Q3 2023 Hillman Solutions Corp Earnings Call
Speaker 1: Good morning and welcome to the third quarter, 2023 results presentation for Hillman solution.
Good morning, and welcome to the third quarter 2023 results presentation for Hillman Solutions Court. My name is Sherry and I will be your conference call. Operator today before we begin I would like to remind our listeners that today's presentation is being recorded and Simon.
Speaker 1: My name is Shari and I will be your conference call operator.
Speaker 1: Before we begin, I would like to remind our listeners that today's presentation is being recorded and simultaneously webcast.
Webcast.
Speaker 1: The company's earnings release presentation and 10Q were issued.
The company's earnings release presentation, and 10-Q were issued this morning. These documents and a replay of today's presentation can be accessed unhelm its investor relations website at IR Dot Hillman group Dot Com I would now like to turn the call over to Michael Keeler withheld Min. Please go ahead.
Speaker 1: These documents and a replay of today's presentation can be accessed on Helmines Investor Relations website at ir.helmenggroup.com. I would now like to turn the call over to Michael Kailer with Helmines. Please go ahead.
Speaker 2: Thank you, Sherry. Good morning, everyone, and thank you for joining us. I am Michael Taylor, Vice President of Investor Relations and Treachery. Joining me on today's call are Doug Cahill, our Chairman, President, and Chief Executive Officer. Rocky Crabbt, our Chief Financial Officer, and John Michael Adamalty, our Chief Operating.
Thank you Sri good morning, everyone and thank you for joining us I am Michael Taylor, Vice President of Investor Relations and Treasury. Joining me on today's call are John Cahill, Our chairman President and Chief Executive Officer, Rocky Kraft, Our Chief Financial Officer, and John Michael Adenopathy, Our Chief operating officer.
Before we begin today's call I would like to remind our audience that certain statements made today may be considered forward looking and are subject to the safe Harbor provisions.
Speaker 2: These forward-looking statements are not guarantees the future performance and are subject to certain risks uncertainties, assumptions, and other factors, many of which are beyond the company's control, and may cause actual results to differ materially from those projected in such statements. Some of the factors that could influence our results are contained in our periodic and annual reports filed with the SEC for more information regarding these risks and uncertainties.
All securities laws East.
These forward 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 that may cause actual results to differ materially from those projected in such statements.
Some of the factors that could influence our results are contained in our periodic and annual reports filed with the SEC for more information regarding these risks and uncertainties. Please see.
Speaker 2: Please see C's slide two in our earnings call slide presentation, which is available on our website, ir.tillandgroup.com.
Slide two in our earnings call a slide presentation, which is available on our website IR calendar.
Speaker 2: In addition on today's call, we will refer to certain non-GAAP financial metrics.
In addition on today's call, we will refer to certain non-GAAP financial measures.
Speaker 2: Information regarding our use of and reconciliations of these measures to our gap results are available in our earnings call slide.
Information regarding our use and reconciliations of these measures to our GAAP results are available in our earnings call a slide presentation with that it's my pleasure to turn the call over to chairman President and CEO, Doug Doug Thanks, Brad and good morning, everyone.
Speaker 3: With that, it's my pleasure to turn the call over to Chairman, President, and CEO , John Kayle. Thanks, Datsun. Good morning, everyone. I will kick off today's call going through some of the highlights of our strong third quarter.
I will kick off today's call going through some of the highlights of our strong third quarter.
Speaker 3: Our results for healthy as we grew both are top and bottom line versus year ago quarter.
Our results were healthy as we grew both our top and bottom line versus year ago quarter.
Speaker 3: I will then give an update on our full-year guidance. Highlight humans' competitive mode and provide some additional color on the quota before I turn it over to rock.
He will then give an update on our full year guidance highlight humans competitive mode and provide some additional color on the quarter before I turn it over to Rocky our team did a great job during the quarter and I'm proud of them for successfully navigating this environment our results demonstrate the resilience and consistency of our business.
Speaker 3: Our team did a great job during the quarter and I'm proud of them for successfully navigating this environment.
Speaker 3: Our results demonstrate the resilient and consistency of our business, and we're in line with our expectations, heading into the quarter.
And were in line with our expectations heading into the quarter.
Speaker 3: Net sales in the third quarter of 2023 increased 5.4% to 398.9 million from the year ago quarter.
Net sales in the third quarter of 2023 increased five 4% to $398 9 million from the year ago quarter.
Speaker 3: Driven by a 4% increase in total volumes, which included new business wins, plus a 2% lift from price offset a bit by FX headwinds in our Canadian business.
Driven by a 4% increase in total volumes, which included new business wins, plus a 2% lift from price offset a bit by FX headwinds in our Canadian business.
Speaker 3: Hardware and protective solutions led the way as HS sales grew by 8% and PS sales grew by a robust 14% over Q3 at 2022.
<unk> and protective solutions led the way as Hs sales grew by 8% and P. S sales grew by a robust 14% over Q3 of 2022.
Speaker 3: Driving the increase in HS was a launch of rope and chain accessories that one of our top five customers.
Driving the increase in H S was a launch of rope and chain accessories at one of our top five customers, marking another meaningful new business win for Hillman. This win was the direct result of taking care of our customers during the challenging logistics and supply chain environment over the past few years.
Speaker 3: marking another meaningful new business one for Helman. This when was the direct result of taking care of our customers during the challenging logistics and supply chain environment over the past few years.
Speaker 3: This is a new category for Hillman and our service team been an amazing job resetting over 2,000 stores. Fallen.
This is a new category for Hillman and our services team did an amazing job resetting over 2000 stores flawlessly.
Speaker 3: Driving the increase in PS was an increase in our national promotional off-shelf activity. And another one of our top five costs.
Driving the increase in PFS was an increase in our national promotional off shelf activity and another one of our top five customers. When we say promotional off shelf. This means we loaded product.
Speaker 3: When we say promotional off-shelf, this means we load in products.
Speaker 3: and display quarter palettes near the entrance, near the checkout, and on in-caps, these offerings have been very successful and many times their planned 10 to 12 months in advance with our retail parts.
And display quarter pallets near the entrance near the checkout and on end caps. These offerings have been very successful in many times Theyre planned 10 to 12 months in advance with our retail partners together.
Speaker 3: Together, new business wins and increased promotional off-shelf drove healthy, growth during the quarter, which more than offset lighter volumes in other categories.
Together and new business wins and increased promotional off shelf drove healthy growth during the quarter, which more than offset lighter volumes in other categories.
Speaker 3: For the year-to-date period, our net sales were down less than 1% demonstrating the resilience of the business during our otherwise soft market throughout the year. Third-party data showed that foot traffic at home improvement centers declined 8% year-to-date compared to the year-to-date period.
For the year to date period, our net sales were down less than 1% demonstrating the resilience of the business during our otherwise soft market throughout the year third party data showed that foot traffic at home improvement centers declined 8% year to date compared to the year ago period.
Speaker 3: Our results illustrate that demand for our small ticket items that are essential for repair and maintenance projects is consistent and resilient in most any market environment.
Our results illustrate that demand for our small ticket items that are essential for repair and maintenance projects is consistent and resilient in most any market environment.
Speaker 3: Turning to our bottom line for the quarter, adjusted EBITDA increased to 66.8 million, up 13.3% over the year ago quarter, which produced a 110 basis point improvement and adjusted EBITDA margin to 16.7%.
Turning to our bottom line for the quarter adjusted EBITDA increased to $66 8 million up 13, 3% over the year ago quarter, which produced a 110 basis point improvement in adjusted EBITDA margin to 16, 7%.
Speaker 3: Driving this increase was lower cost of goods sold as our margins began to return to historical average.
Driving this increase was lower cost of goods sold as our margins began to return to historical averages remember we spent most of 'twenty, one and 'twenty two chasing inflation related cost with price increases we cut costs with our price increase in the fall of 2022 and the benefits.
Speaker 3: Remember, we spent most of 21 and 22 chasing inflation related cost with pricing.
Speaker 3: We caught costs with our price increase in the fall of 2022 and the benefits are finally flowing through our income statement now. And similar to last quarter, we did a nice job controlling costs and driving operational.
Finally flowing through our income statement now and similar to last quarter, we did a nice job controlling costs and driving operational efficiencies.
