Acushnet Holdings Corp (GOLF) 2017 Q2 法說會逐字稿

Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2017 Acushnet Holdings Corporation Earnings Call. (Operator Instructions)

Mr. Tony Takazawa, Vice President of Investor Relations, you may begin your conference.

Thank you. Good morning, and welcome to Acushnet Holdings' call to discuss our financial results for the second quarter of 2017. This morning, we are joined by Acushnet COO, David Maher. David will provide commentary on the conditions in the golf industry and discuss the performance of our business across our segments and geographies. Next, Acushnet's CFO, Bill Burke, will spend some time discussing our overall financial results for the quarter. After the prepared remarks, we will be joined by Acushnet's CEO, Wally Uihlein. And then we will open up the lines for your questions.

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 our filings with the U.S. Securities and Exchange Commission.

Throughout this discussion, we will 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 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.

With that, it is my pleasure to introduce Acushnet's COO, David Maher. David?

Thanks, Tony. Good morning from Fairhaven, Massachusetts. And thank you to all who are participating on today's call. I look forward to sharing our second quarter and first half operating results, golf market assessment and outlook for the balance of 2017.

We're pleased to lead with the ball count from this week's PGA Championship at Quail Hollow at 62%. It is up 5 percentage points from last year. We wish good luck to all participants and especially our 20 PGA Club professional partners who have so impressively earned their way into this year's final major. Golf fans are poised for an exciting run as the PGA championship is followed by the U.S. Men's and Women's Amateurs, Solheim Cup, FedEx Cup playoffs and Presidents Cup over the course of the next several weeks.

Before outlining our operating results, I'll reiterate Acushnet's commitment to providing shareholders with a long-term total return investment opportunity. Acushnet's playbook consists of an organization-wide focus on the games' dedicated golfer, a broad product category portfolio, a favorable mix of consumables and durables, golf brands that resonate with the commercial core of the golf industry, strong pyramid of influence validation and a desirable concentration in high-margin equipment segments. This DNA of the Acushnet Company, we believe, lends resilience to our long-term performance.

Accordingly, I'm pleased to announce that earlier today, our Board of Directors declared a quarterly cash dividend of $0.12 per share or $8.9 million in aggregate, payable on September 15 to shareholders of record as of September 1.

And now, looking at our results for the second quarter and first half. Acushnet posted second quarter sales of $428 million, down 7.6% on a reported basis and 6.6% on constant currency. For the first half of 2017, sales of $861.6 million were off 4.6% from last year or 3.8% on constant currency. Adjusted EBITDA for the quarter was $71.8 million, down 13.5% from last year and $150.3 million for the half, a 7.4% decline. These results were influenced by a variety of factors, including weather and the ongoing U.S. retail correction, which I will expand upon.

The U.S. market was particularly impacted by a wet spring. According to Golf Data Tech, rounds of play in the Mid-Atlantic, Northeast, Upper Midwest and West Coast were down between 7% and 13% for the half as rainfall was up significantly in each of these regions. New York, home to many of our investment partners and one of the industries' top golf markets, had an especially wet spring, causing a 20% decline in rounds through June. This has had an obvious impact on consumable purchases, such as golf balls and golf clubs, while also limiting overall golf shop traffic and our partners' ability to conduct ball and club fittings, which have become so important to optimizing golfer performance and product satisfaction.

Looking at our business regionally, U.S. sales for the second quarter were off 8.5% and down 5.8% for the first half. The U.S. retail market is entering the fifth quarter of what we see to be an 8- to 10-quarter correction cycle. Now that we've entered the back half of 2017, much of the pain from this correction is behind us as comp sales declines to now close locations will be reduced. The migration of volume and market shakeout, however, will continue into 2018. At which point, we expect to settle into a new normal with the endgame being a U.S. golf market that is fundamentally more sound and with fewer retailers and OEMs competing for available revenue and profits.

As we said before, this journey, while painful at times as we deal with 450 fewer golf ball distribution points and 100 fewer full product line doors, reflects the necessary correction of a market that had too much retail square footage, too many golf courses, and arguably, too many OEMs. We're confident that the U.S. market is approaching a healthier state.

And now looking outside the U.S., EMEA's second quarter sales were off 3.4% on constant currency and for the half were down 1.2% on level FX. Comping against record sales in 2016, we've seen EMEA markets holding strong in the midst of Brexit-related uncertainties. Rounds of play in the region are up in the low to mid-single-digit range for the half.

