UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 001-39609
Hillman Solutions Corp.
(Exact name of registrant as specified in its charter)
| Delaware | 85-2096734 | |||||||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
| 1280 Kemper Meadow Drive | 45240 | |||||||||||||||||||
| Cincinnati | , | Ohio | ||||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||||||||
Registrant’s telephone number, including area code: (513) 851-4900
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
| Common Stock, par value $0.0001 per share | HLMN | The Nasdaq Stock Market LLC | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act. (Check one):
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☐ | |||||||||||||||||
| Emerging growth company | ☐ | |||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
On November 6, 2023, 194,902,999 shares of common stock, par value $0.0001 per share, were outstanding.
| TABLE OF CONTENTS | ||||||||
| PART I. FINANCIAL INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II. OTHER INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities | |||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(dollars in thousands)
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 39,262 | $ | 31,081 | |||||||
| Accounts receivable, net of allowances of $2,312 ($2,405 - 2022) | 129,709 | 86,985 | |||||||||
| Inventories, net | 397,077 | 489,326 | |||||||||
| Other current assets | 29,778 | 24,227 | |||||||||
| Total current assets | 595,826 | 631,619 | |||||||||
| Property and equipment, net of accumulated depreciation of $362,422 ($333,452 - 2022) | 200,121 | 190,258 | |||||||||
| Goodwill | 824,305 | 823,812 | |||||||||
| Other intangibles, net of accumulated amortization of $461,240 ($414,275 - 2022) | 688,451 | 734,460 | |||||||||
| Operating lease right of use assets | 88,578 | 66,955 | |||||||||
| Other assets | 14,633 | 23,586 | |||||||||
| Total assets | $ | 2,411,914 | $ | 2,470,690 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 159,332 | $ | 131,751 | |||||||
| Current portion of debt and financing lease liabilities | 10,697 | 10,570 | |||||||||
| Current portion of operating lease liabilities | 13,814 | 12,285 | |||||||||
| Accrued expenses: | |||||||||||
| Salaries and wages | 9,188 | 15,709 | |||||||||
| Pricing allowances | 10,917 | 9,246 | |||||||||
| Income and other taxes | 5,786 | 5,300 | |||||||||
| Interest | 352 | 697 | |||||||||
| Other accrued liabilities | 23,390 | 29,854 | |||||||||
| Total current liabilities | 233,476 | 215,412 | |||||||||
| Long-term debt | 780,043 | 884,636 | |||||||||
| Deferred tax liabilities | 142,103 | 140,091 | |||||||||
| Operating lease liabilities | 81,795 | 61,356 | |||||||||
| Other non-current liabilities | 14,897 | 12,456 | |||||||||
| Total liabilities | $ | 1,252,314 | $ | 1,313,951 | |||||||
| Commitments and contingencies (Note 6) | |||||||||||
| Stockholders' equity: | |||||||||||
| Common stock, $0.0001 par, 500,000,000 shares authorized, 194,827,369 issued and outstanding at September 30, 2023 and 194,548,411 issued and outstanding at December 31, 2022 | 20 | 20 | |||||||||
| Additional paid-in capital | 1,415,059 | 1,404,360 | |||||||||
| Accumulated deficit | (226,147) | (226,617) | |||||||||
| Accumulated other comprehensive loss | (29,332) | (21,024) | |||||||||
| Total stockholders' equity | 1,159,600 | 1,156,739 | |||||||||
| Total liabilities and stockholders' equity | $ | 2,411,914 | $ | 2,470,690 | |||||||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
| 1 | September 30, 2023 Form 10-Q |  | |||||||
HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(dollars in thousands, except for per share amounts)
| Thirteen Weeks Ended September 30, 2023 | Thirteen Weeks Ended September 24, 2022 | Thirty-nine Weeks Ended September 30, 2023 | Thirty-nine Weeks Ended September 24, 2022 | ||||||||||||||||||||
| Net sales | $ | 398,943 | $ | 378,538 | $ | 1,128,669 | $ | 1,135,665 | |||||||||||||||
| Cost of sales (exclusive of depreciation and amortization shown separately below) | 222,644 | 214,802 | 643,652 | 648,221 | |||||||||||||||||||
| Selling, warehouse, general and administrative expenses | 113,359 | 133,246 | 335,876 | 366,013 | |||||||||||||||||||
| Depreciation | 14,434 | 14,312 | 44,939 | 41,738 | |||||||||||||||||||
| Amortization | 15,583 | 15,557 | 46,733 | 46,644 | |||||||||||||||||||
| Other (income) expense, net | (1,819) | 1,070 | 841 | (3,124) | |||||||||||||||||||
| Income (loss) from operations | 34,742 | (449) | 56,628 | 36,173 | |||||||||||||||||||
| Interest expense, net | 16,728 | 14,696 | 52,880 | 38,857 | |||||||||||||||||||
| Income (loss) before income taxes | 18,014 | (15,145) | 3,748 | (2,684) | |||||||||||||||||||
| Income tax expense (benefit) | 12,957 | (5,679) | 3,278 | (147) | |||||||||||||||||||
| Net income (loss) | $ | 5,057 | $ | (9,466) | $ | 470 | $ | (2,537) | |||||||||||||||
| Basic income (loss) per share | $ | 0.03 | $ | (0.05) | $ | 0.00 | $ | (0.01) | |||||||||||||||
| Weighted average basic shares outstanding | 194,794 | 194,370 | 194,662 | 194,171 | |||||||||||||||||||
| Diluted income (loss) per share | $ | 0.03 | $ | (0.05) | $ | 0.00 | $ | (0.01) | |||||||||||||||
| Weighted average diluted shares outstanding | 196,575 | 194,370 | 195,832 | 194,171 | |||||||||||||||||||
| Net income (loss) from above | $ | 5,057 | $ | (9,466) | $ | 470 | $ | (2,537) | |||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (2,994) | (7,834) | 1,851 | (8,745) | |||||||||||||||||||
| Hedging activity | (4,257) | 3,811 | (10,159) | 15,333 | |||||||||||||||||||
| Total other comprehensive (loss) income | (7,251) | (4,023) | (8,308) | 6,588 | |||||||||||||||||||
| Comprehensive (loss) income | $ | (2,194) | $ | (13,489) | $ | (7,838) | $ | 4,051 | |||||||||||||||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
| 2 | September 30 2023 Form 10-Q | | |||||||
HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
| Thirty-nine Weeks Ended September 30, 2023 | Thirty-nine Weeks Ended September 24, 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | 470 | $ | (2,537) | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 91,672 | 88,382 | |||||||||
| Deferred income taxes | 1,835 | 5,670 | |||||||||
| Deferred financing and original issue discount amortization | 3,993 | 2,251 | |||||||||
| Stock-based compensation expense | 9,111 | 10,789 | |||||||||
| Change in fair value of contingent consideration | 2,614 | (2,926) | |||||||||
| Changes in operating items: | |||||||||||
| Accounts receivable, net | (42,883) | (19,482) | |||||||||
| Inventories, net | 92,833 | (6,004) | |||||||||
| Other assets | (5,697) | (5,549) | |||||||||
| Accounts payable | 27,220 | (34,648) | |||||||||
| Other accrued liabilities | (9,691) | 27,286 | |||||||||
| Net cash provided by operating activities | 171,477 | 63,232 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisition of business, net of cash received | (300) | (2,500) | |||||||||
| Capital expenditures | (52,145) | (46,431) | |||||||||
| Other investing activities | (318) | — | |||||||||
| Net cash used for investing activities | (52,763) | (48,931) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repayments of senior term loans | (86,383) | (6,384) | |||||||||
| Borrowings on revolving credit loans | 172,000 | 161,000 | |||||||||
| Repayments of revolving credit loans | (197,000) | (154,000) | |||||||||
| Principal payments under finance lease obligations | (1,687) | (998) | |||||||||
| Proceeds from exercise of stock options | 1,600 | 1,885 | |||||||||
| Payments of contingent consideration | (1,175) | (115) | |||||||||
| Other financing activities | 883 | 1,809 | |||||||||
| Cash payments related to hedging activities | — | (1,421) | |||||||||
| Net cash (used for) provided by financing activities | (111,762) | 1,776 | |||||||||
| Effect of exchange rate changes on cash | 1,229 | (1,454) | |||||||||
| Net increase in cash and cash equivalents | 8,181 | 14,623 | |||||||||
| Cash and cash equivalents at beginning of period | 31,081 | 14,605 | |||||||||
| Cash and cash equivalents at end of period | $ | 39,262 | $ | 29,228 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Interest paid | $ | 43,843 | $ | 30,597 | |||||||
| Income taxes paid | 3,999 | 2,550 | |||||||||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
| 3 | September 30 2023 Form 10-Q | | |||||||
HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(dollars in thousands)
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-in-Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Thirty-nine weeks ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 194,548 | $ | 20 | $ | 1,404,360 | $ | (226,617) | $ | (21,024) | $ | 1,156,739 | |||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | — | — | — | (9,132) | — | (9,132) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock option activity, stock awards and employee stock purchase plan | — | — | 2,708 | — | — | 2,708 | ||||||||||||||||||||||||||||||||||||||||||||
| Hedging activity | — | — | — | — | (5,142) | (5,142) | ||||||||||||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | 959 | 959 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 1, 2023 | 194,548 | $ | 20 | $ | 1,407,068 | $ | (235,749) | $ | (25,207) | $ | 1,146,132 | |||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | — | — | — | 4,545 | — | 4,545 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock option activity, stock awards and employee stock purchase plan | 159 | — | 4,012 | — | — | 4,012 | ||||||||||||||||||||||||||||||||||||||||||||
| Hedging activity | — | — | — | — | (760) | (760) | ||||||||||||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | 3,886 | 3,886 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2023 | 194,707 | $ | 20 | $ | 1,411,080 | $ | (231,204) | $ | (22,081) | $ | 1,157,815 | |||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | — | — | — | 5,057 | — | 5,057 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock option activity, stock awards and employee stock purchase plan | 120 | — | 3,979 | — | — | 3,979 | ||||||||||||||||||||||||||||||||||||||||||||
| Hedging activity | — | — | — | — | (4,257) | (4,257) | ||||||||||||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | (2,994) | (2,994) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | 194,827 | $ | 20 | $ | 1,415,059 | $ | (226,147) | $ | (29,332) | $ | 1,159,600 | |||||||||||||||||||||||||||||||||||||||
| Thirty-nine weeks ended September 24, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 25, 2021 | 193,995 | $ | 20 | $ | 1,387,410 | $ | (210,181) | $ | (27,154) | $ | 1,150,095 | |||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | — | — | — | (1,887) | — | (1,887) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock option activity, stock awards and employee stock purchase plan | 53 | — | 6,018 | — | — | 6,018 | ||||||||||||||||||||||||||||||||||||||||||||
| Hedging activity | — | — | — | — | 8,413 | 8,413 | ||||||||||||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | 3,735 | 3,735 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 26, 2022 | 194,048 | $ | 20 | $ | 1,393,428 | $ | (212,068) | $ | (15,006) | $ | 1,166,374 | |||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | — | — | — | 8,816 | — | 8,816 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock option activity, stock awards and employee stock purchase plan | 223 | — | 3,435 | — | — | 3,435 | ||||||||||||||||||||||||||||||||||||||||||||
| Hedging Activity | — | — | — | — | 3,109 | 3,109 | ||||||||||||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | (4,646) | (4,646) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 25, 2022 | 194,271 | $ | 20 | $ | 1,396,863 | $ | (203,252) | $ | (16,543) | $ | 1,177,088 | |||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | — | — | — | (9,466) | — | (9,466) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock option activity, stock awards and employee stock purchase plan | 124 | — | 3,221 | — | — | 3,221 | ||||||||||||||||||||||||||||||||||||||||||||
| Hedging activity | — | — | — | — | 3,811 | 3,811 | ||||||||||||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | (7,834) | (7,834) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 24, 2022 | 194,395 | $ | 20 | $ | 1,400,084 | $ | (212,718) | $ | (20,566) | $ | 1,166,820 | |||||||||||||||||||||||||||||||||||||||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
| 4 | September 30 2023 Form 10-Q | | |||||||
1. BASIS OF PRESENTATION
The accompanying condensed financial statements include the consolidated accounts of the Hillman Solutions Corp. and its wholly-owned subsidiaries (collectively “Hillman” or the “Company”). The accompanying unaudited financial statements include the condensed consolidated accounts of the Company for the thirteen and thirty-nine weeks ended September 30, 2023. Unless the context requires otherwise, references to "Hillman," "we," "us," "our," or "our Company" refer to Hillman Solutions Corp. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
The accompanying unaudited Condensed Consolidated Financial Statements present information in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X. Accordingly, they do not include all information or footnotes required by U.S. generally accepted accounting principles for complete financial statements. Operating results for the thirteen and thirty-nine weeks ended September 30, 2023 do not necessarily indicate the results that may be expected for the full year. For further information, refer to the Consolidated Financial Statements for the year ended December 31, 2022 and notes thereto included in the Form 10-K filed on February 27, 2023 with the Securities and Exchange Commission (“SEC”).
Nature of Operations:
The Company is comprised of three separate operating business segments: (1) Hardware and Protective Solutions, (2) Robotics and Digital Solutions, and (3) Canada.
In the first quarter of 2023, the Company realigned its Canada segment to include the Canada-based Protective Solutions and MinuteKey businesses, which are now operating under the Canada segment leadership team. Previously, the results of the Canada-based Protective Solutions business were reported in the Hardware and Protective Solutions segment and the Canada-based MinuteKey business was reported in the Robotics and Digital Solutions segment and were operating under those respective segment leadership teams. See Note 16 - Segment Reporting for additional information.
