Hello, everybody, and welcome to the Acushnet Holdings Corp. Second Quarter 2023 Earnings Call. My name is Sam and I will be coordinating your call today. I will now hand you over to your host, Sondra Lennon, Vice President of Investor Relations and FP&A to begin. So Sondra, please go ahead.

Good morning, everyone. Thank you for joining us today for Acushnet Holdings Corp's Second Quarter 2023 Earnings Conference Call. Joining me this morning are David Maher, our President and Chief Executive Officer; and Sean Sullivan, our Chief Financial Officer. Before I turn the call over to David, I would like to remind everyone that we will be making forward-looking statements on the call today. These forward-looking statements are based on Acushnet's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. For a list of factors that could cause actual results to differ, please see today's press release, the slides that accompany our presentation and our filings with the U.S. Securities and Exchange Commission. Throughout this discussion, we will make reference to non-GAAP financial metrics including items such as revenues at constant currency and adjusted EBITDA. Explanations of how and why we use these metrics and reconciliations of these items to a GAAP basis can be found in the schedules in today's press release, the slides that accompany this presentation and in our filings with the U.S. Securities and Exchange Commission. Please also note that references throughout this presentation to year-on-year sales increases and decreases are on a constant currency basis unless otherwise stated, as we feel this measurement best provides context as to the performance and trends of our business. And when referring to year-to-date results or comparisons, we will refer to the 6-month period ended June 30, 2023, and the comparable 6-month period. With that, I'll turn the call over to David.

Thanks, Sondra, and good morning, everyone. As always, we appreciate your interest in Acushnet Company. I will begin by thanking Tom Pacheco for his contributions over the past few years and welcoming Sean Sullivan to the Acushnet team as our new CFO. Sean has been a valued member of Acushnet's Board of Directors since 2016, having served as Audit Committee Chair and on the Nominating and Governance Committee. In addition to being an experienced CFO, he also brings a deep understanding of the company's vision and culture to his new role. Sean is a great addition to our team, and I'm confident that our analysts and investors will benefit from his contributions to Acushnet and insights into our business. Now to our results. Acushnet delivered another strong quarter, delivering sales of $689 million, a 6% year-over-year constant currency increase. Gains in Titleist golf balls and golf clubs drove this top line growth, which contributed to adjusted EBITDA of $132 million in the quarter, a 24% increase for the period. And for the first half, sales of $1.376 billion are up almost 12%, while adjusted EBITDA of $279 million represents a 23% gain over last year. These financial results have been supplemented by many successes across the worldwide tours and throughout the pyramid of influence, and are highlighted by Titleist and FootJoy ambassadors, Wyndham Clark and Brian Harman's recent wins at the U.S. Open and Open Championships. These achievements helped to fuel positive brand momentum and validate the company's enduring commitment to product performance and quality. Supporting the company's first half results, we are enthused by the golf industry's overall health and stability, with participation remaining vibrant even as golfers return to many pre-COVID activities. Some 250 million rounds of golf were played in the U.S. during the first half, a 5.5% gain versus last year and roughly a 16% increase compared to 2019. Total worldwide rounds for the first half are projected to be up low single digits as domestic gains more than covered modest weather-related declines outside the U.S. The sport continues to generate strong interest and is benefiting from new golfers who have entered the game during the past few years. Now taking a look at our business by segment. Titleist golf balls posted 20% increases in both the second quarter and first half as the company executed our most successful Pro V1 launch to date. In addition to major wins by Clark and Harman, the winners of the recent U.S. Women's Open, Evian Championship, Senior U.S. Open, Senior Open, U.S. Junior Amateur and U.S. Girls Junior Amateur, all trusted Titleist Pro V1 or Pro V1x golf balls on their roads to victory. Titleist was also the most played ball at the U.S. Adaptive open, one of the sport's most inspiring and inclusive championships. Operationally, our