Acushnet Holdings Corp

NYSE:GOLF

Earnings Call Transcript 2019-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. And welcome to the Acushnet Holdings Corp. Third Quarter 2019 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] Thank you. I would now like to hand this conference over to your speaker today, Sondra Lennon, Vice President of Financial Planning and Analysis. Please go ahead.

[Sondra Lennon;Vice President of Financial Planning and Analysis, executive]

Good morning, everyone. Thank you for joining us today for our Acushnet Holdings Third Quarter 2019 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 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.

Please also note that when referring to segment and regional year-on-year sales increases and decreases, we're referring to sales in constant currency. And please also note that when referring to year-to-date results or comparisons, we are referring to the 9-month period ended September 30, 2019, and the comparable 9-month period.

With that, I'll turn the call over to David.

[David Maher, executive]

Thanks, Sondra. And good morning, everyone.

We appreciate your time today.

I'd like to begin by welcoming Sondra Lennon to our team. Sondra has been with Acushnet for more than 20 years, and she brings a wealth of experience and perspective to our IR function.

I expect she will soon become a valuable resource to all of you, and that you will enjoy working with her.

Now turning to the results, it was a strong quarter for Acushnet, as our team did a great job executing several new product launches in the period. And on a macro level, the golf industry is structurally stable and most markets have benefited from favorable weather this season. There were many highlights for Acushnet during the quarter and I must thank my fellow associates and our supportive trade partners for their dedication and good work. Their commitment to providing golfers with performance and quality-superior products and value-added services are the foundation for Acushnet's ongoing success and market leadership positions.

Turning to Slide 4, you will see third quarter sales of $417 million, delivered a 13% year-over-year increase or 14% constant currency gain.

This growth was fueled by strong performances and gains in each of our segments, golf balls, golf clubs, Titleist gear and FootJoy. With clubs and gear up 29% and 15%, respectively, leading this growth.

The segment growth was a global story as each region posted gains in the quarter led by EMEA and Japan, which were up 39% and 28%, respectively, and Korea, which grew 18%. Our largest market, the U.S., posted a 6% gain. And adjusted EBITDA for the quarter was $56 million or 46% increase over last year.

These strong third quarter results were in line with our expectations and consistent with the normal cadence of our business in odd-numbered years.

Now looking at our year-to-date business. Acushnet reported sales were up 2% and up 4% on constant currency, led by gains in golf balls and Titleist gear, which were up 6% and 8%, respectively, and FootJoy, which was up 2%. Golf clubs were off 1%. And year-to-date, adjusted EBITDA was $196 million, up slightly over last year.

As Tom will outline, these results affirm the company's strong market positions and ability to continue to invest in our business, return capital to shareholders through our dividends and share repurchase programs and strengthen our balance sheet as we steadily reduce long-term debt obligations.

And consistent with this approach, Acushnet's Board of Directors has approved a pay out of a third quarter cash dividend equal to $0.14 per share to be paid to shareholders on December 13, 2019.

Now turning to Page 5. We will look at Acushnet's operating segments, starting with golf balls. Golf balls sales were up slightly for the quarter, and year-to-date were up 6% with gains achieved in all regions. Our Pro V1 franchise is having a terrific year and is leading much of this growth.

Our year-to-date premium performance segment, comprised of Pro V1, Pro V1x and AVX has posted double-digit growth versus similar periods both last year and also 2017, our previous Pro V1 launch year.

Titleist golf balls continue to win wherever performance and quality matter and today more and more players value Titleist's total gain performance and unmatched ball-to-ball consistency.

This product quality is a byproduct of our near 90-year commitment to golf ball research, design and manufacturing excellence.

Across the major worldwide professional tours this year, Titleist Pro V1 and Pro V1x golf balls are the overwhelming choice of players at 73%, 8x more than the nearest competitor.

On the LPGA tour, Titleist has earned a golf ball count of 82%, more than 16x the newest competitor.