Hillman provides and, on a limited basis, produces products such as fasteners and related hardware items; threaded rod and metal shapes; keys, key duplication systems, and accessories; personal protective equipment such as gloves and eyewear; builder's hardware; and identification items, such as tags and letters, numbers, and signs, to retail outlets, primarily hardware stores, home centers and mass merchants, pet supply stores, grocery stores, and drug stores. The Canada segment also produces fasteners, stampings, fittings, and processes threaded parts for automotive suppliers, industrial Original Equipment Manufacturers (“OEMs”), and industrial distributors.
Reclassifications:
Certain amounts in the prior year Condensed Consolidated Financial Statements and in the Notes to the Condensed Consolidated Financial Statements were reclassified to conform to the current year’s presentation. This had no impact on the prior periods’ statement of financial position, net income (loss), cash flows, or stockholder’s equity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies should be read in conjunction with the significant accounting policies included in the Form 10-K filed on February 27, 2023 with the SEC.
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses for the reporting periods. Actual results may differ from these estimates.
| 5 | September 30 2023 Form 10-Q | | |||||||
Revenue Recognition:
Revenue is recognized when control of goods or services is transferred to our customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.
The Company offers a variety of sales incentives to its customers primarily in the form of discounts and rebates. Discounts are recognized in the Condensed Consolidated Financial Statements at the date of the related sale. Rebates are based on the revenue to date and the contractual rebate percentage to be paid. A portion of the cost of the rebate is allocated to each underlying sales transaction. Discounts and rebates are included in the determination of net sales.
The Company also establishes reserves for customer returns and allowances. The reserve is established based on historical rates of returns and allowances. The reserve is adjusted quarterly based on actual experience. Returns and allowances are included in the determination of net sales.
The following tables display our disaggregated revenue by product category. Certain amounts in the prior year presentation between segments were reclassified to conform to the current year’s presentation.
| Thirteen weeks ended September 30, 2023 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| Fastening and Hardware | $ | 228,515 | $ | — | $ | 35,497 | $ | 264,012 | |||||||||||||||
| Personal Protective | 67,038 | — | 1,933 | 68,971 | |||||||||||||||||||
| Keys and Key Accessories | — | 50,408 | 2,477 | 52,885 | |||||||||||||||||||
| Engraving and Resharp | — | 13,060 | 15 | 13,075 | |||||||||||||||||||
| Total Revenue | $ | 295,553 | $ | 63,468 | $ | 39,922 | $ | 398,943 | |||||||||||||||
| Thirteen weeks ended September 24, 2022 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| Fastening and Hardware | $ | 211,064 | $ | — | $ | 39,356 | $ | 250,420 | |||||||||||||||
| Personal Protective | 59,052 | — | 2,263 | 61,315 | |||||||||||||||||||
| Keys and Key Accessories | — | 50,445 | 2,422 | 52,867 | |||||||||||||||||||
| Engraving and Resharp | — | 13,928 | 8 | 13,936 | |||||||||||||||||||
| Total Revenue | $ | 270,116 | $ | 64,373 | $ | 44,049 | $ | 378,538 | |||||||||||||||
| Thirty-nine weeks ended September 30, 2023 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| Fastening and Hardware | $ | 658,629 | $ | — | $ | 111,462 | $ | 770,091 | |||||||||||||||
| Personal Protective | 159,569 | — | 5,474 | 165,043 | |||||||||||||||||||
| Keys and Key Accessories | — | 147,976 | 6,510 | 154,486 | |||||||||||||||||||
| Engraving and Resharp | — | 39,014 | 35 | 39,049 | |||||||||||||||||||
| Total Revenue | $ | 818,198 | $ | 186,990 | $ | 123,481 | $ | 1,128,669 | |||||||||||||||
| 6 | September 30 2023 Form 10-Q | | |||||||
| Thirty-nine weeks ended September 24, 2022 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| Fastening and Hardware | $ | 626,174 | $ | — | $ | 121,078 | $ | 747,252 | |||||||||||||||
| Personal Protective | 186,757 | — | 6,778 | 193,535 | |||||||||||||||||||
| Keys and Key Accessories | — | 146,750 | 5,778 | 152,528 | |||||||||||||||||||
| Engraving and Resharp | — | 42,316 | 34 | 42,350 | |||||||||||||||||||
| Total Revenue | $ | 812,931 | $ | 189,066 | $ | 133,668 | $ | 1,135,665 | |||||||||||||||
The following tables disaggregate our revenue by geographic location. Certain amounts in the prior year presentation between segments were reclassified to conform to the current year’s presentation.
| Thirteen weeks ended September 30, 2023 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| United States | $ | 292,580 | $ | 63,468 | $ | — | $ | 356,048 | |||||||||||||||
| Canada | — | — | 39,922 | 39,922 | |||||||||||||||||||
| Mexico | 2,973 | — | — | 2,973 | |||||||||||||||||||
| Consolidated | $ | 295,553 | $ | 63,468 | $ | 39,922 | $ | 398,943 | |||||||||||||||
| Thirteen weeks ended September 24, 2022 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| United States | $ | 265,649 | $ | 64,373 | $ | — | $ | 330,022 | |||||||||||||||
| Canada | — | — | 44,049 | 44,049 | |||||||||||||||||||
| Mexico | 4,467 | — | — | 4,467 | |||||||||||||||||||
| Consolidated | $ | 270,116 | $ | 64,373 | $ | 44,049 | $ | 378,538 | |||||||||||||||
| Thirty-nine weeks ended September 30, 2023 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| United States | $ | 809,250 | $ | 186,990 | $ | — | $ | 996,240 | |||||||||||||||
| Canada | — | — | 123,481 | 123,481 | |||||||||||||||||||
| Mexico | 8,948 | — | — | 8,948 | |||||||||||||||||||
| Consolidated | $ | 818,198 | $ | 186,990 | $ | 123,481 | $ | 1,128,669 | |||||||||||||||
| Thirty-nine weeks ended September 24, 2022 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| United States | $ | 801,539 | $ | 189,066 | $ | — | $ | 990,605 | |||||||||||||||
| Canada | — | — | 133,668 | 133,668 | |||||||||||||||||||
| Mexico | 11,392 | — | — | 11,392 | |||||||||||||||||||
| Consolidated | $ | 812,931 | $ | 189,066 | $ | 133,668 | $ | 1,135,665 | |||||||||||||||
The Company's revenue by geography is allocated based on the location of its sales operations.
Hardware and Protective Solutions revenues consist primarily of the delivery of fasteners, anchors, specialty fastening products, and personal protective equipment such as gloves and eyewear, as well as in-store merchandising services for the related product category.
| 7 | September 30 2023 Form 10-Q | | |||||||
Robotics and Digital Solutions revenues consist primarily of sales of keys and identification tags through self-service key duplication and engraving kiosks. It also includes our associate-assisted key duplication systems and key accessories.
Canada revenues consist primarily of the delivery to Canadian customers of fasteners and related hardware items, threaded rod, keys, key duplicating systems, accessories, personal protective equipment, and identification items as well as in-store merchandising services for the related product category.
The Company’s performance obligations under its arrangements with customers are providing products, in-store merchandising services, and access to key duplicating and engraving equipment. Generally, the price of the merchandising services and the access to the key duplicating and engraving equipment is included in the price of the related products. Control of products is transferred at the point in time when the customer accepts the goods, which occurs upon delivery of the products. Judgment is required in determining the time at which to recognize revenue for the in-store services and the access to key duplicating and engraving equipment. Revenue is recognized for in-store service and access to key duplicating and engraving equipment as the related products are delivered, which approximates a time-based recognition pattern. Therefore, the entire amount of consideration related to the sale of products, in-store merchandising services, and access to key duplicating and engraving equipment is recognized upon the delivery of the products.
The costs to obtain a contract are insignificant, and generally contract terms do not extend beyond one year. Therefore, these costs are expensed as incurred. Freight and shipping costs and the cost of our in-store merchandising services teams are recognized in selling, warehouse, general, and administrative expense when control over products is transferred to the customer.
The Company used the practical expedient regarding the existence of a significant financing component as payments are due in less than one year after delivery of the products.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2024. As of September 30, 2023, the Company does not have any receivables, hedging relationships, lease agreements, or debt agreements that reference LIBOR or another reference rate expected to be discontinued. On June 30, 2023, we amended and restated our term loan and interest rate swap agreements. As a result of those amendments, our floating rate debt no longer references a LIBOR based benchmark rate.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform to expand the scope of ASU 2020-04 by allowing an entity to apply the optional expedients, by stating that a change to the interest rate used for margining, discounting or contract price alignment for a derivative is not considered to be a change to the critical terms of the hedging relationship that requires designation. The entity may apply the contract modification relief provided in ASU 2020-04 and continue to account for the derivative in the same manner that existed prior to the changes resulting from reference rate reform or the discounting transition. As of September 30, 2023, the Company does not have any receivables, hedging relationships, lease agreements, or debt agreements that reference LIBOR or another reference rate expected to be discontinued. On June 30, 2023, we amended and restated our term loan and interest rate swap agreements. As a result of those amendments, our floating rate debt no longer references a LIBOR based benchmark rate.
In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50) to enhance the transparency of supplier finance programs. The amendments in this update apply to all entities that use supplier finance programs in connection with the purchase of goods and services. Supplier finance programs include reverse factoring, payables finance, or structured payables arrangements that allow a buyer to offer its suppliers the option for access to payment in advance of an invoice due date. The amendments in this update require that a buyer in a supplier finance program disclose sufficient information about the program including the program’s nature and activity during the period, changes from period to period, and potential magnitude as well as disclosure of the qualitative and quantitative information about its supplier finance programs. The amendments in this update are effective for fiscal years beginning after December 15, 2022 and should be applied retrospectively
| 8 | September 30 2023 Form 10-Q | | |||||||
to each period in which a balance sheet is presented. The amendment on roll forward information is effective for fiscal years beginning after December 15, 2023, which should be applied prospectively. The Company has evaluated the impact provided by the new standard and does not expect it to have a material impact on its financial statements.
4. ACQUISITIONS
On March 7, 2022, the Company completed its acquisition of the Irvine, California-based Monkey Hook, LLC ("Monkey Hook") for a total purchase price of $2,800, which included $300 in hold-back that remained payable to the seller as of December 31, 2022. During the first quarter of 2023, the hold-back of $300 was paid to satisfy the full purchase price. Monkey Hook products are designed to hang artwork on drywall where no stud is present. Monkey Hook sells its products throughout North America and its financial results reside in the Company's Hardware and Protective Solutions reportable segment.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill amounts by reportable segment are summarized as follows:
| Goodwill at | Acquisitions | Dispositions | Other (1) | Goodwill at | |||||||||||||||||||||||||||||||
| December 31, 2022 | September 30, 2023 | ||||||||||||||||||||||||||||||||||
| Hardware and Protective Solutions | $ | 574,744 | $ | — | $ | — | $ | 443 | $ | 575,187 | |||||||||||||||||||||||||
| Robotics and Digital Solutions | 220,936 | — | — | — | 220,936 | ||||||||||||||||||||||||||||||
| Canada | 28,132 | — | — | 50 | 28,182 | ||||||||||||||||||||||||||||||
| Total | $ | 823,812 | $ | — | $ | — | $ | 493 | $ | 824,305 | |||||||||||||||||||||||||
(1)The "Other" change to goodwill relates to adjustments resulting from fluctuations in foreign currency exchange rates for the Canada and Mexico reporting units.
Other intangibles, net, as of September 30, 2023 and December 31, 2022 consist of the following:
| Estimated Useful Life (Years) | September 30, 2023 | December 31, 2022 | |||||||||||||||||||||
| Customer relationships | 13 | - | 20 | $ | 964,171 | $ | 963,622 | ||||||||||||||||
| Trademarks - indefinite | Indefinite | 85,364 | 85,275 | ||||||||||||||||||||
| Trademarks - other | 7 | - | 15 | 32,437 | 31,387 | ||||||||||||||||||
| Technology and patents | 5 | - | 12 | 67,719 | 68,451 | ||||||||||||||||||
| Intangible assets, gross | 1,149,691 | 1,148,735 | |||||||||||||||||||||
| Less: Accumulated amortization | 461,240 | 414,275 | |||||||||||||||||||||
| Other intangibles, net | $ | 688,451 | $ | 734,460 | |||||||||||||||||||
The amortization expense for intangible assets, including the adjustments resulting from fluctuations in foreign currency exchange rates for the thirteen and thirty-nine weeks ended September 30, 2023 was $15,583 and $46,733. Amortization expense for the thirteen and thirty-nine weeks ended September 24, 2022 was $15,557 and $46,644.
The Company tests goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter. Impairment is also tested when events or changes in circumstances indicate that the carrying values of the assets may be greater than their fair values. During the thirteen and thirty-nine weeks ended September 30, 2023 and the thirteen and thirty-nine weeks ended September 24, 2022, the Company did not identify any triggering events that would result in an impairment analysis outside of the annual assessment.
| 9 | September 30 2023 Form 10-Q | | |||||||
6. COMMITMENTS AND CONTINGENCIES
Cybersecurity Incident
In late May 2023, the Company experienced a ransomware attack (the “Cybersecurity Incident”) that affected certain of the IT systems and shipping operations. As part of the containment effort, the Company suspended affected systems and elected to temporarily suspend additional systems in an abundance of caution. The Company reactivated and restored operational systems over the course of the week following the Cybersecurity Incident. The Company has restored production and shipping at all our facilities and has restored our systems such that normal operating activities have resumed. In the thirty-nine weeks ended September 30, 2023, the Cybersecurity Incident related costs net of an expected insurance receivable totaled $1.0 million. There were no additional expenses recorded in the thirteen weeks ended September 30, 2023.
