Acushnet Holdings Corp. (GOLF) Q1 2017 Earnings Report, Transcript and Summary

Good morning. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2017 Acushnet Holdings Corp. Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Tony Takazawa, Vice President of Investor Relations. You may begin your conference.

Thank you. Good morning. And welcome to Acushnet Holdings call to discuss our financial results for the first quarter of 2017. This morning we are joined by Acushnet CEO, Wal Uihlein. Wally will provide his observations and commentary on what is going on in the golf industry. Next Acushnet COO, David Maher will discuss the performance of our business across our segments and geographies. And finally, Acushnet CFO, Bill Burke will spend some time discussing our overall financial results for the quarter. After the prepared remarks we will then open up the lines for your questions. We will be making forward-looking statements on the call today. These forward-looking statements are based on Acushnet's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations, a list of factors that could cause actual results to differ please see our filings with the U.S. Securities and Exchange Commission. Throughout this discussion we will be making reference to non-GAAP financial metrics, including items, such as, revenues at constant currency and adjusted EBITDA. Explanations of how and why we use these metrics and reconciliations of these items to a GAAP basis can be found in the schedules in today's press release, the slides that accompany this presentation and our filings with the U.S. Securities and Exchange Commission. With that, it is my pleasure to introduce Acushnet CEO, Wal Uihlein. Wally?

Thank you, Tony. Good morning, everyone, from Fairhaven Massachusetts, a place as good as it sounds and thanks for joining us on today's call. Before I commence my business update commentary, I do want to announce that are Board of Directors today declared our second quarterly cash dividend of $0.12 per share for shareholders payable on June 16, 2017 to shareholders of record as of June 2, 2017. This announcement is consistent with our long-term total return representation and affirms the Acushnet company's playbook consisting of an any external focus on the games dedicated golfer, a broad product category portfolio, a favorable mix of consumables and durables, our brands that resonate to the commercial core of the golf industry, strong pyramid of influence validation and a desirable concentration in high margin equipment segments. Big picture, the industry’s structural underpinnings continued to stabilize as the retail correction continues to play out and we made a number of positive takeaways. Photograph account, total facilities and total annual rounds of play have appeared to have reached a reliable and predictive level. One the previous call we mentioned the annual Datatech/Yano size of market study where their findings revealed that the golf equipment and apparel opportunity at retail remains just under $12 billion, this number corresponding to a wholesale size of market somewhere between $7.8 billion and $8 billion. The total commercial opportunity remains attractive. At the same time, some of the industries initiatives whether it be the U.S. Specific, PGA Junior League or Drive, Chip and Putt, the HSBC grassroots idea of making golf part of the United Kingdom school physical education program and the Canadian Golf Federation’s Future Links program. These are all representative of the golf -- global golf industry attempting to precipitate its own future. And recent changes such as fewer OEMs, longer product life cycles and retail consolidation are all part of the ongoing direction and a new normal. We think this correction is another 12 months to 24 months to run minimum. This is based upon the experiences of correction periods in recent memory 1999, 2000 dotcom correction and the 2008, 2009 subprime correction. And it is our opinion that not all of the revenue that previously existed will be sustained, previous high inventory levels represented supply at retail greater than annual normative demand, helping explain the eventual physical demise of those retailers no longer with us. However, all-in-all, this correction remains very much a long-term positive and even the conservative and frequently vilified regulatory bodies are helping brief fresh air into the industry with an objective of simplifying the rules of golf. Their proposals, most sweeping changes since the formal inception of the rules in 1744 recommend to reduce the number of rules governing competition in every day play from 34 rules to a proposed 24 count. Certainly, one of the recommendations that we hope becomes adopted is the rule change proposing the search time for a lost ball be reduced from 5 minutes to 3 minutes. Taking all of this into account, the global golf industry is in a pretty good place and remains an attractive opportunity for those companies and brands with advantage positions in the product, innovation, operations and rub to market arenas. Against this backdrop of continued industry correction, first quarter 2017 produced lingering retail softness, stemming from a number of factors, including less off-price golf club product, fewer doors, isolated winter weather woes and some unusual golf ball product category promotion at the time of the year, when total rounds of play are limited in all countries. Looking at some of the key markets, rounds of play in the United States were mixed, due to both weather and off-season regional comparisons. Our consensus is that overall retail spending was down 3% to 5%. In Japan, rounds of play for the quarter were off due to an unusually cold winter and retail golf equipment and apparel sales were up 8% to 10%, much of this due to fewer visits and less spend by the affluent Chinese golfer. South Korea remains healthy where both rounds of play and retail spend increased 3% to 5% on a year-over-year comparison basis and while the early season environment was mixed, our results were steady and reflect the strength of our strategy are positions in all business segments and in all geographies and exemplary execution by our associates worldwide. We are pleased with our reported net sales of $434 million and adjusted EBITDA of $78 million, both of which were down a bit less than 1% year-over-year. Now David will provide some color on our key business segments.

