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spk00: Good day and thank you for standing by. Welcome to the Q1 2021 Callaway Golf 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 0. I would now like to hand the conference over to Patrick Burke, Head of Investor Relations. Thank you. Please go ahead.
spk11: Thank you, Erica, and good afternoon, everyone. Welcome to Callaway's first quarter 2021 earnings conference call. I'm Patrick Burke, the company's Head of Investor Relations. 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, Artie Starr, our Chief Executive Officer of Topgolf, and William Davenport, our Chief Financial Officer of Topgolf. 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.ir.calawaygolf.com. 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've 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 material for 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, there's 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 Investors 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 are able to flip through the slides. I would now like to turn the call over to Chip.
spk02: Thanks, Patrick. Good afternoon, everybody, and thank you for joining us for today's call. Starting on page five of the presentation, it's great to be with you today to discuss what we believe were excellent Q1 results, as well as to provide some color on the outlook for the business going forward. Our Q1 results exceeded our revenue and profitability expectations in 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 overperformed our expectations, driven by positive brand momentum in both Travis Matthew and Jack Wolfskin. The fact that this segment delivered positive segment profitability was, in my opinion, an exceptional performance given the headwinds faced by COVID restrictions and shutdowns in the European markets. I believe these trends bode very well for the long-term outlook of this segment. Lastly, Topgolf outperformed expectations based on a faster than anticipated recovery in demand, 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 now includes Topgolf and its related brands, for the hard work required in delivering these results, as well as navigating the many challenges presented by both these extraordinary times and the exciting strategy we're implementing. Like me, 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 Data Tech, U.S. retail sales of golf equipment hard goods were up 49% compared to Q1 2019 and 72% compared to 2020, thus setting another record for Q1, just as the last two quarters delivered records for their respective time periods. Our supply chain team did a great job in 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, 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 in custom fitting where demand is also surging right now. Although we fully expect the current unprecedented demand to moderate at some point, we have yet to see a slowdown, and we continue to see particular strength in product aimed at women's, 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 benefit to the golf industry as we expect it will leave the pandemic period with a significantly larger total addressable market and strong momentum. Our Q1 market share was a little weaker than desired during the quarter, as all four major golf equipment brands launched metal with product this year, while Q1 2020 only had two of the four launch. We never like to cede share, but at this point, we are not overly concerned. As our most recent share trends are improving, we expect this improvement to continue through Q2, and we are performing relatively stronger in key accounts that are not reporting to data tech, as well as a strategically important greengrass channel. Furthermore, we've been receiving excellent feedback on the performance of our products, especially the Epic Max Woods, the Apex Forged Irons, the 2-Ball 10 Putter, as well as our entire ball lineup. We also remain comfortable with our brand strength and position, In the US, third-party research from data tech showed our brand to be the number one club brand in 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 restrictions and lockdowns in the European markets, the results delivered in this segment were both better than our expectations and in my opinion, an exceptional performance. Looking at the larger individual businesses in this segment, starting with Travis Matthew, we had high expectations for growth, and still the business exceeded these expectations. Driving this performance, e-comm was up 145% year-over-year in Q1, and company-owned stores comped up nearly 10% despite some COVID restrictions early in the quarter. Sell-throat 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 Wolfskin, this is the business that probably most overperformed expectations in Q1. 