Thank you for standing by. My name is Ian, and I will be your conference operator. Today, at this time, I would like to welcome everyone to the Hamilton Beach Brands Holding Company Q3 2024 Earnings Conference Call. Thank you. I will now hand things over to Lou Nabhan, Head of Investor Relations. Lou, you may begin your conference.

Thank you, Ian. Good morning everyone, and welcome to the third quarter 2024 earnings conference call and webcast for Hamilton Beach Brands Holding Company. Yesterday, after the stock market closed, we filed with the SEC our Form-10Q for the quarter ending September 30, 2024, and we issued our third quarter 2024 earnings release. Both documents are available on our corporate website. Our speakers today are Scott Tidey, President and CEO, 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 our 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-10K 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 quarterly conference call. Our next quarterly conference call, if at all, will be announced later. The company will also discuss certain non-GAAP measures, reconciliation for Regulation G purposes can be found in our earnings release. And now I will turn the call over to Scott.

Thank you, Lou. Good morning everyone, and thank you for joining us. We are pleased with our third quarter results, and I look forward to discussing our strong performance. Before we get to that, I would like to address our recent leadership changes. I'm excited and deeply honored to be here for my first call as President and CEO of our Company, a role to which I was appointed by our Board of Directors on October 1st. This leadership change is a result of a thoughtful long-term succession plan. Last month, our former CEO, Greg Trepp, who is with us today, announced his retirement effective year end. To ensure a smooth transition, Greg stepped down as CEO and Board Member on September 30, and will continue to support us in an advisory role for the rest of his time with the company. It is my pleasure to recognize and thank Greg for his outstanding leadership over his 28 years with our company, especially the past 15 years as CEO. Under his leadership, he built a fantastic global team and cultivated our good thinking culture, which champions innovation. Together, we have achieved notable successes, including growth in sales and market share for Hamilton Beach and Proctor Silex, a strong presence in the premium and commercial markets, advances in ecommerce, the creation of a global home healthcare solutions business, and important advances with our strategy to leverage partnerships and acquisitions. Greg's leadership has positioned us strongly for the future, and we're incredibly grateful for his contributions. And now I'd like to ask Greg to say a few words.

Thank you, Scott. It's truly been a privilege to spend most of my career with a remarkable company, especially in the role of President and CEO. This transition is part of a well-planned leadership succession. Scott was appointed President in February and took on the CEO role in October. Over the past few months, we worked closely to ensure a seamless transition. Scott brings 31 years of expertise with our company. The strategic focus and deep knowledge of our business, people, and values make him the ideal successor. I have full confidence in Scott, our Senior Management and our global team to carry forward our mission and build upon what we've accomplished together. Hamilton Beach's strengths come from our committed team and good thinking culture that is focused on innovation and customer satisfaction. These qualities make me very optimistic about our company's future. I want to thank our team, the Board of Directors, our customers, suppliers, and business partners for their trust and support. It's also been rewarding to engage with our institutional shareholders since we became a public company in 2017. The past several years, Scott has participated in our quarterly earnings calls, and in many of the investor conferences that we have attended. I know Scott, Sally, and Lou will continue building those relationships. In closing, I congratulate Scott on his well-deserved promotion and wish everyone continued success. Back to you, Scott.

