Q4 2023 Hillman Solutions Corp Earnings Call

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Operator: Good morning, and welcome to the fourth quarter 2023 results and four year 2024 guidance presentation for Hillman Solutions Corps. My name is Tawanda, and I will be your conference call operator today.

Good morning, and walk them through the fourth quarter 2023 results and four year 'twenty 'twenty four got its presentation well he only solutions court.

My name is to Wanda and I will be your conference call operator today.

Operator: Before we begin, I would like to remind our listeners that today's presentation is being recorded and simultaneously webcast. The company's earnings release, Earnings Presentation, and 10K were issued this morning. These documents and a replay of today's presentation can be accessed on Hillman's Investor Relations website at ir.hillmangroup.com. I would now like to turn the conference over to Michael Kaler, President and CEO of Hillman.

Before we begin I would like to remind our listeners today's presentation is being recorded and simultaneously webcast.

The company's earnings release earnings presentation, and 10-K were issued this morning.

These documents and a replay of today's presentation can be accessed on here much investor relations website at IR Dot Hillman group Dotcom.

I would now like to turn the conference over to micro Kayla withheld me, Sir you may begin.

Michael Kaler: Thank you, Tawanda. Good morning, everyone, and thank you for joining us. I'm Michael Kaler, Vice President of Investor Relations and Treasury. Joining me on today's call are Doug Cahill, our chairman, president, and chief executive officer. Rocky Kraft, our Chief Financial Officer, and John Michael Adenalty, our Chief Operating Officer. Before we begin, I would like to remind our audience that certain statements made on today's call may be considered forward-looking and are subject to the safe harbor provisions of applicable securities laws. 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 and may cause actual results to differ materially from those projected in such settings.

Thank you just wanted to 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 dovetail, our James Chairman, President and Chief Executive Officer, Rocky Kraft, Our Chief Financial Officer, and John Michael Adenopathy, Our Chief operating officer before we begin I would like to remind our audience that certain.

<unk> made on today's call may be considered forward looking and are subject to safe Harbor provisions of applicable securities laws. 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 and may cause actual results to differ materially from that.

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Michael Kaler: 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 slide two in our earnings call slide presentation, which is available on our website at ir.hillmangroup.com. In addition, on today's call, we will refer to certain non-GAAP financial measures. Information regarding our use of and reconciliations of these measures to our GAAP results is available in our earnings call slide. With that, it's my pleasure to turn the call over to our chairman, president, and CEO, Doug Cahill.

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 slide two in our earnings call a slide presentation, which is available on our website at IR Dot <unk> Dot com.

In addition on today's call, we will refer to certain non-GAAP financial measures 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 our chairman President and CEO, Doug Doug. Thanks, Michael Good morning, everyone and thank you for joining us before we get into our healthy 2023 results and our 24 guidance.

Doug Cahill: Thanks, Michael. Good morning, everyone, and thank you for joining us. Before we get into our healthy 2023 results and our 24 guidance, I want to take a moment to recognize the rich legacy that this company was built on as we celebrate our 60th anniversary this year. In 1964, the Hillman Bolt and Screw Corporation was founded by Max Hillman in Cincinnati. Back then, the company got its start by distributing fasteners to independent hardware stores in southern Ohio and northern Kentucky. Max grew his business every year due to his relentless commitment to taking care of his customers, a commitment that's ingrained in how we do business today. As Max neared retirement, his sons, Mick and Rick, took the reins of the company during the 1980s.

Wanted to take a moment to recognize the rich legacy that this company was built on as we celebrate our 16th anniversary this year.

In 1964, the Helmand bolt and screw Corporation was founded by Max Hillman at Cincinnati back then the company got its start by distributing fasteners to independent hardware stores in southern Ohio, and Northern Kentucky Max.

Max cruise business every year due to his relentless commitment to taking care of his customers a commitment that's ingrained in how we do business today.

Max neared retirement, his son's Mick and react to the range of the company during the eighties. The business continued to grow every year and it was during the nineties at the two brothers double down on their dads commitment to customer service and started humans field sales and service team today.

Doug Cahill: The business continued to grow every year, and it was during the 1990s that the two brothers doubled down on their dad's commitment to customer service and started Hillman's field sales and service team. Today, this team consists of 1,100 members, and it is the key component of our competitive mode. Building an organization like this from scratch today would be nearly impossible.

This team consists of 1100 members and it is the key component of our competitive moat built.

Building an organization like this from scratch today would be nearly impossible.

Doug Cahill: This field sales and service team enables us to build another key part of the Hillman moat by shipping our products directly to our customers' retail locations, bypassing their distribution networks altogether. These two differentiators have allowed Hillman to become one of the largest value-added partners for Hardware and Home Improvement Retailers throughout North America. It has also enabled Hillman to grow its sales every year but one over the last 60 years. Nick and Rick ran the company for over 30 years until they retired in 2013 and 2012, respectively. From there, we have continued to do things the Hillman way by remaining committed to building on the legacy of service that Max Hillman began 60 years ago. This is our True North.

This field sales and service team enables us to build another key part of the Hillman mode.

Shipping our products directly to our customers retail locations by.

Passing their distribution networks altogether. These two differentiators have allowed Hillman to become one of the largest value added partners for hardware and home improvement retailers throughout North America.

It also enables <unk> to grow its sales every year, but one over the last 60 years.

<unk> ran the company for over 30 years until they retired in 2013 in 2012, respectively. From there. We have continued to do things the Hillman way by remaining committed to building on the legacy of service that Max Hillman began 60 years ago.

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This is our true north.

Doug Cahill: I'd like to thank the Hillman team, both past and present, for building on this rich legacy, including our 1,100 amazing folks in the field, our hardworking employees in our distribution centers throughout North America, and the entire customer support team, which I'm grateful to be part of. After 60 years, we sometimes forget just how solid our business is. Over time, we have earned our customers' trust because of the high level of service and quality we provide, the unique perspective we bring, and our commitment to long-term relationships. We win with our customers because of our competitive moat and the unique advantages we bring to the table. Our customers continue to give us new opportunities, and simply put, we grow where our customers encourage us to grow. For example, a top five customer of ours challenged us to enter the rope and chain accessories business.

I'd like to thank the Hillman team, both past and present for building on this rich legacy, including our 1100 amazing folks in the field our hard working employees in our distribution centers throughout North America, and the entire customer support team, which I'm grateful to be part of.

After 60 years, we sometimes forget just how solid our businesses overtime. We've earned our customers' trust because of the high level of service and quality, we provide the unique perspective, we bring and our commitment to long term relationships, we win with our customers because of our compared.

The moat and the unique advantages we bring to the table our customers continue to give us new opportunities and simply put we grow where our customers encourage us to grow for.

For example, a top five customer of ours challenged us to enter rope and chain accessories business. Our team worked together with our customer in order to come up with a winning game plan. We flawlessly launched this new business win across our customers national footprint stores on a compressed timeline.

Doug Cahill: Our team worked together with our customer in order to come up with a winning game plan. We flawlessly launched this new business win across our customer's national footprint stores on a compressed timeline during the second half of 2023. As a result of the exceptional implementation, we were awarded Vendor of the Year by this customer.

During the second half of 2023 as a result of the exceptional implementation. We were awarded vendor of the year from this customer our successful launch in the rope and chain accessory category sparked interest from other customers, while reinforced our decision to acquire Cook industry.

Doug Cahill: Our successful launch in the rope and chain accessory category sparked interest from other customers and reinforced our decision to acquire Cook Industries, which is in the adjacent rope and chain category. Now we can take care of the entire rope and chain aisle for our customers. We have the unique ability to help manage the complex, skew-intensive categories that we're in today. Our data-driven approach helps optimize the product mix for our customers. In other words, we know what products the DIYer and Pickup Truck Pro want, and the Hillman team ensures these products are on our customers' shelves.

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Which is in the adjacent rope and chain category now we can take care of the entire rope and chain aisle for our customers. We have the unique ability to help manage the complex SKU intensive categories that we're in today, our data driven approach helps optimize the product mix for our custom.

In other words, we know what products the Diyer and pickup truck pro want in Helmand team insurers. These products are on our customers' shelves. This type of partnership is unparalleled, particularly in the traditional hardware channel, where we continue to convert stores to the <unk>.

