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Operator: Good day, and welcome to the Topgolf Callaway Brands Fourth Quarter and Full-Year 2022 Earnings Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Lauren Scott, Director of Investor Relations. Please go ahead.

Lauren Scott: Thank you, operator, and good afternoon, everyone. Welcome to Topgolf Callaway Brands fourth quarter and full-year 2022 earnings conference call. I’m Lauren Scott, the company’s Director of Investor Relations. Joining me as speakers on today’s call are Chip Brewer, our President and Chief Executive Officer; and Brian Lynch, our Chief Financial Officer. Jennifer Thomas, our Chief Accounting Officer; and Patrick Burke, our Senior Vice President of Global Finance, are also in the room today for Q&A. Earlier today, the company issued a press release announcing its fourth quarter and full year 2022 financial results. In addition, there is a presentation that accompanies today’s prepared remarks and may make it easier for you to follow the call.

This 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 U.S. generally accepted accounting principles. In the instances where we report non-GAAP measures, we have reconciled the non-GAAP measures to the corresponding GAAP measures at the back of the presentation 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.

Lastly, to make sure we can accommodate questions from each of our analysts, we ask that you limit your questions to two. And with that, I would now like to turn the call over to Chip Brewer.

Chip Brewer: Thank you, Lauren. Good afternoon to everyone on our call, and thank you for joining us today. 2022 was a very strong year for Topgolf Callaway Brands and for the sport of golf more broadly. The Modern Golf ecosystem, which is comprised of both on- and off-course golf had another record year. According to the National Golf Foundation for the first time U.S. golf participation exceeded 41 million people, up from 37.5 million people in 2021. On-course golf grew by just over 500,000 participants, an excellent result coming off of strong performances in the last two years. At the same time, off-course golf increased by 3.1 million participants 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.

And this is a growth trend that we have a high degree of certainty will continue. As our venue growth alone should add approximately 3 million to 4 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. Now, looking at our financial results. Full year 2022 revenue was just under $4 billion and full year adjusted EBITDA was $558 million, up 22% and 25% year-over-year on a 12-month or full calendar year basis. We are very pleased with these results, and I’d like to thank the entire Topgolf Callaway Brands team for helping us deliver them. Turning to the fourth quarter. We had a strong quarter, but a rare miss relative to our quarterly guidance.

This was due to both more aggressive internal forecasting combined with some short-term volatility in weather and expense timing. We see no change in major trends, our earnings potential, or the health of our consumers. We continue to take a long-term view when assessing our performance and feel very good about the trajectory of our business. We remain on track or ahead of our long-term financial targets. We also have increased conviction that our unique collection of brands provides us a competitive advantage in the Modern Golf ecosystem. Shifting to our segment overview. I’ll first start with Topgolf’s results. 2022 is an outstanding year for Topgolf, and I’d like to thank the entire Topgolf team, especially all the playmakers at the venues for making this possible.

We delivered over $1.5 billion in revenue and $235 million in adjusted EBITDA, growth of 26% and 31%, respectively, on a 12-month or full calendar year basis. This growth was driven by strong same-venue sales growth, up 7% for the year compared to 2019, continued excellence in opening new venues, and improved venue operating margins. Most importantly, based on what we learned in 2022, we have more confidence and believe there is a bigger opportunity for this business than we did a year ago. As we enter 2023, we have ongoing brand momentum and the Topgolf consumer continues to be engaged and strong. During the fourth quarter compared to 2019, same venue sales grew by 11% with traffic up 7%. The trends in the event business remained strong, including in corporate events.

These quarterly growth rates, while good were a little below our internal forecast as the business was impacted by venue closures due to extreme cold weather during our peak holiday season in late December. Also, during the quarter, we opened six new venues for a total of 11 new venues in 2022. We finished the year with 81 owned and operated venues in five franchise venues. Two new venues of note are the Boise and Wichita venues, both excellent examples of a new size and format focused on our small to midsize markets. This new model is a more cost-effective way to serve our 50-day 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.

Looking ahead, we expect to open 11 new owned and operated venues again this year. The mix will be similar in size to last year, skewing large to medium, and like last year, it will be back-end loaded with only two venues planned to open in the first half of this year and eight planned to open in Q4. The growth in operational improvement initiatives that Artie spoke about at our Investor Day remain on track, the most impactful being the digital bay management platform, a proprietary system we internally call Pi. This new platform is essentially an inventory management system that will help our venue operations team utilize the bays more efficiently and also allows for a more advanced reservation system. We believe this system will improve the guest experience and also increase profitability.

