Topgolf Callaway Brands posted a solid fourth-quarter performance, but company President and CEO Chip Brewer admitted the company had a “rare miss” relative to its quarterly guidance. 

On a conference call with analysts Thursday, Brewer said that the miss was due to more aggressive internal forecasting combined with short-term volatility in weather and expense timing. He noted that the company sees no change in major trends, earnings potential, or the health of its customers.

“We continue to take a long-term view when assessing our performance and feel very good about the trajectory of our business,” he stated. “We remain on track or ahead of our long-term financial targets. We also have increased conviction that our unique brand collection provides a competitive advantage in the modern golf ecosystem.”

Brewer said on the call that 2022 was a very strong year for Topgolf Callaway Brands and the sport of golf more broadly, stating that the modern golf ecosystem, comprised of on- and off-course golf, had another record year.

The CEO shared recent data from the National Golf Foundation that showed that U.S. golf participation exceeded 41 million people for the first time, up from 37.5 million people in 2021. NGF data reported that on-course play grew by over 500,000 participants, which Brewer felt was an “excellent result” from its solid performance in the last two years. At the same time, he noted that “off-course golf increased by 3.1 million players and is now larger than on-course golf.”

“With our increased venue count and same-venue sales growth, we believe the off-course golf growth was largely driven by Topgolf,” Brewer claimed. “And this is a growth trend that we have a high degree of certainty will continue as our venue growth alone should add approximately three million to four million new unique off-course visitors annually. With this, we can now clearly foresee a pattern of structural growth for the Modern Golf ecosystem with Topgolf Callaway Brands positioned squarely at the center of it.”

The public company, trading with the ticker symbol MODG to reflect its commitment to the modern golf concept, posted another solid quarter to end 2022, delivering a 19.6 percent increase in revenue to $851.3 million in Q4, reflecting growth in each operating segment, major product category and region. The fourth-quarter revenue growth was achieved despite a $37.8 million negative foreign currency impact on fourth-quarter 2022 revenue.

Topgolf Segment
Topgolf segment revenue increased 21.9 percent to $409.5 million (+22.9 percent constant-currency) in Q4, compared to the prior-year quarter. Same-venue sales grew approximately 11 percent compared to pre-pandemic sales in 2019, reflecting continued strong demand. 

Topgolf opened six new owned and operated Topgolf venues. Topgolf segment operating income decreased 59.0 percent to $2.5 million in the quarter, and segment Adjusted EBITDA decreased 6.1 percent to $43.2 million, compared to 2021, both primarily due to “planned increases in pre-opening costs and marketing expenditures, as well as extreme weather in late December.”

“The trends in the event business remained strong, including in corporate events,” Brewer said. “These quarterly growth rates, while good, were a little below our internal forecast as the business was impacted by venue closures due to extremely cold weather during our peak holiday season in late December.”

For the full year, Topgolf segment revenue increased 42.4 percent to $1.55 billion (+43.3 percent constant-currency) compared to 2021, driven by “continued successful new venue openings, and strong same-venue sales growth of 7 percent compared to pre-pandemic sales in 2019, reflecting a balanced increase of traffic and price, and a successful corporate and social events business.”

Topgolf segment operating income increased 32.0 percent to $76.8 million for the full year, and segment Adjusted EBITDA increased 32.9 percent to $235.4 million, compared to 2021, both due to the opening of new venues and increasing same-venue sales during the period.

Topgolf finished the year with 81 owned and operated venues in five franchise venues after opening 11 new venues in 2022. “Two new venues of note are Boise and Wichita, both excellent examples of a new size and format focused on our small to midsize markets,” Brewer shared. “This new model is a more cost-effective way to serve our 50- to 72-bay markets and one we believe can unlock additional markets for expansion and ultimately increases the total addressable market in the U.S. from 200 venues to 250 venues.”

