Welcome to the Acushnet Holdings Corp. 2Q '25 Earnings Call. My name is Lauren, and I'll be your operator today. I will now hand you over to your host, Sondra Lennon, Vice President, FP&A and Investor Relations, to begin. Please go ahead.

Good morning, everyone. Thank you for joining us today for Acushnet Holding Corp. Second Quarter 2025 Earnings Conference Call. Joining me this morning are David Maher, our President and Chief Executive Officer; and Sean Sullivan, 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 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 measures, including items such as net sales on a constant currency basis and adjusted EBITDA. Explanations of how and why we use these measures and reconciliations of these items to the most directly comparable GAAP measures 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 net 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 are referring to the 6-month period ended June 30, 2025, and the comparable 6-month period in 2024. With that, I'll turn the call over to David.

Thanks, Sondra, and good morning, everyone. We appreciate your interest in Acushnet Holdings. The sport and business of golf continue to be vibrant and healthy. Per the National Golf Foundation's read on the U.S. market, 1.5 million new golfers entered the sport in 2024, marking the seventh consecutive year-on-year increase. These gains contributed to resilient participation results with worldwide rounds of play in the first half projected to be up 2% despite some of the weather-related volatility we have experienced in the U.S. Acushnet continues to benefit from our focus on the game's dedicated golfer, whose healthy demographic and deep commitment to the sport helped to offset some of the macro uncertainties consumers are facing. With that, I am pleased to report on a solid quarter and first half for Acushnet, led by our momentum in Titleist Golf Equipment and steady growth in the U.S. and EMEA regions. Moving to Slide 4. You see our second quarter and first half results. For the quarter, Acushnet; delivered worldwide net sales of $720 million, a 5% increase over last year, driven by the strength of our Golf Equipment and Gear segments, which contributed to a 9% year-over-year increase in adjusted EBITDA. For the half, net sales of $1.42 billion were up 3%, while adjusted EBITDA of $282 million was down 1%, in line with our expectations as we made several investments across our business with a long-term focus on golf equipment innovation and our technology and golfer connection platforms. Getting to our segment results. Golf Equipment sales were up mid-single digits in the quarter and first half, led by the success of new Pro V1 golf ball models and strength within our GT Metals and hybrid franchise. Titleist golf equipment sales were up in all regions for the half, led by the U.S. and EMEA. And compared with the first half of 2023 and a similar product launch cycle, equipment revenues are up 10%. The Titleist golf ball business is well positioned for the back half of the year as our team keeps pace with healthy demand and activates our golf ball fitting initiatives in all markets. On the Club side, we're excited about our new T-Series irons, which were launched last month. This innovative new product lineup delivers enhanced performance and feel. And while early, initial response is meeting our high expectations. Within our Golf Equipment business, we are confident in the strength and diversity across our supply chain with golf balls benefiting from our two production facilities in the U.S. and a third in Thailand. Our ability to assemble golf clubs in most major regions also provides flexibility as we navigate evolving tariff policies. Moving to Gear. This business is healthy with sales increasing 7% in the second quarter and 6% for the first half. The core Titleist bag, glove and headwear categories grew mid-single digits, while our travel brands led by Club Glove grew more than 20%. Our FootJoy business was off 2% in the quarter and 4% in the half. These results were in line with our expectations as we shift towards a higher concentration of premium performance footwear led by Premier, HyperFlex and Quantum golf shoes. At the same time, we have reduced discounted closeout volumes and elevated our entry-level price points across the brand. We are pleased with FJ's market positioning, product lineup and sell-through trends. And as you will see in our financials, these are positively impacting FJ's operating results. Lastly, products not allocated to a reportable segment also posted steady growth in the half, led by double-digit gains from our shoes, outerwear and apparel business, which continues to build nice momentum. Now looking at our regional results, you see ongoing strength from our U.S. business despite rounds of play being down slightly due to unfavorable weather. EMEA was up 6% in the first half, reflecting gains in Titleist Golf Equipment, primarily golf balls as well as golf gear. The region is benefiting from outsized growth in the U.K. where rounds of play are up 20% through June. Revenues in Japan and Korea are up 4% and 3% in the half, respectively. As noted on our last call, we are pleased with our equipment growth in these countries, but the markets for apparel, footwear and gear have been relatively soft. We expect our business in these regions to stabilize in the back half of the year. In summary, golf industry fundamentals are in good shape, and we are pleased with our new product pipelines and the overall health of our business as we look to the future. As always, we appreciate the good work of our associates and support of partners. And while Acushnet is not immune to macro uncertainties, we are confident in our ability to effectively manage all that is in our control as we seek to deliver the highest quality products and services to dedicated golfers and in turn grow, invest in our future and return capital to shareholders. Thanks for your interest this morning. I will now pass the call over to Sean.

