Q3 2021 Callaway Golf Co Earnings Call
[music].
Good day and thank you for its funding by welcome to the third quarter 22, 91 call will be golf earnings Conference call.
At this time all participants lines are in a listen only mild after the speaker's presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press zero.
I would now like to hand, the conflicts over C O a speaker today.
Lauren Scott Director of Investor Relations. Thank you just go ahead and item.
Thank you.
Good afternoon, everyone welcomed the calories third quarter 2021 earnings conference call I'm, Lauren Scott the company's director of Investor Relations joining the speakers on today's call are cheaper, our president and Chief Executive Officer, and Brian Lynch, Our Chief Financial Officer, Patrick Burke, Calloway's Senior Vice President of Global Finance.
And Jennifer Thomas R. Chief Accounting Officer are also in the room today for Q&A.
Earlier today, the company issued a press release announcing its third quarter of 2021 financial results. In addition, there's 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.
Most of the financial numbers reported and discussed on today's call are based on you asked generally accepted accounting principles and the instances, where we report non-GAAP measures. We are reconciled the non-GAAP measures to the corresponding GAAP measures at the back of the presentation in accordance with regulation.
Please note that this call and forward looking statements that involve risks and uncertainties that could cause actual results to differ materially.
From management current expectations.
We encourage you to review the Safe Harbor statements contained in the presentation and the press release for a more complete discussion I would now like to turn the call over to Chipper. Thank you Lord good afternoon to everybody on this call and thank you for joining us today.
I'm pleased to report strong third quarter results that exceeded our expectations is callaway continued to benefit from broad base momentum across all segments.
The operational headwinds <unk> and nearly all consumer brands face during the quarter were no match for a world class team of professionals and the strong demand we were experiencing in golf equipment and apparel.
In addition, topgolf delivered exceptional results as increased walk in traffic and social event bookings led to further gains in sales and productivity.
Our company is on a roll and I'm very optimistic about the road ahead.
I hope the number one takeaway from today's call is the upside we're seeing on the long run earnings potential of this business.
At a high level total net revenue for the third quarter increased 80% year over year, two $856 million with 39% coming from the top golf segment.
34% from golf equipment, and 27% from apparel gear or another.
Profitability also increase with adjusted EBITDA up 57% to $139 million.
Before providing commentary on each segments progress during the quarter I want to remind everyone of the transformation that has taken place here at Callaway over the past several years.
Less than five years ago, we were almost exclusively a golf equipment company.
But that has changed significantly with the addition of O J O Travismathew, Jack well skin.
And now even more so with the addition of top golf.
When you invest in Callaway, you are now investing in what I like to call modern golf.
A combination of traditional golf with lifestyle apparel and the world's leading tech enabled golf Entertainment company.
We are engaging with a wide range of consumers and meeting them, where they play whether that's on the golf course off course at her top golf venues in top trace their base out hiking or mountain or else socializing with friends.
Golf equipment has a great business with wind at his back but is now just a portion of our business just under 40% of this year's estimated full year revenues.
Looking ahead, we expect all of our segments and business units to deliver growth and to support each others continued success.
Top golf in particular has exceptional growth embedded with in its portfolio and our apparel assets have strong brand momentum.
That will continue to drive strong results.
The combined entity has a competitive advantage in scale and the golf sector, and then unmatched reach to a wide range of consumers.
With that said I'll move now to segment highlights started with an update on our top golf business.
I'm pleased to report that are owned venues continued their positive trends with Q3 same venue sales that approximately 100% of 2019 levels.
The Overperformance in Q3 was driven by continued strong walk in traffic.
And improved event sales, especially in the social event bookings.
Our performance was particularly impressive considering the headwinds we face from the increase in Delta Covid cases early in the quarter.
Getting back to 2019 levels of same venue sales as a significant milestone for the top golf team and a strong indicator of more growth to come as the business fully recover some COVID-19 impacts.
In addition, we're seeing very strong flow through to the bottom line with adjusted EBITDA $59 million for the quarter.
Which significantly outpaced are forecast to put this in perspective Topgolf earned as much in Q3 as it did for the entire year in 2019.
As we look out over the remainder of the year. We continue to believe the corporate events business will be later than it was in 2019.
