Good morning, and welcome to the First Quarter 2022 Results Presentation for Hillman Solutions Corp. My name is LaTonya, and I'll be your conference call operator today. Before we begin, I would like to remind our listeners that today's presentation is being recorded and simultaneously webcast. The company's earnings release, presentation and 10-Q were issued this morning. These documents and a replay of today's presentation can be accessed on Hillman's Investor Relations Web site at ir.hillmangroup.com. I would now like to turn the call over to Michael Koehler with Hillman. Please begin.

Thank you, operator. Good morning everyone and thank you for joining us. I am Michael Koehler, Vice President of Investor Relations and Treasury. Joining me on today's call are Doug Cahill, our Chairman, President and Chief Executive Officer; and Rocky Kraft, our Chief Financial Officer. We will begin today's call with a business update and quarterly highlights from Doug, followed by a financial review of the quarter from Rocky. Before we begin, I would like to remind our audience that certain statements made on today's call may be considered forward-looking and are subject to the Safe Harbor provisions of applicable securities laws. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions and other factors, many of which are beyond the company's control and may cause actual results to differ materially from those projected in such statements. Some of the factors that could influence our results are contained in our periodic and annual reports filed with the SEC. For more information regarding these risks and uncertainties, please see Slide 2 in our earnings call slide presentation which is available on our website ir.hillmangroup.com. In addition, on today's call, we will refer to certain non-GAAP financial measures. Information regarding our use of and reconciliations of these measures to our GAAP results are available in our earnings call slide presentation. With that, it's my pleasure to turn the call over to our Chairman, President and CEO, Doug Cahill.

