Escalade, Incorporated

Good day and welcome to the Escalade third quarter 2024 results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Patrick Griffin, Vice President of Corporate Development. Please go ahead, sir.

Thank you, Operator. On behalf of the entire team at Escalade, 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 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 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. 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 non-recurring business rationalization expense in our cost of goods sold. Excluding these non-recurring 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 billiards accessory products into our Bristol, Wisconsin facility. 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. 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. Going 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. 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. As before, we continue to invest in connecting more deeply with consumers through our own e-commerce initiatives marketing programs, and corporate partnerships, while continuing to deliver category-leading innovative brands that build loyalty across a diverse base of established and emerging recreational sports. 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. However, we recognize this 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. 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 lineup 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. A highlight is the newest version of the Adapt bow in partnership with the Hunting Public. an influencer group with online video series and podcasts for avid hunters, which has exceeded even our admittedly high expectations. We also launched the new Onyx Supercell Pickleball Paddle, which introduces cloud-controlled technology to the market. The 22-millimeter proprietary construction of the paddle creates an expansive sweet spot that provides outstanding control, touch, and power. As recently announced, we entered into an exciting new agreement to be the official U.S. 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 U.S. Weight brands. Our Adidas fitness accessory offering will be available online and in retail in early 2025. Finally, during the third quarter, We began consolidation of our queue and case accessories business into the Bristol, Wisconsin headquarters for our Brunswick billiards group. This allows us to combine dealer shipments of Brunswick and American Heritage billiards and game room tables, along with a wide range of high-quality queue and case billiards accessories. Dealers will benefit from the efficiency of the combined shipments, further building upon our competitive advantages in this category. 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. With that, I'll turn the call over to Stephen for his prepared remarks.