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Callaway Golf Company Announces Record Net Sales And Strong Earnings Growth For The Third Quarter Of 2019; Increases Non-GAAP Earnings Per Share Guidance
- Third quarter 2019 net sales of $426 million, a 62% increase compared to $263 million in the third quarter of 2018.
- Third quarter 2019 diluted earnings per share of $0.32, a 220% increase compared to $0.10 in the third quarter of 2018. On a non-GAAP basis, third quarter 2019 earnings per share increased to $0.36, a 227% increase compared to $0.11 in the third quarter of 2018.
- Third quarter 2019 Net Income of $31 million, a 226% increase compared to $10 million in the third quarter of 2018.
- Third quarter 2019 Adjusted EBITDA of $57 million, a 159% increase compared to $22 million in the third quarter of 2018.
- Full year 2019 non-GAAP earnings per share guidance increased to $1.06 - $1.12, compared to prior guidance of $1.03 - $1.09.

CARLSBAD, Calif., Oct. 30, 2019 /PRNewswire/ -- Callaway Golf Company (NYSE:ELY) announced today record third quarter 2019 net sales and strong earnings growth while also reiterating full year net sales and Adjusted EBITDA guidance and increasing full year 2019 earnings per share guidance.

"I am very pleased to announce yet another record quarter in revenue and strong earnings growth for our Company," commented Chip Brewer, President and Chief Executive Officer of Callaway Golf Company (the "Company").  "Our portfolio of brands continues to deliver strong financial results while positioning us for attractive long-term prospects."

Mr. Brewer continued, "Our golf equipment business continues to deliver attractive revenue growth, now up 5% year to date on a constant currency basis, as a result of a strong 2019 product lineup and the recently launched Epic Forged irons and MD5 Jaws wedges, which have been received well by the market. Our soft goods portfolio continues to experience even stronger growth rates.  These increases were led by robust growth in our direct-to-consumer channel, including Jack Wolfskin and TravisMathew.  The direct-to-consumer channel continues to be an area of focus and investment."

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 our acquisitions.    

The Company also provided sales information on a constant currency basis and information regarding its earnings before interest, taxes, depreciation and amortization expense, 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 Third Quarter 2019 Financial Results

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

GAAP RESULTS:


NON-GAAP PRESENTATION:


Q3 2019

Q3 2018

Change


Q3 2019

Q3 2018

Change

Net Sales

$426.2

$262.7

$163.5


$426.2

$262.7

$163.5

Gross Profit       

% of Sales

191.4

44.9%

115.2

43.9%

76.2

100 bps


191.4

44.9%

115.2

43.9%

76.2

100 bps

Operating Expenses

150.9

104.5

46.4


146.7

102.8

43.9

Pre-Tax Income

33.2

11.1

22.1


37.4

12.9

24.5

Net Income

31.0

9.5

21.5


34.3

10.9

23.4

EPS

$0.32

$0.10

$0.22


$0.36

$0.11

$0.25

 


Q3 2019

Q3 2018

Change

Adjusted EBITDA

$56.7

$21.9

$34.8

Net sales increased 62% to $426 million, a new record for the Company, and on a constant currency basis, net sales would have increased by 65%. The increase reflects the acquisition of Jack Wolfskin in January 2019, which contributed $134 million in net sales in the third quarter of 2019. Excluding the Jack Wolfskin acquisition, net sales increased 11% in the third quarter of 2019 driven by product launch timing in the golf clubs segment (up 18% on a constant currency basis) related to the third quarter launches of Epic Forged irons, Epic Forged Star irons, and MD5 Jaw wedges, as well as continued brand momentum in the TravisMathew business.

Gross margin increased 100 basis points to 44.9%, driven by favorable mix impact of the Jack Wolfskin and TravisMathew businesses, which were both accretive to gross margin in the third quarter, as well as favorable golf club launch timing, all offset slightly by the negative impact of foreign currency exchange rates.   