However, now that we are one week into November we are pleased to report that the number of leads for corporate events in queue for is improving as as the conversion rate from those leads.
Overall relative to Q3, we see total system same venue sales stepping down in queue for but only because corporate events or historically, a larger portion of the queue for sales mix.
And we know anticipate low to mid 90 same venue sales rates for both Q4 and the full year.
Up nicely from a prior forecast.
Like many companies for the remainder of this year and into 2022, we anticipate above average inflationary pressures on food beverage in wages, but we believe we will be able to continue to effectively mitigate the impacts of these by sustaining strong top line revenues continued labor efficiency and selectively taking price.
Then you expansion continued as planned during the quarter with the opening of Colorado Springs is 74 Bay medium size venue.
And wholesale long island, a large 102 bay venue.
Year to date, we've opened a total of eight new venues and we have our final venue for the year slated to open later this month in Fort Myers, Florida.
We now also have a strong visibility into the 2022 development pipeline and are confident that we can hit our target of 10, new venues next year.
Top tracer expansion continued during the quarter with year to date installation, surpassing a full year of installs in 2020 and nearly double the full year of installs in 2019.
However, COVID-19 restrictions supply chain issues led to fewer installs during the quarter than we anticipated now for the full year. We anticipate that are total new Bay installs will be approximately 10% below are 8000 Bay target.
Most importantly, though demand for top trace remains very strong.
As is customer feedback with driver and ranges reporting 25% to 60% revenue increases post installation.
We are confident that in a normal operating environment, we will be able to get back to our goal of 8000 plus installations per year.
Before I continue onto our other segments I want to take a moment to highlight the five iron golf minority investment, we announced last week.
Is it aligns nicely with both our golf entertainment and our golf equipment segments.
<unk> is a privately owned indoor golf, an entertainment concept predominantly located in major metropolitan cities.
They offer simulator rentals golf lessons and custom club fittings, while also providing a fund space for social events.
We are excited about the five iron investment and partnership as it increases our exposure to the off course golf, an entertainment space, which we believe will be a key driver of the long term growth of the industry.
As it introduces more new entrants to the sport.
In addition to the partnership we have a nonexclusive marketing agreement, where five iron members and guests will have the opportunity to demo Callaway clubs and balls, increasing our reach the golfers at all levels, if you're in New York, Baltimore, Chicago, where several other major cities, we encourage you to check.
[noise] out one of their facilities.
Move into the golf equipment segment demand and interested in golf remains at all time highs and our supply chain team successfully navigated the Q3 supply chain challenges to capture more demand than we thought was possible when we last spoke.
Digging deeper into the operational side, we're pleased with the trends we are now seeing in the supply chain and although we expect both us and the industry at large to be supply constrained for the foreseeable future. We're also confident will be able to manage through in a manner that supports our growth.
And profitability initiatives were also cautiously optimistic that our efforts and scale are creating a competitive advantage for us here.
Specific to the most recent Vietnam shutdowns I'm pleased to report that our suppliers factories in Vietnam are back open and ramping to support our 2022 product launch plans.
Barring any foreseen new macro issues.
We we anticipate no meaningful disruption to our 2022 product launches.
We've also been fielding questions as of late on the sustainability of the heightened interest in golf and I want to go on the record, saying that all signs show that the high level of interest is continuing and we will do so through the foreseeable future hi.
Hi goods retail sell through his continued to trend higher according to golf data Tech with Q3 up 1.3% year over year and up 46.5% compared to 2019.
We are not seeing demand decline and our customers are telling us that they expect a strong year for golf in 2022.
Shifting to the apparel and gear segment results for the quarter highlighted the strong momentum within the Travismathew and Jack will skin brands as well as the success of our Callaway branded product in Asian markets.
Travismathew brand continues to be on fire, gaining strong traction and newer east coast markets, while maintaining a strong following here on the west coast.
The brand is performing extremely well in all channels looking.
Looking specifically at our own stores comp store sales for the quarter were very strong up 84% versus 2020 and 50% versus 2019.
During the quarter, we opened two new Travis stores in Florida, one in Bocca and the other in Palm gardens, ending the quarter with a total of 26 retail locations. We expect to open another three doors in queue for for a total of 29 doors by year end.
Needless to say the performance of our retail doors have been outstanding on a standalone basis.
