Brian Lynch: up year-over-year versus our original guidance of approximately flat. Now turning to Q2 guidance. For Q2, we are forecasting net sales of $585 million to $610 million and adjusted EBITDA of $98 million to $108 million. With this guidance, the implied first half net sales is now up mid-single digits year-over-year at the midpoint. which is in line with our goal to grow at or above the overall golf market. In summary, our return to a pure play golf company is off to a good start. We are pleased with the direction of our business, and we have a strong balance sheet, a more profitable product focus, and a clear path to generating shareholder value through free cash flow generation and effectively managing our capital for the benefit of shareholders. With that said, I will now turn the call back over to the operator for Q&A.
Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. We ask that you please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question today comes from Matthew Boss with J.P. Morgan. Please go ahead.
Matthew Boss: Great, thanks, and congrats on a nice quarter.
Brian Lynch: Thanks, Matt.
Matthew Boss: So, Chip, could you elaborate on first quarter outperformance relative to plan, 9% revenue growth nearly tripled the midpoint of your outlook for the first quarter. Any way to break apart timing relative to underlying demand across the portfolio? And have you changed any of your underlying revenue growth assumptions as we look over the balance of the year, second to fourth quarter?
Chip Brewer: Sure, Matt. Yeah, so if you look at it broadly, and there's always a number of puts and takes, right? We beat the midpoint of our guidance by $38 million. We're raising the full year by $28 million. So there was roughly $28 million more demand than we had anticipated. expected in the quarter and the 10 million is basically timing between the quarters where our supply chain team outperformed and we shipped, uh, what we expected to ship in Q2 a little bit earlier. And, uh, we were really pleased with the demand for the product, particularly new product, uh, around quantum and, uh, uh, also feedback on the, uh, the golf ball. Um, as you know, we, um, raised some pricing in some of these product lines, and that was received well equally. So positive upside there that we saw in the quarter. And we're continuing to see the market hold in very strongly. So we feel good about our expectations for the market and for balance of the year.
Matthew Boss: Great color. And then, Brian, just relative to the first quarter gross margin expansion of more than 200 basis points, how best to think about gross margin over the balance of the year? Maybe just puts and takes between pricing relative to mix and the impact of tariffs as we progress throughout the rest of the year.
Brian Lynch: Sure, Matt. On the gross margin, as you noted, we had a good 260 basis point increase, which is a nice increase. It's really attributable to the good work on our gross margin initiatives that we've been talking about through the year. It also includes a benefit of about $6 million from the recognition of deferred revenue related to a planned change in consumer loyalty program at Travis Matthew. And then there was also some mixed change at Travis Matthew with more toward direct-to-consumer
Operator: The next question comes from Simeon Gutman with Morgan Stanley. Please go ahead.
Simeon Gutman: Hey, guys. First, Chip, can you talk about sell-through? I assume, you know, the good trends also mean sell-through. The ability to replenish and then, you know, meet all the demand. And do you have a sense now of how big this driver and quantum line could look like?
Chip Brewer: Hey, Simeon. Absolutely. So, you know, very good question. market reaction to our new products, you know, Quantum, the Chrome Tour product, and some of the changes and new product to Travis all were well received by the marketplace. And, you know, we're in good inventory positions both in the field and in our inventory as the season opens up. And, we've obviously incorporated all that into our guidance, but we're in a good spot with good reaction in a healthy market.
Simeon Gutman: And then my follow-up, it's kind of related to what slowed through the guidance. The incremental margins were awesome. You mentioned there's some timing things, but Chip, you also mentioned the business is more efficient. I think you mentioned something about sourcing, but also just the way you set it up. So is there a different way we should think about incremental margin when the business grows at a normal rate? I know this year is going to be noisy with timing, but once we get to next year, normal run rate of top line should yield a higher level of margin growth. It kind of sounds like that's what you're saying.
Chip Brewer: Yeah, we're driving efficiencies through this business. If you look at our business over a you know, the last year plus. We talked about last year we drove 200 basis points of margin improvement pre-tariff. Now it was washed out because of the tariff environment, but we were driving efficiencies in the business and you could see it. Now it's becoming even more clear as in Q1, you know, On a clean basis, we're up well over 100 basis points, even with 18 million of incremental tariffs in the quarter. So the efficiencies of the business, the select price increases we've taken, the teams have done a great job, and we're moving our margins in the correct direction.
Operator: The next question comes from Arpine Cocherin with UBS. Please go ahead.
Arpine Cocherin: Hi, this is Arpine. Thank you. Thanks for taking my question. As I think about the lower end of your guidance range for revenue and operand, what's the degree of variability there and pockets of surprises now that a meaningful shipment season is sort of behind you and you have a clear picture on Triforce and what that could do for you? I'm trying to understand really just what's the degree of variability in that guidance that you provided today.
