EVANSVILLE, Ind., Oct. 27, 2022 /PRNewswire/ -- Escalade, Inc. (NASDAQ: ESCA, or the "Company"), a leading manufacturer and distributor of sporting goods and indoor/outdoor recreational equipment, today announced third quarter and year to date results for 2022.
THIRD QUARTER 2022
(As compared to the third quarter 2021)
- Net Sales decreased 7.9% to $74.9 million
- Organic sales, excluding acquisition contributions, declined 17.9%
- Gross margin declined 432 basis points, to 18.2%
- Operating income decreased 45.0% to $4.2 million
- Net income of $3.0 million, or $0.22 per diluted share vs. $6.0 million, or $0.43 per share for Q3 2021
- EBITDA decreased 35.3% to $5.8 million
- Announced $0.15 per share cash dividend to shareholders of record on December 5, 2022
NINE MONTHS ENDED OCTOBER 1, 2022
(As compared to the first nine months of 2021)
- Net Sales increased 0.6% to $241.6 million
- Organic sales, excluding acquisition contributions, declined 8.4%
- Gross margin declined 153 basis points, to 23.8%
- Operating income decreased 15.9% to $21.4 million
- Net income of $15.3 million, or $1.12 per diluted share vs. $19.5 million, or $1.40 per diluted share for 2021
- EBITDA decreased 9.7% to $26.7 million
For the three months ended October 1, 2022, Escalade reported net income of $3.0 million, or $0.22 per diluted share, including $0.06 per diluted share of non-recurring expense.
Sales declined due to softening consumer demand and excess inventories in the retail channel. During the third quarter, increases in billiards and pickleball sales, together with contribution from the Brunswick Billiards® acquisition completed January 21, 2022 were more than offset by lower sales in outdoor categories including archery, games, water sports, and playground.
The Company reported gross margin of 18.2%, a decline of 432 basis points compared with the prior-year period, due to lower sales, unfavorable product mix, global supply chain constraints, and nonrecurring product recall expenses.
Selling, general, and administrative expense as percentage of net sales decreased to 11.7% in the third quarter 2022, versus 12.5% in the prior-year period, due to the Company's expense mitigation efforts.
Earnings before interest, taxes, depreciation, and amortization ("EBITDA") declined 35.3% to $5.8 million in the third quarter 2022, versus $9.0 million in the prior-year period. For the nine months year-to-date EBITDA decreased 9.7% to $26.7 million vs $29.5 million in 2021.
As of October 1, 2022, the Company had total cash and equivalents of $4.0 million, together with $10.0 million of availability on its senior secured revolving credit facility maturing in 2027. At the end of the third quarter 2022, net debt (total debt less cash) was 3.0x trailing twelve-month EBITDA.
Escalade announced a quarterly dividend of $0.15 per share to be paid to all shareholders of record on December 5, 2022 and disbursed on December 12, 2022.
Effective January 1, 2023, Escalade will transition to a conventional twelve-month reporting calendar. The fourth quarter 2022 will end on December 31, 2022, then the Company will transition to its new financial reporting calendar for 2023.
MANAGEMENT COMMENTARY
"Broad-based inflationary pressures and a rising interest rate environment adversely impacted consumer discretionary spending behaviors during the third quarter, resulting in a year-over-year decline in sales and profitability during the period," stated Walter P. Glazer, Jr., President and CEO of Escalade. "During a transitional period for the consumer, we believe the strength of our brands, diverse sourcing capabilities, onshore manufacturing presence and disciplined expense management will position us to successfully navigate a challenging near-term macroeconomic backdrop."
"Third quarter sales declined year-over-year due to softness in most outdoor categories, including archery, partially offset by continued strength in pickleball and billiards," continued Glazer. "Elevated freight and logistics expenses more than offset some lower material costs in the third quarter, contributing to a year-over-year decline in gross profit in the period. While ocean freight rates and turnaround have begun to improve, inland freight has become challenging due to domestic labor and equipment shortages."
"In recent months, several large retail customers have slowed their pace of purchasing to reduce their overall inventories, contributing to the elevated inventory levels we are holding," continued Glazer. "During the next six months, we expect that a combination of seasonal demand, together with increased promotional activity, will contribute to a decline in inventories throughout the entire system. We believe this inventory decline will reduce our carrying costs and improve asset utilization to more acceptable levels."
"While we are not satisfied with the 2022 year to date results, we are taking steps to right size our cost structure and asset base to weather the economic headwinds and position our Company for continued growth in the years ahead," continued Glazer.
"Subsequent to the quarter end, we exercised a $15 million accordion provision under our senior revolving credit facility," continued Glazer. "Including this additional availability, we now have nearly $30 million of liquidity to support the ongoing growth of our business. As our inventory levels normalize over the coming months, we anticipate free cash conversion will also improve, further bolstering our liquidity."
"Our capital allocation priorities remain unchanged," continued Glazer. "We remain committed to a reduction in net leverage to a range of 1.5x-2.0x trailing-twelve-month EBITDA, while maintaining a consistent quarterly cash dividend. As before, we will continue to selectively invest internally in higher-growth categories that cater to a durable base of loyal customers who value our portfolio of premium indoor/outdoor brands. Looking forward, we also believe an economic downturn may create additional market share opportunities for the Company."