Thank you, Greg, for your kind words and your unwavering support. We all wish you a wonderful retirement. Now I'll turn to our financial and operating performance. I'll provide a high-level overview and Sally will cover the details before we open it up for questions. We are pleased with the financial results we have delivered this year. For the first nine months, our revenue grew by 5.3% compared to the same period last year. Our gross profit margin expanded by 480 basis points to 25.9% compared to 21.1% last year. Operating profit almost doubled, and net income increased by 19.2%. Let me now discuss the third quarter this year compared to the same period last year. For context, let me remind you that in last year's third quarter, we saw a post-pandemic normalization of business conditions and trends. For that turnaround, our strong team had managed through an extraordinary operating environment that spanned several quarters. Pandemic-driven challenges included historic surges in demand, disruptions across the supply chain, and spiking then falling product and container costs. Early last year, we were still working through the remnants of that environment. By the third quarter, however, most suppliers have returned to normal lead times, shipping transit times have returned to normal, and other parts of our business had normalized. As we said previously, compared to the first half of this year, we are now cycling more challenging comparisons. At the same time, in the third quarter, we delivered revenue growth of 2% and our gross profit margin expanded by 190 basis points compared to the same period last year. In fact, our gross profit margin has expanded year over year for five consecutive quarters. In the current quarter, operating profit and net income were impacted by two non-cash items: higher incentive compensation expense due to stock price appreciation and a one-time termination charge. Both items are favorable for the long term. Our stock price increased 77% for shareholders, while resulting in increased equity incentive compensation and SG&A this quarter. The termination of our overfunded U.S. pension plan resulted in a reclassification of historical losses in the net income, while it also realized $13 million of surplus assets that will increase our free cash flow in 2025 and 2026. Overall, we are very pleased with our third quarter results despite these events. We have good momentum as we finish this year and head into 2025, and we are reaffirming our outlook for the full year 2024. Our revenue growth in the third quarter and year-to-date reflects the success of our strategic initiatives. We're focused on expanding our sales of innovative value products that can command premium prices and improve our margins. Innovation is the core of our success. With our industry-leading research and development, we've introduced numerous products that address consumer needs, from refreshes of existing products to entirely new product solutions. This year, we are launching more than 40 new platforms across a wide variety of high-demand categories, spanning coffee blending, ovens, grills, slow cookers, kettles, mixers, garment care, and many more. Each new product aims to maximize innovation by offering unique consumer benefits. Our innovation pipeline is robust and supports all the markets in which we participate. Our team has done an outstanding job securing placements and promotions for our new products across a broad range of customers and channels. This success has enabled us to gain market share across North America overall. I'll now provide some brief insights into our key markets and how our strategic initiatives are driving growth. First, our focus is on driving our core brands, Hamilton Beach and Proctor Silex in North America. Our strong portfolio is anchored by these well-known brands. In the third quarter, we introduced numerous innovative products that won placements with key customers. In the industry's largest category, coffee, we launched the Flex Brew 5-in-1 coffee maker and new espresso makers, catering to the demand for high-quality experiences at home. In blending, we offer new models like the Hamilton Beach 3-in-1 electronic kitchen system, which does the work of three separate appliances: a traditional kitchen blender, a food processor, and a personal smoothie blender. We also released the Hamilton Beach defrost and go program, a slow cooker that simplifies the process of safely defrosting frozen meat and cooking it to perfection. For consumers who want to cook multiple ways but don't want a cluttered countertop, we offer the Hamilton Beach 9-in-1 searing slow cooker, which combines nine cooking options into one versatile appliance. These new slow cookers are well received by both retailers and consumers. Countertop ovens with air frying continue to be a fast-growing segment. The new versatile Hamilton Beach Digital Air Fry Toaster oven is designed for faster cooking with six cooking functions: bake, broil, toast, air fry, dehydrate, and convection. Our new products are selling well, and we have received favorable responses from both retailers and consumers. Next, I will discuss our initiative to gain share in the premium market, which represents about 40% of the total industry and is growing faster than the overall market. Hamilton Beach is increasing its participation in this key market through owned brands like Weston and multi-year agreements with licensed brands. We are expanding into new premium categories and gaining market share. Our CHI Premium garment care products