Acushnet Holdings Corp. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods. The unaudited filing covers Acushnet’s Titleist golf balls, Titleist golf clubs, Titleist golf gear and FootJoy golf wear businesses.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $558.2 million | $521.6 million | $1,822.9 million | $1,727.4 million |
| Gross profit | $295.0 million | $268.8 million | $955.6 million | $914.0 million |
| Gross margin | 52.8% | 51.5% | 52.4% | 52.9% |
| Operating income | $76.0 million | $52.5 million | $269.9 million | $281.7 million |
| Net income attributable to Acushnet | $51.8 million | $39.3 million | $199.3 million | $205.3 million |
| Diluted EPS | $0.72 | $0.52 | $2.72 | $2.73 |
| Adjusted EBITDA and margin | $86.5 million; 15.5% | $70.3 million; 13.5% | $313.0 million; 17.2% | $333.3 million; 19.3% |
Q3 sales rose 7.0% as reported and 13.5% at constant currency, primarily on higher volumes. For the first nine months, sales increased 5.5% as reported and 10.5% at constant currency. Q3 gross margin improved, but year-to-date margin declined amid higher inbound freight and input costs. Year-to-date operating income and adjusted EBITDA fell despite sales growth, reflecting higher SG&A and segment operating costs.
Q3 segment sales increased in golf balls (8.4%), clubs (13.5%) and gear (27.0%); FootJoy wear sales declined 4.5% as reported but rose 2.5% at constant currency. Clubs and gear had the strongest Q3 segment operating-income growth. For the nine months, all four segments grew sales as reported, but segment operating income declined in golf balls, gear and FootJoy wear.
Cash flow, debt and liquidity
- Operating cash flow was a use of $59.0 million in the first nine months of 2022, versus $280.1 million provided in 2021. The filing attributes the change primarily to working capital, including increases in receivables and inventory.
- Investing cash outflow was $29.1 million, including $33.6 million of capital expenditures. Financing cash outflow was $74.6 million. Cash, cash equivalents and restricted cash decreased $173.2 million to $108.5 million; unrestricted cash was $106.8 million at September 30.
- Debt carrying amounts were $27.5 million of short-term debt and $406.7 million of long-term debt. On August 2, the company refinanced its prior term loan and revolver with a $950 million revolving facility maturing in 2027. Outstanding revolver borrowings were $405.6 million at a 4.28% weighted-average rate. Availability was $537.3 million under the revolver and $32.1 million under local facilities. The company reported covenant compliance.
- The company paid $39.7 million in common dividends and repurchased 2.98 million shares for $139.8 million during the nine months. It had $208.4 million remaining under its repurchase authorization. A $41.6 million liability was recorded for shares to be repurchased from controlling-shareholder affiliate Magnus under the amended agreement.
Outlook, commentary and risks
No full-year revenue or earnings guidance is provided in the supplied filing text. Management expected 2022 capital expenditures of approximately $50–$55 million and said cash, operating cash flows and available facilities should meet liquidity needs for at least the next 12 months, subject to risks and customary borrowing conditions.
Management cited inflation, higher raw-material and freight costs, supply-chain constraints and the continuing uncertainty around COVID-19 as factors affecting operations. It expected inflationary input and shipping costs to remain an issue for the rest of 2022. Higher interest rates and foreign-exchange movements are additional exposures; a one-percentage-point increase in rates on variable-rate debt outstanding at quarter-end was estimated to increase annual pretax interest expense by $4.3 million. Foreign-currency transaction losses in SG&A were $15.0 million year to date, compared with $1.9 million in 2021.
The company is party to ordinary-course lawsuits but said it could not estimate potential aggregate losses and had not recorded a liability for them. It reported no material changes to the risk factors in its 2021 Form 10-K. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Investor verification priorities
- Assess whether the working-capital cash use, particularly the build in receivables and inventory, reverses as seasonal cash collections progress.
- Monitor the effect of freight, materials, distribution costs and foreign exchange on gross margins and segment profitability.
- Verify the pace and cost of share repurchases, including the outstanding Magnus commitment, alongside dividends and liquidity needs.
- Track variable-rate borrowing costs, facility availability and continued compliance with leverage and interest-coverage covenants.
- Review subsequent disclosures for updated capital-spending expectations, business outlook, litigation developments and any change in supply-chain or inflation conditions.