Acushnet Holdings Corp. (GOLF) Q3 2018 Earnings Report, Transcript and Summary

Good morning. My name is Shelly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Acushnet Holdings Corporation Third Quarter 2018 Conference 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 your conference.

Thank you. Good morning, and welcome to Acushnet Holdings call to discuss our financial results for the third 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 in the context of our long-term mission and strategy. 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 the Acushnet team, while admittedly tired from late nights watching the Red Sox team roll through the playoffs, continues to execute well on our enduring mission to steward two of the most revered brands in golf: Titleist and FootJoy. We continue to focus on the game's resilient dedicated golfer, a broad product category portfolio, our favorable mix of consumables and durables, strong pyramid validation and golf brands that represent the best in performance and quality. We're confident this focus is resonating well with today's dedicated golfers and our trade partners. As I will briefly outline this morning the third quarter and year-to-date results and positive brand trajectory helped to reinforce Acushnet's confidence that we have a solid footing in today's golf market and are positioned to deliver for our shareholders. Starting at Slide 4, you'll see that on a consolidated basis sales in the quarter were $370 million, up 6.7% year-over-year, and up 7% on constant currency. Growth for the period was driven primarily by higher sales volumes in Titleist Clubs, notably our new TS drivers and fairways, and in Titleist Golf balls headlined by our new AVX models. Adjusted EBITDA for the quarter was up 19% versus last year. And through September year-to-date sales of $1.29 billion were up 7% versus the same period last year and up 4% on constant currency. Similar to the quarter, the primary driver of growth in the period came from Titleist Clubs and Titleist Golf balls. Adjusted EBITDA for the first nine months was up 7% over last year. We like our position through the first three quarters and are encouraged as we look to the balance of this year and into 2019. And as a result of this confidence, I am pleased to announce that the Acushnet Board of Directors has approved the payout of a third quarter cash dividend of $0.13 per share or approximately $9.7 million to be paid on December 14 to shareholders of record as of November 30. And I would like to take this opportunity to thank my teammates for delivering these results and their ongoing and greatly appreciated efforts to continually build upon our successes. Now turning to segments and starting with golf balls on Page 5. Sales increased 6% in the quarter and 2% over the first nine months of the year. Driving this growth has been new AVX, Tour Soft and Velocity models. Titleist AVX launched in the U.S in May and in most ex-U.S markets in July. And we have been very pleased with the initial response. Golfers have quickly embraced AVX with its combination of a long-distance, soft feel and short game control. And we are pleased with how AVX has fit into the broader Titleist golf ball lineup. And our leading Pro V1 franchise wrapped up a strong 2018 tour season with 73% of worldwide tour players using Titleist golf balls more than seven times the nearest competitor. Affirming Titleist position as the number one ball in golf, the eight different winners of this year's four men's major championships and five women's major championships, all won using a Pro V1 or Pro V1x golf ball. We believe this success at the game's highest levels helps to validate the strength of our R&D efforts and also the quality and consistency advantages that come from over 80 years of golf ball manufacturing expertise. Looking forward, our new 2019 Pro V1 and Pro V1x golf balls make their PGA Tour debut later today during the first round of the Shriners Hospital for Children's Open and are scheduled for global launch in late January. As with all new Pro V1 launches, we are excited about the improvements made to the 2019 models and look forward to sharing more information with you in the coming months. Now moving to Titleist Golf Clubs, 2018 has been a terrific year and we continue to see positive momentum across the entire club product line, affirming our teams focus on high-performance design, craftsmanship and the custom fitting process. Titleist Clubs were up 17% in both the third quarter and for the first nine months of the year. The Titleist speed project has been a priority for our team for the past two years and we're especially upbeat about the early enthusiasm around the TS, Metals launch, which has been one of the most comprehensive to date. Our team and trade partners have done great work positioning and creating interest in TS Drivers and fairways and we estimate that 70% of TS sales to date have been custom fit, which we believe greatly enhances the golfer experience and their ultimate satisfaction index. TS momentum in the third quarter follows on the first half successes of Titleist 718 irons, Vokey SM7 wedges and Cameron Select