Lifetime Brands, Inc.

Good morning, ladies and gentlemen, and welcome to Lifetime Brands' third quarter 2023 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 portion of the call. If you would 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, T.J. O'Sullivan. And Mr. O'Sullivan, you may begin.

Thank you. Good morning and thank you for joining Lifetime Brands' third quarter 2023 earnings call. With us today from 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 other factors 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 the press release is a reconciliation of these non-GAAP financial measures with 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. We are pleased to share that our results in the third quarter once again exceeded analysts' expectations with our performance driven by the continued rebound of our core U.S. business and supported by our ongoing focus on actions to drive growth and profitability in a dynamic operating environment. As the industry headwinds we have been observing for the last several quarters begin to abate, the actions we have taken are positioning us to perform well in comparison to the market and our peers. The results reported today are unchanged from preliminary estimated third quarter results we announced a few weeks ago in connection with the launch of an amendment and extension of our existing Term Loan B facility, which we'll discuss in further detail shortly. First, I will walk through our results. In the third quarter, we delivered $191.7 million in net sales compared to $186.6 million in net sales in the same period last year. In the 12-month period ending September 30th, 2023, we generated a adjusted EBITDA of $55.5 million. Our year-to-date performance reflects a stabilization in our end market demand and continued strong operational execution. We've also maintained or grown our gross margin percent, driven by favorable product mix, and improved supply chain availability and costs. Entering the fourth quarter, we expect to see relative stability in our core U.S. markets, as well as some stabilization in our international markets. For the quarter, we delivered year-over-year growth in our core U.S. business, supported by the continued recovery of our domestic end markets. In prior quarters, we have discussed the impacts of ongoing global supply chain issues on retailer purchasing behavior with retailers across channels altering inventory and distribution strategies in response to significant oversupply. We are now seeing sustained positive trends in shipment and ordering activity for the first time since 2021, giving us confidence that these issues have been resolved. We hope to see a return to typical order flow levels as we move forward. That said, while we are experiencing positive year-over-year comparable revenues in all our markets, we've remained defensive as we monitor continued macroeconomic factors such as inflation and recessionary pressures. We also remain focused on driving gross margin improvement, which was supported in the quarter by a combination of mixed and positive macro factors. Of note, the ocean freight cost environment remains favorable to prior year, reducing our cost of goods sold. Turning now to our international business. We continue to execute our international growth strategy and are pleased with the initial traction we are gaining, despite ongoing challenges in European and markets. We are benefiting from the investments we have made in our infrastructure for this business, including our Netherlands facility, which is already allowing us to better compete and win on the continent. We saw several key new business wins in the quarter, including two new large retailers in continental Europe. In terms of cost structure, the restructuring of our European operations we completed in the fourth quarter of 2022 continues to positively impact our bottom line, strengthening our foundation as we drive forward towards our goal of improved profitability for the segment in 2024. Outside of Europe, we are also encouraged by the progress we are seeing in Australia and New Zealand following last quarter's implementation of a direct go-to-market strategy. This change will translate to significant margin improvement. In Southeast Asia, we are continuing to roll out our e-commerce driven strategy across channels such as Tmall, Alibaba, and Shopee, and are seeing strong receptivity among consumers in these markets. The continued rollout of our direct go-to-market strategy in major geographies driven by our core brands, including KitchenAid, Swell, and Mikasa, is expected to provide top-line growth beginning in 2024. Of note, our market shares remain strong, and as we work to bolster the strong market share position, we are pleased with the successes of several key growth initiatives in creating incremental plus one opportunities that support our top line. Throughout 2023, we have made significant investments in infrastructure for our food service business, which continues to gain market share. We are seeing these efforts begin to pay off and are confident that they will drive meaningful growth and profitability in 2024. Separately, Last quarter, we mentioned that we signed a license for a line of Dolly Parton branded products across several categories. We are already adding new products across many categories and have gained placement. Therefore, we expect this line to begin adding incremental growth with shipments beginning in the second half of 2024. In pure play e-commerce, We saw continued strengthening in the third quarter and we expect this momentum will continue into the fourth quarter. Now to provide an update on the execution of our strategic sourcing efforts to diversify our supply chain and reduce our exposure to China. We are well on our way to meeting or exceeding the goal we originally set six months ago, which was to reduce or our product supply such that approximately 25% of our spend on goods is outside of China. To that end, the plastics manufacturing facility we invested in Mexico is now operational and we continue to ramp up production with the expectation that we will reach full capacity by 2024. Other initiatives. include expanded sourcing capabilities in various Asian geographies that we continue to expand, as well as further identifying sourcing opportunities in Mexico. Turning now to our business outlook. While there is still uncertainty due to macroeconomic factors, the positive trends that we have produced year to date, combined with our confidence in executing the fourth quarter, have provided us with a revised outlook on the full year 2023. To reflect these tailwinds and our positive performance, we are raising the low end of our full year 2023 guidance. We now expect next sales in the range of $670 to $690 million and adjusted EBITDA in the range of $52 to $55 million. We are pleased with the strength of our balance sheet and remain disciplined in our approach to cash management and deleveraging to ensure we maintain our strong financial position moving forward in line with our commitment to conservative balance sheet management, excuse me, in line with our commitment to conservative balance sheet management. This quarter, we launched an amendment and extension of our existing term loan B facility, which was due in March of 2025. through an extended maturity of August 2027. Given the ongoing uncertainty in the macro environment, we believe it is prudent to take proactive steps like this to minimize our exposure to event risk over the next several years. At this point, we have finalized the participation in the amended facility and expect to close this refinancing during the fourth quarter. We will provide an update to the transaction once it has closed. We continue to evaluate value enhancing opportunities, including M&A, in line with our commitment to investing for growth. While pressures on the cost and availability of capital in the current market have translated to increasingly attractive valuations, we remain disciplined and will act only on those opportunities we believe best support our long-term growth prospects. We believe that our anticipated amendment and extension of our term loan B will serve to bolster our strong balance sheet. We expect to continue to be prudent with our capital and be opportunistic with investment initiatives where we see value enhancement. We are pleased with the improving trends we are seeing across the business and are in our operating environment as we enter the fourth quarter. The significant transformation we have completed over the last several years has positioned us for success, even in the face of macro headwinds. And we are confident we have the business model and strategy in place to continue accelerating our progress. With that, I'll now turn the call over to Larry.