Callaway Golf Company (CALY) Q4 2017 Earnings Report, Transcript and Summary

Good afternoon. My name is Mike and I'll be your conference operator today. At this time, I'd like to welcome everyone to the 2017 Yearend and Q4 Earnings Release. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the call over to Patrick Burke, the Company's Head of Investor Relations. You may begin your conference.

Thank you, Mike, and good afternoon, everyone. Welcome to Callaway's fourth quarter 2017 earnings conference call. I'm Patrick Burke, the company's Head of Investor Relations. Joining me on today's call are Chip Brewer, our President and Chief Executive Officer; Bryan Lynch, our Chief Financial Officer; and Jennifer Thomas, our Chief Accounting Officer. Today the company issued a press release announcing its 2017 financial results. A copy of the press release and associated presentation are available on the Investor Relations section of the company's Web site at ir.callawaygolf.com. Most of the financial numbers reported and discussed on today’s call are based on U.S generally accepted accounting principles. In few instances where we report non-GAAP measures we’ve reconciled non-GAAP measures to the corresponding GAAP measures at the back of the presentation in accordance with regulation G. Please note that this call will include forward-looking statements that involve risk and uncertainties that could cause actual results to differ materially for management's current expectations. We encourage you to view the Safe Harbor statements contained in this presentation and the press release for a more complete description. Please note, in connection with our prepared remarks, there's an accompanying PowerPoint presentation that may make it easier for you to follow the call today. This earnings presentation is available for download on the Callaway Investor Relations' Web site under the Webcast and Presentations tab. Also, on the same tab, you can choose to join the webcast to listen to the call and view the slides. As a webcast participant, you are able to flip through the slides. I would now like to turn the call over to Chip.

