Q3 2024 Hillman Solutions Corp Earnings Call
Good morning and welcome to the third quarter of 2024 results presentation for Hillman Solutions Corporation. My name is Jonathan and I will be your conference call operator today. Before we begin I would like to remind our listeners that today's presentation is being recorded and simultaneously webcast.
Speaker Change: the company's earnings release presentation and 10Q, where it's shoot this morning.
Speaker Change: and the documents and a replay of today's presentation can be accessed on Hillman's Investor Relations website and IR. Hillmangroup.com. I would now like to turn the call over to Michael Koehler with Hillman.
Speaker Change: 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, our Doug K. Hill, our Chairman, President and Chief Executive Officer.
Speaker Change: are Chief Operating Officer and Rocky Kraft are Chief Financial Officer.
Speaker Change: As a reminder, we announced the notice that effective January 1, 2025. Douglas step into the executive chairman role, and John Michael or JMA as we call him, will step into the CEO role.
Speaker Change: Before we get into today's call, I would like to remind our audience that certain statements may today, maybe consider forward-looking and our subjects to the safe harbor provisions of applicable security slots.
Speaker Change: Before looking statements or not guarantees the future performance errors like back 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 touch statements.
Speaker Change: 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 be slide two in our earnings call slide presentation, which is available on our website.
Speaker Change: In addition on today's call, we will refer to certain on-gap financial measures. Information regarding our use of and random silly actions of these measures, to our gap results, are available in our own and call-slide presentation.
Speaker Change: With that, Doug will begin today's call with some recent highlights that he will provide some market commentary, touch on our updated guidance and hit on our third court results. JMA will then hit on the value of our acquisition of intact error operations.
Speaker Change: Rocky will then give a more detailed walk through our financials and updated guidance before turning to call back over to Doug for some close-and-comments. We will then open up to call for your questions.
Speaker Change: It's now my pleasure to join the hall over to our chairman, visit it in CEO.k.com
Doug: Thanks Michael, good morning everyone. Before we get too far into the call today I wanted to take a moment and recognize the helmet team for actually accomplishing something that we've never done before in our history.
Speaker Change: on October 1st, we won the 2024 Division of Ender Partner, the Year in Hardline at Loads.
Speaker Change: and eight days later, we won the 2024 partner of the year in Hardware at Home Depot.
Speaker Change: Our lowest team led by Justin Fox and our home deep old team led by Brad Helving doing a standing job taking care of our two biggest customers. You guys your team have been doing and continue to do a fantastic job working with these two world class retailers.
Speaker Change: For 16 years, the mindset at home that has always been nothing happens until you sell something, and I'm happy to report it's alive in a well today. Being recognized by our two biggest customers in the same year is not possible without this mindset.
Speaker Change: They're a lot of folks to thank like our customer service and back office support teams, as well as our logistics and operations teams moving product across the global network.
Speaker Change: But I think I can speak for Justin, Brad and the entire team and say the most valuable players at Hillman R, the dedicated warriors in the field taking care of the shells, add on deep bow lows and all of our customer's each and every day.
Speaker Change: were humbled by the recognition and we strive to ensure all of our customers are well-take care of by our team. Again, my hats off to the Hillman team, you guys are amazing.
Speaker Change: As we look at 2025 beyond this company is in a great position. We believe we're approaching an actual inflection point where the macro will start to benefit both human and our retail partners.
Speaker Change: Our retailers are predicting when existing homes sales start to turn positive, but they're convinced that when it happens, it's going to be a historic run. Not for a year or two, but closer to the three to five years.
Speaker Change: Driving this confidence or a few factors, let's break it down number one, lower rates you're liking it on their way.
Speaker Change: and it will make a cheaper for existing homeowners to tap their home equity to fund home improvement projects.
Speaker Change: Homeowners in the U.S. are sitting on a record 35 trillion of home equity, a number that has increased 81% since the end of 2019.
Speaker Change: Additionally, lower rates should drive an increase in existing home sales.
Speaker Change: Down from over 6 million homes sold in the US in 2021.
Speaker Change: 2012 for Jacket and to be at a 30-year-low of 3.8 million home soul.
Speaker Change: We believe Laura Rachel's start to relieve this pent-up demand and existing home sales won't prove next year.
Speaker Change: 2. The age of existing homes in the US.
Speaker Change: 48% of homes are at least 45 years old, which includes over 24 million homes that are expected to reach their prime, remodeling age in the next three years.
Speaker Change: We believe this will drive consistent demand for remodeling and renovation projects for years to come. Then we're three of the Laka Housing Supply in the US.
Speaker Change: with roughly 4.5 million homes shortage in the US.
Speaker Change: and known near-term solution with roughly a million five homes being built a year, home values are expected to remain strong and homeowners will continue to invest in their homes.
