8-K
Hillman Solutions Corp. (HLMN)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 3, 2022
Hillman Solutions Corp.
(Exact name of registrant as specified in its charter)
| Delaware | 001-39609 | 85-2096734 |
|---|---|---|
| (State or other jurisdiction | (Commission File No.) | (I.R.S. Employer |
| of incorporation) | Identification No.) |
10590 Hamilton Avenue
Cincinnati, Ohio 45231
(Address of principal executive offices)
Registrant’s telephone number, including area code: (513) 851-4900
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbols | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $0.0001 per share | HLMN | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On August 3, 2022, Hillman Solutions Corp. (the “Company”) issued a press release, furnished as Exhibit 99.1 and incorporated herein by reference, announcing the Company's selected summary financial results for its thirteen and twenty-six weeks ended June 25, 2022.
The information provided pursuant to Item 2.02, including the exhibit attached hereto, is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in any such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
99.1 Press Release, dated August 3, 2022, announcing the financial results of Hillman Solutions Corp. for its thirteen weeks ended June 25, 2022.
99.2 Supplemental slides provided in connection with the second quarter 2022 earnings call of Hillman Solutions Corp.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: August 3, 2022 | Hillman Solutions Corp. | |
|---|---|---|
| By: | /s/ Robert O. Kraft | |
| Name: | Robert O. Kraft | |
| Title: | Chief Financial Officer |
Document
Exhibit 99.1
Hillman Reports Second Quarter 2022 Results
CINCINNATI, August 3, 2022 -- Hillman Solutions Corp. (Nasdaq: HLMN) (the “Company” or “Hillman”), a leading provider of hardware products and merchandising solutions, reported financial results for the thirteen and twenty-six weeks ended June 25, 2022.
Second Quarter 2022 Highlights (Thirteen Weeks Ended June 25, 2022)
•Net sales increased 4.9% to $394.1 million compared to $375.7 million in the prior year quarter
•Net income totaled $8.8 million, or $0.04 per diluted share, compared to a loss of $(3.4) million, or $(0.04) per diluted share, in the prior year quarter
•Adjusted diluted EPS1 was $0.14 per diluted share compared to $0.24 per diluted share in the prior year quarter
•Adjusted EBITDA1 totaled $62.3 million compared to $64.5 million in the prior year quarter
Second Quarter YTD 2022 Highlights (Twenty-Six Weeks Ended June 25, 2022)
•Net sales increased 5.6% to $757.1 million as compared to $717.0 million in the prior year
•Net income was $6.9 million, or $0.04 per diluted share, compared to a loss of $(12.4) million, or $(0.14) per diluted share, in the prior year
•Adjusted diluted EPS1 was $0.24 per diluted share compared to $0.39 per diluted share in the prior year
•Adjusted EBITDA1 totaled $106.3 million compared to $112.3 million in the prior year
“Our second quarter results reflect the success of our multiple pricing initiatives over the past 15 months and the relentless efforts of our 1,100 associates to keep the shelves stocked at our customers' 42,000 locations,” commented Doug Cahill, chairman, president and chief executive officer of Hillman. “While volumes were light compared to the surge in activity during the prior year quarter coming out of COVID, we continued to execute averaging fill rates of nearly 97% for the quarter, up from 90% a year ago.”
“Currently, there are many factors influencing the economy, including labor shortages, supply chain constraints, and elevated retail inventories amid overall lighter foot traffic at stores. The Hillman moat helps solve these issues for our customers making us especially resilient through all economic cycles. Our service model ships direct to stores, reducing shipping delays, costs, and inventories for customers; our field sales and service team manages the aisle for our customers, which helps alleviate their concerns around labor; and we own 90% of our brands allowing us to tailor our products quickly to meet the changing needs of our retailers and end consumers.
“While we have tempered our full year expectations to account for softness in sales volume, our business remains on solid footing. We estimated that over 90% of our sales are driven by repair, remodel and maintenance activity, which remains robust and not highly sensitive to mortgage rates or dependent on new housing construction. Lead times have come down considerably since the beginning of the year and we expect our price increases to offset increased costs for the full year 2022 on a dollar-for-dollar basis. These factors combined with our competitive moat situate us for further success with customers throughout the remainder of the year and into the future.”
Balance Sheet and Liquidity at Quarter-End
•Total long-term debt was $929 million, up from $907 million at the end of 2021. Net debt1 outstanding was $949 million, up from $931 million at the end of 2021
•Liquidity available totaled approximately $118 million, consisting of $100 million of available borrowing under the revolving credit facility and $18 million of cash and equivalents
•Net debt1 to trailing twelve month Adjusted EBITDA was 4.7 times, up from 4.5 times at the end of 2021
•Subsequent to the quarter-end, increased capacity on the revolving credit facility by $125 million to $375 million
Full Year 2022 Guidance - Update
Based on year-to-date performance and improved visibility on the remainder of the year, management is providing additional information on its full year 2022 guidance originally provided on March 2, 2022 with Hillman's fourth quarter 2021 results.
•Net sales are now anticipated to be toward the low end of the original range of $1.5 billion to $1.6 billion
•Adjusted EBITDA1 is now expected to be at the low end of the original range of $207 million to $227 million
•Free Cash Flow1 guidance is unchanged; projected to be in the range of $120 million to $130 million
Second Quarter 2022 Results Presentation
Hillman plans to host a conference call and webcast presentation today, August 3, 2022, at 8:30 a.m. Eastern Time to discuss its results. Chairman, President, and Chief Executive Officer Doug Cahill and Chief Financial Officer Rocky Kraft will host the results presentation.
Date: August 3, 2022
Time: 8:30 am Eastern Time
Listen-only Webcast: https://edge.media-server.com/mmc/p/3awwmvtv
A webcast replay will be available approximately one hour after the conclusion of the call using the link above.
Hillman’s earnings release, quarterly presentation, and Form 10-Q were filed with the SEC and are accessible on its Investor Relations website, https://ir.hillmangroup.com.
1) Adjusted EBITDA, Adjusted Diluted EPS, Net Debt, and Free Cash Flow are non-GAAP financial measures. Refer to the "Reconciliation of Adjusted EBITDA”, "Reconciliation of Adjusted Earnings per Share", "Reconciliation of Net Debt" and "Reconciliation of Free Cash Flow" sections of this press release for additional information as well as reconciliations between the company’s GAAP and non-GAAP financial results.
About Hillman Solutions Corp.
