Good morning everyone. Thank you for joining us today for Acushnet Holdings Corp. Third Quarter 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 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. 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 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 those 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 results or comparisons, we will refer to the nine-month period ended September 30, 2022, and the comparable nine-month period. With that, I'll turn the call over to David.

Thanks, Sondra, and good morning, everyone. As we will share this morning the company's third quarter performance reflects the great strength and momentum of our products and brands, ongoing expansion of Acushnet's supply chain capabilities and the resilience both in terms of participation and purchasing of golfers in all major markets. And I must note, these results also point to the continued good work and dedication of a Acushnet's talented associates. As noted on slide 4, third quarter sales increased over 13% to $558 million and year-to-date sales have increased 10% to $1.82 billion. These results are consistent with the across the board health of our businesses, with each segment posting gains against record levels of 2021. In addition to these top line results, you will note gross margins are holding up well in spite of currency headwinds and persistent freight pressures. This gross margin strength and double digit sales gains contributed to a 23% increase in adjusted EBITDA for the quarter. Product performance and quality excellence define Acushnet and are the foundation of our sustaining success. We are pleased with the early success of our fall product launches and looking forward. Our teams are enthused while preparing for a wide range of new product introductions scheduled for the next six months. This momentum and confidence in our ability to execute support the company's track record of delivering against our capital allocation priorities and we have returned more than $175 million to shareholders through our dividend and share repurchase programs during the first nine months of the year. This represents the company's largest return of capital since these programs were first implemented. Now turning to slide 5, we will review our segment results. Golf ball sales increased 13% in the quarter with strong sell through and improving production levels contributing…

Thanks, David. I would like to start by thanking our dedicated associates and trade partners for their efforts in delivering yet another strong quarter for Acushnet. Starting on slide 9, consolidated net sales for Q3 were 558 million up 7% reported and up over 13% on a constant currency basis compared to last year. Overall, demand continues to be strong, and all segment showed growth in the quarter on a constant currency basis. Gross profit for the third quarter was $295 million up 10% versus 2021 and gross margin was 52.8% up 130 basis points. The increases were driven by higher sales volumes across all reportable segments and were partially offset by continued currency headwinds and elevated inbound freight costs mainly in golf balls and gear. SG&A expense in Q3 was 202 million up 1% from the prior year. Our teams did a good job balancing spending, while we continue to invest incrementally in our IT platforms and in distribution as we enhance our fulfillment and customization capabilities, particularly in FootJoy in gear. R&D expense was $15 million which was flat compared to 2021. Income from operations was $76 million for the quarter, which was 45% higher than last year. And our Q3 adjusted EBITDA was 87 million up 23%. Summarizing our year-to-date results, consolidated net sales for the first nine months of 2022 were 1.82 billion up 6% compared to last year, and up 10% on a constant currency basis. Year-to-date gross profit of 956 million has improved by 5% compared to 2021. However, gross margins of 52.4% although solid are down 50 basis points. SG&A expense for the first nine months was 637 million up 9% and R&D expense was 43 million, up 6% compared to 2021. Year-to-date income from operations was $270 million, which is 4% lower…

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

Of course. [Operator Instructions] And our first question today go to Daniel Imbro of Stephens Inc. Daniel, please go ahead. Your line is open.

Good morning, everybody. And thanks for taking the questions. I want to to start David just kind of on overall industry question. Obviously the industry remains healthy and then you kind of mentioned your dedicated golfer is strong. I'm curious, what measures are you guys tracking internally when you think about gauging the health of the consumer into next year? Is it at home values? Is that a macro data point? Is it just a real time spending and kind of your history with cycles, trying to understand what gives you as a confidence, but the reason price increases, but also just the volatile macro backdrop into next year as you go about planning?

