TOPGOLF CALLAWAY BRANDS ANNOUNCES FIRST QUARTER 2023 RESULTS

HIGHLIGHTS

• Q1 2023 revenue and Adjusted EBITDA exceeded expectations
• Topgolf delivered same venue sales growth of 11% compared to Q1 2022, marking six consecutive quarters of reported same venue sales growth
• Topgolf venue profitability and return metrics are improving versus the Company's previously disclosed long-term targets
• Completed debt refinancing, resulting in lower cost of debt, extended debt maturities, improved liquidity and a more unified and simplified financial structure
• Company remains on track to be free cash flow positive by end of year and increases midpoint of full year 2023 revenue and Adjusted EBITDA guidance

CARLSBAD, Calif., May 9, 2023 /PRNewswire/ -- Topgolf Callaway Brands Corp. (the "Company" or "Topgolf Callaway Brands") (NYSE: MODG) announced its financial results for the first quarter ended March 31, 2023.

"Our first quarter results exceeded expectations, driven primarily by the impressive performance of our new and existing Topgolf venues and Paradym, our latest innovation in golf club design," commented Chip Brewer, President and Chief Executive Officer of Topgolf Callaway Brands. "The Modern Golf consumer remains engaged and our brands continue to be well-positioned to benefit from the sustained momentum in off-course and on-course golf. Investing in our unique and attractive portfolio of leading brands continues to be our priority, and we have even more conviction in the long-term growth prospects for the business, announcing today increased Topgolf venue profitability and return targets. We remain on track to be free cash flow positive for Topgolf and the total Company in 2023, and we are committed to meeting or exceeding our long-term financial targets."

CONSOLIDATED RESULTS

The Company announced the following GAAP and non-GAAP financial results for the three months ended March 31, 2023 and 2022:

NON-GAAP RESULTS

Non-GAAP results exclude certain non-recurring and non-cash adjustments as defined in the Additional Information and Disclosures section of this release. The Company has also provided a reconciliation of the non-GAAP information to the most directly comparable GAAP information in the tables to this release.

CONSOLIDATED RESULTS COMMENTARY

(All comparisons to prior periods are calculated on a year-over-year basis, unless otherwise noted)

The Company reported better-than-expected financial results for the first quarter and finished the quarter ahead of plan. Net revenues grew 12.2%, or 15.1% on a constant currency basis, including 11% Topgolf same venue sales growth and a 28.0% increase in Active Lifestyle revenue. The Company achieved this result despite a $29.4 million negative impact from changes in foreign currency rates.

The Company's operating performance was also ahead of plan during the first quarter. Income from operations decreased 14.6%, but non-GAAP income from operations increased 2.2% on a constant currency basis. See Segment Commentary below for further detail on segment operating income. 

Net income decreased $61.7 million or $37.7 million on a non-GAAP basis, which exceeded expectations. This non-GAAP decrease includes an $18.6 million increase in interest expense related to higher interest rates and increased interest related to new Topgolf venues, $17.3 million negative foreign currency translation impact on operating income, and a $7.2 million decrease in other income net hedge gains. Adjusted EBITDA decreased 7.4%, or increased by 2.8% on a constant currency basis. 

SEGMENT RESULTS

SEGMENT NET REVENUES

The table below provides net revenues by segment for the three months ended March 31, 2023 and 2022:

SEGMENT OPERATING INCOME

The table below provides the breakout of segment operating income for the three months ended March 31, 2023 and 2022:

SEGMENT COMMENTARY

(All comparisons to prior periods are calculated on a year-over-year basis, unless otherwise noted)

