Good morning and welcome to the Third Quarter 2024 Results Presentation for Hillman Solutions Corporation. My name is Jonathan and I will 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 website at ir.hillmangroup.com. I would now like to turn the call over to Michael Koehler with Hillman.

Thank you, Jonathan. 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, Jon Michael Adinolfi, our Chief Operating Officer, and Rocky Kraft, our Chief Financial Officer. As a reminder, we announced in August that effective January 1st, 2025, Doug will step into the Executive Chairman role and Jon Michael, or JMA as we call him, will step into the CEO role. Before we get into today's call, I would like to remind our audience that certain statements made today 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. 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, Doug will begin today's call with some recent highlights, then he will provide some market commentary, touch on our updated guidance, and hit on our third quarter results. JMA will then discuss the value of our moat, our acquisition of Intex, and our operations. Rocky will then give a more detailed walk through our financials and updated guidance before turning the call back over to Doug for some closing comments. We will then open up the call for your questions. It's now my pleasure to turn the call over to our Chairman, President, and CEO, Doug Cahill.

Thanks, Michael. Good morning everyone. Before we get too far into the call today, I wanted to take a moment and recognize the Hillman team for actually accomplishing something that we've never done before in our history. On October 1st, we won the 2024 Divisional Vendor Partner of the Year in Hardlines at Lowe's. And eight days later, we won the 2024 Partner of the Year in hardware at Home Depot. Our Lowe's team, led by Justin Fox, and our Home Depot team, led by Brad Helbing, do an outstanding job taking care of our two biggest customers. You guys, your teams have been doing and continue to do a fantastic job working with these two world-class retailers. For 60 years, the mindset at Hillman has always been, nothing happens until you sell something, and I'm happy to report it's alive and well today. Being recognized by our two biggest customers in the same year is not possible without this mindset. There are a lot of folks to thank, like our customer service and back-office support teams as well as our logistics and operations teams moving product across the global network. But I think I can speak for Justin, Brad, and the entire team and say the most valuable players at Hillman are the dedicated warriors in the field taking care of the shelves at Home Depot, Lowe's, and all of our customers each and every day. We're humbled by the recognition and we strive to ensure all of our customers are well taken care of by our team. Again, my hats off to the Hillman team. You guys are amazing. As we look at 2025 and beyond, this company is in a great position. We believe we're approaching an actual inflection point where the macro will start to benefit both Hillman and our retail partners. Our retailers aren't predicting when existing home sales will start to turn positive, but they're convinced that when it happens, it's going to be a historic run, not for a year or two, but closer to three to five years. Driving this confidence are a few factors. Let's break it down. Number one, lower rates are likely on their way, and it'll make it cheaper for existing homeowners to tap their home equity to fund home improvement projects. Homeowners in the U.S. are sitting on a record $35 trillion of home equity, a number that has increased 81% since the end of 2019. Additionally, lower rates should drive an increase in existing home sales. Down from over 6 million homes sold in the U.S. in 2021, 2024 is projected to be at a 30-year low of 3.8 million homes sold. We believe lower rates will start to relieve this pent-up demand and existing home sales will improve next year. Number two, the age of existing homes in the U.S. 48% of homes are at least 45 years old, which includes over 24 million homes that are expected to reach their prime remodeling age in the next three years. We believe this will drive consistent demand for remodeling and renovation projects for years to come. Number three, the lack of housing supply in the U.S. With roughly 4.5 million homes shortage in the U.S. and no near-term solution, with roughly 1.05 million homes being built a year, home values are expected to remain strong and homeowners will continue to invest in their homes. Meanwhile, we know the macro has not been a tailwind the last few years, but what I love about this business model of ours is that even with unit volume being a headwind for our industry, our trailing 12-month adjusted EBITDA is up 18% versus the year-ago period. Because of the great position we're in with our customers, we believe we will grow both top line and bottom line in 2025. But for now, let's go back to 2024. During the quarter, we acquired Intex, a leading provider of cleaning rags, cloths, and textiles. Most every home improvement job again ends with cleaning, so this is another great product category that fits perfectly in our portfolio and one that we're excited to be in. Because of the additional contributions from Intex and our October results, we're increasing our 2024 full-year top line and adjusted EBITDA guidance. Our new net sales guidance range is $1.455 billion to $1.485 billion and has a midpoint of $1.47 billion. The new midpoint is an increase of 4% over the previous year. Our adjusted EBITDA increased 9% to $72.6 million compared to $66.8 million during the third quarter of 2023. Our adjusted EBITDA margins improved to a healthy 18.4%. Adjusted gross margins for the quarter totaled 48.2%, marking a 400 basis point improvement over 44.2% during the year-ago quarter. We believe we've structurally improved our gross margin profile, and we expect it to be above 47% for the foreseeable future. We have managed to maintain these healthy margins by improving efficiencies, selling a better mix of products, similar to what we've seen over the past few quarters. For our top line results, Hardware and Protective Solutions or HPS, which is our biggest segment, net sales increased 0.1 over the comparable period. While our adjusted EBITDA increased 19.8%, our results were driven by contributions from Koch and Intex, partially offset by softer market volumes and pricing.

