Callaway Golf Company (CALY) Q1 2021 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Q1 2021 Callaway Golf Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Patrick Burke, Head of Investor Relations. Thank you. Please go ahead.

Thank you, Erica, and good afternoon, everyone. Welcome to Calloway's First Quarter 2021 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; Brian Lynch, our Chief Financial Officer; Jennifer Thomas, our Chief Accounting Officer; Artie Starrs, our Chief Executive Officer of Topgolf; and William Davenport, our Chief Financial Officer of Topgolf. Today the company issued a press release announcing its first quarter 2021 financial results, a copy of the press release and associated presentation are available on the Investor Relations section of the company's website at www.ir.callawaygolf.com. Most of the financial numbers reported and discussed on today's call are based on US Generally Accepted Accounting Principles. In the few instances where we report non-GAAP measures, we've reconciled the 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 risks and uncertainties that could cause actual results to differ material from management's current expectations. We encourage you to review the Safe Harbor statements contained in the presentation and the press release for a more complete description. Please note that in connection with our prepared remarks, there is 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 investors website under the Webcasts and Presentations tab. Also on the same tab, you can choose to join the webcast to listen to the call and use the slides, as a webcast participant you're 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 5 of the presentation. It's great to be with you today to discuss what we believe were excellent Q1 results as well as to provide some color on the outlook for the business going forward. Our Q1 results exceeded our revenue and profitability expectations in all three of our principal business segments. Our Golf Equipment segment continued to experience unprecedented demand, which combined with a strong performance by our supply chain team, delivered 29% revenue growth versus 2020 and 16% growth versus 2019. Our Apparel and Soft Goods segment also overperformed our expectations driven by positive brand momentum in both Travis Matthew and Jack Wolfskin. The fact that this segment delivered positive segment profitability was, in my opinion, an exceptional performance given the headwinds faced by COVID restrictions and shutdowns in the European markets. I believe these trends bode very well for the long-term outlook of this segment. Lastly, Topgolf outperformed expectations based on a faster than anticipated recovery in demand as well as strong operating efficiencies. We believe it would be hard to find three better positioned business segments both for the current environment and our expectations going forward. I'd like to take this chance to thank the entire Callaway global Team, which I'm happy to call out now includes Topgolf and its related brands for the hard work required in delivering these results as well as navigating the many challenges presented by both these extraordinary times and the exciting strategy we are implementing. Like me, I'm sure our team remains highly motivated to capitalize on the strong list of opportunities and progress. Let's now turn to Page 6 and jump into our Q1 results by segment. Our Golf Equipment segment continues to benefit from record demand levels. According to Golf Datatech, U.S. retail sales of golf equipment hard goods were up 49% compared to Q1 2019 and 72% compared to 2020. That's setting another record for Q1, just as the last two quarters delivered records for their respective time periods. Our supply chain team did a great job in Q1 chasing demand and exceeding our expectations on supply. Even with this great work, field inventory levels remain extremely low and we expect them to remain so at least through mid-year perhaps even longer. Fortunately, we also believe our supply chain is and will continue to deliver us a competitive advantage through the balance of the year, especially in custom fitting where demand is also surging right now. Although we fully expect the current unprecedented demand to moderate at some point, we have yet to see a slowdown and we continue to see particular strength in products aimed at women's, juniors, and new entrants to the game. We are now quite confident that 2021 will be a very strong year and we also believe there will be a long-term benefits to the golf industry as we expect it will leave the pandemic period with a significantly larger total addressable market and strong momentum. Our Q1 market share was a little weaker than desired during the quarter, as all four major golf equipment brands launched metal wood products this year, while Q1 2020 only had two of the four launch. We never like to see share, but at this point, we are not overly concerned as our most recent share trends are improving. We expect this improvement to continue through Q2, and we are performing relatively stronger in key accounts that are not reporting to Datatech as well as strategically important green grass channels. Furthermore, we've been receiving excellent feedback on the performance of our products, especially the Epic MAX woods, the Apex Forged irons, the 2-Ball Ten Putter as well as our entire ball lineup. We also remain comfortable with our brand strength and position. In the U.S., third-party research and Datatech showed our brand to be the number one club brand in overall brand rating as well as the leader in innovation and technology. Over the last several years, we have shown resilience with these important brand positions. Turning to our Soft Goods and Apparel segment. Given the headwinds faced by COVID restrictions and lockdowns in the European markets, the results delivered in this segment were both better than our expectations, and in my opinion, an exceptional performance. Looking at the larger individual businesses in this segment starting with Travis Matthew, we had high expectations for growth and still the business exceeded these expectations. Driving this performance, e-commerce up 145% year-over-year in Q1 and company-owned stores comped up nearly 10% despite some COVID restrictions early in the quarter. Sell through at wholesale was also very strong. Ryan Ellis and his team at TravisMatthew are to be commended as momentum for this business is at an all-time high. Turning to Jack Wolfskin. This is the business that probably most overperformed expectations in Q1. As you probably recall, this business has started to deliver some nice year-over-year growth at the end of last year and we're starting to look like we have turned the corner and brand momentum. Both the COVID resurgence and resolving third wave shutdowns in Europe, we were naturally concerned. Although these circumstances have significantly impacted our business, how could they not, and they will continue to do so through at least Q2, our brand momentum in our European e-com channel and key digital partners has really moderated that negative impact. Combining this with both nice growth in China and strong financial discipline and what could