And there have been many great Pro V1 moments throughout 2019, including rookie Victor Hovland's remarkable run of 19 consecutive rounds in the 60s, which sets a new PGA Tour record. Victor plays our 2019 model Pro V1 golf ball, and it is noteworthy that the previous record of 17 consecutive rounds set by Bob Estes in 2001 was achieved with the very first generation Pro V1 golf ball.

And at this year's U.S. Amateur Championship, Titleist golf balls were the overwhelming favorite at Pinehurst and trusted by the champion, runner-up and over 80% of the 64-match play qualifiers. These counts, wins and records, we believe help to affirm Titleist golf ball performance and quality excellence, the foundation of the Titleist golf ball business and cornerstone of our go-to-market strategy.

Looking forward, our team is excited about the upcoming launches of new performance models and an all-new AVX golf ball in the first quarter of 2020.

We are currently test marketing a product called EXP 01, which is Acushnet's first thermoplastic urethane, or TPU-covered golf ball.

Titleist is the market leader in the production of thermoset cast urethane covered golf balls, as we first introduced this material in 1992 with the Titleist professional golf ball, and have continued to refine and improve upon this process for the past 27 years with our Pro V1 and AVX golf balls.

We believe this cast urethane process expertise is an important competitive advantage for Titleist, and we'll continue to invest heavily in this technology as we pursue future innovations behind Pro V1 and AVX.

And it is our intent to also establish a similar leadership position in TPU covered golf balls, as we believe this will strengthen the Titleist golf ball product line outside of our Pro V1 and AVX franchises.

With the EXP test market, we will gain useful insights around this market opportunity and expect to introduce this new technology sometime in 2020.

On to golf clubs, where you see a 29% increase for the quarter, led by the successful launches of new Titleist T-Series irons, TS hybrids and U-Series utility irons.

T-Series irons feature new Max Impact Technology, which is designed to deliver higher ball speeds across the entire face and each iron model delivers the clean lines and pure feel which golfers have come to expect from Titleist. Initial market response has been very good and in line with our high expectations. New TS hybrids and U-Series utility irons have also been well received.

We are also pleased with the continued momentum of our TS Driver franchise.

TS Drivers were the #1 driver on the PGA Tour this year with the most played driver among the 64-match play qualifiers at the U.S. Amateur Championship where TS Drivers were used by both the winner and runner-up.

In the market, our fitters are doing a great job helping golfers get the most out of our TS models.

I mentioned in the last call that we encountered a production challenge with our Scotty Cameron Phantom X launch, which impacted our second quarter results. I'm pleased to report that this has been fully resolved and our Cameron business posted and especially strong third quarter, led by the introduction of our new Teryllium T22 insert model putters.

Year-to-date, club sales were off 1%, which is in line with how we think about the club business in odd-numbered years. For perspective, clubs were up 17% through the first 3 quarters of 2018. As we've said in the past, we look at the club business across 24 months, as warranted by our product introduction calendar, which has spread across this period. Even-numbered years tend to provide the greatest growth opportunities as even-year wedge, putters, and metal launches are larger than iron launches, which take place in odd-numbered years.

Overall, we're excited about the momentum and trajectory of the Titleist golf club business.

Looking ahead, we plan to continue to promote and build upon our T-Series irons and TS Metals as our teams prepare to launch new ranges of Vokey wedges and Cameron putters early next year.

Now moving to Slide 6. In Titleist gear, you see a 15% increase for the quarter and 8% growth for the first 9 months of the year.

Gear is comprised of Titleist clubs, bags, headwear and travel gear and each of these categories has delivered growth in 2019. Our new LINKSMASTER golf bag, a caddy favorite, has been especially well received, and we plan to expand upon this line in 2020. These strong results are reflective of our ongoing investments in the gear supply chain and our product development capabilities, and we look for these positive trends to continue.

Now on to FootJoy, where our business was up 4% for the quarter, and up 2% through the first 9 months of the year.