continue to enjoy strong sales and growth. New products include irons and garment steamers. In the fast-growing garment steamer category, we have introduced the CHI Vibes garment steamer, which is the perfect companion for maintaining wrinkle-free clothes at home or on the go. This compact and lightweight steamer is designed for easy travel and with powerful steam capabilities, it quickly removes wrinkles and heats up in just 35 seconds. We are pleased with our partnerships for Clorox True HEPA air purifiers and Brita countertop electric water filtration systems. This year, we introduced a new Clorox Ultra air purifier, which can treat very large spaces and features an ultraviolet light. We have also introduced a Clorox countertop steam sanitizer and a Clorox humidifier. Our newest premium brand, Numilk, consists of plant-based milk makers that enable consumers to create a variety of fresh milks on demand. This new product aligns with current consumer trends towards healthier, sustainable options, positioning us to meet the growing demand in this category. By expanding our presence in the premium market through brand partnerships and innovative product offerings, we are well-positioned to significantly grow our market share and increase our revenue in this high-potential market. Next, our strategic initiative is to lead in the global commercial market. The global commercial market is a multibillion-dollar opportunity with significant growth potential. This market represents a key area where we see substantial upside, especially as we expand our footprint internationally. We are investing in higher-margin products designed for use in commercial foodservice and beverage operations, as well as for hotel amenities. Commercial markets offer strong profit potential, and our initiative aligns with increasing demand for durable, high-performance equipment. Our growth strategy includes several key components. First, we are driving product innovation that meets the unique needs of our commercial customers. Second, we are partnering with medium and large restaurant chains across the world to develop customized products to accommodate their current and new menu offerings. Third, we are increasing sales with our existing customers and adding new ones, including in the hospitality space and with cruise ship operators. And fourth, we are leveraging our partnerships with companies like Bartesian and Numilk to expand our reach and influence in the global commercial market. Our company has particular strengths in heritage categories such as blenders and drink mixers. We are investing in advanced technologies in these categories. Our Hamilton Beach Summit Edge Blender offers best-in-class performance, while our shaver blenders offer large-batch blending solutions. We're expanding into the back-of-the-house food preparation categories with new equipment, like our big rig immersion blenders to streamline food prep processes, reduce prep time, and minimize waste. Internationally, we see Europe, Asia, Africa, and India as presenting significant growth opportunities. We are focusing on increasing our market share and expanding our footprint in these diverse and dynamic geographic markets. We are optimistic about our potential for the global commercial market to provide significant revenue growth and margin expansion opportunities in future years. Next is our newest initiative to accelerate the growth of Hamilton Beach Health. More recently, we have become a provider of connected devices and software aimed at home healthcare management, reflecting our commitment to innovation and improving lives. We began exploring this market about five years ago and created our Hamilton Beach Health brand in 2021. The home health market opportunity is being driven by demographics, particularly an aging population in need of at-home services, as well as increased chronic medical conditions for people of all ages. Technology is making it possible to develop home healthcare management tools, including remote therapeutic monitoring systems. In February, we acquired HealthBeacon, bringing our smart sharp spin, which is designed to increase adherence to medication regimens and support safe sharp disposals. Our revenue model here is subscription-based, offering recurring income at higher margins. We are making investments in HealthBeacon as part of their startup phase. The integration is going well, revenue is increasing quarterly, and we expect HealthBeacon to contribute to operating profit in 2025. Growth plans include adding new patients with existing specialty pharmacy customers, attracting new specialty pharmacies, and increasing the number of conditions that are treated using the system. We are adding a new specialty pharmacy on January 1, and we are in promising discussions with several others. Hamilton Beach Health is also exploring additional collaborations to further expand our focus on providing home healthcare management solutions. In closing, our accomplishments over the first nine months of this year are rewarding to see, and we're positioned well to carry this momentum forward. We believe our incremental placements, planned holiday promotions, new products, and increased market share position us well for the holiday season. While consumer spending remains restrained due to the challenges in the economy, we offer a broad line of products at value to luxury price points, and we anticipate solid sales for the holiday. We expect to deliver a very good performance for the year 2024. And now we'll turn our discussion over to Sally.