Thanks, Wally, and good morning, everyone. I'd like to first take a moment to frame how we view the first quarter of any given year. For Acushnet the first three months are a staging period as we stock, merchandise, educate and prepare our trade partners for the upcoming golf season. We are pleased with the good work of our team in executing these priorities across the 46 countries in which we have direct sales capture. While the game is in high gear during Q1 in Sun Belt markets, such as Florida and Arizona the fact remains that much of the golf world is still hibernation where preseason mode waiting for the weather conditions to cooperate. In most years the primary golf retail season kicks into gear globally with the opening tee shot at the Masters. My remarks today will focus on our four business segments, Titleist Golf Balls, Golf Clubs and Gear, and FootJoy. And before commenting on these segments, I will reiterate that the Titleist Ball and Club businesses generally run on two-year product life cycles, which may prompt added explanation of our year-on-your comparisons. Titleist Gear and FootJoy tend to operate with more normalized sales comps. Starting with the number one ball in golf, net sales for the quarter of $134 million, were up 3% both reported and on level FX. The 2017 Pro V1 launches right on target. In the U.S., in spite of having 600 fewer doors to sell to, our Q1 launch equal that of Q1 2015, the previous lunch quarter reference point, and worldwide we ship more Titleist Pro V1 and Pro V1x golf balls in Q1 2017 than any previous first quarter. Strong golfer response fueled our annual Pro V1 Loyalty Rewarded campaign with on course channel growth helping to offset any retail consolidation impact. On the leadership front, Titleist ball counts have increased 300 basis points to 500 basis points on the major tours as three out of four previous Nike players have made their way to us. Importantly, player feedback on our new Pro V1 and Pro V1x golf balls has been excellent and we are very happy with the resulting usage mix. At the end of the quarter, we have over 20,000 golf ball displays activated and ready for the upcoming playing season. We feel confident about the state of the Titleist Golf Ball business and what remains a very competitive category. We have seen promotional activities take place earlier than in most years. With that said, we will continue to differentiate our position based on a leading IPR portfolio and commensurate annual R&D investments. World-class leverage manufacturing footprint, we make every ball that we sell and a route to market advantage resulting in Titleist Golf Balls being prominently positioned in over 30,000 golf shops worldwide. Turning to Titleist Golf Clubs, net sales of $102 million, were down 11.7% versus last year and 10.8% on a constant currency basis. There are a few notable factors behind this decline. First, is the plan for comparison against three major golf club introductions from Q1 in 2016, a record Vokey wedges launch, strong iron sales and the VG3 launch in Japan. There were also some industry factors that impacted our results. First, reflected in this top is the negative impact of the Golfsmith store closings, and secondly, there was aggressive ad spending in the golf club market during the quarter, a majority of our fitting-based A&P spend is slotted in Q2 and Q3 when most fittings occur, so we did see an impact here, mostly in drivers, the category where we have seen some good competitive entries. This had an effect on our 917 drivers and fairways which could off to fast starts in Q4, but we saw this growth slowed during Q1. Our golf club playbook is superior performing product which is optimized for the golfer by a professional custom fitting experience. We have over 4,000 custom fitting partners worldwide and will conduct over 6,500 fitting events in this second quarter, a 40% increase versus last year. Much of this activity is underway including Titleist Thursdays, our broad-based weekly trial in fitting events. Moving to the Titleist Golf Gear segment, first quarter sales of $42 million, were up 7.2% for the period, were 7% on a constant currency basis. This growth was led by successful launches of the new players stand bag line, travel gear and the 2017 Titleist headwear collection. These products are among the first to be introduced based upon our new design and supply chain processes and we are excited with the progress we're making in this segment. As we have said previously, our ability to both perform and exceed expectations with Gear is commensurate with the speed of conversion as we transition from third-party supply chain dependency to a point where we control the design, the material spec brief and finished goods quality assurance. The endgame is to ensure that all Titleist branded gear products represent the golf standard of their respective segment. And finally, I will note that while gross margins in the gear categories are less than the higher margin performance equipment categories, the net margins after direct expenses make this segment equally attractive. We conclude our segment commentary with FootJoy, the golf industry's most authentic golf wear brand, which had a strong opening quarter. Net sales for the period of $142 million were up 1.7% versus last year or 0.4% on constant currency. This decline is solely attributable to the U.S. retail door contraction. While footwear sales were down for the period, FootJoy gain share in most markets led by the very successful Pro/SL golf shoe. FootJoy gloves posted a quarterly sales gain as did FootJoy apparel as our team continues to effectively build out and refine the performance of our business globally. I will next provide an overview of first quarter revenues across the various geographies. Our Q1 revenue in United States was down 3% year-over-year and as indicated previously was largely the result of the reduced off course retail store base. To-date pipeline filling with our green grass and golf specialty partners is healthy heading into the start of the golf season. And I would also note that we managed our field inventories well over what was a challenging US retail backdrop over the past two quarters to three quarters. The US market will continue to cop against higher door accounts into the middle of Q3 and this has been reflected into our planning. Looking at the results in our major ex-US markets, EMEA revenue in Q1 was down 7.2% versus last year and up almost 1% on a constant currency basis. On a reported basis, the 7.2% decline is almost solely due to the weakening of the pound sterling post Brexit. More importantly, we view the constant currency increase is a very solid result as we were copping against last year's first quarter, which was one of our strongest ever in EMEA. Quarterly revenue in Japan was down 9.5% year-over-year and down 10.6% on a constant currency basis. This was largely anticipated due to the comparison to Q1 2016, where in Japan an even number of years, our Club business is typically quite strong, reflecting the introductions of new wedges, irons in the Japan specific VG3 product line. Q1 revenue in South Korea was up 29.4% year-over-year, up 24.1% on a constant currency basis. And outstanding performance by our Korean team with sales gains across all product categories aided by strong operational controls over field inventories in anticipation of the Q1 2017 product launches. In summary, we are pleased with our Q1 performance and as you would expect we continue to monitor near-term market headwinds, which include, the Q2 comps associated with Golfsmith closings, Japan market traction, competitive club spending in golf ball promotional activities, and of course, mother nature. We believe that the initial acceptance of our new products, our teams execution and our trade partners readiness to expertly fit and recommend Titleist and footwear products to dedicated golfers position us well and we remain on track to meet our 2017 goals. Bill will now provide some further commentary on our financial results for the quarter.