Speaker Change: Meanwhile, we know the macro has not been a tailwind the last few years, but what I love about this business model of ours is that even with unit volume being a headwind for our industry, our trailing 12 month adjusted EBA does up 18% versus a year ago period.
Speaker Change: because of the great position we're in with our customers. We believe we will grow both top line and bottom line in 2025.
Speaker Change: But for now let's go back to 2024 during the quarter we acquired in tech so leading provider of cleaning rags, cloth and textiles.
Speaker Change: Most every home improvement job at the gen ends with cleaning so this is another great product category that fits perfectly in our portfolio and one that we're excited to be in.
Speaker Change: Because of the additional contributions from Intex and our total results, we're increasing our 2024 full-top line, full-year top line and adjusted EBITDA guidance.
Speaker Change: Our new net sales guidance range is 1.455 to 1.485 billion.
Speaker Change: and has a midpoint of 1.47 billion.
Speaker Change: The new bedpoint is an increase of some of the referees.
Speaker Change: [inaudible]
Speaker Change: and Mark and a two-procession of the world of premieres in the 2014 British Enterprise of the 2020s. Our next question is about 100 to 150 people left out to end the $5 million lower than our previous guide with no change to the bottom end.
Speaker Change: Rocky will provide more details on our 2024 guidance and our CAP Act investments shortly.
Speaker Change: Turning to the quarter, next sales in the third quarter of 24, total 393.3 million, which route out on 1.4 compared to the prior year quarter.
Speaker Change: and our top line ourselves from cooking in techs acquisitions, which added about 4 points, which were offset by two main factors. Number one is the overall market buy-ins, which were down about 4% to the quarter.
Speaker Change: Number two was a one-point head went from price, which was in line with our expectations coupled with a small head went from FX.
Speaker Change: For the quarter, our adjusted E-beta increased 9% to 72.6 million compared to 66.8 million during the third quarter of 2023. Our adjusted E-beta margins improved to a healthy 18.4%
Speaker Change: Adjusted gross margins for the quarter, told of 48.2% marking a 400 basis point improvement.
Speaker Change: Over 44.2% during the year ago quarter, and declined sequentially from 48.7 during the second quarter of 2024.
Speaker Change: We believe we structurally improved our gross margin profile and we expected to be above 47 for the foreseeable future.
Speaker Change: We have managed to maintain these healthy margins by improving efficiencies, selling a better mix of products similar to what we've seen over the past few quarters.
Speaker Change: For our top line results, hardware and protective solutions are HPS, which are biggest segment, net increase.
Speaker Change: and that sales increased point one over the comparable period. While our adjusted EBA that increased 19.8% are results were driven by contributions from cooking in text, partially offset by softer market buy-ins and price.
Speaker Change: and the next sales are robotics and digital or RDS for down 5.3 versus a year ago quarter.
Speaker Change: This compares to a percent of the time between Q2 of 2024 and Q2 of 2023. The trend has improved because the Green Shoots in Minicky 3.5 and our new GIS service contracts.
Speaker Change: Agressive gross margins and adjusted EBITDA margins remain healthy at 72.3% and 32.2% respectively, both improve sequentially.
Speaker Change: As up today, we have 900 men at Keynes 3.5 machines in the field and we believe that we will have over 1200 in stores by year-end. The deployment plan has accelerated throughout 24 and we expect to continue to ramp in 2025.
Speaker Change: We know our DS is a great business and we're laser focused on getting our DS back to grow to get in in 2025.
Speaker Change: Now turning to Canada.
Speaker Change: and that sales in our Canadian business were down 6 to 1%. Compared to the prior year quarter. The quarter and the rest of the year are helped by contributions from new business rollouts. As we continue to gain market share north of the border, these winds were offset by a very sluggish economy in Canada.
Speaker Change: For the year we expect the maintain 10% adjusted EBITDA margins in Canada, and like our business in the US, we have this business a strong position for when the economy turns.
Speaker Change: and a great team.
Speaker Change: in Kerala.
Speaker Change: Before I turn it over to Jam, let me sum up 2024.
Speaker Change: As we told you in November last year, even if volumes were down in 2024, are even a would-be-up, and this year is played out as we anticipated.
Speaker Change: We also told you that we expect to turn the tucking acquisition machine on and we've added Cook and In-Tex this year.
Speaker Change: The contributions from these businesses have moved our four-year top-line expectations to be roughly flat versus last year and our four-year EBITDA will grow about 14% versus 2023.
Speaker Change: We've improved our gross margin rate to 48 and are even at a rate to 17% and we believe we've structurally improved the profitability of our business.
Speaker Change: We continue to strengthen relationships with our customers and reinforce our competitive mode illustrated by our vendor of the year when the deep-own lows.
Speaker Change: We feel great about where we are with our customers right now and it's fun to be back on offense.
Speaker Change: We're ready to grow alongside our customers when the macro starts to shift.
