Good morning. My name is Jack, and I will be your conference operator today. At this time, I would like to welcome everyone to the Acushnet Holding's Second Quarter 2018 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. Tony Takazawa, Vice President of Investor Relations, you may begin you conference.

Thank you. Good morning, and welcome to Acushnet Holdings call to discuss our financial results for the second quarter of 2018. This morning, we are joined by Acushnet's President and CEO, David Maher. David will provide commentary on the conditions in the golf industry, and discuss the performance of our business across our segments and geographies. Next, Acushnet's CFO, Bill Burke, will spend some time discussing the overall financial results for the quarter and year-to-date. 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. For 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 in our filings with the U.S. Securities and Exchange Commission. With that, it is my pleasure to introduce Acushnet's CEO, David Maher. David?

Thanks, Tony. Good morning everyone. We appreciate your time today. I am pleased to report that Acushnet had posted a strong first-half in 2018, driven by the successful launches of several innovative new products and solid execution by the Acushnet team and our trade partners worldwide. On a consolidated basis, sales in the quarter were $478 million, up 11.7% year-over-year, and up 9% on a constant currency basis. Growth this quarter was driven primarily by higher sales volumes in Titleist Clubs, notably 718 irons nd Vokey SM7 wedges, and growth in Titleist Golf Balls headlined by the successful introduction of our new AVX model. Adjusted EBITDA for the quarter was up 10.6% versus last year. First-half sales were $919 million, up 6.8% versus the same period last year, and up 3.4% on a constant currency basis. Similar to the quarter, the primary driver of growth in the first-half came from the continued success of Titleist Clubs. Adjusted EBITDA in the first-half of 2018 was up 4.1% over last year. We like our position at the midyear mark and are encouraged as we look to the rest of 2018 and beyond. As a result of this confidence, I am pleased to announce that at Acushnet Board of Directors has approved the payout of a second quarter cash dividend of $0.13 per share or approximately $9.7 million, to be paid on September 14. We will now take a closer look at Acushnet's four business segments with all results and percentages presented in constant currency. Starting with golf balls on page five, sales were up 9% for the quarter, and roughly flat for the first six months as a result of the successful new golf ball introductions of our new AVX, Tour Soft, and Velocity models. The AVX premium performance ball is off…

Thanks, David, and good morning to everyone on the call. As David indicated, we are pleased with our results in Q2. Consolidated revenue in the quarter was $478.1 million, up 11.7% year-over-year and up 9% on constant currency. Q2 gross profit was $250.8 million, up 12.5% from last year. And gross margin was 52.5%, up 40 basis points year-over-year. The increase in gross profit was primarily driven from a sales volume increase of our Titleist premium performance AVX golf balls. Titleist Clubs including 718 irons and Vokey SM7 wedges and higher ASPs in FootJoy golf wear. Similarly, higher FootJoy ASPs and AVX largely drove the 40 basis point increase in gross margin in a quarter. Looking at operating expenses, SG&A of $171.7 million was up $20.1 million or 13.2% versus last year. The increase in SG&A was primarily due to higher selling expense across all categories and an increase in advertising and promotion to support new product launches in golf balls in clubs. In Q2, research and development expense of $12.9 million was up about $1 million over last year; Q2 interest expense of $5.2 million increased by about 300,000 year-over-year. Our Q2 effective tax rate was 31.3%. The year-over-year decline is primarily the result of enactment of the Tax Cut and Jobs Act. As a result, our Q2 net income attributable to Acushnet Holdings of $39.9 million improved by $6.9 million or 20.9% over Q2 of last year, driven by higher income from operations. For the quarter, adjusted EBITDA was $79.4 million, up $7.6 million or 10.6% on a prior year period. To assist in your review of this calculation, we provided a reconciliation of adjusted EBITDA in our earnings release as well as on the slide presentation. Recapping our year-to-date results, sales of $919.9 million were up 6.8%…

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

Certainly. [Operator Instructions] Your first question comes from the line of Matthew Boss with JPMorgan. Your line is open.

