Topgolf Callaway Brands (US:MODG)2021-05-09 16:00Merger and Acquisition - The Company completed its merger with Topgolf on March 8, 2021, contributing an incremental $92.6 million in revenues for the first quarter of 2021, representing four weeks of Topgolf revenue [249]. - The Company acquired cash of $171.3 million and assumed long-term debt of $535.1 million in connection with the merger with Topgolf [253]. - The merger with Topgolf contributed incremental revenues of $92.6 million, resulting in significant growth across all major product categories and geographic regions [256][257]. - Topgolf contributed $92.6 million in revenue for the three months ended March 31, 2021, following the merger completed on March 8, 2021 [277]. - The Company completed the merger with Topgolf on March 8, 2021, acquiring cash of $171.3 million and assuming long-term debt of $535.1 million [289]. Revenue Growth - Net revenues for the first quarter of 2021 increased 47.3% to $651.6 million compared to the first quarter of 2020, marking a new first quarter record for the Company [249]. - Net revenues for the three months ended March 31, 2021 increased by $209.3 million (47.3%) to $651.6 million compared to $442.3 million for the same period in 2020, driven by strong performance in Golf Equipment and the merger with Topgolf [255][256]. - Golf Equipment net revenues increased by $85.2 million (29.2%) to $376.9 million, with golf club revenue up $65.1 million (25.9%) and golf ball revenue up $20.1 million (49.7%) due to increased sales volume and average selling prices [272]. - Net revenues in the United States increased by $170.7 million (78.5%) to $388.2 million, while international revenues increased by $38.6 million (17.2%) to $263.4 million [257]. - Total net revenues for the company reached $651.6 million, an increase of $209.3 million (47.3%) compared to the prior year [279]. Operating Performance - Operating income increased 87.1% to $76.1 million in the first quarter of 2021 compared to the first quarter of 2020, driven by increased net revenues across all business segments [250]. - Operating income for Golf Equipment increased by $26.3 million (44.9%) to $84.9 million, driven by higher net revenues and leveraging fixed operating expenses [280]. Expenses and Costs - Interest expense rose by $8.3 million to $17.5 million in the first quarter of 2021, largely due to interest on the Company's convertible note offering and incremental Topgolf interest [251]. - Selling, general and administrative expenses rose by $32.1 million to $173.9 million, representing 26.7% of net revenues, primarily due to non-recurring expenses related to the Topgolf merger [262]. - Costs of products increased by $64.0 million, but the cost of products as a percentage of revenue improved slightly to 55.5% from 55.8% in the prior year [258]. Income and Earnings - Net income for the three months ended March 31, 2021 increased to $272.5 million compared to $28.9 million in the same period in 2020, with diluted earnings per share rising to $2.19 from $0.30 [268]. - The effective tax rate decreased to 14.9% from 24.1% in the prior year, positively impacted by the gain on the Topgolf investment [267]. Cash and Liquidity - Cash and available liquidity under credit facilities increased to $713.1 million at March 31, 2021, compared to $263.4 million at March 31, 2020, reflecting improved liquidity [253]. - The company’s cash and cash equivalents increased by $31.2 million to $397.3 million as of March 31, 2021, primarily due to proceeds from Convertible Notes issued in May 2020 [283]. - Net accounts receivable rose to $328.8 million from $138.5 million as of December 31, 2020, reflecting seasonality and incremental accounts from the Topgolf merger [284]. - Inventory decreased to $336.3 million as of March 31, 2021, down from $352.5 million at the end of 2020, due to increased demand for golf equipment [285]. Future Outlook - The Company anticipates an increase in expenses associated with labor and benefits as the Topgolf business continues to expand its operations [243]. - The company anticipates continued brand momentum and increased demand for golf equipment in 2021, despite ongoing challenges from the COVID-19 pandemic [254]. - The Company expects capital expenditures of approximately $235.0 million for the year ended December 31, 2021, including $106.0 million for Topgolf venues under construction [300]. - The Company anticipates additional capital expenditures of approximately $129.0 million for the Callaway legacy business and Topgolf in 2021 [300]. Risk Management - The Company uses derivative financial instruments to manage exposure to foreign currency exchange rates and interest rates [303]. - A sensitivity analysis model is employed to measure potential losses in future earnings from market-sensitive instruments due to changes in interest rates or foreign currency values [305]. - The Company believes counterparty nonperformance in its financial instruments is not anticipated, despite exposure to market and credit risk [303]. - Interest rate hedges are utilized as part of the Company's strategy to mitigate interest rate risk from credit facilities and long-term borrowing commitments [308]. - The Company’s risk management procedures include assessing the impact of unfavorable changes in interest rates on cash flows and operational results [308].