Please note, this event is being recorded. I would now like to turn the conference over to Patrick Burke, Senior Vice President of Investor Relations and Treasury. Please go ahead.
Good afternoon, and welcome to Callaway Golf's third quarter earnings conference call. I am Patrick Burke, Senior Vice President of Investor Relations and Treasury. Joining me on today's call are Chip Brewer, our President and Chief Executive Officer, and Brian Lynch, our Chief Financial Officer and Chief Legal Officer. Earlier today, the company issued a press release announcing its third quarter 2026 financial results. Our earnings presentation, as well as the earnings press release, are both available on our investor relations website under the Financial Results tab. Aside from revenue, the financial numbers reported and discussed on today's call are non-GAAP measures. We identify these non-GAAP measures in the presentation and reconcile the measures to the corresponding GAAP measures in accordance with Regulation G. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ material from management's current expectations.
Please review the safe harbor statements contained in the presentation and the press release for a more complete description. With that, I would like now to turn the call over to Chip.
Thank you, Patrick. Good afternoon, everyone, and thank you for joining our call today. We are pleased to report another quarter of strong results, including continued excellent year-over-year progress on margins. These results support us raising guidance for the full year and reaffirm that we are building momentum as a focused pure-play golf company. I want to thank the Callaway and Travis Mathew teams for their continued focus and contributions. Our teams are executing well in a dynamic environment and managing the business with the right balance of confidence, agility, and discipline.
I would also like to remind everyone of the significant transformation our company has accomplished over the last year. In late May of last year, we completed the sale of Jack Wolfskin, and then in January of this year, we completed the sale of a 60% interest in Topgolf. This returned us to being a pure-play golf equipment company.
As we made this transition, we recognized the opportunity that it created to refocus on our core business and make meaningful changes and improvements. These transactions quickly allowed us to transform our balance sheet and our capital allocation strategy. Accordingly, as we entered this year, we announced a new $200 million share repurchase program, which we've been steadily executing against, with approximately $42 million in repurchases in both of the first two quarters of this year and approximately $50 million this last quarter. We also paid off approximately $1.4 billion in debt. We now have a terrific balance sheet, one that de-risks our business and positions us to be able to both reinvest in our business and return capital to shareholders over the long term.
We have also made significant improvements to the profitability of our business through our highly successful gross margin initiatives, as well as strategic changes to our launch cadence, which we believe will benefit us in the long term. Our margin profile is now back to healthy levels, and in the long run, we see further opportunity here, particularly as we plan to gain market share in the years ahead. In the last several months, we also strengthened our organization with the addition of two outstanding leaders, Harry Arnett as Senior Vice President and Chief Brand Officer, and Eddie Erkmanis as Senior Vice President, Global Sports Marketing, both of whom have proven track records of delivering differentiated results in their respective areas. I'm thrilled to have these two leaders on our team, and over time, I believe our shareholders will be too.
Lastly, as we always remain committed to strengthening our product capabilities, and we see new opportunity here as well. To this end, today, we're announcing a $15 million investment in a 3D printing facility that will be located adjacent to our North America distribution center in Fort Worth, Texas. We have been researching this technology for approximately seven years now and producing both prototypes and custom models internally since late 2022. We believe this technology is going to be transformative for the club category, and this investment positions us for leadership in this area. We expect the new facility will come online mid-next year, and beginning in 2028, it will support a portion of our U.S. product needs, focusing on custom titanium product. It will also further support and develop our R&D expertise in this area.
For many years now, there have been no scaled vendors or competitors manufacturing titanium clubs in the U.S. And to the best of our knowledge, outside of China, there is no scaled capacity for the 3D printing of titanium clubs using the complex engineering designs and specifications that we require. We intend to lead the golf industry in the development of this technology, and this will be the first facility to support U.S. production of golf clubs in many years. Zooming in even a little closer, a portion of next year's product line will also feature this technology, and it'll do so in an interesting and productive way that benefits performance. We look forward to announcing that product to the world in early 2027, discussing it with you on our next call, and to unlocking the full potential of this new technology platform over the next several years.
