Escalade, Incorporated Aktie

Good morning, and welcome to the Escalade, Inc. third quarter 2026 results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After the presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note, this call is being recorded. I would now like to turn the conference over to Wes Smith, Vice President of Financial Reporting and Investor Relations. Please go ahead.

Good morning, everyone. On behalf of Escalade, Inc., I'd like to welcome you to our third quarter 2026 results conference call. You'll hear from Patrick Griffin, our President, and Stephen Wawrin, our Chief Financial Officer. Stephen will discuss forward-looking statements about future business and financial expectations. Actual results may differ slightly from those projected in today's forward-looking statements. Various risks and uncertainties, including the risks described in our periodic reports filed with the SEC, apply. 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 call for questions. With that, I will turn the call over to Patrick.

Thank you, Wes, and welcome to everyone joining us on today's call. Our third quarter results demonstrate the effectiveness of our more efficient operating model in generating earnings and cash flow, even in the face of deteriorating consumer sentiment and a difficult year-over-year comparison. The strength of our innovative product offering, favorable sales mix, disciplined cost management, and strong operational execution combined to help us deliver improved gross margin compared to the third quarter of last year. Net sales declined 3% year over year, reflecting softness in our basketball, indoor games, and table tennis categories, as well as a challenging comparison to last year's third quarter, which benefited from shipments delayed from the second quarter by port-related market volatility. Our strategic exit from certain lower-margin product lines also contributed to the net sales decline. The decline was partially offset by growth in archery, driven by strong vertical bow demand and the accretive contribution from our September 2025 acquisition of Gold Tip, along with increased demand in the safety and outdoor games categories.

Gross margin expanded by approximately 123 basis points year over year to 29.4%. This expansion was driven by favorable sales mix, higher fixed cost absorption, and strong operational execution. We also continued to make progress improving asset utilization despite the additional inventory from the Gold Tip and All Cornhole acquisitions in the second half of last year, and ASL Solutions acquisition during this year's third quarter. Total inventory was $77.8 million, below the prior year level. This progress reflects our focus on driving working capital and generating free cash flow. We continue to work towards our longer-term inventory turn target of 3 times. As we move towards the heart of the holiday season, we continue to collaborate with our retail partners to deliver a more frequent cadence of promotions to highlight newness, as well as value, and engage consumers to accelerate sell-through. Although inflation and broader economic uncertainty continue to pressure discretionary consumer spending, our more resilient operating model gives us confidence in our ability to manage through these challenging market conditions. We expect recent and upcoming new product introductions to support market share gains across several key categories as we move into 2027.

In pickleball, we had several new paddle launches from ONIX, including the ONIX [ Practice Practice Features ] and an Endure from Core, designed for durability and a raw carbon fiber surface that enhances spin and control. The new ONIX Eris offers an accessible entry price range of colors and lightweight construction that helps players react quickly and stay comfortable during extended play. We've also been active in the game room with several new products in the table tennis and billiards categories. The Stiga Onyx 80 table tennis table features a quick-play design that assembles in minutes and has premium features such as integrated ball storage and locking caster wheels for easy mobility. Our new Pro Carbon Fiber Shape provides a unique profile, combining a larger optimal hitting area with carbon-powered performance. In billiards, we launched the American Heritage Ann Arbor 8-foot table, which features a modern architectural design that makes it a showpiece for the home game room. One-inch three-piece slate delivers exceptional playability and consistent ball roll. These launches illustrate our increased investment in product innovation across our portfolio. We expect our current and ongoing investment in innovation to drive an acceleration of new product introductions as we move to 2027.

Strengthening the balance sheet remains a priority. During the third quarter, we repaid $1.8 million of debt and increased our cash balance by $8.1 million, ending the quarter with a net cash position of $11.4 million. Our low-cost fixed-rate debt and higher cash balances also contributed to increased net interest income. Our consistent free cash flow and strong balance sheet also positions us to invest in innovation, accretive acquisitions, and our facilities to improve capacity as well as efficiency to support future growth. We remain focused on strategic, accretive acquisitions that enhance our existing platforms, expand our presence in attractive new categories, and strengthen our competitive position. We are encouraged by our growing pipeline of acquisition opportunities that meet this criteria. In closing, our third quarter results demonstrated our ability to improve gross margins and cash generation in a challenging macroeconomic and geopolitical environment that has impacted consumer discretionary spending. We expanded margins and improved working capital efficiency and strengthened our balance sheet. Looking ahead, we believe our more efficient operating model, recent acquisitions, disciplined capital allocation, and financial flexibility position us to continue to pursue growth opportunities and create long-term shareholder value. With that, I will turn the call over to Stephen to walk through our third quarter financial results.

Thank you, Patrick. For the three months ended September 30, 2026, Escalade reported net income of $6.7 million, or $0.48 per diluted share, on net sales of $65.6 million. Gross margin was 29.4% compared to 28.1% in the prior year period. The 123 basis point improvement was a result of lower operational costs driven by better absorption and a favorable sales mix. Gold Tip, which we acquired in September 2025, contributed to the favorable mix as we continue to ramp up the business over the past year. Selling, general, and administrative expenses were $11.6 million during the third quarter, a $0.4 million increase compared to the prior year period, partially related to costs associated with the All Cornhole and ASL Solutions acquisition, related professional fees, and an increase in advertising expenses. Earnings before interest, taxes, depreciation, and amortization increased by $1.4 million to $10 million in the third quarter of 2026 versus $8.6 million in the prior year period. This increase reflects the year-over-year improvement in our gross profit as well as the benefit of a recovery for previously paid tariffs received in the quarter of $1.6 million. Cash flow from operations was $14.9 million in the third quarter compared to cash used of $1 million in the prior year period. The increase primarily reflects our higher net income and lower working capital requirements. As of September 30, 2026, the company had total cash and equivalents of $24.5 million. As of September 30, 2026, we had $13.1 million of total debt outstanding, all of which was classified as current as of the end of the quarter. With that, Operator, we'll open the call for questions.

