Q4 2024 Hillman Solutions Corp Earnings Call
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Totaling just $4.6 million and remodel spending declined year over year lift led to a five point reduction in our market volume in 2024 offsetting the markets was a four point contribution from Cook and Intex two great acquisitions, we made during the year and two point.
Speaker Change: Contribution from new business wins, as we continue to win market share.
Price was a 1% headwind for the year for.
Speaker Change: For the fourth quarter, our adjusted EBIT increased three 5% to $56 3 million, which was right in line with our expectations adjusted gross margins improved 390 basis points to 48, 1% for 2024.
Speaker Change: Compared to $44 two during 2023 and 43% during 2022.
Speaker Change: Driving our improved bottom line and gross margins versus stained operating efficiencies lower cost of goods sold and a shift in selling a higher margin mix of products.
Speaker Change: <unk> will expand on in a few minutes I believe we are running the business as well as we have at any time in my tenure at Hillman.
Speaker Change: Additionally, in 2025, we're implementing performance based equity compensation for our top executives using a return on invested capital metric.
Speaker Change: This is like 50% of their annual equity grants to return on invested capital going forward.
Speaker Change: Now let me give you a few comments on the performance of our two largest business.
Speaker Change: Hardware and protective solutions, our hps is our biggest business.
Speaker Change: <unk> increased its adjusted EBITDA by 23% for the year with flat topline results and continues to be the poster child for the Hillman moat and the value we bring.
Speaker Change: To our customers that others don't.
Speaker Change: Our robotics and digital solutions business will be a great example of both our shareholders and top customers benefiting from the new strategy. We successfully launched during 2020 for Rd.
Speaker Change: <unk> has always been the leader for <unk>, and adjusted EBITDA margins and gross margins, but the capital we have invested in the returns on that capital had been a drag on our performance.
Speaker Change: <unk> will expand on our strategy and share where this business will become a great contributor not only adjusted EBITDA and gross margin, but cash flow too, which will drive healthy return on invested capital as our strategy plays out.
Speaker Change: I Love This company and I'm honored to have turned the CEO reins over to Jama. He is the perfect fit for this experienced team and customer first culture that we've built over many years at hellmann.
Speaker Change: I am proud of the great job, we do for our customers our track record for Bottomline growth and now we have strengthened the balance sheet and paid down over $900 million.
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Jay: That in the past four years I will continue to support this company any way that I can and with that it is my pleasure to turn it over to Jay.
Jay: Thanks, Doug I'm grateful for the opportunity to be the sixth CEO and Hillman 60 year history.
Jay: When I look around Hillman I'm excited and encouraged about the future I'm surrounded by a fantastic leadership team and talented folks throughout our organization.
Jay: We have world class customers, who trust us and are true partners and we have excellent long term suppliers.
Jay: <unk> is a great company and I am fired up about the future.
Jay: Doug and I are fully aligned on the path forward and we see a clear opportunity to accelerate growth.
Jay: When I think about our strategy, our customer relationships and unique competitive moat that defines hillman, we have challenged ourselves to profitably grow this business to $2 billion in net sales over the next three to five years.
Jay: The question is how do we get there well here's how first we remain laser focused on growing and protecting the core of our business.
Jay: We will continue to take care of our customers and win new business, which will add 2% to 3% top line growth per year.
Jay: We also expect to see the markets returned to 2% to 3% volume growth in the future.
Jay: Together, new business and market growth, coupled with price results in organic top line growth of 5% to 6%.
Jay: This follows the trend we've seen over the last 20 plus years, but to get back to this level of growth, we need the macro environment to improve and market growth to return.
Jay: Beyond organic growth strategic acquisitions will play a critical role in scaling our business.
Jay: Our plan is to execute two to three acquisitions per year.
Jay: These acquisitions will complement our moat strengthen our competitive position and create opportunities for long term organic growth and value creation.
Jay: This company has executed over 35 transactions in its history, and we know how to do it well as.
Jay: As Doug pointed out earlier, our moat and our experience make him and the great fire.
We have the right focus the right team and the right strategy, we have executed well and we've built a strong foundation for the future as.
Jay: As we position Hillman for its next 60 years of growth we have accelerated our focus on technology and are implementing plans to leverage the cloud and artificial intelligence to make our company more effective and efficient.
Jay: This will allow us to take better care of our customers improve how we do business and further strengthen our relationships with our partners.
Jay: In 2025, you will see us continue to invest in our cloud migration.
Jay: We are confident that an investment like this is necessary when you have over 111000, skus and shipped to nearly 30000 retail locations annually.
We are excited about this migration as it will make hillman easier to do business with and strengthen our moat.
Speaker Change: Speaking of let me take a few minutes to give my perspective on the Hillman mode. The.