Now turning to our recent results. Q3 revenue was $437 million, down 6% year-over-year due to our previously announced decision to launch less product in the second half of this year, but ahead of expectations due to stronger-than-anticipated acceptance of the products we did launch during the quarter. Adjusted EBITDA was $36 million, up 17% versus the prior year, and also above expectations. For the nine months year to date, revenue was up 3%, Adjusted EBITDA increased 31%, and EPS is up 144%. We believe this revenue performance was slightly better than the broader market across both the Callaway and Travis Mathew brands, and the earnings growth demonstrates the operating leverage and execution benefits of our more focused golf platform. Our gross margin expanded approximately 520 basis points and 410 basis points year to date.
This significant year-over-year improvement reflects excellent progress against our margin initiatives and the benefits of portfolio actions designed to improve the long-term quality of our revenue and earnings. Turning to market conditions. After a surge in market performance last year at this time, market conditions were roughly consistent with our expectations in the quarter. U.S. rounds played were down 5% in the quarter, likely due to weather, and are approximately flat on a day-to-day basis. To put that in context, though, I would like to remind everyone that 2025 was a record year for rounds played. Moving to sell-through. Q3 U.S. ball and club retail sell-through was down approximately 3% in the quarter, but up approximately 6% on a two-year stack basis. Year-to-date U.S. ball and club sell-through is up 1% and up nearly 8% on a two-year stack basis.
Overall, we continue to see the U.S. markets as healthy, with positive long-term trends in participation supported by a committed and enthusiastic player base. In the U.K., we estimate that our trade partners' year-to-date ball and club sell-through is down low single digits, with rounds played also down simply due to unfavorable weather year-over-year. In Japan, the market was down 1.5% in Q3 and is flat year to date, while market conditions in Korea remain unchanged at approximately 10% down. Given the current amount of macroeconomic and geopolitical uncertainty, we are pleased with these market conditions. We, of course, are closely monitoring the same consumer and geopolitical risks as everyone else, but we also know that golf spending has historically been resilient, and we do not see anything that changes our long-term positive view for golf overall.
In golf equipment, the portfolio continues to show strength across several important categories. In golf ball, the Chrome Tour family and Supersoft franchises continue to resonate with consumers, and our share progress continues to validate the investments we have made in product performance, manufacturing capabilities, and green grass distribution. Our year-to-date U.S. market share is just over 22%, up 163 basis points, with on-course share just over 23%. In clubs, the Quantum family of woods and irons has continued to receive positive market feedback. Within the woods category, high-lofted fairway woods have been a particularly strong area for the industry overall and for Callaway. This year, we launched an innovative new offering into this category we call Mini Spinners. These have been particularly well received both in the U.S. and in Japan.
Lastly, our putter business benefited from a strong reaction to the TRTL Putter, which launched in Japan in early August. This product helped our Japan putter market share jump to 40% post-launch. This product is already on tour and will be launched globally later this month. Turning to the apparel and gear segment, the Callaway brand performed roughly in line with expectations, while TravisMathew maintained its strong start to the year and performed slightly ahead of expectations. At TravisMathew, consumer response to the women's offering remains positive, and the brand continues to gain ground in the important men's golf category, supported by clearer product pillars, more focused marketing, and exciting new products. Now moving to our forward guidance. Given the continued strength of our performance, we are increasing our full-year revenue forecast by approximately $14 million at the midpoint.
