Patrick Burke - Head, IR Chip Brewer - President & CEO Robert Julian - CFO.

Scott Hamann - KeyBanc Mike Swartz - SunTrust Lee Giordano - Sterne Agee Andrew Burns - D.A. Davidson George Kelly - Imperial Capital Casey Alexander - Ladenburg Jonathan Abodeely - XLCR Capital.

Good afternoon. My name is Kyle and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2016 Callaway Golf Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions]. Thank you.

I would now like to turn the call over to Mr. Patrick Burke, Head of Investor Relations. Sir, you may begin your conference..

Thank you, Kyle, and good afternoon, everyone. Welcome to Callaway's first quarter 2016 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; and Robert Julian, our Chief Financial Officer.

I would like to point out that any comments made during the call about future performance, events, prospects, or circumstances, including statements related to estimated 2016 net sales, sales growth, gross margins, operating expenses, pre-tax income, taxes and earnings per share, industry or market conditions, brand momentum, the success of the company's future products, long-term profitability or performance, the creation of long-term shareholder value, the collectability of accounts receivable and salability of inventory, estimated 2016 capital expenditures, and depreciation and amortization expenses, the negotiation and completion of the planned joint venture with TSI in Japan, and other future corporate development opportunities, including the timing of projected financial effect of such initiatives and estimated value of the company’s TopGolf Holdings or future TopGolf prospects, as well as other statements referring to future periods and identified by words such as believe, will, could, would, expect, or anticipate are forward-looking statements subject to Safe Harbor protection under federal securities laws.

Such statements reflect our best judgment today based on market trends and conditions. Actual results could differ materially from those projected in forward-looking statements as a result of changes to or risks and uncertainties inherent in the company’s business or TopGolf business.

For details concerning these and other risks and opportunities, you should consult our earnings release issued today, as well as Part 1 Item 1A of our most recent 10-K for the year ended December 31, 2015, filed with the SEC, together with the company's other reports subsequently filed with the SEC from time-to-time.

Also during the call, in order to provide a better understanding of the company's underlying operational performance, we will provide certain of the company's results and projections on a constant currency basis, which essentially excludes all foreign currency gains and losses recorded during the applicable period and applies to prior period exchange rates to the adjusted current or future period financial information, as those such prior-period rates were in effect during the current or future period.

We will also provide information on the company's earnings, excluding interest, taxes, and depreciation and amortization expenses. This information may include non-GAAP financial measures within the meaning of Regulation G.

The information provided on the call today and the earnings release and related schedules we issued today include a reconciliation of such non-GAAP financial information to the most directly comparable financial information prepared in accordance with GAAP.

The earnings release and related schedules are available on the Investor Relations section of the company's website at www.callawaygolf.com. 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. Q1 2016 was another strong quarter for our company. Our revenues met expectations despite challenging market conditions and our earnings exceeded expectations based on continued improvement in gross margins and overall operating efficiencies.

Our club business continues to be strong maintaining our leadership position in the U.S. and our golf ball business continues to build momentum. Industry dynamics continue to stabilize with highlights that include low overall inventories, less promotional activity, and increased average selling prices.

Currency rates, a large drag on our GAAP results over the last few years, has also started to settle out and in certain key markets such as Japan show signs of moving in our favor.

Lastly, our minority investment in TopGolf is now beginning to publicly reveal some of its potential with an up round investment by Province which would value our remaining position at approximately $212 million. This after an $18 million pre-tax gain and $23 million cash event associated with the sale of a small portion of our investment.

The result of all this is we are increasing our guidance for 2016 and are increasingly optimistic regarding our ability to create long-term shareholder value. I would like to start by thanking the Callaway Golf team for their hard work and commitment to strengthening our business.

The team has done a remarkable job changing this business for the better and I wanted to know how much we all appreciate their efforts. Let’s start by taking a deeper look into the operational performance for the quarter. In the U.S.

our revenues were down approximately 5% primarily due to a shift in product launch timing and also impacted by slower market conditions due to the Q1 weather in Florida and California. Over the last few years, the North American team has led our improvement in overall profitability and grown revenues faster than the market overall.

I’m proud of their results and under the circumstances; I’m similarly pleased with the Q1 performance. Our hard goods market share for the quarter finished at 21.6%, up 100 basis points year-over-year. This was led by the strength of our XR 16 driver, Apex irons, and our golf balls.