putters, all of which were introduced in the past year. And rounding out the Titleist golf club story and demonstrating our position as a preferred equipment provider to the game's top players, 2018 has been an especially strong year on the PGA Tour for Titleist golf clubs with irons, hybrids, wedges and putters not only the most played, but also achieving the most wins in their respective categories. Next we moved to Slide 6 and Titleist Gear. Gear sales were off 1% for the quarter and down 2% for the first nine months of the year. Year-to-date gains in gloves and headwear and growth in the U.S and EMEA have been offset by shortfalls in the travel and bag categories in Korea and Japan. Looking forward, we are optimistic about our new product pipeline for 2019, which is highlighted by a new premium carry bag collection scheduled for market launch in March. And now moving to our FootJoy golf wear segment, sales in the third quarter were down 0.3% versus last year and down 1% year-to-date. As we have discussed, 2018 footwear results have been impacted by our decision to exit some lower price points, which we see as a long-term positive for the FootJoy brand. Within footwear, the Pro SL continues to be the standout performer in the FootJoy line on tour and in the market. In recent launches of Superlites, new Pro/SL and women's Leisure SL are generating late-season momentum for FootJoy. FJ gloves have rebounded after the weather impact early in the season and we've recently launched a new and improved stay soft glove, as we commemorate the 35th anniversary of this long time market leader. FootJoy apparel enjoyed strong sell-through results across major markets in 2018 and steady booking support our continued momentum. FJ has robust positions in both men's and women's apparel and notable strength and prominence in the sizable U.S on course channel. And finally, the recent launch of the new FJ 1857 line of premium footwear and apparel has met our high expectations. While 1857 by design represents a relatively small piece of our business, it allows our team to explore new product opportunities and reach a new base of consumers. We will now look at our business regionally on Slide 7. U.S sales were up 11% in the third quarter and up 7% for the first nine months of the year. EMEA sales were up 4% for the quarter and up 2% year-to-date. Acushnet's Japan sales were up 2% in the third quarter and roughly flat in the first nine months. And Korea sales grew 4% in the quarter and were up 3% so far this year. As we look at our performance across all regions, I will note that poor weather has impacted rounds and consumable purchases in just about every market in 2018. That said, we are pleased with the overall resiliency of our business in 2018 and our teams have done good work responding to weather-related impacts by adjusting inventories and sales forecast throughout the year. And lastly, I am pleased to announce that early in the fourth quarter, Acushnet acquired an 80% interest in PG Professional Golf. PG Golf is a leading supplier of pre-owned golf balls, which operates both a wholesale business and direct consumer model via their Web site lostgolfballs.com. We planned for PG Golf to remain a separate standalone business based in Sugar Land, Texas and continue to be managed by company founders Gary Krueger and David Jones. Gary and David are talented operators who first met at Texas A&M, where they played on the golf team, and they’ve built an impressive business together over the past 25 years. The pre-owned golf ball market has been around for long time. As Pro V1 makes up such a high percentage of this market, we believe it makes good sense for Acushnet to be a participant in this opportunity. And while the business will remain completely separate, we do anticipate operational efficiencies. One example being that PG opens up a new sales outlet for the many golf balls which we use during our day-to-day product testing and development efforts. We are excited about this business opportunity with PG Golf and confident in our ability to generate a positive financial return for our shareholders. In summary, we are pleased with our results so far in 2018 as the Acushnet team continues to execute our long-term strategy. While mother nature has been a headwind this year, Acushnet's performance speaks to our ability to innovate and bring to market exciting new products and is indicative of our team's ability to meet the high performance and quality expectations of the game's passionate and resilient dedicated golfer. Our Titleist and FootJoy brands bring market momentum into the fourth quarter in 2019. And we continue to make meaningful investments in our future by fortifying our product development engines, continually improving our manufacturing and supply chain capabilities and building upon our golfer connection efforts. As we continue to focus on delivering products of exceptional performance and quality, we're confident in our ability to provide long-term value to our shareholders. As always, I thank you for your interest in Acushnet and now turn over the call to Bill, who will provide additional comments on our financial performance.

