Lifetime Brands, Inc.

Good morning, ladies and gentlemen, and welcome to Lifetime Brand's third quarter 2022 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 you to your host for today's conference, Andrew Squire. Thank you, Mr. Squire. You may begin.

Thank you. Good morning, and thank you for joining Lifetime Brand's third quarter 2022 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 can 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 date hereof and are subject to change for future developments. Debt is 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 relief 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. Our core business continues to deliver solid performance through the nine months year to date. We maintained or expanded our market positions despite macroeconomic challenges that companies across industries continue to face, which also impacted our product categories. The inventory buildup at major retailers that we discussed last quarter continues to limit customer shipments across all channels and remains a major factor impacting lifetime shipments. Additionally, the spike in inflation and other economic factors have contributed to weaker end market demand, especially in our European and Asia Pacific markets. Even in this difficult environment, we continue to produce results that exceed pre-pandemic levels, and we are proud of the team for the progress we are making executing on our strategic plan. Equally important, we maintain a very strong balance sheet, which Larry will discuss in his remarks. In the third quarter, we delivered $186.86 million in net sales and $18.8 million in adjusted EBITDA compared to $224.8 million in net sales and $29.3 million in adjusted EBITDA for the 2021 period. These results reflect the challenges I just mentioned, and we are focused on taking mitigating actions, particularly in our European business, which I'll touch on in a minute. Starting with our core U.S. business, we maintained our market share gains from the last several years, and while revenue is down, we have not lost distribution in our core business, and further, our point of sale data is exceeding shipments. The residual impact of supply chain disruptions related to the pandemic that we spoke about last quarter continues to persist. Retailers across all channels continue to focus on rightsizing their inventory levels, which have been built up during the pandemic, and have a renewed focus on reducing stock levels in response to current economic pressures. As a result, new customer shipments have lagged consumer purchases at retailers. To dive a little deeper, the supply chain disruptions which began in 2021 created an oversupply with retailers in many categories, particularly in seasonal goods such as apparel and electronics. These supply chain challenges and an inflationary environment have created excess inventory issues that are not necessarily specific to lifetime categories of goods, but nevertheless do affect lifetime sales as retailers focus on reducing overall inventory levels across a range of goods. Major retailer distribution centers continue to be overfilled, which slows buying across channels. Further, retailers are lowering shipments and curtailing safety stock to reduce working capital given the current economic environment. This is noticeable by looking at the results of major retailers who have reported lower margins as they attempt to sell down current inventory at lower prices. In short, we are being impacted by the inventory situations within our customer base, even if the challenges are not specifically related to Inventory of Lifetime's product categories. Inflationary pressures are likely to continue to impact consumer trends and consumer behavior in our core business, but we expect that orders from our retailers will return to more consistent levels once inventory levels normalize. We've already seen some uptick in customer orders early in the fourth quarter, although we continue to have limited near-term visibility into our customers' activities. Now turning to our international business, we are seeing the sustained impacts of the current economic environment on consumer demand in Europe and Asia Pacific, which have been much more significantly impacted than the North American market. Across Europe, and in the UK in particular, we've seen a drop in market demand and a very challenged environment for retailers related to inflationary and recessionary impacts exacerbated by the war in Ukraine and the impact of Brexit on the UK economy. In response to these pressures and the significantly reduced demand overseas, which we expect to continue in the near term, we have implemented a restructuring of our European-based international operations. While macroeconomic factors continue to impact our international business, These targeted efforts to right-size operations and eliminate costs will position the business favorably compared to the current run rate. With little visibility into the European economy, we believe these actions are the right step and expect to see benefits of the cost restructuring in 2023. With that said, we continue to gain market share in Europe and now have distribution presence in three large mass market chains. This model is proving successful and we believe the restructuring we're currently undertaking will enable us to pick up where we left off with the remarkable progress we have made in