Second quarter sales in Japan, our most golf club centric market, were off 13.4% for the quarter and down 12% for the half, both periods reflected in constant currency. Japan started the year slowly in Q1 due to poor weather. However, rounds rebounded nicely in Q2. The Japan retail market, however, remained soft in part, due to fewer visits and spending by the affluent Chinese tourist golfer.

And Korea remained strong and continues to maximize their opportunities with constant currency sales increasing 7.5% in the quarter and 14.7% for the half. Korea's growth comes from across-the-board sales gains in golf balls, clubs, gear and FootJoy.

And now looking at our 4 business segments, starting with golf balls. Sales of the #1 ball in golf were off 5.6% for the quarter and off 1.7% for the half, both on constant currency. First half golf ball sales gains in the EMEA and Asia-Pacific regions were not enough to offset a decline in North America.

The Pro V1 franchise had a strong first half with all markets posting sales gains. And overall, we're very pleased with tour and market acceptance of new Pro V1 and Pro V1x models. Pro V1 gained market share on and off course for the first half in the U.S. market, our largest. And we generated similar share gains outside the United States. The first half presented some challenges for Titleist performance model golf balls, their second year in market made more difficult by increased competitive promotional activity. We recognize the need to reinvigorate our performance model lineup and our R&D team is actively engaged in this process as we prepare to launch new products in early 2018.

Titleist club sales are down 20.3% for the quarter and 15.6% for the half, both on constant currency. Titleist irons, wedges and putters have performed well and as expected in their second years. The Titleist driver business has been challenging for a couple of reasons. First, as we said in our first quarter call, drivers were impacted early in the year by competitive activity and aggressive ad spending. This continued into the second quarter when we were also negatively impacted by poor weather in key markets, which limited our ability to conduct fittings to the degree we had planned for. We're confident that our 917 Driver when fit by a qualified club fitter, delivers best-in-class distance and total game performance.

Admittedly, we did not generate enough of these fittings, and this is reflected in our first half performance. Our team recognizes the need to more effectively activate driver trial and fittings in this dynamic driver market. We're looking forward to the launch of the news -- new family of 718 irons and 818 hybrids this fall. Early response from the tour and our trade partners has been very positive and we're especially excited to introduce AP3, the newest member of the Titleist advance performance iron family. In Titleist gears, sales increased 6.3% in Q2 and grew 6.7% for the first half, both on constant currency. Growth in each of our gear categories: golf bags, headwear, gloves and travel affirms the progress our team is making in building out our supply chain capabilities with particular focus on product performance, quality, design and materials. Our gear team continues to strengthen our product development and supply chain capabilities, which give us great confidence around each of the categories that make up our gear segment.

And finally, moving to FootJoy, the #1 shoe and glove in golf, second quarter sales were off 4.1% and first half sales were down 2% on constant currency. Much of this decline is attributable to the U.S. market and its reduced store count. There are many positives within the FootJoy business, which are worth highlighting. Pro SL quickly grew to become #1 spikeless shoe on the U.S. PGA and European tours and the #1 spikeless shoe in golf. FootJoy apparel has firmly solidified as a top 3 selling brand in United States and held the top spot in the months of April and May. And the FootJoy glove franchise continues to be the clear market leader around the world. FootJoy brings strong brand momentum in the back half of the year, fueled by newly launched DNA Helix golf footwear, the well-received fall apparel collection and the new tour LTS rainwear collection. Each of these products will make their market debuts later this year.

In closing, I will comment on Titleist and FootJoy's success across the worldwide tours throughout the first half of the year. Titleist golf ball usage across the worldwide tours is at 72%, a 6 point increase from last year, while FootJoy shoe count for the first half index is at a commanding 62% around the world of professional golf. Additionally, it has been gratifying to see that several players who've recently returned to Titleist golf balls, pokey wedges, indoor Scotty Cameron putters in 2017 are playing some of the best golf of their careers. Year-to-date, Titleist golf balls have won 68% of the events across worldwide tours, highlighted by Jordan Spieth's resilient victory at Royal Birkdale, with the new Pro V1x golf ball and 14 Titleist golf clubs in his bag.

On behalf of my fellow associates, we enter the second half 2017 with excitement around our core positions and upcoming new product launches and cautious optimism towards the global golf markets. Field inventories are in line for this time of year, and we look forward to continue executing on our promise to generate a long term total return investment opportunity for our support of shareholders.

And now, Bill will provide an overview of our financial performance.