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 on brand momentum. But with the COVID resurgence and resulting third wave shutdowns in Europe, we were naturally concerned. Although these circumstances have significantly impacted our business, how could they not? And they will continue to do so through at least Q2. Our brand momentum in our European e-comm channel and key digital partners has really moderated that negative impact. Combine 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 in this business is good, and pre-books for the fall-winter line have been quite strong. As a reminder, Richard Collier joined the brand in December as CEO. Richard joined us from Halle-Hansen, where he held the title of Global Product Officer and served in that capacity as well as de facto COO. We also welcomed André Groubet to the brand as CFO last October, coming to us from Amut. 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-Burnett Soft Good business. As mentioned last quarter, in Korea, we plan to take back the Cataloy Golf apparel brand that 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 in staffing and IT 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-com to deliver 96% year-over-year growth in Q1. E-com is now a significant portion of the channel mix of this segment, and we are confident our expanded capabilities and strength here will bolster this business and forward. Post-COVID, we continue to expect our apparel and soft goods segment to grow faster than our golf equipment business, and with that growth, deliver operating leverage and enhanced profitability. And although the pandemic delayed our efforts, we still believe we'll be able to deliver 15 million of synergies in this segment over the coming years. Like our company overall, this segment, with its concentration in golf and outdoor, appears to be well-positioned for both the months and years ahead, both during the pandemic and after. Now turning to Topgolf. This exciting new segment also outperformed expectations based on a faster-than-anticipated recovery in demand, as well as strong operating efficiencies. We were pleased to close the transaction in early March and equally pleased to onboard Ari Stars as the new CEO in early April. already brings a wealth of valuable experience and talent to an already strong management team and exciting business. Needless to say, I'm thrilled by this combination. On the venue side, all venues are now open globally. After a challenging start to the year, COVID restrictions are continuing to ease. COVID impacted, so these include the impact of venues shut or restricted due to COVID during the period, Same venue sales versus 2019 was in the low 80s 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 end or modestly above our previous full year same venue sales expectations, which was 80 to 85%. Walk-in traffic remains stronger than events still, and both are trending well. Our financial results benefited from the same venue sales beat, as well as the operating efficiencies that are higher than both historical levels and our plan. Some of this is due to the fact that in 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 has 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 in Q1 and three so far in Q2. Globally, we have 66 company-owned venues in 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 in our pipeline for future venues. Turning to Top Tracer, we successfully installed 1,533 bays in Q1, a new record despite the COVID challenges globally. We now have just over 10,000 bays 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 8,000 bays this year. At the end of this week, we'll be launching the next global Top Tracer tournament, the Nine Shot Challenge, this time presented by the PGA of America and the PGA Championships. 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're still not providing specific revenue and earnings guidance. However, we now have enough new information and visibility to provide the following color. As discussed in our previous call, we continue to have headwinds in our supply chain, logistics, and labor. 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, our supply chain and HR teams are proving up to these challenges. I believe we may even have a competitive advantage here. Also at present, 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 at Travis Matthew, investments in demand creation and digital resources for all brands, as well as the Korea apparel business. We have a track record for making these kind of internal investments and are confident these will deliver high returns for shareholders. Although we continue to fight COVID impacts globally and business conditions remain unsettled, the strong demand equation and the momentum of our brands is such that it 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 will meet or beat 2019 results. More specifically, We are now expecting our legacy business to exceed its 2019 results and the Topgolf business to meet or exceed its 2019 full year results as measured over the full 12-month period. It is worth noting that a couple of quarters ago, I said I thought this was not in 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. Brian, over to you.
