Hamilton Beach Brands Holding

Hello and welcome to the Hamilton Beach Brands Holdings Company Q4 2021 Earnings Call. My name is Charlie and I will be coordinating your call today. If you would like to ask a question during the presentation, you may register to do so by pressing Start followed by 1 on your telephone keypad. I will now hand you over to your host, Luanne Navan, Head of Investor Relations to begin. Luanne, please go ahead. Thank you, Charlie.

Good morning, everyone. Welcome to our fourth quarter 2021 earnings conference call and webcast. Yesterday after the market closed, we issued our fourth quarter 2021 earnings release and filed our 10-K with the SEC. Copies are available on our website. Our speakers today are Greg Trepp, President and Chief Executive Officer, and Michelle Mosier, Senior Vice President and Chief Financial Officer. Also participating in the Q&A will be Scott Tidy, Senior Vice President, Consumer Sales and Marketing. Our presentation today includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in either the prepared remarks or during the Q&A. Additional information regarding these risks and uncertainties is available in our earnings release and our Form 10-K. The company disclaims any obligation to update these forward-looking statements, which may not be updated until our next quarterly conference call, if at all. And now I'll turn the call over to Greg.

Thank you, Luanne. Good morning, everyone. Thank you for joining us. We're going to take the next few minutes to provide an overview of our performance for the fourth quarter of 2021, the full year 2021, and our prospects for growth in 2022. For our company, we see 2022 as a year of opportunity. We expect to grow our top line and our bottom line as we build on the progress we made on many fronts in 2021. Certainly the past few years have brought extraordinary challenges to our company, our industry, and our world. We've navigated some tremendously adverse external conditions. In 2022, we've dealt with the unexpected COVID pandemic as it spread across the globe. In 2021, we worked our way through the many negative effects of the pandemic on the global economy, including supply chain disruptions and inflation. If you add in the hugely onerous tariffs that were imposed on certain imports from China starting in early 2018, our industry has encountered a new crisis every year since our company became public in September of 2017. When you take all these external pressures into account, I could not be prouder of we're more grateful for our outstanding team. They have demonstrated exceptional agility and resilience for several years running. Our people have worked incredibly hard, tirelessly as well as effectively, to mitigate the impact of these external challenges. Our team has also risen to the occasion as we've managed through the execution of some very big internal investments. We have converted to a new ERP system, which was demanding in many ways, Now that it is in place, we expect it to provide significant benefits for years to come. We accomplished moves to new distribution centers in Canada and the U.S., which will support our growth in both the e-commerce and brick and mortar channels for years to come. Our new U.S. facility enabled us to expand direct-to-consumer shipping capabilities, which increases our ability to ship online orders from many retail customers. We did not move far from our former distribution center, and were able to retain much of our workforce. We are grateful to all of our employees who were involved in completing this move. Thinking about challenges in the past few years, we cannot leave out the difficult decision we made to close our kitchen collection business in 2019. The decision becomes even more well-timed after the events of 2020 and 2021 are considered. The pandemic seems to be waning. While supply chain constraints and inflationary pressures continue, They are expected to ease over time. We are certainly better equipped to deal with them while they endure. More importantly, I want to highlight the many successes we achieved in 2021 due to our investments in recent years. I'm very excited about the direction of our company. I want to focus now on our key accomplishments and plans. In 2021, revenue was the highest in our company's history. we realized significant progress on all of our strategic initiatives. Our initiatives for e-commerce, the premium products market, and the global commercial market delivered double-digit revenue growth. We signed two agreements in the fast-growing home health and wellness market. Under these agreements, we plan to introduce new products in the air purification and home medical categories in 2022. Let me delve into more details regarding the progress we made with our initiatives and our plans for additional growth. We made significant progress with each initiative in 2021 and are in a very good position to continue to build on the momentum. We believe each of our initiatives will provide growth in 2022. First, our goal to accelerate our digital transformation is going extremely well. The e-commerce channel represents a very strong and fast-growing part of our business. It enables us to connect directly with consumers through detailed product information, video, and digital marketing is a valuable way to help consumers understand the benefits and value of our products. In 2021, our total company e-commerce sales increased 22% and accounted for 38% of our total revenue. In our US consumer market, e-commerce accounted for 45% of our total revenue. We have a presence across multiple e-commerce platforms All of our nine brands are earning star ratings of 4.2 or better, and five of our brands are rated 4.5 stars or better. Our products receive favorable reviews from consumers, experts, and influencers. Hamilton Beach continues to be the number one brand in the U.S. e-commerce channel based on units sold. Our e-commerce capabilities have become increasingly sophisticated. We are continuing to invest in them. We're supporting growth in digital engagement with online marketing programs, expanding our direct-to-consumer distribution operation, and increasing our participation with pure play and omnichannel customers. Next, I'll discuss our goal to gain share in the premium market. Premium products account for approximately 40% of the U.S. small kitchen appliance industry's annual sales. We began to build out our product in 2014. It has grown to be a meaningful part of our business. Our premium products have higher margins than many of our other consumer products. In 2021, sales of our premium products increased 33% and accounted for 13% of total revenue. We generated significant sales increases for all of our premium brands. They include Westin, Wolf