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CALLAWAY GOLF COMPANY ANNOUNCES RECORD SECOND QUARTER 2022 RESULTS AND RAISES FULL YEAR GUIDANCE

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·23 min read
CALLAWAY GOLF COMPANY ANNOUNCES RECORD SECOND QUARTER 2022 RESULTS AND RAISES FULL YEAR GUIDANCE
Callaway Golf Company Logo. (PRNewsFoto/Callaway Golf Company) (PRNewsfoto/Callaway Golf Company)
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Second Quarter Revenue Increase Driven by Strong Demand and Strength Across All Segments

Topgolf Delivers 8% Growth in Same Venue Sales Compared to 2019

  • Q2 2022 consolidated net revenues increased $202.1 million to $1,115.7 million, an increase of 22.1% compared to Q2 2021

  • Q2 2022 GAAP net income of $105.4 million and non-GAAP net income of $93.5 million

  • Q2 2022 Adjusted EBITDA increased $42.8 million to $207.3 million, an increase of 26.0% compared to Q2 2021

  • Increased full year 2022 revenue outlook to $3,945 million - $3,970 million and Adjusted EBITDA outlook to $555 million - $565 million

CARLSBAD, Calif., Aug. 4, 2022 /PRNewswire/ -- Callaway Golf Company (the "Company" or "Callaway") (NYSE: ELY) announced record financial results for the second quarter and six months ended June 30, 2022.

"We were very pleased with our second quarter financial results," commented Chip Brewer, President and Chief Executive Officer of Callaway. "Our second quarter revenues increased 22%, reflecting increases in all major product categories, in all major regions and in all operating segments. Continued strong demand, along with market share gains, pricing and other business improvements we implemented this year have allowed us to outrun the ubiquitous inflationary pressures, unfavorable foreign currency exchange rates and staffing challenges. As a result, our Adjusted EBITDA increased 26%. While we are not immune from these macroeconomic headwinds, we believe we can continue to manage through them and our business remains strong overall. We are therefore increasing our full year guidance."

GAAP, NON-GAAP AND PRO FORMA RESULTS
In addition to the Company's results prepared in accordance with GAAP, the Company has provided information on a non-GAAP and pro forma basis. The manner in which the 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. The 2021 results presented on a pro forma basis include Topgolf results for January and February prior to the closing of the merger on March 8, 2021.

SUMMARY OF FINANCIAL RESULTS

The Company announced the following GAAP and non-GAAP financial results for the three and six months ended June 30, 2022 and 2021 (in millions, except earnings per share).

GAAP RESULTS













Three Months Ended June 30,


Six Months Ended June 30,


2022


2021


Change


2022


2021(1)


Change

Net revenues

$ 1,115.7


$ 913.6


$ 202.1


$ 2,155.9


$ 1,565.2


$ 590.7

Income from operations

129.0


107.3


21.7


223.3


183.4


39.9

Other (expense)/income, net

(20.7)


(31.4)


10.7


(44.0)


212.7


(256.7)

Income before income taxes

108.3


75.9


32.4


179.3


396.1


(216.8)

Income tax provision/(benefit)

2.9


(15.8)


18.7


(12.8)


31.9


(44.7)

Net income

$ 105.4


$ 91.7


$ 13.7


$ 192.1


$ 364.2


$ (172.1)

Earnings per share - diluted (2)

$ 0.53


$ 0.47


$ 0.06


$ 0.97


$ 2.28


$ (1.31)













(1) Due to the closing of the merger with Topgolf on March 8, 2021, the Company's results of operations in the first half of 2021 do not include Topgolf's results for January and February, which in the aggregate totaled $142.9 million in net revenues and a loss before income taxes of $27.8 million.

(2) For the purpose of calculating diluted EPS and in connection with the adoption of ASU 2020-06 in January 2022, the Company excluded $1.6 million and $3.2 million of interest expense related to its convertible notes from its calculation of net income, for the three and six months ended June 30, 2022, respectively.

NON-GAAP RESULTS

Non-GAAP results exclude certain non-recurring and non-cash adjustments as defined further below.


