Q2 2017 Earnings Call
We would like to withdraw your question press the pound key. Thank you Mr. Tony <unk>, Vice President of Investor Relations you May begin your conference.
Thank you good morning, and welcome to Cushman Holdings call to discuss our financial results for the second quarter of 2017.
This morning, we are joined by a Kushner COO, David Maher, David will provide commentary on the conditions in the golf industry and discuss the performance of our business across our segments and geographies.
Next Krishna CFO Bill Burke will spend some time discussing our overall financial results for the quarter.
After their prepared remarks, we will be joined by our Krishna CEO , While U line and then we will open up the lines for your questions.
We will be making forward looking statements on the call. Today. These forward looking statements are based on our <unk> current expectations and are subject to uncertainty and changes in circumstances.
Actual results may differ materially from these expectations for.
For a list of factors that could cause actual results to differ please see 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 XP.
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.
With that it's my pleasure to introduce <unk>.
<unk> C O O David Maher David.
Thanks, Tony Good morning from her Haven, Massachusetts, and thank you to all who are participating on today's call.
I look forward to sharing our second quarter and first half operating results golf market assessment and outlook for the balance of 2017.
We're pleased to lead with the ball count from this week's PGA championship at quail hollow at 62%. It is up five percentage points from last year.
We wish good luck to all participants and especially our 'twenty PGA club professional partners, who have so impressively earn their way into this year's final major.
Golf fans are poised for an exciting Ron is the PGA Championship is followed by the U S men's and women's amateurs Solheim Cup Fedex Cup playoffs, and President's Cup over the course of the next several weeks.
Before outlining our operating results I will reiterate our cushing its commitment to providing shareholders with a long term total return investment opportunity.
A question. Its playbook consists of an organization wide focus on the game's dedicated golfer.
A broad product category portfolio, a favorable mix of consumables and durables golf brands that resonate with the commercial core of the golf industry strong pyramid of influence validation and a desirable concentration in high margin equipment segments.
DNA of the cushion of company, we believe lends resilience to our long term performance.
Accordingly, I am pleased to announce that earlier today, our board of directors declared a quarterly cash dividend of <unk> 12 per share or $8 $9 million in aggregate payable on September 15 to shareholders of record as of September one.
And now looking at our results for the second quarter and first half.
<unk> posted second quarter sales of $428 million down seven 6% on a reported basis and six 6% on constant currency.
For the first half of 2017 sales of $861 $6 million were up four 6% from last year or three 8% on constant currency.
Adjusted EBITDA for the quarter was $71 8 million down 13, 5% from last year and $153 million for the half a seven 4% decline.
These results were influenced by a variety of factors, including weather and the ongoing U S retail correction, which I will expand upon.
The U S market.
Was particularly impacted by a wet spring accordingly.
According to golf data Tech rounds of play in the mid Atlantic Northeast Upper Midwest and West Coast were down between 7% and 13% for the half as rainfall was up significantly in each of these regions.
Your home to many of our investment partners and one of the industry's top golf markets had an especially wet spring, causing a 20% decline in rounds through June .
This has had an obvious impact on consumable purchases such as golf balls and golf clubs, while also limiting overall golf shop traffic and our partners' ability to conduct ball and club fittings, which have become so important to optimizing golf of performance and product satisfaction.
Looking at our business regionally U S sales for the second quarter were off eight 5% and down five 8% for the first half.
The U S retail market is entering the fifth quarter of what we see to be an eight to 10 quarter correction cycle.
Now that we enter the back half of 2017 much of the pain from this correction is behind us as comp sales declines to now closed locations will be reduced.
The migration of volume and market Shakeout, However will continue into 2018 at which point, we expect to settle into a new normal with the end game being a U S golf market that is fundamentally more sound and with fewer retailers and Oems competing for available revenue and profits.
As we've said before this journey, while painful at times as we deal with 450 fewer golf ball distribution points.
And 100 fewer full product line doors reflects the necessary correction of a market that had too much retail square footage to many golf courses and arguably too many Oems we're confident that the U S market is approaching a healthier state.