Topgolf expects to open 11 new owned and operated venues in 2023. The mix will be similar in size to last year, skewing large to medium, and Brewer said, like last year, they would be back-end loaded with two venues planned to open in the first half of this year and eight scheduled to open in the fourth quarter. Brewer said a new digital bay management platform, a proprietary system the company internally refers to as “Pi,” is “essentially an inventory management system that will help our venue operations team utilize the bays more efficiently and also allow for a more advanced reservation system.”

“At the time of the merger, 10 percent of the Topgolf business was digital,” Brewer said. “Now, it is 30 percent, but it should be more than half, and this digital platform is key to getting us there. The Pi system was in 18 venues as of the end of 2022. We expect to have it in all venues by the end of 2023.”

Brewer also said the company continues to make strides in international business. “A significant milestone will be this spring’s opening of China’s first Topgolf venue located in the interior city of Chengdu. This will be a massive 104-bay facility built, owned and operated by our national franchisee. As you’d expect, China represents a massive long-term opportunity for Topgolf. And as both, we and our franchisee are excited to get our first venue up and running,” said Brewer.

Toptracer opened a little more than 2,300 bays for the quarter, delivering just over 7,000 bays for the year.

“Toptracer continues to innovate and recently unveiled a new product specifically designed to elevate the golf coaching profession through an immersive data-driven experience,” Brewer stated. “Toptracer is also gaining recognition as the No. 1 product in driving range tracking technology and recently entered into a partnership naming us the official range tracking technology of the PGA of America. We believe this partnership will further strengthen our U.S. green grass pipeline for this business.”

Golf Equipment Segment
Turning to the Golf Equipment segment, which is home to the legacy Callaway business, fourth-quarter revenue increased 17.7 percent to $190.0 million (+25.3 percent constant-currency), driven by growth in the golf ball and golf club product categories. 

Golf Equipment segment operating income increased $25.6 million (or 102.8 percent) to 0.7 million from a 24.9 million loss in the prior-year quarter, primarily due to “volume and pricing benefits, which more than offset higher input costs and unfavorable foreign exchange rate impacts.”

For the full year, Golf Equipment segment revenue increased 14.4 percent to $1.41 billion (+19.6 percent constant-currency), driven by strong demand from the core golf consumer, additional supply capacity and inventory fill-in at retail. Golf Equipment segment operating income increased $47.5 million (or 23.3 percent), primarily due to volume and pricing benefits, which outpaced higher input and freight costs and unfavorable foreign exchange rate impacts.

Golf Equipment revenues were up 17 percent in the U.S. year-over-year, outperforming U.S. golf hardgoods shipments, which Brewer said were up 9 percent, according to the National Golf Foundation. “Clearly, a strong year for the industry and an even stronger year for Callaway Golf,” he said. “Japan and Korea had strong years though partly masked by currency headwinds.”

Brewer said the company’s U.S. golf ball share ended the year at a new record of 20.5 percent. Golf ball sales exceeded $300 million for the first time in the company’s history. “Our U.S. club market share was also up, finishing the year at 24.3 percent.

Active Lifestyle Segment
Active Lifestyle segment revenue increased 17.4 percent to $251.8 million (+27.7 percent constant-currency), driven by growth in both the Apparel and Gear, Accessories and Other Product categories. Fourth quarter Active Lifestyle segment operating income increased 104.3 percent from a loss of $2.3 million in the prior-year period, as continued momentum in the business more than offset unfavorable foreign exchange rate impacts and market-related challenges in Europe and China.

Active Lifestyle segment revenue increased 27.4 percent to $1.04 billion (+36.5 percent constant-currency), driven by a 28.7 percent increase in apparel sales and a 25.4 percent increase in gear, accessories and other sales. Full-year Active Lifestyle segment operating income increased 13.0 percent as continued momentum in the business outpaced unfavorable foreign exchange rate impacts and macroeconomic issues in Europe and China.

