Lifetime Brands, Inc.

Good morning, ladies and gentlemen, and welcome to the Lifetime Brands fourth quarter 2021 earnings conference call. At this time, I would like to inform all participants that their lines will be in listen-only mode. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, please press star, then one on your telephone keypad. I would now like to introduce your host for today's conference, Andrew Squire. And Mr. Squire, you may begin.

Thank you. Good morning, and thank you for joining Lifetime Brands' fourth quarter 2021 earnings call. With us today for management are Rob Kay, Chief Executive Officer, and Larry Winokur, Chief Financial Officer. Before we begin the call, I'd like to remind you that our remarks this morning may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in today's press release, and others are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the day hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update such statements. Our remarks this morning and in today's press release also contain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included in such release is a reconciliation of these non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. With that introduction, I'd like to turn the call over to Rob Kay. Please go ahead, Rob.

Thank you. Good morning, everyone, and thank you for joining us today to discuss Lifetime Brand's fourth quarter and full year 2021 financial results. We are pleased with our strong performance in the fourth quarter, which marks another period of significant growth and capped a record year for lifetime in 2021, as we continue to drive significant value for our stakeholders. While inflationary and supply chain challenges continue to impact our industry and many others, our team effectively managed costs and continued our actions to not only mitigate these challenges, but deliver substantial growth in spite of them. Our strong execution in the face of this challenging macroeconomic environment enabled us to generate adjusted EBITDA of $95.1 million, or a 23% increase over 2020, which exceeded the high end of our guidance for 2021. We delivered a strong gross margin dollar increase of 29.3 million, or 10.7%, as we managed cost pressures in the business, focused on growing market share, and implemented price increases to offset increased supply chain, freight, and other inflationary cost pressures. While supply chain disruptions did have an impact on revenues in the fourth quarter, We still outperformed on revenues compared to 2020, and our full year results in both revenues and EBITDA achieved record levels, thanks to continued growth and market share gains across product categories in the US and increased operating cash flow in our international business. While we estimate that supply chain disruptions had a negative impact on fourth quarter revenue of approximately $20 million, revenues and EBITDA still increased meaningfully for the year. Of note, while some of these delays resulted in canceled orders, the majority of these missed shipments are expected to ship throughout 2022. Starting with our core business in the U.S., we continue to see very strong end market demand across the majority of our product categories. Similar to prior quarters, our largest category, tools and gadgets, performed well, further contributing to our overall gross margin growth. We saw strong performance in our rapid accessory line, driven by robust demand across various channels, including club, mass, and e-commerce. And our plant box and tailor lines delivered record results in 2021, driven by strong consumer demand for these products. Further, we continued to gain traction with our beautiful brands at Walmart and see meaningful opportunities to expand that product line into new categories over the next few years. Brick and mortar stores in the US continued their strong rebound in the fourth quarter, even with the surge of the Omicron variant at the very end of the year. This drove growth for the company as we were able to sustain the market share gains that we achieved in 2020. In e-commerce, we greatly improved our margins and continued to see strong growth in this channel on a dollar sales basis, with e-commerce sales reaching $43.4 million in the fourth quarter and $136.5 million for the full year. The full year e-commerce sales as a percentage of revenue were down slightly to 17.7% compared to peak pandemic levels of 18.9% a year ago. This is consistent with the greater industry trend as brick and mortar channels gained back share at the expense of e-commerce throughout 2021. Continuing to expand our e-commerce business remains an important growth driver for Lifetime, and we continue to make great progress in both our core US market as well as internationally. Turning now to our international business. Our international business continues to benefit from the transformation that we fully implemented in 2020. And while we saw meaningful growth in the first three quarters of 2021, the fourth quarter saw a decline related to pressures from Brexit and end market disruption due to the adverse impact of Omicron variant throughout Europe. The international business achieved strong growth in the first fourth quarter and full year 2021 in gross margin percentage. This is directly attributable to our implementation of our transformation strategy. We continue to expand our Asia Pacific presence with growth of 47.5% for the full year achieving full year positive contribution margin in 2021. This result was achieved through meaningful growth in Australia and New Zealand and the continued ramp up of our e-commerce business in