Great. Thank you. Scott, good morning everyone. I will start with our third quarter 2024 results compared to the third quarter of 2023. As you've heard, we are pleased with our third quarter results. We experienced revenue growth and gross profit expansion, even as we are starting to cycle over the more difficult comparisons that started in the third quarter of 2023. However, operating profit and net income faced headwinds from non-cash expenses, including increased equity incentive expense due to stock appreciation and the one-time pension plan termination expense that was reclassified from accumulated other comprehensive income. Starting with revenue, total revenue in the third quarter was $156.7 million, a 2% increase over last year's third quarter. The increase was driven primarily by a favorable product mix as well as higher volume, partially offset by expected average price decreases. Most of the growth was in the U.S. consumer market, which benefited from the incremental and new placements that Scott discussed. Revenue also increased in our Mexican consumer market, while revenue decreased in our Latin American and Canadian consumer markets. Our global commercial market experienced a decrease in revenue due to soft international markets, especially China. Also included in the third quarter was $1.2 million of new revenue from our HealthBeacon acquisition. While the contribution to total revenue is small at this point, it has grown every quarter this year and is expected to grow in 2025. Gross profit totaled $43.9 million compared to $40.1 million. Gross profit margin expanded to 28% compared to 26.1% in last year's third quarter. The 190 basis points expansion in gross profit margin in the current quarter was due to favorable product mix and lower product costs, and every quarter this year, we have delivered above prior year quarter and above our historical range. Our team has done an effective job keeping our gross profit margin strong while remaining competitive in the marketplace. Selling general and administrative expenses increased to $33.1 million compared to $25.6 million in the third quarter of 2023. The increase was primarily driven by higher employee-related expenses, including $2.9 million of increased non-cash equity incentive compensation due to the significant appreciation of our stock price in the third quarter of 2024. The addition of $1.8 million of HealthBeacon’s SG&A and the absence of a $900,000 non-recurring insurance recovery in the prior year. Our team has done a good job managing the expenses that are within our control. Operating profit was $10.6 million compared to $14.4 million a year ago. The decrease reflected the higher SG&A expenses, partially offset by our expansion of gross profit margin. I want to reiterate Scott's comments that HealthBeacon is still in startup mode, and the integration is progressing as planned, and we expect it to contribute to operating profit in 2025. Net interest expense was $59,000 compared to $592,000 a year ago, due to lower debt levels and lower interest expense. The pension termination expense in 2024 was a one-time, non-cash charge of $7.6 million related to the reclassification of historical unrecognized losses from accumulated other comprehensive income. Our Board approved the termination of our overfunded U.S. defined benefit pension plan in 2022, and as expected, we finalized the termination in the third quarter. The resulting surplus assets, estimated at $3.3 million, will be deployed over the next few years to fund other existing employee retirement benefits. This is a big win for us, as we expect this planned use of surplus assets to free cash flow that would otherwise have been used for this purpose, thereby increasing free cash flow in 2025 and 2026. Income tax expense was $700,000 compared to $2.8 million a year ago due to the tax benefit of the pension plan termination expense of $1.9 million. Net income, inclusive of the pension plan termination impact, was $1.9 million or $0.14 per diluted share, compared to net income of $10.3 million or $0.74 per diluted share a year ago. The impact of the pension plan termination expense to the current period was $5.7 million or $0.41 per diluted share. Now turning to our balance sheet and cash flows, for the nine months ended September 30, 2024, net cash provided by operating activities was $35.2 million, which reflects normalized post-pandemic working capital. This amount compared to $68.7 million in the same period last year, which was higher than normal due to the benefit of a significant reduction in post-pandemic driven excess inventory. Net working capital in the current period provided $20.3 million compared to $64.3 million. The 2024 period benefited from our continued focus on working capital management, which led to improvements in days sales outstanding and days payable outstanding. The change in net cash provided by operating activities reflects the net working capital changes partially offset by adjustments to net income for the non-cash stock compensation and pension termination expenses. Capital expenditures were $2.3 million in both the current and prior year periods. During the nine months ending September 30, 2024, we allocated cash flow to fund the acquisition of HealthBeacon for $7.4 million and to return value to shareholders through the quarterly dividend and share repurchases. Year-to-date, we have paid $4.7 million in dividends and repurchased shares totaling $9.3 million at prevailing market prices. On September 30, 2024, net debt, calculated as total debt minus cash and cash equivalents and highly liquid short-term investments, was $22.5 million compared to $49.7 million at the end of the prior year period. Our revolving credit facility expires on June 30, 2025. We have not yet completed our refinancing of the facility, and accordingly, all amounts outstanding have been classified as current liabilities on the balance sheet. Based on the status of the refinancing and our history of successfully refinancing our debt, we believe that it is probable that the facility will be refinanced before its maturity. We believe funds available from cash on hand, the facility, and operating cash flows will provide sufficient liquidity to meet our operating needs and commitments. Now let me turn to our outlook, which, as Scott said, we are reaffirming. We continue to expect full year 2024 revenue to increase modestly, and operating profit to increase significantly as compared to the full year 2023. I'd like to add a little more color to our outlook. As Scott discussed, starting in the third quarter of 2023 and each quarter since, we have reported revenue growth and gross profit margin expansion as demand, price, and cost have normalized, and because of the favorable impact of our focus on cost management and continued progress with our strategic initiatives. As we move into the back half of 2024, our growth comparisons are cycling the normalized results that began in the third quarter of 2023. For the full year 2024, the retail marketplace for small kitchen appliances is expected to be modestly below 2023, but we expect to outpace the industry as a result of our continued progress with our strategic initiatives. As we discussed in our last call, the revenue growth we achieved for the first half of the year was stronger than our expected revenue growth in the second half due to the year-over-year comparisons. Moving to operating profit growth: in the first half of this year, it was stronger than the growth we have estimated for the second half. Again, we expect operating profit will continue to be impacted by higher SG&A, but despite this impact, we continue to expect that operating profit to increase significantly in 2024 compared to the full year 2023 based on expanding gross profit margin. We expect that gross profit margin in the second half of 2024 will be comparable to the second half of 2023. I'll also comment on cash flow for the year ended December 31, 2023. Cash provided by operating activities, less cash used for investing activities, was an outsized $83.5 million, which included the significant impact of our focus on working capital improvement, particularly the reduction of pandemic-driven excess inventory. Our normalized cash flow from operating activities, less cash used for investing activities is in the $25 million to $35 million range, and we expect to end 2024 in the upper end of that range. That concludes our prepared remarks. We will now turn the line back to the operator for Q&A.