Doug Cahill: This type of partnership is unparalleled, particularly in the traditional hardware channel, where we continue to convert stores to the Hillman platform and pick up new shelf space with existing customers. Our traditional hardware business makes up about 12,000 hardware stores and is about 27% of our entire business. It grew 4% last year versus 2022. This is demonstrated by our hardware solutions performance over the past 20 years, 10 years, and five years, where the hardware's top-line CAGR has increased 7%, 7.3%, and 8.2%, respectively. This consistent growth has been fueled organically by new business wins and price, coupled with acquisitions that supplement organic growth after year one. More recently, over the past three years, we have won an average of $25 million of new business per year in HS alone.

<unk> platform and pick up new shelf space with existing customers, our traditional hardware business makes up about 12000 hardware stores.

And it was about 27% of our entire business. It grew 4% last year versus 2022.

This is demonstrated by our hardware solutions performance over the past 20 years 10 years and five years, where the hardware is topline CAGR has increased 7% seven 3% and eight 2% respectively. This consistent growth has been fueled organically.

By new business wins and price coupled with the acquisitions that supplement organic growth after year one.

More recently over the past three years, we have won an average of $25 million of new business per year in Hs alone. We believe we will exceed that number during 2024 and into the future as we continue to grow with our customers combining that with our ability to do accretive acquisitions.

Doug Cahill: We believe we'll exceed that number during 2024 and into the future as we continue to grow with our customers. Combining that with our ability to do creative acquisitions that leverage our moat gives us great confidence that we will continue to win with our partners. We believe that our runway for growth is meaningful, and we will build on the 60-year Hillman legacy again in 2023.

<unk> that leverage our moat gives us great confidence that we will continue to win with our partners. We believe that our runway for growth is meaningful.

We built on our 60 year Hillman legacy again in 2023 operationally no matter. The challenges this team continues to execute.

During the year, we maintained healthy fill rates of over 94%, while reducing inventory by over $100 million across our business. We flawlessly launched multiple new business wins ahead of schedule with some of our biggest customers.

Doug Cahill: Operationally, no matter the challenges, this team continues to execute. During the year, we maintained healthy fill rates of over 94% while reducing inventory by over 100 million across our business. We flawlessly launched multiple new business wins ahead of schedule with some of our biggest customers. On their own, these are three sizable accomplishments.

On their own these are three sizeable accomplishments. However, we did so while moving our distribution hub from Rialto, California to Kansas City in the midst of our busy season.

All while overcoming a cyber incident mid year in.

Doug Cahill: However, we did so while moving our distribution hub from Rialto, California, to Kansas City in the midst of our busy season, all while overcoming a cyber incident mid-year. And importantly, we grew our adjusted EBITDA in our hardware and protective solutions segments by 13.4% in 2022. Now I'd like to hit on our financial highlights for the year before turning it over to Rocky for details. I'm pleased with how our team successfully navigated the year. At Hillman, repair, maintenance, and remodel projects done by the DIYer and Pickup Truck Pro drive our business. U.S. existing home sales totaled just $4.09 million in 2023, which was nearly a 19% decrease from 2022 and a 33% decrease from 2021.

And importantly, we grew our adjusted EBITDA in our hardware and protective solutions segments by 13, 4% over 2022.

Now I'd like to hit our financial highlights for the year before turning it to Rocky for details I am pleased with how our team successfully navigated the year at Hillman repair maintenance and remodel projects done by the Diyer and pickup trucks drove drive our business.

U S existing home sales totaled just $4.09 million in 2023, which was nearly a 19% decrease from 2022 and a 33% decrease from 2021.

Existing home sales drive all three of our businesses hardware protective and robotics and digital as home sellers fix up their homes to prepare to sell and homebuyers take on projects to turn their new house into their dream home, we nearly offset the soft macro environment.

By launching a number of new business wins and help with a bit of price early in the year net sales for 2023 totaled 147 6 billion, which was just shy of our full year 2022 results that included a 50 <unk> week of sales. However.

Doug Cahill: Existing home sales drive all three of our businesses, Hardware, Protective, and Robotics and Digital, as home sellers fix up their homes to prepare to sell, and home buyers take on projects to turn their new house into their dream home. We nearly offset the soft macro environment by launching a number of new business wins and helping with a bidder price early in the year. Net sales for 2023 totaled $1.476 billion, which was just shy of our four-year 2022 results that included a 53rd week of sales. However, excluding the extra week from 2022, net sales increased by 0.4% and grew for the 59th time in our 60-year history.

<unk> the extra week from 2022 net sales increased by 4% and grew for the 59th time in our 60 year history.

For 2023, regenerated $219 4 million of adjusted EBITDA, an increase of four 3% from 2022 with a relatively flat top line or bottom line increased as adjusted gross margins improved over 120 basis points to $44 two.

2% from 43% during 2020 to further our adjusted gross margins improved each quarter throughout the year ending at $48. Two during the fourth quarter, a 400 basis points sequential improvement over the third quarter we.

Doug Cahill: For 2023, we generated $219.4 million of adjusted EBITDA, an increase of 4.3% from 2022. With a relatively flat top line, our bottom line increased as adjusted gross margins improved by over 120 basis points to 44.2% from 43% during 2022. Further, our adjusted gross margins improved each quarter throughout the year, ending at 48.2% during the fourth quarter, a 400 basis point sequential improvement over the third quarter.

I believe we can maintain healthy adjusted gross margins throughout 'twenty, four which rocky will touch on in his guidance section later on.

Now, let's touch on the performance of each business for 2023 hardware solutions is our biggest business and it makes up 59% of our overall revenue. This business is the heart and the soul of our company the same way Max Mec and Rick were for 40 years.

For the year hardware sold three 7% growth compared to 2022 or four 7%. When you exclude the 50 <unk> week, new business wins drove the majority of the increase as we organically grew our share with our customers.

Doug Cahill: We believe we can maintain healthy adjusted gross margin throughout 24, which Rocky will touch on in his guidance section later on. Now, let's touch on the performance of each business for 2023. Hardware Solutions is our biggest business, and it makes up 59% of our overall revenue. This business is the heart and soul of our company, the same way Max, Mick, and Rick were for 40 years.

Our protective solution business makes up about 14% of our overall revenue for the year protective revenues decreased 10, 7%. However, excluding COVID-19 related PPE sales and $2022 50, <unk> week protective revenue decreased just two 5%.

Doug Cahill: For the year, hardware saw 3.7% growth compared to 2022, or 4.7% when you exclude the 53rd week. New business wins drove the majority of the increase as we organically grew our share with our customers. The protective solution business makes up about 14% of our overall revenue. However, for the year, protective revenues decreased 10.7%.

The second half of 2023 was up nearly 10% versus the comparable period and we finished the year strong and protective solutions.

Thankfully this should be the last time, we talk about code.

Robotics and digital solutions, our Rds makes up 17% of our overall revenue Rds revenue was essentially flat for the year or up 2%. Excluding the 50 <unk> week, a 10% increase in revenue from our self serve GE duplication.

Doug Cahill: However, excluding COVID-related PPE sales, in 2022's 53rd week, protective revenue decreased just two and a half percent. The second half of 2023 was up nearly 10% versus the comparable period, and we finished the year strong in protective solutions. Thankfully, this should be the last time we talk about COVID.

Many key offset a relatively soft market looking forward, we remain very encouraged about our high margin Rds business, especially our new many key three five geos. We are leveraging many key the number one self serve home and office machine to now include.

RFID five duplication and technology that enables transponder and smart auto capability. We currently have 40 minute key three five machines in the field and the initial results are encouraging our top customers are very excited about this machine and are anxious.

Doug Cahill: Robotics and Digital Solutions, or RDS, makes up 17% of our overall revenue. RDS revenue was essentially flat for the year, or up 2%, excluding the 53rd week. A 10% increase in revenue from our self-serve key duplication kiosk, MinuteKey, offset a relatively soft market. Looking forward, we remain very encouraged about our high-margin R&D business. Especially with our new MinuteKey 3.5 kiosk, we are leveraging MinuteKey, the number one self-serve home and office machine, to now include RFID5 duplication and technology that enables transponder and smart auto capability.

For the rollout during 2024, we believe that these capabilities and services for our new <unk> three five machine.

Not only for a retailer but for their consumers.

Additionally, we expect to roll out endless aisle capabilities on our mid Q3, five self serve machine during the middle of this year. This means that our user can get effectively any key duplicated our machines will scan. The key we will cut the key at our plant in Tempe, Arizona in May.

That key directly to the customer and just a few days. This solves the problem for customers seeking to duplicate unique keys like boat riding law more in unique lock keys further the analysts I'll allows a customer to get an out of market key for example someone living in.