Chip Brewer: Arpina, there's always still, we're going into season right now. We have a fairly good signal from the marketplace and a lot of experience on this. And we obviously feel very good about where we are. We wouldn't be raising guidance. Having said that, there is uncertainty out there in the world right now. The geopolitical events are well understood. Consumer sentiment is lower than what it has historically been. As we've mentioned, we have not seen any negative reaction from our consumer, even in the face of these uncertainties, and that matches what we've seen historically, that our consumer is not sensitive to mild symptoms economic movements, even mild recessions. But there's certainly more risk in a wider range of outcomes that are in the possibility range in the second half of the year, and the comps are a little bit harder in the second half of the year. We feel good about where we are, confident in the direction of our business. We also, Arpina, are... well-versed in these types of environments, and we'll be ready to react and respond if indeed something did change. But our base case is for a good year, both for the industry and for the company at this stage.
Arpine Cocherin: Thank you. That's very helpful. And then just really quickly on your capital allocation plans, could you maybe give your kind of latest update on how you intend to utilize your net cash position and where you see your more
Brian Lynch: optimal i guess leverage ratio longer term to kind of really assess sort of access cash opportunity that could be returned to shareholders over time sure we our capital allocation is really designed around first invest in our business second ensure we have a healthy balance sheet and third return capital to the shareholders and we will continue that we'll work with the board on the the mix between paying down debt and returning capital to shareholders. But that is the strategy over the long term, is to continue to pay that. We have not set long-term leverage targets. I think in the short term, we will be on the conservative side, and we'll just monitor as we go through it.
Operator: The next question comes from Joe Altabello with Raymond James. Please go ahead.
Joe Altabello: Thanks. Hey, guys. Good afternoon. The first question on the tariffs is, I think you said $18 million in the first quarter, and I guess the incremental guy for this year is $16 million. So maybe could you go over your assumptions one more time? What new tariffs are you assuming once the 122s expire, and are you impacted by any changes to the 301 tariffs?
Brian Lynch: So, Joe, we assume that the temporary tariffs that are currently in place will expire in July as they reach their expiration date. We're also assuming that for the second half of the year, that after that, that the tariffs revert back to the pre-Supreme Court ruling rates, which for us was approximately 20% overall.
Joe Altabello: Okay. So you're not assuming any new 301 tariffs?
Brian Lynch: Well, we're assuming the rates go back. So whatever section you want to call it under. We do assume for the second half of the year that they go from what's currently at about 10% to 20% roughly.
Joe Altabello: Okay, that's helpful. And maybe in terms of the puts and takes in the back half, you've talked about this a couple of times, but I don't think you can quantify the change in the launch schedule, the product and channel rationalizations, as well as the investment in fittings, maybe in terms of an overall revenue and EBITDA impact in the back half.
Brian Lynch: Yeah, I think on the sales question, Joe, in the back half, I mean, you can see it's down 70 million year over year in the second half.
Chip Brewer: At the midpoint.
Brian Lynch: At the midpoint. Over $50 million really represents the difference in new product launches from last year to this year. That includes the push of the one iron launch we had talked about last quarter, so that's inclusive of that. And then the balance would be the rationalization of the lower margin business to improve profitability. And then for the EBITDA, again, it's at the midpoint, $50 million decrease in the second half. And that's the revenue flow through from the decreased revenue. And then there's also a loss of 12, not a loss, but there was $12 million in dividend income last year that won't repeat this year as we used our cash to pay down the term loan in January. And then there's a little bit of increased cost pressures as well during the year, as we mentioned in the scripts.
Operator: The next question comes from Anna Glazgen with B. Riley. Please go ahead.
Anna Glazgen: Hi, good afternoon. Thanks for taking my questions. First, really impressive gains in green grass over the past few years plus. Maybe wondering if you could share what that mix today, and do you see further opportunity to expand that mix ahead?
Chip Brewer: Thanks. Yeah, Anna, thank you. Greengrass is our largest channel. Other than that, I'm not going to break down the magnitude of various channels, but that has moved to our largest channel and most strategic channel. That has been a decade of great work by the team. And it is a, you know, something that we're quite proud of and a good, good competitive position for us to be in, in the marketplace because it has influence on the other channels. So nice progress there. And you can see if, you know, such as in golf ball, we regularly have higher share at the green grass channel than, sometimes at the retail channel. And we're pleased with how that has been trending.
Anna Glazgen: Thanks, Chip. Had to try. On the supply chain that came in better than expected in the first quarter, was that concentrated to any one particular product category?
Chip Brewer: It was really around the new products. So the launches around and being able to catch up with that increased demand you know, irons and drivers in the quantum family, and then a little bit of good productivity on the ball side as well.
Operator: The next question comes from Noah Zadkins with KeyBank. Please go ahead.
