Lifetime Brands, Inc.

Good morning, ladies and gentlemen, and welcome to Lifetime Brands' fourth quarter and full year 2022 earnings conference call. At this time, I'd like to inform all participants that their lines will be in a listen-only mode. After the speaker's remarks, there will be a question and answer period. If you'd like to ask a question during this time, please press star 1 on your telephone keypad. I would now like to introduce your host for today's conference, Andrew Squire. Mr. Squire, you may begin.

Thank you. Good morning, and thank you for joining Lifetime Brands' fourth 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 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 date 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, Andrew. Good morning, everyone, and thank you for joining us today. Our core business delivered solid performance in the fourth quarter despite the macroeconomic and industry specific challenges that companies across our industry continued to face. Our strong market share position and proactive cost management actions helped to offset weaker end market demand as well as the ongoing impact of reduced orders from our customers as retailers continue to focus on right-sizing their inventory levels. Our proactive efforts to reduce costs, restructure our European operations, and identify efficiencies throughout the business drove improved gross margins and continued strong free cash flow generation in a dynamic operating environment, with gross margins exceeding both analysts and our own internal estimates. In the fourth quarter, we delivered $207 million in net sales and $19.7 million in adjusted EBITDA, compared to $255.9 million in net sales and $30.9 million in adjusted EBITDA for the 2021 period. These results reflect the challenges that persisted throughout the quarter, but it is important to keep in mind that while the overall US market is down, Lifetime continues to perform well in comparison to the market and its industry peers. For the full year, our strong execution in a challenging environment enabled us to generate adjusted EBITDA of $58.2 million compared with $95.1 million in 2021. As we move into 2023, we're seeing the inventory build up at major retailers start to abate and signs of a turnaround in order flow with more normalization expected in the second quarter of 2023. Also, while inflationary pressures and other macroeconomic factors, including the war in Ukraine, continue to significantly impact demand in Europe in the fourth quarter, the restructuring of our international operations is now complete, and we expect that this will drive improved profitability moving forward, which I'll speak more about later on. In our core US business, it is important to note that we maintained our market share gains from the last several years. While our revenue is down, we have not lost distribution in our core business. During the holiday season, we saw a decline in discretionary spending from consumers, which resulted in a more disappointing holiday season at retail across lifetime's chimps, especially at our largest customers. This decline in consumer spending was felt across the industry as larger retailers saw reduced end market demand as a result of inflation and other factors. But the larger driver of revenue declines in the quarter continued to be reduced orders from retailers. as our largest customers continued to right-size their inventory. As a result, our point-of-sale data again exceeded shipments in the fourth quarter. While we're encouraged by the signs of a turnaround in order flow, we began to see this quarter in customer orders. We have yet to see full normalization in order flow. As shipments increase with a normalizing market, we expect there will be a corresponding impact to bottom line growth. Now turning to our international business, we gained market share in Europe throughout 2022. And our international business outside of Europe remains profitable. However, we also continue to see the sustained impact of the current economic environment on consumer demand in Europe, and to a lesser extent, Asia Pacific, exacerbated by the war in Ukraine and the impact of Brexit on the UK economy, which resulted in another tough quarter for retailers and in turn for our European business. As a reminder, our UK business represents over 75% of our international business. As we discussed last quarter, we took an important step in response to these pressures by implementing a restructuring of our Europe-based international operations. We're pleased to report that this restructuring was fully implemented in the fourth quarter, and we expect to see a meaningful increase in profitability in the international business in 2023 as a result. We don't expect the market demand to increase or normalize in the near term, which is why the decision to restructure this business was so important. Over the past several years, we've rebuilt our European business from the ground up and this additional restructuring will allow us to fully realize the benefits in the coming years. In Asia Pacific, we also implemented a change to our go-to-market strategy. We have substantially eliminated all third-party distribution agents in major geographies and replaced them with lifetime country managers, consistent with our direct selling strategy. This is an important change and will ensure we're operating with the highest efficiency and profitability across the markets we serve. We continue to make progress on our other strategic growth initiatives. Global e-commerce sales as a percentage of revenues improved to 19.8% in the fourth quarter, although still lower on a dollar sales basis than our peak levels during the heart of the pandemic. We remain focused on expanding our e-commerce business, which is an important growth driver for Lifetime. and we continue to make great progress in both our core US market as well as international. During the fourth quarter, Mikasa Hospitality continued to gain traction, and we believe we are poised for meaningful growth in the division in 2023. We continue to expect our food service business of Mikasa Hospitality and Taylor will reach $30 million in revenues by the end of 2023, and continue to see this as a $60 million business by 2026. Given our strong cash position, M&A activity remains a potential avenue for accretive growth, and we are focused on strategic opportunities in our core product areas or adjacent categories where we have an opportunity to leverage our global scale and or tap into a new product category. We have a robust pipeline of potential value-enhancing opportunities in the market, and we will continue to be opportunistic and extremely disciplined with our use of capital, consistent with our balanced approach to capital allocation. Turning now to our cost management efforts. Overall operating expenses were favorable on a dollar basis in the quarter, although unfavorable on a percentage basis due to our decrease in revenues. Last quarter, Larry spoke about the high labor expenses we were experiencing due to wage increases and less efficient use of labor. We are focused on lowering these costs, and this quarter we successfully reduced distribution expenses by $4.6 million, driven primarily by an ongoing labor efficiency program. Excluding charges for bad debt expense and incremental costs related to swell, We also saw reductions in SG&A this quarter due to the effective management of discretionary spending, as well as an effort to reduce operating cost infrastructure. Active balance sheet management remained a key focus for us this quarter. By the end of 2022, we had right-sized our own inventory levels, which aided our achievement of historically high levels of liquidity as of the end of 2022. Larry will speak more about our balance sheet and liquidity as well. We also expect a cost benefit from the retirement of Jeffrey Siegel, who has been serving as our executive chairman. The executive chairman role was created in conjunction with Lifetime's merger with Filament Brands in 2018. Jeff will continue to serve in the role of non-executive chairman of our board of directors. And we look forward to continuing to benefit from his guidance deep knowledge of the business, and ongoing leadership of our board. Looking ahead, we continue to have limited visibility into certain macroeconomic factors that will impact our business. But we believe the company will outperform 2022 results in the year ahead. We intend to provide full 2023 guidance as we normally do when we report our first quarter results. In the meantime, let me provide some color on what is driving our fundamentals in the business as it stands today. Global supply chains, including ocean freight costs, have fully normalized since the pandemic. And as I mentioned, we do expect normalization of customer ordering patterns and improved profitability from our restructured international business in 2023. We have a strong balance sheet at a time of relative economic uncertainty, and our business model continues to prove resilient. I am confident we are well positioned to drive shareholder value and get back on track with our long-term growth trajectory in 2023. We are proud to have achieved another year of progress for Lifetime and are grateful to our talented team for all their hard work during these challenging times. With that, I'll now turn the call over to Larry to discuss our financial results in more detail.