Acushnet Holdings Corp.

Good morning, everyone, and welcome to the Acushnet Holdings Corp's second quarter 2021 earnings conference call. My name is Emily, and I will be coordinating the call today. During the presentation, you will have the opportunity to ask a question by pressing star followed by one on your telephone keypads. I would now like to hand the call over to our host, Vice President of Investor Relations, Sondra Lennon, to begin. Sondra, please go ahead.

Good morning, everyone. Thank you for joining us today for Acushnet Holdings second quarter 2021 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 Acushnet'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 results or comparisons, we are referring to the six-month period ended June 30th, 2021, and the comparable six-month period. With that, I'll turn the call over to David.

Thanks, Audra, and good morning, everyone. We appreciate your time on today's call. As reflected in this morning's earnings release, the Acushnet team continues to excel at building momentum while navigating a wide range of supply chain complexities. The global golf market is vibrant with rounds of play reflecting healthy gains versus both 2020 and 2019, and this energy is helping to fuel strong demand across the entire Acushnet product portfolio. Acushnet's talented associates and our committed trade partners are doing great work to keep pace with strong participation and demand while continually adapting to the dynamic golf marketplace. And operationally, we continue to go to great lengths to prioritize associate health and safety, especially in regions where vaccination levels are lagging. As we will address on today's call, product innovation is the foundation for the company's sustaining success which is led by new Titleist Pro V1 golf balls and TSI metals, FJ golf footwear, and the accelerated development of our shoes brand. We will also provide an update on our global supply chain and some of the recent challenges that are reflected in our second half outlook. Now getting right to the quarter, we will turn to slide four. The Kushnitz second quarter sales of $625 million increased 108% versus last year and are up 35% compared with 2019. The Kushnitz adjusted EBITDA for the second quarter of $128 million is $95 million over last year and $52 million or almost 70% ahead of 2019. For the first half, Sales exceeded $1.2 billion, reflecting gains of 70% and 35%, respectively, versus same periods in 2020 and 2019. This growth is coming from each of our business segments and in every region as the game and our brands build sustaining momentum around the globe. First half adjusted EBITDA of $263 million is up $177 and $123 million, respectively, as compared with the past two years. As Tom will address, the Kushnitz Strong Performance and Healthy Balance Sheet position the company to be opportunistic with our proven capital allocation strategy as we seek to invest in future growth. and return capital to our shareholders through our share repurchase and dividend programs. And consistent with this approach, I am pleased to announce that earlier today, the Cushman's Board of Directors approved the payout of our quarterly cash dividend equal to 16.5 cents per share to be distributed on September 17. Now turning to slide five, I will comment on our business by segment. Starting with golf balls, sales gains have been led by one of our most comprehensive and successful Pro V1 launches and strength across the entire Titleist golf ball product line. As you see, sales exceeded $200 million for the quarter, representing a 92% increase. On the PGA Tour, Pro V1 and Pro V1X golf balls have been played by 72% of the field this year, more than eight times the nearest competitor. And on the LPGA Tour, Titleist's 84% ball count is more than 14 times the number two brand. The Titleist Golf Ball competitive advantage is built around product performance, quality, and consistency. Our ongoing investment in the company's vertically integrated supply chain and near 90 years of golf ball design innovation and manufacturing experience continues to serve us well. And to support this first half growth, and as noted on our previous call, our ball plants have been operating 24-7, which we expect to continue for the coming months. Additionally, we continue to allocate golf balls to our trade partners, given tight supply levels. Moving to Titleist golf clubs, which are up over 100% for the quarter, this gain was led by our new lineup of TSI drivers, which are the most played on the PGA Tour and meeting our high expectations in the market. In addition, Titleist was the number one driver at this year's NCAA championship and the recent USGA Junior Boys Championship. TSI is also the choice of Women's World number one Nellie Korda, who plays Pro B1 golf balls and a full range of Titleist golf clubs, bokeh wedges, and a Scottie Cameron putter. Titleist Gear