Noah Zadkins: Hi, thanks for taking my questions. Not to beat a dead horse, but I guess on the tariff piece, in terms of the, I guess, $25 million reduction. Is the right way to think about that as that being kind of related to the 122 period given you kind of expect to revert back to the IEPA rate? And then on the gross margin guide now projected to be up year over year, how much of that is related to kind of maybe better, you know, flow through from improvements on the gross margin line versus the tariff piece. Thanks.
Brian Lynch: Okay, on the first question on the tariffs, there was, yes, the answer to your question is yes. It was related to the decrease that we've seen during this period. I think you called it the Section 122 period. So it relates to that going down to 10%. That is the cost savings adjustment. of the 25, and then again, it reverts back to, we're assuming it reverts back to the 20% after that. And then something with gross margins, what was it?
Simeon Gutman: No, you want to repeat the gross margin?
Noah Zadkins: Yeah, he wants to know. Oh, yeah, the gross margin guidance raise. I guess how much of that is kind of related to the margin improvement initiatives versus kind of the tariff piece?
Chip Brewer: It's mostly tariff, because tariff is $25 million of the $40 million improvement in our guide forecast. But there is gross margin improvements embedded throughout this, as well as being offset a little bit with some of these new cost pressures, such as the oil pricing and related materials that are being impacted by that.
Noah Zadkins: Got it. Really helpful. And maybe just one more on Travis Matthews. I think some positive commentary there around marketing and mix improvement in the quarter. I think it maybe frequently kind of got lost in the prior structure of the business. So If you could just kind of provide an update on that business, how things are trending, and how you think about the kind of long-term opportunity there. Thanks.
Chip Brewer: Yeah, thanks, Noah. Good question. And Travis just had a great quarter. So they had great direct-to-consumer business that grew both at retail and at e-com faster than the market as we can measure the market based on third-party data. The women's business continues to resonate well there, continuing to grow nicely, great reaction. And then I guess the biggest new news there was the men's business inflected in Q1, and it grew faster than the market from what we can measure as well. They made some strategic changes in that business over the last year, changing some of their Merchandising strategy, going to some more clear positions, what they call product pillars, also working on their messaging and focusing on more hero-oriented product. Ironically, the hero short being one of those hero products, which makes it hard for me to say on earnings calls, but I guess makes sense. And, you know, it's resonated well. And, you know, they had a good quarter. What's a strong brand and a strong business reflected very favorably on the strategic changes they made. And then as a result, we feel good about their start to the year.
Operator: The next question comes from JP Wollum with Roth Capital. Please go ahead.
JP Wollum: Great. Appreciate you guys taking my questions here. So, First, in terms of just clarifying a comment from the press release talking about the good progress you're making with gross margin and cost-saving initiatives, could you just give us an update sort of on the cost-saving initiatives? You know, what inning are we in there? How much more opportunity is there as you look to 2026 and potentially beyond? And just kind of where is the most opportunity there?
Brian Lynch: On the corporate side, if you were talking about corporate costs, you saw we saved $5 million in Q1. That started back in the second half of last year. So the second half of this year, the lap will be a little bit harder. But we've made good progress. We continue to make progress. There's still a little bit of noise with, again, we were supporting Jack Wolfskin and Topgolf through a transition period. As that winds up, I think there's opportunity for more cost savings. But the team's done a good job so far, and continuing to manage costs will be a priority for us.
Chip Brewer: And the gross margin on this is, you know, I'd say it's mid-game on that one. You know, we're clearly showing good progress. They're comprehensive. And if this was a football game, it'd be halftime.
JP Wollum: Great. And this maybe kind of goes to that next or to that last point, Chip, but As we think about the kind of CapEx guide that you put in there, like, could you maybe break down, you know, what is baked in to that number? And I guess kind of the more important question is, like, is part of the conservative nature of your sort of leverage target for the year the fact that you guys are, you know, the opportunity for maybe – a couple of big capex projects in the next year that would really kind of juice gross margin? Is that at all under consideration?
Brian Lynch: We don't really have any big capex projects planned. A lot of this is just what we use to run our business, and there's always going to be some capex you have to invest back in your business. But I'd say there isn't really a big project planned.
Chip Brewer: No, the conservative leverage target has been what we view as prudent for operating the business in what is a dynamic period. We're in consultation with our investors on this subject and constantly working with them to make sure that we're managing the business appropriately, and we've received good feedback, but we're going to continue to monitor that. And for the moment, we're pleased with our progress. We're able to return capital to shareholders. We're generating cash flow, and we're showing good progress in the direction of the business. We're going to try to continue that and keep that communication close with our investor base.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Chip Brewer for any closing remarks.
Chip Brewer: Well, thank you, everybody, for tuning in. We appreciate your time. Don't forget my recommendation on the Mother's Day presents for this weekend. Golf is supposed to be fun, and moms are super important. Thanks for tuning in. We'll look forward to updating you again in August.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