Speaker 3: Turning to free cash flow, it came in ahead of our expectations, totaling 41.3 million for the quarter, and 119.3 for the year-to-date period.
Turning to free cash flow came in ahead of our expectations totaling $41 3 million for the quarter and $119 three for the year to date period.
Speaker 3: is an improvement over the 31 million in the year ago quarter and 16.8 million for the year-to-date period last year.
This is an improvement over the $31 million in the year ago quarter, and $16 8 million for the year to date periods last year, we used our free cash flow to pay down over $40 million in debt during the quarter and have reduced our net debt to adjusted EBITDA leverage ratio.
Speaker 3: We use our free cash flow to pay down over 40 million in debt during the quarter and have reduced our net debt to a just a little bit of leverage ratio to 3.7 times.
To three seven times.
Speaker 3: I would like to provide an update to our 2023 four year guide.
I would like to provide an update to our 2023 or four year guidance.
Speaker 3: As a result of our performance for the first three quarters of the year, coupled with the expectations for the overall market, we are providing the following updates to our four year 23 guide. We are narrowing our net sales guidance within our original range to between 1.455 to 1.485 billion, which sets a new midpoint at 1.47 billion.
As a result of our performance for the first three quarters of the year, coupled with the expectations for the overall market. We are providing the following updates to our full year 'twenty. Three guide we are narrowing our net sales guidance within our original range to between 145 or five to 1.4.
<unk> eight 5 billion, which sets a new mid point at 1.4 dollars 7 billion.
Speaker 3: We are narrowing our adjusted EBITDA guide within our original range to between 215 to 220 million with sets our new midpoint at 217.5 million.
We are narrowing our adjusted EBIT guide within our original range to between $215 million to $220 million, which sets our new midpoint at $217 5 million.
Speaker 3: And we're increasing our feet, free cash flow guidance to between 135 to 155 million, which sets our new midpoint at 145 10 million above our original guy.
And we are increasing our free cash flow guidance to between $1 $35 million to $155 million, which sets our new midpoint at 145 $10 million above our original guide.
Speaker 3: As we've talked about our results for the first nine months have been strong despite slow foot traffic at our retailers. We made the decision to narrow our guidance within our original range but below the mid
As we've talked about our results for the first nine months have been strong despite slower foot traffic at our retailers. We made the decision to narrow our guidance within our original range, but below the mid point. This was mainly due to the market volumes being a tick softer than we planned for the year and sales being light over there.
Speaker 3: This was mainly due to the market volumes being a tick softer than we planned for the year and sales being light over the past month illustrated by the industry reported foot traffic being down 13% in October versus down 8 in the first 9 months of the year.
The past month illustrated by the industry reported foot traffic being down 13% in October versus down eight in the first nine months of the year.
Speaker 3: And I'll take a moment to share what makes us the indispensable strategic partner to our retail customers and allows us to perform well across multiple economic environments.
I'll now take a moment to share what makes us indispensable strategic partner to our retail customers and allows us to perform well across multiple economic environments.
Speaker 3: We are one of the largest providers of hardware product solutions in North America. We offer an extensive range of products that cater to the needs of the pickup truck pro and the DIYer. The vast majority of our products are used for repair, remodel, and maintenance projects.
Yeah.
We are one of the largest providers of hardware product solutions in North America, we offer an extensive range of products that cater to the needs of the pickup truck pro and the DIY or the vast majority of our products are used to repair remodel and maintenance projects.
Speaker 3: Because of the predictable nature of our end markets, we have seen consistent demand for our products in both up and down economic cycles since our founding in 1964. Said differently, we don't see the highs nor the lows of the market like many companies in our sector.
Because of the predictable nature of our end markets. We are seeing consistent demand for our products in both up and down economic cycles. Since our founding in 1964 said differently, we don't see the highs nor the lows of the market like many companies in our sector.
Speaker 3: importantly, we help our customers overcome labor, complexity and supply chain challenges in the critical, highly profitable and traffic generating private categories we offer.
Accordingly, we help our customers overcome labor complexity and supply chain challenges and the critical highly profitable on traffic generating product categories. We offer our competitive moat, which provides our customers with value add they don't get from other companies consist of three main.
Speaker 3: Our competitive mode, which provides our customers with value add, they don't get from other companies consists of three main components.
Speaker 3: One, we have 1,100 sales and service folks that are in the stores with our customers on a regular basis providing top notch customer service at the shelf.
Components.
One we have 1100 sales and service folks that are in the stores with our customers on a regular basis, providing top notch customer service at the shelf to we ship directly to the store of our retail customers, meaning our products typically typically do not flow through our customers' distribution.
Speaker 3: Two, we shift directly to the store of our retail customers, meaning our products typically do not flow through our customers' distribution centers, saving them time, money, and corresponding inventory adjustments or investments.
<unk> center saving them time.
Money and corresponding inventory adjustments or investments a great example of this advantage has been happening live over the past week or so as one of our top five customers experienced a cyber security event.
Speaker 3: A great example of this advantage has been happening live over the past week or so. As one of our top five customers experienced a cybersecurity event.
Speaker 3: We are one of only a handful of suppliers who could still ship because of our direct store delivery model and the fact that our service teams are in the store and write the orders. I'm happy to report their backup and running, which is really good for everybody.
We are one of only a handful of suppliers, who could still ship because of our direct store delivery model and the fact that our service teams are in the store and write the orders I'm happy to report they are back up and running which is really good for everybody.
Speaker 3: We get the right products to the right place at the right time at scale. We source over 112,000 SKUs and distribute them to over 40,000 individual locations. And three, approximately 90% of our revenue comes from brands that we own and control. And this allows us to anticipate and meet the evolving needs of our customers and users.
We get the right products to the right place at the right time at scale, we source over a 112000, skus and distribute them to over 40000 individual locations and three approximately 90% of our revenue comes from brands that we own and control and this allows us to.
We anticipate and meet the evolving needs of our customers and end users.
Speaker 3: These are the reasons why we're embedded with our customers and why they view us as a partner critical to the success of their business.
These are the reasons why we're embedded with our customers and why they view us as a partner critical to the success of their business in fact during the quarter. We're thrilled to have been named vendor of the year by two of our customers tractor supply, which is one of our top five customers and mid states hardware Great Farm Ranch.
Speaker 3: In fact, during the quarter, we're thrilled to have been named vendor of the year by two of our customers. Tractor Supply, which is one of our top five customers, and Mid-State Hardware, great farm ranch and home retail co-op that serves the central and northwest states as well as can.
And home reach out co op that serves the central and northwest States as well as Canada, we take great pride in being recognized by our customers.
Speaker 3: We take great pride in being recognized by our customers, unless faces it's the human team and the stores that at the end of the day are the ones that win these awards for us. With that, let's move on.
And let's face it it's the Helmand Jim in the stores that at the end of the day are the ones that win these awards for us.
With that let's move on to our balance sheet.
Speaker 3: At Helmand, we've always believed nothing happens until you sell something. And we always try to put our cuss.
At <unk>, we've always believe nothing happens until you sell something and we always try to put our customers first during 'twenty, one and 'twenty two we put our money where our mouths are when we invest in heavily into inventory to ensure we cap product in our Dcs and on the shelves of our customers.
Speaker 3: During 21 and 22, we put our money where our mouths are when we invested heavily into inventory to ensure we kept product in our DCs and on the shells of our customers. During a challenging supply.
In a challenging supply chain environment.
Speaker 3: The strategic move working closely with our long-term supply partners separated us from our competition allowed us to gain market share then now and we believe in the future.
This strategic move working closely with our long term supply partners separated us from our competition allowed us to gain market share than now and we believe in the future.
Speaker 3: At the peak during the summer of 22, we carried about 180 million more inventory than normal. Since that peak, our supply chain is normalized and inventory has been reduced by 178 million, including 92 million this year. And we think we'll take another five to 10 million before the end of the year to put us near our normalized inventory run.
At the peak during the summer of 'twenty, two we carried about $180 million more inventory than normal since that peak our supply chain has normalized and inventories have been reduced by $178 million, including $92 million. This year and we think we will take another five to 10.
$1 million before the end of the year to put us near our normalized inventory run rate.
