Good morning, ladies and gentlemen, and welcome to Lifetime Brands' Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time I’d like to inform all participants that their lines will be in a listen-only mode. After the speakers' remarks, there’ll be a question-and-answer period [Operator Instructions].

I would now like to introduce your host for today's conference, Andrew Squire. Mr. Squire, you may begin..

Thank you. Good morning, and thank you for joining Lifetime Brands' fourth 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, Andrew. Good morning, everyone, and thank you for joining us today. Our core business delivered solid performance in the fourth quarter despite the macroeconomic and industry specific challenges that companies across our industry continued to fix.

Our strong market share position and proactive cost management actions helped to offset weaker end market demand as well as the ongoing impact of reduced orders from our customers as retailers continue to focus on rightsizing their inventory levels.

Our proactive efforts to reduce costs restructure our European operations and identify efficiencies throughout the business drove improved gross margins and continued strong free cash flow generation in a dynamic operating environment with gross margins exceeding both analysts and our own internal estimates.

In the fourth quarter, we delivered $207 million in net sales and $19.7 million in adjusted EBITDA compared to $255.9 million in net sales and $30.9 million in adjusted EBITDA for the 2021 period. These results reflect the challenges that persisted throughout the quarter, but it is important to keep in mind that while the overall U.S.

market is down, Lifetime continues to perform well in comparison to the market and its industry peers. For the full year, our strong execution in a challenging environment enabled us to generate adjusted EBITDA of $58.2 million compared with $95.1 million in 2021.

As we move into 2023, we're seeing the inventory buildup at major retailers start to abate and signs of a turnaround in order flow with a more normalization expected in the second quarter of 2023.

Also, while inflationary pressures and other macroeconomic factors, including the war in Ukraine, continue to significantly impact demand in Europe in the fourth quarter. The restructuring of our international operations is now complete, and we expect that this will drive improved profitability moving forward, which I'll speak more about later on.

In our core U.S. business, it is important to note that we maintained our market share gains from the last several years. While our revenue is down, we have not lost distribution in our core business.

During the holiday season, we saw a decline in discretionary spending from consumers which resulted in a more disappointing holiday season at retail across Lifetime's chance, especially at our largest customers.

This decline in consumer spending was felt across the industry as large retailers saw reduced end market demand as a result of inflation and other factors. But the larger driver of revenue declines in the quarter continued to be reduced orders from retailers as our largest customers continue to rightsize their inventory.

As a result, our point-of-sale data again exceeded shipments in the fourth quarter. While we're encouraged by the signs of a turnaround in order flow, we began to see this quarter in customer orders, we have yet to see full normalization in order flow.

As shipments increase with a normalizing market, we expect there will be a corresponding impact to bottom line growth. Now turning to our international business. We gained market share in Europe throughout 2022, and our international business outside of Europe remains profitable.

However, we also continue to see the sustained impact of the current economic environment on consumer demand in Europe and, to a lesser extent, Asia Pacific, exacerbated by the War in Ukraine and the impact of Brexit on the U.K. economy, which resulted in another tough quarter for retailers and in turn, for our European business.

As a reminder, our U.K. business represents over 75% of our international business. As we discussed last quarter, we took an important step in response to these pressures by implementing a restructuring of our Europe-based international operations.

We're pleased to report that this restructuring was fully implemented in the fourth quarter and we expect to see a meaningful increase in profitability in the international business in 2023 as a result. We don't expect the market demand to increase or normalize in the near-term, which is why the decision to restructure this business was so important.

Over the past several years, we've rebuilt our European business from the ground up, and this additional restructuring will allow us to fully realize that benefits in the coming years. In Asia Pacific, we also implemented a change to our go-to-market strategy.

We have substantially eliminated all third-party distribution agents in major geographies and replace them with lifetime country managers, consistent with our direct selling strategy. This is an important change and will ensure we're operating with the highest efficiency and profitability across the markets we serve.

We continue to make progress on our other strategic growth initiatives. Global e-commerce sales as a percentage of revenues improved to 19.8% in the fourth quarter, although still lower on a dollar sales basis than our peak levels during the heart of the pandemic.

We remain focused on expanding our e-commerce business, which is an important growth driver for Lifetime, and we continue to make great progress in both our core U.S. market as well as international. During the fourth quarter, Mikasa Hospitality continued to gain traction, and we believe we are poised for meaningful growth in the division in 2023.

