Q1 2024 Hillman Solutions Corp Earnings Call

Tanya: Good morning, and welcome to the first quarter 2024 results presentation for Hillman Solutions Corp. My name is Tanya, and I will be your conference co-operator today. 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 presentation and 10Q 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 call over to Michael Koehler with Hillman. You may begin. Thank you, Tonya. Good morn...

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Tanya: Good morning, and welcome to the first quarter 2024 results presentation for Hillman Solutions Corp. My name is Tanya and I will be your conference Cooperator today 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 presentation and 10-Q were issued this morning.

Tanya: These documents and a replay of today's presentation can be accessed on helmets investor Relations website at IR Dot group Dot Com I would now like to turn the call over to Michael Caylor with Hillman you may begin.

Michael Koehler: Thank you, Tanya. Good morning, everyone, and thank you for joining us. I am Michael Koehler, Vice President of Investor Relations and Treasury. Joining me on today's call are Doug Cahill, our Chairman, President, and Chief Executive Officer; John Michael Adinolfi, our Chief Operating Officer; and Rocky Kraft, our Chief Financial Officer. Before we begin today's call, I would like to remind our audience that certain statements made may be considered forward-looking and are subject to the Safe Harbor Provisions of Applicable Securities Laws.

Tanya: Thank you Tania and 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 Doug handle our chairman President and Chief Executive Officer, John Michel Adenopathy, Our Chief operating Officer, Iraqi Graf, our Chief Financial Officer.

Michael Koehler: These forward-looking statements are not guaranteed 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, please see slide two in our earnings call slide presentation, which is available on our website.

Tanya: We begin today's call I would like to remind our audience that certain statements made may be considered forward looking and are subject to.

Tanya: Safe Harbor provisions of the 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 statements. Some of the factors that could influence our results are contained in there.

Tanya: Erotic 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 web site in.

Michael Koehler: 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 presentation. With that, it's my pleasure to turn the call over to our chairman, president, and CEO, Doug Cahill.

Tanya: 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 slide presentation with that it's my pleasure to turn the call over to our chairman President and CEO, Doug Doug.

Douglas J. Cahill: Thanks, Stretch. Good morning, everyone.

Douglas J. Cahill: I'll kick off today's call going through some of the highlights of our strong first quarter, during which we celebrated Hillman's 60th anniversary. After that, I will provide some additional color on what makes Hillman unique before I turn it over to our COO, John Michael Adinolfi, or JMA, as we call him. JMA will provide an update on our operations, the Cook Acquisition we closed in January, and the M&A landfill. Rocky will then finish up with our financial results for the quarter before we turn it back to the operator for the question and answer session.

Douglas J. Cahill: <unk> good morning, everyone I'll kick off today's call going through some of the highlights of our strong first quarter during which we celebrated zelman 60th anniversary after that I will provide some additional color on what makes Selman unique before I turn it over to our C. O O John Michael out an RFP R. J M. A as we call him.

Douglas J. Cahill: Jeremy will provide an update on our operations. The Cook acquisition, we closed in January and the M&A landscape Rocky will then finish up with our financial results for the quarter before we turn it back to the operator for the question and answer session.

Douglas J. Cahill: During the first quarter of 2024, growth in both our top and bottom lines demonstrated the resilient and consistent nature of our business. Our results were in line with our expectations for the quarter, which has resulted in us reiterating our annual guidance across all three methods: Net Sales, Adjusted EBITDA, and Pre-Cash.

Douglas J. Cahill: In the first quarter of 2020 for growth in both our top and Bottomline demonstrated the resilient and consistent nature of our business. Our results were in line with our expectations for the quarter, which has resulted in us reiterating our annual guidance across all three metrics net sales adjusted EBITDA and free cash flow.

Douglas J. Cahill: Net sales in the first quarter of 2024 increased slightly to $350.3 million from the year-ago quarter. Driving these results were the contribution of new business wins. The Cook Acquisition was closed in January of this year.

Douglas J. Cahill: Net sales in the first quarter of 2024 increased slightly to $353 million from the year ago quarter driving these results with the contribution of new business wins. The Cook acquisition was closed in January of this year. These were partially offset by the overall market and a 40 basis point headwind.

Douglas J. Cahill: These were partially offset by the overall market and a 40 basis point headwind from price. Justin Ibbitt increased 30% to 52.3 million compared to 40.2 million during the first quarter of 2023. Our Justin Ibbitt margins for the quarter improved by 340 basis points to 14.9%. Similar to what we saw during the fourth quarter of 2023, in the first quarter of 2024, we had a relatively flat top line but generated healthy bottom line expansion.

Douglas J. Cahill: Some price.

Douglas J. Cahill: Adjusted EBITDA increased 30% to $52 3 million compared to $40 2 million during the first quarter of 2023, our adjusted EBITDA margins for the quarter improved by 340 basis points to 14, 9% silver.

Douglas J. Cahill: Similar to what we saw during the fourth quarter of 2023 in the first quarter of 2024, we had a relatively flat top line, but generated healthy bottomline expansion adjusted gross margins totaled 47, 6%, marking a 610 basis point improvement over the 40.

Douglas J. Cahill: The adjusted gross margins totaled 47.6%, marking a 610 basis point improvement over the 41.5% during the year-ago quarter. Pre-cash flow came in consistent with our expectations as we used 6.1 million during the quarter. This was driven by our inventory bill for our spring and summer busy seasons, as well as a $5 million use of cash to fund working capital related to the Cook acquisition. Let me frame the macro before we jump into our top-line results by segment.

Douglas J. Cahill: One 5% during the year ago quarter.

Douglas J. Cahill: Free cash flow came in consistent with our expectations as we used $6 1 million during the quarter. This was driven by our inventory build for our spring and summer busy season, as well as a $5 million use of cash to fund working capital related to the Cook acquisition.

Speaker Change: Let me frame the macro before we jump into our top line results by segment.

Douglas J. Cahill: The macroeconomic landscape in the home improvement sector continues to show muted signs of improvement. As we've all heard, inflation continues to hang around, which has prevented the Fed from cutting rates. The result is that mortgage rates have remained elevated.

Speaker Change: The macroeconomic landscape in the home improvement sector continues to show muted signs of improving.

Speaker Change: As we've all heard inflation continues to hang around which has prevented that said some cutting rates. The result is that mortgage rates have remained elevated these higher rates or eliminating existing home sales, which does impact our business as homeowners are unwilling to trade out of a 3% mortgage rate into a 7% mark.

Douglas J. Cahill: These higher rates are limiting existing home sales, which does impact our business as homeowners are unwilling to trade out of a 3% mortgage rate into a 7% mortgage rate. While pent-up demand for existing home sales continues to build, we agree with our customers. A strong increase in existing home sales is likely to happen when we start to see rates move down. In the meantime, the Pickup Truck Pro continues to be busy, albeit with smaller projects, and we did see DIYers start to get more active as the weather improved throughout the quarter. That said, the overall market and foot traffic at our retailers were both negative compared to last year, which fell in line with our expectations.

Speaker Change: <unk>.

Speaker Change: While pent up demand for existing home sales continues to build we agree with our customers a strong increase in existing home sales is likely to happen when we start to see rates move downward.

Speaker Change: In the meantime, the pickup truck broke continues to be busy, albeit with smaller projects and we did see the diyer start to get more active as the weather improved throughout the quarter.

Speaker Change: That said, the overall market and foot traffic at our retailers were both negative compared to last year, which fell in line with our expectations. Our retailers are cautiously optimistic for the second half of this year and if theyre right, we will be ready, but until then we'll continue to manage our cost structure and business.

Douglas J. Cahill: Our retailers are cautiously optimistic about the second half of this year, and if they're right, we will be ready, but until then, we'll continue to manage our cost structure and business for this environment. On the top line, hardware and protective solutions, or HPS, led the way with a 2.4% increase in net sales. To break that down a bit, hardware, or HS, grew by 4.6%, while protective, or PS, sales were down 6.9%.

Speaker Change: For this environment.

Speaker Change: On top line results hardware and protective solutions, our HTS led the way with a two 4% increase in net sales to break that down a bit hardware. Our Hs grew by four 6% while protective our PFS sales were down six 9%.

Douglas J. Cahill: For the first quarter, PS net sales were impacted by the timing of our promotional off-shelf activity, which will pick up during the second quarter of 2024. PS had a solid year in 2023, and we expect a healthy 2024 for them as well.

Speaker Change: For the first quarter <unk> net sales were impacted by the timing of our promotional off shelf activity, which will pick up during the second quarter of 2024.

Speaker Change: <unk> had a solid year in 2023, and we expect a healthy 2024 for them as well driving the increase in Hs, where new business wins and rope and chain accessories that we launch during the third quarter last year. We also benefited from nearly a full quarter worth of contribution from the <unk> acquisition.

Douglas J. Cahill: Driving the increase in HS were new business wins in rope and chain accessories that we launched during the third quarter last year. We also benefited from nearly a full quarter's worth of contribution from the Cook Acquisition, which closed on January 11, 2024. Speaking of the Cook Acquisition, which J.M.A.

Speaker Change: Which closed on January 11, 2024 speaking of the Cook acquisition, which <unk> will touch on more in a few minutes our field sales and service teams really excited to be selling the new product line, which will drive additional growth in hardware.

Douglas J. Cahill: I will touch on more in a few minutes, but our field sales and service team is really excited to be selling the new product line, which will drive additional growth in hardware. We're working on some meaningful opportunities in this new rope and chain category that we and our customers are thrilled about. It fits Hillman perfectly.

