CARLSBAD, Calif., Oct. 25, 2017 /PRNewswire/ -- Callaway Golf Company (NYSE:ELY) announced today its third quarter 2017 financial results and increased its full year 2017 net sales and earnings guidance.

In the third quarter of 2017, as compared to the same period in 2016, the Company's net sales increased $56 million (30%) to $244 million. This increase was led by increases in all operating segments, namely Golf Clubs (+ 21%), Golf Balls (+20%), and Gear, Accessories and Other (+72%) as well as increases in each reporting region, namely the United States (+33%), Europe (+23%), Japan (+28%), Rest of Asia (+28%), and other countries (+23%). The increase in the Golf Clubs and Golf Balls segments reflects the continued success of the Company's EPIC line of products as well as the Chrome Soft golf ball franchise. The increase in Gear, Accessories and Other primarily reflects the successful acquisitions of the OGIO and TravisMathew brands which were completed in 2017. 

As a result of this significant increase in sales, as well as a 110 basis point improvement in gross margins, the Company recognized a significant improvement in profitability during the third quarter of 2017. Due to the seasonality of the Company's business, the Company often reports a loss for the third quarter. However, in the third quarter of 2017, the Company reported an $11 million increase in operating income to $6 million as compared to an operating loss of ($5) million in the third quarter of 2016. Furthermore, the Company's diluted earnings per share increased $0.09 to $0.03 for the third quarter of 2017 compared to a ($0.06) loss per share for the comparable period of 2016.  

"Our third quarter results continue what has been a tremendous year for Callaway," commented Chip Brewer, President and Chief Executive Officer of Callaway Golf Company. "On a year-to-date basis compared to the same period in 2016, our sales have increased $150 million (21%), our gross margins have increased 130 basis points, and our Adjusted EBITDA has increased 69%. Furthermore, our success over the last couple of years has allowed us to reinvest in our business, including investments in our golf ball plant, and in sales, marketing and research and development, and it has provided us with the wherewithal to acquire the OGIO and TravisMathew brands. We believe these investments and acquisitions will provide benefits for years to come." 

"Looking forward, we are pleased that our year-to-date performance has allowed us to increase our full year sales and earnings guidance," continued Mr. Brewer. "We also continue to be cautiously optimistic about the golf industry overall, thanks to what we believe are improving fundamentals. Lastly, our brand momentum remains strong and we believe we are the #1 club and # 1 hard goods market share brand in every major region around the world." 

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 on a more comparable tax basis as described below.  

This non-GAAP information presents the Company's financial results for the third quarter and first nine months of 2017 excluding the non-recurring deal-related expenses for the OGIO and TravisMathew acquisitions.

Additionally, the first nine months presentation of non-GAAP results excludes from the 2016 results a gain of $18 million from the sale of a small portion of the Company's Topgolf investment. Lastly, because of the Company's prior deferred tax valuation allowance, the Company did not recognize U.S. income tax expense during the first nine months of 2016 and its income tax provision and after-tax income and earnings are therefore not calculated on the same basis as in the first nine months of 2017. In order to make 2016 more comparable to 2017 for evaluation purposes, the Company has also presented 2016 interim period results on a non-GAAP basis by applying an estimated income tax rate of 38.5%. Most of the valuation allowance was reversed in the fourth quarter of 2016. Excluding the reversal, the Company's full year 2016 effective tax rate was 41.1%. The Company also provided information concerning its earnings before interest, taxes, depreciation and amortization expense, the non-recurring OGIO and TravisMathew deal-related costs and the Topgolf gain ("Adjusted EBITDA").

The manner in which this non-GAAP information is derived is discussed in more detail 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 2017 Financial Results

The Company announced the following GAAP and non-GAAP financial results for the third quarter of 2017 (in millions, except gross margin and EPS):

2017 RESULTS (GAAP)

NON-GAAP PRESENTATION

Q3
2017

Q3
2016

Change

Q3 2017
 non-GAAP

Q3 2016
non-GAAP

Change

Net Sales

$244

$188

$56

$244

$188

$56

Gross Profit
Gross Margin

$105
43.1%

$79
42.0%

$26
110 b.p.

$106
43.4%

$79
42.0%

$27
140 b.p.

