Q1 2025 Escalade Inc Earnings Call
Speaker Change: Good day and welcome to the Escalade First Quarter 2025 Results Conference call.
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Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Vice President of Business Development and Investor Relations, Patrick Griffin, please go ahead.
Speaker Change: Thank you, operator. On behalf of the entire team at Escalade, I'd like to welcome you to our first quarter 2025 results conference call. Leading the call with me today are Board Chairman Walt Glazer, President and CEO , Armand Bome, and Stephen Wawrin, our Chief Financial Officer.
Speaker Change: Today's discussion contains four looking statements about future business and financial expectations.
Speaker Change: Actual results may differ significantly from those projected in today's four-looking statement due to various risks and uncertainties.
Speaker Change: including the risks described in our periodic reports filed with the SEC.
Speaker Change: Except as required by law, we undertake no obligation to update our forward-looking statements.
Speaker Change: At the conclusion of our prepared remarks, we will open the line for questions.
Walt Glazer: With that, I would like to turn the call over to Walt.
Speaker Change: Thank you, Patrick. And welcome to everyone joining us on today's call. I'll begin with an overview of our first quarter results before turning the call over to Armin for a strategic update.
Speaker Change: As many of you know, Armand joined Escalade as our President and CEO at the beginning of April and has been actively engaged with the team as we continue to navigate a dynamic operating environment.
Speaker Change: I am very pleased we were able to recruit Armin, have enjoyed working with him to plan a smoother transition, and look forward to his leadership and contributions to Escalade success in the years ahead.
Speaker Change: Our strong first quarter results reflect the continued benefits for operational discipline and strategic focus.
Speaker Change: Over the past few years, we've implemented a series of initiatives designed to streamline our cost structure, improve operating efficiency, and position the business for sustainable profitable growth across the economic cycle.
Speaker Change: These efforts drove a meaningful improvement in our gross margins during the quarter to fight ongoing softness and discretionary spending and declining consumer sentiment.
Speaker Change: Met sales declined approximately 3% year over year as anticipated, but we expanded gross margins by more than 160 basis points.
Speaker Change: driven primarily by lower manufacturing and logistics costs resulting from facility consolidations in our cost rationalization program.
Speaker Change: Importantly, we view this margin improvement as durable and reflective of the leaner, more agile operating model we built.
Speaker Change: While overall consumer demand for discretionary goods remains soft, we saw encouraging growth in several key categories.
Speaker Change: Archery, safety, darting, and outdoor games, all of which had performed the prior year
Speaker Change: These results highlight the advantage of our diversified portfolio and the resonance of our market-leading brands with consumers.
Speaker Change: Inventory levels rose honestly during the quarter as we selectively built the head of the spring selling season for our archery, basketball, and playground categories.
Speaker Change: Despite this, we generated nearly $4 million in operating cashflow.
Speaker Change: Consistent with our Capital Allocation Strategy, we deployed this cash to reduce debt and return capital to shareholders.
and repurchased $1.4 million of Escalade shares.
Speaker Change: Over the past 12 months, we reduced our debt by nearly $30 million, driving our net leverage ratio down to 0.8 times, trailing 12 months, Eva Dottens.
Speaker Change: With cost of debt of just 2.97%, we continue to have opportunities to benefit from positive cash arbitrage.
Speaker Change: On behalf of Escalade Board of Directors and the entire Escalade team, I want to reaffirm our longstanding commitment to delivering innovation, operational excellence, and long-term value creation for our shareholders and customers alike.
Armen: With that, I'll turn the call over to Armin for a strategic update and a look at the road ahead.
Armen: Thank you Wawrin, and good morning everyone. It is a privilege to join Escalade and build upon the strong foundation that the team has put in place.
Armen: Over the past month, I've had the opportunity to immerse myself in the business and meet many of the talented individuals driving our success.
Armen: Their focus, passion and resilience have reaffirmed my excitement about what we can achieve together.
Armen: Escalade has a clear and compelling strategy rooted in operational discipline, innovation and customer centricity.
Armen: That strategy has served us well, particularly while facing the heightened complexity of today's macroeconomic and geopolitical landscape.
Armen: By consumer sentiment remains soft and the trade environment continues to evolve, our team is focused on controlling the variables within our control.
Armen: Leveraging our US-based manufacturing footprint, optimizing our supply chain and aligning inventory to demand.
Escalade has balanced domestic manufacturing and global sourcing for decades.
Armen: which has enabled the company to remain competitive in the marketplace.
Armen: and responsive to customer demand. Our domestic manufacturing footprint gives us flexibility and speed.
Armen: Regarding our global sourcing, we sourced a meaningful portion of our product in Asia through trusted partners, while we have taken important steps in the last years to diversify our global sourcing footprint.