have been a significant drag on our business has become manageable. On top of this, the improving brand momentum should set us up for a strong second half assuming of course the European markets open up as expected by then. Our sell-through momentum in this business is good and pre-books for the fall/winter lineup has been quite strong. As a reminder, Richard Collier joined the brand in December as CEO. Richard joined us from Helly Hansen, where he held the title Global Product Officer and served in that capacity as well as de facto COO. We also welcome Andre Grube to the brand as CFO last October coming to us from Mammut. We are really pleased with the leadership team we now have in place and I'm increasingly confident in the future of this brand. Last but not least, a few comments on the Callaway branded Soft Goods business. As mentioned last quarter, in Korea, we plan to take back the Callaway golf apparel brand that has been licensed to a third-party for several years and launched our own apparel business during the second half of this year. We remain on track for this and are investing in staffing and IT systems accordingly. The team there is energized by this opportunity as this is something they have been considering for several years now. Taking a step back and looking at the big picture. For the last year, the hero of the soft goods and apparel segment is certainly e-com. This is a channel that was significantly strengthened by investments we made prior to the pandemic as well as us continuing to this day. These investments enable our apparel business e-com to deliver 96% year-over-year growth in Q1. E-com is now a significant portion of the channel mix of this segment and we are confident our expanded capabilities and strength here will bolster this business growth prospects and profitability going forward. Post-COVID, we continue to expect our apparel and soft goods segment to grow faster than our golf equipment business and with that growth to deliver operating leverage and enhanced profitability. And although the pandemic delayed our efforts, we still believe we'll be able to deliver 15 million of synergies in this segment over the coming years. Like our company overall this segment with its concentration in golf and outdoor appears to be well-positioned for both the months and years ahead both during the pandemic and after. Now turning to Topgolf. This exciting new segment also outperformed the expectations based on the passive and anticipated recovering demand as well as strong operating efficiencies. We were pleased to close the transaction in early March and equally pleased to onboard Artie Starrs as the new CEO in early April. Artie brings a wealth of valuable experience and talent to an already strong management team and exciting business. Needless to say, I'm thrilled by this combination. On the venue side, all venues are now opened globally. After a challenging start to the year, COVID restrictions are continuing to ease. COVID impacted, so these include the impact of venue shut or restricted during COVID during the period. Same venue sales versus 2019 was in the low '80s for the quarter, which was above our expectations and showed improving trends through the quarter. We now believe we will be either at the high end or modestly above our previous full-year same venue sales expectations, which was 80% to 85%. Walk-in traffic remains stronger than events still and both are trending well. Our financial results benefited from the same venue sales fee as well as the operating efficiencies that are higher in both historical levels and our plan. Some of this is due to the fact that in the current environment like so many other service businesses, it's hard to keep the venues fully staffed. Fortunately, we're working through this well and so far it is neither meaningfully constrained us nor is it had a negative impact on guest satisfaction measures. This availability of labor is an interesting development which is likely playing out across the entire US economy. We see it as a manageable challenge as of now. Also with these results, we are increasingly confident that previously communicated venue economics will be achievable long term. We successfully opened five new venues so far this year, two in Q1 and three so far in Q2. Globally, we have 66 company-owned venues in operation. For the full year, we are on track to open at least three more venues for a total of at least eight venues this year. We also remain confident in our pipeline for future venues. Turning to Toptracer, we successfully installed 1,533 days in Q1, a new record despite the COVID challenges globally. We now have just over 10,000 days globally, which is significantly more than our largest competitor. Demand remains strong for the product and we are finding strong synergies between the Callaway sales team and the Toptracer team. We remain on track for 8,000 days this year. At the end of this week will be launching in the next global Toptracer tournament, the 9-shot challenge. This time presented by the PGA of America and the PGA Championship. This is an excellent example of how we can leverage our global scale and build a digital community. Looking forward, given the unsettled market conditions globally we are still not providing specific revenue or earnings guidance. However, we now going up new information and visibility to provide the following color. As discussed on our previous call we continue to have headwinds in our supply chain logistics and labor as far as I -- as far as I'm aware, most companies do at this point. Our cost estimates for these headwinds have increased since we last spoke, however, our supply chain and HR teams of proving up to these challenges. I believe we may even have a competitive advantage here. Also at present, the demand is high enough that positive volume variances are expected to overshadow the majority of this year's cost impacts from these challenges. We also continue to make select reinvestments back into our business. For the balance of the year, this will be marginally more than what we discussed during our last call. These include incremental new store openings at TravisMatthew, investments and demand creation and digital resources for all brands as well as the Korea apparel business. We have a track record for making these kinds of internal investments and are confident these will deliver higher returns for shareholders. Although we continue to fight COVID impacts globally and business conditions remain unsettled the strong demand equation and the momentum of our brands safe that it is clearly going to be a strong financial year significantly stronger than previously thought. We now expect that revenue and adjusted EBITDA for the full 12 months of 2021 will meet or beat 2019 results. More specifically, we are now expecting our legacy business to exceed its 2019 results and the Topgolf business to meet or exceed its 2019 full-year results as measured over the full 12-month period. It is worth noting that a couple of quarters ago, I said I thought this was not in reach. I'm happy to have to correct that previous statement. Lastly, we are increasingly confident in the future potential of this unique and powerful business. Brian over to you.

