Lifetime Brands, Inc. (LCUT) Q2 2019 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to Lifetime Brands' Second Quarter 2019 Earnings Conference Call. At this time, I would like to inform all participants that their lines will be in a listen-only model. After the speaker’s remarks there will be a question-and-answer period. [Operator Instructions] I would now like to introduce your host for today's conference, Andrew Squire. Mr. Squire you may begin.

Thank you. Good morning, everyone, and thank you for joining Lifetime Brands' Second 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 and thank you for joining us today to discuss Lifetime Brands' second quarter 2019 financial results. This quarter we continued to focus on long-term growth initiatives. And although our performance in Q2 fell short of expectations, I am pleased that the company remains on track to achieve its strategic priorities of repositioning our company for higher growth rates and increased returns. Looking at Q2 while we have successfully gained market share, in the majority of our business lines we have faced market and geopolitical factors that have had a negative impact on our results. Notwithstanding, these headwinds we successfully launched several initiatives in the second quarter and continue to benefit from the reorganization activities that we executed in 2018. The initiatives that we launched in the second quarter include the introduction of our cutlery and tabletop offering into the commercial food service sector, the launch of a comprehensive international sales effort and the launch of several new product lines across our bakeware, kitchen tools and home solution lines. While the international and food service initiatives are not expected to contribute meaningfully to 2019 results, the other initiatives will help provide positive momentum and results in the second half of this year. Further our U.K. business continues to show improved results as a result of our reorganization efforts over the past several quarters and we occupied our new single-location U.K. operation during the quarter, which will begin to contribute meaningfully to enhance margins and profits in the second half of 2019 and beyond. We also made significant progress on our portfolio realignment and SKU rationalization as we take a more strategic approach to products and categories going forward. As we discussed last quarter, the retail industry continues to face temporary down cycles, driven by structural changes in both brick-and-mortar and e-commerce retail. Our results for the quarter were impacted by temporary softness in our end markets as well as the continued impact from ongoing geopolitical conditions including tariff and Brexit uncertainty, the latter of which has had an impact on shipments for both the U.K. and continental Europe markets. With regard to tariffs, this continues to be of fluid environment as evidenced by the administration's recently announced intention to enact an additional 10% tariff on all remaining goods manufactured in China that are not currently being tariffed. As previously announced Lifetime actively monitors the changing tariff environment and has strategies in place intended to mitigate the impact of such tariffs. These include achieving reductions to cost of goods, reducing costs and cost of supply chain, reducing administrative costs and discretionary spending activity and pursuing price increases in the sale of our products to our customers. While the financial impact from tariffs is immediate upon implementation there is a lag in realizing the financial benefits from these mitigating actions. This is a similar pattern to what we saw when the last tariff program went into effect. As a result we will continue to see some temporary negative impact on our margins until our mitigating actions are fully realized. We have also experienced some marginal reduction in shipments as a result of tariffs as higher prices have reduced demand. To date this has not been significant and we continue to experience revenues consistent with our expectations. Due to the large magnitude of the implemented and recently announced tariffs on China, the lag of achieving mitigation has increased and we do not fully anticipate -- we do not anticipate fully implementing all the strategies discussed until the end of 2019. I'd also like to address two meaningful steps we took in the quarter to realign the portfolio as part of our company-wide transition to a more strategic product and category driven business model. These important actions will create enhanced cash flow generation in the near-term and contribute to improved efficiency and performance over time. First, following the completion of our SKU rationalization, we have made the decision to discontinue or deemphasize our investments in a significant number of legacy product categories across most of the lines of business. We made the decision to eliminate product offerings that do not provide adequate returns for the company. As a result of this decision, we're incurring a non-recurring, non-cash accounting charge of $8.5 million to write down the values of these products and free up more cash by monetizing essentially stranded assets on our balance sheet. By monetizing these assets in the short-term, we'll be able to reinvest in the areas of our business that will drive growth and focus on product categories that will position us for greater profitability in the long-term. Second, as part of our portfolio review, we have identified certain non-core assets that we intend to monetize in the near term. Together, our SKU rationalization and non-core divestiture are expected to generate between $30 million and $45 million in additional capital, which the company will redeploy toward accelerating deleveraging and investing in growth. In addition, we expect these actions will drive increased returns from our remaining assets and improve the efficiencies of our distribution centers by reducing expenses and other related investments to our supply chain. We will continue to take a hard look at our portfolio as we move into the second half of 2019 and into 