Q4 2020 Acushnet Holdings Corp Earnings Call
<unk> on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Sondra Lennon VP Investor Relations. Please go ahead.
Good morning, everyone. Thank you for joining us today for a Christian holdings fourth quarter and full year 2020 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 would like to remind everyone that we will be making forward looking statements on the call today. These.
These forward looking statements are based on our Christian its 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 tow.
<unk> 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 or full year results for comparisons we are referring to the 12 month period ended December 31, 2020, and the comparable 12 month period with that ill turn the call over to David Thanks, Sondra and good morning, everyone.
I hope you are staying safe and well as we move closer to the end of these difficult times.
Key themes running through today's remarks will be the tail winds of strong golf for participation in demand.
And headwinds, resulting from COVID-19 related supply chain challenges.
As you will hear the keys to success for our cushion that in 2020 and 2021.
Involve balancing new product development demand momentum supply chain, uncertainties short term cost increases and periodic regional shutdowns.
Based on our track record I'm confident that the <unk> team is up to this task.
A question on the entire golf industry are benefiting from the continued commitment for PJ professionals and golf course operators, who have worked tirelessly to provide safe and fan experiences since the earliest days of the pandemic.
More than 500 million rounds of golf were played in the U S. In 2020 60 million rounds more than 2019, and the highest annual total since 2002.
I must also acknowledge and thank my teammates for their dedication and great work navigating the highs and lows of 2020 and positioning the company for continued success.
They are heightened commitment to associate safety product quality and customer care is serving us well in these uncertain times and as we respond to strong demand across the <unk> portfolio.
Now turning to slide four we will get right into our results for the quarter.
Sales of $420 million were up 14% versus last year.
With reported growth coming from every segment and in every region.
Adjusted EBITDA of $48 million reflects an 8% increase.
The title is golf ball business grew 3% as our team did good work balancing the opportunity to satisfy strong at once demand.
With the need to convert production to our new <unk> models to support their January global launch.
Golf club sales were up 21% in the quarter led by our successful new Tsi metals line.
Since its debut Tsi has been the most played driver on the PGA tour and we're pleased with the early results from our November launch day.
Demand for all titles club categories is strong and our supply chain is holding up well, although lead times are running longer than normal given COVID-19 related production modifications and tight component availability.
Gear was led by our title this golf bag business and also delivered a very strong quarter, posting a 25% gain.
With growth across all categories as our team did good work keeping pace with the brisk end of the year demand.
And for choice sales of $101 million were up 19% in the quarter with gains in all product categories and accelerated e-commerce growth.
For Charlie brings great brand and product momentum into 2021.
Looking at our business by region as shown on slide five double digit gains in Korea, and the U S. Our highlights for the quarter and we were pleased to see the Japan market stabilized late in the year.
Europe battled starts and stops and inventory shortfalls on route to posting a modest increase for the quarter.
Demand for golf in Europe is similar to what we've seen in the U S. However, COVID-19 and Brexit related challenges continue to slow the market momentum.
These across the board regional gains in the quarter reflect the resiliency of our cushion that's global forecasting and supply chain capabilities.
Capabilities and competencies that have become increasingly critical during these volatile times.
And here on slide six you see our full year results with sales, reaching one $6 billion and adjusted EBITDA coming in at $233 million.
And as a final note on 2020, the Kushner direct to golf for ecommerce sites also recovered from early season disruptions enclosures and finished up about 50% for the year.
As Tom will highlight the company's financial position entering 2021 is in great shape, and we will continue to focus on making targeted investments in our future and expanding our dividend and share repurchase programs.
I am pleased to announce that our board of directors has approved a six 5% increase to our dividend.
Bringing the annualized payout to <unk> 66 per share.
Since initiating our dividend program for years ago. The company has returned over $160 million to shareholders.
And our annual per share dividend has increased by 38%.
Additionally, moving to slide seven I am pleased to outline two significant projects, which we believe will enhance <unk> competitive advantages over the long term and deliver positive returns for our shareholders.