Thanks, Michael. Good morning, everyone. For those of you who are new to the Hillman story, we are one of the largest providers of hardware products and solutions in North America. Our team distributes over 112,000 SKUs to over 40,000 locations with roughly 80% of our shipments delivered directly to the store. We also stock the shelves in the store for the customers which are some of America's leading home improvement centers; hardware stores, big box retailers and pet supply stores. Importantly, 90% of our revenue comes from brands that Hillman owns. Our differentiators are our world-class supply chain team and our in-store sales and service teams that are 1,100 associates strong. Every day, they team up to provide best-in-class service and industry-leading fill rates on must-have high-margin products for our blue-chip customer base. This is our competitive mode, and we have been steadily growing by winning at the shelves since we were founded in 1964. Looking forward, I remain encouraged about the future growth opportunities that lie ahead for Hillman. We're off to a strong start in '22, and I couldn't be more proud of how our team has performed so far this year. From our warriors in the field to our sourcing and distribution center employees, to all the dedicated support folks, we continue to outperform our competition and provide best-in-class service to our customers. We win, thanks to our people and our deep partnerships we have built with our customers over the many years. Remember, we've been selling to our top five customers on average for 22 years. Our competitive mode has never been stronger, and we continue to help our customers overcome labor, complexity, and supply chain challenges in categories that are critical to their businesses. Today, I'm going to provide an overview of our first quarter, discuss the current operating environment, and finish with a customer update before I turn it over to Rocky to talk numbers. As we announced last month, during the first quarter of 2022, overall revenue grew by 6.4% to 363 million. Excluding COVID-related PPE sales from both periods, our revenue grew by about 12% over the first quarter of 2021. Each of our businesses performed at or above our expectations for the quarter. Hardware solutions is our biggest business and makes up approximately 50% of our overall revenue. For the quarter, hardware led the way with a 14% increase in revenue compared to last year. Driving that improvement were fill rates, upwards of 94% and price increases that we've implemented over the past 12 months. Robotics and digital solutions, or RDS, make up just shy of 20% of our overall revenue. During the quarter, a return to normal foot traffic led to an 11% increase in RDS revenue. Our Canadian segment, which makes up about 10% of our overall revenue, increased 1% compared to a year ago quarter. And lastly, our protective solution business makes up about 20% of our business. Protective was down about 9% for the quarter. However, excluding the unpredictable COVID-related revenue from both periods, protective revenues were up around 10% compared to the prior year quarter. As we announced last month, we generated 44 million of adjusted EBITDA in the first quarter. We saw strong margins and an uptick in sales volume at the end of the quarter as all businesses performed well, and particularly hardware was able to offset inflationary pressures with price increases. As of mid-March, we have priced in place to fully offset the inflation we had experienced over the past 18 months. However, I will discuss more on pricing and cost in just a minute. Overall, our performance during the first quarter of 2022 was healthy. And you have probably already heard, April foot traffic at retail has been soft and overall industry credit card transaction activity is also down. In discussions with our retailers, they believe the majority of the softness in April is weather-related. But as we all know, there are lots of factors influencing the economy right now, and we believe Hillman's business is well positioned for 2022 and the future. Now let me spend the next few minutes giving you my current view on the state of our business operations. Our investment in inventory and incredible work from our teams has allowed us to continue to maintain industry-leading fill rates, and we believe we've stretched our lead within our industry. During Q1, our average fill rate increased just above 94%, which has allowed our customers to meet their expectations of in-stock rates at the shelf and satisfy their consumers. We believe the investment made into inventory and fill rates will pay dividends over the long term as we seek to expand our product offerings to adjacent shelves and aisles with our leading customers. As customers know, they can rely on Hillman to get products on their shelves even during the most challenging times. Another key factor is our ability to serve our customers comes from our suppliers, many of whom we've worked with for over 20 years. The state of the global supply chain environment has required us to work closely with our suppliers, and those relationships have never been stronger. This, coupled with our team of 25 on the ground in Asia, has allowed us to successfully navigate the global supply constraints and enabled our customers to continue to win with Hillman. Now turning to price and cost. We continue to monitor lead times from Asia and overall inflation in our business. Most U.S. companies, including us, negotiate new contracted container rates annually ahead of the new rates becoming effective in May each year. Similar to many other companies, the contract renewal rates for containers were meaningfully higher than anticipated for May '22 renewal. We are already moving to offset these higher shipping costs and a new round of price increases that are currently in negotiation. As we have done in the three previous price increases since mid-2021, we plan to pass these costs on a dollar-for-dollar basis with our customers, and we expect our price increase to wholly offset the cost escalations in our P&L for 2022. Now, let me spend a minute talking about some specifics about our business. The majority of our products are driven by repair, remodel, and maintenance projects. These are your pickup truck pros, local contractors and DIYers. Our business is not reliant on new home construction. Historically, demand for our products has been healthy through all economic cycles, considering our products are relatively inexpensive, particularly as it relates to the total cost of a project. While there are concerns around the current state of the economy, Hillman has seen top-line growth in 56 out of our 57-year history. We believe the growth drivers for our business are strong. In our hardware and protective business, we have seen solid consumer demand as trends in nesting, aging in place, outdoor living, and millennials buying homes have been a wind in our sails, and we continue to see meaningful opportunities with our high-margin RDS business. We believe the longer-term macroeconomic growth drivers for our business are really healthy. I love our leading position in the market. And while we can't control some of the short-term factors, we are laser-focused on controlling everything we can optimize for customer satisfaction and financial results. We continue to win new business and outperform with each of our customers. And let me give you just a few examples. Our planned fastener launch at one of our major retail partners will not only be on time and complete, but we've already shipped 79 of the 400 SKUs to 3,900 stores early to help fill holes in the shelf caused by their current supplier. To me, that's world-class work by our team and very much appreciated by the retailer. To quote the retailer, “Hillman is hardware, and we can't wait to combine your expertise in this category with our 140 million consumers who visit our stores in the U.S. every week.” We continue to gain share in the farm and ranch channel with a new fastener win at a bellwether retailer that's regional. We have won this business for the first time in our company's history, and don't think we did not rub it in with Nick and Rick Hillman when the grandson of the founder landed this account. Why did we win it? After never having it? One word, service. They needed our service model. And we serve most major retailers, and the farm and ranch channel today is the clear partner of choice in this channel. We continue to roll out new kiosks in our RDS business, and we have been successful in securing some chips and boards that, while modest in numbers, should allow us to install machines a bit faster than initially planned for 2022. We've also just introduced our new Quick-Tag3 machine for the first time. It's an engraving machine. The consumer will have 25 different options for not only pet tags but also luggage and backpacks versus the current machine which today gives the customer only six pet tag options. It's early for this next-generation machine, but the retailer likes it so much they will display it at their upcoming annual shareholder meeting. And trust me, our engineers and all of us at Hillman are really excited about that news. And we were named Vendor of the Year in 2021 in three categories with our retail partners. We have now won Vendor of the Year at each of our major hardware customers over the last three years at least once. The future at Hillman is very bright, and I'm encouraged about where we're taking this business and the value we will continue to build for our shareholders, customers, and employees. With that, let me turn it over to Rocky.

