Callaway Golf Co: Form 10-Q for the period ended Sep 30, 2023
Filed with the SEC on Nov 8, 2023 and accepted by EDGAR at Nov 8, 2023, 17:17 ET.
Management's discussion and analysis
As filed, 57,756 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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, 2022, which was filed with the SEC on March 1, 2023. Interim operating results are not necessarily indicative of operating results that may be expected for the year ending December 31, 2023, 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 fluctuations from foreign currencies 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 is defined as sales for the comparable Topgolf venue base, which is defined as the number of Company-operated venues with at least 24 full fiscal months of operations in 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 September 30, 2023, we had 80 company-operated Topgolf venues, and one company-operated Topgolf lounge in 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.
Our Topgolf operating segment also includes other business lines comprised of our Toptracer ball-flight tracking technology as well as our digital media platform. Toptracer ball-flight tracking technology is used by independent driving ranges, as well as in many of our company-operated and franchised Topgolf venues in order to enhance the Topgolf gaming experience. The digital media platform includes online multiplayer virtual golf games that enable 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 are defined as sales for the comparable venue base for venues that have 24 full fiscal months of operations. Same venue sales 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.
Our Topgolf subsidiary previously operated on a 52- or 53-week retail calendar year, which ended on the Sunday closest to December 31. As of April 4, 2022, Topgolf began operating on a calendar year ending on December 31. Therefore, Topgolf financial information included in our condensed consolidated financial statements for the nine months ended September 30, 2022 was from January 3, 2022 through September 30, 2022. Topgolf financial information for the three months ended September 30, 2022 as well as for the three and nine months ended September 30, 2023 is reported on a calendar year basis.
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, 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 16 “Segment Information” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
Current Economic Conditions
Macroeconomic Factors
Our products and services are considered to be non-essential items and are therefore discretionary purchases for consumers. In addition, our Topgolf venues business also depends on corporate discretionary spending relative to its leisure and entertainment-based offerings. The demand for our products and services is highly sensitive to macroeconomic pressures. Such pressures 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.
Supply Chain
During most of 2022, we experienced longer lead times on inventory shipments due to global supply chain challenges. Due to these challenges, we changed the timing and method of our inventory purchases in order to meet the heightened demand for our golf equipment and apparel products, as well as manage capacity at our suppliers. After making these changes, inventory shipment timing and supply chain channels improved globally, leading to the receipt of inventory orders for our planned 2023 product launches earlier than anticipated, which resulted in increased inventory levels late last year and earlier this year. Since December 31, 2022, our total inventory has decreased by $222.7 million.
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. 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 nine months ended September 30, 2023, foreign currency fluctuations had a favorable impact on international net revenues of $6.5 million, and an unfavorable impact on international net revenues of $30.8 million, respectively.
Results of Operations
Net Revenues
Net revenues by operating segment for the three and nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022 were as follows (in millions, except percentages):
| Net revenues: | Three Months Ended September 30, 2023 | 2022 | Growth/ (Decline) Percent | Non-GAAP Constant Currency Growth vs. 2022 Percent | Nine Months Ended September 30, 2023 | 2022 | Growth/ (Decline) Percent | Non-GAAP Constant Currency Growth vs. 2022 Percent |
|---|---|---|---|---|---|---|---|---|
| Topgolf | $447.7 | $413.8 | 8.2% | 7.9% | $1,322.0 | $1,139.5 | 16.0% | 16.1% |
| Golf Equipment | 293.4 | 296.7 | (1.1)% | (1.5)% | 1,188.1 | 1,216.6 | (2.3)% | (0.6)% |
| Active Lifestyle | 299.5 | 278.0 | 7.7% | 6.2% | 877.6 | 788.3 | 11.3% | 12.4% |
| Total net revenues | $1,040.6 | $988.5 | 5.3% | 4.6% | $3,387.7 | $3,144.4 | 7.7% | 8.7% |
Net revenues for the three and nine months ended September 30, 2023 increased $52.1 million or 5.3% (4.6% on a constant currency basis), and $243.3 million or 7.7% (8.7% on a constant currency basis), respectively, as compared to the three and nine months ended September 30, 2022.
