Escalade Inc (ESCA) 2023 Q2 法說會逐字稿

Greetings, and welcome to the Escalade second-quarter 2023 results conference call. (Operator Instructions) As a reminder, this conference is being recorded.

您好，歡迎參加 Escalade 2023 年第二季度業績電話會議。 （操作員指示）謹此提醒，本次會議正在錄製中。

It is now my pleasure to introduce your host, Patrick Griffin, Vice President of Investor Relations. Thank you, sir. You may begin.

現在我很高興向您介紹主持人，投資者關係副總裁帕特里克·格里芬(Patrick Griffin)。謝謝你，先生。你可以開始了。

Thank you, operator. On behalf of the entire team at Escalade, I'd like to welcome you to our second-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 年第二季度業績電話會議。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.

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。

At the conclusion of our prepared remarks, we will open the lines for questions. With that, I would like to turn the call over to Walt.

在我們準備好的發言結束後，我們將開始提問。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，並歡迎今天加入我們電話會議的人們。

I'm pleased to report that our team did a fantastic job recovering from a difficult first quarter and delivered strong second-quarter results, highlighted by substantial growth in cash flow from operations, significant inventory and long-term debt reductions, EBITDA margin expansion, and thoughtful expense reductions. These accomplishments by our team enabled us to beat the plan in the second quarter.

我很高興地向大家報告，我們的團隊在從艱難的第一季度中恢復過來方面表現出色，並取得了強勁的第二季度業績，其中突出表現在運營現金流大幅增長、庫存和長期債務大幅減少、EBITDA 利潤率擴張、以及深思熟慮的費用削減。我們團隊的這些成就使我們在第二季度超額完成了計劃。

Sales volumes improved significantly during the second quarter. Importantly, our results were substantially impacted by 21 fewer days within our reporting calendar, as we moved to a traditional reporting calendar on January 1, 2023. Previously, our second quarter included four four-week periods. This year and going forward, we will report results for the traditional three-month, April through June, calendar quarter.

第二季度銷量顯著改善。重要的是，由於我們於2023 年1 月1 日轉向傳統的報告日曆，因此報告日曆中的天數減少了21 天，這對我們的業績產生了重大影響。此前，我們的第二季度包括四個為期四周的周期。今年及今後，我們將報告傳統的三個月（四月至六月）日曆季度的結果。

Excluding the impact of the change in our reporting calendar, sales declined 9.5% on a year-over-year basis, which was an improvement over the prior quarter's sales decline of 28.5%. During the second quarter, our direct-to-consumer sales accelerated meaningfully, with non-licensed DTC sales up more than 60% versus the year-ago April through June period, driven by a combination of effective marketing campaigns and recent new product launches.

排除報告日曆變化的影響，銷售額同比下降 9.5%，比上一季度 28.5% 的銷售額下降有所改善。第二季度，在有效的營銷活動和近期新產品發布的共同推動下，我們的直接面向消費者的銷售顯著加速，非授權 DTC 銷售額較去年 4 月至 6 月期間增長了 60% 以上。

Our US retail sales and sporting goods remained soft and channel inventories are still elevated. We are cautiously optimistic about recent increases in housing starts and similar improved consumer sentiment driven by stability in the labor markets and a slowdown in inflation. We believe our diverse portfolio of leading recreational brands will continue to resonate with consumers in this changing environment.

我們的美國零售額和體育用品仍然疲軟，渠道庫存仍然很高。我們對最近新屋開工量的增加以及勞動力市場穩定和通脹放緩推動的消費者信心的類似改善持謹慎樂觀態度。我們相信，在這個不斷變化的環境中，我們多元化的領先休閒品牌組合將繼續與消費者產生共鳴。

Operationally, the supply chain challenges that we faced last year have continued to lessen, particularly with respect to freight expenses. Improved operating leverage, lower cost inventory, price discipline, expense reductions, and a more favorable product mix resulted in a 515-basis-point sequential gross margin improvement between the first and second quarter of 2023.

在運營方面，我們去年面臨的供應鏈挑戰繼續減輕，特別是在運費方面。運營槓桿的改善、庫存成本的降低、價格紀律、費用的減少以及更有利的產品組合導致 2023 年第一季度和第二季度的毛利率環比提高了 515 個基點。

We anticipate further normalization in wholesale channel inventories as we move into the second half of this year, which should position us to capitalize on restocking opportunities entering the holiday season. As before, we remain highly focused on a combination of cost control, improved working capital management, and balance sheet optimization.

