Q1 2022 Callaway Golf Co Earnings Call

May 10, 2022

[music].

Yes.

Good day and thank you Frank.

Welcome to the colony Cove.

Thank you.

At this time all participants are in a listen only mode.

Judy.

There will be a question and answer session.

Ask a question during this session you will need to pass.

Sorry.

During the Q&A session. We ask that you please limit your questions to one.

Following Joe.

As possible to ask a question.

I would now like to turn the conference.

Lauren Scott Victor.

Please go ahead.

Thank you Ashleigh and good afternoon, everyone. Welcome to calories first quarter 2022 earnings Conference call I'm, Lauren Scott the company's director of Investor Relations. Joining me as speakers on today's call are chip Brewer, our president and CEO and Brian Lynch, Our Chief Financial Officer.

Hatrick Burke calories 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 first quarter 2022 financial results. In addition, there is a presentation that accompanies todays prepared remarks and may make it easier for you to follow the call. This earnings presentation as well as the earnings press release are both available on the company's Investor Relations website under the financial results.

Tab.

Most of the financial numbers reported and discussed on today's call are based on U S. Generally accepted accounting principles in the instances, where we report non-GAAP measures. We have reconciled the non-GAAP measures to the corresponding GAAP measures at the back of the presentation in accordance with regulation G.

Please note that this call will include forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations.

We encourage you to review the Safe Harbor statements contained in the presentation and the press release for a more complete description.

And with that I would now like to turn the call over to chip Bergh. Thank you Lauren.

Good afternoon, everyone and thank you for joining us today.

To start I want to thank all of the analysts and investors who joined us in person or online for our Investor Day on April 26.

I speak for our whole leadership team when I say that we enjoyed having the opportunity to interact with you.

I hope you walked away with a better understanding and appreciation of our business strategy and vision for the future.

If you missed our event I encourage you to review the materials on our IR website as Youll continue to hear us reference our growth framework as we track towards our long term goals.

Shifting to Q1 I'm pleased to report a very strong start to the year with all three of our business segments contributing to our success.

Net revenue was just over $1 billion up 60% year over year on a reported basis.

At 31% on a pro forma basis, which includes top golf revenue for the full quarter of last year.

Flow through to the bottom line was strong as well with adjusted EBITDA of $170 million.

Up 33% on a reported basis or up 31% on a pro forma basis.

These results clearly show the continued momentum in our business and give us increasing confidence as we look out over the full year and the long term.

Shifting to our segment overview I'll first start with top Golfs Q1 results.

The top golf team put up another outstanding quarter.

At the time of our last earnings report in February top golf venue business had been impacted by the reduced traffic in a lighter events business due to AUM across <unk>.

However, as the quarter progressed. This early softness was replaced by a strong resurgence in demand.

In March alone same venue sales versus 2019 were up approximately 10%, which drove full quarter same venue sales up 2%, thus, beating our February earnings call forecast of down slightly.

New venue openings remained on track in Q1 and continue to open extremely well.

During the quarter, we opened one new owned and operated venue in Ontario, California.

One new franchise venue in Germany.

Additionally, in mid April we opened our new El Segundo location in Los Angeles, California.

I'm happy to report that all of these locations are exceeding expectations.

As the venues team continues to impress and our brand appears to be building momentum.

As a result of these terrific results, we're increasing our same venue sales projections for Q2, and the balance of the year to up high single digits versus 2019.

This would put our full year same venue sales up an impressive mid to high single digits.

Operating margins also remained healthy as already and the team have been able to take price as well as drive both increase event business and overall venue efficiencies.

This combination is allowing our overall margins to outpace any inflationary pressures all while maintaining a superior guest experience.

Turning to the top tracer business, we installed 1159, new bays in Q1 and believe we are on track for 8000 or more base. This year.

Feedback on the product and demand remains strong plus we're building resources to ramp our installations.

Taking a step back I hope we can all agree that this is quickly becoming a proven business.

It has a track record of success across any size geography climate you name it.

Our ability to continue to put up quarter after quarter of successful results makes us increasingly confident in this unique businesses long term outlook as presented at the Investor Day.

As we look out over the next few years, we believe top golf will be a significant source of long term value creation already in 2022. It is forecast to be our largest segment by revenue.

And even with the strong growth forecast across our other business segments.

This segment alone is expected to account for more than half of our total adjusted EBITDA by 2025.

Top golf is the Keystone of our modern golf thesis is.

It already is the dominant leader in the dynamic off course golf industry and we believe it will maintain this position given its significant growth prospects ahead.

Moving to golf equipment.

This business had another excellent quarter with revenue up 24% year over year and as we mentioned at the Investor Conference. We expect this segment to be up 10% for the full year.

We continue to see strong demand globally for golf equipment, especially from avid golfers.

According to data tech in the U S. Despite comparatively poor weather conditions. This year Q1 hard goods sell through was down just two 8% versus 2021.

And remained up 44, 5% over 2019.

Outside the U S and key markets, such as Japan, Korea, and Europe , We saw Q1 hard goods sell through up nicely year over year.

Also as the fitting portion of the season opens up we are seeing market share gains for our 2022 products, especially our ROE gas T drivers and furry woods as well as our chrome soft golf balls.

For Q1, we finished as the number one hard goods brand in the U S and.

And in March we delivered a new record U S golf ball market share of 22%.

On the manufacturing side, our supply chain is continuing to perform well, although supply has not yet caught up to demand. We believe our strong partnerships scale and regional diversification have provided and will continue to provide a competitive advantage in being able to deliver products to our.

Customers.

