Callaway Golf Company Announces Second Quarter 2017 Financial Results Including A 24% Increase In Net Sales; Callaway Increas...

Date : 08/03/2017 @ 4:20PM
Source : PR Newswire (US)
Stock : Callaway Golf Company (ELY)
Quote : 20.67  0.11 (0.54%) @ 12:06AM
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Callaway Golf Company Announces Second Quarter 2017 Financial Results Including A 24% Increase In Net Sales; Callaway Increas...

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CARLSBAD, Calif., Aug. 3, 2017 /PRNewswire/ -- Callaway Golf Company (NYSE:ELY) announced today its second quarter 2017 financial results and increased its full year 2017 net sales and earnings guidance.

In the second quarter of 2017, as compared to the same period in 2016, the Company's net sales increased $59 million (24%) to $305 million. This increase was led by a 64% increase in sales of woods, primarily due to strong sales of the EPIC line of woods, and a 74% increase in gear, accessories and other, primarily due to the addition of the new business ventures, OGIO and the Japan apparel joint venture. The overall increase in net sales reflects the Company's continued brand momentum and increased hard goods market share, as well as increased sales in all operating segments and in all reporting geographic regions.

In addition to the sales increase, the Company also recognized a significant increase in operating income. The Company's 2017 second quarter operating income increased 135% to $49 million as compared to the second quarter of 2016. The Company's diluted earnings per share was $0.33 for the second quarter of 2017 compared to $0.36 for the comparable period in 2016 (which included a $17.7 million gain on the sale of a small portion of the Company's Topgolf investment). In addition, as a result of the Company's prior deferred tax valuation allowance, the Company did not recognize U.S. income tax expense in the second quarter of 2016. On a non-GAAP basis (which excludes from 2017 the $2.3 million of OGIO non-recurring transaction and transition expenses and from 2016 the Topgolf gain, and which applies an estimated non-GAAP tax rate of 38.5% for the second quarter of 2016), the Company's earnings per share for the second quarter of 2017 increased to $0.34 as compared to $0.12 for the comparable period in 2016.     

As a result of this better than expected second quarter performance and expectations for continued brand momentum for the second half of the year, the Company increased its full year sales guidance to $980 - $995 million as compared to its prior guidance of $960 - $980 million. The Company also increased its full year non-GAAP earnings per share guidance to $0.40 - $0.45 compared to prior guidance of $0.31 - $0.37. The full year non-GAAP guidance excludes an estimated $7 million ($0.05 per share) of non-recurring OGIO transaction and transition expenses but does not include any effect from the pending acquisition announced earlier today.

"We are very pleased with our 2017 first half performance," commented Chip Brewer, President and Chief Executive Officer of Callaway Golf Company. "This year's product line-up, including the EPIC driver and Chrome Soft golf ball franchise, has resonated strongly with golfers. As a result, our brand momentum has increased and our hard goods market share has increased in every major region, resulting in double-digit net sales growth and double-digit EBITDA growth. Furthermore, our new ventures, namely the apparel joint venture in Japan and the OGIO business, continue to perform well. We are also very pleased to announce our agreement to acquire TravisMathew. It is an exceptional high-growth golf and lifestyle apparel company that fits extremely well with our business, growth strategy, brands and culture. Moving into the second half of the year, we are cautiously optimistic about the golf industry overall and very excited about TravisMathew becoming a part of Callaway."  

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 these non-recurring items and on a more comparable tax basis.  

This non-GAAP information presents the Company's financial results for the second quarter and first half of 2017 excluding the non-recurring transaction and transition expenses related to the OGIO acquisition. Additionally, during the second quarter of 2016, the Company sold a small portion of its Topgolf investment and recognized a gain of $18 million, which is excluded from the non-GAAP presentation. Lastly, because of the Company's prior deferred tax valuation allowance, the Company did not recognize U.S. income tax expense during the second quarter of 2016 and its income tax provision and after-tax income and earnings are therefore not calculated on the same basis as in the second quarter of 2017. In order to make 2016 more comparable to 2017 for evaluation purposes, the Company has presented 2016 results on a non-GAAP basis by applying an estimated income tax rate of 38.5% as compared to the actual second quarter and first half 2016 effective tax rates of 5.4% and 4.4%, respectively. 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 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 Second Quarter 2017 Financial Results

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

2017 RESULTS (GAAP)


NON-GAAP PRESENTATION


Q2
2017

Q2

2016

Change


Q2 2017
non-GAAP

Q2 2016
non-GAAP

Change

Net Sales

$305

$246

$59


$305

$246

$59

Gross Profit
Gross Margin

$148
48.7%

$111
45.0%

$37
370 b.p.