FJ has been especially strong in the U.S. where footwear unit shipments are up double digits, led by new Flex and Fury models in the athletic category where FootJoy has made great progress in the past 12 months. Flex franchise has been especially strong, and our planning team has done good work keeping pace with demand that has far outpaced our initial forecasts. We are building upon the popular Flex platform, and we'll soon introduce the waterproof Flex XP, which will debut in U.S. next month and in all other regions in early 2020.

We have also recently expanded our range of women's models, which shipped in Q3. FJ's EMEA business has also posted nice gains in 2019, while Japan and Korea after slow starts to the year bounced back nicely in Q3. And FJ, as leading apparel franchise, is also up on the year led by gains in both our men's and women's collections. The FJ brand is healthy, inventories are in good shape and our team is energized around several exciting new product launches, scheduled to roll out over the next 6 months.

And now turning to Page 7, I will provide some color around our recent acquisitions of KJUS. While we're only 100 days into the acquisition, our teams are making good progress as they focus on 3 core priorities: establishing a greater level of specialization behind both golf and ski, enhancing the supply chain to best support this category, focus in specialization and effectively integrating many back office functions, as we prepare for growth and pursue operating efficiencies. The KJUS's team has been great to work with and is excited around the opportunity to build upon this leading performance-based outerwear brand.

And now turning to Slide 8, I will comment on our business by region. Acushnet sales in the U.S. increased 6% in the quarter and 4% over the first 9 months of the year. Rounds of play have rebounded from a slow start and have entered positive territory for the year. Crate inventories are in line with our expectations for this time of the year. In EMEA, our team posted a 39% increase in the quarter with roughly half of this growth attributable to KJUS. EMEA is up 9% for the year, rounds are up and the dedicated golfer has held up well in spite of uncertainty around Brexit.

Japan, as you can see, posted a nice gain in the quarter and is down for the year. Golf balls are up solidly on the strength of new Pro V1 and strong sell-through, clubs are about flat, while gear and FootJoy have lagged with a heavy early-season retail inventories, notably in golf shoes and golf bags. We are monitoring the effects of Japan's increased consumption tax, which went into effect on October 1, and expect that some purchases may have moved from Q4 to Q3 as a result.

And finally, in Korea, sales were up 18% in the quarter and 7% year-to-date. The Korean golf market has been resilient against the backdrop of the country's shifting labor policies. Year-to-date, rounds of play are up solidly over last year.

In summary, our global team did a great job to deliver strong third quarter results, and we believe Acushnet is well positioned to achieve our balance of year plans. We continue to make meaningful investments to fortify our leading brands, product development engines, improve manufacturing and supply chain capabilities and build upon our golfer connections in all regions.

The game's dedicated golfer is resilient and passionate about their sport and our proven ability to provide these golfers with great products and value-added services fuels our confidence as we seek to provide long-term value to our shareholders.

As always, I appreciate your interest in the Acushnet company, and will now hand the call over to Tom.

[Thomas Pacheco, executive]

Thank you, David. And good morning, everyone. I, too, would like to thank all of our associates and trade partners for their performance and dedication so far this year.

Turning to Slide 10, I will begin by discussing our results for the third quarter. As David said, we are very pleased with our performance for Q3. Consolidated net sales in the quarter were $417 million, up 13% year-over-year, and up 14% in constant currency. Q3 gross profit was $217 million, up $28 million. This growth was primarily driven by the increased volumes associated with the club launches during the quarter. Gross margin was 52.1%, up 110 basis points from Q3 2018. SG&A was $159 million, up $10 million or 7%. About half of this increase was attributable to KJUS, and the remainder was primarily from higher advertising and promotion expense to support the club launches.

Income from operations in the quarter was $44 million, up $18 million or 69%.

Q3 interest expense was $4.5 million, up $200,000 compared to the prior year.

