Callaway Golf Company Announces First Quarter 2017 Financial Results, With Double-Digit Sales Growth, And A Significant Increase In Full Year Sales And Earnings Guidance

CARLSBAD, Calif., May 4, 2017 /PRNewswire/ -- 

• First quarter 2017 net sales of $309 million, a 13% increase compared to the first quarter of 2016.
• First quarter 2017 non-GAAP pre-tax income (which excludes non-recurring OGIO transaction and transition expenses) of $43 million, an increase of 8% compared to the first quarter of 2016.  On a GAAP basis, pre-tax income was $39 million for the first quarter of 2017.
• Full year 2017 sales guidance increased by $45 - $50 million to $960 - $980 million, compared to prior guidance of $910 - $935 million.
• Full year 2017 non-GAAP earnings per share guidance increased $0.10 per share to $0.31 - $0.37, compared to prior guidance of $0.21 - $0.27. The non-GAAP guidance excludes the non-recurring OGIO expenses.

Callaway Golf Company (NYSE:ELY) announced today its first quarter 2017 financial results and increased its full year 2017 sales and earnings guidance.

In the first quarter of 2017, as compared to the same period in 2016, the Company's net sales increased $35 million (13%) to $309 million and non-GAAP pre-tax income (which excludes $4 million in non-recurring transaction and transition costs related to the OGIO acquisition) increased $3 million (8%) to $43 million. These results reflect the Company's continued brand momentum and continued execution of its strategy to grow market share in its core golf equipment business and in tangential areas. As a result of this better than expected first quarter, the Company increased its full year sales guidance by $45 million - $50 million to $960 million - $980 million as compared to its prior guidance of $910 million - $935 million. The Company also increased its full year non-GAAP earnings per share guidance by $0.10 to $0.31 - $0.37 compared to prior guidance of $0.21 - $0.27. The full year non-GAAP guidance excludes an estimated $7 million of non-recurring OGIO transaction and transition expenses.

"It has been a very strong start to 2017," commented Chip Brewer, President and Chief Executive Officer of Callaway Golf Company. "Sales of our new products, including the EPIC driver and new Chrome Soft X golf ball, have exceeded our expectations. Business around the globe remains very strong with all major regions reporting sales growth and market share gains. And our new business ventures, namely the apparel joint venture in Japan and the recently acquired OGIO business, are performing ahead of plan. Furthermore, our liquidity and financial flexibility remain strong even with the cash outlay earlier this year for the purchase of OGIO. Overall, I am very pleased with how our business is performing and am cautiously optimistic for the balance of the year."   

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. The purpose of this non-GAAP presentation is to provide additional information to investors regarding the underlying performance of the Company's business without these non-recurring items and on a more comparable tax basis.  

This non-GAAP information presents the Company's financial results for the first quarter of 2017 excluding the non-recurring transaction and transition expenses related to the OGIO acquisition. In addition, because of the Company's prior deferred tax valuation allowance, the Company did not recognize U.S. income tax during the first quarter of 2016 and its income tax provision and after-tax income and earnings are therefore not calculated on the same basis as in the first quarter of 2017. In order to make 2016 more comparable to 2017, the Company has presented 2016 results on a non-GAAP basis by applying an assumed statutory income tax rate of 38.5% as compared to the actual first quarter 2016 effective tax rate of 3.5%. The valuation allowance was reversed in the fourth quarter of 2016. Excluding the reversal, the Company's full year 2016 effective tax rate was 41.1%.  

The manner in which this non-GAAP information is derived is discussed in more detail 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 2017 Financial Results

The Company announced the following GAAP and non-GAAP financial results for the first quarter of 2017 (in millions, except eps):

For the first quarter of 2017, the Company's net sales increased $35 million to $309 million compared to $274 million for the same period in 2016. The increase in net sales is attributable to the strength of the Company's 2017 product line, including an exceptionally strong launch of the EPIC driver and fairway woods as well as increased golf ball sales, including the new Chrome Soft X ball, which has also exceeded expectations. In addition, net sales of gear and accessories increased significantly as a result of the Company's acquisition of OGIO in the first quarter of 2017 and the new apparel joint venture in Japan, which was formed in the third quarter of 2016. Net sales increased in all major regions and reflected market share gains in those regions.