Yes, good morning, Daniels. So for us it starts with participation and we're pleased with how resilient it's been in 22. And I think if you look at our results, they do indicate the dedicated golfer is healthy. And we've said all the while they tend to be a very resilient consumer group. That said we are mindful of the looming risks from economic and inflationary headwinds. in terms of what we look at, beyond that, certainly we track real time sell through data. What gets a lot of attention nowadays from everybody and certainly for us is the fragility we see in EMEA and I'll caveat that with, that's been an especially strong region for us. We were up I think, 28% in '21 and we're up 20 something percent this year. So like many companies we are concerned about the outsized inflationary pressures that are impacting this region. But really, the core for us, Daniel is going to be participation and then we gauge the resilience of our dedicated golfer. We did see some data coming out of the [NGEF] and this is this is certainly U.S. centric, that says they project there were about 8% more golfers today than there were five years ago. No surprise, right. We've seen an uptick, that they also would say that what they call committed golfers that groups up about 14%. And while it's not an exact match with how we define dedicated golfers I think it's indicative of the trends. And then maybe a broader comment as we think about the clouds and potential, the potential headwinds before us. We do expect generally that consumables tend to hold up better than durables or larger ticket items. So as we work our way through our product line, we've seen historically that golf balls tend to be one of the more resilient categories.

Great that’s helpful. On the industry as a whole. Obviously, we came in this year with clean inventories. I think during your prepared remarks, David, you said we're still running about 10% below where you where you want to be. Right now. I guess how much of a tailwind to growth this year has the restocking so far been? And then if we were to get from the say 10% of industry inventory level now back to even how much of a tailwind to grow through that the next year to overall revenue growth?

Yes. Let me break it out by category. My comment Dan was was really specific to balls and clubs. In our case, we tend to be lean, and we're leaner than we historically would like to be. So we're about 5% to 10% below where we'd like to be channel inventories and competitive inventories may be a little higher than that. When you look at footwear, a bit of a different story, it's elevated and that's an area where we would expect to see some promotional activity here sooner verse later. And I may say the same about gear and then and that subject, I do think we're going to see a return to some normal end of cycle sell off in golf clubs. And that's not necessarily commentary on elevated channel inventories as much as it is we know that there's some competitive entries coming in the first quarter and we would expect to see some promotional activity but to your question about how do we think about channel backfill as an influence on our business for us it's really been about supply chain. We've been trying to make as many golf balls as we can. And I think our team has done a wonderful job. We were up 30 something percent a year ago. We're now in the black this year, which given some of the raw materials concerns we had we feel very good about. So in terms of what might it mean, I'm not prepared to put a number on it Daniel, but I will say as we look forward, certainly we think about demand for our products. We think about inventory levels. We think about the overall health and vibrancy of our retail partners across channels. And what we see is a healthy environment and again that the caveat will once again be some of the some of the looming clouds from a macroeconomic standpoint that remains to be seen how they materialize.

Great. Thanks so much for all the color this morning and best of luck going forward.

Thanks, Daniel.

Thank you, Daniel. Operator next question, please.

Thank you. The next question goes to Mike Swartz of Truist, Mike please go ahead. Your line is open.

Hey, guys. Good morning. Just a quick question on some of the product launches for the upcoming year. I guess two questions. Any specific call outs just around the product launch cadence over the next 12 months that might look a bit different versus two years ago? And then just given some of the macro uncertainties out there? Are there any alterations to how you plan to release new product in ‘23 in terms of size, or timing or just marketing support?

Yes so I would say that maybe the best, the best like for like, look would be '23 verse '19. '21 was still a little bit disjointed, because of the fallout from '20. So we'll get back on what we would consider to be a normal cadence and what that looks like is a Pro V1 launch in the first half. We will update half our Cameron line in the March, April timeframe. And we would expect to launch -- new [launches] in the second half and then FootJoy and shoes they're really on track for their spring and fall launch programs. In terms of your second question about how do we see it playing out, I would say we're still in the mode of working very hard to build inventories to support launches. And what's different today versus 2019, 2019 there was a seamless transition from prior generation to new product and we would basically dial up and produce all the product we needed to support a launch. It's not that easy today, in the sense that we're at elevated levels. So our team is going to do all they can to prepare for and build inventory to support launches. And this is really a golf ball commentary. It's notably a Pro V1 commentary, but will do so without unlimited production capacity. Right. So we are going to, we are enthused, as I said in my earlier remarks, the team is excited about the launch. But we do have finite production capacity that will influence how we launch product in the first half.

Okay, that's helpful. And then maybe a question for Tom, real quick on, you said freight costs, you're starting to see some easing on the inbound freight costs, but you continue to use more air freight to get stuff into the market. Maybe give us a sense of when you expect that to normalize, and maybe any way to quantify what that could mean for margins or just lower costs.