Thanks, David. Good morning to everyone on the call. As David indicated we're very pleased with our results in Q3. Consolidated revenue in the quarter was $370.4 million, up 6.7% year-over-year and up 7% on constant currency. Q3 gross profit was $188.9 million, up 9% from last year and gross margin was 51%, up about 120 basis points year-over-year. The increase in gross profit was driven by a sales volume increase of our new Titleist premium performance AVX golf balls and growth in Titleist Clubs, including our newly launched TS Driver and fairway metals in late Q3 as well as ours 718 irons and SM7 wedges. Looking at operating expenses, SG&A of $148.7 million was up $7.2 million or 5% versus last year. The increase in SG&A was primarily due to higher selling expense across all categories and supportive 2018 product launch activities. In Q3, research and development expense of $12.8 million increased $2 million over last year largely due to increased investments in staffing and testing activities. Q3 interest expense of $4.3 million increased by 300,000 year-over-year. Other net expense in the quarter was $4.1 million. This includes a non-cash pension settlement expense of $2.5 million associated with the retirement of a long tenured former executive of the company. Excluding this item, other net expense would have been $1.6 million. Our Q3 effective tax rate was 57.9%. As we said in the past, it's been a continuous stream of guidance, interpretations and tax notices that strive to reconcile legacies sections of the tax code with those in the new Tax Cuts and Jobs Act. Latest published guidance in the quarter required us to record a non-cash discrete charge of $5.1 million in the third quarter. This being an adjustment to the total tax calculation record in the fourth quarter of 2017. Excluding this item, our ETR would've been closer to a more normalized 30% which is our ongoing run rate at present. As a result, our Q3 net income attributable to Acushnet Holdings was $7.1 million versus $9.3 million in Q3 of last year. Adjusting this result for the $5.1 million discrete tax adjustment recorded in the quarter, net income attributable to Acushnet Holdings would been approximately $12.2 million, up $2.9 million year-over-year. To assist in review of this calculation: Recapping our year-to-date results, sales of $1,290.4 million were up 6.7% over last year, and up 4.4% on constant currency. Our year-to-date gross profit was $667.4 million, up $44.9 million versus the first nine months of last year, driven primarily by sales volume increases in Titleist Clubs mainly 718 irons, Vokey SM7 wedges and both performance and premium golf balls. Year-to-date gross margin was 51.7%, up f 20 basis points versus last year. Our year-to-date G&A expense was $471.7 million, up almost $31 million or 7% over last year. The increase in SG&A was primarily due to planned higher selling expense across all categories, an increase in advertising promotion and higher IT related costs. Research and development expense of $38.1 million was up $3 million compared to last year and interest expense increased by $2 million , to $13.9 million for the first nine months of the year reflecting higher average interest rates compared to 2017. Our year-to-date effective tax rate was 32.5% compared to 34.4% last year. The decrease in ETR was primarily driven by the net impact of changes resulting from the new Tax Act, including incremental guidance issued in 2018 and changes to our geographic mix of earnings. As previously noted, our year-to-date ETR has also been impacted by the discrete tax items we recognize year-to-date through September that totaled approximately $3.6 million. As a result, net income attributable to Acushnet Holdings for the first nine months was $88.5 million, up $8.1 million or 10% over last year primarily as a result of higher income from operations. Adjusting its result for the discrete tax adjustments reported today of $3.6 million. Net income attributable to Acushnet Holdings would have been $92.1 million, up $11.7 million or 14.6% over the previous year. Year-to-date, adjusted EBITDA was $194.8 million, up $12.3 million or 6.7% year-over-year. Looking to the balance sheet, we had about $56 million of unrestricted cash on hand as of September 30, 2018. Total debt outstanding at quarter end was approximately $408 million. On a rolling four quarter basis, our total debt to adjusted EBITDA is slightly over 2x. I would like to point out that we're at our seasonally lowest level of borrowing in late Q3 as borrowings tend to build in Q4 as we ramp anticipation of the new golf season. Nonetheless, we are confident there we're still on target to achieve our 2x step to EBITDA leverage ratio by the end of these -- this year. Year-to-date, CapEx was about $20.7 million. For 2018, we now expect CapEx to be approximately $30 million. Well a good portion of this spend is maintenance related, as we stated previously, we are also making additional investments in innovation and technology to drive continued market leadership and future growth. Looking our allocation of capital, as David mentioned, we are pleased to announce that our Board of Directors voted to declare a $0.13 dividend this quarter. This strong dividend is again indicative of the confidence we have in our strategy and our cash generation capabilities. As you know, we are always evaluating select M&A opportunities as a way to improve our return on capital. Early in October, we completed an investment in PG Professional golf where we repurchased an 80% interest for approximately $14 million. We plan for PG to continue to operate as a separate standalone business led by the two founders. While we expect there to be some back office and supply chain synergies, we intend the business to be run autonomously. To David's comments, the primary benefit of this transaction is to allow us to have a meaningful presence and what is a viable secondary market for Titleist golf balls. We expect that PG Golf will not have a material impact to overall corporate results for the balance of 2018. In 2019, we will incorporate this business into our outlook which we will discuss in the Q4 call. Over the long-term, while modest, we expect the acquisition to be accretive to revenue and earnings and anticipate a solid return on our investment. As to the outlook for full-year 2018, we now expect reported sales will be in the range of 1,620 million to 1,630 million. On a constant currency basis, we expect revenues to increase in the range of up 2.1% to up 2.8% versus last year. And we are forecasting adjusted EBITDA for 2018 to be approximately $227 ,million to $233 million. In summary, our strong results in Q3 and more importantly through the first nine months of 2018, are evidence that we continue to execute well on our long-term strategy. Our focus on the dedicated golfer, broad and deep product portfolio, global distribution, and attractive financial framework are all important factors in our current and ongoing success. This success continues to improve our financial strength and we are on plan to achieve our 2X leverage target by the end of the year. As we move forward, we expect our capital deployment strategy will be squarely focused on both optimizing return on capital through investment in the business and select M&A opportunities where they present themselves. Balance with return of capital to shareholders through both cash dividends and share repurchases. With that, I will now turn the call over to Tony for Q&A.