The Company expects to incur ongoing costs related to this Cybersecurity Incident, as well as costs for ongoing efforts to enhance data security in response to ongoing developments in the cybersecurity landscape. The Company is unable to estimate the ultimate direct and indirect financial impacts of this Cybersecurity Incident, though it is not expected to be material to our full year fiscal 2023 financial results.
Insurance Coverage
The Company self-insures its general liability including product liability, automotive and workers' compensation losses up to $500 per occurrence. Catastrophic coverage has been purchased from third party insurers for occurrences up to $60,000. The two risk areas involving the most significant accounting estimates are workers' compensation and automotive liability. Actuarial valuations performed by the Company's outside risk insurance expert were used by the Company's management to form the basis for workers' compensation and automotive liability loss reserves. The actuary contemplated the Company's specific loss history, actual claims reported, and industry trends among statistical and other factors to estimate the range of reserves required. Risk insurance reserves are comprised of specific reserves for individual claims and additional amounts expected for development of these claims, as well as for incurred but not yet reported claims. The Company believes that the liability of approximately $2,828 recorded for such risks is adequate as of September 30, 2023.
As of September 30, 2023, the Company has provided certain vendors and insurers letters of credit aggregating to $35,890 related to our product purchases and insurance coverage for product liability, workers’ compensation, and general liability.
The Company self-insures group health claims up to an annual stop loss limit of $300 per participant. Historical group insurance loss experience forms the basis for the recognition of group health insurance reserves. Provisions for losses expected under these programs are recorded based on an analysis of historical insurance claim data and certain actuarial assumptions. The Company believes that the liability of approximately $2,726 recorded for such risks is adequate as of September 30, 2023.
Import Duties
The Company imports large quantities of fastener products which are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements and bilateral actions. The Company could be subject to the assessment of additional duties and interest if it or its suppliers fail to comply with customs regulations or similar laws. The U.S. Department of Commerce (the "Department”) has received requests from petitioners to conduct administrative reviews of compliance with anti-dumping duty and countervailing duty laws for certain nail products sourced from Asian countries. The Company sourced products under review from vendors in China and Taiwan during the periods selected for review. The Company accrues for the duty expense once it is determined to be probable and the amount can be reasonably estimated.
Litigation
We are involved in litigation arising in the normal course of business. In management’s opinion, any such litigation is not expected to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.
7. RELATED PARTY TRANSACTIONS
| 10 | September 30 2023 Form 10-Q | | |||||||
Hillman, Jefferies Financial Group Inc., certain other financial sponsors, CCMP Investors and the Oak Hill Investors entered into the Amended and Restated Registration Rights Agreement (the “A&R Registration Rights Agreement”), pursuant to which, among other things, the parties to the A&R Registration Rights Agreement agreed not to effect any sale or distribution of any equity securities of Hillman held by any of them during the lock-up period described therein and were granted certain registration rights with respect to their respective shares of Hillman common stock, in each case, on the terms and subject to the conditions therein. Richard Zannino and Joe Scharfenberger, both partners at CCMP, were members of our Board at the time Hillman entered into the A&R Registration Rights Agreement. Mr. Zannino and Mr. Scharfenberger each resigned from the Hillman Board in May 2023 following CCMP's complete exit of its investment in Hillman during the second quarter of 2023. Another director, Teresa Gendron, was the CFO of Jefferies Financial Group until March 2023. Additionally, Oak Hill owned in excess of 5% of the Company’s outstanding securities at certain times in fiscal 2022.
Sales to related parties, which are included in net sales, consist of the sale of excess inventory to Ollie's Bargain Outlet Holdings, Inc. ("Ollie's"). John Swygert, President and Chief Executive Officer of Ollie's, is a member of our Board of Directors. Sales to related parties were $519 and $1,167 for the thirteen and thirty-nine weeks ended September 30, 2023. Sales to related parties were $497 in the thirty-nine weeks ended September 24, 2022. There were no such sales made in the thirteen weeks ended September 24, 2022.
8. INCOME TAXES
ASC 740 requires companies to apply their estimated annual effective tax rate on a year-to-date basis in each interim period. These rates are derived, in part, from expected annual pre-tax income or loss. In the thirteen and thirty-nine weeks ended September 30, 2023, the Company applied an estimated annual effective tax rate based on expected annual pre-tax income to the interim period pre-tax income to calculate the income tax expense. For the thirteen and thirty-nine weeks ended September 24, 2022, the Company applied an estimated annual effective tax rate based on expected annual pre-tax loss to the interim period pre-tax loss to calculate the income tax benefit.
For the thirteen and thirty-nine weeks ended September 30, 2023, the effective income tax rate was 71.9% and 87.5%, respectively. The Company recorded an income tax provision for the thirteen and thirty-nine weeks ended September 30, 2023 of $12,957 and $3,278, respectfully. The effective tax rate for the thirteen and thirty-nine weeks ended September 30, 2023 was the result of certain non-deductible expenses and state and foreign income taxes.
For the thirteen and thirty-nine weeks ended September 24, 2022, the effective income tax rate was 37.5% and 5.5%, respectively. The Company recorded an income tax benefit for the thirteen and thirty-nine weeks ended September 24, 2022 of $5,679 and $147, respectively. The effective tax rate for the thirteen and thirty-nine weeks ended September 24, 2022 was primarily the result of an estimated increase in GILTI from the Company's Canadian operations. Non-deductible stock compensation and state and foreign income taxes also contributed to an increase to the effective tax rate.
9. LONG-TERM DEBT
The following table summarizes the Company’s debt:
| September 30, 2023 | December 31, 2022 | ||||||||||
| Revolving loans | $ | 47,000 | $ | 72,000 | |||||||
| Senior Term loan, due 2028 | 753,980 | 840,363 | |||||||||
| Finance lease & other obligations | 10,118 | 6,406 | |||||||||
| 811,098 | 918,769 | ||||||||||
| Unamortized discount on Senior Term loan | (4,318) | (5,012) | |||||||||
| Current portion of long-term debt and finance leases | (10,697) | (10,570) | |||||||||
| Deferred financing fees | (16,040) | (18,551) | |||||||||
| Total long-term debt, net | $ | 780,043 | $ | 884,636 | |||||||
As of September 30, 2023, the ABL Revolver had an outstanding amount of $47,000 and outstanding letters of credit of $35,890. The Company has $251,904 of available borrowings under the revolving credit facility as a source
| 11 | September 30 2023 Form 10-Q | | |||||||
of liquidity as of September 30, 2023 based on the customary asset-backed loan borrowing base and availability provisions.
In August 2023, the Company made a $80.0 million dollar prepayment against the outstanding term loan balance without payment of a premium or penalty.
Conversion of Debt from LIBOR Interest Rate to SOFR Interest Rate
The Company's debt instruments are subject to interest rate adjustments that were initially based on the London Interbank Offered Rate ("LIBOR"). However, due to the discontinuation of LIBOR as a benchmark rate and the industry's transition to the Secured Overnight Financing Rate (SOFR), the Company has undertaken the necessary steps to convert its debt from LIBOR interest rate to SOFR interest rate. On June 30, 2023, the Company amended the term loan credit agreement to change the benchmark rate from LIBOR to SOFR, and had previously amended the ABL revolver to do the same on July 29, 2022.
The interest rate for the term loan is, at the discretion of the Company, (i) term SOFR plus a margin varying from 2.50% to 2.75% per annum based on leverage, plus a credit spread adjustment varying between 0.11448% to 0.42826%, depending on the SOFR tenor selected; or (ii) an alternate base rate plus a margin varying from 1.50% to 1.75% per annum based on leverage.
10. LEASES
Lessee
The Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both 1) the right to obtain substantially all of the economic benefits from the use of the asset and 2) the right to direct the use of the asset. The Company leases certain distribution center locations, vehicles, forklifts, computer equipment, and its corporate headquarters with expiration dates through 2033. Certain lease arrangements include escalating rent payments and options to extend the lease term. Expected lease terms include these options to extend or terminate the lease when it is reasonably certain the Company will exercise the option. The Company's leasing arrangements do not contain material residual value guarantees, nor material restrictive covenants.
The components of operating and finance lease costs for the thirteen and thirty-nine weeks ended September 30, 2023 and thirteen and thirty-nine weeks ended September 24, 2022 were as follows:
| Thirteen Weeks Ended September 30, 2023 | Thirteen Weeks Ended September 24, 2022 | Thirty-nine Weeks Ended September 30, 2023 | Thirty-nine Weeks Ended September 24, 2022 | |||||||||||||||||||||||
| Operating lease costs | $ | 5,011 | $ | 5,082 | $ | 16,055 | $ | 15,029 | ||||||||||||||||||
| Short term lease costs | 1,003 | 1,563 | 4,095 | 5,891 | ||||||||||||||||||||||
| Variable lease costs | 229 | 529 | 1,204 | 1,066 | ||||||||||||||||||||||
| Finance lease costs: | ||||||||||||||||||||||||||
| Amortization of right of use assets | 714 | 485 | 1,808 | 1,082 | ||||||||||||||||||||||
| Interest on lease liabilities | 92 | 34 | 188 | 87 | ||||||||||||||||||||||
Rent expense is recognized on a straight-line basis over the expected lease term. Rent expense totaled $6,243 and $21,354 in the thirteen and thirty-nine weeks ended September 30, 2023 and $7,174 and $21,986 in the thirteen and thirty-nine weeks ended September 24, 2022. Rent expense includes operating lease costs as well as expenses for non-lease components such as common area maintenance, real estate taxes, real estate insurance, variable costs related to our leased vehicles and also short-term rental expenses.
The implicit rate is not determinable in most of the Company’s leases, as such management uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.
The weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of September 30, 2023 and December 31, 2022:
| 12 | September 30 2023 Form 10-Q | | |||||||
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| Operating Leases | Finance Leases | Operating Leases | Finance Leases | |||||||||||||||||||||||
| Weighted average remaining lease term | 6.58 | 3.02 | 6.13 | 2.65 | ||||||||||||||||||||||
| Weighted average discount rate | 7.06 | % | 5.25 | % | 7.22 | % | 2.99 | % | ||||||||||||||||||
Supplemental balance sheet information related to the Company's finance leases was as follows as of September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||||||||
| Finance lease assets, net, included in property plant and equipment | $ | 7,334 | $ | 4,540 | ||||||||||
| Current portion of long-term debt | 2,773 | 1,862 | ||||||||||||
| Long-term debt, less current portion | 4,684 | 2,767 | ||||||||||||
| Total principal payable on finance leases | $ | 7,457 | $ | 4,629 | ||||||||||
Supplemental cash flow information related to the Company's operating leases was as follows for the thirty-nine weeks ended September 30, 2023 and thirty-nine weeks ended September 24, 2022:
| Thirty-nine Weeks Ended September 30, 2023 | Thirty-nine Weeks Ended September 24, 2022 | |||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
| Operating cash outflow from operating leases | $ | 15,119 | $ | 14,497 | ||||||||||
| Operating cash outflow from finance leases | 170 | 84 | ||||||||||||
| Financing cash outflow from finance leases | 1,687 | 998 | ||||||||||||
As of September 30, 2023, our future minimum rental commitments are immaterial for lease agreements beginning after the current reporting period. Maturities of our lease liabilities for all operating and finance leases are as follows as of September 30, 2023:
| Operating Leases | Finance Leases | |||||||||||||
| Less than one year | $ | 19,892 | $ | 3,099 | ||||||||||
| 1 to 2 years | 19,198 | 2,515 | ||||||||||||
| 2 to 3 years | 18,519 | 1,627 | ||||||||||||
| 3 to 4 years | 17,051 | 548 | ||||||||||||
| 4 to 5 years | 15,252 | 311 | ||||||||||||
| After 5 years | 28,902 | 8 | ||||||||||||
| Total future minimum rental commitments | 118,814 | 8,108 | ||||||||||||
| Less - amounts representing interest | (23,205) | (651) | ||||||||||||
| Present value of lease liabilities | $ | 95,609 | $ | 7,457 | ||||||||||
Lessor
The Company has certain arrangements for key duplication equipment under which we are the lessor. These leases meet the criteria for operating lease classification. Lease income associated with these leases is not material.
| 13 | September 30 2023 Form 10-Q | | |||||||
11. EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME
Common Stock
The Hillman Solutions Corp. has one class of common stock.
Accumulated Other Comprehensive Income (Loss)
The following is detail of the changes in the Company's accumulated other comprehensive income (loss) from December 25, 2021 to September 30, 2023, including the effect of significant reclassifications out of accumulated other comprehensive income (loss) (net of tax):
| Accumulated Other Comprehensive Income (Loss) | ||||||||
| Balance at December 25, 2021 | $ | (27,154) | ||||||
| Other comprehensive income before reclassifications | 10,524 | |||||||
| Amounts reclassified from other comprehensive income | (4,394) | |||||||
Net current period other comprehensive income (1) | 6,130 | |||||||
| Balance at December 31, 2022 | (21,024) | |||||||
| Other comprehensive income before reclassifications | 3,121 | |||||||
| Amounts reclassified from other comprehensive income | (11,429) | |||||||
Net current period other comprehensive loss (2) | (8,308) | |||||||
| Balance at September 30, 2023 | $ | (29,332) | ||||||
1.During the year ended December 31, 2022, the Company deferred a gain of $22,771, reclassified a gain of $4,394 net of tax of $4,631 into other comprehensive loss due to hedging activities. The amounts reclassified out of other comprehensive loss were recorded as interest expense. See Note 14 - Derivatives and Hedging for additional information on the interest rate swaps.