We sustained our leadership position in clubs and strengthened our brand momentum positioning golf ball. Our Green Grass business was a particular highlight for the quarter delivering double-digit year-over-year growth. We also strengthened our distribution position at Green Grass with year-over-year growth in golf ball distribution of 800 doors.

Turning to Asia, market conditions in Asia were improved year-over-year led by 7% growth in the Japan market. Our revenues were roughly flat on a currency neutral basis and Japan hard goods market share at approximately 14.9% was down 200 basis points year-over-year, but up from Q4, and roughly on par with that market share in 2014 Q1.

Looking forward, I believe we had a stable, well run and significant business in the region which can successfully deliver future growth based on the TSI JV which is planned for later this year. We are also optimistic regarding the potential long-term profitability impact of this year’s currency trends.

However, as you probably remember, we are largely hedged against FX movements in this calendar year.

Moving to Europe, revenues there were down on local currency basis approximately 6% reflecting the shift in launch timing as well as challenging weather patterns in the UK which were partially offset by year-over-year strength in the balance of Europe.

For the quarter, our UK hard goods share finished at 19.3%, up 270 basis points year-over-year, we are seeing strong results from both golf ball and drivers in that market as well. I believe our European team has built a formidable business and is well positioned.

In the UK, I expect Danny Willett’s Masters win to resonate particularly well and I like our overall momentum. In Northern Europe, I’m optimistic regarding our prospects based on changes in sales leadership made over the last few years.

And lastly our business in Central Europe, particularly in Germany, has delivered exceptional market share growth over the last few years establishing Callaway as the leading hard goods brand in that market. Moving to the operational side of our business, our cost management and overall operating efficiencies continue to drive upside in our business.

Our gross margin improved 350 basis points year-over-year to an impressive 48.3% and our continued strength here is allowing us to increase our expectations for the full-year.

This steady improvement is the result of strong operational performance in the manufacturing of supply chain, product and marketing excellence which has driven sell-through and improved market dynamics with less overall promotional activity.

During the quarter, the operations team successfully brought up to speed our European superhub distribution center located outside London in Swindon, England, which represents a shift from a third-party distribution center to a own facility aimed at lowering our cost and improving our service levels across the European market going forward.

We also delivered on double-digit growth in custom club volume in North America. Turning to the product front, our 2016 product ranges performing at or above expectations in nearly every category. We’re particularly pleased with the performance of our XR 16 drivers, Apex irons, Mack Daddy 3 Wedges and Chrome Soft Golf Balls.

All of which are delivering strong market share gains and delighting consumers. Looking just at Golf Ball for a moment, on our March U.S. dollar share of 13% was the highest on record and reinforces our belief and our potential for growth in this category.

Turning to strategy, continuously proving our core business has been the keystone of our recent strategy here at Callaway Golf. By now, I would say it’s fair to say this strategy has a proven track record. For example, our trailing 12-month EBITDA as of March 31, 2016 increased by 49%.

This improved profitability, along with an exceptionally strong financial position, is now allowing us to move into second stage of our strategy, one which while continuing to focus on improvements in our core will include strategically exploring business development opportunities both within our core business and in tangential areas.

Our planned joint venture with TSI in Japan is one excellent example of this. We believe there will be more opportunities like this one not necessarily in the same space or markets but similar and that we are uniquely well-positioned to take advantage of them. We intend to be thoughtful and strategic in this endeavor.

However in due course we believe this will add meaningfully to our growth and shareholder value. Lastly on the strategic front, it was an eventful quarter for Top Golf, where we maintain a minority position of just under 15%.

That business continues to perform very well with organic growth via site expansion along with a strategic acquisition of the WGT Mobile gaming business. During Q1, Top Golf announced that Providence Equity had invested in the business.

As part of this transaction, we agreed to sell a small portion of our equity position, for which we realized in Q2 an approximate $18 million pre-tax gain and $23 million cash infusion. The transaction also established a valuation for remaining equity position of approximately $212 million.

More importantly, Providence Equity was invited to invest in the business and agreed to do so because both parties believe there is meaningful upside and that Providence will help accelerate growth and create incremental value.

Beyond these main points, with the minority ownership position of private business, we are not going to be able to provide much additional detail or color on this business, more specifically we don’t anticipate being able to provide updated valuations with another benchmark or key event.