Thank you, Jeff. We are very pleased with our first quarter results with consolidated revenue increasing 47% and adjusted EBITDA increasing to 13% compared to the same period in 2020. Our consolidated revenue and adjusted EBITDA for the first quarter of 2021 also increased by 26% and 38% respectively compared to the first quarter of 2019. Each of our three operating segments performed ahead of plan during the first quarter of 2021. In addition to this better-than-expected operating performance, our liquidity has also improved substantially compared to a year ago. As of March 31, 2021, our available liquidity, which is comprised of cash on hand and availability under our credit facilities was $713 million compared to $216 -- $260 million at March 31, 2020. All in all, we are pleased with the current state of our business and are optimistic for the balance of the year. In evaluating our results for the first quarter, you should keep in mind some specific factors that affect the year-over-year comparison. First, as a result of the overview TravisMatthew and Jack Wolfskin acquisition, we incurred non-cash amortization expense of intangible assets in the first quarter of 2021 and 2020. The first quarter of 2021 also includes non-cash amortization of intangible assets related to the Topgolf merger as well as depreciation expense from the fair value step-up of Topgolf property, plant, and equipment expense related to the fair value adjustments Topgolf leases and debt. Second, we also incurred other acquisition and non-recurring charges in the first quarter of 2021 including Topgolf merger transaction and transition expenses and implementation costs related to the new Jack Wolfskin IT system. In 2020, the company incurred non-recurring integration costs related to the Jack Wolfskin acquisition and costs related to the transition to our new North American distribution center in Texas. Third, we recognized in the first quarter of 2021 a $253 million non-cash gain related to the write-up of our pre-merger Topgolf investment. Fourth, we incurred in the first quarter of 2021 and will continue to incur a non-cash amortization of debt discount on the notes issued during the second quarter of 2020. Fifth, we recorded in the first quarter of 2021 a non-cash valuation allowance related to certain of our deferred tax assets as a result of the merger. Lastly, the Topgolf merger was completed on March 8, 2021. Topgolf generally operates in a 13-week quarter as a result, our first quarter 2021 financial statement includes Topgolf results for four-week period commencing March 8, 2021, and ending April 4. This can become confusing, and we will do our best to call out when we were discussing Topgolf results for the fourth quarter versus the four-week stub period, but you should you do care while preparing your models to ensure you're using the correct one. We provided in the tables to this release a schedule detailing the impact of these items on our first quarter results and these items are excluded from our non-GAAP results. With those factors in mind, I will now provide some specific financial results for the first quarter of 2021 compared to the first quarter of 2020. Turning now to Slide 11. Today, we are reporting record consolidated first quarter 2021 net revenues of $652 million compared to $442 million for the same period in 2020, an increase of $210 million or 47%. This increase was led by a 26% increase in the legacy Callaway business as well as an incremental $93 million from the four weeks of the Topgolf business. Changes in foreign currency rates had a $70 million favorable impact on first quarter 2021 net sales. We are also reporting for the first quarter of 2021 operating income of $76 million, an increase of $35 million or 85% compared to $41 million for the same period in 2020. On a non-GAAP basis, operating income for the first quarter of 2021 was $97 million, $54 million or 126% increase compared to $43 million for the same period in 2020. The increase in non-GAAP operating income was led by a $50 million increase in segment operating income from the legacy Callaway business as well as an incremental $4 million for the four weeks of the Topgolf business. Other income was $244 million in the first quarter of 2021 compared to other expense of $3 million in the same period of the prior year. This includes a $253 million non-cash gain related to the Topgolf merger. On a non-GAAP basis, which excludes income -- other income in Topgolf, other expense was $5 million in the first quarter of 2021 compared to other expense of $3 million for the comparable period in 2020. The $2 million increase in other expenses primarily related to higher interest expense related to incremental interest from the convertible bonds issued in May 2020 plus four weeks of Topgolf interest partially offset by a decrease in foreign currency-related losses. Pre-tax income was $320 million in the first quarter of 2021 compared to $38 million for the same period in 2020. Non-GAAP pre-tax income was $91 million in the first quarter of 2021 compared to non-GAAP pre-tax income of $41 million in the same period of 2020. Earnings per share was $2.19 or approximately 125 million shares in the first quarter of 2021 compared to earnings of $0.30 or approximately 96 million shares in the first quarter of 2020. Non-GAAP earnings per share were $0.62 in the first quarter of 2021 compared to earnings per share of $0.32 for the first quarter of 2020. Fully diluted earnings -- fully diluted shares