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. 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 in response to current economic pressures. As a result, new customer shipments have lagged consumer purchases at retailers. To dive a little deeper, the supply chain disruptions, which began in 2021, created an oversupply with retailers in many categories, particularly in seasonal goods such as apparel and electronics. These supply chain challenges and an inflationary environment have created excess inventory issues that are not necessarily specific to Lifetime's categories of goods, but nevertheless do affect Lifetime's sales as retailers focus on reducing overall inventory levels across a range of goods. Major retailer distribution centers continue to be overfilled, which slows by and across channels. Further, retailers are lowering shipments and curtailing safety stock to reduce working capital given the current economic environment. This is noticeable by looking at the results of major retailers who reported lower margins as they attempt to sell down current inventory at lower prices. In short, we are being impacted by the inventory situations within our customer base, even if the challenges are not specifically related to inventory of Lifetime's product categories. Inflationary pressures are likely to continue to impact consumer trends and consumer behavior in our core business, but we expect that orders from our retailers will return to more consistent levels once inventory levels normalize. We've already seen some uptick in customer orders early in the fourth quarter, although we continue to have limited near-term visibility into our customer's activities. Now turning to our international business, we are seeing a sustained impact of the current economic environment on consumer demand in Europe and Asia Pacific, which have been much more significantly impacted than the North American market. Across Europe and in the UK in particular we've seen a drop in market demand and a very challenged environment for retailers related to inflationary and recessionary impacts exacerbated by the war in Ukraine and the impacts of Brexit on the UK economy. In response to these pressures and the significantly reduced demand overseas, which we expect to continue in the near-term. We have implemented a restructuring of our European-based international operations. While macroeconomic factors continue to impact our international business these targeted efforts to right size operations and eliminate costs will position the business favorably compared to the current run rate. With little visibility into the European economy we believe these actions are the right steps and expect to see benefits from the cost restructuring in 2023. With that said, we continue to gain market share in Europe and now have distribution presence in three large mass market chains. This model is proving successful and we believe the restructuring we're currently undertaking will enable us to pick up where we left off. With the remarkable progress we have made in building our European business from the ground up over the past several years. In Asia Pacific, the significant year-over-year drop relates to our business in Australia and New Zealand and is consistent with the broader international trend. We are retooling our go-to-market strategy in those important markets to align with our direct go-to-market strategy. Notably, our international business outside of Europe remains profitable even in this economic environment. Although we are navigating uncertain times, we continue to make progress on our growth initiatives. This quarter we saw Mikasa hospitality continue to ramp up and benefit from the rebound in the commercial food service sector. We remain optimistic that our foodservice business is positioned to reach $30 million in revenue by the end of 2023 and continue to see this as a $60 million business by 2026. Consistent with our broader strategy, we continue to look at acquisition opportunities in our core and adjacent product categories. We're seeing more attractive valuations in general and increased availability of direct-to-consumer and digitally native brands that can benefit from our incubation model and scale. We've demonstrated the potential of this model with Year & Day, which we successfully re-launched and we are currently discussing a strategic partnership to expand its product lines in existing and new channels. We therefore see M&A as an opportunistic avenue for our creative growth in this environment, but as always, we will continue to be disciplined with our use of capital in the marketplace. While we continue to focus on gaining share and growing our top line, we've responded to the current market challenges by taking steps to reduce SG&A by $5.5 million across the business, a 13.1% decrease compared to the third quarter of 2021. To that end, we've cut out discretionary spending, reduced headcount, and shifted our priorities to manage the environment we're in to maximize profitability. We are also focused on maintaining high liquidity levels, keeping ahead of the curve with active balance sheet management, particularly capital expenditures and working capital. Larry will go into more details on how we have successfully managed in these areas. These initiatives will enable us to maximize profitability in the current environment. Importantly, as we focus on streamlining the company, we are preserving critical infrastructure across our global footprint to ensure we are well positioned to rapidly scale up and drive growth when markets improve. We are also seeing our supply chain costs come back down, particularly ocean freight costs which are now approaching pre-pandemic levels. And much like our customers, we have taken steps to meaningfully reduce our inventory levels and get excess product off our balance sheet. Turning now to our financial outlook; with little visibility into actions our customers may take that would materially impact our results and in light of continued macroeconomic volatility, we have decided to withdraw our guidance for the full year 2022. In this environment, we are unable to get an accurate view from our customers of the near-term order flow, which has fluctuated monthly. Most noticeably the widening gap between the point of sale performance of our products and the lowest shipping levels to our customers across all channels while implying a need for a catch-up of increased shipments has yet to materialize. We expect our core business to continue to deliver solid results, while we do not see a near-term rebound of revenues in Europe and Asia. We will begin to see a noticeable improvement in the bottom line performance of our international business solely related to the restructuring we recently implemented, although we may not see the benefits from these actions until 2023. However, with so many factors outside of our control having a potentially significant impact on our results quarter-to-quarter and with the fourth quarter historically being the most important contributor to our ranks for the year, we find it prudent to withdraw our guidance for the near term. We will consider establishing a new outlook as we enter 2023. This decision in no way diminishes our commitment to deliver improved financial performance and we remain focused and confident in our ability to achieve our longer term financial goals. Despite the macro factors impacting our results, we are not standing still and we are built to weather the storm. As I've described, we're implementing cost-saving initiatives, right sizing our business for reduced demand while continuing to invest prudently for the long-term. Our cash flow generation provides us with ample liquidity and we have significant balance sheet flexibility with limited risk in our credit facility. We'll continue to be aggressive in managing costs and executing our strategy as we navigate through this environment and remain focused on maintaining our healthy balance sheets to maximize our operating flexibility and position Lifetime Brands for the future. We are proud that our business model continues to prove resilient through challenging macroeconomic conditions and despite consumer behavior shifting, our results reflect the important initiatives underway at Lifetime. We also expect that as shipments increase with a normalization of our markets, there will be a corresponding impact on bottom line growth. With that I'll now turn the call over to Larry.

