Escalade Inc (ESCA) 2023 Q1 法說會逐字稿

Hello, and welcome to Escalade's first-quarter 2023 Results Conference Call. (Operator Instructions) Please note this event is being recorded.

您好，歡迎參加 Escalade 2023 年第一季度業績電話會議。 （操作員說明）請注意此事件正在被記錄。

I would now like to turn the conference over to Patrick Griffin, Vice President, Corporate Development and Investor Relations. Please go ahead.

我現在想將會議交給企業發展和投資者關係副總裁帕特里克·格里芬 (Patrick Griffin)。請繼續。

Thank you, operator. On behalf of the entire team at Escalade, I'd like to welcome you to our first-quarter 2023 results conference call. Leading the call with me today are President and CEO, Walt Glazer; and Stephen Wawrin, our Chief Financial Officer.

謝謝你，接線員。我謹代表 Escalade 整個團隊歡迎您參加我們的 2023 年第一季度業績電話會議。今天與我一起主持電話會議的是總裁兼首席執行官沃爾特·格雷澤 (Walt Glazer)；以及我們的首席財務官 Stephen Wawrin。

Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. At the conclusion of our prepared remarks, we will open the line for questions.

今天的討論包含有關未來業務和財務預期的前瞻性陳述。由於各種風險和不確定性，包括我們向美國證券交易委員會提交的定期報告中描述的風險，實際結果可能與今天的前瞻性聲明中預測的結果存在顯著差異。除法律要求外，我們不承擔更新前瞻性陳述的義務。在我們準備好的發言結束後，我們將開放提問熱線。

With that, I would like to turn the call over to Walt.

有了這個，我想把電話轉給沃爾特。

Thank you, Patrick and welcome to those joining us on the call today.

謝謝帕特里克，歡迎今天加入我們電話會議的人們。

As expected, our first-quarter results were impacted by anticipated softening in consumer demand that carried over from the fourth quarter. Early in 2023, elevated channel inventories have weighed on the pace of reordering at retail, particularly with our archery and basketball categories. Based on recent POS trends and discussions with our retail partners, we believe this is a dynamic that will normalize for most of our categories as we move further into the year.

正如預期的那樣，我們第一季度的業績受到第四季度消費者需求預期疲軟的影響。 2023 年初，渠道庫存增加對零售重新訂購的步伐造成了壓力，尤其是射箭和籃球品類。根據最近的 POS 趨勢以及與我們的零售合作夥伴的討論，我們相信，隨著今年的深入，這種動態將在我們的大多數類別中正常化。

Market conditions were further impacted by cooler temperatures across many areas of the country during the first quarter, which curtailed outdoor product demand. January was particularly weak, although we then experienced month-over-month improvement in demand conditions as we progressed through the first quarter, supported by improved orders for our indoor games, fitness, and safety categories.

第一季度全國許多地區氣溫下降進一步影響了市場狀況，從而減少了戶外產品的需求。一月份的情況特別疲軟，儘管隨著第一季度的進展，我們的需求狀況逐月改善，這得益於室內游戲、健身和安全類別訂單的增加。

While our overall e-commerce sales declined in the quarter due to inventory destocking within our marketplace and at third-party reseller customers, our owned direct-to-consumer e-commerce sales increased 44% on a year-over-year basis in the first quarter, reflecting continued consumer demand for our products and the effectiveness of our product development, marketing, and e-commerce teams.

儘管由於我們市場和第三方經銷商客戶的庫存去庫存，本季度我們的整體電子商務銷售額有所下降，但我們自有的直接面向消費者的電子商務銷售額同比增長了 44%。第一季度，反映了消費者對我們產品的持續需求以及我們產品開發、營銷和電子商務團隊的有效性。

In combination, these factors contributed to a year-over-year decline in both revenue and profitability during the first quarter, a circumstance made even more challenging compared to the record performance in the first quarter of 2022.

這些因素綜合在一起，導致第一季度收入和盈利能力同比下降，與 2022 年第一季度創紀錄的業績相比，這一情況更具挑戰性。

At an operational level, we continued to face some supply chain headwinds that led us to incur elevated inventory handling and storage costs in the first quarter. These costs, along with less favorable product mix shutdown and exuberance expenses and lower sales volumes impacted our gross margin in the period.