It also builds a stronger digital relationship between Topgolf and the consumer. At the time of the merger, 10% of the Topgolf business was digital. Now, it is 30%, 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. We also continue to make strides on the international front, 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 there. 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.

Toptracer opened a little more than 2,300 bays for the quarter, delivering just over 7,000 for the year. On the technology front, Toptracer continues to innovate and recently unveiled a new product specifically designed to elevate the golf coaching profession through an immersive data-driven experience. Toptracer is also gaining recognition as the number one 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. Moving to the Golf Equipment segment, the core golf consumer remains strong and engaged throughout the year. For the full year, our global Golf Equipment segment revenue was up 14% year-over-year or 20% currency-neutral.

Focusing on the U.S., our Golf Equipment revenues were up 17% year-over-year, thus outperforming U.S. hard goods shipments, which were up 9% according to the National Golf Foundation. Clearly, a strong year for the industry and an even stronger year for Callaway Golf. And although I quote U.S. metrics here for convenience, we had global success in 2022. Japan and Korea had particularly strong years though partly masked by currency headwinds. Our U.S. ball share ended the year at 20.5%, a new record. And our golf ball sales eclipsed $300 million for the first time in our history. Our U.S. club market share was also up, finishing the year at 24.3%. Looking forward to 2023, from a marketing and innovation standpoint, the new paradigm, family of clubs represents a complete shift in performance and has been extremely well received, both in the marketplace and on tour.

Paradigm is a full line of product, driver, ferry woods, hybrids, and irons. The driver features a proprietary 360-degree carbon chassis, as well as a new version of our Jailbreak Technology and an AI design phase. On tour, the Paradigm driver has had an amazing start winning four out of the first five PGA Tour events of the calendar year. At Callaway, we talk about product that’s demonstrably superior and pleasingly different. And the entire Paradigm line is a great example of this. In conjunction with the launch of the new products, we also announced new partnerships with Good Good Golf, an engaging inclusive golf content platform; and Niall Horan, a famous singer, songwriter, and avid golfer; as well as a multiyear extended partnership with Stephen Curry.

These partnerships underscore our interest in broadening our reach within the Modern Golf ecosystem and engaging with golfers of all levels. Turning to the Active Lifestyle segment. We’re pleased to report that the segment surpassed our $1 billion revenue goal for the year. This milestone was driven in large part by TravisMathew’s increased scale, continued momentum, and increased profitability. TravisMathew delivered excellent results across all channels, including key wholesale partnerships, green grass pro shops, e-commerce, and our own retail stores. Focusing on our own stores for a moment, during 2022, TravisMathew opened 11 new retail doors and delivered double-digit same-store sales growth for existing stores. In 2023, we plan 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. 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, as well as consumer softness and unfavorable weather in Europe. Although the business is a smaller part of the total Topgolf Callaway Brands story, we feel good about this business as a market positioning, as well as what we believe are improving trends in both brand and product, belief that is supported by recent industry awards and recognition at both Europe and U.S. trade shows.

With this, we remain optimistic about the long-term potential of this business. Turning now to our outlook for 2023. We’re updating and expanding upon our previously disclosed guidance. For the full year 2023, we now estimate revenues will be approximately $4.45 billion, up approximately 10% to 12% and an adjusted EBITDA will increase approximately 11% to 15% 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 approximately $300 million to $320 million in adjusted EBITDA. With this forecast, it’s worth noting that Topgolf is now forecast to account for approximately half of our total company-adjusted EBITDA. As mentioned, the Topgolf consumer and brand momentum remains strong.

As a result, we’re 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. Our Golf Equipment segment revenues are expected to be approximately flat relative to 2022. We feel very good about our relative position and competitiveness in this segment. 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. And lastly, Active Lifestyle should continue to grow at a low-teens rate compared to 2022, with TravisMathew continue to grow at a faster rate 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. 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. Now I’d like to turn the call to Brian to discuss the financials in more detail.

And as a native son of Philly, I’d also like to add, go, Eagles.

Brian Lynch: Thank you, Chip, and good afternoon, everyone. We are very pleased with our results for 2022, the first full year following the merger with Topgolf. It has been exciting to see the transformation of our business, both financially and culturally, as we collectively work to expand our reach and tap into the structural growth taking place within the Modern Golf ecosystem. My remarks today will be focused more on our fourth-quarter performance and forward-looking guidance, but I want to start with a few key highlights from the full year. During 2022, we generated record net revenue of $3.996 billion, a year-over-year increase of 28% or 32% on a constant-currency basis, driven by broad-based strength across each of our operating segments.

