Q1 2021 Callaway Golf Co Earnings Call
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[music].
Good day, and thank you for standing by and welcome to the Q1, and 2021 and Callaway Golf earnings Conference call.
All participants are in a listen only mode.
After the Speakers' presentation, there wasn't too much.
And did answer session quest.
And question during the session you will need to press star one on your telephone please be advised that today's conference is being recorded.
Would require any further assistance. Please press star zero and I would now like to hand, the conference over to Patrick Burke head of Investor Relations. Thank you. Please go ahead.
Thank you Erica and good afternoon, everyone.
Welcome to Callaway is first quarter of 2021 earnings conference call and Patrick Burke, the company's head of Investor Relations join.
Joining me on today's call are chip Brewer, our president and Chief Executive Officer, Brian Lynch, Our Chief Financial Officer.
Jennifer Thomas our Chief Accounting Officer.
And already Star, our Chief Executive Officer of top golf, and William Davenport, Our Chief Financial Officer of top golf.
Today, the company issued a press release announcing its first quarter 2021 financial results a copy of the press release and associated presentation are available on the Investor Relations section of the company's website at Www Dot IR Dot Callaway golf Dot com.
Most of the financial numbers reported and discussed on today's call are based on U S. Generally accepted accounting principles and.
And the few instances, where we reported non-GAAP measures, we have reconciled the non-GAAP measures to the corresponding GAAP measures at the back of the presentation and.
In accordance with regulation G. Please note that this call will include forward looking statements and involve risks and uncertainties that could cause actual results to differ materially from management's current expectations.
We encourage you to review the Safe Harbor statements contained in the presentation and the press release for a more complete description.
Please note that in connection with our prepared remarks, Theres and a company Powerpoint presentation and it may make it easier for you to follow the call. Today. This earnings presentation is available for download on the Callaway Investor's website under the webcast and presentations tab also on the same tab you can choose to join the webcast to learn.
And to the call and view the slides as a webcast participant you are able to flip through the slides I would now like to turn the call over to Chad. Thanks, Patrick Good afternoon, everybody and thank you for joining us for today's call.
Starting on page five of the presentation.
And it's great to be with you today to discuss what we believe were excellent Q1 results and.
As well as to provide some color on the outlook for the business going forward.
Our Q1 results exceeded our revenue and profitability expectations and all three of our principal business segments.
Our golf equipment segment continued to experience unprecedented demand, which combined with a strong performance by our supply chain team delivered 29% revenue growth versus 2020.
And 16% growth versus 2019.
Our apparel and soft goods segment also over performed our expectations driven by positive brand momentum and both Travis Matthew and Jack will skin.
The fact that this segment delivered positive segment profitability was in my opinion and exceptional performance given the headwinds faced by COVID-19 restrictions and shutdowns and the European markets.
I believe these trends bode very well for the long term outlook of this segment.
Lastly, top golf outperformed expectations based on a faster than anticipated recovery and demand as.
As well as strong operating efficiencies.
We believe it would be hard to find three better positioned business segments, both for the current environment and our expectations going forward.
I'd like to take this chance to thank the entire Callaway global team, which I'm happy to call out and now includes top golf and its related brands for the hard work required and delivering these results as well as navigating the many challenges presented by both these extraordinary times and the exciting strategy we're implementing.
And many.
Like me and I'm sure our team remains highly motivated to capitalize on the strong list of opportunities in front of us.
Let's now turn to page six and jump into our Q1 results by segment.
Our golf equipment segment continues to benefit from record demand levels.
According to golf dataset U S retail sales of golf equipment, and hard goods were up 49% compared to Q1, 2019, and 72% compared to 2020.
Thus setting another record for Q1, just as the last few quarters delivered records for their respective time periods.
Our supply chain team did a great job and Q1 chasing demand and exceeding our expectations on supply.
Even with this great work field inventory levels remain extremely low and we expect them to remain so at least through mid year and perhaps even longer.
Fortunately, we also believe our supply chain is and will continue to deliver us a competitive advantage through the balance of the year, especially and custom fitting where demand is also searching right now.
Although we fully expect the current unprecedented demand to moderate at some point.
And we've yet to see a slowdown and we continue to see particular strength in product aimed at womens juniors and new entrants to the game.
We are now quite confident that 2021 will be a very strong year and we also believe there will be a long term benefits of the golf industry as we expected it will leave the pandemic period with a significantly larger total addressable market and strong momentum.
Our Q and market share was a little weaker than desired during the quarter as all four major golf equipment brands launched metal wood product. This year, while Q1 and 2020 only had two of the four launch.
We never like to see share, but at this point, we're not overly concerned as our most recent share trends are improving we expect this improvement to Kent and used through Q2, and we are performing relatively stronger and key accounts that are not reported to date attack as well as the strategically important green grass channel.
Furthermore.
And we've been receiving excellent feedback on the performance of our products, especially the epic Max Woods and the apex forged irons.
The two vaults and Qatar as well as our entire ball lineup.
We also remain comfortable with our brand strength and position.