Thanks, Doug. I will provide a quick summary of our first quarter results, and then turn to our outlook and guidance for the remainder of 2022. Net sales in the first quarter of 2022 were $363 million, an increase of 6.4% versus the prior year quarter. The improvement was driven by hardware solutions, which increased sales 13.6% to 189.3 million. The improvement was driven by price increases implemented over the past 12 months and strong volume to finish out the quarter. RDS sales grew by a healthy 10.6% to $61.8 million as foot traffic and sales continued to improve from the COVID impacted 2021 levels. Our Canadian business had terrific performance in the quarter. While sales were up 1% compared to the prior year, we significantly improved profitability as product margin outperformed and foreign currency exchange was a tailwind. While we don't anticipate maintaining 13% EBITDA margins for the remainder of 2022 in Canada, we are well on our way to our minimum expected adjusted EBITDA goal of 10% across this business. Partially offsetting these gains was an 8.6% or $7.2 million decline in protective solutions as we comped against COVID-related sales with higher margins in the prior year. COVID-related sales for the quarter were $13.4 million compared to $28 million in the prior year quarter. As a better proxy for understanding demand, excluding COVID-related sales from both periods, protective solution sales were up about 10%. On a GAAP basis, net loss for the first quarter of 2022 totaled $1.9 million or $0.01 per diluted share compared to $9 million or $0.10 per diluted share in the prior year quarter. Adjusted earnings per diluted share for the first quarter of 2022 was $0.09 per share compared to $0.16 per diluted share in the prior year quarter. On an adjusted basis, first quarter gross profit margin improved by 20 basis points to 41.2% versus the prior year quarter. Sequentially, margins improved 40 basis points. Margin expansion in our RDS business was mostly offset by inflationary pressure in hardware and protective solutions. Hardware only recently caught price near the middle of March as it was playing catch up for most of the last 12 months. For the first quarter, GAAP SG&A totaled $114.5 million compared to $103.2 million in the prior year quarter. Adjusted SG&A was $106 million in the first quarter of '22 compared to $92.5 million in the prior year quarter. Adjusted SG&A as a percentage of sales, excluding certain restructuring and other costs, increased from 29.4% from 27.1%. This increase was primarily driven by the revenue sharing arrangements in RDS due to outsized growth in that business and inflation related to outbound freight and labor. Adjusted EBITDA in the first quarter was $44 million compared to $47.8 million in the year-ago quarter. Despite an increase in adjusted EPS from our RDS and Canadian businesses, we saw a decline in our hardware and protective solution segments for reasons I just discussed. That said, our adjusted EBITDA for the quarter came in better than expected as each business exceeded our original expectations. Now, let me turn to cash flow on our balance sheet. For the first quarter of 2022, operating activities used $3.6 million of cash as compared to a $45.4 million use in the prior year quarter. As Doug discussed earlier, we made the strategic decision to meaningfully invest in our inventory during 2021. This investment has allowed us to maintain our industry-leading fill rates that we believe can help us win additional new business in the future. Capital expenditures were $12.5 million compared to $9.1 million in the prior year quarter. We continue to invest in our RDS equipment and merchandising racks, both an important part of our high-return CapEx initiatives. Our CapEx spend remains lower than we would like as chip shortages continue to hinder our ability to produce robotic kiosks to meet demand, particularly our Resharp knife sharpening machines. Maintenance CapEx remained near 1% of sales, as expected. We ended the first quarter of 2022 with $933 million of total net debt outstanding, up from $907 million at the end of 2021. At the end of the first quarter, we had approximately $116 million of liquidity, which consists of $97 million of available borrowing under our revolving credit facility and $19 million of cash and equivalents. Our net debt to trailing 12-month adjusted EBITDA ratio at the end of the quarter was 4.7x, up from 4.5x at the end of 2021, as expected given the normal cycle of our business. Let me spend the next few minutes talking about our short-term outlook and guidance. Our third price increase over the past 12 months was fully implemented in March, which is when we finally caught our increased costs. Looking at Q2, we will benefit from a full quarter of price increases. Additionally, due to the seasonality of our business, we typically see an increase in sales during the second and third quarter. Warmer weather during the spring and summer months results in an increase in home repair, remodel, and maintenance projects. All together, sales for the second quarter should see a year-over-year increase in the high single digits and our EBITDA should see a year-over-year decrease in the low to mid-single digits. While our Q1 adjusted EBITDA came in a bit higher than the Street's expectations, our profit improvement over the prior year remains largely weighted towards the back half of the year. We are optimistic that we can implement our next upcoming price increase at the same time, or even slightly before higher contracted container rates begin to flow through our P&L. During the second half of the year, we expect to have full price coverage, new business wins in place and relatively lighter comps, and therefore we anticipate adjusted EBITDA to be up in the mid-teens on a percentage basis in the second half of '22 as compared to the second half of '21. We have assumed we will have a modest benefit from working capital in '22 coming off meaningful inventory investments made in '21. When lead times normalize and inflation subsides, we anticipate a commensurate reduction in working capital that will generate additional free cash flow. Our long-term target for net leverage remains unchanged at below 3x. And by the end of '22, we believe we can come down to around 4x. As we look toward the remainder of the year, we remain confident we can hit our goals. As such, we are reiterating our full-year guidance. We anticipate our full-year 2022 net sales to be in the range of $1.5 billion to $1.6 billion, adjusted EBITDA is expected to be in the range of $207 million to $227 million and free cash flow is projected to be in the range of $120 million to $130 million. As we look a bit farther out, our long-term growth algorithm of 6% organic net sales and 10% organic adjusted EBITDA growth remains intact. On the other side of the current headwinds, we have a high level of confidence that our business will see adjusted EBITDA grow in excess of our algorithm. We've discussed the current inflationary pressures. We are hopeful that commodities, containers, freight and other costs incurred to maintain our industry-leading fill rates will begin to moderate in the second half of 2022. Our business continues to have several structural tailwinds that Doug discussed earlier. We believe these shifts are permanent and position Hillman to capitalize on sustained growth in the home repair, remodel and maintenance market. Just to reiterate, we are maintaining our guidance for the year, and longer term, we continue to believe that our differentiated strategy will allow us to perform at or above our stated algorithm for growth.

