LIFETIME BRANDS, INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q of Lifetime Brands, Inc. (the “Company” and, unless the context otherwise requires, references to the “Company” shall include its consolidated subsidiaries), contains “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. These forward-looking statements include information concerning the Company’s plans, objectives, goals, strategies, future events, future revenues, performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, in Management’s Discussion and Analysis of Financial Condition and Results of Operations. When used in this Quarterly Report on Form 10-Q, the words “estimates,” “expects,” “intends,” “predicts,” “plans,” “believes,” “may,” “should,” “would,” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, those based on the Company’s examination of historical operating trends, are based upon the Company’s current expectations and various assumptions. The Company believes there is a reasonable basis for its expectations and assumptions, but there can be no assurance that the Company will realize its expectations or that the Company’s assumptions will prove correct. There are a number of risks and uncertainties that could cause the Company’s actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Important factors that could cause the Company’s actual results to differ materially from those expressed as forward-looking statements include, without limitation, those set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the “2025 Annual Report on Form 10-K”) in Part I, Item 1A under the heading Risk Factors, and in the Company’s subsequent filings with the U.S. Securities and Exchange Commission (the “SEC”). Such risks, uncertainties and other important factors include, among others, risks related to: • Macroeconomic conditions, including labor disputes, depreciation of the U.S. dollar, volatility in the capital markets, inflationary impacts and disruptions to the global supply chain; • Increase in supply chain costs, including raw materials, sourcing, transportation and energy; • The impact of tariffs and trade policies, particularly with respect to China; • Indebtedness, compliance with credit agreements, and access to credit markets; • Access to the capital markets and credit markets; • The seasonality of the Company’s cash flows; • The Company’s ability to complete acquisitions or successfully integrate acquisitions; • Intense market competition, changing customer practices or preferences and inventory rationalization among retailers; • Dependence on third-party manufacturers; • Technology, cybersecurity and data privacy risks; • Geopolitical conditions, including political instability in the U.S. and abroad, unrest, sanctions, war and armed conflicts, increasing regional and global tensions, and associated disruptions and volatility in energy and oil markets; • Legislative and regulatory risk; • Product liability claims; and • Reputational risks. There may be other factors that may cause the Company’s actual results to differ materially from the forward-looking statements. Except as may be required by law, the Company undertakes no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events. The Company is required to file its Annual Reports on Forms 10-K, Quarterly Reports on Forms 10-Q, Current Reports on Form 8-K, and other reports and documents as required from time to time with the SEC. The Company also maintains a website at http://www.lifetimebrands.com . Information contained on this website is not a part of or incorporated by reference into this Quarterly Report on Form 10-Q. The Company makes available on its website the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports as soon as reasonably practicable after these reports are filed with or furnished to the SEC. Users can access these reports free of charge on the - 28 - Table of Contents Company’s website. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding the Company’s electronic filings with the SEC at http://www.sec.gov. The Company intends to use its website as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Such disclosures will be included on the Company’s website in the ‘Investor Relations’ section. Accordingly, investors should monitor such portion of the Company’s website, in addition to following the Company's press releases, SEC filings and public conference calls and webcasts. ABOUT THE COMPANY The Company designs, sources and sells branded kitchenware, tableware and other products used in the home. The Company’s product categories include two categories of products used to prepare, serve, and consume foods: Kitchenware (kitchen tools, cutlery, kitchen scales, thermometers, cutting boards, shears, cookware, pantryware, spice racks, and bakeware) and Tableware (dinnerware, stemware, flatware, and giftware); and one category, Home Solutions, which comprises other products used in the home (thermal beverageware, bath scales, weather and outdoor household products, food storage, neoprene travel products and home décor). The Company markets several product lines within each of its product categories and under most of the Company’s brands, primarily targeting moderate price points through virtually every major level of trade. The Company believes it possesses certain competitive advantages based on its brands, its emphasis on innovation and new product development, and its sourcing capabilities. The Company owns or licenses a number of leading brands in its industry, including Farberware ® , KitchenAid ® Mikasa ® , Taylor ® , Pfaltzgraff ® , Built NY ® , S’well ® , Fred ® & Friends, KitchenCraft ® , Rabbit ® , Kamenstein ® , and Dolly ® . Historically, the Company’s sales growth has come from expanding product offerings within its product categories, by developing existing brands, acquiring new brands (including complementary brands in markets outside the United States), and establishing new product categories. Key factors in the Company’s growth strategy have been the selective use and management of the Company’s brands and the Company’s ability to provide a stream of new products and designs. A significant element of this strategy is the Company’s in-house design and development teams that create