Thanks, Patrick. Good afternoon everybody and thank you for joining us for today's call. Starting on Page 4 of the presentation. 2017 was an excellent year for our company. Revenues were up 17% for the quarter and 20% full-year, driven by particularly strong growth in the wood category, along with the addition of the OGIO and TravisMathew businesses. For the full-year, we exceeded $1 billion in revenues for the first time since 2008. On a market share basis, we were the number one driver and the number one club brand in the U.S., U.K., Europe and Japan. We regained the number one club brand position for the U.S in 2015 and since then we’ve both widened our lead and extended this position on a global basis. In the iron category, we’ve been the U.S markets number one brand every month for 35 consecutive months. In drivers, this year has been a breakthrough year for us, earning us the number one position in driver dollar share on a global basis. Thanks to the introduction of our Jailbreak technology. We are also benefiting from a healthy ball business. Moving on to Slide 5. Over the last two years, we’ve made significant investments in our core business as well as in outside growth opportunities. In the outside growth category, our recent acquisitions of OGIO, and TravisMathew are both meeting or beating our expectations and should provide incremental growth and profitability over the coming years. In the core business, investments have included capital projects in our ball plant as well as additions to sales, marketing, tour, and R&D. We believe these investments have already strengthened our core business both in market position and financial performance and it will continue to do so in the future. We also invested another $20 million in soft balls last quarter. With highlights on Slide 6, our financial performance continues to trend positively as evidenced in our gross margin, operating margin, EPS, and EBITDA performance. Our full-year income from operations is up 78% year-over-year and our trailing 12 months adjusted EBITDA is up 72%. I’d like to take this chance to thanks the Callaway Golf team for delivering these results. Our team should be really proud of what we’ve accomplished. I’m also sure we understand we’ve a lot more to do and we’re motivated to make our company even better. Turning to Slide 7. Market conditions vary on a global basis, but I believe the overarching theme is one of improving industries fundamentals. The European market was remarkably strong, all of 2017. The Japan markets started the year slowly, but have a strong second half, thus finishing up slightly for the full-year and in the U.S there are clear signs of more stable conditions. Thanks to a reduction in field inventory and a healthier retail channel. Average selling prices have been increasing, product life cycles have lengthened and there is less overall unplanned promotional activity. There were also fewer participants on the OEM side. I’m pleased with these trends and I believe the market corrections we’ve worked through over the last few years will benefit the industry in the long run. Turning to Page 8, lets now take a deeper look at our operational performance by regions. While doing this, it's worth noting that we launched less product in Q4 of 2017 than Q4 of '16 and thus quarterly comparison should bear this in mind. In the U.S., our revenues were up 40% during the quarter and 27% full-year. This quarterly performance was driven by nearly 10% growth in our core business and the addition of the OGIO and TravisMathew businesses, both of which are primarily U.S operations thus far. Looking at our equipment business, our full-year hard goods market share was 25.1%, up 250 basis points year-over-year and we held the number one dollar market share position in Total Clubs, Driver, Fairway Woods, Hybrids, and Irons as well as the number one unit position in Putters. Our 2017 ball market share was 14.3%, up 50 basis points versus last year driven by strong growth in the green grass channel and positioning us as the number two ball brand. The U.S market for balls and clubs combined as measured by Datatech was down slightly from the full-year, but was up slightly in the second half. Turning to Page 9. Our Asia business also had a strong quarter led by Japan. Our revenues from the Japan market were up 5% for the quarter and 17% for the full-year, driven by the addition of our successful Callaway apparel JV and strong market share performance in our core equipment business. Market conditions in Japan were soft for the first half of the year, but turned up nicely during the second half, allowing that market to show modest growth for the full-year. Our full-year hard goods dollar share was 19.7%, up 400 basis points year-over-year and we're both the number one Total Clubs, Drivers and Putters brand in this market. Moving to Page 10. In Europe, the team had a quite quarter with revenues down 3%, but delivering an outstanding year with 14% full-year revenue growth thereby delivering a record revenue year as measured in pounds sterling which is the currency of record for our European subsidiary based in the U.K. The European team was aided by favorable market conditions in this region as well as strong market share growth, which was then partially offset by currency. Our full-year hard goods market share was 24.3%, up 200 basis points year-over-year and we finished the year as the number one hard goods brand driven by being number one Drivers, Fairway Woods, and Putters. And as the number 2 ball brand with continued growth in our golf ball share. Turning to Page 11. On the product front, we entered 2018 excited about the extensive new line of ball accessories and clubs. The hero of our 2018 club lineup is our new Rogue family of woods and irons. The woods build on our Jailbreak technology, extending it into Fairways and Hybrids for the first time and by improving the driver while also adding more forgiveness. In the iron, the road family has three versions, pro, standard and X, which all feature our latest business generating cup face design along with the internal tungsten weighting and a new technology called Urethane Microspheres. For the ultimate sound in field, the X versions are particularly fun product derived from a wildly successful EPIC star irons in Japan. This iron gives us a new age spec package, lighter, longer and stronger, along with our latest technology to deliver amazing distance along with the forgiveness and feel, In the Ball category we're introducing an entire new line of Chrome Soft golf balls, all featuring a new and larger Graphene-infused core. Graphene is a Nobel Prize winning material which in our application allows us to make our balls faster than ever before, while maintaining their soft feel. It's use in this manner is proprietary and we’re really excited about the feedback we are receiving both on tour and in consumer testing. By the way, these technology and performance changes were enabled by the investments we’ve made in our Chicopee, Massachusetts ball plant during 2017. A conversion and technical upgrade is now in year two of a three year plan. We also have an amazing new Wedges, Putters, Golf thanks year end accessories under OGIO and Callaway and a fantastic spring collection of apparel from both Callaway and TravisMathew. For the sake of time, I won't go into all of these, but you can find more information on our Web site or via our trading partners. It's also worth noting that we added a few more exciting players to our tour staff, including Sergio Garcia, who won his first event as a Callaway staff player earlier this year. While playing a full bag of our equipment including the Rogue driver and a new Chrome Soft Golf Ball. In that event, the average 320 yards of the tee in these new equipment. A nice way to start the year for both Sergio and for us. Now on Slide 12. Looking forward, we’re excited about another year of growth based on the strength of our equipment line and the full-year affecting the TravisMathew acquisition which occurred during Q3 of last year in which we anticipate we will continue to deliver strong growth and increasing profitability. We anticipate Q1 will be particularly strong, thanks to more products being launched as well as our customers positive reaction to our branded momentum. We also expect market conditions to show year-over-year improvement due to the improving industry fundamentals worldwide and the year-over-year positive impact of moving past the Golfsmith bankruptcy. Most major customers had good years last year and are starting of 2018 similarly. In conclusion, I hope you agree we had significantly grown and strengthened our business over the last few years. We're clearly now a product and technology leader in the equipment space. We’ve momentum improving overall fundamentals. We hope you also agree we're making attractive investments by reinvesting in our core, investments in TopGolf, selectively repurchasing shares and in strategic acquisitions, all areas where we believe we can deliver attractive growth and returns for our shareholders. Brian over to you.