Thank you, Doug. Let's take a little hit on how we win with our moat, the M&A landscape, and operations before turning the call over to Rocky. Let me give you a quick refresher on the three differentiators of our moat. Number one, pick, pack, and ship directly to our customers. Number two, 1,100 field sales and service warriors, and number three, our 60 years of experience. Next, I will share a few real-life examples of how each part of our moat creates value for our customers. First, by shipping 75% of our products direct-to-store, we take care of our customers when they need it most. For example, during the recent hurricanes that impacted the Southeast, we were able to support our customers before and after the storms with minimal impact to service levels. Second, our 1,100 sales and service warriors not only take care of our normal customer needs, but also enable us to flawlessly execute in-store resets across the country. For example, one of our top 5 customers is investing alongside us for a multi-year nationwide reset of the fastener aisle. This is an entire reset of the 40-plus-foot run of fasteners, which includes thousands of Hillman SKUs and complex merchandising. We're ripping everything out, going all-new, which takes well over 100 labor hours to complete, and is one of the most important aisles in the store. And so far, the results are encouraging. Third, with 60 years of experience, we understand the products, categories, and markets. For example, we recently launched a new range of high-performance patented Power Pro structural screws. These new products are being rolled out in the traditional hardware channel and will contribute to growth in 2025. Now that you understand the three pillars and how they add value for customers, let me now give you some examples of what the moat does for Hillman. Vendor of the year at Lowe's and the Home Depot. Adjusted gross margin of 48%, adjusted EBITDA margins of 17%, double-digit EBITDA growth for the year, even in a challenging macro environment generated meaningful cash flow, investing for long-term growth with our customers, and we are executing low-risk, accretive acquisitions where our customers want us to grow. Look at what happened with Koch. We secured a meaningful piece of new business shortly after the acquisition that will increase that business by 20% over time. Our customers trust us and have confidence that Hillman can handle the complexity of a national rollout of new products and resets. This moat is critical to growing, both organically and through M&A. When we offer new categories, it allows our teams to bring more value to our customers and do so efficiently. As Doug mentioned, in August, we closed on the acquisition of Intex, a leading supplier of cleaning rags, cloths, and textiles. We love Intex because it expands our product offering to new aisles and new customers. And importantly, we can leverage our moat to grow this business in the future as we take advantage of the cross-selling opportunities with both new and existing customers. Intex marks our second acquisition of the year, with Koch and Rope & Chain being our first. Our M&A pipeline is healthy as we continue to see companies like Koch and Intex that would be great additions to the Hillman family.

