Good morning or good afternoon and welcome to the Acushnet Company 4Q 2022 Earnings Call. My name is Adam, and I'll be your operator for today. [Operator Instructions]. I'll now hand the floor over to Sondra Lennon to begin. Sondra, please go ahead when you are ready.

Good morning, everyone. Thank you for joining us today for Acushnet Holding Corp.'s fourth quarter and full-year 2022 earnings conference call. Joining me this morning are David Maher, our President and Chief Executive Officer; and Tom Pacheco, our Chief Financial Officer. Before turning 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. For a list of factors that could cause the 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 make 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. Please also note that references throughout this presentation to year-on-year sales increases and decreases are on a constant currency basis, unless otherwise stated. As we feel this measurement best provides context as to the performance and trends of our business. And when referring to year-to-date or full-year results or comparisons, we will refer to the 12-month period ended December 31, 2022, and the comparable 12-month period. With that, I'll turn the call over to David.

Thanks, Sondra, and good morning, everyone. Thanks for joining us on today's call. As Tom and I will outline, Acushnet wrapped up a terrific year with a strong fourth quarter, helping our brands carry nice momentum into 2023. I will begin by acknowledging and thanking the talented Acushnet team for their hard work and great results. Their creative spirit of innovation and commitment to delivering the highest quality golf products and services are creating shareholder value and powering the company's sustaining growth. Now to our results. Acushnet sales increased 11% in 2022 to $2.27 billion. All operating segments and geographic regions posted year-on-year gains with golf clubs, leading all segments up 16%. EMEA was our fastest-growing region, up 20% versus 2021, and Acushnet's business in the U.S. and Korea was also especially strong, both increasing 9% on the year. The company generated adjusted EBITDA of $338 million, a 3% increase over prior year. For the fourth quarter, revenues were up 14% to $447 million as Titleist golf clubs, gear and golf balls all grew double-digits. And adjusted EBITDA of $25 million represents a $30 million increase for the period. In summary, a strong fourth quarter finish to a very positive trending year for Acushnet. In addition, our teams have also made several operational enhancements as we invest to position the company for future success. Heading into '23, our golf ball supply chain is more expansive and diverse as our primary raw materials partner has grown its capacity and capabilities and we have also added dynamic new suppliers. We believe these enhancements will invite new innovations, while protecting our access to raw materials in uncertain times. Custom cloud production capacity in the U.S. and abroad have been increased to meet growing demand for Titleist golf clubs and deliver leading service levels.…

Thanks, David, and good morning, everyone. I also would like to begin by recognizing our talented associates for the tremendous effort they put forth to deliver a great year for Acushnet in 2022. Starting with our Q4 results on Slide 10, consolidated net sales were $447 million, up 6% reported and up 14% level FX versus 2021. Overall, our momentum continued with all reportable segments showing growth in the quarter on a constant currency basis. Gross profit for the fourth quarter was $224 million, up $19 million or 9% versus the prior year, and gross margins were 50% up 140 basis points. The increase in gross profit and gross margin was driven by golf clubs and golf balls as a result of higher sales volumes, primarily TSR metals and clubs and across all models and balls and by lower inbound freight costs. SG&A expense in Q4 was $196 million, down $13 million or 6% and R&D expense was $14 million, down $2 million or 10% compared to the prior year. SG&A for the quarter was down across all reportable segments and across all expense categories, except for distribution, where we continue to make investments to increase our throughput, while maintaining high service levels. Income from operations for the quarter was $12 million, up $34 million or over 150% from 2021. Interest expense was $5 million up over $4 million on higher interest rates and higher outstanding borrowings and income tax expense was $2 million, up $1 million from the prior year, primarily as a result of a shift in our mix of jurisdictional earnings. Net loss income attributable to Acushnet Holdings was up $26 million compared to 2021 and adjusted EBITDA was $25 million, up $30 million from the prior year. Moving to our full-year results. Consolidated net sales for…

Thank you, Tom. Operator, could we open up the line for questions, please?

Of course. [Operator Instructions] And our first question today comes from Brian Harbour from Morgan Stanley. Brian, please go ahead. Your line is open.

Hi, this is Matt on for Brian. Thanks for taking the q uestion. Maybe first, it looks like some of the Golf equipment industry data has softened a little bit in the recent months. What do you think was the driver of that? And any color on why it looks like it didn't have much of an impact on your results?

Good morning, Matt, can I just ask you to clarify that the Golf equipment entry data. Help me understand the question.

Yes. So at least through Golf Data tech, it looks like the industry sales data softened a bit in recent months. I'm not sure if that's what you're seeing.

