Q2 2021 Hillman Solutions Corp Earnings Call
[music].
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Okay.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Hillman companies 2021 second quarter results Conference call. At this time all participant lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press Star then 1 on your telephone.
Telephone please be advised that today's conference is being recorded if you acquired any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today, Jennifer Hills, Vice President of Investor Relations. Please go ahead.
Thank you Sarah Good morning. This is Jennifer Hills, Vice President of Investor Relations.
<unk> said Hillman. Thank you for joining us this morning to review and discuss Hillman second quarter 'twenty 'twenty..1 earnings results. Joining me today are Doug Cahill, Chairman, President and Chief Executive Officer, and Rocky Crap, Chief Financial Officer, a copy of our earnings release and slide presentation can be found under the.
Relations section of our website at Www Dot IR Dot Hillman group Dot Com <unk>.
Before we begin we would like to caution you that certain statements made today may include forward looking statements that are subject to the safe Harbor provisions of the securities laws.
These forward.
<unk> looking statements are not guarantees of future performance and are subject to certain risks uncertainties assumptions and other factors.
Many of which are beyond the company's control and which could cause actual results to differ materially from those projected in such statements.
Some of the factors that could <unk>.
<unk> the company's results are contained in our periodic and annual reports filed with the Securities and Exchange Commission.
Please see slide 1 in our earnings call deck for more information regarding these risks and uncertainties.
We will begin the call with a business update from Doug followed by Rocky.
<unk>, who will be providing a financial review of the quarter well, let me turn the call over to Doug.
Thanks, Jennifer good morning, everyone for the past few weeks have been an exciting time for Hillman with the closing of the transaction with land JV of 3 and on July 15th ringing the Bell.
Publicly traded company on NASDAQ under the symbol <unk> and then with the transaction complete and the recapitalization of our balance sheet, we are even better positioned to do what we do best.
Solve complexity labor and logistics problems for best in class retailers from Big box to your local.
<unk> of our stores and I can't remember a time when these were more important to our retailers and they are right now we're excited because there's hillman remember nothing happens until you sell something.
Unique model continues to result in share gains and new business wins in the second quarter. This.
This includes <unk>.
Adding in additional stores for construction fasteners, nice wins and builders hardware and continue momentum in the traditional channel. We are continuing to gain share in important growth categories. As we help solve 2 of our retailers' biggest challenges logistics and labor by shipping to over 40000 locations.
<unk> and having our people in the stores each and every day, helping to ensure the product is available and easy to find when the retail customer walks into the store.
And the same is true for our robotics and digital solutions business. We are the leader in innovation for key and 5 duplication.
<unk> had engraving and knife sharpening businesses, we have designed developed and manufactured all 34000 Geos machines located in retail stores throughout North America and continue to own and service every machine out there these robotics and digital machines helped drive in store traffic.
Pat provide great margins in our destination purchase items for our retailer.
We have significant runway to continue to expand our product offerings and to take share both organically and through M&A and we're fired up about what's ahead.
Year to date through the first 6 months of 'twenty.
'twenty, 1 we've grown sales 11, 6% and adjusted EBITDA 8.9% during the second quarter of 2021, we were up 8.4% of net sales.
And adjusted EBITDA increased 4.6%.
I'm very happy with the topline and while our bottom line.
Line growth lagged our top line a bit this is mainly due to commodity freight and ocean container inflation that we've absorbed in the first half before we successfully implemented our initial price increase that went into effect towards the end of the second quarter.
As we continue to monitor inflation.
Please steel freight and ocean container costs, all 3 continue to rise really across the board and therefore will be taken additional price to cover higher costs, which should take effect during the fourth quarter.
Let's talk about the second quarter as previously discussed in early March.
We saw the rapid slowdown of our protective solutions business, which was down 21, 5% in the quarter as vaccinations rolled out much faster than any of US imagined we entered new PPE products last year during COVID-19 with masks wipes sprays and vinyl disposable gloves at the urging.
None of our customers. It was good for our customers their customers as well as Hillman as a result of the earlier than planned slowdown we had negative comp in protective solutions and began the quarter with excess PPE inventory just like everybody else, we worked with our retail partners.
And have made progress this quarter working down this inventory through markdowns and promotions and donation efforts to those still in need we.
We saw a stronger than expected recovery in our robotics and digital solutions business, which was up 57% in the second quarter in our Canadian business.
<unk> was up 32%. We also saw continued solid demand in our U S hardware solutions business, where we were up 5.6% on top of a very strong performance in 2020. These gains really demonstrate the strength of Hillman as operating model and exceptional.
