Hillman Solutions (US:HLMN)2023-11-08 22:56Financial Data and Key Metrics Changes - Net sales in Q3 2023 increased by 5.4% to $398.9 million compared to the same quarter last year, driven by a 4% increase in total volumes and a 2% price lift, despite FX headwinds in the Canadian business [9][41] - Adjusted EBITDA rose to $66.8 million, up 13.3% from $59 million in the prior year quarter, resulting in an adjusted EBITDA margin improvement to 16.7% [14][51] - Free cash flow for the quarter was $41.3 million, significantly higher than $31 million in the year-ago quarter, contributing to a year-to-date total of $119.3 million [16][55] - The net debt to adjusted EBITDA leverage ratio improved to 3.7 times, down from 4.2 times at the end of 2022 [57] Business Line Data and Key Metrics Changes - Hardware Solutions, which constitutes over 50% of total revenue, saw net sales increase by 8% to $229 million, attributed to new business wins and price increases [43] - Robotics and Digital Solutions (RDS) accounted for about 16% of revenue, with net sales down 1% to $63.5 million due to reduced foot traffic and discretionary spending [44] - Protective Solutions revenues increased by 14% compared to last year, driven by promotional off-shelf activities [49] Market Data and Key Metrics Changes - Year-to-date foot traffic at home improvement centers declined by 8%, with a reported 13% drop in October [13][25] - The Canadian segment, making up about 10% of overall revenue, experienced a 9% decline, impacted by volume decreases and FX headwinds [48] Company Strategy and Development Direction - The company aims to maintain its competitive moat by focusing on customer service and direct store delivery, which differentiates it from competitors [18][19] - Plans for 2024 include cautious growth strategies, with expectations of flat to slightly down revenues while controlling costs to grow EBITDA [68][69] - The company is exploring M&A opportunities, particularly in adjacent categories, as the market for acquisitions has become more favorable [74][75] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing healthy home equity values and the aging housing stock as drivers for repair and maintenance projects [36][38] - The company anticipates that margins will expand in Q4 2023 and maintain above historical rates into 2024, despite ongoing cost pressures [34][126] - Management emphasized the importance of customer relationships and trust as key to long-term success [64] Other Important Information - The company has reduced its inventory by $92 million from the end of 2022, contributing to improved cash flow [54][31] - The launch of the new MinuteKey 3.5 self-service machines is expected to enhance customer experience and drive future growth [46][118] Q&A Session Summary Question: What are the plans for R&R activity in early 2024? - Management plans for flat to slightly down revenues, preparing for potential challenges in the market [68][69] Question: Update on M&A market engagement? - The company is looking to re-engage in M&A discussions in 2024, focusing on opportunities that align with its business model [74][75] Question: New business wins for 2024? - Management confirmed $27 million in new business wins, with some expected to contribute to revenue in 2023 [82] Question: Promotional activity expectations for 2024? - Similar promotional activity levels are expected in 2024, with a more evenly distributed approach compared to 2023 [87] Question: Inventory benefits in 2024? - Management does not foresee inventory reductions as a headwind for 2024, expecting benefits from lower commodity prices [112][114] Question: Margin benefits from lower inventory costs? - Specific quantification of margin benefits was not provided, but management expects to maintain or exceed current EBITDA rates [115] Question: Details on the rollout of MinuteKey 3.5? - Over 500 units are expected to be deployed, primarily retrofitting existing machines to enhance customer experience [117][118]