8-K: Hillman Solutions Corp. Reports Mixed Q4 and Full Year 2023 Results, Provides 2024 Guidance

Hillman Solutions Corp. reported a slight decrease in net sales for both Q4 and full year 2023, but improved profitability and cash flow, while also providing guidance for 2024.

Summary

• Hillman Solutions Corp. announced its financial results for the thirteen and fifty-two weeks ended December 30, 2023.
• Net sales for the fourth quarter decreased by 0.8% to $347.8 million compared to $350.7 million in the prior year quarter, but increased by 3.8% when excluding the extra week in 2022.
• The company reported a net loss of $(10.1) million, or $(0.05) per diluted share, for the quarter, an improvement from a net loss of $(13.9) million, or $(0.07) per diluted share, in the prior year quarter.
• Adjusted EBITDA for the fourth quarter totaled $54.4 million, up from $45.0 million in the prior year quarter.
• For the full year, net sales decreased by 0.7% to $1.48 billion compared to $1.49 billion in the prior year, but increased by 0.4% when excluding the extra week in 2022.
• The full year net loss was $(9.6) million, or $(0.05) per diluted share, compared to a loss of $(16.4) million, or $(0.08) per diluted share, in the prior year.
• Adjusted EBITDA for the full year totaled $219.4 million, compared to $210.2 million in the prior year.
• Net cash provided by operating activities was $238.0 million, a significant increase from $119.0 million in the prior year.
• Free cash flow totaled $172.3 million, compared to $49.4 million in the prior year.
• Gross debt was $761 million, down from $919 million at the end of 2022, and net debt was $722 million, down from $888 million.
• The net debt to trailing twelve-month adjusted EBITDA ratio improved to 3.3x from 4.2x at the end of 2022.
• Hillman has provided 2024 guidance with net sales expected to be between $1.475 and $1.555 billion, adjusted EBITDA between $230 and $240 million, and free cash flow between $100 and $120 million.

Sentiment

Score: 7

Explanation: The document presents a mixed picture with slight revenue declines but significant improvements in profitability, cash flow, and debt reduction. The 2024 guidance is positive, and the acquisition of Koch Industries is a strategic move. The sentiment is positive overall, but tempered by the revenue decline and net losses.

Positives

• Hillman significantly improved its cash flow from operations and free cash flow in 2023.
• The company successfully reduced its debt by $160 million and inventory by $100 million during the year.
• Hillman maintained a high fill rate of over 94% for its customers.
• The company improved its net debt to adjusted EBITDA ratio to 3.3 times.
• Hillman secured new business wins with major customers.
• The acquisition of Koch Industries expands Hillman's product offerings into the rope and chain category.
• The company expects adjusted EBITDA margins to expand in 2024.
• Hillman was awarded 2023 Vendor of the Year by Tractor Supply Co. and Mid-States Distributing.

Negatives

• Net sales decreased slightly for both the fourth quarter and the full year of 2023.
• The company reported a net loss for both the fourth quarter and the full year of 2023.
• The Canadian segment experienced a significant decrease in revenue and adjusted EBITDA.
• The Protective Solutions segment saw a decrease in revenue for the full year, although this was partially due to the exclusion of COVID-related PPE sales.

Risks

• Unfavorable economic conditions, including inflation and recessions, could affect operations and cash flows.
• Increased supply chain costs, including raw materials and transportation, could impact profitability.
• The company faces competition in its markets.
• The company's performance is subject to seasonality.
• The company has a large customer concentration, which could pose a risk.
• The company's ability to recruit and retain qualified employees could impact operations.
• Legal proceedings could adversely affect the company.
• Adverse changes in currency exchange rates could impact financial results.
• Regulatory changes and potential legislation could adversely impact financial results.
• The company experienced a ransomware attack in May 2023, which could have ongoing costs.

Future Outlook

Hillman expects 2024 net sales to be between $1.475 and $1.555 billion, adjusted EBITDA between $230 and $240 million, and free cash flow between $100 and $120 million. The company anticipates continued margin expansion and normalized cash flows.

Management Comments

• 2023 was a remarkable operational year for the Hillman team.
• During the year we paid down $160 million of debt and reduced our inventory by $100 million while maintaining fill rates over 94% for our customers.
• We improved our net debt to adjusted EBITDA ratio to 3.3 times.
• We were also able to execute new business wins with some of our biggest customers which helped offset the macro environment.
• We are confident we can drive strong results for our shareholders during 2024 and beyond.

Industry Context

Hillman's results reflect the broader trends in the home improvement and hardware industry, with a focus on operational efficiency and debt reduction. The acquisition of Koch Industries indicates a strategic move to expand product offerings and market reach. The company's focus on the repair, remodel, and maintenance industry aligns with the long-term tailwinds in the sector.

Comparison to Industry Standards

• Hillman's debt reduction and improved leverage ratio are positive indicators compared to peers in the hardware and home improvement sector.
• The company's focus on free cash flow generation is a key differentiator, as many companies in the sector are focused on growth at the expense of profitability.
• The acquisition of Koch Industries is a strategic move to diversify product offerings, similar to other companies in the sector that are expanding into adjacent markets.
• Hillman's adjusted EBITDA margin of 14.9% for the full year is competitive with other companies in the distribution and hardware space, such as Fastenal and W.W. Grainger, although these companies have higher overall revenue.
• The company's 2024 guidance suggests a focus on maintaining profitability and cash flow, which is a common theme among mature companies in the sector.

Legal Proceedings

• The company is involved in litigation with Hy-Ko Products Company LLC.

Stakeholder Impact

• Shareholders will benefit from the improved profitability, cash flow, and debt reduction.
• Employees may benefit from the company's continued growth and success.
• Customers will benefit from the company's continued focus on providing high-quality products and services.
• Suppliers may benefit from the company's continued growth and expansion.
• Creditors will benefit from the company's improved financial position and debt reduction.

Next Steps

• Hillman plans to continue to focus on debt reduction and improving its leverage ratio.
• The company will seek to execute low-risk, bolt-on acquisitions.
• Hillman will continue to focus on expanding its product offerings and market reach.
• The company will host a conference call and webcast presentation to discuss its results and guidance.

Key Dates

Keywords

Hillman Solutions Corp, Financial Results, Adjusted EBITDA, Net Sales, Free Cash Flow, Debt Reduction, Acquisition, Rope and Chain, Hardware Products, 2024 Guidance