The following discussion should be read in conjunction with the Consolidated
Condensed Financial Statements and the related notes that appear elsewhere in
this report, and the consolidated financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2021, which was filed with the SEC on March 1, 2022. Interim operating
results are not necessarily indicative of operating results that may be expected
for the year ending December 31, 2022, 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 its wholly-owned subsidiaries.
Corporate Name Change
On September 6, 2022, the Company changed its corporate name from Callaway Golf
Company to Topgolf Callaway Brands Corp. and on September 7, 2022, changed its
New York Stock Exchange ticker symbol from “ELY” to “MODG.” The changes to the
corporate name and ticker symbol did not have any impact on the Company’s legal
entity structure or financial statements.
Discussion of Non-GAAP Measures
In addition to the financial results contained in this report, which have been
prepared and presented in accordance with accounting principles generally
accepted in the United States of America (“GAAP”), the Company has also included
supplemental information concerning the Company’s 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(loss) and diluted earnings (loss) per share excluding certain
non-cash and non-recurring charges, as further detailed below.
The Company has included in this report information to reconcile this non-GAAP
information to the most directly comparable GAAP information. The non-GAAP
information presented 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. Management uses such non-GAAP information for financial and
operational decision-making purposes and as a means to evaluate period over
period comparisons of the underlying performance of its business and in
forecasting the Company’s business going forward. Management believes that the
presentation of such non-GAAP information, when considered in conjunction with
the most directly comparable GAAP information, provides additional useful
comparative information for investors in their assessment of the underlying
performance of the Company’s business.
Operating Segments and Seasonality
The Company is a technology-enabled modern golf company delivering leading golf
equipment, apparel and entertainment, with a portfolio of global brands
including Callaway Golf, Topgolf, Odyssey, OGIO, TravisMathew and Jack Wolfskin.
The Company has three operating segments, namely Topgolf, Golf Equipment, and
Active Lifestyle.
Topgolf
The Company’s 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 and going forward, Topgolf operates on a fiscal year calendar which will
end on December 31. Topgolf financial information included in the Company’s
consolidated condensed financial statements for the three and nine months ended
September 30, 2022 is for the period beginning July 1, 2022 and ending September
30, 2022 and the period beginning January 3, 2022 and ending September 30, 2022,
respectively. Topgolf financial information included in the Company’s
consolidated condensed financial statements for the three and nine months ended
September 30, 2021 is for the period beginning July 5, 2021 and ending
October 3, 2021 and the period beginning March 8, 2021 (the date on which the
Company completed its merger with Topgolf) and ending October 3, 2021,
respectively.
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The Topgolf operating segment is comprised of Company-operated Topgolf domestic
and international venues, which are equipped with technology-enabled hitting
bays, multiple bars, dining areas and event spaces, and also offers 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 food and beverage, gameplay, and events. As of September
30, 2022, Topgolf had 72 Company-operated venues and one Company-operated lounge
in the United States, with an additional 12 venues under construction in the
United States, and three Company-operated venues in the United Kingdom, with an
additional one venue under construction in the United Kingdom. Topgolf receives
a royalty from its franchised locations. As of September 30, 2022, Topgolf had
five franchised venues (in Australia, Mexico, the United Arab Emirates,
Thailand, and Germany) and one licensed lounge (in China), with an additional
one franchised venue under construction (in China).
Topgolf’s other business lines include Toptracer ball-flight tracking technology
as well as the World Golf Tour (“WGT”) digital golf game. Toptracer ball-flight
tracking technology is used by independent driving ranges, franchised venues
outside of the United States, as well as in Company-operated Topgolf venues to
enhance the Topgolf gaming experience. As of September 30, 2022, Topgolf had
over 19,500 Toptracer bays installed. The WGT digital golf game is an online
multiplayer virtual golf game that enables players to gather online as a
community and participate in simulated photorealistic gameplay on world-famous
golf courses.
Operating results fluctuate from quarter to quarter due to seasonal factors.
Historically, venues experience higher second and third quarter revenues
associated with the spring and summer. Topgolf’s first and fourth quarters have
historically had lower revenues at its venues as compared to the other quarters
due to cooler temperatures. Seasonality is expected to be a factor in Topgolf’s
results of operations. As a result, factors affecting peak seasons at venues,
such as adverse weather, could have a disproportionate effect on its operating
results.
Revenue growth and profitability related to Topgolf venues are impacted by same
venue sales. Same venue sales is defined as sales for the comparable venue base.
New venues are included in the comparable venue base following 24 full fiscal
months of operations. Same venue sales is a key performance indicator used
within the Topgolf industry and is indicative of acceptance of Topgolf
initiatives as well as local economic and consumer trends.
For further information about the merger with Topgolf see Note 5 “Business
Combinations” in the Notes to Consolidated Condensed Financial Statements in
Part I, Item 1 of this Form 10-Q.
Golf Equipment
The Golf Equipment operating segment is comprised of Callaway Golf-branded golf
clubs and balls, including Callaway Golf-branded woods, hybrids, irons, wedges,
Odyssey putters, including Toulon Design putters by Odyssey, packaged sets,
Callaway Golf and Strata-branded golf balls and sales of pre-owned golf clubs.
The Company’s golf equipment products are designed to be technologically
advanced for golfers of all skill levels, both amateur and professional.
In most of the regions where the Company conducts business, the game of golf is
played primarily on a seasonal basis. Weather conditions generally restrict golf
from being played year-round, except in a few markets, with many of the
Company’s on-course customers closing for the cold weather months. In general,
during the first quarter, the Company launches new product for the new golf
season. This initial sell-in generally continues into the second quarter.
Third-quarter sales are generally dependent on reorder business but can 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 the
Company’s key regions. This seasonality, and therefore quarter-to-quarter
fluctuations, can be affected by many factors, including the timing of new
product introductions as well as weather conditions. In general, because of this
seasonality, a majority of the Company’s sales from its Golf Equipment operating
segment and most, if not all, of its profitability from this segment generally
occurs during the first half of the year.
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Active Lifestyle
During the second quarter of 2022, the Company changed the name of its Apparel,
Gear, and Other operating segment to Active Lifestyle. The segment name change
had no impact on the composition of the Company’s segments or on previously
reported financial position, results of operations, cash flow or segment
operating results. The Company’s Active Lifestyle operating segment is comprised
of Callaway Golf, OGIO, TravisMathew and Jack Wolfskin soft goods products,
which are largely designed and developed internally. The Callaway Golf soft
goods brand offers a full line of premium golf apparel, footwear, gear and
accessories. The OGIO brand offers a full line of premium personal storage gear
for sport and personal use and accessories. TravisMathew offers a full line of
premium golf and lifestyle apparel as well as footwear and accessories. Under
the Jack Wolfskin brand, the Company offers a full line of premium outdoor
apparel, gear and accessories. On certain soft goods products, the Company
receives royalties from the licensing of its trademarks and service marks.