Top Golf’s business is expected to keep growing but the only reason we’re able to provide an estimate now is because of the recent transactions. Looking forward, we’re pleased to be able to increase our GAAP guidance for the balance of the year.

This increase in guidance reflects the aforementioned gains from the Top Golf transaction, along with our sustained brand momentum, continued operational improvement including higher expectations for gross margins, confidence in industry conditions, and somehow concurrency relative to our initial guidance.

In closing, I’m confident that Callaway Golf is in a much stronger position today than it has been in quite some time. I’m proud of what we’ve accomplished over the last few years and optimistic for the future.

Robert, over to you?.

Thank you, Chip. Today we’re reporting consolidated Q1 2016 net sales of $274 million compared to $284 million in Q1 2015, a decline of 3.6%. Foreign currency variances negatively impacted revenues by $2 million in Q1. So on a constant currency basis, year-over-year net sales declined 2.6%.

This decline was caused by product launch timing including the extension of life cycles in some product categories. Overall, Q1 revenue was in line with our expectations and previous guidance. Looking at Q1 revenue on a regional basis, net sales in the U.S.

declined 5.1% to $160 million compared to Q1 2015 driven by the change in product launch timing previously mentioned. Net sales in Europe declined 9.2% to $38 million. On a constant currency basis, Europe declined 5.9% compared to Q1 2015. Net sales in Japan increased 5.6% to $39 million.

On a constant currency basis, Japan net sales increased by 1.1% compared to Q1 2015. For the rest of Asia, net sales in Q1 2016 declined by 4% to $16 million. However, on a constant currency basis, net sales for the rest of Asia increased 2.9% compared to prior year, driven by change in distributors in that portion of the market.

Net sales for other foreign countries increased by 4.4% in Q1 2016 to $21 million. On a constant currency basis, other foreign countries net sales increased by 13% compared to prior year driven primarily by increases in Canada. Gross margin was 48.3% in Q1 2016 compared to 44.8% in the prior year, an improvement of 350 basis points.

This increase was driven by local price increases internationally, continued mix shift to in line business versus closeouts, less promotional activity and continued operational improvements.

This favorability was partially offset by increased cost related to new product technology and negative foreign currency variances which decreased margins by 50 basis points. Operating expense were $87 million in Q1 2016, a 3.6% decline compared to 2015.

This decrease was primarily due to lower variable selling expenses and timing of marketing expenses as we had made a conscious decision to shift marketing dollars from Q1 into Q2 and Q3. Even with the lower revenue, operating expenses as a percentage of revenues were unchanged at 31.8% in Q1 2016 compared to prior year.

These results generated operating income of $45 million in Q1 2016 compared to operating income of $37 million in Q1 2015, a year-over-year improvement of 22.7%. We had other expense of $5.5 million in Q1 2016 compared to $500,000 of other income in Q1 2015.

This change was due to the net impact of changes in currency rates on our outstanding foreign currency hedging contracts. These expenses were partially offset by $1 million increase; excuse me a $1 million decrease in net interest expense related to the conversion of our convertible debt in 2015.

The company generated net income of $38 million in Q1 2016 compared to net income of $36 million in Q1 2015. Earnings per share improved to $0.40 on 95 million shares in Q1 2016 compared to $0.39 on 94 million shares in 2015. On a constant currency basis, Q1 2016 earnings per share of $0.48, an increase of 23.1% compared to Q1 2015.

Returning to net sales, I would like to provide some more details by product categories all on an as reported basis. Wood sales were $86 million in Q1 2016, a 3.8% decline versus Q1 2015. Our driver business was up 8% due to the initial success of XR 16.

That increase was offset by a decline in the hybrid category caused by year-over-year launch timing. Iron and wedge sales were $59 million in Q1, a decline of 3.8% versus prior year. The success of our Apex irons and Mack Daddy 3 Wedges was offset by the lengthening of product life cycles which impacted our XR iron sales.

Other sales were $30 million in Q1 2016, a decline of 3.9% compared to last year. Odyssey continues to have success in the marketplace with U.S. dollar share increasing 3% to 34.7% March year-to-date versus prior year.

The reported decline is related to launch timing as we are in year two of our Odyssey Works line of putters and launched the RX line in Asia in Q4 of 2015. Golf Ball sales were $41 million in Q1, a decline of 3.7% compared to prior year. The Chrome Soft and Supersoft line of Golf Balls are continuing to have success in the marketplace. Our U.S.

dollar share increased to 12.2% March year-to-date, an improvement of 9.4% versus 2015 and our highest dollar market share on records. The decline in reported revenue was caused by launch time in some of our new Golf Balls. Accessories and other sales are $58 million in Q1 2016, a decline of 2.7% compared to prior year.