And the U S Third party research from day detect showed our brand to be the number one club brand and overall brand rating as well as the leader in innovation and technology.
Over the last several years, we have shown resilience with these important brand positions.
Turning to our soft goods and apparel segment.
Given the headwinds faced by COVID-19 restrictions and Lockdowns and the European markets and results delivered in this segment were both better than our expectations and in my opinion and exceptional performance.
Looking at the larger individual businesses and this segment starting with Travis Matthew we.
We had high expectations for growth and still the business exceeded these expectations draw.
Driving this performance E comm was up a 145% year over year and Q1.
And company owned stores Comped up nearly 10% despite some COVID-19 restrictions early in the quarter.
And I'll throw and wholesale wholesale was also very strong.
Ryan Ellis and his team at Travis Matthew are to be commended as momentum for this business is at an all time high.
Turning to Jack will skin. This is the business that probably most over performed to expectations and Q1.
And as you probably recall this business has started to deliver some nice year over year growth at the end of last year and it was starting to look like we had turned the corner and brand momentum.
Oh, the COVID-19 resurgence and resulting third wave shutdowns in Europe, we were naturally concerns.
Although these circumstances have significantly impacted our business how could they not and.
And they will continue to do so through at least Q2.
Our brand momentum and our European E Comm channel and key digital partners has really moderated that negative impact.
And by and this with both nice growth in China, and strong financial discipline, and what could have been a significant drag on our business has become manageable.
On top of this the improving brand momentum should set us up for a strong second half.
Assuming of course, the European markets open up as expected by then.
Our sell through momentum and this business is good.
And pre books for the fall Winter line had been quite strong.
As a reminder, Richard Collier joined the brand and December as CEO.
Richard joined US from Kelly Thompson, where he held the title of global product officer, and served and that capacity as well as the fact, though.
We also welcomed and Jake grew bay to the brand as CFO last October coming to us from a mood.
We are really pleased with the leadership team, we now have in place and I'm increasingly confident in the future of this brand.
Last but not least a few comments on the callaway branded soft goods business.
As mentioned last quarter and Korea, we plan to take back the Callaway golf apparel brand and there has been licensed to a third party for several years and launch our own apparel business during the second half of this year.
We remain on track for this and are investing and staffing and T.
T systems Accordingly.
The team there is energized by this opportunity as this is something they have been considering for several years now.
Taking a step back and looking at the Big picture.
For the last year, the hero of the soft goods and apparel segment is certainly E com.
This is a channel that was significantly strengthened by investments we made prior to the pandemic as well as those continuing to this day.
These investments enable our apparel business E comm to deliver 96% year over year growth and Q1.
E. Com is now a significant portion of the channel mix of this segment and we are confident our band and capabilities and strength tier will bolster this business growth prospects and profitability going forward.
Post COVID-19, we continue to expect and apparel and soft goods segment to grow faster than our golf equipment business and with that growth to deliver operating leverage and enhanced profitability and.
And although the pandemic delayed our efforts, we still believe we'll be able to deliver $15 million of synergies and this segment over the coming years.
Like our company overall this segment with its concentration and golf and outdoor appears to be well positioned for both the months and years ahead, both during the pandemic and actor.
Now turning to top golf.
This exciting new segment also outperformed expectations based on a faster than anticipated recovery and demand as.
As well as strong operating efficiencies.
We were pleased to close the transaction in early March and equally pleased to onboard Artie starrs and as the new CEO and early April.
Rd brings a wealth of valuable experience and talent to an already strong management team and an exciting business.
Needless to say I'm thrilled by this combination.
On the venue side all venues are now opened globally.
After a challenging start to the year COVID-19 restrictions are continuing to EPS.
COVID-19 impacted so these include the impact of venue shut or restricted due to COVID-19. During the period same venue sales versus 2019 was and the low <unk> for the quarter, which was above our expectations and showed improving trends through the quarter.
We now believe we will be either at the high and were modestly above our previous full year same venue sales expectations, which was 80% to 85%.
Walk in traffic remained stronger than events still.
And both are trending well.
Our financial results benefited from the same venue sales b as well as the operating efficiencies that are higher and both historical levels and our plan.
Some of this is due to the fact that and the current environment like so many other service businesses, it's hard to keep the venues fully staffed.
Fortunately, we're working through this well and so far it is neither meaningfully constrained us nor has it had a negative impact on guest satisfaction measures.
This availability of labor is an interesting development, which is likely playing out across the entire U S economy.
We see it as a manageable challenge as of now.
Also with these results we're increasingly confident that previously communicated venue economics will be achievable long term.
We successfully opened five new venues so far this year.
Two and Q1 and three so far and Q2.
Globally, we are 66 company owned venues and operation.
For the full year, we are on track to open at least three more venues for a total of at least eight venues this year.
We also remain confident and our pipeline for future values.
Turning to top tracer.
We successfully installed 1533 days in Q1, a new record despite the COVID-19 challenges globally.
We now have just over 10000 base globally, which is significantly more than our largest competitor.
Demand remains strong for the product and we are finding strong synergies between the Callaway sales team and the top tracer team.
