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Good day, and welcome to the Topgolf Callaway Brands First Quarter 2023. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] 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.

Thank you, Dave, and good afternoon, everyone. Welcome to Topgolf Callaway Brands First Quarter 2023 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 and Chief Legal Officer. Earlier today, the Company issued a press release announcing its first quarter 2023 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. And with that, I would now like to turn the call over to Chip Brewer.

Thank you, Lauren. Good afternoon to everyone on our call, and thank you for joining us today. Our business is off to a strong start with first quarter revenue and adjusted EBITDA coming in ahead of our expectations. The outperformance was driven largely by continued operational momentum at the Topgolf venues as well as a strong launch of our Paradym family of clubs. Looking forward, there is certainly some macroeconomic uncertainty around the world. However, across all of our business segments, our core consumers remain engaged, and we continue to believe our portfolio of brands is positioned to drive further growth in both revenue and profitability. We believe we are uniquely positioned to do this by meeting our consumers in a diverse set of an environment that they are highly passionate about, be that on-course, off-course or in their active lifestyle. This certainly includes leveraging the synergies inherent in our leadership position in both on and off-course golf, what we like to call Modern Golf. Turning to Topgolf specifically, and I believe this is perhaps the key point investors should take away from today's call, the team's various initiatives, combined with their brand momentum, have both made us increasingly confident in our ability to drive long-term same venue sales growth, and we are now pleased to be able to communicate even higher venue profitability expectations. This increased confidence and updated expectations have obvious and significant positive implications for the long-term value of our company. Shifting to our segment overview. I'll first start with Topgolf's results. The Topgolf venues business had another great quarter, outperforming our expectations for both revenue and profitability. Owned venues delivered 11% same venue sales growth over Q1 last year, driven by continued brand momentum, increased digital access through PIE, our inventory management system, and our new marketing initiatives. Adjusted EBITDA exceeded expectations due to continued improvement in operational efficiencies. We will speak more on this operational efficiency improvement in a moment. From a development perspective, we opened one venue during Q1 in Charleston, South Carolina, and it opened very strongly. We remain on track to open 11 new owned and operated venues in 2023 with one scheduled to open in Q2 and the balance coming in the second half of the year. And Toptracer also had a successful quarter with over 1,550 bays installed compared to approximately 1,160 last year. For the full-year, same venue sales is now forecast to be up mid to high-single digits, a little lower than we thought when we spoke with you in February due to corporate events trending lower starting late in Q1. Our corporate business was strong to start the quarter and is still expected to be at approximately 2019 levels for the full-year. However, with the March banking crisis and what we believe is a trend towards many companies further reducing corporate spend, we viewed it as prudent to lower our balance of year corporate sales expectations versus our original budget. We view this revision as a reflection of near-term volatility and not a long-term concern over the viability of our corporate sales channel. And importantly, our walk-in and small events business, which is the consumer-driven portion and accounts for 80% of venue revenue, has remained robust. Like our underlying operating efficiencies, this walk-in and small event business will also benefit from the continued rollout of PIE, marketing and other key initiatives through the balance of this year and next. As a result, we remain confident in our Topgolf earnings forecast for this year and have increased confidence in our ability to continue to deliver sustained same venue sales growth throughout business cycles, something we recognize we must prove to the markets and we hope that our six consecutive quarters of delivered same venue sales growth is starting to do. Digging a little deeper into the digital access and marketing improvements of the venues. I want to highlight some of the early success metrics, starting with Topgolf's come play around marketing campaign. Our goal is to increase awareness, primarily in markets where we have existing venues, but also more broadly given our growing national footprint. We are happy to report that awareness in market has increased to 48%, up from 41% a year ago and 38% as recently as December 2021. PIE, our digital inventory management system, is also showing very promising results. As of the end of March, we had implemented PIE in 36 venues across the U.S. with the expectation of being in all U.S. venues by the end of 2023. Venues with PIE in place have seen increased bay utilization, same venue sales growth and profitability. With the help of PIE, the team grew the digital penetration of our venue business by a couple of points again last quarter, ending at just over 30%. The opportunity to further drive awareness and our digital runway are clear priorities for the Topgolf team. The results are paying off and there is significant runway ahead to grow top and bottom line through these efforts. I'll now turn to venue unit economics. To further underscore the progress we have made as well as our confidence in the Topgolf venue business going forward, we are now updating the target venue unit economics and return metrics. As you'll see in today's investor presentation, we are now targeting 35% four-wall adjusted EBITDAR margins, up from 32% previously, and a 2.5-year payback period, down from just over three years and a 20% return on gross investment, up from approximately 17.5%. With these changes, we also increased our cash-on-cash return projection from 40% to 50% to 50% to 60%. In my opinion, the updated adjusted EBITDA margin target is the big headline this quarter. It shows an approximate 10% improvement in the venue four-wall profitability versus the targets we published in early 2021 and nearly a 21% improvement versus actual results prior to our merger. This new target reflects the progress we've made on a lot of fronts, including further improving our pricing and digital reservation strategies, pay inventory and labor management, cost of goods sold, and of course, our confidence in driving long-term same-venue sales growth. These are sustainable long-term changes that will benefit our long-term outlook. If you have been following our story, you know we strongly believe that our top capital allocation priority is investing in the profitable growth of our business and that the largest portion of this is the investments we make in our venues. Given these newly disclosed targets, we have even more conviction that this investment strategy will generate outstanding shareholder returns. Moving to the Golf Equipment segment. I'm very proud of the performance of our new Paradym line of clubs. The entire line is doing extremely well and delivering rave reviews from consumers. We launched Paradym in late February, and in the very next month, the Callaway brand jumped to the number one U.S. brand position in the driver, fairway wood and irons categories according to Datatech. The Paradym driver in particular continues to outperform, both on tour and in the market with eight wins on the PGA Tour year-to-date, and finishing the month of March as the number one selling driver model in the U.S. From a brand perspective, Jon Rahm's historic success at the Masters was an incredible and highly visible moment for our business with over 12 million viewers, making it the most watched golf telecast in five years. We congratulate Jon and are thrilled to be partnering with him on what is a terrific run of great play. On the women's side of the game, Rose

