Acushnet Holdings Corp. (GOLF) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Acushnet Holdings Corp. Q2 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]. I would now like to hand the conference over to your speaker today, Sondra Lennon, Vice President of FP&A and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us today for Acushnet Holdings second 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, the COVID-19 pandemic has had significant impact on the company's business and results of operations and will likely continue to impact our business in the near future. The ultimate duration, scope and impact of this pandemic are uncertain. 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 U.S. Securities and Exchange Commission. Throughout this discussion, we will also 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 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. Please also note that when referring to segment and regional year-on-year sales increases and decreases, we are 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 six-month period ended June 30, 2020 and the comparable six-month period. With that, I’ll turn the call over to David.

Thank you, Sondra, and good morning, everyone. I hope that you are all staying well during these trying times. As always, we appreciate your interest in Acushnet Holdings and look forward to providing you with an overview of our second quarter results, along with insights into how Acushnet and the golf industry are adapting and evolving as we enter the back half of 2020. On our previous call, in early May, we were in the middle of government-imposed shutdowns, impacting our golf ball and club plants, embroidery operations and distribution centers in the U.S. and across Europe. Most golf courses and golf retailers were effectively closed as the golf industry was shut down during the early days of the pandemic. Towards the end of May, after nine weeks of forced shutdown, we were given approval to restart operations with new and expanded safety and social distancing protocols. And I am pleased to report that since that time, our production has steadily increased and is now running at or above normalized levels, and nearly all of our furloughed associates have returned to work. And while our associates were safely resuming operations, golfers were making a full return to the sport, taking advantage of golf's outdoor field of play and embedded ease of social distancing. In recent months, we have seen strong demand fuel U.S. rounds of play increases of 6% in May and 14% in June as the golf community, PGA professionals, golf retailers, course owners and superintendents have excelled at safely welcoming golfers back to the game and accommodating increased interest in this sport. The successful return of the PGA Tour in June has also contributed to golf's energy. And this past week, the LPGA, European and Champions Tours restarted as well. While when we get to the other side of this global pandemic remains uncertain, in the initial and most difficult months, Acushnet has benefited greatly from the resilience of our committed and skilled associates, healthy product momentum and strong balance sheet as we entered the shutdown period. Affirming this resilience and financial stability, I am pleased to announce the approval of Acushnet’s second quarter cash dividend equal to $0.155 per share or $12 million in aggregate. Now turning to Slide 4 and our results for the period. Second quarter sales of $300 million were 34% below last year, and first half sales of $709 million were off 20% versus 2019. Second quarter adjusted EBITDA was $33 million, down 56% versus last year. These results reflect a 27% reduction in planned OpEx spending for the period as our team aggressively managed expenses during the shutdown period. For the half, adjusted EBITDA of $86 million was down 39% versus last year. Here on Slide 5, you see the effects of near shutdown early in the quarter, which were followed by recovery, which began in late May. April sales were down 68%, May improved to down 52% as our facilities reopened and June sales indexed 25% ahead of last year. June's momentum and growth continued into July as a healthy order backlog, strong at-once demand, lean channel inventories and gradually increasing output levels contributed to a fast start to the third quarter for each of our reportable segments. Now turning to Slide 6 and our regional performance. You see that the U.S., EMEA and Japan were, as you would expect, down for the period. Korea's resilience and momentum are noteworthy as our team posted a solid 12% increase in the first half. This gain is the result of strong brand momentum and sound execution by our Korea team and reflects the country's effectiveness in fighting COVID with less economic disruption than we have seen elsewhere. Korea is one of the few markets to post increased rounds of play in both the first and second quarters. Looking ahead, we see the game as well positioned in the U.S. and EMEA with EMEA's recovery starting about one month after the U.S., which is consistent with their later golf course reopenings. Our outlook for Japan remains conservative, and we expect that stay-at-home guidelines will continue to prompt Japan's older golfer population to be less inclined to venture out to play golf or go to the driving range. And we anticipate that Korea, while not without disruption, will remain one of the steadier and more resilient golf regions. Now turning to Slide 7 and the second half. As I mentioned, July was a strong month and we expect this momentum to continue into August. Our supply chain has recovered well and for the most part, our inventories are in line with anticipated demand. Pro V1 availability, however, has been under the most pressure with strong demand, requiring the allocation of our available supply over the next several weeks. U.S. channel inventories at the end of June were down versus a year ago, which we see as a positive sign. Golf balls and club inventory levels are down about 20% from 2019 and golf bag and footwear inventories down 12%. Most global markets are also reporting modest inventory declines versus last year. This inventory environment reflects strong consumer demand over the past 10 to 12 weeks, which has contributed to lower than anticipated promotional activity, following the extended period of retail closure earlier this year. As we noted on our previous call, we continue to prioritize all product development efforts with the intention of ensuring our readiness to introduce new products when the market conditions are most conducive. And thanks to the great work of our R&D and ops teams, we plan to launch several exciting new products in the coming months. Our new multilayer thermoplastic urethane Tour Speed golf ball launches this week in North America and in all other markets next month. Tour Speed delivers a great combination of long game speed and short game spin and control and will be positioned between our existing Surlyn-covered performance models and Pro V1 and AVX franchises and will retail for around $40 per dozen. You may recall that a version of this product was successfully test-marketed last fall as Titleist EXP-01. We have finalized design plans for new Titleist drivers and fairway metals, which we now intend to launch in mid-November. Tour fittings are underway and we expect new product to debut on worldwide tours in September. We will provide more details about this launch on our third quarter call. And our club team is also excited to launch a new family of concept irons in September. While concept does not represent large volumes, it does reflect our most advanced iron technology platform and sets the standard in the super premium segment. Concept is also a valuable proving ground for materials and new constructions that may someday be used in our core product franchises. In summary, I will affirm that the game and business of golf have been incredibly resilient over the past months. Our team has done a great job navigating a challenging second quarter, and we are confident in Acushnet's positioning and readiness as we look to the future. As you would expect, we continue to exercise caution in our planning, given COVID-related uncertainties, while at the same time our teams are preparing to capitalize on the high levels of participation and consumer demand we have seen over the past two to three months. I will conclude my prepared remarks by affirming Acushnet's commitment to the safety and well being of our associates and trade partners and our unwavering focus on building upon our proven track record of providing shareholders with a compelling long-term total return investment opportunity. I will now pass the call over to Tom.

