Q2 2021 Acushnet Holdings Corp Earnings Call

I think star followed by 1 on your telephone keypad I would now like to hand, the call over to our host Vice President of Investor Relations Sondra Lennon to begin Sandra. Please go ahead.

Good morning, everyone. Thank you for joining us today for <unk> Holdings second quarter 2021 earnings conference call joining.

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 forward looking statements are based on a cushion on 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.

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 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 when referring to year to date results or comparisons we are referring to the 6 month period ended June 30th 2021 in the comparable 6 month period with that I'll turn the call over to David.

Thanks, Andre and good morning, everyone. We appreciate your time on today's call.

8% versus last year at her up 35% compared with 2019.

A cushion it'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 per cent and 35% respectively versus same periods in 2020 and 2019.

This growth is coming from each of our business segments and in every region is the game and our brands build sustaining momentum around the globe.

First have adjusted EBITDA of $263 million is up 177, and $123 million, respectively as compared with the past 2 years.

As Tom will address a cushion had strong performance and healthy balance sheet position the company to be opportunistic with our proven capital allocation strategy as.

As we seek to invest in future growth and returned capital to our shareholders through our share repurchase and dividend programs.

And consistent with this approach I'm pleased to announce that earlier today Christians board of directors approve the payout of our quarterly cash dividend equal to 16, and a half cents per share to be distributed on September 17th.

Now turning to slide 5 I will comment on our business by segment.

Starting with golf balls sales gains have been led by 1 of our most comprehensive and successful probie, 1 launches and strength across the entire title is golf ball product line.

As you see sales exceeded $200 million for the quarter, representing 92 per cent increase.

On the P. G. A tour probie, 1 and probably 1 ex golf balls had been played by 72% of the field this year more than 8 times the nearest competitor.

And on the LPGA tour title is 84% ball count is more than 14 times the number 2 brand.

The title of this 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, a golf ball design innovation and manufacturing experience continues to serve us well.

And to support this first half growth and as noted on our previous call. Our ball plants had been operating 24, 7 which we expect to continue for the coming months.

Additionally, we continue to allocate golf balls to our trade partners, even type supply levels.

Moving to title this golf clubs, which are up over 100 per cent for the quarter. This gain was led by our new line up of Tsi drivers, which are the most played on the P. G. A tour and meeting our high expectations in the market.

In addition, titlist was the number 1 driver at this year's NCA Championship and the recent U S. A junior Boys Championship T.

[noise] Tsi is also the choice of women's World number 1 nearly quota who plays probably 1 golf balls and a full range of finalists golf clubs bulky wedges and a Scotty Cameron putter.

Title of skier posted a 93 per cent increase for the quarter with gains in every category.

Sales of $65 million reflect supply chain excellence as our team has done a nice job eating healthy global demand levels.

This supply chain effort continues to be complemented by excellence and design and functionality, which title of skier products are known for and.

And moving to Fort Choi robust games in sales and footwear apparel and gloves are driving growth throughout the brand with sales up 129 per cent in the quarter.

New Premier and Hyperflex footwear models have been especially well received and are helping fluctuate to earn its place as the number 1 shoe and 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 in the channel did not materialize.

F J apparel capitalized on this opportunity.

Puts you always leading gloved 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 6.

Regional view of our results.

As you see the company is performing well in all key markets. The U S market delivered the highest growth rates for the half with golf balls and golf clubs, both up over 80 per cent.

M. B, a is providing to be resilient, particularly given travel restrictions, which have limited golf tourism throughout the U K.

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 per cent first half growth coming on top of last year's double digit sales increase in the same period.

From around the place standpoint, the U S. In Korea are both index thing roughly 20 per cent ahead of 2019 levels through the first half.

The UK, Australia, and Canada have battled COVID-19 related lockdowns and headwinds.

Yet despite these disruptions rounds in each of these markets are upload double digits as compared to 2019.

Japan in 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 7 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 call for participation and strong demand for titlist for joy and choose 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 titlist T series Irons later this month and.

