Hillman Solutions (NasdaqGM:HLMN) Q3 2025 Earnings Call November 04, 2025 08:30 AM ET Speaker2Hey everyone, and thank you for joining us for Hillman's third quarter 2025 results presentation. I'm Michael Koehler, Vice President of Investor Relations and Treasury. Joining me on today's call are Hillman's President and Chief Executive Officer, Jon Michael Adinolfi, or JMA as we call him, and our Chief Financial Officer, Rocky Kraft. I would like to remind our audience that certain statements made today may be ...

Financial Data and Key Metrics Changes - Net sales for Q1 2025 totaled $359.3 million, an increase of 2.6% compared to Q1 2024, driven by the Intex acquisition and new business [16][21] - Adjusted EBITDA increased by 4.2% to $54.5 million, with adjusted EBITDA margins improving by 30 basis points to 15.2% [17][22] - Adjusted gross margins decreased to 46.9%, down from 47.6% in the prior year [17][22] Business Line Data and Key Metrics Changes - Hardware and Protective Solutions (HPS) segment net sales increased by 5.6%, with adjusted EBITDA rising by 15.8% to $37.4 million [18] - Robotics and Digital Solutions (RDS) net sales were up 1.9%, with adjusted gross margins and adjusted EBITDA margins slightly down [19] - Canadian business net sales decreased by 18.7% due to a 12% decline in existing home sales and economic uncertainty [20] Market Data and Key Metrics Changes - Approximately one-third of products are sourced from China, with plans to reduce this to about 20% by year-end 2025 [7][14] - The company anticipates a 17% decline in market volumes during the second half of 2025, which is considered a conservative estimate [10][46] Company Strategy and Development Direction - The company is implementing a dual faucet strategy to diversify its supply chain and reduce reliance on Chinese suppliers [14] - Focus on maintaining strong partnerships with customers and suppliers to navigate tariff impacts and optimize sourcing [11][32] - The company aims to manage through current challenges and believes it will emerge stronger [15][31] Management's Comments on Operating Environment and Future Outlook - Management reiterated full-year 2025 net sales and adjusted EBITDA guidance, citing ongoing monitoring of tariffs and economic conditions [6][25] - The company is confident in its ability to manage through tariff-related challenges and maintain service levels [62] - Future growth opportunities are anticipated as the home improvement market rebounds [65] Other Important Information - The estimated annualized impact of new tariffs is approximately $250 million, which the company plans to offset through price increases [7][26] - Free cash flow guidance has been withdrawn due to uncertainties surrounding tariffs [28] Q&A Session Summary Question: Impact of tariffs on RDS margins - Management acknowledged pressure on RDS margins due to the rollout and expects margins to improve to 30% EBITDA rate and 70% gross margins for the rest of the year [38] Question: Performance of Personal Protective business - No material pull forwards were noted, and promotional activity was strong, leading to better-than-expected performance [39] Question: Volume assumptions for the second half of the year - Initial guidance assumed a 1% decline in market volumes, but the current estimate is a conservative 17% decline [46] Question: Future sourcing strategy - The company is targeting a reduction in Chinese sourcing to 20% and is exploring opportunities in Southeast Asia and India [49] Question: Timing of price increases - Price increases are expected to be implemented by July 1, with a dollar-for-dollar approach to tariffs [54][56] Question: Comparison to COVID supply chain issues - Current supply chain performance is better than during COVID, with no significant disruptions reported [62] Question: M&A activity in the current environment - The M&A pipeline remains strong, but uncertainty around tariffs is impacting valuations [88]