The $52.1 million (5.3%) increase in total net revenues for the three months ended September 30, 2023 was primarily due to growth in our Topgolf and Active Lifestyle operating segments. Growth in our Topgolf segment was primarily driven by the addition of nine newly opened Topgolf venues since September 30, 2022, partially offset by a decline in same venue sales as compared to the third quarter of 2022, primarily as a result of lower walk-in traffic due to a decline in consumer demand along with extreme heat in certain markets, and a decline in corporate events resulting from a post-COVID surge in the prior year, which was not repeated in the current year. Growth in our Active Lifestyle segment was primarily due to increased sales of TravisMathew products driven by continued brand momentum and retail expansion, as well as retail and e-commerce channel growth for Jack Wolfskin. In addition, the increase in net revenue reflects the impact of favorable foreign currency exchange primarily in Europe. These increases were partially offset by a decrease in Golf Equipment sales due primarily to a planned shift in product launches from the third quarter of 2023 to the fourth quarter of 2023, combined with lower golf ball sales due to an inventory catch-up at retail in the third quarter of 2022 to meet increased demand. These decreases were partially offset by an increase in average selling prices.
The $243.3 million (7.7%) increase in total net revenues for the nine months ended September 30, 2023 was primarily related to growth in our Topgolf and Active Lifestyle operating segments. The increase at Topgolf was primarily related to newly opened Topgolf venues and increased year-over-year same venue sales. The increase in our Active Lifestyle operating segment was primarily related to continued strong brand momentum for TravisMathew products combined with additional store openings, in addition to retail and e-commerce channel growth for Jack Wolfskin. These increases were partially offset by a decrease in our Golf Equipment operating segment primarily due to the negative impact of unfavorable changes in foreign currency rates combined with the impact from the retail fill-in primarily during the first half of 2022, which was not repeated in 2023, partially offset by an increase in golf ball sales related to strong demand and improved inventory availability compared to the same period in 2022.
Net revenues by major geographic region for the three and nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022 were as follows (in millions, except percentages):
| Net revenues: | Three Months Ended September 30, 2023 | 2022 | Growth/ (Decline) Percent | Non-GAAP Constant Currency Growth vs. 2022 Percent | Nine Months Ended September 30, 2023 | 2022 | Growth/ (Decline) Percent | Non-GAAP Constant Currency Growth vs. 2022 Percent |
|---|---|---|---|---|---|---|---|---|
| United States | $737.3 | $684.8 | 7.7% | 7.7% | $2,435.1 | $2,194.7 | 11.0% | 11.0% |
| Europe | 149.5 | 141.9 | 5.4% | (2.3)% | 423.3 | 417.7 | 1.3% | 0.9% |
| Asia | 130.7 | 138.7 | (5.8)% | (3.2)% | 419.1 | 432.6 | (3.1)% | 3.1% |
| Rest of World | 23.1 | 23.1 | —% | 3.0% | 110.2 | 99.4 | 10.9% | 16.5% |
| Total net revenues | $1,040.6 | $988.5 | 5.3% | 4.6% | $3,387.7 | $3,144.4 | 7.7% | 8.7% |
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 nine months ended September 30, 2023, net revenues in the United States increased $52.5 million (7.7%) and $240.4 million (11.0%), respectively, compared to the three and nine months ended September 30, 2022. These increases were primarily due to the growth and continued expansion of our Topgolf business, as well as continued growth and strong performance of our TravisMathew business.
Europe
During the three and nine months ended September 30, 2023, net revenues in Europe increased $7.6 million (5.4%) and $5.6 million (1.3%), respectively, compared to the three and nine months ended September 30, 2022. The $7.6 million increase for the three months ended September 30, 2023 was primarily due to favorable foreign currency exchange combined with an increase in sales at our international Topgolf venues. The $5.6 million increase for the nine months ended September 30, 2023 was primarily driven by growth in our Jack Wolfskin business and an increase in sales at our international Topgolf venues.
Asia
During the three and nine months ended September 30, 2023, net revenues in Asia decreased $8.0 million (5.8%) and $13.5 million (3.1%), respectively, compared to the three and nine months ended September 30, 2022, due to the unfavorable impact of foreign currency exchange, primarily in Japan, combined with softer market conditions in various parts of Korea. These decreases were partially offset by increases related to market expansion and direct to consumer growth in Jack Wolfskin.
Rest of World
During the three and nine months ended September 30, 2023, net revenues in Rest of World were flat and increased by $10.8 million (10.9%), respectively, compared to the three and nine months ended September 30, 2022. The increase for the nine months ended September 30, 2023 was primarily due to strong performance in Canada for our Golf Equipment and Active Lifestyle products, partially offset by the unfavorable foreign currency impacts.
For the three and nine months ended September 30, 2023 foreign currency exchange rates had a favorable impact of $6.5 million and an unfavorable impact of $30.8 million on international net revenues, respectively.
