Callaway Golf Company Announces First Quarter 2020 Results and Completion Of Convertible Notes Offering
"We are pleased that during the first quarter of 2020 our golf equipment market shares remained strong in all of our major markets and that we were able to deliver a profitable quarter despite the negative impact of COVID-19," commented
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, including earnings before interest, taxes, depreciation and amortization expenses, and non-cash stock compensation expenses ("EBITDAS"). The manner in which this non-GAAP information is derived is discussed further 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 First Quarter 2020 Financial Results
The Company announced the following financial results for the first quarter of 2020 (in millions, except EPS):
2020 RESULTS (GAAP) |
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Q1 2020 |
Q1 2019 |
Change |
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( |
Gross Profit/ |
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( |
Operating Expenses |
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( |
Net Income |
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( |
EPS |
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( |
Q1 2020 |
Q1 2019 |
Change |
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EBITDAS* |
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( |
*Earnings before interest, taxes, and depreciation, amortization and stock compensation expense. |
For the first quarter of 2020, the Company's net sales decreased
For the first quarter of 2020, the Company's gross margin decreased 200 basis points to 44.2% compared to 46.2% for the first quarter of 2019. This decrease is primarily attributable to the impact of the COVID-19 pandemic, as well as the negative impact of changes in foreign currency rates, increased tariffs on imports from
Operating expenses decreased
First quarter 2020 earnings per share decreased
Convertible Notes Offering
On
Full Year 2020
The Company previously reported that due to the uncertain duration or full impact of the COVID-19 pandemic, the Company is no longer providing financial guidance at this time.
Conference Call and Webcast
The Company will be holding a conference call at
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
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
EBITDAS. The Company provides information about its results excluding interest, taxes, depreciation and amortization expenses, and non-cash stock compensation expenses.
Other Adjustments. The Company presents certain of its financial results excluding the non-recurring OGIO, TravisMathew and Jack Wolfskin transaction and transition expenses and non-cash purchase accounting adjustments.
In addition, the Company has included in the schedules to this release a reconciliation of certain non-GAAP information to the most directly comparable 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, prospects, or growth opportunities, including statements relating to the Company's sales, future industry and market conditions, strength of brand and products, geographic diversity, the impact of the COVID-19 pandemic on the Company's business, results of operations and financial condition and the impact of any measures taken to mitigate the effect of the pandemic, availability of capital under the Company's credit facilities, the capital markets and other sources, the Company's liquidity, the effects of entering into the capped call transactions, and the Company's cost/expense reduction efforts and operational improvements, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "estimate," "could," "should," "intend," "may," "plan," "seek," "anticipate," "project" and similar expressions, among others, generally identify forward-looking statements, which speak only as of the date the statements were made and are not guarantees of future performance. These statements are based upon current information and expectations. Accurately estimating the forward-looking statements is based upon various risks and unknowns, including disruptions to business operations whether from travel restrictions, mandated quarantines or voluntary "social distancing" that affects employees, customers and suppliers; production delays, closures of manufacturing facilities, retail locations, warehouses and supply and distribution chains; staffing shortages as a result of remote working requirements or otherwise; uncertainty regarding global economic conditions, particularly the uncertainty related to the duration and impact of the COVID-19 pandemic, and related decreases in customer demand and spending; our level of indebtedness; continued availability of credit facilities and liquidity and ability to comply with applicable debt covenants; effectiveness of cost/expense reduction efforts and operational improvements; continued brand momentum and product success; growth in the direct-to-consumer and e-commerce channels; consumer acceptance of and demand for the Company's and its subsidiaries' products; competitive pressures; any changes in
About
Contacts: |
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(760) 931-1771 |
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (In thousands) |
