CALY 10-Q
Callaway Golf Co (CALY)
10-Q
2024-08-07
For: 2024-06-30
View Original
Added on
April 12, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| Form | |||||
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the quarterly period ended June 30, 2024
OR
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
Commission file number 001-10962
| (Exact name of registrant as specified in its charter) | ||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(760 ) 931-1771
(Address, including zip code, and telephone number, including area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
As of July 29, 2024, the number of shares outstanding of the Registrant’s common stock was 183,804,993 .
Important Notice to Investors Regarding Forward-Looking Statements: This report contains “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “may,” “should,” “will,” “could,” “would,” “anticipate,” “plan,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” and similar references to future periods. Forward-looking statements include, among others, statements that relate to future plans, events, liquidity, financial results, performance, prospects or growth and scale opportunities including, but not limited to, statements relating to future industry and market conditions, strength and demand of our products and services, continued brand momentum, demand for golf and outdoor activities and apparel, continued investments in the business, increases in shareholder value, consumer trends and behavior, future industry and market conditions, Topgolf International, Inc. (“Topgolf”) venue/bay expansion plans, the expansion of our leadership position in off-course golf, the strength of our brands, product lines and e-commerce business, geographic diversity, market recovery, availability of capital under our credit facilities, the capital markets or other sources, our conservation and cost reduction efforts, future stock repurchases, cash flows and liquidity, compliance with debt covenants, estimated unrecognized stock compensation expense, projected capital expenditures and depreciation and amortization expense, future contractual obligations, the realization of deferred tax assets, including loss and credit carryforwards, future income tax provision, the future impact of new accounting standards, the impacts of inflation and changes in foreign exchange rates, future prospects and growth of our business, including TravisMathew, LLC (“TravisMathew”), OGIO International, Inc. (“OGIO”), JW Stargazer Holding GmbH (“Jack Wolfskin”) and Topgolf. These statements are based upon current information and our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. As a result of these uncertainties and because the information on which these forward-looking statements is based may ultimately prove to be incorrect, actual results may differ materially from those anticipated. Important factors that could cause actual results to differ include, among others, the following:
•certain risks and uncertainties, including changes in capital markets or economic conditions, particularly the uncertainty related to inflation, decreases in consumer demand and spending and any severe or prolonged economic downturn;
•consumer acceptance of and demand for our products and services;
•future retailer purchasing activity, which can be significantly affected by adverse industry conditions and overall retail inventory levels;
•unfavorable changes in U.S. trade or other policies, including restrictions on imports or an increase in import tariffs;
•the level of promotional activity in the marketplace;
•future consumer discretionary purchasing activity, which can be significantly adversely affected by unfavorable economic or market conditions;
•future changes in foreign currency exchange rates and the degree of effectiveness of our hedging programs;
•our ability to manage international business risks;
•our ability to recognize operational synergies and scale opportunities across our supply chain and global business platform;
•adverse changes in the credit markets or continued compliance with the terms of our credit facilities;
•our ability to monetize our investments;
•costs, expenses or difficulties related to the merger with Topgolf, including the integration of the Topgolf business, or the failure to realize the expected benefits and synergies of the transaction in the expected timeframes or at all;
•our ability to successfully (i) operate and, if applicable, expand the retail stores of the TravisMathew, Jack Wolfskin, and our Japan and Korea apparel businesses, and venue locations of the Topgolf and BigShots businesses and (ii) complete the reorganization of the Jack Wolfskin business;
•delays, difficulties or increased costs in the supply of components needed to manufacture our products or in manufacturing our products, including our dependence on a limited number of suppliers for some of our products;
•adverse weather conditions and seasonality;
•any rule changes or other actions taken by the United States Golf Association or other golf associations that could have an adverse impact upon demand or supply of our products;
•our ability to protect our intellectual property rights;
2
•a decrease in participation levels in golf;
•the effect of terrorist activity, armed conflict, the conflict between Russia and Ukraine or Israel and Hamas, natural disasters or pandemic diseases, including the COVID-19 pandemic and its related variants, on the economy generally, on the level of demand for our products or on our ability to manage our supply and delivery logistics in such an environment; and
•the general risks and uncertainties applicable to us and our business.
Investors should not place undue reliance on these forward-looking statements, which are based on current information and speak only as of the date hereof. We undertake no obligation to update any forward-looking statements to reflect new information or events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Investors should also be aware that while we from time to time do communicate with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential commercial information. Furthermore, we have a policy against distributing or confirming financial forecasts or projections issued by analysts and any reports issued by such analysts are not our responsibility. Investors should not assume that we agree with any report issued by any analyst or with any statements, projections, forecasts or opinions contained in any such report. For details concerning these and other risks and uncertainties, see our most recent Annual Report on Form 10-K, as well as our quarterly reports on Form 10-Q and current reports on Form 8-K subsequently filed with the Securities and Exchange Commission from time to time.
3
Topgolf Callaway Brands Corp. Trademarks: The following marks and phrases, among others, are our trademarks: #1 Irons in Golf, #1 Putter in Golf, #1 Putter on Tour, #1 Range Technology in Golf, 2-Ball, 2-Ball Fang, 2-Ball Jailbird, 2 Ball Putter Design, 360 Carbon Chassis, 360 Face Cup, 360 Fade, 3 Deep, AI One Cruiser, AI Smart Face, AI Smoke, AI Smoke Tactical, Alcatraz, Alpha Convoy, Apex, Apex 21, Apex CB, Apex DCB, Apex Pro, Apex Smoke, Apex TCB, Apex Tour, Apex UW, APW, Arm Lock, At Home Outdoors, B21, Backstryke, Batwing, Batwing Technology, Beachside Stealth, Big Bertha, Big Bertha Alpha, Big Bertha B21, Big Bertha Diablo, Big Bertha Diablo & Horned Shield Design, Big Bertha REVA, Biggest Big Bertha, Bigshots Golf, Bigshots Golf Stylized, Big T, Black Series, Black Series I, Bogey Free, Broomstick, Callaway, Callaway #1 Irons in Golf, Callaway Customs, Callaway Edge, Callaway Golf, Callaway Media Productions, Callaway Next, Callaway Paradym Night Mode, Callaway Superfast, Callaway Super Hybrid, Callaway Supersoft, Callaway Supersoft Splatter 360, Callaway X, Callaway XR, Capital, Catch it Clean, Cavity Back Design Pattern (X-14), CF16, CF23, C Grind, Chev, Chev 18, Chevron Design, Chrome Soft, Chrome Soft X, Chrome Tour, Cloud Collection, Cloud Hoodies, Cloud Polo, Cloud Waffle, Coastview, Come Play Around, Cuater, Cuater C logo, Cup 360, Cutwave, CXR, Cyclone Aero Shape, Dawn Patrol, Demonstrably Superior And Pleasingly Different, Destinations by TravisMathew, DFX, Diablo Forged, Diablo Octane, Diablo Tour, Distance Fitting from Callaway, Distance that Defies Convention, Divine Line, Divine Nine, Double Wide, Driver Defender, Driving the Course to Modern Golf, DSPD, Dual Force, Dual Softfast Core, Eagle, Ecoloader, Ecostride, Engage, Epic, Epic Flash, Epic Max, Epic Max LS, Epic Speed, Epic Star, ERC, E.R.C. Fusion Stylized, ERC Soft, Extended Season, Fairway+, Fairway14, FairwayC, Fateline, Favorite Track, Fibercloud, Fit Disc, Flash Face, Flash Face SS21, Flash Face SS22, Flexcontact, Flex Pod, Force Optimizer, Force Plate Stylized, Fore Me, Forged 455, Forged X, Friday Ponte, Frost Delay, F Stylized, FT-3, FT-5, FT9, FT-I, FT IQ, FTIZ, FT Optiforce, FT Tour, Fusetech, Fusion, Fusion Zero, Gambit Pro, GBB, GBB Epic, Gems, Golf Ball on Tee Design, Golf Fusion, Gravity Core, Great Big Bertha, Hawk Eye, Headliner, Heater Series, Heater Series – Pure Performance, Heavenwood, Hex Aerodynamics, Hexbite, Hex Black Tour, Hex Diablo, Hex Soft, Hex Tour Soft, High Energy Core & Orbit Design, Hightail, HX, HX Diablo, Hyper Dry, Hyper Elastic Softfast Core, Hyper-Lite, Hyperlite Zero, Hyper Speed Face Cup, Hyper X, I.D. Ball, I-Mix, It’s Golf. It’s Not Golf. It’s Topgolf., IZ Power Source, Jack Wolfskin, Jack Wolfskin & Paw Design, Jailbird, Jailbreak, Jailbreak AI Velocity Blades, Jailbreak Speed Frame, Jaws Full Toe, JAWS MD5, Jewel Jam, Kings of Distance, Lag Putt, Leader in Modern Golf, Legacy, Life On Tour, Longer From Everywhere, Lowrider, Lowrider 2.0., Mack Daddy, Mack Daddy CB, Mack Daddy Forged, Made to Meet the Moment, Magna, Make Every Shot Your Best, MarXman, Mavrik, MD3 Milled, MD4 Tactical, Microguard, Microhinge Face Insert, Mission:Ambition Modern Golf, More Than Just a Pretty Trace, Moveknit, Number One Putter in Golf, Ody, Odyssey, Odyssey AI One, Odyssey AI One Cruiser, Odyssey Eleven, Odyssey Seven, OG, Ogio, Ogio Aero, Ogio Alpha, Ogio Forge, Ogio Fuse, Ogio Pace, Ogio Rise, Ogio Shadow, OGIO Stylized, OGIO XIX, Opening Shot, Open to Close, Opti-Color, Opti Dry, Opti Feel, OptiFit, Opti Fit, Opti Flex, Opti Grip, OptiTherm, Opti Vent, ORG 7, ORG 14, ORG 14M, ORG 15, O Stylized, Oworks, Paradym, Paradym AI Smoke, Paradym Night Mode, Paw Design, Paw Squared Design, Playing Through, Powered by Toptracer, Practice Green, ProType, Proven in the Wild, PT Stylized, ·R·, Rainspann, R Ball, RCH, Real Dome Technology, Real Tunnel Technology, Red Ball, Renegade, Rig 9800, Rogue ST, TOGUE Stylized, Rossie, Rule 35, S2H2, Scoreline Pattern in White, See the Break, Shaft Shield, Shield Design with Black Background, Shield Design with White Background, Silencer, SLED, Slice Stopper, SMALL BATCH Hand Holding Hammer Badge, Smart Face, Solaire, Speed Cartridge, Speed Frame, Speed Step, Speed Tuned, SRT, Steelhead, Steelhead XR, Step Sole, Strata, Stroke Lab, Sub Zero, Superhot, Sure-Out, Supersoft, Sustainability Hand and Leaf Design. Sweeter from Every Spot, Swing Suite, Swing Tech, Swirl Design, Swirl Design & ODYSSEY, Syntech, Tank, TA Winter, Tee It High, Texapore Ecosphere, Texapore, Texatherm, Texawarm, Thermal Bomber, The Sure Thing, TMove, TM Stylized, Toe Up, TopChip, TopContender, TopDrive, Topgolf, Topgolf Block Party, Topgolf Callaway Brands, Topgolf Media, TopPressure, TopScore, TopScramble, TopShot, TopTracer, TopTracer Range, Toulon, Toulon Garage, Tour Aero, Tour Authentic, Tour I, Tour IZ, Tour Tested, Trade In! Trade Up!, Training Aid, TravisMathew, Triforce, Tri Hot, Tri-Hot 5K, Triple Track Stripes Design, Trutrack, Truvis, Truvis Pattern, T Stylized, Tungsten Speed Cartridge, Tuttle, Versa, VFT, VTEC, Warbird, War Bird, Weather Series, Weather Spann, Wedgeducation, We Live to Discover, W-Grind, WGT, WGT & Golfer Design, White Damascus, White Hot, White Hot Microhinge, White Hot OG, White Hot RX Stylized, White Hot Tour, White Hot XG, White Ice, White Trapezoid Design, Winter Rules, Winter Term, Wolftrail by Jack Wolfskin & Design, Woode, X1, X-12, X-14, X18, X-18, X-20, X-22, X-24, X-ACT, X Forged, X Hot, X Hot Pro, XR16, XR OS, XR Speed, XR Stylized, X Series, X Series Jews, X-Spann, X Stylized, X-Tech, XTT, Zinna.
4
TOPGOLF CALLAWAY BRANDS CORP.
INDEX
| Item 1. | ||||||||
Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 | ||||||||
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023 | ||||||||
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2024 and 2023 | ||||||||
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 | ||||||||
Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2024 and 2023 | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
5
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
TOPGOLF CALLAWAY BRANDS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
(Unaudited)
| June 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
Accounts receivable, less allowances of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Operating lease right-of-use assets, net | |||||||||||
| Trade names and trademarks | |||||||||||
| Other intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Other assets, net | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Accrued employee compensation and benefits | |||||||||||
| Asset-based credit facilities | |||||||||||
| Operating lease liabilities, short-term | |||||||||||
| Construction advances | |||||||||||
| Deferred revenue | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
Long-term debt, net | |||||||||||
| Operating lease liabilities, long-term | |||||||||||
| Deemed landlord financing obligations | |||||||||||
| Deferred taxes, net | |||||||||||
| Other long-term liabilities | |||||||||||
Commitments and contingencies (Note 12) | |||||||||||
| Shareholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Less: Common stock held in treasury, at cost, | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
TOPGOLF CALLAWAY BRANDS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net revenues: | |||||||||||||||||||||||
| Products | $ | $ | $ | $ | |||||||||||||||||||
| Services | |||||||||||||||||||||||
| Total net revenues | |||||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Cost of products | |||||||||||||||||||||||
| Cost of services, excluding depreciation and amortization | |||||||||||||||||||||||
| Other venue expense | |||||||||||||||||||||||
| Selling, general and administrative expense | |||||||||||||||||||||||
| Research and development expense | |||||||||||||||||||||||
| Venue pre-opening costs | |||||||||||||||||||||||
| Total costs and expenses | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
Other income (expense), net | ( | ||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax benefit | ( | ( | ( | ( | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
TOPGOLF CALLAWAY BRANDS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Change in derivative instruments | |||||||||||||||||||||||
Cumulative foreign currency translation adjustments recognized from dissolution of foreign subsidiary | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income, before income tax | |||||||||||||||||||||||
| Income tax (benefit) provision on derivative instruments | ( | ( | |||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
TOPGOLF CALLAWAY BRANDS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Non-cash interest on financing and deemed landlord financed leases | |||||||||||
| Loss on disposal of long-lived assets and other | |||||||||||
| Amortization of debt discount and issuance costs | |||||||||||
| Impairment loss | |||||||||||
| Deferred taxes, net | ( | ( | |||||||||
| Share-based compensation | |||||||||||
| Unrealized net losses on hedging instruments and foreign currency | |||||||||||
| Loss on debt modification | |||||||||||
| Other | |||||||||||
| Change in assets and liabilities, net of impacts of business combinations: | |||||||||||
| Accounts receivable, net | ( | ( | |||||||||
| Inventories | |||||||||||
| Leasing receivables | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable and accrued expenses | ( | ( | |||||||||
| Deferred revenue | ( | ||||||||||
| Accrued employee compensation and benefits | ( | ||||||||||
| Operating lease assets and liabilities, net | |||||||||||
| Income taxes receivable/payable, net | ( | ( | |||||||||
| Other liabilities | |||||||||||
| Net cash provided by (used in) operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Asset acquisitions, net of cash acquired | ( | ||||||||||
| Business combinations, net of cash acquired | ( | ||||||||||
| Proceeds from government grants | |||||||||||
| Investment in golf-related ventures | ( | ( | |||||||||
| Acquisition of intangible assets | ( | ( | |||||||||
| Proceeds from sale of property and equipment | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repayments of long-term debt and DLF obligations | ( | ( | |||||||||
| Proceeds from borrowings on long-term debt | |||||||||||
| Repayments of credit facilities, net | ( | ( | |||||||||
| Debt issuance costs | ( | ( | |||||||||
| Repayments of financing leases | ( | ( | |||||||||
| Proceeds from lease financing | |||||||||||
| Exercise of stock options | |||||||||||
| Acquisition of treasury stock | ( | ( | |||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | |||||||||||
Less: restricted cash (1) | ( | ( | |||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Supplemental disclosures: | |||||||||||
| Cash paid for income taxes, net | $ | $ | |||||||||
| Cash paid for interest | $ | $ | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| Issuance of treasury stock and common stock for compensatory stock awards released from restriction | $ | $ | |||||||||
| Accrued capital expenditures | $ | $ | |||||||||
| Financed additions of capital expenditures | $ | $ | |||||||||
(1) Includes $ | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
TOPGOLF CALLAWAY BRANDS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2023 | $ | $ | $ | $ | ( | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Acquisition of treasury stock | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Compensatory awards released from restriction | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Equity adjustment from foreign currency translation | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivative instruments, net of tax | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2024 | $ | $ | $ | $ | ( | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Acquisition of treasury stock | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Compensatory awards released from restriction | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Equity adjustment from foreign currency translation | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivative instruments, net of tax | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Impact from dissolution of foreign subsidiary | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2024 | $ | $ | $ | $ | ( | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | $ | $ | $ | $ | ( | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Acquisition of treasury stock | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Compensatory awards released from restriction | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Equity adjustment from foreign currency translation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivative instruments, net of tax | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | $ | $ | $ | $ | ( | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Acquisition of treasury stock | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Compensatory awards released from restriction | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Equity adjustment from foreign currency translation | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivative instruments, net of tax | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2023 | $ | $ | $ | $ | ( | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
TOPGOLF CALLAWAY BRANDS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. The Company and Basis of Presentation
The Company
Topgolf Callaway Brands Corp. (together with its wholly-owned subsidiaries, referred to as “we,” “our,” “us,” the “Company,” or “Topgolf Callaway Brands” unless otherwise specified), a Delaware corporation, is a leading modern golf and active lifestyle company that provides world-class golf entertainment experiences, designs and manufactures premium golf equipment, and sells golf and active lifestyle apparel and other accessories through our family of brand names, which include Topgolf, Callaway Golf, Odyssey, TravisMathew, Jack Wolfskin, OGIO, Toptracer and World Golf Tour (“WGT”).