Speaker Change: We're working on some meaningful opportunities in this new rope and chain category that we and our customers are thrilled about it fits hillman perfectly it's an important product line for our customers and it's complex category to ship and keep organized at the shelf.

Douglas J. Cahill: It's an important product line for our customers, and it's a complex category to ship and keep organized on the shelf. During the quarter, net sales in our Robotics and Digital Solutions, or RDS, were down 9.2% to $55 million. Lighter foot traffic and discretionary spending, coupled with existing home sales near a 30-year low, weighed in on RDS during the quarter.

Speaker Change: During the quarter net sales in our robotics and digital solutions, our Rds were down nine 2% to $55 million lighter foot traffic and discretionary spending coupled with existing home sales near a 30 year low weight in rds during the quarter.

Douglas J. Cahill: As the consumer remains under pressure from inflation, our R&D business has been impacted more than our other businesses. Despite the softness in R&D, we remain optimistic about our long-term, high-margin growth opportunities, which I'll expand on in a moment. Gross margins and EBITDA margins remain healthy at 71.6% and 30.7%, respectively.

Speaker Change: As the consumer remains under pressure from inflation or Rds business has been impacted more than our other businesses. Despite the softness in Rds, we remain optimistic about our long term high margin growth opportunities, which I will expand on in a moment.

Speaker Change: Gross margins and EBITDA margins remain healthy at 71, 6% and 37% respectively.

Douglas J. Cahill: Last week, we appointed Scott Moore as our new divisional president of RDS. Scott was one of the early founding members of Minikee and joined Hillman following its 2018 acquisition. Most recently, Scott was our Chief Technology Officer and will make a fantastic leader for RDS as we look to its next phase of growth with the rollout of Minikey 3.5. Scott and his team were instrumental in designing the software and technology that powers our Minikey platform and the new technology behind our Minikey 3.5 launch.

Speaker Change: Last week, we appointed Scott Moore, as our new divisional President of Rds, Scott was one of the early founding members of many key enjoined Hillman. Following its 2018 acquisition. Most recently Scott was our Chief Technology Officer, and we will make a fantastic leader for Rds as we look to its next phase.

Speaker Change: Is that growth with the rollout of many key three five.

Speaker Change: <unk> and his team were instrumental in designing the software and technology that powers, our many key platform and the new technology behind our <unk> three five launch that platform Leverages artificial intelligence via machine learning to identify key types use using the state of the art vision.

Douglas J. Cahill: The platform leverages artificial intelligence via machine learning to identify key types used using a state-of-the-art visual key identification system. Our machines are continuously gathering data in order to read, identify, and execute factory original quality cuts, ultimately resulting in a great customer experience. Scott's leadership, discipline, and respect throughout the Hillman organization make him a great fit for this role. Scott takes the reins from Randy Fagundo, who will retire following a long and successful career in the kiosk industry.

Speaker Change: Key identification system, our machines are continuously gathering data in order to read identify and execute factory original quality cuts, which ultimately result in a great customer experience Scott's leadership discipline and respect throughout the homeowner organization make him a great fit.

Speaker Change: Fit for this role.

Speaker Change: Scott takes the reins from Randy Forgotten, though who will retire following a long and successful career in the <unk> industry.

Douglas J. Cahill: Randy's been critical to the success of MinuteKey and RDS since joining Hillman following the 2008 acquisition of MinuteKey. We are grateful for his meaningful contributions to Hillman. Randy, we're going to miss you, man.

Speaker Change: Randy has been critical to the success of many key in Rds since joining Hillman. Following the 2008 acquisition of many key we are grateful for his meaningful contributions to Hillman, Randy we're going to Miss you Man best of luck in your retirement.

Douglas J. Cahill: Best of luck in your retirement. As we think about RDS, we are working on a number of growth initiatives. Scott was critical in developing our K2 Kiosk technology platform. K2 provides software updates, event logging, inventory management, pricing and promotions, data analytics, and remote troubleshooting for the entire RDS kiosk fleet. Think of it as the eyes and ears inside the machine.

Speaker Change: As we think about Rds, we are working on a number of growth initiatives Scott was critical in developing our <unk> technology platform.

Speaker Change: K to provide software updates is that logging inventory management pricing and promotions data analytics and remote troubleshooting for the entire Rds Chios fleet.

Speaker Change: Think of it as the eyes and ears inside the machine, we believe that our proprietary <unk> technology can add tremendous value with our vending and kiosk companies and we are currently in discussions to license that technology.

Douglas J. Cahill: We believe that our proprietary K2 technology can add tremendous value to our vending and kiosk companies, and we are currently in discussions to license that technology. Another growth opportunity I'm excited about involves our RDS field service team. Today, we have a dedicated group of mechanically skilled folks that service our fleet of kiosks, replenish inventories in the machines, and keep the uptime at 98% for our entire fleet of kiosks. Recently, two brand new customers selected Hillman to service their kiosks.

Speaker Change: Another growth opportunity I'm excited about involves our Rds field service team.

Speaker Change: Today, we have a dedicated group of mechanically skilled folks that service our fleet of kiosk replenish inventories in the machine and keep the uptime at 98% for our entire fleet of kiosk recently to brand new customers selected Hillman to service their kiosks for the first time, we have.

Douglas J. Cahill: For the first time, we will be servicing non-Hillman kiosks. These new accounts did their due diligence, driving along with our service reps, talking to our customers, and analyzing what our K2 technology and our Tempe, Arizona plant could do for their business. It's no surprise they picked Hillman.

Speaker Change: We'll be servicing non Hillman geos. These new accounts did their due diligence driving along with our service reps talking to our customers and analyzing what our K two technology and our Tempe, Arizona plant could do for their businesses. It's no surprise. They picked Hillman. This is another.

Douglas J. Cahill: This is another example of Hillman solving complex needs for customers in the store. These accounts will begin to add additional profitability to RDS in the second half of 2024. Lastly, as you all know, the most exciting growth opportunity lies in front of us with Minikey 3.5. Currently, we have 101 machines in place and two test markets. These new kiosks offer home and office key duplication like our existing kiosks, but additionally, they have the ability to read and identify smart auto fobs, duplicate transponder and metal car keys, as well as RFID fobs.

Speaker Change: Example of Ellman solving complex needs for customers in the store.

Speaker Change: These accounts will begin to add additional profitability to rds in the second half of 2024.

Speaker Change: Lastly, as you all know the most exciting growth opportunity lies in front of us with many key three five currently we have 101 machines in place in two test markets. These new Geos offer home and office key dupe uptake key duplication like our existing geos, but additionally, they have the.

Speaker Change: The ability to read and identify smart auto fabs duplicate transponder and metal car keys as well as RFID Fabs. We are building these machines with updated capability for three of the top customers and the initial feedback has been excellent. We expect to end 2020 for where the <unk>.

Douglas J. Cahill: We are building these machines with updated capability for three of the top customers, and the initial feedback's been excellent. We expect to end 2024 with approximately 800 Minikey 3.5 machines this year in the top retailers in America. Medicaid 3.5 will begin to contribute to our performance during the back half of 24 and have a more sizable impact on our 25 results as the consumer, with support from our retailers, starts to experience what a new Medicaid kiosk can do for them.

Speaker Change: You May 800, <unk> $3 five machine this year and the top retailers in America Medicaid three five will begin to contribute to our performance during the back half of 'twenty four and have a more sizable impact on our 25 results as the consumer with support from our retailers Star two.

Speaker Change: Experienced what a new Medicaid kiosk can do for them.

Douglas J. Cahill: Heading north of the border, Canadian business net sales were up slightly compared to the prior year quarter, but Team Canada had a great first quarter from a bottom line perspective, increasing its adjusted EBITDA by over 70% from the first quarter of 2023. Now I'd like to touch on the mode and the consistency that Hillman delivers.

Speaker Change: Heading north of the border our Canadian business net sales were up slightly compared to prior year quarter, but team, Canada had a great first quarter from a bottomline perspective, increasing its adjusted EBITDA by over 70% from the first quarter of 2023.

Speaker Change: Now I'd like to touch on the modem and the consistency that Hillman delivers what differentiates Hillman allows us to produce healthy financial results and makes us an embedded partner for our retail customers is our ability to bring value and solve problems for our customers that others can't our competitor.

Douglas J. Cahill: What differentiates Hillman allows us to produce healthy financial results and makes us an embedded partner for our retail customers is our ability to bring value and solve problems for our customers that others can't. Our competitive moat consists of three main pillars. First, we have 1,100 sales and service folks that are in the stores of our customers on a regular basis, providing top-notch customer service at the shelf. We've been taking care of our customers for 60 years, and the Hillman service team has been winning at the shelf and adding value to our customers for the past 28 years. Second, we should direct our customers' orders to the store of our retail customers. Said differently, our products typically do not flow through our customers' distribution system.

Speaker Change: Live moat consists of three main pillars first we have 1100 sales and service folks that are in the stores of our customers on a regular basis, providing top notch customer service at the shelf, we've been taking care of our customers for 60 years and the Helmer service team has been winning at the shelf and adding.

Speaker Change: <unk> to our customers for the past 28 years second we ship direct to store of our retail customers.

Speaker Change: Differently, our products typically do not flow through our customers' distribution centers.

Douglas J. Cahill: Our customers love that because they do not have to clutter their DCs with thousands of SKUs, and they know Hillman can ship it direct to the store and service the shelf. We shipped to over 46,000 locations across North America in 2023. And lastly, approximately 90% of our revenue comes from brands that we own and control, which allows us to anticipate and meet the evolving needs of our retail customers and our end users.