Doug Cahill: We currently have 40 MinuteKey 3.5 machines in the field, and the initial results are encouraging. Our top customers are very excited about this machine and are anxious for the rollout in 2024. We believe that these capabilities and services for our new MinuteKey 3.5 machine are great not only for our retailers but for their consumers. Additionally, we expect to roll out endless IELTS capabilities on our MinuteKey 3.5 self-serve machine during the middle of this year. This means that our user can get effectively any key duplicated.

Los Angeles will now be able to get a Cincinnati Red P. R.

Our Rds field service team, which is part of our 1100 is in our customers store on a regular basis.

They're they replenish inventory collect cash and perform routine and service related maintenance on our machines, we have several new opportunities to leverage this team of skilled technicians for other companies in the Gi space, which will drive revenue and profitability for Rds.

Doug Cahill: Our machines will scan the key, we will cut the key at our plant in Tempe, Arizona, and mail that key directly to the customer in just a few days. This solves the problem for customers seeking to duplicate unique keys like boat, riding lawnmower, and unique lock keys. Further, the Endless Aisle allows a customer to get an out-of-market key. For example, someone living in Los Angeles will now be able to get a Cincinnati red key.

In the second half of 'twenty for.

Lastly, our Canadian segment, which makes up about 11% of our revenue saw a 9% topline decrease versus 2024.

Following a strong year in 2022 market volumes and foreign exchange were a drag on the 23 results. It's no secret that since mid 'twenty three the Canadian economy has been sluggish which has been a drag on our business, our Canadian retail business, which makes up about 70% of their sales.

Doug Cahill: Our RDS field service team, which is part of our 1100, is in our customer store on a regular basis. There, they replenish inventory, collect cash, and perform routine and service-related maintenance on our machines. We have several new opportunities to leverage this team of skilled technicians for other companies in the kiosk space, which will drive revenue and profitability for RDS in the second half of fiscal 24. Lastly, our Canadian segment, which makes up about 11% of our revenue, saw a 9% top line decrease versus 2022. Following a strong year in 2022, market volumes and foreign exchange were a drag on the 2023 results.

Has roughly 60% market share and continues to provide strong service for the major retailers like they have in Canada for now well over 100 years.

You all heard US talk about this before but I think it's important to touch on again, we have implemented a cumulative total of approximately $225 million in price increases since the beginning of 'twenty one to cover a like amount of inflation.

These costs break down to approximately $120 million of transportation and shipping which includes the inbound cost of ocean containers.

Doug Cahill: It's no secret that since mid-23, the Canadian economy has been sluggish, which has been a drag on our business. Our Canadian retail business, which makes up about 70% of their sales, has roughly 60% market share and continues to provide strong service for the major retailers like they have in Canada for now, well over 100 years. You all have heard us talk about this before, but I think it's important to touch on again. We have implemented a cumulative total of approximately $225 million in price increases since the beginning of 21 to cover a like amount of inflation. These costs break down to approximately $120 million in transportation and shipping, which includes the inbound cost of ocean containers, $80 million of commodities, and $25 million of labor.

Let's change gears and turn to the balance sheets back in 2021, we invested in our inventory to protect our fill rates as we saw a supply chain tighten and lead times increased dramatically.

Proud to report that we have worked through all of the inventory with no negative impact on our fill rate or excess and obsolete inventory.

This <unk> move is yet another example, doing things the Hillman way taking care of our customers. First this is why our long standing relationship with our customers are so strong from the board level to each store level. We believe this decision has and will continue to yield new business wins.

Doug Cahill: As lower-cost products flowed out of our inventory and into our income statement during 2023, we experienced sequential improvement in gross margins. We are now on the right side of the power curve with margins at or above our historical rates, and we expect to stay there. Having said that, we continue to see some costs remain stubbornly high, like labor, outbound freight, and drays, which includes local port service charges. Additionally, there is uncertainty in the cost of ocean containers as we have seen disruption in the Red Sea, at the Suez Canal as well as in the Panama Canal.

With that inventory out of our network, we benefited from a meaningful working capital tailwind during the year generated 172 million a free cash flow, which we used to pay down debt.

The resulting urine leverage ratio of 3.29 times that that we can once again take advantage of M&A market by making a small talk and acquisition subsequent to the end of the year.

As we discuss during January we acquired Cook industries, a midwestern base supplier of rope and chain and related hardware products. This acquisition marks or expansion into a new product category for us <unk>.

Doug Cahill: Since the majority of our products come from Asia to the West Coast, the impact on our global product flows has been minimal, but we're keeping a close eye on the situation. Now, let's change gears and turn to the balance sheet. Back in 2021, we invested in our inventory to protect our fill rates as we saw the supply chain tighten and lead times increase dramatically. I'm proud to report that we have worked through all of the inventory with no negative impact on our fill rates or excess and obsolete inventory. This strategic move is yet another example of doing things the Hillman way, and taking care of our customers first.

Having recently won the rope and Shane accessories with one of our top five customers are expansion in the rope and change as a logical place to grow we can bring these products to our existing customers, while realizing synergies and shipping sourcing in service.

And we have new products for our team to go sell and service.

Customer reaction has been outstanding since closing Cook during the second week in January we've had great feedback on on the news and real growth opportunity discussions are already on their way.

The opportunity to grow via M&A are out there our customers are encouraging us to get into a certain product categories because of her a long track record and the value added services, we provide each and every day now.

Doug Cahill: This is why our longstanding relationship with our customers is so strong from the board level to each store level. We believe this decision has and will continue to yield new business. With that inventory out of our network, we benefited from a meaningful working capital tailwind during the year, generating $172 million of free cash flow, which we used to pay down debt. The resulting year-in leverage ratio of 3.29 times meant that we could once again take advantage of the M&A market by making a small tuck-in acquisition subsequent to the end of the year. As we discussed, during January, we acquired Cook Industries, a Midwestern-based supplier of rope and chain and related hardware products.

Now with a balance sheet on its way to below three times, we're ready to play offense.

We're confident about 2024 because of the resilient and markets. We serve our diverse business with 114000 S. K U shipping to 46000 locations across North America, and 60 years of believing that nothing happens until you sell something <unk>.

We are an embedded partner for our customers and our moat provides value added differentiation versus our competition.

With that let me turn it to rocky to talk numbers.

Doug Cahill: This acquisition marks our expansion into a new product category for us. Having recently won the Rope and Chain accessories with one of our top five customers, our expansion into Rope and Chain is a logical place to grow. We can bring these products to our existing customers while realizing synergies in shipping, sourcing, and service, and we have new products for our team to sell and service. Customer reaction has been outstanding. Since closing Cook during the second week of January, we've had great feedback on the news, and real growth opportunity discussions are already on their way. The opportunities to grow via M&A are out there. Our customers are encouraging us to get into certain product categories because of our long track record and the value-added services we provide each and every day.

<unk> dug in good morning, everyone before I get into our guidance for 2024, I'm going to provide a quick summary of our fourth quarter on your end results.

I would like to remind everyone that the 2022 fourth quarter and full year included an extra week.

Net sales in the fourth quarter of 2023 decreased 0.8% to $347.8 million versus the prior year quarter.

2023 full year net sales totaled 1.476 billion, which is down slightly versus 2022 full year, but up slightly when excluding the 53rd week from 2022.

Net sales came in towards the top end of our revised guidance range.

Remember because of the resilient nature of our products that are a critical part of repair and maintenance projects demand for our products is relatively consistent.

We don't experience the highs nor the lows that our customers often do and during 2000 twenty-three our top outline outpaced some of our biggest customers.

Doug Cahill: Now with the balance sheet on its way to below three times, we're ready to play. We're confident about 2024 because of the resilient end markets we serve, our diverse business with 114,000 SKUs shipping to 46,000 locations across North America, and 60 years of believing that nothing happens until you sell something at Hillman. We are an embedded partner for our customers, and our moat provides value-added differentiation versus our competition. With that said, let me turn it to Rocky to talk numbers. Thanks, Doug. And good morning, everyone.

Fourth quarter adjusted gross profit margin increased over 480 basis points to 48.2% versus the prior year quarter.

Sequentially these margins improve by 400 basis points compared to the third quarter of 2023.

For the full year 2023, adjusted gross profit margin increased over 120 basis points to 44.2% from 43% during 2022.

Doug likes to say the pig is through the Python and in the second half of 2023, we finally returned to normal historic margin rates.

Rocky: Before I get into our guidance for 2024, I'm going to provide a quick summary of our fourth quarter and year-end results. I would like to remind everyone that the 2022 fourth quarter and full year included an extra week. Net sales in the fourth quarter of 2023 decreased 0.8% to $347.8 million versus the prior quarter.