Kyushu by our in store sales service and supply chain teams. Let me give you a few examples during the second quarter of why this is our competitive moat and the secret sauce of Hillman 3 quick examples first in April we replaced a 25 year incumbent supplier.
<unk> at a major retailer with a brand new 8 foot program in 1600 stores flawlessly why.
Because we have a better mousetrap and they know our people are the best in the business when it comes to resets merchandising and category management.
The second.
Second example is a new 8 foot expansion of builders' hardware and construction fasteners and 450 stores at a major retailer and I love. This 1 because it didn't come from an incumbent it's brand new shelf space from vendors outside our categories, losing shelf space to us because RG.
Piracy and programs continue to outperform and finally today hopefully around 2 o'clock, rocky and I havent under and over on that we'll finish the 150 store reset at another major retailer for construction fasteners at 97% on time and complete.
<unk>. This is 32 linear feet of shelf space.
These 3 new programs are well over 1000, Skus and to me I think it's a great example of belly to belly selling and execution at its best.
Let's move to sourcing consistent with what others are experiencing.
If you're sourcing products from overseas like most of this industry does the lead times have almost doubled due to container and vessel availability challenges, but I'll tell you.
Having the 1100 Hillman sales and service folks in the store every day combined with our long term customer and supplier.
<unk> mission shifts.
Really differentiated Hillman from the rest of the pack over the past 15 months and I'm Super proud of the team.
Given these supply chain pressures and spikes in demand, we're really proud to say our fill rates led our industry last year at 93, 5 and we continue to hover.
We're really in the low nineties through the first 6 months of 2021, I'd really like to say, it's easy since we've been doing this for 57 years, but there really is nothing easy about flowing goods to restock shelves in North America right now.
Thankfully, we continue to outperform our competitors due to our unique.
<unk> model.
Rocky and we'll have more to say about the outlook, but I'd like to note a few things first it has been a difficult as ever in my career for us and our retail partners to accurately plan our business given the wide swings in demand for our products first during COVID-19.
And now this post Covid phase.
Covid impact both up and down on everything from PPE to home improvement items to keys.
Plus the impact on retail prices I mean, just look at lumber prices quadrupling before recently and thankfully coming back to reality.
<unk> and its impact on all our input costs from commodities to shifting to labor has really made planning very tough.
The Covid bump and then drop with PPE products unless face at this week's announcement on Tuesday by the CDC makes it difficult to predict worsening.
Where things go from here.
That said our hardware business remains the absolute engine of Hillman through the first 6 months of 2021, our hardware solution sales were up 7.9% over a super strong 2020 and up 21% over 2000.
In 19, if we look at that as a more normal year.
During the third quarter Hillman and our retail partners are planning for challenging comps in categories like deck, and drywall screws, but let's think back to last year at this time, a big Saturday event was a trip to load.
Home depot Ace or your local petsmart and now this summer thankfully consumers or visiting family and friends and getting back to recreational activities and travel while end market demand remains firm. We anticipate these 2 categories could comp negative in the third quarter due to the tough.
Our sins, but this should be more than offset by the new wins and pricing, resulting in a low single digit growth rate for hardware solutions in Q3.
Our new business wins, and anticipated resumption of home and backyard projects once the kids get back to school should lead to a stronger.
<unk> fourth quarter, and all around hardware solutions growth rate for 2021 of 10%.
In closing, we can't control the moving pieces in our end markets caused by Covid, but we can control, how we respond and I am proud and impressed by the agility of our people and what they've been able.
To accomplish so far in 'twenty, 1 we have taken market share 1 new business maintain industry, leading fill rates rolled out new innovations.
<unk>, our employee strengthen our balance sheet and taking pricing actions to try to mitigate unprecedented inflationary pressures.
These actions have enabled us to profitably go year to date EBITDA 8.9% above 2000, Twenty's COVID-19 fueled levels and 21, 1% of dove above a more normal year of 2019.
More excited than ever about.
This platform for growth going forward and our new balance sheet.
We've built around our businesses provides us a competitive advantage and further strengthens our relationship with our best in class retailers, we are well positioned to take advantage of opportunities as we continue to execute on.
Our long term growth objectives with that let me turn it over to rocky to provide some more additional details on the quarter and year to date results as well as well as what all of this means for the rest of this year and next rocky Thanks, Doug.
On a GAAP basis, our net sales.
On our second quarter of 2021 with $376 million, an increase of $29 million or 8.4% versus the prior year quarter.
The increase was driven by 64% growth in our key business, 39% in engraving and 32% growth.