were 125 million in the first quarter of 2021 compared to 96 million shares for the same period in 2020. The net 29 million share increase is primarily related to the issuance of additional shares in connection with the Topgolf merger. Full-year estimated diluted shares are approximately 176 million shares, which represents the weighted average shares issued in connection with the merger of approximately a 10-month period. As of March 31, 2021, we had approximately 185 million shares that were issued and outstanding. Adjusted EBITDA was $128 million in the first quarter of 2021 compared to $60 million in the first quarter of 2020, and $93 million in the first quarter of 2019. Topgolf contributed adjusted EBITDA of $50 million for the four-week period. To provide some additional perspective, the Topgolf first quarter 2021 EBITDA for the full three months was $17 million. The golf equipment segment net revenue increased $85 million and 29% to $377 million in the first quarter of 2021 compared to $292 million in the first quarter of 2020. This increase was driven by the continued surge in golf demand and participation. Our supply chain team's ability to secure a greater-than-expected supply of golf equipment components during the first quarter as well as the COVID-19 shutdowns across portions of our business in the first quarter of 2020. Both golf clubs and golf ball sales increased by 26% and 15% respectively. The golf equipment segment operating income of $85 million or 22.5% of net revenues in the first quarter of 2021, compared to $59 million or 20.2% of net revenues in the first quarter of 2020 is an increase of $26 million of 230 basis points. The increase was driven by increased revenue, operating expense leverage, and favorable foreign currency exchange rates partially offset by increased freight and product mix including lower margins or higher technology golf ball product offerings and packaged set. For the current year, other segment net revenue increased $31 million or 21% to $182 million in the first quarter of 2021 compared to $151 million in the first quarter of 2020. The increase was driven by a 23% increase in apparel sales as well as an 18% increase in gear accessories and others. Both the TravisMatthew and Jack Wolfskin businesses are recovering from the pandemic faster than expected despite continued retail restrictions and other effects from COVID-19 particularly in Europe. The apparel gear and other segment operating income increased $24 million to $20 million compared to a loss of $4 million for the same period in the prior year. In 2021 this equated to 11% in the segment revenue, a 1,360-basis point improvement over the first quarter of 2020. The increase was driven by an increased sales, operating expense and cost of revenue leverage, favorable foreign exchange rates, and increased commerce revenue partially offset by lower retail revenue at Jack Wolfskin due to further government mandated retail shutdowns during the first quarter in Central Europe. The Topgolf segment net revenue was $93 million in the first quarter of 2021, which includes four weeks of the Topgolf business. The Topgolf segment's operating income was $4 million for the four-week stub period. To provide investors additional perspective, Topgolf's full first quarter net revenues were $236 million and full first quarter GAAP operating loss of $30 million and on a non-GAAP basis, Topgolf's operating loss was $15 million. Turning now to Slide 13, I will now cover certain key balance sheet and other items. As of March 31, 2021, available liquidity was $713 million compared to $260 million at the end of the first quarter. This additional liquidity reflects higher revenues in the legacy Callaway business, improved liquidity for working capital management, and proceeds from the convertible notes we issued during the second quarter. At March 31, 2020, we had total net debt of $1.160 million including $640 million of Topgolf operated net debt. The Topgolf net debt includes deemed landlord financing of $222 million related to financing within this business. Our consolidated net accounts receivable was $329 million, an increase of 27% compared to $260 million at the end of the first quarter of 2020. Days sales outstanding decreased slightly to 61 days on March 31, 2021, compared to 62 days up to March 31, 2020. The increase in net accounts receivable primarily is attributable to the increase in first quarter revenue, but also includes an incremental $9 million of accounts receivable. We continue to remain very comfortable with the overall quality of our accounts receivable at this time. Also displayed on Slide 13, our inventory balance decreased by 19% to $336 million at the end of the first quarter of 2021 compared to $430 million at the end of the first quarter of the prior year. The $77 million decrease was due to the high demand we are experiencing in the golf equipment business, recovery of our soft goods businesses as well as inventory reduction efforts in the soft goods business. Capital expenditures for the first quarter of 2021 were $29 million. This includes $16 million related to Topgolf. From a full-year 2021 forecast perspective, the legacy Callaway forecast is increasing to approximately $65 million versus the previous forecast of $50 million due to capacity investments at our plants and warehouses as well as increasing the number of planned TravisMatthew owned retail stores. The full-year and 12-month forecast for Callaway and Topgolf is approximately $265 million driven primarily by the new venue openings. If you include Topgolf for only 10 months that will be approximately $235 million. Depreciation and amortization expense was $20 million in the first quarter of 2021. Non-GAAP depreciation and amortization expense was $17 million in the first quarter of 2021 compared to $8 million in 2020. This includes $9 million of non-GAAP depreciation and amortization related to Topgolf. We feel to give investors additional perspective, the Topgolf full Q1 non-GAAP depreciation and amortization was $27 million. For the full year in 2021, we expect non-GAAP depreciation and amortization expense to be approximately $155 million, which includes a $115 million from the Topgolf business. I'm now on Slide 14. We are not providing specific revenue earnings guidance ranges for 2021 at this time due to the continued uncertainty surrounding the duration and impact of COVID-19. However, we would like to provide some guidance comments we previously made. First last quarter we provided some guidance on full year consolidated gross margins and operating expenses. Due to the merger with Topgolf that guidance is no longer applicable. We are no longer providing specific guidance for consolidated gross margins and operating expenses given the disparate treatment of those items from the legacy Callaway business and the Topgolf business. With that said, I would like to quite a few factors that have changed since our call in February. First, we have changed our accounting for co-op advertising of our golf equipment business. For 2021 it is treated as a discount to sales as opposed to an operating expense in 2020 and 2019. This negative -- this negatively impacted gross margins for the golf equipment business in the first quarter of 2021 by approximately 85 basis points and will continue to affect comparisons with prior periods for the balance of the year, prior periods will not change. There is no change to operating income. This is only a shift between gross margin and operating expenses. We previously estimated that the freight container shortage was expected to have a negative impact of $30 million on freight costs in 2020 with the substantial majority effect in the first half. At this point, the impact of COVID-19 on our overall freight cost is expected to be greater than the $30 million with more costs in the balance of the year than originally expected. We also previously estimated that operating expenses for the legacy Callaway business will be approximately $78 million higher than in 2019 due to the negative impact of foreign currency, inflationary pressures, and continued investment in the company's business., which included investment needed to assume the Korea apparel business, investment in other soft goods businesses and investment in pro tour. We now expect that these factors along with both deferred spending from the first quarter and increased variable costs associated with increased revenue and higher stock price will have an overall greater impact than we originally anticipated for the balance of the year. In addition, we plan to invest a little more back into our business than originally planned. These incremental investments include additional TravisMatthew stores given that brand's momentum and the availability of favorable lease terms in the current environment and incremental investments in demand creation and digital resources for all brands as well as the Korea apparel business. Lastly, we along with most other companies are experiencing increased wage pressure due to a tight labor market, increased freight costs, as I mentioned earlier, and increased commodity prices. These are impacting all aspects of our business. We are seeing increased freight costs in terms of increased container prices but also increased air freight expense as well. We are also seeing an increase in commodity prices from steel and titanium from rubber to everything to textile to chicken wings. As Chip mentioned the present demand is high enough and the positive volume variances are expected to overshadow the majority of these increased costs. With these increased costs in the aggregate, we'll still have some impact on the balance of our operating margins. In 2022, we will have to explore price increases as those higher costs continue. We have previously guided that due to the impact of COVID-19, the company's revenue and adjusted EBITDA will not return to 2019 levels until 2022 to the legacy Callaway or the Topgolf business. Given the faster than expected recovery of both businesses and with all three of our operating segments performing above plan in the first quarter, we now projected revenue and adjusted EBITDA from our legacy businesses won't exceed 2019 levels and our Topgolf business for the full 12 months of 2021 will meet or exceed 2019 levels, which is a year faster than expected. As a reminder in 2019, the Callaway legacy business reported revenue of $1.7 billion and adjusted EBITDA of $211 million. For full-year of 2019, that's 12 months, the Topgolf business reported revenue of $1.06 billion and adjusted EBITDA of $59 million in 2019. Please note that Callaway's actual reported full-year financial results will only include 10 months of Topgolf results in 2021 and therefore will not include January and February results which were in the aggregate $143 million in revenue and $2.3 million in adjusted EBITDA. That concludes our prepared remarks today and we will now open the call for questions. Operator, over to you.