But what makes them even more attractive as they tend to drive increase brand strength in wholesale demand in the regions and communities where they are located.
E. Commerce was also strong driver of growth with normalized sales up 50% year over year that is excluding a onetime sale we did last year.
In line with the company's sustainability initiatives. We're excited we were excited to launch the Travismathew Eco collection of September.
In partnership with the Surfrider Foundation the.
The fabric blends in this collection use at least 98% organic cotton and at least 62% recycled polyester created from plastic bottles with 100% of the profits go into the Surfrider Foundation, an organization dedicated to predicting the world's oceans and beaches.
Jack Woolskin experienced a strong Q3 as well with 2022 spring summer pre Brooks up significantly over 2020.
And comp store sales, increasing almost 10% over both 2019 and 2020.
Similar.
Miller Port delays that we experience here in the U S were also an issue in Hamburg, Germany, but the team did a wonderful job navigating the challenges and we were able to successfully fulfill orders in the quarter without cancellations.
Lastly, Callaway apparel in Japan continued to be a top performing brand in the wholesale channel holding the number one position year to date and.
In in Korea, the brand was off to a solid start as well with positive reception from the major department stores in the region.
In conclusion as I said at the top of the call our business is on a roll.
While we are not providing 2022 guidance at this time.
Based on the strong trends, we're seeing across all segments, we believe that all business lines.
All regions are poised for growth next year.
And with that I'd like to turn the call over to Brian Lynch to discuss our financials and guidance in more detail.
Thank you chip.
I want to start by echoing chips enthusiasm about our third quarter results and positive outlook for the remainder of the year and into 2022.
The record results highlight the significant growth potential embedded in our business, which we are realizing more quickly than we initially anticipated.
The demand for our golf equipment and apparel products couple.
Coupled with our operation team's ability to navigate successfully the COVID-19 supply chain challenges.
Have resulted in stronger than anticipated financial results in those businesses.
We also benefited from very strong topgolf revenue driven by increased walk in traffic and more social events business as Covid concerns is during the past few months.
Profitability of top Cup also exceeded our expectations due to the strong sales combined with increased operating margins.
Before I get into the specific business results.
I would like to acknowledge that we have not forecasted our business the last two quarters as well as we would have liked.
Fortunately, we have overperformed, but.
But we would all we would also have liked to have been more accurate.
The reality is forecasting our business in this environment has been very challenging for a variety of reasons.
These include the ebbs and flows of Covid cases globally as steady diet of new and exciting supply chain challenges that we have never had to work through before.
Unique operating conditions that caused profitability to flow a lot differently than in the past.
And the increased overall scale of our business, which is new to us.
We appreciate your patience and understanding as we work through these issues. We are learning accordingly, and we will be adjusting to return to more accurate forecasts.
And the guidance we are providing you today, we are reflecting the more normalised spending levels as well as sustainable operating leverage.
In the meantime, we hope to forecasting challenges do not overshadow what is clearly an outstanding year as well as higher long term expectations.
As we turned to discuss our financial results.
Want to remind you that we use certain non-GAAP measures to evaluate our business performance.
For more details on these metrics and a reconciliation to cap results.
Please reference the disclosures and tables and our earnings release and the SEC filings.
Furthermore, in addition to the segment highlights we typically provide please note that on slide 14 of our earnings presentation.
We have provided a more detailed reconciliation of top cough adjusted EBITDA.
So you can better understand the walk from segment income to top golf adjusted EBITDA.
Moving to size 12 and 13.
Consolidated net revenue for the quarter was $856 million, an increase of 80% or $381 million compared to Q3 2020.
The increase was led by the addition of top cough revenue of $334 million.
Along with an 8.4% increase in golf equipment revenue.
And a 11.9% increase in apparel gear another.
Changes in foreign currency rates had a 4 million dollar favorable impact on third quarter of 2021 revenues.
Total cost and expenses were $772 million on a non-GAAP basis in the third quarter of 2021 compared to $406 million in the third quarter of 2020.
Of the $366 million increase.
Top cough at at $310 million of total costs and expenses.
The remaining 56 million incur.
Increase includes.
Moving spending levels back to normal levels.
To start up with a new Korea, Callaway apparel business and expansion of the Travismathew business.
Increased corporate structure.