Speaker Change: and would be ready for what our retailers will believe that what our retailers believe will be a historic run over the next several years. With that, I'll turn it over to J.M.A. As we announce an August J.M.A will take the reins from me in January of 2025.
Speaker Change: As only the sixth CEO in the 60 year history of filming. I love this company because of the people we get to work with and the customers we get to take care of and I'm very proud of this transition.
Speaker Change: JMA Rocky and I have worked together every day for the past five years. It's been an honor and an absolute blast.
Speaker Change: James is doing a great job in the gym, I was born in May of my university and I was able to sit and end up in every way I had a job. James, take what? Today we have a little hit on how we win with our vote. The M&A landscape and operations before turn the call over rock.
Speaker Change: Let me give you a quick refresh on the three different shooters for our move. Number one.
Speaker Change: Pick Pack and Shift directly your customers.
Speaker Change: 2. 1100 Field Sales and Service Warriors, in number 3, are 60 years of experience.
Speaker Change: Next I will share a few real life examples of how each part of our MOC's value for our customers first.
Speaker Change: By shipping 75% of our products direct to store, we take care of our costs when they need it most. For example, during the recent hurricane that impact the Southeast, we were able to support our customers before and after the store was with minimal impact service levels.
Speaker Change: Second, are a 1100 sales and service warriors not only take care of our normal customer needs, but also enable us to flawlessly execute in-store resets across the country.
Speaker Change: For example, one of our top five customers is investing alongside of us for a multi-year nationwide reset of the fast-rout.
Speaker Change: This is an entire reset of the 40-plus foot run-of-facers, which includes thousands of hillman skews and complex works in Dyson.
Speaker Change: We're ripping everything out, going all new, which takes well over 100 labor hours to complete, and is one of the most important idols of the store. And so far the results are encouraging.
Speaker Change: served.
Speaker Change: With 60 years of experience we understand the products categories and markets.
Speaker Change: For example, we recently launched a new range of high performance patented power-prostructural screws.
Speaker Change: The new products are being rolled out in the traditional hardware channel and will contribute to growth in 2025.
Speaker Change: Now that you understand the three pillars in how they had value for a customer's split, we now give you some examples of what the mode does for helmet.
Speaker Change: Vendor the Year at Lowe's in the Home Depot. I adjusted Gross March in the 48%. I adjusted EBITDA March in the 17%.
Speaker Change: Double did it even a growth for the year, even in a challenging macro environment.
Speaker Change: generated meaningful cash flow, investing for long-term growth for our customers, and we are executing low risk, a creative acquisition where our customers want us to grow.
Speaker Change: Look at what happened with Cook. We secured a meaningful piece of new business shortly after the acquisition that will increase that business by 20% over time. Our customers trust us and have confidence at a helmet can handle a complexity of a national rollout of new products and research.
Speaker Change: This mode is critical to growing both organically and through M&A. When we offer new categories, it allows our teams to bring more value to our customers and do so efficiently.
Speaker Change: As Doug mentioned in August, we closed on the acquisition of Intex, a leading supplier, clean, rags, cloths and textiles. We love Intex because it expands our product offering to new aisles in New Custlers.
Speaker Change: And importantly, we can leverage our mode to grow this business in the future as we take advantage of the cross-selling opportunities with both new and existing customers.
Speaker Change: For nearly 20 years, indexed the development and innovative cleaning racks, clawing some textiles for use in home improvement, painting, cleaning and maintenance projects, as well as geo-torial auto and marine care.
Speaker Change: Intex has great products and excellent team and great customers, many of which we share. When you combine that with unique strengths, Helman brings to our customers every day, like in-store service.
Speaker Change: Direct Ship Capabilities, and 25-plus years of retailer relationships at every level, you get a creative acquisition that should gain market share for years to come.
Speaker Change: In-text Marks are second acquisition of year with Coke and Robin Chains being our first. Our M&A pipeline is healthy as we continue to see companies like Coke and In-text that would be great additions to the Hillman's family.
Speaker Change: Cook has been successfully integrated into our operations and we are working to fully integrate in text. I'm proud of how Hillman has welcomed Koehler and in text to the Hillman family. With the team I'm boarded in a line, we are now ready to focus on growth opportunities.
Speaker Change: and Bruce. We would love to do at least two similar acquisitions every year.
Speaker Change: Now let me touch an operation.
Speaker Change: Our global operation team continues to do a fantastic job in add value throughout the supply chain.
Speaker Change: We ship products on time and in full-door customers with industry-leading fill rates.
Speaker Change: Our North American distribution network continues to run efficiently.
Speaker Change: We have never seen our team operating as well and believe there's still room for improvement.
Speaker Change: We continue to have great relationships with our suppliers around the globe. About one-third of our products are currently source from North America, one-third are source from Taiwan and the rest of the world and one-third of source from China, which is down approximately 50% from less than five years ago.