Lastly, the apparel gear and other segment had a strong quarter with positive momentum across all of our brands.

Callaway business has remained strong globally with our apparel business in Asia, performing well and our gear business, namely golf bags gloves, delivering both market share and revenue increases.

As you may recall from Glen Hickey presentation during the Investor day.

Increasing our market share in the soft goods category will be a key opportunity within the segment. So we're very pleased with these results.

Meanwhile, Travis Matthew had another outstanding quarter, continuing the strong brand momentum across all channels.

Our own retail comp store growth.

Was up a stunning 50% in Q1.

In addition, Travis Matthew announced last week that is launching its first dedicated women's apparel collection.

While this first rollout is more of a preliminary collection and not a major source of revenue yet with women accounting for over 25% of the purchases made through Travis Matthews direct to consumer channels. We are both confident and excited about the opportunity here.

Throughout this year, we plan to continue to test and expand the offering and we have a more robust launch plan for 2023.

As communicated at our Investor Relations day, we see the Travis Matthew brand eclipsing $300 million in revenue and $50 million and adjusted EBITDA by the end of this year. They have impressive momentum and we see a clear path to continued growth ahead.

Lastly, the Jack <unk> business continues to make good progress.

Being a European based brand they are dealing with a number of macro headwinds, but I am pleased to report that their new branding campaign and products are being very well received both based on sell through of the current products and pre books for the future.

We believe this brand is on strong footing and position for growth ahead, we outlined what we believe has compelling long term vision for the brand and its financial objectives at our Investor day.

When looking at the segment on the whole, we expect the apparel gear and other segment to deliver approximately $1 billion in net sales for this full year.

In closing in light of the strong start to the year and our confidence in the key business drivers by segment, we are raising our financial outlook for the balance of the year.

We also want to take this moment to reiterate our belief that Callaway has a unique and compelling investment opportunity that will create long term shareholder value.

Our brands have momentum and they operate in business segments that are attractively positioned in today's world.

We are advantaged by scale within the modern golf industry with unmatched global reach to both the traditional golf consumer and the growing off course player.

Our high barriers to entry act as a layer of protection against new competition.

And our diversification allows us to mitigate the effects of any potential downturns in any one segment, while also presenting attractive synergy opportunities.

We are confident in our ability to deliver the growth projections laid out at the Investor day, and believe our 2025 target of surpassing $800 million and adjusted EBITDA will be achieved by continuing to execute our proven strategy for growth.

As stated at the Investor Day, we don't have to do anything fundamentally different we just have to continue to do the things that we've consistently shown that we can and are doing.

And with that I'll hand, the call over to Brian to discuss our financials and outlook in more detail.

Thank you chip and good afternoon, everyone.

As chip mentioned 2022 is off to a strong start and we are very pleased with our financial with our first quarter financial results.

<unk> been saying that we believe there has been a structural shift in the market that it will benefit each of our businesses.

<unk> increased interest in golf momentum behind active lifestyle apparel brands and an increased desire for leisure and entertainment such as top golf hiking and other outdoor activities.

And we believe our first quarter results reflect a shift.

Now turning to our financial results in more detail.

For the first quarter consolidated net revenue was 1.041 billion.

An increase of 60% compared to our reported Q1 2021 results.

As a reminder, we acquired top golf on March eight 2021, and therefore, our 2021st quarter results. Our 2021 first quarter results include only one month of top golf.

If the full three months top golf results are included our revenue increased 31% on a pro forma basis.

Changes in foreign currency rates had a negative $21 $2 million impact on our reported first quarter 2022, net revenue compared to the same period in 2021.

Looking at our segment performance.

Equipment had another excellent year generating $468 million in revenue driven by continued high demand and improved supply and our golf clubs and balls business.

Top golf contributed $322 million in revenue and reported same venue sales growth of two 3% compared to 2019 as guest turn out in the latter part of the quarter, especially in our events business.

Outpace some slowness in January and February due to AMA crime.

Lastly, gear and other revenue of $250 million resulted from a 45% increase in apparel sales and a 29% increase in gear and other.

Total costs and expenses were $934 million on a non-GAAP basis in the first quarter of 2022 compared to $555 million in the first quarter of 2021.

Of the $379 million increase.

<unk> added an incremental $227 million of total costs and expenses.

With the majority of that increase caused by the additional two months of top golf costs and expenses versus last year.

The balance was driven by variable expenses in the golf equipment and apparel gear and other businesses.

Increased support at corporate and the impact of increased freight cost and other inflationary pressures.

First quarter 2022, non-GAAP operating income was $106 million.

Up $9 $5 million year over year.

Including January and February for top golf pro forma non-GAAP operating income would have would have increased $27 6 million or 35% year over year and operating margins would've increased slightly to 10, 2% compared to nine 9% for the first quarter of 2021 despite.

Despite the negative impact of foreign currency freight expense and other inflationary pressures previously mentioned.

Diving a dip.

Bit deeper into some of the inflationary pressures we are seeing at top golf, we are seeing some inflationary pressures on food and beverage and associate wages.

Which we are more than covering through a combination of sales leverage operating efficiencies and pricing.

We have made relatively modest use of price so far this year and while our margins are all trending positively. We believe there is an opportunity for additional price increase should we need to offset cost further in the future.

And the non top golf business were fully covering the negative impacts of inflationary pressure on raw materials or components via price increases or positive volume variances.

Gross margins in the non cap top golf business. However were impacted by changes in foreign currency rates as our hedging gains are included in other income.

Gross margins were also affected by increased freight costs as freight cost increases ramp throughout 2021, and we also shipped more by airing the first quarter of 2022 to compensate for supply chain disruptions at the end of last year.