spk06: Thank you, Chip. We are very pleased with our first quarter results with consolidated revenue increasing 47 percent and adjusted EBITDA increasing 113 percent compared to the same period in 2020. Our consolidated revenue and adjusted EBITDA for the first quarter of 2021 also increased by 26 percent and 38 percent respectively compared to the first quarter of 2019. Each of our three operating segments performed ahead of plan during the first quarter of 2021. In addition to this better-than-expected operating performance, our liquidity has also improved substantially compared to a year ago. As of March 31, 2021, our available liquidity, which is comprised of cash on hand and availability under our credit facilities, was $713 million, compared to $260 million at March 31, 2020. All in all, we are pleased with the current state of our business and are optimistic for the balance of the year. In 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 the OGO, Travis Matthew, and Jack Wolfskin acquisitions, We incurred non-cash amortization expense of intangible assets in the first quarter of 2021 and 2020. The first quarter of 2021 also includes non-cash amortization of intangible assets related to the Topgolf merger, as well as depreciation expense from the fair value step-up of Topgolf property, plant, and equipment, and expense related to the fair value adjustments to Topgolf's leases and debt. Second, we also incurred other acquisition and non-recurring charges in the first quarter of 2021, including top-cost merger transaction and transition expenses and implementation costs related to the new Jack Wolfkin IP system. In 2020, the company incurred non-recurring integration costs related to the Jack Wolfkin acquisition and costs related to the transition to our new North American distribution center in Texas. Third, we recognized in the first quarter of 2021 a $253 million non-cash gain related to the write-up of our pre-merger TopCop investment. Fourth, we incurred in the first quarter of 2021 and will continue to incur non-cash amortization of the debt discount on the notes issued during the second quarter of 2020. Fifth, we recorded in the first quarter of 2021 a non-cash valuation allowance related to certain of our deferred tax assets as a result of the merger. Lastly, the TopCop merger was completed on March 8, 2021. TopCop generally operates on a 13-week quarter. As a result, our first quarter 2021 financial statements include TopCop results for a four-week period commencing March 8, 2021 and ending April 4. This can become confusing, and we will do our best to call out when we are discussing TopCop results for the full quarter versus the four-week stub period. but you should use due care while preparing your models to ensure you are using the correct one. We have provided in the table for this release a schedule detailing the impact of these items on 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. Turning now to slide 11, Today we are reporting record consolidated first quarter 2021 net revenues of $652 million compared to $442 million for the same period in 2020, an increase of $210 million or 47%. This increase was led by a 26% increase in the legacy Callaway business, as well as an incremental $93 million from the four weeks of the Topgolf business. Changes in foreign currency rates had a $17 million favorable impact on first quarter 2021 net sales. We are also reporting for the first quarter of 2021 operating income of $76 million, an increase of $35 million, or 85%, compared to $41 million for the same period in 2020. On a non-GAAP basis, operating income for the first quarter of 2021 was $97 million, a $54 million or 126% increase compared to $43 million for the same period in 2020. The increase in non-GAAP operating income was led by a $50 million increase in segment operating income from the legacy Cadillac business, as well as an incremental $4 million from the four weeks of the Topgolf business. Other income was $244 million in the first quarter of 2021, compared to other expense of $3 million in the same period of the prior year. This includes the $253 million non-cash gain related to the Topgolf merger. On a non-GAAP basis, which excludes inter alia, the Topgolf gain, other expense was $5 million in the first quarter of 2021, compared to other expense of $3 million for the comparable period in 2020. The $2 million increase in other expense was primarily related to higher interest expense related to incremental interest from the convertible bonds issued in May 2020, plus four weeks of top-off interest, partially offset by a decrease in foreign currency-related losses. Pre-tax income was $320 million in the first quarter of 2021, compared to $38 million for the same period in 2020. Non-GAAP pre-tax income was $91 million in the first quarter of 2021, compared to non-GAAP pre-tax income of $41 million in the same period of 2020. Earnings per share was $2.19 on approximately 125 million shares in the first quarter of 2021, compared to earnings of 30 cents on approximately 96 million shares in the first quarter of 2020. Non-GAAP earnings per share was 62 cents in the first quarter of 2021, compared to earnings per share of 32 cents for the first quarter of 2020. Fully diluted earnings, fully diluted shares, excuse me, were 125 million in the first quarter of 2021, compared to 96 million shares for the same period in 2020. The next 29 million share increase is primarily related to the issuance of additional shares in connection with the Topgolf 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 31st, 2021, we had approximately 185 million shares that were