Ladies and gentlemen, thank you for standing by and welcome to the Acushnet Holdings Corp First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] Thank you. I'd now like to hand the conference over to your speaker for today Sondra Lennon, Vice President, FP&A and Investor Relations, please go ahead.

Good morning everyone. Thank you for joining us today for our Acushnet Holdings First Quarter 2020 Earnings Conference Call. Joining me this morning are David Maher, our President and Chief Executive Officer; and Tom Pacheco, our Chief Financial Officer. Before I turn the call over to David, I would like to remind everyone that 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. In particular at this time, the COVID-19 pandemic is having a significant impact on the company's business and results of operations. There is significant uncertainty about the duration and scope of this pandemic and its ultimate impact. Due to the dynamic nature of these circumstances our plans could change, and our actual results could differ materially from those contemplated by our forward-looking statements. The company undertakes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events or other factors except as required. Reported results should not be considered as an indication of future performance. For a list of factors that could cause actual results to differ, please see today's press release, the slides that accompany our presentation and our filings with the US 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 US Securities and Exchange Commission. Please also note, that when referring to segment and regional year-on-year sales increases and decreases, we're referring to sales in constant currency. And please also note that when referring to year-to-date results or comparisons, we are referring to the three month period ended March 31st, 2020, and the comparable three month period. With that, I'll turn the call over to David.

Thanks, Sondra. Good morning, everyone. On behalf of the Acushnet team we hope that you and your families are staying safe and positive, while you make your way through these trying times. As we report our first quarter earnings, I would like to first recognize the impact that the COVID-19 pandemic has had on our associates, their families, our trade partners and communities. Since entering the golf ball business in 1932, Acushnet has withstood hurricanes, wars, recessions and other significant challenges, thanks to the resolve and spirit of our dedicated associates. The great hurricanes of 1938 and 1954 are especially profound events in our company history as twice our associates saved the ball business from ruin and in the process protected founder Phil Young's dream of designing and manufacturing the number one ball in golf. As a result of recent experiences, I have become even more appreciative of the entire Acushnet's families resilience and agility. As this global health crisis developed, our teams quickly adapted to create safe work environments and respond to sudden business disruptions in order to best protect the company's financial position and preserve the Company's market leadership positions. Tom's and my objectives for this call are to provide clarity and understanding about how COVID-19 has impacted the golf industry and Acushnet over the past months, outline the steps we are taking to navigate Acushnet's safe passage through this global health crisis and begin to frame how we see the game of golf and Acushnet emerging in a post-pandemic world. And looking back at the first quarter, in the month of April, our business has gone through two distinct phases before arriving at early May when over the past week, we have started to see the initial signs of recovery. When we spoke on our last call,…

Thanks, David and good morning to everyone on the call. I too would like to recognize the impact that COVID-19 has had on our associates, their families, our trade partners and communities and the resilience and agility our team has shown throughout this trying time. Starting on Slide 7, consolidated net sales were $409 million, down 6% versus Q1 of last year and down 5% on a constant currency basis. As David mentioned, all our segments were performing well through mid-March and were tracking at or ahead of our expectations, but this performance was offset by sharp declines over the last two weeks of the quarter. Adjusted EBITDA was $53 million for the quarter, down $11 million or 18% compared to Q1 2019. Moving to our segment results on Slide 8, Titleist golf balls were down 17%. While a decline is expected in a non-Pro V 1 year, we were pleased with the launches of AVX, Tour Soft and Velocity, which were well received. Titleist golf clubs were up 3% on the successful launches of Vokey SM8 wedges and Cameron Special Select putters, as well as solid sell-through of TS Metals and T-Series irons. Titleist Golf Gear was down 2%, despite a strong showing from golf bags, which were up 10% year-over-year. And finally, after a good start to the year on the strength of the launches of ProISL, Tour X and Flex XP golf shoes and spring deliveries of apparel and gloves, FootJoy Golf Wear was down 7%. Shifting to our geographic market results on Slide 9, the US was down 8% year-on-year, with decreases across all segments despite increases in rounds played in January and February. EMEA was up 8% year-on-year, primarily from the impact of shoes, which was not included in our results in Q1 of 2019.…

Thanks Tom. Operator, could we now please open up the lines for questions?