We remain on track for 8000 base this year.
At the end of this week, we will be launching the next global top tracer tournament and the nine shop challenge.
And this time presented by the PGA of America, and the PGA Championship.
This is an excellent example of how we can leverage our global scale and build a digital community.
Looking forward.
Given the unsettled market conditions globally, we are still not providing specific revenue and earnings guidance.
However, we now have enough new information and visibility to provide the following color.
As discussed on our previous calls we continue to have headwinds and our supply chain logistics and labor.
As far as far as I'm aware most companies do at this point.
Our cost estimates for these headwinds have increased since we last spoke however.
However, our supply chain and HR teams and proving up to these challenges I believe we may even have a competitive advantage here.
Also at present and the demand is high enough that positive volume variances are expected to overshadow. The majority of this year's cost impacts from these challenges.
We also continue to make select reinvestments back into our business.
For the balance of the year these will be marginally more than what we discussed during our last call.
These include incremental new store openings, and Travis Matthew investments and day demand creation and digital resources for all brands as well as the Korea apparel business, we have a track record from making these kind of internal investments and are confident these will deliver high returns for shareholders.
Although we continue to fight COVID-19 impacts globally and business conditions remain unsettled the strong demand equation and the momentum of our brands as such that is clearly going to be a strong financial year significantly stronger than previously thought.
We now expect that revenue and adjusted EBITDA for the full 12 months of 2021, we will meet or beat 2019 results more specifically, we are now expecting our legacy business to exceed its 2019 results.
And the top golf business to meet or exceed its 2019 full year results as measured over the full 12 month period.
And it's worth noting that a couple of quarters ago.
I thought this was not and reach.
I'm happy to have to correct that previous statement.
Lastly, we are increasingly confident in the future potential of this unique and powerful business.
Over to you.
Thank you chip.
We are very pleased with our first quarter results with consolidated revenue increased from 47% and adjusted EBITDA increasing to 113%.
<unk> to the same period and 2020.
Our consolidated revenue and adjusted EBITDA for the first quarter of 2021.
And so increased by 26% and 38% respectively compared to the first quarter of 2019.
Each of our three operating segments performed ahead of plan during the first quarter of 2021.
Yeah.
In addition to this better than expected operating performance.
Liquidity has also improved substantially compared to a year ago.
As of March 31, 2021, our available liquidity, which was comprised of cash on hand and availability under our credit facilities.
And was $713 million compared to 216 $260 million at March 31, 2020.
Oh and all we were pleased with the current state of our business and are optimistic from the balance of the year.
And evaluating our results for the first quarter you should keep in mind, some specific factors that affect year over year comparisons.
First as a result of yoyo, Travis Matthew and Jack Woolskin acquisition.
We incurred noncash amortization expense of intangible assets and the first quarter of 2021 and 2020.
The first quarter of 2021 also includes noncash amortization of intangible assets related to the top golf merger as well as depreciation expense from the fair value step up top golf property plant and equipment and expense related to the fair value adjustments to tough comps leases and debt.
Second we also incurred other acquisition and non recurring charges and the first quarter of 2021, including.
Including top golf merger transaction and transition expenses.
And implementation costs related to the new Jack woke and IP system.
And 2020, the company incurred nonrecurring integration costs related to the Jack <unk> acquisition and costs related to the transition to our new North American distribution Center and Texas.
Third we recognized and the first quarter of 2021, a $253 million noncash gain related to the write up of our pre merger top golf investment.
Fourth we incurred and the first quarter of 2021 and will continue to incur non cash amortization and debt discount from the notes issued during the second quarter of 2020.
Fifth we recorded and the first quarter of 2021, and noncash valuation allowance related to certain of our deferred tax assets as a result of the merger.
Lastly, the top Cup merger was completed on March eight 2021 top golf generally operates and a 13 week quarter.
As a result, our first quarter 2021 financial statements.
<unk> top golf results for a four week period commencing March eight 2021, and then April 4th.
This can become confusing and we will do our best to call out when we were discussing top golf results for the fourth quarter versus the four week stub period for you should you do care. We're preparing your models to ensure you were using the correct one.
We have provided and the table says release a schedule detailing the impact of these items from our first quarter results and these items are excluded from our non-GAAP results.
With those factors in mind I will now provide some specific financial results for the first quarter of 2021 compared to the first quarter of 2020.
Yes.
Turning now to slide 11.
Today, we are reporting record consolidated first quarter 2021, net revenues of $652 million.
Compared to $442 million from the same period, and 2020 and increase of $210 million from 47%.
This increase was led by a 26% increase and the legacy Callaway business as well as an incremental $93 million from the <unk>.
Four weeks of the top golf business.
Changes in foreign currency rates had a $17 million favorable impact from first quarter 2021 net sales.
We are also reporting for the first quarter of 2021 operating income was $76 million.
And increase of $35 million or 85% compared to $41 million from the same period and 2020.
On a non-GAAP basis operating income from the first quarter of 2021 was $97 million.
$54 million or 126% increase compared to 43 million from the same period and 2020.