The first initiative is a five year $120 million capital investment in our golf ball operations infrastructure and precision manufacturing capabilities.
Roughly $35 million of this commitment is normalized sustaining investment.
While the remaining $85 million will be focused on new innovations technologies and operational enhancements.
The majority of this spend will be focused on our new Bedford based full plants, two and three and custom golf ball facility.
With these investments we will upgrade the speed and efficiency of title this golf ball operations and line capacity consistent with the ongoing mix shift towards <unk>, one AVX and new tour speed urethane covered products.
We will also introduce new technologies to stretch, our custom ball capabilities and support new and emerging and printing opportunities.
These capital investments will expand our production and testing capabilities and help us to further leverage <unk> industry, leading golf ball patent and intellectual property portfolio.
Which represent some other companies most valuable assets. We believe these investments in new technologies and operational excellence will solidify and advance title of its position as the golf ball performance and quality leader for many years to come.
The second area of investment commenced in late 2020 and relates to our New third party North American distribution center located in Indianapolis.
This project begins with the consolidation of many of our warehousing and distribution functions, starting with foot Joy and then titleist gear products, which have historically been warehoused and fulfilled from the east and west coasts.
Over time, we will fulfill most of our e-commerce activities from this new facility and add embroidery capabilities to support customer apparel and gear.
Stock golf balls will also be shipped from this new DC. In addition to our east and West coast facilities.
This third U S distribution point for golf balls will enhance our service capabilities and provide a valuable hedge against unanticipated shutdowns as we experienced last year.
This initiative is intended to immediately enhance the end user experience by reducing lead times and distribution costs for both our trade partners and consumers, while generating cost savings for our Cushing it over the long term.
And now turning to slide eight I will frame some of the key assumptions behind our 2021 planning process.
The game and industry are in good shape golfer engagement is strong and trade inventories are generally healthy and in some cases low.
Against this backdrop each of our businesses brings great momentum into 2021.
The question is product development engines remains in high gear last year and as you will see new products are the foundation of our outlook and expectations for 2021.
Last month, we launched <unk>, one improving one X models and are enthused by the early adoption across worldwide tours and positive early market response.
Titleist golf balls are used by approximately 75% of players across worldwide tours, and our new probably one and probably onex represent our next chapter performance quality and innovation.
To meet anticipated high levels of golf ball demand in 2021, and as we catch up from 2020.
Our golf ball plants are currently operating three shifts and probably one models are on trade allocation, which we expect to continue for the coming months.
Title. This golf clubs are also well positioned for the new year led by the early success and high expectations around our new Tsi drivers and fairways and strong momentum across all clubs categories.
This week, we are launching the complementary tsi won and tsi for drivers along with new Tsi hybrids as we look to build upon the success of the Tsi franchise.
Our 2021 gear product line has been well received by trade partners and our supply chain is in good shape as we are poised to launch a wide range of new models in the first quarter.
We are confident in our ability to satisfy first quarter demand and stock golf shops for the upcoming season, while also anticipating the Q2 availability may be challenged by supply chain uncertainties.
We expect for choice momentum to continue into 2021 and are especially excited about new footwear models stratos premiere and Hyperflex.
<unk> Premier was the number one shoe at the Masters and initial tour and consumer feedback has been overwhelmingly positive.
The <unk> design team has done a great role and we expect to benefit from their good work is the footwear and apparel categories stabilize over the next 12 months to 24 months.
And finally, our shoe business was mixed in 2020 with golf and lifestyle posting gains, but these were not enough to offset ski which remains negatively impacted by COVID-19, especially in Europe.
We expect schuss golf to stay on its growth trajectory in 2021, and anticipate a broader SKU recovery beginning in 2022.
In closing we are enthused about the year ahead, and especially by the exciting range of new products. We are set to bring to market in the first half of the year.
Based on our 2020 experiences I'm confident that our team has a good handle on the circumstances that are within our control and we'll continue to excel at adapting to the inevitable uncertainties and operational challenges that we are likely to confront.
