Revenue Recognition

3 Months Ended

Mar. 31, 2021

Revenue from Contract with Customer [Abstract]

Note 4. Revenue Recognition

The Company primarily recognizes revenue from the sale of its products and operation of its venues. Revenue from product sales include golf clubs, golf balls, lifestyle and outdoor apparel, gear and accessories and golf apparel and accessories. The Company sells its products to customers, which include on- and off-course golf shops and national retail stores, as well as to consumers through its e-commerce business and at its apparel retail and venue locations. The Company's product revenues also includes royalty income from third parties from the licensing of certain soft goods products. Revenue from services primarily includes venue sales of food and beverage and fees charged for gameplay, and the sale of game credits to guests. Service Revenues also include franchise fees from franchised international venues, as

well as revenue from gift cards, sponsorship contracts, franchise fees, leasing revenue and non-refundable deposits received for venue reservations. In addition, the Company recognizes service revenues through its online multiplayer WGT digital golf game.

The Company's contracts with customers for its products are generally in the form of a purchase order. In certain cases, the Company enters into sales agreements containing specific terms, discounts and allowances. The Company enters into licensing agreements with certain distributors and, with respect to the Company's Toptracer operations, driving ranges and hospitality and entertainment venues.

The Company has three operating and reportable segments, namely the Golf Equipment operating segment, the Apparel, Gear and Other operating segment, and the Topgolf operating segment. Revenue attributable to the Topgolf operating segment is for the period beginning March 8, 2021 (merger date) through April 4, 2021. The following table presents the Company's revenue disaggregated by major product category and operating and reportable segment (in thousands):


	Operating and Reportable Segments
	Three Months Ended March 31, 2021								Three Months Ended March 31, 2020
	Golf Equipment		Apparel, Gear & Other		Topgolf		Total		Golf Equipment		Apparel, Gear & Other		Total
Major revenue categories:
Golf clubs	$	316,353	$	—	$	—	$	316,353	$	251,224	$	—	$	251,224
Golf balls	60,529		—		—		60,529		40,437		—		40,437
Apparel	—		95,289		—		95,289		—		77,290		77,290
Gear, accessories & other	—		86,813		—		86,813		—		73,325		73,325
Venues	—		—		85,170		85,170		—		—		—
Other business lines	—		—		7,467		7,467		—		—		—
	$	376,882	$	182,102	$	92,637	$	651,621	$	291,661	$	150,615	$	442,276

The Topgolf segment includes an immaterial amount of golf clubs, golf balls, and apparel sales, which are reflected within product sales within the consolidated condensed statement of operations for the three months ended March 31, 2021.

The Apparel, Gear and Other and Topgolf segments include royalty income from licensing agreements of $10,868,000 and $5,545,000 for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021 and December 31, 2020, the Company's deferred revenue liability was $70,946,000 and $2,546,000, respectively. The balance as of March 31, 2021 included a deferred revenue liability of $68,093,000 in the Topgolf segment related to gift cards, event deposits, lifetime memberships, prepaid sponsorship, premium membership, the WGT digital golf game, and game credits. Revenue from redeemed gift cards and gift card breakage was $3,306,000 and $525,000 for the three months ended March 31, 2021 and 2020, respectively. Deferred revenue from redeemed event deposits, lifetime memberships, prepaid sponsorship, premium membership, WGT digital golf game, game credits, and the corresponding breakage was $24,740,000 for the three months ended March 31, 2021.

The following table summarizes revenue by geographical areas in which the Company operates (in thousands):


	Three Months Ended March 31,
		2021		2020
Revenue by Major Geographic Region:
United States		$	388,222	$	217,503
Europe		108,345		96,719
Japan		71,886		77,347
Rest of World		83,168		50,707
		$	651,621	$	442,276

The Company sells its golf equipment products and apparel, gear and accessories in the United States and internationally, with its principal international regions being Japan and Europe. On a regional basis, sales of golf equipment

are generally higher than sales of apparel gear and other in most regions other than Europe, which has a higher concentration of apparel, gear and other sales as a result of Jack Wolfskin, which is headquartered in Germany. Venues revenue is higher in the United States, as Topgolf has more domestic venues than international.

The Company records an estimate for anticipated returns as a reduction of product revenues and cost of products, and accounts receivable, in the period that the related sales are recorded. Sales returns are estimated based upon historical returns, current economic trends, changes in customer demands and sell-through of products. The Company also offers certain customers sales programs that allow for specific returns. The Company records a return liability as an offset to accounts receivable for anticipated returns related to these sales programs at the time of sale based on the terms of the sales program. The cost recovery of inventory associated with this reserve is accounted for in other current assets. The Company's provision for sales returns will fluctuate with the seasonality of the business, while actual sales returns are generally more heavily weighted toward the back half of the year as the golf season comes to an end. Historically, the Company’s actual sales returns have not been materially different from management’s original estimates.

The following table provides a reconciliation of the activity related to the Company’s sales return reserve (in thousands):


	Three Months Ended March 31,
		2021		2020
Beginning balance		$	43,986	$	34,314
Provision		35,890		35,636
Sales returns		(19,092)		(18,958)
Ending balance		$	60,784	$	50,992