Thanks, Rocky. Our investment to maintain our fill rates continues to pay off which we believe will be a meaningful benefit over the long term. Confidence in our team, our strategy and our long-term business model remains strong. Our differentiated model with the 1,100 field sales and service folks combined with our direct-to-store delivery model have created tremendous value for our customers—value that I think they recognize. At Hillman, we provide simple solutions to complex problems faced by our customers, like immense logistical and labor challenges. The willingness of our customers to allow us in their stores each and every day and to accept our pricing actions, grant us additional shelf space and award us new business wins demonstrates, I think, how they value our partnership. While the current environment is still uncertain, we'll continue to control what we can and focus, as we always have, on our customers and our employees. We remain well-positioned to drive growth over the long term and build meaningful value for all shareholders. With that, we'll begin the Q&A portion of the call. LaTonya, can you please open the call up for questions?

Certainly. Our first question comes from David Manthey of Baird. Your line is open.

Question is on the supply of fasteners. Another fastener distributor we talked to said that they had broadened out their supply base. I think they tripled the number of suppliers they're using. I'm just wondering, especially in light of this new retail relationship, have you made changes in sourcing that could help you going forward particularly if this China shutdown starts to feed through?

We've established a strong supplier base that is always prepared for growth. We've taken steps to qualify new locations and suppliers, ensuring that we're ready if the need arises. Looking ahead over the next two years, I don't foresee any issues. However, given that we can't control the political landscape and global dynamics, we have proactively qualified new suppliers with samples to ensure they are prepared if necessary.

Okay. Thank you. And second on RDS, up 11%. Can you disaggregate between same unit sales and then sort of the increase in the number of machines out there? And then related, I'm wondering on the margin side of RDS, all else equal, does a slower than expected rollout, does that hurt or help margins in that segment?

