Hillman Solutions Corp. — FY2022 Form 10-K
Business context and reporting period. Hillman supplies hardware, fasteners, personal protective equipment, keys, and engraving products, alongside retail merchandising and service support. Its three segments are Hardware and Protective Solutions, Robotics and Digital Solutions, and Canada. This annual report covers the fiscal year ended December 31, 2022, a 53-week year, compared with 52 weeks in FY2021; the filing does not provide a clear standalone Q4 income statement summary.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $1,486.3 million | $1,426.0 million |
| Income from operations | $39.9 million; 2.7% margin | $10.3 million; 0.7% margin |
| Net loss | $16.4 million; $(0.08) per diluted share | $38.3 million; $(0.28) per diluted share |
| Adjusted EBITDA (non-GAAP) | $210.2 million; 14.1% margin | $207.4 million; 14.5% margin |
| Cash from operating activities | $119.0 million | $(110.3) million |
| Capital expenditures | $69.6 million | $51.6 million |
Gross margin, calculated from reported net sales and cost of sales, was approximately 43.0% versus 39.7%. Interest expense, net, was $54.6 million. The company ended the year with $31.1 million in cash, $489.3 million in inventory, and $416.2 million in working capital, up from $391.0 million a year earlier.
Total debt and finance lease obligations were $918.8 million, including $840.4 million under the term loan and $72.0 million drawn on the ABL revolver. The revolver had $197.6 million of available borrowing capacity after the borrowing-base calculation and letters of credit. Debt is predominantly variable-rate; management estimated a one-percentage-point interest-rate change would affect annual interest expense by approximately $3.4 million, after swaps and rate floors.
Changes versus the prior year
- Sales rose 4.2%, primarily from $153.3 million of price increases; management reported slightly lower unit volumes overall.
- Hardware and Protective Solutions sales increased 5.1%; Robotics and Digital Solutions was essentially flat; Canada increased 5.4%.
- Personal protective product sales fell 14.7%, reflecting lower demand for COVID-related protective and cleaning products. Fastening and hardware sales rose 11.3%.
- Operating income improved by $29.6 million. Pricing and the absence of a $32.0 million FY2021 inventory valuation charge helped, while inflation, labor and transportation costs, and higher SG&A weighed on results.
- Net loss narrowed, but the company remained loss-making as interest expense exceeded operating income. Adjusted EBITDA increased modestly, while its margin declined.
- Operating cash flow improved substantially, helped by a $38.8 million cash-flow benefit from lower inventory; accounts payable reductions partly offset this benefit.
Outlook, risks, and unusual items
- Management said it expects inventory to continue declining and working capital and cash flow to improve in 2023. It anticipates some lower shipping and commodity costs flowing through the income statement in the second half of 2023. The filing provides no specific revenue or earnings guidance.
- Management expects $65 million to $75 million of 2023 capital expenditures, primarily for kiosks, merchandising racks, facility relocations, and IT. FY2022 year-end backlog was $24.6 million and was expected to be realized during FY2023; the company says backlog is not a significant performance indicator.
- Customer concentration is material: Home Depot represented 24.0% and Lowe’s 21.7% of FY2022 sales. The two together represented 45.7% of revenue.
- Key risks include economic weakness and reduced home-improvement spending, inflation and supply-chain costs, overseas sourcing and tariffs, inventory management, customer concentration, foreign exchange, cybersecurity, and substantial variable-rate debt.
- In October 2022, a jury found infringement of two Hy-Ko patents and awarded $16.0 million. Hillman settled for $18.5 million in December, resolving the claims and establishing a mutual 10-year covenant not to sue over relevant key duplication or identification patents. The company also recorded $32.9 million of Hy-Ko-related legal and consulting expense in FY2022.
- Goodwill totaled $823.8 million; no impairment was recorded. The annual test showed limited fair-value headroom for the Hardware Solutions and Protective Solutions reporting units, making results sensitive to assumptions about discount rates and projected growth.
- The company reported effective internal control over financial reporting, and the auditors issued unqualified opinions on the FY2022 financial statements and internal controls.
Important facts for investors to verify
- Whether price increases, volume trends, and cost relief support sustainable sales growth and operating margins.
- Whether inventory reductions translate into sustained operating cash flow, without harming customer fill rates.
- Debt terms, covenant headroom, variable-rate exposure, and actual revolver availability under the borrowing base.
- Customer retention and dependence on Home Depot and Lowe’s, together accounting for nearly half of sales.
- Progress on facility moves and planned capital spending, and any resulting operating or lease costs.
- Goodwill impairment sensitivity, particularly if sales, earnings, or market assumptions weaken.
- Whether non-GAAP Adjusted EBITDA adjustments, especially litigation costs, provide a useful view alongside GAAP losses and cash flow.