Acushnet (US:GOLF)2023-11-02 20:54PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements for Q3 and 9M 2023, detailing balance sheets, income, cash flows, and equity Balance Sheets (in thousands) | (in thousands) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $1,033,521 | $1,059,076 | | Total assets | $2,210,567 | $2,193,807 | | Total current liabilities | $856,197 | $548,625 | | Total liabilities | $1,236,661 | $1,210,441 | | Total shareholders' equity | $966,646 | $976,703 | Statements of Operations (in thousands, except per share amounts) | (in thousands, except per share amounts) | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | Nine months ended Sep 30, 2023 | Nine months ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $593,381 | $558,246 | $1,969,034 | $1,822,932 | | Gross profit | $308,522 | $294,995 | $1,042,717 | $955,600 | | Income from operations | $78,605 | $76,010 | $309,999 | $269,926 | | Net income attributable to Acushnet | $57,307 | $51,837 | $225,237 | $199,336 | | Diluted EPS | $0.85 | $0.72 | $3.30 | $2.72 | Statements of Cash Flows (in thousands) | (in thousands) | Nine months ended Sep 30, 2023 | Nine months ended Sep 30, 2022 | | :--- | :--- | :--- | | Cash flows provided by (used in) operating activities | $296,930 | $(59,042) | | Cash flows used in investing activities | $(68,554) | $(29,096) | | Cash flows used in financing activities | $(229,202) | $(74,619) | | Net decrease in cash, cash equivalents and restricted cash | $(2,138) | $(173,220) | - In January 2023, the Company acquired certain trademarks from West Coast Trends, Inc. (Club Glove) for $25.2 million, which will be amortized over a weighted average life of 10 years and are included in the Titleist golf gear segment105 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting 8.0% net sales growth for 9M 2023, segment results, gross margin, liquidity, and capital resources Results of Operations - Q3 2023 vs Q3 2022 Q3 2023 net sales increased 6.3% to $593.4 million, driven by golf clubs and balls, with gross margin at 52.0% and net income at $57.3 million Net Sales by Segment (in millions) | (in millions) | Q3 2023 | Q3 2022 | % Change | Constant Currency % Change | | :--- | :--- | :--- | :--- | :--- | | Titleist golf balls | $192.6 | $181.2 | 6.3% | 6.2% | | Titleist golf clubs | $181.0 | $153.9 | 17.6% | 17.9% | | Titleist golf gear | $47.7 | $59.2 | (19.4)% | (19.9)% | | FootJoy golf wear | $136.7 | $131.7 | 3.8% | 3.4% | - Net sales in the United States grew 7.6% to $352.5 million, driven by increases in Titleist golf clubs, golf balls, and FootJoy golf wear123124 - Gross margin decreased to 52.0% from 52.8% in the prior year, primarily due to unfavorable manufacturing overhead absorption and increased promotional activity in FootJoy footwear, partially offset by lower inbound freight costs across all segments126 Results of Operations - Nine Months 2023 vs 2022 For 9M 2023, net sales grew 8.0% to $1.97 billion, driven by Titleist golf balls and clubs, with gross margin improving to 53.0% and net income at $225.2 million Net Sales by Segment (in millions) | (in millions) | 9M 2023 | 9M 2022 | % Change | Constant Currency % Change | | :--- | :--- | :--- | :--- | :--- | | Titleist golf balls | $622.1 | $546.4 | 13.9% | 15.5% | | Titleist golf clubs | $549.8 | $478.9 | 14.8% | 16.8% | | Titleist golf gear | $184.6 | $172.5 | 7.0% | 9.0% | | FootJoy golf wear | $500.2 | $507.1 | (1.4)% | 0.6% | - Net sales in the United States increased by 15.4% to $1.12 billion, with growth across all reportable segments142144 - Gross profit increased by $87.1 million, and gross margin expanded to 53.0% from 52.4%, primarily due to lower inbound freight costs across all segments and lower royalty expenses in Titleist golf clubs147 Liquidity and Capital Resources Liquidity relies on operations and credit facility; $350.0 million senior notes issued post-quarter to repay debt, and $205.0 million stock repurchased - On October 3, 2023, a subsidiary issued $350.0 million in 7.375% senior unsecured notes due 2028, using the proceeds to repay $345.6 million of borrowings under the multi-currency revolving credit facility168 - During the first nine months of 2023, the company repurchased 4,150,817 shares of common stock for an aggregate of $205.0 million171 - Cash flow from operating activities was $296.9 million for the first nine months of 2023, a significant improvement from a use of cash of $59.0 million in the prior-year period, primarily due to favorable changes in working capital, especially inventory177178 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, foreign exchange, and commodity prices, using derivatives; a 1% interest rate increase would raise annual pre-tax interest expense by $4.9 million - The company is exposed to interest rate risk on its variable rate debt; a hypothetical 1% increase in interest rates would increase annual pre-tax interest expense by $4.9 million as of September 30, 2023185188 - To manage foreign currency transaction risk, the company uses foreign exchange forward contracts with a gross U.S. dollar equivalent notional amount of $193.2 million as of September 30, 2023190191 - The company faces commodity price and availability risks for key manufacturing materials such as polybutadiene, urethane, titanium, steel, and leather194 Item 4. Controls and Procedures Management, including CEO and CFO, concluded disclosure controls and procedures were effective as of September 30, 2023, with no material changes in internal controls - Management, including the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023196 - No changes occurred in the company's internal controls over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls197 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various lawsuits arising from normal business operations, with unpredictable outcomes that could be unfavorable - The company is involved in lawsuits associated with the normal conduct of its business, but the outcome of these pending actions is not predictable199 Item 1A. Risk Factors Updates risk factors, emphasizing high leverage with $592.8 million indebtedness and a subsequent $350 million notes issuance, impacting cash flow and operations - The company's high degree of leverage, with $592.8 million of indebtedness at quarter-end plus a subsequent $350 million note issuance, could adversely affect its ability to fund operations and react to industry changes201 - Key risks from high leverage include requiring substantial cash flow for debt payments, increased vulnerability to adverse economic conditions, and restrictions on strategic activities due to debt covenants202 - The indenture governing the new notes and the existing credit facility contain covenants that limit the company's ability to incur additional debt, pay dividends, sell assets, and enter into transactions with affiliates205206 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details Q3 2023 share repurchase activity, with 1,153,400 shares bought at $56.28 average, leaving $202.4 million authorized Share Repurchase Activity | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2023 | 368,313 | $55.93 | | August 2023 | 419,047 | $57.06 | | September 2023 | 366,040 | $55.76 | | Q3 Total | 1,153,400 | $56.28 | - As of September 30, 2023, approximately $202.4 million remained available for purchase under the company's share repurchase program207 Item 5. Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q3 2023 - During the three months ended September 30, 2023, no directors or officers adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement"211 Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including the Indenture for senior notes, CEO/CFO certifications, and XBRL data files - The exhibits filed include the Indenture for the October 3, 2023 note issuance, CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, and Inline XBRL documents213