The Q3 effective tax rate was 20.5%. Our expectation for our normalized income tax run rate has decreased from 29% to 27%, as a result of implementing certain planning items related to tax reform. As a result, we recorded a true-up for the first half of the year in the third quarter. Net income attributable to Acushnet Holdings was $30 million and adjusted EBITDA was $56 million, up $18 million from the prior-year period. We have provided a reconciliation of net income to adjusted EBITDA in our earnings release as well as in the slide presentation.

Moving to our results for the first 9 months of 2019. Consolidated net sales were $1.3 billion, up 2% from last year and up 4% in constant currency. The increase was driven primarily by sales of our new Pro V1 and Pro V1x golf balls, by growth from all product categories within Titleist golf gear and by growth in FootJoy apparel.

Sales have also positively been impacted by sales from PG golf, which we acquired in the fourth quarter of 2018, and by KJUS, which we acquired during the third quarter of 2019.

Gross profit was $686 million, up $18 million versus last year. Each segment saw growth in gross profit led by golf balls, gear and FootJoy as well as the impact from PG Golf and KJUS.

Gross margins for the first 9 months were 52.2%, up 50 basis points versus last year. SG&A expense was $485 million, up 3% over the first 9 months of 2018. This was primarily due to an increase in selling expenses across all segments, higher advertising and promotion costs in clubs and the impact of PG Golf and KJUS. The increase was partially offset by a decrease in share-based compensation expense.

Year-to-date, income from operations was $157 million, up $4 million from 2018. Interest expense was $14.6 million, up $700,000 from last year. Our year-to-date effective tax rate was 25.7%, which is slightly lower than our expected full year run rate as a result of the benefits of discrete tax item that was recognized in Q1.

Year-to-date, net income attributable to Acushnet Holdings was $103 million, up $15 million, and adjusted EBITDA for the first 9 months was $196 million, up $800,000 from the same period last year.

Moving to Slide 11. I will now discuss certain balance sheet and cash flow items. At September 30, 2019, we had $52 million of unrestricted cash on hand, total debt outstanding was approximately $418 million, and we had $217 million of available borrowings under our revolving credit facility.

Since its peak in early 2017, we have reduced the balance of our term loan by over $100 million. And as of the end of Q3, our leverage ratio was down to 1.9 from well over 3 at the time of our IPO in October of 2016.

Consolidated accounts receivables at the end of Q3 2019 was $274 million compared to $241 million at the end of Q3 2018, up 14%. The increase was primarily attributable to higher sales in Q3 2019. Our day sales outstanding were consistent with the same period last year. Consolidated inventories were $349 million at the end of Q3 2019, compared to $325 million at the end of Q3 2018, an increase of 7%. This increase was primarily driven by higher golf ball and club inventories as we prepare for upcoming product launches and by the additional inventory from our recent acquisitions. The increase was partially offset by lower FootJoy footwear inventory as a result of the higher sales in 2019. Overall, we are comfortable with the quality of our accounts receivable and the amount and composition of our inventory at this time.

Cash flow from operations for the 9 months ended September 30 was $95 million compared to $130 million in the same period in the prior year. The decrease was primarily driven by the increase in accounts receivable in the third quarter of 2019 associated with the increase in sales. We expect the majority of the cash associated with these accounts receivable to be collected in the fourth quarter.

And finally, year-to-date CapEx was $18 million compared to $21 million in the same period last year. The largest area of spending was for golf ball manufacturing equipment and infrastructure and for IT data center equipment. For the full year 2019, we now expect CapEx to be about $32 million as some projects have shifted into 2020.

Turning now to Slide 12 on capital allocation. We continue to make investments in the business with a focus on product innovation, golfer connection and operational efficiency.

We also plan to continue to be opportunistic with M&A activities that align with our long-term strategy and our focus on premium performance products that appeal to dedicated golfers worldwide. We believe that such investments can help support our long-term strategies and drive growth at a favorable return.