Thanks, Rob. As we reported this morning, our net loss for the third quarter of 2022 was $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 in 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. Consolidated 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 were 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 basis. The decrease was driven by the same factors as in the U.S. however it was exacerbated by the economic impact of Brexit, the war in Ukraine, and very high inflation in Europe, which has led to weak consumer sentiment and in turn, lower end market demand. Gross margin percentage increased to 36.4% from 37% last year. For the U.S. segment, gross margin percent was 36.6% versus 37.7% last year and for international gross margin was 32.6% versus 31.7% last year. These changes were driven by product and customer mix. Looking at distribution expense for the U.S., those expenses as a percent of goods shipped from its warehouses increased to 10.4% from 8.4%. The decreased rate was attributable to lower shipment volume, resulting in lower fixed expense absorption, increased storage fees due to high inventory levels, and higher labor expense due to wage increases and less efficient use of labor due to high inventory levels. For international distribution expenses as a percent of goods shipped from its warehouses was 22.9% in 2022 and 14.5% in 2021. The increase was also primarily attributable to lower shipment volume resulting in lower fixed expense absorption, and an increase in the business occupancy tax for the UK warehouse. SG&A expenses declined to $36.5 million in 2022 from $42 million in 2021. U.S. expenses were $28.3 million in the current period versus $29.3 million last year. The expense decrease came from lower incentive compensation but also included the benefit of administrative cost reductions the company began implementing in the current quarter. SG&A expenses for international were $3.9 million in 2022 versus $6.3 million last year. The decrease was mainly due to lower intangible amortization expense and lower foreign currency transaction losses. Employee and discretionary spending also declined. The restructuring plan Rob discussed was implemented in the fourth quarter. We expect the benefit of the plan to achieve its full run rate in early 2023. Unallocated corporate expenses were $4.3 million in 2022, down from $6.4 million in 2021. This decrease was due to lower incentive compensation. And for taxes in the current quarter, the rate was 50.6%. The rate exceeded the federal statutory rate reflecting foreign losses to which no benefit is recognized and is fully offset with valuation allowance. For the 2021 quarter, the tax rate was 31.1%. The rate reflects state and local income tax expense and as in 2022 foreign losses for which no tax benefit is recognized. During the third quarter, we recorded two unusual charges. One was an estimate of $5.1 million for the Wallace facility remediation. This amount does not consider the potential for insurance coverage which the company is pursuing. The charge relates to our sterling silver manufacturing facility located in Puerto Rico, which we have operated since 2006. The pre-2006 operation of the facility used solvents that contaminated the soil. A detailed description of this matter is described in the contingency footnote of our past 10-Ks and 10-Qs and is updated in our third quarter 10-Q, which will be filed later today. The other charge is a non-recurring non-cash charge of $6.2 million to write down our equity investment in Grupo Vasconia. This charge was prompted by a decline in Grupo Vasconia's public trading price to below our carry value. At the current public trading price, the value of the investment is approximately $14 million. Now turning to our debt and liquidity balance sheet. Our balance sheet and liquidity remain very strong. In August, we amended our credit facility agreement and among other things increased the facility size by $50 million. As of September 30th of this year our liquidity, which includes $5.9 million of cash plus availability under the credit facility was $170.6 million. We are highly focused on reducing inventory and improving its terms. Earlier this year when we became aware of the excess inventory levels at retail, we implemented a plan to orderly reduce our inventory. We analyzed each of our product lines with the focus on canceling and reducing factory orders. We didn't pursue selling on-hand inventory at liquidation prices. The plan is currently ongoing and will be refined based on changing market conditions. Currently, our liquidity is over $185 million. That's a $15 million improvement from just September quarter-end. This is the highest in the company's history, a position we have achieved notwithstanding the current economic environment. We are also very highly focused on controlling expenses, especially for the international segment as weakness in these trading markets may be persistent. The restructuring actions taken are expected to be quickly on track to realize over $2 million of annual savings. As Rob discussed in specific terms, we continue to pace in executing our strategic plan. During the year we acquired S'well for $80 million and we're still able to reach a record level of liquidity. We believe our liquidity will enable us to continue on our plan and we will balance it with careful consideration of our operating performance and working capital, debt service, and other needs. This concludes our prepared comments. Operator, please open the line for questions.

Thank you, sir. 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 about 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 has far outstripped 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 from what's come through, and that has resulted in 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 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-sized 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 it a 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 think 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-date 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 $18 million.

You bought it in March, correct?

Yes.

Okay. 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 are little things here and there and in Europe, we're gaining share even though that market is down. 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 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 in 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 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 have 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 at 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 on the inventory levels of retail.

Okay. So just to clarify, so as far as this pickup in order flow, are 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 an 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. We right sized 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 costs 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 do you think that will have to wait until next year?

Yes. It's not an 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 that are good and salable, that will sell through. So you won't see an immediate impact from those reduced costs; 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.