我們預計，隨著今年下半年的到來，批發渠道庫存將進一步正常化，這將使我們能夠利用進入假期季節的補貨機會。與以前一樣，我們仍然高度關注成本控制、改善營運資本管理和資產負債表優化的結合。

Strategically, we continue to focus on investing in innovative product development to build market-leading positions in key growth categories. For example, during the second quarter, we launched a range of new carbon-based pickleball paddles that improve performance and playability for the fast-growing market of pickleball enthusiasts. This launch included our Evoke Premier Raw Carbon range as well as the Malice and Mayhem paddles, which utilize our patented ThermoFused Technology. Consumer acceptance of these exciting new paddles has exceeded our expectations and quickly sold through initial production runs.

從戰略上講，我們繼續專注於創新產品開發的投資，以在關鍵增長類別中建立市場領先地位。例如，在第二季度，我們推出了一系列新型碳基匹克球球拍，為快速增長的匹克球愛好者市場提高了性能和可玩性。此次發布的產品包括我們的 Evoke Premier Raw Carbon 系列以及 Malice 和 Mayhem 槳，它們採用了我們的 ThermoFused 專利技術。消費者對這些令人興奮的新球拍的接受程度超出了我們的預期，並通過最初的生產運行迅速售出。

We are accelerating manufacturing to meet the strong demand. This successful launch also contributed a significant double-digit year-over-year sales growth in our pickleball category despite the shorter second quarter of this year.

我們正在加速製造以滿足強勁的需求。儘管今年第二季度較短，但這次成功的推出也為我們的泡菜球類別銷售額實現了兩位數的同比顯著增長。

We are also pleased to announce that our Goalrilla basketball brand has collaborated with Johnny Stephene, the Founder of HandleLife and an NBA skills coach, to launch a range of weighted basketballs designed to improve ball handling efficiency and playmaking ability. Johnny's social media accounts have gained over 2 million followers who are interested in his unique story and amazing ball handling skills. We are excited about this new HandleLife collaboration, which provides consumers with effective training tools to improve their game.

我們還很高興地宣布，我們的 Goalrilla 籃球品牌與 HandleLife 創始人、NBA 技能教練 Johnny Stephene 合作，推出了一系列旨在提高控球效率和組織能力的加重籃球。約翰尼的社交媒體賬戶已經擁有超過 200 萬粉絲，他們對他獨特的故事和驚人的控球技巧感興趣。我們對這一新的 HandleLife 合作感到興奮，它為消費者提供了有效的培訓工具來提高他們的遊戲水平。

We're also launching new products in several other key categories over the coming quarters, particularly an innovative assortment of American Cornhole League-licensed cornhole boards and bags, which will launch initially at Academy Sports and Outdoors. For some thrilling cornhole competition, please tune in to the American Cornhole League World Championships, which will be held in Rock Hill, South Carolina, from July 29 through August 6. It will air on ESPN and the CBS Sports Network.

我們還將在未來幾個季度推出其他幾個關鍵類別的新產品，特別是美國沙坑聯盟授權的沙坑板和沙包的創新品種，這些產品將首先在學院體育和戶外活動中推出。想要了解一些激動人心的沙包比賽，請收看美國沙包聯盟世界錦標賽，該賽事將於 7 月 29 日至 8 月 6 日在南卡羅來納州羅克山舉行。比賽將在 ESPN 和 CBS 體育網播出。

As we navigate the challenging demand environment, we know the importance of maintaining an appropriate cost structure and fortified balance sheet. We continue to focus on optimizing our cost structure and maximizing cash flow.

當我們應對充滿挑戰的需求環境時，我們知道維持適當的成本結構和強化資產負債表的重要性。我們繼續專注於優化成本結構和最大化現金流。

As highlighted by our second-quarter results, we have already made great strides in improving our gross margins by reducing fixed costs and through lowering our operational expenses. We remain on track to achieve $2.3 million in annual cost savings and expect our costs to continue to trend lower through the remainder of the year.

正如我們第二季度業績所強調的那樣，我們已經通過降低固定成本和降低運營費用，在提高毛利率方面取得了長足進步。我們仍有望實現年度成本節省 230 萬美元，並預計我們的成本在今年剩餘時間內將繼續呈下降趨勢。

We continue to carry the ongoing expense of our Mexico operations and remain focused on divesting this facility by the end of 2023. We have spent approximately $900,000 year to date on professional services and severance expenses related to this divestiture.