Thanks for your attention. This morning, I will now pass the call over to Tom Thanks, David and good morning, everyone.
I would also like to thank our associates for the resiliency. They have shown in the face of the pandemic the amazing effort, they put forth to get our business back up and running in a safe and healthy manner.
And they are exceptional execution, which has resulted in a cushing its strong second half performance.
Starting with our Q4 results on slide 10.
Consolidated net sales in the quarter for $420 million up 14% year over year and up 12% in constant currency as the strong demand we experienced in Q3 continued through the end of the year.
Gross profit for the fourth quarter was $220 million up $34 million or 18% versus last year and gross margin was 52, 4% up 170 basis points.
The increases in gross profit and gross margin were primarily from higher sales volumes during the quarter and higher average selling prices.
SG&A expense was $174 million up $31 million or 21% compared to 2019 and.
And R&D expense was $14 million up about $1 million or 6% compared to the prior year.
SG&A expenses were up with the higher sales volumes during the quarter led by increases in selling costs and higher advertising and promotional costs.
Income from operations in the quarter was $27 million down about $1 million or 5%.
Our Q for income tax expense was a benefit of $8 million as the result of discrete items recorded during the quarter, including the release of a reserve related to an income tax audit for the period, which included the sale of a pushing it to feel of Korea, which was settled during the quarter.
The reversal of a corresponding indemnification receivable from beam, our former parent company related to the audit settlement is recorded in other expense.
Net income attributable to Kushner holdings was $22 million and adjusted EBITDA was $48 million up almost $4 million from Q4 2019.
There is a reconciliation of net income to adjusted EBITDA for Q4, and the full year and our earnings release as well as in the appendix of the slide presentation.
Moving to our full year results for 2020 consolidated net sales were $1 6 billion down 4% from last year, both on an as reported and constant currency basis.
This is quite a significant improvement given we were down 20% year to date at the end of Q2 compared to 2019.
Gross profit for the year was $830 million down $42 million or 5% from 2019.
Gross margin was 51, 5% down 40 basis points from the prior year.
The decrease in gross margin is primarily attributable to the overall decrease in net sales and the impact of lower production volumes caused by the government mandated shutdowns earlier in the year.
SG&A expense for 2020, with $611 million down $17 million or 3% compared to 2019.
And R&D expense was $49 million down $3 million compared to the prior year.
The decreases were driven by our strict management of operating expense during the height of the pandemic.
Restructuring expense for 2020 was $13 million.
Income from operations was $145 million, which was $40 million less in 2019.
Interest expense was $16 million or $4 million lower than last year.
Other expense was up $16 million, primarily as a result of the reversal of the indemnification receivable from being related to the audit settlement in Q4 and.
And pension settlement charges associated with our restructuring program.
And income tax expense was $13 million down almost $28 million as a result of lower income before taxes, and the discrete items, which I mentioned earlier.
Net income attributable to Cushing holdings was $96 million compared to $121 million in 2019.
And adjusted EBITDA was $233 million down $7 million compared to 2019.
Moving to slide 11, our balance sheet continued to improve during Q4.
At the end of 2020, we had $149 million of unrestricted cash on hand.
Total debt outstanding was approximately $336 million a decrease of $68 million from the end of last year, and we had $392 million of available borrowings under our revolving credit facility.
Our leverage ratio was one six at the end of 2020 down from one eight at the end of 2019.
Dated accounts receivable at the end of 2020 was $202 million down $14 million or 6% from the end of 2019 on very strong cash collections during the fourth quarter.
Our day sales outstanding were 59 days, which were down one day compared to 2019.
Consolidated inventories were $358 million at the end of the year compared to $398 million last year down $40 million or 10%, but were up $40 million from the end of Q3.
The year over year decrease was driven by golf balls, which was down almost 13% golf clubs, which was down almost 22%.
And for <unk>, which was down almost 11 per cent.
Spread evenly across footwear clubs in apparel.
Most of the increase in inventory from the end of Q3 was in golf balls in preparation for the Q1 launch of the new <unk>.
Yeah.
