Acushnet Holdings Corp. Q3 2025 earnings call

Good morning, everyone. Thank you for joining us today for Acushnet Holding Corp's Third Quarter 2025 Earnings Conference Call. Joining me this morning are David Maher, our President and Chief Executive Officer, and Sean Sullivan, our Chief Financial Officer. Before I turn the call over to David, I would like to remind everyone that we will make 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 measures, including items such as net sales on a constant currency basis and adjusted EBITDA.

Explanations of how and why we use these measures and reconciliations of these items to the most directly comparable GAAP measures 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 net 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. When referring to year-to-date results or comparisons, we are referring to the 9-month period ended September 30th, 2025, and the comparable 9-month period in 2024. With that, I'll turn the call over to David.

Good morning, everyone, and thanks to Sondra, who last month started her 28th year with our company. As always, we appreciate your interest in Acushnet Holdings. As the golf world exits peak season in many regions and begins prime time across the Sunbelt, the sport and business of golf continue to be vibrant, with an increased number of golfers playing an increased number of rounds globally. After a weather-induced slow start to the year in the U.S., rounds of play accelerated in the third quarter, which is the largest participation period of the year, and we now expect worldwide rounds in 2025 to match or exceed what was a record in 2024. Acushnet's trade partners are, by and large, healthy and investing to enhance their facilities and ultimately their value propositions to best meet the evolving preferences of tomorrow's golfers.

The global golf market is structurally sound, with momentum in the U.S. and EMEA offsetting softness, mainly from footwear and apparel, across Japan and Korea. Within Acushnet, our team is relentlessly focused on exceeding dedicated golfer expectations, developing great products, earning the trust and endorsement of the pyramid of influence and our partners, and executing a wide range of fitting and golfer connection initiatives. Tying this together is the company's unwavering commitment to product quality, best exemplified by every Pro V1 golf ball, which passes more than 100 quality checks throughout the production process. As a result of this commitment, our return rate is one golf ball out of every 16 million Pro V1s produced.

This operating model, Acushnet's blueprint for success, is continually refined and improved upon by our team as we strive to provide great products and services to golfers, execute our capital allocation strategy, and create shareholder value for our investors. With this as background, I now point to slide four and our third quarter and year-to-date results. First, for the quarter, Acushnet delivered worldwide net sales of $658 million, a 5% constant currency increase over last year, with gains across all segments. Adjusted EBITDA of $119 million grew by 10%. Year-to-date, sales of $2.08 billion were up 4%, and adjusted EBITDA of $401 million was up 2% compared to last year. Getting to our segment results, you see the continued global momentum within Titleist Golf Equipment, which has grown 5% in both the quarter and year-to-date.

Key drivers have been the year-to-date growth of our Pro V1 franchise in all regions and the very successful launch of new Titleist T-Series irons and limited edition Vokey SM10 wedges in Q3. We have spoken in recent years about the investments we have made to strengthen our golf equipment product development and enhance manufacturing capabilities. Our growth and momentum today are byproducts of these investments. Acushnet's golf gear segment also had a strong quarter, posting a 13% gain, and is up 8% year-to-date as our team brings a steady flow of compelling products to market and leverages our expanding custom capabilities and strengthening supply chain. Within gear, the company's travel brands have increased 20% year-to-date, with especially strong growth from our Links & Kings and Club Glove brands. Our FootJoy business continues to build momentum and delivered another positive quarter with revenues up 3%.

FootJoy is benefiting from the success of our Premiere and HyperFlex footwear models, fewer footwear closeouts, and steady glove growth. FJ's apparel business adds to the brand story, showing resilience with quarterly and year-to-date gains. As we have discussed throughout the year, these trends are positively affecting FJ's market momentum and financial performance in 2025. Finally, net sales of products not allocated to a reportable segment were up nicely in the quarter, with continued momentum and double-digit growth from shoes led by outsized gains across their golf business. Now, looking at our business by region on slide five, you see the U.S. market continues to be strong, up 6% with growth across all segments led by Titleist Golf Equipment. EMEA posted a 14% gain in the quarter and is now up 8% year-to-date.

Rounds of play are up high single digits as the region benefits from favorable weather comps versus last year. Korea was up 3% in the quarter with strength in Titleist Golf Equipment led by golf balls, while Japan was off 13% in the quarter and 7% year-to-date. As you see, our revenues in Rest of World were up 5% in the quarter and 3% year-to-date. In summary, we are pleased with Acushnet's performance in the quarter and the overall health of our consumer. The company's product lines are in great shape. Inventory positions, both owned and at retail, are in line for this time of the year, and we are confident in our team's ability to execute against our strategies. Thanks for your attention this morning. I will now pass the call over to Sean.