2.During the thirty-nine weeks ended September 30, 2023, the Company deferred a gain of $3,308, reclassified a gain of $11,429 net of tax of $2,038 into other comprehensive loss due to hedging activities. The amounts reclassified out of other comprehensive loss were recorded as interest expense. See Note 14 - Derivatives and Hedging for additional information on the interest rate swaps.
12. STOCK-BASED COMPENSATION
2014 Equity Incentive Plan
The 2014 Equity Incentive Plan may grant options, stock appreciation rights, restricted stock, and other stock-based awards for up to an aggregate of 14,523,510 shares of its common stock.
The 2014 Equity Incentive Plan had stock compensation expense of $876 and $3,502 recognized in the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss) for the thirteen and thirty-nine weeks ended September 30, 2023, respectively, and $1,034 and $7,390 for the thirteen and thirty-nine weeks ended September 24, 2022, respectively.
Stock Options
The fair value of stock options is determined at the grant date using the Black-Scholes option pricing model. The time-based stock option awards generally vest evenly over four years from the grant date and performance-based options vest based Company stock price hurdles.
Restricted Stock
| 14 | September 30 2023 Form 10-Q | | |||||||
The Company granted restricted stock at the grant date fair value of the underlying common stock securities. The restrictions lapse in one quarter increments on each of the three anniversaries of the award date, and one quarter on the completion of the relocation of the recipient to the Cincinnati area or earlier in the event of a change in control. The associated expense is recognized over the service period.
Restricted Stock Units
The Restricted Stock Units ("RSUs") granted to employees for service generally vest after three years, subject to continued employment.
2021 Equity Incentive Plan
Effective July 14, 2021, the Company established the 2021 Equity Incentive Plan. Under the 2021 Equity Incentive Plan (the “2021 Plan”), the maximum number of shares of common stock that may be delivered in satisfaction of awards under the 2021 Plan as of the Effective Date is (i) 7,150,814 shares, plus (ii) the number of shares of stock underlying awards under the 2014 Equity Incentive Plan that on or after the Effective Date expire or become unexercisable, or are forfeited, cancelled or otherwise terminated, in each case, without delivery of shares or cash therefore, and would have become available again for grant under the Prior Plan in accordance with its terms (not to exceed 14,523,510 shares of common stock in the aggregate).
The 2021 Equity Incentive Plan had stock compensation expense of $2,103 and $5,335 recognized in the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss) for the thirteen and thirty-nine weeks ended September 30, 2023, respectively, and $1,358 and $3,143 for the thirteen and thirty-nine weeks ended September 24, 2022, respectively.
Stock Options
The fair value of stock options is determined at the grant date using the Black-Scholes option pricing model. The time-based stock option awards generally vest evenly over four years from the grant date and performance-based options vest based on specified targets such as Company performance and Company stock price hurdles.
Restricted Stock Units
The RSUs granted to employees for service generally vest after three years, subject to continued employment. The RSUs granted to non-employee directors generally vest in full on sooner of the first anniversary of the grant date or the Company's next annual meeting of stockholders.
2021 Employee Stock Purchase Plan
Our Employee Stock Purchase Plan ("ESPP") became effective on July 14, 2021, in which 1,140,754 shares of common stock were available for issuance under the ESPP. Under the ESPP, eligible employees are granted options to purchase shares of common stock at 85% of the fair market value at the time of exercise. Options to purchase shares are granted four times a year on the first payroll date in January, April, July, and October of each year and ending approximately three months later on the last business day in March, June, September or December. No employee may be granted an option under the Plan if, immediately after the option is granted, the employee would own stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company. The first option period began on January 1, 2022 and the first purchase was made in April of 2022.
Compensation expense associated with ESPP purchase rights is recognized on a straight-line basis over the vesting period. As of the thirteen and thirty-nine weeks ended September 30, 2023, there was approximately $90 and $274, respectively, and as of thirteen and thirty-nine weeks ended September 24, 2022, there was approximately $93 and $256, respectively, of compensation expense related to the ESPP.
13. EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share include the dilutive effect of stock options and restricted stock awards and units. The following is a reconciliation of the basic and diluted earnings per share ("EPS") computations for both the numerator and denominator (in thousands, except per share data):
| 15 | September 30 2023 Form 10-Q | | |||||||
| Thirteen weeks ended September 30, 2023 | Thirty-nine weeks ended September 30, 2023 | |||||||||||||||||||||||||||||||
| Earnings (Numerator) | Shares (Denominator) | Per Share Amount | Earnings (Numerator) | Shares (Denominator) | Per Share Amount | |||||||||||||||||||||||||||
| Net income | $ | 5,057 | 194,794 | $ | 0.03 | $ | 470 | 194,662 | $ | 0.00 | ||||||||||||||||||||||
| Dilutive effect of stock options and awards | — | 1,781 | — | — | 1,170 | — | ||||||||||||||||||||||||||
| Net income per diluted common share | $ | 5,057 | 196,575 | $ | 0.03 | $ | 470 | 195,832 | $ | 0.00 | ||||||||||||||||||||||
| Thirteen weeks ended September 24, 2022 | Thirty-nine weeks ended September 24, 2022 | ||||||||||||||||||||||||||||||||||
| Earnings (Numerator) | Shares (Denominator) | Per Share Amount | Earnings (Numerator) | Shares (Denominator) | Per Share Amount | ||||||||||||||||||||||||||||||
| Net loss | $ | (9,466) | 194,370 | (0.05) | $ | (2,537) | 194,171 | $ | (0.01) | ||||||||||||||||||||||||||
| Dilutive effect of stock options and awards | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Net loss per diluted common share | $ | (9,466) | 194,370 | (0.05) | $ | (2,537) | 194,171 | $ | (0.01) | ||||||||||||||||||||||||||
Stock options and awards outstanding totaling 2,794 and 4,324 were excluded from the computation for the thirteen and thirty-nine weeks ended September 30, 2023 and 9,586 and 4,635 for the thirteen and thirty-nine weeks ended September 24, 2022, respectively, as they would have had an antidilutive effect under the treasury stock method.
14. DERIVATIVES AND HEDGING
FASB ASC 815, Derivatives and Hedging ("ASC 815"), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company's objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments.
The Company uses derivative financial instruments to manage its exposures to (1) interest rate fluctuations on its floating rate senior term loan and (2) fluctuations in foreign currency exchange rates. The Company measures those instruments at fair value and recognizes changes in the fair value of derivatives in earnings in the period of change, unless the derivative qualifies as an effective hedge that offsets certain exposures.
The Company does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes.
Interest Rate Swap Agreements
On July 9, 2021, the Company entered into an interest swap agreement ("2021 Swap 1") for a notional amount of $144,000. The forward start date of the 2021 Swap 1 was July 30, 2021 and the termination date is July 31, 2024. Originally, the 2021 Swap 1 had a determined pay fixed interest rate of 0.75%. As of June 30, 2023 the Company modified the terms of the swaps to replace the LIBOR-based reference rates with SOFR-based reference rates, in accordance with the respective swap agreements and market conventions. This modification resulted in a determined pay fixed interest rate of 0.74%. In accordance with ASC 815, the Company determined the 2021 Swap 1 constituted an effective cash flow hedge and therefore changes in fair value are recorded within other comprehensive income (loss) within the Company's Statement of Comprehensive Income (Loss) and the deferred gains or losses are reclassified out of other comprehensive income (loss) into interest expense in the same period during which the hedged transactions affect earnings.
On July 9, 2021, the Company entered into an interest swap agreement ("2021 Swap 2") for a notional amount of $216,000. The forward start date of the 2021 Swap 2 was July 30, 2021 and the termination date is July 31, 2024. Originally, the 2021 Swap 2 had a determined pay fixed interest rate of 0.76%. As of June 30, 2023 the Company modified the terms of the swaps to replace the LIBOR-based reference rates with SOFR-based reference rates, in
| 16 | September 30 2023 Form 10-Q | | |||||||
accordance with the respective swap agreements and market conventions. This modification resulted in a determined pay fixed interest rate of 0.74%. In accordance with ASC 815, the Company determined the 2021 Swap 2 constituted an effective cash flow hedge and therefore changes in fair value are recorded within other comprehensive income (loss) within the Company's Statement of Comprehensive Income (Loss) and the deferred gains or losses are reclassified out of other comprehensive income (loss) into interest expense in the same period during which the hedged transactions affect earnings.
As of September 30, 2023 and December 31, 2022 the Company did not hold any derivative liabilities. The following table summarizes the Company's derivative financial instruments:
| Asset Derivatives | ||||||||||||||||||||||||||||||||||||||
As of September 30, 2023 | As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||
| Balance Sheet Location | Fair Value | Fair Value | ||||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments: | ||||||||||||||||||||||||||||||||||||||
| 2021 Swap 1 | Other current/other non-current assets | $ | 5,451 | $ | 8,705 | |||||||||||||||||||||||||||||||||
| 2021 Swap 2 | Other current/other non-current assets | 8,177 | 13,044 | |||||||||||||||||||||||||||||||||||
| Total hedging instruments: | $ | 13,628 | $ | 21,749 | ||||||||||||||||||||||||||||||||||
Additional information with respect to the fair value of derivative instruments is included in Note 15 - Fair Value Measurements.
15. FAIR VALUE MEASUREMENTS
The Company uses the accounting guidance that applies to all assets and liabilities that are being measured and reported on a fair value basis. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
| Level 1: | Quoted market prices in active markets for identical assets or liabilities. | |||||||
| Level 2: | Observable market-based inputs or unobservable inputs that are corroborated by market data. | |||||||
| Level 3: | Unobservable inputs reflecting the reporting entity’s own assumptions. | |||||||
The accounting guidance establishes a hierarchy which requires an entity to maximize the use of quoted market prices and minimize the use of unobservable inputs. An asset or liability's level is based on the lowest level of input that is significant to the fair value measurement.
The following tables set forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis during the period, by level, within the fair value hierarchy:
| 17 | September 30 2023 Form 10-Q | | |||||||
| As of September 30, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Trading securities | $ | 990 | $ | — | $ | — | $ | 990 | |||||||||||||||
| Interest rate swaps | — | 13,628 | — | 13,628 | |||||||||||||||||||
| Contingent consideration payable | — | — | 12,502 | 12,502 | |||||||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Trading securities | $ | 1,155 | $ | — | $ | — | $ | 1,155 | |||||||||||||||
| Interest rate swaps | — | 21,749 | — | 21,749 | |||||||||||||||||||
| Contingent consideration payable | — | — | 11,063 | 11,063 | |||||||||||||||||||
Trading securities are valued using quoted prices on an active exchange. Trading securities represent assets held in a Rabbi Trust to fund deferred compensation liabilities and are included as Other assets on the accompanying Condensed Consolidated Balance Sheets.
The Company utilizes interest rate swap contracts to manage our targeted mix of fixed and floating rate debt, and these contracts are valued using observable benchmark rates at commonly quoted intervals for the full term of the swap contracts. As of September 30, 2023 and December 31, 2022, the Company's interest rate swaps were recorded on the accompanying Condensed Consolidated Balance Sheets in accordance with ASC 815.
The contingent consideration represents future potential earn-out payments related to the Resharp acquisition in fiscal 2019 and the Instafob acquisition in the first quarter of 2020. The estimated fair value of the contingent earn-outs was determined using a Monte Carlo analysis examining the frequency and mean value of the resulting earn-out payments. The resulting value captures the risk associated with the form of the payout structure. The risk neutral method is applied, resulting in a value that captures the risk associated with the form of the payout structure and the projection risk. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the estimated value of the liability. The current and non-current portions of these obligations are reported separately on the Condensed Consolidated Balance Sheets as other accrued expense and other non-current liabilities, respectively. Subsequent changes in the fair value of the contingent consideration liabilities, as determined by using a simulation model of the Monte Carlo analysis that includes updated projections applicable to the liability, are recorded within other income (expense) in the Condensed Consolidated Statements of Comprehensive Income (Loss).
The table below provides a summary of the changes in fair value of the Company’s contingent considerations (Level 3) for Resharp and Instafob as of September 30, 2023.
| Resharp | Instafob | ||||||||||||||||||||||||||||
| Other accrued expense | Other non-current liabilities | Other accrued expense | Other non-current liabilities | Total | |||||||||||||||||||||||||
| Fair value as of December 31, 2022 | $ | 271 | $ | 9,729 | $ | 922 | $ | 141 | $ | 11,063 | |||||||||||||||||||
| Fair value of cash consideration paid | (164) | — | (1,011) | — | (1,175) | ||||||||||||||||||||||||
| Change in fair value of contingent consideration | 113 | 2,351 | 105 | 45 | 2,614 | ||||||||||||||||||||||||
| Fair value as of September 30, 2023 | $ | 220 | $ | 12,080 | $ | 16 | $ | 186 | $ | 12,502 | |||||||||||||||||||
Cash, accounts receivable, short-term borrowings and accounts payable are reflected in the Condensed Consolidated Balance Sheets at book value, which approximates fair value, due to the short-term nature of these instruments. The carrying amounts of the long-term debt under the revolving credit facility and term loan approximate the fair value at September 30, 2023 and December 31, 2022 as the interest rate is variable and approximates current market rates of debt based on observable market transactions with similar terms and comparable credit risk.