CONFERENCE CALL
A conference call will be held Thursday, October 27, 2022, at 11:00 a.m. ET to review the Company's financial results, discuss recent events and conduct a question-and-answer session.
A webcast of the conference call and accompanying presentation materials will be available in the Investor Relations section of Escalade's website at www.escaladeinc.com. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download, and install any necessary audio software.
To participate in the live teleconference:
Domestic Live: | 877-407-0792 |
International Live: | 201-689-8263 |
To listen to a replay of the teleconference, which subsequently will be available through November 10, 2022:
Domestic Replay: | 844-512-2921 |
International Replay: | 412-317-6671 |
Conference ID: | 13733441 |
USE OF NON-GAAP FINANCIAL MEASURES
In addition to disclosing financial statements in accordance with U.S. generally accepted accounting principles ("GAAP"), this release contains the non-GAAP financial measure known as "EBITDA." A reconciliation of this non-GAAP financial measure is contained at the end of this press release. EBITDA is a non-GAAP financial measure that Escalade uses to facilitate comparisons of operating performance across periods. Escalade believes the disclosure of EBITDA provides useful information to investors regarding its financial condition and results of operations. Non-GAAP measures should be viewed as a supplement to and not a substitute for the Company's U.S. GAAP measures of performance and the financial results calculated in accordance with U.S. GAAP and reconciliations from these results should be carefully evaluated. Non-GAAP measures have limitations as an analytical tool and should not be considered in isolation or in lieu of an analysis of the Company's results as reported under U.S. GAAP and should be evaluated only on a supplementary basis.
ABOUT ESCALADE, INC
Founded in 1922, and headquartered in Evansville, Indiana, Escalade designs, manufactures, and sells sporting goods, fitness, and indoor/outdoor recreation equipment. Our mission is to connect family and friends creating lasting memories. Leaders in our respective categories, Escalade's brands include Brunswick Billiards®; STIGA® table tennis; Accudart®; RAVE Sports® water recreation; Victory Tailgate® custom games; Onix® pickleball; Goalrilla™ basketball; Lifeline® fitness; Woodplay® playsets; and Bear® Archery. Escalade's products are available online and at leading retailers nationwide. For more information about Escalade's many brands, history, financials, and governance please visit www.escaladeinc.com.
INVESTOR RELATIONS CONTACT
Patrick Griffin
Vice President - Corporate Development & Investor Relations
812-467-1358
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements relating to present or future trends or factors that are subject to risks and uncertainties. These risks include, but are not limited to: specific and overall impacts of the COVID-19 global pandemic on Escalade's financial condition and results of operations; the impact of competitive products and pricing; product demand and market acceptance; new product development; Escalade's ability to achieve its business objectives, especially with respect to its Sporting Goods business on which it has chosen to focus; Escalade's ability to successfully achieve the anticipated results of strategic transactions, including the integration of the operations of acquired assets and businesses and of divestitures or discontinuances of certain operations, assets, brands, and products; the continuation and development of key customer, supplier, licensing and other business relationships; Escalade's ability to develop and implement our own direct to consumer e-commerce distribution channel; Escalade's ability to successfully negotiate the shifting retail environment and changes in consumer buying habits; the financial health of our customers; disruptions or delays in our business operations, including without limitation disruptions or delays in our supply chain, arising from political unrest, war, labor strikes, natural disasters, public health crises such as the coronavirus pandemic, and other events and circumstances beyond our control; Escalade's ability to control costs; Escalade's ability to successfully implement actions to lessen the potential impacts of tariffs and other trade restrictions applicable to our products and raw materials, including impacts on the costs of producing our goods, importing products and materials into our markets for sale, and on the pricing of our products; general economic conditions; fluctuation in operating results; changes in foreign currency exchange rates; changes in the securities markets; continued listing of the Company's common stock on the NASDAQ Global Market; the Company's inclusion or exclusion from certain market indices; Escalade's ability to obtain financing and to maintain compliance with the terms of such financing; the availability, integration and effective operation of information systems and other technology, and the potential interruption of such systems or technology; the potential impact of actual or perceived defects in, or safety of, our products, including any impact of product recalls or legal or regulatory claims, proceedings or investigations involving our products; risks related to data security of privacy breaches; and other risks detailed from time to time in Escalade's filings with the Securities and Exchange Commission. Escalade's future financial performance could differ materially from the expectations of management contained herein. Escalade undertakes no obligation to release revisions to these forward-looking statements after the date of this report.