Operating expenses increased 44% to $151 million in the third quarter of 2019 compared to $105 million for the same period in 2018. Excluding non-recurring and acquisition-related expenses, operating expenses increased $44 million, or 43%, to $147 million when compared to $103 million in the third quarter of 2018. This increase is primarily due to the addition in 2019 of operating expenses from the Jack Wolfskin business, which added an incremental $37 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 increased 220% to $0.32, compared to $0.10 for the third quarter of 2018. On a non-GAAP basis, 2019 third quarter earnings per share was $0.36, which excludes $0.04 per share related to the non-cash purchase accounting adjustments and the non-recurring transition expenses related to the Jack Wolfskin, TravisMathew and OGIO acquisitions. The non-GAAP earnings per share in 2019 includes a $8 million ($0.07 per share) increase in other expense primarily related to interest expense on the new term loan entered into in January 2019 to fund the purchase of Jack Wolfskin. This increase in other expense was slightly offset by a lower tax rate.

Summary of First Nine Months 2019 Financial Results

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

GAAP RESULTS: 


NON-GAAP PRESENTATION:


Q3 YTD
2019

Q3 YTD
2018

Change


Q3 YTD
2019

Q3 YTD
2018

Change

Net Sales

$1,389.1

$1,062.2

$326.9


$1,389.1

$1,062.2

$326.9

Gross Profit        

% of Sales

636.6

45.8%

508.4

47.9%

128.2

(210) bps


647.3

46.6%

508.4

47.9%

138.9

(130) bps

Operating Expenses

481.3

337.4

143.9


468.4

335.1

133.3

Pre-Tax Income

127.3

169.2

(41.9)


154.9

171.5

(16.6)

Net Income

108.6

133.2

(24.6)


129.8

135.0

(5.2)

EPS

$1.13

$1.37

($0.24)


$1.35

$1.39

($0.04)

 


Q3 YTD 2019

Q3 YTD 2018

Change

Adjusted EBITDA

$215.8

$199.5

$16.3

Net sales increased 31% to $1,389 million, a new record for the Company. On a constant currency basis, net sales would have increased by 34%. The increase reflects the acquisition of Jack Wolfskin completed in January 2019, which contributed $275 million in net sales in the first nine months of 2019. Excluding the Jack Wolfskin acquisition, net sales increased 6% in the first nine months of 2019 driven by increases in all operating segments and all major product categories. This increase is attributable to the continued strength of the Company's 2019 golf product line and continued brand momentum of the TravisMathew business.

Gross margin decreased 210 basis points to 45.8% for the first nine months of 2019 compared to 47.9% for the first nine months of 2018. Excluding a non-cash purchase accounting adjustment related to the Jack Wolfskin acquisition, gross margins were 46.6%, a decrease of 130 basis points. The decrease is primarily attributable to foreign currency headwinds and the current year golf equipment product mix of premium products, which typically have higher product costs due to more advanced technology resulting in lower gross margins.  The decrease is partially offset by the TravisMathew business, which is accretive on a gross margin basis through the first nine months of the year.

Operating expenses increased 43% to $481 million in the first nine months of 2019 compared to $337 million for the same period in 2018. Excluding non-recurring and acquisition-related expenses, operating expenses increased $133 million, or 40%, to $468 million when compared to $335 million in the first nine months of 2018. This increase is primarily due to the addition in 2019 of operating expenses from the Jack Wolfskin business, which added an incremental $113 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 18% to $1.13, compared to $1.37 for the first nine months of 2018. On a non-GAAP basis, the first nine months of 2019 earnings per share was $1.35, which excludes $0.22 per share related to the non-cash purchase accounting adjustments and the non-recurring transaction and transition expenses related to the Jack Wolfskin, TravisMathew and OGIO acquisitions. The non-GAAP earnings per share in 2019 includes a $26 million ($0.23 per share) increase in other expense primarily related to the new term loan entered into in January 2019 to fund the purchase of Jack Wolfskin. This increase in other expense was slightly offset by a lower tax rate.

Business Outlook for 2019

Basis for Full Year 2019 Non-GAAP Estimates. The Company currently estimates that non-cash purchase accounting adjustments related to Jack Wolfskin will have a negative impact on 2019 earnings per share in the amount of approximately $0.12.  The non-cash purchase accounting adjustments for the OGIO and TravisMathew acquisitions will have a $0.01 negative impact on earnings per share in 2019, consistent with 2018. Both of these estimates are unchanged from the Company's prior estimates.

