Ladies and gentlemen, good morning, and welcome to Lifetime Brands' First Quarter 2019 Earnings Conference Call. [Operator Instructions] I will now turn the call over to our host, Andrew Squire. Mr. Squire, please go ahead.

Thank you. Good morning, everyone, and thank you for joining Lifetime Brands' First Quarter 2019 Earnings Call. With us today from management are Rob Kay, Chief Executive Officer; and Larry Winoker, 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 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. With that introduction, I'd like to turn the call over to Rob Kay. Please go ahead, Rob.

Thanks, Andrew. Good morning. We appreciate you joining us today to discuss Lifetime Brands' first quarter 2019 financial results. The company is off to a solid start to 2019, and I am pleased with our performance this quarter as we are starting to produce results which reflect our strategic decisions in 2018. The quarter results were driven by focused execution, strong end market demand and market share gain. Our performance for the quarter showed consolidated adjusted EBITDA growth of $6.6 million as we are starting to see results from our recently implemented initiatives. Importantly, the unique headwinds we experienced in the fourth quarter have not continued into the first quarter of 2019. When we closed the Filament acquisition in March 2018, we embraced this change as an opportunity to relaunch Lifetime Brands and create a best-in-class company that is well positioned to capitalize on the rapidly-evolving macroeconomic and industry landscape. Our work in 2018 has built a strong foundation for profitable growth, and these efforts have begun to bear fruit in the first quarter with strong top and bottom line growth. Customer demand was robust during the first quarter, which helped drive solid performance across the majority of our categories and channels. We also successfully implemented the planned price increases designed to mitigate tariff impacts put in place in 2018. These price increases were fully implemented by the end of February. Our European operations delivered solid performance with year-over-year growth of $1 million in earnings from operations. Driving this improvement, we eliminated several product categories that had minimal or negative margin contribution. Concurrently, we added several growth brands in our existing markets, including the tabletop lines of Maxwell & Williams and London Pottery. As a result of these actions, revenues from our international operations grew by 9.9%, and more importantly,…

Thanks Rob. As we reported this morning, the net loss for the first quarter of 2019 was $4.9 million or $0.24 per diluted share as compared to a loss of $11.6 million or $0.70 per diluted share in the first quarter of 2018. This is an improvement of $6.7 million or $0.46 per diluted share. Adjusted net loss for the 2019 quarter was $4 million as compared to a $0.19 loss per share. This compares to an adjusted net loss of $8.3 million and $0.50 per diluted share in 2018. The table which reconciles this non-GAAP financial measure for quarter results is included in this morning's release. Loss from operations was $2.3 million in the 2019 quarter, an improvement of $11 million from a loss of $13.3 million in the 2018 quarter. Adjusted EBITDA, a non-GAAP financial measure that is reconciled in our GAAP results in the release, was $69.7 million for the 12-month period ended December 31, 2019. This represents an increase of 6.4% over fiscal year of 2018. Net sales for the 2019 quarter increased $31.7 million to $149.9 million. And on a pro forma basis, assuming Filament have been acquired as of the beginning of 2018, sales increased $6 million or 4.2%. On a pro forma basis, the U.S. segment increased $5.4 million or 4.4% to $127 million and reflects increases in all product categories. The international segment sales was $22.9 million, an increase on a reported basis up $600,000 and an increase in constant currency of $2 million to 9.6%. Kitchenware sales were up in all customer channels but most notably in e-commerce. Tableware sales were lower, reflecting our plan for a full year repositioning, that Rob discussed. Gross margin was 36.2% in the 2019 quarter compared to 38.1% in 2018. U.S. segment margin - gross…

[Operator Instructions] Your first question is from the line of Frank Camma with Sidoti.

I'm sorry if I missed this, but could you just break down what was the - this will be the last quarter, I guess, to compare, but how much was Filament in the quarter itself? Or what would be organic growth?

Well, I don't have that currently in front of me, but I can tell you that of the increase about $1.5 million of the sales increase was Filament on a pro forma basis.

$1.5 million?

Yes, and that's all U.S. So of the - was it, $5.4 million, almost $4 million is what - let's say, called Lifetime legacy.

And so how much did you - I'm trying to figure out like how much you've benefited from a timing standpoint because there was a timing issue at the end of last quarter. Because your sales number was quite a bit higher than what I was looking for, so how much of that was just sort of the spillover from sort of end of Q4, whether you couldn't ship the orders on time or just timing issues in general?