Operating Expenses

$99

$84

$15

$96

$84

$12

Operating Income/(Loss)

$6

($5)

$11

$9

($5)

$14

Income Tax Provision

$1

$1

$0

$3

($2)

$5

Net Income/(Loss)

$3

($6)

$9

$5

($3)

$8

Diluted EPS

$0.03

($0.06)

$0.09

$0.05

($0.03)

$0.08




Q3 2017

Q3 2016

Change



Adjusted EBITDA

$13

$0

$13

For the third quarter of 2017, the Company's net sales increased $56 million to $244 million compared to $188 million for the same period in 2016. The 30% increase in net sales is attributable to the strength of the Company's 2017 product line, including continued success of the current year EPIC driver and fairway woods, increased golf ball sales, and increased net sales of gear, accessories and other primarily as a result of the Company's recent acquisitions of OGIO and TravisMathew.  For the fourth consecutive quarter, net sales increased in all major regions and reflected market share gains in those regions.

For the third quarter of 2017, the Company's gross margin was 43.1% compared to third quarter 2016 gross margin of 42.0%. The 110 basis point increase was primarily due to a favorable shift in product mix toward the higher margin EPIC woods and irons combined with overall higher average selling prices.

Operating expenses increased $15 million to $99 million in the third quarter of 2017 compared to $84 million for the same period in 2016. This increase is primarily due to the addition in 2017 of operating expenses from the consolidation of the OGIO and TravisMathew businesses, higher variable expense due to the increase in sales and $3 million in TravisMathew and OGIO non-recurring deal-related expenses. 

Third quarter 2017 earnings per share was $0.03, compared to a loss per share of ($0.06) for the third quarter of 2016.  On a non-GAAP basis, which excludes the impact of the non-recurring OGIO and TravisMathew deal-related expenses and applies an estimated tax rate of 38.5% to 2016 pre-tax income as discussed above, the Company would have reported earnings per share for the third quarter of 2017 of $0.05, compared to a loss per share of ($0.03) for the third quarter of 2016. 

Summary of First Nine Months 2017 Financial Results

The Company announced the following GAAP and non-GAAP financial results for the first nine months of 2017 (in millions, except gross margin and EPS):

2017 RESULTS (GAAP)

NON-GAAP PRESENTATION

Q3 YTD
2017

Q3 YTD
2016

Change

Q3 YTD 2017
non-GAAP

Q3 YTD 2016
non-GAAP

Change

Net Sales

$857

$707

$150

$857

$707

$150

Gross Profit
Gross Margin

$401
46.8%

$322
45.5%

$79
130 b.p.

$402
46.9%

$322
45.5%

$80
140 b.p.

Operating Expenses

$301

$261

$40

$293

$261

$32

Operating Income

$99

$61

$38

$109

$61

$48

Income Tax Provision

$31

$5

$26

$34

$21

$13

Net Income

$60

$67

($7)

$67

$33

$34

Diluted EPS

$0.62

$0.70

($0.08)

$0.69

$0.34

$0.35




Q3 YTD 2017

Q3 YTD 2016

Change



Adjusted EBITDA

$115

$68

$47

For the first nine months of 2017, the Company's net sales increased $150 million to $857 million compared to $707 million for the same period in 2016. The 21% increase in net sales is attributable to the strength of the Company's 2017 product line, including continued success of the current year EPIC driver and fairway woods, increased golf ball sales, and increased gear, accessories and other primarily as a result of the Company's acquisitions of TravisMathew, OGIO and the Company's apparel joint venture in Japan which was formed in July 2016. In the first nine months of 2017, net sales increased in all major regions and reflected market share gains in those regions.

For the first nine months of 2017, the Company's gross margin increased to 46.8% compared to 45.5% for the same period in 2016. The 130 basis point increase was primarily due to a favorable shift in product mix toward the higher margin EPIC woods and irons combined with overall higher average selling prices, less discounting and lower promotional activity.

Operating expenses increased $40 million to $301 million in the first nine months of 2017 compared to $261 million for the same period in 2016. This increase is primarily due to the addition in 2017 of operating expenses from the Japan apparel joint venture (which was formed in July 2016), higher variable expense due to the increase in sales and the consolidation of the OGIO and TravisMathew businesses, as well as $10 million in TravisMathew and OGIO non-recurring deal-related expenses. 