Thanks, David, and good morning to everyone on the call. I would like to recognize the resiliency that our associates, their families, our trade partners and communities have shown in the face of the pandemic, and the truly amazing effort our team put forth to get our business back up and running in a safe and healthy manner. Starting on Slide 9. As David mentioned, our Q2 results were severely impacted by COVID-19. Q2 consolidated net sales were 300 million, down 35% versus Q2 of last year and down 34% on a constant currency basis. Q2 gross profit was 157 million, down 90 million or 36% versus last year and gross margin was 52.2%, down 100 basis points. The decreases in gross profit and gross margin were driven primarily by the overall decrease in sales and production volumes. SG&A expense in Q2 was 131 million, down 40 million or 23% compared to Q2 2019 and R&D expense was 11 million, down 2 million or 14%. Overall, our operating expenses for Q2 were down 27% from our planned levels coming into the year as a result of our cost reduction actions taken during the quarter. During Q2, we had a little over $1 million of restructuring charges, which carried over from our Q1 program. Operating income in Q2 was 12 million, down 49 million from 2019. Interest expense was 4 million, down slightly from the prior year and income tax expense was a benefit of $600,000, driven by the shift in our jurisdictional mix of earnings, offset by a one-time discrete benefit related to a change in our international structure. Q2 net income attributable to Acushnet Holdings was 2 million and adjusted EBITDA was 33 million, down 43 million from the prior year period. Moving to our results for the first half of 2020. Consolidated net sales were 709 million, down 21% from last year and down 20% in constant currency. Gross profit for the first half was 357 million, down 111 million versus last year and gross margins were 50.4%, down 190 basis points from the prior year. First half SG&A expense was 283 million, down 42 million or 13% over the first six months of 2019. R&D expense was 24 million, down 1 million or 5%. First half income from operations was 33 million, down 80 million from 2019. Interest expense was 9 million, down 2 million from last year and our year-to-date effective tax rate was 35.6%, which has increased compared to 2019, driven primarily by the shift in our jurisdictional mix of earnings. First half net income attributable to Acushnet Holdings was 11 million and adjusted EBITDA was 86 million, down 54 million from the same period last year. On Slide 10, we have provided a reconciliation of net income to adjusted EBITDA for Q2 and the first half. There are two items to highlight here. The first is the add-back of COVID-19-related expenses of $6 million in the second quarter, which is included in the line item, other extraordinary, unusual or nonrecurring items, net. As in Q1, the add-back includes salaries and benefits paid for associates who could not work due to government-mandated shutdowns, benefits paid for furloughed associates, incremental costs to support remote work and the cost of additional health and safety equipment. The second item to note is $3.9 million of pension settlement charges in the second quarter, which are also included in the line item, other extraordinary, unusual or nonrecurring items, net. These charges were added back because they are directly related to our Q1 restructuring program. As you can see on Slide 11, net sales in all of our segments were negatively impacted by COVID-19. Titleist golf balls were down 40% in Q2 and 30% year-to-date. Titleist golf clubs were down 32% in Q2 and 16% year-to-date. Titleist golf gear was down 30% in Q2 and 16% year-to-date. And FootJoy golf wear was down 39% in Q2 and 21% year-to-date. Moving to Slide 12. We had about 109 million of unrestricted cash on hand, our total debt outstanding was approximately 522 million and our leverage ratio was 2.28x at the end