And now looking outside the U S. EMEA second quarter sales were off three 4% on constant currency and for the half were down one 2% on level FX.
Copying against record sales in 2016, we've seen MAA market's holding strong in the midst of Brexit related uncertainties rounds of play in the region are up in the low to mid single digit range for the half.
Second quarter sales in Japan are most golf clubs centric market were off 13, 4% for the quarter and down 12% for the half both periods reflected in constant currency.
Japan started the year slowly in Q1 due to poor weather, however rounds rebounded nicely in Q2.
The Japan retail market, however remains soft in part due to fewer visits and spending by the affluent Chinese tourists golfer.
And Korea remains strong and continues to maximize their opportunities with constant currency sales, increasing seven 5% in the quarter and 14, 7% for the half.
This growth comes from across the board sales gains in golf balls clubs gear and fluctuate.
And now looking at our four business segments, starting with golf balls.
Sales of the number one ball in golf were up five 6% for the quarter and off one 7% for the half both on constant currency.
First half golf ball sales gains in the EMEA and Asia Pacific regions were not enough to offset a decline in North America.
But probably one franchise had a strong first half with all markets posting sales gains.
And overall, we're very pleased with tour and market acceptance of new <unk>, one and <unk> models.
<unk> gained market share on and off course for the first half in the U S market, our largest and we generated similar share gains outside the United States.
The first half presented some challenges for title as performance model golf balls. Their second year end market made more difficult by increased competitive promotional activity.
We recognize the need to reinvigorate our performance model lineup and our R&D R&D team is actively engaged in this process as we prepare to launch new products in early 2018.
Title is club sales are down 23% for the quarter and 15, 6% for the half both on constant currency.
<unk> Irons wedges, and putters had performed well and as expected in their second years.
Title. This driver business has been challenging for a couple of reasons.
First as we said on our first quarter call drivers were impacted early in the year by competitive activity and aggressive ad spending.
This continued into the second quarter. When we were also negatively impacted by poor weather in key markets, which limited our ability to conduct fittings to the degree we had planned for.
We're confident that our 917 driver at Wynn fit by a qualified club center delivers best in class distance and total game performance.
Admittedly, we did not generate enough of these fittings and this is reflected in our first half performance our team recognizes the need to more effectively activate driver trial and fittings in this dynamic driver market.
We're looking forward to the launch of the new <unk>, New family of 718, Irons and <unk> hybrids. In this fall early response from the tour and our trade partners has been very positive and we're especially excited to introduce AP three the newest member of the Titleist advanced performance Iron family.
Entitle us gear sales increased six 3% in Q2 and grew six 7% for the first half both on constant currency.
Growth in each of our gear categories golf bags headwear clubs and travel affirms the progress our team is making in building out our supply chain capabilities with particular focus on product performance quality design and materials.
Gear team continues to strengthen our product development and supply chain capabilities, which give us great confidence around each of the categories that make up our gear segment.
And finally moving to foot Choi the number one shoe in glove in golf second quarter sales were up four 1% and first half sales were down 2% on constant currency.
Much of this decline is attributable to the U S market and its reduced store count.
There are many positives within the <unk> business, which are worth highlighting.
Pro SL quickly grew to become the number one spike list shoe on the U S PGA and European tours, and the number one spike Lee Hu and golf.
Fortunately apparel is firmly solidified as the top three selling brand in the United States and held the top spot in the months of April and May.
And Unfortunately glove franchise continues to be the clear market leader around the world.
He brings strong brand momentum in the back half of the year fueled by newly launched DNA Helix golf footwear, well received fall apparel collection and the New tour Lts Rainwear collection. Each of these products will make their market debuts later this year.
In closing I will comment on title list and foot choice success across the worldwide tours throughout the first half of the year.
Titleist golf ball usage across the worldwide tours is at 72% a six point increase from last year, while <unk> count for the first half indexes at a commanding 62% around the world of professional golf. Additionally.