In addition to these purchase accounting adjustments, the Company's non-GAAP guidance for 2019 excludes $0.13 per share of non-recurring transaction and transition expenses related to the Jack Wolfskin transaction, and non-recurring advisory fees. The 2018 non-GAAP adjusted results presented below exclude the $0.01 per share of non-recurring transaction income related to the Jack Wolfskin acquisition.  Reconciliation is provided in the attached schedules. 

Full Year 2019 Guidance

The purpose of the 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 our acquisitions.  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.

($ in millions, except EPS):


Revised 2019

Non-GAAP Estimate

Previous 2019

Non-GAAP Estimate

2018*

Non-GAAP 
Adjusted Results

Net Sales

$1,685 - $1,700 million

$1,685 - $1,700 million

$1,243 million

Gross Margins

46.7%

46.7%

46.5%

Operating Expenses

$628 million

$628 million

$445 million

Earnings Per Share

$1.06 - $1.12

$1.03 - $1.09

$1.08

* For purposes of this presentation, the 2018 Non-GAAP Adjusted Results exclude approximately $1 million ($0.01 per share) of non-cash purchase accounting amortization for the OGIO and TravisMathew acquisitions and $0.01 per share of non-recurring transaction income related to the Jack Wolfskin acquisition.

 


Revised 2019

Previous 2018

Change

Adjusted EBITDA

$208 - $215

$208 - $215

$0

*This presentation of Adjusted EBITDA also excludes non-cash stock compensation expense.

The Company reiterates the previous 2019 net sales estimate of $1,685 million - $1,700 million representing net sales growth of approximately 35% - 37% in 2019 compared to 2018. The Company currently estimates that changes in foreign currency rates will have a negative impact of $33 million on 2019 full year net sales when compared to 2018.  

The Company reiterates the previous 2019 gross margin estimate of approximately 46.7%.

The Company reiterates the previous 2019 operating expense estimate of approximately $628 million

The Company increased its non-GAAP earnings per share guidance to $1.06 - $1.12 primarily driven by a revised estimated tax rate of approximately 19.0% when compared to a prior estimated tax rate of 20.5% on a base of 96.5 million fully diluted shares.

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 three hours after the call ends, and will remain available through 9:00 p.m. Pacific time on November 6, 2019.  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 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 without 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 2019 sales, gross margins, operating expenses, and earnings per share (or related tax rate and share count), future industry, market conditions, brand momentum, 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; 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 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 supply 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 CONDENSED BALANCE SHEETS

(Unaudited)

(In thousands)



September 30,
2019


December 31,
2018

ASSETS












Current assets:






Cash and cash equivalents


$

88,216




$

63,981


Accounts receivable, net


223,385




71,374


Inventories


340,314




338,057


Other current assets


79,930




51,494


Total current assets


731,845




524,906








Property, plant and equipment, net


127,077




88,472


Operating lease right-of-use assets, net


154,351





Intangible assets, net


688,093




280,508


Deferred taxes, net


69,597




75,079


Investment in golf-related ventures


72,238




72,238


Other assets


16,447




11,741


Total assets


$

1,859,648




$

1,052,944








LIABILITIES AND SHAREHOLDERS' EQUITY












Current liabilities:






Accounts payable and accrued expenses


$

200,352




$

208,653


Accrued employee compensation and benefits


43,210




43,172


Asset-based credit facilities


110,711




40,300


Accrued warranty expense


10,121




7,610


Current operating lease liabilities


25,112





Long-term debt, current portion


7,296




2,411


Other current liabilities


11,103




1,091


Total current liabilities


407,905




303,237








Long-term debt


445,019




7,218


Long-term operating lease liabilities


133,189





Long-term liabilities


96,179




8,181


Total Callaway Golf Company shareholders' equity


777,356




724,574


Non-controlling interest in consolidated entity





9,734


Total liabilities and shareholders' equity


$

1,859,648




$

1,052,944


 