Thanks, Dave, and good morning, everyone. As Wally noted, consolidated revenue in the quarter was $434 million, down 1.4% year-over-year and down 0.8% in constant currency. Q1 gross profit was $226.4 million, up slightly from last year and gross margin was 52.2%, up 90 basis points year-over-year. The increase in gross margin was primarily driven by the favorable mix shift to the Pro Vi franchise as we launch the [ph] new Golf Balls (16:36) worldwide. Just a few comments on margins, as you know, we've chosen not to provide short-term guidance on gross margin. However, we do as a rule strive to achieve gross margin in the 50% or above range over the long-term. While this will ebb and flow with both seasonality and with our product launch cycles, sustaining gross margin at this level over time is very important to us. We feel that as a global company and a business that’s highly dependent on both innovation and product education and fitting, it provides us with the required resources to invest in R&D and consumer connection initiatives, both necessary to sustain and reinforce our performance advantage with a dedicated golfer. Looking at operating expenses, SG&A of $148 million was down 4.7% versus last year. This decline was primarily due to the absence of a one-time executive bonus and IPO transaction costs that took place in Q1 of 2016. In Q1, research and development expense of $12.5 million was up $1.4 million over last year and approximately 33% of sales. This increase was primarily driven by employee-related costs, including share-based compensation. Q1 interest expense of $2.9 million decreased by $10.9 million from last year, primarily due to lower total debt as a result of the conversion of the previously outstanding convertible notes and 7.5% bonds at or prior to the IPO in October of last year. Our Q1 effective tax rate was 36.2%, compared to 40% for the same period last year. This was due to the absence in Q1 2017, a non-deductible transaction costs, as well as fair value losses on previously outstanding common stock warrants, both of which are not tax affected. As I stated earlier, the warrants no longer exists, as they were fully exercised to retire the outstanding 7.5% bonds prior to the IPO. As a result, our Q1 net income attributable to Acushnet Holdings of $38.1 million improved by $14.4 million from Q1 of last year and as a result of both lower interest expense and higher operating. We continue to use adjusted EBITDA as our primary operating performance measure. Adjusted EBITDA for Q1 was $78.5 million, down about 1% from last year. Over the course of the last several years, our financial results have been impacted by a number of items, some of which arising from the 2011 acquisition of our company and the resulting capital structure, as well as expenses incurred in the process of becoming a public company, making year-on-year earnings comparisons difficult. To assist in analyzing various items year-on-year we have provided a detailed reconciliation of adjusted EBITDA. I would note that our first quarter adjusted EBITDA reconciliation schedule will be helpful for your analysis of our business this quarter and moving through the rest of 2017. Q1 of 2017 is the first quarter where a number of these one-time discrete items were not incurred and the remaining adjustments are on a more normalized run rate. Items such as depreciation and amortization, and share-based compensation are at their general run rates, the latter of which, however, can potentially fluctuate depending on company performance. Interest expense is also becoming more normalized and in the second quarter will reflect the full quarter impact of the delay draw on the term loan A that took place in March. Also as referred to earlier, our current estimated tax rate of approximately 36% reflects a more normal run rate given our forecast of jurisdictional earnings at present, this in the absence of any one-time discrete items that may arise or a significant shift in those jurisdictional earnings. Looking to the balance sheet, we have $59.5 million of unrestricted cash on hand as of March 31, 2017. As I mentioned, we executed the plan $100 million delay draw on our term loan A in the first quarter to assist in finding our schedule equity appreciation rights payout under the plan that concluded on 12/31/16. In addition, we utilize a revolver to fund our working capital needs as we enter the golf season and our pipelining inventory with our trade partners. As a result, total debt outstanding as of March 31st was approximately $630 million, which would represent near our peak level for the year or approximately 2.8x LTM adjusted EBITDA. Reducing our debt is a capital allocation priority for us and over the next two years it is our goal to achieve an LTM total debt-to-EBITDA ratio of 2x or less. CapEx in the quarter was $3.7 million. Bear in mind, however, the capital spending is typically low in the first quarter of any fiscal year as our facility production and distribution requirements in Q1 generally have us initiating more capital projects later in the year. At present we are still forecasting total year CapEx in the $26 million range. In summary, we are off to a solid start for 2017. Our proven strategy, global business model and great team continue to produce the consistency and reliability of our financial results over the long-term. With that, I'll now turn the call over to Tony for Q&A.

