Spectrum Brands Holdings, Inc.

Good day and thank you for standing by. Welcome to the first quarter 2025 Spectrum Brands Holdings, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Joanne Chomack, SVP Corporate Tax and Treasury. Please go ahead.

Thank you, Daniel. Welcome to Spectrum Brands Holdings Q1 2025 Earnings Conference Call and Webcast. I'm Joanne Chomack, Senior Vice President of Tax and Treasury, and I will moderate today's call. To help you follow our comments, we have placed a slide presentation on the event calendar page in the investor relations section of our website at www.spectrumbrands.com. This document will remain there following our call. Starting with slide two of the presentation, our call will be led by David Mora, our Chairman and Chief Executive Officer, and Jeremy Smeltzer, our Chief Financial Officer. After opening remarks, we will conduct the Q&A. Turning to slides three and four, our comments today include forward-looking statements, which are based upon management's current expectations, projections, and assumptions, and are, by nature, uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated February 6, 2025, our most recent SEC filings, and Spectrum Brands Folding's most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statements. Also, please note that we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and 8K filing, which are both available on our website in the investor relations section. Now, I'll turn the call over to David Mora. David?

Hey, thank you, Joanne. Good morning, everybody. Welcome to our first quarter earnings update, and I thank you all for joining us today. Today, I'm going to start the call and update on our operating performance and our strategic initiatives. Jeremy will then provide you all with a more detailed financial and operational update, including a discussion on our specific business unit results. During our last call, just to remind everybody, I talked about how fiscal 24 was a year where we delivered on our promises, we restored operating momentum to our business, we set standards of excellence, and we laid the foundation for a much more successful future. Fiscal 24 was a transformative year for us. We accelerated our investments into brand-focused, top-line driving initiatives. We upgraded our capabilities in commercial operations, innovation, marketing, and advertising. We've materially strengthened our working capital management, and we've maintained what we believe is the strongest balance sheet in our peer group while returning significant capital to our shareholders through share repurchases and increased dividends. We've worked to gain back and maintain our investors' trust. Today I'm happy to report that our momentum is continuing into fiscal 25 and the work we've done to build operational excellence within our organization is paying off. I can now have you guys turn to slide six and our financial performance. We're pleased with the start to the year and we're pleased with our first quarter results. Net sales increased 1.2% Excluding unfavorable FX, our organic net sales were up 1.9%. The investments we made in fiscal 24 to upgrade our commercial operations and accelerate our top line growth are paying off. You will recall from last quarter's call that our sales this quarter were going to be negatively impacted by approximately $10 million of global pet care sales that were accelerated or pulled forward into last quarter. in advance of the go live we did on our new S4 HANA update, which was completed on October 3rd of 2024. Our home and garden business has had a terrific start to this year. And while this is the slowest quarter of the year for that division, the home and garden team saw an opportunity to capitalize on warm fall season in many regions of the US. And we've partnered with our retail customers to create another demand micro season called the fall crawl. The holiday season generally came in as we expected for our home and personal care business. Competitive pressures in the small kitchen appliance category remained high, but overall demand was generally stable, and the consumer trend of increasing online purchases continued. Our investments in e-commerce helped drive another quarter of outsized e-commerce growth for our HPC business. Our adjusted EBITDA in the first quarter of $77.8 million delivered an increase of $16.5 million over last year or a 26.9% growth over last year's first quarter results if you exclude our investment income. Gross margins grew 140 basis points over the first quarter of fiscal 24. Our businesses were diligent in delivering cost improvements and operational efficiencies offset headwinds from ocean freight and tariff driven inflation from last year's expiration of tariff exemptions staying lean is imperative to sustain the operating improvements we've achieved our teams approach each day with a lean mindset continuously looking for opportunity to reduce and take out costs we are focusing our spend toward top line driven investments In this quarter, we increased brand-focused investments by over $8 million compared to the same period last year. Our strong balance sheet continues to be one of the competitive advantages we enjoy, and we're leaning into that to drive our top line. We closed the quarter with net leverage under 1.1 terms. We're leveraging the balance sheet to support all facets of our operation and to spur growth. If we can now turn to slide seven, And let's discuss the strategic priorities for the current fiscal year. We continue to invest in the brands to drive long-term growth, and that's really priority one. Last year, we began reinvigorating the focus on making smart ROI positive investments in advertising, marketing, and R&D. This quarter, each of our businesses increased their investments compared to the first quarter of fiscal 24. We're seeing significant returns on investments made toward e-commerce leadership and capabilities, and we expect our spend this year will be more consistently