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, 2021 (the “2021 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 inflationary impacts and disruptions to the global supply chain; • The ongoing impact of the COVID-19 pandemic; • Increase in supply chain costs, including raw materials, sourcing, transportation and energy; • The impact of the United Kingdom's exit from the European Union on the Company's U.K. operations; • The impact of tariffs and trade policies, particularly with respect to China; • Legislative or regulatory risks relating to climate change; • 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, such as the recent acquisition of S'well; • Intense market competition and changing customer practices or preferences; • Dependence on third-party manufacturers; • Technology, cybersecurity and data privacy risks; • Geopolitical conditions, including war, conflict, unrest and sanctions, including those related to the conflict in Ukraine; • 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 - 32 - Table of Contents practicable after these reports are filed with or furnished to the SEC. Users can access these reports free of charge on the 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 and gadgets, 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). In 2021, Kitchenware products and Tableware products accounted for approximately 85% of the Company’s U.S. segment’s net sales and 87% of the Company’s consolidated net sales. 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 ® , Taylor ® , Mikasa ® , KitchenCraft ® , Built NY ® , Kamenstein ® , Pfaltzgraff ® , Rabbit ® , and Sabatier ® . Historically, the Company’s sales growth has come from expanding product offerings within its product categories, 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 D isruptions in the global supply chain have been caused by various factors, including increased demand for containers, limited container capacity and backlog at shipping ports. The global economy is experiencing accelerated inflation, which has in part been caused by the supply chain disruptions, higher consumer spending and low interest rates. Further, the United Kingdom economy has been facing unfavorable economic and market conditions, with high inflation and low consumer confidence due to uncertain geopolitical and economic outlooks. The rise in inflation is contributing to higher prices, which may result in higher input cost for products, increased transportation and labor cost and impact consumer spending and buying patterns. The Company has been adversely impacted by these trends in 2022. The Company has experienced an increase in delivery times and cost for products shipped from its U.K. warehouse to continental Europe. To remain competitive in the distribution of products within continental Europe, the Company expanded its distribution and warehouse capacity through a third-party operated distribution provider located in the Netherlands in the first quarter of 2022. The Company began shipments from this location in the second quarter of 2022. On March 23 2022, the United States Trade Representative ("USTR") announced it had reinstated exclusions on certain product categories or harmonized tariff codes retroactive to October 12, 2021. The exclusion is effective through December 31, 2023. BUSINESS SEGMENTS The Company has two reportable segments, U.S. and International. The Company has segmented its operations to reflect the manner in which management reviews and evaluates the results of its operations. The U.S. segment includes the Company’s primary domestic business that designs, markets and distributes its products to retailers, distributors and directly to consumers through its own websites. The International segment consists of certain business operations conducted outside the U.S. Management evaluates the performance of the U.S. and International segments based on net sales and income from operations. Such measures give recognition to specifically identifiable operating costs such as cost of sales, distribution expenses and selling, general and administrative expenses. Certain general and administrative expenses, such as senior executive salaries and - 33 - Table of Contents benefits, stock compensation, director fees, and accounting, legal fees and consulting fees, are not allocated to the specific segments and are reflected as unallocated corporate expenses. EQUITY INVESTMENTS As of September 30, 2022, the Company owned 24.7% of the outstanding capital stock of Grupo Vasconia S.A.B. (“Vasconia”), an integrated manufacturer of aluminum products and one of Mexico’s largest housewares companies. Shares of Vasconia’s capital stock are traded on the Bolsa Mexicana de Valores, the Mexican Stock Exchange. The Quotation Key is VASCONI. The Company accounts for its investment in Vasconia using the equity method of accounting and records its proportionate share of Vasconia’s net income in the Company’s condensed consolidated statements of operations. Accordingly, the Company has recorded its proportionate share of Vasconia’s net income (reduced for amortization expense related to the customer relationships acquired) for the three and nine months ended September 30, 2022 and 2021 in the accompanying unaudited condensed consolidated statements of operations. Pursuant to a Shares Subscription Agreement, the Company may designate four persons to be nominated as members of Vasconia’s Board of Directors. As of September 30, 2022, Vasconia’s Board of Directors is comprised of eleven members, of whom the Company has designated two members. On June 30, 2021, Vasconia issued additional shares of its stock, which diluted the Company’s investment ownership from approximately 30% to approximately 27%. The Company recorded