The first piece of our moat is our 1200 field sales and service folks our customers can trust the hilton's warriors will be in their stores, writing orders organizing aisles in servicing our kiosks on a regular basis.
Speaker Change: This not only enables our retailers to sell more product it reduces their in store labor issues for critical categories within the store.
Speaker Change: These are examples of value adds that you get when you do business with helmet.
Speaker Change: The second part of our moat is our ability to ship store direct.
Speaker Change: Pick pack and ship approximately 65% of what we sell directly to the retail locations of our customers.
Speaker Change: That means the majority of our products bypass the DC networks of our customers and our ship directly to a retailer stores.
Speaker Change: Importantly, with high fill rates our customers can trust to Hillman products will arrive at their stores on time and in full.
Speaker Change: The third part of our <unk> comes from our 60 years of experience.
Speaker Change: Our customers don't just buy products from us they buy solutions. They look to Hillman to help them manage the category. We have insight to data that allows us to optimize category management remove complexity and drive results for our customers that makes him and a trusted partner.
Speaker Change: Approximately 90% of what we sell are company owned brands Hilton's brands are well known among the Diyer approach when you buy a home in product and user knows it is a great product.
Speaker Change: Additionally, distributing brands that we own allows us to differentiate our offerings, often tailoring programs and packaging to meet the needs of our customers.
Speaker Change: Lastly, we have longstanding relationships with our customers.
Speaker Change: We've been working with our top five customers for nearly 30 years on average and are viewed as a partner rather than just the supplier.
Speaker Change: Over time, we build great relationships throughout these world class organizations.
Speaker Change: This includes the associates in the store store managers merchants and leadership together as partners. Both companies are 100% line on selling and satisfying the needs of the end user.
Speaker Change: Before I turn it over to Rocky Let me give you my view of the market.
Speaker Change: Over the past few years, we've proven that we can successfully navigate a challenging macro environment, while still growing our bottomline and average clip of over 7% per year.
Speaker Change: It makes sense, how the macro hasnt helped considering the pull forward of home improvement activity during COVID-19 pandemic, the sharp decline in existing home sales and the decrease in home improvement spending over the last few years.
Speaker Change: During 2025, we are hopeful that home improvement activity start to pick up that said, we aren't going to predict when the market turns but we like our customers will be ready when it happens and our customers believe that when it does turn that Ron will last for several years.
Speaker Change: That said, even if the market looks like it did in 2024, we are confident that our business will grow in 2025.
Speaker Change: The Hps business is solid and stable in both good times and that throughout.
Speaker Change: Throughout 2024, we've enhanced our global supply chain and continued transitioning sourcing volume out of China into Vietnam, Taiwan, India and other countries. This strategy combined with the investments into our infrastructure has enabled hillman to build an even more efficient distribution network that is ready for growth.
Speaker Change: Our sales and service organization has never been stronger throughout 2024, we've aligned our U S retail leaders and our sales and service teams under Brent held it.
Speaker Change: Brad is the grandson of our founder Maxine and has been taking care of our customers at <unk> for over 20 years right has excelled in every level and has grown our business meaningfully throughout his career. He has assembled a fantastic team and implemented new strategies, which are already making an impact.
Speaker Change: Together, our sales operations and other support functions are prime for 2025.
Speaker Change: During the year, we are launching new business in both our core <unk> product categories as well as our newly acquired product categories from Cook and index, we have secured new business wins and power screws rope and chain work gear and several other areas that will get us back to growth in 2025.
Speaker Change: Turning to Rds.
Speaker Change: With our R&D with our many key three five strategy in place, we believe that Rds will return to growth in 2025, let.
Speaker Change: Let me tell you why.
Speaker Change: We have a new leader Scott more of it took over as president of Rds last year.
Speaker Change: Done a great job executing our many key three five rollout ahead of schedule and has breathed new life and renewed energy into Rds teams.
Speaker Change: Second both of our top two Rds partners have agreed to have our many key three five machines and all of our stores across the country by the end of 2026. These machines feature enhanced capabilities like the ability to do create smart auto parts auto transponders RFID Fabs and also have the endless aisle.
Speaker Change: All of these new machines will have credit card readers, allowing the customer to complete transactions quickly and easily right at the kiosk.
Speaker Change: Our customers love, our kiosks and our revenue sharing arrangements allow our customers to collect regular payments from hillman without having to deploy capital for any resources in their stores.
Speaker Change: These two customers have made the decision the Hillman as their partner for both manual and full service keys, they rely on us to grow the business and so far we are are many key three five machines are generating a healthy lift in revenue versus many key three data and that is before him and our world class customers will be aggressively going after.
Speaker Change: This new market together.
Speaker Change: On the manual side of key cutting we continue to have great engagement with ace.
Speaker Change: They are full service approach to key cutting continues to be a differentiator for their business. The Hillman moat adds tremendous value to the complex segment of manual key cutting.