We continue to expect our foodservice business of Mikasa Hospitality and Taylor, who reach $30 million in revenues by the end of 2023 and continue to see this as a $60 million business by 2026. Given our strong cash position, M&A activity remains a potential avenue for accretive growth.

And we are focused on strategic opportunities in our core product areas or adjacent categories where we have an opportunity to leverage our global scale and/or tap into a new product category.

We have a robust pipeline of potential value enhancing opportunities in the market, and we will continue to be opportunistic and extremely disciplined with our use of capital. Consistent with our balanced approach to capital allocation. Turning now to our cost management efforts.

Overall operating expenses were favorable on a dollar basis in the quarter, although unfavorable on a percentage basis due to a decrease in revenues. Last quarter, Larry spoke about the high labor expenses we were experiencing due to wage increases and less efficient use of labor.

We are focused on lowering these costs and this quarter, we successfully reduced distribution expenses by $4.6 million, driven primarily by an ongoing labor efficiency program.

Excluding charges for bad debt expense and incremental costs related to S'well, we also saw reductions in SG&A this quarter due to the effective management of discretionary spending, as well as an effort to reduce operating cost infrastructure. Active balance sheet management remained a key focus for us this quarter.

By the end of 2022, we had rightsized our own inventory levels, which aided our achievement of historically high levels of liquidity as of the end of 2022. Larry will speak more about our balance sheet and liquidity as well. We also expect a cost benefit from the retirement of Jeffrey Siegel, who has been serving as our Executive Chairman.

The Executive Chairman role was created in conjunction with Lifetime's merger with Filament Brands in 2018. Jeff will continue to serve in the role of non-Executive Chairman of our Board of Directors. And we look forward to continuing to benefit from his guidance, deep knowledge of the business and ongoing leadership of our Board.

Looking ahead, we continue to have limited visibility into certain macroeconomic factors that will impact our business, but we believe the company will outperform 2022 results in the year ahead. We intend to provide full 2023 guidance, as we normally do, when we report our first quarter results.

In the meantime, let me provide some color on what is driving our fundamentals in the business as it stands today. Global supply chains, including ocean freight costs, have fully normalized since the pandemic.

And as I mentioned, we do expect normalization of customer ordering patterns and improved profitability from our restructured international business in 2023. We have a strong balance sheet at a time of relative economic uncertainty. And our business model continues to prove resilient.

I am confident we are well-positioned to drive shareholder value and get back on track with our long-term growth trajectory in 2023. We are proud to have achieved another year of progress for Lifetime and grateful to our talented team for all their hard work during these challenging times.

With that, I'll now turn the call over to Larry to discuss our financial results in more detail..

Thanks, Rob. As we reported this morning, net income for the fourth quarter of 2022 was $3.3 million or $0.15 per diluted share versus a loss of $600,000 or $0.03 per diluted share in the fourth quarter of '21.

Adjusted net income was $4.7 million for the fourth quarter, $0.22 per diluted share compared to $14.4 million or $0.65 per diluted share in '21. Income from operations was $12.8 million in the fourth quarter of '22 as compared to $8.9 million in the '21 period.

Adjusted net income from operations for the fourth quarter of '22 was $14.4 million compared to $24.5 million in the '21 period. And adjusted EBITDA for the full year 2022 was $58.2 million before credit agreement limitations.

Adjusted net income, adjusted income from operations and adjusted EBITDA are non-GAAP measures that are reconciled to our GAAP financial measures in the earnings release. Following comments are for the fourth quarter of 2022 and 2021, unless stated otherwise. Net sales, consolidated net sales declined by 19% 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 a weaker end market demand, especially in Europe and Asia Pacific markets. U.S. segment sales decreased by 60% to $193 million. The decrease occurred in all distribution channels.

This was attributable to lower replenishment orders as retailers continue to reduce their weeks of supply on hand. In addition, retail sales declined as consumers shifted their spending to services from goods, including housewares. The decline was partially offset by the inclusion of S'well, which we acquired in March.

International segment sales were down $11.6 million or $8.3 million and constant USD to $14.1 million. The decrease was due to similar factors as was experienced in the U.S. This was exacerbated by the impact of higher food and energy inflation in Europe, which experienced substantially reduced consumer discretionary spending.