a non-cash gain of $1.7 million, increasing the Company’s investment balance. Additionally, a loss of $2.0 million was recognized for the proportionate share of the diluted ownership for amounts previously recognized in accumulated other comprehensive loss. The net loss of $0.3 million was included in equity in earnings, net of taxes, in the accompanying unaudited condensed consolidated statements of operations for the nine months ended September 30, 2021. On July 29, 2021, the Company sold 2.2 million shares further reducing its ownership from approximately 27% to approximately 25% in Vasconia for net cash proceeds of approximately $3.1 million. As a result, the Company recorded a gain of $1.0 million, after decreasing the Company’s investment balance. The gain on the sale resulted in a tax expense of $0.1 million. Additionally, a loss of $1.4 million was recognized for the proportionate share of the reduced ownership for amounts previously recognized in accumulated other comprehensive loss. The net loss, including taxes, of $0.5 million was included in equity in earnings (losses), net of taxes, in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2021. SEASONALITY The Company’s business and working capital needs are seasonal, with a majority of sales occurring in the third and fourth quarters. In 2021 and 2020, net sales for the third and fourth quarters accounted for 56% and 62% of total annual net sales, respectively. The increase in the Company's net sales in the first half of the year in 2021 compared to historical trend was a result of increased demand for the Company's products due to shifts in consumer purchasing patterns. In anticipation of the pre-holiday shipping season, inventory levels increase primarily in the June through October time period. In 2022, the Company's inventory trends may deviate from historical trends due to a change in inventory strategy to react to the current market conditions impacting the Company and retailers. 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. The COVID-19 pandemic has caused, and may continue to cause, shifts in some of the Company's selling and purchasing cycles as customers deviate from their historical ordering patterns. CRITICAL ACCOUNTING ESTIMATES There have been no material changes to the Company’s critical accounting estimates discussed in the 2021 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 . - 34 - 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 63.6 63.0 64.3 64.5 Gross margin 36.4 37.0 35.7 35.5 Distribution expenses 10.0 8.4 10.6 9.3 Selling, general and administrative expenses 19.5 18.8 21.9 19.2 Wallace facility remediation expense 2.8 0.2 1.0 0.1 Income from operations 4.1 9.6 2.2 6.9 Interest expense (2.5) (1.7) (2.3) (1.9) Mark to market gain on interest rate derivatives 0.4 0.1 0.4 0.1 Income before income taxes and equity in (losses) earnings 2.0 8.0 0.3 5.1 Income tax provision (1.0) (2.5) (0.7) (1.7) Equity in (losses) earnings, net of taxes (4.4) 0.1 (1.4) 0.1 Net (loss) income (3.4) % 5.6 % (1.8) % 3.5 % MANAGEMENT’S DISCUSSION AND ANALYSIS THREE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2021 Net Sales Consolidated net sales for the three months ended September 30, 2022 were $186.6 million, representing a decrease of $38.2 million, or 17.0%, as compared to net sales of $224.8 million for the corresponding period in 2021. In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2022 average rates to 2021 local currency amounts, consolidated net sales decreased by $34.7 million, or 15.7%, as compared to consolidated net sales in the corresponding period in 2021. Net sales for the U.S. segment for the three months ended September 30, 2022 were $172.8 million, a decrease of $24.9 million, or 12.6%, as compared to net sales of $197.7 million for the corresponding period in 2021. Net sales for the U.S. segment’s Kitchenware product category were $92.6 million for the three months ended September 30, 2022, a decrease of $20.8 million, or 18.3%, as compared to $113.4 million for the corresponding period in 2021. The decrease was driven by lower sales for kitchen tools and gadgets, cutlery and boards, and bakeware primarily due to inventory buildup at brick-and-mortar and e-commerce retailers. Net sales for the U.S. segment’s Tableware product category were $44.5 million for the three months ended September 30, 2022, a decrease of $7.2 million, or 13.9%, as compared to $51.7 million for the corresponding period in 2021. The decrease was driven by lower flatware sales to brick-and-mortar retailers. Net sales for the U.S. segment’s Home Solutions product category were $35.7 million for the three months ended September 30, 2022, an increase of $3.1 million, or 9.5%, as compared to $32.6 million for the corresponding period in 2021. The increase was due to an increase in hydration product sales attributable to S'well, partially offset by lower sales for measurement products. Net sales for the International segment were $13.8 million for the three months ended September 30, 2022, a decrease of $13.3 million, or 49.1%, as compared to net sales of $27.1 million for the corresponding period in 2021. In constant currency, which excludes the impact of foreign exchange fluctuations, net sales decreased $9.9 million, or 41.9%, as compared to consolidated net sales in the corresponding period in 2021. The decrease was driven by lower sales to brick-and-mortar retailers and e-commerce sales due to low consumer confidence in the region. - 35 - Table of Contents Gross margin Gross margin for the three months ended September 30, 2022 was $67.8 million, or 36.4%, as compared to $83.1 million, or 37.0%, for the corresponding period in 2021. Gross margin for the U.S. segment was $63.3 million, or 36.6%, for the