Thanks, Bill. Shelly can we now open-up the lines for questions?

Hi. This is Dan Stroller on for Simeon. Thanks for taking my questions. Bill, you touched on the strong gross margin improvement for the quarter. But we are just wondering if you could give any color on a like-for-like profit margin, excluding any impacts from launches or anything? And then as you face user comparison in 4Q, do you expect this trend to continue?

Yes, let me talk about Q3. First, if you look at the segment results, they’re largely if not solely in equipment. And we've always made the comment that -- and we’ve always had put forth that the equipment categories carry and yield a higher margin than our soft goods category. So that's the real reason why we’re seeing a big uptick in Q3. Obviously, that will normalize in Q4 because Q4 is our lowest margin period of the year for most golf companies because we are mostly in close out period for a lot of our product launch.

And then just a quick follow-up. Anything you’re seeing on tariffs or how that’s impacting business so far? Thank you.

Yes, I talked about this in our last earnings call, but nothing has essentially changed from what we reported then. Steel tariffs have had a -- will have a minimal impact on us, at present. It's the section 301 tariffs that have some impact on our gear business, namely golf -- I mean, headwear, golf bags and travel gear. These are except to increase by 25% at year-end and would have some impact on 2019, perhaps around $3 million before we consider any mitigating actions we are looking into. But of course we will continue to monitor the situation to see if broader categories or tariffs are imposed.

Got it. Thanks for the help and congrats on the [indiscernible].

Thank you.

Next question please.

Your next question comes from the line of Randy Konik from Jefferies. Your line is now open.

