Hello and welcome to the SUMR Brands’ 2020 third quarter conference call. With me on the call today is the company's Interim CEO, Stuart Noyes; and CFO, Ed Schwartz.

I would now like to provide a brief Safe Harbor Statement. This call may include forward-looking statements that relate to SUMR Brands' outlook for 2020 and beyond.

These forward-looking statements are subject to various risks and uncertainties that could cause actual results and events to differ materially from these statements. Please refer to the risk factors contained in the company's Annual Report on Form 10-K for the year ended December 28, 2019 and its quarterly reports on Form 10-Q and in our other filings with the SEC.

During the call, management may make references to adjusted EBITDA, adjusted net income, and adjusted earnings per share. These metrics are non-GAAP financial measures, which the company believes help investors gain a meaningful understanding of changes in SUMR Brands' operations.

For more information on non-GAAP financial measures, please see the tables for a reconciliation of GAAP results to non-GAAP measures included in the company's financial release issued recently. And with that, I'd like to turn the call over to Stuart Noyes.

Stuart.

Thanks Chris and good morning everyone. We appreciate you joining our third quarter conference call today.

I'll start by providing an overview of recent developments after which Ed will go through our financial results in detail. As was the case in the prior periods, this year the third quarter was one of many accomplishments of which we're quite proud particularly given the ongoing pandemic which has impacted our business as well as the economy in general.

We recorded net sales of 40.7 million, a sequential increase from the second quarter although down slightly from last year’s 41.5 million. While we saw solid double-digit year-over-year growth across many of our key product categories including gates, potties, and bathers as well as increasing traction with our new travel system we still face point of purchase headwinds due to the COVID-19 particularly with certain specialty and mid-tier brick and mortar retailers.

In addition our previously announced strategy to restructure and streamline international operations and our move to more direct import sales had negatively impacted top line results. We also continued to see some supply chain disruptions in quarter three which I'll come back to this issue in a moment when I discuss our thoughts on the outlook for the fourth quarter.

We posted much improved EPS of $0.86 adjusted for one-time items but more importantly reported adjusted EBITDA of 4.7 million. I know that many of our investors are already focused on EBITDA you but as well as free cash flow and we do as well.

We successfully transformed the company into a streamlined nimble enterprise well positioned to produce positive results under normal circumstances and our EBITDA illustrates this. Once again this quarter SG&A was much lower year-over-year with selling expenses as a% of revenue declining to 6.9% in 2020 from 8.7% last year.

And G&A falling 16.9% of sales from 20.1% in 2019. These ratios are also down from where they were in quarter two and such performances helped drive this large increase in EBITDA and cash flow.

Year-to-date we've generated nearly 50 million in cash from operations and 10.8 million of adjusted EBITDA. We remain on track to eliminate over 7.5 million in the annualized overhead expense as -- and are well on our way to completing the restructuring of our international operations and continue to focus on streamlining initiatives to strengthen margins and improve return on equity.

After the end of the quarter we completed a debt refinancing which really places us on solid footing and greatly reduced our interest expense burden. Our new agreement allows for up to 50 million of borrowings at interest rates that in aggregate are expected to save the company roughly 2 million annually while providing the necessary liquidity moving forward.

Ed will speak to this more in a moment but after the refinance we had 9 million of availability and we'll continue actively reducing our indebtedness whenever possible. I want to sincerely thank Bank of America for their many years of loyalty and support of the SUMR Brands and their ongoing commitment through these new credit facilities.

Before turning the call over to Ed, I wanted to talk about the fourth quarter and some increased challenges we and the industry have recently been experiencing. As you may or may not be aware, there are significant logistical problems facing the supply chain for numerous goods, particularly within the consumer sector impacting product availability, time to market, and shipping expense.

Specifically, there's container, there's vessel, there's trucks, and shortages throughout the supply chain and a material amount of inventory at this time, actually sitting in the Pacific waiting to be unloaded at the port of Long Beach due to congestion there. Things are just backed up across the board and this is impacting large numbers of companies in the consumer goods and retail space, including those selling online.

Such challenges caused by these issues including the impact of Covid-19 on ships and truckers means that products are not getting to market on time, tying up working capital both offshore or in warehouses. This includes SUMR Brands where we are having to wait on delivery of numerous items and store many others stretching the capacity limitations of our warehouse and increasing costs for freight logistics and leasing.