CALLAWAY GOLF COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)



Three Months Ended
September 30,


2019


2018

Net sales

$

426,217



$

262,654


Cost of sales

234,828



147,415


Gross profit

191,389



115,239


Operating expenses:




Selling

101,984



68,605


General and administrative

36,378



26,706


Research and development

12,538



9,229


Total operating expenses

150,900



104,540


Income from operations

40,489



10,699


Other (expense) income, net

(7,313)



376


Income before income taxes

33,176



11,075


Income tax provision

2,128



1,335


Net income

31,048



9,740


Less: Net income attributable to non-controlling interest



223


Net income attributable to Callaway Golf Company

$

31,048



$

9,517






Earnings per common share:




Basic

$0.33



$0.10


Diluted

$0.32



$0.10


Weighted-average common shares outstanding:




Basic

94,100



94,477


Diluted

96,287



97,320







Nine Months Ended
September 30,


2019


2018

Net sales

$

1,389,122



$

1,062,156


Cost of sales

752,483



553,758


Gross profit

636,639



508,398


Operating expenses:




Selling

334,418



234,826


General and administrative

108,739



73,008


Research and development

38,158



29,561


Total operating expenses

481,315



337,395


Income from operations

155,324



171,003


Other expense, net

(27,985)



(1,797)


Income before income taxes

127,339



169,206


Income tax provision

18,892



35,801


Net income

108,447



133,405


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

(179)



166


Net income attributable to Callaway Golf Company

$

108,626



$

133,239






Earnings per common share:




Basic

$1.15



$1.41


Diluted

$1.13



$1.37


Weighted-average common shares outstanding:




Basic

94,284



94,605


Diluted

96,197



97,076


 

CALLAWAY GOLF COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW

(Unaudited)

(In thousands)



Nine Months Ended
September 30,


2019


2018

Cash flows from operating activities:




Net income

$

108,447



$

133,405


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




   Depreciation and amortization

25,471



14,762


   Lease amortization expense

23,615




   Amortization of debt issuance costs

2,428




   Inventory step-up on acquisition

10,703




   Deferred taxes, net

8,407



30,123


   Non-cash share-based compensation

9,476



9,975


   Loss/(gain) on disposal of long-lived assets

649



(30)


   Unrealized gains on designated hedging instruments

(7,448)



(1,138)


Changes in assets and liabilities

(126,342)



(66,198)


Net cash provided by operating activities

55,406



120,899






Cash flows from investing activities:




Capital expenditures

(36,843)



(26,103)


Investments in golf related ventures



(282)


Acquisitions, net of cash acquired

(481,643)




Proceeds from sales of property and equipment

43



43


Net cash used in investing activities

(518,443)



(26,342)






Cash flows from financing activities:




Proceeds from (repayments of) credit facilities, net

70,411



(83,455)


Proceeds from issuance of long-term debt

490,534




Repayments of long-term debt

(31,665)



(1,632)


Repayments of financing leases

(583)




Debt issuance and credit facility amendment costs

(19,088)




Exercise of stock options



1,636


Dividends paid, net

(2,834)



(2,841)


Acquisition of treasury stock

(27,505)



(22,373)


Distributions to non-controlling interests



(821)


Net cash provided by (used in) financing activities

479,270



(109,486)


Effect of exchange rate changes on cash and cash equivalents

8,002



76


Net increase (decrease) in cash and cash equivalents

24,235



(14,853)


Cash and cash equivalents at beginning of period

63,981



85,674


Cash and cash equivalents at end of period

$

88,216



$

70,821


 

CALLAWAY GOLF COMPANY

Consolidated Net Sales and Operating Segment Information

(Unaudited)

(In thousands)



Net Sales by Product Category


Net Sales by Product Category


Three Months Ended
September 30,


Growth/(Decline)


Non-GAAP

Constant

Currency

vs. 2018(1)


Nine Months Ended
September 30,


Growth


Non-GAAP

Constant

Currency

vs. 2018(1)


2019


2018


Dollars


Percent


Percent


2019


2018


Dollars


Percent


Percent

Net sales:




