Yes, in terms of normalize I think that's a tricky question. Because I guess what is normal going to look like in the future clearly, we think, freight rates, both ocean and air will come down. However, will they come all the way back down to 2019 levels remains to be seen. As you said, as I said, we have started to see rates come down from their historic levels, but they are still much higher than they were back in 2019. So hard to say what new normal will look like and when we'll get there. We do anticipate, though that we will see some relief in 2023. Haven't really quantified that yet. But I think it could be a reasonably meaningful number. But I would caution that against all the other puts and takes that come along with gross margins whether that be increased promotional activity and discounting which David mentioned what's going on with FX, which is obviously had a huge impact on our margins this year, as well. So we definitely see the freight situation improving but hard to quantify exactly by how much at this point.

Okay, great. Thanks a lot

Thank you, Michael. Operator, next question, please.

Thank you. The next question goes to Joe Altobello of Raymond James. Joe, please go ahead. Your line is open.

Hey, thanks, guys. Good morning. Actually, Tom, that commentary was a good segue into my question. I mean, we got to the upper end of the sales range for this year at the lower end of the EBITDA range, I guess, where are you seeing the incremental margin pressures? You mentioned promo and FX, but I'm curious if there are other issues that are kind of weighing on profitability here in Q4.

Morning, Joe, yes, certainly, currency and potential promotional activities are definitely headwinds as it relates to gross margins. The other things I would point out are really around some of the investments in the business that we've been making. We continue to incrementally invest in our IT platforms. We continue to invest in our distribution, as we enhance our fulfillment and customization capabilities, particularly in FootJoy and gear. So we are seeing that margin pressure, and some continued investment in the business. I will point out though Q4 is seasonally our lowest quarter and if you look at the midpoint of the guidance, Q4 is going to be up over $22 million compared to last year. So we're pretty pleased with the second half and where the year is going to land.

Got it very helpful, and just kind of to follow up on that the 13.5% constant currency sales growth in the quarter, any chance that you can kind of parse that out between how much pricing drove that and what your volumes were up?

It's difficult to split those. I would say we continue to see FX pressure across all of our major markets and continues to have a significant impact on the top line but difficult to sort of parse that into volume and price.

Hey, Joe, I'll just add on that balls to your, Tom answer to your ethics piece to to pricing, balls, little impact from pricing, certainly clubs and gear were influenced by pricing. Balls far less so. And I would say FootJoy less so as well.

Okay. And just one last one. For me the the impact from pricing next year, I imagine you expect to be somewhat less than what we've seen so far in '22.

Yes. I think our pricing journey over the last couple of years is a fair reflection of what you're going to see in '23. We generally address pricing when we introduce new products. And I think we do benefit from our two year product lifecycle, which tends to provide a more gradual pricing slope, but we have taken price increases with the majority of our products over the last 18 months and again, I think as you look forward the trend certainly we expect to continue.

Okay, thank you.

Thank you, Joe. Operator, next question.

Thank you. The next question goes to George Kelly of ROTH Capital Partners. George, please go ahead. Your line is open.

Hey, everybody, thanks for taking my questions. So just a couple of for you. First, back to the gross margin discussion on freight. Just curious, I understand that rates have come in but just curious if you expected the level of next year the kind of freight volume or freight mix between air and water would you expect it to be more like 2019? Are you still planning into early next year to be using kind of a consistent mix of air freight?

Yes. I would say in the first part of the year, we will continue to be using higher than normal levels of air freight to support our product launches. And so that won't necessarily return to 2019 levels, may not be quite as high as we've been in say, ‘21. But I think it would still be elevated from normal levels. And I think over the course of the year, we would expect the trend to back towards a more normal mix of air freight and ocean freight overall.

Okay. And then second question on the general state of the consumer. So, David, you were talking to in response to an earlier question just about the uncertainties out there and you're trying to be appropriately cautious. But is there anything maybe in Europe or elsewhere where you've seen anything start to change, is the business still, I mean, your 3Q, what you just reported was so strong. So are you really seeing much evidence of any kind of changing dynamic?

We haven't seen meaningful swings, George. And keep in mind too we're coming out of the season in many regions. So much of the golf market is snowbelt and really on the tail end, if not closing end of their season. We're certainly opening up in Sunbelt markets right now. But we haven't seen any meaningful forks in the road or speed bumps. But we're also understanding that we're coming off a pretty good surge over the last several years and we would expect things to slow if not normalize. And again, that's sort of the basis of how we're thinking about the future. But to your question, have we seen any meaningful drops? We haven't. And again, part of that may be seasonal. But I do point to really, the two main themes for us are always going to be what's happening with participation. And then the fact that we think our golfer is more resilient than most consumer segments.