$148
48.7%

$111
45.0%

$37
370 b.p.

Operating Expenses

$99

$90

$9


$97

$90

$7

Operating Income

$49

$21

$28


$51

$21

$30

Income Tax Provision

$16

$2

$14


$17

$7

$10

Net Income

$31

$34

($3)


$33

$11

$22

EPS

$0.33

$0.36

($0.03)


$0.34

$0.12

$0.22




Q2 2017

Q2 2016

Change




Adjusted EBITDA

$54

$23

$31



For the second quarter of 2017, the Company's net sales increased $59 million to $305 million compared to $246 million for the same period in 2016. The 24% 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, including the new Chrome Soft X ball, and increased net sales of gear, accessories and other as a result of the Company's acquisition of OGIO in the first quarter of 2017 and the new apparel joint venture in Japan, which was formed in the third quarter of 2016. For the second consecutive quarter, net sales increased in all major regions and reflected market share gains in those regions.

For the second quarter of 2017, the Company's gross margin was 48.7% compared to second quarter 2016 gross margin of 45.0%. The 370 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. The increases were partially offset by the different economics of the apparel joint venture and the OGIO business, which have lower gross margins and lower relative operating expenses as compared to the Company's golf equipment business. 

Operating expenses increased $9 million to $99 million in the second quarter of 2017 compared to $90 million for the same period in 2016. This increase is due to the addition in 2017 of operating expenses from the Japan joint venture and the consolidation of OGIO, as well as $2 million in non-recurring OGIO transaction and transition expenses. 

Second quarter 2017 earnings per share was $0.33, compared to $0.36 for the second quarter of 2016.  The decrease on a GAAP basis was caused by the $2 million OGIO transaction and transition expenses in the second quarter of 2017, the $18 million Topgolf gain in 2016 and the difference in effective tax rates. On a non-GAAP basis, which excludes the impact of the non-recurring OGIO transaction and transition expenses, excludes the Topgolf gain in 2016 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 second quarter of 2017 of $0.34, compared to earnings per share of $0.12 for the second quarter of 2016. 

Summary of First Half 2017 Financial Results

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

2017 RESULTS (GAAP)


NON-GAAP PRESENTATION


1H
2017

1H
2016

Change


1H 2017
non-GAAP

1H 2016
non-GAAP

Change

Net Sales

$613

$520

$93


$613

$520

$93

Gross Profit
Gross Margin

$296
48.2%

$243
46.8%

$53
140 b.p.


$296
48.2%

$243
46.8%

$53
140 b.p.

Operating Expenses

$203

$177

$26


$196

$177

$19

Operating Income

$93

$66

$27


$99

$66

$33

Income Tax Provision

$29

$3

$26


$31

$22

$9

Net Income

$57

$72

($15)


$61

$36

$25

EPS

$0.59

$0.76

($0.17)


$0.64

$0.37

$0.27




1H 2017

1H 2016

Change




Adjusted EBITDA

$102

$67

$35



For the first half of 2017, the Company's net sales increased $93 million to $613 million compared to $520 million for the same period in 2016. The 18% 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, including the new Chrome Soft X ball, and increased gear, accessories and other as a result of the Company's acquisition of OGIO in the first quarter of 2017 and the new apparel joint venture in Japan, which was formed in the third quarter of 2016. In the first half of 2017, net sales increased in all major regions and reflected market share gains in those regions.

For the first half of 2017, the Company's gross margin increased to 48.2% compared to first half 2016 gross margin of 46.8%. The 140 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. The increases were partially offset by the different economics of the Japan apparel joint venture and the OGIO business discussed above. 

Operating expenses increased $26 million to $203 million in the first half of 2017 compared to $177 million for the same period in 2016. This increase is due to the addition in 2017 of operating expenses from the Japan apparel joint venture and the consolidation of OGIO, as well as $6 million in non-recurring OGIO transaction and transition expenses. 