Founded in 1964 and headquartered in Cincinnati, Ohio, Hillman Solutions Corp. (“Hillman”) and its subsidiaries are leading North American providers of complete hardware solutions, delivered with outstanding customer service to over 40,000 locations. Hillman designs innovative product and merchandising solutions for complex categories that deliver an outstanding customer experience to home improvement centers, mass merchants, national and regional hardware stores, pet supply stores, and OEM & industrial customers. Leveraging its leading distribution and sales network, Hillman delivers a “small business” experience with “big business” efficiency. For more information on Hillman, visit www.hillmangroup.com.
Forward-Looking Statements
This communication contains certain forward-looking statements, including, but not limited to, certain plans, expectations, goals, projections, and statements, which are not historical facts and are subject to numerous assumptions, risks, and uncertainties. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements. All forward-looking statements are made in good faith by the company and are intended to qualify for the safe harbor from liability established by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.You should not rely on these forward-looking statements as predictions of future events. Words such as "expect," "estimate," "project," "budget," "forecast," "anticipate," "intend," "plan," “target”, “goal”, "may," "will," "could," "should," "believes," "predicts," "potential," "continue," and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, the Company’s expectations with respect to future performance. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside the Company's control and are difficult to predict. Factors that may cause such differences include, but are not limited to: (1) unfavorable economic conditions that may affect operations, financial condition and cash flows including spending on home renovation or construction projects, inflation, recessions, instability in the financial markets or credit markets; (2) increased supply chain costs, including raw materials, sourcing, transportation and energy; (3) the highly competitive nature of the markets that we serve (4) ability to continue to innovate with new products and services; (5) seasonality; (6) large customer concentration; (7) ability to recruit and retain qualified employees; (8) the outcome of any legal proceedings that may be instituted against the Company (9) adverse changes in currency exchange rates; (10) the impact of COVID-19 on the Company’s business; or (11) regulatory changes and potential legislation that could adversely impact financial results. The foregoing list of factors is not exclusive, and readers should also refer to those risks that are included in the Company’s filings with the Securities and Exchange Commission (“SEC”), including the Annual Report on Form 10-K filed on March 16, 2022. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward looking statements.
Except as required by applicable law, the Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements in this communication to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based.
Contact:
Michael Koehler
Vice President of Investor Relations & Treasury
513-826-5495
IR@hillmangroup.com
HILLMAN SOLUTIONS CORP.
Condensed Consolidated Statement of Net Income, GAAP Basis
(dollars in thousands)
Unaudited
| Thirteen Weeks Ended<br>June 25, 2022 | Thirteen Weeks Ended<br>June 26, 2021 | Twenty-six Weeks Ended <br>June 25, 2022 | Twenty-six Weeks Ended<br>June 26, 2021 | |||||
|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 394,114 | $ | 375,715 | $ | 757,127 | $ | 716,996 |
| Cost of sales (exclusive of depreciation and amortization shown separately below) | 220,146 | 215,967 | 433,419 | 417,265 | ||||
| Selling, general and administrative expenses | 118,229 | 111,662 | 232,767 | 214,841 | ||||
| Depreciation | 14,172 | 15,270 | 27,426 | 31,611 | ||||
| Amortization | 15,566 | 15,414 | 31,087 | 30,323 | ||||
| Management fees to related party | — | 88 | — | 214 | ||||
| Other (income) expense, net | (1,772) | (2,195) | (4,194) | (2,547) | ||||
| Income (loss) from operations | 27,773 | 19,509 | 36,622 | 25,289 | ||||
| Interest expense, net | 12,533 | 19,159 | 24,161 | 38,178 | ||||
| Interest expense on junior subordinated debentures | — | 3,152 | — | 6,304 | ||||
| (Gain) loss on mark-to-market adjustments | — | (751) | — | (1,424) | ||||
| Investment income on trust common securities | — | (94) | — | (189) | ||||
| Income (loss) before income taxes | 15,240 | (1,957) | 12,461 | (17,580) | ||||
| Income tax provision (benefit) | 6,424 | 1,428 | 5,532 | (5,225) | ||||
| Net income (loss) | $ | 8,816 | $ | (3,385) | $ | 6,929 | $ | (12,355) |
| Basic income (loss) per share | $ | 0.05 | $ | (0.04) | $ | 0.04 | $ | (0.14) |
| Weighted average basic shares outstanding | 194,135 | 91,217 | 194,071 | 91,266 | ||||
| Diluted income (loss) per share | $ | 0.04 | $ | (0.04) | $ | 0.04 | $ | (0.14) |
| Weighted average diluted shares outstanding | 196,686 | 91,217 | 195,932 | 91,266 |
HILLMAN SOLUTIONS CORP.
Condensed Consolidated Balance Sheets
(dollars in thousands)
Unaudited
| June 25,<br>2022 | December 25,<br>2021 | |||
|---|---|---|---|---|
| ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 17,723 | $ | 14,605 |
| Accounts receivable, net of allowances of $2,579 ($2,891 - 2021) | 132,846 | 107,212 | ||
| Inventories, net | 574,848 | 533,530 | ||
| Other current assets | 18,761 | 12,962 | ||
| Total current assets | 744,178 | 668,309 | ||
| Property and equipment, net of accumulated depreciation of $309,464 ($284,069 - 2021) | 176,824 | 174,312 | ||
| Goodwill | 825,070 | 825,371 | ||
| Other intangibles, net of accumulated amortization of $383,715 ($352,695 - 2021) | 765,888 | 794,700 | ||
| Operating lease right of use assets | 77,925 | 82,269 | ||
| Deferred tax assets | — | 1,323 | ||
| Other assets | 26,414 | 16,638 | ||
| Total assets | $ | 2,616,299 | $ | 2,562,922 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 187,527 | $ | 186,126 |
| Current portion of debt and finance lease liabilities | 11,860 | 11,404 | ||
| Current portion of operating lease liabilities | 12,777 | 13,088 | ||
| Accrued expenses: | ||||
| Salaries and wages | 11,076 | 8,606 | ||
| Pricing allowances | 8,815 | 10,672 | ||
| Income and other taxes | 4,782 | 4,829 | ||
| Interest | 1,562 | 1,519 | ||
| Other accrued liabilities | 44,335 | 41,052 | ||
| Total current liabilities | 282,734 | 277,296 | ||
| Long-term debt | 929,246 | 906,531 | ||
| Deferred tax liabilities | 145,394 | 137,764 | ||
| Operating lease liabilities | 70,741 | 74,476 | ||
| Other non-current liabilities | 11,096 | 16,760 | ||
| Total liabilities | $ | 1,439,211 | $ | 1,412,827 |
| Commitments and contingencies | ||||
| Stockholders' equity: | ||||
| Common stock, $0.0001 par, 500,000,000 shares authorized, 194,359,084 issued and 194,270,779 outstanding at June 25, 2022 and 194,083,625 issued and 193,995,320 outstanding at December 25, 2021 | 20 | 20 | ||
| Additional paid-in capital | 1,396,863 | 1,387,410 | ||
| Accumulated deficit | (203,252) | (210,181) | ||
| Accumulated other comprehensive income (loss) | (16,543) | (27,154) | ||
| Total stockholders' equity | 1,177,088 | 1,150,095 | ||
| Total liabilities and stockholders' equity | $ | 2,616,299 | $ | 2,562,922 |
HILLMAN SOLUTIONS CORP.