Speaker Change: Our customers love that because they do not have to cloud of their dcs with thousands of Skus and they know helman can ship it directly to the store and service the shell we shipped over $46.

Speaker Change: 46000 locations across North America in 2023.

Speaker Change: And lastly, approximately 90% of our revenue comes from brands that we own and control, which allow us to anticipate and meet the evolving needs of our retail customers and our end users.

Douglas J. Cahill: Another key component Hillman brings to the table is our long-standing relationship with our customers. From store managers to merchants to VPs and up, we have been forging strategic partnerships with our customers that further strengthen our moat and have been working with our top five customers for over 25 years on average. As one of the largest providers of hardware products and solutions in North America, we offer 114,000 SKUs that serve the pickup truck pro and the DIYer. We provide a wide variety of hardware and related products across multiple product categories. Our products are used for repair, maintenance, and renovation, and these projects cannot be completed without Hillman-type products.

Speaker Change: Another key component of Hillman bring to the table is our long term standing relationship with our customers from store managers to merchants to vps and up we have been forging strategic partnerships with our customers that further strengthen our moat and had been working with our top five customers.

Speaker Change: For over 25 years on average as one of the largest providers of hardware products and solutions in North America. We offer 114000, skus that serve the pickup truck pro and the Diyer, we provide a wide variety of hardware and related products across multiple product categories.

Speaker Change: <unk>.

Speaker Change: Our products are used for repair maintenance and remodel and these projects cannot be completed without Hillman type products. It's great to have the critical products that make up just a fraction of the overall project cost that.

Douglas J. Cahill: It's great to have critical products that make up just a fraction of the overall project. The predictable nature of our end markets, repair and maintenance projects in particular, drive consistent demand for our products in both up and down economic cycles. The perfect example of this is demonstrated by Hardware Solutions, which makes up 60% of our business. HS has grown at a compounded annual growth rate of 7%, 7.3%, and 8.2%, respectively. Historically, we do not see the highs nor the lows of the market like many companies.

Speaker Change: The predictable nature of our end markets repair and maintenance projects in particular drive consistent demand for our products in both up and down economic cycles. The perfect example of this is demonstrated by hardware solutions, which makes up 60% of our business over the past 20 years.

Speaker Change: 10 years, and five years Hs has grown at a compounded annual growth rate of 7% seven 3% and eight 2% respectively.

Speaker Change: Historically, we do not see the highs nor the lows of the market like many companies during 'twenty two 'twenty three the home improvement industry has been under pressure yet Hillman continued to perform well like it has for the last 60 years. Despite a tough macro environment, we continue to win new business deepened our.

Douglas J. Cahill: During 22 and 23, the home improvement industry was under pressure, yet Hillman continued to perform well, like it has for the last 60 years. Despite a tough macro environment, we continue to win new business, deepen our partnerships with our customers, and strengthen our competitive moat. We feel very good about where we are with our customers right now and how Team Hillman is performing. We will continue to execute well during this cycle and control the controllable.

Speaker Change: Partnerships with our customers and strengthen our competitive moat.

Speaker Change: We feel very good about where we are with our customers right now and how team homeowners performance.

Speaker Change: We will continue to execute well during this cycle.

Douglas J. Cahill: That said, I know this team and our customers will be ready to ramp up quickly when the market improves. With that, I'll turn it over to J.M.A. to talk about freight costs, the integration of Cook Acquisition, and the M&A landscape.

Speaker Change: Troll the controllable.

Speaker Change: That said I know this team and our customers will be ready to ramp quickly when the market improves with that I'll turn it over to Jay may to talk about freight costs. The integration of <unk> acquisition and the M&A landscape. Thanks, Doug before I get into our operational highlights for the <unk>.

John Michael Adinolfi: Thanks, Doug. Before I get into our operational highlights for the quarter, I first want to give a shout out to our global operation, who did a fantastic job in 2020, which is carried out, from transferring our hub to Kansas City, working to get our products shipped to our customers, maintaining healthy fill rates and reducing inventory. We have a very experienced team that knows how to take great care of our customers. They are the best in the business. Coming off a successful 2023, we continued that momentum into the first quarter of this year. We maintained our focus on executing our plan while controlling the cost.

Jay: I first wanted to give a shout out to our global operations team.

Jay: A fantastic job in 2023, which is carried into 2024.

Jay: From transferring our hubs to Kansas City, or can we get our products shipped to our customers maintaining healthy fill rates and reducing inventory.

Jay: We have a very experienced team that knows how to take great care of our customers. They are the best in the business.

Jay: Coming off a successful 2023 to continue that momentum into the first quarter of this year.

Jay: We maintained our focus on executing our plan while controlling the controllable let.

John Michael Adinolfi: Let me start by quickly hitting on inbound freight costs, which we locked in on May 1st. Given volatility in the spot market following turmoil in the Red Sea and delays at the Panama Canal, we are pleased that we have locked in our base contracted container rates that are about 10% higher than what we contracted last year. This is about one-half of the increase we were planning. Many of our input costs, like steel from China, India, and Taiwan, increased slightly during the first quarter of 2024 versus the 2023 average, but remain below the 2022 average.

Jay: Let me start by quickly hitting on inbound freight cost, which we locked in on May one.

Jay: Given volatility in the spot market filing turmoil in the Red Sea and delays at the Panama Canal. We are pleased that we have locked in our base contract that container rates that are about 10% higher than what we contracted last year.

Jay: This is about one half of the increase we are planning for.

Jay: Many of our input costs like steel from China, India, and Taiwan increased slightly during the first quarter of 2024 versus the 2023 average but remain below the 2022 averages.

John Michael Adinolfi: During January of this year, we closed on the acquisition of Cook Industries, a Midwestern-based supplier of rope and chain and related hardware products, with over 2,000 SKUs and a modest customer overlap. We've been courting Koch for several years, telling them that our leverage has improved and should continue to come down when the time was right to acquire COTE. Coop was a great family-owned business and has a rich history. We are excited to welcome Koch to the Hillman family.

Jay: During January of this year, we closed on the acquisition of Koch industries, a midwestern based supplier of rope and chain and related hardware products with over 2000, Skus and a modest customer overlap we've been courting cook for several years now that our leverage has improved and should continue to come.

Jay: Down the timing was right to acquire Coke.

Jay: Cooper is a great family owned business and has a rich history. We are excited to welcome <unk> to the home and family from an integration standpoint things have gone smoothly and my hats off today, Hillman and Cook team for doing a great job and.

John Michael Adinolfi: From an integration standpoint, things have gone smoothly, and my hats off to the Hillman and Koch team for doing a great job in doing so ahead of schedule. Importantly, their customers, as well as ours, are on board and very excited to see Hillman enter the store. What we love about this acquisition is our ability to leverage Hillman's moat and resources with Koch's products. Let me walk you through several examples.

Jay: In doing so ahead of schedule.

Jay: Accordingly, there are customers as well as ours are on board and very excited to see helman enter this space.

Jay: What we love about this acquisition is our ability to leverage <unk> mode and resources would coax products. Let me walk you through several examples.

John Michael Adinolfi: First, Cook sources most of its products from Asia, and we will leverage our sourcing network to be more efficient on this front. Second, Koch ships its products to distribution centers of its customers. It does not ship store direct like Hillman, but we see this as a great opportunity to expand among traditional hardware. Thirdly, Koch previously used a third party to service his products at the show, which will now be serviced by the Hillman. This has allowed us to save on costs and improve the quality of service at the shelf for a very tricky category to keep in stock and looking clean and organized each and every day.

Jay: First Cook sources, most of their products from Asia, and we will leverage our sourcing network to be more efficient on this front.

Jay: Cook ships its products to distribution centers of its customers. It does not ship store direct bike helmet, we see this as a great opportunity to expand among the traditional hardware customer.

Jay: Previously used a third party to services products at the shelf.

Jay: Which will now be serviced by the Helmand team.

Jay: This has allowed us to save on costs and improve the quality of service at the shelf for a very tricky category to keep in stock and looking clean and organized each and every day.

John Michael Adinolfi: Koch does not do any business with Home Depot nor Lowe's and only has the rope business at Ace. Altogether, approximately 90% of the rope and chain market with these customers is White Space, which we believe we can grow into.

Jay: Fourth Coke does not do any business with home depot, nor Lois and only has our roke business at Ace altogether, approximately 90% of the broken chain market with these customers is white space, which we believe we can grow into and fixed.

John Michael Adinolfi: Cook does not sell any of its products into Canada. With our market share and relations north of the border, we believe we will grow in Canada as well. All in, we are excited about the organic growth opportunities with Cook. Once we apply the Hillman mode, our sales team is thrilled to have this product category of sell and service on the shelf.

Jay: Cook does not sell any of its products into Canada, with our market share and relationships north of the border. We believe we will grow in Canada as well all in we are excited about the organic growth opportunities with coke.

Jay: Once we apply the Hillman mode. Our sales team is thrilled to have this product category to sell and service at the shelf.

John Michael Adinolfi: As we think about the M&A landscape, we think there are many companies like Cook out there that would perform exceptionally well with our moat and our relationship. We have a dedicated M&A team. We understand project management and integration and believe that we can execute multiple successful acquisitions per year that are a similar size to Coke. Once the M&A flywheel gets turning, it will drive our long-term growth, including organic growth. We will leverage the Hillman move as we seek more products to put on the truck to deliver directly to and service for our customers. For example, I would be disappointed if we don't grow Coke's net sales by at least 20% next year. With that said, let me turn it over to Rocky to talk about the financials. Rocky?