Thank you, Chip. As Chip mentioned, we're very pleased with our business performance in 2017. Our consolidated net sales increased 20% representing an increase in net sales in all operating segments and in all reporting regions. We gained market share in the United States and on a global basis. With regard to profitability compared to 2016, our gross margins increased 150 basis points, our non-GAAP earnings per-share more than doubled and our adjusted EBITDA was $100 million. Our total shareholder return for 2017 was 27%, In addition to this performance, we also believe we made some prudent and strategic investments including the OGIO and TravisMathew acquisitions, investments in our Golf Ball manufacturing capabilities. An additional $21.5 million in TopGolf and the repurchase of $70 million of our common stock. We also purchased a global intellectual copyright to the Truvis Technology. We believe these investments were a good use of our free cash flow. As we grow, period-over-period compassions become more complicated. This complexity was exacerbated during the fourth quarter of 2017 due to the impact for the 2017 tax cuts and Jobs act. In evaluating our results for the fourth quarter and full-year 2017, you should keep in mind some specific factors that affect comparisons to the same period in 2016. First, the OGIO acquisition was completed in January 2017 and the TravisMathew acquisition occurred in August 2017. As a result, those businesses are not included in our 2016 results. Second, as a result of the two acquisitions, we incurred some nonrecurring transaction and transition related expenses. While discussing our non-GAAP results today, we exclude these nonrecurring expenses, it's that how we evaluate our performance. Third, the Japan joint venture was formed in July 2015 and therefore its only partially included in the full-year results for 2016, but is fully included for the full-year of 2017, Fourth;. During the fourth quarter of 2016 we reverse most of our deferred tax valuation allowance and recognize the significant income tax benefit. In 2017, we once again recognized U.S income tax expense. Fifth, during the second quarter of 2016, we recognized an $18 million pre-tax gain from the sale of a small portion of our investment in TopGolf business. Six, during the fourth quarter of 2017 we recorded $3 million in additional tax expense related to the 2017 tax cuts and jobs act and other nonrecurring tax adjustments that impacted the fourth quarter and the full-year. While discussing our non-GAAP results today, we exclude the TopGolf gain. The nonrecurring acquisition expenses, the impact of the reversal of deferred tax valuation allowance, the net tax expense related to the 2017 tax cuts and jobs act and other nonrecurring tax adjustments. And we apply an annual effective tax rate of 41.3% to our 2016 results which is our estimate of what the rate would have been without the nonrecurring benefit from the reversal of deferred tax valuation allowance. Lastly, this is a reminder that starting in 2017, we now have three operating segments as opposed to two in 2016.We've reclassified 2016 results to reflect the new segment classification. And that provides the reclassified and original segment results for 2016 in the tables to the earnings release we issued today. With those factors in mind, I will now provide some specific financial results. I will first cover full-year results. As seen on Slide 15, today we are reporting consolidated full-year 2017 net sales of $1,049 million compared to $871 million in 2016, an increase of $178 million or 20%. Foreign currency negatively impacted international net sales by $10 million in the full-year. The increase in net sales was like increases in all operating segments and in all reporting regions. The significant improvement was primarily due to increases in woods, driven by the EPIC line of woods, increased Golf ball sales, and an increase in gear and accessories and other, largely as a result of our new businesses, TravisMathew, OGIO and the Japan apparel joint venture. Gross margin was 45.8% for full-year of 2017 compared to 44 .2% in the prior year. With the 160 basis point improvement reflect an overall favorable shift in sales price and product mix due to the success of the current year EPIC Woods and overall higher average selling prices, less discounting and lower promotional activity. Operating expense was $402 million for full-year of 2017, which is a $61 million increase compared with $341 million for full-year 2016. This increase was due to the addition of operating expenses related to the new business ventures, higher variable expense driven by higher sales, a $9 million of nonrecurring transaction and transition expenses related to the TravisMathew and OGIO acquisitions. Operating income was $79 million for full-year 2017 compared to operating income of $44 million for full-year '16, an increase of 78%. When excluding the nonrecurring TravisMathew and OGIO expenses, non-GAAP operating income for full-year 2017 was $90 million, a $46 million increase compared to 2016. Other expense was $11 million for full-year 2017 compared to other income of $14 million from the prior year. The increase in expense was driven by an increase in hedge losses and interest expense in 2017, as well as the TopGolf gain in 2016. Fully diluted earnings per share was $0.42 from 97 million shares for full-year of 2017 compared to earnings of a $1.98 per share full-year in 2016. Excluding the nonrecurring items already mentioned, full-year fully diluted earnings per share was $0.53 in 2017. Congrats to $024 in 2016, an increase of 121%. I will now turn to fourth quarter results. Turning to Slide 16 today, we are reporting consolidated fourth quarter 2000 net sales of $192 million compared to $164 million in the fourth quarter of 2016, an increase of 17%. Foreign currency negatively impacted international net sales by $1 million in the fourth quarter. The significant improvement was primarily due to a 37% increase in woods products driven by the EPIC line of woods and an 88% increase in gear, accessories and other, largely as a result of our newly acquired businesses namely TravisMathew and OGIO. The growth was partially offset by the irons and ball business being down year-over-year due to launch timing. As you can see on Slide, 16 gross margins was 41.6% in the fourth quarter of 2017 compared to 38.6% in the prior year. The 300 basis point increase reflects an overall favorable shift in sales price and product mix due to the success of the current year EPIC woods and overall higher average selling prices. Operating expense was $100 million in the fourth quarter of 2017, which is a $20 million increase compared to $80 million in the fourth quarter of 2016. This increase was primarily due to the addition of operating expenses related to OGIO and TravisMathew. Operating loss was $20 million in the fourth quarter of 2017 compared to an operating loss of $70 million in the fourth quarter of 2016. When excluding the nonrecurring transaction and transition related TravisMathew and OGIO expenses, non-GAAP operating loss for the fourth quarter of 2017 was $90 million. Other expense was $3 million in the fourth quarter of 2017 compared to other income of $4 million in the prior year. The increase in other expense resulted primarily from foreign currency hedging losses in 2017 versus hedge gained in 2016 and higher interest expense. Fully diluted earnings per share was a loss of $0.20 or 95 million shares in the fourth quarter of 2017 compared to earnings of $1.28 per share for the fourth quarter of 2016. Excluding all the nonrecurring items mentioned at the beginning of the call, including the impact of the reversal of the deferred tax valuation allowance in the fourth quarter of 2016, fourth quarter fully diluted earnings per share was a loss of $0.50 in 2017 compared to a loss of $0.09 in 2016. As a reminder, due to the seasonality of the company's business, we always record a loss in the fourth quarter. Turning now to Slide 17. I will cover certain key balance sheet and cash flow items. As you can see cash equivalents was $86 million which