We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, our first question comes from [ Abramoff Plenty ], CEO, Kages Capital. Please go ahead.

Good morning. Thank you. In your prepared comments, Patrick, you talked about favorable sales mix. Is that related to more, you know, consumers moving up to our premium-priced products within specific categories, or is it that kind of shift from basketball to archery? How do we think about that? Thanks.

Aram, that's a great question. What we mean by the favorable sales mix is our customer base changed a little bit in the quarter. So we were doing more dealer business and customers that have fewer maybe promotions. And then also, more direct-to-consumer business, which is generally a higher margin business for us.

Okay, that's helpful. And on a separate theme, when you talk about working through the holiday season with exciting promotions, is that kind of promotional activity a focus on, can we gain market share, or is it sensitive to any issues on inventory levels that are too high, or do we just need to burn through inventory? Is that why you're putting forth promotions such as we can think about it as well?

Abstract question. We're very comfortable with our current inventory levels. For us, I think it's just about having exciting promotions. We know it's going to be a promotional environment, so we want to have regular promotions, more promotions, and we want to get the consumer sooner in that buying cycle, you know, for the holidays.

Okay. Maybe just one last one. You have up to $25 million in cash now. Could you walk us through kind of the thought process around your plans with excess cash? Obviously, you're generating cash, just kind of building to watch for future acquisitions, or can we think about paying down debt? You know, out of the four levers you couple, thanks.

Yeah, no, thank you for the question. We're thinking about capital allocation in a couple of different ways, but we're comfortable having, you know, we talked about having at least a turn of EBITDA, which is around that number you mentioned on the balance sheet. So we have a pretty active pipeline of acquisition opportunities. We'll continue to look at that. So, you know, we're anticipating that some of that cash could be used towards acquisitions to the extent that we get to the finish line with those. And we've also talked about investing more in our businesses, so we've got some capital expenditure projects. You'll see probably more of that in the fourth quarter and then a little bit more into next year as well. And then we continue to pay a dividend and we buy back our shares from time to time when, you know, when that makes sense for the Board of Directors.

Perfect. Thanks so much.

You're welcome.

Again, to ask a question, please press star then 1. The next question comes from Michael Legg with Ladenburg Thalmann. Please go ahead.

Thank you. Thanks for the update on the operational progress. I wanted to ask a couple of questions related to the tariff. We found a [$9.9 million] in the second quarter, and $9 million of that was receivable that you subsequently received. Does that mean your cash is now the $24 million plus the $9 million, over $30 million?

No, all of that is reflective of what you see on the balance sheet, including that tariff rebate that we received.

Okay. And and to the top impact of free cash flow, this quarter, yes, it did. Okay, thank you.

Right.

Michael, your question? This concludes the question-and-answer session. I would like to turn the conference back over to Wes Smith for any closing remarks.

Thank you, Operator. Once again, thank you for your interest in Escalade. And for joining our call today, if you have any questions, please feel free to contact us at [email protected], and a member of our team will follow up with you.

This concludes our call today. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

Good day, and welcome to the Escalade Second Quarter 2026 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Wes Smith, Vice President of Financial Reporting 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 second quarter 2026 results conference call. Leading the call with me today is President and CEO, Patrick Griffin; and Stephen Wawrin, 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 Patrick.

Thank you, Wes, and welcome to everyone joining us on today's call. Our second quarter results reflected the strength of our innovative product offering, growing market share across a broad range of customers, disciplined cost management, strong operational execution and effective capital allocation.

We delivered solid year-over-year improvements on both top and bottom line as compared to the second quarter of last year. These results were further enhanced by nonrecurring refund of tariffs paid in prior quarters that had weighed on those periods. The recovery of those refunds strengthens our ability to execute the strategic priorities I will discuss later in the call.

Net sales increased 6% in the second quarter compared to the prior year. This growth was driven by stronger sales of our new archery products and the incremental contribution from our September 2025 Gold Tip Archery acquisition, along with continued strength in our safety, table tennis and basketball categories.

This was partially offset by softer demand in our outdoor games category. The operating leverage we have built over the past several quarters was evident in our second quarter profitability. Gross margin expanded by approximately 146 basis points year-over-year to 26.2%. This expansion was driven by higher fixed cost absorption on increased sales volumes.

Gross margin also benefited from a favorable sales mix. We also continue to make progress improving asset utilization. Despite the additional inventory from the two acquisitions completed in the second half of last year, total inventory declined $1.5 million year-over-year in the second quarter, reflecting our ongoing focus on working capital efficiency as a driver of free cash flow generation. We expect inventory levels to decline further in the second half of this year as we progress toward our longer-term target of approximately 3x inventory turns.

Our second quarter operating income and EBITDA included approximately $9.9 million of recovered tariff costs incurred in prior quarters, further strengthening our already solid results for the period. We plan to deploy these refunds to help offset higher costs, particularly freight, commodity prices and announced and potential new tariffs.

We also intend to invest a portion of the refund in the growth of our business through consumer and trade promotions and product innovation. In addition, we plan to invest in capital improvements at our facilities in order to increase the efficiency of our operations. Looking ahead to the second half of 2026, we remain mindful of potential macroeconomic headwinds, including inflationary pressures such as the higher energy costs and elevated prices across the broader economy, which could weigh on consumer spending while creating incremental pressure on our cost structure.

That said, we believe our business is well positioned to manage through this environment. Our planned new product launches, the operating leverage we have built into the business and our continued focus on execution should enable us to keep growing our top line profitably despite ongoing macroeconomic uncertainty. During the second quarter, we continued to build our pipeline of fresh and innovative new products across our portfolio.