This sales growth is despite our $148 million negative impact from changes in foreign currency exchange rates. Full-year non-GAAP operating income increased $42 million to $297 million, an increase of 16% year-over-year. This metric was heavily impacted from changes in foreign currency rates during the latter part of last year. On a constant-currency basis, operating income increased 44% and operating margins increased 74 basis points compared to 2021. Lastly, full-year adjusted EBITDA was $558 million, an increase of 25% or 42% constant currency compared to 2021. This is on track or ahead of our goal of $800 million in EBITDA by 2025. With that brief overview, I will now review the quarterly results in more detail. For the fourth quarter, net revenue was $851 million, an increase of 20% compared to Q4 2021 or 25% constant currency.

This performance reflects increased revenue across each operating segment, product category, and region. Our fourth quarter 2022 non-GAAP seasonal operating loss was $25 million, a 42% improvement compared to Q4 2021 due to the strong revenue growth. As a reminder, we have historically recognized a loss in Q4 due to the seasonality of our business. On a constant-currency basis, non-GAAP income from operations would have increased 73% and operating income as a percent of sales would have improved 476 basis points compared to fourth quarter 2021. Non-GAAP loss per share was $0.27 on 185 million shares compared to $0.19 per share on 186 million shares in the fourth quarter of 2021. Please note that a fully diluted share count, which includes shares associated with our convertible notes, only applies to periods with net income, and therefore, our basic share count was used for Q4.

Q4 adjusted EBITDA was $37 million, up 156% over Q4 2021, or up 250% on a constant-currency basis. At the segment level, Topgolf contributed $410 million in revenue in the quarter, a 22% increase over 2021, reflecting strong same-venue sales growth and additional new venues. Adjusted EBITDA for Topgolf was $43 million, down $3 million compared to Q4 2021 due primarily to higher preopening and marketing expenses. Golf Equipment capped off a very strong year with Q4 revenue of $190 million, an 18% increase over Q4 2021, or a 25% increase on a constant-currency basis. Segment operating income increased to 103% to 700,000 of income compared to a $25 million seasonal loss in Q4 2021, as pricing and volume benefits more than offset higher input costs and foreign currency headwinds.

Lastly, our Active Lifestyle segment had revenue of $252 million, up 17% or 28% on a constant-currency basis compared to Q4 2021. Segment operating income increased approximately $2 million year-over-year to approximately breakeven. This increase was led by continued momentum in the TravisMathew and Callaway Brands that were partially offset by macroeconomic issues facing Europe and China, Jack Wolfskin’s largest markets. Turning to certain balance sheet items. We remain in a strong financial position with ample liquidity. At December 31, 2022, available liquidity, which is comprised of cash on hand and availability under our credit facilities was $415 million compared to $753 million at December 31, 2021. The decrease from last year was due to continued investment in Topgolf and working capital increases in the Golf Equipment and Active Lifestyle businesses, which will support our growth this year.

On a year-over-year comparison, we note that last year’s working capital was abnormally low due to the disruptions in supply chain related to the pandemic. At quarter-end, we had total net debt of $1.88 billion, excluding the convertible debt of approximately $258 million compared to $1.12 billion at the end of last year. This increase relates primarily to incremental new venue financing and higher working capital. Our net debt leverage, which excludes the convertible note, was approximately 3.4 times at December 31, 2022, compared to 2.5 times at December 31, 2021. The increase was due to the new venue development and increases in working capital. Consolidated net accounts receivable was $167 million as of December 31, 2022, compared to $105 million at the end of the fourth quarter of 2021.

The increase was due to higher revenues in our Golf Equipment and Active Lifestyle businesses compared to Q4 2021. Our inventory balance increased $959 million at the end of the fourth quarter of 2022, compared to $534 million at December 31, 2021. Days inventory on hand are only slightly higher than pre-pandemic levels due to receiving the launch inventory earlier than normal. Also, please remember that 2021 was abnormally low. Overall, we feel good about our inventory levels and expect inventory levels to normalize by the end of the year. Capital expenditures for the full year were $357 million net of venue financing reimbursements. This includes $281 million related to Topgolf for the full year. Topgolf CapEx was higher than originally forecasted due to the timing of venue financing reimbursements.

For the same reason, 2023 Topgolf CapEx is expected to be lower at approximately $175 million, net of venue financing reimbursements. Total company CapEx for full year 2023 is expected to be approximately $255 million, which includes $80 million of CapEx for the non-Topgolf business. Now, turning to our 2023 outlook. Our estimates are based upon foreign currency exchange rates as of the end of December 2022 and early January 2023, which is when we implemented our hedging program for 2023. For the full year, we estimate net revenues will increase approximately 10% to 12% to be within the range of $4.415 billion to $4.470 billion. Topgolf segment revenue is expected to be approximately $1.9 billion, driven by new venue development and same-venue sales growth.

