Acushnet Holdings Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited results compared with Q1 2022. Acushnet designs, manufactures and distributes golf products under brands including Titleist and FootJoy.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $686.3 million | $606.1 million | +13.2%; +17.2% at constant currency |
| Gross profit / gross margin | $365.7 million / 53.3% | $317.0 million / 52.3% | Margin +1.0 percentage point |
| Operating income | $124.9 million | $105.4 million | +18.5% |
| Net income attributable to Acushnet | $93.3 million | $81.0 million | +15.1% |
| Diluted EPS | $1.36 | $1.10 | +23.6% |
| Adjusted EBITDA / margin | $146.8 million / 21.4% | $120.0 million / 19.8% | +22.3%; margin +1.6 points |
| Operating cash flow | $(86.4) million | $(164.0) million | Cash use narrowed |
| Cash and restricted cash | $57.3 million | $114.4 million | Down $57.1 million year over year |
Gross-margin improvement primarily reflected lower inbound freight costs, partly offset by foreign-exchange impacts. SG&A rose $26.8 million, driven by selling costs, employee expenses and advertising and promotion. Net interest expense increased $8.6 million to $9.9 million, mainly due to higher borrowings and interest rates. The effective tax rate declined to 18.1% from 20.4%. Lower weighted-average shares, reflecting repurchases, also contributed to per-share growth.
Sales and segment trends
- All four reportable segments grew sales. Titleist golf balls rose 17.2%, clubs 12.4%, golf gear 51.9% and FootJoy golf wear 3.9% (reported currency).
- Management cited higher volumes, including new-generation Pro V1/Pro V1x balls and TSR clubs, and improved golf-gear supply and fulfillment. Lower inbound freight supported profitability.
- U.S. sales increased 25.3%. EMEA sales declined 6.8% reported but were approximately flat at constant currency; total sales outside the U.S. rose 1.7% reported and 9.4% constant currency.
- Segment operating income increased for golf balls, clubs and gear; FootJoy golf wear operating income declined 1.6% as higher expenses slightly exceeded gross-profit growth.
Cash, debt and capital allocation
- Operating cash use was $86.4 million, reflecting seasonal working-capital needs, particularly receivables; the filing says the first-quarter receivables and inventory cycle is seasonal. Investing cash use was $34.8 million, including the Club Glove trademark acquisition. Financing provided $119.3 million, including revolving-credit activity.
- At March 31, total balance-sheet debt was approximately $829.1 million: $784.6 million long-term and $44.6 million short-term. The company reported $783.0 million outstanding under its revolving facility at a 5.87% weighted-average rate.
- Available borrowing capacity was $158.8 million under the $950 million revolving facility, after letters of credit, plus $25.3 million under local facilities. The company was in compliance with debt covenants.
- Unrestricted cash was $55.5 million; 97.5% was held at non-U.S. subsidiaries. Management expects cash from operations, cash on hand and available facilities to meet liquidity needs for at least 12 months.
- Acushnet repurchased 2.5 million shares for $116.1 million and had $291.3 million remaining under its $700 million authorization. It paid $14.3 million in dividends and declared a subsequent-quarter dividend of $0.195 per share.
Outlook, risks and notable items
- No full-year revenue or earnings guidance is provided in the filing. Management expects 2023 capital expenditures of approximately $75 million, subject to timing and supply-chain factors.
- In January, the company acquired Club Glove trademarks for $25.2 million, comprising $22.2 million cash and $3.0 million contingent consideration; the trademarks are included in golf gear and amortized over a weighted-average 10-year life.
- Management identified exposure to interest rates, currencies, commodity costs and availability, inflation, golf participation, weather, consumer spending, supply-chain disruption and seasonality. A one-percentage-point increase in variable borrowing rates was estimated to raise annual pretax interest expense by $7.3 million after hedging.
- Pending ordinary-course litigation has an outcome and potential aggregate financial impact that the company says it cannot estimate; no liability was recorded for potential losses. The filing reports no material changes to the risks in the 2022 Form 10-K and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether sales-volume growth and lower freight costs persist, particularly as new-product launch timing and seasonality affect comparisons.
- Receivables, inventory and operating cash flow trends as the seasonal working-capital cycle progresses.
- Debt levels, floating-rate exposure, borrowing availability and covenant compliance as interest costs remain elevated.
- Execution and returns from the Club Glove trademark acquisition and planned capital expenditures.
- Share-repurchase pace and dividend commitments relative to liquidity needs and leverage.