2020. Turning now to our European operations, we continue to see strong momentum and we delivered solid performance in Q2 with year-over-year growth of $700,000 in adjusted earnings from operations. Additionally, we have funded and have begun to roll out our International business strategy in Q2, which consists of revamping our international sales efforts to position Lifetime Brands to capture significant sales opportunities globally. We've already made the necessary investments in 2019 and we expect to start seeing the benefits in 2020. EU revenues did not meet our expectations for the quarter. Revenues were impacted by a planned portfolio change and ongoing uncertainty regarding Brexit. To that end, customers are reluctant to receive export shipments from the UK and consumer spending in the UK has decreased. Nevertheless, Lifetime Brands Europe continues to improve in contribution margin as we have begun to realize the benefits from the restructuring of those operations as previously described. As we look ahead to Q3 and beyond, we continue to have confidence in our strategy and our ability to deliver strong results in 2019 and beyond, despite the expected continuation of tariffs and Brexit uncertainty in the near term. The improvement we saw in Europe was driven by the reorganization of our UK-based business Lifetime Brands Europe. This reorganization has included portfolio realignment as we shift the product mix away from non-productive low-margin products and focus on brands and offerings where we can add value to the consumer and retailer. Further, in the quarter we occupied our new European headquarters in Birmingham England, and we anticipate it will be fully operational in Q3. Our reorganized operations planned for the region is running squarely on track and the anticipated benefits remain consistent with original estimates. As a reminder, we will combine eight standalone warehouses and two separate business units into the single operation in Birmingham allowing customers to order all products from one business and receive one invoice from one shipway. The single operation allows us to be considerably more efficient and offers best-in-class service levels and scale for competitive advantage. In addition, our consolidation of business units in the UK will help offset the investments we've made. While we continue to expect headwinds in Europe, and particularly in the UK, as a result of the uncertainty surrounding Brexit and related FX challenges. We are pleased with the results of our turnaround efforts and our reorganization remains on plan, which will result in enhanced profitability and cash flow. Moving to e-commerce, as I mentioned on our first quarter call, we made the decision to restructure our e-commerce activities in the fourth quarter of 2018, which has led to strong results and profitable growth in this channel. During the second quarter, we were pleased with the company's performance on Amazon's Prime Day, which yielded robust sales in our product category such as Kitchenware, which increased 51% compared with prior year Prime Day revenues; bakeware, which increased 32%; spice rack, which increased 150%; and Farberware cutlery, which increased 66%. We are proud that e-commerce operations now represent nearly 14% of total revenues with pure play e-commerce revenues growing nearly 16% year-to-date compared to 2018. E-commerce represents an important growth area for Lifetime Brands, and we remain confident in its potential as we continue executing the transformation strategy for this channel. Similarly, we are excited by our recent expansion in the commercial food service industry. In May, we launched Mikasa Hospitality, a standalone unit under the Lifetime Brands' umbrella that covers dinnerware, flatware, drinkware and table serving accessories. We are starting to bring these products into our warehouses and expect to begin selling no later than Q4, with shipments starting in fiscal 2020. While we do not anticipate recognizing revenue from this business in the near-term this expanded line is a logical and attractive growth opportunity in an industry and product categories where Lifetime Brands is already a global leader. We will continue to take steps to strengthen our position in this growing space going forward. We continue to have positive expectations for our additional product launches in 2019, most notably in food preparation, barware, tabletop, and home solutions. We will begin shipping many of these products in Q3 and we expect them to provide meaningful market share gains across our product categories. Turning to our outlook for 2019, as provided in more detail in our press release, we expect to achieve net sales of between $755 million and $760 million, adjusted diluted EPS between $0.50 and $0.62, and consolidated adjusted EBITDA between $66 million and $70 million. While this represents a level of revenues consistent with previous guidance we are revising downward our view of EBITDA for 2019 which reflects the timing impact of the announced and implemented tariffs on China and the uncertainty created on our European business related to Brexit. While a downward revision the midpoint of our guidance still represents adjusted EBITDA growth of approximately 4% compared to 2018 and revenue growth of 3.7% compared to 2018 pro forma revenues. As we transition to the second half of 2019 we remain focused on executing our strategic priorities and continuing to implement our model that takes a more strategic approach to product and category. Lifetime Brands is committed to raising its competitive position in the market driving sales generation, optimizing profitability, and increasing investment in brand equity, and we have taken action this quarter to position us to capture these opportunities. Looking ahead, early bookings for the second half of the year look strong and in line with expectations. We're excited about our prospects and our confidence that the path we're on will continue to drive improved performance profitability and meaningful value creation for our shareholders. I'll now turn it over to Larry to go over the financial results.

