Hillman Solutions Corp Aktie

Good morning, and welcome to the First Quarter 2026 Results Presentation for Hillman Solutions Corporation. My name is Carmen, and I will be your conference call operator today.

Before we begin, I would like to remind our listeners that today's presentation is being recorded and simultaneously webcast. The company's earnings release, presentation and 10-Q were issued this morning. These documents and a replay of today's presentation can be accessed on Hillman's Investor Relations website at ir.hillmangroup.com.

I would now like to turn the call over to Michael Koehler with Hillman. Please proceed.

Thank you, operator. Good morning, everyone, and thank you for joining us for Hillman's First Quarter 2026 Results Presentation. I am Michael Koehler, Vice President of Corporate Development, Investor Relations and Treasury. Joining me on today's call are Hillman's President and Chief Executive Officer, Jon Michael Adinolfi, or JMA, as we call him; and our Chief Financial Officer, Rocky Kraft.

I would like to remind our audience that certain statements made today may be considered forward-looking and are subject to safe harbor provisions of applicable securities laws. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions and other factors, many of which are beyond the company's control and may cause actual results to differ materially from those projected in such statements.

Some of the factors that could influence our results are contained in our periodic and annual reports filed with the SEC. For more information regarding these risks and uncertainties, please see Slide 2 in our earnings call slide presentation, which is available on our website.

In addition, on today's call, we will refer to certain non-GAAP financial measures. Information regarding our use of and reconciliations of these measures to our GAAP results are available in our earnings call slide presentation. JMA will begin today's call by giving some highlights from our first ever Investor Day last month, which included 5-year financial targets. Then he will provide commentary on our quarterly results and guidance, followed by a discussion on the market and our performance by business.

Rocky will then give a more detailed walk through our financial results and guidance before turning the call back over to JMA for some closing comments. Then we will open up the call for your questions.

It's now my pleasure to turn the call over to our President and CEO, Jon Michael Adinolfi. JMA?

Thanks, Michael. Good morning, everyone, and thank you for joining us. Before we get into our results for the quarter, I wanted to highlight the long-term strategic initiatives we shared during last month during our first ever Investor Day.

During our presentation, we outlined our blueprint and the catalyst for creating long-term shareholder value. During the presentation, we discussed how we win in our core business. We gave a detailed look into how our core Hardware and Protective Solutions business is fortified by unique competitive advantages, including category leadership, product innovation, integrated operations, our 1,200-plus member field sales team and our diverse product and category offerings.

We discussed how we build on Hillman's long history of growth by expanding categories and extending into adjacent aisles with our existing customers through both organic initiatives and acquisitions. We unpacked the near-term opportunities in our robotics and digital solutions business with our MinuteKey 3.5 rollout.

We highlighted how our diverse global supply chain provides flexibility and leverage, and we talked about how empowering our associates leads to an award-winning culture and efficient operations. We laid the groundwork for how we plan to win the Pro and outlined the right to win in this channel.

Growing the Pro channel is a new critical initiative for Hillman, which provides meaningful new white space to grow and expand our addressable market by $12 billion, bringing our total addressable market to over $18 billion. We detailed how we will win in industrial MRO and Pro distribution, which includes specialty distribution, LBM and growing with our existing retail customers as they go after the Pro through their internal initiatives as well as the companies they acquire.

Over the next 5 years, we are confident we will grow Hillman's total net sales to $2.5 billion in 2030. To reach this number, we are targeting 8% to 12% growth per year, which will be driven by core performance, new business wins, both at retail and in the Pro channel and M&A.

During the same time line, our goal is to grow adjusted EBITDA at a low double-digit CAGR, maintain a healthy balance sheet while targeting leverage of 2.5x or below and drive our return on invested capital into the high teens.

With that, let's go to our results. Net sales for the first quarter of 2026 increased 3%. The quarter had a strong finish, driven by an improvement in sales during March, but that was not enough to make up for a slow January and February, which were impacted by weather and some customer destocking. We also believe the uncertainty consumers are feeling due to the current economic environment impacted our results.