Our products and brands are reported under three operating segments: Topgolf, which includes the operations of our Company-operated and franchised Topgolf venues, Toptracer ball-flight tracking technology (“Toptracer”), and WGT digital golf game; Golf Equipment, which includes the operations of our golf clubs and golf balls business under the Callaway Golf and Odyssey brand names; and Active Lifestyle, which includes the operations of our soft goods business marketed under the Callaway, TravisMathew, Jack Wolfskin and OGIO brand names.
Basis of Presentation
We have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accounting principles generally accepted in the United States of America (“GAAP”). Pursuant to these rules and regulations, we have condensed or omitted certain information and disclosures that are normally included in our annual consolidated financial statements which are prepared in accordance with GAAP. In the opinion of management, these condensed consolidated financial statements include all normal and recurring adjustments necessary for the fair presentation of the financial position, results of operations and cash flows for the periods and dates presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 29, 2024. Interim operating results are not indicative of operating results that may be expected for the year ending December 31, 2024, or any other future periods.
We translate the financial statements of our foreign subsidiaries using end-of-period exchange rates for assets and liabilities and average exchange rates during each reporting period for results of operations. All intercompany balances and transactions have been eliminated during consolidation.
11
Note 2. Summary of Significant Accounting Policies
Our significant accounting policies are described in Note 2 to our audited consolidated financial statements for the year ended December 31, 2023, which are included in our Annual Report on Form 10-K which was filed with the SEC on February 29, 2024.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances at that time. We evaluate our estimates on an ongoing basis to ensure that these estimates appropriately reflect changes in our business or as new information becomes available. Actual results may differ from our estimates.
Recently Issued Accounting Standards
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (ASU 2023-09), which includes amendments that further enhance income tax disclosures through the standardization and disaggregation of rate reconciliation categories and income taxes paid in both domestic and foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 and is to be applied prospectively, with early adoption and retrospective application permitted. We are in the process of evaluating the impact that ASU 2023-09 will have on our income tax related disclosures.
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which introduces new reportable segment disclosure requirements related to significant segment expenses and also expands reportable segment disclosure requirements for interim reporting. The amendment will require public entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker and are included within each reportable segment’s profits and losses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are in the process of evaluating the impact that ASU 2023-07 will have on our segment related disclosures.
12
Note 3. Business Combinations
BigShots Acquisition
On February 27, 2024, we completed a series of acquisitions of certain assets from Invited, Inc. (“Invited”), the largest owner and operator of private golf and country clubs in the United States, and affiliates of Invited, related to its BigShots Golf business (“BigShots”), which consisted of certain domestic venue locations of the BigShots brand as well as additional venue-related assets and development rights related to potential new venue locations which we intend to help expand our leadership position in off-course golf. The acquisitions were completed in three separate transactions, which occurred on November 1, 2023, January 1, 2024, and February 27, 2024 (the “Acquisition Dates”) for an aggregate total purchase price of $53.1 million, and were funded with existing cash on hand. Together, the three acquisitions were accounted for as a business combination. Goodwill arising from the acquisitions was assigned to our Topgolf operating segment and primarily consists of operational synergies. Goodwill is expected to be deductible for income tax purposes.
The following table summarizes the aggregated fair values of the assets acquired and liabilities assumed for each of the transactions as of their respective acquisition dates based on the purchase price allocation (in millions):
| Amounts recognized as of the Acquisition Dates | |||||
| Assets Acquired | |||||
| Other current assets | $ | ||||
| Property and equipment | |||||
| Intangibles—trade name | |||||
| Intangibles—other | |||||
| Goodwill | |||||
| Total assets acquired | |||||
| Liabilities Assumed | |||||
| Accounts payable and accrued liabilities | |||||
| Other long-term liabilities | |||||
| Net assets acquired | $ | ||||
| Total purchase price consideration | $ | ||||
For the three and six months ended June 30, 2024, the results of operations for BigShots and acquisition-related costs were not material to our condensed consolidated statements of operations. As such, the pro-forma results of operations have not been presented.
13
Note 4. Revenue Recognition
We primarily recognize revenue from the sale of our products and the operation of our Topgolf venues. The following table presents our revenue disaggregated by operating and reportable segment and major category for the periods presented (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Topgolf: | |||||||||||||||||||||||
| Venues | $ | $ | $ | $ | |||||||||||||||||||
| Other business lines | |||||||||||||||||||||||
| Total Topgolf | $ | $ | $ | $ | |||||||||||||||||||
| Golf Equipment: | |||||||||||||||||||||||
| Golf clubs | $ | $ | $ | $ | |||||||||||||||||||
| Golf balls | |||||||||||||||||||||||
| Total Golf Equipment | $ | $ | $ | $ | |||||||||||||||||||
| Active Lifestyle: | |||||||||||||||||||||||
| Apparel | $ | $ | $ | $ | |||||||||||||||||||
| Gear, accessories & other | |||||||||||||||||||||||
| Total Active Lifestyle | $ | $ | $ | $ | |||||||||||||||||||
| Total Consolidated | $ | $ | $ | $ | |||||||||||||||||||
Venues sales at our Topgolf operating segment include the sale of merchandise and franchise equipment. During the three and six months ended June 30, 2024, venue merchandise and franchise equipment sales, which are included in product sales on our condensed consolidated statement of operations, were $5.0 million and $9.7 million, respectively. During the three and six months ended June 30, 2023, venue merchandise and franchise equipment sales, which are included in product sales on our condensed consolidated statement of operations, were $4.6 million and $8.3 million, respectively.
Product and Service Revenue
We sell our Golf Equipment products and Active Lifestyle products in the United States and internationally. Revenue for our Topgolf operating segment is predominately in the United States due to significantly more domestic venues than international venues. Revenue related to other business lines at Topgolf is primarily in the United States, in addition to certain regions within Europe and Asia.
The following table summarizes our revenue by major geographic region for the periods presented (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenue by Major Geographic Region: | |||||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| Europe | |||||||||||||||||||||||
| Asia | |||||||||||||||||||||||
| Rest of world | |||||||||||||||||||||||
| Total Consolidated | $ | $ | $ | $ | |||||||||||||||||||
14
Licensing, Royalty and Other Revenue
We have licensing and royalty income on non-cancelable sales-type leases and operating lease agreements for Toptracer installations and Swing Suite licensing agreements at our Topgolf operating segment (see Note 5), in addition to income from licensing agreements for apparel and soft good products in our Active Lifestyle operating segment. The following table summarizes these revenues by operating segment for the periods presented (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Topgolf | $ | $ | $ | $ | |||||||||||||||||||
| Active Lifestyle | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Deferred Revenue
Our deferred revenue balance includes short-term and long-term deferred revenue which consists primarily of revenue from the sale of gift cards, event deposits, memberships and partnerships at Topgolf, loyalty points, virtual currency and game credits related to digital golf games, as well as upfront territory fees and upfront franchise fees received from international franchise partners.
The following table provides a reconciliation of activity related to our short-term deferred revenue balance for the periods presented (in millions).
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
Beginning Balance (1) | $ | $ | $ | $ | |||||||||||||||||||
| Deferral of revenue | |||||||||||||||||||||||
| Revenue recognized | ( | ( | ( | ( | |||||||||||||||||||
| Breakage | ( | ( | ( | ( | |||||||||||||||||||
| Foreign currency translation and other | ( | ( | |||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | |||||||||||||||||||
(1) Beginning balances for the three months ended June 30, 2024 and 2023 represent ending balances as of March 31, 2024 and 2023, respectively. Beginning balances for the six months ended June 30, 2024 and 2023 represent ending balances as of December 31, 2023 and 2022, respectively. | |||||||||||||||||||||||
At both June 30, 2024 and December 31, 2023, our long-term deferred revenue balance was $3.7
The following table summarizes the amount of the deferred revenue recognized during the three and six months ended June 30, 2024 and 2023 that were deferred as of December 31, 2023 and 2022, respectively (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||
| Deferred revenue recognized from prior year ending balance | $ | $ | $ | $ | ||||||||||||||||
Variable Consideration
We recognize revenue based on the amount of consideration we expect to receive from customers for the sale of our products and services adjusted for estimates of variable consideration related to sales returns, discounts and allowances, sales promotions and sales programs, and price concessions that we offer. These estimates are based on the amounts earned or expected to be claimed by customers.
15
The following table provides a reconciliation of the activity related to our short-term sales program incentives for the periods presented (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | |||||||||||||||||||
| Additions | |||||||||||||||||||||||
| Credits issued | ( | ( | ( | ( | |||||||||||||||||||
| Foreign currency translation and other | ( | ( | ( | ( | |||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | |||||||||||||||||||
Our provision for the sales return liability fluctuates with the seasonality of the business. Actual sales returns are more heavily weighted toward the second half of the year as the golf season comes to an end. The following table provides a reconciliation of the activity related to our sales return reserve for the periods presented (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | |||||||||||||||||||
| Provision | |||||||||||||||||||||||
| Sales returns | ( | ( | ( | ( | |||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | |||||||||||||||||||
As of June 30, 2024 and December 31, 2023, the cost recovery of inventory associated with the sales return liability was $40.2 million and $25.7 million, respectively, and is included in other current assets on our condensed consolidated balance sheet.
Note 5. Leases
Sales-Type Leases
We enter into non-cancellable license agreements primarily related to Toptracer and Swing Suite. Certain of these license agreements are classified as sales-type leases.
Revenue from sales-type leases is included in service revenues within the condensed consolidated statements of operations and consists of the following for the periods presented (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Sales-type lease selling price | $ | $ | $ | $ | |||||||||||||||||||
| Cost of underlying assets | ( | ( | ( | ( | |||||||||||||||||||
| Operating profit | $ | $ | $ | $ | |||||||||||||||||||
| Interest income | $ | $ | $ | $ | |||||||||||||||||||
| Total revenue attributable to sales-type leases | $ | $ | $ | $ | |||||||||||||||||||
Leasing receivables related to our net investment in sales-type leases are as follows (in millions):
| Balance Sheet Location | June 30, 2024 | December 31, 2023 | |||||||||||||||
| Leasing receivables, net—short-term | Other current assets | $ | $ | ||||||||||||||
| Leasing receivables, net—long-term | Other assets | ||||||||||||||||
| Total leasing receivables | $ | $ | |||||||||||||||
16
Net maturities of sales-type lease receivables for the next five years and thereafter as of June 30, 2024 are as follows (in millions):
| Remainder of 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total future lease proceeds | |||||
| Less: imputed interest | |||||
| Total | $ | ||||
Operating Leases, Financing Leases and DLF Obligations
Supplemental balance sheet information related to our operating and financing right-of-use (“ROU”) assets and lease liabilities and deemed landlord financing (“DLF”) assets and obligations is as follows (in millions):
| Balance Sheet Location | June 30, 2024 | December 31, 2023 | |||||||||||||||
| Assets | |||||||||||||||||
| Operating lease ROU assets, net | Operating lease ROU assets, net | $ | $ | ||||||||||||||
| Financing lease ROU assets, net | $ | $ | |||||||||||||||
| Liabilities | |||||||||||||||||
| Current | |||||||||||||||||
| Operating lease liabilities, short-term | Operating lease liabilities, short-term | $ | $ | ||||||||||||||
| Financing lease liabilities, short-term | $ | $ | |||||||||||||||
| DLF obligations, short-term | $ | $ | |||||||||||||||
| Non-current | |||||||||||||||||
| Operating lease liabilities, long-term | Operating lease liabilities, long-term | $ | $ | ||||||||||||||
| Financing lease liabilities, long-term | $ | $ | |||||||||||||||
| DLF obligations, long-term | $ | $ | |||||||||||||||
Leases Under Construction
Our minimum capital commitment for leases under construction, net of reimbursements from third-party real estate financing partners, was approximately $70.0 million as of June 30, 2024. As we are actively involved in the construction of these properties, we recorded $72.0 million in construction costs within property, plant and equipment and $15.6 million in construction advances from the landlords in connection with these properties as of June 30, 2024. We determine the lease classification for these properties at the end of the construction period. Upon lease commencement, the initial base term of these leases is normally 20 years, with most having options to extend for additional terms of up to 20 years. As of June 30, 2024, we had $310.8 million of future lease obligations related to four venues subject to non-cancellable leases that have been signed but have not yet commenced.
