Callaway Golf Company Announces Record 2019 Full Year Net Sa

|Feb 10|magazine94 min read

CARLSBAD, Calif., Feb. 10, 2020 /PRNewswire/ -- Callaway Golf Company (the "Company") (NYSE:ELY) announced today record full year 2019 net sales of $1,701 million, an increase of 37% compared to net sales of $1,243 in 2018. This $458 million net sales increase reflects increases in all operating segments, all major product categories and all major regions. The Jack Wolfskin business, which the Company acquired in early 2019, contributed $356 million of this sales growth compared to 2018. The Company achieved these record sales results despite a negative impact of $31 million from changes in foreign currency exchange rates.

The Company also announced record operating profits of $133 million for 2019, a 3% increase compared to $128 million in 2018. On a non-GAAP basis, operating income increased 23% to $163 million compared to $133 million in 2018. The Company's earnings per share decreased to $0.82 for 2019 compared to $1.08 in 2018. This $0.26 decrease is due to $30 million ($0.28) of non-cash purchase accounting adjustments and acquisition-related costs. Excluding such costs, non-GAAP earnings per share increased 2% to $1.10 compared to $1.08 in 2018. The Company was able to achieve this 2% increase despite absorbing the $31 million unfavorable sales impact from changes in foreign currency rates, approximately $5 million related to the incremental tariffs, and a $34 million increase in interest expense, primarily related to the financing of the Jack Wolfskin acquisition, all of which was offset by the record operating performance discussed above. 

"2019 was another successful year for our Company," commented Chip Brewer, President and Chief Executive Officer of Callaway Golf Company. "In addition to record sales and operating profit, we made great progress executing our corporate strategy of transforming Callaway into a premium golf equipment and active lifestyle company.  The acquisition of Jack Wolfskin in early 2019 was an important part of that strategy and our TravisMathew business continues to grow at double digit rates. All the while, we remained steadfast in our focus on the golf equipment business which grew over 7%, outpacing the overall golf market and further strengthening our brand positions."

"Looking forward to 2020, the outbreak of the coronavirus will impact our business with regard to sales in Asia and on the supply side," added Mr. Brewer.  "The financial guidance we provided today reflects our best estimate of the impact of this outbreak on our business. It is very difficult, however, to provide an estimate with any degree of certainty given the dynamic nature of this crisis. Our thoughts and prayers are with the people of China, including our employees, customers and their families in that region, as well as those affected by the virus globally. We hope and pray for a speedy resolution."

Mr. Brewer continued, "While the coronavirus, tariffs and foreign currency rates will provide headwinds in 2020, we are looking forward to another strong year of operational performance with growth in both our golf equipment and soft goods segments. We also intend to make additional investments in our business in furtherance of our corporate strategy of making Callaway a larger and more diverse company with higher embedded growth prospects and long-term earnings outlook."

GAAP and Non-GAAP Results

In addition to the Company's results prepared in accordance with GAAP, the Company provided information on a non-GAAP basis. The purpose of this non-GAAP presentation is to provide additional information to investors regarding the underlying performance of the Company's business without certain non-recurring items and non-cash purchase accounting adjustments related to the Company's acquisitions.   

The Company also provided sales information on a constant currency basis and information regarding its earnings before interest, taxes, depreciation and amortization expenses, non-cash stock compensation expenses, non-recurring OGIO, TravisMathew and Jack Wolfskin transaction and transition-related expenses, and non-recurring advisory fees ("Adjusted EBITDA").

The manner in which this non-GAAP information is derived is discussed further toward the end of this release, and the Company has provided in the tables to this release a reconciliation of the non-GAAP information to the most directly comparable GAAP information. 

Summary of Full Year 2019 Financial Results

The Company announced the following GAAP and non-GAAP financial results for the full year 2019 (in millions, except EPS):

GAAP RESULTS:   


NON-GAAP PRESENTATION:


2019

2018

Change


2019

2018

Change

Net Sales

$1,701

$1,243

$458


$1,701

$1,243

$458

Gross Profit       

% of Net Sales

$767

45.1%

$578

46.5%

$189

(140 bps)


$779

45.8%

$578

46.5%

$201

(70 bps)

Operating Expenses

$634

$450

$184


$617

$445

$172

Pre-Tax Income

$96

$131

($35)


$130

$132

($2)

Net Income

$79

$105

($26)


$106

$105

$1

EPS

$0.82

$1.08

($0.26)


$1.10

$1.08

$0.02



2019

2018

Change

Adjusted EBITDA

$210

$168

$42

Net sales increased $458 million (37%) to $1,701 million, a new record for the Company, and on a constant currency basis, net sales increased by 39%. The increase reflects the acquisition of Jack Wolfskin in January 2019, which contributed $356 million in net sales in 2019, and on a constant currency basis, Jack Wolfskin would have contributed $374 million in net sales. Excluding the Jack Wolfskin acquisition, net sales increased 8% in 2019 (up 9% on a constant currency basis) driven by strong growth in all product categories and all regions. The golf clubs category increased 7% (up 8% on a constant currency basis) driven by the success of market-leading products including the Epic Flash driver, Apex irons, MD5 wedges, and Stroke Lab putters. The golf balls category increased 8% (up 9% on a constant currency basis) driven by the success of the new ERC Soft Triple Track and Supersoft golf balls, as well as continued success with the Chrome Soft golf balls. The apparel, gear and other segment, excluding Jack Wolfskin, increased 11% (up 12% on a constant currency basis) driven by the continued brand momentum of TravisMathew.

