Good morning, everyone, and welcome to today's Acushnet Company 3Q '24 Earnings Call. My name is Drew, and I'll be the moderator for today's call. [Operator Instructions] It's now my pleasure to hand over to Sondra Lennon, Vice President, FP&A and Investor Relations, to begin. Please go ahead..

Good morning, everyone. Thank you for joining us today for Acushnet Holding Corp.'s Third Quarter 2024 Earnings Conference Call. Joining me this morning are David Maher, 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 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 make reference to non-GAAP financial metrics, including items such as net sales on a constant currency basis and adjusted EBITDA.

Explanations of how and why we use these metrics and reconciliations of these items to the most directly comparable GAAP metrics 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 9-month period ended September 30, 2024, and the comparable 9-month period in 2023. With that, I'll turn the call over to David..

Thanks, Sondra, and good morning, everyone. As always, we appreciate your interest in the Acushnet Company. I will start on Slide 4 and get right to our results. During the third quarter, Acushnet delivered net sales of $621 million, a 5% year-over-year increase.

This growth contributed to adjusted EBITDA of $107 million in the quarter, up 9% from the third quarter of 2023. Through September, year-to-date net sales were up 3%, surpassing $2 billion with growth coming from Titleist Clubs, Titleist Golf Balls and Gear. Adjusted EBITDA of $392 million was up 4% compared to the first 9 months of last year.

And I will pause here to thank my teammates for their dedication, which fuels this company performance. Looking at our business by segment. Titleist Golf Ball net sales were down 1% in the quarter and are up 5% year-to-date. This growth has been led by sustaining Pro V1 momentum, especially in the U.S.

market, which is benefiting from increased rounds of play. As we said on our last call, we expect Golf Balls sales to be down modestly in the second half as we and our trade partners lower inventories in preparation for the launch of new Pro V1 models in January.

This upcoming launch, which will mark the 25th anniversary of Pro V1, is well underway as we recently debuted new Pro V1 models across worldwide tours. Player feedback has been very positive, and we have fully transitioned production lines to new models to support the upcoming launch.

Titleist Golf Clubs posted a healthy 19% increase in the third quarter as the team did great work bringing new GT drivers and Fairway Metals to market. Since its debut, GT has been the #1 driver on the PGA, DP World and Korn Ferry tours and early consumer response is meeting our high expectations and fueling segment momentum.

Year-to-date, Titleist Golf Clubs were up 9% with growth in all regions led by gains in the U.S. and Japan and an especially strong year for our Vokey wedge franchise. Gear was up 9% in the quarter and 3% year-to-date, primarily related to higher sales volumes in travel with the inclusion of Club Glove in 2024.

And now to FootJoy, where you see revenues were down 2% during the third quarter and off 3% year-to-date. Despite the decline, FJ has executed well in what has been a soft apparel and footwear market across most regions.

The FJ team also continues to make good progress in diversifying and strengthening our footwear supply chain and will soon complete the full transition of our footwear production lines to a state-of-the-art new facility in Vietnam.

We continue to work with our long-standing JV production partner and are confident that over time, this move will facilitate enhanced innovation and speed to market. And lastly, net sales of products not allocated to a reportable segment were down in the third quarter and year-to-date.

This Q3 shortfall is partly related to the timing of shoe shipments, which moved from late Q3 in 2023 to early Q4 this year. Now for a brief overview by region, where you see the U.S. market continues to benefit from healthy participation and resilient consumer demand with Q3 net sales up 6% and year-to-date up 7% with growth coming from all segments.

Despite a slow start due to poor weather, U.S. rounds of play are now up 2% year-to-date and keeping pace with the record level set in 2021. During the quarter, Japan, Korea and Rest of World were up, partially offset by a decline in EMEA.

During the first 9 months, Korea, EMEA and Rest of World declined low single digits, while we posted a slight increase in Japan. Again, softness in the footwear and apparel markets have been the main contributors to these declines, while our Golf Clubs and ball businesses have been more resilient. Rounds outside the U.S.

are projected to be off 2% year-to-date, with Korea up slightly and other regions down. Looking to Q4, we are comfortable with our inventory positions, both owned and at retail, and look to build upon our momentum in Golf Balls, Clubs and premium FJ footwear for the holiday season and heading into 2025.

