Earnings Call Transcript - GOLF Q3 2025

Operator, Operator

Hello, everyone, and welcome to today's Acushnet Company Third Quarter '25 Earnings Call. My name is Seth, and I'll be the operator for your call today. I will now hand the floor to Sondra Lennon, Vice President, FP&A and Investor Relations. Please go ahead.

Sondra Lennon, Vice President, FP&A and Investor Relations

Good morning, everyone. Thank you for joining us today for Acushnet Holding Corp.'s Third 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 I turn the call over to David, I would like to remind everyone that we will make 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 9-month period ended September 30, 2025, and the comparable 9-month period in 2024. With that, I'll turn the call over to David.

David Maher, President and Chief Executive Officer

Good morning, everyone, and thanks to Sondra, who last month started her 28th year with our company. As always, we appreciate your interest in Acushnet Holdings. As the golf world exits peak season in many regions and begins prime time across the Sunbelt, the sport and business of golf continue to be vibrant with an increased number of golfers playing an increased number of rounds globally. After a weather-induced slow start to the year in the U.S., rounds of play accelerated in the third quarter, which is the largest participation period of the year, and we now expect worldwide rounds in 2025 to match or exceed what was a record 2024. Acushnet's trade partners are, by and large, healthy and investing to enhance their facilities and ultimately their value propositions to best meet the evolving preferences of tomorrow's golfers. The global golf market is structurally sound with momentum in the U.S. and EMEA offsetting softness, mainly from footwear and apparel across Japan and Korea. And within Acushnet, our team is relentlessly focused on exceeding dedicated golfer expectations, developing great products, earning the trust and endorsement of the pyramid of influence and our partners, and executing a wide range of fitting and golfer connection initiatives. Tying this together is the company's unwavering commitment to product quality, best exemplified by every Pro V1 golf ball, which passes more than 100 quality checks throughout the production process. As a result of this commitment, our return rate is 1 golf ball out of every 16 million Pro V1s produced. This operating model, Acushnet's blueprint for success, is continually refined and improved upon by our team as we strive to provide great products and services to golfers, execute our capital allocation strategy, and create shareholder value for our investors. With this as background, I now point to Slide 4 and our third quarter and year-to-date results. First, for the quarter, Acushnet delivered worldwide net sales of $658 million, a 5% constant currency increase over last year, with gains across all segments. Adjusted EBITDA of $119 million grew by 10%. Year-to-date, sales of $2.08 billion were up 4% and adjusted EBITDA of $401 million was up 2% compared to last year. Getting to our segment results, you see the continued global momentum within Titleist Golf Equipment, which has grown 5% in both the quarter and year-to-date. Key drivers have been the year-to-date growth of our Pro V1 franchise in all regions and the very successful launch of new Titleist T-Series irons and limited edition Vokey SM10 wedges in Q3. We have spoken in recent years about the investments we have made to strengthen our golf equipment product development and enhance manufacturing capabilities. Our growth and momentum today are byproducts of these investments. Acushnet's Golf Gear segment also had a strong quarter, posting a 13% gain and is up 8% year-to-date as our team brings a steady flow of compelling products to market and leverages our expanding custom capabilities and strengthening supply chain. Within gear, the company's travel brands have increased 20% year-to-date with especially strong growth from our Links & Kings and Club Glove brands. And our FootJoy business continues to build momentum and delivered another positive quarter with revenues up 3%. FootJoy is benefiting from the success of our Premiere and HyperFlex footwear models, fewer footwear closeouts, and steady glove growth. FootJoy's apparel business adds to the brand story, showing resilience with quarterly and year-to-date gains. As we have discussed throughout the year, these trends are positively affecting FootJoy's market momentum and financial performance in 2025. And finally, net sales of products not allocated to a reportable segment were up nicely in the quarter with continued momentum and double-digit growth from shoes led by outsized gains across their golf business. Now looking at our business by region on Slide 5, you see the U.S. market continues to be strong, up 6% with growth across all segments, led by Titleist Golf Equipment. EMEA posted a 14% gain in the quarter and is now up 8% year-to-date. Rounds of play are up high single digits as the region benefits from favorable weather compared to last year. Korea was up 3% in the quarter with strength in Titleist Golf Equipment led by golf balls, while Japan was off 13% in the quarter and 7% year-to-date. And as you see, our revenues in the Rest of World were up 5% in the quarter and 3% year-to-date. In summary, we are pleased with Acushnet's performance in the quarter and the overall health of our consumer. The company's product lines are in great shape. Inventory positions, both owned and at retail, are in line for this time of the year, and we are confident in our team's ability to execute against our strategies. Thanks for your attention this morning. I will now pass the call over to Sean.

