Hillman Solutions Corp.

Good morning and welcome to the second quarter 2023 results presentation for Hillman Solutions Corp. My name is Amy and I will 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 10Q were issued this morning. These documents and replay of today's presentation can be accessed on Hillman's Investors Relations website at ir.hillmangroup.com. I would like to turn the call over to Michael Kaler with Hillman.

Thank you, Amy. Good morning, everyone, and thank you for joining us. I'm 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, Rocky Kraft, our Chief Financial Officer, and John Michael Adonofi, our Chief Operating Officer. We will begin today's call with a business update and 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, 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 FCC. 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 presentations. 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. I will begin today's call going through a few highlights for the quarter, where our results were in line with our expectations, and then give an update on our four-year guidance, which we're maintaining at our previous levels. After that, I'll give a quick overview of Hillman touch on our traditional hardware channel, and then provide some additional color on the quarter before I turn it over to Rocky to provide more details on our business. Net sales in the second quarter of 2023 declined 3.6% to $380 million from the year-ago quarter. Total volumes were off about 6%, and we saw a 1% headwind from unfavorable FX in our Canadian businesses. These were partially offset by a 3% lift from price. Top line was a tick below our expectations due to volume softness across the board and pet engraving in particular, but we expect a stronger second half, particularly as less challenging prior year comps, new business wins, and we are confident we'll see top line growth to 2023, which I will get to in a moment. Adjusted EBITDA in the quarter totaled $58 million. which came in line with our expectations. Despite the lighter top line for the quarter, we did a nice job controlling costs and maximizing operational efficiencies. This was a strong accomplishment given the high cost of goods still flowing through our income statement during April and May as we worked down inventories dating back to the record high container costs from the summer of 2022. We are now sitting on the right side of the power curve and maintain our belief that adjusted EBITDA generated during the second half of 2023 will grow 20% over the second half of 2022. Free cash flow in the quarter totaled $65 million, bringing the year-to-date total to $78 million, ahead of our expectations. Our supply chain team did an excellent job managing down our inventory, which combined with our tight cash management resulted in a meaningful working capital benefit. We have used our free cash flow to pay down debt, which has reduced our leverage profile, which we will get to more in a moment. As a result of our healthy results during the second quarter and our line of sight to new business coming online in the second half, we are reiterating our four-year guidance expectations across all three metrics. This includes net sales to be between $1.45 to $1.55 billion, adjusted EBITDA to be between $215 to $235 million, and free cash flow to be between $125 to $145 million. I would now like to give a little background on Hilma to reiterate what makes us a world-class partner for our customers. As one of the largest providers of hardware products and solutions in North America, our extensive range of products cater to the needs of the pickup truck pro as well as the DIYers, giving them the right products for repair, remodel, and maintenance projects, which makes up the vast majority of our sales demand. Since our founding in 1964, we have achieved remarkable success, experiencing top-line growth in 58 out of 59 years. This record is due large part to the consistency of demand in both up and down economic cycles in repair, remodel, and maintenance markets that we serve. This track record is also due to our competitive moat, which sets us above our competitors and consists of three main differentiators. One, our 1,100 member in-store sales and service team, which delivers best-in-class service to our customers. to our ability to get the right products to the right place at the right time at scale with our store direct model. Our team cost effectively sources over 112,000 SKUs and distributes them to over 40,000 individual locations. In total, approximately 75% of our shipments are delivered store direct. And 390% of our revenue comes from brands that we own, meaning we can maintain control over innovation, marketing, production, and distribution, which allows us to quickly adapt to meet the needs of our customers and our end users. We are embedded with our customers who view us as partners, critical