Escalade Inc (ESCA) 2024 Q3 法說會逐字稿

Good day, and welcome to the Escalate third-quarter 2024 results conference call. (Operator Instructions) Please note this event is being recorded.

美好的一天，歡迎參加 Escalate 2024 年第三季業績電話會議。（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 Mr. Patrick Griffin, Vice President of Corporate Development. Please go ahead, sir.

現在我想將會議交給企業發展副總裁派崔克‧格里芬先生。請繼續，先生。

Thank you, operator. On behalf of the entire team at Escalate, I'd like to welcome you to our third-quarter 2024 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，接線生。我謹代表 Escalate 的整個團隊歡迎您參加我們的 2024 年第三季業績電話會議。今天與我一起主持電話會議的是總裁兼執行長沃爾特·格雷澤 (Walt Glazer)；以及我們的財務長 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。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，我想把電話轉給沃特。

Thank you, Patrick, and welcome to those joining us on the call. During the third quarter, we made substantial progress optimizing our asset base and cost structure as we navigate a transitional period in consumer demand. While net sales declined 7.7% versus the prior year, we achieved modest gross margin expansion even while absorbing $1.8 million of nonrecurring business rationalization expense in our cost of goods sold.

謝謝你，派崔克，並歡迎那些加入我們電話會議的人。第三季度，隨著消費者需求的過渡期，我們在優化資產基礎和成本結構方面取得了實質進展。儘管淨銷售額比前一年下降了 7.7%，但我們在銷售成本中吸收了 180 萬美元的非經常性業務合理化費用的同時，仍實現了毛利率的小幅增長。

Excluding these nonrecurring expenses, our gross margin would have been 27.4%, representing a 265-basis-point improvement over the prior year. Our portfolio optimization efforts during the quarter included the sale of our Rosarito, Mexico facility, the cost rationalization at our Eagan, Minnesota facility, the wind down of operations in Orlando, Florida, and the consolidation of our high-end billiard accessory products into our Bristol, Wisconsin facility.

剔除這些非經常性費用，我們的毛利率將為 27.4%，比前一年提高 265 個基點。本季我們的產品組合優化工作包括出售墨西哥羅薩里托工廠、明尼蘇達州伊根工廠的成本合理化、佛羅裡達州奧蘭多的業務縮減以及將我們的高端台球配件產品整合到我們的公司中。托爾工廠。

The optimization of our operational footprint will largely be complete by year-end. With the completion of this program, we will reduce our operational footprint by approximately 300,000 square feet or 20%. The team has done an outstanding job this year, rescaling our operations while still providing ample capacity to support a recovery in consumer demand.

我們營運足跡的優化將在年底前基本完成。隨著該計劃的完成，我們的營運佔地面積將減少約 300,000 平方英尺或 20%。團隊今年做得非常出色，重新調整了我們的營運規模，同時仍提供充足的產能來支援消費者需求的復甦。

In addition, we remain focused on maximizing our cash flow and generated $10.5 million of cash from operations during the quarter. Along with proceeds from the sale of our Rosarito facility, we distributed over $2 million in dividends, made capital expenditures to support our operations, and repaid nearly $14 million of debt taking our net leverage ratio to 1.1 times. Go

此外，我們仍然專注於最大化現金流，並在本季度從營運中產生了 1,050 萬美元的現金。除了出售羅薩里托設施的收益外，我們還分配了超過200 萬美元的股息，用於支持我們的營運的資本支出，並償還了近1400 萬美元的債務，使我們的淨槓桿率達到1.1倍。去

ing forward, we expect these efforts to drive higher gross margins through the end of the year and 2025 despite near-term softness in consumer demand. As we move into the holiday season, we anticipate a higher level of promotional activity as we believe consumers will be price conscious given the economic environment. At the same time, we anticipate promotional activity will serve to accelerate the inventory destocking efforts already underway at many retailers. Despite soft consumer spending for consumer discretionary goods, we continue to see favorable demand in our archery, safety, and basketball categories driven by new product introductions.

展望未來，儘管消費者需求近期疲軟，但我們預計這些努力將在年底和 2025 年之前推動更高的毛利率。隨著假期季節的到來，我們預計促銷活動的水平將會更高，因為我們相信考慮到經濟環境，消費者將對價格更加敏感。同時，我們預計促銷活動將有助於加速許多零售商已經在進行的庫存去庫存工作。儘管消費者對非必需消費品的支出疲軟，但在新產品推出的推動下，我們仍然看到射箭、安全和籃球類別的需求良好。

Additionally, our own direct-to-consumer e-commerce volumes continue to increase, up 29% 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，我們自己的直接面向消費者的電子商務量持續成長，本季年增 29%。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 owned e-commerce initiative, marketing programs, and corporate partnerships while continuing to deliver category-leading innovative brands to build loyalty across a diverse base of established and emerging recreational sports.