was down $40 million year-over-year. This includes the impact of the OGIO acquisition completed in January 2017, the impact of the TravisMathew acquisition completed in August 2017, $17 million of stock repurchases in 2017, an incremental investments in TopGolf of $21.5 million, all of which was partially offset by $40 million improvement in cash provided by operations. Regarding our credit facility, because our business is growing organically and through acquisitions, we’ve increased our primary ADL facility to $330 million plus the option to secure $30 million term loan on that facility. We’ve increased our Japan ADL credit facility from ¥3 billion to ¥4 billion and moved to a 3-year term as opposed to a 1-year term for that facility. And we’ve entered into a small equipment loan facility that we were using to finance a portion of the investments we're making in our TopGulf plan. Regarding the asset-based loans, we had $88 million of borrowings at the end of 2017 as compared to $12 million in borrowings a year-ago. Available liquidity which represents an additional availability under our credit facilities plus cash on hand was $239 million at the end of the year as compared to $225 million a year-ago. We're pleased with this level of liquidity given our recent deployment of capital for the OGIO acquisition, the TravisMathew acquisition, share repurchases, and our incremental investments in TopGolf, as well as incremental investments in our core business. We believe we're demonstrating our ability to generate free cash flow in the core business and are finding good opportunities to deploy that capital in the core business and in tangential areas. Our consolidated net accounts receivable were $95 million, a decrease of 26% compared to 2016 driven by the relative timing of our sales in the fourth quarter and better collection rate. Also DSOs decreased to 63 days compared with 70 days at the end of 2016. We remain comfortable with the overall quality of our cash receivable at this time. Our inventory balance increased by 39% to $262 million at the end of 2017. This increase was due to an increase in inventory necessary to support our 2018 launches and by the additional inventory from the TravisMathew and OGIO businesses. We remain comfortable with the quality of our inventory at this time. Capital expenditures for 2017 were $26 million, a year-over-year increase of $10 million due mainly to investments in our Golf ball planning to increase our manufacturing capability. Depreciation and amortization expense was $80 million for 2017 compared to $70 million in 2016. Finally for full-year 2017 the company repurchased 1.5 million shares of stock or approximately $70 million in cash. This includes both open market purchases and shares withheld to satisfy tax withholding allegations, upon the vesting of equity awards. Before turning to guidance, I’d like to provide an update on a couple of other matters. First, at December 31, 2016, the growth in our U.S federal NOLs, net operating losses was approximately $187 million. During 2017, we used a significant amount of our net operating loss carryforwards to offset the income generated in our business operations as well as to offset the one-time repatriation tax under the tax reform act. As a result, at December 31, 2017 the gross amount of NOLs decreased to $63 million. In addition to the NOLs we also have approximately $54 million of foreign tax credits in R&D credit. Most of the foreign tax credits we generated as a result of the tax reform act. As a result of the remaining NOLs, the foreign tax credits in the R&D credits and based upon our current operations, we do not anticipate any U.S federal income tax for the next few years. Overall, they should collectively shield approximately $320 million in U.S pre-tax income. Second, we implemented a new revenue recognition as well under the modified retrospective approach. The primary impact of this new standard has upon our business is with regard to recording compensation expense for sales programs. While we previously reported the cost of the sales program when the program was adopted, we will now improve a percentage of sales at the same of sale for all future estimated sales programs. As a result of the adoption of the standard we will record in 2018 a cumulative adjustment to retain earning for future sales programs, related to product sold prior to 2018. We currently estimate that accruing the percentage of sales will shift the timing of the compensating expense we accrued earlier in the year compared to prior years, but full-year 2018 compensation expense is estimated to be approximately flat with 2017. Third, through December 31, 2017 we recorded our TopGolf investment on a cost basis. Effective January 1, 2018 new accounting rules will require us to write this investment up or down to its estimated fair value, if there are observable changes in the fair value of this investment. With any such changes in fair value being recognized in other income. Financial guidance we’re providing today assumes that there are no such observable changes in fair value for the balance of 2018. I will now comment on our 2018 guidance. As you can see on Slide 18, we are providing 2018 GAAP guidance and are comparing that to our 2017 non-GAAP financial. The 2017 non-GAAP financials exclude a $11 million of nonrecurring deal related expenses resulting from the OGIO and TravisMathew acquisitions and $3 million of nonrecurring tax expense mentioned above. Regarding full-year 2018 GAAP projections, you can see on Slide 18, 2018 net sales are estimated to be in the range of $1,115 million to $1,135 million, an increase of 6% to 8% over 2017. The increase is expected to be driven by 23% of growth in that core business, which includes OGIO, with the balance coming from a full-year of TravisMathew as well as continued double-digit growth in that business. We currently estimate the changes of foreign currency will slightly help our projected 2018 net sales compared to 2017. We estimate that full year 2018 gross margin will be 46.5% which is 50 basis points higher than 2017. The increase is expected to be driven by continued pricing opportunities as well as a positive mix benefit from the TravisMathew's business. We estimate the full-year 2018 GAAP operating expenses to be $426 million, an increase of $33 million compared to 2017, driven primarily by the addition of a full-year of the TravisMathew business, variable expense related to the higher sales and select investments in the core business, including R&D, tour, sales and marketing. GAAP earnings per share is estimated to be $0.64 to $0.70 compared with $0.53 we earned in 2017 non-GAAP results. The 2018 figures are based on an assumed 97 million shares outstanding, we're also assuming a 26% tax rate for 2018. We estimate our capital expenditures in 2018 to be approximately $30 million, slightly above our 2017 actuals of $26 million due to continued investment in the ball plant and by the new TravisMathew business. Depreciation and amortization expense is estimated to be approximately $21 million in 2018. We estimate EBITDA to be approximately $112 million to $118 million, a 12% to 18% increase over 2017 adjusted EBITDA driven by the core business and a full-year of TravisMathew. Regarding Q1, 2018 GAAP projections, as seen on Slide 18, 2018 net sales are estimated to be in the range of $365 million to $375 million, an increase of 18% to 21% over 2017. The increase is expected to be driven by launch timing in the core business as well as the addition of the TravisMathew business. Along with launching the Rogue Woods, the company is also launching a new line of Rogue Iron, [indiscernible] wedges and a new Chrome Soft line of golf balls. We currently estimate that changes in foreign currency will slightly help our Q1 2018 net sales. First quarter GAAP earnings per share is estimated to be $0.48 to $0.52 compared with $0.30 we earned in 2017 non-GAAP results. 2018 estimates are based on 97 million shares outstanding and we are also assuming a 26% tax rate for 2018. That concludes our prepared remarks today. We will now open the call for questions.