Speaker Change: And lastly, we have sharpened our focus when it comes to Rds capital as Rocky talked about on the earnings call last quarter, we are approaching our investment to Rds more prudently with a focus on generating attractive returns on invested capital.
Speaker Change: Because of this we will not invest capital to build or upgrade machines, where we don't expect to see a return on investment as a result, we expect to see some attrition with customers outside of our top three Rds partners, which are Lowe's home depot and Ace.
We expect Rds.
Speaker Change: Related Capex will peak in 2025, and we will decline by about $20 million in 2026, as we complete our many key three five rollout.
Speaker Change: Once we have fully deployed capital for the rollout, we expect rds alone to generate around $50 million of free cash flow on an annualized basis.
Speaker Change: Now, let's take a step back and reflect on how we've executed over the last few years.
Speaker Change: During 2023, we did a great job normalizing inventory levels.
Speaker Change: Hanging down debt.
Speaker Change: Executing sizable new business wins, and setting up helmet for streamline operations.
Speaker Change: Last year, we saw our investments into operations payoff as we took great care of our customers delivered improvements in our global supply chain and executed two M&A deals. This year. We will continue this momentum we will return to growth as we leverage the Hillman mode to win new business and execute M&A with that I'll turn it to rocky.
Rocky: Talk numbers.
Rocky: Thanks, Jamie before I get into our guidance for 2025, I'll provide a summary of our fourth quarter and year end results.
Rocky: Fourth quarter 2024, net sales increased 5% to 349 $6 million versus the prior year quarter.
Rocky: 2020 for full year net sales totaled $1 $4 73 billion, which is down slightly versus 2023 and came in slightly above the midpoint of our revised guidance range.
Rocky: <unk> top line was the result of a four point contribution from cooking and tax of two point contribution from new business wins, offset by a 1% headwind on price and a 5% headwind from market volumes.
Rocky: Fourth quarter adjusted gross profit margin decreased 50 basis points to 47, 7% versus the prior year quarter, which was in line with our expectations.
Rocky: For the full year 2024, adjusted gross profit margin increased 390 basis points to 48 one.
Rocky: 1% from 44, 2% during 2023.
Rocky: Our gross margin improvement for the year was the result of improved operating efficiencies.
Rocky: Cogs and a higher margin mix of products sold.
Rocky: Q4, 2024, adjusted SG&A as a percentage of sales decreased to 31, 5% from 30 to 32, 5% during the year ago quarter.
Rocky: For the full year 2024, adjusted SG&A as a percentage of sales increased to 31, 6% from 29, 5%.
Rocky: The quarterly decrease was due to our standard employee bonus expense accrual, which was larger than Q4 2023 compared to Q4 2024.
Rocky: The annual increase was the result of 2024 standard employee bonus expense in the aggregate <unk> expense, which were both greater in 2024, then 2023 as well as the true value charge, which I will touch on in a moment.
Rocky: Adjusted EBITDA in the fourth quarter increased three 5% to $56 3 million, which was right in line with our expectations.
Rocky: After dialogue with the SEC, we revised our presentation of adjusted EBITDA to include the $8 $6 million write off of receivables from true value, which was previously excluded from our adjusted EBITDA figures.
Rocky: The charge resulted from true values chapter 11 filing in October of 2020 for the details of which were fully disclosed in our Q3 earnings call.
Rocky: The majority of this impacted our third quarter and therefore, our full year results the impact on the fourth quarter was minimal.
Rocky: That said, our adjusted EBITDA for 2024 increased 10, 2% to $241 $8 million, which includes the $8 $6 million charge from true value.
Rocky: Our adjusted EBITDA to net sales margin during the quarter was 16, 4%, which compares favorably to 14, 9% a year ago.
Rocky: Now, let me turn to cash flow and the balance sheet.
Rocky: In 2020 for operating activities generated $183 million of cash versus $283 million in 2023.
Rocky: Remember that during 2023, we had an outsized working capital benefit as we were able to reduce our net inventories by over $100 million throughout the year as we return to normal inventory levels. Following the supply chain disruption from Asia.
Rocky: Capital expenditures for the year were $85 million compared to $66 million in 2023.
Rocky: The increase relates to the accelerated rollout of <unk> and continued rollout of the new fastener set at one of our major customers.
Rocky: As Jamie discussed we are taking a measured and prudent approach to our capex investments.
Rocky: As you will see in our proxy statement later this year, we are introducing performance shares that use return on invested capital as a metric to determine our executive teams equity compensation.
Rocky: We believe this aligns well with our shareholders' interest and will be beneficial over the long term.
Rocky: Free cash flow for the year totaled $98 1 million versus $172 3 million in 2023.
Rocky: Free cash flow came in a bit below our expectations, which was impacted by capex and our soft top line.