The increase and non-GAAP operating income was led by a $50 million increase and segment operating income from the legacy Callaway business as well as an incremental $4 million from the four weeks from the top golf business.
Yes.
Other income was $244 million and the first quarter of 2021.
Compared to other expense of $3 million and the same period of the prior year.
This includes the $253 million noncash gain related to the top golf merger.
On a non-GAAP basis, which excludes <unk> and top golf game.
Other expense was $5 million and the first quarter of 2021.
Paired to other expense of $3 million for the comparable period in 2020.
The $2 million increase and other expense was primarily related to higher interest expense related to incremental interest from the convertible bonds issued in May 2020.
Four weeks of top golf interest.
Partially offset by a decrease and foreign currency related losses.
Pre tax income was $320 million and the first quarter of 2021 compared to $38 million for the same period and 2020.
Non-GAAP pretax income was $91 million and the first quarter of 2021 compared to non-GAAP pre tax income of $41 million from the same period of 2020.
Earnings per share was $2 19, central and approximately 125 million shares and the first quarter of 2021.
Compared to earnings of 34, and approximately 96 million shares and the first quarter of 2020.
Non-GAAP earnings per share was <unk> 62, and the first quarter of 2021 compared to earnings per share of <unk> 32 for the first quarter of 2020.
Fully diluted earnings.
Fully diluted share excuse me were $125 million and the first quarter of 2021 compared to 96 million shares for the same period and 2020.
And that 29 million share increase is primarily related to the issuance of additional share in connection with the top golf merger.
Full year estimated diluted shares is approximately 176 million shares.
Which represents the weighted average shares issued in connection.
With the merger over approximately a 10 month period.
As of March 31, 2021, we had approximately 185 million shares that were issued and outstanding.
Adjusted EBITDA was $128 million and the first quarter of 2021 compared to $60 million and the first quarter of 2020, and 93 billion and the first quarter of 2019.
Top golf contributed adjusted EBITDA of $15 million for the four week period.
To provide some additional perspective, the top golf first quarter 2021, and <unk> EBITDA.
EBITDA the full three months was $17 million.
The golf equipment segment, net revenue increased $85 million and 29% to $377 million and the first quarter of 2021 compared to $292 million and the first quarter of 2020.
This increase was driven by the continued surge and golf demand and participation our supply chain team's ability to secure and greater than expected supplier of golf equipment components during the first quarter as.
And as well as the COVID-19 shutdowns across portions of our business and the first quarter of 2020.
Both golf club and golf ball sales increased by 26% and 50% respectively.
And golf equipment segment operating income was $85 million or 22, 5% of net revenues and the first quarter of 2021 compared to $59 million or 22% of net revenues and the first quarter of 2020.
And an increase of $26 million from 230 basis points.
The increase was driven by the and increased revenue operating expense leverage and favorable foreign currency exchange rates.
Our share offset by increased freight and product mix, including lower margins or higher technology golf club product offerings and package sets.
The apparel gear and other segments net revenue increased $31 million or 21% to $182 million and the first quarter of 2021 compared to $151 million and the first quarter of 2020.
The increase was driven by a 23% increase and apparel sales as well as and 18% increase and gear and accessories and other.
Both the Travis Matthew and Jack will Scream businesses are recovering from the pandemic faster than expected. Despite continued retail restrictions and other effects from COVID-19, particularly in Europe.
The apparel gear and other segments operating income increased $24 billion to $20 million compared to a loss of $4 million from the same period and the prior year.
And 2021 of this equated to a 11% and segment revenue and.
And one 360 basis point improvement over the first quarter of 2020.
The increase was driven by the increased sales and operating expense and cost of revenue leverage and favorable foreign exchange rates and increased commerce revenue.
Partially offset by lower retail revenue and Jack Wolfgang due to further government mandated retail shutdowns during the first quarter and central Europe.
The top golf segments net revenue was 93 billion and the first quarter of 2021, which includes four weeks from the top golf business.
The top golf segments operating income was 4 million from the four week stub period.
To provide investors additional perspective.
Top golf full first quarter net revenues were $236 million and full first quarter GAAP operating loss was $30 million.
And are and a non-GAAP basis top golfs operating loss was $15 million.
Turning now to slide 13, and I will now cover certain key balance sheet and other items.
As of March 31, 2021 available liquidity.
Was $713 million compared to $260 million at the end of the first quarter.
This additional liquidity reflects higher revenues and the legacy Callaway business.
Proved liquidity from working capital management and proceeds from the convertible notes we issued during the second quarter.
At March 31, 2020, we had total net debt and 1100 $60 million.
Including $640 million of top golf related net debt.
The top golf and golf that includes deemed landlord financing of $222 million related to financing the venues business.
Our consolidated net accounts receivable was $329 million and increase of 27% compared to $260 million and at the end of the first quarter of 2020.
Days sales outstanding decreased slightly to 61 days from March 31, 2021, compared to 62 days as of March 31 2020.
The increase and net accounts receivable, primarily is attributable to the increase of first quarter revenue, but also includes an incremental $9 million of accounts receivable.