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.

Fortunately also has a busy fall planned with a wide range of new footwear models, new hibernate outerwear, and new seasonal apparel lines for men and women.

In addition to our healthy pipe line 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 it resulted in periodic shutdowns at our new Bedford baseball player too.

Howard Glove in ball factories in Thailand are under pressure as the country confronts escalating cases and low vaccination rates.

We were doing all that we can to keep our associates safe get the recent spike in Covid cases has prompted us to temporarily reduced production at our glove factory.

The soft this operation is also constrained by raw material shortages, which will further limit production.

And we expect that the environment for our apparel entitled is gear businesses will continue to be challenged by tight raw material availability and additionally, the current lockdowns in Vietnam will impact title of Spag 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 a cushion that is well positioned to capitalize on the strength of our target consumer the games dedicated golfer.

And that our teams proven track record of product innovation and supply chain management will continue to support the companies longterm 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 and has led to another exceptional corner from a Christian.

Starting with income statement highlights on slide 9 consolidated net sales for Q2.625 million 108 per cent compared to Q2, 2020 and up 100 per cent on a constant currency basis as demand for our products remained very strong and our supply chain continued to execute and high.

[noise] level.

Of course, we were comping against the prior year period in which our operations in the U S and across Europe were shut down for almost 10 weeks.

Gross profit from the second quarter was 334 million up 178 million or 114 per cent versus 2020, and gross margin was 53.5 per cent 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 we're partially offset by higher inbound freight costs.

S G and a expenses and Q2 was 210 million up 80 million or 61 per cent 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 are effective tax rate was 22.9% compared to a benefit of 19 per cent in 2020.

As a result of a change in the mix of our jurisdictional earnings and the absence of a 1 time discreet benefit which was recorded in the prior year.

Net income attributable to a Kushner holdings was 81 million 79 million higher than 2020.

And our queue to adjusted EBITDA was 128 million up $95 million.

Moving to our results from the first half of 2021 consolidated net sales were 1.2 billion up 70 per cent compared to last year and up 64% on a constant currency basis.

Gross profit for the first half was 645 million.

288 million or 81% compared to the first 6 months of 2020.

Most margin was 53.5 per cent up 310 basis points from the prior year.

SG&A expense from the first half was 387 million up 103 million or 36 per cent and R&D expense was 25 million up 1 million or 4% compared to 2020.

First have income from operations was $229 million, which was $196 million higher than 2020.

Interest expense from the first half was $5.5 million down 3 million from 2020 and are effective tax rate was 23.7 per cent compared to 35.6 per cent in 2020, primarily because of a change in the mix of our jurisdiction learnings.

First half net income attributable to a Kushner holdings was 166 million 155 million higher than 2020.

And first have 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 and our earnings release as well as in the appendix of the slide presentation.

Moving to slide 10, or 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 2.2 of last year.

And we had 367 million of availability under a 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 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 from the first half of 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 to 50 million with spending on Capex accelerating in the second half of the year driven by the key strategic investments 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 Prioritise, making targeted investments in the business with a focus on product innovation golfer connection and operational excellence.

We also continue to seek acquisition opportunities than a line with our focus on premium performance products that appeal to dedicated golfers.

We believe that these investments advance our longterm 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 18th we paid our previously announced Q2 dividend, which total $12 million.

And as David mentioned, our board of directors today declared a 16 and a half cents per share dividend payable on September 17th to share holders of record on September 3rd which would represent unexpected cash outflow of approximately 12 million.

And during Q2, we repurchased almost 444000 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 repurchase almost 500000 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 a Christian and products continues to be strong and we aren't foos about the health of the game and golf market fundamentals.

We have raised our forecast from the balance of the year, yet or 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 work force 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 a reported sales for full year 2021 to be in the range of 1.932199 billion up about 22 per cent 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 per cent at the midpoint.

These expectations assume no significant work in 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 are outlook for second half sales hasn't increased and our outlook for second half adjusted EBITDA has decreased.