Rocky: During the year, we used free cash flow to pay down $48 million of debt and to fund the acquisitions of both Cook in index.
Rocky: We ended 2024 was $674 million of net debt versus $722 million at the end of 2023.
Rocky: Subsequent to the end of the quarter, we repriced our term note lowering the interest rate margin by 25 basis points on our borrowing cost, which now sit at sofa, plus 200 basis points.
$360 million of the term note balance is swapped to a fixed all in rate of $5 six 9% that runs through January of 2027.
Rocky: Our net debt to trailing 12 months adjusted EBITDA ratio at the end of 2024 was two eight times, which improved from three three times at the end of 2023.
Rocky: Our long term adjusted EBITDA to net debt leverage ratio target is to be at or below two five times.
This leverage allows us to grow via M&A invest in future growth opportunities and to be opportunistic when it comes to using our balance sheet to add shareholder value.
Rocky: Now, let me talk about our guidance for 2025, we anticipate full year net sales to be between $1 $4 95 to $1 $5 75 billion with a midpoint of 153 5 billion.
Rocky: Historically, our top line has grown about 6% annually.
Rocky: This consists of approximately 1% price and 2% to 3% market growth, which looks a lot like GDP and 2% to 3% growth from new business wins.
Rocky: The midpoint of our 2025 top line guide includes the following assumptions were.
Rocky: We're assuming that prices neutral for the year.
Rocky: A 1% decrease from overall market volumes.
Rocky: A two 5% lift from new business wins.
Rocky: And a two 5% lift from the second action, which closed at the end of August 2024.
Rocky: To unpack our price assumptions for 2025, we expect that price will be a headwind of about 1% during the first half of the year based on the roll forward of price give backs that went into place in 2024.
Rocky: We continue to monitor our costs closely.
Rocky: Ocean from Asia outbound freight rents at our distribution center the cost of labor I could go on and on none of these costs are going down in our business and we must think strategically about how and when we can offset those costs.
Rocky: Our 2025 net sales figure will be closely tied to our customers' performance, which is predominantly driven by their sales.
Rocky: Securing new business wins, coupled with the overall health of the customer.
Rocky: Consumer repair and remodel activity in existing home sales will our outcomes.
Rocky: For our bottom line, we expect full year 2025, adjusted EBITDA to total between 255.
Rocky: And $275 million.
Rocky: The midpoint of $265 million represents an increase of about 10% versus 2024.
Rocky: We expect our full year adjusted gross margins to come in above 47% for the year.
Rocky: Lastly, free cash flow during 2025 and is expected to come in between $90 million to $110 million with a midpoint of $100 million.
Rocky: Impacting our free cash flow expectation for the year is $90 million of Capex, which is elevated due to the expansion of our many key three five fleet and fastener racking at one of our major customers.
Rocky: We expect that we will have 2025 around two two times lever.
Rocky: This assumes we fall near the midpoint of our guidance and does not include any impact of M&A.
Rocky: During Q1 of 2025, we expect free cash flow to be negative and our leverage will likely tick up slightly as we build inventory to support our busy spring and summer seasons. This.
Rocky: This is typical for Hilton in a normal year.
Rocky: After the first quarter, we expect to generate cash each quarter and see our leverage declined throughout 2025.
Rocky: Other assumptions that are factored into our 2025 guide are as follows interest expense of $45 million to $55 million.
Rocky: Cash interest of $40 million to $50 million.
Rocky: Cash taxes of $15 million to $25 million.
Rocky: Capex as I said previously of approximately $90 million.
Rocky: Restructuring related and other expenses, we believe will total approximately $10 million.
Rocky: And our fully diluted weighted average share count will be approximately 201 million shares.
Rocky: Our success managing cost and executing M&A during 2024 were big positives for Hilton.
Rocky: Looking forward, we look to build on this and believe that our competitive moat and long standing relationships with our customers will allow us to win.
Rocky: We are laser focused on getting him back to growth during 2025 and look forward to updating you on our progress throughout the year.
Rocky: With that let me throw it back to Jamie. Thanks, Rocky we are optimistic about the year. We're excited to keep playing offense. We're confident we will drive share gains and generate topline and bottomline growth. During 2025, we will work tirelessly to fulfill our commitment to all of our stakeholders, which include our customers our suppliers team members and our.
Rocky: Our investors, we look forward to updating you during the year with our progress.
Speaker Change: With that we'll begin the Q&A portion of our call Shannon. Please open the call for questions.
Speaker Change: Thank you to ask a question. Please press star one wondering your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: We ask that you. Please limit yourself to two questions you may rejoin the queue for any additional questions. Please standby, while we compile the Q&A roster.
Speaker Change: Yeah.
Speaker Change: Our first question comes from Brian Mcnamara, let's see with Canaccord. Your line is now open.
Brian McNamara: Hey, good morning, guys. Thanks for taking the questions.