of Q2. On June 30, we repaid the 200 million that we had drawn down on our revolving credit facility earlier in the quarter. And on July 3, we closed on an amendment to our credit facility, which, among other things, gives us relief on our net liquidity ratio covenant for five quarters. At the end of Q2, we had cash on hand and available borrowings under our revolving credit facility of about 329 million. At this time, we believe that our cash on hand and available borrowings will be sufficient to meet our liquidity requirements for at least the next 12 months. Consolidated accounts receivable at June 30 was 272 million, down 11% from the prior year as a result of the lower Q2 2020 sales. Our DSOs were up four days compared to the prior year as we gave some customers extended payment terms. However, our aging remains healthy. Consolidated inventory was 364 million, up about 40 million or 12% from the prior year. About half of this increase comes from KJUS, which we did not acquire until July 1 last year. Increases in FootJoy apparel and footwear and in all categories in gear, make up most of the remainder of the increase as both businesses were impacted by unfulfilled demand at the end of the quarter and by canceled tournaments and corporate outings. Golf ball and golf club inventories both showed year-over-year decreases. Overall, we are comfortable with the quality of our accounts receivable and the amount and composition of our inventory at this time. Cash flow from operations for the second quarter of 2020 was 72 million, making first half cash flow from operations essentially zero compared to 40 million for the first half of 2019. CapEx was 5 million for Q2 and 10 million for the first half. We are continuing to closely monitor our CapEx for the balance of the year and still expect 2020 full year CapEx to be lower than in 2019. Turning to capital allocation on Slide 13. Although our long-term priorities remain the same, we remain cautious as it relates to our capital allocation actions. As I just mentioned, we continue to expect 2020 full year CapEx to be lower than 2019. Our share repurchase program continues to be suspended and we did not repurchase any shares in Q2. We did pay our previously announced Q2 dividend in June and, as David mentioned, our Board of Directors today declared a Q3 cash dividend of $0.155 a share payable on September 18 to shareholders of record on September 4. This represents a return of approximately $12 million to shareholders. Finally, as you know, we suspended our guidance in April and did not issue new guidance on our Q1 earnings call. We are encouraged with the increase in rounds of play and consumer demand around the world and the related positive impact on our sales in June and even greater impact in July. We currently expect demand to continue to be strong in August and September, and for our Q3 sales to be significantly higher than Q2. However, we do expect our Q3 sales to be lower than Q3 2019, primarily as a result of the shifting of our upcoming driver launch into mid-Q4. While we continue to manage our discretionary spending, we currently expect Q3 operating expenses to be down slightly from our originally planned levels. Given the continued uncertainty regarding the future impact of COVID-19, we will not be issuing detailed guidance at this time. In conclusion, our business was severely impacted in Q2 by COVID-19. However, we were able to get up and running quickly to begin to meet the strong consumer demand that was pent-up after the government-imposed shutdowns were lifted in mid-May. We believe this strong consumer demand will continue through the third quarter. However, there continues to be a high degree of uncertainty. We are confident we have taken the appropriate steps to protect the company's liquidity and financial position and to enable us to maintain our market leadership positions into the future. With that, I will now turn the call over to Sondra for Q&A.