• Topgolf
• Segment revenue increased $81.5 million (or 25.3%, 25.9% constant currency) and same venue sales grew approximately 11%, reflecting the brand's strong resonance with the Modern Golf consumer.
• Segment operating income decreased $3.7 million to $2.8 million due to planned investments in marketing and labor. Operating margins exceeded the Company's expectations driven by increased efficiencies within the venues.
• Segment Adjusted EBITDA increased $6.6 million (or 15.9%) to $48.1 million due to improved operational efficiencies at existing venues and the contribution from newly opened venues, which performed very well in the quarter.
• Golf Equipment
• Segment revenue decreased $24.3 million (or 5.2%, 1.5% constant currency), primarily due to the inventory catch-up at retail in Q1 2022 that did not recur in Q1 2023 and foreign currency headwinds versus last year.
• Segment operating income slightly exceeded the Company's expectations due to the successful Paradym launch, decreasing $19.2 million (or 19.0%) due to foreign exchange rate impacts. Segment gross margin improved 140 basis points on a constant currency basis with freight and price more than offsetting inflation.
• Active Lifestyle
• Segment revenue increased $70.0 million (or 28.0%, 32.1% constant currency), driven by strong brand momentum at both TravisMathew and Jack Wolfskin.
• Segment operating income increased $10.6 million (or 39.7%), as continued momentum in the business and favorable freight costs more than offset unfavorable foreign exchange rate impacts.

The following is a reconciliation of total segment operating income to income before income taxes for the three months ended March 31, 2023 and 2022:

2023 BUSINESS OUTLOOK

The 2023 projections set forth below are based on the Company's best estimates at this time.

ADDITIONAL INFORMATION AND DISCLOSURES

Conference Call and Webcast

The Company will be holding a conference call at 2:00 p.m. Pacific time today, May 9, 2023, to discuss the Company's financial results, outlook and business. The call will be broadcast live over the Internet and can be accessed at https://www.topgolfcallawaybrands.com/news-and-events/presentations. A replay of the conference call will be available approximately two hours after the call ends. The replay may be accessed through the Investor Relations section of the Company's website at https://www.topgolfcallawaybrands.com.

Non-GAAP Information

The GAAP results contained in this press release and the financial statement schedules attached to this press release have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). To supplement the GAAP results, the Company has provided certain non-GAAP financial information as follows:

Constant Currency Basis. The Company provided certain information regarding the Company's financial results or projected financial results on a "constant currency basis" or as "constant currency" results. This information estimates the impact of changes in foreign currency exchange rates on the translation of the Company's current or projected future period financial results as compared to the applicable comparable period. This impact is derived by taking the current or projected local currency results and translating them into U.S. dollars based upon the foreign currency exchange rates for the applicable comparable period. It does not include any other effect of changes in foreign currency rates on the Company's results or business.

Non-Recurring and Non-cash Adjustments. The Company provided information excluding certain non-cash amortization and depreciation of acquired intangible assets and purchase accounting adjustments. For 2023, non-recurring items include legal costs and credit agency fees relating to, and debt modification costs in connection with, the 2023 debt refinancing, and IT integration and implementation costs stemming from acquisitions. For 2022, non-recurring items include legal costs and credit agency fees related to a postponed debt refinancing, IT integration and implementation costs associated with new ERP systems stemming from acquisitions and non-cash asset write-downs.

Adjusted EBITDA. The Company provides information about its results excluding interest, taxes, depreciation and amortization expenses, non-cash stock compensation expense, non-cash lease amortization expense, and the non-recurring and non-cash items referenced above.

In addition, the Company has included in the schedules attached to this release a reconciliation of certain non-GAAP information to the most directly comparable GAAP information. The non-GAAP information presented in this release and related schedules should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP. The non-GAAP information may also be inconsistent with the manner in which similar measures are derived or used by other companies. Management uses such non-GAAP information for financial and operational decision-making purposes and as a means to evaluate period-over-period comparisons and in forecasting the Company's business going forward. Management believes that the presentation of such non-GAAP information, when considered in conjunction with the most directly comparable GAAP information, provides additional useful comparative information for investors in their assessment of the underlying performance of the Company's business with regard to these items.

For forward-looking Adjusted EBITDA, non-GAAP diluted earnings per share and Topgolf Adjusted EBITDA (together, the "Projected Non-GAAP Measures") information provided in this release, reconciliation of such Projected Non-GAAP Measures to the most closely comparable GAAP financial measures is not provided because the Company is unable to provide such reconciliation without unreasonable efforts. The inability to provide a reconciliation is because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact net income in the future but would not impact the Projected Non-GAAP measures. These items may include certain non-cash depreciation, which will fluctuate based on the Company's level of capital expenditures, non-cash amortization of intangibles related to the Company's acquisitions, income taxes, which can fluctuate based on changes in the other items noted and/or future forecasts, and other non-recurring costs and non-cash adjustments. Historically, the Company has excluded these items from the Projected Non-GAAP Measures. The Company currently expects to continue to exclude these items in future disclosures of the Projected Non-GAAP Measures and may also exclude other items that may arise. The events that typically lead to the recognition of such adjustments are inherently unpredictable as to if or when they may occur, and therefore actual results may differ materially. This unavailable information could have a significant impact on net income.