Certainly. [Operator Instructions] Kimberly Greenberger with Morgan Stanley, your line is open.

Okay, great. Thank you so much. And I wanted to just ask a little bit about the first quarter, you talked about the big change in revenue trajectory mid-March in North America, in Europe. Is there - are there any numbers you could put around that, what was revenue growth sort of up until mid-March? And then what did you see from revenue growth in the back half of March or revenue decline as it were. And then any update in terms of what you're seeing here in April, any geographical differences that are emerging. And if you can look at the current contour of your business, do you think that that your business is one that gets back to normal sooner because it's tied more to the golf industry which appears at least in North America to be largely open at this time or what are the mitigating factors that could limit that recovery back to normal. Thank you so much.

Good morning, Kimberly, I'll take the first part of that question as it relates to Q1 and I think David will add some color about April and - and what we're seeing in some of the geographies. As it- as it relates to the revenue trajectory in Q1, while we won't get into specific numbers through the first 10 weeks or so, all of our businesses were tracking either at or ahead of plan. The rounds played data was really good, things were off on quite a good trajectory in the last two weeks in particular is when we really started to feel the impact in - in North America and in Europe. And you can see, where we ended up where all of our businesses did end up lower than our expectations coming into the quarter.

Good morning. Kimberly, I'll address your second question and the first piece being some of the geographic differences we're seeing. If we - if we - if we had a global ladder, it might look like Korea at the top. As I mentioned, they were disrupted in late February, early March, made a quick recovery and rounds of play. They are up near 10%, that market functioning close to as we would have expected several months ago. So, they've climbed back to near-normal levels as quickly as any market as we've seen. Next is Japan which I said earlier, has been operating at a fairly stable pace through Q1. We have seen in recent weeks a bit of consumer pullback as that country enacted some extensions to their stay at home orders. Then you - then you reach the US which we described significantly disrupted in April, as virtually all golf shops were closed, certainly all, of course, retail was shut down. Where we see things from here is - there is a lot of interest in the game of golf right now and that's obviously a terrific indicator for the long-term. But the factors remain again April, you had a period where on course shops, off course shops largely shutdown. We do think those forces will come closer to one another that being interest in golf staying at a pretty high level and golf shops over time gradually resuming more normalized operations. As we look at our business by segment, certainly you see - you see balls probably on the front lines of recovery, most closely tethered to participation and rounds of play and all other categories following suit at their own different, different paces. So, we are seeing two different forces, again the first force being very high interest in golf right now and that's nothing but a long-term positive. But golf shops and golf commerce are playing catch up right now.

Thank you so much.

Thank you, Kimberly. Next question, please.

Daniel Imbro with Stephens. Your line is open.

Hey, this is Andrew [ph] on for Daniel. I was kind of wondering how you're thinking about your inventory position for the year and the price environment remaining rational and what your thoughts are for the price environment going forward. Thanks.

Sure, Andrew. I'll start with - with our inventory position internally and David can perhaps talk about sort of field inventory and the pricing environment. So, at the end of Q1, our inventories were about 368 million, this is down from the end of the year at - which was at $398 million and compares to $346 million at the end of Q1 2019, a decrease in Q1 from - from the end of the previous year is seasonally normal for us, but the decrease was perhaps a little less than we expected. We attribute this to the drop-off in sales that occurred at the end of the quarter, which left a little more inventory on the balance sheet than we normally would have expected. Our team is doing a good job sort of managing supply chain and our forward looking production schedules to ensure that our inventory levels are appropriate internally. And overall we're really comfortable at this point with the amount and composition of our inventory.