我們繼續承擔墨西哥業務的持續費用，並繼續致力於在 2023 年底之前剝離該設施。今年迄今為止，我們已在與此次剝離相關的專業服務和遣散費上花費了約 900,000 美元。

As previously mentioned, we continue to be sharply focused on cash flow. Cash conversion during the second quarter exceeded 100%, primarily due to improved working capital management, including the more optimal use of our cash on hand. As we continue to the end of the year, our inventory levels should drive additional cash generation, which we will utilize to further reduce our debt.

如前所述，我們繼續高度關注現金流。第二季度的現金轉化率超過 100%，這主要是由於營運資金管理的改善，包括更優化地利用我們的手頭現金。隨著我們持續到今年年底，我們的庫存水平應該會推動額外的現金產生，我們將利用這些現金進一步減少我們的債務。

At the end of the second quarter, our net leverage was 4.0 times. However, we remain committed to reducing our leverage to our targeted range between 1.5 and 2.5 times.

截至第二季度末，我們的淨槓桿率為4.0倍。然而，我們仍然致力於將槓桿率降低至 1.5 至 2.5 倍的目標範圍。

While we have built our business over the years with a number of value-creating acquisitions, our current capital allocation priorities remain long-term debt reduction and payment of our dividend. Along with our focus on lowering net leverage, we continue to tightly control discretionary spending, including capital expenditures.

雖然我們多年來通過一系列創造價值的收購建立了我們的業務，但我們目前的資本配置優先事項仍然是長期債務削減和支付股息。在我們專注於降低淨槓桿的同時，我們繼續嚴格控制可自由支配支出，包括資本支出。

Entering the third quarter, our team continues to do a great job navigating the current macro environment, while also ensuring that we remain competitively positioned to support our retail partners and consumers loyal to our brands. I'm proud of the hard work and dedication of our team in responding to a disappointing first quarter by delivering a good second quarter with improved performance across most key metrics. We will continue to focus on creating exceptional consumer experiences that build brand loyalty, all while creating long-term shareholder value. We look forward to updating you with all our progress next quarter.

進入第三季度，我們的團隊繼續出色地應對當前的宏觀環境，同時確保我們保持競爭優勢，為我們的零售合作夥伴和忠誠於我們品牌的消費者提供支持。我為我們團隊的辛勤工作和奉獻精神感到自豪，他們在應對令人失望的第一季度的情況下，在大多數關鍵指標上實現了良好的第二季度業績改善。我們將繼續專注於創造卓越的消費者體驗，建立品牌忠誠度，同時創造長期股東價值。我們期待在下個季度向您通報我們的所有進展。

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

這樣，我將把電話轉給斯蒂芬，讓他準備好講話。

For the three months ended June 30, 2023, Escalade reported net income of $3.6 million, or $0.26 per diluted share, and net sales of $67.8 million.

截至 2023 年 6 月 30 日的三個月，Escalade 報告淨利潤為 360 萬美元，即稀釋後每股收益 0.26 美元，淨銷售額為 6780 萬美元。

For the second quarter, the company reported gross margin of 24.6% compared to 25.1% in the prior year period. The 50-basis-point decline was primarily the result of higher cost inventory, elevated inventory storage and handling costs, and lower operating leverage on a comparably lower revenue base, partially offset by improved margins in several categories and expense reductions implemented through the second quarter.

第二季度，該公司毛利率為 24.6%，而去年同期為 25.1%。下降 50 個基點的主要原因是庫存成本增加、庫存存儲和處理成本增加以及收入基礎相對較低的運營槓桿降低，但部分被多個類別的利潤率提高和第二季度實施的費用削減所抵消。

Selling, general, and administrative expenses declined 33.5% compared to the prior year period to $9.8 million. The decrease in SG&A expense year over year was caused by lower variable selling expenses and initiatives to reduce our fixed costs, which Walt mentioned earlier.

銷售、一般和管理費用較上年同期下降 33.5%，至 980 萬美元。 SG&A 費用同比下降是由於可變銷售費用降低以及沃爾特之前提到的減少固定成本的舉措所致。

Earnings before interest, taxes, depreciation, and amortization declined by $2.7 million to $7.7 million in the second quarter of 2023 versus $10.3 million in the prior year period.