new products, packaging and merchandising concepts. RECENT DEVELOPMENTS Tariff and Supply Chain Considerations Tariffs The Company sources almost all of its product from third-party manufacturers outside the U.S., primarily in China. This geographic concentration in suppliers exposes the Company to risks associated with doing business globally, including risks relating to changes in U.S. tariff and trade policies. New or increased tariffs, quotas, embargoes, or other trade barriers could adversely impact our supply chain and cost structure. In 2025, the Company implemented several actions to mitigate the impact of the tariffs imposed by the U.S. administration. For example, the Company negotiated price increases to its U.S. customers which went into effect in the third quarter of 2025. The Company’s tariff mitigation strategy was intended to maintain the Company’s gross margin dollars and therefore, may result in a decline in gross margin percentage. On February 20, 2026, the U.S. Supreme Court held that the U.S. administration’s imposition of tariffs pursuant to the International Emergency Economic Powers Act (“IEEPA”) was unlawful, striking down the 10% global baseline tariff, as well as the higher tariffs imposed on certain U.S. trading partners. The U.S. Supreme Court’s ruling did not affect all of the recently imposed tariffs, including those imposed following trade remedy investigations by the Department of Commerce or the U.S. Trade Representative. Nor did it prohibit the imposition of future tariffs through alternative trade authorities available to the U.S. administration. On February 20, 2026, shortly after the announced U.S. Supreme Court decision, the U.S. administration announced that it would be imposing a new 10% global tariff for a period of 150 days pursuant to a balance-of-payments provision in Section 122 of the Trade Act of 1974, to become effective February 24, 2026. The U.S. administration further announced that it would begin additional trade remedy investigations into unidentified trading partners pursuant to Section 301 of the Trade Act of 1974 and with respect to certain unidentified product sectors pursuant to Section 232 of the Trade Expansion Act of 1962. The U.S. Government has stated publicly that companies will need to litigate to obtain refunds, which could take years. While guidance and processes relating to refunds continue to develop, it remains challenging to predict if, and when, any refunds will, in fact, be obtained and whether refunds would be paid in cash or credits against future duties or tariffs. As of April 20, 2026, the CBP has launched Phase One of the Consolidated Administration and Processing of Entries ("CAPE") program to process refunds. - 29 - Table of Contents The Company is actively engaging with its custom brokers and outside legal counsel to assess and pursue potential refund claims related to the the IEEPA tariffs paid. The Company estimates that the total tariff payments made related to the IEEPA tariffs totaled $41.7 million. While the Company plans to pursue the recovery of the IEEPA tariffs paid, these amounts represent a gain contingency and have not been recognized in the consolidated financial statements as of March 31, 2026. Net sales for the first quarter of 2026 U.S. sales were favorably impacted by higher selling prices, however volume was impacted in certain channels due to softening consumer discretionary demand. For the first quarter of 2026, U.S. gross margin percentage improved by 170 basis points compared to the first quarter of 2025. This improvement was in part driven by favorable product mix, which offset the combined impact of tariffs and our mitigation strategy. We expect continued margin pressure through 2026 as higher-cost inventory is sold through, reflecting the full impact of these tariffs. The Company cannot predict what additional changes to trade policy will be made by the U.S. administration or Congress, including whether existing tariff policies will be maintained or modified, what products may be subject to such policies, or whether the entry into new bilateral or multilateral trade agreements will occur, nor can we predict the effects that any such changes would have on our business, capital expenditures, and results of operations. The Company is actively monitoring the rapidly evolving tariff and global trade policies that become effective, as well as potential retaliatory actions by other countries. If tariffs rates were to increase further and the Company is unable to mitigate the impact of the increase in cost, it would result in lower gross margin from the sale of its products. The broader macroeconomic impacts related to the changes in tariff policies including potential mitigation efforts by retailers may negatively impact consumer spending and buying patterns of the Company’s products. This could materially adversely affect the Company’s results of operations and financial condition. Supply Chain Escalating geopolitical conflicts in the Middle East, including shipping disruptions in the Strait of Hormuz, have lead to increased volatility on global energy prices. Sustained increases in energy costs could materially increase the Company’s product and transportation costs, including through higher input costs and increased fuel prices, which typically lead to fuel surcharges and higher freight rates from third-party logistics providers. This could increase the Company’s distribution and inbound freight costs. T he duration of the conflict and the potential for further escalation, including military actions, sanctions, or disruptions to key trade routes, could adversely affect the global macroeconomic environment, and in turn, negatively impact consumer spending and demand for the Company’s products. The Company continues to monitor these developments, however the extent and duration of their impact remain uncertain. If energy prices remain elevated or if macroeconomic conditions deteriorate, the Company’s results of operations and financial condition could be materially adversely affected. Hagerstown Facility In January 2025, the Company announced the relocation of the Company’s east coast distribution operations currently located in Robbinsville, NJ (the “Robbinsville Facility”) to