For the first quarter of 2017, the Company's gross margin of 47.8% was better than the Company expected as a result of better pricing and mix of products sold. The 50 basis point decrease compared to 2016 gross margins of 48.3% reflects the different economics of the apparel joint venture and the OGIO business, which have lower gross margins and lower relative operating expenses (with overall higher operating margins) as compared to the Company's golf equipment business. 

Operating expenses increased $17 million to $104 million in the first quarter of 2017 compared to $87 million for the same period in 2016. This increase is primarily due to the addition in 2017 of operating expenses from the Japan joint venture and the consolidation of OGIO, as well as $4 million in non-recurring OGIO transaction and transition expenses. 

First quarter 2017 earnings per share was $0.27, compared to $0.40 for the first quarter of 2016.  The decrease on a GAAP basis was caused by the $4 million ($0.03 per share) OGIO transaction and transition expenses in the first quarter of 2017 and the difference in effective tax rates.  In the first quarter of 2016, the Company did not recognize U.S. income taxes due to the Company's deferred tax valuation allowance that existed at that time. The valuation allowance was reversed in the fourth quarter of 2016 and the Company therefore recognized U.S. income taxes in the first quarter of 2017. On a non-GAAP basis, which excludes the impact of the non-recurring OGIO transaction and transition expenses and applies a statutory tax rate of 38.5% to 2016 pre-tax income as discussed above, the Company would have reported earnings per share for the first quarter of 2017 of $0.30, compared to earnings per share of $0.26 for the first quarter of 2016.  

Business Outlook for 2017

Basis for 2017 Non-GAAP Estimates. The Company's 2017 non-GAAP estimates exclude non-recurring transaction and transition expenses related to the OGIO acquisition, which are estimated to be approximately $7 million for full year 2017.  The amount incurred in the first quarter of 2017 was $4 million, which was in line with the Company's expectations.

Basis for 2016 Pro Forma Results.  In order to make the 2017 guidance more comparable to 2016, as discussed above, the Company has presented 2016 results on a pro forma basis by excluding from 2016 the prior $0.11 per share gain from the sale of a small portion of the Company's Topgolf investment. Furthermore, the Company excluded from full year 2016 the $1.63 per share non-recurring benefit from the reversal of the deferred tax valuation allowance and calculated 2016 pro forma second quarter earnings based upon an assumed statutory tax rate of 38.5%. 

Full Year 2017

Given the Company's financial performance during the first quarter of 2017, the Company is increasing its full year financial guidance as follows:

The Company's revised 2017 net sales estimate of $960 million - $980 million represents an increase of $45 million - $50 million over its prior estimate.  This would result in net sales growth of 10% -13% in 2017 compared to 2016.  Incremental sales growth versus previous estimates is expected to be driven by market share gains related to the Company's 2017 product line, including the EPIC driver and fairway woods, and incremental sales from the OGIO business and the Japan apparel joint venture. In addition, the Company is currently estimating that year-over-year changes in foreign currency exchange rates will have less of a negative impact than originally estimated. The Company currently estimates that changes in foreign currency rates will adversely affect projected 2017 net sales by approximately $16 million as compared to its prior estimate of $28 million.  

The Company currently estimates that its 2017 non-GAAP gross margin will improve 100 basis points from the prior estimate. This increase is expected to be driven by continued favorable pricing, mix and operational efficiencies.  

The Company estimates that its 2017 non-GAAP operating expenses will increase $16 million compared to prior estimates. This increase in operating expenses reflects increased variable costs related to higher sales and performance, the impact of changes in foreign currency exchange rates, as well as targeted investments in the core business. 

The Company increased its non-GAAP earnings per share guidance by $0.10 to $0.31 - $0.37 primarily due to the projected increase in net sales and improved gross margins. The Company's 2017 earnings per share estimates assume a tax rate of approximately 36% and a base of 96 million shares.

Second Quarter 2017

The Company currently estimates the following results for the second quarter of 2017:

The Company expects sales growth of 18% - 22% in the second quarter of 2017 compared to the same period in 2016. This projected sales growth reflects anticipated growth in the core business as well as growth from the Japan apparel joint venture and the OGIO business.  It is anticipated that this growth will be partially offset by weaker foreign currencies in the second quarter of 2017 compared to the same period in 2016.