[Operator Instructions] Your first question is from John Kernan from Cowen.

Good morning, everyone. Thanks. Good afternoon. Thanks for taking my question.

Hi, John.

Congrats on the new technology and congrats on landing Sergio.

Thank you.

Just wanted to go into the guidance as it relates to beyond Q1, obviously the Q1 top line guidance is very robust assuming that wood is accounting for a large portion of that top line growth. I’m just wondering how we should think about category growth beyond Q1 and what you're assuming does those look like a fairly sizable deceleration post the Rogue launch? Thanks.

Sure, John. This is Chip. You know what you're saying in Q1 is shift in launch timing on a year-over-year basis. So last year during Q1, we didn’t really have a significant iron or wedge launch. So you're seeing a big year-over-year uptick as its relevant to that comparison. And then in also in the Golf ball side you're seeing a slight benefit there, because we have a little bit more of a robust launch there and some price that we’re taking in the golf ball line there as well. So you see real quick growth there and moderate, but continued performance through the balance of the year.

And I think, John, if you look at sort of our cadence, Q1 and Q3 are usually big quarters. Sometimes Q1 is bigger, sometimes Q2 is bigger, depending on what the launch schedule of this year, Q1 will be bigger. We typically lose money in the fourth quarter and I think we will follow similar cadence this year to that with the inception that this year would be -- Q1 will be a big quarter.

Okay. And just as it relates to iron, obviously the Rogue technology is exciting, it looks like it’s the best technology in the market, that’s been put in irons in a long time, so just wondering how we should think about top line growth for iron as a category for the full-year this year, given that irons were down in aggregate last year?

Yes. John, I’m not sure I’m going to give you as much help here as you might like, but we’re expecting that category to be up nicely this coming year. We're getting good reaction. As you said, we’ve had strong market position, our best technology ever at this type of iron, so we anticipate a strong year in the iron category.

Okay, great. Thank you.

Thank you.

The next question is from Michael Swartz with SunTrust.

Hey, guys. Good afternoon.

Hi, Michael.

Hi.

Hey, I guess, just starting off with -- following along Chip on your comments around the Golf balls and the price increase you’ve put through on the new Chrome Soft. I guess, just give us a sense of the comforts you have in doing that, particularly when your single largest competitor in that space is actually holding their pricing for new product this year?

Well, Michael, we obviously had a lot of momentum in this category in the last few years and we’ve invested pretty aggressively into our capabilities. So what we've got coming we think is that good basically. Obviously, we evaluate the performance, the new technology, the Graphene infused core, the testing that we've done, discussions we’ve had with trade partners. The feedback we have from tour, it's been our most successful tour launch, I dare say, ever, certainly in my time by a order of magnitude and the consumer feedback and testing that was done is phenomenal. So we’ve with our brand is that when we deliver a product that we use the term DSPD, so demonstrably superior and pleasingly different. If that product is strong and this one is, and it's clearly a technology differentiation that -- its really not about price. They were looking for cheap golf ball, there's lots of cheap golf balls out there, we’re going to compete on the product performance and differentiation and we’re really proud of what we’re bringing to the marketplace this year.

Great. That’s helpful. And then just a second question on something that you had in your press release, I think you said the combination of OGIO and TravisMathew was over a $100 million, additive to 2017. But as I recall, when you made those acquisitions, I think OGIO you said $45 million, TravisMathew $15 million accretive, so am I doing the math right and saying that at the time of those deals it was $60 million. Am I missing anything there?