This increase reflects our Q3 outperformance, plus an incremental $2 million in Q4. It puts us on track to grow our top line for the full year, even in the face of the strategic decision to exit certain less profitable product SKUs and lengthen life cycles in our iron business. On the bottom line, we're increasing the midpoint of our full-year EBITDA guidance by approximately $23 million. This represents the Q3 beat, modestly better margin expectations for Q4, and the flow-through of the incremental revenue. In closing, we're encouraged by the fact that the game of golf remains healthy, as does our financial position. In the first nine months of this year, we outperformed the golf markets overall, delivered strongly on our gross margin initiatives, and are building a track record for consistently returning capital to shareholders.
Perhaps more importantly, as we're now three-quarters of a year into our return to being a focused, pure-play golf company, we are both enjoying and benefiting from the added focus that our new structure provides. As we entered this period, we embraced the opportunity and made significant operational improvements aimed at further strengthening our business going forward. Many of these changes are now in place, including an upgraded leadership team, strategic shifts in launch timing, SKU and retail store rationalization, and an improved margin structure. Others are now starting to take shape, including today's announcement of a new product technology platform that we've been researching for some time and that we're excited about going forward. All of this gives us increased confidence in our long-term ability to continue to outperform the market, to build a stronger company, and to drive shareholder value for our investors.
With that, I'll turn the call over to Brian to review our financial results in more detail.
Thank you, Chip, and good afternoon, everyone. As Chip mentioned, we are pleased with our third quarter performance, as both revenue and Adjusted EBITDA exceeded our expectations. This performance reflects our continued execution against the strategy and priorities we outlined earlier this year for improving profitability, including a strategic shift in irons launch timing, rationalization of lower-margin business, and investments in fitting, as well as gross margin expansion and operating cost management. We also continued to return capital to shareholders as we repurchased approximately $50 million of our common stock during the quarter, bringing the year-to-date total to $135 million. While there is more work to be done, our transition to a pure-play golf company is off to a great start. Now let's turn to our financial results in more detail.
Please note that on today's call, I will be discussing our non-GAAP financial results from continuing operations unless otherwise noted. We have provided in our earnings release today a reconciliation of these non-GAAP results to the GAAP results, and we provided additional information about the discontinued operations. With that said, third quarter consolidated net sales decreased 6% year-over-year to $437 million, which was better than expected. The strategic shift in irons launch timing and rationalization of lower-margin business, although beneficial in the long run, impacted net sales during the quarter as expected. We also were lapping strong market conditions in Q3 of last year, when U.S. sell-through was up approximately 10%. Changes in foreign currency exchange rates also negatively impacted net sales in the quarter by approximately $4 million.
The anticipated decrease in net sales, however, was partially offset by an increase in TravisMathew net sales, as well as better-than-expected launches of the company's Mini Spinner and the TRTL Putters in Asia. As I will discuss further in a couple of minutes, we now expect full-year net sales to grow this year, even after the impact of the strategic initiatives previously mentioned. Q3 gross margin increased approximately 520 basis points year-over-year to 45.0%, driven primarily by continued progress in our gross margin initiatives and a 110 basis point benefit from lower tariff rates. Excluding the tariff benefit, gross margin increased 410 basis points year-over-year. The improvement was broad-based, with margin expansion across all major categories. Importantly, these results reflect the continued benefits of our efforts to simplify the business, improve profitability, and focus on higher-return categories and products.
Q3 operating expenses increased slightly year-over-year to $181 million, reflecting cost of living increases and other inflationary pressures that were mostly offset by broad-based cost discipline and ongoing expense reduction efforts across our teams, as well as a shift in the timing of approximately $2 million in marketing spend from Q3 into Q4. A portion of the cost-saving initiatives were driven by lower corporate overhead expenses, which declined 4% year-over-year in Q3 and 11% year-over-year through the first nine months of the year. Adjusted EBITDA of $36 million increased 17% year-over-year. This improvement was driven by the improved gross margins and lower corporate overhead. Our September 30th inventory increased slightly year-over-year. Based upon current estimates of the timing of new launch products, we expect inventory to be up at the end of the year.
