Good morning and welcome to the Third Quarter 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. The company's earnings release presentation and 10-Q were issued this morning. These documents and a replay of today's presentation can be accessed on Hillman's Investor Relations website at ir.hillmangroup.com. I would now like to turn the call over to Michael Koehler with Hillman.

Thank you, Jonathan. Good morning everyone and thank you for joining us. I am Michael Koehler, Vice President of Investor Relations and Treasury. Joining me on today's call are Doug Cahill, our Chairman, President, and Chief Executive Officer, Jon Michael Adinolfi, our Chief Operating Officer, and Rocky Kraft, our Chief Financial Officer. As a reminder we announced in August that effective January 1st 2025 Doug will step into the Executive Chairman role and Jon Michael or JMA as we call him will step into the CEO role. Before we get into today's call I would like to remind our audience that certain statements made today may be considered forward-looking and are subject to the safe harbor provisions of applicable securities laws. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions, and other factors many of which are beyond the company's control and may cause actual results to differ materially from those projected in such statements. Some of the factors that could influence our results are contained in our periodic and annual reports filed with the SEC. For more information regarding these risks and uncertainties please see Slide 2 in our earnings call slide presentation which is available on our website. In addition on today's call we will refer to certain non-GAAP financial measures. Information regarding our use of and reconciliations of these measures to our GAAP results are available in our earnings call slide presentation. With that Doug will begin today's call with some recent highlights then he will provide some market commentary, touch on our updated guidance, and hit on our third quarter results. JMA will then hit on the value of our moat, our acquisition of intakes and our operations. Rocky will then give a more detailed walk through our financials and updated guidance before turning the call back over to Doug for some closing comments. We will then open up the call for your questions. It's now my pleasure to turn the call over to our Chairman, President, and CEO, Doug Cahill. Doug?

Thanks Michael. Good morning everyone. Before we get too far into the call today I wanted to take a moment and recognize the Hillman team for actually accomplishing something that we've never done before in our history. On October 1st we won the 2024 Divisional Vendor Partner of the Year in Hardlines at Lowe's. And eight days later we won the 2024 Partner of the Year in hardware at Home Depot. Our Lowe's team led by Justin Fox and our Home Depot team led by Brad Helbing do an outstanding job taking care of our two biggest customers. You guys, your teams have been doing and continue to do a fantastic job working with these two world-class retailers. For 60 years the mindset at Hillman has always been nothing happens until you sell something and I'm happy to report its alive and well today. Being recognized by our two biggest customers in the same year is not possible without this mindset. There are 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. But I think I can speak for Justin, Brad and the entire team and say the most valuable players at Hillman are the dedicated warriors in the field taking care of the shelves at Home Depot, Lowe's and all of our customers each and every day. We're humbled by the recognition and we strive to ensure all of our customers are well taken care of by our team. Again, my hats off to the Hillman team. You guys are amazing. As we look at 2025 and beyond this company is in a great position. We believe we're approaching an actual inflection point where the macro will start to…

Thank you, Doug. Let's take a little hit on how we win with our moat, the M&A landscape and operations before turning the call over to Rocky. Let me give you a quick refresher on the three differentiators of our moat. Number one, pick, pack, and ship directly to our customers. Number two, 1100 field sales and service warriors, and number three, our 60 years of experience. Next, I will share a few real-life examples how each part of our moat creates value for our customers. First, by shipping 75% of our products direct-to-store, we take care of our customer when they need it most. For example, during the recent hurricanes that impacted the southeast, we were able to support our customers before and after the storms with minimal impact to service levels. Second, our 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. For example, one of our Top 5 customers is investing alongside of us for a multi-year nationwide reset of the fastener aisle. This is an entire reset of the 40 plus foot run of fasteners, which includes thousands of Hillman SKUs and complex merchandising. We're ripping everything out, going all new, which takes well over 100 labor hours to complete and is one of the most important aisles in the store. And so far, the results are encouraging. Third, with 60 years of experience, we understand the products, categories, and markets. For example, we recently launched a new range of high-performance patented Power Pro structural screws. These new products are being rolled out in the traditional hardware channel and will contribute to growth in 2025. Now that you understand the three pillars and how they add value for customers,…

