Hillman Solutions Corp. — Q1 2023 Form 10-Q
Reporting period: Thirteen weeks ended April 1, 2023; comparison is the thirteen weeks ended March 26, 2022. Dollar amounts below are in millions unless noted.
Business context
Hillman supplies hardware, fasteners, personal protective equipment, keys, key-duplication systems and related merchandising services to North American retailers and other customers. It reports Hardware and Protective Solutions, Robotics and Digital Solutions, and Canada segments. In Q1 2023, it realigned Canada to include its Canada-based Protective Solutions and MinuteKey businesses; prior-period segment figures were recast for comparison.
Financial results and liquidity
- Sales: $349.7, down 3.7% from $363.0. Hardware and Protective Solutions sales fell 4.3% to $253.9; Robotics and Digital Solutions were essentially flat at $61.1; Canada fell 5.1% to $34.8.
- Profitability: Gross margin was approximately 41.5%, compared with 41.2%. Operating income declined to $1.1 from $8.8 (operating margin 0.3% versus 2.4%). Net loss was $9.1, or $0.05 per diluted share, versus a $1.9 loss, or $0.01 per share. Adjusted EBITDA, a non-GAAP measure, was $40.2 versus $44.0; margin was 11.5% versus 12.1%.
- Costs and interest: SG&A decreased to $111.1 from $114.5, while depreciation increased to $16.7 from $13.3. Net interest expense rose $6.4 to $18.1, primarily due to higher interest rates.
- Cash flow: Operating activities provided $31.5, versus $3.5 used a year earlier, helped by inventory reduction. Investing used $18.5, including $18.1 of capital expenditures. Financing used $8.8. Cash increased $3.7 to $34.8.
- Debt and liquidity: Debt and finance-lease obligations totaled $911.6, including $838.2 of senior term loans and $67.0 drawn on the revolver. The company reported $208.9 of available revolver borrowings and working capital of $415.3. Long-term debt, net of discounts, fees and current portion, was $878.2.
- Balance sheet: Total assets were $2,486.8 and total liabilities $1,340.7 at April 1, 2023. Inventories were $450.9, down from $489.3 at year-end 2022.
Changes and management commentary
Hardware sales benefited from $11.8 of price increases and higher volume, but protective-equipment sales fell $26.4, reflecting $13.4 of COVID-related sales in the prior-year quarter and lower seasonal and promotional volume. Robotics performance was supported by a shift toward self-service keys, while Canada sales faced a $2.3 unfavorable currency effect. Management cited lower inventory as a key driver of improved operating cash flow and said it expected sufficient operating cash flow for short-term needs, while noting capital-market access is not assured.
Outlook, risks and contingencies
The filing provides no specific numerical guidance. Risks discussed include weaker consumer spending or recession, inflation and supply-chain costs, competition, customer concentration, seasonality, foreign-exchange movements, tariffs, commodity prices, and interest-rate exposure. A 1% change in the weighted-average interest rate was estimated to change annual interest expense by approximately $5.5. The company imports products subject to customs rules and anti-dumping/countervailing-duty reviews; additional duties may arise if probable and estimable. It reported ordinary-course litigation, which management did not expect to materially affect financial condition, results or cash flows. Letters of credit totaled $35.9. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether sales and segment operating performance stabilize, particularly in protective equipment and Canada.
- Whether inventory reduction converts into sustained operating cash flow without impairing product availability.
- Debt-service sensitivity to interest rates and continued availability under the asset-based revolver.
- Potential exposure from tariffs, customs reviews, currency movements, and the disclosed litigation.
- Adjusted EBITDA reconciliation and the extent to which restructuring, litigation, acquisition costs and contingent-consideration revaluation affect comparability.