to the success of their business. We help them overcome labor, complexity, and supply chain challenges in all important high margin traffic generating product categories we offer. Our customers range from mass retailers to big box home improvement centers to national, regional, and locally independently owned hardware stores. I'd like to demonstrate how our moat secures our position and ingrains us with our customers, in particular, in our traditional hardware channel, which makes up 23% of our business and we believe has a total market size of nearly $700 million per year. Today, ACE True Value, Do It Best, and the independent hardware stores make up the 12,000 stores in this channel that we service. We provide multiple hardware categories for these customers, including nails and screws, core and specialty fastener products, solid and hollow wall anchors, picture hanging hardware, letters, numbers, and signs, threaded rod, shapes, and metal sheets, key duplication services, knife sharpening services, and protective gloves, just to name a few. Our fastener installations to these customers are typically 72 to 96 feet long and can stretch as long as 200 feet in some stores. These hardware stores typically carry 15,000 helmet SKUs, which account for more than 15% of the items purchased at those stores. Our sales and service team cover these hardware stores across the country. These reps work hand in hand with the owners and store management. They are in-store writing orders, managing inventory and promos, organizing and cleaning displays, managing Hillman products in the aisle, and servicing kiosks. You can see how Hillman is embedded with these hardware store customers, and we continue to take great care of them during time when other suppliers continue to struggle meeting the expectations of their customers. For example, we converted about 150 stores from our competition last year. The traditional hardware stores thrive by differentiating itself by offering high levels of customer service and advice for every kind of home maintenance, repair, and remodel products at stores conveniently located in their customers' neighborhoods. Our commitment to customer service really reflects that of these small business owners. As the independent hardware stores have won market share and expanded their footprints, we have grown right alongside them and are excited to continue to grow with them in the future. Now let's move to our top-line results for the quarter. Net sales for Q2 2023 were impacted greatly. by lighter volumes resulting from a reported 8% decline in foot traffic at home improvement centers versus the year-ago period. Despite foot traffic declines, our top-line results continue to illustrate the resilient demand driven by our diverse product offerings that serve repair, remodel, and maintenance projects. This is evidenced by our hardware solutions being up nearly 4% in the first half of the year while we anticipate four-year top-line growth in HS between 4% and 5%. Impacting our results were four days of shipping delays in June across our business, outside of our kiosk, following a ransomware attack that affected our IT systems. Over the course of the following week, we restored production and shipping at all of our facilities, and normal operation activities resumed. As a reminder, we've been in the process of moving our distribution hub from Rialto, California to Kansas City over the last several months, and the cyber incident added a bit of disruption to the move. While some of our short-term service levels are being impacted, we believe these will not impede our second half results, and the issue will be cleared up by the end of September. Further, we believe the move to Kansas City will result in efficiencies and cost savings as soon as Q4 of this year. Let me frame up the second half of the year in terms of tailwinds we expect to see and how those will help us hit our sales goal. First, we have sizable new business wins coming online in the second half of the year with two of our top five customers. Two, we will additionally launch numerous small wins and rollouts across our vast customer base. Three, some sales have shifted from second quarter to later in the year to the aforementioned shipping delays. Four, the promotional calendar for the second half of the year is locked and loaded for our protective solutions business. We expect sales to pick up as a result. Ex-COVID sales, we expect our four-year PS results to be roughly comparable to 2022. And lastly, the comparable period during the second half of the year gets a bit easier. As last year, our customers were focused on destocking, particularly in the PS business, and our sales were impacted as a result. With that, let's move to our balance sheet. A regular topic of discussion with investors has been our strategic investment in inventory during 21 and 22, as lead times from Asia went from 