Good morning, ladies and gentlemen and welcome to the Lifetime Brands Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to introduce your host for today’s conference, Andrew Squire. And Mr. Squire, you may begin.

Thank you. Good morning and thank you for joining Lifetime Brands fourth 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 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 others are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date 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 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 fourth quarter and full year 2021 financial results. We are pleased with our strong performance in the fourth quarter which marks another period of significant growth and capped a record year for Lifetime in 2021 as we continue to drive significant value for our stakeholders. While inflationary and supply chain challenges continue to impact our industry and many others, our team effectively managed costs and continued our actions to not only mitigate these challenges, but deliver substantial growth in spite of them. Our strong execution in the face of this challenging macroeconomic environment enabled us to generate adjusted EBITDA of $95.1 million or a 23% increase over 2020, which exceeded the high-end of our guidance for 2021. We delivered a strong gross margin dollar increase of $29.3 million or 10.7% as we manage cost pressures in the business, focused on growing market share and implemented price increases to offset increased supply chain, freight and other inflationary cost pressures. While supply chain disruptions did have an impact on revenues in the fourth quarter, we still outperformed on revenues compared to 2020 and our full year results in both revenues and EBITDA achieved record levels, thanks to continued growth and market share gains across product categories in the U.S. and increased operating cash flow in our international business. While we estimate that supply chain disruptions had a negative impact on fourth quarter revenue of approximately $20 million revenues and EBITDA still increased meaningfully for the year. Of note, while some of these delays resulted in canceled orders, the majority of these missed shipments are expected to shift throughout 2022. Starting with our core business in the U.S., we continue to see very strong end-market demand across…

Thanks, Rob. As we reported this morning, the net loss for the fourth quarter of 2021 was $600,000 or $0.03 per diluted share versus net income of $15.2 million or $0.70 per diluted share in the fourth quarter of 2020. 2021 quarter included a non-cash charge of $40.8 million related to the impairment of definite life intangible assets in the International segment. These assets were initially recorded when we acquired KitchenCraft in 2014. Adjusted net income, which excludes the non-cash charge, was $14.4 million for the fourth quarter of 2021 or $0.65 per diluted share as compared to $15.2 million or $0.70 per diluted share in 2020. A table which reconciles its non-GAAP measure to reported results was included in this morning’s release. Income from operations was $8.9 million for the current quarter as compared to $24.4 million in the 2020 period. And excluding the impact of the impairment charge, adjusted net income – adjusted income from operations was $23.7 million for the 2021 period. Adjusted EBITDA, a non-GAAP measure, as reconciled to our GAAP results in the release, was $95.1 million for the year ended December 31, 2021. This represents an increase of $17.8 million or 23% over 2020. Net sales in the 2021 quarter grew 2.7% to $255.9 million and for the full year, net sales grew by 12.2% compared to prior year. The U.S. segment sales were up $9.9 million to $230.1 million. This increase was mainly driven by increase in the kitchenware products category, led by pantryware and in the tableware category from warehouse programs and e-commerce sales for dinnerware. International segment sales were down $3.3 million to $25.7 million, on a reported basis, $4 million in constant U.S. dollars. As Rob discussed, this is caused by Brexit disruptions, which impacted our ability to timely ship…

Thank you. [Operator Instructions] Our first question comes from the line of Linda Bolton Weiser with D.A. Davidson. Please proceed with your question.

Hi. So, I was curious usually you issue guidance for the next coming fiscal year. And I was curious, why you are choosing not to do so at this time?

So, Linda, consistent actually, just to correct your understanding. We always issued guidance in May. So, this is we haven’t changed our practice at all.

Okay. I am sorry. That’s right. I forgot about that. So, you plan to issue it that’s at the time that the first quarter is reported?

Correct. That’s consistent with what we have always done.

Okay, great. And with regard to the $20 million of orders that were shipped in, I mean, you are pretty much almost done or partly done with the first quarter. I mean, what portion of that $20 million is going to come in the first quarter? And then is there some sort of shifting of first quarter sales into the second quarter, if you know what I am asking?

Yes. So, there is several buckets. So they are a little bit greater than the $20 million, but – and some orders did cancel. There was a big Thanksgiving program we did. That didn’t make it. Some of the did. So, we have got some cancellation. The majority of it though moved over. And of those shipments that were missed, some of them because there is some seasonality, they will result in sales as late as the fourth quarter for shipments as late as the fourth quarter, because of the nature of those products. So, they wouldn’t on a normalized basis and I will get to your question in a second, have shipped in the first quarter anyway because of the delay. They either were going to make it or they have to wait the third quarter, the fourth quarter and the first quarter. We didn’t – we have not yet caught up in the first quarter, because there has – it’s still basically a few months away to get into port, a month delay to get out. So, there has not been alleviation and there is a corresponding from January, for instance, things rolled into January and then sure shift and then things – some January stuff rolled into February. So, we have not caught up as of yet.