First half 2017 earnings per share was $0.59, compared to $0.76 for the first half of 2016.  The decrease on a GAAP basis was caused by the $6 million OGIO transaction and transition expenses in the first half of 2017, the $18 million Topgolf gain in the first half of 2016 and the difference in effective tax rates. On a non-GAAP basis, which excludes the impact of the non-recurring OGIO 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 second quarter of 2017 of $0.64, compared to earnings per share of $0.37 for the first half of 2016.  

Business Outlook for 2017

Basis for 2017 GAAP Estimates. The Company's 2017 GAAP estimates exclude the financial impact of the recently announced pending acquisition of TravisMathew, LLC, which is estimated to be approximately $10-15 million in net sales assuming the transaction closes in the third quarter of 2017. Including approximately $5 million of estimated transaction expenses and incremental non-cash expense resulting from the acquisition purchase accounting adjustments, TravisMathew is expected to be $0.04 dilutive to the Company's earnings per share for 2017.

Basis for 2017 Non-GAAP Estimates. The Company's 2017 non-GAAP estimates exclude non-recurring transaction and transition expenses related to the OGIO acquisition, which are estimated to be approximately $7 million for full year 2017. The amount incurred in the first half of 2017 was $6 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 the deferred tax valuation allowance. 

Given the Company's financial performance during the second quarter of 2017, 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*

Previous 2017
Non-GAAP 
Estimate

2016
Pro Forma 
Results

Net Sales

$980 - $995

$980 - $995

$960 - $980

$871

Gross Margin

45.8%

45.8%

45.2%

44.2%

Operating Expenses

$388

$381

$383

$341

Earnings Per Share

$0.35 - $0.40

$0.40 - $0.45

$0.31 - $0.37

$0.24

*Excludes the financial impact of the recently announced pending TravisMathew acquisition.

The Company currently estimates full year 2017 net sales of $980 - $995 million. This would result in net sales growth of 13% - 14% in 2017 compared to 2016. Incremental sales growth versus previous estimates is expected to be driven primarily by market share gains related to the Company's 2017 product line. The Company currently estimates that changes in foreign currency rates will adversely affect projected 2017 net sales by approximately $12 million as compared to 2016 rates. The Company previously estimated that changes in foreign currency would adversely affect projected 2017 net sales by $16 million.  

The Company currently estimates that its 2017 gross margin will improve 60 basis points from the prior estimate. This increase is expected to be driven by continued favorable pricing, mix and operational efficiencies. The Company estimates that its 2017 non-GAAP operating expenses will decrease $2 million compared to prior estimates.

The Company increased its non-GAAP earnings per share to $0.40 - $0.45 due to the projected increase in net sales, improved gross margin and decrease in estimated operating expenses. The Company's 2017 earnings per share estimates assume a tax rate of approximately 34.5% and a base of 96 million shares.

Based on the current planned product launches for the remainder of 2017 and the year-over-year fourth quarter comparison with the 2016 Steelhead irons launch, the majority of the expected increase in net sales in the second half of 2017 is anticipated to occur in the third quarter.

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 Thursday, August 10, 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, and depreciation and amortization expenses, as well as non-recurring OGIO transaction and transition 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 expenses and (iv) by applying an assumed estimated statutory tax rate of 38.5%.

In addition, the Company has included in the schedules to this release a reconciliation of certain non-GAAP information to the most directly correlated 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), the estimated impact from changes in foreign currency rates, the estimated timing and amount of expenses related to the integration of the OGIO acquisition, and the estimated timing and financial impact of the pending TravisMathew transaction, 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 the risk that the TravisMathew transaction may not close on the terms or timing described, or at all; unanticipated difficulties or expenditures relating to the TravisMathew transaction or the realization of the anticipated synergies and other benefits; the response of customers, suppliers or others to the announcement of the transaction; potential difficulties in employee retention as a result of the transaction; any unfavorable changes in U.S. trade, tax or other policies, including restrictions on imports or an increase in import tariffs; delays, difficulties, or increased costs in integrating the acquired OGIO business or implementing the Company's growth strategy generally; 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®, and OGIO brands worldwide. For more information please visit www.callawaygolf.com, www.odysseygolf.com and www.ogio.com.