Thank you, Chip, and good afternoon, everyone. As Chip mentioned, 2023 is off to a strong start, and we are very pleased with our first quarter results. Demand remains healthy, inventories are receding, and our debt refinancing was very successful, putting us in a good liquidity position with funded debt levels at approximately 2.3x. And even more importantly, the long-term profitability of and the corresponding shareholder value creation opportunity related to the Topgolf business is turning out to be even more successful than we expected. Let's now turn to our results. Our first quarter results include net revenue of $1.16 billion, a year-over-year increase of 12% or 15% on a constant currency basis, led by 11% same venue sales growth at Topgolf and a 28% increase in Active Lifestyle revenue. We achieved this sales growth despite a $29 million negative impact from changes in foreign currency exchange rates and an $80 million to $100 million fill in, in retail in the golf equipment business that occurred during the first half of 2022. The first quarter non-GAAP operating income was $91 million, increasing over 2% on a constant currency basis, or down 14% currency impacted. We are pleased with this performance given the tough year-over-year comparison for the golf equipment business as we anniversary the post-COVID retail channel fill in during the first half of 2022 and the investments in labor and marketing we made in the Topgolf business, which I will touch on further in a minute. Net income decreased $37.7 million on a non-GAAP basis, which is ahead of plan. This decrease includes an $18.6 million increase in interest expense related to higher interest rates and increased interest related to new Topgolf venues and $17.3 million of negative foreign currency translation as well as a $7.2 million decrease in other income net hedge gains. Lastly, Q1 adjusted EBITDA was $157 million, up 3% on a constant currency basis or down 7% currency impacted. The result was ahead of guidance we provided with our Q4 earnings with the outperformance largely attributable to the successful Paradym launch, improved supply and increased venue profitability at Topgolf. Now turning to our segment performance. In Q1 2023, Topgolf contributed $404 million in revenue, a year-over-year increase of 25% or 26% on a constant currency basis, driven by both strong same venue sales growth and better-than-expected performance in the non-comp newly opened venues. Topgolf's segment operating income decreased $3.7 million or 132 basis points of operating margin due to the planned increase in expenses we discussed last quarter, including marketing expenses related to Topgolf's new marketing awareness campaign and the full impact of the investments in labor in the second half of 2022. Combined, these investments added over 300 basis points of headwind in the quarter. The underlying profitability of this business remains strong without the impact of these targeted investments on the seasonally low first quarter, operating margin would have increased nicely. Adjusted EBITDA for Topgolf was $48 million, up approximately $6 million compared to Q1 2022, and our guidance due to outperformance in the venue business. Golf Equipment generated $444 million in revenue, down 5% over Q1 2022, or just over 1% on a constant currency basis. This was a better-than-planned result given the retail channel fill in I previously mentioned. Segment operating income decreased 19% to $82 million versus Q1 2022, primarily due to foreign exchange rate impacts. Constant currency gross margin also grew, up 140 basis points in the quarter with pricing and decreased freight expenses more than offsetting other inflationary pressures. Lastly, our Active Lifestyle segment revenue for the quarter was $320 million, up 28% or 32% on a constant currency basis year-over-year. Segment operating income increased 40% to $37 million. This increase was led by strong performance of the TravisMathew and Jack Wolfskin brands and favorable freight costs, which more than offset unfavorable foreign exchange rate impacts and inflation. As we turn to the balance sheet, I'd like to highlight the debt refinancing we completed in March. Overall, the transactions added over $300 million of additional liquidity, reduced our cost of debt, and extended maturities of our credit facilities, thereby simplifying and strengthening our capital structure. While we have some increased debt and interest expense in the short-term related to the upsizing of the term loan, the additional liquidity gives us flexibility on how to finance Topgolf venues, and therefore, over the long-term, the amount of incremental debt and interest expense should be the same or lower than if we had not upsized the term loan. More specifically, we entered into a new $1.25 billion seven-year senior secured Term Loan B. A large portion of the proceeds were used to refinance both the Callaway and Topgolf Term Loan B, and the Topgolf revolving credit facility, all