Well, I think what we were saying was $100 million increase that would include an additional half year from the Japan Apparel JV. So you’ve to add that incremental fees on to the OGIO and TravisMathew. But when we came out we said that OGIO was about $45 million and we wind up doing a little better than that. And for Travis, we said it was in the $55 million to $60 million range and they were right within that. For the full-year, Michael, but $15 million to $20 million included in our business.

Right, right. Okay. Thank you.

Thank you.

Your next question is from Dan Wewer with Raymond James.

Yes, thanks. Chip, I want to follow-up on your core golf guidance of 2% to 3% for 2018. I was thinking that the growth would be a little higher. So the Chrome Soft price increase was about 13% and that's over half of your Golf ball business. So, assuming your unit sales from balls remain flat, which I’m sure you’re hoping better than that. In another sales that’s about 1% to your total golf category growth, assuming price increases in another categories as well. So what I’m missing? So it's just really difficult compare as in EPIC?

Well, I think that there -- we're at a very high hurdle rate right now when you look at our overall equipment share, Dan, and we are anticipating to grow our share on top of what is industry-leading positions. Certain categories obviously are going to outpace others in certain categories, such as the golf ball we do have the price that we are going to hopefully benefit from. But 2% to 3% growth in that we thought was reasonable and we're obviously excited about that opportunity for this year.

TravisMathew is going to become a very significant part of the company's future growth. Can you tell us how you're thinking about changes in gross margin rate and operating margin rate just for the TravisMathew business? What we see significant investments thing could lead to lower operating margin rate coming up or it’s just the opposite you’re expecting leverage?

TravisMathew is accretive to gross margin and to operating margin and it is a high-growth and attractive business.

Yes, I knew its accretive. I just want to know within the company itself operating margin rate improves from here or …?

Yes, that’s what I meant by accretive. So it will improve the blended rate. Am I missing something, Dan?

Well, I think that’s on a absolute level, that is better margin from your golf business. Just in terms of the incremental thing going forward, I don’t know if you’re thinking the gap is even larger going forward for TravisMathew?

Well, -- yes, I mean, I think there are accretive to our business. So as they get bigger, they will have a bigger influence in ours, and you can incrementally increase our margins. Their direct-to-consumer business is also a very profitable piece, so as we expand that growth that will help that -- your business as well.

Okay. Okay. Thank you very much.

Thank you.

Your next question is from Dave King from ROTH Capital.

Thanks. Good afternoon, guys.

Hi, Dave.

I guess, first on Rogue, I mean, until this year at least I guess your irons business was seemly bigger than your woods business. I guess, how should we think about the opportunity for Rogue versus EPIC? Is it bigger or smaller and why ? And then, I guess, what can you tell us in terms of early bookings for both Rogue, but then also MD4 and then I guess the new Chrome Soft Graphene balls as well?

Sure. Dave, we are not going to break out expectations specifically by category. Clearly we expect to be up in wedges and irons, we mentioned that. You know, Rogue, the family versus EPIC the family we probably anticipate being up, we are anticipating a strong share here again and if there are any other question there that I can try and answer, because …

No, I mean, that helps, family versus family, but I guess, I mean, what else can you say about bookings or early response from your [multiple speakers]?

Booking, good question. Our bookings are quite good as reflected in our guidance for Q1. So as our share is increased and the momentum and retailer confidence, etcetera, but also in line with the broader product line, because last year we didn't have as much product launching in Q1, our bookings have responded accordingly, a very positive year-over-year.

Okay. And that includes on the Graphene balls than as [multiple speakers]?

It does indeed.

Okay, perfect. Switching gears to OGIO, it sounds like that came in a little bit better for the year than you guys were anticipating. I guess, how is the response been from green grass accounts in particular? Any early reads on sell-through at those kind of accounts and then when do you expect to start launching that business more meaningfully internationally?

We're just starting the international process this year, so that was one of our goals last year was to tee up that business on an international basis for 2018. So we accomplished that and we will start delivering some international growth and the opportunity to grow that business in its Golf channels has been realized. There was a positive reaction. We’ve combined that with our U.S sales force and broadened that distribution, the reaction and sell-through has been positive. And we're working on plans for 2019 to accelerate the life style component of that. So that business is doing very well. Meeting or beating our expectations and plan for when we purchase it and we are excited about where we got some runway to go.

Okay, great. Thanks and good luck with '18.

Thanks, Dave.

And the next question is from Brett Andress with KeyBanc.

Good afternoon.

Hi, Brett.

If I could go back to the guide, I guess and what it implies for sales and operating profits for the rest of the year, can you help me understand, I guess, what you're expecting as we get into the second quarter and beyond from really an industry growth standpoint and I think what you expect or share to do?

We're expecting our share to be up slightly for the full-year. We're expecting market conditions of flat to slightly up for the full-year. And we -- at this point are not providing any other guidance by quarter rather than what we gave you for Q1.

Got it. And I know the market share numbers that you quote are from Golf Datatech, but …

Yes.

… can you may be share some of the insights on the trends that you're seeing in some of the untracked channels like Mass, Big Box, and some of the others?

In general, the trends in the -- well, in Mass the same products don’t really exists. So you do sell golf balls into Mass markets, but almost none of our other equipment is sold in those channels. We’ve had good momentum in all channels in golf ball and in the club side the only channels that are really salient are Green Grass then Specialty Retail and DICK's Sporting Goods.