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ASSETS |
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Current assets: |
|||||||||
Cash and cash equivalents |
$ |
166,635 |
$ |
106,666 |
|||||
Accounts receivable, net |
259,530 |
140,455 |
|||||||
Inventories |
412,690 |
456,639 |
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Other current assets |
95,267 |
85,590 |
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Total current assets |
934,122 |
789,350 |
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Property, plant and equipment, net |
150,969 |
132,760 |
|||||||
Operating lease right-of-use assets, net |
193,829 |
160,098 |
|||||||
Intangible assets, net |
688,651 |
697,166 |
|||||||
Deferred taxes, net |
61,517 |
73,948 |
|||||||
Investment in golf-related ventures |
90,134 |
90,134 |
|||||||
Other assets |
15,854 |
17,092 |
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Total assets |
$ |
2,135,076 |
$ |
1,960,548 |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
|||||||||
Accounts payable and accrued expenses |
$ |
224,282 |
$ |
276,300 |
|||||
Accrued employee compensation and benefits |
29,438 |
46,891 |
|||||||
Asset-based credit facilities |
335,593 |
144,580 |
|||||||
Accrued warranty expense |
9,791 |
9,636 |
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Current operating lease liabilities |
28,544 |
26,418 |
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Long-term debt, current portion |
8,734 |
7,317 |
|||||||
Income tax liability |
12,526 |
12,104 |
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Total current liabilities |
648,908 |
523,246 |
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Long-term debt |
453,774 |
443,259 |
|||||||
Long-term operating lease liabilities |
175,954 |
137,696 |
|||||||
Long-term liabilities |
96,473 |
88,994 |
|||||||
|
759,967 |
767,353 |
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Total liabilities and shareholders' equity |
$ |
2,135,076 |
$ |
1,960,548 |
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) |
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Three Months Ended |
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2020 |
2019 |
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Net sales |
$ |
442,276 |
$ |
516,197 |
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Cost of sales |
246,602 |
277,764 |
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Gross profit |
195,674 |
238,433 |
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Operating expenses: |
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Selling |
111,061 |
119,321 |
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General and administrative |
30,693 |
36,938 |
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Research and development |
13,240 |
12,538 |
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Total operating expenses |
154,994 |
168,797 |
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Income from operations |
40,680 |
69,636 |
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Other expense, net |
(2,635) |
(11,579) |
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Income before income taxes |
38,045 |
58,057 |
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Income tax provision |
9,151 |
9,556 |
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Net income |
28,894 |
48,501 |
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Less: Net loss attributable to non-controlling interest |
— |
(146) |
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Net income attributable to |
$ |
28,894 |
$ |
48,647 |
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Earnings per common share: |
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Basic |
|
|
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Diluted |
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|
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Weighted-average common shares outstanding: |
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Basic |
94,309 |
94,684 |
|||||
Diluted |
95,676 |
96,419 |
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (Unaudited) (In thousands) |
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Three Months Ended |
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2020 |
2019 |
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Cash flows from operating activities: |
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Net income |
$ |
28,894 |
$ |
48,501 |
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Adjustments to reconcile net income to net cash used in operating activities: |
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Depreciation and amortization |
8,997 |
7,977 |
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Lease amortization expense |
8,517 |
9,154 |
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Amortization of debt issuance costs |
835 |
647 |
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Inventory step-up from acquisition |
— |
5,367 |
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Deferred taxes, net |
12,409 |
4,005 |
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Non-cash share-based compensation |
1,861 |
3,435 |
