Hillman Solutions Corp.

Ladies and gentlemen, today's conference is scheduled to begin shortly. Please continue to stand by. Thank you for your patience. Music Thank you. Ladies and gentlemen, thank you for standing by and welcome to the Hillman Company's 2021 Second Quarter Results Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you would need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your host today, Jennifer Hills, Vice President of Investor Relations. Please go ahead.

Thank you, Sarah. Good morning. This is Jennifer Hills, Vice President of Investor Relations at Hillman. Thank you for joining us this morning to review and discuss Hillman's second quarter 2021 earnings results. Joining me today are Doug Cahill, Chairman, President, and Chief Executive Officer, and Rocky Kraft, Chief Financial Officer. A copy of our earnings release and slide presentation can be found under the Investor Relations section of our website at www.ir.hellmangroup.com. Before we begin, we would like to caution you that certain statements made today may include forward-looking statements that are subject to the Safe Harbor Commission's provisions of the 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 which could cause actual results to differ materially from those projected in such statements. Some of the factors that could influence the company's results are contained in our previous periodic and annual reports filed with the Securities and Exchange Commission. Please see slide one in our earnings call deck for more information regarding these risks and uncertainties. We will begin the call with a business update from Doug, followed by Rocky, who will be providing a financial review of the quarter. Now, let me turn the call over to Doug.

