Topgolf Callaway Brands Corp. Price & Performance (MODG)

Review the Safe Harbor statements contained in the presentation and the press release for a more complete description. With that, I'd like to turn the call over to Mr. Brewer.

You, Katrina.

Afternoon, everyone, and thank you for joining our call today. Starting on Slide four, Q4 was a strong quarter for our company as both our golf equipment business and TravisMathew delivered year over year growth on the top and bottom line. In Topgolf, delivered better than expected same venue sales as well as record Q4 venue level margins. Golf Equipment delivered another year of excellent brand performance Maintaining its leadership position in U. S. Topgolf club market share and driving record share in golf ball. In Active Lifestyle, TravisMathew delivered another strong brand and financial year. While the team at Jack Wolfskin right sized their business so it is now positioned for profitability going forward. At Topgolf, despite top line pressure, they delivered $337,000,000 in EBITDA and approximately 34% venue level EBITDA margins which were flat versus 2023, and up 500 basis points versus 2019. Topgolf also impressively delivered over $100,000,000 in free cash flow. Additionally, our total company free cash flow of $2.00 $3,000,000 was also above expectations thus further strengthening our financial position. A point Brian will cover in more detail during his comments. I view all of this as evidence of our enviable brand positions as well as the dedication of our employees.

Whom I would like to publicly thank for their commitment to our company. As we look forward to 2025 and our guidance, on the product side of our business, we remain confident in the health of our golf equipment category, our brand position in it and our 2025 product lineup. We expect the TravisMathew brand to deliver year over year growth on both the top and bottom line and Jack Wilskin to return to profitability. At the same time, are facing year over year headwinds from foreign exchange, Budgeting back to target incentive compensation levels which were not paid in 2024, and to a lesser extent tariffs. As you'll see on Slide five, these will negatively impact our core business EBITDA by approximately $75,000,000 year over year. With foreign exchange alone impacting us by $60,000,000 on the top line and $40,000,000 on the bottom. This will unfortunately impact our financial results this year However, we expect to be able to mitigate a good portion of these headwinds via operational improvements. And on an organic basis, thus normalizing for the foreign exchange, incentive comp and tariff headwinds, we anticipate our EBITDA to be up approximately 6%. Driven by gross margin improvements and cost savings.

Looking further forward, post separation with Topgolf, We see the opportunity for further cost savings as we anticipate scaling our corporate overhead back to a level more consistent with the size of the business without Topgolf. We anticipate being able to grow our golf equipment revenues consistent with our long term track record. And we anticipate gross margin improvements from both initiatives we are have in place as well as from a potentially more stable foreign exchange environment. We remain very optimistic about the future of this business. Turning to Slide six and our 2025 guidance for Topgolf. The midpoint of our guide is approximately $270,000,000 in EBITDA with same venue sales down mid single digits for the full year and 10% to 13% in Q1. Venue level EBITDA margins are anticipated to be approximately flat year over year. Driven by the team's strong operational execution. This contemplates headwinds of approximately 45,000,000 Due to a change in the reporting structure from a Gregorian to a retail calendar, The sale of World Golf Tour that occurred in 2024 Rebudgeting for full bonus and a small impact from foreign exchange. After considering these headwinds, we expect full year EBITDA to be down less than you would expect based on a normal flow through from same venue sales due to the cost savings and operational efficiencies that are being implemented across the business.

I am pleased with the action Topgolf has taken to navigate a difficult operating environment. Particularly with its delivery of strong venue level margins and free cash flow. But I also recognize the need to drive same venue sales growth We believe the same venue sales performance is primarily a reflection of a macro consumer and category issue. Having said this, we're committed to improving same menu sales as quickly as possible as it is our number one focus for this business. Along those lines, and in anticipation of the separation of these businesses later this year, we've asked Artie Starz, Topgolf's CEO to join us on this call. Artie will give us more detail on Topgolf's performance and the initiatives in place to address same venue sales. As you can see on Slide seven, on a consolidated basis for 2025, We're guiding towards a midpoint of approximately $460,000,000 in EBITDA and we once again expect to be free cash flow positive. On the strategic front, we are productively working towards the separation of Topgolf evaluating both a spin in the second half of this year and a potential sale. For this call, there is nothing new to report on this process.

