Q2 2021 Callaway Golf Co Earnings Call

August 9, 2021

Is that on.

[music].

Good day and thank you for standing by welcome to the Callaway Golf Company's second quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question didn't answer session to ask a question during the session.

You will need to press star 1 on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero 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 second quarter 2021 earnings conference call on Patrick Burke, the company's head of Investor Relations.

Joining me as speakers on today's call are chip Brewer, our president and Chief Executive Officer, and Brian Lynch, Our Chief Financial Officer.

Artie Starrs top golf CEO, William Davenport top golf, CFO, and Jennifer Thomas Callaway as Chief Accounting Officer are also in the room today for Q&A.

Earlier today, the company issued a press release announcing its second 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.

The financial numbers reported and discussed on today's call are based on U S. Generally accepted accounting principles in the few instances, where we report non-GAAP measures. We have reconciled the non-GAAP measures to the corresponding GAAP measures at the back of the presentation in accordance with regulation G.

Please note that this call will include forward looking statements that 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 in connection with our prepared remarks, there is an accompanying powerpoint presentation that may make it easier for you to follow the call. Today. This earnings presentation is available for download on the Callaway Investor website under the webcast and presentations tab also on the same tab you can choose to join the webcast to listen to.

The call and view the slides as a webcast participant you were able to flip through the slides I would now like to turn the call over to chip.

Thank you Patrick.

Good afternoon, and thank you everybody for joining us today.

Results for the second quarter were nothing short of outstanding and I'm extremely proud of our entire global team for the work they put in to build this business to the powerhouse that it is today.

Let me start by thanking them for their ongoing focus and dedication.

As we navigate these extraordinary times move the needle on our growth initiatives and.

And capitalize on the tremendous market opportunity ahead of us.

As you'll hear throughout the call today.

We are experiencing strong momentum across all of our business segments and are delivering exceptional operating results. Despite a challenging environment.

Revenue per the quarter was up 208% from $914 million and up over 112 per cent to approximately 1.6 billion from.

For the first half of 2021.

Both new records for our business.

Profitability also reached new highs.

With adjusted EBITDA of 164 million per the quarter and $292 million for the first 6 months of the year.

Well headwinds from Covid persist, we have strong conviction in both the long term strategic position and impressive earnings growth prospects of this unique business.

Before shifting gears to talk specifically about each area of our business I wanted to give a personal shout out to our tour team is having an exceptional year as well.

Congrats to Phil and John for their wins at the PGA Championship in the U S. Open earlier this season.

Xander for his gold medal performance in Tokyo and <unk>.

Arnica for her dominant victory U S senior women's open.

What a summer for Callaway Golf Tour staff.

I can't tell you how excited I guess seeing all players representing Callaway, along with our other brands, including Travis Mathew on top golf on the game's biggest stages.

From a business perspective.

Confidence this exposure is very good per our brands and will help us deliver long term shareholder value.

Looking first at our golf equipment business day.

Man per clubs and balls remains very high as the sport continues to gain interest from both new entrants, which are driving continued unprecedented growth in package sets junior clubs and women's clubs.

Along with core golfers, who are playing more than ever and showing strong enthusiasm for the game.

According to golf date attack rounds played in June remained at an all time high and retail demand remains elevated.

Datasets hard good sell through in Q2 was up an impressive 40% versus 2019.

In retail inventory levels remain extremely low with only 2.2 months on hand at the end of June.

Industry supply chain strain to keep up with the last 12 months of unprecedented demand.

More anecdotally private club memberships are also experienced exceptional demand with weightless developing at many clubs across the U S and the U K.

With more options for activities open this spring and summer compared to last year, we were cautious that there could have been a potential slowdown in golf participation and towards the man.

However, thus far we're pleased to report that we're not seeing this from our seat in the market.

We are also monitoring supply chain disruption due to the resurgence of the Corona virus filter variant.

The resurgence has not had any negative demand implications yet, but it has caused further supply disruptions from factory space in and around Southeast Asia, primarily Vietnam.

The safety of the people working in this region is top priority and we're working with suppliers to make sure operating conditions are and remain as safe as possible.

Also we have become accustomed to adapting to these circumstances over the last 18 months and thus were able to shift some portion of our production to other less impacted factories.

Still given how lean inventories are already the fact that nearly all of our factories are running at 100% capacity.

And that will need to shift production shortly towards next year's launches to protect that supply.

Shutdowns will have an estimated $55 million negative impact on second half revenues, primarily in our golf equipment segment and primarily in Q3.

Although disappointing I view this disruption as a short term issue not 1 that will have a long term impact on value strategy.

On the positive side and I recognize this is a glass half full view.

We now believe field inventory levels will almost certainly stay lower than expected through this year.

In many ways, a healthy market dynamics, it bodes well for 2022.

All in all we are very pleased with the strength of this category and our position in it.

We expect to deliver record performance for our golf equipment segment this year.

And perhaps most importantly, we continue to believe the outlook for the golf equipment category is highly positive.

Both a larger total market and a higher embedded growth rate.

Turning now to our apparel and soft goods segment.

The business put up another strong quarter exceeding our expectations as retail locations reopened across the world and.

And our brands remain top of mind for consumers.

Starting with Travis Matthew this business strongly over performed during the quarter and continues to see incredible growth as we move into the back half of the year.

To contextualize your per year for the second quarter, we saw more than 30% comp store growth in our own retail stores versus 2019.

<unk> spirit of Unimpaired, Tibet Covid as.

As well as strong growth in sell through at wholesale accounts and E Commerce.

Another fun fact is that we're not just seeing per man brand momentum and the target male audience buying for themselves.

As approximately 30% of the direct to consumer sales that we track are her buying for him.

I'm no expert here, but would women are picking the brand for their man I think it's a very good side.

Jack Lufkin was a strong performer as well this quarter.

Business has faced additional challenges just given the longer COVID-19 shutdowns in Europe and here in the U S. But the team has worked through the issues brilliantly and is on track for a strong year.

As our own stores in Europe reopened during the quarter retail ticked up nicely almost reaching 2019 levels of revenue.

Most importantly, we experienced strong sell through of the spring Summer 2021 line as well as strong pre books for the spring Summer 'twenty 2 line.

2 very important indicators for the health of the brand.

Our stores in China also continued to perform well.

The brand maintains strong awareness and positioning within the outdoor apparel market there.

The team at Jack Wilson has done a fantastic job of revitalizing this business and putting us in a strong position to grow on the top and bottom line as COVID-19 restrictions abate in the brand's key markets of Europe, and China, and as the brand growth and strength and appeal.

Lastly, our Callaway branded softwood business showed strength as well, particularly in Japan as popularity for the sport drove consumer spending.

Additionally towards the end of the quarter, we took back the Korea apparel business, which was being licensed to a third party for several years on.

Although that business is just starting up.

We are very excited about the long term opportunity it will provide to our soft goods segment.

And the team did an excellent job managing this transition given the COVID-19 travel restrictions and challenges.

With demand levels high across this business segment, we expect to enter 2022 with low retail inventory across all of our soft good brands.