Q4, 2023, adjusted SG&A as a percentage of sales increased to 32.5% from 36% during the year ago quarter.

For the full year 2000, twenty-three adjusted SG&A as a percentage of sales increased to 29.5% from.

From 28.9%.

Ah just SG&A increases during those periods were driven by an increased investment 90, and a 6 million dollar increase in our standard employee bonus expense during 2023 coming off a disappointing 2022 bonus payout.

Rocky: 2023 full-year net sales totaled $1.476 billion, which is down slightly versus 2022 full-year net sales, but up slightly when excluding the 53rd week from 2022. Net sales came in toward the top end of our revised guidance. Remember, because of the resilient nature of our products, which are a critical part of repair and maintenance projects, demand for our products is relatively consistent. We don't experience the highs nor the lows that our customers often do.

Adjusted EBITDA in the fourth quarter increased 20.8% to $54.4 million exceeding the comparable year ago quarter for the second quarter in a row.

Adjusted EBITDA for the 2023 full year increased four 3% to $219 $4 million and came in ahead of the mid point of our revised revised guidance range, which was $217 $5 million.

Adjusted EBITDA was driven by a positive mixer price cost, partially offset by a soft macro environment, which had outsized impact on our Rd S in Canadian businesses.

Let's talk cash loan balance sheet.

2023, operating activities generated $238 million of cash versus $119 million in 2022.

Rocky: And during 2023, our top line outpaced some of our biggest customers. Fourth quarter adjusted gross profit margin increased by over 480 basis points to 48.2% versus the prior year quarter. sequentially, these margins improved by 400 basis points compared to the third quarter of 2023. For the full year 2023, adjusted gross profit margin increased over 120 basis points. 44.2% from 43% during 2022. As Doug likes to say, the pig is through the python, and in the second half of 2023, we finally return to normal historic margin rates. In Q4 2023, adjusted SG&A as a percentage of sales increased to 32.5% from 30.6% during the year-ago quarter. For the full year 2023, adjusted SG&A as a percentage of sales increased to 29.5% from 28.9%. Adjusted SG&A increases during both periods were driven by an increased investment in IT and a $6 million increase in our standard employee bonus expense during 2023, coming off a disappointing 2022 bonus payout.

Driving the improvement was a 104 million dollar reduction in net inventories imprudent cash management.

Capital expenditures for the year were $66 million compared to $70 million in 2022.

We continue to invest in our <unk> 3.5, and quick take 3.0 machines, which are important parts of our capex initiatives.

Free cash flow for the year totaled $172 3 million versus $49.4 million in 2022.

Driven by a meaningful and accelerated working capital benefit free cash flow exceeded the high end of our guidance and surpassed our initial internal expectations.

During the year, we use free cash flow to pay down $160 million of debt. We ended 2023 with $722 million of net debt versus $888 million at the end of 2022.

Towards the end of the bed towards the end of 2020 Q4, we took advantage of the swap market and the inverted yield curve by entering into a new set of swaps.

Currently we have $360 million of existing squat swaps that expire on July 31st of 2024.

The swaps are fixed at 74 basis points, plus or 270 basis point spread for an all in borrowing costs of about 3.5%.

In December we entered into new swap agreements for the same $360 million that go into effect on the day, our existing swaps expire these.

Swaps are fixed at 3.69% plus.

<unk> 270 basis point spread for an all in borrowing costs of about 6.4%.

Rocky: Adjusted EBITDA in the fourth quarter increased 20.8% to $54.4 million, exceeding the comparable year-ago quarter for the second consecutive quarter. Adjusted EBITDA for the 2023 full year increased 4.3% to $219.4 million and came in ahead of the midpoint of our revised guidance range, which was $217.5 million. Adjusted EBITDA was driven by a positive mix of price and cost, partially offset by a soft macro environment, which had outsized impacts on our R&D and Canadian business. Let's talk about cash flow and the balance sheet. During 2023, operating activities generated $238 million of cash versus $119 million in 2022. Driving the improvement was a $104 million reduction in net inventories and prudent cash management. Capital expenditures for the year were $66 million, compared to $70 million in 2022.

These new swapped will expire on January 31, 2027.

Our net debt to trailing 12 month adjusted EBITDA ratio at the end of the quarter was 3.29 times, which improved from 3.7 times at the end of the third quarter at four times at the end of Q2.

Our longterm net debt to adjusted EBITDA ratio target remains unchanged at below three times and we expect we will end 2024 around 2.7 times, assuming we fall near the midpoint of our guidance and we do not make any sizable acquisitions during the remainder of 2024.

Speaking up let me spend a few minutes talking about our outlook and guidance for 2024.

We anticipate full year net sales to be between 1.475 to 1.555 billion with a mid point of $1.515 billion.

Historically, our top line has grown about six per cent annually. This consists of approximately 1% price and 5% volume growth.

Five per cent volume growth is made up of 2% to 3% market growth.

Which looks a lot like GDP in two to three per cent growth from new business wins.

As it relates to our 2024 top line guide our mid point assumes a 1% headwind from price.

A 1% decrease from market volumes.

A 2% lift from new business wins, and a 3% lift from the Cook acquisition.

Rocky: We continue to invest in our Minikey 3.5 and QuickTag 3.0 machines, which are important parts of our CapEx initiative. Free cash flow for the year totaled $172.3 million versus $49.4 million in 2022. Driven by a meaningful and accelerated working capital benefit, free cash flow exceeded the high end of our guidance and surpassed our internal expectations. During the year, we used free cash flow to pay down $160 million of debt.

As you would expect our top line is going to be dependent upon sales volume at our customers, which is predominantly driven by their P. O S.

Our ability to win new business, the strength of the consumer and the health of the economy and housing market will impact our results.

For our bottom line, we expect full year 2024, adjusted EBITDA will total between 230 and $240 million.

Mid point of $235 million represents an increase of about 7% versus 2023.

During 2024, we expect our full year adjusted gross margin to come in above 45% for the year, which is where we expect the business to perform over the long term.

Rocky: We ended 2023 with $722 million of net debt versus $888 million at the end of 2022. Toward the end of 2024, we took advantage of the swap market and the inverted yield curve by entering into a new set of swaps. Currently, we have $360 million of existing swap swaps that expire on July 31st, 2024. These swaps are fixed at 74 basis points, plus our 270 basis points spread for an all-in borrowing cost of about 3.5%.

Lastly, free cash flow for the full year of 2024 is expected to come in between $100 million to $120 million with a <unk> of $110 million.

There was some pull forward a cash flow from 24, and the 2023 and we anticipate are normalised level of free cash flow to be in the 130 to 140 million dollar range for the next several years following 2024.

During 2024, we expect to be able to purchase products from our vendors a bit less extensively than we did in twenty-three because of lower raw material commodity prices, but expect it to be partially offset by a return to more normal purchasing patterns, which will provide a modest working capital benefit in the range of five to.

Rocky: In December, we entered into new swap agreements for the same $360 million that go into effect on the day our existing swaps expire. These swaps are fixed at 3.69% plus our 270 basis points spread for an all-in borrowing cost of about 6.4%. These news swaps will expire on January 31st, 2027. Our net debt to trailing 12 month adjusted EBITDA ratio at the end of the quarter was 3.29 times, which improved from 3.7 times at the end of the third quarter and four times at the end of Q2.

$15 million.

Keep in mind that these guidance figures are made with the following full your assumptions.

Interest expense will be between 55 and $65 million.

Cash interest will be between 50 and $60 million.

We expect to pay cash taxes between 10 and 20 million.

<unk> will remain between 65 and $75 million.

We anticipate restructuring related or other expenses of approximately $20 million 10 million excuse me.

And are adjusted diluted weighted average share count for 2024 will be approximately $199.

Our success, reducing inventory and paying down debt. During 2023 has put us in the position to play offense and use our improved balance sheet to execute low risk acquisitions like Cook.

Rocky: Our long-term net debt-to-adjusted EBITDA ratio target remains unchanged at below three times, and we expect we will end 2024 around 2.7 times, assuming we fall near the midpoint of our guidance and we do not make any sizable acquisitions during the remainder of 2024. Speaking of, let me spend a few minutes talking about our outlook and guidance for 2024. We anticipate full-year net sales to be between $1.475 and $1.555 billion, with a midpoint of $1.515 billion. Historically, our top line has grown about 6% annually. This consists of approximately 1% price and 5% volume growth. The 5% volume growth is made up of 2-3% market growth, which looks a lot like GDP, and 2-3% growth from new business.

As we look forward, we believe are competitive mode and long standing relationships with customers will allow us to continue to win and to perform at or above our historic growth rate over the long term.