Additional information with respect to the derivative instruments is included in Note 14 - Derivatives and Hedging.
| 18 | September 30 2023 Form 10-Q | | |||||||
16. SEGMENT REPORTING
The Company’s segment reporting structure uses the Company’s management reporting structure as the foundation for how the Company manages its business. The Company periodically evaluates its segment reporting structure in accordance with ASC 350-20-55 and has concluded that it has three reportable segments as of September 30, 2023: Hardware and Protective Solutions, Robotics and Digital Solutions, and Canada. The Company evaluates the performance of its segments based on revenue and income (loss) from operations, and does not include segment assets nor non-operating income/expense items for management reporting purposes.
In the first quarter of 2023, the Company realigned its Canada segment to include the Canada-based Protective Solutions and MinuteKey businesses, which are now operating under the Canada segment leadership team. Previously, the results of the Canada-based Protective Solutions business were reported in the Hardware and Protective Solutions segment and the Canada-based MinuteKey business was reported in the Robotics and Digital Solutions segment and were operating under those respective segment leadership teams.
The table below presents revenues and income from operations for our reportable segments for the thirteen and thirty-nine weeks ended September 30, 2023 and thirteen and thirty-nine weeks ended September 24, 2022. Certain amounts in the prior year presentation between segments were reclassified to conform to the current year’s presentation.
| Thirteen Weeks Ended September 30, 2023 | Thirteen Weeks Ended September 24, 2022 | Thirty-nine Weeks Ended September 30, 2023 | Thirty-nine Weeks Ended September 24, 2022 | |||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
| Hardware and Protective Solutions | $ | 295,553 | $ | 270,116 | $ | 818,198 | $ | 812,931 | ||||||||||||||||||
| Robotics and Digital Solutions | 63,468 | 64,373 | 186,990 | 189,066 | ||||||||||||||||||||||
| Canada | 39,922 | 44,049 | 123,481 | 133,668 | ||||||||||||||||||||||
| Total revenues | $ | 398,943 | $ | 378,538 | $ | 1,128,669 | $ | 1,135,665 | ||||||||||||||||||
| Segment Income from Operations | ||||||||||||||||||||||||||
| Hardware and Protective Solutions | $ | 18,556 | $ | 7,259 | $ | 19,087 | $ | 15,391 | ||||||||||||||||||
| Robotics and Digital Solutions | 12,772 | (14,052) | 27,608 | 3,655 | ||||||||||||||||||||||
| Canada | 3,414 | 6,344 | 9,933 | 17,127 | ||||||||||||||||||||||
| Total segment income from operations | $ | 34,742 | $ | (449) | $ | 56,628 | $ | 36,173 | ||||||||||||||||||
| 19 | September 30 2023 Form 10-Q | | |||||||
| ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | ||||||||||||||
The following discussion provides information which the Company’s management believes is relevant to an assessment and understanding of the Company’s operations and financial condition. This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes in addition to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
FORWARD-LOOKING STATEMENTS
This quarterly report contains certain forward-looking statements, including, but not limited to, certain disclosures related to acquisitions, refinancing, capital expenditures, resolution of pending litigation, and realization of deferred tax assets, which are not historical facts and are subject to numerous assumptions, risks, and uncertainties. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements.
All forward-looking statements are made in good faith by the Company and are intended to qualify for the safe harbor from liability established by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. You should not rely on these forward-looking statements as predictions of future events. Words such as "expect," "estimate," "project," "budget," "forecast," "anticipate," "intend," "plan," “target”, “goal”, "may," "will," "could," "should," "believes," "predicts," "potential," "continue," and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, the Company’s expectations with respect to future performance. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside the Company's control and are difficult to predict. Factors that may cause such differences include, but are not limited to: (1) unfavorable economic conditions that may affect operations, financial condition and cash flows including spending on home renovation or construction projects, inflation, recessions, instability in the financial markets or credit markets; (2) increased supply chain costs, including raw materials, sourcing, transportation and energy; (3) the highly competitive nature of the markets that we serve; (4) the ability to continue to innovate with new products and services; (5) direct and indirect costs associated with the May 2023 ransomware attack, and our receipt of expected insurance receivables associated with that Cybersecurity Incident; (6) seasonality; (7) large customer concentration; (8) the ability to recruit and retain qualified employees; (9) the outcome of any legal proceedings that may be instituted against the Company; (10) adverse changes in currency exchange rates; (11) the impact of COVID-19 on the Company’s business; or (12) regulatory changes and potential legislation that could adversely impact financial results. The foregoing list of factors is not exclusive, and readers should also refer to those risks that are included in the Company’s filings with the Securities and Exchange Commission (“SEC”), including the Annual Report on Form 10-K filed on February 27, 2023. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward looking statements.
Except as required by applicable law, the Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements in this communication to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based.
GENERAL
Hillman Solutions Corp. and its wholly-owned subsidiaries (collectively, “Hillman” or “Company”) are one of the largest providers of hardware-related products and related merchandising services to retail markets in North America. Our principal business is operated through our wholly-owned subsidiary, The Hillman Solutions Corp. and its wholly-owned subsidiaries (collectively, “Hillman Group”), which had net sales of $398.9 million in the thirteen weeks ended September 30, 2023 and $1,128.7 million in the thirty-nine weeks ended September 30, 2023. Hillman Group sells its products to hardware stores, home centers, mass merchants, pet supply stores, and other retail outlets principally in the United States, Canada, and Mexico. Product lines include thousands of small parts such
| 20 | September 30 2023 Form 10-Q | | |||||||
as fasteners and related hardware items; threaded rod and metal shapes; keys and accessories; builder's hardware; personal protective equipment, such as gloves and eyewear; and identification items, such as tags and letters, numbers, and signs. We support product sales with services that include design and installation of merchandising systems, maintenance of appropriate in-store inventory levels, and break-fix for our robotics kiosks.
RECENT DEVELOPMENTS
In late May 2023, we experienced a ransomware attack relating to certain systems on our network (the “Cybersecurity Incident”). We promptly initiated an investigation, engaged the services of cyber-security experts and outside advisors and worked with appropriate law enforcement authorities to contain, assess and remediate the Cybersecurity Incident. We are engaged in an ongoing process of assessing data accessed during the course of the Cybersecurity Incident and will notify applicable regulatory agencies and individuals as appropriate.
The Cybersecurity Incident affected certain of our information technology systems, and as part of the containment effort, we suspended affected systems and elected to temporarily suspend additional systems in an abundance of caution. We reactivated and restored our operational systems over the course of the week following the Cybersecurity Incident.
In the thirty-nine weeks ended September 30, 2023, the Cybersecurity Incident related costs net of an expected insurance receivable totaled $1.0 million. There were no additional expenses recorded in the thirteen weeks ended September 30, 2023. We are working diligently with our insurance carrier on claims to recover costs incurred.
We expect to incur ongoing costs related to this Cybersecurity Incident, as well as costs for ongoing efforts to enhance data security in response to ongoing developments in the cybersecurity landscape. We are unable to estimate the ultimate direct and indirect financial impacts of this Cybersecurity Incident, though it is not expected to be material to our full year fiscal 2023 financial results.
In the first quarter of 2023, the Company realigned its Canada segment to include the Canada-based Protective Solutions and MinuteKey businesses, which are now operating under the Canada segment leadership team. Previously, the results of the Canada-based Protective Solutions business were reported in the Hardware and Protective Solutions segment and the Canada-based MinuteKey business was reported in the Robotics and Digital Solutions segment and were operating under those respective segment leadership teams. Certain amounts in the prior year presentation between segments were reclassified to conform to the current year’s presentation.
IMPACT OF GLOBAL ECONOMIC CONDITIONS ON OUR RESULTS OF OPERATIONS
Our business is impacted by general economic conditions in the North American markets, particularly the U.S. and Canadian retail markets including hardware stores, home centers, mass merchants, and other retailers. Changes in current economic conditions, including inflationary pressures in the cost of inventory, transportation, and employee compensation, foreign currency volatility, housing market trends, and concerns of a potential recession, have impacted consumer discretionary income levels and spending. Consumer discretionary income levels and spending impact the purchasing trends of our products by our retail customers. Any adverse trends in discretionary income and consumer spending could have a material adverse effect on our business or operating results.
We are exposed to the risk of unfavorable changes in foreign currency exchange rates for the U.S. dollar versus local currency of our suppliers located primarily in China and Taiwan. We purchase a majority of our products for resale from multiple vendors located in China and Taiwan. The purchase price of these products is routinely negotiated in U.S. dollar amounts rather than the local currency of the vendors and our suppliers' profit margins decrease when the U.S. dollar declines in value relative to the local currency. This puts pressure on our suppliers to increase prices to us. The U.S. dollar increased in value relative to the CNY by approximately 5.8% in the thirty-nine weeks ended September 30, 2023, increased by 8.3% in 2022, and declined by 2.6% during 2021. The U.S. dollar increased in value relative to the Taiwan dollar by approximately 4.9% in the thirty-nine weeks ended September 30, 2023, increased by 10.8% in 2022, and declined by 1.4% in 2021.
We are also exposed to risk of unfavorable changes in the Canadian dollar exchange rate versus the U.S. dollar. Our sales in Canada are denominated in Canadian dollars, while a majority of the products are sourced in U.S. dollars. A weakening of the Canadian dollar versus the U.S. dollar results in lower sales in terms of U.S. dollars while the cost of sales remains unchanged. We have a practice of hedging some of our Canadian subsidiary's
| 21 | September 30 2023 Form 10-Q | | |||||||
purchases denominated in U.S. dollars. The U.S. dollar declined in value relative to the Canadian dollar by approximately 0.2% in the thirty-nine weeks ended September 30, 2023, increased by 5.7% in 2022, and declined by 0.2% in 2021.
In addition, the negotiated purchase price of our products may be dependent upon market fluctuations in the cost of raw materials (i.e. steel, zinc, and nickel) used by our vendors in their manufacturing processes. The final purchase cost of our products may also be dependent upon inflation or deflation in the local economies of vendors in China and Taiwan that could impact the cost of labor and materials used in the manufacturing of our products. We identify the directional impact of changes in our product cost, but the quantification of each of these variable impacts cannot be measured as to the individual impact on our product cost with a sufficient level of precision. We may take pricing action, when warranted, in an attempt to offset a portion of product cost increases. The ability of our operating divisions to implement price increases and seek price concessions, as appropriate, is dependent on competitive market conditions.
We import products which are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements and bilateral actions. The U.S. tariffs on steel and aluminum and other imported goods have increased our product costs and required us to increase prices on the affected products.
Thirteen weeks ended September 30, 2023 vs the Thirteen weeks ended September 24, 2022
FINANCIAL SUMMARY AND OTHER KEY METRICS
•Net sales for the thirteen weeks ended September 30, 2023 were $398.9 million compared to net sales of $378.5 million for the thirteen weeks ended September 24, 2022, an increase of approximately $20.4 million or 5.4%.
•Net income for the thirteen weeks ended September 30, 2023 was $5.1 million, or $0.03 per diluted share, compared to a net loss of $9.5 million, or $(0.05) per diluted share for the thirteen weeks ended September 24, 2022.
•Adjusted EBITDA(1) totaled $66.8 million versus $59.0 million in the thirteen weeks ended September 30, 2023 and in the thirteen weeks ended September 24, 2022, respectively.
RESULTS OF OPERATIONS
The following analysis of results of operations includes a brief discussion of the factors that affected our operating results and a comparative analysis of the thirteen weeks ended September 30, 2023 and the thirteen weeks ended September 24, 2022.
| 22 | September 30 2023 Form 10-Q | | |||||||
| Thirteen Weeks Ended September 30, 2023 | Thirteen Weeks Ended September 24, 2022 | ||||||||||||||||||||||
| (dollars in thousands) | Amount | % of Net Sales | Amount | % of Net Sales | |||||||||||||||||||
| Net sales | $ | 398,943 | 100.0 | % | $ | 378,538 | 100.0 | % | |||||||||||||||
| Cost of sales (exclusive of depreciation and amortization shown separately below) | 222,644 | 55.8 | % | 214,802 | 56.7 | % | |||||||||||||||||
| Selling, warehouse, general and administrative expenses | 113,359 | 28.4 | % | 133,246 | 35.2 | % | |||||||||||||||||
| Depreciation | 14,434 | 3.6 | % | 14,312 | 3.8 | % | |||||||||||||||||
| Amortization | 15,583 | 3.9 | % | 15,557 | 4.1 | % | |||||||||||||||||
| Other (income) expense, net | (1,819) | (0.5) | % | 1,070 | 0.3 | % | |||||||||||||||||
| Income (loss) from operations | 34,742 | 8.7 | % | (449) | (0.1) | % | |||||||||||||||||
| Interest expense, net | 16,728 | 4.2 | % | 14,696 | 3.9 | % | |||||||||||||||||
| Income (loss) before income taxes | 18,014 | 4.5 | % | (15,145) | (4.0) | % | |||||||||||||||||
| Income tax expense (benefit) | 12,957 | 3.2 | % | (5,679) | (1.5) | % | |||||||||||||||||
| Net income (loss) | $ | 5,057 | 1.3 | % | $ | (9,466) | (2.5) | % | |||||||||||||||
Adjusted EBITDA(1) | $ | 66,822 | 16.7 | % | $ | 58,973 | 15.6 | % | |||||||||||||||
(1)Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our definition and our use of Adjusted EBITDA, and for a reconciliation from net income to Adjusted EBITDA.