Yes. It's a good question, Frank, which it's hard to discern all of that. In general, a lot of the shipping problems, both out of Asia and also out of port in the U.S. that we experienced in the fourth quarter, we did not experience that. It abated, so therefore, we didn't have losses which we experienced in the fourth quarter. It's obviously positive in terms of our performance. There wasn't - we lost sales in the fourth quarter as a result of that. There wasn't a tremendous amount. There was some, which moved from the fourth quarter to the first quarter. But the majority of what we shipped was just fourth quarter business, and we didn't have obstructions in the quarter.

It looks like from my model at least, you're making really good - I'm looking at this as a percentage of sales. You're making pretty good progress in your distribution expense. I assume part of that is just the new warehouse. Am I right about that assumption?

Yes. I mean, we've been working hard in the last year on a lot of initiatives, including the warehouse. That is a piece of it, but the more driving our ability to realize the new warehouse is that the combination is allowing us to more fully utilize the infrastructure, and that's driving down our distribution cost as a percentage meaningfully. Not unexpectedly, and we said we'd start to see those benefits roll through the income statement in '19 and beyond.

Conversely, a little bit the big variance in my model, is really on the gross margin. So I was wondering given the sales level, I would have thought a little better, maybe absorption plus I thought maybe product mix was then in your favor given you've kind of got rid of some of your lower-margin SKUs. So wondering if you could just like go into, just you know on a big picture basis why that would be versus - see an impact of tariffs.

So as we mentioned here, and we've gotten for the tariff implemented last year by the end of February, we had most of the price increases. So we were impacted for a couple of months as a result of that. Also, from a tariff perspective, we really focused on maintaining profitability and not margin percent, so we gave up percent and focused on dollar. And so there was some impact in there. A lot in the first quarter though we had mix. So if you look at the channels that we sold in, we had a lot of success in certain channels, such as the club channel, which is lower margin. So mix definitely had an impact. We also had some launches where we had to buy out the space, but we expense that. That has an impact. So it's a combination of factors which impact the year-over-year launch.

And big percent through - for your guidance, are you still building in the increase in tariffs? How are you looking at that? How does that flow through your model?

So we prepared our guidance without knowledge of the current discussions going on in Washington. And obviously, we and the world will be impacted by the outcomes of those discussions. We do know having gone through this, the process. And similar to what we saw last year, if there is an increase from - which will impact us on List 3 for some of our goods, a decent amount of them, from 10% to 25%, we are already paying 25% on some of our goods today, dating back to the beginning of fourth quarter. So you'd see a similar pattern of what we did. We'd be able to - it's actually easier on 25% because the whole market has to move, there's no confusion. So there would be a lag period, and we would do the same things we did in the past that would mitigate it.

Just one quick question on just cash conversion here. So the inventory was a little bit higher than I modeled, but that could have just been because of the way Filament rolled in. But the AR was actually lower, so I'm wondering, was there some timing on AR that would have - down there? Like did you make some collections and benefited from that?

I'll let Larry answer AR. On inventory, we did have some new products that we were introducing, and we've built up some inventory as a result of that. We haven't focused - our focus in '18 and to date has been on execution and service levels and less so in maximizing our working capital as it pertains to inventory. But we did have some - a big launch of KitchenAid, a whole new line of KitchenAid, and that product had an impact on the first quarter inventory levels.

Frank, on accounts receivable, nothing stands out for the quarter. And I think I've discussed this in the past that collections, the exact timing of collections is something obviously we can't control. And depends on when you ship in a particular quarter beginning versus late in the quarter, it could spill into later periods and not all customers have the same terms. So those are factors too. But we saw it averaging it out over a longer extended period. It's like looking at performance one moment to another. You've got to do that over a trailing - we have a 12-month, 18-month period, and then it tends to normalize.

But I think on a macro perspective, you just look at total work comp and cash flow, while we may have a little higher inventory levels than we may be wanting, this is a peak cash flow period for us. We did generate the cash flow, we did delever, well, I think meaningfully so.

Your next question comes from the line of Patrick Barwin with Aegon.

Two housekeeping items and then a follow-up on the tariff situation. I noticed you added the lease liabilities to the balance sheet. Were there any changes to EBITDA, related to that kind of change?