Sales of the Callaway-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. TravisMathew-branded products are generally
lifestyle focused and not dependent on golf, and therefore sales are more evenly
spread throughout the year. Sales of Jack Wolfskin-branded products focuses
primarily on outerwear and consequently experiences stronger sales for such
products during the cold-weather months and the corresponding prior sell-in
periods. Therefore, sales of Jack Wolfskin products are generally greater during
the second half of the year.
For further information about the Company’s segments, see Note 17 “Segment
Information” in the Notes to Consolidated Condensed Financial Statements in Part
I, Item 1 of this Form 10-Q.
Current Economic Conditions
A significant portion of the Company’s business is conducted outside of the
United States in currencies other than the U.S. dollar. As a result, changes in
foreign currency rates can have a significant effect on the Company’s financial
results. The Company enters into foreign currency forward contracts to mitigate
the effects of changes in foreign currency rates. 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 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 the Company’s foreign currency
forward contracts. In general, the Company’s overall financial results are
affected positively by a weaker U.S. dollar and are affected negatively by a
stronger U.S. dollar as compared to the foreign currencies in which the Company
conducts its business. Fluctuations in foreign currencies had an unfavorable
impact on international net revenues of $50.4 million and $110.3 million for the
three and nine months ended September 30, 2022, respectively, relative to the
same periods in the prior year. The Company anticipates that changes in foreign
currencies will continue to have a significant unfavorable impact on net
revenues and operating results for the duration of 2022 and 2023.
The recent increase in inflation partially contributed to the increase in the
cost of the Company’s products as well as operating costs. While the Company was
generally able to offset these inflationary pressures by increasing the price of
its products, the length and severity of these conditions are unpredictable, and
should conditions persist and/or worsen, such inflationary pressures may have an
adverse effect on the Company’s operating expenses. Further, the Company may not
be able to offset these increased costs through price increases. As a result,
the Company’s cash flows and results of operations could be adversely affected.
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During most of 2022, the Company experienced longer lead times on inventory
shipments due to significant port delays and container shortages in the U.S. and
internationally. As a result, the Company planned inventory purchases around
these increased in-transit times in order to meet the heightened demand for its
golf equipment and apparel products, and to also manage capacity at its
suppliers by pulling-in inventory orders in preparation for the upcoming product
launches. However, in-transit times improved during the third quarter and much
of these inventory orders were received earlier than anticipated, creating an
increase in inventory levels in the third quarter of 2022 compared to inventory
levels in the same period in 2021, which were unusually low due to inventory
shortages caused by supply chain constraints. A majority of inventory shipments
received in the third quarter of 2022 is for 2023 product, therefore the Company
anticipates continued higher inventory levels going into 2023. The Company
believes the quality of its inventory is good and that it will be well
positioned going into the golf season in 2023.
Results of Operations
Three-Month Periods Ended September 30, 2022 and 2021
Net Revenues
Despite significant foreign currency headwinds in the third quarter of 2022, net
revenues increased $132.0 million (or 15.4%) to $988.5 million compared to
$856.5 million in the third quarter of 2021, driven by increases across the
Company’s three operating segments. Fluctuations in foreign currencies had an
unfavorable impact on net revenues of $50.4 million in the third quarter of 2022
compared to the same period in 2021. Net revenues by operating segment and major
geographic region are presented below (dollars in millions):
Non-GAAP
Constant
Three Months Ended September Currency Growth
30, Growth vs. 2021
2022 2021 Dollars Percent Percent
Net revenues:
Topgolf $ 413.8 $ 333.8 $ 80.0 24.0 % 24.8 %
Golf Equipment 296.7 289.6 7.1 2.5 % 9.3 %
Active Lifestyle 278.0 233.1 44.9 19.3 % 31.2 %
$ 988.5 $ 856.5 $ 132.0 15.4 % 21.3 %
For further discussion of each operating segment’s results, see “Operating
Segment Results for the Three Months Ended September 30, 2022 and 2021” below.
Non-GAAP
Constant
Currency
Three Months Ended September Growth vs.
30, Growth 2021
2022 2021 Dollars Percent Percent
Net revenues(1):
United States $ 684.8 $ 552.9 $ 131.9 23.9 % 23.9%
Europe 141.9 157.2 (15.3) (9.7 %) 5.9%
Asia 138.7 125.2 13.5 10.8 % 30.7%
Rest of world 23.1 21.2 1.9 9.0 % 13.7%
$ 988.5 $ 856.5 $ 132.0 15.4 % 21.3%
(1) As of January 1, 2022, the Company modified the composition of its regions and combined Japan, Korea, China, South-East Asia and India
into a single Asia region. These regions, except for Japan, were previously reported within rest of world. As a result of this change, net
revenues by region for the period presented in the prior year were recast to conform to the current year presentation.
The increases in net revenues by major geographic region are as follows:
•The 23.9% increase in net revenues in the United States was primarily driven by
growth in the Topgolf business
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combined with strong demand for TravisMathew apparel and golf equipment
products.
•The 9.7% decrease in Europe was driven by the significant unfavorable impact
from changes in foreign currency exchange rates, primarily on revenues
denominated in Euros and British Pounds. On a constant currency basis, net
revenues increased 5.9% due to strong sales of Jack Wolfskin apparel.
•The 10.8% increase in Asia (30.7% constant currency) was primarily driven by
strong demand for golf equipment products combined with the addition of the
Callaway-branded apparel business in Korea effective July 1, 2021. This increase
was partially offset by the significant unfavorable impact from changes in
foreign currency exchange rates, primarily on revenues denominated in Japanese
Yen and Korean Won.
•The 9.0% increase in rest of world (13.7% constant currency) was driven by
strong demand for golf equipment and apparel products in Canada and Latin
America.
Costs and Expenses
Cost of products increased $42.3 million (or 14.7%) to $330.7 million in the
third quarter of 2022 compared to the same period in 2021. Cost of products is
highly variable in nature and this increase is due to the increase in product
sales in the third quarter of 2022, combined with an increase in freight and
overall commodity costs due to inflationary pressures. These increases were
partially offset by the favorable impact of foreign currency exchange rates.