Additionally, it had been gratifying to see that several players who have recently returned to title. This golf balls bulky wedges indoor Scotty Cameron Putters in 2017 are playing some of the best golf of their careers.
Year to date, Titleist golf balls have 168% of the events across worldwide tours highlighted by Jordan speeds resilient victory at Royal Birkdale with the new probes when ex golf ball and 14 Titleist golf clubs in his bag.
On behalf of my fellow Associates, we enter the second half of 2017 with excitement around our core positions and upcoming new product launches and cautious optimism towards the global golf markets.
Field inventories are in line for this time of year and we look forward to continue executing on our promise to generate a long term total return investment opportunity for our supportive shareholders.
And now Bill will provide an overview of our financial performance.
Thanks, David and good morning to everyone on the call is.
As David commented earlier consolidated revenue in the quarter was $428 million down seven 6% year over year and down six 6% in constant currency.
Q2, gross profit was $222 9 million down six 3% from last year and gross margin was 52, 1% up 70 basis points year over year.
In the quarter the increase in gross margin was primarily driven by higher average selling prices entitled as golf clubs and a favorable mix shift in the foot Joy footwear category.
Looking at operating expenses SG&A of $151 8 million was down about 4% versus last year.
There were a number of factors that gave rise to the $6 $3 million decline, including non repeating IPO transaction costs last year.
Advertising and professional tour costs and a decrease in bad debt expense.
These benefits were partially offset by an increase in share based compensation and higher consulting legal and administrative costs. As a result of this now operating as a public company.
In Q2 research and development expense of $12 1 million was up three 4% over last year.
This increase was mainly due to additional costs to support our new product introductions and employee related expenses.
Q2 interest expense of $4 9 million decreased by about $9 7 million from last year.
This decline is primarily due to lower average outstanding borrowings versus last year as a result of the conversion of our previously outstanding convertible notes to common stock at the time of the IPO.
In addition, it reflects lower interest rates as a result of our April 2016 refinancing.
Other expense was $200000 down to $3 million versus Q2 of last year.
This change was primarily due to a noncash fair value loss on our common stock warrants recorded in Q2 of 2016.
The warrants no longer exist as they were converted to common stock in July of last year.
Our Q2 effective tax rate was 34, 9% compared to 44, 4% for the same period last year.
The decrease in ETR was primarily driven by the absence of certain discrete items in Q2 2016.
Primarily the loss on the common stock warrants, which are not tax effected and IPO transaction costs, which are non deductible.
As a result, our Q2 net income attributable to <unk> holdings of $33 million improved by about $6 million from Q2 of last year.
As a result of both lower interest expense and lower other expense, partially offset by lower income from operations.
For the quarter, our adjusted EBITDA was $71 8 million down 13, 5% from last year.
There are still a number of onetime items that affect the year to year comparisons. So we've provided a reconciliation of adjusted EBITDA in our earnings release as well as the slide presentation.
Recapping our year to date results sales of $861 6 million were down four 6% to last year and three 8% on constant currency.
Our year to date gross margin of 52, 1%, a 70 basis point improvement to last year reflects a favorable mix shift to the <unk> franchise as well as margin improvements in the foot Joy golf wear category, which included a favorable mix shift in footwear, along with lower material costs in our apparel business.
SG&A for the first half was $299 8 million down $13 6 million from last year and again reflects the absence of a number of one time charges in 2016, which are detailed in our reconciliation of adjusted EBITDA.
These were offset primarily by an increase in share based compensation and higher consulting legal and administrative costs associated with our public company status.
Research and development expense of $24 6 million was up $1 8 million compared to last year, mainly due to increased experimental activity in the club segment as well as an increase in employee related costs.
Interest expense decreased by 26 million to $7 8 million for the first half of the year and similar to Q2 was driven by lower outstanding borrowings as well as lower interest rates.
We had other income of $500000 for the first half versus $3 8 million of expense last year.
Largely due to the absence of recognized losses on our previously outstanding common stock warrants.