Hagerstown, Maryland (the “Hagerstown Facility”). In connection with the relocation, the Company expects to incur exit costs of approximately $6.0 million for employee severance, certain employee relocation costs, and remaining lease costs for the Robbinsville Facility. For the three months ended March 31, 2026, the Company has incurred $1.2 million, primarily related to employee severance costs. The remaining costs are expected to be incurred in 2026. The Hagerstown Facility will require capital expenditures for equipment and certain leasehold improvements that are estimated to be approximately $9.6 million, of which $3.9 million remains to be purchased as of March 31, 2026. The Company incurred capital expenditures related to this relocation of $3.4 million during the three months ended March 31, 2026 and $2.3 million during the year-ended December 31, 2025. Start-up costs are estimated to be approximately $7.0 million, which includes recruitment, relocation of inventory, set up costs and lease expenses prior to the Hagerstown Facility being fully operational. These one-time costs are expected to be incurred in 2026. The Company expects that the Hagerstown Facility will be operational in the second quarter of 2026. Additionally, in connection with the relocation to the Hagerstown Facility, the Company will receive tax abatement and incentives over the term of the lease from the State of Maryland and Washington County, Maryland totaling approximately $13.1 million. These incentives include real property tax abatement, employee state withholding tax credit, conditional grants and income tax credits. Project Concord In January 2025, the Company launched Project Concord, management’s comprehensive plan to propel growth and streamline the cost structure of its International operations. The Company expects this plan to improve future results of its International segment through sales growth and the identified costs efficiencies. This project resulted in several reorganizations and restructuring of the international workforce which have primarily affected the structure of the International segment’s merchandising and sale workforce. The following actions were taken under this plan: - 30 - Table of Contents • On July 8, 2025 the Company announced a reorganization of its international workforce in connection with Project Concord. The restructuring expenses related to severance associated with the reorganization of $0.3 million was recorded in the third quarter of 2025. • On March 26, 2026 the Company announced a second reorganization of its international workforce in connection with Project Concord. The restructuring expenses related to severance associated with the reorganization of $0.2 million was recorded in the three months ended March 31, 2026. As of March 31, 2026, the Company expects to record additional approximately $0.2 million of restructuring charges in connection with Project Concord for severance and related costs. BUSINESS SEGMENTS The Company operates in two reportable segments: U.S. and International. The U.S. segment is the Company’s domestic business that designs, markets and distributes its products to retailers and distributors, as well as directly to consumers through third parties and its own internet websites primarily in the U.S. The International segment is the Company’s international business that sells and distributes products to consumers primarily in the U.K., the European Union and the Asia Pacific region. Additional information regarding the Company’s reportable segments is included in NOTE 10 – BUSINESS SEGMENTS of the Notes to the condensed consolidated financial statements included in Item 1. SEASONALITY The Company’s business and working capital needs are seasonal, with a majority of sales occurring in the third and fourth quarters. In 2025 and 2024, net sales for the third and fourth quarters accounted for 58% of total annual net sales, for both periods. In anticipation of the pre-holiday shipping season, inventory levels increase primarily in the June through October time period. Consistent with the seasonality of the Company’s net sales and inventory levels, the Company also experiences seasonality in its inventory turnover and turnover days from one quarter to the next. CRITICAL ACCOUNTING ESTIMATES There have been no material changes to the Company’s critical accounting estimates discussed in the 2025 Annual Report on Form 10-K in Item 7 under the heading Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates . - 31 - Table of Contents RESULTS OF OPERATIONS The following table sets forth statements of operations data of the Company as a percentage of net sales for the periods indicated: Three Months Ended March 31, 2026 2025 Net sales 100.0 % 100.0 % Cost of sales 62.3 63.9 Gross margin 37.7 36.1 Distribution expenses 12.3 12.9 Selling, general and administrative expenses 25.6 22.4 Restructuring expenses 1.4 — (Loss) income from operations (1.6) 0.8 Interest expense (3.1) (3.5) Mark to market gain (loss) on interest rate derivatives 0.2 (0.4) Loss before income taxes (4.5) (3.1) Income tax benefit 1.2 0.1 Net loss (3.3) % (3.0) % - 32 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS THREE MONTHS ENDED MARCH 31, 2026 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2025 Net Sales Consolidated net sales for the three months ended March 31, 2026 were $143.5 million, representing an increase of $3.4 million, or 2.4%, as compared to net sales of $140.1 million for the corresponding period in 2025. In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2026 average rates to 2025 local currency amounts, consolidated net sales increased by $2.5 million, or 1.8%, as compared to consolidated net sales in the corresponding period in 2025. Net sales for the U.S. segment for the three months ended March 31, 2026 were $130.7 million, an increase of $2.2 million, or 1.7%, as compared to net sales of $128.5 million for the corresponding period in 2025. For the three months ended March 31, 2026, net sales were favorably impacted by higher selling prices, reflecting the implementation of price increases for the Company’s U.S. customers that went into effect during the third quarter of 2025. Net sales for the U.S. segment’s Kitchenware