Callaway Golf (ELY) Q1 2020 Earnings Call Transcript

Callaway Golf (MODG 0.06%)
Q1 2020 Earnings Call
May 07, 2020, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the first-quarter 2020 Callaway Golf conference call with Chip Brewer, CEO. [Operator instructions] I will now turn the call over to Mr. Patrick Burke, head of investor relations. Please go ahead, sir.

Patrick Burke -- Head of Investor Relations

Thank you, Crystal, and good afternoon, everyone. Welcome to Callaway's first-quarter 2020 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; and Jennifer Thomas, our chief accounting officer.

Today, the company issued a press release announcing its first-quarter 2020 financial results. A copy of the press release and associated presentation are available on the investor relations section of the company's website at ir.callawaygolf.com. Most of the financial numbers reported and discussed on today's call are based on U.S. Generally Accepted Accounting Principles.

In the few instances where we report non-GAAP measures, we reconcile 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 materially from the 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, 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 company investor relations website under the Webcast and Presentations tab. Also, on the same tab, you can choose to join the webcast to listen to the call and view the slides. As a webcast participant, you are able to flip through the slides. I would now like to turn the call over to Chip.

Chip Brewer -- President and Chief Executive Officer

Thank you, Patrick. Good afternoon, and thank you for joining us for today's call. Starting on Page 4 of the presentation. We're pleased to be with you today to discuss our Q1 results and to give you an update on our business with a particular focus on how we are positioning ourselves for what is an uncertain near-term future, but we believe remains a promising long-term one.

As covered in our press release, through early March, our business was on track for another year of record sales. Despite challenges from COVID-19 in the quarter, our regional businesses in Japan and Korea as well as our U.S.-based Travis Matthew business all delivered year-over-year revenue growth in the quarter. We also were pleased to deliver a profitable quarter for the company as a whole and that our golf equipment market shares remained strong in all of our major markets. Through March, we held the No.1 share position in the U.S.

for total hard goods as well as for total clubs. And in Europe, we held the #1 position in hard goods through February, which is the most up-to-date data currently available. We believe we gained share in both Europe and Asia while seeding some share in the U.S. primarily due to launch timing.

During the quarter, we also made good progress on key initiatives, including the completion of our multiyear golf ball modernization effort for our Chicopee, Mass facility and the initial phases of our transition to our new 800,000-square-foot Superhub just outside of Fort Worth, Texas. The COVID-19 outbreak initially impacted just our Asian businesses and supply chain. But by early March, the issue became global. By mid-March, global regulatory responses implementing social distancing and shelter in place orders significantly slowed retail sales and created business challenges worldwide.

During that time, our focus shifted to being proactive in actions to protect our business and its many constituencies. These actions included securing increased near-term liquidity via both our ABL and equipment loans, decreasing our operating expenses and capital expenditures in total by approximately 20%, aggressively decreasing inventory commitments to better match up with revised demand expectations and to minimize working capital needs, and evaluating more long-term capital options, which led us to issue approximately $250 million in convertible debt last week under what we believe were favorable terms and conditions. As stated in our various press releases, given our initial actions, we believe we had adequate liquidity to make it through this pandemic crisis even before the convert debt issuance. Now, of course, we have an even higher confidence, but not only in getting through this, but emerging in a position of relative strength.

Throughout all of this, the safety and health of the company's employees, customers, and partners has remained paramount in our minds. Following guidelines established by health organizations across the world, we initially took actions, including, limiting and then suspending business travel, restricting visitors and establishing work-from-home programs. As things develop, almost all of our North American and European operations have been shut down for various lengths of time. At present, our corporate headquarters in California is still working from home, and our golf ball plant in Chicopee, Mass is still closed by state order.

However, many of our facilities elsewhere in the U.S. and across the globe are starting to return to more normal operations. As we transition back to normal operations, we are careful to follow appropriate protocols for social distancing, in-office capacity management, personal protective equipment, and other safety precautions. Looking forward, let me give you as much perspective as I can at this time.

Unfortunately, Q2 is certainly going to be down significantly, and we are unsure what to expect for the balance of this year. Experts are telling us there will likely be a significant recession or maybe a reoccurrence, which may or may not be managed well and maybe even on the positive side of daily life recovery. With this as our backdrop, we have suspended guidance until market conditions are more predictable. Having said all this, we are seeing some encouraging signs, and these include our primary Asian businesses.