We continue to remain very comfortable with the overall quality of our accounts receivable at this time.
Yeah.
And also displayed on slide 13, our inventory balance decreased by 19%.
$336 million at the end of the first quarter of 2021.
Compared to $413 million at the end of the first quarter of the prior year.
The $77 million decrease was due to the high demand, we're experiencing and the golf equipment business recovery of our soft goods businesses as well as inventory reduction efforts and the soft goods business.
And.
Capital expenditures for the first quarter of 2021 were $29 million.
This includes $16 million related to top golf.
And from a full year 2021 forecast perspective, the legacy Callaway forecast is increasing to approximately $65 million versus the previous forecast of $50 million due to capacity investments and our plants and warehouses.
As well and increasing the number of play and transmit a few owned retail stores.
Yeah.
The full year that is 12 months forecast for Callaway and top golf is approximately $265 million driven primarily by the new venue openings.
And if you include top golf for only 10 months that would be approximately 235 day.
Depreciation and amortization expense was $20 million and the first quarter of 2021 non.
Non-GAAP depreciation and amortization expense was $17 million from the first quarter of 2021.
Compared to $8 million and 2020.
This includes $9 million of non-GAAP, depreciation and amortization related to top golf.
To help give investors additional perspective, the top golf full Q1, non-GAAP depreciation and amortization was $27 million.
For the full year and 2021, we expect non-GAAP depreciation and amortization expense to be approximately $155 million, which includes a $150 million from the top golf business.
And now on slide 14.
We're not providing specific revenue and earnings guidance ranges from 2021 at this time due to the continued uncertainty surrounding the duration and impact of COVID-19.
However, we would like to provide some guidance comments, we previously made.
First last quarter, we provided some guidance from full year consolidated gross margins and operating expenses.
Due to the merger with top golf that guidance is no longer applicable.
We are no longer providing specific guidance for consolidated gross margins and operating expenses given the disparate treatment of those items from the legacy Callaway business and the top golf business.
With that said I would like to call out a few factors that have changed since our call in February.
First we have changed our accounting for co op advertising and our golf equipment business from.
For 2021, it is treated as a discount to sales as opposed to and operating expense and 2020 and 2019.
This negative and this negatively impacted gross margins for the golf equipment business and the first quarter of 2021 by approximately 85 basis points and we will continue to affect comparisons with prior periods for the balance of the year as prior periods were not changed.
There is no change to operating income this is only a shift between gross margin and operating expenses.
We previously estimated that the freight container shortage was expected to have a negative impact from $13 million on freight cost from 2021.
The substantial majority of affecting the first half.
At this point the impact of COVID-19, and our overall freight cost is expected to be greater than the $13 million with more cost hitting the balance of the year than originally expected.
We also previously estimated net operating expenses for the legacy Callaway business would be approximately $70 million to $80 million higher than in 2019 due.
Due to the negative impact of foreign currency and inflationary pressures and continued investment and the company's business.
Which included investment needed to assume the Korea apparel business investment and the other soft goods businesses and investment and from tour.
We now expect that these factors along with both deferred spending from the first quarter and increased variable costs associated with increased revenue and higher stock price will have and overall greater impact and we originally anticipated for the balance of the year.
In addition, we plan to invest a little more back into our business than originally planned.
These incremental investments include additional Travis Matthew stores, given that brand's momentum and the availability and favorable lease terms and the current environment and incremental investments and demand creation and digital resources for all brands as well as the Korea apparel business.
Lastly, we along with most other companies are experiencing increased wage pressure due to a tight labor market increased freight cost as I mentioned earlier and increased commodity prices.
These are impacting all aspects of our business.
We're seeing increased freight costs in terms of increased container prices, but also increased air freight expense as well.
We're also seeing an increase in commodity prices from steel and titanium from Robert and urethane to textiles, and from cheese and chicken wings.
As chip mentioned and present demand is high enough to positive volume variances are expected to overshadow. The majority of these increased costs with these increased costs and the aggregate will still have some impact from balance of your operating margin.
And 2022, we will have to explore price increases at those higher costs continue.
We have previously guidance due to the impact of COVID-19, the company's revenue and adjusted EBITDA would not return to 2019 levels until 2020 to free the legacy Callaway business or the top golf business.
Given the faster than expected recovery of both businesses and with all three of our operating segments performing above plan and the first quarter.
We now projected revenue and adjusted EBITDA from our legacy businesses will exceed 2019 levels and then our top golf business for the full 12 months of 2021 will meet or exceed 2019 levels, which is a year faster than expected.
As a reminder, and 2019 the Callaway legacy business reported revenue of $1 7 billion and adjusted EBITDA of $211 million.
For full year 2019, that's 12 months the top golf business reported revenue and one point and zero 6 billion and adjusted EBITDA of $59 million and.
In 2019.
Please note. The Callaway is actual reported full year financial results will only include 10 months of top golf results and 2021, and therefore will not include January and February results, which were in the aggregate $143 million and revenue and $2 $3 million and adjusted EBITDA.