Thanks, David, and good morning, to everyone on the call. As David commented earlier, consolidated revenue in the quarter was $428 million, down 7.6% year-over-year and down 6.6% in constant currency. Q2 gross profit was $222.9 million, down 6.3% from last year and gross margin was 52.1%, up 70 basis points year-over-year. In the quarter, the increase in gross margin was primarily driven by higher average selling prices in Titleist golf clubs and a favorable mix shift in the FootJoy footwear category.

Looking at operating expenses. SG&A of $151.8 million was down about 4% versus last year. There were a number of factors that gave rise to the $6.3 million decline, including nonrepeating IPO transaction costs last year, lower advertising and professional tour costs and a decrease in bad debt expense. These benefits were partially offset by an increase in share-based compensation and higher consulting, legal and administrative costs as a result of us now operating as a public company.

In Q2, research and development expense of $12.1 million was up 3.4% over last year. This increase was mainly due to additional costs to support our new product introductions in employee-related expenses. Q2 interest expense of $4.9 million decreased by about $9.7 million from last year. This decline is primarily due to lower average outstanding borrowings versus last year as a result of the conversion of our previously outstanding convertible notes to common stock at the time of the IPO. In addition, it reflects lower interest rates as a result of our April 2016 refinancing. Other expense was $200,000, down $2.3 million versus Q2 of last year. This change was primarily due to a noncash fair value loss on our common stock warrants recorded in Q2 of 2016. The warrants no longer exist as they were converted to common stock in July of last year. Our Q2 effective tax rate was 34.9% compared to 44.4% for the same period last year. The decrease in ETR was primarily driven by the absence of certain discrete items in Q2 2016, primarily the loss on the common stock warrants, which are not tax-affected; and IPO transaction costs, which are nondeductible. As a result, our Q2 net income attributable to Acushnet Holdings of $33 million improved by about $6 million from Q2 of last year. As a result of both lower interest expense and lower other expense, partially offset by a lower income from operations. For the quarter, our adjusted EBITDA was $71.8 million, down 13.5% from last year. There are still a number of onetime items that affect the year-to-year comparisons. So we provided a reconciliation of adjusted EBITDA in our earnings release as well as in the slide presentation.

Recapping our year-to-date results. Sales of $861.6 million were down 4.6% to last year and 3.8% on constant currency. Our year-to-date gross margin of 52.1%, a 70 basis point improvement to last year, reflects a favorable mix shift to the Pro V1 franchise as well as margin improvements in the FootJoy golf wear category, which included a favorable mix shift in footwear along with lower material costs in our apparel business. SG&A for the first half was $299.8 million, down $13.6 million from last year, and again, reflects the absence of a number of one-time charges in 2016, which are detailed on our reconciliation to adjusted EBITDA. These were offset primarily by an increase in share-based compensation and higher consulting, legal and administrative costs associated with our public company status. Research and development expense of $24.6 million was up $1.8 million compared to last year, mainly due to increased experimental activity in the club segment as well as an increase in employee-related costs. Interest expense decreased by $20.6 million to $7.8 million for the first half of the year, and similar to Q2 was driven by lower outstanding borrowings as well as lower interest rates. We had other income of $500,000 for the first half versus $3.8 million of expense last year, largely due to the absence of recognized losses on our previously outstanding common stock warrants.

Our year-to-date effective tax rate was 35.6%, down from 42.4% last year and is in line with our ongoing run rate for the year, absent any significant shift in our geographic mix of earnings or any discrete items that may arise. As a result, net income attributable to Acushnet Holdings for the first half was $71.1 million, up $20.4 million over prior year. Year-to-date, adjusted EBITDA was $150.3 million, down $12 million or 7.4% year-over-year.

Given the first half challenges, our solid margin improvement, along with good cost controls, have allowed us to weather the market conditions reasonably well as we move into the second half.

Looking to the balance sheet. We had $77.7 million of unrestricted cash on hand as of June 30, 2017. Total debt outstanding as of June 30 was approximately $534 million or 2.47x LTM adjusted EBITDA, a significant reduction from our first quarter levels as we're now into our seasonal collection cycle. CapEx in the quarter was $8.8 million and at present, we're still forecasting total year CapEx in the $26 million range. In regards to guidance. We remain optimistic on our prospects for the full year and as such, are reaffirming our previously communicated adjusted EBITDA guidance to be in the range of $220 million to $230 million. Given the first half market challenges, we're revising our full year reported sales guidance to be in the range of $1,545,000,000 to $1,565,000,000, and our constant currency revenue to be in the range of 0.7% decline to prior year to a year-over-year increase of 0.6%.