product category were $78.5 million for the three months ended March 31, 2026, a decrease of $1.0 million, or 1.3%, as compared to $79.5 million for the corresponding period in 2025. The decrease was driven by a decrease in sales for cutlery and boards and kitchen measurement products. These decreases were partially offset by an increase in sales for kitchen tools. Net sales for the U.S. segment’s Tableware product category were $25.9 million for the three months ended March 31, 2026, a decrease of $1.7 million, or 6.2%, as compared to $27.6 million for the corresponding period in 2025. The decrease was primarily attributable to lower sales in the dollar channel for dinnerware. Net sales for the U.S. segment’s Home Solutions product category were $26.3 million for the three months ended March 31, 2026, an increase of $4.9 million, or 22.9%, as compared to $21.4 million for the corresponding period in 2025. The increase was primarily attributable to higher sales for home décor products in the dollar channel and warehouse club programs. Net sales for the International segment were $12.8 million for the three months ended March 31, 2026, an increase of $1.2 million, or 10.3%, as compared to net sales of $11.6 million for the corresponding period in 2025. In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations, net sales increased by $0.3 million, or 2.5%, as compared to consolidated net sales in the corresponding period in 2025. The increase in net sales was driven by higher sales in the Asia Pacific region. Gross margin Gross margin for the three months ended March 31, 2026 was $54.2 million, or 37.7%, as compared to $50.6 million, or 36.1%, for the corresponding period in 2025. Gross margin for the U.S. segment was $49.5 million, or 37.9%, for the three months ended March 31, 2026, as compared to $46.5 million, or 36.2%, for the corresponding period in 2025. The improvement in the gross margin percentage was attributable to favorable product mix, higher selling prices, offset by higher tariffs. Gross margin for the International segment was $4.7 million, or 36.7%, for the three months ended March 31, 2026, as compared to $4.1 million, or 35.3%, for the corresponding period in 2025. The increase in gross margin percentage was driven by customer and product mix. Distribution expenses Distribution expenses for the three months ended March 31, 2026 were $17.6 million, as compared to $18.1 million for the corresponding period in 2025. Distribution expenses as a percentage of net sales were 12.3% for the three months ended March 31, 2026, as compared to 12.9% for the three months ended March 31, 2025. Distribution expenses as a percentage of net sales for the U.S. segment were 10.9% and 11.5% for the three months ended March 31, 2026 and 2025, respectively. Distribution expense during the three months ended March 31, 2026 included $0.2 million for relocation and redesign costs related to the Company’s warehouses. As a percentage of sales shipped from the Company’s U.S. warehouses, excluding non-recurring expenses, distribution expenses were 10.9% and 11.9% for the three months ended March 31, 2026 and 2025, respectively. The decrease in expenses as a percentage of sales was attributable to - 33 - Table of Contents higher sales resulting in a favorable impact of fixed expenses, lower volume due to sales mix resulting in a decrease of employee expenses, and lower facility supply expenses. The decrease was partially offset by higher freight rates. Distribution expenses as a percentage of net sales for the International segment were 26.4% for the three months ended March 31, 2026, compared to 28.3% for the corresponding period in 2025. As a percentage of sales shipped from the Company’s international warehouses distribution expenses were 23.2% and 25.0% for the three months ended March 31, 2026 and 2025, respectively. The decrease in expenses as a percentage of sales was attributable to higher sales resulting in a favorable impact of fixed expenses and a decrease in variable warehouse expenses at third-party operated distribution facilities. Selling, general and administrative expenses Selling, general and administrative expenses for the three months ended March 31, 2026 were $36.8 million, an increase of $5.3 million, or 16.8%, as compared to $31.5 million for the corresponding period in 2025. Selling, general and administrative expenses for the U.S. segment were $28.2 million for the three months ended March 31, 2026, as compared to $30.0 million for the corresponding period in 2025. As a percentage of net sales, selling, general and administrative expenses were 21.6% and 23.3% for the three months ended March 31, 2026 and 2025, respectively. The decrease in selling, general and administrative expenses was attributable to lower employee expenses, a decrease in the provision for doubtful accounts in the current period, and lower advertising expenses. This was partially offset by an increase in insurance expenses. The decrease in selling, general and administrative expenses as a percentage of net sales, was also attributable to the impact of fixed costs on higher sales volume. Selling, general and administrative expenses for the International segment were $3.7 million for both the three months ended March 31, 2026 and 2025. As a percentage of net sales, selling, general and administrative expenses were 28.9% and 31.9% for the three months ended March 31, 2026 and 2025, respectively. Selling, general and administrative expenses remained flat year-over-year, as decreases in employee expenses and commission expenses were fully offset by unfavorable foreign currency exchange impacts. The decrease in selling, general and administrative expenses as a percentage of net sales, was attributable to the impact of fixed costs on higher sales volume. Unallocated corporate expense for the three months ended March 31, 2026 was $4.9 million, as compared to unallocated corporate income of $2.2 million for the corresponding period in 2025. The decrease compared to the prior period was due to the recognition of a net legal settlement gain of $6.4 million in the prior period, partially offset by an increase in professional fees and legal expenses in the current period. Restructuring expense