Good morning, and welcome to the Second Quarter 2025 Results Presentation for Hillman Solutions Corp. My name is Towanda, 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 the 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, Towanda. Good morning, everyone, and thank you for joining us. I'm Michael Koehler, Vice President of Investor Relations and Treasury. Joining me on today's call are Hillman's President and Chief Executive Officer, Jon Michael Adinolfi, or JMA, as we call him; and Hillman's Chief Financial Officer, Rocky Kraft. 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 those 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. JMA will begin today's call by providing some commentary on our strong second quarter results and then give an update on our guidance. Following JMA's comments, Rocky will give a more detailed walkthrough of our financials and guidance before turning the call back over to JMA for some closing comments. Then we will open the call up for your questions. It's now my pleasure to turn the call over to our President and CEO, Jon Michael Adinolfi. JMA?

Thanks, Michael. Good morning, everyone, and thank you for joining us. We executed well and took great care of our customers during the second quarter of 2025, driving strong results on both the top and bottom line. We are pleased with our results for the first half of the year and are positioned well for continued top and bottom line growth in the second half of the year. Let me take a moment to provide an update on some topics we discussed last quarter. We told you that our business is well-positioned to operate in any environment, and we delivered solid results during both quarters this year. We told you that we would cover tariff-related cost increases, and we have. We told you that the resilience of Hillman's business should prove that volumes would be better than our guidance, and they were. We told you that we would optimize the country of origin where we source our products with our dual faucet strategy, and we have. The Hillman team did a fantastic job during the quarter. I am proud of how we work together to navigate this dynamic environment while not losing sight of our long-term goals. Based on our performance so far this year and the excellent job this team has done, we are raising the midpoint of both of our full-year 2025 net sales and our full-year 2025 adjusted EBITDA guidance. We now expect our full-year 2025 net sales to be between $1.535 billion and $1.575 billion, with a midpoint of $1.555 billion. The low end of our net sales guidance represents 4% growth over 2024, and the high end of our guidance represents 7% growth over 2024. As for our bottom line, we now expect our full-year 2025 adjusted EBITDA to be between $265 million and $275 million, with a midpoint of $270 million. The low end of our 2025 adjusted EBITDA guidance represents 10% growth over 2024, and the high end of our guidance represents 14% growth over last year. Let me spend 1 minute on how we're thinking about 2026 based on what we know today. We expect full-year 2026 net sales to grow in the high single to low double digits and adjusted EBITDA to grow in the low to mid-single digits, both in an environment where we are assuming market volumes are flat. Rollover price in our typical new business wins will drive our top line in 2026. Considering the tariff comparison next year, we will remain focused on managing margins, operating efficiently and controlling costs. Rocky will share more details on our guidance and outlook for the remainder of the year in a bit. Hillman has a long track record of performing through all kinds of economic environments since we were founded over 60 years ago. Historically, our consistent growth and solid performance has been driven by our competitive moat, steady demand for our products tied to everyday repair and maintenance projects and great long-term relationships with our customers. Hillman's value-added moat consists of over 1,200 sales and service reps in our customer stores, direct-to-store delivery capability, category management and deeply integrated retail partnerships unlike any company in our space. Today, we are successfully managing the current tariff environment while not losing sight of taking great care of our customers, winning new business and consistently striving to make our operations more efficient. We continue to deliver orders on time and in full to our customers, which has been demonstrated by our excellent fill rates for the first half of the year. From a supply chain and operations standpoint, we continue to execute our dual faucet strategy. We've made progress reducing our exposure to suppliers based in China, where we are confident that we can end 2025 with the ability to source approximately 20% of our products from China. This compares to 2018 when we sourced nearly 50% of our products from China. The dual faucet strategy is the concept of buying product not only from multiple suppliers, which has always been our strategy, but from multiple suppliers in multiple countries. We know tariffs can change the market quickly. We are prepared for this and have built a flexible supply chain that allows us to deliver quality products at the best overall value for our customers. We are confidently navigating the tariff situation and executing our plan to set Hillman up for long-term success with our customers and long-term growth. Now let's turn our results to our results for the second quarter. Net sales in the second quarter of 2025 totaled $402.8 million, which increased 6.2% versus the second quarter of last year. Driving our top line growth was a 4-point increase from Intex, which we acquired in 2024, 2 points from new business wins and 2 points from price. These were partially offset by a 2-point headwind from market volumes. For the quarter, adjusted EBITDA increased 10.1% to $75.2 million compared to $68.4 million last year. Adjusted EBITDA margins improved by 70 basis points to 18.7%. Adjusted gross margins for the quarter totaled 48.3%, which were down slightly from 48.7% during the year-ago quarter but improved sequentially from 46.9% for the first quarter of 2025. Driving our sequential margin performance for the quarter was improved margins in RDS and a modest amount of tariff-related price. Our biggest segment, Hardware and Protective Solutions, or HPS, had a great quarter with 8.7% growth versus the comparable period. Adjusted EBITDA increased by 14.7% to $51.5 million. Our results were driven by contributions from the Intex acquisition, new business wins and price, offset by just a 1% decline in HPS market volume. Net sales in Robotics and Digital Solutions, or RDS, were up 2.3% versus the year-ago quarter. This is our second consecutive quarter of growth for RDS, which confirms our MinuteKey 3.5 strategy is working. Adjusted gross margins and adjusted EBITDA margins both improved sequentially, totaling 73.1% and 32%, respectively. As of today, we have over 2,200 MinuteKey 3.5 machines in the field. We remain on track to finalize the rollout of these kiosks to our two largest customers by the end of 2026. Now turning to Canada. Net sales in our Canadian business were down 5.6% compared to the prior year quarter. Sales volumes and adjusted EBITDA improved sequentially as we moved from winter into the spring selling season. Market volumes improved, but remained soft and FX headwinds weighed on our Canada's results. For the second half of the year, we expect Canada to return to top-line growth. And for the full year, we continue to expect that adjusted EBITDA margins will remain above 10% in Canada. Overall, Hillman is in a great position with our customers, and we'll continue to successfully execute in this environment. With that, let me turn it over to Rocky to talk financials and guidance.