Our first question comes from the line of Adam Bradley with AJB Capital.

Hi. Sally and Scott, congrats on another great quarter. I've been a shareholder for several years, and I've just been really pleased with the profitability expansion, especially recently. So I wanted to ask, yeah, yeah, good job, guys and Scott, welcome looking forward to your leadership as a shareholder. So I have some detailed questions about the P&L to help understand and inform the forward-looking. If I start at the gross margin level, there has been significant expansion, as you all highlighted, and that has been great. The SG&A line, especially, the last few quarters has expanded as well. You identified $4.7 million hearing your remarks of the equity compensation in HealthBeacon that explains a good amount of it. If I take that out, we're still seeing, like this quarter, for example, about 12% year over year, SG&A growth. So that is not my question. My question, though, is how correlated is the SG&A expense change to that of gross margin rather than sales? Because specifically, sales are growing at a low to mid-single digit rate, but gross profit is expanding at a very high rate, as is SG&A. What I'm really trying to get to is if gross margins were to begin to normalize back to historic levels, would portions of SG&A also come down, trying to understand the relationship between your SG&A costs and your gross profit line.

I think that's a good question. I think inherently within SG&A, you have the ability to constrict as needed and expand as you make investments. Certainly, if we started to see constriction in our gross profit margin, then we would, of course, take a look at our controllable expenses and right-size those as well. I do think you're seeing in our SG&A right now a couple of things that are beyond our control with the stock price appreciation. I think you're seeing some known investments that we're making, particularly in HealthBeacon. We knew that this first year was going to be a little bit of a drain on operating profit but a kind of permanent increase to SG&A—that’s the nature of buying another business. But we feel like that business will be contributing to operating profit in 2025, and I think the rest of what you're seeing in there is just continued investments from the business as we're trying to continue to grow and pursue our strategic initiatives.

Okay, great, thanks. Yes, on the stock price, let's hope that continues as well. Well, I think your compensation, you know that you can control ultimately in the number of shares that you do issue, but I think to answer my question. So to summarize some of it, some of the expansion that we're seeing in SG&A is the result of expanded profitability and investment in new areas as well as some—okay, great. I have a second question. I can ask it now, or I can get back into the queue.

Yeah. Go ahead. Yeah, go ahead and ask it.

Yes. So this gross margin expansion has been really great to see for two reasons from my investor perspective. One is that just on its face, it's great to see better profitability from what you're doing; two, over the last five or six quarters, it's been actually the result of higher unit volumes, and your price has actually been a price per unit that has been coming down for six quarters. So what you all highlight is that it's more mix and volume contributing to gross profit over price. Can you? The question number one is, how sustainable are the existing gross margins? Like you're hitting 28— I mean, every quarter now, it's been higher than previous for a little while now, on a rolling 12 months basis or so. How much of it is sustainable? And can you give a little more color on what is driving it? A little more specifically, is it investment in new areas, new product lines versus extensions of older product lines? Just help us understand its sustainability and what's really driving it. I think it's key to your profitability, so I think we need to know.

Okay, I mean, this is Scott. So I think you brought up a couple of reasons why our gross profits have been improving. It is because of mix and also just from the cost decreases that we've had as we've gotten back into a more normalized time period. But as we talked about, we've got a couple of strategic initiatives that are favored at higher gross profits. As I indicated, we're really working hard to improve our market share in the premium market. In that space, you're going to find higher margins than you are going to find in the mass markets. We've also improved our profits in the commercial space. As we bring on, while it's still a small amount, as we bring on the Hamilton Beach Health Business, we think that those gross margins will be very healthy for us. Overall, we're continuing to work on our mix as we look at how do we want to be growing share in certain markets and between offering just overall higher-priced goods to our retail partners and getting more market share in that more premium segment, that's one of the drivers that's been driving our gross profit.

Thanks, and the sustainability of this level.

Yeah. Adam, I think we're very focused. If you look at the 40-plus new products that we're bringing out, our goal is to continue to keep pushing up our gross profits. Our teams here are designing and developing products that meet those consumer solutions, but at higher gross profits, and we feel like that's a thing that we need to continue to do. We feel like there's space there, and we have a lot of ability to continue to grow and drive more market share.

All right, thank you. Well, great job. Anyone who's looked at the history of the company, it's always been good and stable and is now hitting a new level of profitability. So thanks for answering my questions and great job.

Yeah, thank you, Adam. Appreciate your questions.

There are no further questions at this time. I would like to hand things back over to Scott Tidey for some closing remarks.

Thank you. As you've heard today, we are pursuing multiple avenues to continue to grow revenue, expand margins, and deliver strong cash flow. Our company is committed to increasing long-term shareholder value. For the year 2024, we expect to deliver a significant increase in operating profit, reflecting revenue growth and gross profit margin expansion. We look forward to finishing this year in a strong position. That concludes our report for today. Thank you again for joining our call.