Other than all options are still on the table and we're making steady progress. Let's now turn to segment level performance. Arti will talk you through Topgolf, and then I'll rejoin to speak to Topgolf equipment and Active Lifestyle. Hardy, over to you. Thanks, Jeff.

As Chip mentioned, Topgolf generated over $100,000,000 of free cash flow marking our second consecutive year of positive cash generation. While same venue sales growth isn't where we would like it to be, Continued operational improvements and new venue development helped us deliver adjusted EBITDA of $337,000,000 which represents growth of 11% versus 2024. I'd like to share our performance for each of our key focus areas along with what to expect for 2025, starting with same venue sales. Same venue sales remained pressured in the fourth quarter at down 8%. With walk in or one and two bay down 10% and our three plus bay events down 5%. While sales were down, we saw a sequential improvement driven by better traffic, and better than expected holiday events with traffic up year over year for three plus Bay A big thank you to our events team for delivering these results. While spend per visit drove most of the decline in same venue sales in Q4, This was driven by check management, including lower F and B spend from lower alcohol attachment. Chip mentioned our Q1 twenty twenty five same venue sales trends have been softer than expected so far, in part due to the LA fires and unusually severe cold weather.

Approximately half of the business quarter to date has experienced what we would characterize as unfavorable weather year over year. Approximately a quarter has been neutral and a quarter has been favorable. Year to date, same venue sales with favorable weather is up high single digits. Neutral weather are down low to mid single digits, but those seeing unfavorable weather are down high teens. Winter weather always causes volatility. But this year has been particularly negative versus prior year and the historical averages in our markets. In total, our Q1 guide for down 10% to 13% incorporates approximately five point impact from the severe winter and the LA fires and one point from one less day in the quarter due to last year's leap year.

There is no doubt the macro environment for premium out of home entertainment is currently facing headwinds. However, I'm proud of how our teams are operating in this environment with a focus on the player Our key player experience metrics likelihood to return, fun and price value are improving. Year over year in the fourth quarter, likelihood to return scores improved 100 basis points fund scores improved 160 basis points and value scores improved two forty basis points. This is a result of improvements we've made in the player experience, with the launch of the Sure Thing Golf Club continued game innovation to provide new news and more reasons to visit, simplification of our pricing and booking flow in our digital channels, and continued focus on our teams delivering fun, and world class hospitality at Topgolf. In 2024, our traffic trends improved throughout the year with Q4 seeing the best performance of the year. While we are encouraged by some of our leading indicators, it's clear we must make faster and bolder changes in how we go to market. And we're doing just that. Specifically, new and relevant experiences for our players, more compelling and accessible value, and a streamlined corporate structure that better serves our venues.

As it relates to new and relevant experiences, we've executed on our strategy to bring more consistent new news and partner with big brand names that have strong equity We launched the Sonic the Hedgehog game in Q4 and we recently launched Captain America Brave New World Topgolf Experience, Both are already amongst our most played. Going forward, you can expect large media and gaming properties to be a part of the Topgolf Bay experience multiple times per year. Additionally, we now have a more disciplined and insight based approach for marketing calendar planning. On value, both actual price and price per perception are an obstacle for many players. To tackle this, in the fourth quarter, we tested removing booking fees and approximately 30% of the portfolio. And it drove higher website conversion. We removed booking fees system On events, we've given our in venue sales teams more tools and better process to increase business development and that has resulted in increased lead conversion rates. Combining our efforts on value and new experiences we're actioning against two large player segments, we have existing equity and a clear right to win. Family outings and late night social occasions. We recently launched this with a more disruptive value The offer is simple, dollars 30 per hour of gameplay late night on Thursday, Friday and Saturday we call it TG Nights, where we bring DJs into the venue late night in addition to a late night bites menu.