Brian McNamara: First I was wondering if you guys could break out organic growth in Q4 by price and volume.
Brian McNamara: Kind of a rough rough range.
Speaker Change: Yes, I think what we would tell you there when you think about price for the whole business. It was pretty similar to what we saw for the full year, Brian So just over down 1%.
Speaker Change: Then obviously the volumes are the offset of the remainder of the arithmetic there.
Speaker Change: Got it and then secondly, I appreciate all the color on Rds.
Speaker Change: Why should mimic key 3.5 drive sustainable growth and already kind of outside this kind of maybe one one times uplift we might see this year.
Speaker Change: You still have the existing home sales headwind and the like just just.
Speaker Change: We consistently I got from investors.
Speaker Change: Yes, Brian Good morning, Great question, we're really excited about it is what it opens up as I shared briefly and we've talked about in the past, we really believe that expanding beyond home and office splits in the machine plus the endless aisle auto Fabs transponders really opens up some new unique opportunities for us. So we're excited we've seen.
Speaker Change: As I mentioned, some nice healthy lift again, some nice traction with the customers. So we just believe it's a better solution and the.
Speaker Change: The interface and the fact that we're able to help the stores be more efficient with their customers is really just starting to get some nice traction. So it is we believe it is different and we've seen some nice lift for the machines, we have in the market yes. The.
Speaker Change: The only thing I would add to that Brian I mean, as you think about Rds, it's no different than the rest of our business and how we're thinking about the future GMA said in his prepared remarks, we're not going to predict.
Speaker Change: When housing returns when interest rates turn, but we're confident that happens again pick a timeframe. The next six months 18 months 24 months and we are really setting our business up to take advantage of.
Speaker Change: Those tailwind, it's consistent with what we're hearing from our large customers quite frankly from all of our customers and we're going to be ready in Rds is no different we're putting in a better machine with more capabilities that are that are not only our customers, but our consumers love and when that turns not only do you have a better machine that's going to generate.
Growth for us, but youre also going to have a tailwind again not going to predict when that is but.
Speaker Change: I think it's in the next several years.
Speaker Change: Alright, and then just quickly on your gross margin assumptions for the year I Remember last night, you guys negotiated some pretty favorable container rates I think at the time I was like four extra spot rate I think that rate is currently like spot is like two X that rate right now I'm just curious like how should folks think about container rates as it's captured into your gross margin assumptions.
Brian McNamara: Yes, I mean for US Brian Yes, we did have our team did a great job.
Brian McNamara: Getting good contract rates for the contract that's going to end in April of this year, we actually feel very good about where we're positioned we will take an increase two things. One is for 2025 really limited impact just based on the time it turns through the P&L.
Brian McNamara: Plus that we have a really nice I'll say flow of goods because we're heavier earlier in the year than later in the year. So we are a preferred I'll say use if you will our customer of these carriers. So between those two pieces. We still feel confident are going to have increases, which we are factoring into our strategy for this year, but on the lower end of our original range. So we feel good.
Brian McNamara: Where our contracts will be placed for 2025.
Brian McNamara: Okay. Thanks, a lot guys appreciate it.
Speaker Change: Thanks, Brent I'll take a breath.
Speaker Change: Next question comes from Ryan Merkel with William Blair. Your line is now open.
Ryan Merkel: Hey, everyone. Thanks for the questions.
Speaker Change: Just wanted to hear about.
Speaker Change: Trends through the fourth quarter, if you saw a bit of a slowdown in December and then how is that tracking so far in <unk> as a kind of stable or are you seeing any kind of lift.
Speaker Change: Yes, I think for Q4 was interesting to US I mean December is always a tough month for us and everybody you cover Ryan. So I don't know that it was that different if you will than November or October. It was definitely pressured we've seen a stabilization in Q1 of this year I'll, just say that the trend that we expect.
Speaker Change: Coming out of Q4 is actually playing true in Q1, I'm just going to leave it at that at this point.
Speaker Change: Got it okay. That's helpful.
Speaker Change: And then I wanted to ask about tariffs and.
Speaker Change: I think there's been a few developments obviously just talk about maybe how you handle tariffs in <unk> and then will this time be any different and it doesn't sound like you would put anything in the guidance for that I just wanted to clarify that.
Speaker Change: Yes. So it is a situation that we talk and.
Speaker Change: Fortunately way too frequently about Ryan it is developing by the minute almost I mean, we're on the phone talking about at 645. This morning.
Speaker Change: It is something that we were going to manage it the same way we did in 2018. So for US. We managed in 2018 were priced a dollar for dollar our teams did a great job of executing with our retail partners. It's transactional and as you know we've done a nice job managing inflation and dealing with the price challenges that come out of whether it's the <unk>.
Speaker Change: Right.