of which have been paid off and no longer exist. We used the balance of the proceeds to pay down our ABL facility. We also upsized and extended the existing Topgolf Callaway Brands $400 million ABL with a new five-year $525 million senior secured ABL revolving credit facility. For the debt we replaced as part of the refinance, the payback was under two years and generated go-forward cash savings of over $12 million per year. Those savings are being offset by the additional liquidity we added, causing interest expense to be higher in 2023 than what we assumed for guidance in our Q4 earnings call. Moving to the balance sheet. As of March 31, 2023, available liquidity, which is comprised of cash on hand and availability under our credit facilities, was $626 million compared to $576 million at March 31, 2022, and $415 million at December 31, 2022. At quarter end, we had total net debt of $2.210 billion, excluding the convertible debt of approximately $258 million compared to $1.457 billion at the end of Q1 2022. This increase relates primarily to incremental new venue financing and replenishment of working capital for the non-Topgolf business. Our net debt leverage, which excludes the convertible note, was a better-than-expected 4.1x at March 31, 2023, compared to 3.0x the prior year. The year-over-year increase was due to the new venue development and increases in working capital. We expect the new debt leverage ratio will increase slightly in Q2 and then decrease in the second half as the business generates free cash flow. Consolidated net accounts receivable was $455 million as of March 31, 2023, compared to $413 million at the end of Q1 2022. Non-Topgolf DSOs were approximately flat year-over-year. Our inventory balance increased to $930 million at the end of the first quarter of 2023 compared to $552 million at March 31, 2022, but down from our December 31, 2022 balance of $959 million. We are still on track to be at more normal levels of inventory by the end of the year. The strong start to the golf equipment segment and continued momentum of the Active Lifestyle segment gives us increased confidence in this. The quality of the inventory is good as older inventory was generally cleaned up during the pandemic. Capital expenditures for the first quarter were $70 million, net of venue financing reimbursements. This includes $51 million related to Topgolf. For full-year 2023, we expect total company CapEx of $270 million, including $190 million from Topgolf, which is net of venue financing reimbursements. Now turning to our balance of the year outlook. We are increasing the midpoint of our full-year 2023 revenue guidance, resulting in a new range of $4.42 billion to $4.47 billion, an increase in the midpoint of our adjusted EBITDA guidance, resulting in a new range of $625 million to $640 million. We are also increasing the Topgolf adjusted EBITDA outlook to $315 million to $325 million, to reflect the increased profitability at the venues, even with a slight decrease in same venue sales expectations. For the second quarter of 2023, we estimate revenue to be within the range of $1.175 billion and $1.195 billion, up from Q2 2022's reported $1.1 billion. We expect Topgolf segment revenue to be within the range of $475 million to $485 million, with same venue sales growth of flat to up 4%, and continued strong performance in the non-comp new venues. As a reminder, Q2 2022 was a strong quarter for Topgolf given the pent-up demand amid Omicron-related shutdowns in Q1 last year. We estimate Q2 adjusted EBITDA to be within the range of $195 million to $205 million, slightly down from Q2 2022, which assumes the Q2 adjusted EBITDA for the Topgolf segment to be within the range of $87 million to $93 million, up slightly compared to last year. Like the first quarter, second quarter year-over-year comparisons will be impacted by the 2022 retail channel fill in, in the golf equipment segment, and the investments in Topgolf labor and marketing expenses I mentioned earlier. The skewed year-over-year comparison should moderate in the second half. Overall, we feel good about our business. While we are cognizant of the macroeconomic uncertainty around the world, the fundamentals of our business remain strong. Topgolf venue development and same venue sales growth remain robust. We are not seeing a reversion in golf. Our Active Lifestyle business was up significantly for the first quarter, and Topgolf and the total company are on track to be free cash flow positive well ahead of our forecast at the time of the merger. Finally, and most importantly, we are well on our way to achieving the increased venue profitability targets Chip mentioned earlier. Achieving these new targets should result in a higher enterprise valuation over the long-term. That concludes our prepared remarks today, and we will now open the call for questions. Operator, over to you.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Daniel Imbro with Stephens. Please go ahead.

