Topgolf Callaway Brands Corp. (MODG) , Mid/Small Cap AI Study of the Week

August 29, 2024

Weekly AI Study from the S&P 400 or S&P 600

Company Overview

Topgolf Callaway Brands Corp. operates in the golf and active lifestyle sectors, offering a variety of products and services. Initially focused on high-quality golf clubs, the company expanded into the golf ball business in 2000 and into active lifestyle apparel and accessories through acquisitions starting in 2017. A major growth driver is the Topgolf segment, which includes entertainment venues, proprietary ball-tracking technology (Toptracer), and a digital media platform. This segment generates significant revenue through food and beverage sales, gameplay, events, and advertising partnerships. The company aims to enhance earnings by expanding both company-operated and franchised international venues.

Topgolf Callaway Brands experiences seasonal revenue variations, with higher earnings in the second and third quarters due to favorable weather and increased corporate events. The company licenses Toptracer technology and offers digital gaming experiences, attracting consumer spending on leisure activities. In the golf equipment segment, the company designs and sells advanced golf clubs and balls under brands like Callaway, leveraging extensive research and development. Their products are manufactured globally and sold through direct consumer sales and custom club fitting programs, with marketing efforts focusing on televised commercials, digital, print, and in-store advertising. The Active Lifestyle segment includes brands like Callaway, TravisMathew, OGIO, and Jack Wolfskin, offering products from golf apparel to outdoor performance gear, sold through retail stores, online channels, and wholesale partners.

The company aims to boost brand momentum and direct-to-consumer sales through strategic digital marketing and an expanded retail presence. Topgolf Callaway Brands holds significant intellectual property, including around 5,300 trademarks and over 1,900 patents, crucial for protecting innovations. Employing approximately 32,000 people globally, the company emphasizes diversity, inclusion, and strong employee relations through comprehensive benefits and professional development opportunities. Community engagement includes the Callaway Golf Company Foundation and various charitable programs. The company complies with extensive regulations and promotes mental health and well-being among employees. Their Global Sustainability Program, overseen by the Executive Sustainability Committee, aligns with international standards and focuses on environmental and social responsibility. Executive leadership includes experienced figures like Oliver G. Brewer III and Brian P. Lynch, who guide the company's strategic and operational directions.

By the Numbers

Annual 10-K Report Summary (2023):

• Total net revenues: $4,284.8 million (7.2% year-over-year growth)
• Topgolf revenue increase: $212.0 million (13.7%)
• Active Lifestyle revenue increase: $96.2 million (9.2%)
• Golf Equipment revenue decline: $19.1 million (1.4%)
• U.S. net revenues growth: $283.4 million (10.1%)
• Europe net revenues increase: $3.2 million (0.6%)
• Asia net revenues decline: $13.5 million (2.5%)
• Costs and expenses increase: 8.2%
• Other venue expenses increase: $175.4 million (16.3%)
• SG&A expenses increase: $66 million (6.8%)
• Interest expenses surge: $67.4 million (47.2%)
• Other income decrease: $20.6 million (73.8%)
• Income tax benefit increase: $44.2 million
• Net income: $95.0 million (down from $157.9 million in 2022)
• Non-GAAP net income: $93.0 million (down from $158.2 million in 2022)
• Cash and cash equivalents increase: $213.3 million to $393.5 million
• Inventory levels decrease: $164.8 million
• Cash and credit availability: $742.6 million (78.8% increase from previous year)
• Total obligations: $10,653.8 million

Quarterly 10-Q Report Summary (Q2 2024):

• Net revenues decline: 1.9% for both three and six months ended June 30, 2024
• Net revenue reduction: $21.9 million (three months), $45.1 million (six months)
• U.S. net revenues increase: 0.5% (three months), 1.3% (six months)
• Europe net revenues decrease: 5.1% (three months), 6.7% (six months)
• Asia net revenues decrease: 14.9% (three months), 17.9% (six months)
• Costs and expenses decrease: $8.9 million (0.8%) (three months), $18.5 million (0.9%) (six months)
• Net income: $62.1 million (Q2 2024), down from $117.4 million (Q2 2023)
• Diluted earnings per share: $0.32 (Q2 2024), down from $0.59 (Q2 2023)
• Non-GAAP net income: $83.1 million (Q2 2024), up from $75.6 million (Q2 2023)
• Non-GAAP diluted earnings per share: $0.42 (Q2 2024), up from $0.38 (Q2 2023)
• Topgolf segment revenue growth: 5% to $494.4 million (Q2 2024)
• Golf Equipment net revenue decrease: $37.2 million (8.2%) (three months), $31.0 million (3.5%) (six months)
• Active Lifestyle net revenue decrease: $8.3 million (3.2%) (three months), $57.0 million (9.9%) (six months)
• Cash and cash equivalents decrease: $81.7 million to $317.1 million
• Cash and credit availability: $783.8 million (increase of $136.4 million from previous year)

These figures provide a snapshot of the company's financial health, growth trajectories in different segments, and overall profitability.