For the quarter, our growth was driven by nearly 5% lift from new business wins and a 2% headwind from our core performance. As a reminder, our core performance is a combination of market volume, customer footprint expansion, category management, FX, product mix and price.

Driving our new business wins for the quarter were the builders hardware expansion at a top customer in the U.S., the expansion of specialty fasteners and builders hardware at a top customer in Canada and the launch of a Pro initiative at a top customer also in Canada.

While M&A did not impact our first quarter results, we are pleased that subsequent to the end of the quarter, we closed on 2 acquisitions. Campbell Chain & Fittings and Delaney Hardware. Campbell Chain is a U.S.-based manufacturer of chain and related products, which expands Hillman's chain offering into higher-grade industrial products. The deal strengthens our position in industrial MRO channel and builds on our recent entry into chain category with our acquisition of Koch in 2024. Founded in 1919, Campbell serves a broad range of industrial, commercial and retail customers and will make a great addition to Hillman.

Delaney Hardware expands our Pro distribution channel by adding door hardware to our product categories. Delaney supplies lock sets, dead bolts and smart locks and related products to builders, contractors and distributors, primarily in the Southeast U.S. The acquisition strengthens our Pro distribution strategy and will serve as a platform from which we can expand in the future to serve the Pro.

We anticipate that Campbell will contribute over $20 million of net sales and Delaney will contribute over $10 million of net sales to Hillman this year. Therefore, we expect M&A will contribute an additional $30 million of net sales and a very modest amount of bottom line growth to Hillman during 2026. Both acquisitions will be accretive, fit our strategy and will provide excellent growth and profitability opportunities for Hillman.

Customers are excited about Hillman being the new owners of both Campbell and Delaney and our early feedback has been very positive. As such, we are raising our full year net sales guidance range by the same amount. We anticipate that our full year net sales will be between $1.63 billion to $1.73 billion with a midpoint of $1.68 billion. Our increased net sales midpoint now represents 8% growth over last year, which is in line with our long-term growth target. We are reiterating both our full year 2026 adjusted EBITDA and free cash flow guidance. We expect our full year adjusted EBITDA to be between $275 million to $285 million and our full year cash -- free cash flow to be between $100 million and $120 million.

Since our founding over 62 years ago, we have navigated all kinds of economic cycles in challenging environments. We view today's uncertain times as another challenge that we will manage through. Our top line growth during the quarter demonstrates the resilience of Hillman's model and the ability to navigate this environment as well.

As we have seen throughout the last year, changes in tariff policy happen quickly and shift the market rapidly. Our dual faucet supply chain allows us to react to these changes so that we can consistently deliver high-quality products to our customers at the best value.

Over the past few months, there have been some puts and takes resulting from changing policy and legal rulings. Altogether, the impact on Hillman has not changed materially over the past few quarters and remains around $150 million annually. The timing of how tariffs have impacted our bottom line have been and will continue to be choppy.

As you know, we rolled out price increases during the second half of 2025, yet most of our higher tariff costs just started impacting our P&L in the first quarter of 2026. The result was an outsized benefit to earnings, which peaked during Q3 of 2025. On the contrary, there was an outsized impact to our cash flow as we had to pay for those higher cost goods during 2025 without benefiting from the related higher cash receipts.

Our earnings and cash flow during the quarter were fully impacted by higher prices and higher costs resulting from tariffs. Managing tariffs has been a tremendous effort throughout the Hillman organization. Our top priority is always and especially during this tariff uncertainty to deliver high-quality products at a good value to our customers with orders delivered on time and in full.

Like others, on April 20, we began the process to initiate IEEPA tariff refunds via the consolidated administration and processing of entries platform. At this point, there are lots of unknowns, including the potential impact to Hillman. And remember, following the ruling that certain IEEPA tariffs were deemed illegal, there were quickly new tariffs put in place, so the net impact to Hillman is neutral.