17
The components of lease expense included in our condensed consolidated statement of operations for the periods presented below are as follows for the periods presented (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Operating lease costs | $ | $ | $ | $ | |||||||||||||||||||
| Total operating lease costs | |||||||||||||||||||||||
| Financing lease costs: | |||||||||||||||||||||||
| Amortization of ROU assets | |||||||||||||||||||||||
| Interest on lease liabilities | |||||||||||||||||||||||
| Total financing lease costs | |||||||||||||||||||||||
| DLF obligation costs: | |||||||||||||||||||||||
| Depreciation of DLF assets | |||||||||||||||||||||||
| Interest on DLF obligations | |||||||||||||||||||||||
| Total DLF obligation costs | |||||||||||||||||||||||
| Variable lease costs | |||||||||||||||||||||||
| Total lease costs | $ | $ | $ | $ | |||||||||||||||||||
Other information related to leases (in millions):
| Six Months Ended June 30, | ||||||||||||||
| Supplemental Cash Flows Information | 2024 | 2023 | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
| Operating cash flows for operating leases | $ | $ | ||||||||||||
| Operating cash flows for finance leases | $ | $ | ||||||||||||
| Operating cash flows for DLF obligations | $ | $ | ||||||||||||
| Financing cash flows for finance leases | $ | $ | ||||||||||||
| Financing cash flows for DLF obligations | $ | $ | ||||||||||||
| Lease liabilities arising from new ROU assets: | ||||||||||||||
| Operating leases | $ | $ | ||||||||||||
| Financing leases | $ | $ | ||||||||||||
| DLF obligations | $ | $ | ||||||||||||
| June 30, 2024 | December 31, 2023 | ||||||||||
| Weighted average remaining lease term (years): | |||||||||||
| Operating leases | |||||||||||
| Financing leases | |||||||||||
| DLF obligations | |||||||||||
| Weighted average discount rate: | |||||||||||
| Operating leases | % | % | |||||||||
| Financing leases | % | % | |||||||||
| DLF obligations | % | % | |||||||||
18
As of June 30, 2024, our future minimum lease obligations were as follows (in millions):
| Operating Leases | Financing Leases | DLF Obligations(1) | Total | ||||||||||||||||||||
| Remainder of 2024 | $ | $ | $ | $ | |||||||||||||||||||
| 2025 | |||||||||||||||||||||||
| 2026 | |||||||||||||||||||||||
| 2027 | |||||||||||||||||||||||
| 2028 | |||||||||||||||||||||||
| Thereafter | |||||||||||||||||||||||
| Total future lease payments | |||||||||||||||||||||||
| Less: imputed interest | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(1) Future lease payments for DLF Obligations include approximately $ | |||||||||||||||||||||||
Note 6. Financing Arrangements
Our credit facilities and long-term debt obligations are summarized as follows (in millions, except interest rates):
| June 30, | December 31, | |||||||||||||||||||||||||
| Maturity Date | Interest Rate | 2024 | 2023 | |||||||||||||||||||||||
| Short-Term Credit Facilities | ||||||||||||||||||||||||||
| 2023 U.S. ABL Credit Facility | March 16, 2028 | $ | $ | |||||||||||||||||||||||
| 2022 Japan ABL Credit Facility | January 25, 2025 | |||||||||||||||||||||||||
| Total Principal Amount | $ | $ | ||||||||||||||||||||||||
| Unamortized Debt Issuance Costs | $ | $ | ||||||||||||||||||||||||
| Balance Sheet Location | ||||||||||||||||||||||||||
| Total Principal Amount | Asset-based credit facilities | $ | $ | |||||||||||||||||||||||
| Unamortized Debt Issuance Costs - ST | Prepaid expenses | $ | $ | |||||||||||||||||||||||
| Unamortized Debt Issuance Costs - LT | Other long-term assets | |||||||||||||||||||||||||
| Total Unamortized Debt Issuance Costs | $ | $ | ||||||||||||||||||||||||
| June 30, | December 31, | |||||||||||||||||||||||||
| Maturity Date | Interest Rate | 2024 | 2023 | |||||||||||||||||||||||
| Long-Term Debt and Credit Facilities | ||||||||||||||||||||||||||
| 2023 Term Loan B | March 16, 2030 | $ | $ | |||||||||||||||||||||||
| Convertible Notes | May 1, 2026 | |||||||||||||||||||||||||
| Equipment Notes | August 27, 2024 - December 21, 2027 | |||||||||||||||||||||||||
| Mortgage Loans | July 1, 2033 - July 29, 2036 | |||||||||||||||||||||||||
| Financed Tenant Improvements | February 1, 2035 | |||||||||||||||||||||||||
| Total Principal Amount | $ | $ | ||||||||||||||||||||||||
| Less: Unamortized Debt Issuance Costs | ||||||||||||||||||||||||||
| Total Debt, net of Unamortized Debt Issuance Costs | $ | $ | ||||||||||||||||||||||||
| Balance Sheet Location | ||||||||||||||||||||||||||
| Long-Term Debt - Current | Other current liabilities | $ | $ | |||||||||||||||||||||||
| Long-Term Debt - Non-current | Long-term debt | |||||||||||||||||||||||||
| Total Debt, net of Unamortized Debt Issuance Costs | $ | $ | ||||||||||||||||||||||||
Total interest and amortization expense related to our credit facilities and long-term debt obligations, which is included in “Interest expense, net” in the condensed consolidated statement of operations, is summarized as follows (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Short-Term Credit Facilities | |||||||||||||||||||||||
| 2023 U.S. ABL Credit Facility | $ | $ | $ | $ | |||||||||||||||||||
| 2022 Japan ABL Credit Facility | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Long-Term Debt and Credit Facilities | |||||||||||||||||||||||
| 2023 Term Loan B | $ | $ | $ | $ | |||||||||||||||||||
| Convertible Notes | |||||||||||||||||||||||
| Equipment Notes | |||||||||||||||||||||||
| Financed Tenant Improvements | |||||||||||||||||||||||
| Mortgage Loans | |||||||||||||||||||||||
| Term Loan B | |||||||||||||||||||||||
| Topgolf Term Loan | |||||||||||||||||||||||
| Topgolf Revolving Credit Facility | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Short-Term Credit Facilities and Available Liquidity
2023 U.S. Asset-Based Revolving Credit Facility
We have an asset-based revolving credit facility (the “2023 U.S. ABL Credit Facility”) with Bank of America, N.A. and other lenders, which provides for senior secured asset-based revolving credit facilities in an aggregate principal amount of up to $525.0 million and consists of U.S., Canadian, German, and U.K./Dutch facilities, in each case, subject to borrowing base availability under the applicable facility. Amounts outstanding under the 2023 U.S. ABL Credit Facility are secured by a first priority lien on certain of our assets and certain of the assets of our subsidiaries in the United States, Germany, Canada, the Netherlands, and the United Kingdom (other than certain excluded subsidiaries) and a second-priority lien on substantially all of our and such subsidiaries’ other assets. The 2023 U.S. ABL Credit Facility includes customary affirmative and negative covenants, including among other things, restrictions on the incurrence of additional debt, liens, dividends and other restricted payments, asset sales, investments, mergers, acquisitions and affiliate transactions, as well as customary events of default. We are also subject to compliance with a 1.0 :1.0 minimum fixed charge coverage ratio during certain specified periods in which our borrowing base availability falls below 10.0 % of the maximum aggregate principal amount of the facility. The interest rate applicable to outstanding borrowings under the 2023 U.S. ABL Credit Facility may fluctuate depending on our “Availability Ratio,” as defined in the loan and security agreement governing the 2023 U.S. ABL Credit Facility, and any unused portions of the 2023 U.S. ABL Credit Facility are subject to a monthly fee of 0.25 % per annum.
On July 2, 2024, we entered into an amendment to the 2023 U.S. ABL Credit Facility in order to, among other things, replace Canadian Dollar Offered Rate (CDOR) as a reference rate for Canadian dollar-denominated loans under the Canadian facility with a term Canadian Overnight Repo Rate Average (CORRA)-based rate.
2022 Japan ABL Credit Facility
We have an asset-based revolving credit facility (the “2022 Japan ABL Credit Facility”) with the Bank of Tokyo-Mitsubishi UFJ, which provides a line of credit to our Japan subsidiary of up to 6.0 billion Yen (or approximately $37.3 million), is subject to borrowing base availability under the facility and is secured by certain assets, including eligible inventory and accounts receivable of our Japan subsidiary which are subject to certain restrictions and covenants related to certain pledged assets and financial performance metrics. The interest rate applicable to outstanding borrowings under the 2022 Japan ABL Credit Facility is subject to an effective interest rate equal to the Tokyo Interbank Offered Rate plus 0.80 %.
The following table summarizes borrowings for the six months ended June 30, 2024, availability and interest rates for the trailing twelve months ended June 30, 2024, and consolidated available liquidity related to our short-term credit facilities as of the six months ended June 30, 2024. Consolidated available liquidity is comprised of cash on hand and amounts available under our 2023 U.S. ABL Credit Facility and 2022 Japan ABL Credit Facility, less outstanding letters of credit and outstanding borrowings.
| (in millions, except interest rates) | June 30, 2024 | ||||
| 2023 U.S. ABL Credit Facility | |||||
| Average borrowings | $ | ||||
| Average availability | $ | ||||
| Weighted average interest rate | % | ||||
| 2022 Japan ABL Credit Facility | |||||
| Total facility | $ | ||||
| Net availability | $ | ||||
| Consolidated Available Liquidity | $ | ||||
Long-Term Debt and Credit Facilities
2023 Term Loan B
In March 2023, as part of a comprehensive debt refinancing plan (the “Refinancing Plan”), we entered into a senior secured term loan B facility (as amended, the “2023 Term Loan B”) with Bank of America, N.A. as administrative agent, and the financial institutions party thereto as lenders, in an original aggregate principal amount of $1,250.0 million, which was issued net of an original issuance discount of $12.5 million. As part of the Refinancing Plan, we used a portion of the net proceeds from the 2023 Term Loan B for the repayment of outstanding principal, interest and fees associated with our previous term loan B facility (the “Term Loan B”), as well as the previous credit facilities of our Topgolf operating segment, which consisted of a senior secured term loan facility (the “Topgolf Term Loan”) and a senior secured revolving credit facility (the “Topgolf Revolving Credit Facility”). We accounted for the transactions associated with the Refinancing Plan and 2023 Term Loan B as a debt modification, and as a result we recognized a non-cash loss of $10.5 million within other income (expense), net, and $2.3 million of third-party fees within selling, general and administrative expense in our condensed consolidated statement of operations for the six months ended June 30, 2023. Additionally, we deferred $11.0 million in debt issuance costs in connection with the transaction.
On March 19, 2024, we entered into an amendment to the 2023 Term Loan B (the “First Amendment”) in order to, among other things, decrease the interest rate applicable to the outstanding term loans thereunder. The interest rate on outstanding borrowings under the 2023 Term Loan B are, at our option, a rate per annum equal to: (a) a term SOFR-based rate (“Term SOFR”) (subject to a 0 % floor) plus an applicable margin of 2.75 % or 3.00 %, depending on our applicable debt rating, as defined in the credit agreement governing the 2023 Term Loan B; or (b) a base rate equal to the sum of (i) the greater of (A) the greater of the federal funds rate and the overnight bank funding rate published by the Federal Reserve Bank of New York, plus 0.50 %, (B) Term SOFR for a one-month interest period plus 1.0 % (and subject to a 1 % floor), (C) the prime rate announced by Bank of America from time to time, and (D) 1.0 %, plus (ii) an applicable margin of 1.75 % or 2.00 %, depending on our applicable debt rating.
The First Amendment was accounted for as a partial debt modification and partial debt extinguishment, which resulted in a non-cash loss of $4.7 million related to the write-off of unamortized debt issuance costs and original issuance discounts for prior lenders under our 2023 Term Loan B who did not participate in the First Amendment. This non-cash loss was recognized in other income (expense), net in our condensed consolidated statement of operations during the three months ended March 31, 2024. Additionally, we also incurred $1.1 million of fees related to the transaction, of which $0.2 million were recognized as deferred debt issuance costs and $0.9 million were recognized as selling, general and administrative expense during the three months ended March 31, 2024. Debt issuance costs and original issuance discounts related to the 2023 Term Loan B are amortized into interest expense over the term of the loan and are included as a reduction to long-term debt in our condensed consolidated balance sheet as of June 30, 2024.
The 2023 Term Loan B includes customary affirmative and negative covenants, including among other things, restrictions on the incurrence of additional debt, liens, dividends and other restricted payments, asset sales, investments, mergers, acquisitions and affiliate transactions, as well as customary events of default. The 2023 Term Loan B is not subject to any financial covenants and, subject to certain customary exceptions, is guaranteed by certain of our direct and indirect wholly-owned U.S. subsidiaries and secured by substantially all of our assets and the assets of each such subsidiary guarantor.
On May 31, 2024, we made an additional discretionary $50.0 million principal payment on the 2023 Term Loan B.
Convertible Notes
We have convertible senior notes issued in May 2020 (the “Convertible Notes”) which are structurally subordinated to all existing and future indebtedness and other liabilities and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries. The Convertible Notes are convertible into shares of our common stock at an initial conversion rate of 56.8 shares per $1,000 of principal, or an initial conversion price of $17.62 per share, and interest is payable on the Convertible Notes semi-annually in arrears on May 1 and November 1 of each year. As of May 6, 2023, we have the option to settle all or part of the Convertible Notes through cash settlement, physical settlement, or combination settlement at our election, subject to certain stipulations. Additionally, all or any portion of the Convertible Notes may be converted at the conversion rate and at the holders’ option on or after February 1, 2026 until the close of business on the second trading day immediately prior to the maturity date, and upon the occurrence of certain contingent conversion events.
Capped Call
In connection with the pricing of the Convertible Notes, we entered into privately negotiated capped call transactions with certain counterparties (“Capped Calls”). The Capped Calls cover the aggregate number of shares of our common stock that initially underlie the Convertible Notes, and are generally expected to reduce potential dilution and/or offset any cash payments we are required to make related to any conversion of the Convertible Notes. The Capped Calls, which each have an exercise price of $17.62 per share, are subject to certain adjustments and each have a cap price of $26.89 per share. The initial cost of the Capped Calls was a reduction to additional paid-in-capital on our condensed consolidated balance sheet.
Equipment Notes
We have long-term financing agreements (the “Equipment Notes”) with various lenders which we use to invest in certain facilities and information technology equipment. The loans are secured by the relative underlying equipment.
Mortgage Loans
We have three mortgage loans related to our Topgolf venues which are secured by the assets of each respective venue and require either monthly (i) principal and interest payments or (ii) interest-only payments until their maturity dates. For loans requiring monthly interest-only payments, the entire unpaid principal balance and any unpaid accrued interest is due on the maturity date thereof.
Aggregate Amount of Long-Term Debt Maturities
The following table presents our combined aggregate amount of maturities for our long-term debt over the next five years and thereafter as of June 30, 2024.
| (in millions) | ||||||||
| Remainder of 2024 | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total aggregate amount of maturities | $ | |||||||
| Less: Unamortized debt issuance costs | ||||||||
| Total aggregate amount of maturities, net of unamortized debt issuance costs | $ | |||||||
As of June 30, 2024, we were in compliance with all fixed charge coverage ratios and all other covenants and reporting requirements under the terms of our long-term debt and credit facilities mentioned above, as applicable.
Note 7. Earnings Per Common Share
The following table summarizes the computation of basic and diluted earnings per common share for the periods presented (in millions, except per share data):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Earnings per common share—basic | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average common shares outstanding—basic | |||||||||||||||||||||||
| Earnings per common share—basic | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share—diluted | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense attributable to convertible notes, net of tax | |||||||||||||||||||||||
| Net income attributable to earnings per common share—diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average common shares outstanding—basic | |||||||||||||||||||||||
| Incremental shares for assumed conversion of Convertible Notes | |||||||||||||||||||||||
| Outstanding options, restricted stock units and performance share units | |||||||||||||||||||||||
| Weighted-average common shares outstanding—diluted | |||||||||||||||||||||||
| Earnings per common share—diluted | $ | $ | $ | $ | |||||||||||||||||||
Anti-Dilutive Options and Restricted Stock Units
For the three and six months ended June 30, 2024, approximately 1.7 million and 2.1 million securities outstanding, respectively, comprised of stock options and restricted stock units, were excluded from the calculation of diluted earnings per common share as they would be anti-dilutive. For the three and six months ended June 30, 2023, approximately 1.3
19
Note 8. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill by operating and reportable segment are as follows (in millions):
| Topgolf | Golf Equipment | Active Lifestyle | Total | |||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||
| Acquisitions | ||||||||||||||||||||||||||
| Foreign currency translation and other | ( | ( | ( | |||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ||||||||||||||||||||||
Goodwill is net of accumulated impairment losses of $148.4 million, which were recorded prior to December 31, 2023 in the Active Lifestyle segment.
Intangible assets by major asset class are as follows (in millions, except useful life amounts):
| Indefinite-lived: | Amortizing: | ||||||||||||||||||||||||||||||||||
| Trade names and Trademarks | Liquor Licenses | Patents | Customer/ Distributor Relationships and Other | Developed Technology | Total | ||||||||||||||||||||||||||||||
| Useful Life (Years) | NA | NA | |||||||||||||||||||||||||||||||||
| Gross as of December 31, 2023 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Acquisitions | |||||||||||||||||||||||||||||||||||
| Gross as of June 30, 2024 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Accumulated amortization | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Foreign currency and other | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Net book value, June 30, 2024 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Gross as of December 31, 2023 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Accumulated amortization | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Foreign currency and other | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Net book value, December 31, 2023 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
For the three months ended June 30, 2024 and 2023, we recognized amortization expense related to acquired intangible assets of $2.9 million and $4.2 million, respectively. For the six months ended June 30, 2024 and 2023, we recognized amortization expense related to acquired intangible assets of $5.9 million and $8.4 million, respectively. Amortization expense is included in selling, general and administrative expenses in the condensed consolidated statements of operations.
As of June 30, 2024, intangible asset amortization expense is expected to be incurred for the periods presented as follows (in millions):
| Remainder of 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total | $ | ||||
20
Note 9. Investments
Investment in Full Swing
We have an ownership interest of less than 20.0 % in Full Swing Golf Holdings, LLC (“Full Swing”), owners of multi-sport indoor virtualization and simulation technology. The investment is accounted for at cost less impairments, and adjusted for observable changes in fair value. At both June 30, 2024 and December 31, 2023, the carrying value of our investment in Full Swing was $9.3
During the three months ended June 30, 2024, we received a $4.1 million dividend distribution from Full Swing, which is included in other income on our condensed consolidated statement of operations.