And Canada is all 3 were negatively impacted in the prior year due to COVID-19 as well as continued growth in hardware solution sales, which were up 5.6%.
Offsetting this growth was a 21, 5% decline in protective solutions sales due to the reduction of COVID-19 induced buying of PPE.
Such as masks and disposable gloves.
Year to date net sales were $717 million, an increase of $74.5 million or 11, 6%.
Growth was driven by the recovery in the key business in Canada and continued growth in the hardware business and Covid related sales.
With gloves and masks in the first quarter.
As we discussed on our first quarter call. We continued to benefit from incremental sales of Covid related protective products in the first quarter until about the first week of March when sales dropped significantly due to the faster than expected rollout of vaccines and a proliferation of products in the retail channel.
Channel in the quarter, our gross profit increased by $9.4 million over the prior year quarter to $160 million.
Gross margin rate contracted 90 basis points to 42, 5% from 43, 4%.
Adjusting for buybacks margin rate in 2021 was essentially flat with the prior.
Sales as increased sales of higher margin Rds products, we're able to offset margin pressure from increased sales and the lower margin construction fastener category and inflationary factors.
Year to date gross profit increased $20 million to $299.7 million.
Gross.
Per year and contracted a 170 basis points to 41.8.
$43.5 due to cost inflation and adverse mix.
SG&A expense on a GAAP basis in the second quarter increased 17, 6% to $111.7 million and as a percentage of sales increased to 20.
Margin, 7% from 27, 4%.
Excluding $7 million and costs associated with the <unk> merger and litigation costs SG&A expense increased 10, 4% and was 27, 2% of sales.
Selling expense increased by roughly.
$5 million driven by increased marketing spending.
Incentive compensation and higher travel and entertainment after a significant decline in the prior year due to Covid lockdowns.
Warehouse and delivery expenses increased by $5 million due to higher sales volume and higher freight costs due to inflation.
<unk> year to date, SG&A increased 16% to $215 million and as a percentage of sales increased 130 basis points to 30% or up 8.5% or only 50 basis points, excluding the above mentioned items.
Higher selling expenses inflation in warehouse.
And delivery costs were the primary drivers of the increase.
Excluding the impact of certain restructuring and other costs adjusted EBITDA was $64.5 million in the second quarter up 4.6% increase from $61.6 million in the prior year.
Year to date adjusted EBITDA increased $8.
2% to $112 million from 103 in the prior year.
Please refer to our 10-Q and investor deck for reconciliations of net income to adjusted EBITDA.
Now, let me turn to cash flow and the balance sheet.
Year to date in 2021 operating activities used 60 million.
Of cash as compared to a $12 million source of cash in the prior year.
The primary drivers of the change were an increase in inventory to support new business wins and sales growth and increased in transit inventories as we have had to order more product to accommodate for longer longer shipping lead times and cost inflation.
9 year to date net cash used for investing activities was $62 million as compared to 23 million in the prior year and included the acquisition of <unk> building products in the second quarter.
Capital expenditures were $22 million and relatively flat year over year, and we're invested primarily in our robotics and digital solutions equipment.
<unk> <unk> racks and important part of our high return Capex initiatives.
Maintenance Capex remained near 1% of sales as expected.
At the end of the second quarter of 2021, we had $1.7 billion of total debt outstanding and $64 million of availability under our revolving credit facility.
In March for a net debt to trailing 12 months adjusted EBITDA ratio of 7.1 times.
Post the closing of the merger with land Katy on July 14th and the recapitalization of the balance sheet, we had $944 million of debt outstanding and roughly $58 million of cash on the balance sheet for a net debt to trailing 12.
<unk> months adjusted EBITDA ratio of 3.8 times.
Similar to the experiences of many companies over the past year Covid has had many different impossible to predict impacts on our business as during Covid and people were stuck at home businesses were closed.
We saw a pickup in hardware sales as <unk> were at home and tackled.
Facility projects, while the professionals were not able to get into homes to complete work.
We were able to opportunistically take advantage of the strong demand and lack of supply of personal protective products, such as disposable gloves and masks.
Offsetting this was weakness in our key engraving businesses due to significantly reduced foot traffic at our retail customers.
<unk> stores.
With the waning of Covid, we began to see a reversal of some of these trends.
To cut through this COVID-19 noise, we like many of our peers and retail customers believe comparisons of 2021 to the pre Covid noise 2019 is helpful. It also better reflects the strength in our underlying businesses.
Called home, we have provided a 2 year growth comparison of our results for the second quarter in our slide presentation, which shows that overall sales in the second quarter increased 15, 7% from 2019.
