Good morning, everyone. And welcome Acushnet Holdings Corp Second Quarter 2021 Earnings Conference Call. My name is Emily and I will be coordinating the call today. [Operator instructions] I'd 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 Maher, our President and Chief Executive Officer and Tom Pacheco, our Chief Financial Officer.

Before turning the call over to David, I'd 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 US 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 and today's press release, the slides that accompany this presentation and in our filings with the US 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 30, 2021 and the comparable six month period. With that, I'll turn the call over to David..

Thanks, Sondra 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 in 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. Acushnet's second quarter sales of $625 million increased 108% versus last year interrupt 35% compared with 2019.

Acushnet's 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 million and $123 million respectively as compared with the past two years.

As Tom will address, Acushnet's 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, Acushnet's Board of Directors approved the payout of our quarterly cash dividend equal to sixteen and half 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 had 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 had 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 serve us well.

And to support this first half growth and as noted on our previous call, our ball plants have been operating 24X7, 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 NCA Championship and the recent USGA Junior Boys Championship.

TSI is also the choice of women's world number one, nearly quarter who plays probably one golf balls and a full range of Titleist golf clubs, Vokey wedges, and a Scotty 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 complimented by excellence in design and functionality, which Titleist Gear products are known for.

And moving to FootJoy, robust gains in sales and footwear, apparel and gloves are driving growth throughout the brand with sales up 129% in the quarter. New Premiere 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 and the channel did not materialize. FJ apparel capitalized on this opportunity. FootJoy's leading glove franchise posted healthy games 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 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 rates 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 around the play standpoint, the US and Korea are both indexing roughly 20% ahead of 2019 levels through the first half. The UK, 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, FootJoy 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 were 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 plan with a wide range of new footwear models, new hydrogenate 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 two. 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.

I will now pass the call over to Tom..

Thanks, David and good morning, everyone. I would also like to thank our associates for their continued hard work and resiliency that has led to another exceptional quarter for Acushnet.

Starting with income statement highlights on slide nine, consolidated net sales for Q2 were $625 million up 108% compared to Q2 2020 and up a 100% on a constant currency basis as demand for our products remained very strong and our supply chain continued to execute at a high level.

Of course we were comping against the prior year period in which our operations in the US and across Europe were shut down for almost 10 weeks. Gross profit for the second quarter was $334 million up $178 million or 114% versus 2020 and gross margin was 53.5% up 130 basis points.

These increases come primarily from higher sales volume across all segments, and the absence of shutdown related costs that we incurred in the prior year, but were partially offset by higher inbound freight costs. SG&A expense in Q2 was $210 million up $80 million or 61% compared to 2020.

SG&A expense was up across the board as we significantly curtailed spending last year in the face of the shutdowns. Income from operations was $109 million, which was $97 million higher than 2020. Interest expense for the quarter was $1.8 million down $2.6 million from Q2 2020.

And our effective tax rate was 22.9% compared to a benefit of 19% in 2020 as a result of a change in the mix of our jurisdictional earnings and the absence of a one-time discrete benefit, which was recorded in the prior year.

Net income attributable to Acushnet Holdings was $81 million, $79 million higher than 2020.Aad our Q2 adjusted EBITDA was $128 million up $95 million. Moving to our results for the first half of 2021 consolidated net sales were $1.2 billion up 70% compared to last year and up 64% on a constant currency basis.

Gross profit for the first half was $645 million up $288 million or 81% compared to the first six months of 2020. Gross margin was 53.5% up 310 basis points from the prior year. SG&A expense for the first half was $387 million up $103 million or 36% and R&D expense was $25 million up $1 million or 4% compared to 2020.

First half income from operations was $229 million, which was $196 million higher than 2020. Interest expense for the first half was $5.5 million down $3 million from 2020 and our effective tax rate was 23.7% compared to 35.6% in 2020, primarily because of a change in the mix of our jurisdictional learnings.

First half net income attributable to Acushnet Holdings $166 million, $155 million higher than 2020. And first half adjusted EBITDA was $263 million up $177 million. There was a reconciliation of our net income to adjusted EBITDA for Q2 in the first half in our earnings release, as well as in the appendix of the slide presentation.