Cost of services increased $8.2 million (or 20.5%) to $48.2 million in the third
quarter of 2022 compared to the same period in 2021 primarily due to the opening
of six new owned and operated Topgolf venues since September 30, 2021. Cost of
services includes the cost of food and beverage sold in the Company’s Topgolf
venues as well as certain costs associated with licensing the Company’s
Toptracer ball-flight tracking technology.
Other venue expenses, comprised of depreciation and amortization, employee
costs, rent, utilities, and other costs associated with Topgolf venues,
increased $71.7 million (or 33.2%) to $287.6 million in the third quarter of
2022 compared to $215.9 million in the same period in 2021 primarily due to the
opening of 6 new owned and operated Topgolf venues since September 30, 2021,
combined with rising occupancy and utility costs due to inflationary pressures.
Selling, general and administrative expenses increased $7.0 million (or 3.2%) to
$224.7 million (22.7% of net revenues) in the third quarter of 2022 compared to
the third quarter of 2021. This increase is primarily due to higher spending in
order to support a larger business, including employee costs and IT
infrastructure improvements, combined with increases caused by inflation. These
increases were partially offset by the favorable impact of foreign currency
exchange rates.
Research and development expenses increased $3.4 million (or 21.5%) to
$19.2 million (1.9% of net revenues) in the third quarter of 2022 compared to
the third quarter of 2021 primarily due to increases in employee headcount.
Venue pre-opening costs increased $7.2 million (or 266.7%)to $9.9 million (1.0%
of net revenues) in the third quarter of 2022 compared to the third quarter of
2021 primarily due to an increase in the number of venues under construction
from eight as of September 30, 2021 to twelve as of September 30, 2022.
Other Income and Expense
Net interest expense increased $7.7 million to $36.4 million in the third
quarter of 2022 compared to the third quarter of 2021 primarily due to
additional deemed landlord financing (“DLF”) obligations related to new Topgolf
venues that have opened since September 30, 2021, and higher variable rates on
the Company’s term loans and asset-based credit facility. This increase is
partially offset by a decrease in discount amortization expense associated with
the Convertible Notes as the result of the adoption of ASU 2020-06 as of January
1, 2022, which resulted in the de-recognition of the original issue discount.
See Note 6 “Financing Arrangements” in the Notes to Consolidated Condensed
Financial Statements included in Part I, Item 1, of this Form 10-Q.
Other income increased $4.1 million to $7.0 million in the third quarter of 2022
compared to the third quarter of 2021 primarily due to an increase in net
foreign currency gains.
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Income Taxes
The Company’s provision for income taxes decreased $65.9 million to $0.3 million
in the third quarter of 2022, compared to the third quarter of 2021. As a
percentage of pre-tax income, the Company’s effective tax rate was 0.8% in the
third quarter of 2022 compared to 131.8% in the third quarter of 2021. The
Company’s effective tax rate for the third quarter of 2022 was impacted by the
release of valuation allowances on the Company’s deferred tax assets. The
Company’s effective tax rate for the third quarter of 2021 was primarily
impacted by utilizing the annual effective tax rate method in the third quarter
instead of the discrete effective tax rate method, which was used in the second
quarter of 2021. Excluding these items, the Company’s effective tax rate would
have been 12.5% in the third quarter of 2022 compared to 36.8% in the third
quarter of 2021. For further discussion see Note 11 “Income Taxes” in the Notes
to Consolidated Condensed Financial Statements in Part I, Item 1 of this Form
10-Q.
Net Income (Loss)
Net income for the third quarter of 2022 increased $54.5 million to
$38.5 million compared to a net loss of $16.0 million in the third quarter of
2021. Diluted earnings per share increased $0.29 to $0.20 in the third quarter
of 2022 compared to a diluted loss per share of $0.09 in the third quarter of
2021.
On a non-GAAP basis, excluding the items described in the table below, the
Company’s net income and diluted earnings per share for the third quarter of
2022 would have been $44.6 million and $0.23 per share, respectively, compared
to $26.3 million and $0.14 per share, respectively, for the comparative period
in 2021. Fully diluted shares were 201.8 million shares of common stock in the
third quarter of 2022, an increase of 15.8 million shares compared to 186.0
million shares in the third quarter of 2021. The increased share count includes
the impact of calculating the Convertible Notes under the if-converted method
due to the adoption of ASU 2020-06 as of January 1, 2022. The increase in
non-GAAP earnings in 2022 resulted primarily from strong sales across all
operating segments combined with the release of income tax valuation allowances.
These increases were partially offset by significant foreign currency headwinds
combined with inflationary pressures and an increase in interest expense.
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The following tables present a reconciliation of the Company’s as-reported
results for the three months ended September 30, 2022 and 2021 to the Company’s
non-GAAP results reported above for the same periods (in millions, except per
share information):
Three
Months Ended September 30, 2022
Non-Cash
Amortization and Non-Recurring Items Tax Valuation
GAAP Depreciation (1) (2) Allowance (3) Non-GAAP
Net income (loss) $ 38.5 $ (5.9) $ (4.8) $ 4.6 $
44.6
Diluted earnings (loss) per share $ 0.20 $ (0.03) $ (0.02) $ 0.02 $ 0.23
Weighted-average shares
outstanding(4) 201.8 201.8 201.8 201.8 201.8
Three Months Ended September 30, 2021
Non-Cash
Amortization of
Non-Cash Discount on Acquisition and
Amortization and Convertible Non-Recurring Items Tax Valuation
GAAP Depreciation (1) Notes (5) (6) Allowance (3) Non-GAAP (7)
Net (loss) income $ (16.0) $ (5.8) $ (2.0) $ (1.7)
(32.8) $ 26.3
Diluted (loss) earnings per share $ (0.09) $ (0.03) $ (0.01) $
(0.01) $ (0.18) $ 0.14
Weighted-average shares outstanding 186.0 186.0 186.0 186.0 186.0 193.9
(1) Includes the amortization and depreciation of acquired intangible assets and purchase accounting adjustments.
(2) Primarily includes a pre-tax impairment loss of $4.8 million related to an underperforming premerger Topgolf concept location, in addition to $1.4 million of
implementation costs associated with new ERP systems stemming from acquisitions.
(3) In 2021, the Company recognized a valuation allowance against certain deferred tax assets in connection with the merger with Topgolf. Based on the Company’s ongoing
assessment, a portion of the valuation allowance was released in 2022, and additional valuation allowances were recorded in 2021.
(4) Weighted average shares outstanding for the three months ended September 30, 2022 includes the impact of calculating the Convertible Notes under the if-converted method
due to the adoption of ASU 2020-06 as of January 1, 2022. For purposes of calculating diluted earnings per share, after-tax interest expense of $1.6 million is added back to
net income as the Convertible Notes are assumed converted as of January 1, 2022.