Three Months Ended June 30,


Six Months Ended June 30,


2022


2021


Change


2022


2021(1)


Change

Net revenues

$ 1,115.7


$ 913.6


$ 202.1


$ 2,155.9


$ 1,565.2


$ 590.7

Income from operations

135.1


118.0


17.1


241.1


214.6


26.5

Other expense, net

(19.5)


(27.0)


7.5


(41.6)


(32.5)


(9.1)

Income before income taxes

115.6


91.0


24.6


199.5


182.1


17.4

Income tax provision

22.1


20.5


1.6


35.1


35.0


0.1

Net income

$ 93.5


$ 70.5


$ 23.0


$ 164.4


$ 147.1


$ 17.3

Earnings per share - diluted (2)

$ 0.47


$ 0.36


$ 0.11


$ 0.84


$ 0.92


$ (0.08)

Adjusted EBITDA

$ 207.3


$ 164.5


$ 42.8


$ 377.1


$ 292.3


$ 84.8













(1) Due to the closing of the merger with Topgolf on March 8, 2021, the Company's results of operations in the first half of 2021 do not include Topgolf's results for January and February, which in the aggregate totaled $142.9 million in net revenues and $2.3 million in Adjusted EBITDA.

(2) For the purpose of calculating diluted EPS and in connection with the adoption of ASU 2020-06 in January 2022, the Company excluded $1.6 million and $3.2 million of interest expense related to its convertible notes from its calculation of net income, for the three and six months ended June 30, 2022, respectively.

Second Quarter 2022 Financial Highlights
(All comparisons to prior periods are calculated on a year-over-year basis.)

  • Net revenues increased $202.1 million (or 22.1%), driven by a $78.3 million (or 24.1%) increase in the Topgolf segment, a $50.6 million (or 12.6%) increase in the Golf Equipment segment and a $73.2 million (or 39.2%) increase in the Active Lifestyle segment (formerly named "Apparel, Gear and Other"). Changes in foreign currency rates had a $38.6 million negative impact on net revenues for the quarter ended June 30, 2022.

  • GAAP income from operations increased $21.7 million (or 20.2%) and non-GAAP income from operations increased $17.1 million (or 14.5%), due to strong sales across all segments, product categories and regions. While changes in foreign currency rates, increased freight expense and other inflationary impacts put pressure on operating margins, the Company was generally able to offset these through the continued success of the Topgolf venues, price increases and increased sales volumes and efficiencies, resulting in an increase in operating income across all segments.

  • GAAP other expense decreased $10.7 million (or 34.1%) and non-GAAP other expense decreased $7.5 million (or 27.8%), primarily due to an increase in hedge gains related to the dollar strengthening across most major currencies during the quarter, and partially offset by an increase in interest expense related to deemed landlord financing interest on additional Topgolf venues and higher variable rates on the Company's term loans and asset-based revolving credit facility.

  • GAAP net income increased $13.7 million (or 14.9%) quarter over quarter, primarily due to strong performance of the operating segments, partially offset by a $15.8 million change in the Company's tax valuation allowance. On a non-GAAP basis, which excludes the change in the valuation allowance, amongst other items, non-GAAP net income for the quarter ended June 30, 2022 was $93.5 million compared to $70.5 million for the same period in 2021.

  • GAAP earnings per diluted common share was $0.53 for the quarter ended June 30, 2022, compared to $0.47 per diluted common share for the same period in 2021. Non-GAAP earnings per diluted common share was $0.47 for the quarter ended June 30, 2022, compared to $0.36 per diluted common share for the same period in 2021. Weighted average diluted shares totaled 200.6 million shares for the quarter ended June 30, 2022, compared to 194.3 million shares for the same period in 2021, an increase of 6.3 million shares. The increased share count is primarily related to a change in accounting guidance, which took effect on January 1, 2022, and requires the Company to assume the full conversion of 14.7 million shares related to its convertible notes in its weighted average diluted share calculation.

  • Adjusted EBITDA for the quarter ended June 30, 2022 increased $42.8 million, (or 26.0%), which consisted of a $29.2 million increase from Topgolf and a $13.6 million increase from the non-Topgolf business, which includes continued investment in the corporate functions.