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

[Operator Instructions]. Your first question comes from the line of Tim Conder from Wells Fargo. Your line is open.

Thank you. Gentlemen, congrats just on the execution in a difficult environment. A couple of items here. I’d like to – if you look at factoring the change of your cadence on new product introductions and kind of where your commentary on the channel inventory, when do you anticipate the channel sort of being back to normal, your ability to supply it and get it back to normal here?

Tim, I would say, as we work our way through the summer months and you get some seasonally adjusted play and consumption in the marketplace, fair to assume that come September, October, we should begin to see channel inventories, broad channel inventories make their way back to normalized levels.

Okay. And any difference versus North America versus Europe as far as channel inventories?

I think North America started – the game resumed earlier than what we saw in Europe. So North America is running a little bit leaner than the rest of the world, but most markets around the world are also somewhere in the range of healthy to down modestly. But again, the key differential there is rounds of play really picked up in the U.S. early May, and that happened later in Europe.

Okay, great. Thank you.

Thanks, Tim.

Thank you, Tim. Next question please.

Your next question comes from the line of Daniel Imbro from Stephens. Your line is open.

Hi. Good morning everybody and congrats on executing the quarter.

Thanks, Daniel.

David, I want to start maybe on the broader industry. Industry is recovering nicely, probably faster than we all originally hoped it would. Can you talk about maybe what you learned in the last few months about the core golfer? Are they as resilient as you thought they would be? Are they still making up the majority of spending? And then related to that, are we seeing new golfers in scale really drive spending or are they just driving participation today?

Yes. Daniel, so certainly things in golf have picked up at a faster pace than anybody I think would have anticipated going back to March or April. One commentary I will add that the rounds of play data we’re seeing also reflects the cancellation of so many corporate outings and charitable events. So when you look at the numbers, really driven by recreational play, offsetting some of those cancellations. So I think a strong rebound in May and then into June, and we expect to continue into the July and August months. From what we’re seeing and what we’re hearing from a lot of our trade partners, the play is coming from all angles and that is certainly dedicated golfers are playing more. And you’ve got a strong influx of interest from new players, whether it’s juniors or folks who simply never played the game or folks who played years ago and have jumped back in. One element we’re seeing too is that the more folks play, the more they think about equipment. So I think that’s been an accelerant to the strong equipment sales we’ve seen over the last couple of months, but fair to say that this participation we’re seeing is coming from all angles. And it only affirms, again, that correlation between rounds of play and the commercial element of the game and the spending component of the game. That was one area that was uncertain as far back as – or as recently as April and May, and we’ve seen that connection resume nicely, and that is the typical spend profile per round of golf.

That’s helpful. And then just during maybe the two months of downturn we saw, within your broad maybe golf ball or any selection, did you see any trade down from the consumer to maybe lower ASP options that they face financial pressure? And then more broadly, do you – as we think about upcoming launches, do you think the consumer is in a place to deal with continued price increases like we’ve seen in the last few years or how do you think that shapes up today?

Yes. So as it relates to trade down, we didn’t see that. Again, our situation was focused on resuming operations, resuming shipments and putting product into the channels as quickly as we could because of the strong demand resulting in lean inventory positions. So we didn’t see a lot of trade down. Now that said, we saw healthy demand across our product lines, all the way from Pro V1 down through the entire lineup. So wouldn’t say that there was a trade down component. And the final piece I’ll add is the inventory pressures we’re dealing with now, as I mentioned on my prepared remarks, are most acute with Pro V1. Secondly, where is the consumer as it relates to pricing? Daniel, on that one, I think it’s too soon to say. They’re playing a lot of golf. They’re engaged. They’re investing in their game for a lot of different reasons. But in terms of how they’re thinking about price increases, how we’re thinking about price increases, we haven’t picked up any strong signals one way or the other. We continue to believe that, if we bring new and innovative and exciting products to market, that we can capture a premium. But in terms of any signals we’re getting from the marketplace at this point, I think I might have a better answer for you on our next call.

That’s helpful. And then just a quick related follow-up. You mentioned obviously the inventory issues. Is there any way to quantify what percentage of lost sales, maybe what kind of headwind that was to sales growth in 2Q, where maybe you couldn’t meet demand in the quarter?

Yes. I think almost exclusively, you got to remember, we were all but shutdown in April and most of May. We couldn’t produce, we couldn’t ship, we couldn’t custom-decorate whether it’s golf balls or custom club assembly or embroidery. So I think the market is just in a major period of disruption during that period. And our own situation was unique with distribution centers in Massachusetts and California, at least in the U.S., that were shutdown. Our own situation was primarily a function of dealing with government-imposed shutdowns and then ramping up as quickly as we could when things resumed in late May.

Okay. Thanks so much. Best of luck.

Thanks, Daniel.

