Acushnet Holdings Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Acushnet designs, manufactures and sells golf products under brands including Titleist and FootJoy.
Financial performance
- Net sales: $580.9 million, up 42.1% from $408.7 million; constant-currency sales rose 37.8%. Management attributed growth to higher sales volumes across segments, strong golf participation and demand, and COVID-related shutdowns that depressed the prior-year comparison.
- Profitability: Gross profit was $310.7 million versus $201.0 million; gross margin increased to 53.5% from 49.2%. Operating income was $120.1 million versus $21.4 million. Net income attributable to Acushnet was $85.0 million, or $1.13 diluted EPS, compared with $8.9 million, or $0.12 diluted EPS.
- Adjusted EBITDA: $135.3 million, or 23.3% of sales, compared with $52.8 million, or 12.9%. This non-GAAP measure includes specified adjustments; the filing’s reconciliation lists $1.3 million of unusual items in Q1 2021, including $1.4 million of pension settlement costs.
- Segment sales: Golf balls $173.6 million (+49.4%); golf clubs $155.8 million (+67.2%); golf gear $53.1 million (+22.1%); FootJoy golf wear $159.4 million (+22.2%). Clubs and balls had the largest percentage increases. Segment operating income improved in all four segments.
- Cash flow: Operating cash used was $30.0 million, compared with $72.5 million used in Q1 2020. Capital expenditures were $6.4 million, making operating cash flow less capital expenditures negative $36.4 million. Cash, cash equivalents and restricted cash declined $38.4 million to $113.0 million.
- Liquidity and debt: Current assets were $923.1 million and current liabilities $398.8 million. Debt totaled approximately $351.7 million, including $42.2 million current and $309.5 million long-term, versus approximately $333.9 million at year-end 2020. The company reported $376.0 million available under its revolving facility and $50.3 million under local facilities; it was in compliance with credit covenants.
- Shareholder returns: The company paid $12.7 million in dividends and repurchased $2.4 million of shares during the quarter. A $0.165-per-share dividend was declared for payment in June 2021. It also repurchased 355,341 shares from Magnus for $11.1 million on April 2, 2021.
Material changes and management commentary
Sales increased across all product segments and most geographies. The latest-generation Pro V1 and Pro V1x golf balls and new golf-club products supported growth. Higher club selling prices and favorable product mix, improved manufacturing overhead absorption for golf balls, and a higher mix of eCommerce and Korean retail sales for FootJoy helped margins. Inbound freight costs increased and partially offset these gains. SG&A rose to $176.4 million from $152.7 million, primarily from selling and employee-related costs. The prior-year quarter included $11.6 million of restructuring charges; none were recorded in Q1 2021.
Management said high golf participation and demand continued, but supply-chain disruptions caused raw-material shortages and higher freight costs, challenging its ability to supply trade partners. The company expects 2021 capital expenditures of $45–$50 million, primarily for golf-ball operations and precision manufacturing. It expects operating cash flow, cash on hand and available facilities to meet liquidity needs for at least 12 months, subject to COVID-19 and other uncertainties. No specific revenue or earnings guidance is provided in the supplied filing text.
Risks, contingencies and unusual items
- COVID-19’s duration and effects remain uncertain. Management noted that demand could ease as restrictions lift and consumers resume other activities; renewed restrictions could also disrupt operations.
- Supply constraints, raw-material availability and cost, shipping disruption and higher freight charges may affect product availability, costs and margins.
- The business is seasonal and working capital fluctuates; accounts receivable rose to $387.5 million from $201.5 million at year-end, while cash declined.
- The company ended its credit-agreement covenant relief period early in March 2021 and returned to prior covenant and pricing terms. It recorded approximately $0.7 million of additional interest expense from accelerated amortization of debt issuance costs.
- Pending lawsuits arise in the ordinary course of business; outcomes and potential losses cannot be estimated, and no liability was recorded for potential losses. The filing reports no material change to previously disclosed risk factors.
- Market risks include floating-rate debt, foreign exchange and commodity prices. A hypothetical 1-percentage-point increase in rates would raise annual pretax interest expense by $2.1 million; a hypothetical 10% weakening of the U.S. dollar would turn the foreign-exchange-forward net settlement asset into a $16.9 million liability, before considering offsets from hedged exposures.
Important facts for investors to verify
- How much of the exceptional year-over-year growth reflects lasting demand versus the COVID-affected Q1 2020 comparison, and whether sales and margins remain strong.
- Whether supply shortages, freight costs and other input pressures constrain fulfillment or erode gross margin.
- Working-capital and cash conversion trends, including the elevated receivables balance and seasonal inventory requirements.
- Debt levels, covenant headroom and financing costs after the end of covenant relief; also monitor variable-rate and foreign-exchange exposure.
- Execution and returns on planned $45–$50 million of 2021 capital spending, alongside dividends and resumed share repurchases.
- Developments in COVID-19 conditions, litigation and other contingencies; the filing does not quantify potential litigation losses.