Jay: As we think about the M&A landscape. We think there are many companies like coke out there that would perform exceptionally well with our <unk> and our relationships.

Jay: We have a dedicated M&A team, we understand project management and integration and believe that we can execute multiple successful acquisitions per year that are of similar size to cook.

Jay: Once the M&A flywheel gets turning it will drive our long term growth, including organic growth, we will leverage the Hillman mode. As we seek more products to put on the truck to deliver directly to and service for our customers. For example, I would be disappointed if we don't grow coax net sales by at least 20% next year with that.

Jay: Let me turn it over to Rocky to talk financials Rocky. Thanks, James Let me jump right in net sales in the first quarter of 2024 grew to $353 million, an increase of 2% versus the prior year quarter of $349 7 million.

Robert O. Kraft: Thanks, JMA. Let me jump right in.

Robert O. Kraft: Net sales in the first quarter of 2024 grew to $350.3 million, an increase of 0.2% versus the prior year quarter of $349.7 million. First Quarter Adjusted Gross Margin increased by 610 basis points to 47.6% versus the prior year quarter of 41.5%. We have worked really hard to get here, and I am proud of our team and how we are performing in a challenging environment.

Rocky: First quarter adjusted gross margin increased by 610 basis points to 47, 6% versus the prior year quarter of 41, 5%.

Rocky: We have worked really hard to get here and I am proud of our team and how we are performing in a challenging environment.

Robert O. Kraft: Adjusted SG&A as a percentage of sales increased to 32.7% during the quarter from 30.3% during the year-ago quarter. Excluding the increase in our standard employee bonus expense, which was the result of a very strong bottom line during the first quarter, adjusted SG&A as a percentage of sales would have been up just 50 basis points and should be around 30% for the remainder of the year. Adjusted even down, the first quarter was $52.3 million, which grew 30.2% versus the Yirgaq Court.

Rocky: Adjusted SG&A as a percentage of sales increased to $32 <unk>.

Rocky: 7% during the quarter from 33% from the year ago quarter.

Rocky: Excluding the increase in our standard employee bonus expense, which was the result of a very strong bottom line during the first quarter adjusted SG&A as a percentage of sales would have been up just 50 basis points and should be around 30% for the remainder of the year.

Rocky: Adjusted EBITDA in the first quarter was $52 $3 million, which grew 32%.

Rocky: Versus the year ago quarter.

Robert O. Kraft: Adjusted EBITDA to net sales during the quarter was 14.9%, which compares favorably to 11.5% in the year-ago quarter. Adjusted EBITDA was driven by a positive mix of price-cost, which drove healthy margins, partially offset by a soft macro environment.

Rocky: Adjusted EBITDA to net sales during the quarter was 14, 9%, which compares favorably to 11, 5% in the year ago quarter.

Rocky: Adjusted EBITDA was driven by a positive mix or price cost, which drove healthy margins, partially offset by a soft macro environment.

Robert O. Kraft: Now, let me turn to our cash flows. For the 13 weeks ended March 30th, 2024, operating activities generated $12 million of cash as compared to $32 million in the year-ago period. Capital expenditures were in line with our expectations, totaling $17.8 million for the quarter. This compared to $18.1 million in the prior year period.

Rocky: Now, let me turn to our cash flows for the 13 weeks ended March 32020 for operating activities generated $12 million of cash estimate compared to $32 million in the year ago period.

Rocky: Capital expenditures were in line with our expectations totaling $17 8 million for the quarter this compared to $18 1 million in the prior year period.

Robert O. Kraft: Free cash flow for the 13 weeks ended March 30th, 2024, totaling a use of $6.1 million, compared to generating $13.4 million in the year-ago period. After taking into consideration the Cook Acquisition and our typical seasonal inventory bill, this was in line with our expectations. Now let me turn to the balance sheet. We ended the first quarter of 2024 with $747.5 million of total net debt outstanding, an increase of $25.1 million from the end of 2023. We ended the first quarter of 2024 with approximately $242 million of liquidity, which consists of $212 million of available borrowings under a revolving credit facility and $31 million of cash and equivalents.

Rocky: Free cash flow for the 13 weeks ended March 32024 totaled a use of $6 1 million compared to generating $13 4 million in the year ago period.

Rocky: After taking into consideration the Cook acquisition and our typical seasonal inventory Bill this was in line with our expectations.

Speaker Change: Now, let me turn to the balance sheet.

Rocky: We ended the first quarter of 2024 was $747 $5 million of total net debt outstanding an increase of $25 1 million from the end of 2023.

Rocky: We ended the first quarter of 2024 with approximately $242 million of liquidity, which consists of $212 million of available borrowings under our revolving credit facility and $31 million of cash and equivalents.

Robert O. Kraft: Our net debt to trailing 12-month adjusted EBITDA ratio at the end of the quarter was 3.2 times compared to 3.3 times at the end of 2023 and a full turn better than 4.2 times a year ago. Looking forward, we maintain our expectation that we will end 2024 around 2.7 times net leverage, assuming we fall near the midpoint of our guidance. During the quarter, we also repriced our term notes.

Rocky: Our net debt to trailing 12 months adjusted EBITDA ratio at the end of the quarter was three two times compared to three three times at the end of 2023, and a full turn better than four two times a year ago.

Rocky: Looking forward, we maintain our expectation that we will end 2020 for around two seven times net leverage assuming we fall near the midpoint of our guidance.

Rocky: During the quarter, we also repriced our term note.

Robert O. Kraft: In so doing, we lowered the interest rate spread by 36 basis points on our borrowing. Additionally, our first lien leverage ratio, as defined by the term loan credit agreement, has to drop below three times following our Q1 results, which should result in another 25 basis point savings on the term. All in, we expect to save about $2 million during 2024 as a result of these two reductions and are pleased with these savings considering the flattening of the forward curve.

Rocky: In so doing we lowered the interest rate spread by 36 basis points on our borrowing costs. Additionally.

Rocky: Additionally, our first lien leverage ratio as defined by the term loan credit agreement has dropped below three times. Following our Q1 results, which should result in another 25 basis points savings on the term note.

Rocky: All in we expect to save about $2 million. During 2024 as a result of these two reductions and are pleased with these savings considering the flattening of the forward curve.

Robert O. Kraft: As Doug mentioned earlier, we are reiterating our full-year 2024 guidance across all three metrics. We reiterate our full-year net sales to be between $1.475 and $1.555 billion, with a midpoint of $1.515 billion. This midpoint assumes a 1% headwind from price, a 1% decrease from market volume, a 2% lift from new business, and a 3% lift from the Cook Acquisition.

Rocky: As Doug mentioned earlier, we are reiterating our full year 2024 guidance across all three <unk> metrics.

Rocky: We reiterate our full year net sales to be between $1 $4 75 to 155 5 billion with a midpoint of 151 5 billion.

Rocky: This midpoint assumes a 1% headwind from price.

Rocky: A 1% decrease from market volumes.

Rocky: A 2% lift from new business wins.

Rocky: At a 3% lift from the Cook acquisition.

Douglas J. Cahill: Altogether, the net sales midpoint implies a 2.8% increase over 2023. We are reiterating our full year 2024 adjusted EBITDA guidance to be between $230 and $240 million, with a midpoint of $235 million. This midpoint represents an increase of about 7% versus 2023. We continue to expect our full-year adjusted gross margins to come in above 45%, which is where we expect the business to perform over the longer term. Lastly, we are reiterating our full-year 2024 free cash flow to be between $100 to $120 million with a midpoint of $110 million.

Rocky: Altogether, the net sales midpoint implies a two 8% increase over 2023.

Rocky: We are reiterating our full year 2024, adjusted EBITDA guidance to be between 230 and $240 million.

Rocky: With a midpoint of $235 million.

Rocky: This midpoint represents an increase of about 7% versus 2023.

Rocky: We continue to expect our full year adjusted gross margins to come in above 45%, which is where we expect the business to perform over the longer term.

Rocky: Lastly, we are reiterating our full year 2020 for free cash flow to be between $100 million to $120 million with a midpoint of $110 million.

Douglas J. Cahill: This is slightly below our longer-term target as we over-indexed free cash flow during 2023 due to our working capital benefits. In the long term, we expect normalized free cash flow to be around $130 million to $140 million for the next several years starting in 2025, which is mainly driven by increased earnings with a minimal impact from working capital. The assumptions that have driven our guidance remain unchanged at this point and are available in our earnings call presentation.

Rocky: This is slightly below our longer term target as we over index on free cash flow during 2023 due to our working capital benefit.

Rocky: Longer term, we expect normalized free cash flow to be around $130 million to $140 million for the next several years starting in 2025, which is mainly driven by increased earnings with a minimal impact from working capital.

Rocky: The assumptions that have driven our guidance remain unchanged at this point and are available in our earnings call presentation.

Douglas J. Cahill: As we talked about in our last earnings call, if the market remains soft in 2024, our top line could look similar to 2023. If that is the case, we still feel very confident we will grow our EBITDA as we benefit from lower COGS and efficiencies as we continue to run our business well and control the controls. Looking further out to a more healthy macro environment, we believe our longer-term growth algorithm remains intact.

Rocky: As we talked about on our last earnings call. If the market remains soft in 2024, our topline could look similar to 2023.

Rocky: That is the case, we still feel very confident we will grow our EBITDA as we benefit from lower Cogs and efficiencies as we continue to run our business well and control the controls.

Rocky: Looking further out to a more healthy macro environment, we believe our longer term growth algorithm remains intact.