And this is on top of the fact that some products face the reinstatement of tariffs on August 7th, already requiring us to manage costs aggressively while pursuing price integrity. All these issues are impacting Q4’s bottom line, such that even as we work to mitigate their impact and work around the bottlenecks, we anticipate fourth quarter EBITDA may be down 40% to 60% compared to what we just reported in Q3.

We wanted to be upfront about this to make sure that our investors are not blinded by these near-term headwinds that many companies are facing SUMR included. SUMR Brands has come a long way this past year and to a large extent, we've restored some credibility with our investors I feel.

So the last thing we wanted was to not share something that is definitely impacting near-term results. Without question, we're doing everything possible to navigate through these issues and continue driving solid performance.

The team and I are committed to keeping the company on solid footing. In closing, I believe that SUMR Brands has made tremendous headway this year, improving its bottom line and positioning the company for higher results going forward.

This hasn't changed. The many initiatives to reduce costs, streamline the company, and improve customer responsiveness to create a healthy enterprise where that really wasn't the case before.

In the recent refi [ph] or credit facilities underscores just how far we've come while positioning us for higher returns in the future. With that, I'll turn it over to Ed to review our financial results in detail.

Ed.

Thanks, Stuart and good morning, everyone. As a reminder, our 10-Q and related press release were previously issued.

In addition to listening to this conference call, I encourage you to review our filings. Third quarter net sales were 40.7 million, compared with 41.5 million in the third quarter of fiscal 2019.

As Stuart mentioned, the lower revenue was largely due to the impact from restructuring our international operations, a move toward more direct import sales, and from COVID-19 primarily related to store closures and certain supply chain disruptions. While we are pleased with the quarterly results, we remain cautious going forward due to the continuing economic uncertainty and supply chain issues that remain challenging.

Gross profit was 13.5 million for the third quarter of fiscal 2020 versus 12.6 million in 2019. And our gross margin as a percentage of sales was 33.3% versus 30.3% last year.

The gross margin increase reflects a favorable mix of higher profit product categories, fewer close out sales, and lower tariffs on certain items as compared with 2019. However, as you previously noted, some tariff exclusions we received since December 2019 expired in August of this year.

The company has taken action to mitigate the impact of tariffs reinstatement through strategic pricing, supply chain management, and cost reductions. Although the extent to which we can mitigate the loss of tariff exclusions remains uncertain.

Selling expense was 2.8 million in the third quarter versus 3.6 million in the prior year period and as percent of net sales was 6.9% this year versus 8.7% in 2019. The decrease year-over-year as a percentage of sales was primarily due to lower freight and advertising costs.

General and administrative expenses were 6.9 million in the third quarter versus 8.4 million in the prior year period. And G&A as a percentage of sales was 16.9% this year, versus 20.1% in 2019.

The year-over-year change reflects lower labor and other costs through the various streamlining initiatives undertaken by the company in 2020. Interest expense was 1.0 million in the third quarter of 2020 versus 1.2 million last year.

Cash interest expense will decline in Q4 as we get to operate under our new credit facility, which was completed on October 15th. The company record a net income of 2.2 million or $1.03 per share in the third quarter of 2020, compared with a net loss of 1.7 million or 0.79 per share.

In the prior year period as Stuart mentioned, our current year results included a one-time $0.17 favorable tax provision adjustment related to changes in the interest deduction threshold under the U.S. CARES Act.

On an adjusted basis, our 2020 third quarter earnings were $0.86 per share. Adjusted EBITDA for the third quarter of 2020 was 4.7 million versus 0.8 million in the third quarter of 2019.

Adjusted EBITDA of 2020 included 0.7 million in bank permitted add back charges compared with 0.1 million in the prior year period. And adjusted EBITDA as a percentage of net sales was 11.4% in fiscal 2020 versus 2.0% last year.

As Stuart mentioned, a variety of issues related to logistics and supply chain management could possibly reduce adjusted EBITDA by as much as 40% to 60% in Q4 versus Q3. Turning to the balance sheet, as of September 26, 2020 Summer Infant had approximately 0.9 million of cash and 35.0 million of bank debt compared with 0.4 million of cash and 48.6 million in bank debt at the beginning of fiscal 2020.