The increase in second half sales as a result of continued strong demand tempered somewhat by the ongoing supply chain limitations, we have discussed.

The decrease in the second half of EBITDA is primarily the result of higher than expected inbound free costs higher.

Higher cost associated with production disruptions entire associate related costs.

Our estimate for second half inbound freight costs has increased by 15 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 had 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 longterm 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 of my questions.

Thank you some day, if you'd like to ask a question. Please buy stocks and I'd buy 1 on your telephone keypad now if you change your mind. Please crashed outside my tank I'm preparing to ask you. A question can you can show that your line it unless you'd like me.

Ah fast question Shane comes from Kimberly Greenback After Morgan Stanley Kimberley He's kind of had your line if anything.

Great. Thank you so much 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 1 of these 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 per cent year over year, 8%.

Compared to 2 years ago could you just give us a little more color on the supply chain disruption that you're seeing it it sounded like it's impacting glove production in Thailand.

Ball production in the U S. 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 knew that the.

Future is difficult to predict here, but do you think that you would be in in more of a normalised inventory position, let's say by the end of third quarter it'll be relatively temporary or do you think it's probably gonna be year end or maybe into early 2022 before we get there. Thanks.

Okay, Hey, good morning, Kimberley I'll I'll I'll address that so as as we as we look at balance a year you know the the foundation has continued strong demand you said at our our inventories are are light channel inventories.

Or light down most notably in the U S and I would say that UK, where they're down anywhere from 10 to 20 per cent based on cash.

Category, they're 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 in that in that stems from the Texas storms Ah back in February. So we we've been running 24.7 at all our ball plants, but within that we've had periodic shutdowns at ball plan to 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 items, we're in pretty good shape, there, where we feel confident.

And 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 will be much longer than we'd like which has been the case for the past year.

As in Potter's wheel will be down versus historical levels. We did talk about this and the last call.

Because of our our sales profile in the first quarter second quarter, even even into the third.

We're just gonna have far less product at end of life cycle, So we won't be selling off inventory.

Prior to have launched in the first quarter of some new models.

From a gear standpoint gear looks okay. We we've been we've installed a bit with some lockdowns in Vietnam.

It looks okay, but a supply is certainly finite and reflected in our forecasts and we think they're there likely will be delays.

Whereas in pretty good shape. We are we are dealing with some raw materials shortages, but the team's working through that gloves I spoke about that challenge Bowl from Ah Ah Ah Ah labor standpoint, we've shut down her glove factory periodically.

It's not running at full capacity and let's do the Covid cases, and we do have some raw material shortages and then and then really the last piece from the puzzle would be apparel.

Okay is how I would characterize it may maybe close to normal but again, we have some issues around timing.

So that might give you a framework for how the how the second half should come together from a top line standpoint as as to when we think will get through this.

This current state you know 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 gonna push that out you know some some categories could be could be well into the first half of of 22 before we normalize.

We continued to produce.

Most products at full capacity and the Best example is golf is golf balls that will continue in the cup.

Being months will be will be confronting that challenge that we face a year ago and that was you know the desire to make product for at once demand and the desire to build inventory to support a global lunch from the first quarter of 2022. So we'll confront that that fork in the road and as always there are tradeoffs, but.

Again, hopefully that gives you some some top line color.

And and just the general sense that we think this is current state is gonna.

He's gonna 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 and 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 day or looking at number of golfers rounds played et cetera, as you're analyzing the data.

There were a number of new joiners.

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 you participants in the game sort of make their way to into your funnel overtime. Thanks. So much.

Yes, so what we what we saw in in the second half.

Of 2020 rounds were up 25 per cent versus the prior year I think 19 is a good baseline right we.

We we made the comment that around in the first half first half were up 20 per cent over over 2019, and just looking forward I would think we'd see rounds of play up in the in the second half of this year and the 15 to 20 per cent range versus 2019.

As to the profile you know the the end of year industry day that we share we shared on the last call it 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 you know freaky themes that team won a lot of the energy coming from avid dedicated players who are simply playing more and consistently here here, we're juniors more women more younger and more families.