Speaker 3: With our inventory reduction, we have seen a meaningful cash flow benefit and subsequent reduction in our net leverage ratio, which we expect to continue throughout the year. I'm super proud of our entire global supply chain team for being able to surge inventories up and then back down while maintaining healthy fill rates during it all. With a hundred thousand plus skews, it's actually one of the finest examples of total teamwork I've witnessed in my entire career.
With our inventory reduction we have seen a meaningful cash flow benefit and subsequent reduction in our net leverage ratio, which we expect to continue throughout the year I'm Super proud of our entire global supply chain team for being able to surge inventories up and then back down while maintaining healthy fill rates.
During it all with a 100000 plus skus, it's actually one of the finest examples of total teamwork I've witnessed in my entire career now.
Speaker 3: Now turning the pricing and cost. The peak cost inflation in our business was approximately 225 million. We passed on these higher costs through our customers via multiple pricing.
Now turning to pricing and cost the peak cost inflation in our business was approximately $225 million, we passed on these higher costs to our customers.
We have multiple price increases these costs peaked at approximately $120 million for transportation and shipping which includes inbound transportation of ocean containers.
Speaker 3: These costs peak at approximately 120 million for transportation and shipping, which includes inbound transportation of ocean containers.
Speaker 3: 80 million for commodities and 25 million for labor.
$80 million for commodities and $25 million for labor over.
Speaker 3: Over the past several quarters, we've seen ocean container costs come down from the historical highs of 2022, while other inbound costs have remained elevated.
Over the past several quarters, we've seen ocean container costs come down from the historical highs of 2022, while other inbound costs have remained elevated having.
Speaker 3: Having priced for these more expensive transportation and shipping costs last year, we're now starting to see our gross margin return to our historical rate of 44 to 45% with lower cost of goods so flowing through our income state.
Having price for these more expensive transportation and shipping costs last year were now starting to see our gross margin return to our historical rate of 44% to 45% with lower cost of goods sold flowing through our income statement we.
Speaker 3: We expect these margins to expand again in fourth quarter of this year to above 45%.
We expect these margins to expand again in the fourth quarter of this year to above 45%.
Speaker 3: Commodities such as raw materials should be a tailwind for us in the second half of 2024. Typically, cost-related raw materials can take between nine and 12 months to flow through our income state.
Commodities, such as raw materials should be a tailwind for us in the second half of 2024 typically costs related to raw materials can take between nine and 12 months to flow through our income statement.
Speaker 3: That consists of 150-day lead time to source the material, make the product and ship it to our distribution centers. From there, our inventory turns in about four to six months.
That consists of 150 day lead time to source the material make the product and ship it to our distribution centers from there our inventory turns in about four to six months.
Speaker 3: As we're all familiar, many of these higher costs do not appear to be going away. In fact, many of the costs continued increase like labor and transportation costs within the United States. That said, we'll focus on what we can control, something we know our customers are doing as well. Helmines in-store service team and direct-sword delivery model continue to be on-trend helping our customers minimize these two pressure points. ????? Labor and Light ?????? implemented.
As we're all familiar many of these higher costs do not appear to be going away. In fact, many of the costs continue to increase like labor and transportation costs within the United States that said, we will focus on what we can control something we know our customers are doing as well humans in store serves.
This team in direct store delivery model continue to be on trend and helping our customers minimize these two pressure points labor and logistics.
Speaker 3: Now turning to our markers before I turn it to rocky, even though interest rate increase.
Now turning to our markets before I turn it to rock, even though interest rate increases have definitely slowed existing home sales, we remain optimistic about the customers and end markets, we serve as well as the trends for the future of our business for two meaningful reasons number one home equity.
Speaker 3: have definitely slowed existing home sales. We remain optimistic about the customers and end markets we serve, as well as the trends for the future of our business for two meaningful reasons.
Speaker 3: Number one, home equity values continue to be healthy. Home values are near all-term highs, all-time highs, and the average homeowner in the US has nearly 200,000 of untapped equity.
Values continue to be healthy.
Values are near all term high all time highs and the average homeowner in the U S is nearly 200000 of untapped equity <unk>.
Speaker 3: Home equity loan activity has held firm since the beginning of the year and is keeping pace with the pre-pandemic level.
Home equity loan activity has held firm since the beginning of the year and is keeping pace with the pre pandemic levels remodeling renovation or home repairs are the leading reason homeowners tap equity in their home and number two is the state of the existing homes in the U S.
Speaker 3: remodeling, renovation, or home repairs are the leading reason homeowners tap equity in their home. And number two is the state of the existing homes in the U.S.
Speaker 3: The average owner occupied home is over 40 years old. The older house, the older the house, the more repairing maintenance projects are necessary.
Yes.
The average owner occupied home is over 40 years old the older House, the order to the house, the more repair and maintenance projects are necessary. Additionally.
Speaker 3: Additionally, there are over two million more homes entering their primary modeling age Then there were during the great recession
Additionally, there are over $2 million more homes entering their prime remodeling age than there were during the great recession.
Speaker 3: These are homes between 25 and 39 years old. And the number of homes in this category is expected to increase over the next several years as the US housing stock continues to age. Next year, Hilmer will proudly celebrate our 60th anniversary. Our service organization will turn 28 years old and the average 10 year of our top five customers will be 25 years.
These are homes between 25, and 39 years old and the number of homes. In this category is expected to increase over the next several years as the U S housing stock continues to age.
Next year Helman will proudly celebrate our 60 <unk> anniversary.
Our service organization will turned 28 years old and the average tenure of our top five customers will be 25 years, taking care of our customers first has driven our success over a very long period, our focus today and commitment going forward is to defend our moat.
Speaker 3: Taking care of our customers first has driven our success over a very long period. Our focus today in commitment going forward is to defend our mouth, profitably execute our growth strategy and stay disciplined.
Absolutely execute our growth strategy and stay disciplined we believe this sets <unk> up for continued long term success with that let me turn it to rocky Thanks, Doug.
Speaker 3: We believe this set's held one up for continued long-term success. With that, let me turn it to Rocky. Thanks Doug.
Speaker 4: Net sales in the third quarter of 2023 grew by $399 million, an increase of 5.4% versus the prior year quarter.
Net sales in the third quarter of 2023 grew by $399 million, an increase of five 4% versus the prior year quarter.
Speaker 4: As Doug mentioned, we narrowed our full-year net sales guidance within our original range below the mid-
As Doug mentioned, we narrowed our full year net sales guidance within our original range below the midpoint.
Speaker 4: To unpack that a bit, we maintain our belief that our full-your-net sales results will benefit 2% from price that will roll from 2022, and new business wins offset last year's COVID-related sales.
To unpack that a bit we maintain our belief that our full year net sales results will benefit 2% from price that will roll through 2022, and new business wins offset last year's Covid related sales.
Speaker 4: The midpoint of our revised net sales guidance assumes unit volumes for the year decline about 3%, compared to our original estimate of down 1%, as we extrapolate current volume trends in the Q4.
The midpoint of our revised net sales guidance assumes unit volumes for the year declined about 3% compared to our original estimate of down 1% as we extrapolate current volume trends into Q4.
Speaker 4: Now, let me provide some more detail on our top line by business.
Now, let me provide some more detail on our topline by business.
Speaker 4: Hardware solutions is our biggest business and makes up over 50% of our overall revenue. For the quarter, net sales increased 8% to $229 million firsts last year.
Hardware solutions is our biggest business and makes up over 50% of our overall revenue for the quarter net sales increased 8% to $229 million versus last year.
Speaker 4: This breaks out to just under 2% of price, plus 4% new business wins, and 2% increase in our market volumes compared to the software year ago quarter.
This breaks out to just under 2% of price plus 4%, new business wins, and 2% increase in our market volumes compared with the softer year ago quarter.
Speaker 4: Robotics and digital solutions are already at its makes up about 16% of our overall revenue.
Robotics and digital solutions, our Rds makes up about 16% of our overall revenue.
Speaker 4: During the quarter, RDS net sales were down 1% to $63.5 million driven by lighter foot traffic, continued softness in this discretionary spending on things like pet tags and accessories, and a decrease in existing home sales, which is a key driver of key duplication.
During the quarter Rds net sales were down 1% to $63 $5 million driven by lighter foot traffic continued softness in discretionary spending on things like pet tagged and accessories and a decrease in existing home sales, which is a key driver of key duplication.
Speaker 4: The exception was a 9.5% increase in sales at our Miniqui Self Service machine.