Speaker Change: Went up and down tariffs and the overall inflation pressure. So we feel like we've got the tools in place to manage it we don't know where this is going to land right. Now. So our teams are readying. We've got we meet on it very regularly and when we have definition and clarity around it will execute.
Doug: Yeah, Hey, Ryan one of the things I would just says it Doug.
Speaker Change: A lot of retailers.
Speaker Change: Categories have historically directly imported.
Speaker Change: And we think Theres an opportunity there that we have not historically had because we've got multiple sources in multiple countries.
If you think about it from their perspective they.
Speaker Change: They don't go deep on a lot of things that they directly import so I think youre going to see with this time around some opportunities for us to pick up categories that we can add to the truck and they can get it out of their distribution center and we can go to a different country for them, if they like but they're just not that.
Speaker Change: Deep and those kinds of relationships and we are so I think theres going to be a bit of an opportunity. This go around for us that we didn't have last time.
Speaker Change: Okay. That's very interesting thanks for mentioning that I'll pass it on thanks.
Speaker Change: Thanks, Ryan Our next question comes from the line of Matthew Bouley with Barclays. Your line is now open.
Speaker Change: Yes.
Matthew Bouley: Hey, good morning, everyone and thanks for taking the questions.
Matthew Bouley: I wanted to ask back on Rds growth in 2025, you guys were talking about that business returning to growth clearly coming up on much easier comparisons I think the business was really almost close to flat by Q4. So should you be sort of or is the expectation that you'd be turning positive on RV.
Matthew Bouley: Rds as soon as Q1.
Matthew Bouley: Or is it going to kind of ramp through the year as you continue to ramp minute key three five that also if you could add some color on the impact of the attrition.
Matthew Bouley: That you mentioned thank you.
Matthew Bouley: Maybe I'll start with the right and yes. The short answer is that we do believe map that we will return to growth even in the first quarter again not.
Matthew Bouley: I'd tell you not what we expect to see in a year or two where we believe we get back to historic growth levels, which are kind of low double digits, but we would expect to be low singles, maybe even mid single digit growth in the business because primarily of the rollout of what we're doing with three five with our major customers.
Speaker Change: Yeah, and as far as on the attrition piece of it we actually as frame, we've got alignment with our top customers on what we're going to do this year.
Speaker Change: There is a customer in our mix, where we have actually come to alignment on a better profile for us and candidly, probably maybe for them as well, but we've got a good path forward with them that will add a little bit of negative pressure for the year, we still feel confident that with what actions. We have in place. The three five rollout, which is going well and some of.
Speaker Change: Other initiatives that we have going on that will more than cover that up that pressure up throughout the year. So that's about as far as I want to go on that topic I guess I guess just to add a little there. When you think about what we're doing around capital and look our capital is can be up this year because of the rollouts at our major customers with three five but if you think about those customer.
Speaker Change: That are not those major customers, we're not going to build machines and put them into situations, where the payback doesn't make sense for us or the return on invested capital isn't at least at or above where the company is and so again, we feel really good about building machines for our major customers where that return.
Speaker Change: As quick and as above I'll call it the.
Speaker Change: Current corporate average if it's not we have to have some tough conversations we've been having this.
Speaker Change: Got it okay. Thank you for that great color.
Speaker Change: Secondly, I wanted to touch on price again.
Speaker Change: I think you said you were still going to be Comping down a point on price in the first half, but that you expect to be neutral for the year. So I guess, the implication would you be expecting to be positive on price in the second half, but does that have anything to do with kind of matching tariff top dollar for dollar as you mentioned.
Speaker Change: Is that a fair statement that you'd be expecting positive pricing and sort of what drives that thank you.
Speaker Change: Yes.
Speaker Change: Astute question.
Speaker Change: And that's why we kind of phrase it that way our expectation would be that we would be taking price in strategic categories. In the second half of the year and what I will tell you is that is not related to tariffs again. If you go back to my my prepared remarks, we talked a lot about all of the areas in our business, where we're seeing inflation.
Speaker Change: It's kind of across the board, we believe not only with us, but with our customers as well as our competitors and so it is our expectation that we're going to bring some price to the market in 2025, regardless of what happens with tariffs.
Speaker Change: Got it okay. Thanks, guys. Good luck. Thanks.
Speaker Change: I think Youre right. Our next question comes from the line of Lee Jagoda with CJS Securities. Your line is now open.
Will: Hi, This is will on for Lee.
Speaker Change: How should we think about the Canadian business. Both in terms of current trends in industrial production and how that can impact volumes as well as anything related to tariffs and trade war impacts. Thank you.
Speaker Change: Yeah. Thanks will so Canada is certainly seeing some market pressures, we actually have some nice new business wins in Canada, that's offsetting some of that pressure so for from our perspective, the Canadian markets, which had a tough 2024, we're running it well.
