Good morning, ladies and gentlemen, and welcome to Lifetime Brands' Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. I would now like to introduce your host for today's conference, T.J. O'Sullivan. And Mr. O'Sullivan, you may begin.

Thank you. Good morning, and thank you for joining Lifetime Brands' Third Quarter 2023 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 other factors 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 the press release is a reconciliation of these non-GAAP financial measures with 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. We are pleased to share that our results in the third quarter once again exceeded analysts' expectations with our performance driven by the continued rebound of our core U.S. business and supported by our ongoing focus on actions to drive growth and profitability in a dynamic operating environment. As the industry headwinds we have been observing for the last several quarters begin to abate, the actions we have taken are positioning us to perform well in comparison to the market and our peers. The results reported today are unchanged from preliminary estimated third quarter results we announced a few weeks ago in connection with the launch of an amendment and extension of our existing Term Loan B facility, which we'll discuss in further detail shortly. First, I will walk through our results. In the third quarter, we delivered $191.7 million in net sales compared to $186.6 million in net sales in the same period last year. In the 12-month period ending September 30, 2023, we generated adjusted EBITDA of $55.5 million. Our year-to-date performance reflects a stabilization in our end market demand and continued strong operational execution. We've also maintained or grown our gross margin percent, driven by favorable product mix and improved supply chain availability and costs. Entering the fourth quarter, we expect to see relative stability in our core U.S. markets as well as some stabilization in our international markets. For the quarter, we delivered year-over-year growth in our core U.S. business, supported by the continued recovery of our domestic end markets. In prior quarters, we have discussed the impacts of ongoing global supply chain issues on retailer purchasing behavior, with retailers across channels altering inventory and distribution strategies in response to significant oversupply. We are…

Thanks, Rob. As reported this morning, net income for the third quarter of 2023 was $4.2 million or $0.20 per diluted share compared to a net loss of $6.4 million or $0.30 per diluted share in the third quarter of 2022. Net income for the current and prior year quarters each include a noncash impairment charge related to our investment -- equity investment in Grupo Vasconia of $300,000 and $6.2 million, respectively. Adjusted net income was $7.7 million for the third quarter of '23 or $0.36 per diluted share compared to $6.2 million or $0.29 per diluted share in 2022. Income from operations was $13.6 million in the third quarter of '23 as compared to $7.6 million in the 2022 period. Adjusted income from operations in the third quarter of '23 was $17.7 million compared to $16.8 million in 2022. And adjusted EBITDA for the trailing 12 months ended September 30, '23 was $55.5 million before a pro forma synergy adjustment. Adjusted net income, adjusted income from operations and adjusted EBITDA are non-GAAP financial measures, which are reconciled to our GAAP financial measures in the earnings release. The following comments are for the third quarter of '23 and '22, unless stated otherwise. Consolidated sales increased by 2.7% from 2022. U.S. segment sales increased by 3.8% to $179.4 million. As Rob discussed, our core U.S. business continues to rebound, and retailer purchasing behavior continues to normalize. This factor, as well as a new warehouse program, drove the current quarter increase, with a partial offset from lower sales for hydration products. International segment sales were down 10.9% to $12.3 million or down 16.6% on a constant U.S. dollar basis. The decrease is driven by continuing weakness in end market demand, the timing of customer shipments, and as expected, implementation of the new…

[Operator Instructions] And our first question comes from the line of Linda Bolton-Weiser with D.A. Davidson.

Yes. Hello. How are you?

Good. And yourself?

Good, good. So I was curious about -- it's good to hear that your ordering patterns are more normalized, but that doesn't match some of the information we're seeing out there about weak consumer demand. So I'm wondering if you -- your retail customers may change their behavior as they see here, the weak consumer behavior may be continuing in terms of POS demand. So can you kind of square those 2 things in terms of the better ordering versus what seems to be still a very weak environment?

