Escalade(ESCA) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1 - Financial Statements This section presents the company's consolidated condensed financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, financial instrument fair values, stock-based compensation, segment reporting, revenue recognition, leases, debt, and tax provisions Consolidated Condensed Balance Sheets | Metric (Thousands) | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :----------------- | :------------ | :---------------- | :------------ | | Cash and cash equivalents | $10,422 | $4,194 | $362 | | Total Current Assets | $127,871 | $133,824 | $139,052 | | Total Assets | $218,339 | $226,330 | $243,066 | | Total Current Liabilities | $30,845 | $34,495 | $30,240 | | Total Liabilities | $50,001 | $57,333 | $77,084 | | Total Stockholders' Equity | $168,338 | $168,997 | $165,982 | - Cash and cash equivalents significantly increased to $10,422 thousand at June 30, 2025, from $4,194 thousand at December 31, 2024[10] - Total assets decreased by approximately $8 million from December 31, 2024, to June 30, 2025, while total liabilities decreased by approximately $7.3 million over the same period[10] Consolidated Condensed Statements of Operations Net Sales and Net Income (Thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $54,333 | $62,526 | $109,812 | $119,830 | | Net Income | $1,825 | $2,844 | $4,444 | $4,619 | Earnings Per Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.13 | $0.21 | $0.32 | $0.33 | | Diluted EPS | $0.13 | $0.20 | $0.32 | $0.33 | | Dividends declared | $0.15 | $0.15 | $0.30 | $0.30 | - Net sales decreased by 13.1% for the three months and 8.4% for the six months ended June 30, 2025, compared to the prior year[11] - Net income decreased by 35.8% for the three months and 3.8% for the six months ended June 30, 2025, compared to the prior year[11] Consolidated Condensed Statements of Stockholders' Equity Stockholders' Equity Changes (Six Months Ended June 30, 2025, Thousands) | Item (Thousands) | Amount | | :----------------- | :----- | | Balances at December 31, 2024 | $168,997 | | Net income | $4,444 | | Expense of restricted stock units | $962 | | Dividends declared | $(4,136) | | Purchase of stock | $(2,171) | | Issuance of common stock for service | $242 | | Balances at June 30, 2025 | $168,338 | - Total stockholders' equity decreased slightly from $168,997 thousand at December 31, 2024, to $168,338 thousand at June 30, 2025[13] - The company purchased $2,171 thousand of stock and declared $4,136 thousand in dividends during the six months ended June 30, 2025[13] Consolidated Condensed Statements of Cash Flows Cash Flow Summary (Six Months Ended June 30, Thousands) | Activity | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Net cash provided by operating activities | $17,083 | $13,299 | | Net cash used in investing activities | $(976) | $(1,082) | | Net cash used in financing activities | $(9,879) | $(11,871) | | Net increase in cash and cash equivalents | $6,228 | $346 | | Cash and cash equivalents, end of period | $10,422 | $362 | - Net cash provided by operating activities increased by $3,784 thousand (28.4%) for the six months ended June 30, 2025, compared to the prior year[14] - Cash and cash equivalents at the end of the period significantly increased to $10,422 thousand in 2025 from $362 thousand in 2024[14] Notes to Consolidated Condensed Financial Statements - The financial statements provide a condensed view of the company's financial position and performance, with detailed notes offering crucial context to the reported figures and accounting practices[16] - The company operates as a single operating segment, 'Sporting Goods,' with all external revenues derived from this segment[26][28] - Revenue recognition is primarily at a point in time when control of goods transfers to customers, typically based on shipping terms[34] Note A – Summary of Significant Accounting Policies - The company's interim financial reporting policies are consistent with its annual financial reporting policies[16] - These condensed financial statements should be read in conjunction with the consolidated financial statements and notes in the Company's 2024 Form 10-K[16] Note B ‑ Seasonal Aspects - Results for the three and six months ended June 30, 2025 and 2024, are not necessarily indicative of full-year results, suggesting potential seasonality[17] Note C ‑ Inventories Inventories (Thousands) | Category | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :--------- | :------------ | :---------------- | :------------ | | Raw materials | $3,843 | $2,721 | $3,629 | | Work in progress | $2,936 | $2,370 | $2,576 | | Finished goods | $65,893 | $70,934 | $80,366 | | Total | $72,672 | $76,025 | $86,571 | - Total inventories decreased by $3,353 thousand from December 31, 2024, to June 30, 2025, primarily due to a reduction in finished goods[18] Note D – Fair Values of Financial Instruments - The fair value of cash and cash equivalents, accounts receivable, accounts payable, and certain other liabilities approximated their carrying values due to their short-term nature[19] Term Loan Facility Fair Value (Thousands) | Date | Carrying Value | Fair Value | | :--- | :------------- | :--------- | | June 30, 2025 | $22,024 | $20,744 | | December 31, 2024 | $25,595 | $23,528 | | June 30, 2024 | $29,167 | $26,390 | - The fair value of the term loan is estimated using Level 2 inputs, such as treasury rates for similar instruments[20][21] Note E – Stock-Based Compensation - During the six months ended June 30, 2025, the Company awarded 18,000 restricted stock units to directors, and 105,181 restricted stock units and 35,000 shares of restricted stock to employees[23] Stock-Based Compensation Expense (Thousands) | Period | 2025 | 2024 | | :----- | :--- | :--- | | Three Months Ended June 30 | $495 | $497 | | Six Months Ended June 30 | $962 | $926 | - As of June 30, 2025, there was $2.8 million in unrecognized stock-based compensation expense related to non-vested stock awards, expected to be recognized over a weighted average period of 2.2 years[25] Note F ‑ Segment Information - The Company operates as one operating segment, 'Sporting Goods,' with its chief operating decision maker reviewing consolidated financial information[26] Segment Net Income (Loss) (Six Months Ended June 30, 2025, Thousands) | Segment | Net Income (Loss) | | :-------- | :---------------- | | Sporting Goods | $5,317 | | Corp. | $(873) | | Total | $4,444 | - All revenues from external customers for both the three and six months ended June 30, 2025, were generated by the Sporting Goods segment[27][28] Note G – Dividend Payment - The Company paid quarterly dividends of $0.15 per common share on January 13, 2025, April 14, 2025, and July 14, 2025[29][30] - Each quarterly dividend payment amounted to approximately $2.1 million and was charged against retained earnings[29][30] Note H ‑ Earnings Per Share Weighted Average Common Shares Outstanding (Thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic | 13,769 | 13,871 | 13,742 | 13,828 | | Diluted | 13,908 | 14,054 | 13,883 | 14,023 | - Dilutive effects of stock options and restricted stock units added 139 thousand shares for the three months and 141 thousand shares for the six months ended June 30, 2025[31] Note I – New Accounting Standards and Changes in Accounting Principles - The Company is currently evaluating the impact of ASU 2023-09, 'Improvements to Income Tax Disclosures,' issued in December 2023[33] - ASU 2023-09 expands disclosures for income tax rate reconciliation and requires disclosure of income taxes paid in U.S. and foreign jurisdictions, effective for fiscal years beginning after December 15, 2024[33] Note J – Revenue from Contracts with Customers - Revenue is recognized when performance obligations are satisfied, generally with the transfer of control of goods at a point in time based on shipping terms[34] Total Net Sales by Period (Thousands) | Period | 2025 | 2024 | | :----- | :--- | :--- | | Three Months Ended June 30 | $54,333 | $62,526 | | Six Months Ended June 30 | $109,812 | $119,830 | Gross Sales by Channel (Six Months Ended June 30, Thousands) | Channel | 2025 | 2024 | | :---------------- | :----- | :----- | | Mass Merchants | $37,510 | $40,152 | | Specialty Dealers | $38,211 | $42,273 | | E-commerce | $38,764 | $43,805 | | International | $6,490 | $6,524 | | Other | $1,646 | $1,802 | | Total Gross Sales | $122,621 | $134,556 | Note K – Leases - The Company has operating leases for office, manufacturing, and distribution facilities, as well as certain equipment, with remaining lease terms of 1 to 4 years[42] Total Operating Lease Cost (Thousands) | Period | 2025 | 2024 | | :----- | :--- | :--- | | Three Months Ended June 30 | $525 | $901 | | Six Months Ended June 30 | $928 | $1,798 | - The weighted average remaining lease term for operating leases was 3.20 years, and the weighted average discount rate was 6.61% as of June 30, 2025[45] Note L – Commitments and Contingencies - The Company is involved in litigation in the normal course of business