Thanks, JMA. Let's dive right in. Our net sales for the third quarter of 2024 totaled $393.3 million, a decrease of 1.4% versus the prior year quarter. Third quarter adjusted gross margin increased by 400 basis points to 48.2% versus the prior year quarter of 44.2%. Sequentially, adjusted gross margins were down slightly from 48.7% or were in line with our expectations in what we said on last quarter's call. We expect our adjusted gross margins to come down during the fourth quarter as a result of Intex lower margin products, but will remain about 47% this year and next as we believe we have structurally improved our gross margin profile. Adjusted SG&A 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. 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. Adjusted EBITDA in the third quarter was $72.6 million, which grew 9% versus the year ago quarter. Our adjusted EBITDA to net sales ratio during the quarter was 18.4%, which compares favorably to 16.7% a year ago. Contributing to our healthy adjusted EBITDA margin was our positive mix of price cost and efficient operations. Now let me turn to our cash flows. For the 39 weeks ended September 28, 2024, operating activities generated $142.2 million of cash as compared to $171.5 million in the year ago period. Remember, during 2023 we had outsized working capital benefit as we were able to reduce our net inventories by over $100 million throughout the year as we returned to normal inventory levels. Free cash flow for the 2024 year-to-date period totaled $76 million and totaled $39.6 million for…

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 Hurricane Helene and Hurricane Milton. Just awful. No surprise, our Hillman team has stepped up during this time of need by working long hours, expediting 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 cleaning supplies to assist with the cleanup efforts. Helping those in need is deeply ingrained in the Hillman spirit. We're proud of the way our employees have showed up for their teams and our customers. Without these Hillman 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. 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 shareholder value for years to come. And with what we can see on the horizon, we're very excited about the future. 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 open it up for questions.

Thank you. [Operator Instructions]. And our first question for today comes from the line of Matt Bouley from Barclays. Your question, please.

Good morning. You have Anika Dholakia on for Matt today. Thanks for taking my questions. First off, I was wondering on foot traffic and demand trends. Wondering if you can just parse out how this trended in October relative to September. And if you guys have any early thoughts on R&R growth expectations for 2025? Thanks.

I mean, yes, right now we're seeing kind of same thing, right? The volume is soft and margin continues strong. Mix has been good. I think everybody's rooting for this thing to return. But when you think about our business, there's going to be a lot of retailers focused on holidays and then we'll really get started in '25. But nothing's really changed. We continue to see our share grow slightly with some wins. But again, market has stayed 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 are bullish. But as I said, they really are not predicting when, but they know that as that starts to go, there's pent-up demand, 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.

Super helpful. Thank you. And then, I guess on my second question, I know your prepared remarks mentioned that one-third is sourced from Taiwan. I think it was one third from China, but correct me if I'm wrong there. 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 have on your cost structure, any details would be helpful? Thanks.

So first of all, I'll turn 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. So it's a third North America, a third Taiwan, and all other, and then a third China. But JMA, why don't you touch on that?

Yes, so build on that point there. I mean, the third China, I mean, when you think about tariffs and where you're going after with your question, I mean, we look at it just like we handled tariffs last time they came through. We'll price dollar-for-dollar. We work with our retailers to pass that cost on. And we'll be ready in the event that is what happens.

Great, thanks guys, and good luck.

Thank you, thank you.

Thank you. And our next question comes from the line of David Manthey from Baird. Your question, please.

Hi, good morning, everyone. First off, Intex, is that, could you talk about who that's being carried by in terms of your partners currently, and is there any limitation to where you can sell it? And you mentioned the gross margins are lower there. Is that structural or is there room for improvement? Thanks.