SEGMENT RESULTS

The table below provides net revenues by segment for the three and six months ended June 30, 2022 and 2021 (in millions):

SEGMENT NET REVENUES


Reported Results for the


Reported Results for the


Three Months Ended June 30,


Six Months Ended June 30,


2022


2021


Change


2022


2021(2)


Change

Topgolf

$ 403.7


$ 325.4


$ 78.3


$ 725.7


$ 418.1


$ 307.6

Golf Equipment

451.9


401.3


50.6


919.9


778.1


141.8

Active Lifestyle (1)

260.1


186.9


73.2


510.3


369.0


141.3

Total Segment Net Revenues

$ 1,115.7


$ 913.6


$ 202.1


$ 2,155.9


$ 1,565.2


$ 590.7













(1) During the second quarter of 2022, the Company changed the name of its "Apparel, Gear, and Other" operating segment to "Active Lifestyle." The segment name change had no impact on the composition of the Company's segments or on previously reported financial position, results of operations, cash flow or segment operating results.

(2) Due to the closing of the merger with Topgolf on March 8, 2021, the Company's results of operations in the first half of 2021 do not include Topgolf's revenues for January and February, which in the aggregate totaled $142.9 million in net revenues.

The table below provides the breakout of segment operating income for the three and six months ended June 30, 2022 and 2021 (in millions):

SEGMENT OPERATING INCOME


Reported Results for the


Reported Results for the


Three Months Ended June 30,


Six Months Ended June 30,


2022


2021


Change


2022


2021(1)


Change

Topgolf

$ 44.2


$ 24.2


$ 20.0


$ 50.7


$ 28.2


$ 22.5

% of segment revenue

10.9 %


7.4 %


350 bps


7.0 %


6.7 %


30 bps

Golf Equipment

100.3


98.1


2.2


201.1


183.0


18.1

% of segment revenue

22.2 %


24.4 %


(220) bps


21.9 %


23.5 %


(160) bps

Active Lifestyle

22.5


15.7


6.8


49.2


36.2


13.0

% of segment revenue

8.7 %


8.4 %


30 bps


9.6 %


9.8 %


(20) bps

Total segment operating income

$ 167.0


$ 138.0


$ 29.0


$ 301.0


$ 247.4


$ 53.6

% of segment revenue

15.0 %


15.1 %


(10) bps


14.0 %


15.8 %


(180) bps













(1) Due to the closing of the merger with Topgolf on March 8, 2021, the Company's results of operations in the first half of 2021 do not include Topgolf's results for January and February, which in the aggregate totaled $142.9 million in net revenues and a segment operating loss of $18.1 million. Pro forma results including the January and February 2021 revenues and segment operating loss would result in a year-over-year increase of 60bps for the six month Topgolf total segment operating income as a percent of segment revenue.

Second Quarter 2022 Segment Highlights

(All comparisons to prior periods are calculated on a year-over-year basis)

  • Topgolf

  • Golf Equipment

  • Active Lifestyle

The following is a reconciliation of income before income taxes to total segment operating income for the three and six months ended June 30, 2022 and 2021 (in millions):


Three Months Ended June 30,


Six Months Ended June 30,


2022


2021


Change


2022


2021(1)


Change

Total segment operating income:

$ 167.0


$ 138.0


$ 29.0


$ 301.0


$ 247.4


$ 53.6

Corporate costs and expenses (2)

(38.0)


(30.7)


(7.3)


(77.7)


(64.0)


(13.7)

Income from operations

129.0


107.3


21.7


223.3


183.4


39.9

Gain on Topgolf investment





252.5


(252.5)

Interest expense

(32.5)


(28.9)


(3.6)


(63.9)


(46.3)


(17.6)

Other income

11.8


(2.5)


14.3


19.9


6.5


13.4

Income before income taxes

$ 108.3


$ 75.9


$ 32.4


$ 179.3


$ 396.1


$ (216.8)













(1) Due to the closing of the merger with Topgolf on March 8, 2021, the Company's results of operations in the first half of 2021 do not include Topgolf's results for January and February, which in the aggregate totaled a segment operating loss of $18.1 million and a $27.8 million loss before income taxes.

(2) Includes corporate overhead and certain non-recurring and non-cash items as described in the schedules to this release.

2022 BUSINESS OUTLOOK
The 2022 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) ongoing impact of COVID-19, (2) changes in foreign currency rates, and (3) freight costs and other inflationary pressures.

FULL YEAR 2022 OUTLOOK

(in millions)

2022 Current

Estimate


2022 Previous

Estimate


2021 Reported
Results (1)


2021 Pro Forma
Results (1)

Net revenues

$3,945 - $3,970


$3,935 - $3,970


$3,133


$3,276

Adjusted EBITDA

$555 - $565


$535 - $555


$445


$448









(1) Due to the timing of the Topgolf merger on March 8, 2021, Callaway's reported full year financial results for 2021 only include approximately ten months of Topgolf results and therefore do not include January and February results, which were in the aggregate $142.9 million in revenue and $2.3 million in Adjusted EBITDA and are included in the pro forma results above.