Restructuring expenses for the three months ended March 31, 2026 were $2.0 million, which consist of employee severance expenses related to the east coast distribution facility relocation of $1.2 million, sterling flatware manufacturing operations restructuring expense of $0.7 million, and Project Concord severance expense of $0.1 million. See NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. Interest expense Interest expense was $4.5 million and $4.9 million for the three months ended March 31, 2026 and 2025, respectively. The decrease in expense was a result of lower average outstanding borrowings in the current period, partially offset by higher interest rates on outstanding borrowings. Mark to market gain (loss) on interest rate derivatives Mark to market gain on interest rate derivatives was $0.3 million for the three months ended March 31, 2026, as compared to mark to market loss of $0.5 million for the three months ended March 31, 2025. The gain (loss) recognized for the three months ended March 31, 2026 and 2025, respectively, was attributable to the change in the fair value due to the change in the projected interest rate environment. The mark to market amount represents the change in fair value on the Company’s interest rate derivatives that have not been designated as hedging instruments. These derivatives were entered into for purposes of locking-in a fixed interest rate on a portion of the Company’s variable interest rate debt. As of March 31, 2026, the intent of the Company is to hold these derivative contracts until their maturity. - 34 - Table of Contents Income taxes Income tax benefit of $1.7 million and $0.1 million for the three months ended March 31, 2026 and 2025, respectively, represent taxes on both U.S. and foreign earnings at a combined effective income tax rate of 26.0% and 3.3%, respectively. The effective tax rate for the three months ended March 31, 2026 differs from the federal statutory income tax rate of 21.0% primarily due to state and local tax expense, the impact of non-deductible expenses, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance, partially offset by a benefit for federal credits. The effective tax rate for the three months ended March 31, 2025 differs from the federal statutory income tax rate of 21.0% primarily due to foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. LIQUIDITY AND CAPITAL RESOURCES The Company’s principal sources of cash to fund liquidity needs are: (i) cash provided by operating activities and (ii) borrowings available under its revolving credit facility under the ABL Agreement, as defined below. The Company’s primary uses of funds consist of working capital requirements, capital expenditures, acquisitions and investments, payments of dividends, and payments of principal and interest on its debt. At March 31, 2026, the Company had cash and cash equivalents of $13.9 million, compared to $4.3 million at December 31, 2025. Working capital was $220.1 million at March 31, 2026, compared to $242.6 million at December 31, 2025. Liquidity as of March 31, 2026 was $110.2 million, consisting of $13.9 million of cash and cash equivalents, $80.0 million of availability under the ABL Agreement, limited by the Term Loan financial covenant, and $16.3 million of available funding under the Receivables Purchase Agreement. Inventory, a large component of the Company’s working capital, is expected to fluctuate from period to period, with inventory levels higher primarily in the June through October time period. The Company also expects inventory turnover to fluctuate from period to period based on product and customer mix. Certain product categories have lower inventory turnover rates as a result of minimum order quantities from the Company’s vendors or customer replenishment needs. Certain other product categories experience higher inventory turns due to lower minimum order quantities or trending sale demands. For the three months ended March 31, 2026, inventory turnover was 1.9 times, or 194 days, as compared to 1.8 times, or 208 days, for the three months ended March 31, 2025. Inventory turns have remained relatively consistent. The Company believes that availability under the revolving credit facility under its ABL Agreement, cash on hand and cash flows from operations are sufficient to fund the Company’s operations for the next twelve months. However, if circumstances were to adversely change, the Company may seek alternative sources of liquidity including debt and/or equity financing. However, there can be no assurance that any such alternative sources would be available or sufficient. The Company closely monitors the creditworthiness of its customers. Based upon its evaluation of changes in customers’ creditworthiness, the Company may modify credit limits and/or terms of sale. However, notwithstanding the Company’s efforts to monitor its customers’ financial condition, the Company could be materially adversely affected by future changes in these conditions. Indebtedness On August 26, 2022, the Company entered into Amendment No. 2 (the “Amendment”) to the Company’s credit agreement, dated as of March 2, 2018 (as amended, the “ABL Agreement”) among the Company, as a Borrower, certain subsidiaries of the Company, as Borrowers and/or Loan Parties, JPMorgan Chase Bank, N.A., as Administrative Agent and a Lender. The ABL Agreement provides for a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $200.0 million, which facility will mature on August 26, 2027. The ABL Agreement is subject to an earlier springing maturity date of May 28, 2027, 90 days prior to the Term Loan maturity date of August 26, 2027, if the Company’s Term Loan has not been repaid or refinanced by such date. On November 14, 2023, the Company entered into Amendment No. 2 to amend the Loan Agreement, dated as of March 2, 2018, among the Company, as Borrower, the other loan parties from time to time party thereto, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (as amended, the “Term Loan” and together with the ABL Agreement, the “Debt Agreements”). The Term Loan has a principal amount of $150.0 million, and matures on August 26, 2027. The Term Loan requires the Company to make quarterly payments of principal each equal to 1.25% of the aggregate