The exception was a nine 5% increase in sales at our many key self service machines.
Speaker 4: Since 2020, Minneke has grown at a 19% Kager as customers prefer the convenience and simplicity of the self-service Kiat.
Since 2020, many key has grown at a 19% CAGR as customers prefer the convenience and simplicity of these self service kiosks. Additionally.
Speaker 4: Additionally, the self-served nature of the kiat saw the labor issues many of our big box retailers face today
Additionally, the self serve nature of the kyat solve the labor issues many of our big box retailers face today.
Speaker 4: For these reasons, we are excited about the future of our Miniki platform.
For these reasons, we are excited about the future of our many key platform.
Speaker 4: As we've talked about in previous calls, we are in the process of testing our new and improved Minneke 3.5 self-service key machine.
As we've talked about on previous calls we are in the process of testing, our new and improved many key three five self service key machine.
Speaker 4: These kiosks have smart auto and RFID-Fob duplication capabilities and enhanced key identification system and a more robust guided user interface when compared to our 3.0 version.
These kiosks have smart auto and RFID fab duplication capabilities in.
And enhanced T identification system.
On a more robust guided user interface when compared to our three <unk>.
Speaker 4: We currently have two miniquite 3.5 machines that have been live for about six weeks in a scenic market and performance thus far is encouraging.
We currently have too many key three five machines that have been live for about six weeks in the Phoenix market and performance thus far is encouraging.
Speaker 4: We remain on track for a soft launch during the first quarter of next year and plan to slowly and prudently roll out these machines throughout 2024.
We remain on track for a soft launch during the first quarter of next year and plan to slowly and prudently rollout these machines throughout 2024.
Speaker 4: Hillman Associates will be providing the VIP support for our retailers' customers, and this unique experience is a tremendous opportunity for both Hillman and our retail partners.
Hillman associates will be providing the VIP support for our retailers customers and this unique experience as a tremendous opportunity for both Hillman and our retail partners.
Speaker 4: Our Canadian segment, which makes up about 10% of our overall revenue, was down 9% compared to the prior year.
Our Canadian.
Ian segment, which makes up about 10% of our overlap overall revenue was down 9% compared to the prior year.
Speaker 4: This was driven by approximately a 6% decline in volumes and 3 points of fx headwinds during the quarter.
This was driven by approximately a 6% decline in volumes and three points of FX headwinds during the quarter.
Speaker 4: Lastly, protective solutions make up just under 20% of our business.
Lastly, protective solutions makes up just under 20% of our business.
Speaker 4: Protective had a ninth quarter due to promotional off-shelf activity Doug discussed earlier.
Protective had a nice quarter due to the promotional off shelf activity Doug discussed earlier.
Speaker 4: Revenue's increased $8 million or 14% compared to last year.
Revenues increased $8 million or 14% compared to last year.
Speaker 4: Their quarter adjusted gross profit margin increased by 90 basis points to 44.2% versus the prior of your quarter.
Third quarter adjusted gross profit margin increased by 90 basis points to 44, 2% versus the prior year quarter.
Speaker 4: sequentially, a justi-gros profit margin improved 120 basis points, which was ahead of the 100 basis point improvement we said we would see on our last earnings call.
Sequentially adjusted gross profit margin improved 120 basis points, which was ahead of the 100 basis point improvement. We said, we would see on our last earnings call.
Speaker 4: As Doug mentioned, we caught price in the fall of 2022 and are now starting to see margins return to normal.
As Doug mentioned, we cut price in the fall of 2022 and are now starting to see margins return to normal.
Speaker 4: Looking forward, we expect to see margins expand again during the fourth quarter in excess of our historical rate of 44 to 45 percent and hold into 2024.
Looking forward, we expect to see margins expand again during the fourth quarter in excess of our historical rate of 44% to 45% and hold into 2024.
Speaker 4: Adjusted SGNA as a percentage of sales decreased to 27.5% during the quarter from 27.6% from the year ago quarter.
Adjusted SG&A as a percentage of sales decreased to 27, 5% during the quarter from 27, 6% from the year ago quarter.
Speaker 4: This light improvement was driven by realizing efficiencies in our operations in logistics and controlling costs where we were able to.
The slight improvement was driven by realizing efficiencies in our operations and logistics and controlling costs, where we were able.
Speaker 4: Adjusted EBITDA on the second quarter with $66.8 million, which grew 13.3% over 59 million in the year ago quarter.
Adjusted EBITDA in the second quarter was $66 $8 million, which grew 13, 3% over $59 million in the year ago quarter.
Speaker 4: Just an EBITDA was driven by the increase in net sales coupled with a higher gross margin when compared to last year. Now let me turn to-
Adjusted EBITDA was driven by the increase in net sales coupled with a higher gross margin when compared to last year.
Now, let me turn to our cash flow and balance sheet.
Speaker 4: For the 39 weeks ended September 30th, 2023, operating activities provided $171 million of cash compared to $63 million in the year ago period.
For the 39 weeks ended September 32023, operating activities provided $171 million of cash compared to 63 million in the year ago period.
Speaker 4: Capital expenditures were 52.1 million compared to 46.4 million dollars in the prior year period.
Capital expenditures were $52 1 million compared to $46 4 million in the prior year period.
Speaker 4: We continue to invest in our RDS Mini Key 3.5 and QuickTeg 3.0 machines, important parts of our high margin long-term growth opportunity.
We continue to invest in our Rds. Many key three five and quick take three Oh machines important parts of our high margin long term growth opportunities.
Speaker 4: Our customers are very excited about the new markets, this game-thin changing technology will enable us to attack.
Our customers are very excited about the new markets. This game changing technology will enable us to attack.
Now back to the balance sheet net.
Speaker 4: Net inventory was $397.1 million down 92.2 million from the end of 2022 and down $138 million from the prior year quarter.
Net inventories were $397 1 million down $92 2 million from the end of 2022 and down $138 million from the prior year quarter.
Speaker 4: We ended the third quarter of 2023 with $771.8 million of total net debt outstanding, a reduction of 115.9 million from the end of 2022.
We ended the third quarter of 2023 with $771 8 million of total net debt outstanding a reduction of $115 9 million from the end of 2022.
Speaker 4: Free cash flow for the 39 weeks in September 30, 2023, total $119.3 million compared to $16.8 million in the prior year period.
Free cash flow for the 39 weeks ended September 32023 totaled $119 3 million.
<unk> to $16 8 million in the prior year period.
Speaker 4: This increase in free cash flows primarily driven by the working capital benefits of converting our access inventory into cash in controlling costs. Because of this, we are...
This increase in free cash flow was primarily driven by the working capital benefit of converting our excess inventory into cash and controlling costs.
Because of this we are raising our free cash flow guidance.
Speaker 4: We ended the third quarter of 2023 with approximately $291 million of liquidity, which consists of $252 million of available borrowing under a revolving credit facility, and $39 million of cash and equipment.
We ended the third quarter of 2023 with approximately $291 million of liquidity, which consisted of $252 million.
Of available borrowings under our revolving credit facility and $39 million of cash and equivalents.
Speaker 4: Our net debt to trailing 12-month of justity but our ratio at the end of the quarter was 3.7 times compared to 4.2 times at the end of 22. And a full turn better than our recent leverage P of 4.7 times at the end of the second quarter of 2020.
Our net debt to trailing 12 month adjusted EBITDA ratio at the end of the quarter was three seven times compared to four two times at the end of 'twenty two.
On a full turn better than our recent leverage peak of four seven times at the end of the second quarter of 2022.
Speaker 4: Looking forward, we still maintain our expectation that we will end 2023 under 3.5 times leverage, assuming our results fall in the range offered in our revised guide.
Looking forward, we still maintain our expectation that we will end 2023 under three five times leverage assuming our results fall in the range offered in our revised guidance.
Speaker 4: As we think about 2024, if the market remains soft, our top line could look similar to 2023.
As we think about 2024, if the market remains soft our topline could look similar to 2023.
Speaker 4: We feel confident we will grow our EBITDA in that case and even in the down market as we will benefit from lower cost to good soul.
We feel confident we will grow our EBITDA in that case and even in the down market as we will benefit from lower cost of goods sold.
Speaker 4: We look forward to giving our formal 2024 guidance when we report our full year 2023 results in February .