Douglas J. Cahill: Historically, our business has seen organic growth of 6% per year and high single to low double-digit organic adjusted EBITDA growth before M&A. And now that the M&A switch is turned on, we think long-term top line growth of high single to low teens is realistic, and adjusted EBITDA growth in the low to mid teens is achievable. With that, let me turn it back to Doug.

Rocky: Storage <unk>, our business has seen organic growth of 6% per year and high single to low digit double digit organic adjusted EBITDA growth before M&A.

Rocky: And now that the M&A switches turned on we think long term topline growth of high single to low teens is realistic and adjusted EBITDA growth in the low to mid teens is achievable with.

Douglas J. Cahill: Thanks, Rocky. As we navigate this dynamic market landscape, I want to thank the Hillman team for their dedication and, most importantly, for taking great care of our customers. Whether it's the seamless operation of our distribution centers, the tireless effort of our sales and service teams, or the exceptional service provided by our customer support team, your commitment to our customers is commendable. Thank you. Our foremost focus and commitment moving forward is to strengthen our competitive moat, execute our growth strategy profitably, and maintain discipline across the business.

Rocky: With that let me turn it back to Doug.

Douglas J. Cahill: Thanks, Rocky as we navigate through this dynamic market landscape I want to thank the Hillman team for their dedication and most importantly for taking great care of our customers, whether it's the seamless operation of our distribution centers. The tireless effort of our sales and service teams are exceptional service provided by our customer support team.

Speaker Change: Your commitment to our customer is commendable. Thank you.

Speaker Change: Our foremost focus and commitment moving forward is to strengthen our competitive moat execute our growth strategy profitably and maintain discipline across the business. We firmly believe that this approach will ensure hillman success in the years to come.

Douglas J. Cahill: We firmly believe that this approach will ensure Hillman's success in the years to come. With that, we extend our appreciation to our valued customers, dedicated associates, and supportive shareholders. This concludes our prepared remarks, and we'll begin the Q&A portion of the call. Tanya, please open the call for questions if you would.

Speaker Change: With that we extend our appreciation to our valued customers dedicated associates in support of shareholders. This concludes our prepared remarks, and we will begin the Q&A portion of the call.

Speaker Change: To open the call for questions. If you. It certainly is a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please limit yourself to one question with one follow up and hop back into queue. Please standby, while we compile the Q&A roster.

Tanya: Certainly, as a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.

Tanya: Please limit yourself to one question with one follow-up and hop back into the queue. Please stand by while we compile the Q&A roster. And one moment for our first question. Our first question will be coming from Reuben Garner of Benchmark. Your line is open.

Douglas J. Cahill: One moment for your first question.

Douglas J. Cahill: Our first question will be coming from Reuben Garner of benchmark. Your line is open.

Reuben Garner: Thank you. Good morning, everybody. Hey Reuben.

Reuben Garner: Thank you and good morning, everybody.

Douglas J. Cahill: So we've seen or heard big box destocking or at least maybe not ramping up purchasing seasonally like they normally would in a couple of categories. Can you talk about your markets and what you're kind of seeing and hearing? What's inventory like in the channel? Any risk of destocking as the year progresses?

Reuben Garner: Hey, Reuben.

Reuben Garner: So we've seen or heard big box.

Reuben Garner: Destocking or at least maybe not ramping.

Reuben Garner: That's a thing seasonally like they normally would in a couple of categories can you talk about.

Reuben Garner: Your markets and what Youre kind of seeing and hearing what the inventory like in the channel any risk of of.

Reuben Garner: Destock as the year progresses.

Douglas J. Cahill: Yeah, I mean, I think, Reuben, the destocking makes total sense for most people because they ship... you know, to plan, and it goes through the DCs, and then when POS is slower, they've got too much. We don't have that, because we ship direct to store, so there's no real pipe there, and there's nothing in the D.C., so I'm not worried about that.

Speaker Change: Yes, I think Ruben the Destocking makes total sense for most people because they ship.

Speaker Change: No.

Speaker Change: The plan and it goes through the Dcs in them on Pos is slower they've got too much we don't have that problem.

Speaker Change: We ship direct to store, so theres no real pipe, there and Theres nothing in the Dcs, So I'm not worried about that.

Reuben Garner: Okay, great. And then one of your larger customers made a splash in the pro distribution space since we last spoke. I guess, can you talk about what your exposure is today to kind of, you know, the roofing or lumberyards or any other kind of pro categories? And maybe does this present an opportunity longer term for you to kind of play in that market in a bigger way?

Speaker Change: Okay, Great and then.

Speaker Change: One of your larger customers made a plus into the distribution space.

Speaker Change: Since we last spoke I guess can you talk about what your exposure is today to kind of.

Speaker Change: The roofing or lumberyards or any other kind of pro categories, and maybe does that present, an opportunity longer term for you to kind of play in that market in a bigger way.

Douglas J. Cahill: Yeah, I mean, I think it really strengthens the depots' offering to serve that residential pro customer. You know, this SRS is a hell of a platform. They focus right now on roofing and landscape and pool contractors. So I wouldn't want to be in that business. But no, they're very strong.

Speaker Change: Yes, I mean, I think it really strengthens the depots offering to serve that residential pro customer.

Speaker Change: This Srs is a hell of a platform.

Speaker Change: Focus right now on roofing and landscape in the pool contractors. So.

Douglas J. Cahill: This is their dedication to the professional game. And it's a big deal because they'll be able to leverage that. And really, we think it helps us because we have a great relationship with Depot, and as they grow, we think we will find ways to help them.

Speaker Change: I wouldn't want to be in that business, but now they're very strong. This is their dedication to the pro and it's a big deal because there'll be able to leverage that and really we think it helps us because we have a great relationship with depot and as they grow we think we will find ways to help them.

Reuben Garner: Great, congrats on the strong results, guys, and good luck going forward. Thanks, Reuben.

Speaker Change: Great. Congrats on the strong results guys and good luck going forward. Thanks.

Tanya: In one moment for our next question. Our next question will come from Matthew Bouley of Barclays. Your line is open.

Speaker Change: And one moment for our next question.

Speaker Change: Our next question will come from Matthew Bouley.

Matthew Adrien Bouley: Of Barclays. Your line is open.

Matthew Adrien Bouley: Good morning. You have Elizabeth Langan on for Matt today.

Matthew Adrien Bouley: Good morning, you have Elizabeth lingered on for Matt today.

Elizabeth Ann Langan: I just wanted to ask, could you speak a little bit about your expectations around transport costs? I know that you said that you locked in your contract base rates. How much of that, you know, what does that reflect as far as your total freight costs? And would you be able to speak to the implications for gross margins through the rest of the year? Or, you know, whether or not that could impact your gross margins in 2025?

Matthew Adrien Bouley: I just wanted to ask.

Matthew Adrien Bouley: Could you speak a little bit about your expectations around transfer costs and I know that you said that you locked in your contract base rates how much of that.

Speaker Change: What does that reflect as far as your total freight costs and would you be able to speak to the implications for gross margins to the rest of the year or whether or not that could impact your gross margins into 2025.

John Michael Adinolfi: Yeah, so I'll start with, this is John Michael Adinolfi here. I'll start by answering the question around, you know, contract rates. So, you know, we've locked in our rates. As we mentioned, we ship well over 95% on contracts, so we actually feel very good about our contractor rates for 2024. We feel like we're in a good position, and we're able to continue to flow our product. I'll let Rocky speak to the impact on margins. Yeah, I think so...

Speaker Change: Yes, so I'll start with this is Jon Michael Iron off here I'll start by answering the question around <unk>.

Speaker Change: Contract rates, so we've locked in a rate as we mentioned, we shipped well over 95% on contracts. So we actually feel very good about our contracted rates for 2024, we feel like we're in good position and we're able to continue to flow our product I'll, let rocky speak to speak to the impact on margins, Yes, I think Elizabeth.

Robert O. Kraft: The Impact Network. Yeah, I think, you know, Elizabeth, what we would tell you is consistent with what we said last quarter, is that we expect to be above historic margins for the full year. And so those numbers, if you go back in time, are 44 to 45 percent. We expect to be at or above that 45 percent for the remainder of the year. And that's driven by the mix of products coupled with what we're seeing from freight.

Rocky: What we would tell you is consistent with what we said last quarter is that we expect to be above historic margins for the full year and so those numbers. If you go back in time, a 44% to 45%, we expect to be at or above that 45% for the remainder of the year and thats driven by the mix of.

Rocky: Products, coupled with what we're seeing from trade, but you also have to understand as we think about some of our product costs. They remained stubbornly high so when.

Robert O. Kraft: But you also have to understand, as we think about some of our product costs, they remain stubbornly high. So when, you know, products, as an example, get to the U.S., that inbound freight from our initial D.C. to, or I should say, actually, from the port to our D.C., coupled with outbound is still high and continues to go up. We continue to see labor rates go up, so it's a nice balance. But I would say, on balance, we're happy that we'll be consistent with what we've said, which is that we'll remain at or above that 45 percent rate.

Speaker Change: Products as an example get to the U S.

Speaker Change: That inbound freight from our initial DC, two or I should say actually from the port to our DC coupled with outbound is still high and continues to go up we continue to see labor rates go up so it's a nice balance, but I would say on balance we're happy that we'll be consistent with what we've said, which is we will remain at or above that 45% rate.

Speaker Change: Okay. Thank you.

Elizabeth Ann Langan: Thank you. And then, as you're thinking about, you know, kind of volumes through the second half, you know, with rates and seeming to be higher for longer, how are you thinking about the trends there, into 2Q and through the second half relative to what you were thinking previously?

Speaker Change: And then as you're thinking about volume.

Speaker Change: Volume for the second half.