Thank you, David. Good morning, everyone. We had a solid second quarter and strong first half to start 2025. Second quarter net sales were up 5% and adjusted EBITDA was $143 million, up $12 million from last year's second quarter. For the first half of 2025, net sales increased 3% and adjusted EBITDA decreased 1%, in line with our expectations. Net sales growth in the second quarter was driven by continued strength in our Titleist Golf Equipment segment, up 6% in the quarter behind the continued momentum of our latest Pro V1 golf balls launch and GT Metal success. Gross profit in the second quarter of $354 million was up $21 million compared to 2024, driven by increases in the Titleist Golf Equipment, Golf Gear and FootJoy golf wear segments. The increase in Titleist Golf Equipment was primarily driven by higher sales volumes and higher average selling prices, partially offset by mix. Increased sales volumes and lower distribution costs were the primary drivers in golf gear. In FootJoy golf wear, the increase was driven by lower manufacturing costs and a favorable product mix, including less closeout sales. Also impacting gross profit in the second quarter was approximately $5 million of costs related to the recently implemented tariff policies. Second quarter gross margin of 49.2% was up 40 basis points versus prior year, while first half gross margin of 48.6% was consistent with last year. SG&A expense of $222 million in the quarter increased $14 million from 2024 as we continue to invest in our fitting network, IT systems and A&P to support new product launches and future growth. During the second quarter, the company initiated a voluntary bridge to retirement program to reduce operating costs and bridge long-tenured eligible employees to retirement. As a result, SG&A expense includes restructuring costs of $6.4 million related to this program. For the second half of the year, we are expecting approximately $7 million of additional charges related to this program. Interest expense of $15 million in the quarter was up $1 million due to increase in borrowings, partially offset by a decrease in interest rates. Our effective tax rate in Q2 was 19.9%, down from 23.2% last year, primarily driven by a shift in our jurisdictional mix of earnings. Moving to our balance sheet and cash flow highlights. The strength in our balance sheet and cash flow supports the continued execution of our capital allocation strategy. Our focus remains on investing in the business to support long-term growth and returning capital to shareholders. Our net leverage ratio at the end of Q2 using average trailing net debt was 2x. Inventories were up 11% when compared to last year's second quarter, reflecting the advancement of inventory ahead of tariff deadlines and the impact of our iron launch. Overall, we are comfortable with our inventory quality and position. First half cash flow from operations decreased from the first half of 2024, primarily due to an increase in cash used to fund working capital. Capital expenditures were $25 million in the first half of 2025, and we now expect full year 2025 CapEx spend to be approximately $70 million rather than the $85 million previously stated. Through June, we returned roughly $154 million to shareholders with $125 million in share repurchases and $29 million in cash dividends. Today, our Board of Directors declared a quarterly cash dividend of $0.235 per share payable on September 19 to shareholders of record on September 5, 2025. On July 10, we repurchased approximately 953,000 shares of our common stock from Magnus for an aggregate of $62.5 million in satisfaction of our previously disclosed obligations under our share repurchase agreement. While the game of golf is healthy and dedicated golfers' demand for our products is strong, we continue to operate with caution given tariffs and their potential impact on consumer spending. For these reasons, similar to our Q1 call, we're not going to formally update our full year guidance at this time, but instead provide some color around the second half of the year as we see it today. During the second half of 2025, we expect net sales to be up low single digits, taking into account a full year FX headwind of approximately $5 million as compared to last year. The second half quarterly cadence is expected to align with our historical seasonality. We anticipate net sales growth across all segments, driven by the continued strength of Golf Equipment, while FJ continues to execute on their premium performance strategy. The situation remains very fluid, and we continue to closely monitor developments in the dynamic tariff landscape and broader macroeconomic environment. Based on the recently announced tariff rates and agreements, we expect to have an estimated impact of approximately $30 million in the second half of the year in addition to the $5 million impact in the first half of 2025. Our mitigation efforts include optimizing our supply chain footprint, vendor sharing programs, selective pricing actions and cost reduction initiatives such as the VBR program. As a result, we estimate mitigating greater than 50% of the tariff impact in the second half. Overall, we are very pleased with our first half performance and remain focused on executing our long-term strategic priorities. With that, I will now turn the call over to Sondra for Q&A.