ONIX Pickleball introduced several new pickleball paddles during the second quarter. These include the Hype Lite pickleball paddle, which builds on earlier Hype launch, but is lighter weight, making it easier to control, limiting fatigue to maximize performance on the court. We also launched the Adapt MAX pickleball paddle with MAXRev technology for enhanced spin, a raw carbon fiber surface and patented carbon fiber power frame.

The Adapt MAX is built for players who demand precision and durability, combining advanced paddle technology with performance-driven construction to help athletes play with greater confidence and control. The Adapt MAX paddle is now available in bold blue and sunset colorways. We also expanded product offerings within our basketball category, introducing the Goalrilla Hydro Dunk pool hoop. The new Goalrilla Hydro Dunk hoop brings our pro game basketball engineering poolside with the corrosion-resistant salt and chlorine-safe hoop system.

The regulation size rim, backboard and anchor mount make it perfect for new pool installations. It's how we're expanding Goalrilla beyond the driveway into the backyard pool market. Within billiards, we launched the Lucasi Halo carbon fiber shaft during the second quarter. This shaft is engineered with T700 carbon fiber to deliver low deflection performance, repeatable cue ball control and a smooth consistent stroke for serious billiards players.

These new product launches are just a few examples of how we use innovation to expand market share in our core categories. Strengthening the balance sheet remains a priority. During the second quarter, we repaid nearly $1.8 million of long-term debt while increasing our cash balance by $3.3 million compared to the end of the first quarter of 2026, moving us to a net cash position.

Given our low-cost fixed rate bank debt and the current interest rate environment, we continue to benefit from favorable cash arbitrage. Our consistent free cash flow and strong balance sheet also position us to supplement organic growth with M&A. We remain focused on strategic accretive acquisitions that enhance our existing platforms, expand our presence in attractive categories and strengthen our competitive positioning.

We are encouraged by our growing pipeline of acquisition opportunities that meet these criteria. In closing, our second quarter provided further validation of our strategy to deliver profitable growth even in the face of a difficult and uncertain macroeconomic environment. We delivered margin expansion while improving our working capital efficiency and strengthening our balance sheet. Looking ahead to the second half of 2026 and beyond, we expect our operating model, robust capital allocation, strong execution and financial flexibility to drive continued growth, generating long-term value for our shareholders. With that, I will turn the call over to Stephen to walk through our second quarter financial results.

Thank you, Patrick. For the 3 months ended June 30, 2026, Escalade reported net income of $9.4 million or $0.68 per diluted share on net sales of $57.7 million. For the second quarter, the company reported gross margins of 26.2% compared to 24.7% in the prior year period.

The 146 basis point increase in gross margin was primarily the result of lower operational costs driven by better absorption, operating leverage and a favorable sales mix. The favorable sales mix shift included the benefit of the Gold Tip acquisition, which was completed in the third quarter of 2025 and accretive to our second quarter results.

Selling, general and administrative expenses were $12.5 million during the second quarter, a $2.2 million increase compared to the prior year period, largely related to costs associated with the AllCornhole and Gold Tip businesses acquired late in 2025 and an increase in variable compensation.

Earnings before interest, taxes, depreciation and amortization increased by $9.3 million to $13.2 million in the second quarter of 2026 versus $3.9 million in the prior year period. In addition to the year-over-year improvement in our gross profit, this increase reflects recoveries of previously paid tariffs, representing a $9.9 million benefit to operating profit. Total cash flow from operations for the second quarter of 2026 was $8.7 million compared to $13.3 million in the prior year period.

The year-over-year decrease in operating cash flow primarily reflects an increase in cash flow used for working capital purposes. As of June 30, 2026, the company had total cash and equivalents of $16.4 million. As of June 30, 2026, we had $14.9 million of total debt outstanding, all of which was current as of the end of the quarter. With that, operator, we will open the call for questions.

[Operator Instructions] And the first question will come from Rommel Dionisio with Aegis Capital.

Just two questions. The first one, could you talk about -- obviously, you're facing some higher costs from increased freight rates and commodity inflation. You're clearly not alone in that. But how do you guys think about near-term price increases to pass along some of that?

Obviously, we're seeing inflationary pressures on the consumer spending impacting consumer spending. But yes, how do you -- I just wanted to see how you guys think about passing along some of those increased commodity costs and freight costs through price increases going forward?

Hey Rommel, this is Patrick calling. That's a great question. We feel like our pricing is pretty good right now with the current environment. We're hoping that the freight will be transitory with the geopolitical situations that winds down, hopefully.

But we feel like the -- some of the tariff refund we have, we can absorb some of that with promotional efforts on the pricing side. So we don't expect to change our pricing here in the near term.

Patrick, sorry. Thank you. Just to clarify, when you said absorb promotional, so is the thought to continue with promotions or to reduce that in light of lower pricing, or just use the cash that you got from tariff rebates to?

Yes, we'll absorb some of the additional freight expenses with the refund, and then we're going to continue with maybe some incremental promotions in the third and fourth quarters and so support that with some of the tariff refunds as well.

Got you. Okay. And my second question, you alluded to some market share gains helping drive really strong results, [ 6.2% ] growth year-over-year in the quarter on the top line. Could you maybe just a little more granularity on what were some of the new products or the categories where you gained some share during the quarter?

Yes. No, that's a great question. On our Bear Archery side, our Trophy Ridge accessory line, we did a lot of new product launches in that at the last ATA show at the beginning of the year, and those products have been accepted well into the market with our sites and releases and stabilizers.

And so we're seeing nice traction there with that. So that's where we're seeing a lot of market share gains. And then on the safety side, we have some new placements there with our canopy weight range and then some plastic chain as well, and that's helping grow that safety business as well.

[Operator Instructions] And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Wes Smith for any closing remarks. Please go ahead.

Thank you, operator. 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 [email protected], and a member of our team will follow up with you. This concludes our call today. You may now disconnect.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Escalade, Inc. First Quarter 2026 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Wes Smith, Vice President of Financial Reporting 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 2026 results conference call. Leading the call with me today is President and CEO, Patrick Griffin; and Stephen Wawrin, 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 Patrick.

