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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

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PR Newswire

CARLSBAD, Calif., May 4, 2017

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%.

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Topgolf Callaway Brands Corp

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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):

2017 RESULTS (GAAP)				NON-GAAP PRESENTATION
	Q1 2017	Q1 2016	Change	Q1 2017 non-GAAP	Q1 2016 non-GAAP	Change
Net Sales	$309	$274	$35	$309	$274	$35
Gross Profit/ % of Sales	$148 47.8%	$132 48.3%	$16 (50) b.p.	$148 47.8%	$132 48.3%	$16 (50) b.p.
Operating Expenses	$104	$87	$17	$100	$87	$13
Pre-Tax Income/(loss)	$39	$40	($1)	$43	$40	$3
Income Tax Provision/(Benefit)	$13	$1	$12	$15	$15	$0
Net Income	$26	$38	($12)	$28	$24	$4
EPS	$0.27	$0.40	($0.13)	$0.30	$0.26	$0.04

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:

Revised 2017

GAAP Estimate

Revised 2017

Non-GAAP Estimate

Previous 2017

Non-GAAP
Estimate

2016

Pro Forma
Results

Net Sales

$960 - $980 million

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