Okay. So, I mean, maybe you could just give a little more detail. Because I mean, all companies are facing these issues, but sometimes it’s different situations. I mean, is it getting finished goods from Asia to the U.S. and Europe for distribution or is it bottlenecks like in ports where it’s just a distribution that’s delayed, where are the biggest bottlenecks for you that are holding you up?

The bottlenecks exist everywhere. It’s getting out of China and Asia, India, wherever we are shipping from. Although that’s alleviated somewhat as of late, but it’s getting containers shipped out, then to our destination ports, the average weight on the West Coast to get into port is 2 months delay. Site studies, these boats of shipping, sitting out, waiting for a berth to be able to unload. So there is a tremendous delay, just getting your products to our markets, the biggest one is being Europe and North America. Then there is delays getting out of port. So, the ports are having problems with that. There are trucking delays, very noticeably in Europe, but also here. So, it’s not one, which is also why we don’t think that this situation alleviates very quickly unless there is a big depression or something, which hopefully not, because there are so many aspects that need to be fixed in the chain. So, it’s not something, but what gets most press and people talk about is ocean freight and ocean timing and that it does have a very big impact. Hope that helps.

Yes, okay. Thank you. And so your inventory now, I mean it’s kind of crept up and again, a lot of companies are keeping more inventory. So, you are not unusual, but I mean, your level of inventory exceeds your annual sales now. So, it is kind of a big slump there. What – it has a percentage that’s in transit gone up a lot. Can you give us some sense of that aspect of inventory?

Yes. I mean, first of all, answering your question directly, yes. So because of the situation I described and goods taking much longer to get from its source of production to actually a distribution center, whether that being ours or if it’s direct import a customer that’s created a slowdown in terms of a much higher inventory just by its very nature. Secondly is for some time, as you are aware, we have strategically decided to use our very strong financial position and balance sheet to just invest a lot more inventory. It’s proven successful in terms of gaining and maintaining market share and then you see it in the results here. So even with delays, we are still growing very nicely, but we are carrying higher inventory levels. And we plan to keep higher inventory levels until there is some normalization in the world and we think that’s no earlier than 2023. Additionally, as you pointed out is the fact of the supply chain is just taking much longer to get goods, we actually are the owner of those goods, even direct import in many cases, where the way it works, even though they are going directly to the customer, we are not getting paid by the way. So, this is having an impact in our receivables and our inventory levels.

Okay. I mean, do you think inventory is like going to creep up a little in the next year or is there another big step up that you have to take in inventory level kind of in the next year?

So, all other things remain the same. So, on a constant state basis, right, obviously, we doubled inventory, I mean, doubled revenues, you would see a big increase in inventory. Not that we are guiding here and we are not saying that it’s going to double our business and money. But no, we don’t expect a big increase. We have made the investment. We started making the investment, as you know, quite some time ago and the inventories that we have been carrying tremendous amount of extra inventory, which we again, have been helping us produce our results. We do believe that this situation has lasted for some time. We continue to refine what we are doing. So, there is an opportunity to actually lower our inventories a bit this year.

Okay. And then in terms of the new distribution center in the Netherlands, what role then does that lead for the UK facility? Is that just fulfilling now the UK and is there a chance that there will be now excess capacity in the UK location and kind of like explain kind of what’s going on there?

So, just as a point of information, the UK facility when we set that up is a bonded facility, so you are not paying duties, right. It’s just – so when you are actually getting something in the EU through the UK, it is officially coming from China. It’s like it never existed in the UK, from a talent perspective. However, in practice, it turned out that post-Brexit, they were just delaying anything coming out of UK. So, it wasn’t a tariff issue. We just couldn’t get our goods. We went from service levels of 48 hours on the goods side 4 weeks and up to 8 weeks to ship and it obviously hurt our business noticeably. The Rotterdam facility is going to, as we ramp it up, we will be getting goods almost wholly from source of origin. So, they won’t be routed through the UK, right, because that will just result in slower times, higher inventory levels, system-wide and higher cost. So it will be direct in terms of we’ll manage it through there. As a result, yes, because we’re having more total capacity in the system, less selling through the UK, it will free up capacity in the UK and presents an opportunity for us there. But we can get full capacity there before, just as an FYI. So this is giving us more capacity, excess capacity.