Thanks, Bill. Krista, can we open up the lines for questions now please.

Certainly. [Operator Instructions] Your first question comes from the line of Simeon Siegel with Nomura Securities. Your line is now open.

Thanks. Good morning, guys.

Hi.

So really nice gross margins, can you help quantify how much came from mix shift and the new launch, how were those golf for gross margin this quarter, maybe how to think about those going forward? And then just within the Golf Balls, can you parse out how much the new launch added and maybe help us understand the trajectory there. I just recognizing the two-year cycle, the balls looks slightly lower than where they were in Q1 ’15, I think, some of that might be a facts, but maybe just help us think through where that opportunity, where do you see opportunity going from here? Thanks.

Well, first, just on the margins, so the 90 basis points was almost solely due to the Pro V1 mix and was a strong Pro V1 mix in the quarter. So as we go out to -- we finish the pipelining of Pro V1 in the first quarter, we will now start normalizing with more performance models throughout the year, so I wouldn’t look at that as a proxy for where the year would be at close. And typically in the first quarter, margins are high, because you are loading the tray with premium product. There is not a lot of close up product out there. But, again, I would go back to say that it's primarily due to the mix shift of Pro V1.

Okay. Thanks. And then just in terms of thinking through the sales?

Yeah. Help me clarify that one Simeon your question.

So I know the two-year cycle, so I just look back two years are look the Golf Balls are side of sales are slightly lower, I think, anywhere in 1Q ’15. So just want to think through how you view that -- and again, some of that might just be in fact distortion, but just the right way to think through where the golf ball opportunity as we think about the golf ball growth longer term?

High level we feel real good about our quarter up 3%R in the marketplace with certainly you have see 500 to 600 fewer doors in 2017 then you had in ‘16 or ’15. So the first point we make is just that, we like our position given the corrected and contracted retail marketplace. Certainly, it benefited from, as Bill said, the pipeline of new products, a pipeline of premium products. As we think about the year and I do think and back to the correction point as we think about the year Q2 will be more function of demand then it will be a function of pipeline opportunities. So we are going to have live with the realities of marketplace that just down 500 to 600 doors, but coming over the blocks, we feel great about Pro V1, rest of our line in year two, always have to work hard in year two and we intend to do that.