In summary, we are fortunate to have been excellent categories and are on a path to deliver a good 2021 in this segment.

As well as future growth.

Now on the top golf.

Q2 marked the first full quarter of Callaway results with top golf included on our numbers.

And they delivered beyond our expectations.

While COVID-19 concerns remain a challenging variable for venue operations. The team put up outstanding numbers, even as other options for consumers became available.

Continue to be invigorated by the momentum of this business brought to both Callaway portfolio.

So the game of golf.

Same venue sales percentage growth versus 2019 levels continues the current trend of recovery with Q2 results in the low nineties.

Substantially from the low <unk> in Q1 of this year.

<unk> were driven by a mix of strong walk in sales and continued recovery in the event business.

Looking forward and this assumes no major restrictions from Covid upticks, we feel same venue sales for Q3 will be above Q2 results.

While we expect Q4 sales to be slightly slower than Q2 due to the corporate events mix in that quarter and that the full year should end in approximately 90%.

To put this in context this is considerably above our expectations for the year and.

And we believe our strong performance.

Domestic venue expansion continued as planned during the quarter with 4 new venues opening.

Another venue wholesale long island opened recently.

And yet another Colorado Springs will open later this week.

We then expect to open 1 more venue in Q4.

For a total of 9 new domestic venues this year.

At the end of the year, we will have 67 domestic venues and operations across 3 owned Upa venues for a total of 71 venues and operations.

Internationally, our UK venues had an excellent quarter as they reopen strongly after COVID-19 induced shutdowns in Q1.

And our franchise international venue business continues to build capability and momentum despite various COVID-19 challenges.

Overall, the venue business is very healthy with profitability exceeding our expectations.

The top tracer business had a successful quarter as well with over 2000 bays installed in Q2, setting a new record as we continue to see strong demand and excellent customer feedback.

While some challenges remain on the installation front due to Covid, we expect to meet or exceed our target of 8000, new base for the year.

1 of the highlights for the quarter was the successful installation of top tracer into what we believe is the world's largest driving range golf club dye, who located out side of going out in central Japan.

And more recently, we were thrilled to announce a partnership with St Andrews links at the home of golf and <unk>.

Andrew Scotland.

Lastly, top golfs unique position in the market as a gateway to golf is continuing to introduce new players to the sport and we see excellent long term potential through a preferential ability to market to these new entrants and drive synergies across a growing consumer base, both on and off.

Course.

Looking ahead to the second half of the year and beyond IRA.

I remain excited about the opportunity ahead of us.

We operate in great categories with a unique portfolio of businesses that are all exceeding your expectations.

There are of course macroeconomic hurdles that we and many companies are facing including supply chain constraints freight cost staffing challenges and inflationary pressure.

But if the demand levels, we are experiencing expect experienced in the foreseeable future.

We see these as manageable and expect to still deliver excellent financial results.

On the supply chain side, our guidance assumes an estimated 55 million negative impact to our top line growth primarily in Q3.2 accounts for current disruptions.

On the inflationary side, we have already started taking some price and believe will largely have the ability to take price as needed.

Given the various moving parts for the remainder of the year, we are providing both third quarter and full year guidance.

I'll, let Brian discussed the numbers in more detail, but the headline is that we expect a full year of 2021 sales to be over 1.3 billion higher than 2019.

On adjusted EBITDA to be between $134 million and 149 million higher than 2019.

Our EBITDA for 2021 will be very close to the number we guided to for 2022, when we provided longer term guidance in the fall of last year.

We are essentially a year ahead of plan.

And with that I'll turn it over to you Brian.

Thank you chip.

As chip mentioned, we are very pleased with our second quarter on a first half result.

Each of our operating segments performed above our expectations, leading to record results. Despite a challenging operating environment.

There are some continuing challenges from the pandemic that will happen.

The effect on our business in the short term income.

Including supply chain constraint increased freight cost staffing challenges and inflationary pressures how.

However, we believe that current demand levels, along with actions, we can take well mitigate the impact of these factors and we expect to have strong financial results for the year and the foreseeable future.

We are energized by the opportunities ahead of us and we believe we are well situated to handle the prolonged pandemic.

More specifically each of our operating segments support on outdoor active and healthy way of life that is compatible with a world of social distancing and we have a strong liquidity position.

As of June 32021, our available liquidity, which was comprised of cash on hand, and availability under our credit facilities was $877 million compared to $483 million at June 32020.

In evaluating our results for the second quarter and first half you should keep in mind the following.

First our non-GAAP results exclude noncash amortization expense of intangible assets acquired in acquisitions, including fair value adjustments to top golfs leases and debt.

Noncash depreciation expense from the fair value step up of top golf asset.

Transaction and transition costs from the acquisitions.

Noncash amortization of debt discount on the notes issued during the second quarter of 2020.

The $174 million pre tax noncash impairment charge in the second quarter of 2020 related to the Jack Wolfgang goodwill and trade name.

A $253 million noncash gain related to the write up of our pre merger top golf investment.

A $33 million benefit in the second quarter of 2021 from the reversal of a portion of the noncash valuation allowance related to certain of our deferred tax assets.

And certain other nonrecurring items.

We have provided in the tables to this release a reconciliation detailing the impact of these items on second quarter on first half GAAP results.

Second this is a reminder, that our first half financial results include top golf for 4 months only as the merger was completed on March 8.2021.

With those factors in mind I will now discuss our financial results.

Looking at slides 10 and 11.

Following record revenues in the first quarter, our revenues continued to be very strong in the second quarter of 2021 setting another record for the company.

The second quarter 2021 revenues benefited from incremental revenue from the top golf merger and second quarter 2020 revenues were significantly impacted as much of the company's business and golf retail was shut down then due to the pandemic.

During the second quarter of 2021 sales in all product segments and in all major regions increased compared to both 2020 and 2019.

With that said consolidated second quarter, 2020 revenues were $914 million compared to $297 million for the same period in 2020.

An increase of $617 million or 208%.

This increase was led by a 98% increase in the golf equipment and soft goods businesses as well as an incremental $325 million from the top golf business.

Changes in foreign currency rates had an $18 million favorable impact on second quarter 2021 revenues.

Consolidated second quarter 2020 revenue has also increased $467 million or 105 per cent compared to the same period in 2019.

Including a 37% increase in golf equipment, and 21% increase in our soft goods business.

As a result consolidated revenue for the first half of 2021 increased $826 million or 112%.

Compared to 2020 and increased $602 million or <unk> 63 per cent compared to the same period in 2019.

Total costs and expenses were $806 million in the second quarter of 2021 compared to $474 million in the second quarter of 2020.

On a non-GAAP basis, which excludes among other things the $174 million noncash impairment charge in the second quarter of 2020.

Our total costs and expenses increased $503 million to $796 million for the second quarter of 2021.

Compared to $293 million in the second quarter of 2020.

Top golf added $301 million of total costs and expenses.

The remainder includes increased variable expense the restoration of some expenses that were reduced during the pandemic in 2020 plan.

Planned investment in the business.

Kris corporate cost to support a larger organization and increased freight and inflationary pressures, including labor and commodity prices.