The first nine months 2017 earnings per share was $0.62, compared to $0.70 for the first nine months of 2016.  The decrease on a GAAP basis was caused by the $10 million of TravisMathew and OGIO non-recurring deal-related expenses in the first nine months of 2017, the $18 million Topgolf gain in the second quarter of 2016 and the difference in effective tax rates as the Company did not recognize U.S income tax in the first nine months of 2016 due to the Company's prior valuation allowance.  On a non-GAAP basis, which excludes the impact of the TravisMathew and OGIO non-recurring expenses, excludes the Topgolf gain and applies an estimated tax rate of 38.5% to 2016 pre-tax income as discussed above, the Company would have reported earnings per share for the first nine months of 2017 of $0.69, compared to earnings per share of $0.34 for the first nine months of 2016.  

Business Outlook for 2017

Basis for 2017 Non-GAAP Estimates. The Company's 2017 non-GAAP estimates exclude non-recurring deal-related expenses for the TravisMathew and OGIO acquisitions, which are estimated to be approximately $12 million for full year 2017. The amount incurred in the first nine months of 2017 was $10 million, which was in line with the Company's expectations.

Basis for 2016 Pro Forma Results.  In order to make the 2017 guidance more comparable to 2016, as discussed above, the Company has presented 2016 results on a pro forma basis by excluding from 2016 the prior $0.11 per share after-tax Topgolf gain. Furthermore, the Company excluded from full year 2016 the $1.63 per share non-recurring benefit from the reversal of most of the deferred tax valuation allowance and applied an actual 41.3% tax rate for 2016. 

Given the Company's strong financial performance during the third quarter of 2017 and the closing of the TravisMathew acquisition, the Company is increasing its full year financial guidance as follows (in millions, except gross margin and EPS):

Full Year 2017

Revised 2017
GAAP Estimate

Revised 2017
Non-GAAP Estimate

August 3, 2017
 Non-GAAP 
Estimate**

2016
 Pro Forma 
Results

Net Sales

$1,030 - $1,040

$1,030 - $1,040

$980 - $995

$871

Gross Margin

45.6%

45.8%

45.8%

44.2%

Operating Expenses

$400

$390

381

$341

Earnings Per Share

$0.39 - $0.43

$0.47 - $0.51

$0.40 - $0.45

$0.24

** This guidance was provided pre-acquisition and it did not include any TravisMathew results. Upon acquiring TravisMathew, the Company announced that TravisMathew was expected to provide in 2017 an additional $15 million in sales and would be $0.01 dilutive.

The Company currently estimates full year 2017 net sales of $1,030 - $1,040 million, which includes approximately $15-$20 million of TravisMathew sales.  This would result in net sales growth of 18% - 19% in 2017 compared to 2016. Incremental sales growth versus previous estimates is expected to be driven primarily by market share gains across all regions related to the Company's 2017 product line, the TravisMathew business and changes in foreign currency exchange rates. The Company currently estimates that changes in foreign currency rates will adversely affect projected 2017 net sales by approximately $10 million as compared to 2016 rates. The Company previously estimated that changes in foreign currency rates would adversely affect projected 2017 net sales by $12 million.  

The Company currently estimates that its 2017 gross margin will be in-line with the prior estimate. The Company estimates that its 2017 non-GAAP operating expenses will be $9 million higher than previous guidance due primarily to the addition of the TravisMathew business and there also will be slightly higher variable expense related to the projected increased sales.

The Company increased its 2017 non-GAAP earnings per share guidance to $0.47 - $0.51 due to the projected increase in net sales. The Company's 2017 earnings per share estimate assumes a tax rate of approximately 34.5% and a base of 96.5 million shares.

Conference Call and Webcast

The Company will be holding a conference call at 2:00 p.m. PDT 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. PDT on Wednesday, November 1, 2017.  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, as well as non-recurring OGIO and TravisMathew deal-related expenses and the second quarter 2016 gain realized from the sale of a small portion of the Company's Topgolf investment.

Other Adjustments. The Company presents certain of its financial results (i) excluding tax benefits received from the reversal of a significant portion of its deferred tax valuation allowance, (ii) excluding gains from the sale of a small portion of its Topgolf investment, (iii) excluding the non-recurring OGIO and TravisMathew deal-related expenses and (iv) by applying an assumed estimated statutory tax rate of 38.5% to interim period results for 2016.