issued and outstanding. Adjusted EBITDA was $128 million in the first quarter of 2021, compared to $60 million in the first quarter of 2020 and $93 million in the first quarter of 2019. Topgolf contributed adjusted EBITDA of $15 million for the four-week period. To provide some additional perspective, the top GOP first quarter 2021 EBITDA, the full three months, was $17 million. The GOP equipment segments net revenue increased $85 million, or 29%, to $377 million in the first quarter of 2021, compared to $292 million in the first quarter of 2020. This increase was driven by the continued surge in GOP demand and participation. Our supply chain team's ability to secure a greater than expected supply of golf equipment components during the first quarter, as well as the COVID-19 shutdowns across portions of our business in the first quarter of 2020. Both golf club and golf ball sales increased by 26% and 50% respectively. The golf equipment segment operating income was $85 million, or 22.5% of net revenues, in the first quarter of 2021. compared to $59 million, or 20.2% of net revenues, in the first quarter of 2020, an increase of $26 million at 230 basis points. The increase was driven by the increased revenue, operating expense leverage, and favorable foreign currency exchange rates, partially offset by increased freight and product myths, including lower margins on our 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 in the first quarter of 2021 compared to $151 million in the first quarter of 2020. The increase was driven by a 23% increase in apparel sales as well as an 18% increase in gear, accessories, and other. Both the Travis Matthew and Jack Wolfskin 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 million to $20 million compared to a loss of $4 million for the same period in the prior year. In 2021, this equated to 11% of segment revenue, a 1,360 basis point improvement over the first quarter of 2020. The increase is driven by the increased sales, operating expense and cost of revenue leverage, favorable foreign exchange rates, and increased commerce revenue, partially offset by lower retail revenue of Jack Wolfgang due to further government-mandated retail shutdowns during the first quarter of Central Europe. The Topgolf segment's debt revenue was $93 million in the first quarter of 2021, which includes four weeks of the Topgolf business. The Topgolf segment's operating income was $4 million for the four-week stump period, To provide investors additional perspective, Topgolf's full first quarter net revenues were $236 million, and full first quarter GAAP operating loss was $30 million. And on a non-GAAP basis, Topgolf's operating loss was $15 million. Turning now to slide 13, 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 in the legacy Calway business, improved liquidity from working capital management, and proceeds from the convertible notes we issued during the second quarter. On March 31, 2020, we had total net debt of $1,160 million, including $640 million of top golf-related net debt. The top stock of debt includes deemed landlord financing of $222 million related to financing the venues business. Our consolidated net accounts receivable was $329 million, an increase of 27% compared to $260 million at the end of the first quarter of 2020. Day sales outstanding decreased slightly to 61 days on March 31st, 2021, compared to 62 days after March 31, 2020. The increase in net accounts receivable primarily is attributable to the increase in 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. Also displayed on slide 13, our inventory balance decreased by 19%, to $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. This $77 million decrease was due to the high demand we were experiencing in the golf equipment business, recovery of our soft goods businesses, as well as inventory reduction efforts in the soft goods business. Capital expenditures for the first quarter of 2021 were $29 million, This includes $16 million related to Topgolf. 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 in our plants and warehouses, as well as increasing the number of planned Travis Matthew-owned retail stores. The full year, that is 12 months, forecast for Callaway and Topgolf is approximately $265 million, driven primarily by the new venue openings. If you include Topgolf for only 10 months, that would be approximately $235 million. Depreciation and amortization expense was $20 million in the first quarter of 2021. Non-GAAP depreciation and amortization expense was $17 million in the first quarter of 2021, compared to $8 million in 2020. This includes $9 million of non-GAAP depreciation and amortization related to Topgap. To help give investors additional perspective, the Topgap full Q1 non-GAAP depreciation and amortization was $27 million. For the full year in 2021, we expect non-GAAP depreciation and amortization expense to be approximately $155 million, which includes $115 million for the Topgap business. I am now on slide 14. We are not providing specific revenue earnings guidance ranges for 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 on full year consolidated gross margins and operating expenses. Due to the merger with Topgolf, 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 for the legacy Callaway business and the Topgolf 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 in our golf equipment business. For 2021, it is treated as a discount to sales as opposed to an operating expense in 2020 and 2019. This negative impact This negatively impacted gross margins for the golf equipment business in the first quarter of 2021 by approximately 