在運營層面，我們繼續面臨一些供應鏈阻力，導致我們第一季度的庫存處理和存儲成本增加。這些成本，加上不太有利的產品組合停產和繁榮費用以及銷量下降，影響了我們在此期間的毛利率。

Despite these challenges, we've continued to maintain our price discipline, which has served to partially offset demand softness. We believe the general stability and pricing speaks to the resilience of our brands and the loyalty of our generally more affluent customer base.

儘管面臨這些挑戰，我們仍繼續維持價格紀律，這部分抵消了需求疲軟的影響。我們相信總體穩定性和定價體現了我們品牌的彈性以及我們普遍更富裕的客戶群的忠誠度。

Looking forward, we expect to see our inventory trend down towards more normalized levels as we move throughout the year. That said, we expect demand in the second quarter will remain challenged, albeit less so than in the first quarter, adjusting for the change in our reporting calendar. We also expect margin pressure from elevated inventory handling and storage cost will decline, while an improved sales mix and lower cost inventory will also result in better margins as we move through the year.

展望未來，我們預計隨著全年的發展，我們的庫存趨勢將下降至更加正常化的水平。也就是說，我們預計第二季度的需求仍將面臨挑戰，儘管比第一季度的挑戰要小，並根據我們的報告日曆的變化進行調整。我們還預計，庫存處理和存儲成本上升帶來的利潤壓力將會下降，而銷售組合的改善和庫存成本的降低也將在今年帶來更好的利潤。

Strategically, we've continued to focus on investing in innovative product development and consumer engagement to build market-leading positions in key growth categories. For example, we recently introduced technology into the pickleball category, the all-new Malice and Mayhem pickleball paddles are the first to be released with our patented thermal fuse technology, which molds the pickleball paddle to exact specifications and provides our ONIX brand with our robust product development platform. These new paddles feature an all-new carbon fiber power frame for greater strength, power, and better feel.

從戰略上講，我們繼續專注於投資創新產品開發和消費者參與，以在關鍵增長類別中建立市場領先地位。例如，我們最近將技術引入匹克球類別，全新的Malice 和Mayhem 匹克球球拍是第一個採用我們的專利熱熔斷器技術發布的，該技術將匹克球球拍塑造成精確的規格，並為我們的ONIX 品牌提供了我們強大的功能產品開發平台。這些新球拍採用全新碳纖維動力框架，具有更大的強度、功率和更好的手感。

We also launched an expansion of the Evoke Premier family with paddles featuring raw carbon fiber surface texture, which increases traction for maximum spin and control without sacrificing pop and power. Our champion pro pickleball players, Matt Wright, Lucy Kovalova, Callie Jo Smith, as well as many others, play tested these paddles and provided a key input before their recent release. I'm happy to report that they are already winning medals in the top tournaments with these new paddles.

我們還推出了 Evoke Premier 系列的擴展產品，其槳葉具有原始碳纖維表面紋理，可增加牽引力，實現最大旋轉和控制，而不犧牲流行和力量。我們的冠軍職業泡菜球運動員馬特·賴特(Matt Wright)、露西·科瓦洛娃(Lucy Kovalova)、卡莉·喬·史密斯(Callie Jo Smith) 以及其他許多人對這些球拍進行了測試，並在最近發布之前提供了關鍵的意見。我很高興地向大家報告，他們已經使用這些新球拍在頂級錦標賽中贏得了獎牌。

We are also launching innovative products in several key categories in over the coming months. Stay tuned for those exciting new developments.

我們還將在未來幾個月內推出幾個關鍵類別的創新產品。請繼續關注這些令人興奮的新進展。

As we navigate the current challenging demand environment, we understand the importance of maintaining an appropriate cost structure and healthy balance sheet. We have successfully faced similar challenges over the past century and are responding to this temporary situation by reducing our costs and generating cash to reduce debt.

當我們應對當前充滿挑戰的需求環境時，我們了解維持適當的成本結構和健康的資產負債表的重要性。在過去的一個世紀裡，我們成功地應對了類似的挑戰，並通過降低成本和產生現金來減少債務來應對這種暫時的情況。

To that end, we recently announced our intention to divest our own facility in Rosarito, Mexico as part of an initiative to optimize our manufacturing footprint. We currently expect to close the sale of this facility by year-end 2023 and anticipate annualized savings of between $0.5 million and $1.5 million. In the meantime, we will have some costs associated with winding down this facility, including roughly $600,000 that we expensed in the first quarter.