To date the over performance of the Companys business has generally allowed us to outpace the cost increases.

We are also reporting for the second quarter of 2021 operating income of $107 million, an increase of 285 million compared to a loss of $177 million for the same period in 2020.

On a non-GAAP basis, which excludes the impairment charge in 2020 on.

Operating income for the second quarter of 2021 was $118 million, a $114 million increase compared to $4 million per the same period in 2020.

The increase in second quarter non-GAAP operating income was led by $96 million increase in segment operating income from our golf equipment and soft goods businesses.

As well as an incremental 24 million from the top golf business.

Non-GAAP operating income for the first half of 2021 increased to $167 million to $215 million compared to $47 million for the first half of 2020.

Yeah.

Other expense was $31 million in the second quarter of 2021 compared to other income of $2 million in the same period of the prior year.

On a non-GAAP basis.

Other expense was $27 million in the second quarter of 2021 compared to other income of 3 million for the comparable period in 2020.

The $30 million decrease was primarily related to a <unk>.

$14 million of higher interest expense related to the top golf business in the second quarter of 2021, and an 11 million gain from the settlement of a cross currency swap arrangement in the second quarter of 2020.

Non-GAAP other expense for the first half of 2021, which excludes among other things the $253 million noncash gain related to the write up of the Companys pre merger investment in top golf was $33 million of expense compared to $1 million of income in the first half of 2020.

Earnings per share was <unk> 47 cents on approximately 194 million shares in the second quarter of 2021 compared to a loss per share of $1.78 on approximately 94 million shares in the second quarter of 2020.

Non-GAAP earnings per share was 36 cents in the second quarter of 2021 compared to earnings per share of <unk> for the second quarter of 2020.

Non-GAAP fully diluted shares were $194 million in the second quarter of 2021 compared to 95 million shares for the same period in 2020.

The share increase is primarily related to the issuance of additional shares in connection with the top golf merger.

Full year estimated diluted shares is approximately 178 million shares.

Which includes the weighted average shares issued in connection with the merger over approximately a 10 month period.

As of June 2021, we had approximately 186 million shares that were issued and outstanding.

Adjusted EBITDA was $164 million in the second quarter of 2021 compared to $29 million in the second quarter of 2020 and $66 million in the second quarter of 2019.

Top golf contributed adjusted EBITDA of $57 million.

For the first half of 2021, adjusted EBITDA was $292 million compared to $89 million in the first half of 2020 and $159 million in the first half of 2019.

Top golf contributed adjusted EBITDA of $17 million for the 4 months.

Turning now to slide 12, I will now cover certain key balance sheet and other items.

As of June 30 of 2021 available liquidity, which represents availability under our credit facilities plus cash on hand was $877 million.

Paired to $483 million at the end of the second quarter of 2020.

This additional liquidity reflects over performance in all of our business segments and improved liquidity from working capital.

At June 30 of 2021, we had total net debt of $1.1 billion, including $652 million of top golf related net debt.

The top golf that includes demand means deemed landlord financing of $263 million related to financing of its venue businesses.

Our leverage ratios have improved significantly period over period and on a funded debt basis are now under 3 times.

Our consolidated net accounts receivable was $325 million, an increase of 52 per cent compared to $214 million at the end of the second quarter of 2020.

The legacy business sales outstanding decreased to 58 days on June 30 of 2020 compared to 79 days as of June 32020.

The increase in net accounts receivable was primarily attributable to the increase in second quarter revenue, but also includes an incremental $9 million of top golf accounts receivable.

We continue to remain very comfortable with the overall quality of our accounts receivable at this time.

Also displayed on slide 12, our inventory balance decreased by 12% to $335 million at the end of the second quarter of 2021 compared to $379 million at the end of the second quarter of the prior year.

This $44 million decrease was due to the high demand we are experiencing the golf equipment business and better than expected performance in our soft goods business.

Top golf added approximately $14 million of inventory this quarter.

Capital expenditures from the first 6 months of 2021 were $96 million.

Net of expected REIT reimbursement.

This includes $66 million related to top golf.

From a full year 2021 forecast perspective, the golf equipment and soft goods business forecast of $65 million consistent.

Consistent with our previous forecast.

The 2021 full year forecast for Callaway in top golf, it's approximately $243 million net of reimbursements, primarily related to the new venue openings.

Before going to does not include approximately $33 million in capital expenditures for top golf in January and February pre merger.

Depreciation and amortization expense was $43 million in the second quarter of 2021.

Non-GAAP depreciation and amortization expense was $36 million in the second quarter of 2021 compared to $8 million from 2020.

This includes $27 million of non-GAAP, depreciation and amortization related to top golf.

For the full year on 2021, we expect non-GAAP depreciation and amortization expense to be approximately $133 million, which includes $95 million for the top golf business.

The foregoing does not include approximately $18 million of top golf non-GAAP depreciation and amortization for January and February in the aggregate.

I am now on slide 13.

As chip mentioned, we are providing revenue and adjusted EBITDA guidance for the full year and third quarter of 2021.

Please note. This guidance only includes the post merger top golf results for 10 months of 2021.

For the full year, we expect revenue to range from 3.0 to 5 and $3.055 billion.

That compares to 1.590 billion in 2020 and $1.701 billion in 2019.

The company's full year 2021, net sales estimate assumes continued positive demand fundamentals for our golf equipment and soft goods segments.

No further business supply chain of retail shutdowns due to COVID-19.

And the top golf 10 months of segment sales approached 2019 full year levels of 1.06 billion.

The outlook also assumes $55 million of supply chain risks due to the current south deep.

Southeast Asia, Covid shutdowns, almost all of which is expected to occur in the third quarter 2021.

Okay.

From a cost perspective full year 2021 non-GAAP operating expenses for our golf equipment and soft goods businesses are estimated to be approximately $100 million higher than full year 2019, non-GAAP operating expenses.

This is $20 million to $30 million higher than we previously guided at the beginning of the year and the increase is related primarily to variable costs associated with the strong performance of the business this year ex.

<unk> investments in the Travis Matthew brand to support its faster than expected growth.

And additional corporate infrastructure costs to support our larger organization.

Investors should also note that approximately 85 per cent of the incremental $100 million and expense is expected to be incurred in the second half of 2021 due in part to the Callaway apparel business in Korea.

He took over from our licensee in July and a more normalized level of spend in the second half of 2021 to support all of our businesses.

In addition, we are expecting continued cost pressure from increased freight costs, and inflationary pressures, including labor and commodity pricing at least through the first half of 2022.

To date positive volume variances have outpaced the majority of these increased costs, but they will continue to have some impact.

Full year adjusted EBITDA is projected to be between 345 and $360 million.

The company's full year 2021, adjusted EBITDA estimate assumes the top golf segment will deliver over $100 million and adjusted EBITDA for the 10 months beginning March 8.2021.

This estimate assumes the previously mentioned supply chain revenue risks and continued elevated freight and other cost pressures, which are expected to have an overall greater impact than we originally anticipated.

We anticipated for the balance of the year.