Net Revenues: The Company currently estimates that its full year 2022 net revenue will be within the range of $3,945 million - $3,970 million, which includes $129 million of negative foreign currency impact. The full year 2022 net revenue estimate assumes Topgolf segment revenue of approximately $1.56 billion, consistent with previous guidance. It also assumes Golf Equipment segment revenue growth of 12% or more, up from prior guidance of approximately 10%, and the Active Lifestyle segment revenue reaching approximately $1 billion, consistent with previous guidance. On a consolidated basis, 2022 full year revenue is estimated to increase over 20% compared to 2021.

Adjusted EBITDA: The Company is increasing its full year 2022 Adjusted EBITDA guidance to $555 million - $565 million, an increase of $15 million at the midpoint of guidance compared to prior guidance driven by increases in both the Golf Equipment and Topgolf segments. The full year 2022 Adjusted EBITDA guidance estimate for the Topgolf segment is $235 million - $245 million. On a consolidated basis, at the midpoint of guidance, 2022 full year Adjusted EBITDA is estimated to increase by $100 million compared to 2021.

SECOND HALF 2022 OUTLOOK

(in millions)

2022 Estimate


2021 Results

Net Revenues

$1,790 - $1,815


$1,568

Adjusted EBITDA

$178 - $188


$153

Net Revenues: The Company currently estimates that its second half 2022 net revenue will be within the range of $1,790 million - $1,815 million, which includes $69 million of negative foreign currency impact. This represents an increase in each of our operating segments and on a consolidated basis represents an approximate 15% increase in revenue over 2021 for the second half.

We expect total Company third quarter net revenue to increase approximately 11% to $940 million - $955 million, which includes $42 million of negative foreign currency impact, compared to net revenues of $856 million in the third quarter of 2021. Given the second half launch timing of golf equipment products in 2022 versus 2021, net revenue for the golf equipment segment is expected to be down mid-to-high single digits in the third quarter but is expected to increase double digits in the fourth quarter, resulting in growth of 12% or more for the full year. The other two segments are expected to grow by double digits in both the third and fourth quarters.

Adjusted EBITDA: The Company currently estimates that its second half 2022 Adjusted EBITDA will be within the range of $178 million - $188 million compared to $153 million in the second half of 2021. Given foreign exchange headwinds and difference in timing of new golf equipment product launches compared to 2021, the Company expects consolidated Adjusted EBITDA to decrease in the third quarter but increase in the fourth quarter. Third quarter Adjusted EBITDA is estimated to be between $122 - $132 million in 2022 compared to $139 million in 2021. The Company expects that Adjusted EBITDA will increase significantly in the fourth quarter of 2022 compared to 2021, resulting in an overall 20% increase in Adjusted EBITDA in the second half of 2022.

ADDITIONAL INFORMATION AND DISCLOSURES
Conference Call and Webcast
The Company will be holding a conference call at 2:00 p.m. Pacific time today, August 4, 2022, 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/. 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 August 11, 2022. 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 of America ("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.

Non-Recurring and Non-cash Adjustments. The Company provided information excluding certain non-cash amortization and depreciation of intangibles and other assets related to the Company's acquisitions, IT integration and implementation costs associated with new ERP systems for certain new subsidiaries and impairment charges related to the suspension of the Jack Wolfskin business in Russia in 2022, non-cash amortization of the debt discount related to the Company's convertible notes in 2021, acquisition and other non-recurring items (including integration costs and a $252.5 million non-cash gain in 2021 resulting from the Company's pre-merger equity position in Topgolf), and changes in the Company's non-cash valuation allowance recorded against certain of the Company's deferred tax assets as a result of the Topgolf merger.

Adjusted EBITDA. The Company provides information about its results excluding interest, taxes, depreciation and amortization expenses, non-cash stock compensation expense, non-cash lease amortization expense, and the non-recurring and non-cash items referenced above.

In addition, the Company has included in the schedules attached 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.