In summary, while we face significant challenges in Q2, our team is looking to deliver a solid second half, which we believe will continue to support the underlying strength and resiliency of our proven business model. With that, I'll now turn the call over to Tony for Q&A.

Thanks, Bill. Sarah, can we now open up the lines for questions? Thanks.

(Operator Instructions) Your first question comes from the line of Matthew Boss from JPMorgan.

This is actually Steve Zaccone on for Matt today. So our question's around the guidance adjustments for the full year. So first, looking at revenue, what's the best way to think about the implied growth rate in second half of the year? Because first half revenue is down about 4.5% year-over-year. So what's giving you the underlying confidence that you'll see growth in the second half of the year? And then any way to think about the quarterly cadence of revenue growth would be helpful.

Yes. We're expecting about a 4.5% increase in the back half. And as Dave alluded to earlier, we're very optimistic about the new 718 launch. We've received great feedback on that as well as a number of new FootJoy products that are already in the market; Pro SL, that's had continued success beyond our anticipation as well as the new DNA Helix and the fall line we introduced in apparel. So we still feel pretty good about that. Most of those launches are going to be more fourth quarter than third quarter.

Okay. And then I guess just shifting to EBITDA. Can you just explain the rationale, why not lower the EBITDA guidance because it looks like that also implies a pretty big acceleration in the second half of the year.

Sure. With EBITDA, if you look in the first half of my comments, we've -- our gross margins have really been unhealthy and have largely or not largely, but mitigated a good part of the sales impact year-on-year. The favorable mix shift to the Pro V1 franchise, which is very strong, and the improved margins we have in FootJoy footwear due to favorable mix as well as lower apparel cost. So we feel pretty good about our margins. Obviously, we don't -- we still think we have tailwinds there as we get to the back half of the year. So that's part of it. And the second part of it is we've exercised pretty good cost control year-to-date and we intend to do that for the back half.

Your next question comes from the line of Dave King from Roth Capital.

Sorry, I was on the -- forgive me. I guess sticking with that line of questioning a little bit on the expenses, I guess how much of the EBITDA guidance in the back half is sort of the lower advertising and tourist spending you had in the quarter? I guess I'm trying to get a sense of how -- what levers can you pull to kind of still hit that EBITDA guidance versus it coming through gross margin?

Most of it's coming from our enthusiasm about our launches, as much as anything. We don't intend on slowing down our spending, especially during a launch period. Though when you look at leverage, we've -- I think we've seen our, I know we've seen at least the worst, as Dave said, the pain behind us. So we're looking forward to as we move forward in the back half of the year to achieving it in that sense. So again, it's largely from the product launches itself.

Okay, that helps. And then in trying to understand what's going on with Pro V1, it sounds like that was up in the first half understandably. First quarter you had a fair amount of sell-in. Any sense on how the 2Q sell-through trended and then how should we be thinking about that as we progress through the year in that contribution in the back half in hitting the revenue guidance.

So Dave, we look at -- we tend to look at share in blocks and we look at it in the first half, and I'll give you some guidance as to how it compares versus a year ago and even going back 2 years ago to when we last launched Pro V1. So we see for the half, share up on course -- up off course, up combined obviously, up a couple points for '16, up a point for '15, our last launch window. So we feel real good about what played out with Pro V1 during the first half of the year. As we've said in prior calls, we start extra strong with new product and a whole lot of noise. Sometimes in the summertime, you see some competitive activity and some promotional activity. But where we stand today, six months into a launch, we feel real good about what's playing out with Pro V1.

Okay. And then lastly for me on Pro V, have you seen the consumer or green grass switch from one ball versus the other? I guess, I remember the PGA show you guys highlighted, the tour sort of going more to one ball versus the other. Have you seen that happen with the consumer at all? Or with some of your green grass doors at all? Is there anything to note there?

Yes. We've seen in our share data a modest shift towards Pro V1 and fair to say that Pro V1x has held strong and a lot of our growth has come in Pro V1. Not a dramatic swing. And that, frankly, didn't surprise us. Pro V1, the product changes were more meaningful and tangible. Pro V1 was longer -- the new Pro V1 was longer than its predecessor. So we didn't -- we weren't surprised to see a bit of a shift swing towards Pro V1. Again, Datatech affirms that. But it's not an overwhelming swing one way or the other.

Your next question comes from the line of Dan Wewer from Raymond James.