Increased corporate cost to support a larger organization.
And increased freight costs, an inflationary pressures.
To date increased sales volumes of selected price increases have balanced out the cost increases.
And we believe this will continue to be the case in queue for and into early 2022.
We are also reporting for the third quarter of 2021, non-GAAP operating income of $85 million a.
$15 million increase over the same period in 2020.
The increase was led by a $24 million increase in segment profit.
Due to the addition of the top Cup business and.
And a $9 million increase in apparel gear and other operating income.
Darcy offset by $11 million decrease in golf equipment operating income due to increased freight costs and return to more normal I've spent.
Non-GAAP other expense was $22 million in the third quarter compared to other expense of $3 million in Q3 2020.
The $19 billion increase was primarily related to a $16 million increase.
An interest expense related to the addition of top cough as well as lower hedge gains compared to the prior period.
When a gap basis, the effective tax rate for the third quarter was an unusual 132%.
You may recall that in the second quarter, we were required to use the discreet method for calculating our tax rate.
And therefore reverse a significant portion of the valuation allowance we had recorded during the first quarter as a result of the top cough merger.
And the third quarter, we were required to move back to using the annual rate method and once again record the valuation allowance that was reversed in the second quarter.
I have my own opinion believe what will leave it to you to assess whether there was any value added by this round trip of the valuation allowance.
When a nine month gap basis, the effective tax rate tax rate was 22%.
Excluding the valuation allowance, we recorded again and the impact of the other non-recurring items or.
Non-GAAP effective tax rate for the third quarter was 58% and for the nine months was 29%.
The third quarter rate was impacted by the transition from the discreet method to the annual rate method.
In both periods were impacted by the deferred benefits of certain tax items.
There are a lot of moving parts with our tax rates in the interim period rates are not always an accurate guide.
For internal purposes, we are using low twenties.
For our planning purposes for the non-GAAP full year right.
Non-GAAP earnings per share was 14, and approximately 194 million shares in the third quarter of 2021.
Compared to 61 cents per share on approximately 97 million shares in the third quarter of 2020.
The share increases primarily related to the issuance.
Of additional shares in connection with the top cough merger.
Four year estimated diluted shares is approximately 177 million shares.
Which includes the weighted average shares issued in connection with the merger over approximately a 10 month period.
Lastly, adjusted EBITDA was $139 million in the third quarter of 2021.
Care to $88 million in the third quarter of 2020.
The $51 million increase was driven by a $59 million contribution for the top Cup business.
Which performed exceptionally well this quarter.
And was partially offset by a return.
Towards more normal spend levels, and the golf equipment and soft goods businesses.
Turning now to slide 15.
I will now cover certain key balance sheet and other items.
As of September 30th 2021 available liquidity, which is comprised of cash on hand and availability under our credit facilities.
Was $918 million.
Appeared to $630 million of September 30th 2020.
This additional liquidity reflects overperformance and all of our business segments.
At quarter, and we had a total net debt of $1 billion.
Including deem landlord financing of 311 million related to the financing of top Cup venues.
Our leverage ratios have improved significantly period over a period.
And on a net debt basis is now 2.5 times compared to three five times at September 30th 2020.
As we look forward over the next few years, we expect to leverage ratio to trends a little higher.
Depending on the level of top cop development and deemed landlord financing.
Consolidated net accounts receivable is $255 million.
An increase of 6% compared to $240 million at the end of the third quarter of 2020.
This increases primarily attributable to the increase in third quarter revenue as well as an incremental $10 million of top cop accounts receivable.
We continue to remain very comfortable with the overall quality of our accounts receivable at this time.
Legacy days sales outstanding decreased to 53 days as of September 30th 2021.
Compared to 55 days as of September 30th 2020.
Our inventory balance increased to $385 million at the end of the third quarter of 2021.
Compared to $325 million at the end of the third quarter of the prior year.
This $60 million increase was due to higher golf equipment inventory.
Especially towards the end of the quarter, reflecting an increase in in transit inventory and.
And a shift to making 22 launch product.
The task up this is also added $18 million total inventory this quarter.
Capital expenditures for the first nine months of 2021 were $149 million net.
Of expected reimbursements.
This includes $109 million related to top golf.