120 days to 250 days. We had to make a tough decision to lever up to ensure we continue to take care of our customers or watch our fill rates fall. The investment and inventory insurer, we took care of our customers during a challenging supply chain environment. We delivered when some of our competition could not. Our fill rates averaged more than 90% during 2021, 96% during 2022, and approximately 96% on average for the first six months of 2023. We believe our performance over the last three years has continued to help separate us from the competition and has resulted in our numerous new business wins. A result of this investment was that our leverage and inventory on hand increased through 2021 in the first half of 2022. At the peak during the summer of 2022, we carried about 180 million more than normal. Since that peak, our supply chain has normalized and our inventories have been reduced by 145 million, including 38 million during the first quarter and 21 million during the second quarter of this year. The result has been a meaningful working capital benefit, healthy free cash flow, and subsequent reduction in debt, which we expect to continue throughout the year. At quarter end, we were still carrying nearly $40 million more inventory than normal, so we still have some working capital benefits ahead of us. We believe it's very realistic that we reduce inventory by at least an additional $15 million, or a total of approximately $75 million for 2023. This would put us near our normalized inventory run rate at the end of this year. Now turning to price and cost. Since 2020, we've seen a $225 million of cost inflation, which we have passed on to our customers on a dollar for dollar basis through multiple price increases, the last of which went into effect in the fall of 2022. These costs break down to approximately $120 million of transportation and shipping, $90 million of commodities, and $15 million of labor. Of the $120 million of transportation and shipping, about $80 million of that is related to ocean containers. Over the past few quarters, we've seen ocean container costs come down, which will be a tailwind for us in the second half of the year and into 2024. Additionally, we continue to see volatility in the steel market and have seen steel prices come down recently. Typically, costs related to raw materials like steel can take between nine and 12 months to flow through our income statement. That consists of 150 days of lead time to source the material, make the product, and ship it to the U.S., and our inventory turns in about four to six months. All that said, some costs are not going away, like labor costs. Others remain stubbornly high, like outbound freight, including less than truckload delivery costs, for example. We will focus on productivity gains to help offset these costs, just like our customers continue to do. Hillman's in-store service team and direct store delivery model continue to be on trend, helping our customers minimize these two pressure points. Our cost of goods sold for the quarter were improved over the peak last quarter, but still high on a historical basis, indicating we have further room for improvement. The sequential 150 basis point improvement in gross margin percentage during Q2 reflects the benefit of lower container costs that we paid last fall following the historical high paid last summer. Touching on markets before I turn it to Rocky, our volume has held up well given the slow pace of the U.S. home spending this year. our business is over 90% repair, remodel, and maintenance, a less cyclical strategy of home spending. And even within R&R, our products are historically more insulated than other R&R categories because they're smaller ticket items, easy to use, and have generally broad-based applications for multiple projects around the home. This plus the macro benefits of an aging housing stock and broad accessibility of our products provides a structurally sound long-term outlook we think for our business. Based on construction that was completed during the early to mid-1990s, we will see over 1.5 million new homes turn 20 years old next year and over 1.6 million new homes turn 20 in 2025. As homes age, homeowners spend to repair remodel, and maintain their homes and our business benefits. As I've discussed, starting in the second half of this year, our businesses set to benefit from several solid tailwinds. These, coupled with our organic growth plans and market share gains, improvements in our inventory and leverage, and the consistent performance of this company throughout all cycles, will lead us to an even more exciting future for Hillman. We are successfully and profitably executing our growth strategy, generating strong cash flow, and we're staying disciplined with capital to create shareholder value. We expect that to continue as we go into the rest of the year. With that, let me turn it over to Rocky.