We remain focused on being good stewards of shareholder capital and carefully evaluate opportunities, not only to invest in the business but also to return capital to shareholders. As David mentioned, our Board of Directors today declared a cash dividend of approximately $10.5 million, which is payable on December 13, 2019, to shareholders of record on November 29, 2019. And we returned to more than $4 million to shareholders during the quarter via our share repurchase program. At the end of Q3, we had $39.6 million remaining under our current authorization. We remain committed to completing the share repurchase program, but now think it may take until early 2020 to complete.

We believe our multifaceted capital allocation strategy is a foundational element of Acushnet's value proposition, which we believe creates a compelling long-term total return for shareholders.

Moving to our outlook on Slide 13. Our full year forecast reflects our optimism about the state of our business, the strength of our product portfolio and the resiliency of the dedicated golfer. As you will note, we have tightened the ranges of our guidance. We now expect our 2019 reported sales to be in the range of $1.66 billion to $1.68 billion, up 2.2% at the midpoint. On a constant currency basis, we now expect reported sales to grow in the range of 3.1% to 4.4%. And adjusted EBITDA is now expected to be in the range of $237 million to $243 million, up about 4% at the midpoint of the range.

In closing, we delivered strong results in Q3. We are confident in our ability to deliver our full year 2019 goals, and we believe we are well-positioned to execute our long-term strategy.

With that, I will now turn the call over to Sondra for Q&A.

[Sondra Lennon;Vice President of Financial Planning and Analysis, executive]

Thank you, Tom. Melissa, could we now open up the lines for questions?

[Operator]

[Operator Instructions] Your first question comes from the line of Steven Zaccone from JPMorgan.

[Steven Zaccone, analyst]

So first question was just on FootJoy. So nice improvement in growth there relative to the second quarter. Should we expect that growth to continue in the fourth quarter? And then more of a higher level question on growth of the brand. Year-to-date you've seen strength in apparel but some declines in footwear. It sounds like there's different performance by geographies in that. But David, do you think there's opportunity for FootJoy to be seeing some higher growth, maybe outpacing the overall company average?

[David Maher, executive]

Steve, let me cover a couple of those. First off, I'll reiterate FootJoy is having a very nice year, particularly, in the U.S., in Europe, fueled by some really successful footwear innovation, as I talked about Flex and Fury. You're right. We have been a little bit soft in Japan and Korea. It was a function of heavy early-season inventories. I think 2019 is an example of a job well done in the athletic segment, which has been our focus. And you will see in 2020, that this will continue with some light expansions. And we also have some launches planned in some of our more premium models, the Tour-S, as an example will be followed on by the Tour X shoe, a new offering that will launch later this year -- early into next year. And in some other -- and some other footwear models that we're excited about. So getting to the heart of your question, can we grow the FootJoy business at an accelerated rate?

We're very confident with what FootJoy has in the pipeline. We're confident that we are positioned to gain share and grow. Some of the wildcards would remain. What's happening in Japan from an inventory standpoint? Although we do see that has been cleaned up in recent months. But in terms of any specific guidance, Steve, we're not going to put any numbers to it, but I will affirm that we like our position with FootJoy in terms of what they have achieved this year, what's happening in the channels. And most importantly, what we see is a pre-robust new product pipeline.

[Steven Zaccone, analyst]

And then second question just on gross margin side. So pretty strong results here in the third quarter. Can you talk through expectations in the fourth quarter? And maybe how you think about the puts and takes into -- on the gross margin line in 2020 and beyond?

[Thomas Pacheco, executive]

Steve, you're right. We had a very strong gross margin quarter, up 110 basis points in Q3. But we do expect gross margins to be flat to slightly up in Q4 compared to Q4 '18 and to Q4 '17.

In general, our gross margins have been reasonably consistent in Q4 over the last few years, if you look back at the history. Now as a result of our product launch cadence, and our 2-year product lifecycle, we generally have Q4 gross margin improvement in golf balls in odd-numbered years. And that's generally offset somewhat by declines in golf clubs. That is -- the opposite of that is generally true in even years. And if you look at our implied guidance for Q4, and back out something for KJUS, you'll see that our Q4 looks very similar to our Q4 '17, as you'd expect given it's an odd-numbered year.