Speaker Change: <unk> runs that Scott right up there in Canada do a nice job with his team and we're aligned with our customers. So we have some nice new business wins to offset some of the market pressure we have out there on the industrial side, we continue to see pressure there so that portion of the business, which we don't really breakout in specified numbers on but we've seen some pressure there.
Speaker Change: <unk> rebuilt that business over the last several years and we feel like we've got a good path forward. So Canada will see some pressure, but we feel confident in our results overall.
Speaker Change: The thing I think we will I would add there is the one thing that we've said continuously for the last several years is the one thing we don't control is the market and we're not going to be able to when you think about our Canadian team and what they've done they've done a really good job of making sure that we keep the profitability in that business at an appropriate level, even in the face of pretty significant.
Speaker Change: Difficult headwinds from the market bigger than we're seeing in the U S. Perhaps even in the U S. So we're confident again as we think about 2025 that we've got the right people in place the right team in Canada, and they're going to perform from a profitability perspective, regardless of what happens with the markets again, we're going to set the Canadian business, just like the U S business, so when that economy.
Does turn we can take full advantage of it and again, we're highly competent team we have there today to do that.
Speaker Change: That's very helpful. Thank you.
Speaker Change: Youre welcome.
Speaker Change: Our next question comes from the line of Brian Butler with Stifel. Your line is now open.
Brian Butler: Hey, good morning, Thanks for taking the questions Hey, good morning, Brian.
Speaker Change: First one just on the Rds, maybe just kind of just level set everybody. When you think about the $3 five rollout by the end of 2026, maybe.
Speaker Change: Restructure that.
Speaker Change: Three customers, where do we stand now and how do we think about by the end of 'twenty five and then being completed in 2000, and how does that rollout kind of breakout between the years.
Brian: Yes. So it is heavily more heavily indexed to 2006 I mean, we do start putting machines in place back half of this year at a higher clip overall when you aggregate them together, Brian So we feel like a nice steady flow of the machines.
Brian: It finished last year in good shape as far as actually delivering the number of machines that we put into the marketplace. So from a three five perspective, we felt like we finished the year a bit ahead of where we expected to.
Brian: <unk> was well on track with where we wanted to be and then we're going to continue to see that rollout in 2025, we will finish up those machines and to 25% to 26 that will do the same thing at the home depot, we don't want to really get too much to the granularity beyond that Brian, but we feel good about that ramp it'll be pretty steady 25% to 26%.
Speaker Change: I would be thinking about it.
Speaker Change: Okay. That's helpful and then on the new business. The two 5% growth kind of looking at the 25 can you give some color between where that comes from is that does that is more heavily weighted towards hardware are protective or rds.
Speaker Change: Fitting in there with the rollout yeah, I mean, the Rollouts a piece of it certainly but the heavier piece of that is on the Hs side of that the hardware side of the business. Brian We had some really exciting new products, where we're actually launching some patented products and concrete screws with our one of our largest customers were excited about that we also have structural <unk>.
Crude and high performance construction fasteners that will be rolling out to actually some nice new business in what we call CSP. So we're excited about that piece of it but we got work here on the protective side of the business. We've got some new rollouts there that would that should get some nice traction we got some good customer wins and we're excited about growth with our major customers in a number of categories plus.
Speaker Change: As you've heard us talk about in the past.
Speaker Change: Rope and chain win with <unk> is in full flow in 2025. So we'll continue to look to build on that and then some things that we're not ready to share in detail, but we got some nice traction around the <unk> business and some new opportunities with major customers. There. So it is actually across the board, Brian pretty healthy mix that our sales team is out there driving and we're pretty excited about 25.
Speaker Change: Okay, great and if I could get one last one just on the acquisition environment. I mean 25 does that set up now maybe maybe more attractive being the market being as weak as it has that you have more sellers out there.
Speaker Change: And more opportunity or.
Speaker Change: Are you looking at acquisitions for 25, yes, we're excited about the market I would say I don't know that the market has changed that dynamically Bryan I'll ask rocky to add on if or Doug if I missed anything but I would say right now we've got more irons in the fire now than we did last time, we spoke we actually pretty excited about having a couple of nice interesting deals in front of us that we think would be.
Speaker Change: Great complements to Hillman in many of the comments you heard Doug and me say on this call and previous calls where they would actually fit into our culture product segments and adjacencies with the customer. So we're pretty excited about where we are today I just don't know the environment has changed dramatically, but we're looking at deals and we'll certainly keep you posted as we have more to share.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Dave Manthey with Baird. Your line is now open.
Speaker Change: Yes. Thank you most of my questions have been answered here, but.
Speaker Change: As we recalibrate our thoughts on Rds.
Speaker Change: What are the implications for longer term EBITDA margin expectations.
Speaker Change: The IPO I think you were signaling, 20% plus EBITDA margin target with much of that being driven by Rds.