Good morning guys. This is Steve Zaccone on for Matt. Thanks for taking our questions; firstly, just on the top line, so congrats on the sequential improvement there in revenue. When you look at the back half of the year, how would you rank the opportunities for top line growth? And then just shifting to SG&A, it was a little elevated in the second quarter and you haven't really leveraged SG&A year-to-date. How much of the increase in 2Q was related specifically to the advertising for new products. And what's the best way to think about a timeline for return to leverage.

Steve, good morning. I'll take your first question, and hand off the second one to Bill, if that's okay. And I think the best way to get at your question is to review sort of how we launch product in our product cadence. Starting in ball, Pro V1 being in its second year. We'll start to bring down field inventories in advance of our '19 launch in due and as we move through Q4. And then in the third quarter we're going to roll out AVX outside the U.S. which will benefit Q3. But I think in ball, the big story is what you're going to see happen, which happens every fourth quarter during an even-numbered year, and that is the bring-down of field inventories of Pro V1. Really the driver of the story in the back half is TS metals. Here you can expect the launch to really straddle the third and fourth quarters with the primary selling happening in September as we queue up for the September 28th market launch. Another thought to consider is that as metals are more of a stock product than irons, which we launched last year, you wont see the same level of fill-in in the fourth quarter that we saw with iron loss, that's just the variance between irons and metals. And then lastly, with FootJoy, we are launching some products in Q3, but the higher volume launch, really the Pro SL launch is scheduled for Q4. So that's sort of the key cadence to how we think about the back half of the year.

Yes, and in terms of SG&A I'll kick it off. If you remember my prior comments, I talked about the translation effect of updating the currencies that would have an impact on sales, cost of sales, and operating expenses. So we were up by $24 million year-to-date. Of that amount about $7 million of that was merely translation of ex-U.S. results. So we're up $17 million year-to-date, but this was a planned investment primarily behind the multiple club launches we had, and behind what we believe was a very strong 718 launch. As well as in the quarter a new product, the AVX product. So I think this is a planned investment, and as we look forward we'll decide exactly how we want to allocate future funding for that, but…

Great, thanks very much.

Thank you, Steve. Next question, please.

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

Great. Thanks so much. Good morning. The golf club segment, David, seemed to have a much better result, frankly, than we had forecast. I'm wondering if you can talk about where -- did it surprise you in terms of your internal plan. And is there something different that's happening in this year's cycle that you didn't see, let's say, two years ago or four years ago that you think is driving that strength. And then Bill, it was interesting, your comments on the gross margin increase in the quarter. Obviously ball, the AVX ball sales are helping. But the apparel business, you talked about higher ASPs. And I'm wondering there is that just the incremental growth in women's or is there something going on in your apparel strategy that's helping to drive that ASP higher? Thanks.

Hi, Kimberley. I'll take the first-half, and again, Bill will handle the second-half of your questions. So with clubs, as you think about the business what transpired in the first-half '18 versus maybe '16 and '14, I'll break it down by really the three categories. Irons had a really good first-half. We got off to a good start last year in the fourth quarter, built up a lot of momentum, a lot of interest around, particularly our AP3 iron. So we had a strong and robust first-half in irons, as strong as we've seen in a long time. We feel real good about the status of our iron franchise. And then wedges as well, we launched our new SM7 line of wedges, which we do every other year. Last was SM6 in 2016. We had high expectations and met those high expectations. And then the final new product introduction was putters. We launched our Select series. We launch basically half the line every year, this was the Select window, and that was largely as planned. So I think that the one-two would be really strong performance in irons and a nice introduction in the wedge category drove our club success really in the quarter and the first-half.

Yes, Kimberly, on the gross margin, about 40 basis points year-on-year in the quarter. Again, this was AVX largely offsetting, or I should say -- offsetting some of the decline we would expect to see in a non Pro V1 launch or second Pro V1 year. So it was a good part of it. But FootJoy really has been across the board. As David mentioned in footwear, we've exited some value price points. But also in apparel line we've managed to raise price in select markets. And the women's line, as we've had a higher pricing on the women's line. So I think that's -- the story is really good across the board in terms of all categories of FootJoy golf wear.

