Good morning, ladies and gentlemen, and welcome to Lifetime Brands' First Quarter 2021 Earnings Conference Call. At this time, I would like to inform all participants that their lines will be in listen-only mode. After the speakers’ 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, and thank you for joining Lifetime Brands' first quarter 2021 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. 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. Good morning, everyone, and thank you for joining us today to discuss Lifetime Brands' first quarter 2021 financial results. Lifetime Brands is off to an excellent start in 2021 with top line growth of approximately 35%, driving net income of $3.1 million, and year-over-year growth in adjusted EBITDA of 418%, or $13.6 million. Our strong results this quarter demonstrate Lifetime's ability to consistently outperform across our categories in the many channels in which we sell our products. I could not be more proud of the Lifetime team and the incredible work that has contributed to our unprecedented results, which once again validates the strong foundation we have established through our Lifetime 2.0 Strategy. And while we've delivered strong top line growth, we've also remained focused on disciplined cost control, which has contributed to making our company a leaner organization and continues build on the 21% adjusted EBITDA growth we achieved in 2020. I'll start with our core U.S. business, which showed remarkable strengths and continues to lead our overall business. In fact, it has now delivered its seventh consecutive quarter of year-over-year growth. We are benefiting from our ability to add new products, grow into adjacent categories, and expand brands, such as our KitchenAid line, which we recently extended into cutlery and into international markets. The combination of our strong top line growth, the benefits of better utilization of our infrastructure, and a disciplined focus on cost efficiencies all contributed to our strong results for the quarter. Building on our momentum from 2020, we continue to gain market share across the majority of our categories, driven by robust consumer demand, leading brands and product offerings, and vendor consolidation at our largest customers. Additionally, we benefited in the first quarter from our strategy to invest in increased inventory levels,…

Thanks, Rob. As we reported this morning, net income for the first quarter of 2021 was $3.1 million or $0.14 per diluted share versus a net loss of $28.2 million or $1.36 per diluted share in the first quarter of 2020. Adjusted net income was $2.8 million for the 2021 first quarter or $0.13 per diluted share as compared to adjusted net loss of $5.7 million, or $0.27 per diluted share in 2020 a table which reconciles this non-GAAP measure. The reported results was included in this morning's release. Income from operations was $9.2 million for the quarter in 2021, as compared to a loss from operations of $25.2 billion in the 2020 period. The 2020 period would have been $2.3 million loss, excluding a $20.1 billion charge for goodwill impairment and a $2.8 million charge for bad debt reserves. Adjusted EBITDA, a non-GAAP measure that is reconciled to our GAAP results in the release was $90.9 million for the trailing 12 months ended March 31, 2021. This represents a $13.6 million increase over the $77.3 million for the year ended December 31, 2020. Net sales in 2021 quarter were $195.7 million compared to $145.1 million for the 2020 quarter. The U.S. segment sales were up $47 million to $176.2 million. The increase came from category growth and increased market share in the kitchenware products category, led by kitchen tools and gadgets, cutlery, and bakeware products. Category growth reflects the continuation of consumers preparing more meals at home, in addition to market share gains in new product introductions. Market share gains reflect the appeal of our products and brands and our ability to keep retailers in stock, in addition to the ability to offer a drop-ship capability to omni-channel retailers. Tableware increased across all product lines, most notably for flatware…

[Operator instructions] Your first question comes from the line of Anthony Lebiedzinski, Sidoti and Company.

Good morning. Certainly a very impressive start to 2021. So as we look at the guidance for this year, obviously coming off of a 35% increase, how should we think about the expectation for growth in revenue for the balance of the year in terms of – I know you do have some more difficult comparisons in the back half. Or just kind of maybe help us understand how we should think about the seasonality and the quarterly distribution of the revenue gains for the balance of the year.

Yes. Anthony, hi, and thanks for your remarks. In terms of your question, the first half of the year definitely will have stronger growth percentages, but we're seeing continued strong demand in order flow for our products on the demand and revenue side, unknowns, but there are now restrictions and retailers being opened up in Europe, which should have a positive impact on our European-based business. So that should be positive. So on the demand side, definitely, the easier comps and the stronger growth percentages would be in the first half of the year, but I think we'll see growth throughout the year.

Okay. Great. Thanks for that. So you mentioned that some of the growth in revenue came from new products in the first quarter. Just wondering was that – is there any way you guys can quantify how much of the first quarter revenue came from new products?