spread throughout the year in terms of phasing. That will put pressure on comparables in the first half of this year. We're strategically investing in inventory to support sales growth and particularly our e-commerce expansion. While we make these investments, we're looking across all facets of our working capital, for opportunities to maintain our best in class working capital management capabilities which we've recently put in place. We believe there are opportunities actually to deliver even more working capital improvements as we move forward during this fiscal year. Our investments in innovation are actually expanding our core categories and we're driving sales into new adjacencies as we speak. In global pet care, we are expanding our good and fun brand into good and tasty for cat treats and toppers adding a brand alongside our Meowie brand in the growing cat treat category. We will launch health and wellness products under our Good Boy brand, and later this year, we will be entering the dog food category in North America with a complete nutrition product line. We are investing in our operations to improve our cost, quality, and safety. I'm very pleased with the operational teams. They are delivering productivity savings in our factories, distribution centers and throughout our sourcing operations. Our operations and commercial teams are activating plans right now to minimize and mitigate the impact of the recently announced U.S. tariffs. While we purchase very few goods from Canada or Mexico, our HPC business and GPC businesses both source material levels of product from China. Many of those products are already subject to tariffs ranging from the high single digits up to 25%. The incremental 10% tariff on Chinese sourced products will impact our cash flows almost immediately. But given our inventory turns, the effect on our P&L won't be seen until the third quarter. With all of that said, we do expect to mitigate the vast majority of any currently announced tariff impacts in the year. The business that will be most impacted by the recently announced tariffs is our HPC business. Nearly 40% of HPC's global purchases come into the United States, and nearly all of those are currently Chinese sourced. Last year, we began implementing a plan to move production for U.S.-bound products out of China. Moving production for our appliances is not a quick process because we want to ensure we have very high-quality product. That's the top priority. However, we've recently accelerated these plans, and by the end of this fiscal year, we anticipate that approximately 35 to 40 percent of all our U.S.-bound appliance product will be sourced outside of China. And we will continue to look at opportunities to accelerate and migrate our purchases out of China. And in the meantime, intend to minimize the impact of incremental tariffs through both supplier concessions and pricing and cost improvements. If we can turn to the strategic transaction for HPC, while we're still engaged with several potential buyers on the M&A side, Clearly, the changing landscape for U.S. tariffs has created some uncertainty, and that's slowed down the dual-track process we undertook last summer. We are pleased that the business continues to perform well, although the timeframe for a separation has taken longer due to these geopolitical factors that are simply outside of our control. We will continue to seek opportunities to maximize value with our HPC business. and we will provide updates on our earnings calls or sooner if there's news to share. I can now direct everyone's attention to slide eight, and I'll give you a little bit of an update on capital structure and recent share repurchase activity, et cetera. During the first quarter, we repurchased approximately 800,000 shares, and in December, we put another $150 million 10b-5-1 plan in place that allows us to continue buying shares during otherwise restricted periods. Year to date, through today's call, we have repurchased approximately 2.1 million shares for about $183 million in total. And quite frankly, since the close of the HHI transaction, we've returned over $1.2 billion to shareholders through our various share repurchase programs. We've really materially reduced our share count. In fact, we've driven our share count down by 36.6%, to be exact. We're going to continue to reward our shareholders, and we've recently increased our dividend payout. We have approximately $220 million right now remaining on the share repurchase authorization that we recently updated with our board of directors. In terms of balance sheet strength, our net leverage is still well below our long-term target. which is a range of 2.0 turns to 2.5 turns. And so we clearly have ample capacity to both fund the investments in our company and continue to return a material amount of capital to our shareholders. As we keep our internal momentum going and we keep delivering our commitments and we keep shrinking our share count, we do believe that eventually our share price will react positively. If we can now turn over to page nine, After a good first quarter start, we are currently reiterating our expectations for our full year sales, adjusted EBITDA, and free cash flow. The investments in innovation and brand building that we've made since the start of fiscal 24 are helping us to grow our top line organically. We generally see healthy retail inventory levels in our categories. We had a very good holiday season for HPC, and we're off to a terrific start in our home and garden business. and we're introducing a lot of new innovation in our global tech care group. Now before I turn the call over to Jeremy, I do want to take a minute to thank each and every one of our global employees who are continuing to help us drive momentum, and they are going to help us thrive in fiscal 25. Now I'll turn the call to Jeremy, and he'll give you a lot more information on the financials and a lot of additional business unit color and insights. So over to you, Jeremy.