Thank you, Kimberley. Next question, please.

Your next question comes from the line of Dave King with ROTH Capital Partners. Your line is open.

Thanks. Good morning, guys. I guess first a multipart question on the ball business. How much did the AVX launch contribute to the business' quarter? How is it selling through, how much is Pro V down? And then anything to share on sell-through of the newer Tour Soft and Velocity models? And then I guess bigger picture on AVX, any learnings thus far there in terms of who it's taking share from or is it cannibalizing Pro V at all or do you think it's growing the pie for Titleist? Thanks.

Okay, Dave, I'll tackle those, really commentary on the broader ball business, starting with AVX. We started shipping in May, and we're pleased with the early days. Our key and we set out to educate golfers what this product does. Importantly, who it's best suited for and who may be better off playing Pro V1 or Pro V1x. We've got a lot of ball fitting activity happening around the country and around the world. And as you'd expect, it's been a frequent topic of discussion during these activities. And really this form is valuable to us because it ensures we get the message out right. We did benefit in the U.S. from our text market of last fall, as word began spreading from this test. And then really -- well, we launched in May, there was an established readiness and excitement when we launched the product nationally in May. And as to share, we're seeing some nice steady share ascension over the last, again we've -- we really got one or two months of data, really one month June data. But it's growing and it's settling in where we think it ought to settle in. And that is maybe -- and again, this is a swag, but maybe 10% to 20% the size of the Pro V1 franchise. Looking forward with AVX, we're going to launch it. We've started launching at ex-U.S. markets in the third quarter just this past month. You need to understand we didn't have a test market around the world, so we're viewing the second-half as a chance to really build awareness and education in the latter part of the season, which we think will be real helpful as we set up its first full-year in 2019. As to where it's coming from, where the business…

Great. Thanks for taking all that, and answering all that. Good luck with the rest of the year.

Thank you.

Thank you, Dave. Next question, please.

Your next question comes from the line of Simeon Siegel with Nomura/Instinet. Your line is open.

Hey guys. This is Dan on for Simeon. Thanks for taking our questions. Just two, tagging along from what others said. How should we think about prices to tailwind for the back-half, and when should we being to lap those benefits? And then secondly, could you share any plans for the bags, travel gear, and the headgear, I think you said those were weak?

We are at some of the highest price points we're at. And obviously some of the new shoes that we're putting in the market are at key price points. As David said, we're exiting some of the value categories. But as far as price, obviously, we're not going to tilt our hand on any exact model and then what we're going to be doing in the back-half or even in the first quarter. Dave, did you want to add anything to that?

No, but I will, Dan, address your second question about the gear business back-half of the year. Gear is gloves, bags, headwear, and travel. And really the headline is gloves steady, headwear steady, both growing around the world in the first-half. The bag business, our primary bag business is in stand bags. And we had a nice first-half. We took a dip in our cart bag business, couple of reasons for that. It's been a competitive segment. You've got some players giving out a big with a purchase of clubs; you've got somebody -- a player overseas giving out a cart bag with the purchase of a trolley. It's a competitive space. We're not too concerned from a product line standpoint, but we know, hey, we need to deal with some competitive realities. We do have some new product line launches coming in the second-half of the year that we think will get the business back on track. But really a tale of three stories being pretty strong and we've got an issue in cart bags that we're dealing with. But again, less a product issue more just -- it's been a competitive space the last six months.

Great, thank you very much.

Thank you. Next question, please.

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

Yes, thanks. Dave, I was going to ask a similar question about market share gains but as it relates to the AP3 irons, have you been able to determine how much of that business is incremental compared to maybe some cannibalization from either AP1 or AP2?