Escalade, Incorporated and Subsidiaries Consolidated Statements of Operations (Unaudited, In Thousands Except Per Share Data) |
|
| Three Months Ended |
| Nine Months Ended |
All Amounts in Thousands Except Per Share Data | October 1, 2022 |
| October 2, 2021 |
| October 1, 2022 |
| October 2, 2021 |
|
|
|
|
|
|
|
|
Net sales | $74,904 |
| $81,298 |
| $241,621 |
| $240,168 |
|
|
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Costs and Expenses |
|
|
|
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|
|
|
Cost of products sold | 61,273 |
| 62,992 |
| 184,147 |
| 179,355 |
Selling, administrative and general expenses | 8,769 |
| 10,202 |
| 33,975 |
| 33,888 |
Amortization | 642 |
| 432 |
| 2,067 |
| 1,438 |
|
|
|
|
|
|
|
|
Operating Income | 4,220 |
| 7,672 |
| 21,432 |
| 25,487 |
|
|
|
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
Interest expense | (954) |
| (414) |
| (2,462) |
| (1,035) |
Other income (expense) | (22) |
| 68 |
| 50 |
| 124 |
|
|
|
|
|
|
|
|
Income Before Income Taxes | 3,244 |
| 7,326 |
| 19,020 |
| 24,576 |
|
|
|
|
|
|
|
|
Provision for Income Taxes | 286 |
| 1,360 |
| 3,735 |
| 5,042 |
|
|
|
|
|
|
|
|
Net Income | $2,958 |
| $5,966 |
| $15,285 |
| $19,534 |
|
|
|
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|
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Earnings Per Share Data: |
|
|
|
|
|
|
|
Basic earnings per share | $ 0.22 |
| $ 0.44 |
| $ 1.13 |
| $ 1.41 |
Diluted earnings per share | $ 0.22 |
| $ 0.43 |
| $ 1.12 |
| $ 1.40 |
|
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|
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|
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Dividends declared | $ 0.15 |
| $ 0.14 |
| $ 0.45 |
| $ 0.42 |
|
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Consolidated Balance Sheets (Unaudited, In Thousands) |
|
All Amounts in Thousands Except Share Information | October 1, 2022 | December 25, 2021 | October 2, 2021 |
| (Unaudited) | (Audited) | (Unaudited) |
ASSETS |
|
|
|
Current Assets: |
|
|
|
Cash and cash equivalents | $ 4,000 | $ 4,374 | $ 6,492 |
Receivables, less allowance of $729; $457; and $636; respectively | 65,258 | 65,991 | 68,849 |
Inventories | 134,957 | 92,382 | 91,755 |
Prepaid expenses | 4,143 | 7,569 | 6,527 |
Prepaid income tax | 1,075 | 739 | -- |
TOTAL CURRENT ASSETS | 209,433 | 171,055 | 173,623 |
|
|
|
|
Property, plant and equipment, net | 27,618 | 24,936 | 24,000 |
Operating lease right-of-use assets | 9,074 | 2,210 | 2,500 |
Intangible assets, net | 34,712 | 20,778 | 21,207 |
Goodwill | 39,226 | 32,695 | 32,695 |
Other assets | 261 | 124 | 131 |
TOTAL ASSETS | $320,324 | $251,798 | $254,156 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
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Current Liabilities: |
|
|
|
Current portion of long-term debt | $ 7,143 | $ 7,143 | $ 7,143 |
Trade accounts payable | 22,684 | 15,847 | 25,071 |
Accrued liabilities | 19,060 | 24,385 | 18,100 |
Income tax payable | -- | -- | 124 |
Current operating lease liabilities | 816 | 818 | 990 |
TOTAL CURRENT LIABILITIES | 49,703 | 48,193 | 51,428 |
|
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Other Liabilities: |
|
|
|
Long‑term debt | 99,568 | 50,396 | 51,874 |
Deferred income tax liability | 4,759 | 4,759 | 4,193 |
Operating lease liabilities | 8,557 | 1,387 | 1,493 |
Other liabilities | 448 | 448 | 448 |
TOTAL LIABILITIES | 163,035 | 105,183 | 109,436 |
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Stockholders' Equity: |
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Preferred stock: |
|
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Authorized 1,000,000 shares; no par value, none issued |
|
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Common stock: |
|
|
|
Authorized 30,000,000 shares; no par value, issued and outstanding – 13,590,407; 13,493,332; and 13,557,879; shares respectively | 13,590 | 13,493 | 13,558 |
Retained earnings | 143,699 | 133,122 | 131,162 |
TOTAL STOCKHOLDERS' EQUITY | 157,289 | 146,615 | 144,720 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $320,324 | $251,798 | $254,156 |
Reconciliation of GAAP Net Income to Non-GAAP EBITDA (Unaudited, In Thousands) |
|
| Three Months Ended |
| Nine Months Ended |
All Amounts in Thousands | October 1, 2022 |
| October 2, 2021 |
| October 1, 2022 |
| October 2, 2021 |
|
|
|
|
|
|
|
|
Net Income (GAAP) | $ 2,958 |
| $5,966 |
| $ 15,285 |
| $19,534 |
|
|
|
|
|
|
|
|
Interest expense | 954 |
| 414 |
| 2,462 |
| 1,035 |
Income tax expense | 286 |
| 1,360 |
| 3,735 |
| 5,042 |
Depreciation and amortization | 1,604 |
| 1,226 |
| 5,207 |
| 3,935 |
|
|
|
|
|
|
|
|
EBITDA (Non-GAAP) | $5,802 |
| $8,966 |
| $26,689 |
| $29,546 |
|
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SOURCE Escalade, Incorporated