Acushnet Holdings Corp.

Ladies and gentlemen, thank you for standing by and welcome to a Krishna Holdings Corp fourth 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 one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Sandra Lennon, VP Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us today for Krishnath Holding's fourth quarter and full year 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 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 Akushnet'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 year-to-date or full-year results or comparisons, we are referring to the 12-month period and to December 31st, 2020, and the comparable 12-month period. With that, I'll turn the call over to David.

Thanks, Sandra, and good morning, everyone. I hope you are staying safe and well as we move closer to the end of these difficult times. Key themes running through today's remarks will be the tailwinds of strong golfer participation and demand and headwinds resulting from COVID-related supply chain challenges. As you will hear, the keys to success for Acushnet in 2020 and 2021 involve balancing new product development, demand momentum, supply chain uncertainties, short-term cost increases, and periodic regional shutdowns. Based on our track record, I'm confident that the Acushnet team is up to this task. The Kushnett and the entire golf industry are benefiting from the continued commitment from PGA professionals and golf course operators who have worked tirelessly to provide safe and fun experiences since the earliest days of the pandemic. More than 500 million rounds of golf were played in the U.S. in 2020, 60 million rounds more than 2019, and the highest annual total since 2002. I must also acknowledge and thank my teammates for their dedication and great work navigating the highs and lows of 2020 and positioning the company for continued success. Their heightened commitment to associate safety, product quality, and customer care is serving us well in these uncertain times and as we respond to strong demand across the Acushnet portfolio. Now turning to slide four, we will get right into our results for the quarter. Sales of $420 million were up 14% versus last year, with reported growth coming from every segment and in every region. Adjusted EBITDA of $48 million reflects an 8% increase. Titleist golf ball business grew 3% as our team did good work balancing the opportunity to satisfy strong at-once demand with the need to convert production to our new Pro V1 models to support their January global launch. Golf club sales were up 21% in the quarter, led by our successful new TSI Metals line. Since its debut, TSI has been the most played driver on the PGA Tour, and we are pleased with the early results from our November launch. Demand for all Titleist Club categories is strong, and our supply chain is holding up well, although lead times are running longer than normal, given COVID-related production modifications and tight component availability. Gear was led by our Titleist golf bag business and also delivered a very strong quarter, posting a 25% gain with growth across all categories as our team did good work keeping pace with the brisk end-of-year demand. And Footjoy sales of $101 million were up 19% in the quarter with gains in all product categories and accelerated e-commerce growth. Footjoy brings great brand and product momentum into 2021. Looking at our business by region, as shown on slide five, double-digit gains in Korea and the U.S. are highlights for the quarter, and we were pleased to see the Japan market stabilize late in the year. Europe battled starts and stops and inventory shortfalls en route to posting a modest increase for the quarter. Demand for golf in Europe is similar to what we have seen in the U.S. However, COVID and Brexit-related challenges continue to slow the market's momentum. These across-the-board regional gains in the quarter reflect the resiliency of Acushnet's global forecasting and supply chain capabilities, capabilities and competencies that have become increasingly critical during these volatile times. And here on slide six, you see our full-year results with sales reaching $1.6 billion and adjusted EBITDA coming in at $233 million. And as a final note on 2020, the Kushnitz direct-to-golfer e-commerce sites also recovered from early season disruptions and closures and finished up about 50% for the year. As Tom will highlight, the company's financial position entering 2021 is in great shape, and we will continue to focus on making targeted investments in our future and expanding our dividend and share repurchase programs. I am pleased to announce that our board of directors has approved a 6.5% increase to our dividend, bringing the annualized payout to 66 cents per share. Since initiating our dividend program four years ago, the company has returned over $160 million to shareholders, and our annual per share dividend has increased by 38%. Additionally, moving to slide seven, I am pleased to outline two significant projects which we believe will enhance Acushnet's competitive advantages over the long term and deliver positive returns for our shareholders. The first initiative is a five-year, $120 million capital