Thanks. Thanks a lot guys. Best of luck for rest of the year.

Next question please.

Your next question comes from the line of Matthew Boss with J.P. Morgan. Your line is now open.

Hi. Good morning. This is Steve Zaccone for Matt today. Thanks for taking my question. Just following up on the previous question there, can you elaborate on what you saw in the golf ball market during the first quarter? You mentioned an unusual golf ball promotion and this was also cited by one of your competitors. Just trying to understand like what happened there, have you really seen any changes in the competitive landscape and then thinking back your market share in the category? And then along those same lines have you seen any improvement in the commercial landscape as you look here in the second quarter?

Yeah. Steve, I think, the best way to frame that is, we didn't see anything in the first quarter that we haven't seen before. But what we did see is activity typically you'd see in the second and third quarters transpire in the first quarter, and examples of that would be, just a bit more prior generation product to the marketplace, a bit more [inaudible] (26:24) with purchase of multiples and then the final piece was there still a decent amount of Nike inventory in the marketplace, as they move through that product in retail channels? So when we speak of promotional activity in the quarter that’s really what we’re seeing. Again, nothing we haven't seen before, but what was unique and unusual is that it happened as early in the season as it did. From a share standpoint, again I'll echo, we feel great about Pro V1 in the start. We took a step forward there. When you look at our total shares around the world to echo my previous point, we certainly have work to do on our prior, excuse me, in our performance models in Pinnacle, again, there in year two we get an uplift last year and we've seen some share get back this year. So that’s certainly a priority of ours going forward.

Okay. Great. And then just a follow-up, had the promotional landscaping proved here in the second quarter and then it will be great to just understand how has early sell-through trends been in the U.S. thus far?

Yeah. Has it -- it somewhat normalized and again it’s albeit a bit early from a promotional standpoint, so as we sit here today, again I'll echo, we are not seeing anything we haven't seen before, but in mid-May, it's a bit more than we would have expected, so point one. And point two, early sell-through shares, everybody is trying to make sense your question about the U.S. Everybody is trying to make sense and model this U.S. market in light of the fact that we are just we are down a whole lot of doors, so a lot of what's happening is hypothetical modeling of the market. From our advantage point is those left standing are doing better. It doesn't fully offset the fact that you’ve got a whole lot of doors that are doing nothing. So net-net we see total sell-through down a bit as you'd expect and as we anticipated, but it's a tale to say it’s -- the survivors done a little bit better, but not enough to offset the ramifications of that door count. And that's true with -- that’s true our position all along is that not 100% of this volume will find a home and we are reluctant to put a number on the percentage of the volume, but we will find the home.

Okay. Great. Thanks very much.

Thank you, Krista, can we move to the next question please.

Certainly. Your next question comes from the line of Kimberly Greenberger with Morgan Stanley. Your line is now open.

Great. Thank you. Good morning. I wonder if you can talk about any sales shift you might be seeing out of the first quarter into the second quarter, just given the reduction in playable days that we saw because of unfavorable weather particularly in March I think? And then I'm wondering if you can talk about what you're seeing in the marketplace in terms of market share dynamics and how they're playing out with the exit of some of the other players like I was a little surprise to hear that there are still looks a lot of in Nike ball inventory out there. Maybe you can just talk about the -- how you expect that to play out this year and where you see in particular your market share opportunities? Thanks so much.

Yeah. So, Kimberly, your first question really about the first quarter and weather, I think, the way we look at the first quarter we see a couple of positives. First off, good weather in Florida prompted rounds up 6%, that's obviously very good news. You look at the Westin and you see California down 10 please percent due to weather, they needed the rain, so long-term that's a good sign, short-term, obviously, if you're looking at a 10% decline, but again they needed the rain. And you look at other open markets Arizona, Texas, et cetera, they are by and large normalized. They are running plus or minus 1% or 2%. So that's how we assess the first quarter of the year. Big declines in the Northeast and Midwest, which frankly we don't worry too much about, there is winter rounds which typically don't come a lot of revenue attached to them. So that's our assessment of weather. I will add that in the west the weather seems to have normalized and the rains have slowed and stopped and business as usual there. But as you would expect when you lose rounds in the first quarter tough to make come back in a subsequent quarter. And then the next question about market share dynamics, I assume that’s a ball Kimberly?

