Good day, and welcome to the Escalade, Incorporated Second Quarter 2022 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Patrick Griffin, Vice President and Investor Relations. Please go ahead.

Thank you, operator. I'm Patrick Griffin, Vice President of Investor Relations and Corporate Development. On behalf of the entire team at Escalade, I'd like to welcome you to our second quarter 2022 results conference call. Leading the call with me today are President and CEO, Walt Glazer; and Stephen Wawrin, Chief Financial Officer. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. At the conclusion of our prepared remarks, we will open the line for questions. With that, I would like to turn the call over to Walt.

Thank you, Patrick, and welcome to those joining us today. During a period of rising macroeconomic challenges and ongoing supply chain complexities, our team displayed the creativity and agility that has enabled Escalade to thrive throughout our 100-year history. During the second quarter, we continued to focus on delivering a unique customer experience with our diversified portfolio of niche sports games and outdoor products while leveraging the benefits afforded by our hybrid domestic manufacturing and global sourcing capabilities, decentralized organizational structure and lean operating model. Through the first 6 months of the year, we delivered year-over-year growth in revenue and EBITDA while continuing to support a stable quarterly cash dividend, which currently yields 4.6% on an annual basis. Before we move into a more detailed discussion of our second quarter results, I'd like to share our observations on the current macroeconomic environment and specifically how we are managing our business to effectively navigate the impacts of rising inflation, ongoing supply chain complexities and shifting consumer sentiment and behavior. Let's begin with the actions we are taking to mitigate cost pressures created by substantially higher inflation. The June Producer Price Index was up 11.2% year-over-year, which is near the March record of 11.6%. PPI represents the average input cost for producers like Escalade and has been notably higher than the CPI, which represents cost increases formed by consumers. We, like many of our peers, are grappling with the rising cost of labor, transportation and raw materials, including wood, steel, aluminum, plastic resin and packaging. In response to these cost pressures, we are accelerating our cost reduction initiatives throughout our organization. We are also optimizing our product assortment and introducing innovative new products to deliver great value to our consumers, while enhancing our margins. Some recent highlights include our Trophy Ridge Digital…

Thanks, Walt, and welcome to those joining us on the call today. For the 3 months ended July 9, 2022, Escalade reported net income of $5.7 million or $0.42 per diluted share on net sales of $94.3 million. The company reported gross margin of 25.2%, flat to prior year period despite continued challenges related to the global supply chain, raw material cost inflation and labor constraints. Selling, general and administrative expense as a percentage of net sales increased to 15.6% in the second quarter of 2022 versus 13.9% in the prior year period due to lower sales volume and expenses related to the acquisition and integration of Brunswick Billiards. SG&A expenses for the legacy business units were down year-over-year on an absolute basis. Total operating cash flow less capital expenditures, was $1.7 million in the second quarter versus $6.9 million in the prior year period. Earnings before interest, taxes, depreciation and amortization declined 15.7% to $10.3 million in the second quarter of 2022 versus $12.3 million in the prior year period. For the 6 months year-to-date EBITDA increased 1.5% to $20.9 million versus $20.6 million in 2021. As of July 9, 2022, the company had total cash and equivalents of $6.2 million, together with $7.3 million of availability on our senior secured revolving credit to in 2027. As Walt indicated, this availability increased by $10 million in July following the close of our second quarter as we exercised a portion of our accordion on our senior secured credit facility. At the end of the second quarter 2022, net debt outstanding or total debt less cash was 2.55x trailing 12-month EBITDA. We announced a quarterly dividend of $0.15 per share to be paid to all shareholders of record on September 6, 2022, and dispersed on September 13, 2022. With that, we will turn the call over to the operator to begin our question-and-answer portion of the call.

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

Just a question on gross margins. You guys maintain them on a year-over-year basis, which -- not a lot of companies managing to do that these days. With all the cost pressures you're seeing, the -- I know you've obviously put through some significant initiatives and price increases, but is there a positive mix shift also taking place with regards to your product portfolio that's also helping drive that?

Sure. Thank you, Rommel. That's a great question. And I would say, primarily, it's an issue of careful purchasing and selective price increases. Our hope was to really match the prior year gross margin, match our margins to protect those, but also deliver as much value as possible to the consumer. But there is some mix shift going on. And as we discussed in the call, we're seeing the higher end products doing better than the lower-end products. And as an example, in our basketball business, the -- our goals with a 72-inch backboard are outperforming the 60-inch goals, which are outperforming the 54-inch goals, and those in turn are outperforming the 50-inch goals. So we see really a significant trend toward the higher-priced feature-rich items doing better than the lower-priced items in our portfolio.

Okay. And just a quick follow-up, if I may. The -- in terms of the macroeconomic outlook, there's some talk, obviously, that the other shoe that may drop is the housing market. Could you just maybe refresh our memory given the change in your product portfolio with acquisitions over the years since the last sort of housing market downturn. What -- how would you expect to see the impact play out on your various business units? Would that be billiards and basketball the most impacted if there were a weakness in the housing market?

Yes. Thank you. Of course, every recession is different, and every economic challenge is quite different. So after 9/11, we saw a significant increase in so were cocooning and people investing in their homes and the billiards business, for example, did quite well. Of course, as we all know, after the economic crisis of the 2008, 2009, a lot of people lost their homes and investments in homes declined quite significantly. We'll see how this 1 plays out. But we would note that -- there's a lot more household formation while prices and housing are coming off recent highs, there are still a lot of people who want to own a home, who are moving into more suburban locations with bigger yards and bigger homes. And so we think that those things will continue to benefit us. And I would note that our indoor game category is -- continues to do quite well.

[Operator Instructions] Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Patrick Griffin for any closing remarks.

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 ir@escaladeinc.com, and a member of our team will follow up with you. This concludes our call today. You may now disconnect.