Callaway Golf Company (CALY) Earnings Call Transcript & Summary

Hello, and welcome to the Callaway Golf Company 2020 Annual Meeting of Shareholders. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Chip Brewer, President and Chief Executive Officer of Callaway Golf Company. Mr. Brewer, the floor is yours.

Thank you. Good morning, and welcome to the Callaway Golf Company's 2020 Annual Meeting of Shareholders. I am Chip Brewer, President and Chief Executive Officer of the company. Today's virtual-only meeting is live audio webcast. We believe in engaging with our shareholders, and we hope that this virtual meeting will maximize the participation of shareholders regardless of their location. Thank you very much to those who are participating in our virtual meeting online today. At this meeting, we'll first address the matters to be voted upon at the meeting, and afterwards we will have a question-and-answer session. Before I call the official meeting to order, we sincerely hope that you and your families are safe and healthy in these uncertain times. Our thoughts and prayers are with you and all those affected by COVID-19. We would also like to express our sincerest gratitude to all of those caring for anyone affected by the COVID-19 pandemic. With that said, the meeting is now called to order. Computershare represented today by Tiffany Skiles has been appointed as Inspector of elections and is in attendance. If you have not yet voted, please do so now by clicking on the link provided online. [Voting]

If you need a copy of the annual report or the proxy statement, the links are provided online as well. I would now like to introduce our Board members. More detailed information concerning their background is included in the proxy statement as well as on our website. Ron Beard. Ron is retiring today after almost 20 years of distinguished service, and this will be his last shareholder meeting as Chairman of the Board. Ron, we are grateful beyond words for your invaluable leadership since 2001, and in particular, since I joined the company in 2012. You've been an invaluable confidant adviser and friend. The company extends its deepest gratitude to you for your leadership and profound and lasting contributions to the company. Thank you. Turning now to our directors being reelected today. John Lundgren. John will be our new Chairman of the Board following the Annual Meeting. John is the former Chairman and Chief Executive Officer of Stanley Black & Decker and is currently the lead independent Director for VISA. Sam Armacost. Sam has held various leadership positions in the financial services industry, including Chief Executive Officer of Bank of America. Scott Baxter. Scott is the President and Chief Executive Officer of Kontoor brands. Prior to this role, Scott was Group President, Americas West for VF Corporation. John Cushman. John cofounded Cushman Realty Corporation, and is now Chairman, Global Transactions of Cushman & Wakefield. Laura Flanagan. Laura is the Chief Executive Officer of Ripple Foods and is the former Chief Executive Officer of Foster Farms. She has held various leadership roles at ConAgra Foods, General Mills and PepsiCo. Russ Fleischer. Russ is a General Partner of Battery Ventures and previously served as Chief Executive Officer at 3 privately held companies. Linda Segre. Linda is a former professional golfer and a former Executive Vice President, Chief Strategy and People Officer at Diamond Foods. Adebayo Ogunlesi. Adebayo is the Chairman and Managing Partner Global Infrastructure Management, and he previously spent 23 years at Crédit Suisse. Tony Thornley. Tony served as the interim President, Chief Executive Officer of the company prior to my arrival and is the former President and Chief Operating Officer at QUALCOMM. From senior management, also joining me today is Brian Lynch, the company's Executive Vice President, Chief Financial Officer; as well as Patrick Burke, Vice President, Global Finance and Head of Investor Relations; and Sarah Kim, Vice President, General Counsel and Corporate Secretary. At this meeting, shareholders are being asked to vote upon the following 4 proposals: number one, the election of 10 directors; number two, the ratification of the appointment of Deloitte & Touche as our independent registered public accounting firm for 2020; number three, the approval of the compensation of our named executive Officers; and number four, the approval of an amendment to the certificate of incorporation to eliminate cumulative voting in the election of Directors. Details of these 4 matters are included in the company's proxy statement. The online voting will now be closed. Sarah, can you report whether we have a quorum and the results of the voting.

The inspector of elections has informed me that a quorum is present with over 87.5% of shares being represented today. Based on the preliminary review of the votes cast, the Inspector has informed me that all Directors were reelected and that all other proposals were approved in accordance with the recommendation of the Board of Directors. A final report will be available online in the next few days.

Thank you, Sarah. That concludes the official business portion of the meeting, and the meeting is now adjourned. Before we proceed, I'm going to ask Sarah to provide our required notices.

Any statements that are made today about future growth, performance, events, prospects or circumstances including statements related to the future industry and market conditions, strength of the company's brands and products, geographic diversity, operational improvements, impact of the COVID-19 pandemic on the company's business, results of operations and financial conditions, the impact of any measures taken to mitigate the effect of the COVID-19 pandemic, the company's liquidity position and creation of shareholder value are forward-looking statements subject to safe harbor protection under the federal securities laws. Such statements reflect our best estimates based on current circumstances and conditions. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risks and uncertainties applicable to the company and its business. For details concerning these risks, you should consult the Risk Factors section of the company's annual report on Form 10-K for the year ended December 31, 2019, together with the company's reports on Forms 10-Q and 8-K, subsequently filed with the Securities and Exchange Commission, and the company's May 7, 2020, earnings release, which is available on the Investor Relations section of the company's website located at ir.callawaygolf.com.

Thank you, Sarah. For the third consecutive year, 2019 was a record year for Callaway for revenue. We not only continued to grow our core business faster than the market, but we also continued to realize operational efficiencies and make strategic investments in our business, including the acquisition of the Jack Wolfskin brand at the beginning of the year. As a result, our 2019 sales grew $458 million or 37% to $1.7 billion, a record for the company. And we remain the #1 golf clubs brand in the United States. Our 2019 income from operations was $133 million, up 3% compared to 2018, also a record for the company. In addition to this strong financial performance, we also strategically invested in our core business. We substantially completed a $50 million capital investment in our Chicopee golf ball facility, that, we believe, will be transformational in terms of capacity and capabilities. We also continue to invest in sales, marketing and R&D, including artificial intelligence, which is now being used, not only in our new MAVRIK driver, but also throughout the MAVRIK family of products. In our apparel and soft goods businesses, we have been able to find attractive opportunities for growth in the areas where we believe there are synergies that will help us create long-term value. We believe we can and will develop and grow a strong apparel position while continuing to lead the golf equipment business. The 2 portions of our business will benefit from each other, while providing us both higher and long-term growth rates and scale that will benefit our shareholders. Our brand momentum in 2019 continued into 2020 with a strong start to the year. Through early March this year, we were on track to deliver another record year of sales, which would have made it our fourth consecutive record year. Unfortunately, the COVID-19 pandemic and the associated global regulatory responses implementing social distancing and shelter-in-place orders significantly slowed retail sales and created various business operations challenges worldwide, which significantly affected our first quarter financial results. While COVID-19 will negatively impact our results this year, we believe we'll be well positioned to emerge from this pandemic in a position of strength. We believe we have sufficient liquidity, which was bolstered even further by our recent convertible note offering, and our golf and outdoor lifestyle businesses are well suited for an active and healthy lifestyle that is compatible with the world of social distancing. We believe that the nature of our businesses, the additional liquidity we've created, together with the strength of our brands, our product and geographic diversity and the operational improvements we've made to date will enable us to create shareholder value as we emerge from this pandemic. Thank you for your continued interest in Callaway. I would now like to begin the Q&A session. [Operator Instructions] At this point, there are no questions. I want to thank you for your participation today and your continued support of Callaway Golf. Please stay healthy, and we look forward to communicating further in our regular process of quarterly reports. Thank you.

This concludes the meeting. You may now disconnect.