With that back to Utah. Thanks.

Thanks, Rocky we've made excellent progress during 2023 from reducing inventory and paying down debt to winning new business in transitioning one of our main distribution hubs from Rialto, California to Kansas City, and I'm truly impressed with our team's results during the year looking forward, we fired up <unk>.

Machine and believe that by leveraging the Helmand moat, we can add tremendous value via M&A, we started with coke and are excited about bringing in additional categories to our customers either organically or through M&A. As we think about 2024 were ready to capitalize on the progress we've made.

During 2023.

We can't control the macro we believe we're very well positioned to drive share game and a healthy profit increased during 2024 are true north continues to be the guiding principle gentlemen, we live by the model that nothing happens until you sell something and once you do don't disappoint, we know that's in today's environment.

Rocky: As it relates to our 2024 top line guide, our midpoint assumes a 1% headwind from price and a 1% decrease from market volume. A 2% lift from new business wins and a 3% lift from the Cook acquisition. As you would expect, our top line is going to be dependent upon sales volume at our customers, which is predominantly driven by their POS, and our ability to win new business. The strength of the consumer and the health of the economy and housing market will impact our results. For our bottom line, we expect full-year 2024 adjusted EBITDA to total between $230 and $240 million. The midpoint of $235 million represents an increase of about 7% versus $20 million. During 2024, we expect our full-year adjusted growth margin to come in above 45% for the year, which is where we expect the business to perform over the long term. Lastly, free cash flow for the full year of 2024 is expected to come in between $100 and $120 million, with a midpoint of $110 million.

Service matters as much as it ever has in our 60 year history, our commitment to all of our stakeholders remain steadfast. This includes not only our customers, but our suppliers team members and our investors.

We look forward to updating you during the year with our progress with that will begin the Q&A portion of the call.

Let's see Tuan, though can you. Please open up the call. Thank you ladies.

Ladies and gentlemen to ask a question. Please press star one one on your telephone and then wait to hear your name announced.

To withdraw your question. Please press start one one again.

We ask that you limit yourself to one question and one follow up and then you make it back into the queue.

Please stay on by a <unk>.

First question comes from a line of <unk> with C. J S Securities your line or something.

Hi, Good morning, it's pizza Lucas for late congrats on the corner.

Just wanted to know I guess, the first question what assumptions are built into the forecast in terms of growth in robotics, both in terms of growth and keys first engraving and then the ramp of machine placements throughout the year.

Rocky: There was some pull-forward of cash flow from 24 into 2023, and we anticipate our normalized level of free cash flow to be in the 130 to 140 million dollar range for the next several years following 2020. During 2024, we expect to be able to purchase products from our vendors a bit less expensively than we did in 2023 because of lower raw material commodity prices, but we expect it to be partially offset by a return to more normal purchasing patterns, which will provide a modest working capital benefit in the range of five to $15 million. Keep in mind that these guidance figures are made with the following full-year assumptions. Interest expense will be between $55 million and $65 million. Cash interest will be between 50 and 60.

Yeah, So as we think and thanks for the question P. Thanks for the compliments on the quarter you know as we think about robotics for this year is Doug said in his prepared remarks, we expect to ramp in the back half of the first half of it is going to be relatively tough we're anticipating just given what we've seen in the economy. We can send you to see.

Some of the pet retailers.

Struggle a bit and when you think about anything that's discretionary spend.

We don't see people spending unless the economy turns towards the back half. So overall in the robotics and digital we would save a flattish kind of year that would be with areas like many key performing better in areas such as engraving performance little worse and it does do you want to comment on on Rollouts.

Yeah, when you think about paint the new 3.5.

Obviously, we're gonna have a machine that can do a lot more than just tell him in office with the analysts I'll capability as well as RFID as well as the transponder an auto capability for smart Bob. So we're excited about that but we are as I have said repeatedly we're not.

Rocky: We expect to pay cash taxes between $10 and $20 million, and CAFX will remain between $65 million and $75 million. We anticipate restructuring-related or other expenses of approximately $20 million, or $10 million, excuse me. And our adjusted diluted weighted average share count for 2024 will be approximately 199. Our success reducing inventory and paying down debt during 2023 has put us in the position to play offense and use our improved balance sheet to execute low-risk acquisitions like Cooke. As we look forward, we believe our competitive mode and longstanding relationships with customers will allow us to continue to win and to perform at or above our historic growth rate over the long term. With that, back to you, Doug. Thanks, Rocky.

I run out there and lead with our Chen we're gonna make sure that we roll these hours and that we've got the back and taken care of for the support service, but but again every retailer is excited about it I think the one thing about our D. S and we're frustrated with the performance. So let me say that upfront I wish it was growing.

Quicker, but when you take.

It makes total sense, <unk> engraving and and accessories that that's a discretionary and we know that Pat and that is way off but.

But when you think about cheese, both full Sir <unk>.

And and Seltzer teas, which is the biggest part of our D. S.

We have one customer that's that's given us fits in that's Walmart and if you look at the rest of the customers in 2023 Rds was up about 7.5%. So they they had a good year and what happened at Walmart is the elected to take full serve machines.

Doug Cahill: We've made excellent progress during 2023, from reducing inventory and paying down debt to winning new business and transitioning one of our main distribution hubs from Rialto, California, to Kansas City. And I'm truly impressed with our team's results during the year. Looking forward, we fired up the M&A machine and believe that by leveraging the Hillman moat, we can add tremendous value via M&A. We started with Cook and are excited about bringing additional categories to our customers, either organically or through M&A. As we think about 2024, we're ready to capitalize on the progress we made during 2023. While we can't control the macro, we believe we're very well positioned to drive share gains and a healthy profit increase during 2024. Our true north continues to be the guiding principle of Hillman.

Out.

We had 100 per cent of that business, we had to do a lot of work that didn't sell a key to get those machines out and then we relocated all of the self serve machines throughout the store, we have about 70% of the self serve share and and unfortunately, we saw machines go from the front.

<unk>.

Two sporting goods to painting to ACC, so they're not getting to the places that even Walmart once with their store ops issue. So we had a tough year with Walmart in lots of machines in and out and around and but when you look at our other major G.

Companies and customers like the <unk> of the World and depot Lowes, we had a good year and so we should turn that size second half of 24 and get this thing going again.

And then just one quick follow up you talked about the new services, you're introducing on the next generation keep making machines any sense what that adds to your Tam.

I'll tell you what it's a really really good question and it it it it can vary dramatically. If you think about the average G that would be caught in a minute key machine today.

Doug Cahill: We live by the model that nothing happens until you sell something, and once you do, don't disappoint. We know that in today's environment, service matters as much as it ever has in our 60-year history. Our commitment to all of our stakeholders remains steadfast.

You know you're talking about probably a five dollar G versus you know in the future you'll have cheese, ranging from 10 99 to $79 to $179 and so the big variability what we don't know is what's the consumer.

Doug Cahill: This includes not only our customers but our suppliers, team members, and our investors. We look forward to updating you during the year on our progress. With that, we'll begin the Q&A portion of the call. Towando, can you please open up the call? Thank you. Ladies and gentlemen, to ask a question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, please press star 11 again.

To do and and and that's what's interesting about the first 40. So it's a little early yet and I do also believe that will see different kinds of numbers based on different Geographics, you know as far as how that store traipse out what what it's around and what areas.

And so we're just learn and it's a little early for us to say, but the great news from a retailer standpoint is worse than in the capital doing all the work and they get a per cent of a higher number and and so they're excited about it and we are as well, but it's a little early for me to tell your average key cut.

Operator: We ask that you limit yourself to one question and one follow-up, and then you may get back into it. Please stand by while we compile the Q&A roster. Our first question comes from the line of Lee Jagoda with CJS Securities. Your line is open. Hi, good morning. It's Pete Lucas on behalf of Lee Jagoda.

Price was average new teacup price will be and that's what we're going to work on it will probably take us that you know we're gonna need about 500 machines out there around the U S for us to get our heads around that.

Very helpful. Thanks, I jumped back in the queue.

Six feet. Thank you.

Pete Lucas: Congratulations on the quarter. I just wanted to know, I guess the first question, what assumptions are built into the forecast in terms of growth in robotics, both in terms of growth in keys versus engraving and then the ramp of machine placement? So as we think about robotics for this year, you know, as Doug said in his prepared remarks, we expect to ramp up in the back half, but the first half is gonna be relatively tough. We're anticipating, just given what we've seen in the economy, we continue to see some of the pet retailers struggle a bit. And when you think about anything that's discretionary spend, you know, we don't see people spending unless the economy turns towards the back half. So overall, in robotics and digital, we would say a flattish kind of year. That would be with areas like Minikey performing better, and areas such as engraving performing a little worse.