On October 16th, the company entered into a third amended and restated loan and security agreement with Bank of America that replaced our prior $17.5 million term loan with Pathlight Capital and a $48.0 million ABL with Bank of America. The new credit facility consists of a $40 million ABL, $7.5 million term loan, and a 2.5 million filo loan for an aggregate amount of 50 million.

After paying off existing debt, the company had approximately 9 million in availability under the new credit facility. We will continue to manage working capital appropriately and use excess cash to pay down debt whenever possible.

Inventory at the end of the third quarter was 24.5 million, compared with 28.1 million as of December 28, 2019. And our inventory turns are 4.4 versus 4.1 turns at the beginning of the year.

Trade receivables at the end of September were 30.8 million compared with 32.8 million at the beginning of fiscal 2020. Day sales outstanding or DSOs were 68 as compared to 70 at the start of the year.

Accounts payable and accrued expenses were 37.3 million as of September 26, 2020 compared with 32.7 million at the beginning of the fiscal year. With that, I'll turn the call over to the operator and open it up for questions.

Hey gentlemen, congratulations on the progress this year. Looking at the near-term outlook appreciate the candor there.

Kind of looking past that though, wondering kind of normalized financials we could be looking at as we go look past COVID and kind of deeper into 2021, you guys have caught a lot of expenses and this was an EBITDA profitable company beforehand, maybe 5.5 million the year before you got in. So with those -- it looks like you're going to end the year with maybe 15 million or 16 million of EBITDA total, how does that compare to what you think the company can do long term as we start to build or attempt to rejigger our DCF base valuation models?

Thanks.

Yeah, go ahead Ed, you can take that one.

Yeah look, we're in the process of completing our 2021 budget for the upcoming year. And as you know, we don't give that type of guidance Mark, but we are looking at it and we're going to continue to do the same things we've been talking about doing as much as we can to make sure that we keep the EBITDA number headed in the right direction.

So we're doing everything we can. We're watching what was happening on the expense side and we're trying to build some revenue back under growth so we do show a little bit of growth.

Right, so well, from where we stand without getting any guidance, is it unreasonable to assume that your cost efficiencies gained, in addition to your prior baseline level of EBITDA so that we can make some assumptions based on that, is it safe to assume that your competitive positioning has at least remained the same if not improved, thus allowing for that scenario to play out?

Yeah, I think that's safe to say with our customer base. Obviously, you know kind of the big three, big four that we service and how they've kind of managed through this -- the pandemic which, obviously, we're not to the other side yet.

There's still a lot of unknown there. But I do feel our product teams and our selling teams have positioned us well in the competitive marketplace going forward, Mark.

I mean, I just -- I mean, we talk about that every day and as Ed says, you'll -- we will continue to look at cost initiatives or actually even redeploying capital, whether we're moving it from one area in the business to another based on what that marketplace is forcing us to do, to react to.

Great. And do you get the sense that there is -- once things kind of settle down, that there is pent up demand at the retail brick and mortar level that could serve as a tailwind as these headwinds start to abate?

Yeah, I mean look, everybody's got an opinion on it and that's all this is, it is just my opinion. I mean I think, with what's going on at the federal level and potential stimulus, and elections and pandemic there's just a lot of uncertainty out there.

I'm sure you're seeing it throughout your businesses. And so, I do feel there's been a little bit of -- there's a suck of air in that economic environment right now.

But, look I think we just keep plugging away, we do the right things to position ourselves to take advantage of that. You see that we built a little bit of inventory here going forward and we did that consciously on our key items to make sure we were in a position, whether it be through the Lunar New Year, etc., or based on what could happen economically in a position to take advantage of that.

Great, final question. What are the long-term plans that you have for the company considering your status as an Interim CEO, what you're -- obviously what you do for a living and the incentives that you have in place with similar intent in the event that the company gets sold?

Yeah, look right now we've got a Board Meeting coming up this Friday. And I mean, I think I might have mentioned this before, I mean, we were very focused on stabilization get through 2020 getting 2021 locked and loaded budget forecast wise, which we're in the middle of as Ed mentioned.

So we'll continue to talk about timeline on Interim CEO and that type of thing. But at this point, we are just focused on the business and making that right near and long-term.

But we'll continue to update you on that as things develop with the Board.

Great, thanks gentlemen.

Thank you, Mark.

Great, I appreciate it. Thank you all for joining us for today's call.

We look forward to speaking with everybody in the next quarter. Have a nice day.

Thank you.