Year over year comparisons of freight costs should improve as the year progresses.

Overall, we're very pleased with the increase in our consolidated pro forma operating margins and how our businesses are absorbing these various macroeconomic pressures.

Moving back down the income statement non-GAAP other expense was $22 million in the first quarter.

Compared to $6 million in Q1 2021 <unk>.

Primarily due to a $16 million increase in interest expense related to tough comps.

non-GAAP earnings per share was <unk> 36 cents on approximately 201 million shares compared with <unk> 62 per share on approximately 125 million shares in the first quarter of 2021.

The increase share count is primarily related related to the issuance of additional shares in connection with the top golf merger along with an accounting change that took effect on January one 2022, which requires that we include $14 7 million shares related to the assumed conversion of the company's convertible notes.

I want to remind you that applicable accounting rules do not give any effect to our capped call and calculating EPS, but upon settlement that should reduce the number of shares we are required to deliver.

When calculating our earnings per share under this new accounting method.

You would need to add back approximately $1 6 million of after tax convertible debt.

Interest expense to net income before dividing by the share count.

If you were calculating our enterprise value with the convertible note on an if converted basis you should exclude the $259 million convertible debt from your calculation and use approximately 200 million as the diluted share count.

Lastly, Q1, adjusted EBITDA was $170 million up $42 million or 33% over Q1 2021 on an as reported basis.

Or up $40 million or 31% on a pro forma basis, when including top golf results for the full three month period.

For Q1, 2022 top golf contributed $42 million of adjusted EBITDA.

Turning to certain balance sheet items, we remain in a strong financial position with ample liquidity as of March 31, 2022 available liquidity, which is comprised of cash on hand, and availability under our credit facilities was $576 million compared to $713 million.

31 2021.

The decrease was driven by planned working capital increases in the golf equipment, and our soft goods businesses to support growth.

As well as continued investment in top golf.

As a reminder, we expect top golf to be self funding in 2023 and cash generating in 2024.

At quarter end, we had total net debt of $1 70 $101 billion.

Including venue financing obligations of approximately $625 million related to the development of top golf venues.

Our net debt leverage ratio was approximately three five times at March 31, 2022, compared to 5.0 times at March 31 2021.

Our leverage ratio and our funded debt basis was even lower.

Consolidated net sales receivables $413 million as of March 31, 2022, compared to $329 million at the end of the first quarter of 2021.

The increase was primarily driven by the increase in revenue.

Yes.

Our inventory balance increased to $552 million at the end of the first quarter of 2022 compared to $534 million at the end of the fourth quarter of 2021, as we increased supply to meet forecasted demand.

The quality of our inventory is good.

Capital expenditures for the first quarter of 2022 were $74 million net.

Net of reimbursements this.

This includes $58 million related to top golf.

For the full year, we expect total capex of approximately $315 million net of reimbursements, including approximately $230 million for top golf and $85 million for the non top golf business.

Now turning to our full year and second quarter 2022 outlook.

Given our strong Q1 results and confidence in the opportunity for growth throughout the year, we are increasing our full year 2022 revenue expectations to.

<unk> $393 5 billion to $3 97 zero billion.

This estimate assumes approximately $156 billion in revenue for <unk> for the year approximately $1 billion in revenue from their apparel gear and others.

And an increase of approximately 10% and our golf equipment segment revenue as compared to full year 2021.

Our full year adjusted EBITDA also increased and is now projected to be $535 to $555 million, which assumes approximately $225 million to $240 million from top golf.

To help understand the guidance update we beat the midpoint of our Q1 guidance range by approximately $32 million.

This amount included approximately $10 million and foreign currency benefits, including hedge gains.

Excluding these benefits we beat Q1 by approximately $22 million on an operational basis.

We are increasing our full year adjusted EBITDA guidance by $42 5 million.

Including an additional estimated $7 million of negative foreign currency impact based upon recent rates.

In other words, excluding this additional foreign currency impact we are increasing full year adjusted EBITDA guidance by approximately $49 $5 million from the midpoint on an operational basis.

This represents the $22 million non currency impacted Q1, B plus an additional non currency increase of $27 5 million for Q2 to Q4.

For the second quarter, we plan to deliver between 1.085 billion and $1 $105 billion of net revenue.

$185 million to $200 million and adjusted EBITDA.

We are not immune to foreign currency and inflationary pressures this year, but we believe we cannot run them. The most substantial factor for the year, which we have quantified in our press release today relates to foreign currency impacts.

For the full year compared to 2021, we expect FX to have a negative revenue impact of approximately $115 million.

In Q2, we expect the revenue impact to be approximately $39 million.

Overall, we are pleased with the strong start to the year and are excited about the balance of the year.

That concludes our prepared remarks today, and we will now open the call for questions.

Operator over to you.

Thank you as a reminder, if you would like to ask your question.

That's one.

John question.

Your first question.

Okay.

Jeff.

Hey, guys. Good evening and thanks for the update I guess, Brian I wanted to ask about the rise.

Put it well on the changes to the annual guidance I guess I want to go back to the analyst day, you gave us some really good color on some expected revenue and cost synergies you were going to.

<unk> going forward so can we.

Can you go over those quantify those again, one more time for those may not heard that but also give some qualitative things that youre working on that you see to be helping those synergies come through the P&L over the next few years. Thanks.

Sure sure Randy.

With the synergies, we quantified to be approximately $225 million of revenue and $100 million of EBITDA synergies, which includes $15 million of cost synergies.