Contacts:

Brian Lynch


Patrick Burke


(760) 931-1771

 

CALLAWAY GOLF COMPANY

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

(In thousands)



June 30,
2017


December 31,
2016

ASSETS












Current assets:






Cash and cash equivalents


$

61,959




$

125,975


Accounts receivable, net


224,649




127,863


Inventories


171,780




189,400


Other current assets


23,645




17,187


Total current assets


482,033




460,425








Property, plant and equipment, net


60,654




54,475


Intangible assets, net


171,868




114,324


Deferred taxes, net


82,835




114,707


Investment in golf-related venture


48,997




48,997


Other assets


8,777




8,354


Total assets


$

855,164




$

801,282








LIABILITIES AND SHAREHOLDERS' EQUITY












Current liabilities:






Accounts payable and accrued expenses


$

144,978




$

132,521


Accrued employee compensation and benefits


27,323




32,568


Asset-based credit facilities


6,231




11,966


Accrued warranty expense


5,969




5,395


Income tax liability


3,491




4,404


Total current liabilities


187,992




186,854








Long-term liabilities


6,246




5,828


Total Callaway Golf Company shareholders' equity


651,794




598,906


Non-controlling interest in consolidated entity


9,132




9,694


Total liabilities and shareholders' equity


$

855,164




$

801,282


 

CALLAWAY GOLF COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)



Three Months Ended 
June 30,


2017


2016

Net sales

$

304,548



$

245,594


Cost of sales

156,383



134,961


Gross profit

148,165



110,633


Operating expenses:




Selling

68,102



64,388


General and administrative

22,155



17,089


Research and development

8,863



8,288


Total operating expenses

99,120



89,765


Income from operations

49,045



20,868


Gain on sale of investment in golf-related venture



17,662


Other expense, net

(1,521)



(2,488)


Income before income taxes

47,524



36,042


Income tax provision

16,050



1,937


Net income

31,474



34,105


Less: Net income attributable to non-controlling interest

31




Net income attributable to Callaway Golf Company

$

31,443



$

34,105






Earnings per common share:




Basic

$

0.33



$

0.36


Diluted

$

0.33



$

0.36


Weighted-average common shares outstanding:




Basic

94,213



94,029


Diluted

96,197



95,893







Six Months Ended
June 30,


2017


2016

Net sales

$

613,475



$

519,647


Cost of sales

317,595



276,622


Gross profit

295,880



243,025


Operating expenses:




Selling

139,864



127,674


General and administrative

45,019



32,633


Research and development

17,745



16,522


Total operating expenses

202,628



176,829


Income from operations

93,252



66,196


Gain on sale of investment in golf-related venture



17,662


Other expense, net

(6,642)



(8,025)


Income before income taxes

86,610



75,833


Income tax provision

29,256



3,338


Net income

57,354



72,495


Less: Net income attributable to non-controlling interest

222




Net income attributable to Callaway Golf Company

$

57,132



$

72,495






Earnings per common share:




Basic

$

0.61



$

0.77


Diluted

$

0.59



$

0.76


Weighted-average common shares outstanding:




Basic

94,142



93,990


Diluted

96,073



95,658


 

CALLAWAY GOLF COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW

(Unaudited)

(In thousands)



Six Months Ended 
June 30,


2017


2016

Cash flows from operating activities:




Net income

$

57,354



$

72,495


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




Depreciation and amortization

8,497



8,337


Deferred taxes, net

33,028



(347)


Share-based compensation

5,402



4,329


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

1,035



(124)


Gain on sale of investment in golf-related venture



(17,662)


Unrealized loss on foreign currency forward contracts

1,550



884


Changes in assets and liabilities

(80,542)



(50,151)


Net cash provided by operating activities

26,324



17,761






Cash flows from investing activities:




Acquisition, net of cash acquired

(57,890)




Capital expenditures

(12,186)



(7,487)


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



(1,560)


Net cash (used in) provided by investing activities

(69,516)



17,506






Cash flows from financing activities:




Repayments of asset-based credit facilities, net

(5,735)



(9,638)


Acquisition of treasury stock

(16,410)



(5,133)


Dividends paid

(1,882)



(1,882)


Exercise of stock options

3,085



2,096


Distribution to non-controlling interest

(974)




Net cash used in financing activities

(21,916)



(14,557)


Effect of exchange rate changes on cash and cash equivalents

1,092



(2,892)


Net (decrease) increase in cash and cash equivalents

(64,016)



17,818


Cash and cash equivalents at beginning of period

125,975



49,801


Cash and cash equivalents at end of period

$

61,959



$

67,619


 

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
June 30,


Growth/(Decline)