Costs and Expenses (in millions, except percentages)
| Costs and expenses: | Three Months Ended September 30, 2023 | 2022 | Increase/ (Decrease) Percent | Nine Months Ended September 30, 2023 | 2022 | Increase/ (Decrease) Percent |
|---|---|---|---|---|---|---|
| Cost of products | $337.1 | $330.7 | 1.9% | $1,167.0 | $1,142.5 | 2.1% |
| Cost of services, excluding depreciation and amortization | 45.6 | 48.2 | (5.4)% | 141.4 | 136.3 | 3.7% |
| Other venue expense | 312.1 | 287.6 | 8.5% | 934.7 | 780.2 | 19.8% |
| Selling, general and administrative expense | 242.5 | 224.7 | 7.9% | 790.6 | 720.4 | 9.7% |
| Research and development expense | 22.6 | 19.2 | 17.7% | 67.4 | 55.4 | 21.7% |
| Venue pre-opening costs | 6.9 | 9.9 | (30.3)% | 16.3 | 18.1 | (9.9)% |
| Total costs and expenses | $966.8 | $920.3 | 5.1% | $3,117.4 | $2,852.9 | 9.3% |
Cost of Products
Cost of products is variable in nature and fluctuates relative to sales volumes. During the three and nine months ended September 30, 2023, cost of products increased $6.4 million (1.9%) and $24.5 million (2.1%), respectively, compared to the three and nine months ended September 30, 2022. The increases were primarily due to increased sales in our Active Lifestyle operating segment, partially offset by a decrease in sales in our Golf Equipment operating segment.
Cost of Services, excluding Depreciation and Amortization
Cost of services, excluding depreciation and amortization (“cost of services”) includes the cost of food and beverage sold in our Topgolf venues as well as certain costs associated with the licensing of our Toptracer ball-flight tracking technology. During the three months ended September 30, 2023, cost of services decreased $2.6 million (5.4%) compared to the three months ended September 30, 2022, primarily due to comparably higher food and beverage costs in 2022 and higher equipment installation costs in 2022 related to timing of venue builds. During the nine months ended September 30, 2023, cost of services increased $5.1 million (3.7%), compared to the nine months ended September 30, 2022, primarily due to the opening of nine new company-operated Topgolf venues since September 30, 2022.
Other Venue Expense
Other venue expenses primarily consist of depreciation and amortization, employee costs, rent, utilities, marketing and other costs associated with Topgolf venues. During the three and nine months ended September 30, 2023, other venue expense increased $24.5 million (8.5%) and $154.5 million (19.8%), respectively, compared to the three and nine months ended September 30, 2022, primarily due to the addition of nine new company-operated Topgolf venues since September 30, 2022, in addition to higher wages and planned increases in costs related to new marketing campaigns.
Selling, General and Administrative Expense
Selling, general and administrative (“SG&A”) expenses primarily consist of 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 nine months ended September 30, 2023, SG&A expenses increased $17.8 million (7.9%) and $70.2 million (9.7%), respectively, compared to the three and nine months ended September 30, 2022.
The $17.8 million increase for the three months ended September 30, 2023 was due to increased costs to support the overall growth in the business, and were primarily comprised of a $7.1 million increase in costs related to computer licenses and software, a $3.4 million increase in depreciation and amortization, and a $2.8 million increase primarily related to building expenses, in addition to other miscellaneous selling, general and administrative charges, including travel and entertainment, professional fees, corporate development costs, and IT integration charges.
The $70.2 million increase for the nine months ended September 30, 2023 was driven by costs to support the overall growth of the business, which primarily include increases of $12.6 million in planned advertising and promotional costs related to new marketing campaigns, $10.9 million in employee costs due to an overall increase in wages and headcount, $9.7 million in costs related to computer licenses and software, $9.1 million in depreciation and amortization due to an increase in capital expenditures, and $7.1 million in building expenses related to building leases, in addition to increases in travel and entertainment, professional fees, various non-recurring costs, and other miscellaneous expenses, all to support the growth of the business.
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 nine months ended September 30, 2023, research and development expenses increased $3.4 million (17.7%) and $12.0 million (21.7%), respectively, compared to the three and nine months ended September 30, 2022, primarily driven by higher employee costs due to increased wages and headcount in addition to professional fees and other miscellaneous research expenses.
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 nine months ended September 30, 2023, venue pre-opening costs decreased $3.0 million (30.3%) and $1.8 million (9.9%), respectively, as compared to the three and nine months ended September 30, 2022.
Other Income and Expense (in millions, except percentages)
| Other income and expenses: | Three Months Ended September 30, 2023 | 2022 | Change Percent | Nine Months Ended September 30, 2023 | 2022 | Change Percent |
|---|---|---|---|---|---|---|
| Interest expense, net | $(52.3) | $(36.4) | 43.7% | $(153.6) | $(100.3) | 53.1% |
| Other income, net | 5.2 | 7.0 | (25.7)% | 2.4 | 26.9 | (91.1)% |
| Total other (expense) income, net | $(47.1) | $(29.4) | 60.2% | $(151.2) | $(73.4) | 106.0% |
38
Interest expense, net increased $15.9 million (43.7%) and $53.3 million (53.1%) during the three and nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022, primarily due to higher outstanding balances and increased interest rates on our term loans and senior secured asset-based revolving credit facilities, as well as an increase in deemed landlord financing (“DLF”) obligations for Topgolf.
