Acushnet Holdings Corp.

Thank you for joining us today for a Cushnet Holding Corp first quarter 2025 earnings conference call. Joining me this morning are David Marr, our president and chief executive officer, and Sean Sullivan, our chief financial officer. Before turning the call over to David, I would like to remind everyone that we will make 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 and 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 make reference to non-GAAP financial measures including items such as net sales on a constant currency basis and adjusted EBITDA. Explanations of how and why we use these measures and reconciliations of these items to the most directly comparable GAAP measures 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 references throughout this presentation to year on year net sales increases and decreases are on a constant currency basis, unless otherwise stated, as we feel this measurement best provides context as to the performance and trends of our business. And when referring to year to date results or comparisons, we are referring to the three month period ended March 31st, 2025, and the comparable three-month period in 2024. 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. I am pleased to report on a solid start to the year for Acushnet, led by Momentum and our Titleist golf equipment and golf gear segments. For the quarter, Acushnet delivered worldwide net sales of $703 million, a 1% increase over last year. Adjusted EBITDA was $139 million, which reflects a decrease of $15 million related to our decision to step up investment in our equipment segment in 2025. Getting to our segment results, you see golf equipment net sales increased almost 4% in the quarter with gains in every region. This growth was led by the successful launch of new Pro V1 and Pro V1X golf ball models and continued momentum across our Titleist GT Metals franchise, which was expanded in Q1 with the launch of new hybrids and GT1 Metals. The Titleist golf ball business grew 4% with gains led by the EMEA region, which was up double digits as favorable weather contributed to an early start to their golf season. And for context, golf ball revenues were up 11% on a reported basis versus two years ago, our most recent Pro V1 launch quarter. Our Titleist golf club business grew 4% versus last year and 15% on a reported basis when compared to the similar product launch cycle in Q1 2023. In most cases, we would expect Q1 club sales to be down in an odd year given the challenging comp against even-year bokeh wedge launches. This was obviously not the case in 2025, as GT Metals and Scotty Cameron Putters contributed to our growth over last year. Acushnet gear sales were up almost 4% in the quarter, with growth in all major markets led by EMEA and Japan. Titleist Gear posted steady gains, while the combined Club Glove and Lynx & King's business was up double digits. Gear margin and OI trends were also favorable as our team is doing good work generating operating leverage across the segment. Foot choice sales were down 5% in the quarter, which is attributable to lower closeout footwear sales and some targeted product line rationalization across the brand. We are pleased with the initial responses to new HyperFlex, Premier, and Quantum footwear models, And Footjoy Gloves, the global category leader, also had a nice start in the quarter. As noted on our last call, we characterized 2025 as a year of stability and improving profitability for Footjoy, with a higher percentage of premium sales as we exit what has been a two-year period of correction in the global footwear space. Finally, net sales of products not allocated to a reportable segment were down slightly in the quarter. Shoes again posted nice gains, which were offset by a decline in Titleist apparel as Korea's super premium apparel segment continues to correct after a period of outsized growth. Now, looking at the quarter by region, you see the U.S. market was up 1 percent, EMEA grew 4 percent with gains from all segments, and Japan and Korea were off 2 and 4 percent, respectively. Common themes in the quarter with our Asia business are growth in Titleist equipment and gear and declines in foot joy and Titleist apparel. The season started slowly in Japan and Korea due to poor weather, but we have seen improved conditions in March and April. With a solid first quarter in the books, we are now focused on executing a full slate of ball, club, and footwear fitting events across all markets. Despite poor weather and a slow start in the U.S., where rounds were off 2%, we project that total worldwide rounds of play were up slightly for the quarter, led by a nice start in EMEA and the U.K., up 15%. I will now comment on how the changing tariff landscape is impacting Acushnet and some of the steps we are taking across the organization to mitigate these new costs. As we have noted in recent years, the company's supply chain is durable and regionally diverse, which provides our teams a good amount of operational flexibility to adapt to an uncertain and evolving tariff dynamic. Our vertical integration in golf balls, golf clubs, footwear, and golf gloves first and foremost supports our efforts to achieve the highest quality standards in the products we produce. It also provides a good amount of control and agility as it relates to demand planning and global supply chain management. Roughly two-thirds of our worldwide golf ball output is produced in the United States, and our two Massachusetts-based ball plants supply the majority of our U.S. golf ball demand. Our Thailand plant supplies Pro V1 models to all other regions, now including Canada. Our golf ball business has a small exposure to tariffs from China sourced raw materials, which we expect to mitigate by end of year. Additionally, we ship U. S produced performance model golf balls into Canada and Mexico, which are presently incurring a 25% tariff. We have not yet reacted to this temporary rate. However, if this becomes permanent, we will likely take pricing measures. Club components are sourced from China, Taiwan, Vietnam, and the U.S., and we operate our own assembly centers in most major regions. All of our U.S. club demand is assembled in our Carlsbad, California facility. Our primary golf club tariff exposure today is from China sourced club heads shipped into the U.S. Over time, we will reroute these heads to our international facilities and supply our U.S. production center with components sourced from the US, Taiwan, and Vietnam. As you know, we recently relocated our footwear manufacturing center from China to Vietnam. While we are confident this move has a long-term benefit, FootJoy, like most footwear companies, is exposed to tariff uncertainty in Vietnam, which was originally posted at 46%, but is now at 10% during the current pause period. And finally, the company owns and operates a standalone glove facility in Thailand, which produces both foot joy and titles gloves number one and number two selling glove brands in the market. We are confident that a cushioned supply chain footprint provides us with flexibility to adapt, most notably within golf equipment or largest segment. As Sean will outline, we expect to mitigate a good portion of the current tariff impact by end of year and expect to realize further relief in 2026 from some of our actions that will take longer to materialize. With regards to pricing, we have not yet passed along increased tariff costs to consumers, but do anticipate taking some regional pricing action on select products as we gain clarity on the extent and timing of our mitigation efforts. In summary, we are pleased with our strong start to the year and the continued strength and resiliency of a Kushnitz core consumer, the game's dedicated golfer. As you would expect, our teams are focused on providing exceptional product fitting and service experiences to golfers and our trade partners and making the right long term based decisions while we navigate this period of tariff uncertainty. Thanks for your attention this morning. I will now pass the call over to Sean. Thank you, David.