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 or prospects, including statements relating to the Company's estimated 2017 sales, gross margins, operating expenses, and earnings per share (or related tax rate and share count), future industry or market conditions, and the assumed benefits to be derived from investments in the Company's core business or the OGIO and TravisMathew acquisitions, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. 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 and TravisMathew businesses or implementing the Company's growth strategy generally, any unfavorable changes in U.S. trade, tax or other policies, including restrictions on imports or an increase in import tariffs; consumer acceptance of and demand for the Company's products; 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 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, 2016 as well as other risks and uncertainties detailed from time to time in the Company's reports on Forms 10-K, 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
Through an unwavering commitment to innovation, Callaway Golf Company (NYSE:ELY) creates products designed to make every golfer a better golfer. Callaway Golf Company manufactures and sells golf clubs and golf balls, and sells bags, accessories and apparel in the golf and lifestyle categories, under the Callaway Golf®, Odyssey®, OGIO and TravisMathewbrands worldwide. For more information please visit www.callawaygolf.com, www.odysseygolf.com, www.ogio.com, and  www.travismathew.com.

Contacts:

Brian Lynch

Patrick Burke

(760) 931-1771

 

CALLAWAY GOLF COMPANY

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

(In thousands)


September 30,
2017

December 31,
2016

ASSETS










Current assets:




Cash and cash equivalents

$

82,021


$

125,975

Accounts receivable, net

152,420


127,863

Inventories

186,585


189,400

Other current assets

25,575


17,187

Total current assets

446,601


460,425






Property, plant and equipment, net

65,906


54,475

Intangible assets, net

280,442


114,324

Deferred taxes, net

83,149


114,707

Investment in golf-related venture

50,495


48,997

Other assets

9,390


8,354

Total assets

$

935,983


$

801,282






LIABILITIES AND SHAREHOLDERS' EQUITY










Current liabilities:




Accounts payable and accrued expenses

$

140,572


$

132,521

Accrued employee compensation and benefits

34,830


32,568

Asset-based credit facilities

70,618


11,966

Accrued warranty expense

7,550


5,395

Income tax liability

3,552


4,404

Total current liabilities

257,122


186,854






Long-term liabilities

6,709


5,828

Total Callaway Golf Company shareholders' equity

663,005


598,906

Non-controlling interest in consolidated entity

9,147


9,694

Total liabilities and shareholders' equity

$

935,983


$

801,282

 

CALLAWAY GOLF COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)


Three Months Ended
September 30,

2017

2016

Net sales

$

243,604

$

187,850

Cost of sales

138,702

108,975

Gross profit

104,902

78,875

Operating expenses:


Selling

65,754

55,869

General and administrative

23,957

19,851

Research and development

9,154

8,420

Total operating expenses

98,865

84,140

Income (loss) from operations

6,037

(5,265)

Other income (expense), net

(1,462)

820

Income (loss) before income taxes

4,575

(4,445)

Income tax provision

1,486

1,294

Net income (loss)

3,089

(5,739)

Less: Net income attributable to non-controlling interest

29

127

Net income (loss) attributable to Callaway Golf Company

$

3,060

$

(5,866)




Earnings (loss) per common share:


Basic

$

0.03

$

(0.06)

Diluted

$

0.03

$

(0.06)

Weighted-average common shares outstanding:


Basic

94,450

94,081

Diluted

96,879

94,081





Nine Months Ended
September 30,

2017

2016

Net sales

$

857,079

$

707,497

Cost of sales

456,297

385,597

Gross profit

400,782

321,900

Operating expenses:


Selling

205,618

183,543

General and administrative

68,976

52,484

Research and development

26,899

24,942

Total operating expenses

301,493

260,969

Income from operations

99,289

60,931

Gain on sale of investment in golf-related venture

—

17,662

Other expense, net

(8,104)

(7,205)

Income before income taxes

91,185

71,388

Income tax provision

30,742

4,632

Net income

60,443

66,756

Less: Net income attributable to non-controlling interest

251

127

Net income attributable to Callaway Golf Company

$

60,192

$

66,629




Earnings per common share:


Basic

$

0.64

$

0.71

Diluted

$

0.62

$

0.70

Weighted-average common shares outstanding:


Basic

94,246

94,021

Diluted

96,343

95,687

 

CALLAWAY GOLF COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW

(Unaudited)

(In thousands)


Nine Months Ended
September 30,

2017

2016

Cash flows from operating activities:


Net income

$

60,443

$

66,756

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


Depreciation and amortization

12,806

12,541

Inventory step-up from acquisitions

1,701

—

Deferred taxes, net

32,586

(370)

Share-based compensation

9,583

6,465

Loss (gain) on disposal of long-lived assets and deferred gain amortization

1,035

(117)

Gain on sale of investment in golf-related venture

—

(17,662)

Unrealized loss on foreign currency forward contracts

1,373

2,880

Changes in assets and liabilities

(8,742)

15,128

Net cash provided by operating activities

110,785

85,621




Cash flows from investing activities:


Acquisition, net of cash acquired

(181,824)

—

Capital expenditures

(16,846)

(12,163)

Proceeds from sale of property, plant and equipment

560

20

Proceeds from sale of investment in golf-related ventures

—

23,429

Proceeds from note receivable

—

3,104

Investments in golf-related venture

(1,499)

(1,560)

Net cash (used in) provided by investing activities

(199,609)

12,830




Cash flows from financing activities:


Proceeds from (repayments of) asset-based credit facilities, net

58,652

(14,969)

Acquisition of treasury stock

(16,479)

(5,133)

Dividends paid

(2,827)

(2,822)

Exercise of stock options

4,205

2,625

Distribution to non-controlling interest

(974)

—

Net cash provided by (used in) financing activities

42,577

(20,299)

Effect of exchange rate changes on cash and cash equivalents

2,293

(3,325)

Net (decrease) increase in cash and cash equivalents

(43,954)

74,827

Cash and cash equivalents at beginning of period

125,975

49,801

Cash and cash equivalents at end of period

$

82,021

$

124,628

 

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. 2016(2)

Nine Months Ended
 September 30,

Growth/(Decline)

Non-GAAP
Constant
Currency
vs. 2016(2)

2017

2016(1)

Dollars

Percent

Percent

2017

2016(1)

Dollars

Percent

Percent

Net sales:


















Woods

$

65,846

$

39,332

$

26,514

67.4%

70.8%

$

262,697

$

183,162

$

79,535

43.4%

45.1%

Irons

60,830

64,305

(3,475)

-5.4%

-4.8%

202,126

224,363

(22,237)

-9.9%

-9.0%

Putters

19,437

17,591

1,846

10.5%

12.0%

71,172

73,215

(2,043)

-2.8%

-1.8%

Golf balls

39,071

32,640

6,431

19.7%

19.6%

136,062

121,052

15,010

12.4%

13.0%

Gear/Accessories/Other

58,420

33,982

24,438

71.9%

76.5%

185,022

105,705

79,317

75.0%

77.5%

$

243,604

$

187,850

$

55,754

29.7%

31.5%

$

857,079

$

707,497

$

149,582

21.1%

22.4%

(1) The Company changed its operating segments as of January 1, 2017. Accordingly, prior period amounts have been reclassified to conform with the current period presentation.

(2) Calculated by applying 2016 exchange rates to 2017 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. 2016(1)

Nine Months Ended
September 30,

Growth

Non-GAAP
Constant
Currency
vs. 2016(1)

2017

2016

Dollars

Percent

Percent

2017

2016

Dollars

Percent

Percent

Net Sales


















United States

$

123,817

$

92,943

$

30,874

33.2%

33.2%

$

472,052

$

380,173

$

91,879

24.2%

24.2%

Europe

32,470

26,347

6,123

23.2%

20.5%

118,566

101,171

17,395

17.2%

22.4%

Japan

53,062

41,358

11,704

28.3%

38.8%

147,431

121,187

26,244

21.7%

25.9%

Rest of Asia

20,384

15,897

4,487

28.2%

29.1%

62,963

51,843

11,120

21.4%

19.8%

Other foreign countries

13,871

11,305

2,566

22.7%

20.0%

56,067

53,123

2,944

5.5%

4.9%

$

243,604

$

187,850

$

55,754

29.7%

31.5%

$

857,079

$

707,497

$

149,582

21.1%

22.4%




















(1) Calculated by applying 2016 exchange rates to 2017 reported sales in regions outside the U.S.





