As well as Sunday FUNDAY, which primarily targets families. In addition to owned internal media assets, and paid digital and social, we are testing linear television media in two of these markets. While only a couple weeks in, the sales and specifically traffic gains have exceeded our expectations. And we are very optimistic. Although it is early.

I'm encouraged by the larger group sizes and strong F and B spend visit to date areas where our pricing model and experience proposition have competitive advantages. In addition to our one hundred and twenty minute standard reservation, these model markets are pioneering our new six will further support improvement in conversion rates on the web, and in the app. Our teams in these markets are extremely energized by the late night and Sunday traffic and we plan to roll out these changes across more venues in the coming weeks. More broadly, we will continue to test new ways to connect with our players and increase their engagement with Topgolf. New and relevant experiences and improving our value but we also have initiatives that can drive growth in the Bay. We're in the process of transitioning to a new point of sale system, which will not only be a win for our venue playmakers as it streamlines operations, but will also enable a better experience with in Throughout the year, we'll be rolling out mobile in Bay capability, starting with payment at the end of Q1 reordering in the summer, and a full new menu alongside point of sale rollout in Q4.

We will continue to use our consumer data platform to build frequency with our existing players and to inform design of seasonal passes and loyalty programs. Moving on to our second key focus area, margin growth. We had a strong end of the year for venue level profitability. The venues generated EBITDAR margins of approximately 36% a record for the fourth quarter. And we saw EBITDAR margins for the full year of 34% despite seeing sales headwinds. This underscores the efficient operations our teams can deliver with player with improving player experience scores. And the efforts we have made to improve our labor model, which delivered approximately 100 basis points improvement year over year. In 2025, we will continue to advance margin initiatives, particularly on the labor side, which we expect will improve venue level profitability and allow for investment into profitable traffic driving value. While we are wholly committed to driving a return to growth in same venue sales, we also believe we have a long term opportunity to grow our venue margins. Moving on to our third key focus area, venue development, we had another strong cohort in 2024. Opening six new Topgolf menus and completing one Big Shots conversion.

Our Q4 openings in Ridgeland, Mississippi and Burlingame, California just outside of San Francisco, validate the brand is relevant across the country. Overall, we have a portfolio of building designs that meet local needs and drive strong unit economics. And while we are pleased with our track record in venue development, it's clear our team and resources need to be primarily focused on driving same venue sales and continuing to increase flow through at our existing venues. As previously communicated, we will have five venues slated to open in 2025. Four of which are planned to open in the fourth quarter. We continue to have high conviction in our white space opportunity but believe we are making the right prioritization in the near term. Finally, I want to cover our home office support structure as we prepare for the separation. We are in the process of reorganizing with three clear intentions. [indiscernible] one, optimize leadership focus around driving same menu sales growth Two, simplify work for our venue teams so they can focus on continued improvements in the in bay experience and three, further lower our cost base. This work is well underway with the recent onboarding of Aaron Chamberlain, our Chief Operating Officer and Josh Belkin, our Senior Vice President Revenue Management and Player Engagement.

Both Aaron and Josh bring a wealth of experience in the hotel industries with a focus and track record of driving profitable growth. While I'm excited about the leadership team I get to work with side by side, we know at heart of the brand are our venue playmakers and our venue directors of operations who lead them. We are streamlining our home office structure, to better support our venues and run a more agile organization. To summarize, we have a robust and targeted set of initiatives to improve same menu sales and are primarily focused against this, We expect same venue sales to improve throughout the year as laps get easier as we bring new news to the Topgolf experience along with targeted value, and as we stabilize the events business. We have improved our talent and capability in key areas of focus in driving sales and continued margin expansion while improving the player experience. I'm really excited about the future at Topgolf as our teams are driving action against our key focus areas.

Believe these will drive both top line growth and free cash flow. Back to you Chip. [indiscernible] Now turning to golf equipment. In 2024, rounds played grew 2% year over year marking the fifth consecutive year where rounds played have exceeded $500,000,000 Furthermore, interest in the game and participation continued to increase with U. S. On course golf to $28,100,000 Additionally, U. S. Sell through and industry golf shipments both grew low single digits as well.