Definitions

Same venue sales. Topgolf Callaway Brands defines same venue sales for its Topgolf business as sales for the comparable venue base, which is defined as the number of Company-operated venues with at least 24 full fiscal months of operations in the year of comparison.

Forward-Looking Statements
Statements used in this press release that relate to future plans, events, financial results, performance, prospects, or growth opportunities, including statements relating to the Company's (and its segments') second quarter and full year 2023 guidance (including net revenues, Adjusted EBITDA, Topgolf Adjusted EBITDA, free cash flow, and Topgolf venue profitability), performance against long-term financial targets, strength and demand of the Company's products and services, continued brand momentum, demand for golf and outdoor activities and apparel, continued investments in the business, consumer trends and behavior, future industry and market conditions, foreign currency effects and their impacts, and statements of belief and any statement of assumptions underlying any of the foregoing, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "estimate," "could," "would," "should," "intend," "may," "plan," "seek," "anticipate," "project" and similar expressions, among others, generally identify forward-looking statements, which speak only as of the date the statements were made and are not guarantees of future performance. These statements are based upon current information and expectations. Accurately estimating the forward-looking statements is based upon various risks and unknowns, including costs, expenses or difficulties related to the merger with Topgolf, including the integration of the Topgolf business; failure to realize the expected benefits and synergies of the Topgolf merger in the expected timeframes or at all; production delays, closures of manufacturing facilities, retail locations, warehouses and supply and distribution chains; staffing shortages as a result of remote working requirements or otherwise; uncertainty regarding global economic conditions; ongoing increases in operating and freight costs; global supply chain constraints and challenges; the Company's level of indebtedness; continued availability of credit facilities and liquidity and ability to comply with applicable debt covenants; effectiveness of capital allocation and cost/expense reduction efforts; continued brand momentum and product success; growth in the direct-to-consumer and e-commerce channels; ability to realize the benefits of the continued investments in the Company's business; consumer acceptance of and demand for the Company's and its subsidiaries' products and services; cost of living and inflationary pressures; any changes in U.S. trade, tax or other policies, including restrictions on imports or an increase in import tariffs; future consumer discretionary purchasing activity, which can be significantly adversely affected by unfavorable economic or market conditions; future retailer purchasing activity, which can be significantly negatively affected by adverse industry conditions and overall retail inventory levels; and future changes in foreign currency exchange rates and the degree of effectiveness of the Company's hedging programs. Actual results may differ materially from those estimated or anticipated as a result of these risks and unknowns or other risks and uncertainties, including the effect of terrorist activity, armed conflict, natural disasters or pandemic diseases, including expanded outbreak of COVID-19 and its variants, on the economy generally, on the level of demand for the Company's and its subsidiaries' products and services or on the Company's ability to manage its operations, supply chain and delivery logistics in such an environment; delays, difficulties or increased costs in the supply of components or commodities needed to manufacture the Company's products or in manufacturing the Company's products; and a decrease in participation levels in golf generally. For additional information concerning these and other risks and uncertainties that could affect these statements and the Company's business, see the Company's Annual Report on Form 10-K for the year ended December 31, 2022 as well as other risks and uncertainties detailed from time to time in the Company's reports on Forms 10-K, 10-Q and 8-K subsequently filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

About Topgolf Callaway Brands
Topgolf Callaway Brands Corp. (NYSE: MODG) is an unrivaled tech-enabled Modern Golf and active lifestyle company delivering leading golf equipment, apparel, and entertainment, with a portfolio of global brands including Topgolf, Callaway Golf, TravisMathew, Toptracer, Odyssey, OGIO, Jack Wolfskin, and World Golf Tour ("WGT"). "Modern Golf" is the dynamic and inclusive ecosystem that includes both on-course and off-course golf. For more information, please visit https://www.topgolfcallawaybrands.com.

Investor Contact
Lauren Scott
(760) 931-1771
[email protected]

SOURCE Topgolf Callaway Brands Corp.