Youre starting to see them already in fact, you would have started to see some synergies even before we close the transaction you might have noticed between the signing of the transaction and the closing you saw John ROM supporting the top golf logo and Thats. Just one example of some cross marketing synergies, but the other ones are also we've accelerated the venue expansion faster than.

Top golf would have as a standalone we are increasing.

The ability to enter into contracts for new top tracer base.

All the all the places that titration once we get into our hour.

Golf equipment group already has strong relationships. So that is something we consider to be a competitive advantage.

And then there's others at a lower cost of debt for them, we're sourcing their clubs and balls and managing type trades through inventory.

We have incremental revenue with the top golf retail stores.

Things you are starting to see develop and they'll continue continued to develop but then there's even longer term initiatives you remember at Investor Day, Glenn talked about we're in process of hiring a consumer data expert to leverage all of the consumer data we have access to.

Ultimately a lot of that and having that access gives us a competitive advantage.

Using our digital abilities, there and then we will be able to sell more equipment drive business to the venues.

Really helpful. And then I guess I guess, one other question I wanted to kind of almost repeat from the analyst day that I asked.

Given the strong results this evening.

Again that rise or the rate EBITDA outlook, our guidance for the year Youre well on your way to that $800 million.

Number four I believe 2025, so when we kind of talked about that at analyst day, you kind of made the comment that even if there was some golf equipment pullback, which you're not saying you can still kind of hit those numbers. So well at that time I kind of asked about any type of areas of concern for kids more opportunity you saw in the <unk>.

Financial model that kind of gave you that extra comfort or confidence in hitting that $800 million EBITDA goal. So just can you just kind of expand upon that a little bit and give me some perspective there.

Yes.

Sure Randy.

We did feel comfortable that even if you had that pullback in golf you could hit it. So if we didn't have that pullback. Then obviously, we would do we would be able to do better and be there towards the high end or possibly above that range. If everything goes well sure there would always be upside, but not everything always goes well. So we're comfortable with where were guiding to at this point, but with your premise starting with this.

If everything went well, yes, then there could be upside.

And Randy this is chip.

The building momentum across all of the segments.

Obviously it gives us.

Confidence but.

But especially so a top golf given the scale of that opportunity, which is even more significant than what we foresaw.

When we entered into the merger.

But you can see them really building momentum now on same venue sales on profitability.

Proving out there.

Thesis of being able to open and operate successfully the venues.

That is just a wonderful business with.

Really strong momentum now and.

Just to get to the $800 million, we said $450 million would come from top golf.

We have strength across all the segments, but a really attractive opportunity at top golf that's building momentum.

Super helpful. Thanks, guys.

Thank you.

Question comes from Danielle Brill with.

Okay.

Yes, good evening, guys and thanks for taking our questions.

I wanted to start on the golf equipment side of the house I mean, obviously golf balls and golf clubs continue to kind of outperform street expectations.

I'd be curious can you talk about how much is an increase in unit sales versus maybe pricing you've taken this year and then just a modeling question are there any more launches planned for the back half of this year either on the club where the golf ball side was this new.

Kind of launch everything in <unk> type year, I think I can you remind us what last year was as well in terms of launch timing.

Sure Daniel Chip so.

We are seeing great results in the golf equipment segment driven by.

Strong market conditions and market share gains here at Callaway. So.

Very pleased with the results, we're driving some of our results by price and some by volume. So it's a little bit of both and it varies a little bit by category in the golf ball category, it's a little bit of price and significant volume increases in the golf club.

<unk>, it's a little bit the opposite so a little bit more price, but also.

Some volume gains as well.

We are planning to launch.

Some product in the second half of this year I'd call it modest not.

Not a heavy cadence.

For the second half, but there will be product launches in the second half as they usually are and thats roughly consistent with what it was last year.

Helpful. Thanks, Chip and then moving to the soft goods side of the business I mean, what Ryan and the team at Travis Matthew who've done it seems really impressive and I guess as we March towards I think you said, a $1 billion sales opportunity at the analyst day.

What's the right long term margin structure for that business I mean can we continue to see margin leverage from the targets you've given this year and kind of what are we marching towards in terms of profitability within that within that soft goods and apparel side.

We're just thrilled with that business, where we're really excited about the entire segment, but the Travis Matthew business.

In itself has been a homerun.

Building great.

Profitability and great momentum and Thats why we carved out some numbers to give you a good indication of how successful that businesses and the scale that it has already achieved right. So we expect it to be over $300 million in revenue this year over $50 million in EBITDA and absolutely we would.

Specced operating leverage as it continues to scale from there.

And.

Every indication is that it's going to continue to do that again.

Citing a couple of metrics.

Comp store growth in Q1 of <unk>.

<unk>, 50%.

I would never expect it to be reporting a 50% comp store sales growth and thats off of last year, which was up significantly so.

Very very pleased with that business and the opportunity going forward and just to clarify when you report comps or is that just the own stores or does that include the wholesale side I'd like organic growth in the wholesale side of the business.

That is just our own stores, because it's clean as data that we have and only those that we've owned and operated over a consecutive years. So that it's directly comparable and how much of the service revenue is same store versus.

Other I guess.

Okay.

It's a minority but we think it gives you the cleanest representation or a very clean representation of the momentum of the brand.

So we're not breaking out what is.

Retail versus wholesale versus E com.

The three primary channels at this stage wholesale is the largest channel.

And we have strong momentum across all of the channels.

Great. Thanks, so much for the color guys and best of luck.

Thank you.

Your next question comes from Kevin.

Michael.

Hi, guys. Thanks for taking my question and congrats on the strong results.

Thank you Kevin.

I just wanted to ask on the.