Thank you, Wes, and welcome to everyone joining us on today's call. We delivered a solid start to 2026, demonstrating the benefits of the leaner foundation and improved operating model we have built over the past several years. While the consumer backdrop remains uneven, our continued emphasis on operational excellence and efficiency has elevated our performance and created a more resilient business, one that generates healthier margins, retains operating leverage in a dynamic environment and provides a stable platform for profitable growth.

Net sales increased slightly in the first quarter compared to the prior year. This growth was driven by the contribution from Gold Tip Archery acquired in the third quarter of 2025 and continued strength in our billiards and safety categories, partially offset by softer demand in our outdoor and indoor games categories. Through sensible portfolio management, targeted acquisitions and accelerated product innovation in attractive niche categories, we are strengthening the resilience of our brand portfolio. We believe this approach will allow us to navigate challenging environments while positioning the company to realize profitable growth and generate attractive shareholder returns over the business cycle.

The operating leverage we have built over the past several quarters was evident in first quarter profitability. Gross margins expanded by approximately 400 basis points year-over-year to 30.7%. This improvement was driven by sustained cost management, ongoing process and productivity initiatives and a favorable customer and product mix with a shift towards higher-value products, reflecting relative strength among more affluent consumers in several categories.

We also made progress improving asset utilization. Despite completing two acquisitions in the second half of last year, total inventory declined $3.4 million year-over-year in the first quarter. This reflects our ongoing focus on working capital efficiency as a contributor to free cash flow generation. As we move through 2026, we expect inventory levels to decline further as we progress toward our longer-term target of approximately 3x inventory turns. We continue to closely monitor emerging tariff policy changes and are prepared to adjust as market conditions evolve.

Looking ahead to the remainder of 2026, we remain mindful of potential headwinds, including inflationary pressures such as high energy cost, which could not only weigh on consumer demand, but also create incremental cost pressure. If current macroeconomic and geopolitical conditions persist, we would likely expect consumer demand to remain uneven in the coming quarters. That said, many of our products provide consumers with affordable at-home recreation and entertainment alternatives, which may help offset softer discretionary spending. Looking ahead, we expect to deliver gross margins above prior year levels, driven by our improved operating model and ongoing cost management.

A key pillar of our strategy remains thoughtful investment in our categories to support operational excellence and growth. Our improved free cash flow provides flexibility to reinvest in efficiency and growth while maintaining a strong balance sheet. M&A continues to be an important component of our capital allocation strategy as we pursue profitable growth. Our approach remains unchanged. We are focused on strategic accretive acquisitions that enhance our existing platforms, expand our presence in attractive categories and strengthen our competitive positioning. Additionally, we plan to solidify our foundation for growth in 2026 through enhanced capital investments. These investments are focused on expanding capacity, improving operational efficiency and expanding our product development and innovation pipeline.

Given these strategic investments, we expect capital spending will be higher in 2026 compared to last year. We are building a denser pipeline of fresh and innovative new products across our portfolio. Bear Archery introduced several new bows during the first quarter. As an example, the 58-inch Grizzly Hunter Recurve Bow inspired by the classic Grizzly models of the 1950s is designed to blend long bow feel with recurve performance. We also launched the Cajun Archery Sucker Punch Pro RTF Bow, engineered specifically for high-performance and confined bow fishing environments as well as the new Trophy Ridge React 5 Max sight designed to help serious bow hunters achieve fast and accurate shots.

We also expanded product offerings within our indoor and outdoor games categories. Following the AllCornhole acquisition, we introduced a variety of new cornhole bag designs to improve performance and playability, along with the new flagship cornhole board that will be the official professional tournament board of the American Cornhole League moving forward.

We also introduced the American Legend Westbrook 3-in-1 combo game table, which transitions seamlessly between billiards, table tennis and dining while maintaining a high-quality furniture aesthetic. These launches are representative of a more consistent flow of new product development and innovation across our businesses, which is an important driver of category leadership and long-term profitable growth.

Strengthening the balance sheet remains a priority. During the first quarter, we repaid nearly $2 million of long-term debt while also increasing cash balances. Given our low-cost fixed rate debt and the current interest rate environment, we continue to benefit from favorable cash arbitrage. Our strong free cash flow generation supports both prudent debt management and continued investment in efficiency and growth. In closing, we continue to build momentum as we transition from a focus on optimizing our cost structure and balance sheet towards the prioritization of profitable growth.

The first quarter underscores the progress we have made, delivering strong margins, improving working capital efficiency and maintaining financial flexibility despite a challenging consumer and geopolitical backdrop. As we move through 2026, we believe we are well positioned with a lean operating model, durable free cash flow generation and focused corporate and capital allocation strategies designed to strengthen our leadership positions and create long-term shareholder value.

With that, I will turn the call over to Stephen to walk through our first quarter financial results.

Thank you, Patrick. For the three months ended March 31, 2026, Escalade reported net income of $4.4 million or $0.32 per diluted share on net sales of $55.8 million. For the first quarter, the company reported gross margins of 30.7% compared to 26.7% in the prior year period. The 400 basis point increase in gross margin was primarily the result of lower operational costs driven by our facility consolidation and cost rationalization program, a reduction in storage and handling costs and a favorable sales mix.

The favorable sales mix shift included the benefit of the Gold Tip acquisition, which was completed in the third quarter of 2025 and accretive to our first quarter results. Selling, general and administrative expenses were $10.7 million during the first quarter, a $0.1 million increase compared to the prior year period. Earnings before interest, taxes, depreciation and amortization increased by $2.2 million to $7.1 million in the first quarter of 2026 versus $4.9 million in the prior year period. This increase primarily reflects the improvement in our gross profit.