Brewer said the $1 billion revenue milestone was largely driven by “TravisMathew’s increased scale, continued momentum, and increased profitability.” He said TravisMathew delivered excellent results across all channels, including key wholesale partnerships, green grass pro shops, e-commerce, and its owned retail stores. TravisMathew opened 11 new owned store retail doors and delivered double-digit same-store sales growth for existing stores in 2022. In 2023, MODG plans to open another nine stores for a total of 50 by year-end.

“While we don’t plan to provide financial detail by brand on a regular basis, we are happy to announce that the brand also exceeded the $300 million revenue and $50 million adjusted EBITDA targets shared at our Investor Day,” Brewer shared. “The momentum and growth prospects for TravisMathew remains strong. 

The Callaway branded Apparel and Performance Gear business also had outstanding years globally. Jack Wolfskin had a challenging end of the year with COVID-related shutdowns in China and consumer softness and unfavorable weather in Europe.”

The company reported a 36.6 percent improvement in its consolidated fourth-quarter net operating loss, or 42.4 percent on a non-GAAP basis. Due to the seasonality of the golf business, the company has historically reported an operating loss in the fourth quarter.

The company’s consolidated net loss for the fourth quarter of 2022 was $72.7 million, or $50.8 million on a non-GAAP basis, compared to a net loss of $26.2 million or $35.5 million on a non-GAAP basis for the same period in 2021. During the fourth quarter of 2021, the company benefited from significant favorable tax adjustments related to the Topgolf merger, which improved its reported net loss. Adjusted EBITDA, which excludes, the tax benefits from both periods, among other items, increased 155.9 percent to $36.6 million in the fourth quarter of 2022 compared to the same period in 2021.

Fourth quarter EPS loss was 39 cents a share, compared to a loss of 14 cents per share for Q4 2021.

Full-year net income was approximately $158 million on both a GAAP and non-GAAP basis and on a non-GAAP basis, representing a 14.7 percent increase compared to 2021 non-GAAP net income for the same period. Full-year 2022 Adjusted EBITDA increased $112.7 million, or 25.3 percent, to $558.1 million compared to 2021. The company’s full-year 2021 GAAP other (expense) income net includes the recognition of a $252.5 million one-time gain on the company’s pre-merger investment in Topgolf.

Full-year EPS was 82 cents per share, compared to $1.82 per share for full-year 2021.

2023 Outlook
Topgolf Callaway now sees total 2023 revenues at approximately $4.45 billion, up roughly 10 percent to 12 percent. Adjusted EBITDA is expected to increase about 11 percent to 15 percent to $620 million to $640 million. On a segment basis, our full-year outlook assumes continued success at Topgolf with approximately $1.9 billion of segment revenue and roughly $300 million to $320 million in adjusted EBITDA. Topgolf is forecasted to account for nearly half of the total company-adjusted EBITDA in 2023.

Topgolf is projecting a high-single-digit same-venue sales growth for 2023 compared to 2022, with about a third of the growth coming from traffic and two-thirds from ticket or price. For Q1, the same-venue sales growth is expected to be higher than that of the full year due to the impact of Omicron in Q1 of last year.

Golf Equipment segment revenues are forecasted to be approximately flat relative to 2022. “We feel very good about our relative position and competitiveness in this segment,” Brewer explained. “However, in our forecasting, we’re also taking into account the inventory catch-up that occurred in 2022, some potential economic pressures, and more competitor launches this year versus last.”

The Active Lifestyle segment is expected to grow at a low-teens rate compared to 2022, with TravisMathew continuing to grow faster than the segment at large.

“Additionally, we want to emphasize that 2023 is expected to be a significant year for the business as we transition to being cash flow positive for both our parent company, Topgolf Callaway Brands, and the Topgolf division itself,” Brewer Concluded. “Our overall legacy business remains strong, plus we made a big bet on Topgolf that’s paying off faster than expected and should continue to ramp from here. With this, we’ve continued to strengthen our earnings and expand the growth potential of this unique business even in the face of macroeconomic and foreign exchange headwinds, and we remain on plan or ahead of the 2025 $800 million adjusted EBITDA target laid out during our Investor Day.”