Acushnet Holdings Corp.

Ladies and gentlemen, thank you for standing by and welcome to the AccusNet Holdings Corp Q2 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today. Sandra Lennon, Vice President of FP&A and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us today for Krishnett Holdings' second 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 Acushnet's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. In particular, the COVID-19 pandemic has had significant impact on the company's business and results of operations and will likely continue to impact our business in the near future. The ultimate duration, scope, and impact of this pandemic are uncertain. 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 also 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 reconciliation of these items to 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 six-month period ended June 30, 2020, and the comparable six-month period. With that, I'll turn the call over to David.

Thank you, Sandra, and good morning, everyone. I hope that you are all staying well during these trying times. As always, we appreciate your interest in Acushnet Holdings and look forward to providing you with an overview of our second quarter results, along with insights into how Acushnet and the golf industry are adapting and evolving as we enter the back half of 2020. On our previous call in early May, we were in the middle of government-imposed shutdowns impacting our golf ball and club plants, embroidery operations, and distribution centers in the US and across Europe. Most golf courses and golf retailers were effectively closed as the golf industry was shut down during the early days of the pandemic. Towards the end of May, after nine weeks of forced shutdown, we were given approval to restart operations with new and expanded safety and social distancing protocols. And I am pleased to report that since that time, our production has steadily increased and is now running at or above normalized levels, and nearly all of our furloughed associates have returned to work. And while our associates were safely resuming operations, golfers were making a full return to the sport, taking advantage of golf's outdoor field of play and embedded ease of social distancing. In recent months, we have seen strong demand fuel U.S. rounds of play increases of 6 percent in May and 14 percent in June, as the golf community, PGA professionals, golf retailers, course owners, and superintendents have excelled at safely welcoming golfers back to the game and accommodating increased interest in the sport. The successful return of the PGA Tour in June has also contributed to golf's energy, and this past week the LPGA, European, and Champions Tours restarted as well. While when we get to the other side of this global pandemic remains uncertain, In the initial and most difficult months, Acushnet has benefited greatly from the resilience of our committed and skilled associates, healthy product momentum, and strong balance sheet as we entered the shutdown period. Affirming this resilience and financial stability, I am pleased to announce the approval of Acushnet's second quarter cash dividend equal to $0.155 per share or $12 million in aggregate. Now turning to slide four and our results for the period, second quarter sales of $300 million were 34% below last year, and first half sales of $709 million were off 20% versus 2019. Second quarter adjusted EBITDA was $33 million, down 56% versus last year. These results reflect a 27% reduction in planned OPEC spending for the period, as our team aggressively managed expenses during the shutdown period. For the half, adjusted EBITDA of $86 million was down 39% versus last year. Here on slide 5, you see the effects of near shutdown early in the quarter, which were followed by recovery, which began in late May. April sales were down 68%, may improve to down 52% as our facilities reopened, and June sales indexed 25% ahead of last year. June's momentum and growth continued into July as a healthy order backlog, strong at-once demand, lean channel inventories, and gradually increasing output levels contributed to a fast start to the third quarter for each of our reportable segments. Now turning to slide six and our regional performance, you see that the US, EMEA, and Japan were, as you would expect, down for the period. Korea's resilience and momentum are noteworthy as our team posted a solid 12% increase in the first half. This gain is the result of strong brand momentum and sound execution by our Korea team and reflects the country's effectiveness in fighting COVID with less economic disruption than we have seen elsewhere. Korea is one of the few markets to post increased rounds of play in both the first and second quarters. Looking ahead, we see the game as well-positioned in the US and EMEA, with EMEA's recovery starting about one month after the US, which is consistent with their later golf course reopenings. Our outlook for Japan remains conservative, and we expect that stay-at-home guidelines will continue to prompt Japan's older golfer population to to be less inclined to venture out to play golf or go to the driving range. And we anticipate that Korea, while not without disruption, will remain one of the steadier and more resilient golf regions. Now turning to slide seven and the second half. As I mentioned, July was a strong month, and we expect this momentum to continue into August. Our supply chain has recovered well, and for the most part, our inventories are in line with anticipated demand. ProV1 availability, however, has been under the most pressure with strong demand requiring the allocation of our available supply over the next several weeks. U.S. channel inventories at the end of June were down versus a year ago, which we see as a positive sign. Golf balls and club inventory levels are down about 20% from 2019, and golf bag and footwear inventory is down 12%. Most global markets are also reporting modest inventory declines versus last year. This inventory environment reflects strong consumer demand over the past 10 to 12 weeks, which has contributed to lower than anticipated promotional activity following the extended period of retail closure earlier this year. As we noted on our previous call, we continued to prioritize all product development efforts with the intention of ensuring our readiness to introduce new products to wind market conditions are most conducive. And thanks to the great work of our R&D and Ops teams, we plan to launch several exciting new products in the coming months. Our new multi-layer thermoplastic urethane TorSpeed golf ball launches this week in North America and in all other markets next month. TorSpeed delivers a great combination of long game speed and short game spin and control and will be positioned between our existing Surlin covered performance models and Pro V1 and AVX franchises, and will retail for around $40 per dozen. You may recall that a version of this product was successfully test marketed last fall as Titleist EXP01. We have finalized design plans for new Titleist drivers and fairway metals, which we now intend to launch in mid-November. Tour fittings are underway, and we expect new product to debut on worldwide tours in September. We will provide more details about this launch on our third quarter call. And our club team is also excited to launch a new family of concept irons in September. While concept does not represent large volumes, it does reflect our most advanced iron technology platform and sets the standard in the super premium segment. Concept is also a valuable proving ground for materials and new constructions that may someday be used in our core product franchises. In summary, I will affirm that the game and business of golf have been incredibly resilient over the past months. Our team has done a great job navigating a challenging second quarter, and we are confident in Acushnet's positioning and readiness as we look to the future. As you would expect, we continue to exercise caution in our planning given COVID-related uncertainties. while at the same time our teams are preparing to capitalize on the high levels of participation and consumer demand we have seen over the past two to three months. I will conclude my prepared remarks by affirming a Kushnitz commitment to the safety and well-being of our associates and trade partners and our unwavering focus on building upon our proven track record of providing shareholders with a compelling long-term total return investment opportunity. I will now pass the call over to Tom.