Greetings and welcome to the Escalade Fourth Quarter and Full Year 2023 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Patrick Griffin, Vice-President Corporate Development. Thank you, you may begin.

Thank you, operator. On behalf of the entire team at Escalade, I’d like to welcome you to our fourth quarter and full year 2023 results conference call. Leading the call with me today are President and CEO, Walt Glazer; 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 financial 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 on the call. Our team delivered a strong finish to the year, our performance highlighted by improved gross margins, robust cash generation and a significant reduction in leverage. We generated $20.6 million of cash from operations in the fourth quarter, which supported $21.1 million in debt repayments and a one-turn decline in our net leverage ratio at year end. The strong cash generation during the quarter was driven by our continued emphasis on improved working capital efficiency, which included a strategic focus on inventory reduction. While our inventory reduction initiatives drove substantial cash flow in the quarter, our margins were pressured as a result of those efforts. Even so, our fourth quarter gross margins still improved by more than 190 basis points versus the prior year fourth quarter due to lower freight costs, improved sales mix, and price discipline on our in-line product assortments. Our fourth quarter sales declined by 9.2% versus prior year levels, our sales benefited from strong growth in our basketball and indoor games categories, offset by softness in most other categories. Exiting the holiday selling season, we believe channel inventories have declined meaningfully as our retail partners successfully drove product sell-through. This has helped position us for a solid start to 2024 with most retail inventories in good shape. We continue to experience strong momentum in our direct-to-consumer sales with non-licensed DTC sales up 39% in the fourth quarter versus the prior year driven by growth across most of our product lines. Looking ahead, we continue to closely monitor the relative health of household balance sheets, employment conditions, and consumer discretionary spending. Changing consumer behavior has pressured discretionary spending in most of our categories. We expect consumer demand to remain relatively soft as these trends continue into…

Thank you, Walt. For the three months into December 31st, 2023, Escalade reported net income of $2.9 million or $0.21 per diluted share on net sales of $65.5 million. For the fourth quarter, the company reported gross margins of 24.3% compared to 22.4% in a prior year period. The 192-basis point improvement was primarily the result of more favorable product sales mix, lower freight costs, reduced inventory handling expenses, and operating expense reductions, partially offset by the impact of our inventory reduction initiative and under absorbed fixed costs associated with our facility in Mexico. Selling, general and administrative expenses during the fourth quarter decreased by 4% compared to the prior year period to $10.4 million. As a percentage of net sales, SG&A increased 80 basis points year-over-year to 15.8% in the fourth quarter of 2023 compared to 15% in the fourth quarter of 2022. The decrease in SG&A expense year-over-year was a result of overhead cost reductions and lower variable spending, including incentive compensation. Earnings before interest, taxes, depreciation, and amortization increased by $0.6 million to $6.4 million in the fourth quarter of 2023 versus $5.8 million in the prior year period. Total cash provided by operations for the fourth quarter of 2023 was $20.6 million for the quarter compared to $14.3 million in the prior year period. The increasing cash flow from operations primarily reflects cash generated from improvements to working capital as a result of a reduction of inventories and accounts payable through the fourth quarter of 2023. For the full year, capital expenditures were similar to the prior year. As of December 31, 2023, the company had total cash and equivalents of $16,000, together with $66.8 million of availability on our senior Secure Revolving Credit Facility, maturing in 2027. At the end of the fourth quarter of…

Thank you. [Operator Instructions] Our first question comes from Rommel Dionisio with Aegis Capital Corp. Please say your question.

Good morning. Thanks for taking my question. Just want to ask about the retail inventory situation. I think you mentioned that retail inventory has come down. Are we at a point now where sell and equal sell through, or are we still maybe a few months or a couple quarters away from that? Thanks very much.

Hey, good morning. Rommel, and thank you for your question. We're involved in a lot of different categories, and I would say that for the most part, retail inventories are balanced and in good shape. There are a couple categories where there's still some excess inventory in the system, and actually there are a few areas where retail inventories are sort of below normal. So, I guess to answer your question, overall, I would say that retail inventories are pretty much in balance, and POS should generally reflect the level of factory sales that we're seeing.

Okay, and maybe a follow-up to that. As retail inventories normalize, are you seeing any sort of moderation in the competitive promotional environment, or is that obviously demand is a factor in that as well? I wonder if you could just comment on the competitive promotions across categories? Thanks.

Sure. Once again, it depends on the category. I would say that in certain high-growth categories, we're seeing just a tremendous amount of promotional activity, a lot of money being spent on all sort of programs. We will compete to maintain our market positions, but I'd say in certain categories, it's been quite strong. In others, I know no real change.

Okay, maybe one last follow-up question if I could. The financial controls that you've alluded to in the prepared comments, will there be a meaningful cost impact that you would expect in 2024, is it more just maybe a different allocation of current expenditures? Thanks.

Sure. Yes, Rommel, we do expect that we're budgeting for some higher audit cost and some higher cost in our IT systems and various controls. However, that doesn't, we don't think it's significant enough to change our outlook. We are cautious about the consumer, we're cautious regarding top-line sales, but we do believe that we have substantial margin enhancement opportunities particularly relative to 2023, when we had some unusual costs around storage, inventory handling and so forth. And then also, as I think we alluded to, as we were aggressively reducing our inventory, in some cases we were running our facilities below optimal levels, which that impacts margin somewhat. And then also we did do some discounting in some areas where we had some excess and some inventory that was moving towards obsolete. I wouldn't say it was obsolete, but it was things that we wanted to move. And so, we were willing to discount those and sell those at a little bit lower margins. So, I guess the message I'm trying to send is that we're cautious about the top-line, but we feel good about the margin opportunities.

Great, thanks so much for taking my questions.

Thank you. And there are no further questions at this time. I'll hand the floor back to Patrick Griffin for 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. That concludes our call today. You may now disconnect.

Thank you. All parties may disconnect.