TOPGOLF CALLAWAY BRANDS CORP. ANNOUNCES RECORD THIRD QUARTER 2022 RESULTS AND RAISES FULL YEAR GUIDANCE

Third Quarter Revenue Increase Driven by Strength Across All Segments

Introduces Full Year 2023 Revenue and Adjusted EBITDA Outlook

• Q3 2022 consolidated net revenues of $988.5 million, an increase of 15.4%, or 21.3% on a constant currency basis, compared to Q3 2021
• Q3 2022 GAAP income from operations of $68.2 million, a decrease of 10.3%, compared to Q3 2021, and non-GAAP income from operations of $81.1 million, a decrease of 4.1%, or an increase of 26.6% on a constant currency basis, compared to Q3 2021
• Q3 2022 GAAP net income of $38.5 million, an increase of 340.6% compared to Q3 2021, and non-GAAP net income of $44.6 million, an increase of 69.6%, or 152.9% on a constant currency basis, compared to Q3 2021
• Q3 2022 Adjusted EBITDA of $144.4 million, an increase of 4.0%, or 22.7% on a constant currency basis, compared to Q3 2021
• Increased full year 2022 revenue outlook to $3,965 million - $3,985 million and Adjusted EBITDA outlook to $560 million - $570 million

CARLSBAD, Calif., Nov. 3, 2022 /PRNewswire/ -- Topgolf Callaway Brands Corp. (the "Company" or "Topgolf Callaway Brands") (NYSE: MODG) announced record financial results for the third quarter and nine months ended September 30, 2022.

"Our record third quarter results underscore the strength of our business and competitive positioning across all segments," commented Chip Brewer, President and Chief Executive Officer of Topgolf Callaway Brands. "The long-term trends driving consumer interest and engagement in the Modern Golf ecosystem continued, highlighted by increased traffic at our Topgolf venues and strong sales in our golf equipment and active lifestyle businesses, including continued brand momentum for both TravisMathew and Jack Wolfskin. As our recent rebrand suggests, for the quarter, Topgolf continued to be a significant contributor to both revenue and Adjusted EBITDA, delivering 24% revenue growth year-over-year and generating $64 million in Adjusted EBITDA. For full year 2023, despite our current forecast for a challenging macro-economic climate, we expect our business to continue to grow. Including foreign exchange headwinds of approximately $110 million in revenue and $65 million in Adjusted EBITDA based on current rates, we believe our business will generate approximately $600 million in Adjusted EBITDA, with just over half coming from Topgolf."

GAAP, NON-GAAP AND PRO FORMA RESULTS

In addition to the Company's results prepared in accordance with GAAP, the Company has provided information on a non-GAAP and pro forma basis. The manner in which the non-GAAP information is derived is discussed further toward the end of this release, and the Company has provided in the tables to this release a reconciliation of the non-GAAP information to the most directly comparable GAAP information. The 2021 results presented on a pro forma basis include Topgolf International, Inc. ("Topgolf") results for January and February prior to the closing of the merger on March 8, 2021.

SUMMARY OF FINANCIAL RESULTS

The Company announced the following GAAP and non-GAAP financial results for the three and nine months ended September 30, 2022 and 2021 (in millions, except earnings per share).

NON-GAAP RESULTS

Non-GAAP results exclude certain non-recurring and non-cash adjustments as defined in the Additional Information and Disclosures section of this document.

Third Quarter 2022 Financial Highlights

(All comparisons to prior periods are calculated on a year-over-year basis.)

• Net revenues increased $132.0 million (or 15.4%, 21.3% constant currency), driven by an $80.0 million (or 24.0%, 24.8% constant currency) increase in the Topgolf segment, a $7.1 million (or 2.5%, 9.3% constant currency) increase in the Golf Equipment segment and a $44.9 million (or 19.3%, 31.2% constant currency) increase in the Active Lifestyle segment. Changes in foreign currency exchange rates had a $50.4 million negative impact on net revenues for the quarter ended September 30, 2022.
  