principal amount of the Term Loan, which commenced on March 31, 2024, with the remaining balance payable on the maturity date. The - 35 - Table of Contents Term Loan requires the Company to make an annual prepayment of principal, beginning with the fiscal year ending December 31, 2024, based upon a percentage of the Company’s excess cash flow, (“Excess Cash Flow”), if any. The percentage applied to the Company’s Excess Cash Flow is based on the Company’s Total Net Leverage Ratio (as defined in the Debt Agreements). When an Excess Cash Flow payment is required, each lender has the option to decline a portion or all of the prepayment amount payable to it. Under the Term Loan, when the Company makes an Excess Cash Flow prepayment, the payment is first applied to satisfy the next eight (8) scheduled future quarterly required payments of the Term Loan in order of maturity and then to the remaining scheduled installments on a pro rata basis. The maximum borrowing amount under the ABL Agreement may be increased up to $250.0 million if certain conditions are met. One or more tranches of additional term loans (the “Incremental Term Facilities”) may be added under the Term Loan if certain conditions are met. The Incremental Term Facilities may not exceed the sum of (i) $50.0 million plus (ii) an unlimited amount so long as, in the case of (ii) only, the Company’s secured net leverage ratio, as defined in and computed on a pro forma basis pursuant to the Term Loan, after giving effect to such increase, is no greater than 3.25 to 1.00, subject to certain limitations and for the period defined pursuant to the Term Loan but not to mature earlier than the maturity date of the then existing term loans. As of March 31, 2026 and December 31, 2025, the total availability under the ABL Agreement were as follows (in thousands): March 31, 2026 December 31, 2025 Maximum aggregate principal allowed $ 149,735 $ 185,588 Outstanding borrowings under the ABL Agreement (36,611) (54,105) Standby letters of credit (13,764) (11,564) Total availability under the ABL Agreement $ 99,360 $ 119,919 Availability under the ABL Agreement is limited to the lesser of the $200.0 million commitment thereunder and the borrowing base and therefore depends on the valuation of certain current assets comprising the borrowing base. The borrowing capacity under the ABL Agreement will depend, in part, on eligible levels of accounts receivable and inventory that fluctuate regularly. Due to the seasonality of the Company’s business, the Company may have greater borrowing availability during the third and fourth quarters of each year. Consequently, the $200.0 million commitment thereunder may not represent actual borrowing capacity. The Company’s borrowing capacity may be further limited by the Term Loan financial covenant of 5.00 to 1.00 maximum Total Net Leverage Ratio. As of March 31, 2026, the availability under the ABL Agreement, as limited by the Term Loan financial covenant, was $80.0 million. The current and non-current portions of the Company’s Term Loan included in the condensed consolidated balance sheets were as follows (in thousands): March 31, 2026 December 31, 2025 Current portion of Term Loan: Term Loan payment $ 7,500 $ 7,500 Estimated unamortized debt issuance costs (2,443) (2,478) Total Current portion of Term Loan $ 5,057 $ 5,022 Non-current portion of Term Loan: Term Loan, net of current portion $ 125,625 $ 127,500 Estimated unamortized debt issuance costs (975) (1,573) Total Non-current portion of Term Loan $ 124,650 $ 125,927 As of March 31, 2026 the Company estimates that no excess cash flow payment will be due for 2026. For the year ended December 31, 2025, there was no excess cash flow payment due for 2025. The Company’s payment obligations under its Debt Agreements are unconditionally guaranteed by its existing and future U.S. subsidiaries with certain minor exceptions. Certain payment obligations under the ABL Agreement are also direct obligations of its foreign subsidiary borrowers designated as such under the ABL Agreement and, subject to limitations on such guaranty, are guaranteed by the foreign subsidiary borrowers, as well as by the Company. The obligations of the foreign subsidiary borrowers under the ABL Agreement are secured by security interests in substantially all of the assets of, and stock in, such foreign subsidiary borrowers, subject to certain limitations. The obligations of the Company under the Debt Agreements and any - 36 - Table of Contents hedging arrangements and cash management services and the guarantees by its domestic subsidiaries in respect of those obligations are secured by security interests in substantially all of the assets and stock (but in the case of foreign subsidiaries, limited to 65% of the capital stock in first-tier foreign subsidiaries and not including the stock of subsidiaries of such first-tier foreign subsidiaries) owned by the Company and the U.S. subsidiary guarantors, subject to certain exceptions. Such security interests consist of (1) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and certain of its subsidiaries (the “ABL Collateral”) pledged as collateral in favor of lenders under the ABL Agreement and a second-priority lien in the ABL Collateral in favor of the lenders under the Term Loan and (2) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and certain of its subsidiaries (the “Term Loan Collateral”) pledged as collateral in favor of lenders under the Term Loan and a second-priority lien in the Term Loan Collateral in favor of the lenders under the ABL Agreement. Borrowings under the revolving credit facility bear interest, at the Company’s option, at one of the following rates: (i) an alternate base rate, defined, for any day, as the greater of the prime rate, a federal funds and overnight bank funding based rate plus 0.5% or one-month Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus 1.0% as of a specified date in advance of the determination, but in each case not less than 1.0%, plus a margin of 0.25% to 0.50%, or (ii) Adjusted Term SOFR, which is the Term SOFR Rate for the selected 1, 3 or 6 month interest period plus 0.10% (or Euro Interbank Offered Rate “EURIBOR” for borrowings denominated in Euro; or Sterling Overnight