Q1 2021 Acushnet Holdings Corp Earnings Call
No.
Cash flow.
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Good morning, ladies and gentlemen, and welcome to the cushion net Holdings Corporation first quarter earnings Conference call. At this time, all participants are in a listen only mode.
After today's presentation, we will conduct a question and answer session.
And instructions will be given at that time, if you would like to ask a question.
I would now like to hand, the conference over to Sondra, Lennon Vice President of F P and H and Investor Relations. Please go ahead.
Good morning, everyone. Thank you for joining us today for a cushion of holdings first 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.
Preferring to year to date results or comparisons we're referring to the three month period ended March 31st 2021, and the comparable three month period with that I'll turn the call over to David.
Thanks, Sondra good morning, everyone and thanks for joining today's called.
I am pleased to report the cushions first quarter results and discuss our outlook for the balance of the year.
Getting right to the quarter of course, it revenues of $581 million are up 42%.
And and 34% respectively versus 2020 and 2019.
Titlist brand equipment and gear sales increased 51% versus last year, and 38% compared with the first quarter of 2019.
And Fortunately posted of games of 22% and 13% versus 2020, and 2019 adjusted EBITDA of $135 million increased 156% over the last year and 111% as compared to the first quarter of 2019.
Earlier today of course, that's the board of directors approve the company's quarterly cash dividend of 16, and a half cents per share.
Reflecting the board's confidence and the company's financial position and future outlook and ongoing commitment to return capital of the shareholders as part of our long term total return investment strategy.
I must acknowledge and think of my fellow associates for delivering these exception of results, which are traceable to our team's commitment and execution throughout 2020 and into the first quarter.
Despite mostly remote work and limited traveled during the past year. The company has and continues to benefit from the talented and cushion of the team and most notably our product development operations and.
And supply chain management teams, which of excel given challenging circumstances.
We have been fortunate the widespread efforts to keep our associates safe and well during this pandemic had been effective.
This has been and remains our highest priority, which has contributed to heightened output levels from our golf ball plants Global club Assembly teams and footwear and glow of factories.
Additionally, I must acknowledge a global network of trade partners, who continue to excel and providing golfers with high levels of service and compelling and safe experiences around the game of golf.
Now turning the page five we will take a look at our business by segment.
Title of golf ball sales increased 49% for the period.
Led by one of our most successful new probably one launches.
This achievement is especially noteworthy given our decision to delay the start of new Probie, one production last fall to meet fourth quarter of 2020 demand.
The digit apparel growth.
Fortunately is building terrific momentum and all markets with new Premier series, which was the number one shoe at the masters and new Hyperflex and traditions models.
Highlighting foot choice commitment to performance and style of leadership Fortunately of recently partnered with iconic designer Todd Snider.
To develop a limited edition footwear and apparel collection, which was launched last month to strong consumer response.
And finally, our shoes brand also opposed to the sales gain and the quarter with golf and lifestyle growth offsetting of decline and ski.
Now turning to slide six and a look at our business by region.
Sales and the U S, Japan, and Korea were strong across the board with each region, posting 40 plus per cent gains for the corner.
M. B a was up eight per cent in this region, which has been most impacted by COVID-19 related lockdowns and facility disruptions.
Each of our segments posted double digit gains as compared to the first quarter of 2019.
And the U S rounds of play increased 24% and the quarter, our new products have been very well received and overall consumer demand for golf equipment remains robust.
And Japan play was up low single digits for the quarter and after a steady start to the golf season much of the country went into locked down on last month, which is expected to continue into next week.
Korea posted of healthy 20 per cent increase and rounds and both titlist. Unfortunately are off the great starts fuelled by the success of new Probie, one golf balls, Tsi metals, and Fortunately golf shoes and apparel.
And the cross EMEA play was down as you would expect to keep and many courses were temporarily closed during the period.
Across the region participation has been healthy when of courses are open for play, which we think bodes well the summer and fall seasons.
Now looking forward, we remain enthused about strong demand for of cushion of products healthy participation rates and most regions and the overall energy and interest for the men's and women's professional games across worldwide tours.
