Acushnet Holdings Corp.

foot joy sales volumes, which were partially offset by lower titles gear sales and higher component costs in clubs. In addition, higher inbound freight costs across all segments negatively impacted gross profit. Gross margins were down compared to 2021, driven by lower margins from foot joy clubs in here, partially offset by higher margins in golf balls from higher overhead absorption. SG&A expense in Q1 was $196 million, up 11%. The increase comes primarily from continued investment in the business to support increased levels of demand, including higher selling, distribution, IT-related consulting, and higher advertising and promotion costs. R&D expense was $14 million, up $2 million compared to 2021. Income from operations was $105 million for the quarter, which was $15 million lower than last year. Q1 interest expense was down $2 million, and our effective tax rate was 20.4%, which is lower than the prior year as a result of a shift in our jurisdictional mix of earnings. Net income attributable to Accushnet Holdings was $81 million, down $4 million, and our Q1 adjusted EBITDA was $120 million, down $15 million compared to 2021. There is a reconciliation of Q1 net income to adjusted EBITDA in our earnings release as well as in the appendix of the slide presentation. Moving to slide 10, we continue to benefit from the strength of our balance sheet. At the end of Q1, we had about $113 million of unrestricted cash on hand, Total debt outstanding was approximately $409 million, and we had $307 million of available borrowings under our revolving credit facility. Our leverage ratio was one times at the end of Q1 2022, about the same as Q1 last year. Accounts receivable at the end of Q1 was $377 million, down $10 million from the prior year. DSOs improved by six days. Our consolidated inventory at the end of Q1 was $449 million, which was up 36% from Q1 of the prior year with increases across all segments. Although we were able to increase our inventory levels during the quarter to better enable us to meet the continued high demand for our products, we are not yet at our desired inventory levels as demonstrated by our day sales and inventory, which were down to 128 days compared to 146 at the same time last year. Cash flow from operations for the first quarter of 2022 was an outflow of $164 million compared to an outflow of $30 million in Q1 of last year. The higher cash outflow was primarily from changes in working capital, which resulted from larger increases in accounts receivable and inventory and a higher decrease in accrued expenses compared to the changes in those balances in the prior year. and we continue to make investments in the business in the form of capital expenditures. We spent $11.7 million on CapEx and Q1. Included in that, we spent about $2.6 million towards our strategic golf ball capital investment program, which brings the cumulative total to $16.3 million. We continue to expect our full-year CapEx to be approximately $60 million. Turning to slide 11, our strong financial results have enabled the continued execution of our capital allocation strategy. Our highest priority remains investing in product innovation, golfer connection, and operational excellence. We continue to pursue acquisitions that align with our focus on premium performance products that appeal to dedicated golfers. We believe that these investments will advance our long-term strategy and drive growth at a favorable return. Generating strong free cash flow and returning capital to shareholders also remains a high priority. In March, we paid our previously announced Q1 dividend, which resulted in a cash outflow to shareholders of $14 million. And as David mentioned, our Board of Directors today declared a cash dividend of $0.18 per share payable on June 17th to shareholders of record on June 3rd. During the quarter, we repurchased 1.2 million shares for a total of approximately 59 million. At the end of Q1, we had approximately 39 million of share repurchases remaining under our current authorization, and we now expect to complete this authorization in Q2. On April 28th, our Board approved a $150 million increase to our share repurchase authorization. assuming continued strong financial performance and favorable market conditions we will continue to actively repurchase shares and would expect to complete this new authorization over the next year our capital allocation strategy remains an important element of a kushnet's value proposition which we continue to believe creates a compelling long-term total return for our shareholders moving to slide 12 despite our team's effective management of supply chain challenges thus far the situation remains complicated. We continue to experience raw material constraints, rising material and component costs, and elevated inbound freight costs. We have also seen higher distribution costs as we work to manage through logistical challenges to get product to our customers. On a more positive note, our golf ball manufacturing utilization has increased, which is improving our overhead absorption. and some of our operating expenses are expected to grow at a slower rate for the year than previously anticipated. Taking these factors into consideration, we are reaffirming our previous full year guidance. We continue to expect our full year 2022 consolidated net sales to be in the range of $2.175 billion to $2.225 billion. This includes approximately $55 million of negative foreign currency impacts. On a constant currency basis, consolidated net sales are expected to be up between 3.8% and 6.1%. And we continue to expect full-year adjusted EBITDA to be in the range of $325 million to $345 million. Regarding the timing of our business in 2022, we continue to expect first-half consolidated net sales to be a little more than 50% of full-year sales, and first half adjusted EBITDA to be about 60% of the full year. In conclusion, our associates and trade partners helped us manage through a volatile environment with continued high demand and supply chain challenges to deliver solid results for Q1. While we continue to expect supply chain issues, we remain confident in our ability to meet our 2022 financial goals and to deliver a long-term total return for our shareholders. With that, I will now turn the call over to Sondra for Q&A. Thanks, Tom. Operator, could we now open up the lines for questions?

Okay. And as a reminder, to ask a question, you will need to press star 1 on your telephone. Again, that is star and then the number 1. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And your first question will come from Kevin Heenan with JP Morgan. Your line is open.

Hi, guys. Good morning, and thanks for taking my question. And congrats on the strong 1Q result as well. I guess just looking at the full year outlook and following the strong 1Q, and you talked about the supply side expected to improve, I guess are there any factors or things you're seeing in the business change to consider kind of in the balance of the year that led you to hold that initial outlook for the full year?