Total cash flow from operations for the first quarter of 2026 was $6.1 million compared to $3.8 million in the prior year period. The year-over-year increase in operating cash flow primarily reflects a 4% or $3.4 million decrease in our inventory, coupled with improved profitability. As of March 31, 2026, the company had total cash and equivalents of $13.1 million. At the end of the first quarter of 2026, net leverage was 0.1x. As of March 31, 2026, we had $16.7 million of total debt outstanding, all of which was current as of the end of the quarter.

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

[Operator Instructions] The first question comes from Rommel Dionisio with Aegis Capital.

As I'm going through the breakdown of gross sales by channel in the 10-Q, there was a dip in mass merchants in the quarter and a rise in specialty dealers revenue. Could you just maybe walk through the moving parts there? Was that just maybe a timing of revenue recognition? Or is there maybe a broader trend to see there?

Rommel, this is Patrick. Thanks for the question. A great question. So the channel kind of change there that you see, the specialty dealer growth was driven by the Gold Tip acquisition. So there are a lot of specialty archery dealers. And as we distribute the Gold Tip product through that channel, you see some growth there. And then we had some sales last year that didn't repeat in the mass merchant channel, primarily with Target there, and that's why you see the dip there in the mass merchant channel.

Okay. That's very helpful. And maybe just a bigger picture question. As we look at the price of airline tickets and gasoline these days, I think you touched on in your -- in the press release, but the travel this year may not be quite what it has been in prior years. For the benefit of everyone on this call, I know, Patrick, you and Stephen and myself, we all lived through this back in 2020.

Can you just walk us through the last time in history, we saw this trend of people not traveling. Could you just refresh everyone's memory in terms of kind of what happened in your categories in 2020? Which category showed strength? Just maybe walk through the strategic points of what you saw back then on a category-by-category basis when people stayed home for the summer.

Yes. No, that's a great question, Rommel. And sometimes we've seen this in a couple of different points in history, but it's called a kind of a staycation kind of situation where people look at their alternatives instead of maybe going to Disney or some other road trip, they might stay at home and maybe buy a table tennis table, maybe a cornhole set, maybe some other outdoor game, indoor game.

That's kind of where we see most of the benefit, things that would be around the home, less so in like water sports and so on, where those are behind the boat. But I would say table tennis, indoor games, outdoor games, Billiards to some extent, that continues to be strong. We're seeing strength there. And then a couple of other categories, Rommel, that might go on basketball and so on.

Okay. And maybe just a follow-up on that question. Do you get the sense that retailers are prepared for if there is some pickup from people staying at home from an inventory situation to handle a possible change in demand if that plays out over the next few months?

Yes. No, great question. I think based on the conversations we're having with our key retail partners, they're leaning into those categories and backing that up with good order uptake and forecasting. So I think we're preparing, and I think the retailers will be prepared if there's some upside there.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Wes Smith for any closing remarks.

Thank you, operator. 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 [email protected], and a member of our team will follow up with you. This concludes our call today. You may now disconnect.

Good day, and welcome to the Escalade Fourth Quarter 2025 Results Conference Call. [Operator Instructions] Please note, today's event is being recorded.

I would now like to turn the conference over to Wes Smith, Vice President of Financial Reporting and Investor Relations. Please go ahead, sir.

Thank you, operator. On behalf of the entire team in escalate, I'd like to welcome you to our fourth quarter 2025 results conference call. Leading the call with me today is Interim President and CEO, Patrick Griffin; and Stephen Wawrin, 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 Patrick.

Thank you, Wes, and welcome to everyone joining us on today's call. We ended 2025 on solid footing while the consumer environment remains mixed, our focus on operational excellence and on reshaping our cost structure is paying off. Over the past years, we have built a durable foundation for the business. This foundation gives us healthier margin profile, the ability to maintain operating leverage in a dynamic environment and a strong platform from which we can pivot towards profitable growth.

Consistent with broader consumer spending for discretionary leisure products and as expected, net sales declined 2.2% in the quarter, driven by a softer consumer demand in categories such as basketball and outdoor games in our e-commerce sales channel. At the same time, we partially offset these declines through healthy growth in archery and billiards, driven by our recent acquisition and new product introductions. These trends reaffirm that we are positioned in the right niche categories where consumers remain engaged and where our brands have equity.

The impact of our operational improvements was also reflected in our fourth quarter results. Gross margin improved 280 basis points year-over-year to 27.7% of net sales despite a 2.2% decline in net sales. This improvement reflects the structural cost actions we've executed on the discipline embedded across our operations.

We also made meaningful inventory efficiency improvement in the quarter. Total inventory declined 10% year-over-year, reflecting our ongoing effort to sharpen working capital management to support improved free cash flow. We expect to further reduce inventory levels in 2026 as we work towards our longer-term target of 3x inventory turns. This objective is a key element of our broader balance sheet management strategy.

Looking ahead to 2026, we expect consumer conditions to remain mixed, shaped by the contrast between moderating interest rates and persistent inflation. Less affluent consumers will likely continue to be more price sensitive while more affluent consumers will likely continue to be less price-sensitive. Against this backdrop, our focus is shifting from cost optimization to profitable growth, while continuing to leverage our leaner balance sheet and the operational discipline we established in 2025.

We are closely monitoring emerging tariff policy changes and are prepared to adjust as market conditions clarify. We do not see any immediate impact from the recent changes. Our established playbook enables us to remain agile and proactive in navigating through this dynamic environment.

A central component of our growth agenda is to strategically invest in our businesses. Our strength in free cash flow allows us to invest in growth opportunities and pursue accretive M&A opportunities. Following our recent Gold Tip archery purchase, we completed another acquisition during the fourth quarter to further support growth. The acquisition of AllCornhole brings a leading brand and competitive cornhole bags to our growing outdoor recreation portfolio. During the fourth quarter, we fully integrated Gold Tip archery, which was acquired in the third quarter. This business was accretive in the fourth quarter.