More recently, the price of oil has increased, while oil and gas prices have limited impact on our product costs, areas like packaging and freight are directly impacted. Because of the timing of how costs flow through our income statement, we believe the impact of inflation driven by higher oil prices will not be significant during 2026.

That said, we are monitoring this headwind closely. And if these amounts do become material, we will price for them as we've done in the past. Despite all this, our team has not lost focus on taking great care of our customers, winning new business and consistently striving to make our operations more efficient.

Now let's turn to our results for the quarter. Net sales in the first quarter of 2026 totaled $370.1 million, which was an increase of 3% versus the first quarter of 2025. For the quarter, adjusted EBITDA decreased 8% to $50.1 million compared to $54.5 million during the year ago quarter.

As expected and as we said on our last earnings call, we had a high-cost inventory flowing through income statement given the timing of high reciprocal tariffs from last year. This, coupled with soft volume and the slower nature of the first quarter weighed on our adjusted EBITDA during the quarter.

Our biggest segment, Hardware and Protective Solutions, or HPS, increased 1.2% versus Q1 of 2025. HS performed well for the quarter, up 7%, driven by a 3% lift from new business wins, coupled with a 4% lift in core performance. PS had a tough quarter, down 17% in total, weighing the results in PS was a decrease in promotional off-shelf activity, destocking and lower sell-through of gloves.

We remain committed to working with our PS customers, providing merchandising solutions for gloves and workgear, and we expect to see PS improve throughout the year, but it is expected to remain below 2025 levels for the full year. Robotics and Digital Solutions, or RDS, had a great quarter, driving healthy top line growth, showing leverage in its bottom line performance.

Net sales were up 6% versus the year ago quarter and adjusted EBITDA increased by 11.4% to $16.2 million. We have not seen top line growth like this in RDS since 2021. Adjusted gross margins and adjusted EBITDA margins were both healthy, totaling 74.7% and 28.9%, respectively. Driving our performance during the quarter was our MinuteKey 3.5 rollout as this strategy is gaining traction.

Today, we have approximately 3,900 MinuteKey 3.5 machines in the field, an increase of over 400 since our last earnings call in February. We expect to end 2026 with over 5,000 MiniKey3.5 machines in the field and are on track to finish these rollouts of these kiosks.

Turning to Canada. Net sales in our Canadian business during the quarter increased 15.1% compared to the prior year quarter. Driving the increase was 15% increase in new business wins with flat core performance. New business was driven by specialty fasteners, builders hardware and Pro wins at a top customer that I mentioned earlier. We are pleased to see Canada return to growth during the quarter.

Overall, we navigated the environment well this quarter, and we expect an improvement in our business as we shift from our busy -- to our busy spring season and summer selling seasons. The Hillman team is focused on operational discipline, consistent execution and taking great care of our customers. We believe doing so enables us to generate consistent results no matter the market.

With that, let me turn it over to Rocky to talk financials and guidance. Rocky?

Thanks, JMA. Let's get to our results, then we'll review our guidance. Net sales in the first quarter of 2026 totaled $370.1 million, an increase of 3% versus the prior year quarter. First quarter adjusted gross margin decreased by 130 basis points to 45.6% versus the prior year quarter.

Adjusted SG&A as a percentage of sales was 32% during the quarter, which was in line with the year ago quarter. Adjusted EBITDA in the first quarter totaled $50.1 million, decreasing 8% versus the year ago quarter. Adjusted EBITDA to net sales margin during the quarter decreased by 170 basis points from a year ago to 13.5%.

As JMA mentioned and we told you during our last earnings call, because of tariffs and the timing of how costs flow through our income statement, our adjusted gross margin and adjusted EBITDA to net sales margin for Q1 will be the lowest of the year. As 2026 goes on, we expect to see margins improve as we work through high-cost tariff-impacted inventory. This, coupled with soft volume and the slower nature of the first quarter weighed on our results. Let me turn to cash flow.