three months ended September 30, 2022, as compared to $74.5 million, or 37.7%, for the corresponding period in 2021. The decrease in gross margin was driven by lower sales. The decrease in gross margin percentage for the U.S. was driven by product mix. Gross margin for the International segment was $4.5 million, or 32.6%, for the three months ended September 30, 2022, as compared to $8.6 million, or 31.7%, for the corresponding period in 2021. The decrease in gross margin was driven by lower sales. The improvement in the gross margin percentage was attributable to product and customer mix. Distribution expenses Distribution expenses for the three months ended September 30, 2022 were $18.6 million, as compared to $18.9 million for the corresponding period in 2021. Distribution expenses as a percentage of net sales were 10.0% for the three months ended September 30, 2022, as compared to 8.4% for the three months ended September 30, 2021. Distribution expenses as a percentage of net sales for the U.S. segment were approximately 9.0% and 7.2% for the three months ended September 30, 2022 and 2021, respectively. As a percentage of sales shipped from the Company’s U.S. warehouses, distribution expenses were 10.4% and 8.4% for the three months ended September 30, 2022 and 2021, respectively. The increase in expenses as a percentage of sales was attributable to lower shipment volume resulting in an unfavorable impact of fixed expenses, increased storage fees due to high inventory levels and higher labor rates. Distribution expenses as a percentage of net sales for the International segment were 22.5% for the three months ended September 30, 2022, compared to 17.5% for the corresponding period in 2021. As a percentage of sales shipped from the Company’s international warehouses, excluding non-recurring expenses, distribution expenses were 22.9% and 14.5% for the three months ended September 30, 2022 and 2021, respectively. The increase was attributable to lower shipment volume, higher warehouse supply expenses and an increase in business occupancy tax expense for the U.K. warehouse, partially offset by lower labor costs. Selling, general and administrative expenses Selling, general and administrative expenses for the three months ended September 30, 2022 were $36.5 million, a decrease of $5.5 million, or 13.1%, as compared to $42.0 million for the corresponding period in 2021. Selling, general and administrative expenses for the U.S. segment were $28.3 million for the three months ended September 30, 2022, as compared to $29.3 million for the corresponding period in 2021. As a percentage of net sales, selling, general and administrative expenses were 16.4% and 14.8% for the three months ended September 30, 2022 and 2021, respectively. The decrease was attributable to lower incentive compensation, partially offset by an increase in selling expenses related to advertising and trade shows. Selling, general and administrative expenses for the International segment were $3.9 million for the three months ended September 30, 2022, as compared to $6.3 million for the corresponding period in 2021. As a percentage of net sales, selling, general and administrative expenses were 28.3% and 23.3% for the three months ended September 30, 2022 and 2021, respectively. The expense decrease was attributable to lower amortization expense on intangible assets as a result of the prior year impairment and lower unfavorable foreign currency exchange losses. Unallocated corporate expenses for the three months ended September 30, 2022 were $4.3 million, as compared to $6.4 million for the corresponding period in 2021. The current period decrease was driven by lower incentive compensation expense. Wallace facility remediation expense In connection with the Wallace EPA matter, the Company recorded an additional expense of $5.1 million for the three months ended September 30, 2022, to increase its estimated liability for remediation cost related to the Wallace facility. For the three months ended September 30, 2021, the Company recorded an initial estimate of $0.5 million, related to remedial design portion of the liability. Refer to NOTE 13 — CONTINGENCIES for further discussion on this matter. - 36 - Table of Contents Interest expense Interest expense was $4.6 million and $3.8 million for the three months ended September 30, 2022 and 2021, respectively. The increase in expense was a result of higher interest rates on outstanding borrowings in the current period. Mark to market gain on interest rate derivatives Mark to market gain on interest rate derivatives was $0.6 million for the three months ended September 30, 2022, as compared to a mark to market gain on interest rate derivatives of $0.1 million for the three months ended September 30, 2021. The increase was attributable to the change in the fair value based on the increase in interest rates. 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 September 30, 2022, the intent of the Company is to hold these derivative contracts until their maturity. Income taxes Income tax provision of $1.8 million and income tax provision of $5.6 million for the three months ended September 30, 2022 and 2021, respectively, represent taxes on both U.S. and foreign earnings at a combined effective income tax provision rate of 50.6% and 31.1%, respectively. The effective tax rate for the three months ended September 30, 2022 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. The effective tax rate for the three months ended September 30, 2021 differs from the federal statutory income tax rate of 21.0% primarily due to state and local tax expense, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. Equity in (losses) earnings Equity in losses of Vasconia, net of taxes, was $8.2 million