Supply side, I guess, how much of a headwind was that to your one two results and how are you thinking about product supply and inventory as you move through the balance of the year.

Sure Kevin It was definitely.

It continues to be a challenge on the supply side, but our team has done a wonderful job. So.

We're managing through that and.

We think it's actually a competitive advantage.

Walking by category golf equipment continues to be.

Chasing.

The demand there were shutdowns in Asia last year in the fall and early winter.

Those had us force us into a position of accelerating production schedules and airing more product in Q1 than we would have normally done.

In order to hit what we think are very.

Attractive and nice results.

But air freight is more expensive than.

Ocean freight and as you know freight in general has gone up so.

There are some headwinds associated with that but the team is working through it very well and we're not.

Anticipating it being a significant drag on us going forward in fact, we see it as a comparative advantage in.

Able to drive nice growth of it.

Great.

As a quick follow up.

Within your up 10% outlook for the golf equipment business.

Can you just parse out maybe how you expect ball's versus clubs to look for the full year.

Sure, we're not going to breakout forecast individually, but.

Golf ball business is growing faster for us than the club business, but we're gaining market share in both of them I mentioned in.

The U S being number one hard goods brand in the U S.

But we're also starting to hear really great and record market.

<unk> share in golf ball in March So we have our high water market we saw.

Seem to have a new high watermark every year, which is obviously, a nice trend, but in golf ball.

March of this year in the U S was our latest new high watermark.

And we're also gaining share in the road drivers and fairway Woods really globally now so.

Great result on that we will see we see both of them being up for the year, probably ball, even a little stronger than.

Clubs.

Great. Thanks, very much guys.

Thank you.

Your next question comes from Michael Swartz.

Lee.

Hey, everyone. Good good.

Good afternoon.

Just wanted maybe a question for Brian I think you talked about your pricing is offsetting I guess volume is offsetting some of the inflationary pressures. This year is there any way to just quantify for us what inflation as meant to you this year, either either absolute or maybe just the increment versus last year.

It's definitely a factor I would say, what we're covering all of that without the pricing I would say the biggest factor for Q1 was probably FX and a little bit of a freight expense as well as chip mentioned, we had our airfreight more in.

So I think those are probably the two biggest factors, we weren't covering and having some impact we do think that abates as the year goes on so I would expect for the full year, you would see operating margin and EBITDA margins to be flat to up slightly yes, Michael its very difficult to answer the question because of the segments of our business right. So.

We'd have to give you you can't really blend.

Inflation on nachos with inflation on golf.

Clubs and raw materials in golf ball and apparel, they are all where you're seeing inflation like others are.

In various aspects of our business, but were able to offset it through efficiency gains pricing.

Ed.

We're very pleased with our ability to manage in all areas.

Happy to get into more specifics.

After call or if you'd like but we're not trying to avoid the question on a quantitative basis. It just doesn't make sense across the entire business to try to quantify it.

Understood. That's fair enough and then just second question on the on the top golf St.

Ben you sales guidance.

<unk> from low single digit to up mid to high for the full year, just maybe walk through some of the moving pieces I guess.

In a simplistic fashion I mean, how much of that would you ascribe to.

Volume versus maybe pricing.

Yes.

So in a definition of volume versus pricing.

She says it's a little bit of both to be honest with you. So.

But.

The other color I would give you is that we've seen good walk in traffic there for a while.

Really since.

Mid last year, if not even potentially earlier.

Seeing building momentum in the events business.

Events business has been what we call and we'll break that down into social events and corporate events social events has been strong for some time.

They really surge even more.

This last quarter, we have.

Certainly.

And strategies to further unlock that and then corporate events has been the only category that has been down.

Pre COVID-19 and corporate events is now starting to show some real positive signs and.

In March we saw corporate events comp positively on a year over year basis, So seeing really good signs across all of the.

Metrics are different sources of.

What you'd call traffic.

Also with the ability to drive efficiency gains and.

Pricing.

Okay, great. Thanks for the color chip.

Your next question comes from Kate Mcshane with Goldman Sachs.

Hi, This is patrik hollander on for Kate.

They're obviously seems to be a bit of heightened concern right now around the economy, just given higher inflation lower consumer confidence.

Given that these concerns are kind of coming up as we entered the warmer months in golf season. We just wanted to ask how you guys are kind of equipped to manage inventory levels. This season. If there is a further eroding of consumer confidence and a drop off in demand for more discretionary categories, whether that's golf balls golf clubs apparel things like that.

And then when we when we look at the inventory increase year over year, it's pretty significant and just wanted to ask about how we should think about that increase from a price versus volume perspective. Thanks.

Sure Patrick I will take the first part.

First of all Patrick I want to reiterate that we are not seeing it.

Any slowdown in.

Consumer demand so.

I understand the angst, but at some point, we should look at the facts and the facts are.

That we're not seeing it on a global basis.

<unk>.

If there was a change in that.

We would be able to react we have a very strong.

Our process for managing it.

Inventory.

Still chasing right now demand.

But if that was able to that was to turn on us.

We feel like we would be able to manage that inventory process.

Efficiently one of the things that if you and you were at the Investor Day as you heard Mark say.

I make it a point with the team that we don't like to have excess inventory, that's one of the things that.

Is.

Absolutely non negotiable with us so we're very attentive to that and then in terms of the quantity of the inventory Brian do you want to comment at all or there's a couple of things going on there one there is theirs.

$80 million of inventory in transit as of the end of the quarter. So that's a big piece of the up the other parts are theres going to be some price in there because there have been some cost increases and Theres also units as well. So I think it's just a combination of all three.