Thanks, Rob. As we reported this morning, the net loss for the first quarter of 2019 including the impact of the non-recurring non-cash charge of $8.5 million related to the SKU rationalization was a loss of $11.5 million, or $0.56 loss per share as compared to net loss of $6.1 million, or $0.30 loss per share in the second quarter of 2018. Adjusted net loss for the 2019 quarter was $4.5 million or $0.23 per share as compared to an adjusted net loss of $5.7 million, or $0.28 per diluted share in 2018. A table which reconciles this non-GAAP measure for quarter results is included in this morning's release. Loss from operations including the non-recurring non-cash charge was $8.5 million. With the SKU rationalization was $12.5 million for the 2019 quarter compared to a loss last year of $3.3 million. Adjusted EBITDA, a non-GAAP measure that is reconciled through our GAAP results in the release was $68.8 million for the trailing 12-month period ended June 30, 2019. After giving effects to certain adjustments and before limitations that as committed and defined in our debt agreement. This includes projected unrealized savings of $4.8 million. Of note the projected unrealized savings continue to decline as they continue to be realized and reflected in our actual operating results. Net sales for the 2019 quarter was $142.5 million versus $148.7 million last year. The U.S. sales segment decreased $5.9 million, or 4.6% to $123.1 million. The decrease was from certain low-margin tableware programs in 2018 not repeating in 2019 and to a lesser degree declines in Kitchenware. This decrease was partially offset by strong growth in hydration products. International segment sales were $19.4 million in 2019 versus $19.7 million last year on a reported basis. In constant U.S. dollars, which includes the impact of foreign exchange fluctuations sales increased $900,000 or 4.6%. This increase was due to higher sales from e-commerce and U.K. independent customers, while national accounts were down reflecting the planned de-emphasis of lower-margin private-label tableware products and a decline in export sales. Gross margin was 30.9% in the 2019 quarter, however – it was 36.8% excluding the $8.5 million charge for the SKU rationalization. This compares to 35.8% last year. The U.S. segment gross margin was 29.8% as reported for the 2019 quarter, 36.7% excluding the SKU rationalization versus 35.3% in the 2018 quarter. The 2018 quarter would have been 36% excluding a one-time charge related to the inventory step-up in connection with the Filament acquisition. This 70 basis point improvement is primarily attributable to the absence in 2019 of the low margin tableware programs that we had in 2018. For International, gross margin was 37.6% in the 2019 quarter, compared to 33.4% in the 2018 period. This increase was primarily due to our planned de-emphasis of low margin private label tableware products and lower sales allowances. Distribution expenses in the 2019 quarter of $15.5 million or 10.9% of sales, compares to $14.9 million or 10.1% of sales last year. For the U.S. segment, distribution expense as a percentage of goods shipped from our warehouses excluding relocation expenses were 11.8% and 10.5% respectively. This increase was primarily due to lower shipment volume, higher – one-time higher real estate tax charge and an increase in trade expense on sales to prepaid freight customers. For the International segment, distribution expense as a percentage of sales shipped from our U.K. warehouses were 14% in both periods. Looking at selling, general and administrative expenses for the 2019 quarter, they were $40.9 million versus $40 million in the 2018 period. In the U.S. segment, the expenses were $28.9 million in the 2019 quarter versus $30.9 million in period last year. And as a percentage, the SG&A expense improved to 23.5% of sales versus 24% of sales. This improvement is reflective of the realized synergies from the Filament acquisition. SG&A expenses for International was $7 million in 2019, compared to $4 million in the 2018 period. The 2018 period includes a $2.1 million mark-to-market gain from foreign currency contracts. In 2019, the company commenced new lease for its new U.K. headquarters and warehousing as part of the European reorganization plan in connection with that we had to incur $500,000 of duplicate lease expenses. Excluding these non-recurring items, International SG&A expenses were $6.5 million in 2019 versus $6.1 million last year. Unallocated corporate expenses were approximately $5 million in both periods, lower employee related acquisition expenses offset by higher professional fees. Interest expense was $4.7 million in both periods, however, the 2019 period reflects an interest rate swap aftermarket gain of $300,000. In both 2019 and 2018 quarters income tax is actually benefit. Effective tax rate in 2019 was 33.6% versus 22.1% last year. The effective tax rate in 2019 period varies from the federal statutory rate of 21%, primarily due to state and local as well as the impact of non-deductible expenses. The impact of non-deductible expenses is significant in 2019 due to lower forecasted full year income as compared to the forecast at the same time last year. And at June 30, 2019 our net debt was $306 million, which represents a decline of $22 million from a year ago date and our leverage ratio was 4.4 times. Also, at June period, our liquidity was $112 million comprised of availability under the revolving credit facility and cash on hand of $11 million. We believe that our liquidity is adequate for the foreseeable future which will be supplemented in part by the anticipated benefit of free cash flow from the portfolio realignment. It is also worthwhile to note that our term loan debt had no negative financial maintenance covenants and minimal required amortization. As provided in the release we have updated financial outlook for the full year. The mid-range of the outlook reflects that approximately 60% of our sales will be generated in the second half of the year, which on a pro forma basis is consistent with last year. The mid-range of the outlook also reflects that approximately 85% of our adjusted EBITDA will be generated in the second half of the year, which is lower than the 94% we generated on a pro forma basis in the same period last year. This concludes our prepared comments. Operator, please open the lines for questions.