The amount depends on how much new launch product we receive at the end of 2026 versus the beginning of 2027. Moving to liquidity, we ended the quarter in a net cash position. As of September 30, 2026, we had $76 million of outstanding debt, including $26 million of finance leases and $434 million of unrestricted cash and cash equivalents. Total available liquidity, which consists of cash on hand and availability under our credit facilities, was $815 million at the end of the third quarter of 2026, compared to $1.26 billion at the same time last year, a decrease of $441 million, which is primarily due to cash used for our debt paydown of $1.4 billion in the first half of 2026.
During the quarter, we continued to return cash to shareholders and have now repurchased approximately 9 million shares through September for a total cost of approximately $135 million. Broken down by quarter, this year we repurchased approximately $42 million of stock in the first and second quarters and approximately $50 million in the third quarter. As of September 30, 2026, we had approximately $70 million of repurchase authority remaining under our current program. Looking ahead, Callaway Golf's capital allocation priorities remain unchanged as we focus on, one, reinvesting in our business, two, maintaining a healthy balance sheet, and three, returning capital to shareholders through the $200 million stock repurchase program authorized earlier this year. As we continue to generate free cash flow in excess of our business needs, we will work with our board to continue to return capital to shareholders.
We still expect to end the year in a net cash position. Based on our expected continued performance and subject to market conditions and buying opportunities, we currently expect to repurchase approximately $50 million of common stock in the fourth quarter. Our capital allocation strategy is intended to provide long-term predictability along with the ability to be opportunistic when appropriate. To be clear, the purpose of the share repurchases is not only to offset dilution from employee equity awards, but also to reduce share count meaningfully over time. We have made good progress this year. We entered 2026 with approximately 203 million fully diluted shares outstanding, and we expect to enter 2027 with less than 180 million fully diluted shares outstanding. Next, I want to give a quick update on tariffs.
We continue to expect that the full-year gross tariff expense for 2026 will be approximately $43 million, which compares to gross tariff expense of $34 million in 2025. We also received additional refunds for tariffs paid as part of the tariff refund program. Through September 2026, we have received approximately $44 million of refunds and associated interest. As a reminder, we excluded these refunds from our non-GAAP results to give a clearer picture of our period-over-period results. We will continue to account for additional refunds as we receive them, and we will continue to exclude the refunds from our non-GAAP results. The cost pressures we discussed last quarter from broader geopolitical activity continue. As a reminder, these include increases in certain commodities and strategic metals, such as tungsten, which has increased significantly over 2025 costs.
In addition, the continued conflict in the Middle East has led to increased petrochemical-based cost pressures, including increased energy costs for us and our suppliers, increased freight costs, including fuel surcharges, and increased petrochemical-based raw material costs, such as those used in golf balls. These cost pressures are included in the guidance we provided today, and so far, we have been able to manage them in a manner that has not had a material negative impact on our operations or financial results. We will continue to monitor developments in this area and report back as appropriate. Now turning to our full year and fourth quarter 2026 outlook. Based on our Q3 performance, year-to-date results, and current view of the golf market, we are raising our full-year revenue and Adjusted EBITDA guidance.
We now expect full-year 2026 net sales to grow to $2.065 billion to $2.078 billion, an increase of approximately $14 million at the midpoint compared to prior guidance. The change reflects the flow-through of our Q3 net sales beat, as well as a $2 million organic raise in Q4. With regard to EBITDA, we are raising our Adjusted EBITDA expectations to $272 million to $280 million, an increase of $23 million at the midpoint compared to our prior guidance. This change represents the following: $21 million of the increase is related to the flow-through of the Q3 EBITDA exceed, plus $2 million from the flow-through of our improved net sales outlook and a slightly improved gross margin outlook.