[Operator Instructions] We do ask that you limit yourself to one question and one follow-up question. Thank you. [Operator Instructions] Your first question is from Randal Konik with Jefferies.

Hey, thanks. Can you hear me, guys?

Sure. Yes.

All right. Good afternoon. Chip, I just want to ask a question. We got some good color there on how we should be thinking about 2021, but I just want to get your level, just your level of comfort on how you're thinking about those 2022 numbers you guided us with, I believe it was about $3.2 billion in sales and about $360 million in adjusted EBITDA. I just want to get your thoughts on how you're thinking about those goals for next year.

Yes, good question, Randy. As previously discussed in the calls that we've had, –the 2022 guidance that we gave in conjunction with the announcement of the Topgolf merger, we believe was conservative. And I think we can even take that a step further now and say that we expect to be better than that guidance, better than the $360 million in adjusted EBITDA in 2022. However, we're not providing the specific estimates at this point and we do hope to be able to restore at least annual guidance early next year as per our previous practice.

That's super helpful. One last question is, you gave us some color on Toptracer, where you said that you expect to hit those 8,000 base. I can't go into all these driving ranges that look like they're stuck in the 1990s and in desperate need of this Toptracer technology and this range is always packed now. So how do you - are you getting a lot more incremental inbound? And if so, do you think that the level of installations can potentially rise over time as your construction teams get used to the installation process and get better and faster what they do? Just curious on your thoughts there.

Yes, Randy. We remain very encouraged and probably increasingly encouraged by that business. So Q1, you have to keep in mind had significant COVID restrictions in various parts of the world and we still do in various parts of the world. So the fact that we're comfortable with the 8,000, which was our previous communication bay installs means that among other things, the demand for the product is quite good. It's also an area where we're seeing very strong synergies with the Callaway business being able to generate additional leads and sales pipeline for the Toptracer business. So as we work through the COVID environment and scale that business, yes, we remain very optimistic, and hopefully, there is some upside potential.

Great. Super helpful. Thanks, guys.

Thank you.

Your next question is from Brett Andress with KeyBanc Capital Markets.

Hey, good afternoon, guys. Can you give us any detail on the cadence of same-store sales in the quarter, just how it progressed from January into March, April, May? Just trying to get a feel for the exit rate of the business. And then if you look at the non-COVID impacted units, how did those units compare to that low 80s number that you gave us?

Okay. Hey, Brett, this is Chip. So as you would have expected the same venue sales ramp during the quarter. If you go back, it seems like a long time ago now. But in Q1, even in the U.S., COVID was pretty hot and heavy in the January time period. We were scaling back up and there were significant restrictions in the U.S. as well as globally. And so as you would expect, the same venue sales ramped nicely during the quarter and we're at the highest point towards the end of the quarter. What was the other question, Brett?

Just the non-COVID impacted units. What -- how those units compared to that low 80s number that you gave us?

Yes, Brett, I'm not going to be able to give you anything quantitatively there. Unfortunately, the level of granularity there is beyond what we're comfortable with. To a degree, you could argue that most were COVID impacted at some stage during the quarter. But certainly, the results vary by venue and location and we prefer not to get into specifics of which venue did better than the others at this stage.

Got it. Okay, that's fair. And then my follow-up is, can you just talk about what you're seeing in the events piece of the Topgolf business, I mean, how is the events business doing compared to '19, I guess, today? And then if you look into the back half of the year presumably, you have some visibility right in terms of the events on the books. Can you just maybe talk about that and how you see the events recovery playing out in the Topgolf?

Sure. But again, it will be a qualitative, not a quantitative discussion. So the events are still significantly impacted as you would expect, but they like the rest of the business ramps during the quarter, and we are seeing increased interest for events. The event sales team is getting better response and improved leads, so we're optimistic that we'll continue to ramp, but it is still significantly impacted as you would expect it to be. And our visibility of that specific element is -- it's still not great, to be honest. We are optimistic on it and it's certainly above where we expected, but it would be beyond me that will predict that one for Q3 or Q4 although we like the trends.

Perfect. All right. Thank you.

Thank you.

Your next question is from Joe Altobello with Raymond James.

Thanks. Hey guys, good afternoon. So first question in terms of development costs for the new venues, given what we're seeing in the real estate environment and given what we're seeing across raw materials, has the development cost for new Topgolf venues increased materially?

We have seen some pressure on that. It hasn't had a material impact on us at this stage. But it is something we'll continue to monitor because all of the cost impacts across all of the business are seeing some inflation at this point. So and nothing to report at this stage, but yes, we are starting to see some things that will keep our attention on.