China, building on our successful launch in Tmall. We are leveraging the lessons learned from the Tmall launch as we transition even more categories and brands to the Tmall platform. We achieved these results in our international business despite seeing a more significant impact related to the Omnicom surge in Europe than in the US, with more widespread store closures, particularly in the UK and continental Europe. These COVID-related challenges, as well as the Brexit pressures I mentioned earlier, impacted our ability to ship goods from our UK warehouse to the continent in a timely manner. Going forward, these types of challenges will be significantly offset by the addition of our new warehouse in the Netherlands, which we expect to be up and running by the end of March 2022. The Netherlands warehouse will continue to drive our overall cost basis down and enable us to ensure we consistently meet the service level expectations we set for ourselves with the ability to ship across Europe within 24 to 48 hours. Combined with the new country managers we have installed in key geographies across Europe, we expect to continue to drive meaningful growth in our international business in 2022 and beyond. We also continue to make exciting progress on our other strategic growth initiatives, starting with Mikasa Hospitality. As I discussed last quarter, we invested in top talent in this area and staffed our hospitality business with world-class professionals. As a result, the commercial food service business is ramping up well, and we have begun to win very significant national accounts like Chili's and Hilton Hotels. La Casa Hospitality began generating revenue in 2021, and with the recent win, and a rebound in the hospitality market underway, remains on track to reach profitability in the second half of 2022. As we have said previously, we see this business as a huge growth opportunity for Lifetime. We expect to reach $10 million in revenue over the coming year and continue to see this as a $60 million business by 2026. We had a number of exciting product launches in 2021, including the successful launch of our KitchenAid cutlery line, and we expect to see the full benefits of this line in 2022. We also successfully relaunched our year-and-date business and website in 2021, which we continue to expect to be accretive by 2022. Finally, RightTime has continued its expansion into adjacent categories, including outdoor, pet, and storage and organization. While we are still in the early stages of establishing these categories, the early results are very promising. We have a lot of great products in development and expect more meaningful revenue contributions beginning in 2022. Additionally, as you may have seen last week, we announced our exciting acquisition of Swell Bottle. for creating the first reusable hydration fashion accessory, as well as a perfect fit for our growing and successful hydration and storage categories, and its well-established e-commerce presence will expand our direct consumer offering. Further, its significant corporate partnership business will open up a new and attractive channel for lifetime with meaningful opportunities for a number of our brands in our existing portfolio. We expect Swell to be fully integrated into our operations in the second quarter of 2022, at which point we believe it will contribute approximately $4.5 million of incremental EBITDA on an annualized basis. In addition to our strategic growth drivers, we continue to focus on operational excellence. Over the past year, we accomplished our goal of transitioning all our direct-to-consumer websites to Shopify, This shift provides a uniform back end for our direct-to-consumer business and creates significant operational efficiencies across the business. Before I conclude, I want to take a moment to touch on the ongoing macroeconomic headwinds that are still being felt across industries. While we continue to take action to effectively mitigate supply chain and inflationary pressures, we are not immune to disruptions and we are feeling the impact of increased labor, shipping, and material costs, as well as the availability of adequate shipping containers, vessels, and trucks. Our mitigation efforts remain focused on driving down operating costs, increasing prices, and investing in inventory levels to maximize the availability of our products, which leverages our scale and our market share competitive advantages. On the labor side, we have restructured our distribution center operations to add another shift and transition our model from largely temp labor to more permanent positions in order to retain talent and keep our operations fully staffed. As you can see from our results, these actions continue to be successful, and we have been able to effectively manage through the macro headwinds and the multiple obstacles these have created. We expect these pressures to persist in 2022, and we currently expect to see normalization of supply chain costs in 2023. We remain confident in our ability to continue to deliver very strong results in the current environment, and we believe that our growth initiatives will continue to drive significant long-term value. In closing, our record performance in 2022 mark another year of incredible progress for Lifetime Brands. We are well positioned as we move into 2022. Again and again, we have shown a proven ability to manage through a variety of business cycles and we are executing on or ahead of plan on every single one of our growth drivers. We look forward to continuing to advance our strategy and create value for our shareholders. With that, I'll now turn the call over to Larry.