Speaker Change: With rates.

Speaker Change: I mean to be higher for longer how are you thinking about the trends there.

Speaker Change: Thank you.

Speaker Change: And through the second half relative to.

Speaker Change: What you were thinking previously yes towards the end of the year and when we talked about 2024 lives, but we basically said down four to plus one.

Douglas J. Cahill: Yeah, you know, toward the end of the year and when we talked about 2024, Elizabeth, we basically said down four to plus one. And you know, we're certainly hoping that it does better than that. But we set everything up this year with that assumption, and at this point, you might see it get a little better toward the end of the year. But we're planning our cost structure and the way we're going to run our business, with it continuing to be in that.

Speaker Change: We're certainly hoping that it does better than that but we set everything up this year with that assumption and at this point you might see that get a little better towards the end of the year, but we're planning our cost structure and the way, we're going to run our business with it continuing to be in that range yes.

Robert O. Kraft: Yeah, I think the only thing I would add is we've been really purposeful about what we've said, which is even in that kind of downfall, downpour market, we still expect to generate nice profitability above the prior year because of what we see from a cost perspective and our ability to manage our costs below the gross profit line. Yeah, this is a.

Speaker Change: Only thing I would add is we've been really purposeful about what we said which is even in that kind of down down for market, we still expect to generate nice profitability above prior year because of what we see from a cost perspective, and our ability to manage our cost below the gross profit line. Yes. This is a situation where it really does help.

Douglas J. Cahill: Yeah, this is a situation where it really does help not to be loaded up with a bunch of manufacturing operations and fixed costs because you can be more agile with volume than a lot of companies can, so we like our position.

Speaker Change: Not to be loaded up with a bunch of manufacturing operations and fixed costs, because you can be more agile with volume than a lot of companies can so we like our position.

Elizabeth Ann Langan: Great, thank you for all the color. Sure.

Speaker Change: Great. Thank you for all the color sure.

Speaker Change: One moment for our next question.

Tanya: in one moment for our next question, and our next question will be coming from Lee Jagoda of CJS Securities. Your line is open. Hey, good morning. Hey, Lee. So you had mentioned earlier that your, I guess, your sales associates are not going to be working on other kiosks that are not yours. Can you speak to exactly, you know, what kind of kiosks that they're servicing, the leverage in the model related to this, and then maybe just like some sense of the addressable market that you're looking at or going after here?

Speaker Change: And our next question will be coming from Lee Jagoda.

Lee M. Jagoda: CJS Securities Your line is open.

Lee M. Jagoda: Yeah, Lee, we've signed NDAs and contracts with folks, so I can't go into detail other than to say what's exciting about this is it's in retailers that we're already in, and one company has a glide path of very solid kiosk growth. The other company is just getting started and has big ambitions. So both are exciting, and Rocky's happy because we're going to grow RDS profitability without capital. It's a nice model to flex.

Lee M. Jagoda: Hey, Good morning, Hey, Lady Lake.

Lee M. Jagoda: You had mentioned earlier that you're.

Lee M. Jagoda: Guess yourself associates are not going to be working on other kiosks that are not yours can you speak to exactly what kind of kiosk that they are servicing.

Lee M. Jagoda: The leverage in the model related to this and then maybe just.

Lee M. Jagoda: Some sense of the addressable market that you are looking at are going after him.

Lee M. Jagoda: Yes Lee.

Lee M. Jagoda: We sign NDA is in contracts with folks so I can't go into detail other than to say what's exciting about this is it's in retailers that were already in.

Lee M. Jagoda: And one company as a as a glide path of very solid kiosk growth. The other company is just getting started and has big ambitions. So both are exciting and Rockies happy because we're going to grow rds profitability without capital.

Lee M. Jagoda: It's a nice model to flex and what I have been really pleasantly surprised with as.

Lee M. Jagoda: And what I have been really pleasantly surprised by as they've kicked the tires on us is that they can see that we could also refurb their machines at Tempe. We could certainly have K2 be their platform if they so chose, and then we could make their machines if they wanted us to. And so, pretty interesting opportunity for us. I've been talking about it for a bit, but we just signed up, too.

Lee M. Jagoda: <unk> kicked the tires on us they can see that we could also refurb their machines at Tempe.

Lee M. Jagoda: We could certainly.

Lee M. Jagoda: K to be their platform if they so chose and then we can make their machines that they wanted us to and so.

Lee M. Jagoda: Pretty interesting opportunity for us I have been talking about it for a bit but we just.

Lee M. Jagoda: We've just signed up to and.

Douglas J. Cahill: Yeah, the only thing, Lee, I would add is, to the second part of your question, we would expect that it would be at or above, you know, incremental to fleet margin in the RDS business. Otherwise, you know, we wouldn't be looking at it.

Lee M. Jagoda: And we will see.

Speaker Change: Yes, the only thing I would add to the <unk>.

Speaker Change: Second part to your question, we would expect that it would be at or above.

Speaker Change: For mental the fleet margin in the Rds business, otherwise, we wouldn't be looking at.

Robert O. Kraft: No, I would assume that would have been correct. I guess, just, I mean, is there any way we can get a sense for the categories that these kiosks are in and the installed base of the two customers combined today?

Speaker Change: No.

Speaker Change: I would assume that would have been correct I guess, just I mean.

Speaker Change: Is there any can we get a sense for the categories that these kiosks are in and the installed base of the two customers combined today.

Douglas J. Cahill: You know, Lee, if I give you any piece, you'll be able to figure things out. So I probably, you know, I just, this is an important new partnership; I'm going to stay away from that.

Speaker Change: Lee if I give you any piece youll be able to figure things out so I'd probably.

Speaker Change: This is an important new partnership I'm going to stay away from that I apologize.

Lee M. Jagoda: Okay. And then just one more on M&A, Doug. It sounds like you guys have started this, you know, the flywheel now that we've got the leverage back in line. What are the categories you guys are focused on in the short and medium term? And maybe, Rocky, just remind us how you think about return metrics when you look at M&A.

Speaker Change: Okay.

Speaker Change: Just one more on M&A Doug.

Speaker Change: It sounds like you guys have started this the.

Speaker Change: Flywheel.

Speaker Change: Now that we've got the leverage back in line what are the categories that you guys are focused on in the short and medium term and maybe rocky just remind us how you think about return metrics when you look at M&A.

Douglas J. Cahill: Yeah, I think if you think about categories, it's really interesting. There are a half a dozen that we think make sense. We've got about seven companies that we're looking at right now. And the funny part of it is, every time we open up a book or a deck, we just laugh because it's in that same zip code of Ibiza that just makes total sense for us.

Rocky: Yes, I think if you think about categories, it's really interesting.

Rocky: There are half a dozen that we think makes sense.

Rocky: Got about seven companies that we're looking at right now in the funny part of it is every time, we open up about a book or a deck. We just laugh because it's in that same ZIP code of EBITDA, just makes total sense for us.

Douglas J. Cahill: And those are kind of, you know, the cook type sweet spot. We've got about three that I feel good about. And I think, Lee, my sense is you kind of bat what you'd bat in the major leagues if you were a Hall of Famer. If you've got three, you probably have one that you're working on.

Rocky: And those are kind of the coke type sweet spot.

Rocky: We've got about three that I feel good and I think Lee my sense is you're kind of that what is that in the major leagues. If youre all of Fame. If you've got three you'll probably get one that youre working on them. It's about 300% out of 1000, So I feel good about that and I think rocky maybe you can touch on the return on the.

Lee M. Jagoda: It's about 300 percent, you know, out of a thousand. So I feel good about that. And I think, Rocky, maybe you can touch on the return. I mean, the arbitration's there. Yeah. I mean, if you think about these things, as we've said, we expect to pay the highest. [inaudible] We don't think there's a better way to spend capital, particularly if they fit the moat and are not that sizable to where they impact our leverage.

Rocky: Durations there yes.

Rocky: Think about these as we've said we expect to pay did the high single digit type multiples for these businesses Lee as we run return on investment metrics. They are all well in excess of high teens to low twenties at this point.

Rocky: We don't think there's a better way to spend capital, particularly if they fit the moat not that sizable to where they impact our leverage and again as you've heard me say many times a real exciting piece of these deals like the Cook acquisition is in year, two because they help us turbocharge the organic growth.

Lee M. Jagoda: And again, as you've heard me say many times, the real exciting piece of these deals, like a Cook acquisition, is in year two because they help us turbocharge the organic growth. You heard JMA commit to growing by 20%. Cook, he would be very disappointed if we weren't next year.

Rocky: GMA commit 20% Cook he would be very disappointed if we werent next year, that's a prime example.

Robert O. Kraft: That's a prime example from a guy that just took his training wheels off, which is good. I appreciate that, yeah. Thank you. There you go. Go big or go home. That's right. Well, thank you, guys.

Rocky: From a guy that just took his training wheels up which is good.

Rocky: There you go.

Rocky: Ill go big or go home.

Lee M. Jagoda: And one moment for our next question, and our next question will be coming from Stephen Volkmann of Jeffries. Stephen, your line is open.

Speaker Change: Thank you guys.

Speaker Change: And one moment our next question.

Speaker Change: And our next question will be coming from Stephen Volkmann of Jeffries Steven Your line is open.

Stephen Edward Volkmann: Hi, good morning guys. Sorry if I missed this. Are you able to say what you're expecting Cook to contribute on the top line this year?

Stephen Edward Volkmann: Hi, good morning, guys.

Stephen Edward Volkmann: Sorry, if I missed this are you able to say what youre expecting cook to contribute on the top line this year.