Thanks, Doug. As Doug mentioned, net sales for the second quarter of 2023 were $380 million, a decrease of 3.6% versus the prior year quarter. Despite the decrease, we are confident about our revenue guidance considering the new business wins and other initiatives Doug mentioned earlier. The midpoint of our net sales guide assumes market volumes for existing products decline 1%. We benefit 2% from price that will roll from 2022. and new business wins offset last year's COVID-related sales. Now, let me provide some more detail on our top line by business. Hardware Solutions is our biggest business and makes up over 50% of our overall revenue. For the quarter, net sales were approximately flat at 225 million as compared to last year. This breaks out to approximately 3% of price, offset by a 3% decline in volumes. Robotics and Digital Solutions, or RDS, makes up about 15% of our overall revenue. During the quarter, RDS net sales were down 2% to $62.5 million, driven by a decrease in engraving, auto key and fob duplications, and manual key duplication, partially offset by a 19.2% increase in sales from our self-service key duplication machine, Minikey. Our Canadian segment, which makes up about 15% of our overall revenue, was down nearly 8% compared to the prior year. This was driven by approximately a 3% decline in volumes and five points of negative FX headwinds during the quarter. Lastly, our protective solutions business makes up just under 20% of our business. Protective revenues were down nearly $9 million or 17% compared to last year. This was due to lighter foot traffic and the timing of promotional activity in early 2022 compared to a more back-half loaded promotional calendar this year. As Doug mentioned, we have all of our promo activity locked in for the rest of the year, which is a busy second half. Additionally, we will benefit from the launch of some new business during the second half of the year. For these reasons, we continue to feel confident about PS being in line with 2022 when backing out COVID-related product sales from the prior year. Adjusted earnings per diluted share for the second quarter of 2023 was 13 cents per share compared to 14 cents per diluted share in the prior year. Second quarter adjusted gross profit margin decreased by 110 basis points to 43% versus the prior year quarter as the high costs of goods sold were flowing through our income statement for April and May as we worked down a large portion of high-cost inventory from last year. However, sequentially, margins improved 150 basis points. We expect to see margins expand sequentially by over 100 basis points next quarter, then exceed our historic rate of 44% to 45% during the fourth quarter. Q2 2023 adjusted SG&A as a percentage of sales decreased to 27.9% from 28.2% from the year-ago quarter. This improvement was driven by realizing efficiencies in our operations and logistics and controlling costs where we were able. Adjusted EBITDA in the second quarter was $58 million compared to $62.3 million in the year-ago quarter. Adjusted EBITDA reflected higher COGS coupled with the decline in net sales when compared to last year. 2023 is proving out to be the tale of two halves. Adjusted EBITDA for the first half of the year was down 7.6% versus last year, which was in line with our expectations. And we are expecting second half adjusted EBITDA to be up approximately 20% over last year. Breaking this down by quarter, we expect our Q4 2023 growth to be greater than our Q3 2023 growth. As we think about the opportunities that lie ahead for the remainder of the year, which we discussed on this call, we are confident reiterating our original adjusted EBITDA guidance. Now turning to our cash flow and balance sheet. For the 26 weeks ended July 1st, 2023, operating activities provided $115 million of cash as compared to $15 million in the year-ago period. Capital expenditures were $37 million compared to $28.9 million in the prior year quarter. We continue to invest in our RDS MinuteKey 3.5 and QuickTag 3.0 machines, an important part of our high-margin future growth opportunities. A quick update on our new MinuteKey 3.5 machine. As you know, it's a Q1 2024 launch. We will be adding automotive and RFID fob capabilities to our new minute key machine. We saw an exciting demo of the machine at our board meeting last week. Our design validation phase will be completed this month, and in October, we will complete our production validation phase. We will then have test machines in the stores during the fourth quarter of this year. Full production at our Tempe, Arizona facility will begin during the middle of the first quarter of 2022. Our engineering, supply chain, and manufacturing teams are doing an excellent job, and our customers are very excited about the new markets this exciting technology will enable us to attack. Now let me turn back to the balance sheet. Net inventories were $430 million, down $59.3 million from the end of 2022. We ended the second quarter of 2023 with $813.8 million, of total net debt outstanding, marking a meaningful reduction of $73.9 million from the $887.7 million at the end of 2022. Free cash flow for the 26 weeks end of July 1, 2023 totaled $78 million, compared to a cash burn of $14.1 million in the prior year period. This positive swing was driven by the conversion of our prior investment in inventory to cash. Similar to our net sales and adjusted EBITDA, we feel very comfortable reiterating our free cash flow guidance based on the increased back half profitability and improvements in our working capital. We ended the second quarter of 2023 with approximately $321 million of liquidity, which consists of $283 million of available borrowing under a revolving credit facility and $38 million of cash and equivalents. Our net debt to trailing 12 months adjusted EBITDA ratio at the end of the quarter was four times as compared to 4.2 times at the end of 2022. Looking forward, we maintain our expectation that we will end 2023 under 3.5 times leverage, assuming we come in near the midpoint of our guidance. As we look to the second half of the year, we remain committed to using our free cash flow to pay down debt. On July 31st, we drew $80 million on our ABL credit facility to reduce the principal on our term loan by the same amount. Due to the favorable interest rate spread between the ABL and the term note, we expect to save at least $400,000 of cash interest this year. While not a large amount of savings, the high level of visibility and confidence in cash flows during the second half of the year allows us to prudently manage our balance sheet. Delevering will remain our focus during the second half of the year as margins expand and we use our free cash flow to pay down debt as adjusted EBITDA grows. As we look further out, our long-term growth targets 6% organic net sales and high single to low double-digit organic adjusted EBITDA growth before M&A remains intact. From a leverage standpoint, our long-term goal is to run the business around two and a half times. With that, let me turn it back to Doug.