posted a 93% increase for the quarter with gains in every category. Sales of $65 million reflects supply chain excellence, as our team has done a nice job meeting healthy global demand levels. This supply chain effort continues to be complemented by excellence in design and functionality, which Titleist Gear products are known for. And moving to foot joy, robust gains in sales of footwear, apparel, and gloves are driving growth throughout the brand, with sales up 129% in the quarter. New Premier and Hyperflex footwear models have been especially well received and are helping FootJoy to earn its place as the number one shoe in golf on tour and in the marketplace. We are pleased to see the golf apparel category bounce back this year as our previous concerns about excess inventory in the channel did not materialize. FJ Apparel capitalized on this opportunity. FootJoy's leading glove franchise posted healthy gains while continuing to chase robust consumer demand and replenish tight channel inventories. And lastly, we are pleased with the growth and development of our shoes brand as our team continues to grow by focusing on product excellence and providing exceptional service experiences for our trade partners and consumers. Now turning to slide six and a regional view of our results. As you see, the company is performing well in all key markets. The US market delivered the highest growth rate for the half with golf balls and golf clubs, both up over 80%. EMEA is providing to be resilient, particularly given travel restrictions, which have limited golf tourism throughout the UK. We remain cautiously optimistic about the Japan golf market, which is in recovery mode from 2020, albeit at a slower rate than we are seeing in other regions. And Korea continues to be resilient and vibrant with their 40% first-half growth coming on top of last year's double-digit sales increase in the same period. From a rounds-and-play standpoint, the U.S. and Korea are both indexing roughly 20% ahead of 2019 levels through the first half. The U.K., Australia, and Canada have battled COVID-related lockdowns and headwinds Yet despite these disruptions, rounds in each of these markets are up low double digits as compared to 2019. Japan and mainland Europe were among the hardest hit last year, and we have seen recoveries in 2021 despite periodic starts and stops throughout the year. And now turning to slide seven, I will provide an overview of our outlook for the second half, which is both optimistic and cautious as warranted by COVID and the changing conditions we are confronting. We remain enthused about golfer participation and strong demand for Titleist, Foot Joy, and Shoes products. Our trade partners are healthy and financially stable, and overall channel inventories are down versus their historical levels, with balls, clubs, and gloves most impacted. We are excited and ready to introduce a whole new lineup of Titleist T-Series irons later this month, and our team has done great work preparing for a wide range of launch activities. Our club development team has excelled over the past 18 months, and we think their focus is evident in this new product lineup. Footjoy also has a busy fall planned with a wide range of new footwear models, new hydrodate outerwear, and new seasonal apparel lines for men and women. In addition to our healthy pipeline of new product introductions, our second half outlook is also shaped by supply chain complexities, which have expanded in recent weeks. We continue to confront golf ball raw material constraints stemming from the Texas storms earlier this year, which are limiting output and have resulted in periodic shutdowns at our new Bedford-based ball plant, too. Our glove and ball factories in Thailand are under pressure as the country confronts escalating cases and low vaccination rates. We are doing all that we can to keep our associates safe, yet the recent spike in COVID cases has prompted us to temporarily reduce production at our glove factory. This operation is also constrained by raw materials shortages, which will further limit production. And we expect that the environment for our apparel and Titleist gear businesses will continue to be challenged by tight raw material availability. And additionally, the current lockdowns in Vietnam will impact Titleist bag and headwear availability. As you will note, our outlook reflects both the positives associated with strong demand and healthy marketplace fundamentals and the risks and incremental costs inherent in our supply chain. Tom will provide greater detail during his remarks. In closing, I remain confident that Acushnet is well positioned to capitalize on the strength of our target consumer, the game's dedicated golfer, and that our team's proven track record of product innovation and supply chain management will continue to support the company's long-term growth objectives. Thanks for your attention.