Good morning, ladies and gentlemen, and welcome to Lifetime Brands' Third Quarter 2022 Earnings Conference Call. At this time, I would like to inform all participants that their lines will be in a listen-only mode. After the speakers' remark there will be a question-and-answer period. [Operator Instructions] I would now like to introduce you to your host for today's conference, Andrew Squire. Thank you, Mr. Squire, you may begin.

Thank you. Good morning, and thanks for joining Lifetime Brands third quarter 2022 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 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. Our core business continues to deliver solid performance through the nine months year-to-date. We maintained or expanded our market positions despite macroeconomic challenges that companies across industries continue to face, which also impacted our product categories. The inventory buildup at major retailers that we discussed last quarter continues to limit customer shipments across all channels and remained a major factor impacting Lifetime's shipments. Additionally, the spike in inflation and other economic factors have contributed to weaker end market demand especially in our European and Asia Pacific markets. Even in this difficult environment, we continue to produce results that exceed pre-pandemic levels and we are proud of the team for the progress we are making executing on our strategic plan. Equally important, we maintain a very strong balance sheet which Larry will discuss in his remarks. In the third quarter, we delivered $186.86 million in net sales and $18.8 million in adjusted EBITDA compared to $224.8 million in net sales and $29.3 million in adjusted EBITDA for the 2021 period. These results reflect the challenges I just mentioned and we are focused on taking mitigating actions, particularly in our European business, which I'll touch on in a minute. Starting with our core U.S. business; we maintained our market share gains from the last several years, and while revenue is down, we have not lost distribution in our core business and further our point of sale data is exceeding shipments. The residual impact of supply chain disruptions related to the pandemic that we spoke about last quarter continues to persist. Retailers across all channels continue to focus on right sizing their inventory levels, which have been built up during the pandemic and have a renewed focus on reducing stock levels…

Thanks, Rob. As we reported this morning, our net loss for the third quarter of 2022 with $6.4 million or $0.30 per diluted share compared to net income of $12.6 million or $0.57 per diluted share in the third quarter of 2021. However, excluding an estimated charge for the Wallace facility remediation and a non-cash impairment charge for our equity investment and Grupo Vasconia, adjusted net income was $3.5 million for the 2022 third, $0.16 per diluted share versus adjusted net income of $13.4 million or $0.61 per diluted share in 2021. Income from operations was $7.6 million, $13.1 million as adjusted for the third quarter of 2022 versus $21.7 million or $22.2 million as adjusted in the 2021 period. Adjusted EBITDA for the trailing 12 months ended September 30, 2022 was $69.4 million before a $1.4 million credit agreement limitation add back. Adjusting net income, adjusted income from operations, adjusted EBITDA are non-GAAP financial measures and are reconciled to our GAAP financial measures in the earnings release. The following comments offer the third quarter of 2022 versus 2021 unless stated otherwise. Consolidate sales declined by 17% from 2021. As Rob discussed, high retail inventory levels adversely affected our shipments in the current quarter, and high inflation and other economic factors contributed to weaker end market demand especially in Europe and Asia Pacific markets. The U.S. segment sales were up 13% to $172.8 million. The decrease was mainly caused by retail's efforts to reduce their inventory levels as their POS for many of our products significantly exceeded our shipments. In addition, the demand has been adversely affected by inflation. Our sales declines partially offset by the inclusion of S'well, which was acquired in March. International segment sales were down 49% to $13.8 million or 42% on a constant U.S. dollar…

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

Yes, hello. How are you?

Fine and yourself?

Good. Good. So can you give us a sense, Rob, I know it's hard to estimate these things, but can you give us a sense as to how your inventory is at retail? Like is it up moderately or down modestly or flat? And then how does that compare to the recent few quarters? So – is it that inventory was up a lot year-over-year at retail and now it's up modestly or is it actually down? Just give us some sense of where you think it is right now?

Sure. So just to clarify, you're asking inventory at retail as I, in more detail, Larry discussed inventory that we are holding, we are reducing but inventory at retail the big impact which has been quite unusual that we've experienced and has widened this year is that the POS or the point of sale of our product is far out strip the shipments that we are making into our customer base. So what this is resulting in is a lowering inventory levels at retail. So we're seeing many major retailers where our in-stock levels are in the 80s whereas normally those would be in the mid- to high-90s. Now retailers have reduced their carrying levels, but their target rates are nowhere near the 80s, their target rates are in the sort of lower- to mid-90s. So there is discussion between us and our retailers, look you're just missing shipments and out of stock and we need to get the inventory levels back. There isn't necessarily disagreement, but it has not changed, which is why month-to-month we've seen our expectations on orders being different what's come through and that was resulted to our decision on guidance. So in a nutshell the answer to your question is inventory at retail is at low levels.

Okay. Thank you. That's very helpful. And then in terms of POS trends, we get some data but not a lot. It looks like, I mean, you have issues because of people having stocked up on kitchenware type things during the pandemic. So declines I guess would be expected, but are you seeing that POS is getting worse, getting better, kind of stable, like just what's the sense of which direction the POS growth is going in?

Yes. So again, let me address our core U.S. markets where we do purchase and have the access to a lot of data. POS has been down but our shipments have been down noticeably higher than POS, which goes to the first question of why inventory levels are lower at retail. It differs category by category but it's been kind of steady over the last quarter, the POS that is right.

Okay.

In Europe obviously not the same, POS continues to decline. Demand is low in Europe.

Okay. And you would say it's even maybe getting worse in Europe would you say?

Yes. Really demand fell off the charts in Q4 of last year and it has yet to pick-up and we don't, and that's why we restructured that business. We right size it so that our cost structure reflects a new level of demand for at least the near-term because we don't see it picking up in the near-term.