for the three months ended September 30, 2022, as compared to equity in earnings of Vasconia, net of taxes, of $0.7 million for the three months ended September 30, 2021. Vasconia reported loss from operations of $5.5 million for the three months ended September 30, 2022, as compared to income from operations of $3.9 million for the three months ended September 30, 2021. The decrease in income from operations was primarily attributable to decreased operating results in the current period in Vasconia's kitchenware and aluminum division. The Company recorded an impairment charge of $6.2 million to reduce the carrying value of the Company's investment in Vasconia to its fair value. The decline in the fair value was determined to be other than temporary due to the decline in the quoted stock price and the quarterly decline in the operating results of Vasconia. For the three months ended September 30, 2021, the Company recognized a net loss, including taxes, of $0.5 million related to a partial sale of the Company's ownership in its Vasconia investment. The net loss was comprised of a gain of $1.0 million, for the difference between the selling price and the Company’s basis in the sale of shares, offset by tax expense of $0.1 million and a loss of $1.4 million, related to amounts previously recognized in accumulated other comprehensive loss. MANAGEMENT’S DISCUSSION AND ANALYSIS NINE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2021 Net Sales Consolidated net sales for the nine months ended September 30, 2022 were $520.6 million, a decrease of $86.5 million, or 14.2%, as compared to net sales of $607.1 million for the corresponding period in 2021. In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2022 average rates to 2021 local currency amounts, consolidated net sales decreased by $81.8 million, or 13.6%, as compared to consolidated net sales in the corresponding period in 2021. Net sales for the U.S. segment for the nine months ended September 30, 2022 were $476.2 million, a decrease of $64.3 million, or 11.9%, as compared to net sales of $540.5 million for the corresponding period in 2021. Net sales for the U.S. segment’s Kitchenware product category were $291.1 million for the nine months ended September 30, 2022, a decrease of $46.0 million, or 13.6%, as compared to $337.1 million for the corresponding period in 2021. The decrease was mainly driven by lower sales for kitchen tools and gadgets, cutlery and board, and bakeware products primarily due to - 37 - Table of Contents inventory buildup at brick-and-mortar and e-commerce retailers. The decrease was partially offset by an increase in sales for barware and wine products attributable to a new warehouse club program in 2022. Net sales for the U.S. segment’s Tableware product category were $101.0 million for the nine months ended September 30, 2022, a decrease of $18.2 million, or 15.3%, as compared to $119.2 million for the corresponding period in 2021. The decrease came from all product lines due to lower sales to brick-and-mortar retailers and e-commerce sales. Net sales for the U.S. segment’s Home Solutions product category were $84.1 million for the nine months ended September 30, 2022, a decrease of $0.1 million, or 0.1%, as compared to $84.2 million for the corresponding period in 2021. The decrease was primarily driven by lower sales for measurement and home décor products, partially offset by hydration product sales attributable to S'well. Net sales for the International segment were $44.4 million for the nine months ended September 30, 2022, a decrease of $22.2 million, or 33.3%, as compared to net sales of $66.6 million for the corresponding period in 2021. In constant currency, which excludes the impact of foreign exchange fluctuations, net sales decreased $17.7 million, or 28.5%, as compared to consolidated net sales in the corresponding period in 2021. The decrease was attributable to lower sales to brick-and-mortar retailers, e-commerce sales and a decrease in the Company’s global trading business in Asia driven by lower sales with an Australian distributor. Gross margin Gross margin for the nine months ended September 30, 2022 was $186.1 million, or 35.7%, as compared to $215.3 million, or 35.5%, for the corresponding period in 2021. Gross margin for the U.S. segment was $172.1 million, or 36.1%, for the nine months ended September 30, 2022, as compared to $193.9 million, or 35.9%, for the corresponding period in 2021. The decrease in gross margin for the U.S. was driven by lower sales. The improvement in gross margin percentage was due to product mix, a tariff reduction on certain product categories and less dependency on non-vessel operating common carriers. Gross margin for the International segment was $14.0 million, or 31.5%, for the nine months ended September 30, 2022, as compared to $21.4 million, or 32.1%, for the corresponding period in 2021. The decrease in gross margin was driven by lower sales. The decrease in gross margin percentage was due to the impact of fixed overhead costs on lower sales volume for the 2022 period, partially offset by customer mix. Distribution expenses Distribution expenses for the nine months ended September 30, 2022 were $55.2 million, as compared to $56.5 million for the corresponding period in 2021. Distribution expenses as a percentage of net sales were 10.6% for the nine months ended September 30, 2022, as compared to 9.3% for the nine months ended September 30, 2021. Distribution expenses as a percentage of net sales for the U.S. segment were approximately 9.4% and 8.2% for the nine months ended September 30, 2022 and 2021, respectively. Distribution expenses during the nine months ended September 30, 2022 include $0.1 million for the Company’s distribution operation