Looking forward, M&A remains a capital allocation priority as we concentrate our profitable growth. Our approach will remain consistent, focused on strategic acquisitions that are accretive and complement existing product categories as well as strengthen our market position where we have competitive advantages. In addition to M&A, we expect to increase growth investments in 2026 through targeted capital expenditures that expand capacity improve efficiency and support long-term growth. As a result, we expect capital expenditures to increase next year.

We also plan to selectively invest in and optimize our manufacturing and distribution footprint. In the fourth quarter, we purchased a 110,000 square foot facility to support continued growth in our safety and fitness categories. We had several significant new product launches during the fourth quarter to support our growth agenda. In our Bear Archery business, we launched the new Alaskan Provo, which has been awarded best value compound bot in many publications and online review platforms.

We also launched an entire new line of trophy Ridge accessories, featuring new designs and a fresh new look. Additionally, during the quarter, our U.S. white business expanded our safety offering with several new umbrella bases to fully address market opportunities. Strengthening our balance sheet continues to be a priority. During the fourth quarter, we repaid nearly $2 million of long-term debt while also increasing our cash levels. Given the current interest rate environment and our low cost fixed rate bank debt, we are taking advantage of attractive cash arbitrage.

Our strong free cash flow generation gives us confidence in our ability to meet our financial commitments while continuing to invest in future growth. In summary, we have made significant progress in repositioning the company as we move from cost optimization to a profitable market share-driven growth. As we move further into 2026, we believe we are operating from a position of strength, supported by a leaner cost structure, stable free cash flow profile and a disciplined capital allocation strategy aimed at expanding our leadership in key categories. These actions will allow us to deliver durable value for shareholders as we move through the cycle.

With that, I will turn the call over to Stephen for a review of our fourth quarter financial results.

Thank you, Patrick. For the 3 months ended December 31, 2025, Escalate reported net income of $3.7 million or $0.27 per diluted share on net sales of $62.6 million. For the fourth quarter, the company reported gross margins of 27.7% compared to 24.9% in the prior year period. The 280 basis point increase in gross margin was primarily the result of lower operational growth, driven by our facility consolidation and cost rationalization program, a reduction in storage and handling costs and the benefit of the [indiscernible] acquisition, which was completed in the third quarter of 2025 and accretive to our fourth quarter results.

Selling, general and administrative expenses during the fourth quarter increased by 6.8% and were $0.7 million compared to the prior year period to $11.6 million. The increase in SG&A primarily reflects $0.5 million of nonrecurring executive transition expenses incurred during the fourth quarter of 2025. Earnings before interest, taxes, depreciation and amortization increased by $0.6 million to $6.5 million in the fourth quarter of 2025 versus $5.9 million in the prior year period. This increase primarily reflects the improvement in our gross profit, partly offset by the nonrecurring executive expenses I just mentioned.

Total cash flow from operations for the fourth quarter of 2025 was $14.9 million compared to $12.3 million in the prior year period. The year-over-year increase in operating cash flow primarily reflects a 10% or $7.6 million decrease in our inventory, coupled with improved profitability. As of December 31, 2025, the company had total cash and equivalents of $11.9 million at the end of the fourth quarter of 2025, net leverage was 0.3x. As of December 31, 2025, we had $18.5 million of total debt outstanding.

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

[Operator Instructions] And today's first question comes from Rom Dionisio Aegis Capital.

I wonder if we could just ask a couple of questions on the acquisition of the new facility, the 110,000 square foot facility. Is that production or distribution or both -- is it domestic? And if so, would that alleviate some of the tariff pressure.

Ram, Patrick here. That's a good question. The facility is located in only Illinois, where we already had 2 facilities there. And initially, it's going to be used primarily for warehousing for our fitness and safety businesses. But we're looking at other uses for that facility, so we may consolidate some additional categories into that facility or acquisitions further down the road could go into that. But it really was not to support future and growth in those categories for our U.S. weight business, but then also maybe some future growth plans as well.

Okay. And as a follow-up question, I wonder if we could just delve on the product mix a little bit in the quarter. I know there's a lot of moving parts there between product categories and price points. But you highlighted demand across your -- I'm just reading through your press with demand across your higher-value premium brands remains resilient. So would that have been a sort of a positive mix driver during the quarter, and I know that's offset with consumers shifting down to some lower price points as well. I just want to think about how do we think about product mix shift overall in the quarter?

Great question. I mean we're on the higher price points, we're generally seeing favorable sales trends there. And on our opening price point product, we're not seeing as favorable trends. So with our leading brands that you kind of referred to with Berarchry, that's accretive to the overall margin profile. And I would say that's true for a lot of the Brunswick portfolio as well.

Okay. And maybe just one last one. I know you took some price increases last summer to help offset some of the tariff impact. How do you kind of think about that situation? Obviously, it's a very fluid environment with regards to even the last few days with regards to tariffs, but how do you guys think about the proclivity for additional price increases as we look out to 2026?

Yes. No, we feel good. We were early on our price increases, Rom, as we -- as you mentioned there, and -- to the extent that, that environment changes, we'll see where that ends up, but we don't have any near-term changes right now. We're not planning on passing on any additional price increases at this point. If tariffs if that environment changes a lot, but there could be some changes down the road, but we don't see any near-term impact. As you know, the environment is very dynamic at this point in time.

And our next question today comes from David Cohen at Minerva.

So just a quick follow-up with regard to tariffs. Should the Supreme Court's decision occasion, the refund of tariffs paid up until this point. Is that a meaningful number for ESCO Ag?

Yes. Great question, David. Thank you. Yes, it is a meaningful number for us, and we're waiting to see what happens with the actual implementation of those refunds. Some of the tariffs we paid are not tied to the EPA tariffs. So it's not our total amount, but the amount that would be refunded is meaningful.

Do you want to put any numbers around that, a range perhaps?

Yes. No. It's in the, I'd say, $4 million to $5 million range.