David, wanted to follow-up on the comments about the product launches, making it a lot more optimistic on the second half of the year. I thought -- it is my understanding that while the iron's sort of launch in 4Q it's not until you are able to complete the fittings, until the following spring, that you had really seen the revenue benefit from the launch of the new irons. Is that not correct?

Well, certainly as compared to metals, when we launch metals, you get more of an impact at launch, and during that first quarter, than you do with irons, because again, it is so fitting based. That said, we're very optimistic about the early response to product and particularly AP3. Yes, the story and the launch window for irons tends to be a whole lot longer. But we do expect to see a nice movement during that first period in the fall of 2018 -- of '17, rather. It is a different cadence than you get with metals.

Sure. When you look at your revenue forecast, up 4.5% during the second half of the year, how are you taking into account the challenges for the 917 Driver & Fairways that you alluded to?

Yes. We've certainly revised our forecast, as I said in my opening remarks, it's incumbent upon us to continue to activate our fitting network and the team is actively pursuing more, more trial and fitting of 917. We're confident in the product for reasons I mentioned on the outset. Numbers didn't realize that the way we had anticipated. So we've reflected current state of affairs for 917 with the expectation too that the team's going to continue to drive more and more fittings to the best of their abilities. What you also got to realize too is just seasonality, Dan, kicks in. That the driver market gets a whole lot smaller in the next several months. Third quarter into the fourth quarter, so much of what happens in drivers happens in the first half of any given year.

Also wanted to ask you about your comment, that we're about 5 quarters into an 8- to 10-quarter domestic industry correction. I've been thinking that will be reaching the anniversary of the Golfsmith and TSA liquidation during the next two quarters. So what's going to be the headwind in 2018? Because you already cycled through the downsizing of the retail footprint in the U.S.?

Yes, you're right. So much of the comparisons to shipments to Golfsmith and TSA are behind us. When we comment on the future, two themes emerge. One, we're still facing a reality of fewer doors, right? So we just all have to be mindful that we're going to deal with fewer doors. And secondly, we just -- we don't know how the consumer's going to react to this new reality. A large part of the business, if you can imagine, it fell out and we're seeing it in ASPs this year, is we're selling a whole lot -- the industry is selling a whole lot less discounted product. So the golfer who, for years, had access to deep discounted product doesn't have access to that product any longer, so how do they react, and how do they behave? If they were waiting for a product to tumble, as an example, on a driver to tumble from 399 to 299 to 199. They're simply going to have less access to that type of product. So how do they behave in the next couple of years in terms of their product purchase behavior? Though as much as anything, it's where does the consumer shake out in this new normal?

Your next question comes from the line of Michael Swartz from SunTrust.

This is Anna on for Mike. Just wanted any commentary on the competitive environment. In ball, you said that there was some promotional activity in the first half. Is that getting any better in the third quarter?

It's -- yes, and as we said in the call, it's certainly affected our performance models more than Pro V1. It's isolated to a couple players. It's steady. And I think it's a commentary on manufacturers attempting to reconcile their forecast and/or capacity with this new footprint of retail inventory. So we think it is part of the correction, and it's part of the journey to find balance in the marketplace. Again, you had retailers with ex- doors, now who have far fewer doors and manufacturers are reorganizing their forecast and their capacity to be in sync with what the market can bear. In terms of what we're seeing in the market, yes, it's been fairly steady for the first and second quarters. It's still out there. But again, as I think a lot of that inventory flushes through, we think it'll normalize a bit. We haven't seen it go away but we still see it in pockets.

Got it, that makes sense. And then as far as the fittings. I know weather kind of played a part in that not being as high as you thought in the first half. But could you speak to any -- calibrate that or how you plan to further activate that in the back half?

Yes. So by our count, we were down about 20% to 30% in terms of fittings versus what we intended to fit, what we planned to fit. And a lot of that in the regions I mentioned, Northeast, Upper Midwest, West Coast, et cetera. So the question is what do we plan to do with it? First and foremost, I'll point to -- the calendar is going to shift on us as we launch a new product. Any time you launch a new product, there's always a strong initial interest, and therefore, a strong initial interest in fittings. So we're certainly going to heavily activate fittings on the iron front. And then the team continues to push for trial in fittings. We work very closely with our trade partners to activate our fitting network. And we continue to do that. And that's happening. The good news is that's happening. It's just not happening to the degree we anticipated. Again, largely due to weather and certainly, competitive activity in the first part of the year.

Your next question comes from the line of Simeon Siegel from Nomura Instinet.