We don't have that statistics because we don't look track in that manner. For example – and what we're talking about is plus-one opportunities, right? So we're always introducing new products, but sometimes it could be a new product that's replacing or cannibalizing old product. But I'd mentioned in KitchenAid, we now are launching the cutlery opportunity, so we never sold KitchenAid cutlery. That will ramp up throughout the year. We just started selling that this year, and we're expanding that in different doors and different retailers and different avenues and channels throughout the year. So that will continue to gain momentum. Similarly, in international, where we never sold that brand, and we're starting to roll that out, we'll see increasing momentum throughout the year. Year & Day, which we talked about, we haven't turned that on yet. So at this point, pure expense and no revenues, we will turn that on no later than Q3 and start seeing some revenues from that new opportunity. We'll also start seeing hopefully meaningful growth from the launch of a new brand at Walmart, where we'll start seeing those numbers in the second quarter.

Okay. All right. Thanks. And then last question for me. So as far as the increase in investment that you planned for the year, how should we think about the timing of the increased spending as we refine our models for the rest of the year? If you could just kind of give us a sense as to the timing of these expense increases?

Yes. There's three buckets. One is CapEx, not very much. So there is a sort of greenfield opportunity that we're investing in and it is requiring some capital because it's software-oriented. Too soon to talk about it, but there will be some capital in there, but nothing meaningful. So the two buckets that you'll see are in G&A and in margin, depending upon how we spend the money. Some of it we've already started to experience in Q1. As a matter of fact, the investment we've talked about, seeing the progress we were making in 2020, we started ramping up those opportunities. Some of that is just filling in new positions on for digital, expanding our digital business. We've invested in that starting in Q4. So it will continue to ramp through the first two quarters and kind of be steady-state from that basis. But as you see, we're more than funding these investment opportunities and continuing to grow the business at the same time.

Got it. Okay. So that will be for G&A and margin as far as the 2Q and 3Q impact?

Yes.

Okay. All right. Thank you and best of luck.

We're not going to stop spending in Q4.

Right. Okay. All right. Well, thank you again and best of luck.

Thank you, Anthony.

Your next question comes from the line of Linda Bolton-Weiser with D.A. Davidson.

Hi. Good morning. So I was just wondering a little bit more about your gross margin because it was down a fair amount in the quarter, although the international side was quite strong. So I guess you mentioned a couple of things on the U.S. side benefit in the prior year of duty refund. Are there any other quarters in 2020 where we're going to have that type of hard comparison where you got duty refunds last year? Can you remind us?

No. The first quarter stood out.

Yes. That's it. I mean, we're always going after opportunities, right? Unfortunately, the tariff and duty regime is very convoluted and there's been so many put on and take-offs. And that created the opportunity for us to get a refund is there was some duties that were put on, and they were taken off and put back on and taken off. But anyway, that gave us the opportunity in the first quarter. There's still a lot of cloudiness in terms of the new administration, but there's not as much fluctuation, which created the sort of year-over-year fluctuation in the first quarter. The other margin inputs, as we talked about, we took $1 million charge-off. Business is going really well. And we made the opportunity to monetize stuff. We could have sold but at a lower margin and replace that with higher margins as opposed to having to at peak times, worry about taking third-party warehouse space. So we were freeing up allocations. We'll monetize that, just we wrote down the margin from it so we can monetize that. And again, replace business we would have sold at low margin to a inventory that will get full margin at and that impact hit the first quarter. And in the first quarter, we also had – we talked about, look, we've been growing, and you see the 65% growth in e-commerce. But we also had a lot of growth in brick-and-mortar, including in the club channel, much more heavily weighted quarter-over-quarter, which had an impact.

Okay. And then in terms of the guidance for 2021, I'm just doing my math here real quick. I mean, at the high end of the range, you've got an 11% sales growth rate. And for operating profit at the high end of the range, adjusted operating profit, you're guiding to 17%. So that does imply some margin expansion. And yet, I get a feeling that – well, you've got investment that you've talked about, so that may affect your SG&A and then there's these cost pressures in gross margin. So I'm just kind of trying to figure out like where is the margin expansion coming from? Is the gross margin actually going to be up year-over-year? And this first quarter was just kind of an anomaly?

So I think what you just quoted would be operating margin, not gross margin, that, correct? So I'll address that, and I can talk further if you'd like. But we did – there are a lot of headwinds. Some we've been experienced for a while. There are a lot of headwinds. Some people aren't offering guidance on that. We felt confident enough to do so. And we factored in these different headwinds and there's multiple buckets of them. But we also continue to take better utilization of the company's infrastructure. And a lot of these changes continue to roll through the income statement throughout the year, which increases our operating margin. So if you look at the growth we've achieved and continue to achieve, we can more than fund that with all the growth that we achieved in 2001 and continue to achieve now and increase our operating margin at the same time. Did I articulate that okay, Linda?

