Topgolf and Callaway to move ahead as independent companies

PRNewswire

CARLSBAD, CA  — Topgolf Callaway Brands Corp. has announced that its Board of Directors intends to pursue the separation of its business into two independent companies: Callaway, a leader in golf equipment with a highly complementary Active Lifestyle business, with last twelve months revenue through Q2 2024 of approximately $2.5 billion (including Toptracer); and Topgolf, a category leading, high-growth, pure-play venue-based golf entertainment business, with last twelve months revenue through Q2 2024 of approximately $1.8 billion (excluding Toptracer). The Company expects to effect the separation through a spin-off of the Topgolf business to Topgolf Callaway Brands’ shareholders in a transaction that is intended to be tax-free to both the Company and its shareholders for U.S. federal income tax purposes.  While the Company expects that a spin-off of Topgolf into a stand-alone public company is the most likely separation path, the Company will continue to evaluate other options for separation to maximize shareholder value.

“Over the last decade plus, we have transformed Callaway into the #1 brand in golf equipment, while building a successful and complementary apparel and accessory business.  We believe this business, on a stand-alone basis, will be well understood and valued by the market.  Since our merger with Topgolf, we have made considerable investments in the Topgolf business that have dramatically expanded its scale, digital capabilities and venue profitability.  These investments, combined with the hard work of the Topgolf team, have allowed us to outperform our original growth and free cash flow expectations. Looking forward, we remain convinced that Topgolf is a high-quality, free cash flow generating business with a significant future value creation opportunity. Topgolf is transforming the game of golf and is expected to deliver substantial financial returns over time.  At the same time, Topgolf has a different operating model, capital structure and investment thesis than Callaway, and as a result, the Board has determined that separating Topgolf will best position Topgolf and Callaway for success and maximize shareholder value,” commented Chip Brewer, President and Chief Executive Officer of Topgolf Callaway Brands.

“Today’s announcement is the result of a thorough strategic review conducted by the Board of Directors and the management team,” said John Lundgren, Chairman of the Board of Directors of Topgolf Callaway Brands. “The creation of two independent companies, each with a distinct focus and proven business model, is intended to drive continued momentum in both businesses and deliver value to all our shareholders.”

STRATEGIC RATIONALE

Following this strategic review, the Company has determined that Callaway and Topgolf will be better served operating independently from each other. The Company believes that creating two companies will result in material benefits to the stand-alone businesses that will maximize shareholder value, including:

• Enhanced Strategic Focus: This transaction will create two strong, focused operating companies with industry-leading market positions and a greater ability to align incentives with performance and shareholder value creation.
• Optimized Capital Allocation: Callaway and Topgolf have different free cash flow profiles and funding needs.  The separation will position both businesses to implement appropriate capital investment, while maintaining an appropriate level of leverage.
• Simplified Operating Structure: Simplifying the operating structure of both businesses will improve execution and organizational agility.
• Distinct Investment Thesis for Each Entity: As separate businesses, Callaway and Topgolf will represent different and compelling investment opportunities. Investors will have the opportunity to support and invest in each business on the basis of its distinct qualities, including its growth drivers, financial profile and capital allocation framework.  Furthermore, the separation of Callaway and Topgolf will simplify financial reporting for investors.

CREATING TWO STRONG COMPANIES

Callaway
Callaway will consist of the Company’s existing Golf Equipment, Toptracer and Active Lifestyle businesses. These businesses generated revenue of approximately $2.5 billion for the last twelve months through Q2 2024.  Callaway maintains the #1 U.S. market position in golf clubs, as well as a growing #2 position in golf ball.  Callaway’s portfolio of leading brands will include Callaway, Odyssey, TravisMathew, OGIO, Jack Wolfskin and Toptracer.  Callaway will be positioned to generate significant free cash flow, reinvest in growing its market-leading positions and ultimately be in a position to return capital to shareholders, while operating at an appropriate level of leverage for its operations and financial profile.

Topgolf
The Topgolf business will consist of the Company’s existing Topgolf business, with the exception of Toptracer, which will be part of Callaway. With revenue of approximately $1.8 billion in the last twelve months through Q2 2024, Topgolf will continue to be the category leading, pure-play venue-based golf entertainment company. Its portfolio will initially include over 100 U.S. and international venues. Topgolf’s strategic priorities will remain to: (1) drive profitable same venue sales growth, (2) increase venue operating margins through further improvements in operating efficiencies and (3) pursue new venue development, resulting in meaningful revenue growth, bottom-line operating leverage and accelerating profitability. Importantly, Topgolf will be well-capitalized, with a significant cash balance and no financial debt, positioning the company to continue to capture its long-term growth opportunity.

Capital Structure and Ongoing Commercial Agreements
The Company intends to spin off at least 80.1% of Topgolf to obtain the desired tax-free treatment of the spin-off for U.S. federal income tax purposes and will also consider retaining a limited ownership in Topgolf for a period of time.  In connection with the separation, Callaway is expected to retain all existing Topgolf Callaway Brands financial debt, including both the term loan and the convertible notes. Topgolf will retain its venue financing obligations, but will have no financial debt, and be funded with a significant cash balance. To appropriately balance growth and free cash flow during this transition year, Topgolf intends to reduce its new venue development plans for 2025 to a number in the mid-single digit range.  One of the advantages of Topgolf’s current scale and embedded free cash flow is this optionality of when and how to build new venues, thereby allowing Topgolf to balance its mutual goals of growth and positive free cash flow. Upon separation, the Company expects both businesses will be capable of funding their own respective growth opportunities, capital allocation priorities and strategic plans.

In connection with the separation, the two companies are also expected to enter into ongoing, value-creating commercial agreements with one another. As an example, Callaway will continue to be the exclusive golf equipment partner for Topgolf.

The Company expects limited dis-synergies as a result of the separation.

Callaway will continue to be led by Chip Brewer, Chief Executive Officer, and Topgolf will continue to be led by Artie Starrs, Chief Executive Officer of Topgolf.