為此，我們最近宣布打算剝離我們在墨西哥羅薩里託的工廠，作為優化我們製造足跡計劃的一部分。目前，我們預計在 2023 年底前完成該設施的出售，預計每年可節省 50 萬至 150 萬美元。與此同時，我們將產生一些與關閉該設施相關的成本，包括我們在第一季度支出的約 60 萬美元。

In addition to the divestiture of our Mexico operations, we've also initiated a targeted reduction in force during the second-quarter 2023 within our domestic operations. We anticipate $2.3 million in annual savings resulting from the domestic reduction beginning in the third quarter of 2023. Between the divestiture of our Mexico operations and planned reduction in force here domestically, we anticipated total annualized savings resulting from the recent cost action to be approximately $2.8 million to $3.8 million annually.

除了剝離墨西哥業務外，我們還啟動了 2023 年第二季度國內業務的有針對性的裁員計劃。我們預計，從2023 年第三季度開始，國內削減將帶來230 萬美元的年度節省。在剝離墨西哥業務和計劃削減國內人力之間，我們預計最近的成本行動帶來的年度節省總額約為2.8美元每年 100 萬至 380 萬美元。

We are carefully evaluating additional expense reduction and cash generation opportunities to ensure we maintain an appropriate cost structure and healthy balance sheet. We remain highly disciplined around all discretionary capital allocation, and as a result, have also reduced our planned capital expenditures for the full-year 2023.

我們正在仔細評估額外的費用削減和現金生成機會，以確保我們保持適當的成本結構和健康的資產負債表。我們對所有可自由支配的資本配置保持嚴格的紀律，因此也減少了 2023 年全年的計劃資本支出。

We successfully amended our credit agreement to address temporary higher leverage. As of the end of the first quarter, our net leverage reached 3.8 times, which is well above our targeted range of 1.5 to 2.5 times. As seasonal demand and normalized channel inventories drive improved cash flows, we expect our leverage to trend back toward our targeted range by year end.

我們成功修改了信貸協議，以解決槓桿率暫時升高的問題。截至一季度末，我們的淨槓桿率達到3.8倍，遠高於我們1.5至2.5倍的目標範圍。隨著季節性需求和標準化渠道庫存推動現金流改善，我們預計我們的槓桿率將在年底前回到我們的目標範圍。

Entering the second quarter, our team continues to do an excellent job navigating the current macro environment while also ensuring that we remain competitively positioned to support our customers.

進入第二季度，我們的團隊繼續出色地應對當前的宏觀環境，同時確保我們在支持客戶方面保持競爭優勢。

While the current environment is challenging, our category-leading brands and loyal customer base provides some level of insulation from this volatility. While we continue to see attractive opportunities to expand our portfolio of high-quality products, we will prioritize organic growth over acquisitions during what remains a transitional period for the consumer and as we deliver our balance sheet.

儘管當前的環境充滿挑戰，但我們的行業領先品牌和忠實的客戶群在一定程度上抵禦了這種波動。雖然我們繼續看到擴大高質量產品組合的誘人機會，但在消費者的過渡時期以及我們交付資產負債表時，我們將優先考慮有機增長而不是收購。

I am proud of the hard work and dedication of our team as we continue to focus on delivering exceptional customer experiences that build brand loyalty, all while creating long-term shareholder value. We look forward to updating you with our progress next quarter.

我為我們團隊的辛勤工作和奉獻精神感到自豪，因為我們繼續專注於提供卓越的客戶體驗，建立品牌忠誠度，同時創造長期股東價值。我們期待向您通報下季度的最新進展。

With that, I'll turn the call over to Stephen for his prepared remarks.

這樣，我將把電話轉給斯蒂芬，聽他準備好的講話。

For the three months ended March 31, 2023, Escalade reported a net loss of $952,000, or a loss of $0.07 per diluted share on net sales of $56.9 million. For the first quarter, the company reported gross margin of 19.4% compared to 27.8% in the prior year period. The over 800 basis point reduction was primarily the result of unfavorable product mix, non-recurring inventory handling and storage cost, sell off of high-cost inventory, as well as cost associated with the divestiture of our facility in Mexico.