team continues to optimize and expand output to meet strong global demand for Titleist golf balls, contributing to double-digit growth in all global regions for the half as golfer response to new Pro V1 and Pro V1x models has been positive across all markets. Titleist golf ball retail inventories are approaching normalized levels with the exception of Pro V1 models, which we expect to remain in tight supply into the fourth quarter. Titleist golf clubs are also excelling, with sales up over 16% in both Q2 and the first half. We are seeing positive response to our entire golf club product line, which combined with our deep commitment to custom fitting are the primary catalysts to our growth and momentum. TSR drivers are the most played models on the PGA Tour and are leading our golf club games, and Scotty Cameron putters are having another strong year, fueled by great response to our new super-select models introduced earlier this year. As you know, we stagger Titleist club launches over a 2-year cycle, and next up our new T-Series irons, which we expect to begin shipping later this month. Initial response across worldwide tours and with trade partners is meeting our high expectations, and we are confident in our team's ability to execute a successful launch campaign throughout the second half. The Titleist gear business was up 3% for the quarter and 24% ahead for the first half. This outsized growth reflects the success of our product lines, notably golf bags and travel gear, and also some recalibration of shipments in 2023 as compared to last year when we faced supply constraints throughout the first half. Now to FootJoy, where revenues were down 9% in the quarter and about flat for the half. These results reflect declines in golf footwear sales as we confront elevated marketplace inventory levels and increased promotional activity in many regions. We are confident in our ability to protect FootJoy's premium shares and leadership position; however, we expect that it will be a few quarters until retail inventories return to healthier levels. For added context on the footwear market, while FootJoy footwear is down compared to the first half of 2022, it is almost 30% larger than 2019, giving you a sense of recent category growth and providing perspective on the current market situation. FJ apparel continues its positive trend with revenues up double digits for the half as we benefit from recently expanded design, customization and fulfillment capabilities across our performance apparel and outerwear categories. And finally, we continue to be enthused by the ongoing growth and development of our shoes business, which posted double-digit gains in the half led by the U.S. market, which was up almost 25%. Now for a brief overview by region, where you see the U.S. market leading the pack with second quarter sales up 14% and first half sales up 19%. Healthy participation gains across all segments and especially strong demand for Titleist balls, clubs and gear are driving our U.S. growth and momentum. For the half, Japan was up 4%. Korea was flat, and EMEA finished off 2%. These markets share similar themes with weather-related headwinds and gains across our Titleist portfolio helping to offset FootJoy declines. Now looking forward, we are enthused by our brand momentum, the overall health of the golf market, and the resilience and engagement of Acushnet's core consumer, the game's dedicated golfer. From a product development and supply chain readiness standpoint, our team has done good work preparing for the second half to fully support our key initiatives and capitalize on Pro V1 momentum and high expectations for new Titleist irons. We will increase our advertising and promotional investment in the back half of the year commensurate with the opportunities before us. Longer term, we believe the infrastructure investments we are making in golf balls and clubs, our most capital-intensive businesses, will position the company for sustaining growth and success. Most significant is our previously disclosed 5-year $120 million capital investment across golf ball operations and R&D. And consistent with past practices, we continue to leverage the company's strong balance sheet and execute a disciplined approach to capital allocation for the long-term benefit of Acushnet and our shareholders. As Sean will outline, our recent growth has supported increased investment in our core businesses and elevated levels of shareholder returns. In summary, the company is well positioned heading into the back half of the year, and we are confident in our ability to successfully execute Acushnet's long-range priorities. Thanks for your attention this morning. I will now pass the call over to Sean.