For the quarter, net cash used for operating activities was $19.5 million and free cash flow was negative $34.3 million. Both were in line with our expectations as we prepared for our busy spring and summer selling seasons with an increase in working capital while prudently trimming a modest amount of net inventory.

Next, let me turn to leverage and liquidity. We ended the first quarter of 2026 with $710 million of total net debt outstanding, which increased by $44 million from the end of the last year. Liquidity available totaled $282 million, consisting of $255 million of availability on our credit facility and $28 million of cash and equivalents. At quarter end, our net debt to trailing 12-month adjusted EBITDA ratio was 2.6x versus 2.4x at the end of 2025.

The acquisitions we closed following the end of the quarter will not have a material impact on our liquidity or our leverage ratio. During the quarter, we deployed $10.1 million to buy back 1.2 million shares at an average price of $8.29 per share. Our repurchase activity during the quarter accelerated as we opportunistically bought more stock back given the valuation and share price.

Our objective remains to offset dilution resulting from employee equity grants and opportunistically buying stock back if there is a meaningful discount between the value of Hillman and where the stock is trading. We plan to continue buying stock on a regular basis.

Now turning to our guidance. As JMA mentioned, we are raising our full year net sales guidance by $30 million, which is the result of the contribution from Campbell and Delaney that closed after the quarter ended. We now anticipate 2026 net sales to be between $1.63 billion to $1.73 billion with a midpoint of $1.68 billion.

We are reiterating both our full year 2026 adjusted EBITDA and free cash flow guidance. We expect our full year 2026 adjusted EBITDA to be between $275 million and $285 million and our full year 2026 free cash flow to be between $100 million and $120 million.

Adjusted gross margins for the year should be between 46% and 47%, and we expect these margins to improve sequentially throughout the year. We are confident we can continue to navigate this market well. We're well positioned to capitalize on opportunities as they arise and drive long-term value for our shareholders through the rest of this year and beyond.

With that, JMA, back to you.

Thanks, Rocky. We are pleased with our performance during the quarter. Operationally, we ran the business well and took great care of our customers. Our Hardware business had a solid quarter, growing 7% on the top line. RDS was strong during the quarter, growing 6% on the top line, and we are excited about the momentum we're seeing in the business, and we look forward to the rest of the year. Canada had an excellent quarter, up 15%, having executing some meaningful new business wins.

And lastly, our Pro and industrial teams were both off to a great start, showing strong growth during the quarter. In a period marked by macro uncertainty, shifting policies and ongoing volatility across our markets, our teams executed well, delivered strong growth and discipline. Before I wrap up, I want to once again thank the entire Hillman team for their hard work during the quarter.

We are very excited to welcome the team from Campbell and the team from Delaney to Hillman. These 2 companies are a great fit in our blueprint for creating long-term value, and we can't wait to grow together. Looking ahead, we are staying focused on what we can control, operations, execution and proper allocation of resources. We will do this while seeking to strengthen our customer relationships and support their ever-evolving needs in a dynamic environment. Hillman is well positioned for what's ahead, and I'm optimistic about where we will take the business from here.

With that, I'll turn it back to the operator for the Q&A portion of the call. Operator, please open the call for questions.

[Operator Instructions] Our first question comes from Lee Jagoda with CJS Securities.

So I guess, JMA, I'll start with just trying to get a little more color on some of your comments around the destocking activities that were in the prepared remarks. Where are those customers from like an inventory position standpoint? And how should we be thinking about this dynamic over the next couple of quarters?

Yes. I mean when we look at Lee from our business, we really saw destocking only in our PS business. We feel our overall business and our customers have rebalanced throughout 2025 into 2026. So that is a short-term dynamic for us, and we feel like the worst of that is behind us.