Gross margin decreased 140 basis points to 45.1% compared to 46.5% in 2018. Excluding non-cash purchase accounting adjustments and non-recurring costs associated with the acquisition of Jack Wolfskin, non-GAAP gross margin decreased 70 basis points to 45.8%. This decrease was primarily due to the current year golf equipment product mix of higher priced products which typically have lower gross margins due to more advanced technology, as well as increased tariff expense, and the negative impact of foreign currency exchange rates, all slightly offset by the favorable mix impact of the TravisMathew and Jack Wolfskin businesses, which are accretive to gross margin.

Operating expenses increased 41% to $634 million in 2019 compared to $450 million in 2018. Excluding non-recurring and acquisition-related expenses, non-GAAP operating expenses increased $172 million, or 39%, to $617 million compared to $445 million in 2018. This increase is primarily due to the addition in 2019 of operating expenses from the Jack Wolfskin business, which added an incremental $155 million excluding the acquisition-related expenses. The remainder of the increase was related to investments in the TravisMathew and golf equipment businesses to support the sales growth.

Earnings per share decreased to $0.82, compared to $1.08 for 2018. On a non-GAAP basis, 2019 earnings per share was $1.10, which excludes $0.28 per share related to the non-recurring and acquisition-related expenses related to the Jack Wolfskin, TravisMathew and OGIO acquisitions. The non-GAAP earnings per share in 2019 also includes a $31 million ($0.26 per share) increase in other expense primarily related to interest expense on the purchase financing for the Jack Wolfskin acquisition. The earnings per share for 2018 includes $0.01 per share of acquisition costs related to the TravisMathew and OGIO acquisitions.   

Summary of Fourth Quarter 2019 Financial Results

The Company announced the following GAAP and non-GAAP financial results for the fourth quarter of 2019 (in millions, except EPS):

  GAAP RESULTS:               


NON-GAAP PRESENTATION:


Q4 2019

Q4 2018

Change


Q4 2019

Q4 2018

Change

Net Sales

$311.9

$180.7

$131.2


$311.9

$180.7

$131.2

Gross Profit       

% of Net Sales

$130.1

41.7%

$70.0

38.7%

$60.1

300 bps


$132.1

42.4%

$70.0

38.7%

$62.1

370 bps

Operating Expenses

$152.8

$112.5

$40.3


$148.2

$110.1

$38.1

Pre-Tax Income

($31.6)

($37.9)

$6.3


($25.0)

($40.0)

$15.0

Net Income

($29.2)

($28.5)

($0.7)


($24.2)

($30.1)

$5.9

EPS

($0.31)

($0.30)

($0.01)


($0.26)

($0.32)

$0.06










Q4 2019

Q4 2018

Change

Adjusted EBITDA

($5.5)

($31.1)

$25.6

Net sales increased $131 million (73%) to $312 million, a new record for the Company. This increase reflects the acquisition of Jack Wolfskin in January 2019, which contributed $81 million in net sales in the fourth quarter of 2019. Excluding the Jack Wolfskin business, net sales increased 28% in the fourth quarter of 2019, or 27% on a constant currency basis, driven by growth in all product categories and all regions. The golf clubs category increased 36% driven by continued success of third quarter product launches, including Epic Forged irons, Epic Forged Star irons, and MD5 Jaws wedges, combined with two new Stroke Lab putters launched in the fourth quarter. The golf balls category increased 26% in the fourth quarter driven by continued success of the 2019 Supersoft and ERC Soft golf balls, as well as continued success of the Chrome Soft golf balls. Excluding Jack Wolfskin, the apparel, gear and other segment increased 19% driven by strong growth in the TravisMathew business.

Gross margin increased 300 basis points to 41.7%, compared to 38.7% in 2018. Excluding non-cash purchase accounting adjustments and non-recurring costs associated with the acquisition of Jack Wolfskin, non-GAAP gross margin increased 370 basis points to 42.4%. This increase was driven by a favorable mix impact of the Jack Wolfskin and TravisMathew businesses, which were both accretive to gross margin in the fourth quarter, and increased launch activity in the golf equipment business. This was slightly offset by increased tariff expense and a negative impact of foreign currency exchange rates.

Operating expenses increased 36% to $153 million in the fourth quarter of 2019 compared to $113 million for the same period in 2018. Excluding non-recurring and acquisition-related expenses, operating expenses increased $38 million, or 35%, to $148 million when compared to $110 million in the fourth quarter of 2018. This increase is due to the addition in 2019 of operating expenses from the Jack Wolfskin business, which added an incremental $41 million excluding the acquisition-related expenses.

Earnings per share decreased 3% to a loss per share of ($0.31), compared to a loss per share of ($0.30) for the fourth quarter of 2018. On a non-GAAP basis, 2019 fourth quarter loss per share was ($0.26), which excludes $0.05 per share related to the non-recurring and acquisition-related expenses related to the Jack Wolfskin, TravisMathew and OGIO acquisitions. The non-GAAP loss per share in 2019 includes a $9 million ($0.09 per share) increase in other expense primarily due to increased interest expense related to the purchase financing for the Jack Wolfskin acquisition. The loss per share for 2018 includes $0.02 of non-recurring gain related to the Jack Wolfskin acquisition.