Good evening, everybody. Thanks for taking our questions. I want to start on the Golf Equipment segment. Obviously, your commentary around Paradym seems encouraging. But I do think the Golf Datatech data, I think retail sellout was a little bit weaker in the first quarter. I guess, can you talk about any feedback from the channel, how are inventories positioned heading into 2Q? And maybe could you reconcile that with a little bit lighter 2Q profitability outlook on the core golf side. Is that due to any weaker retail data you're seeing? Kind of can you talk to the 2Q guide down a little bit, it would be great?

Sure, Daniel. In terms of the start to the year in the market, you're correct, it was a little slower than what we had initially expected, which was flat to down slightly, but not too far from that either. So the big news there is that the participation is hanging in there very strongly and that the business appears really solid from our perspective. And then on top of that, we have good momentum in our brand and in the Paradym line of clubs specifically. Inventories, as we've talked about now for some period of time, have caught back up to more normalized levels, and they're certainly there now. They're not particularly high, but they're no longer low out there. So much more of a more normalized operating environment there. And then in terms of the last question, Daniel, was really around the profitability of I think what you said was the Golf Equipment legacy business relative to Q2, and we don't really provide any guidance specific to segment other than the Topgolf segment on a quarterly basis, but we've been very pleased with the profitability of the golf equipment business. Our margins are remaining strong and are candidly trending to be up on a year-over-year basis. And we feel good about our position in that segment as well as the others.

And Daniel, just remember, in Q2, you'll still be lapping the retail channel filling from last year a little bit, and currency will have a little bit of a negative impact on that business.

Thanks for that color. And maybe a follow-up just on Topgolf. I think the same venue sales continue to impress, up 11%. If I remember right, last year you guys were working on a technology to maybe bring down wait times and drive utilization. Any update there or any quantifiable benefits? And is that what's driving this uptick in site level profitability? Or can you provide more color on the specific initiatives already the team have succeeded with on driving that lower productivity?