Argue to date effective tax rate was 35, 6% down from 42, 4% last year and is in line with our ongoing run rate for the year absent any significant shift in our geographic mix of earnings or any discrete items that may arise.
As a result net income attributable to our Christian had holdings for the first half was $71 1 million up $24 million over prior year.
Year to date, adjusted EBITDA was $153 million down $12 million or seven 4% year over year.
Given the first half challenges our solid margin improvement along with good cost controls have allowed us to weather the market conditions reasonably well as we move into the second half.
Looking to the balance sheet, we had $77 $7 million of unrestricted cash on hand as of June 32017.
Total debt outstanding as of June 30 was approximately $534 million or $2 47 X LTM adjusted EBITDA, a significant reduction from our first quarter levels as we're now into our seasonal collection cycle.
Capex in the quarter was $8 8 million and at present, we're still forecasting total year capex in the $26 million range.
In regards to the guidance, we remain optimistic on our prospects for the full year and as such are reaffirming our previously communicated adjusted EBITDA guidance to be in the range of $220 million to $230 million.
Given the first half market challenges, we're revising our full year reported sales guidance to be in the range of $1.545 billion to $1 $565 million and our constant currency revenue to be in the range of a <unk>, 7% decline to prior year to a year over year increase of <unk>, 6%.
In summary, while we face significant challenges in Q2, our team is looking to deliver a solid second half, which we believe will continue to support the underlying strength and resiliency of our proven business model with that I'll now turn the call over to Tony for Q&A.
Thanks, Phil.
Sara can we now open up the lines for questions.
Certainly at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Matthew Boss from Jpmorgan. Your line is open.
Hi, guys. Good morning. This is actually Steven Cohen on for Matt today, Thanks for taking our question.
So my question is around the guidance adjustments for the full year first looking at revenue, what's the best way to think about the implied growth rate in the second half of the year as first half revenue was down about 454, 5% year over year. So whats, giving you the underlying confidence that youll see growth in the second half of the year and then any way to think about.
Our quarterly cadence of revenue growth would be helpful.
Yes.
We're expecting about a four 5% increase in the back half and as Dave alluded to earlier, we're very optimistic about the new 718 launch we've received great feedback on that as well as a number of new foot joy products that are already in the market <unk> had continued success beyond our anticipation as well as a new DNA helix in the fall line, we need to.
In apparel.
While we still feel pretty good about that most of those launches are going to be more fourth quarter than third quarter.
Okay, and then I guess just shifting to EBITDA.
Can you just explain the rationale why not lower the EBITDA guidance because it looks like that also implies a pretty big acceleration in the second half of the year.
Sure with EBITDA, if you look in the first half of my comments with our gross margins have really been.
And healthy and have largely are not largely but mitigated a good part of the sales impact year on year, the favorable mix shift to the probe one franchise with very strong and the improved margins. We have unfortunately footwear due to favorable mix as well as lower apparel cost. So we feel pretty good about our margins. Obviously, we don't we still think we have tailwind there.
We get to the back half of the year. So that's part of it and the second part of as we've exercised pretty good cost control year to date, and we intend to do that for the back half.
Okay. Thanks, very much guys.
Thank you Steve next question please.
Your next question comes from the line of Dave King from Roth Capital. Your line is open.
Okay.
Dave King Your line is open.
Sorry, I was on the forgive me I.
I guess sticking with that.
Line of questioning a little bit.
On the expenses I guess.
How much of the EBITDA guidance in the back half.
<unk> is sort of the lower advertising and tour spend that you had in the quarter I guess I'm trying to get a sense of how you know.
What levers can you pull to kind of still hit that EBITDA guidance versus that coming through gross margin. Thank you.
Most of it's coming from our enthusiasm.
Awesome about our launches as much as anything we don't intend on slowing down our spending, especially during the launch period. So when you look at leverage.
I think we've seen Ryan I know, we've seen at least the the the worst as Dave said the pain behind us. So we're looking forward to as we move forward in the back half of the year or two.
To achieving it in that sense so.
