Good day and thank you for standing by. Welcome to Hamilton Beach Brands Holding Company Q1 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to turn the conference over to your first speaker today, Lou Anne Nabhan, Head of Investor Relations. Please go ahead.

Thank you, Kris. Good morning, everyone. Welcome to our first quarter 2022 earnings conference call and webcast. Yesterday, after the market closed, we issued our first quarter 2022 earnings release and filed our 10-Q with the SEC. Copies 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. Also participating in the Q&A will be Scott Tidey, Senior Vice President, Consumer Sales and Marketing. 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 earnings release and our annual report on Form 10-K for the year ended December 31, 2021. 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'll turn the call over to Greg.

Thank you, Lou Anne. Good morning, everyone. Thank you for joining us. We're going to take the next few minutes to provide an overview of our performance in the first quarter of 2022 and our outlook for the year. We are pleased that revenue was in line with our expectations, down slightly in the first quarter. We said previously that industry demand would be slightly softer than 2021, mostly due to the comparison to stimulus spending last year. Additionally, we comped a record quarter last year, which also was significantly higher than our historical average. Lower sales volume was partially offset by pricing actions that became effective during the quarter. Our price increases enabled us to offset a significant amount of increased transportation and product costs. As I discussed during our third quarter 2021 call, like all importers from China in the second half of 2021, we faced the challenge of securing enough ocean shipping containers to move product from China to the U.S. at contract rates. We elected to secure a certain number of containers at premium rates in order to meet customer commitments and consumer demand for the holiday selling season. Persistent supply chain constraints resulted in the delayed arrival of some inventory, a portion of which turned in the first quarter of 2022, affecting short-term margin. Our 2022 pricing strategy covered our ongoing transportation and product costs, and we also expected these premium spot containers to be a pressure in the first half of 2022 when we communicated our outlook. More of the impact hit the first quarter than being spread out over the first half. So we think the second quarter pressure from these spot containers will be behind us. We also -- we were also impacted by geographic mix. Michelle will cover that in a…

Thank you, Greg, and good morning, everyone. Let me discuss our first quarter 2022 results compared to the first quarter of 2021, and then I'll discuss our outlook. Overall, our top line performance was in line with our expectations. Net sales were $146.4 million, a 1.9% decrease compared to a record 2021 first quarter. Revenue in our global commercial market increased $6.5 million or 76% as the food service and hospitality industries rebound from pandemic-driven demand softness. In our Latin American market, the momentum of the last several quarters continued and net revenue increased significantly. In our U.S. and Canadian markets, revenue decreased compared to last year's very strong growth, which was driven to a large extent by stimulus spending. Gross margin was 19.3% compared to 21.2%. Margin erosion was primarily due to less favorable product and customer mix. Higher product and transportation costs were mostly offset by price increases, except for the premium shipping containers that Greg discussed. The revenue growth in our global commercial market had a positive impact on margin with higher-priced, higher-margin products. However, this was offset by lower-margin sales in our Latin American market and the decline in sales in the U.S. and Canadian markets. In Latin America, price increases lagged due to long-term commitments on direct import orders. Selling, general and administrative expenses were $15.4 million compared to $26.4 million. The current quarter included the $10 million insurance recovery that Greg discussed. We maintained fidelity insurance and filed a claim to recover losses incurred up to the policy maximum. The claim was approved in the first quarter. The related receivable was inclusive of prepaid expenses and other current assets on our balance sheet as of the end of March. The receivable is reflected in changes in other assets within operating activities in the cash…

Your first question comes from the line of Justin Kleber of Baird.

Everyone, it's Justin Kleber. First off, Greg, I wanted to ask you, you talked about demand for the category remaining solid, which is encouraging. But how do you think about overconsumption in this category the past two years? I mean are you guys seeing any indications of unit demand that's been pulled forward as a result of the pandemic?

Justin, so I think so far, it has been holding up. As we mentioned earlier, we have not seen significant deterioration of unit demand. There's a little bit as prices have gone up, and there's really this window for the first 8 to 10 weeks of the year where there was a couple of stimulus checks last year, that certainly put a lot of noise in the year ago period. Easter moved around. So those are also -- makes it a little bit hard to read. But the things that were going on during pandemic, of course, were people staying at home more, but also a big factor of prepandemic was millennials moving into household formations, and that continues to go. And I think also with people staying home, often a lot of companies now, as you know, were hybrid and so they're home for a couple of days and working for a few days. So there is going to be more at-home activity than there was prepandemic also. So, so far, it's held up. There are a lot of moving parts, as you well know. So we're going to watch it closely. But so far, we have not seen a significant drop-off due to some sort of front-loading or people being overburdened with appliances yet.

Yes. Okay. That makes sense. And maybe somewhat related, just you kind of mentioned the prices going up in the category, right? I mean prices are going up virtually across every consumer product. So are you seeing, I guess, any customer pushback to date? It doesn't really seem that way, but any indication of maybe trade-down to lower price points in response to higher retails.

Yes, Justin, this is Scott. I think what we're seeing from the marketplace so far, the prices that we put through have been accepted by our retailers. The retail prices at the store or online have been adjusted to account for that. I do think that the retailers are starting to try to reset and rethink about, okay, if I had a $19 hand mixer and that's moved up to $23, I still feel like I need that $19 hand mixer. So we're going back and looking at -- the nice thing that Hamilton Beach has is we really have those offerings all across all the value propositions. So we're good and good, better and best in even the luxury position. So as we have to go back and fill in some of those retail gaps that have been abandoned because retails are going up, we have the products that are able to fill those spots and are being looked at today.