Non-GAAP
Constant
Currency
vs. 2016(2)


Six Months Ended
 June 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

$

89,276



$

54,582



$

34,694



63.6%



65.8%


$

196,851



$

143,830



$

53,021



36.9%



38.1%

Irons

82,285



84,458



(2,173)



(2.6)%



(1.3)%


141,296



160,058



(18,762)



(11.7)%



(10.7)%

Putters

24,730



25,411



(681)



(2.7)%



(1.4)%


51,735



55,624



(3,889)



(7.0)%



(6.2)%

Golf balls

48,767



46,996



1,771



3.8%



5.1%


96,991



88,412



8,579



9.7%



10.6%

Gear/Accessories/Other

59,490



34,147



25,343



74.2%



76.7%


126,602



71,723



54,879



76.5%



78.0%


$

304,548



$

245,594



$

58,954



24.0%



25.7%


$

613,475



$

519,647



$

93,828



18.1%



19.2%


(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
June 30,


Growth


Non-GAAP
Constant
Currency
vs. 2016(1)


Six Months Ended
 June 30,


Growth


Non-GAAP
Constant
Currency
vs. 2016(1)


2017


2016


Dollars


Percent


Percent


2017


2016


Dollars


Percent


Percent

Net Sales




















United States

$

168,413



$

127,182



$

41,231



32.4%



32.4%


$

348,235



$

287,230



$

61,005



21.2%



21.2%

Europe

42,977



36,923



6,054



16.4%



24.0%


86,096



74,824



11,272



15.1%



23.1%

Japan

47,869



40,551



7,318



18.0%



21.1%


94,369



79,829



14,540



18.2%



19.2%

Rest of Asia

24,257



20,137



4,120



20.5%



18.2%


42,579



35,946



6,633



18.5%



15.6%

Other foreign countries

21,032



20,801



231



1.1%



3.6%


42,196



41,818



378



0.9%



0.8%


$

304,548



$

245,594



$

58,954



24.0%



25.7%


$

613,475



$

519,647



$

93,828



18.1%



19.2%





















(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
June 30,


Growth




Six Months Ended
June 30,


Growth




2017


2016(1)


Dollars


Percent




2017


2016(1)


Dollars


Percent



Net Sales




















Golf Club

$

196,291



$

164,451



$

31,840



19.4%





$

389,882



$

359,512



$

30,370



8.4%




Golf Ball

48,767



46,996



1,771



3.8%





96,991



88,412



8,579



9.7%




Gear/Accessories/Other

59,490



34,147



25,343



74.2%





126,602



71,723



54,879



76.5%





$

304,548



$

245,594



$

58,954



24.0%





$

613,475



$

519,647



$

93,828



18.1%
























Income (loss) before income taxes:



















Golf clubs

$

38,445



$

17,973



$

20,472



113.9%





$

73,398



$

53,414



$

19,984



37.4%




Golf balls

10,939



7,534



3,405



45.2%





22,460



18,140



4,320



23.8%




Gear/Accessories/Other

11,877



6,696



5,181



77.4%





21,496



16,158



5,338



33.0%




Reconciling items(2)

(13,737)



3,839



(17,576)



(457.8)%





(30,744)



(11,879)



(18,865)



(158.8)%





$

47,524



$

36,042



$

11,482



31.9%





$

86,610



$

75,833



$

10,777



14.2%
























(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 June 30, 2017


Three months ended June 30, 2016



As
Reported


Ogio
Acquisition
Costs(1)


Non-GAAP


As
Reported


Non-Cash Tax
Adjustment(2)


Topgolf
Gain(3)


Non-GAAP


Net sales

$

304,548



$



$

304,548



$

245,594



$



$



$

245,594



Gross profit

148,165





148,165



110,633







110,633



% of sales

48.7

%




48.7

%


45.0

%






45.0

%


Operating expenses

99,120



2,254



96,866



89,765







89,765



Income (loss) from operations

49,045



(2,254)



51,299



20,868







20,868



Other income (expense), net

(1,521)





(1,521)



15,174





17,662



(2,488)



Income (loss) before income taxes

47,524



(2,254)



49,778



36,042





17,662



18,380



Income tax provision (benefit)

16,050



(761)



16,811



1,937



(12,327)



7,188



7,076



Net income (loss)

31,474



(1,493)



32,967



34,105



12,327



10,474



11,304



Less: Net income attributable to non-controlling interest

31





31











Net income (loss) attributable to Callaway Golf Company

$

31,443



$

(1,493)



$

32,936



$

34,105



$

12,327



$

10,474



$

11,304


















Diluted earnings (loss) per share:

$

0.33



$

(0.01)



$

0.34



$

0.36



$

0.13



$

0.11



$

0.12



Weighted-average shares outstanding:

96,197



96,197



96,197



95,893



95,893



95,893



95,893





(1)

Represents transaction costs as well as one-time transition costs associated with the acquisition of Ogio International, Inc in January 2017.

