Business Overview and History
Topgolf Callaway Brands Corp. (MODG) is a leading modern golf and active lifestyle company that provides world-class golf entertainment experiences, designs and manufactures premium golf equipment, and sells golf and active lifestyle apparel and other accessories through its family of brand names, including Topgolf, Callaway Golf, Odyssey, TravisMathew, Jack Wolfskin, OGIO, and Toptracer.
Topgolf Callaway Brands was originally incorporated in California in 1982 under the name Callaway Golf Company, with a primary focus on the design, manufacture, and sale of high-quality golf clubs. In 1992, the company became a publicly-traded corporation on the New York Stock Exchange. In 1999, the company reincorporated in the State of Delaware. In 2000, the company entered the golf ball business with the release of its first golf ball product.
In 2017, the company expanded its business into active lifestyle apparel and accessories with the acquisitions of OGIO, a leading manufacturer of high-quality bags and accessories, and TravisMathew, a manufacturer of premium golf and active lifestyle apparel and accessories. In 2019, the company acquired Jack Wolfskin, an eco-performance apparel and active lifestyle brand. The culmination of these strategic acquisitions transformed Topgolf Callaway Brands into a diversified golf and leisure conglomerate.
In 2021, the company completed a merger with Topgolf, a leading technology-enabled golf entertainment business with an innovative platform that includes state-of-the-art golf and entertainment venues and proprietary Toptracer ball-tracking technology. This transformative acquisition further solidified Topgolf Callaway Brands' position as a market leader in both the golf equipment and golf entertainment industries.
The company has faced various challenges over the years. In the early 2000s, it dealt with intense market competition and pricing pressures in the golf equipment business. The company has also had to navigate through industry seasonality, weather impacts, and macroeconomic conditions that affect consumer discretionary spending. The 2021 merger with Topgolf presented integration challenges as the company worked to combine the two businesses.
Segmental Breakdown and Financial Performance
Topgolf Callaway Brands operates through three reportable segments: Topgolf, Golf Equipment, and Active Lifestyle.
The Topgolf segment includes the operations of the company's Topgolf venues, Toptracer ball-flight tracking technology, and the now-divested World Golf Tour (WGT) digital golf game. In 2024, the Topgolf segment generated $1.81 billion in revenue, representing 42.7% of the company's total revenue. This segment saw a 2.7% increase in net revenues compared to the previous year, driven by incremental revenues from new company-owned and operated venue openings, partially offset by an 8.6% decrease in same venue sales. Topgolf segment operating income increased 5.0% to $114.2 million, as higher revenues were partially offset by increased advertising and promotional costs.
The Golf Equipment segment includes the operations of the company's golf clubs and golf balls business under the Callaway Golf and Odyssey brand names. In 2024, the Golf Equipment segment generated $1.38 billion in revenue, accounting for 32.5% of total revenue. This segment experienced a slight decrease of 0.4% in net revenues, primarily due to declines in golf club and golf ball sales related to softer market conditions in Korea and unfavorable foreign currency impacts in Asia. Golf Equipment segment operating income decreased 5.0% to $183.6 million, driven by the lower revenues and higher freight costs. Despite these challenges, the Golf Equipment business delivered another year of excellent brand performance, maintaining its leadership position in the U.S. golf club market share and driving record share in golf balls.
The Active Lifestyle segment includes the operations of the company's soft goods business marketed under the Callaway, TravisMathew, Jack Wolfskin, and OGIO brand names. In 2024, the Active Lifestyle segment generated $1.05 billion in revenue, contributing 24.8% to the company's total revenue. This segment saw a 7.8% decrease in net revenues, primarily due to declines in sales of Callaway, Jack Wolfskin, and TravisMathew products. Active Lifestyle segment operating income decreased 29.6% to $82.4 million, driven by the revenue declines and operating expense deleverage.
For the full year 2024, Topgolf Callaway Brands reported total revenue of $4.24 billion, a slight decrease of 1.1% year-over-year. This decline was primarily driven by a decrease in product revenue in the Active Lifestyle segment, partially offset by an increase in service revenue in the Topgolf segment.
Net income for 2024 was a loss of $1.45 billion, primarily due to a $1.45 billion non-cash impairment charge related to the goodwill and intangible assets of the Topgolf segment. Excluding this impairment charge and other non-recurring items, the company's normalized net income for 2024 was a loss of $15.3 million.
Operating cash flow for 2024 was $382 million, and free cash flow was $203 million, both of which exceeded the company's previous guidance. Topgolf delivered $337 million in EBITDA and approximately 34% venue level EBITDA margins in 2024, which were flat versus 2023 and up 500 basis points versus 2019. Topgolf also delivered over $100 million in free cash flow in 2024.
In the most recent quarter (Q4 2024), the company reported revenue of $924.4 million, representing a 3% year-over-year increase. This growth was driven by increased revenue in the Golf Equipment segment, while the Active Lifestyle segment increased slightly and Topgolf revenue was consistent with the prior year. However, the company reported a net loss of $1.51 billion in Q4 2024 due to the $1.45 billion non-cash goodwill and intangible asset impairment charge related to the Topgolf business.
Financials
As of December 31, 2024, Topgolf Callaway Brands had $445 million in cash and cash equivalents, and $797 million in available liquidity, which includes cash on hand and incremental borrowing capacity under its credit facilities. The company's total debt, net of unamortized debt issuance costs, was $1.47 billion, resulting in a net debt leverage ratio of 3.9x.
