Good morning, ladies and gentlemen, and welcome to Lifetime Brands' Second Quarter 2023 Earnings Conference Call. I would now like to introduce your host for today's conference, Harley King. Ms. King, you may begin.

Thank you. Good morning, and thank you for joining Lifetime Brands' second 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 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. I'm pleased to share that we delivered second quarter results that surpassed analyst estimates, a testament to the strong progress we are making to position the company for growth and improve profitability while we continue to navigate macroeconomic headwinds. As companies across our industry and the broader market feel the ongoing impacts of inflationary and recessionary pressures on demand, our prudent balance sheet management, disciplined approach to capital allocation and careful evaluation of investment opportunities have positioned Lifetime for growth as macroeconomic conditions improve. In the second quarter, we delivered $146.4 million in net sales compared to $151.3 million in net sales in the same period last year. In the 12-month period ending June 30, 2023, we generated adjusted EBITDA of $54.6 million. We're pleased that our strong market share position and focus on execution have allowed us to continue to perform well in comparison to the market and our peers. I'll start with our core U.S. business, which performed in line with our expectations for the quarter. The oversupply issues that retailers across categories faced in 2022 continue to abate, a key positive indicator that has begun to translate to upticks in shipment activity. While we expect consumer demand in this market to remain under pressure due to macroeconomic factors, we were encouraged to see continued pickup in order flow throughout the quarter and expect these positive trends in purchasing levels will continue as we move through the balance of the year. Additionally, our continued focus on profitability allowed us to deliver greater-than-expected gross margin improvement for the quarter. As wholesale unit price declines resulting from normalized supply chain costs are passed on to consumers, we expect to see positive impacts on point of sale. It's important to point out that our results reflect the impact of a large-scale distribution conversion at one of our largest customers, which resulted in decreased orders and in-stock levels. We expect this temporary disruption to be fully restored in the second half of the year. Now turning to our International business segment. As I've discussed before, we've already realized significant benefits from the restructuring of our Europe-based operations, and we continue to expect that these efforts will result in a substantial improvement in profitability. However, the ongoing recessionary environment in the United Kingdom, which accounts for over 75% of our international business, continues to impact consumer demand. While we expect these macroeconomic factors to persist in the short term, we remain focused on solidifying our international positioning with the goal of delivering top line improvement in 2024. In Asia-Pacific, the seamless implementation of our go-to-market strategy in Australia and New Zealand has translated to significant margin improvement compared to last quarter. We are encouraged by this success and are now rolling out an e-commerce driven strategy in our other Asia-Pacific markets. We are already seeing increased orders at better margin levels as a result of our expanded product offerings and believe these trends will continue throughout the second half of the year and into 2024. While challenges in the operating environment remain, we are encouraged by the growth we are seeing in several key areas of our business. We continue to focus on innovating and introducing new products to bolster our market position. In cutlery, we introduced new Farberware forged knives that helped Farberware regain the #1 position in market share and earn the brand's first placement in Costco USA. In Kitchenware, the introduction of Kamenstein ceramic and core products created a new revenue stream with this product line extension. While the introduction of Chicago Metallic everyday bakeware creates an avenue to pursue market share at value-based pipelines. We recently signed a license for a