Stand by for our next question.

Our next question comes from the lineup Lion Merkel with way on Blair. Your line is Nelson.

Hey, everyone. Good morning.

<unk>.

Wanted to start off with some of the revenue assumptions for 24, I think you mentioned price down one per cent. Please just unpack that a little bit.

Yeah, I mean, if you take 1% of our revenue obviously you can do the math the Orion that's about $15 million mean, we've said as you think about price over time, we expect that that we're gonna get some price back because we've seen some deflation in the business and.

And we are anticipating that will do that I think you know.

What we've said consistently is as as we as costs come down.

We would expect that will hold on to about half of that and so far. This plan out we're pretty proud of the fact that we've been able to expand gross margin like we have we've gotten back to where we were historically, obviously a little bit above it in the fourth quarter, but as we think about 2024, what we're really excited about as we think not only are we.

Yeah, but we maintain that that historic gross margin throughout the year and we think that's worth business needs to live.

Doug Cahill: And then Doug, do you want to comment on the rollouts? Yeah, when you think about Pete, the new 3.5, you know, obviously, we're gonna have a machine that can do a lot more than just home and office with the endless aisle capability, as well as RFID, as well as the transponder and auto capability for smartphones. So we're excited about that. But we are, as I have said repeatedly, we're not gonna run out there and lead with our chins.

Got it okay.

In terms of the timing is that kind of even through the year or should we think about that that price give back more second half.

I I I would I would say, it's more back end loaded, but we're obviously, having those conversations with our retailers as we speak yeah.

Okay.

And then my second question you know the.

The market down one per cent I think that's pretty fair I guess two part question. What are what are some of the things you're watching is it mainly just interest rates and housing turnover and and then the second part of the question.

Doug Cahill: We're gonna make sure that we roll these out and that we've got the backend taken care of for support and service. But again, every retailer is excited about it. I think the one thing about RDS is that we're frustrated with the performance. So let me say that up front. I wish it was growing quicker.

Do you think there's pent up demand.

Is that how your business works of turnover increases to all these people start doing projects again.

Yeah, I think you're right when you think about existing home sales ma'am, we get <unk>.

We get it helped on both sides of that trade right people get their house ready and they use our products and then they tried to turn their new one into what they want and that number be 4 million versus five and six is really proud of the biggest drag on on on depot Lowes.

Doug Cahill: But when you take, it makes total sense on engraving and accessories; that's a discretionary. And we know that PET and VAT are way off. But when you think about keys, both full-serve and self-serve keys, which is the biggest part of RDS, you know, we have one customer that's given us fits, and that's Walmart. And if you look at the rest of the customers, in 2023, RDS was up about seven and a half percent. So they had a good year. And what happened at Walmart is that they elected to take the full-serve machines out.

As in hardware stores in our business so.

I think that's a second half begin, but it really probably ends up being a 25 tailwind we feel like it'll start to help us in the second half, but I think you'll see that our guess is that you'll see that really help our business and 25 and that's why we didn't want to put a number out there that <unk>.

Doug Cahill: We had 100% of that business. We had to do a lot of work that didn't sell a key to get those machines out, and then we relocated all of the self-serve machines throughout the store.

To go perfect. We wanted to put a number out there that that you know hopefully we could do better, but but they will not solve for volume until we see volume in a consistent way I think it's always confusing in January and February because of weather this that and the other yeah.

Doug Cahill: We have about 70% of the self-serve share. And, unfortunately, we saw machines go from the front vestibule, to sporting goods, to painting, and to ACC. So they're not getting to the places that even Walmart wants with their store ops issues. So we had a tough year with Walmart, lots of machines in and out and around. But when you look at our other major key companies and customers like the Aces of the World and Depot and Lowe's, we had a good year. And so we should turn that side around in the second half of 24 and get this thing going. And then just one quick follow-up. You talked about the new services you're introducing on the next generation key-making machines. Any sense of what that adds to your TAM?

Take the thing that we're really hoping for for the our retail partners is is a good spring it's been two years without it it would be great to have a good spring for them, obviously would help us to we're not super tied in the spring, but they are and that would really help them to get started because I think deep.

Oh and lows are prepared for good year, but I think just like us they're they're they're trying to look at things and probably a second half before this thing starts moving and then then the 25.

Yeah makes sense Alright, that's luck.

Thanks, Thanks right.

Thank you.

Please stand by for our next question.

Next question comes from a line of David 90, with <unk> or something.

Doug Cahill: I'll tell you what, it's a really, really good question, and it can vary dramatically. If you think about the average key that would be cut in a minute key machine today, you're talking about probably a $5 key versus, you know, in the future, you'll have keys ranging from $10.99 to $79 to $179. And so the big variability, what we don't know is what the consumer is going to do. And that's what's interesting about the first 40.

Thank you good morning, everyone.

Uhm.

So my question is on new business wins, I think Doug you had said more than 25 million and Rocky reference this 2% to 3% focusing on two for the current year and I guess mathematically two per cent is $30 million and you just wanted to check in like.

Is that your plan is that based on discussions you're having how concrete is that and secondarily as that number net of this the line that you exited at a road off this quarter.

Yeah, I I on on the line that we <unk>, we weren't actually selling much of that Dave and so you have that kind of led to where where the right off a card. So that has nothing to do with the math I would say as you'd think about it probably north of two thirds of that business is already done and Nate with with our.

Doug Cahill: So, Pete, it's a little early yet, and I do also believe that we'll see different kinds of numbers based on different geographics, you know, as far as how that store trades out where it's around and what areas. And so we're just learning. It's a little early for us to say, but the great news from a retailer standpoint is we're spending the capital doing all the work, and they get a percent of a higher number. And so they're excited about it, and we are as well, but it's a little early for me to tell you what the average key cut price was, and what the average new key cut price will be, and that's what we're going to work on. It'll probably take us, we're going to need about 500 machines out there around the US for us to get our heads around. Very helpful, thanks.

Retailers and so you think about the rollover impact plus new business wins that we know of and so we've still got some work to do but I would say we're in at least as good a spot as we'd been the last couple of years have you been able to hit those numbers each year as we think about.

Even even as we speak our guys in the field are out working on a new business and what we are confident will pick up more day, the reason I feel even better than.

Then I did is because we're actually having some interesting conversations with three of our customers <unk>.

Talking about doing things for them that they have historically directly inputted themselves.

That tells me that they've got they've got a free up their warehouses and that they want us to service these complicated categories and and that we haven't seen that as an opportunity in front of us I haven't seen that I've been here nine years.

Pete Lucas: I'll jump back in the queue. Thank you. Please stand by for our next question. Our next question comes from the line of Ryan Merkel with William Blair. Your line is open. Hey, everyone. Good morning.

So we have we have three discussions going on right now with people, who are importing the product and and quite honestly, it's really tricky for them to do that as they saw through Covid and again, we're not gonna be able to meet the price that they could get but we can show them with us servicing it.

Operator: Hey, Ryan. Wanted to start off with some of the revenue assumptions for 24. I think you mentioned price down 1%. Can you just unpack that a little bit?

Ryan Merkel: Yeah, I mean, if you take 1% of our revenue, obviously, you can do the math there, Ryan, it's about $15 million. We've said, as you think about price over time, we expect that we're going to get some price back because we've seen some deflation in the business, and we're anticipating that we'll do that. What we've consistently said is that as costs come down, we would expect that we'll hold on to about half of that. And so far, that's playing out. We're pretty proud of the fact that we've been able to expand gross margin like we have. We've gotten back to where we were historically, and obviously a little bit above it in the fourth quarter.

And I was thinking about the category differently than maybe a merchant do doesn't understand it how we could actually grow it maybe change the category. So that's why I feel like you'll see succeed that number this year.

That sounds great. The second question.

Is on a broken chain what percentage overlap you have with cooked currently what do you think about the number of locations urine versus what their overlap is with those locations and I'm thinking here about the cross sell opportunity. If you look at the 45 million and cooked revenues are you looking to capture.

Sure multiples of that over three to five years or is it more of a thing for metal opportunity.

<unk>, it's a J and Meg cause he's all over this one but with Dave Let me just say first our top three customers.

We cook has 8% of their share.

Rocky: But as we think about 2024, what we're really excited about is that we think, not only are we at, but we maintain that historic gross margin throughout the year. And we think that's where the business needs to live.

I love that.