Okay. Okay. Got it. The way we look at certainly the past December, Q1, January, February, I'll go back to holiday sales were, in our minds, healthy. What we certainly have seen is some swings, some regional swings based on weather patterns. You look at rounds of play. They were down double-digits in California, they were down double-digits in Arizona, high double-digits in California due to weather. They were up in Florida. So there's some regional swings that we've seen, but we haven't seen any meaningful blips one way or the other over the last several months.

Great, thanks. And then maybe one on SG&A. It looks like it's been favorable and maybe somewhat restrained. Can this continue into '23? And is that a kind of a key driver of the guide?

So our SG&A, particularly in Q4, was down. That's as much a story about our accelerated investments in Q4 of '21 as much as it is the result in Q4 of 2022. Going forward, for 2023, we expect OpEx will grow slightly faster than sales, which it did not do that in 2022, and we expect some growth in each quarter of next year. So that trend will not continue. Q4 is a bit of an anomaly.

Great, thank you.

The next question comes from Daniel Imbro from Stephens Inc. Daniel, please go ahead. Your line is open.

Hi, good morning everybody. Thanks for taking my questions. David, I want to start on the demand side. Obviously, you mentioned the participation numbers are rising and kind of looking through weather, you guys feel pretty good about the industry. But obviously, we're coming off a strong year. So if you can take a step back, what gives you guys confidence that this will continue? And then when I think about the 6.5% constant currency guide, what are you anticipating for core golf equipment growth? What's coming from FootJoy Shoes, I think Tom mentioned maybe $10 million from TPI. Maybe if you could walk through the building blocks there of the guide in the context of your overall industry outlook.

Yes, hi. Good morning, Daniel. At a high level, the golf equipment apparel markets are healthy. Courses, off-course retailers are healthy. And as we're seeing in rounds of play data, when weather cooperates, golfers are getting out and playing. So we've got a -- step one would be we've got a healthy golf marketplace. Channel inventories are in a good place. They're not where they were 18 months ago, which was very tight, but they're in a healthy place as compared to historic levels. We then point to two other contributing factors. One is broader consumer spending, which experts will tell you is projected in the flat to low single-digit range. And then you layer on weather projections, which long-ago, we realized you don't project weather. So we tend to think of weather as being flat, so rounds being flat with the understanding you're going to be wrong in one direction or another. And then getting into our businesses, right, if I look at it through its parts and pieces, we've got enthusiasm and excitement around new Pro V1 launch that brings great energy to the ball business and brand. We're enthused about our driver success with TSR starting in the fourth quarter and heading into its first Spring season. And we look at our gear and our FootJoy business, and we look internally at our products in our pipeline, and we have cause for optimism. To maybe the root of your question, right, the caution, if there is any, and there always is, the caution is always around the consumer and where goes the consumer in 2023. But where we stand today, the factors I just walked through are effectively the baseline and foundation for our guide. As to segment, I'll pass it over to Tom for his thoughts.

Well, Daniel, what we've said as it relates to segment is we do anticipate growth on a constant currency basis across all of our segments. So it is across the board. From an earnings perspective, there are lots of puts and takes that we all know about. We've seen -- we're seeing a reduction both in freight rates and the utilization of airfreight, but there are also some headwinds, particularly from input cost and currency and potentially the return of some promotional activity. So all in all, we anticipate that our gross margins will be up slightly across all of our segments and that our OpEx is going to grow a little bit faster than sales.

Got it. Thank you guys for the color. Maybe to follow-up on that last point, Tom thinking about the promotional cadence, which part of the business do you expect to see that show up most in? Is it equipment? Is it apparel? And then maybe related, you guys launched your TSR, it went really well at Fall. But obviously, your peers now have launched competitive product, and it's a pretty full channel. Based on what you're hearing out of the industry, is inventory heavy with any one OEM? Is there a risk of any OEM getting promotional on the club side this year? Can you just expound on that would be great.