Investment in Five Iron Golf
We have an ownership interest of less than 20.0 % in preferred shares of The Range NYC, LLC (“Five Iron Golf”), an urban indoor golf experience company which hosts a golf simulation technology and serves food and beverage. The investment is accounted for at cost less impairments, and is adjusted for observable changes in fair value. At both June 30, 2024 and December 31, 2023, the carrying value of our investment in Five Iron Golf was $32.4
21
Note 10. Selected Financial Data
Selected financial data as of the dates presented below is as follows (in millions, except useful life data):
| June 30, 2024 | December 31, 2023 | ||||||||||||||||
| Inventories: | |||||||||||||||||
| Finished goods | $ | $ | |||||||||||||||
| Work in process | |||||||||||||||||
| Raw materials | |||||||||||||||||
| Food and beverage | |||||||||||||||||
| $ | $ | ||||||||||||||||
| June 30, 2024 | December 31, 2023 | ||||||||||||||||
| Other current assets: | |||||||||||||||||
| Credit card receivables | $ | $ | |||||||||||||||
| Sales return reserve cost recovery asset | |||||||||||||||||
| VAT/Sales tax receivable | |||||||||||||||||
Income tax receivable | |||||||||||||||||
| Leasing receivables | |||||||||||||||||
Hedging contract receivables | |||||||||||||||||
| Other | |||||||||||||||||
| $ | $ | ||||||||||||||||
| Estimated Useful Life | June 30, 2024 | December 31, 2023 | |||||||||||||||
| Property, plant and equipment, net: | |||||||||||||||||
| Land | $ | $ | |||||||||||||||
| Buildings and leasehold improvements | |||||||||||||||||
| Machinery and equipment | |||||||||||||||||
| Furniture, computer hardware and equipment | |||||||||||||||||
| Internal-use software | |||||||||||||||||
| Production molds | |||||||||||||||||
| Construction-in-process | |||||||||||||||||
| Less: Accumulated depreciation | |||||||||||||||||
| $ | $ | ||||||||||||||||
Depreciation expense is recognized in cost of products, other venue expenses, research and development expenses, and selling, general and administrative expenses on the condensed consolidated statement of operations, consistent with the use of the underlying asset. For the three months ended June 30, 2024 and 2023, we recorded total depreciation expense of $62.9 million and $54.4 million, respectively, in our condensed consolidated statements of operations. For the six months ended June 30, 2024 and 2023, we recorded total depreciation expense of $125.3 million and $106.3 million, respectively, in our condensed consolidated statements of operations.
| (in millions) | June 30, 2024 | December 31, 2023 | |||||||||
| Accounts payable and accrued expenses: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Accrued inventory | |||||||||||
| $ | $ | ||||||||||
22
Note 11. Income Taxes
We calculate our interim income tax provision in accordance with ASC Topic 270, “Interim Reporting,” and ASC Topic 740, “Accounting for Income Taxes.” At the end of each interim period, we estimate our annual effective tax rate and apply that rate to our ordinary quarterly earnings to calculate the tax related to ordinary income. The tax effects for other items that are excluded from ordinary income are discretely calculated and recognized in the period in which they occur.
We recorded an income tax benefit of $9.7 million and $45.8 million for the three months ended June 30, 2024 and 2023, respectively. As a percentage of pre-tax income, our effective tax rate was (18.5 )% and (64.0 )% for the three months ended June 30, 2024 and 2023, respectively. In the three months ended June 30, 2024, the primary difference between the statutory rate and the effective rate is due to forecasted U.S. tax credits we have accrued year to date. In the three months ended June 30, 2023, the primary difference between the statutory rate and the effective rate relates to the release of valuation allowances on our deferred tax assets.
We recorded an income tax benefit of $4.7 million and $50.0 million for the six months ended June 30, 2024 and 2023, respectively. As a percentage of pre-tax income, our effective tax rate was (7.4 )% and (54.1 )% for the six months ended June 30, 2024 and 2023, respectively. In the six months ended June 30, 2024, the primary difference between the statutory rate and the effective rate is due to forecasted U.S. tax credits we have accrued year to date. In the six months ended June 30, 2023, the primary difference between the statutory rate and the effective rate relates to the release of valuation allowances on our deferred tax assets.
As of June 30, 2024, the gross liability for income taxes associated with uncertain tax positions was $29.7 million. Of this amount, $17.0 million would benefit our condensed consolidated financial statements and effective income tax rate if favorably settled. We recognize interest and penalties related to income tax matters in income tax expense.
Note 12. Commitments & Contingencies
Legal Matters
We are subject to routine legal claims, proceedings, and investigations associated with the normal conduct of our business activities, including commercial disputes and employment matters. From time to time we also receive information claiming that products we sell infringe or may infringe patent, trademark, or other intellectual property rights of third parties. One or more such claims of potential infringement could lead to litigation, the need to obtain licenses, the need to alter a product to avoid infringement, a settlement or judgment, or some other action or material loss, which could adversely affect our overall ability to protect our product designs and ultimately limit our future success in the marketplace. Additionally, we are occasionally subject to non-routine claims, proceedings, or investigations.
We regularly assess such matters to determine the degree of probability that we will incur a material loss as a result of such matters, as well as the range of possible loss. An estimated loss contingency is accrued in our financial statements if it is probable we will incur a loss and the amount of the loss can be reasonably estimated. Historically, the claims, proceedings, and investigations brought against us, individually and in the aggregate, have not had a material adverse effect on our condensed consolidated results of operations, cash flows or financial position. While it is not possible to predict the outcome of the pending actions, and, as with any litigation, it is possible that some of these actions could be decided unfavorably, we do not believe that the matters currently pending against us will have a material adverse effect on our business, condensed consolidated results of operations, cash flows or financial position.
Commitments
During the normal course of business, we enter into agreements to purchase goods and services, including commitments for endorsement agreements with professional athletes and other endorsers, consulting and service agreements, intellectual property licensing agreements pursuant to which we are required to pay royalty fees, and signed retail store lease agreements of which we have not taken possession as of quarter-end. The amounts listed below approximate the minimum future commitments we are obligated to pay under these agreements. The actual amounts paid under some of the agreements may be higher or lower than these amounts due to the variable nature of these obligations.
23
As of June 30, 2024, the minimum obligation we are required to pay under these agreements over the next five years and thereafter is as follows (in millions):
| Remainder of 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total | $ | ||||
Other Contingent Contractual Obligations
During the normal course of business, we have made certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. The duration of these indemnities, commitments and guarantees varies, and in certain cases, may be indefinite and the majority of these indemnities, commitments and guarantees do not provide for any limitation on the maximum amount of future payments we could be obligated to make. Historically, costs incurred to settle claims related to indemnities have not been material to our financial position, results of operations or cash flows. In addition, we believe the likelihood is remote that payments under the commitments and guarantees described above will have a material effect on our condensed consolidated financial statements. Except as otherwise included under the heading “Commitments” above and in Note 5 to these condensed consolidated financial statements, the fair value of indemnities, commitments and guarantees that we issued during the six months ended, and as of, June 30, 2024, were not material to our financial position, results of operations, or cash flows.
Note 13. Share-Based Compensation
Share-Based Awards Granted
We granted the following awards under our stock compensation plans during the periods presented (in millions, except per share data):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||
| Shares Granted | Weighted-average grant date fair value per share | Shares Granted | Weighted-average grant date fair value per share | Shares Granted | Weighted-average grant date fair value per share | Shares Granted | Weighted-average grant date fair value per share | |||||||||||||||||||||||||||||||
| Restricted stock units | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Performance based restricted share unit awards(1) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||
(1) Weighted-average grant date fair value per share determined using Monte-Carlo valuation method. | ||||||||||||||||||||||||||||||||||||||
24
Share-Based Compensation Expense
Share-based compensation expense by award-type, net of estimated forfeitures, recognized in the condensed consolidated statement of operations for the periods presented was (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Stock options | $ | $ | $ | $ | ||||||||||||||||||||||
| Restricted stock units | ||||||||||||||||||||||||||
| Restricted stock awards | ||||||||||||||||||||||||||
| Performance based restricted share unit awards | ||||||||||||||||||||||||||
| Cash-settled restricted stock | ||||||||||||||||||||||||||
| Share-based compensation expense, before tax | ||||||||||||||||||||||||||
| Income tax benefit | ( | ( | ( | ( | ||||||||||||||||||||||
| Share-based compensation expense, after tax | $ | $ | $ | $ | ||||||||||||||||||||||
Share-based compensation, net of estimated forfeitures, recognized in the condensed consolidated statement of operations for the periods presented was (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Cost of products | $ | $ | $ | $ | ||||||||||||||||||||||
| Selling, general and administrative expense | ||||||||||||||||||||||||||
| Research and development expense | ( | |||||||||||||||||||||||||
| Other venue expense | ||||||||||||||||||||||||||
| Share-based compensation expense, before tax | ||||||||||||||||||||||||||
| Income tax benefit | ( | ( | ( | ( | ||||||||||||||||||||||
| Share-based compensation expense, after tax | $ | $ | $ | $ | ||||||||||||||||||||||
Note 14. Fair Value of Financial Instruments
Fair Value Measurements
We measure our financial assets and liabilities at fair value on a recurring basis using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Authoritative guidance establishes three levels of the fair value hierarchy as follows:
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3: Fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The carrying amounts of cash and cash equivalents, money market funds, accounts receivable, accounts payable and accrued expenses and certain other short-term liabilities approximate fair value due to their high liquidity and short-term nature, and are therefore categorized within Level 1 of the fair value hierarchy. Our money market funds accrue dividends, which are reinvested in the funds, and are reflected in the carrying values of the funds. As of June 30, 2024 and December 31, 2023, the carrying value of our money market funds was $148.4 million and $196.5 million, respectively, which is included in cash and cash equivalents on our condensed consolidated balance sheets.
Hedging instruments are re-measured on a recurring basis using pricing models, broker quotes, daily market foreign currency rates, and interest rate curves as applicable (see Note 15) and are therefore categorized within Level 2 of the fair value hierarchy.
25
The following table summarizes the valuation of our foreign currency forward contracts and interest rate hedge agreements (see Note 15) that are measured at fair value on a recurring basis, and are classified within Level 2 of the fair value hierarchy as of the periods presented (in millions):
| Level 2 Fair Value | |||||
June 30, 2024 | |||||
| Foreign currency forward contracts—asset position | $ | ||||
| Foreign currency forward contracts—liability position | ( | ||||
| Interest rate hedge agreements—asset position | |||||
| $ | |||||
December 31, 2023 | |||||
| Foreign currency forward contracts—asset position | $ | ||||
| Foreign currency forward contracts—liability position | ( | ||||
| Interest rate hedge agreements—asset position | |||||
| Interest rate hedge agreements—liability position | ( | ||||
| $ | ( | ||||
There were no transfers of financial instruments between the levels of the fair value hierarchy during the three and six months ended June 30, 2024 and 2023.
Disclosures about the Fair Value of Financial Instruments
The table below presents information about the fair value of our financial assets and liabilities, and is provided for comparative purposes only relative to the carrying values recognized in the condensed consolidated balance sheets as of the periods presented (in millions):
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||
| Measurement Level | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||||
| 2023 U.S. ABL Credit Facility | Level 2 | $ | $ | $ | $ | ||||||||||||||||||||||||
| 2022 Japan ABL Credit Facility | Level 2 | $ | $ | $ | $ | ||||||||||||||||||||||||
| 2023 Term Loan B | Level 2 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Convertible Notes | Level 2 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Equipment Notes | Level 2 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Mortgage Loans | Level 2 | $ | $ | $ | $ | ||||||||||||||||||||||||
Non-recurring Fair Value Measurements
We measure certain long-lived assets, goodwill, non-amortizing intangible assets and investments at fair value on a non-recurring basis, at least annually or more frequently if impairment indicators are present. These assets are written down to fair value when they are classified as held for sale or determined to be impaired. During the three and six months ended June 30, 2024, we recognized a $3.4
During the three months ended June 30, 2024, we performed an assessment of retail locations of our Jack Wolfskin business in connection with our restructuring and reorganization initiatives within our Active Lifestyle segment (see Note 18). During this assessment, we determined that certain operating ROU and fixed assets related to certain retail stores may not be fully recoverable based on the estimated cash flows for these stores over the remaining lease terms and asset lives. As a result, we recognized $2.9 million in impairment losses in selling, general and administrative expense within our condensed consolidated statement of operations related to the reduction of the carrying values of these assets to their fair values, which are categorized within Level 3 of the fair value hierarchy.
We did not
26
Note 15. Derivatives and Hedging
We use designated cash flow hedges and non-designated hedges in the form of foreign currency forward contracts as part of our strategy to manage the exposure to fluctuations in foreign currency exchange rates and to mitigate the impact of foreign currency translation on transactions that are denominated in the local currencies in the various international regions in which we do business. We also use interest rate swap contracts to mitigate the impact of variable interest rates on our long-term debt.
We only use foreign currency forward contracts and interest rate swap contracts to meet our objectives of minimizing variability in our operating results which may arise from changes in foreign exchange rates and interest rates, and we do not enter into either of these types of contracts for speculative purposes. We utilize counterparties for our derivative instruments that we believe are creditworthy at the time we enter into the transactions, and we closely monitor the credit ratings of these counterparties.
The following table summarizes the fair value of our derivative instruments as well as the location of the asset and/or liability on the condensed consolidated balance sheets as of the periods presented below (in millions):
| Balance Sheet Location | Fair Value of Asset Derivatives | ||||||||||||||||
| June 30, 2024 | December 31, 2023 | ||||||||||||||||
| Derivatives designated as cash flow hedging instruments: | |||||||||||||||||
| Foreign currency forward contracts | Other current assets | $ | $ | ||||||||||||||
| Interest rate swap contract | Other current assets | ||||||||||||||||
| Interest rate swap contract | Other assets, net | ||||||||||||||||
| Total | $ | $ | |||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||
| Foreign currency forward contracts | Other current assets | ||||||||||||||||
| Total asset position | $ | $ | |||||||||||||||
| Balance Sheet Location | Fair Value of Liability Derivatives | ||||||||||||||||
| June 30, 2024 | December 31, 2023 | ||||||||||||||||
| Derivatives designated as cash flow hedging instruments: | |||||||||||||||||
| Foreign currency forward contracts | Accounts payable and accrued expenses | $ | $ | ||||||||||||||
| Interest rate swap contracts | Other long-term liabilities | $ | $ | ||||||||||||||
| $ | $ | ||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||
| Foreign currency forward contracts | Accounts payable and accrued expenses | ||||||||||||||||
| Total liability position | $ | $ | |||||||||||||||
Our derivative instruments are subject to a master netting agreement with each respective counterparty bank and are therefore net settled at their maturity date. Although we have the legal right of offset under the master netting agreements, we have elected not to present these contracts on a net settlement amount basis, and therefore present these contracts on a gross basis on the accompanying condensed consolidated balance sheets as of June 30, 2024 and consolidated balance sheets as of December 31, 2023.
27
Cash Flow Hedging Instruments
Foreign Currency Forward Contracts
We use foreign currency derivatives designated as qualifying cash flow hedging instruments, including foreign currency forward contracts to help mitigate our foreign currency exposure from intercompany sales of inventory and intercompany expense reimbursements to our foreign subsidiaries. These contracts generally mature within 12 months to 15 months from their inception. As of June 30, 2024, the notional amounts of our foreign currency forward contracts designated as cash flow hedge instruments was $49.0 million. As of December 31, 2023, there were no notional amounts on our foreign currency contracts designated as cash flow hedging instruments.
Interest Rate Swap Contract
We use interest rate swaps designated as a cash flow hedge to mitigate the risk of changes in interest rates associated with our variable-rate long-term debt. As part of our debt modification in March 2023, we entered into a termination agreement to unwind an existing interest rate swap. As a result of the termination, we received proceeds of $5.6 million, of which $1.7 million and $3.2 million were included in accumulated other comprehensive loss as of June 30, 2024 and December 31, 2023, respectively, and will be amortized into interest expense over the remaining term of the contract.
In April 2023, we entered into interest rate swaps designated as cash flow hedges in order to mitigate the risk of interest rate fluctuations associated with our 2023 Term Loan B as well as any of our other variable-rate debt. Over the life of the 2023 Term Loan B, we will receive variable interest payments from the counterparty lenders in exchange for our fixed interest rate payments which are made at a weighted average rate of 3.36 % across our interest rate swap contracts, without exchange of the underlying notional amount, which was $400.0
The following tables summarize the net effect of all cash flow hedges for each of our derivative contracts on the condensed consolidated financial statements for the periods presented (in millions):
| Gain Recognized in Other Comprehensive Income | ||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| Derivatives designated as cash flow hedging instruments | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Foreign currency forward contracts | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest rate swap contracts | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Gain Reclassified from Other Comprehensive Income into Earnings | ||||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| Derivatives designated as cash flow hedging instruments | Statement of Operations Location | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||
| Foreign currency forward contracts | Cost of Products | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Interest rate swap contracts | Interest Expense | |||||||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||
For the three and six months ended June 30, 2024, $0.9 million and $1.8 million, respectively, of net gains related to the amortization of forward points were released from accumulated other comprehensive income and recognized in cost of products. Based on the current valuation of our foreign currency forward contracts, we expect to release net gains of $3.9 million related to our foreign currency forward contracts from accumulated other comprehensive income into earnings over the course of the next 12 months.