[Operator]

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

[David King, analyst]

Maybe sticking with the Q4 guidance a bit and the 4% top line growth that's implied. Are there are any further launches embedded in that? Or is that predominantly sell-through related? And then how is the sell-through? I know it's early, but how's the sell-through been early on, on T-Series?

[David Maher, executive]

Dave, first question, fourth quarter, nothing out of the ordinary from a product launch perspective in the fourth quarter. I did mention we'll ship some footwear to the U.S. market in the fourth quarter. But that's not a real driver to the fourth quarter activity. We've -- that's not inconsistent with prior years. So I would expect the fourth quarter will play out fairly normally. If you think about how it compares to last year and even 2 years prior. While early days for T-Series, we're very pleased with how that's played out. First off, from a product development standpoint, the team did a great job, integrating some new technologies into the product which we're excited about. And we, sort of, go through a sequence, so the Tour launch, the trade launch, activating and educating our fitters and market launch, and then we start the A&P engines. And that's all gone very smoothly. And no small feat, given the significance of a launch of a Titleist iron. As you know, we've got a broad product offering, upwards of 6 or 7 different models.

So from where we stand today, we're quite pleased there's -- we have seen, and we view this as nothing but a positive that more and more of the business is trending towards custom fit, which again, we do this as a positive, both from our trade partner perspective, from a golfer satisfaction standpoint, and just -- the more we can move the business in that direction, the better off we're going to be.

So again, early days. We're about 45 to 60 days into the launch. But all systems point to early success, meeting our expectations, which arguably were high expectations.

[David King, analyst]

Great, David. And Tom, I think you previously talked about List 4 tariffs impact of $7 million to $10 million, I want to say. What are the current thoughts on the ability to mitigate any of that as we look out 2020?

[Thomas Pacheco, executive]

That's correct. We did state that we expect the 2020 impact in the $7 million to $10 million range. We -- and again, as you said, unmitigated, we still think unmitigated, would be in that range, nothing changed there. We have been taking steps to mitigate, including negotiating price concessions with some of our vendors. We've shifted some of our supply and sourcing outside of China. We've been looking at strategic pricing actions. And we certainly think we will be able to mitigate a significant portion of that $7 million to $10 million.

[Operator]

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

[Kimberly Greenberger, analyst]

I wanted to start with Japan. I apologize if I've missed part of this, but the sales in Japan this quarter were really fantastic. And -- but following some softer results in the first half of the year, where you had double-digit decline. So I'm wondering if the softness in Japan earlier this year was just, sort of, a blip and Japan this quarter represents sort of the new run rate. Or if there is any way to parse out why there was such significant quarter-to-quarter volatility? Obviously, you're watching what happens with the consumption tax hike, I think, you mentioned that in the impact. But any, sort of, initial thoughts on how we should think about Q4 in Japan? It would be great.

[David Maher, executive]

Kimberly, I will address that in a couple of different parts, maybe by segment, because I think it's the best way to look at it. Our ball business has been steady and up nicely all year. That's, I think, commentary on success of our Pro V1 launch and rounds of play being up nicely. So from a ball standpoint, the market's been fairly resilient. You get to

[Audio Gap]

categories, and they have been a bit slower, obviously, our first half results affirm that. It does speak to the reality of the Japan market, which is very big box-centric, if you will. And as a result, channel inventories tend to run heavier in Japan than in all other markets. And this year, that had a negative impact on our business, and I think the whole market in first half, notably for us in footwear and gear categories where inventories were backed up earlier in the year.

What you're seeing in the third quarter really is the upside benefit of a robust launch across Titleist golf clubs, irons, utilities and hybrids as we think about the future of Japan, we continue to be cautious, again, just because that market tends to draw heavy on inventory. We feel better about balls than most other categories. And I would say the gear and footwear business, which got off to slow starts due to heavy inventories early in the year. We have seen that normalize a little bit as those inventories have worked themselves down. So again, you got to be careful not to read too much into Q3. It was a terrific quarter. And again, very much driven by the couple of robust product launches.