(2)

The Company had a valuation allowance on its U.S. deferred tax assets in the second 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 second quarter of 2017, the Company applied an estimated statutory tax rate of 38.5% to calculate pro-forma results for the second quarter of 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 second quarter 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)



Six Months Ended June 30, 2017



Six Months Ended June 30, 2016



As
Reported


Ogio
Acquisition
Costs(1)


Non-GAAP



As
Reported


Non-Cash Tax
Adjustment(2)


Topgolf
Gain(3)


Non-GAAP


Net sales

$

613,475



$



$

613,475




$

519,647



$



$



$

519,647



Gross profit

295,880





295,880




243,025







243,025



% of sales

48.2

%




48.2

%



46.8

%






46.8

%


Operating expenses

202,628



6,210



196,418




176,829







176,829



Income (loss) from operations

93,252



(6,210)



99,462




66,196







66,196



Other income (expense), net

(6,642)





(6,642)




9,637





17,662



(8,025)



Income (loss) before income taxes

86,610



(6,210)



92,820




75,833





17,662



58,171



Income tax provision (benefit)

29,256



(2,098)



31,354




3,338



(26,246)



7,188



22,396



Net income (loss)

57,354



(4,112)



61,466




72,495



26,246



10,474



35,775



Less: Net income attributable to non-controlling interest

222





222












Net income (loss) attributable to Callaway Golf Company

$

57,132



$

(4,112)



$

61,244




$

72,495



$

26,246



$

10,474



$

35,775



















Diluted earnings (loss) per share:

$

0.59



$

(0.05)



$

0.64




$

0.76



$

0.28



$

0.11



$

0.37



Weighted-average shares outstanding:

96,073



96,073



96,073




95,658



95,658



95,658



95,658





(1)

Represents transaction costs as well as one-time transition costs associated with the acquisition of Ogio International, Inc in January 2017.

(2)

The Company had a valuation allowance on its U.S. deferred tax assets in the first half of 2016, which resulted in federal U.S. tax expense for the six months ended June 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 six months ended June 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 six 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


September 30,


December 31,


March 31,


June 30,




September 30,


December 31,


March 31,


June 30,




2016


2016


2017


2017


Total


2015


2015


2016


2016


Total

Net income (loss)

$

(5,866)



$

123,271



$

25,689



$

31,443



$

174,537



$

(3,617)



$

(30,452)



$

38,390



$

34,105



$

38,426


Interest expense, net

431



348



715



550



2,044



3,520



868



621



347



5,356


Income tax provision (benefit)

1,294



(137,193)



13,206



16,050



(106,643)



1,547



493



1,401



1,937



5,378


Depreciation and amortization expense

4,204



4,045



4,319



4,178



16,746



4,193



4,029



4,157



4,180



16,559


EBITDA

$

63



$

(9,529)



$

43,929



$

52,221



$

86,684



$

5,643



$

(25,062)



$

44,569



$

40,569



$

65,719


Gain on sale of Topgolf investments

















(17,662)



(17,662)


Ogio acquisition costs





3,956



2,254



6,210












Adjusted EBITDA

$

63



$

(9,529)



$

47,885



$

54,475



$

92,894



$

5,643



$

(25,062)



$

44,569



$

22,907



$

48,057


 

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.

 

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, OGIO branded gear and 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

%


$

39,331


20.9

%


$

33,024


20.2

%


$

216,185


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

%


33,983


18.1

%


30,848


18.8

%


136,554


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)

 

View original content with multimedia:http://www.prnewswire.com/news-releases/callaway-golf-company-announces-second-quarter-2017-financial-results-including-a-24-increase-in-net-sales-callaway-increases-full-year-net-sales-and-earnings-guidance-300499449.html

SOURCE Callaway Golf Company

Copyright 2017 PR Newswire

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