Thank you, David. Good morning, everyone. I'm thrilled to have joined the Acushnet Company full time on June 1. I look forward to leveraging my experience as a Board member, and I'm truly excited to work with the leadership team and the talented associates here at Acushnet as we build on the success enjoyed to date. Turning to the results. As David mentioned, we had a great quarter and a strong first half of 2023. Second quarter net sales increased 6.4% driven by higher sales across our Titleist brand portfolio, while adjusted EBITDA was $132 million, a 24% increase. For the first half of 2023, net sales and adjusted EBITDA increased 11.6% and 23.1%, respectively. Net sales growth in the quarter was driven by continued momentum of our Titleist brand, with golf balls and golf clubs growing by 19.8% and 16.3%, respectively, while gear increased by 2.9%. FootJoy sales were down 9.5% due to a slowdown in the footwear category, which was partially offset by an increase in FootJoy apparel. Quarter-over-quarter sales also declined in products that are not allocated to one of our four reportable segments. Gross profit in the quarter was $369 million, up 7.2% compared to 2022, primarily due to higher sales volumes in Titleist golf balls and golf clubs, lower golf club royalty expense, and lower inbound freight across all reportable segments. FootJoy gross profit was down mainly due to lower sales volumes in footwear and unfavorable manufacturing overhead absorption. Overall, gross margin of 53.5% was up 130 basis points, largely due to lower inbound freight costs across all reportable segments. SG&A expense of $242 million in the quarter increased $2.8 million or 1.2%, mainly due to higher advertising and promotion expense to support new product launches and costs related to the optimization of our distribution and custom fulfillment capabilities. These increases were offset by lower IT-related expenses in Q2, which have shifted to the back half of 2023. R&D expense of $17 million was up mainly due to higher employee-related expenses. Our increase in intangible amortization was due to the acquisition of trademarks related to Titleist golf clubs and golf gear in the fourth quarter of 2022 and first quarter of 2023, respectively. Interest expense of $11 million in the quarter was up $9 million due to an increase in borrowings and interest rates, with a little more than half the increase coming from higher debt balances. Our effective tax rate in Q2 was 21.8%, up from 19.1% last year, primarily driven by a shift in our mix of jurisdictional earnings. Moving to our balance sheet and cash flow highlights, our balance sheet and strong free cash flow positions us well to support ongoing investments in the business, manage working capital needs, and support our capital allocation program. Our net leverage ratio at the end of Q2 was 1.7x. Inventories declined from both last quarter and year-end, and we are comfortable with our inventory quality and position given the current state of demand in the supply chain. We expect inventories to decrease in Q3 before increasing in Q4 as we prepare for 2024 product launches. First half cash flow from operations was up significantly from the prior year, mainly due to changes in working capital, primarily inventory. Capital expenditures were $27 million in the first half of 2023 and are still expected to reach approximately $75 million in fiscal year 2023 given the back-half loaded plan. Our capital allocation priorities remain consistent with those previously articulated, investing in the business, including product innovation, golfer connection, and operational excellence, returning capital to shareholders in the form of dividends and share repurchases, and disciplined M&A. Through June, we returned roughly $167 million to shareholders in 2023, with approximately $140 million in share repurchases and $27 million in cash dividends. Today, our Board of Directors declared a quarterly cash dividend of $0.195 per share payable on September 15 to shareholders of record on September 1, 2023. As of June 30, we had $267 million remaining under the current share repurchase authorization. I expect our share repurchase activity to continue meaningfully into Q4, given our previously filed agreement with Magnus that is expected to settle in early November. Moving on to our guidance for 2023, we have increased our net sales range to $2.35 billion to $2.4 billion. Our revenue at constant currency remains projected to be up 5% to 7.2% compared to 2022. Golf ball sales momentum is expected to continue in the back half, although we still have constraints on available supply of Pro V1 and Pro V1x balls. With respect to golf clubs, we are enthused about our upcoming iron launch, and it is worth noting that the second-half sales will be comping against a Metals launch from last year, and Metals have a larger initial inventory pipeline than irons, which are more custom fit and built to order. Titleist golf gear sales are expected to be lower in the second half, mainly due to outsized growth in 2022 in this segment as our supply chain and fulfillment capabilities caught up. Finally, we have tempered our outlook in the FootJoy golf wear segment, given the elevated marketplace inventories in the footwear category. Our adjusted EBITDA guidance has increased to $355 million to $375 million, up from $345 million to $365 million. Our updated range reflects the benefit of lower freight and reduced headwinds in currency. The second half is expected to see promotional activity, notably in footwear, and unfavorable footwear manufacturing overhead absorption. We expect third quarter sales to be about 55% to 60% of second half sales and third quarter adjusted EBITDA to be about 80% of second half adjusted EBITDA. Finally, our forecasted effective tax rate for fiscal '23 is expected to be in line with our first-half rate of approximately 20%. In closing, we are very pleased with our first-half performance and remain focused on executing on our priorities for 2023 and beyond. So with that, I'll now turn the call over to Sondra for Q&A.