And ladies and gentlemen, that concludes our question-and-answer session. I'd like to turn the conference back over to Wes Smith for any closing remarks.

Thank you, operator. Once again, thank you for your interest in escalated and joining our call. Should you have any questions, please feel free to reach out to us at [email protected], and a member of our team will follow up with you. This concludes our call today. You may now disconnect.

Thank you. That concludes today's conference call. We thank you all for attending. You may now disconnect your lines, and have a wonderful day.

Good day, and welcome to the Escalade Inc. Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to Wes Smith, Vice President of Financial Reporting 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 Third Quarter 2025 Results Conference Call. Leading the call with me today is Interim President and CEO, Patrick Griffin; and Stephen Wawrin, 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 lines for questions. With that, I would like to turn the call over to Patrick.

Thank you, Wes, and welcome to everyone joining us on today's call. Before I discuss our third quarter results, I'd like to address the leadership transition that we announced this morning. Effective October 29, I was appointed Interim President and CEO by the Board and replaced Armin Boehm, who departed the company on that same date. On behalf of the company, I want to thank Armin for his contributions over the last several months. We wish him the best in his future endeavors.

I want to assure our investors, employees and customers that this transition does not reflect any disruption to our strategic direction or our operations. The Board and leadership team remain fully aligned and committed to executing our long-term vision, and we remain focused on delivering exceptional consumer experiences, building enduring brand loyalty and maintaining operational excellence. These principles have defined who we have been for more than 5 decades as a public company and they continue to guide us today.

As many of you know, I've had the privilege of working at Escalade for the past 23 years and have served as a member of the Board of Directors since 2009. As a result, I will work to ensure that this leadership transition will be as seamless as possible for all the stakeholders. Finally, the Board and executive leadership team are confident in our path forward, and we remain sharply focused on creating value for our shareholders.

Turning now to our third quarter results. We experienced improved results driven by solid demand across most of our portfolio of leading brands as well as cost discipline and operational efficiency. We achieved these results despite heightened consumer uncertainty and ongoing tariff-related costs. Net sales [Audio Gap] of net sales. Margin improvement was driven by lower manufacturing and logistics costs, benefits from our ongoing footprint rationalization and tariff mitigation initiatives. Importantly, we believe our third quarter margins represent a sustainable level of performance absent any unforeseen cost or tariff pressures.

Top line growth was led by [Audio Gap] continued investment in innovative high-quality products positions us well in an environment where consumers are increasingly focused on both value and quality. These efforts have enabled us to gain market share in this dynamic market environment. As discussed on our prior calls, we have executed a proactive tariff mitigation and supply chain readiness strategy. This playbook not only supported margin expansion this quarter, but has also positioned us well for the holiday shopping season as we strategically manage our inventory levels and assortment.

Beginning in July, we implemented a series of targeted price increases across our portfolio. Our approach was surgical, grounded in careful analysis of price elasticity and market dynamics. These price increases reflect a balanced approach to share the impact of tariffs across the supply chain while preserving competitiveness and protecting margins. Our teams continue to closely monitor trade policy developments and will recalibrate as needed.

Looking ahead to the fourth quarter, we anticipate consumer spending to remain cautious, consistent with broader retail trends, which are likely to result in softer holiday sales compared to recent years. Notably, we have observed a shift in consumer spending patterns across our portfolio with strong demand for premium products, while demand for lower-priced products is softening. Persistent economic and geopolitical volatility has weighed on consumer confidence and sentiment, particularly with middle and lower-income consumers.

With price sensitivity elevated, many of these consumers are delaying higher ticket purchases, trading down or waiting for promotional opportunities. In response, we are collaborating closely with our retail partners to drive value-oriented marketing and promotional strategies for certain segments of the market, highlighting products that resonate most with consumers and aligning pricing and inventory with demand trends.

Our proactive supply chain management over the past 6 months ensured that we are well prepared for the holiday season. We are ahead of schedule from an inventory delivery perspective and are fully prepared to capitalize on the entire holiday shopping season. While navigating through near-term headwinds, we remain firmly focused on our long-term strategy of investing in product innovation and brand development to strengthen our market leadership and to enhance the consumer experience.

Through our investments, we are positioning Escalade for above-market growth and long-term value creation, anchored by leading brands defined by quality, innovation and durability. We are focused on strengthening our brands through strategic partnerships. Recent collaborations in archery, basketball and billiards are helping elevate visibility and consumer engagement. We've seen this model succeed with our Pickleball and Cornhole brands, and we expect similar results as we expand this strategy across our brand portfolio.

During the quarter, we launched our 2026 archery assortment, which included over 30 products across our Bear, Trophy Ridge and Cajun brands. Early response from consumers to these new products and cutting-edge innovations has been good. These new products include the Redeem and Alaskan Pro archery bows, offer advanced technology and performance at unparalleled price points. Within Trophy Ridge, our refreshed accessory lineup includes the #1 selling Whisker Biscuit arrow rest, continues to reinforce our market leadership in the archery category.

During the third quarter, we also completed the acquisition of Gold Tip from Revelyst. This acquisition aligns closely with our long-term strategic and financial criteria and will allow us to achieve greater scale and unlock additional synergies. Gold Tip's 20-year heritage in carbon arrows, along with Bee Stinger's premium stabilizers, enhances our category leadership and broadens our product offering to archery and bowhunting customers. We are actively integrating this business into our operations and expect this acquisition will be accretive to earnings in 2026.

Looking ahead, we will continue to pursue additional tuck-in acquisitions that are both financially accretive and strategically aligned. At the same time, we will maintain a disciplined focus on balance sheet strength by prioritizing debt reduction, consistent dividends and opportunistic share repurchases to support shareholder value creation.