We also showed strong revenue growth across each of our segments with hardware and protective solutions up 16, 2%.
<unk> and digital solutions up 10, 3% and Canada up 21.5.
Similarly, we experienced strong growth of 19% and adjusted EBITDA and 50 basis points of adjusted EBITDA margin expansion.
At the segment level adjusted EBITDA from 2019 grew 15% and hardware.
<unk> protective 'twenty.
27, 4% at robotics, and digital and 11, 9% in Canada.
We want to highlight that this was all organic growth.
As you can see from the 2 year growth comparisons our businesses remains strong despite COVID-19 induced volatility.
As.
Robot locked down our first half and done a deeper dive into our business segments with some better visibility into what a post COVID-19 environment might look like for our retail partners and end markets. We have modestly reduced our outlook for the balance of 'twenty, 1 and 'twenty 2.
We expect to see continued recovery at Rds in Canada and solid topline.
We have now growth in our hardware solutions business. So not much has changed in the aggregate there.
But continued inflationary pressures, primarily in our hardware business and the delayed timing of offsetting price coupled.
Coupled with downward revisions in our protective solutions business are reflected in our new outlook.
Rolling this up we remain optimistic on reaching.
<unk> initial projections of $1.4 billion in revenues this year and growing to 1.5 billion in 2022.
After consideration of all the moving pieces of our business, we believe prudent expectations for adjusted EBITDA to be approximately $220 million to $230 million for fiscal 'twenty, 1 and our.
Our early preliminary read on 2022 is $245 to $255 million.
These compare to $179 million in 2019 and $221 million in 2020.
We remain confident in our long term organic growth goals of 6% topline and 10% adjusted.
<unk>, our EBITDA growth and we also look forward to completing highly accretive low risk M&A.
With that let me turn the prepared remarks back to Doug for some closing comments before we take questions.
Thanks, Rocky since we started this journey to becoming HL MN, Rocky and I have been transparent and that will never change.
<unk> right now, it's as crazy as I've ever seen it out there and I've seen crazy, but my team and I feel confident that we can do to 20% to 30.
This year in EBITDA.
And next year $245 million to $255 million.
We love, our customers and our people and honestly I'm glad.
Change has to compete with Hillman.
Sarah can you open the call up for questions.
Thank you as a reminder to ask a question.
Need to press Star then 1 on your telephone to withdraw your question. Please press the pound key.
Our first question comes from the line of.
Reuben Garner with the benchmark company. Your line is now open.
Thank you and good morning, everybody.
Robin.
So maybe.
Just to start on.
The hardware inflation piece can you.
I guess walk us through what chase.
I don't know.
For you guys I think.
Previously you were expecting to because of the timing of when the inflation hits you thought the price would offset it can.
Can you walk us through what inflation, you're talking about is it just materials or are you talking about other things like labor and transportation and that sort of thing.
That's gotten worse than than expected.
Yes Reuben.
Here's the here's how I think about it.
We basically put in a price increase effective the end of the second quarter.
Remember with our customers, we give them roughly 60 to 90 days notice so they can figure.
Figure out what theyre going to do with retail prices.
So basically tax day.
Is April 15th is when we needed to kind of lock and load.
On what we thought would be the right level and we felt good about that and I can tell you since April 15th.
<unk>. This thing just continues to go up in it.
It's getting on a ship its.
It's getting this year and what it cost it's getting it to Dcs and stores and steel has gone crazy.
I would love for steel to do what lumber has done, but it hasnt and you've got currency as well.
In the in the steel side of it so it's those 3 things and Thats the difference.
Now we will price for it as we have but again think about the math will be doing that we'll be working with our customers. We've always been able to do that but you are pretty much talking about effective dates.
Dates in the fourth quarter and the way I'm thinking about it Reuben is that this 1 because it's so crazy is probably a temporary pricing movement and it could swing with the way things are going because honestly. This 1 just continues to run and we don't know what it's going to do.
Okay. That's helpful and then.
On.
The top line growth outlook for hardware, specifically can you tell us what how much prices in there.
I think you said low single digit growth was that just hardware or was that hardware and protective in Q3 if.
If you could clarify.
For that as well.
Yes, so as you think about the price volume mix room, we think for the full year as Doug said in his prepared remarks that will be up 10% in the hardware business off a crazy strong 2020. So we're really proud of that inside that right now is about 3% price and as Doug said sorry 3.
3.5% price and so you can obviously do the math on volume.