截至 2023 年 3 月 31 日的三個月，Escalade 報告淨虧損 952,000 美元，即每股攤薄虧損 0.07 美元，淨銷售額為 5,690 萬美元。第一季度，該公司毛利率為 19.4%，而去年同期為 27.8%。超過 800 個基點的減少主要是由於不利的產品組合、非經常性庫存處理和存儲成本、高成本庫存的出售以及與墨西哥工廠剝離相關的成本造成的。

Selling, general and administrative expenses declined 2.3% compared to prior year period to $10.3 million. The decrease in SG&A expense year over year was caused by lower variable selling expenses offset by the addition of Brunswick Billiards, severance expenses, and timing of certain selling expenses.

銷售、一般和管理費用較上年同期下降 2.3%，至 1,030 萬美元。 SG&A 費用同比減少是由於可變銷售費用減少，但被 Brunswick 台球、遣散費和某些銷售費用的時間安排所抵消。

Earnings before interest, taxes, depreciation, and amortization declined by $9 million to $1.6 million in the first quarter of 2023 versus $10.5 million in the prior year period. Total cash provided by operations was $4.5 million for the quarter compared to a use of $2.9 million in the prior year period. The increase in cash flow from operations reflects cash generated from improvements to working capital as a result of a reduction of receivables through the first quarter of 2023 and stable capital expenditure of approximately $700,000 during the first quarter, which is relatively flat to the first quarter of last year.

2023 年第一季度息稅折舊攤銷前利潤下降 900 萬美元，至 160 萬美元，而上年同期為 1050 萬美元。本季度運營提供的現金總額為 450 萬美元，而去年同期使用的現金為 290 萬美元。運營現金流的增加反映了由於截至2023 年第一季度的應收賬款減少而改善營運資本而產生的現金，以及第一季度資本支出穩定在約70 萬美元，與2023 年第一季度相對持平。去年。

As of March 31, 2023, the company had total cash and equivalents of $6.1 million, together with $32.9 million of availability on our senior secure revolving credit facility maturing in 2027. At the end of the first quarter of 2023, net debt outstanding or total debt less cash was 3.8 times trailing 12-month EBITDA.

截至2023 年3 月31 日，公司擁有現金及等價物總額610 萬美元，以及將於2027 年到期的高級安全循環信貸額度3,290 萬美元。截至2023 年第一季度末，未償債務淨額或總額債務減去現金為過去 12 個月 EBITDA 的 3.8 倍。

As Walt mentioned, after the end of the quarter, we proactively took steps to address our temporarily higher leverage. As such, we have worked with our banks to amend our credit agreement, which improved our flexibility. In addition, we announced this morning a quarterly dividend of $0.15 per share to be paid to all shareholders of record on June 12, 2023, and dispersed on June 19, 2023.

正如沃爾特提到的，本季度末後，我們積極採取措施解決暫時較高的槓桿問題。因此，我們與銀行合作修改了信貸協議，從而提高了我們的靈活性。此外，我們今天上午還宣布，將於 2023 年 6 月 12 日向所有在冊股東支付每股 0.15 美元的季度股息，並於 2023 年 6 月 19 日派發。

One last important thing to remember, effective on January 1st, we transitioned to a conventional 12-month reporting calendar. As a result, the first quarter of 2023 had 90 operating days as opposed to 84 in the prior year period. This dynamic will continue to have an impact on the comparability of our results throughout the rest of the year.

最後一件重要的事情要記住，從 1 月 1 日起，我們過渡到傳統的 12 個月報告日曆。因此，2023 年第一季度的營業日數為 90 天，而去年同期為 84 天。這種動態將繼續對我們今年剩餘時間的業績可比性產生影響。

With that, we will open the call for questions.

至此，我們將開始提問。

(Operator Instructions) Rommel Dionisio, Aegis Capital.

（操作員指令）Rommel Dionisio，Aegis Capital。

Good morning. Thanks for taking my question. When you talk about the targeted reductions in the US -- and I understand if they haven't been even made yet, the sensitivity of informing people and all that. But I just -- in general terms, is that the latter corporate? Is it infrastructure, marketing? Could you maybe walk us through the components of when the organization that might lie? Thanks.