85 basis points and will continue to affect comparisons with prior periods. For the balance of the years, 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 of $13 million on freight costs in 2021, with a substantial majority affecting the first half. At this point, the impact of COVID-19 in our overall freight costs is expected to be greater than the $13 million, with more costs hitting the balance of the year than originally expected. We also previously estimated that operating expenses for the legacy Callaway business would be approximately $70 to $80 million higher than in 2019, due to the negative impact of foreign currency inflationary pressures, and continued investment in the company's business, which included investment needed to assume the Korea apparel business, investment in the other soft goods businesses, and investment in Pro 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 an overall greater impact than 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 Matthews stores, given that brand's momentum and the availability of favorable lease terms in the current environment, and incremental investments in 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 pressures due to a tight labor market, increased freight costs, as I mentioned earlier, and increased commodity prices. These are impacting all aspects of our business. We are 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 to titanium, from rubber to urethane, to textiles, and from cheese to chicken wings. As Chip mentioned, if present demand is high enough, the positive volume variances are expected to overshadow the majority of these increased costs, but these increased costs in the aggregate will still have some impact on balance of year operating margins. In 2022, we will have to explore price increases if those higher costs continue. We have previously guided that due to the impact of COVID-19, the company's revenue and adjusted EBITDA would not return to 2019 levels until 2022 for either the legacy CalWay business or the TopCop business. Given the faster than expected recovery of both businesses, and with all three of our operating segments performing above plan in the first quarter, we now project that revenue and adjusted EBITDA from our legacy businesses will exceed 2019 levels, and that our top-top business for the full 12 months of 2021 will meet or exceed 2019 levels, which is a year faster than expected. As a reminder, in 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 Topgolf business reported revenue of $1.06 billion and adjusted EBITDA of $59 million in 2019. Please note that Cowley's actual reported full-year financial results will only include 10 months of Topgolf results in 2021 and therefore will not include January and February results which were in the aggregate $143 million in revenue and $2.3 million in adjusted EBITDA. That concludes our prepared remarks today, and we will now open the call for questions. Operator, over to you.
spk00: As a reminder, to ask a question, you may press star 1 on your telephone. To withdraw your question, press the pound key. We do ask that you limit yourself to one question and one follow-up question. Thank you. Please stand by while we compile the Q&A roster. Your first question is from Randall Connick with Jeffries.
spk04: Hey, thanks a lot. Can you hear me, guys? Sure can. All right. Good afternoon. Chip, I just want to ask you a question. We got some good color there on how we should be thinking about 2021. But I just want to get your level, give us your level of comfort on how you're thinking about those 2022 numbers you guided us with. I believe it was about $3.2 billion in sales and about $360 million in adjusted EBITDA. I just want to get your thoughts on how you're thinking about those goals for next year.
spk02: Yeah, good question, Randy. As you know, previously discussed in the calls that we've had, the 2022 guidance that we gave in conjunction with the announcement of the Topgolf 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 guidance, better than the $360 million adjusted EBITDA in 2022. However, we're not providing any specific estimates at this point, and we do hope to be able to restore at least annual guidance early next year per our previous practice.
spk04: That's super helpful. One last question is you gave us some color on Top Tracer where you said that you expect to hit those 8,000 bays. You know, I keep going to all these. driving ranges that look like they're stuck in the 1990s and in desperate need of this top tracer technology and these ranges are always packed now. So how do you, are you getting a lot more incremental inbound? And if so, do you think that the level of installations can potentially rise over time as your construction teams get used to, you know, the installation process and get better and faster at what they do? Just curious on your thoughts there.
spk02: Yeah, Randy, we remain very encouraged and probably increasingly encouraged by that business. So Q1, you have to keep in mind, you know, had significant COVID restrictions in various parts of the world, and we still do in various parts of the world. So the fact that we're comfortable with the 8,000, which was our previous communication bay installs, means that among other things, that the demand for the product is quite good. It's also an area where we're seeing very strong synergies with the Callaway business being able to generate additional leads and sales pipeline for the top tracer business. As we work through the COVID environment and scale that business, yes, we remain very optimistic, and hopefully there is some upside potential.
