Hillman Solutions (US:HLMN)2024-02-22 20:11Financial Data and Key Metrics Changes - Net sales for 2023 totaled $1.476 billion, slightly down from 2022, but up 0.4% when excluding the extra week from 2022 [9] - Adjusted EBITDA for 2023 increased by 4.3% to $219.4 million, driven by improved gross margins [10][53] - Adjusted gross margins improved over 120 basis points to 44.2% from 43% during 2022, with a sequential improvement to 48.2% in Q4 2023 [10][51] - Free cash flow for the year totaled $172.3 million, significantly up from $49.4 million in 2022 [55] Business Line Data and Key Metrics Changes - Hardware Solutions, making up 59% of overall revenue, grew by 3.7% in 2023, or 4.7% when excluding the 53rd week [11] - Robotics and Digital Solutions (RDS) revenue was flat for the year, up 2% excluding the 53rd week, with a 10% increase from the MinuteKey self-serve key duplication kiosk [13] - Protective Solutions revenue decreased by 10.7%, but was down only 2.5% when excluding COVID-related PPE sales and the 53rd week [27] Market Data and Key Metrics Changes - U.S. existing home sales totaled 4.09 million in 2023, a nearly 19% decrease from 2022, impacting all three business segments [8] - The Canadian segment saw a 9% top-line decrease versus 2022, attributed to sluggish economic conditions [32] Company Strategy and Development Direction - The company is focused on leveraging its competitive moat and long-standing customer relationships to drive growth, particularly through M&A opportunities like the acquisition of Koch Industries [39][64] - Plans to roll out new products and services, including the MinuteKey 3.5 kiosks with enhanced capabilities, are expected to drive future growth [28][60] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining healthy adjusted gross margins throughout 2024, despite potential price pressures and market challenges [10][60] - The company anticipates a gradual recovery in the housing market, which could provide a tailwind for growth in 2025 [88] Other Important Information - The company has implemented approximately $225 million in price increases since 2021 to cover inflation costs [34] - The balance sheet has improved, with a net debt to trailing 12-month adjusted EBITDA ratio of 3.29x, down from 4x in Q2 [58] Q&A Session Summary Question: What assumptions are built into the forecast in terms of growth in robotics? - Management expects a challenging first half for robotics, with a ramp-up anticipated in the second half of 2024, driven by new product introductions [70][71] Question: Can you unpack the 1% price decrease in the revenue assumptions for 2024? - The anticipated 1% price decrease equates to about $15 million, with expectations to regain some pricing as costs decline [83][84] Question: What is the outlook for new business wins? - Management is confident in achieving over $25 million in new business wins, with two-thirds already secured with retailers [96][97] Question: What percentage overlap exists with Koch Industries? - There is minimal overlap with Koch, presenting significant cross-sell opportunities, particularly in the rope and chain category [100][101] Question: What does the M&A pipeline look like? - The company has a robust M&A pipeline, with several potential acquisitions being explored following the successful acquisition of Koch [118]