Thanks, JMA. Let me dive right into our results, and then I'll get to our guidance. Net sales in the second quarter of 2025 totaled $402.8 million, an increase of 6.2% versus the prior year quarter. Second quarter adjusted gross margins decreased by 40 basis points to 48.3% versus the prior year quarter but improved 140 basis points sequentially. The Intex acquisition we made in August of 2024 has gross margins below our fleet. This drove the step down in margins versus last year. Additionally, we saw a modest amount of tariff-related price during the quarter, which helped our margins improve sequentially while entering into our busier spring selling season where we leverage more of our fixed costs. Adjusted SG&A as a percentage of sales decreased to 29.7% during the quarter from 30.7% from the year-ago quarter. Adjusted EBITDA in the second quarter totaled $75.2 million, improving 10% versus the year-ago quarter. Our adjusted EBITDA to net sales margin during the quarter improved by 70 basis points to 18.7% from a year ago. Let me now turn to cash flows. For the quarter, net cash provided by operating activities was $48.7 million, and we generated $31.2 million of free cash flow even with a $32.5 million cash headwind from tariffs. Turning to leverage and liquidity. We ended the second quarter of 2025 with $674.7 million of total net debt outstanding, which decreased by $29 million from the end of the first quarter. Liquidity available totaled $246.9 million, consisting of $212.7 million of availability on our credit facility and $34.2 million of cash and equivalents. At quarter end, our net debt to trailing 12-month adjusted EBITDA ratio improved to 2.7x versus 2.9x a quarter ago and 2.8x at the end of 2024. We maintain that our long-term adjusted EBITDA to net debt leverage ratio target remains at or below 2.5x. This will give us the flexibility to grow via M&A and use our improved financial strength to play offense. Last week, our Board approved a $100 million share repurchase program. This is the first time Hillman has had an SRP in place since coming public in 2021. We are comfortable with our leverage ratio and feel it prudent to have an active plan in place. We intend to buy stock back to offset dilution resulting from employee stock awards. Doing so will have a minimal impact on our leverage. We will also seek to buy stock back when we believe there is a disconnect between the value of our company and the value of where the stock is trading. We anticipate deploying between $20 million and $25 million annually depending on the market. We believe these repurchases will be accretive to earnings per share, drive shareholder value and will be an attractive place to invest capital. Similar to the SRP, our Board also approved a shelf registration statement. We felt it good public company governance to have a shelf on file. To be clear, we do not intend to use the shelf to raise capital of any kind in the foreseeable future. We are simply putting the mechanism in place now. Now let me turn to our guidance. While Hillman's business is generally resilient because of the demand for our products used for repair and maintenance projects around the home, we are not immune to declining foot traffic at our retail partners and a consumer watching their spending. Our top and bottom line guide contemplate a volume decline, which we believe is a prudent outlook for the year, considering existing home sales are projected to remain flat. On our last call, we told you that our guidance was conservative and our volumes will be better than our guide. So far, that has proven to be the case. Now we have more clarity on how tariffs will impact our business, and there's less uncertainty around our expectations for the year. As such, we have increased the low end of our net sales guidance by $40 million. This raises the midpoint as the top end remains unchanged. Our updated net sales guidance is now between $1.535 billion and $1.575 billion, with a midpoint of $1.555 billion, reflecting 5.6% growth over last year and a $20 million increase from our previous guide. We are also increasing the low end of our adjusted EBITDA guidance by $10 million. This raises the midpoint as the top end remains unchanged. Our updated adjusted EBITDA guidance is now between $265 million and $275 million, with a midpoint of $270 million, reflecting 11.7% growth over last year and a $5 million increase from our previous guide. In addition, we calculate the annualized run rate for tariffs to be approximately $150 million. The team has done a great job working with our customers to get price. We are confident we will end the year around 2.4x leverage, assuming we hit the midpoint of our guidance even after deploying some cash to execute a modest share repurchase. Before I turn it back to JMA, I wanted to thank the Hillman team who has worked extremely hard to deliver such a strong quarter with healthy growth on both the top and bottom line. As we look ahead, we are confident in our ability to carry this momentum forward with disciplined execution and a focus on our strategic priorities. We are well positioned to build on this foundation and expect to see sustained growth throughout the remainder of the year while we focus on growing with our customers and driving shareholder value.