We look forward to giving our formal 2024 guidance when we report our full year 2023 results in February.
Speaker 4: Looking further out, we believe our longer term growth algorithm remains intact.
Looking further out we believe our longer term growth algorithm remains intact.
Speaker 4: Historically, our businesses seen organic growth of 6% a year and high single to low double digit organic adjusted eBidog growth, all that before M&A.
Historically, our business has seen organic growth of 6% year, a year and high single to low double digit organic adjusted EBITDA growth all of that before M&A.
Speaker 4: Using hardware solutions in the proxy, which is our largest business. If you go back 20 years...
Using hardware solutions as a proxy which is our largest business. If you go back 20 years.
Speaker 4: 10 years, five years, four years, or three years. The top-line cagars between 6.7 and 8.6% over those time periods.
10 years five years four years or three years that top line CAGR is between six seven and eight 6% over those time periods.
Speaker 4: Our longer-term view on the strength and resilience of this business is unchained.
Our longer term view on the strength and resilience of this business is unchanged.
Speaker 3: With that, let me turn it back to Doug. Thanks, Rocky.
With that let me turn it back to Doug Thanks Rocky.
Speaker 3: As we navigate this market, I want to thank the Hillman team for remaining steadfast in our top priority of taking care of our customers.
As we navigate this market I want to thank the Hillman team for remaining steadfast in our top priority of taking care of our customers from the folks keeping products hamann through our distribution centers to our warriors in the field managing the shelves in the store to our customer care teams that could not be more proud of your resilient and all.
Speaker 5: from the folks keeping products humming through our distribution centers, to our warriors in the field managing the shells in the store, to our customer care teams. I could not be more proud of your resilient and awesome commitment to our customers and human. Looking ahead, I'm filled with optimism about the future as our competitive mode and the determination of our team positions us to capitalize on opportunities on their rise.
Some commitment to our customers and Hillman looking ahead, I'm filled with optimism about the future as our competitive moat and the determination of our team positions us to capitalize on opportunities on the horizon.
Speaker 5: We will keep making this company more efficient, more agile, and more resourceful, which we believe will allow us to grow profitably and win over the long-
We will keep making this company more efficient more agile and more resourceful, which we believe will allow us to grow profitably and win over the long term.
Speaker 5: We have executed well during this market and believe that when the tide turns and the market picks up, great things are in store for us. Hillman will celebrate its 60th anniversary next year and we remain committed to continuing its fantastic legacy into the future.
We've executed well during this market and believe that when the tide turns and the market picks up great things are in store for US Hillman will celebrate its 60 <unk> anniversary next year and we remain committed to continuing its fantastic legacy and of the future. We're grateful for our customers' associates Chai.
Speaker 5: We're grateful for our customers, associates, shareholders and partners. And I want to reiterate our commitment to you all as trust is our most valuable asset. We look forward to updating you on our progress along the way. And with that, we'll begin the Q&A portion of the call. Sherry, can you please open the call up for questions?
Our holders and partners and I want to reiterate our commitment to you. All is trust is our most valuable asset we look forward to updating you on our progress along the way and with that we will begin the Q&A portion of the call. Sherry can you. Please open the call up for questions. Thank you.
Speaker 1: Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. So withdraw your question, please press star 11 again. Through the time restraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Please stand by while we compile the Q&A roster.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again due to time restraints. We ask that you. Please limit yourself to one question and one follow up question. Please standby, while we compile the Q&A roster.
Speaker 1: And our first question will come from the line of Matthew Boulais with Barkley's. Your line is open.
And our first question will come from the line of Matthew Bouley with Barclays. Your line is open.
Speaker 6: Morning everyone. Thank you for taking the questions.
Good morning, everyone.
Thank you for taking the questions.
Yes.
Speaker 6: Morning, wanted to pick up on the comments that you made at the end there around 2024.
Good morning, I wanted to pick up on.
The comments that you made at the end there around 2024.
Speaker 6: You know, I think you mentioned that you could grow EBITDA if the top line was flatter. So I guess the question is more on the top line. You know, here we are in November .
I think you mentioned that you can grow EBITDA as the topline was flatter I guess the question is more on the top line here in November.
Speaker 6: What are you guys planning for around, I guess specifically R&R activity? I know you mentioned obviously foot traffic is kind of decelerating a little bit here, but how are you guys seeing the early part of 2024 shaping up from an R&R market perspective? Yeah.
What are you guys planning for around I guess, specifically R&R activity I know you mentioned, obviously foot traffic is kind of decelerating a little bit here, but how are you guys seeing the early part of 2024 shaping up from an R&R market perspective.
Yes, I think Matt for.
Speaker 5: We're kind of looking at 24 and saying, let's plan on flat and even slightly down so that we make sure that our costs are under control and that we can still grow our EBITDA in that world. I think our retailers.
For us.
We're kind of looking at 'twenty, four and saying, let's plan on flat and even slightly down so that we make sure that our costs are under control and that we can still grow our EBITDA in that world I think are our retailers.
Speaker 5: You know, they've been through a year that hasn't been a tremendous amount of fun. Their comps are obviously going to get easier, but I think they're seeing things for next year.
They've been through a year, that's that hasn't been a tremendous amount of fund their comps are obviously going to get easier, but I think they're seeing things for next year, a couple of percent down would be my guess.
Speaker 5: Couple percent down would be my guess. We've, you know, set time with all of them.
Spent time with all of them, but flat to down a couple is kind of a couple of percent is kind of what we're thinking and what we're planning on unseen at this point again it could change.
Speaker 5: But flapped it down a couple percent, it's kind of what we're thinking and what we're planning on seeing at this point. Again, it could change. And it just never know about.
You just never know about.
Speaker 5: you know, an 8% down foot traffic year to date and then, you know, an October that was down 12 or 13. So, you don't know if that's a trend or that's just a blip. That's the hard part of what we're trying to figure out in the more.
8% down foot traffic year to date and then.
In October there was down 12% 13, so you don't know if thats a trend or that's just a blip. That's the hard part of what we're trying to figure out in the market.
Speaker 6: Got it. No, that's great color. Appreciate that Doug. The second question.
Got it no that's great color I appreciate that Doug.
Second question.
Speaker 6: Clearly good progress on the inventory reduction and you lifted the pre-cash law guide. So, as you do get towards your year end leverage target of below three and a half, wanted to get an update on your thoughts on re-engaging with the M&A market at some point. Where do you need to be from a leverage perspective to do that? And
Clearly good progress on the inventory reduction and you lifted the free cash flow guide so.
As you do get towards your year end leverage target of below three and a half.
We wanted to.
Get an update on your thoughts on re engaging with the M&A market at some point.
Where do you need to be from a leverage perspective to do that.
Speaker 6: You know, how has the pipeline kind of come together? Would you be, you know, looking at a standing within your existing categories or some of the stuff you spoke about back on the initial road show around, you know, expanding into adjacent categories? What are some of the broader thoughts there?
How has the pipeline kind of come together, what would you be looking at expanding in within your existing categories or some of the stuff you spoke about back on the initial roadshow around.
Expanding into adjacent categories, what are some of the broader thoughts there.
Speaker 5: Yeah, I think the great news for us is that there's really not been much of a debt market or a private equity play out there. So entrepreneurs have definitely changed their tone.
Yes, I think the great news for US is that there's really not been much of a debt market or private equity play out there. So entrepreneurs have definitely changed their tone.
Speaker 5: in that, you know, they don't have three people calling on them saying, I want to buy your business. So good news for us is they're available. We're talking basically Matt right around the corner, you know, go to the end of our aisle and go to the next one and that's what we're looking at. It's basically stuff that you would understand and say, okay, that makes sense.
In that they don't have three people, calling up saying I want to buy your business. So good news for us as they are available you were talking basically Matt right around the corner.
Go to the end of our I'll go to the next one and Thats what were looking at.
It's basically stuff that you would understand and say, okay that makes sense and we think that the.
Speaker 5: And we think that these are gonna be very accretive for us.
These are going to be very accretive for us and so yes, I think in 24, you will see us reengage in the discussions and I will tell you as an entrepreneur Theres just no better place to put your business in <unk>.
Speaker 5: And so yeah, I think in 24 you'll see us re-engage in the discussions. And I will tell you as an entrepreneur.
Speaker 5: There's just no better place to put your business and go to Naples and feel good about it because...