Turning now to the balance sheet, we ended Q1 2016 with cash of $35 million compared to $23 million for Q1 of 2015, a 51.2% increase. Regarding our asset base credit facility, we had borrowings of $79 million at the end of Q1 2016 which is 16.3% lower than the $94 million of borrowings we had in 2015.

Available liquidity as of March 31, 2016, including cash improved to $148 million, a 31.7% increase versus prior year. Our consolidated net receivables were $233 million at the end of Q1 2016, a decline of 11% compared to 2015. DSO decreased to 77 days compared to 84 days in 2015.

We remained comfortable with the overall quality of our accounts receivable at this time. Our inventory balance is $186 million at Q1 2016, an increase of 2.6% compared to Q1 of 2015. We remain comfortable with the quality of our inventory this time.

Capital expenditures for Q1 2016 were $5 million compared to $2 million in 2015 consistent with our expectation. Depreciation and amortization expense was $4 million in Q1 of 2016 compared to $5 million in 2015. Our trailing 12-months EBITDA increased 49% to $46 million as of Q1 2016.

The company also bought back 328,000 shares of stock in Q1 of 2016 for just under $3 million in cash. I will now comment on our 2016 guidance. Let’s start with Q2 guidance. We estimate Q2 2016 net sales on a GAAP basis to be in the range of $238 million to $245 million, an increase of 3.5% to 6.5% versus Q2 2015.

This anticipated increase in net sales during the second quarter reflects the company’s brand momentum and success of our 2016 product lines along with confidence in marketing conditions.

Operating expenses are expected to be up, both sequentially to Q1 2016, and versus Q2 2015, due to the change in timing of our marketing spend that I mentioned earlier.

We estimate Q2 2016 earnings per share on a fully diluted basis to be in the range of $0.33 to $0.37 per share on 95 million shares outstanding, an increase of $0.18 to $0.22 versus Q2 of 2015. This guidance includes an $0.18 gain related to the sale of approximately 10% of our Top Golf position. I will now turn to the full-year guidance.

We estimate full-year 2016 net sales on a GAAP basis to be in the range of $855 million to $880 million, an increase of $10 million from our previous guidance. This increase is primarily due to strengthening foreign currency rates since the start of the year.

The full-year 2016 gross margin is estimated to be 44.5%, an improvement of 100 basis points versus our previous guidance, and 210 basis points favorable to full-year 2015.

This improvement versus our previous guidance is due to the positive impact of currencies and continued performance in our manufacturing operations and supply chain, along with improved sales mix. Operating expenses are estimated to be approximately $349 million for full-year 2016.

This is slightly higher than our previous guidance of $345 million with the change in currency being the primary driver of the increase. Our 2016 earnings per share estimate on a fully diluted basis is a range of $0.40 to $0.50 on 95 million shares outstanding.

This increase of $0.25 per share is accounted for by an $0.18 gain related to the sale of a portion of our Top Golf position, $0.04 of favorable currency impact versus our prior estimate, and $0.03 of improvement driven primarily by higher gross margins.

While currency has improved relative to our previous guidance, it is still trading a slight headwind on EPS versus prior year with approximately $0.03 of negative impact. We estimate our capital expenditures to be approximately $15 million and our depreciation and amortization expense to be approximately $18 million in 2016.

Finally I would like to mention that our current estimates for 2016 do not include any non-cash charges or benefits. For example, it does not include any change in the tax valuation allowance on our deferred tax assets. However as our U.S.

business continues to demonstrate the same profitability going forward, we expected this valuation allowance will eventually be reversed. At that time, we will generate a large non-cash income tax benefit. It will also result in an increase to our overall estimated effective tax rate to approximately 38.5%.

Of course our cash taxes will continue to benefit from our after-tax NOLs of approximately $96 million for some time going forward. That concludes our prepared remarks for today. We will now open the call for questions..

[Operator Instructions]. Your first question comes from the line of Scott Hamann from KeyBanc. Your line is open..

Hey thanks, good afternoon. Chip, just kind of starting from a high level kind of called out weather as a little bit of an issue in the first quarter.