redesign costs. As a percentage of sales shipped from the Company’s U.S. warehouses, excluding non-recurring expenses, distribution expenses were 10.5% and 8.9% for the nine months ended September 30, 2022 and 2021, respectively. The increase in the expenses as a percentage of sales was a result of lower shipment volume resulting in an unfavorable impact of fixed expenses, increased storage fees due to high inventory levels and higher labor rates, partially offset by lower warehouse equipment and supply expenses. Distribution expenses as a percentage of net sales for the International segment were 23.5% for the nine months ended September 30, 2022, compared to 18.1% for the corresponding period in 2021. Distribution expenses during the nine months ended September 30, 2022 include $0.5 million for the Company’s relocation costs for its new warehouse distribution facility in the Netherlands. As a percentage of sales shipped from the Company’s international warehouse, excluding non-recurring expenses, distribution expenses were 22.2% and 15.4% for the nine months ended September 30, 2022 and 2021, respectively. The increase was primarily attributed to lower shipment volume, higher warehouse supply expenses and an increase in business occupancy tax expense for the U.K. warehouse, partially offset by lower labor costs. Selling, general and administrative expenses Selling, general and administrative expenses for the nine months ended September 30, 2022 were $114.2 million, a decrease of $2.2 million, or 1.9%, as compared to $116.4 million for the corresponding period in 2021. - 38 - Table of Contents Selling, general and administrative expenses for the U.S. segment were $85.9 million for the nine months ended September 30, 2022, as compared to $83.2 million for the corresponding period in 2021. As a percentage of net sales, selling, general and administrative expenses were 18.0% and 15.4% for the nine months ended September 30, 2022 and 2021, respectively. The increase was attributable to integration costs related to the S'well acquisition, higher advertising expenses and employee related expenses, partially offset by lower incentive compensation. Selling, general and administrative expenses for the International segment were $13.2 million for the nine months ended September 30, 2022, as compared to $15.5 million for the corresponding period in 2021. The decrease was primarily attributable to lower amortization expense on intangible assets as a result of the prior year impairment. Unallocated corporate expenses for the nine months ended September 30, 2022 were $15.1 million, as compared to $17.7 million for the corresponding period in 2021. The decrease was driven by lower incentive compensation expense, partially offset by an increase in legal and professional fees related to the S'well acquisition. Wallace facility remediation expense In connection with the Wallace EPA matter, the Company recorded an additional expense of $5.1 million for the nine months ended September 30, 2022, to increase its estimated liability for remediation cost related to the Wallace facility. For the nine months ended September 30, 2021, the Company recorded an initial estimate of $0.5 million, related to remedial design portion of the liability. Refer to NOTE 13 — CONTINGENCIES for further discussion on this matter. Interest expense Interest expense was $12.1 million and $11.7 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in expense was a result of higher interest rates on outstanding borrowings in the current period. Mark to market gain on interest rate derivatives Mark to market gain on interest rate derivatives was $2.0 million for the nine months ended September 30, 2022, as compared to a mark to market gain on interest rate derivatives of $0.7 million for the nine months ended September 30, 2021. The increase was attributable to the change in the fair value based on the increase in interest rates. 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 September 30, 2022, the intent of the Company is to hold these derivative contracts until their maturity. Income taxes Income tax provision of $3.4 million and $9.8 million for the nine months ended September 30, 2022 and 2021, respectively, represent taxes on both US and foreign earnings at combined effective income tax provision rates of 245.9% and 31.8%, respectively. The effective tax rate for the nine months ended September 30, 2022 differs from the federal statutory income tax rate of 21% primarily due to foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. The effective tax rate for the nine months ended September 30, 2021 differs from the federal statutory income tax rate of 21% primarily due to state and local tax expense, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. Equity in (losses) earnings Equity in losses of Vasconia, net of taxes, was $7.4 million for the nine months ended September 30, 2022, as compared to equity in earnings of Vasconia, net of taxes, of $1.2 million for the nine months ended September 30, 2021. Vasconia reported loss from operations of $0.3 million for the nine months ended September 30, 2022, as compared to income from operations of $14.2 million for the nine months ended September 30, 2021. The decrease in income from operations was primarily attributable to decreased operating results in the current period in both Vasconia's kitchenware and aluminum divisions. The Company recorded an impairment charge of $6.2 million to reduce the carrying value of the Company's investment in Vasconia to its fair value. The decline in the fair value was determined to be other than temporary due to the decline in the quoted stock price and the quarterly decline in the operating results of Vasconia. During the nine months ended September 