Topgolf Callaway Brands (MODG) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q2 2023 net revenue was $1.2 billion, an increase of 5.7$130.5 million, down approximately 3% year-over-year, while Q2 adjusted EBITDA was $206.2 million, down 0.5$77.8 million, a decrease of $15.7 million compared to Q2 2022, primarily due to a$20.3 million increase in interest expense [66] Business Segment Data and Key Metrics Changes - Topgolf revenue increased by $67.1 million to$471 million, a year-over-year increase of 16.6%, driven by the addition of 11 new venues and approximately 1% same venue sales growth [67] - Golf Equipment net revenue was $451 million, flat year-over-year, but up 1$258 million, slightly down or flat on a constant currency basis compared to Q2 2022, primarily due to a shift in timing of wholesale shipments [70] Market Data and Key Metrics Changes - The U.S. hard goods market for golf is down just 1.6% year-to-date through June, consistent with expectations, while U.S. rounds played are up 5.5% year-over-year [14] - The brand achieved strong market share gains in every category in both on- and off-course channels, with the Paradigm line of clubs being a primary driver of success [26][27] Company Strategy and Development Direction - The company is focused on expanding its Topgolf venues, with plans to open 11 new venues in 2023, which are expected to drive growth across the modern golf ecosystem [8][12] - The company aims to achieve a 35% 4-wall adjusted EBITDAR margin by 2025, indicating a strong focus on improving profitability [68] - The company is also investing in digital initiatives and marketing campaigns to enhance customer engagement and drive sales growth [24][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering strong EBITDA growth for the full year and transitioning to being cash flow positive [19] - The company anticipates that the second half of 2023 will see improved same venue sales growth, driven by easier year-over-year comparisons and new initiatives [11][47] - Management noted that the modern golf consumer remains healthy and engaged, with expectations for double-digit revenue and EBITDA growth this year [79] Other Important Information - The company reported a reduction of $119 million in inventory levels in the first half of 2023, indicating effective inventory management [42] - A small acquisition of the Swing Suite business for approximately$12 million was made, which is expected to be immediately cash flow positive [44] - The company completed a significant debt refinancing in March 2023, adding approximately $300 million of additional liquidity [71] Q&A Session All Questions and Answers Question: Can you elaborate on the progression of Topgolf same venue sales through the second quarter? - Management indicated that same venue sales growth was 1% for Q2, with expectations for 1% to 3% growth in Q3, supported by various initiatives [81][104] Question: How is the corporate events business performing compared to walk-in traffic? - Corporate events are down year-over-year but performing well compared to 2019 levels, while consumer business remains strong [113] Question: What are the expectations for the Golf Equipment business for the rest of the year? - The Golf Equipment segment is expected to grow in the second half, with a more heavily weighted launch schedule in Q4 compared to Q3 [116]