They've held up or recovered better than initial expectations. After a full shutdown for a large part of Q1, our China business impressed us with April revenues in our golf business returning to levels roughly equivalent to 2019, and our China apparel business only down slightly for the month of April. The apparel business there is also facing some additional margin pressure due to higher discounting levels, but again, better than our expectations. Korea continues its trend of being a role model for how to handle the pandemic with business holding in at 2019 levels.

Japan was performing well through Q1, although it has been recently impacted by the stay-at-home order in that market. Demand to play golf is high in both China and Korea. In Korea, tea times outside Seoul are reportedly booked through May already. We believe our Asia businesses overall will be a positive contributor for the balance of the year.

Our e-com businesses had performed particularly well across the globe during the pandemic, again, exceeding expectations and delivering year-over-year growth. As a reference point, our e-com was approximately 8% of our full year revenues in 2019. They position us well to capitalize on trends in this channel and are on track to provide growth this year. Along this theme, we're happy to announce the launch of our U.S.

jackwolfskin.com site earlier this week. This is our first significant entry point for the Jack Wolfskin brand into the U.S. market. Markets in Central Europe are starting to reopen.

And although retail activity is still slow there, this is the most important market for our Jack Wolfskin business, and we are encouraged by the progress. Markets in the U.S. are starting to reopen as well, especially as relevant for our golf business. By mid-May, the National Golf Foundation believes 80% of U.S.

golf courses will be opened in the U.S., and I have a feeling it may actually be quite a bit better than this. Anecdotal reports are that there is high utilization of the golf courses that are open and that this is supported by third-party research shows a pent-up demand to play. Golf retail is also starting to open, and initial sell-through data, most of which is very limited at this point, usually with only one week or one weekend of data, has been above expectations but is expected below last year's level. We are also developing plans to best service both green grass and retail golf accounts in a social distancing world and we think we are well positioned to do this.

Lastly, I'd like to express our point of view that Callaway's business segments and our capital structure position us well to both weather this storm and come out in a position of strength. To be more specific, we are confident that our principal products, golf equipment, golf apparel and golf accessories as well as outdoor apparel, gear, and accessories are attractive segments for a world of social distancing and a new normal. The joy of being outdoors whether it's hiking, camping or simply taking a walk in nature has never been more evident and is both logically and emotionally appealing today more than ever. At the same time, we expect the sport of golf to come back quickly as it is commonly viewed as a relatively safe and healthy outdoor activity that one can enjoy while still observing social distancing guidelines.

As I've already mentioned, this theory is supported by third-party research and early data across the globe. In addition, we benefit from geographic diversity, which should be helpful in limiting risks in today's world. Lastly, our distribution base and go-to-market strategy fits well with the new environment and should emerge relatively strong. Our primary retail customers are relatively well-capitalized and likely to survive the crisis in a position of strength, and we have trade insurance to further minimize risk here.

Plus, we are well-positioned to capitalize on any long-term growth in e-commerce. On the capital side, we have stated publicly that we believe we had ample liquidity to make it through the COVID-19 crisis even prior to the issuance of our convertible debt. Needless to say, our confidence here is now even higher. Having said this, I also want to emphasize that having this additional liquidity will not lessen or resolve for, and we remain committed to maintaining our disciplined approach to managing capital expenses.

We believe that this additional liquidity, together with the strength of our brands, our products, and our geographic diversity, along with the operational improvements we have made to date will enable us to create shareholder value as we emerge from the pandemic. In closing, I also want to convey our thoughts and prayers to those directly impacted by the virus as well as those diligently working on the front lines to protect, serve, and care for the rest of us. Brian, over to you.

Brian Lynch -- Chief Financial Officer

Thank you, Chip. As Chip mentioned, we were pleased with our strong start to the year through early March, and we're on our way to another record year in net sales before COVID-19 impacted our business. Since COVID-19, our focus has shifted to reducing costs and enhancing liquidity, managing our business to maximize opportunities during the pandemic, and preparing our business to emerge from the pandemic in a position of strength. As Chip also mentioned, we've reduced 2020 planned operating and capital expenditures by approximately 20%, and most recently increased liquidity substantially through the issuance of convertible notes, which I will cover in more detail later in my remarks.

In evaluating our first -- our results for the first quarter, you should keep in mind some specific factors that affect year-over-year comparisons. First, as a result of the Jack Wolfskin acquisition in January 2019, we incurred some nonrecurring transaction and transition-related expenses in 2019. Second, as a result of the OGIO, Travis Matthew and Jack Wolfskin acquisitions, we incurred some noncash amortization and purchase accounting adjustments in 2020 and 2019. Third, as a result of the transition of our North American distribution center to our new Superhub in Texas, we are incurring some redundant costs as we operate both the new and old distribution centers during the transition.