The company's debt-to-equity ratio stands at 0.61, with a current ratio of 1.94 and a quick ratio of 1.02. These metrics indicate a relatively stable financial position, although the company should continue to monitor its debt levels.
In terms of geographic markets, approximately 27% of total consolidated net revenues in 2024 were derived from sales outside the United States, with Asia and Europe being the company's principal international markets.
Liquidity
Excluding the venue financing debt associated with the Topgolf venues, the company's net debt leverage ratio was 1.7x, which the company considers to be at a comfortable level. The company has $796.9 million in total available liquidity under the 2023 ABL Credit Facility and 2022 Japan ABL Credit Facility.
Research and Development
Topgolf Callaway Brands continues to invest in research and development to maintain its position as a technological leader in golf equipment and to enhance its Topgolf entertainment offerings. Total research and development expenses were $92.1 million in 2024, representing 2.2% of total net revenues.
Guidance and Outlook
For 2025, Topgolf Callaway Brands expects consolidated revenue to be in the range of $4.0 billion to $4.185 billion, representing a decline of approximately 3% at the midpoint compared to 2024. This guidance includes significant headwinds from foreign exchange, the normalization of incentive compensation, and tariffs, which are expected to negatively impact the company's financial results by approximately $75 million.
Excluding these headwinds, the company expects its core business to generate organic revenue growth, with the Golf Equipment segment expected to grow slightly faster than the overall golf market, and the TravisMathew brand in the Active Lifestyle segment anticipated to deliver year-over-year growth on both the top and bottom line. The Jack Wolfskin business is also expected to return to profitability in 2025.
For the Topgolf segment, the company expects 2025 revenue to be in the range of $1.725 billion to $1.835 billion, representing a decline of 2% at the midpoint, with same-venue sales forecast to be down mid-single digits for the full year. Excluding headwinds, Topgolf's organic revenue is expected to grow by approximately 1%. The company is focused on implementing initiatives to drive traffic and improve the player experience at Topgolf venues, which it believes will support a return to same-venue sales growth over time.
For the core business (excluding Topgolf), the company projects 2025 revenue in the range of $2.275 billion to $2.35 billion, representing a 5% decline year-over-year at the midpoint. Excluding headwinds, organic revenue is projected to be down 2%.
On a consolidated basis, Topgolf Callaway Brands expects adjusted EBITDA for 2025 to be in the range of $415 million to $505 million, representing a decline of $128 million at the midpoint compared to 2024. Excluding the aforementioned headwinds, the company expects its core business adjusted EBITDA to grow by approximately 6% on an organic basis.
For the core business, the company projects 2025 adjusted EBITDA in the range of $175 million to $205 million. Excluding headwinds, core business adjusted EBITDA is expected to grow by $14 million or 6%. For Topgolf, the company projects 2025 adjusted EBITDA in the range of $240 million to $300 million. Excluding headwinds, Topgolf adjusted EBITDA is expected to decline by approximately $22 million on an organic basis.
Industry Trends
The global leisure travel market, which indirectly affects Topgolf Callaway Brands' business, had a market size of $1.2 trillion in 2023 and is anticipated to grow at a CAGR of 18.3% between 2024 and 2033, reaching $6.2 trillion by the end of the forecast period. The rise of social media is a key driver behind the continued growth in leisure travel, which could potentially benefit the company's Topgolf segment and active lifestyle brands.
Risks and Challenges
Topgolf Callaway Brands faces several risks and challenges that could impact its financial performance and growth prospects. These include:
1. Macroeconomic conditions: The company's products and entertainment offerings are discretionary purchases, making them sensitive to downturns in the economy and changes in consumer spending patterns.
2. Competitive landscape: The golf equipment and active lifestyle industries are highly competitive, with the company facing intense competition from well-established global brands.
3. Seasonality: The company's golf-related businesses are subject to seasonal fluctuations, with sales generally higher during the first half of the year.
4. Supply chain disruptions: The company's operations, particularly its golf equipment and active lifestyle segments, are dependent on a reliable supply of components, raw materials, and finished products, which could be disrupted by various factors.
5. Regulatory changes: The company is subject to extensive federal, state, local, and foreign laws and regulations, any changes to which could have an adverse impact on its business.
6. Integration and synergy challenges: The company's recent acquisitions, including Topgolf, present integration and synergy risks that could impact its financial performance.
7. Foreign exchange fluctuations: With approximately 27% of revenues derived from international markets, the company is exposed to currency exchange rate risks.
8. Market-specific challenges: As evidenced by the softer market conditions in Korea affecting golf equipment sales, regional economic and market factors can impact the company's performance in specific geographies.
Conclusion
Topgolf Callaway Brands is a diversified golf and leisure company with a strong portfolio of premium brands and innovative technologies. While the company faces near-term headwinds in 2025, its long-term growth prospects remain promising, driven by its market-leading positions, brand strength, and strategic initiatives to drive organic growth and operational efficiencies. The company's ability to maintain its leadership in the U.S. golf club market and achieve record share in golf balls demonstrates the strength of its core golf equipment business. However, challenges in the Topgolf segment and Active Lifestyle brands need to be addressed to return to overall growth. Investors should closely monitor the company's ability to navigate the current challenges, particularly in the Topgolf segment, and execute on its strategic priorities to unlock shareholder value in the years to come.