Yeah. Balls and also I'm sure you're seeing some players, well, particularly Nike with present, obviously, heart good side well. They are just -- who is exiting, where do you see market share opportunities and is there still product out there from those OEMs they are exiting?

Yeah. There is and it really is the Nike, there is some Nike inventory largely in off course retail and it's moving its way through and we don’t take it a last -- longer but it's probably going to linger through the end of the second quarter. As we think of share opportunities, we’ll do on the front end of Pro V1 launch campaign. Our charge here number one in the first quarter is to put it in the market and get it ready for the season, we’ve done that. Our charge in quarter two is to activate our trade network and our trade partners activate our fitting network both Balls and Clubs to tell our story and to work directly with golfers and help our trade partners convince golfers that, hey, the product we brought to market is improved from our prior version, it is better than competitive models and it will help them play their best golf. So we really in sell-through activation mode right now.

Terrific. Thank so much.

Thank you, Kimberly. Next question please.

Next question comes from the line of Dan Wewer with Raymond James. Your line is now open.

Yeah. Thanks. Dave, on the loyalty promotion that you run each year, was the number of days in 2017 the promotion is running the same as last year or what?

Same as ’16, Dan, we have a quick Sun Belt window and that is the same window leading up to Masters end of March and April, but it’s exactly same as it was last year.

And so is it was just Bridgestone that's changed the promotional cadence in the industry, I can't find any other brand that's changed, but is it was just Bridgestone?

I'd rather not comment on competitive activities. I think in years past we've seen many players emulate the loyalty program that was the case this year as well. But again, as I mentioned, we have seen the Nike activity and the few other players get a bit more active in free doesn't with multiple purchase.

One other question related to the Golf Club category, you talked about the competitive pressure on the 917, what -- I guess we should expect that continue through the balance of the year? And then also if you could comment on the ultra-premium offering, I don't think you talked about the JP wedges in your prepared comments, but it sounds like that along with the expanded production of the 316, it sound like you're getting more serious about that ultra-premium end of the market that's true or not?

Yeah. I will handle the first part of that and then -- and Wally will tackle the second. But first off, our Club business, we running four segment science, wedges, putters, metals, pleased to report the iron business, the wedge business, the putter business, really on track to our expectations. We feel good about that. As mentioned in my opening remarks, we are seeing -- we saw in the first quarter whole lot of ad noise -- advertising noise from our competitors, who have some good products. Our response to that is really activate the fitting network in the second quarter and third quarter. But to your question, fair to say that that the noise of the first quarter will continue into the second and third quarters and we are anticipating that it will.

Okay.

Hey, Dan. It's a good question on JP. As you might understand for competitive reason I am not going to disclose anything more than what's available on the website, but the industry is a long history of craftsman incubation. There is not enough time in the call for me to name all of them over the last 34 years we are always on the lookout for talented specialist in JP is one of those guys. He spent time with hot sticks and cool clubs was on his own for a while. But he is actually been with us since 2013 and his wedges will feature some interesting constructions and exotic materials wrapped up in a in a custom fit, custom-built experience and anticipating that Vokey JP check the position question, I would like it to sport in the 1960s, they were selling a lot of mustangs and those are our Vokey's and JP's like our Carroll, Shelby putting a Ford V-8 engine into an AC Cobra chassis. So it differ markets.

Is there a chance that, are you expecting that the JP brand will have some cannibalization of Vokey?

Yeah. In different markets.

Okay.

But the JP experience is more competing with two-day short game schools where $1000 and $2000 all you get is education, but in this particular experience you also get three wedges.

Got you.

And Dan, your 316 question.

Yeah.

We had a limited run in 2016 and that went great heavy, heavy concentration on the fitting process with that product. We rereleased it albeit in a small batch in the U.S. and in markets outside the U.S., last year was US-only. So we are introducing that concept to markets around the world with the caveat that it's as much about introducing the product as it is introducing the high-level fitting that goes along with it.

Okay. Great. Thank you.

Thanks, Dan.

Thanks, Dan.

Next question please.

Your next question comes from the line of Mike Swartz with SunTrust. Your line is now open.

Hey. Good morning, everyone. I just wanted to touch on, perhaps, what you're seeing out the different channels be it on course, off course, understanding off course, you had a number of doors closed. So my question is really focus on the sell-through aspect of it. Are you seeing any material differences and again, I know it’s early in the year, but between on course and off course?

