Hillman Solutions Corp. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 25, 2021. This is an annual report, not a standalone Q4 report. Comparatives are fiscal 2020 (ended December 26, 2020). Hillman supplies hardware products and merchandising services, with Hardware and Protective Solutions, Robotics and Digital Solutions, and Canada segments. The July 2021 SPAC business combination is accounted for as a reverse recapitalization; pre-combination results are those of Old Hillman.
Key financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $1,426.0 million | $1,368.3 million |
| Cost of sales, excluding depreciation and amortization | $859.6 million; 60.3% of sales | $781.8 million; 57.1% of sales |
| Income from operations | $10.3 million; 0.7% margin | $65.8 million; 4.8% margin |
| Net loss | $38.3 million; $0.28 per share | $24.5 million; $0.27 per share |
| Adjusted EBITDA | $207.4 million; 14.5% margin | $221.2 million; 16.2% margin |
| Net cash from operating activities | $(110.3) million | $92.1 million |
| Capital expenditures | $51.6 million | $45.3 million |
| Cash and cash equivalents at year-end | $14.6 million | $21.5 million |
Sales increased 4.2%. Gross margin, using the filing’s cost-of-sales presentation, declined to 39.7% from 42.9%. The company reported an $11.8 million income tax benefit on a $50.1 million pretax loss in 2021.
Segments and material changes
- Hardware and Protective Solutions: Sales were essentially flat at $1,025.0 million. Operating results shifted from $67.3 million income to a $17.2 million loss, principally reflecting a $32.0 million inventory valuation charge as Hillman exited selected COVID-related product categories, along with commodity and transportation inflation and higher expenses.
- Robotics and Digital Solutions: Sales rose 19.2% to $249.5 million; operating income increased to $23.6 million from $3.2 million. Improved retail traffic and access to key and engraving kiosks supported the recovery from pandemic disruption.
- Canada: Sales increased 12.5% to $151.5 million. The segment returned to operating income of $3.9 million from a $4.7 million loss, aided by higher sales and lower restructuring costs.
- Fastening and hardware sales rose $50.9 million overall, while personal protective product sales fell $32.5 million as pandemic-related demand eased. The filing also cites inflation in product, freight, and labor costs.
Debt, liquidity, and capital allocation
At year-end, disclosed total indebtedness was $945.8 million, including $851.0 million of term loans, $93.0 million of ABL revolving loans, and $1.8 million of finance lease and other obligations. The balance sheet reports $906.5 million of long-term debt, net, plus $11.4 million current debt and lease obligations. The 2021 refinancing replaced prior facilities, redeemed $330.0 million of 6.375% senior notes and the 11.6% junior subordinated debentures, and incurred $8.1 million of refinancing charges and $38.7 million of financing fees. The new term loan matures in 2028; the ABL facility matures in 2026.
Available ABL borrowing capacity was $124.1 million after $93.0 million of borrowings and $32.9 million of letters of credit. Working capital was $391.0 million, up from $241.8 million. Management said operating cash flows and ABL availability should fund working capital and capital needs over the next 12 months and beyond; however, 2021 operating cash flow was negative, primarily due to higher inventory and compensation-related payments. A 1 percentage-point change in weighted average interest rates was estimated to change annual interest expense by approximately $5.2 million. The company has not paid common dividends and said it does not intend to do so in the foreseeable future.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance is provided. Management expected to realize the $34.0 million year-end sales backlog during fiscal 2022; it cautions that backlog is not a significant performance indicator because order cycles are short. Fiscal 2022 is expected to have 53 weeks.
- Key exposures include significant leverage and variable-rate debt, borrowing-base-dependent revolver availability and covenant compliance, inflation and supply-chain disruption, foreign currency and tariff exposure, and seasonal and economic sensitivity.
- Home Depot and Lowe’s represented 27.0% and 20.6% of FY2021 revenue, respectively; together they represented 47.6% of revenue and 47.0% of year-end receivables.
- The $32.0 million inventory charge followed Hillman’s decision to exit certain protective and cleaning product categories. Adjusted EBITDA is a non-GAAP measure and adds back this charge and other items; FY2021 adjusted EBITDA declined despite revenue growth.
- Goodwill was $825.4 million, with no impairment recorded. Management reported that fair value exceeded carrying value by approximately 5% for the Protective Solutions reporting unit and 23% for Fastening and Hardware, leaving the former particularly sensitive to adverse assumptions or market conditions.
- Hy-Ko’s patent and related claims remained in litigation; trial was scheduled for October 2022, and Hillman said it could not estimate a possible loss or range. Hillman and KeyMe settled their pending disputes in June 2021.
- The 2021 SPAC transaction, warrant redemption, and equity issuance materially changed the company’s capital structure and share count. Management reported effective disclosure controls and internal control over financial reporting, and said a prior-year material weakness in tax controls had been remediated. The auditor did not attest to internal control effectiveness.
Investor verification points
- Assess whether working-capital needs, particularly inventory, can be funded while operating cash flow is negative and whether the ABL borrowing base remains adequate.
- Review debt terms, covenant headroom, interest-rate exposure, maturity schedule, and the effect of higher rates on debt service.
- Test the durability of price increases and margins against input, freight, labor, tariff, and currency pressures, including the effects of the protective-products exit.
- Monitor the largest customers’ sales and receivables concentration, and the progress and potential exposure in the Hy-Ko litigation.
- Evaluate goodwill valuation sensitivity, especially the Protective Solutions reporting unit’s approximately 5% fair-value cushion, and distinguish adjusted EBITDA from GAAP results and cash flow.