Okay. And then I guess shifting to some of your Analyst Day commentary when you rolled out this Pro initiative to the world. And then it sounded like to some extent, your sales force was learning on the fly about what they could sell and the more tools in their toolbox. What's been the initial feedback from customers, from the sales force around the Pro strategy? And are there any early successes you want to call out?

Yes. Thanks, Lee. We're really excited. Now just to give everybody some perspective, 30%-ish of our business is Pro today. So what we really added was our Resi Pro team. So that team has come up to speed quickly, interacted with a number of our customers. We've already got some nice wins that, that team started working on late last year into this year. That was actually one of the things I referenced up in Canada, where we had a large Pro win. So we see some great momentum.

The customer feedback has been excellent. They know that we can take care of their customers, get them the product they need on the job site or for the job site and the initial feedback has been great. So too early to declare victory. You know my approach to this that is we saw a really good solid first quarter. Pro for the overall company is growing faster than DIY. That is the first step in the equation and certainly a big part of our strategy to get to $2.5 billion. So we're excited about our initial results, but we got a lot of work to do and a ton of opportunity in front of us.

Our next question comes from the line of David Manthey with Baird.

Yes. First question, you sort of touched on it in terms of the gross margin. Are you giving us the impression that gross margin is normalizing right now in this quarter, next quarter? Can you just talk about how you think about the trajectory of gross margin through 2026?

Lee, it's -- sorry, Dave, it's Rocky. The reality is, as we said in our remarks, we believe Q1 is the low watermark in our gross margin for the year. It was driven by just the timing of the tariff impacted inventories flowing through the P&L. And so we see margins stepping up throughout the year. And again, as we said in my prepared remarks, we expect to be between 46% and 47% for the full year.

Okay. And so by the time we reach that level, given that you started at 45%, 46%, maybe you reached the top end of that on a quarterly basis, maybe in the second half of this year?

That would be a good way to think about it. I mean, again, I think there's a shot depending on how the year plays out that we could be a little bit above that as you get into the second half of the year, above the 46% to 47%.

Okay. Good. And then you touched on fuel/freight. I was wondering if you could just walk us through the mechanisms within your P&L, your freight in and your freight out and sort of where it hits your P&L? And then what are your mechanisms for offsetting higher prices should they start to impact you?

Yes. I'll start, and then I'll let JMA add some color, Dave. I think as you think about the pieces, packaging clearly is impacted by the price of oil. That will go into product cost as you think about the cost of a product. But more importantly and quicker impacting is obviously ocean freight and the impact on rates there. That, while still delayed as you think about those costs flowing through the inventory, call it, 6 to 8 months after we incur the cost still can be an impact.

And then quicker even than that would be freight in the United States. We have seen, in some instances already where carriers are installing or putting in place fuel surcharges. At this point, we don't believe material to the 2026 results. But as that moves, we always work with our customers to adjust pricing based upon what happens in those markets.

Dave -- go ahead.

Okay. I'll ask a follow-up if that's okay on that. So you outlined product costs and freight in and that sort of thing. What about delivery costs? I mean you have more than 1,000 people out there visiting store locations. Obviously, they have to fill up at the pump. I don't know how that works through your P&L in terms of reimbursing those folks. Is that a meaningful number? Just trying to make sure we have all the bases covered as it relates to higher oil prices here.

Dave, you're correct. That is a real cost. I would not call it a meaningful number that is track all in our SG&A. We have -- certain cars people have cars or car allowances, and we do use outbound freight, of course. So there's fuel does weigh on those charges, but I would not call it a material number. As Rocky framed it, we'll just make sure we account for it and adjust if we need to.

Yes. And to be clear, Dave, on my comments, the -- when I talked about freight in the United States, the quickest impact will be that last mile to our customer. That's a cost that we incur in the period that we're shipping the product. Anything that's happening between dock and our DCs, again, gets caught up in the inventory and capitalized and gets spread out over time.

Our next question comes from the line of Matthew Bouley with Barclays.