Douglas J. Cahill: Yeah, yeah, Cook. We expect to be, call it $40 to $45 million in top line revenue.

Stephen Edward Volkmann: Yes, yes, Cook Cook, we expect to be call it $40 to $45 million of topline revenue got.

Stephen Edward Volkmann: Got it. Okay.

Speaker Change: Got it Okay, and then also some stuff.

Speaker Change: Flywheel seems to be starting up here again, how should we think about these acquisitions are these do they come in at kind of lower margins and then you get a chance to sort of bump them up or are these kind of niche high margin businesses that you don't really have to sort of fix up how do we think about that yeah. Let me start Steve I mean the interest.

Stephen Edward Volkmann: And also, since the flywheel seems to be starting up here again, how should we think about these acquisitions? Are these, do they come in at kind of lower margins, and then you get a chance to sort of buff them up? Or are these kind of niche-y, high-margin businesses that you don't really have to sort of fix up? How should we think about that?

Douglas J. Cahill: Yeah, let me start, Steve. The interesting thing is the gross margin can vary depending on structure and how they get to market, just like PS varies from HS. But the EBITDA margin tends to be similar to our fleet on the ones that we're looking at right now.

Speaker Change: <unk> thing is the gross margin can vary depending on structure and how they get to market just like PFS berries from Hs, but the EBIT margin tends to be similar to our fleet.

Speaker Change: On the ones that we're looking at right now.

Douglas J. Cahill: Okay, great. That's helpful. And then, finally, I think you mentioned at the outset that the price headwind for this quarter was like 40 basis points or something. I think I got that. But just how's that playing out relative to expectations?

Steve: Okay, Great. That's helpful. And then finally I think you mentioned in the outset that the price headwind. This quarter was like 40 basis points or something I think I got that but just how is that playing out relative to expectations.

Douglas J. Cahill: Yeah, I mean, I think it's playing out like we thought. We're working with our customers on that. But you know, the great news about this industry and our category is that it's not an elastic category. It's not you have to be at a price point. And you know, if price reductions are given, the retailer uses that to help their margins. You don't normally see it show up at retail, so that's a that's really, I think, a structural thing that's helpful. But we're working with our customers, and as we said, I think, Rocky, for the year, about one percent. Yeah, that's what inside the guy, Stephen, is one. 40 deaths in the.

Speaker Change: Yes, I mean, I think it's playing out like we thought we're working with our customers on that.

Speaker Change: Right news about this industry.

Speaker Change: In our category is that it's not an elastic category. It's not you have to be at a price point and.

Speaker Change: If price reductions or given the retailer uses that to.

Speaker Change: To help their margins you don't normally see it show up at.

Speaker Change: At retail so that's that's really I think a structural thing thats helpful, but where we're working with our customers.

Speaker Change: As we said I think rocky for the year about 1%, yes, that's inside the guidance Stephen is 1% 40 bps in the first quarter and obviously as you think about different categories different customers at different rates, but that's what it blends out to across the base.

Robert O. Kraft: Yeah, that's what inside the guide, Stephen is 1% 40 bips in the first quarter. And obviously, as you think about different categories, different customers, it's different rates, but

Speaker Change: Understood. Thank you.

Speaker Change: Thank you.

Tanya: in one moment for our next question. Our next question will be coming from Brian McNamara of Canaccord Union. Your line is open.

Speaker Change: And one moment for our next question.

Speaker Change: Our next question will be coming from Brian Mcnamara of Canaccord Genuity. Your line is open.

Brian Christopher McNamara: Hey, good morning, guys. Thanks for taking the questions. First, I'm curious how sustainable the impressive Q1 gross margins are in the context of some of your retail partners being pretty aggressive about asking for price back. How should we think about the cadence of gross margins for Q2 and the balance of the year?

Brian Christopher McNamara: Hey, good morning, guys. Thanks for taking the questions.

Brian Christopher McNamara: First I'm curious how sustainable the impressive Q1 gross margins are in the context of some of your retail partners being pretty aggressive about asking for price back how should we think about the cadence of our gross margins for Q2 and the balance of the year.

Robert O. Kraft: Yeah, again, Brian, as we said, it's our expectation that the gross margin remains above that 45% for the full year. The back half, we would anticipate, would be a little lower, just because of the timing of some of the price givebacks. But, you know, as we think about the whole year, we feel really good about where we are; we feel good about where we are with our customers, and that, you know, we've been fair, and we've done the right thing, and that we'll hang on to most of the price that we have and come in at, or slightly better than, our expectations.

Speaker Change: Yeah again, Brian as we said I mean, it's our expectation that.

Brian Christopher McNamara: Gross margin remains above that 45% for the full year.

Brian Christopher McNamara: The back half, we would anticipate would be a little lower just because of the timing of some of the price give backs, but should we think about the whole year, we feel really good about where we are we feel good about where we are with our customers and that we've been fair and we've done the right thing and that will hang on to most of the price that we haven't come in at or slightly better than what our.

Brian Christopher McNamara: <unk>.

Brian Christopher McNamara: Got it. And then maybe another one on M&A. Is the restart of this M&A flywheel simply a function of just seeing more opportunities in the marketplace, your overall comfort with your current leverage, or a combination of both? And can you remind us of your capital allocation priorities and how you balance M&A opportunities while keeping leverage in check, particularly for investors who might be a little more sensitive to the

Speaker Change: Got it and then maybe another one on M&A as the restarted this M&A flywheel it simply a function of just seeing more opportunities in the marketplace, where overall comfort with your current leverage or a combination of both.

Speaker Change: Remind us of your capital allocation priorities and how you balance.

Speaker Change: M&A opportunities all keeping leverage in check for particularly for investments might be a little more sensitive to the leverage level yes.

Douglas J. Cahill: Yeah, I think the first part of that, Brian, is the opportunities have been there because there hasn't really been a debt market for the private equity folks. We've just been lucky that we haven't lost any and continue to, you know, talk to the people about it.

Speaker Change: Yes, I think first part of that Brian is the opportunities have been there because there hasnt really been a debt market for the private equity folks.

Speaker Change: We've just been lucky that we Havent lost any.

Speaker Change: And continue to talk to the folks about it now that we're ready and that answer to your question is our leverage is at a point in heading in a direction, where I'm very comfortable now us doing that.

Douglas J. Cahill: Now that we're ready and that answer to your question is, our leverage is at a point and heading in a direction where I'm very comfortable with us doing that. You know, the debt markets still haven't really opened up much, so we feel like we're in a really nice spot right now, and I think what entrepreneurs have learned is that private equity comes and goes with the debt markets, and they would much rather entrust us with their business, I think, than they would private equity. So I think we've got a real advantage, and I think timing's good for us right now, but it's our leverage that really is determining that.

Speaker Change: The debt markets still haven't really opened up much. So we feel like we're in a really nice spot right now and I think what the entrepreneurs have learned is that private equity comes and goes with the debt markets.

Speaker Change: And they would much rather entrust us with their business I think then they would private equity. So I think we've got a real advantage and I think timing is good for us right now, but it's our leverage that really determining that yeah, and then just to add on with capital allocation.

Robert O. Kraft: Yeah, I mean, and then just to add on capital allocation. Our first priority is always going to be capital expenditures (capex), if we think that there are the right machine builds, as an example, or racking to do with a new customer. Those always have high returns, so we're going to spend money there first. The next thing we do is we're either going to pay down debt or take opportunities around M&A, but you're going to see us be very prudent around that.

Speaker Change: Our first priority is always going to be Capex. If we think there is the right machine builds as example, or racking to do with a new customer those are always high returns. So we're going to spend money. There first or next is we're either going to pay down debt, but for when there is opportunities around M&A, but youre going to see a speed.

Robert O. Kraft: Cook was a great example, really didn't move the leverage needle, and has provided a great platform for us to grow the business at a reasonable multiple. If we can find a couple more of those over the remainder of this year, you'll see us do those, but I think that doesn't take us off our goal and the expectation that the street has that we'll get the leverage below three, even with those acquisitions.

Speaker Change: Very prudent around that Cook is a great example, it really didnt move the leverage needle and has provided a great platform form for us to grow the business at a reasonable multiple if we can find a.

Speaker Change: A couple more of those over the remainder of this year Youll see us do those but I think that doesn't bring us off our goal and our expectation that the street has that will get the leverage below three even with those acquisitions.

Brian Christopher McNamara: Got it. Thanks a lot, guys. Best of luck. Thanks, Brad. Thank you. And one moment for our next question.

Speaker Change: Got it thanks, a lot guys best of luck.

Tanya: And one moment for our next question, and our next question will be coming from Ryan Merkel of William Blair. Your line is open.

Speaker Change: Thanks, Brian Thank you and one moment for our next question.

Speaker Change: Okay.

Speaker Change: And our next question will be coming from Ryan Merkel of William Blair. Your line is open.

Ryan James Merkel: Hey, good morning, everyone. Thanks for taking the question.

Ryan James Merkel: Hey, Doug can you talk about the start to <unk> in April come in in line with what you were thinking and should we assume normal seasonality into <unk>.

Ryan James Merkel: Yeah, I mean, I think, you know, what we've seen so far...

Ryan James Merkel: 10, or 11% from <unk>.

Douglas J. Cahill: Yes, I mean, I think what we've seen so far is about the continuation basically for the year. Ryan February January was tricky for everybody. It improved slightly off of that but has not jumped from there. It's just kind of what we had expected and that's kind of how we're planning it so.

Douglas J. Cahill: See some seasonality as we have historically, but I think it's.