Our golf equipment business performed exceptionally well from a brand perspective in 2024. And our global revenues were up slightly on a currency neutral basis. Our tour staff had multiple wins including one woman's and two men's majors. Our club brand continued to lead in the technology and innovation ratings in its overall brand rating and the number of people that rated it as their favorite ball. Our U. S. Dollar market share places as the number one club brand for the third consecutive year of the last ten years. We were number one in total clubs, [indiscernible] And AI Smoke was the number one model in drivers fairy woods and irons. We also had a very successful year in putters driven by our AI1 product line. Topgolf ball, we maintained our position as the number two golf ball on the back of a successful launch of our Chrome Tour brand. As you can see on Slide eight, we have a long term track record of steadily growing our share in this category. Looking forward, in January, we announced some exciting new launches. In golf clubs, our new Elite product line is our most complete lineup in memory. Delivering new technology and outstanding performance from top to bottom.

Turning to putters, during Q4, we launched our square to square product line featuring a zero torque design. This product is sold through extremely well is creating excitement in the marketplace On the ball side, we're launching new and improved versions of our Supersoft and our ERC product lines this year as this is primarily an ionomer year for us. However, we're also adding a little energy to the Chrome tour lineup with the addition of our triple diamond offering a model that based on our testing delivers the fastest ball speeds of any tour ball on the market. We are forecasting our golf equipment revenue to be down slightly year over year primarily due to foreign exchange but also because all of the big four golf OEMs are launching full new wood lineups this year. Something that doesn't happen every year, and because we have less new product planned for the second half of the year. Operating income will also be down due to the lower revenues as well as the previously mentioned headwinds. On an organic basis, thus excluding the headwinds in FX, operating margin would have been forecast to be up. Slightly.

Switching gears to our third and final segment, Active Lifestyle. Market conditions in this segment were challenging during 2024 with continued softness in global apparel markets. But TravisMathew had a strong Q4 and a good year overall. For the full year, sales were down a little primarily due to the lapping of the before mentioned 2023 corporate channel sell in Excluding this timing issue, sales were up approximately 7% thus outperforming the market overall. Looking at categories, the brand continues to perform well in its core men's category and is also gaining momentum in key new categories such as outerwear and women's. For 2025, we are projecting operating conditions to be similar 2024, but expecting the TravisMathew brand to outperform the market and deliver growth on both the top and bottom line. With strong prospects. Jack Wolfskin performed roughly consistent with For the full year, the business was challenged due to lower sales in Europe, which were partially offset by continued strong performance in China. During 2024, we rescaled the cost base of this business while at the same time working on our European product market fit by refocusing on the brand's core products and positioning. We are expecting revenues for 2025 to be down because of our rights profitability to be up.

This business remains a small part of our overall company but we believe we have it well positioned for profitability in 2025 and beyond, Overall for 2025, we're expecting our active lifestyle category revenues to be down year over year due to foreign exchange as well as the lower revenue projections for Jack Wolfskin, but for operating income to be higher. In conclusion, we closed 2024 on a strong note.

And as we enter 2025, we remain focused on executing our bringing exciting new products and programs to market and driving continued operating efficiencies In the near term, we're also navigating some short term headwinds which are impacting this year's outlook. Given the strength of our brands and their market positions, our operational capabilities and our strong financial position, We're confident we will get past these short term headwinds and return to growth. We believe we'll be able to deliver significant shareholder value especially vis a vis the current market value of our equity. Thank you. And Brian, over to you.