Yes, Andrew, just maybe a little color on what we're seeing in the marketplace. Certainly, inventories are going to vary by segment and channel, but in both cases on course, of course around the world, they're going to be seasonally high in mid-March, as all channels prepare for the April through - call it August period where golf retail tends to be at its peak. Looking at off course inventories would be seasonally high in mid-March. And then - and then they confronted store closures for the last four to six weeks. So that gives you sense for that channel and what it might look like many on course shops in mid belt and snow belt regions we saw defer or cancel their opening orders which would typically ship around April 1, give or take a couple of weeks for weather. So, as a result the on course channel is going to be leaner and lighter than the off-course channel. Golf balls typically would be in the best shape, given increased rounds of play and their consumable nature. And our sense from available information is that our golf ball inventory - Titleist golf ball inventory at the moment are down versus a year ago. To clubs, we had - we had recently launched wedges and putters, so the pipeline is full. Our Iron business tends to be primarily fitting dependent in all channels and thus inventory generally don't get too far out a position. There is likely a good amount of driver inventory in the market, seasonally as it ought to be for this time of year. We're again a little bit fortunate that our TS driver is in the final year of a two-year life cycle. So our inventories would tend to be relatively low in year two. And the final piece I'd add is that, footwear is running heavy which is - which is normal for this time of year and this was one of the first categories we saw to become promotional. To FootJoy - FootJoy we see it to be in pretty good shape. In fact, we look at on course inventory, they are down 20% versus a year ago, again back to the idea that many - many April 1 orders were deferred or pushed out later in the year.

Thanks. And could you touch on how you're expecting the price environment to change going forward, are you expecting anyone to get promotional from here? Thanks.

You know, as I said earlier, we are preparing for it. It's too soon to say at this point, I did note we've seen some activity in footwear. We've seen golf ball manufacturers, ourselves included, extend their spring ball promotions and that was largely a function of because they - we missed - we missed a month of retail traffic to showcase and promote - promote those promotions, so those have been extended. At this stage with golf retail really just coming back online and up and running, it's too soon to say, but we do - we do expect to see some promotional activity throughout - throughout the year.

All right. That's really helpful. Thanks guys.

Thank you, Andrew. Next question, please.

Tim Conder with Wells Fargo Securities. Your line is open.

Hi, it's actually Joe Lackey dialing in for Tim. Hope everyone is safe first of all. So I wanted to build on - on the first question. So talking about like the retail cadence, right, as you move from mid-March through the weeks of April. Can you talk about maybe what you're seeing as far as a cadence there is - is the pace of declines easing right is - are the declines less than what you were seeing in late March? And then, maybe if you could comment similarly, what percentage of your retail outlets were closed as of mid-March and what are currently open as of now?

Yes, so fair to - fair to look at the March to mid-March to April period as being the most challenging and I'll correlate that with the fact that the vast majority of retail outlets were closed certainly in the US, in Europe. Again as we said earlier, Korea, Japan on a different - different cadence, but certainly that period we've seen - we've seen a lot of closures both on course golf shops and of course golf retailers. And as we said over the last couple of weeks, we've seen that loosen up, so week-by-week over last two, three weeks, we're seeing more golf courses open, we're seeing more golf shops open and we're seeing more golf retailers open. So as we've said, we're in the beginning of the recovery thought process, it changes - it changes literally by the day. The number of courses, number of states that have - that have allowed for golf to reopen now stands at 49, it was a far smaller number days ago even weeks ago. So we're just seeing a whole lot of change in ramp-up as more - as more and more states and more and more regions are thinking about ways to safely reactivate their economies. But in terms of golf commerce, again golf courses we see it roughly 90% operational golf retail shops are lagging. And they're following state regulations. So in many states, all golf shops, all golf retail outlets are open and in some states they have not yet opened. So again it's a gradual development process that - that is really playing out real time over the last couple of weeks and over the next couple of weeks. And I expect by the end of May, we should see most golf shops back up and running.