Business Outlook for 2020

Basis for Full Year Guidance.  The 2020 full year projections set forth below are based on the Company's best estimates at this time.  They include the estimated impact of certain factors, including (1) the coronavirus which is estimated to have a negative impact of $25 million on net sales and $13 million on Adjusted EBITDA, (2) changes in foreign currency effects, which are estimated to have a negative impact of $9 million on net sales and $10 million on Adjusted EBITDA, and (3) incremental tariff expense of $3 million on cost of goods sold and Adjusted EBITDA. For the sake of simplicity, these will be referred to collectively as the "Full-Year Macrofactors". 

Full Year 2020 Guidance


2020 GAAP Estimate

2019 GAAP Results

Net Sales

$1,750 - $1,780 million

$1,701 million

Gross Margin

46.3%

45.1%

Operating Expenses

$680 million

$634 million

Earnings Per Share

$0.82 - $0.94

$0.82



2020 Estimate

2019 Results

Adjusted EBITDA

$190 - $205 million

$182 million

The Company estimates full year 2020 net sales growth of approximately 3% - 5%. This assumes a flat to slightly improving overall golf market and the estimated impact of the Full-Year Macrofactors discussed above. 

The Company estimates that its full year 2020 gross margin will be approximately 120 basis points higher than 2019. This increase is being driven primarily by a positive mix benefit of the margin-accretive apparel business and higher golf equipment gross margin associated with this cycle of product launches. In 2020, the Company expects that gross margin will be negatively impacted by $5 million in non-recurring costs related to the warehouse consolidation projects in North America, Asia and Europe. The gross margin in 2019 was negatively impacted by $13 million of purchase accounting adjustments and non-recurring costs related to the Jack Wolfskin acquisition. The 2020 gross margin will also be affected by the Full-Year Macrofactors described above. 

The Company estimates that its full year 2020 operating expenses will be approximately $46 million higher than 2019 operating expenses. This increase is being driven primarily by the continued investment in the Company's soft goods businesses, which includes new market expansion for Jack Wolfskin, continued infrastructure and brand investment for TravisMathew and investment in Asia to grow all of the Company's apparel brands. Normal inflationary pressures and on-going investment in the golf equipment business are also contributing to the increase. In 2020, the Company expects that operating expenses will be negatively impacted by $6 million in non-cash costs related to purchase accounting adjustments as well as a small amount of non-recurring expense related to transitioning Jack Wolfskin's information systems. The operating expenses in 2019 were negatively impacted by $18 million of purchase accounting adjustments and non-recurring costs related to the Jack Wolfskin acquisition as well as other non-recurring advisory fees. The Full-Year Macrofactors are also expected to have a positive impact on 2020 operating expenses, primarily from changes in foreign currency rates.

The Company estimates full year 2020 earnings per share of $0.82 - $0.94. The Company's 2020 earnings per share estimate assumes an effective tax rate of approximately 18.0% which is slightly higher than 2019. These estimates also assume a base of 97 million fully-diluted shares in 2020, approximately flat with 2019. The Company estimates full year 2020 Adjusted EBITDA of $190 - $205 million.  The Adjusted EBITDA estimates will benefit from a reduction in acquisition-related costs, which were $28 million in 2019 compared to an estimated $6 million in 2020 of non-recurring expense related to the global warehouse consolidation activities as well as a small amount of non-recurring expense related to transitioning Jack Wolfskin's information systems.  The earnings per share will benefit from a reduction in acquisition-related costs, which were $0.28 per share in 2019 compared to $0.09 per share of non-cash amortization expense in 2020 related to the Jack Wolfskin acquisition and non-recurring expense related to the global warehouse consolidation activities as well as a small amount of non-recurring expense related to transitioning Jack Wolfskin's information systems.  The projections also include the impact of the Full-Year Macrofactors discussed above. 

First Quarter 2020 Guidance

Basis for First Quarter Guidance.  The 2020 first quarter projections set forth below are based on the Company's best estimates at this time.  They include the estimated impact of certain factors, including (1) the coronavirus which is estimated to have a negative impact of $20 million on net sales and $10 million on Adjusted EBITDA, (2) changes in foreign currency effects, which are estimated to have a negative impact of $5 million on net sales and $5 million on Adjusted EBITDA, and (3) incremental tariff expense of $4 million on cost of goods sold and Adjusted EBITDA. For the sake of simplicity, these will be referred to collectively as the "Q1 Macrofactors". 


Q1 2020 GAAP Estimate

Q1 2019 GAAP Results

Net Sales

$501 - $516 million

$516 million

Gross Margin

46.3%

46.2%

Operating Expenses

$176 million

$169 million

Earnings Per Share

$0.41 - $0.47

$0.50



Q1 2020 Estimate

Q1 2019 Results

Adjusted EBITDA

$72 - $79 million

$79 million

The Company estimates first quarter 2020 net sales to be approximately flat to slightly down in 2020 compared to 2019 primarily as a result of the Q1 Macrofactors.  This assumes a flat to slightly improving overall golf market and a slightly later launch date for the new Chrome Soft golf balls when compared to the ERC Soft golf ball launch in 2019. 