We're also still in the process of implementing Jack Wolfskin's new IT systems, and therefore, we'll have some nonrecurring costs in 2020. We have provided in the table to this release as scheduled breaking out the impact of these items on the first quarter results. With those factors in mind, I will now provide some specific financial results, which are consistent with the preliminary estimates we provided last week Turning now to Slide 9. Today, we are now reporting consolidated first quarter 2020 net sales of $442 million compared to $516 million in 2019, a decrease of $74 million or a 14% decrease.

The decrease was primarily driven by the COVID-19 pandemic. Changes in foreign currency rates also negatively impacted first quarter 2020 net sales by $4 million. The decrease in net sales reflects a decrease in both our golf equipment segment, which decreased 10%, and our soft goods segment, which decreased 22%. From a regional perspective, it's worth noting that while most regions decreased period over period due to COVID-19, sales in Japan and Korea actually increased during the first quarter.

The Travis Matthew business also grew slightly. As you can see on Slide 9, gross margin was 44.2% in the first quarter of 2020 compared to 46.2% in the first quarter of 2019, a decrease of 200 basis points. The decrease in gross margin is primarily due to the decreased sales and business challenges caused by COVID-19, combined with an increase in U.S. tariffs on imports from China as well as $1.3 million of nonrecurring redundant costs associated with the transition of our North American distribution center and Jack Wolfskin IT systems.

Gross margins for 2019 were negatively impacted by the nonrecurring purchase price inventory step-up associated with the Jack Wolfskin acquisition. Operating expense was $155 million in the first quarter of 2020, which is a $14 million decrease compared to $169 million in the first quarter of 2019. This decrease is primarily due to the actions we undertook to reduce costs as well as a reduction in nonrecurring transaction and transition costs related to the Jack Wolfskin acquisition which, in the first quarter, were $4.7 million in 2019, or less than $300,000 in 2020. Operating income was $41 million in the first quarter of 2020 compared to operating income of $70 million for the same period in 2019, a decrease of 42%.

This includes noncash amortization and purchase accounting adjustments and nonrecurring transaction and transition-related costs associated with the Jack Wolfskin acquisition in the amount of $2.7 million in 2020 and $11.3 million in 2019. Other expense was $3 million in the first quarter of 2020 compared to other expense of $12 million in the same period of the prior year. Nonrecurring purchase price hedging losses due to the Jack Wolfskin acquisition were $4 million in the first quarter of 2019. The balance of the lower other expense in 2020 resulted primarily from foreign exchange hedging gains and slightly lower interest expense.

Fully diluted earnings per share was $0.30 from 95.7 million shares in the first quarter of 2020 compared to $0.50 or 96.4 million shares in the first quarter of 2019. The noncash and nonrecurring items discussed earlier adversely impacted the first quarter of 2020 by $0.02 and the first quarter of 2019 by $0.13. EBITDAS was $58 million in the first quarter of 2020 compared to $79 million in the first quarter of 2019. The noncash and nonrecurring items discussed earlier adversely impacted 2020 first-quarter EBITDAS by $2 million and 2019 first-quarter EBITDAS by $14 million.

We expect to continue to spend approximately $6 million of nonrecurring expense for full year 2020 related to the Superhub transition and the Jack Wolfskin IT system upgrade. Turning now to Slide 10. I will now cover certain key balance sheet and cash flow items. As of March 31, 2020, available liquidity represents additional availability under our credit facilities plus cash on hand was $259 million compared to $223 million at the end of the first quarter.

We had a total net debt of $631 million, including $445 million of principal outstanding in our -- under our term loan B facility that was used to purchase Jack Wolfskin. In addition, our convertible note offering last week substantially increased our liquidity. Our net accounts receivables were $260 million, a decrease of 9% compared to $286 million at the end of the first quarter of 2019, which is attributable to lower sales in the quarter. Days sales outstanding in the core business is generally consistent with the same period in 2019.

We remain comfortable with the overall quality of our accounts receivable at this time. Given the current environment, this is an area we are monitoring even more closely than usual. We believe our top customers are generally in good financial condition, and we are working with our customers and other customers as necessary. We have a diversified customer base and some trade credit insurance, both of which should mitigate the impact of a protracted downturn on our accounts receivable.