Sean Sullivan, Chief Financial Officer

Thank you, David. Good morning, everyone. As highlighted, we had a great third quarter and solid year-to-date performance. Third quarter net sales were up 5%, while adjusted EBITDA was $119 million, up $11 million from last year's third quarter. For the first 9 months of 2025, net sales increased 4% and adjusted EBITDA increased 2% as compared to the same period last year. Moving to our income statement highlights on Slide 8. Gross profit in the third quarter of $319 million was up $15 million compared to 2024, driven by increases across all 3 reportable segments, primarily related to higher average selling prices, higher sales volumes, and a favorable mix shift in FootJoy. We also had approximately $10 million in incremental tariff costs in the quarter and year-to-date have recognized $15 million. Third quarter gross margin of 48.5% was down 50 basis points versus prior year, primarily related to the headwind from higher tariff costs. Year-to-date gross margin of 48.6% was consistent with last year. SG&A expense of $205 million in the quarter increased $5 million from the third quarter of 2024 as we continue to invest in advertising and promotions to support new product launches and future growth initiatives, including our fitting network and IT systems. SG&A also included $2 million of restructuring costs related to the voluntary retirement program the company initiated earlier this year. As a reminder, we expect a further charge in Q4 related to this program of approximately $5 million. Interest expense of $14.5 million in the quarter was up $1 million due to an increase in borrowings. Year-to-date, our effective tax rate is 23.6%, 200 basis points more than last year's rate through 9 months. Our effective tax rate in Q3 was 37.3%, up from 19.3% last year, primarily driven by a shift in our jurisdictional mix of earnings and a reduced income tax benefit related to the U.S. deduction of foreign-derived intangible income resulting from the enactment of the One Big Beautiful Bill Act. Moving to our balance sheet and cash flow highlights on Slide 9. Our strong balance sheet and consistent cash flow generation continue to support the disciplined execution of our capital allocation strategy. We remain focused on investing in the business to drive long-term growth while also returning capital to shareholders through dividends and share repurchases. Our net leverage ratio at the end of Q3 using average trailing net debt was 2x. Inventories were up 3% when compared to last year's third quarter, reflecting some advancement of inventory ahead of tariff deadlines and the impact of our iron launch. Overall, we remain comfortable with our current inventory position and quality. Year-to-date cash flow from operations decreased from 2024, primarily due to increased investments in strategic initiatives, including our IT systems and increased working capital requirements. Capital expenditures were $51 million in the first 9 months of 2025, and we now expect full year CapEx spend to be approximately $75 million. Through September, we returned approximately $230 million to shareholders with $188 million in share repurchases and $42 million in cash dividends. Today, our Board of Directors declared a quarterly cash dividend of $0.235 per share payable on December 19 to shareholders of record on December 5, 2025. Looking ahead to the remainder of the year, I would like to provide an update on our full year revenue and adjusted EBITDA outlook shown on Slide 10. We expect full year 2025 revenue to be in the range of $2.52 billion and $2.54 billion on a reported basis. As discussed on our second quarter call, we are still forecasting low single-digit growth in the second half, driven by contributions across all reportable segments. We now anticipate the full year FX impact to be negligible compared to last year, resulting in aligned reported and constant currency growth ranges. Both are projected to be between 2.6% and 3.4% for the full year, representing a midpoint growth of 3%. This midpoint implies fourth quarter revenue of approximately $448 million, representing high single-digit growth over Q4 2023, a period consistent with the cadence of our product launch cycle. Moving to adjusted EBITDA. We are projecting full year 2025 to be in the range of $405 million to $415 million. Incremental full year gross tariff costs are expected to be $30 million, about $5 million lower than our previous estimate, driven by timing shifts in tariff-related variables. This reflects a $15 million gross tariff headwind in the fourth quarter. Through the strategic mitigation efforts we've discussed, we still anticipate offsetting a meaningful portion of the full year gross tariff headwind. Overall, we are very pleased with our year-to-date performance and full year outlook. The team remains focused on finishing the year strong and continuing to execute on our long-term strategic priorities. With that, I'll now turn the call over to Sondra for Q&A.

Sondra Lennon, Vice President, FP&A and Investor Relations

Thanks, Sean. Operator, could we please open the lines for questions?

Operator, Operator

Our first question comes from Joe Altobello at Raymond James.

Joseph Altobello, Analyst

I guess my first question is on U.S. sales. If I look at it year-to-date, you're up almost 5%. I was wondering if you could kind of parse that out between volume and price and maybe what that looks like relative to the category.

