Good morning and thank you for standing by. Welcome to the Hamilton Beach Brands Holdings First Quarter 2021 Earnings Conference Call. It’s now my pleasure to hand the conference over to Head of Investor Relations, Lou Anne J Nabhan. Lou Anne?

Thank you, Holly. Good morning, everyone. Welcome to our first quarter 2021 earnings call and webcast. Yesterday, after the market closed, we issued our first quarter 2021 earnings release and filed a 10-Q with the SEC. Copies of both are available on our website. Our speakers today are Greg Trepp, President and Chief Executive Officer and Michelle Mosier, Senior Vice President and Chief Financial Officer. Greg and Michelle will discuss our first quarter results and our outlook. Also participating in the Q&A will be Scott Tidey, Senior Vice President, Consumer Sales and Marketing.

Thank you, Lou Anne. Good morning, everyone. Thank you for joining us. I will begin with our strong first quarter results. The momentum we experienced in the fourth quarter of 2020 has continued into 2021. Total revenue in the first quarter increased 23.5%, and our core North American consumer market revenue increased significantly. The growth was driven by strong demand in our U.S., Canadian and Latin American markets. In our global commercial market, while revenue decreased compared to 2020, the gap to last year closed significantly compared to the gap to prior year we experienced throughout most of 2020. While trends vary by geographic market, foodservice and hospitality markets are currently rebounding from last year’s pandemic-driven declines. As the foodservice and hospitality industries continue to recover, in 2021, we expect results for this market to improve significantly compared to the prior year. In the e-commerce channel, we have been well positioned to benefit from consumers demonstrating an increased preference for purchasing online during the pandemic. Our well-known brands and the wide range of categories we participate in, enable us to benefit from the e-commerce demand that is occurring across the small appliance industry. We were an early leader in the e-commerce channel, and we continue to increase our investments in online sales capabilities. In the first quarter, our e-commerce sales increased 59% and accounted for 35% of total revenue. Revenue from our premium products grew 46% in the first quarter. The Bartesian cocktail machine, our newest entrant in the premium category, has been very well received in the market and was a major contributor to the growth. We also experienced strong sales for our Wolf Gourmet, Weston and Hamilton Beach Brands, Hamilton Beach Professional brands. Gross margin increased 50 basis points in the first quarter. Operating profit, net income and earnings per share all increased significantly compared to the first quarter of 2020. As a reminder, Kitchen Collection is a discontinued operation. Its net losses and negative cash flow no longer have an impact on our company. We continue to execute on our strategic initiatives that are designed to deliver long-term profitable growth. Last year, we conducted a detailed review of our progress with our initiatives. As a result, we are continuing to focus on certain initiatives such as increasing our investment in the e-commerce channel and in the premium and commercial markets. We are expanding our focus to include a large and fast-growing home health and wellness market. In emerging markets, we are pivoting from a company-managed model to a licensing model and reallocating resources to accelerate growth in our heritage North American market.

Thank you, Greg and good morning everyone. Let me review our first quarter 2020 results from continuing operations compared to prior year. Total revenue increased 23.5% to $149.2 million compared to $120.8 million. As Greg highlighted, revenue in the North American consumer market increased significantly, driven by strong demand in the U.S., Canadian and Latin American markets. In the global commercial market, revenue decreased in the first quarter but this market is currently rebounding and results are expected to improve significantly in 2021 compared to 2020. Gross profit margin increased to 21.2% compared to 20.7%, primarily due to customer and product mix. Selling, general and administrative expenses increased to $26.4 million compared to $24.2 million mostly due to increased third-party and consulting services and employee-related costs. Operating profit increased to $5.3 million compared to $500,000. And net income from continuing operations increased to $2.9 million or $0.21 per diluted share compared to a net loss of $1.4 million or $0.10 per diluted share. Use of cash before financing activities in the first quarter was $3.6 million compared to a use of $10.7 million in the prior year period. Net working capital increased by $71.1 million and reflected an increase in inventory and trade receivables, partially offset by higher accounts payable. The increase in inventory is primarily due to anticipated continued strong consumer demand for our products in the coming months as well as to ongoing congestion in the transportation supply chain, which has increased the days of inventory on hand. The higher inventory positions us well to meet the elevated levels of demand and reduce the risk from supply chain disruption that is now affecting nearly all companies. Higher trade receivables are mainly attributable to the higher sales in the first quarter. We expect working capital, cash flow and our debt level to improve as the year unfolds. Net debt at March 31, 2021, was $101.2 million compared to $67.5 million at March 31, 2020, and $96 million at December 31, 2020, and reflected the changes in net working capital.