28
Foreign Currency Forward Contracts Not Designated as Hedging Instruments
We use foreign currency forward contracts that are not designated as qualifying cash flow hedging instruments to mitigate the exposure to fluctuations in foreign currency exchange rates due to the remeasurement of certain balance sheet payables and receivables denominated in foreign currencies, as well as gains and losses resulting from the translation of the operating results of our international subsidiaries into U.S. dollars for financial reporting purposes. These contracts generally mature within 12 months from inception. As of June 30, 2024 and December 31, 2023, the notional amounts of our foreign currency forward contracts used to mitigate the exposures discussed above were approximately $389.4 million and $209.4 million, respectively.
The following table summarizes the location of net gains for each type of our derivative contracts recognized in the condensed consolidated statements of operations for the periods presented (in millions):
| Location of Net Gain Recognized in Income on Derivative Instruments | Net Gain Recognized in Income on Derivative Instruments | |||||||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||
| Foreign currency forward contracts | Other income, net | $ | $ | $ | $ | |||||||||||||||||||||||||||
During the three months ended June 30, 2024 and 2023, we recognized net foreign currency transaction losses of $7.2 million and $8.5 million, respectively, in other income (expense), net. During the six months ended June 30, 2024 and 2023, we recognized net foreign currency transaction losses of $18.6 million and $11.0 million, respectively, in other income (expense), net.
Note 16. Accumulated Other Comprehensive Income (Loss)
The following table details amounts reclassified from accumulated other comprehensive income (loss) and foreign currency translation adjustments for the three and six months ended June 30, 2024 (in millions):
| Derivative Instruments | Foreign Currency Translation | Total | ||||||||||||||||||
| Accumulated other comprehensive loss, March 31, 2024 , after tax | $ | $ | ( | $ | ( | |||||||||||||||
| Change in derivative instruments | — | |||||||||||||||||||
| Net gains reclassified to cost of products | ( | — | ( | |||||||||||||||||
| Net gains reclassified to interest expense | ( | — | ( | |||||||||||||||||
| Income tax impact on derivative instruments | — | |||||||||||||||||||
| Cumulative foreign currency translation adjustments reclassified into other income upon dissolution of foreign subsidiary | — | |||||||||||||||||||
| Foreign currency translation adjustments | — | ( | ( | |||||||||||||||||
Accumulated other comprehensive loss, June 30, 2024, after tax | $ | $ | ( | $ | ( | |||||||||||||||
| Derivative Instruments | Foreign Currency Translation | Total | ||||||||||||||||||
Accumulated other comprehensive loss, December 31, 2023, after tax | $ | $ | ( | $ | ( | |||||||||||||||
| Change in derivative instruments | — | |||||||||||||||||||
| Net gains reclassified to cost of products | ( | — | ( | |||||||||||||||||
| Net gains reclassified to interest expense | ( | — | ( | |||||||||||||||||
| Income tax impact on derivative instruments | — | |||||||||||||||||||
| Cumulative foreign currency translation adjustments reclassified into other income upon dissolution of foreign subsidiary | — | |||||||||||||||||||
| Foreign currency translation adjustments | — | ( | ( | |||||||||||||||||
Accumulated other comprehensive loss, June 30, 2024, after tax | $ | $ | ( | $ | ( | |||||||||||||||
29
Note 17. Segment Information
We have three
•Topgolf, which is primarily comprised of service revenues and expenses from our Company-operated Topgolf venues, Toptracer ball-flight tracking technology, and WGT digital golf game;
•Golf Equipment, which is comprised of product revenues and expenses that encompass golf club and golf ball products, including Callaway Golf-branded woods, hybrids, irons, wedges, and packaged sets, Odyssey putters, Callaway Golf and Strata-branded golf balls and sales of pre-owned golf clubs; and
•Active Lifestyle, which is comprised of product revenues and expenses for the Jack Wolfskin outdoor apparel, gear and accessories business, the TravisMathew golf and lifestyle apparel and accessories business, the Callaway soft goods business and the OGIO business, which consists of golf apparel and accessories (including golf bags), and storage gear for sport and personal use. This segment also includes royalties from licensing of our trademarks and service marks for various soft goods products.
There were no significant intersegment transactions during the three and six months ended June 30, 2024 or 2023.
The following table contains information utilized by management to evaluate our operating segments for the interim periods presented (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net revenues: | |||||||||||||||||||||||
| Topgolf | $ | $ | $ | $ | |||||||||||||||||||
| Golf Equipment | |||||||||||||||||||||||
| Active Lifestyle | |||||||||||||||||||||||
| Total net revenues | $ | $ | $ | $ | |||||||||||||||||||
| Segment operating income: | |||||||||||||||||||||||
| Topgolf | $ | $ | $ | $ | |||||||||||||||||||
| Golf Equipment | |||||||||||||||||||||||
| Active Lifestyle | |||||||||||||||||||||||
| Total segment operating income | |||||||||||||||||||||||
Reconciling items(1) | ( | ( | ( | ( | |||||||||||||||||||
| Total operating income | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Other income, net | ( | ||||||||||||||||||||||
| Total income before income taxes | $ | $ | $ | $ | |||||||||||||||||||
| Additions to property, plant, and equipment: | |||||||||||||||||||||||
Topgolf (2) | $ | $ | $ | $ | |||||||||||||||||||
| Golf Equipment | |||||||||||||||||||||||
| Active Lifestyle | |||||||||||||||||||||||
| Corporate | |||||||||||||||||||||||
| Total additions to long-lived assets | $ | $ | $ | $ | |||||||||||||||||||
(1) Reconciling items include corporate general and administrative expenses not utilized by management in determining segment profitability, including the amortization of acquired intangible assets, other non-recurring costs associated with our debt modifications, restructuring, integration of new IT systems stemming from acquisitions, and cybersecurity costs. | |||||||||||||||||||||||
(2) Amounts for the six months ended June 30, 2024 include property, plant and equipment in connection with the acquisition of BigShots (see Note 3.) | |||||||||||||||||||||||
30
Note 18. Restructuring
During 2023, we initiated a reorganization and restructuring plan in order to improve the organizational structure of and increase operational efficiencies for certain businesses and functions within our Active Lifestyle and Topgolf operating segments. In connection with the restructuring plan, we have incurred costs for employee termination benefits, legal fees and other costs associated with the exit of certain leased facilities and disposal of property, plant and equipment (“PP&E”). We expect to incur approximately $35.0 million to $40.0 million in costs associated with the restructuring plan, which we expect to complete by the fourth quarter of 2024.
The following table summarizes costs related to the restructuring plan recognized within cost of products, selling, general and administrative expenses, and research and development expenses in the condensed consolidated statement of operations for the periods presented below (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Employee termination & severance | $ | $ | $ | $ | |||||||||||||||||||
| PP&E and lease disposal costs | |||||||||||||||||||||||
| Legal & other | |||||||||||||||||||||||
| Total Restructuring | $ | $ | $ | $ | |||||||||||||||||||
The following table summarizes the restructuring liability that is included in accounts payable and accrued expenses, accrued employee compensation and benefits, and other current liabilities on the condensed consolidated balance sheet as of the periods presented below (in millions):
| Employee Termination costs | PP&E disposals and lease termination costs | Legal & Other costs | Total | ||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | |||||||||||||||||||
| Additions | |||||||||||||||||||||||
| Payments | ( | ( | ( | ( | |||||||||||||||||||
| Non-Cash Adjustments | ( | ( | ( | ( | |||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | |||||||||||||||||||
Additions to the restructuring liability during the period represent additional identified costs and obligations as part of the ongoing restructuring plan associated with our Jack Wolfskin business in our Active Lifestyle segment.
31
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes that appear elsewhere in this report, and the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 29, 2024. Interim operating results are not indicative of operating results that may be expected for the year ending December 31, 2024, or any other future periods. See “Important Notice to Investors Regarding Forward-Looking Statements” on page 2 of this report. References to the “Company,” “Topgolf Callaway Brands,” “we,” “our,” or “us” in this report refer to Topgolf Callaway Brands Corp., together with our wholly-owned subsidiaries.
Discussion of Non-GAAP Measures
In addition to the financial results contained in this report, which have been prepared and presented in accordance accounting principles generally accepted in the United States of America (“GAAP”), we have also included supplemental information concerning our financial results on a non-GAAP basis. This non-GAAP information includes the following:
•A constant currency measure on net revenues in order to demonstrate the impact of foreign currency fluctuations on these results. This information represents an estimate for comparative purposes and is calculated by taking current period local currency results and translating them into U.S. dollars based on the foreign currency exchange rates for the applicable comparable prior period.
•Net income and diluted earnings per share excluding certain non-cash and non-recurring charges, as further detailed below.
•Same venue sales, which is defined as sales for the comparable Topgolf venue base, which includes Company-operated venues with at least 24 full fiscal months of operations as of the year of comparison.
We have included information in this report to reconcile non-GAAP information for the periods presented to the most directly comparable GAAP information. Non-GAAP information in this report should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP and may also be inconsistent with the manner in which similar measures are derived or used by other companies. We use such non-GAAP information for financial and operational decision-making purposes and as a means to evaluate the underlying performance of our business and/or in forecasting our business. We believe that the presentation of such non-GAAP information, when considered in conjunction with the most directly comparable GAAP information, provides additional useful information for investors in their assessment of the underlying performance of our business.
Operating Segments and Seasonality
We are a technology-enabled modern golf company offering golf entertainment, golf equipment, and apparel under our portfolio of global brands which includes Topgolf, Callaway Golf, Odyssey, TravisMathew, Jack Wolfskin, OGIO, Toptracer and World Golf Tour. Our products and brands are reported under our Topgolf, Golf Equipment, and Active Lifestyle operating segments.
Topgolf
Our Topgolf operating segment is primarily comprised of Company-operated domestic and international Topgolf venues, which are equipped with technology-enabled hitting bays, multiple bars, dining areas and event spaces. Our Company-operated venues also offer advertising partnerships to corporate sponsors to feature their names and logos at Topgolf venues and on other media platforms. Revenue from Company-operated venues is primarily derived from the sale of food and beverage, gameplay, and events. As of June 30, 2024, we had 96 Company-owned and operated venues, including 90 Topgolf venues and two Company-owned BigShots venues, throughout the United States, and four Company-operated venues in the United Kingdom. In addition to our Company-operated venues, we also have five international franchised Topgolf venues from which we receive royalties.
32
Our Topgolf operating segment also includes other business lines comprised of our Toptracer ball-flight tracking technology as well as our WGT virtual golf game. Toptracer ball-flight tracking technology is used by independent driving ranges and during televised golf broadcasts, as well as in many of our Company-operated and franchised Topgolf venues in order to enhance the Topgolf gaming experience. WGT is an online multiplayer virtual golf game that enables players to gather in an online community and participate in simulated gameplay.
Operating results for our Topgolf operating segment fluctuate from quarter to quarter due to seasonal factors. Historically, our venues experience higher second and third quarter revenues associated with the spring and summer, while the first and fourth quarters have historically had lower revenues, with the first quarter being the lowest, due to cooler temperatures and fewer corporate events. Given that seasonality is an expected factor in Topgolf’s results of operations, adverse weather may impact peak seasons at our venues, which may result in a disproportionate effect on our operating results.
Revenue growth and profitability related to our Topgolf venues are also impacted by the opening of new venues and growth at existing venues measured by same venue sales, which is a key performance indicator used within our industry and is indicative of acceptance of our initiatives as well as local economic and consumer trends.
Golf Equipment
Our Golf Equipment operating segment is comprised of Callaway Golf-branded woods, hybrids, irons, wedges, Odyssey putters, packaged sets, and Callaway Golf and Strata-branded golf balls, as well as the sale of pre-owned golf clubs. Our golf equipment products are designed to be technologically advanced for golfers of all skill levels, from beginner to professional.
Operating results for our Golf Equipment segment fluctuate due to seasonal factors, as the game of golf is primarily played on a seasonal basis in most of the regions where we conduct business. Weather conditions generally restrict golf from being played throughout the entire year, with the exception of a few markets, resulting in many of our on-course customers closing during the cold weather months. In general, we launch new products for the new golf season during the first quarter of the year. This initial sell-in period typically continues into the second quarter, while third-quarter sales are generally dependent on reorders and may also include smaller new product launches. Fourth-quarter sales are generally less than the other quarters due to the end of the golf season in many of our key regions. In addition to this seasonality, our golf equipment sales may also be impacted by other factors, including the timing of new product introductions. As a result of these factors, a majority of our Golf Equipment sales, and most, if not all, of the profitability from our Golf Equipment operating segment generally occurs during the first half of the year.
Active Lifestyle
Our Active Lifestyle operating segment is comprised of Callaway Golf, TravisMathew, Jack Wolfskin and OGIO soft goods products. The Callaway Golf soft goods brand offers a full line of premium golf apparel, footwear, gear and accessories. TravisMathew offers a full line of premium golf and lifestyle apparel as well as footwear and accessories. Under the Jack Wolfskin brand, we offer a full line of premium outdoor apparel, gear and accessories. The OGIO brand offers a full line of premium personal storage gear for sport and personal use and accessories. On certain soft goods products, we receive royalties from the licensing of our trademarks and service marks.
Sales of Callaway Golf-branded golf apparel and accessories generally follow the same seasonality as golf equipment, and are therefore generally higher during the first half of the year. Sales of TravisMathew-branded products are more evenly spread throughout the year as the product line is generally lifestyle focused and not dependent on the seasonality of golf, while Jack Wolfskin-branded product sales are higher during the second half of the year due to sales of its outerwear product lines which are more in demand during the cold-weather months.
For further information about our segments, see Note 17 “Segment Information” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
33
Current Economic Conditions
Macroeconomic Factors
Our products and services are considered to be non-essential items and are therefore discretionary purchases for consumers. As a result, the demand for our products and services is highly sensitive to unfavorable macroeconomic conditions. Such unfavorable conditions could result in a decline in general consumer and corporate discretionary spending and as such, demand for our products and services may decline. While we generally try to mitigate the impact of such macroeconomic factors by closely monitoring changes in consumer retail spending behavior and through the implementation of various strategic initiatives, the continued fluctuation of these trends may have an adverse impact on our operating results depending on the severity and length of the changes.
Foreign Currency
A significant portion of our business is conducted outside of the United States in currencies other than the U.S. dollar. Therefore, we enter into foreign currency forward contracts to mitigate the effects that changes in foreign currency rates may have on our financial results. While these foreign currency forward contracts can mitigate the effects of changes in foreign currency rates in the short-term, they do not eliminate those effects, which can be significant, and they do not mitigate their effects over the long-term. These effects include (i) the translation and remeasurement of results denominated in foreign currency into U.S. dollars for reporting purposes, (ii) the mark-to-market adjustments of certain intercompany balance sheet accounts denominated in foreign currencies and (iii) the mark-to-market adjustments of our foreign currency forward contracts. In general, our overall financial results are affected positively by a weaker U.S. dollar and negatively by a stronger U.S. dollar as compared to the foreign currencies in which we conduct our business. For the three and six months ended June 30, 2024, foreign currency fluctuations had an unfavorable impact of $10.8 million and $18.6 million on international net revenues, respectively.
