Thank you for standing by. At this time, I would like to welcome everyone to today's Hamilton Beach Brands 2026 first quarter earnings conference 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'd like to ask a question, please press star and the number one to raise your hand. To withdraw your question, please press star one again. Thank you. So without further ado, I would like to turn the call over to Brendan Frey, partner with ICR. Brendan, you have the floor.

Good afternoon, everyone, and welcome to the first quarter 2026 earnings conference call and webcast for Hamilton Beach Brands. Earlier today, after the stock market closed, we issued our first quarter 2026 earnings release, which is available on our corporate website. Our speakers today are Scott Tidy, 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 10Q, our earnings release, and our annual report on Form 10K for the year end of December 31st, 2025. 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. The company will also discuss certain non-GAAP measures. Reconciliation for Regulation G purposes can be found in our earnings rules. And I'll now turn the call over to Scott. Scott.

Thank you, Brendan, and good afternoon, everyone. Thank you for joining us today. We are pleased to report first quarter profitability that exceeded our expectations. First quarter revenue was expected to be down year over year as we were up against a challenging comparison. And while it declined slightly more than planned, we delivered exceptional gross margin expansion of 510 basis points, which drove operating profit growth of 115% to $5 million. Sales were modestly below our expectations, primarily because March was softer than planned. Consumers remained under pressure and discretionary spending weakened in parts of our business. The impact was most pronounced in our U.S. consumer business, where shoppers in our price segments appeared to be especially affected by elevated fuel costs. At the same time, our gross margin performance was significantly stronger than planned. Thanks to the implementation of a foreign trade zone last year in our distribution center, we were able to quickly capitalize on the Supreme Court's ruling on IEPA tariffs in late February, shipping certain products in March that had no additional tariff charges. First quarter gross margins also benefited from other tariff mitigation actions, including diversifying our sourcing strategy and selectively raising prices, the latter of which will continue to be a tailwind in the second quarter due to the delta and the timing between the price increases and higher costs hitting our P&L. This margin expansion more than offset modest sales shortfalls and resulted in profitability that exceeded our expectations. To cite the recent global uncertainties, we continue to make meaningful progress on our five strategic initiatives, and I wanted to update you on each of these. starting with driving growth of our core business. We are executing well on our product innovation pipeline. Our three new innovative blender kitchen systems are gaining traction in the market, bringing fresh innovation to one of our strongest categories. The redesigned Durathon iron platform launched during the quarter with exceptional reception, building success on an established Durathon technology. We are particularly excited about our expansion into the garment steamers with new models and believe we are well positioned to capture share in this large and growing segment. Looking ahead, our two new single-serve coffee platforms launching in the second half of the year will bring needed innovation to another important category. Additionally, we recently picked up placements for multiple product categories. This includes expanding several programs with a leading department store in the fall, adding shelf space at two top wholesale membership clubs, and increasing penetration with a leading mass market retailer. These wins are being supported by our significantly increased investment in digital, social media, and influencer marketing, which is helping us connect with consumers in new and more efficient ways. Moving to accelerating our digital transformation. The consumer shopping journey continues to evolve rapidly, and we're adapting our approach to meet them where they are. We're leveraging our strong foundation of e-commerce capabilities and our consistently higher consumer reviews and ratings, which average above four stars across our brands to drive discoverability and conversion. Our increased advertising investment is focused on ensuring we are present and relevant when consumers are making purchase decisions. We've added resources specifically focused on improving our discoverability across platforms and sharpening our AI shopping tactics to stay ahead of the curve as generative AI increasingly influences shopping behavior. And we're excited to announce that we recently selected a new advertising agency that will help oversee and drive our digital marketing strategy starting in the second half of the year. Gaining a larger share in the premium market is our next strategic initiative. The premium market represents approximately half of the $9 billion U.S. appliance market, and we currently hold only about a 1% share in this segment, providing us with tremendous runway for growth. Our Lotus brand expansion continues to exceed expectations. Following the strong double-digit sell-through results we achieved with the Lotus Professional launch in 2025, we're preparing for the fall launch of Lotus Signature. Our key retail partner has committed to expanding shelf space based on the brand's performance, which validates our strategy and provides a platform for accelerated growth, turning to leading in the global commercial market. Our commercial business continues to gain traction and represents a significant growth opportunity. The Summit Edge High Performance Blender remains a cornerstone of our commercial strategy. We're deepening our relationships with large food service and hospitality chains with particular emphasis on regional and global penetration. To that end, another of our commercial blenders, the Eclipse, will soon be added to a leading national coffee chain. Meanwhile, we recently picked up a spindle maker placement for a leading U.S.-based fast foods chain for their Central America location. Lastly, our Sunkist commercial juicers and sectionizers, which we launched in the second quarter of last year, continue to exceed expectations with accelerating demand from leading restaurants, hospitality chains, and finally, accelerating growth of Hamilton Beach The first quarter marked the third consecutive quarter of profitable growth for this business, and we are on track to increase sales by 50% this year. We're making excellent progress expanding our injectable reach by adding more specialty pharmacy and pharmaceutical company partnerships. We recently signed on a new injectable drug that will be available on our SmartSharp SPIN platform starting this quarter. At the same time, we are broadening our connected medical device platform beyond our core injectable medication management. In the third quarter, we will launch the pilot of our pill management platform, which is designed to improve medication adherence and provide valuable patient feedback. We were initially targeting oncology and mental health treatments with plans to expand other therapeutic areas as we validate the platform's effectiveness. This expansion represents a significant opportunity to address additional patient pain points and grow our distribution network with large specialty pharmacies. As Sally will discuss shortly, we remain confident in delivering our 2026 financial goals despite the recent downturn in consumer sentiment. In addition to comparisons beginning to ease starting in April, which has helped our recent trend line, we plan to reinvest the margin upside from the first quarter into additional promotional programs to help drive demand in the current environment. Getting past the current headwinds, we believe our diversified business model across consumer, commercial, and health, combined with our strong brand portfolio and the strategic initiatives we're executing, provides multiple avenues for growth and positions us well to capitalize on opportunities as market conditions continue to stabilize. I want to thank our teams for their continued dedication and execution, their agility in navigating the March consumer headwinds while delivering exceptional margin performance exemplifies the resilience and commitment that defines our organization. With that, I'll turn it over to Sally.