Thank you. [Operator Instructions] And your first question is from Frank Camma of Sidoti.

Good morning guys. Thanks for taking the questions.

Good morning Frank.

Good morning Frank.

The obvious question to me at least when I was first reading the release is on -- you obviously, did not meet your expectations, but your guidance at least on the sales side which I just want to stay focused on is actually going up. So can you talk about your confidence for the second half? How you achieve that especially in light of the fact that you're actually cutting SKUs? Can you just kind of bridge us to how you'd get there?

Yeah. On the SKU reduction rationalization it's not really having -- there is our non-productive assets and non-productive SKUs that we're eliminating. So there is really not having a big impact in terms of our overall revenues. And it's as I explained stranded assets and therefore, we're creating value by taking money that's just sitting there and converting that to cash. That will though...

Sorry. Just to stop you right there. So how do you -- assuming it's a product is it a product that you then divert through like a discount? Or how do you which channel do you get rid of that product that I guess?

So it's not going to happen in one week Frank. So it will happen over a 6 month to 9 month period. So it'd be done in orderly basis mostly through alternative channels.

Okay. That’s why I was getting that. Okay.

But while some of -- we won't anticipate recognizing margin for this and we're just converting it to cash. It will have some sales impact, which is why there was an uptick in the revenue guidance.

Okay, okay. I got that. All right. That makes sense now. So just staying on that for a second. Can you talk about the categories where -- I think you made a comment that you've gained some market share. So can you talk about the -- either the categories where you've pruned or the categories that you've taken market share?