but does not believe the disposition of such claims will have a material adverse effect on its business or financial condition[47] Note M – Debt - Total debt was $22.0 million as of June 30, 2025, a decrease of $3.6 million from December 31, 2024[49][64] - The Fifth Amendment to the Credit Agreement (October 2024) replaced the fixed charge coverage ratio with a minimum interest coverage ratio of 3.50 to 1:00[48][65] - The maximum availability under the senior revolving credit facility was decreased to $60.0 million, with an accordion feature allowing an increase up to $85.0 million[48][65] - The Company was in compliance with all debt covenants as of June 30, 2025[49][66] Note N – Provision for Taxes Effective Tax Rate | Period | 2025 | 2024 | | :----- | :--- | :--- | | Three Months Ended June 30 | 25.8% | 23.8% | | Six Months Ended June 30 | 24.7% | 23.8% | - The effective tax rate increased for both the three and six months ended June 30, 2025, compared to the prior year periods[50][63] Note O – Subsequent Events - The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2024, including changes to accelerated tax deductions and permanent extensions of certain Tax Cuts and Jobs Act provisions[51] - The Company is currently evaluating the impact of the OBBBA on its consolidated financial statements[51] Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, highlighting a decrease in net sales and net income for the quarter and six months ended June 30, 2025, primarily due to softer market demand. Despite sales challenges, gross margin improved due to cost management. The company's strategic focus remains on growing its Sporting Goods business through organic growth, acquisitions, and new product development, while managing debt and liquidity effectively - Net sales decreased 13.1% for the second quarter of 2025 and 8.4% for the six months ended June 30, 2025, primarily due to softer market demand and delayed customer shipments[60] - Gross margin increased to 24.7% for Q2 2025 and 25.7% for H1 2025, driven by lower fixed costs and decreased inventory storage and handling costs, partially offset by tariff-related costs[61] - Total debt decreased to $22.0 million as of June 30, 2025, representing 13.1% of stockholders' equity, and the company was in compliance with all debt covenants[64][66] - The company expects cash generated from 2025 operations and access to revolving credit to provide sufficient cash flows for operations and growth needs[67] Forward-Looking Statements - This report contains forward-looking statements subject to various risks and uncertainties, including those related to business objectives, tariffs, international operations, and economic conditions[52] - Escalade's future financial performance could differ materially from management's expectations, and the company undertakes no obligation to release revisions to these statements[52] Overview - Escalade is focused on growing its Sporting Goods business through organic growth, strategic acquisitions, and new product development[53] - The company leverages strong brands, established customer relationships, and manufacturing/import experience to be a low-cost supplier[55] - Key indicators of success include revenue growth, earnings growth, new product introductions, and expansion of distribution channels[57] - Management acknowledges potential adverse impacts from tariffs, trade wars, inflation, rising interest rates, and declining consumer confidence[58] Results of Operations Revenue and Gross Margin - Sales decreased 13.1% for Q2 2025 and 8.4% for H1 2025 compared to the prior year, primarily due to softer market demand and delayed customer shipments[60] - Gross margin increased by 56 basis points to 24.7% for Q2 2025 and to 25.7% for H1 2025, driven by lower fixed costs and decreased inventory storage and handling costs[61] - Tariff-related costs and unfavorable product mix partially offset the gross margin improvements[61] Selling, General and Administrative Expenses - Selling, general and administrative (SG&A) expenses increased by $0.1 million (1.8%) to $10.2 million for Q2 2025, resulting in an increase to 18.9% of sales from 16.1% in Q2 2024[62] - For the six months ended June 30, 2025, SG&A expenses remained stable at $20.8 million compared to the prior year[62] Provision (Benefit) for Income Taxes Effective Tax Rate | Period | 2025 | 2024 | | :----- | :--- | :--- | | Three Months Ended June 30 | 25.8% | 23.8% | | Six Months Ended June 30 | 24.7% | 23.8% | - The effective tax rate increased for both the three and six