Moving to slide 10, our cash and liquidity position is strong. At the end of Q2, we had about $250 million of unrestricted cash on hand. Total debt outstanding was approximately $346 million, a decrease of $177 million from Q2 of last year and we had $367 million of availability under our revolving credit facility.

Our leverage ratio was 0.7 times at the end of Q2 down from 2.3 times at the end of Q2 2020. Consolidated accounts receivable at the end of Q2, 2021 was $378 million, up $106 million from Q2 of the prior year on our strong first half sales.

Our accounts receivable aging remains very healthy and DSOs were 53 days down 11 days compared to the prior year. Consolidated inventories were $300 million down $63 million or 17% from Q2 of the prior year with double digit decreases in each of our reporting segments.

Cash flow from operations was $152 million for the first half up $153 million compared to the first half of last year. The increase comes mainly from higher net income, partially offset by changes in working capital. Looking to capital expenditures, we have spent $12 million during the first half of 2021 compared to 10 million last year.

We continue to expect our capital expenditures for full year 2021 to be in the range of $45 million to $50 million with spending on CapEx accelerating in the second half of the year, driven by the key strategic investments in golf ball operations and precision manufacturing capabilities, we have previously discussed.

Turning to slide 11; we remain committed to our capital allocation strategy and our priorities have not changed. We continue to prioritize making targeted investments in the business with a focus on product innovation, golfer connection and operational excellence.

We also continue to seek acquisition opportunities that align with our focus on premium performance products that appeal to dedicated golfers. We believe that these investments advance our long term strategy and will drive growth at a favorable return. We also continue to focus on generating strong free cash flow and returning capital to shareholders.

On June 18, we paid our previously announced Q2 dividend, which total $12 million. And as David mentioned, our board of directors today declared a sixteen and a half cent per share dividend payable on September 17 to shareholders of record on September 3rd, which would represent an expected cash outflow of approximately $12 million.

And during Q2, we repurchased almost 444,000 shares for a total of approximately 15.5 million. 4.4 million of these shares were from open market purchases and 11.1 million was purchased from our majority shareholder, which completed our previously discussed share repurchase agreement.

Through the end of June, we have repurchased almost 500,000 shares for a total of $17.9 million. For the full year we expect to repurchase up to a total of $40 million worth of shares. Moving to slide 12, our outlook for full year 2021 has improved.

Overall demand for Acushnet products continues to be strong and we are enthused about the health of the game and golf market fundamentals. We have raised our forecast for the balance of the year yet our outlook continues to be governed by supply chain limitations, which have increased in recent weeks.

As David mentioned, increasing COVID cases and low vaccination rates are causing workforce concerns and disruptions at our ball plant and glove factory in Thailand.

We are also experiencing raw material shortages across many of our businesses, which is resulting in further production disruptions and increased costs and to no surprise like every other business we are facing escalating inbound freight costs, which we expect to continue through the end of the year.

We now expect our reported sales for full year 2021 to be in the range of $1.93 billion to $1.99 billion up about 22% at the midpoint, compared to 2020 and we expect full year adjusted EBITDA to be in the range of $285 million to $305 million up 27% at the midpoint.

These expectations assume no significant worsening of the impact of the COVID-19 pandemic, including additional incremental closures of global markets and supply chain disruptions. Compared to our previous expectations, our outlook for second half sales has increased and our outlook for second half adjusted EBITDA has decreased.

The increase in second half sales is a result of continued strong demand tempered somewhat by the ongoing supply chain limitations we have discussed. The decrease in second half EBITDA is primarily the result of higher than expected inbound freight costs, higher costs associated with production disruptions, entire associate related costs.

Our estimate for second half inbound freight costs has increased by $15 million to $20 million, and we expect these higher costs to continue into 2022. In conclusion, Q2 was another exceptional quarter driven by tremendous execution by our associates and trade partners.