Net Sales by Segment
| Thirteen weeks ended September 30, 2023 | % of Net Sales | Thirteen weeks ended September 24, 2022 | % of Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||
| Hardware and Protective Solutions | $ | 295,553 | 74.1 | % | $ | 270,116 | 71.4 | % | $ | 25,437 | 9.4 | % | ||||||||||||||||||||||||||
| Robotics and Digital Solutions | 63,468 | 15.9 | % | 64,373 | 17.0 | % | (905) | (1.4) | % | |||||||||||||||||||||||||||||
| Canada | 39,922 | 10.0 | % | 44,049 | 11.6 | % | (4,127) | (9.4) | % | |||||||||||||||||||||||||||||
| Consolidated | $ | 398,943 | $ | 378,538 | $ | 20,405 | ||||||||||||||||||||||||||||||||
The increase in total net sales during the third quarter of 2023 was driven primarily driven by the factors described below:
Hardware and Protective Solutions net sales increased by $25.4 million in the thirteen weeks ended September 30, 2023 due to the following:
•Hardware net sales increased by $17.5 million driven by $13.8 million of volume increases driven by new business wins and promotions and $3.7 million in price increases in response to inflationary cost pressures in the market.
•Protective equipment net sales increased by $8.0 million primarily due to $8.8 million in increased volume driven by timing of promotional and seasonal sales partially offset by $1.3 million of COVID-19 related sales in 2022 with no material comparable COVID-19 sales in 2023.
Robotics and Digital Solutions net sales in the thirteen weeks ended September 30, 2023 decreased by $0.9 million primarily driven by decreased volume in full-service key and engraving sales.
Canada net sales decreased by $4.1 million primarily due to volume decreases of $2.5 million along with an unfavorable impact of the exchange rate from Canadian dollars to U.S. dollars.
Cost of Sales (excluding depreciation and amortization)
| 23 | September 30 2023 Form 10-Q | | |||||||
The following table summarizes cost of sales by segment:
| Thirteen weeks ended September 30, 2023 | % of Segment Net Sales | Thirteen weeks ended September 24, 2022 | % of Segment Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hardware and Protective Solutions | $ | 179,422 | 60.7 | % | $ | 171,351 | 63.4 | % | $ | 8,071 | 4.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Robotics and Digital Solutions | 18,776 | 29.6 | % | 18,813 | 29.2 | % | (37) | (0.2) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Canada | 24,446 | 61.2 | % | 24,638 | 55.9 | % | (192) | (0.8) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 222,644 | 55.8 | % | $ | 214,802 | 56.7 | % | $ | 7,842 | 3.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Hardware and Protective Solutions cost of sales as a percentage of net sales decreased primarily due to decreased shipping and product costs.
Robotics and Digital Solutions cost of sales as a percentage of net sales increased primarily due to increased product and shipping costs as well as a reduced volume of engraving sales.
Canada cost of sales as a percentage of net sales increased primarily due to increased shipping and product costs.
Selling, Warehouse, and General and Administrative Expenses
The following table summarizes selling, warehouse, and general and administrative expense ("SG&A") by segment:
| Thirteen weeks ended September 30, 2023 | % of Segment Net Sales | Thirteen weeks ended September 24, 2022 | % of Segment Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||
| Hardware and Protective Solutions | $ | 78,551 | 26.6 | % | $ | 73,290 | 27.1 | % | $ | 5,261 | 7.2 | % | ||||||||||||||||||||||||||
| Robotics and Digital Solutions | 23,797 | 37.5 | % | 48,678 | 75.6 | % | (24,881) | (51.1) | % | |||||||||||||||||||||||||||||
| Canada | 11,011 | 27.6 | % | 11,278 | 25.6 | % | (267) | (2.4) | % | |||||||||||||||||||||||||||||
| Consolidated | $ | 113,359 | 28.4 | % | $ | 133,246 | 35.2 | % | $ | (19,887) | (14.9) | % | ||||||||||||||||||||||||||
Hardware and Protective Solutions SG&A increased due to the following:
•Warehouse expense increased $3.8 million due to higher sales volumes, inflation, and additional costs associated with opening a new distribution center in the current year.
•General and administrative (“G&A”) increased by $0.8 million. The increase was primarily driven by increased stock-based compensation expense.
•Selling expense increased by $0.6 million primarily due to higher variable compensation and benefit expense in relation to the increased sales in the quarter.
Robotics and Digital Solutions SG&A decreased due to the following:
•Warehouse expense decreased by $0.2 million primarily due to the shift from full-service keys, which have a higher warehousing cost, to self-service keys.
•G&A decreased by $25.1 million. The decrease was primarily related to reduced legal and consulting expense in 2023, as 2022 saw increased legal expense associated with the litigation with Hy-Ko Products Company LLC. This was partially offset by increased stock compensation expense.
•Selling expense increased by $0.4 million primarily due to variable selling expenses related to self-service key sales.
Canada SG&A decreased due to the following:
•Warehouse expense decreased by $0.5 million primarily due to lower sales volumes along with improved operational efficiencies.
•G&A was comparable to prior year quarter.
•Selling expense increased by $0.2 million primarily due to increased variable selling expenses.
Other Operating Expenses
| 24 | September 30 2023 Form 10-Q | | |||||||
Amortization and depreciation expense in the thirteen weeks ended September 30, 2023 was comparable to the prior year quarter.
In the thirteen weeks ended September 30, 2023, other income (expense) consisted primarily of a $1.6 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob (see Note 15 - Fair Value Measurements of the Notes to Condensed Consolidated Financial Statements for additional information).
In the thirteen weeks ended September 24, 2022, other income (expense) consisted primarily of a $0.7 million loss on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob. We also recorded exchange rate losses of $0.6 million in the thirteen weeks ended September 24, 2022.
Income (Loss) from Operations
| Thirteen weeks ended September 30, 2023 | Thirteen weeks ended September 24, 2022 | $ Change | % Change | |||||||||||||||||||||||
| Hardware and Protective Solutions | $ | 18,556 | $ | 7,259 | $ | 11,297 | 155.6 | % | ||||||||||||||||||
| Robotics and Digital Solutions | 12,772 | (14,052) | 26,824 | 190.9 | % | |||||||||||||||||||||
| Canada | 3,414 | 6,344 | (2,930) | (46.2) | % | |||||||||||||||||||||
| Total segment income (loss) from operations | $ | 34,742 | $ | (449) | $ | 35,191 | 7837.6 | % | ||||||||||||||||||
Income from operations in our Hardware and Protective Solutions segment increased $11.3 million due to the changes in sales, cost of sales, and SG&A expenses described above.
Income from operations in our Robotics and Digital Solutions segment increased $26.8 million. The $26.8 million increase is primarily due to reduced legal and consulting expense in 2023, as 2022 saw increased legal expense associated with the litigation with Hy-Ko Products Company LLC along with a decrease in depreciation expense of $0.4 million due to certain assets becoming fully depreciated. This was partially offset by a decrease of $2.3 million in other expense driven by the changes in revaluation of the contingent consideration described above along with decreased sales.
Canada's income from operations decreased by $2.9 million primarily due to the changes in sales and offsetting changes in cost of sales and SG&A expenses described above in addition to exchange rate losses of $0.4 million. In the thirteen weeks ended September 24, 2022 Canada recorded exchange rate gains of $0.2 million.
Interest expense, net, increased $2.0 million due higher interest rates in the thirteen weeks ended September 30, 2023, partially offset by a reduction in outstanding debt.
Income Taxes
For the thirteen weeks ended September 30, 2023 and thirteen weeks ended September 24, 2022, the effective income tax rate was 71.9% and 37.5%, respectively. The Company recorded an income tax provision for the thirteen weeks ended September 30, 2023 of $13.0 million based on a pre-tax income of $18.0 million, and an income tax benefit for the thirteen weeks ended September 24, 2022 of $5.7 million based on a pre-tax loss of $(15.1) million.
In 2023, the effective tax rate differed from the U.S. federal statutory tax rate for 2023 due to state and foreign income taxes and certain non-deductible expenses. See Note 8 - Income Taxes of the Notes to Condensed Consolidated Financial Statements for additional information.
In 2022, the effective rate differed from the federal statutory rate due to non-deductible stock compensation, an estimated increase in GILTI from the Company's Canadian operations, and state and foreign income taxes.
Thirty-nine weeks ended September 30, 2023 vs the Thirty-nine weeks ended September 24, 2022
FINANCIAL SUMMARY AND OTHER KEY METRICS
| 25 | September 30 2023 Form 10-Q | | |||||||
•Net sales for the thirty-nine weeks ended September 30, 2023 were $1,128.7 million compared to net sales of $1,135.7 million for the thirty-nine weeks ended September 24, 2022, a decrease of approximately $7.0 million or 0.6%.
•Net income for the thirty-nine weeks ended September 30, 2023 was $0.5 million, or $0.00 per diluted share, compared to net loss of $2.5 million, or $(0.01) per diluted share for the thirty-nine weeks ended September 24, 2022.
•Adjusted EBITDA(1) totaled $165.0 million versus $165.3 million in the thirty-nine weeks ended September 30, 2023 and thirty-nine weeks ended September 24, 2022, respectively.
RESULTS OF OPERATIONS
The following analysis of results of operations includes a brief discussion of the factors that affected our operating results and a comparative analysis of the thirty-nine weeks ended September 30, 2023 and the thirty-nine weeks ended September 24, 2022.
| Thirty-nine weeks ended September 30, 2023 | Thirty-nine weeks ended September 24, 2022 | |||||||||||||
| (dollars in thousands) | Amount | % of Net Sales | Amount | % of Net Sales | ||||||||||
| Net sales | $ | 1,128,669 | 100.0 | % | $ | 1,135,665 | 100 | % | ||||||
| Cost of sales (exclusive of depreciation and amortization shown separately below) | 643,652 | 57.0 | % | 648,221 | 57.1 | % | ||||||||
| Selling, warehouse, general and administrative expenses | 335,876 | 29.8 | % | 366,013 | 32.2 | % | ||||||||
| Depreciation | 44,939 | 4.0 | % | 41,738 | 3.7 | % | ||||||||
| Amortization | 46,733 | 4.1 | % | 46,644 | 4.1 | % | ||||||||
| Other expense (income), net | 841 | 0.1 | % | (3,124) | (0.3) | % | ||||||||
| Income from operations | 56,628 | 5.0 | % | 36,173 | 3.2 | % | ||||||||
| Interest expense, net | 52,880 | 4.7 | % | 38,857 | 3.4 | % | ||||||||
| Income (loss) before income taxes | 3,748 | 0.3 | % | (2,684) | (0.2) | % | ||||||||
| Income tax expense (benefit) | 3,278 | 0.3 | % | (147) | — | % | ||||||||
| Net income (loss) | $ | 470 | — | % | $ | (2,537) | (0.2) | % | ||||||
Adjusted EBITDA(1) | $ | 164,990 | 14.6 | % | $ | 165,260 | 14.6 | % | ||||||
(1)Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our definition and our use of Adjusted EBITDA, and for a reconciliation from net (loss) income to Adjusted EBITDA.
Net Sales by Segment
| Thirty-nine weeks ended September 30, 2023 | % of Net Sales | Thirty-nine weeks ended September 24, 2022 | % of Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||
| Hardware and Protective Solutions | $ | 818,198 | 72.5 | % | $ | 812,931 | 71.6 | % | $ | 5,267 | 0.6 | % | ||||||||||||||||||||||||||
| Robotics and Digital Solutions | 186,990 | 16.6 | % | 189,066 | 16.6 | % | (2,076) | (1.1) | % | |||||||||||||||||||||||||||||
| Canada | 123,481 | 10.9 | % | 133,668 | 11.8 | % | (10,187) | (7.6) | % | |||||||||||||||||||||||||||||
| Consolidated | $ | 1,128,669 | $ | 1,135,665 | $ | (6,996) | ||||||||||||||||||||||||||||||||
The decline in total net sales during the thirty-nine weeks ended September 30, 2023 was driven primarily driven by the factors described below:
| 26 | September 30 2023 Form 10-Q | | |||||||
Hardware and Protective Solutions net sales increased by $5.3 million in thirty-nine weeks ended September 30, 2023 due to the following:
•Hardware net sales increased by $32.5 million driven by $22.6 million in price increases in response to inflationary cost pressures in the market and $9.9 million in increased volume due to new business wins.
•Protective equipment net sales decreased by $27.2 million primarily due to a $30.1 million decrease in volume driven in part by $16.8 million of COVID-19 related sales in 2022 with no material comparable COVID-19 sales in 2023, partially offset by $2.8 million in price increases.
Robotics and Digital Solutions net sales in the thirty-nine weeks ended September 30, 2023 decreased by $2.1 million compared to the thirty-nine weeks ended September 24, 2022 primarily due to decreases in full-service key and engraving volume.
Canada net sales decreased by $10.2 million primarily due to $6.1 million unfavorable impact of the exchange rate from Canadian dollars to U.S. dollars along with volume decreases of $3.2 million.
Cost of Sales (excluding depreciation and amortization)
The following table summarizes cost of sales by segment:
| Thirty-nine weeks ended September 30, 2023 | % of Segment Net Sales | Thirty-nine weeks ended September 24, 2022 | % of Segment Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hardware and Protective Solutions | $ | 511,743 | 62.5 | % | $ | 514,008 | 63.2 | % | $ | (2,265) | (0.4) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Robotics and Digital Solutions | 54,822 | 29.3 | % | 56,965 | 30.1 | % | (2,143) | (3.8) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Canada | 77,087 | 62.4 | % | 77,248 | 57.8 | % | (161) | (0.2) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 643,652 | 57.0 | % | $ | 648,221 | 57.1 | % | $ | (4,569) | (0.7) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Hardware and Protective Solutions cost of sales as a percentage of net sales decreased primarily due to the impact of the price increases referenced above partially offset by higher shipping and product costs.