Operating Segment Information


Operating Segment Information


Three Months Ended
September 30,

Growth


Nine Months Ended
September 30,

Growth


2017

2016(1)

Dollars

Percent


2017

2016(1)

Dollars

Percent

Net Sales


















Golf Club

$

146,113

$

121,228

$

24,885

20.5%


$

535,995

$

480,740

$

55,255

11.5%

Golf Ball

39,071

32,640

6,431

19.7%


136,062

121,052

15,010

12.4%

Gear/Accessories/Other

58,420

33,982

24,438

71.9%


185,022

105,705

79,317

75.0%


$

243,604

$

187,850

$

55,754

29.7%


$

857,079

$

707,497

$

149,582

21.1%





















Income (loss) before income taxes:




















Golf clubs

$

10,420

$

2,224

$

8,196

368.5%


$

83,818

$

55,638

$

28,180

50.6%

Golf balls

5,040

3,845

1,195

31.1%


27,500

21,985

5,515

25.1%

Gear/Accessories/Other

6,420

595

5,825

979.0%


27,916

16,753

11,163

66.6%

Reconciling items(2)

(17,305)

(11,109)

(6,196)

-55.8%


(48,049)

(22,988)

(25,061)

-109.0%


$

4,575

$

(4,445)

$

9,020

202.9%


$

91,185

$

71,388

$

19,797

27.7%





















(1) The Company changed its operating segments as of January 1, 2017. 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.

 

CALLAWAY GOLF COMPANY

Supplemental Financial Information and Non-GAAP Reconciliation

(Unaudited)

(In thousands)


Three months ended September 30, 2017

Three months ended September 30, 2016

As
Reported

Acquisition
Costs(1)

Non-GAAP

As
Reported

Non-Cash Tax
Adjustment(2)

Non-GAAP

Net sales

$

243,604

$

—

$

243,604

$

187,850

$

—

$

187,850

Gross profit

104,902

(798)

105,700

78,875

—

78,875

% of sales

43.1

%

—

43.4

%

42.0

%

—

42.0

%

Operating expenses

98,865

2,579

96,286

84,140

—

84,140

Income (loss) from operations

6,037

(3,377)

9,414

(5,265)

—

(5,265)

Other income (expense), net

(1,462)

—

(1,462)

820

—

820

Income (loss) before income taxes

4,575

(3,377)

7,952

(4,445)

—

(4,445)

Income tax provision (benefit)

1,486

(1,134)

2,620

1,294

3,005

(1,711)

Net income (loss)

3,089

(2,243)

5,332

(5,739)

(3,005)

(2,734)

Less: Net income attributable to non-controlling interest

29

—

29

127

—

127

Net income (loss) attributable to Callaway Golf Company

$

3,060

$

(2,243)

$

5,303

$

(5,866)

$

(3,005)

$

(2,861)














Diluted earnings (loss) per share:

$

0.03

$

(0.02)

$

0.05

$

(0.06)

$

(0.03)

$

(0.03)

Weighted-average shares outstanding:

96,879

96,879

96,879

94,081

94,081

94,081



(1)

Represents non-recurring costs associated with the acquisitions of Ogio International, Inc in January 2017, and TravisMathew in August 2017.

(2)

The Company had a valuation allowance on its U.S. deferred tax assets in the third quarter of 2016, which resulted in no federal U.S. tax expense for the quarter. In the fourth quarter of 2016, the Company reversed a significant portion of the valuation allowance and recognized income taxes on its U.S. operations that were retroactive for all of 2016. For comparability to the third quarter of 2017, the Company applied an estimated statutory tax rate of 38.5% to calculate pro-forma results for the third quarter of 2016.

 

CALLAWAY GOLF COMPANY

Supplemental Financial Information and Non-GAAP Reconciliation

(Unaudited)

(In thousands)


Nine Months Ended September 30, 2017

Nine Months Ended September 30, 2016


As
Reported

Acquisition
Costs(1)

Non-GAAP

As Reported

Non-Cash Tax
Adjustment(2)

Topgolf
Gain(3)

Non-GAAP

Net sales

$

857,079

$

—

$

857,079

$

707,497

$

—

$

—

$

707,497


Gross profit

400,782

(798)

401,580

321,900

—

—

321,900


% of sales

46.8

%

—

46.9

%

45.5

%

—

—

45.5

%

Operating expenses

301,493

8,789

292,704

260,969

—

—

260,969


Income (loss) from operations

99,289

(9,587)

108,876

60,931

—

—

60,931


Other income (expense), net

(8,104)

—

(8,104)

10,457

—

17,662

(7,205)


Income (loss) before income taxes

91,185

(9,587)