From a third quarter perspective, we expect revenue to range from 7 to $775 million to $790 million versus 'twenty 'twenty revenue of $476 million in 2019 revenue of $426 million.

We expect adjusted EBITDA for the third quarter 2021 to be between $51 million to $58 million versus 2020 of $87 million in $2000.19 million to $57 million.

This projected revenue growth represents the addition of.

Top golf revenue.

As well as growth in the soft goods segment.

Because of the previously mentioned supply constraints and the extraordinary second half the golf equipment business had in the second half of 2020.

As interest in golf surge following the relaxation of Covid restrictions, we are forecasting third quarter revenue for the golf equipment segment to be below 2020 levels, but above 2019.

While not optimal the third quarter supply constraints are not currently forecasted to affect the fourth quarter of 2021, or even 2022.20 significant degree.

In closing I would like to emphasize a couple of points I know we have spent some time today discussing the short term headwinds from COVID-19, particularly on the forecasted supply chain constraints in the third quarter.

Although annoying the short term disruption will not have a long term impact on our value of our strategy.

Investors should not lose sight of the fact, we were having a tremendous year and yes without those headwinds we would be having an even better year, but this is still a great year, we're hitting our financial goals essentially a year ahead of what we had planned despite a challenging operating environment.

Each of our segments are performing well.

Top golf merger has been wildly successful and we feel well positioned for the future both on our Covid operating environment and after.

We also remain very excited about the opportunities and growth prospects ahead of us.

That concludes our prepared remarks today, and we will now open the call for questions operator over to you.

As a reminder to ask a question you on either press star 1 on your telephone to withdraw your question press. The pound key we do ask that you limit yourself to 1 question and 1 follow up question to allow us to capture from many questioners as time allows please stand.

The Q1 day roster.

Yeah.

And your first question is from Brett Andrus with Keybanc.

Hey, good afternoon guys.

So chip you you alluded to top golf exceeding your expectations do you have a full quarter under your belt the golf industry.

Still robust and it just seems like everything.

Across this business is running a year ahead of schedule. So should we take.

Your 2023 expectations from that S..4 is a is a good baseline to think about the business next year, just just anything to.

To help us with how you are thinking about next year not this year is I think doing so well.

Brett.

You know we are you know.

Trending towards a year ahead, I think it might be premature too.

Just yeah.

Take that simplistic approach and take the next year projections forward and we're not providing any guidance for next year, but.

At this point, we couldn't be more pleased with the.

Momentum and progress there.

That we see in each of the business segments and.

We remain optimistic, but I prefer not to get too.

To any.

Specificity on.

On the future guidance.

Nah under understood I had to try.

And then just on top golf, specifically is there any update on the mix of work in versus events. I mean is the walk in business.

Above 19 at this point I'm, just trying to gauge.

Where we are in the recovery of the events business right is that like 40, or 50 or 60% recovered just any any color there.

Sure I'll give you a little bit of color it'll be more qualitative than quantitative but you know as we are.

I have discussed thus far the walk in business is quite strong and continued to strengthen during the quarter and has continued to be a.

Robust and strengthening even in our early parts of.

Q3 so.

While knocked on our gave you a specific number on their walk in has been.

Continued strong and continues to strengthen so we're seeing very little weakness in that.

Portion and we're optimistic on that.

We're also very pleased with the event business.

As that has strengthened throughout the year.

And it is still a.

Not back to 2019 levels, but all trends there have been positive.

We're going to keep our eye on that as the Covid situation continues to be dynamic.

But theres been strong recovery and are very pleased with the.

At the same venue sales walk in continues to lead.

Corporate corporate recovering.

Nicely or the event business recovering nicely.

We kind of outlined how we expect that to be to play out through the balance of the year.

Thank you.

Yes.

Your next question is from Randy <unk> with Jefferies.

Yeah. Thanks, a lot I've got 2 questions on 1 for chip 1 for already.

He talked about in your remarks on about a larger market for golf. So can you kind of talk a little bit about that will expand upon that a little bit more how do you see this larger market unfolding ahead on them.

More time with the business give us like your landscape from your perspective on what you see for the business. It had on your focus on them on it.

Okay, great. Thanks, Randy I'll I'll take.

Take the golf equipment and 1 in <unk> Rd, you can have been have your debut.

On the earnings call with Randy's other question so.

You know we've been just delighted with the amount of demand that we've seen in the golf equipment segment completely.

Unprecedented growth over right, it's been a year of period of time now.

And it's been new entrants as well as a.

Return on.

Our core segment and you know.

Just a very healthy situation, it's been quite significant as you can imagine and that the demand has been up.

40% to 50% over this period of time.

So great for golf and.

I think it's rational to expect some slowing in the near future, we havent seen that yet.

And the pure demand has been matching the 'twenty 'twenty levels.

I think there's no question that demand is going to remain strong at this stage I think in the second half of the year, it's going to be constrained by.

Supply so we won't really get a picture of demand.

But without a doubt the market is considerably larger than it was.

At the end of 2019 entering 2020.

On the engagement of golfers.

Is much higher so in terms of sustainability of that I think that it's showing that it is sustainable.

A little snapshot that we have now as the markets have opened has shown that that demand has remained.

It's a sticky sport and game once you get into it you don't tend to leave it very quickly.

And.

When you joined clubs et cetera, you tend to play more so all of that looks good as well as the.

Long term growth rate is.

Things such as top golf scale up so we feel very positive about the game of golf and golf equate mid states going forward.

Borrowing short term volatility we think we're in a great great position overall.

Already over to you for some thoughts on top golf.

Sure Thanks, Jeff and thanks, everybody.

Personally I would say, it's great to be part of it jumped on from the calories family received the extremely warm welcome from our associates from from our partners.

I'm just extremely enthusiastic to be here.

The first thing I would say that I think is the clearest takeaway for anyone who come into top golf is what a terrific team that we have.

Dragging her unique and extremely differentiated culture.

If you go to our venues, which translates to her passion passionate associates really enthusiastic guest and then long term advocates for the brand.

And when I reflect on the leadership teams on joined and the experiences that they have an entertainment multiunit hospitality and a ton of technology talent that we have.

That's why we're seeing the momentum that shifted Brian some share.

The time to day since I've been at top golf the last few months.

It's been a lot of time in the venues.

And our current venues in the venues that we're looking to build.

And I've done so approximately half of them. So far so you know 30 day or inside or so.

And we have a highly relevant concept when you see the guests coming in it's perfect for the times keeping people looking to get outside of the house spending time with family and friends on the energy level was extremely hot.

Second thing I'd say is we've got multiple channels to drive top line growth and the multiple levers to drive profits beneath that we have the labor model that allows for a lot of flexibility. So I'm excited about on.

Ability to do that going forward.

And then the final thing is when we go into a new market.

When you look at these new markets, we've got such a robust pipeline.

Cities and towns that we meet with you. So excited about soft golf coming so the pipeline there and ship it shouldn't past I'm very enthusiastic about.

And so the.

The focus for us and even coming out of this really is to continue to do what we've always done which is be that innovator.

What we call the day experience, where most of our guests spend their time to spend their time.