So it's really less categories and product specific. So we've been gaining in barware, kitchenware, bakeware and some of the things that I mentioned, we've been gaining share. And a lot of that obviously shipped in the second half is the seasonality of our business as you're aware. So we've had big wins in those areas from a market share perspective and that's driving growth for us. And even this year in the first six months while the second quarter is always a low quarter for us, the first quarter was very strong and we've been gaining from the benefit of market share. A lot of that flows through in the second half of the year. The -- we -- it's not like we eliminated categories on the SKU rationalization. We eliminated products that weren't productive, but were in the products offering for some period of time -- in the company's offering for some period of time. So there was -- would have included for instance areas where we're growing like kitchenware, bakeware, sinkware, tabletop, barware. So across the company there was an opportunity to look at the portfolio from a strategic rather transactional portfolio and a return on assets basis to -- and that presented us with an opportunity to identify where we can monetize and create value off of our balance sheet by raising an additional $30 million plus.

Okay. And the $30 million does that also include, let me clearly -- like you said it includes this inventory that you've already marked down but does they also include sort of other assets like minority investments that you might hold?

So it does include other assets. Yes. It does include other assets.

Okay. All right. So -- and I think that's encouraging that sounds like you're going to use a lot of that to either invest into the company or reduce debt so just staying on capital allocation for a second. Do you think in light of what you're doing – obviously, you have a dividend it's not a very big dividend. But does it make sense to keep the dividend? Or does it make sense to perhaps use that money? It's not a lot of money, but to direct towards the reduction of debt or -- and/or even maybe the repurchasing shares at the current valuation? I wonder your thoughts about that.

So we have no intention to change the dividend.

Okay.

And the immediate use of this incremental capital raise will be to repay debt.

Debt. Okay. All right. And just the last one from me is, can you talk at all about, obviously not a big issue for you growing e-commerce platform, but can you talk at all about the inventory trends at your retail partners? Particularly some of them are still coming back right now actually the bricks-and-mortar, but some of them actually are not. So can you just talk about the general levels versus say a year ago?

I think we've seen an ongoing trend in this retail environment particularly with some of the larger players to shift some of the working capital burden to their supply base including us. We've seen a lot of that. We saw more of that in 2018. And if you look at particularly a lot of the large retailers in the tariff situation, they're doing a lot of direct import…

Right.

Private-label business. So if it's a 25% tariff or now maybe 10% on some other stuff they're paying all that themselves. And it's created additional pressures on the retailers which well not directly related to us they're looking everywhere including anything on the balance sheet. But nothing material for us in 2019.

Okay. That’s helpful. Thank you.

Thank you. Your next question is from Justyn Putnam of Talanta.

Hey Justyn.

Hey good morning. I just have a couple of questions. First question is, it looks like your guidance was lowered this quarter for the year, mainly due to geopolitical factors that occurred after the end of the quarter. Is that fair specifically the 10%? Yes.

Yes. No. That's fair.

All right. So follow-up on that is, I want just to hear your thoughts on the trail between the timing of trying to recapture, the margin from the tariffs versus maybe trying to capture market share. What is your own strategy on that?

It's complicated and it also depends upon levels. So, if you look at list 4, which is the recently announced 10%, it covers everything. So one of the kind of advantages for us of the putting list four for tariffs is basically everything sold in a retail environment is covered by the tariffs. So kind of creates a leveled playing field. And at 10% you can do things on a strategic basis such as you suggest. If those go to 25%, we're not going to neither is the market going to completely absorb a 25% tariff. Now you mitigate what you can, but you can't mitigate 25%. 10% is a lot different. And again it's a trade war. China is devaluing the RMB. That's low-hanging fruit in terms of cost of sales reductions of us. But little guys, if they try to absorb that will go out of business. Now, we wouldn't go out of the business but it's not - it’s a big dollar amount to try to absorb, so we wouldn't do that and we'd rather remain with the market neutral. Obviously react to market conditions. No one is doing that. What's going to happen is consumer prices will rise because the retailers will pass it through.

Okay. So understand it's complicated. But on average would you say that you are in a position to absorb maybe more than your competitors and potentially gain market share during this transition?