Condensed Consolidated Statement of Cash Flows
(dollars in thousands)
Unaudited
| Twenty-six Weeks Ended <br>June 25, 2022 | Twenty-six Weeks Ended<br>June 26, 2021 | |||
|---|---|---|---|---|
| Cash flows from operating activities: | ||||
| Net income (loss) | $ | 6,929 | $ | (12,355) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||
| Depreciation and amortization | 58,513 | 61,934 | ||
| Deferred income taxes | 8,230 | (4,709) | ||
| Deferred financing and original issue discount amortization | 2,598 | 1,800 | ||
| Stock-based compensation expense | 8,304 | 3,537 | ||
| Change in fair value of contingent consideration | (3,646) | (1,212) | ||
| Other non-cash interest and change in fair value of interest rate swap | — | (1,424) | ||
| Changes in operating items: | ||||
| Accounts receivable, net | (25,163) | (23,547) | ||
| Inventories, net | (42,973) | (73,049) | ||
| Other assets | (4,125) | (15,786) | ||
| Accounts payable | 1,502 | 22,443 | ||
| Other accrued liabilities | 4,501 | (17,471) | ||
| Net cash provided by (used for) operating activities | 14,670 | (59,839) | ||
| Cash flows from investing activities: | ||||
| Acquisition of business, net of cash received | (2,500) | (39,102) | ||
| Capital expenditures | (28,921) | (22,684) | ||
| Net cash used for investing activities | (31,421) | (61,786) | ||
| Cash flows from financing activities: | ||||
| Repayments of senior term loans | (4,256) | (5,304) | ||
| Borrowings on senior term loans | — | 35,000 | ||
| Financing fees | — | (1,027) | ||
| Borrowings on revolving credit loans | 121,000 | 128,000 | ||
| Repayments of revolving credit loans | (97,000) | (42,000) | ||
| Principal payments under finance lease obligations | (556) | (460) | ||
| Proceeds from exercise of stock options | 1,149 | 1,761 | ||
| Cash payments related to hedging activities | (944) | — | ||
| Net cash provided by financing activities | 19,393 | 115,970 | ||
| Effect of exchange rate changes on cash | 476 | 390 | ||
| Net increase (decrease) in cash and cash equivalents | 3,118 | (5,265) | ||
| Cash and cash equivalents at beginning of period | 14,605 | 21,520 | ||
| Cash and cash equivalents at end of period | $ | 17,723 | $ | 16,255 |
HILLMAN SOLUTIONS CORP.
Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
The Company uses non-GAAP financial measures to analyze underlying business performance and trends. The Company believes that providing these non-GAAP financial measures enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance. These non-GAAP financial measures are provided as supplemental information to the financial measures presented in this press release that are calculated and presented in accordance with GAAP. Non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP. The Company’s definitions of its non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. Because GAAP financial measures on a forward-looking basis are not accessible, and reconciling information is not available without unreasonable effort, reconciliations to GAAP financial measures are not provided for forward-looking non-GAAP measures. For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could be material to future results.
Non-GAAP financial measures such as consolidated adjusted EBITDA and Adjusted Diluted Earnings per Share (EPS) exclude from the relevant GAAP metrics items that neither relate to the ordinary course of the Company’s business, nor reflect the Company’s underlying business performance.
Reconciliation of Adjusted EBITDA (Unaudited)
(dollars in thousands)
Adjusted EBITDA is a non-GAAP financial measure and is the primary basis used to measure the operational strength and performance of our businesses as well as to assist in the evaluation of underlying trends in our businesses. This measure eliminates the significant level of noncash depreciation and amortization expense that results from the capital-intensive nature of our businesses and from intangible assets recognized in business combinations. It is also unaffected by our capital and tax structures, as our management excludes these results when evaluating our operating performance. Our management and Board of Directors use this financial measure to evaluate our consolidated operating performance and the operating performance of our operating segments and to allocate resources and capital to our operating segments. Additionally, we believe that Adjusted EBITDA is useful to investors because it is one of the bases for comparing our operating performance with that of other companies in our industries, although our measure of Adjusted EBITDA may not be directly comparable to similar measures used by other companies.
| Thirteen Weeks Ended<br>June 25, 2022 | Thirteen Weeks Ended<br>June 26, 2021 | Twenty-six Weeks Ended <br>June 25, 2022 | Twenty-six Weeks Ended<br>June 26, 2021 | |||||
|---|---|---|---|---|---|---|---|---|
| Net income (loss) | $ | 8,816 | $ | (3,385) | $ | 6,929 | $ | (12,355) |
| Income tax provision (benefit) | 6,424 | 1,428 | 5,532 | (5,225) | ||||
| Interest expense, net | 12,533 | 19,159 | 24,161 | 38,178 | ||||
| Interest expense on junior subordinated debentures | — | 3,152 | — | 6,304 | ||||
| Investment income on trust common securities | — | (94) | — | (189) | ||||
| Depreciation | 14,172 | 15,270 | 27,426 | 31,611 | ||||
| Amortization | 15,566 | 15,414 | 31,087 | 30,323 | ||||
| Mark-to-market adjustment of interest rate swap | — | (751) | — | (1,424) | ||||
| EBITDA | $ | 57,511 | $ | 50,193 | $ | 95,135 | $ | 87,223 |
| Stock compensation expense | 2,286 | 1,796 | 8,304 | 3,537 | ||||
| Management fees | — | 88 | — | 214 | ||||
| Restructuring (1) | 513 | — | 565 | 109 | ||||
| Litigation expense (2) | 2,703 | 6,322 | 3,713 | 10,282 | ||||
| Acquisition and integration expense (3) | 1,438 | 3,299 | 2,215 | 8,139 | ||||
| Change in fair value of contingent consideration | (2,175) | (1,212) | (3,645) | (1,212) | ||||
| Buy-back expense (4) | — | 1,350 | — | 1,350 | ||||
| Anti-dumping duties (5) | — | 2,636 | — | 2,636 | ||||
| Total adjusting items | $ | 4,765 | $ | 14,279 | $ | 11,152 | $ | 25,055 |
| Adjusted EBITDA | $ | 62,276 | $ | 64,472 | $ | 106,287 | $ | 112,278 |
(1)Restructuring includes severance, consulting, and other costs associated with streamlining our operations.