line of Dolly Parton-branded products across several categories. This is a plus one opportunity to sell in existing channels with a strong new brand and also in new channels as it expands our reach to consumers in a channel that we currently do not participate in. Separately, our foodservice business continues to gain share with Mikasa Hospitality becoming a recognized industry player. We are encouraged by the progress we are making. Consistent with the nature of this market, the new business wins we are achieving in 2023 should drive significant growth in 2024. Additionally, consistent with our strategy of entering adjacencies, we capitalize on our relationship with the retailer Meyer to take over their outdoor product category, which will be a springboard for Lifetime to enter this new adjacency. This opportunistic expansion into a new category through a strong relationship will provide us with an opportunity to expand distribution of this category in 2024. I'd also like to highlight our record-breaking performance at this year's Amazon Prime Day, where we outperformed in almost every category compared to both historical performance and our peer set. We saw a 47.5% increase in revenue versus our prior year Prime Day's performance. We have been working closely with Amazon to optimize our advertising spend and drive sales. We are optimistic that our demonstrated momentum will continue in this key channel through the balance of the year. We continue to take active steps to reduce our exposure to the supply chain issues in China through strategic diversification efforts. Through a transitional supply agreement, we are working to ramp up production at the plastics manufacturing facility that we expect to acquire in Mexico later this year. The facility in Mexico represents a key opportunity to enhance sourcing from third-party factories in the region. Continuing on the strategic sourcing initiative. In the next 15 months, we expect to have resourced product supply so that approximately 25% of our sourced spend on goods will be outside of China. I'd like to briefly touch on the impairment charge of $4.4 million we recorded in the second quarter, which Larry will discuss with you in additional detail. This noncash charge on our investment in Grupo Vasconia represents the write-down to record the investment at its fair value. It is important to note that this does not negatively impact our cash flow and is consistent with our view that this stranded asset from an investment made in 2007 is not strategic to our company. Primarily as a result of this charge, we provided revised full-year 2023 financial guidance metrics for net loss and diluted loss per common share. We reaffirmed our 2023 guidance for net sales, income from operation, adjusted income from operations and adjusted EBITDA. Turning to our balance sheet. We have continued to strengthen our balance sheet through a combination of disciplined cash management and deleveraging. This approach has put us in an increasingly strong position to deploy our capital at the right time to create value for our shareholders. For example, this quarter, we prepaid nearly $50 million on our term loan, which resulted in a gain of $2.4 million before fees and expenses. Additionally, this will reduce annual interest expense by approximately $2 million. The gain was recognized in the second quarter of 2023. As we look ahead and as the economic environment improves, we will continue to be thoughtful and opportunistic in our capital allocation approach as we evaluate value-enhancing opportunities to drive growth, including potential M&A. We are confident that we are taking the right steps to position our business for long-term growth. We have a leading portfolio of widely recognized brands with multichannel growth opportunities, a strong innovation engine, a resilient and efficient business model and a healthy balance sheet to support our growth initiatives. Our ability to outperform in the quarter, despite the challenges facing our industry and the broader market, reflects the progress we have made in the last several years to strengthen our company's foundation and ability to achieve our long-term goals. I am thankful for all of our team members, unrelenting focus on execution and I'm excited about the opportunity we see ahead. With that, I'll now turn the call over to Larry.