Hey, great, good morning, Dave. For the Intex businesses, they sell to really a lot of the same customers we do, not nearly as deep in the traditional hardware channel where we're strong, but you think about Depo, Lowe's, Walmart, all the major customers that are out there that we serve each and every day they sell into, and 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 opportunity and expansion. There are no limitations in where we take what products we have. They've got some good, innovative products with IP around them, so we're really excited about the future and where we're going.

Yes, I guess, hey, David, Rocky. On your second question, I think the answer is yes. They're structurally lower in Intex. We will improve those over time as you think about areas like freight from overseas and things like that where we just have a lot more volume. So we'll improve their margins, but they will be structurally lower than fleet.

Okay, thanks for that. And then on RDS, as we move into 2025, if I heard you right, it sounded like MinuteKey 3.5 is might kind of tail off and ReSharp wasn't mentioned at all. What might move the needle that would lead to growth in RDS next year?

Yes, so 3.5 is not tailing off. It's just really starting, Dave. That's basically taking the existing MinuteKey 3.0 and adding RFID, auto, both transponder and smart, as well as endless aisle, any key you want. So we've got 900 out there. We've got great demand coming from our customers who want it because for them, it's just all upside. We'll have 1200 at the end of the year and we will both have 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. 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 into '26.

Got it. Thanks, Doug.

Sure.

Thank you. And our next question comes from the line of Lee Jagoda from CJS Securities. Your question, please.

Hi, good morning. So just starting with Intex, Rocky, can you break out the revenue that was added to the PPS segment in Q3? And then if you have any expectations for Q4. And then given that you've only owned it a little while, I assume the answer is probably not yet, but are there any early signs that existing customers are gearing up to award you guys new business because you own Intex now, similar to the way that it evolved with Koch when you bought that?

Yes, Lee, so I'm not going to get into the details around the specifics in the quarter for Intex. 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 in the third quarter and we'll own it for four months in the fourth, and then over three months in the fourth, obviously. And then as we think about next year, we would expect that to be about the size of the business. Obviously, we would expect to grow it a bit. Finally, I would say, as we've said, it's kind of a high single to low double digit kind of EBITDA business. So as anyone's doing the modeling, that's the way to think about that business. And JMA, you want to talk about?

Absolutely. Yes, Lee, so we're excited about the growth opportunities with Intex. We are seeing some nice opportunities pop-up with our existing customer base and even beyond with some of the new customers out there as we look to leverage the Hillman Moat 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 Intex with [indiscernible].

[Indiscernible] of our store. We've done that with gloves and things over the years. And again, stacking high and watch it fly is our plan, but we will get that revved up probably mid-year next year, and I'm excited about that. Because when you run into those, you buy them, and Intex, while we love that team, it's very slim, had no service, no real ability to do that, and we do that every day.

Got it. And then one more for you, Rocky. Just the $7.8 million charge, I assume that hit your SG&A, and assuming that was the only big ad back, it looks like SG&A as a percent of sales would have been closer to 31% in Q3. How should we think about SG&A, 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 there leverage on that SG&A line in 2025?

Yes, clearly there'll be some as we integrate. What I would tell you is, the fourth quarter, we always have a little less leverage on our SG&A, as you know, because of volumes and the seasonality of the business, but so we'll probably be, I would say, a bit above 31% in the fourth quarter. What we said is for the full year, we expect it to be around 30%, and I think we'll still stick to that.

And that's 30% adjusted, correct?

Correct, that's right.

Yes, okay.

Thank you. And our next question comes from the line of Chirag Patel from Jefferies. Your question, please.

Hi, good morning. Actually, Steve here, if that's all right. I do have it set for radio, So, I have a couple quick questions. So first, JMA, I think you were talking -- I think it was you who was talking about renegotiating your container rates for next year. Just remind us how we should think about the timing differences, sort of when you're able to pass that through, is there a temporary impact on gross margin?

Yes, that is correct. So we'll negotiate rates will go in 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. Yes, that stacks up and the balance sheet rolls off. So any increases will really be nominal at the end or in the fourth quarter of 2025.

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?