Can you kind of give us a snapshot of where you see retail right now, inventory and have you kind of seen may be an uptick in retail exiting the quarter here and may be early into April as the seasons opened up?.

Sure, Scott. Yes, I mentioned weather and that weather was really in the warm weather markets in the U.S. as well as UK during Q1 particularly early in the quarter. So you saw that the Datatech numbers showed a slight decline in Q1 and similar weather conditions in the UK that were little bit of a drag.

But I wouldn’t overread much into that, it did have an impact in Q1, entering Q2, we saw improving weather in March and I don’t really at this point have any reference of whether April was up or down relative historical but we don’t see anything that would give us concern on weather going forward at this point.

Retail, I don’t have anything for you at this point other than our expectation is that the slowness that we saw in Q1 was strictly a Q1 issue and that the markets would still hit our expectations for the full-year..

Okay.

And then can you quantify what the shift in the marketing expense from 1Q to 2Q and then may be just some color around that decision to do that and may be if that helps enhance your retail a little bit in 2Q and later and that’s kind of what you’re thinking?.

Yes I’ll start, Scott, this is Robert, just by saying; we’re not quantifying the specific amount of marketing expense. That shift is reflected on our full-year results, it is a little bit matching marketing to when our products are being promoted and people are buying.

I will let Chip speak more on that but we’re not breaking it out specifically on how much of a shift it was in marketing..

You know you will see a couple of different things, Scott, and one is we talk about launch timing quite a bit to explain some of the variances and therefore with that change in launch timing you would expect a natural and matching shift in timing of some of the expenditures.

The other thing you see from us and is you will see us market throughout the year, particularly in Gulf Ball, and we’ve seen some positive results associated with that..

Okay.

And then just lastly on the Balls, can you give us some context on 800 door, I mean what kind of -- what percentage of the Green Grass addressable market is that and then just some of the -- the reasons that you’re hearing may be why people are switching over is that have to do with some of the plus 1 program or is that the product or what’s kind of driving those decisions? Thanks..

It’s 10% to 20% of our possible doors you see a nice trend, Scott, and the sales team in the U.S. has done a really good job growing that business. Our Green Grass business was a key strength for us in every category in Q1 as it was in Q3 and Q4 of last year. You -- we had a lot of success with Supersoft when we launched it.

We had a lot of success with Chrome Soft when we launched it. After we had those two successes, our pitch to go into Green Grass and motivate the pro to support us was much stronger. And so therefore you see some of these results and more people coming onboard.

Our 12.2% market share for the quarter, 13% for the month of March is now our highest on record.

So it’s just sense of a building momentum of more clearly defined number two position in the category, I think the pros we’re seeing it, I think retailers are seeing it, and as the result you’re seeing strength in distribution that matches that which is really important because 45% of the Golf Balls business over the course of the year, according to -- of the Datatech channels 45% of it is Green Grass channels, so nice to see us making that progress and important strategic initiative for us.

Is that it, Scott?.

Yes I’m good thanks..

Thank you..

Your next question comes from the line of Mike Swartz from SunTrust. Your line is open..

Hey good afternoon. Just may be following on Scott’s question relative to the Ball business, kind of I guess interested in your take on the Ball business in terms of just the growth rates we’ve seen in the last couple of quarters, I mean it was a little I guess caught off-guard with the decline this quarter.

Could you may be give us a little more color behind that, is it -- was there a shift in order patterns in the December quarter or is this more just launch timing?.

Absolutely Mike, totally natural that you would have that question.

And you will see it quarter-to-quarter with us it’s sometimes tough to match up on a year-over-year basis as we move launch timing and make other strategic decisions that we believe are in the best interest of the long-term health of this business and creating shareholder value over that long-term. So you saw a surge in volume last year in Q4.

If you look at the bigger picture, you see growth in Golf Ball, you saw last year 10% currency neutral growth in Golf Ball, you see market share trends, you did not see growth in our dollar revenue volume in the Golf Ball category this year in Q1 strictly because of launch timing.

And the two factors associated with that, one is that we replaced Chrome Soft in the marketplace but we replaced it on top of Chrome Soft that was already launched roughly year ago.

So therefore the selling opportunity, the new Chrome Soft product was a little lower than it was when it was a fresh launch at least at the retail side of the world which is the majority of the volume in Q1. There was also a specific product for large customers that the launch timing was in Q1 last year that was not in Q1 this year.