與以前一樣，我們繼續投資透過我們自己的電子商務計劃、行銷計劃和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品牌，以在現有和新興休閒運動的多元化基礎上建立忠誠度。

Looking ahead, we are encouraged by the Federal Reserve's recent monetary easing as well as a resilient job market. We continue to closely monitor household balance sheets and consumer sentiment. As interest rates likely move lower, we expect this will aid a recovery in consumer demand for discretionary recreational goods.

展望未來，聯準會最近的貨幣寬鬆政策以及強勁的就業市場令我們感到鼓舞。我們持續密切監控家庭資產負債表和消費者信心。隨著利率可能下降，我們預計這將有助於消費者對非必需娛樂用品的需求復甦。

However, we recognize the cycle will take some time, and we do not expect to see materially stronger demand in the near term as we settle into consumer spending patterns more similar to the pre-pandemic economy. In the meantime, we are committed to improving our financial position through optimizing our cost structure and maximizing our operating leverage. These efforts, along with ongoing inventory rationalization, will not only position us to navigate the ongoing trough in consumer demand, but also position us for profitable growth and outperformance through the next cycle. As we continue to generate strong cash flow, we are prioritizing the continued repayment of our higher cost variable rate debt, which we expect to pay off by the end of the year.

然而，我們意識到這個週期需要一段時間，而且隨著我們的消費支出模式與疫情前的經濟更加相似，我們預計短期內需求不會出現實質強勁。同時，我們致力於透過優化成本結構和最大化營運槓桿來改善我們的財務狀況。這些努力，加上持續的庫存合理化，不僅將使我們能夠應對消費者需求的持續低谷，而且使我們能夠在下一個週期中實現盈利增長和卓越表現。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成本較高的可變利率債務，我們預計將在年底前還清這些債務。

In addition, we are continuing to invest in innovation, ensuring continued outperformance. A notable example is the Bear Archery team, which did an amazing job designing, manufacturing, and marketing a whole new line-up of compound bows. They've delivered substantial upgrades to five of our top six selling bows and have brought integrated riser capability to price points never seen before in the industry.

此外，我們將持續投資於創新，確保持續卓越的績效。一個著名的例子是 Bear Archery 團隊，他們在設計、製造和行銷全新複合弓系列方面做得非常出色。他們對我們最暢銷的六把弓中的五把進行了大幅升級，並將集成立管功能提升到了業內前所未有的價位。

A highlight is the newest version of the ADAPT bow in partnership with the hunting public, an influencer group with online video series and podcast for avid hunters, which has exceeded even our admittedly high expectations. We also launched the new Onix Supercell pickleball paddle, which introduces cloud control technology to the market.

一個亮點是與狩獵公眾合作的最新版本 ADAPT 弓，狩獵公眾是一個為狂熱獵人提供在線視頻系列和播客的影響力團體，這甚至超出了我們公認的高期望。我們也推出了新型 Onix Supercell pickleball 球拍，將雲端控制技術引進市場。

The 22-millimeter proprietary construction of the paddle creates an expansive sweet spot provides outstanding control, touch, and power. As recently announced, we entered into an exciting new agreement to be the official US distributor of Adidas fitness accessories. The Adidas brand is globally recognized and synonymous with high performance. This new partnership will expand our fitness offering, which today includes the STEP, Lifeline, and US weight brands. Our Adidas fitness accessory offering will be available online and in retail in early 2025.

槳葉的 22 毫米專有結構創造了廣闊的最佳擊球點，提供出色的控制、觸感和力量。正如最近宣布的那樣，我們簽署了一項令人興奮的新協議，成為阿迪達斯健身配件的美國官方經銷商。阿迪達斯品牌享譽全球，是高效能的代名詞。這項新的合作關係將擴大我們的健身產品範圍，目前包括 STEP、Lifeline 和 US Weight 品牌。我們的阿迪達斯健身配件產品將於 2025 年初在網路和零售店發售。

Finally, during the third quarter, we began consolidation of our Cue & Case accessories business in Bristol, Wisconsin headquarters for our Brunswick Billiards Group. This allows us to combine dealer shipments of Brunswick, American Heritage Billiards, and game room tables, along with a wide range of high-quality Cue & Case billiards accessories. Dealers will benefit from the efficiency of the combined shipments, further building upon our competitive advantages in this category.