Other income, net decreased $1.8 million (25.7%) and $24.5 million (91.1%) during the three and nine months ended September 30, 2023, respectively, as compared to the three and nine months ended September 30, 2022. The $1.8 million decrease for the three months ended September 30, 2023 was primarily due to a decrease in gains related to foreign currency hedging contracts, partially offset by a decrease in foreign currency transactional losses. The $24.5 million decrease during the nine months ended September 30, 2023 was primarily due to the recognition of a $10.5 million non-cash loss to write-off unamortized deferred debt issuance costs and an original issuance discount in connection with our 2023 debt modification, combined with a net decrease in foreign currency hedge gains, partially offset by a decrease in foreign currency transactional losses.
Income Taxes
Our income tax provision decreased $3.3 million to an income tax benefit of $3.0 million for the three months ended September 30, 2023, compared to an income tax expense of $0.3 million in the comparable period of 2022. As a percentage of pre-tax income, our effective tax rate for the three months ended September 30, 2023 decreased to (10.8)% compared to 0.8% in the comparable period of 2022. The effective tax rate for the three months ended September 30, 2023 was impacted by a reduction in the estimated annual income tax provision. The effective tax rate for the three months ended September 30, 2022 was impacted by a partial release of the valuation allowances on our deferred tax assets and other nonrecurring items. Excluding the valuation allowance release and other nonrecurring items, our effective tax rate would have been (0.1)% and 12.5% for the three months ended September 30, 2023 and 2022, respectively. For further discussion see Note 10 “Income Taxes” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
Our income tax benefit increased $40.5 million to $53.0 million for the nine months ended September 30, 2023, compared to $12.5 million in the comparable period of 2022. As a percentage of pre-tax income, our effective tax rate for the nine months ended September 30, 2023 decreased to (44.4)% compared to (5.7)% in the comparable period of 2022. Our effective tax rate for the nine months ended September 30, 2023 and 2022 was impacted by the reversal of a significant portion of the valuation allowances on our deferred tax assets and other nonrecurring items. Excluding the valuation allowance release and other non-recurring items, our effective tax rate would have been 10.7% and 16.3% for the nine months ended September 30, 2023 and 2022, respectively. For further discussion see Note 10 “Income Taxes” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
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 September 30, 2023 and 2022 to our non-GAAP results for the same periods (in millions, except per share information):
| Three months ended September 30, 2023 Net Income | Diluted earnings per share(4) | Three Months Ended September 30, 2022 Net Income | Diluted earnings per share(4) | |
|---|---|---|---|---|
| GAAP | $29.7 | $0.16 | $38.5 | $0.20 |
| Less: Non-Cash Acquisition Amortization and Depreciation(1) | (4.5) | (0.02) | (5.9) | (0.03) |
| Less: Non-Recurring Items(2) | (4.3) | (0.02) | (4.8) | (0.02) |
| Less: Tax Valuation Allowance(3) | 0.3 | — | 4.6 | 0.02 |
| Non-GAAP | $38.2 | $0.20 | $44.6 | $0.23 |
| Diluted Weighted-Average Shares Outstanding | 201.2 | 201.8 | ||
| (1) Includes the amortization and depreciation of acquired intangible assets and purchase accounting adjustments related to acquisitions. | ||||
| (2) 2023 amounts primarily included $2.7 million in non-recurring restructuring and reorganization charges in our Active Lifestyle segment, and $1.5 million in non-recurring IT costs related to a cybersecurity incident. 2022 amounts primarily include $4.8 million in charges related to the suspension of our Jack Wolfskin retail operations in Russia and $1.4 million in non-recurring IT integration and implementation costs stemming from acquisitions. | ||||
| (3) Related to the release of tax valuation allowances that were recorded in connection with the merger with Topgolf. | ||||
| (4) In accordance with ASU 2020-06, periodic interest expense related to the 2020 Convertible Notes is excluded from net income for the purpose of calculating diluted earnings per share. |
40
Net income for the three months ended September 30, 2023 decreased to $29.7 million compared to $38.5 million for the three months ended September 30, 2022. Diluted earnings per share decreased from $0.20 per share to $0.16 per share for the three months ended September 30, 2023 compared to the same period in 2022. Fully diluted shares of common stock for the three months ended September 30, 2023 were 201.2 million shares compared to 201.8 million shares for the same period in 2022.