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

Our first question today comes from Simeon Gutman from Morgan Stanley.

My first question is around inflation and pricing. So there is a certain amount of inflation driven by innovation every year in this category. Now we have tariff on top of that. Do you have a sense of where that number on a percentage basis can go for the industry, not just Acushnet for the second half, given some of the tariff impacts? And how will that compare to some of the annual rate of inflation that's happened in the past?

Simeon, I'll touch that more in a general sense than a hard number and tell you what we've seen up to this point. We've certainly seen price increases in gear, footwear and apparel across the industry, and we've taken select moves in those categories; that would be part one. Part two, our ball business is not entirely immune but somewhat immune to some of the tariff risks as we manufacture so much of our product in the U.S. So we haven't seen as much in balls. Clubs have really been all over the map depending on sourcing and where manufacturers assemble products. So it's certainly part of the story. It has been to this date. We saw some price increases introduced into the industry in late Q2, some of which really flowed in Q3 after prebooks had shipped. But to your question, how does it compare to historical? I would say it's almost too soon to say, in part because we're dealing with rapidly changing rates, even today, right, the narrative changes. But you have seen some pricing action taken. And again, I'd point you more so to gear, footwear and apparel than equipment at this stage. But we are doing what everybody is doing, and that is assessing what it means for the balance of the year and future product introductions, what it means for next year and how much dexterity do we have within our sourcing and supply chain to mitigate before we take price. So again, hopefully, some general overview of what we're seeing in the industry is helpful as you think about inflation and how golf responds to tariffs and how it compares to some of the broader national numbers.

And if I can, one follow-up on the same topic, which it's somewhat nebulous. But given the customer profile who you sell to and the premium product line, how much do you worry about your customers' ability to take price, not just in the golf category, not just from Acushnet, but as they face higher prices in general in the second half and beyond?

Yes, we consider this frequently. Whenever we think about pricing, we also think about our capacity to demonstrate improved performance. Our results clearly indicate that high performance, particularly from Pro V1 and FootJoy's premium lines like Premier and HyperFlex, has driven our success. We don't typically employ a multi-tier pricing strategy; instead, we maintain a premium positioning across our offerings. We strive to balance the necessity of passing on tariff costs with the ongoing requirement to provide value and demonstrate our worth to consumers, who are generally more performance-oriented. We approach this carefully, recognizing the need for a compelling performance narrative to accompany any pricing adjustments.

Our next question comes from Joseph Altobello from Raymond James.

This is Martin on for Joe. I was just trying to get an idea of how did demand play out as you expected? And any kind of commentary you might have when it comes to sell-in and sell-through?

I'm sorry, Martin, could you repeat that? You cut out a little bit at the beginning of your question.

Yes. I was wondering if we can get any commentary regarding kind of sell-in and sell-through?

Yes, I would like to point to our results regarding sell-in. We are satisfied with our performance in the quarter and the first half of the year. This is linked to the inventory levels in the market, which have returned to normal. The connection between sell-in and inventory is sell-through, and we are pleased with what we are seeing. When we last spoke in early May, there were a lot of concerns about the consumer's state, particularly for the second quarter and the remainder of the year. However, we are happy with the participation levels. Rounds of play have decreased slightly in the U.S. but have increased overall worldwide. Our consumers are engaged, and the situation appears positive. This is particularly noteworthy considering earlier concerns regarding tariffs and inflation and their potential impact on consumers. Industry-wide, we are in a strong position. If there were significant concerns about sell-through, we would see inventory levels increasing, but I would describe our inventory as seasonally normal. There are always some variations around the world, and we do experience those, but overall, it looks good, especially in the context of all the tariff uncertainties.