Globally field inventories are healthy if not slightly below normalised levels.
Demand for all of our custom made products of strong, causing extended lead times, which we expect the last through the second quarter.
Golf ball raw material and golf club component availability R&d's and shape. It we expect to face periodic constraints through the end of the year as our supply part and strive to keep pace with demand.
And the golfers or making up most of the incremental rounds, and new juniors women and younger adults continue to contribute to the games growth with the number of new participants and the U S estimated at 500000 golfers by the National Golf Foundation.
As noted on our last call demand for instruction and coaching is robust, which we see as of positive long term indicator for the game and business of golf.
As a result of these positive early season indicators, we of raised our expectations for the balance of the year, while continuing to reflect the necessary level of caution given global health and supply chain uncertainties.
And recent months, we have adapted many areas of our business to capture strong demand and this will affect the timing of our business throughout 2021, most notably and golf clubs.
And some instances such as Tsi, one and four drivers and fairways and Tsi hybrids, we were able to pull forward new product launch dates to take advantage of peak early season demand.
And with our titlist iron and Vogie wedge franchises, both of which are on the second years of their product life cycles. We took advantage of of the opportunity to front-load volumes into the first half of the year to capture strong demand with the understanding that this will reduce and of lifecycle sales and the second half given inventory constraints.
Looking longer term, we remain committed to leveraging the companies and industries momentum to position of our business for future growth has the golf industry reaches for new Heights, and they post pandemic world.
In support of this commitment we were planning to make a variety of investments over the balance of the year to bolster our product innovation golf her connection digital A&P and supply chain capabilities commensurate with the favorable golf market opportunity.
The company strong financial position compels us to invest and our future.
And we remain prepared to forsake short term earnings upside.
In order to fortify our longterm profitable growth strategies.
These projected investments will amount to roughly $15 million and opex and the back half of the year, which will be spread across each of our segments.
Critics, and SG&A comes primarily from higher selling and distribution costs, resulting from the higher sales volumes during the quarter, which were partially offset by lower advertising and promotional costs that have shifted to later in the year.
Income from operations was $120 million, which was $99 million higher than 2020.
Interest expense for the quarter was $3 6 million down 500000 from Q1 2020.
And our effective tax rate was 24, 3% down from 46% and 2020 as a result of a shift and our jurisdictional mix of earnings.
Net income attributable to a cushion of holdings was 85 million $76 million higher than 2020.
And our Q1, adjusted EBITDA was $135 million up $82 million.
There is a reconciliation of net income to adjusted EBITDA and our earnings release as well as in the appendix of the slide presentation.
Moving to the next slide our balance sheet continues to strengthen.
At the end of Q1, we had $111 million of unrestricted cash on hand total debt outstanding was approximately $352 million a decrease of $167 million from Q1 of last year and.
And we had $376 million of available borrowings under our revolving credit facility.
Our leverage ratio was one one times at the end of Q1 down from one eight at the end of Q1 2020.
Consolidated accounts receivable at the end of Q1, 2021 was $388 million up $78 million from the end of Q1 2020 on our very strong sales during the quarter.
Our day sales outstanding were 57 days, which were down three days compared to last year.
Consolidated inventories were $330 million at the end of Q1 compared to $365 million last year down $35 million.
The year over year decrease was driven by golf balls, which were down about 21%.
All of clubs, which were down about 19% and foot joy, which was down about 6%.
Cash flow from operations was an outflow of $30 million for Q1 compared to an outflow of 73 million for Q1 of last year.
The lower cash outflow from operations comes mainly from higher net income, partially offset by higher working capital.
Looking to capital expenditures, we spent a little more than $6 million during Q1 compared to just under $6 million last year.
We expect our capital expenditures for full year 2021 to be and the range of $45 million to $50 million driven by the key strategic investments and golf ball operations and precision manufacturing capabilities, we discussed last quarter.
Turning to the next slide our capital allocation priorities remain unchanged.
We expect to continue to prioritize and make targeted investments and the business with the focus on product innovation golfer connection and the operational excellence and to 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 strategies and will drive growth and a favorable return.