Good morning, everyone. As highlighted, we started 2025 with an increase in net sales of 1.2% over last year's first quarter. Adjusted EBITDA was $138.9 million, a decrease of 9.6% from the first quarter of 2024, but in line with our expectations as we continue to invest in key strategic initiatives. Net sales growth in the quarter was driven by continued momentum of our Titleist brand, with golf equipment and golf gear both growing by 4%. FootJoy net sales declined 5% in the quarter, primarily due to lower footwear and apparel volumes. Geographically, Q1 net sales were up year over year in the U.S., EMEA, and rest of the world, driven by golf equipment and golf gear. First quarter net sales declined in Korea and Japan, primarily due to our FootJoy golfwear segment, largely in footwear, and lower net sales of Titleist apparel products, that are not allocated to one of our three reportable segments. Gross profit in the first quarter of $337 million was down $5 million compared to the first quarter of 2024, primarily due to higher manufacturing costs in the Titleist golf equipment segment, as well as lower net sales in FootJoy golfwear. These were partially offset by higher average selling prices and lower distribution costs in golf gear and higher net sales in Titleist golf equipment. SG&A expense of $200 million in the quarter decreased almost $1 million from 2024. Increases in advertising and promotional expense to support new product launches and selling expense primarily related to fitting network investments were more than offset by lower retail commission expense in Korea, as well as a $7 million decrease in restructuring expense related to a charge recognized in the first quarter of 2024 associated with our footwear production transition to Vietnam. R&D expense of $18.9 million was up $2.4 million compared to last year's first quarter, primarily to support next-generation product introductions. Debt interest expense of $13.8 million in the quarter was up almost $1 million due to an increase in borrowings partially offset by a decrease in interest rates. Moving to the other income expense line, I want to highlight a gain resulting from the transition of our footwear manufacturing from our China joint venture to Vietnam. Because of the shift in footwear manufacturing out of China, we are no longer the primary beneficiary of the joint venture and therefore have deconsolidated the JV accounts from our financial statements. As a result of this deconsolidation, we recognize a non-cash pre-tax gain of $20.9 million during the first quarter, which has been excluded from the adjusted EBITDA calculation as noted in the reconciliation attached to our earnings release. Our effective tax rate in Q1 was 17.9%, down from 21.7% last year, primarily driven by a shift in our jurisdictional mix of earnings. Moving to our balance sheet and cash flow highlights, our balance sheet and cash flow positions continue to be very strong, allowing us to execute our capital allocation strategy while also navigating the current macroeconomic uncertainty. Our net leverage ratio using average trailing net debt at the end of Q1 was two times. Overall, inventories declined 7% from the fourth quarter of 2024 and were roughly flat when compared to last year's first quarter. Overall, we are comfortable with our inventory quality and position. Capital expenditures were $11 million in the first quarter of 2025, And while we plan for approximately $85 million of spend in 2025, we will continue to assess considering the current environment. Through March, we return roughly $51 million to shareholders with $36.6 million in share repurchases and $14.8 million in cash dividends. During April, our Board of Directors declared a quarterly cash dividend of 23.5 cents per share payable on June 20 to shareholders of record on June 6. As of March 31, we had $415.5 million remaining under the current share repurchase authorization. On April 10, 2025, we repurchased approximately 936,000 shares of our common stock from Magnus for an aggregate of $62.5 million related to our June 2024 share repurchase agreement. With respect to our previously disclosed December 2024 Magnus share repurchase agreement, through the end of April, we've repurchased approximately 90% of the $62.5 million target and expect to settle the related Magnus share repurchase obligation during the third quarter of 2025. Given the current market conditions, we will continue to assess our previously stated capital allocation approach for the balance of the year while monitoring leverage, liquidity needs, and the appropriate levels of investment. Moving to guidance for 2025, the macro environment remains highly uncertain due to changing trade policy. For that reason, we are not providing any updates to our consolidated full-year outlook until there's more clarity. On a positive note, as David said, our core consumer remains strong and resilient. In terms of overall tariff exposure, based on our estimates, we expect our gross impact in 2025 to be approximately $75 million on the assumption that the current rate regime extends through year end. The largest impact, or about 70%, relates to the China import tariff rate of 145%. If we had not worked to diversify our supply chain over the past few years, our tariff exposure would be much higher. We are taking actions to implement mitigation plans, including adjusting our global supply chain footprint, initiating cost and productivity programs both internally and externally with our suppliers, and considering selective price increases. Through these actions, we believe we can offset greater than 50% of the $75 million gross tariff impact during 2025. Now turning to the first half, similar to our 2024 fourth quarter call, We currently expect first half sales to be up low single digits versus the first half of 2024. We expect most of the additional tariff impact to fall in the second half based on our current inventory levels. For Q2, we expect an approximately $4 million tariff impact. Including this impact, we expect first half adjusted EBITDA to be down low single digits as compared to last year's first half. In closing, we are very pleased with our performance in the first quarter of the year and remain focused on controlling what we can while servicing the needs of dedicated golfers. Our business and balance sheet are well positioned for the current market environment, and we'll continue to monitor the tariff situation and provide updates when appropriate. With that, I'll now turn the call over to Sandra for Q&A.