Thanks, Rocky. As Rocky said, the team has done a great job this year. I am confident Hillman is positioned for long-term success and long-term growth. To our 1,200-plus frontline sales and service folks, our operations team, product team, and all the support functions across the organization, I am so proud of how the entire Hillman team continues to execute and win. I'd also like to extend my appreciation to our customers, vendors, partners and shareholders for their ongoing trust and support. We're proud of the growth we delivered this quarter and remain confident in our ability to execute and build on the momentum throughout the year and beyond. With that, I'll turn it back to Towanda for the Q&A portion of our call. Towanda, please open the call for questions.

Our first question comes from Lee Jagoda with CJS Securities.

So just two questions. One kind of bigger picture and one more numbers related. Just on the bigger picture stuff, in the recent past, you've talked about focusing a little more on the pro channel. And I'd love to understand how your competitive advantages in the retail channel would translate to the pro channel and kind of give you the right to win? And any examples of recent success would be great.

Lee, thanks. I'll take that one. So from the pro perspective, today, 25% plus of our business is pro related. So to me, especially in areas like fasteners, we have the permission to play. We have the products. We've got brands like Power Pro, for instance, where we just launched a full range of structural products. We've got a full range of products in a number of different areas in fastening. And today, those pros are using our products. We have focused on supporting our customers where they support the pro. As our customers continue to expand and we have other opportunities in channels like LBM where our customers are serving the pro. We're going to continue to lead in there. So we're very excited about the, I'll say, the opportunity as we go forward. At this point, we've had success in the fact that that area continues to grow for us. I won't go into great detail on this call, but we'll have some future updates where we'll talk about some of the things we're doing in pro and how we'll continue to lean in. So thanks for the question.