As we go through the end of the year again, we will be we plan to take a little more price and so that could get a little bit better but again if it comes really late in the year, which is likely it's going to be those are the rough numbers, where it will end up.
Okay and virtually.
All of that is in the second half correct.
The price impact, yes, correct and when Rocky says.
We'll see a little of that it's just that we've seen increases that are more than a little but we're basically going to only see the positive impact of the next pricing.
Towards the end of the year.
Got it and on the protective side.
In Q2, it looked like I understand the elimination of masks and rubber gloves and.
Chemical cleaners and that sort of thing was there anything else go.
Going on.
Tore specifically hit Q2, I don't know if it was a tough comparison, but it looked like it was kind of comparable to Q2 of <unk> 19 is that the way we should think about protective as we move through the year as similar numbers to.
2019 on a top line perspective, yes.
Yes, Ruben I would say that actually the base business, so lets pulse co.
On that out.
It was really solid and remember last year in the second quarter.
The lawn and gardens sections were closed.
There was just a lot of folks just trying to keep stores open and get people to work. So our base business would show that we had a nice second quarter.
Our base business, it's just that last year.
We shipped everything we had as soon as we could.
With what went on around the Covid stuff.
But now our base business is solid I'm really happy with it.
Okay.
Last 1 for me I understand.
In the near term dynamics every company in the broader housing and building products and industrial space is dealing with.
These crazy times, what is behind the outlook for.
For next year, you just because there's so much unknown and it doesn't seem to be stopping or are you just baking in some extra.
Our incremental.
Inflationary pain or what's what's behind the slight cut for next year's outlook.
Really a couple of things 1 it's just that with the way it's moving it's just it's scary because again.
<unk>.
Never seen anything like this and so what we're seeing Rubin for example, right now is.
We've got people that are bidding for $5.6 times, what we pay to get on a ship.
And so as I think about all of that you have to make sure you get the product.
And so that concerns me and then as we think about gloves.
Disposable because we've talked about this before.
Our disposable gloves business back in 19 was really a great mix. It was about 85% Nitro about 15% vinyl you use vinyl for the.
Paint guys and that's really what we'll be doing in 'twenty 2.
Initially our customers were saying to us we'd like you to do more in the disposable gloves ongoing because you've done such a great job, but ruben.
So much global capacity thats been put into the disposable market.
I don't think we want to play in that market. So were going to go back to basically a business and disposables that was like it was 19, because I don't want to be in the food fight on disposable there's just too much capacity out there. So those are the 2 things, yes, Reuben just to add to Doug's point I mean, it's July 30th we're looking 6.
6 months from now.
Looking back a year it was unprecedented times and we've told everyone that we believe we grow this business, 10% from an EBITDA perspective. So if you take the new base. It's just prudent at this time to say, we will grow 10% not something above that and that's kind of how we've thought about it coupled with the thoughts.
As Doug has thought about the market.
Perfect and I said last 1, but I'm going to sneak 1 more in you are at 3.8 times now after the deals closing work can you talk to us about.
What all of this means from a cash flow perspective.
The deleveraging trajectory will look like because I'm, assuming the faster you can get it down.
Carrier.
Or the more active you can be in the M&A market.
Yes, so what I would tell you Reuben is we will have some modest deleveraging. This year it will probably be less than we had anticipated just given the inflation that we're seeing in the commodity costs in the business and so we will use a bit more working capital than we.
And as we think about 2022, it will be our intent.
Generate over $125 million of free cash flow and we'll use that cash to do to pay down debt unless we see some really significant highly.
Highly accretive low risk M&A in which cases, we think our shareholders would want us to do that.
Great. Thanks, guys. Good luck going forward.
Thanks Sherman.
Thank you.
Next question comes from the line of Ryan Merkel with William Blair. Your line is now open.
Thanks, Good morning, guys.
Hey, Ryan.
We had planned change in our EBITDA outlook for 2021, it looks like it's $10 million to $20 million lower than previously how much is price cost timing versus the bigger PP&E headwind.
Yes, I think Ryan if you go back at the end of the first quarter. We didn't know what was really going to happen I think our call was around.
May 11th, but we had seen PPE stop.
2 things have changed since we talked to you last.
1 is to move PPE honestly.
Doesn't matter now who knows what the Hell is going to happen with the CDC, but and then what's going on out there right now, but but Ryan you can.
Particularly discount stuff.
2 a dime and you couldnt give it away.
Consumer said I'm done I don't care and so what we were trying to figure out is how do we move through this and get our money back and that's where that's where we've been working on.
At the beginning.
In May we didn't know what was going to happen, we didn't know where it was going to be so that's part of it and then the other part is simply the cost side of nuts and bolts and screws.