As a reminder, lower dividend income will be an approximate $5 million year-over-year headwind to Adjusted EBITDA in Q4 and $8 million for the full year 2026. This is due to the excess cash we held in the back half of last year, generated from the business and the sale of Jack Wolfskin, which we subsequently used, along with proceeds from the Topgolf sale, to pay down $1.4 billion of debt in the first half of this year. While this reduces EBITDA versus last year, it is a net benefit to free cash flow given the higher cost of debt relative to the yield we were earning on cash. Turning to cash flow and margins, we continue to expect 2026 capital expenditures of approximately $40 million.
Even with the 3D printing investment Chip discussed, we believe approximately $40 million remains a good annual CapEx run rate going forward, as investments of this scope are a regular part of our business. For gross margin, a reminder that due to the seasonality of our business, gross margins are meaningfully lower in the second half compared to the first half, and lower in Q4 versus Q3 for the same reason. In addition, while we continue to expect improvements year over year, we anticipate Q4 gross margins to increase less than what we saw in the first nine months due to the lower volumes related to seasonality and the change in launch cadence we mentioned earlier. Lastly, a reminder that our cost savings initiatives began in the second half of 2025, which will affect year-over-year Q4 comparisons.
As a result, while we expect corporate overhead expenses to decrease for the full year, Q4 corporate overhead expenses will likely increase compared to last year due to cost of living and other inflationary pressures. Turning to Q4 guidance. We are forecasting Q4 net sales of $328 million-$341 million and Adjusted EBITDA of -$53 million to -$45 million. The year-over-year decrease in revenue is primarily driven by fewer new product launches, including the strategic shift in irons launch timing, rationalization of lower-margin business, and tougher comps as the overall U.S. market was up 7% in Q4 2025, according to Golf Datatech.
The year-over-year decline in EBITDA is due to the revenue flow-through, a shift in the timing of $2 million of marketing spend from Q3 to Q4, the previously communicated investment in fitting, as well as $5 million less in dividend income, all of which is partially offset by improving gross margins and a slight tariff benefit based upon current rates. We are very pleased with how our business is performing in the current environment and how it is positioned for the future. Despite the current macroeconomic and geopolitical noise, the golf consumer has proven to be reasonably resilient this year, and we continue to make strong progress transitioning to a pure-play golf company. We are also in a net cash position and have a strong balance sheet that will provide a solid foundation for our future growth and will de-risk our business going forward.
While we intend to wait until the next earnings call to provide financial guidance for 2027, we believe that over time, we have the ability to grow revenue faster than the market by gaining market share via the initiative Chip mentioned earlier, and we also believe we have room to further increase our profitability. We also expect to consistently return capital to shareholders via stock repurchases, but we also have the ability to do so opportunistically when appropriate. All of this together should create long-term shareholder value. With that said, I will turn the call back over to the operator for Q&A.
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Simeon Gutman with Morgan Stanley. Please go ahead.
Hi, everyone. Chip, stepping back, it feels like a few things are coming together for the business. Pricing is better, innovation seems to be working, margins are better, and you have made these changes to the product launch cadence. I respect you talked about not providing an outlook into 2027, but it feels like there is an opportunity for the business to grow faster and jump to another level of margin. Is there any reason why that shouldn't be in 2027? Is there some cost related to some of this innovation you are doing? Why shouldn't 2027 be the year?
Simeon, thank you, and I appreciate your recognizing the nice progress the team has delivered, not only on the margin initiatives and the structural change in the business and returning capital, but some of the changes that we are making that should allow us to build momentum as a brand. Our intent is to grow market share. We have got to go out and prove that, but we feel really good about where the company is in our direction. As it relates to margin, Simeon, we have made great progress faster than we candidly had expected. Our margins for the quarter were up 500 basis points and 400 basis points for the year. We do see further opportunity there, but it is clearly not going to be at the same pace or magnitude that we have. We have made great strides there.
Having said that, we do feel really good about the outlook for the business. The industry is healthy, and we are making significant changes and improvements that we think will further strengthen us.
Is titanium a next step in product tech and evolution, or is it a step change? 3D printing, what does that do to, I do not know if it is quality? Yeah, please.