From a full year 2021 forecast perspective, the golf equipment, a soft goods business forecast to $60 million.
The 2021 full year forecast for Kelly and top cough is approximately $225 million net.
Net every reimbursements.
Primarily related to the new venue openings.
The foregoing amounts do not include approximately $33 million in capital expenditures for top Gov in January and February which was pre merger.
Non-GAAP depreciation and amortization expense was $37 million in the third quarter of 2021 compared to $8 million in 2020.
This includes $28 million of non-GAAP, depreciation and amortization related to top Gov.
For the full year 2021, we expect non-GAAP depreciation and amortization expense to be approximately $130 million.
Which includes $93 million for the cough cough business.
Before going does not include approximately $18 million, a cop cough, non-GAAP depreciation and amortization for January and February.
In the aggregate.
Now turning to our outlook on slide 16.
For the full year, we expect revenue to range between 311 and $3 one $2 billion.
That compares to 1.59 billion in 2020 at 1.70 billion in 2019.
The company is full year 2021, net sales estimate assumes continued positive demand fundamentals for our golf equipment, a soft goods segments and.
And no further business supply chain of retail shutdowns due to COVID-19.
It also assumes continued strong momentum into Cockup business, which is expected to generate 10 months segment revenue that will come in slightly above its 2019 full 12 month revenue of $1.06 billion.
Full year adjusted EBITDA is projected to be between 424, and $430 million, which assumes approximately $158 million from top cough.
For the fourth quarter are implied revenue guidance is increasing by approximately $30 million with about 50% of that flowing through to adjusted EBITDA.
Revenue increase is driven by continued overperformance and the venues.
Increased supply in golf equipment and spend levels continue to ramp up to normalize levels.
On the operational side as I mentioned earlier in my remarks, we're expecting continued cost pressure from increased freight costs, an inflationary pressures.
Including labor in commodity prices as well as negative foreign currency impacts due to a strengthening U S dollar for.
For the balance of 2021 and into 2022.
However, despite these headwinds we 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 next year.
That concludes our prepared remarks today, and we will now open the call for questions.
Operator over to you.
As a reminder to ask a question you'll need your best Star one on your telephone and to the diet question <unk>.
Yeah. The first question comes from the line of Daniel email Steven.
Steven Your line is open.
Hey, good afternoon, Thanks for taking my question.
Every day.
I want to start on top golf again, this is kind of the third quarter quarter in a row that popcorns really exceeded your internal expectations I guess when you look at the business what's been the biggest surprise relative to those expectations and maybe just houses datable do you see these trends I mean core kind of theme venue sales back to flat, even with weakness and events I mean.
And you think twenty-two how should we think about that trend line continuing.
Sure Daniel Yeah, we have been thrilled with the results of the top golf.
And so.
The the surprises as you.
Appropriately call them have been.
On the positive side.
The same venue sales growth that we saw during the quarter.
Would exceed our expectations.
We had particularly strong quarter on the walk in but that has been an ongoing trend for us a strong work in sales and then.
What we saw really grow significantly during the quarter was social events now what makes it. So we were surprised on the.
On the fact that we got all the way back to approximately 100 per cent same venue sales what made that particularly impressive Daniels if you take a walk back in time when we.
Gave you our last call Covid crate cases were increasing in the U S. At that time, and so we were getting some contrary signals at that time.
With.
Events kind of doubling back on us and.
Some caution signs, but then as the quarter continued and.
Covid cases declined we've seen further growth so.
That continued trend has been quite positive has been very positive for us and you can see us taking up our numbers through the end of the year.
The only real headwind, we see there is the corporate events and those are improving but we expect them to stay down the other positive on topped off which has been well above our expectations as the flow through.
As we went into the year <unk>.
Projecting that business at more historical flows through or even rates that were better than historical flow through has exceeded even those expectations.
Some of that is sustainable some of it is likely not as we will need to work.
Return staffing levels in marketing levels back up too.
Closer to historical levels, but I want to congratulate the team it topped out for just doing a wonderful job.
We knew we got a gym, when we merged with top golf, but it's been well above expectations and obviously, we view the outlook along those same lines.
That was really helpful. One follow up on top golf I guess, you mentioned the real estate team kind of already has 2022.
They're more availability of real estate in the aftermath of Covid I guess, you've given the success you are having a bit of any level, what's keeping you guys maybe growing venues factor.