Thank you, David. Good morning, everyone. As highlighted, we had a great third quarter and solid year-to-date performance. Third quarter net sales were up 5%, while adjusted EBITDA was $119 million, up $11 million from last year's third quarter. For the first 9 months of 2025, net sales increased 4% and adjusted EBITDA increased 2% as compared to the same period last year. Moving to our income statement highlights on slide eight, gross profit in the third quarter of $319 million was up $15 million compared to 2024, driven by increases across all three reportable segments, primarily related to higher average selling prices, higher sales volumes, and a favorable mix shift in FootJoy. We also had approximately $10 million in incremental tariff costs in the quarter, and year-to-date have recognized $15 million.

Third quarter gross margin of 48.5% was down 50 basis points versus prior year, primarily related to the headwind from higher tariff costs. Year-to-date gross margin of 48.6% was consistent with last year. SG&A expense of $205 million in the quarter increased $5 million from the third quarter of 2024 as we continue to invest in A&P to support new product launches and future growth initiatives, including our fitting network and IT systems. SG&A also included $2 million of restructuring costs related to the voluntary retirement program the company initiated earlier this year. As a reminder, we expect a further charge in Q4 related to this program of approximately $5 million. Interest expense of $14.5 million in the quarter was up $1 million due to an increase in borrowings. Year-to-date, our effective tax rate is 23.6%, 200 basis points more than last year's rate through 9 months.

Our effective tax rate in Q3 was 37.3%, up from 19.3% last year, primarily driven by a shift in our jurisdictional mix of earnings and a reduced income tax benefit related to the U.S. deduction of foreign-derived intangible income resulting from the enactment of the One Big Beautiful Bill Act. Moving to our balance sheet and cash flow highlights on slide nine. Our strong balance sheet and consistent cash flow generation continue to support the disciplined execution of our capital allocation strategy. We remain focused on investing in the business to drive long-term growth while also returning capital to shareholders through dividends and share repurchases. Our net leverage ratio at the end of Q3, using average trailing net debt, was 2x. Inventories were up 3% when compared to last year's third quarter, reflecting some advancement of inventory ahead of tariff deadlines and the impact of our iron launch.

Overall, we remain comfortable with our current inventory position and quality. Year-to-date cash flow from operations decreased from 2024, primarily due to increased investments in strategic initiatives, including our IT systems and increased working capital requirements. Capital expenditures were $51 million in the first 9 months of 2025, and we now expect full-year CapEx spend to be approximately $75 million. Through September, we returned approximately $230 million to shareholders, with $188 million in share repurchases and $42 million in cash dividends. Today, our board of directors declared a quarterly cash dividend of $0.235 per share, payable on December 19th to shareholders of record on December 5th, 2025. Looking ahead to the remainder of the year, I would like to provide an update on our full-year revenue and adjusted EBITDA outlook shown on slide 10.

We expect full-year 2025 revenue to be in the range of $2.52 billion-$2.54 billion on a reported basis. As discussed on our second quarter call, we are still forecasting low single-digit growth in the second half, driven by contributions across all reportable segments. We now anticipate the full-year FX impact to be negligible compared to last year, resulting in aligned reported and constant currency growth ranges. Both are projected to be between 2.6% and 3.4% for the full year, representing a midpoint growth of 3%. This midpoint implies fourth quarter revenue of approximately $448 million, representing high single-digit growth over Q4 2023, a period consistent with the cadence of our product launch cycle. Moving to adjusted EBITDA, we are projecting full-year 2025 to be in the range of $405 million-$415 million.

Incremental full-year gross tariff costs are expected to be $30 million, about $5 million lower than our previous estimate, driven by timing shifts and tariff-related variables. This reflects a $15 million gross tariff headwind in the fourth quarter. Through the strategic mitigation efforts we've discussed, we still anticipate offsetting a meaningful portion of the full-year gross tariff headwind. Overall, we are very pleased with our year-to-date performance and full-year outlook. The team remains focused on finishing the year strong and continuing to execute on our long-term strategic priorities. With that, I'll now turn the call over to Sondra for Q&A.

Thanks, Sean. Operator, could we please open the lines for questions?