Escalade, Inc. — 2022 Form 10-K
Business context and reporting period. Escalade manufactures, imports and distributes sporting goods and recreational products, including archery, basketball, billiards, table tennis, pickleball, fitness and outdoor games. This filing covers the fiscal year ended December 31, 2022, a 53-week year; the prior fiscal year ended December 25, 2021 and included 52 weeks. Brunswick Billiards was acquired in January 2022.
Financial performance and condition
| Metric | 2022 | 2021 |
|---|---|---|
| Net sales | $313.8 million | $313.6 million |
| Gross margin | 23.5% | 24.6% |
| Operating income | $26.3 million; 8.4% margin | $31.9 million; 10.2% margin |
| Net income | $18.0 million | $24.4 million |
| Diluted EPS | $1.31 | $1.76 |
| Cash from operations | $8.5 million | $0.9 million |
- Net income declined 26.3%; sales were essentially flat. Gross margin fell as logistics, inventory handling and storage costs rose. SG&A increased 3.2% to $44.8 million, partly reflecting Brunswick.
- Cash and cash equivalents were $4.0 million at year-end. Current assets were $188.2 million and current liabilities $38.9 million; the reported current ratio was 4.8, compared with 3.5.
- Net inventory rose $29.5 million to $121.9 million, partly due to Brunswick and elevated stock levels. Receivables declined to $57.4 million from $66.0 million.
- Year-end debt was $94.9 million, compared with $57.5 million. This included $55.0 million drawn on the revolving facility and a $39.9 million term loan. The 2022 average effective interest rate was 3.8%, versus 2.9%; the year-end revolving rate was 6.92%.
- Investing cash outflow was $37.8 million, including $35.8 million for Brunswick. Dividends paid were $8.2 million. The company estimated 2023 capital expenditures of approximately $3.7 million.
Material changes, outlook and risks
- Sales gains from Brunswick, pickleball and indoor games were largely offset by lower sales in outdoor categories, including archery, basketball, water sports and playground products. The filing reports that pandemic-era demand may not persist.
- Management said elevated inventory and late-arriving goods increased costs and hurt 2022 results; inventory optimization may take time. Higher material prices and freight costs also pressured profitability.
- Management believed projected 2023 operating cash flow and committed borrowing capacity would be sufficient for operations, but warned that weaker economic conditions could impair profitability and said cost reductions or infrastructure realignment may be considered. The filing provides no specific revenue or earnings guidance.
- The revolving facility’s maximum availability was increased to $90 million, with maturity extended to January 2027. Amendments adjusted debt-to-EBITDA covenant terms and allowed limited add-backs for certain expenses. The company stated that substantially all its assets other than real estate secure the credit agreement.
- After year-end, on February 21, 2023, the board approved closing and disposing of the Rosarito, Mexico manufacturing facilities; those assets were classified as held for sale at year-end. Management cited profitability and operational efficiency objectives.
- Two customers represented approximately 23% and 12% of 2022 revenue; one customer accounted for approximately 28% of year-end receivables. Other key risks include supply-chain disruption, tariffs, inflation, customer demand changes, and product liability or recalls. Product recalls occurred in 2021 and 2022.
- The quarterly dividend was $0.15 per share; the board may change or discontinue it. The company reported no material adverse effect from ordinary-course litigation. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether inventory levels normalize without material markdowns or further margin pressure, and how 2023 sales compare with the prior year’s 53-week period.
- The financial and operational effects of the Rosarito closure and disposal, including related costs and sourcing or capacity changes.
- Brunswick’s contribution to sales and earnings, acquisition integration progress, and the assumptions supporting acquired goodwill and intangible values.
- Customer concentration and collection risk, particularly the customer holding approximately 28% of receivables.
- Debt covenant headroom, borrowing costs, and cash generation relative to dividends, capital spending and debt repayment.