That concludes our prepared remarks today, and we will now open the call for questions operator over to you.
And just a reminder to ask a question.
Press Star one on your comes from.
To withdraw your question press the pound key.
And you answered you limit yourself to one question and one follow up question. Thank.
Thank you.
And Ross.
Yes.
Your first question is from Randall <unk> with Jefferies.
Hey, Thanks, a lot can you hear me guys.
Sure Ken.
Alright, good afternoon.
Jeff I just want to ask a question we got some good color there on how we should be thinking about 2021.
I just wanted to get your level.
And your level of comfort on how youre thinking about.
And those 2022 members your guidance with I believe it was about $3 2 billion and sales and about $360 million and adjusted EBITDA and just wanted to get your thoughts on how youre thinking about those goals.
And for next year.
Yes, good question Randy.
As.
Previously discussed and.
The calls that we've had the 'twenty two 2020 two guidance that we gave in conjunction with.
The announcement of the top golf.
Merger.
We believe was conservative and I think we can even take that a step further now and say that we expect to be better than that.
<unk> better than the $360 million and adjusted EBITDA in 2022, However, we're not providing the specific estimates at this point and we do hope to.
To be able to restore at least annual guidance early next year as part of our previous practice.
That's super helpful.
And last question is you gave us some color on on top tracer, all where you said that you expect to hit those 8000 days.
And I keep going to all these driving range, if it looks like theres stuff and the 19 nineties and and in desperate need of this top tracer technology and mix.
And as always Pat now.
So how do you are you getting a lot more incremental inbound and.
So do you think that day.
The level of installations can potentially rise over time as your construction teams get used to the installation process and get better and faster and what they do just curious from your thoughts there yes Randy.
And very encouraged and and properly increasingly encouraged by that business. So.
Q1, you have to keep in mind, you know had significant COVID-19 restrictions in various parts of the world and we still do and various parts of the world. So the fact that we're comfortable with the 8000, which was our previous communication Bay installs means that.
Among other things that the demand for the product is quite good and it's also an area, where we're seeing very strong synergies with the.
Callaway business being able to generate additional leads and.
And.
Sales pipeline for the top tracer business so.
And as we work through the COVID-19 environment and scale that business, yes, we remain very optimistic and.
Hopefully there is some upside potential.
Great Super helpful. Thanks, guys.
Thank you.
Your next question is from Brett Andress with Keybanc capital markets.
Hey, good afternoon guys.
Can you give us any detail on the cadence of same store sales and the quarter just how it progressed from January to March April May just trying to get a feel for the exit rate of the business and then if you look at the non COVID-19 impacted units how did those units compare to that low <unk> number that you gave us.
Okay, Hey, Brett chip.
So as you would've expected the same venue sales ramp during the quarter. If you go back it seems like a long time ago now, but in Q1, even in the U S.
COVID-19 was pretty hot and heavy and the January time period, we were scaling back up and there were significant restrictions and the U S as well as globally and so as you would expect the same venue sales ramped nicely during the quarter.
And were at their highest point towards the end of.
For the quarter.
What was the other question Brett.
And just the non COVID-19 impacted units, what how those units compared to that low <unk> number that you gave us for Brett I'm not going to be able to give you anything.
And on attainted lay there unfortunately, the level of granularity there.
And beyond what we're comfortable with.
To a degree you could argue that most work COVID-19 impacted at some stage during the quarter, but.
Certainly the results vary.
By venue and location and we prefer not to get into specifics of.
Which venue did better than the others at this stage.
Got it Okay. That's fair and then Mike My follow up is.
Can you just talk about what youre seeing and the events piece of the top golf business. I mean, how is the events business doing compared to 19 I.
I guess today and then.
And you look into the back half of the year, presumably you have some visibility right in terms of the event on the <unk>.
Alex can you just maybe.
Talk about that and how you see the events recovery playing out for topical sure, but again it'll be a.
Qualitative not quantitative discussion so the events are <unk>.
Still significantly impacted as you would expect.
And but they like the rest of the business ramped during the quarter.
And we are seeing increased interest.
And for events.
The events sales team is getting better.
Response and improved leads.
So we're optimistic that it will continue to ramp.
But it is still still significantly impacted as you would expect it to be and our visibility of that specific element is.
It's still not great to be honest.
We are optimistic on it and its certainly above where we expected.
But it would be beyond neighborhood predict that one for.
And for Q3 or Q4, although we like the trends.
Awesome.
Alright. Thank you. Thank you.
Your next question is from Joe.
With Raymond James.
Thanks, Hey, guys good afternoon.
First question in terms of development costs for the new venues given what we're seeing and the real estate environment and given what we're seeing across raw materials, how does the development cost for new top golf venues increased materially.
Okay.
We have seen some pressure on that it hasn't had a material impact on us at this stage, but it is something we will continue to monitor because.
All of the cost impacts across all of the business are seeing some inflation at this point, so and nothing to report at this stage, but yes, we are starting to see some things that will keep our who will keep our attention on.
Great and just a follow up on that.