We also will continue to focus on generating strong free cash flow and returning capital to shareholders.
We increased our dividend to <unk> 16, and half cents per share during the first quarter of 2021 for a total cash outflow of $12 7 million.
And as David mentioned, our board of directors today declared a cash dividend of $16.05 per share payable on June 18th to shareholders of record on June 4th.
Which would represent an expected <unk> cash outflow of approximately $12 2 million.
On March 5th we early terminated the amendment to our credit facility and we resumed our share repurchase activity.
During Q1, we repurchased about 56000 shares for a total of approximately $2 4 million.
These repurchases triggered the final determination date under our share repurchase agreement with Magnus Feeler.
As a result on April 2nd we repurchased about 355000 shares from Magnus for a total of approximately $11 1 million, which completed our agreement to purchase $24 9 million worth of shares from Magnus.
For the full year 2021, we still expect to repurchase up to a total of $40 million worth of shares.
We remain committed to our capital allocation strategy and believe this is a foundational element of our value proposition, which creates a compelling long term total return for our shareholders.
Moving to our outlook demand for a cushion of products and golf participation remained strong and our team continues to effectively manage through disruptions and the global supply chain.
<unk> operational cost increases and periodic market closures all of which have added a high degree of variability and unpredictability and forecasting our business.
Our outlook for the full year 2021 has improved.
We expect our reported sales to be on the range of $1 79 billion to $1 87 billion up about 14% at the midpoint compared to 2020.
On a constant currency basis, we expect sales to grow in the range of about 9% to 14%.
And we expect adjusted EBITDA to be and the range of 255 million to $285 million up about 16% at the midpoint of the range.
Of course, these expectations assume no significant worsening of the impact of the COVID-19, pandemic, including additional significant incremental closures of global markets and additional supply chain disruptions.
With the very strong first quarter, and the second quarter, which we expect to be about 75% to 80% higher than 2020.
We project very healthy first half sales gains as compared to both 2020 and 2019.
We also confirm our prior comments that second half sales will be lower than both 2020 and 2019 Pri.
Primarily as a result of changes and timing that will shift approximately $50 million to $60 million of golf club sales out of the second half of 'twenty one that.
And that we discussed on our call in February.
Absent these shifts sales and the second half would be higher than 2019.
Additionally, due to and especially successful pro V. One loyalty rewarded program. This spring.
We expect that some golf ball volumes have shifted from the second half of 2021 into the first half.
We now expect 2021 gross margins to be negatively impacted by 18% to $20 million higher from freight expense driven by recent increases and global air and container cost and by our increased utilization of airfreight and we now anticipate these conditions to last through the end of the year.
And we currently expect Opex and each of the remaining quarters of 2021 to be higher than the corresponding quarter in 2019.
As David mentioned, we expect to make about $15 million of strategic investments over the balance of the year and product innovation golfer connection digital commerce, A&P and supply chain enhancement to fortify and improve the strong market position of our brands.
As a result, while we expect strong growth and adjusted EBITDA for the year compared to 2020 and 2019, we do expect that first half adjusted EBITDA will be higher and the second half adjusted EBITDA will be lower than 2020 and 2019.
In conclusion, our associates and trade partners did an excellent job keeping up with the continued strong demand and our supply chain held up well, which enabled us to deliver exceptional first quarter results.
While we remain cautious and are planning we have increased our full year 2021 financial goals and we believe we 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 now open up the line for questions.
At this time, if you would like to ask and audio question. Please press star one on your Touchtone phone once again that is star one to ask and on your question.
Your first question comes from the line of Casey Alexander with Compass point.
Hi, good morning.
And normally I don't make compliments on public calls, but the ability to turn your inventory of one six times and one quarter is just that is a remarkable achievement. So I would congratulate your team on that.
Thanks Casey.
I am looking at.
Your guidance to a certain extent.
And.
And for the rest of the year consensus has EBITDA of $174 million and the midpoint of your guidance of $135 million.
And so I would ask why shouldn't we look at your guidance as being somewhat overly conservative.