Results of Operations
Net Revenues
Net revenues by operating segment for the periods presented below were as follows (in millions, except percentages):
| Three Months Ended June 30, | Growth/(Decline) | Non-GAAP Constant Currency Growth vs. 2023 | Six Months Ended June 30, | Growth/(Decline) | Non-GAAP Constant Currency Growth vs. 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Dollars | Percent | Percent | 2024 | 2023 | Dollars | Percent | Percent | ||||||||||||||||||||||||||||||||||||||||||||
| Net revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Topgolf | $ | 494.4 | $ | 470.8 | $ | 23.6 | 5.0 | % | 5.0 | % | $ | 917.2 | $ | 874.3 | $ | 42.9 | 4.9 | % | 4.8 | % | |||||||||||||||||||||||||||||||||
| Golf Equipment | 413.8 | 451.0 | (37.2) | (8.2) | % | (6.7) | % | 863.7 | 894.7 | (31.0) | (3.5) | % | (2.0) | % | |||||||||||||||||||||||||||||||||||||||
| Active Lifestyle | 249.6 | 257.9 | (8.3) | (3.2) | % | (1.7) | % | 521.1 | 578.1 | (57.0) | (9.9) | % | (8.7) | % | |||||||||||||||||||||||||||||||||||||||
| Total net revenues | $ | 1,157.8 | $ | 1,179.7 | $ | (21.9) | (1.9) | % | (0.9) | % | $ | 2,302.0 | $ | 2,347.1 | $ | (45.1) | (1.9) | % | (1.1) | % | |||||||||||||||||||||||||||||||||
Net revenues for the three and six months ended June 30, 2024 decreased $21.9 million or 1.9% (0.9% on a constant currency basis), and $45.1 million or 1.9% (1.1% on a constant currency basis), respectively, as compared to the three and six months ended June 30, 2023.
34
The $21.9 million (1.9%) decrease in net revenues for the three months ended June 30, 2024 was primarily related to lower sales in our Golf Equipment and Active Lifestyle segments, partially offset by revenue growth in our Topgolf operating segment. The decrease in our Golf Equipment operating segment was primarily due to a planned shift in product launch timing from the first half of 2024 to the second half combined with softer market conditions particularly in Korea. The decrease in our Active Lifestyle segment was primarily due to lower sales of Jack Wolfskin products due to a decline in wholesale revenue resulting from higher field inventories. These decreases were partially offset by increases in our Topgolf segment related to the addition of new owned and operated Topgolf venues combined with wholesale and retail growth in the TravisMathew business. During the three months ended June 30, 2024, fluctuations in foreign currencies had an unfavorable impact of $10.8 million on net revenues.
The $45.1 million (1.9%) decrease in net revenues for the six months ended June 30, 2024 was primarily related to lower sales in our Active Lifestyle and Golf Equipment segments, partially offset by an increase in our Topgolf segment. The decrease in our Active Lifestyle segment was primarily due to a decline in sales of Callaway branded soft goods and Jack Wolfskin apparel products due to a decline in wholesale revenue resulting from higher field inventories and a decline in sales of TravisMathew products due to a corporate channel sell-in during the first quarter of 2023, which did not recur in 2024. The decrease in our Golf Equipment segment was primarily due to a planned shift in product launch timing from the first half of 2024 to the second half. These decreases were partially offset by growth in our Topgolf segment due to the addition of new owned and operated Topgolf venues. During the six months ended June 30, 2024, fluctuations in foreign currencies had an unfavorable impact of $18.6 million on net revenues.
Net revenues by major geographic region for the periods presented below were as follows (in millions, except percentages):
| Three Months Ended June 30, | Growth/(Decline) | Non-GAAP Constant Currency Growth vs. 2023 | Six Months Ended June 30, | Growth/(Decline) | Non-GAAP Constant Currency Growth vs. 2023 | |||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Dollars | Percent | Percent | 2024 | 2023 | Dollars | Percent | Percent | |||||||||||||||||||||||||||||||||||||||||
| Net revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| United States | $ | 891.3 | $ | 886.7 | $ | 4.6 | 0.5 | % | 0.5 | % | $ | 1,720.3 | $ | 1,697.8 | $ | 22.5 | 1.3 | % | 1.3 | % | ||||||||||||||||||||||||||||||
| Europe | 114.1 | 120.2 | (6.1) | (5.1) | % | (4.7) | % | 255.5 | 273.8 | (18.3) | (6.7) | % | (7.8) | % | ||||||||||||||||||||||||||||||||||||
| Asia | 109.1 | 128.2 | (19.1) | (14.9) | % | (7.3) | % | 236.7 | 288.4 | (51.7) | (17.9) | % | (10.8) | % | ||||||||||||||||||||||||||||||||||||
| Rest of World | 43.3 | 44.6 | (1.3) | (2.9) | % | (1.3) | % | 89.5 | 87.1 | 2.4 | 2.8 | % | 4.1 | % | ||||||||||||||||||||||||||||||||||||
| Total net revenues | $ | 1,157.8 | $ | 1,179.7 | $ | (21.9) | (1.9) | % | (0.9) | % | $ | 2,302.0 | $ | 2,347.1 | $ | (45.1) | (1.9) | % | (1.1) | % | ||||||||||||||||||||||||||||||
Net revenues from our Topgolf operations are primarily concentrated in the United States and Europe, with the United States being our principal market. We sell our Golf Equipment products and Callaway Golf and OGIO Active Lifestyle products in the United States and internationally, with our principal international regions being Europe and Asia. Active Lifestyle revenues from our TravisMathew and Jack Wolfskin operations are largely concentrated in the United States and Europe, respectively.
United States
During the three and six months ended June 30, 2024, net revenues in the United States increased $4.6 million (0.5%) and $22.5 million (1.3%), respectively, compared to the three and six months ended June 30, 2023.
The $4.6 million (0.5%) increase for the three months ended June 30, 2024 was primarily due to incremental revenues from the addition of new owned and operated Topgolf venues as well as retail and wholesale growth in the TravisMathew business. These increases were partially offset by a decline in same venue sales at Topgolf primarily resulting from softer than anticipated foot traffic combined with a decrease in golf club sales as discussed above.
The $22.5 million (1.3%) increase for the six months ended June 30, 2024 was primarily due to incremental revenues from the addition of new owned and operated Topgolf venues, partially offset by a decline in same venue sales at Topgolf primarily resulting from softer than anticipated foot traffic combined with a decline in the Active Lifestyle segment related to lower wholesale sales at TravisMathew due to a distributor sell-in during the first quarter of 2023 which did not recur in 2024.
35
Europe
During the three and six months ended June 30, 2024, net revenues in Europe decreased $6.1 million (5.1%) and $18.3 million (6.7%), respectively, compared to the three and six months ended June 30, 2023.
The $6.1 million decrease for the three months ended June 30, 2024 was primarily due to lower golf club sales as discussed above combined with a decline in Jack Wolfskin sales, primarily in the wholesale channel.
The $18.3 million decrease for the six months ended June 30, 2024 was primarily due a decline in Jack Wolfskin sales, primarily in the wholesale channel.
Asia
During the three and six months ended June 30, 2024, net revenues in Asia decreased $19.1 million (14.9%) and $51.7 million (17.9%) compared to the three and six months ended June 30, 2023, due to soft market conditions in the golf equipment and apparel markets primarily in Korea, combined with unfavorable foreign currency impacts primarily in Japan.
Rest of World
During the three and six months ended June 30, 2024, net revenues in Rest of World decreased by $1.3 million (2.9%) and increased by $2.4 million (2.8%), respectively, compared to the three and six months ended June 30, 2023.
The $1.3 million decrease during the three months ended June 30, 2024 was primarily due to decreases in golf club sales in Canada and Australia, combined with unfavorable foreign currency impacts.
The $2.4 million increase during the six months ended June 30, 2024 was primarily driven by Golf Equipment and Active Lifestyle product sales in Canada and Australia, partially offset by unfavorable foreign currency impacts.
Foreign Currency
For the three and six months ended June 30, 2024, foreign currency exchange rates had an unfavorable impact of $10.8 million and $18.6 million, respectively, on international net revenues.
Costs and Expenses (in millions, except percentages)
| Three Months Ended June 30, | Growth/(Decline) | Six Months Ended June 30, | Growth/(Decline) | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||||||||||||||||||||
| Cost of products | $ | 375.4 | $ | 387.9 | $ | (12.5) | (3.2) | % | $ | 788.3 | $ | 829.9 | $ | (41.6) | (5.0) | % | |||||||||||||||||||||||||
| Cost of services, excluding depreciation and amortization | 50.7 | 51.4 | (0.7) | (1.4) | % | 92.3 | 95.8 | (3.5) | (3.7) | % | |||||||||||||||||||||||||||||||
| Other venue expense | 339.4 | 317.1 | 22.3 | 7.0 | % | 662.8 | 622.6 | 40.2 | 6.5 | % | |||||||||||||||||||||||||||||||
| Selling, general and administrative expense | 259.5 | 279.6 | (20.1) | (7.2) | % | 532.5 | 548.1 | (15.6) | (2.8) | % | |||||||||||||||||||||||||||||||
| Research and development expense | 27.0 | 22.0 | 5.0 | 22.7 | % | 50.2 | 44.8 | 5.4 | 12.1 | % | |||||||||||||||||||||||||||||||
| Venue pre-opening costs | 2.8 | 5.7 | (2.9) | (50.9) | % | 6.0 | 9.4 | (3.4) | (36.2) | % | |||||||||||||||||||||||||||||||
| Total costs and expenses | $ | 1,054.8 | $ | 1,063.7 | $ | (8.9) | (0.8) | % | $ | 2,132.1 | $ | 2,150.6 | $ | (18.5) | (0.9) | % | |||||||||||||||||||||||||
36
Cost of Products
Cost of products is variable in nature and fluctuates relative to sales volumes. Cost of products includes raw materials and component costs, direct labor and manufacturing overhead, inbound freight, duties and shipping charges, and retail merchandise costs for products sold in retail shops within Topgolf venue facilities. During the three and six months ended June 30, 2024, cost of products decreased $12.5 million (3.2%) and $41.6 million (5.0%), respectively, compared to the three and six months ended June 30, 2023, respectively. The decreases were primarily due to decreased sales in our Golf Equipment and Active Lifestyle operating segments.
Cost of Services, excluding Depreciation and Amortization
Cost of services, excluding depreciation and amortization (“cost of services”), includes the cost of food and beverages sold in our Topgolf venues as well as certain costs associated with our Toptracer ball-flight tracking technology, Swing Suite indoor multi-sport simulators and the WGT digital golf game. During the three and six months ended June 30, 2024, cost of services decreased $0.7 million (1.4%) and $3.5 million (3.7%), respectively, compared to the three and six months ended June 30, 2023, primarily due to lower cost of food and beverage combined with a favorable shift in revenue mix in 2024.
Other Venue Expense
Other venue expenses primarily consist of depreciation and amortization, venue employee costs, rent, utilities, marketing and other costs associated with Topgolf venues. During the three and six months ended June 30, 2024, other venue expenses increased $22.3 million (7.0%) and $40.2 million (6.5%), respectively, compared to the three and six months ended June 30, 2023, primarily due to the addition of new Company owned and operated Topgolf venues since June 30, 2023, partially offset by operational efficiencies in the venues.
Selling, General and Administrative Expense
Selling, general and administrative (“SG&A”) expenses primarily consist of non-venue employee costs, advertising and promotional expense, legal and professional fees, tour expenses, travel expenses, building and rent expenses, depreciation charges (excluding those related to manufacturing, distribution, and venue operations), amortization, and other miscellaneous expenses. During the three and six months ended June 30, 2024, SG&A expenses decreased $20.1 million (7.2%) and $15.6 million (2.8%), respectively, compared to the three and six months ended June 30, 2023.
The $20.1 million decrease for the three months ended June 30, 2024 was primarily related to lower employee costs related to restructuring and reorganization initiatives in our Topgolf and Active Lifestyle operating segments that occurred during the fourth quarter of 2023, in addition to decreases in selling and marketing costs related to ambassador endorsements and performance bonuses which did not recur. These decreases were partially offset by increases in computer software and IT costs related to software licenses and costs incurred for the implementation of new computer software in addition to costs incurred for cybersecurity.
The $15.6 million decrease for the six months ended June 30, 2024 was primarily related to lower employee costs due to restructuring and reorganization initiatives in our Topgolf operating segment that occurred during the fourth quarter of 2023, in addition to decreases in selling and marketing costs related to ambassador endorsements and performance bonuses, television and digital advertising and promotional expenditures. These decreases were partially offset by increases in computer software and IT costs related to software licenses and costs incurred for the implementation of new computer software in addition to costs incurred for cybersecurity.
Research and Development Expense
Research and development expenses are comprised of costs to design, develop, test or improve our products and technology, and primarily include employee costs of personnel engaged in research and development activities, research costs and depreciation expense. During the three and six months ended June 30, 2024, research and development expenses increased $5.0 million (22.7%) and $5.4 million (12.1%), respectively, compared to the three and six months ended June 30, 2023, primarily driven by asset impairment charges related to the abandonment of the Shankstars media game, in addition to higher employee costs related to restructuring and severance costs.
37
Venue Pre-Opening Costs
Venue pre-opening costs are primarily related to the costs associated with activities prior to the opening of new Company-operated Topgolf venues, and consist of, but are not limited to, labor, rent and occupancy costs, and travel and marketing expenses. These costs fluctuate based on the planned timing, size and location of new venues. During the three and six months ended June 30, 2024, venue pre-opening costs decreased $2.9 million (50.9%) and $3.4 million (36.2%), respectively, compared to the three and six months ended June 30, 2023 due to fewer planned venue openings in 2024.
Other Income and Expense (in millions, except percentages)
| Three Months Ended June 30, | Growth/(Decline) | Six Months Ended June 30, | Net Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Dollars | Percent | 2024 | 2023 | Dollars | Percent | ||||||||||||||||||||||||||||||||||||||||
| Other income and expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | $ | (57.0) | $ | (51.7) | $ | (5.3) | 10.3 | % | $ | (115.8) | $ | (101.3) | $ | (14.5) | 14.3 | % | |||||||||||||||||||||||||||||||
| Other income (expense), net | 6.4 | 7.3 | (0.9) | (12.3) | % | 9.8 | (2.8) | 12.6 | (450.0) | % | |||||||||||||||||||||||||||||||||||||
| Total other expense, net | $ | (50.6) | $ | (44.4) | $ | (6.2) | 14.0 | % | $ | (106.0) | $ | (104.1) | $ | (1.9) | 1.8 | % | |||||||||||||||||||||||||||||||
Interest expense, net increased $5.3 million (10.3%) and $14.5 million (14.3%) during the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, primarily due to an increase in venue financing interest as the result of the addition of new Topgolf venues, partially offset by decreased interest expense on our term loans as a result of the debt repricing that took place during the first quarter of 2024.
Other income, net decreased $0.9 million (12.3%) during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, primarily due to a combined increase in net losses from foreign currency transactions and hedging contracts, partially offset by the receipt of a dividend from our investment in Full Swing.
Other income, net increased $12.6 million (450.0%) during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to a decrease in losses related to the 2023 refinancing of our long-term debt, combined with the receipt of a dividend from our investment in Full Swing investment, and a net increase in gains related to hedging contracts and foreign currency transactions.