Okay. And then how's your – how's your e-commerce sales in the quarter. Is similar decline or better or worse than your overall sales decline?

Yes. It does, we've looked a lot and analyzed that because you're seeing less of the inventory impact, even though a lot of the pure play guys, their warehouses have been full but we basically are flat on a percentage basis in e-commerce, which is consistent with the fact that in brick and mortar there's a gap between POS and our shipments. So you would expect to see that, so it was down slightly but relevant...

Okay. And then is there any way, just for my modeling purpose, is there any way you can tell me what the S'well sales are year-to-date for the whole year so far?

Yes. Hi, Linda, it's Larry. For the quarter there are 8 million. Year-to-date I thinks about 18; I'm just flipping through a schedule.

We didn't get the whole of it.

Well, I mean since we acquired it, I'm saying that.

Yes.

Yes. So it's 8 million for the quarter and it's, excuse me, it's 12.4 million year-to-day that is since the acquisition.

I remember we bought it in the second quarter, so this is really the first full quarter and that's the [indiscernible].

You bought it in March, correct?

Yes.

Okay.

I guess that's the end of the first quarter, is it?

Yes. Right.

Yes. And so Rob, I know this is like a really tough time for companies for durable goods companies, but is there any way to kind of mitigate the situation by really leaning into innovation even more such that you could have new products or categories or something that could actually give you more distribution or shelf space, something that would mitigate just the whole macro situation that's going on?

Yes, that's a tough one, really. It's a qualitative answer, but we've invested a lot. We continue to lead with innovation and as you've seen, we've picked up meaningful market share over the last several years. We have lost no share, we've gained a little. Obviously there's little things here and there and in Europe we're gaining share even though that market sit down. The – if we ramped up innovation, it's not like you're going to see an immediate benefit that's really, innovation is a forward looking investment. So we have it and you've seen, we've invested – we do continue to invest millions of dollars, it's all forward looking. So we continue to use that to gain market share and actually more financially stable, larger companies will benefit in a downturn because we talk about the inventory shift and the retailers relying on vendors for inventory. You need a balance sheet to do that and obviously you see by our balance sheet is very strong and we have the capability to do that. Innovation though isn't going to have an immediate impact and something we always invest and it's one of the reasons why we continue to gain market share.

Okay. Well thanks very much and good luck with everything.

Thank you, Linda.

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

Good morning and thank you for taking the questions. So first, as far as the inventory levels being high at retailers, obviously that's something you guys talked about on your last call in August. Is this across the board? I know the second quarter call you highlighted off price retailers is being particularly high with inventory. So just curious as to like as far as your customers, where you're seeing the biggest issues?

Yes. So we are seeing a pick-up in our price, which is really the first six months, was kind of non-existent. So we are seeing some normalization there. In some large retailers these are persisted and that led us to, are like guidance because it doesn't necessarily make sense that inventory levels have gotten as low as they have, which is why they should, and they agree pick up, but the orders aren't coming through. So every month is just like that, why not? And they don't really have an answer. Although, I'm sure they're watching their balance sheet very closely. So that situation has exacerbated because the inventory at retail has gotten lower which surprised us, and again, no one has an answer for that. It's also by seeing a little pickup in e-commerce as we were talking about before, because it's more direct if you think about it in terms of the impact and, and replenishing on the pls. We have plenty of inventory. As Larry mentioned, we are prudently – we could dramatically reduce our inventory levels quicker by lowering our margins and liquidating the inventory. But we do not need to. We are a very strong, healthy company and why sell it a discount? So we're doing it on a measured basis and we'll continue to generate more excess liquidity through that avenue. But we are seeing some pick-up in order flow but not to the level that would logically dictate based upon the inventory levels of retail.

Okay. So just to clarify, so as far as this pickup and in order flow, are you – you being sequentially from third quarter to the fourth quarter or on a year over year basis? We just want to clarify that?

Sequentially.

Sequential Okay. Okay. Got it. That's what I thought. Okay. And then in terms of the restructuring in Europe, will that be more of a SG&A benefit or cost of goods? What's the right way to think about that or distribution expenses?

Yes. So it's more SG&A, but yes, basically last year we had transformed the international business, changed the strategy and by the third quarter we've gotten it from losing money to at least break even, and then everything dropped out. It has not improved and we reached the conclusion particularly in a more challenging economic environment, right? As you know, the last several years we were dramatically exceeding everyone's expectations, including our own. So we reached the conclusion that there's no visibility. We don't expect a near-term rebound and we weren't going to fund the losses. So we looked at how to right size versus a much reduced volume. Right size our infrastructure and a lot of that is headcount and non-distribution spend, that's not variable because distribution, we're not going to – we can't shut our warehouse down. And we came-up with a plan which we executed in October to reduce cost to levels of current demand. So as we picked up, obviously we'll benefit at a much lower level. So we cut a lot of costs out as a result.

Okay. And then given the decline in ocean freight costs is it reasonable to expect a sequential uptick in your gross margins or you think that will have to wait until next year?

Yes. It's not immediate impact. Remember, we've invested – there's a very successful strategy to carry extra inventory, help us gain market share and we use that tremendously as a strategic advantage for a couple of years in this environment, not a strategic advantage, right? So we're turning that around, but as a result, we do have inventory levels all good and salable, that will sell through. So you won't see an immediate like impact to those reduced cost, you will see that in 2023.

Okay. Got it. Okay. That's all I have. Well thanks and the best of luck going forward.

Thank you, Anthony.

There are no further questions at this time. I would like to turn the floor back over to Rob Kay for closing comments.

Thank you, John. Thank you everyone for spending the time to listen to our discussion here today and we look forward to further dialogue in the future. Have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.