Financial Data and Key Metrics Changes - Net sales in Q1 2025 totaled $359.3 million, an increase of 2.6% compared to Q1 2024, driven by the Intex acquisition and new business [16][17] - Adjusted EBITDA increased by 4.2% to $54.5 million, with adjusted EBITDA margins improving by 30 basis points to 15.2% [17][22] - Adjusted gross margins for the quarter were 46.9%, down from 47.6% in the prior year [17][22] Business Line Data and Key Metrics Changes - Net sales in the Hardware and Protective Solutions (HPS) segment increased by 5.6%, with adjusted EBITDA rising by 15.8% to $37.4 million [18] - Robotics and Digital Solutions (RDS) net sales were up 1.9%, with adjusted gross margins and adjusted EBITDA margins slightly down [19] - Canadian business net sales decreased by 18.7% due to a 12% decline in existing home sales and economic uncertainty [20] Market Data and Key Metrics Changes - The company expects market volumes to decline approximately 17% in the second half of 2025, which is a conservative estimate compared to historical performance [10][48] - The Canadian market is anticipated to return to profitable growth with the best retail partners and highest market share in hardware [20] Company Strategy and Development Direction - The company is implementing a dual faucet strategy to reduce reliance on Chinese suppliers from nearly 50% to approximately 20% by year-end 2025 [14] - The focus remains on optimizing the supply chain and maintaining strong partnerships with customers and suppliers [11][14] - The company is confident in navigating the current tariff environment and believes it will emerge stronger [15][32] Management's Comments on Operating Environment and Future Outlook - Management reiterated full-year 2025 net sales and adjusted EBITDA guidance, citing various external factors impacting the business [6][25] - The company is prepared for potential challenges and is optimistic about long-term demand in the home improvement market [67] Other Important Information - The estimated impact of new tariffs for 2025 is approximately $250 million on an annualized basis [8][27] - The company ended Q1 2025 with $703.7 million in total net debt and liquidity of $200.9 million [24] Q&A Session Summary Question: Impact of tariffs on RDS margins - Management acknowledged pressure on RDS margins due to the rollout and expects margins to improve to 30% EBITDA rate and 70% gross margins for the rest of the year [39] Question: Performance of Personal Protective segment - Management confirmed no material pull forwards in the Personal Protective segment and expressed satisfaction with its performance [40][41] Question: Volume assumptions for the second half of the year - Management stated that the current guidance assumes a conservative 17% decline in market volumes, which is unprecedented [48][49] Question: Future sourcing strategy - The company aims to diversify sourcing away from China, focusing on Southeast Asia and India for better supply chain flexibility [51][52] Question: Shipping container pricing and country of origin - Management confirmed that shipping container pricing is based on ports and country of origin, and they feel well-positioned for 2025 [69][70] Question: Pricing strategy in response to tariffs - Management indicated that price increases will be implemented to cover tariff costs, with ongoing discussions with customers [81][82] Question: M&A activity in the current environment - Management noted a strong M&A pipeline but indicated that uncertainty around tariffs makes it challenging to determine business valuations [90][91]

Financial Data and Key Metrics Changes - Net sales for Q1 2025 totaled $359.3 million, an increase of 2.6% compared to Q1 2024, driven by the Intex acquisition and new business [15][16] - Adjusted EBITDA increased by 4.2% to $54.5 million, with adjusted EBITDA margins improving by 30 basis points to 15.2% [16][21] - Adjusted gross margins decreased to 46.9%, down from 47.6% in the prior year [16][21] Business Line Data and Key Metrics Changes - Hardware and Protective Solutions (HPS) segment net sales increased by 5.6%, with adjusted EBITDA rising by 15.8% to $37.4 million [17] - Robotics and Digital Solutions (RDS) net sales were up 1.9%, with adjusted gross margins and adjusted EBITDA margins slightly down [18] - Canadian business net sales decreased by 18.7% due to a 12% decline in existing home sales and economic uncertainty [19] Market Data and Key Metrics Changes - The company expects market volumes to decline approximately 17% in the second half of 2025, which is a conservative estimate given historical performance [9][45] - The impact of tariffs is estimated to be approximately $250 million on an annualized basis, with expectations to mitigate costs through price increases [7][25] Company Strategy and Development Direction - The company is implementing a dual faucet strategy to reduce reliance on Chinese suppliers from nearly 50% to approximately 20% by the end of 2025 [13] - Hillman aims to diversify its supply chain by sourcing from multiple countries, including Southeast Asia and India, to enhance flexibility and quality [48][49] - The company is focused on maintaining strong partnerships with customers and suppliers to navigate current challenges effectively [10][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in handling the tariff situation and believes the company is well-positioned to manage through current challenges [30] - The company anticipates a strong recovery in the home improvement market in the long term, despite short-term volume pressures [65] Other Important Information - The company has a strong M&A pipeline but is cautious about pursuing acquisitions due to current market uncertainties [87] - Free cash flow guidance has been withdrawn due to uncertainties surrounding tariffs and their impact on working capital [27] Q&A Session Summary Question: RDS business margins and future growth - Management acknowledged pressure on RDS margins due to the rollout but expects to return to a 30% EBITDA rate and 70% gross margins for the rest of the year [37] Question: Personal Protective business performance - Management confirmed no material pull forwards in the Personal Protective business and expressed satisfaction with its performance [38][39] Question: Volume assumptions for the full year - Management held guidance despite expecting a 17% decline in market volumes, emphasizing the unprecedented nature of the current tariff environment [45][46] Question: Future sourcing strategy - Management aims to reduce reliance on China and diversify sourcing to ensure quality and timely delivery [48][49] Question: Impact of tariffs on margins - Management indicated that pricing adjustments will be made dollar for dollar to cover tariff costs, which may impact long-term margin rates [55][56] Question: Comparison to COVID supply chain issues - Management noted that the current supply chain situation is better than during COVID, with strong service levels and supportive suppliers [63] Question: Shipping container pricing - Management confirmed that shipping container pricing is based on country of origin and expressed confidence in their contracts for 2025 [66][68]