I just want on the PS business. It sounded like there was some impact there around promotion timing and destocking. But I think I heard you suggest that it was going to stay below 2025 going forward.

And correct me if I'm wrong, but I just wanted to maybe unpack that a little and understand if you think there's anything kind of bigger picture going on from a structural perspective in that business? And kind of what's it going to take to sort of turn that business around?

Matt, good question. Yes, it certainly had a challenging period. The overall, I'll say, HPS business was strong. PS, in particular, we saw really promotional activity was the biggest portion of that drop in Q1, and that will be a pressure point for the full year. So that, given sensitivity at the shelf with rising prices, we did see some pressure in that business.

Our team is committed to driving innovation. We've got some great new products that are hitting the market this year. So we still have reason to be optimistic about that business. That said, we're focusing on the truth, and that will be the fact that it will be below 2025 in total. So we don't feel like we have issues beyond a tough Q1, Q2 time frame. The business will improve as the year goes on, but it certainly is that promotional activity.

The core is healthy. That is to me the most important part of the underlying elements of it. And we believe as the markets improve, not that we need that, but we believe as the markets improve, that business will improve as well.

I guess the only thing, Matt, I would add is, as you think about JMA talked about the promotional activity and the health of the actual business. We believe if you exclude the promotional impact in the -- in 2026, that business will be, at worst case, flat to slightly up.

Okay. Got it. Perfect. And then secondly, on the tariff topic, maybe just diving into that a little bit. Number one, if the refunds were ultimately make their way to you, how would you think about either shareholder return or other investments you'd be looking to make on the other side of that. But then for the rest of the tariff impact, it sounded like you called out effectively neutral.

IEEPA kind of went away, and I know new tariffs were kind of introduced on the other side of that. But I'm just curious why the net impact would still be neutral because you would think on balance more went away, but just kind of was it the Section 232, et cetera? What ended up kind of fully offsetting that benefit?

Matt, good question and certainly complex. Yes, from a big picture perspective, absolutely accurate. IEEPA did go away. That did create tailwind for a portion of our business. The problem was is 232 full steel content is an impact for us going forward. We're not breaking those numbers out specifically, but also 122 went into place.

We know that there's limitations on the time frame there. We'll see what happens. But as we stand today, when you take the tailwind from the IEEPA and then the headwind from 232 and it is nearly a wash in totality. So an immaterial change in our total exposure. So that is really the challenge there.

I'll let Rocky add more color, but on the rebates on the refunds we go through it. But our team is filing them. We're going through them, but we did incur quite a bit of cost in prior periods. But the balance of what we have to pay going forward, we don't see a material change.

Rocky, anything to add?

No, I don't think there's anything to add to that, JMA.

Our next question comes from the line of William Carter with Stifel.

I wanted to ask on -- in terms of you said improvement through the quarter. So could you get into kind of the magnitude of kind of the differences between March, January, February, just to get an idea of how kind of the slower start impacted and kind of better understand what kind of what the exit rate is to think about for March going into kind of April, 2Q rest of the year?

Andrew, I'm going to speak in big picture. We saw March start to be -- see the spring build. It was normal with our sequential improvement. As far as the month-over-month differences, we're not going to start breaking that out now. We did see that continue in April. That's the, I'll say, the positive that we're seeing at this point, but we certainly saw a tough start to the year.

January and February were rough months. We saw in the quarter, new business getting some nice traction. And we think overall, we are moving in the right direction. But you think about down single digits in that first month or -- so January to February time frame going positive in March was certainly a step in the right direction.

Rocky, anything to add?

No.

Understood. And then second question, sorry, RDS up [ 6%. ] That's in the keys and accessory up [ 9%. ] You've obviously got the rollout coming in. You're also kind of lapping some unfavorable customer moves there as well. At this point, like given your rollout kind of given a like-for-like, I mean, when would this business peak in terms of sales?