(2)Litigation expense includes legal fees associated with our litigation with KeyMe, Inc. and Hy-Ko Products Company LLC.
(3)Acquisition and integration expense includes professional fees, non-recurring bonuses, and other costs related to the merger with Landcadia III and the secondary offering of shares in the second quarter of 2022.
(4)Infrequent buy backs associated with new business wins.
(5)Anti-dumping duties assessed related to the nail business for prior year purchases.
Reconciliation of Adjusted Diluted EPS (Unaudited)
(in thousands, except per share data)
We define Adjusted Diluted EPS as reported diluted EPS excluding the effect of one-time, non-recurring activity and volatility associated with our income tax expense. The Company believes that Adjusted Diluted EPS provides further insight and comparability in operating performance as it eliminates the effects of certain items that are not comparable from one period to the next. The following is a reconciliation of reported diluted EPS from continuing operations to Adjusted Diluted EPS from continuing operations:
| Thirteen Weeks Ended<br>June 25, 2022 | Thirteen Weeks Ended<br>June 26, 2021 | Twenty-six Weeks Ended <br>June 25, 2022 | Twenty-six Weeks Ended<br>June 26, 2021 | |||||
|---|---|---|---|---|---|---|---|---|
| Reconciliation to Adjusted Net Income | ||||||||
| Net Income | $ | 8,816 | $ | (3,385) | $ | 6,929 | $ | (12,355) |
| Remove adjusting items (1) | 4,765 | 14,279 | 11,152 | 25,055 | ||||
| Mark-to-Market adjustment on interest rate swaps (2) | — | (751) | — | (1,424) | ||||
| Remove amortization expense | 15,566 | 15,414 | 31,087 | 30,323 | ||||
| Remove tax benefit on adjusting items and amortization expense (2) | (1,529) | (3,773) | (2,602) | (5,661) | ||||
| Adjusted Net Income | $ | 27,618 | $ | 21,784 | $ | 46,566 | $ | 35,938 |
| Reconciliation to Adjusted Diluted Earnings per Share | ||||||||
| Diluted Earnings per Share | $ | 0.04 | $ | (0.04) | $ | 0.04 | $ | (0.14) |
| Remove adjusting items (1) | 0.02 | 0.15 | 0.06 | 0.27 | ||||
| Mark-to-Market adjustment on interest rate swaps (2) | — | (0.01) | — | (0.02) | ||||
| Remove amortization expense | 0.08 | 0.17 | 0.16 | 0.33 | ||||
| Remove tax benefit on adjusting items and amortization expense (2) | (0.01) | (0.04) | (0.01) | (0.06) | ||||
| Adjusted Diluted Earnings per Share | $ | 0.14 | $ | 0.24 | $ | 0.24 | $ | 0.39 |
| Reconciliation to Adjusted Diluted Shares Outstanding | ||||||||
| Diluted Shares, as reported (3) | 196,686 | 91,217 | 195,932 | 91,266 | ||||
| Non-GAAP dilution adjustments | ||||||||
| Dilutive effect of stock options and awards | — | 1,025 | — | 927 | ||||
| Dilutive effect of warrants | — | — | — | — | ||||
| Adjusted Diluted Shares | 196,686 | 92,242 | 195,932 | 92,193 |
Note: Adjusted EPS may not add due to rounding.
(1)Please refer to "Reconciliation of Adjusted EBTIDA" table above for additional information on adjusting items. See "Per share impact of Adjusting Items" table below for the per share impact of each adjustment.
Per Share Impact of Adjusting Items
| Thirteen Weeks Ended<br>June 25, 2022 | Thirteen Weeks Ended<br>June 26, 2021 | Twenty-six Weeks Ended <br>June 25, 2022 | Twenty-six Weeks Ended<br>June 26, 2021 | |
|---|---|---|---|---|
| Stock compensation expense | $0.01 | $0.02 | $0.04 | $0.04 |
| Management fees | — | — | — | — |
| Restructuring | — | — | — | — |
| Litigation expense | 0.01 | 0.07 | 0.02 | 0.11 |
| Acquisition and integration expense | 0.01 | 0.04 | 0.01 | 0.09 |
| Change in fair value of contingent consideration | (0.01) | (0.01) | (0.02) | (0.01) |
| Buy-back expense | — | 0.01 | — | 0.01 |
| Anti-dumping duties | — | 0.03 | — | 0.03 |
| Total adjusting items | $0.02 | $0.15 | $0.06 | $0.27 |
Note: Adjusting items may not add due to rounding.
(2)We have calculated the income tax effect of the non-GAAP adjustments shown above at the applicable statutory rate of 25.2% for the U.S. and 26.5% for Canada except for the following items:
a.The tax impact of stock compensation expense was calculated using the statutory rate of 25.2%, excluding certain awards that are non-deductible.
b.The tax impact of acquisition and integration expense included in "Other" was calculated using the statutory rate of 25.2%, excluding certain charges that were non-deductible.
c.Amortization expense for financial accounting purposes was offset by the tax benefit of deductible amortization expense using the statutory rate of 25.2%.
(3)Diluted shares on a GAAP basis for the thirteen and twenty-six weeks ended June 25, 2022 include the dilutive impact of 2,551 and 1,861 options and awards, respectively.