Thanks, Rocky. I want to emphasize my belief that we can capitalize on the opportunities that lie ahead of us throughout 2023 and 2024. We remain humble and committed to providing exceptional service to our valued customers with a unique business model that includes 1,100 dedicated field sales and service professionals, along with our efficient direct-to-store delivery approach. We consistently deliver value to our customers, a value that they genuinely appreciate and recognize. We execute well during the second quarter and believe we've got the right people and strategy in place to have a great second half of 2023, which will lead to sustainable long-term growth and create significant value for our customers, associates, and stockholders. With that, we'll begin the Q&A portion of the call. Amy, can you please open the call up for questions?

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question and one follow-up. Our first question comes from Dan Manthe with Baird. Your line is open.

Yeah, hi. Dave Mantha here. Good morning, everyone. My first question – yeah, can you hear me?

Yeah. Yeah.

Yeah, good. All right, my first question is on the visibility that you have into the back half of the year. When you think about the factors you mentioned, the new business wins, RDS placements, promotions, and your declining COGS versus shelf pricing, as you look at that and you compare that to your guidance, Should we think about it as that if foot traffic is worse than expected, we'll be on the low end? If it's better than expected, we're on the high end? Or is the bell curve of potential outcomes wider than that? I'm just trying to understand those specific items that you've listed. How much visibility do those give you relative to the overall business?

Hey Dave, it's Rocky. You know, we've said all year and nothing's changed. Really, the only variable to our guidance for the year is that traffic aspect and what our volumes are because of the traffic aspect. And so, you know, our current guide would suggest down one. You know, our guide, if you put it completely together, is down four in volumes to up two. And as we think about the back half of the year, we're pretty locked, as we talked about on the call and our remarks, on not only volumes or on promos, but new business wins. And so really, again, the only big variable is foot traffic and how that relates to volumes inside the stores. And to the extent you think about COGS, it's really just math. We know the cost of the inventory we're going to sell, and we're in pretty good shape where we stand today around our cost structure. Again, just to make it real simple, it's really around volumes and what we see from a foot traffic perspective.

That's helpful. Thank you. And then on the ransomware situation, can you give us additional details on that, just what happened and how the issue was resolved? Doug, I think you said it was completely wrapped up, but then later I think you might have mentioned there was some lingering effect. I just wanted to make sure that that was behind us.

Yeah, you know, we basically had the incident. We immediately took the system down, worked very closely with our customers, and our people did a great job. The average down that folks have had with this type of thing, you know, can range 15 to 19 days, and we were down four and a half days. We were very cautious about it, Dave, because obviously we wanted to protect that. and our customer's information and all. But when I talked about the lingering, the only thing that, you know, when you have a direct store model, the great news is at the shelf, our fill rates have been extremely high as have our fill rates to the shelf. And so we didn't see any significant mess. But four days, we're chasing some stuff that we would have shipped in the second quarter that will come in the third quarter. And, you know, our team did a great job, and our customers were awesome because they basically said it's not a matter of if, it's when. And what we really look for is how did you handle it. And we felt great about the way we went in and got out of this thing. But, yeah, it probably cost us some sales in the second quarter, and we'll just be making those up. Our fill rates will tick down a couple points, and we'll be back to the races by October 1.

Okay, thanks very much. Thanks, David.

One moment for our next question. Our next question comes from Lee Jagoda with CJS Securities.

Hey, good morning, guys. Hey, Lee. So I guess starting with the self-service key sales increasing 19%, just given that we saw some softness and volume across the board, Is there anything going on there related to price, or what do you think is driving the increase there?

You know, Lee, my sense is that people have gotten much more comfortable with making a key at a self-serve, and when you combine that with the struggles that retailers have had with labor, it's probably tougher to than it used to be to get a key made. I think it's really those two things. Our team's done a great job of making that GUI screen and that experience so much easier. There is a slight bit of price in there, but it's really, I think, the consumer accepting that they can get in and get out and get what they want at that machine. And that's probably the the reason that we've leaned into that machine and the consumer's comfort to now having that existing home and office and padlock availability now become, as we get into 24 automotive and RFID 5. So the good news is the consumers like it. And the great news for us is we're going to now be able to do even more from that machine. But it's a bit of price, but it's really just the consumer acceptance. And our retailers know that they're not where they want to be on labor. So that machine is even more important. We've got retailers that thought they would want 65%, 70% coverage of minute key now going to 100% because of the trend of the consumer and the fact that they don't see labor getting better. anytime soon in the store.

So, so it's just, so other than a little bit of price, it's just some cannibalization of the full service going to the self service.

Right now it is. And then I think about the new options. I think it'll be incremental growth because we're only doing auto keys for the most part in one retailer right now. And we'll extend that to four over time.

Got it. And Lee, it's Rocky.

The other thing I'd remind is, you know, as that shift occurs from manual to self-service, that's good from an economic perspective, not only for us, but also for the retailer. So we actually like that shift.

Sure. No, understood. And then in terms of the promotional activity in personal protective, I fully appreciate the sort of flattish for the full year ex-COVID sales on a year-over-year basis. Can you give us some more color on the cadence of promotional activity in the back half of the year in personal protective services?