Yes, thanks a lot. I guess, David, I want to ask about the statistics you gave around the customization on the TS, I believe you said 70%. How does that compare to prior launches? I’m just going to get -- I just want to get a sense of would that -- very powerful statistic, how do you think about overall customization penetration growing going further -- going forward? And then also just want to get your perspective on what you learned differently or what you pursue differently about the TS launch from the 917, to give us some perspective on what you change and how that’s been more successful in early days of the launch? Thanks.

Good morning, Randy. Yes, first -- to your first question, we rolled up early activity on TS purchases and came up with our best estimate that 70% were custom fit. And for perspective we view that as a high for us certainly in metals. And it really leads into the second part of your question about what we did differently. And frankly we did a lot of things differently, starting with obviously the name change from Numerical 917 to TS. Our team set off on an internal project called the Speed project a couple of years ago, and we looked at all the ways we could first off start with product development, how we could better activate our tour effort, you saw that at the U.S. Open this summer where we hit the conforming list the week of the U.S. Open and then came out really with a great opening statement we think at the U.S. Open, at Shinnecock with a whole lot of drivers in play. That really carried through the summer, carried through our club professionals. So come launch time in late September that we had been more -- far more than we had ever done as it relates to just activating the product line and working with tour players and club professionals around the world really to show them that how TS could help their games. And then back to the comment about fitting, we continue to and we’ve talked about this in the past, we continue to do all we can to activate and drive golfers towards our fitting network. We think we have one of the top fitting networks in the business and we know the more we can move golfers towards that fitting network, the better results we’re going to have. So that was a second or third piece of the effort which happened really prelaunch. And that at launch, again, we talked about this as well. We did make more noise, we invested more in advertising and promotion to get the great story out the way we have. So as you can tell by: number one, the results, and two our enthusiasm around it. And three the market response, we really like where we are with TS and kudos to our team and our trade partners for a job really well done.

Can I ask just one more follow-up, just on -- now on the ball side. It seems like there was a lot of success with the AVX Ball, kind of what would you learn there? What did you pursue differently there and how do you think about that going forward with the other Tour Soft and Velocity and other products that developing innovation?

AVX was really born of an R&D effort to better understand golfer preferences and what we can do to help golfers play their best golf. And again through a whole lot of our ball filling efforts and our R&D efforts, we saw that a low spin long-distance soft feeling golf ball could help some golfers. And some might've been Pro V1 users, some might have been tour SOFT users, some might've been competitive users. But we saw, first and foremost, a product performance opportunity that we wanted to address. And then in terms of how the launch was new and different, well, first off it was quite new and different in the sense that we got off cadence. And as you know we launch typically Pro V1's in odd years and the rest of the line in even years. And we felt this one required a whole lot of a different approach starting with our test market last year or launch in the U.S in May and then a global rollout outside the U.S in July. To your comment about differences between TS 917 and your comment about AVX and other balls in our line and how we think about launches in the future, I do think it speaks to just a broader connection our team has with our target audience. And we're doing a good job of understanding what their needs are and adapting our golf products and go-to-market strategies to make sure we're aligned in most relevance. So, again, TS we like what's happened, AVX we like what’s happened. So fair to assume you’re going to see more efforts along those lines in the future.

Yes, lots of great traction and the new products. Thanks.

Yes. Thanks, Randy.

Next question, please.

Your next question comes from Kimberly Greenberger from Morgan Stanley. Your line is now open.

Great. Thank you so much. The golf ball category is absolutely been one that surprised us very, very positively this year. And I’m wondering if the traction that you’re seeing in AVX or the growth at your golf ball, it's been a surprise at all to you internally, perhaps it was just a pleasant surprise to us on the outside. I wanted to peel back the gross margin a little bit also, if we could. The improvement there, I’m wondering if you can talk about the mix shift benefit, the mix shift, which piece of the 120 basis points came from category mix shift? Were there any FX impacts that gross margin or any other savings in cost of goods sold that you -- that are helping that gross margin grow and whether or not those might be durable?