It's it's largely from the product launches itself.
Okay that helps and then I'm trying to understand what's going on with pro V. It sounds like that was up in the first half understandably.
First quarter, you had a fair amount of sell in.
Any sense on how the <unk> sell through.
Trended and then how should we be thinking about that as we.
Our progress through the year.
And that contribution in the back half and hitting the revenue guidance. Thanks.
So Dave we look at we tend to look at share in blocks and we looked at it in the first half and I'll give you some guidance as to how it compares versus a year ago and even going back two years ago. When we last launched <unk> one so we.
What we see for the half share up on course off course up combined obviously up a couple of points for 2016 up a point versus 15 or our last launch window. So we feel real good about about what played out with <unk> during the first half of the year.
As we've said in prior calls.
We start we started extra strong with with new product and a whole lot of noise, sometimes in the summertime, you'll see some competitive activity and some promotional activity, but where we stand today six months into a into a launch.
We feel really good about what's playing out with <unk>.
Okay, and then lastly for me on Kobe have you seen.
Tumor or green grass.
One ball versus the other I guess I remember at the PGA show you guys highlighted.
The two are sort of going more to one ball versus the other have you seen that happen with the consumer at all or with Premier Green grass doors at all is there anything to note there. Thanks.
Yeah, we've seen in our share data a modest shift towards <unk> and fair to say that.
<unk> X has held strong in a lot of our growth has come in <unk>.
Not a dramatic swing in that frankly didn't surprise us probably one of the product changes we're more we're more meaningful intangible probably one was longer than probably one was longer than its predecessor.
So we didn't we weren't surprised to see a bit of a shift swing towards probably one again data tech affirms that but its not an overwhelming swing one way or the other.
Okay. Thank you David next question please.
Thank you. Your next question comes from the line of Dan <unk> from Raymond James Your line is open.
Okay.
Dave I wanted to follow up.
On the comments about the product launches.
A lot more optimistic on the second half of the year.
I thought I thought it was my understanding that while the iron Sarah.
Washington for Q, it's not until you are able to complete the fittings until the following spring that you would really say that revenue benefit.
From the at the launch of the New Irons does that is that not correct.
Well certainly as compared to metals when we launch metals you get more of a you get more of an impact at launch and during that first quarter than you do with irons because again. It is so fitting based that said, we're very optimistic about the early response to products and particularly <unk>.
Yes.
The story in the launch window for for Irons tends to be a whole lot longer, but we do expect to see a nice.
And a nice movement during that first period in the fall of 2017 rather.
And when you are.
Brent cadence than you than you get with metals.
Sure.
When you look at your revenue forecast up four 5% during the second half of the year.
How are you taking into account the challenges for the 917 driver and fairway that you alluded to.
Yes, we've certainly.
<unk> revised our forecast as I said in my opening remarks.
Incumbent upon us to continue to activate our fitting network and the team is as.
Is actively pursuing more and more trial and fitting of 917, we're confident in the product.
For reasons I mentioned on the outset.
I didn't realize that the way we had anticipated. So we have reflected current state of affairs for $9 17.
With the expectation to that the team is going to continue to drive more and more fittings.
To the best of their abilities. What you also got to realize too is is just seasonality Dan kicks in that the driver market gets a whole lot smaller in the next several months third quarter into the fourth quarter. So much of what happens in drivers happens in the first half of any given year.
Also wanted to ask you about your comment.
That.
We're about five quarters into it.
8% to 10 quarter domestic industry correction.
I've been thinking that we'll be reaching the anniversary of the golf Smith and TSA liquidation during the next two quarters.
So.
What's going to be the the headwind in 2018, because you'll you'll already cycled through the downsizing of the retail footprint in the U S.
Yes, youre right. So so much of the much of the comparisons to shipments to golf Smith and TSA.
Are behind us.
When we comment when we comment on the future two theme two themes emerge one we're still facing a reality of fewer doors right. So we just all have to be mindful of that that.
