Escalade Inc (ESCA) 2024 Q2 法說會逐字稿

Good morning and welcome to the Escalade Second Quarter 2024 Results Conference Call. All participants will be moved from only mode. (Operator Instructions) Please note this event is being recorded.

早安，歡迎參加 Escalade 2024 年第二季業績電話會議。所有參與者將從「僅限」模式中移出。（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, VP, Corporate Development and Investor Relations Please go ahead.

現在我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's, I'd like to welcome you to our second quarter 2024 results Conference Call. Leading the call with me today are President and CEO Walt Glazer; and Stephen Warren, our Chief Financial Officer.

謝謝你，接線生。我謹代表 Escalade 的整個團隊歡迎您參加我們的 2024 年第二季業績電話會議。今天與我一起主持電話會議的是總裁兼執行長 Walt Glazer；和我們的財務長史蒂芬沃倫。

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. That's 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所述的風險，實際結果可能與今天的前瞻性聲明中預測的結果有顯著差異。除法律要求外，我們不承擔更新前瞻性聲明的義務。這就是我們準備好的發言的結論，我們將開始提問。

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

有了這個，我想把電話轉給沃特。

Thank you, Patrick, and welcome to those joining us on the call today. We demonstrated strong operational discipline in the second quarter, as highlighted by our ongoing actions to reduce fixed overhead costs, improve manufacturing efficiency, reduce working capital, and further strengthen our balance sheet amid a softer consumer spending environment.

謝謝帕特里克，並歡迎今天加入我們電話會議的人。我們在第二季度展現了強有力的營運紀律，在消費者支出環境疲軟的情況下，我們不斷採取行動降低固定管理費用、提高製造效率、減少營運資本並進一步加強我們的資產負債表。

While net sales declined 7.7% versus the prior year we delivered a 24.2% gross margin, which was a modest decline versus the prior year period. We continue to focus on operational efficiencies to enhance our margins.

雖然淨銷售額比上年下降 7.7%，但我們的毛利率為 24.2%，與去年同期相比略有下降。我們持續專注於營運效率以提高利潤。

While we effectively managed fixed overhead costs within our control. These efforts were offset by higher promotional activity with our retail partners, together with one-time nonrecurring impacts related to the ongoing rationalization of our existing manufacturing footprint.

雖然我們在我們的控制範圍內有效地管理了固定間接費用。這些努力被我們與零售合作夥伴進行的更多促銷活動以及與我們現有製造足跡的持續合理化相關的一次性非經常性影響所抵消。

Importantly, our second quarter cash flow from operations increased nearly 60% on a year-over-year basis in Q2, which allowed us to repay $8.6 million of high-interest variable variable-rate debt in the period. At the end of the second quarter, our net leverage was 1.7 times our trailing 12 months EBITDA, which is near the low end of our long-term leverage ratio of 1.5 times to 2.5 times that we have previously discussed.

重要的是，我們第二季的營運現金流量年增近 60%，這使我們能夠在此期間償還 860 萬美元的高息可變利率債務。截至第二季末，我們的淨槓桿率為過去 12 個月 EBITDA 的 1.7 倍，接近我們先前討論的長期槓桿率 1.5 倍至 2.5 倍的低端。

We continue to progress with our plans to divest our Rosarito property and facility. Meanwhile, we have reduced the operating costs at this facility and are evaluating other cost rationalization opportunities across our broader corporate footprint as we seek to drive increased operating leverage and profitability.

我們繼續推動剝離羅薩里托財產和設施的計劃。同時，我們降低了該工廠的營運成本，並正在評估更廣泛的企業足跡中的其他成本合理化機會，因為我們尋求提高營運槓桿和獲利能力。

As we look to the second half of 2024, we continue to expect our ongoing cost rationalization and other initiatives will position us to deliver a full year gross margin rate for full year 2023, despite the overall softness in spending for consumer discretionary purchase.

展望 2024 年下半年，我們繼續預計，儘管非必需消費品採購支出總體疲軟，但我們正在進行的成本合理化和其他舉措將使我們能夠在 2023 年全年實現全年毛利率。

Importantly, we have seen continued consumer demand for our leading brands, particularly Stiga table tennis, along with Bear archery and Brunswick billiards. We believe this reflects the strength of those brands and consumers searching for high-quality, combined with good value.

重要的是，我們看到消費者對我們領先品牌的持續需求，特別是 Stiga 乒乓球、Bear archery 和 Brunswick 撞球。我們相信，這反映了那些追求高品質和高價值的品牌和消費者的實力。

Additionally, our owned DTC e-commerce volumes continued to increase, up 28% year over year during the quarter. We believe consumer loyalty to our market-leading differentiated recreational brands continues to position us to deliver above market performance as we move through the next phase of the retail cycle.