Robotics and Digital Solutions cost of sales as a percentage of net sales decreased primarily due to a shift in product mix from full-service to self-service keys.
Canada cost of sales as a percentage of net sales increased primarily due to increased shipping and product costs.
Selling, Warehouse, and General and Administrative Expenses
The following table summarizes selling, warehouse, and general and administrative expense ("SG&A") by segment:
| Thirty-nine weeks ended September 30, 2023 | % of Segment Net Sales | Thirty-nine weeks ended September 24, 2022 | % of Segment Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||
| Hardware and Protective Solutions | $ | 232,107 | 28.4 | % | $ | 230,524 | 28.4 | % | $ | 1,583 | 0.7 | % | ||||||||||||||||||||||||||
| Robotics and Digital Solutions | 70,597 | 37.8 | % | 99,829 | 52.8 | % | (29,232) | (29.3) | % | |||||||||||||||||||||||||||||
| Canada | 33,172 | 26.9 | % | 35,660 | 26.7 | % | (2,488) | (7.0) | % | |||||||||||||||||||||||||||||
| Consolidated | $ | 335,876 | 29.8 | % | $ | 366,013 | 32.2 | % | $ | (30,137) | (8.2) | % | ||||||||||||||||||||||||||
Hardware and Protective Solutions SG&A increased due to the following:
•Warehouse expense increased $1.2 million due to higher sales volumes, inflation, and additional costs associated with opening a new distribution center in the current year.
•General and administrative (“G&A”) increased by $0.5 million. The increase was primarily driven by increased stock-based compensation expense.
Robotics and Digital Solutions SG&A decreased due to the following:
•G&A decreased by $28.5 million. The decrease was primarily related to reduced legal and consulting expense in 2023 as 2022 saw $29.0 million in legal expense associated with the litigation with Hy-Ko Products Company LLC.
| 27 | September 30 2023 Form 10-Q | | |||||||
•Warehouse expense decreased by $2.1 million primarily due to the shift from full-service keys, which have a higher warehousing cost, to self-service keys.
•Selling expense increased by $1.4 million primarily due to higher variable selling expenses related to self-service key sales and increased variable compensation.
Canada SG&A decreased due to the following:
•Warehouse expense decreased by $2.2 million primarily due to lower sales volume and improved operational efficiencies.
•G&A decreased by $0.2 million primarily due to decreased variable compensation.
Other Operating Expenses
Depreciation expense in the thirty-nine weeks ended September 30, 2023 increased $3.2 million due to increased capital spend on key duplicating kiosks and machines, merchandising racks, and facility relocations.
Amortization expense in the thirty-nine weeks ended September 30, 2023 was comparable to prior year.
In the thirty-nine weeks ended September 30, 2023, other expense consisted primarily of a $2.6 million loss on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob (see Note 15 - Fair Value Measurements of the Notes to Condensed Consolidated Financial Statements for additional information). We received $0.6 million in benefits from the state and local governments associated with our new facilities in the thirty-nine weeks ended September 30, 2023. We also recorded exchange rate gains of $0.4 million in the thirty-nine weeks ended September 30, 2023.
In the thirty-nine weeks ended September 24, 2022, other income consisted primarily of a $2.9 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob.
Income from Operations
| Thirty-nine weeks ended September 30, 2023 | Thirty-nine weeks ended September 24, 2022 | $ Change | % Change | |||||||||||||||||||||||
| Hardware and Protective Solutions | $ | 19,087 | $ | 15,391 | $ | 3,696 | 24.0 | % | ||||||||||||||||||
| Robotics and Digital Solutions | 27,608 | 3,655 | 23,953 | 655.3 | % | |||||||||||||||||||||
| Canada | 9,933 | 17,127 | (7,194) | (42.0) | % | |||||||||||||||||||||
| Total segment income from operations | $ | 56,628 | $ | 36,173 | $ | 20,455 | 56.5 | % | ||||||||||||||||||
Income from operations in our Hardware and Protective Solutions segment increased $3.7 million due to the changes in sales, cost of sales, and SG&A expenses described above.
Income from operations in our Robotics and Digital Solutions segment increased by $24.0 million primarily due to the changes in sales, cost of sales, and SG&A expenses described above, offset by an increase of $5.5 million million in other income driven by the changes in revaluation of the contingent consideration described above.
Canada's income from operations decreased by $7.2 million primarily due to the changes in sales, cost of sales, and SG&A expenses described above. Canada also recorded exchange rate losses of $0.4 million in the thirty-nine weeks ended September 30, 2023.
Interest Expense
Interest expense, net, increased $14.0 million due higher interest rates in the thirty-nine weeks ended September 30, 2023, partially offset by a reduction in outstanding debt.
Income Taxes
For the thirty-nine weeks ended September 30, 2023 and thirty-nine weeks ended September 24, 2022, the effective income tax rate was 87.5% and 5.5%, respectively. The Company recorded an income tax provision for the thirty-nine weeks ended September 30, 2023 of $3,278 based on pre-tax income of $3,748, and an income tax benefit for the thirty-nine weeks ended September 24, 2022 of $(0.1) million based on a pre-tax loss of $(2.7) million.
| 28 | September 30 2023 Form 10-Q | | |||||||
In 2023, the Company's effective tax rate differed from the U.S. federal statutory tax rate for 2023 due to state and foreign income taxes and certain non-deductible expenses.
In 2022, the effective rate differed from the federal statutory rate due to non-deductible stock compensation, an estimated increase in GILTI from the Company's Canadian operations, and state and foreign income taxes.
NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA is a non-GAAP financial measure and is the primary basis used to measure the operational strength and performance of our businesses, as well as to assist in the evaluation of underlying trends in our businesses. This measure eliminates the significant level of noncash depreciation and amortization expense that results from the capital-intensive nature of our businesses and from intangible assets recognized in business combinations. It is also unaffected by our capital and tax structures, as our management excludes these results when evaluating our operating performance. Our management uses this financial measure to evaluate our consolidated operating performance and the operating performance of our operating segments and to allocate resources and capital to our operating segments. Additionally, we believe that Adjusted EBITDA is useful to investors because it is one of the bases for comparing our operating performance with that of other companies in our industries, although our measure of Adjusted EBITDA may not be directly comparable to similar measures used by other companies.
The following table presents a reconciliation of Net (loss) income, the most directly comparable financial measure under GAAP, to Adjusted EBITDA for the periods presented:
| (dollars in thousands) | Thirteen Weeks Ended September 30, 2023 | Thirteen Weeks Ended September 24, 2022 | Thirty-nine Weeks Ended September 30, 2023 | Thirty-nine Weeks Ended September 24, 2022 | |||||||||||||||||||
| Net income (loss) | $ | 5,057 | $ | (9,466) | $ | 470 | $ | (2,537) | |||||||||||||||
| Income tax expense (benefit) | 12,957 | (5,679) | 3,278 | (147) | |||||||||||||||||||
| Interest expense, net | 16,728 | 14,696 | 52,880 | 38,857 | |||||||||||||||||||
| Depreciation | 14,434 | 14,312 | 44,939 | 41,738 | |||||||||||||||||||
| Amortization | 15,583 | 15,557 | 46,733 | 46,644 | |||||||||||||||||||
| EBITDA | $ | 64,759 | $ | 29,420 | $ | 148,300 | $ | 124,555 | |||||||||||||||
| Stock compensation expense | 3,069 | 2,485 | 9,111 | 10,789 | |||||||||||||||||||
Restructuring and other(1) | 179 | 916 | 3,027 | 1,481 | |||||||||||||||||||
Litigation expense (2) | 79 | 25,255 | 339 | 28,968 | |||||||||||||||||||
Transaction and integration expense (3) | 289 | 178 | 1,599 | 2,393 | |||||||||||||||||||
| Change in fair value of contingent consideration | (1,553) | 719 | 2,614 | (2,926) | |||||||||||||||||||
| Adjusted EBITDA | $ | 66,822 | $ | 58,973 | $ | 164,990 | $ | 165,260 | |||||||||||||||
(1)Includes consulting and other costs associated with severance related to our distribution center relocations and corporate restructuring activities. 2023 includes costs associated with the Cybersecurity Incident that occurred in May 2023, see Note 6 - Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements for additional information.
(2)Litigation expense includes legal fees associated with our litigation with Hy-Ko Products Company LLC.
(3)Transaction and integration expense includes professional fees and other costs related to the CCMP secondary offerings in 2022 and 2023.
| 29 | September 30 2023 Form 10-Q | | |||||||
The following tables presents a reconciliation of segment operating income, the most directly comparable financial measure under GAAP, to segment Adjusted EBITDA for the periods presented.
| Thirteen weeks ended September 30, 2023 | Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Consolidated | |||||||||||||||||||
| Operating income | $ | 18,556 | $ | 12,772 | $ | 3,414 | $ | 34,742 | |||||||||||||||
| Depreciation and amortization | 19,149 | 9,674 | 1,194 | 30,017 | |||||||||||||||||||
| Stock compensation expense | 2,536 | 325 | 208 | 3,069 | |||||||||||||||||||
| Restructuring and other | 163 | 16 | — | 179 | |||||||||||||||||||
| Litigation expense | — | 79 | — | 79 | |||||||||||||||||||
| Transaction and integration expense | 255 | 34 | — | 289 | |||||||||||||||||||
| Change in fair value of contingent consideration | — | (1,553) | — | (1,553) | |||||||||||||||||||
| Adjusted EBITDA | $ | 40,659 | $ | 21,347 | $ | 4,816 | $ | 66,822 | |||||||||||||||
| Thirteen weeks ended September 24, 2022 | Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Consolidated | |||||||||||||||||||
| Operating income (loss) | $ | 7,259 | $ | (14,052) | $ | 6,344 | $ | (449) | |||||||||||||||
| Depreciation and amortization | 18,440 | 10,214 | 1,215 | 29,869 | |||||||||||||||||||
| Stock compensation expense | 2,130 | 197 | 158 | 2,485 | |||||||||||||||||||
| Restructuring and other | 831 | 85 | — | 916 | |||||||||||||||||||
| Litigation expense | — | 25,255 | — | 25,255 | |||||||||||||||||||
| Transaction and integration expense | 178 | — | — | 178 | |||||||||||||||||||
| Change in fair value of contingent consideration | — | 719 | — | 719 | |||||||||||||||||||
| Adjusted EBITDA | $ | 28,838 | $ | 22,418 | $ | 7,717 | $ | 58,973 | |||||||||||||||
| Thirty-nine weeks ended September 30, 2023 | Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Consolidated | |||||||||||||||||||
| Operating income | $ | 19,087 | $ | 27,608 | $ | 9,933 | $ | 56,628 | |||||||||||||||
| Depreciation and amortization | 56,720 | 31,349 | 3,603 | 91,672 | |||||||||||||||||||
| Stock compensation expense | 7,606 | 935 | 570 | 9,111 | |||||||||||||||||||
| Restructuring and other | 2,548 | 368 | 111 | 3,027 | |||||||||||||||||||
| Litigation expense | — | 339 | — | 339 | |||||||||||||||||||
| Transaction and integration expense | 1,424 | 175 | — | 1,599 | |||||||||||||||||||
| Change in fair value of contingent consideration | — | 2,614 | — | 2,614 | |||||||||||||||||||
| Adjusted EBITDA | $ | 87,385 | $ | 63,388 | $ | 14,217 | $ | 164,990 | |||||||||||||||
| 30 | September 30 2023 Form 10-Q | | |||||||
| Thirty-nine weeks ended September 24, 2022 | Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Consolidated | |||||||||||||||||||
| Operating income | $ | 15,391 | $ | 3,655 | $ | 17,127 | $ | 36,173 | |||||||||||||||
| Depreciation and amortization | 53,159 | 31,542 | 3,681 | 88,382 | |||||||||||||||||||
| Stock compensation expense | 8,693 | 1,248 | 848 | 10,789 | |||||||||||||||||||
| Restructuring and other | 1,357 | 124 | — | 1,481 | |||||||||||||||||||
| Litigation expense | — | 28,968 | — | 28,968 | |||||||||||||||||||
| Transaction and integration expense | 2,105 | 288 | — | 2,393 | |||||||||||||||||||
| Change in fair value of contingent consideration | — | (2,926) | — | (2,926) | |||||||||||||||||||
| Adjusted EBITDA | $ | 80,705 | $ | 62,899 | $ | 21,656 | $ | 165,260 | |||||||||||||||
LIQUIDITY AND CAPITAL RESOURCES
Our working capital (current assets minus current liabilities) position of $362.4 million as of September 30, 2023 represents a decrease of $53.8 million from the December 31, 2022 level of $416.2 million. We expect to generate sufficient operating cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets, although there can be no assurance of our ability to do so. However, disruption and volatility in the global capital markets, could impact our capital resources and liquidity in the future.
The following table presents the key categories of our consolidated statements of cash flows:
| Thirty-nine weeks ended September 30, 2023 | Thirty-nine weeks ended September 24, 2022 | $ Change | ||||||||||||||||||
| Net cash provided by operating activities | $ | 171,477 | $ | 63,232 | $ | 108,245 | ||||||||||||||
| Net cash used for investing activities | (52,763) | (48,931) | (3,832) | |||||||||||||||||
| Net cash (used for) provided by financing activities | (111,762) | 1,776 | (113,538) | |||||||||||||||||
| Net increase in cash and cash equivalents | 8,181 | 14,623 | (6,442) | |||||||||||||||||
Operating Cash Flows:
Net Cash provided by operating activities for the thirty-nine weeks ended September 30, 2023 was favorably impacted by reduced inventory as part of the company's ongoing strategic initiative to lower inventory on hand during 2023 following the build up of inventory in prior years due to recent supply chain challenges and inflation. Additionally we saw increased accounts payable due to the timing of purchases and payments.