Sure. And then Rocky, just one for you on numbers. Now that we have that clarity on the tariff impact, I know last quarter, you were able to give us some guidance in terms of the cadence for EBITDA and how price rolls in versus when costs hit the P&L. Can you give us an update on what the back half cadence should look like?

Yes, Lee. It varies by product, but from our inventory position, we expect to start experiencing tariff costs late in the third quarter. Each product is different, and there are many factors to consider. However, we believe our third quarter will be strong since most, if not all, of the pricing will be established by then. We will begin to feel the impact of the tariffs, and by the fourth quarter, both the tariff costs and prices should be fully integrated into our run rate. Additionally, as mentioned in our prepared remarks, the cash impact is immediate. We experienced a cash drain in the second quarter and anticipate a slight cash negative in the third quarter. Nonetheless, we feel very optimistic about our business trajectory and are pleased with our team's efforts to work with customers on product movement and pricing adjustments. We believe we are in a great position for the remaining part of the year.

Our next question comes from the line of William Carter with Stifel.

I have a question regarding next year's guidance. You mentioned rollover pricing and new business wins in a flat market. Does that mean it only accounts for the new business wins from this year, or does it suggest a return to steady state next year? Additionally, business wins have slowed down this year. Are you confident that you can fully ramp up and return to that growth level next year?

Well, there are two things I would like to mention. First, we still expect to be at or slightly above our 2% new business wins, which we've achieved consistently for many years. Looking ahead to 2026, we have a good understanding of where we stand. If we assume we achieve our 2% to 3%, and to be clear, we're not suggesting that we believe the markets will remain flat in '26. What we mean is that if the markets were flat, our guidance for the latter half of the year would indicate that volumes would decrease by 9% in that period, leading to a 6% decline for the entire year in 2025. This decrease would result in some significant figures, and if we exclude COVID's impact, it would mark the worst market year we've experienced at Hillman since 2008 or 2009. We believe we are being cautious because we are adjusting prices in the market, as is everyone else, which will certainly affect volumes. While this isn't a specific guide, assuming flat markets for next year seems prudent at this stage, especially since it's only the beginning of August.

In your second question, you mentioned that the annualized impact from tariffs is now $150 million. As you consider this impact, understanding that conditions can change frequently, do you have a clear view of that figure and all its details? I know the price of steel increased from $25 to $50, but that relates to the components. Do you have a complete understanding of that? Additionally, is there any uncertainty or risk regarding your pricing, such as factors that could lead someone to suggest waiting an additional six weeks? I'll pause there.

Yes. Again, this is Rocky. I mean, as you can imagine, the $150 million is a very round number. There's a ton of fluidity in that. And there are a lot of reasons, not only what the administration might do, but there's also fluidity around what volumes do in the back half, and that clearly impacts that number. And so as we think about it, we've covered our net tariff exposure. We're confident that anything that happens going forward, particularly as you start thinking about how it rolls through our inventory, will most likely not impact '25 as much as it will 2026. But I have to tell you, our customers have been great. And we have spent a lot of time making sure that we work with our customers to get the right amount of tariff price. They understand that we're just covering the tariff prices as if it were a tax. We're not trying to maintain our margins, and they understand that. And I think that's a positive. So far, everything we've done with our customers has been executed very well. We thank our customers. And as we think about the future, if there is fluidity, to your point, and it changes which it's likely to, we will be changing what our pricing is with our customers, either up or down.

Our next question comes from the line of Michael Francis with William Blair.

Nice quarter. I wanted to go back to the back half cadence question that Lee asked. And more pointedly, I think last time you mentioned you're expecting about 300 basis points of gross margin giveback from tariff prices. Is that still accurate? And is there anything you can kind of do to level set us on how we should think about gross margins in Q3 and Q4?