And our ability to price fast enough with how it's moving not dimension getting on a ship and getting here those are the 2 pieces.
Based on it yes, it makes sense to be prudent at this point about 2022, so I see why you did that.
And then my follow up I, just want to be clear on this I know you have 2 price increases out there. So I guess 2 questions..1 have you seen any pushback from your customers I think the answer is no, but just to clarify that because I think it's a big point and then secondly.
When are you.
You're going to get back to neutral on price cost I know, you're guessing, but it sounds like the end of this year, so just clarify that as well.
Yeah. So first of all remember the ink hasnt dragged our letter for the June 30.
I mean, we really wanted to wait until we saw we thought if we waited a bit because we saw some people go in April.
In May we said guidance moving around so much let's wait.
So we went and then basically was effect of second half of the month of June. So now we're sitting ended July we're having the conversations with the retailers. They know what's going on there getting crushed across the board.
And so what we're trying to work through as the timing and I believe that we should do this 1 based on a temporary so that after a 90 day period, if things come back to Earth.
<unk> will be fine on that second 1 but to answer your last question Chris.
We should be at a run rate, we should be there right Rockies, that's kind of what it feels like right.
Okay got it thanks I'll pass it on.
Thank you. Our next question comes from the line of David Manthey with Baird. Your line is now open.
Christmas Hey, good morning, guys, Hey, Dave.
I'm wondering if you have a clear vision for the ramp of the Fob and re sharp is there a contractual number of units that youre going to be placing at any point, how should we think about the ramp there.
Yes, David was talking about <unk> first as we've said this 1 is really cool and we can either build it into our full serve key machine or do stand alone and and we've also said that this is not in the middle of Iowa. This is really around population areas, but we're super.
We're excited as Walmart.
Lowe's and depot have all taken it and we're rolling those machines out.
Believe it or not we.
We got caught a little in the chip thing, but we're small enough to where we've been able to catch up so I think we're in good shape there.
And that rollout.
<unk> schedules kind of evolving and going as fast as we can but people are happy with it I know that we're happy with it on re sharp it's ace hardware first until we get to those 3000 machines that they've ordered and in that case, we've got enough to make X I won't tell you the number but we are.
Waiting for chips.
Just like the car guys for that machine, but <unk> is really happy is really interesting. We basically said to our partner today's hey, why did you guys see if you can get them because we weren't on ebay and can't get them and they came back and said no. We can't get them either so we're just going to be working through that.
As chip available they comes but rocky at the end of the year will be work on machines.
Richard will probably be close to 505.600, probably day by the end of the year and I was hoping we'd be at a 1000, but we just we got it.
I didn't know it was the same chip as a car, but it's the same thing.
The interesting thing the only the only color I would give to what Doug said there is given the timings of the rollout and the chips. We think we will be a little behind plan as you think about revenue from those programs, but year to date and even through the rest of the year, we actually feel really good about profitability of the ASP.
Is actually above what we had planned and so we're.
Seeing some nice profitability, although it is still very minor.
That's a good point, David won't really have an impact because until we get about a thousand we're not going to start turning on the marketing machine with a so yes rocky good point.
Okay. You may have touched on this but as you look at the 2022.
2 outlook relative to 'twenty, 1 I think it's about 7% growth.
When you think about those 2 concepts together what type of contribution are they making to that 7% growth rate is it a meaningful amount.
It is not meaningful.
Frankly, even as we've modeled out several years internally.
Top line from those businesses is only 2% to 3% of our business. So the top line isn't meaningful when you start to think about EBITDA. Several years out we do believe they can be meaningful just because of the flow through that you have in those businesses as we've talked about 70% EBITDA margin.
Because they are.
They are service related businesses that don't have cost of goods, we love those kind of businesses.
And rocky that the 2% to 3% you just mentioned what was that in reference to.
The sales side.
On the sales side, just thinking of it as a percentage of total Hillman.
Yes.
Okay, that's 2022, you're saying.
No it's actually in out years past 2022, so again, they're relatively minor when you think about the top line relative to the whole of Hillman, but again as we begin to grow those we do love the profile from an EBITDA perspective, because of the service related nature.
Yes.
Got it okay. Thanks for the help.
Sure.
Yeah.
Thank you. Our next question comes from the line of Josh Gonzales with Blackstone credit. Your line is now open.
Hi, I appreciate you guys, taking my question I guess just.
Kind of dive into that 10 to 20 million.
It was just a lower guidance for 2021 would you guys be able to kind of I guess parse out like what amount of that is just P. P not being.