Thanks, JMA. Let's dive right in. Our net sales for the third quarter of 2024 totaled $393.3 million, a decrease of 1.4% versus the prior year quarter. Third-quarter adjusted gross margin increased by 400 basis points to 48.2% versus the prior year quarter of 44.2%. Sequentially, adjusted gross margins were down slightly from 48.7% or were in line with our expectations in what we said on last quarter's call. We expect our adjusted gross margins to come down during the fourth quarter as a result of Intex lower margin products but will remain about 47% this year and next as we believe we have structurally improved our gross margin profile. Adjusted SG&A as a percentage of sales increased to 29.9% during the quarter from 27.5% from the year-ago quarter, which was also in line with our expectations. Driving the increase was our standard employee bonus expense, which was the result of a strong bottom line during the year-to-date period when compared to 2023. Adjusted EBITDA in the third quarter was $72.6 million, which grew 9% versus the year-ago quarter. Our adjusted EBITDA to net sales ratio during the quarter was 18.4%, which compares favorably to 16.7% a year ago. Contributing to our healthy adjusted EBITDA margin was our positive mix of price cost and efficient operations. Now let me turn to our cash flows. For the 39 weeks ended September 28, 2024, operating activities generated $142.2 million of cash as compared to $171.5 million in the year-ago period. Remember, during 2023 we had outsized working capital benefits as we were able to reduce our net inventories by over $100 million throughout the year as we returned to normal inventory levels. Free cash flow for the 2024 year-to-date period totaled $76 million and totaled $39.6 million for the quarter. Capital expenditures totaled $64.2 million for the first nine months of 2024. This compared to $52.1 million in the prior year period. For 2024, we will invest between $80 and $85 million of CapEx and anticipate 2025's capital spend to be slightly above our 2024 number as we invest in our RDS and other growth initiatives like racks for resets in our hardware business. We continue to strategically invest in our high-margin RDS business, but let's be clear, this is not a build it and they will come strategy with MinuteKey 3.5. Our service teams are retrofitting existing 3.0 machines in the stores and we will only build new machines where we see a return on our invested capital or new store growth opportunities. As Doug mentioned, our 900-plus MinuteKey 3.5 machines are performing well and where there is a return on our investment, we will ramp up our capital spend to deliver more machines during 2025 with our strategic RDS customers.

Thanks, Rocky. Before we get to the Q&A session, I want to express our condolences to the families who have lost loved ones and have seen their lives just turned upside down in the wake of Hurricane Helene and Hurricane Milton. Just awful. No surprise, our Hillman team has stepped up during this time of need by working long hours, expediting deliveries and servicing our customers in order to ensure those affected have the products they need to start their rebuilding process. Additionally, Hillman, as well as all of our retailers, have donated products and cleaning supplies to assist with the cleanup efforts. Helping those in need is deeply ingrained in the Hillman spirit. We're proud of the way our employees have showed up for their teams and our customers. Without these Hillman warriors, we would not be where we are today, and I want to express my gratitude for their loyalty, their teamwork, and for always taking great care of our customers. As we look to the future, we firmly believe taking a disciplined approach to strengthening our moat while seeking creative growth opportunities will drive long-term shareholder value for years to come. And with what we can see on the horizon, we're very excited about the future. With that, let me turn it back to Jonathan, the operator for the Q&A portion. Jonathan, I'm not sure if you have a face for radio, but you definitely have the voice. Let's open it up for questions.

Good morning. You have Anika Dholakia on for Matt today. Thanks for taking my questions. First off, I was wondering about foot traffic and demand trends. Wondering if you can just parse out how this trended in October relative to September. And if you guys have any early thoughts on R&R growth expectations for 2025? Thanks.

Right now we're seeing kind of the same thing. The volume is soft and margins continue strong. The mix has been good. I think everybody's rooting for this to return. But when you think about our business, there's going to be a lot of retailers focused on holidays, and then we'll really get started in '25. But nothing's really changed. We continue to see our share grow slightly with some wins. The macro has stayed about the same. As we look at '25, it's hard to say. The macro, nobody knows. I think interest rates declining will definitely help. Our retailers are bullish. But as I said, they really are not predicting when, but they know that as that starts to go, there is pent-up demand, existing home sales, and a lot of equity in homes that can be used for expansions and then people definitely want to move. And that's good for our business.