(5) Represents the pre-tax non-cash amortization of the discount associated with the Convertible Notes issued in May 2020. Starting January 1, 2022, as a result of the
adoption of ASU 2020-06, amortization expense is no longer recognized due to the de-recognition of the discount.
(6) Primarily includes $1.3 million of pre-tax transition costs associated with the merger with Topgolf, in addition to costs associated with IT initiatives primarily at
Topgolf and Jack Wolfskin.
(7) Non-GAAP diluted earnings per share for the three months ended September 30, 2021 was calculated using the diluted weighted average outstanding shares, as earnings on a
non-GAAP basis resulted in net income after giving effect to pro forma adjustments.
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Operating Segment Results for the Three Months Ended September 30, 2022 and 2021
The Company evaluates the performance of its operating segments based on segment
operating income. Management uses total segment operating income as a measure of
its operational performance, which excludes corporate overhead and certain
non-recurring and non-cash charges.
Profitability by operating segment is summarized as follows (dollars in
millions):
Non-GAAP
Constant
Three Months Ended Currency Growth
September 30, Growth vs. 2021(1)
2022 2021 Dollars Percent Percent
Net revenues:
Venues(2) $ 399.5 $ 317.6 $ 81.9 25.8 % 26.3 %
Other business lines(2) 14.3 16.2 (1.9) (11.7) % (4.9) %
Topgolf 413.8 333.8 80.0 24.0 % 24.8 %
Golf clubs 221.4 229.3 (7.9) (3.4) % 3.8 %
Golf balls 75.3 60.3 15.0 24.9 % 30.2 %
Golf Equipment 296.7 289.6 7.1 2.5 % 9.3 %
Apparel 181.4 150.2 31.2 20.8 % 33.0 %
Gear, accessories, & other 96.6 82.9 13.7 16.5 % 28.0 %
Active Lifestyle 278.0 233.1 44.9 19.3 % 31.2 %
Total net revenues $ 988.5 $ 856.5 $ 132.0 15.4 % 21.3 %
Segment operating income:
Topgolf $ 23.6 $ 23.9 $ (0.3) (1.3) %
Golf Equipment 49.6 45.8 3.8 8.3 %
Active Lifestyle 28.1 34.6 (6.5) (18.8) %
Total segment operating income 101.3 104.3 (3.0) (2.9) %
Reconciling Items(3) (33.1) (28.3) (4.8) 17.0 %
Total operating income 68.2 76.0 (7.8) (10.3) %
Interest expense, net (36.4) (28.7) (7.7) 26.8 %
Other income, net 7.0 2.9 4.1 141.4 %
Total income before income taxes $ 38.8 $ 50.2 $ (11.4) (22.7) %
(1) Calculated by applying 2021 exchange rates to 2022 reported sales in regions outside the United States.
(2) As of January 1, 2022, in order to align with the Company’s current management reporting structure, the Company began reporting
revenues associated with corporate advertising sponsorship contracts in the venues business line within the Topgolf operating
segment. These revenues were previously included in other business lines. In order to conform to the current year presentation,
revenue associated with corporate advertising sponsorship contracts of $4.0 million for the three months ended September 30, 2021 was
reclassified from other business lines to venues for comparative purposes.
(3) Reconciling items for the third quarter of 2022 and 2021 include corporate general and administrative expenses not utilized by
management in determining segment profitability, as well as non-cash amortization and depreciation expense, and acquisition and
non-recurring items discussed above in the reconciliation of the Company’s results to non-GAAP results.
Topgolf
In the third quarter of 2022, net revenues for Topgolf increased $80.0 million
(or 24.0%) compared to the third quarter of 2021. This increase resulted from
the opening of six new owned and operated Topgolf locations since the third
quarter of 2021, combined with an increase in same venue sales, which was driven
by increases in walk-in traffic and event bookings. The $0.3 million (or 1.3%)
decrease in segment operating income was primarily due to a planned increase in
pre-opening expenses, in addition to increases in marketing and labor costs due
to growth and inflationary pressures, partially offset by price increases.
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Golf Equipment
In the third quarter of 2022, net revenues for Golf Equipment and segment
operating income increased $7.1 million (or 2.5%) and $3.8 million (or 8.3%),
respectively, compared to the third quarter of 2021. The increase in revenues
was driven by revenue growth in golf ball sales due to continued brand momentum
and high demand combined with an increase in inventory supply. This was
partially offset by a small decline in golf club sales, primarily due to the
negative impact of foreign currency headwinds combined with the timing of
region-specific products, which were launched in the first quarter in 2022
compared to the third quarter in 2021. On a constant currency basis, sales of
golf clubs would have increased 3.8%. The increase in operating income was
driven by the increase in net revenues, partially offset by unfavorable foreign
currency and increased freight expense and other inflationary pressures, which
the Company was able to generally offset through price increases, sales volume
and efficiencies.
Active Lifestyle
In the third quarter of 2022, net revenues for Active Lifestyle increased $44.9
million (or 19.3%) compared to the third quarter of 2021, driven by continued
brand momentum of TravisMathew apparel products combined with growth from
additional retail locations and corporate sales, and Callaway apparel due to
growth from the new apparel business in Korea. Net revenues of Jack Wolfskin
apparel were flat compared to the third quarter of 2021 due to significant
foreign currency headwinds, which outpaced the growth in the brand in the third
quarter of 2022. On a constant currency basis, sales of Jack Wolfskin would have
increased 15.6%. The $6.5 million (or 18.8%) decline in segment operating income
was driven by significant foreign currency headwinds and increased freight
expense and other inflationary pressures, which were partially offset by price
increases.
Nine-Month Periods Ended September 30, 2022 and 2021
Net Revenues
The Company’s net revenues for the nine months ended September 30, 2022
increased $722.7 million (or 29.8%) to $3,144.4 million compared to $2,421.7
million in the comparable period of 2021. This increase reflects increases in
all three operating segments and all major geographic regions, in addition to
significant unfavorable foreign currency headwinds of $110.3 million. Net
revenues by operating segment and major geographic region are presented below
(dollars in millions):
Non-GAAP
Constant
Currency
Nine Months Ended Growth vs.
September 30, Growth 2021
2022 2021 Dollars Percent Percent
Net revenues:
Topgolf $ 1,139.5 $ 751.8 $ 387.7 51.6 % 52.4 %
Golf Equipment 1,216.6 1,067.8 148.8 13.9 % 18.7 %
Active Lifestyle 788.3 602.1 186.2 30.9 % 39.7 %
$ 3,144.4 $ 2,421.7 $ 722.7 29.8 % 34.4 %
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Non-GAAP
Constant
Currency
Nine Months Ended Growth vs.
