Callaway Golf Company (ELY)

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Callaway Golf Company (ELY)

Q4 2012 Earnings Call

January 30, 2013 05:00 pm ET


Chip Brewer – President & Chief Financial Officer

Brad Holiday – Chief Financial Officer


Dan Wewer – Raymond James

Scott Hamman – KeyBanc Capital Markets

Lee Giordana – Imperial Capital

Rommel Dionisio – Wedbush Securities

Andrew Burns – D.A. Davidson

Casey Alexander – Gilford Securities

Craig Kennison – R.W. Baird



Good afternoon, my name is Allie and I will be your conference operator for today. At this time I would like to welcome everyone to the Callaway Golf Q4 2012 Earnings Conference Call. (Operator instructions.) I would now like to turn the conference over to your host, Brad Holiday, Chief Financial Officer. Mr. Holiday, you may begin your conference.

Brad Holiday

Thanks, Allie. I would like to welcome everyone to Callaway Golf Company’s Q4 2012 Earnings Conference Call. Joining me today is Chip Brewer, our President and CEO. During today’s conference call Chip will provide some opening remarks and I will provide an overview of the company’s financial results for the quarter, and we will then open the call for questions.

I would like to point out that any comments made about future performance, events, prospects, or circumstances including statements relating to estimated net sales, gross margins, operating expenses, net income, and per share results for 2013; the estimated amount and timing of benefits or charges associated with the cost reduction initiatives; future market recovery, growth opportunities, and market share gains; the success of our 2013 product line, the company’s turnaround and the collectability of our accounts receivable as well as the company’s estimated 2013 capital expenditures and depreciation and amortization expenses are forward-looking statements subject to Safe Harbor Protection under federal securities laws.

Such statements reflect our best judgment today based on current market trends 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 and other risks and uncertainties you should consult our earnings release issued today as well as Part I, Item 1.A of our Form 10(k) for the year ended December 31, 2011, filed with the SEC together with the company’s other reports subsequently filed with the SEC from time to time.

In addition, during the call in order to assist interested parties with period-over-period comparisons, on a consistent and comparable basis we will provide certain pro forma information as to the company’s performance excluding charges associated with the company’s global operations strategy, non-tax cash adjustments including a deferred tax valuation allowance, restructuring charges, the gain on the sale of three buildings, the gain on the sale of Top-Flite and Ben Hogan brands, non-cash impairment charges, and charges related to the company’s cost reduction initiatives. We will also provide information on the company’s earnings excluding interest, taxes, depreciation, amortization expenses and the non-cash impairment charges.

This pro forma information may include non-GAAP financial measures within the meaning of Regulation G. The information provided on the call today and in the earnings release we issued today included reconciliation of such non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP. The earnings release is available on the “Investor Relations” section of the company’s website at I would now like to turn the call over to Chip.

Chip Brewer

Thanks, Brad. Good afternoon everybody and thanks for calling in this afternoon. I’m glad to be with you today and have the opportunity to discuss our results as well as the many changes happening here at Callaway Golf.

2012 was an interesting and challenging year for Callaway. Although we ended the year within our most recent guidance our financial results were clearly below acceptable levels and for the year as a whole we lost market share in the US, our largest market. Brad will review the 2012 financials with you in a minute. From a market share basis, through November our US hard goods market share declined to 14.4% versus 15.6% in 2011 – that’s a decrease of 8%. To say these metrics are disappointing would be an understatement. Fortunately I believe the bigger story is the turnaround and transformation that occurred during the year.

This transformation paired with the strength of our global brand and recovering market conditions is our primary thesis. Internally, when we talk about our change effort we talk about a new Callaway, one that builds on its considerable strength and history but is also much more dynamic and contemporary. I’m proud of the pace and direction of our change efforts and at the risk of being redundant with either the press release or previous comments during other earnings calls, I think it would be helpful to review some of our progress and accomplishments over the past year.

These include successfully stabilizing our market share during the second half of this year, thus halting a long-term trend of market share losses that we have been experiencing in the US market while gaining market share in key markets such as Korea and Japan and also clearing inventories both at Callaway and The Fields.

The refocusing of our business on its core of golf clubs and golf balls: during 2012 we sold Top-Flite- and Ben Hogan- licensed apparel and footwear and discontinued direct operations in the electronics and GPS business. We rebuilt our senior management team via a combination of additions from the outside and changes within. Included within this new leadership is new leaders in global Operations, Legal, Product Development, Marketing, and North American Sales.

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