I’d prefer not to delve into the specifics of gross margin. However, I can share that the 300 basis point decline occurred alongside $250 million in tariff costs. We believe that figure has now decreased to $150 million, so it’s reasonable to assume the impact has diminished as we consider the future. Looking ahead to the rest of the year, I think it’s safe to expect that our EBITDA margin will increase by about 100 basis points year-over-year. It’s important to note that there is a minor tariff benefit due to pricing timing, but we’ve been incurring those tariffs for the past 45 to 90 days, making it a cash burden for the company. Therefore, it’s justified that the price adjustments have been implemented.

Okay. And then I know it doesn't seem like demand has deteriorated much, if at all. And you talked about volumes implied in the back half of 9%. So I just wanted to see what you're seeing on R&R. And if that 9% number is just sort of a conservative approach to the market or if there's some deterioration happening right now that you're seeing?

Yes. Right now, we feel that is the right guide. So that's why we're sticking with the minus 9%. We do feel like there will be some pressure in the back half of the year. But overall, we were actually pleased with what we did in Q2. As we came out and we called our sales number and actually hit it and exceeded it, so we feel good about where we're positioned. Until price is fully right into the marketplace, it's hard to really change that view. We'll give you an update when we come back and deliver our Q3 earnings. But we feel good about where we are right now. We feel like we're being prudent, as Rocky said earlier in his prepared remarks.

Our next question comes from the line of Matthew Bouley with Barclays.

I wanted to ask around elasticity. Just very helpful color there around the volumes down 9% in the second half. I think in Q2 here, you had price up 2% and volume down 2%. But thinking about that 2026 up high singles to low doubles on price, I guess, I just wanted to double check on the assumption that you're not expecting to have sort of an offsetting volume impact in 2026, sort of, I guess, mirroring price. So just kind of, I guess, expand on that and sort of help us understand the conviction around kind of minimizing that elasticity.

Yes, Matt, I want to start by saying that when it comes to repair and maintenance, if something needs fixing, it will be fixed. We discussed this extensively in the last quarterly call, and as a result, there's limited flexibility in pricing for many of our products. That said, we're not claiming there's zero flexibility. This limited price elasticity contributes to our forecast for a downturn in the market in the latter half of the year. Regarding next year, I want to clarify that we did not guide for a flat market. Our comments were more directional around 2026, suggesting that if the market were flat, it would be an unusual situation. Considering the trends in our markets over recent years, we would need to look back quite a while to find comparable levels leading into 2026 if we assume a 9% decline in the latter half. As for our conviction about the markets remaining flat, it's early August, so it's hard to make definitive predictions. While we don't anticipate these markets will decline by mid-single digits, we are quite confident they will remain around flat next year. Whether they increase or decrease slightly is uncertain and will depend on various unpredictable factors.

Okay. Got it. No, that's super helpful. Secondly, on the margin side, I guess, a two-parter. One is, if you could just clarify that short period where the tariffs on China were at 145%. I'm just curious if there's any kind of small temporary impact from that. So if you could just clarify that. But then Secondly, if I do the back of the envelope on 2026, it seems like you're suggesting maybe the EBITDA margin down about 100 basis points next year. So if you could just kind of speak to, is that simply the price and cost, the math around how that impacts the rate? Or is there anything else that's kind of impacting that EBITDA margin in 2026?

Let me break that down into two parts. First, regarding your initial question, we have indeed paid the $145 million. I've been working with my team for about two weeks, so this matter is not significant enough for disclosure. When considering the rate, you are generally in line with our expectations for next year. In the third quarter of this year, there may be some timing issues related to a windfall from tariffs. That said, we will maintain full pricing as we approach the fourth quarter and next year, depending on the fluid situation mentioned earlier. I would also like to point out that while we are experiencing this slight windfall in tariffs, it is causing some discrepancy between our top line and EBITDA rate. However, I want to emphasize that we are managing this business better than we ever have in my seven to eight years here. As the figures fluctuate, we are very confident in our ability to make the right decisions to ensure profitability in any environment.