Income Taxes
Income taxes decreased $36.1 million to an income tax benefit of $9.7 million for the three months ended June 30, 2024, compared to an income tax benefit of $45.8 million for the three months ended June 30, 2023. As a percentage of pre-tax income, our effective tax rate for the three months ended June 30, 2024 decreased to (18.5)% compared to (64.0)% in the comparable period of 2023. Our effective tax rate for the three months ended June 30, 2024 was impacted by forecasted U.S. tax credits we have accrued year to date. Our effective tax rate for the three months ended June 30, 2023 was impacted by reversing a significant portion of the valuation allowances on our deferred tax assets and other non-recurring items. Excluding the non-recurring items and the release of valuation allowances on our deferred tax assets, our effective tax rate would have been 10.6% and 9.7% for the three months ended June 30, 2024 and 2023, respectively. For further discussion see Note 11 "Income Taxes" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
Income taxes decreased $45.3 million to an income tax benefit of $4.7 million for the six months ended June 30, 2024, compared to an income tax benefit of $50.0 million for the six months ended June 30, 2023. As a percentage of pre-tax income, our effective tax rate for the six months ended June 30, 2024 decreased to (7.4)% compared to (54.1)% in the comparable period of 2023. Our effective tax rate for the six months ended June 30, 2024 was impacted by forecasted U.S. tax credits we have accrued year to date. Our effective tax rate for the six months ended June 30, 2023 was impacted by the reversal of a significant portion of the valuation allowances on our deferred tax assets and other non-recurring items. Excluding the non-recurring items and the release of valuation allowances on our deferred tax assets, our effective tax rate would have been 0.5% and 13.8% for the six months ended June 30, 2024 and 2023, respectively. For further discussion see Note 11 "Income Taxes" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
38
Net Income, Diluted Earnings Per Share and Reconciliation of Non-GAAP Measures
The following table presents a reconciliation of our results for the three months ended June 30, 2024 and 2023 to our non-GAAP results for the same periods (in millions, except per share information):
| Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | ||||||||||||||||||||||
| Net Income | Diluted earnings per share (4) | Net Income | Diluted earnings per share (4) | ||||||||||||||||||||
| GAAP | $ | 62.1 | $ | 0.32 | $ | 117.4 | $ | 0.59 | |||||||||||||||
Less: Non-cash amortization of acquired intangibles (1) | (2.2) | (0.01) | (3.1) | (0.01) | |||||||||||||||||||
Less: Non-recurring items (2) | (18.8) | (0.09) | (5.9) | (0.03) | |||||||||||||||||||
Less: Tax valuation allowance (3) | — | — | 50.8 | 0.25 | |||||||||||||||||||
| Non-GAAP | $ | 83.1 | $ | 0.42 | $ | 75.6 | $ | 0.38 | |||||||||||||||
Diluted weighted-average shares outstanding | 199.6 | 201.3 | |||||||||||||||||||||
(1) Includes the amortization of acquired intangible assets, including customer and distributor relationships, reacquired distribution rights and acquired developed technology related to our merger with Topgolf, acquisitions of Jack Wolfskin, TravisMathew and OGIO, and reacquisition of distribution rights in the Korea apparel market (collectively, the “Acquisitions”). While the amortization of acquired intangible assets is excluded from our calculation of non-GAAP net income, the revenue, operating costs and acquired assets that contribute to the revenue generation for these acquired companies is reflected in our calculation of non-GAAP net income. Starting in the second quarter of 2024, the non-cash depreciation and amortization associated with purchase accounting adjustments stemming from these acquisitions is excluded from our non-GAAP adjustments. As such, prior period amounts have been recast in order to conform with the current period presentation. For the three months ended June 30, 2024 and 2023, non-cash depreciation and amortization related to these purchase accounting adjustments was $1.4 million and $2.9 million, respectively. | |||||||||||||||||||||||
(2) For 2024, amounts primarily include $11.7 million of restructuring and reorganization charges in our Active Lifestyle operating segment, $3.4 million of charges related to the impairment and abandonment of the Shankstars media game in the Topgolf segment, and $1.1 million in IT integration charges including costs associated with the implementation of a new cloud based HRM system. For 2023, amounts primarily included $3.1 million in restructuring and reorganization charges in our Active Lifestyle operating segment, and $2.2 million in IT integration and implementation costs stemming from the Acquisitions. | |||||||||||||||||||||||
(3) Related to the release of tax valuation allowances that were recorded in connection with the merger with Topgolf. | |||||||||||||||||||||||
(4) Diluted earnings per share is calculated using the if-converted method, which excludes interest expense related to the Convertible Notes from the calculation of net income. | |||||||||||||||||||||||
Net income for the three months ended June 30, 2024 decreased to $62.1 million compared to $117.4 million for the three months ended June 30, 2023. Diluted earnings per share decreased to $0.32 per share for the three months ended June 30, 2024 compared to $0.59 per share for the same period in 2023. The decrease in net income for the three months ended June 30, 2024 was primarily due to a $36.1 million decrease in the income tax benefit combined with a $13.0 million decrease in income from operations due to the net impact of decreases in net revenues and operating expenses combined with the unfavorable impact of fluctuations in foreign currencies, in addition to a $5.3 million increase in interest expense primarily related to an increase in venue financing interest. Fully diluted shares of common stock for the three months ended June 30, 2024 were 199.6 million shares compared to 201.3 million shares for the same period in 2023.
On a non-GAAP basis, excluding the items described in the table above, our net income and diluted earnings per share for the three months ended June 30, 2024 would have been $83.1 million and $0.42 per share, respectively, compared to $75.6 million and $0.38 per share, respectively, for the same period in 2023. The increase in non-GAAP net income for the three months ended June 30, 2024 was primarily due a decrease in income taxes resulting from an income tax benefit in the current year compared to an income tax provision in the prior year, partially offset by a decrease in income from operations due to the net impact of lower net revenues and operating expenses combined with the unfavorable impact of fluctuations in foreign currencies, in addition to an increase in interest expense.
39
The following table presents a reconciliation of our results for the six months ended June 30, 2024 and 2023 to our non-GAAP results for the same periods (in millions, except per share information):
| Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | ||||||||||||||||||||||
| Net Income | Diluted earnings per share (4) (5) | Net Income | Diluted earnings per share (4) (5) | ||||||||||||||||||||
| GAAP | $ | 68.6 | $ | 0.36 | $ | 142.4 | $ | 0.72 | |||||||||||||||
Less: Non-cash amortization of acquired intangibles (1) | (4.4) | (0.02) | (6.4) | (0.03) | |||||||||||||||||||
Less: Non-recurring items (2) | (24.5) | (0.12) | (16.3) | (0.08) | |||||||||||||||||||
Less: Tax valuation allowance (3) | — | — | 59.1 | 0.29 | |||||||||||||||||||
| Non-GAAP | $ | 97.5 | $ | 0.51 | $ | 106.0 | $ | 0.54 | |||||||||||||||
Diluted weighted-average shares outstanding | 199.4 | 201.4 | |||||||||||||||||||||
(1) Includes the amortization of acquired intangible assets, including customer and distributor relationships, reacquired distribution rights and acquired developed technology related to our merger with Topgolf, acquisitions of Jack Wolfskin, TravisMathew and OGIO, and reacquisition of distribution rights in the Korea apparel market (collectively, the “Acquisitions”). While the amortization of acquired intangible assets is excluded from our calculation of non-GAAP net income, the revenue, operating costs and associated acquired assets that contribute to the revenue generation associated with these acquired companies is reflected in our calculation of non-GAAP net income. Starting in the second quarter of 2024, the non-cash depreciation and amortization associated with purchase accounting adjustments stemming from these acquisitions is excluded from our non-GAAP adjustments. As such, prior period amounts have been recast in order to conform with the current period presentation. For the six months ended June 30, 2024 and 2023, non-cash depreciation and amortization related to these purchase accounting adjustments was $3.2 million and $6.7 million, respectively. | |||||||||||||||||||||||
(2) For 2024, amounts primarily include $11.8 million of restructuring and reorganization charges in our Active Lifestyle operating segment, $4.7 million in charges related to our 2024 debt repricing, $3.4 million of charges related to the impairment and abandonment of the Shankstars media game in the Topgolf segment, $1.2 million in IT costs related to a 2023 cybersecurity incident, and $1.8 million in IT integration charges including costs associated with the implementation of a new cloud based HRM system. For 2023, amounts primarily included $3.1 million in restructuring and reorganization charges in our Active Lifestyle operating segment, $3.4 million in IT integration and implementation costs stemming from the Acquisitions, and $13.1 million in total charges related to our 2023 debt modification. | |||||||||||||||||||||||
(3) Related to the release of tax valuation allowances that were recorded in connection with the merger with Topgolf. | |||||||||||||||||||||||
(4) Diluted earnings per share is calculated using the if-converted method, which excludes interest expense related to the Convertible Notes from the calculation of net income. | |||||||||||||||||||||||
(5) When aggregated, diluted earnings per share amounts may not be additive due to rounding. | |||||||||||||||||||||||
Net income for the six months ended June 30, 2024 decreased to $68.6 million compared to $142.4 million for the six months ended June 30, 2023. Diluted earnings per share decreased to $0.36 per share for the six months ended June 30, 2024 compared to $0.72 per share for the same period in 2023. The decrease in GAAP net income for the six months ended June 30, 2024 was primarily due to a $45.3 million decrease in income tax benefit combined with a $26.6 million decrease in income from operations due to the net impact of lower net revenues and operating expenses combined with the unfavorable impact of fluctuations in foreign currencies, in addition to a $14.5 million increase in interest expense primarily related to venue financing interest. These decreases were partially offset by a $12.6 million increase in other income primarily due to a decrease in losses related to the 2023 refinancing of our long-term debt, combined with the receipt of a dividend from our investment in Full Swing investment. Diluted weighted-average shares outstanding for the six months ended June 30, 2024 was 199.4 million shares compared to 201.4 million shares for the same period in 2023.
On a non-GAAP basis, excluding the items described in the table above, our net income and diluted earnings per share for the six months ended June 30, 2024 would have been $97.5 million and $0.51 per share, respectively, compared to $106.0 million and $0.54 per share, respectively, for the same period in 2023. The decrease in non-GAAP net income for the six months ended June 30, 2024 was primarily due to a decrease in income from operations due to the impacts of lower revenues and operating expenses combined with the unfavorable impact of fluctuations in foreign currencies, in addition to an increase in interest expense. This decrease was partially offset by a decrease in income taxes resulting from an income tax benefit in the current year compared to an income tax provision in the prior year, in addition to an increase in other income.
40
Operating Segment Results for the Three and Six Months Ended June 30, 2024 and 2023 (in millions, except percentages)
| Three Months Ended June 30, | Growth/(Decline) | Non-GAAP Constant Currency Growth vs. 2023(1) | Six Months Ended June 30, | Growth/(Decline) | Non-GAAP Constant Currency Growth vs. 2023(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Dollars | Percent | Percent | 2024 | 2023 | Dollars | Percent | Percent | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Venues | $ | 473.7 | $ | 453.2 | $ | 20.5 | 4.5 | % | 4.5% | $ | 879.4 | $ | 839.9 | $ | 39.5 | 4.7 | % | 4.6% | |||||||||||||||||||||||||||||||||||||||||
| Other business lines | 20.7 | 17.6 | 3.1 | 17.6 | % | 17.6% | 37.8 | 34.4 | 3.4 | 9.9 | % | 9.6% | |||||||||||||||||||||||||||||||||||||||||||||||
| Topgolf | 494.4 | 470.8 | 23.6 | 5.0 | % | 5.0% | 917.2 | 874.3 | 42.9 | 4.9 | % | 4.8% | |||||||||||||||||||||||||||||||||||||||||||||||
| Golf clubs | 310.2 | 340.3 | (30.1) | (8.8) | % | (7.0)% | 656.1 | 691.1 | (35.0) | (5.1) | % | (3.4)% | |||||||||||||||||||||||||||||||||||||||||||||||
| Golf balls | 103.6 | 110.7 | (7.1) | (6.4) | % | (5.8)% | 207.6 | 203.6 | 4.0 | 2.0 | % | 2.5% | |||||||||||||||||||||||||||||||||||||||||||||||
| Golf Equipment | 413.8 | 451.0 | (37.2) | (8.2) | % | (6.7)% | 863.7 | 894.7 | (31.0) | (3.5) | % | (2.0)% | |||||||||||||||||||||||||||||||||||||||||||||||
| Apparel | 145.0 | 143.5 | 1.5 | 1.0 | % | 2.9% | 304.6 | 319.6 | (15.0) | (4.7) | % | (3.2)% | |||||||||||||||||||||||||||||||||||||||||||||||
| Gear, accessories, & other | 104.6 | 114.4 | (9.8) | (8.6) | % | (7.4)% | 216.5 | 258.5 | (42.0) | (16.2) | % | (15.6)% | |||||||||||||||||||||||||||||||||||||||||||||||
| Active Lifestyle | 249.6 | 257.9 | (8.3) | (3.2) | % | (1.7)% | 521.1 | 578.1 | (57.0) | (9.9) | % | (8.7)% | |||||||||||||||||||||||||||||||||||||||||||||||
| Total net revenues | $ | 1,157.8 | $ | 1,179.7 | $ | (21.9) | (1.9) | % | (0.9)% | $ | 2,302.0 | $ | 2,347.1 | $ | (45.1) | (1.9) | % | (1.1)% | |||||||||||||||||||||||||||||||||||||||||
| Segment operating income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Topgolf | $ | 56.1 | $ | 44.0 | $ | 12.1 | 27.5 | % | $ | 59.0 | $ | 46.8 | $ | 12.2 | 26.1 | % | |||||||||||||||||||||||||||||||||||||||||||
| Golf Equipment | 77.4 | 96.4 | (19.0) | (19.7) | % | 159.5 | 178.0 | (18.5) | (10.4) | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Active Lifestyle | 14.7 | 19.5 | (4.8) | (24.6) | % | 39.4 | 56.8 | (17.4) | (30.6) | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total segment operating income | 148.2 | 159.9 | (11.7) | (7.3) | % | 257.9 | 281.6 | (23.7) | (8.4) | % | |||||||||||||||||||||||||||||||||||||||||||||||||
Reconciling Items(2) | (45.2) | (43.9) | (1.3) | 3.0 | % | (88.0) | (85.1) | (2.9) | 3.4 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total operating income | 103.0 | 116.0 | (13.0) | (11.2) | % | 169.9 | 196.5 | (26.6) | (13.5) | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | (57.0) | (51.7) | (5.3) | 10.3 | % | (115.8) | (101.3) | (14.5) | 14.3 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other income, net | 6.4 | 7.3 | (0.9) | (12.3) | % | 9.8 | (2.8) | 12.6 | (450.0) | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total income before income taxes | $ | 52.4 | $ | 71.6 | $ | (19.2) | (26.8) | % | $ | 63.9 | $ | 92.4 | $ | (28.5) | (30.8) | % | |||||||||||||||||||||||||||||||||||||||||||
(1) Calculated by applying 2023 exchange rates to 2024 reported sales in regions outside the United States. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(2) Reconciling items include corporate general and administrative expenses not utilized by management in determining segment profitability, including non-cash amortization expense of intangible assets in connection with the acquisitions and non-recurring costs as discussed above. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Topgolf
During the three and six months ended June 30, 2024, Topgolf net revenues increased $23.6 million (5.0%) and $42.9 million (4.9%), respectively, and operating income increased $12.1 million (27.5%) and $12.2 million (26.1%), respectively, both compared to the same period in 2023. The increase in net revenues was primarily due to the continued opening of new Company-owned and operated venues since June 2023. This increase was partially offset by a decline in same venue sales due to softer traffic from both the consumer and events business. The increase in operating income was due to the increase in net revenue as discussed above combined with improved operating efficiencies.
41
Golf Equipment
During the three and six months ended June 30, 2024, Golf Equipment net revenues decreased $37.2 million (8.2%) and $31.0 million (3.5%), respectively, and segment operating income decreased $19.0 million (19.7%) and $18.5 million (10.4%), respectively, both compared to the same period in 2023. The decrease in net revenues was due to a planned shift in product launch timing from the first half of 2024 to the second half combined with unfavorable changes in foreign currency rates primarily in Asia. The decrease in operating income was primarily due to the decrease in net revenue as discussed above combined with a decline in gross margin resulting from higher freight expenses to meet demand. These decreases were partially offset by lower employee costs, advertising fees, and tour player and ambassador expenses.
Active Lifestyle
During the three and six months ended June 30, 2024, Active Lifestyle net revenues decreased $8.3 million (3.2%) and $57.0 million (9.9%), respectively, and operating income decreased $4.8 million (24.6%) and $17.4 million (30.6%), respectively, both compared to the same period in 2023.
The decrease in net revenues in the second quarter of 2024 was primarily driven by a decrease in sales of Jack Wolfskin soft goods due a decline in wholesale revenue resulting from higher inventory levels at retailers combined with unfavorable changes in foreign currency rates primarily in Asia, partially offset by wholesale and retail growth in the TravisMathew business. The decrease in operating income in the second quarter of 2024 was largely due to the decrease in revenue discussed above, combined with a decline in gross margin as a result of provisioning for out of season inventory in Korea and higher promotional activity in Europe, partially offset by the favorable impact of foreign currency in inventory.
The decrease in net revenues in the first six months of 2024 was primarily driven by decreases in sales of Callaway, Jack Wolfskin and TravisMathew soft goods. The decrease in Callaway sales was primarily due to softer market conditions in Korea. The decline in Jack Wolfskin sales was primarily due to a decline in wholesale revenue resulting from higher field inventories. The decrease in sales of TravisMathew soft goods was primarily due to a corporate channel sell-in during the first quarter of 2023 which, as expected, did not recur in 2024, partially offset by direct-to-consumer growth in the retail and e-commerce channels. The decrease in operating income during the first six months of 2024 was largely due to the decreases in revenue discussed above, partially offset by improved gross margin resulting from favorable channel mix and lower input costs.
Financial Condition
Our cash and cash equivalents, including restricted cash, decreased $81.7 million to $317.1 million at June 30, 2024 from $398.8 million at December 31, 2023. During the six months ended June 30, 2024, we used our cash and cash equivalents in addition to proceeds received from lease financings to fund operations, purchase capital expenditures, repurchase stock, and complete the BigShots acquisition. Additionally, during the second quarter of 2024, we made a $50.0 million partial repayment of the outstanding principal of our Term Loan B. We believe that our existing funds and existing sources of and access to capital and any future financings, as necessary, are adequate to fund our future operations. For further information related to our financing arrangements, see Note 6 “Financing Arrangements,” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 and “Liquidity and Capital Resources” in Part I, Item 2 of this Form 10-Q.