Even if the slippage in the U.S. were two times or three times what it was during the 2009 recession, it would not have a material impact on our liquidity. Also displayed on Slide 10, our inventory balance increased by 8% to $413 million at the end of the first quarter of 2020. This increase was primarily due to support of our planned launches at the end of the first quarter and beginning of second quarter.

The teams continue to be highly focused on inventory we own as well as inventory in the field that are comfortable with the quality of our inventory at this time. Capital expenditures for the first quarter of 2020 were $17 million, a year-over-year increase of $6 million, compared to the first quarter of 2019 due mainly to the final stage of investment in our golf ball plant initiative as well as the implementation of our Superhub in Texas. Depreciation and amortization expense was $9 million in the first quarter of 2020 compared to $8 million in the first quarter of 2019. Finally, including both open-market repurchases and shares acquired through the settlement of equity awards, in the first quarter of 2020, we repurchased 1.17 million shares for approximately $22 million as compared to the first quarter of 2019 when we repurchased 1.65 million shares for approximately $27 million.

We currently have $77 million remaining under our current stock repurchase authorization. We have temporarily suspended open-market stock repurchases but have the ability to restart the program in circumstances warrant. And now on Slide 11. We previously reported that due to the uncertain duration and full impact of the COVID-19 pandemic, we are no longer providing financial guidance at this time.

With that said, we do expect our capital expenditures in 2020 to be approximately $33 million to $38 million, down substantially from our previous guidance of approximately $55 million due to our cost reduction actions. Depreciation and amortization expense is estimated to be approximately $39 million in 2020, down from the previous guidance of approximately $43 million. Before opening the call for questions, I want to comment further on our convertible note offering. On May 4, 2020, we consummated the issuance of 2.75% convertible senior notes due 2026.

The offering was oversubscribed, which allowed us to increase the size of $200 million planned offering to $225 million. As is customary transaction of this type, we also granted the initial purchasers the option to purchase an additional 15% of convertible notes, which has already been exercised. As a result, the total notes issued was $259 million and net proceeds to the company was approximately $250 million after certain transaction costs. We are bullish in our future prospects, and therefore, used approximately $32 million of the net proceeds to pay the cost of certain capital transactions, which are generally expected to reduce the potential dilution to shareholders upon any conversion of the notes.

We intend to use the balance of the proceeds for working capital and general corporate purposes. That concludes our prepared remarks today. We will now open the call for questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of John Kernan with Cowen. John, your line is open.

John Kernan -- Cowen and Company -- Analyst

Hey, everybody. Thanks for taking my question. And congrats on managing through a tough environment.

Brian Lynch -- Chief Financial Officer

Thank you. Thanks, John.

John Kernan -- Cowen and Company -- Analyst

Some of the questions we've gotten from investors recently are, you know, how will golf and Callaway in particular perform in recessionary – you know, difficult consumer conditions and recessions. We can look back at the prior '08, '09 cycle. I see that there were fairly difficult trends from a top line and particularly on the gross margin side. Clearly, the industry has changed quite a bit since then.

So just wondering how do we -- how we think about this cycle versus the last? I think there's a lot less inventory, a lot less promotions than there typically have been, I think giving the investors and analysts a framework for how to think about the cyclical nature of golf and golf equipment now versus where we were maybe in prior cycle?

Chip Brewer -- President and Chief Executive Officer

John, that's a good question, but a difficult one, you know, and requires some level of speculation. The industry is arguably healthier now than it was in the 2008 period in terms of, you know, the lower inventory, more consolidated positions, strong customer base without any of those customer base right now going into this period being, you know, highly strained or without the larger ones being highly leveraged or in a negative position. The industry has been less promotional. So, you would expect those to be favorable factors.

In addition, you know, the – you know, I don't believe golf is very cyclical, really. The -- if you look at how it's performed in recessions, in 2009, the Callaway business was down, I believe, 14% in revenues. But, you know, we were losing market share going into that period and is 14% down in revenues, highly cyclical or not. I would argue it's not, but you can take either position on that one.

I would argue we are a much stronger business now, and, you know, previous recessions have not been especially impactful for golf.

John Kernan -- Cowen and Company -- Analyst

Got it. You know [Audio gap]

Chip Brewer -- President and Chief Executive Officer

Crystal, is John still there? Or do we need to go to the next call?

Operator

He is still connected.

Chip Brewer -- President and Chief Executive Officer

OK.