Golf Clubs

$

168,005



$

142,396



$

25,609



18.0%


18.3%


$

653,531



$

632,639



$

20,892



3.3%


4.8%

Golf Balls

42,497



44,661



(2,164)



-4.8%


-4.0%


172,943



165,465



7,478



4.5%


6.0%

Apparel

139,998



27,340



112,658



412.1%


425.6%


309,439



84,460



224,979



266.4%


279.8%

Gear and Other

75,717



48,257



27,460



56.9%


59.7%


253,209



179,592



73,617



41.0%


44.9%


$

426,217



$

262,654



$

163,563



62.3%


64.5%


$

1,389,122



$

1,062,156



$

326,966



30.8%


33.6%

(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
September 30,


Growth


Non-GAAP

Constant

Currency

vs. 2018(1)


Nine Months Ended
September 30,


Growth


Non-GAAP

Constant

Currency

vs. 2018(1)


2019


2018(2)


Dollars


Percent


Percent


2019


2018(2)


Dollars


Percent


Percent

Net Sales




















United States

$

161,631



$

142,263



$

19,368



13.6%


13.6%


$

658,051



$

610,797



$

47,254



7.7%


7.7%

Europe

133,351



33,086



100,265



303.0%


320.8%


341,594



130,613



210,981



161.5%


177.6%

Japan

64,176



54,434



9,742



17.9%


13.3%


193,080



183,375



9,705



5.3%


4.9%

Rest of World

67,059



32,871



34,188



104.0%


111.9%


196,397



137,371



59,026



43.0%


50.2%


$

426,217



$

262,654



$

163,563



62.3%


64.5%


$

1,389,122



$

1,062,156



$

326,966



30.8%


33.6%





















(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 the current year presentation of regional sales.






















Operating Segment Information


Operating Segment Information


Three Months Ended
September 30,


Growth


Non-GAAP

Constant

Currency

vs. 2018(3)


Nine Months Ended
September 30,


Growth/(Decline)


Non-GAAP

Constant

Currency

vs. 2018(3)


2019


2018(1)


Dollars


Percent


Percent


2019


2018(1)


Dollars


Percent


Percent

Net Sales




















Golf Equipment

$

210,502



$

187,057



$

23,445



12.5%


13.0%


$

826,474



$

798,104



$

28,370



3.6%


5.0%

Apparel, Gear and Other

215,715



75,597



140,118



185.3%


192.0%


562,648



264,052



298,596



113.1%


120.0%


$

426,217



$

262,654



$

163,563



62.3%


64.5%


$

1,389,122



$

1,062,156



$

326,966



30.8%


33.6%





















Income (loss) before income taxes:



















Golf Equipment

$

23,124



$

17,003



$

6,121



36.0%




$

148,782



$

158,460



$

(9,678)



-6.1%



Apparel, Gear and Other

34,877



8,016



26,861



335.1%




68,909



51,547



17,362



33.7%



Reconciling items(2)

(24,825)



(13,944)



(10,881)



78.0%




(90,352)



(40,801)



(49,551)



-121.4%




$

33,176



$

11,075



$

22,101



199.6%




$

127,339



$

169,206



$

(41,867)



-24.7%



































(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 and other income (expense) not utilized by management in determining segment profitability.

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

 

CALLAWAY GOLF COMPANY

Supplemental Financial Information and Non-GAAP Reconciliation

(Unaudited)

(In thousands)



Three Months Ended September 30,



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


Operating expenses, net

$

150,900



$

1,208



$

3,009



$

146,683



$

104,540



$

254



$

1,521



$

102,765



Income (loss) from operations

40,489



(1,208)



(3,009)



44,706



10,699



(254)



(1,521)



12,474



Income tax provision (benefit)

2,128



(278)



(692)



3,098



1,335



(58)



(350)



1,743



Net income (loss) attributable to Callaway Golf Company

$

31,048



$

(930)



$

(2,317)



$

34,295



$

9,517



$

(196)



$

(1,171)



$

10,884




















Diluted earnings (loss) per share:

$

0.32



$

(0.01)



$

(0.03)



$

0.36



$

0.10



$



$

(0.01)



$

0.11




(1) Represents the amortization of intangible assets related to the Company's Jack Wolfskin, TravisMathew and OGIO acquisitions.