In addition, a decrease in Asia as we move away from a distributor agent model to a more direct selling one. Gross margin increased to 35.9% from 34.4% last year. For the U.S. segment, gross margin increased 35.8% from 34.9%. The improvement is due to lower inbound freight costs. For international, gross margin increased to 37.1% from 30.3%.

The improvement reflected an increase in selling prices, lower duties -- lower duty on goods imported directly to the EU versus to the U.K. an ongoing benefit of distributing to U.K. -- excuse me, to EU customers from the Netherlands warehouse and some favorable customer mix. In distribution, U.S.

segment distribution expense as a percent of good shift from its warehouses was 9.2% versus 8.2% last year. The increase was driven by lower sales, resulting in under-absorption of fixed expenses and higher storage costs due to higher inventory on hand.

This increase was partially offset by the benefit of higher revenue per carton, reduced variable labor, our continuous labor efficiency efforts and lower general expenses. In the International segment, the distribution expense as a percent of good shift from its warehouses was 19.6% versus 23.1% last year.

The improvement was due to lower outbound freight as goods for EU customers are now shipped from the Netherlands. The prior year included a warehouse occupancy tax adjustment. Selling, general and administrative expenses increased less than 1% in the 2022 quarter. U.S.

segment expenses increased $3.7 million to $32.3 million, primarily due to an increase in sales support expense, the inclusion of S'well and a higher allowance for bad debt. For international, SG&A expenses decreased by $1.5 million to $3.8 million on lower headcount, lower allowances for bad debt and an operating net foreign currency gain.

Unallocated corporate expenses decreased $1.9 million to $4.3 million on lower incentive compensation. In restructuring in the 2022 period, the company recorded $1 million for restructuring expenses related to the elimination of certain senior executive positions. We expect this action will result in annual savings of approximately $1.3 million.

Also in the period, $400,000 of restructuring expenses were recorded for severance associated with the reorganization of the International segment's workforce. The reorganization was a result of the realignment of management and the operating structure of the European business in response to a change in market conditions.

The company expects annual savings of $2.3 million from this reorganization. Interest expense increased by $1.2 million due to higher interest rates on our variable rate debt and the effective income tax rate for 2022 exceeded the statutory rate primarily due to foreign losses, which no benefits recognized partially offset by an R&D tax credit.

Related to our Group of Vasconia investment, a 24% equity-owned investee. The company recorded a loss of $2.1 million in 2022 quarter versus earnings of $600,000 in 2021. Vasconia's results were negatively affected in its houseware business similarly to our U.S. and international segments.

In addition, it was also adversely affected by lower demand in its aluminum business, which was exacerbated by the extremely high cost of aluminum procured in early 2022 which resulted from the Russia, Ukraine war. On a very positive note, our liquidity continues to be very strong.

As of year-end, it was at an all-time high of approximately $200 million which was comprised of $23.6 million of cash plus availability under our credit facility.

And while liquidity was enhanced by an increase in our credit facility commitment, we achieved this level by actively managing -- actively managing our inventory down by $48 million during the year and without reducing selling prices in this challenging business environment.

Furthermore, $80 million of liquidity was used to purchase the S'well business and approximately $6 million was used to repurchase our common stock. At December 31, '22, our net debt was $232.7 million, and the net debt-to-EBITDA leverage ratio was 4 times. This concludes our prepared comments. Operator, please open the line for questions..

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

Hello, hi. How are you? So it's good to hear the news about some light at the end of the tunnel in terms of the inventory reductions by the retailers.

So I was wondering if you could -- being that you've got a couple of months in the first quarter under your belt, is it fair to say that the sales decline that you'll have in the first quarter of 2023, might be a little less than what we saw as a decline in the fourth quarter.

Is that the way to think about it?.

Well, the quarter is not over, but that is a good way to think..

Okay. And then I kind of thought you were hinting around that maybe sales could be up year-over-year in the second quarter of 2023.

Did I understand that correctly?.

So in our core U.S. business, right, we do believe there will be a continued normalization of inventory levels, and we'll see more of a benefit from the second quarter onwards than we would in the first quarter..

Okay. And then I was just curious about your own inventory level, which you reduced it, as you said, quite a bit in 2022.

Are you feeling comfortable that that's an appropriate level now? Or do you think we'll see some further reduction in inventory as we go through 2023?.

We do feel is an appropriate level. There will be some additional reduction in '23. In the core U.S. business and in Europe, the foodservice business will continue to grow inventory to support the growth in that business..