Thank you, Sean. Operator, could we now open up the line for questions?

Our first question today comes from Matthew Boss of JPMorgan.

It's Amanda Douglas on for Matt. So David, could you speak to the strength you're seeing across both golf ball and golf club categories? How much of this do you see as a function of strong overall industry backdrop maybe relative to market share gains? And then just across geographies, could you elaborate on the bifurcation of performance you're seeing in the U.S. versus international regions?

Yes. Regarding the golf ball business, we consistently link demand for golf balls to the number of rounds played, which has remained very strong, around 5.5% to 6% in the U.S. However, it's worth noting that this includes some declines in the Pacific and Mountain regions, particularly along the entire West Coast and in New England. Overall, rounds of play are in good shape, positively impacting golf ball demand. We have recently launched our new Pro V1 models, which have been successful. While this trend is mainly U.S.-centric, it is also reflected globally as interest in golf remains high and players are using golf balls. Additionally, our entire product line is off to a great start. In terms of clubs, as I mentioned, our TSR driver franchise is performing exceptionally well following its launch at the end of last year. We're also seeing success with putters, and our wedges and irons are meeting expectations. We are very satisfied with both the ball and club categories. The only challenge we currently face in golf balls is supply constraints, as we are running our facilities 24/7 but still experiencing tight supply of Pro V1 and Pro V1x. To address your second question about international markets, we observe a slight increase in rounds played in the U.S. while key markets like Japan, Korea, and the U.K. are experiencing slight declines. This is likely due to weather conditions. Despite these fluctuations, our business is following a similar pattern worldwide; golf balls and clubs are performing well in all markets, and overall gear is stable. The only standout issue is in footwear, where there is an excess supply in global markets. However, it's important to note that footwear is a relatively small category compared to balls, clubs, and gear, so we should keep this in perspective. Ultimately, the main difference we see is a slight variation in rounds played, providing an additional boost to the U.S. market.

Our next question comes from Daniel Imbro of Stephens.

This is Joe Enderlin on for Daniel. Sounds like golf ball demand remains pretty robust, but it sounds like some supply issues are still around the Pro V1. We were wondering what's causing headwinds on the production or supply front and then what steps are being taken to more effectively match demand with capacity.

Yes. There isn't a single issue affecting our supply chain. Our availability is generally strong, except for the Pro V1 and Pro V1x models, which are facing high demand. We've been manufacturing newer models of Pro V1 and Pro V1x since last year's fourth quarter, and we're building inventory to support our launch in the first half of the year. We anticipated catching up to demand by the summer, but we've extended that timeline to the end of the third quarter or the fourth quarter. The only challenge is the strong demand, and our facilities are running at maximum capacity. We expect this to normalize in the fall, but we may start producing more than we sell during that season. Currently, we are selling more than we can produce, so we don't believe a long-term solution is necessary. As part of our capital investment strategy, we are increasing capacity in our Pro V1 lines, which will be implemented in the next few cycles. We feel optimistic about our long-term prospects and expect to resolve the current situation by late third quarter or early fourth quarter. Additionally, I want to emphasize that we've released a record number of Pro V1s into the marketplace in the first half of the year. We are confident in our position, and in a few months, we expect to reach a balance between demand and our output.

Could you provide an update on how you view golf inventories in the retail channel? Additionally, how is sell-through progressing at an industry level? Are you noticing any increases in promotions?

Yes. So generally speaking, the golf inventories are in pretty good shape, considering all the supply chain disruptions we as an industry have experienced over the past couple of years. Demand has remained strong. Rounds of play have remained strong. So as an overarching characterization of the golf industry, I'd say they're in pretty good shape. I commented on balls, they're in line. And again, we're running a little lighter than we'd like to see. There may be a few pockets of club inventories following significant launch activity in the first quarter, but nothing jumps off the board. As we've said in the past, Titleist clubs is largely a build-to-order business, which makes us a little bit less susceptible to inventory corrections. The one area we called out was footwear, right, and golf footwear around the world is running a little heavier than we'd like. We're seeing some promotional activity there. The final point I'll make is, as it relates to overall promotional activity in the golf space, certainly, it has increased from where it was 2-3 years ago. You may recall during '21 and '22, there was virtually no promotional activity in the marketplace. We have seen a resumption of promotional activity, nowhere near historical levels, but I do think in some cases, in the spring as an example, it was intentional as opposed to reactive. We had a promotion with our Pro V1 franchise. I think you may see some holiday promotions that are intentional more so than corrective or reactionary. So again, we're starting to see an uptick in promotional activity, nowhere near the levels we saw pre-COVID, and I think overall, it's in line with where the industry ought to be.

Our next question is from Casey Alexander from Compass Point.

I just have a couple of questions. One, on the share repurchase program, is there any way you can tell us how much of the 482,000 was bought after June 9 and would then be subject to the repurchase agreement with Magnus?

Yes, Casey, this is Sean. I think that when we file the 10-Q later today, you will have at least some information regarding our activities since the end of the quarter.

No. But I mean the 482,000 that was in the quarter that was bought after June 9, which is when the agreement with Magnus began.

Yes, I apologize. I don't believe we disclosed that information. However, we do record a liability for the quarter. I’ll need to check the details on that. I’m not sure if that’s disclosed, and I apologize for that as well. To estimate, I would say roughly one-third of that number is my estimation.

That's helpful. An approximate figure is fine. Regarding footwear, how much of this is driven by demand compared to the increase in competition? We've noticed several start-ups entering the market with substantial backing, capturing some market share for a while. However, they often tend to fade away over time. Is that what we're seeing here, or is it mainly a correction driven by demand?