months ended June 30, 2025, compared to the same periods in the prior year[63] Financial Condition and Liquidity Total Debt (Thousands) | Date | Total Debt | | :--- | :--------- | | June 30, 2025 | $22,024 | | December 31, 2024 | $25,595 | | June 30, 2024 | $43,167 | - Total debt decreased by $3.6 million to $22.0 million as of June 30, 2025, representing 13.1% of stockholders' equity[64] - The company amended its credit agreement in October 2024, replacing the fixed charge coverage ratio with a minimum interest coverage ratio of 3.50 to 1:00 and adjusting the revolving credit facility[65] - Escalade was in compliance with all debt covenants as of June 30, 2025, and expects sufficient cash flows from operations and revolving credit for future needs[66][67] Item 3 - Quantitative and Qualitative Disclosures About Market Risk This section is marked as 'Not Required' in the report - This item is explicitly stated as 'Not Required' in the filing[68] Item 4 - Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2025, concluding they were effective. No material changes in internal control over financial reporting occurred during the second quarter of 2025 - The company's disclosure controls and procedures were evaluated and concluded to be effective as of June 30, 2025[70] - No material changes in internal control over financial reporting occurred during the second quarter of 2025[72] Evaluation of Disclosure Controls and Procedures - Disclosure controls and procedures are designed to ensure timely and accurate reporting of information required in Exchange Act reports[69] - The CEO and CFO participated in the evaluation and concluded that the disclosure controls and procedures were effective as of June 30, 2025[70] Changes in Internal Control over Financial Reporting - Management, with CEO and CFO participation, evaluated changes in internal controls over financial reporting during Q2 2025[71] - There have been no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting during Q2 2025[72] PART II. OTHER INFORMATION Item 1 - Legal Proceedings The company refers to Note L of the Consolidated Condensed Financial Statements for information on legal proceedings, indicating that no material adverse effect on its business or financial condition is anticipated from existing litigation - Information regarding legal proceedings is incorporated by reference from Note L of the Notes to Consolidated Condensed Financial Statements[73] - The company does not believe the disposition or ultimate resolution of existing claims or lawsuits will have a material adverse effect on its business or financial condition[47] Item 1A - Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024, which are incorporated by reference into this report - No material changes in risk factors have occurred since the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[74] - The risk factors from the aforementioned Form 10-K are incorporated by reference[74] Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase program, which was increased to $20 million in February 2025. As of June 30, 2025, the company had repurchased 2,443,316 shares for an aggregate price of $33,178,513 under this program, with $19,133,817 remaining authorized for future repurchases - The Board of Directors increased the stock repurchase program to $20,000,000 in February 2025[75] Stock Repurchase Program Summary (as of June 30, 2025) | Metric | Value | | :------------------------------------------------ | :---------- | | Total shares purchased under current program | 2,443,316 | | Aggregate price paid under current program | $33,178,513 | | Maximum dollar value of shares yet to be purchased | $19,133,817 | - No shares were repurchased during June 2025[75] Item 3 - Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - There were no defaults upon senior securities[77] Item 4 - Mine Safety Disclosures This item is marked as 'Not applicable' in the report - This item is explicitly stated as 'Not applicable' in the filing[77] Item 5 - Other Information The company reported no other information for the period - There is no other information to report[78] Item 6 - Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, CEO and CFO certifications, and XBRL interactive data files - Exhibits include Articles of Incorporation, Amended By-laws, CEO and CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), and various Inline XBRL Taxonomy documents[82] Signature - The report was signed on August 1, 2025, by Stephen R. Wawrin, Vice President and Chief Financial Officer[82]