Index Average “SONIA” for borrowings denominated in Pounds Sterling), but in each case not less than zero, plus a margin of 1.25% to 1.50%. The respective margins are based upon average quarterly availability, as defined in and computed pursuant to the ABL Agreement. In addition, the Company pays a commitment fee of 0.20% to 0.25% per annum based on the average daily unused portion of the aggregate commitment under the ABL Agreement. The interest rate on outstanding borrowings under the ABL Agreement at March 31, 2026 was between 3.33% and 7.13%. The Company paid a commitment fee of 0.25% on the unused portion of the ABL Agreement during the three months ended March 31, 2026. The Term Loan bears interest, at the Company’s option, at one of the following rates: (i) alternate base rate, defined, for any day, as the greater of (x) the prime rate, (y) a federal funds and overnight bank funding based rate plus 0.5% or (z) one-month Adjusted Term SOFR, but not less than 1.0%, plus 1.0%, plus a margin of 4.5% or (ii) Adjusted Term SOFR (Term SOFR plus the Term SOFR Adjustment) for the applicable interest period, but not less than 1.0%, plus a margin of 5.5%. The interest rate on outstanding borrowings under the Term Loan at March 31, 2026 was 9.29%. The Debt Agreements provide for customary restrictions and events of default. Restrictions include limitations on additional indebtedness, liens, acquisitions, investments and payment of dividends, among other things. Under the Term Loan, the Total Net Leverage Ratio is not permitted to be greater than 5.00 to 1.00 determined as of the end of each fiscal quarters. Further, the ABL Agreement provides that during any period (a) commencing on the last day of the most recently ended four consecutive fiscal quarters on or prior to the date availability under the ABL Agreement is less than the greater of $20.0 million and 10% of the aggregate commitment under the ABL Agreement at any time and (b) ending on the day after such availability has exceeded the greater of $20.0 million and 10% of the aggregate commitment under the ABL Agreement for 45 consecutive days, the Company is required to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 as of the last day of any period of four consecutive fiscal quarters. The Company was in compliance with the covenants of the Debt Agreements at March 31, 2026. The Company expects that it will continue to borrow, subject to availability, and repay funds under the ABL Agreement based on working capital and other corporate needs. Covenant Calculations Adjusted EBITDA (a non-GAAP financial measure), which is defined in the Company’s Debt Agreements, is used in the calculation of the Fixed Charge Coverage Ratio, Secured Net Leverage Ratio, Total Leverage Ratio and Total Net Leverage Ratio, which are required to be provided to the Company’s lenders pursuant to its Debt Agreements. The Company’s adjusted EBITDA (including pro forma adjustments), for the trailing twelve months ended March 31, 2026 was $52.7 million. Capital expenditures for the three months ended March 31, 2026 were $3.8 million. Non-GAAP financial measure Adjusted EBITDA is a non-GAAP financial measure within the meaning of Regulation G and Item 10(e) of Regulation S-K, each promulgated by the SEC. This measure is provided because management of the Company uses this financial measure in - 37 - Table of Contents evaluating the Company’s on-going financial results and trends, and management believes that exclusion of certain items allows for more accurate period-to-period comparison of the Company’s operating performance by investors and analysts. Management also uses this non-GAAP information as an indicator of business performance. Adjusted EBITDA, as discussed above, is also one of the measures used to calculate financial covenants required to be provided to the Company’s lenders pursuant to its Debt Agreements. Investors should consider this non-GAAP financial measure in addition to, and not as a substitute for, the Company’s financial performance measures prepared in accordance with U.S. GAAP. Further, the Company’s non-GAAP information may be different from the non-GAAP information provided by other companies including other companies within the home retail industry. The following is a reconciliation of the net (loss) income, as reported, to Adjusted EBITDA, for each of the last four quarters and the 12 months ended March 31, 2026: Quarter Ended Twelve Months Ended March 31, 2026 June 30, 2025 September 30, 2025 December 31, 2025 March 31, 2026 (in thousands) Net (loss) income as reported $ (39,699) $ (1,189) $ 18,152 $ (4,772) $ (27,508) Income tax (benefit) provision (2,782) 2,861 (3,220) (1,676) (4,817) Interest expense 5,054 5,013 5,048 4,512 19,627 Depreciation and amortization 5,437 5,398 5,315 5,282 21,432 Gain on disposition of fixed assets — (94) — — (94) Mark to market loss (gain) on interest rate derivatives 220 8 (1) (294) (67) Goodwill impairment 33,237 — — — 33,237 Stock compensation expense 1,044 994 201 1,043 3,282 Severance expense 270 — 241 — 511 Acquisition-related diligence expenses 123 49 1,799 1,104 3,075 Restructuring expenses — 304 24 2,030 2,358 Warehouse relocation and redesign expenses (1) 139 76 48 159 422 Pro forma adjustments (2) 1,250 Adjusted EBITDA (3) $ 3,043 $ 13,420 $ 27,607 $ 7,388 $ 52,708 (1) For the twelve months ended March 31, 2026, warehouse relocation and redesign expenses were related to the U.S. segment. (2) Pro forma adjustments represent operating expense reductions projected by the Company as a result of actions taken through March 31, 2026 or expected to be taken within 18 months of March 31, 2026, net of the benefits realized during the twelve months ended March 31, 2026. These actions include cost savings initiatives for the U.S. segment related to reductions in employee expenses and cost savings for the International segment related to Project Concord. (3) Adjusted EBITDA is a non-GAAP financial measure that is defined in the Company’s debt agreements. Adjusted EBITDA is defined as net (loss) income, adjusted to exclude income tax (benefit) provision, interest expense, depreciation and amortization, gain on disposition of fixed assets, mark to market loss (gain) on interest rate