No. It's - yes, the balance sheet gets grossed-up considerably, but all the expense on the new accounting rules still go through lease expense. So it hasn't - there is no adjustment through EBITDA. In fact credit agreements. Our credit agreement and others say you can't change it because of the exchange in repronouncement. So it's exactly - it's 100% unaffected.

And then your EBITDA guidance, does that include some portion of synergy add-back or is that a clean number?

Yes. So we have assumed that all the - there may be some synergies that were not fully realized as of 1/1/19. But in this guidance, we've assumed that everything we've announced here at on 24 was effective as of beginning of the year, so there's no addition. And there is a - there's an EBITDA reconciliation, in near the tables, so you can see the isn't anything.

And obviously, in '19, there's less add-back as we go through and convert that, and you saw that in the first quarter.

And then on the tariffs, have you guys disclosed how much of your business directionally is currently impacted by tariffs? And then if the administration elected to go through with the final trough of tariff at some point, how much of your business would then be affected?

So we have previously disclosed that of the 3 lists that were previously announced, they cover approximately 20% of our revenues. The majority of those are on the last of the list that were issued, and that's what we've been focused on mitigating through several different actions and have so as of today. It's hard to answer the second question because we have no idea. I mean, the administration has said $0.5 trillion, which would be everything in the world, and therefore, it'd be everything. But I mean, there's - we really need to react to what's there. There's no published next list and what would be on it. We continue, though, to move things to different geographies where applicable and where it makes economic sense, which mitigates some of that proactively. But I really can't opine on that knowing what the administration will do. The only thing we do know is what would be impacted by the announced increase in tariff rate to 10% - excuse me, 25% from 10% of a portion of what's already been implemented.

So the Chinese sourcing operation primarily, is there a tariff level where that would - you guys would need to look outside China? And then I guess, what steps are you taking to prepare yourself for that situation if this does occur?

Yes. I mean one of the biggest challenge we've had with the tariff regime, hasn't been the stated amounts or the implementation of the tariffs. Has been the balancing of amounts and implementation dates. That uncertainty, because we can mitigate through reducing cost of product, moving things to different geographies. But when you have a 25% tariff, you can't mitigate that completely, you need to pass on price increases. So there is no doubt in terms of the marketplace that at 25%, the customer will absorb it. It will get pushed through, the retailers will just push it through. But when there's uncertainty in terms of the implementation date and the amount, the market being our market, not your market or The Street, the market in terms of our goods and services, in terms of the retailers both online and in brick-and-mortar, have a very difficult time because it has to move in tandem. You're accepting that and there's delays, and we saw that in the last year going into this quarter as well up until February, as we mentioned. That's the biggest problem. That being said is one of the advantages of being one of the bigger players in our industry is we have the resources, which we put in motion to mitigate. So we're already working on additional cost reductions in terms of the products that we sell on a proactive basis. We have moved goods already and still are moving goods outside of China into other geographies, particularly Vietnam and India. For certain our goods - certain it's not applicable and it just - it's going to be a huge - there has to be a huge tariff regime to be able to make it cost-effective in other geographies, and we could put things and make them in the U.S., but I don't think the U.S. consumers going to pay 75% more for that, so it's not a reality. Tariff or no tariff for some of those goods.

And one final housekeeping. What was your revolver availability as of quarter end?

The revolver availability, including $6 million of cash, was $116 million, so it's about $110 of revolver and fixed cash.

Your next question comes from the line of Tim Hasara with Kennedy Capital.

What do you expect for CapEx for 2019?

About $10 million to $11 million. The big impact - the big difference between what we normally have is the reorganization and then we'll consolidate the U.K. operations into a single facility in the summer this year.

Yes. Tim, as we mentioned before, while there will be a tremendous payback on that by consolidating all of our warehouses and operations into one location, which will be live in July of this year, it will make 2018, while still very low, a little bit - 2019, we'll have a little bit higher total corp CapEx for the company this year.

And then with just the free cash flow generation, would that be used to pay down your term loan or your bank debt?

Yes. And then that's what we have been doing, as you see.

There are no further questions. Mr. Kay, you may continue with closing remarks.

Thank you. Thank you again for joining us today. We are pleased with our performance this quarter and remain focused on executing on our strategic priorities to deliver sustainable growth in 2019. We will be participating in the D. A. Davidson conference on May 30 and look forward to seeing some of you there. As always, we appreciate your continued support of Lifetime Brands.

This concludes today's conference call. You may now disconnect.