I believe that when considering new placements, they represent a mid-single-digit percentage of our growth. Therefore, you should view it this way: of the 11% growth, roughly half comes from new placements, while the other half is driven by growth in existing units. In terms of margins, it's important to note that although it takes about six months for a new machine placement to reach its full run rate, these incremental sales can negatively impact the overall business. This is particularly relevant when comparing the over 30% EBITDA margin in RDS to the mid-teens margins of the rest of the business.

All right. Thank you, guys.

Thanks, Dave.

Thanks, Dave.

And our next question comes from Brian Butler of Stifel. Your line is open.

Good morning. Thanks for taking my question.

Hi, Brian.

Just the first one, on the inventory, can you remind everybody what was the size of that working capital build for the inventory in '21? And then when you think about the modest kind of drawdown that you alluded to in the prepared remarks, kind of any color on that magnitude?

Yes. This is Rocky. At the end of '21, we had about $140 million more inventory than we would have expected at the beginning of the year. Clearly, that was to maintain fill rates that we had in our business as we saw lead times double and also inflation around the commodity component of our products. Those were split about 50/50 when you think about the component that was inflation and the component that was lead time. We did build inventory in the first quarter of this year. That's our normal seasonal build going into the spring. As we think about the full year as compared to 2021, we're still confident that we'll probably take $20 million to $30 million out of that inventory number based upon where current lead times are.

Okay, that's great. And then thinking about kind of on the hardware side, when you look at like the point of sales kind of through April, are you seeing any trends considering the inflation the consumers facing on their purchases? Is this impacting what they're buying or reducing their purchases? Any color on those trends?

Yes, Brian, we haven't seen anything yet in that regard. I would say that my gut tells me in some of the hardware stores, the consumer has such a great option to take three or four screws or three or four washers or three or four bolts out of a drawer or buy a bag or box. You got to believe that at some point, people are going to start picking through pieces instead of, call it, the $25 ring for a box. But we have not seen anything change yet. We just want to be able to be there in all of our locations so that the consumer can get what they want for the project or for whatever they may be working on. But no, we haven't seen any change yet.

Okay. And then one last one maybe on the M&A pipeline and what you're seeing there. With the current environment, is there any opportunity that some sellers are maybe looking to sell sooner rather than later? Any color on those fronts?

Yes, I believe that expectations have likely diminished a bit, which is beneficial for us in the coming years. Additionally, we have mentioned that we won't take any action until we improve our balance sheet, which should occur fairly soon as things stabilize due to inventory converting to cash and the margins we anticipate. However, they may need to approach the market for another price increase, similar to what others are doing by sourcing from various parts of Asia. This situation gives us some breathing room because if they were evaluating their model now, they would realize the necessity for another price increase. So, we gain some time. Yet, for entrepreneurs, it's understandable to feel anxious as this situation seems ongoing. We have addressed the increase in container costs pragmatically; it’s just a necessary step for us. This isn't just an issue for Hillman, as noted by the rise in container rates reported by major retailers. While it allows us more time, it might also alter the future opportunities for entrepreneurs who have limited options.

Okay, great. Thank you. Thanks for taking my questions.

Sure.

Thank you. Our next question will be from Lee Jagoda of CJS Securities. Your line is open.

Hi. Good morning, guys.

Hi, Lee.

Hi, Lee.

Can we start in the Canada segment and just talk about some of the company's specific actions you're taking there, and how we should think about EBITDA margins in light of the 13% plus margin you had in Q1 which should be kind of a seasonally weaker period for you?

Yes, Lee, half the country experienced snow, which was quite unusual. You're correct. I believe Scott Ride and his team have done an impressive job. Over 30% of our business in that area is industrial and commercial, with the remainder being similar retailers to those we have here, aside from Canadian Tire. Scott has effectively consolidated operations from seven locations into one large distribution center in the Toronto area. While we have more than one facility in Canada, we previously operated seven in Toronto due to acquisitions. Another key point is our decision to stop pursuing the challenges associated with the industrial and commercial margin accounts. These customers were solely focused on price with every order. We ultimately decided that if they prefer to shop around, they can source from whoever wants their business. Our focus will be on servicing our customers and pricing to achieve a fair profit. Consequently, their operations have improved, and we've opted to move away from some of that commercial and industrial business, stating that if they want it, we will ensure a fair profit. Additionally, we noted a positive variance in the exchange rate.