Golf Equipment is expected to be approximately flat year-over-year, and Active Lifestyle should increase at a low teens percent compared to 2022. The total company revenue estimate includes a $15 million negative foreign currency impact. We expect full year 2023 adjusted EBITDA will increase approximately 11% to 15% to be within a range of $620 million to $640 million, with Topgolf generating approximately half of that adjusted EBITDA, the total company EBITDA estimate includes a $20 million negative FX impact. For the first quarter of 2023, we expect net revenue will increase approximately 9% to 11% to be within the range of $1.135 billion to $1.155 billion. We expect Topgolf segment revenue of just under $400 million, driven by same-venue sales growth and the revenue benefit from Topgolf venues recently opened in Q4.

The total company revenue estimates include a $30 million negative foreign currency impact. We expect Q1 adjusted EBITDA to be within the range of $135 million to $145 million, which is below Q1 2022 EBITDA of $170 million. The decrease is driven primarily by the impact of foreign currency, which we expect to have a $25 million negative impact on EBITDA for the first quarter. The Topgolf segment adjusted EBITDA in the quarter will be slightly below the $42 million we generated last year, driven by higher marketing expenditures and a return to full staffing in the venues. The first quarter for the company will also be impacted by the full-year impact of corporate investments we made during 2022 to support our larger business. We also want to note that we are in an inflection point in our business, where we expect that both the total company and the Topgolf business will be cash flow positive in 2023, a year ahead of plan at the time of the merger.

We are proud of our results for 2022 and very grateful to the team of employees around the world who helped deliver them. We remain excited about the growth prospects of our business and are confident that our competitive positioning across each segment and the embedded growth within our business will keep us on track to deliver on our long-term outlook and to create meaningful shareholder value. And finally, I would like to emphasize what Chip said earlier, fly, Eagles, fly. That concludes our prepared remarks today, and we will now open the call for questions. Operator, over to you.

Operator: All right. Thank you. We will now begin the question-and-answer session. At this time, we will pause for a moment to assemble our roster. Our first question today will come from Randal Konik of Jefferies. Please go ahead.

Randal Konik: Hey, guys. Good afternoon. I’m a Jets fan, so I’m a little jealous, but good luck on Sunday. I have two questions. The first one I want to talk to or discuss the Golf Equipment industry €“ just want to get your perspective, Chip, on just how you think about industry inventory levels in the channel sell-in versus sell-through? And then how you think about pricing power in the year ahead or a couple of years ahead? Just want to get your thoughts there on the industry of Golf Equipment first. Thanks.

Chip Brewer: Sure, Randy. So, the Golf Equipment business remains healthy, which is clearly demonstrated in our results. And although there has been various periods of time of conversation of potential reversions or things like that, the business has had an excellent year. We’ve outperformed the business, but the market itself has remained strong. The Golf Equipment consumer remains engaged, participation stats show growth. So, we’re very pleased with that. Inventory largely caught up last year. So, if you look at months of supply in the field, they’re at normal levels consistent with where it would have been in 2018, 2019. So, that normalization did occur during 2022. And then your last question, Randy, was around pricing power.

And our consumer in the Golf Equipment business is candidly not that sensitive to price. They really €“ we really compete more around product that’s pleasingly different, demonstrably superior. Nobody has to have a new driver. We’re really able to deliver product that makes the game more enjoyable for them, hopefully, delivers advantages, and is part of the joy of the games because buying new equipment in itself is a fun rite of passage for spring, et cetera. The consumers are passionate, they’re engaged. So we feel good about our pricing power and have been able to demonstrate that over a long period of time.

Randal Konik: I am waiting for my Paradigm driver in a couple of weeks. So, money well spent. The second topic or my last one here, it’s just more on Topgolf. When you look at the same-store sales numbers of over 10% and then you’re guiding to high single digit, I believe, in 2023, you broke it down between traffic and price. When you think about those numbers, they seem to be much stronger than what the economic model was thought of a few years ago was kind of a low or very minimal up single €“ low single-digit kind of comp growth for these businesses as they get out of the honeymoon phase, if you will. So, I guess my question to you is, do you think the store volume numbers you gave last year at the Analyst Day for a small, medium, large, would have you venue, are those kind of just €“ not obsolete, but kind of have €“ now have upside to where they should be on a more mature basis given what you’ve seen?

