Hillman Solutions Corp. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Record Quarter: Third quarter 2025 was a record quarter for Hillman with highest net sales and adjusted EBITDA. Net sales increased 8%, adjusted EBITDA up 36%, and leverage improved to 2.5x.
• Business Resilience: Durable business model tied to essential products for repair, maintenance, and home improvement. Performed strongly over past 3 years with 10% CAGR in trailing 12-month adjusted EBITDA, paid down over $240M in debt, and integrated 2 acquisitions.
• Tariff Management: Successfully navigated tariff environment with dual sourcing strategy. Held annual supplier conference in Vietnam to strengthen relationships. Managed tariffs while maintaining focus on customer care, new business, and operational efficiency.
• Q3 Results: Net sales totaled $424.9 million (+8% y-o-y). Adjusted EBITDA was $88 million (+36% y-o-y), with adjusted EBITDA margin 20.7% and adjusted gross margin 51.7%.

Segment Performance

• Hardware and Protective Solutions (HPS): Net sales grew 10% versus the comparable prior year period. Adjusted EBITDA increased by 57.3% to $65.8 million. Market volume for HPS declined 5.5%, but was offset by contributions from Intex, price increases, and new business wins.
• Robotics and Digital Solutions (RDS): Net sales were up 3.3% versus the year ago quarter. This marks the third consecutive growth quarter for RDS. Adjusted gross margins totaled 74.2% and adjusted EBITDA margins were 31.4%. Over 3,000 Mini Key 3.5 machines are in the field, with plans to finalize rollout to 2 largest customers by end of 2026.
• Canadian business: Net sales were nearly flat, down just 0.2% compared to the prior year quarter. New business wins were partially offset by soft market volumes and foreign exchange headwinds. Adjusted EBITDA margins are expected to remain above 10%.

Guidance

• Full-Year 2025: Reiterated net sales guidance $1.535 billion to $1.575 billion (midpoint $1.555 billion), representing 4%-7% growth y-o-y. Increased low end of adjusted EBITDA guidance to $270 million to $275 million (midpoint $272.5 million), representing 12.7%-14% growth y-o-y.
• 2026 Outlook: Full year 2026 net sales expected to grow in high single to low double digits in a flat market, driven by rollover price and new business wins. Adjusted EBITDA expected to grow in low to mid-single digits, assuming no change in tariff environment.

Risks

• Tariff Volatility: Changes in tariff policy can rapidly shift the market, impacting cost of goods sold.
• Market Volume Headwinds: Market volume headwinds have affected performance, though partially offset by price and new business.
• Macroeconomic Uncertainty: Uncertainty in macroeconomic factors such as interest rates and consumer spending can impact business operations and performance.

Question and Answer

Q: Have you seen competitive opportunities or pressures as a result of other suppliers to your customers?

A: Yes, seeing new business opportunities and quoting on various opportunities, excited about 2026 prospects.

Q: What have you seen in terms of order patterns from your largest retail customers?

A: Consistent, great relationships with retail partners, running solid businesses.

Q: What has changed for your 2026 view?

A: Absolutely nothing, still expect high single to low double digits top-line growth in a flat market, low to mid-single digits EBITDA growth.

Q: On the Hardware Solutions segment, price up 12.5%, volume down 33. Is that real-time elasticity?

A: Yes, varies by product and customer, local hardware stores may buy less initially, but big customers can take inventory in rising price periods.

Q: On tariffs, is the $150 million tariff number still valid?

A: Approximately $150 million of total tariffs, timing of benefits/costs takes time to run through inventory.

Q: Second half volume numbers, market down 7%. What's driving that?

A: Difficult to isolate consumer impact from price or external factors, but 7% is implied midpoint of guide, cautiously optimistic for potential improvement.

Q: Sequential improvement in gross margin, how much from RDS vs price cost?

A: Largest percentage from price cost, RDS contributed ~100 basis points, driven by 3.5 rollout and profitability.

Q: Pricing, any pushback or elasticity?

A: Price has played out as expected, customers understand, conversations balanced.

Q: Green shoots in October, what are they?

A: Some non-elastic categories doing decently, new business wins in motion, exciting opportunities in hopper.

Q: 2026 revenue outlook in flat market?

A: Assumes flat market, high single to low double digits top-line growth.

Q: Why was SG&A elevated in Q3?

A: Significant bonus accrual, Q3 had higher activity like labeling, but Q4 on target.

Q: M&A outlook?

A: Inbound activity ticking up, team seeing more interest, excited about tuck-in opportunities in core, DIY, and Pro areas.