We think 3D printing is transformative, Simeon. We have been investing in that for a long time. We think we know quite a bit about it relative to our industry, and that this positions us to be a leader in an exciting new tech that will allow us to design and manufacture titanium golf product that traditional Ti casting just cannot do. We are also excited about the opportunity to bring that investment into the U.S., combine that with our investment in Chicopee, and we think it differentiates the company. Our desire, our ability to do these types of things, this is what Callaway is all about, and excited to be able to get that news out.
Okay. Thanks. Good luck and well done.
Thank you.
The next question is from Jon Keypour with Goldman Sachs. Please go ahead.
Tapping into the 3D-
Jon, you there?
Oh, yeah. Hello. Can you hear me?
We can.
Now we got you.
Sorry about that. Thank you. I just wanted to tap into this 3D printing news you guys announced today. It seems pretty fascinating. I'm just curious, do you have a sense for how much existing demand there is for titanium clubs versus how much you expect to have to educate consumers? Then anything you can tell us about planned mix of assortment next year that will be titanium, and maybe any kind of margin implications there. I assume it's a higher price and presumably a higher margin than traditional clubs.
Sure, Jon. Almost all drivers and all premium drivers are made out of titanium and have been for some time. That's true for Callaway and all of our competitors. They're all made through a similar process. It's a casting process, and it's a casting process that's done overseas. It's a fairly high-tech process. It's centrifugal casting at the sizes and the levels of tech fidelity that we need. 3D printing will allow us to Now, there's also some, in a niche form, titanium done in other products, but titanium drivers are the primary ones. All of the manufacturers are using that same process. Obviously, 3D printing allows us to do things in terms of the structure and the fidelity of the designs that you cannot do in the existing cast process.
It should allow us to make a better product, a more differentiated product, a product that is made differently and performs differently. That, we hope, will lead to market share growth and a nice step change in performance. We're looking forward to leading that, and this is our opportunity to kind of announce that.
Got it. Is there any add-on benefit from an R&D standpoint? Does this facilitate rapid prototyping or maybe bring down costs anywhere else?
It does do that. We've had a titanium printer since 2022 in-house. We've used it for prototyping. We've had parts that we've made for prototyping on that machine, and we've been learning all along as we've executed against that. We've had parts in play on tour that we haven't announced that are, in fact, 3D-printed parts. It will support further learning, further development of the technology. It will support production within the U.S. of titanium parts that will essentially be made in the USA and have a U.S. country of origin. We're excited about how it's going to help us from an R&D perspective, but also from a production perspective. Next year, we're going to have product in our line that uses 3D printing. We're not going to give you more than that right now.
But a little teaser on something that is coming as quickly as 2027. This investment itself will come online mid-next year, and will support and be in production for early 2028 parts. But the technology will be introduced to the world in 2027.
Okay. Thank you, guys.
The next question is from Gregory Miller with Truist Securities. Please go ahead.
Thanks. Good afternoon, Chip and Brian. There has been quite a bit in the news in the golf world recently, including for you all. Maybe start with LIV Golf, there is an announcement about their bankruptcy today, and I am curious how that might impact Callaway, and then particularly the pros that are sponsored by you.
Sure. We obviously have been watching with great interest how the LIV business played out. We have seen the same news you have. We have had a lot of different conversations, both with them and with the various tours and the players that are impacted. We think it is going to be really good for the game to have the best players playing together. Having those players not play together was suboptimal.
Then we have got some really good players on LIV, or were on LIV, I guess, Jon Rahm being the foremost of those. It is still undetermined where they are going to play next year. It will not be LIV, and where they will play is to be determined. But if they are more visible in the new wherever they end up, and I think it is highly likely they will be, we think that also could be good for us.
Interesting developments, and again, getting the best players in the game all together, creating even more interest and energy around the game from that perspective, we are optimistic on that.
