Good day and thank you for standing by. Welcome to the Callaway Golf Company Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. And during the Q&A session, we ask that you please limit your questions to one and a follow-up to allow as many participants as possible to ask a question.

And I would now like to hand the conference over to your speaker for today, Lauren Scott, Director of Investor Relations. Thank you. Please go ahead..

Thank you, Operator, and good afternoon, everyone. First, I’d like to thank you all for your patience, we are having a technical difficulty on our end and we will be extending the call by 15 minutes to be sure that we make up for any of the lost time. So, thank you very much for your patience.

And as the, Operator, said, I am 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.

Patrick Burke, Callaway’s SVP of Global Finance; and Jennifer Thomas, our Chief Accounting Officer are also in the room today for Q&A. Earlier today, the company issued a press release announcing its fourth quarter and full year 2021 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 -- in coordination, excuse me, 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 at the presentation -- in the presentation and the press release for a more complete description. And with that, I’d now like to turn the call over to Chip Brewer..

Thank you, Lauren, and happy birthday this week, by the way..

Thank you..

Good afternoon to everyone on the call. Thank you for joining us today and also thank you for your patience. We apologize for the late start. I am pleased to report another quarter of strong results and look forward to providing more detail around our outlook for the year ahead.

But first, I want to take a moment to acknowledge the incredible year we just concluded. 2021 was a pivotal year for Callaway, marked by exceptional results, significant growth and strong momentum across all our business segments.

We closed on the acquisition of Topgolf in Q1, transforming our company into the unrivaled leader in the modern golf and lifestyle Apparel space.

Over the past five years, we have combined a traditional Golf Equipment business with select lifestyle Apparel brands and the world’s leading tech-enabled golf entertainment company to deliver a truly differentiated business model.

Amid continued high demand for a Golf Equipment and lifestyle products, our global sales and operations teams work tirelessly, delivering quarter-after-quarter of impressive results despite significant global COVID-related operating challenges. The team has proven itself to be an impressive and battle hardened asset for Callaway.

In addition, we have increasingly made key investments in infrastructure and people to support a larger business, and to set us up for continued growth in financial success. I want to personally thank all of our global employees for their hard work throughout the year.

Our positive results would not be possible without your dedication and passion for this business. Shifting to Q4, our results came in better than expected, led by another quarter of exceptional results from Topgolf, and continued high demand for both Golf Equipment and lifestyle Apparel and Gear.

Total net revenue was $712 million, up 90% year-over-year and adjusted EBITDA was $14 million, up $27 million. Turning to Topgolf, for the quarter, both walk-in traffic and event sales surpassed our expectations, driving same venue sales to an impressive increase of 6% over 2019 levels.

For the full year, same venue sales were approximately 95% of 2019 levels, meaningfully higher than projected at an encouraging and very strong result given the operating environment.

A resurgence in corporate events business drove most of the same venue sales positive surprise in Q4, walk-in sales and smaller social events had been strong for some time and continued their trend.

Having said this, as one would expect, in the last week of December and continuing into January, we have seen some softness in same venue sales of the rise in Omicron has resulted in a decline in group events and increase short-term staffing challenges. While this will have an impact on Q1 results, it was promising to see that our U.K.

venues, which experienced Omicron impacts approximately a month ahead of our U.S. venues, bounce back very quickly and are now once again performing quite well. This is a good indicator of the resiliency we expect in the U.S. business through the remainder of Q1 and we are already starting to see some signs of this anticipated improvement.

For the first quarter of 2022 we are expecting the same venue sales to be down slightly compared to 2019, and for the full year, we anticipate low single-digit growth over 2019 levels.

New venue openings continued on pace with our 72 bay Fort Myers, Florida, location opening strongly in mid-November, while we are on venues, I want to remind everyone on the success rate we are consistently delivering here.

We had nine very successful openings in 2021 and the financial performance of this group is on track to exceed our expectations, despite the challenging operating environment. I have had a ringside seat watching Topgolf open venues for nearly 10 years now, and in my opinion, we are uniquely good here.

As a result of increasing brand strength, competency of our real estate team and our operating teams’ expertise, this is now a proven and repeatable model, a fact I believe the financial community may not fully appreciate yet.

For 2022, we are confident our ability to deliver at least 10 new venues, with the potential of adding an 11th in very late Q4. We are also extremely excited about the lineup for this year with the first two Southern California locations opening in the Los Angeles area in Q1 and Q2, one in Ontario, which is just east of L.A.

and the other in El Segundo, near SoFi Stadium. The El Segundo location is particularly intriguing, as is the first venue to include an on-course element and in true Topgolf fashion, this will not be your typical golf course.

It will be a 10-hole lighted course perfect for nighttime rounds, incorporating elements of entertainment and our Toptracer technology to create a truly unique guest experience. Additional locations of note include Seattle and Baltimore, both of which will feature our latest premium venue enhancements, as well as Callaway fitting base.

It’s important to note that due to the disruption in the development activities in 2020, the timing of this year’s venue openings will be heavily weighted toward the back half of the year, with five expected to open in Q4. This timing will impact this year’s contribution from new venues.

Shifting to Toptracer during the year we installed over 1,700 new base, bringing our total for the year to just under 7,000 new base installations. We remain encouraged by continued strong demand and expect to install 8,000 base or more in 2022.

Lastly, within the Topgolf Media business, I am pleased to announce that we are leveraging our mobile game development expertise from World Golf Tour to launch a new game later this year that caters to the younger, more traditional gamer, whereas existing game focuses more on the traditional golfer.