John Kernan -- Cowen and Company -- Analyst

Hey, guys. Sorry, I'm having some technical difficulties here clearly. Just how do we think about the degree of SG&A that is fixed versus variable? You know, clearly, the next couple of quarters could be difficult from a top line perspective. I was just wondering how we think about SG&A, it's fixed versus variable, obviously, on the way down on sales, it's going to work against you, but it could -- as we come out of this in fiscal '21, it could work in your favor.

So, if we look at our models, how should we adjust from a fix versus variable perspective, in your mind? Thank you.

Brian Lynch -- Chief Financial Officer

John, this is Brian. On the -- with regard to cost of goods sold, a significant portion, you know, over 80% is variable. So, there's a lot of flexibility there. On the opex side, it is largely fixed.

And -- but you can see from our press release, we announced that we had reduced to planned capital expenditures by 20%. So, while it's largely...

Chip Brewer -- President and Chief Executive Officer

We are capex and opex combined.

Brian Lynch -- Chief Financial Officer

Combined by 20%. And so, we're taking action there to reduce the fixed costs.

John Kernan -- Cowen and Company -- Analyst

Got it. Thank you.

Operator

Your next question comes from the line of Mark Swartz with SunTrust.

Mike Swartz -- SunTrust Robinson Humphrey -- Analyst

Hey, guys. Mike Swartz, that is. A question on the ball business. Just looking at the decline in the quarter was well above, you know, the equipment business.

I guess how much of that was due to product launch timing versus just retailers pushing back on inventory? And were you able to able to even get Chrome Soft into the markets before the shutdown started to occur?

Chip Brewer -- President and Chief Executive Officer

Mike, that was -- it was almost -- in large, most of this was just launch timing. So, we had pushed out the launch date and into March as it was. You know, and then in addition to that, a large portion of the quarter usually ships in the last month. So, there was unsatisfied demand in the golf ball business in the quarter.

Mike Swartz -- SunTrust Robinson Humphrey -- Analyst

OK. And then just with the Travis Matthew business, understand some of the retail outlets or all the retail outlets were closed during the quarter. And I'm surprised to hear it actually grew year over year. With that said, maybe give us a sense of how the e-commerce part of that business did during the quarter and, I guess, is doing here into May?

Chip Brewer -- President and Chief Executive Officer

Mike, I don't really even remember how the e-com did during the quarter, but I'm sure it did well because of the trends but the Travis Matthew business, as you know, has had quite a bit of positive momentum, and that carried over into Q1. And that business like the rest of our businesses was impacted. We had to shut down the retail stores at the end of, you know, March. It also shifts a large segment of its business to green grass, which ships late March, early April.

So, you know, ship shutting down in March at the end of March is more impactful to us than it would seem if it was evenly distributed our business to March. Our business is not evenly distributed through March. It's heavily weighted to the seasonality of golf toward the end. The Travis Matthew e-com business was then shut down through at least first half of April, and then opened up second half of April when local regulations permitted, and it has performed quite strongly since it's been back open.

Mike Swartz -- SunTrust Robinson Humphrey -- Analyst

OK. Great. Thanks for the color.

Operator

Your next question comes from the line of Susan Anderson with B. Riley FBR.

Susan Anderson -- B. Riley FBR -- Analyst

Hi, good evening. Thanks for taking my question. Hope everyone is well and safe. I guess I'm kind of curious what you're seeing now with the shutdown, I guess, between the two categories of soft lines and hard lines.

Where are you seeing the most pressure from shutdown, I guess, just given that golf -- some golf courses have been open? And which one do you think will end up performing better or seeing a better recovery early on?

Chip Brewer -- President and Chief Executive Officer

Susan, good question. And we're fortunate that we are doing all healthy and well here. I hope the same is true. The -- on the opening upside, I think, you know, -- I'm not sure how to comment about how they did other than the data that's here.

Our apparel business was more impacted in Q1 because the Jack Wolfskin geographic diversity or spread of that business. In other words, a big piece of that business is in China. China was shut down in Q1. We have a small amount of hard goods business in China, but a large or relatively large apparel business, and so that was heavily impacted.

And then Europe shut down ahead of North America and again, the Jack Wolfskin business. So that -- you see that in the Q1 results. And as we project forward, I would expect the golf business will recover faster than the apparel business. There is quite a bit of pent-up demand.