Thanks, Jennifer. Good morning, everyone. The past few weeks have been an exciting time for Hillman. with the closing of the transaction with Lankadia III, and on July 15th, ringing the bell and becoming a publicly traded company on NASDAQ under the symbol HLMN. With the transaction complete and the recapitalization of our balance sheet, we're even better positioned to do what we do best, solve complexity, labor, and logistics problems for best-in-class retailers from big box to your local hardware stores. And I can't remember a time when these were more important to our retailers than they are right now. We're excited because at Hillman, remember, nothing happens until you sell something. Our unique model continues to result in share gains and new business wins in the second quarter. This includes adding additional stores for construction fasteners, nice winds, and builders' hardware and continued momentum in the traditional channel. We are continuing to gain share in important growth categories as we help solve two of our retailers' biggest challenges, logistics and labor, by shipping to over 40,000 locations and having our people in the stores each and every day, helping to ensure the product is available and easy to find when the retail customer walks into the store. And the same is true for our robotics and digital solutions business. We are the leader in innovation for key and fob duplication, pet engraving, and knife sharpening businesses. We have designed, developed, and manufactured all 34,000 kiosk machines located in retail stores throughout North America and continue to own and service every machine out there. These robotics and digital machines help drive in-store traffic, provide great margins, and are destination purchase items. for our retailer. We have significant runway to continue to expand our product offerings and to take share both organically and through M&A, and we're fired up about what's ahead. Year to date, through the first six months of 2021, we've grown sales 11.6% and adjusted EBITDA 8.9%. During the second quarter of 2021, we were up 8.4% in net sales, and adjusted EBITDA increased 4.6%. I'm very happy with the top line, and while our bottom line growth lagged our top line a bit, it's mainly due to commodity, freight, and ocean container inflation that we've absorbed in the first half before we successfully implemented our initial price increase that went into effect toward the end of the second quarter. As we continue to monitor inflation, particularly steel, freight, and ocean container costs, all three continue to rise really across the board, and therefore will be taking additional price to cover higher costs, which should take effect during the fourth quarter. Let's talk about the second quarter. As previously discussed in early March, we saw the rapid slowdown of our protective solutions business, which was down 21.5% in the quarter as vaccinations rolled out much faster than any of us imagined. We entered new PPE products last year during COVID with masks, wipes, sprays, and vinyl disposable gloves at the urging of our customers. It was good for our customers, their customers, as well as Hillman. As a result of the earlier than planned slowdown, we had negative comp and protective solutions and began the quarter with excess PPE inventory just like everybody else. We worked with our retail partners and have made progress this quarter working down this inventory through markdowns, promotions, and donation efforts to those still in need. We saw a stronger than expected recovery in our robotics and digital solutions business, which was up 57% in the second quarter, and our Canadian business was up 32%. We also saw continued solid demand in our U.S. hardware solutions business, where we were up 5.6% on top of a very strong performance in 2020. These gains really demonstrate the strength of Hillman's operating model and exceptional execution by our in-store sales, service, and supply teams. Let me give you a few examples during the second quarter of why this is our competitive mode and the secret sauce of Hillman. Three quick examples, first in April. We replaced a 25-year incumbent supplier at a major retailer with a brand-new 8-foot program in 1,600 stores flawlessly. Why? Because we have a better mousetrap, and they know our people are the best in the business when it comes to resets, merchandising, and category management. The second example is a new 8-foot expansion of builder's hardware and construction fasteners in 450 stores at a major retailer, and I love this one because it didn't come from an incumbent. It's brand-new shelf space from vendors outside our categories losing shelf space to us because our existing programs continue to outperform. And finally today, hopefully around 2 o'clock, Rocky and I have an under and over on that, we'll finish a 150-store reset at another major retailer for construction fasteners at 97% on time and complete. This is 32 linear feet of shelf space. These three new programs are well over 1,000 SKUs. And to me, I think it's a great example of belly to belly selling and execution at its best. Let's move to sourcing. Consistent with what others are experiencing, If you're sourcing products from overseas like most of this industry does, the lead times have almost doubled due to container and vessel availability challenges. But I'll tell you, having the 1,100 Hillman sales and service folks in the store every day combined with our long-term customer and supplier relationships really differentiated Hillman from the rest of the pack over the past 15 months, and I'm super proud of the team. Given these supply chain pressures and spikes in demand, we're really proud to say our fill rates led our industry last year at 93.5, and we continue to hover in the low 90s through the first six months of 2021. I'd really like to say it's easy since we've been doing this for 57 years, but there really is nothing easy about flowing goods to restock shelves in North America right now. Thankfully, we continue to outform our competitors. due to our unique model. Rocky will have more to say about the outlook, but I'd like to note a few things. First, it has been as difficult as ever in my career for us and our retail partners to accurately plan our business given the wide swings in demand for our products. First, during COVID, and now this post-COVID phase. COVID's impact both up and down on everything from PPE to home improvement items, to keys, plus the impact on retail prices. I mean, just look at lumber prices quadrupling before recently and thankfully coming back to reality. And its impact on all our import costs, from commodities to shipping to labor, has really made planning very tough. The COVID bump and then drop with PPE products, and let's face it, This week's announcement on Tuesday by the CDC makes it difficult to predict where things go from here. That said, our hardware business remains the absolute engine of Hillman. Through the first six months of 2021, our hardware solution sales were up 7.9% over a super strong 2020 and up 20.1% over 2019 if we look at that as a more normal year. During the third quarter, Hillman and our retail partners are planning for challenging comps in categories like deck and drywall screws. But let's think back to last year at this time. A big Saturday event was a trip to Lowe's, Home Depot, Ace, or your local PetSmart. And now this summer, thankfully, consumers are visiting family and friends and getting back to recreational activities and travel. While in-market demand remains firm, We anticipate these two categories could come negative in the third quarter due to the tough comparisons, but this should be more than offset by the new wins and pricing. Resulting in a low single-digit growth rate for hardware solutions in Q3, our new business wins and anticipated resumption of home and backyard projects once the kids get back to school should lead to a stronger fourth quarter and all-around hardware solutions growth rate for 2021 of 10%. In closing, we can't control all the moving pieces in our end markets caused by COVID, but we can't control how we respond. And I'm proud and impressed by the agility of our people and what they've been able to accomplish so far in 21. We have taken market share, won new business, maintained industry-leading fill rates, rolled out new innovations, protected our employees, strengthened our balance sheet, and taking pricing actions to try to mitigate unprecedented inflationary pressures. These actions have enabled us to profitably go year-to-date EBITDA 8.9 percent above 2020's COVID-fueled levels and 21.1 percent above a more normal year of 2019. I'm more excited than ever about our platform for growth going forward. and our new balance sheet. The moat we've built around our businesses provides us a competitive advantage and further strengthens our relationship with our best-in-class retailers. We're well-positioned to take advantage of opportunities as we continue to execute on our long-term growth objectives. With that, let me turn it over to Rocky to provide some more additional details on the quarter and year-to-date results as well as what all of this means. for the rest of this year and next. Rocky.