Our accounts receivable balance fluctuates throughout the year as a result of the general seasonality of our business, and is also affected by the timing of new product launches. With respect to our Golf Equipment business, accounts receivable are generally the highest during the first and second quarters during the seasonal peak in the golf industry, and generally decline significantly during the third and fourth quarters as a result of an increase in cash collections combined with lower seasonal sales. Our Active Lifestyle accounts receivable balances are generally higher during the third and fourth quarters, primarily due to the seasonal concentration of sales for the Jack Wolfskin business during the fall and winter seasons. Our Topgolf venue business primarily records revenue and collects payment at point-of-sale, therefore, Topgolf’s accounts receivable balance is smaller than our other business segments and primarily consists of media partnership receivables. As of June 30, 2024, our consolidated net accounts receivable increased to $390.4 million from $200.5 million at December 31, 2023. The increase reflects the seasonality of our golf equipment sales. Net accounts receivable as of June 30, 2024 decreased $6.8 million compared to June 30, 2023, primarily due to decreased net sales.
42
Our inventory balance fluctuates throughout the year as a result of the general seasonality of certain operating segments within our business, and is also affected by the timing of new product launches. With respect to our Golf Equipment business, the buildup of inventory generally begins during the fourth quarter and continues into the first quarter and beginning of the second quarter in order to meet increased demand during the golf season. Inventory levels are also impacted by the timing of new product launches as well as the success of new products. Active Lifestyle inventory levels start to increase during the second quarter and continue to increase into the third and fourth quarters primarily due to the seasonal nature of our Jack Wolfskin business, whose products are significantly geared towards the fall and winter seasons. Topgolf is primarily a service-based business which maintains lower inventory balances than our other business segments, primarily consisting of food and beverages as well as retail merchandise and Toptracer inventory. As of June 30, 2024, our inventory decreased $147.3 million to $647.1 million, compared to December 31, 2023, which reflects the general seasonality of our business combined with the sell-through of out-of-season inventory in our Active Lifestyle business. Our inventory decreased $192.7 million as of June 30, 2024, compared to June 30, 2023, also primarily due to inventory reduction initiatives.
Liquidity and Capital Resources
Our principal sources of liquidity consist of our existing cash and cash equivalent balances, funds expected to be generated from operations and available funds from our credit facilities. Based on our current cash balances, estimates of funds expected to be generated from operations, and the current and projected availability under current or future credit facilities, we believe we will be able to finance current and planned operating requirements, capital expenditures, required debt repayments and contractual obligations and commercial commitments for at least the next 12 months from the issuance date of this Form 10-Q.
Our ability to generate sufficient positive cash flows from operations is subject to many risks and uncertainties, including future economic trends and conditions, demand for our products, supply chain challenges, price inflation, foreign currency exchange rates, and other risks and uncertainties applicable to us and our business (see “Risk Factors” contained in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023).
On March 19, 2024 we entered into an amendment to the 2023 Term Loan B in order to decrease the interest rate and future interest expense on the 2023 Term Loan B and on May 31, 2024, we made an additional discretionary $50.0 million principal payment on the 2023 Term Loan B. As of June 30, 2024, we had $783.8 million in cash and availability under our credit facilities, which is an increase of $136.4 million compared to June 30, 2023. Information about our credit facilities and long-term debt is presented in Note 6 “Financing Arrangements” in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, which is incorporated herein by this reference.
As of June 30, 2024, approximately 43% of our cash was held in regions outside of the United States. We continue to maintain our indefinite reinvestment assertion with respect to most jurisdictions in which we operate because of local cash requirements to operate our business. If we were to repatriate cash to the United States outside of settling intercompany balances, we may need to pay incremental foreign withholding taxes which, subject to certain limitations, generate foreign tax credits for use against our U.S. tax liability, if any. Additionally, we may need to pay certain state income taxes.
43
Significant Cash Obligations
We plan to utilize our liquidity (as described above) and our cash flows from business operations to fund our material cash requirements. The table below summarizes certain significant cash obligations as of June 30, 2024 that will affect our future liquidity (in millions).
| Payments Due By Period | |||||||||||||||||||||||||||||
| Total | Remainder of 2024 | 2025 - 2026 | 2027 - 2028 | Thereafter | |||||||||||||||||||||||||
Long-term debt(1) | $ | 1,505.5 | $ | 9.8 | $ | 295.0 | $ | 29.2 | $ | 1,171.5 | |||||||||||||||||||
Interest payments relating to long-term debt(2) | 622.9 | 56.3 | 217.2 | 202.7 | 146.7 | ||||||||||||||||||||||||
Finance leases, including imputed interest(3) | 810.0 | 6.7 | 32.7 | 33.6 | 737.0 | ||||||||||||||||||||||||
Operating leases, including imputed interest(4) | 2,405.4 | 74.2 | 325.6 | 311.5 | 1,694.1 | ||||||||||||||||||||||||
DLF obligations(5) | 4,580.1 | 36.3 | 179.7 | 188.0 | 4,176.1 | ||||||||||||||||||||||||
Minimum lease payments for leases signed but not yet commenced(6) | 310.8 | 0.9 | 11.4 | 11.4 | 287.1 | ||||||||||||||||||||||||
Capital commitments(7) | 70.0 | 21.0 | 49.0 | — | — | ||||||||||||||||||||||||
Unconditional purchase obligations(8) | 132.5 | 38.2 | 72.7 | 16.3 | 5.3 | ||||||||||||||||||||||||
Uncertain tax contingencies(9) | 13.2 | 2.3 | 1.7 | 1.2 | 8.0 | ||||||||||||||||||||||||
| Total | $ | 10,450.4 | $ | 245.7 | $ | 1,185.0 | $ | 793.9 | $ | 8,225.8 | |||||||||||||||||||
(1) Excludes unamortized debt discounts, unamortized debt issuance costs, and fair value adjustments. For further details, see Note 6 “Financing Arrangements,” in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. | |||||||||||||||||||||||||||||
(2) Long-term debt may have fixed or variable interest rates. For further details, see Note 6 “Financing Arrangements,” in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. | |||||||||||||||||||||||||||||
(3) Represents future minimum payments under financing leases. For further details, see Note 5 “Leases” in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. | |||||||||||||||||||||||||||||
(4) Represents commitments for minimum lease payments under non-cancellable operating leases. For further details, see Note 5 “Leases” in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. | |||||||||||||||||||||||||||||
(5) Represents DLF obligations, including extension periods, in connection with the construction of Topgolf venues. For further details, see Note 5 “Leases” in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. | |||||||||||||||||||||||||||||
(6) Represents future minimum lease payments under lease agreements that have not yet commenced as of June 30, 2024, in relation to future Topgolf facilities. For further discussion, see Note 5 “Leases” in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. | |||||||||||||||||||||||||||||
(7) Represents capital expenditure commitments under lease agreements for Topgolf venues under construction that have been signed as of June 30, 2024. | |||||||||||||||||||||||||||||
(8) During the normal course of business, we enter into agreements to purchase goods and services, including commitments for endorsement agreements with professional athletes and other endorsers, consulting and service agreements, and intellectual property licensing agreements pursuant to which we are required to pay royalty fees. The amounts listed above approximate the minimum purchase obligations we are obligated to pay under these agreements over the next five years and thereafter as of June 30, 2024. The actual amounts paid under some of the agreements may be higher or lower than these amounts. In addition, we also enter into unconditional purchase obligations with various vendors and suppliers of goods and services during the normal course of business through purchase orders or other documentation or that are undocumented except for an invoice. For further details, see Note 12 “Commitments & Contingencies” in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. | |||||||||||||||||||||||||||||
(9) Amounts represent current and non-current portions of uncertain income tax positions as recorded on our Condensed Consolidated Balance Sheets as of June 30, 2024. Amounts exclude uncertain income tax positions that we would be able to offset against deferred taxes. For further discussion, see Note 11 "Income Taxes" in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. | |||||||||||||||||||||||||||||
During the normal course of business, we have made certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These include (i) intellectual property indemnities to our customers and licensees in connection with the use, sale and/or license of our products or trademarks, (ii) indemnities to various lessors in connection with facility leases for certain claims arising from such facilities or leases, (iii) indemnities to vendors and service providers pertaining to the goods or services provided to us or based on the negligence or willful misconduct, and (iv) indemnities involving the accuracy of representations and warranties in certain contracts. In addition, we have made contractual commitments to each of our officers and certain other employees providing for severance payments upon the termination of employment. We have also issued guarantees in the form of a standby letter of credit primarily as security for contingent liabilities under certain workers’ compensation insurance policies.
44
The duration of these indemnities, commitments and guarantees varies, and in certain cases may be indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation on the maximum amount of future payments we could be obligated to make. Historically, costs incurred to settle claims related to indemnities have not been material to our financial position, results of operations or cash flows. In addition, we believe the likelihood is remote that payments under the commitments and guarantees described above will have a material effect on our financial condition. The fair value of indemnities, commitments and guarantees that we issued during the six months ended June 30, 2024 was not material to our financial position, results of operations or cash flows.
In addition to the contractual obligations listed above, our liquidity could also be adversely affected by an unfavorable outcome with respect to claims and litigation that we are subject to from time to time (see Note 12 “Commitments & Contingencies” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 and “Legal Proceedings” in Part II, Item 1 of this Form 10-Q).
We have no material off-balance sheet arrangements.
Capital Expenditures
Total estimated capital expenditures, net of reimbursements by third party real estate financing partners, for the year ending December 31, 2024, are expected to be approximately $190.0 million, comprised of $60.0 million for our legacy business and $130.0 million for the Topgolf business.
Critical Accounting Estimates
For the six months ended June 30, 2024, there have been no material changes to our critical accounting estimates from the information reported in our Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 29, 2024.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We use derivative financial instruments to mitigate our exposure to changes in foreign currency exchange rates and interest rates. Transactions involving these financial instruments are with creditworthy banks, primarily banks that are party to our credit facilities (see Note 6 “Financing Arrangements” in the Notes to Condensed Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q). The use of these instruments exposes us to market and credit risk which may at times be concentrated with certain counterparties, although counterparty nonperformance is not anticipated.
Foreign Currency Fluctuations
Information about our foreign currency hedging activities is set forth in Note 15 “Derivatives and Hedging,” in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q, which is incorporated herein by this reference.
As part of our risk management procedure, a sensitivity analysis model is used to measure the potential loss in future earnings of market-sensitive instruments resulting from one or more selected hypothetical changes in interest rates or foreign currency values. The sensitivity analysis model quantifies the estimated potential effect of unfavorable movements of 10% in foreign currencies to which we were exposed at June 30, 2024 through our foreign currency forward contracts.
At June 30, 2024, the estimated loss from our foreign currency forward contracts, calculated using the sensitivity analysis model described above, was $42.8 million. We believe that such a hypothetical loss from our foreign currency forward contracts would be partially offset by increases in the value of the underlying transactions being hedged.
The sensitivity analysis model is a risk analysis tool and does not purport to represent actual losses in earnings that we will incur, nor does it consider the potential effect of favorable changes in market rates. It also does not represent the maximum possible loss that may occur. Actual future gains and losses will differ from those estimated because of changes or differences in market rates and interrelationships, hedging instruments and hedge percentages, timing and other factors.
45
Interest Rate Fluctuations
We are exposed to interest rate risk from our credit facilities and long-term borrowing commitments. Outstanding borrowings under these credit facilities and long-term borrowing commitments accrue interest as described in Note 6 “Financing Arrangements,” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, and in “Liquidity and Capital Resources” in Part I, Item 2 of this Form 10-Q. Our long-term borrowing commitments are subject to interest rate fluctuations, which could be material to our cash flows and results of operations. In order to mitigate this risk, we enter into interest rate swap contracts as part of our interest rate risk management strategy. Information about our interest rate hedges is provided in Note 15 “Derivatives and Hedging” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. In order to determine the impact of unfavorable changes in interest rates on our cash flows and results of operations, we performed a sensitivity analysis as part of our risk management procedures. The sensitivity analysis quantified that the incremental expense incurred by a 10% increase in interest rates would be $4.7 million over the 12-month period ended on June 30, 2024.
Inflation
The continued increase in inflation partially contributed to the increase in the cost of our products and services as well as operating costs. If the cost of our products, employee costs, or other costs continue to be subject to significant inflationary pressures, such inflationary pressures may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses. Further, we may not be able to offset these increased costs through price increases. As a result, our inability to quickly respond to inflation could harm our cash flows and results of operations in the future.
Item 4. Controls and Procedures
Disclosure Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness, as of June 30, 2024, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2024.
Changes in Internal Control over Financial Reporting.
There were no changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the three months ended June 30, 2024.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
46
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth in Note 12 “Commitments & Contingencies,” in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q, is incorporated herein by this reference.
Item 1A. Risk Factors
Certain Factors Affecting Topgolf Callaway Brands
We have included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, a description of certain risks and uncertainties that could affect our business, future performance or financial condition (the “Risk Factors”). Investors should consider the Risk Factors prior to making an investment decision with respect to our stock. There are no material changes from the disclosure provided in the Form 10-K for the year ended December 31, 2023 with respect to the Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Stock Purchases
In May 2022, our Board of Directors authorized a $100.0 million share repurchase program (the “2022 Repurchase Program”) under which we are authorized to repurchase shares of our common stock in the open market or in private transactions, subject to our assessment of market conditions and repurchase opportunities. We will assess market conditions, buying opportunities and other factors from time to time and will make strategic repurchases as appropriate. The repurchases will be made in compliance with Rule 10b-18 under the Exchange Act, subject to market conditions, applicable legal requirements and other factors, and the repurchases will be made consistent with the terms of our credit facilities, which define the amount of stock that can be repurchased. The repurchase program does not require us to acquire a specific number of shares and it will remain in effect until completed or until terminated by the Board of Directors. During the second quarter of 2024, we repurchased 1.0 million shares of our common stock under the 2022 Repurchase Program at a weighted average price per share of $16.09, for a total cost of $16.1 million.
The following table summarizes our purchases during the second quarter of 2024 and includes amounts repurchased under the 2022 Repurchase Program and shares withheld to satisfy payroll tax withholding obligations in connection with the vesting and settlement of employee restricted stock unit awards and performance share unit awards. Our repurchases of shares of common stock are recorded at cost and result in a reduction of shareholders’ equity.
| Three Months Ended June 30, 2024 | ||||||||||||||||||||||||||
Total Number of Shares Purchased | Weighted Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Maximum Dollar Value that May Yet Be Purchased Under the Program | |||||||||||||||||||||||
| April 1, 2024 - April 30, 2024 | 1,081,366 | $ | 16.11 | 1,000,000 | $ | 35,528,182 | ||||||||||||||||||||
| May 1, 2024 - May 31, 2024 | 769 | 14.98 | — | 35,528,182 | ||||||||||||||||||||||
| June 1, 2024 - June 30, 2024 | 486,472 | 15.66 | — | 35,528,182 | ||||||||||||||||||||||
| Total | 1,568,607 | $ | 15.98 | 1,000,000 | $ | 35,528,182 | ||||||||||||||||||||
Other than shares repurchased under the 2022 Repurchase Program, during the second quarter of 2024, we repurchased 0.6 million shares of our common stock at an average cost per share of $15.77, for a total cost of $9.0 million, which were related to shares withheld to satisfy payroll tax withholding obligations as described above.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None
47
Item 5. Other Information
During the three months ended June 30, 2024, none of our officers or directors adopted terminated
48
Item 6. Exhibits
| 3.1 | ||||||||
| 3.2 | ||||||||
| 10.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 101.1 | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.2 | XBRL Taxonomy Extension Schema Document † | |||||||
| 101.3 | XBRL Taxonomy Extension Calculation Linkbase Document † | |||||||
| 101.4 | XBRL Taxonomy Extension Definition Linkbase Document † | |||||||
| 101.5 | XBRL Taxonomy Extension Label Linkbase Document † | |||||||
| 101.6 | XBRL Taxonomy Extension Presentation Linkbase Document † | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) † | |||||||
(†) Included with this Report.
49
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TOPGOLF CALLAWAY BRANDS CORP. | |||||
| By: | /s/ Jennifer Thomas | ||||
| Jennifer Thomas | |||||
| Senior Vice President and Chief Accounting Officer | |||||
Date: August 7, 2024
50