Reconciliation of Net Debt (Unaudited)
We define Net Debt as reported gross debt less cash on hand. Net debt is not defined under U.S. GAAP and may not be computed the same as similarly titled measures used by other companies. The Company believes that Net Debt provides further insight and comparability into liquidity and capital structure. The following is a the calculation of Net Debt:
| June 25, 2022 | December 25, 2021 | |||
|---|---|---|---|---|
| Revolving loans | $ | 117,000 | $ | 93,000 |
| Senior term loan, due 2028 | 846,745 | 851,000 | ||
| Finance leases | 3,064 | 1,782 | ||
| Gross debt | $ | 966,809 | $ | 945,782 |
| Less cash | 17,723 | 14,605 | ||
| Net debt | $ | 949,086 | $ | 931,177 |
Reconciliation of Free Cash Flow (Unaudited)
We calculate free cash flow as cash flows from operating activities less capital expenditures. Free cash flow is not defined under U.S. GAAP and may not be computed the same as similarly titled measures used by other companies. We believe free cash flow is an important indicator of how much cash is generated by our business operations and is a measure of incremental cash available to invest in our business and meet our debt obligations.
| Twenty-six Weeks Ended <br>June 25, 2022 | Twenty-six Weeks Ended<br>June 26, 2021 | |||
|---|---|---|---|---|
| Net cash provided by (used for) operating activities | $ | 14,670 | $ | (59,839) |
| Capital expenditures | (28,921) | (22,684) | ||
| Free cash flow | $ | (14,251) | $ | (82,523) |
Source: Hillman Solutions Corp.
11
hillmanq22022earningscal
235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Quarterly Earnings Presentation Q2 2022
2 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 PresBuilder Placeholder - Delete this box if you see it on a slide, but DO NOT REMOVE this box from the slide layout This presentation contains certain forward-looking statements, including, but not limited to, certain plans, expectations, goals, projections, and statements, which are not historical facts and are subject to numerous assumptions, risks, and uncertainties. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements. All forward-looking statements are made in good faith by the company and are intended to qualify for the safe harbor from liability established by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.You should not rely on these forward-looking statements as predictions of future events. Words such as "expect," "estimate," "project," "budget," "forecast," "anticipate," "intend," "plan," “target”, “goal”, "may," "will," "could," "should," "believes," "predicts," "potential," "continue," and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, the Company’s expectations with respect to future performance. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside the Company's control and are difficult to predict. Factors that may cause such differences include, but are not limited to: (1) unfavorable economic conditions that may affect operations, financial condition and cash flows including spending on home renovation or construction projects, inflation, recessions, instability in the financial markets or credit markets; (2) increased supply chain costs, including raw materials, sourcing, transportation and energy; (3) the highly competitive nature of the markets that we serve (4) ability to continue to innovate with new products and services; (5) seasonality; (6) large customer concentration; (7) ability to recruit and retain qualified employees; (8) the outcome of any legal proceedings that may be instituted against the Company (9) adverse changes in currency exchange rates; (10) the impact of COVID-19 on the Company’s business; or (11) regulatory changes and potential legislation that could adversely impact financial results. The foregoing list of factors is not exclusive, and readers should also refer to those risks that are included in the Company’s filings with the Securities and Exchange Commission (“SEC”), including the Annual Report on Form 10-K filed on March 16, 2022. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward looking statements. Except as required by applicable law, the Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements in this communication to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based. Presentation of Non-GAAP Financial Measures In addition to the results provided in accordance with U.S. generally accepted accounting principles (“GAAP”) throughout this presentation the company has provided non-GAAP financial measures, which present results on a basis adjusted for certain items. The company uses these non-GAAP financial measures for business planning purposes and in measuring its performance relative to that of its competitors. The company believes that these non-GAAP financial measures are useful financial metrics to assess its operating performance from period-to-period by excluding certain items that the company believes are not representative of its core business. These non-GAAP financial measures are not intended to replace, and should not be considered superior to, the presentation of the company’s financial results in accordance with GAAP. The use of the non-GAAP financial measures terms may differ from similar measures reported by other companies and may not be comparable to other similarly titled measures. These non-GAAP financial measures are reconciled from the respective measures under GAAP in the appendix below. The company is not able to provide a reconciliation of the company’s non-GAAP financial guidance to the corresponding GAAP measures without unreasonable effort because of the inherent difficulty in forecasting and quantifying certain amounts necessary for such a reconciliation such as certain non-cash, nonrecurring or other items that are included in net income and EBITDA as well as the related tax impacts of these items and asset dispositions / acquisitions and changes in foreign currency exchange rates that are included in cash flow, due to the uncertainty and variability of the nature and amount of these future charges and costs. Forward Looking Statements