• GAAP income from operations decreased $7.8 million (or 10.3%) and non-GAAP income from operations decreased $3.5 million (or 4.1%), due to the negative foreign currency exchange impact. On a constant currency basis, non-GAAP income from operations increased 26.6% and operating income as a percent of sales improved 40 basis points compared to Q3 2021.
  
• GAAP other expense increased $3.6 million (or 14.0%) and non-GAAP other expense increased $6.2 million (or 28.3%). The increase was due to a $7.7 million increase in interest expense related to the financing of the six additional venues that were opened since September 30, 2021, as well as higher interest rates on variable rate debt. The increased interest expense was partially offset by incremental hedge gains, which were $6.8 million for the three months ended September 30, 2022, and $25.4 million for nine months ended September 30, 2022.
  
• GAAP net income increased $54.5 million (or 340.6%) quarter-over-quarter, due to continued strong performance of the operating segments and a change in the tax valuation allowance, partially offset by negative foreign currency impacts. On a non-GAAP basis, which excludes the change in the valuation allowance, amongst other items, non-GAAP net income for the quarter increased $18.3 million (or 69.6%, 152.9% constant currency).
  
• GAAP earnings per diluted common share was $0.20 for the quarter ended September 30, 2022, compared to $(0.09) loss per diluted common share for the same period in 2021. Non-GAAP earnings per diluted common share was $0.23 for the quarter ended September 30, 2022, compared to $0.14 per diluted common share for the same period in 2021. Weighted average diluted shares totaled 201.8 million shares for the quarter ended September 30, 2022, compared to 186.0 million shares for the same period in 2021, an increase of 15.8 million shares. The increased share count is primarily related to a change in accounting guidance, which took effect on January 1, 2022, and requires the Company to assume the full conversion of 14.7 million shares related to its convertible notes in its weighted average diluted share calculation.
  
• Adjusted EBITDA for the quarter increased $5.6 million, (or 4.0%, 22.7% constant currency) to $144.4 million, which consisted of a $5.0 million increase from Topgolf and a $0.6 million increase from the non-Topgolf business, which includes continued investment in the corporate functions.

SEGMENT RESULTS

In evaluating the Company's operating segment performance, readers should understand that the Company's 2022 operating results were significantly impacted by changes in foreign currency rates as compared to the same periods in 2021. The offsetting benefits from the Company's hedging program, however, are recorded in Other Income (see above in the Third Quarter 2022 Financial Highlights section) and are therefore not reflected in the segment operating results.

The table below provides net revenues by segment for the three and nine months ended September 30, 2022 and 2021 (in millions):

SEGMENT NET REVENUES

The table below provides the breakout of segment operating income for the three and nine months ended September 30, 2022 and 2021 (in millions):

SEGMENT OPERATING INCOME

Third Quarter 2022 Segment Highlights

(All comparisons to prior periods are calculated on a year-over-year basis)

• Topgolf
  
• Segment revenue increased $80.0 million (or 24.0%, 24.8% constant currency) year-over-year and same venue sales grew approximately 11% in the third quarter of 2022 compared to the third quarter of 2019, reflecting accelerating traffic at the venues, as well as price increases.
  
• Segment operating income decreased $0.3 million to $23.6 million in the third quarter of 2022 due to planned increases in pre-opening costs, marketing spend and labor.
  
• Opened two new owned and operated Topgolf venues in Knoxville, Tennessee and Renton, Washington, and one international franchise venue in Bangkok, Thailand during the third quarter of 2022.
  
• Golf Equipment
  
• Segment revenue increased $7.1 million (or 2.5%, 9.3% constant currency), year-over-year, reflecting continued high demand for golf clubs and golf balls, which helped overcome an approximate $20.0 million negative impact due to new product launch timing versus 2021. The golf ball business was the primary driver, with sales up 24.9% (30.2% constant currency) in the quarter.
  
