Hillman Solutions Corp. — Q1 2024 Form 10-Q
Reporting period: Thirteen weeks ended March 30, 2024, compared with thirteen weeks ended April 1, 2023. Amounts below are in U.S. dollars; financial statement figures are rounded to millions.
Business context and results
Hillman supplies hardware-related products and merchandising services to North American retailers. Its segments are Hardware and Protective Solutions, Robotics and Digital Solutions, and Canada. The company acquired Koch Industries on January 11, 2024, adding rope, twine, chain, wire rope, and related hardware products.
- Revenue: $350.3 million, up $0.6 million, or 0.2%, year over year. Hardware and Protective Solutions revenue rose 2.4% to $259.9 million, including about $9.2 million from Koch. Robotics and Digital Solutions fell 9.2% to $55.5 million; Canada rose 0.5% to $35.0 million.
- Profitability: Gross profit, calculated as net sales less cost of sales, was $166.9 million, versus $145.2 million; gross margin improved to 47.6% from 41.5%. Operating income was $16.3 million, versus $1.1 million, and operating margin was 4.7% versus 0.3%.
- Net result: Net loss was $1.5 million, or $0.01 per share, compared with a $9.1 million loss, or $0.05 per share. Interest expense declined to $15.3 million from $18.1 million. Q1 included $3.0 million in refinancing costs.
- Adjusted EBITDA: $52.3 million, versus $40.2 million. This is a non-GAAP measure; the filing provides a reconciliation to net loss.
- Cash flow: Operating cash flow was $11.7 million, down from $31.5 million. Investing used $41.8 million, including the $24.0 million Koch acquisition and $17.8 million in capital expenditures. Financing provided $20.4 million. Cash declined $7.9 million to $30.7 million.
Financial position and material changes
- Liquidity: Working capital was $351.0 million at quarter-end, up from $324.9 million at December 30, 2023. The company reported $211.6 million of available revolver borrowings, subject to borrowing-base and availability provisions; revolver borrowings outstanding were $18.0 million.
- Debt: The senior term loan was $749.7 million; total debt and finance lease obligations were $778.2 million before unamortized discounts and fees. Long-term debt, net, was $751.3 million, with $10.1 million classified as current.
- Refinancing: A March 26 amendment repriced the term loan due in 2028. The rate margin changed from SOFR plus 2.50%–2.75% and a credit spread adjustment to SOFR plus 2.25%–2.50%, without that adjustment. A 1% prepayment premium applies to repricing transactions within six months. The company expensed $3.0 million of related costs.
- Drivers of improvement: Lower product and shipping costs reduced cost of sales across segments. Higher SG&A, including compensation, IT investment, and labor and shipping inflation, partly offset the benefit. Higher receivables contributed to weaker operating cash flow; the prior-year quarter benefited from inventory reductions.
Outlook, risks and other matters
The filing does not provide specific revenue, earnings, or Adjusted EBITDA guidance. Management expects sufficient operating cash flow for short-term liquidity needs and expects continued access to capital markets, while noting that access is not assured. Management also forecasts positive full-year pretax income and expects the Q1 tax benefit to reverse to a tax provision by year-end.
- Risks highlighted include weaker consumer spending or economic conditions, inflation and supply-chain costs, competition, customer concentration, seasonality, foreign exchange movements, tariffs and import duties, and potential costs related to the May 2023 ransomware incident. The filing notes possible additional duties and interest related to reviews of certain Asian-sourced nail products; it does not provide a clear quantified exposure.
- The company self-insures certain liability and health claims and reported related reserves of approximately $2.6 million and $3.0 million, respectively. It also had $40.9 million of letters of credit supporting vendor and insurance requirements.
- Management stated that ordinary-course litigation is not expected to materially affect financial condition, results, or cash flows, and that there were no material changes to previously disclosed risk factors. No goodwill or indefinite-lived intangible impairment trigger was identified in the quarter.
- After quarter-end, the Robotics and Digital Solutions divisional president announced retirement effective August 31, 2024; a successor was named effective June 3, 2024. The company disclosed planned separation and consulting benefits.
Important facts for investors to verify
- Whether cost savings and improved gross margin persist, and how much segment performance depends on product costs, mix, and promotional timing.
- Whether Robotics and Digital Solutions sales stabilize after the reported volume decline.
- Cash conversion and working-capital trends, particularly receivables and inventory, alongside acquisition and capital-expenditure needs.
- Debt, variable-rate exposure, refinancing savings, and availability under the asset-backed revolver; management estimates a 1% rate change would affect annual interest expense by about $4.1 million after hedging and the SOFR floor.
- Any developments in import-duty reviews, ransomware-related costs or insurance recoveries, and the disclosed legal and self-insurance exposures.