Although increasing uncertainties have caused us to remain cautious in our planning, we have raised our full year 2021 financial goals. We believe we are well positioned to execute our long term strategies and to deliver a solid long-term total return for our shareholders. With that, I will now turn the call over to Sondra for Q&A..

Thank you, Tom.

Emily, could we now open up the lines for questions?.

Thank you, Sondra. [Operator instructions] Our first question today comes from Kimberly Greenberger for Morgan Stanley. Kimberly, please go ahead. Your line is open..

Good morning. Really extraordinary results here. It's great to see and I guess you're dealing with the high quality problem of having extraordinarily strong demand.

I wanted to ask about inventory, which seems to be one of the sort of limiting factors on potentially limiting factors on growth here in the second half of the year inventory looks like it's down about 17% year over year, 8% compared to two years ago.

Could you just give us a little more color on the supply chain disruptions that you're seeing? It sounded like its impacting glove production in Thailand, ball production in the US, but just any more color that you can give us on the specific categories and geographies that are being affected would be very, very helpful.

And then I know that the future is difficult to predict here, but do you think that you would be in more of a normalized inventory position, let's say by the end of third quarter, it'll be relatively temporary or do you think it's probably going to be yearend or maybe into early 2022 before we get there? Thanks..

Okay. Hey, good morning, Kimberly. I'll, address that. So as we look at balance of year, the foundation is continued strong demand.

You said it our inventories are light channel inventories, are light down most notably in the US and I would say the UK where they're down anywhere from 10% to 20% based on category, they're in a little better shape in other markets.

As we think about the second half certainly we're very confident in our team's ability to adapt and manage these challenges, but the fact is, as we said earlier, that the challenges are changing and increasing.

So as I look at it by category, golf ball supply will be constrained and that's really driven by raw material shortages and that stems from the Texas storms back in February.

So we we've been running 24x7 at all our ball plants, but within that, we've had periodic shutdowns at ball plant two here in New Bedford, really driven by periodic raw material shortages. So that's a ball perspective. We're about to launch a new iron, the T series irons. We're in pretty good shape there.

We, feel confident in our ability to get that product in the market to support a complete global launch. We think metals are also in good shape in both cases. Lead times will be much longer than we'd like which has been the case for the past year. Wedges and potters will be down versus historical levels.

We did talk about this in the last call because of our sales profile in the first quarter, second quarter and even into the third we're just going to have far less product that end of life cycle. So we won't be selling off inventory prior to a launch in the first quarter of some new models. From a gear standpoint, gear looks okay.

We've been stalled a bit with some lockdowns in Vietnam. Gear looks okay, but supply is certainly finite and reflected in our forecast. And we think there likely will be delays. Footwear is in pretty good shape, we are dealing with some raw materials shortages, but the team is working through that.

Gloves, I spoke about that's challenged both from a labor standpoint. We've shut down our glove factory periodically. It's not running at full capacity and that's due to COVID cases. And we do have some raw material shortages and then really the last piece of the puzzle would be apparel. Okay.

Is how I'd characterize it need maybe close to normal, but again, we have some issues around timing. So, that might give you a framework for how the second half should come together from a top line standpoint.

As to when we think we'll get through this current state, we had said earlier in the year, we thought we'd be through it by the second, excuse me, by the third quarter. We're going to push that out. Some categories could be, could be well into the first half of '22 before we normalize.

We continue to produce most products at full capacity and the best example is golf these golf balls that will continue in the coming months. We'll be confronting the challenge that we faced a year ago, and that was the desire to make product for at once demand and the desire to build inventory to support a global launch in the first quarter of 2022.

So we'll confront that fork in the road and as always, there are tradeoffs, but again, hopefully that gave you some top-line color. And just the general sense that we think this is current state is going to run into the early parts of 2022..

That's really, really helpful. Thank you so much. I'm wondering if I could just ask a follow-up on the extraordinary participation in golf and the growth in new golfers and rounds played overall. As you look at the data, and I know you do a lot of work internally there looking at number of golfers rounds played etcetera.

As you're analyzing the data, there were a number of new joiners who took up the game of golf last year. What is your data analysis telling you about how sticky those new golfers are and how do new participants in the game sort of make their way to -- into your funnel over time? Thanks so much,.