• The Golf Equipment segment operating income increased $3.8 million (or 8.3%), primarily due to strong sales, which were partially offset by foreign currency impacts, increased freight expense and other inflationary pressures which the Company was able to generally offset through price increases, sales volume and efficiencies.
  
• On a constant currency basis, the Golf Equipment segment results would have been meaningfully higher.
  
• Active Lifestyle
  
• Segment revenue increased $44.9 million (or 19.3%, 31.2% constant currency), year-over-year, primarily driven by a 20.8% increase in apparel sales (33.0% constant currency) and a 16.5% (28.0% constant currency) increase in gear, accessories and other sales.
  
• Operating income for the Active Lifestyle segment decreased $6.5 million (or 18.8%), year-over-year to $28.1 million in the third quarter of 2022, primarily due to foreign currency impacts as pricing continues to offset increased freight expense and other inflationary pressures.
  
• On a constant currency basis, the Active Lifestyle segment operating income would have increased during third quarter 2022.

The following is a reconciliation of income before income taxes to total segment operating income for the three and nine months ended September 30, 2022 and 2021 (in millions):

2022 BUSINESS OUTLOOK

The 2022 projections set forth below are based on the Company's best estimates at this time. They include the estimated impact of certain factors, including (1) ongoing impact of COVID-19, (2) foreign currency rates, and (3) freight costs and other inflationary pressures.

Net Revenues: The Company currently estimates that its full year 2022 net revenues will be within the range of $3,965 million to $3,985 million, including approximately $150 million of negative foreign currency impact based on recent rates, which is $21 million higher than previous guidance. The full year 2022 net revenues estimate assumes Topgolf segment revenue of approximately $1.56 billion, consistent with previous guidance. It also assumes Golf Equipment segment revenue growth of 12% or more and Active Lifestyle segment revenue reaching approximately $1 billion, both consistent with previous guidance. On a consolidated basis, 2022 full year net revenues is estimated to increase over 20% (26% constant currency) compared to 2021 pro forma net revenues, which includes 12 months of Topgolf results.

Adjusted EBITDA: The Company is increasing its full year 2022 Adjusted EBITDA guidance to $560 million to $570 million, an increase of $5 million versus previous guidance. At a high level, the Golf Equipment business is covering incremental foreign exchange risk and Topgolf venue profitability is delivering a $5 million increase compared to previous guidance. The full year 2022 Adjusted EBITDA guidance estimate for the Topgolf segment is now $240 million to $250 million.

2023 BUSINESS OUTLOOK

For full year 2023, the Company expects net revenues to grow approximately 10% year-over-year (13% constant currency), which would include approximately $110 million of negative foreign currency translation impacts based on foreign exchange rates as of late October 2022. The Company also expects to deliver approximately $600 million in Adjusted EBITDA, which includes a $65 million translation impact based on foreign currency exchange rates as of late October 2022.

ADDITIONAL INFORMATION AND DISCLOSURES

Conference Call and Webcast

The Company will be holding a conference call at 2:00 p.m. Pacific time today, November 3, 2022, to discuss the Company's financial results, outlook and business. The call will be broadcast live over the Internet and can be accessed at https://www.topgolfcallawaybrands.com/news-and-events/presentations. A replay of the conference call will be available approximately two hours after the call ends. The replay may be accessed through the Investor Relations section of the Company's website at https://www.topgolfcallawaybrands.com.

Non-GAAP Information

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

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

Non-Recurring and Non-cash Adjustments. The Company provided information excluding certain non-cash amortization and depreciation of acquired intangible assets and purchase accounting adjustments. Non-recurring items including legal costs and credit agency fees related to a postponed debt refinancing, IT integration and implementation costs associated with new ERP systems stemming from acquisitions and non-cash asset write-downs in 2022, non-cash amortization of the debt discount related to the Company's convertible notes in 2021, acquisition and other non-recurring items (including integration costs and a $252.5 million non-cash gain in 2021 resulting from the Company's pre-merger equity position in Topgolf), and changes in the Company's non-cash valuation allowance recorded against certain of the Company's deferred tax assets as a result of the Topgolf merger.