Yes. I'll touch on that, Daniel. So to your first question, balls for us, we're feeling like we're finally caught up from an inventory standpoint. So we think that category is not oversupplied. Therefore, unlikely it would get overly promotional. Our club business, in some respects, beats to its own drum. We're so custom fitting oriented that we're confident that we're not going to get caught up in excess inventories. I think we may have said this on the last call, the categories that might be the most susceptible to promotional activity would be footwear and apparel. And really that traces back to they were industry-wide, the most disrupted last year in the second quarter in the first and second quarters because of the supply chain disruption. So you had a lot of Spring products that simply came in late and didn't get out the door. So those categories we've been watching carefully. And again, I think if you're looking for where is the highest likelihood of promotional activity, that's where you'd see it apparel and footwear. Now again, in the context of where that sits historically, I would say below historical, below historical normal levels but certainly above what we've seen in the last couple of years. As to your second question about competition, we like where we are. Again, I mentioned we've got a Pro V1 launch here, a lot of great energy and enthusiasm there. The driver realities you mentioned, that's an annual occurrence, right? We go when our competitors go, when they go. So I think what you'll see right now is, again, we're early days, but you should see full channels, right, as everybody gears up and as our green grass and retail partners gear up for the season ahead. That question may have a better answer two, three months from now after we've seen the beginning of the season play out. But from what we can see now, we're seeing channels beginning to fill up in anticipation of the season. And as we look at that, again, it's not a perfect balance between supply and demand, but we don't see any outliers that give us cause for concern at this point.

Great, really appreciate all the color. And best of luck.

Thanks, Daniel.

Thanks, Daniel.

Thanks, Daniel. Operator, next question please.

The next question is from Mike Swartz from Truist Securities. Mike, your line is open. Please go ahead.

Hey, good morning everyone. Just maybe a first question, maybe the 30,000-foot level around a lot of the investments you've made, David, I think you called them out at the beginning of the call around capacity and capabilities. I guess where do we stand and we use the kind of the baseball metaphor, where do we stand? Which inning are we in, in really this investment phase? Because it sounds like there is going to be some increased investment in 2023 as well.

Yes. Hey, Michael, I would say, on one hand, it never stops, right? You're continually investing in your capabilities and infrastructure sometimes for growth, sometimes for efficiency, sometimes for quality. But we are comfortable that we're some 40-plus percent bigger than we were a handful of years ago, and we are comfortable that from a capacity expansion standpoint, we are where we need to be. As I mentioned, most of our businesses were in a pretty good place from a supply and availability standpoint. The two outliers might be balls and gloves. In the ball story, really less predicated on our capacity and more a function of our suppliers' inability to get us the raw materials we needed, and we're long past that point. So hopefully, that gives you a sense for where we're at.

Yes. And I guess where are the future investments really oriented as we talk about '23?

Well, the one call out I'll make is we're continuing to invest in technology to enrich the consumer experience to enrich our trade partner experience and to just create better architecture throughout our organization to be more effective and efficient. So as we think about the investments, that's area one. Area 2, and we've touched on this a little bit. We continue to invest in distribution around the world. right? We made some moves last year with apparel to expand our distribution capabilities. We have some opportunities in all markets outside the U.S. to rethink and reimagine how we distribute products in and through our warehouses around the world. So that's an area that we're paying attention to as well.

Okay. Great. Maybe just a follow-up on balls. On the Pro V1 relaunch this year, you're taking a 10% price increase, which I think is one of the largest price increases you've taken in that business. You've got a lot of competition, and obviously, competitors have been doing very well on the ball side the past couple of years. I guess what gives you the comfort or confidence in taking that level of pricing?

Yes, hey fair to say pricing was driven by input costs that we've seen across all areas of our business. We've always been comfortable at a premium to the competition based on the performance and quality attributes of our product. And that's what we're seeing now. We're also seeing the introduction of some -- or the return of some programs, our loyalty program is back, which golfers are great fans of. And important to note, as well that our pricing journey is a long road in the sense that our two-year price life cycles. We don't take a lot of moves, and this one reflects -- it's been a couple of years, number one. And number two, we've incurred and absorbed a good amount of input cost over the years. So there's a bit of a catch-up baked into where we are. But again, we've always been comfortable at a premium versus the competition, as warranted, we think, by the product, by our leading shares, by our leading usage throughout the pyramid. And any time you take a price increase, it ups the ante in the sense that you've got to work extra hard to show consumers that your product is worth it. And that's what our team is committed to as they seek to show how our products outperform the competitive sets. So we're comfortable where we are. We don't take price increases lightly. We never have. But we think we've got the parts and pieces in place to be effective. And we think offers understand where we're coming from, one, given our long historical journey as it relates to pricing; and two, given the realities of some of the price increases we've dealt with in the past couple of years and, in some respects, absorbed in the last couple of years.

Thanks, David.

Thanks, Michael. Operator, next question please.

The next question is from Joe Altobello from Raymond James. Joe, your line is open. Please go ahead.

Thanks. Hey guys, good morning. I guess just to kind of follow-up on that point. It's been a while since we've had a garden variety recession, if you will. But historically, what have you seen in terms of overall spending in the category and on your brands. Is there any trade down given the premium positioning of your brands? And I guess, in a recession, do golfers place you around? Or do they use cheaper balls? Or do they stay the same regimen?