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 September 30, 2023 would have been $38.2 million and $0.20 per share, respectively, compared to $44.6 million and $0.23 per share, respectively, for the same period in 2022. The decrease in non-GAAP net income for the three months ended September 30, 2023 was primarily due to an increase of $19.0 million in other expense, which was driven by an increase in interest expense related to higher interest rates and additional term loan debt as well as increased venue financing interest, combined with a decrease in net foreign currency hedge gains. This was partially offset by an $8.5 million decrease in our income tax provision and a $4.1 million (5.1%) increase in operating income.
The following table presents a reconciliation of our results for the nine months ended September 30, 2023 and 2022 to our non-GAAP results for the same periods (in millions, except per share information):
| Nine Months Ended September 30, 2023 Net Income | Diluted earnings per share(4) | Nine Months Ended September 30, 2022 Net Income | Diluted earnings per share(4) | |
|---|---|---|---|---|
| GAAP | $172.1 | $0.88 | $230.6 | $1.17 |
| Less: Non-Cash Acquisition Amortization and Depreciation(1) | (15.7) | (0.08) | (16.0) | (0.08) |
| Less: Non-Recurring Items(2) | (20.8) | (0.10) | (10.4) | (0.05) |
| Less: Tax Valuation Allowance(3) | 59.4 | 0.29 | 48.0 | 0.24 |
| Non-GAAP | $149.2 | $0.77 | $209.0 | $1.06 |
| Diluted Weighted-Average Shares Outstanding | 201.3 | 201.0 | ||
| (1) Includes the amortization and depreciation of acquired intangible assets and purchase accounting adjustments related to acquisitions. | ||||
| (2) 2023 amounts primarily included $5.8 million in non-recurring restructuring and reorganization charges in our Active Lifestyle segment, $3.7 million in non-recurring IT integration and implementation costs stemming from acquisitions, $1.5 million in non-recurring costs related to a cybersecurity incident, and $13.6 million in total charges related to our 2023 debt modification. 2022 amounts primarily include $3.5 million in charges related to postponed debt refinancing, $3.6 million in non-recurring IT integration and implementation related costs stemming from acquisitions, and charges related to the suspension of our Jack Wolfskin retail operations in Russia. | ||||
| (3) Related to the release of tax valuation allowances that were recorded in connection with the merger with Topgolf. | ||||
| (4) In accordance with ASU 2020-06, periodic interest expense related to the 2020 Convertible Notes is excluded from net income for the purpose of calculating diluted earnings per share. |
Net income for the nine months ended September 30, 2023 decreased to $172.1 million compared to $230.6 million for the nine months ended September 30, 2022. Diluted earnings per share decreased by $0.29 to $0.88 per share for the nine months ended September 30, 2023 compared to $1.17 for the same period in 2022. Fully diluted shares of common stock for the nine months ended September 30, 2023 were 201.3 million shares compared to 201.0 million shares for the same period in 2022.
On a non-GAAP basis, excluding the items described in the table above, our net income and diluted earnings per share for the nine months ended September 30, 2023 would have been $149.2 million and $0.77 per share, respectively, compared to $209.0 million and $1.06 per share, respectively, for the same period in 2022. The decrease in non-GAAP net income for the nine months ended September 30, 2023 was due to a $15.5 million (4.8%) decrease in operating income primarily due to the impact of unfavorable changes in foreign currency rates, combined with an increase of $70.1 million in other expense, which was primarily driven by higher outstanding debt balances and interest rates, as well as increased interest related to new Topgolf venues, in addition to a decline in net foreign currency hedge gains.