And I'll use that to pivot to some some some really good work that's happening.

And some industry collaboration that it's really being led by the P. G. A of America and the P. G a tour.

And it and it's it's an effort built around how to best build upon the game's momentum and how to advance diversity inclusion within the game and and really throughout the golf industry.

And I'll add the RNA has also done a nice job providing their their perspective and insights and really the the key themes kimber.

I can't believe that have emerged are.

New participants are increasingly younger there there.

They're hooked on the game they Wanna get better we've talked about increase lessons throughout the industry in all markets and that continues.

And as a result, the game has become less intimidate intimidating and more welcoming.

There was an interesting dialogue around the physical and mental health benefits of the game and I hear that in the U S. You hear that in the U K.

And they're becoming more evident and this is really 1 of the levers that that stakeholders are looking to to develop to attract new players.

And as I said.

You've got you've got a good family component to the game, but but the final piece I'd make his point I'd make is we're seeing more and more rounds played in less than 18 hole formats as the game finds.

New ways to fit into busy schedules, which we view as a as a real positive and.

And I'll, just I'll conclude by saying that that around those comments and around those observations the.

The game stakeholders are are building campaigns.

To really build upon the momentum against the game is seen in the last in the last year plus.

Very helpful. Thanks, so much.

Thank you Kimberley next question please.

Our next question comes from Kenya, and Brian from Stephens, Inc. Daniel Please pretty neat.

Hey, good morning, everybody picture taken a question.

David I Wonder if dirt on obviously, the you talked about the cough backdrop being inflationary, but it would be your thoughts about the pricing backdrop I think you took up the.

The price thing on your new Iron to me out relatively in line with historical average is but curious how you think yourself. The other manufacturers handled it does it get pass through to the income from her given how strong demanded and you know because I'm a therapy at the broadcast for your products. What is your ability to pass through price angry food me between marches or how do you.

[noise] looked views print off that that for your brother.

Yeah. Good morning, Danielle So we think about it first and foremost when we when we launched new products and and we took a price increase on probably 1 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 I wouldn't call either of those.

Driven by inflationary forces, but but certainly we're seeing an inflationary forces around our business. So the the those were both founded on the.

The product innovation and our desired positioning within the competitive landscape.

Now, we we typically we try to not pass along.

Mid cycle price increases and globally, we do a lot of hedging too.

To support that thesis, but again, we try not to pass along costs needs Dream and we intend to get at it we typically get added otherwise when we launched new products again, but the foundation of those.

Of those price increases Daniel tend to be around performance innovation, and and a and a desired market position right, where you desire to be to be positioned as as as a premium performance category leader.

And sometimes that requires us to to move some things around but as an example.

A few of our items.

The price increases were not constant throughout someone up a certain amount somewhat up a lesser amount and some even stayed static again, that's more of a broader market positioning, but I don't want to belittle. The fact that certainly we're seeing some some cost increases throughout our supply chain.

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

That's helpful from a competitive standpoint, I I'd be curious you know it looks like you know if they're gonna do that next year relatively stable, maybe they are a little bit and golf of how do you think you guys held inventories are positioning relative to the broader industry and you know can you complete forward buys are there different things you can do.

Ensure that you have that'd be relatively better product availability then from your peers.

Yeah, and it really it's a wide ranging.

Answer because it touches on all our different businesses.

We we look at we look at channel inventories closely we look at our own inventories closely from a from a share standpoint.

Can't get too hung up on things right now because we're making everything who were selling everything we can make so it really is a function of supply chain.

Sure. We we look at we look golf ball look at golf balls in total inventories seem to be off around 15 per cent, we're down a little more than that I think that's it.

Function of strong demand more than anything else.

[noise] taped here to your final question about what are we doing about it.

You know, we're still we're still paying a little price from being shut down for 3 months last year 2 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 that's that's what we see in our other businesses.

It's it's it's as much about.