Congrats on a nice gross margin improvement despite the volume declines. Can you quantify the drivers that you mentioned, the mix shift, the ASP improvements? Maybe how much they were offset by competitor promotions, the volume declines, et cetera? And then can you quantify the gross margin opportunity for 3Q and the full year? Just any -- the drivers that you have that can offset the fixed cost deleverage?

I'll take a shot at the first question there, Simeon. If you're asking about what the percentage in the margin improvement was, it was probably half-and-half Pro V1 and half of the FootJoy apparel and golf wear mix. But I think that your question really is relating to Dave. What was that, your side?

Help us on part two, Simeon, of your question...

So I'm just thinking about the -- as you think about volume declines that you see in the fixed cost deleverage from the lower sales that you have with your base, what the future offset, basically how you're looking at it, if you can quantify for us, the back half gross margin opportunity.

Well, we can tell you a couple things, and this may help you kind of piece together your answer. We feel real good about inventories in the marketplace, number one. We feel good about the performance of premium products that we intend to launch in the early response. So as we think about back half, we've talked about 718 irons, 818 hybrids, FootJoy Pro SL continued success, Helix continued success, outerwear, apparel, et cetera. So as we think about the mix of our business, again, we like the profile. We like the field inventory base. And I don't know if this helps, but certainly, our calendarization verse, all those closed doors goes away. So we -- certainly there will be some comps to what were Golfsmith activity last year. But it's going to be far, far less. So I realize, Simeon, I've kind of gone at it through a different, handful of different angles. But hopefully, that helps give you some perspective on how we think about it.

Yes, one more thing, Simeon, is that -- I think I'm getting to your second question is -- the first half of the year, you experience your highest margins, your highest margin activity. As the year goes on, margins do go down as you get out and move into new cycles of your product cadence. So we still anticipate that we're going to have margin improvement despite that in the back half of the year when we finish.

Great, okay, that's helpful. And then sorry, if I missed it. But did you talk to what you think -- what's the right way we should look at the Japan constant currency sales trajectory for, I'd say, the rest of the year?

Well, Japan, we've got a lot of the same dynamics playing out. On one hand, we've got bullishness around new products. On the other, as we said on the outset, the market's a little bit soft. And I don't see that changing anytime soon. Rounds of play certainly picked up a bit in the second quarter as weather improved. But we are contending with the general softness in Japan. Again, offset to a degree by product launches that will play out over the next couple of months.

Your next question comes from the line of Christian Buss from Credit Suisse.

This is Sara on for Christian. Going on top of that, can you give us a little bit more color on international markets? And what you're seeing there for each segment?

Yes. So sort of working our way, Sara, around the globe, we'll start with Korea, as we mentioned. Korea, the team continues to execute. Rounds of play are robust, and the market's healthy. And we continue to build out our playbook there. So as much as anything, market healthy. And our team really, really doing great things. Japan, I mentioned. EMEA, holding up steady, holding up resiliently in the face of some Brexit uncertainties. They had some soft weather last year. So their rounds are up mid- to high single digits. There's much commentary on a slow start last year. But net-net, that market's been very resilient. So as we think about markets around the world, Korea, up and healthy; EMEA, steady; Japan is the one we continue to watch that shows signs of softness.

That's helpful. And can you also talk about how inventories are looking in that green grass channel?

Yes. So what we've said in the past, and it holds true today, is one of our core competencies is our activities and our sales activity on the ground. And it's very much an inventory and inventory management role as one of their key, key roles. So despite varied weather around the world, our inventories are very much in line. I can give you a sense. They -- on the ball side, as an example, they -- inventory share for Titleist golf balls tends to trail our sell-through share by about 10 percentage points, which says, one, we're turning; and two, we're managing our inventories. So we feel real good about our product's inventory positions. And again, it's commentary on the fact that we've got a lot of boots on the ground who are very proactive in assessing what's happening at a given retail location on course and managing inventory accordingly.

Your next question comes from the line of Kimberly Greenberger from Morgan Stanley.

This is Eddie Ryan on for Kimberly. I just had one question on just, overall, on the competitive environment. So do you think a cleaner channel and improved profitably for competitors has allowed them to reinvest more in advertising?

Do we think a cleaner channel has allowed our competitors to invest more in advertising? That may be one of the factors, Eddie. They certainly are. But yes, that I think is going to be one of the outcomes of whether we're there now or whether we get there in a handful of years. And we all think we are is -- you're going to have companies doing better. You're going to have the opportunity to invest more R&D. You're going to have the opportunity to invest more in A&P. So I think right now, you're seeing parts of that. But I think that's part of the broader trend we've talked about. And that is to stay a healthier environment with which to go to market.