最後，在第三季度，我們開始整合位於威斯康辛州布里斯託的 Brunswick 撞球集團總部的球桿和箱子配件業務。這使我們能夠將經銷商運送的 Brunswick、American Heritage 撞球和遊戲桌以及各種高品質 Cue & Case 撞球配件結合在一起。經銷商將受益於合併運輸的效率，進一步增強我們在這一類別中的競爭優勢。

The Bristol team did a fantastic job planning and preparing while working hand in hand with our highly capable Evansville associates to execute this transition, which is now complete. Our vision is to build and strengthen our brand portfolio centered on helping consumers create great memories while engaging in healthy activities with their family and friends. We look forward to updating you with our progress next quarter.

布里斯托團隊做了出色的工作規劃和準備，同時與我們能力出色的埃文斯維爾員工攜手合作，以執行這項過渡，現已完成。我們的願景是建立和加強我們的品牌組合，致力於幫助消費者在與家人和朋友一起參與健康活動的同時創造美好的回憶。我們期待向您通報下季的最新進展。

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

這樣，我將把電話轉給史蒂芬，聽他準備好的講話。

Thank you, Walt. For the three months ended September 30, 2024, Escalade reported net income of $5.7 million or $0.40 per diluted share on net sales of $67.7 million. For the third quarter, the company reported gross margins of 24.8% compared to 24.7% in the prior-year period. The 10-basis-point increase was primarily the result of lower inventory handling costs and a reduction in fixed costs associated with our facility in Mexico, partially offset by lower net sales and a $1.8 million and nonrecurring optimization expenses.

謝謝你，沃特。截至 2024 年 9 月 30 日的三個月，Escalade 報告淨利潤為 570 萬美元，即稀釋後每股收益 0.40 美元，淨銷售額為 6770 萬美元。第三季度，該公司毛利率為 24.8%，去年同期為 24.7%。10 個基點的成長主要是由於庫存處理成本降低以及與墨西哥工廠相關的固定成本減少，但部分被淨銷售額下降和 180 萬美元的非經常性優化費用所抵消。

Selling, general and administrative expenses during the third quarter increased by 6% or $0.6 million compared to the prior year period to $11.1 million. The third quarter SG&A increase was mainly driven by higher professional fees. Earnings before interest, taxes, depreciation and amortization increased by $2 million to $9.9 million in the third quarter of 2024 versus $7.9 million in the prior-year period.

第三季的銷售、一般和管理費用與去年同期相比增加了 6%，即 60 萬美元，達到 1,110 萬美元。第三季銷售、管理及行政費用 (SG&A) 成長主要是由專業費用上漲所推動的。2024 年第三季息稅折舊攤提前利潤增加 200 萬美元，達到 990 萬美元，去年同期為 790 萬美元。

I would also note that in conjunction with the divestiture of our Rosarito, Mexico facility, we recognized a $3.9 million gain on the sale of assets, which is reflected in our third-quarter 2024 operating income. Total cash provided by operations for the third quarter of 2024 was $10.5 million for the quarter compared to $14.8 million in the prior-year period.

我還想指出的是，在剝離墨西哥羅薩里托工廠的同時，我們確認了資產出售帶來的 390 萬美元收益，這反映在我們 2024 年第三季的營業收入中。2024 年第三季營運提供的現金總額為 1,050 萬美元，而去年同期為 1,480 萬美元。

The decrease in operating cash flow is driven by timing of inventory management initiatives in the prior year which drove strong free cash flow generation in the third quarter of 2023. As of September 30, 2024, the company had total cash and equivalents of $426,000. At the end of the third quarter of 2024, net debt outstanding or total debt less cash was 1.1 times trailing 12-month EBITDA.

營運現金流的減少是由於上一年庫存管理措施的時機推動的，這推動了 2023 年第三季自由現金流的強勁生成。截至 2024 年 9 月 30 日，該公司的現金及等價物總額為 426,000 美元。截至 2024 年第三季末，未償債務淨額或總債務減去現金為過去 12 個月 EBITDA 的 1.1 倍。

As of September 30, 2024, we had $29.5 million of total debt outstanding including $2.1 million of high-interest variable rate debt. We will continue to focus on repaying the remainder of this variable rate debt this year while driving our total net leverage below our long-term target range of 1.5 times to 2.5 times EBITDA.