Speaker Change: Further about a dozen of our major long-term suppliers in the process of expanding operations outside of China.
Speaker Change: We have healthy relationships with a reliable, long-term suppliers and we believe as your customers do, this strategy gives us flexibility and options when it comes to tariffs and geoclical tensions.
Speaker Change: Let me now give you a quick update on Ocean Freak.
Speaker Change: This FOP Markifrosion Painors has involved.
Speaker Change: But this does not have a material impact on our business because we continue to ship approximately 90% of our containers under our 12 month contracts, which were put in place on May 1st, 2024. That said, we will begin to negotiate Ocean Container Contracts in the first quarter next year ahead of the May 1st, 2025 Renewal Day.
Speaker Change: Current industry projections are for higher rates in its true we plan to offset end or price for this increase.
Speaker Change: Our team is controlling the controls.
Speaker Change: and the other, officially running our operations and taking care of our customers.
Speaker Change: We are and we will be ready for when the market improves. With that, let me turn it over to Rocky to talk for the answers. Donny, thanks, Jameh, let's dive right in. Our net sales for the third quarter of 2024.
Rocky Kraft: Total 393.3 million, decrease of 1.4% versus the prior year quarter.
Rocky Kraft: The recorder adjusted gross margin increased by 400 basis points to 48.2% versus a prior year quarter of 44.2%.
Rocky Kraft: Sequentially, Adjusting Gross margins were down slightly through 48.7% or were in line with our expectations in what we said on last quarter's call.
Speaker Change: We expect our adjusted gross margins to come down during the fourth quarter as a result of in-text lower margin products. But we'll remain about 47% this year and next, as we believe we have structurally improved our gross margin profile.
Speaker Change: adjusted FGNA as a percentage of sales increased to 29.9% during the quarter from 27.5% from the year ago quarter, which was also in line with our expectations.
Speaker Change: Driving the increase was our standard employee bonus expense, which was the result of a strong bottom line during the year-to-date period when compared to 2023.
Speaker Change: A Jeff that even down the third quarter was 72.6 million, which grew 9% versus the EuroGo Quarter.
Speaker Change: are adjusted EBITDA to net sales ratio during the quarter with 18.4% which compares favorably to 16.7% a year ago.
Speaker Change: Contributing to our health, you've just an even dumb margin was our positive mix of price cost and efficient operations.
Speaker Change: Now let me turn to our cash flows for the 39 weeks in September 28, 2024, operating activities generated $142 million of cash as compared to $171.5 million in the year ago period.
Speaker Change: Remember during 2023 we had outsized working capital benefit as we were able to reduce our net inventory by over $100 million throughout the year as we returned to normal inventory levels.
Speaker Change: Free cash flow for the 2024 year-to-date period total 76 million and total 39.6 million for the cool term.
Speaker Change: Capital Expanditors totaled 64.2 million for the first nine months of 2024. This compared to 52.1 million in the prior year period.
Speaker Change: For 2024, we will invest between 80 and 85 million dollars of cat-backs and anticipate 2025's capital spend to be slightly above our 2024 number. As we invest in RDS and other growth initiatives like Rax for Recess and our hardware business.
Speaker Change: We continue to strategically invest in our high margin RDS business, but let's be clear. This is not a build it and they will come strategy with Munnakee 3.5.
Speaker Change: Our service teams are retrofitting existing 3.0 machines in the stores, and we will only build new machines where we see a return on our invested capital or new store growth opportunities.
Speaker Change: As Doug mentioned, our 900-plus minicky 3.5 machines are performing well and where there's a return on our investment, we will ramp up our capital, spend to deliver warm machines during 2025 with our strategic RDS customers.
Speaker Change: Now to the ballot sheet. We ended the third quarter of 2024 with $698.7 million of total net debt outstanding. We were able to reduce our debt during the quarter while funding the Intex acquisition from our free cash flow.
Speaker Change: We have not had a net debt figure below $700 million since 2013 and that was when our total annual sales were just $700 million and our leverage ratio was nearly five times net debt to adjust the EBITDA.
Speaker Change: At the end of the third quarter of 2024, our net debt to trailing 12 months, adjusted EBITDA ratio, was 2.8 times, compared to 3.3 times at the end of 2023 and 3.7 times just a year ago.
Speaker Change: Looking forward, we maintain our expectation that we will end 2024 around 2.7 times net leverage.
Speaker Change: Our long-term adjusted EBITDA to net-des leverage ratio of targets is to be at or below 2.5 times. This will give us the flexibility to grow VA M&A and allows us to be strategic and opportunity to stick when it comes to using our balance sheet to add stockholder value.
Speaker Change: As Doug mentioned earlier, we have a few changes to our 2024 guidance.