Deal has closed can you provide us a little more insight.
The revenue synergies that you see for your equipment business and.
Apparel business with top golf.
Really no change and our point of view right. There, we think that it's very attractive strategically and theyre going to be significant synergies.
Not calling those out and.
And it's going to take some period of time too.
Really realize those although we're getting a nice start on it now and.
But no we're not going to specifically call anything out at this point.
Okay understood. Thank you.
Your next question is from Susan Anderson with B Riley.
Hi, good evening, and nice job on the quarter and.
And just really quick on the core golf business, you mentioned all of the port and freight issues going on and it does look like inventories pretty lean and so I'm. Just curious how you feel about inventory and that segment and do you feel like you've missed and even though sales were obviously very strong do you feel like you've missed any sales in the quarter should we see that from <unk>.
Spread out throughout the year because of the.
And the freight and port issues.
Yes, Susan and there were definitely constraints as the demand was so.
Strong narrowly high during Q1.
And you got to keep in mind, and Q1 is not a high sell through quarter.
<unk> was a record sell through results.
Q2 is.
And much larger quarter as Q3 from a sell through basis.
The field inventory levels are quite low and our inventories are quite low.
And we think that our supply chain team is doing a fantastic job. If you look at that.
Just the golf club side of our business.
It was up.
49% last in Q4, and 26% and Q1, so sequentially building and its building without having the time period that it had would have liked to had to build inventory for Q1, usually we take the second half of the year win.
Demand is low and build inventory at our.
Foundries.
For the subsequent quarter, we didn't have that luxury as much last year, but still.
As you can tell the team has been able to flex and grow and we think it's going to be a nice competitive advantage going forward.
I don't really think the right way to think about it personally is whether what we left on the table.
And Q1 as opposed to how strong the demand equation is how long and at sustaining at these levels.
And that we believe we have a very strong supply chain team that clearly is creating we think a competitive advantage and.
Allowing us to take advantage of the opportunities that are in front of us.
Great. Okay, that's very helpful.
And then just really quick on top golf.
And the EBITDA and it looks like it was.
Relatively strong I think versus kind of that longer term expectation you laid out. So I'm just curious if theres any updates to your thoughts around.
And EBITDA as we kind of look out over the next several years there.
Hi, Susan.
We're not providing long term guidance, there, but youre right. It was a very good EBITDA performance and just as the business recovers from COVID-19 I think youll see continue.
We're ramping that business and performance.
Great. Okay, if I could ask one last one and Jack with skin and I think you had mentioned that.
Now expected do you think it could be bigger than originally expected, maybe if you could give a little bit more and color around that is that as you add North America or are you seeing the strength in Europe, and China and greater than what you would have originally expected.
Europe, and China are really starting to hit stride, Susan and I'm.
Increasingly confident in the team.
And I'm seeing brand momentum.
We're just seeing a lot of strength and a lot of different areas. There now.
Some of these are the results from investments that we've made over the several years that we've had the business.
But a lot of confidence right now in that brand and in those markets.
And obviously, it's a difficult environment right now because Europe was literally hit and the leased and central Europe locked out.
And yet you can see.
Our confidence is increasing and the results are.
Are showing that we.
We think we're in a very good position there going forward.
Great that sounds good. Thanks, so much good luck next quarter. Thank you.
Your next question is from John Kernan with Cowen.
And good afternoon, and thanks for taking my question.
Hey, Joe Hey, Joe.
Was wondering if already is taking question I know.
He's probably excited about the opportunity to top golf and just.
And I'm curious if he's able to share.
And what his pretending to potential he views for the concept and obviously comes from me.
Deep background and restaurants, and just curious what you've seen in top golf at this point.
Gets them excited.
Yes, John and give.
That already has all of one month or one week into the new role.
And <unk>.
Bill and are not.
Not introduce him too specific.
Questions on this call. However, we look forward to exposing them to you and the other analysts and the future and obviously thrilled to have him onboard.
I'll get a very good thing.
And maybe Brian if you could go back to you Jim.
On the guidance it seems.
It seems like Youre more confident.
And maybe when the initial guidance for 2021 was provided.
The cost and so the SG&A the incremental SG&A costs.
Seem to be the biggest headwind.
For the core Callaway business, just wondering what the offsets.
Two those are as you are now going to be exceeding 2019 levels.
EBITDA.
Yeah, a lot of it is going to be the revenue over performance versus 2019.
Yes.
We still are seeing the continued surging and interest and demand and participation for golf.
And then I think youll see.
And <unk>.
It's largely that is just all of the business and recovering faster than expected golf hold fire.
The soft goods business are recovering faster than we think so that will offset.
Some of the incremental expenses between Q2 and Q4.
We're probably underperforming those expenses right now we're getting leverage because we are not able to.
Higher and we had to defer some marketing and things like that so the levels. We're at now probably are not sustainable and the Opex and we'll continue to rapid increase as we go through the year.
Understood. Thanks.
And if you want just one final question it sounds like Youre chip Youre more incrementally positive on the soft goods side of the business.