We're going to deal with fewer doors and secondly, we just we don't know how the consumer is going to react to this new reality, a large part of the business. If you can if you can imagine that fell out and we're seeing it in asps. This year is we're selling a whole lot the industry selling a whole lot less discounted product. So the golfer who for years had access to deep discounted product does.
And have access to that product any longer so how do they react and how do they behave if they were waiting for product to tumble as an example on a driver to double from 399 to 299 to 199. They are simply going to have less access to that type of product. So how do they behave in the next couple of couple of years in terms of their product purchase behavior. So as much as anything it's where does the consumer.
Shakeout in this new normal.
Okay. Thank you.
Next question please.
Next question comes from the line of Michael Swartz from Suntrust. Your line is open.
Hi, This is Anna on for Mike just wanted any commentary on the competitive environment.
Alright.
Is that getting any better.
Third quarter.
It's yes, and as we said on the call. It certainly affected our it certainly affected our performance models more than <unk> one.
It's isolated to a couple of players it's steady and I think it's a commentary on manufacturers attempting to reconcile their forecasts indoor capacity with this this new new footprint of retail inventory. So we think it is part of the correction and it's part of it.
Ernie defined find balance in the marketplace.
Then you had you had retailers.
With X doors, now who have far fewer doors and manufacturers are are reorganizing their forecast and their capacity.
To be in sync with with with what the market can bear.
In terms of what we're seeing in the market.
Yeah, it's been fairly steady for the for the first and second quarters, it's still out there, but again as I think a lot of that inventory flushes through we think it will normalize a bit we haven't seen it go away, but we still see it.
We still see it in pockets.
Got it.
And then sorry.
Weather.
Right.
Okay.
Could you speak to any.
Calibrate how you plan.
Further activate that.
Yeah. So.
Well, we can we can tell you a couple of things in this may help you kind of piece together your answer.
We feel real good about inventories in the marketplace number one we feel good about the performance of premium products that we intend to launch in the early response. So as we think about back half we've talked about 718 irons 18 hybrids.
Fortunately Pro S. L continued success he likes continued success outerwear apparel et cetera.
So as soon as we think about about the the mix of our business again, we like we like the profile of like the the field inventory base and I don't know if this helps but certainly are are calendar relation versus all those closed doors goes away. So we you know certainly there will be some.
Jumps to what were golf Smith activity last year, but it's going to be far far less so I realised him and I've kind of I've got at it through a difference the handful of different angles, but hopefully that helps give you some prospect that how how we think about it yeah. One more thing to me is that I think I'm getting to your second question is in the first half of the you you experienced your highest margins your highest.
[noise] an activity as the year goes on margins do go down as you get out and move into new cycles of of your product a product kaden. So we still anticipate that we're gonna have margin improvement despite that in the back half of the year.
Great. Okay. That's helpful and then sorry, if I missed it but did you talk to you. What you think what's the way that we should look at the Japan constant currency sales trajectory for let's say the rest of the year.
Well, Japan, we've got a lot of the same dynamics playing out on on on one hand, we've got bullishness around new products on the other as we sat on the outset, the market's a little bit soft and and and I don't I don't see that changing anytime soon rounds of play certainly picked up a bit in the second quarter as weather improved.
But we are contending with a general softness in in Japan.
Again offset to a degree by byproduct launches that'll play out over the next couple of months.
Got it okay. Thanks, a lot guys best of luck for the rest of the year.
Thanks.
Thank you Sir I can we have the next question. Please.
Your next question comes from the line of Christian That's Fame Credit Suisse. Your line is open.
Hi, This is Sarah I'm percussion, playing on top of that can you give us a little bit more color on the international markets and what you're seeing there for each segment.
Yeah, so so sort of work on our way shera around the globe.
You know, we'll start with with Korea, as we mentioned Korea. The team continues to execute rounds of play are robust and the market's healthy.
And and we continue to build out our playbook there. So so as much as anything market healthy and our team really really doing great things, Japan, I mentioned, Gimme, a holding up steady holding up resilient Lee in the face of some Brexit uncertainties. They had some soft weather last year. So their rounds were up mid to high single digits as much commentary.