Okay. And then just switching a little bit to the new acquisition, the S’well acquisition. So if you said it added $4.5 million of EBITDA on an annualized basis. So in 2022, it will add 10 months roughly of that – a portion of that will be in for 2022. Am I understanding that correctly?

Think roughly 8 months, but besides that, I think you can, understanding correctly, seasonality aside. So I think it’d be about 8 months after the transition period, if I am understanding my math right.

Okay. And annual revenue is roughly, I’m guessing $30 million, $35 million, something like that. Can you give...

High end of that.

High end of that. Okay.

But pretty much, you’re right on. It’s just yes. Close to higher end.

Okay. And the seasonality of that business, is there something unusual in the seasonality?

I mean, look, it’s predominant hydration, there’s definitely seasonality in hydration, as you’re aware. I got one point going back to the UK warehouse, even though we’re creating excess capacity, we will be at a lower cost footprint system-wide once we’re live.

Okay. You mean with the Netherlands combined with the UK, the whole thing is going to be lower cost?

Correct.

Okay. And that’s supposed to be up and running kind of like at the end of March, you said?

Any day.

Okay. Sounds good. Okay, I will pass it on to the next person. Thank you so much.

Thank you, Linda.

And our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company. Please proceed with your question.

Good morning and thank you for taking the question. So actually, just a follow-up on the previous question that Linda asked this. As far as the lower cost that you were talking about as far as movement from the UK to the Netherlands, how should we think about the magnitude of those cost savings? If you could give us an approximate idea that would be very helpful.

We’re putting that warehouse Anthony. We’re putting that warehouse in place because once we’re live, we’ll be able to ship anywhere in the continent, in 24 to 48 hours. So it’s a huge revenue opportunity for us. And that’s really what’s driving that decision. The math is will actually be in a lower cost footprint combined. But it’s not significant. So the big impact from the Netherlands is going to be revenues and not costs.

Okay. Got it. Yes, thanks for clarifying. I definitely appreciate it. So as far as price increases, can you quantify what the impact was from higher prices in your fourth quarter and as far as plans for further price increases this year?

Yes. Andy, it’s Larry. I’ll take that. So the price increases are not easy to calculate in part because we changed our products so frequently. So if you only look at those that are comparable. Our estimate for the fourth quarter and bear in mind, a lot of this is being phased in is like maybe 5%, 3% on an annualized basis. And as being phased in, ourselves obviously were affected by the approximate supply chain issues of about $20 million. So you back that in as well, that would have had an impact on that percentage.

And in terms of further price increases, Anthony, look, the world has went from crazy to crazier. So, we have got to constantly monitor it. And it could – when we – we put in several price increases globally, we do it by market. In 2021, we were very clear that we were only looking for what was required and we would come back, and we have already come back for additional price increases in 2022, and that may continue, so as the world and markets shift in one way or another.

Okay. Yes. Thanks for that color. So, I know you are not providing guidance, obviously, yet for this year. You did mention earlier, Rob, in your prepared remarks that you are well positioned for 2022. That being said, just looking at how you guys did in 2021, you had a huge first half as far as first quarter, you had a 35% sales increase and 24% in the second quarter and more modest in the back half of the year. So, could we see kind of tell us tale of two halves this year, just in reverse order? Is it just directionally, if you guys could comment on what you – what’s reasonable to expect for this year?

Yes, it’s a good question, Anthony. I mean look, backing at 2 years, we had a record year in 2020, right. And then we crested in 2021. And I think we met our expectations as well. Good stop. So, we said in 2021, look, we can’t keep on growing 20%-plus a year, but we get it up. But we can’t keep on growing 20% a year, all those things remaining same. It’s a very difficult environment. But yes, it was a little strange year in 2020 in terms of – particularly on a comp basis, the beginning, as you pointed out of the year, had stronger comps versus the second half of the year, which is also against very strong comps. So, you probably should expect a more normalized curve of the quarters than what you saw in 2021. So, you are correct.

Okay. Thanks and best of luck.

Thank you.

And our next question comes from the line of Sam Douglas with Mara River Capital. Please proceed with your question.

Thanks for taking my question. I just wanted to – I know you touched on container availability, but just wanted to see how you are seeing container freight rates in Q1 and for the rest of ‘22 relative to the last couple of quarters? And how you think about substituting ocean with there and yes?