<unk> enables and feel good about it because.
Speaker 5: You know, they know that our mode is different. They know that we love our customers and our customers trust us. So...
They know that our moat is different they know that we love our customers and our customers Trust us. So we're kind of a pure play that is a really nice way for people to say I put my business in a good place there is that fear by that entrepreneur, who has built their businesses sand.
Speaker 5: We're kind of a pure play that is a really nice way for people to say I put my business in a good place.
Speaker 5: There is that fear by that entrepreneur who's built their business as saying.
Speaker 5: I just don't trust the private equity guys and so we do have that going for us as well.
Just don't trust the private equity guys and so we do have that going for us as well.
Speaker 6: Great, well thank you Doug and good luck everybody. Thanks Matt. Thank you. What?
Great well, thank you, Doug and good luck everybody. Thanks, Matt.
Thank you one moment for our next question.
Yes.
Speaker 1: So that will come from the line of Lee, Jigota with CJS securities. Your line is...
And that will come from the line of Lee Jagoda with CJS Securities. Your line is open.
Speaker 7: Thank you, morning. LA. So I guess just again, focusing on that 24 commentary, Doug, can you talk to the new business wins you already have in hand in terms of the size of those for 2024 and how you would expect those to flow through the PNL over the
Hi, good morning.
Currently.
So I guess just again focusing on the 24 commentary Doug can you talk to the new business wins, you already have in hand in terms of the size of those for 2024, and how you would expect those to flow through the P&L.
Over the quarters.
Speaker 5: Yeah, Lee, I think we, you know, we, a while back, we had said we had like 25, 27 million ink for 24. Nothing's changed there except we were able to speed up.
Lee I think.
A while back we had said we had like 2500 $27 million inked for 'twenty four nothing's changed there, except we were able to speed up.
Speaker 5: and get about 10 million of that into this year. We'll be able to. And that was really as a result of the existing supplier literally, disappointing the hell out of our customer and our customer saying, can you guys speed this up?
And get about $10 million of that into this year, we will be able to.
And that was really as a result of the existing supplier literally disappointing the hell out of our customer and our customer saying can you guys speed. This up so the 20 Sevens about 17 right now we continue to see progress with customers.
Speaker 5: So the 27's about 17 right now. We continue to see progress with customers.
Speaker 5: But again, I would say, Rocky traditionally we've been in that two to three percent. Yeah, we have. I mean, as you heard, my remarks leave me a...
But again.
I'd say rocky traditionally we've been in that 2% to 3%, yes, we have I mean as you heard in my remarks Lee.
We're up for this year so.
Speaker 8: your date and H.S. was a little ahead of where we would have expected.
So far year to date in Hs, a little ahead of where we would expect it to be as we think about next year and maybe a little back to the prior question right. We still would expect to be up 2% to 3% with new business wins in our business, but we're going to be a mood as needed as we think about what's going to happen with volumes with what we see today hopefully we're wrong in our retailers.
Speaker 4: as we think about next year and maybe a little back to the prior question, right? We still would expect to be up two to three percent with new business wins in our business. But we're gonna be, you know, muted as we think about what's gonna happen with volumes with what we see today. Hopefully we're wrong in our retailers to be a lot more traffic than we're seeing today, but if they don't, we're gonna prepare for that. And obviously as we think about next year, we're not gonna have the normal price increase that we have at the end of the year.
See a lot more traffic than we're seeing today, but if they don't were going to prepare for that and obviously as we think about next year, we're not going to have the normal price increase that we have.
Speaker 5: Send a full mas pseudorizander to Alrighty School of Agades.
Okay.
Okay.
Yes.
If you are a merchant.
Speaker 5: You're going to dangle new business for lower price. And I think you'll support us being there for them, but not doing anything silly on price. So that's also part of our strategy if you think about where we are. The gross margin, we've worked so hard to get it back. And so we're going to probably be a little more cautious about going after something.
Youre going to dangle, new business for lower price and I think youll support us.
Being there for them, but not doing anything silly on price. So that's also part of our strategy. If you think about where we are the gross margin. We've worked so hard to get it back in and so we're going to probably be a little more cautious about going after something.
Speaker 7: Sure. And then assuming you've gone through preliminary plans with customers for next.
Sure.
Assuming you've gone through preliminary plans with customers for next year can you talk about the level of promotional activity you expect in 2024 versus 2023 and to the extent you have guidance from them on when that might hit that could just be helpful for modeling.
Speaker 7: Can you talk about the level of promotional activity you expect in 2024 versus 2023? And if you have guidance from them on when that might hit, that could just be helpful for months.
Speaker 5: Yeah, I think this year, as you know, was a bit more back-end loaded. And I would say as we sit right now, I was just there with them about six, seven days ago.
Yes, I think this year as you know it was a bit more back end loaded and I would say as we sit right now I was just there with them about six seven days ago and.
Speaker 5: And they obviously have the comp, they want to get, they'd like to see it even more evenly distributed.
They obviously have the comp they want to they want to get they'd like to see it even more evenly distributed.
Speaker 5: And I think you'll see the same kind of number. That'll be three years in a row where it's similar with maybe a tad of growth. So we're planning on the same number. I'd say it's probably gonna be a little less lumpy than this year. We did this year differently, and I'd say it'd be more quarter to quarter to quarter next year, but the number should be...
And I think Youll see the same kind of number that will be three years in a row, where it's similar will it maybe a tad of growth. So we're planning on the same number I'd say, it's probably going to be a little less lumpy than this year. We did this year differently than I'd say it'd be more quarter to quarter to quarter next.
Speaker 5: We don't have it, ain't everything, because we're working on one we've never done before. And so we don't have that one done, but we're in progress we're working on that one. And if I...
But the number should be similar we don't have it ached everything because we're working on one we've never done before.
And so we don't have that one done it but we are in progress we're working on that one.
And if I can just sneak one more in for clarification.
Speaker 7: the sort of the soft outlook of could be fly for an extra. That's total business or just hard.
The sort of the soft outlook of could be flat for next year, that's total business or just hardware.
Speaker 7: Good question, Leah. We meant to say our total business. And again, we just kind of start there, right? What if? Sure. OK.
Good question Lee, we meant to say, our total business and and again, we just kind of start there right what if.
Sure Alright.
Alright, thanks very much okay.
Thank you our next question.
Okay.
Speaker 1: and that will come from the line of fried birchle with William Blair, your line is open.
And that will come from the line of Ryan Merkel with William Blair. Your line is open.
Hey, Ryan we can't hear you.
Speaker 1: Brian , if your line is muted, please unmute it or please rejoin using the call B seat.
Brian If your line is muted please on mute it or please rejoin using the <unk> feature.
Speaker 5: I know Ryan was gonna ask me about my golf game. So you want me to answer that straight?
I know Ryan was going to ask me about my golf game. So you want me to answer that set.
Okay. We'll go to the next question.
Speaker 1: Thank you. Our next question will come from Brian MacDamara with Can't Accord to Newity. Your line is open.
Thank you. Our next question will come from Brian Mcnamara with Canaccord Genuity. Your line is open.
Speaker 9: Good morning, this is Madison Calonant on Suburban. Thanks for taking your questions.
Good morning. This is Matt <unk> on for Brian Thanks for taking the questions.
Speaker 9: First, could you provide any additional color on the new business wins?
First could you provide any additional color on then like new business wins, I know, you mentioned rope and chain, but like any other product categories or specific retailers are a little bit more color would be helpful. Thanks, Yeah. I think we've got three wins, one Rob mechanics actually wanting gloves.
Speaker 9: I know you mentioned rope and chain, but like any other product categories or specific retailers.
Speaker 5: A little bit more color will be helpful. Thanks. Yeah, I think we've got three wins, one in the Roman chain accessory, one in gloves, and one in the dex crew area.
And one <unk> crew area and so the two of the three will be when we started them in the second half of the year. So you will get the benefit of that as it goes into 24, the <unk> will be a rollout. We've also Jamie maybe talk about kind of.
Speaker 5: And so the two of the three will be, will we started them in the second half of the year so you'll get the benefit of that as it goes into 24.
Speaker 8: The DexCrew Run will be a rollout. We've also, Jan may maybe talk about, you know, kind of how we plug away with hardware, an example of what happens each year and stores plus new store openings. Maybe talk about that for a second. Absolutely, yeah, we're excited about 2024. We feel like we have quite a bit of growth opportunity in front of us in our traditional hardware channel where we serve.