Well, yes.
The two and maybe just to call back on some of the comments, the Tom and I hit on.
Our.
And the timing of our business has been greatly altered and bill.
On the back half of last year and throughout 'twenty one.
Given given market demand, obviously, very strong and supply chain disruption and constraints and showcasing maybe it will be helpful. I'll give you a couple of <unk>.
Just building blocks of how we're thinking about.
And how we're thinking about the balance of the year, we've raised our internal projections based on a strong.
Q1, and as I noted, we did move of good amount of club volume from the second half really the second half of you would you would consider at 19.
And the into 2021 Tsi drivers hybrids.
There is also a phenomenon playing out with irons and wedges, which are and the at the end of their lifecycle, we pulled those forward into the first half.
And there's good example, we will launch new irons in the third quarter.
We're going to reduce the sell off of of irons and wedges.
A bit of a shift from <unk> to the H one.
We've had an incredibly strong <unk> one loyalty program this year, which is great.
It will bolster the first half we think with some offset.
And the second half and then the other piece would be we've got a.
And while not not overly sizable we've got a trophy of launch the typically golf ball launch the typically happens and the fourth quarter of <unk>.
The number of years we.
We did 19, we did at 17.
This was pushed into the into 2022, and then and then really as Tom mentioned, we've got some incremental freight.
The dynamics that we're working through and as I talked about another $15 million or so on opex associated with strategic investments.
A lot of ground there, but the point is there are a lot of moving parts and pieces and our business and that.
We benefited because odd years typically overlap on the odd years and even years typically even typically overlap on even years.
Lesser of the case this year for obvious.
Macro reasons.
Okay, great. Thank you for taking my question I appreciate it.
Thanks Casey.
Your next question comes from the line of Randy <unk> with Jefferies.
Hey, guys, how are Ya and I guess I.
And just wanted get your updated thoughts on the conversations you're having with your green grass partners.
You mentioned that last quarter, you mentioned it again on the call. This morning about the idea of more of a lesson being taken and I just wanted to get some perspective on what they're saying around.
Lessons of what Theyre, saying about the the the fullness of their tee sheets or not.
Get some perspective on.
Additionally, on the private side of the membership additions et cetera, just anything you can give us on that color on what they are saying to you would be super helpful. Thanks.
Yeah. Thanks, Randy I will I will qualify it by by timing and that it's it's early may and and golf and in the northeast and Midwest really just opened up and the last <unk>.
Several of several weeks, but pointing and this is probably U S commentary, but according to what we saw on the first quarter of U S rounds were up about 25%. What we saw there was really three dynamics very strong in the Sun belt as you would expect.
The northern.
And mid belt markets were down really due to weather.
And we don't get too hung up on rounds of play and the northeast and Midwest and the first quarter, but they were down significantly and then we knew you had the reality of that a lot of folks who would a lot of golfers, who and typically travel from the north of the south in the first quarter to play golf didn't didn't play didn't do that because they werent getting on planes, but net of it if you get through the first.
Up 24%.
Really really strong.
Anecdotally tee sheets are tee sheets are full.
As I've said golf professionals are as busy as they can be.
The club memberships are tighter and supply than they've been in the long time, no surprise right given given interest and demand for the game that we saw second half of 2020 and really end of the first.
Three or four months of 2021 so.
What we see we see healthy environment, and we see it as healthy as we've seen it and in a long time as to.
And what we're seeing.
And the broader marketplace again, and Midwest northeast, we're going to have to really defer that to end of second quarter. When we get when we get some may and June.
Intel under our belts.
Got it and then can I just the different perspective on where you are with capacity on the ball plant side of things and the.
And just expand a little bit upon on the success Youre seeing with the loyalty program on the pro the one side anything you're learning there that you could perhaps and that program further or and into other areas of your business just curious on how youre thinking about the.
Success of that program.
Yes from a from a capacity perspective, where we are still running.
$24 seven.
Shifts. So we are we on at close to or at our maximum capacity and in terms of production.
Our production capabilities have improved somewhat as the COVID-19 vaccinations become more widespread.
