Bản ghi âm cuộc gọi thu nhập của Hillman Solutions (HLMN)

Image source: The Motley Fool.
Date
Tuesday, Feb. 18, 2025 at 8:30 a.m. ET
Call participants
-
Executive Chairman — Douglas Cahill
-
President and Chief Executive Officer — Jon Michael Adinolfi
-
Chief Financial Officer — Robert Kraft
Need a quote from a Motley Fool analyst? Email [email protected]
Full Conference Call Transcript
Jon Michael Adinolfi or JMA as we call him, Rocky Kraft, our Chief Financial Officer and Doug Cahill, our Executive Chairman. Before we begin, I would like to remind our audience that certain statements made on today's call maybe considered forward-looking and are subject to the safe harbor provisions of applicable securities laws. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions, and other factors, many of which are beyond the company's control and may cause actual results to differ materially from those projected in such statements. Some of the factors that could influence our results are contained in our periodic and annual reports filed with the SEC.
For more information regarding these risks and uncertainties, please see Slide 2 in our earnings call slide presentation, which is available on our website. In addition, on today's call, we will refer to certain non-GAAP financial measures. Information regarding our use of and reconciliations of these measures to our GAAP results are available in our earnings call slide presentation. Please note that Hillman expects its 10-K to be filed with the SEC on Thursday of this week. With that, Doug will begin today's call with a recap of Hillman's 2024 results and highlights.
He will then turn the call over to JMA, who will give a brief overview of his perspective on Hillman and what makes this company so special, provide some market commentary and talk about our outlook for 2025. Rocky will then go through our 2024 financial results before giving a detailed walk through our 2025 guidance. JMA will then give some closing comments before we open things up for your question. With that, it's my pleasure to turn the call over to our Executive Chairman, Doug Cahill. Doug?
Douglas Cahill: Thanks, Michael. Good morning, everyone and thank you for joining us. During 2024, our team's dedication to our customers and our commitment to driving strong financial results for our investors came together to deliver an exceptional year for Hillman. Last January, Hillman celebrated its 60th anniversary marking six decades of taking great care of our customers and building on our robust legacy of service, a legacy that still drives how Hillman does business today. Hillman has differentiated itself from competitors by providing unparalleled service, building deep supplier and industry relationships and providing innovative solutions for our world-class customers.
This has been a key driver of Hillman's track record of growth and why we believe we were in a great position with our company and our customers as we look to the future. During 2024, Hillman accomplished something it has never done before. The Hillman team won Vendor of the Year awards in the same year from both Home Depot and Lowe's, our two biggest customers. We couldn't be more proud. This recognition is not just a reflection of what we've achieved, it's an indication of how deeply embedded we are with our customers. We believe that our customers view us as trusted partners and solution providers.
Our teams have done a phenomenal job managing these relationships and they are working hard to ensure that we deliver value each and every day at each and every store. These awards highlight a year where we saw the highest EBITDA in our company's history as we continue to run our business well and take care of our -- great care of our customers. Our record bottom line proves that our unique business model can produce healthy profits even with market conditions like we saw last year. On the M&A front, we made two accretive bolt-on acquisitions. In January 2024, we acquired Koch Industries, a provider of rope and chain related hardware products.
And in August 2024, we acquired Intex DIY, a supplier of wiping cloths, consumable rags and cleaning textiles. These acquisitions complement Hillman perfectly. They are an adjacent house to what we sell today and our teams can service these products at the shelves of our customers. Both acquisitions offer organic growth opportunities as we put more stuff on the truck while providing new white space for Hillman to grow. We can now offer our customers even more solutions.
What a competitive advantage it is to buy a company and on day one open new growth opportunities for those companies as they now have the Hillman Moat behind them, in store service, direct ship capabilities and deep relationships at all levels to the best retailers in the industry. We become really the preferred buyer of those assets from both the seller and our customers' perspective. Now let's turn to our financial highlights for the year. For 60 years, Hillman has provided products used in repair, maintenance and remodel projects done by DIYers and Pros.
Despite market softness during 2024, net sales totaled $1.473 billion which is just shy of our '23 results and just above the midpoint of our most recent guidance. For the year, our top line was obviously impacted as foot traffic and our retail customers declined nearly 6% compared to last prior year. Existing home sales again fell to 30 year lows totaling just $4.06 million and remodel spending declined year-over-year. This led to a five point reduction in our market volume in 2024. Offsetting the markets was a four point contribution from Koch and Intex, two great acquisitions we made during the year and two point contribution from new business wins as we continue to win market share.
Price was a 1% headwind for the year. For the fourth quarter, our adjusted EBITDA increased 3.5% to $56.3 million which was right in line with our expectations. Adjusted gross margins improved 390 basis points to 48.1% for 2024 compared to 44.2% during 2023 and 43% during 2022. Driving our improved bottom line and gross margins were sustained operating efficiencies, lower cost of goods sold and a shift in selling a higher margin mix of products. As JMA will expand on in a few minutes, I believe we are running the business as well as we have at any time in my tenure at Hillman.
Additionally, in 2025, we're implementing performance based equity compensation for our top executives using a return on invested capital metric. This led 50% of their annual equity grants to return on invested capital going forward. Now let me give you a few comments on the performance of our two largest business. Hardware and Protective Solutions or HPS is our biggest business. HPS increased its adjusted EBITDA by 23% for the year with flat top line results and continues to be the poster child for the Hillman Moat and the value we bring to our customers that others don't.
Our Robotics and Digital Solutions business will be a great example of both our shareholders and top customers benefiting from the new strategy we successfully launched during 2024. RDS has always been the leader for Hillman in adjusted EBITDA margins and gross margins, but the capital we have invested and the returns on that capital have been a drag in our performance. JMA will expand on our strategy and share whether this business will become a great contributor of not only adjusted EBITDA and gross margin, but cash flow too, which will drive healthy return on invested capital as our strategy plays out. I love this company and I'm honored to have turned the CEO reins over to JMA.