On a slow start last year, but but net net that market's been been very resilient. So as we think about markets around the world You know Korea Korea up unhealthy.
Yeah Me a steady Japan is is the one we continue to watch that that that shows signs of softness.
That's helpful. Thank you and can you also have talk about how inventories are looking in that green grass channel.
Yeah. So so what we what we've said in the past and it holds true today is is one of our one of our core competencies is is our our our activities in our sales activity on the ground and it's it's very much an inventory and and and inventory management role as one of their kiki roles. So despite varied weather.
[noise] around the world our inventories are very much in line I I can give you a sense. They are on the ball side as an example, the inventory share for title of golf balls tends to trail art or sell through share by about 10 percentage points, which says one we're turning into we're managing your inventory. So we feel real good about our products.
Inventory positions that again, it's commentary on the fact that we've got a lot of boots on the ground, who are very proactive in assessing what's happening at a given retail location on course and managing inventory accordingly.
Great. Thank you so much.
Thank you Sarah next question please.
Your next question comes from the line of Kimberly Greenberger for Morgan Stanley . Your line is open.
Hi, Good morning, Mrs. Eddy Ryan on for Kimberly I should one question on just overall in a competitive environment. So do you think a cleaner channel and improve profitability for competitors is allowed them to reinvest more in advertising.
Do we think a cleaner channel has allowed our competitors to invest more in advertising that may be one of the factors Eddie They certainly are but yeah that that I think is is gonna be one of the outcomes of whether we're there now or whether we get there at a handful of years and we all think we are is you're gonna have.
You're gonna have company is doing better you're going to have the opportunity to invest more in R&D, you're gonna have the opportunity to mess to invest more in a M. P. So I think right now you're seeing parts of that but I think that's part of the broader trend we've talked about and that is just a a healthier environment with which to to go to market.
Got it and then and then with one question on product launch timing. So you know when you are seeing your competitors launch products.
Especially in the club category are you seen the timing and that shifts or has that stayed relatively constant over time.
Just in terms of when they launched that within a year.
Yeah. It it it again everybody's dealing with this this newly faced retail marketplace, which which is part one.
Part two is we're seeing it positive trend where product life cycles are lengthening and and I think that's that's a good commentary on the broader supply demand realities, and and just have a greater sense of of operating responsibly within the marketplace. So while we were seeing some modest shifts here and there I think the key takeaway and the key thing.
Is product life cycles are extending number one and subsequently you are seeing less and less product sold at discount and you are seeing product stay premium premium for a lot longer which again, we see is a healthy healthy trend in the market.
Great. Thank you.
Thank you Eddie next question please.
Your next question comes from the lineup Tim Condor from Wells Fargo Securities. Your line is open.
Thank you.
Gentlemen, any.
Thoughts on your commentary regarding the U S market adjustment sort of the Lincoln down here, a little bit and how the the overall tailor made transition is playing in into that assessment.
You know first first on the market.
Certainly it's as as we said, it's it's it's where we are now on the fifth quarter of an eight to 10 quarter journey. So a lot of the pain is behind us and we feel we feel good about that you know candidly I'm I'm I'm I'm reluctant to comment on any one of our competitors and how they may be influencing are shaping or or or.
Affecting the outcome of this correction.
It it's it's a correction that's hit all fronts, whether it's whether it's retail doors whether it's.
Whether it's retail doors, whether it's inventories that that's that's a point that I think warrants, making and that is if you look at the U S market you really break it down you take a look at data taken inventories one of the key key indicators and we think this is a real positive is the inventory levels are as low as we've seen in a long long time and.
And yeah, that's commentary on a couple of competitors, but it's also commentary unless retail square footage and it's commentary just on a healthier set of vital signs for the retail marketplace.
Okay. Okay, no no no no fulfill thank you.
Any.
Is when the maybe clarify your commentary on some of the the Jeep.
Geographic areas.