100,772

71,388

—

17,662

53,726


Income tax provision (benefit)

30,742

(3,232)

33,974

4,632

(23,241)

7,188

20,685


Net income (loss)

60,443

(6,355)

66,798

66,756

23,241

10,474

33,041


Less: Net income attributable to non-controlling interest

251

—

251

127

—

—

127


Net income (loss) attributable to Callaway Golf Company

$

60,192

$

(6,355)

$

66,547

$

66,629

$

23,241

$

10,474

$

32,914


















Diluted earnings (loss) per share:

$

0.62

$

(0.07)

$

0.69

$

0.70

$

0.25

$

0.11

$

0.34


Weighted-average shares outstanding:

96,343

96,343

96,343

95,687

95,687

95,687

95,687




(1)

Represents non-recurring costs associated with the acquisitions of Ogio International, Inc in January 2017, and TravisMathew in August 2017.

(2)

The Company had a valuation allowance on its U.S. deferred tax assets in the first nine months of 2016, which resulted in federal U.S. tax expense for the nine months ended September 30, 2016. In the fourth quarter of 2016, the Company reversed a significant portion of the valuation allowance and recognized income taxes on its U.S. operations that were retroactive for all of 2016. For comparability to 2017, the Company applied an estimated statutory tax rate of 38.5% to calculate pro-forma results for the nine months ended September 30, 2016.

(3)

Represents a gain on the sale of a small portion of the Company's Topgolf investment as well as the income tax impact on the gain. The application of income taxes on this gain is for presentation purposes only. At the time the gain was recognized in the first nine months of 2016, the Company did not recognize income taxes on its U.S. operations due to the valuation allowance on its U.S. deferred tax assets. As mentioned above, a significant portion of this valuation allowance was reversed in the fourth quarter of 2016, and the Company recognized income taxes on its U.S. operations that were retroactive for all of 2016.

 

CALLAWAY GOLF COMPANY

Supplemental Financial Information and Non-GAAP Reconciliation

(Unaudited)

(In thousands)






















2017 Trailing Twelve Month Adjusted EBITDA

2016 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,


2016

2017

2017

2017

Total

2015

2016

2016

2016

Total

Net income (loss)

$

123,271

$

25,689

$

31,443

$

3,060

$

183,463

$

(30,452)

$

38,390

$

34,105

$

(5,866)

$

36,177

Interest expense, net

348

715

550

642

2,255

868

621

347

431

2,267

Income tax provision (benefit)

(137,193)

13,206

16,050

1,486

(106,451)

493

1,401

1,937

1,294

5,125

Depreciation and amortization expense

4,045

4,319

4,178

4,309

16,851

4,029

4,157

4,180

4,204

16,570

EBITDA

$

(9,529)

$

43,929

$

52,221

$

9,497

$

96,118

$

(25,062)

$

44,569

$

40,569

$

63

$

60,139

Gain on sale of Topgolf investments

—

—

—

—

—

—

—

(17,662)

—

(17,662)

Ogio & TravisMathew acquisition costs

—

3,956

2,254

3,377

9,587

—

—

—

—

—

Adjusted EBITDA

$

(9,529)

$

47,885

$

54,475

$

12,874

$

105,705

$

(25,062)

$

44,569

$

22,907

$

63

$

42,477

 

CALLAWAY GOLF COMPANY

Reconciliation of Non-GAAP 2016 Results

(Unaudited)

(In thousands)


Year Ended December 31, 2016

As
Reported

Release of
Tax VA(1)

Topgolf
Gain(2)

Pro-Forma(3)

Net sales

$

871,192

$

—

$

—

$

871,192

Gross profit

385,011

—

—

385,011

% of sales

44.2

%

—

—

44.2

%

Operating expenses

340,843

—

—

340,843

Income from operations

44,168

—

—

44,168

Other income (expense), net

14,225



17,662

(3,437)

Income before income taxes

58,393

—

17,662

40,731

Income tax provision (benefit)

(132,561)

(156,588)

7,188

16,839

Net income

190,954

156,588

10,474

23,892

Less: Net income attributable to non-controlling interest

1,054

—

—

1,054

Net income attributable to Callaway Golf Company

$

189,900

$

156,588

$

10,474

$

22,838








Diluted earnings per share:

$

1.98

$

1.63

$

0.11

$

0.24

Weighted-average shares outstanding:

95,845

95,845

95,845

95,845



(1)

Non-cash tax benefit due to the reversal of a significant portion of the Company's deferred tax valuation allowance.