Okay. Thanks, Kimberly. I will take your first question and hand off the call to Bill for the second. As to our golf ball business, certainly we like our position in 2018. Golf balls are very competitive as they always have been. It's a competitive sector. I will start with commentary on the strength of Pro V1 at the very top of the pyramid. I mentioned in my opening remarks, winners of all my majors on the men's and women's stores used Pro V1. So we think it starts with performance and quality and product consistency and that's really important at the games highest levels and as you work your way through the pyramid. We think that the story starts there. AVX has been a real, real good complement to our high-performance lineup this year. And, of course, year-ago when we were devising these plans we had some questions and thoughts about how a product like AVX might fit next to Pro V1 and here we are, one year later feeling really good about how it fits next to Pro V1. And then, we had some real, real positive launches with Tour Soft and Velocity, which posted healthy gain switch, which met our high expectations. And final comment would be -- when we grow our golf ball business in the year, when rounds are player down as they are really in most markets due to some severe weather. We view that as a positive and this is especially so in a non-Pro V1 last year. So we feel really good about the golf ball business and fair to say it's meeting our high expectations.

Yes, Kimberly, on the 120 basis points in the quarter, first a very negligible FX impact. We are very well hedged, especially when it comes in the near-term on our transactional side. So very little on cost of goods sold. Commodities have increased some this year, in polybutadiene, but we are not seeing in the future any -- anything on our forecasts. It says lease to -- as to conclude, as a steep increase or anything, it really comes around this shift in the equipment business. And we’ve said before that it could have been margins -- are anywhere from 600 to 800 basis points higher than the soft goods. And when you have that kind of that that mix that you see there happened or you see the 6%, the 70% increase in the quarter, that's the single driver here I find. If that launch would have been delayed for our TS models in 2Q4. You would've seen that some of that margin pick up in Q4.

Thanks, Kimberly.

Thank you. That was hopeful. Thank you.

Next question, please.

Your next question comes from Dan Wewer from Raymond James. Your line is now open.

Thanks. I guess, first question would be for Bill. Looking at the high-end, the updated revenue and just adjusted EBITDA guidance, it implies that the fourth quarter revenues dropped year-over-year as to your adjusted EBITDA margins. Maybe if you could talk about what are the challenges in the fourth quarter. I know its seasonally it's -- the least important trade of the year, but yes, your comments would be appreciated.

Sure, Dan. First, full-year guidance really is in line with our original expectations, it really comes around product launch cadence. So if you look at the club side, this year in Q3,we had a metals launch. Metals are more of a stock product. We are going to ship a lot of more of that product in when we low the trade, especially into the off course channels, and we will sell less of it after that initial loading. Last year, we had a 789 launch. 789s or any irons of ours are much more customs hitting by us. So you will shift some in, but you'll more sales that will drift into Q4. So that is one of your reasons why you would look year-on-year. If you’re simply looking at year-on-year, I’m not looking at any consensus or anything, that’s why it would be down. But the second thing is balls. So we’re in a non-new Pro V1 one year. So we are looking at really starting to take the trades inventories down and not keep them at the levels we would. And if you look in the past, and then even number year, balls would typically be down in the fourth quarter, which would includes a holiday close out.

Will you just TG as a tool to liquidate the PRO V1 and PRO Vlx's before the new product launch?

No.

Okay. The second question I have revolves around pricing. So the TS Drivers are priced at 499 and I guess your competitors, new driver launches are going to be priced about 549. If you think that’s an important advantage. And then likewise, when you look at the PRO V1x. I don’t think you’ve increased the price on those from 2013, if you think that makes sense to maybe bump the price for the new launch next year?

So, Dan, to your first question about driver or driver positioning in pricing in the market. We are comfortable and confident that its positioned where out to be and at a place where goffers see the value. Its premium and it's a real good value, we think. So ….