Got it. Thank you.

Thank you.

The next question is from Randy Konik with Jefferies.

Yes. Can you hear me?

We can.

All right, great. Thanks a lot. I guess, my first question is, you had a great year Putter business. How would you learn about the Putter business price lagged a little bit? What are you thinking about changing from a product lineup and/or marketing distribution perspective that we should be thinking about direction in the Putter category?

Yes, the Putter business is the one from a U.S market share basis that we were disappointed with last year. And you saw us responding and launch Red & Black line later in the year and our market share started responding accordingly. We had a strong market share performance as we had historically on international basis, also cleaned up some inventory. Our Putter business was down ever so, slightly. But we think we're in a position now and with a strong product offering we’ve got to launch that we're in the middle of right now. More products coming midyear and so optimistic for that Putter market this year after what was in the U.S a soft market share performance for us last year.

Very helpful. And then if I think about the success of the Jailbreak technology kind of transferring it from the drivers to the irons. If we think about learnings from the design of the technology, the implementation, the manufacturing processes, there's things you learned that can make the whole process even more efficient from a time-to-market perspective on future technology launches or you’ve gotten better costing ability, just trying to think about anything that changed from the way that the processes work to get these products to market that could be helpful on improving life cycle times or improving cost structures on future kind of product launches, not just on '18, but just as we look at I think about '19, '20 etcetera.

A very reasonable question. Just as a point of clarification, we were expanding Jailbreak and second gen of Jailbreak. Its considerably improved and we’ve added quite a bit of forgiveness to the driver product and it's the first time we put Jailbreak in Fairway Woods and Hybrids. At this point, we don’t have Jailbreak in irons. But there's been quite a bit of learnings going along the way on this, when you first do a technology such as this and it was truly a transformational breakthrough technology. There is a lot of energy and effort to get it done. We’ve learned a lot. We are on the second generation now launching, we're already working on further improvements for that in combinations with other technologies. We spent a considerable time trying to protect that technology from a patented IP perspective. We have more efficient ways now to go about the manufacturing process of that, which will come into play a little bit with the current line, but perhaps more significantly in the future. So we think we’ve got a good runway ahead on the technology which clearly has been transformational for the driver category and we’ve got high hopes now in Fairways and hybrids.

And how about just learnings from the success? Obviously breakthrough great North American business, and talked about I think Europe felt good. And how about just approaching these other markets either the same or different based on something you were doing in the U.S., everybody is kind of watching these videos on the Web site and stuff, I think is you’re really innovators and helping the brand. Are you getting a lot of that traction or reviews over the media assets that you’re employing in these international markets? Are you thinking about marketing the products differently or the same in international markets? Just trying to think about where we go either the same or differently internationally from a marketing?

Yes. One thing we do see, Randy, is that we’re -- we do tailor our approach by market. So we have the scale of resources to have the subsidiaries on international basis and they may take the same marketing approach as we do in the U.S., but they may also bring their own twist on that and I have a high confidence in the team. The one we are also sharing best practices and in the marketing side, I do think we have a core competency there both in digital and traditional media, and they leverage that and you can clearly see the international markets follow some of the lead that the U.S has provided, but you also see a similarity in network. We are in a leadership position on the Club business on a global basis.

Very helpful. Thank you.

Thank you.

Your next question is from Steven Zaccone with JP Morgan.

Yes. Thanks very much and congrats on a great quarter guys.

Thank you, Steve.

I was hoping you can elaborate on the health of the golf industry heading into 2018. So you cited an outlook of flat to slightly improving overall market conditions. I think this is an improvement versus your prior commentary for flattish. So what do you think is driving this improved trend and do you think that it's something that sustainable for the next 2 years?

Steven, I think that we've been through some interesting and tough times in the golf industry over the last few years. The Golfsmith bankruptcy was a considerable event for the industry. And we work through excess capacity on the OEM side, the retail side. We’ve flushed out some players that were either not committed or not capitalized correctly. You have more rational behavior and improving economic conditions. So I'm pleased with the direction of the industry, and yes I think it is sustainable.

Great. And then just following up on the golf ball side, can you talk about the competitive environment entering this year versus last year? I think last year you were dealing with some excess Nike product that was still in the channel. How do you feel about channel inventories specific to the ball side? And then just mindful of any competitor launches this year?

Channel inventories what I’m being told are in good position. The last several years, field inventories have been worked down aggressively both in clubs and balls. So I don't have any concerns from that perspective at this point. In terms of the competitors in the marketplace, it is a -- from a marketing perspective, it's going to be a competitive year, we can see that already. We’ve certainly caught the attention of our competitors, they’re flattering a bit by talking about us in their advertisements, and so it's going to be a more entertaining and competitive year from that perspective, which we're fine with. We are in a growth mode and we invited the world to compare.

And then just last question. Can you just elaborate on the -- on what’s driving the double-digit growth for TravisMathew in 2018? And specifically, do you plan on opening new retail store for the brand? And then what are you expecting from a wholesale growth perspective?