While we expect the game to have minimal contribution to our financial results in 2022, we believe that it will provide future upside as a community of digital customers continues to grow.

In addition, in due time will integrate this new game into our digital offerings at both our venues and Toptracer ranges, thus driving synergies from our game development capabilities.

Moving to our Golf Equipment segment, we are pleased to report that demand remains very high for our clubs involved and trade inventory remains low across the industry.

According to the National Golf Foundation’s Annual Report, the number of on-course golfers increased by approximately 300,000 in 2021 to 25.1 million players, marking the fourth straight year of increased participation in traditional golf.

Off-course, participation also continue to grow, with 24.8 million people visiting non-traditional venues such as Topgolf and Five Iron, and approximately half of those playing exclusively off-course.

Looking out over the next 12 months and beyond, as Topgolf venues continue to expand, we expect even more new players to be introduced to the sport, both on- and off-course. For Q4, our Golf Equipment results were in line with our expectations.

As we explained last quarter, we anticipated some softness in Q4 revenues, as we made the decision to shift production to build 2022 new launch product. In addition, we launched several new products in the comparable fourth quarter of 2020, thus creating an uneven year-over-year comparison.

As we look ahead to Q1 and the full year 2022, we are seeing promising momentum with the launch of our new Rogue ST family of woods and irons and new Chrome Soft Golf Balls. The reception has been very positive so far.

Pre-books are up significantly and feedback on the product has been outstanding, with Rogue ST being the number one driver on tour in its first week on tour at the Tournament of Champions and Callaway receiving more gold medals than any other manufacturer in Golf Digest recent hotlist.

The new launch product will be available at retailers starting next week. For the full year, we are reiterating that the Golf Equipment business will grow based on continued strong demand from consumers, price increases on our new launch product and the opportunity for a restocking at retail.

Turning to our Apparel and Gear, in our Apparel and Gear segment revenue was up 33% year-over-year in Q4, led by a 40% increase in Apparel and a 19% increase in gear. TravisMathew continue to grow at a roaring pace, with their own retail comp store sales up over 67% versus 2020. E-commerce sales were also up a healthy 30% versus 2020.

The team also signed a high profile new ambassador, actor Chris Pratt, during Q4, who helped further increase brand visibility and raise awareness for a multi-day charity flash sale benefiting the Special Olympics. The event was very successful with TravisMathew contributing over $1 million in donations to this very worthy cause.

On the product side, TravisMathew expanded his product range to include women’s Apparel as part of the, his and her cloud collection launched in December, as well as more cold weather gear within their outerwear collection.

Both editions performed very well, with the women’s product selling out predominantly in the first 48 hours, and jackets and pants accounting for 37% of direct-to-consumer sales. Jack Wolfskin sales were up in the quarter as compared to both 2020 [ph] and 2019 as a public relaunch of the brand’s fresh new image was positively received by consumers.

Feedback on pre-books has been outstanding, and we are excited for the year ahead. On the sustainability front, Jack Wolfskin launched a new initiative in Q4 called the Nature Counts Campaign, which is dedicated to forestry, re-wilding and conservation efforts.

In place of Black Friday and Cyber Monday sales discounts, the brand decided to donate €2 from every purchase made during the week to Peter Wohlleben’s Forest Academy. We love to see the brand stay true to its roots and continue to be an ambassador for environmentalism. Lastly, our Callaway Apparel business in Asia continue to thrive.

The Callaway Golf brand in Japan have a number one share in the wholesale channel during the quarter and direct-to-consumer efforts paid off, with strong sales in our own retail stores as foot traffic in the region increased.

Looking ahead to 2022 and the consolidated company, we believe revenue will increase approximately 21% and we expect adjusted EBITDA would be between $490 million and $515 million.

This strong outlook is underpinned by our belief that our Golf Equipment business will continue to grow, as participation remains high and supply continue to scales up to match exceptional consumer demand.

Our strong pre-books and demand trends for appear -- Apparel and Gear brands, and embedded growth in the Topgolf business through a new venue openings and year-over-year growth in same venue sales. Longer term, we remain excited and confident about the direction of the business.

While macro trends over the past two years have provided favorable tailwinds for golf, we believe there has also been a more sustainable structural shift in the market that will support all of Callaway’s businesses.

These structural shifts include what we believe are long-term increases in remote and hybrid work, the increased desire to get out into nature, the momentum behind casual lifestyle apparel brands, the growth of new golfers with waiting lists to get into golf courses, and the growth and positive impact of off-course golf.

Off-course golf experiences such as Topgolf are both growing rapidly in their own right, and at the same time, changing the way people are introduced to the sport of golf [ph], creating increased interest in more new entrants.

We believe Callaway is uniquely positioned to engage with these consumers through a differentiated portfolio of brands and look forward to unlocking the embedded growth within this business for years to come. In conclusion, before handling -- handing the call off to Brian, I want to call out two additional items.

First, I am pleased to announce that we are planning to publish our first Comprehensive Sustainability Report next month. As a company, we were found Callaway’s view that good ethics is good business and we continue to operate with this eat those that are core today.

You will see this theme carried out through the report and through the four strategic pillars of our sustainability strategy, people, planet, product and procurement. I encourage you to review the report and when it comes out, engage with the team to discuss the content. It’s an important component of our long-term business strategy.

Second, I am very excited to announce our plan to hold an Investor Day in Q2, where you will have the opportunity to hear more from senior executives across each of our businesses, and learn more about our medium- and long-term vision for the company.