30, 2021, the Company's ownership in its equity method investment decreased as a result of a dilution of its investment in Vasconia and a subsequent partial sale of its investment. The Company recognized a net loss of $0.3 million related to the dilution of the Company's ownership in its Vasconia investment. The net loss was comprised - 39 - Table of Contents of a loss of $2.0 million, related to amounts that were previously recognized in accumulated other comprehensive loss, net of a non-cash gain of $1.7 million for the difference between the selling price and the Company's basis in the diluted shares. Additionally, the Company recognized a net loss of $0.5 million related to a partial sale of the Company’s ownership in its Vasconia investment. The net loss was comprised of a loss of $1.0 million, for the difference between the selling price and the Company’s basis in the sale of shares, offset by tax expense of $0.1 million and a loss of $1.4 million, related to amounts previously recognized in accumulated other comprehensive loss. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company’s principal sources of cash to fund liquidity needs were: (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, and payments of principal and interest on its debt. At September 30, 2022, the Company had cash and cash equivalents of $5.9 million, compared to $28.0 million at December 31, 2021. Working capital was $287.7 million at September 30, 2022, compared to $271.3 million at December 31, 2021. Liquidity, which includes cash and cash equivalents and availability under the ABL Agreement, was approximately $170.6 million at September 30, 2022. 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 September 30, 2022, inventory turnover was 1.7 times, or 219 days, as compared to 2.4 times, or 154 days, for the three months ended September 30, 2021. In the first half of fiscal 2022, the Company increased its inventory levels to address supply chain disruptions and to support anticipated customer demand. However, inventory turns have slowed due to macroeconomic challenges that companies across industries and retailers in particular faced. Inflation has led to weaker end market demand and supply chain disruptions have led to inventory buildup. In connection with the Wallace EPA Matter, the company expects in the next twelve months it will be required to provide financial assurance of $5.6 million, which it expects to provide in the form of a letter of credit. This would reduce availability under the revolving credit facility. 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 or available on terms favorable to the Company. 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 changes in customers' creditworthiness in the future. Credit Facilities 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, HSBC Bank USA, National Association and Wells Fargo Bank, National Association, as Co-Documentation Agents and Lenders, and Manufacturers and Traders Trust Company, as a Lender, that provides for the Company’s ABL facility. 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 (subject to an earlier springing maturity date that is 90 days prior to the Term Loan maturity date of February 28, 2025 if the Company’s Term Loan has not been repaid or refinanced by such date). The Company's loan agreement, dated as of March 2, 2018, (the “Term Loan Agreement” and together with the ABL Agreement, the “Debt Agreements”) provides for a senior secured term loan credit facility in the original principal amount of - 40 - Table of Contents $275.0 million, which matures on February 28, 2025. The Term Loan Agreement requires the Company to make an annual prepayment of principal 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. An estimate of the amount of the Excess Cash Flow payment is recorded in current maturity of term loan on the unaudited condensed consolidated balance sheets. Additionally, the Term Loan Agreement requires quarterly payments, which commenced on June 30, 2018, of principal equal to 0.25% of the original aggregate principal amount of the Term Loan facility, which payments are to be adjusted from time to time to account for prepayments made. Per the Term Loan Agreement, when the Company makes an Excess Cash Flow payment, 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 quarterly principal payments have been satisfied through maturity of the Term Loan by the annual Excess Cash Flow payments made to date. The maximum borrowing amount under the ABL Agreement may be increased to up to $250.0 million if certain conditions are met and further limited to $220.0 million pursuant to the Term Loan Agreement. One or more tranches of additional term loans (the “Incremental Term Facilities”) may be added under the Term Loan Agreement if certain conditions are met. The Incremental 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 Agreement, after giving effect to such increase, is no greater than 3.75 to 1.00, subject to certain limitations and for the period defined pursuant to the Term Loan Agreement but not to mature earlier than the maturity date of the then existing term loans. As of September 30, 2022 and December 31, 2021, the total availability under the ABL Agreement was as follows (in thousands): September 30, 2022 December 31, 2021 Maximum aggregate principal allowed $ 200,000 $ 150,000 Outstanding borrowings under the ABL Agreement (32,545) — Standby letters of credit (2,765) (3,659) Total availability under the ABL Agreement $ 164,690 $ 146,341 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, this means that 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 current and non-current portions of the Company’s Term Loan facility included in the condensed consolidated balance sheets