Good afternoon, everyone. Echoing Scott's comments, we are pleased with our start to the year, especially our gross margin and operating profit performances. For the first quarter, revenue was $122 million, compared to $103.4 million a year ago. a decline of 8.6 percent. The revenue decline was primarily driven by lower volumes in our U.S. consumer business as we lapped our highest growth rate from last year. The lower volumes in our U.S. consumer business were partially offset by higher prices, and our overall results include another quarter of robust sales growth from our healthcare division. Turning to gross profit and margin, gross profit was $36.2 million in the first quarter, up 10.4 percent, compared to $32.8 million in the year-ago period. Gross profit margin was 29.7 percent, compared to 24.6 percent of total revenue in last year's first quarter. The 510 basis point improvement in gross profit margin was due to favorable pricing and customer mixed, partially offset by higher product costs. I want to highlight that the margin improvement included a one-time benefit of 190 basis points related to the sell-through of inventory that was priced in anticipation of IEPA tariffs that were eliminated following the Supreme Court ruling. This benefit is non-recurring and will not persist beyond the sell-through of effective inventory. The other 320 basis points of improvement was driven by the timing of our price increases that Scott touched on earlier that will normalize as we get into the second half of the year and increase penetration of our higher margin commercial and healthcare business. Selling general and administrative expenses increased $31.2 million compared to $30.5 million dollars in the first quarter of 2025. The increase was primarily driven by 1.4 million dollars in accelerated depreciation of our legacy ERP system, which we are in the process of replacing, partially offset by the benefit of restructuring actions we took during the second quarter of last year. Our strong gross margin gain allowed us to more than double operating profit to $5 million, compared to $2.3 million in the first quarter of 2025. Income tax expense was $1.4 million in the first quarter, compared to $700,000 a year ago. And net income in the first quarter was $3.5 million, or $0.26 per diluted share, compared to net income of $1.8 million, or $0.13 per diluted share, a year ago. turning to our balance sheet and cash flows. For the three months ended March 31st, 2026, net cash provided by operating activities was $3.3 million, compared to $6.6 million for the three months ended March 31st, 2025. The decrease was primarily driven by higher networking capital, including a planned increase in accounts receivable following our decision to exit at the arrangement with a financial institution to sell certain U.S. trade receivables of a single customer, which shifted the timing of cash receipts. This is partially offset by lower incentive payout compared to 2025. During the first quarter of 2026, we allocated our cash flow to repurchase approximately 55,000 shares, totaling $900,000, and paid $1.6 million in dividends. At the end of the first quarter, net debt was $2.6 million, compared to net debt of $1.7 million on March 31, 2025. Turning now to our outlook for 2026, we are reiterating our previously issued guidance. We continue to expect revenue growth to approach the mid-single-digit range. Gross margins are still projected to be similar to slightly better than 2025 level as we reinvest the upside from Q1 into additional promotional programs to drive demand. While operating profit on a reported basis is expected to decline low teens on a percentage basis, inclusive of an incremental $6 million in planned advertising spend in 2026 to support our strategic growth initiative, and approximately $6 million in accelerated depreciation associated with our legacy ERP system. Cash flow from operating activities, less cash used for investing activities for 2026, is expected to be in the $35 to $45 million range. Our current earnings and cash flow outlook excludes any potential impact from IEPA-related refunds, which total approximately $41 million of tariffs paid in 2025 and early 2026 that the company is actively pursuing. However, the timing and ultimate recovery remain uncertain. In closing, we entered 2026 with building momentum and renewed confidence in our ability to deliver sustainable growth and shareholder value. Our diversified business model, strong brand portfolio, and the work we've done strengthening our foundation positions the company to capitalize on improving market conditions this year and create a platform for long-term growth. This concludes our prepared remarks. We will now turn the line back to the operator for Q&A. Thank you. We will now begin the question