But I think both of the businesses that we're in because our apparel is basically golf apparel and, you know, apparel for outdoor, trekking, hiking, camping, things that -- all of which do well in the social distancing, "new normal" environment. But the golf business, which is our largest piece of business, I expect to recover faster. And we're seeing that in China. Although as I gave you data, we're pleased with the recovery on both pieces of the business.

Susan Anderson -- B. Riley FBR -- Analyst

Great. That's helpful. And then I guess with Jack Wolfskin and Travis Matthews, can you maybe talk a little bit about how you are managing the inventory there? Have you had cancellations from wholesale customers and have you been able to cut down on product yourselves from the vendors? And then also, does this change your ordering plans for the back half?

Chip Brewer -- President and Chief Executive Officer

Yes, yes, and yes, Susan. The -- we have had wholesale cancellations across all of our business. And we got some visibility of that in Q1. And we were very proactive in then managing our own inventory to the best of our ability, make sure that we're not overinventoried, you know, as we work through this process.

So Yeah, we -- but there clearly is going to be some backup of inventory for some period of time. We believe that we're going to be relatively well-positioned with that. In the apparel space, we'll be able to repurpose some of the spring/summer lines until next year. In the golf equipment side, you know, they're not -- even though it's a seasonal business, it doesn't really have a spring/summer application.

So, the same maverick driver is easily a sellable later in the year as it is now. A little different on the apparel side, as you well know. But we think we were very proactive, and we'll be in a relatively good position on the inventory side.

Susan Anderson -- B. Riley FBR -- Analyst

Great. That's helpful. One last one, if I could fit in there. The reduction in opex about? Or is more of this coming in second quarter versus the back half?

Chip Brewer -- President and Chief Executive Officer

Do you want to take that?

Brian Lynch -- Chief Financial Officer

Sure. We don't have the breakout by quarter, but – Susan, but we started implementing it late March, and so they'll start to carry through for the balance of the year.

Patrick Burke -- Head of Investor Relations

And this is Patrick. Maybe we would add, right? You probably will see more savings in Q2 because the -- obviously, businesses are open. There aren't tournaments. You know, so – you know, so some of the spend related with golf being open is...

Chip Brewer -- President and Chief Executive Officer

Yeah, advertising trends since -- without golf on air, there's nowhere to advertise. Anyway, so it's a natural savings. But a lot of the savings is going to spread through the year, but a little bit more heavily in Q2.

Susan Anderson -- B. Riley FBR -- Analyst

Great. That's helpful. Thanks so much. Good luck.

Chip Brewer -- President and Chief Executive Officer

Thanks, Susan.

Operator

Your next question comes from the line of Casey Alexander with Compass Point.

Casey Alexander -- Compass Point -- Analyst

Hi, good afternoon. Hope everybody is doing well. I take your point about a lot of your shipments are back-ended at the end of March from a seasonal aspect. And now that we're at about 70% of the courses open, and guys are starting to get access to the shops in green grass, are you starting to get calls to say, go ahead and ship some of that stuff?

Chip Brewer -- President and Chief Executive Officer

Yes, we are, Casey. That's an important item that we're working through right now.

Casey Alexander -- Compass Point -- Analyst

OK. And how do you, you know -- and sort of -- when is sort of -- I mean, when do you sort of have to make the decision about your inventory that says the environment maybe should get a little bit more promotional knowing that this is kind of a little bit of a lost year anyway, and the last thing that you want to do is have an impact into 2021, in 2021 could otherwise be a reasonably healthy year.

Chip Brewer -- President and Chief Executive Officer

We had to really make those decisions -- well, our decisions on promotions will be made as the situations develop, right? And you know, I'm not expecting the golf equipment business to be especially promotional, although it will be more promotional than it would be in a normal year because there will be excess inventory for some period of time out there and just natural. It depends on your launch cadence and how much you cut the inventory back in March, quite frankly, because that's -- March and early April is when we set up the inventory situation on the hard goods side and the apparel side through the balance of the year. And we were proactive on that. So, I'm not expecting, from a Callaway perspective, to have inventory pressures per se.

Casey Alexander -- Compass Point -- Analyst

OK. That's very helpful. Two more, real quick. Inventory in -- from '18 to '19, from December to March increased this year from '19 to '20, from December to March, it decreased.

Was that due to launch cadence? Or was that due to rapidly halting the supply chain and managing the inventory in a proactive way because of the crisis.

Patrick Burke -- Head of Investor Relations

Casey, this is Patrick. Some of that is, you know, with Jack actually managing their inventory. So, remember, as we were talking about in early '19, because of the warm weather at the end of '18, right, they were managing through inventory. So that was planned as we were talking to you guys on that side.