were as follows (in thousands): September 30, 2022 December 31, 2021 Current portion of Term Loan facility: Estimated Excess Cash Flow principal payment $ — $ 7,200 Estimated unamortized debt issuance costs — (1,429) Total Current portion of Term Loan facility $ — $ 5,771 Non-current portion of Term Loan facility: Term Loan facility, net of current portion $ 245,911 $ 244,927 Estimated unamortized debt issuance costs (3,406) (3,054) Total Non-current portion of Term Loan facility $ 242,505 $ 241,873 The estimated Excess Cash Flow principal payment recorded at September 30, 2022 represents the Company’s estimate for the 2023 Excess Cash Flow payment. The 2022 Excess Cash Flow payment, paid on March 30, 2022, totaled $6.2 million. The Excess Cash Flow payment differs from the estimated amount at December 31, 2021 of $7.2 million as certain lenders opted to decline their payments per the terms of the Term Loan Agreement. - 41 - Table of Contents 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 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 Agreement 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 Agreement 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 September 30, 2022 was between 2.19% and 6.75%. The Term Loan facility 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 LIBOR, but not less than 1.0%, plus 1.0%, which alternate base rate shall not be less than 2.0%, plus a margin of 2.5% or (ii) LIBOR for the applicable interest period, multiplied by any statutory reserve rate, but not less than 1.0%, plus a margin of 3.5%. The interest rate on outstanding borrowings under the Term Loan at September 30, 2022 was 6.02%. 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. 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 September 30, 2022. Prior to the amendment of the credit agreement, the Company’s ABL provided for an aggregate principal amount of $150.0 million. Upon entering into the Amendment to the ABL agreement the Company repaid its outstanding ABL borrowing in the amount of $32.0 million and re-borrowed such amounts under the ABL Agreement, as amended. Unamortized debt issuance costs that were written off were immaterial. 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. - 42 - Table of Contents The Company’s adjusted EBITDA (including pro forma adjustments), for the trailing twelve months ended September 30, 2022 was $69.3 million. Capital expenditures for the nine months ended September 30, 2022 were $2.0 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 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 September 30, 2022: Quarter Ended Twelve Months Ended September 30, 2022 December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 (in thousands) Net (loss) income as reported $ (626) $ 380 $ (3,460) $ (6,358) $ (10,064) Undistributed equity (earnings) losses, net (466) (416) (334) 8,159 6,943 Income tax provision (benefit) 6,704 1,673 (98) 1,845 10,124 Interest expense 3,856 3,767 3,732 4,581 15,936 Mark to market (gain) on interest rate derivatives (398) (1,049) (304) (637) (2,388) Depreciation and amortization 4,960 4,899 5,038 4,598 19,495 Intangible asset impairments 14,760 — — — 14,760 Stock compensation expense 1,244 1,174 1,365 1,026 4,809 Acquisition related expenses 378 1,119 75 109 1,681 Warehouse relocation and redesign expenses (1) 450 497 73 59 1,079 S'well integration costs (2) — 781 864 250 1,895 Wallace facility remediation expense — — — 5,140 5,140 Adjusted EBITDA, before limitation 30,862 12,825 6,951 18,772 69,410 Permitted non-recurring charge limitation (3) (1,403) Adjusted EBITDA (4) $ 68,007 Pro forma historical S'well and projected synergies adjustment (5) 1,250 Pro forma Adjusted EBITDA (4) $ 30,862 $ 12,825 $ 6,951 $ 18,772 $ 69,257 (1) For the twelve months ended September 30, 2022, the warehouse relocation and redesign expenses included $0.6 million of expenses related to the International segment and $0.5 million of expenses related to the U.S. segment. (2) For the twelve months ended September 30, 2022, S'well integration costs included $0.5 million of expenses related to inventory step up adjustment in connection with S'well acquisition. (3) Permitted non-recurring charges include integration charges, Wallace facility remediation expense, and warehouse relocation and redesign expenses. These are permitted exclusions from the Company’s consolidated adjusted EBITDA, subject to limitations, pursuant to the Company’s Debt Agreements. (4) 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 undistributed equity in (earnings) losses, income tax provision (benefit), interest expense, mark to market (gain) on interest rate derivatives, depreciation and amortization, intangible asset impairments, stock compensation expense, Wallace facility remediation expense, and other items detailed in the table above that are consistent with exclusions permitted by our debt agreements. - 43 - Table of Contents (5) Pro forma historical S'well and projected synergies adjustment represents a permitted adjustment to the Company’s adjusted EBITDA for the acquisition of S'well on March 2, 2022 pursuant to the Company’s Debt Agreements. Pro forma projected synergies represents the amount of projected cost savings, operating expense reductions and cost saving synergies projected by the Company as a result of actions taken through September 30, 2022 or expected to be taken as of September 30, 2022, net of the benefits realized during the twelve months ended September 30, 2022. 