You've probably seen we promoted some internal talent, we've Lucia who we're very excited about Jim Gray.

We have key external hires would come on you CMO, New CPO and then I think there's gonna accelerated discussed experience work and organizing focus on your team around that.

And the final thing I'd say on behalf of the top golf team.

We share a chicken, Brian it's exciting for the future top golf, we're thrilled to be at parity Callaway portfolio and I wouldn't disagree with you.

Very helpful. Thanks, guys.

Your next question is from Daniel <unk> with Stephens, Inc.

Hey, good afternoon, everybody. Thanks for taking our question.

Chip, maybe starting on the core golf business, you know looking at the reported market share it looks like you're definitely picked up from share kind of across the category list.

Is that a function of better in stocks to meet demand does that did you more domestic manufacturing footprint, maybe help with some of these supply issues. We're hearing about and then any comments on how you're feeling about your share heading through the back half here.

Sure Daniel.

Yes, we had a good quarter.

In market share so Q2, we picked up.

You know a nice share in it relative to where we were entering the quarter I think in both clubs and ball, but particularly involved we had a very strong quarter in golf ball and ended up.

Then you showed in the quarter at record levels. So.

Really pleased with the trends there are shares are still a little bit down relative to where they were on the club side a year ago much of that is just.

Launch cadence if you would by the fact that last year, we didn't have.

2 of the big 4 didn't launch metal Woods. This year. They did so by just.

Just math and theres going to be some pressure on that but I was very encouraged to see the uptick in the quarter I think our supply chain did a good job, but I think it was more just how our product resonated in the strength of the brand once it gets out into the.

Demo season et cetera. So.

I think it was underlying strength of product performance as brand that really drove that.

Good performance during the quarter and obviously encouraged by that looking towards the second half.

I don't have any projections for you at this point I think a lot of what you can see in the second half is going to be.

<unk>.

<unk> supply constrained depending on what comes in in or out of Vietnam, and who moves into producing.

Producing products are launching products, because we're gonna be all making decisions on what we make from a right now or what we make for 'twenty.

'twenty 'twenty 2 so there'll be some volatility in those numbers, but our <unk>.

Brand strength and strength did show through during the quarter and we were pleased with that.

That's helpful. Thanks, and then just a second question on top golf guidance I think on the slide you said <unk> comps should be better or the same venue sales should be better than Q4, Q should step down a bit, but just using <unk> profitability I mean that implies over $100 million just in back half EBITDA can you maybe.

Help us square that away with the full year guide for about 100 million in top golf adjusted EBITDA are there cost on that is it just conservatism how should we think about that top golf profitability guidance.

Brian you want to take a shot at that 1.

Yeah, I mean, just just generally I'd say that the business is seasonal and your kitchen top golf at Q2, which is there.

Most profitable EBITDA quarter, and it ramps down as these as the year goes Q3, and Q2 and Q3 are their best Q2, the biggest 1 by far and then the fourth quarter will affect be affected by the mix of corporate events or walk in business, but I think it's just the seasonality of that business.

And Daniel this is Patrick maybe just to add to that rich.

Remember, they're not fully they hadn't been fully staffed in the first half on the venues and they continue to work to kind of build their staffing levels up.

So some of the first half profitability is going to be a little harder to anniversary is as they get fully staffed.

Right and then there's the opex ramp would be the last element of that so all of those factor into the forecast and is that opex ramp chip in top golf, specifically that you guys called out or is that across the business.

It's across the business, but it does include the top golf for instance, you know already talked about new hires et cetera, and those new hires will be starting in the second half and where.

Scaling this business.

2 for bigger and better things so.

We're making those investments as we go and our growth has been faster than expected. So.

The opex ramp trails that are that growth, but also for shadows good things in the future as well. So we're pleased with it but you will continue to see it occur both in top golf as well as.

As Brian explained other areas of our business.

Very helpful. Thanks, so much and best of luck.

Thanks, Ken.

Your next question is from Joe on a pillow with Raymond James.

Thanks, Hey, guys. Good afternoon. Thanks for taking my questions. I guess first question on the supply chain impact that you cited in the second half of 55 million both of your chip and Brian indicated that you feel like that's a pretty short term and it's gonna be a largely a Q3 event.

It gives you that confidence that we don't see that extend.

Beyond Q3 into Q4 for example.

Yeah, Joe This is chip and clearly we don't know the 1 thing we've been through this before.

And so we are.

Using that past experience to estimate that and but theres always a chance that there is.

More volatility than what we're projecting.

We are projecting right now that the factories in.

Vietnam are closed for.

A reasonable portion of Q3 and that they were then able to open and start producing at a reasonable level, but not at a completely uninterrupted level beyond that.

So it isn't a essence, our best guess.

But.

In today's day and age anybody that tells you they know for sure is not.

Being completely honest, but we have pretty good experience here and we have.

A fairly diversified and balanced supply chain, which I think is an advantage over the longer.

That's very helpful. Kipp. Thank you just a second question I guess more big picture, how confident are you that equipment industry can grow off at these elevated levels in 'twenty 2.

Worried on the replacement cycle, usually for clubs a husband.

Weighted.

Perhaps you're pulling forward some demand that you might've seen net.

Next year.

2023 into 2000.22021.

Yeah, I definitely I'm, a little worried about that Joe, but what we're seeing.

As I said I think it's rational to assume that it's going to slow from the rates that it has been.

But we're not seeing that yet so even as other opportunities opened up.

We're still seeing demand.

Match 2020 levels now, but we've got a narrow window at that what I'm highly confident in is that theres going to be strong demand.

And there is going to be a larger market.

Then when we entered.

Is it going to grow up 2020 numbers I can't say that is it going to be equal.

Equal to 2020 numbers I can't say that it could be slightly up slightly down.

But all of the facts that we do have are.

Our suggesting strong demand and as of yet.

Haven't seen it decline.

Even though you know at this time last year, where there were.

No other alternatives really in and now there are there are.

Okay, great. Thank you guys.

Thanks, Jeff.

Your next question is from Casey Alexander with Compass point.

Hey, good afternoon, and thanks for taking my questions.

Chip this is for you.

I mean first of all you know.

Just seeing the golf equipment and apparel business produced sales that are almost 2 times inventory turns and 1 quarter is a remarkable achievement by your team and your team should be really congratulated for that that's an incredible management of complexity with the supply chain issues in transportation and logistics of it.

It's really unbelievable.

Casey and they're gonna be thrilled to hear you say that thanks, you mentioned it.

Yeah, well and and as you said, you're running at almost 100% capacity across a bunch of line. So.

I'm curious, how you're thinking about some interesting decisions that you have to make which is.

What parts of the business day increased capacity in making sure that you continue to run at high utilization rates, but that you know when you presume that you're running at 100% of sales youre almost the presumption is that you might be missing some sales somewhere or you're just constantly chasing demand. How do you how do you where do you increase capacity.

Maintaining high utilization, but not miss sales.

Yeah, Great question, and that's a interesting dilemma or it's a classy problem that we've got over the last period of time, but we are.