The Company estimates that its first quarter 2020 gross margin will be approximately 10 basis points higher than the same period in 2019.  This increase is being driven primarily by a positive mix benefit of the margin-accretive apparel business and higher golf equipment gross margin associated with this cycle of product launches. In the first quarter of 2020, the Company expects that gross margin will be negatively impacted by $1 million in non-recurring costs related to the warehouse consolidation projects in North America, Asia and Europe. The gross margin in 2019 was negatively impacted by $5 million of purchase accounting adjustments and non-recurring costs related to the Jack Wolfskin acquisition. The 2020 gross margin will also be affected by the Q1 Macrofactors described above. 

The Company estimates that its first quarter 2020 operating expenses will be approximately $7 million higher than 2019 operating expenses. This increase is being driven primarily by normal inflationary pressures and strategic investments in the new market expansions for the Jack Wolfskin business. In 2020, the Company expects that operating expenses will be negatively impacted by $1 million in non-cash costs related to purchase accounting adjustments as well as a small amount of non-recurring expense related to transitioning Jack Wolfskin's information systems. The operating expenses in 2019 were negatively impacted by $6 million of purchase accounting adjustments and non-recurring costs related to the Jack Wolfskin acquisition. The Q1 Macrofactors are also expected to have a positive impact on 2020 operating expenses, primarily from changes in foreign currency rates.

The Company estimates first quarter 2020 earnings per share of $0.41 - $0.47. The Company's first quarter 2020 earnings per share estimate assumes an effective tax rate of approximately 18.0% compared to 16.5% in the same period in 2019. These estimates also assume a base of 97 million fully-diluted shares in the first quarter of 2020. The Company estimates first quarter 2020 Adjusted EBITDA of $72 - $79 million compared to $79 million for the first quarter of 2019. The Adjusted EBITDA estimates will benefit from a reduction in acquisition-related costs, which are estimated to be $2 million in the first quarter of 2020 related to the global warehouse consolidation activities as well as a small amount of non-recurring expense related to transitioning Jack Wolfskin's information systems compared to $14 million in 2019. The earnings per share estimates will benefit from a reduction in acquisition-related costs and non-recurring expense related to the global warehouse consolidation activities as well as a small amount of non-recurring expense related to transitioning Jack Wolfskin's information systems, which are estimated to be $0.02 in the first quarter of 2020 compared to $0.13 in the first quarter of 2019.  The projections also include the impact of the Q1 Macrofactors discussed above. 

Conference Call and Webcast

The Company will be holding a conference call at 2:00 p.m. Pacific time today to discuss the Company's financial results, outlook and business. The call will be broadcast live over the Internet and can be accessed at http://ir.callawaygolf.com/. To listen to the call, and to access the Company's presentation materials, please go to the website at least 15 minutes before the call to register and for instructions on how to access the broadcast. A replay of the conference call will be available approximately two hours after the call ends, and will remain available through 9:00 p.m. Pacific time on February 17, 2020.  The replay may be accessed through the Internet at http://ir.callawaygolf.com/.

Non-GAAP Information

The GAAP results contained in this press release and the financial statement schedules attached to this press release have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP").  To supplement the GAAP results, the Company has provided certain non-GAAP financial information as follows:

Constant Currency Basis. The Company provided certain information regarding the Company's financial results or projected financial results on a "constant currency basis." This information estimates the impact of changes in foreign currency rates on the translation of the Company's current or projected future period financial results as compared to the applicable comparable period.  This impact is derived by taking the current or projected local currency results and translating them into U.S. Dollars based upon the foreign currency exchange rates for the applicable comparable period. It does not include any other effect of changes in foreign currency rates on the Company's results or business.  

Adjusted EBITDA.  The Company provides information about its results excluding interest, taxes, depreciation and amortization expenses, non-cash stock compensation expenses, non-recurring OGIO, TravisMathew and Jack Wolfskin transaction and transition-related expenses, as well as non-recurring advisory fees.

Other Adjustments. The Company presents certain of its financial results excluding the non-recurring OGIO, TravisMathew and Jack Wolfskin transaction and transition-related expenses.

In addition, the Company has included in the schedules to this release a reconciliation of certain non-GAAP information to the most directly comparable GAAP information.  The non-GAAP information presented in this release and related schedules should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP. The non-GAAP information may also be inconsistent with the manner in which similar measures are derived or used by other companies.  Management uses such non-GAAP information for financial and operational decision-making purposes and as a means to evaluate period-over-period comparisons and in forecasting the Company's business going forward. Management believes that the presentation of such non-GAAP information, when considered in conjunction with the most directly comparable GAAP information, provides additional useful comparative information for investors in their assessment of the underlying performance of the Company's business with regard to these items. The Company has provided reconciling information in the attached schedules.