Got it. And then one question on product launch timing. So when you're seeing your competitors launch products, especially in the club category, are you seeing the timing in that shift? Or has that stayed relatively constant over time? Just in terms of when they launch that within the year.

Yes, again, everybody's dealing with this newly faced retail marketplace, which is part 1. Part 2 is we're seeing a positive trend where product life cycles are lengthening. And I think that's a good commentary on the broader supply-demand realities and just a greater sense of operating responsibly within the marketplace. So while we -- we're seeing some modest shifts here and there, I think the key takeaway and the key theme is, product life cycles are extending, number one; and subsequently, you're seeing less and less products sold at discount and you're seeing products stay premium for a lot longer, which again, we see as a healthy trend in the market.

The next question comes some the line of Tim Conder from Wells Fargo Securities.

Gentlemen, any thoughts on your commentary regarding the U.S. market adjustment, sort of a lengthening out here a little bit? And how the overall tailor-made transition is playing into that assessment?

First, on the market, certainly, it's -- as we said, it's -- we're now in the fifth quarter of an 8- to 10-quarter journey. So a lot of the pain is behind us, and we feel good about that. Candidly, I'm reluctant to comment on any one of our competitors and how they may be influencing or shaping or affecting the outcome of this correction. It's a correction that's hit all fronts, whether it's retail doors, whether it's inventories. That's a point that I think Warren's making and that is, if you look at the U.S. market, you really break it down, if you take a look at Datatech and at inventories. One of the key, key indicators and we think this is a real positive, is the inventory levels are as low as we've seen in a long, long time. And yes, that's commentary on a couple of competitors. But it's also commentary on less retail square footage. And it's commentary, just on a healthier set of vital signs for the retail marketplace.

Okay. Okay -- no, no, no, helpful, helpful. Any -- I know -- I just want to maybe clarify your commentary on some of the geographic areas. Are you -- is that just through Q2? Or I guess the real root question here is, have you seen any impact in the Asia markets, in particular, given the unfortunate escalating of the geopolitical tensions?

Speaking to really the Korea situation. Historically, Korea has been resilient over time. This one, hey, we're all watching closely and we will see. We haven't seen anything thus far, but it's certainly something that the world is paying very close attention to.

Okay, okay, okay. And then lastly, gentlemen, just a couple of maybe housekeeping items here. Any stock-based comp in the tax guidance benefits from that? And then you talked about the constant currency, you're actually up a little bit. Just any color on your hedges and any changes in your hedging outlook given what we've seen year-to-date in the U.S. dollar?

Yes. On the stock-based comp, I think you can use the last 3 months is a good run rate for the remainder of the year on that. I did talk about ETR around that 35% being the relative run rate. And as far as FX rates goes, I think we're seeing a lot of movement. But if you look at the yen, it's actually about the same as it was for the first 6 months of last year. So we have seen a bigger pickup in the won and of late, the euro. So all of those have been baked into our back half forecast. Obviously, we have hedges against some of those and there are some very positive hedges against the pound sterling, which have been helping us over the year. But all that's built into our guidance, including roughly the average -- last 30-day average of what those rates are relative to the back half forecast.

Your next question comes on the line of Casey Alexander from Compass Point Research.

Do you have any color on how much debt reduction you think you can pull off in the second half given that you're moving into the better part of the cash conversion cycle?

Yes. We -- didn't -- remembering that we did our delayed draw on our $100 million delay draw, TLA, earlier this year. So we're looking to aggressively pay that down as soon as possible. And certainly, in the back half, we're well into our seasonal collection cycle. And by year-end, we should be generating enough cash to get us back on track to hit that -- our target, which we like to see as, or like to view as, around a 2x LTM EBITDA, some time in early '19. So yes, we do intend for that cycle to kick in and for us to achieve a debt reduction from where we're at right now.

Okay. Secondly, given the fact that -- where you ran into some problems with the ball was in the performance line. You're now entering that period where you're selling down the performance line preparing for relaunch of the next round of performance line. Do you have any color on how you expect that to go? And where do you stand with inventories in the performance line compared to past cycles?