Yes, I think Steve, as we think about our business, as we said on the call, we believe RDS returns to growth in 2025. And so that's a natural kind of barrier or floor to that rate, because we see such good rates in that business. We've grown our gross margin and our EBITDA rate, 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, I think, over time, as you see us winning categories, there'll be mixed issues that could be positive or negative, but a lot of the categories that we're likely to grow in the HPS business will probably be slightly negative. 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 rate, not only in '25, but kind of for the foreseeable future.

Okay, great. Appreciate it, pass it on.

Thank you. Thanks. Take care.

Thank you. And our next question comes from the line of Brian McNamara from Canaccord Genuity. Your question, please.

Hey, good morning, guys. Thanks for taking the questions. I guess I want to dig in a little more to RDS, and it's been weak for several quarters. Most of it's out of your control, but I guess my question is, do you guys need to be there? And I guess I want to gauge your willingness to maybe move on from that asset if it doesn't significantly improve?

Yes, I mean, 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 on either side of that. What I've said before because of what's been out there is that this is a business that we will turn with new 3.5 investment and we'll have this thing in a place where it will be valuable to keep or valuable to sell. And I like having Brian the option because we have so many things we could do in addition to what we have planned if we did sell it. But again, it's not bad to hang on to a 72%, 73% gross margin, 32% EBITDA margin business that's growing. We're just in that period right now that we're transferring, transitioning from one technology to the next in an environment, as you know, that is existing home sales dependent. So we're going to get it going and then have options and no, but 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.

Great, thanks for that. And then secondly, I'm just curious about how the Intex integration has gone so far relative to your expectations, I believe. The Koch acquisition took 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.

Great, Brian, I'll take the Intex piece. It seems a great job. Structurally, we have integrated that business. We have the teams operating with the different parts of our organization from sales, product operations. So we feel really good about that as quick as we did with Koch. 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 and where the alignment is in that business, so super excited about having Intex a part of Hillman. And I'll turn it over to you.

Yes, 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 that they should be owned by Hillman is literally like shooting fish in a barrel. And so as Executive Chairman, I'm going to be helping JMA and Rocky and Hillman with that. 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, when private equity comes back out, they're going to be obviously selling some things. So I think the prospects will be good, as JMA said, a couple of year makes great sense and I don't see any change to that.

Great, thanks a lot guys, best of luck.

Thanks, Brian. Take care.

Thank you. And our next question comes from the line of Brian Butler from Stifel. Your question, please.

Good morning, thanks for taking my questions.

Hi, Brian.

Just the first one on, you talked about price was I think down 1%. When you think of the price cost spread, what does that trend look like in the third quarter and then I guess going into the fourth quarter and even 2025?

Yes, I mean, it's going to be a slight headwind, Brian, obviously relative to where we were in the second because of the rollout of the price give back and pretty much we're at a good spot around the cost of our inventory now. There's not dramatic changes. What we would tell you is there will be in the first half of '25, be a bit of a negative from price unless we do something around pricing with our customers. And we would expect as we go into '25, we could potentially see a little bit of commodity benefit. But as you think about things like freight, you think about things like rent as we renew facilities, you think about things like labor, none of those costs are going down in our business. So, we have to think strategically about that, how we offset those costs and then to the extent that we can't, we have to go to market with price. Historically, that's been every three years, we go to market with about 3% price and we'll have to think about and are thinking strategically now about when and how we take price to market in the future.

Okay. And then I'll follow up. Just on the RDS segment, second quarter you talked about some opportunities post the red box liquidation. Do 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 of quarters?

Yes, 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 kiosk operators. At this point, Brian, it should be good for us in '25, 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, both are profitable about the same fleet margin rate and EBITDA [ph] rate that we have in our business. So yes, it's good right now, both are on their way.

Okay, great. Thanks for taking the questions.

Sure, thanks Brian.

Thank you. [Operator Instructions]. 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.

Thanks, gentlemen. Thank you everybody for joining us this morning. We look forward to updating you on our progress early next year.

Thank you, ladies and gentlemen, for your participation in today's conference. This does include the program. You may now disconnect. Good day.