Acushnet Holdings Corp. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Acushnet designs, manufactures and distributes golf products under the Titleist and FootJoy brands. Comparisons below are with the corresponding 2021 periods; financial amounts are in U.S. dollars.
Financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $658.6 million | $624.9 million | $1,264.7 million | $1,205.7 million |
| Gross profit / margin | $343.6 million / 52.2% | $334.4 million / 53.5% | $660.6 million / 52.2% | $645.2 million / 53.5% |
| Operating income | $88.5 million | $109.2 million | $193.9 million | $229.2 million |
| Net income attributable to Acushnet | $66.5 million | $81.1 million | $147.5 million | $166.0 million |
| Diluted EPS | $0.91 | $1.08 | $2.00 | $2.21 |
| Adjusted EBITDA / margin | $106.5 million / 16.2% | $127.8 million / 20.4% | $226.5 million / 17.9% | $263.0 million / 21.8% |
Q2 reported sales rose 5.4% (10.6% at constant currency); first-half sales rose 4.9% (9.1% at constant currency). Q2 operating income declined about 19% and attributable net income about 18% year over year. Higher selling, general and administrative expenses and lower gross margin more than offset sales growth. SG&A increased $28.9 million in Q2, including higher selling and distribution, administrative and promotional costs.
Business trends and material changes
- Q2 sales increased across golf clubs, golf gear and FootJoy golf wear; Titleist golf ball sales were slightly lower as reported but higher at constant currency. New wedges, irons and putters supported club sales.
- For the first half, FootJoy golf wear and Titleist golf clubs drove growth. Golf ball sales were affected by limited raw-material availability; golf gear faced supply and fulfillment constraints.
- Segment operating income declined year over year in each reportable segment in both the quarter and first half. Management cited higher operating expenses, freight, manufacturing and component costs; golf balls and FootJoy wear had particularly notable Q2 declines.
- Foreign currency transaction losses in SG&A were $7.0 million in Q2 2022 versus $0.2 million in Q2 2021, and $8.8 million for the first half versus $1.2 million.
Cash flow, liquidity and debt
- Cash, cash equivalents and restricted cash were $109.1 million at June 30, 2022, down from $281.7 million at year-end 2021. The company reported $107.4 million of unrestricted cash; 86.1% was held at non-U.S. subsidiaries.
- First-half operating cash flow was a use of $90.6 million, compared with $152.4 million provided in the prior-year period, primarily reflecting working-capital changes. Receivables increased $228.8 million and inventories increased $70.8 million in the cash-flow reconciliation.
- First-half investing cash outflow was $20.5 million, primarily capital expenditures; financing cash outflow was $56.8 million. Capital expenditures were $20.5 million for the half, with approximately $60 million expected for full-year 2022.
- At quarter-end, total debt was approximately $395.5 million, including $306.3 million of term loans and $72.2 million of revolving borrowings, plus local facility borrowings. The company had $319.2 million available under its revolving facility and $33.7 million under local facilities, and was in covenant compliance.
- After quarter-end, on August 2, 2022, the company entered into a $950 million multi-currency revolving credit facility maturing August 2, 2027. Proceeds were used, among other things, to repay the prior term loans and refinance revolving borrowings. The amended facility increased the maximum leverage covenant to 3.75:1.00, with specified acquisition-related step-up provisions.
Outlook, risks and notable items
- Management expects cash from operations, cash on hand and available credit to meet liquidity needs for at least the next 12 months, subject to customary borrowing conditions and business risks.
- No full-year sales or earnings guidance is provided in the filing. Full-year capital expenditures are expected to be approximately $60 million, subject to timing and supply-chain factors.
- Management said inflation, higher raw-material and input costs, and freight costs pressured margins and were expected to remain issues for the rest of 2022. Supply constraints and the ongoing effects of COVID-19 also remain uncertain.
- Other identified risks include demand and golf participation, weather and seasonality, foreign exchange, supplier and shipping disruptions, competition, product quality and warranty claims, cybersecurity, and the ability to service debt. A 1-percentage-point increase in rates on June 30 variable-rate debt would have increased annual pretax interest expense by an estimated $3.9 million.
- The company repurchased 2.1 million shares for $98.2 million in the first half and paid $26.9 million in common dividends. The board increased total repurchase authorization to $450 million on July 26, 2022. A $0.18-per-share dividend was declared for payment in September 2022.
- Pending lawsuits arise in the ordinary course; outcomes and aggregate potential loss could not be estimated, and no liability was recorded. Disclosure controls were deemed effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Whether sales growth and newer club launches can offset currency headwinds, supply constraints and softness in certain product categories.
- Whether freight, materials, distribution and other cost pressures continue to weigh on gross margin and segment profitability.
- How working-capital needs, particularly receivables and inventory, affect cash generation in the remainder of the year.
- The terms and ongoing covenant compliance of the August 2022 refinancing, and the effect of variable interest rates on debt costs.
- Execution and funding of the expanded share repurchase program and dividends alongside capital expenditure and liquidity needs.