No, Casey, you're right on. I think it's two parts. It may be three parts. Part one is we are seeing an influx of new competitors. Part two is there's the reality of what's happened to supply chains and forecasting maybe a bit overzealous, so you've got a supply bubble to an extent, which we would peg at about 20% higher than is appropriate for the footwear category. That results in price compression. There's a bit of a demand story here as well as the demand is down a little bit from a year ago. And some of that is as prices have fallen a bit. So you're right. It starts with supply. It starts with a lot of new competitors. I did make the point earlier to contextualize this; our footwear business is still about 30% bigger than it was in 2019. That's just the state of the footwear business, and you've seen this before. I do think we march through it. This is not the first time we've seen it function this way but the starting point is excess supply.

Casey, this is Sean. Just to go back and clarify. It's 286,000 shares of stock since June 9. So that will be in the queue when it's filed today.

Our next question is from Michael Swartz of Truist Securities.

This is Lucas on for Mike. I was wondering if you could comment on the Datatech data for June. There was some pullback in ball share, and I was wondering if you could just give some color on that.

Yes. We don't really get too focused on 30-day blocks of time, I would point to the year and the strong success we're having in golf balls in particular. I think your question is ball driven. As I've said, our shipments are up 20%, and our inventories are lower than we'd like. So we're very happy with the state of the golf ball business. There was a unique component earlier in the year where we ran our loyalty rewarded promotion; buy 3, get 1, that hit mostly April and May. So overall, we're really pleased with the state of our golf ball business. We do acknowledge that there are pockets out there where Pro V1 inventory levels are less than we would like. And maybe that's contributing to what we're seeing. But overall, very strong year on the ball front. We think we're gaining share. Certainly, our sales are very strong. And again, lean inventories support just a robust sell-through environment.

Our next question is from Noah Zatzkin from KeyBanc.

Just a high-level one for me. Obviously, continue to hear and see so much about a softer consumer and macro pressure elsewhere, and obviously, you guys have been resilient and the game of golf has been resilient. So maybe just some color on what gives you confidence in raising the guide here, as well as any comments on how you're feeling about the health of the core golf consumer would be helpful.

Your question really gets to the core of our target audience: the dedicated golfer. They are passionate, resilient, and typically have a middle income or higher. We recognize that we are coming off some historical highs in participation and purchasing over the past couple of years, so we have moderate expectations for 2023. However, here we are in early August, and the number of rounds played is excellent, up 5.5% and nearing record levels. I believe we are about 1% away from the record set in 2021. Our target consumer at Acushnet is highly engaged. The strongest product categories for us are balls and clubs, and we see positive responses to our performance narratives in both areas. We are very encouraged by the golf consumer, especially the dedicated golfer, which is the primary focus for Acushnet. Like everyone else, we're monitoring purchase and participation levels closely, but so far, the outlook has been promising. Additionally, we have noticed some market share gains across our portfolio, which enhances our narrative.

Our next question is from Randy Konik of Jefferies.

I have a follow-up to the last question. What has surprised you the most about the continued strength of the industry? Given your extensive experience, what stands out to you at this point?

Well, Randy, I would say we've been careful and conservative regarding participation coming off historic highs. There were approximately 150 million more rounds played in 2021 than in 2019. A lot changed in 2021 compared to 2019, and we've been closely monitoring how the sport is holding up as the world adjusts to either an old normal or a new normal. What pleases us is that despite many pre-COVID activities returning, golf has maintained a strong position in people's priorities for their time and money. The strength and vibrancy of the game is something we are all happy to see coming off such historic levels. We were cautious and felt that while this meaningful increase was wonderful, we needed to consider whether we could retain all of it, and we are certainly holding on to a significant portion, which makes us feel good. The core takeaway is that people are incorporating golf into their lives in a more meaningful way today than they did 3, 4, or 5 years ago. Additionally, the industry has added golfers consistently for five years; we couldn’t say that a decade ago. In the U.S. alone, nearly 1.5 million new participants have joined in the past three years. While not everyone is playing at the level they might have 2 or 3 years ago, this is more than compensated for by the additional rounds from new players. The biggest observation is the resilience and strength of the game compared to our carefully conservative expectations following the record levels of 2021.