Even just raw materials, we're building raw material supply in some of the.

Because of the longer lead times so.

Okay.

Thank you Patrick.

Your next question comes from Susan Anderson.

Right.

Hi, it's nice to see another strong quarter.

I'm curious for the golf equipment business is how.

How much of the growth was due to restocking versus just regular sell through and then also can you give some color on how you expect the quarter to flow through this year to get to your 10%.

Any nuances, we should think about or compares from last year.

Yes, so yes.

Yes on the golf equipment side.

Some portion so we were up 24%.

Our golf equipment segment in Q1 some of that was.

Restocking inventory and establishing position in the field for sure.

We saw significant growth in the market.

Internationally in Q1.

And the market was essentially it was down two 8% according to data attack or essentially flat in Q1, but we also gained a little bit of share. So.

In Q1.

A good portion of that was a restocking, but we're seeing all the right signals.

Obviously.

Have reiterated the 10% up for the full year.

We're not providing a further breakdown of the 10% by quarter at this point.

So we can't add any more color on that.

But.

Hopefully answered the first part of the question.

Yes I.

I guess just on the restocking it sounds like you mentioned, you're still pacing. So I guess is there more restocking to be had as we look into the second quarter.

A little bit Susan so.

We're starting to get.

Closer to normalized inventories out there, but they are still low we're still chasing demand.

We've said that we expect some time at the end of Q2, maybe Q3.

To be more caught up if you would.

And.

But thats all based on our expectations of demand and obviously expectations could be high or low but.

Yes.

Pinch points that we would have our steel shafts and some of the raw materials on golf ball, but we're obviously managing it very well.

Not at this point concerned on the supply side or the inventory side.

Okay, Great and then if I can just add one follow up on top golf.

The 10% that you said you were running at the end of first quarter I guess I'm curious if that continued into the second and I know you raised your annual guidance of mid to high single digit, but I guess.

What would keep it from continuing to be at the timber demand rate as we look forward or do you think some of that was maybe also pent up demand. After people are more lockdown from Macquarie.

Well, Susan the difference between high single digits, and 10% is a mighty fine cut first of all four.

The level of guidance and the movement in the in the.

Macro environment out there.

But we certainly saw continued strength.

Through April .

Enough so that we could call the full the rest of the year up high single digits.

And which is obviously.

Significant move.

Shows the momentum of that business.

And we're starting to see a business, where we're guiding to.

High single digits same venue sales growth.

<unk>.

That's new ground and obviously.

Positive signal and source of value.

For the.

For the investment community.

Okay, great. That's fantastic. Thanks, so much good luck with the year.

Thank you Susan.

Your next question comes from.

Great.

Hey, guys. Thanks for taking my questions.

Just on the price increases when you mentioned you had to kind of room to factor more in that kind of just preserved ammunition for now as you kind of watch for changes in the macro environment or are they kind of set plans already to kind of layer that in.

If you can kind of Q3 Q4.

We absolutely have set plans too.

Manage inflation, which includes price increases throughout our various segments.

So.

That is part of our business planning and.

Baked into all of our projections now and into next year and we've been.

Fortunate that the segments, we're in have strong consumers.

Hi, disposable incomes avid passionate about the segments that we participate in.

Have not seen any.

Pushback.

Or negative repercussion associated with any of the moves that we've made at this point in time.

Not sure if that answers your question directly but again, given we have three segments talking about price increases.

Specifics gets a little challenging unless the question gets some more specifics.

Got it and I appreciate the commentary there and then.

Top off with kind of the corporate events business.

You guys kind of see that coming back to less than where it was as a percentage of total top golf sales just given the weakness in.

Especially considering the growth of all of the other aspects of <unk> business.

I know you've kind of mentioned social kind of search more social and thats kind of more of this last quarter. So just curious on where you are thinking in terms of in terms of the recovery for corporate events as a percentage of total business as a kind of a covers in the future.

I think as it recovers in the future. It has the percent the opportunity to be a similar percentage has been in the past in that.

<unk> ability to manage channel mix will be one of the.

Levers and opportunities for <unk>.

Top golf to manage its overall performance.

Perfect. Thanks, so much guys.

Yes.

Your next question comes from John Kernan with Cowen.

Good afternoon. This is Christian on for John just two questions.

Just sort of the gross margin I was wondering if you could directionally walk us through some of the puts and takes on the outlook for gross margin.

In Q2, and second half for the golf product margins.

Top outside of your business.

Gross margin Q2, if you want to yes, I don't know whether were going to provide granularity by quarter.

By segment.

Freight for the soft goods business and the golf equipment business freight freight will moderate as the year goes on it was probably a $25 million impact in Q1, and it won't be that for the full year.

$40 million for the full year, so that will moderate and help help margins as we go along.

And then our top golf margins had been excellent. So we expect them to stay excellent.

The gross margins in the all of the business has been quite good to be honest with you in the operating margins and EBITDA margins have been even better some of what we saw in Q1, we had the freight was an acute.

<unk> for us in Q1 because of the.

Airfreight and then some of what you see in gross margins are also.

It's a little bit of geography, because and what I mean by geography on the P&L.

We hedge we show the gain.

And other income.

Right and because but it looked like decreased gross margin, but we've covered it with the hedges, which shows up elsewhere on the P&L.

Okay got it. Thank you and then just finally.

Just in terms of the promotional environment with your confidence in the sustained demand for copper.

Golf equipment and the sounds good side of your business along with telco just curious to know what you are seeing really in any terms of promotional environment across your channels, what kind of what's embedded in your expectation for the back half.

Thank you.

Yes, we're not seeing any meaningful promotion.