More details for this event will be provided by the IR team in the coming weeks and we hope you can participate. And with that, I’d like to turn the call over to Brian Lynch to discuss our financial results in more detail..

Thank you, Chip. 2021 was an outstanding and transformational year for Callaway, which is clearly highlighted in our financial results. The Topgolf business recovers from COVID more quickly and significantly than we expected, and demand for our Golf Equipment and apparel products remained strong throughout the year, and it’s continued so far in 2022.

As Chip mentioned, we believe there has been a structural shift in the market that will benefit each of our businesses, including increased interest and participation in golf, momentum behind casual lifestyle apparel brands, and an increased desire for leisure and entertainment such as Topgolf, hiking and camping.

As a result, we expect continued high demand and growth across each of our businesses into 2022 and beyond. Shifting to our financial results, as shown on slide 10 and 11, consolidated net revenue for the full year 2021 was $3.1 billion, a 97% increase, compared to full year 2020 revenue of $1.6 billion.

Full year 2021 adjusted EBITDA was $445 million, an increase of 170% over full year 2020 adjusted EBITDA of $165 million. The outperformance versus our guidance was related to TopGolf and a resurgence in corporate events during the quarter, as Chip mentioned earlier. The Golf Equipment and Soft Goods businesses were in line with our guidance.

When you look at a breakdown of our 2021 revenue, Golf Equipment represented 39% of total revenue, TopGolf was 35% and Apparel, Gear and Other represented 26%. We believe Golf Equipment will continue to grow at a steady pace and be an important component of our strategy moving forward.

But as TopGolf venues continue to expand at the rate of 10 plus new openings per year and the strong momentum of TravisMathew, Jack Wolfskin continues, we see a larger portion of [Technical Difficulty] more toward these high growth segments. For the fourth quarter, consolidated net revenue was $712 million, an increase of 90% compared to Q4 2020.

TopGolf was the largest contributor by segment, generating $336 million. Our strong social events, strengthening corporate events and continued robust demand from walking guest collectively delivered 6% same venue sales growth over 2019.

Apparel, Gear and Other also performed very well during the quarter, with revenue up 33% year-over-year, a strong brand momentum, recovery from COVID and well-positioned products translated to strong sales growth in the quarter.

Consistent with our guidance, and as Chip highlighted earlier, the Golf Equipment segment was down year-over-year due to third quarter supply chain disruptions and a shift to prioritizing 2022 new launch inventory over fourth quarter 2021 sales. We also launched several new products in Q4 2020, thus creating an uneven year-over-year comparison.

Changes in foreign currency rates had a $6 million negative impact on fourth quarter 2021 revenues. Total costs and expenses were $755 million on a non-GAAP basis in the fourth quarter of 2021, compared to $397 million in the fourth quarter of 2020. Of the $358 million increase, Topgolf added an incremental $330 million of total costs and expenses.

The remaining $28 million increase includes, moving spending levels back to normal levels, increased corporate costs to support a larger organization, investments and growth initiatives, including TravisMathew expansion and the Korea Apparel business, an increased freight costs and inflation.

As we move into 2022, we continue to believe that higher sales volumes and select price increases will balance out inflationary pressures.

Fourth quarter 2021 non-GAAP operating income was a loss of $43 million, down $21 million, compared to a loss of 2020 -- compared to a loss of $22 million in the fourth quarter of 2020, due to the previously mentioned planned shift in Golf Equipment supply to 2022 launch products, as well as the increased cost previously mentioned.

Non-GAAP Other expense was $37 million in the fourth quarter, compared to Other expense of $30 million in Q4 2020. The increase is primarily related to a $28 million increase in interest expense related to the addition of Topgolf.

Non-GAAP loss per share was $0.19 on approximately 186 million shares in the fourth quarter of 2021, compared to a loss of $0.33 per share on approximately 94 million shares in the fourth quarter of 2020. Lastly, fourth quarter 2021 adjusted EBITDA was $14 million, compared to negative $13 million in the fourth quarter of 2020.

The $27 million increase was driven by a $46 million contribution from the Topgolf business. Turning to certain balance sheet items on slide 13. I am pleased to report that we are in a strong financial position with ample liquidity.

As of December 31, 2021, available liquidity, which is comprised of cash on hand and availability under our credit facilities was $753 million, compared to $632 million at December 31, 2021, an increase of 19%. In addition, the Topgolf funding requirements from Callaway have improved compared to our initial expectations.

When we announced the merger over a year ago, the funding needs for Topgolf were estimated at $325 million. As of year-end, their need for funding was significantly lower due to its faster than expected recovery and strong 2021 performance.

At this point, we estimate that Topgolf will need almost $200 million less funding than we originally anticipated, and going forward, we estimate Topgolf will only need incremental funding from Callaway of less than $70 million, which would be used for future venue growth.

Topgolf is already operating cash flow positive and we expect Topgolf to be able to fund its own growth and be cash -- free cash flow positive in 2024. At quarter-end, we had a total net debt of $1.4 billion, including venue financing obligations of $593 million related to the development of Topgolf venues.

Since the merger, our leverage ratios have improved significantly, our net debt leverage ratio was 3.1 times at December 31, 2021, compared to 5 times that March 31, 2021. Consolidated net accounts receivable is $105 million, a decrease of 24%, compared to $138 million at the end of the fourth quarter of 2020.

Day sales outstanding for our Golf Equipment and Apparel businesses improved to 35 days as of December 31, 2021, compared to 45 days as December 31, 2020.