Forward-Looking Statements

Statements used in this press release that relate to future plans, events, financial results, performance, prospects or growth and scale opportunities, including statements relating to the Company's estimated 2020 net sales, gross margin, operating expenses, and earnings per share (or related tax rate and share count), future industry, market conditions, and the assumed benefits to be derived from investments in the Company's core business or the OGIO, TravisMathew and Jack Wolfskin acquisitions, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "estimate," "could," "should," "intend," "may," "plan," "seek," "anticipate," "project" and similar expressions, among others, generally identify forward-looking statements, which speak only as of the date the statements were made and are not guarantees of future performance.  These statements are based upon current information and expectations. Accurately estimating the forward-looking statements is based upon various risks and unknowns, including unanticipated delays, difficulties or increased costs in integrating the acquired OGIO, TravisMathew and Jack Wolfskin businesses or implementing the Company's growth strategy generally; the Company's ability to successfully integrate, operate and expand the retail stores of the acquired TravisMathew and Jack Wolfskin businesses; continued brand momentum and product success; growth in the direct-to-consumer and e-commerce channels; the Company's ability to realize synergies and scale opportunities in its supply chain and operations infrastructure; effective utilization of Artificial Intelligence in product development; the Company's ability to attract talent for key positions within the organization; softening market conditions in various parts of the world; any changes in U.S. trade, tax or other policies, including restrictions on imports or an increase in import tariffs; costs and disruption associated with activist investors; consumer acceptance of and demand for the Company's and its subsidiaries' products; competitive pressures; the level of promotional activity in the marketplace; unfavorable weather conditions; future consumer discretionary purchasing activity, which can be significantly adversely affected by unfavorable economic or market conditions; future retailer purchasing activity, which can be significantly negatively affected by adverse industry conditions and overall retail inventory levels; and future changes in foreign currency exchange rates and the degree of effectiveness of the Company's hedging programs. Actual results may differ materially from those estimated or anticipated as a result of these risks and unknowns or other risks and uncertainties, including continued compliance with the terms of the Company's credit facilities; delays, difficulties or increased costs in the supply of components or commodities needed to manufacture the Company's products or in manufacturing the Company's products; the ability to secure professional tour player endorsements at reasonable costs; any rule changes or other actions taken by the USGA or other golf association that could have an adverse impact upon demand or supply of the Company's products; a decrease in participation levels in golf; and the effect of terrorist activity, armed conflict, natural disasters or pandemic diseases, including expanded outbreak of the coronavirus, on the economy generally, on the level of demand for the Company's and its subsidiaries' products or on the Company's ability to manage its operations, supply chain and delivery logistics in such an environment. For additional information concerning these and other risks and uncertainties that could affect these statements, the golf industry, and the Company's business, see the Company's Annual Report on Form 10-K for the year ended December 31, 2018 as well as other risks and uncertainties detailed from time to time in the Company's reports on Forms 10-Q and 8-K subsequently filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

About Callaway Golf Company
Callaway Golf Company (NYSE: ELY) is a premium golf equipment and active lifestyle company with a portfolio of global brands, including Callaway Golf, Odyssey, OGIO, TravisMathew and Jack Wolfskin. Through an unwavering commitment to innovation, Callaway manufactures and sells premium golf clubs, golf balls, golf and lifestyle bags, golf and lifestyle apparel and other accessories. For more information please visit www.callawaygolf.com, www.odysseygolf.comwww.OGIO.com, www.travismathew.com, and www.jack-wolfskin.com.

Contacts:

Brian Lynch


Patrick Burke


(760) 931-1771

 

CALLAWAY GOLF COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)



December 31,

2019


December 31,

2018

ASSETS












Current assets:






Cash and cash equivalents


$

106,666




$

63,981


Accounts receivable, net


140,455




71,374


Inventories


456,639




338,057


Other current assets


85,590




51,494


Total current assets


789,350




524,906








Property, plant and equipment, net


132,760




88,472


Operating lease right-of-use assets, net


160,098





Intangible assets, net


697,166




280,508


Deferred taxes, net


73,948




75,079


Investment in golf-related ventures


90,134




72,238


Other assets


17,092




11,741


Total assets


$

1,960,548




$

1,052,944








LIABILITIES AND SHAREHOLDERS' EQUITY












Current liabilities:






Accounts payable and accrued expenses


$

276,300




$

208,653


Accrued employee compensation and benefits


46,891




43,172


Asset-based credit facilities


144,580




40,300


Accrued warranty expense


9,636




7,610


Current operating lease liabilities


26,418





Long-term debt, current portion


7,317




2,411


Income tax liability


12,104




1,091


Total current liabilities


$

523,246




$

303,237








Long-term debt


443,259




7,218


Long-term operating lease liabilities


137,696





Long-term liabilities


88,994




8,181


Total Callaway Golf Company shareholders' equity


767,353




724,574


Non-controlling interest in consolidated entity





9,734


Total liabilities and shareholders' equity


$

1,960,548




$

1,052,944


 

CALLAWAY GOLF COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)



Three Months Ended

December 31,


2019


2018

Net sales

$

311,941



$

180,678


Cost of sales

181,793



110,707


Gross profit

130,148



69,971


Operating expenses:




Selling

103,820



73,883


General and administrative

36,563



27,458


Research and development

12,421



11,191


Total operating expenses

152,804



112,532


Loss from operations

(22,656)



(42,561)


Other income (expense), net

(8,914)



4,627


Loss before income taxes

(31,570)



(37,934)


Income tax benefit

(2,352)



(9,783)


Net loss

(29,218)



(28,151)


Less: Net income attributable to non-controlling interests



348


Net loss attributable to Callaway Golf Company

$

(29,218)



$

(28,499)






Loss per common share:




Basic

($0.31)



($0.30)


Diluted

($0.31)



($0.30)


Weighted-average common shares outstanding:




Basic

94,154



94,505


Diluted

94,154



94,505







Year Ended

December 31,


2019


2018

Net sales

$

1,701,063



$

1,242,834


Cost of sales

934,276



664,465


Gross profit

766,787



578,369


Operating expenses:




Selling

438,238



308,709


General and administrative

145,302



100,466


Research and development

50,579



40,752


Total operating expenses

634,119



449,927


Income from operations

132,668



128,442


Other income (expense), net

(36,899)



2,830


Income before income taxes

95,769



131,272


Income tax provision

16,540



26,018


Net income

79,229



105,254


Less: Net income (loss) attributable to non-controlling interests

(179)



514


Net income attributable to Callaway Golf Company

$

79,408



$

104,740






Earnings per common share:




Basic

$0.84



$1.11


Diluted

$0.82



$1.08


Weighted-average common shares outstanding:




Basic

94,251



94,579


Diluted

96,287



97,153


 

CALLAWAY GOLF COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



Year Ended

December 31,


2019


2018

Cash flows from operating activities:




Net income

$

79,229



$

105,254


Adjustments to reconcile net income to net cash provided by operating activities:




   Depreciation and amortization

34,951



19,948


   Lease amortization expense

30,893




   Amortization of debt issuance costs

3,262




   Inventory step-up on acquisition

10,885




   Deferred taxes, net

(1,381)



21,705


   Non-cash share-based compensation

12,896



13,530


   (Gain)/loss on disposal of long-lived assets

218



(13)


   Unrealized (gains) losses on designated hedging instruments

3,642



(4,585)


Changes in assets and liabilities

(88,045)



(63,557)


Net cash provided by operating activities

86,550



92,282






Cash flows from investing activities:




Capital expenditures

(54,702)



(36,825)


Acquisitions, net of cash acquired

(463,105)




Proceeds from sales of property and equipment

38



43


Investments in golf related ventures

(17,897)



(1,743)


Net cash used in investing activities

(535,666)



(38,525)






Cash flows from financing activities:




Proceeds from (repayments of) credit facilities, net

105,850



(47,455)


Proceeds from issuance of long-term debt

493,167




Repayments of financing leases

(706)




Dividends paid, net

(3,776)



(3,788)


Repayments of long-term debt

(36,685)



(2,186)


Debt issuance and credit facility amendment costs

(19,091)




Exercise of stock options

368



1,636


Acquisition of treasury stock

(28,073)



(22,456)


Distributions to non-controlling interest



(821)


Purchase of non-controlling interest

(18,538)




Net cash provided by (used in) financing activities

492,516



(75,070)






Effect of exchange rate changes on cash and cash equivalents

(715)



(380)


Net increase (decrease) in cash and cash equivalents

42,685



(21,693)


Cash and cash equivalents at beginning of period

63,981



85,674


Cash and cash equivalents at end of period

$

106,666



$

63,981


 

CALLAWAY GOLF COMPANY

Consolidated Net Sales and Operating Segment Information and Non-GAAP Reconciliation

(Unaudited)

(In thousands)



Net Sales by Product Category


Net Sales by Product Category


Three Months

Ended

December 31,


Growth


Non-GAAP

Constant

Currency

vs. 2018(1)


Year Ended

December 31,


Growth


Non-GAAP

Constant

Currency

vs. 2018(1)


2019


2018


Dollars


Percent


Percent


2019


2018


Dollars


Percent


Percent

Net sales:






















Golf Clubs

$

114,779



$

84,654



$

30,125



35.6

%


35.4

%



$

768,310



$

717,293



$

51,017



7.1

%


8.4 %


Golf Balls

37,920



30,189



7,731



25.6

%


25.6

%



210,863



195,654



15,209



7.8

%


9.0 %


Apparel

101,273



27,697



73,576



265.6

%


269.3

%



410,712



112,157



298,555



266.2

%


277.2 %


Gear/Accessories/Other

57,969



38,138



19,831



52.0

%


52.7

%



311,178



217,730



93,448



42.9

%


46.3 %



$

311,941



$

180,678



$

131,263



72.7

%


73.3

%



$

1,701,063



$

1,242,834



$

458,229



36.9

%


39.4 %
























(1) Calculated by applying 2018 exchange rates to 2019 reported sales in regions outside the U.S

























Net Sales by Region


Net Sales by Region


Three Months

Ended

December 31,


Growth


Non-GAAP

Constant

Currency

vs. 2018(1)


Year Ended

December 31,


Growth


Non-GAAP

Constant

Currency

vs. 2018(1)


2019


2018(2)


Dollars


Percent


Percent


2019


2018(2)


Dollars


Percent


Percent

Net Sales






















United States

$

130,181



$

97,670



$

32,511



33.3

%


33.3

%



$

788,232



$

708,467



$

79,765



11.3

%


11.3

%


Europe

87,034



18,989



68,045



358.3

%


368.5

%



428,628



149,602



279,026



186.5

%


201.9

%


Japan

53,180



40,332



12,848



31.9

%


27.1

%



246,260



223,707



22,553



10.1

%


8.9

%


Rest of World

41,546



23,687



17,859



75.4

%


80.0

%



237,943



161,058



76,885



47.7

%


54.6

%



$

311,941



$

180,678



$

131,263



72.7

%


73.3

%



$

1,701,063



$

1,242,834



$

458,229



36.9

%


39.4

%
























(1) Calculated by applying 2018 exchange rates to 2019 reported sales in regions outside the U.S


