Topgolf Callaway Brands (MODG) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q3 consolidated revenues were $1.013 billion, a decrease of 3% year-over-year, primarily due to an 11% decrease in Active Lifestyle revenue [38][39] - Adjusted EBITDA for Q3 was$ 120 million, declining 27% compared to the previous year [38] - REIT-adjusted net debt decreased approximately $220 million, or over 20% year-over-year, with net debt leverage decreasing to 1.8 times from 2.1 times [37][46] Business Line Data and Key Metrics Changes - Topgolf revenue grew 1% to$ 453 million, driven by new venues, but same venue sales decreased by 11% [39][40] - Golf Equipment segment revenue was up slightly at $294 million, attributed to a shift in shipment timing [41] - Active Lifestyle segment revenue decreased 11% year-over-year, mainly due to lower sales of Jack Wolfskin [43] Market Data and Key Metrics Changes - U.S. rounds played increased year-over-year, indicating a strong market for golf participation [16] - Datatech's U.S. sell-through for clubs was down slightly by 4% in Q3 but remained flat year-to-date [16][17] - Callaway's golf ball market share reached 21.8%, up 140 basis points year-over-year, marking a new record [19] Company Strategy and Development Direction - The company is focused on separating Topgolf from the legacy business to maximize shareholder value, with a target date for a potential spin-off around mid-next year [68] - Initiatives to drive long-term traffic growth at Topgolf include launching new games and enhancing consumer experiences [12][13] - The company is committed to disciplined cost management and operational efficiencies across all business segments [35][56] Management's Comments on Operating Environment and Future Outlook - Management noted that Q3 results exceeded guidance despite a challenging macroeconomic environment, with consumer activity showing signs of recovery [10][34] - The company is lowering its full-year revenue guidance by approximately$ 30 million due to lower sell-through in Q3, viewing it as short-term volatility rather than a new trend [10][52] - Management expressed confidence in the long-term outlook for core markets and product categories, despite recent challenges [10][56] Other Important Information - The company plans to open seven new venues this year, with a total of 100 owned and operated venues by year-end [15][48] - Inventory levels decreased by $70 million, or 10%, to approximately$ 667 million at the end of Q3 2024 [49] - The company expects to generate positive free cash flow this year at both the total company and Topgolf [56] Q&A Session Summary Question: Recent traffic versus average spend at Topgolf - Management indicated that the recent trends at Topgolf showed a balanced impact between spend per visit and traffic, with a notable decline in the events business [58] Question: Improvement in Golf Equipment sell-through trends - Management confirmed that the Golf Equipment business remains healthy, with sell-through trends improving in September and October after a dip in Q3 [61] Question: Same venue sales guidance for Q4 - Management stated that the wide guidance range for Q4 is due to potential weather impacts, particularly in December [67] Question: Spin-off timeline for Topgolf - Management confirmed that they are fully engaged in the process of separating Topgolf, targeting mid-next year for a potential spin-off [68] Question: Promotional efforts at Topgolf - Management clarified that recent promotions have focused on the consumer side, with targeted efforts to improve effectiveness using a new consumer data platform [82] Question: Impact of venue openings on cash flow - Management noted that slowing venue openings could positively impact cash flow in 2025, but specific guidance for that year is not yet provided [86]