Hi, good morning, everyone. First off, Intex, could you talk about who that's being carried by in terms of your partners currently, and is there any limitation to where you can sell it? And you mentioned the gross margins are lower there. Is that structural or is there room for improvement? Thanks.

For the Intex business, they sell to really a lot of the same customers we do, not nearly as deep in the traditional hardware channel where we're strong, but you think about Depot, Lowe's, Walmart, all the major customers that are out there that we serve each and every day they sell into, and some others, like they are in the paint and auto channels where we don't serve today. So we're really excited about the growth opportunity and expansion. There are no limitations in where we take what products we have. They've got some good, innovative products with IP around them, so we're really excited about the future and where we're going.

On your second question, yes, they're structurally lower in Intex. We will improve those over time as you think about areas like freight from overseas and things like that where we just have a lot more volume. So, we'll improve their margins, but they will be structurally lower than fleet.

Yes, so 3.5 is not tailing off. It's just really starting. We've got 900 out there. We've got great demand coming from our customers who want it because for them, it's just all upside. We'll have 1200 at the end of the year, and we will both have conversions of existing 3.0 machines in 2025, as well as new placement in stores that don't have them today by our major retailers who now want machines in stores. I think you'll see over time some pricing opportunities there as well. So that's why we feel like we've turned that corner and that you'll see us begin growing in '25 and certainly into '26.

Just starting with Intex, Rocky, can you break out the revenue that was added to the PPS segment in Q3? And then if you have any expectations for Q4. And then given that you've only owned it a little while, I assume the answer is probably not yet, but are there any early signs that existing customers are gearing up to award you guys new business because you own Intex now, similar to the way that it evolved with Koch when you bought that?

I'm not going to get into the details around the specifics in the quarter for Intex. What I will tell you is we've said it's about $55 million of annualized revenue. And so we owned it for a month in the third quarter, and we'll own it for four months in the fourth. As we think about next year, we would expect that to be about the size of the business. Obviously, we would expect to grow it a bit. Finally, I would say, as we've said, it's kind of a high single to low double-digit kind of EBITDA business.

Absolutely. Yes, Lee, so we're excited about the growth opportunities with Intex. We are seeing some nice opportunities pop up with our existing customer base and even beyond with some of the new customers out there as we look to leverage the Hillman moat and really integrate that business. So we are excited about growing that business next year, low double digits, and we feel good about the future of Intex.

Hey, good morning, guys. Thanks for taking the questions. I guess I want to dig in a little more to RDS, and it's been weak for several quarters. Most of it's out of your control, but I guess my question is, do you guys need to be there? And I guess I want to gauge your willingness to maybe move on from that asset if it doesn't significantly improve?

First of all, we don't need to be there. Our customers would love us with it or without it. What I've said before because of what's been out there is that this is a business that we will turn with new 3.5 investment and we'll have this thing in a place where it will be valuable to keep or valuable to sell. And I like having the option because we have so many things we could do in addition to what we have planned if we did sell it. But again, it's not bad to hang on to a 72%, 73% gross margin, 32% EBITDA margin business that's growing. We're just in that period right now that we're transitioning from one technology to another in an environment that is existing home sales dependent.

It seems a great job. Structurally, we have integrated that business. We have the teams operating with the different parts of our organization from sales, product operations. So we feel really good about that as quick as we did with Koch. The system side will be over the next couple of months, we'll finish that up. But we actually feel really good about where we are and where the alignment is in that business, so super excited about having Intex a part of Hillman.

What I would tell you is, the fourth quarter, we always have a little less leverage on our SG&A because of volumes and the seasonality of the business, but so we'll probably be a bit above 31% in the fourth quarter. For the full year, we expect it to be around 30%, and I think we'll still stick to that.

Thanks, everyone, for joining us this morning. We look forward to updating you on our progress early next year.