Yes. And Dan, the good news from our vantage point when you've got a broad product line like we have in irons, we got AP1, 2 and 3, we got MBCBs and TMB, we have got a broad assortment of products really designed to cover all pieces of the dedicated golfer interest level. So the headline really is gaining share in irons, we feel good about that, I think fair to say TS3 is running a little bit faster than we anticipated which is nothing but positive. Some coming from AP1 excuse me AP1 and AP2 but AP3 really the headline story, so again headline would be share gain overall in irons, three has grabbed a bit from 1 and 2, but nothing that concerns as we think that's if nothing else are positive as more and more players have tried and like what they're seeing in AP3.

I was thinking that the cannibalization would be less for AP3 than let's say for AVX just because your market share in irons was lower than where you had in Pro V1 balls.

Part of this we got this emerging new player distance category which AP3 jumped into. But again it's product we needed to bring to market, we think we did it really well and the overall level of health and vibrancy of the Titleist iron business is at a level that we haven't seen in a long, long time, so we feel really good about that.

Second question I had was on the direction of your new driver in Fairway business, it was interesting you're changing the branding, I guess what is now called the TS, I guess it would have been the 919, so I was curious as to why the change in the branding and I guess also the buzzword hearing is that you're going to be focusing a lot more on distance with the new drivers in Fairways than you have with your prior product launches if that's true?

Well, we've always focused on distance with certainly with drivers, this was our in-house code name Titleist speed project that we've been on for the last several years as we attempt to get absolute optimal playability and speed in the driver product. So we just felt as we do from time to time after a long run of number sequencing, we felt given the differences in this product, given the way we're approaching this product, we felt the time was right for a move away from what it been our numerical naming to this TS which is really its tour speed, its Titleist speed, its total speed gives you a sense for how we're thinking about or how we're thinking about positioning of this product and early days as you may have seen Dan have been real good, we launched the U.S. Open and typically that is an event where players are going to be cautious about what they put in the bag and 17 players put it in play for the first event as we hit the confirming list on Monday, tournament started Thursday. So we really like what's happening, successful driver requires that you take many, many steps and we've taken several of them in advance of the launch which will happen in late September, we have taken several of those steps and we're really pleased with where we are at this point.

Just the real quick question, I believe all of your club had components are manufactured in China, I guess probably almost all of your apparel and footwear, can you tell us what the exposure to this growing what the tariffs will be on those products?

Sure, it's Bill. The Trump administration first announced the steel and aluminium tariffs along with the automotive sector, for our company the steel tariffs really doesn't have a meaningful impact on our business because steel solely has a material. From material standpoint, it's not a major component of cost production hedged, the cost of producing these products is more concentrated in the manufacturing process, the overhead and labor employed and lot of our steel shaft offering use American steel, the latest section 301 tariffs they are meant proposed effect broad range of consumer products originally proposed 10% as late as yesterday was early as yesterday considering its highest 25%. These tariffs would encompass products in our golf gear business namely headwear golf bags and travel gear but our supply chain is pretty regionally diverse from a gear standpoint and so if you enact it either way 10% or 25% you experience some cost impact but not a material one and certainly not anything material in 2018 but of course we need to continue to monitor this situation to see if any broader categories of tariffs are proposed by the U.S. or any foreign country.

Great, thank you.

Thank you, Dan. Next question please.

Your next question comes from the line of Michael Schwartz with SunTrust. Your line is open.

Hey, good morning everyone.

Good morning.

Just a quick question on the updated guidance, it would imply that this revenue growth in the back half of the year is kind of flattish and I know David you talked about the drawdown of Pro V1 going into a Pro V1 launch here but as I go back over the prior couple years we've had driver launches in the back half and I would assume we've had a similar Pro V1 drawdown, we've seen pretty healthy mid-single or high single digit growth in those driver launch here. So just wondering maybe what's changed or what the offsets are in the back half of this year that you'd be looking at just flattish type revenue growth?