How we plug away with hardware and example of what happens each year in stores plus new store openings, maybe talk about that for a second absolutely. Yes. We're excited about 2024, we feel like we have quite a bit of growth opportunity in front of us in our traditional hardware channel where we serve.
Speaker 8: you know close to 15,000 outlets. We have tremendous amount of opportunity. We've got a number of wins that Doug referenced there. They're starting to, we're starting to feel in the back half of this year to help us next year the changes stores in Florida. We've got some in the Midwest.
50000 outlets.
Tremendous amount of opportunity, we've got a number of wins that Doug referenced there that are starting to we're starting to feel it in the back half of this year, which will help us next year, but changes stores in Florida. We've got some of the Midwest, We've got actually a pretty good size target. The northeast. So we're excited about 2024 and the opportunities in the hardware channel and that'll be across all categories and many of those stores. So we're really.
Speaker 5: We've got actually a pretty good size tournament in the Northeast. So we're excited about 2024 and the opportunities in the hardware channel. And that'll be across all categories in many of those stores. So it really helps the entire human business. Madison, we also have, and that's not in the number we gave you, but we also have.
Helps the entire island business Madison, We also have and Thats not in the number we gave you but we also have the new quick tag three.
Speaker 5: The new Quick Tag 3 Pat and Gravy Machine that's going into one of our major customers with every new remodel, and there's a four or 500 of those going in. We have the new 3.5 minute key, which is to take what is office and home self-serve and now provide the consumer an opportunity.
Engraving machine, that's going into one of our major customers with every new remodel and there is a four or 500 of those going in.
We have the new $3 five minute key which is to take what is office and home self serve and now provide the consumer an opportunity to do smart Fob and transponder and RFID and that will be growth opportunities I think that last one the three five <unk>.
Speaker 5: to do SmartFob and TransFonder and RFID and that will be growth opportunities. I think that last one, the 3.5 minute key is really gonna be second half of 24 because we wanna make sure the consumer experiences is really good in that regard. And we're taking care of the back end, the retailers essentially not doing the work, we're doing it for them. So we don't wanna scale that, we're going to put it back on track.
Really going to be second half of 'twenty four because we want to make sure. The consumer experiences is really good in that regard and we're taking care of the backend the retailers essentially not doing the work we're doing it for them. So we don't want to scale that we're going to correct. What you said.
Speaker 5: I'm going to reach out excited. Reach out is really excited because they're used to 399K. And now we're going to do an $80 fob for them. So that should be also a growth for us next year. But we want to be very cautious how we do that. Because we don't want the consumer to get excited and then not be able to come through with the service on the back.
Okay.
I don't know.
Okay.
On our retail excited retailers really excited because they are used to $3 99, and now we're going to do on $80 Fob for them. So.
That should be also growth for us next year, but we want to be very cautious how we do that because we don't want the consumer to get excited and then not be able to come through with the service on the back side.
Speaker 9: Great, thanks so much. And then secondly, if you could expand upon like how you're maintaining your getting market share, even as the market flows kind of based off of, you know, your commitment to retailers during supply chain challenges where you strong fill.
Great. Thanks, so much and then just secondly.
If you could expand upon that.
How youre, maintaining or gaining market share even as the market slows kind of based off of your commitment to retailers during the supply chain challenges for you.
Alright. Thanks.
Speaker 8: Yeah, for us, I mean, we're capitalizing to your point on the performance that Hillman's lived over the last several years. And that's really some of the wins that we see in hardware. And I mean, I'd have to really go back to Ropa Chene that Doug mentioned earlier. That's a perfect example where we expanded into a category where we were.
Yeah for Us I mean, we're capitalizing to your point on the performance at Hellmann to deliver over the last several years and Thats really some of the wins that we see in hardware.
I'd have to really go back to brokerage chain that Doug mentioned earlier Thats a perfect example, where we expand into a category, where we were before we actually successfully launched it early and we continue to build some momentum we expect to take that I'll say category strength to other customers. So we're going to continue to build on the momentum we have in the categories that we serve today to continue to expand it.
Speaker 10: before we actually successfully launched it early and we continue to build some momentum. We expect to take that, I'll say category strength, other customers. So...
Speaker 11: We're going to continue to build on the moment that we have in the categories that we serve today and continue to expand into the categories where we're not. So, we're really excited about 2024 in that area. Great, thanks so much, John . Sure. Thanks.
The categories, where we're not so we're really excited about 2024 in that area.
Great. Thanks, so much guys sure.
Thank you one moment our next question.
Speaker 1: And that will come from the line of Brian Butler with steeple. Your line is o.
And that will come from the line of Brian Butler with Stifel. Your line is open.
Speaker 12: Take good morning. Thanks for taking my questions. Hey, how you doing, Brad? Very good, very good. I guess, well, back on the 24, when you think about the inventory benefit that's in 23 guidance, how much is that? And then when you look at 24, how much of a headwind is that and how do you overcome it?
Hey, good morning, Thanks for taking my questions Hey, how are you doing Brian.
Very good very good I guess back on the 24, when you think about the inventory benefit that's in 'twenty three guidance, how much of that and then when you look at 'twenty four how much of a headwind is that and how do you overcome it.
Speaker 4: Yeah, Brian , I don't think we think it's necessarily a head one for 24. And the reason is, we're placing T.O.s today from a commodity perspective that are below where they were called at 90 days ago. And so if you go back and listen to the remarks, we talked about how that benefit in the P&L will flow through the back half of next year, but we'll feel that benefit we believe next year in a lower price of our inventory. So the way to think about it is in 23.
Yes, Brian I don't I don't think we think it's necessarily a headwind for 2004 and the reason is we're placing tos today from a commodity perspective that are below where they were call. It 90 days ago and so if you go back and listen to the remarks, we talked about how that benefit in the P&L will flow through the back.
Half of next year, but we will feel that benefit we believe next year and a lower price of our inventory. So the way to think about it is in 'twenty three we've seen some reduction in the value of the inventory because of containers. We've also right sized our inventory and there'll be a minor benefit as we think about 2024 from those commodities coming down that.
Speaker 4: We've seen some reduction in the value of the inventory because of containers. We've also great sized our inventory. And there'll be a minor benefit as we think about 2024 from those commodities coming down that we believe off-sex any headwind that we would have from putting inventory back in the system for growth. So as we think about next year, we think working capital is probably a neutral type item for us.
We believe offsets any headwind that we would have from putting inventory back in the system for growth. So.
As we think about next year, we think working capital is probably.
Neutral type item for us.
Speaker 5: and we'll grow our free cash flow with our EBITDAG.
And we will grow or will grow our free cash flow with our EBITDA growth.
Speaker 12: Okay, that's awful. And then for the margin benefits, or for even that, when you think about flat.
Okay. That's helpful and then for the margin benefits.
EBITDA when you think about flat flat revenues are down revenues in 24, how much margin benefit you just get from kind of the lower inventory costs rolling through is that 50 basis points 100 basis points can you give some color on that yes, we're not going to quantify that at this point, Brian because we are still work.
Speaker 12: flat revenues are down revenues in 24. How much margin benefit you just get from kind of the lower inventory costs rolling through? Is that 50 basis point, 100 basis points, can give some color on that?
Speaker 10: Yeah, we're not gonna quantify that at this point. Brian , because we're still working on what our plan will be for next year, what we'll give his guidance. The only thing I would tell you is, as we think about this year's full eerie, but that right, we would expect next year to be at or above that.
On on what our what our plan will be for next year, and what will give us guidance. The only thing I would tell you is as we think about this year is kind of full year EBITDA rate, we would expect next year to be at or above that number.
Speaker 12: Okay, and then last just on the 3.5 minute key rolled out. So that sounds like it's a second half of 24. How many units ultimately do you think goes into that? And are those all replacing current units?
Okay, and then last just on the three five minute key rollout so that sounds like it's second half of 'twenty four.
How many units ultimately do you think goes into that and are those all replacing current units.
Speaker 5: So the great news about that is you think about the retailer. They hate it when all of a sudden you've got all this stuff coming in and going out and all these new, you know, I want more floor space. We're not asking them to do anything. And what we'll do is for the most part is retrofit our existing 3.0 miniqui with new brains and a new capability, but it's not something that the retailer will even feel.