For the vast majority of our competitors that would be the case. And frankly, in food service in our -- which is a very large opportunity for us, the opportunities as a result of this and what it's impacted on some of the people selling comparable products has created a very favorable environment for us.

All right. Well, I was going to ask about that down the road, but since you mentioned it what is -- can you quantify the magnitude of the opportunity in that commercial line as you're…

So we're already a player in food service, Justin. On -- if you look at food service. There's two -- you can divide it into two big pieces which are separate. And one would be what's called front of the house and one's called back of the house. What's used in the kitchen, what's used in the front? So we've been a player for almost 20 years in back of the house. So, we understand the market. We've never been in the front of the house and we talked about this when we did the merger, the ability to do that because Lifetime has the products. Flatware, we're a global leader; dinnerware we're -- so the main products are still there. We make all that stuff. We're a global leader at any price point at any quality level. So it's a natural opportunity for us and we had now the expertise so we spent the first year, putting it all together and launched it in May of this year, launched a 1000 SKUs into front of the house. So it's a very good opportunity bowls, it’s a slow build for us. It's a good opportunity. And the products that we're selling in the front of the house in North America, in food service is a little over $1 billion market. So, we think we can get decent market share of that market.

What do you take decent market share?

You can guess. I mean, we haven't disclosed anything along that. But we're not talking of 1% or 2% here.

Okay. So my other question was the SKU rationalization initiative. I know you mentioned a little bit about that in the prior question. But this is on top of the cash flow that you're generating through the business this year at least based on your guidance as you've given. And looks like it's almost double your potential cash flow for the year. Is that accurate understanding of that opportunity with the SKU rationalization?

One piece is accurate and one piece isn't. This is completely incremental. That is accurate. We -- the realization of this cash flow will be both 2019 and 2020. So, we expect this to be a nine-month process to orderly go through the process and realize the numbers that we're stating.

Okay. Well the next two quarters are your big cash flow generating quarters anyway for the business. So, by spring of 2020 you expect to see significant decrease in net debt levels. Is that -- you be expecting over that SKU rationalization, right?

I mean basically correct with just a slight correction is we are in basically this quarter and next quarter peak seasonal cash need in terms of our working capital cycle and our seasonality of our business. And therefore the retail selling and the collection of what we ship is more fourth quarter and first quarter. We do have certain businesses in the combined business such as the Taylor line which is a very big first quarter business and other businesses that we have. So, it's couple of -- not as pure as you're saying and a little correction there, but directionally you're correct.

Okay. So, the other use you've decided for that free cash flow was investing in growth. Just kind of ballpark percentage how much of that cash flow is going to be used for investment growth versus -- just ballpark 25 or half of it or what?

So, I mean it gives us the opportunity to invest in growth. A lot of the initiatives that we've already talked about food service international we funded a lot of that. So this would be over and above opportunities that we've discussed to date. And it's more just looking at the appropriate return. At this point, the majority is being used -- will be used for deleveraging. And if there are -- as we originate additional closings to discuss to the shareholders and the public we will discuss that on a full disclosure basis. But at this point most of the cash will be used to delever.

Justyn let me just make just one clarification is that -- and we haven't said how much we're going to realize in terms of timing. But the term agreement -- term loan agreement has a what's called an excess -- I'm sure you're familiar with an excess cash flow sweep. So, it will be semi collected this year that is we reduce our working capital because we generate cash that will affect how much is available to reinvest versus how much we had to pay down debt. Just keep that in mind.

And we could always give you that. But -- so I mean we always have the option. But it is our intention as we generate and show there's opportunities which present appropriate return it -- we'll delever. But the point being is we've generated and created a significant amount of capital from stranded assets that give us tax flexibility to invest in growth with providing appropriate returns and until that time we'll just delever.

Okay. Well as shareholders I think that the opportunity you found stranded assets and the cash flows that you generate from that and the debt pay-down opportunity is pretty exciting. So appreciate that.

No. Thank you. We share your enthusiasm. We were very happy to identify this opportunity.