Thank you, Chip, and good afternoon, everyone. Before jumping into our financial results for the quarter, I want to note that our GAAP results were impacted by $1,450,000,000 non cash accounting charge related to the impairment of the Topgolf goodwill and intangible assets. You may recall that the implied negotiated price for the Topgolf merger was $1,987,000,000 payable and common stock but the purchase price for accounting purposes was impacted by the stock price increase between signing and closing and as a result, we recorded a $3,100,000,000 purchase price even though no additional shares were issued. Following the impairment, the remaining carrying value of the Topgolf assets on our books is $1,600,000,000 Importantly, this non cash charge does not impact our liquidity or operational flexibility. Now turning to Q4 financial results. Q4 consolidated revenues of $924,000,000 increased 3% year over year. This increase was largely driven by increased revenue in golf equipment, with the Active Lifestyle segment up slightly and Topgolf revenue consistent with the prior year. Q4 adjusted EBITDA of $101,000,000 increased 45% driven by improved operating results across each segment. Moving to segment performance, At Topgolf, Q4 revenue was approximately flat at $39,000,000 Revenue from new venues opened since Q4 last year offset 8% decrease in same venue sales.

The same and the walk in one to two Bay business. Topgolf Q4 operating income was $27,000,000 up $4,000,000 compared to the prior year while adjusted EBITDA increased 14% year over year to $84,000,000 The adjusted EBITDA growth was driven primarily by improved venue level margin EBITDAR margins for the quarter exceeded expectations and represented a record high Q4. Moving to the Topgolf Equipment segment. Revenue was up 13% to $225,000,000 year over year.

This result was driven by the continued success of both our golf clubs business and chrome family of golf balls. As well as the successful launch of our new AI1 square to square putters in Q4. Seasonal GAF equipment operating loss of $3,000,000 was a $17,000,000 improvement compared to the prior year, primarily due to increased sales volume.

Interactive Lifestyle segment Q4 revenue increased 1% year over year. This increase was due to an increase in apparel sales primarily TravisMathew, Jack Wolfskin reported approximately flat year over year revenue and continues to perform well in China. Operating income increased to $24,000,000 compared to $20,000,000 in the prior year primarily driven by the increased revenue and cost savings initiatives at Jack Wolfskin. Resulting from the recent rightsizing of that business. Moving to balance sheet and liquidity on Slide 16. Our available liquidity which is comprised of cash on hand and incremental borrowing capacity, under our credit facilities continued to strengthen As of 12/31/2024, our available liquidity increased $54,000,000 to $797,000,000 due to better cash flow generation and as the company continues to manage working capital and capital expenditures. At year end, we had total net debt of $2,300,000,000 which per our usual practice excludes convertible debt of approximately $258,000,000 compared to $2,200,000,000 for the same time last year. This increase is attributable to increased venue financing debt partially offset by a reduction in term loan debt including our second quarter discretionary $50,000,000 principal pay down of our Term Loan B. It is helpful to evaluate our net leverage position by excluding the venue financing debt Associated with our Topgolf venues, which is akin to capitalized rent with no additional principal or bullet repayment.

In Q4, our REIT adjusted net debt was $818,000,000 over $150,000,000 lower versus last year. Our net debt leverage, which excludes convertible debt, was 3.9x as of 12/31/2024, compared to 3.8 times in the prior year. This increase was primarily due to increased venue financing debt.

Importantly, our Venue financing adjusted net debt leverage ratio which burdens adjusted EBITDA with the Venue financing interest payments, which are akin to rent. Declined to 1.7x versus 1.9x in the prior year. We remain comfortable with these leverage levels. Our inventory balance decreased $37,000,000 or 5% to approximately $757,000,000 at the end of Q4 twenty twenty four. We are comfortable with the quality of our inventory. Shifting gears, full year consolidated adjusted free cash flow was $2.00 $3,000,000 which was ahead of our previous guidance. This performance reflects better than expected earnings as well as cash generation during the fourth quarter. The timing of the receipt and payment of inventory and continued management of capital expenditures and working capital.