So what we saw in the second half of 2020 rounds were up 25% versus the prior year. I think '19 is a good baseline, right? We made the comment that rounds in the first half, first half were up 20% over 2019. And just looking forward, I would think we'd see rounds of play up in the second half of this year in the 15% to 20% range versus 2019.

As to the profile, the end of year industry data we shared on the last call hasn't been updated, but our own internal data and as much of our own anecdotal responses that we get from our trade partners around the world continues to be three key themes.

The theme one a lot of the energy coming from avid dedicated players who are simply playing more and consistently here, more juniors, more women, more younger and more families. And, I'll use that to pivot to some, really good work that's happening and some industry collaboration that it's really being led by the PGA of America and the PGA tour.

And it's an effort built around how to best build upon the game's momentum and how to advance diversity and inclusion within the game and really throughout the golf industry. And I'll add the RNA has also done a nice job providing their perspective and insights.

And really the key themes Kimberly that have emerged are new participants are increasingly younger. They're, hooked on the game. They want to get better. We've talked about increased lessons throughout the industry in all markets and that continues. And as a result, the game has become less intimidating and more welcoming.

There's an interesting dialogue around the physical and mental health benefits of the game. And you're that the US you hear that in the UK and they're becoming more evident and this is really one of the levers that the stakeholders are looking to develop, to attract new players.

And as I said you've got a good family component to the game, but the final piece I'd make is -- point I make is we're seeing more and more rounds played in less than 18 whole formats as the game finds new ways to fit into busy schedules, which we view as a, as a real positive.

And I'll conclude by saying that around those comments and around those observations, the game stakeholders are building campaigns to really build upon the momentum the game has seen in the last year plus..

Thank you, Kimberly. Next question, please..

Our next question comes from Daniel Imbro from Stephens Inc. Daniel, please proceed..

Hey, good morning, everybody. Thanks for taking our question, David, I wonder if start on, obviously you talked about the contact job being inflationary, but I'd love to hear your thoughts about the pricing backdrop.

I think you took up the pricing on your new hire and coming out relatively in line with historical averages, but curious how you think yourself, the other manufacturers handled it. Did they get passed through to the end customer given how strong demand is, and, you know, because MSRP is the broadcast to your products.

What is your ability to pass through price increases between launches or how do you guys look to use print off that, that beauty products?.

Yeah. Hey, good morning, Danielle. So we think about it first and foremost, when we, launched new products and we took a price increase on Pro V1 earlier this year. You referenced a price increase with regards to our new iron line. A lot of that is built around market positioning and new innovations and new materials.

I wouldn't call either of those driven by inflationary forces, but certainly we're seeing inflationary forces around our business. So those were both founded on the product innovation and our desired positioning within the competitive landscape.

Now, we typically we try to not pass along mid cycle price increases and globally, we do a lot of hedging to support that thesis. But again, we try not to pass along cost mid stream and we intend to get at it.

We typically get at it otherwise when we launch new products, but again, the foundation of those price increases, Daniel tend to be around performance innovation and in a desired market position, right, where we desire to be positioned as a premium performance category leader and sometimes that requires us to move some things around.

But as an example a few of our irons, the price increases were not constant throughout someone up a certain amount, someone up a lesser amount, and some even stayed static. Again, that's more about broader market positioning, but I don't want to belittle the fact that certainly we're seeing some cost increases throughout our supply chain.

But that's not the key driver for why we're taking price up where we do..

That's helpful. From a competitive standpoint, I'd be curious, it looks like from the golf data tech share relatively stable, that he dipped a little bit in golf balls.

How do you think you guys held inventories or positioning relative to the broader industry and can you complete forward buys or are there different things you could do to ensure that you have maybe relatively better product availability than some of your peers?.

Yeah. And it really it's a wide ranging answer because it touches on all our different businesses. We look at channel inventories closely. We look at our own inventories closely. From a share standpoint, you can't get too hung up on things right now because we're making everything -- we're selling everything we can make.

So what really is a function of supply chain? We look at golf ball, look at golf balls and total inventories seem to be off around 15%. We're down a little more than that.

