Topgolf Callaway Brands Corp. (formerly Callaway Golf Company) — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report; the supplied filing text does not provide clear Q4-only financial results. The company changed its name in September 2022 and its NYSE ticker from ELY to MODG. It operates Topgolf, Golf Equipment, and Active Lifestyle businesses.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Net revenue | $3,995.7 million | $3,133.4 million |
| Operating income | $256.8 million | $204.7 million |
| Operating margin | Approximately 6.4% | Approximately 6.5% |
| Net income | $157.9 million | $322.0 million |
| Diluted EPS | $0.82 | $1.82 |
| Operating cash flow | $(35.1) million | $278.3 million |
| Capital expenditures | $532.3 million | $322.3 million |
- Revenue grew 27.5% reported and 32.2% on a constant-currency basis. Topgolf generated $1,549.0 million, Golf Equipment $1,406.6 million, and Active Lifestyle $1,040.1 million.
- Segment operating income was $76.8 million for Topgolf, $251.4 million for Golf Equipment, and $77.4 million for Active Lifestyle. Total segment operating income was $405.6 million before $148.8 million of reconciling items.
- Net income fell mainly because FY 2021 included a $252.5 million noncash gain from revaluing the company’s pre-merger Topgolf investment. FY 2022 also included a $16.0 million tax benefit, versus a $28.6 million tax provision in 2021. Adjusted non-GAAP net income was $158.2 million versus $137.9 million.
- Cash and cash equivalents were $180.2 million at year-end, down from $352.2 million. The company reported $415.3 million of cash and availability under credit facilities. Inventory rose $425.7 million to $959.2 million, reflecting earlier-than-expected shipments and comparatively constrained 2021 stock.
- Year-end debt included $1,214.4 million of long-term debt principal and $219.3 million outstanding on short-term asset-based facilities. Net long-term debt on the balance sheet was $1,176.3 million. Interest expense, net, rose to $142.8 million from $115.6 million.
- Contractual cash obligations totaled $8,496.5 million, including long-term debt, operating and finance leases, and deemed landlord financing obligations. The filing reports $660.4 million of DLF liabilities on the balance sheet; contractual DLF payments include imputed interest.
Material changes versus FY 2021
- All segments grew; Topgolf revenue increased 42.4%, including 11 new company-operated venues, higher same-venue sales, and a full year of Topgolf results versus ten months in 2021 after the March 2021 merger.
- Golf Equipment revenue increased 14.4%, supported by golf balls, packaged sets, and club demand. Active Lifestyle revenue rose 27.4%, led by TravisMathew and growth at Jack Wolfskin and the Korea apparel business.
- Reported operating income increased 25.5%, but operating margin was roughly stable to slightly lower. Operating cash flow turned negative, while capital expenditures and venue investment increased.
- Foreign exchange reduced 2022 international revenue by $148.1 million; management noted that currency movements were expected to remain a significant headwind in 2023.
Outlook, risks, and unusual items
- Management said existing funds, expected operating cash flows, and available capital were expected to cover operating needs, capital expenditures, debt repayments, and obligations for at least 12 months from the filing date. No specific numerical revenue or earnings guidance is provided in the supplied text.
- Management expected elevated inventory going into 2023, largely because many late-2022 receipts were for 2023 products, and considered inventory quality good ahead of the golf season.
- Key risks include discretionary consumer spending and economic downturns; inflation, labor costs, and interest rates; foreign exchange and tariffs; supply-chain and supplier concentration; Topgolf venue-opening economics and financing; competition and changing consumer tastes; seasonality and weather; and integration and execution risks.
- Variable-rate borrowing, debt covenants, and substantial lease commitments create liquidity and financial-flexibility risks. The company reported compliance with applicable covenants at year-end. In February 2023, it temporarily increased the ABL Facility maximum from $400 million to $450 million, subject to borrowing-base availability.
- Legal matters include routine claims and intellectual-property disputes. Management could not estimate the ultimate aggregate loss or financial impact of pending matters; it stated historical claims had not materially adversely affected results, cash flows, or financial position.
- FY 2022 included $5.5 million of impairment losses, including $4.8 million related to an underperforming pre-merger Topgolf concept location. The company also suspended business operations in Russia. The filing notes no goodwill or indefinite-lived intangible impairment in 2022.
- The company reported effective disclosure controls and internal control over financial reporting; the auditor gave unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Review the cash-flow and inventory detail to assess whether the 2022 working-capital outflow and higher inventory convert to sales and cash in 2023.
- Examine Topgolf same-venue sales, venue-level profitability, opening costs, and financing needs, separating organic performance from the extra two months of consolidation.
- Assess debt maturities, variable-rate exposure, borrowing-base availability, covenant headroom, and the scale and duration of lease and DLF obligations.
- Check the effect of currency, inflation, freight, and labor costs on segment margins and the stated 2023 outlook.
- Evaluate the assumptions behind deferred tax asset realization and valuation allowances, as well as material litigation and other contingencies.