2023 年第二季度息稅折舊攤銷前利潤下降 270 萬美元，至 770 萬美元，而上年同期為 1030 萬美元。

Total cash provided by operations was $8.4 million for the quarter compared to $2.5 million in the prior year period. The increase in cash flow from operations reflects cash generated from improvement to working capital as a result of a reduction of inventories through the second quarter of 2023.

本季度運營提供的現金總額為 840 萬美元，而去年同期為 250 萬美元。運營現金流的增加反映了 2023 年第二季度庫存減少導致營運資本改善所產生的現金。

Additionally, capital expenditures during the quarter decreased to approximately $500,000 from the prior year period, as we carefully manage our capital spending. As of June 30, 2023, the company had total cash and equivalents of $577,000 together with $42.4 million of availability on our senior secured revolving credit facility maturing in 2027.

此外，由於我們謹慎管理資本支出，本季度的資本支出比去年同期減少至約 500,000 美元。截至 2023 年 6 月 30 日，該公司的現金及等價物總額為 577,000 美元，以及將於 2027 年到期的高級擔保循環信貸額度為 4,240 萬美元。

At the end of the second quarter of 2023, net debt outstanding or total debt less cash was 4 times trailing 12-month EBITDA. In addition, we announced this morning a quarterly dividend of $0.15 per share to be paid to all shareholders of record, August 29, 2023, and disbursed on September 5, 2023.

截至 2023 年第二季度末，未償債務淨額或總債務減去現金是過去 12 個月 EBITDA 的 4 倍。此外，我們今天上午還宣布，將於 2023 年 8 月 29 日向所有記錄在案的股東派發每股 0.15 美元的季度股息，並於 2023 年 9 月 5 日支付。

One last important thing to remember. Effective on January 1, we transitioned to a conventional 12-month reporting calendar. As a result, the second quarter of 2023 had 91 operating days as opposed to 112 operating days in the prior year period. This dynamic will have an impact on the comparability of our results for the third quarter.

最後一件重要的事情要記住。自 1 月 1 日起，我們過渡到傳統的 12 個月報告日曆。因此，2023 年第二季度的營業日數為 91 個，而去年同期為 112 個營業日。這種動態將對我們第三季度業績的可比性產生影響。

With that, operator, we will open the call for questions.

接線員，我們將開始提問。

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Rommel Dionisio, Aegis Capital.

謝謝。我們現在將進行問答環節。 （操作員指令）Rommel Dionisio，Aegis Capital。

Good morning. Thanks very much for taking my questions.

早上好。非常感謝您回答我的問題。

I think you had talked about incurring some severance costs in the second quarter. And also, obviously, you realized some cost savings as a result of your recent restructuring efforts.

我想你已經談到了第二季度產生一些遣散費。而且，顯然，您最近的重組工作還實現了一些成本節省。

Did I understand correctly that most of the one-time costs were incurred in 2Q, but maybe you didn't get a full quarter of benefit cost savings in 2Q? So going forward, things should look even better with regards to maybe lower severance expense and higher cost savings as a result of getting the full quarter's benefit. Did I -- am I reading that correctly? Thanks.

我是否正確理解大部分一次性成本是在第二季度產生的，但也許您在第二季度沒有獲得整整一個季度的福利成本節省？因此，展望未來，由於獲得整個季度的福利，情況應該看起來會更好，因為可能會降低遣散費並節省更多成本。我讀得正確嗎？謝謝。

Good morning, Rommel. I think I understand your question.

早上好，隆美爾。我想我理解你的問題。

So we have an ongoing cost savings program, and these initiatives are generating opportunities that are coming in every week from our teams. And so they're being implemented as we receive them. At the same time, we are shutting down our Mexico operation. So we're incurring the cost to carry the facility. We're incurring severance costs as we reduce the payroll there.

因此，我們有一個持續的成本節約計劃，這些舉措正在為我們的團隊每週帶來機會。因此，當我們收到它們時，它們就會被實施。與此同時，我們正在關閉墨西哥業務。因此，我們需要承擔該設施的運輸費用。當我們減少那裡的工資時，我們會產生遣散費。

So both of these things will continue into the third quarter and to the cost savings. Most of those will be -- continue to develop and will benefit us Q3, Q4, and into 2024. Does that answer your question?

因此，這兩件事將持續到第三季度並節省成本。其中大部分將繼續發展，並將在第三季度、第四季度直至 2024 年使我們受益。這能回答您的問題嗎？

Okay. Yeah, that's true. It does, yeah. No, it's very helpful.