Yeah, just given that profitability your thing.
We're working on venues so like if we find a new site right now Daniel for a venue, it's a 2024 site.
So venues.
First of all.
The development of venues got shut down during COVID-19.
Unique point in time, but if you remember how the world was at that point.
Further development pipeline and all progress on construction et cetera was essentially halted.
So you see a.
A hiccup if you would in the.
Pace and past there, but then also these venues are large projects they have long lead times et cetera.
And.
One of the great assets of this top golf business is that real estate team and they are doing a wonderful job.
Identifying an opening these venues.
And.
So we feel very confident in it but the ability to impact in the near term.
Is not quite as.
I guess quick as you think it might be.
Got it and then one last one for me on the core business.
I think it would be prepared remarks, you guys talked about Brian you mentioned have your golf equipment profitability stepping down year over year due to the return of spending have we seen that spending returned fully is this the right run right. We should think about X growth going forward or there's still more a temporary costs that need to come back into the model and <unk>.
He was a model out profitability.
Well, it's definitely you've seen a ramp all during the year and that's continued to if you take queue for for example, you will see not only the increasing Q4, but also the full load of that.
In Q3, you'll see the full load of that into Q4, as we hire people and do other things like that.
We're not giving specific guidance for for next year, but I think overall, we've talked about the ramp is lumpy and you're getting it all.
A large portion of it this year.
Got it well congrats guys and thanks, so much for the color.
Your next question comes from the line of Randy Chronically Jessie Your line is open.
Hey, guys how are Ya.
I just wanted to ask about channel inventories I think in the last few quarters you talk about.
I think there was two months of inventory on hand, when there should be about six months of inventory. So you talked a little bit about supply constraints and you'll still be constrained, but youre doing a better job of getting I guess more inventory produced then you would have thought so I'm just curious on that kind of dynamic on supply and where it stands right now both.
On the manufacturing side with your vendors as well as in.
In the channels thanks, guys.
<unk> Randy this chip.
Supply.
Or inventory remains very low.
In the channels right now and so it has stepped up slightly from where you referenced we were.
Previously.
And that's a seasonal thing it always does this time of year. So in other words at the end of Q3. The number is the months on hand or slightly higher than they are at the end of Q too.
But still remains very.
Light.
We almost call it under inventoried in the field.
And we expect that situation to continue.
Understood and then.
Understood and then.
How 'bout, just just need an update on Jack bolts can you talked about I think comps are up now.
Bookings are up significantly are strongly whenever you said earlier on the call can you just give us maybe in a refresher on where that business stands from a revenue perspective from when you bought it on a profitability perspective, because it seems.
I think it was 40 million of EBITDA. Initially that you had to it and then you had to invest in the business and EBITDA.
<unk>, if you will and now it seems like it has an opportunity to come back and provide some.
Like opportunity for them to add to the portfolio. If you will beyond just or Callaway and top got some maybe just give us some perspective on on where that Jack Woolskin story is right now from a sales and profitability perspective, Thanks, guys sure Randy and I think the key takeaways your last point, there and that it is.
What a good position this businesses and how additive it can be so we're expecting nice growth and we're seeing great trends in the Jack will skin business.
The Jack Woolskin business.
Has been recovering nicely, but you've got to keep it in context that that Europe market.
Does heavily impacted by Covid.
Throughout much of 2021, so it is going to be an area of nice growth for us next year.
They have done a wonderful job with the brand their cell throughs have been excellent they're booking.
Bookings for next year as I mentioned are quite strong.
They are trending now in the right directions throughout almost all segments of their business.
Is below where it was in 2019, but unlike the golf equipment business it hasn't.
We are covered.
And had the same surge, but you're seeing some really positive trends in that business Randy so.
We're looking forward to some strong strong future there.
Understood. Thanks, guys.
Training.
Your next question comes from the line of Susan Anderson This be Riley Your line is open.
Hi, Thanks for taking my question May stop on the corner.
You talked about you're expecting outperform anti growth in all of the business Langdon units next year and just curious on the golf equipment business kind of what's driving that confidence and then also are you expecting that growth to come more from the international side of that business versus the us or would you also expect the U S.
To see positive growth often that pretty they can't raise the path yet thanks sure.