Yes, its other than the double-digit part of it, we’re not going to give you any specifics there, but as we elaborated during the acquisition, this is a very fast growing brand and that trend hasn't abated at all. The reasons for that are, pretty broad. It's a cool brand, great product, the fabrics are stunning and lot of momentum with clear distribution growth and we’re looking forward to work with them and it's been a very positive transition as we’ve integrated that business and starting to walk forward, at times hand in hand, but at times separately. We are not consolidating the businesses completely. We're not going to consolidate the sales forces and we're not going to co-brand it. But then on the other hand within the golf channels and many others, there's some nice collaboration going on, back office there's some nice collaboration going on. This is a clear synergy. They do have a very small retail business, four doors. They will go to -- we anticipate eight doors this year, that will still make it a very small piece of their business, but they’re profitable and they help grow the brand, and so it is a nice element of their overall growth strategy.

Great. Thanks very much.

Thank you.

The next question is from Andrew Burns with D.A. Davidson.

Thanks. Congrats on a great '17 and for 2018 product launches. I’m especially excited about the Taco Bell through this ball phoenix. Looking forward to getting that. But most of my questions were answered, just one quick one. Just on the Rogue, clearly retailers responded positively to the launch at the PGA Show. Just wondering how the retail community is thinking about positioning it versus the EPIC, particularly in drivers and hybrids, given the similar price points and how you plan to effectively communicate the differences between the two lines? Thanks.

Sure, Andrew. The -- we covered the positioning of Rogue and price point strategy and review that was all of our trade partners we met, a vast majority of them prior to executing that. So, I can comfortably tell you they are onboard with what we're doing and where we are going. The EPIC and the Rogue driver are priced the same at retail under our MAP pricing guidelines. They have slightly different technologies and that the EPIC has adjustable weighting. The Rogue is obviously the latest and greatest. It has the larger footprint. It has the new and improved Jailbreak technology. So there are some distinctions between what the consumers may choose, but we're probably most bullish right now on Rogue, the latest and greatest technology in product.

Okay. Thanks and good luck.

Thank you.

The next question is from Rommel Dionisio with Aegis.

Thanks very much. Good afternoon. Chip, you talked about Japan having a nice second half of the year. Could you just give us a little more color on that? Was it weather-related, product related, market share related, just a little explanation as to what drove that acceleration back half of the year? Thanks.

Well, Rommel, I assure to the best of my ability, so I think some of this is pent-up demand and economy, but I can't tell you that for sure, but that is my gut on it. It is also some product launches. We had a very strong launch of the EPIC Star Irons there, which were a record-setting in terms of the reaction and sell-through of that product in that market. And it very much helped that market overall and then also a competitor, XXIO, had a launch during that period. So both of those probably help the overall market. But I think the overall fundamentals of that market also mirror some of the rest of the country. It's interesting, rest the world, excuse me. The U.S., if you look at Datatech, it was down through the first half and up in the second half. It was a much more exaggerated fact in Japan, but you saw down first half and then up strongly in the second half.

Okay. That’s great perspective. Thank you very much.

Thank you.

The next question is from Casey Alexander with Compass Point.

Hi. Good afternoon. And most of my questions have been answered too and I don’t want to belabor this too long, but I'll throw one real quick one out there. How tricky is the transitioning of old Chrome Soft to new Chrome Soft, given that similar dynamics of the product and how a consumable is -- has kind of a different amount of inventory in the channel than club equipment? And also how tricky is that transition in light of the change of the price point?

Its sometimes tricky, Casey, but we've been working on that for all of Q4 as well, so you saw us run some quick promotions to work down field inventories and we manage that with our largest customers to make sure that field inventories weren't too heavy, that we were in an appropriate position going in. And then there's enough product differentiation here, we think that they will be attractive to different consumers when we launch it. So we think this one will be easier than most. In many cases that is a very tricky situation though.

Is there some sort of inflection point during the course of the year where you would expect to start to run down EPIC as well?

Yes, there is, Casey. But I can't get into the detail of that for you for competitive reasons at this point.

Okay, great. Thanks for answering my questions.

Sure. Thank you.

The next question is from George Kelly with Imperial Capital.

Hi, guys. Just two quick questions. First, could you -- it sounds like you’ve done a lot of consumer tests with the new golf ball product. Could you share any details from those tests? And then, second question, did you -- I may have missed it in the prepared remarks, but did you provide EBITDA guidance for 2018?

George, I will take the first one and I will give the second to Brian. We did do quite a bit of testing on the new Chrome Soft with consumers both from a concept and performance. Unfortunately I don't have that data in front of me. So I’m not in a position to share that. I apologize. Brian, do you have that?

Sure. George, for the EBITDA for year 2018 we are estimating a $112 million to $118 million, which is a 12% to 18% increase over 2017 adjusted EBITDA of $100 million.

Okay. Okay. Thanks.

Thank you.

And that was our last question. At this time, I will turn the call back over to Chip Brewer, CEO for final remarks.

Well, thank you everybody for calling in. We greatly appreciate your support. We are sorry, we ran over, but we wanted to stay on and answer the questions for those that were queued up. We look forward to talking to you at the end of Q1. Thanks.

This concludes today's conference call. You may now disconnect.