and answer session. Please limit yourself to one question and one follow-up. If you'd like to ask a question, please press star and the number one on your telephone sheet pad. To withdraw your question, please press star and number one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. And your first question comes from the line of Adam Bradley from AGB Capital. Your line is open. Please go ahead.

Hi, Scott and Sally. Question about Lotus. Hey. Question about Lotus. The investment behind them and just how things are going and if we should expect additional investment behind Lotus beyond 2026.

Hey, Adam, this is Scott. So, yes. So, we, you know, as we indicated, we had a great launch with our initial exclusive national chain in the back half of 2025. That exclusivity with that chain ended in the first quarter of 2026. So we are now rolling that out, Lotus Professional, out to other retail customers as we speak. And as mentioned, we're super excited about launching Lotus Signature later in the year. That will be closer to the holiday time period. And, you know, we did support the business with several million dollars last year, and we expect to do so with more this year. And that would continue through into 2027 as well and beyond.

All right. So will there be a time, given the level of investment, what are your kind of long-term expectations for Lotus?

I don't think we have a dollar revenue amount that we're going to put out there and project. I think that we believe that we can go in and grab multiple share points in this very large segment of the small kitchen appliances. And we've got what we believe is very targeted retailers to be able to do that. Those are both brick-and-mortar and online customers that we feel like are more in the premium position. And the revenue will come. Again, we're willing to commit. We know this is building our own brand, so we're willing to commit to the advertising investment behind it to build that brand awareness.

Okay, thank you.

Thank you. Again, if you would like to ask a question, please press star and the number one on your telephone keypad. There are no further questions in the queue. That concludes our question and answer session. That also concludes our call for today. Thank you all for joining and you may now disconnect.