Acushnet Holdings Corp.

Ladies and gentlemen, thank you for standing by, and welcome to the Acushnet Holdings Corp. First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. Thank you. I'd now like to hand the conference over to your speaker for today. Sondra Lennon, Vice President, FP&A and Investor Relations, please go ahead.

Good morning, everyone. Thank you for joining us today for a Kushnett Holdings first quarter 2020 earnings conference call. Joining me this morning are David Marr, our President and Chief Executive Officer, and Tom Pacheco, our Chief Financial Officer. Before I turn the call over to David, I would like to remind everyone that we will be making forward-looking statements on the call today. These forward-looking statements are based on a Cushnet's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. In particular, at this time, the COVID-19 pandemic is having a significant impact on the company's business and results of operations. There is significant uncertainty about the duration and scope of this pandemic and its ultimate impact. Due to the dynamic nature of these circumstances, our plans could change and our actual results could differ materially from those contemplated by our forward-looking statements. The company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or other factors except as required. Reported results should not be considered as an indication of future performance. For a list of factors that could cause actual results to differ, please see today's press release, the slides that accompany our presentation, and our filings with the U.S. Securities and Exchange Commission. Throughout this discussion, we will be making reference to non-GAAP financial metrics, including items such as revenues at constant currency and adjusted EBITDA. Explanations of how and why we use these metrics and reconciliations of these items to a GAAP basis can be found in the schedules in today's press release, the slides that accompany this presentation, and in our filings with the U.S. Securities and Exchange Commission. Please also note that when referring to segment and regional year-on-year sales increases and decreases, we are referring to sales and constant currency. And please also note that when referring to year-to-date results or comparisons, we are referring to the three-month period ended March 31, 2020, and the comparable three-month period. With that, I'll turn the call over to David.