And we point to the attractiveness and resilience of Acushnet's core consumer, the game's dedicated golfer and the company's enduring commitment to product and service excellence as pillars of the company's efforts to deliver great experiences to golfers and trade partners and in turn, drive shareholder value.

These priorities, along with the company's strong balance sheet and disciplined approach to capital allocation, remain the foundation of Acushnet's proven investment thesis. Thanks for your attention this morning. I will now pass the call over to Sean..

Thank you, David. Good morning, everyone. As David mentioned, we had a great third quarter and solid year-to-date performance. In the third quarter, net sales increased 5% over the same period in 2023, primarily driven by higher net sales in Titleist Golf Clubs. Adjusted EBITDA of $107 million was up $8.6 million.

For the first 9 months of 2024, net sales and adjusted EBITDA increased 3.1% and 3.8%, respectively. The 19% increase in Titleist Golf Club net sales in the quarter was driven by the successful launch of our GT drivers and Fairway Metals. Titleist Golf Gear was also up in the quarter, almost 9% compared to last year.

Titleist Golf Balls were down 1% in the quarter, primarily due to lower sales volumes of our performance models. FootJoy was down 2% in the quarter, primarily on lower sales volumes in footwear and apparel.

Gross profit in the third quarter of $337 million was up 9% or $29 million compared to 2023, primarily due to higher sales volumes in Titleist Golf Clubs and Golf Gear and higher average selling prices across all FootJoy categories.

Third quarter gross margin of 54.4% was up 240 basis points versus prior year, largely due to higher sales volumes and a favorable product mix in Titleist Golf Clubs.

SG&A expense of $233 million in the quarter increased $23 million or 11% from 2023, mainly due to higher employee-related expenses related to administration and to support our golf club and ball fitting initiatives and increases in advertising and promotional expenses, mainly supporting the launch of the GT drivers and metals in the quarter.

Interest expense of $13 million in the quarter was up $4 million due to an increase in borrowings. Our effective tax rate in Q3 was 19.3% as compared to 16.5% in last year's third quarter, primarily driven by changes in our jurisdictional mix of earnings.

Looking to the full year, we expect our annual effective tax rate to be in line with our year-to-date rate of 21.6%. Moving to our balance sheet and cash flow highlights. As we head into 2025, our balance sheet and cash flow positions are strong, and we continue to prioritize ongoing investments in the business and returning capital to shareholders.

Our net leverage ratio at the end of Q3 using average trailing net debt was 1.8x, sequentially down from 1.9x in the second quarter. Our inventory position has significantly improved, having declined 19% and 6% when comparing to year-end 2023 and last year's third quarter, respectively.

We are comfortable with our inventory position given the current state of demand and expect inventories to increase at year-end primarily to support the 2025 Pro V1 and Pro V1x launch as well as the 2025 club launches.

Year-to-date cash flow from operations decreased from the first 9 months of 2023, primarily due to decreases in net income and deferred income tax expense as well as changes in working capital. Capital expenditures were $43 million through the first 9 months of 2024, and we still expect full year CapEx spend to be approximately $80 million.

Through September, we returned roughly $184 million to shareholders with $143 million in share repurchases and $41 million in cash dividends. Today, our Board of Directors declared a quarterly cash dividend of $0.215 per share payable on December 20 to shareholders of record on December 6, 2024.

During the quarter, we repurchased 1.1 million shares for an aggregate of $70 million. Included in this amount were shares repurchased from Magnus for $37.5 million in relation with our previously disclosed March 2024 share purchase agreement.

As of September 30, 2024, we had $232.2 million remaining under the current share repurchase authorization, including $62.5 million related to the June 2024 share purchase agreement. Turning to our full year 2024 outlook. We are narrowing our adjusted EBITDA range to $395 million to $405 million.

With respect to our 2024 net sales outlook, we are reaffirming a range of $2.45 billion to $2.5 billion on a reported basis. As we discussed on our second quarter call, we still expect to be towards the lower end of the reported sales range in part due to FX impacts and closer to the midpoint of our 3.2% to 5.3% constant currency sales range.