derivatives, goodwill impairment, stock compensation expense, and other items detailed in the table above that are consistent with exclusions permitted by the Company’s debt agreements. Accounts Receivable Purchase Agreement To improve its liquidity during seasonally high working capital periods, the Company has an uncommitted Receivables Purchase Agreement with HSBC Bank USA, National Association (“HSBC”) as Purchaser (the “Receivables Purchase Agreement”). Under the Receivables Purchase Agreement, the Company may offer to sell certain eligible accounts receivable (the “Receivables”) to HSBC, which may accept such offer, and purchase the offered Receivables. Under the Receivables Purchase Agreement, following each purchase of Receivables, the outstanding aggregate purchased Receivables shall not exceed $30.0 million. HSBC will assume the credit risk of the Receivables purchased, and the Company will continue to be responsible for all non-credit risk matters. The Company will service the Receivables, and as such servicer, collect and otherwise enforce the Receivables on behalf of HSBC. The term of the agreement is for 364 days and shall automatically be extended for annual successive terms unless terminated. Either party may terminate the agreement at any time upon sixty days’ prior written notice to the other party. The Company did not sell receivables to HSBC during the three months ended March 31, 2026 and March 31, 2025. At March 31, 2026, $16.3 million of accounts receivable were available for sale to HSBC, net of applicable charges. - 38 - Table of Contents Derivatives The Company’s risk management strategy includes the use of derivative financial instruments to manage its exposure to interest rate movements and to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates primarily to offset the earnings impact related to inventory purchases. The Company does not enter into derivative transactions for trading purposes. The Company classifies cash flows from its derivative transactions as cash flows from operating activities in the consolidated statements of cash flows. The Company’s derivatives expose it to credit risks from possible non-performance by counterparties. The Company has limited its credit risk by entering into derivative transactions exclusively with investment-grade rated financial institutions and monitors the creditworthiness of these financial institutions on an ongoing basis. The Company utilizes standard counterparty master netting agreements that net certain foreign currency and interest rate swap transactions in the event of the insolvency of one of the parties to the transaction. These master netting arrangements permit the Company to net amounts due from the Company to counterparty with amounts due to the Company from the same counterparty. Although all of the Company’s recognized derivative assets and liabilities are subject to enforceable master netting arrangements, the Company has elected to present these assets and liabilities on a gross basis. The Company does not anticipate non-performance by any of its counterparties. Interest Rate Swaps To manage its exposures to interest rate movements, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In March 2024 and October 2024, the Company entered into interest rate swap agreements, each with an aggregate notional value of $25.0 million and expiring in August 2027. These non-designated interest rate swaps serve as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. The Company’s total outstanding notional value of interest rate swaps was $50.0 million at March 31, 2026. Foreign Exchange Contracts To reduce the impact of changes in foreign currency exchange rates on its results, from time to time the Company is a party to certain foreign exchange contracts, primarily to offset the earnings impact related to fluctuations in foreign currency exchange rates associated with inventory purchases. The Company designates these contracts for accounting purposes as cash flow hedges. The Company purchases foreign currency forward contracts with terms of less than 18 months. The aggregate gross notional value of foreign exchange contracts at March 31, 2026 was zero. Operating activities Net cash provided by operating activities was $33.8 million for the three months ended March 31, 2026, as compared to net cash provided by operating activities of $16.7 million for the three months ended March 31, 2025. The increase from 2026 compared to 2025 was attributable to lower investment in inventory, timing of collections related to the Company's accounts receivables, and timing of payments for accounts payable and accrued expenses, partially offset by lower operating results in the current period. Investing activities Net cash used in investing activities was $3.8 million and $1.6 million for the three months ended March 31, 2026 and 2025, respectively. The increase in investment activities was driven by purchases of equipment for the Hagerstown Facility. Financing activities Net cash used in financing activities was $20.3 million for the three months ended March 31, 2026, as compared to net cash used in financing activities of $7.8 million for the three months ended March 31, 2025. The change was attributable to higher net repayments of revolving credit facility in the 2026 period. - 39 - Table of Contents Stock repurchase program On March 14, 2022, the Company announced that its Board of Directors authorized the repurchase of up to $20.0 million of the Company’s common stock, replacing the Company’s previously-authorized $10.0 million share repurchase program. The repurchase authorization permits the Company to effect repurchases from time to time through open market purchases and privately negotiated transactions. No shares were repurchased during the three months ended March 31, 2026. As of March 31, 2026, the remaining dollar amount available for repurchases under the Board of Directors’ authorized plan was $11.1 million. - 40 - Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk There were no material changes in market risk for changes in foreign currency exchange rates and interest rates from the information provided in Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the 2025 Annual Report on Form 10-K.