Thank you, Daniel. Next question please.

Your next question comes from the line of Brett Andress from KeyBanc. Your line is open.

So focusing on Slide 5, and thank you for that by the way, is there any more detail that you can give us on the momentum that you cited from June into July? As a percent of 2019, what would that July bar look like compared to June? And then also just building off that, I’m just trying to think about the mechanics of how we get to 3Q sales down, given the August commentary you also gave us, is the number just down that meaningfully on launch timing? I guess I don’t know the seasonality within the month in 3Q.

Sure, Brett. In terms of the momentum we saw in July, we said that June was up 25% year-over-year, and we are expecting July to be up even higher than that on a year-on-year basis. So really strong momentum in July. In terms of the Q3 and the decline, we did say that we – despite the momentum, we expect Q3 to be lower, primarily because of the shifting of the driver. We would expect to see similar volumes of drivers over a 12-month period, but by shifting it from the August timeframe into the November timeframe, you’re probably going to see about half of that volume shift out of 2020 and into 2021.

Got it. Okay, that’s helpful. And then last one just on core sales, a question there. Have you been able to restart fittings in all of your markets? I’m just trying to tease out how much of a headwind the fitting part of the business have been because presumably that’s reopened slower versus the off course sales?

Yes. Brett, we talked about that on the last call. That was one of the areas of great uncertainty is how would the consumer jump back into the world of club fitting. And as I mentioned, our team did a real good job reengineering the fitting process and helping our trade partners do the same and as much as anything, educating golfers that we’ve got a safe method to effectively fit for golf equipment sales. What I can share is, in June and July of 2020, we actually did more fittings than we did last year and we did more than we planned to do. So that was a pleasant surprise for us. I think it bodes well for the future of fitting, be it on course or off course, and a lot of that fitting, that number I talked about, was really through our tech reps. And I think we saw the same thing, whether it was on course or off course through our trade partners and their fitting. So one area we’re especially pleased with is the resiliency of custom fitting over the last couple of months.

Thank you.

You’re welcome.

Thanks, Brett. Next question please.

Your next question comes from the line of Michael Swartz from Truist Securities. Your line is open.

Hi. Good morning, everyone. Just want to start out with the gross margin in the quarter. I think it was down 100 basis points, but on a 35% decline in revenue. Just trying to understand, I guess how did gross margin hold up as well as it did? I think you said most of, if not all of the cost savings you discussed on the first quarter call were in the OpEx line items. So just maybe a little bit more color on how that held up? And how we should maybe think about that in the back half of the year?

Sure. In terms of the cost savings, we certainly highlighted the cost savings in the OpEx areas, but there were certainly cost savings in some of our direct costs as well. So that certainly played a role. I would also say that the mix of equipment versus soft goods, we’ve always said that equipment have higher gross margins than soft goods and the acceleration of both golf balls and clubs in June, in particular, that mix shift sort of led to perhaps higher gross – a lower decline in gross margins than you might have expected. In terms of the second half, although we’re not getting into a great level of detail there, with the shifting of the driver launch and the impact of that on '20 and '21, we would expect to see a bit of a headwind to margins from that in the second half.

Okay. That’s very helpful. And then just with – a lot of the commentary around new golfers or lapsed golfers coming back into the market. I know in the past, you’ve really kind of stuck to marketing and really more of your marketing sponsorship activities really targeting that lifelong and dedicated golfer. Have you may be given any thought to how you go-to market with the surge in first timers or lapsed buyers coming into the market? Will anything change going forward?

Yes, I think the way to – the best way to look at that, we are committed and focused on the dedicated golfer. We’ve built the business around the dedicated golfer. That doesn’t change. Certainly, we pay attention to shifting marketplace trends, but our core vision and our core mission remains unchanged. I will say, we do have some entry points with which we can capture interest from dedicated – from the entry-level golfers rather; rather it’s through our PG Golf lost golf balls business, whether it’s through some Pinnacle golf balls, whether it’s through Union Green, a new ball we introduced, but really the core of our mission and our vision remains the dedicated golfer.

Thank you, Michael. Any other questions for you Michael? Okay. We can take the next question. Thank you.

Your next question comes from Joe Altobello from Raymond James. Your line is open.

Great. Thanks, guys. Good morning. So first question, I want to go back to the commentary regarding Q3 and the momentum you guys saw in July and August. It sounds like, based on what you were saying this morning that the reason for this year-over-year decline is going to be on the club side. So should we assume that golf ball sales will be up year-over-year in Q3?

