Acushnet Holdings Corp. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Acushnet designs, manufactures and distributes golf products, including Titleist equipment and FootJoy apparel and footwear. Figures below are in U.S. dollars; financial statement amounts are unaudited.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $593.4M | $558.2M | $1,969.0M | $1,822.9M |
| Gross profit / margin | $308.5M / 52.0% | $295.0M / 52.8% | $1,042.7M / 53.0% | $955.6M / 52.4% |
| Operating income | $78.6M | $76.0M | $310.0M | $269.9M |
| Net income attributable to Acushnet | $57.3M | $51.8M | $225.2M | $199.3M |
| Diluted EPS | $0.85 | $0.72 | $3.30 | $2.72 |
| Adjusted EBITDA / margin | $98.8M / 16.6% | $86.5M / 15.5% | $377.6M / 19.2% | $313.0M / 17.2% |
| Interest expense, net | $9.4M | $4.5M | $30.2M | $7.9M |
At September 30, cash, cash equivalents and restricted cash were $56.8M, including $1.7M restricted; management reported $55.1M of unrestricted cash. Total debt was $592.8M, consisting of $34.1M short-term debt, $345.1M current portion of long-term debt and $213.6M long-term debt. The company reported $385.1M available under its revolving facility and $27.5M under local facilities, and was in compliance with credit covenants.
For the first nine months, operating cash flow was $296.9M versus cash used of $59.0M in 2022. Investing used $68.6M, including $42.4M of capital expenditures and $25.2M for acquired trademarks. Financing used $229.2M, including $204.7M of common-stock purchases and $40.1M of dividends. Cash declined $2.1M over the period.
Material changes and operating performance
- Q3 sales increased 6.3% year over year, or 6.0% on a constant-currency basis. Higher club volumes and higher average selling prices for Titleist golf balls and FootJoy products drove growth. Gross margin fell 0.8 percentage points, primarily reflecting weaker FootJoy wear profitability; operating income increased 3.4%.
- Q3 net income attributable to Acushnet rose 10.6% and diluted EPS rose 18.1%. EPS growth also reflects a lower weighted-average share count following repurchases. Net income before tax was slightly lower, while lower tax expense supported reported net income.
- For nine months, sales rose 8.0% reported and 9.9% constant currency; gross margin improved 0.6 percentage points. Net income attributable to Acushnet increased 13.0%. Interest expense rose substantially, mainly due to higher borrowings and rates.
- Q3 segment sales: Titleist golf balls $192.6M (+6.3%), clubs $181.0M (+17.6%), golf gear $47.7M (-19.4%) and FootJoy golf wear $136.7M (+3.8%). Clubs and balls led segment operating-income growth. Golf gear operating income fell to $0.8M; FootJoy recorded a $1.5M operating loss, versus $1.9M income a year earlier.
- Management attributed nine-month operating cash-flow improvement principally to working capital, especially inventory reductions and improved inventory position and supply chain.
Outlook, risks and unusual items
- Management expects approximately $75M of full-year 2023 capital expenditures; actual spending may vary with project timing and supply-chain conditions. No full-year revenue or earnings guidance is provided in the filing.
- Management believes operating cash flow, cash on hand and available facilities will meet liquidity needs for at least 12 months, while noting that results and cash generation depend on demand, economic conditions, input costs and currency rates. A substantial majority of unrestricted cash was held at non-U.S. subsidiaries.
- On October 3, 2023, a wholly owned subsidiary issued $350M of 7.375% senior unsecured notes due 2028. Proceeds repaid $345.6M of revolving-credit borrowings and funded related fees and expenses. This post-quarter financing changes the debt mix; it does not eliminate leverage or interest-rate exposure.
- The company repurchased 4.15M shares for $205.0M during the first nine months. It had $202.4M remaining under its repurchase authorization at quarter-end, including $100M associated with an agreement to purchase matching shares from its controlling shareholder’s subsidiary. A further $0.195-per-share dividend was declared for payment in December 2023.
- Key disclosed risks include leverage and debt-service needs, variable interest rates, foreign-exchange movements, inflation and availability of materials, seasonality and weather, product demand and competition, and supply-chain or shipping disruption. A one-percentage-point rate increase was estimated to raise annual pretax interest expense by $4.9M, based on quarter-end variable-rate debt after hedging.
- Pending lawsuits arise in the ordinary course of business; outcomes and aggregate monetary exposure cannot be estimated, and no liability for potential losses was recorded. The filing reports no material change to previously disclosed risk factors other than expanded risks related to indebtedness. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether operating cash flow remains strong after the seasonal working-capital reversal, given the large inventory and receivables balances.
- The post-quarter effect of the notes issuance on total debt, borrowing availability, cash interest expense and covenant headroom.
- Whether Titleist club and ball momentum offsets ongoing weakness in golf gear and FootJoy profitability.
- How continued buybacks, dividends and capital spending affect liquidity and leverage; also confirm completion and settlement of the announced Magnus share purchase.
- How demand, currency, input costs, freight and interest rates affect margins and management’s stated liquidity outlook.