此外，我們自有的 DTC 電子商務量持續成長，本季年增 28%。我們相信，隨著我們進入零售週期的下一階段，消費者對我們市場領先的差異化休閒品牌的忠誠度將繼續使我們能夠提供高於市場的業績。

As before, we continue to invest in connecting more deeply with consumers through our own e-commerce initiatives, marketing marketing programs, corporate partnerships, while continuing to deliver category-leading innovative products to build loyalty across our diverse base of established and emerging recreational sports brands.

和以前一樣，我們繼續投資透過我們自己的電子商務計劃、行銷計劃、企業合作夥伴關係與消費者建立更深入的聯繫，同時繼續提供類別領先的創新產品，以在我們現有和新興休閒運動的多元化基礎上建立忠誠度品牌。

Looking ahead, we continue to closely monitor consumer discretionary spending, the relative health of household balance sheets and employment conditions. While US consumer discretionary spending is softening, we believe that our brands position us among a higher income, more durable cohort of consumers capable of maintaining a base level of discretionary spending.

展望未來，我們將繼續密切關註消費者可自由支配支出、家庭資產負債表的相對健康狀況以及就業狀況。儘管美國消費者可自由支配支出正在疲軟，但我們相信，我們的品牌使我們躋身於收入更高、更持久、有能力維持可自由支配支出基本水平的消費者群體之列。

Given current market conditions, we continue to focus on inventory rationalization, which supports improved cash conversion. Our cash flow seasonality has normalized this year, which was a factor behind our second quarter cash generation. We expect cash generation to be seasonally softer in the third quarter, followed by stronger cash flow in the fourth quarter amid the seasonal holiday demand.

鑑於當前的市場狀況，我們繼續關注庫存合理化，這有助於改善現金轉換。今年我們的現金流季節性已經正常化，這是我們第二季現金產生的因素。我們預計第三季現金產生將出現季節性疲軟，而第四季由於季節性假期需求，現金流將更加強勁。

As we continue to generate strong cash flow, we are prioritizing the continued repayment of our high-interest variable rate debt as we reduce our leverage, we will evaluate additional opportunities to maximize shareholder value. Consistent with our long-term capital allocation strategy.

隨著我們繼續產生強勁的現金流，我們將優先考慮繼續償還高利息浮動利率債務，同時降低槓桿率，我們將評估實現股東價值最大化的額外機會。符合我們的長期資本配置策略。

we believe Escalade is well positioned to manage through this current environment of soft consumer discretionary spending while continuing to invest in our business to drive future growth. Our vision to build and strengthen our brand portfolio centered on helping consumers great, great memories while engaging in healthy activities with their family and friends.

我們相信 Escalade 處於有利地位，能夠應對當前消費者可自由支配支出疲軟的環境，同時繼續投資於我們的業務以推動未來成長。我們建立和加強品牌組合的願景是幫助消費者留下美好回憶，同時與家人和朋友一起參與健康活動。

I believe we have the strongest team in the 100 year history of our company, and we are working together to overcome industry and economic challenges today and to create opportunities for the next 100 years. We look forward to updating you with all our progress next quarter.

我相信我們擁有公司 100 年歷史中最強大的團隊，我們正在共同努力克服當今的行業和經濟挑戰，並為下一個 100 年創造機會。我們期待在下個季度向您通報我們的所有進展。

With that I will turn, the call over to Steven for his prepared remarks.

接下來我將把電話轉給史蒂文，讓他準備好講話。

Thank you, Walt. For the three months ended June 30, 2024, Escalade reported net income of $2.8 million, or $0.2 per diluted share on net sales of $62.5 million. For the second quarter, the Company reported gross margins of 24.2% compared to 24.6% in the prior year period.

謝謝你，沃特。截至 2024 年 6 月 30 日的三個月，Escalade 報告淨利潤為 280 萬美元，即每股攤薄收益 0.2 美元，淨銷售額為 6250 萬美元。第二季度，該公司毛利率為 24.2%，去年同期為 24.6%。

A 40 basis point decrease was primarily the result of lower net sales, higher promotional activity, partly offset by lower inventory handling costs and a reduction in fixed costs associated with our facility in Mexico.

下降 40 個基點主要是由於淨銷售額下降、促銷活動增加，但庫存處理成本下降以及與墨西哥工廠相關的固定成本減少部分抵消了這一影響。

Selling, general and administrative expenses during the second quarter increased by 30% compared to the prior year period to $10.1 million as a percentage of net sales, SG&A increased by 168 basis points year over year to 16.1% in the second quarter of 2024 compared to 14.4% in the second quarter of 2023.