Yeah, I think the way we would think about it, Lee, is we'll be up here in the second half and promotional activity should be up double digits compared to the prior year. We don't give out that exact number. And needless to say, there's a little bit of art. It's not all science around what's promotion versus what's in line versus maybe it's a new sale. But in general, we'll be up 10% in the back half or over 10% in the back half on promotions in that business.

More specifically, is it going to be more Q4 weighted or more Q3 weighted? Slightly more Q3 weighted. Got it. I will hop back in queue. Thanks.

One moment for our next question. Our next question comes from Michael Hoffman with Stiefel. Your line is open.

Good morning. Thank you so much. Point-of-sale data, what are you interpreting as you read your analysis? and evaluate the point of sale data at each of your major vendors or customers, I mean?

You know, Michael, when we went into the year, you remember that our big retailers were thinking that they would be up two on units. And we felt like that was a bit aggressive based on what we had seen. And so we had them in kind of flattish to down two in our minds on units. And I think you're seeing with the big home improvement centers kind of saying down two to down five, down two to down four on units in total. So we're a little better than that. And you look at the HF in general being up four to five for the year. Rocky, how much price is in that up four to five for the year? A couple points for HF? Between 2% and 3%, yeah. So that's what we thought would happen, and it turns out to be that. Now, the good news, Michael, we can't get anybody else on a plane. So we think from here on out, we're going to be a little better off on footsteps, but it's about what we had thought, and I think our numbers are playing out the way we thought on the HSN.

Okay, and then Taking that a step further, when you look at hardware and protective, you may have said this in your comments, and if you did, I apologize that I missed it, but protective is down on volume, but hardware is flat, but inside hardware is the remodeling, repair, things like deck screws, things like that actually up. How do I think about inside the line of business?

Yeah, if you look at the products that we sell inside HF, you're definitely seeing deck screws and drywall screws as leading the pack. If you look at PS, what you're seeing is, and it kind of makes sense, the consumer is leaning into a three-pack or a value pack versus a glove for $14.99. And that would be the two things that we're seeing in PS and in HS. Okay. Great. Thanks. Sure.

One moment for our next question. Our next question comes from Ruben Garner with the Benchmark Company LLC. Your line is open.

Thank you. Good morning, everybody. Hey, Ruben. Rocky, can you talk about seasonality and margins? And the point of the question, I think, is to kind of take a first look at next year? I know you're not providing guidance, but with the second half kind of exiting at such a high rate, how do we think about, you know, that fourth quarter margin number and how that plays out into next year?

Yeah, I think, you know, we're in a little bit different world, Ruben, today than we've been historically. And what I mean by that is, you know, we do typically see our second, third quarters are larger, particularly the margin quarters than the first and the fourth because of the volumes that we see, obviously, in the spring build and then through the summer. As we think about 2024, we're going to continue to benefit, particularly in the early half of the year, from the nice expansion we've seen in March. We don't expect that to drop very significantly. What we have said is over time, we deal with some of the biggest retailers in the world, so we would expect that we move back to our historic margin rate of 44 to 45. I think we'll do a little better than that in the first half of 2024. And then the one thing that we are seeing now is some benefit from steel, as Doug said in his prepared remarks, that, you know, it flowed through 9 to 12 months from the time that we see that. And so we would expect to see some of that that should continue to be a tailwind in the back half of 2024. But I think 2024 is going to be a nice margin year And then again, as you think a couple of years out, we'll probably move back to that normal historic level of 44 to 45%, which we think is a fair margin for our business.

Got it. And then business wins were mentioned a couple of times. Are the ones that you're starting to benefit from in the second half, are those things that have been announced on previous quarters or were there new wins the past few months that you're talking about on today's call?

Those are ones that we've announced that are just implemented. One's in PS and one's in HS.

Okay, got it. Thanks, guys. Congrats on the results and good luck. Thanks, Ruben.

As a reminder, to ask a question, please press star 11 on your telephone. This concludes the Q&A portion of today's call. I would like to turn the call back over to Mr. Cahill for some closing comments.

Thanks, everyone, for joining us this morning. I'd like to thank our customers and vendors, as well as suppliers, and importantly, our hardworking team for the contributions to the quarter. And we look forward to updating you again in the near future. Thank you.