September 30, Growth 2021
2022 2021 Dollars Percent Percent
Net revenues(1):
United States $ 2,194.7 $ 1,583.9 $ 610.8 38.6 % 38.6%
Europe 417.7 386.5 31.2 8.1 % 21.3%
Asia 432.6 364.5 68.1 18.7 % 33.9%
Rest of world 99.4 86.8 12.6 14.5 % 18.8%
$ 3,144.4 $ 2,421.7 $ 722.7 29.8 % 34.4%
(1) As of January 1, 2022, the Company modified the composition of its regions and combined Japan, Korea, China, South-East Asia and India
into a single Asia region. These regions, except for Japan, were previously reported within rest of world. As a result of this change, net
revenues by region for the period presented in the prior year were recast to conform to the current year presentation.
The increases in net revenues by major geographic region are as follows:
•The 38.6% increase in net revenues in the United States was primarily driven by
a full nine months of Topgolf sales compared to seven months in 2021 due to the
timing of the merger, combined with growth in the business resulting from the
opening of new venues, strong walk-in traffic and an increase in event bookings,
as well as strong demand for golf equipment products, TravisMathew apparel and
Callaway-branded soft goods.
•The 8.1% increase in Europe (21.3% constant currency) was primarily driven by a
full nine months of Topgolf sales compared to seven months in 2021 due to the
timing of the merger, strong Jack Wolfskin apparel sales, and increased demand
for Callaway, OGIO, and TravisMathew-branded products, partially offset by the
unfavorable impact of changes in foreign currency.
•The 18.7% increase in Asia (33.9% constant currency) was primarily driven by
strong brand momentum in golf equipment, in addition to incremental revenues
from the new apparel business in Korea. These increases were partially offset by
a decline in sales of Jack Wolfskin products in China resulting from widespread
COVID-19 related restrictions in 2022, combined with the unfavorable impact of
changes in foreign currency.
•The 14.5% increase in rest of world (18.8% constant currency) was driven by
strong demand for golf equipment and apparel in Canada, Australia, and Latin
America, partially offset by the unfavorable impact of changes in foreign
currency.
Costs and Expenses
Costs of products increased $228.5 million to $1,142.5 million for the nine
months ended September 30, 2022 compared to $914.0 million for the same period
in 2021. The Company’s cost of products are highly variable in nature and this
increase is due to the significant increase in sales volumes in the first nine
months of 2022, and an increase in freight and overall commodity costs due to
inflationary pressures, in addition to cost of products related to retail
merchandise sold at Topgolf venues, which reflect a full nine months of sales in
2022 compared to seven months in 2021 due to the timing of the merger. These
increases were partially offset by the favorable impact of changes in foreign
currency exchange rates.
Costs of services, which consist of the cost of food and beverage sold in the
Company’s Topgolf venues as well as certain costs associated with licensing the
Company’s Toptracer ball-flight tracking technology, increased $42.5 million (or
45.3%) to $136.3 million in the nine months ended September 30, 2022 compared to
$93.8 million in the same period in 2021. The increase is primarily due to the
addition of six Topgolf venues since September 30, 2021, in addition to
incremental two months of expenses from Topgolf due to the timing of the merger
in 2021.
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Other venue expenses, which consist of depreciation and amortization, employee
costs, rent, utilities, and other costs associated with Topgolf venues,
increased by $296.6 million (or 61.3%) to $780.2 million in the nine months
ended September 30, 2022 compared to $483.6 million in the same period in 2021
primarily due to the addition of six additional owned and operated Topgolf
venues since September 30, 2021, and planned increases in marketing and labor
costs, in addition to incremental expenses from Topgolf due to the timing of the
merger in 2021.
Selling, general and administrative expenses increased by $107.7 million to
$720.4 million (22.9% of net revenues) in the nine months ended September 30,
2022 compared to $612.7 million (25.3% of net revenues) in the comparable period
of 2021. This increase reflects a full nine months of expenses at Topgolf in
2022 compared to seven months in 2021 due to the timing of the merger. The
remaining increase was driven by higher spending to support a larger business,
including employee costs resulting primarily from increased headcount,
advertising, marketing and tour expenses, and professional fees, including fees
associated with the implementation of IT systems for Topgolf and Jack Wolfskin.
These increases were partially offset by the favorable impact of changes in
foreign currency exchange rates.
Research and development expenses increased $6.6 million to $55.4 million (1.8%
of net revenues) in the nine months ended September 30, 2022 compared to
$48.8 million (2.0% of net revenues) during the same period in 2021, primarily
due to an increase in employee costs resulting from increased headcount.
Venue pre-opening costs increased $8.7 million to $18.1 million (0.6% of net
revenues) in the nine months ended September 30, 2022 compared to $9.4 million
(0.4% of net revenues) during the same period in 2021 primarily due to
incremental expense from Topgolf due to the timing of the merger in 2021, in
addition to an increase in the number of venues under construction from eight as
of September 30, 2021 to twelve as of September 30, 2022, as well as five new
owned and operated venue openings in the first nine months of 2022.
Other Income and Expense
Net interest expense increased $25.2 million to $100.3 million in the nine
months ended September 30, 2022 compared to $75.1 million in the comparable
period of 2021, primarily due to Topgolf contributing a full nine months of
interest expense in 2022 compared to seven months in 2021 due to the timing of
the merger, as well as additional DLF obligations related to new Topgolf venues
that have opened since September 30, 2021 and higher variable rates on the
Company’s term loans and asset-based credit facility. This increase is partially
offset by a decrease in discount amortization expense associated with the
Convertible Notes as the result of the adoption of ASU 2020-06 as of January 1,
2022, which resulted in the de-recognition of the original issue discount. See
Note 6 “Financing Arrangements” in the Notes to Consolidated Condensed Financial
Statements included in Part I, Item 1, of this Form 10-Q.
In the nine months ended September 30, 2021, as a result of the merger with
Topgolf, the Company wrote-up the value of its pre-merger shares of Topgolf to
their fair value and recorded a gain of $252.5 million.
Other income increased to $26.9 million in the nine months ended September 30,
2022 compared to $9.5 million in the comparable period of 2021 primarily due to
an increase in net foreign currency gains.