Speaker Change: We are increasing our net sales to be between 1.455 to 1.485 billion with a midpoint of 1.47 billion.
Speaker Change: Driving the increase or sale contributions from in-texts, partially offset by the market.
Speaker Change: Our new midpoint makes the following full year assumptions, a 1% headwind from price.
Speaker Change: A 2% lift from new business winds.
Speaker Change: A 4% lift from cooking in-text and market vines being down about 5%.
Speaker Change: All together, our new Net Sales midpoint guide is down less than half a percent from 2023.
Speaker Change: Similarly, we are increasing our 2024 Justice Eve.guys.
Speaker Change: Based on our year-to-date and October results, our expectations for our 2024 full-year adjusted EBITDA has now approximately 250 million, which is a 14% increase from 2023.
Speaker Change: And lastly we are justing down the top end of our 2024 free cash flow guide as a result of our anticipated context that which is between 80 and 85 million for the year.
Speaker Change: The new range for our 2024 free cash flow is 115 million and has a midpoint of 107.5 million versus 110 million previously.
Speaker Change: More information on the assumptions that have driven our guidance are available in our earnings call presentation.
Speaker Change: A few weeks ago, one of our customers true value filed for Chapter 11 at the corporate level.
Speaker Change: The Hardware Co-Opt made the filing while entering into an agreement to be sold to another Hardware Co-Opt to a best. We have a great relationship with do-it-best and they have been a Helman customer for over 30 years.
Speaker Change: Because of its co-op nature, true value serves as a whole sailor for independently owned hardware stores throughout the US. They are not hardware store operators.
Speaker Change: Helping will continue taking care of its independent hardware store customers that fly the true value banner, shipping products directly to stores while having its field and service folks continue to write orders and manage the shelves.
Speaker Change: We believe the long-term health of these independently-owned hardware stores remains strong, and true values chapter 11 of potential sales to do it best should not have a material impact on our long-term business.
Speaker Change: That's said, in the shorter term across all our business segments, we've about $8.8 million of receivables at risk from true value, net of discounts and allowances.
Speaker Change: Based on what we've learned so far since the filing, we are not assuming we will recover from your material amount of use for seedless.
Speaker Change: Accordingly, our third quarter results were reflected to $7.8 million charge for the balance of receiving goals we did not expect to collect. Due to the one-time nature this event, this has been backed out of our adjusted non-gap financials.
Speaker Change: Hillman does business with 12,000 independently owned hardware stores throughout the US and Canada, which generate about 250 million or nearly 20% of our revenue.
Speaker Change: Aces by far the market leader in this space making up about two thirds of the market along with 13% of our revenues.
Speaker Change: 8th continues to grow revenues, open new stores, and be financially sound.
Speaker Change: Your local hardware stores expected continued to perform during the cycle as they focus in cater to the repair and maintenance categories and differentiate themselves with their customer service.
Speaker Change: Last November we said that even if the top line is down in 2024 are adjusted to the abdominal increase and that is exactly what we have seen so far this year of 17.1% during the first nine months of the year.
Speaker Change: Our focus remains controlling the controllables and we believe we have done a great job doing that.
Speaker Change: Historically, our business has seen organic growth of 6% per year and high-single to low-double digital organic adjusted EBITDA growth before M&A.
Speaker Change: Assuming we can get some help from the macro, we think returning to our historic growth algorithm is achievable for 2025.
Speaker Change: Longer term, now that we are active on the M&A front top line growth of high single to low teams is realistic and should deal with just a debug top growth in the low to mid-teens assuming healthy macro environment.
Speaker Change: With that, let me turn it back to Doug.
Doug: Thanks, Rocky. Before we get to the Q&A session, I want to express our condolences to the families who have lost loved ones and have seen their lives just turned upside down in the wake of her pain, a lean and her pain, Milton just awful.
Speaker Change: Those surprise, our helmet team is stepped up during this time of need by working long hours.
Speaker Change: Expanising deliveries and servicing our customers in order to ensure those affected have the products they need to start their rebuilding process. Additionally, Hillman, as well as all of our retailers, have donated products and clean supplies to assist with the clean up efforts.
Speaker Change: Helping those in need is deeply ingrained in the Helman Spirit. We're proud of the way our employees have showed up for their teams and our customers.
Speaker Change: Without these human warriors, we would not be where we are today and I want to express my gratitude for their loyalty. Their teamwork and for always taking great care of our customers.
Speaker Change: As we look to the future, we firmly believe taking a disciplined approach to strengthening our mode while seeking a creative growth opportunities will drive long-term show what are values for years to come. And with what we can see on their rise and we're very excited about the future.
Speaker Change: with that. Let me turn it back to Jonathan the Operator for the Q&A portion. Jonathan, I'm not sure if you have a face for radio, but you definitely have the voice. Let's go open it up for questions.
