Hillman Solutions (HLMN) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents unaudited financial statements for the period ended September 30, 2023, detailing key accounting policies and events Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $595,826 | $631,619 | | Total assets | $2,411,914 | $2,470,690 | | Total current liabilities | $233,476 | $215,412 | | Long-term debt | $780,043 | $884,636 | | Total liabilities | $1,252,314 | $1,313,951 | | Total stockholders' equity | $1,159,600 | $1,156,739 | Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | Thirteen Weeks Ended Sep 30, 2023 | Thirteen Weeks Ended Sep 24, 2022 | Thirty-nine Weeks Ended Sep 30, 2023 | Thirty-nine Weeks Ended Sep 24, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $398,943 | $378,538 | $1,128,669 | $1,135,665 | | Income (loss) from operations | $34,742 | ($449) | $56,628 | $36,173 | | Net income (loss) | $5,057 | ($9,466) | $470 | ($2,537) | | Diluted income (loss) per share | $0.03 | ($0.05) | $0.00 | ($0.01) | - Net cash from operating activities for the 39 weeks ended September 30, 2023, was $171.5 million, a significant increase from $63.2 million, driven by a $92.8 million positive change from inventory reduction[12] - In Q1 2023, the Company realigned its segments, moving certain businesses into the Canada segment, with prior period data reclassified accordingly[19][106] - The company experienced a ransomware attack in May 2023, resulting in net costs of $1.0 million for the 39-week period after an expected insurance receivable[47] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 and YTD 2023 financial performance, highlighting sales growth, improved net income, and key operational events Q3 2023 vs Q3 2022 Performance Summary | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $398.9M | $378.5M | +5.4% | | Net Income (Loss) | $5.1M | ($9.5M) | +$14.6M | | Diluted EPS | $0.03 | ($0.05) | +$0.08 | | Adjusted EBITDA | $66.8M | $59.0M | +13.3% | YTD 2023 vs YTD 2022 Performance Summary | Metric | YTD 2023 | YTD 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,128.7M | $1,135.7M | -0.6% | | Net Income (Loss) | $0.5M | ($2.5M) | +$3.0M | | Diluted EPS | $0.00 | ($0.01) | +$0.01 | | Adjusted EBITDA | $165.0M | $165.3M | -0.2% | - The Robotics and Digital Solutions segment's operating income increased by $26.8 million in Q3 2023, primarily due to a $25.1 million decrease in G&A expenses from reduced litigation costs[137][142] - Operating cash flow for the 39-week period improved by $108.2 million year-over-year to $171.5 million, driven by strategic inventory reduction and an $80.0 million voluntary debt prepayment[175][176][181] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company outlines its primary market risk exposures from interest rates, foreign currency, and commodity prices - A hypothetical 1% change in interest rates would impact annual interest expense by approximately $4.4 million, net of interest rate swaps[190] - The company is exposed to foreign exchange risk from its Canadian and Mexican subsidiaries, with a combined net asset value of $151.2 million[191] - Commodity price risk from transportation and materials is mitigated through alternative sourcing and cost pass-through strategies[193] Item 4. Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of September 30, 2023 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[194] - No material changes to the company's internal control over financial reporting occurred during the quarter[195] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports that ongoing litigation is not expected to have a material adverse effect on its financial condition - Information on legal proceedings is incorporated by reference from Note 6 - Commitments and Contingencies[197] - Management believes that litigation arising from the normal course of business is not expected to have a material adverse effect on the company's financials[53] Item 1A. Risk Factors The company reports no material changes to the risk factors previously disclosed in its latest Form 10-K - There have been no material changes to risk factors from those disclosed in the Annual Report on Form 10-K filed on February 27, 2023[198] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This item is reported as not applicable for the current reporting period - The company reports this item as not applicable for the period[199] Item 5. Other Information This section details a Q1 2023 segment realignment and the adoption of a new Executive Severance Plan in November 2023 - In Q1 2023, the Company realigned its segments to include certain Canada-based businesses under the Canada segment and provided restated historical data[202][203][205] - On November 2, 2023, the Board adopted the Hillman Solutions Corp. Executive Severance Plan to standardize executive severance arrangements[206] - The new severance plan provides for salary continuation and other benefits, with enhanced benefits following a Change in Control[210][211][212] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and the new severance plan - Lists exhibits filed with the report, including the Executive Severance Plan (Exhibit 10.1), CEO/CFO certifications, and XBRL data[214]