Okay, that's helpful. And then just one follow-up on the balls business because there's obviously a lot of moving parts there, right? So I was hoping you could try and quantify the 17% decline and maybe kind of parse it out into different buckets, right? Obviously, you've got the difficult comparison, right, you've got a decline in consumer demand and rounds played and then you've got the manufacturing disruption, right? So, if maybe you could kind of divide up that Q1 decline and kind of parse what part of it would fall in each of those buckets that would be helpful. Thanks.

Yes, so Q1 in an even year for golf balls, a non-Pro V1 launch here tends to trail a bit, a prior year odd year Pro V1 launch. So that's - that's step one. Step 2 is our launches of as Tom said AVX and Tour Soft and Velocity in the first couple of months, first 10 weeks we're running at or ahead of our expectations. The biggest impact was the drop-off at the end of - at the end of the - of the quarter, far less of an impact the supply chain. So, in fact virtually no impact from the supply chain. With the exception of some custom ball shipments that we couldn't get out at the end of the month. But the primary impact on what you saw in golf balls was the slowdown at the end of the quarter. And a lot of that, again, as I mentioned earlier in some of the channel inventory comments, we saw lot of golf shops who would typically take in their spring order on April 1, call us on March 15 and either push that back or cancel it.

Okay, thanks.

Thank you, Joe. Next question, please.

Certainly. [Operator Instructions] Steven Zaccone with JP Morgan. Your line is open.

[Technical Difficulty] question. To follow-up on the prior question about inventory positioning, specifically in the off course channel, based on your conversations with retail partners, how long do you think it would take for the off course channel to get in the cleaner position, could the channel be relatively clean by the start of the third quarter?

Yes, so as we - as we look at inventories, I think fair to say, they did a good job with curbside pickup. They did a good job with their e-Commerce businesses and they obviously scaled back purchases. So where they were - where they were in mid-March, I would say is likely to be slightly better now than again it was 4 to 6 weeks ago. So they're looking at inventory positions today versus a year ago that are probably flat to down slightly and that begs then the question what do we think is going to happen in the next - in the next - in the next three months. Again, back to my earlier framing, I think fair to say consumables come back first and fastest and others - other categories and segments follow the pace really at which to be determined. And again, and I know you'd love to hear some more clarity on what we think is going to happen in the next few months, but we are living at a time where this is - this is a week or two weeks in the making in terms of what we've seen retail do in terms of getting back online. But we are - we are hopeful that the one, the one indicator and the one - the one North Star and all this is the game and the high interest in the game, which leads us to believe participation should be robust, consumables should be robust and others will follow the pace at which we're just going to have to - have to buy some time to better understand.

Thanks, David. Just a follow-up on that. So if you think about how the COVID-19 pandemic is impacting the business, is it causing you to rethink your launch schedule for the balance of the year, like would you consider delaying the fall launch of your new driver to next year just given your commentary about the driver category maybe having some excess product out there?

Yes, fair question. As you'd expect, we have planned fall launches in virtually all categories. Our goal at the moment is to be ready to go or ready to differ depending on market dynamics, inventories, overall health, consumer spending, fitting readiness et cetera, et cetera, tour validation plays a role in that calculus as well. Our intentions are to get a good read on the consumer and the market readiness over the course of the next four to six weeks and then make our decisions and circumstances will certainly vary by product category and thus so will our actions. At the moment, fair to say some of our plan - some of our launches will go off as planned, others may be pushed into next year and some might be pushed into - into a later - a later window in the second half.

Great. Best of luck in the second quarter.

Thank you.

Thank you.

There are no further questions at this time. I would now like to turn the call back over to the presenters.

Jack, thank you and thanks everybody for your time today. We do believe the game of golf and Acushnet are well positioned for the long-term, while we face and own the near-term challenges that we are confronting. I wish you all good health and safety until we speak again.

This concludes today's conference call. We thank you for your participation. You may now disconnect.