Gourmet, the Partesian Premium Cocktail Machine, SHE Premium Garment Care Products, and Hamilton Peach Professional Appliances. we introduced new products for every brand in 2021. We plan to further expand our presence in the premium market with continued new product development, digital marketing, and by pursuing additional licensing agreements and other collaborative arrangements. The Wolf Gourmet portfolio now covers 10 high-demand categories. The brand is expected to continue to grow in sales in 2022. For the Partesian premium cocktail machine, plans are in place to launch Generation 2 this year, This upgraded model will provide enhanced functionality. Line extensions are under development, including a commercial-grade model. Cartesian revenue stream includes the machine and an extensive and ever-expanding line of TricMix capsules. Achieve Premium Environment Care brand continues to grow as more people return to offices to work and engage in evening and weekend activities, including travel. We are introducing new products from our Western brand, which is targeted to gardeners and hunters, New items include updated meat grinder and slicer models, smokers, food dehydrators, and vacuum sealers. Our Hamilton Beach Professional line leverages our commercial products expertise for the benefit of home cooks. The product portfolio now includes 14 high-demand categories. The brand continues to gain new channel placements. We have a new brand we are adding to our premium portfolio that I will mention today. We recently launched a premium hand mixer for the Magnolia Bakery. Magnolia Bakery started in Manhattan's West Village a little over 20 years ago and has since become a global brand. The bakery has begun to market novelty items and baking tools carrying its brand name along with its line of cookbooks. They asked us to partner with them on a vintage-style hand mixer in their signature blue color. I can't help but suggest that for anyone who will be in the market for a Mother's Day gift in May, our mixer and a Magnolia Bakery cookbook are a great idea. Another initiative is to lead the global commercial market. Our commercial products sell at higher prices and have higher margins than most of our consumer products. Our revenue from commercial products increased 36% in 2021 and accounted for 6.2% of our total revenue. The global commercial business suffered a tremendous downfall in 2020 due to pandemic-driven demand softness as the food service and hotel industry suffered tremendous declines in business. It was great to see it rebound strongly in 2021. Our growth plans for this marketing and expanding customer relationships with regional and global restaurants and hotel chains. We also continue to invest in e-commerce, which is becoming increasingly important to the commercial products market. We expect our commercial business to grow significantly in 2022. Our newest initiative is to expand in the home health and wellness market. This initiative was added in 2021. As mentioned, we entered into two agreements that will enable us to increase our presence in this market. Our focus last year was on developing plans and new home health and wellness products we plan to launch throughout 2022. We entered the water filtration category late last year with our new Hamilton Beach AquaFusion electric countertop system. AquaFusion provides superior water filtration, fresh taste using a proprietary carbon block filter. We also offer flavor capsules, which provides a consumable revenue stream. AquaFusion is eco-friendly. Each filter eliminates 750 single-use plastic bottles. We've expanded our participation in the air purifier category through an exclusive multi-year trademark licensing and product development agreement with the Clorox company. We are introducing three new Clorox air purifier models and replacement filters in the first quarter of 2022. These include Median, and large room models and a tabletop model. We plan to launch additional new models later this year. The air purifier category is expected to continue to be strong given the benefits these machines provide to consumers' consumer concerns. We also entered the home medical market through an agreement with a company called HealthBeacon Limited. HealthBeacon is a leading developer of smart tools for managing injectable medications at home. Certainly the home medical market is newer to us and it offers than the others we are entering in the home health and wellness space. Let me provide an overview of what attracted us to this opportunity. The aging population is increasingly living with and managing chronic health conditions. Demand for personalized health care solutions is rising in lockstep. The need exists in younger demographics as well. Our product called the HealthBeacon HealthSmart ScrubSpin, powered by HealthBeacon, We entered 2022 with a new direct-to-consumer sales website for the system. We are in the process of adding retail distribution for online and brick-and-mortar sales, focusing on placements in pharmacies and relationships with the medical community to recommend the system to their patients. The system will provide revenue from the appliance sale and for monthly subscriptions that help patients manage adherence to their personal medication regimen using our technology in an app. Another initiative is to drive core brand growth. Even as we work to expand to new markets, we remain intently focused on accelerating the growth of our core brands, Hamilton Beach and Proctor Silex. They've competed successfully in our heritage North American marketplace for over 100 years. Innovation and new product development have always been the lifeblood of this business. During 2021 and 2022, we are introducing more than 100 new product platforms, many of them are for our two core brands. Core brand sales increased 6% in 2021. This growth reflects the success of new products, high-volume categories such as coffee, among others, and a repositioning of the Proctosolix brand to a simply better position. Increased digital marketing and optimizing existing products. And the Beach holds the top three market share in more than 25 categories. Finally, we have initiative to leverage partnerships and acquisitions. We have significantly increased our focus on this initiative. We prioritize opportunities that will provide entry into consumer or commercial markets where we can become stronger participants. We are actively engaged in the pursuit of additional collaborations or acquisitions that should drive growth in all of our markets in 2022 and beyond. To quickly summarize, all of our strategic initiatives provide exciting future growth opportunities and potential. We expect to build on the significant progress we made in 2021. Now I'll turn the call over to Michelle.