Okay, great. And just to follow-up on that. Now that the deal is closed, could you provide us a little more insight into the potential revenue synergies that you see for your equipment business and apparel business with Topgolf?

Really no change in our point of view right there. We think that it's very attractive strategically and there are going to be significant synergies. We're not calling those out and it's going to take some period of time to really realize those, although, we're getting a nice start on it now, and - but no, we are not going to specifically call anything out at this point.

Okay, understood. Thank you.

Your next question is from Susan Anderson with B Riley.

Hi, good evening. Nice job on the quarter. Just really quick on the core golf business. You mentioned, all of the port and freight issues going on, and it does look like inventory is pretty lean. So I'm just curious how you feel about inventory in that segment. And do you feel like you missed, and even though sales were obviously very strong, do you feel like you missed any sales in the quarter, should we see that more spread out throughout the year because of the freight and port issues?

Susan, there were definitely constraints as the demand was so extraordinarily high during Q1 and you got to keep in mind in Q1 is not a high sell-through quarter, although it was a record sell-through results, Q2 is a much larger quarter as Q3 from a sell-through basis. The field inventory levels are quite low. Our inventories are quite low and we think that our supply chain team is doing a fantastic job. If you look at just the golf club side of our business, it was up 49% last in Q4 and 26% in Q1. So sequentially building and its building without having the time period that it had. We'd like to have some build inventories for Q1, usually, we take the second half of the year when demand is low and build inventory at our foundries for the subsequent quarter. We didn't have that luxury as much last year but still, as you can tell, the team has been able to flex and grow, and we think it's going to be a nice competitive advantage going forward. I don't really think the right way to think about it personally is whether what we left on the table in Q1 as opposed to how strong the demand equation is how long and it's sustaining at these levels and that we believe we have a very strong supply chain team that clearly is creating us we think a competitive advantage and allowing us to take advantage of the opportunities that are in front of us.

Great. Okay, that's very helpful. And then just really quick on Topgolf, on the EBITDA, it looks like it was relatively strong I think versus kind of the longer-term expectations you laid out, so I'm just curious if there is any updates to your thoughts around EBITDA as we kind of look out over the next several years there.

Hi, Susan. We're not -- we've not provided long-term guidance there, but you're right, it was very good EBITDA performance, and just as the business recovers from COVID, I think you'll see a continued ramp in that business and performance.

Great. Okay. If I could add one last one on Jack Wolfskin, I think you had mentioned that you now expect it, you think it could be bigger than originally expected. Maybe if you could give a little bit more color around that is that as you add North America or are you seeing the strength in Europe great and China greater than what you would have originally expected.

Europe and China are really starting to hit stride, Susan and I'm increasingly confident in the team. I'm seeing brand momentum. We're just seeing a lot of strength in a lot of different areas there now. Some of these are the results in the investments that we've made over the several years that we've had the business, but a lot of confidence right now in that brand in those markets, obviously, it's a difficult environment right now because Europe was literally in the set least and Central Europe locked out and yet, you can see our confidence is increasing and the results are showing that. We think we're in a very good position there going forward.

Great, that sounds good. Thanks so much. Good luck next quarter.

Thank you.

Your next question is from John Kernan with Cowen.

Good afternoon and thanks for taking my question.

Hey, John.

Hi, John.

Was wondering if Artie was taking questions, I know he's probably excited about the opportunity at Topgolf, and just curious if he is able to share what his, to test the potential his views for the concept, I know he obviously comes from a deep background in restaurants and just curious what he's seen at Topgolf at this point that gets him excited.

Yes, John, given that it's only about one month or one week into the new role, we are going to not introduce him to ask specific questions on this call. However, we look forward to closing into you and other analysts in the future and obviously thrilled to have him on board.

I get it, they are good things. Maybe Brian, if we go back to you. Just on the guidance, it seems like you're more confident than maybe when the initial guidance for 2021 was provided the costs, so the SG&A, the incremental SG&A cost seems to be the biggest headwind for the core Callaway business. Just wondering what the offsets to those are, as you're now going to be exceeding 2019 levels of EBITDA.

Yes, a lot of it's going to be the revenue overperformance versus 2019. As you know that we still are seeing the continued serving interest and demand in participation for golf and then I think you'll see, it's largely that is just both, all the businesses are recovering faster than expected, golf is on fire, the soft good businesses are recovering faster than we think. So that will offset some of the incremental expenses between Q2 and Q4. We're probably underperforming those expenses right now. We're getting leverage because we're not able to higher and we had to defer some marketing things like that. So the levels right now, probably are not sustainable and the OpEx will continue to be a rapid increase as we go through the year.