Douglas J. Cahill: I still think are down four plus one is not a bad pegged for the year unless the rates change in the consumer starts to feel more confident than they do right now yes.

Robert O. Kraft: Ryan, the only thing I would add there, it's rocky, is that as you think about Q1 to Q2, we do believe we'll see kind of the seasonal jump and then the same thing from a profitability perspective, right? Our second and third quarters are always our most profitable because we're putting more product through the machine.

Douglas J. Cahill: Ryan the other thing I would add there <unk> is that as you think about Q1 to Q2, we do believe we will see kind of a seasonal job and then the same thing from a profitability perspective, right. Our second and third quarters are always our most profitable because we're putting more product through the machine.

Ryan James Merkel: Perfect. Got it. Okay. And then just a question on RDS. That was where you missed our model on one cue.

Speaker Change: Perfect got it Okay and then just a question on R&D at that was where you missed our model in <unk> and one of the comments why that's impacted more than the other businesses.

Speaker Change: I'd, just like to dig into that a little bit because that felt like a business, where you were taking share putting a lot of machines out there.

Speaker Change: Why isn't rguest doing better and why is it why is it more impacted than the other businesses.

Ryan James Merkel: And one of the comments was that it's impacted more than the other businesses. You know, I just like to dig into that a little bit because that felt like a business where you were taking share, putting a lot of machines out there. You know, why isn't RDS doing better? And why is that? Why is it more impacted than the other businesses?

Speaker Change: Ryan Great question and were disappointed with Rds.

Douglas J. Cahill: Ryan, it's a great question and we're disappointed with RDS. I would say the first answer to your question is if you look at, for example, engraving in pet food, 70% of households, 70% owned a pet in 2020, and now it's 63, and dog ownership's down 6%. I mean, if you look at Petsmart, Petco, anybody in the pet section, they're selling food; they're not selling the trinkets and trash and all the other things that go with it because it's discretionary.

Douglas J. Cahill: I'd say the first answer to your question is if you look at for example, engraving and Pat.

Douglas J. Cahill: 70% of.

Douglas J. Cahill: Household 70% owned patents in 2020, and now it's 63 and dog ownership down 6% I mean, if you look at Petsmart Petco anybody in the pet side, they're selling food theyre, not selling trinkets and trash and all the other things that go with it because it's discretionary so FTSE.

Douglas J. Cahill: So footsteps do also drive that, and footsteps do drive people going into, you know, cutting the key, and we know footsteps have been down 11, 8, and 8 years to date. That has impact. So that's what we mean when we say impact.

Douglas J. Cahill: Steps do also drives.

Douglas J. Cahill: That and footsteps do drive people going into.

Douglas J. Cahill: Cutting the key and we know footsteps have been down 11, eight and eight year to date that has impact. So that's what we mean when we say has impact I think the other thing is used car sales I mean, we really like our our business on smart Bob but when used car sales are where they are people just arent going out to get.

Douglas J. Cahill: I think the other thing is used car sales. I mean, we really like our business on Smart Fob, but when used car sales are where they are, people just aren't going out to get the fob. And so that's not an excuse.

Douglas J. Cahill: Our biggest issue is the same one. As I said last time, you've basically got a situation where the folks in Bentonville have relocated from the front of the store to the front vestibule or the front wall by the register. They've taken machines and kiosks, and they've moved them to the auto center, the sporting goods, and the paint department. And quite honestly, you could be a consumer there in the future. You could make four or five visits to that store and may not know they cut keys versus you'd run into it either on your way out or your way in. And I don't disagree with MacMillan's strategy there.

Douglas J. Cahill: The fob so not an excuse.

Douglas J. Cahill: Our biggest issue is the same one as I said last time, you basically you've got a situation where.

Douglas J. Cahill: The folks in Bentonville have relocated from.

Douglas J. Cahill: The front of the store in the vestibule or the front wall by the register.

Douglas J. Cahill: They've taken machines and kiosks and they've moved them to the auto center, the sporting goods and the paint department and quite honestly you could be a consumer there in the future you could make four or five visits to that store and may not know they cut ge's versus you'd run into it either on your <unk>.

Douglas J. Cahill: Way out or your way in and I don't disagree with Mcmillan strategy. There I think it's probably a good one for them, but it doesn't help the GFS business and so we should pick up those keys at our other retailers, but that's our biggest problem and it has been our biggest problem and we've got to let that thing short out as they move.

Douglas J. Cahill: I think it's probably a good one for them, but it doesn't help the kiosk business. And so we should pick up those keys at our other retailers, but that's our biggest problem, and it has been our biggest problem. And we've got to let that thing sort itself out as they move those machines and we see what the new normal is there. So, you know, it's a little worse than we thought, but as we said, for 20, that's why we're really pushing the 3.5. So the capabilities are different for the consumer on that minikey machine, but that's what's going on here. Yeah. Hey Douglas,

Douglas J. Cahill: Those machines and we see what the new normal is there. So it is a.

Douglas J. Cahill: A little worse than we thought but as we said for.

Douglas J. Cahill: <unk>.

Douglas J. Cahill: Why we're really pushing the three five so the capabilities are different.

Douglas J. Cahill: For the consumer on that many key machine, but that's what's going on there.

Robert O. Kraft: Hey Doug, let me add just real quick there, when you think about RDS, so with Doug, the entire... impacted either by discretionary spending, we believe, or by existing homes. When you think about our other businesses, repair, maintenance, and remodel, the repair and maintenance is done pretty much regardless of what is happening with existing home sales or discretionary spending. It's the remodel that's going to have the bigger impact. So again, to your question about why there is a bigger impact in RDS, it's because the entire business is impacted by these macro factors, whereas our hardware protective Canadian businesses or parts are, but not all.

Speaker Change: Hey, Doug.

Douglas J. Cahill: Let me add just real quick there when you think about Rds, so with the entire business is impacted either by discretionary we believe or buy existing homes. When you think about our other businesses repair maintenance remodel the repair and maintenance is done pretty much regardless of what is happening with existing home sales.

Douglas J. Cahill: Discretionary spending its the remodel that's going to have the bigger impact. So again to your question about why a bigger impact in Rds because the entire business is impacted by these macro factors, whereas our hardware protective Canadian businesses or parts or but not all.

Ryan James Merkel: Very helpful. Thank you. Pass it on.

Speaker Change: Very helpful. Thank you pass it on thanks, Ron Thanks.

Tanya: And one moment for our next question, which will come from Quinn Fredrickson of Baird. Quinn, your line is up.

Speaker Change: And one moment for our next question, which will come from Quinn Fredrickson of Baird.

Quinn Fredrickson: Hi, good morning guys. Hey, go ahead.

Quinn Fredrickson: Your line is open.

Quinn Fredrickson: Hi, Good morning, guys, Hey, Kevin.

Quinn Fredrickson: First, just wanted to ask about SG&A, Rocky. I think you said around 30% of sales the rest of the year, if I got that right. Is that where you were in 1QX, maybe some of the one-timers that you called out? Just any color there? Yeah, we

Quinn Fredrickson: First just wanted to ask on SG&A Rocky I think you said <unk>.

Quinn Fredrickson: Owned 30% of sales the rest of the year, if I got that right.

Quinn Fredrickson: Where you were in <unk>, maybe some of the one timers that you called out.

Robert O. Kraft: Yeah, we were a little bit over that in the first quarter, but that's where we expect the remainder of the year to be.

Quinn Fredrickson: All of them.

Kevin: Yes, we were a little bit over that in the first quarter, but thats, where we expect the remainder of the year to be.

Douglas J. Cahill: Okay, thank you. Very helpful. And then secondly, the Canada margin strength in the quarter, can you maybe unpack just what drove that and kind of the sustainability from here?

Speaker Change: Okay. Thank you very helpful.

Speaker Change: And then secondly.

Quinn Fredrickson: Canada margin strength in the quarter can you maybe unpack.

Quinn Fredrickson: Just what drove that and kind of sustainability from here.

Douglas J. Cahill: Yeah, for them, they've picked up some new business, and the margin profile is better than their fleet. They've also started, and this is one of the bright spots for our key business, they've started to install many key machines which will help their mix. And then, you know, Quinn, I'd love to say they smoked it, but their first quarter in 23 was underwhelming, so it was an easier hit.

Quinn Fredrickson: Yes for them they've picked up some new business and the margin profile is better.

Quinn Fredrickson: And then their fleet. They have also started and it's one of the bright spot for our key business they've started.

Quinn Fredrickson: Install many key machines, which will help their mix and then quintin I'd love to say they smoked it but there their first quarter in 2003 was underwhelmed. So it was an easier comp.

Quinn Fredrickson: Great. All right. Thank you, guys. Thanks, Gwen.

Speaker Change: Great Alright, Thank you guys.

Tanya: Again, as a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be enrolled. And I'm showing no further questions. I would now like to turn the call back to Mr. Cahill for his closing comment.

Speaker Change: Thanks.

Speaker Change: Again as a reminder to ask a question. Please press star one on your telephone and wait for your name to be around Nounced.

Speaker Change: Okay.

Speaker Change: And Im showing no further questions I would now like to turn the call back to Mr. <unk> for closing comments.

Douglas J. Cahill: Thanks again everyone for joining us this morning. We look forward to updating you on our progress this summer, and congratulations to JMA on getting through his first term. He's got a good job, bud.

<unk>: Thanks again, everyone for joining us. This morning, we look forward to updating you on our progress this summer.

Speaker Change: Congrats to Jay and Mayo getting through his first earnings call good job, but thank you everyone.

Operator: You may now disconnect.

Speaker Change: You may now disconnect.

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