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Loss on disposal of long-lived assets |
51 |
75 |
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Unrealized net losses (gains) on hedging instruments |
767 |
(478) |
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Changes in assets and liabilities |
(156,013) |
(199,287) |
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Net cash used in operating activities |
(93,682) |
(120,604) |
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Cash flows from investing activities: |
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Capital expenditures |
(16,953) |
(11,304) |
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Acquisitions, net of cash acquired |
— |
(463,105) |
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Proceeds from sales of property and equipment |
— |
15 |
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Net cash used in investing activities |
(16,953) |
(474,394) |
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Cash flows from financing activities: |
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Proceeds from credit facilities, net |
191,013 |
174,182 |
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Proceeds from issuance of long-term debt |
9,766 |
480,000 |
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Repayments of long-term debt |
(3,143) |
(1,760) |
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Repayments of financing leases |
(109) |
(114) |
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Debt issuance and credit facility amendment costs |
— |
(18,129) |
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Exercise of stock options |
130 |
— |
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Dividends paid, net |
(949) |
(953) |
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Acquisition of treasury stock |
(21,938) |
(27,377) |
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Net cash provided by financing activities |
174,770 |
605,849 |
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Effect of exchange rate changes on cash and cash equivalents |
(4,166) |
4,107 |
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Net increase in cash and cash equivalents |
59,969 |
14,958 |
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Cash and cash equivalents at beginning of period |
106,666 |
63,981 |
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Cash and cash equivalents at end of period |
$ |
166,635 |
$ |
78,939 |
Consolidated (Unaudited) (In thousands) |
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Three Months Ended |
Decline |
Non- |
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2020 |
2019 |
Dollars |
Percent |
Percent |
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Net sales: |
|||||||||||||||
|
$ |
251,224 |
$ |
261,785 |
$ |
(10,561) |
-4.0% |
-3.5% |
|||||||
Golf Balls |
40,437 |
61,834 |
(21,397) |
-34.6% |
-34.1% |
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Apparel |
77,290 |
96,246 |
(18,956) |
-19.7% |
-18.5% |
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Gear and Other |
73,325 |
96,332 |
(23,007) |
-23.9% |
-22.9% |
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$ |
442,276 |
$ |
516,197 |
$ |
(73,921) |
-14.3% |
-13.6% |
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(1) Calculated by applying 2019 exchange rates to 2020 reported sales in regions outside the |
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Three Months Ended |
Growth/(Decline) |
Non- |
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2020 |
2019 |
Dollars |
Percent |
Percent |
|||||||||||
|
|||||||||||||||
|
$ |
217,503 |
$ |
249,001 |
$ |
(31,498) |
-12.6% |
-12.6% |
|||||||
|
96,719 |
126,613 |
(29,894) |
-23.6% |
-21.5% |
||||||||||
|
77,347 |
73,228 |
4,119 |
5.6% |
4.5% |
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Rest of World |
50,707 |
67,355 |
(16,648) |
-24.7% |
-21.7% |
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$ |
442,276 |
$ |
516,197 |
$ |
(73,921) |
-14.3% |
-13.6% |
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(1) Calculated by applying 2019 exchange rates to 2020 reported sales in regions outside the |
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Operating Segment Information |
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Three Months Ended |
Growth/(Decline) |
Non- |
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2020 |
2019(1) |
Dollars |
Percent |
Percent |
|||||||||||
|
|||||||||||||||
Golf Equipment |
$ |
291,661 |
$ |
323,619 |
$ |
(31,958) |
-9.9% |
-9.3% |
|||||||
Apparel, Gear and Other |
150,615 |
192,578 |
(41,963) |
-21.8% |
-20.7% |
||||||||||
$ |
442,276 |
$ |
516,197 |
$ |
(73,921) |
-14.3% |
-13.6% |
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Income (loss) before income taxes: |
|||||||||||||||
Golf Equipment |
$ |
58,620 |
$ |
70,652 |
$ |
(12,032) |
-17.0% |
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Apparel, Gear and Other |
(3,799) |
22,060 |
(25,859) |
-117.2% |
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Reconciling items(3) |
(16,776) |
(34,655) |
17,879 |
51.6% |
|||||||||||
$ |
38,045 |
$ |
58,057 |
$ |
(20,012) |
-34.5% |
(1) |