3 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 • Net sales increased 4.9% to $394.1 million versus Q2 2021 ◦ Hardware Solutions +12.0% ◦ Robotics and Digital Solutions ("RDS") (2.4)% ◦ Canada +7.1% ◦ Protective Solutions (12.0)% • GAAP net income improved to $8.8 million, or $0.04 per diluted share, compared to a net loss of $(3.4) million, or $(0.04) per diluted share, in Q2 2021 • Adjusted EBITDA totaled $62.3 million • Adjusted EBITDA (ttm) / Net Debt: 4.7x at quarter end • Compared to Pre-COVID (Q2 2022 vs Q2 2019): ◦ Net sales increased +21.5% ◦ Adjusted EBITDA +14.8% Q2 2022 Highlights Please see reconciliation of Adjusted EBITDA to Net Income and Net Debt in the Appendix of this presentation. Financial Highlights for the 13 Weeks Ended June 25, 2022
4 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Q2 2022 Highlights • Successfully finalized details of price increase (fourth increase in past 15 months) • Maintained average fill rates of nearly 97% during the quarter • Completed fastener launch for the first time at a major retail partner ◦ Executed on time with 99.7% fill rates ◦ Already seeing replenishment orders • Positioned for continued new business momentum • Expects to see inventory come down and cash flows increase in the second half of 2022 Operational Highlights for the 13 Weeks Ended June 25, 2022
5 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 • Net sales increased 5.6% to $757.1 million versus the 26 weeks ended June 26, 2021 ◦ Hardware Solutions +12.7% ◦ Robotics and Digital Solutions ("RDS") +3.6% ◦ Canada +4.4% ◦ Protective Solutions down less than 1% (excl. COVID-related PPE sales) • GAAP net income improved to $6.9 million, or $0.04 per diluted share, compared to a net loss of $(12.4) million, or $(0.14) per diluted share, versus the 26 weeks ended June 26, 2021 • Adjusted EBITDA totaled $106.3 million versus $112.3 million for the 26 weeks ended June 26, 2021 YTD 2022 Highlights Please see reconciliation of Adjusted EBITDA to Net Income in the Appendix of this presentation. Financial Highlights for the 26 Weeks Ended June 25, 2022
6 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Adjusted EBITDA (millions $ and % of Net Sales) Top & Bottom Line Performance Net Sales (millions $) Adjusted Gross Margin (millions $ and % of Net Sales) Please see reconciliation of Adjusted EBITDA to Net Income in the Appendix of this presentation. Not to scale. Quarterly Financial Performance $64.5 $62.3 Q2 2021 Q2 2022 17.2% 15.8%Q2 2022 vs Q2 2019 (Pre-COVID) • Net sales increased +21.5% ◦ Adjusted EBITDA +14.8% $375.7 $394.1 Q2 2021 Q2 2022 $163.7 $174.0 Q2 2021 Q2 2022 44.1%43.6%
7 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Hardware & Protective Q2 2021 Q2 2022 Δ Thirteen weeks ended 6/26/2021 6/25/2022 Comments Revenues $263,129 $279,842 6.4% Price increases + lighter volume (HS & PS) Adjusted EBITDA $36,114 $31,292 (13.4)% Margin pressure from dollar-for-dollar price increases Margin (Rev/Adj. EBITDA) 13.7% 11.2% (250) bps Robotics & Digital Q2 2021 Q2 2022 Δ Thirteen weeks ended 6/26/2021 6/25/2022 Comments Revenues $66,351 $64,776 (2.4)% Lighter volumes + difficult comps in Q2-21 Adjusted EBITDA $23,696 $22,334 (5.7)% Lighter volumes + difficult comps in Q2-21 Margin (Rev/Adj. EBITDA) 35.7% 34.5% (120) bps Canada Q2 2021 Q2 2022 Δ Thirteen weeks ended 6/26/2021 6/25/2022 Comments Revenues $46,235 $49,496 7.1% Price increases + soft demand Adjusted EBITDA $4,662 $8,650 85.5% Improved operations + price increases Margin (Rev/Adj. EBITDA) 10.1% 17.5% 740 bps Consolidated Q2 2021 Q2 2022 Δ Thirteen weeks ended 6/26/2021 6/25/2022 Revenues $375,715 $394,114 4.9% Adjusted EBITDA $64,472 $62,276 (3.4)% Margin (Rev/Adj. EBITDA) 17.2% 15.8% (140) bps Performance by Product Category (Q2) Please see reconciliation of Adjusted EBITDA to Net Income in the Appendix of this presentation. Figures in Thousands of USD unless otherwise noted..
8 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Hardware & Protective YTD 2021 YTD 2022 Δ Twenty-six weeks ended 6/26/2021 6/25/2022 Comments Revenues $514,058 $546,257 6.3% Price increases + flat demand (HS) and lower PPE sales (PS) Adjusted EBITDA $65,146 $51,875 (20.4)% Timing of price increase; lower PPE sales; inflation Margin (Rev/Adj. EBITDA) 12.7% 9.5% (320) bps Robotics & Digital YTD 2021 YTD 2022 Δ Twenty-six weeks ended 6/26/2021 6/25/2022 Comments Revenues $122,230 $126,584 3.6% Installed base + COVID comps Adjusted EBITDA $41,113 $41,208 0.2% Sales growth offset by inflation Margin (Rev/Adj. EBITDA) 33.6% 32.6% (100) bps Canada YTD 2021 YTD 2022 Δ Twenty-six weeks ended 6/26/2021 6/25/2022 Comments Revenues $80,708 $84,286 4.4% Price increases + soft demand Adjusted EBITDA $6,019 $13,204 119.4% Stronger CAD + product mix Margin (Rev/Adj. EBITDA) 7.5% 15.7% 820 bps Consolidated YTD 2021 YTD 2022 Δ Twenty-six weeks ended 6/26/2021 6/25/2022 Revenues $716,996 $757,127 5.6% Adjusted EBITDA $112,278 $106,287 (5.3)% Margin (Rev/Adj. EBITDA) 15.7% 14.0% (170) bps Performance by Product Category (YTD) Please see reconciliation of Adjusted EBITDA to Net Income in the Appendix of this presentation. Figures in Thousands of USD unless otherwise noted..
9 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Hardware & Protective Robotics & Digital Canada Revenue Thirteen weeks ended June 25, 2022 Fastening and Hardware $225,377 $— $48,473 $273,850 Personal protective 54,465 — 220 54,685 Keys and key accessories — 49,837 792 50,629 Engraving and Resharp — 14,939 11 14,950 Consolidated $279,842 $64,776 $49,496 $394,114 Revenue by Business Segment (Q2) Hardware & Protective Robotics & Digital Canada Revenue Thirteen weeks ended June 26, 2021 Fastening and Hardware $201,208 $— $45,826 $247,034 Personal protective 61,921 — 178 62,099 Keys and key accessories — 50,289 206 50,495 Engraving and Resharp — 16,062 25 16,087 Consolidated $263,129 $66,351 $46,235 $375,715 Figures in Thousands of USD unless otherwise noted..
10 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Hardware & Protective Robotics & Digital Canada Revenue Twenty-six weeks ended June 25, 2022 Fastening and Hardware $414,684 $— $82,132 $496,816 Personal protective 131,573 — 662 132,235 Keys and key accessories — 98,213 1,466 99,679 Engraving and Resharp — 28,371 26 28,397 Consolidated $546,257 $126,584 $84,286 $757,127 Revenue by Business Segment (YTD) Hardware & Protective Robotics & Digital Canada Revenue Twenty-six weeks ended June 26, 2021 Fastening and Hardware $367,810 $— $79,917 $447,727 Personal protective 146,248 — 191 146,439 Keys and key accessories — 92,383 567 92,950 Engraving and Resharp — 29,847 33 29,880 Consolidated $514,058 $122,230 $80,708 $716,996 Figures in Thousands of USD unless otherwise noted..