Cash flow from operations was 97 million for Q4 and $264 million for the full year of 2020.
This compares to $39 million and $134 million for the comparable periods in 2019.
The increase in cash flow from operations comes mainly from the strong cash collections and lower inventory levels I just discussed.
We expect accounts receivable inventory and cash flow from operations will return to more normal levels in 2021.
Looking to capital expenditures, we spent $9 million during Q4 and $25 million for the full year, which is down significantly from 2019, as we reduced our capital expenditures as we manage through the disruptions caused by the pandemic.
For 2021, we expect our capital expenditures to increase to about $50 million driven by the key strategic investments in golf ball operations and precision manufacturing capabilities that David discussed earlier.
We expect our capex to remain at approximately this level for the next several years in support of this five year initiative.
Turning to slide 12.
While we were more conservative with our capital allocation actions during 2020, our priorities have not changed.
We fully expect to continue to make investments in the business with a focus on product innovation golfer connection and operational excellence and to continue to be opportunistic with acquisitions that align with our focus on premium performance products that appeal to dedicated golfers.
We believe that these investments advance our long term strategies and will drive growth at a favorable return.
We will also remain focused on generating strong free cash flow and returning capital to shareholders.
We paid $15.05 per share dividend during the fourth quarter of 2020 for a total cash outflow of $11 5 million.
For the full year total dividends paid were $46 million up 6% compared to 2019.
And as David mentioned, our board of directors today declared a cash dividend of $16.05 per share payable on March 26th to shareholders of record on March 12 2021.
This represents a six 5% increase in our dividend.
And unexpected Q1 cash outflow of approximately $12 million.
As you know we suspended our share repurchase program in Q2.
Prior to that we had repurchased approximately 244000 shares for a total of approximately $7 million in 2020.
We do expect to resume our share repurchase activities and to buy up to $40 million worth of shares in 2021.
This would include open market purchases to offset dilution and the completion of our share repurchase agreement that we entered into with fever in 2019.
Our capital allocation strategy is a foundational element of our Cushing its value proposition, which we continue to believe creates a compelling long term total return for our shareholders.
Moving to our outlook on slide 13, we will not be providing guidance for 2021 net sales our adjusted EBITDA due to the continued uncertainties caused by COVID-19.
As David discussed demand for golf and golf related products continues to be strong trade inventories are healthy and we will be launching several exciting new products in the first half of 2021.
However, we are also managing through the Covid related disruptions in the global supply chain.
Temporary operational cost increases and periodic market closures, all of which at a high degree of variability and unpredictability in forecasting our business.
We anticipate golf momentum in our business to remain strong throughout 2021.
However, our sales profile will likely have a very different cadence as a result of the unusual comparisons to 2020.
The global product availability outlook and the decisions we have made around product launch timing.
As a result, we project healthy first half year over year sales gains as compared to both 2020 and 2019.
And then second half sales will be lower than both 2020 and 2019.
Additionally, at this point almost two months into the quarter, we expect first quarter sales to increase in the range of 20% to 25% compared to 2020.
We expect first half 2021 gross margin to be negatively impacted by $8 million to $10 million from higher freight expense driven by the recent increases in global air and container costs.
For Opex it is better to compare 2021% to 2019 as our Opex was significantly lower in 2020 than in recent years due to our tight management of operating expenses during the year.
We currently expect 2021 opex to be higher compared to 2019, primarily from increased expenses associated with our North American distribution center and other strategic investments.
Our full year of <unk> operating expenses compared to only six months in 2019.
Higher stock based compensation expense and.
And higher commissions on our retail sales in Korea.
In conclusion, 2020 was an unprecedented year in our associates and trade partners did an amazing job managing through the shutdowns and delivering an exceptional second half.
We will continue to be cautious with the uncertainties and challenges we face we are confident in our ability to meet our full year 2021 financial goals and we believe we will continue to be 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 operator could we please open up the line for questions.