spk04: Great. Super helpful. Thanks, guys. Thank you.
spk00: Your next question is from Brett Andrus with KeyBank Capital Markets.
spk07: Hey. Good afternoon, guys. Can you give us any detail on the cadence of same store sales in the quarter, just how it progressed from January into 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 impacted units, how did those units compare to that low 80s number that you gave us?
spk02: Okay. Hey, Brett, Chip. So as you would have 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., you know, COVID was pretty hot and heavy in the January time period. We were, you know, scaling back up and there were significant restrictions in the U.S. as well as globally. And so, as you would expect, the same venue sales ramp nicely during the quarter and and we're at the highest point towards the end of the quarter. What was the other question, Brett?
spk07: Just the non-COVID impacted units, how those units compare to that low 80s number that you gave us?
spk02: Yeah, Brett, I'm not going to be able to give you anything quantitatively there. Unfortunately, the level of granularity there is beyond what we're comfortable with. To a degree, you could argue that most were COVID 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.
spk07: Okay, that's fair. And then my follow-up is, can you just talk about what you're seeing in the event space? piece of the Topgolf business? I mean, how is the events business doing compared to 19, I guess, today? And then, you know, if you look into the back half of the year, presumably you have some visibility, right, in terms of the events on the books. Can you just maybe talk about that and how you see the events recovery playing out for Topgolf?
spk02: Sure. But, again, it will be a qualitative, not a quantitative discussion. So the events are still significantly impacted, as you would expect. But they, like the rest of the business, ramped during the quarter. And we are seeing increased interest for events. The event sales team is getting better response and improved leads. So we're optimistic that it will continue to ramp. but it is still significantly impacted, as you would expect it to be. And our visibility of that specific element is still not great, to be honest. We are optimistic on it, and it's certainly above where we expected, but it would be beyond me to predict that one for Q3 or Q4, although we like the trends.
spk07: Awesome. All right. Thank you.
spk00: Thank you. Your next question is from Joe Adubello with Raymond James.
spk05: Thanks. Hey, guys. Good afternoon. So first question, in terms of development costs for the new venues, given what we're seeing in the real estate environment and given what we're seeing across rural materials, has the development cost for new Topgolf venues increased materially?
spk02: We – We have seen some pressure on that. It hasn't had a material impact on us at this stage, but it is something we'll continue to monitor because, you know, all of the cost impacts across all of the business are seeing some inflation at this point. So nothing to report at this stage, but, yes, we are starting to see some things that will keep our attention on.
spk05: Okay, great. And just to follow up on that, now that the deal is closed, can you provide us a little more insight into the potential revenue synergies that you see for your equipment business and apparel business with Topgolf?
spk02: Really no change in our point of view right there. We think that it's very attractive strategically, and there are going to be significant synergies. We're not calling those out, and it's going to take some period of time to – realize those, although we're getting a nice start on it now. But, no, we're not going to specifically call anything out at this point. Okay. Understood. Thank you.
spk00: Our next question is from Susan Anderson with B Reilly.
spk01: Hi. Good evening. Nice job on the quarter. Just really quick on the core golf business, you mentioned all of the port and freight issues going on, and it does look like inventory is pretty lean. So I'm just curious how you feel about inventory in that segment, and do you feel like you missed, even though sales were obviously very strong, do you feel like you missed any sales in the quarter, or should we see that more spread out throughout the year because of the freight and port issues?
spk02: You know, Susan, there were definitely, you know, constraints as the demand was so extraordinarily high during Q1. And, you know, you've got to keep in mind in Q1 it's not a high sell-through quarter, although, you know, it was a record sell-through result. Q2 is a much larger quarter as is Q3 from a sell-through basis. The field inventory levels are quite low. Our inventories are quite low, and we think that our supply chain team is doing a fantastic job. If you look at just the golf club side of our business, it was up 49% last in Q4 last and 26% in Q1, so sequentially building, and it's building without having the time period that it would have liked to have to build inventories for Q1. Usually, we take the second half of the year when 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 what we left on the table in Q1, as opposed to how strong the demand equation is and it's sustaining at these levels. and that we believe we have a very strong supply chain team that clearly is creating us, we think, a competitive advantage and allowing us to take advantage of the opportunities that are in front of us.