[Kimberly Greenberger, analyst]

Great. That's super helpful. And then, Tom, just a quick question for you on the narrowing of the EBITDA guidance. It looks like depreciation, which is, obviously, factored out of EBITDA, depreciation rose $2 million this quarter. I'm wondering if that's the acquisition accounting in there. Or we just had noticed that's the change in trend from first half of the year?

[Thomas Pacheco, executive]

That is not a result of the acquisition accounting. That is just the trend of the activity based on our historical CapEx and when things have been placed in service.

[Operator]

Your next question comes from the line of Daniel Imbro from Stephens Inc.

[Daniel Imbro, analyst]

I did hop on late. So apologies if you've addressed this, Dave, in the remarks. But on the club side, really impressive revenue growth. If I remember right, that Scotty launch fell from 2Q into 3Q. Could you parse out how much that aided revenue growth in the quarter for the third quarter?

[David Maher, executive]

Yes. We don't -- Daniel, we don't break it out by category like that. But it was, I'd say, the way to think about that, probably a couple of million dollars, not overly meaningful. And I will say, as I stated in my early remarks that, that second quarter supply chain issue has been fully resolved. So a strong and robust quarter in the third quarter. I mentioned this on the last call, we didn't anticipate getting back all the volume that we lost in Q2, and that helped, true. We got a lot of it back in Q3 on the putter side but not all of it.

[Daniel Imbro, analyst]

Got it. And then a follow up on the golf ball category. Revenue growth down a bit, I think, you said that's in line with your expectations at this point and probably the year. But given the industry trends are accelerating, just -- how does the inventory level and the channel feel today as we're heading to the holiday season? I know Pro V is a big holiday item. How are channel inventories as you head into that season? And do you anticipate that posing any kind of margin headwind here in the fourth quarter?

[David Maher, executive]

Yes. So I'll just -- I'll clarify one remark, Daniel, and that is -- balls up nicely, and up slightly in the third quarter, up, I think, 6%, up slightly -- up 7% in the third quarter. So what -- we're bullish on the ball business this year. If you look at what's happened, you see sell-through up, and you see inventories generally down across most markets, which, obviously, we view as a real positive.

As we head into the fourth quarter golf balls have become a very popular holiday gift item. So we see virtually every manufacture having a ball promotion. We think that'll be similar in 2019 as it was in years past. We would also expect and this is in the range of normal, to see some of our competitors start selling off inventories as they prepare for new launches in early 2020. So I think the way to think about golf balls is it's in as good shape as it's been for quite some time. Again, rounds up, sell-through up, inventory down. You're going to see again over the next 2 months. A pretty robust platform of holiday promotions, which has become the norm.

[Operator]

Your next question comes from George Kelly from Imperial Capital.

[George Kelly, analyst]

So first, it seems like M&A is getting more attention these days. And so I was just wondering if you could just tell us more about -- and I'm not sure how much you're going to say here, but if you could tell us more about your strategy. Are you targeting certain geographies or product sets where you have gaps? And also, would you be comfortable, I mean, are you looking at things that are significantly bigger than what you have done so far?

[David Maher, executive]

George, let me comment on that. As we think about M&A, our commentary guidance has been consistent from the beginning, and it would need to appeal to our dedicated golfer, which we think is an area of expertise for the company. And it would need to fit into our global route-to-market channel strategy. So good examples would be KJUS, which, again, fits nicely with our channel strategy, notably in the U.S. and Europe and in the future likely for Asian markets. Links & Kings, again, more a U.S. and European centric play, dedicated golfer focused and really fits in nicely with our channel strategy in both of those markets.

So our approach to M&A has not changed -- I think you need to think about the fact that we do remain opportunistic in the marketplace. We continue to look for opportunities that match those parameters. In terms of any large or transformative acquisitions, not something we're primarily focused on, but, hey, we are open to all scenarios. But I think fair to say that's not our area of primary focus at the moment.

