.

Understood. That's helpful, Chip. Thank you. And then maybe just a question for Brian. Is there any way to quantify the Jack Wolfkin and FX impact to EBITDA? You did maintain the guide for EBITDA. I think Topgolf was unchanged. So is golf equipment, is the expectation in that business a little bit better to offset the headwinds from Jack Wolfkin and FX from an EBITDA perspective?

That's a good question, Megan. Again, as you correctly noted, the change in the revenue guide is $35 million related to changes in foreign currency, and $45 million related to the Jack Wolfskin business. Now, on the foreign currency piece, we do, it doesn't completely offset it, but we have a hedging program that will minimize the impact of the change in FX on the bottom line, you know, not completely, but to a large extent. And then the Jack Wolfskin business is taking actions to manage costs, you know, as they go through, as Chip mentioned, they were going through, new management team going through the whole business. You know, they'll manage costs in light of the drop in revenue, and then also as part of the drop in revenue is related to underperforming portions of his business. So as they exit or fix those, that should improve profitability. And then we're also managing costs across all of our businesses. But more importantly, we continue to drive operating efficiencies in our top golf and golf equipment business. Q1 is a great example as we were able to absorb the FX impact and the Jack Wolfskin Europe softness while increasing EBITDA. So we are fairly confident in our ability to hit the EBITDA guide.

Super helpful. Maybe if I could just clarify. It doesn't seem like you're kind of assuming there's something that picks up the slack. It's just there are things that are, you know, from an EBITDA perspective, the flow through is a bit muted. Is that fair?

Well, the other parts of the business will be able to help pick up any slack if Jack Wolf is not able to offset the entire amount. The other businesses are improving their efficiencies, and I think they'll pick it up.

Okay. Awesome. That's helpful. Thank you.

And our next question will come from Kate McShane with Goldman Sachs. Please go ahead.

Hi. Good afternoon. Thanks for taking our questions. We wanted to ask first about the impact of the new labor model to your margins. Is there a way to quantify how much it impacted Q1 and how should we think about its contribution throughout the rest of the year? And then our second question was just around thoughts about capital allocation, given some of your comments today about your debt.

Sure, I'll take the first one and then Brian, I'll lateral that second part on capital allocation to you. So you've seen us have a steady trend of driving improved operating margins at Topgolf, right? We were up 180 basis points year over year. And during all of last year, Kate, you heard about us talking about implementing PI. We got PI fully implemented in Q4. that digital reservation system drives and allows us to improve overall operating efficiencies, and you're just continuing to see us realize the fruits of that labor, and it'll continue. The labor model, same thing. We've had an improved and revised labor model that implemented fully at the end of last year, and you're continuing to see the benefit of that. Now, we also had a little bit of shift in timing of some marketing spend. moving it to where our new initiatives are going to be introduced, and therefore it can be most impactful. And so there's a little bit of a timing move. So you're not going to see necessarily 180 basis points every quarter, but we feel confident on our 35% EBITDA margin for the full year. And what is really obvious and I think proven is the trend here of being able to consistently drive improved venue margins and returns. Candidly, even in some tough environments, right, with same venue sales down 7% to deliver 180 basis point improvement in margin performance, I think is a pretty good proof point. Brian, I'll send the capital one over to you.

Sure. Thanks, Kate. I think our call today highlights our capital allocation strategy. We've continued to build the venues. We're paying down $50 million of debt, and we repurchased a million shares of stock. And that's very consistent with our capital allocation policy, which is first and foremost reinvest in the business. We've seen great returns there, either through investing in technology to benefit our leading position in technology in the golf equipment space, or the Topgap venues, which have great returns, and they're returning 18 to 20% ROGI. So we'll continue to do that first and foremost. Beyond that, we do want to maintain reasonable leverage ratios. We currently believe we have them. At 2.2 times on a read-adjusted basis, we're very comfortable with that level. So given that, you'll see a balance really between returning capital to shareholders and paying down debt, both of which we announced today. And then after that, we'll look at other investments and acquisitions as they come up. You know, I've mentioned this before. The good thing is we don't have to do any. We have enough embedded growth where we don't have to go out and do any to drive growth in our revenue or profits, but we'll be opportunistic. And so we'll take those as they come up.

Thank you.

And our next question will come from Joe Altobello with Raymond James. Please go ahead.

Thanks. Hey, guys. Good afternoon. I guess first question on the quarter, you mentioned venue margins, marketing timing, and hedge gains as drivers of the EBITDA upside in the quarter. It looks like you're about $21 million above the high end of guidance. So maybe could you quantify for us the impact from the latter two, the OPEX timing and the hedging gains? Just try to get a sense of what the underlying beat was here.

Yeah, it's a little bit of all that, Joe. There was probably $6 million incremental hedge gains, which somewhat hurts you for the balance of the year, but we had those in Q1. I'm not going to quantify the push in marketing expenses because it's not as easily identifiable, but there was some marketing that was planned early for Q1 at Topgolf, for example. They're going to push that out to align it more with the launch of these new consumer programs that Chip mentioned. So it's It's all that, and there's some overperformance. I mean, it was a really good quarter from that perspective. Okay.