Thanks, Sandra. Good morning, everyone. On behalf of the Acushnet team, we hope that you and your families are staying safe and positive while you make your way through these trying times. As we report our first quarter earnings, I would like to first recognize the impact that the COVID-19 pandemic has had on our associates, their families, our trade partners, and communities. Since entering the golf ball business in 1932, Acushnet has withstood hurricanes, wars, recessions, and other significant challenges thanks to the resolve and spirit of our dedicated associates. The great hurricanes of 1938 and 1954 are especially profound events in our company history as twice our associates saved the ball business from ruin and in the process protected founder Phil Young's dream of designing and manufacturing the number one ball in golf. As a result of recent experiences, I have become even more appreciative of the entire Acushnet family's resilience and agility. As this global health crisis developed, our teams quickly adapted to create safe work environments and respond to sudden business disruptions in order to best protect the company's financial position and preserve the company's market leadership positions. Tom's and my objectives for this call are to provide clarity and understanding about how COVID-19 has impacted the golf industry and Acushnet over the past months, outline the steps we are taking to navigate Acushnet's safe passage through this global health crisis, and begin to frame how we see the game of golf and Acushnet emerging in a post-pandemic world. In looking back at the first quarter and the month of April, our business has gone through two distinct phases before arriving at early May, when over the past week, we have started to see the initial signs of recovery. When we spoke on our last call, the effects of the virus were largely isolated to Asian markets, with our expectation that Korea would be most significantly impacted. And while Korea did take a hit, it was not to the extent initially forecasted, as the country quickly mobilized to contain the virus and limit its economic impacts. The golf market in Korea has been resilient over the past several months, with rounds of play projected to be up 10% through April, and our team delivering strong first quarter results as golf retail climbs back to normal levels. The Japan golf market was fairly stable in the first quarter. While golf courses and most golf retailers remain operational, recently extended stay-at-home orders suggest that the second quarter will be more challenging. The other piece of this initial phase was disruption to our supply chain, and as anticipated, this has been minimal. Our joint venture shoe factory in China was closed for five weeks while the country was under quarantine, and after resuming operations in February, it has been fully operational. since mid-March. Additional supply chain challenges, mostly specific to soft goods, have been manageable. Phase two of the pandemic's impact started in mid-March when the virus began to more directly impact our operations and the golf industry as a whole across North America and Europe. Golf retail activity declined sharply as most on-course golf shops and golf retail stores were required to temporarily close their doors. Furthermore, golfers were understandably focused on health and safety and not on purchasing golf equipment during this very challenging period. As a result, traditional golf retail activity in these two regions reduced significantly. Since mid-March, operations at most of our US and European production facilities and distribution centers have been suspended. Our Massachusetts ball plants are now on their eighth week of shutdown, their longest since World War II. Club assembly, custom ball operations, and our embroidery centers have also been suspended during this time. We have been able to maintain much of our D2C fulfillment, mainly with foot joy and gear, as these businesses are fulfilled from 3PL partners located in states that have remained operational. Globally, Titleist Ball Plant 4 in Thailand has remained open, which has helped mitigate the loss of production from our U.S. ball plants, and our glove factory in Thailand has also remained open. From a sourcing standpoint, our apparel and gear supply chains are functioning at normal levels. In responding to these challenges, our actions have been shaped by an organization-wide commitment to associate health and safety, the need to aggressively manage operating expenses during the peak of the crisis, the importance of ensuring that our short-term decisions are compatible with Acushnet's long-term principles and vision, and doing what we can to support the COVID-19 relief effort. Tom will outline several of the steps we have taken to navigate Acushnet's safe passage. As you will note, they have been extensive, achieving a 10% reduction in planned expenses in Q1, all of which came after February, and a planned 25% reduction in Q2. While reductions in A&P accounted for the majority of these savings, we have also implemented a comprehensive temporary furlough program throughout the organization. This, as you would expect, has been a very difficult process, and I am glad to report that in the past weeks, we have been able to call back some of our associates in areas where work has resumed. Safely returning our associates back to work is our leadership team's highest priority, and we are hopeful that this process will gradually accelerate over the next several weeks. In addition, our global team from the earliest days of the pandemic has been focused on carefully managing worldwide inventory positions to ensure that our supply is in sync with the most up-to-date forecast expectations. We believe their good work over the past several weeks will increase our options as we adapt and modify future plans to best meet the evolving needs of dedicated golfers and our trade partners. Having outlined what we see as the first two phases of impacts on the golf industry and a Kushnitz business, we are now in phase three, which is the widespread reopening of golf courses and the gradual reopening of retail stores and the return of golf commerce. We are prepared for our ball manufacturing, club assembly, and embroidery operations to resume in the coming weeks in compliance with all health and safety requirements. As you know, our production facilities are located in Massachusetts and California, which remain under stay-at-home orders and whose reopening schedules may lag other states. The great majority of golf courses in the U.S. are now open for play, with 49 of 50 states either reopened or having announced plans to reopen in the coming days. We see this as endorsement and affirmation of the game as a healthy and beneficial recreational activity. While April weather was not ideal, many open regions have reported that rounds of play increased during the month. And last week, we saw a wave of golf retailers reopen as more and more states are in the process of safely ramping up their economies. And earlier this week, regulations here in Massachusetts have been eased to allow for trade shipments to resume with limited staffing levels and strict social distancing guidelines. While limited, this represents meaningful progress from April levels. And we are hopeful that by the end of this month, we will be able to resume some if not all, U.S. golf ball manufacturing and custom ball processing and expand our club-making capabilities. Our teams have done good work to re-engineer the workflow to adhere to social distancing regulations and create a safe and productive work environment for our associates. Again, we are cautiously optimistic and prepared to operate safely, yet acknowledge that there remains uncertainty around timing. As I mentioned earlier, one of our priorities when we entered this crisis was to use our capabilities to help in the relief effort. Through these challenging times, the Acushnet team has committed to making a difference in the communities in which we work and live and across the close-knit golf industry. I am pleased to share with you that our associates rose to the challenge in donating 100,000 face masks to local hospitals and manufacturing face shields and other PPE components for frontline health care workers. And just over the last few weeks, with the help and generosity of some of our Titleist and FootJoy brand ambassadors, we auctioned off 12 once-in-a-lifetime golf experiences in what played out to be a rewarding experience for all involved. Lastly, in recent weeks, we donated a portion of our online sales, and to date, the company has contributed more than $800,000 to relief efforts in the communities in which we live and work. and to golf industry workers who have become unemployed as a result of this crisis. I would like to publicly thank my fellow associates and our valued ambassadors for their commitment and sense of purpose as they set out to make a positive difference. As we now look ahead to the summer months, we expect that golf's appeal will continue to be robust given its outdoor field of play and embedded ease of social distancing. Along these same lines, we believe the game is well positioned for the post-pandemic world, and this bodes well for our business in the long term. In the short term, while we are encouraged by the recent beginnings of recovery within the golf industry, we expect that our second quarter will be significantly impacted, with April being the most challenging, followed by incremental improvements in May and June as golf retail ramps back up and we resume company operations. The pace at which consumer spending resumes remains to be seen, as does the degree to which retail activity will be impacted over the course of 2020. We are bracing for increased promotional activity in the coming months as stores reopen and the market recovers. And lastly, while we look forward to the return of our manufacturing operations, it also remains to be seen to what extent our output levels will be affected by new safety regulations, which will be in place for as long as COVID-19 remains a threat. We expect that the answers to these questions will become clearer in the coming weeks and months, at which time we plan to provide further guidance and clarity around our full-year outlook. I will conclude my prepared remarks by reaffirming Akushnet's commitment to the safety and well-being of our associates and trade partners, and our focus on leading the company through these challenging times as we build upon our proven track record of providing shareholders with a compelling long-term total return investment opportunity. With that, I will now pass the call over to Tom.