Gross capital expenditures for 2024 were $295,000,000 we received reimbursements of approximately $150,000,000 from our financing partners, for net capital expenditures of approximately $180,000,000 with approximately $55,000,000 relating to the non Topgolf business and $125,000,000 coming from Topgolf. Looking specifically at guidance for 2025, on presentation slides five through seven, you can see that be some significant headwinds as Jeff previously described. For 2025, we expect revenue to be in the range of $4,000,000,000 to $4,185,000,000 representing an approximate 3% decline year over year at the midpoint of guidance. When excluding the FX and other headwinds previously mentioned, we expect full year 2025 organic revenue growth to be down slightly year over year. For the core business, we are projecting revenue to be in the range of $2,275,000,000 to $2,350,000,000 representing a 5% decline year over year at the midpoint. Excluding the FX and other headwinds, organic revenue is projected to be down 2%. For Topgolf specific to be in the range of $1,725,000,000 to $1,835,000,000 representing a decline of 2% year over year at the midpoint. Excluding the headwinds, the guidance would represent full year organic revenue growth of approximately 1% driven by new venues partially offset by our same menu sales forecast of down mid single digits.

Turning to profitability. We anticipate adjusted EBITDA for 2025 to be in the range of $415,000,000 to $5.00 $5,000,000 representing a $128,000,000 decline year over year at the midpoint. Excluding FX and the other headwinds, the guidance represents full year organic adjusted EBITDA growth of minus 1%. We are projecting core dollars to $2.00 $5,000,000 Excluding the FX and other headwinds, core business adjusted EBITDA is expected to grow by $14,000,000 or 6%.

We are projecting top cost adjusted EBITDA in the range of $240,000,000 to $300,000,000 Excluding the headwinds, Topgolf adjusted EBITDA is expected to decline by $22,000,000 on an organic basis.

Now turning to Q1 specifically. For Q1, we are forecasting consolidated revenue of $1,045,000,000 to $1,085,000,000 and adjusted EBITDA of $125,000,000 to $145,000,000 Overall, we had a strong finish to 2024 but face some short term headwinds in 2025 as discussed earlier. This will be a reset year as we navigate these headwinds and the separation of Topgolf.

The important part is that our Callaway Golf and TravisMathew brands remain strong. The Jack Wolfskin business has successfully right sized its business our liquidity position remains solid.

We believe this will position us well to navigate the 2025 headwinds return to sustainable growth execute on our strategic initiatives and create shareholder value. With that said, I would now like to turn the call back over to the operator for Q and A. Thank you. We will now begin the question and answer session. The first question comes from Matthew Boss with JPMorgan.

Great, thanks and appreciate all the color. So Chip and maybe Arti, Could you elaborate on same venue sales trends when the weather has been neutral at Topgolf. Maybe just walk through the expected progression in 2020 what constraints do you see from returning to positive same venue sales in the back half of the year? Sure. I'll take it. Thanks, Matt.

Yes, so the sort of the neutral weather markets, which we characterize as where it's approximately the same year over year They're currently running down to down low mid to single digits. So an improvement from what we had seen in Q4 And we obviously have easier lapse balance of year. So when we set the guidance and we look at the base trends, we're comfortable with that. I'm pretty excited about what we're seeing in these model markets in terms of how the consumer is responding to some of the value messaging that we have in place. Some of the traffic numbers we're seeing are extremely exciting. But I think the base guidance that we put forward, Matt, is really this is the trend of the business that are not that's not weather impacted And we have a lot of conviction in that. The final thing I would add is that in Q4, our teams just did an extraordinary job improving player metrics and that's continued in Q1. Improving player metrics, [indiscernible] introducing some more value that's profitable in the market. I feel good about the guide.

Great. And then maybe Chip on golf equipment, could you speak to initial reception of the Elite line clubs Square to Square and Potters. And just if you could elaborate on drivers of the 2025 organic forecast in this segment?

Sure. We're really proud of the Elite product line and have just recently launched it out there and our excited about the prospects for the year. We do have a little bit more challenging year from a share perspective, because of the launch of all of the big four OEMs this year, which is not something that happens every year. But very proud of of our product line and optimistic as the year develops and as we get it into hitting base, we're hearing great performance feedback and we've find that that's our time to shine. On the Square to Square product line, we launched that in Q4. That's that zero torque design. And that's done exceptionally well. That's a category that's hot in the golf market right now. We think we have a better design and approach to it And so clearly something that we see that has energy Did that answer the question Matt?

