Hamilton Beach Brands Holding Company (NYSE:HBB) Q1 2024 Earnings Call Transcript

Hamilton Beach Brands Holding Company (NYSE:HBB) Q1 2024 Earnings Call Transcript May 12, 2024

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Operator: Thank you for standing by. My name is Dee [ph] and I will be your conference operator today. At this time, I would like to welcome everyone to the Hamilton Beach Brands Holding Company First Quarter 2024 Earnings Call and Webcast. [Operator Instructions] I would now like to turn the call over to Lou Nabhan, Head of Investor Relations. Please go ahead.

Lou Nabhan: Thank you Dee and good morning everyone. Welcome to our first quarter 2024 earnings conference call and webcast. Yesterday after the stock market closed, we filed with the SEC our form 10-Q for the quarter ending March 31, 2024. And we issued our first quarter 2024 earnings release. Copies of those documents are available on our corporate website. Our speakers today are Greg Trepp, Chief Executive Officer, Scott Tidey, President and Sally Cunningham, Senior Vice President, Chief Financial Officer and Treasurer. 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 10-Q. Our earnings release and our Annual Report on form 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.

Gregory Trepp: Thank you Lou Anne. Good morning, everyone. Thank you for joining us. Our agenda today is that I will make some opening comments, Scott will report on our strategic initiatives, Sally will discuss our first quarter financial results. After that we will take your questions. We were pleased with our first quarter results which were in line with our expectations. You’re off to a solid start in 2024 after we delivered a strong performance in the second half of 2023 and built momentum that carried into this year. We are affirming our outlook for the full year 2024 and we believe there could be upside if consumer spending and retail sales continue to be as strong as they have been. While Sally will discuss our first quarter financial results in detail, I would like to make a few high level comments.

As we have reported on February 2 this year, our Hamilton Beach Health subsidiary acquired a company called HealthBeacon which is a medical technology company and a strategic partner of ours since 2021. Our first quarter includes 2 months of HealthBeacon results. We are very excited about this acquisition. Let me provide some brief contexts regarding our enthusiasm. 3 years ago, we determined that the large and fast growing home health and wellness market was an attractive opportunity for our company. We took particular note of our emerging growth categories for home, health care management, forming a partnership with HealthBeacon was our first venture into that space. HealthBeacon needed a partner to help it gain visibility and distribution in the U.S. market for its pioneering product.

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Q&A Session

We work together to launch a healthcare solution that enables patients to effectively manage at home chronic conditions that require the use of injectable medications. In the U.S. the system is sold principally through specialty pharmacies. These health care providers appreciate that our system supports patient adherence to their prescribed treatments which in turn improves health outcomes. The revenue model is subscription based. When HealthBeacon became available for purchase, we saw the opportunity to invest in a business that we believe has great potential to increase shareholder value over time. We are working to scale and expand the business. As we discussed in our last earnings call in March, our Hamilton Beach Health business which includes HealthBeacon, is expected to have a modest operating loss in 2024 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 and beyond. In the first quarter HealthBeacon has $600,000 in revenue and $1.1 million in operating loss. In addition, we incurred transaction costs of approximately $1 million which were included in our SG&A expenses and which will not recur. While our new revenue stream from HealthBeacon is small now, we expect it to increase steadily as this year unfolds and then more rapidly in future years. Looking at our total company results, revenue was flat through the same period last year which was favorable compared to overall softness in the small kitchen appliance industry. Our gross profit margin increased significantly compared to a year ago as our team has done an effective job keeping our gross margins strong, while remaining competitive in the marketplace.

SG&A was higher than a year ago. The increase was driven in part by the inclusion of HealthBeacon’s expenses and the transaction costs I mentioned. The other primary driver was an increase in employee related costs, including higher non-cash stock incentive compensation which was related to the increase in our stock price. Operating loss for the company as a whole was $900,000, a significant improvement compared to a loss of $5.1 million a year ago. The improvement primarily reflected our gross profit margin expansion. Excluding the HealthBeacon results that I mentioned, as well as the non-cash lease impairment related to the consolidation of warehouses, operating profit was $1.9 million or $7 million improvement compared to the first quarter of 2023 which underscores the underlying strength of our core Hamilton Beach Brands’ business.

Also in the first quarter, we continued to deliver improvement in our net working capital position. Cash from operations was nearly $20 million and we further reduced net debt. Before I turn the call over Scott, let me say that we’re very excited to have him in his new role as President of the company. As we’ve announced, our Board of Directors appointed Scott to his position effective February 19 of this year. Scott’s appointment is part of a long-standing succession plan. He brings to his role more than 30 years of leadership experience with the company. Most recently, Scott was Senior Vice President, Global Sales with oversight of all of our retail and commercial sales worldwide. While Scott’s main responsibilities over the years have been in sales and marketing, he has been involved in most aspects of our business, including partnerships, sourcing, supply chain, engineering, quality and more.

He has been instrumental in the development and successful in execution of our strategic initiatives to expand, diversify and grow our business. In addition to Scott being the right person for the job of President, time was right for Scott to be elevated to this role. Our company is on very solid footing and well positioned for future success. Over the past several years, even during challenging times. We have invested team and company resources in innovation, new product development and our 6 strategic initiatives. Our team has always been laser focused on keeping our pipeline freshened and all new products flowing. As a result, we have been able to build our business across a wide range of categories in a broad group of retail and commercial customers.

Number of incremental placements that we secured last year and this year will benefit us throughout 2024. We look for Hamilton Beach Health to add further momentum over time. Personally, Scott and I are engaged in a thoughtful and smooth transition of the duties of President, while I continue in my role as CEO. A significant recent accomplishment was organizational changes in the leadership of our sales and marketing teams. These changes were also part of a long-standing succession plan. We had experienced senior leaders — we had experienced leaders in place ready to move up and assume broader responsibilities, enabling us to provide continuity, outstanding leadership for our sales and marketing teams. With these changes in place, Scott is starting to turn his attention to all aspects of our operations.

Our company is fortunate to have an extraordinary team in place at all levels, starting with our functional leaders who serve on our executive committee. Combined with Scott’s depth of experience, we are well positioned to pursue our growth strategies and build long-term shareholder value. Now, I will turn the call over to Scott.

Scott Tidey: Thank you, Greg, I appreciate your comments. Good morning, everyone. It is a great honor to be appointed President of our company. I am delighted to have the opportunity to collaborate with our outstanding global team to build on the successes we have achieved. The promotions in our sales and marketing groups that Greg mentioned were important steps. It was very gratifying to see senior leaders with whom I have worked with for years, assume greater responsibility. Erin Israel, who has been with the company since 2000 and who has been serving as Senior Vice President of Strategy and Marketing, now also, has oversight of our Global Commercial business. Wayne Albrecht, who joined the company in 2003 and has been serving as Vice President, North [ph] is now Senior Vice President, Global Consumer Sales.

Erin and Wayne are both very strong leaders. I have the utmost confidence in their ability to quickly settle into their new roles and do a fantastic job for us. I, too, was pleased with our first quarter performance in getting 2024 off to a good start. Our results reflected progress of our 6 strategic initiatives. Our initiatives are designed to enable us to increase revenue, margins and cash flow over time and build value for all of our stakeholders. Let me briefly discuss each of our strategic initiatives, what they are, the plans for growth and how each initiative is performing. I will first continue the discussion Greg began with respect to strategic initiatives to accelerate the growth of our new Hamilton Beach Health business. We are very excited to have become a participant in the home health care management business.