Armen: The current trade uncertainty, especially around China, has prompted us to further analyze and plan for a range of expanded sourcing scenarios.
Armen: We began to see the early effects of new tariffs on shipment of imported goods late in the first quarter.
Armen: Collaborating with our Retail and Supply Partners to enhance our supply chain resilience and expanding domestic manufacturing capacity.
Armen: We are also reviewing additional levers, including targeted pricing where appropriate.
Armen: As we expand and refine our playbook, we will remain at shine and operate with a scent of urgency as the global trade situation evolves.
Armen: We currently have reasonable levels of inventory across our categories to meet near-term custom requirements as we further assess the longer-term outlook.
Armen: From a demand perspective, we have seen changing consumer behavior patterns [inaudible]
Armen: Some consumers are accelerating purchases ahead of potential price increases, but others are holding back due to broader economic uncertainty.
Armen: Looking forward, we are focused on strengthening our direct consumer and e-commerce presence.
by connecting with consumers in new and meaningful ways.
Armen: To that end, we have launched several initiatives aimed at deepening consumer engagement, building loyalty and accelerating share gains in both domestic and international markets.
Armen: We are also investing in innovation, expanding our consumer-led brand development assets, particularly with our Stiga table tennis and onyx picker ball assortment.
Armen: With more exciting products in the pipeline that align with emerging consumer trends and healthy active lifestyle preferences.
Additionally, this year marks the 180th anniversary of Brunswick Billiards.
Armen: John Bronswick founded his namesake company in Cincinnati, Ohio in 1845.
Armen: Resilient and Adoptible, Brunswick Billions has navigated through wars, pandemics, prohibition, debt depression, and thrived over decades to become an American institution and a cultural and lifestyle icon.
Armen: To commemorate this significant anniversary, we are releasing limited edition Brunswick
Armen: as well as launching the Gold Crown 7, which continues the legacy that began in 1961 when the legendary Gold Crown 1 was released.
Armen: This re-imagined classic blends the familiar elegance of historic gold crown designs with today's cutting-edge technology.
This is an exciting anniversary year for Brunswick Billiards.
Armen: In parallel, we remain open to strategic acquisitions that enhance our brand portfolio and expand our trustable markets.
Armen: Will approach M&A with the same financial discipline that defines our broader strategy.
Armen: focused on attractive, risk-adjusted returns, category and cultural alignment, and shareholder value creation.
Armen: In closing, I'm confident in our team, our strategy and our ability to drive long-term profitable growth.
Armen: I look forward to working closely with our partners, customers and shareholders as we enter this next exciting chapter in Escalade's journey.
Armen: With that, I'll turn the call over to Stephen for a review of our first quarter financial performance.
Stephen Wawrin: Thank you, Armin. For the three months ended March 31, 2025, Escalade reported net income of $2.6 million or 19 cents per diluted share on net sales of $55.5 million.
Stephen Wawrin: For the first quarter, the company reported gross margins of 26.7% compared to 25% in the prior year period. The 161 basis point increase was primarily the result of lower operational costs, driven by our facility consolidation and cost rationalization program.
Stephen Wawrin: Selling General and Administrative Expenses during the first quarter decreased by 1.2% or $1 million compared to the prior year period to $10.6 million.
Stephen Wawrin: Earnings before interest taxes, depreciation and amortization increased by $0.5 million to $4.9 million in the first quarter of 2025 versus $4.4 million in the prior year period.
Stephen Wawrin: Total cast provided by operations for the first quarter of 2025 was $3.8 million compared to $7,000 in the prior year period.
Stephen Wawrin: Cash used for working capital purposes was lower in the first quarter of 2025 compared to the prior due to lower anticipated sales.
Stephen Wawrin: As of March 31, 2025, the company had total cash and equivalence of $2.2 million. At the end of the first quarter of 2025, net debt outstanding or total debt less cash was 0.8 times trailing 12-month EBITDA.
Stephen Wawrin: As of March 31st, 2025, we had $23.8 million of total debt outstanding.
Stephen Wawrin: During the first quarter of 2025, we completed remediation of the remaining material weaknesses in our internal financial reporting controls. The material weaknesses were initially disclosed in March of 2024 and management worked diligently to resolve these identified issues as quickly as possible.
Stephen Wawrin: As a reminder, these material weaknesses did not impact the accuracy of our historical financial statement.
Stephen Wawrin: We will remain focused on maintaining strong internal controls across the organization. With that operator, we will open the call for questions.
We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then one on your telephone keypad.
Stephen Wawrin: If you were using a speakerphone, please pick up your handset before pressing the keys.
Stephen Wawrin: If at any time your question has been addressed and you would like to withdraw your question, please press star then two.