Speaker Change: Yes, I think Dave as you think about Rds. Our goal is to maintain the margin rate that we have in the business. So call. It 32 to $33 34.
Speaker Change: EBITDA rate the nice thing about it is when you think about our core business.
Speaker Change: Done a nice job expanding that in the hps business the EBITDA right.
Speaker Change: I think our goal over the next several years would be to hang onto the rate in hps.
Speaker Change: As you've heard us talk about there over a three to five year period, it's probably like only 1% of expansion and that's really leveraging the fixed cost that we have in the business and then what you do is you get the nice mix up because of Rds back to growth. We've had this nice margin expansion in the whole business over the last couple of years with Rds being depressed.
Speaker Change: So that getting that business back to growth is really important for us to not only grow EBITDA, but also gross margins over the longer term. So again, we feel really confident that with that business back to growth.
Speaker Change: I'm not going to predict the year, but a 20% EBITDA rate is not out of the question. When you think about that mix shift.
Speaker Change: And then ultimately it sounds like you are focused on returns on capital anyway, but.
Speaker Change: Based on your conversation earlier, we should assume that you would expect returns on capital to drift up gradually over time.
Speaker Change: Yes, yes, yes, well obviously when.
Speaker Change: As we think about and you'll see in our proxy we will have some goals around what returns on invested capital are in the business and we would expect that we expand those.
Speaker Change: Every year at least for the next three to five and a minimum obviously looking behind thats pretty tough from a modeling perspective, but.
Speaker Change: Where we're coming from and where we're going we believe theres nice expansion in ROIC over the next several years.
Speaker Change: Sounds good thank you.
David: Thanks, David.
David: Our next question comes from Reuben Garner with benchmark. Your line is now open.
Reuben Garner: Thank you good morning, guys.
Speaker Change: The Rocky you mentioned in your outlook for this year about two five points of new business kind of baked into the midpoint I believe.
Speaker Change: How much of that do you guys already have.
Speaker Change: In hand from new shelf space that you sort of won over the last.
Speaker Change: Six months or so.
Reuben Garner: Yes, I think the way to look at it Ruben is basically all of that is committed.
Speaker Change: The challenge that we've seen I would say over the last couple of years is.
Speaker Change: Whats the re plan associated with that business because of the market volumes and so on.
Speaker Change: Look we would tell you as we sit today, we're confident that not only can we hit that call. It two 5%, but we can be above that the risk to it is just just what happens to market volumes in those categories as we load them in if they if they stay where they are or they improve.
Speaker Change: We can be we will be at the high end or could be even above that kind of normal 2% to 3% range.
Speaker Change: Still feel confident that the markets kind of stay where they are or soften a bit that will be at two 5%, but that's the trick to our business, we control new business wins, we control price to an extent.
Speaker Change: We can control M&A, but it's really really hard for us to control. The market. So you can see we predicted the markets. This year will be down one at the midpoint of our guidance.
Speaker Change: And we'll see what happens throughout the year, because we just don't control footsteps at our big customers.
Speaker Change: Got it and then a two part question on kind of.
Speaker Change: I guess risks.
Speaker Change: Tighter pricing and tariffs so in the past and it's been a couple of few years since you've had to put pricing through.
Speaker Change: There were some costs associated with some of your customers and changing the stick yourselves that the store can you remind us.
Speaker Change: How much of your business that affects how much that would cost and then anything you guys or your customers are doing from an inventory standpoint are you you mentioned Q1 cash flow being impacted but that was a seasonal comment like are you guys building inventory in anticipation of potential tariff risks are your customers doing anything like that.
Speaker Change: Just big picture on tariffs. Thank you.
Reuben Garner: So I'll, let rocky add on here, but ruben from a cost perspective.
Reuben Garner: $1 million to $2 million, depending on how many labels in the marketplace. So I think a $1 $2 million would be will view that as just for the traditional hardware channel and not the relocation.
Reuben Garner: The answer to that kind of at that question. There so from an overall perspective.
Reuben Garner: That piece of it as far as the tariff.
Reuben Garner: On the call.
Reuben Garner: Okay.
Reuben Garner: Okay.
Reuben Garner: Okay.
Reuben Garner: Perfect.
Reuben Garner: Cable affiliate.
Reuben Garner: Bye bye.
Reuben Garner: Okay.
Reuben Garner: Okay.
Reuben Garner: Thank you.
Reuben Garner: This concludes the Q&A portion of today's call I would like to turn the call back over to Jamie for closing comments.
Jamie: Thanks to everyone for joining us this morning, again, I would like to thank our customers vendors suppliers and importantly, the hardworking Hillman team for their contributions we look forward to updating you again in the near future. Thanks and have a great day Shannon you may now disconnect.
Reuben Garner: You may now disconnect.
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