Net cash provided by operating activities for the thirty-nine weeks ended September 24, 2022 was unfavorably impacted by (1) reduced accounts payable resulting from lower purchases and (2) increased accounts receivable and inventory resulting from price increases and inflation.
Investing Cash Flows:
Capital Expenditures:
Cash of $52.1 million and $46.4 million was used in the thirty-nine weeks ended September 30, 2023 and thirty-nine weeks ended September 24, 2022, respectively, to invest in: new engraving and key duplicating kiosks in the RDS segment, new merchandising racks, and leasehold improvements in new distribution facilities in the Hardware and Protective Solutions segment.
Acquisitions:
| 31 | September 30 2023 Form 10-Q | | |||||||
During the thirty-nine weeks ended September 24, 2022 we acquired Monkey Hook for a total purchase price of $2.8 million, which included $0.3 million in hold-back that remained payable to the seller as of December 31, 2022. In the thirty-nine weeks ended September 30, 2023, hold-back of $0.3 million was paid to satisfy the full purchase price. See Note 4 - Acquisitions of the Notes to Condensed Consolidated Financial Statements for additional information.
Financing Cash Flows:
Term Loan:
The Company used $86.4 million of cash for principal payments on the senior term loan. In August 2023, the Company made a $80.0 million dollar prepayment against the outstanding term loan balance without payment of a premium or penalty. As of September 30, 2023, we have outstanding borrowings of $754.0 million on the term loan. See Note 9 - Long-term Debt of the Notes to Condensed Consolidated Financial Statements for additional information.
ABL Revolver:
Our revolver repayments, net of draws, used cash of $25.0 million in the thirty-nine weeks ended September 30, 2023 as part of our plan to pay down debt. In the thirty-nine weeks ended September 24, 2022, revolver draws, net of repayments, provided $7.0 million of cash.
Stock Option Exercises:
In the thirty-nine weeks ended September 30, 2023 and thirty-nine weeks ended September 24, 2022 the Company received $1.6 million and $1.9 million from the exercise of stock options, respectively.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Significant accounting policies and estimates are summarized in the Notes to the Condensed Consolidated Financial Statements. Some accounting policies require management to exercise significant judgment in selecting the appropriate assumptions for calculating financial estimates. Such judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, known trends in our industry, terms of existing contracts, and other information from outside sources, as appropriate. Management believes that these estimates and assumptions are reasonable based on the facts and circumstances as of September 30, 2023, however, actual results may differ from these estimates under different assumptions and circumstances.
There have been no material changes to our critical accounting policies and estimates which are discussed in the “Critical Accounting Policies and Estimates” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on February 27, 2023.
Recent Accounting Pronouncements
See “Note 3 - Recent Accounting Pronouncements” of the Notes to Condensed Consolidated Financial Statements.
| 32 | September 30 2023 Form 10-Q | | |||||||
| ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||||||||||||||
INTEREST RATE EXPOSURE
We are exposed to the impact of interest rate changes as borrowings under the Senior Facilities bear interest at variable interest rates. It is our policy to enter into interest rate swaps only to the extent considered necessary to meet our objectives.
Based on our exposure to variable rate borrowings at September 30, 2023, after consideration of our SOFR floor rate and interest rate swap agreements, a one percent (1%) change in the weighted average interest rate for a period of one year would change the annual interest expense by approximately $4.4 million.
FOREIGN CURRENCY EXCHANGE
We are exposed to foreign exchange rate changes of the Canadian and Mexican currencies as they impact the $151.2 million tangible and intangible net asset value of our Canadian and Mexican subsidiaries as of September 30, 2023. The foreign subsidiaries net tangible assets were $93.6 million and the net intangible assets were $57.6 million as of September 30, 2023.
We utilize foreign exchange forward contracts to manage the exposure to currency fluctuations in the Canadian dollar versus the U.S. Dollar. See Note 14 - Derivatives and Hedging of the Condensed Notes to the accompanying Condensed Consolidated Financial Statements.
COMMODITY PRICE RISK
Our transportation costs are exposed to fluctuations in the price of fuel and some of our products contain commodity-priced materials. The Company regularly monitors commodity trends and works to mitigate any material exposure to commodity price risk by having alternative sourcing plans in place, limiting supplier concentrations, passing commodity-related inflation to customers, and continuing to scale its distribution networks.
| ITEM 4 - CONTROLS AND PROCEDURES. | ||||||||||||||
DISCLOSURE CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of September 30, 2023, in ensuring that material information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the thirteen weeks ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 33 | September 30 2023 Form 10-Q | | |||||||
| PART II - OTHER INFORMATION | ||||||||||||||
ITEM 1. – LEGAL PROCEEDINGS
The Information required by this Item is set forth in Note 6 - Commitments and Contingencies, to the accompanying Condensed Consolidated Financial Statements included in this Form 10-Q and is incorporated into this Item by reference.
ITEM 1A – RISK FACTORS
There have been no material changes to the risks from those disclosed in the Form 10-K filed on February 27, 2023 with the Securities and Exchange Commission (“SEC”).
ITEM 2. – UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Not applicable.
ITEM 3. – DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. – MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. – OTHER INFORMATION
Segment Realignment
In the first quarter of 2023, the Company realigned its Canada segment to include the Canada-based Protective Solutions and MinuteKey businesses, which are now operating under the Canada segment leadership team. Previously, the results of the Canada-based Protective Solutions business were reported in the Hardware and Protective Solutions segment and the Canada-based MinuteKey business was reported in the Robotics and Digital Solutions segment and were operating under those respective segment leadership teams.
If the aforementioned changes in segments were in effect for the years ended December 31, 2022, December 25, 2021, and December 26, 2020, revenues for our Hardware and Protective Solutions segment would have been lower by $8.1 million, $7.4 million and $8.0 million, respectively and revenues for our Robotics and Digital Solutions segment would have been lower by $4.3 million, $3.0 million and $2.0 million for the years ended December 31, 2022, December 25, 2021, and December 26, 2020, respectively. Revenues for our Canada segment would have been
| 34 | September 30 2023 Form 10-Q | | |||||||
higher by $12.3 million $10.4 million and $10.0 million for the years ended December 31, 2022, December 25, 2021, and December 26, 2020, respectively. In addition, the change to segment income (loss) from operations did not have a material impact on the financial statements as of December 31, 2022, December 25, 2021, and December 26, 2020. The table below presents the results as if the segment changes had been in effect for the noted periods.
| Year ended December 31, 2022 | Year ended December 25, 2021 | Year ended December 26, 2020 | ||||||||||||||||||
| Revenues | ||||||||||||||||||||
| Hardware and Protective Solutions | $ | 1,068,734 | $ | 1,017,594 | $ | 1,016,412 | ||||||||||||||
| Robotics and Digital Solutions | 245,633 | 246,494 | 207,276 | |||||||||||||||||
| Canada | 171,961 | 161,879 | 144,607 | |||||||||||||||||
| Total revenues | $ | 1,486,328 | $ | 1,425,967 | $ | 1,368,295 | ||||||||||||||
| Segment Income from Operations | ||||||||||||||||||||
| Hardware and Protective Solutions | $ | 20,742 | $ | (14,650) | $ | 64,998 | ||||||||||||||
| Robotics and Digital Solutions | 3,541 | 21,761 | 5,264 | |||||||||||||||||
| Canada | 15,610 | 3,203 | (4,496) | |||||||||||||||||
| Total segment income from operations | $ | 39,893 | $ | 10,314 | $ | 65,766 | ||||||||||||||
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On November 2, 2023, the Board of Directors of the Company adopted the Hillman Solutions Corp. Executive Severance Plan (the "Severance Plan"). The primary purpose of the Severance Plan is to standardize and clarify the severance arrangements of our executive officers (other than Mr. Scott Ride) and the related terms and conditions.
Each of our named executive officers (as disclosed in the Company’s Proxy Statement for the Annual Meeting of Stockholders held on May 31, 2023), other than Mr. Scott Ride, participate in the Plan.
As a condition to participating in the Severance Plan, each of our executive officers (other than Mr. Ride) agreed to terminate their employment agreements, if any, with the Company effective November 2, 2023.
Executives covered by the Severance Plan will generally be eligible to receive severance benefits in the event of a termination by the Company without Cause or by the Executive for Good Reason. Good Reason is a defined term under the Severance Plan and generally includes a material reduction in the Executive's duties or responsibilities, the requirement that the Executive relocate his or her principal place of business more than 50 miles from the location of the principal place of business from which the Executive worked, or any reduction in the Executive’s annual base salary not part of a general base salary reduction of all similarly situated persons. Cause is a defined term under the Plan and generally includes the Executive's commission of a felony, the Executive's commission of any fraud, embezzlement, or material misconduct, the Executive's abuse of drugs or alcohol, the Executive's willful and material violation of any Company policy, the Executive's willful failure to perform his or her duties or comply with the Company's directives, or the Executive's breach of any material provisions of an employment agreement, restrictive covenant, or other agreement with the Company.
Change in Control is also a defined term under the Plan and generally includes the acquisition of more than 50% of the voting power of the Company; a change in the composition of a majority of the Board of Directors of the Company; a reorganization, merger, consolidation, sale or other disposition of all or substantially all of the assets of the Company that results in change in more than 50% of the voting power of the Company or a change in the composition of a majority of the Board of Directors.
Under the Severance Plan, in the event of a termination by the Company without Cause or by the Executive for Good Reason prior to a Change in Control or more than 24 months following a Change in Control, the severance benefits for the a participating Executive shall generally consist of the following:
•Lump sum payment of the Executive's earned but unpaid bonus for a performance period ending prior to the Executive's termination (if any);
•Continuation of the Executive's base salary for a period specified in the applicable Executive's participation notice, which is (i) eighteen months in the case of Mr. Cahill; and (ii) twelve months in the case of all other participating Executives.
| 35 | September 30 2023 Form 10-Q | | |||||||
•In the case of Mr. Cahill only, an amount equal to 150% of his performance based bonus at target achievement level, payable over eighteen months in equal installments on the Company's regular payroll dates.
•Payment by the Company of COBRA medical, dental and/or vision insurance premiums, based on the Executive’s benefits plan elections in effect at the time of termination for a period specified in the applicable Executive's participation notice, which is (i) eighteen months in the case of Mr. Cahill; and (ii) twelve months in the case of all other participating Executives.
•Payment of the Executive's performance based bonus for the year in which the termination occurred, pro-rated for the Executive's service up to and including the date of termination and based on actual performance for the year, payable concurrently with bonus payments to other employees under the bonus plan.
Under the Severance Plan, in the event of a termination by the Company without Cause or by the Executive for Good Reason within the 24 months following a Change in Control, the severance benefits for the Executive shall generally consist of the following:
•Lump sum payment of the Executive's earned but unpaid bonus for a performance period ending prior to the Executive's termination (if any);
•Continuation of the Executive's base salary for a period specified in the applicable Executive's participation notice, which is (i) twenty-four months in the case of Mr. Cahill; and (ii) twelve months in the case of all other participating Executives.
•In the case of Mr. Cahill only, an amount equal to 200% of his performance based bonus at target achievement level, payable over twenty-four months in equal installments on the Company's regular payroll dates.
•In the case of all participating Executives other than Mr. Cahill, an amount equal to 100% of the Executive's performance based bonus at target achievement level, payable over twelve months in equal installments on the Company's regular payroll dates.
•Payment by the Company of COBRA medical, dental and/or vision insurance premiums, based on the Executive’s benefits plan elections in effect at the time of termination for a period specified in the applicable Executive's participation notice, which is (i) twenty-four months in the case of Mr. Cahill; and (ii) twelve months in the case of all other participating Executives.
•Payment of the Executive's performance based bonus for the year in which the termination occurred, pro-rated for the Executive's service up to and including the date of termination and based on actual performance for the year, payable concurrently with bonus payments to other employees under the bonus plan.
The foregoing summary is qualified in its entirety by reference to the Severance Plan filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference.
| 36 | September 30 2023 Form 10-Q | | |||||||
| ITEM 6. – EXHIBITS | ||||||||||||||
| a) | Exhibits, including those incorporated by reference. | ||||
| 10.1 * | Hillman Solutions Corp. Executive Severance Plan, dated November 2, 2023 (filed herewith). | ||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 32.2 | |||||
| 101 | The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 filed with the Securities and Exchange Commission on November 8, 2023, formatted in eXtensible Business Reporting Language: (i) Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the thirteen and thirty-nine weeks ended September 30, 2023 and the thirteen and thirty-nine weeks ended September 24, 2022, (iii) Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended September 30, 2023 and the thirty-nine weeks ended September 24, 2022, (iv) Condensed Consolidated Statements of Stockholders' Equity for the thirteen and thirty-nine weeks ended September 30, 2023 and the thirteen and thirty-nine weeks ended September 24, 2022, and (v) Notes to Condensed Consolidated Financial Statements. | ||||
| * | Indicates management contract or any compensatory plan, contract or arrangement. | |||||||
| 37 | September 30 2023 Form 10-Q | | |||||||
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE HILLMAN SOLUTIONS CORP.
| /s/ Robert O. Kraft | /s/ Anne S. McCalla | |||||||
| Robert O. Kraft | Anne S. McCalla | |||||||
| Chief Financial Officer | Controller | |||||||
| (Principal Financial Officer} | (Chief Accounting Officer) | |||||||
DATE: November 8, 2023
| 38 | September 30 2023 Form 10-Q | | |||||||