So the great news about that is you think about the retailer they hate it when all of a sudden <unk> got all the stuff coming in and going out and all of these new I want more floor space, we're not asking them to do anything and what we'll do is for the most part is retrofit our existing 3.0 minute key with new.
Brands that are new.
Capability, but it's not it's not something that the retailer will even feel so for the most part of that and Jamie the number for next year on machines, and we are going to be north of five hundreds, yes, and I think the reason, Brian I'm, saying second half, it's not that we won't be doing that in the first half I just want to be real careful because.
Speaker 5: So for the most part of that, and Jamie, the number for next year on machine.
Speaker 5: be north to 500. Yeah, and I think, you know, the reason Brian , I'm saying second half, it's not that we won't be doing it in the first half. I just want to be real careful because
Speaker 5: when the consumer gets excited about and decides to spend that kind of money at a Kia.
When the consumer.
Guests excited about and the size to spend that kind of money at a kiosk.
Speaker 5: I think you have to make sure that the backside of that is a really good experience with five stars. That's why I'm being a little cautious as to when it'll kick in. But there'll be machines, they'll be over 50 by the end of the year or 45 and then they'll be rolling out starting first quarter, but it's gonna take us time to make sure that experience is great. Now again, it will cut home and office just like it did and then additionally, you'll have these other options that'll be new. Okay, great.
You have to make sure that the back side of that is a really good experience with five stars that's why I'm being a little cautious as to when it will kick in but there'll be machines.
There'll be over 50 by the end of the year of 45% and then there'll be rolling out starting first quarter, but it's going to take us time to make sure that experience is great now again, it will cut home and office just like it did and then additionally, you'll have these other options that will be new.
Okay, great. Thank you so much for taking the questions sure.
Speaker 1: Thank you one moment for our next question.
Thank you one moment for our next question.
Speaker 1: that will come from the line of Shorug Patel with Jeffreys. Your line is open.
That will come from the line of Suraj Patel with Jefferies. Your line is open.
Speaker 13: Hey, good morning guys, actually it's Steve Volkman here. Hope you're all doing well. Hey, how you doing?
Hey, good morning, guys actually it's Steve Volkmann here hope, you're all doing well, Hey, How're you doing.
Speaker 5: Doing fine. Thank you. Most of my questions have been answered. So maybe I should ask you about your golf game. I'll tell you what, I always hate it when I peek in the fall. And I'm peeking right now. My driver is ridiculous. So that's that's an update, but I wish it was spring.
Doing fine. Thank you most of my questions have been answered so maybe Doug I should ask you about your golf game.
Yes.
I'll tell you what I always hate it when I would peak in the fall.
Right now my driver is ridiculous so.
That's an update but I wish it was spring right now.
Speaker 13: All right, on that note, I actually do have a couple quick ones. Can we talk Rocky just a little bit about the cadence of margins in 2024? And I'm thinking specifically about sort of the various price cost dynamics. Is there some kind of pass through of the lower transportation costs at some point? Or do margins kind of grow a little bit or flash to a little bit each quarter? How do we think about that sort of flow through?
[laughter] alright on that note I actually do have a couple of quick ones.
Can we talk Rocky just a little bit about the cadence of margins in 2024, and I'm thinking specifically about sort of the various price cost dynamics.
Is there some kind of pass through of the lower transportation costs at some point or do margins kind of grow a little bit or flat to a little bit each quarter, how do we think about that sort of flow through.
Speaker 4: Again, Steve, not going to get full gains, but I think we would be naive to think we're not going to get
Again, Steve not going to give full guidance, but I think we would be naive to think we're not going to give some price back to some retailers next year and so I think you are going to see us do that we are going to feel the benefits flowing through.
Speaker 8: Next year and so I think you are gonna see us do that. We are gonna feel the benefits flowing through from the lower cost of goods sold. So, you know, as we exit the fourth quarter, you know, we've said we'll be above that 45% kind of historical rate. And we would expect to maintain that for most.
From the lower cost of goods sold so as we exit the fourth quarter.
We said, we'll be above that 45% kind of historical rate and we would expect to maintain that for most of next year.
Speaker 13: Okay, great. And then is it too early to sort of think about what the mature mini key 3.5 economics are? I mean, how much do you think one of those generates in terms of revenue and margin when it's kind of at its run rate?
Okay, Great and then.
Is it too early to sort of think about what the mature many key three five economics or I mean, how much do you think one of those generates in terms of revenue and margin when it's kind of at its run rate.
Speaker 5: So it is right now because, you know, the big question is
It is right now because the big question is.
Speaker 5: We're going to need and want and the retailers definitely have agreed once we get the right number of machines they need to start talking to the consumer about what's available. Now, Steve, there'll be a big auto key on top of that machine that used to just be an office key and so we'll be doing all we can and we've got over 2 million emails.
We're going to need and want and the retailers definitely have agreed once we get the right number of machines they need to start talking to the consumer about what's available now Steve there'll be a big auto key on top of that machine that used to just be an office key and so.
We'll be doing all we can and we've got over 2 million E mails.
Speaker 5: of current minikki customers that obviously will be targeting not in a nuisance way, but in a great way of saving them money. So I would, I'll be honest, I don't know yet. All I know is that the software and the brains that the team have put together are working.
Many key customers that obviously will be targeting not nuisance way, but in a great way of saving them money.
So I would I'll be honest I don't know yet all I know is that the software and the brains that the team have put together are working and backend meaning the programming of that are working on our two machines. So were two for two but it's a little early.
Speaker 5: And the back end meaning the programming of that are working on our two machines. So we're two for two, but it's a little early at least for me because we just don't know how many consumers are going to be comfortable with that. So for example, on a transponder key where there's a key that you have to plug into the card and have it start meeting, you can't keep it in your pocket, we're going to be able to copy that at the machine and we'll send that
At least for me because we just don't know how many consumers are going to be comfortable with that so for example on a transponder key where there is a key that you have to plug into the car to have.
Start meeting you cant keep it in your pocket, we're going to be able to copy that at the machine and we will send that to your house.
Speaker 14: That is pretty slick.
That is pretty slip, but we don't know yet if the consumer is going to get all of that and it's our job to make sure one they do know they can and to we.
Speaker 5: But we don't know yet if the consumer's gonna get all that and it's our job.
Speaker 13: to make sure one, they do know they can and two, we make sure that it's five stars when they're done. So I think it's a bit early, but we're excited. And the retailer is super excited because they don't have to lift a finger, we're doing the work and we should be bringing them a market that from the smart Bob side, they have zero share today. So it could be good for both. They're definitely supportive of it. Okay, I appreciate it. Thanks. Yep, thank you. Thank you.
We make sure that it's five stars when they are done so I think it's a bit early but we're excited in the retailer is super excited because they don't have to lift a finger we're doing the work and we should be bringing them a market that from the smart Bob side, They have zero share today.
So it could be it could be good for both theyre definitely supportive of it.
Okay I appreciate it thanks.
Thank you.
Thank you one moment our next question.
Speaker 1: and that will come from the line of Ryan Merkel with William Blair. Your line is open.
And that will come from the line of Ryan Merkel with William Blair. Your line is open.
Hey, Ryan.
Okay.
Brian you there were still not able to hear you.
Speaker 5: Okay, I'm showing no further questions in the queue. At this time, I would now like to turn the call back over to Mr. Doug Cahill for any closing remarks. Thanks, Sheree. And Ryan, we'll catch up with you in no worries. Thanks everyone for joining us this morning. I'd like to thank our customers, our vendors, suppliers, and importantly, our hardworking team for the contribution to the quarter. And we look forward to updating you again and in the near future. Thanks for joining us.
Bummer.
Okay, I'm showing no further questions in the queue at this time I would now like to turn the call back over to Mr. Doug <unk> for any closing remarks, thanks, Gary and Ryan we will catch up with you no worries thanks to everyone for joining us this morning.
I'd like to thank our customers our vendors suppliers and importantly, our hard working team for the contribution to the quarter and we look forward to updating you again in the near future. Thanks for joining us this morning.
Speaker 1: This concludes today's program. Thank you all for participating. You may now disconnect.
This concludes today's program. Thank you all for participating you may now disconnect.
Okay.
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