A couple of things to begin with, we don’t really find air to be an appropriate and cost effective means of shipment for what we do. So, we basically don’t – maybe samples, but we don’t do it right. Secondly, our focus in as the world has had global supply destruction, and then on availability over costs, because we can still make money at some ridiculous container rates. And we focused because we have been growing a lot. We think it’s a big competitive advantage, a lot of people we compete with are much smaller. And as we talk, we have invested in inventory and stability to be there to support the wholesale channel, as well as direct-to-consumer. And so, availability has trumped price for us. And it’s had some impact on our gross margins as a result, but also in advising, I am getting off pressure a bit. But in a rising cost environment, there is always going to be a lag impact for us to catch up on the margin basis. So, so far this year, there has been some jumps. So, the spot market jumped up to like almost 25,000, a container to the West Coast. They are different cycles, and of course, different in Europe. But it’s all linear, right. But it came back pretty fast. More importantly, we have purchased our ocean freight on contract rates in a normal environment, over 90% of what we ship is on our contract rates. Last year, it was hard to get people to – and that’s how it works. It was hard to get people to actually ship you even though you had a contractor rate to ship you on a contractual rate. So, our total shipping cost is a function of how much we had to buy a spot and how much we had to buy on contract. So, rates have stabilized a little bit. More importantly though, in February, we shipped about 90%, which is the first time like last year, we probably get 50% plus, 55% plus on contract. We did 90% on contract in February. So, it appears and from what we understand, the carriers are doing more and supplying more in terms of their longer, bigger relationships on contract, which is much lower than spot. Contract rates still will be higher in 2022 than when they were in ‘21, still much below the spot.

Okay. Thank you. And I guess it sounds like being able to push price through on the top line should probably be able to offset those increased contract rates year-over-year? Is that the way to think about it?

Yes. We focus on maintaining gross margin dollar in a rising of parity with our price increases and our cost decreases for that matter and that’s our focus. So yes, to maintain gross margin dollar.

Okay. Thank you very much.

Our next question comes from the line of Justyn Putnam with Talanta Investment Group. Please proceed with your question.

Hi. Good morning. I just wanted to get a little more maybe your thoughts on your net debt picture for next year. If I understand you invested strategically a lot in inventory this year, but yet you still lowered your net debt. If my calculations are correct, somewhere around $25 million this year, I think you said not really expecting an increase inventory the same degree next year. So, what are kind of your target debt levels? Can you remind us about that and then maybe your uses of cash for next year, just generally?

Yes. First of all, good to hear from you, Justyn. We generally – as you know, we generate a lot of cash, and we keep on growing, we generate more cash. So, we use that strategically in the business to our advantage, but we continue also to de-lever, right. We are creating value for our shareholders by paying down debt as well. We did just use although it’s very pretty immaterial in terms of our leverage ratios, but we just made an acquisition of a very creative business and great brands. So, we used some cash for that. We continue when we did the settlement, Lifetime transaction, we were high than ever, right. And we said we – our target levels the public company was 3x and below. We have been below that for a while, right. And we have opportunities to use the cash. We don’t expect getting hit by time leveraging. So, it’s all within the guidelines that we have been vocal about. And like I said, the acquisition we just made, you are not going to see an impact in terms of our net debt level.

Okay. So, do you expect net debt would decrease materially next year then?

Likelihood, I mean as far as I know, it’s going to hit $200 tomorrow. There is going to be a whole bunch of things, right. You are not giving guidance today on the spot, but we consistently generate a lot of cash and deleveraging has been – it gives us dry powder on the balance sheet and increases stakeholder value just by doing it. So, that’s what we have been doing. And we use our cash – we used to fund our European business and we have a separate line for that. But we now find that out of the U.S., because we are picking up a little bit of negative arbitration on the interest rates that we have funded. We got the cash.

Okay. Great. Well, thank you for that color.

[Operator Instructions] Our next question comes from the line of Chris McDonald with Kennedy Capital. Please proceed with your question.

Good morning, Rob and Larry. Congrats on the results.

Thanks Chris.

Yes. Just wanted to talk about share gains a little bit. So, clearly pronounced share gains, really, once COVID started and just want to hear about the company’s ability to hold on with that share. And then perhaps some of the other areas, looking forward where you are most excited about share gain opportunities, either new products, or expanded customer relationships?