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

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

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

Definitions

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

Forward-Looking Statements

Statements used in this press release that relate to future plans, events, financial results, performance, prospects, or growth opportunities, including statements relating to the Company's (and its segments') full year 2022 and 2023 guidance (including net revenues, Adjusted EBITDA and Topgolf segment Adjusted EBITDA), impact of any measures taken to mitigate the effect of the COVID-19 pandemic, strength and demand of the Company's products and services, continued brand momentum, demand for golf and outdoor activities and apparel, continued investments in the business, consumer trends and behavior, future industry and market conditions, pricing of products and services, foreign currency effects and their impacts, impacts of inflation and freight and other supply challenges, and statements of belief and any statement of assumptions underlying any of the foregoing, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "estimate," "could," "should," "intend," "may," "plan," "seek," "anticipate," "project" and similar expressions, among others, generally identify forward-looking statements, which speak only as of the date the statements were made and are not guarantees of future performance. These statements are based upon current information and expectations. Accurately estimating the forward-looking statements is based upon various risks and unknowns, including disruptions to business operations from additional regulatory restrictions in response to the COVID-19 pandemic (such as travel restrictions, government-mandated shut-down orders or quarantines) or voluntary "social distancing" that affects employees, customers and suppliers; costs, expenses or difficulties related to the merger with Topgolf, including the integration of the Topgolf business; failure to realize the expected benefits and synergies of the Topgolf merger in the expected timeframes or at all; production delays, closures of manufacturing facilities, retail locations, warehouses and supply and distribution chains; staffing shortages as a result of remote working requirements or otherwise; uncertainty regarding global economic conditions, particularly the uncertainty related to the duration and ongoing impact of the COVID-19 pandemic, and related decreases in customer demand/spending and ongoing increases in operating and freight costs; global supply chain constraints and challenges (including, without limitation, as a result of any prolonged shutdown in China); the Company's level of indebtedness; continued availability of credit facilities and liquidity and ability to comply with applicable debt covenants; effectiveness of capital allocation and cost/expense reduction efforts; continued brand momentum and product success; growth in the direct-to-consumer and e-commerce channels; ability to realize the benefits of the continued investments in the Company's business; consumer acceptance of and demand for the Company's and its subsidiaries' products and services; cost of living and inflationary pressures; any changes in U.S. trade, tax or other policies, including restrictions on imports or an increase in import tariffs; future consumer discretionary purchasing activity, which can be significantly adversely affected by unfavorable economic or market conditions; future retailer purchasing activity, which can be significantly negatively affected by adverse industry conditions and overall retail inventory levels; and future changes in foreign currency exchange rates and the degree of effectiveness of the Company's hedging programs. Actual results may differ materially from those estimated or anticipated as a result of these risks and unknowns or other risks and uncertainties, including the effect of terrorist activity, armed conflict, natural disasters or pandemic diseases, including expanded outbreak of COVID-19 and its variants, on the economy generally, on the level of demand for the Company's and its subsidiaries' products and services or on the Company's ability to manage its operations, supply chain and delivery logistics in such an environment; delays, difficulties or increased costs in the supply of components or commodities needed to manufacture the Company's products or in manufacturing the Company's products; and a decrease in participation levels in golf generally, during or as a result of the COVID-19 pandemic. For additional information concerning these and other risks and uncertainties that could affect these statements and the Company's business, see the Company's Annual Report on Form 10-K for the year ended December 31, 2021 as well as other risks and uncertainties detailed from time to time in the Company's reports on Forms 10-Q and 8-K subsequently filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

About Topgolf Callaway Brands

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

Investor Contact
Lauren Scott
(760) 931-1771
invrelations@tcbrands.com