Operating Segment Results for the Three and Nine Months Ended September 30, 2023 and 2022 (in millions, except percentages)
| Net revenues: | Three Months Ended September 30, 2023 | 2022 | Growth/(Decline) Percent | Non-GAAP Constant Currency Growth vs. 2022(1) Percent | Nine Months Ended September 30, 2023 | 2022 | Growth/(Decline) Percent | Non-GAAP Constant Currency Growth vs. 2022(1) Percent |
|---|---|---|---|---|---|---|---|---|
| Venues | $430.5 | $399.5 | 7.8% | 7.5% | $1,270.4 | $1,089.4 | 16.6% | 16.6% |
| Other business lines | 17.2 | 14.3 | 20.3% | 19.6% | 51.6 | 50.1 | 3.0% | 4.6% |
| Topgolf | 447.7 | 413.8 | 8.2% | 7.9% | 1,322.0 | 1,139.5 | 16.0% | 16.1% |
| Golf clubs | 222.2 | 221.4 | 0.4% | 0.1% | 913.3 | 959.6 | (4.8)% | (2.9)% |
| Golf balls | 71.2 | 75.3 | (5.4)% | (6.2)% | 274.8 | 257.0 | 6.9% | 8.0% |
| Golf Equipment | 293.4 | 296.7 | (1.1)% | (1.5)% | 1,188.1 | 1,216.6 | (2.3)% | (0.6)% |
| Apparel | 211.7 | 181.4 | 16.7% | 15.5% | 531.3 | 456.7 | 16.3% | 17.6% |
| Gear, accessories, & other | 87.8 | 96.6 | (9.1)% | (11.2)% | 346.3 | 331.6 | 4.4% | 5.2% |
| Active Lifestyle | 299.5 | 278.0 | 7.7% | 6.2% | 877.6 | 788.3 | 11.3% | 12.4% |
| Total net revenues | $1,040.6 | $988.5 | 5.3% | 4.6% | $3,387.7 | $3,144.4 | 7.7% | 8.7% |
| Segment operating income: | ||||||||
| Topgolf | $38.9 | $23.6 | 64.8% | $85.7 | $74.3 | 15.3% | ||
| Golf Equipment | 35.2 | 49.6 | (29.0)% | 213.2 | 250.7 | (15.0)% | ||
| Active Lifestyle | 40.0 | 28.1 | 42.3% | 96.8 | 77.3 | 25.2% | ||
| Total segment operating income | 114.1 | 101.3 | 12.6% | 395.7 | 402.3 | (1.6)% | ||
| Reconciling Items(2) | (40.3) | (33.1) | 21.8% | (125.4) | (110.8) | 13.2% | ||
| Total operating income | 73.8 | 68.2 | 8.2% | 270.3 | 291.5 | (7.3)% | ||
| Interest expense, net | (52.3) | (36.4) | 43.7% | (153.6) | (100.3) | 53.1% | ||
| Other income, net | 5.2 | 7.0 | (25.7)% | 2.4 | 26.9 | (91.1)% | ||
| Total income before income taxes | $26.7 | $38.8 | (31.2)% | $119.1 | $218.1 | (45.4)% | ||
| (1) Calculated by applying 2022 exchange rates to 2023 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. |
Topgolf
During the three and nine months ended September 30, 2023, Topgolf net revenues increased $33.9 million (8.2%) and $182.5 million (16.0%), respectively, and operating income increased $15.3 million (64.8%) and $11.4 million (15.3%), respectively, both compared to the same periods in 2022. The increase in net revenues was primarily due to the opening of nine new company-owned and operated venues since September 2022, partially offset by a decline in same venue sales resulting from a decline in consumer demand and extreme heat in certain markets, and a decline in corporate events in the third quarter of 2023. The increase in operating income was due to the increase in net revenue as discussed above combined with improved operational efficiencies at the venues. These increases were partially offset by planned increases in marketing expenses associated with national marketing campaigns.
Golf Equipment
During the three and nine months ended September 30, 2023, Golf Equipment net revenues decreased $3.3 million (1.1%) and $28.5 million (2.3%), respectively, and segment operating income decreased $14.4 million (29.0%) and $37.5 million (15.0%), respectively, compared to the same periods in 2022.
The decrease in net revenues in the third quarter of 2023 was due to a planned shift in golf club launches from the third quarter of 2023 to the fourth quarter of 2023, combined with softer demand in the Asia market, and lower golf ball sales due to an inventory catch-up in the retail channel in the third quarter of 2022 to meet increased demand. These decreases were partially offset by the favorable impact of changes in foreign currency exchange rates combined with an increase in average selling prices. The decrease in operating income in the third quarter of 2023 was due to a decrease in gross margin as the result of less launch product as discussed above, a return to more normalized promotional levels and unfavorable cost absorption due to lower production volumes. These decreases were partially offset by an increase in average selling prices and the favorable impact of changes in foreign currency exchange rates.
The decrease in net revenues in the first nine months of 2023 was primarily due to higher sales during the first half of 2022 as a result of retail fill-in to restock low inventory levels caused by supply chain constraints in order to meet increased demand, combined with the unfavorable impact of foreign currency exchange. The decrease in operating income in the first nine months of 2023 was due to a decrease in net revenues as discussed above combined with a decline in operating expense leverage, partially offset by lower freight costs and an increase in average selling prices.
Active Lifestyle
During the three and nine months ended September 30, 2023, Active Lifestyle net revenues increased $21.5 million (7.7%) and $89.3 million (11.3%), respectively, and operating income increased $11.9 million (42.3%) and $19.5 million (25.2%), respectively, all compared to the same periods in 2022.