Sean Sullivan, Chief Financial Officer

Yes, Joe, this is Sean. I'll address that, and David can add more if needed. Regarding U.S. sales, we're quite satisfied. It's also crucial to consider the timing of product releases in each category. The ball business has performed exceptionally well in the U.S. We've had a solid year in clubs as well, with positive results in both volume and pricing. We did not increase prices on balls in 2025, so much of the growth in that category is due to volume increases. When looking at clubs, we are comparing against last year's metal launch, which had a higher average selling price, making for a tougher comparison. However, with the success of our irons launch and the special edition Vokey wedges, as David mentioned, we've also seen strong growth there. In comparing clubs to two years ago, we're noticing volume increases that are independent of pricing, which I believe is the appropriate measure for that category. On the FootJoy side in the U.S., we're concentrating on profitability, streamlining our portfolio, and focusing more on premium products, especially in footwear. Our gear in the U.S. has performed really well across all categories, including gloves, bags, and headwear. FootJoy has excelled in gloves as well, and the number of rounds played impacts that consumable product positively. Overall, I apologize for not directly answering your question; however, we're happy with both pricing and volume. The timing of product releases is significant. We did make some selective price adjustments in both FootJoy and gear mid-year, which is influencing those segments.

David Maher, President and Chief Executive Officer

Yes, Joe, I would agree with what Sean mentioned. There are really two parts to consider. For equipment, this year is not really about pricing, and you should look at our two-year pattern. We are very pleased with the growth and momentum in the equipment sector. As Sean pointed out, the wearables market has faced a bit more impact from tariffs, and we did implement some selective price increases in FootJoy and gear, focusing on key models earlier in the year rather than across the board. Therefore, it's best to analyze equipment separately from the rest of the portfolio.

Joseph Altobello, Analyst

Got it. Very helpful. And maybe just to kind of pivot to tariffs. I think you mentioned earlier, $30 million for this year, but you expect to mitigate a good portion of that. How does that look for '26 in terms of what you're thinking about maybe an incremental impact for next year?

Sean Sullivan, Chief Financial Officer

Yes, Joe. So again, to highlight certainly, this year at $30 million was slightly lower than what we had anticipated on our last call. So I just want to make sure everybody has that and what the impact is in Q4. As we fast forward to 2026, our number today, if nothing changes, is probably just north of $70 million, 7-0. We've done good work in terms of our strategic initiatives around vendor sharing, around certain changes within the supply chain. Again, I'm not going to give you a percentage today given where we sit in the year. But the expectation as we go on our '26 planning cycle, we're going to mitigate, again, a meaningful portion of that $70-plus million in '26.

Joseph Altobello, Analyst

I'm sorry, Sean, is the $70 million total? Or is that incremental?

Sean Sullivan, Chief Financial Officer

That is the full impact for 2026. It's obviously $40-some-odd million incremental to 2025.

Operator, Operator

Our next question comes from Matthew Boss at JPMorgan.

Amanda Douglas, Analyst

It's Amanda Douglas on for Matt. So David, just to start, could you speak to the health of the overall golf participation that you're seeing across regions and elaborate on the reception you've seen in the marketplace to your T-Series irons and the Pro V1 franchise.

David Maher, President and Chief Executive Officer

Yes, Amanda. Overall, we are pleased with the state of industry fundamentals, which are in very good shape. Rounds of play are strong, and our consumers are engaged and healthy. Focusing on rounds of play globally, they are up slightly in the U.S., which is excellent following a strong third quarter. In the U.K. and EMEA, we are seeing an increase in the high single digits, which is great. Even in Japan and Korea, despite some challenges in wearables and footwear, Japan's performance is flat over the last nine months compared to last year but up double digits from four to five years ago. Korea is down 1% over the first nine months, yet up around 20% from four to five years ago. Overall, we like the position of the industry, and participation is a key driver for us, which is why we monitor it closely. Regarding the Pro V1, we celebrated its 25th anniversary and emphasized this milestone early in the season. We are very satisfied with our golf ball performance this year, both in sales and growth across all regions. Our production team has done an impressive job as we manufacture about 70% of our golf balls in Massachusetts and the remainder in Thailand, keeping up with strong demand. The Pro V1 has performed exceptionally well this year, and we are hopeful as we prepare for next year. As for the T-Series iron launches, we are very pleased. We had high expectations and made significant improvements to the product, which have resonated well with our target consumers. With golf clubs, especially irons, being heavily focused on custom fitting, our product development team has excelled in creating these products. Additionally, our fitting teams globally have effectively communicated the benefits to golfers, ensuring they are fitted with the right equipment. We've also noted a significant trend towards blended sets, which highlights the strength of our fitting network and supply chain. In summary, we are seeing strong performance in both the Pro V1 and T-Series and are confident in our position moving forward.