And our first question is going to come from the line of Peter Benedict with Baird.

Hi, good morning everybody. First question, Greg, I think on the last call you mentioned commercial – the commercial business and maybe hopes to get back to maybe 80% of pre-pandemic levels this year. Your comments today kind of sounded maybe a little bit more bullish on that. Just wanted to kind of tease that out a little bit? Do you think there is a chance you can get back to those pre-pandemic levels this year? That’s my first question.

Sure. Good morning, Peter. So right now, I think we sort of started the year in line with what I mentioned and what we’ve really seen over the past little shorter period is demand taking off at a much stronger rate, hard to tell whether that’s sort of catch-up demand that will soften back out a little bit. But certainly, right now, the pace at which orders are coming in, both for the foodservice products we sell as well as even the hospitality side of things, is much stronger than we thought just a little while ago. And so we’re chasing some of that demand a little bit of backlog. And the hope is that we will sort of see how that settles out here in the back half of the year as again, is there a sort of short-term spike above what we expected to catch up or is it going to stay at that level? So right now, I think we are thinking that we could go higher than what I mentioned earlier based on what we are seeing, but we will see how that plays out.

Okay, good. Yes, good to hear that. Scott, I guess, maybe for you just maybe curious to understand how you guys are managing product cost increases and maybe how willing the retail – your retail partners are to accept price increases as we know a lot of people are trying to push those through? I am just curious how that is trending right now in terms of cost pass-through?

Yes, great question, Peter. So we are getting cost increase from two different areas. One is just the pure cost coming out of our China suppliers and then obviously the premium transportation cost. I think, it’s been pretty clear for us that we are not the only person or company in this situation and is experiencing these. And I think, for most of us and our competitors, we’re having very frank conversations with our retailers, talking about what the true costs are. Occasionally, we have to adjust our mix of product or adjust our promotions on things that might be more profitable, but we are passing along the cost increases that we’re seeing both from a cost standpoint and a transportation standpoint.

Okay. That’s good to hear. And I guess as we think about kind of gross margin over the balance of the year, I know it was up here in this quarter. But is it safe to – should we be expecting gross margin on a year-over-year basis to be down over the balance of the year? Is that kind of a good base assumption here or are there things that you can do to either hold what you had last year or improve on that?

Peter, this is Greg. So I think in the past, we talked about we have sort of been able to stay within a range that we sort of flexes up and down and certainly recently sort of flexed up. I think as we work through this passing the pricing along but also seeing what products move around, I think we’re going to be able to stay in that range. Whether we drop down the middle of the range or stay up toward the top of the range is hard to say. I would say it’s probably more likely we’ll be back in the middle of the range, but I do feel comfortable that we are doing enough things to mitigate these things to make sure we are not going below what we look forward to deliver.

Sure. That makes sense. And I guess as I think kind of maybe just in terms of the top line, I mean, your comments on commercial is certainly encouraging as well as the regular business, the consumer business. But historically, I guess, second quarter revenue has kind of always been higher than the first quarter. And I am just curious if there is anything that would prevent that from being the case this year. Is there anything unusual in terms of maybe inventory? I mean inventory looks really good right now. So I don’t think there is, but I just wanted to see if there was anything we needed to keep in mind on that front?