So addressing each 1 of those independently, the order demand is really addressing the environment that we saw for some time where there was a mismatch between ultimate POS and order demand from retailers because there was tremendous over inventory in every channel, right, across every channel. And we are pointing out that that environment has normalized. So there is no overstock situation, which is creating mismatch because ultimate end market demand and the shipments to -- whether it's e-commerce, brick-and-mortar, omnichannel or whatever. Relatedly, but separately, the end market is still not robust. We're seeing pickups in certain channels like off-price. If you look on a year basis, that's been positive. And that's coming off of a low base last year or a lower base, right, where there was very little open to buy in that channel created because they had too much inventory, right? So that put them in a position to buy much more to meet their demand because there wasn't that mismatch with POS. So we are still seeing not a robust end market demand, and the larger, more sophisticated retailers have already taken action earlier this year to lower their safety stocks and therefore, lower shipments to compensate for lower POS that they were seeing. For the holiday season, there's no visibility, right? The consensus in what [Sircana] believes, right, which is NPD and IRI now, is that it will be a decent holiday season, but probably more discounting in the curve, the bell curve will be a little different.

Okay. And then -- so you pointed towards -- I mean you really sound kind of optimistic that you'll have sales growth in 2024. Do you see that as being a gradual improvement in growth as the year progresses? Starting lower in the first part of the year and then building up, is that the way we should think about it for next year?

So we're not counting -- said another way, the visibility toward the end market is core. So maybe someone else can figure out where that's going. We don't, and I don't think the retails know either. So we're not in 2024 anticipating much rebound, if any, in the end markets. In the U.S., in particular, and the U.S. -- excuse me, and international markets, we're pretty convinced there will be no rebound in 2024, not until 2025. But we are doing things to gain market share. The go-to-market strategy in Europe, we're picking up some significant retailers. And obviously, if that sells through, that's big market share gains, which will help -- are changing in how we're going to market in Australia and New Zealand, which is a decent market for us, actually. It is -- will provide meaningful growth because we're selling a much broader retail base now at a triple level of profitability. More importantly, in our core market, if you look at food service, we're expecting just on what we've built in and it's kind of an annuity as you start selling that, a sixfold increase in that business low base. But in 2024, more importantly, it gets us to profitability in that business segment. The Dolly Parton line is getting -- we've done a lot of work. We've developed a lot. We have already landed placement, which we think will expand. That will start shipping early as second quarter. So yes, it will build up, for your point, as a result of these things. But these are built-in initiatives that we've been working on. If the end market grows, that will be above what our current expectations are.

Okay. And then do you have any estimation as to how the refinancing would affect annual interest expense?

The offsetting, I'll let Larry comment, but the offsetting factors are -- if you look at -- remember, we bought back at a discount some of the Term Loan B, about $50 million almost fairly recently. And we're also -- in conjunction with this, repaying another almost $50 million. So the outstanding of the Term Loan B has much declined, but the interest rate is higher.

Yes. As Rob said, the amount we've calculated approximately 2.5 million, which is pretty close position, which is pretty close to what we saved when we did that -- the auction back in June.

So higher overall interest expense, but we downsized the amount of the indebtedness on the Term Loan B, so they kind of [indiscernible].

Okay. Thank you very much. Good luck with everything.

Our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company.

Nice job. Certainly, it's nice to see U.S. sales growth in the quarter here. So just curious, as we look at pricing versus unit volumes, anything to call out there? Or just curious if you have any thoughts on that?

Yes. Look, I mean, the inflationary environment is impacted, right? The -- and helped from the sense of you're getting higher sales on a same volume basis. But for us, mix has more of an impact of that. So like Larry mentioned, we had a big program in the third quarter in club, right? So that helped volume mix -- hurt margin. But for year-to-date in club, we're down, which helps margin percent, right, but hurts volume.

Understood. Okay. Got you. Okay. So if we were to use the midpoint of your updated '23 sales guidance. So the implied guidance of the fourth quarter is revenue decline of 5% from last year. So is that really all international that is driving that down?

No. Actually, Anthony, it's club. So we had a big program in fourth quarter of last year, which we're not doing this year. And that's really driving that.

Okay. Got you. Got it. Okay. And then just curious as far as the International segment. So obviously, sales were down here in the quarter, as you explained. Strategically and kind of longer term, how do you think about the potential for the International segment? I mean this quarter, admittedly, it was not the first time that you had some challenges there. So how do you guys think about this on the International segment longer term?