Great. Thank you. For my follow-up, could you provide an update on any impact from the Good Good video, whether to 3Q earnings or your 4Q guide, or just more broadly? Thank you.
Yeah, sure. Of course. Happy to do that. Needless to say, that whole incident was a serious one for us. It was a tough two weeks for our team and our brand. Fortunately, we didn't see a material financial impact. There were really no discernible changes in sales trends, even during the event. We do regularly monitor our brand rating and consumer sentiment online, and that did decline during the event, but it quickly recovered to the same strong levels it was prior. In the end, we made a mistake. We took the matter seriously. We took responsibility. We apologized. More importantly, we addressed our internal deficiencies and updated our processes to make sure that doesn't reoccur. As a company and a brand, Greg, I'm confident we're going to come out of this even stronger. We've been a long-term leader in women's golf.
We're committed to continuing to be, and we appreciate everyone that supported us during that time, and we'll work hard to earn that trust going forward.
Thank you, Chip.
The next question is from Joseph Altobello with Raymond James. Please go ahead.
Thanks. Hey, guys. Good afternoon. First question on gross margin, obviously 45% this quarter, pretty significant improvement. I am just curious, what do you think a realistic goal is here? If I look back historically, pre-COVID, I think your margins peaked at, call it 46%, 47%. Things have changed, obviously. I think the company is in a better position. So, is there a number in your head that you think that you want to get to at some point?
There is not a specific number we are pushing people toward right now. We are very pleased with what we have accomplished so far this year. That is one of the bright spots, as Chip mentioned, up 520 basis points for the quarter. We still think there is room to go over the long term. There is a lot of things that went into that..
It was not just one thing. It is managing freight more efficiently, for example, air versus ocean, renegotiating with the freight forwarders, the full-year impact of overhead reductions in the plants and warehouse, working with suppliers on product cost reductions, the rationalization of the lower-margin products, managing where products are produced to the extent we can to minimize tariffs, select price increases, and just initiatives around the company. So, it has been a lot of those initiatives, and we do think over time, we can have further room to go.
Got it. Helpful. Maybe just to follow up on that in terms of the revenue tailwind that you guys expect in 2027 from the change in the iron launch timing. Could you quantify that? Is most of that in the second quarter?
We moved a launch out of this year into next year, Joseph, but we're also moving a launch out of next year. So, we're lengthening the iron life cycle. It's not per se a tailwind to revenue next year, that specific move. It is more of a improved profitability. It should help our margin profile long-term to have the longer life cycles in the iron category, but it's not just a shift out of this year into next year.
Okay. So we shouldn't model any significant or, I guess, extraordinary
You shouldn't model specific revenue growth for that move.
Exactly. Okay.
Right. You have got that. You should, and we do believe the move is beneficial long-term, and we are being very surgical about this. We are extending our product life cycles in irons, and we believe that category, that makes sense. We will still have energy and excitement in the iron category next year, and we will be able to do that in a way that we have that ongoing, but also have longer product life cycles in the category, which we think makes sense for the category and will be more profitable.
Okay. Thank you.
The next question is from Noah Zatzkin with KeyBanc Capital Markets. Please go ahead.
Hi. Thanks for taking my questions. First, it seems like you may be tracking ahead of where you thought you would be from a structural margin improvement perspective. When I look at fourth quarter, I guess the unchanged bottom line guidance there for the most part, are there any additional headwinds to the margin profile in fourth quarter that crept up, or how should I think about that dynamic?
There is a little bit, if you are talking about EBITDA, there is a little bit of marketing timing push from Q3 to Q4. I think I called out my script about $2 million. There is also $5 million less in dividend income year-over-year, and then the $3 million of incremental fitting investment. So if you take that plus the flow-through of the revenue, that gets you that accounts for the full down.
That is very helpful.
Yeah, and we did increase a little bit of the EBITDA for, of course, but only a couple million, but it is an increase in Q4.