Understood, thanks. Maybe one, just one final question, it sounds like, Chip you're more incrementally positive on the soft good side of the business. Maybe relative to where we were three months ago. Just any comment on Travis, Jack Wolfskin, the sales and margin opportunity there as we go, not just for 2021.but beyond.

Yes, John, I'm fortunate right now, and that I'm incrementally more positive in all three of our business segments and continue to build confidence in all of them. The TravisMatthew business is like I said is, its momentum is at an all-time high. We had high expectations for growth going into the quarter and it's outperformed those expectations and average. The brand is really resonating. It's really got high potential, I think going forward, and we're excited about investing in it and it's delivering. And the Jack Wolfskin business, that business has really started to deliver as well. We're not going to call out any quantifiable guidance on these. We've done a little bit of that in the past and it's when you look at the apparel and soft goods segment, it's still the segment that is most heavily impacted, it's still in Europe, the Central European markets are still in lockdown, but as shown in our results, we're hitting stride, we're building momentum, good self-serve despite that strong e-com growth, fall-winter bookings looking really good, China business starting to hit stride. So we do feel very good about that business segment as we do about all three of our business segments.

Awesome. Thank you, guys.

Thank you.

Our next question is from Casey Alexander with Compass Point.

Hi, good afternoon. I know we've been here for a while, but just a couple of segment questions. One, you're able to grind out a year-over-year increase in Europe despite some key markets being closed for golf for more months this year than they were last year. I'm curious what may be, was it something outside of golf that contributed to Europe that allowed you to get a gain there, and conversely in Japan where there was a 7% decrease. Is that a part of the share argument that you were talking about that drove that one market to show a decline?

Sure, Casey. In Europe, yes it was outside of golf, although golf did better than you would have expected it to do given the shutdowns that existed in that market in Q1. The apparel business that we have in Europe did better relatively than a year ago in Q1 where COVID hit so hard early on and now with the strength of our ability to do business in a COVID environment we overperform, and you should know that going into the quarter because at the time we had the last call with you, they were just announcing the further shutdowns in Europe. So we were, we were trying to get our arms around all that and we outperformed our expectations. In Japan, what we saw there was a little bit of a share shift during the quarter. Lot of it is timing though. We had -- we capped a strong year in Japan last year in Q1, so our, the whole business last year in Q1 was a little all over the map because of COVID but Japan itself was up versus 2019 and 2020 for the first quarter, and this year our product mix in Japan sells in a little less than our product mix did a year ago. We also shut down a few stores during the COVID period. So our apparel business over there has its own stores. We closed nine actually not profitable stores so that impacted some of the revenue. The long and short of it is we expect Japan to be up for the full year and we remain comfortable with that business, although it was an outlier in Q1.

All right, great, thanks for that. And secondly, the golf balls up 50% year-over-year. Clearly, the biggest trend of all, what would you say drove that golf ball comp, and was it programs that you ran, is that sustainable for the year, would you expect that to back off some as the year goes along?

In case. Yes, I would probably expect it to back off, but I'm not sure we can have a 50% growth for the full year. In fact, I would guess, we cannot. However, I think there is some sustainability in the good momentum we have in the golf ball business where we see our share up. We are seeing continued strength in that business and you're also seeing some of the benefits of the investments we've made into that business. So last year was a particularly hard year in golf ball. We were in the middle of trying to start up after a significant capital improvement plan and COVID hit, and it became a very difficult situation. We're starting to see the benefits of the investments we've made and the brand position is strong and as you can tell the demand equation is equally strong.

Yes. Okay, great, thank you for taking my questions.

Thank you, Casey.

Your final question is from Alex Maroccia with Berenberg.

Hi, good afternoon guys. Thanks for taking my questions. There was a bit of debt repayment in the period. Can you just remind us about efforts to delever in the coming years following this deal?

Yes, I mean, while we really had it a very long time ago. So we wanted to get to below two times leverage, but I think with the current environment we're trending toward four times to five times by the end of this year and then working toward three times or so after that. With the growth in the company and growth in top CapEx, we're going to be able to even without paying down much debt. We're going to be able to run interest through the EBITDA growth.

Got it. That's helpful. And then secondly, are you planning any type of promotional activity for Jack Wolfskin products in Europe since the key selling season was essentially a loss this year?

Alex, very limited. We find ourselves because we had very good sales at the e-com and digital channel. We do not find ourselves in a inventory concern in Europe, which is another positive occurrence. The team has managed that quite well and if it will be, it will be marginal to the point where I'm not expecting any impact that it will be noticeable.

Okay, that's great. Thank you, guys.

Thank you.

At this time, I'll turn the call back over to Chip for closing remarks.

Well, thank you, everybody, for calling in. As you can tell, we're delighted with our performance in all three business segments showing strength going into the balance of the year. We appreciate the opportunity to discuss it with you and look forward to talking to you again at the end of next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.