Callaway Golf Company (CALY) Status Update summary

Transaction Overview and Rationale

• Announced intent to separate into two independent companies: Callaway (golf equipment, active lifestyle, Toptracer) and Topgolf (venue-based golf entertainment), targeting completion in the second half of 2025.

• The separation is expected to be executed via a tax-free spin-off of Topgolf to shareholders, with at least 80.1% of Topgolf shares distributed to existing shareholders; other options, including a sale, remain under consideration to maximize shareholder value.

• The transaction aims to enhance strategic focus, simplify operations, and create distinct investment theses for each business, with both companies expected to be free cash flow positive and maintain strong financial positions.

• Callaway will be led by Chip Brewer and Topgolf by Artie Starrs post-separation.

• Transaction is subject to customary regulatory, board, and tax authority approvals, with no shareholder approval required.

Business Profiles and Financials

• Callaway will focus on golf equipment, active lifestyle brands, and Toptracer, with $2.5 billion in revenue over the last 12 months through Q2 2024 and leading market positions in golf clubs and balls.

• Topgolf will operate over 100 venues globally, with $1.8 billion in revenue in the last 12 months through Q2 2024, and will prioritize profitable growth and new venue development.

• Toptracer will remain part of Callaway due to customer and end-user alignment, with doubled bay count since 2021 and ongoing innovation.

• Both companies are expected to maintain strong market positions and leverage their respective growth opportunities.

• FY24 guidance: Topgolf revenue ~$1.8B, adjusted EBITDA ~$310M; Callaway revenue $2.4B, adjusted EBITDA $260-280M.

Capital Structure and Financial Strategy

• All financial debt, including term loan and convertible notes, will remain with Callaway; Topgolf will have no financial debt but retain venue financing obligations and will be funded with approximately $200 million in cash at separation.

• Callaway aims to reduce leverage to three times or lower net debt to EBITDA within 12 months post-separation, using free cash flow and any retained Topgolf stake.

• Topgolf targets a 50-60% payback period of ~2.5 years and 18-22% target cash-on-cash returns.

• Both companies are expected to be free cash flow positive in 2025 and fund their own growth and capital priorities.

• Net dis-synergies from the separation estimated at ~$25 million, with transaction expenses of ~$50 million.