(2) Prior period amounts have been reclassified to conform to current year presentation of regional sales

























Operating Segment Information





Operating Segment Information





Three Months

Ended

December 31,


Growth / (Decline)





Year Ended

December 31,


Growth / (Decline)





2019


2018(1)


Dollars


Percent





2019


2018(1)


Dollars


Percent




Net Sales






















Golf Equipment

$

152,699



$

114,843



$

37,856



33.0

%





$

979,173



$

912,947



$

66,226



7.3

%




Apparel, Gear and Other

159,242



65,835



93,407



141.9

%





721,890



329,887



392,003



118.8

%





$

311,941



$

180,678



$

131,263



72.7

%





$

1,701,063



$

1,242,834



$

458,229



36.9

%


























Income (loss) before income taxes:





















Golf Equipment

$

(8,467)



$

(29,841)



$

21,374



71.6

%





$

140,316



$

128,619



$

11,697



9.1

%




Apparel, Gear and Other

6,582



3,332



3,250



97.5

%





75,490



54,879



20,611



37.6

%




Reconciling items(2)

(29,685)



(11,425)



(18,260)



(159.8)

%





(120,037)



(52,226)



(67,811)



(129.8)

%





$

(31,570)



$

(37,934)



$

6,364



16.8

%





$

95,769



$

131,272



$

(35,503)



(27.0)

%





(1)  The Company changed its operating segments as of January 1, 2019.  Accordingly, prior period amounts have been reclassified to conform with the current period presentation.

(2) Represents corporate general and administrative expenses, non-cash purchase accounting adjustments, acquisition and other non-recurring charges, and other income (expense) not utilized by management in determining segment profitability.

 

CALLAWAY GOLF COMPANY

Supplemental Financial Information and Non-GAAP Reconciliation

(Unaudited)

(In thousands, except per share data)



Three Months Ended December 31,


2019


2018


GAAP


Non-Cash

Purchase

Accounting

Adjustments(1)


Acquisition &

Other Non-

Recurring

Expenses(2)


Non-

GAAP


GAAP


Non-Cash

Purchase

Accounting

Adjustments(1)


Acquisition &

Other Non-

Recurring

Expenses(2)


Non-

GAAP

Gross profit

$

130,148



$

(225)



$

(1,739)



$

132,112



$

69,971



$



$



$

69,971


Operating expenses, net

152,804



1,525



3,037



148,242



112,532



253



2,140



110,139


Other income (expense), net

(8,914)







(8,914)



4,627





4,409



218


Income tax (benefit) provision

(2,352)



(403)



(1,099)



(850)



(9,783)



(58)



522



(10,247)


Net income (loss) attributable to Callaway Golf Company

$

(29,218)



$

(1,347)



$

(3,677)



$

(24,194)



$

(28,499)



$

(195)



$

1,747



$

(30,051)


















Diluted earnings (loss) per share:

($0.31)



($0.01)



($0.04)



($0.26)



($0.30)



$—



$0.02



($0.32)




(1)

Represents the amortization of intangible assets related to the Company's OGIO and TravisMathew acquisitions for the three months ended December 31, 2019 and 2018, as well as the amortization of intangible assets and the cost impact associated with a change in valuation of inventory (inventory step-up) related to the Company's Jack Wolfskin acquisition for the three months ended December 31, 2019.

(2)

Represents non-recurring transition costs associated with the acquisition of Jack Wolfskin, including consulting costs, audit fees and travel expenses, in addition to other non-recurring advisory fees.

 

CALLAWAY GOLF COMPANY

Supplemental Financial Information and Non-GAAP Reconciliation

(Unaudited)

(In thousands)



Year Ended December 31,


2019


2018


GAAP


Non-Cash

Purchase

Accounting

Adjustments(1)


Acquisition &

Other Non-

Recurring

Expenses(2)


Non-

GAAP


GAAP


Non-Cash

Purchase

Accounting

Adjustments(1)


Acquisition &

Other Non-

Recurring

Expenses(2)


Non-

GAAP

Gross profit

$

766,787



$

(10,928)



$

(1,739)



$

779,454



$

578,369



$



$



$

578,369


Operating expenses, net

634,119



5,149



12,372



616,598



449,927



1,015



3,661



445,251


Other income (expense), net

(36,899)





(3,896)



(33,003)



2,830





4,409



(1,579)


Income tax provision (benefit)

16,540



(3,698)



(4,142)



24,380



26,018



(233)



172



26,079


Net income (loss) attributable to Callaway Golf Company

$

79,408



$

(12,379)



$

(13,865)



$

105,652



$

104,740



$

(782)



$

576



$

104,946


















Diluted earnings (loss) per share:

$0.82



($0.13)



($0.15)



$1.10



$1.08



($0.01)



$0.01



$1.08




(1)

Represents the amortization of intangible assets related to the Company's OGIO and TravisMathew acquisitions for the year ended December 31, 2019 and 2018, as well as the amortization of intangible assets and the cost impact associated with a change in valuation of inventory (inventory step-up) related to the Company's Jack Wolfskin acquisition for the year ended December 31, 2019.