Yes, that’s a fair assumption, Joe.

Okay. And then just related to that, are you seeing any lingering supply chain issues on the ball side or the Pro V1 shortages that you guys are talking about, that’s simply due to the shutdown you had in April and May and you’re now playing catch up essentially at this point?

Yes. So we did continue Pro V1 production through Ball Plant IV in Thailand throughout the second quarter. In the U.S., we were shutdown late March, all of April and most of May. June was really a ramp-up month and the team did a good job, and we’re now at or ahead – running at or ahead of normalized levels. So we’re making it faster than we made it a year ago. We’ve got three shifts running every day. But the fact is, we’ve got some very strong demand coupled with a lean inventory situation that I talked about. So I’m pleased from a production standpoint. We’re doing all we can. The other component of that is customization. We had a pretty strong custom backlog that we had to work through. We finally worked through that and lead times are now at normalized levels. So the situation we’re dealing with now is very much – it’s very much demand-driven more so than our ability to produce.

Okay, great. Thank you, guys.

Thanks, Joe.

Thanks, Joe. Could we take the next question please?

[Operator Instructions]. Your next question comes from the line of Casey Alexander from Compass. Your line is open.

Hi. Good morning. Two questions. One, you called out some excess inventory in apparel and footwear and since I’m always looking for a good deal on golf shoes, I’m just wondering if you’re planning any type of promotional activity in that area to push some of that inventory through the channel?

Casey, at the moment nothing out of the ordinary or out of our typical seasonal cycles. I will note that while channel inventories are down most notably in balls and clubs, channel inventory on footwear is also down and apparel is also down. So while it is making up the bulk of our increase, we’re not compelled to take any actions that we wouldn’t otherwise typically make this time of year as we enter the back half of the season.

Okay. Thank you. And one more question. As it relates to adjusted EBITDA, I’m curious why that includes salaries and benefits paid for associates who didn’t work. If you – you paid them last year. You’re paying them this year. You’re presumably going to pay them next year. That sounds more like a business decision than a one-time charge and therefore, it doesn’t seem realistically to qualify for an add-back to EBITDA.

Sure, Casey. In those instances, and that was primarily in Q1 and the early part of Q2, those individuals, for example, were sales people who couldn’t call on accounts because the accounts were shutdown or couldn’t carry out their duties because of other restrictions. And so there was a period of time where we were still paying those associates prior to – even though they couldn’t perform their duties. Ultimately, those employees, those associates were furloughed, and so they came out of that bucket and into the expenses related to benefits for furloughed employees. So it’s a small piece of the number, but it’s really when individuals could not perform their duties and we were still – they were still on the payroll.

Okay. That does lead me to one more question. Did you have any difficulty getting back furloughed employees? Some companies have said that they’ve had difficulty getting some employees back simply because of the strength of the government unemployment benefits. How has that gone for you?

Casey, we certainly were aware of that. We anticipated some of that. But, as you know, our associate base is long, long tenured. In fact, our ball plant associates have over 20 years of service on average. Leading to your question, we had very little challenges or trouble getting folks back to work.

That’s great. Thanks for taking my questions. I appreciate it.

Thanks, Casey.

Thanks, Casey.

Thanks, Casey. Next question please.

Your next question comes from the line of Brett Andress from KeyBanc. Your line is open.

Thanks for the follow up and sorry if I missed this, but what was the reason for the mid-November launch timing? Is that just supply chain related?

No, Brett. Good question. You think about how we – our prelaunch activities, right. We like to introduce product out on tour and throughout the pyramid in advance of launching it in the marketplace. We simply felt the market was too disrupted in June, July and August to activate some of our key prelaunch activities. The team was ready. The team is ready. If you recall, last time we launched a driver, we introduced it on tour in June and we shipped the product in September. We basically shifted things out a couple of months as much to engage with our tour staff around the world and build some prelaunch demand. And simply with no professional golf until June, with players focused on a whole lot of competitive play during the months of June, July and August, we felt it was best to just shift it out a couple of months. But less a readiness standpoint, more us identifying what’s the right window for launch and as importantly, what’s the right launch window that gives us a couple of months of our prelaunch marketing and tour validation efforts. So we looked at it through that lens and November made real good sense.

Understood. Thank you.

Thanks. Okay. Thanks, everybody. As always, we appreciate your time and interest and look forward to catching up on the next call. And in the meantime, please stay safe. Thanks, again.

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