Staying at the same level in person to kind of the price cost free.
Nature of the impacts from passengers.
So here's how I would think about it we said $22.30 to $2.40, We said there was 10 million of pressure after our first quarter call and that was all from the PPE.
We've obviously moved off that number.
If you pick a midpoint on.
20% to 30, right and say to twenty-five that's kind of $5 million of additional pressure.
We would say that most of that is from the inflationary pressures theres a little bit more PP&E, but we had most of that baked in.
Okay great.
Or is it just you're saying that the majority.
You already have that's P. P and he then at the end of the day.
No no no no I'm, saying the change from first quarter to now if you went to 40 right down to somewhere between $2.20, and 230, we would probably tell you north of 2 thirds of that is the PPE reduction the remainder of the inflationary pressures that we plan to offset.
Offset by the end of the year.
Okay, Okay, great and then it sounds like volumes in fasteners or still pretty favorable.
But yet again to 3.5% price increase.
Do you guys see the volumes are holding up through the end of the year are you thinking about that yeah I'm Super happy.
With that business and Josh remember 3.5% is just because it's only a half a year. So the price increase was bigger than that but but.
We're doing really well and if you think about it I mean in this environment to.
To take 30 to linear feet at 150 stores.
With X thousands of Skus and the set it at 97% I mean, even the retailers, saying Holy smoke. So they just do a really good job in that team's been doing a long time, so I feel great about that business, but you don't grow the way we're growing if you don't take share and we.
We're continuing to pick up share feeling good about it.
Okay. So a lot of that volume growth is that demand related or is that just you guys are the share gains the theme of the day. Yeah. I think if you go back to the way we've looked at it rockets, it's still pretty pretty good model.
When we think about 6%.
And except the pricing that will take place in the next 12 months I would tell you as we've thought about our modeling compared to our model, obviously, we're a bit above it this year on the hardware side.
Other than the pricing.
If you take that out and you say $6.5 7% of volume.
The gear.
It's pretty close to what we think we probably should have seen a little bit more market, but we've also taken a lot of share and we're really proud of that and I think we will continue to as we think about 2022 in the future, Yes, Josh I think every investor has said hey come on.
Deck screws in drywall screws last year went crazy and and that's the probably the negative.
Sent or jump, we will see in the third quarter, but we're still gonna be slightly up.
Which is I think impressive in and then when people get back to school Theres going to be projects. Everybody believes this thing is going to fire back up but right now theres just everybody finally, getting the heck out of the house and we're hoping they can stay out of the house.
Yeah, Yeah and then.
Again, sorry for the details are you guys I think you said 455 stores.
Fully offset some of that pork com.
I guess, just can you kind of give us the size in terms of maybe revenue that that opportunity.
Yes.
We won't do that Josh because I don't want to protect the retailer we don't want a retailer to be looking at another retailer and say huh.
They do this in this so no I'm not going to I'm not going to talk about the retailer or the size just because it's just too important that we don't say things that would.
Represent put our retailers worldwide did you say that.
Okay, Alright, I appreciate it thank you.
Thank you.
Our next question comes from the line of <expletive> Ryan with Colliers. Your line is now open.
Thank you.
So Doug you mentioned this as being a crazy time.
And some key wins here, but can you talk about how.
The conversations are going with either the big box or other retailers as they look not necessarily next year, but 3 to 5 years down the road and how you might fit into maybe they are changing their plans on that.
It's interesting.
Being a deck, they're super excited about the fact that we just took that from $1.7 billion to 2.
Call It 50 or whatever the number is I mean, we basically cut our debt in half they loved that what they don't want us to do and I'll be with the CEO of 1 of our big retailers This weekend and what they don't want.
Want us to do if they don't want us to just go buy stuff that could be big.
They've seen companies.
Start, believing their road show and doing silly stuff in and they say as long as Youre doing things like you've done that fit into our strategy, but we don't want to see it.
And the stuff that doesn't have anything to do with us.
So you know, we're going to hang around the rim with them and I feel really good about it but they are excited about the debt going down. They really think this is the best thing for the business and they just want to make sure.
We stay on our strategy, which we're not.
Getting off.
Okay, and just a clarification I thought I don't have the slide deck open, but I thought I saw when I looked earlier.
Amtrust 30 million a year Rocky is that something now for 'twenty 2 as we go forward.
Yes, yes, that's a good number.
Okay. Thank.
Thank you.
Situations.
Thanks, Nick.
Thank you our next.
Question comes from the line of Daniel Lupo with Jefferies. Your line is now open.