Our inventory balance increased to $523 million at the end of the fourth quarter of 2021, compared to $353 million at the end of the fourth quarter 2020, as we built supply for our new products within the Golf Equipment and Apparel businesses. In addition, Topgolf added $22 million in inventory.

Capital expenditures for the full year 2021 were $234 million net of REIT reimbursements. This includes $173 million related to Topgolf, primarily for new buildings for the 10 months since the merger. This does not include $12 million of CapEx for January and February of 2021 prior to the merger.

The full year 2022 forecast for Callaway and Topgolf is approximately $310 million net of REIT reimbursements, including approximately $230 million for Topgolf. This increase in capital expenditures is due to the timing of REIT reimbursements and investment in systems integration and growth within the Golf Equipment and Apparel businesses.

Lastly, on December 13th, we announced that our Board of Directors approved a $50 million stock repurchase program. We repurchased a total of approximately 947,000 shares at an average price of $26.41 during the quarter and now have approximately $25 million authorization remaining under that program.

Now turning to our full year and first quarter 2022 outlook on slide 14 and 15, for the full year, we expect revenue to be approximately $3.8 billion. That compares the $3.13 billion in 2020.

Our full year 2022 net revenue estimate assumes continued positive demand for our Golf Equipment and Soft Goods segments, and no significant supply chain or retail shutdowns due to any COVID resurgence. It also assumes approximately $1.5 billion in net revenue from Topgolf for the year.

Full year, adjusted EBITDA is projected to be $490 million to $550 million, which assumes approximately -- to $220 million from Topgolf. As Chip stated, we plan to add at least 10 new Topgolf venues in 2022, although the venue openings will be heavily weighted toward the back half of the year, with five expected to open in the fourth quarter.

From a profitability perspective, this means there are 2022 venues will have a more limited impact to adjusted EBITDA in 2022, as we will incur full reopening costs for those venues with limited revenue. From a cost perspective, we will be making investments in personnel and infrastructure to support an overall larger business and future growth.

We also anticipate continued cost pressure from increased freight cost and inflation, including labor and commodity prices. Lastly, we anticipate a negative impact from changes in foreign currency rates of approximately $54 million on revenue and $38 million on pre-tax income due to a strengthening U.S.

dollar and $8 million in hedge gains that are not expected to repeat. Despite these headwinds, we continue to believe strong demand, sales volumes and select price increases across our business segments will balance out these pressures and we expect all businesses to grow this year.

Lastly, looking at the share count for full year 2022, we want to know an accounting change taking effect this year that will cause our share count to increase to approximately 204 million shares. This change relates to the accounting for a convertible bond.

This new rule will require us to account for the bond, assuming it has been converted for calculating earnings per share. We are calculating EPS, we will eliminate the interest paid related to the bond and we will add 14.7 million shares to the EPS calculation, as if the bond had been converted.

For purposes of this calculation, we do not include the benefit of the capped call transaction we entered into at the time of the bond issuance, which had maturity would reduce the number of new shares issued by us upon conversion by approximately 45 million shares at current prices.

Moving to the first quarter 2022 outlook, our revenue guidance is just over a $1 billion. Adjusted EBITDA guidance is $130 million to $145 million.

This includes a negative foreign currency impact of approximately $21 million on revenue and $21 million in pre-tax income, again including the $8 million hedge gains in Q1 2021 that were not expected to repeat.

I want to emphasize that there are several factors which could cause a positive or negative shift in our financial results between Q1 and Q2.

Some of these factors include the timing of when we received supply in Golf Equipment, our Soft Good segments, and where the products scheduled to be shifted at the end of March or beginning of April, are deferred to Q2 or accelerate into Q1.

As our Q1 guidance reflects our assumption that COVID continues to lessen during Q1 and that the Topgolf business, including corporate events, returns close to 2019 levels. The pace at which that happens will affect our first quarter results. Feel good about our full year guidance.

In closing, we are proud of the performance of our business in 2021 and are excited to share our continued progress throughout 2022. That concludes our prepared remarks today and we will now open the call for questions. Operator, over to you..

Thank you, presenters. [Operator Instructions] We have our first question from Randy Konik. Your line is open..

Yeah. Thanks, guys. So, first, I want to focus on the Topgolf venue business. The numbers keep coming in better than expected from a revenue perspective. And if I recall, you have the Vegas unit that’s probably accounting for a disproportionate amount of revenue and EBITDA, but that’s probably not at peak kind of - prior peak revenues or what have you.

So, I guess, I am just curious if on the strength that you are seeing and that you are talking about, have you thought about kind of two things; one, what mature revenues would look like at the venue maybe being higher than you anticipate; and/or two, do you think about the density levels that can change from a unit perspective, i.e., you could potentially have more units in the U.S.

market than you originally kind of thought? Just curious on how you are thinking. Thanks..

Sure. Randy, those are good questions. So we have been wildly pleased with the performance of Topgolf and want to congratulate that team on just terrific results. So and the Vegas is a -- the Vegas venue is one of our biggest venues, so it does have a significant impact. But we have a lot of venues now. So I don’t want to over focus on any one venue.

I do want to call out that, even with this great result that we delivered last year, we do think we have gas in the tank. I mean, we saw throughout last year that business recover, and build momentum and walk-in the sales and social events were strong for most of the year, continued that way, with the only wild card being the corporate events.

The corporate events started the quarter slow in Q4 and that’s where we sat as we spoke to you on that Q3 earnings call. It seems like a long time away, but that we were actually in the middle of a surge in Delta at that time.