Thanks, Rob. This morning we reported our net loss for the second quarter of 2023 was $6.5 million, or $0.31 per diluted share, compared to a net loss of $3.5 million, or $0.16 per diluted share in the second quarter of 2022. The current net loss includes a noncash impairment charge of $4.4 million related to our equity investment in Grupo Vasconia. The adjusted net loss was $300,000 for the second quarter of 2023, or $0.02 per diluted share, compared to an adjusted net loss of $200,000, or $0.01 per diluted share last year. Income from operations was $4.4 million in the second quarter of 2023, compared to a loss from operations of $500,000 in the same period of 2022. Adjusted income from operations for the 2023 quarter was $8.4 million, compared to $4.2 million in the 2022 period. Adjusted EBITDA for the trailing twelve months ending June 30, 2023, was $54.6 million before adjustments for pro forma synergies and credit agreement limitations. Adjusted figures are non-GAAP financial measures, reconciled to our GAAP measures in the earnings release. The following remarks pertain to the second quarters of 2023 and 2022 unless noted otherwise. Consolidated sales fell by 3.2% from 2022. Sales in the U.S. segment modestly decreased by 1.6% to $135 million. As Rob mentioned, the supply issues retailers faced in 2022 are continuing to improve. The drop in U.S. segment sales was driven by certain factors and a warehouse club program that was not continued. Additionally, a major customer faced disruptions due to a new system implementation, which delayed orders; we anticipate orders will normalize as this issue is resolved. The decline in the U.S. segment was somewhat offset by strong sales of our Taylor branded measurement products. International sales decreased by 18.9% to $11.5 million, or 18.8% on a constant U.S. dollar basis, driven by slower replenishment orders in the U.K. arising from weaker end-market demand and reduced e-commerce sales. The challenging economic conditions, particularly high inflation, continue to impact Europe, especially in the U.K. Consolidated gross margins climbed to 38.2% from 36.5% last year. U.S. segment gross margins grew to 38.3% from 37.1%, primarily due to lower inbound freight costs and a favorable product mix. For the international segment, gross margins rose to 37.7% from 30.5% last year, reflecting lower product costs, including benefits from currency hedges, reduced inbound freight costs, and product mix improvements. This year also saw advantages from lower duty costs on goods sold to EU customers now being distributed from the Netherlands rather than the U.K. U.S. distribution expenses as a percentage of goods shipped from warehouses, excluding nonrecurring expenses, were 9.7%, down from 11.3% last year, thanks to better labor productivity, reduced storage costs, and lower talent expenses. Conversely, international distribution expenses as a percentage of goods shipped from warehouses reached 25.1%, up from 22.1% last year, due to unfavorable overhead absorption related to lower shipment volumes. Selling, general and administrative expenses fell to $35.9 million in 2023 from $38.3 million last year. Expenses for the U.S. segment dropped by $1.7 million to $27.4 million. As a percentage of net sales, these expenses decreased to 20.3% from 21.2%, mainly due to integration costs related to S'well incurred last year. For the international segment, SG&A expenses fell by $300,000 to $4 million, driven by reduced employee expenses following the restructuring actions taken in Q4 of 2022. However, as a percentage of net sales, international segment expenses increased to 35.1% from 30.5%, due to the impact of non-variable costs on lower sales volumes. Unallocated corporate expenses decreased by $400,000 to $4.5 million because of lower compensation expenses, including the elimination of the Executive Chairman role, although this decrease was partially offset by an increase in professional fees. Interest expenses rose by $1.8 million due to a higher SOFR rate on our variable-rate debt, partly offset by lower average borrowings. The buyback of a portion of our term loan positively affected interest expenses in this quarter, and on an annual basis, this will save us about $2 million. Looking at income tax for the 2023 quarter, the tax provision surpassed income before tax considerably, driven by operating losses in foreign jurisdictions where we do not receive a tax benefit. Additionally, some expenses are non-deductible for tax purposes. Grupo Vasconia, a Mexican company in which we hold a 24.7% equity interest, recorded a loss of $1.4 million in 2023 compared to earnings of $300,000 in 2022. Vasconia has faced a history of operating losses and recently announced that it would not meet its debt service payments. Furthermore, its quoted stock price has dropped by about 75% in the past year. Consequently, we recorded a noncash impairment charge of $4.4 million to write down our investment in Vasconia to its fair value of $5.3 million. Moving on to our balance sheet, we repurchased $47.2 million in principal of our term loan at a 5% discount in June. Despite this cash use, our balance sheet and liquidity remain strong. As of June 30, 2023, our net debt stood at $208.8 million, approximately $24 million less than at the end of 2022. Our liquidity was around $190.5 million, consisting of $15.1 million in cash alongside availability under our credit facility and receivable purchase agreement. At June 30, the net debt-to-EBITDA ratio was 3.8 times. In the earnings release, we reaffirmed our financial guidance for net sales, adjusted income from operations, and adjusted EBITDA. We have also issued revised guidance for net loss and adjusted net income to account for the equity loss in the second quarter, the noncash impairment charge on the investment in Vasconia, and the expected lower interest expense from the term loan repurchase, net of taxes. Our guidance for 2023 includes net sales of $660 million to $720 million; adjusted income from operations of $41.5 million to $46.5 million; adjusted net income of $11.6 million to $13.9 million; and adjusted EBITDA of $50 million to $55 million. This concludes our prepared remarks. Operator, please open the line for questions.