The Company's non-GAAP earnings per share for the second quarter of 2017 is estimated to increase $0.16 - $0.19 per share to $0.28 - $0.31 compared to $0.12 for the second quarter of 2016. This projected increase is due to higher sales and stronger gross margins. The Company's 2017 second quarter earnings per share estimates assume approximately 96 million shares, which is consistent with the second quarter of 2016. 

Conference Call and Webcast

The Company will be holding a conference call at 2:00 p.m. PDT today to discuss the Company's financial results, outlook and business. The call will be broadcast live over the Internet and can be accessed at http://ir.callawaygolf.com/. To listen to the call, and to access the Company's presentation materials, please go to the website at least 15 minutes before the call to register and for instructions on how to access the broadcast. A replay of the conference call will be available approximately three hours after the call ends, and will remain available through 9:00 p.m. PDT on Thursday, May 11, 2017.  The replay may be accessed through the Internet at http://ir.callawaygolf.com/.

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 the United States ("GAAP").  To supplement the GAAP results, the Company has provided certain non-GAAP financial information as follows:

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 U.S. Dollars based upon the foreign currency exchange rates for the applicable comparable period. It does not include any other effect of changes in foreign currency rates on the Company's results or business.  

Adjusted EBITDA.  The Company provides information about its results excluding interest, taxes, and depreciation and amortization expenses, as well as non-recurring Ogio transaction and transition expenses and the second quarter 2016 gain realized from the sale of a small portion of the Company's Topgolf investment.

Other Adjustments. The Company presents certain of its financial results (i) excluding tax benefits received from the reversal of a significant portion of its deferred tax valuation allowance, (ii) excluding gains from the sale of a small portion of its Topgolf investment, (iii) excluding the non-recurring Ogio expenses or (iv) by applying an assumed estimated statutory tax rate of 38.5%.

In addition, the Company has included in the schedules to this release a reconciliation of certain non-GAAP information to the most directly correlated 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 or prospects, including statements relating to the Company's estimated 2017 sales, gross margins, operating expenses, and earnings per share (or related tax rate and share count), the estimated impact from changes in foreign currency rates, and the expected timing and amount of expenses related to the integration of the OGIO acquisition, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These statements are based upon current information and expectations. Accurately estimating the forward-looking statements is based upon various risks and unknowns including any unfavorable changes in U.S. trade, tax or other policies, including restrictions on imports or an increase in import tariffs; delays, difficulties, or increased costs in integrating the acquired OGIO business or implementing the Company's growth strategy generally; consumer acceptance of and demand for the Company's products; the level of promotional activity in the marketplace; unfavorable weather conditions; future consumer discretionary purchasing activity, which can be significantly adversely affected by unfavorable economic or market conditions; future retailer purchasing activity, which can be significantly negatively affected by adverse industry conditions and overall retail inventory levels; and future changes in foreign currency exchange rates and the degree of effectiveness of the Company's hedging programs. Actual results may differ materially from those estimated or anticipated as a result of these risks and unknowns or other risks and uncertainties, including continued compliance with the terms of the Company's credit facilities; delays, difficulties or increased costs in the supply of components or commodities needed to manufacture the Company's products or in manufacturing the Company's products; the ability to secure professional tour player endorsements at reasonable costs; any rule changes or other actions taken by the USGA or other golf association that could have an adverse impact upon demand or supply of the Company's products; a decrease in participation levels in golf; and the effect of terrorist activity, armed conflict, natural disasters or pandemic diseases on the economy generally, on the level of demand for the Company's products or on the Company's ability to manage its supply and delivery logistics in such an environment. For additional information concerning these and other risks and uncertainties that could affect these statements, the golf industry, and the Company's business, see the Company's Annual Report on Form 10-K for the year ended December 31, 2016 as well as other risks and uncertainties detailed from time to time in the Company's reports on Forms 10-K, 10-Q and 8-K subsequently filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

About Callaway Golf
Through an unwavering commitment to innovation, Callaway Golf Company (NYSE:ELY) creates products designed to make every golfer a better golfer. Callaway Golf Company manufactures and sells golf clubs and golf balls, and sells bags, accessories and apparel in the golf and lifestyle categories, under the Callaway Golf®, Odyssey®, and OGIO brands worldwide. For more information please visit www.callawaygolf.com, www.odysseygolf.comand www.ogio.com.

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SOURCE Callaway Golf Company