Jonathan Operator: Thank you and ladies and gentlemen, if you'd like to ask a question at this time please press star 1 1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue simply press star 1 1 again.
Jonathan: We ask that you please limit yourself to one question and one follow up. You may get back in the queue as time allows and our first question for today comes from the line of Matthew Boothay from Barkley's. Your question, please.
Matthew Boothay: Good morning, you're of a new Cadillac yarn from Matt today. Thanks for taking my questions.
Matthew Boothay: and I was wondering on foot traffic and demand trends. Wondering is even just parse out how this trended in October relative to September. And if you guys have any early thoughts on our growth expectations for 2021. Thanks. Yeah, I mean, yeah, right now we're seeing kind of the same thing, right? That is volume is...
Speaker Change: Soft and you know, margin continues strong, mixes been good.
Speaker Change: I think everybody's rooting for this thing to return, but when you think about our business
Speaker Change: You know, there's going to be a lot of retailers focused on holidays.
Speaker Change: and then we'll really get started in 25. But nothing's really changed, we continue to see.
Matthew Boothay: R-Share
Matthew Boothay: Grok's Lightly with some wins, but again, Mark had to say about the same. As we look at 25, it's hard to say, the macro, nobody knows, I think interest rates declining will definitely help our retailers of bullish, but as I said.
Matthew Boothay: They really are not predicting when, but they know that as that starts to go, there's pent up the man, existing home sales, and a lot of equity in homes that can be used for expansions and then people definitely want to move and that's good for our business.
Speaker Change: Super helpful, thank you, and then...
Speaker Change: I guess somebody's second question, I think it was one there from China, the Krogne Femran.
Speaker Change: If you can just go into more detail if we were to see an increase in tariffs, how you guys would be equipped to mitigate the impact that this could happen in your cost structure and eat details would be helpful.
Speaker Change: So first of all, I turned to JMA, but one third North America, one third Taiwan, and then rest of really the Asia, like if you think Vietnam, Indonesia, you think of all the different places.
Speaker Change: So it's a third North America, a third Taiwan and all other in a third China, but Jay may want to touch on that Yeah, so you build on that fully there, I mean the third China, I mean, when you think about, you know, terror somewhere you're going after with your question, I mean, we look at it just like we handle terror's last time they came through, we'll price price dollar for dollar, we work with our retail or the past that cost on, and we'll be ready in the event that is what happens
Speaker Change: Great, thanks guys and good luck. Thank you, thank you and our next question comes from the line of Dave Mantis from Mayor, your question, please.
Speaker Change: so
Dave Mantis: Hi, good morning everyone. First off, in-text, is that because you're talking about who that's being carried by in terms of your partners currently and is there any limitation where you can sell it and you mentioned the gross margins or lower there, is that structural or is there room for improvement?
Dave Mantis: and the tech business is they sell the really a lot of the same customers we do, not nearly as deep in the traditional hardware channel or strong, but you think about deep O-LOs.
Speaker Change: will mark all the major customers that are out there that we serve each and every day they excel into in some others like they are in the paint and auto channels where we don't serve today so we're really excited about the growth opportunities and expansion. There are no limitations in where we take what products we have.
Speaker Change: They've got some good innovative products, with IP around them, so we're really excited about the future and where we're going.
Speaker Change: Yeah, I guess hey David Throckie, I'm on your second question. I think the answer is yes, they're structurally well, we're in techs. We will improve those over to remember as you think about areas like.
Speaker Change: and the company, you know, freight and overseas and things like that, we just have a lot more volume. So we'll improve their marketing, but they will be structurally lower than fleet.
Speaker Change: Thanks for that and then on RDS as we move into 2025.
David Throckie: If I heard you write, it sounded like minute key 3.5 is might kind of tail off and Recharge was mentioned at all. What might move the needle that would lead to growth in RDS next year?
Speaker Change: Yeah, so three-five is not telling off it's just really starting day. That's basically taking the existing minute key 3.0.
David Throckie: and Adinolfi, the AutoBost Transponder and Smart as well as endless aisle in E.K.E. you want. So we've got 900 out there. We've got...
David Throckie: Great to me and coming from our customers who want it because for them it's just all upside.
David Throckie: on the Web 1200 at the end of the year and we will both have...
David Throckie: Conversions of Existing 3.0, Machines in 2025, as well as new placement in stores that don't have them today by our major retailers who now want machines in stores.
David Throckie: and I think you'll see over time some pricing opportunities there as well. So that's why we feel like we've turned that corner and that you'll see us begin growing in 25 and certainly in the 26th.
Speaker Change: Got it, thanks Doug. Here.
Speaker Change: Thank you and our next question comes from the line of Lee Ugoda from C.J. and Securities. Your question please. Hi, good morning. So just starting with InTech, Rocky, can you break out the...