Well, again Michael, I'll point to really the keys and you had it's Pro V1 drawdown which is a fourth quarter, late third quarter event has really field inventories being to right-size themselves in advance of the 2019 launch. Again little bit offset Q3, we've got some activity happening with AVX as we pipeline that albeit in small quantities around the world. But I think the real story here is what's different this go, we are certainly excited and bullish about our TS launch but it is comping against what was a real robust hire and launch last year. So that comp is certainly baked into our balance of the year forecasts and as stated you get more out of a driver launch in terms of the pipeline and less out of immediate filling and you do irons, so the Q3 story in driver should be more robust and you'll see it level-off in Q4, where it's conversely the iron business sort of ramps up because it's so filling based. But I think the key answer to your question is you guys keep in mind a pretty strong and robust third and fourth quarter last year in irons.

Okay, that's helpful. And then just with I think going back to earlier this year, you'd mentioned looking at marketing and maybe seeding the market a little differently when you do some of these large club launches is just wondering maybe room how it's different this time around with TS and then some of the ramp and a criminal expense we've seen in SG&A is that tied to maybe how you're doing things differently as you launch these new products?

Yes and just some of the differences we've seen thus far with TS is really because up to this point. The story and the seating process starts on a worldwide tours and works its way down to clump Rosen and key influencers. We've been more engaged and more active than we've ever been and you see it in our counts, you see it in the number of players who converted as quickly as they have to new product especially mid season a lot of times players so will defer that to end of season just given they're on a roll and they don't want to make any meaningful equipment changes in the middle of the season. But we've sort of up on bended that really focus on first and foremost the product but also some efforts on our behalf to really do a far more comprehensive job in season fitting players into the new product and then in terms of spending as we saw I think the way to think about the TS launch we really like the way things played out with the iron launch that's sort of the established a new baseline for us we carried it in the wedges, carried in the into putters to a degree. And you'll see that play out in the in the TS line of metals as well in terms of how we think about spending behind those new product launches.

Okay, great thank you.

Thank you, Michael. Next question please.

Your next question comes from a line of Brett Andress with KeyBanc Capital. Your line is open.

Hey, good morning, and thanks for taking my questions. I wanted to get your take on the industry here domestically as we enter August, from the data we see the industry targeted retail with up something like a 11% in 2Q which, I think is some of the best growth we've seen in several years and presumably that's continued to hear in the 3Q but so one just broad strokes, what's your take on some of the drivers of that demand inflection in the growth of the sport, health of the industry et cetera? And two, what's your confidence level that we could potentially see similar rates of industry growth as we get to the back half of this year?

Yes. And good question, Brett. I'll take it in a couple blocks. The first thing we always pay attention to in golf is weather and rounds of play. Weather wasn't great. We had a tough start in a couple of markets. And rounds were down a little bit. And we don't do that as anything other than commentary on the weather. That said, we have seen some nice activity at retail. So while traffic in rounds are down slightly, consumer spending is up. And if that's consistent with the broader retail marketplace, you get a little bit of a consumer tailwind. In our own house, when you see rounds down, you look to a correlation and how does it correlate to activity in the marketplace. And the first that's going to hit is consumables. And we've seen that. When you are playing last rounds, you are going to be consuming fewer golf balls. But the other side of the story has been a robust environment in golf clubs and equipment. And we certainly benefited from it. We have driven it with some new product launches as well. So that said, we had a big of drag with weather. But I think more than offset by a bit of a tailwind. And in our house, offset by some exciting new product launches.

Got it. And maybe just again more of a clarification question. But, the AVX selling I think is complete domestically. Internationally, it seems like it will start in July. So is it maybe fair to expect a similar magnitude of selling on AVX in 3Q? Or is that international piece going to be considerably smaller?

Yes. And typically, we think the U.S. -- U.S. is about half our business. So you would think it would about what we are doing in the rest of the world will be about what we are doing in the U.S., less so because you've got a Q3 effect. And really it's at a time when just the market is a whole lot smaller and less receptive to bringing in new product in Q3. So while there would be a modest bump from AVX, keep in mind it's going to be relatively small. And then the final piece is for a variety reasons we are not launching AVX in Japan which is the second -- world second largest golf market. We've got -- we have got a little bit of a different product line in Japan. So we haven't determined if or how we are going to fit AVX into that marketplace at this point. So again, two things to think about; one, third quarter smaller than second, and two, Japan not participating in the AVX launch.