Yes, it does. Best of luck Thank you.

The next question comes from Alex Barry with Bank of America. Please go ahead. Hi, thanks for taking my questions here.

Just first, the corporate events comp excel [indiscernible] Strategy changes that you think helped drive the acceleration? And in the corporate events comp? And then, what is the outlook for corporate events versus walk in for 2025? Are you continuing to see green shoots on the corporate side? Thanks. Yes. Thank you very much, Alex.

The teams did a great job in Q4 and I'll put it into two sort of two buckets. The first is, we gave a bit more flexibility [indiscernible] events and corporate events by and large are sold locally. So you're competing with other local establishments And we gave the teams a bit more flexibility in terms of product design, length, duration, the menu and price and that paid I think significant dividends The second thing I would say is we're a business that's got some nice scale now. We're in most of the large DMAs and we're able to bubble up a lot of those learnings in the local market. I'll provide one specific example where we had a few venues that were selling to a national retailer when their holiday parties very well and we had some other venues that were getting some resistance and we were able to take those learning [indiscernible] up tripling our sales with that group. So I'd say it's a competitive advantage we have at Topgolf. At the local level, we've got super energized teams and we've given them some more flexibility. And then in the home office, we've put in, I think, more rigorous and better structure in making sure that these learnings are getting to the right places at the right time.

In terms of twenty twenty five, and the guidance, we expect walk in to be a little bit The weather has impacted both channels year to date. I think the one thing I will say, the holiday events still seem to be a real source of strength for us. And we expect that to continue in 2025.

Really helpful. And then my follow-up is on the core golf equipment biz. Can you talk about the expectation for the core business to be down year over year? Is it mostly just the function of a tough year from a market share perspective given some of the competitive launches? Or is it anything to do with channel inventory levels? I guess [indiscernible] What drives the core business down year over year in 2025?

It's mostly FX. So if you wanted to pick the one largest, as we mentioned, it's in the core business, there's $60,000,000 of headwind from FX alone. And then beyond that, If you're looking at the golf equipment, we talked about launch cadence this year.

Where we have more of our big competitors launching than in last year, And we also have less launches planned of our own in the second half of the year. And in an active lifestyle, we've intentionally scaled back the Jack Wolfskin business as we've resized that business and restructured it for profitability going forward.

Very helpful. Best of luck going forward.

Yes.

Thank you.

The next question comes from Joe Altobello with Raymond James. Please go ahead. [indiscernible] On the core business, I guess I'll stay here.

A second. So I take a step back and I look at that business, I think in 2019, your core business did about $210,000,000 of EBITDA.

On call it $1,700,000,000 of revenue, and the EBITDA size for this year is below that on roughly $600,000,000 of incremental revenue. So I understand the FX year over year, but has something changed structurally with that business to cause profitability to come down so materially?

In six years? No, Joe. Nothing structural at all FX is again the primary driver of that. And we'll work through the FX over time.

It's a lagging process there where we the markets don't taken up price to offset initially, but they will over time. And we've worked through these cycles in the past.

There are some other changes obviously throughout that. The Trevor Mathew business is now bigger. The Jack Wolfskin business is smaller. But nothing structural And again, on an organic basis, just normalizing for FX in the one year period, and the FX would be more dramatic relative to 2019. Significantly. So So we're still driving 6% improvement in EBITDAR on lower revenues. So structurally, I think we're in good shape. And headwinds that we'll work through Just to follow-up on that, the Topgolf free cash flow guidance for $25,000,000 I apologize if I missed it.

We didn't provide cash flow, but we gave you the elements of that in the earnings deck, including the CapEx and EBITDA including the FCI for each of the segments. Okay. Thank you.

The next question comes from Megan Klapp with Morgan Stanley.

Please go ahead. Hi, good evening. Thanks so much.