There might have been a little bit of timing on inventory golf equipment, but the Jack inventory is a good piece of that.

Casey Alexander -- Compass Point -- Analyst

OK. And then my last question is, I mean, you guys have shown that you can access capital under stressful conditions and so has Acushnet. And Chip, you have a pretty good pulse of how people stand around the industry. Would it be your expectation that by 2021 or 2022, we might see less competitors in the business.

We've constantly seen sort of a migration of people get tossed out of the business for one reason or another. Isn't this another catalyst that could result in that?

Chip Brewer -- President and Chief Executive Officer

Casey, I think that -- I don't have any predictions on that, but I do think that these are times where the strong could get stronger. And you know, bigger brands tend to do better in these environments. And obviously well-capitalized brands have degrees of freedom that the others don't.

Casey Alexander -- Compass Point -- Analyst

OK. Great. Thanks for taking my question.

Chip Brewer -- President and Chief Executive Officer

Thanks, Casey.

Operator

Your next question comes from the line of Daniel Imbro with Stephens.

Daniel Imbro -- Stephens Inc. -- Analyst

Hey. Good evening. Thanks for taking my questions. I wanted to follow-up earlier on the golf ball business.

You mentioned in your remarks, Chicopee still remains closed today. Curious, how is that going to impact your ability to handle orders when demand does return? I know you guys made a lot of investments up there, but do you have home sales inventory that you could ship out? Or when demand comes back, how are you thinking about managing the manufacturing side of that to handle the demand?

Chip Brewer -- President and Chief Executive Officer

Daniel, I think that the answer there is that, you know it depends on how Chicopee starts up and, you know, obviously, how much demand there is. The demand on the consumables side recently has been quite good. So, I think that there's -- either this could be a good thing or a bad thing, depending on how you want to look at it. But I think there'll be more demand than supply for our premium golf ball product for the first month or so out of the shutdown.

Daniel Imbro -- Stephens Inc. -- Analyst

OK. That's helpful. And then, Brian, maybe just a follow-up on the convertible offering. I guess curious just on your thinking behind the need for it.

You guys noted in late April, you were taking liquidity steps. You had cash on the balance sheet. Was this a reflection that cash burn, you know, was higher than you thought it would be? Was there some things specifically attractive about the debt markets you saw? Kind of how should we interpret your reasoning behind the offering?

Brian Lynch -- Chief Financial Officer

Sure. When COVID-19 hit, again, as I've mentioned earlier in my remarks, we immediately focused on cutting costs and make sure that we had sufficient liquidity. We went out and got an additional loan under our term loan facility, and another loan, and increased our commitments to around $40 million during the first quarter. But after that, we ran a bunch of different scenarios, different modeling scenarios under different assumptions, how bad could this get? And under all those, we felt like we had sufficient liquidity.

Not necessarily we're swimming in it, but we have sufficient amount to get through it. But the question would be is what if it's wrong, what if this whole pandemic turns out to be worse than anyone thinks or there's a significant second recurrence. So, the convert is more of an insurance policy. So, it will provide us, you know, with sufficient liquidity from any regional scenario that we can think of and hopefully take the liquidity discussion off the table.

You know, in addition to that, the market conditions were very favorable. We were able to take advantage of relatively inexpensive debt. It costs less than our other debt. And as you can see, the offering was very well received by the investors and was significantly oversubscribed, which allowed us to obtain really quite favorable terms.

So, you know, it's an insurance policy overall, but, you know, at the same time, we will not, as Chip mentioned, we will not get it to relax our disciplined approach to managing costs and expenses in this environment.

Operator

Your next question comes from the line of Alex Maroccia with Berenberg.

Alex Maroccia -- Berenberg Capital Markets -- Analyst

Hey, good afternoon, guys. Thanks for taking the questions. So right now, the whole industry is dealing with the loss of professional golf visibility on TV, kind of the positive impact with the lack of marketing needed. But conversely, do you think this has hurt the visibility in the short term? I know we saw the Tiger effect last year.

So, I'm just trying to see how you're thinking about that.

Chip Brewer -- President and Chief Executive Officer

Alex, this is Chip. And, you know, clearly, it's hurt the visibility, but, you know, we're going to come back relatively quickly. And I think the thing you need to focus most on here, which is well-documented with anecdotal, it's in the experience of what we've seen across the globe. There's third-party data that supports this.