Raw material supply, it's as much about our our capacity output levels.

We we think once we get through this this this phase. These next 2.3 quarters and.

And it's it's as much about our raw materials suppliers is anything else because a lot of our constraints are driven by third party raw material suppliers. So.

You you can't solely point to a cushion that internally and say hey, we gotta take up capacity because our capacity is constrained by by what's happening around us, but you're you're questions. Good 1 and we're looking at all of our businesses to either diversify our.

All material supply or working with our suppliers to expand their capacity.

Alright.

If I could get 1 more in there Ah apologies from Memphis prepared remarks, but I think earlier. This year. You mentioned you were noting a golf ball cabin on that as well as in proactive opex and that's it.

Given how disrupted the industry has been have you changed your expected timing B program and or they're gonna be lingering fans went back maybe into 2022 now from those people.

At this point, we have not changed our thinking about timing you know as I as I did mention.

[noise] Capex from the first half was was only 12 million compared to 10 last year and when we have a forecast of 45 to 50. So obviously, we're expecting acceleration in the second half and we will will will monitor that closely.

Could some of that spill into twenty-two Ah Ah I'm sure it's possible as it relates to the some of the Opex investments that we've we've decided to make you know those will.

We think of those as sort of opportunistic and 1 time in nature and you know those will.

Those will run the run their course during 2021 and and will not impact 2022 at this point.

Like.

Thank you.

Thank you Daniel next question please.

Our next question comes from giant Ultra ballet from Raymond James. Please go ahead.

Hi, guys. This is adamonis per Joe Congrats from a strong quarter I was just wondering I know you guys have talked about a lot of these factors separately and the supply chain remained very dynamic.

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

Of course, you'll need to be very supply chain challenges, but just any more color on helping to bridge that $60 million gap between you know you've mentioned like Opex investments A&P raw materials.

No you you you, particularly cited the 15 to 28th grade just any other possible quantification I don't maybe technical at this time would be super helpful.

Sure. So as you think about our our second half relative to 220.19.

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 in our clubs business.

We lost about $50 million to $60 million, a second half sales.

Some of some of which whereas moved up into the first half and and some of which either pushed out into 20 twenty-two or or went away. So if if you think about that is $50 million to $60 million, you know that drops about $25 million of of gross profit.

To the bottom line that that we lost as a result of those lost sales.

We did talk about the you know 2015 to 20 million dollar increase in inbound freak that you mentioned.

We think there's about $15 million or so in in costs related to the.

The production disruptions, we've talked about and other employee related costs.

And then finally, we we think about the $50 million of strategic Opex investments that we talked about on the last call most of which would hit the second half. So yeah, you add all of those impacts up that's about $75 million to $80 million that.

Would would be.

Now would be.

Oh.

So I lost if you will compared to 2019.

Of Super helpful. If I could just.

Squeeze 1 more and you guys alluded to the weight of the supply chain issues on on sales to some degree all.

Albeit nowadays very strong demand out there were just great is there any way you can quantify maybe how much you could have lost in the quarter and maybe any possibility of those could be recouped from the second half or.

Basically you know the issues are quite severe.

Industrywide, so any and you can quantify.

I find that at all it would be very helpful.

I appreciate it.

Yeah, I would say, it's very difficult to quantify the impact in queue to.

Clearly despite that we had a very strong quarter. So.

It relates to cause some of that be recovered in the second half where as David mentioned, we're pretty much selling everything we can make and so I I don't see that necessarily sliding into the second half you know where where capacity constrained and we're gonna we're gonna sell everything that we can.

Gotcha, Thanks, guys, congrats from showing quarter again.

Thanks. Thank you thank you Adam.

Next question please.

Our next question comes from Jewish Kenny from rough patch 2 partners kill each piece go ahead.

Hey, everybody thanks for taking my questions.

So.

Back to the channel inventory.

You mentioned I think it's 10 to 20 per cent down in verses last year in in the U S. In the UK, if I remember right, though wasn't all time historic lows last year and so the real question I'm trying to get to his you mentioned you expect to be kind of caught up.