[George Kelly, analyst]

Okay. That's helpful. And then next question on -- can you remind us where you are in the golf ball side directly selling over the internet? And what is your thinking, have you changed your thinking there at all just as you look out? And is the competitive dynamic sort of -- do you see anyone who is direct-to-consumer getting traction?

[David Maher, executive]

Yes. I think first off with the ball business. It's a little bit of a different answer by geography. So I'll focus, I guess, first on the U.S. We have a very broad and what we see to be advantageous distribution network. We've got a lot of terrific partners who do a great job. Golf ball are readily available virtually wherever the game is played and at a whole lot of other golf specialty partners. So we've got a broad distribution platform and we benefit from that. We benefit from the endorsement of so many of our trade partners. That said, we acknowledge and recognize that there are simply many, many consumers who prefer to buy direct. In the U.S., we've been selling golf balls direct through my Titleist, which has been our custom platform for the last few years.

And while that continues to grow nicely, I will say it is a small part of our business, and we anticipate it continuing to be a small part of our business, although we do expect it to grow nicely. That's the framework for how we think about the ball business online. We've exported that around the world, and we're still in the process of exporting that around the world with the primary focus being customization. We do think e-commerce lends itself to a really good consumer experience in terms of purchasing custom golf balls. But we're selling direct in many markets. We really like the business. It's going well for us. But again, I will acknowledged, it remains small and, again, probably should small given the robust trade network that we have.

[George Kelly, analyst]

Okay, great. And then last question for me just about CapEx. It's been $32 million, I think, you're guiding this year and last year it was somewhere in that range as well. Are there any other major projects you're considering going forward? Should it be pretty consistent in 2020 and beyond?

[Thomas Pacheco, executive]

We have been guiding to $36 million for the year. We've taken that down a little bit to $32 million for 2019 as some of the projects have slipped into 2020.

You're right, our CapEx over the last few years has been pretty consistent, and we would -- at this point, we would expect that to continue. There is no major initiatives on the lot -- on the horizon at this point. But we are early in our planning cycle, and we'll update you on that -- on the next call.

[Operator]

Your next question comes from the line of Brett Andress from KeyBanc Capital Markets.

[Brett Andress, analyst]

Just had a quick question on the EXP 01 ball. It seems like you're testing that direct-to-consumer, and I'm not sure if that's in any other retail channels at this point. But maybe just elaborate on that launch strategy there, if there is one? And what type of market are you focused on with a ball like that?

[David Maher, executive]

Yes. Brett, so we are -- it is being tested throughout the U.S. and Canada with all our trade partners, or many of our trade partners, I should say. It does represent our entry into this thermoplastic urethan or TPU-covered golf ball segment. Just as background, it's an experimental multilayer golf ball that delivers low spin on full shots for long distance, great spin and control and the quality, consistency and durability, which every Titleist golf ball is known for. It's tested -- we're testing it in limited quantities. We've positioned it in $39.99, which represents about a 15% premium to over Tour Soft model. And that's at parity with several competitive TPU models in the market. And our thinking there is we're committed to establishing a leadership position in this technology, which affords us the opportunity, we think, to upgrade golfers who are currently playing up a Serling model, either our own or a competitive model or perhaps convert golfers currently playing a competitive TPU covered golf ball so as we think about that market opportunity, if you look at the market, call it at retail, $25 to $45, it's roughly 40% of the market opportunity of the total U.S. golf ball market opportunity, it varies around the world. And we think we have an opportunity to grow our share of that business through this process technology and through what we believe will be a meaningful performance upgrade to our line. So we're very excited about it. We have been working on it for quite some time in the lab. We are not yet prepared to talk about where we go with it because we've yet to finalize plans. But we do anticipate launching a product off of this platform at some point in the middle of 2020.

Okay, and thank you, everyone. As always, we appreciate your interest and time and attention. And we do look forward to reconnecting with you early next year. Thanks again.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.