I think that's a function of strong demand more than anything else, but to your final question about what are we doing about it? We're still paying a little price from being shut down for three months. Last year, two of our ball plants, we're paying a price for that. And we're just dealing with robust demand. So on the ball side that's what we see.

In our other businesses, it's as much about raw materials supply it's as much about our, our capacity output levels. We think once we get through this phase, these next two, three quarters and it's as much about our raw material suppliers as anything else, because a lot of our constraints are driven by third-party raw material suppliers.

So you can't solely point to Acushnet internally and say, hey, we got to take up capacity because our capacity is constrained by what's happening around us. But your question's a good one and we're looking at all of our businesses to either diversify our raw material supply or working with our suppliers to expand their capacity..

That's helpful. If I can squeeze one more in there.

Apologies if I missed it in the prepared remarks, but I think earlier this year, you mentioned you were noting a golf ball capital, and that then as well as in proactive OpEx investment, given how disrupted the industry has been, has this changed your expected timing fleet programs and are there going to be lingering fans would impact maybe into 2022 now from those two projects?.

At this point we have not changed our thinking about timing. As I did mention our CapEx for the first half was only $12 million compared to $10 million last year. And when we have a forecast of $45 million to $50 million. So obviously we're expecting acceleration in the second half and we'll monitor that closely.

Could some of that spill into '22? I'm sure it's possible. As it relates to the -- some of the OpEx investments that we've decided to make, those will, we think of those as sort of opportunistic and one-time in nature and those will run their run their course during 2021 and will not impact 2022 at this point..

Thank you, Kimberly. Next question, please..

Our next question comes from Joe Altobello from Raymond James. Please go ahead..

Hi guys. This is Adam on for Joe. Congrats on a strong quarter. I would just want to, I know you guys have talked about a lot of these factors separately and the supply chain remains very dynamic.

But I was just kind of looking at your guidance in terms of the sales outlook not that far off in the second half of 2019 in the high end, basically being line, the EBITDA outlook, as you mentioned being lower, we were seeing $60 million at the high end versus 2019.

Of course you alluded to the various supply chain challenges but just any more color on helping to bridge that $60 million gap between, things you've mentioned like OpEx investments, AMP, raw materials. I know you've particularly cited the $15 million to $20 million in freight.

Just any other possible quantification, I don't maybe typical to this time would be super helpful..

Sure. So as you think about our second half relative to 2019, you need to keep in mind and we talked about this on the last call that because of the timing of product launches, particularly in our club's business we lost about $50 million to $60 million of second half sales.

Some of which was moved up into the first half and some of which either pushed out into 2022 or went away. So if you think about that as $50 million to $60 million, that drops about $25 million of gross profit to the bottom line that we lost as a result of those lost sales.

We did talk about the $15 million to $20 million increase in inbound freight that you mentioned. We think there's about $15 million or so in costs related to the production disruptions we've talked about and other employee related costs.

And then finally we think about the $15 million of strategic OpEx investments that we talked about on the last call, most of which would hit the second half. So, you add all of those impacts up, that's about $75 million to $80 million that would be lost if you will, compared to 2019..

That's super helpful. And if I could squeeze one more in, you guys alluded to the way of the supply chain issues on sales to some degree albeit there's very strong demand out there, which is great.

Is there any way you can quantify maybe how much you could have lost in the quarter and maybe any possibility that those could be recouped in the second half or obviously the issues are quite severe industry-wide and you could quantify that at all that'd be very helpful. Otherwise appreciate it..

Yeah. I would say it's very difficult to quantify the impact in Q2. Clearly despite that we had a very strong quarter. So as it relates to could some of that be recovered in the second half, we're as David mentioned, we're pretty much selling everything we can make. And so I don't see that necessarily sliding into the second half.

We're capacity constrained and we're going to sell everything that we can..

Thank you, Adam. Next question, please..

Our next question comes from George Kelly from ROTH Capital Markets. George please go ahead..