We also continue to emphasize community engagement as an organization and with our team members. We are particularly passionate about supporting initiatives that foster positive change, bring people together and encourage healthy active lifestyles. As the latest example, we partnered with Project Blackboard and the Chicago Sky WNBA team to completely transform the basketball court at the Anna R. Langford Community Academy in Chicago. We look forward to continuing our community outreach efforts.

In summary, I am proud of our team's continued discipline, execution and strategic progress in the third quarter. While the consumer environment remains challenging, we are well positioned to navigate near-term uncertainty and deliver long-term value for our customers and shareholders. With that, I'll turn the call over to Stephen for a review of our third quarter financial results.

Thank you, Patrick. For the 3 months ended September 30, 2025, Escalade reported net income of $5.6 million or $0.40 per diluted share on net sales of $67.8 million. For the third quarter, the company reported gross margins of 28.1% compared to 24.8% in the prior year period. The 344 basis point increase in gross margin was primarily the result of lower operational costs driven by our facility consolidation and cost rationalization program, a reduction in storage and handling costs, partially offset by $4.3 million in tariff-related costs.

Selling, general and administrative expenses during the third quarter decreased by 4.1% or $0.5 million compared to the prior year period to $11.2 million. Earnings before interest, taxes, depreciation and amortization decreased by $1.3 million to $8.6 million in the third quarter of 2025 versus $9.9 million in the prior year period. This decline primarily reflects the absence of a onetime $3.9 million gain on the sale of assets recognized in the third quarter of last year.

Total cash used from operations for the third quarter of 2025 was $1 million compared to cash provided by operations of $10.5 million in the prior year period. The year-over-year decline in operating cash flow primarily reflects increased working capital usage, driven by the timing of quarter end accounts receivable collections and our strategic inventory investments in preparation for the ramp-up to the holiday season. As of September 30, 2025, the company had total cash and equivalents of $3.5 million. At the end of the third quarter of 2025, net leverage was 0.7x. As of September 30, 2025, we had $20.2 million of total debt outstanding. With that, operator, we will open the call for questions.

[Operator Instructions] We have the first question from the line of Rommel D. from Aegis Capital.

I wonder if you could just provide a little more granularity on these really strong market gains you guys are obviously displaying here with such solid top line performance despite a somewhat sluggish overall environment. You talked about archery, some major new product launches there. I wonder if you could just maybe touch on a couple of the other categories where you're seeing market share gains despite taking the price increase in July.

Thank you, Rommel. We've had pretty good success in other categories. Just an example, our safety category. We're taking market share there. We're a domestic manufacturer, and we've taken new opportunities against competitors that we're bringing in products. So we continue to see opportunities there. And then some of our other categories, and our games have done well as well. So we're, I think, poised for success with new products are going to continue to come out looking into the first quarter as well in the fourth quarter.

Okay. Great. And maybe just a follow-up on that. You highlight some of the stronger categories, archery, table takes, billiards, and safety. I just happen to know pickleball wasn't in that list despite the growth in that market. Can you just maybe talk about that? Was just maybe an off quarter or timing of new product launches. I wonder if you could just touch base on that category in particular.

Yes. No, Rommel, thanks. Pickleball, we've been in pickleball a long time. It's a growing overall market, and you read about it in the news. And so when they're building courts, they're converting courts, and it's also a competitive category. So we're continuing to maintain the market share that we have at retail if you go into a DICK'S and Academy, and we're continuing to invest with new products with the hype we just launched, and that was well received.

So over the long term, we're going to maintain our position in pickleball and continue to invest there. We think long term, it's going to be a sport that's going to be around for a long time. It's fun. It's easy to learn, and it's enjoyable.

Great. Maybe I could just do one last one on costs. In the first quarter, I think you highlighted $1.6 million impact from tariff and this quarter's $4.3 million. A lot of moving parts there. It seems to change on a weekly basis. But can you provide any insight on what the impact could be going into the fourth quarter? Is it roughly in that $4 million range? Or is it -- is that going to drop off from some of the recent negotiations delivering some benefits?

Yes. No, that's a great question. As you know, that's a dynamic situation right now as you read the news this morning with what's supposedly been negotiated with the meeting with Trump and GE. So we'll watch that and see how that impacts what we're purchasing, and that will maybe take some time to get implemented. But directionally, we're expecting the impact to be lower in the fourth quarter relative to the third quarter.

[Operator Instructions] We have the next question from the line of David Cohen from Minerva.

A couple of questions unrelated to one another. First of all, could you give us a little more color on the management transition, what the time line is for hiring a permanent CEO and what traits you're going to be looking for in the new CEO?

Yes. Thanks, David, for the question. So I think the main color is to refer to the press release that we announced and the Board will gather and look for the permanent CEO and the traits that they want to focus on. But I would say it's one where there's a focus on -- that's aligned with our culture as a company that has a growth mindset. And that is focused on the business.

Okay. The second question just relates to the comment about capital allocation and the continued focus on debt paydown. The debt level at this point is the lowest it's been in a long time. We're getting to a point where there's not going to be much more debt to pay down, which is obviously a happy problem. In your mind, does that change the priority list as to what we're going to be spending free cash flow on over the next 12 months?

That's a great question. When we think about leverage, we feel like we're in a good spot, but we don't mind having cash on the balance sheet as well. So we may be in a position we're building a cash position. We continue to look for acquisitions. We've got a nice pipeline of acquisitions. We were pleased to get the Gold Tip acquisition done this past quarter. And we think that's going to be a significant addition to our archery portfolio, which will start to play out in 2026.

We're continuing to pay a dividend, and we think that's important. And then we'll look for share buybacks opportunistically as well. So that's another lever that we have. And then finally, we're investing in our businesses as well in terms of domestic production here and warehousing and other things along with brand building and tooling and other things. So we're pushing all the levers from a capital allocation point of view.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Wes Smith for any closing remarks.

Thank you, operator. 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 [email protected], and a member of our team will follow up with you. This concludes our call today. You may now disconnect.

Thank you. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.