(2)

Represents a gain on the sale of a small portion of the Company's Topgolf investment as well as the income tax impact on the gain due to the reversal of the Company's deferred tax valuation allowance in Q4 of 2016.

(3)

In order to make the 2017 guidance more comparable to 2016 with regard to the underlying performance of the Company's business, the Company has recast its 2016 results on a pro-forma basis. The 2016 Non-GAAP Results exclude (i) the $156.6 million ($1.63 per share) benefit from the reversal of the deferred tax valuation allowance, and (ii) the $10.5 million ($0.11 per share) after-tax Topgolf gain, and applies an actual 41.3% tax rate for 2016.

 

CALLAWAY GOLF COMPANY
Consolidated Net Sales by Product Category Reclassified For New Segment Presentation
(Unaudited)
(In thousands)

Effective January 1, 2017, the Company changed its operating segments and established a new operating segment, Gear, Accessories and Other. As a result of this change, the Golf Clubs operating segment is now comprised of the woods, irons and putters product categories, and the Golf Ball operating segment is comprised of golf balls. The accessories and other product category, which was previously reported within the Golf Clubs operating segment, is now included in the new Gear, Accessories and Other operating segment. Accordingly, as a result of this change, net sales by product category for 2016 and all interim periods therein were reclassified to conform with the new operating segment presentation as follows: (i) sales of pre-owned clubs, which were previously in accessories and other, are now reported by product type within woods, irons and putters; (ii) sales of packaged sets, which were previously reported in accessories and other, are now reported within irons; and (iii) sales of golf apparel and footwear, golf bags, golf gloves, travel gear, headwear and other golf-related accessories, retail apparel sales from the Company's joint venture in Japan, in addition to royalties from licensing of the Company's trademarks and service marks for various soft goods, which were previously reported in accessories and other, are now reported in the Gear, Accessories and Other operating segment.

The table below represents the Company's 2016 consolidated net sales by product category as previously reported.

Three Months Ended

Year Ended

March 31, 2016

June 30, 2016

September 30, 2016

December 31, 2016

December 31, 2016

Net sales:













Woods

$

86,070

31.4

%

$

50,478

20.6

%

$

35,733

19.0

%

$

29,532

18.0

%

$

201,813

23.2

%

Irons

59,232

21.6

%

63,416

25.8

%

50,272

26.8

%

39,027

23.8

%

211,947

24.3

%

Putters

29,750

10.9

%

25,013

10.2

%

17,290

9.2

%

13,989

8.5

%

86,042

9.9

%

Golf balls

41,416

15.1

%

46,996

19.1

%

32,640

17.4

%

31,205

19.1

%

152,257

17.5

%

Gear, accessories and other

57,585

21.0

%

59,691

24.3

%

51,915

27.6

%

49,942

30.5

%

219,133

25.2

%

$

274,053

100.0

%

$

245,594

100.0

%

$

187,850

100.0

%

$

163,695

100.0

%

$

871,192

100.0

%

The table below represents the Company's 2016 consolidated net sales by product category reclassified to conform with the new segment presentation in the comparable periods of 2017.

Reclassified



Three Months Ended

Year Ended

March 31, 2016

June 30, 2016

September 30, 2016

December 31, 2016

December 31, 2016

Net sales:













Woods

$

89,248

32.6

%

$

54,582

22.2

%

$

39,332

20.9

%

$

33,024

20.2

%

$

216,186

24.8

%

Irons

75,600

27.6

%

84,458

34.4

%

64,305

34.2

%

54,105

33.1

%

278,468

32.0

%

Putters

30,213

11.0

%

25,411

10.3

%

17,591

9.4

%

14,513

8.9

%

87,728

10.1

%

Golf balls

41,416

15.1

%

46,996

19.1

%

32,640

17.4

%

31,205

19.1

%

152,257

17.5

%

Gear, accessories and other

37,576

13.7

%

34,147

13.9

%

33,982

18.1

%

30,848

18.8

%

136,553

15.7

%

$

274,053

100.0

%

$

245,594

100.0

%

$

187,850

100.0

%

$

163,695

100.0

%

$

871,192

100.0

%









 

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

 

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SOURCE Callaway Golf Company

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