And so the big picture trends in the Golf Ball are very much intact even though you did not see that in this Q1..

And is it safe to say the 800 new Green Grass doors may not wouldn’t be reflected in the market share data that you just gave us?.

I would think that part of that would be reflected in the market share data but I can’t tell you to what effect. So if we had registered them as new doors, they took in 24 dozen Golf Balls, I believe. So to what degree and when they received those Golf Balls, I don’t have that amount of granularity.

The sell-through when we talked about market share its sell-through data and majority of Green Grass volume comes in Q2 and Q3..

Okay. That’s helpful and then just may be a little more granularity as you talk about the custom club business I think you’ve talked about it for some time growing it at double-digit rate.

Could you give us a little more context of may be where that is today versus five years ago and what’s the potential for the custom club business in terms of your percentage of revenues?.

It’s a great question. I don’t have as much granularity there as I would like to. So we will take that as an action item to try to come out with a better representation or presentation for that going forward. It’s been growing at double-digit rates 20% growth now for multiple years.

It’s a great sign of brand strength; it’s a great sign and ties with average selling price. It’s a trend in the marketplace in terms of how clubs are sold and most premium product is bought. And I believe it will be more than half of the premium share at some point will come through a custom club or fitting operation.

So seeing us excel in that category and in some of our bigger retailers, specialty retailers, we are the leader with them. Now in that custom club business, and literally, I had them giggled when I suggested that we might be able to do that four years ago.

So it’s a great success story, I mentioned it because it’s so important for us but I don’t have the data at hand specifically to give you the percentages with any degree of confidence..

And your next question comes from the line of Lee Giordano from Sterne Agee. Your line is open..

Giordano. Just a question, Chip on the new strategic opportunities that you’re looking at in the core business and also tangential areas, I guess. What are the metrics you’re looking for here as you focus on new opportunities, is it accretion potential growth, potential synergies.

I guess I’m just trying to get a sense of how and what your thought process is as you’re evaluating these opportunities. Thanks..

Sure Lee and we know who you’re. So the -- what we look for is we do look for growth, we look for opportunities that are profitable, it’s got to be accretive, it’s got to provide us growth, and we look usually for something where we’re going to add some value to it and going to be able to help create value along that way.

The TSI JV is a pretty strong example of that that’s one of those tangential ones, it’s a peril, it’s in a market that we know very well in Japan, in that case, it’s a share brand, there are going to be a lot of synergies associated with that. The structure will enhance growth rates and we’re excited about that one.

So this shift in strategy as we -- I think done a reasonably good job of turning the business around and we’re in a strong financial position comfortable with the strength of our core, although I can’t overemphasize enough that we’re committed to sustaining our strength in that core first and foremost.

But the opportunity now to look at some of these growth opportunities is exciting for us and we’re pretty -- we’re confident that that’s going to add to growth and be accretive and deliver shareholder value..

That’s great. And then just following up, can you just remind us how the cadence on new product launches looks this year versus last year and how should we think about the back half? Thanks..

Sure. I’m only going to give you a little bit on the back half for competitive reasons unfortunately. So what we’ve done and we’ve announced is that we have moved our iron lifecycles to two years. So XR and Apex which are primary iron franchises are both two years cycles right now.

And Apex was launched in Q4 of last year, it is doing beautifully, very happy with that products market share, performance, brand image, XR is now essentially in its second year, it is been we line extended that with XR OS a super game improvement offerings that complements that category.

The XR 16 driver is a two year product as well that was launched here in Q1 and during the second half of the year, we’re going to have several more product launches but unfortunately for competitive reasons, I would rather not get into them at this point they are not announced as of yet..

Your next question comes from the line of Andrew Burns from D.A. Davidson. Your line is open..

Good afternoon guys, great start to the year..

Thank you..

Couple of questions for you, great job handling receivable exposure amidst recent bankruptcies and we have seen you handle bankruptcies before all the way back to Edwin Watts.

Just wondering if you look at the big picture here, the sporting goods retail chain seems to be evolving pretty quickly, does this make you think about your distribution channel strategy any differently whether it’s online or Green Grass going to the next three, five-years over the long-term?.

Andrew, Chip here. The answer is primarily no because with our premium brand position and product range, we really are concentrated top-tier sporting goods, specialty retail, Green Grass, and we really didn’t have significant exposure to that portion of the market in sporting goods that has struggled here as of late.