Yes. So the biggest metric that we highlight is that PIE initiative. And that's really a digital reservation strategy that has broad-based improvement in the business. It's not the only thing that the team is working on. So the team has been doing just great work across broad spectrums on pricing and the labor utilization, cost of goods sold optimization, et cetera. But this digital strategy around PIE that we're rolling out now, we have in 36 venues as of the end of Q1, is showing great promise. And we see same venue sales growth as well as improved operating efficiencies in the venues when we put that in. As we ramp that throughout this year, we are expecting further positive benefits from that.

And any quantification on the type of throughput uplift so far on the 36 sites?

Quantification enough for us to raise our overall venue economic targets along the way that we just articulated, Daniel. So a 10% improvement in our target venue unit economics relative to what we provided in 2021, and 21% higher than at the time of the merger.

Great. Well, thanks so much for all the color and best of luck.

Thank you.

The next question comes from Randal Konik with Jefferies. Please go ahead.

Yes. Thanks guys. Back on the Topgolf site level profitability uplift. How much of that do you think is coming from just better out of the box or out of the gate performance on kind of revenue production from the non-comping units as the awareness is going up as you're densifying some of the units, I'm sure, in some markets or starting to happen underway? And then how much of it is also a function of – you previously thought that the maturity level from a revenue perspective would be X, but now it seems like it's Y, meaning a higher maturity level of revenue. So can you give us some perspective just both on, let's say, new and mature, where it just seems like you're driving better-than-expected revenues faster on new and then just higher revenues on the mature level units? Thank you.

Yes, Randy, it's really all of those things. So what we're seeing at Topgolf and we have seen now for an extended period of time is just a steady drumbeat of improved operating efficiencies. The new venues opened very strongly and consistently over the last one and half years, two years. So our confidence in those venues has increased. And we're doing that in big coastal markets, and we're doing it in small markets in the center of the country. So we're obviously feeling very good about that. But the fundamental operating improvements that we're talking about with PIE and labor efficiency and cost of goods sold that are driving these higher venue economics and also giving us more confidence on driving long-term same venue sales growth, that's not specific to new venues or venues of any particular type. We're seeing it broadly. And as mentioned, we believe it's a significant change that we're now comfortable baking into expectations and highly confident that we have a sustainable change there.

And then any other more specifics, lastly, around progress on Toptracer installs? And then anything that you could flesh out between the sales performance of Jack Wolfskin versus TravisMathew growth in the quarter, because I don't recall you giving that exact number? Thanks

Yes. So on Jack Wolfskin and TravisMathew, they both had phenomenal quarters, up double-digit growth, and so really equally positive quarters for those two brands. And then on Toptracer, we're really seeing more of the same in terms of what we've seen. The ranges that put in Toptracer continue to have rave reviews. They continue to have great economics and very fast economic paybacks on that. We've been ramping our capabilities there in terms of installation and the sales infrastructure. We are very excited about our partnership with the PGA of America. We're working on a new coaching platform that will be partnering with them on and that will be coming out later this year, which will allow us to really make the product more embedded and sticky across all venues that have access to a PGA professional. So lots of good things and momentum going on in the Toptracer business as well as many of our businesses right now.

Helpful. Thanks guys.

Thank you.

The next question comes from Alex Perry with Bank of America. Please go ahead.

Hi. Thanks for taking my questions. I think in the guidance, you removed the Golf Equipment versus apparel composition. Are you still expecting Golf Equipment to be roughly flat year-over-year in 2023? And then also, I think FX in the prior guide was a $20 million headwind to EBITDA. What are you sort of expecting now for FX? Thanks.

Sure. Alex, on the first one, in terms of Golf Equipment, no meaningful change on our expectations for the category. As mentioned, the category opened a little bit softer, but not meaningfully so. And our performance is a little stronger. So no change at this point of the year. And then on the FX, Brian, do you want to take that one?