Hey everybody. Thanks for taking my questions. So just to start back in channel inventory, so you mentioned, I think it's 10% to 20% down versus last year in the US and the UK. If I remember right though, wasn't it all time historic lows last year.

And so the real question that I'm trying to get to is, you mentioned that you expect to be kind of caught up in the next, I don't know, maybe into early next year, how long after that do you think it'll take and so channel inventory is where it should be..

So George I'll just clarify that that number was down versus '19. Okay. Not, versus last year. Last year was such an unusual comparison. So the down 10% to 20% is versus '19. To your question, it really will vary by category, right? The golf ball business is going to continue to chase and try to get ahead of the situation.

This time of year we tend to make more than we sell. And in the first half of the year, we tend to sell more than we make. That relationship has been disrupted. We've talked a lot about gloves, we've been playing catch up for a year, and we'll probably be playing catch up a year from now.

So you look at when things could and should ease is when the winds turn a little bit on the make and sell relationship and it could be middle of next year in some categories. I think clubs are probably going to be better off. I think apparel could be better off, but for us, most notably balls is going to be a challenge.

Now that said, we're confident we're going to put a good amount of product in the marketplace. I don't think we're going to disappoint consumers, but we're still going to chase. We're going to chase demand and we're going to -- we're going to be required to continue to allocate product for the foreseeable future.

And if you ask me six months ago, would we still be allocating product? Our response would have been probably not as we see some seasonality kick in, but we expect to continue to allocate product into the end of the first half of next year notably on consumables and really notably on balls and gloves..

Okay. Thanks. And then next question for me, I think it was $75 million that you just highlighted as kind of versus 2019, this increased expense environment from COVID. And so you're on investments you're making, how much of that would you say, I know that no one knows what's going to happen with COVID-19.

So that's it, daily changing saying hard to forecast, but assuming mid 2022 is a more normalized post COVID kind of environment, how much of that $75 million would then exit your expense structure?.

Well, I think the wild card and you mentioned obviously is COVID. The production disruptions and employee related costs that I talked about in a normalized environment, which obviously we may or may not be in 2022. Those would those would mostly go away. The inbound freight costs will normalize at some point.

So those costs would go -- those incremental costs that I called out would go away and the $15 million hit from OpEx investments, we think of those as one time as well, being opportunistic with our success this year.

So I would say, the majority of the expense items would go away and then the gross profit impact will obviously come back depending on the sales volumes and the launches..

So that $75 million is really all COVID related. There's nothing kind of internal that you're choosing to invest more and we'll continue on. It's really all a COVID related..

Well, I would say the strategic op ex investments that we've decided to make are not COVID related, but they are intentionally timed to be one time and in 2021..

Okay, great. And then last question for me related to your comments are on a CapEx priority, so you've provided in your prepared remarks, the list of things that you're most interested in investing just as you look out.

So I'm not really this year, I think I understand what those investments are going towards, but just as you look out the next three or four years what areas of your business are you most excited to put incremental lock CapEx into? And that's all I had. Thank you..

I can start off, I don’t know David, if you want to add anything. We outlined a multi-year golf ball strategic investment program. That's something we're really excited about and it's going to help us to, increase our efficiency, align our capacity with ongoing mix shifts and improve our custom ball capabilities. So we're very excited about that.

We're obviously excited about investments we're making in our IT infrastructure around, around e-commerce. And, we're excited about the investments we're making in some of our production and distribution capabilities. So those are all important strategic investments that will help continue to advance the company forward..

Yeah, George, I don't have much to add to that. The bulk of it is, is going to be focused on golf ball operations. It's underway.

The question came up earlier about, is it going to be on time? So far we like where we are, but as you'd expect, a lot of this is some heavy equipment lead times with some of the equipment that we're looking for have extended, but most notably we think it brings a whole new level of innovation and opportunity to a New Bedford and Thailand golf ball operations, which again is the bulk of the spend..

Great. Thank you, George..

Thanks everyone. As always, we appreciate your time and interest today. Stay safe and well, and we look forward to catching up on our next quarter call. Thanks again..

Thank you everyone for joining us today. This now concludes today's conference call and you may now disconnect your line..