spk01: Great. Okay, that's very helpful. And then just really quick on Topgolf, on the EBITDA, it looks like it was, relatively strong, I think, versus, you know, kind of the longer-term expectations you laid out. So I'm just curious if there's any updates to your thoughts around EBITDA as we kind of look out over the next several years there.
spk06: Hi, Susan. We're not providing long-term guidance there, but you're right. It was a very good EBITDA performance, and just as the business recovers from COVID, I think you'll see it continue or ramp in that business and performance.
spk01: Great, okay. If I could add one last one on Jack Wolfskin. I think you had mentioned that you now expect it, you think it could be bigger than originally expected. Maybe if you could give a little bit more color around that. Is that as you add North America or are you seeing the strength in Europe and China greater than what you would have originally expected?
spk02: Europe and China are really starting to hit stride, Susan, and I'm increasingly confident in the team. I'm seeing brand momentum. We're just seeing a lot of strength in a lot of different areas there now. Some of these are the results of 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. Obviously, it's a difficult environment right now because Europe was literally, at least in Central Europe, locked down, and yet you can see our confidence is increasing and the results are showing that we think we're in a very good position there going forward.
spk01: Great. That sounds good. Thanks so much. Good luck next quarter. Thank you.
spk00: Your next question is from John Kernan with Callen.
spk10: Good afternoon. Thanks for taking my question.
spk06: Hey, John. Hey, John.
spk10: Was wondering if Artie's taking question. I know he's probably excited about the opportunity to talk off. I'm just curious if he's able to share, you know, what his potential, the potential he views for the concept. I know he obviously comes from a, uh, deep background in restaurants. I'm just curious what he's seen at Topgolf at this point that gets him excited.
spk02: Yeah, John, given that he's already all of one month or one week into the new role, we are going to not introduce him to specific questions on this call. However, we look forward to exposing him to you and other analysts in the future and obviously thrilled to have him on board.
spk10: All good. We've heard good things. Maybe, Brian, we could go back to you just on the guidance. It seems like you're more confident than maybe when the initial guidance for 2021 was provided. The incremental SG&A costs seem to be the biggest headwind for the core Callaway business. Just wondering what the offsets to those are as you're now going to be exceeding 2019 levels of EBITDA.
spk06: Yeah, a lot of it's going to be the revenue overperformance versus 2019. You know, we still are seeing the continued surge in interest and demand and participation for GOP. And then I think, you know, you see it's largely that. It's just all the businesses are recovering faster than expected. GOP's on fire. The soft goods business are recovering faster than we think, so that will offset some of the incremental expenses between Q2 and Q4. You know, we're probably underperforming those expenses right now. We're getting leverage because we're not able to hire, and we had to defer some marketing and things like that. So the levels we're at now probably are not sustainable, and the effects will continue to ramp and increase as we go through the year.
spk10: Understood. Thanks. Maybe just one final question. It sounds like, you know, Chip, you're more incrementally positive on the soft good side of the business, maybe relative to where we were three months ago. Just any comment on, you know, Travis, Jack Wolfskin, the sales and, you know, margin opportunity there as you look, you know, not just for 2021, but beyond.
spk02: Yeah, John, I'm fortunate right now in that I'm incrementally more positive on all three of our business segments overall. and continue to build confidence in all of them. The Travis Matthew business is, like I said, its momentum is at an all-time high. We had high expectations for growth going into the quarter, and it's outperformed those expectations in every channel. The brand is really resonating. It's really got high potential, I think, going forward, and we're excited about investing in it and it's delivering. The Jack Wolfskin business, that business has really started to deliver as well. We're not going to call out any quantifiable guidance on these. We've done a little bit of that in the past. When you look at the apparel and soft goods segment, it's still the segment that is most heavily impacted. It's still in Europe. The Central European markets are still in lockdown. But, you know, as shown in our results, we're hitting stride. We're building momentum. Good sell-through despite that. Strong e-com growth. Fall winter bookings looking really good. China business starting to hit stride. So we do feel very good about that segment as we do about all three of our business segments.