Yes. It's still about $50 million revenue for the full year. Yes, $50 million of revenue. It will be a headwind in Q2 again, and then it gets better in Q3 and Q4.

Perfect. And then I guess just my follow-up. So 2Q EBITDA is expected to be down year-over-year. So the guidance implies a pretty significant acceleration year-over-year in 2H EBITDA. I guess maybe could you just lay out the big drivers that caused the acceleration? Is it mostly just easing comps from the channel refill? And then the 0% to 4% same venue sales guidance in the second quarter versus the mid to high single-digit comps for the full-year, I guess, are expected to probably accelerate in the back half too. What would be driving that? Thank you.

Sure. On the comps, if you look at the first half and take the total first half, I mean, I generally don't compare against consensus, but we're pretty much right on consensus for that. It's just we had more improved supply and we shipped more in the first quarter than second quarter, but I think for the first half, it's about right. And then in the second half, you're right, it is to get easier comps for the labor investments, for the marketing expenses in Topgolf, and then the retail channel fill in that occurred in the first half last year. So those get easier comp so well and the FX gets easier.

And then I'll jump in on the second part of that question, which was, I believe, related to the same venue sales expectations for Q2, and why those were lower and then ramped back up. And I'm sure you see this in a lot of the businesses that you're covering now. But there's a lot of noise in the year-over-year comps by quarter still. A lot of this is still post-COVID wonkiness, if you would, of when different businesses opened up. And for instance, last year, in Q1, the beginning part of the quarter, Omicron was still out there a little bit. It feels like that was a long time ago, but that was an impact in the Topgolf business at that time. Later in the quarter in Q1 and into Q2, there was really a little bit of a surge, and that surge in small events and a little bit of walk-in makes that Q2 and Q3 comp the hardest comp that we'll have for the full year. I'll give you one metric on that just to give you some perspective, and that's social events. So those are small events, birthday parties, that type of thing, generally a 2-bay activity. That's been a great piece of new business for us, but we're forecasting that down slightly in Q2 this year. But even if it's down in Q2, when you look at it on a two-year stack, it's going to be up. We're looking at it just off of 2019, let's put it that way, it's going to be up 60% to 70%. So what is down in one quarter is 60%, 70% up versus the last time we didn't have the noise around post-COVID environment. So that's just the type of thing we're dealing with on a quarter-over-quarter basis. Our consumer demand is forecast to stay strong. We have upside from the PIE, marketing and other initiatives that will ramp during the year, and you're seeing that in our guide.

Perfect. That's really helpful. Best of luck, going forward.

Thank you.

The next question comes from Michael Swartz with Truist Securities. Please go ahead.

Hey, everyone. Good evening. Just a point of clarification on the Topgolf same venue sales guidance that you updated tonight. I think, Chip, you had mentioned that group and corporate events are the largest reason, at least, that you're taking that down a bit. But I didn't hear, are you expecting to walk-in – or have you changed your assumption for the walk-in and small group businesses for the year as well?

We have not. The solo rationale for the change in the full year forecast is the corporate forecast. We lowered our full year corporate forecast based on some trends we saw and what we're hearing, which I already articulated.

And are you taking any measures just given the expected softness in that channel, taking any measures to reduce costs in the near term as well?

As we mentioned, we feel very good about our EBITDA forecast, and we also have upside from some of these initiatives that I've mentioned, PIE, our marketing, other operational initiatives that are going to ramp through the year. And we'll obviously keep our eye on the market and develop other contingency plans if needed. But at the moment, we remain confident on our earnings ability coming out of that business. And candidly, you've seen it, the operating performance of that business has a one steady consistent trend.

Okay. That's helpful. And then just with regards to the new long-term return targets that you presented this evening, maybe give us some context of where you are today with some of those metrics and maybe how you see that ramping over the next 3 to 5 years?

Sure. We're now operating just behind these metrics, and we expect to be able to achieve these metrics in the next year to two at max.

Okay. Great. Thank you.

The next question comes from Joe Altobello with Raymond James. Please go ahead.

