Good morning, ladies and gentlemen, and welcome to Lifetime Brands' Third 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 third 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.

Good morning. Thank you for joining us today to discuss Lifetime Brands third quarter 2019 financial results. We're pleased with our progress and results for the third quarter. The transformation that we embarked on with the filament acquisition is delivering tangible results as evidenced by the increase in sales and EBITDA compared to the prior year quarter. We remain on track to achieve our strategic priorities to reposition the company for higher growth and increased returns. While we have made progress executing our strategy in a challenging retail end market, we continue to face significant headwinds from the trade war with China and the impact of Brexit, which has temporarily impacted gross margin and revenues. As previously discussed, Lifetime has and continues to pursue a multifaceted strategy to mitigate the financial impacts created by the imposition of these tariffs. We continue to improve profitability and increase investment in our brands and we have taken action this quarter to position us to capture these opportunities as we transition into the fourth quarter and fiscal 2020. We're excited about our prospects and are confident that our strategy will deliver results, drive improved performance and create meaningful value for our shareholders. Our performance for the quarter saw a consolidated adjusted EBITDA growth of $3 million as we started to see the early results of our product portfolio optimization and rationalization. We continue to focus on our newly rolled out strategic product development and sales initiative and unlocking the value of the cost efficiency campaign launched in connection with the filament acquisition. Additionally, we remain committed to increasing the brand equity and trend and product relevance of our best-in-class products and brands. In the third quarter, we achieved considerable market share gains in our core U.S. markets, driven by a combination of new product…

Thanks Rob. As we reported this morning the net loss for the third quarter of 2019 was $13.5 million $0.66 per diluted share compared to net income of $5.9 million or $0.29 per diluted share in the third quarter of 2018. 2019 and 2018 quarters include non-cash charges of $9.7 million and $2.2 million respectively related to the full write-off of the international segments acquisition goodwill. Adjusted net loss was $2.7 million for the 2019 quarter, $0.13 per share, compared to an adjusted net income of $8.5 million or $0.41 per share in 2018. The table which reconciles this non-GAAP measure to reported results was included in this morning's release. Excluding the non-cash goodwill impairment charges taken in 2019-2018 periods, income from operations was $16.6 million versus $14.5 million in 2018. Adjusted EBITDA a non-GAAP measure that was reconciled to our GAAP results in the release, but $69.6 million for the trailing 12 months ended September 30, 2019 after giving effect to certain adjustments and before limitations as permitted and buying and our debt agreements. This includes projected unrealized synergies of $2.5 million. Of note, the projected unrealized synergies continue to decline as these synergies become realized and reflected in our actual operating results. Consolidated net sales in the 2019 quarter was $250.5 million, compared to $209.4 million for the 2018 quarter. For the U.S. segment, sales were up $9.1 million. All categories increased led by new programs for home solutions, home deco products and kitchenwares rapid products. International segment sales were $20.3 million in the 2019 period versus $23.4 million in 2018 on a reported basis and in constant dollars U.S. dollars, which excludes the impact of foreign exchange fluctuations, sales decreased $1.9 million or 8.6%. The decrease was driven by operational issues in connection with the opening of…

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

Good morning guys. How're you doing? Hey Rob and Larry, you both had a bit of description on the gross margin, but I noticed in the press release there is actual line. It says decrease was primarily due to changes in both product and customer mix and you talked about the customer mix more. I think the explanation is more national accounts, which I assume would mean that maybe those are lower margin. But can you talk about the product mix? I was a little surprised there, but you might benefit when I look at this on a year-over-year basis because of the SKU rationalization. Can you talk about that?

Yes, so there are couple of different moving parts, Frank. And a big impact on the margin percent as we also discussed were the tariffs, right, which have are well are mitigating actions and you see it in the numbers are focused on gross margin dollars. There is a reduction in gross margin percent as a result. And gross margin dollars grew, gross margin percent went down. The National Account comment that Larry had talked about that you picked up upon, deals with the discussion of our European in particular our U.K. operations. And as we both talked about, we experience -- as we were going live with our single warehouse, we experienced operational issues in that distribution center and therefore shipping issues. And as we were triaging that situation, we were able to ship a lot greater percentage of that business to their larger national accounts, the Nationals as opposed to the independents, which is also a big market for them. There is a noticeable difference in margin between those two segments. So, the U.K. business is off as a result of this, but also their mix and therefore their margin was dramatically changed. That's just a piece of our business. In the U.S., the big driver and obviously the bigger part of our business was tariffs from a margin percent and as we said that's why margin dollars grew. But there also was just channel mix. And there is different profit margin that we experience on different channels and is just the mix was a little different.

Got it. So and then kind of stay a little bit on the tariffs, you gave actually quite a bit of detail. It sounds like from my -- really from my model to the way on the margins were a little longer than I thought. Irrespective of the margins or costs. And then can you talk about what if any impact you're seeing on product demand or customer -- I'm talking about end-user consumer response?

That's a great question. So there's two pieces to that and as I referred to in my remarks, while we have grown our business, the tariffs did slightly impact our growth rates because there is business that as a result of tariffs we lost. Because of the price increases that were passed on and we were not competitive and we just lost the space. To-date and it seems there as active movement on this topic I guess as we speak. To-date, we've been monitoring and haven't seen a consumer impact on the industry and that's the general retail. We see what you see. But we haven't seen anything specifically related to the end markets. Maybe you could say, we will see what the future brings.

And my last one is just, you touched on the new products coming out in foodservice which I think is a pretty big positive over time. And while you didn't say it's going to be anything material. Could you just talk about the long term? Is that -- what is that you from margin basis? Can you talk about that at all?