第二季的銷售、一般和管理費用較上年同期成長 30%，達到 1,010 萬美元，佔淨銷售額的百分比；SG&A 年比成長 168 個基點，2024 年第二季達到 16.1%。季度成長14.4%。

Second quarter SG&A increase was driven by additional selling and marketing spending in a more promotional retail environment earnings before interest, taxes, depreciation and amortization decreased by $1.8 million to $5.8 million in the second quarter of 2024 versus $7.7 million in the prior year period.

第二季銷售及管理費用(SG&A) 成長是由於零售環境促銷力度加大，銷售及行銷支出增加所致。而上年同期為770 萬美元。

Total cash provided by operations for the second quarter of 2024 was $13.3 million for the quarter compared to $8.4 million in the prior year period. The increase in cash flow from operations primarily reflects an increase in cash flow generated from lower net working capital, specifically lower inventory in accounts receivable in the second quarter of 2024 due to our inventory reduction efforts and normalizing sales levels.

2024 年第二季營運提供的現金總額為 1,330 萬美元，去年同期為 840 萬美元。營運現金流量的增加主要反映了淨營運資本減少產生的現金流量增加，特別是由於我們減少庫存和銷售水準正常化而導致 2024 年第二季應收帳款庫存減少。

As of June 30, 2024, the Company had total cash and equivalents of $362,000, together with $71 million of availability on our senior secured revolving credit facility maturing in 2027. At the end of the second quarter of 2024, for net debt outstanding or total debt less cash was 1.7 times trailing 12 month EBITDA. As of June 30 , 2024, we had $43.2 million of total debt outstanding, including $14 million of high interest variable-rate debt. We will continue to focus on repaying the remainder of this variable rate debt during 2024, while managing our total net leverage within our long-term target range of 1.5 times to 2.5 times EBITDA.

截至 2024 年 6 月 30 日，本公司擁有現金及等價物總額 362,000 美元，以及將於 2027 年到期的優先擔保循環信貸額度 7,100 萬美元。截至 2024 年第二季末，未償淨債務或總債務減去現金為過去 12 個月 EBITDA 的 1.7 倍。截至 2024 年 6 月 30 日，我們的未償債務總額為 4,320 萬美元，其中包括 1,400 萬美元的高利率浮動利率債務。我們將繼續專注於在 2024 年償還剩餘的可變利率債務，同時將總淨槓桿率控制在 EBITDA 1.5 倍至 2.5 倍的長期目標範圍內。

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

接線員，我們將開始提問。

We will now begin the question and answer session. (Operator Instructions)

我們現在開始問答環節。（操作員說明）

David Cohen with Minerva.

大衛·科恩與密涅瓦。

Morning, guys. Thanks for sort of carefully stewarding the ship through some choppy waters. And thanks in particular for pointing out that your leverage ratios are now towards the lower end of what you've laid out as a target. And then you made some small lesions in the press release too ways you might deploy capital going forward. But could you give us a little more granular look? Because obviously, if things go as planned by the end of the year, you'll be probably putting up right on that 1.5 times our leverage ratio. So if you could sort of sort through buyback acquisition, internal CapEx, dividend policy, that would be great. Thanks. .

早安，夥計們。感謝您小心翼翼地駕駛這艘船穿越波濤洶湧的水域。特別感謝您指出您的槓桿率現在正接近您設定的目標的下限。然後你在新聞稿中做出了一些小改動，以及你未來可能部署資本的方式。但您能給我們更詳細的了解嗎？因為顯然，如果到年底事情按計劃進行，您可能會承擔我們 1.5 倍的槓桿率。因此，如果你能透過回購收購、內部資本支出、股利政策進行排序，那就太好了。謝謝。。

Yeah. Good morning, David, Thanks for your questions. And yes, so as you point out, we do believe we'll be actually below the 1.5 by the end of the year. If we don't do something different. We do, as Steven mentioned, we expect to be out of the higher cost variable rate piece of our debt structure.

是的。早安，大衛，謝謝你的提問。是的，正如您所指出的，我們確實相信到今年年底我們的實際成長率將低於 1.5。如果我們不做一些不同的事情。正如史蒂文所提到的，我們確實希望擺脫債務結構中成本較高的變動利率部分。

So traditionally, we've used all the levers, acquisitions, share repurchase, dividends, internal investments. We continue for now to focus on the debt repayments. We're paying about 7% on the variable piece and a little bit less than 3% on the on the fixed base. So we're motivated to they have a higher cost part of our debt structure. But I would say our priorities would be first internal investment in our business.

