Escalade, Incorporated

Good day and welcome to the Escalade first quarter 2024 results conference call. All participants are in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, Please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Patrick Griffin, Vice President, Corporate Development and Investor Relations. Please go ahead.

Thank you, Operator. On behalf of the entire team at Escalade, I'd like to welcome you to our first quarter 2024 results conference call. Leading the call with me today are President and CEO Walt Glazer and Stephen Warren, our Chief Financial Officer. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may vary 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. With that, I would like to turn the call over to Walt.

Thank you, Patrick, and welcome to those joining us on the call today. Our first quarter results represent an encouraging start to the year, highlighted by strong gross margin and profitability improvement, supported by normalized operating leverage and stabilization in demand for our product assortment. Our first quarter gross margin reached 25%, an improvement of 560 basis points compared to the prior year and the highest level since the second quarter of 2022. First quarter margin profile reflects a normalization in business conditions as we worked through numerous cost headwinds during 2023, including heightened inventory handling costs, shutdown costs in Rosarito, Mexico, and underutilization of our facilities in the U.S. as we slowed production to reduce inventory. We continued to progress with our plans to divest our Rosarito assets and took further steps to reduce fixed costs to that facility during the quarter. We continue to tightly control our expenses there as we work toward divesting the assets. Looking forward, we remain committed to maximizing our return on assets through optimizing our asset base and cost structure, which we believe will position us to enhance our long-term profitability. First quarter net sales increased 0.7% as consumer demand for our products stabilized. Importantly, we saw more normal seasonal sales mix during the quarter as sales of our basketball, table tennis, outdoor games, and archery categories grew year over year. As I mentioned on our last call, our retail partners successfully reduced their inventory levels coming into 2024, so we now believe most channel inventories of our products are relatively light. Our online sales growth remains a key area of opportunity for us, with our direct-to-consumer, or DTC, sales up 28% on a year-over-year basis in the first quarter. Looking ahead, We continue to closely monitor the health of the consumer. While U.S. consumer spending will likely be softer this year in our categories, we believe that our brands position us among a higher income, more durable segment of consumers who can maintain a base level of spending. As overall demand and gross margins are normalizing, so too is the seasonality of our operating cash generation. During the first quarter, we generated a modest amount of cash from operations as our inventories and accounts receivable Both grew late in the quarter ahead of the spring selling season. While inventory levels did increase on a sequential basis, we still expect to reduce our inventories as we move through 2024. When combined with our improved overall operating leverage, we expect to generate ample cash flow this year. As before, we continue to prioritize the repayment of our variable rate debt. At the end of the first quarter, our net debt leverage was 2.0 times EBITDA, which was within our target long-term range of 1.5 to 2.5 times. We believe that our diverse portfolio of products, continued focus on operational excellence and cost discipline, together with a well-capitalized balance sheet, position us to successfully navigate a period of soft consumer demand while continuing to build market-leading positions with our established portfolio of indoor and outdoor recreational brands. In the interim, we will continue to focus on creating exceptional consumer experiences to build brand loyalty, all while creating long-term shareholder value. We look forward to updating you with all our progress next quarter. With that, I'll turn the call over to Stephen for his prepared remarks.