The increase in net revenues in the third quarter of 2023 was primarily driven by growth in the TravisMathew business and the Jack Wolfskin business, as well as the favorable impact of changes in foreign currency rates, primarily in Europe. The growth at TravisMathew was due to increases in wholesale distribution, retail and e-commerce channels as a result of improved inventory levels, in addition to market expansion and the addition of retail stores. The growth at Jack Wolfskin was primarily due to retail and e-commerce growth. These increases were partially offset by revenue declines in Callaway branded soft goods, primarily due to softer demand in the Asia apparel market. The increase in operating income in the third quarter of 2023 was largely due to the increase in net revenue as discussed above, in addition to an increase in gross margin as a result of a higher mix of direct-to-consumer sales combined with lower freight costs, partially offset by increased operating expenses to support business growth at TravisMathew and Jack Wolfskin.
The increase in net revenue during the nine months ended September 30, 2023 was primarily driven by continued brand momentum and growth across all sales channels at TravisMathew combined with the opening of additional retail stores and brand expansion, in addition to organic growth in the retail and e-commerce channels at Jack Wolfskin, resulting from improved supply chain and the timing of inventory deliveries in the first half of 2023 compared to the prior year. These increases were partially offset by the unfavorable impact of changes in foreign currency rates and a decrease in Callaway branded soft goods primarily due to lower retail foot traffic in the Asia apparel market. The increase in operating income was due to an increase in net revenue as discussed above, combined with an increase in gross margin resulting from a higher mix of direct-to-consumer sales combined with lower freight costs. These increases were partially offset by a planned increase in operating expenses to support business growth at TravisMathew and Jack Wolfskin, combined with the unfavorable impact of changes in foreign currency exchange rates.
Financial Condition
Our cash and cash equivalents, including restricted cash, increased $131.9 million to $335.3 million at September 30, 2023 from $203.4 million at December 31, 2022. The increase in cash and cash equivalents during the nine months ended September 30, 2023 was primarily related to cash provided by financing activities of $331.4 million and cash provided by operating activities of $227.7 million, partially offset by cash used in investing activities of $419.9 million. During the nine months ended September 30, 2023, we used our cash and cash equivalents in addition to proceeds received from refinancing our credit facilities in the first quarter of 2023 and from lease financings, to repay debt, fund our operations and invest in the expansion of the Topgolf business and other capital expenditures. 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 5 “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 sponsorship receivables. As of September 30, 2023, our consolidated net accounts receivable increased to $304.6 million from $167.3 million at December 31, 2022. The increase reflects the seasonal increase in golf equipment sales. Net accounts receivable as of September 30, 2023 increased $29.6 million compared to September 30, 2022, primarily due to increased net sales.
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 services business with lower inventory balances than our other business segments, with the inventory balances primarily consisting of food and beverage as well as retail merchandise and Toptracer inventory. Our inventory decreased $222.7 million to $736.5 million as of September 30, 2023, compared to December 31, 2022, due to improved sell through as a result of normalized supply chain conditions. Our inventory increased $14.2 million as of September 30, 2023, compared to September 30, 2022, primarily due to significantly improved supply chain lead times in our Active Lifestyle operating segment, resulting in the earlier receipt of inventory orders as compared to 2022, in addition to increased capacity in order to meet increased market share and demand for certain products.
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, 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, 2022).
On March 16, 2023, we completed a comprehensive plan to refinance and modify our capital structure in order to extend our debt maturities, reduce our borrowing costs and improve our liquidity, as well as simplify and unify our financial reporting. As a result, we entered into a new $1,250.0 million secured Term Loan B which matures on March 16, 2030. We used a portion of the proceeds to pay off our then existing Term Loan B facility of $432.0 million and Topgolf credit facilities of $504.1 million. In addition to the modification of our Term Loan B, we also extended and increased the existing $400.0 million ABL facility with a new $525.0 million senior secured ABL revolving credit facility which matures on March 16, 2028. As of September 30, 2023, we had $734.1 million in cash and availability under our credit facilities, which is an increase of $74.7 million compared to September 30, 2022. Information about our credit facilities and long-term debt is presented in Note 5 “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 September 30, 2023, approximately 50% 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.
Significant Cash Obligations
The table below summarizes certain significant cash obligations as of September 30, 2023 that will affect our future liquidity. We plan to utilize our liquidity (as described above) and our cash flows from business operations to fund our material cash requirements.