(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)



Nine Months Ended September 30,



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

$

636,639



$

(10,703)



$



$

647,342



$

508,398



$



$



$

508,398



Operating expenses

481,315



3,624



9,335



468,356



337,395



762



1,521



335,112



Income (loss) from operations

155,324



(14,327)



(9,335)



178,986



171,003



(762)



(1,521)



173,286



Other expense, net

(27,985)





(3,896)



(24,089)



(1,797)







(1,797)



Income tax provision (benefit)

18,892



(3,295)



(3,043)



25,230



35,801



(175)



(350)



36,326



Net income (loss) attributable to Callaway Golf Company

$

108,626



$

(11,032)



$

(10,188)



$

129,846



$

133,239



$

(587)



$

(1,171)



$

134,997




















Diluted earnings (loss) per share:

$

1.13



$

(0.11)



$

(0.11)



$

1.35



$

1.37



$

(0.01)



$

(0.01)



$

1.39




(1) Represents the amortization of intangible assets related to the Company's OGIO and TravisMathew acquisitions 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.

(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

Non-GAAP Reconciliation and Supplemental Financial Information

(Unaudited)

(In thousands)






2019 Adjusted EBITDA


2018 Adjusted EBITDA


Quarter Ended


Quarter Ended


March 31,


June 30,


September 30,




March 31,


June 30,


September 30,




2019


2019


2019


Total


2018


2018


2018


Total

Net income

$

48,647



$

28,931



$

31,048



$

108,626



$

62,855



$

60,867



$

9,517



$

133,239


Interest expense, net

9,639



10,260



9,545



29,444



1,528



1,661



1,056



4,245


Income tax provision

9,556



7,208



2,128



18,892



17,219



17,247



1,335



35,801


Depreciation and amortization expense

7,977



9,022



8,472



25,471



4,737



5,029



4,996



14,762


Non-cash stock compensation expense

3,435



3,530



2,513



9,478



2,999



3,465



3,511



9,975


Acquisitions & other non-recurring costs, before taxes

13,986



6,939



3,009



23,934







1,521



1,521


Adjusted EBITDA

$

93,240



$

65,890



$

56,715



$

215,845



$

89,338



$

88,269



$

21,936



$

199,543


 






















2019 Trailing Twelve Month Adjusted EBITDA


2018 Trailing Twelve Month Adjusted EBITDA


Quarter Ended


Quarter Ended


December 31,


March 31,


June 30,


September 30,




December 31,


March 31,


June 30,


September 30,




2018


2019


2019


2019


Total


2017


2018


2018


2018


Total

Net income (loss)

$

(28,499)



$

48,647



$

28,931



$

31,048



$

80,127



$

(19,386)



$

62,855



$

60,867



$

9,517



$

113,853


Interest expense, net

704



9,639



10,260



9,545



30,148



2,004



1,528



1,661



1,056



6,249


Income tax provision (benefit)

(9,783)



9,556



7,208



2,128



9,109



(4,354)



17,219



17,247



1,335



31,447


Depreciation and amortization expense

5,186



7,977



9,022



8,472



30,657



4,799



4,737



5,029



4,996



19,561


Non-cash stock compensation expense

3,555



3,435



3,530



2,513



13,033



3,064



2,999



3,465



3,511



13,039


Acquisitions & other non-recurring costs, before taxes

(2,269)



13,986



6,939



3,009



21,665



1,677







1,521



3,198


Adjusted EBITDA

$

(31,106)



$

93,240



$

65,890



$

56,715



$

184,739



$

(12,196)



$

89,338



$

88,269



$

21,936



$

187,347


 

CALLAWAY GOLF COMPANY

Supplemental Financial Information Used In Non-GAAP Guidance

(Unaudited)











Diluted Loss Per
Share


Diluted
Earnings/(Loss) per
Share


Fourth
Quarter
2019


Full
Year
2019


Fourth
Quarter
2018


Full
Year
2018

Amortization of purchase accounting items(1)