Are you is that just through Q2 or I guess the real root question. Here is have you seen any impact in the Asia markets in particular.
Given the.
Unfortunate escalate until the geopolitical tensions.
You know speaking to really really the Korea situation Historically Korea has been resilient.
Overtime. This one hey, we're all we're all watching closely and we will see we haven't seen anything thus far but it's certainly something that the world is paying very close attention to.
Okay. Okay. Okay, and then and then lastly, gentleman just a couple of maybe housekeeping items here.
Any any stock based comp in the.
In the Ah the tax guidance benefits from that and then you talked about the constant currency you were actually up a little bit.
Just any color.
On your hedges and any changes in your hedging outlook, given what we've seen a year to date in the U S dollar.
Yeah on the stock based comp I think you can use the last three months is a good run rate for the remainder of the year on that I did talk about ETR around that 35% being the relative run right and as far as ethics rates goes I I think we were seeing a lot of movement, but if you look at the end it's actually about the same as it was for the first six months of last year. So we have.
Seen a bigger pick up in the one.
And of late the Euro so all of those have been baked into our back have forecast, obviously, we have hedges against some of those and there were some very positive hedges against the pound Sterling, which I've been helping us over the year, but oh, that's built into our guidance, including roughly the average last 30 day average what those rates are brothers of the back half forecast.
Okay, great. Thank you gentlemen.
Next question please.
Your next question comes from the line of Casey Alexander from cause at this point research. Your line is open.
Hi, Good morning, David do.
Do you have any color on you know how much debt reduction you think you can pull off in the second half given that you're moving into the better part of the cash conversion cycle.
Yeah, we are.
No I'm remembering that we did our delay drawing or 100 million dollar delay draw TLA earlier. This year. So we're looking to aggressively pay that down as soon as possible and certainly in the back half, we're well within well onto our seasonal collection cycle and by Iran. We should be we should be generating enough cash to get us back on track to hit that.
Or target, which we like to see as you would like to view as ran a two X LTM EBITDA sometime in early 19. So yes, we do intend for that cycle to kick in and for us to to achieve that reduction from where we're at right now.
Okay [noise].
Secondly, given the fact that.
Yeah.
Where are you where you ran into some problems with the ball was in the performance line.
You are now entering that period, where you're selling down the performance line preparing for relaunch of the next round of performance line do you have any color on how you expect that to go and where do you stand with.
Inventories in the performance like compared to past cycles.
Yeah. Good. Good question. We you know this time of year, we do we do like to work down our inventories as we head into the tail end of the third quarter.
In northern market. So in terms of where things stand with regards to performance model inventories, they're they're very much in line and part of it is we've we've we've managed sell internet shell through and so therefore, they they they stay in line at this point Casey we're not we're not on records talking about what what are.
Our product plans or will soon launch that to our trade partners here beginning post labor day, but at this point, we're not going to comment on what the product plans are but certainly as I made note in my opening remarks, that's a very that's become a very competitive part of the golf ball market and we need to think about it a little bit differently and we need to make some right.
Moves and it's it's going to be born in the R&D labs are as to as to how we reinvigorate the performance model model franchises.
Ah Okay, that's fair enough lastly.
Lastly, as it relates to advertising and you you called out that competitors are advertising more aggressively.
And I Wonder do you expect to create any type of response in particular.
In a changing advertising environment, and where people you know look and consume advertising and where you are trying to find that next customer from.
So so the the quick answer is absolutely and that we continue to we can't get continue to follow the rhythms of dedicated golfers and think about the best ways to communicate our message to them oftentimes with and through our trade partners oftentimes through traditional media.
And an increasingly now through social media so.
It's it's it's as you well know, it's a moving target and where we're attempting to be very nimble in terms of how we think about spending and directing those resources.
Ah Okay. Thank you for taking my questions.
Thank you and next question please.
Your next question comes from the line of George Kelly from Imperial Capital. Your line is open.
Hi, guys a couple of questions for you.
First on the guidance that you provided on the back half ramp I was just wondering if there's anything I understand that you have.