Callaway Golf Company (NYSE: ELY) — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request references 2021 Q4, this is an annual filing; fourth-quarter figures are identified separately below. Callaway’s three reportable segments are Topgolf, Golf Equipment, and Apparel, Gear and Other. The Topgolf merger closed March 8, 2021, so consolidated 2021 results include Topgolf only from that date; its included fiscal period runs through January 2, 2022.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net revenue | $3,133.4 million | $1,589.5 million |
| Operating income (loss) | $204.7 million | $(105.5) million |
| Net income (loss) | $322.0 million | $(126.9) million |
| Diluted EPS | $1.82 | $(1.35) |
| Cash from operations | $278.3 million | $228.2 million |
- Revenue increased 97.1%, reflecting $1,087.6 million from Topgolf for approximately ten months, plus growth in legacy Golf Equipment (25.1%) and Apparel, Gear and Other (34.6%).
- GAAP operating margin was approximately 6.5%; net margin was approximately 10.3%. Net income included a $252.5 million non-cash gain from revaluing Callaway’s pre-merger Topgolf investment. The company’s non-GAAP net income was $137.9 million, or $0.78 per diluted share; these measures exclude specified items and are not substitutes for GAAP results.
- Segment operating income: Topgolf $58.2 million; Golf Equipment $203.9 million; Apparel, Gear and Other $68.5 million. Corporate and other costs were $125.9 million.
- Capital expenditures were $322.3 million, exceeding operating cash flow; the simple operating-cash-flow-less-capex measure was negative $44.0 million. Cash and cash equivalents were $352.2 million at year-end, versus $366.1 million a year earlier. Reported available liquidity, including credit-facility availability, was $752.8 million.
- Inventory increased to $533.5 million from $352.5 million, reflecting planned 2022 product builds, earlier golf-bag receipts, and acquired Topgolf inventory. Net accounts receivable declined to $105.3 million from $138.5 million.
- Long-term debt carrying value was $1,025.3 million, with $9.1 million outstanding on asset-based credit facilities. These amounts exclude substantial lease and deemed-landlord financing obligations: year-end operating lease liabilities were $1,457.7 million, finance lease liabilities $134.3 million, and deemed-landlord financing liabilities $461.5 million.
Fourth-quarter and year-over-year developments
- Q4 2021 revenue was $711.7 million; operating loss was $54.7 million, net loss was $26.2 million, and diluted loss per share was $0.14. The filing describes golf and Topgolf as seasonal businesses; Q4 included reduced golf-season activity and a planned production shift to build 2022 golf products.
- FY2021 operating results improved substantially from 2020, when results included a $174.3 million Jack Wolfskin goodwill and trade-name impairment and severe pandemic-related disruptions. No impairment charge was recorded in 2021.
- Interest expense rose to $116.2 million from $47.4 million, largely reflecting debt and deemed-landlord financing obligations acquired with Topgolf. The 2021 effective tax rate was 8.2%, affected by the non-taxable Topgolf investment gain and a valuation allowance on certain tax assets.
- Topgolf generated $1,014.1 million of venue revenue and $73.5 million from other business lines. Its reported segment operating income was $58.2 million, but Topgolf also recorded a net loss of $29.6 million for the period included in Callaway’s consolidated results.
Outlook, risks and unusual items
- Management expressed optimism about near- and long-term growth, citing Topgolf expansion, golf-equipment demand, and apparel brand momentum. It provided no specific quantified revenue, earnings, or cash-flow guidance in the supplied filing text.
- Management expects continued Topgolf venue openings and related pre-opening costs and expects venue expenses to increase as operations expand. Venue growth depends partly on third-party financing partners; 14 signed leases had not yet commenced at year-end, with $1,518.4 million of future minimum payments disclosed.
- Principal risks include pandemic effects and recovery uncertainty, inflation and higher freight/labor/commodity costs, supply-chain constraints and port congestion, labor shortages, discretionary consumer spending, competition, foreign exchange, and the ability to integrate Topgolf and realize expected benefits.
- Topgolf’s long-term, largely non-cancelable venue leases create fixed-cost exposure if venues underperform or close. Credit facilities impose restrictions and covenants; the company reported compliance at December 31, 2021. Variable-rate borrowing costs and refinancing or funding needs remain risks.
- Callaway authorized a $50 million share-repurchase program in December 2021 and repurchased approximately $25 million under it during the year. Quarterly cash dividends had been suspended in 2020. The board’s authorization is subject to market conditions and financing-agreement restrictions.
- The financial-statement audit opinion was unqualified. Management and the auditor reported effective internal controls, but Topgolf—representing 35% of consolidated revenue and 37% of assets—was excluded from the 2021 internal-control assessment during the first year after acquisition.
Important facts for investors to verify
- Separate underlying operating performance from the $252.5 million Topgolf remeasurement gain and review the company’s non-GAAP exclusions and reconciliations.
- Assess Topgolf’s full-year and comparable-venue performance, including its reported segment income versus its net loss in the consolidated period.
- Review the scale, maturity profile, and cash burden of debt, operating and finance leases, deemed-landlord financing, and leases signed but not yet commenced.
- Investigate the Q4 operating and net losses, inventory build, supply-chain constraints, and planned 2022 product transition for possible effects on margins and cash conversion.
- Monitor Topgolf integration and venue-opening economics, liquidity and covenant headroom, inflation and labor costs, and the planned 2022 inclusion of Topgolf in internal-control testing.