And then the other thing I wanted to ask about is you talked about, I think, in your remarks about these smaller venues where you’ve seen better costing to build. It almost feels like you can get more density with these units, i.e., could have more units in the United States than you may think or maybe have given us again last year at the Analyst Day. So, I just want to get your thoughts on how you think about that, the venue maturity curve or the top end of it and then long-term kind of unit density or unit opportunity for Topgolf. Thanks.

Chip Brewer: Sure, Randy. Yes. There’s a lot there. Let me take some of it in course here. So, first of all, yes, our expectations are €“ the results we’re delivering on same-venue sales, we’re very proud of. That was something that we had to solve when we €“ at the time of the merger and the team at Topgolf, I just want to commend them on doing an amazing job of delivering great consumer experiences. The brand is clearly building momentum. You’re seeing same-venue sales ramp up consistently, and it’s clearly an unlock for the business. The business is a much more profitable long-term opportunity than what we had originally expected as we are demonstrating our ability to drive attractive traffic, price, same venue sales growth, and open venue successfully.

The store volume numbers do have upside relative to what we presented at the Investor Day as our €“ I was looking back in preparation for the earnings call. And I think our initial expectation was low single-digit same-venue sales growth for last year. So, obviously, we continue to drive improvement. And then, yes, there is some real significance to these new types of models that we’re doing, Boise and Wichita being prime examples of that. They will unlock a lot more markets for us, more mid- to small markets specifically. There €“ we think they’re great consumer experiences. And when we talked about U.S. initially, we talked about 200 in a TAM for venue count. And we now believe that is 250.

Randal Konik: Super helpful. Thanks, guys.

Chip Brewer: Thank you, Randy.

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

Alex Perry: Hi. Thanks for taking my question. Just first, it seems like the Topgolf EBITDA may have come in a bit under your expectations in 4Q despite pretty strong same-venue sales number. What were the key drivers there? Was this weather-related impacting high-margin corporate events that sort of getting maybe pushed into January? And then also, the 2023 guide for Topgolf implies a nice increase in segment EBITDA margins. What would be the key drivers there? Is that some of the dynamic pricing, the labor productivity initiatives, the project Pi, what’s sort of driving the increase in the segment EBITDA margins for Topgolf in €˜23? Thanks.

Brian Lynch: Hey, Alex. This is Brian. I’ll answer the first question and then let Chip jump in on the second one. For the €“ in the Q4, the flow-through for Topgolf is not what we would normally expect in a normal quarter. But in this one, we had a lot of incremental preopening expenses. They opened six new venues in Q4 of 2022 compared to only one in the prior year. And then on top of that, this last year, we also launched the national marketing campaign down there, so you have a lot of incremental marketing expense related to that. And then there’s just some catch-up of overhead investment that we had done throughout the year that caught up by Q4.

Chip Brewer: And then, Alex, this is Chip. Relative to the guide, the miss at Topgolf was strictly weather. I mean, it was €“ they had a very extreme or majority weather, 70%, 80% of it. And in December, if you remember back, there was literally life-threatening cold weather in roughly the third week of December and broad swaths of the country. We had to shut down 30 venues and then another 18 were impacted. And so, that affected the revenue and the flow-through relative to the missed relative to our guide. And then when you look at the €“ in a strong EBITDA margin improvement and at Topgolf, you’re seeing that happen consistently by the way. That’s been continuing to leverage and scale. You are seeing it being driven by the same venue sales growth by the initiatives we’re putting in place with Pi and the ability to open the venue so successfully.

We’re optimistic on the marketing program contributing to that. And as mentioned, these venues are increasing their overall operating margin as well. So, a really virtuous cycle of good results from the venue business at Topgolf.

Operator: Our next question today will come from Daniel Imbro of Stephens Inc. Please go ahead.

Daniel Imbro: Yes. Hey, good evening, everybody. Chip, I wanted to follow-up actually on that last answer you gave to Alex’s question on Topgolf, can you be a little more specific? I’m curious when, timing-wise, you plan on implementing some of that dynamic pricing when Pi starts to go into effect on window timing. And then just are there any other labor productivity opportunities you guys have found now that you’ve had Topgolf under your belt for a year?

Chip Brewer: Sure, Daniel. So, Pi has been an initiative that the team has been working on now for a year-and-a-half. But it was only in 18 venues at the end of 2022. And as mentioned, we’re going to have it in all of the venues by the end of 2023. So, that will unlock increased reservation capability, increase the management capability, and improve operating margins. We think it’s a great opportunity. And we also think, in fact, we know that the consumer likes the ability to make these reservations and to know that they have a specific time to enjoy beta. So, that is a very significant driver of the improved results and we expect. But we’ve been driving improved operating margins. As we previously mentioned, the operating margins were historically EBITDAR at a venue, 29% when we acquired the business. We told you at the Investor Day, we thought we could exceed 32%. We have exceeded that, and we’re telling you we can now continue to drive further improvement.