When looking at the fourth quarter, our outlook incorporates year-over-year sales growth in all segments except Golf Balls, which is expected in the last quarter of our 2-year product life cycle.

We also expect year-over-year fourth quarter adjusted EBITDA improvement, which includes incremental investments across SG&A and R&D as we look to build upon this year's momentum heading into 2025.

Also in the fourth quarter, we anticipate incurring a restructuring charge related to the full transition of our footwear supply chain to Vietnam in early 2025, as David just highlighted.

Lastly, beginning with our 2024 10-K filing, we expect to combine Titleist Golf Balls and Golf Clubs into one operating segment that will be reported as Titleist Golf Equipment.

In recent years, Golf Balls and Golf Clubs have increasingly converged from a strategic and economic standpoint, and we believe this new reporting structure best reflects the way in which we are now viewing and managing the Golf Equipment business. Golf Gear and FootJoy Golf Wear will remain as reportable segments.

In closing, really pleased with our year-to-date performance, and the team remains focused on finishing the year strong and continuing to execute on our strategic priorities for 2025 and beyond. With that, I will now turn the call over to Sondra for Q&A..

Thank you, Sean.

Operator, could we please open the line for questions?.

[Operator Instructions] First question today comes from Matthew Boss from JPMorgan..

So David, maybe if you could elaborate on participation and engagement trends that you're seeing in the current landscape? And just any notable callouts across geographies as we think about the U.S.

market relative to international?.

Yes. Matt, so as noted, we're really pleased -- the industry is really pleased with rounds of play in the U.S., up just about 2% year-to-date. After a slow start in January and February, primarily in the Southeast.

And as you look at sort of the map of the country, you see all regions up versus the -- with the exception of the Southeast, again, a slow start in the early part of the year.

So to sit here today and look at '24 rounds on pace with the record of '21, I think, is really a positive indicator and trend of what's happening in golf, both with dedicated golfers and the benefit of some of the new golfers that have joined the game in the last couple of years.

As we move around the globe, Matt, we project rounds through September, down about 2%, Korea up slightly, the others down modestly. A little bit of weather, a little bit of maybe macroeconomic, and we've said consistently U.S. market, U.S. consumer stronger than we're seeing around the world. But by and large, we think rounds are holding up very well.

There's always going to be a variability due to weather. And as I think about where we are today versus sort of a 2019 baseline, the major markets, U.S., Korea, up 20-plus percent. Japan would be in my top 3 markets, up 10% and worldwide rounds up about 15%. So structurally, Matt, game is in a good place.

And we're always going to have weather ups and downs. But net-net, we're really confident with where we are through the first 3 quarters..

Great. And then maybe just a follow-up for Sean.

As we think about gross margin, just any puts and takes in terms of the fourth quarter on gross margin? And how best to think about the promotional landscape and inventory in the channel today?.

Yes. So I'll take the first one. I think gross margin, you saw the positive trend in Q3. I think I spoke on the last call about the back half gross margin approximating where we ended the first half. That statement still holds true. Obviously, given the performance of the club business in Q3, that really helped drive.

But again, it's both volume and price and efficiency. So very pleased with that. In terms of the promotional environment and inventory, I'll turn it over to David..

Yes, I'll weigh in, Matt. So from an equipment standpoint, balls and clubs, I would say steady state, normal. You're going to see some promotional activity at the holidays, which we always do. So again, I would characterize that as normal.

I've said this before, clubs, we tend to be a little bit isolated or resilient just because so much of what we do is custom-fit. So net-net, I would put equipment balls and clubs in a steady state normalized position. If there is some watch out, it's the continued discussion we've had all year about footwear.

While better than it has been, I would expect to see some promotional activity over the holidays. Apparel, again, we don't see too many swings within apparel simply because so much of what we do is custom embroidered.

But I would overall characterize the landscape as within the range of normal, balls, clubs, healthiest and maybe a watch out in footwear..

[Operator Instructions].

Okay. Thanks, everybody. Short Q&A today. Everybody gets a little time back on their calendar. As always, we appreciate your interest and look forward to getting together again in 3 months' time. Thanks again..

That concludes today's Acushnet Company call. You may now disconnect your line..