I think as we comment on the first quarter it's really difficult for us to make meaningful observations about the on course channel in the first quarters, because so much of it is shutdown in months of January, February and March. Again, back to the -- back to our original premise, we think that -- we think the displaced volume is going to migrate, some is going to end on, some is going to end off, some is going to end in -- on e-commerce, et cetera. It's going to take us high. So sitting here in mid-May, we don't have any pros are listed to share with the other than, it is moving in the directions we anticipated it,. A couple of added thoughts to that, however, and points we have made in the past, good news from the marketplace standpoint, while the on course channel inventories tend to be startle and ecstatic and instable. Off course, certainly we are seeing greater inventories per door, but very good news is, the total inventory portfolio in the marketplace is down from where it's been and match that's an important point to make. What results from that is less closeout activity and I think when you look at sell-through numbers right now, you see ASPs are on the rise and that's a good thing, and I think that’s as much born of fewer product sold, the discount sold from the bottom if you will as a result of that.

That's help. It’s a great segway into my second question, which is, just a really high level, I mean, the industry -- any industry growth we have seen globally over the past call it two years to three years has been driven by pricing as we lapped out of some of that that promotional closeout activity. Are we now at a point where we can start to see volume growth as demand is participation stabilized if not grow?

I hate to keep bringing it back to the correction reality. But that's the world we are living in right now. And within our segment with dedicated golfers where we are really laser focused on. We certainly see, we certainly see opportunity to grow and get a greater share of their bags in all categories, but in terms of commentary on the total market, there's just this very real drag and effect of the correction that is playing out before us.

Okay. Great. That's it for me. Thanks.

Thank you. Next question please.

Your next question comes from the line of Randy Connick with Jeffries. Your line is now open.

Great. Thanks a lot. I really appreciate it. I guess my first question is back on the door count, you talk about the exit on the doors. What's your kind of thought process on beyond the third quarter going forward, well, let say, that, fourth quarters after that just thinking about the supply in the market. Do you think what kind of near the any of door count reductions, just kind of I am just thinking through how you thinking about next couple years for supply of door count? Thanks.

Okay. Well, as we look at this year, we are certainly going to cop against the higher door count end of the third quarter and that's reflected in our plans and projections. Longer term and really couple of answers as U.S. answer and the rest of world answer. In the U.S. you got some quality stable players in the marketplace today, real left standing. And fair to say, they are going to do okay as volume moves around. You get too far out, my crystal ball gets a little bit fuzzy in terms of where volume will go and who will be left standing, but certainly today as we stand here, we are left with a stable environment as we've seen in the last 10 plus years from a retail standpoint. Around the world, really market dependent, but fair to say that the conditions and the supply/demand realities and imbalance that we dealt within the U.S. we are far less prevalent markets around the world.

Got you. And then, I guess, my question, I look at the dynamics of the ball business versus the dynamics of the stick business. In the ball business, I think you commented that some earlier promotion out there in the marketplace, but the ball business held up extremely well product respect and extremely strong, et cetera, on the driver side it seems like there was less commentary in the marketplace about the promotions just more about other players having more aggressive maybe marketing campaigns and getting some momentum around those marketing campaigns with their new product. So just trying to get, wanted to get perspective on how you see that difference in the driver business and impact there and I think you talk about response with to activate the fitting network, but there also be potentially some price response or just trying to kind of call on how you think about improving the trajectory of that driver business sequentially going forward? Thanks.

Hey, Randy. You framed it well. The ball business, again, if there's a commentary about the market it's -- is that promotion happened a little bit earlier than we typically would see it. If there is a commentary about specifically drivers, it's about a whole lot of spending, a whole lot of noise and some good products. And again we respond through our network of fitters, we respond through product excellence and so on and so forth. So we play our hand the way we play our hand understanding that our competitors are going to play a different hand. But, again, high level, I think, you summed it up well. The Ball business and Club business had very different vibes during the first quarter.

Got it. And just lastly elaborate just on the driver business, as you think about where the driver business is today versus expectations relative the great, sounds like everything is very much on track at putters, wedges, iron, et cetera, are you thinking about, you improve that sell-through rate or the growth of the driver business, do you think about sounds that that activation of the fitting network, is that kind of form a different response than in the -- then what you were thinking in the past and just curious on how you are thinking about that category, the same or different from things you have seen in the past?