Thank you at this time, we will be conducting a question and answer session in order to ask a question. Please press Star then the number one on your telephone keypad. Your first question comes from the line of Daniel <unk> with Stephens, Inc. Daniel Your line is open.
Yes.
And everybody and thanks for taking our questions.
David I wanted to start on.
The multiyear golf balls capacity investment you mentioned some of the capabilities, it's going to provide.
And a little bit more on is this driven by maybe a little bit of current production being at capacity.
To increase your competitive advantage over our peers, maybe as they've made investments in their capability. He has expanded a little bit on why right now is the right time because its investment.
The capital I think Tom you mentioned Capex remained elevated for the next five years did we hear that right.
So I said the next several years, but yes, you could you could infer five because of the length of the of the golf balls.
Capital investment program.
Yes, Daniel so so running as you know we run three ball plants two here in Massachusetts.
Third in Thailand, and then we've got a comprehensive custom.
Custom ball operation here in new Bedford, as well and as I look back at sort of the cadence of investment we make in the business. You would you would imagine these businesses require ongoing and sustaining investment.
In the nineties, we built all plant two in the two thousands we built all plant three in 2010 or so we built Paul for.
So we have we have a history of of from time to time, making significant.
Investment in our in our operations and while we won't get into the specifics of.
Of where the investment has to be targeted.
It reflects for us a generational step forward that again, when we look back over time. This is something thats been thats been very consistent with how we've always thought about about the ball business.
It's the right time from from an allocation standpoint, given the investments we've made in other areas of our business in other areas.
Golf ball operations.
And Hey, it's also incredibly exciting as we as we continually.
Look around for new technologies, and advancements to introducing our business something we do on an ongoing basis to stay ahead of the pack and some like this one.
Just when you when you when you bundle them together become far more comprehensive.
Insignificant, so I would say it fits into the long term strategy of how we think about the ball business and again the time is right for us to to to earmark capital.
For as I said in my earlier remarks for what is an incredibly important part of our business and I don't want to lose the value of of allowing us to further leverage our patent portfolio and intellectual properties.
That's really helpful. I appreciate that color and then maybe taking a step back.
View as the biggest risks to golf participation. This year. We finally saw nice growth in Goldberg rounds played were.
It seems like Thats, continuing but what do you view as the biggest risks this year and I think your slide and you mentioned in the prepared remarks back half sales will be beneath.
Can you expand a little bit on why it would be down on a like for like product cycles.
Just given the per day.
For the patient with EBITDA.
Yes, so I'll take the first part of that Daniel and then Tom can jump on the second part so as we think about what happened in 2020, we saw.
We saw an extra 60 million rounds for the year really $75 million of those rounds.
Happened in the back half of the year.
It will surprise no one we look out on 'twenty, one we expect.
Rounds gains in the first half healthy around the gains in the first half.
We don't expect to comp against that debt frankly historic second half, but net net.
We like the trajectory and energy of the momentum that golf for participation engagement brings to the game.
And we've all looked at the external data out there I think it's probably you said who has a good a good projection of.
Hey, if you take half the incremental rounds and they stick that results in about a 70% increase in 'twenty, one as compared to 2019.
Too early to make too early to make projections, but I think thats the right way to frame. This we would view rounds of play momentum continuing but.
I think frankly, it would be unlikely that we maintain the clip for pace that we saw in the second half sales were up 40% in the U S in the fourth quarter.
Now again, I think we're going to we're going to be living in an environment that is healthier in 'twenty one than it is in 2019.
But we're also trying to be realistic with how folks allocate their time at how life's going to change as we become.
Vaccinated country, and then you apply that same logic around the world.
As to timing of things I'll make a couple of points and then I'll turn it off to Tom.
The real change here is that we're just seeing an overall shift in our business from second half for first half as a result of of what played out in 2020, some product decisions, we've made inventory availability and so on and so on.
I'll get a little more prescriptive.
In terms of our cadence balls will be on their normal cadence no real change there, saying.
In 2019, we owned schuss in the second half of the year. The second half of the year for them has historically been the bigger half of the year because of their.