I have a question for Arty and then maybe a follow-up for Chip and Brian. So first question on Arty, again, a lot of helpful detail on kind of the you're undertaking to improve the menu sales. So thank you for that. And it's nice to hear that you've had some positive early learnings, but guess if you just take a step back, same venue sales have been negative for six quarters and you've talked about a lot of initiatives that you've been working on with us over the last several quarters. As you kind of take a step back from a high level, can you just provide some perspective on really what's changing as you look to 2025 relative to the last several quarters. And maybe related to that, when you think about to Matt's question earlier, inflecting to positive same venue sales, at some point in the future. How much do you really think is in Europe control versus needing a little bit of macro help I guess you mentioned lower alcohol attach rates in the the quarter. I'm not sure if that was new or not, but is there anything you're seeing just in the macro that suggests it could be kind of a tougher battle in 2025?

Yes. We certainly love to see the macros improve, but we think we're going to same venue sales going even if that doesn't happen. And what I tell you versus last year, what's different? Number one, the consumer environment is different and two, how we're tackling it. Is different. Most notably, if I look at the first half of last year when we were applying some promotions and targeted value on maybe specific digital channels and specific sort of shoulder parts of the business We drove some incrementality, a couple of points with the free 30 and the free play promotions. But this year, we're really providing value when our players can truly use it, which is Sunday and late Late Night, which is two ownable equities for us. We've done a bunch of research in terms of why players love Topgolf, why they come to Topgolf, where do we have a competitive advantage, Those are two segments and two parts of the business where we have base to sell and it's very profitable for us provide the price point that we're targeting. The other thing is, is the price point sharp? So how we price, which is by the hour, Just saying $30 is in this environment, for six people, that's $5 a player.

And that is that's extraordinary value. And the beauty of this for us, if you take Sunday, for example, Sunday is 15% of our business. Gameplay is half the business. So we're basically putting seven that 7% to 8% of the business on a nice promotional value. But what we're seeing come out of it is larger group sizes, strong it's early, but in some respects stronger F and B spend So the groups they're coming, they're socializing, they're spending more when they come. And both the traffic numbers are extremely encouraging. And the sales as well. In terms of a couple other things that I didn't get into much detail in my script on, but the beginning of Q2, Because people come into the venue really gameplay is like the anchor price, if you want to think of it that way, that's where it kind of gets people in. We've done some deeps to [indiscernible] compare and how people are navigating the menu and we're rolling out a simplified menu with some targeted pricing moves inside the menu that we don't expect the player to see, but we expect to yield some comp growth and higher margins. And we saw sequential traffic improvement through most of last year and before the weather hit was continuing.

So I sort of feel like with this value construct some of the F and B work we're doing, we got a strong slate of new news to get people excited about coming to Topgolf. I'm very optimistic.

Great. Thank you.

And then just a follow-up for Chip or Brian. I know you said no update on the spin, but just when you announced the spin, I think the expectation was to get to three times or under leverage within twelve months of the spin. Since then, just given kind of the headwinds you talked about, your EBITDA expectations are lower. So you just update us on how we should be thinking about your expectations for pro form a leverage of that core business and can you still get to 3x within twelve months?

Sure, Megan. Again, we're not giving specific guidance but we're very pleased with the way we finished Q4 with our cash flow very strong. We expect to be cash flow positive for the total company and Topgolf in 2025. [indiscernible] in a spin situation, we would use our intention is to have a retained state that we would use to help us delever. So we feel very good about where we are now and where we're headed.

Yes, Megan, I'll just add that as a Board and a management team, we're going to ensure that both businesses are in strong financial and strategic positions at the time of separation. There are a lot of different paths for that. And that's a commitment of ours.

Okay. Thank you.

I would like to turn the conference back over to Chip Brewer for any closing remarks.

I'll just thank everybody for tuning in today on the call. We appreciate your time and we look forward to continuing to keep you updated as the opportunities present. In the May call, if not before. Thank you so much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. [indiscernible]