Thanks. Hey guys, good afternoon. Let's go back to the Topgolf and the same venue sales outlook for a second. And just to clarify on the softness in corporate events, can you remind us how big that piece is in terms of the overall venue revenue, particularly outside of 4Q, because I think that's a big 4Q piece, but I don't think it's as big in the first half?

That's correct. It's biggest in Q4, and it's ballpark 20% of revenues for the full year.

Okay. And in terms of the softness you're seeing there, is there any particular geography that it's happening? Or are you seeing this across the U.S?

We're seeing it across the U.S. It really started in the March time period. And it's enough that we're adjusting our estimate for the full year down what I think is modestly from high-single digits to mid- to high-single digits. Not enough that we're adjusting any of our EBITDA forecast. And also, I want to reiterate that I said that I believe we're going to be at or approximately 2019 levels as well. So I don't want to give you the impression that this fell off a cliff or anything. Just enough early in the year that we wanted to adjust the full year forecast.

Understood. Okay. Thank you.

Thank you.

The next question comes from George Kelly with ROTH MKM. Please go ahead.

Hey, everybody. Thanks for taking my questions. So two for you. The first one on your balance sheet. I think you said in your prepared remarks that you expect your net leverage ratio to decline in the back half of this year. So I was just curious if you could specify where you expect it to end the year? And then following this year, how quickly should you delever?

Okay. George, we do expect to just pick up a slight bit in Q2 as we added another venue for Topgolf in Q1. But as the year goes along, we'll delever a little bit there and the leverage should come down in the 3.5x range. It could be a little more less, but probably around there from the 4.0x – I mean the 4.1x.

And then can you talk about post 2023? Like what should this look like in 2024 or 2025, not to be too specific, but I assume it will continue to delever?

Yes, we will. As we generate cash flow this year and then we're going to generate more cash flow next year, this kind of delevers pretty quickly and a lot improves, but we're not going to give a specific forecast.

Right, George. This is all – the transition to free cash flow positive has a lot of ancillary benefits for the business, and you're identifying one of them.

Excellent. And then second question for me. A lot of moving parts just with respect to Topgolf and this updated margin forecast in Golf Equipment, et cetera. So just curious if you still feel comfortable with the longer-term plan, the 2025 plan of $800 million of EBITDA?

Yes, not only comfortable, as I mentioned, we have increased confidence in it. When we gave the targets for 2025, we were operating under the guise of a lower venue unit economic performance at Topgolf. So increased confidence in meeting or even beating that 2025 target.

Okay. Excellent. Thank you.

Next question comes from Eric Wold with B. Riley Securities. Please go ahead.

Thanks. Good afternoon. So you talked about one of the reasons why you're more confident in the Topgolf business being the PIE, platform implementation, and better efficiency stabilization, reservation system kind of flowing through. Remind us, does that also include dynamic pricing at the base? Or is that something separate? And if it is included, maybe talk about what you've seen so far with the test of that in terms of maybe a range from the baseline that consumers are kind of willing to accept there?

Sure, Eric. It does include that. It is embedded in there some dynamic pricing. So we can – effectively, PIE gives us the ability to do reservations more effectively and plan our labor more efficiently, et cetera. And we're able to, therefore, experiment with different pricing levels for some of those reservations and peak times, et cetera. We're not going to get into the relative price sensitivity, et cetera, that we've gone through in some of the models of that. But I can tell you from what we've seen thus far, the consumer is pretty engaged and we're not seeing the consumer being especially price sensitive. We've taken price at both the game and food and beverage multiple times. And the same venue sales growth has continued to move very positively. And when we're charging, if we might, for a reservation at a peak time or at a peak floor, et cetera, giving the consumer that option is a tried-and-true approach that appears to have upside and would be, we believe, beneficial to the consumer.

Got it. Thank you very much.

Our next question comes from Noah

Hi. Thanks for taking my questions. Not to put too fine of a point on it, but as it relates to the same venue sales guide, how should we think about the cadence of the rollout of PIE moving through the year? Any opportunity to kind of pull that forward in terms of benefiting the base more quickly? And then just one on the apparel side. Obviously, apparel retail, the channel continues to be fairly challenged. So how are you feeling about the promotional environment there as well as the inventory position at TravisMathew? Thank you.