Yes, there is some foreign exchange impact, Lee. As we consider the remainder of the year, we believe Canada should achieve a low double-digit EBITDA margin in the second and third quarters. The fourth quarter tends to be challenging, especially for Canada, so we anticipate margins will likely be in the low single digits during that period. Overall, we expect to blend out to around 8% to 9% this year, which is a good step towards the 10% minimum EBITDA we expect from that business.

Great. And then just looking at the large customer where you're selling in this year, can you talk about the margins on the initial stock-in and sell-in versus the recurring margins you expect from that business? And then the other part of that is, I think when you initially negotiated the agreement, you did so without the in-person sales force in the aisles. Is there any change or anything new to update there?

Yes, let's discuss that service. We decided to compare it directly with their current competition because their supplier and others lack a service organization. Often, we quote business with service included while competing against those who don’t offer it. What’s exciting is that we included this service in our quote, and in late third quarter, we will be testing stores with and without it. This will give us a great opportunity to showcase what we can achieve. We already have people in their stores managing key and engraving tasks, but they won’t have access to our full service organization. Regarding margins, we don’t disclose customer-specific margins. However, the only added cost for us came from needing some third-party storage to prepare for the launch, given that we had about 75 containers to load, which required us to use some external storage to avoid overloading our current distribution centers. Other than that, there are no additional costs.

Got it. And if I could sneak one more in just on the engraving Resharp side, revenues were down year-over-year and frankly down sequentially. Is there any explanation on that? And how should we think about that one in the next couple of quarters?

Yes, what you observed was a slight increase in foot traffic, Lee. We anticipate that this will develop into a significant growth opportunity, especially as Doug mentioned Quick-Tag and as we deploy the Resharp machines in the coming months. The upcoming quarter may not show substantial growth, but we expect to see more significant increases over the next year or two.

Okay, great.

Thank you. And our next question comes from Ryan Merkel of William Blair. Your line is open.

Hi, guys. Thanks for taking the questions.

Hi, Ryan. Sure.

So I apologize if I missed it. Are you anticipating improvements in lead times during the second half of '22? Also, do you have any concerns about whether the issue affected lead times in any way?

Yes. So first question, Ryan, we've just not baked in any improvement. I would tell you that I think they will improve a bit from call it 240 days to I think something closer to low 200s. But we haven't been able to witness that yet. All we really saw with the Shanghai issue in China is they couldn't get truck drivers even though the port remained open. So we floated containers for probably an extra 10 or 12 days that would have normally been coming our way. So it's a small bubble. But fortunately, we had all that stuff for the new launch here. And it may take a point, half a point out of our fill rate, but I think that's it. I think it's just a little air pocket for us.

Okay, that's good to hear. And then just to follow up on demand, obviously, a lot of worry out there on the consumer in housing. Your business has been stable in the past. I guess a two-part question, Doug. With the low supply of homes out there, people can't move. Is your view that people will just invest in their existing home? And then what about pull forward demand? Any fear that that could be an issue?

Let's take the first point. It's interesting that, as we conduct our research and speak with professionals at these retailers, people believe that investing in their home will yield positive results, whether they intend to sell or stay in it, due to the increase in home prices and equity. This is a positive shift compared to the old belief that without updating a bathroom or kitchen, you wouldn't recoup any investment or see a fair return. I think that perspective has changed. Ryan, regarding your second question, could you clarify what you mean by pull forward? I'm not quite sure I understood it.

Yes. I was getting some questions. Just with people stuck at home, maybe doing a bunch of remodeling projects, could demand have been pulled forward in '21? I don't know if that's a fear that you have or I know it's hard to quantify it.

Yes, I understand. In the second half of 2020, we saw an unbelievable sales volume for deck screws and drywall screws. The first half of 2021 maintained a solid performance. It seems that some consumers engaged in activities they typically wouldn't have. When discussing COVID-related products, we focus on the protective solution business. However, we might have experienced some unusual volume in deck and drywall screws, possibly due to pull-forward demand or people feeling bored and needing to occupy their time.

Okay. Yes, it makes sense. And lastly for me, you probably don't want to talk about '23. But I'm getting a lot of questions about gross margin. What would be the minimum gross margin that you'd be happy with in '23, if that's a fair question?