That's a good place to start Jim Man.

De da excellent question, because we're really excited about coke tiny overlap very little made accessories brokerage accessories, it a little bit of overlap, but with the acquisition, how we're able to bring the bulky and packaged product and then bring our merchandising solutions together, it's really growing and as Doug mentioned, it's just a huge opportunity. So we really feel good about that.

Rocky: Okay. In terms of the timing, is that kind of even through the year, or should we think about that price giving back more in the second half? I would say it's more back-end loaded, but we're obviously having those conversations with our retailers as we... Yeah. Okay.

Really accelerated outgrowth in 24, we had a major customer one they saw the announcement call and say we're about to make a decision online review. If you guys are gonna own this will delay it.

And and that that says something to me I I I think we've had several of the regional players say listen let us know when you're ready you can take over a rope and changed now because you've got service. This is a pain in the <expletive> product category N and Cook didn't have service, it's a great Midwest company, but when you take that.

Doug Cahill: Uh, and then my second question, you know, the market down 1%. I think that's pretty fair. I guess it's a two part question. What are some of the things you're watching?

Doug Cahill: Is it mainly just interest rates and housing turnover? And, and then the second part of the question, Doug, do you think there's pent-up demand? Is that how your business works? So if turnover increases, do all these people start doing projects again?

With service and the relationships, we have the I don't know, how how big it will be but but we're we're going to see some really nice growth here, Yeah, Hey day, just to just to make sure that everyone listening is clear what <unk> was talking about is like the category and so very little overlap, but when you think about.

Doug Cahill: Yeah, I think, you know, when you think about existing home sales, man, we get helped on both sides of that trade, right? People get their house ready, and they use our products, and then they try to turn their new one into what they want. And that number being 4 million versus five and six is really probably the biggest drag on, on, on, you know, depot Lowe's and hardware stores in our business. So I think that's a second half beginning, but it really probably ends up being a 25 tailwind.

Customers, they probably don't have a customer that we aren't already servicing. So this is put it through the goose yeah.

But also I was great. Thanks, guys.

Yep.

Thank you.

Please stand by for our next question.

Our next question comes from a line of Michael Hoffman with Stifel per line or something.

Hi, good morning, and thanks for taking my question.

And when I come home.

Okay can we talk about the cadence of your gross margin through the year just so we.

Get all the puts and takes of the sort of the end of the transition out of the 225 in Covid and rebalancing inventory and all that.

Yeah, I I I think the way to think about it Michael as as we said, we expect to be at or above our historic margins all year. So that kind of sets of four where we believe the margins will be obviously as you'd think historically about Hillman, our second and third quarters are are usually our most profitable.

Doug Cahill: We feel like it'll start to help us in the second half, but I think you'll see that our guess is that you'll see it really help our business in 25. And that's why we didn't want to put a number out there that had to go perfect. We wanted to put a number out there that, you know, hopefully, we could do better, but not solve for volume until we see volume in a consistent way. I think it's always confusing in January and February because of the weather this, that, and the other.

Just because of seasonality and I think you will see that again this year with the exception being that the first quarter, we expect to be pretty profitable. It's gonna probably look a lot like the fourth quarter did and then when you start to think about some of the price give back that we anticipate is gonna happen et cetera, you would expect that margin to come down.

Doug Cahill: You know, I think the thing that we're really hoping for for our retail partners is a good spring. It's been two years without one, and it would be great to have a good spring for them. Obviously, it would help us if we're not super tied to spring, but they are, and that would really help them to get started. Because I think, you know, Depot and Lowe's are prepared for a good year. But I think just like us, they're trying to look at things and saying probably a second half before this thing starts moving and then into 25. Yeah. Makes sense. All right. Thanks.

Down a bit, but still again remain at or above historic levels.

Okay, So all year, where at 45 and.

Two two and three Q or even higher for two maybe actually may be below 45, just to get it the balance.

Again, I'll, just I'll I'll restate, what I said, Michael that we expect all year every quarter to be at or above to work.

And then so your customer is having real foot traffic issues, what are you doing differently.

To keep your business on pace despite their foot traffic.

Yeah, I think if you think about depot and Lowe's clearly foot traffic issues. You know, we're not seeing that as much in the farm and fleet and these little hardware stores and I I say little when you have 12000 of them and they represented 27 per cent of your business.

Ryan Merkel: Thanks, Ryan. Thank you. Please stand by for our next question. Our next question comes from the line of David Manthey with Bayer.

Operator: Your line is open. Thank you. Good morning, everyone.

David John Manthey: So, my question is on new business wins. I think, Doug, you said more than 25 million, and Rocky referenced this 2 to 3 percent, focusing on 2 for the current year. And I guess, mathematically, 2 percent is 30 million dollars. I just wanted to check in. Is that your plan? Is that based on discussions you're having? How concrete is that?

They just refuse to for today.

Really well and they've got the service and.

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Nancy here.

Rocky: And secondarily, is that number net of the line that you exited and wrote off this quarter? Yeah, on the line that we wrote, we weren't actually selling much of that, Dave. And so, you know, that kind of led to where the write-off occurred. So that has nothing to do with the math.

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Yeah.

Okay.

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A lot of other counties.

It was Saturday.

Alright environment.

Yeah.

Doug Cahill: I would say, as you think about it, probably north of two-thirds of that business is already done and baked with our retailers. And so, you think about the rollover impact plus new business wins that we know of, and so we've still got some work to do. But I would say we're in at least as good a spot as we were the last couple years, and we've been able to hit those numbers each year, as we think about, you know, today, even as we speak, our guys in the field are out working on new business, and we are confident we'll pick up more. Dave, the reason I feel even better than I did is because we're actually having some interesting conversations with three of our And we haven't seen that as an opportunity in front of us. I haven't seen that.

Yeah.

And then.

Had some strong double digit kind of move this past year and so those three areas are are not being is impacted by foot traffic.

And you know I think depot lowes or both certainly hoping.

That with a spring in kind of mid year that turns around but it's been it's been tough for three years okay.

Okay, and if I could squeeze one more what's your M&A pipeline look like.

One of the Great thing, we got Lucky. This this face it we we wanted to buy Cook a couple of years ago, and and just didn't feel like it was the right time with what we had to do an inventory and you know.

We we spent time with the owners and and told them. We genuinely wanted to buy this is when we thought we could and and they waited for us Ironically. They also ended up.

Buying stock in Helmand during that time and I I, just think that we got to know them. They got to know us and we are very honest about when we wanted to buy and for two brothers, who run a company and build a company honestly, we're a great fit for them, we've already integrated the team which.

Doug Cahill: I've been here nine years. So we have three discussions going on right now with people who are importing the product. And quite honestly, it's really tricky for them to do that as they sell through COVID. And again, we're not going to be able to meet the price that they could get, but we can show them, with us servicing them and us thinking about the category differently than maybe a merchant who doesn't understand it, how we could actually grow it and maybe change the category. So that's why I feel like you'll see us exceed that number this year. That sounds great. The second question is on rope and chain.

Just had 31 people in Minnesota This week.

They love, what's happening and you know they know the two brothers know that they can retire and this will be very well taken care of so we've got half a dozen of those Michael and again, not all will come together, but the fact that the private equity guys stop <unk>.

<unk> there was no debt market has really helped us.

Got it thank you.

Thank you.

Please stand by for our next question.

Our next question comes from the line of Ruben gardener with benchmark Your line is Hilton.

Doug Cahill: What percentage overlap do you have with Cooke currently? I mean, when you think about the number of locations you're in versus what their overlap is with those locations, and I'm thinking here about the cross-sell opportunity. You look at the 45 million in Cooke's revenues; are you looking to capture multiples of that over three to five years? Or is it more of an incremental opportunity? Yeah, I'll turn it to JMA because he's all over this one.

Thanks, Good morning, everybody and Reuben.

So hardware.

Has been fairly resilient for you guys you talked about the issues with Wal-mart at already yes can you talk about protective solutions, maybe what's changed in the last couple of quarters and kind of what's embedded in your outlook in that category for 24.

Ruben Yeah, I mean, we look at the back half of 23 really proud would that can be done in the last couple of years, we've I'll say rebuilt that business a bit <unk> introduce a new products and we rebalance. It we've got some nature off shelf opportunities incremental shelf space, which we have.

John Michael Adenalty: But Dave, let me just say first, our top three customers, we cook have 8% of their share. I love that. That's a good place to start. Jamay, anything you want to add? Yeah, I'll add to that, Doug, and Davey, excellent question because we're really excited about Coke. Tiny overlap, very little in accessories, rope and chain accessories, and a little bit of overlap.