Lee Ugoda: Revenue that was added to the PPS segment in Q3 and then if you have any expectations for Q4 and then you've given that you've only owned it a little while, I assume the answer is probably not yet, but
Lee Ugoda: Are there any early signs that existing customers are gearing up to award you guys new business because you own in text now similar to the way that it evolved with Cook when you bought that.
Speaker Change: Yeah, Lee, so I'm not going to get into the details around the specifics in the quarter for in-text, what I will tell you is we've said it's about $55 million of annualized revenue. And so we owned it for a month and a third quarter and we'll own it for four months in the fourth, and then over three months in the fourth obviously. And then, you know, as we think about next year we would expect that to be about the size that business obviously we would expect to grow in a bit.
David Throckie: Finally, I would say as we've said, it's kind of a high single to low double digit kind of be, but that doesn't necessarily, anyone's doing the modeling, that's the way to think about that business. Jamie, you can talk about absolutely.
Jamie: We're excited about the growth opportunities, but in tech we are seeing some nice opportunities pop off with our existing customer base and even beyond. So the new customers out there as we look to leverage the Heldin mode.
Jamie: and really integrate that business. So we are excited about growing that business next year, low double digits, and we feel good about the future of fantastic business. We're really great at working with our business. We're a store.
David Throckie: We've done that with gloves and things over the years and again.
David Throckie: Stacking high and watching flies are planned but we will get that revved up probably mid-year next year and I'm excited about that because
David Throckie: When you run into those, you buy them and in-text while we love that team, it's very slim, had no service, no real ability to do that and we do that every day.
Speaker Change: Got it.
Speaker Change: and then one more for you Rocky, just the $7.8 million charge. I assume that hit your SGA in a assuming that was the only big ad back. It looks like SGA as a percent of sales would have been closer to 31% in Q3.
Speaker Change: How should we think about SGNA, either as a percent of sales or in dollars in Q4, and then as we get into 2025 and start to integrate those two acquisitions, is there and how much is their leverage on that SGNA line in 2025?
Rocky Kraft: Yeah, clearly there'll be some as we integrate. I would tell you, is you know, the fourth quarter we always have a little less leverage on our SGA as you know because of volumes and the seasonality of the business, but you know, so we'll probably be, I would say, a bit about 31% in the fourth quarter, but we've said this for the full year we expect to be around 30% and I think we'll still stick to that.
Speaker Change: and Matt's 30% adjusted correct. Correct, that's right. Yeah, okay.
Speaker Change: Thank you and our next question comes from the line of Charag Patel from Jeffery's your question, please.
Speaker Change: Hi, good morning, actually Steve here. That's right. I do have a fit for radio.
Speaker Change: So, what?
Speaker Change: and I'm going to talk about the topic of the next few weeks. So first, Jayama, I think you were talking, I think it was you who was talking about renegotiating your content rates for next year.
Speaker Change: Just remind us how we should think about the timing differences sort of when you're able to pass that through with their temporary impact on Gross margin.
Jayama: Yes, so yeah, that is correct. It will negotiate rates of going effect as of May 1st, 2025. We typically have four to six months depending on the contract and the timing, at least for that to be able to hit. Yeah, the tax time and the balance rate rolls off. So any increases will really be nominal in the at the end or is port quarter of 2000.
Jayama: 25.
Speaker Change: Okay, and I think one of you said something about 47% or better kind of in 25, please correct me if I'm wrong. But just any puts and takes relative to kind of gross margin as we think about 25.
Jayama: Yeah, I think Steve is we think about our business. You know, as we said on the call we believe our DS returns to growth in 2025. And so that's a natural kind of barrier for floor to that rate because we see such good rates in that business. You know, we've grown our cross margin and our even our rates despite our largest business kind of being depressed over the last year or two. And so as we see it returning that creates a natural floor to that number.
Jayama: I think over time, as you see it's winning categories, there'll be mixed issues that could be positive or negative, but in a lot of the categories that were likely to grow in the HPS business will probably be slightly negative.
Jayama: Again, we're leaving a quarter at 48, so we've got some room to start with and I think, again, we create a natural floor with RDS growing that allows us to maintain that 47% type plus grade, not only in 25 but kind of for the foreseeable future.
Speaker Change: Okay, great, appreciate it, Pastor Darn.
Speaker Change: Thank you. Thank you and our next question. Comes to the line of Brian McNamara from Canacore, Jr. Your question, please.
Brian McNamara: and I think I'm going to take a little more to the question. I guess I want to give you a little more to the RDS and it's been week for several quarters. Most of it's out of your control. I guess my question is, do you guys need to be there? I guess what I want to gauge your willingness to maybe move on from that asset if it doesn't significantly improve.
Speaker Change: Yeah, first of all, we don't need to be there. Our customers would love us with it or without it. I don't think there's any issue there when either side of that.