We are not swayed by any competitive shifts in pricing, as you know too. we’re on a two year lifecycle cadence with our drivers. So we will get another chance to look at things in 2020 from a driver standpoint. But we're very comfortable were -- with where TS is positioned. Secondly as it relates to Pro V1 and pricing for our new models for 2019. We certainly will take a look at that. Pricing has not been finalized but will certainly take a look at what our options might be, you look at a variety of factors, you look at local input costs, you look at competitive pricing and deltas that may exist between us with competition so we did we didn't we did make a price increase in 2013. We are comfortable where we are. We like, were are right now but it is something we will consider. But at this point we haven't made any final decisions about pricing.

Dave, just my last question revolves around the 70% fitting percentage. It's also my experience that your fitters are doing a better job of selling the Titleist product and benefits compared to maybe other clubs that your customers have in their bag at the time of the setting. I don’t know if that’s just an experience from a few fittings or if that was actually an initiative at the corporate level to train your fitters to better sell the Titleist product?

Yes, good observation, Dan. It is certainly an ongoing initiative of ours to continue to fortify and better train our fitting network. I like to think with every introduction we get a little bit better. I think we took a nice step forward with our 718 irons last fall and I would like to think we took another big step forward with our TS model. So it's less about a driver specific initiative, more about a broader effort to continue to do great things and do a good job training or fitters. So I agree with you. I think we did a real good job. We get out in front of it. We put a lot of time and resources behind training our fitters. And I think that’s one of the reason we're seeing the dividends that we are.

Great Thank you. Good look.

Thanks, Dan.

Next question please.

The next question comes from Casey Alexandra from Compass Point. Your line is now open.

Yes, mine was asked and answered. Thank you.

Okay. Moving on, next question please.

Next question comes from Brett Andress from KeyBanc. Your line is now open.

Hey, this is Dan Charrow on for Brett. Congrats on a solid quarter. Just two things on TS here. First, has it been fully rolled out internationally and then around your earlier comment around the 718 launch having a bit of a tail after the initial sell-in, due to the custom fitting dynamic? Would you expect similar dynamic to play out with TS?

So your first question Dan its global launch late September every market around the world. was ready to go. We had pipeline product. We have put outfitting tools all over the world. So that happened really in Q3. I will comment at Bill's point. Bill's was more -- comment was more about when we launched an iron, your launch fitting products and you don’t as much stock product in the market. And then the fitters go-to-market. So it's more about what happens at launch then it the next, the next 90 days. Fitters went to work with irons in the fourth quarter of '17. Fitters are going to go with work medals in the fourth quarter of '18. But it's really more commentary about, you just put a whole more products in the market with the metals launch than you do an iron launch. And it just changes the cadence of how those products move through. I think maybe a better way to look at it would be over a six-month period were they look, they look normalized. They look more similar than different, but really is more about what happens with that third quarter launch.

Got it. Thanks. That’s helpful. And you called out the weather impact a couple of times. From what we can see looks like U.S rounds played with down summer in the mid single range n different we can see looks like the US rounds played was down somewhere in the mid-single digit ranch, but your retail dollars were up mid-single digits and from what we can tell your channel inventories are still tracking pretty nicely. Have you seen a similar dynamic to that playing out internationally?

I think your comments on the U.S market what we see very similarly. Internationally I really talked, really the top -- then the next two largest markets, Japan and Korea, not the same dynamic. They’ve been hit with harder weather. Really the headlines in both Japan have been weather and Korea have been weather. Inventories are in good shape but we haven't seen those markets performance robustly as the U.S. I think that’s commentary on just a harder because commentary on just a broader consumer sentiment and a positive spending environment we've seen in the U.S. But weather is certainly been a factor in Japan and Korea. But as an overall comment, I think important to note, global inventories are in a pretty good place. Despite this weather and I made the comment on , the last call that we were watching it as we do in the summer months. The industry has done a good job of normalizing inventories, despite some early weather imports.

Great. Thanks. Just one more quick one, if I can. Just wanted to touch on the PG professional acquisition. I was just hoping for a bit more color around, how see heading this business fitting in with the core over time. Should we think about this more from a channel supply management perspective?