And thank you for the nice comment and yes.
Yes, we are expecting the golf equipment business to be positive next year is that.
We were very intentional we thank all of our segments will grow.
Grow.
The U S should grow within golf equipment as well so we're looking at that a globally, but it would include the U S.
What gives us confidence on that is three fold one.
We're looking at the data and the data is showing that even in the current environment and.
Q3 et cetera, we haven't seen it slowed down.
Second is we're talking to our customers and our customers are.
Almost unanimously telling us they are expecting very strong years next year, and then thirdly, the inventory situation that we see with very low.
Inventory in the field.
We think will support that as well so it gives us enough confidence to make the statement that we did.
Great. That's really helpful. And then I was wondering I didn't see in the presentation did you guys talk about.
Your market share this quarter and balls and equipment.
We did not Susan there's just so much to cover our market shares in ball or up.
I believe in clubs marginally down, but not significantly and as you know the market share data is indicative of certain parts of the business in certain channels, but certainly not all encompassing so has not been a meaningful.
Market share move relative to our position this year, although it's been close to transformational for the overall business.
Great. That's really helpful. Thanks, so much good luck and fourthquarter. Thank you things.
Your next question comes from the line of <unk> Leamond James Your line is open.
Hey, guys good afternoon.
First question for Brian and I want a preference my my question by saying I certainly feel envy.
You are trying to forecast the business in this environment, but I guess I'm curious what happened in the last three because the quarter that led to such a large EBITDA beat it looks like a lot of that was on the on the expense side. So I'm curious where any expenses, we stopped into the fourth quarter.
So overall I would say that.
A lot of what you saw was just are under forecasting the profitability as I mentioned earlier in my comments that that was a good portion of it.
Other than that you just chip mentioned the half of it was probably related to the top cop venue profitability being higher than than forecasted and I would say the other half is just spread out.
Margins were better than we expected.
There was lower Opex span and then we had more hedge gained.
So it's just we tried to take that all into account when we gave our guidance for the fourth quarter, so that should all be baked in.
There have been just generally during the year just some examples we've been trying to step up and hire people and in this environment is very difficult. So some that you might've hired in Q3 are now you are trying to hire in queue for but we tried to bake all that into our queue for guidance.
Okay. That's helpful. And then it's in terms of the supply chain constraints.
Is there one or two businesses that are more concerned than others or is it pretty much across the board at this point.
Well, it's the apparel and gear and golf equipment that is mostly constrained we have a little bit of.
Challenges like many companies staffing the venues.
But obviously the venues are doing very well and that situation at the venues is.
Yeah.
Getting less significant so it's improving.
I guess the golf equipment.
Segment has the.
Largest difference between demand and supply it right now but.
Both both segments golf equipment, and apparel have demand exceeding supply.
From a macro perspective.
Okay, and just one last one if I could.
Events business can you give us an idea of where that's tracking where indexing versus 2019.
Well not.
Quantitatively, but is improving so if you look at and it varies by quarter et cetera, as you would expect it to so obviously during Q3 we saw.
Great results certain same venue sales the event business trend it up nicely driven by social events and so a social event is a small group it may be you and.
For other people that are booking a bay or two.
Together as opposed to a large corporate events corporate events have been the most significantly impacted.
And as I mentioned during Q3, we saw that business cycle from negative trend to a positive trend.
And that positive trend is now continued so we expect there to be.
Last corporate events in queue for then 2019, but the trend is moving in the right direction, and it's really even granular down to the bigger events or more impacted than the smaller events.
Sometimes we would have full venue buyouts, if you would.
Those are less common now as you think would make sense.
But smaller corporate events, we're starting to see some positive signs although.
The lead times et cetera are a little bit more shorter than they used to be as well so still some <unk>.
Certainty in that.
That give you enough release for some color yeah now it does I appreciate that I wasn't expecting.
Quantitative answer, but I certainly appreciate that thank you I'm sure my pleasure.
Your next question comes from the line of Casey Alexander with complex point your line or something.
Hi, good afternoon.
Okay.
Let me ask uhm.
It sounds like things are easing a little bit on the supply chain side.
Would you say that supply chain is switching from where there had been a lot of materials and component issues and it's switching more to logistics issues are are are now the primary thing that you're trying to overcome and as it relates to the competition.
