Hillman Solutions Corp.

Good morning, and welcome to the first quarter 2022 results presentation for Hillman Solutions Corp. My name is LaTanya, and I'll be your conference call operator today. Before we begin, I would like to remind our listeners that today's presentation is being recorded and simultaneously webcast. The company's earnings release, presentation, and 10-Q were issued this morning. These documents and a replay of today's presentation can be accessed on Hillman's Investor Relations website at at ir.hillmangroup.com. I would now like to turn the call over to Michael Kaler with Hillman. Please begin.

Thank you, Operator. Good morning, everyone, and thank you for joining us. I am Michael Kaler, Vice President of Investor Relations and Treasury. Joining me on today's call are Doug Cahill, our Chairman, President, and Chief Executive Officer, and Rocky Kraft, our Chief Financial Officer. We will begin today's call with a business update and quarterly highlights from Doug, followed by a financial review of the quarter from Rocky. Before we begin, I would like to remind our audience that certain statements made on today's call may be 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 associated 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, ir.hillmangroup.com. 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. With that, it's my pleasure to turn the call over to our Chairman, President, and CEO, Doug Cahill. Doug?

Thanks, Michael. Good morning, everyone. For those of you who are new to the Hillman story, we are one of the largest providers of hardware products and solutions in North America. Our team distributes over 112,000 SKUs to over 40,000 locations with roughly 80% of our shipments delivered directly to the store. We also stock the shelves in the store for the customers, which are some of America's leading home improvement centers, hardware stores, big box retailers, and pet supply stores. Importantly, 90% of our revenue comes from brands that Hillman owns. Our differentiators are our world-class supply chain team and our in-store sales and service teams that are 1,100 associates strong. Every day, they team up to provide best-in-class service and industry-leading fill rates on must-have high-margin products for our blue-chip customer base. This is our competitive moat, and we have been steadily growing by winning at the shelves since we were founded in 1964. Looking forward, I remain encouraged about the future growth opportunities that lie ahead for Hillman. We're off to a strong start in 22, and I couldn't be more proud of how our team has performed so far this year. From our warriors in the field to our sourcing and distribution center employees to all the dedicated support folks, we continue to outperform our competition and provide best-in-class service to our customers. We win thanks to our people and our deep partnerships we have built with our customers over the many years. Remember, we've been selling our top five customers on average for 22 years. Our competitive mode has never been stronger, and we continue to help our customers overcome labor, complexity, and supply chain challenges in categories that are critical to their businesses. Today I'm going to provide an overview of our first quarter, discuss the current operating environment, and finish with a customer update before I turn it over to Rocky to talk numbers. As we announced last month, during the first quarter of 2022, overall revenue grew by 6.4% to $363 million. Excluding COVID-related PPE sales from both periods, our revenue grew by about 12% over the first quarter of 2021. Each of our businesses performed at or above our expectations for the quarter. Hardware Solutions is our biggest business and makes up approximately 50% of our overall revenue. For the quarter, hardware led the way with a 14% increase in revenue compared to last year. Driving that improvement were fill rates upwards of 94% and price increases that we've implemented over the past 12 months. Robotics and digital solutions, or RDS, make up just shy of 20% of our overall revenue. During the quarter, a return to normal foot traffic led to an 11% increase in RDS revenue. Our Canadian segment, which makes up about 10% of our overall revenue, increased 1% compared to a year-ago quarter. And lastly, our protective solution business makes up about 20% of our business, Protective was down about 9% for the quarter. However, excluding the unpredictable COVID-related revenue from both periods, protective revenues were up around 10% compared to the prior year quarter. As we announced last month, we generated $44 million of adjusted EBITDA in the first quarter. We saw strong margins and an uptick in sales volume at the end of the quarter and as all businesses performed well, and particularly hardware was able to offset inflationary pressures with price increases. As of mid-March, we have priced in place to fully offset the inflation we had experienced over the past 18 months. However, I will discuss more on pricing and costs in just a minute. Overall, our performance during the first quarter of 2022 was healthy, and you have probably already heard April foot traffic at retail has been soft, and overall industry credit card transaction activity is also down. In discussions with our retailers, they believe the majority of the softness in April is weather-related, but as we all know, there are lots of factors influencing the economy right now, and we believe Hillman's business is well positioned for 2022 and the future. Now