Escalade(ESCA)2022-02-21 16:00Revenue and Customer Dependence - Escalade Sports generated approximately 21% of its revenues from Amazon.com, Inc. in 2021, with Dick's Sporting Goods contributing around 11%[10]. - As of December 25, 2021, approximately 24% of total accounts receivable were from Amazon.com, Inc.[11]. - Escalade's reliance on key customers like Amazon and Dick's Sporting Goods poses a risk to revenue stability[10][11]. - The Company relies heavily on a few significant customers, with two major customers accounting for over 10% of consolidated gross sales in the 2021 fiscal year[42]. - The Company faces risks from customer financial difficulties, which could lead to significant write-offs of receivables and adversely affect financial condition[43]. Financial Performance - Net revenue increased by 14.6% in 2021 compared to 2020, primarily driven by growth in outdoor product categories such as archery and pickleball[123]. - Gross margin decreased to 24.6% in 2021 from 27.3% in 2020, negatively impacted by currency exchange rates and higher supply chain costs[123]. - Selling, general and administrative expenses (SG&A) rose to 3.1 million or 7.6% from 2020, with SG&A as a percentage of sales decreasing to 13.8%[124]. - Operating income decreased to 32.7 million in 2020, while net income fell to 23.6 million[127]. - The Sporting Goods segment experienced a net income decline of 7.3% in 2021, following a significant increase of 293.9% in 2020[115]. Supply Chain and Operational Risks - Price increases in raw materials negatively impacted the Company's net income in fiscal year 2021, highlighting supply chain vulnerabilities[44]. - Increased shipping costs due to container shortages are currently affecting the Company's ability to meet customer demand[49]. - The Company does not have long-term supply contracts with significant suppliers, which could lead to procurement challenges and impact liquidity[48]. - The ongoing COVID-19 pandemic may lead to future business disruptions, inventory shortages, and delivery delays, which could materially affect the company's financial condition and results of operations[74]. - The company cannot predict the long-term impact of the COVID-19 pandemic on its customers and suppliers, creating uncertainty in demand for its products[76]. Acquisitions and Growth Strategy - Escalade completed the acquisition of Brunswick Billiards® on January 21, 2022, enhancing its billiards brand portfolio[17]. - The company has made strategic acquisitions over the years, including the assets of Triumph Sports USA in 2016 and Lifeline Fitness, Inc. in 2017[17]. - The Company is focused on organic growth, strategic acquisitions, and new product development to enhance its Sporting Goods segment[110]. - Escalade's growth strategy includes expanding its e-commerce business and direct-to-consumer distribution channels[36]. Financial Position and Liquidity - Total current assets increased to 145,398,000 in December 2020, representing an increase of 17.6%[208]. - Cash and cash equivalents rose to 3,505,000 in December 2020, a growth of 24.8%[208]. - Total liabilities grew to 81,549,000 in December 2020, reflecting a rise of 28.9%[208]. - Long-term debt increased to 30,073,000 in December 2020, which is a substantial increase of 67.5%[208]. - The current ratio improved to 3.5 in 2021 from 3.1 in 2020, indicating better liquidity[129]. Regulatory and Compliance Risks - International operations expose the Company to risks such as political instability and trade regulations, which could adversely affect profitability[65]. - Tariffs on imported goods, particularly from China, have increased costs and could lead to lower profitability if price increases are not accepted by customers[66]. - The company is subject to customs and tax requirements, with potential adverse effects from changes in U.S. policies and Brexit, which could impact import costs and trade regulations[69]. - The Company believes it is in material compliance with all applicable environmental regulations and maintains satisfactory conditions for its facilities[99]. Internal Control and Audit - Escalade's management assessed the effectiveness of internal control over financial reporting as of December 25, 2021, and determined it was effective[160]. - The audit report expressed an unqualified opinion on the effectiveness of Escalade, Incorporated's internal control over financial reporting[199]. - The financial statements were audited in accordance with PCAOB standards, ensuring compliance and reliability[188]. - The Company has been audited by BKD, LLP since 1977, ensuring a long-standing relationship with the auditing firm[194]. Market Conditions and Economic Factors - The sporting goods market is highly fragmented and competitive, with Escalade facing competition from larger companies with greater resources[30]. - The company faces risks from changes in economic conditions that influence consumer spending, which could negatively impact sales and profitability[86]. - The company is exposed to risks related to changes in currency exchange rates, which can significantly impact earnings and financial condition[71]. - The company's operations may be disrupted by natural disasters, political unrest, or public health crises, affecting supply chain and manufacturing[95].