Very helpful. And then just lastly, can you give us some perspective on where customization is from your perspective on the industry right now? And maybe just when you look at your own business, the amount of custom that you're doing or fittings, I should say. What's the incremental lift that you're sort of seeing just ballpark-ish on, let's say, ASPs or gross margin or anything of gross profit dollars? Because I think that's another area that's been kind of a good leg for the industry and yourself and your company in particular, just curious of kind of what are those trends you're seeing? Where do they go and obviously provide some incremental lift to revenue and profitability as well.

You're referring to golf clubs, right? Yes, we've been involved in custom fitting for a long time, which has been a crucial aspect of our business for about 30 years in the U.S. and a shorter period in some global markets. The main focus is on the consumer. Providing the best experience with our products is key, and we believe that with expert fitting, consumers will enjoy the highest level of satisfaction. That's our biggest advantage. Additionally, the club business is also benefiting from having less inventory at retail, which reduces the risk of obsolescence and markdowns, which is a positive development for us. As we look at our club business, we find that we are less affected by the fluctuations in inventory levels. However, the primary focus remains on enhancing the consumer experience through a combination of excellent products and expert fitting. Moreover, this approach allows us to utilize the expertise of our partners, including skilled club professionals and retail partners, which is beneficial for our business. We’ve been engaged in this for a long time in the U.S. and globally, but Japan is a market that is still catching up. We believe that over time, our business will become increasingly focused on custom fitting, as Japan currently largely relies on traditional stock sales instead of custom orders. We have discussed this before, and one of our long-term goals is to promote custom fitting more in our Japanese operations.

Our next question is from Ivan Feinseth from Tigress Financial Partners.

Congratulations on the great results. Can you provide some details about your marketing initiatives moving forward? Where do you see the best traction with new players, and how are you marketing to them compared to your existing players?

Yes. So Ivan, I'll point to our results and say we're confident we're reaching our target audience. But the core consumer of Acushnet is this dedicated golfer, right? So we tend to speak most regularly to them, whether through our advertising or fitting efforts, that's sort of the sweet spot of all our advertising efforts. I did make the comments earlier that we're enthused about the back half of the year, particularly in golf balls and with our new iron launch. So from a prioritization standpoint, we're going to put more advertising and promotional muscle behind those categories commensurate with the size of the opportunity. But while we're certainly pleased with the new golfers entering the marketplace, our focus is always on this core dedicated golfer who drives so much of our business and it aligns so well with our product lines. So that's how we've always approached it. It works well for us, and we intend to stay on that path.

Our next question is from George Kelly of ROTH Capital Partners.

So a couple for you. First one, your share repurchase authorization. I was trying to keep up with you on the call, but can you just go through that again? How much is remaining? And then did you give us an estimate of when you expect to exhaust the current authorization?

Yes, there's about $260 million remaining on the authorization, and I did not give you an outlook, more just that we would meaningfully participate through early Q4 given the Magnus agreement, but I think as we've said previously, we would expect to probably extinguish that plan later this year or early into 2024.

Okay. And then second question for you. Can you give us a breakdown in your ball business with such strong growth in really the first half. But just sticking with the quarter, what was the breakdown between volume and pricing? Just ballpark if you have that.

Yes. It's primarily about volume. We did implement a price increase on the Pro V1 and Pro V1x models. However, the main factor is volume, which aligns with what David mentioned regarding the momentum we are experiencing in the ball business.

Okay. Excellent. And then for my last question, can you provide an update on your inventory and gross margin? I'm wondering if your inventory has now cleared the previous supply chain issues and reflects a more current and normalized figure, or whether there is still a significant amount of higher-cost inventory included.

Well, if I understand your question, I think input cost, we have seen those increase. As I talked about, our inventory levels, we're very comfortable with where they're at. They've certainly come down sequentially; I would expect the same cadence through the third quarter and then building again in the fourth. So I think input costs across the board given inflationary pressures have affected all of us. So I don't know if that answers your question or not, but we're comfortable with where the inventory levels are. I don't want to repeat what we said in our prepared remarks, but I'll leave it at that.

Let me try once more. There was a time last year and in 2021 when it was much more expensive to bring your inventory to the U.S. due to various supply chain issues. All of that higher-priced inventory has now been sold through. Is that correct? Are we seeing a more normalized pricing environment for your inventory balance?

Yes. I think we're getting to a more normalized state, correct?

And everybody, thanks for your attention, as always, and your interest in the Acushnet Company. Hope you have a great rest of summer, and we look forward to speaking again after our third quarter. Have a nice day.

This concludes today's call. Thank you, everyone, for joining. You may now disconnect your lines.