Yes, let me give you a little context on PG. We really first started thinking about this opportunity more than five years ago and while the preowned equipment market or in this case the preowned golf ball market it's always been a viable segment within golf and in many ways it became -- the golf ball portion became far more viable with the introduction of Pro V1 back in early 2000 because at the time premium balls were liquid center wound, and they weren't as durable, and they just didn't even hold up over time. The way Pro V1 does. So really the Pro V1 changed it was a bit at a paradigm shift in the space. In today, given the prominence of Pro V1 and really all Titleist Golf balls within the preowned segment, it made sense for us to give this some serious consideration which we did. And what we see we see is a vertical a compelling vertical integration opportunity which allows us to be involved as we mentioned. It allows us to be involved in the full lifecycle and really and profit stream of Titleist golf balls which we think is important. PG is the leader in the space. So this is where we really started our search in earnest. We do think users of new golf balls are separate and distinct from users of preowned golf balls and we don't believe these changes with our entry into the space. And we do knowledge this is a unique opportunity for Acushnet in terms of how we think about M&A, but ultimately we see this as a real good fit and we are confident in our ability to generate great returns for our shareholders. So that sort of the broad strokes on how we think about this. To the earlier question about do you see it as a stream for new product, absolutely not. We see it as a stream for some of the use products we have in our organization that we generate through the course of the year through all our testing, but we don’t see it as a stream for new order or prior generation product. Let me just add something, what might be an obvious question for everyone else or you as well. We won't be disclosing the annual revenues until 2019, , and we get our plans altogether, but it's going to have a fairly negligible impact on Q4, about $3 million or so in sales, a very little net income if any because its seasonally in the ball business, it's their lowest quarter. So I just wanted to get that commentary out.

Great. Thanks.

Thanks. Time for one more question. And then we will have a few concluding comments from David.

And your last question comes from George Kelly from Imperial Capital. Your line is now open.

Hi, guys. Thanks for taking my question. First of all curious about -- with Pro V1 coming in not-too-distant future, having AVX out this year. What’s your feeling towards sort of the historical pattern we’ve seen in Pro V1, launch years? Do you think it will be any different in 2019?

Good morning, George. Good question. Really we don’t. We are on a customerian improving, introduction path with probably one, in fact. In an hour or so it makes an hour or so. it makes its debut in Las Vegas. It just hit the confirming list earlier this week. We don't see it affecting how we launch Pro V1 around the world that's a global launch that will play out in the first quarter. Time will tell, as we work our way through the year, how they live together and coexist together. But we do have at this point we do have a good six months under our belt to understand how Pro V1 AVX are different and understand their consumers and how they affect one another. So, as it relates to the Pro V1 launch, fair to say, we are anticipating that dialog play out very similar to prior Pro V1 launches in the first quarter of 2019.

Okay, great. And then just one additional question for me. Balance sheet is in great shape. It sounds like you are comfortable with the targets for this year-end. What are your -- cam you remind us what your key priorities are for free cash flow and should we expect to see heavier kind of, there's been a few acquisitions now in the last 12 to 18 months. Is that submit that we should continue to expect going forward? Thanks.

Yes, George. First, we’re very pleased with where we’ve been able to quickly reduce our leverage over the past two years since we’ve -- we went public and we are going to continue in investing in our core businesses. We still see white space there. So innovation, CapEx, and otherwise. We are going to be on the lookout for M&A. but as you know right now we are very selective in our opportunities and -- but when and where they’re present themselves or certainly look to pursue them. But as you know cash generation is really the cornerstone of our -- a cornerstone of our investment story. So we are going to continue to look to the dividend as a major returning capital to shareholders. And with us hitting this to 2X leverage share repurchases, will likely become a more prominent consideration in our toolset.

Thank you.

Thanks, George.

George, thanks. And thanks, everybody. We appreciate your calling in today and your time this morning. And as importantly your ongoing efforts to understand the opportunity that is Acushnet Company. We look forward to connecting with you early next year. Hope you have a great finish to the year. Thank you.

This concludes today’s conference call. You may now disconnect.