Hamilton Beach Brands Holding

Thank you for standing by. At this time, I would like to welcome everyone to the Hamilton Beach Brands Holding Company Q2 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Luann Nabbin, you may begin your conference.

Thank you, Cheryl. Good morning, everyone. Welcome to our second quarter 2023 earnings conference call and webcast. Yesterday after the market closed, we issued our second quarter 2023 earnings release and filed our 10-Q with the SEC. Both copies are available on our website. Our speakers today are Greg Trepp, President and Chief Executive Officer and Sally Cunningham, Senior Vice President and Chief Financial Officer. 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 in 10Q and our annual report on Form 10-K for the year ended December 31, 2022. 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, Luann. Good morning, everyone. Thank you for joining us. I will take the next few minutes to provide an overview of our performance for the second quarter of 2023 and discuss our expectations for the remainder of the year. Then Sally will discuss our financials in more detail. After that, we will take your questions. As we've discussed in our previous calls this year, we expected a solid performance for the full year 2023, but a soft first half. Our revenue outlook for the full year remains the same, flat to 2022, with increased revenue in the second half of this year offsetting the decrease in the first half. Year to date, our performance for inventory, debt, and cash flow has been stronger than expected. In the second quarter, total revenue decreased 7.1%. Geographically, revenue declined in the US, Latin America, and Canadian markets, mostly driven by lower unit volume. Revenue increased in our Mexican market as a result of our new placements our team secured for this year. In the US, many of our large retail customers managed overall inventory levels conservatively across all categories early in the quarter and orders were reduced compared to last year. These actions were in response to being too long in inventory last year due to supply chain issues and as inflation and high interest rates created uncertainty about consumer demand. The situation improved as the second quarter unfolded. June was a strong month we believe setting the stage for our expected stronger second half. In Latin America, many retailers, and one of our largest customers in particular, continue to rebalance excess inventories created by last year's supply chain disruptions. In the global commercial market, revenue decreased. We attribute this to a normalization of demand as compared to last year's second quarter, which experienced strong post-pandemic demand in the food service and hospitality industries. We continued to make very good progress improving net working capital and reducing debt. Recording our inventory rightsizing efforts, we made meaningful progress in the fourth quarter of 2022. The first and second quarters of 2023, we further reduced our inventory levels at a slightly better rate than anticipated. We ended the second quarter with inventory at $137 million compared to $228 million at the end of last year's second quarter. Our debt came down significantly as well. We are excited about our prospects for the second half of this year. Our expectations for the stronger second half are due to placements of innovative new products and progress with our strategic initiatives. This year, We are introducing more than 40 new product platforms across a wide variety of categories. These include products in high-demand categories like single-serve coffee, personal blenders, ovens, grills, slow cookers, garment steamers, and many others. Our team has done an outstanding job securing placements and promotions for our new products across a broad range of customers and channels. We've also gained market share this year that we expect will benefit us in the second half. For the 12 months ended June 30th, Hamilton Beach remained the number one brand in the U.S. based on units. We gained share in 28 categories and held the top three share in 26 categories. Our commercial business is expected to grow in 2023, driven by new product launches and new distribution. We continue to leverage our leadership and heritage positions in the blending and mixing categories while we expand into new areas, including back-of-the-house solutions. We continue to invest in our strategic initiatives, which are designed to increase revenue, expand operating margin, and generate strong cash flow over time. As a result, we now have a growing number of licensed brands for premium products, including Wolf Gourmet countertop appliances, Qi Garment Care products, Clorox air purifiers, and Brita electric countertop water filtration systems. We also have several new exclusive multi-year agreements under which we develop, market, and distribute appliances and markets that are new to us. These include the Partesian cocktail machines, the HealthBeacon home medical system for injection care management, and the new milk appliances that we plan to launch early next year for plant-based milks. We believe we are well positioned to benefit from these investments. Today, I would like to focus on two of our strategic initiatives and provide some background on the opportunity and potential we see for our New Milk Partnership and in the home medical market. First, our New Milk Partnership. In March of this year, we announced an agreement with a company known as New Milk, which provides a system for making fresh plant-based milks on demand. We are very excited about this partnership and see great potential in both retail and commercial applications as the use of plant-based milks continues to