傳統上，我們使用了所有槓桿、收購、股票回購、股利、內部投資。我們目前繼續關注債務償還問題。我們為可變件支付約 7% 的費用，為固定件支付略低於 3% 的費用。因此，我們的動機是他們在我們的債務結構中具有較高的成本部分。但我想說，我們的首要任務是先對我們的業務進行內部投資。

Secondly, would be probably the maintaining the dividend, of course, share repurchase, which we've used in the past. And we think it can be an effective tool. And then lastly would be acquisitions. We have made a number of acquisitions over the years, and it's been a very effective strategy for us.

其次，可能是維持股息，當然，還有我們過去使用過的股票回購。我們認為它可以成為一個有效的工具。最後是收購。多年來我們進行了多次收購，這對我們來說是一個非常有效的策略。

I guess, David, I would say we feel really good about the portfolio we have today. We don't feel like we have to do anything to round out our portfolio. But of course, we see a lot of deals. And I would say the deal activity has picked up some, so we would be we would be very selective and cautious on the acquisition front.

我想，大衛，我想說我們對今天的投資組合感覺非常好。我們覺得我們不需要做任何事情來完善我們的投資組合。但當然，我們看到了很多交易。我想說，交易活動已經增加，所以我們在收購方面會非常有選擇性和謹慎。

Okay. And if I could ask a follow up. Could you talk a little about the pickle ball opportunity as you see it going forward, then area where you think you need to bolt on other brands, other equipment types, or do you think you can sort of address that organically?

好的。如果我可以問後續情況。您能否談談您對未來泡菜球機會的看法，然後您認為需要使用其他品牌、其他設備類型的領域，或者您認為您可以有機地解決這個問題嗎？

Sure. And think of all, It's really an interesting area. We've been in that business for about 10 years. And we feel like we've got a strong brand and paddles with ONIX, one of the leading brands in it, legitimate effective brand in the space. It has been a bit of a gold rush. I mean that everybody has been trying to get into the pickle ball business. There's not much barrier to entry and panels at the low end.

當然。想想看，這確實是一個有趣的領域。我們從事這項業務已有大約 10 年了。我們覺得我們擁有一個強大的品牌，並以 ONIX 為槳，ONIX 是該領域的領先品牌之一，是該領域合法有效的品牌。這有點像淘金熱。我的意思是每個人都在嘗試進入泡菜球行業。低端市場的進入和麵板沒有太大障礙。

You can buy cheap money go material, been cut out of a battle and wrap a handle around it and sell it. At the upper mid and higher end where we play, is there's been a remarkable amount of technology involved. And so we spent a lot of time and energy, you know, on technology advances on the paddle front. So we love our ONIX brand and think it's well positioned.

你可以用便宜的錢購買材料，從戰鬥中剔除，然後將其包裝起來然後出售。在我們所從事的中高端和高端領域，涉及了大量的技術。因此，我們花費了大量的時間和精力來推動槳葉前沿的技術進步。因此，我們喜歡我們的 ONIX 品牌，並認為它的定位很好。

On the ball side. We have the ONIX ball and then the DURA Fast ball, which is that preferred tournament ball for the pros. Here again, there's more technology in making pickleball than you might imagine. It may be it looks just like a plastic ball but -- is it, what type of plastic are using, where those tolerances, is it injection molded? Is it roto molded ? How are you processing the ball.

在球側。我們有 ONIX 球，然後是 DURA Fast 球，這是職業選手首選的比賽用球。同樣，製作泡菜球的技術比你想像的還要多。它可能看起來就像一個塑料球，但是——它使用什麼類型的塑料，這些公差在哪裡，是注塑成型的嗎？是滾塑成型的嗎？你如何處理球。

So we feel like here again, we've got good technology there. And then to your point, you know, add-on product categories, we've expanded into eye protection, which is increasingly important area. We're getting good, good months uptake there. Nets, we make a variety of nets for people use at their home or in the [termites] this type of environment. So I would say we're probably not going to get into apparel. That's not an area that we're going to have a particular expertise in, but there are others that are certainly addressing that side of it. Does that answer your question fully?

所以我們再次感覺這裡有很好的技術。然後就你的觀點而言，你知道，附加產品類別，我們已經擴展到眼睛保護，這是一個越來越重要的領域。我們幾個月來的吸收情況都很好。蚊帳，我們製作各種蚊帳供人們在家中或[白蟻]此類環境中使用。所以我想說我們可能不會涉足服裝領域。這不是我們擁有特定專業知識的領域，但肯定還有其他領域正在解決這方面的問題。這完全回答了你的問題嗎？

Yeah. Thanks very much.