11 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Capital Structure Supports Growth & Enables Healthy Fill Rates Total Net Leverage Net Debt / TTM Adj. EBITDA Please see reconciliation of Adjusted EBITDA to Net Income and Net Debt in the Appendix of this presentation. Figures in Millions of USD unless otherwise noted. 7.2x 4.5x 4.7x 06/26/2021 12/25/2021 06/25/2022 June 25, 2022 ABL Revolver ($250 million capacity) $117.0 Term Note $846.7 Finance Leases $3.1 Total Debt $966.8 Cash $17.7 Net Debt $949.1 TTM Adjusted EBITDA $201.4 Net Debt/ TTM Adjusted EBITDA 4.7 x
12 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 (in millions USD) 2H 2022 v. 2H 2021 Update (%) Full Year 2022 Guidance Range Update Revenues + Mid Single Digits $1,500- $1,600 Toward the low end of guidance range Adjusted EBITDA + High Single Digits $207 to $227 At the low end of the guidance range Free Cash Flow $120 to $130 No change 2022 Assumptions - Updates • Interest Expense: $50-$55 million (up from $45-$50 million) • Cash Interest: $45-$50 million (up from $35-$45 million) • Income Tax: Modest cash taxpayer in 2022; ~25% cash taxpayer in 2023 (no change) • Capital expenditures: $60-$65 million (down from $60-$70 million) • Fully diluted shares outstanding: ~196 million (no change) 2022 Outlook & Guidance On August 3, 2022, Hillman provided an update on its full year guidance, originally provided on March 2, 2022 with Hillman's fourth quarter 2021 results. 2022 Full Year Guidance - Update Please see reconciliation of Adjusted EBITDA to Net Income in the Appendix of this presentation. Figures in Millions of USD unless otherwise noted..
13 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Key Takeaways Price Increases Offset Headwinds; Positioned Well for 2H 2022 Long-term Annual Growth Targets (Organic): Revenue Growth: +6% & Adj. EBITDA Growth: +10% Long-term Annual Growth Targets (incl. Acquisitions): Revenue Growth: +10% & Adj. EBITDA Growth: +15% • Finalized details of fourth pricing increase; designed to offset an increase in contracted container rates (on a dollar-for-dollar basis) that became effective May 1, 2022 • 1,100-member distribution (sales and service) team and direct-to-store fulfillment continue to provide competitive advantages and strengthen competitive moat • Beginning to see commodity and shipping costs soften and lead times shorten • Repair, Remodel and Maintenance industry has meaningful long-term tailwinds; business not tied to new housing - record level of U.S. home equity driving investment in the home1 • Expects to reduce inventory by approx. $50 million during 2H; end year at ~4.0x Net Debt / TTM EBITDA; and have zero balance on revolving credit facility at year end 1) U.S. Home Equity Hits Highest Level on Record—$27.8 Trillion.
14 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Appendix
15 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Significant runway for incremental growth: Organic + M&A Management team with proven operational and M&A expertise Strong financial profile with 57-year track record Market and innovation leader across multiple categories Indispensable partner embedded with winning retailers Customers love us, trust us and rely on us Large, predictable, growing and resilient end markets #1 Investment Highlights
16 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Who We Are Notes: Figures may not tie due to rounding and corporate eliminations. Adjusted EBITDA is a non-GAAP measure. Please see page 17 for a reconciliation of Adjusted EBITDA to Net Income. Operational metrics based on 2020 management estimates. ~20 billion Fasteners Sold ~400 million Pairs of Gloves Sold ~125 million Keys Duplicated ~112,000 SKUs Managed ~42,000 Store Direct Locations ~35,000 Kiosks in Retail Locations #1 Position Across Core Categories 10% Long-Term Historical Sales CAGR 56 Years Sales Growth in 57-Year History $1.4 billion 2021 Sales 14.4% CAGR 2017-2021 Adj. EBITDA Growth 14.5% 2021 Adj. EBITDA Margin Hillman: Overview 2021: By The Numbers • The leading distributor of hardware and home improvement products, personal protective equipment and robotic kiosk technologies • Long-standing strategic partnerships with winning retailers across North America: Home Depot, Lowes, Walmart, Tractor Supply, ACE Hardware, etc. • Hillman's 1,100 person field sales and service team provide complex logistics, inventory, category management and differentiated in-store merchandising • The predominance of sales come from Hillman-owned brands, and are shipped store-direct • Highly attractive ~$6 billion direct addressable market with strong secular tailwinds • ~4,000 non-union employees across corporate HQ, 22 North American distribution centers, and Taiwan sourcing office • Founded in 1964; HQ in Cincinnati, Ohio
17 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 #1 in Segment Representative Top Customers #1 in Segment #1 in Segment Key and Fob Duplication Personalized Tags Knife Sharpening Fasteners & Specialty Gloves Builders Hardware & Metal Shapes Safety / PPE Construction Fasteners Work Gear Picture Hanging Source: Third party industry report. Primary Product Categories Hardware Solutions Protective Solutions Robotics & Digital Solutions
18 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Thirteen weeks ended June 26, 2021 June 25, 2022 Net loss $(3,385) $8,816 Income tax benefit 1,428 6,424 Interest expense, net 19,159 12,533 Interest expense on junior subordinated debentures 3,152 — Investment income on trust common securities (94) — Depreciation 15,270 14,172 Amortization 15,414 15,566 Mark-to-market adjustment on interest rate swaps (751) — EBITDA $50,193 $57,511 Stock compensation expense 1,796 2,286 Management fees 88 — Restructuring (1) — 513 Litigation expense (2) 6,322 2,703 Acquisition and integration expense (3) 3,299 1,438 Change in fair value of contingent consideration (1,212) (2,175) Buy-back expense (4) 1,350 — Anti-dumping duties (5) 2,636 — Adjusted EBITDA $64,472 $62,276 1. Restructuring includes severance, consulting, and other costs associated with streamlining our operations. 2. Litigation expense includes legal fees associated with our litigation with KeyMe, Inc. and Hy-Ko Products Company LLC. 3. Acquisition and integration expense includes professional fees, non-recurring bonuses, and other costs related to the merger with Landcadia III and the secondary offering of shares in the second quarter of 2022. 4. Infrequent buy backs associated with new business wins. 5. Anti-dumping duties assessed related to the nail business for prior year purchases. Adjusted EBITDA Reconciliation