We're growing our capacity in a lot of different areas.

And some of it is been masked by the low inventory levels that you.

Just.

I mentioned, so we entered the year.

With very low inventory levels and so even in a constant chase situation in demand has just been at such a high level, but we are increasing capacity.

We're increasing capacity in golf ball.

We are.

And we're increasing capacity in the premium clubs side of the business and we're increasing capacity in the package that side of the business and those that had been phasing in we've seen the results of them.

We will have more.

On a capacity in the near future on some of that and it'll be phasing in through the first half of next year as well so we're.

We're making sure that we don't.

I guess dry by the exit but we are also aggressor.

Aggressively investing in capacity and.

Able to support what we think is going to be a great opportunity going forward.

Thank you for that and coming out of the quarter, where would you suggest that your ball share is is running at now.

I think our ball share correct me Patrick on from a wrong. According to data Tech was 18% in the U S and I think data tech understates, our actual ball share.

That's right that would be the highest number that you've recorded am I correct. That's correct. That's the highest day to attack. There's just no question our golf ball.

Business is building momentum and.

<unk> continues.

Continues to tissue great opportunity.

Terrific well. Thank you for taking my questions I appreciate it.

Thank you Casey.

Yes.

Your next question is from Susan Anderson with B Riley.

Hi, Thanks for taking my question and let me on my congrats on the quarter.

And I guess, just a follow up on that on the golf ball segment is there still inventory issues. There also or is it mainly just consequently on business coming from Asia.

Our inventories are.

Our very first on there as well, yes isn't so.

We're constrained on the supply.

Supply and demand has been so exceptional that we can't keep up with it. However, you want to look at it.

Golf Ball is also.

Then a high growth business and we're optimistic going forward.

Great. Okay, and then I guess, maybe just to talk a little day about Jack with skin.

The revenue almost back to 19 levels that it.

It seems like that business has turned around quite a bit I guess it was that mainly driven by DTC or did you also see strong wholesale sales and then I guess, what's your what's your expectations going forward for the brand are you guys expecting that momentum to continue on the back half in 2022.

Well, let me talk about just the momentum side of it first of all we don't expect them to be back in 2019, rather levels. This year in total what my comment was it was that the 2019 retail so our own stores, which is a significant channel for us I mean, we have 102.

<unk> stores in Europe.

It was almost equal to 2019 during the quarter, but Susan they were shot for half the quarter.

So that gives you an indication of how robust it came back.

He will be lower than 2019 revenues for all of Jack will skin, but the business is recovering beautifully the sell through has been great. The pre books are strong.

And you know the business, although significantly still impacted by.

The Covid environment, particularly in Europe is just showing great momentum. So I don't see a reason why that will.

That momentum will slow I've seen it now for.

Close to a year.

The new team is doing a great job.

When you see good sell through of the.

Previous lines and good pre books and you start to see that as a trend you know how.

Reinforcing that can be the environment is going to be a little bit volatile I expect but.

The business is really.

Performing well.

It could have been a very difficult year, it's not going to be.

On a bad year at all on that momentum and trends from the business are very positive going forward.

Great that sounds positive. Thanks, so much good luck the rest of the year.

Susan.

Yeah excellent. Thanks for taking my question on congrats on all the momentum on that.

On the core golf equipment business, and obviously, the top golf as well.

Wanted to go back on to.

You know longer term question on golf and maybe just on the margin profile of the.

Core equipment and soft goods.

Yes.

It tended to get to a low double digit high single digit operating margin and that was maybe your thoughts there.

The peak of it how do you think that that core golf business. Both on the equipment on socket SOG now he's ready to co.

Higher in terms of the.

The gross margin and operating margin structure, given the market share you're gaining on.

So just the category growth.

Better sell through and sell in across.

Retail channels as well it just seems like there's a lot of.

Momentum.

In the core part of the business that would support a structurally higher margin in that business can you talk to that.

Sure John I'll give you again, a couple of points on it and.

You know Theres, a fair amount of.

Puts and takes right now as we look at the.

And you know potential headwinds and the potential strengths the demand side of the equation to outstanding in the categories. We're in are great.

But you've.

Listen to so many of these earnings calls and we don't need to reiterate you know inflationary issues or freight costs et cetera that are going to be.

Realities for all businesses over the next few months at the current demand levels that we think we're going to deliver strong financial results, but those macroeconomic headwinds are out there force as well and they will temper some of that upside.

On excellent.

Situations structurally.

As these businesses scale and they are scaling very nicely and very quickly.

Well ahead of all of our previous expectations.

For the size of these businesses and all of them have good momentum, yes, the operating margins will have more long term.

Structural opportunity.

<unk>.

Just in essence because of the scale.

If nothing else.

Got it.

Maybe.

Maybe 1 more question.

As a follow up on the back half guidance.

Roughly $290 million and adjusted EBITDA on the first half.

Given us pretty specific Q3 guidance.

Specifically in Q4.

It's driving.

You know.

The EBITDA down so much that I think 55 millions of the guide for Q3.

$352 million roughly for the full year just curious.

Can you be more specific is it just something on it it's all opex from Q4.

How should we think about SG&A dollars in that fourth quarter.

Yes, Brian over to you.

Yeah, Hey, John Yeah, It's really just the opex spend.

And how it ramps through the year.

As we go through with the additional investments and everything.

The ramp will continue into 2022.

Chip mentioned.

As we really prepared to have a larger organization and continue to invest in the business as a growth drive growth I mean, ideally overall with Opex you would love for it to pace with your expansion, but it tends to be lumpy and we've been behind it during the first half and we'll start to ramp up a well, we'll get ahead of it a little bit and so it.

It's unfortunately, it's just a little bit lumpy, but it's really just the additional opex.

And John This is Patrick I would just say also normal seasonality so remember.

First half is always the golf equipment and apparel best.

From an EBITDA and same thing for top golf right Q2 is by far their biggest quarter. So there's a little seasonality that's mixing in there as well.

Got it thank you.

Thank you.

Your next question is from Rudy Yang with Baron Bird.

Hey, guys. Thanks for taking my questions.

It sounds like Youre stuck with some power business benefited from falling during the quarter due to reopened on continued recovery from Covid.

Are you expecting on traffic to add much stronger growth for those retail sales in the back half of the year, most sales driven between stores and E. Commerce container made similar to what we've been sitting on the near term.

Rudy yes, the the soft goods and apparel business, specifically Jack will skin. So it's only Jack will skin that was heavily impaired during the first half due to COVID-19.

And as.

As the stores reopen there.

You'll get a more normal mix of between the various channels.

And then as obviously mentioned, we see good momentum in that business the Travis Matthew business has been.

Strong all year with all channels firing on all cylinders candidly so that businesses.

And nothing short of outstanding and then the apparel in the Asia.

Will do.

Benefit from the start of the car.

Korea apparel business.

Business that we just took in house, so quite a bit going on in that segment and but we're hoping for and expecting a more normalized second half in terms of channel mix.

Got it and then secondly on price when you start to take could you just remind us how much pricing power and let's say you have across your different segments and when you talk about possibly taking some pricing going forward how much more room do you think you have to continue passing on those prices.