早上好。感謝您提出我的問題。當你談到美國的有針對性的減排時——我理解，如果這些減排還沒有實現，那麼告知人們的敏感性等等。但我只是——一般來說，後者是公司嗎？是基礎設施、營銷嗎？您能否向我們介紹一下該組織可能存在的組成部分？謝謝。

Sure, Rommel. Thanks for your question. It's really -- we're looking -- leaving no stone unturned. We're looking everywhere. I would say primarily the employee counts are occurring within our business units. As we reduce production to work down our inventories, we need fewer production employees. So a lot of it is occurring in that area. But as I say, we're looking at everything and being very thoughtful in how we address our cost structure going forward.

當然，隆美爾。謝謝你的提問。我們正在不遺餘力地尋找。我們正在到處尋找。我想說的是，員工人數主要發生在我們的業務部門內。隨著我們減少產量以減少庫存，我們需要的生產員工也減少了。所以很多事情都發生在那個地區。但正如我所說，我們正在考慮一切，並非常深思熟慮地考慮如何解決未來的成本結構。

Okay. And I know you've gone to a fairly flexible manufacturing and fairly lean -- you've been -- run pretty lean over the last several years. Do you have the ability to flex up and -- in the period of inventory, restocking comes back and consumer demand comes back, or is it the type of thing where you -- you've also made acquisitions over the years, and we probably have a lot of personnel that maybe you won't necessarily need to add back. How do you kind of think about that? Thanks.

好的。我知道，在過去的幾年裡，你們已經採用了相當靈活的製造方式，並且相當精益——你們一直在——非常精益地運營。你是否有能力靈活應對——在庫存期間，補貨回來，消費者需求回來，或者你多年來也進行了收購，我們可能會這樣做有很多人員，也許您不一定需要重新添加。您對此有何看法？謝謝。

Yes. So being able to flex up is important. And as we make reductions, we want to make sure we keep key people, key skills, key abilities. But I can tell you that we're seeing in certain areas like particularly in fitness, we're seeing a strong increase in demand. And you may recall fitness was the first to decline. We're seeing that it's really the first to come out of the post-COVID environment.

是的。所以能夠彎曲很重要。當我們進行裁員時，我們希望確保保留關鍵人員、關鍵技能和關鍵能力。但我可以告訴你，我們看到在某些領域，特別是健身領域，需求強勁增長。您可能還記得健身是第一個下降的。我們看到它確實是第一個走出後新冠疫情環境的。

So in our facility in Illinois, where we produce a lot of the fitness products, we are increasing our headcount, we're hiring. I can tell you that hiring is still a bit challenging. Better than it was a year ago, but we're able to increase our workforce where and when we need it.

因此，在我們位於伊利諾伊州的工廠，我們生產大量健身產品，我們正在增加員工人數，我們正在招聘。我可以告訴你，招聘仍然有點挑戰性。比一年前更好，但我們能夠在需要的地方和時間增加我們的勞動力。

Great. Thanks very much.

偉大的。非常感謝。

I'll add if I may -- if I may just add one last comment, and that is, that this sales decline is disappointing. But we believe it's largely the result of destocking in our customer base. Our POS at our major retail customers, it was down low-single digits and our wholesale shipments to those customers was down 21%. So we know that the inventory destocking cannot go on forever, and that gives us confidence that this will resolve itself over time.

如果可以的話，我會補充一點——如果我可以補充最後一條評論，那就是，這種銷售下降令人失望。但我們認為這很大程度上是我們客戶群去庫存的結果。我們主要零售客戶的 POS 下降了低個位數，而我們向這些客戶的批發發貨量下降了 21%。因此，我們知道庫存去庫存不可能永遠持續下去，這讓我們相信，隨著時間的推移，這個問題會自行解決。

And I can also report that our April results were better than March, which were better than January. So we have some degree of confidence in our plans for the future.

我還可以報告說，我們四月份的結果好於三月份，三月份又好於一月份。因此，我們對未來的計劃有一定程度的信心。

This concludes our question-and-answer session. I would now like to turn the call back over to Patrick Griffin for any closing remarks.

我們的問答環節到此結束。我現在想將電話轉回給帕特里克·格里芬，讓其發表結束語。

Once again, thank you for your interest in Escalade and joining our call. Should you have any questions, please feel free to reach out to contact us at ir@escaladeinc.com.

再次感謝您對 Escalade 的關注並加入我們的電話會議。如果您有任何疑問，請隨時通過 ir@escaladeinc.com 與我們聯繫。

This concludes our call today. You may now disconnect.

我們今天的電話會議到此結束。您現在可以斷開連接。