And the next I don't know maybe in debt early next year, how long after that do you think it will take until channel inventory is where it should be.

So George I'll, just clarify that that that number was down versus 19.

Okay, not not versus last year last year was such an unusual comparison, so the downturn to 20th is versus 19.

To your question it it really will.

Very by category right the golf ball business is gonna continue to she.

Chase and try to get ahead of the situation. This time of year, we tend to make.

Make more than we sell in 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 will probably be playing catch up a year from now.

So so you look at when when.

Things could and should ease is when the winds turn a little bit on the the make and sell relationship and it could be middle of next year in some categories.

Think clubs are probably going to be better off I think apparel could be better off but.

You know for us most notably balls is going to be a challenge.

Now that said, we're cough up we're gonna put a good amount of product in the marketplace I don't I don't think we're gonna disappoint consumers, but we're still gonna Chase, we're gonna Chase demand and we're gonna we're gonna be required to continue to allocate product for the foreseeable future and if you asked me 6 months ago would we still be allocating product our response would have.

Probably not as we see some seasonality kicking butt, but we expect to continue to allocate product into the into the first half of next year, notably on on consumables, and and really notably on balls and gloves.

Okay. Okay. Thanks, and then next question for me.

The same thing I think it was 75 million that you just highlighted is.

Kind of.

Versus 2019, you know what it is.

Increased.

Especially environment from Covid, Iran.

Investment, you're making how much of that.

No 1 knows what's gonna happen with Covid. So that's it.

You know daily changing thing hard to forecast, but.

Assuming that 2022 is a more normalized post COVID-19 kind of environment, how much he got $75 million would then exited your your expense structure.

Well.

I think the wildcard you mentioned, obviously is COVID-19.

The the production the production disruptions an employee related costs.

I talked about.

In a in a normalized environment, which you know obviously, we may or may not be in in 2022, you know those would.

Those would mostly go away the the inbound freight costs will normalize at some point. So those costs would would go those incremental costs that I called out would go away.

And you know the the 15 million dollar hit from from Opex investments you know, we think of those as 1 time as well you know being opportunistic with with our success. This year. So I would say you know the the majority of the the expense items would go away and then the the the gross profit impact will.

Well, obviously come back depending on the sales volumes.

[noise] and the launches okay understood.

So that's $75 million is really all COVID-19 related there's nothing kind of.

Channel that you're choosing to.

We will continue on it it's really all the COVID-19 related.

Well I would say the strategic Opex investments that we've decided to make are not COVID-19 related but they are intentionally times to be 1 time and in 2021.

Okay, Great and then last question for me.

Related to your comments are under Capex priority.

And so you provided in your prepared remarks, a list of things that you're most interested in investing in if you look at so I'm not really.

This year.

I understand what those investments are going towards but.

Look at the next 3 or 4 years.

What area of your business are you most excited to put an incremental.

And that's all thank you.

You know I can start I dunno, David if you want to add anything that you know, we we meant we outlined a.

A multi year golf ball strategic investment program.

You know that that's something we're really excited about and it's gonna help us to you know increase our efficiency a line or capacity with ongoing mix shifts and and improve our custom ball capabilities. So we're very excited about that we're obviously I'm excited about investments, we're making in our I T infrastructure and.

Round around ecommerce.

And you know we're we're excited about investments, we're making in some of our production and just distribution capabilities.

So those are all important strategic investments that will help continue to advance the company forward.

Yeah, Georgia, I I don't have much day out of that that the bulk of it is going to be focused on golf ball operations. It's underway.

Question came up earlier about is it gonna be on time, so far we like where we are but as you would expect a lot of this system some heavy equipment.

The times with with some of the equipment that were that were looking for have extended but but most most notably we think we think it brings a a whole new level of innovation and opportunity to new Bedford in Thailand Golf ball operations, which again is the bulk of this.

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 a status now concludes today's conference call and you may know disconnected.

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