Acushnet Holdings Corp.

Good morning and welcome to Accusenet Police Corp. Third Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I will now turn the call over to your host, Sandra Lennon. Please go ahead.

Good morning, everyone. Thank you for joining us today for a Cushnet Holdings third quarter earnings conference call. Joining me this morning are David Marr, our President and Chief Executive Officer, and Tom Pacheco, our Chief Financial Officer. Before turning 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. 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 in constant currency. And please also note that when referring to year-to-date results or comparisons, we are referring to the nine-month period ended September 30, 2020, and the comparable nine-month period. With that, I'll turn the call over to David.

Thanks, Sandra, and good morning, everyone. As always, we appreciate your interest in Acushnet Holdings and hope that you are staying healthy and well. I look forward to providing an overview of the company's third quarter results and the steps we have taken to capitalize on strong demand for Acushnet products and position the company for long-term sustaining success. Before I get into the quarter, I must acknowledge and thank my teammates for their resilience and terrific work since we resumed full operations in late May. Our results reflect the strength of Acushnet's products, a company-wide commitment to customer service, and our team's ability to adapt and leverage our global supply chain. I am very proud of the passion, creativity, and sense of purpose that our company has demonstrated during the pandemic. And along these same lines, I must also give credit and thanks to PGA Golf professionals and our trade partners, for taking great care of golfers since play resumed, and for positioning golf as a safe, healthy, and enjoyable recreational activity. These caretakers of the game have distinguished themselves in 2020, and every golfer has benefited from their hard work and commitment to the sport. At Acushnet, our highest priority remains the health and well-being of our associates, and this continues to have an outsized influence on our decision process. Acushnet's global operations team has thoughtfully reconfigured workflow across the organization to adhere to all social distancing and safety requirements. And it is because of this commitment that we have been able to safely operate our facilities at peak output levels as we respond to strong demand for our entire product line. On our last call in early August, we spoke of our June and July growth And I am glad to report that this momentum continued, as you will see reflected in our third quarter results. As shown here on slide four, third quarter sales of $483 million were up 15% versus last year. Golf Balls led this growth, posting a 40% increase for the period. Demand for our Pro B1 franchise has been especially strong while we continue to allocate supply in order to minimize out-of-stock situations. In August, our team successfully launched the new Titleist TorSpeed golf ball. TorSpeed is our first TPU, or thermoplastic urethane golf ball, a technology our R&D team has been working on and refining for the past several years. Initial sell-through of TorSpeed has been resoundingly positive, and we're excited about where we may take this TPU process technology in the future. While Titleist Club sales were off 5% for the period, we are pleased with these results, given a challenging comp against last year's iron launch and our decision to push our new TSI metals launch from August to November. We launched a new three-model family of Titleist Concept irons in September. This super-premium, custom-only offering is an important element of our golf club innovation platform as we strive to push the boundaries of materials and product performance. Titleist Gear increased 27% for the quarter with gains coming from all gear categories. Our team did good work to keep inventories flowing in support of strong at-once demand. And despite losing most of the second quarter, both the Titleist Bag and Glove businesses are now comping positive for the year. And Footjoy posted a 12% gain for the quarter with increases across all categories, including apparel, which has been the most disrupted category in 2020. These third quarter results also reflect strong gains from Acushnet's e-commerce platforms as our trade partners and direct company-owned sites continue to generate increased traffic and sales. Adjusted EBITDA for the quarter increased 78% to $99 million. These results help to affirm our confidence in the company's proven operating model and long-term outlook. And today, a Cushnet's Board of Directors approved the payout of our quarterly cash dividend equal to 15.5 cents per share, or approximately $12 million in aggregate. Next here on slide five, you see year-to-date sales are off 9%, while adjusted EBITDA is down 5% through September. Considering the challenges of 2020, we are pleased with these results for the first nine months of the year. As you will hear from Tom, our balance sheet is in good shape, and we believe the company is well positioned to continue investing in our future growth. Now on slide six, in our performance by region, the U.S. market set the pace, posting a 26% increase as all segments and channels delivered gains for the quarter. EMEA also had a great quarter with sales up 14%. Korea has been steady all year long, and as you see, this continued in the third quarter with sales up 10%. Rounds of play in the U.S. and EMEA have been especially strong since play resumed in the second quarter, and play in Korea has trended up low single digits for most of the year. Japan has been most impacted by COVID. Japan has an older golfing population, and many golfers have elected to stay sheltered at home and not travel to the golf course. Japan's third quarter results also reflect an outsized impact from our decision to move the driver launch into November. Looking at slide seven, you see a full slate of new product introductions scheduled for the first quarter. This lineup reflects our uninterrupted commitment to R&D throughout 2020 and will be the building blocks of our 2021 business plans. New Titleist TSI drivers and fairways launch next week and have already made a positive impact across worldwide tours and with club professionals. TSI has been the number one driver on the PGA Tour since debuting in early September. This will be one of our most comprehensive launches as our team has made the most of our decision to move our global launch dates from August to November. New Pro V1 and Pro V1X golf balls have been out on tour for the past month and notched their first PGA Tour win last week in Bermuda as champion Brian Gay won with our new Pro V1 model. 2020 has been a milestone year for FootJoy as the brand celebrates 75 years as the number one shoe in golf. Next week, the team launches the new Stratos line of spikeless golf shoes, and in the first quarter, we'll launch the much-anticipated Premier Series. Premier has been out on tour since late summer and reflects FootJoy's heritage as footwear craftsmen and unwavering commitment to performance, comfort, and style. And finally, our shoes golf business continues to build momentum across the U.S. and Europe, while the ski side has been more meaningfully impacted by COVID and is not expected to recover until late next year. Looking forward, we will continue to balance strong interest in the game and healthy consumer demand with a good amount of caution as required by these uncertain times. Our new product pipeline is in great shape, and as noted, our supply chain is holding up well. Additionally, retail inventories are projected to be down 5% to 10% globally, which we think bodes well for upcoming product launches. Just as important, the Kushnitz Strong balance sheet positions the company to make key investments in our future growth, return capital to shareholders, and offer a compelling long-term investment opportunity. Thanks for your interest and attention this morning.