Rocky is right. I mean we've set up the global supply chain, which we've just mentioned in our prepared remarks. And I think you guys have seen what we've done over the last several quarters and actually a couple of years, where we've built more resiliency in our supply chain. We've improved our cost position. And now we actually have multiple countries of origin to be able to diversify our supply base. So we feel like our input costs are in good shape. We're running our business from a freight perspective, pleased with where we are there. Obviously, everybody is dealing with some level of inflation, which we're managing, and we're going to continue to manage the business as we go forward. So we do feel like we're positioned well to deal with the back half and into 2026.

Our next question comes from the line of Brian McNamara with Canaccord.

So first on pricing. We haven't seen much pricing on the shelf based on our work. And I'm curious when you would expect that to hit the shelves at the retailer level, understanding that obviously each retailer will do things differently. And then secondly for Rocky maybe. I know in May, you called out for H2 pricing of plus 17%, offset by similar volume decline. And I think you mentioned in one of the answers to the question is that H2 guide calls for a 9% volume decline, but I don't think I heard what's built in for H2 pricing component.

Yes. Maybe let me go first, JMA. Maybe you cannot answer the question about retailers. The guide would assume that in the second half, we have about 6.5% total price in the business.

Yes, Brian, as you guys do quite a bit of work, we appreciate your focus on our company and the diligent work that you do at the shelf. I mean there's price has been going into the marketplace at different times. So we're watching it like you are. Really, to Rocky's point, it's not my place to be commenting on what our retailers will do in the back half of the year. So I think we'll have to stay posted for what we see.

Yes, Brian, just to clarify, when I said 6.5% price, that's full year price, not the second half.

Understood. Okay. And then JMA, do you want to...

Yes, that's a great question. We believe that reaching a 5 million number is our goal for the future. Although we cannot directly correlate this to specific growth figures, we think that aiming for a unit count between 4.5 million and 5 million aligns with our expectations. We anticipate that some of our categories, which have been negatively affected by the decline in existing home sales, will improve. That's what we're hoping for as we move forward. However, our guidance reflects the current state of the business, and we feel confident about operating around 4 million, as discussed for 2025.

Our next question comes from the line of David Manthey with Baird.

First question is on the change in tariff expectations. So you went to a $37.5 million per quarter run rate assumption, and you were at $62.5 million previously. So in the second half, that would be like $50 million upside. I think you said you raised the guidance by $40 million. Is that just reflective of the tariffs kind of rolling in through the third quarter?

Yes, regarding the math you did, it's important to note that the tariff costs won't impact us until late in the third quarter. Those costs will start to affect us then. Your run rate numbers are accurate, but this is a time when we are facing prices without the added tariff costs. It's not an extensive period. I hope that clarifies things for you, but just keep in mind that the tariff costs will not begin to affect us until well into the third quarter.

I assume it was a timing issue. And then to the previous question on shelf prices, and you talked about prices to your customers. Is there a disconnect between those things? Are you able to go and raise price to the retailer and then they don't change shelf price for a time? Or are those more in lockstep? And then I guess if all goes well, based on the timing you just discussed, do you expect to be ahead of tariffs in the third quarter, meaning you over-earned, I think you kind of implied that. But then you'll hit sort of price/cost neutrality as the tariffs fully flow in and the price changes fully flow in. But by the time you get to the fourth quarter of '25, those will be matched up as well as you can based on what you know currently about tariff pricing?

Yes, Dave, your question is correct. That's the way to view the benefits in the third quarter, and we will be at parity or alignment in the fourth quarter. That's the appropriate perspective. Regarding pricing at retailers, each retailer varies based on their accounting practices and operations. Therefore, I believe it's not my role to discuss when and how you'll see that pricing on the shelf. However, we do collaborate with our customers, and the conversations can be challenging for our sales teams. Nonetheless, we are aligned with them and are working together to address pricing or manage costs through organizational changes. That's how we are operating the business, and that's about the extent of what I can share.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Mr. Adinolfi for closing remarks.

Thank you, everyone, for joining us this morning. We look forward to updating you on our progress soon. Hope everybody has a great day. Take care. Operator, you may now disconnect.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.