Nobody talks about Delta, but Delta was had surge and we were seeing some concerning results on corporate and then they really picked up in mid through end of December. But we have gas in the tank left, because corporate events hasn’t completely recovered yet, but we have got every belief and sign that they will and we saw great evidence of that.

At the Analyst Day that will be in Q2, we will talk to you a little bit about the potential of these venues, which is clearly much higher than what we originally anticipated. And also confidence, if not, increasing view on a number of venues that we believe we can build.

But all systems go, all systems positive, as you can tell on the Topgolf venue business..

Super helpful. I guess my last question is, when I think about kind of pitching the idea to investors it’s just ecosystem opportunity with revenue synergy opportunity across different kind of businesses within the portfolio.

I think I have asked this question in the past where as a user of the Topgolf app, the Toptracer app, I have bought products from TravisMathew and so on and so forth.

It appears to be there’s opportunity to kind of get databases that you may or information you may have on select customers across these different businesses to kind of come together, if you will, and have these customers utilize different parts of the ecosystem more regularly or engage more with it.

So I just curious on what you are trying to do, if anything on the kind of software side backend kind of side of things to kind of connect the businesses more for these customers that are currently using different aspects of your ecosystem that that could kind of just come together more to give you more data insights on how to kind of get them more engaged even further within that ecosystem? Thanks, guys..

Yeah. Randy, that’s another interesting and on topic question, but it’s also a long-term potential opportunity. That is not something that we would expect to realize overnight. But over time, we will have a significant competitive advantage over the overall reach to golfers of all types.

And it will take technology consumer data platforms, other types of technologies and offerings that will fit very well within our ecosystems to unlock that.

It’s something that we have been studying and putting in the early stages of investments are now, and you are seeing some of the earlier low hanging fruits on synergies already starting to materialize.

You will continue to hear us increasingly talk about those types of opportunities that you are mentioning, but they are a little further down the field and we are taking care of the bigger things first and then those more strategic things that are going to be more on point and more in the conversation said as we move forward..

Helpful. Thanks, guys..

Thank you..

Thank you..

We have our next question from Alex Perry. Your line is open..

Hi. Thanks for taking my question and congrats on the strong quarter.

I just wanted to ask a little bit about the Topgolf venue profitability assumptions embedded within the guidance since they were, seems very elevated these past few quarters and then maybe within that talk about your outlook for labor costs and availability within Topgolf? And then just one clarifying question on the guidance for Topgolf for 2022 I think the presentation maybe said, up mid-single versus 2019.

I think maybe you mentioned up low singles on the call. Just wanted to clarify that for everyone? Thanks..

Sure. The -- so on the venue profitability, yeah, we have been delighted with the profitability that the venues have driven, the consistency with which we did not open these successfully. As I mentioned, I think it’s a proven and repeatable model.

But then also that the profitability that flow through from the venues, the EBITDA margin, if you would, has been better than we originally expected, and we are going to give you a little more color on that at that Analyst Day, but certainly pleasant results there and a positive story.

Most -- like most businesses, the labor cost and availability has been a challenge over the last year and we have had -- we haven’t been immune from that. At different points of time labor has been a constraint, you know, it varies by market, by season, et cetera, and labor is increasing in cost.

We are fortunate with our business, that we are able to absorb that, pay competitive wages.

We were fortunate TopGolf just got named one of the most admired employers by Forbes of large employers and so we are able to attract and retain labor effectively and, we are able to absorb any costs there and, you know, deliver what has been obviously increasing profitability and margins.

And then the expectation for same venue sales, I believe I said low single-digit was the expectation for 2022 full year, despite starting very slow here out of the shoe. But we have shown our ability to grow these businesses in venue sales basis and we are very excited about the outlook..

Thank you. That’s really helpful.

And then I guess just my follow-up would be, could you maybe help us parse through the 1Q guide a bit more, how much of the headwind is Omicron on the Topgolf business, I guess, is that mostly just on the corporate events side, it seems like maybe the corporate events were starting to approach 2019 levels from the beginning of 4Q, what is the visibility on that returning and then what would be the outlook within the Golf Equipment business embedded within the guidance? Thank you..

Sure. So the corporate was the area that is most impacted at Topgolf. We have had consistently positive results on walk-in and social events. The corporate events really recovered late in Q4. When we were last on the phone with you, we had October data that wasn’t very positive candidly, but it really recovered quickly.

We are seeing increased interest in leads and activity in corporate. We are confident. But the business at Topgolf did start down on a same venue sales basis in Q1. But, obviously, we gave you Q1 guidance and we expected to be down on the slightly after Q1. So feel good about the trends there. We have seen this already kind of play out in the U.K.

and there’s some volatility that we will work through in Q1 and Brian mentioned that as well. But feel very confident on the full year numbers. And then the next question was on Golf Equipment in Q1 and I don’t know that we are breaking out by segment relative to quarter.

So, we are expecting every segment to grow, but I don’t think we are breaking out Golf Equipment in quarter. Part of the issue there, Alex, is there’s just a lot of volatility on, we have very good bookings in our Golf Equipment and our Apparel, Gear and Other.

We don’t believe we have a demand issue and the supply is coming, but the ability to forecast exactly when that will arrive and make it through DCs, et cetera, you could see some of that move into Q2 or Q2 move into Q1 and it looks like a big shift, but it’s not a material shift on a full year basis, just a quarterly bit of noise.

But we feel very good about the golf equipment..

That’s really helpful. Best of luck going forward..

Thanks..