TravisMathew/OGIO

$



$

(0.01)



$



$

(0.01)


Jack Wolfskin

(0.01)



(0.12)







$

(0.01)



$

(0.13)



$



$

(0.01)










Acquisition and Other Non-Recurring Costs(2)








Acquisition/Other

$

(0.03)



$

(0.10)



$

(0.02)



$

(0.03)


Purchase price hedge (gain)/loss



(0.03)



0.04



0.04



$

(0.03)



$

(0.13)



$

0.02



$

0.01










Total

$

(0.04)



$

(0.26)



$

0.02



$




(1) 2018 and 2019 includes the amortization of intangible assets in connection with the Ogio and TravisMathew acquisitions completed in January and August 2017, respectively. 2019 also includes the amortization of intangible assets and inventory step-up in connection with the Jack Wolfskin acquisition completed in January 2019.

(2) Represents non-recurring transaction and transition costs associated with the acquisition Jack Wolfskin, in addition to other non-recurring advisory fees.

 

CALLAWAY GOLF COMPANY

2019 Guidance GAAP to Non-GAAP Reconciliation

(Unaudited)

(In thousands)



Twelve Months Ended December 31, 2019


GAAP


Non-Cash
Purchase
Accounting
Adjustments(2)


Acquisition &
Other Non-
Recurring
Expenses(3)


Non-GAAP

Gross margin

46.1

%


(0.6)

%


%


46.7

%









Operating expenses, net

$646



$5



$13



$628










Net income (loss) attributable to Callaway Golf Company

$76 - $82



($12)



($13)



$101 - $107










Diluted earnings (loss) per share:

$0.80 - $0.86



($0.13)



($0.13)



$1.06 - $1.12










Adjusted EBITDA(1)

$181 - $188



($11)



($16)



$208 - $215




(1) Adjusted EBITDA excludes from forecasted net income interest expense, taxes, depreciation and amortization expense, non-cash stock compensation expense, non-cash purchase accounting adjustments and acquisition and other non-recurring expenses.  A forecast of each of these line items is not available without unreasonable efforts due to the variability of these items and the inability to predict them with certainty.  Accordingly, we have not provided a further reconciliation of Adjusted EBITDA to GAAP net income.

(2) Represents the amortization of intangible assets related to the Company's OGIO and TravisMathew acquisitions 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.

(3)  Represents non-recurring transaction costs, including banker's fees, legal fees, consulting and travel, and transition costs, including consulting, audit fees and valuation services, associated with the acquisition of Jack Wolfskin, as well as other non-recurring advisory fees.

 

CALLAWAY GOLF COMPANY

Consolidated Net Sales by Product Category Reclassified For New Segment Presentation

(Unaudited)

(In thousands)


As of January 1, 2019, the Company changed the composition of its operating and reportable segments on the basis of golf equipment and soft goods products. For comparability purposes, the table below presents the Company's 2018 consolidated net sales by product category reclassified to conform with the new segment presentation in the comparable periods of 2019.



Reclassified





Three Months Ended


Year Ended


March 31, 2018


June 30, 2018


September 30, 2018


December 31, 2018


December 31, 2018

Net sales:















Golf Clubs

$

257,441


63.9

%


$

232,802


58.7

%


$

142,396


54.2

%


$

84,654


46.9

%


$

717,293


57.7

%

Golf Balls

54,922


13.6

%


65,882


16.6

%


44,661


17.0

%


30,189


16.7

%


195,654


15.7

%

Apparel

12,149


3.0

%


30,779


7.8

%


27,340


10.4

%


27,718


15.3

%


97,986


7.9

%

Gear and Other

78,679


19.5

%


66,848


16.9

%


48,257


18.4

%


38,117


21.1

%


231,901


18.7

%


$

403,191


100.0

%


$

396,311


100.0

%


$

262,654


100.0

%


$

180,678


100.0

%


$

1,242,834


100.0

%

 

Callaway Golf Company Logo. (PRNewsFoto/Callaway Golf Company) (PRNewsfoto/Callaway Golf Company)

 

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SOURCE Callaway Golf Company