grow. New Milk has made New Milk has made excellent progress developing an exciting opportunity in the plant-based milk market. Their process combines raw ingredients that New Milk provides in pouches with water in a blender type appliance to produce fresh plant-based milks. New Milk's ingredients are known for high quality and excellent taste. New Milk desired a next generation appliance and a partner to help scale their business. We were delighted to be selected as their partner. This partnership will leverage our strengths in product design and engineering, sourcing, sales, marketing, and distribution. We believe the market opportunity is significant. The plant-based milk market and the household penetration are fast growing. Globally, sales are approximately $20 billion. Last year in the U.S., the retail market for plant-based milk was nearly $3 billion. Household penetration was estimated at 42%. Research indicates that one in three adults drink plant-based milk weekly, and more people are trying it. We expect U.S. sales of the plant-based milk category to grow approximately 10% annually. Many people are interested in making these milks at home rather than buying prepackaged products. This approach produces a product that is fresher and free of preservatives. The same goes for coffee shops and other commercial establishments. People also appreciate the environmental benefits of a reduced carbon footprint from saving energy and shipping and decreasing packaging sent to landfills. We are completing the product designs for both retail and commercial machines. Our plan is to launch the new products in early 2024. Next, I will address our initiative to expand in the home health and wellness market. We began the initiative to increase our participation in this large and fast-growing market in 2021. We are pleased with the progress we have made introducing new products in the air purification and water filtration categories, each of which have estimated revenues of $1 billion annually in the U.S. Our new premium True HEPA air purifiers that we are selling under the licensed Clorox brand have been received well by retailers and consumers. Our air purifiers are used by many households to help with indoor air quality due to allergies, in the presence of pollen, pet dander, and other particulates. The impact of devastating wildfires is also driving demand. Our new products are in the market at a time when consumers need them most. We are glad to be able to provide a premium-level solution in a difficult situation. Additionally, we plan to launch other new products under the Clorox brand name, including a countertop steam sanitizer and a humidifier. We also are pleased with our launch earlier this year of our new electric countertop water filtration system sold under the licensed brand Brita. The electric system processes water from the tap much faster than standard pitchers to create clean, great-tasting water. The product uses Brita's best filter ever to reduce 70-plus contaminants. Initial reception has been favorable. As of June 30th, The new Clorox air purifier at Brita Hub scored an average 4.7 and 4.6 star ratings in the e-commerce channel out of a possible 5.0 stars. We are very excited about the level of consumer response. Next, I will discuss our strategy for the home medical market. This market is more nascent and perhaps less well understood, so I wanted to discuss the opportunity we see participate in what is expected to be significant growth in the coming years. Several trends are converging to create potential. First, the aging population in our country is increasing significantly. Many seniors are living with and managing chronic health conditions. Demand for personalized healthcare solutions is rising in lockstep. The need exists in younger demographics as well. The healthcare industry increasingly is looking for new ways to enable patients to manage their health at home. Additionally, there is a growing shortage of primary care physicians, nurses and other medical clinicians. This is expected to further drive demand for at-home solutions that will improve patients' health. Technology and connected devices can help accelerate the way many medical services are delivered. New machines combined with digital support systems can enable patients to manage many medical needs at home. Our strategy is to partner with companies that specialize in breakthrough technologies that need help with branding, hardware development, sourcing, sales, and distribution in our core North American market. We are very excited to have joined forces with a company called HealthBeacon Limited. HealthBeacon is a leading developer of smart tools for managing injectable medications at home. Our initial product is called the SmartSharp Spin from Hamilton Beach Health, powered by HealthBeacon. Last year, we set up the selling infrastructure and began initial distribution. We will continue with our direct consumer sales and, in collaboration with HealthBeacon, have increased our focus on specialty pharmacies, which are distinct from traditional pharmacies. Specialty pharmacies coordinate many aspects of patient care and disease management. They efficiently deliver medications with special requirements for handling, storage, and distribution. They work to improve clinical outcomes for patients with complex, often chronic, and rare conditions. HealthBeacon has secured agreements the specialty pharmacies that we expect will begin to drive sales this year. We are exploring additional opportunities to collaborate with HealthBeacon and other prospective partners in the home medical market. We hope to announce some exciting new opportunities in the coming months. Now I will turn our discussion over to Sally.