Because of the impact of the ski business on their on their full year and obviously the ski business has been significantly challenged as a result of Covid and so we're going to see.
Some decreases there as it relates to choose.
That's really helpful color I appreciate it guys and book.
Thanks, Thanks, Daniel Thank you Daniel Operator next question. Please.
Next question comes from the line of Joe Alto Bellow with Raymond James J. Your line is open.
Hey, guys. Good morning, the first question.
And you said for how much of an increase and saw.
And the number of encore golfers last year in the U S. Obviously, but you know the $60 million increase around played is clearly encouraging but is that largely existing golfers playing more golf, where do you get there wasn't more participation.
You know where where there are a couple of groups out there the NGF and a few other huge who who track and model lists and and I won't point to any one.
I'll point to our roll-up of of of all the reports we look at it and give you somewhat of a summary view one interesting piece of data I saw and they tried that they tried to capture the 60 million rounds, right and they said, okay 20 million.
Of of the average played an extra couple accounted for for 40 million other rounds, four to 5 million lapsed golfers golfers, who had moved away from the game came back in contributed to a to a portion and then another four to 5 million new golfers contributed to abortion. So that that's that's how we think about it.
I will add as well some good work really led by led by P. G. A of America P. G. A tour L. P. G. A tour focused on this particular area. Okay. We brought in new golfers, we brought back labs golfers what can the industry due to maintain.
And preserve them and keep them active and engaged in in the game. So we're encouraged by that but for Joe hopefully that gives you a bit of a framework for some of the numbers and metrics behind what we saw play out in 2020.
No. It certainly does I guess, it's a good.
For my next question, how you're thinking about 21, I mean, obviously, we all hope yeah with with a vaccine that day. So I could go back to normal this summer and I can certainly understand why you wouldn't expect a cop that second half round plate number but in terms of the new one lap golf or.
Is this a new plateau every grow off of this.
Where do you expect to lose some of those.
Yeah, you know as as I said earlier, we're still in a massive transition right 2020 was a massive transition year of 2021 will be.
A massive transition year when when the dust settles hopefully sooner verse later I tend to look at it okay. What what's the world going to look like 20 twenty-two verse 2019, and I think the golf landscape is gonna have more energy more momentum more golfers.
Again to do I think we sustain and maintain the levels. We saw in the back half of of of 2020 that would be extraordinary for the simple reason that so many other life events are gonna come back come back online, but but hey, the game the game shined in in 2020, a lot of folks had very good experiences with the game I keep.
Coming back to the great work of a golf course operators and P. J professionals are really driving a lot of that energy and momentum. So we're not gonna, we're not gonna pinpoint where this thing's gonna go but we tend to look at in in in longer term views and in and see a general a general positive energy around the game with with the <unk>.
[noise] Spectation and understanding as I said earlier.
You're gonna see momentum in the first half you're gonna see energy in the second half, but hard pressed to keep up with the levels. We we saw in 2020 from a browser play standpoint.
Got it okay.
Yep.
Thanks, So upgrade our next question please.
Yeah. It's our final question comes from the lineup George County, That's Roth Capital partners Yeah. His open.
Everyone. Thanks for taking my questions. So just a few for you first.
For the guidance you gave.
I just wanted to make sure I understand the cost side of what she said of sort of the first half.
There will be I think you said eight to 10 million incremental kind of cost of goods sold.
Charges and the first step just related to shipping did you say anything about the second your expectations in the second half of the year did I did I hear you right.
You did hear me right. So we said $8 million to $10 million of of headwinds primarily in the first half. We we currently do expect that the.
The challenges we're seeing in in some of the the air freight and container freight will will begin to normalize in you know late second quarter into the second half.
Okay, Okay, great and then as far as Opex I think he said you expect them to be positive.
Higher than.
Then 2019 levels all of it.
That is correct and what we said there whether there's three or four factors. The first is you know some of the increased expenses associated with the North American distribution Center initiative and some other strategic initiatives that we have ongoing.
A full year of shoes operating expenses. So in 2019, we only on them for half a year. So there's only six months worth of Opex.