So it's a not a promotional environment.

It might be a little bit more promotional in the second half of the year than it was last year, but it's not going to be I would be shocked if it was.

Highly promotional.

And.

Those expectations consistent with that has been baked into our forecast.

Thank you.

Your next question comes from also.

<unk> with Raymond James.

Thanks, Hey, guys. Good afternoon I guess.

First of all a couple of questions. What's a clarification if I could on the data Tech data I think you mentioned it was down to 20% first is that our U S. A global number and second is that a.

Dollar number.

That is a U S hard goods.

And then the rest of the World was up in fact up.

Double digits.

Okay. So if I, if I compare that to your equipment revenue, obviously, it's a little bit of apples and oranges and it sounds like you guys did gain some share, but where do we stand in terms of refilling. The channel from an inventory standpoint, and is that something you think that could extend into 2003 or do you think you can fully scalable channel here in 'twenty two.

I think that we've.

We've gotten closer to more normalized.

Inventory levels in the golf equipment channel now, but we're still chasing in certain areas, we're still chasing overall demand.

And.

Sometime in Q2, or Q3 will probably get to.

Low, but more normalized inventory levels in the channel.

Okay. Okay. Just one last one for you on top golf and I apologize if I missed this but we think 10 or 11.

And then use this year and remind us what the cadence is.

Ladies and factor.

But how.

How should we model that out for the rest of the year opening standpoint.

We're thinking of 11 as our.

Yep.

Expectation for this year.

And as well as we think we can hit 11 going forward at this stage. So that is one of our.

Upticks and expectations that we revealed at the Investor day.

There is back half weighted for sure yes back half weighted side, if I remember correctly, it's five in Q4.

Which is so very back half weighted we have opened now three.

Two.

In Q1.

Actually only one.

One owned and operated in Q1 and then another one <unk> opened in April .

And then there'll be five in Q4.

Okay, probably 11 in Q4, okay. Thank you guys.

Your next question comes from Casey Alexander with Compass point.

Hi, good afternoon.

Okay.

I'm sure it's happened before but.

Can't remember a time, where every product category was up year over year and every geography was up year over year.

That type of work.

I just don't remember.

I agree with you I, usually look for something for to poke at there and there is not it's not as evident as it.

We're really seeing strength across all geographies and all business segments, which.

We did in fairness, we did say.

During our initial guide that we expect it to grow every every category every business segment in every geography, so yes, so well on track.

It's pretty remarkable.

And I would say after two years of sleepless nights.

I Wonder would love to know what keeps you up now.

And secondly, you just.

Completed a $50 million share repurchase program.

<unk>.

I mean never have we seen the fundamental performance of the company. So strong at the same time that the stock has performed so poorly.

So you can obviously.

<unk> is another one and by all you want how does the board feel about another share repurchase program and taking advantage of the weakness of the stock because I do think there is a time period, where obviously all of this changes but.

So what keeps you up at night and what are the thoughts about an additional share repurchase program.

Yeah.

Plenty to still keep me up at night Casey.

The fundamental difference I agree with you I have never in my.

20, plus years now of running a public company seen.

As big a fundamental difference between the performance of the company or.

And the share.

Price. So that's this is new ground for me.

I've seen it to some degree, but nowhere near where it is right now.

So to the degree that keeps me up at night.

But obviously overall extremely pleased with the direction of the business and the operating results.

And in terms of the share buyback, we do look at buying back stock Opportunistically and we've shown that.

But as a matter of policy, we can't comment on future capital allocation plans. So I've got a pass on that one for right now and I appreciate your comments.

Alright.

Secondly.

The.

The growth of the ball business.

Okay.

<unk> is been steady and sort of one step at a time.

Yeah.

How do you get it sort of next level.

That's.

If you know what I mean, there is a next level out there.

And it's one where.

It's not one and the rest it's wanting to and no one else matters and that's the next level and how do you get there.

Casey.

All good fair comments and my only answer to you.

I think it is doing what we've been doing we've reinvested to the point now where we have an ability to make a better golf ball than the rest of the world We believe and.

I'm sure I know for a fact that there are others, who would vehemently disagree with that.

But.

Youre seeing some signal.

From the market and Youre seeing it over time.

And.

If.

Those trends continue.

And boy they have continued now for couple of years.

Then.

The outcome that you just mentioned will be the logical outcome, where you'll have a number one in.

Such a strong number to that.

It will differentiate itself.

Certainly.

Following forward on that with that as a goal.

Alright, great well. Thank you for taking my questions I appreciate it.

Thanks Casey.

Your last question comes from Jay <unk> of Roth capital.

Hi, guys. Thanks for taking the question just one for you here Tonight.

On the women's collection for Travis Matthew.

Just kind of curious to know what you guys are looking for as you kind of roll out some of the first collections here.

Just kind of how you're thinking about it and then on top of that as we kind of think about the long term opportunity with Travis Matthew I know at Investor Day, You said, you know maybe net sales of $500 million, even up to $1 billion. Just kind of curious to know is that long term thinking incorporate what you could be doing in women's.

Or would women's be an incremental opportunity to that.

Sure JP.

It does include womens.

No.

We're.

Very.

Optimistic there, but what youre seeing us do is a methodical and logical.

Hopefully well organized approach to what could be a very significant category expansion for the brand.

And so we're we hired resources to dedicate to this.

Well over a year ago.

They have been working with the team to design and develop this new collection.

We think it looks fantastic more importantly.

The women that have purchased it seen it gave us feedback on it are raving about it the initial sell through was outstanding but it gives us a chance to test it gives us a chance to test what different styles, what different cuts what different fits and fabrics and.