Brian McNamara: What I've said before because of what's been out there is that this is a business that we will turn.
Brian McNamara: with new three five investments and we'll have this thing in a place where it will be valuable to keep.
Speaker Change: or valuable to sell.
Speaker Change: and I like having Brian the option because...
Speaker Change: We have so many things we could do.
Speaker Change: in addition to what we have planned if we did sell it.
Speaker Change: But again, it's not bad to hang on to a 72-73% gross margin 32% EBITDA margin business that's growing.
Speaker Change: We're just in that period right now that we're transferring transitioning from one technology to the next.
Speaker Change: in an environment, as you know, that is existing home sales dependence. So we're going to get it going and then have options and no, but there's no.
Speaker Change: There's no negative here if we decided to, there was better value for our shareholders to sell it versus to keep it. But we're going to put it in a position where it doesn't matter.
Speaker Change: and then secondly I'm curious about how the Insects integration has gone so far relative to your expectations. I believe the Cook Accessors have been about 90 days to complete and then just any follow-up in terms of how the M&A pipeline is looking. It looks like you had a few candidates at the last time we spoke. Thanks.
Speaker Change: Great, great, and I'll take the index piece. It seems done great job. You know, structure, we have integrated that business. We have the teams operating with different parts of our organization.
Speaker Change: from sales, product operations. So we feel really good about that as quick as we did with it with Cook. The system side will be over the next couple of months. We'll finish that up, but we actually feel really good about where we are, where the alignment is in that business. So it's super excited about having in-text of part of the film.
Speaker Change: and I'll do it over here. Yeah, I mean, Brian, what's exciting for me personally is that we've been able to get this going again. I will tell you that convincing an entrepreneur or a management team.
Speaker Change: that they should be owned by Helman is literally like shooting fish in a barrel. And so as executive chairman, I'm going to be helping Jay and Man Rocky and Helman with that.
Speaker Change: Super excited about that and as you know with the debt markets right now there's not a lot of private equity competition now flip side wins
Speaker Change: when private equity comes back out, they're going to be obviously selling something. So I think the prospects will be good as JMA set a couple of year, make a great sense, and I don't see any change to that.
Speaker Change: Thanks for watching, that's the luck. Thanks for riding here.
Speaker Change: Thank you and our next question comes from the line of Brian Butler from Steephold. Your question, please.
Brian Butler: and you're more than thanks for taking my questions.
Speaker Change: You're right right
Brian Butler: was a first one on the talk about price was I think down 1% when you think of the price cost spread, you know, what does that trend look like in the third quarter and then I guess going into the fourth quarter and even 25.
Speaker Change: Yeah, I mean, it's going to be a flight headwind, Brian. Obviously relative to where we were in the second. Because of, you know, the roll out of the praise kit back and pretty much were at a good spot around the cost of our inventory now. There's not dramatic changes. What we would tell you is, you know, there will be in the first half of 25. We'll be a bit of a negative from price.
Speaker Change: and let's we do something around-phrase with our customers.
Speaker Change: and we would expect as we go into 25, you know we could potentially see a little bit of commodity benefit. But did you think about things like freight?
Speaker Change: He think about things like, Brett, as we renew facilities.
Speaker Change: You think about things like labor, none of those costs are going down in our business. So, you know, we have to think strategically about that, how we offset those costs and then to the extent that we can.
Speaker Change: We have to go to market with price. Historically, that's been every three years. We go to market to the about 3% price and we'll have to think about it and are thinking strategically now about when and how we take price to market in the future.
Speaker Change: Okay, and then I follow up on the RDS segment, you know, second quarter you talked about some opportunities post the Red Box liquidation.
Speaker Change: and you have an update there, maybe on what those opportunities look like now, if they've changed and maybe how they play out over the next couple quarters.
Speaker Change: Yeah, I think we've started, we've secured two contracts, one has already started and the second one will start in this quarter and it's essentially us servicing machines for other P.S. operators.
Speaker Change: At this point, Brian, it should be good for us in 25.
Speaker Change: Whether we expand it outside of that or not is really dependent on what we decide to do, taking care of, and how big the auto side of that is. So that's the juggling act right now. But no, both are selling, both are off and running, and both are profitable, about the same.
Speaker Change: fleet margin rate and EBITDA rate that we have in our business. So yeah, it's good right now, both are on their way.
Speaker Change: Thank you.
Speaker Change: Okay, great. Thanks for taking my questions. Sure. Thank you. And as a reminder, if you do have a question at this time, please press star 11 on your telephone.
Speaker Change: Bye-bye.
Speaker Change: And this does conclude the question and answer session of today's program. I'd like to hand the program back to Mr. Cahill for any further remarks.
Speaker Change: Thanks Jasmine. Thank you everybody for joining us this morning. We look forward to updating you on our progress early next year.
Speaker Change: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.