So it’s quite frankly not that impactful to us..

Great, thanks.

And I was hoping if you could comment on some of the recent product launches in the Ultra premium market whether it’s Titleist or Parsons Xtreme there is very small runs but they seem to be breakthrough price points, I’m wondering if you can comment on the potential of the Ultra premium market or is it something that’s worth paying attention to?.

Yes, sure, Andrew. First of all we pay attention to everything and Titleist we have a lot of respect for that brand and company. Parsons is obviously new on the scene and doing their own thing and I’m sure they are creating a little bit of interest, so we have a respect for them and are definitely paying attention to them.

These premium, Ultra premium, small range products we’ve done many of those ourselves both in the U.S.

and overseas often in the putter category but could come in any which way, we have products such as subzero driver now that is a very limited distribution product that is really lines up exactly along the lines of some of the things that you’re talking about there.

So it’s a strategy we’re aware of, we use it from time to time, and we will continue to track it and that’s unfortunately all I can really comment on at this point..

Great, thanks and good luck for the balance of the year..

Thank you very much..

Your next question comes from the line of George Kelly from Imperial Capital. Your line is open..

Hi guys.

Just one question for me, wondering if you could talk more about TSI and sort of what it allows you to do in Japan and what does this year look like, what’s baked into guidance?.

So I will start George. This is Robert on the financials and I will let Chip talk a little bit about the strategy and where it leads us. So we’ve been in partnership with TSI for some time actually as a licensee. And we are forming this joint venture which is expected to launch sometime in the second half.

In terms of its impact on the 2016 guidance in financials, it’s actually fairly minimal. There might be a little bit of revenue in generating some income that will more or less offset the startup expense. So from an EPS point of view, it’s almost no impact at all and we might get a very small amount of revenue. It will be accretive in 2017.

However we’re not going to be breaking up that business as a separate reporting entity, so we’re not going to give specific guidance about the overall revenue and EPS it will generate going forward..

And then George, this is Chip. Let me comment a little bit more on the strategic side of that, it does open up some really exciting paths for us. First of all it’s going to stay accretive both on the revenue and bottom-line perspective in 2017. So that in itself is exciting.

The structure of our relationship previously was one where they were a licensee and it was contractual and we had a very good partnership but they were radiscent to invest in that business because they didn’t own the brand and at any one point of time, we could pull the license in that.

We really got a high comfort level with TSI and I think they with us. So by forming this partnership, the intent is that we’re going to invest going forward in that apparel, it’s really head to toe business there.

So it would include footwear, it will include the apparel under the Callaway brand which is very strong in that market to start with and there will be investments to grow that, with the potential to look at other Asian markets for growth down the road.

So it has a lot of strategic merit to it and we will be excited to report on that as we go through the year and work like mad to get it up and running in a successful manner..

And I just want to follow up on that the royalty structure, will that change at all?.

We’re not going to comment on the specific economics other than clearly it’s a joint venture, we will have minority sorry majority position and the rest of that we will leave alone for now..

Your next question comes from the line of Casey Alexander from Ladenburg. Your line is open..

Hi good afternoon. I missed the numbers on the share repurchase program.

Could you review that again?.

So we repurchased 328,000 shares in the quarter..

That was when I dropped the phone..

Yes, 628,000 shares in the quarter for just a little under $3 million in cash..

Okay, secondly can you give me a sense what are you trying to accomplish when you’re changing the way that you’re looking at currencies vis-à-vis the way that you construct your guidance?.

Casey, Chip. The currencies have been so moved so dramatically over the last few years that we thought we had to breakout and provide currency neutral guidance, because they were massive moves.

Even at the beginning of this year, I believe it was on the revenue side $12 million in revenue and it was I think $0.07 or $0.08 in earnings or $0.20 gigantic portions and that -- it was much more significant than that going forward.

As the currencies during Q1 have moved to the point where it’s insignificant, it’s basically neutral for the full-year on a revenue basis, it’s a slight hurt year-over-year on the EPS and we’re going to continue to report on it, but it clouds the reporting in conversation you get lost in currency ether all the different metrics and GAAP is in our opinion a cleaner and preferred path..

Right and we’ll do the math Casey, we’ll always tell you what the impact is, but it’s just it’s become so small now, if we were to give currency neutral guidance, it would effectively look almost exactly like the as reported guidance and we really prefer to use GAAP as reported numbers.