Daniel Imbro: That’s helpful. Thanks. And then I wanted to just touch on the overall kind of company guidance. I think you raised it roughly, call it, $30 million at the midpoint. Obviously, FX has gotten better. I think the footnotes point to about $45 million of better FX from a few months ago. So, just kind of curious what the puts and takes are on the core business as to what maybe we’ve had a solid preorder sale paradigm, Topgolf obviously doing well. So, kind of what are the puts and takes in that core guidance ex FX that have changed from a few months ago?

Brian Lynch: Hey, this is Brian Lynch. The increase from the $600 million we previously guided to now really reflects all FX adjustments. If you bake in the FX rates, change in the FX rates, you bake in our hedging program, everything that’s the all-in number.

Daniel Imbro: I think, Brian, in the FX

Brian Lynch: So, you get to the guidance.

Daniel Imbro: Isn’t the FX $45 million better than a few quarters ago? So, I just was wondering what the core it looked like maybe drop of 10% to 15%, kind of what was accounting for that?

Chip Brewer: Well, when we said approximately 600, it was a little bit under 600 last time when we snapped the chalk line, but we were giving pre-guidance. And so, we’re within rounding of all of it being FX and all of it going into the number, Daniel.

Daniel Imbro: Got it. That’s helpful color. Appreciate it. Thanks a lot.

Chip Brewer: Yes. Thank you.

Operator: Our next question will come from Joe Altobello of Raymond James. Please go ahead.

Joseph Altobello: Thanks. Hey, guys. Good afternoon. First question on Golf Equipment. You mentioned you expect segment sales to be flat this year. I guess, first, how much benefit did you have last year from channel fill, trying to figure out how much you have to anniversary. And maybe secondly, how do you see the overall Golf Equipment industry spend in €˜23? Is it sort of flattish with last year as well?

Chip Brewer: Yes. Joe, good questions. We estimate that channel fill provided a one-time benefit last year of about $80 million to $100 million, and we won’t be furthering that this year. And then overall Golf Equipment, we’re expecting the market to be approximately flat there, maybe down a couple of points. We generally hold ourselves and our standard is to be a little bit better than the market we expect to do that again this year. But we think the market will have a solid year, although we’re not, at this point, forecasting significant growth for the industry at large.

Joseph Altobello: That’s helpful. Maybe on Topgolf, you mentioned a new format you’re seeing €“ you’re using in Boise and Wichita. How should we think about those additional 50 venues? Is that at the end of the plan? Or is that maybe 15 a year rather than 11?

Chip Brewer: No, we’re still holding to our 11 per year, but we just believe we’ll have more years of growth out there at this point, and they’ll scatter into the plan. We’re not going to break down when we’ll see large, mediums, or this new version into the mix. But €“ no real change in the number of venues, but a larger TAM and expect more opportunity for growth out of the business.

Operator: Our next question today will come from Michael Swartz of Truist Securities. Please go ahead.

Michael Swartz: Hey, guys. Good afternoon. I just wanted to touch on Toptracer range. I think you had about 7,000 bay installs in €˜22, and I think you’re calling for another 7,000 plus in €˜23. But I think at the time you acquired the business, you had expected something like 8,000 additions a year as kind of the run rate. Maybe it was a sense of why that’s been pulled back a little bit. Is that just €“ still just supply chain challenges? Or is there something more structural to why you’re not planning to grow that fast going forward?

Chip Brewer: Sure, Michael. Good question. So, you’re correct. We did just over 7,000 in 2022. We expect to grow that from that 7,000. So, that puts us within rounding of that 8,000 for this year, not a material change on our forecast for 2023. And we’ve had great success, in fact, exceeded our expectations on covered range bay conversions where sales have been outstanding. The ramp on the green grass market has been a little slower than what we initially expected. We’re making investments there. And it’s sort of what we’re finding a little bit like Golf Equipment. Green grass is a channel that just takes a little longer to get into, but it’s a really valuable channel, and we certainly have the infrastructure to do that. We think the PGA of America partnership and endorsement will help us on that.

The coaching platform that we introduced at the PGA show, where we’ll be able to partner with golf coaches, particularly PGA professionals will certainly lend us to that. And we still feel very good about the Toptracer business.