The Company continues to refine its expense allocation methodology between operating segments. As a result, the Company reclassified certain information technology expenses between the segments in the first quarter of 2019 in order to conform with the current presentation. |
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(2) |
Calculated by applying 2019 exchange rates to 2020 reported sales in regions outside the |
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(3) |
Represents corporate general and administrative expenses and other income (expense) not utilized by management in determining segment profitability. |
Supplemental Financial Information and Non-GAAP Reconciliation (Unaudited) (In thousands) |
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Three Months Ended |
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2020 |
2019 |
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GAAP |
Non-Cash |
NADC |
Non- |
GAAP |
Non-Cash |
Acquisition & |
Non- |
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Gross profit |
$ |
195,674 |
$ |
— |
$ |
(1,308) |
$ |
196,982 |
$ |
238,433 |
$ |
(5,367) |
$ |
— |
$ |
243,800 |
||||||||||||||||
Operating expenses |
154,994 |
1,179 |
241 |
153,574 |
168,797 |
1,208 |
4,723 |
162,866 |
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Other expense, net |
(2,635) |
— |
— |
(2,635) |
(11,579) |
— |
(3,896) |
(7,683) |
||||||||||||||||||||||||
Income tax provision (benefit) |
9,151 |
(271) |
(356) |
9,778 |
9,556 |
(1,512) |
(1,982) |
13,050 |
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Net income (loss) attributable to |
$ |
28,894 |
$ |
(908) |
$ |
(1,193) |
$ |
30,995 |
$ |
48,647 |
$ |
(5,063) |
$ |
(6,637) |
$ |
60,347 |
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Diluted earnings (loss) per share: |
$ |
0.30 |
$ |
(0.01) |
$ |
(0.01) |
$ |
0.32 |
$ |
0.50 |
$ |
(0.06) |
$ |
(0.07) |
$ |
0.63 |
(1) |
Represents the non-cash amortization of intangible assets related to the Company's OGIO, TravisMathew and Jack Wolfskin acquisitions. 2019 also includes the cost impact associated with a change in valuation of inventory (inventory step-up) related to the Company's Jack Wolfskin acquisition. |
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(2) |
Represents non-recurring costs associated with the Company's warehouse consolidation initiative, in addition to other integration costs associated with Jack Wolfskin. |
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(3) |
Represents non-recurring transaction costs, including banker's fees, legal fees, consulting and travel expenses, and transition costs, including consulting, audit fees and valuations services, associated with the acquisition of Jack Wolfskin, in addition to other non-recurring advisory fees. |
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Non-GAAP Reconciliation and Supplemental Financial Information (Unaudited) (In thousands) |
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2020 Trailing Twelve Month Adjusted EBITDAS |
2019 Trailing Twelve Month Adjusted EBITDAS |
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Quarter Ended |
Quarter Ended |
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|
|
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|
|
|
|
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2019 |
2019 |
2019 |
2020 |
Total |
2018 |
2018 |
2018 |
2019 |
Total |
||||||||||||||||||||||||||||||
Net income (loss) |
$ |
28,931 |
$ |
31,048 |
$ |
(29,218) |
$ |
28,894 |
$ |
59,655 |
$ |
60,867 |
$ |
9,517 |
$ |
(28,499) |
$ |
48,647 |
$ |
90,532 |
|||||||||||||||||||
Interest expense, net |
10,260 |
9,545 |
9,049 |
9,115 |
37,969 |
1,661 |
1,056 |
704 |
9,639 |
13,060 |
|||||||||||||||||||||||||||||
Income tax provision (benefit) |
7,208 |
2,128 |
(2,352) |
9,151 |
16,135 |
17,247 |
1,335 |
(9,783) |
9,556 |
18,355 |
|||||||||||||||||||||||||||||
Depreciation and amortization expense |
9,022 |
8,472 |
9,480 |
8,997 |
35,971 |
5,029 |
4,996 |
5,186 |
7,977 |
23,188 |
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Non-cash stock compensation expense |
3,530 |
2,513 |
3,418 |
1,861 |
11,322 |
3,465 |
3,511 |
3,555 |
3,435 |
13,966 |
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EBITDAS |
$ |
58,951 |
$ |
53,706 |
$ |
(9,623) |
$ |
58,018 |
$ |
161,052 |
$ |
88,269 |
$ |
20,415 |
$ |
(28,837) |
$ |
79,254 |
$ |
159,101 |
|||||||||||||||||||
Acquisitions & other non-recurring costs, before taxes(1) |
6,939 |
3,009 |
4,090 |
1,516 |
15,554 |
— |
1,521 |
(2,269) |
13,986 |
13,238 |
|||||||||||||||||||||||||||||
Adjusted EBITDAS |
$ |
65,890 |
$ |
56,715 |
$ |
(5,533) |
$ |
59,534 |
$ |
176,606 |
$ |
88,269 |
$ |
21,936 |
$ |
(31,106) |
$ |
93,240 |
$ |
172,339 |
(1) |
In 2020, amount represents non-recurring costs associated with the Company's warehouse consolidation initiative, in addition to other integration costs associated with Jack Wolfskin. In 2019, amounts represent non-recurring transaction costs, including banker's fees, legal fees, consulting and travel expenses, and transition costs, including consulting, audit fees and valuations services, associated with the acquisition of Jack Wolfskin, in addition to other non-recurring advisory fees. |
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