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. Pursuant to the Receivable Purchase Agreement, the Company sold to HSBC $30.0 million and $109.8 million of receivables during the three and nine months ended September 30, 2022, respectively and $33.7 million and $113.2 million of receivables during three and nine months ended September 30, 2021, respectively. Charges of $0.2 million and $0.1 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the three months ended September 30, 2022 and 2021, respectively. Charges of $0.5 million and $0.3 million related to the sale of the receivables are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022 and 2021, $20.2 million and $15.8 million, respectively, of receivables sold were outstanding and due to HSBC from customers. Derivatives Interest Rate Swaps The Company's total outstanding notional value of interest rate swaps was $50.0 million at September 30, 2022. The Company designated a portion of these interest rate swaps 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 hedge periods of these agreements commenced in April 2018 and expire in March 2023. The original notional values are reduced over these periods. The aggregate notional value of designated interest rate swaps was $25.0 million at September 30, 2022. In June 2019, the Company entered into additional interest rate swap agreements, with an aggregate notional value of $25.0 million at September 30, 2022. 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 and expire in February 2025. Foreign Exchange Contracts The Company is party from time to time to certain foreign exchange contracts, primarily to offset the earnings impact related to fluctuations in foreign currency exchange rates associated with inventory purchases denominated in foreign currencies. Fluctuations in the value of certain foreign currencies as compared to the USD may positively or negatively affect the Company’s revenues, gross margins, operating expenses, and retained earnings, all of which are expressed in USD. Where the Company deems it prudent, the Company engages in hedging programs using foreign currency forward contracts aimed at limiting the impact of foreign currency exchange rate fluctuations on earnings. The Company purchases foreign currency forward contracts with terms less than 18 months to protect against currency exchange risks associated with the payment of merchandise purchases to foreign suppliers. The Company does not hedge the translation of foreign currency profits into USD, as the Company regards this as an accounting exposure rather than an economic exposure. The aggregate gross notional value of foreign exchange contracts at September 30, 2022 was $3.5 million. These foreign exchange contracts have been designated as hedges in order to apply hedge accounting. The Company is exposed to market risks as well as changes in foreign currency exchange rates as measured against the USD and each other, and to changes to the credit risk of derivative counterparties. The Company attempts to minimize these risks primarily by using foreign currency forward contracts and by maintaining counterparty credit limits. These hedging activities provide only limited protection against currency exchange and credit risk. Factors that could influence the effectiveness of the - 44 - Table of Contents Company’s hedging programs include those impacting currency markets and the availability of hedging instruments and liquidity of the credit markets. All foreign currency forward contracts that the Company enters into are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure. The Company does not enter into such contracts for speculative purposes, and as of September 30, 2022, the Company did not have any foreign currency forward contract derivatives that are not designated as hedges. These foreign exchange contracts have been designated as hedges in to order to apply hedge accounting. Operating activities Net cash used in operating activities was $20.1 million for the nine months ended September 30, 2022, as compared to net cash provided by operating activities of $14.6 million for the nine months ended September 30, 2021. The decrease from 2022 compared to 2021 was attributable to a net loss generated in 2022 compared to 2021, timing of payments for accounts payable and accrued expenses, partially offset by timing of collections related to the Company's accounts receivables. Investing activities Net cash used in investing activities was $19.9 million and $0.5 million for the nine months ended September 30, 2022 and 2021, respectively. The increase from 2022 compared to 2021 was attributable to the cash consideration of $18.0 million paid for the acquisition of S'well. Financing activities Net cash provided by financing activities was $18.4 million and for the nine months ended September 30, 2022, as compared to net cash used in financing activities of $41.5 million for the nine months ended September 30, 2021. The change was mainly attributable to proceeds from the Company's revolving credit facility under its ABL Agreement in the 2022 period and the lower Excess Cash Flow principal payment on the term loan for the 2022 period compared to the 2021 period. Stock repurchase program On March 14, 2022, the Company announced that its Board of Directors of the Company authorized the repurchase of up to $20.0 million of the Company’s common stock, replacing the Company’s previously-authorized $10 million share repurchase program. The repurchase authorization permits the Company to effect the repurchases from time to time through open market purchases and privately negotiated transactions. During the nine months ended September 30, 2022, the Company repurchased 389,743 shares for a total cost of $4.7 million and thereafter retired the shares. Please see Part II, Item 2—Unregistered Sales of Equity Securities and Use of Proceeds included in this Quarterly Report on Form 10-Q. - 45 - 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 2021 Annual Report on Form 10-K.