Approaches are going to resonate most with that.

Very important consumer which already.

Frequency the Travis Matthew brand, because even though it was a 100% of men's brand.

Again through our direct to consumer channels, which is all of our E com and owned stores, which is the ones. We can obviously measure this the most and 25% of the purchases were women I assume buying it for there Matt.

Some men.

And.

That.

That's a pretty good sign for our brand to start with.

But also gives you access to the category and Youre going to see us.

Really learning testing.

<unk> is creating excitement among the women and then.

A more organized and significant launch in 2023.

Great. Thank you and then just one more real quick follow up.

Got it.

Investor Day, you guys touched on kind of the strength of some of your.

Golf partners in some of the smaller businesses and I was just curious is there any kind of seasonality in when some of the smaller range partners are thinking about possibly investing in top tracer.

Any seasonality around maybe in the winter seasons, Theyre looking to make that investment or is it kind of constant throughout the entire year. Thank you.

Yeah.

It's more or less constant J P. But there does it is easier to shut down our range and do installations during the off season.

So.

There's a little bit of a.

Provided that theres, not snow and ice on the ground. So I'd say in a mild climate. If there is an off season, they would take a chance to get a shoulder season to put it in often as opposed to.

When their busiest.

If it's.

Deep cold climate that youre going to have to.

Use it when the ground is not frozen in when there's access so because where you generally have to bring data.

And they have to provide data.

Lines and power to the range.

Got it thank you very much.

Thank you.

There are no further questions at this time I will now turn the call back to chip.

For closing remarks.

Well I just want to thank everybody for joining us today, we're obviously delighted with.

Results across our business and we look forward to joining you in a couple of months for the.

Q2 call. Thank you so much for dialing in.

This concludes today's conference call you may now disconnect.

Okay.

[music].

Thanks.

Okay.

[music].

Sure.

[music].

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Yes.

Sure.

Yes.

Thank you.

Yes.

Sure.

Yes.

Okay.

Yes.

[music].

Okay.

Sure.

Okay.

Thanks.

Yes.

Okay.

Yes.

Okay.

Thanks.

Okay.

Yes.

Sure.

Okay.

Thanks.

Okay.

Yes.

Okay.

Yes.

Okay.

Right.

<unk>.

Yes.

Okay.

Yes.

Okay.

Yes.

Sure.

Yes.

Okay.

Yes.

Okay.

[music].

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

Yes.

Okay.

Sure.

Yes.

Sure.

[music].

Yes.

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

Okay.

Sure.

Okay.

Sure.

<unk>.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Yes.

Sure.

Yes.

Okay.

Yes.

Okay.

Yes.

Sure.

Yes.

Okay.

Yes.

Okay.

Thanks.

Okay.

Yes.

Okay.

Yes.

Sure.

Okay.

Yes.

[music].

Yes.

Thanks.

Yes.

Good day and thank you Frank.

Welcome to the colony Cowen <unk> company.

At this time all participants are in a listen only mode.

Please begin.

A question and answer session.

Ask a question during this session you will need.

Yes.

Thanks, Jonathan.

Sir you may begin with question you're asking.

For your question your line.

And the follow on.

I'll now with many participants as possible to.

To ask a question.

Yes.

Okay.

Lauren Scott connector.

Please go ahead.

Thank you Ashleigh and good afternoon, everyone welcome to Kellys first quarter 2022 earnings conference call.

Scott the Companys director of Investor Relations joining me as speakers on today's call are chip Brewer, our president and CEO and Brian Lynch, Our Chief Financial Officer, Patrick Burke calories, SVP of Global Finance and Jennifer Thomas Our Chief Accounting Officer are also in the room today for Q&A.

Without the tab.

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 expectation.

We encourage you to review the Safe Harbor statements contained in the presentation and the press release for a more complete description.

And with that I would now like to turn the call over to chip Bergh. Thank you Lauren good afternoon, everyone and thank you for joining us today.

To start I want to thank all of the analysts and investors who joined us in person or online for our Investor Day on April 26.

I speak for our whole leadership team when I say that we enjoyed having the opportunity to interact with you and hope you walked away with a better understanding and appreciation of our business strategy and vision for the future.

If you missed our event I encourage you to review the materials on our IR website as Youll continue to hear us reference our growth framework as we track towards our long term goals.

Shifting to Q1 I'm pleased to report a very strong start to the year with all three of our business segments contributing to our success.

Total net revenue was just over $1 billion.

Up 60% year over year on a reported basis.

We're up 31% on a pro forma basis, which includes top golf revenue for the full quarter of last year.

Flow through to the bottom line was strong as well with adjusted EBITDA of $170 million up 33% on a reported basis or up 31% on a pro forma basis.

These results clearly show the continued momentum in our business.

And give us increasing confidence as we look out over the full year and the long term.

Sure.

Shifting to our segment overview I'll first start with top Golfs Q1 results.

The top golf team put up another outstanding quarter.

At the time of our last earnings report in February top golf venue business had been impacted by the reduced traffic in a lighter events business to the omicron. However.

However, as the quarter progressed. This early softness was replaced by a strong resurgence in demand.

In March alone same venue sales versus 2019 were up approximately 10%, which drove full quarter same venue sales up 2%, thus, beating our February earnings call forecast of down slightly.

New venue openings remained on track in Q1 and continue to open extremely well.

During the quarter, we opened one new owned and operated venue in Ontario, California.

And one new franchise, then you in Germany.

Additionally, in mid April we opened our new El Segundo location in Los Angeles, California.

I'm happy to report that all of these locations are exceeding expectations as.