We have our next question from Mike Swartz. Your line is open..

Hey. Good afternoon, guys.

Just -- and I apologize if I missed this, but maybe could you give us a view of what you expect retail sales for the Golf Equipment industry to do in 2022, you are coming off two -- obviously two big years and I -- just I think there’s some sense that I maybe can’t repeat it, but maybe just if you can give us high level thoughts around retail?.

Sure. Mike, they have been saying we can’t hold it or repeat it, but it keeps coming.

So at some point, how beautiful the strategy, you need to look at the results and the market did level off in the second half of 2021, as other activities, et cetera, were available, but the demand remained very strong for golf and we are expecting golf to be strong going into this year.

We are even more confident is that our golf business will be up, given the strength of our line for this year inventory at retail. But the structural shifts around golf that have been over the last several years are pretty significant. There’s a lot of momentum and enthusiasm.

Off-course golf, Mammut new impact, hybrid and remote work are not going away. We are optimistic about the golf markets overall and confident in our business..

Thanks for that, Chip. And just second question on capital allocation, you buy back shares in the fourth quarter, I think this is first or second time you buy back shares in a long time and made some comments on the capital needs that at Topgolf being less than what you previously anticipated.

So maybe give us a sense of, does that free up more capital to be allocated towards buybacks, M&A, debt reduction than maybe you thought previously?.

Well, clearly, we have a lot more liquidity than we would have, if you talk to us a year ago, we wouldn’t have in our wildest dreams expected to deliver the financial results that we did and our capital structure matches that. I mean, we have $200 million less to put into Topgolf. We have $700 million of available liquidity.

Only $70 million more needed to go to Topgolf based on our current forecast. Yes, we are a much stronger position. As a policy, we don’t comment on intentions for existing plans or new plans on stock buybacks. We don’t comment on M&A. It’s essentially a capital allocation question. So our capital allocation strategy is unchanged.

We first and foremost reinvest back in our business and we have done that unabashedly for 10 straight years with pretty good effect. We have got a lot of nice opportunities to high ROI projects. We are blessed that way. After that, we are balanced debt repayment, returning capital shareholders and selective acquisitions.

Our first focus is to make sure we hit our leverage expectations and we are ahead on that. And then selectively or opportunistically, we evaluate share repurchases like the one we announced in December and executed against. And so we will continue to act as we have and we are not at liberty to discuss any more specifics at this point..

Understood. Thanks, Chip..

Thank you..

We have our next question from Joe Altobello. Your line is open..

Thanks. Hey, guys. Good afternoon. Couple of questions on TopGolf. First, the pace of venue openings obviously did nine last year, looking at 10 potentially 11 this year.

What’s the gating factor on that pace? Why can’t you do 15 or 20, for example?.

Well, these are very long lead time items, Joe. So, we are harvesting the fruits of labor from prior to our merger and it is clearly ramping that up as well. Like everything in our businesses we continue to grow and reinvest. We are balancing the risk of moving faster with not getting it right. And at present, I think we are balancing it pretty well.

We are also continually investing to increase our capabilities. So, you correctly heard us when we are saying we are going to do 10 with the potential to do 11. So you will see us open these things in a proven and predictable manner. It’s a repeatable model.

We do have a strong pipeline, but we are working right now on 24 and 25 venues, right? So our ability to impact 22 venues wasn’t in the recent past and you will see that we are continuing to be what I think prudent in our investments and our development cycle..

Got it. Okay. I totally understood. I actually think it beyond 2022, but I get it. I guess second question on the supply chain. You were actually pretty constructive on the last earnings call about supply chain and talked about things getting better.

How has that progressed in Q4 here at the Q1? Are things still getting better at this point?.

Yes. Joe, in short, they are. The supply chain and ops side of businesses, everybody should buy your ops person lunch at some point in this year, because they are definitely playing Whack-A-Mole as they are dealing with one issue after the next.

If it’s not a labor shut down, it’s a supply shortage, it’s whether semiconductors or a chemical needed for your urethane covers or the logistics challenges of getting containers or getting through terminal somewhere and the teams continually work through that. But the supply chain is continually improving. We have been ramping up capacity there.

You don’t always see that, because it’s being offset by some of these challenges from time-to-time. But through focusing on the gulf equipment side, Vietnam is operating well right now. China is just coming back from Chinese New Year. The return of employees is always an interesting question and it’s returning well.

We are not going to be completely out of the woods on the supply chain but we have shown we are going to be able to manage it very well and at present we are very confident on the supply chain side..

Okay. Great. Thank you..

We have our next question from Daniel Imbro. Your line is open..

Yeah. Hey. Good afternoon, guys. Thanks for taking the questions. Chip, maybe one on the sales side if you look at 2022, I guess, first on the apparel business. You mentioned that Jack Wolfskin was up year-over-year, Travis has momentum.

Can you maybe talk about pre-books for this year? I guess now is probably the time Green Grass is ordering fall 2022 collections.

So kind of curious any early indications on not only the spring apparel but maybe the back half of the year and how your customers are planning for the consumer, just given the inflationary backdrop, are you seeing any signs of weakening pre-orders for the rest of the year?.

I know Daniel just the opposite. So our pre-books are excellent and across….

And next two….

Across all of our businesses. We are global, so this is a -- we can go through, specifically TravisMathew, that business is pre-books. I don’t think they have them finalized for the fall. They were a little bit later than Jack Wolfskin, Jack Wolfskin’s are finalized for the fall and they are very strong.