Yes, good question. We -- this time of year, we do like to work down our inventories as we head into the tail end of the third quarter in northern markets. So in terms of where things stand with regards to performance model inventories, they're very much in line and part of it is, we've managed sell-in to match sell-through. And so therefore, they stay in line. At this point, Casey, we're not on records talking about what our product plans are. We'll soon launch that to our trade partners here beginning post-Labor Day. But at this point, we're not going to comment on what the product plans are. But certainly, as I made note in my opening remarks, that's a very -- that's become a very competitive part of the golf ball market and we need to think about it a little bit differently and we need to make some right moves. And it's going to be born in the R&D labs as to how we reinvigorate the performance model franchises.

Okay, that's fair enough. Lastly, as it relates to advertising. And you called out that competitors are advertising more aggressively. And I wonder, do you expect to create any type of response, and in particular, in a changing advertising environment and where people look and consume advertising and where you're trying to find that next customer from?

So the quick answer is absolutely. And that we continue to follow the rhythms of dedicated golfers and think about the best ways to communicate our message to them. Often times, with and through our trade partners. Often times, through traditional media and increasingly now, through social media. So it's -- as you well know, it's a moving target and we're attempting to be very nimble in terms of how we think about spending and directing those resources.

Your next question comes from the line of George Kelly come Imperial Capital.

A couple of questions for you. First, on the guidance that you provided on the back half ramp. I was just wondering if there's any -- I understand that you have new things coming out and a bunch of different product lines. But the market in the first half of the year has been kind of mixed. And some of your new product launches in the last year have maybe not hit your initial, kind of, targets. Have you seen anything after the quarter? Is there any other information that you can provide that would -- that kind of helps give you confidence in that back half ramp in revenue growth?

Yes. So we go through a lot of effort prelaunch, and I'll use the AP case study as an example that product's been in development for a few years. We launched it on tour right around the end of June. We're out now fitting our club pro partners and key influencers. So we're very much actively in market and we're getting a lot of feedback and a lot of positive feedback on the product. So that's one way we gauge how we think a product will do when it reaches the market. Again, we haven't shipped the product yet but we've been out there actively fitting and working with a lot of our key influencers on it. So for a variety of reasons, similar to that would play out in footwear and apparel, we've talked about some new launches. Our team's out there presenting product to trade partners, getting orders for the fall season, et cetera. And again, we're just pleased with the way the early acceptance of these products has played out.

Okay. And then, similar second question, just a follow-up on the previous question, your expectation for ball growth, do you expect a similar kind of trend for the second half of the year within the ball segment?

Yes, I think fair to frame that. Again, we're on a good run with Pro V1. We like how we came through the first half and we've got work to do on performance models. So I think the way we think about the ball business is really through those two lenses. We are working inventories down with our performance model lineup as we prepare for launch in early '18, if that helps. But I think the lead story there on our minds is, we continue to be optimistic about the trends in Pro V1.

Your last question comes from the line of Andrew Burns from D.A. Davidson.

Just a follow-up on the 8- to 10-quarter correction commentary. I'm wondering what you're hearing from your top off-course retailers and how that compares to green grass? Is there a general consensus at the store count? Is it a healthy place right now or is there still concern that additional door closures are needed to create a truly, fully healthy retail environment? And is that contributing perhaps to your assessment of a multiyear correction?

Yes, Andrew. What we're seeing now -- and again, Datatech will affirm this is, our green grass partners are doing real well. And if you look at what's happening, green grass, clearly some of the volume has migrated towards green grass. Our existing golf specialty and sporting goods partners are reporting pretty good golf results. They've had a pretty good first half with their golf business. Again, as you would expect, my business is migrating their direction. So you've got those two forces. What that doesn't capture, however, is the evaporation, if you will. What part of the business didn't migrate? We know those players left standing are doing better. But can we quantify that all of it found a home. And the answer is no, we can't quantify that all of it has found a home. But in terms of how our existing retail players do in the survivors, if you will, our sense is they're doing as well as they've done in a couple of years. And we feel real good about that. In terms of, "Is there a short-term outlook towards even further consolidation?" Never say never, but we don't see it on the near-term horizon.

There are no further questions at this time...

Well, I'd like to take this opportunity to thank you all for joining us and for your ongoing interest in our company. As we head into the second half of the year, we are confident in our ability to meet the needs of dedicated golfers. And we're excited about new products planned for the coming months as we've talked about on the call. We're also cautiously optimistic about the market, in general, as it works through this U.S. retail consolidation. And we do look for weather and rounds of play to normalize in the back half of the year. Longer term, golf industry fundamentals continue to improve as the industry works through what has been this necessary correction or rationalization. We have a proven strategy and a demonstrated ability to execute. And we believe, we're well positioned to continue Acushnet's long track record of success. Thank you, again.

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