Okay. And just since you mentioned the food service business, it sounds like that's really kind of ramping up quite nicely.

Is that industry back to pre-pandemic levels in terms of the opening of restaurants and whatnot? Or are we still -- or is that industry still below the pre-pandemic levels?.

So the industry had a tremendous 2022. There's a lot of -- so it's different. So first of all, there's more challenged vendors in the industry financially sell, actually good opportunity for us and we're picking up share as a result because there are people who can't perform.

New openings are not quite as good, but people had delayed purchases for many years. And those -- there's pent-up demand on the hotel side, there's a lot more opening than there have been in the past couple of years. So we're seeing a tremendous boost from that. Of course, the restaurants in the hotels..

Okay. And then I was wondering also you had mentioned a while back some particular brand programs with Walmart, I believe, new product lines.

Can you just update us on how those initiatives are going? And is there anything kind of new plan for 2023?.

In Walmart, the biggest new brand offering was the beautiful, like True Value mark brands. And there's three pieces to that. One is tools. Second, it's cutlery. And we already have had for a long time very large leading branded market placement at Walmart, the Farberware in both of those categories. The tools haven't been selling so great.

They've been kind of disappointing, frankly. The Cutlery has been very good. Very happy with that as is Walmart. And the tabletop stop more dinnerware than anything else, will enter in 2023 in our likelihood. We actually -- while we are a very large tabletop supplier, as you know, don't sell anything prior to this to Walmart.

So it's all incremental opportunity..

Okay. And then finally, I just had one question about your e-commerce sales. You mentioned that number pretty specifically.

I was just curious if all of your pretty much almost all of your e-commerce sales are through like Amazon and other type of retailers like that? Or do you have a certain percentage of your sales that are through your own websites like DTC sales?.

Yes. So the majority of those sales both here and internationally or in Europe are through pure-play e-commerce with Amazon being the big guy in Asia Pacific, Amazon isn't the major player. So for instance, in China, Tmall which would be our biggest outlet there.

But we have been growing and growing profitably our own branded transactional websites continue to grow again this year. And our own websites for the full year, approximately $30 million, a little south of $30 million growth year-over-year versus and that would be the 2022 number..

Okay. Well thank you very much. I'll pass it on..

[Operator Instructions] 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 questions. So first, looking at the fourth quarter results, so I just wanted to get a better perspective for demand for your different product categories, kitchenware, tableware, home solutions.

Just wondering if demand was consistent or did you see any variations in your demand levels?.

No. And again, the biggest impact on us has been the over-inventory situation at wholesale. And that affects everything. So when there isn't open to buy or too much at, it depends on channel by channel how it works. They're not buying anything or cutting back on anything and it's across the board.

It doesn't have to be that the over inventory on your products. That situation is impacting your products even if it doesn't you aren't over in inventory at retail..

Okay. Got you. Okay. And then just in terms of the commentary about the second quarter. So is that when you expect the point of sales -- point-of-sale data to match the shipment data.

Is that a fair way?.

Yes, look. I mean we do mention that we are looking positively at 2023, but we do also mention that there's very poor visibility we also do know we're very close with our customer base in terms of the inventory situation and what's at in their DCs or in their club or whatever it's going to be.

So there is the need but we can't definitively put a date on things at this point..

Understood. Okay.

And then in terms of the European restructuring, can you guys quantify how much you expect in savings from that initiative?.

You're talking about in Europe?.

Yes, please. Yes..

Yes, it's Larry. Yes, we said it should be about $2.3 million, $400,000 restructuring. Some of these savings will come from attrition and less warehouse labor. So again, a big bang for the buck than we -- that's international, yes..

And we have executed it completely. So there's no additional work to be done on the structure..

Okay. And then so you repurchased about 6.3 million shares of your stock.

What is your appetite?.

Well, just to clarify, we bought back $6.3 million of stock, not 6.3 million shares. I know you got that, but just to clarify..

We're currently on hold in that program, we'll reassess it as the year goes on..

Okay. Got it. All right, well thank you very much and best of luck..

Thank you, Anthony..

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks..

Okay. Thank you, everyone. We appreciate people's continued interest and support of Lifetime Brands. We look forward to continued communication and we look forward to people joining us on our first quarter conference call coming up very soon. Thank you. Have a great day..

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day..