截至 2024 年 9 月 30 日，我們的未償債務總額為 2,950 萬美元，其中包括 210 萬美元的高利率浮動利率債務。我們今年將繼續專注於償還剩餘的可變利率債務，同時將我們的總淨槓桿率降至 EBITDA 1.5 倍至 2.5 倍的長期目標範圍以下。

On October 11, we proactively entered into an amendment to our senior secured revolving credit facility, which reduced our borrowing capacity by $15 million or 20%. As a result of this amendment, we had total availability of $58.3 million. Recognizing the significant improvement in our working capital position this past year, we believe this new amendment provides ample availability for our current sales level and for future growth. As part of the amendment, we also exchanged our fixed charge coverage ratio covenant with an interest coverage ratio, giving us additional operating flexibility.

10 月 11 日，我們主動對我們的優先擔保循環信貸安排進行了修訂，這將我們的借款能力減少了 1500 萬美元或 20%。此項修訂後，我們的可用資金總額為 5,830 萬美元。認識到我們去年營運資金狀況的顯著改善，我們相信這項新修正案為我們目前的銷售水準和未來的成長提供了充足的可用性。作為修訂的一部分，我們還將固定費用覆蓋率契約替換為利息覆蓋率，從而為我們提供了額外的營運靈活性。

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

接線員，我們將開始提問。

(Operator Instructions) Rommel Dionisio, Aegis.

（操作員指示）隆美爾·迪奧尼西奧，宙斯盾。

A couple of questions on the -- some of the newer restructuring initiatives. Maybe you could just touch base some of the Minnesota rationalization. I believe that's water sports or is that in the distribution facility? Is that going to go elsewhere? Or are you just kind of maybe trimming the product assortment and you're able to generate some customers that way.

關於一些較新的重組舉措的幾個問題。也許你可以觸及明尼蘇達州的一些合理化基礎。我相信那是水上運動還是在配送設施中？那會去別的地方嗎？或者您只是調整產品種類，就可以透過這種方式吸引一些客戶。

Can you just provide a little more detail on that, please?

能提供更多細節嗎？

Sure. Rommel, and thank you for your question. Yes, so Minnesota in Eagan, we have our water sports business, and we've had excess inventory there. So we've reduced our square footage, our space. We've also recognized that the category is temporarily smaller than it was traditionally. And so we had to make some tough decisions around staffing and personnel. So those decisions have been made and the costs have been -- cost structure has been corrected, and we are prepared to grow that business when and if the consumer is ready to buy water sports again.

當然。隆美爾，謝謝你的提問。是的，明尼蘇達州的伊根，我們有水上運動業務，而且我們在那裡有過剩的庫存。所以我們減少了我們的面積和空間。我們也認識到，該類別暫時比傳統的規模要小。因此，我們必須在人員配置和人事方面做出一些艱難的決定。因此，這些決定已經做出，成本也已經調整——成本結構已經得到糾正，當消費者準備好再次購買水上運動時，我們準備擴大業務。

Okay. And maybe switching gears to the Orlando action. I think you mentioned you want to wind that -- you're targeting to wind that down by the year-end. So that's -- if I remember correctly, that's manufacturing and distribution for Cornhole will that be shifted elsewhere? Or are you thinking maybe downshifting on the business of overall or could you sort of walk us through your thoughts on that one?

好的。也許還可以轉向奧蘭多行動。我想你提到過你想結束它——你的目標是在年底前結束它。那麼，如果我沒記錯的話，Cornhole 的製造和分銷會轉移到其他地方嗎？或者您正在考慮降低整體業務的檔次，或者您能否向我們介紹您對此的想法？

Sure, Rommel. Yes, you're correct. That was the licensed cornhole hold business. And we've done a couple of things. One is we're shifting to more of a pre-printed import model as opposed to print on demand in Orlando.

當然，隆美爾。是的，你是對的。這就是獲得許可的沙包業務。我們已經做了幾件事。一是我們正在轉向更多的預印進口模式，而不是奧蘭多的按需印刷。

So we've made that change. And then additionally, we're going to consolidate that inventory into other facilities, primarily in Evansville and some in Gainesville, Florida as well. So just once again, adjusting the cost structure for the reality of the business today.