Been able to maximize and that led to a really good back half of the year, we feel good about where the business is positioned in 24, and we're excited about that he's got a place to park new growth opportunities.

Referenced earlier, so we feel really good about our go forward that'd be the category we can <unk>.

I think the other thing Ruben is we've got like a digs blind.

Really is a great positioning for the female and the gardening side and now our retail partner wants us to expand that name into other products because it's really starting to take hold so we've got some interesting things. There. We also are introducing a a higher end.

John Michael Adenalty: But with the acquisition, now we're able to bring in bulk and packaged product and then bring our merchandising solutions together to really grow it. And as Doug mentioned, it's just a huge opportunity. So we really feel good about that, really accelerating our growth in 2020. We had a major customer when they saw the announcement call and say we're about to make a decision on a line review. If you guys are going to own this, we'll delay it. And that says something to me.

If you will tool bag that a lot of the pros want and and it's the first time in the price points up there pretty high but the quality is fantastic. So we're trying to think differently in that work gear and and you know kneepads because the pro the more we interview them.

And get to know them, they don't like buying four or five of these a year they like buy one and bragging about the fact that the last three years and historically these retailers don't Wanna hit that price point. They now know they can hit that price point, if they have the right goods.

Doug Cahill: I think we've had several of the regional players say, listen, let us know when you're ready. You can take over our rope and chain now because you've got service. This is a pain in the butt product category, and Cook didn't have service.

Reuben the only thing I would add just.

People are modeling is we think P. S will look a lot like the old girl guide for the year, probably without the price pressure.

Got it and then you know it's been a little while since M&A. It's been part of the story can you kind of maybe remind us of.

Doug Cahill: It's a great Midwest company. But when you take that with service and the relationships we have, Dave, I don't know how big it'll be, but we're going to see some really nice growth here. It all sounds great. Thanks, guys. Hi, good morning, and thanks for taking the question.

Are there other areas like rope and chain that are left.

You know from a bolt on perspective in the hardware Isle or are.

Are you starting to get to the point, where you've gotta go outside of of of hardware to kind of grow the business.

Yeah, No I would say, there's probably an equal amount inside hardware I would say that ZIP code like a cook and then obviously, we always are looking and thinking through plumbing and electrical which rubel, we would consider more than just around the corner that we'd consider that outside but.

Unnamed Speaker: Can we talk about the cadence of your gross margin through the year, just so we're getting all the puts and takes of it. Okay, so all year we're at 45 and then maybe it's a bit below that. Again, I'll just, I'll restate what I said, Michael, that we expect all year, every quarter to be at or above historic levels. Let's squeeze one more. What's your M&A

We're looking at both and again nothing crazy, but when you think about buying something that call at six times pre synergy and then you add what we're able to do with the business not just from a cost standpoint, but what we with our relationship with our service capable.

<unk> the top line that business is not gonna look anything like it has historically.

Unnamed Speaker: You know, it's one of the great things. We got lucky. Let's face it, we wanted to buy Cook a couple of years ago and just didn't feel like it was the right time with what we had to do in inventory. And, you know, we spent time with the owners and told them we genuinely wanted to buy it. And this is when we thought we could. And they waited for us. Ironically, they also ended up saying, You got it, really is a great position for the female on the gardening side.

Congrats on the strong closed last the last year and good luck to sugar. Thank thanks roommates.

Thank you.

Please stand by for our next question.

Our next question comes from the line and Brian Mcnamara with Canaccord your line or something.

Good morning, guys. Thanks for checking the questions pricing dog I know you're a foreshadow. This for some type of price minus one per cent and 2024 is probably a little bit better than I would've expected as we've heard some of your retail customers, particularly the home centers haven't been shy to ask for an ice pack what could make that minus one materially.

Doug Cahill: And now our retail partner wants us to expand that name into other products because it's really starting to take hold. So we've got some interesting things there. We also are introducing a higher-end, if you will, tool bag that a lot of the pros want. And it's the first time in the price points up there pretty high, but the quality is fantastic.

Better or worse once a year goes on or is that a pretty good place to lock in yeah, right I think it's a little so here's the way to think about it that 1% is a little bigger than 1% as you think about the timing for those decreases.

Doug Cahill: So we're trying to think differently about that work gear and, you know, knee pads, because the pros, the more we interview them and get to know them, they don't like buying four or five of these a year. They like buying one and bragging about the fact that it lasts three years. And historically, these retailers don't want to hit that price point. But they now know they can hit that price point if they have the right product. Morning, guys. Thanks for taking the questions.

And let's just use an example, let's say something goes into effect in June it may be impacting our 24 as such but <unk> rolls into 25 in the first half. So the 1% is accurate, but it's a little bigger than that to answer. Your question is how things <unk> yeah. The only thing I would add.

<unk> when you think about cost we've seen a nice benefit on containers and we've talked about that but virtually every other category that we look at there's inflation.

And we're all see again, I mean labor isn't getting cheaper once you get <unk>, we get product into the United States, it's not getting cheaper and while we did see a bit last year and continue to see a bit of commodity benefit I you know as we sit today. We've seen you know the cost of steel in Taiwan and China.

Brian Butler: Pricing, Doug, I know you have foreshadowed this for some time, but price minus 1% in 2024 is probably a little bit better than I would have expected. As we've heard, some of your retail customers, particularly the home centers, haven't been shy to ask for price back. What could make that minus one materially better or worse as the year goes on? Or is that a pretty good place to lock in? Yeah, Brian, I think it's a little... Here's the way to think about it. That 1% is a little bigger than 1% as you think about the timing for those decreases, in the pickup truck and the DIYer. The thing we're looking for is for people to get off cruise ships and out of concert halls so they get back into the backyard. I mean, that probably the DIYer, the pickup truck pros, about where they've been. The DIYer, Ryan, is the one that's off.

Go up pretty dramatically now that typically happens, but what is the Chinese new year, and we'll see what happens after Chinese new year, but you know as we think about our business and think about the future. There's there's a lot of prices went a lot of different direction that helps us to explain why are prices need to be what they need to be so we get a fair profit.

Oh.

That's fair I guess, we're <unk> with home depot expecting you know another year of consumer customers taken on smaller projects differing larger product projects does this materially impact your ability to plan in Gaza business.

I don't think so you know I I think we play.

And the pick up truck and the D I y or the the thing we're looking for some people to get off cruise ships in and out of concert halls. So they get back into the backyard I mean that probably the D I y or the pickup truck Crows <unk>.

About where they've been the D I y or Ryan is the one that's off and and we're hoping that we'll see that start to pick up and and normalize the little bit I I don't know, how they're gonna do what they Wanna do when you look at the price of of of airline tickets right now so <unk>, that's the part we'd like to see improve.

Doug Cahill: And we're hoping that we'll see that start to pick up and normalize a little bit. I don't know how they're going to do what they want to do when you look at the price of airline tickets right now. So that's the part we'd like to see improve.

Got it and I was just going to squeeze in one last one a quick one after a really nice here at free cash flow generation last year, how should investors think about sustainable cash flow generation of business given the last few years I haven't been particularly normal.

Brian Butler: After a really nice year of free cash flow generation last year, how should investors think about sustainable cash flow generation in the business given the last few years haven't been particularly normal?

Yeah, I I think I said my prepared remarks Fry and we you know we think this is $130 million to $140 million free cash flow kind of normal benefit.

If you look over the last two years you know we did 172 last year were guiding to about 110. This year you know if you average those out that's just north of that probably 140 $142 million. So that's what we think kind of the normal generation the business should be will grow that cash flow over time as we grow EBITA.

You know the the one challenge that we will have as we think about the future a bit is around taxes, because we're not a full cash taxpayer in the U S. Today, we will be eventually and then the flip side as we expect to continue to pay down debt and as we do will obviously bring that that interest lying down as well. So you know 130.

140 feels like a good number we'd guided to 110 this year and and you know obviously, we would be disappointed if we don't do better than that as we go through the year.

Got it thanks, a lot guys personal thanks.

Thanks for an excellent thank.

Thank you.

Ladies and gentlemen that quickly this account a portion of today's call.

Now like to turn the call back over to Mr. Pay you for closing remarks.

Thank you thanks, everyone for joining us. This morning again, we're lucky to have our customers. We do we got great vendor partners and importantly, most importantly, this team in Helmand continues to to do things for us each and every day, particularly in the store for a car.

Customers that that allows us to to grow and allows us to continue to be find ways to to do more. So we look forward to updating you again in the near future and thank you for joining us this morning.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Mmm.

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