And now if and sometime in the future you get another huge shift and that becomes a big number may be we would revert back, but our strategy right now, our intention right now is to talk about that as a variance, like any other variance that we might talk about.

Our actual result to differ from guidance we’ll tell you if a certain amount of it was due to a change in the assumptions on currency..

Does that mean we would then go back to square one next year when you reintroduce new hedges?.

Oh, no, we’ll always -- what we’re going to -- our goal is to use GAAP. And so -- and then just report on the impact of currency as we would normally do..

Well, I mean on your first -- on the first page of the release it says the gross margins and reduced operating expenses allow the company to more than offset $7 million in net foreign currency losses, which is a little confusing the way that that’s written given the fact that for the last three years, it cost a company money, because currencies went against you, and now it almost appears is though you’re saying that it cost you money that currencies went for you?.

Yes I think we have to separate what is our full-year guidance that is just GAAP, it is almost neutral in terms of the currency and what happened in Q1 which did still have a fairly sizable currency impact on it, I’ve mentioned in my comments that on EPS for example it’s $0.08, 20% impact on EPS in Q1.

It sort of reverses itself, somewhat negative in Q1, it’s going to be somewhat positive throughout the rest of the year, it turns out to be fairly neutral on a full-year basis, and so the story is a little bit different Casey, between what’s happened in Q1 versus what’s happening in our full-year guidance and even the trend on the currencies from what we are seeing in Q1 year-over-year than what we will see on the rest of the year-over-year on currency, it does reverse..

Our intent here Casey is simplify and clarify..

Well I think you’ve accomplished point two but not point one?.

Well, I understand your point on that, but there is only change here was that we didn’t provide future guidance currency neutral, your comments aren’t even related to that. Your comments are regarding Q1 performance where we’re reporting everything just as we have.

So that’s the nature of this currency scenario, it does create a lot of interesting and challenging conversations by providing GAAP guidance; we know what we are going to be reporting against.

But as always, we will reflect on your point of view and try to do that which we believe is in the best interest of shareholders and being transparent and clear..

Okay.

When you did the call following the Top Golf transaction, you suggested that the gain would -- the majority of the gain would be covered by the NOLs, have you guys determined or gotten opening on what the tax is going to be on the Top Golf gain?.

That’s it’s always paid us somehow alternative minimum tax was very, very minimal in that..

Okay. All right.

In the ball share in the 13% in March, did you know what the number three percentage share was, I mean how far had you separated yourself from number three?.

We’re going to; we’re looking it up as behind the line..

Yes, we know, and Robert will now thank you. Year-to-date dollar share Bridgestone Golf 9, make sure I’m on the right thing on and off, 12.2 is Callaway, Bridgestone is 9.9..

Correct..

Okay, thank you and we weren’t asking to divulge names so..

We’re trying to be transparent..

Your next question comes from the line of Jonathan Abodeely from XLCR Capital. Your line is open..

Hi everybody, thanks for taking my call, I just had a question for you Chip on Callaway Media production and Callaway social media effort, it’s very exciting to follow, you guys generate great content, I view it as a very strategic competitive advantage and I’m just wondering if you could elaborate a little bit more about behind the scenes, how you plan to leverage these assets.

Yes, thank you very much..

Sure Jonathan, thank you so much for the question and it gives me an opportunity to just complement Harry Arnett and the marketing team and what a wonderful job they’ve done in really creating energy around this brand.

Both in traditional and in the new age mediums, the Callaway Media Productions or digital strategy has been kind of breakthrough for this industry and its trading lot of energy and excitement. It reaches a young part of the Golf community which is very brand enhancing for us.

It reaches them in a manner which they enjoy interacting, it makes the brand more accessible and as we look at that going forward, we really do it see as a comparative advantage for ourselves. So I’m really proud of what they’ve done and you are nice to ask about it..

Great, well I hope you guys take out a way to leverage that because that it really is a unique asset and a skillset that I think yes it will be a meaningful competitive edge. Well thanks again..

You see our brand metrics in terms of the brand strength appeal to more younger golfers, better players et cetera. No doubt all of that is related to all elements of our strategy but certainly the Callaway Media Productions is part of that..

Great, keep up the good work..

Thank you..

There are no further questions at this time..

Well thank you very much everybody for calling in and we look forward to updating you after Q2. Have a great season..

That concludes today’s conference call. You may now disconnect..