所以我們做出了這樣的改變。此外，我們還將把這些庫存整合到其他設施中，主要是在埃文斯維爾，還有佛羅裡達州蓋恩斯維爾的一些設施。因此，再次根據當今業務的實際情況調整成本結構。

Okay. No, that's fair enough. That's great detail. So there's no intention of kind of exiting that business or even kind of shrinking business. It's just more cost savings than relocation in other facilities and some offshoring as well. Do I understand it correctly, Walter?

好的。不，這很公平。這是非常詳細的。因此，我們無意退出該業務，甚至沒有收縮業務的意圖。這比搬遷其他設施和一些離岸外包更能節省成本。我理解正確嗎，沃特？

Yes, we just want to make sure that our cost structure is appropriate and that we're delivering great value to our consumers. So that was very difficult to do with all the handling and labor in Orlando.

是的，我們只是想確保我們的成本結構合適，並且我們為消費者提供巨大的價值。因此，對於奧蘭多的所有搬運和勞動力來說，這是非常困難的。

Great. Okay. And maybe just one last housekeeping question, if I could, maybe more for Steve. Steve, the amortization expense was mainly about $400,000, a little higher than what had been previous quarter. Is there something nonrecurring there? Or how should we think about that as kind of an ongoing level for quarterly amortization?

偉大的。好的。如果可以的話，也許只是最後一個家事問題，也許更多是關於史蒂夫的。史蒂夫，攤銷費用主要約40萬美元，比上一季略高。是不是有什麼不重複發生的事？或者我們應該如何將其視為季度攤銷的持續水準？

No, you're correct, Rommel. That was actually part of the restructuring charges surrounding Orlando and writing off some of our intangible assets in the facility.

不，你是對的，隆美爾。這實際上是奧蘭多重組費用的一部分，並註銷了我們在該設施中的一些無形資產。

Okay. So maybe a 600 -- so the prior historical level seems like that should be more of an ongoing level. Is that kind of what I'm hearing?

好的。所以也許是 600——所以之前的歷史水平似乎應該是一個持續的水平。我聽到的就是這種情況嗎？

That's correct.

這是正確的。

David Cohen, Minerva.

大衛‧科恩，密涅瓦。

As always, really good job of managing the balance sheet and paying down debt. As you alluded to, you're now sort of below your target debt range. And I'm wondering whether that occasions, any reconsideration of capital allocation priorities, or whether you're not going to make any decisions until there's a new CEO in place. Could you just give us whatever flavor you can of those conversations?

一如既往，在管理資產負債表和償還債務方面做得非常好。正如您所提到的，您現在的債務範圍有點低於目標。我想知道是否會在這種情況下重新考慮資本分配優先事項，或者在新執行長就任之前您是否不會做出任何決定。您能為我們介紹一下這些談話的風格嗎？

Sure. David, thank you for your question. Yes, as you point out, we are below the range we've described of 1.5 times to 2.5 times. We're at 1.1 times and is likely going to be lower than that by year-end. So we are going to continue to pay down the higher cost variable rate debt which has cost us about 7.5%, 8%. So that's a good use of capital, we think. As far as the other capital allocation opportunities, we pay a strong cash dividend. We have historically been a share repurchaser when the opportunity arose and we've been an opportunistic acquirer as well.

當然。大衛，謝謝你的提問。是的，正如您所指出的，我們低於我們所描述的 1.5 倍到 2.5 倍的範圍。我們現在是 1.1 倍，到年底可能會低於這個水準。因此，我們將繼續償還成本較高的浮動利率債務，這使我們損失了約 7.5%、8%。我們認為，這是對資本的良好利用。就其他資本配置機會而言，我們支付了豐厚的現金股利。歷史上，當機會出現時，我們一直是股票回購者，我們也是機會主義收購者。

I would say on the acquisition side, we don't feel like we have to do anything now. We don't have any holes that we need to fill but we are active in the flow of information, we're aware of businesses that are for sale or coming for sale. So we will continue to use all the levers of capital allocation, just depending on the opportunities that we're able to uncover. So that's where we stand today.

我想說，在收購方面，我們覺得現在不需要做任何事。我們沒有任何需要填補的漏洞，但我們積極參與資訊流動，我們了解正在出售或即將出售的企業。因此，我們將繼續使用所有資本配置槓桿，具體取決於我們能夠發現的機會。這就是我們今天的立場。

(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Patrick Griffin for any closing remarks. Please go ahead, sir.

（操作員說明）我們的問答環節到此結束。我想將會議轉回給帕特里克·格里芬先生髮表閉幕詞。請繼續，先生。

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。