Okay, and then last question for me, just thinking FX for the potential impacts for next year. Curious if you can help us quantify what kind of drag that will be to revenue growth next year, just with where rates are now? Any kind of, I don't know how specific you want to be. But any any commentary around that would be helpful?

We're still in the planning process for 2023. So I don't think we want to get very specific. I will say that we do expect currency to be a headwind next year. I think it won't be. I don't think we're anticipating that will be quite the headwind that it is this year, but it will still be meaningful and significant.

And this year was how much did you say 118?

116? But yes.

Okay. Thank you.

Thank you, George. Operator, next question, please.

Thank you. The next question goes to Casey Alexander of Compass Point. Casey, please go ahead. Your line is open.

Yes. Kind of a one off here because most of my other questions were answered but any 4Q impact from Hurricane Ian know there's a lot of courses shut down, a lot of territory where rounds played didn't happen, particularly in October. And I'm just wondering if that flows back to you in any way? Or if there was a lot of stuff that was damaged that needs to be replaced and could provide a future demand input?

Yes, Casey, more of the former than the latter. Certainly we look at what happened on the west coast of Florida and up the southeast coast. And there were last rounds, there were damages. So yes, the answer is absolutely. Thankfully and the golf world navigated through it fairly well. But we have enough of our partners, who were impacted and closed and remain closed. So it is an impact into your second theme. I don't think we we characterize it that way. I don't see it as a lift as you may get in some in some industries. But we do expect it to have a negative impact on the quarter as it relates to rounds, and therefore purchasing.

Right, thank you.

Thank you, Casey. Operator, next question, please.

Thank you. And the final question today goes to Randy Konik of Jefferies. Randy, please go ahead. Your line is open.

Yes. Thanks. I guess we want to just go back to this guidance on the adjusted EBITDA dollar kind of, you're kind of narrowing the range a little bit. So just to be clear, is that now narrow range a product of FX plus assumed kind of promo that could happen or just to clarify exactly what that $10 million difference is just the start?

I think at the midpoint we narrowed the range by 5 million. Just to be clear there. I would say overall, the impact, the narrowing of the range really has mostly to do with currency. And with higher input costs. I would say less to do about sort of promotional activity. I think that's potentially more of a 2023 potential factor. And then also the additional investments that we've continued to make as I mentioned earlier in our IT platforms and our distribution capabilities. So it's really those factors.

Got it. And I guess maybe if we can think about 2023 for a second, maybe David, you could give us some perspective on if you assume, again, you're potentially assuming that we could have a little bit more normalization of promo activity. Because you clarify how that may change versus years ago with the rise of customization. And how inventories, finished goods inventories are less on the balance sheet, and so on and so forth, or less than the channel like I want to get a perspective of how the whole industry has kind of changed and how if there is even promotional activity that occurs, how that might be the same or different than stuff you've seen in years past?

Yes, Randy, that's a good question. And I do want to make the point that our comments are as much in comparison to where the industry has been for the last couple of years. And that has been close to zero promotional activity. So when we talk about promotional activity resuming or returning, it's off a base of zero. And to your question, the industry looks a fair amount different today than it did 2018, 2019. We still see it as well within the range of normal and probably less than what we saw, pre-pandemic. So I do want to be clear about that. We would expect and I made this comment earlier that footwear broadly and certainly golf footwear as part of this is maybe the first place we'll look. And again, I think balls are quite resilient, because at least in our case, because of our shortfall to optimal inventory. And then again, I think you're going to see a return of some normal sell off at end of life cycle. But also I do think that's going to be at lesser levels than we're accustomed to. So I think it's commentary that, hey, the fundamentals of the industry, are healthy and healthier than they were going back to 2019 and while we will see some promotional activity, it's going to be at a lesser level than we were accustomed to three, four years ago.

Got it. That's super helpful. I really appreciate that. Thanks for the help, guys.

Thanks.

As always, folks, thanks for your time and attention this morning. We appreciate your interest in Acushnet. I hope you all have a great and safe holiday season. And we look forward to getting back with you early next year.

Thank you. This now concludes today's call. thank you for joining. You may now disconnect your lines.