19 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Twenty-six weeks ended June 26, 2021 June 25, 2022 Net loss $(12,355) $6,929 Income tax benefit (5,225) 5,532 Interest expense, net 38,178 24,161 Interest expense on junior subordinated debentures 6,304 — Investment income on trust common securities (189) — Depreciation 31,611 27,426 Amortization 30,323 31,087 Mark-to-market adjustment on interest rate swaps (1,424) — EBITDA $87,223 $95,135 Stock compensation expense 3,537 8,304 Management fees 214 — Restructuring (1) 109 565 Litigation expense (2) 10,282 3,713 Acquisition and integration expense (3) 8,139 2,215 Change in fair value of contingent consideration (1,212) (3,645) Buy-back expense (4) 1,350 — Anti-dumping duties (5) 2,636 — Adjusted EBITDA $112,278 $106,287 1. Restructuring includes severance, consulting, and other costs associated with streamlining our operations. 2. Litigation expense includes legal fees associated with our litigation with KeyMe, Inc. and Hy-Ko Products Company LLC. 3. Acquisition and integration expense includes professional fees, non-recurring bonuses, and other costs related to the merger with Landcadia III and the secondary offering of shares in the second quarter of 2022. 4. Infrequent buy backs associated with new business wins. 5. Anti-dumping duties assessed related to the nail business for prior year purchases. Adjusted EBITDA Reconciliation
20 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Thirteen weeks ended June 26, 2021 June 25, 2022 Net Sales $375,715 $394,114 Cost of sales (exclusive of depreciation and amortization) 215,967 220,146 Gross margin exclusive of depreciation and amortization $159,748 $173,968 Gross margin exclusive of depreciation and amortization % 42.5 % 44.1 % Adjusting Items (1): Buy-back expense 1,350 — Anti-dumping duties 2,636 — Adjusted Gross Profit $163,734 $173,968 Adjusted Gross Margin % 43.6 % 44.1 % Adjusted Gross Profit Margin Reconciliation 1. See adjusted EBITDA Reconciliation for details of adjusting items Twenty-six weeks ended June 26, 2021 June 25, 2022 Net Sales $716,996 $757,127 Cost of sales (exclusive of depreciation and amortization) 417,265 433,419 Gross margin exclusive of depreciation and amortization $299,731 $323,708 Gross margin exclusive of depreciation and amortization % 41.8 % 42.8 % Adjusting Items (1): Buy-back expense 1,350 — Anti-dumping duties 2,636 — Adjusted Gross Profit $303,717 $323,708 Adjusted Gross Margin % 42.4 % 42.8 %
21 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Thirteen weeks ended June 26, 2021 June 25, 2022 Selling, general and administrative expenses $111,662 $118,229 Adjusting Items (1): Stock compensation expense 1,796 2,286 Restructuring — 513 Litigation expense 6,322 2,703 Acquisition and integration expense 3,299 1,438 Adjusted SG&A $100,245 $111,289 Adjusted SG&A as a % of Net Sales 26.7 % 28.2 % Adjusted S&A Expense Reconciliation 1. See adjusted EBITDA Reconciliation for details of adjusting items Twenty-six weeks ended June 26, 2021 June 25, 2022 Selling, general and administrative expenses $214,841 $232,767 Adjusting Items (1): Stock compensation expense 3,537 8,304 Restructuring 109 565 Litigation expense 10,282 3,713 Acquisition and integration expense 8,139 2,215 Adjusted SG&A $192,774 $217,970 Adjusted SG&A as a % of Net Sales 26.9 % 28.8 %
22 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 For Period Ending June 26, 2021 December 25, 2021 June 25, 2022 Revolving loans $158,000 $93,000 $117,000 Senior term loan 1,066,740 851,000 846,745 6.375% Senior Notes, due 2022 330,000 — — 11.6% Junior Subordinated Debentures - Preferred 105,443 — — Junior Subordinated Debentures - Common 3,261 — — Finance leases 1,773 1,782 3,064 Gross debt $1,665,217 $945,782 $966,809 Less cash 16,255 14,605 17,723 Net debt $1,648,962 $931,177 $949,086 Net Debt & Free Cash Flow Reconciliations For Period Ending June 26, 2021 June 25, 2022 Net cash provided by (used for) operating activities $(59,839) $14,670 Capital expenditures (22,684) (28,921) Free cash flow $(82,523) $(14,251) Reconciliation of Net Debt Reconciliation of Free Cash Flow
23 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Thirteen Weeks Ended June 25, 2022 HPS RDS Canada Consolidated Operating Income (Loss) $10,538 $10,437 $6,798 $27,773 Depreciation & Amortization 17,662 10,916 1,160 29,738 Stock compensation expense 1,374 220 692 2,286 Restructuring 478 35 — 513 Litigation expense — 2,703 — 2,703 Acquisition and integration expense 1,240 198 — 1,438 Change in fair value of contingent consideration — (2,175) — (2,175) Adjusted EBITDA $31,292 $22,334 $8,650 $62,276 Thirteen Weeks Ended June 26, 2021 HPS RDS Canada Consolidated Operating Income (Loss) $9,995 $6,546 $2,968 $19,509 Depreciation & Amortization 17,397 11,593 1,694 30,684 Stock Compensation Expense 1,552 244 — 1,796 Management fees 76 12 — 88 Litigation expense — 6,322 — 6,322 Acquisition and integration expense 3,108 191 — 3,299 Change in fair value of contingent consideration — (1,212) — (1,212) Buy-back expense 1,350 — — 1,350 Anti-dumping duties 2,636 — — 2,636 Adjusted EBITDA $36,114 $23,696 $4,662 $64,472 Segment Adjusted EBITDA Reconciliations
24 235 235 235 56 115 144 36 90 87 61 61 61 180 180 180 147 183 201 30 140 130 Earnings Presentation Q2 2022 Twenty-six weeks ended June 25, 2022 HPS RDS Canada Consolidated Operating Income (Loss) $8,142 $18,292 $10,188 $36,622 Depreciation & Amortization 34,719 21,470 2,324 58,513 Stock Compensation Expense 6,562 1,050 692 8,304 Restructuring 525 40 — 565 Litigation expense — 3,713 — 3,713 Acquisition and integration expense 1,927 288 — 2,215 Change in fair value of contingent consideration — (3,645) — (3,645) Adjusted EBITDA $51,875 $41,208 $13,204 $106,287 Twenty-six weeks ended June 26, 2021 HPS RDS Canada Consolidated Operating Income (Loss) $16,045 $6,700 $2,544 $25,289 Depreciation & Amortization 34,520 23,974 3,440 61,934 Stock Compensation Expense 3,056 481 — 3,537 Management fees 185 29 — 214 Restructuring 64 10 35 109 Litigation expense — 10,282 — 10,282 Acquisition and integration expense 7,290 849 — 8,139 Change in fair value of contingent consideration — (1,212) — (1,212) Buy-back expense 1,350 — — 1,350 Anti-dumping duties 2,636 — — 2,636 Adjusted EBITDA $65,146 $41,113 $6,019 $112,278 Segment Adjusted EBITDA Reconciliations