Hey, Thank you very much for taking the call today.
Can you maybe comment a little bit about the M&A environment. What are you seeing out there is there anything kind of actionable or are.
You're kind of on pause for now.
Until some of these headwinds kind of passed by.
We're not a pause but may have more at dollar general.
We're not going to overpay for anything right now Daniel and that's a good place to be and we've had some really interesting conversations I gotta be honest.
It follows ring in a bit more now that they see our new capital structure, but what we're doing is I don't want to waste my team's time and certainly not my time, we're saying listen we like the thing we know if we put your stuff through our goes we're going to grow but here's kind of what we're thinking for from an EBIT.
Multiple standpoint, and if you're interested we'll go if not don't waste your time or ours.
And I think youll see us be successful in that area, but take Hh I as an example, that's been announced.
You've got brands like.
Quickset and SR and.
Honest, but that's going to go at retail pricing that's going to go at a strategic multiple that's not us we're not going to do that kind of thing. So I think it's probably going to be a pretty good time, because I got to tell you.
Just think about this we do 19000 containers.
A year.
Asia.
People, who don't know how to do this are getting their heads handed to them.
And so theres going to be some people who are going to want to hook hook up on I'm trying to figure out how to how to whether what's going on and I feel good about our chances, but no we haven't stopped.
Okay.
That's helpful commentary and then just last 1 for me here is can you maybe comment a little bit more on working capital kind of how do you feel about that today are you over inventory in any places under inventory in any places and how do we kind of think about that the rest of the year.
Yes, So I think as you think at June 30th obviously, we do still have P. P F.
Inventory that then I would say we're over inventoried on although we do still have some masks in the warehouse and we will see depending on what happens over the next month or so we're working through that with our with our customers and we think we'll have that cleared out by the end of the third quarter.
As you think about the remainder of the business.
Lead times have lengthened.
And pretty dramatically across the board as you start thinking about products coming out of Asia, and so our inventories are up they probably will remain elevated through the rest of the year and so I think as we think about the current year. We do believe we will have a little more working capital usage than we had in our initial plan.
Think about inflation, you think about those increased lead times and needing to have more product on our books. That's on the water to make sure that we can fill and fill our customers at plus 90% rates, having said that as I think I said to 1 of the earlier questions. We do believe as we think about 2022.
Or 2020.
3 when inflation begins to come down I think you will see us generate flip that working capital generate cash and we're confident that as you think about 2022, we can generate $125 million plus.
Free cash flow.
And Daniel the only thing I would add there is you cant have a 90.
You need that plus rate in today's environment fill rate.
If you keep your inventories flat just not possible.
And we're going to keep our fill rates at 90, plus and that's probably part of the reason that our competition isn't because it's just really hard to do and you've got to play.
We're going to play to win.
Yes, no that makes a lot of sense. Thanks.
Thanks for your time today guys I appreciate it sure. Thanks.
Thank you.
Last question comes from the line of Andrew Berg with post Advisory Group. Your line is now open.
Okay.
When I was just going back to the slight adjustment to outlook you guys are pretty good in say 2 thirds was PPE..1 third was price cost if we focus on the price cost component of that you had mentioned.
Increased shipping shipping rates.
Thank.
Thanks, Kevin to water.
Which I think is more ground transport and then steel prices.
Can you parse through those 3 items to give us a sense of order of magnitude what are they.
The biggest to smallest and roughly the percentage moves.
For those 3 categories.
Yes, good question.
Lynn.
Andrew.
Think that the.
The other thing let me just start by saying.
Our moat.
Is that we shipped almost 43000 locations.
And we go direct store to a ton of places.
Yes.
And so when you think about our cost structure now.
Not only do we spent 80 million bucks on the people that are worth it but we're shipping a bunch straight the store and we're saving that freight and that handling for our retailers. So our mix of cost is a bit differ.
Aren't than typical competitors, but rockies.
How would you answer the rates.
The ocean the freight in general in the steel the bracket.
Biggest today as we look out is around the commodities.
So I would I would say probably half commodities and then the rest is mixed up.
In some level of freight either inbound or outbound, yes, probably right.
Yes.
That's helpful. Thanks, guys.
Thank you. This concludes today's question and answer session I will now turn the call over to Jennifer Hill for closing remarks.
Thank you for joining us this morning.
A replay of this call will be available on our website. Thank you have a great day have a good weekend.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Sure.
Yes.
Thank you.
[music].
Yes.
Yes.
Okay.
Right.
[music].
Yeah.
[music].
[music].
[music].
Yeah.
[music].