Stephen Wawrin: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Rommel Dionisio with Aegis Capital. Please go ahead.
Rommel D'inesio: Yeah, good morning. Thanks for taking my question. Just to maybe a couple of follow-up questions on your proactive steps to address the tariff situation. I think you mentioned that, you know, obviously, not a great point that I'm in about the global sourcing platform that Escalade's had in place for many years. Could you just maybe talk about how quickly are you able to react?
Rommel D'inesio: and shift over production from hypothetical time to Vienna or whatever the case is, especially given the seasonality of your businesses. Can you maybe talk about that? Thank you.
Speaker Change: All right, Rommel, very nice to meet you. My queries were questioned about Taris, of course.
Rommel D'inesio: So let me set the plate here as well a little bit. So first of all of course we recognize that at the moment there are operating there's a very high uncertainty in the marketplace.
Rommel D'inesio: However, we believe that our diversified category of post forwardio, our strength and marching structure that we currently have, our echons applied position that we are in, sets us really well up to navigate this year and actually what comes beyond.
Rommel D'inesio: We at Escalade, we were confronted with challenges already in the past.
Rommel D'inesio: So let me give you a couple of examples there of what we're going to do. So on one side we are in process to optimize our supply chain. Number two
Rommel D'inesio: We need to look into pricing actions as well. Number three,
Rommel D'inesio: We are working on reducing our cost structure and number four, we have to manage our inventory level diligently.
Rommel D'inesio: Over the last year, we have been continuously optimizing and diversifying our manufacturing footprint already.
Rommel D'inesio: Today, we saw products from several Asian countries, and many factors domestically in our own and operated facilities in Florida and Illinois. However, as you know, China is still representing a significant share of our source in volume.
Rommel D'inesio: and is also the number one supplying country for our industry segment.
Rommel D'inesio: We also recognize our tariffs exposure related to China production and are currently working very close on our value chain partners and are evaluating all options on hand.
Rommel D'inesio: Our teams have been fully engaged in analysing and planning for a range of scenarios ahead.
Rommel D'inesio: We are finding savings in reducing costs in our supply chain.
Rommel D'inesio: While our Chinese applies already signaled costs, concessions, other scenarios include evaluating pivots to switch supply lines and import products from other parts in Asia.
Rommel D'inesio: Next to include evaluating pivots to switch supplylands, we are also looking and we look into other mitigating actions such as price adjustments.
Rommel D'inesio: Pricing is a potential lever, and any achievement will be very surgical.
Rommel D'inesio: We are working closely with our retail partners to achieve the right balance and always keep consumers in mind when we consider pricing actions.
Rommel D'inesio: While we can also not predict the future, we are considering all options and variables that we have in our own control, and evaluate different scenarios to master current uncertainties, and to explore opportunities ahead.
Rommel D'inesio: We will remain etchile and operate with a high sense of urgency.
Speaker Change: Okay, maybe just a couple of quick follow-ups on the financials, Procter, Stephen, or anyone else. The two things I noticed, you mentioned there was a hit to...
The construction in late McHorter from Paris.
Speaker Change: But you did post I think 60 basis point improvement gross marches, I guess you'd never know it, but obviously strong performance for you guys, given the macro head ones. Could you quantify what the tariff impact may have been in the first quarter? And the second was question was I'm inventory.
Speaker Change: I think you mentioned, maybe you mentioned, you were proactively taking on some inventory, you know, the anticipation of the terrace, but in retrospect, I just noticed there was 77 known way down from last year, granted there were corporate restructuring actions, but was just a function of...
Speaker Change: What happened to be on March 31st or did inventories kind of rise into the second quarter? How should we kind of think about that number?
Thanks.
Walt Glazer: Sure, thanks, Rommel. This is Walt and Stephen can join me if he likes. But you have the first question around the tariff cost.
Walt Glazer: It was a little bit over 100 basis points, a negative impact in Q1, but as you point out, we still, despite that, reported 161 basis point improvement, so that gives you some sense of the scale of the improvements that we've made.
Walt Glazer: and then, secondly, you know, on the inventory levels, we've been...
Well,
Walt Glazer: Deligently on decreasing inventory over the last few years and then that process.
Walt Glazer: has just continued. In part of the cost savings, it revolves around storage, handling, you know, managing all that inventory. So the fact that we have more right-sized inventory
Great, that's very helpful. Thank you both very much.
Thank you.
Speaker Change: Again, if you wish to ask a question, please press star then one.
Speaker Change: We have no further questions ladies and gentlemen. I would like to turn the conference back over to Patrick Griffin for any closing remarks.
Patrick Griffin: and a member of our team will follow up with you. This concludes our call today. You may now disconnect.
Patrick Griffin: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.