Good day, and welcome to the Escalade Inc. 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 at Escalade, 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 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 a 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 and 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…

Thank you, Patrick. For the 3 months ended December 31, 2025, Escalade 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 costs driven by our facility consolidation and cost rationalization program, a reduction in storage and handling costs and the benefit of the Gold Tip 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% or $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 Rommel Dionisio with 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?

Rommel, Patrick here. That's a good question. The facility is located in only Illinois, where we already have 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 meant to support future 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 into 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 release, demand across your higher value premium brands remains resilient. So would that have been sort of a positive mix driver during the quarter? And I know that's offset with consumer 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 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 Bear Archery, 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, Rommel, 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 significant additional price increases at this point. If tariff -- if that environment changes a lot, 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 Escalade?

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 IEEPA 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 Escalade and joining our call. Should you have any questions, please feel free to reach out to 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.

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.