Income Taxes
The Company’s provision for income taxes decreased $110.6 million to an income
tax benefit of $12.5 million for the nine months ended September 30, 2022,
compared to an income tax provision of $98.1 million in the comparable period of
2021. As a percentage of pre-tax income, the Company’s effective tax rate for
the first nine months of 2022 decreased to a benefit of 5.7% compared to a
provision of 22.0% in the comparable period of 2021. The Company’s effective tax
rate for the nine months ended September 30, 2022 was impacted by the release of
valuation allowances on the Company’s deferred tax assets. The Company’s
effective tax rate for the nine months ended September 30, 2021 was impacted by
excluding the nontaxable book gain on the Company’s pre-merger Topgolf shares
for tax purposes, partially offset by the establishment of valuation allowances
on the Company’s deferred tax assets. Excluding these items, the Company’s
effective tax rate would have been 16.3% for the nine months ended September 30,
2022, compared to 30.5% for the same period in 2021. For further discussion see
Note 11 “Income Taxes” in the Notes to Consolidated Condensed Financial
Statements in Part I, Item 1 of this Form 10-Q.
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Net Income (Loss)
Net income for the nine months ended September 30, 2022 decreased to $230.6
million compared to $348.2 million in the comparable period of 2021. Diluted
earnings per share decreased by $0.86 to $1.17 per share in the first nine
months of 2022 compared to $2.03 in the same period in 2021.
On a non-GAAP basis, excluding the items described in the table below, the
Company’s net income and diluted earnings per share for the nine months ended
September 30, 2022 would have been $209.0 million and $1.06 per share,
respectively, compared to $173.4 million and $1.01 per share, respectively, for
the comparative period in 2021. Fully diluted shares in the nine months ended
September 30, 2022 were 201.0 million shares of common stock compared to 171.2
million shares for the comparative period in 2021. The increased share count
includes the full dilution from the shares issued at the closing of the merger
with Topgolf on March 8, 2021, combined with the impact of calculating the
Convertible Notes under the if-converted method due to the adoption of ASU
2020-06 as of January 1, 2022. The increase in non-GAAP earnings in 2022
resulted primarily from a $23.1 million increase in operating income, which
reflects incremental results from Topgolf and strong sales across all operating
segments, major product categories and major geographic regions, despite
increases in operating expenses to support a larger organization, significant
foreign currency headwinds and increased freight expense and other inflationary
pressures. In addition, other income increased $17.4 million due to increased
foreign currency hedging gains. These increases were partially offset by a $32.7
million increase in interest expense resulting from deemed landlord financing
interest on additional Topgolf venues combined with the impact of higher
variable rates on the Company’s long-term debt and asset based-credit facility.
The following tables present a reconciliation of the Company’s results for the
nine months ended September 30, 2022 and 2021 to the Company’s non-GAAP results
reported above for the same periods (in millions, except per share information):
Nine Months Ended September 30, 2022
Non-Cash Amortization Non-Recurring Tax Valuation
GAAP and Depreciation(1) Items(2) Allowance(3) Non-GAAP
Net income (loss) $ 230.6 $
(16.0) $ (10.4) $ 48.0 $ 209.0
Diluted earnings (loss) per share
$ 1.17 $
(0.08) $ (0.05) $ 0.24 $ 1.06
Weighted-average shares outstanding(4)
201.0 201.0 201.0 201.0 201.0
Nine Months Ended September 30, 2021
Non-Cash
Amortization of
Non-Cash Acquisition Discount on
Amortization and Convertible Acquisition and Other Tax Valuation
GAAP Depreciation(1) Notes(5) Non-Recurring Items(6) Allowance(3) Non-GAAP
Net income (loss) $ 348.2 $ (15.4) $ (5.9) $ 235.1 $ (39.0) $ 173.4
Diluted earnings (loss) per share $ 2.03 $ (0.09) $ (0.03) $ 1.37 $ (0.23) $ 1.01
Weighted-average shares outstanding 171.2 171.2 171.2 171.2 171.2 171.2
(1) Includes the amortization and depreciation of acquired intangible assets and purchase accounting adjustments.
(2) Includes pre-tax impairment losses of $5.9 million related to an underperforming premerger Topgolf concept location and the suspension of business operations in Russia, $3.6
million of implementation costs associated with new ERP systems stemming from acquisitions, and $3.5 million for legal and credit agency fees related to a postponed debt refinancing.
(3) In 2021, the Company recognized a valuation allowance against certain deferred tax assets in connection with the merger with Topgolf. Based on the Company’s ongoing assessment, a
portion of the valuation allowance was released in 2022, and additional valuation allowances were recorded in 2021.
(4) The weighted average shares outstanding for the nine months ended September 30, 2022 includes the impact of calculating the Convertible Notes under the if-converted method due to
the adoption of ASU 2020-06 as of January 1, 2022. For purposes of calculating diluted earnings per share, interest expense of $4.8 million is added back to net income as the
Convertible Notes are assumed converted as of January 1, 2022.
(5) Represents the non-cash amortization of the discount associated with the Convertible Notes issued in May 2020. Starting January 1, 2022, as a result of the adoption of ASU
2020-06, amortization expense is no longer recognized due to the de-recognition of the discount.
(6) Includes pre-tax charges of $19.6 million for transaction and transition costs related to the merger with Topgolf, $2.4 million for IT implementation initiatives at Jack Wolfskin
and Topgolf, and a $252.5 million gain related to the fair value step-up of the Company’s pre-acquisition investment in Topgolf.
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Operating Segment Results for the Nine Months Ended September 30, 2022 and 2021
(in millions)
Non-GAAP Constant
Nine Months Ended September 30, Currency Growth
Growth vs. 2021(1)
2022 2021 Dollars Percent Percent
Net revenues:
Venues(2) $ 1,089.4 $ 710.8 $ 378.6 53.3 % 53.7%
Other business lines(2) 50.1 41.0 $ 9.1 22.2 % 29.5%
Topgolf 1,139.5 751.8 $ 387.7 51.6 % 52.4%
Golf clubs 959.6 865.7 $ 93.9 10.8 % 16.0%
Golf balls 257.0 202.1 $ 54.9 27.2 % 30.6%
Golf Equipment 1,216.6 1,067.8 $ 148.8 13.9 % 18.7%
Apparel 456.7 336.9 $ 119.8 35.6 % 45.0%
Gear, accessories, & other 331.6 265.2 $ 66.4 25.0 % 32.9%
Active Lifestyle 788.3 602.1 $ 186.2 30.9 % 39.7%
Total net revenues $ 3,144.4 $ 2,421.7 $ 722.7 29.8 % 34.4%
Segment operating income:
Topgolf $ 74.3 $ 52.1 $ 22.2 42.6 %
Golf Equipment 250.7 228.8 21.9 9.6 %
Active Lifestyle 77.3 70.8 6.5 9.2 %
Total segment operating income 402.3 351.7 50.6 14.4 %
Reconciling Items(3) (110.8) (92.3) (18.5) 20.0 %
Total operating income 291.5 259.4 32.1 12.4 %
Gain on Topgolf investment(4) – 252.5 (252.5) (100.0) %
Interest expense, net (100.3) (75.1) (25.2) 33.6 %
Other income, net 26.9 9.5 17.4 183.2 %
Total income before income taxes $ 218.1 $ 446.3 $ (228.2) (51.1) %
(1) Calculated by applying 2021 exchange rates to 2022 reported sales in regions outside the United States.