Great. And you mentioned there's some stabilization in the Asian region. What can we sort of expect a return to growth?

Yes. I think I'll speak of Japan, and it's really Japan and Korea, and I'll speak of them in two parts. Part one is equipment, balls, and clubs, which have been for us steady and stable, and we like the trends there. Part two is footwear and gear and apparel. And we've seen, particularly in apparel, almost a bit of a bubble in the last couple of years, as that has been correcting. It went on such a rise during the COVID years, and it's been correcting. But we like the way we're approaching it. Nothing has necessarily surprised us and that we planned for it. We saw a whole lot of new entrants in apparel, particularly in Korea and Japan, jump into the market in the last handful of years. And we expect to see some of those new entrants exit the market. So I think it's part of a correction. It's part of a rationalization, most noteworthy in apparel, and I would say Korea first. Korea is the largest apparel market across Asia. But I did call out also, I think we see things stabilizing in the back half of the year. So I feel like we're okay. And again, I think it's important as you think about Japan and Korea, at least on our side, to break apart what's happening with equipment, with what's happening with footwear and apparel because really the drag has been on the latter.

The next question comes from Matthew Boss from JPMorgan.

So David, could you elaborate on customer response to new launches maybe across both clubs and balls in the marketplace today? And speak to your level of visibility as we look out to the low single-digit back half revenue growth forecast across segments?

Yes, Matt, we're really happy with our recent product launches. The Pro V1 was introduced in the first quarter, and we like the trends we're seeing in sales and market share across all regions. Our equipment business showed growth in every area during the first half of the year. Additionally, although we didn't release a new product this year, we had a successful launch of the driver in the second half of 2024. We're very satisfied with the progress on that front. The trends in sales and usage are meeting our high expectations, which I believe sums it up well. As we head into the second half of the year, our outlook is shaped by our new product pipeline, order levels, inventory status, and initial demand. Our new T-Series iron, which we launched in July, is off to a great start, with early responses also meeting our expectations. We receive regular updates on sell-through data, which helps us understand market trends and inventory performance. This all supports what Sean mentioned regarding our outlook for the second half, which we see as low single-digit growth across all segments. Finally, while much of my comments focused on clubs and balls, FootJoy continues to gain momentum, which is encouraging. Although the top line is slightly down, we are pleased with their profitability and operations, aided by some exciting new product extensions. So, there are many factors at play, but they certainly contribute to our optimistic view for the second half of the year.

That's great. And then maybe, Sean, could you speak to gross margin considerations for the back half of the year? And maybe just how best to think about the timing of operating expense dollar growth relative to your low single-digit sales forecast for the back half?

Sure. Yes. I mean, just, Matt, to go back to the script, obviously, I'm trying to guide you to the top line relative to some historical cadence in terms of Q3 versus Q4. So that was helpful. Obviously, we're pleased with the gross margin profile through the first half. As I look in the back half, I've obviously given you some impact as a result of the tariffs. So that certainly will spread across Q3 and Q4. But again, we're going to have that burden. But again, we see growth across all segments in the back half. In terms of operating expense, I don't think there's anything more to say in terms of the profile. We feel very good about the conversion from sales to adjusted EBITDA, the overall margin profile. Obviously, we're investing for long-term growth. We'll continue to do that. You do have the impact of the VBR that we talked about in Q2 that will roll through in the back half as well. So I'll give you that number as well. So all in all, I guess, absent tariffs, we're pleased with where we're at for the year and the outlook for the year. David talked at length about the demand, the dedicated golfer, and it's really about execution at this point for us. And certainly, the tariff and the supply chain and vendor sharing and all those things will happen over the course of the year, so we position ourselves for 2026.

Thanks, everyone. Yes, we appreciate your interest in the company as always and now more than ever, your understanding as we attempt to thoughtfully manage and navigate these tariff uncertainties and always stay connected to our core consumer. So we appreciate your interest and understanding and hope you have a great rest of the day. Thanks very much.

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