Which has.
The manifested itself and reduced absenteeism as less employees are having to call out because of potential exposures and things like that and and there. There's been some some loosening of COVID-19 restrictions as well. So so we are seeing.
Proven and our production capabilities and and we are at full capacity.
Yeah, Randy I'll take the moment to to add that we've said this over the years, we like to we like to make what we sell and the control we have over our supply chain served as well and the first quarter.
We have we have three ball plants, we have our own glove factory, we have of joint venture Shoe factory, We have club assembly around the world. So that served us real well as Todd mentioned.
The capacity.
We are at peak levels and some areas and we continue the two.
See better.
Or reduced absentee rates and other piece of our story is our vendors and supply partners over achieved during the quarter. So we ended up getting as an example, more rubber components for golf balls more and more grips more shafts and we were than we were initially led to believe so that obviously played into what was the strong first quarter for us, but I think the.
Macro theme there is.
And we weren't able to leverage the control and strength of our supply chain and in the first quarter and and you see that and our results loyalty.
Loyalty of rewarded and I look.
At that and see that and when we when we see where that business is coming from it's really coming from from all channels.
Green grass and off course.
Hey, guys good morning, and.
Question on the on the market.
Have any sense of what the equipment industry grew and the first quarter and I'm trying to put your tieless growth, you, 51% and contacts and out with the wholesale and retail number but any color on market share change and the quarter with would be helpful.
Yeah, you know and jealous I won't get into specifics and can I can put some I can put some data points out there certainly we look at the industry shell true, we look at our industry shipments and and our sensors that are shipments outpaced industry shipments. So we come out of that feeling as though we from of share standpoint, we we.
And we did well.
The other reality is you gotta look and inventories to to see who's who's done a better job and stuff and others replenishing the pipeline and so I'm more than average it shipments and itself through and it's it's it's inventory replenishment that you'd think you need to look at but we can at it and and feel nothing but positive about share strength really and all the categories and again.
And our stories of Bikini cause we've got drivers and the early days, we've got we've got the fairways and height of bids and the early days, but as I said, we've got got irons, and and wedges and the back half of their of their life cycles, which which you know as we compare that performance first two years prior be really strong performance and year.
Too, but we we like we like our position and heading into the the second quarter.
God at the top one maybe and kind of.
And makes them and they were very healthy and not a bit like you're expecting the normalised the.
The fear or does that extent of the 22 and are there any particular channels the.
The better more depleted and others and kind of the green grass and basically.
Yeah, Yeah channel the channels are good and we we took a look at it pretty and grass in particular and the U S. Ah the there.
And they're strong and and as you would expect you know most of those.
Doors receive on a season opening pipeline order to really fill up the shop. So that that that did happen you know as as we look at as we look at it around the world of as I said the over all of their in decent shape Ah Asia and N B, a R and probably closest to normal U S. Probably the most Ah challenged the balls down.
Just slightly.
Hubs and gloves, maybe down more so ah gear, and apparel, but really and in good shape, and and global footwear, which which over the years and certainly in the last couple of years has been on the heavy side is is now on the leg side, which which we view as of long term long term positive.
The relates to the.
The continued demand you know what we're seeing so far is is continued strong demand and momentum into the into April.
But you know still still two months ago and the quarter. So you know.
No additional commentary there, but the the end of it is is continuing to be strong and April.
Got it got it and then then the follow up on cases question and from earlier and just on the guidance yeah. It looks like the revised range of the kind of flow through the full revenue beat and once you, but the margin guidance did come down even accounting for the $10 million and higher rate and the 15 million and higher opic and looks like underlining margin.
And are still coming down for the rest of the year and it gets in the mid point of the Guy and are there any other variables that they would call out that are weighing on that profit ability outlook.
The only thing I would add to that and Daniel is you know the the gross.
<unk> and impact of of the shifting of some of the.
Ledges and iron sales into the first half you know those those would have been.
Normally and the second half and and so the gross margin gross profit of that comes along with those sales has shifted out of the second half and into the first half so that that would be.