That's a very pertinent question. Look, it's been a drag on our earnings as we've grown tremendously over -- since we really took over the business. And we've restructured it. We put it in a position, then it's heavily dependent on the U.K., Brexit had a major impact along with the war on Ukraine and many other factors. So we've continued to restructure that. Ultimately, we need to be comfortable. So the potential is there. The growth is probably 1 of our greatest growth opportunities, and we are gaining traction. I mentioned some of the retail gains, I mentioned what we're doing in Australia and New Zealand and other places, and we're winning on the continent. So we are gaining share in a very depressed market. We need to be very firmly comfortable in our path and obtaining long-term profitability or we need to take other actions.

Okay. Understood. Okay. And then lastly, gross margin, nice improvement there. Just curious as to whether we should expect additional improvements in gross margins here going forward?

No. Look, we've improved our gross margin profile meaningfully over the last few years. We're comfortable sustainable, but we don't see -- and it will still bump because of channel mix or anything else over any given quarter. But we don't expect a continuing upward trend in gross margin percent.

And our next question comes from the line of Brian McNamara with Canaccord Genuity.

I think a lot of my questions have already been answered. But Rob, I think you've mentioned a lack of visibility for the last couple of quarters. Now I'm just curious, you've been in the business a long time. Is this kind of unprecedented? Like what typical data points, mileposts do you typically look out to kind of inform your view for market growth moving forward? And why is this time different?

Well, it's just the general macro environment, and there's a lot of inputs and what's going to happen. Trade wars, will that accelerate, which is something we've fought over the last couple of years. For that matter, we can't predict the weather, but it's a very cold winter, that's going to particularly impact negatively Europe because of the tremendous impact of fuel costs. So there's a variety of factors. I think it's fairly unprecedented. There are certain things that we've seen over the years. So when Linda asked the question in terms of basically reaction by the sophisticated retailers in terms of paring back inventory levels. That's standard. So Walmart, Target, they're very sophisticated, their financial departments are very sophisticated and very powerful within the organization. So we've seen -- it's a leading indicator of tough economic times because before really it makes the press, we see those guys really tighten up on safety stocks, shift the burden to us because they don't care if we over inventory in our warehouses, right, and put our side of business. Let us take the risk, right? So -- but that shift started occurring in 2022, and we saw a lot of that. So some of these trends are normal to us, normal over the long term, right? Paring back on inventory at recessionary times is not normal. But the general market is just very choppy. There's really no visibility. There is firmness in terms of looking what channels are winning and the like. But there's no firm data, and we look at POS data historically. We -- the best metric for us is order flow, right, in order to flow by channel and understanding why. As I mentioned, in off-price, good channel, there was no open to buy, right? It's not planogram, so you need open to buy. They had no money to buy, which is a frightening situation in 2022. It did rectify this year. And frankly, we've grown nicely, it's been 1 of the things driving our growth at the moment.

Great. And then on International, I mean, you guys have done a ton of work there, restructuring and everything, but I think investors are looking for growth there. So like -- I think your 8 consecutive quarters are pretty hefty double-digit declines, and you mentioned new business wins in Q3. I'm just curious like what would growth have been without those new business wins? And kind of when can investors kind of expect a return to growth there?

Yes. So year-over-year, the improvement in profitability is meaningful. The wins that I'm talking about and the changes we made in Australia and New Zealand and all that have yet to flow through the income statement. We've gotten those wins, but we haven't started shipping.

Got it. And then just, I mean, I think we touched on 2024 before -- myself and my peers' consensus expects about 5% revenue growth, or at least that's the current estimates lie relative to the midpoint of your revised guidance. Is that aggressive?

We have not issued our guidance on 2024 yet.

And care to share any high-level comments? We've gotten a lot from our other coverage companies. Basically, the theme has been kind of talking down 2024.

Yes. We haven't issued any guidance, Brian. Look, as I mentioned before, we're not expecting much end market growth in '24. But we have a bunch of initiatives that we're working to finalize and see the impact, but that's where we'll get growth from.

All right. Sounds good, guys. Best of luck.

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

Thanks, Shamal. Once again, thank you for your interest in Lifetime Brands. Thank you for listening to our call, and we look to be updating people shortly. Have a good day.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.