building our European business from the ground up over the past several years. In Asia Pacific, the significant year-over-year drop relates to our business in Australia and New Zealand as consistent with the broader international trend. We are retooling our go-to-market strategy in those important markets to align with our direct go-to-market strategy. Let's note our international business outside of Europe remains profitable even in this economic environment. Although we are navigating uncertain times, we continue to make progress on our growth This quarter, we saw La Casa Hospitality continue to ramp up and benefit from the rebound in the commercial food service sector. We remain optimistic that our food service business is positioned to reach $30 million in revenue by the end of 2023 and continue to see this as a $60 million business by 2026. Consistent with our broader strategy, We continue to look at acquisition opportunities in our core and adjacent product categories. We're seeing more attractive valuations in general and increased availability of direct-to-consumer and digitally native brands that can benefit from our incubation model and scale. We've demonstrated the potential of this model with Year and Day, which we successfully relaunched and we are currently discussing strategic partnership to expand its product lines in existing and new channels. We therefore see M&A as an opportunistic avenue for our creative growth in this environment, but as always, we will continue to be disciplined with our use of capital in the marketplace. While we continue to focus on gaining share and growing our cap line, we've responded to the current market challenges by taking steps to reduce SG&A by $5.5 million across the business. a 13.1% decrease compared to the third quarter of 2021. To that end, we've cut out discretionary spending, reduced hand count, and shifted our priorities to manage the environment we're in to maximize profitability. We are also focused on maintaining high liquidity levels, keeping ahead of the curve with active balance sheet management, particularly capital expenditures and working capital. Larry will go into more details on how we have successfully managed in these areas. These initiatives will enable us to maximize profitability in the current environment. Importantly, as we focus on streamlining the company, we are preserving critical infrastructure across our global footprint to ensure we are well positioned to rapidly scale up and drive growth when markets improve. We are also seeing our supply chain costs come back down, particularly ocean freight costs, which are now approaching pre-pandemic levels. And, much like our customers, we have taken steps to meaningfully reduce our inventory levels and get excess product off our balance sheet. Turning now to our financial outlook. With little visibility into actions our customers may take, that would materially impact our results, and in light of continued macroeconomic volatility, we have decided to withdraw our guidance for the full year 2022. In this environment, we are unable to get an accurate view from our customers of the near-term order flow, which has fluctuated monthly. Most noticeably, the widening gap between the point-of-sale performance of our products and the lower shipping levels to our customers across all channels, while implying a need for a catch-up of increased shipments has yet to materialize. We expect our core business to continue to deliver solid results while we do not see a near-term rebound of revenues in Europe and Asia. We will begin to see a noticeable improvement in the bottom-line performance of our international business solely related to the restructuring we recently implemented. although we may not see the benefits from these actions until 2023. However, with so many factors outside of our control having a potentially significant impact on our results quarter to quarter, and with the fourth quarter historically being the most important contributor to our ranks for the year, we find it prudent to withdraw our guidance for the near term. We will consider establishing new outlets as we enter 2023. This decision in no way diminishes our commitment to deliver improved financial performance, and we remain focused and confident in our ability to achieve our longer-term financial goals. Despite the macro factors impacting our results, we are not standing still, and we are built to weather the storm. As I've described, we're implementing cost-saving initiatives right-sizing our business for reduced demand while continuing to invest prudently for the long term. Our cash flow generation provides us with ample liquidity, and we have significant balance sheet flexibility with limited risk in our credit facility. We'll continue to be aggressive in managing costs and executing our strategy as we navigate through this environment and remain focused on maintaining our healthy balance sheet to maximize our operating flexibility and position lifetime brands for the future. We are proud that our business model continues to prove resilient through challenging macroeconomic conditions, and despite consumer behavior shifting, our results reflect the important initiatives underway at Leica. We also expect that as shipments increase with a normalization of our markets, there will be a corresponding impact to bottom line growth. With that, I'll now turn the call over to Larry.