Escalade, Incorporated

Good morning and welcome to the Escalade second quarter 2024 results conference call. All participants will be in the listen-only mode. Should you need assistance, please signal 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 on your telephone keypad. To withdraw a question, please press star then two. Please note this event is being recorded. I will now like to turn the conference over to Patrick Griffin VP Corporate Development and Investment Relations. Please go ahead.

Thank you, Operator. On behalf of the entire team at Escalade, I'd like to welcome you to our second quarter 2024 results conference call. Leaving the call to 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 differ significantly from those projected in today's forward-looking statements, due to various risks and uncertainties, including the risk 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. 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. 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. 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 non-recurring impacts related to the ongoing rationalization of our existing manufacturing footprint. 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 rate debt in the period. At the end of the second quarter, our net leverage was 1.7 times our trailing 12-month 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. We continue to progress with our plans to divest our Rosarito property and facilities. 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. 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 above full year 2023 despite the overall softness in spending for consumer discretionary purchases. 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. Additionally, our owned DTC e-commerce volumes continue 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. As before, we continue to invest in connecting more deeply with consumers through our own e-commerce initiatives, 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. Looking ahead, we continue to closely monitor consumer discretionary spending, the relative health of household balance sheets, and employment conditions. While U.S. 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. 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. 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. 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 create great memories while engaging in healthy activities with their family and friends. 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. With that, I turn the call over to Stephen for his prepared remarks.