The TravisMatthew business has been just performing exceptionally, the brand momentum there is amazing and not -- does not appear to be a demand issue..

Got it. And I guess a follow-up on the Apparel business. I know it’s less of a focus today, but in terms of Jack Wolfskin, we are still kind of in the middle, I think, of the profitability turnaround.

Is that a fair characterization or where are we on the path you guys laid out towards $50 plus million from that asset plus synergies and I know it’s a tough time with COVID, but as you learn more about that business, Chip, you still have the same confidence that it makes sense as part of your portfolio and how are you thinking about the overall health of brands you have built?.

Daniel, we feel even more confident on that $50 million plus synergies now. The new team there and the momentum of that business, it has been challenging for them. I mean, probably, as difficult a business operating environment as any in our portfolio as.

They are based in Central Europe and Central Europe retail was shutdown to start the year to end the year. It’s still kind of down. It just fits and starts for them, but still they deliver growth year-over-year and they were profitable.

And so you can really sense the brand momentum there, their sell through, their pre books, it’s just an excellent business. The -- and it fits within our portfolio from the perspective of the synergies that it delivers overall across our Apparel, Gear and Other segment, and how those all play together.

It’s becoming a very significant business in and of itself. And again, I think, this is something that will get it a little bit more into at the Analyst Day later in Q2. But we are very, as you can tell, I am very pleased with the team there. The results that they have driven in the environment that they are operating in are just exceptional..

That’s great and that clarifier there. Brian, you have quantified Topgolf’s EBITDA and Chip you just laid out the path to $55 million at a Jack Wolfskin….

I said I was more -- I was highly confident in the $50 million plus..

Where was Jack Wolfskin in 2021? Have you guys quantify that number, so what they said, growing up to get to that $50 million plus?.

We don’t give you 2021, so….

Okay..

We will evaluate that for our Analyst Day, but we are not breaking out individual businesses within segments and et cetera, at this stage..

Okay. Thanks so much. Best of luck..

Thank you..

We have our next question from Susan Anderson. Your line is open..

Hi. Good evening. Thanks for taking my question.

I was wondering if maybe you could talk about how much you are raising prices on average for the Golf Equipment business this year and the balls, and then also if you also expect units to grow this year-over-year? And then I am just curious, is there still, do you think there’s still a lot of restocking to be had at wholesale?.

Susan, it’s Chip. So we are not going to break out units versus price for you across it, partly because we are guessing as I look at across all of the segments, but I am guessing that units are up, as well as price across. But it’s -- now you are combining golf balls, gloves, et cetera. It not how we generally look at it.

But the -- we are taking price as needed. We are expecting margins to be solid, if not improved next year. And so I think that might answer part of your question.

What was the other part that I might be missing?.

Just are you guys -- are you giving -- oh! I guess, just on the pricing, are you….

Restocking out..

… price increase and then restock a whole value..

Yeah. It really varies. So, like, Susan, so average price increase, I don’t have it. But we are up $2 on a dozen Chrome Soft Golf Balls. We are up sometimes on a Fairway Wood. We are up $50 on a Fairway Wood. We are $20 on a Driver. So it really varies.

And we have taken some pricing in the middle of launch when products already in the field and most of the new product, we are not getting any pushback on it. So I don’t have a percentage for you, unfortunately. And then on the inventory restocking, we are highly confident.

I mean, months on hand is still tech showed it is three months on hand for industry clubs at the end of the year versus 5.2 in 2019 and 2019 that 5.2 was not a high number..

Okay. Great. That’s helpful.

And then just curious on the Core Golf and Apparel business, it looks like EBITDA margins this year, you are expecting to kind of be back to that 2019 level range, I guess, is there nothing that’s changed there in terms of just promotions coming down or pricing realization that would drive those higher?.

Susan, this is Brian. If you look at this -- we will talk about op margins just for now, but yes, next year we will be expecting increases in op margins in the Soft Goods business, really across all three business segments, the Equipment business and the Topgolf business.

And it’s just a better gross margins to just point some of the pricing, the pricing will cover -- the pricing and volume will cover the any inflationary pressures that we see and you will see the better gross margins and it will flow through..

Great.

And that’s versus 2020 you mean or 2019?.

For 2020 -- it’s versus 2021..

The increase over 2021, yeah..

Yeah..

Versus 2019? Yeah. Okay. Great. Thanks so much you guys. Good luck this year..

Thank you, Susan..

We have our next question from John Kernan. Your line is open. John Kernan, your line is open. You may ask your question..

Hey.

Can you hear me now?.

We can hear you now..

Okay. Good. Well, congrats on a strong year, finishing that out and thanks for taking my question. I guess, a lot of what’s been answered about the model and the growth and just curious in 2022, Brian, the impact of inflation and a product cost level. I mean, food at Topgolf, labor, supply chain costs for the for the Golf and Apparel business.

How much of an inflationary impact are you looking at in 2022?.

We haven’t quantified it, but it’s definitely there. It’s just that we have been able -- as we did in 2021, we have been able to outrun it during the year with the volume increases and in this year we also have the ability to outrun it for next year as well.

I think you will see a little bit more of an impact on gross margins maybe a Topgolf, but they are mostly covering it and their gross margins are so strong. So it’s approach flat. The labor is definitely something they felt as far as pricing. But at the same time the number of people they have offsetting some of that.

So they have been more profitable this year. We said, we don’t think it can sustain at those levels, so it will get a little bit lower. But at the same time all three businesses will be able to cover..