Amanda Douglas, Analyst

That's helpful. And Sean, just as a follow-up, as we look ahead to 2026 in a flat or modest growth rounds played backdrop for the industry, how best to think about gross margin drivers or multiyear SG&A investments just as we're shaping the initial P&L?

Sean Sullivan, Chief Financial Officer

Yes. When we look at gross margin, again, we're in the midst of obviously mitigating the tariff impacts that I just highlighted. So I think that we continue to see a growth story that outpaces the market even in a flat rounds of play environment. We believe that where our club business is positioned, particularly helps us drive better than market growth. As I look at the puts and takes on gross margin, again, I think tariff will be the headwind. We'll mitigate a meaningful portion of that as we move forward. So I'm hopeful that we don't have a material impact to our gross margin portfolio. And as we've talked about on past calls, we've made a lot of investments in '24 and '25 in operating expenses. We've obviously invested in our fitting networks, as David talked about, both on balls and clubs. And the expectation is we're going to see operating leverage. And hopefully, we'll see the opportunity to continue to drive better than revenue growth, EBITDA growth for the company. But still early days as we go through our '26 planning cycle, but we feel very good about where we are positioned going into '26.

Operator, Operator

Our next question is from Simeon Gutman at Morgan Stanley.

Pedro Gil Garcia Alejo, Analyst

This is Pedro on for Simeon. Congratulations on a strong quarter. As my first question, could you give us a bit of color on the sell-through trends at retail and the channel inventory levels, both for the Pro V1 ball and for the club launches?

David Maher, President and Chief Executive Officer

Yes. I'll connect a few comments. We are pleased with our year-to-date growth in golf balls and our in-market inventory levels, which are closely tied to sell-through. It has been a strong sell-through year for Titleist golf balls, particularly the Pro V1. Achieving growth across all regions is significant, and our team was able to accomplish this. We have also introduced some interesting new products, such as the Pro V1x Left Dash and enhanced alignment products, which have contributed to our success. Overall, we are optimistic about the product and believe the franchise is becoming more compelling and valuable to our target audience. While we do not focus on market share by region for various reasons, our top-line growth and healthy inventory levels worldwide suggest we are in a strong position and have a positive sell-through story for the year.

Pedro Gil Garcia Alejo, Analyst

Okay. Great. That's helpful. And as a follow-up, the full year guidance implies a bit of a deceleration in sales growth relative to where you've been running the past couple of quarters on a year-on-year basis. Is there something that you're seeing specifically kind of going into the holidays? Or is it just the tougher comparisons versus last year?

Sean Sullivan, Chief Financial Officer

Yes, Pedro, I don't believe it's a tougher comparison. The implied midpoint of the guidance is around $448 million in revenue, which is certainly an improvement compared to last year. In Q4 of 2023, we achieved about $413 million, showing almost double-digit growth over the previous year. Considering the product cadence and the two-year product life cycle, we are very pleased with Q4. I'll reiterate my earlier comments that we expected low single-digit revenue growth in the second half, with growth across all segments. I believe this guidance at the midpoint supports that expectation. Therefore, we feel very positive about Q4, and there isn't anything unusual in terms of demand or product that suggests otherwise.

David Maher, President and Chief Executive Officer

Yes. I'll just affirm Sean's point as it relates to the 2-year product cadence really in equipment, right? The best way to see like-for-like comparison Q4 '25 in equipment, balls, and clubs is to look back 2 years because that's when the product line was comparable. Again, gear footwear, less of a 2-year story. But yes, just to reiterate Sean's point, we feel really good about our business. We feel really good about the half, how we're organizing our stories and our product lines for next year. So we don't really think about it or see the fourth quarter as being a period of deceleration. We see it as a period of continued momentum generation, but it is noteworthy to call out within equipment of how we look at things over a 2-year product life cycle.

Operator, Operator

Our next question is from Noah Zatzkin at KeyBanc Capital.

Noah Zatzkin, Analyst

I guess, first, if you could just kind of comment on how you're feeling about inventory in the channel, both in terms of your inventory and from an industry perspective? And then just any comments on potential changes or not in retail partner ordering habits?