spk10: Awesome. Thank you, guys. Thank you.
spk00: Our next question is from Casey Alexander with Compass Point.
spk09: Hi. Good afternoon. I know we've been here for a while, but just a couple of segment questions. One... You're 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'm curious, 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 a part of the share argument that you were talking about that drove that one market to show a decline?
spk02: Sure, Casey. In Europe, yes, it was outside of golf, although golf did better than you would have expected it to do given the shutdowns that existed in that market in Q1. The apparel business that we have in Europe did better relatively than a year ago in Q1, where COVID hit it so hard early on. And, you know, now with the strength of our ability to do business in a COVID environment, we overperformed. And we didn't know that going into the quarter, because at the time we had the last call with you, they were just announcing the further shutdowns in Europe. So we were trying to get our arms around all that, and we outperformed our expectations. In Japan, what we saw there was a little bit of a share shift during the quarter. A lot of it's timing, though. We comped a strong year in Japan last year in Q1, so the whole business last year in Q1 was a little all over the map because of COVID, but Japan itself was up versus 2019 and 2020 for the first quarter. And this year, our product mix in Japan sells in a little less than our product mix did a year ago. We also shut down a few stores during the COVID period, so our apparel business over there has its own stores. We closed nine, actually, not profitable stores, so that impacted some of the revenues. The long and short of it is we expect Japan to be up for the full year, and we remain comfortable with that business, although it was an outlier in Q1.
spk09: All right, great. Thanks for that. And secondly, the golf ball is up 50% year over year, clearly the biggest trend of all. What would you say drove that golf ball comp? And, you know, was it programs that you ran? Is that sustainable for the year, or would you expect that to back off some as the year goes along?
spk02: In case, I would probably – I'd expect it to back off. I'm not sure we can have a 50% growth for the full year. In fact, I would guess we cannot – However, I think there's some sustainability in the good momentum we have in the golf ball business where we see our share up. We're seeing continued strength in 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 in golf ball. We were in the middle of trying to start up after a significant capital improvement plan, then COVID hit, and, you know, it became a very difficult situation. We're starting to see the benefits of the investments we've made and the brand position strong, and as you can tell, the demand equation is equally strong.
spk09: Okay, great. Thank you for taking my questions.
spk02: Thank you, Casey.
spk00: Our final question is from Alex Gia with Berenberg.
spk08: Hi, good afternoon, guys. Thanks for taking my questions. There's a bit of debt repayment in the period. Can you just remind us about efforts to de-lever in the coming years following this deal?
spk06: Yes. I mean, well, we originally a long time ago said we wanted to get to below two times leverage. But I think with the current environment, we're, you know, we're trending toward four to five times by the end of this year and then working towards, you know, three or so after that. you know, with the, with the growth in the company and the growth in Topgap business, we're going to be able to, even without paying down much debt, we're going to be able to outrun it just through the EBITDA growth.
spk08: Got it. That's helpful. And then secondly, are you planning any type of promotional activity for Jack Wolfskin's products in Europe since the key selling season was essentially lost this year?
spk02: Alex, very limited. Uh, we find ourselves because we had very good sales, uh, at the e-comm and digital channel. We do not find ourselves in a inventory concern in Europe, which is another positive occurrence. The team has been able to manage that quite well, and if it will be, it'll be marginal to the point where I'm not expecting any impact that it will be noticeable.
spk08: Okay, that's great. Thank you, guys. Thank you.
spk00: At this time, I'll turn the call back over to Mr. Chip for closing remarks.
spk02: Well, thank you, everybody, for calling in. As you can tell, we're delighted with our performance in 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.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect.
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