(2)

Represents non-recurring transaction costs, including banker's fees, legal fees, consulting and travel expenses, and transition costs, including consulting, audit fees and valuations services associated with the acquisition of Jack Wolfskin, in addition to other non-recurring advisory fees.

 

CALLAWAY GOLF COMPANY

Supplemental Financial Information and Non-GAAP Reconciliation

(Unaudited)

(In thousands, except per share data)



2019 Trailing Twelve Month Adjusted EBITDA


2018 Trailing Twelve Month Adjusted EBITDA


Quarter Ended


Quarter Ended


March 31,


June 30,


September 30,


December 31,




March 31,


June 30,


September 30,


December 31,




2019


2019


2019


2019


Total


2018


2018


2018


2018


Total

Net income

$

48,647



$

28,931



$

31,048



$

(29,218)



$

79,408



$

62,855



$

60,867



$

9,517



$

(28,499)



$

104,740


Interest expense, net

9,639



10,260



9,545



9,049



38,493



1,528



1,661



1,056



704



4,949


Income tax provision (benefit)

9,556



7,208



2,128



(2,352)



16,540



17,219



17,247



1,335



(9,783)



26,018


Depreciation and amortization expense

7,977



9,022



8,472



9,480



34,951



4,737



5,029



4,996



5,186



19,948


Non-cash stock compensation expense

3,435



3,530



2,513



3,418



12,896



2,999



3,465



3,511



3,555



13,530


Acquisitions & other non-recurring costs, before taxes

13,986



6,939



3,009



4,090



28,024







1,521



(2,269)



(748)


Adjusted EBITDA

$

93,240



$

65,890



$

56,715



$

(5,533)



$

210,312



$

89,338



$

88,269



$

21,936



$

(31,106)



$

168,437


 

CALLAWAY GOLF COMPANY

2020 Summary of Macrofactors and Non-recurring Items

(Unaudited)

(In millions, except per share data)



Twelve Months Ended December 31, 2020



Macrofactors


Non-



Coronavirus

Impact(1)


Foreign

Currency

Impact(2)


Impact

from

Tariffs(3)


recurring and

Purchase

Accounting

Adj.(4)


Net sales

$

(25)



$

(9)



$



$



Gross margin

$

(14)



$

(12)



$

(3)



$

(5)



Operating expenses, net

$

1



$

3



$



$

(6)



Diluted earnings (loss) per share:

$

(0.11)



$

(0.09)



$

(0.03)



$

(0.09)



Adjusted EBITDA

$

(13)



$

(10)



$

(3)



$

(6)





(1)

Represents the estimated impact of the Coronavirus on the Company's supply chain and customer and consumer demand for products.

(2)

Estimated year-over-year impact of changes in foreign currency rates based on rates as of February 6, 2020; includes translation impact as well as forecasted and actual hedge gains.

(3)

Estimated year-over-year impact of Section 301 tariffs based on information available as of February 10, 2020.

(4)

Includes estimated non-recurring costs related to global warehouse consolidation activities and the transition of Jack Wolfskin's information systems and well as the amortization of intangible assets in connection with the OGIO, TravisMathew, and Jack Wolfskin acquisitions.

 


Three Months Ended March 31, 2020



Macrofactors


Non-recurring



Coronavirus

Impact(1)


Foreign

Currency

Impact(2)


Impact

from

Tariffs(3)


and Purchase
Accounting
Adj.(4)


Net sales

$

(20)



$

(5)



$



$



Gross margin

$

(11)



$

(5)



$

(4)



$

(1)



Operating expenses, net

$

1



$

2



$



$

(1)



Diluted earnings (loss) per share:

$

(0.08)



$

(0.04)



$

(0.03)



$

(0.02)



Adjusted EBITDA

$

(10)



$

(5)



$

(4)



$

(2)





(1)

Represents the estimated impact of the Coronavirus on the Company's supply chain and near term customer and consumer demand for products.

(2)

Estimated year-over-year impact of changes in foreign currency rates based on rates as of February 6, 2020; includes translation impact as well as forecasted and actual hedge gains.

(3)

Estimated year-over-year impact of Section 301 tariffs based on information available as of February 10, 2020.

(4)

Includes estimated non-recurring costs related to global warehouse consolidation activities and the transition of Jack Wolfskin's information systems and well as the amortization of intangible assets in connection with the OGIO, TravisMathew, and Jack Wolfskin acquisitions.

 

CALLAWAY GOLF COMPANY

2020 Adjusted EBITDA Guidance Reconciliation to GAAP

(Unaudited)

(In millions)



Three Months Ended
March 31, 2020


Twelve Months Ended
December 31, 2020





Net income

$40 - $45


$79 - $91





Adjusted EBITDA(1)

$72 - $79


$190 - $205






(1)

Adjusted EBITDA excludes from forecasted net income interest expense, taxes, depreciation and amortization expense, and non-cash stock compensation expense.  A full reconciliation of GAAP net income to Adjusted EBITDA is not available without unreasonable efforts due to the variability of the components of Adjusted EBITDA and the inability to predict them with certainty.  Accordingly, we have not provided a further reconciliation of Adjusted EBITDA to GAAP net income

 

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/callaway-golf-company-announces-record-2019-full-year-net-sales-and-operating-profit-and-provides-2020-financial-guidance-301002200.html

SOURCE Callaway Golf Company