Understood. Thank you.

Thanks. Thanks, Brett. We have time for one more question and then we will have a few concluding comments from David.

Your last question comes from the line of Casey Alexandra with Compass Point Research & Trading. Your line is open.

Hi, good morning. David, well first of all just an editorial comment. Twenty years of doing this, I can't remember 17 players put in a new driver in the week of the U.S. Open so that is pretty remarkable. But has the company which has had a longstanding cadence of how it manages product introductions over an eight cycle, have you considered evolving that cadence in order to better compete against what's become a smaller but more durable set of competitors to make sure that you are getting your product to the market at a time where it can maximize its share?

Casey, good question. And a short answer and I'll elaborate a bit. The short answer is yes, we are always considering what's the right window and cadence with which to launch to product and not getting off our two-year product lifecycle which we like and are committed to. But a couple of thoughts, our product really comes through the pyramid first before it reaches the marketplace. So here we are talking about the U.S. Open in June. And then three months later, we have launch in the marketplace. So there is a lot that happens before product hits the street that we really like. A lot of pyramid activity that's very important to us. It would be for a variety of reasons a little bit difficult -- little bit more difficult for us to achieve that, would say a January launch or a March launch. So really the pyramid is a big part of why we launched product when we launch products and the important role of the pyramid within our launch cadence. Again here we are we are going to launch the product in September that's got robust to our usage, it's got a win already at the John Deere Classic with Michael Kim. We've got a big story to tell in advance of the launch, which we like. That said, and I think you framed it well, the market whether it's through the retail consolidation over the last several years or some things that are happening, at the OEM level, sell-through timing continues to shift and evolve, and it has over the last couple of years, which prompts us to say, "Hey, might there be a better window to do what we do in golf clubs. Obviously at the moment we've decided to stay the course, and we don't see that changing anytime soon." But of course we are open to altering the cadence based on shifts or changes in the marketplace. But for now, we really like what the pyramid allows us to do in terms of building up demand and interest in advance of a launch.

Okay. Thank you for that. And secondly, during the quarter, the company amended its cash flow to allow for the potential for share repurchase programs. Can you give us your thoughts in terms of share repurchase versus dividend and how the company expects to look at capital allocation in the quarters and years to come?

Sure, Casey. As you know, and you pointed out, we announced a modest, very modest repurchase plan of $20 million worth of shares from time to time. We did not purchase any shares in the quarter for the record. But you know, that's largely being -- was introduced to mitigating a shared dilution associated with our equity grants. But having said that, we are still on target for our 2x leverage, end of '18, early '19, and at that time we will feel like our leverage is good. So we will continue to look that dividend, make sure we have an attractive yield and pay out, and obviously M&A as it comes up, but our share repurchase will become a bigger part of our consideration set perhaps. So, now as we are nearing that target, we have a lot of things that are out on disposal.

All right. Great, thank you very much for taking my questions.

Thanks, Casey.

Thanks, Casey. David?

Yes. Thanks everyone. In closing, we are in for a great run in the world of professional golf as Titleist and FootJoy brand ambassador, Justin Thomas defends his title at the 100th PGA Championship next week at Bellerive. Players from both sides are upon jockey for a final Ryder Cup spot and FedEx Cup Points, and the Women's British Open that is underway in England. And the world's top amateurs head to Pebble Beach in the Golf Club of Tennessee for their respective U.S. Amateur Championship; lots of excitement in the world of golf. And for the rest of the amateurs, golf courses tend to be in great condition in late summer and early fall, and I encourage you to go out and play a few rounds, enjoy the comradely, competition, challenge, and exercise offered by the great game of golf. Thank you. As always, we appreciate your time and interest in the Acushnet Company.

This concludes the Acushnet Holdings' second quarter 2018 earnings call. We thank you for your participate. You may now disconnect.