Sure Rudy Ah is gonna be a qualitative not quantitative answer we've already started to take a little bit of price selectively in.

Multiple.

Segment, so that at top golf, a little bit on on food and beverage.

We will be evaluating further steps in the future, we do not see that as a risky proposition at top golf on the golf equipment side, we've already taken it on select products and we will be.

We are evaluating it on new products too.

Deal with the.

Inflationary environment that we're all operating in right now and I know that's also true on the apparel side in each of the segments that we are fortunate enough to be participating.

Participating in where an enthusiast segments, we have strong consumer.

Interest and appetite.

And we just don't think that our consumers are especially price sensitive so inflation.

You know, we will have some impact on our business as it does on the others, but less so than most as we believe we have stronger than most.

Our pricing power and we've seen you know pre.

Previous periods, whether it be commodity.

Inflation or more normalized inflation, we've been able to work through that without meaningful impact the.

On the other aspect without this is that we used to have such strong demand right now that we have operating leverage as well that can help us offset some of that.

Great Super helpful. Thank you.

Yeah.

And there are no further questions at this time I'll turn the call back over to Mr. Chip Brewer for closing remarks.

Well I want to just thank everybody for tuning in today, we're obviously delighted with the results.

For Q2, and although there is volatility.

In you know.

On the marketplace right now as we project forward, we couldnt be more pleased with what we're seeing for the long term health of this business and our growth prospects.

Thanks, So much for your time today, and we 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.

Yeah.

Callaway team you want to stay on teams.

Yeah.

[music].

Good day and thank you for standing by welcome to the Callaway Golf Company's second quarter 2021 earnings Conference call. At this time all participants are in the listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star.

1 on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero 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 second quarter 2021 earnings conference call on Patrick Burke, the company's head of Investor Relations.

Joining me as speakers on today's call are chip Brewer, our president and Chief Executive Officer, and Brian Lynch, Our Chief Financial Officer.

Artie Starrs top golf CEO, William Davenport top golf, CFO, and Jennifer Thomas Callaway as Chief Accounting Officer are also in the room today for Q&A.

Most of the financial numbers reported and discussed on today's call are based on U S. Generally accepted accounting principles in the few instances, where we report non-GAAP measures. We have reconciled the non-GAAP measures to the corresponding GAAP measures at the back of the presentation in accordance with regulation G.

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 Jeff.

Thank you Patrick.

Good afternoon, and thank you everybody for joining us today.

Results for the second quarter were nothing short of outstanding and I'm extremely proud of our entire global team for the work they put in to build this business to the powerhouse that it is today.

Let me start by thanking them for their ongoing focus and dedication as we navigate these extraordinary times move the needle on our growth initiatives.

And capitalize on the tremendous market opportunity ahead of us.

As you'll hear throughout the call today.

We are experiencing strong momentum across all of our business segments and are delivering exceptional operating results. Despite a challenging environment.

Revenue for the quarter was up 208% from $914 million.

And up over 112 per cent to approximately 1.6 billion from.

For the first half of 'twenty 'twenty 1.

Both new records for our business.

Profitability also reached new highs.

With adjusted EBITDA of 164 million for the quarter and $292 million for the first 6 months of the year.

Well headwinds from Covid persist, we have strong conviction in both the long term strategic position and impressive earnings growth prospects of this unique business.

Before shifting gears to talk specifically about each area of our business I want to give a personal shout out to our tour team is having an exceptional year as well.

Congrats to Phil and John per their wins at the PGA Championship in the U S. Open earlier this season.

The Zander for his gold medal performance in Tokyo.

Arnica for her dominant victory U S senior women's opened.

What a summer for Callaway Golf Tour staff.

Can't tell you how excited I guess seeing our players representing Callaway.

Along with our other brands, including Travis Mathew on top golf.

On the game's biggest stages.

From a business perspective.

I'm confident this exposure is very good per our brands and will help us deliver long term shareholder value.

Looking first at our golf equipment business day.

Demand for clubs and balls remains very high as the sport continues to gain interest from both new entrants, which are driving continued unprecedented growth in package sets junior clubs and women's clubs.

Along with core golfers, who are playing more than ever and showing strong enthusiasm for the game.

According to golf date attack.

<unk> played and viewed on remained at an all time high and retail demand remains elevated.

Great effects hard good sell through in Q2 was up an impressive 40% versus 2019.

And retail inventory levels remain extremely low with only 2.2 months on hand at the end of June.

Industry supply chain strain to keep up with the last 12 months of unprecedented demand.

More anecdotally private club memberships are also experienced exceptional demand with weightless develop they get many clubs across the U S and the U K.

With more options for activities open this spring and summer compared to last year, we were cautious that there could have been a potential slowdown in golf participation and on the man.

However, thus far we're pleased to report that we're not seeing this from our seat in the market.

We are also monitoring supply chain disruption due to the resurgence of the Corona virus Delta variant.

The resurgence has not had any negative demand implications yet, but it has caused further supply disruptions from factories based in and around southeast Asia.

Primarily Vietnam.

The safety of the people working on this regions is top priority and we're working with suppliers to make sure operating conditions are and remain as safe as possible.

Also we have become accustomed to adapting to these circumstances over the last 18 months and thus were able to shift some portion of our production to other less impacted factories.

Still given how lean inventories are already.

Fact that nearly all of our factories are running at 100% capacity.

And they will need to shift production shortly towards next year's launches to protect that supply. These shutdowns will have an estimated $55 million negative impact on second half revenues, primarily in our golf equipment segment and primarily in Q3.

Although disappointing I view this disruption as a short term issue not 1 that will have a long term impact on value for strategy.

On the positive side and I recognize this is a glass half full view.

We now believe field inventory levels will almost certainly stay lower than expected through this year.

In many ways, a healthy market dynamic that bodes well for 2022.

All in all we are very pleased with the strength of this category and our position in it.

We expect a record performance for our golf equipment segment this year.

And perhaps most importantly, we continue to believe the outlook for the golf to prevent category is highly positive.

Both a larger total market and a higher embedded growth rate.

Turning now to our apparel and soft goods segment.

The business put up another strong quarter exceeding our expectations as retail locations reopened across the world and.

And our brands remain top of mind for consumers.

Starting with Travis Matthew this business strongly over performed during the quarter and continues to see incredible growth as we move into the back half of the year.

To contextualize your per year for the second quarter, we saw more than 30% comp store growth in our own retail stores versus 2019.

Spirit of uninfected that COVID-19 as well as strong growth in sell through at wholesale accounts and E Commerce.

Another fun fact is that we're not just seeing per man brand momentum and the target male audience buying for themselves.

As approximately 30% of the direct to consumer sales that we track are her line for him.

I'm no expert here, but what women are picking the brand for their man I think it's a very good side.

Jack Lufkin was a strong performer as well this quarter.

The business has faced additional challenges just given the longer COVID-19 shutdowns in Europe and here in the U S. But the team has worked through the issues brilliantly and is on track for a strong year.

As our own stores in Europe reopened during the quarter retail ticked up nicely on.