In 19 versus a full year and 21.
And then we said higher stock based compensation expenses, a result of some changes we've made in our grant structures and finally.
Commissions on R retail sales in Korea, if if you recall.
U S. GAAP, we have to report those are selling expenses.
So as the sales levels increase continue to increase in Korea. Those expenses continue to go up.
Okay, Great that's helpful and then.
Question for me is just I'm still a little unclear.
Yeah 120 million dollar.
Investment in Nepal plants.
So take.
Is something that [noise] excuse me, maybe every 10 years or 15 years, it's just sort of how how it works.
There's things that you need to catch up on and.
And.
Processes et cetera that really require that.
Just kind of a normal cost for doing business or something more unique.
Yeah, we don't we don't see this as a as a catch up.
In any stretch.
We're confident that we invest regs.
Regularly in the business to.
To keep us.
At the front of the pack. So we're we're very comfortable and confident with with where we are.
I do think I do think you are right in the sense that this this this this is how you. This is how you run a leading precision golf ball manufacturing facility.
And custom ball operations again, we make ongoing investment.
And then from time to time it makes it makes good sense pull from a from a competitive and strategic standpoint.
And Ah Roy standpoint to make more meaningful investments and as as I said, a while back if you look back over over our 30 plus years that that's how that's how it's worked around here and it's worked really well I also acknowledged to the hey, there's there's there's forever a shift in evolution of the type of balls.
Make whether it's sherlin or or cashed urethane or thermo set for for TPU thermoplastic urethane, whether it's two piece multilayer three piece for peace et cetera. So that requires some capital investment to stay ahead of that process, which is which is part of this journey as well so.
Again, I just I, just reiterate George I don't I don't see this as a catch up by any stretch I think this is a leap forward that fits into how we've always thought about.
Golf ball manufacturing.
At the acoustic company.
Okay Joey.
The George I was just gonna add.
The other 120 million dollar investment over five years I would call 35 of it or so just normal recurring.
Capex, so we normally spend $6 million to $7 million, a year and golf ball Capex in our last couple of years, we spent $30 million to $33 million for six or seven of that is golf balls. So the 85. The remaining 85 of the 120 is really that incremental investment.
Okay Gotcha, and then last question for me around.
Second.
The distribution facility that you talked about.
Or does this represent any kind of change of strength.
If I heard you right, it's mostly about your e-commerce business or that the heavy.
A big part of it.
Allowing you to do anything and he commerce that you really haven't been able to do or does it represent any kind of changed your strategy regarding your your ecommerce.
Yeah, I I would say this I wouldn't characterize this as a as a investment focused or pointed at e-commerce. It it really starts with.
The reality that we distribute today for joy out of Fair Haven, Massachusetts, and we we.
Distributor R gear business.
At Carlsbad, California, there's a better way to do that and we bring in most of those products from overseas.
To the east and West Coast, and then we fulfill really the country and in some cases North America from the East and West Coast, There's a better way to do that part one part two is it gives us an added advantage with regards to golf balls.
Hip golf balls out of the east and West Coast today, many years ago, we had a central U S distribution center, we moved away from that so this gives us a third point of distribution.
Shorten lead time shortens costs for our customers and ourselves.
And Hey, we experienced this year shutdowns in California, Massachusetts and had we had this center operational we wouldn't have incurred the shutdown ramifications that we did.
In 2020.
It does it does as well allow us to consolidate ecommerce fulfillment overtime and that's an advantage.
And and provide better service levels quicker lead times et cetera, but I wouldn't I wouldn't point for this project as a E. Commerce centric event, it's gonna really touch many parts of our business e-commerce being being one of them.
Okay. That's helpful. Thank you and congrats on a on a wonderful quarter.
Thank you. Thank you joined thanks.
Everybody has always we appreciate your time and interest stay safe and well.
We look forward to speaking you in a few months after the close of our first quarter.
Maybe you can send this concludes cooking conference call. Thank you for participating you may now disconnect.
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Hello.
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