Maybe in terms of the guidance, going back to an earlier question, so you lowered the revenue outlook $80 million, Jack FX driven, basically, kept the EBITDA guidance unchanged. What are the offsets to that $80 million revenue reduction?

Well, It's similar to the things I just said. It's the improvement in the operational efficiencies of the other business. It's managing costs. It is the overperformance in the other businesses. Okay, so it's all Q1 driven.

Yeah, Joe, because we're hedged on the $35 million FX, right? So that is only a portion of that flows. So you're really looking at a revenue drop that will hit EBITDA of you know, something over 45, but 50, 55, and, you know, we're able to offset that with outperformance in the rest of the business.

Okay. I'm just trying to get a sense of what the cushion is in that 620 to 640, and it sounds like there's still a little bit of cushion there. So thank you. Appreciate it.

And our next question will come from Casey Alexander with Compass Point Research and Trading. Please go ahead.

Yeah, hi. Good afternoon. I'm trying to understand a little bit better about the Chrome Tour launch. Is that an 11% premium ball market share? Is that Chrome Tour and Chrome Soft combined? Or to what extent is Chrome Tour... cannibalizing ChromeSoft. Can you give us a little more granularity around that? Sure.

Yeah, it is both of those combined, Casey. So it is, for all intensive purposes, urethane ball market share, you know, and, you know, it's the premium price points, $50 and higher, you know, we're $55 a dozen is our map price. And the The 11% is all of those products, which includes Chrome Soft, Chrome Tour, Chrome Tour X. We previously had everything under Chrome Soft. So Chrome Tour absolutely, I guess, cannibalizes Chrome Soft, but they're different products now in terms of their compression ranges, consumer targets, etc., Um, and as you know, it's, it's a significant launch for us and, uh, we're excited about the direction of it.

Well, that 11% share, what would that comp against last year when it was just Chrome tour? I mean, Chrome soft, excuse me.

You know, it's probably in that, uh, you know, eight to 10, uh, on a seasonal basis. So we're up, uh, uh, nicely in the premium category and getting good, uh, feedback. And then we're up, uh, 120 basis points, I think overall in the ball category, uh, uh, year to date.

And the Chrome tour versus the Chrome soft is a higher priced category. So that might be driving some additional margin.

We raised our price this year from $50 a dozen to 55. We have traditionally priced at the high end, you know, and, uh, So not a change in strategy there. We just launched, you know, the Chrome product previously launched two years ago. Okay. There is a price increase this year for us where we are taking price with the Chrome Tour product. Great. Thank you. Thank you.

And again, to ask a question, you may press star, then one. Our next question will come from Noah Zatzkin with KeyBank Capital Markets. Please go ahead.

Hi, thanks for taking my question. You know, I think last quarter when you kind of looked back on the second half of 2023, you called out events and mid-week traffic as headwinds. You kind of touched on events, but Just wondering if you could kind of provide an update on progress with the midweek traffic initiative and how that might be, you know, potentially offering some upside or tailwind to the comp in the back half particularly. Thanks.

Yeah. Hey, Noah. As you, you know, identified, the primary areas of same venue sales challenge for us over the last, you know, several quarters have been midweek and events. We continue to do very well during peak times. And our peak times are basically weekends, but we also do very well on Tuesday. And we have had a longstanding value offering on Tuesday that is very well accepted and understood. So the events business is stabilizing. It's performing just as we would expect it to and hope it would. The midweek continues to be, you know, where we struggle from a same-venue sales perspective. We have identified the 330 as an initiative that will help us, you know, improve that. And... But that trend really has not changed over the last quarter.

Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to Chip Brewer for any closing remarks.

On today's call, we got kind of granular, as we should, and discussed a lot of specific details around quarters and some recent volatility. As I close, I'd like to take a moment and just kind of recap what I believe is the larger view. First and foremost, our company continues to grow and strengthen. We have a strong track record of EBITDA growth and one that we expect to continue. Last year, we transitioned to positive cash flows. That was a major goal of ours. That cash flow is now increasing, and our run rate or embedded cash flow is expected to ramp over the next few years. That's an important transition and one I hope doesn't get lost in the daily noise. Topgolf itself is transforming golf. It's increasing its venue profitability and returns and has a clear growth path ahead. And it has also an extremely strong defensive moat. The same venue sales have been somewhat volatile post-COVID, but we're working through that, and we're confident in our direction and expect to reprove ourselves here over the not-too-distant future. Given Topgolf's reach to new and existing golfers, the synergies of Topgolf's audience and our products business is clear. We're in the early innings of delivering on the potential here. And the Callaway brand goes. also continues to strengthen. In Q1, we were the number one U.S. brand in drivers, fairwood, and hybrid. And AI Smoke was the number one model in driver, fairwood, and irons. Odyssey was the number one putter on strength of AI1. We delivered U.S. market share growth in clubs and golf ball, and also a record new share in premium golf ball. We're in a healthy and growing industry. and we have robust plans for the second half of this year and expectations of revenue and profit growth for the year. Overall, we remain confident in our future and our ability to create value for shareholders as we believe growth with cash flow and a uniquely strong strategic position will deliver value to shareholders over time. Thank you for your time today, and we look forward to continuing to update you on our progress.

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