let me spend the next few minutes giving you my current view on the state of our business operations. Our investment in inventory and incredible work from our teams has allowed us to continue to maintain industry-leading fill rates, and we believe we've stretched our lead within our industry. During Q1, our average fill rate increased just above 94%, which has allowed our customers to meet their expectations of in-stock rates at the shelf and satisfy their consumers. We believe the investment made in the inventory and fill rates will pay dividends over the long term as we seek to expand our product offerings to adjacent shelves and aisles with our leading customers. As customers know, they can rely on Hillman to get products on their shelves even during the most challenging times. Another key factor is our ability to serve our customers comes from our suppliers, many of whom we've worked with for over 20 years. The state of the global supply chain environment has required us to work closely with our suppliers, and those relationships have never been stronger. This, coupled with our team of 25 on the ground in Asia, has allowed us to successfully navigate the global supply constraints and enabled our customers to continue to win with Hillman. Now turning to price and cost, we continue to monitor lead times from Asia and overall inflation in our business. Most U.S. companies, including us, negotiate new contracted container rates annually ahead of the new rates becoming effective in May each year. Similar to many other companies, the contract renewal rates for containers were meaningfully higher than anticipated for May 22 renewal. We are already moving to offset these higher shipping costs in a new round of price increases that are currently in negotiation. As we have done in the three previous price increases since mid-2021, we plan to pass these costs on dollar-for-dollar basis with our customers, and we expect our price increase to wholly offset the cost escalations in our P&L for 2022. Now let me spend a minute talking about some specifics about our business. The majority of our products are driven by repair, remodel, and maintenance projects. These are your pickup truck pros, local contractors, and DIYers. Our business is not reliant on new home construction. Historically, demand for our products has been healthy through all economic cycles, considering our products are relatively inexpensive, particularly as it relates to the total cost of a project. While there are concerns around the current state of the economy, Hillman has seen top-line growth, in 56 out of our 57-year history. We believe the growth drivers for our business are strong. In our hardware and protective business, we have seen solid consumer demand as trends in nesting, aging in place, outdoor living, and millennials buying homes have been a wind in our sails. And we continue to see meaningful opportunities with our high margin RDS business. We believe the longer-term macroeconomic growth drivers for our business are really healthy. I love our leading position in the market, and while we can't control some of the short-term factors, we are laser-focused on controlling everything we can optimize for customer satisfaction and financial results. We continue to win new business and outperform with each of our customers, and let me give you just a few examples. Our planned fastener launch at one of our major retail partners will not only be on time and complete, but we've already shipped 79 of the 400 SKUs to 3,900 stores early to help fill holes in the shelf caused by their current supplier. To me, that's world-class work by our team and very much appreciated by the retailer. To quote the retailer, Hillman is hardware. and we can't wait to combine your expertise in this category with our 140 million consumers who visit our stores in the U.S. every week. We continue to gain share in Farm and Ranch Channel with a new fastener win at a bellwether retailer that's regional. We have won this business for the first time in our company's history, and don't think We did not rub it in with Mick and Rick Hillman when the grandson of the founder landed this account. Why did we win it after never having it? One word, service. They needed our service model, and we serve most major retailers, and the Farm and Ranch Channel today is the clear partner of choice in this channel. We continue to roll out new kiosks in our RDS business, and we have been successful in securing some chips and boards that, while modest in number, should allow us to install machines a bit faster than initially planned for 2022. We've also just introduced our new QuickTag 3 machine for the first time. It's an engraving machine. The consumer will have 25 different options for not only pet tags, but also luggage and backpacks versus the current machine, which today gives the customer only six PEC tag options. It's early for this next-generation machine, but the retailer likes it so much, they will display it at their upcoming annual shareholder meeting. And trust me, our engineers and all of us at Hillman are really excited about that news. And we renamed Vendor of the Year in 2021 in three categories with our retail partners. We have now won Vendor of the Year at each of our major hardware customers over the last three years at least once. The future at Hillman is very bright, and I'm encouraged about where we're taking this business and the value we will continue to build for our shareholders, customers, and employees. With that, let me turn it over to Rocky.