(2) As of January 1, 2022, in order to align with the Company’s current management reporting structure, the Company began reporting
revenues associated with corporate advertising sponsorship contracts in the venues business line within the Topgolf operating segment. In
2021, these revenues were included in other business lines. In order to conform to the current year presentation, revenue of $8.7 million
associated with corporate advertising sponsorship contracts recognized from the merger date through September 30, 2021, was reclassified
from other business lines to venues for comparative purposes.
(3) Reconciling items for the nine months ended September 30, 2022 and 2021 include corporate general and administrative expenses not
utilized by management in determining segment profitability, as well as non-cash amortization and depreciation expense, and acquisition and
non-recurring items discussed above in the reconciliation of the Company’s results to non-GAAP results.
(4) Represents the gain to step-up the Company’s former investment in Topgolf to its fair value in connection with the merger. See Note 10.
“Selected Financial Data” in the Notes to Consolidated Condensed Financial Statements included in Part I, Item 1, of this Form 10-Q.
Topgolf
During the nine months ended September 30, 2022, Topgolf net revenues and
segment operating income increased $387.7 million (or 51.6%) and $22.2 million
(or 42.6%), respectively, compared to the same period in 2021, which reflect
Topgolf results for nine months in 2022 compared to seven months in 2021 due to
the timing of the merger. In addition, the increase in net revenues was due to
the opening of six new owned and operated venues since September 2021, combined
with an increase in same venue sales, which was driven by increases in walk-in
traffic and event bookings. The increase in segment operating income reflects
the impact of price increases, which partially offset inflationary pressures in
labor and other operating overhead costs.
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Golf Equipment
During the nine months ended September 30, 2022, net revenue and operating
income for Golf Equipment increased $148.8 million (or 13.9%) and $21.9 million
(or 9.6%), respectively, compared to the same period in 2021. On a constant
currency basis, net revenues of golf equipment increased 18.7%. The increase in
net revenues was primarily attributable to continued overall brand momentum and
high demand for the current year Rogue line of golf clubs and Chrome Soft and
Supersoft golf ball product lines, coupled with improved inventory supply at
retail. The increase in operating income was due to increases in sales volume
and average selling prices, partially offset by an increase in operating
expenses to support the growth in the business combined with inflationary
pressures, in addition to increased freight expense and the unfavorable impact
of changes in foreign currency rates.
Active Lifestyle
During the nine months ended September 30, 2022, Active Lifestyle net revenues
and segment operating income increased $186.2 million (or 30.9%), and
$6.5 million (or 9.2%), respectively, compared to the same period in 2021. These
increases were primarily due to a $119.8 million (or 35.6%) increase in apparel
sales and a $66.4 million (or 25.0%) increase in sales of gear, accessories and
other. The increase in apparel was driven by continued brand momentum of
TravisMathew apparel products combined with growth from additional retail
locations and licensing revenues, increased sales of Callaway Golf accessories
including golf bags and footwear in addition to the new apparel business in
Korea, and increased sales volume of Jack Wolfskin apparel and the re-opening of
retail stores in Europe, which were closed for the majority of the first half of
2021 due to COVID-19 restrictions. The increase in segment operating income
reflects increases in average selling prices and sales volume, which were
partially offset by the impact of inflation resulting in higher input costs and
freight, as well as incremental costs associated with the addition of the new
Callaway apparel business in Korea in the third quarter of 2021, and the
unfavorable impact of foreign currency rates.
Financial Condition
The Company’s cash and cash equivalents decreased $151.9 million to $200.3
million at September 30, 2022 from $352.2 million at December 31, 2021. The
decrease in cash and cash equivalents during the nine months ended September 30,
2022 was primarily related to cash used in investing activities of $353.6
million, partially offset by cash provided by operations of $34.6 million and
cash provided by financing activities of $165.3 million. During the nine months
ended September 30, 2022, the Company used its cash and cash equivalents as well
as cash provided by its operations and financing activities, which was primarily
related to proceeds from borrowings on its long-term debt and credit facilities,
and proceeds from lease financings, to fund its operations and for the
development of Topgolf venues and other capital expenditures, repay amounts
outstanding under its long-term debt facilities, pay contingent earn-out
obligations, and repurchase shares of its common stock. The Company believes
that its existing funds combined with cash generated from its operating
activities, existing sources of and access to capital and any future financings,
as necessary, are adequate to fund the Company’s future operations. For further
information related to the Company’s financing arrangements, see Note 6
“Financing Arrangements,” in the Notes to Consolidated Condensed Financial
Statements in Part I, Item 1 and “Liquidity and Capital Resources” in Part I,
Item 2 of this Form 10-Q.
The Company’s accounts receivable balance fluctuates throughout the year as a
result of the general seasonality of the Company’s business, and is also
affected by the timing of new product launches. With respect to the Company’s
Golf Equipment business, accounts receivable will generally be highest during
the first and second quarters, primarily due to the seasonal peak in the golf
industry, and will generally decline significantly during the third and fourth
quarters as a result of an increase in cash collections and lower sales. The
Company’s Active Lifestyle accounts receivable balances are generally higher
during the third and fourth quarters, primarily due to the seasonal nature of
the Jack Wolfskin business, whose products are significantly geared towards the
fall and winter seasons. On March 8, 2021, the Company completed its merger with
Topgolf, which primarily records revenue and collects payment at point-of-sale
for most of its venue business. Therefore, Topgolf’s accounts receivable balance
is smaller than the Company’s other business segments and primarily consists of
media sponsorship receivables. As of September 30, 2022, the Company’s net
accounts receivable increased to $275.0 million from $105.3 million at December
31, 2021. The increase primarily reflects the Company’s seasonality relative to
its Active Lifestyle sales. The Company’s net accounts receivable as of
September 30, 2022 increased $19.8 million compared to September 30, 2021
primarily due to an increase in net revenues of $132.0 million for the third
quarter of 2022 compared to the third quarter of 2021. This increase was
primarily due to strong performance across all three of the Company’s operating
segments.