Does your more permanent position within the space is that you occupy actually create and market share opportunity or has it created a market share taking opportunity because even though you have supply chain issues, you've been able to navigate them better than maybe people who are further down the food.
Yeah.
Casey I think first of all your 100% correct. The supply chain issues are a little bit ongoing fact of life, but they have eased significantly in my view.
And the teams also just done a wonderful job.
As we went into the last earnings call.
Vietnam or just shut down we source half of our golf equipment from Vietnam or half of our clubs and we were.
Really trying to figure out what all that met and as you can see in subsequent.
Results, we were able to mitigate quite a bit of that by ramping up factories in China much more significantly than we were able to do and then most recently Vietnam has back open.
The logistics challenges of time on container ships and the costs of all of that no real change in that.
I am hopeful that will improve at some point.
It hasn't really changed yet.
And the material side, maybe we're seeing a little bit better than that but the real big difference. It. We're seeing is that we've got all the factories open now and we've also learned how to operate effectively in this environment. So.
Our confidence and comfort level.
Dealing with his issues and circumstances is just much higher.
In terms of our position as a leader in the Gulf industry and the scale advantages. We have I do think it creates a competitive advantage for us it creates a competitive advantage for us.
Our ability to move supply around to apply resources in different ways.
We're constantly subbing different materials and working through issues and.
It also provide we have some very strong partnerships with large foundries where where.
Clearly the number one customer.
And component manufacturers were were clearly the number one customer and so.
We provide them the opportunity to partner with us accordingly.
And that may lead to advantages into market share gains overtime.
Alright.
Thank you for that answer that that's that's quite helpful.
Can I ask a second question I mean, when you took it on the top golf acquisition.
You know, we we were guided to reasonably significant scale up of that over the first couple of years that you were going to own it.
And instead, you have generated enormous cash flows.
Have your capital priorities changed in terms of capital allocation.
You know and and what should we think about the company's ability to make sort of a 30 million dollar offhand investment and five iron golf, whereas that probably a year ago would not even been something that was contemplated.
You are 100% right Casey.
We couldn't be more pleased and feel more fortunate with how.
This has worked out and.
We have been able to forecast it we could have slept a little better but.
We're we're clearly way ahead of our.
Cash flow liquidity projections.
Mount of.
Net debt relative to our EBITDA is significantly lower our degrees of strategic freedom going forward are are much higher.
And things such as the five iron investment, which were excited about.
Would not have been.
A likely possibility are overall capital allocation priorities don't really change, but our strategic flexibility.
And are.
And a lower overall risk factor because of the lower leverage is drew.
Dramatically different.
Okay, Great I'm Gonna ask you one more question I ask you. This I think it was about three years ago, but I was struck by one of your comments early in your presentation.
Regarding modern golf, which is when is the corporate named change coming [laughter].
I was thinking about matter, but somebody took it Casey.
Yeah.
I'm not sure we need to change the name.
Yeah.
But I certainly trying to convey how different this businesses how unique it is and I thought modern golf with a combination of our leadership position in the traditional game as well as a dominant position in the future of the game and off course golf.
Might convey that so.
Pope It makes sense to you.
Right great. Thank you for taking my questions. Thank you.
Your next question comes from the line that really be Yang Devin Bird Your line is open.
Hey, guys. Thanks for taking my questions.
So you've open eight new domestic top often use this year. So far I'm just wondering how those new venues are performing relative to your expectations and if you could provide some color and how that compares to how your new venues historically had performed relative to your more mature venues.
Sure Rudy the we're very pleased with how the team has been able to open the venues. So they've all for the most part open very successfully they opened at different times in the year with different operating conditions in COVID-19 environments et cetera. So at some point they were operating with the same venue.
Sales.
Level that was below what would have been originally planned.
But they're all showing grew.
Great promise and the.
Profitability of these new venues.
It is.
At or above expectations as we project forward so that.
Very pleased with him.
And we've had venues of all different sizes. This year, which was also strategically important.
So continued what I think is a very great strength of that business and its ability to select and.
And Oprah and operate these venues.
Alright Super helpful and could you just provide more color on some of the constraints you saw and top cases of installations.
What kind of work Arounds are there specifically to the access restrictions you saw.