Investor Presentation
August 2016 Important Notices
Forward-looking Statements: During the presentation, any comments made about future performance, events, prospects or circumstances are forward-looking statements, subject to Safe Harbor protection under the federal securities laws. Such statements reflect our best judgment as of the time made based on then 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 on July 27, 2016, as well as Part I, Item 1A of our most recent Form 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.
Regulation G. In addition, in order to assist you with period-over-period comparisons on a consistent and comparable basis, today’s presentation includes certain non-GAAP information. This information, as applicable, excludes the effects of changes in foreign currency rates. This non-GAAP information may include non-GAAP financial measures within the meaning of Regulation G. These non-GAAP measures should not be considered as a substitute for any measure derived in accordance with GAAP. The Company has provided a reconciliation of such non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP. The reconciliations are included in the presentation or in the schedules to the Company’s February 4, 2016 earnings release, which is available on the Investor Relations section of the Company’s website located at www.callawaygolf.com.
2 Callaway Overview
• Global leader in advanced golf • Successfully executed technology transformation strategy to reinvigorate our brand • Manufacture and sell golf clubs (2012 – 2015) and golf balls, and sell golf accessories under the Callaway • Now pivoting to a growth Golf® and Odyssey® brands strategy worldwide • Continue investments in product Market cap: ~$1.1B1 innovation to further increase Employees: 1,700 market share
2 Net Sales: $844M • Strong executive team with deep Gross Margin: 42%2 industry experience Leadership: Chip Brewer, CEO • Strong balance sheet with no long-term debt
Standout Products and Brand
1. Market capitalization as of August 15, 2016 2. 2015 3 Historical Performance
Net Sales (M) Gross Margin $897* 46%* $887 $887 40% 42% 35% 37% 30%
$843 $844 $834
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
EPS Net Cash from Operations (M) $0.62* $37 $0.20 $0.17 $31
($0.31) $10
($1.96) ($9) ($2.82) ($29) 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Further Strengthening our Financial Position
*Constant currency using 2014 FX rates 4 Q2 YTD Results - GAAP
(Millions of USD) 2016 2015 % Change Net Sales $519.6 $514.7 1.0% • Continue to gain share in a market that started slower than we expected Gross Margin $243.0 $229.0 6.1% • GM increase driven by operational % of Sales 46.8% 44.5% improvement and higher ASP’s
Operating Expenses $176.8 $173.4 -2.0% • OPEX slightly higher driven by % of Sales 34.0% 33.7% marketing, cost of living and JV start-up expenses Operating Income $66.2 $55.5 19.2% % of Sales 12.7% 10.8%
Net Income $72.5 $48.6 49.1% • Includes $18M benefit related to the sale of approximately 10% of our Topgolf EPS $0.76 $0.54 40.7% position, which impacted EPS positively by $0.18
Core Business Profitability Continues to Improve
5 Nearly 60% Market Share Growth Since 2012
U.S. Retail Hard Goods 22% Market Share 21% 19% 15% 14%
2012 2013 2014 2015 June YTD
2016 June YTD Callaway U.S. Dollar Market Share Rankings
GOLF IRONS PUTTERS WOODS HYBRIDS FAIRWAY WOODS BALLS
Brand Momentum Continues to Drive Share Gains
Source: Golf Datatech 6 2015 Full Year Sales*
#1 in hard goods Korea:#1 golf 21% market for second brand with 19% share; rounds straight year market share played up 2%
+7% Europe (17%) Rest +6% U.S. of Asia (5%) Japan (ROA)
#1 American Net Sales by Region brand for clubs ROW 8% SE Asia: New ROA distributor up 8% and running (2%) Rest Europe U.S. 16% 50% of World (ROW)
Japan 18%
U.S. and Europe Showing Growth
*International growth and sales percentage figures in constant currency using 2014 FX rates Market share data sources: For U.S. and Europe, provided by Golf Datatech; for Asia, provided by largest regional retailers 7 Recent Quarterly Performance – 2Q 16 vs. PY