Yes. We are been focused as we get the transformative strategy that we called Lifetime 2.0 of gaining share and focusing on categories where we had the right to win. And in 2021, you saw tremendous impact in our financial statements, because a lot of share, we have retained in our business, holding on to the shares a lot easier than gaining, right. So and we saw that the benefit of that in 2021. But we have also been expanding to a lot of plus one opportunities in adjacent categories, the launch of Beautiful, has gotten traction, which is that’s exclusive to Walmart, but it’s a new brand there. It’s Beautiful by Drew Barrymore, and very well received. We are actually looking into expanding that into additional categories all plus one opportunities in one area, getting us into some new category we are very big in, but we do nothing today in WalMart. We scratch our heads about that one. And now we may have that in front of us. And that could be very big, KitchenAid cutlery, which I mentioned in my remarks that we took that over and launched that in 2020. And it helped our growth in 2021 to help the 2021. But there is only a half year result, right. So, we will get the other half year this year, right. So, that just keeps on providing opportunities. So, in terms of – we have launched on that Mikasa Hospitality is probably the biggest area that I am very bullish on. It’s a tremendous opportunity. We believe we have a very strong right to win. The market has been disrupted, obviously, in terms of the hospitality market, but we are getting traction now. It’s still like, it’s an investment, we could have shut that down would…

Yes. Thanks for walking through that. Would you expect, though there will be new opportunities, perhaps to reinvest the earnings associated with some of these areas where you have been investing thus far back into the business, or do you think some of these strategic priorities inflecting to be positive contributors fall to the bottom line?

Yes, Chris, it’s a good question. Look, we have – even while we were transforming the business, we were – and that’s why we are yielding it now, we were investing in the business, right. So, we are not looking at this to maximize a quarter or given year. So, we are always investing in the business, which again, like I said, we could be generating a lot more cash income today if we weren’t making these investments. So, that’s just the nature of our strategy. We will continue to reinvest in the business to give us future growth opportunities.

Okay, great. And then just two other quick ones. One, are you seeing any change in either the nature or the cadence of your customer discussions on either seasonal planning or any other sort of normal program rollout discussions that you would have tied to all these supply chain disruptions? Is there any change in how that’s played through here or would you expect it?

Yes. Yes, we have. So, as a rule, planogram resets are being pushed off because of this, in some cases, postponed significantly. That’s good for us. Having a good part of the planogram, it’s bad for us in trying to get stuff in, right. But yes, there has definitely been a delay in resets on the wholesale community, obviously, not in e-com as a result of supply chain disruption.

Okay. And so hence, that probably ties back to your comments from before that 2022 is a more typical seasonal year where Q1 starts out smaller than you expand a bit through the year than what we have seen some unusual patterns through these last couple of years?

Yes. I mean, so Chris, we – it’s not like we standalone on this, but people might have different opinions. We don’t see the supply chain issues resolving themselves in 2022. But in 2020, was a very strange year because of the impacts of the COVID pandemic. And as a result, we ended up having a tremendous 2020, but the first half was impacted by that. So, if you look at 2021 on a comp year basis, our comp year performance, and we also just achieved a lot and it flowed over into 2021. So, we had a tremendous back half of 2020 and a tremendous front half of 2021, which was highly – so 2021, the growth in the first half was highly unusual on a comp year basis, but it normaled out and sustained, right, which is why we significantly beat our own guidance level on everyone else’s year-over-year. 2021 that we have now gone through a complete cycle of that impact, really, which was COVID related. So, we would expect a much more normalized rollout of the year, because our business does have some seasonality in it and different by product category, right. We have – but more in the second half.

Very good. And then just last one for me. Back to the working capital discussion. So, the business, if I combine the last 2 years of cash flow, you have generated roughly a little more than 25% of your market cap and free cash flow in those 2 years combined. And that was in spite of about a $30 million net operating working capital build. So, a nontrivial headwind from there. Just thinking through is even a neutral thought process on working capital clearly is additive relative to the run rate that you have been at. And it sounds like – I realize this is difficult to predict in this environment. That’s not – that’s kind of within the scope of planning assumptions that you could be neutral on a working capital investment basis through the year relative to where you were at the end of this year or maybe even a little positive, some inventory can burn down. Is that fair?

Yes, that’s fair. I mean the market cap, for instance, and we have talked about that. I mean, we view that there is a huge gap between our intrinsic value and our market cap. But yes, from a working capital perspective, that’s fair.

Yes. Okay. Great. Thanks again and congrats on the year.

Well, thank you, Chris.

And we have reached the end of the question-and-answer session. And I will now turn the call back over to Rob Kay for closing remarks.

Thanks. Thank you, everyone, for your interest, the time with us today, and we look forward to future dialogue. We will actually tomorrow be attending a fireside chat with Linda Bolton Weiser, which I am sure will be available as well for people to listen to. Have a great day and thank you for your support.