Hamilton Beach Brands Holding

quarter 2023 earnings call and webcast. 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 the star one. I would now like to turn the conference over to Luan Nabhan. Head of Investor Relations. Please go ahead.

Thank you, Demi. Good morning, everyone. Welcome to our fourth quarter 2023 earnings conference call and webcast. Yesterday, after the market closed, we issued our fourth quarter 2023 earnings release and filed our 10-K with the SEC. Copies are available on our website. Our speakers today are Greg Trepp, 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 and our annual report on Forms 10-K for the year ended December 31, 2023. 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 will 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 full year 2023. Then Sally will discuss our fourth quarter report. After that, we will take your questions. Before I review our 2023 results, I would like to discuss our exciting news of last month when we announced that our board of directors appointed Scott Heide as president of our company, effective February 19, 2024. Scott's appointment was part of a longstanding succession plan. I will continue in my role as chief executive officer. Scott joined the company in 1993. and has served in roles of increasing responsibility in sales and marketing, most recently as Senior Vice President, Global Sales. Scott is an incredibly effective member of our executive leadership team. In addition to his broad experience in sales and marketing, Scott has been involved in most aspects of our business, including managing business partnerships, sourcing, supply chain, engineering, quality, and more. It has been instrumental in the successful execution of our strategic initiatives to expand, diversify, and grow our business. Given the strong team we have in place, combined with Scott's depth of experience, the company is well positioned as Scott increases his role. I look forward to working with Scott on a smooth transition of the duties of president. Scott is away this week on a long-planned family vacation, which we wanted him to be able to enjoy to the fullest. so he is not participating in our call today. Scott will rejoin us when we hold our call to discuss our first quarter 2024 results. Now for our results. For the year 2023, we delivered considerable progress across several key aspects of our business, positioning us for success over the long term. We were excited to carry the strong momentum we built last year into 2024. Our top line outperformed the small kitchen appliance industry. Our gross profit margin expanded by 290 basis points. Our operating profit increased 22% compared to 2022, when a one-time insurance recovery of $10 million is excluded from the prior year results. We generated cash from operating activities of $88.6 million, the highest in our company's history, reflecting considerable progress with our focus on working capital improvements. Priority uses of cash included significantly reducing debt and returning capital to shareholders through dividends and share repurchases. We continue to make meaningful progress with our six strategic initiatives. The successes we achieved are attributable to the outstanding capabilities of our industrious team. Our culture is centered around good thinking, which incorporates customer focus, innovation, and teamwork, and inspires everything we do. we believe our good thinking culture is a core strength. We aim to capitalize on our strengths in 2024 and beyond as we continue our efforts to increase long-term shareholder value. As we discussed in our previous calls, we expected a solid performance for the full year 2023, with a soft first half and a stronger second half, which is how the year unfolded. We introduced nearly 40 new product platforms in 2023, across high-demand categories like single-serve coffee, blenders, ovens, grills, garment steamers, and many others. Our team did an outstanding job securing placements and promotions for our products across a broad range of customers and channels. We also gained market share in several categories in 2023. These wins enabled us to deliver a strong second-half performance and created the momentum that carried into 2024. For the full year 2023, Our total revenue of $625.6 million increased 2.4% compared to 2022, outperforming the industry decreased 2.4% compared to 2022, outperforming the industry's more than 5% decline. The year got off to a slow start, which was reflected in our first half results, and retailers continue to manage inventory conservatively. As the year unfolded, however, market conditions improved as consumer spending and retail sales showed resilience. For the full year, gross profit margin expanded by 290 basis points to 23.0% compared to 20.1% in 2022, and was attributable to lower product costs and a favorable product mix. Selling, general, and administrative expenses were $108.4 million compared to $90.1 million primarily reflecting higher personnel-related expenses that benefit in 2022, the one-time insurance recovery I mentioned earlier. Operating profit was $35.1 million compared to $38.8 million, well ahead of 2022, excluding the insurance recovery. Net income was $25.2 million, or $1.80 per diluted share, compared to net income of $25.3 million, or $1.81 diluted share referring to our strategic initiatives we made meaningful progress with our six strategic initiatives which support our overarching goal of long-term value creation by driving revenue growth expanding margins and generating strong cash flow over time four of our initiatives are focused on expanding our presence in markets where we can increase the sales of higher priced higher margin products these include the premium home health, and global commercial markets, as well as our core market that focuses on our flagship Hamilton Beach and Proctosolix brands. Initiatives to accelerate our digital transformation and leverage partnerships and acquisitions support our growth plans in all markets. Let me briefly summarize each initiative. Accelerating growth of our Hamilton Beach Health is the first one. I would like to begin with our newest initiative and our related acquisition last month at HealthBeacon. a medical technology company and a strategic partner of ours since 2021. We began to focus on the fast-growing home medical market in 2021 in response to the rapidly evolving use of at-home healthcare solutions. Drawing on decades of experience as a trusted resource in the home, we created the Hamilton Beach Health brand. In February 2024, Hamilton Beach Health acquired HealthBeacon, Their focus has been on developing connected devices that enable patients with chronic conditions to manage their injectable medication regimens at home. HealthBeacon provides other health services. The revenue for all HealthBeacon offerings is from subscription services. We are very happy to welcome the HealthBeacon team to the Hamilton Beach Brands family. Together, we believe we will