Net Sales (M) Gross Margin Key Points
$284 48% $274 45% 44% 44% 45% • Net Sales increase of $246 $231 6.5% reflecting 33% continued market share $176 gains and brand $153 momentum in the marketplace
Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 2015 2016 2015 2016 • Continued gross margin strengthening due to realized operational Pre-tax Income (M) EPS efficiencies and $37 $40 $34 $0.39 $0.40$0.36 increased average selling prices $15 $0.15 • Earnings per share Q1 Q1 Q2 Q2 ($2) ($0.04) increased due to higher revenue and profitability
($30) ($0.33) and Topgolf gain ($.18)
2015 2016 2015 2016 Strong Q2 Performance, Including 6.5% Revenue Growth
8 U.S. Golf Market
U.S. Golfers (M)1* • Golf market stabilizing and 25.7 showing some positive signs 25.3 24.7 24.7 24.1
• Over 24M U.S. golfers with 81% identified as committed players
• Rounds played up 2% in 2015; 2011 2012 2013 2014 2015 Rounds played up 3% June YTD Committed Golfers** Total Golfers *People age 6+ who played at least one round of golf **People who indicate golf is a favorite activity or one of several ways • 2.2M new golfers in 2015, up they like to spend their recreational time 47% since 2011 Golf Beginners (M)
2.2 • Focused on market share gains 1.9 1.9 2.0 as participation stabilizes 1.5
2011 2012 2013 2014 2015
Participation Stabilizing; Opportunities for Growth
1. Source: National Golf Foundation 9 Strategy
Transformation is Complete: Pivoting to Growth Strategy
1) Drive organic growth to expand market share • Continue to invest in technology across all categories • Increase golf ball sales • Intensify focus on brand through marketing and Tour • Capitalize on digital media strategy and premium brand
2) Continue to improve operational efficiency • Reduce cost • Drive continued productivity improvement
3) Generate free cash and effectively deploy • Seek M&A and JV opportunities that are in golf or tangential to golf • Return capital to shareholders via buybacks and dividends
10 Investing in R&D; Strong Product Line-up
• Leading-edge innovation • Chrome Soft golf ball with Dual SoftFast Core technology • Cup Face technology in irons, fairway woods and hybrids • Collaborated with Boeing on aerodynamics for XR 16 Driver
• Award-winning technology • Golf Digest: Callaway earned 17 Gold Medals; manufacturer with most Gold Medals • Apex CF 16 Irons – only game improvement iron to earn 5-stars for performance • Chrome Soft – only ball to earn 5-stars on all criteria: Performance, Feel and Innovation
Product Excellence is a Cornerstone of our Strategy
11 Leading-edge Technology with Boeing
• Collaboration on New XR 16 Driver
• Worked with experts at Boeing to redefine what is possible with club speed and aerodynamics • Redesigned club head shape • Re-engineered the Speed Step
• Forgiveness meets Fast
Our Innovation Pipeline Remains Strong
12 Custom Clubs
• Growth of custom club business North American Custom improves mix Club Net Sales • 25% YOY growth in 2015
• World-class supply chain management • 91% of orders in North America delivered within 7 days
• Industry trend toward custom clubs benefits companies with strong manufacturing and logistics capabilities 2012 2013 2014 2015 • Trend serves to boost average selling price In 2015, custom clubs • Latest in-line product sold at full price accounted for over 20% of North America sticks business • 2016 June YTD custom club business continuing to expand at 20%+ growth rate
Business Continues to Grow
13 Golf Ball Segment
• Road to profitability • Eliminated excess capacity and Income (Loss) Before reduced overhead Taxes (M)*
• Rationalized supplier base $19.4 $17.7 • Revamped supply chain $15.2 $14.0 • Executed on plant optimization strategy
• Productivity gains resulted in 25%+ manufacturing cost reduction ($3.4)
• Ball is now accretive to margins ($14.5)
• Fixed cost absorption 2012 2013 2014 2015 1H15 1H16 • Balls vs. sticks
* Excludes Corporate G&A expenses and Other Income/Expenses • Make vs. buy not utilized by management in determining segment profitability.