That's all my questions. thank you.

Your next question is from Patrick Barwin of Aegon.

Yes, thanks guys. Could you talk about the food service channel a bit more? Some, maybe not necessarily your competitors, but some other companies have talked about it being fairly pressured in terms of traffic declines and very aggressive pricing. Could you just talk about what you're seeing in the channel?

Yes. So the food service channel right which would be restaurant hotel catering and the like has for the past 10 years grown at a faster pace than our core consumer market. We know the channel well. And we know the price points in the channel and we know our cost structure and we have the products. So, the margin -- net margin in that business -- you have healthy gross margins there is big difference in gross and net. The margin is that we will be selling these products, which is known is well within our margin requirements. So not an issue for us. What you're seeing today globally and particularly in North America and particularly in the front of the house we're making a big initiative, is some disruption, because there are a lot of traditional players that are not providing a service level that you need to in food service, right? In food service, it's all -- from your distribution you need it, they want it, you need it tomorrow. So that is mission-critical. And there are certain players in that industry -- in that space today I should say that whether they're financially challenged or for whatever reasons -- other reasons I should say, we're aware of them obviously are not able to deliver. Fortunately for us that coincides with our tremendous investment in this space. So therefore, there is legitimate opportunities and we've gotten tremendous sales opportunities as a result of this. Obviously, we need to execute on that.

Okay. And then going back to the SKU rationalization and cash flow side of the labor. That's clearly the point of interest. You guys did about $20 million in free cash flow last year. So should we expect in the second half of this year? I mean, that should be double that number?

Yes. As we've said with Justyn Putnam's question is that it's going to be a nine-month period so some of the money that we're going to generate will be in 2019 and some will be in 2020. But this is all instrumental cash flow that the company will generate off its balance sheet.

Okay. And then the EBITDA guidance shifts a little bit with the language. So on an apples-to-apples basis, your EBITDA guidance is now $58 million to $60 million right, if we compare it to the first quarter?

So we went -- the guidance is $66 million to $70 million, which is from $71 million to $73 million. And last year, we did a little over $65 million. So that's where -- it's 4%. The midpoint of $66 million to $70 million or $68 million equates to 4% growth over prior year. And the range as I explained versus our guidance that was in place in the first quarter is down from the $71 million to $73 million level.

Okay. And then have you -- you have saw Amazon. There was an article out either this week or last week about Amazon going to vendors and saying it's reduced prices that they were selling anywhere else for cheaper. Have you guys had conversations with them on that? Or any view there?

Yes. I saw that article. Look Amazon does everything. Amazon changes every other week. Now that is not something -- you got -- it's a big effort which some particularly smaller companies have a harder time chewing in terms of maintaining MAP pricing on Amazon. They're very algorithmic-focused. So -- and their algorithms search around. And if there is -- what they do anyway if there is a lower price that they find online they immediately lower. And that causes disruption in the marketplace. So -- and we have a significant infrastructure in place to protect MAP pricing, because just to give you an example rabbit corkscrew we sell those in a significant amount of independent wine and liquor stores throughout the whole country. So if you have a guy and he's buying it, let's just say at wholesale and he's a little guy we'll just say in Long Island and he buys an extra 2,000 rabbit corkscrew marks it up $5 over wholesale, puts it on Amazon as a 3P reseller and totally disrupts the marketplace. So you need to believe that and basically go to that guy and say hey, you have two choices. Never sell like that again. Or sell like that we'll cut you off. And that's maintaining MAP pricing. It's just one example. So Amazon is very focused because of our size versus a lot of our competitors with Amazon. So there's an active dialogue on a million topics, but that has not been one of them.

Okay. Thanks guys.

Thank you. We have no further questions at this time. I will turn the floor back over to Rob Kay for any additional or closing remarks.

Thank you. Thank you again for joining us today. We remain focused on executing our strategic priorities to deliver sustainable growth in the second half of 2019. We appreciate your continued support of Lifetime Brands and look forward to discussing third quarter results on our next conference call. Have a good day.

Thank you. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day.