Hillman Solutions Corp. Q3 FY2026 earnings call

• Record Financials: Achieved record top-line net sales of $457 million (up 8%) and record bottom-line adjusted EBITDA of $90.2 million (up 2%).
• Strategic Acquisition: Completed the acquisition of Cambridge, a long-tail master distributor of fasteners for industrial customers, adding over 44,000 SKUs and strengthening Hillman's position as a leading long-tail distributor.
• Pro Channel Momentum: Demonstrated strong share gains in the professional channel, with new business wins contributing significantly to growth; expecting this momentum to accelerate in 2027.
• RDS Technology Rollout: Successfully deployed approximately 1,700 Minikey 3.5 machines in the first three quarters, with final deployments planned for Q4, driving healthy growth and improved economics per machine.
• Supply Chain Resilience: Maintained flexibility through a dual-faucet sourcing strategy and strengthened vendor relationships via an annual supplier summit in Vietnam, effectively managing tariff impacts.
• Cash Flow Improvement: Generated robust free cash flow of $51.1 million, a significant increase from $9.1 million in the prior year, despite challenging macro conditions.

Hardware and Protective Solutions (HPS): Net sales grew 5% year-over-year, driven by a 2% lift from new business wins (split evenly between pro and retail channels) and a 5% benefit from M&A, partially offset by a 2% headwind in core performance. Robotics and Digital Solutions (RDS): Net sales increased 19% year-over-year, fueled by the rollout of Minikey 3.5 machines. Adjusted gross margins were 79% and adjusted EBITDA margins were 30%. Canada: Net sales rose 9%, driven by 8 points of new business wins (primarily in the pro channel) and 1 point of core performance growth.

• Full Year 2026 Net Sales: Lowered guidance to a range of $1.66 billion to $1.68 billion (midpoint $1.67 billion), representing ~8% growth. This reflects a downward revision of approximately 1.5 percentage points due to market volumes being lower than anticipated in the second half of the year.
• Full Year 2026 Adjusted EBITDA: Maintained at approximately $285 million, indicating a 3.5% increase over the prior year.
• Full Year 2026 Free Cash Flow: Maintained at a range of $105 million to $115 million (midpoint $110 million).
• Full Year 2026 Capital Expenditures: Expected to be between $70 million and $75 million.
• 2027 Outlook: Expects net sales growth of 8% to 12%, driven by new business wins in retail and pro channels, and M&A contributions of 3% to 4%. Management does not anticipate macro tailwinds in 2027.

• Macroeconomic Headwinds: Challenging macro environment impacting DIY and residential pro segments, with market volumes lower than expected in H2 2026.
• Tariff Impacts: Net impact of tariffs remained consistent with H1, though modest refunds were received; Section 232 steel tariff adjustments offset some benefits.
• Existing Home Sales: Stabilization rather than improvement in existing home sales limits potential tailwinds for hardware sales.
• Personal Protective Equipment (PPE): PPE segment experienced pressure in Q3 due to reduced promotional activity in the marketplace, though signs of improvement are visible for Q4.
• M&A Execution: While pipeline is filling, bid-ask spreads may remain wide, requiring patience to secure attractive valuations.

Q: Analyst asked about drivers of RDS growth given foot traffic concerns and sustainability of margins. / A: JMA highlighted that expansion into auto services via Minikey 3.5 capabilities is the primary driver, moving beyond home/office uses. CFO confirmed that RDS maintains a target EBITDA margin of ~30%, with current performance aligning with this rate, ensuring sustainable profitability despite volume fluctuations.

Q: Analyst inquired about the composition of 2027 growth guidance, specifically if it assumes no macro tailwinds. / A: CFO clarified that 2027 growth relies on 3-4% from M&A anniversaries, 4%+ from new business wins (2%+ from Pro, 2%+ from Retail), and the remainder from core performance (price/market). Management explicitly stated they are planning for the macro to remain a headwind, not a tailwind, relying on operational execution rather than market recovery.

Q: Analyst questioned the durability of pricing power in the acquired Cambridge business amid inflation. / A: JMA noted Cambridge has a strong historical track record of adjusting prices based on market conditions over its 50+ year history. The acquisition allows Hillman to leverage its global sourcing to enhance Cambridge's pricing strategies further, ensuring they remain ahead of inflationary pressures through product-level price exercises.

Q: Analyst sought details on Pro channel progress and split between retail partners vs. direct new customers. / A: JMA revealed that most Pro growth comes from outside traditional retail channels, highlighting traction in residential and commercial Pro sectors. He emphasized success in winning new accounts for fasteners and gloves directly, alongside strong industrial momentum in Canada, signaling a broadening base of Pro revenue sources beyond just retail partnerships.

Q: Analyst asked about SG&A trends and pressure in the Personal Protective Equipment (PPE) segment. / A: CFO explained that SG&A as a % of sales was slightly higher due to revenue-sharing costs associated with outsized RDS growth, but underlying SG&A showed modest leverage. JMA admitted PPE faced challenges in Q3 due to low promo activity but expects improvement in Q4 and a return to flat-to-growing trends in 2027.