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The Company’s inventory balance fluctuates throughout the year as a result of
the general seasonality of the Company’s business and is also affected by the
timing of new product launches. With respect to the Company’s 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 height of 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 the Company’s 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 the Company’s other business segments, with the inventory balances
primarily consisting of food and beverage as well as retail merchandise and
Toptracer inventory. The Company’s inventory increased $188.8 million to $722.3
million as of September 30, 2022 compared to December 31, 2021, and $337.0
million compared to September 30, 2021. These increases were primarily driven by
the earlier timing of inventory receipts due to shortened lead times on
inventory shipments. In addition, inventory levels were unusually low in 2021
due to supply chain constraints, which contributed to inventory shortages.
Although lead times decreased, the Company planned for higher inventory levels
in order to meet the increased demand for apparel and golf equipment products,
support growth in the Topgolf business, and prepare for the upcoming golf season
in 2023.
Liquidity and Capital Resources
The Company’s principal sources of liquidity consist of its existing cash
balances, funds expected to be generated from operations and available funds
from its credit facilities. Based on the Company’s current cash balances,
estimates of funds expected to be generated from operations, and the current and
projected availability under current or future credit facilities, the Company
believes it 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.
The Company’s ability to generate sufficient positive cash flows from operations
is subject to many risks and uncertainties, including future economic trends and
conditions, demand for the Company’s products, supply chain challenges, foreign
currency exchange rates, and other risks and uncertainties applicable to the
Company and its business (see “Risk Factors” contained in Part I, Item 1A of its
Annual Report on Form 10-K for the year ended December 31, 2021). As of
September 30, 2022, the Company had $659.4 million in cash and availability
under its credit facilities, which is a decrease of $258.6 million compared to
September 30, 2021. Information about the Company’s credit facilities and
long-term debt is presented in Note 6 “Financing Arrangements” in the Notes to
Consolidated Condensed Financial Statements included in Part I, Item 1 of this
Form 10-Q, which is incorporated herein by this reference.
As of September 30, 2022, approximately 68.7% of the Company’s cash was held in
regions outside of the United States. The Company continues to maintain its
indefinite reinvestment assertion with respect to most jurisdictions in which it
operates because of local cash requirements to operate its business. If the
Company were to repatriate cash to the United States outside of settling
intercompany balances, it may need to pay incremental foreign withholding taxes
which, subject to certain limitations, generate foreign tax credits for use
against the Company’s U.S. tax liability, if any. Additionally, the Company may
need to pay certain state income taxes.
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Significant Cash Obligations
The table below summarizes certain significant cash obligations as of September
30, 2022 that will affect the Company’s future liquidity. The Company plans to
utilize its liquidity (as described above) and its cash flows from business
operations to fund its material cash requirements.
Payments Due By Period
Remainder of
Total 2022 2023 – 2024 2025 – 2026 Thereafter
(in millions)
Long-term debt(1) $ 1,102.3 4.8 31.7 1,019.4 46.4
Interest payments relating to long-term debt(2) 310.9 19.7 163.2 87.5 40.5
Finance leases, including imputed interest(3) 446.8 2.2 20.2 19.6 404.8
Operating leases, including imputed interest(4) 2,441.1 37.2 296.0 286.1 1,821.8
DLF obligations(5) 2,549.4 10.9 93.3 97.7 2,347.5
Minimum lease payments for leases signed but not yet
commenced(6)
966.8 0.6 36.4 36.4 893.4
Capital commitments(7) 54.3 29.3 25.0 – –
Unconditional purchase obligations(8) 104.3 25.4 59.8 17.3 1.8
Uncertain tax contingencies(9) 12.4 0.8 7.7 2.6 1.3
Total $ 7,988.3 $
130.9 $ 733.3 $ 1,566.6 $ 5,557.5
(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 Consolidated Condensed 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 Consolidated
Condensed 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 Consolidated Condensed 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
Consolidated Condensed 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
Consolidated Condensed 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, 2022 in relation to future Topgolf
facilities. For further discussion, see Note 3 “Leases” in the Notes to Consolidated Condensed 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,
2022.
(8) During the normal course of its business, the Company enters 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 the Company is required to pay royalty fees. The amounts listed above approximate the minimum purchase obligations the Company is obligated to pay
under these agreements over the next five years and thereafter as of September 30, 2022. The actual amounts paid under some of the agreements may be
higher or lower than these amounts. In addition, the Company also enters 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 Consolidated Condensed 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 the Company’s Consolidated Condensed Balance
Sheets as of September 30, 2022. Amounts exclude uncertain income tax positions that the Company would be able to offset against deferred taxes. For
further discussion, see Note 11. “Income Taxes” in the Notes to Consolidated Condensed Financial Statements in Part I, Item 1 of this Form 10-Q.
During its normal course of business, the Company has made certain indemnities,
commitments and guarantees under which it may be required to make payments in
relation to certain transactions. These include (i) intellectual property
indemnities to the Company’s customers and licensees in connection with the use,
sale and/or license of Company 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 the Company or based
on the negligence or willful misconduct of the Company, and (iv) indemnities
involving the accuracy of representations and warranties in certain contracts.
In addition, the Company has made contractual commitments to each of its
officers and certain other employees providing for severance payments upon the
termination of employment. The Company has also issued guarantees in the form of
a standby letter of credit primarily as security for contingent liabilities
under certain workers’ compensation insurance policies.
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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 the Company could be obligated to make. Historically, costs incurred to
settle claims related to indemnities have not been material to the Company’s
financial position, results of operations or cash flows. In addition, the
Company believes the likelihood is remote that payments under the commitments
and guarantees described above will have a material effect on the Company’s
financial condition. The fair value of indemnities, commitments and guarantees
that the Company issued during the three and nine months ended September 30,
2022 was not material to the Company’s financial position, results of operations
or cash flows.
In addition to the contractual obligations listed above, the Company’s liquidity
could also be adversely affected by an unfavorable outcome with respect to
claims and litigation that the Company is subject to from time to time (see Note
12 “Commitments & Contingencies” in the Notes to Consolidated Condensed
Financial Statements in Part I, Item 1 and “Legal Proceedings” in Part II,
Item 1 of this Form 10-Q).
The Company has no material off-balance sheet arrangements.
Capital Expenditures
Total estimated capital expenditures for the year ending December 31, 2022, are
expected to be approximately $325.0 million, comprised of $75.0 million for the
Company’s legacy business and $250.0 million for the Topgolf business.
Critical Accounting Estimates
For the period ended September 30, 2022, there have been no material changes to
the Company’s critical accounting estimates from the information reported in the
Company’s Form 10-K for the fiscal year ended December 31, 2021, filed with the
SEC on March 1, 2022.
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