Turnaround in Profitability
14 Golf Ball Growth Opportunity
2015 U.S. Dollar Ball Market Share 12.9% • Total addressable U.S. market: $500M 11.4% 9.5% • U.S. dollar market share 7.9% • Total Market Share: 11.4% • Green Grass Channel: 8.9% • Off-course Channel: 15.3% 2013 2014 2015 June YTD • Constant currency sales growth of 10%
2016 • Dual SoftFast Core technology introduced • Chrome Soft TruVis (“the soccer ball”) adopted on Tour by Tom Watson • Focus on Green Grass – increased YOY share by 23% in 1H16 (to 10.3%) • Golf ball market share reached all-time high of 14.4% for the month of June
Ability to Expand Volume without Major Capex
Market Share Source: Golf Datatech Note: Golf Datatech includes only green grass and off-course specialty channels. 15 Marketing: Multi-Channel Brand Campaigns
• Print • Television • Digital
Leading-edge Digital Marketing
16 Industry-leading Digital Media Strategy
• In-house studio producing professional, original content • Ability to produce more content faster and at a lower cost than outsourcing
• Deliver across multiple social media platforms
• Reach wide yet targeted audience on their time, their channels
• Make what is largely viewed as an aspirational brand more accessible
• Measurable and targeted beyond traditional marketing capabilities
Engaging Consumers
17 Pro Tour: Authenticates the Brand
• Enhanced Callaway representation on Tour • ~30 Full Staff relationships • Three Major Championship victories in 2016
• Validates equipment technology and innovation Phil Mickelson Tom Watson
Danny Willett Lydia Ko Kevin Kisner Marc Leishman Emiliano Grillo
Ollie Patrick Reed Henrik Stenson Branden Grace Aaron Wise Schniederjans Pros Represent the Top of the Pyramid of Influence in Golf
18 Operational Efficiency Taking Hold
S&OP System Maturing Custom Assembly Execution Fill rates up Fill rates up; now 91% within 7 days Inventory down $54M since 2013 Total custom sales 80% > 2012 Inventory turns up
Improving Quality System Facilities Rationalization • HD camera inspection • Global logistics reconfiguration
• Leveraging production technology • Eliminated captive golf ball suppliers • Vendor quality systems • Reduced buildings from 7 to 2 in Carlsbad Enhanced brand perception
Lower cost per unit Facilities cost down 31% since 2012
Local COGS % of sales down 19 Margin Expansion Driven By Operational Focus
• Improving Gross Margin through price optimization and Gross Margin Expansion cost productivity 47% 45% 42% 40% • Restructured golf ball business; 37%
now profitable and expanding 30%
• Managing inventory better • Longer life cycles • Implemented postponement model • New Sales & Operations 2012 2013 2014 2015 1H 15 1H 16 Planning Process
Continuous Improvement Mindset
20 Capital Deployment Priorities
• Reinvest in the business to drive growth • Building team, tools, processes and pipeline
• Opportunistically and thoughtfully explore acquisitions and new ventures • Seeking opportunities in golf or industries tangential to golf • We must add value to target (i.e. international reach, R&D, etc.) • Accretive to earnings in the near- to medium-term
• Return capital to shareholders through buybacks and dividends • Over $41M of authorized share repurchase program remains1 • Annual dividend payment of $0.04 per common share Balanced Approach Focused On Total Shareholder Return
1. As of June 30, 2016 21 Completed Joint Venture in Japan
• 52% ownership stake in apparel JV with TSI Groove & Sports Co, Ltd. • Long-time licensee in Asia • Strong apparel design and retail capabilities
• Includes Callaway-branded apparel, headwear, footwear and socks
• In Japan in 2015, Callaway was #1 U.S. brand for clubs at 17% market share
Commenced July 1, 2016 and Off to a Strong Start
22 Topgolf Investment
• High growth entertainment concept • Combines driving range, nightclub, and dining experience into one venue • 26 locations globally; goal of adding 10/year in U.S. • Two new divisions created: • International – Liverpool and Australia • Media – Acquisition of WGT and Protracer • We are exclusive golf partner of Topgolf and 15% owner • Built our position over past decade • Implied valuation of $207-217M on stake1 • On balance sheet at $49M cost basis
• Tangential to core golf equipment business and strong growth potential
Longer-term Strategic Options Dependent on Shareholder Value Maximization
1. As of Q1 2016 Providence Equity investment. 23 Available Liquidity
(in millions, except percentages) As of June 30, As of June 30, Percent 2016 2015 Change
Cash & Equivalents $67.6 $26.7 +153%
Debt Convertible Debt $0.0 $109.0 (100%) Asset-based Loans $5.3 $42.6 (87%)
Total Available Liquidity1 $211.0 $135.4 +56%
Focused on Enhancing Financial Flexibility
1. Available liquidity includes cash on hand, total capacity less outstanding balances under the ABL facilities and letters of credit.
24 Positive Momentum
Proven executive leadership • Deep golf industry experience • Fostering culture of innovation to further capture market share • Fresh senior talent
Continued momentum • Pivoting to offensive growth strategy • Gained share in all major markets with more runway • Strong balance sheet and improved profitability
Stabilizing golf industry
Focused on Increasing Long-term Shareholder Value
25