Michael Swartz: Thank you. And maybe just a follow-up question on Topgolf. I think you said it’s going to be another heavily weighted development year in the fourth quarter. Any way you can sense of €“ presumably, those won’t be extremely additive to 2023 from a revenue or profitability standpoint. But is there any way to think about the annualized benefit from your eight locations that would be going in, in the fourth quarter? Is that $200 million, $300 million? I’m just trying to get a sense of how much that would add to €˜24.

Chip Brewer: Patrick, you can jump in here, if you can correct me. But I think when we add them in Q4, they’re pretty neutral or negative on an EBITDA basis for the year because of the preopening expense and other start-up costs, if you would, preopening should cover most of that, but €“ so it’s not particularly additive on the bottom line for the year, but we obviously have the six that opened last Q4 that will be additive for the year. But the eight that are opening this Q4 probably don’t help us this year.

Patrick Burke: That’s right. And maybe, Michael, what it does add the next following year, right? We don’t have a perfect way, but we told you what a representative venue does from a revenue and a four-wall margin. The ones that we’ve opened in €˜22, and we told you in €˜23, a little larger than a representative, and we also tell you that the first year is €“ generally, the first full year is one of their best years. So, you could probably use some of that to help you understand what that next year’s impact of those new venues at the end of the year would be.

Operator: Our next question today will come from Casey Alexander of Compass Point Research and Trading. Please go ahead.

Casey Alexander: Hi. Good afternoon. I would check your guidance for the first quarter looking for order cancellations from Kansas City Country Club based upon what you

Chip Brewer: I knew we took a little risk there. So, we love all the Midwest as well, Casey, for the record.

Casey Alexander: A lot of good questions have already been asked. I’m going to ask a couple more. In light of your sort of flattish year-over-year Golf Equipment guidance, but you’ve got great market share growth and now covered $300 million in Golf Ball. And Golf Ball is such a volume-driven business, as the volume goes up, the margins expand dramatically. How do you push that business further and get it €“ you took a long time to go for 15 to 20? How do we now go from 20 to 25? And what could that do to profitability on the Golf Equipment side?

Chip Brewer: Yes. You got great points there because we’ve been really proud, Casey, of how we have steadily grown that market share over six, eight years, right? So, this has been a prolonged run of continual growth in market share in the Golf Ball. We now are just over $300 million. We’re record over 20%, which is a cool threshold. And we’re hopeful that we’ve had momentum in that space and doing the things that we’ve done over the last several years continuing on the path will deliver that same level of steady three yards in a cloud of dust growth. And that growth also tends to stick with you when you do at that. We’re building great relationships at green grass. We’re building and have invested quite a bit into the Chicopee facility to build what we think is the best Golf Ball in golf.

The Jon Rahms, the Xanders that are using it on tour. We’re obviously working and investing in new capabilities. So, we’re very committed to the business, excited on the results, and we think that the formula that we’ve used over the last several years will be €“ will continue to serve us well going forward.

Casey Alexander: And my follow-up is €“ I’m curious about your comment about Toptracer. Because obviously, at the PGA show, you made a very great effort to connect Toptracer with the PGA professional. But is the difficulty at green grass the fact that he’s often not the decision-maker, right? I mean, the decision maker on capital expenditure, things like that is often a committee, and committees can be a lot harder to convince than an informed single decision-maker.

Chip Brewer: No, you’re right. And that may be one of the things that we’ve learned over the last year because that’s where our business has gone a little bit slower than what we anticipated. But as you could tell at the PGA show, Casey, we’re connecting with the PGA professional. There’s an energy around that business. It makes sense. It is going to be the future of driving ranges, both covered and uncovered. And although the Director of Golf or the PGA professional may not be the only decision maker as momentum builds around range conversions and our product and relationships get stronger, it’s certainly nice to have a strong advocate there.

Operator: Our next question will come from Eric Wold of B. Riley Securities. Please go ahead.

Eric Wold: Thank you. Two questions, I guess. One, following up on the rollout of the reservation and variable pricing system throughout the network by the end of the year, how should we think about the cadence of that rollout during the year in those venues coming online? Maybe kind of what benefit you baked into guidance in terms of when that happens and how much benefit this year versus maybe more of it next year depending on that timing?

Chip Brewer: I think, to the best of my knowledge, Eric, it scales throughout the year. So, we only had it in 18 venues will €“ it will go in almost on an equal-by-quarter basis throughout the year.

