Callaway Golf Company reported sales jumped 47 percent in the first quarter ended March 31. Full-year 2021 adjusted EBITDA is now anticipated to exceed full-year 2019 levels for the legacy Callaway business and to meet or exceed the full twelve-month 2019 levels for the recently acquired Topgolf business.
“We are very pleased with our first-quarter financial results, with revenues increasing 47 percent and Adjusted EBITDA increasing 113 percent in the first quarter of 2021 compared to the same period in 2020,” commented Chip Brewer, President and Chief Executive Officer of the company. “Our golf equipment business is continuing to experience unprecedented demand while our soft goods business and Topgolf business are recovering from the pandemic faster than anticipated. We believe our three operating segments are well positioned for both the current environment and our expectations over the next several years.”
“Although the COVID-19 pandemic continues, especially in international markets, we are pleased with the current state and trends of our business,” continued Brewer. “The Topgolf merger is off to a strong start; each of our businesses is performing ahead of plan; and our available liquidity, comprised of cash-on-hand and availability under our credit facilities, is at an all-time high of $713 million at March 31, 2021 compared to $260 million for the same date in 2020. As a result, we now project that full-year 2021 revenue and Adjusted EBITDA levels will exceed 2019 levels for the legacy Callaway business and will meet or exceed the full twelve-month 2019 levels for the Topgolf business.”
First Quarter 2021 Financial Results
For the first quarter of 2021, the company’s net revenue increased from $210 million (47 percent) to $652 million, a new first-quarter record for the company, compared to $442 million for the same period in 2020. This increase was driven by the strength of the legacy Callaway business, which increased 26 percent compared to the first quarter of 2020, as well as $93 million related to the addition of four weeks of the Topgolf business, which was acquired on March 8, 2021. Changes in foreign currency rates had a $17 million positive impact on first-quarter 2021 net revenue.
For the first quarter of 2021, the company’s income from operations was $76 million, an increase of $35 million (85 percent) compared to $41 million in the first quarter of 2020. Non-GAAP income from operations was $97 million, a $54 million (126 percent) increase compared to $43 million for the first quarter of 2020. The increase in income from operations was led by a $50 million increase in income from operations from the legacy Callaway business as well as an incremental $4 million from the addition of four weeks of the Topgolf business.
For the first quarter of 2021, the company’s other income/(expense), net was $244 million, including a non-cash gain of $253 million related to the write-up of the company’s pre-merger investment in Topgolf, compared to a net expense of $3 million in the first quarter of 2020. The company’s non-GAAP other income/(expense), net, which excludes, among other things, the Topgolf gain, was $5 million of expense in the first quarter of 2021 compared to other expense of $3 million in the first quarter of 2020.
First-quarter 2021 fully diluted earnings per share were $2.19, including $2.04 from the non-cash Topgolf gain, compared to fully diluted earnings per share of $0.30 for the first quarter of 2020. Non-GAAP first quarter 2021 fully diluted earnings per share was $0.62, compared to $0.32 for the first quarter of 2020. Fully diluted shares were 125 million shares of common stock in the first quarter of 2021, an increase of 29 million shares compared to 96 million shares in the first quarter of 2020. The increased share count is primarily related to the issuance of additional shares in connection with the Topgolf merger.
For the first quarter of 2021, the company’s Adjusted EBITDA was $128 million, an increase of $68 million (113 percent) compared to the first quarter of 2020. The increase was driven by a $53 million increase in the legacy Callaway business and $15 million from four weeks of the Topgolf business.
Segment Results
As a result of the Topgolf merger, the company now has three operating segments, namely Golf Equipment; Apparel, Gear and Other; and Topgolf. The company evaluates the performance of its operating segments based on segment operating income. Management uses total segment operating income as a measure of its operational performance, excluding corporate overhead and certain non-recurring and non-cash charges. The company believes that information about total segment operating income allows investors to better evaluate operating results and changes in results without these non-operational factors.
Golf Equipment
The golf equipment segment’s net revenue increased $85 million (29 percent) to $377 million in the first quarter of 2021 compared to $292 million in the first quarter of 2020. The increase was driven by the continued surge in golf demand and participation, our supply chain team’s ability to secure a greater than expected supply of golf equipment components during the first quarter of 2021, as well as the negative impacts of COVID-19 shutdowns across portions of the company’s business in the first quarter of 2020. Both the golf club and golf ball products saw significant growth year over year, with golf club sales increasing 26 percent and golf ball sales increasing 50 percent. Segment operating income for the golf equipment segment increased $26 million (44 percent) to $85 million in the first quarter of 2021 compared to $59 million in the first quarter of 2020. The increase was driven by the increased revenue, operating expense leverage and favorable foreign currency exchange rates, partially offset by increased freight cost and product mix, including lower margins on our higher technology golf club product offering and packaged sets.
Apparel, Gear and Other
The apparel, gear, and other segment’s net revenue increased $31 million (21 percent) to $182 million in the first quarter of 2021 compared to $151 million in the first quarter of 2020. The increase was driven by a 23 percent increase in apparel sales as well as an 18 percent increase in gear, accessories and other. Both the TravisMathew and Jack Wolfskin businesses are recovering from the pandemic faster than expected despite continued retail restrictions and other effects from COVID-19, particularly in Europe. Operating income for the apparel, gear, and other segment increased $24 million to $20 million in the first quarter of 2021 compared to a $4 million loss in the first quarter of 2020. The increase was driven by the increased sales, operating expense, and cost of revenue leverage on higher revenue, favorable foreign currency exchange rates, and increased e-commerce revenue, partially offset by lower retail revenue at Jack Wolfskin due to further government-mandated retail shutdowns during the first quarter in Central Europe.
Topgolf
The Topgolf business contributed $93 million of net revenue and $4 million of segment operating income, which represents four weeks of financial results for the Topgolf business. This is incremental year over year as the Topgolf business was acquired on March 8, 2021, and therefore was not included in the company’s financial results in the first quarter of 2020.
Outlook
Given the continued uncertainty related to both the COVID-19 pandemic globally as well as unsettled market conditions, the company is not providing specific net revenue and earnings guidance ranges for 2021 at this time. The company did, however, provide certain guidance on estimated 2021 performance. The company previously guided that it was assuming that neither the company’s legacy Callaway business nor the newly added Topgolf business would achieve 2021 revenue or Adjusted EBITDA equivalent to 2019 levels. The company has now revised those projections as its operating segments are recovering faster and performing better than expected. As a result, the company now expects that revenue and Adjusted EBITDA for full-year 2021 for the legacy Callaway business will exceed 2019 levels and for the Topgolf business will meet or exceed the full twelve-month 2019 levels. For reference, in 2019, the Callaway legacy business reported revenue of $1.70 billion and Adjusted EBITDA of $211 million and the Topgolf business reported revenue of $1.06 billion and Adjusted EBITDA of $59 million. Callaway’s reported full-year financial results will only include 10 months of Topgolf results in 2021 and therefore will not include January and February results which were in the aggregate $143 million in revenue and $2.3 million in Adjusted EBITDA.
Photo courtesy Callaway Golf