That's great color. The next question, just on the strength in commercial. The $15 million revenue figure for this quarter, notable step-up from the second half of last year. Greg, is there anything unique in that in this quarter from a timing perspective or a new customer win? Or is this kind of $15 million figure a good run rate we should be thinking about for the balance of the year?

Well, there was not a one-off large win that drove that. There really is very good broad -- we've got our food service business, and we look at it globally as well as North America, and we have our hospitality business focused on hotels. And really, they're all showing very strong demand. And a lot of it is related to a period of time when restaurants were either shut down or now they're opening up, trying to catch back up equipment-wise. So we sort of came into the year with growth building and it really accelerated in the first quarter. And when we look at backlog as well as go-forward projection, it seems to be widespread and seems to be likely to continue at least for another quarter or two. So it's always hard to get to know too much two or three quarters out. But so far, it's looking like you should see continued strength. Now last year, we started to build in the fourth quarter, so comps will get a little bit harder as the year goes on. But we're right now up against some pretty soft quarters in the second quarter and third quarter that should help us have a very strong growth rate for at least a couple more quarters.

That's great to hear. On the home and health -- or the home health and wellness categories, a lot of exciting developments in that space. I mean is there any way you could frame or characterize just the revenue opportunity from this broader initiative over the next year or 2? I mean is this meaningful in your view to the total company?

The goal is certainly make it mean -- I'm looking at Scott, the expectations for Scott to deliver with a smile on my face here. But I do think -- I think what I feel good about is we don't have all our eggs in one effort. So certainly, air purification is a proven business that is still strong that we have to win our share at, so that demand is there. Water is a huge existing one, but we're going to be breaking new ground with a electric countertop appliance or some of those out there, but it's not an established category. So when you're creating a category that's got great upside, but all sorts of challenges, you got to educate consumers on why they need it. But certainly, people have water pitchers in their refrigerator, water devices. So we do think there's a real good opportunity there. And then HealthBeacon, as an example, is a brand-new market. People are doing all sorts of things to dispose of their injectables now. And this really is the only one that has an app that allows you to improve the adherence, which is really exciting for caretakers. If you've got a child or a parent that you're trying to monitor or a child or -- really, that's an exciting thing. But again, it's new and we've got to educate people and educate caretakers. So I think there will probably be uneven growth and probably fits and starts, but over the course of the next one, two and three years, I think I'm very excited about and believe that we're going to generate nice growth from the portfolio of activities I just mentioned. I'm not sure which ones will be the lead and which ones will be to follow, but we feel pretty good about the numbers there.

Yes. And I will just add, Justin, these categories that we're getting into, both in the air and the water segment that Greg talked about, are very nicely balanced from an online and brick-and-mortar perspective. So again, we feel like we have got a good infrastructure that can help build share in both these segments. And then just also add that they also have come with the consumables. So another focus that we've been trying to get to, which is not just selling the appliance and then walking away from the consumer, but continue to engage with that consumer for many, many years to come with the consumable.

Yes. Okay. Two more questions from me. Just on supply chain and given the lockdowns in China, how would you guys characterize the magnitude of disruption today versus what you've been dealing with at various points in time here over the past few years? And just trying to understand how you feel about inventory flow and your ability to secure product ahead of this year's holiday selling season.

Sure. So I'll sort of give you a flavor for the current situation. Again, it's -- things seem to always pop up here that we didn't expect on a go-forward basis. That's a little harder to talk about. But so far -- and the good news, first of all, is we have about 100 employees in China. So we have folks on the ground that are impacted, but it will really help us navigate in a way that maybe some companies don't. So that's been a huge benefit. A very, very strong team in China that's been with us for many years. We have a very diverse supply base. So we are spread out over a wide range of suppliers, which, again, doesn't have us rely on one or two particularly. And so far as these shutdowns or disruptions have rolled through, they were in Hong Kong and in Shenzhen, and they've moved up into Shanghai and now on our way up to Beijing, the disruptions have tended to be a few weeks at a time and a supplier here and a supplier there or a port for a short period of time. They have not been massively disruptive to us yet, fortunately. So we're going to have some ups and downs on supply, but nothing that is dramatic. Now as the year goes on, if something were to happen and the port goes down for a longer period of time or right during the peak season, build those issues, of course, that might come back to bother us and everybody. At the moment, for small appliances for Hamilton Beach, it's been manageable. Certainly, we still required a lot of hard work by people but it's been manageable from the standpoint of keeping our customers supplied.

Okay. That's good to hear. Last question just maybe for Michelle on the guidance for operating profit to increase this year. If you exclude the insurance recovery, I mean do you still expect that to be the case?

Justin, I would say we haven't moved off our guidance from year-end. So maybe just remove the word significantly.

If there are no further questions at this time. I'd like to turn the call back to Greg Trepp, President and CEO.

Thank you. As we look ahead, even as we address the many ongoing challenges facing our company, industry and all businesses, we're optimistic for many reasons. We're a leader in our industry. There is proven durable demand. Our broad portfolio of trusted brands, our comprehensive product offerings, our experienced team, our global infrastructure, our product range of retail relationships across all channels and our well-developed e-commerce capability are all key competitive advantages, which enable us to maximize performance. We're excited about the many prospects for profitable growth that we believe will be available through our initiatives. We're focused on effective execution as we work to increase our participation in premium, commercial home health and wellness markets as well as our core market. That concludes our report today. Thank you for taking the time to join our call.

This concludes today's conference call. Thank you for participating. You may now disconnect.