investment in our golf ball operations infrastructure and precision manufacturing capabilities. Roughly $35 million of this commitment is normalized, sustaining investment, while the remaining $85 million will be focused on new innovations, technologies, and operational enhancements. The majority of this spend will be focused on our new Bedford-based Ball Plants 2 and 3 and custom golf ball facility. With these investments, we will upgrade the speed and efficiency of Titleist Golf Ball operations, and line capacity consistent with the ongoing mix shift towards Pro V1, AVX, and new TorSpeed urethane-covered products. We will also introduce new technologies to stretch our custom ball capabilities and support new and emerging imprinting opportunities. These capital investments will expand our production and testing capabilities and help us to further leverage Acushnet's industry-leading golf ball patent and intellectual property portfolio. which represent some of the company's most valuable assets. We believe these investments in new technologies and operational excellence will solidify and advance Titleist's position as the golf ball performance and quality leader for many years to come. The second area of investment commenced in late 2020 and relates to our new third-party North American distribution center located in Indianapolis. This project begins with the consolidation of many of our warehousing and distribution functions, starting with Fochoy and then Titleist Gear Products, which have historically been warehoused and fulfilled from the east and west coasts. Over time, we will fulfill most of our e-commerce activities from this new facility and add embroidery capabilities to support custom apparel and gear. Stock golf balls will also be shipped from this new DC in addition to our east and west coast facilities. This third U.S. distribution point for golf balls will enhance our service capabilities and provide a valuable hedge against unanticipated shutdowns as we experienced last year. This initiative is intended to immediately enhance the end user experience by reducing lead times and distribution costs for both our trade partners and consumers while generating cost savings for Acushnet over the long term. And now turning to slide eight, I will frame some of the key assumptions behind our 2021 planning process. The game and industry are in good shape, golfer engagement is strong, and trade inventories are generally healthy and in some cases low. Against this backdrop, each of our businesses brings great momentum into 2021. LaCouche's product development engines remained in high gear last year, and as you will see, new products are the foundation of our outlook and expectations for 2021. Last month, we launched new PRO-V1 and PRO-V1X models and are enthused by their early adoption across worldwide tours and positive early market response. Titleist golf balls are used by approximately 75% of players across worldwide tours. and our new Pro V1 and Pro V1X represent our next chapter of performance, quality, and innovation. To meet anticipated high levels of golf ball demand in 2021 and as we catch up from 2020, our golf ball plants are currently operating three shifts, and Pro V1 models are on trade allocation, which we expect to continue for the coming months. Titleist Golf Clubs are also well-positioned for the new year, led by the early success and high expectations around our new TSI drivers and fairways, and strong momentum across all club categories. This week, we are launching the complimentary TSI 1 and TSI 4 drivers, along with new TSI hybrids, as we look to build upon the success of the TSI franchise. Our 2021 gear product line has been well received by trade partners, and our supply chain is in good shape as we are poised to launch a wide range of new models in the first quarter. We are confident in our ability to satisfy first quarter demand in stock golf shops for the upcoming season, while also anticipating that Q2 availability may be challenged by supply chain uncertainties. We expect FootJoy's momentum to continue into 2021 and are especially excited about new footwear models Stratos, Premier, and Hyperflex. FJ Premier was the number one shoe at the Masters and initial tour and consumer feedback has been overwhelmingly positive. The FJ design team is on a great roll and we expect to benefit from their good work as the footwear and apparel categories stabilize over the next 12 to 24 months. And finally, our shoes business was mixed in 2020 with golf and lifestyle posting gains, but these were not enough to offset ski, which remains negatively impacted by COVID, especially in Europe. We expect shoes golf to stay on its growth trajectory in 2021 and anticipate a broader ski recovery beginning in 2022. In closing, we're enthused about the year ahead. and especially by the exciting range of new products we are set to bring to market in the first half of the year. Based on our 2020 experiences, I'm confident that our team has a good handle on the circumstances that are within our control and will continue to excel at adapting to the inevitable uncertainties and operational challenges that we are likely to confront. Thanks for your attention this morning.