Yes. I think when you look at gross margin, Ryan, the thing that you obviously know is that we've been very clear we're going to go dollar-for-dollar. So if you look at the first three increases, the impact is probably 3 points, right, on hardware and protective. And again, we've got another one coming. So call it 3 to 3.5 or 3 to 4 points. As things start to normalize, you'll see that return to more normal. And we've never been here, Ryan. So we've never had $200 million cost or price increases over a 15-month period with a market that may not go back to where it was but certainly will normalize. So I got to tell you, we're in uncharted waters. But I'm excited because I think our inventories will come into line. We'll put that to cash and our margins will improve about the same time, which is why Rocky and I are excited about what we'll be able to do with our leverage. But we're in a world we haven't been in on gross margins.

Yes, the only thing I would add to what Doug said is we do expect incremental gross margin improvement and EBITDA margin as we go through the quarters this year from a cadence perspective. And so we would expect to exit the year at a higher level clearly than we are today. And obviously, as we think about '23, we would expect to maintain that rate. And to Doug's point, at some point when we see the headwinds turn, we would expect our margins to get back or above in each of our businesses where they were historically.

Very helpful. I'll pass it on. Thanks.

Thanks, Ryan.

And this concludes the Q&A portion of today's call. I would now like to turn the call back over to Mr. Cahill for closing comments.

There's one more question.

Hang on a second. LaTonya, I think maybe there's one more question, or at least our guys think there is.

And excuse me. We do have an existing question from Matthew Bouley of Barclays. Your line is open.

Hi. Thank you for allowing me to ask a question. I wanted to inquire about the fourth price increase and the discussions to address the container rate increase. I'm interested in understanding what is included in the guidance you provided. It sounds like, Rocky, you mentioned that you expect to achieve pricing that aligns with or exceeds the rising costs. However, I am curious whether this price increase is somewhat determined in terms of extent and your confidence in its implementation at those levels, considering it seems to not be finalized yet. Thank you.

Yes, we do. It is not yet final. We're still negotiating with some of our customers. But we do believe as you said, Matt, and I had in my prepared remarks, we expect that to be in place before it hits. And we expect no impact on our P&L, and we haven't put any in our plan or into the guidance. So it's a net neutral. It will increase revenue. We'll have increased cost commensurate with that. And right now, we're highly confident that that will be the outcome.

Yes, Matt, the last thing is we've noticed this situation. When I first encountered it, I was surprised, but now we see it being mentioned by major retailers as well. I feel very optimistic about our prospects since it's a broader industry issue. Everyone recognizes it; it's not a problem caused by Hillman. We've had success in similar situations before, so I believe we will succeed with this one as well.

Got you. I appreciate that insight. Regarding the foot traffic in April, which you mentioned was weak and attributed to weather by retailers, I'm wondering how this impacts your guidance. If the April activity remains at these levels, would you expect to be at the midpoint or lower end of the revenue forecast? If these trends continue, how do you anticipate the full year will unfold?

Yes, I believe that regarding the revenue guidance, we are very confident we will meet or exceed the midpoint. More importantly, when considering EBITDA and the resulting profitability from that revenue, there is one factor that makes us a bit cautious. While we outperformed expectations in the first quarter, it raises the question of whether this will lead to an increase in projections. However, we remain cautious because, as Doug mentioned, retailers attribute the current situation mostly to weather, yet there are significant structural issues in the macroeconomic landscape that could indicate a potential slowdown. If such a slowdown occurs, we still feel optimistic about being at or above the midpoint of the guidance we have provided.

Matt, I would just say, we're not selling Claritin-D and Zyrtec-D, which I wish we were right now. But thank God, we're not selling lawnmowers or fertilizers. So I think that lawn and garden is the one that you never know if you're going to make it up when you miss three weeks to weather. For us, it's not something that changes our year. But obviously, we want to make sure that with the gas and grocery impact to the consumer that the consumer is going to hang in there. And that's the question nobody can answer right now.

Got it. Well, that's great color. Thank you, Doug. Thank you, Rocky. And good luck, guys.

Thanks. I think we got one more.

No.

Okay, looks like we're good. LaTonya, thanks. With that, thanks for joining us today. Certainly we are grateful for our customers and our vendors and our suppliers in a period of time like this. And we look forward to updating you again in the near future. Thanks for joining us today.

Ladies and gentlemen, this concludes today's webcast. You may now disconnect.