And maybe relative to where we were three months ago.
And any comment on travel.
Travis Jack will skin.
And the sales and margin opportunity there as you look you know not just for 2021 would be and.
Yes, John I'm fortunate right now and that items incrementally more positive and all three of our business segments.
And continuing to build confidence and all of them.
The Travis Matthew business is like I said and momentum is at an all time high and we had high expectations for growth going into the quarter and.
And it's outperformed those expectations and every channel.
The brand is really resonating and it's really got.
High potential I think going forward and we're excited about investing in it and is delivering.
And the Jack <unk> business that business has really started to.
And deliver as well, we're not going to call out any.
Quantifiable.
Guidance on these we've done a little bit of that and the past and it's you know when you look at the apparel and soft goods segment. It's still the segment that is most heavily impacted and it's still in Europe.
And the central European markets are still in lockdown.
But you know as shown in our results.
And we're hitting stride, we're building momentum and the good sell through and despite that strong E comm growth fall winter bookings looking really good.
China business starting to hit stride.
So we do feel very good about that business segment as we do about all three of our business segments.
Awesome. Thank you guys. Thank you.
Your next question is from Casey Alexander with Compass point.
Hi, good afternoon.
And I know we've been here for a while but just a couple of segment questions one.
And youre able to grind out a year over year increase in Europe. Despite some key markets being closed for golf for more months. This year than they were last year I am curious.
And what.
And maybe was it something outside of golf that contributed to Europe that allowed you to get a game there and Conversely.
In Japan, where there was a 7% decrease is that part of the share argument that you were talking about that drove that one market to show a decline.
Sure Casey and Europe, Yes, it was.
Outside of golf, although golf did better than you would've expected it to do given the shutdowns and that existed in that market in Q1.
The Ah <unk>.
Oral business that we have and Europe did better relatively than a year ago in Q1, where COVID-19 hit it so hard early on.
And now with the strength of our ability to do.
Business in a COVID-19 environment.
Ever performed.
And we didn't know that going into the quarter.
At the time, we had the last call with you.
They were just announcing the further shutdowns in Europe. So we were we were trying to get our arms around all of that and we outperformed our expectations and Japan.
What we saw there was a little bit of a.
A share shift during the quarter lot of its timing, though we had.
We comped a strong year in Japan last year and Q1. So are you know the whole business last year and Q1 was a little all over the map because of COVID-19, but Japan itself was up versus 2019 and 2020 for the first quarter.
And this year, our product mix and Japan sells in a little less than our products mix did a year ago.
We also shut down a few stores during the COVID-19 period, so our apparel business over there has its own stores, we closed nine actually not profitable stores, so that impacted some of the revenue.
The long and short of it and we expect Japan to be up for the full year and we remain comfortable with that business. Although it was an outlier in Q1.
Alright, great thanks for that and secondly.
And the golf balls up 50% year over year clearly the biggest trend.
Paul what would you say drove that golf ball comp.
And.
Was it.
Programs that you ran is that sustainable for the year would you expect that to back off some as the year goes along.
Casey I would probably I'd expected net back off I am not sure we can have a 50%.
Growth for the full year.
And in fact, I would guess we cannot.
However.
And I think theres, some sustainability and the good momentum, we have and the golf ball business, where we see our share up we're seeing.
Continued strength and that business and you're also seeing.
Some of the benefits of the investments we've made into that business. So last year was a particularly hard year and golf ball Weaver and the middle of trying to start up after.
Significant capital and.
Improvement plan, and then COVID-19 hit and.
And.
And it became a very difficult situation, we're starting to see the benefits of the investments we've made and the brand position is strong and as you can tell the demand equation is equally strong.
Okay, great. Thank you for taking my questions. Thank you Casey.
Final question is from Alex Chang with Beringer.
Hi, Good afternoon, guys. Thanks for taking my questions and theirs.
Sort of debt repayment and the period can you just remind us about efforts to delever in the coming years. Following this deal.
Yes, I mean, well.
And we originally and longtime ago said, we wanted to get to below two times leverage, but I think with the.
Current environment.
And we're trending toward four to five times by the end of this year and then working towards.
Three years or so after that.
And with the growth and the company and the growth and top golf business, we're going to be able to even without paying down.
Much that we're going to be able to outrun interest through EBITDA growth.
Got it that's helpful. And then secondly are you planning any type of promotional activity for Jack Wolfe skins products in Europe since the key selling season was essentially lost this year.
Alex very limited.
We find ourselves because we had very good sales.
The E com and digital channel.
We do not find ourselves in a inventory concern and Europe, which is another positive occur.
Current and the team is able to manage that quite well and.
If it will be it'll be marginal to the point where.
And I'm not expecting any impact that it will be noticeable.
Okay. That's great. Thank you guys. Thank.
Thank you.
At this time and I'll turn the call back over to share.
For closing remarks.
Well. Thank you everybody for calling in as you can tell we are delighted with our performance and all three business segments.
Showing strength going into the balance of the year. We appreciate the opportunity to discuss it with you and look forward to talking to you again at the end of next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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And.
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