(in millions)
| Payments Due By Period Total | Remainder of 2023 | 2024 - 2025 | 2026 - 2027 | Thereafter | |
|---|---|---|---|---|---|
| Long-term debt(1) | $1,572.0 | $5.3 | $39.4 | $291.8 | $1,235.5 |
| Interest payments relating to long-term debt(2) | 626.4 | 31.1 | 228.5 | 182.5 | 184.3 |
| Finance leases, including imputed interest(3) | 699.7 | 2.1 | 28.9 | 30.0 | 638.7 |
| Operating leases, including imputed interest(4) | 2,488.4 | 30.9 | 319.8 | 304.6 | 1,833.1 |
| DLF obligations(5) | 3,360.5 | 10.6 | 127.9 | 131.8 | 3,090.2 |
| Minimum lease payments for leases signed but not yet commenced(6) | 1,012.9 | 1.2 | 42.0 | 42.0 | 927.7 |
| Capital commitments(7) | 22.0 | 21.0 | 1.0 | — | — |
| Unconditional purchase obligations(8) | 185.0 | 33.8 | 82.1 | 39.5 | 29.6 |
| Uncertain tax contingencies(9) | 13.0 | 2.5 | 6.4 | 2.9 | 1.2 |
| Total | $9,979.9 | $138.5 | $876.0 | $1,025.1 | $7,940.3 |
| (1) Excludes unamortized debt discounts, unamortized debt issuance costs, and fair value adjustments. For further details, see Note 5 “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 5 “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 3 “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 3 “Leases” in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. | |||||
| (5) Represents DLF obligations in connection with the construction of Topgolf venues. For further details, see Note 3 “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 September 30, 2023, in relation to future Topgolf facilities. For further discussion, see Note 3 “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 September 30, 2023. | |||||
| (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 September 30, 2023. 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 11 “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 September 30, 2023. Amounts exclude uncertain income tax positions that we would be able to offset against deferred taxes. For further discussion, see Note 10 “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.
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 three and nine months ended September 30, 2023 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 11 “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, 2023, are expected to be approximately $240.0 million, comprised of $65.0 million for our legacy business and $175.0 million for the Topgolf business.
Critical Accounting Estimates
For the period ended September 30, 2023, 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, 2022, filed with the SEC on March 1, 2023.
Market risk
As filed, 4,178 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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 5 “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 14 “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 September 30, 2023 through our foreign currency forward contracts.
At September 30, 2023, the estimated loss from our foreign currency forward contracts, calculated using the sensitivity analysis model described above, was $32.4 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.
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 5 “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 hedges and swaps as part of our interest rate risk management strategy. Information about our interest rate hedges and swaps is provided in Note 14 “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 $4.4 million over the 12-month period ending on September 30, 2023.
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 pressure 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.
Controls and procedures
As filed, 1,497 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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 September 30, 2023, 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 September 30, 2023.
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.
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.
Risk factors
As filed, 561 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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, 2022, 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, 2022 with respect to the Risk Factors.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2023-09-30. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2023-07-01 to 2023-09-30 | $1.04bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months2023-01-01 to 2023-09-30 | $3.39bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Research and development | 3 months2023-07-01 to 2023-09-30 | $22.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months2023-01-01 to 2023-09-30 | $67.4m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months2023-07-01 to 2023-09-30 | $242.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months2023-01-01 to 2023-09-30 | $790.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months2023-07-01 to 2023-09-30 | $73.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months2023-01-01 to 2023-09-30 | $270.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months2023-07-01 to 2023-09-30 | $52.3m | us-gaap:InterestExpense |
| Interest expense | 9 months2023-01-01 to 2023-09-30 | $153.6m | us-gaap:InterestExpense |
| Income tax | 3 months2023-07-01 to 2023-09-30 | −$3.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months2023-01-01 to 2023-09-30 | −$53.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2023-07-01 to 2023-09-30 | $29.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months2023-01-01 to 2023-09-30 | $172.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2023-07-01 to 2023-09-30 | $0.16 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months2023-01-01 to 2023-09-30 | $0.88 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2023-07-01 to 2023-09-30 | $0.16 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months2023-01-01 to 2023-09-30 | $0.93 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2023-07-01 to 2023-09-30 | 201,200,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months2023-01-01 to 2023-09-30 | 201,300,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months2023-01-01 to 2023-09-30 | $227.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2023-01-01 to 2023-09-30 | $388.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months2023-01-01 to 2023-09-30 | $44.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | At period end2023-09-30 | $330.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2023-09-30 | $1.60bn | us-gaap:AssetsCurrent |
| Total assets | At period end2023-09-30 | $8.98bn | us-gaap:Assets |
| Current liabilities | At period end2023-09-30 | $909.2m | us-gaap:LiabilitiesCurrent |
| Long-term debt | At period end2023-09-30 | $1.52bn | us-gaap:LongTermDebtNoncurrent |
| Short-term borrowings | At period end2023-09-30 | $78.1m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | At period end2023-09-30 | $3.95bn | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0000837465-23-000036. Last ingested by Listed: Nov 5, 2026, 20:47 ET. Listed shows no prices and gives no investment advice.