David Maher, President and Chief Executive Officer

Yes. First, I would like to note that inventories in the golf industry at this time of year should be relatively low as markets in the northern and mid-belt regions transition out of season. They are indeed low, which we find reassuring. In contrast, in the Sunbelt, inventories are expected to be high as stores prepare for the start of their season. This aligns with our expectations regarding channel inventories globally, and we are observing this trend. While there may be some isolated issues, nothing raises concern. Our assessment of channel inventories shows they are in line with what we anticipate based on months of inventory. In the fourth quarter, our retail partners in the north and mid-belt will replenish their shops for the holiday season. This reflects the typical fluctuations in golf inventories throughout the year. Overall, channel inventories are at a seasonally low level and match our expectations. Regarding our own inventories, they are in excellent condition. We are pleased with their quality. We have strategically adjusted our inventory ahead of potential tariff changes, and we are satisfied with the overall status of channel inventory.

Noah Zatzkin, Analyst

Great. Very helpful. And maybe just looking outside of the U.S., obviously, maybe some puts and takes when you're looking across regions. EMEA has been strong this year. Japan has been a bit softer as has Korea been. So just any thoughts on both your business and the sport outside of the U.S. looking ahead?

David Maher, President and Chief Executive Officer

Yes, I have focused enough on the U.S. business. We are seeing strong rounds of play from consumers, and our numbers reflect that. The performance is particularly robust in EMEA this year and the U.K., indicating solid fundamentals. However, this growth is also due to favorable weather conditions compared to last year, which contributes to the high growth rates in rounds of play. This is beneficial for our sales of balls, gloves, and consumables, especially in those two markets. Regarding Japan, while the rounds are flat currently, they are up compared to four or five years ago, showing a stable structural position for us. We are pleased with our equipment sales in Japan, which are trending positively, especially ball growth this year. In terms of our FootJoy business, we are undergoing a significant repositioning, exiting some price points while introducing more premium products. We anticipated a downturn in 2025, and we are on track with those expectations. Our gear business in Japan has faced some declines, primarily due to timing and overall market softness. Overall, equipment in Japan is in good condition, and we are successfully repositioning FootJoy and gear. Moving to Korea, the equipment business remains strong, with positive performance in balls and clubs. The premium apparel sector had been thriving but has experienced a correction this year, negatively impacting our business. Despite this, the equipment side remains in decent shape, though footwear and apparel are softer. It is worth noting that consumer health in Japan and Korea is not as strong as what we observe in the U.S. Nevertheless, we are satisfied with how the game is performing overall. Rounds of play are roughly flat in both markets, and when compared to several years ago, we have seen improvement in the golf marketplace there. However, both regions are facing different macroeconomic factors that are influencing consumer spending, which is evident in our results.

Operator, Operator

Our next question is from Doug Lane at Water Tower Research.

Douglas Lane, Analyst

I just wanted to press a little bit on Europe because you've just seen a noticeable acceleration in growth in Europe, including double-digit local currency growth in 2 of the last 4 quarters after really most of 2024 and 2023 being flattish, maybe down a little bit. So is there something more going on there than weather? Are we seeing a change in the competitive dynamic in Europe?

David Maher, President and Chief Executive Officer

Yes, I don't want to attribute everything to the weather, but the number of rounds played and the health of the golf industry are notable. The U.K. has seen low double-digit growth in rounds of play, which significantly benefits the golf economy. I believe the golf sector is outperforming other industries. We are satisfied with our positioning and market share across all categories, and we are experiencing growth everywhere. This year presents a much healthier environment compared to the last couple of years. The increase in rounds played, combined with our team's execution, has allowed us to align our product lines effectively in those markets. Additionally, we are expanding our fitting services for balls, clubs, and now footwear. We're conducting more fittings in EMEA than ever before, which is positively affecting our products, particularly with the introduction of FitLab for footwear. Overall, I'm really pleased with the team and the market conditions. While weather plays a role, it's not the sole factor contributing to our success.

Douglas Lane, Analyst

Okay. That's good color. And just one last thing on working capital, the use of working capital is more than twice what it was last year. Is there something going on there specifically that is using up more cash than last year?

Sean Sullivan, Chief Financial Officer

We discussed the inventory and some of the investments we're making in IT and systems, which I believe is having some impact. Overall, I feel optimistic about the free cash flow conversion as well. I'm confident in our working capital position.

David Maher, President and Chief Executive Officer

Well, thanks, everybody. As always, we appreciate your time on these calls, and I look forward to connecting in a few months as we wrap up the fourth quarter in 2025 and start talking more in earnest about 2026. Thanks again.

Operator, Operator

This concludes today's conference call. Thank you all very much for joining, and you may now disconnect.