No. I think you already said you can see obviously our inventory levels are high. So we are – that’s – as Michelle said, that’s to support the coming months and – both from a demand standpoint and trying to make sure we have inventory on hand given the congestion. So, I think we feel like we are well positioned. There are things we are chasing of course here and there, but overall, we feel like we are well positioned. If you think about the rest of the year, Peter, it’s again difficult to clarify where it was all going to go and we will sort of give you a little more clarity when we do the second quarter. But what we can say is you think about there is some positive things there are some tailwinds maybe and some headwinds. On the positive side, we expect, and our retailers are expecting, demand to stay strong through the end of the year. So that’s an important part of it, of course, as the underlying basis for all things we are working on. As you well know, we had a real challenging third quarter last year. So that’s a pretty easy comp to overcome. Growth is really coming across all markets. We’re fortunate right now we’re seeing strong demand in the U.S., Canada, Mexico, throughout Latin America and commercial. So that’s certainly a good trend to see us as we go forward. And we’re excited about the continued progress on the premium side of things in the commercial market as I said those are higher average selling prices. So that’s all good. The headwinds for the back half and to some degree, the second quarter is, while we had a tough third quarter, we shipped a lot in the fourth quarter that was sort of a catch-up from the third quarter. So that’s a bit of – a little bit we had to make sure we overcome that. The congestion, the supply chain with our suppliers as well as just the distribution side of things, that’s really tough to call how that’s going to play out. We are working it real hard, and we feel like we’re doing all the right things, but really, as you know, the whole world is working – dealing with that. So that’s a big deal. And I think also, we talked about the higher cost, so that’s something we are going to make sure we deal with. And so I think as we think about the – how the year and the second quarter plays out, I think we have a lot of good things going for us. But I think we will just know a lot more about that, all those headwinds when we get to the second quarter timeframe.

Yes, fair enough. That’s helpful. And I guess the last question is just around just the M&A environment out there and kind of what you guys are seeing and do you have any appetite there? I know – I guess bigger picture is then maybe part of the story, but certainly not hasn’t had nothing has really been happening on that front. But just when you get an environment like we have been through, sometimes that can shake some things loose, but just curious your broader thoughts on the M&A environment, your portfolio and what role that might play over the next 12, 24 months or so?

Okay. So I feel really good – as you know, we have added a team member, Rob George to focus on that and he is doing a great job really looking across a wide range of opportunities. We feel really good about the process we have in place. And we have done some things that weren’t acquisitions but were really been very helpful in our – in building revenue, things like the Bartesian partnership. So it’s not an acquisition, but it’s sort of a different way to kind of partner up with an outside group to benefit both of us. So, I think I feel good that we have a very good pipeline on both – particularly on the partnership front, things that could play out well for us here in the near term. On the acquisition front, we are talking to a lot of folks. The biggest issue right now that we are seeing is valuations. As you know, very, very well the home market is driving valuations really, really high. Also there is a lot of PE firms and specs run around trying to find targets and they are more – some of them figure the specs are focused on getting a deal done more than what’s the right valuation. So, I think – I feel better about finding some really interesting partnership opportunities such as the Bartesian than I do on getting an acquisition opportunity, but I will tell you, we are talking to a lot of folks. So, I think there is – I wouldn’t say that we would rule it out. It’s just that one is a little bit harder given the valuations.

Okay, understood. It sounds like a wise approach. That’s it for me. Thanks so guys. Appreciate it.

Great. Thank you.

And seeing none, I will turn the conference over to you for any closing comments.

Okay, thank you. As we look ahead, we are optimistic for many reasons. We are a leader in our industry and there is a proven durable demand beyond the pandemic-driven surge we have been experiencing. Our team is doing an incredible job for our customers and our company. We are very encouraged that vaccines are being widely administered and life has started to return to some level of normal. Our strengths from our investments should enable us to maximize performance, including our broad portfolio of trusted brands, our comprehensive offering, our experienced team, our global infrastructure, our broad range of retailer relationships across all channels and our well-developed e-commerce capability. We are excited about the many prospects for profitable growth that are available through our strategic initiatives. We are focused on strong execution as we work to increase our participation in the e-commerce, premium, commercial and home and environment markets as well as our heritage North American market. Thank you again for joining our call today.

Once again, I would like to thank you for participating in the Hamilton Beach Brands Holdings first quarter 2021 earnings conference call. You may now disconnect. Thank you.