Our first question is from Brian McNamara with Canaccord.

This is Madison Callinan. I'm on for Brian. First, your implied revenue guidance is still a pretty wide range, flying anywhere from 96% to 99%. What's driving that? And how should we think about sustaining the Q3 and Q4 revenue growth?

Yes, it was a little garbled, but I think I got it. And please re-ask if you will because we couldn't understand something. So in general, I think you've seen that across other public reported companies. There isn't very strong visibility. So we were pleased that we've outperformed. And frankly, unlike a lot of our peers, we're comfortable leaving guidance unchanged, but it is a wide range because of continued lack of visibility in the general company.

All right. Awesome. And then secondly, would you mind giving some clarity on what your brands are particularly growing right now or which are lagging behind anything like that?

I believe our brands are performing well. We have analyzed the business by category, including cutlery, kitchen tools, and dinnerware, and we offer multiple brands to cover most of the channel and its opportunities. For example, Farberware, our largest brand, is in kitchen tools and cutlery across various categories. KitchenAid is another example. To provide some context, during Prime Day, we saw that BUILT and S'well, which have been underperforming, did very well with a 125% year-over-year increase. Cutlery remains strong, with Farberware being the largest contributor. Additionally, cutlery saw a 76.6% increase during Prime Day, and year-over-year, its usage also continues to grow. The brand that had the most significant increase for us was Taylor, which covers kitchen measurement, weather measurement, and bath, performing strongly across all channels. We did experience two impacts in the first half of the year that negatively affected our revenues, which also affected our market share and position. One issue was a systems implementation challenge faced by one of our largest customers, leading to decreased in-stock levels and orders. This customer sells a lot of Farberware and our other brands, contributing to the negative impact. The second issue was a business in the club channel, specifically Rabbit, which had a significant presence but didn’t repeat this year. We did not lose market share to competitors; rather, it’s common for clubs to change their offerings from year to year. As a result, Rabbit's share has decreased in other channels, but both Rabbit and line accessories continue to perform well.

Our next question is from Alan Weber with Robotti Advisors.

So two questions. One is, assuming you meet your guidance for the year, can you just talk about cash flow or free cash flow or working capital for the balance of the year?

Yes. I mean I'll make some comments to see if Larry wants to add to that. One, the world has been strange over the last few years. And for a company that historically, if you trend back over any 10-year period, seasonality on working capital is very consistent. There has been so much disruption over the last couple of years such that those trends on normal seasonality have gone away. This year, we've seen a return to normalization. So if you look back in terms of our normal working capital trends, we expect to experience that and have seen that so far this year. So that means in the second half of the year, there's increased. We shipped more in the second half of the year than we did in the first half. We're shipping a lot in the second half of the year. We collect some of that in the first quarter, right? So that is a big collection period, right? Inventories grow now through the third quarter as we start shipping that stuff. So those would be the major trends. Anything you want to add?

Yes. Well, as Rob said, the last few years have been kind of odd. If you looked at release the cash flow was much stronger this year than it was last year. And that was last year coming out of '21. We had purchased a lot of inventory. We were paying for it in '22, so we really got hurt. This year, we have brought down inventory considerably, and that's helped our cash flow. So this first half of the year is better than normal. But last year was, let's say, abominable. It's really atypical. But the first quarter of the year is actually the strongest for us. Fourth quarter…

From a working capital.

Yes, sorry, from a working capital point of view. So let me finish. So on the inventory, we still have some more inventory cuts to make, but most of it is done. It's going to be a lot smaller going forward. So we're not going to see what we've achieved by any means in the first half of the year. And then what drives really cash flow in the second half of the year, really the late part of the fourth quarter are collections from customers. And it's very hard to predict for a couple of reasons. One is it depends on when you sell in the fourth quarter, whether you're collecting the fourth quarter or you collect in the first part of the following year. So obviously, for example, if you're shipping in October, good chance we collect it in the year; if you're shipping in November, likely you're going to collect it in the following year. And the other fact depends on customer because not all customers have the same selling terms; back to naming individual customers. So the actual mix of sales on particular customers could drive collection. So we have a really good December, but it will affect January and vice versa. So I'd like to think that more is a continuous period of time when 12-month period of time. So I gave a lot of stuff. I haven't completely answered your question because it's really somewhat difficult to forecast.

Can you discuss how your current situation compares to when you had the 5-year target? Clearly, there have been changes. How do you view the long-term perspective? Are these changes merely extending your initial targets, or have some expectations regarding margins and revenues become unrealistic?

Yes, Alan. So we still stand behind our long-term projections, but not in the original time frame because of all of the macroeconomic impacts. But the drivers are still in place. We're still making progress in all those drivers. We've been set back in almost everything, but international is having an impact. And hopefully, the world will normalize from an economic perspective, and we're well-positioned. There's a lot of industry events in terms of people being hurt with higher interest rates and just general decline. We're well-capitalized. We never factored that into our consideration; will that give us tailwinds ultimately, who knows. But I think bottom line is we believe that our long-term plan that we had released is very achievable, but definitely delayed.

The delay is acknowledged, but that’s understandable.

There are no further questions at this time. I'd like to hand the floor back over to Rob Kay, CEO, for any closing comments.

As always, we appreciate and thank everyone for their interest in and support of Lifetime Brands. As a point of information, Larry and I will be in Boston next week, speaking at a Canaccord Genuity Investor Conference, and we hope to see people there or at a minimum at our next call. Thanks again.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.