Eric Wold: Got it. And then second question, you saw an email promotion today kind of one of the more recent ones been offering a bonus in TravisMathew for spending at Topgolf. Maybe talk a little bit about where your focus this year and kind of boosting awareness kind of between the various customer groups of the different brands, I mean, to kind of drive initial revenue synergies between the segments? Is there a different focus this year? Or kind of where were you putting your attention?

Chip Brewer: Yeah, Eric, thanks for noticing that, and I’d highly recommend that you might want to take that up for the loved ones in your life. That’s a promotion where if you buy a €“ I think it’s a $50 gift card for bay time at Topgolf and what Valentine wouldn’t love that. You get a $25 gift card for TravisMathew, his or hers. So €“ but it’s a great example of cross-brand promotion that we have such a wonderful opportunity of €“ but we’re building out the digital assets for that. The marketing teams are coming together. Early days, you would see some logo exposure putting Topgolf on Jon Rahm’s sleeve, our tour bags, you’ll see more and more opportunities where we’re able to cross-promote different loyalty programs. We had our launch event at a Topgolf for paradigm drivers. It’s just an exciting opportunity to use the power of these brands together. And we’re going to continue to lean in on that.

Operator: Our next question today will come from George Kelly of ROTH MKM. Please go ahead.

George Kelly: Hey, everybody. Thanks for taking my questions. So, first one is just you ended the quarter with close to $1 billion of inventory. And I’m just curious, what is a normalized level? And when do you think you can get there?

Brian Lynch: George, you’re right. Inventory is up currently year-over-year at the end of the year. Almost all of that is €“ a great percentage of that is current year product. It’s just arrived earlier than expected with the supply chain channel €“ challenges earlier with the pandemic, people started pushing product, ordering product earlier to make sure we get it. And then all of a sudden, the supply chain caught up and shipped it earlier. But it’s all current and you will see start to normalize in the back half of the year. Our days in inventory on hand are just slightly higher than pre-pandemic levels. And we feel good about it. So, it just has to work its way through as we launch product.

George Kelly: Okay, understood. And then second question, I’m just trying to understand the reservation sort of rollout of the better. So, a few topics I was hoping you could maybe cover a little more in detail. But the team that you’ve already implemented this system, and can you quantify what you’ve seen at all? I’m assuming it’s mainly a pricing impact so far, but any kind of quantification would be helpful. And then secondarily, when you put this system in place, is there a lot of kind of education that you have to do to consumers or do folks know about it? And is there still a lot of like several years of kind of penetration as you educate your customer base about it? And so, it’s not just that it needs to roll out everywhere. It really needs to sort of €“ there needs to be an education process as well that will take longer.

Chip Brewer: So, in terms of the education, in terms of the metrics, George, we’re not going to, unfortunately, give you specifics on those, but we have seen improvements in the venues where we put this in, both in sales metrics. So, if you would, it’s more better same-venue sales, better bay utilization, bay turn times, et cetera., and improved consumer satisfaction. So, we see very tangible and attractive metrics from it. And I think your point on the education is very sound and a good one. So, it requires some education of the consumer. But it also requires a lot of training and education from the playmakers, right, because it’s a whole different way of doing business. It’s reserving a bay time getting a different methodology where you €“ we have to have the consumer understand that they have the bay for a specific period of time.

They don’t stay indefinitely, but you reserve to have a two-hour block, if you would. We’ll have to have the consumers be aware that they can make these reservations. They want to do so because the biggest complaint that we had at Topgolf, and I know this sounds silly, but it’s €“ was that the weights were too long. And so, for a person like myself, I don’t want to wait four hours to go anywhere, quite frankly. And the €“ if there’s an opportunity to reserve that time, even if they charge me a little bit more for it, I’m all in and I think many are. But we’re going to have to teach the team to €“ how much to release in terms of the reservation system anyway. I got to tell you that the Topgolf team is embracing it. They fully understand the attractiveness of this, and both the management and the playmakers are just doing a wonderful job.

We couldn’t be more proud of them. They’re making a big difference. They’re continuing to delight the consumer and now they’re transitioning in some of their approaches consistent with this Pi, and we think it’s a great unlock for us.

George Kelly: Thanks.

Operator: And at this time, we will conclude our question-and-answer session. I’d like to turn the conference back over to Chip Brewer for any closing remarks.

Chip Brewer: Well, I want to just thank everybody for their time. Obviously, Brian and I are diehard Eagles fan. So, we’re routing on one side of the equation this Sunday, but we hope everybody has a great Super Bowl weekend, and we look forward to updating you on the start of our year on our next call. Thank you so much for attending this one.

Operator: And the conference has now concluded. We do thank you for attending today’s presentation. You may now disconnect your lines.