He is the perfect fit for this experienced team and customer first culture that we have built over many years at Hillman. I’m proud of the great job we do for our customers, our track record for bottom line growth and how we have strengthened the balance sheet and paid down over $900 million of debt in the past four years. I will continue to support this company any way that I can. And with that, it is my pleasure to turn it over to JMA.
Jon Michael Adinolfi: Thanks, Doug. I'm grateful for the opportunity to be the sixth CEO in Hillman's 60 year history. When I look around Hillman, I'm excited and encouraged about the future. I'm surrounded by a fantastic leadership team and talented folks throughout our organization. We have world class customers who trust us and are true partners, and we have excellent long-term suppliers. Hillman is a great company, and I'm fired up about the future. Doug and I are fully aligned on the path forward, and we see a clear opportunity to accelerate growth.
When I think about our strategy, our customer relationships and the unique competitive moat that defines Hillman, we have challenged ourselves to profitably grow this business to $2 billion in net sales over the next three to five years. The question is how do we get there? Well, here’s how. First, we remain laser focused on growing and protecting the core of our business. We will continue to take care of our customers and win new business, which will add 2% to 3% top line growth per year. We also expect to see the markets return to 2% to 3% volume growth in the future.
Together, new business and market growth coupled with price results in organic top line growth of 5% to 6%. This follows the trend we have seen over the last 20 plus years. But to get back to this level of growth, we need the macro environment to improve and market growth to return. Beyond organic growth, strategic acquisitions will play a critical role in scaling our business. Our plan is to execute two to three acquisitions per year. These acquisitions will complement our moat, strengthen our competitive position and create opportunities for long-term organic growth and value creation. This company has executed over 35 transactions in its history, and we know how to do it well.
As Doug pointed out earlier, our moat and our experience make Hillman a great buyer. We have the right focus, the right team and the right strategy. We have executed well and we’ve built a strong foundation for the future. As we position Hillman for its next 60 years of growth, we have accelerated our focus on technology and are implementing plans to leverage the cloud and artificial intelligence to make our company more effective and efficient. This will allow us to take better care of our customers, improve how we do business and further strengthen our relationships with our partners. In 2025, you will see us continue to invest in our cloud migration.
We are confident that an investment like this is necessary when you have over 111,000 SKUs and ship to nearly 30,000 retail locations annually. We are excited about this migration as it will make Hillman easier to do business with and strengthen our moat. Speaking of, let me take a few minutes to give my perspective on the Hillman moat. The first piece of our moat is our 1,200 field sales and service folks. Our customers can trust that Hillman’s Warriors will be in their stores, writing orders, organizing aisles and servicing our kiosks on a regular basis. This not only enables our retailers to sell more products, it reduces their in-store labor issues for critical categories within the store.
These are examples of value adds that you get when you do business with Hillman. The second part of our moat is our ability to ship store direct. We pick, pack and ship approximately 65% of what we sell directly to the retail locations of our customers. That means the majority of our products bypass the DC networks of our customers and are shipped directly to our retailer stores. Importantly, with high fill rates, our customers can trust that Hillman’s products will arrive at their stores on time and in full. The third part of our moat comes from our 60 years of experience. Our customers don’t just buy products from us, they buy solutions.
They look to Hillman to help them manage a category. We have insight to data that allows us to optimize category management, remove complexity and drive results for our customers. That makes Hillman a trusted partner. Approximately 90% of what we sell are company owned brands. Hillman’s brands are well known among the DIYer and Pro. When you buy a Hillman product, the end user knows it’s a great product. Additionally, distributing brands that we own allows us to differentiate our offerings, often tailoring programs and packaging to meet the needs of our customers. Lastly, we have long standing relationships with our customers.
We’ve been working with our top five customers for nearly 30 years on average, and they’re viewed as a partner rather than just a supplier. Over time, we’ve built great relationships throughout these world-class organizations. This includes the associates in the store, store managers, merchants and leadership. Together as partners, both companies are 100% aligned on selling and satisfying the needs of the end user. Before I turn it over to Rocky, let me give you my view of the market. Over the past few years, we’ve proven that we can successfully navigate a challenging macro environment while still growing our bottom line at an average clip of over 7% per year.
It makes sense how the macro hasn’t helped, considering the pull forward of home improvement activity during COVID pandemic, the sharp decline in existing home sales and the decrease in home improvement spending over the last few years. During 2025, we’re hopeful that home improvement activity start to pick up. That said, we aren’t going to predict with the market turns, but we like our customers will be ready when it happens. And our customers believe that when it does turn, that run will last for several years. That said, even if the market looks like it did in 2024, we are confident that our business will grow in 2025.
The HPS business is solid and stable in both good times and bad. Throughout 2024, we’ve enhanced our global supply chain and continued transitioning sourcing volume out of China into Vietnam, Taiwan, India and other countries. This strategy combined with the investments into our infrastructure has enabled Hillman to build an even more efficient distribution network that is ready for growth. Our sales and service organization has never been stronger. Throughout 2024, we’ve aligned our U.S. Retail Leaders and our sales and service teams under Brett Hillman. Brett is the grandson of our Founder, Max Hillman, and has been taking care of our customers at Hillman for over 20 years.
Brett has excelled at every level and has grown our business meaningfully throughout his career. He has assembled a fantastic team and implemented new strategies, which are already making an impact. Together, our sales, operations and other support functions are primed for 2025. During the year, we are launching new business in both our core HPS product categories as well as our newly acquired product cat