是的。非常感謝。

You're welcome.

不客氣。

Rommel Dionisio with Aegis.

隆美爾·迪奧尼西奧與宙斯盾。

Thanks for taking my question and good morning. You alluded to a seemingly a rise in component promotions. Yes, I wonder if you could just just a little more granularity on that. Obviously, there's some retail inventory destocking, so maybe that'll help a little. But obviously, you guys continues to invest in your brands. So, are there particular categories where you're seeing that from a competitive promotions worse than others?

感謝您提出我的問題，早安。您提到組件促銷似乎有所增加。是的，我想知道您是否可以對此進行更詳細的說明。顯然，零售庫存有所減少，所以也許會有所幫助。但顯然，你們繼續投資自己的品牌。那麼，您是否發現某些特定類別的競爭性促銷活動比其他類別更糟糕？

And maybe some thoughts going into the holiday season, how are you positioned from a brand perspective? You obviously kept up new product introductions and new marketing efforts. But would you expect to continue to to promote to keep the level of competition. Thank you.

也許在假期期間會有一些想法，從品牌的角度來看，你是如何定位的？顯然，您一直在不斷推出新產品和開展新的行銷工作。但您是否希望繼續推廣以保持競爭水平？謝謝。

Sure. Thank you, Rommel, and good morning. Yes, so as we pointed out, we are investing more in advertising and promotion and that kind of fits with both our emphasis on managing our inventory levels and then also, you know that the current environment. It's just a little -- I would say it's a more competitive, more promotional environment, and we would expect that to continue.

當然。謝謝你，隆美爾，早安。是的，正如我們所指出的，我們在廣告和促銷方面投入了更多資金，這既符合我們對管理庫存水準的重視，也符合當前的環境。這只是一點點——我想說這是一個更具競爭力、更具促銷性的環境，我們希望這種情況能持續下去。

Looking into the holiday season, I would say that our expectations are that inventories are -- will be in good shape. You know, during the holiday season, our POS better than our factory sales are. Many of our retailers are cautious and managing their inventories closely. So you know, if the consumer surprises us and comes back strongly during the holidays season, I think there will be a big opportunity for from much higher factory sales as we refill the channel.. So that's and we're entering the holiday period cautiously optimistic. We again, we feel like inventories are in decent shape on how the consumer behaves is really pretty much anybody's guess.

展望假期，我想說，我們的預期是庫存狀況良好。要知道，在節慶期間，我們的POS比我們工廠的銷售還要好。我們的許多零售商都很謹慎，並密切管理庫存。所以你知道，如果消費者在假期期間給我們帶來驚喜並強勁回歸，我認為當我們補充管道時，工廠銷售將會有很大的機會。這就是我們對進入假期期間持謹慎樂觀態度的原因。我們再次認為，庫存狀況良好，消費者的行為方式幾乎是任何人的猜測。

And maybe just a quick follow-up. You mentioned that international sales were a real highlight for your 15% in the quarter. I wonder if you could just maybe provide a little more detail on that with that particular region that was strong or new product or product line that was particularly strong for you there in international? Thanks.

也許只是快速跟進。您提到國際銷售是本季 15% 的真正亮點。我想知道您是否可以提供更多關於該特定地區的詳細信息，或者是您在國際上特別強大的新產品或產品線？謝謝。

Yeah and Rommel, and I would say that we're coming off a pretty low base there, but it's an area of focus for us. And I will point out basketball, pickleball, going out Europe, and Australia, New Zealand, those kind of markets have been good for us. We do have a budding our effort in China for selling some of our branded products in China through our partnership there. So again, it's an area of focus. It's coming off a low base and we think it's a opportunity with long runway for Escalade.

是的，還有隆美爾，我想說我們的基礎相當低，但這是我們關注的領域。我要指出的是，籃球、匹克球、走出去歐洲、澳洲、紐西蘭，這些市場對我們來說都是好事。我們在中國確實正在努力透過我們的合作夥伴關係在中國銷售我們的一些品牌產品。這又是一個焦點領域。它的基礎較低，我們認為這對凱雷德來說是一個有很長跑道的機會。

Great, Thanks very much.

太好了，非常感謝。

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

我們的問答環節到此結束。我想將會議轉回帕特里克·格里芬（Patrick Griffin）發表閉幕詞。

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 and a member of our team will follow up with you. This concludes our call today. You may now disconnect.

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，請隨時透過 ir@escaladeinc.com 與我們聯繫，我們團隊的成員將與您聯繫。我們今天的電話會議到此結束。您現在可以斷開連線。