We'll actually go into Investor Day next week, which you'll be there, but for the benefit of everyone on the call, we'll go into a lot more detail. And we want to our staff on our Investor Relations site for everyone on an FT basis to see. But the margins in that business, we've been in the business for a long time. We're launching with cost front of the house in this segment with all of our tabletop products. So, we know the industry. In general, your gross margins are higher than what we experience on the consumer side of the business, but there is a lot of complicated. It's multi-step -- I won't go into the details today as we will in Investor Day. Your net margins are similar on the high end, but similar. But the gross margin looks better.

I look forward to next week. Thank you.

And your next question comes from Linda Bolton-Weiser with D.A. Davidson.

Hi. How are you?

Good, yourself

Good. So, in terms of your initiative to sell through some of the slow-moving and obsolete inventory to generate some cash, did you do much of that in the quarter? My understanding it would kind of help sales, but hurt gross margin as you do that process. If you could quantify, if you did any of those sales in the quarter that would be helpful. Thanks.

Sure Linda. Just as a clarification, we eliminated over 7,000 SKUs, so we did SKU rationalization and eliminated approximately 25% of our SKU count and that's what sort of drove the charge we took and the initiative that we announced last quarter. Specifically addressing your question, we announced it last quarter; we really started shipping those goods preliminarily in September. So the impact on the third quarter was marginal. We ship more in the fourth quarter. But as we said at the time is really going to be a nine-month process for us to liquidate that inventory. But in answer your question, we did. We just started; we sold some but not much in -- for our expectations in September.

Right. And so because this is kind of a seasonally strong period for you, do you think that process will ramp up a fair amount in the December quarter.

Do we think that the sales of what we've identified in our skew rationalization will ramp up in the fourth quarter? Was that your question?

Yes.

We'll get definitely more sales in the fourth quarter because we'll be trying for three months versus one. So there definitely will be more in the fourth quarter, but the bulk of it will be in 2020.

Okay. And then did you -- sorry, if I didn't quite see all your statements, but did you give the cash flow statement if not can you give operating cash flow in the quarter or year-to-date?

Yes sure. It was in the release. We did for that cash flow. Read out…

Okay, I get that …

Okay. It’s in the -- we put out all the primary statements in the release.

Okay. I can get that.

Okay.

And then just a question on the issues that you talked about in the UK. It sounds fairly disruptive. When do you -- what's the timing of when you think that will be resolved and back to normal in terms of operations?

Yes. Unfortunately, while we remain and we're very confident in terms of results that our whole reorganization will produce in the end and a lot of -- in terms of consolidation the works all being done. When we went live with the one solid one warehouse and went eight into one without going into specifics there were unforeseen operational issues. It did impact us in this quarter. It will impact us next quarter. As we are already improving and fixing the situation, we're doing that with a lot of help from the U.S. So we'll get it back to normal by Q1 in terms of where we want normal shipment levels. But the other piece of that is we can't run it with U.S. leadership forever. We're putting the right operational leader. We had to replace our operations director in the U.K. unfortunately and we need to replace that position and that's underway.

Okay. And then one last thing just in terms of your commentary about losing some top phase or markets there due to the price increases were you able to do a pretty fine-tuned analysis of where to make the price increases? Because certain areas where you're really strong in market share you should have been able to do it. So I'm just wondering was it across the board that you thought and that's why unsuccessful or how are you going to kind of be able to correct that?

Yes, it’s a good question Linda. So price increases related to tariffs were across the board. Where we lost share -- not share, but opportunities work in the off-price channel. So in most of what we sell is plan ground and what we have to put in a uniform price increase. There is some opportunistic opportunities that you get in off-price because as you know you think so our plan ground and they can -- so the shift there shelf space around for different type materials could be any goods and they can replace apparel with hydration. They could put whatever. And so we had some opportunistic opportunities that we sell in that channel that no longer made sense with the tariffs so we didn't get those opportunistic opportunities. But we didn't lose share in our core listings.

Okay, thank you. I'll see you next week.

Great. Thanks, Linda.

Your next question is from John Sullivan with Allstream Capital Management.

Hey, guys. I know you mentioned 30% is what you would think the tax rate would be for the year just trying to tease out maybe after the dust settles all the charges are done what may be a more normalized rate would be? Just looking at the quarter the adjusted number of negative $0.13 was clearly weighed down by a north of 100% tax rate. So I'm just trying to – obviously, I see the operations improving but just trying to get an idea as what's a good baseline for the future?

I know odd. It's infrequent, but it's not that unusual and it has to do with how we -- for accounting rules to record the tax rates. So it's based on the annualized rate which is 30% and you need to look at the you should look at the nine months and you can see the 30% rate when you have the third quarter is actually the back end to get the nine months to what it should be versus the six months year-to-date. It is all driven by this charge for the goodwill. So 30% is what it is year-to-date in the release and that's based on what we anticipate will be for the full year.

Got you. Okay. And secondly just wondering on the free cash flow whether or not usually get a nice fourth quarter reversal in working capital whether that's still anticipated as per normal and whether we should see a decent cash flow for the year leading to some debt pay down. I was wondering if that's still the case?

Yes. We haven't put out guidance on that. That is typical we peak generally in October because of seasonality depending on the timing of sales in the quarter and in some cases classification different trade terms might see benefit more in December versus January and sometimes into February. But that's kind of our – our advent flow and we should see significant pay down in this fourth quarter.

The first quarter is historically in a seasonality basis a big collection quarter.

Got it. Okay thanks.

There are no further questions at this time. Mr. Kay, I'll turn the call back over to you for closing remarks.

Thank you. Thank you everyone for participating on the call as always everything is available on our websites and for those who will attend we look forward to seeing people next week at our Investor Day Conference in New York City. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.