That is really helpful. Some others have talked about input cost headwinds, particularly in the first half of 2027. Just, I guess, how are you thinking about that? Do you see that as a big headwind, and then what are you kind of thinking about as offsets there as we look to next year? Thanks.
With regard to the costs, we had them impact us this year as well, and we've been able to manage through them. They're definitely annoying, but we think that we will continue to be able to manage through them next year as well. Not that it won't have any impact, but I think the overall impact will not be material.
Very helpful. Thank you.
The next question is from Arpine Kocharyan with UBS. Please go ahead.
Hi. Thank you for taking my question. I'm sorry, it's possible you've addressed some of this, as I'm juggling different calls today. I was hoping you could talk a little bit about top-line drivers for Q4 and puts and takes for your guidance, but more importantly, kind of your overall outlook, revenue outlook that you see beyond Q4, just based on the strength of the industry, despite what it seems like was a lot of noise this quarter, a lot of weather impacts, I guess, at least in the U.S., some deceleration in rounds of play, but there is, again, substantial noise. I was hoping you could share your thoughts in that underlying business trends you're seeing beyond the noise, and then I have a quick follow-up.
I think Q4 is reasonably straightforward, that it implies a $33 million decrease year-over-year. That's the same issues we've been talking about with the change in the launch cadence, pushing a major irons launch out into next year. There was also the rationalization of lower margin business we've been doing this year. Just keep in mind that in Q4 last year, it was an exceptionally strong market. U.S. sell-through was up, I think, 7%. If you take all that in, I think that'll explain the revenue decline. We're not really providing guidance for 2027 at this point, but we'll look forward to doing that in February.
Yeah, great. Your thoughts on kind of the underlying rounds played beyond kind of like maybe some of the weather impact for the quarter?
Yeah. This is Chip, and we feel good about the health of golf and outlook. Again, you get a lot of different metrics. The weather was a little less favorable this year in Q3 versus the previous year at the same time. That impacted some rounds played. It impacted the market a little bit. You compare that to playable hours, and the business or the industry outperformed what the decline in playable hours would have suggested. Your two-year stacks are up 8%. There's a little bit of noise, but we still feel good about the outlook. Having said that, we're like everybody else. We're monitoring the geopolitical and the consumer confidence, but our consumer at this stage remains resilient and engaged. If you look at it historically, they've done that even in times of modest economic downturns.
Unless there's a change in trend, we'd expect all that to continue.
That is very helpful. Thank you. Just a quick follow-up on the cost side of things, just given the current tariff outlook and also raw material cost increases that you are seeing in spot prices today, how do you feel if that translates into next year, just judging based on what you are seeing in spot prices? Then you are annualizing some of the tariff tailwinds and other cost efficiencies and optimizations you have been running. Should those offset what you are seeing in broader inflation in spot prices for next year, or maybe it is too early to comment on that?
Yeah, it is a little early. Tariffs, if these rates are the final rates, and I say that all the time, right? This has obviously been a dynamic factor for us, but if these rates are the final rates, then tariff will be a very modest headwind for us next year, but not something to fret about. The cost pressures of oil and some of the metals, as Brian said, yes, those have increased through the year. We have looked at that very thoroughly, modeled it. It has been something that here to date, we have been able to manage through well and not have to call it out per se. We are continuing to keep a very close eye on that. Although it will be a slight headwind for next year, if these rates continue where they are right now, again, we view it as manageable.
Very helpful. Thank you.
This concludes our question-and-answer session. I would like to turn the conference back over to Chip Brewer for any closing remarks.
Well, I would like to thank everybody for their time today. As I hope you gathered, we are very pleased with our progress and excited about the direction of the company. It is that time of year, it is the holiday season. I want to wish everybody a terrific holiday season, and we look forward to speaking to you again in early next year on our next earnings call. Thank you so much for calling in today.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.