Yes. I mean, I think what you're trying to say is there's probably – you're going to get underlying leverage of the cost structure because you're projecting pretty good revenue growth. So I guess that's one of the factors here. But I mean, again, I'm just a little concerned because the gross margin was down so much in the first quarter, and then there's all these inflationary headwinds. I'm just kind of trying to think about if the gross margin can expand for the year, do you have a sense for that?

Yes. Well, there will be various impacts throughout the year, some we've already been experiencing in terms of the gross margin. And we do anticipate and actually are already working through having to get price increases as one of our mitigating actions. But we've also been working the supply chain, which reduces our cost of goods sold on an absolute basis, then, of course, mitigating that is the inputs are also up, right? So there's a lot of moving parts. One thing that impacts margins, we've moved out of geography, we'll see some of that this year. So if you look particularly in our metals or our flatware business, where we're shipping from the second half of the year will be the same as some tariff goods that we're shipping from in the first half of the year. So the elimination of paying the tariffs have a positive impact on margins. So what I'm basically saying is a very complicated environment we sit in today with tremendous amounts of inputs in all directions, which we've factored in to be able to give you guidance for the year.

Okay. And with regard to this new line at Walmart that I think you said would be generating some revenue, I think you said second quarter. Have you announced what the brand is? And I was under the impression it might be a partnership where it might be a license-type brand. Can you give us more specifics on exactly what it is?

Yes. So it is a licensed brand. Next time, we'll give you more specifics. We were planning to do that slightly on this call, but we were just agreement-wise realized at the last second that we had an obligation with our licensed store. And we didn't get it done in time because we realized it too late. So we'll talk about it that time. But it is on schedule. It is a celebrity brand launch exclusively at Walmart.

Okay. Great. And then this little business you bought here would be online tabletop sales. I'm just kind of interested in what your plan is for that. I mean, is your plan going to be to kind of sell your other brands through that website? Or like what is your intent for that business?

Yes. That's a good question. So if you look at our – particularly our dinnerware offering, we view that – we have viewed that we're underpenetrated in the younger age groups. Year & Day, that's our sweet spot and has a tremendous splash before they run out of money because it's venture back. And we see that as a great complementary product fit with everything we're doing. So we're going to keep it as its own business unit selling Year & Day branded product direct to the consumer online.

Okay. So you'll just keep it separate kind of running on its own for a while.

Yes. It's being run by Kathryn Duryea, who's the Founder and she's the President of the business unit for us now out of San Francisco as it was before we bought it. Now we're integrating it in operationally. So we'll get a lot of benefits from that into the greater operational, but from a sales and marketing product perspective, digital perspective, it will be its own native brand, which we think has a lot of potential.

Are the annual sales like – is it over $10 million or under $10 million?

No. It's an incubated – it's under 10%. And again, it is bound out of funding, so it shut down, so we will relaunch it, right? So its sales today are zero, but it has a loyal customer base that we should ramp up quickly once we turn it back on.

Okay. And then finally, I'm just wondering about your activity in M&A. Some companies have been saying that the SPAC activity has made it hard to do things. Are you still able to look at things are prices reasonable? Or kind of what's your activity there?

Yes. So we're very active, and we're looking at a lot. And we have a lot of availability on our balance sheet, particularly if we're buying businesses that are positively generating cash flow. But we've been very disciplined, and there are a couple of opportunities that we looked at, spend time and money on it. But we see better internal opportunities in getting back to your – the question, yes, valuations have been extraordinary. So we're seeing companies that should be trading or, I think, should historically have traded at an eight times multiple that are trading at a 12 times multiple. So, therefore, we have not pursued anything that we've seen that is meriting that valuation level. We continue to look and we feel confident we will execute. But we're in no rush that you've seen the numbers we're doing quite well, and our internal opportunities are quite attractive.

Great. Finally, I mean, with a little bit of extra spending, do you have a CapEx guidance number for the year for 2021?

It's approximately $6 million.

Okay. Okay. That's it for me. Yes, go ahead.

Yes. And then just further to what Larry said, and you've seen us now for a little bit is even while we're ramping up to certain levels, we're also ramping up potential more automation in our ARPC, right, in view of where labor rates are and just to be efficient. But it's such an asset-light model that even as we ramp that up, we're still not spending that much our cash on capital.

Right. Okay. Thank you. Good luck with everything.

Thanks, Linda.

At this time, there are no further questions.

Great. In that case, we appreciate everyone's interest in Lifetime Brands and your attendance on this call, and we look forward to continuing to report to you in the future.

This concludes today’s conference. You may now disconnect.