Callaway Golf Company (ELY) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited results include Topgolf from its March 8, 2021 acquisition; Q2 includes a full quarter of Topgolf, while first-half results include approximately four months. Comparisons with 2020 are affected by pandemic-related shutdowns and the addition of Topgolf.
Financial results and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenue | $913.6 million | $297.0 million | $1,565.3 million | $739.3 million |
| Operating income (loss) | $107.3 million | ($177.4 million) | $183.4 million | ($136.8 million) |
| Net income (loss) | $91.7 million | ($167.7 million) | $364.2 million | ($138.8 million) |
| Diluted EPS | $0.47 | ($1.78) | $2.28 | ($1.47) |
| Operating cash flow | Not separately provided | Not separately provided | $100.5 million | ($20.3 million) |
| Capital expenditures | Not separately provided | Not separately provided | $120.8 million | $25.1 million |
- Q2 revenue rose 207.6%; legacy Golf Equipment and Apparel, Gear and Other revenue grew 91.2% and 114.6%, respectively. Topgolf contributed $325.5 million of revenue and $24.2 million of segment operating income.
- Q2 operating margin was approximately 11.7% and net margin approximately 10.0%. First-half operating margin was approximately 11.7%; first-half net income includes a $252.5 million non-cash gain on the pre-merger Topgolf investment.
- First-half cash flow from operations less capital expenditures was approximately negative $20.4 million. Operating cash flow improved from the prior-year period, while capital spending increased substantially.
- At June 30, cash and cash equivalents were $415.2 million; available liquidity, including undrawn revolving capacity, was $876.8 million. Total current assets were $1.254 billion and current liabilities $787.6 million.
- Long-term debt was $1.064 billion and asset-based credit facility borrowings were $21.4 million. The filing reports $71.4 million outstanding under revolving facilities overall. Operating lease liabilities were $1.230 billion; deemed landlord financing was $263.2 million.
- Management estimated 2021 capital expenditures of approximately $243.2 million, including venue commitments and other planned spending.
Material changes versus prior comparable period
- Results rebounded from 2020 pandemic disruptions, when facilities and retail locations closed and the company recorded a $174.3 million impairment charge related to Jack Wolfskin goodwill and trade name.
- The March 2021 all-stock Topgolf merger materially expanded the business and balance sheet: approximately 89.8 million shares were issued, and goodwill rose to $2.022 billion from $56.7 million at year-end 2020.
- First-half reported earnings include the $252.5 million remeasurement gain on Callaway’s prior Topgolf investment. Management’s non-GAAP results, which exclude specified items, were $70.5 million net income and $0.36 diluted EPS for Q2, and $147.1 million and $0.92 for the first half.
- Debt, lease obligations, depreciation and amortization, and SG&A increased with Topgolf consolidation. First-half interest expense rose to $46.6 million from $21.5 million.
Outlook, commentary, and risks
- Management expressed optimism about strong full-year results and continued demand, citing golf participation, product momentum, and Topgolf’s growth opportunity. The filing gives no numerical revenue or earnings guidance.
- Management identified near-term supply-chain constraints, higher freight costs, staffing challenges, and inflationary pressures. It stated that demand and mitigating actions were expected to help offset these issues.
- Management said cash, expected operating cash generation, and credit availability should fund operating needs, capital expenditures, debt payments, and obligations for at least 12 months from issuance of the filing.
- Topgolf growth plans involve substantial venue commitments: $896.9 million of future minimum payments for signed leases not yet commenced, plus approximately $178 million of minimum capital commitments for venues under construction. Venue openings, labor costs, seasonality, and execution may affect performance.
- Other risks include COVID-19 effects on demand and supply chains, integration and realization of Topgolf merger synergies, consumer and retailer demand, foreign exchange, interest rates, debt covenant compliance, and legal or intellectual-property claims. The company reported compliance with applicable debt covenants at June 30.
- The Topgolf purchase-price allocation remained preliminary, including assessments of lease-related fair values and deferred taxes. The company reported no material litigation loss estimate; outcomes of claims and proceedings remain uncertain.
Investor verification points
- Separate underlying operating performance from acquisition effects, pandemic comparisons, the Topgolf investment gain, and management’s non-GAAP adjustments.
- Track Topgolf venue revenue and segment profitability, new venue spending, integration costs, and whether expected synergies materialize.
- Monitor cash conversion and capital spending against the company’s 2021 estimate, alongside the sizable lease, venue-construction, and debt commitments.
- Assess whether supply constraints, freight, labor, and inflation affect product availability, margins, and venue operations.
- Review final Topgolf purchase accounting, tax valuation allowances, and the effects of debt and lease obligations on future earnings and liquidity.