Yes. Maybe Tom and I, both could add that. At high level, Joe, what we've seen golfers tend to keep playing, they may prolong their life cycles, right? So that's the first takeaway from what we've seen in the past. Historically, and I think we've noted this before, the company has fared well. While we're not recession-proof, we fared well in downturns going back to the subprime and going back to the dotcom. I may pass that one off to Tom for some specifics on those events. So Tom, I'll kick that one over to you.

Sure, Joe. And I think we've talked about this before, back in the 2008, 2009 timeframe when you look at our business, excluding COBRA, which did not focus on the dedicated golfer in which we later sold. Our core business, if you will, was down about 8%. And if you look at a basket of leisure and recreation product companies within the consumer discretionary segment, they were down more than 15%. So as David said, our business fared far better than some of our peers.

Got it. Appreciate it.

And Joe -- just the final observation, Joe, as you made a comment about trade down. we haven't seen a lot of that, right? Again, it tends to be more just extended life cycles, but we haven't seen a lot of trade down. I think that speaks to more than anything, the makeup and demographic and avidity of our dedicated player.

Thanks for that, David. And I guess just a follow-up on that. When we were down in Orlando, at the PGA Show a few weeks ago, your overall outlook on the industry was about flattish, right, in 2023. And so maybe could you help us square that outlook with the 5% to 7% constant currency sales growth you provided today? How much of that growth is coming from share gains and replenishment on the ball side in particular?

Yes. I would say it's born of brand momentum and product enthusiasm across our pipelines, step 1, step 2, there's a bit of replenishment that will play out in Q1. And then I think we're there from an inventory standpoint, we're where we want to be, right? We were a little leaner on the ball side in particular. So I think by the end of April is probably a better way to think about it when we've loaded up the channels. I think the replenishment is complete. There's a little bit of pricing in there as well. So yes, your take on macro market, what we said in January is for us the right way to think about it. What we're thinking about this year is generally flat from a marketplace perspective. But again, there are some parts and pieces of our -- within our business that give us confidence that we can outpace that growth.

Got it, thanks guys.

Thanks, Joe. Operator, next question please.

The next question comes from George Kelly from ROTH Capital. George, please go ahead. Your line is open.

Hey everybody. Thanks for taking my questions. So most have been asked and answered, but just a couple for you, I guess. The trademark -- I think it was a $65 million transaction in the fourth quarter. Could you give a little more detail on that? And is that providing a material benefit to EBITDA in '23 and beyond?

Yes, hi George, this is something that we've been looking at for a long time as we feel it's very important for the company to own certain trademarks and certainly, we deal on the vast majority of our trademarks. Our putter business is in great shape, and we see this as an important step to protecting this business for the very, very long-term.

Yes. And as it relates to EBITDA, this is really a trading, if you will, from a royalty model to an own model. So we will end-up putting an intangible asset on the balance sheet and amortizing that over a 20-year period. And so that swapping of those costs, if you will, amortization gets added back for EBITDA purposes. So it will be -- it will have an impact on operating income, but it will be a tailwind for EBITDA.

Okay. Okay. That's helpful. And then next question, just curious if you could be more specific if you could quantify the impact of the acquisitions you've made on your guidance for fiscal year '23 specific to revenue?

Sure. So what we've said is -- so TPI is an acquisition in the traditional sense. And we anticipate that it will add on the top line, less than $10 million, so reasonably small acquisition there. From a Club Glove perspective, that was more of an acquisition of intangibles, whether it be trademarks and things of that nature. So we are in the process of setting up that business internally so that we can run it internally. So for the balance of 2022, West Coast Trends will continue to operate the business and support the brand on a license basis. And so we'll, for 2023, recognize royalty income on that, and that will be a very small amount. So both of those transactions and the impact are included in our guidance.

Okay. That's really helpful. And then last question for me. With this re-upped share repurchase authorization, I believe you said $250 million. Is the plan to continue aggressively doing that? I mean is that something you could work through over the next three or four quarters?

Yes. So as you know, we've been pretty aggressive buying back shares. We expect to continue to buy back shares. We will obviously monitor the economic situation and market conditions and adjust accordingly. But we would, absent any changes in those factors, we would anticipate utilizing that $250 million maybe by the middle part of next year.

Okay, excellent. Thank you.

Thank you, George.

Thanks, everyone. As always, we appreciate your interest in the company. Hope you have a great day, and we look forward to catching up with you on our next call.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.