The other piece.
Alright, great well I'll follow of off on and based on Okay.
Okay and.
Okay. Thank you Daniel and operate I could we take the next question. Please.
Yeah and next question comes from the line of George Kelly with lots of capital market.
Everyone and thanks for taking my question. So just a couple of for Ya.
First the 15 million of incremental Opex.
Can you give us a little more detailed just on what that is and specifically the golf or connection and I heard you mention a couple of times golf or connections.
We're not kind of get.
Too detailed but I will help you out as best I can and and and specific to golf or connection for us that is that is ball fitting that his club fitting that his tech reps that is more on the ground engagement with golfers. Okay. It also flows through our of loyalty programs and set.
Et cetera, so when we talk golf for connection that that's really what we're talking about but.
As I think about that spend certainly the the the sands of shifted under the under the golf industry, and a very favorable and positive way and.
And and with those shifts have uncovered some opportunities for and for us to invest across our business.
Again from from digital to golf R connection to A&P.
To supply chain really all across our business and as the as the industry has evolved and accelerated and the last couple of years again, it's just uncovered opportunities that.
As I made the point of earlier.
Wrong financial position and allows us and compels us to make those investments, which we're we're prepared to do and and frankly very excited to do over the back half of the year.
Okay. Okay and then the next question relates to your balance sheet. So.
Just looking out over the next year itchy and months out of your balance sheet just.
Getting to the net cash position much stronger physician and I'm just curious if that.
Will impact if you can tell us at all it didn't sound like your cash flow of priorities of changed a whole lot and.
With all of that strengthening that you've seen and your balance sheet. The over the last two three years and just curious if you'll have on the ability to return more cash to shareholders or how you want to.
Do you want to utilize that that power I guess.
Yeah, you're right R capital allocation priorities at this point haven't changed.
We're still investing and the business, we're still focused on dividends.
Dividends and share repurchases, we have reinitiate of our share repurchase program we.
We do we do anticipate the strong cash flow generation over the.
Over the foreseeable future and as as time progresses, if if that comes to fruition and and we have the ability to.
Do more things with and the and the realm of capital allocation will certainly consider that but at this point, where there's still some uncertainty and the market and and we're we're kind of taking it quarter by quarter.
Okay. Okay and then the last question for me is more of of 10060 of kind of question, but so.
So you're expanding some of your operating investments 15 million Bucks of this year.
And.
Is it fair.
Shin.
With what you're seeing today.
Some of the shift and increase and game play and new golfers et cetera. The ear building your business model, assuming that some of the ships are permanent and.
Maybe if you could just talk about that how do you think this is going to shake out and hear from them.
Well, the Georgia and and we've we've we've talked about this a little bit on the last call.
And and your your question is is the.
Something we think about often.
You know as we look at as we look at what's the plane out and the last year right with a quarter of college shut down and then and then really strong recovery.
Yeah I made the point you know and we thank for about a half a million new players that entered the game and 2020, that's that's the U S number and maybe have that around the world. So the game is going to come out of COVID-19 stronger than it was when it went into COVID-19 and and we say that carefully because it's built around and obvious.
Difficult moment and events, but but the net of it is the game comes out of this period stronger and.
And and we will it be a straight line acceleration of our business, maybe not we talked about the reality of the thing it's gonna be tough to come up against the the historic second half we saw last year from around the place standpoint, but.
But he did the the game and the industry and rates and and had changed and the last.
12, plus months and.
And we're responding to that so whether it's R capital investments we announced.
A few months ago, whether it's the.
Strategic investments, we're announcing now the those are our responses to the opportunity we see before us.
Okay, Great and last question for me, just Capex capex expectations for the year.
Yeah, we we continue to to the forecast 40 $550 million for the full year.
And we did about 6 million and Q1 and we continue the on track for the 45 to 50.
Okay. Thank you.
And George.
George Thanks, and and thanks, everybody has always we we really appreciate your interest and time on these calls and look forward to catching up after queue to have a great have a great great spraying. Thanks, so much.
Yes. The concludes today's conference call you may know against the wall.
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