What's different is as we become more and more laser focused on fitting. We are putting more and more of our resources in the Q2 and Q3 than we have in the past. As I mentioned in my opening remarks, we've got a whole lot of events planned and prepared. We intend to do a whole lot of fittings in the second quarter and third quarter. We know that’s the engine to our business. And again, admittedly a little bit different than how our competitors approach it. But for us that is the engine to the Club business, as we need to get out there and get with golfers and fit them and prove them how our products can help them play their best golf.

And then from -- just on the inventory of the drivers in the accounting field and that needs to feel comfortable with the inventory in the channel?

On our drivers.

Yes.

Yeah. Because we are so fitting centric we -- I think the inventory issue is a different discussion for us than may be for some other companies, but because we are so fitting centric, we rarely if ever get caught with too much inventory in the marketplace. We have got lot of fitting tools in the marketplace, but tend to not have inventory issues in the market.

Very helpful. Thanks.

Yeah. Thank you, Randy. Next question please.

And your next question comes from the line of Tim Conder with Wells Fargo Securities. Your line is now open.

Thank you. Just want to -- you talked about in the preamble here regarding Japan impacted by weather and then some Chinese tourist, as relates to South Korea, do you see any impact from the Chinese travel restrictions on some retail sales there that could be realized from Chinese tourist also?

Yeah. Good question, Tim. In the all fairness, we think Japan and Tokyo has been more solicitous of the affluent traveling Chinese golfer than Seoul in South Korea and so the answer would be, no. We see more of a consequence with the position China has taken on just traveling limited number of visas in general that influence more golfer -- Chinese golfer traveling to Japan, haven't seen as much impact in South Korea.

Okay. And then, again, any additional things that you can comment on related to the closer the or announcement of the sale of, maybe competitor here, any thoughts at this point, the newer may position the brand and also given the signing of a couple of well-known players there and how that may play into well your outlook for the next 18 months to 24 months you are saying that the industry correction has to finish, is that predominately uncertainty related to TaylorMade?

Yeah. I think, in the past, Tim, we always respect your desire to ask those questions and we hope you respect our position of taking a pass on answering. We are thrilled for the TaylorMade Associates. They've got resolution in their capital structure. We wish them well and life goes on. But no, we are not going to comment on the ebb and flow of the industry, the capital structure and competitive player signings.

Okay. Would you be able to just say, would that be given the uncertainty there that will be still the probably biggest thing in the 18 months to 24 months remaining of the industry sort of finishing the normalization process?

We think the resolution of any capital structure, we've been sort of twice and six years, meaning that the resolution of any competitive capital structure is good for the stabilization of the industry.

Okay. Great. Thank you, gentlemen.

Thanks, Tim. Next question please.

Your next question comes from the line of Casey Alexander with Compass Point Research. Your line is now open.

Yeah. My questions were asked and answered. Thank you.

Thanks, Casey.

Thank you, Casey.

We have time for one more question.

And your final question comes from the line of Dave King with ROTH Capital Partners. Your line is now open.

Thanks. Good morning, guys. I guess, I just have a quick follow-up to earlier question. I guess, regarding the on course channel for the Ball business in particular, my understanding is a lot of that business is sort of sell-through and not necessary selling or exit. Anything you can share about April, May order in that segment, maybe in the earlier markets like Florida, Texas California, so kind of give us sense of how that sell-through sort of trending?

I think the best place to point is mother nature and weather really and you think about where we are in the Northeast here. We just getting rolling. So we filled the shops it's -- in many markets too soon to think about fill-ins that will happen in the next two weeks, three weeks, four weeks, five weeks, six weeks, we filled in the shops. Conversely, Sun Belt markets at this stage they tend to be on inventory work down mode. But, again, I think the best place to point you is just -- is broader weather trends, because it seems as we look at rounds of play, which drive golf sport assumption, you can't overlook the real impact of weather, because that seems to be the most impactful. Certainly, as you look at Q1 you see the trends around the country all have a strong, strong connection to weather patterns.

Yeah. Absolutely. All right. Thanks for taking the question and good luck for the year.

Thanks, Dave.

Thank you, Dave. We’ll have a few concluding comments from Wally

Okay. I want to thank everyone for joining us on the call this week. We hope people are planning on getting out to play some golf and remember when you watch the Players Championship this weekend over 8,000 dozen Golf Balls are retrieved each year from the water hazard, which guards the famous Island 17th Green and obviously a large number of them are Titleist. So thank you and we look forward to talking again in three months.

And this concludes today’s conference call. You may now disconnect.