Acushnet Holdings Corp. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Acushnet designs, manufactures and sells golf equipment and apparel, including Titleist and FootJoy products. Results are unaudited.
Financial performance
| Metric | Three months ended Sep. 30, 2020 | Three months ended Sep. 30, 2019 | Nine months ended Sep. 30, 2020 | Nine months ended Sep. 30, 2019 |
|---|---|---|---|---|
| Net sales | $482.9 million | $417.2 million | $1,191.7 million | $1,313.1 million |
| Gross profit / margin | $252.0 million / 52.2% | $217.3 million / 52.1% | $609.4 million / 51.1% | $685.5 million / 52.2% |
| Operating income | $85.2 million | $43.7 million | $118.4 million | $157.1 million |
| Net income attributable to Acushnet | $63.2 million | $29.8 million | $74.4 million | $103.2 million |
| Diluted EPS | $0.84 | $0.39 | $0.99 | $1.36 |
| Adjusted EBITDA / margin | $99.2 million / 20.5% | $55.8 million / 13.4% | $185.1 million / 15.5% | $195.6 million / 14.9% |
Cash flow: Nine-month operating cash flow was $167.1 million, versus $94.9 million in 2019. Investing activities used $15.4 million (prior year: $46.3 million); financing activities used $74.6 million (prior year: $24.8 million). Cash and restricted cash increased $78.4 million to $112.6 million. Management reported $110.5 million of unrestricted cash at quarter-end.
Liquidity and debt: September 30 cash and restricted cash was $112.6 million. Debt comprised $40.4 million of short-term debt, $17.5 million of current long-term debt and $317.9 million of long-term debt, approximately $375.8 million in total. The company had $358.7 million available under its revolving facility, after letters of credit, and $60.2 million available under local credit facilities. It reported compliance with debt covenants.
Period comparison and business drivers
- Q3 sales rose 15.7% year over year (15.1% at constant currency), and attributable net income more than doubled. Management attributed the rebound to increased golf rounds and product demand following reopening of courses and retail locations.
- Q3 Titleist golf balls sales increased 40.7%; Titleist golf gear increased 28.0%; FootJoy golf wear increased 13.1%. Titleist golf clubs sales fell 4.7%, reflecting lower sales of metals, hybrids and irons.
- For the first nine months, sales declined 9.2% (8.7% at constant currency) and attributable net income declined 27.9%. All reportable segments recorded lower sales, principally due to pandemic-related closures and disruption; Korea was a regional exception, with sales growth.
- Nine-month gross margin fell 1.1 percentage points to 51.1%, including unfavorable manufacturing overhead absorption during U.S. golf-ball facility closures and weaker golf-club mix and inventory obsolescence. SG&A fell $47.5 million, largely from lower advertising, promotional and selling costs.
Outlook, risks and notable items
- No numerical revenue or earnings guidance is provided. Management said operating cash flow, cash on hand and available credit were expected to meet liquidity needs for at least the next 12 months, subject to the duration and severity of COVID-19 and customary borrowing conditions.
- Management expected full-year 2020 capital expenditures to be below 2019, following $15.4 million of spending in the first nine months. Share repurchases were suspended in April 2020; the company may resume them at its discretion. It declared a subsequent-quarter dividend of $0.155 per share, payable December 18, 2020.
- COVID-19 remained highly uncertain. Potential effects include renewed closures, weaker golf participation and demand, manufacturing or supply-chain interruptions, customer and supplier financial stress, and volatility in currency, interest rates and commodity costs. Japan remained weaker than several other markets in Q3.
- A July 2020 credit agreement amendment provided temporary leverage-covenant relief through September 2021, with covenant limits tightening thereafter and returning to 3.50:1 beginning with the quarter ending December 31, 2021. The amendment also increased certain borrowing and unused-commitment pricing during the relief period.
- Nine-month restructuring charges were $13.3 million, primarily severance under voluntary retirement and involuntary headcount programs; management said no further costs were expected for those programs. Other unusual costs included $5.1 million of pension settlement costs and pandemic-related costs included in Adjusted EBITDA adjustments. Adjusted EBITDA is a non-GAAP measure and is not a substitute for GAAP results.
- Pending lawsuits arise in the ordinary course; the company said outcomes and aggregate losses could not be estimated and had not recorded a liability for potential losses. Purchase obligations were $177.998 million in total across the periods shown, including $135.939 million due in the remainder of 2020.
Key facts investors should verify
- Whether elevated Q3 golf participation and demand persisted, particularly in the United States and Europe, and whether Japan recovered.
- How sales, gross margins and inventory obsolescence develop as new golf-club products launch and pandemic-related production effects unwind.
- Liquidity, covenant compliance and debt costs under the amended credit agreement as covenant relief phases out.
- The sustainability of operating cash flow and the company’s capacity to maintain dividends, planned capital spending and any resumed share repurchases.
- The effect of COVID-19, foreign exchange and other market risks on the outlook; the filing provides no quantified earnings or sales forecast.