accelerate the expansion of this business opportunity. In 2024, Hamilton Beach Health is expected to have a modest operating loss due to planned investments in the business and as HealthBeacon continues in the startup phase. Hamilton Beach Health is expected to contribute to operating profit in 2025. We believe the acquisition of HealthBeacon is an attractive investment with the potential to increase shareholder value over time. We expect growth opportunities to be driven by the development of digitally connected tools using in-home solutions, including remote therapeutic monitoring systems. The acquisition combines the trusted brand name of Hamilton Beach and our leadership in innovation, engineering, and product development with HealthBeacon's digital capabilities and patented technologies. Hamilton Beach Health is focused on improving patient outcomes and accelerating access to more patients and new opportunities. The initial focus is on providing the smart, sharp spin in Hamilton Beach Health to patients in the United States, principally through the specialty pharmacy channel, and globally through conventional pharmaceutical companies. Combined with a companion app, the injection care management system tracks adherence and persistence with medication schedules through the reminders, education tools, and artificial intelligence-driven data analytics. It provides for the safe and convenient disposal of used sharps through the U.S. Postal Service's approved mail-back program. Hamilton Beach Health is actively engaged in exploring additional collaboration opportunities with other companies in the home medical market. Our next initiative is to drive core growth. This initiative is focused on driving the growth of our flagship Hamilton Beach and Proctosolix brands in our core North American market. Our company has been servicing consumers across North America for more than 100 years, earning the trust of millions of consumers annually based on product quality, durability, and innovation. Sales of our core consumer brands in 2023 were even with 2022, despite the overall softness in the first half of the year. Hamilton Beach continued to hold the number one brand position for small kitchen appliances in 2023 based on units sold. Next, we are focusing on gaining share in the premium market. We have developed, licensed, and acquired brands to increase our participation in the premium market, which has grown to account for 40% of industry small kitchen appliance sales. In March of last year, we were excited to announce a new agreement to provide the next generation of specialty appliances for use with new milk or raw ingredients to create a variety of fresh plant-based milk products in the home and in commercial establishments. The new appliances are launching throughout the first half of 2024. An overall 4% decrease in revenue from premium brands in 2023 reflected the impact of inflationary pressures on consumer spending earlier in the year. In the fourth quarter, revenue from premium brands increased 10%. Premium brands accounted for 15% of the total revenue in 2023. We plan to further expand our presence in the premium market with new product development, digital marketing, and by pursuing additional licensing agreements and other collaborative agreements. Next, we are focused on increasing our leadership in the global commercial market. This initiative is focused on securing new businesses and increasing sales with existing customers in the food service and hospitality industries throughout the world. In 2023, commercial revenue decreased 15% compared to 2022 when the revenue grew 50%. The prior year robust growth was driven by the continued strong rebound in demand in the food service and hospitality industries following demand softness during the pandemic when many restaurants and hotels were closed. Sales in the international food service market accounted for the decrease from the prior year as several markets were overstocked and unrest in certain countries had an unfavorable impact on sales. In 2023, sales of our commercial products accounted for 8% of total revenue. Growth plans include expanding customer relationships with regional and global restaurant and hotel chains. Building strength in our e-commerce, which is becoming more important in the commercial market, is also a focus. Next, we plan to accelerate our digital transformation. The e-commerce channel represents a strong and growing part of our business. Brand reputation, product features, innovation, and star ratings all play a critical role in driving online sales. These are all areas where we excel. E-commerce sales as a percentage of total revenue in 2023 were 39%, increasing 1% compared to 2022. All of our brands earned star ratings of 4.3 or better, and four of our brands earned 4.5 stars or better. Our products received favorable reviews from consumers, experts, and influencers. High star ratings are a result of our focus on designing and engineering consumer preferred products and implementing leading quality control standards. We continue to invest in gaining share in the e-commerce channel. Finally, we are focused on leveraging partnerships and acquisitions. This initiative is focused on identifying and securing businesses with a strategic fit to our portfolio. We are actively engaged in the pursuit of additional trademark licensing agreements, strategic alliances, and acquisitions to drive growth in our markets, including accelerating growth in the home health market. Over the past several years, we have entered into exclusive agreements with the outstanding business partners, combining our strengths with advantages provided by other companies. As a result, we've entered new large and fast-growing markets, and in some cases, created new markets. Many of our collaborations enable us to serve both retail and commercial markets. Looking ahead, our company has many competitive advantages that we plan to leverage in 2024 and beyond. We believe we are well-positioned to continue the momentum we carried into 2024 and deliver a solid performance, all due to the outstanding work of our team. As we emerge from the pandemic and its related challenges, I want to again recognize our team's incredible work, the enormous success in navigating us through the massive supply chain disruptions. Our employees took a one-team approach to overcoming these challenges, often going above and beyond the call of duty under extraordinary pressures. They kept focus on key steps needed to ensure a bright future, in particular, keeping the pipeline of innovation new products flowing. Importantly, we kept investing team and company resources into our strategic initiatives. The combination of short-term firefighting and keeping our focus on building for the future requires a very strong team. On behalf of the board and our executive team, I thank each and every one of our employees for their dedication and contributions to our successes. And now I will turn the call over to Sally.