For forward-looking Adjusted EBITDA information provided in this release, reconciliation of such forward-looking Adjusted EBITDA to the most closely comparable GAAP financial measure (net income) is not provided because the Company is unable to provide such reconciliation without unreasonable efforts. The inability to provide a reconciliation is because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact net income in the future but would not impact Adjusted EBITDA. These items may include certain non-cash depreciation, which will fluctuate based on the Company's level of capital expenditures, non-cash amortization of intangibles related to the Company's acquisitions, income taxes, which can fluctuate based on changes in the other items noted and/or future forecasts, and other non-recurring costs and non-cash adjustments. Historically, the Company has excluded these items from Adjusted EBITDA. The Company currently expects to continue to exclude these items in future disclosures of Adjusted EBITDA and may also exclude other items that may arise. The events that typically lead to the recognition of such adjustments are inherently unpredictable as to if or when they may occur, and therefore actual results may differ materially. This unavailable information could have a significant impact on net income.

Definitions
Same venue sales. Callaway defines same venue sales for its Topgolf business as sales for the comparable venue base, which is defined as the number of Company-operated venues with at least 24 full fiscal months of operations in the year of comparison.

Forward-Looking Statements

Statements used in this press release that relate to future plans, events, financial results, performance, prospects, or growth opportunities, including statements relating to the Company's (and its segments') third quarter, second half and full year 2022 guidance (including net revenue, same venue sales, Adjusted EBITDA and Topgolf segment Adjusted EBITDA), continued impact of the COVID-19 pandemic on the Company's business and the Company's ability to improve and recover from such impact, impact of any measures taken to mitigate the effect of the pandemic, strength and demand of the Company's products and services, continued brand momentum, demand for golf and outdoor activities and apparel, continued investments in the business, increases in shareholder value, post-pandemic consumer trends and behavior, future industry and market conditions, pricing of products and services, foreign currency effects and their impacts, impacts of inflation and freight and other supply challenges, and statements of belief and any statement of assumptions underlying any of the foregoing, 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 disruptions to business operations from additional regulatory restrictions in response to the COVID-19 pandemic (such as travel restrictions, government-mandated shut-down orders or quarantines) or voluntary "social distancing" that affects employees, customers and suppliers; costs, expenses or difficulties related to the merger with Topgolf, including the integration of the Topgolf business; failure to realize the expected benefits and synergies of the Topgolf merger in the expected timeframes or at all; production delays, closures of manufacturing facilities, retail locations, warehouses and supply and distribution chains; staffing shortages as a result of remote working requirements or otherwise; uncertainty regarding global economic conditions, particularly the uncertainty related to the duration and ongoing impact of the COVID-19 pandemic, and related decreases in customer demand/spending and ongoing increases in operating and freight costs; global supply chain constraints and challenges (including, without limitation, as a result of any prolonged shutdown in China); the Company's level of indebtedness; continued availability of credit facilities and liquidity and ability to comply with applicable debt covenants; effectiveness of capital allocation and cost/expense reduction efforts; continued brand momentum and product success; growth in the direct-to-consumer and e-commerce channels; ability to realize the benefits of the continued investments in the Company's business; consumer acceptance of and demand for the Company's and its subsidiaries' products and services; cost of living and inflationary pressures; any changes in U.S. trade, tax or other policies, including restrictions on imports or an increase in import tariffs; 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 the effect of terrorist activity, armed conflict, natural disasters or pandemic diseases, including expanded outbreak of COVID-19 and its variants, on the economy generally, on the level of demand for the Company's and its subsidiaries' products and services or on the Company's ability to manage its operations, supply chain and delivery logistics in such an environment; 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; and a decrease in participation levels in golf generally, during or as a result of the COVID-19 pandemic. For additional information concerning these and other risks and uncertainties that could affect these statements and the Company's business, see the Company's Annual Report on Form 10-K for the year ended December 31, 2021 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 an unrivaled, tech-enabled modern golf and active lifestyle company delivering leading golf equipment, apparel and entertainment, with a portfolio of global brands including Callaway Golf, Topgolf, 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, and provides world-class golf entertainment experiences through Topgolf, its wholly-owned subsidiary. For more information please visit www.callawaygolf.com, www.topgolf.com, www.odysseygolf.com, www.OGIO.com, www.travismathew.com, and www.jack-wolfskin.com.

Investor Contacts
Brian Lynch
Lauren Scott
(760) 931-1771
invrelations@callawaygolf.com

CALLAWAY GOLF COMPANY
CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)



June 30,
2022


December 31, 2021

ASSETS...