好的。對，是真的。確實如此，是的。不，這很有幫助。

Maybe just as a follow-up, how should we think about the inventory levels now? I know you were trying to build some safety stock as you're shutting that (technical difficulty) but just -- how should we think about where that number, in terms of benchmarking, should be at the end of third quarter and fourth quarter relative to where it was in the second quarter? Thanks.

也許作為後續，我們現在應該如何看待庫存水平？我知道您在關閉該項目（技術難度）時試圖建立一些安全庫存，但我們應該如何考慮在基準測試方面該數字在第三季度末和第四季度末的相對位置第二季度的情況如何？謝謝。

Sure. Of course, we're looking at inventory on two levels, both at our customers and ours. But we've made great progress so far this year. We anticipate further progress in the second half of the year. What we're seeing with our customers is a reduction in inventories. They're coming down, they still need to come down further in certain categories.

當然。當然，我們會從兩個層面來審視庫存，即我們的客戶和我們自己的庫存。但今年到目前為止我們已經取得了很大進展。我們預計下半年將取得進一步進展。我們從客戶那裡看到的是庫存減少。他們正在下降，他們仍然需要在某些類別中進一步下降。

But what I've observed is that our customers are more conservative than they have been. And so they're probably going to carry less inventory, perhaps maybe even than they need, going into the holiday season and into 2024.

但我觀察到，我們的客戶比以前更加保守。因此，進入假日季節和 2024 年，他們的庫存可能會減少，甚至可能比他們需要的少。

So we're monitoring that. We're seeing improvement. But as to where -- how low it goes, that remains to be seen. In certain categories like pickleball, inventories are short. We're chasing to keep up with these hot new paddles that we've just introduced.

所以我們正在監控這一點。我們看到了進步。但至於下降到什麼程度、下降到什麼程度，還有待觀察。在泡菜球等某些類別中，庫存短缺。我們正在努力跟上我們剛剛推出的這些熱門新槳。

Great. Okay, I will jump back into queue. Thank you very much.

偉大的。好的，我會跳回隊列。非常感謝。

Thank you. (Operator Instructions) Rommel Dionisio, Aegis Capital.

謝謝。 （操作員指令）Rommel Dionisio，Aegis Capital。

Great. Okay. Thanks. I'll just ask one more, if I could.

偉大的。好的。謝謝。如果可以的話我會再問一個。

The -- I know when supply chain was kind of turning against the industry last year and the year before that, you guys were looking to engineer products a little bit differently to drive additional cost savings. So I wonder if you could just update us on the progress you've made there, to what extent that's contributing to the stronger margins than what we are looking for in 2Q anyway. Thank you.

我知道去年和前年供應鏈對行業不利時，你們希望以稍微不同的方式設計產品，以節省額外的成本。因此，我想知道您是否可以向我們介紹一下您在這方面取得的進展，以及這在多大程度上促成了比我們在第二季度所期望的更高的利潤率。謝謝。

Yeah, sure. When containers were $20,000 plus, it was imperative to improve the packaging and the way that we ship the product to take less space and get more items on the container. So we've done that. What we've seen is that freight rates, ocean freight rates, are quite low now. And so the impact is not as strong from those reengineering efforts, but we are continuing to benefit from those.

好，當然。當集裝箱價值超過 20,000 美元時，我們必須改進包裝和運輸產品的方式，以減少佔用空間並在集裝箱上裝載更多物品。所以我們已經做到了。我們看到的是，現在的運費、海運費非常低。因此，這些重新設計工作的影響並不那麼強烈，但我們將繼續從中受益。

And so we're seeing lower freight rates. We're seeing better efficiency of the container packing. We're seeing better currency exchange. And we're seeing lower raw material costs. So those are the things, Rommel, that are contributing to these higher margins, and we anticipate those effects to continue.

因此我們看到運費較低。我們看到集裝箱包裝的效率提高了。我們看到更好的貨幣兌換。我們看到原材料成本下降。因此，隆美爾，這些因素有助於提高利潤率，我們預計這些影響將持續下去。

Great. All right. Thanks very much.

偉大的。好的。非常感謝。

Thank you.

謝謝。

Thank you. There are no further questions at this time. I'd like to turn the call back over to Patrick Griffin for any closing remarks.

謝謝。目前沒有其他問題。我想將電話轉回給帕特里克·格里芬，讓其作結束語。

Once again, thank you for your interest in Escalade and joining our call. Should you have any questions, please feel free to 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。