And that that is there's a lot of interest in playing golf. The golf courses, as they open, are very busy. There's a lot of reasons to believe that golf is coming back very quickly. The visibility factor isn't a major factor in today's world.

Although in very short order, by early June, the PGA Tour will be up and running. There's obviously a couple of different matches coming up with Phil Mickelson and Tiger, with both playing in a match in later in May. So, the visibility is not the major factor right now. If people can play golf, they're lining up to do it.

Alex Maroccia -- Berenberg Capital Markets -- Analyst

Got it. That's helpful. And secondly, what are your thoughts on the financial health of smaller wholesalers, courses that are shut, and other retail partners? And how material could the stress be on your receivables?

Chip Brewer -- President and Chief Executive Officer

You know, at this point, Alex, we've taken a hard look at that. We do have trade insurance, and you know, we're not seeing anything that concerns us on a material level there.

Alex Maroccia -- Berenberg Capital Markets -- Analyst

All right, Great. Thank you.

Operator

Your last question comes from the line of George Kelly with ROTH Capital Partners.

George Kelly -- ROTH Capital Partners -- Analyst

Hey, everybody. Thanks for taking my questions. So first one, just a follow-up to the previous question. Chip, you mentioned that courses that are open are seeing a lot of game play.

I mean, it sounds like people are lining up. Wondering if you could sort of expand on that at all. What do you think that the full-year impact will be? I mean, do you think there'll be much of a negative impact from COVID? Or how would you expect rounds playing to sort of progress through the year?

Chip Brewer -- President and Chief Executive Officer

George, I think there's going to be a very material impact from COVID, you know, given that we were shut down and that we're only now in the start-up phase, you know. And our ability to predict that is it's just not there. The one prediction I will make is that golf will come back quickly right now. There's a lot of interest in playing.

And, you know, this could actually be good for the game of golf, although it's going to have a material impact on the year. And, you know, where it plays out in the second half of the year will be determined, but I do expect high utilization rates, etc. There's -- it's a great game in general, but it's an even better game in the world where we've now exists, especially in comparison to your other options.

George Kelly -- ROTH Capital Partners -- Analyst

Right. And I'm just speaking to [Inaudible] plate. I mean, I just wonder if it will have, you know.

Patrick Burke -- Head of Investor Relations

So, it has to be down. You can't take the month of April and part of May out and not be down. I don't think. But I don't have a math.

And, you know -- but I think when it gets back up, your [Inaudible] plate are going to be pretty healthy. So maybe I'm wrong there, too. We take solace in what we're seeing on very good trends out there.

George Kelly -- ROTH Capital Partners -- Analyst

OK. OK. And then second question, this isn't something you've commented on in the past, but being pretty sort of unusual circumstances here. Just wondering if you could talk at all about Topgolf.

And wondering if your balance sheet now has enough flexibility to invest additional capital into Topgolf?

Chip Brewer -- President and Chief Executive Officer

Well, it's a good question. Topgolf is an attractive business and has been an attractive investment for us. Clearly, it's been impacted by COVID-19 as all of the locations are shut. But they are in process of planning reopenings.

And they believe they can do so safely. Our belief in that business is unchanged. We continue to view it as a very attractive business and attractive investment for our shareholders. And we do have the financial flexibility to, you know, look at participating in investment opportunities there if they come up, and we view those as favorable for our shareholders.

George Kelly -- ROTH Capital Partners -- Analyst

OK. Great. Thanks.

Operator

We have reached our allotted time for questions. I will now turn the call back to Mr. Chip Brewer, chief executive officer, for closing remarks.

Chip Brewer -- President and Chief Executive Officer

Well, thank you very much, everybody, for calling in. These are highly unusual times. I hope you and your families are safe and able to work through this in a healthy and productive manner. We appreciate your support and look forward to keeping in touch.

Thank you.

Operator

[Operator signoff]

Duration: 55 minutes

Call participants:

Patrick Burke -- Head of Investor Relations

Chip Brewer -- President and Chief Executive Officer

Brian Lynch -- Chief Financial Officer

John Kernan -- Cowen and Company -- Analyst

Mike Swartz -- SunTrust Robinson Humphrey -- Analyst

Susan Anderson -- B. Riley FBR -- Analyst

Casey Alexander -- Compass Point -- Analyst

Daniel Imbro -- Stephens Inc. -- Analyst

Alex Maroccia -- Berenberg Capital Markets -- Analyst

George Kelly -- ROTH Capital Partners -- Analyst

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