Sure. Okay. So the first one, if you know, going back, we had 18 venues with PIE at the end of last year. We're at 36 now. So we've installed 18 during the quarter. If we do that going forward, that would put us right at all of U.S. venues by the end of the year. We'll obviously go as quickly as we can, but that cadence is a reasonable cadence and this is another one of those things we want to do it right. You'd like to do it fast, but you better do it right. And so we're pleased with that, and we'll go as quickly as we can and have already kind of baked that into our expectations. On the apparel side, the apparel inventories in the market are a little bit high in general. But the brands all have momentum and they've had good quarters, and TravisMathew in particular has good momentum. So it's going to be a more normalized promotional environment for the year, but we have high confidence that you're going to see or we're going to see strong growth at TravisMathew. They had an exceptionally strong quarter and we expect it to continue to grow both top and bottom line.

Thank you.

The next question comes from John D. Kernan with TD Cowen. Please go ahead.

Great. Thanks for taking my question. Brian, can you talk to the financing needs of Topgolf given maybe some of the interest expenses coming in higher than what we had initially anticipated? And it looks like landlord financing in the presentation that you gave is also going to be higher at year-end. So how do we think about the overall financing of Topgolf unit growth going forward?

Sure. We typically use refinancing, and that remains certainly a viable path, and we continue to use that. We haven't seen pressure in the cap rates. We have a good relationship with our partners. That's all remained strong. What the financing does, though, taking the extra, besides just giving us more liquidity, would be to allow us flexibility on how to finance those venues, whether you do it before or after or some other method. So it really just provides a lot of flexibility to us.

Got it. Maybe one quick follow-up to that. Is CapEx sustainable at these levels because as working capital normalizes and your EBITDA continues to grow, if CapEx were to stay at these levels, there would be a lot of free cash flow. I'm just curious, is this the new run rate of CapEx going forward?

It's pretty close. I mean, it's probably just a few million lighter than we would probably guess on average just due to timing of venue financing, but you're talking about $190 million versus $200 million. So it's all right in the ballpark and the Callaway side is about right. So you will see the cash flow develop from this.

Got it. So this is kind of the CapEx needs going forward for the business as we go into 2024 and beyond?

Yes.

Okay. Got it. Thank you.

Our next question comes from Casey Alexander with Compass Point Research and Trading. Please go ahead.

Yes. Most of my questions have been answered, but I do have one here. EBITDA margins seem to continue to improve bit by bit. To what extent would you say the reduction of supply chain difficulties is positively impacting margins this year? And what can we expect from that on a comparative basis as the year proceeds?

Well, Casey, you're right. I mean, our EBITDA margins have continued to improve. Candidly, the underlying operating economics of each of the segments is continuing to improve if you look over any reasonable period of time. And catching up on the supply chain, although it creates some noise in the timing perspective, also creates more upside because it's going to mean lower freight costs and some other improved operating efficiencies going forward. Most of that now we caught up mostly during last year. So we've been now caught up for a while, but we're now starting to realize the benefits of freight and some of the other efficiencies that will come with that. You'll see that really run through the P&L as we go through the year.

My second question is that most of the geographies had pretty strong year-over-year comps in the first quarter, except for Asia. Is there any color that you have regarding that specific market and how you expect that to run out the rest of the year?

That was just FX, Casey. So all the – particularly the yen and the Korean won were the two currencies that were most impacted and they had a very strong first quarter, and Japan specifically, our market share looks good. No real distinctions between the Asia market and the U.S. market in terms of strength of the market at this point.

Casey, Asia was up 11.6% revenue in constant currency.

Yes. All right, great.

Thank you.

Thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Chip Brewer for any closing remarks.

Yes. I want to thank everybody for tuning in today. And in particular, I want to thank the Topgolf Callaway Brands' employees, associates, the playmakers and the venues, our advocates and customers for your support. Looking forward to a strong Q2 and look forward to speaking with everybody again in August.