Understood. Just -- my third question is just on the venue level EBITDA for Topgolf has been above expectations since you announced the deal. I was just curious what you think the upside driver to expectations is in 2022.

Is it really just the topline recovery and traffic recovery, what more do you see in the margin profile of Topgolf at a venue level to move that higher as we get into 2022 and 2023? Is it just the leverage in the model from increased sales or is there more to it?.

John that’s a great question, and certainly, we are gaining increasing confidence on same venue sales ability to drive some real positive numbers there and we are still recovering, right? So last year we delivered 95%, which was wildly above our expectations. Corporate events really haven’t come back.

We are convinced they are going to be back and that’s a big area for gas in the tank. We can deliver better operating margins overall there over the long-term than what we initially thought and then we will give you a little more color on all this at the Analyst Day.

So, hopefully, make that and we will try to walk you through a little bit more specifics then..

Sounds good. We would love to come out to California and see everybody. Thanks for taking my questions..

Thank you..

We have our next question from George Kelly. Your line is open..

Hi, everybody. Thanks for taking my questions. So just two quick ones for you. First, another Topgolf question.

So, internationally, still not a whole lot of venues, I think, it’s something like e-venues internationally, wondering how quickly you expect that to scale and is there any consideration to opening any of those venues yourself?.

Good question, George. So we expect to open three new venues this year, one of which were highly confident, because it opened in January and is doing really well and that one’s in Germany. And then we announced, I believe it was yesterday, that we are doing one in Glasgow, Scotland, and that will be an owned venue.

So it will be in the international portfolio, but is consistent with the other venues that we have opened in the U.K., which are actually legacy venues that will be owned and operated and then there’s one more planned for the balance of the year later in the year. And then we are going to be ramping it from there.

So you will see increasing activity on that and this will probably sound familiar, but tune for the Investor Day where we will give you a little bit more color on perhaps mid- to long-term outlook in terms of openings.

I hope it has been more of a factor even internationally than it has been in domestic operations as we have ramped up with these franchisees and so we are seeing good activity there and developing that well. But it will scale a little later there than what we originally thought. But we are -- we do have some nice activity for this year..

Okay. Great. And then second really I wanted to ask but too is TravisMatthew? So the growth that you have had there it’s just been remarkable.

So curious how you keep that going and maybe if you could talk about your expectations for new stores and expectations for growing that brand outside of golf? Just wondering how that -- how that’s going?.

Well, it’s interesting, George, because I view that brand is outside of golf already. It’s really a lifestyle Apparel brand. It has its roots in golf, but it’s what we wear to the office is what you wear after golf.

When you go out and socialize, you go into their stores and you are buying hoodies and cloud collections, essentially fleece and outerwear, that’s one of the things that I really loved about the brand when I looked at it, because the scale and potential of that business is way above golf and studied the golf brands in the apparel space for some time.

And candidly, they don’t get very big. This business is getting big fast and we gave you some of those metrics, but 65% same-store sales, that’s pretty good. And it’s got a lot of runway. It’s selling through on the East Coast, is selling through on the West Coast. I think we added 10 stores last year..

Yeah..

We had 29 open. The payback on those stores is really good and you will see us continue to add stores. It’s got a nice direct-to-consumer model, but then it’s also doing extremely well with its wholesale partners. So, great success story, but you should not be thinking about it as a golf brand. You can think about it as routes to golf.

But just as with Topgolf, OGO way beyond the audience of just golfers..

Understood. Thank you..

Thank you..

We have our next question from Casey Alexander. Your line is open..

Yeah. Good afternoon. I know this call is getting long in the tooth. So, I will just keep it to one question.

Looking at your guidance for Topgolf of $1.5 billion for 2022, that’s just on the numbers compared to 2021 really solid growth and yet with five to six stores opening in the fourth quarter of 2022, why shouldn’t we be thinking of 2023 as a year of accelerating growth for Topgolf?.

Casey, I think you bring up a good point..

That’s all my questions. Thank you..

Thanks, Casey, and sorry, we started late..

That’s okay..

We have our next question from Rudy Yang. Your line is open..

Hey, guys. Thanks for taking my questions.

I guess just firstly, can you just kind of comment to how you think rising interest rates could affect your business in anyway if at all and how your industry has historically fared in a higher environment?.

Good question, Rudy. I don’t really -- obviously, I guess, I turn it to you Brian. I don’t even know much of debt is exactly what versus six versus not but….

I don’t know the exact percentage, but it would affect us with driving interest rates, all the terminal Bs and I think would be affected, but would be some incremental cash, but it wouldn’t have a big effect on our business..

We haven’t seen, Rudy, part of the reason you are hearing, we don’t know, because we don’t think we are that sensitive to it. When we -- this business does well through raising rates and lower rates, it does better and any business will in a good economy versus a weak economy.

But it does find in a -- I have been in the Golf Equipment business for 20 plus years. I have been around Topgolf for more than 10 years. And it’s these businesses are not highly sensitive to interest rates or they are not even highly sensitive to economic cycles, although they of course will have some sensitivity there..

Awesome. I will leave it at that. Thanks, guys..

Thank you..

There are no more questions at this time and I will turn it back over to Chip Brewer, our President and Chief Executive Officer..

All right. Well, I want to thank everybody for being on the call today. As you can tell, we are very pleased with our business and we look forward to seeing you at the Investor Day, which more details will be forthcoming, and again, we apologize for the technical difficulties in the late start. Appreciate you hanging with us and talk to you soon..

Ladies and gentlemen, this concludes today’s presentation. Thank you for participating. You may now disconnect..