Almost reaching 2019 levels of revenue.

Most importantly, we experienced strong sell through of the spring summer 2021 line as well as strong pre books for the spring Summer 'twenty 2 line.

2 very important indicators for the health of the brand.

Our stores in China also continued to perform well.

As the brand maintained strong awareness and positioning within the outdoor apparel market there.

Lastly, our Callaway branded softwood business showed strength as well, particularly in Japan as popularity for the sport drove consumer spending.

Additionally towards the end of the quarter, we took back the Korea apparel business, which was being licensed to a third party for several years, although that business is just starting up where.

We are very excited about the long term opportunity it provides for our soft goods segment.

And the team did an excellent job managing this transition given the COVID-19 travel restrictions and challenges.

With demand levels higher across this business segment, we expect to enter 2022 with low retail inventory across all of our soft good brands.

In summary, we are fortunate to be in excellent categories and are on a path to deliver a good 2021in this segment.

As well as future growth.

Now on the top golf.

Q2 marked the first full quarter of Callaway results with top golf included on our numbers.

And they delivered beyond our expectations.

While COVID-19 concerns remain a challenging variable for venue operations. The team put up outstanding numbers, even as other options for consumers became available.

We continue to be invigorated by the momentum of this business brought to both Callaway portfolio and so the game of golf.

Same venue sales percentage growth versus 2019 levels.

Continues the courage and trend of recovery with 2 to results in the low nineties.

Substantially from the low <unk> in Q1 of this year.

Results were driven by a mix of strong walk in sales and continued recovery in the event business.

Looking forward and this assumes no major restrictions from Covid upticks, we feel same venue sales for Q3 will be above Q2 results.

While we expect Q4 sales to be slightly slower than Q2 due to the corporate events mix in that quarter and.

And that the full year should end at approximately 90%.

To put this in context this is considerably above our expectations for the year and we believe our strong performance.

Domestic venue expansion continued as planned during the quarter with 4 new venues opening.

Another venue wholesale long island opened recently and yeah.

Net another Colorado Springs will open later this week.

We then expect to open 1 more venue in Q4.

For a total of 9 new domestic venues this year.

At the end of the year, we will have 67 domestic venues and operations.

3 owned U P a.

Use per a total of 71 venues and operations.

Internationally, our U K then you just had an excellent quarter as they reopen strongly after COVID-19 induced shutdowns in Q1.

And our franchise international venue business continues to build capability and momentum despite various COVID-19 challenges.

Overall, the venue business is very healthy with profitability exceeding our expectations.

The top choice of business had a successful quarter as well with over 2000 bays installed in Q2, setting a new record as we continue to see strong demand and excellent customer feedback.

While some challenges remain on the installation front due to Covid, we expect to meet or exceed our target of 8000, new base for the year.

1 of the highlights for the quarter was the successful installation of top tracer into what we believe is the world's largest driving range golf club dies you located out side are going up in central Japan.

And more recently, we're thrilled to announce a partnership with St Andrews links at the home of golf and St Andrews, Scotland.

Lastly, top golfs unique position in the market as a gateway to golf is continuing to introduce new players to the sport.

And we see excellent long term potential through a preferential ability to market to these new entrants and drive synergies across a growing consumer base, both on and off course.

Looking ahead to the second half of the year on beyond IRA.

I remain excited about the opportunity ahead of us.

We operate in great categories with a unique portfolio of businesses that are all exceeding your expectations.

There are of course macroeconomic hurdles that we and many companies are facing including supply chain constraints freight costs staffing challenges and inflationary pressure.

But if the demand levels, we are experiencing do you expect to experience in the foreseeable future.

We see these as manageable and expect to still deliver excellent financial results.

On the supply chain side, our guidance assumes an estimated 55 million negative impact on top line growth primarily in Q3, 2 accounts for current disruptions.

On the inflationary side, we have already started taking some price and believe we will largely have the ability to take price as needed.

Given the various moving parts in the remainder of the year, we are providing both third quarter and full year guidance.

I'll, let Brian discuss the numbers in more detail, but the headline is that we expect.

Full year 'twenty 'twenty on sales to be over 1.3 billion higher than 2019.

And adjusted EBITDA to be between $134 million and 149 million higher than 2019.

Our EBITDA for 2021 will be very close to the number we guided to for 2022, when we provided longer term guidance in the fall of last year.

We are essentially a year ahead of plan.

And with that I'll turn it over to you Brian.

Thank you chip.

As chip mentioned, we are very pleased with our second quarter on first half result.

Each of our operating segments performed above our expectations, leading to record results. Despite a challenging operating environment.

There are some continuing challenges from the pandemic that will have an.

The effect on our business in the short term income, including supply chain constraints increased freight cost staffing challenges and inflationary pressures.

We are energized by the opportunities ahead of us and we believe we are well situated to handle the prolonged pandemic.

More specifically each of our operating segments supporting outdoor active and healthy way of life that is compatible with a world of social distancing and we have a strong liquidity position.

As of June 32021, our available liquidity, which is comprised of cash on hand, and availability under our credit facilities was $877 million compared to $483 million at June 32020.

In evaluating our results for the second quarter on first half.

Keep in mind the following.

First our non-GAAP results exclude noncash amortization expense of intangible assets acquired in acquisitions, including fair value adjustments to top golfs leases on that.

Noncash depreciation expense from the fair value step up of top golf asset.

Transaction and transition costs from the acquisitions.

Noncash amortization of debt discount on the notes issued during the second quarter of 2020.

$374 million pre tax noncash impairment charge in the second quarter of 2020 related to the Jack Wolfgang goodwill and trade name.

A $253 million noncash gain related to the write up of our pre merger top golf investment.

A $33 million benefit in the second quarter of 2021 from the reversal of a portion of the noncash valuation allowance related to certain of our deferred tax assets.

And certain other nonrecurring items.

We have provided in the tables to this release a reconciliation detailing the impact of these items on second quarter and first half GAAP results.

Second this is a reminder, that our first half financial results include top golf for 4 months only as the merger was completed on March 8.2021.

With those factors in mind I will now discuss our financial results.

Looking at slides 10 and 11.

Following record revenues in the first quarter, our revenues continued to be very strong in the second quarter of 2021 setting another record for the company.

The second quarter 2021 revenues benefited from incremental revenue from the top golf merger and second quarter 2020 revenues were significantly impacted as much of the company's business on golf retail was shut down then due to the pandemic.

During the second quarter of 2021 sales in all product segments and in all major regions increased compared to both 2020 and 2019.

With that said consolidated second quarter, 2020 revenues were $914 million compared to $297 million for the same period in 2020.

An increase of $617 million or 208%.

This increase was led by a 98% increase in the golf equipment and soft goods businesses as well as an incremental $325 million from the top golf business.

Changes in foreign currency rates had an $18 million favorable impact on second quarter 2021 revenues.

Consolidated second quarter 'twenty 'twenty revenue has also increased $467 million or 105 per cent compared to the same period in 2019.

Including a 37 per cent increase in golf equipment, and 21 per cent increase in our soft goods business.