And then at the Investor Day, you did outline kind of a slower rate of growth for that business more like the mid-single digits. But how much could this rollout kind of carry that kind of close to the old average? How much -- and how long is that path? And when does it kind of regress?

Yes, great question. So we feel that momentum on sales in RDS is going to continue throughout 2026. So that statement on mid-single digits for the 5-year period, that's where we are today because we don't have, I'll say, a path to what's next beyond. But we're getting some great traction in the 3.5 rollout.

We're really excited about how our teams are coming together in the field, working with store associates, driving the 3.5 rollout, doing blitzes. We've been doing blitzes heavily in December, January, all the way through April here, and they'll continue. But I'm really proud about how the team has come together, driving awareness, driving the execution, and we think that business has got some room to run within our guidance, of course, but really excited about the performance there and proud of what the team did inside the quarter, and we expect that to continue for the balance of the year.

Yes. The only thing I would add, Andrew, is as you think about the headwind from a customer that you spoke about, we kind of finalized that direct headwind in the second quarter of this year. And so we've got a year after that where we should have some favorable comps because we don't have the negative headwind that we've had for quite a period of time.

Our next question comes from the line of Reuben Garner with Benchmark.

I wanted to dive into the acquisitions a little bit more. Can you kind of give some color on what exactly they bring to you guys that you didn't already have in each case? And then you raised the revenue guide. I assume the profitability on these is a little lower. Can you just talk about the ways that you can -- you think you can improve the profitability on the acquisitions you made?

Absolutely, Reuben. So yes, I'll start with Campbell. So Campbell was a great deal. It complemented our cook chain business, brings us manufacturing in both chain and fittings. The exciting part there is it really opens up a whole new set of customers for us. There's a number of customers we don't do any or if we do, it's a very small amount of business on the industrial side.

So the excitement for us was we believe we can own the category, have manufacturing capability, bring some new products that could help us on our retail side of the business and really fuel growth in our industrial, which is we talked about during our Investor Day is one of our paths to growth. So that was really the exciting part of it.

It's a business that we believe fits better with us than its prior owner. We got a great exciting team there is really energized to be a part of the Hillman family. There are only 3 going on 4 weeks into it, but we really believe we can take that business and make it a nice contributor, not only on top line, but also on bottom line. And we think that's why it fits into the portfolio and our overall strategy.

On the Delaney side, really interesting business. We're not in lock sets. I know you and everyone knows we're big into keys. Think about how many keys we not only design the machines and we distribute and cut the keys out there, but why not have lock sets and really finish out the door, if you will, right? We have hinges. We have different parts. Now we have door locks. We bought that business.

We think it's going to fit really nicely in our portfolio. It's pure resi Pro, so very pro concentrated. We think, one, we're timing it and buying it at the right time in the market. And two, we believe with our capabilities and what we can do with distribution, sourcing, product development that we can really move that business forward. And we're excited to have that team on board.

We brought in a leader in the field, a leader to run that business. So we're really excited. So we think we're going to put those 2 pieces together and really grow it as we go forward. So that one, we think, will show you not only top line, but also profitability in the future. We're also excited about Delaney being a nice fit in the portfolio.

Got it. And then switching gears a little bit. RDS, if I am looking at it correctly, and correct me if I'm wrong, profitability inflected positive year-over-year from an EBITDA margin standpoint. I think it had been a little while since that happened.

Do we feel like we've reached kind of a bottoming on the margin side? Just talk about that portion going forward. You talked about the sales comps and that kind of thing, but what about profitability?

Yes, we think profitability will be steady over throughout the year. I'll turn it to Rocky to add on if there's anything else. But I mean the real thing there is we believe we've got the magic happening, if you will, and the machine is working, we're getting some growth in automotive keys, the endless really the excitement. As volume goes, that will help the profitability.

And really proud of the RDS team and our sales folks out in the field and what they're doing with it. So Reuben, we have reason to be not getting over my skis, but certainly excited about what's in front of us here for '26.

Rocky, anything to add?

No.

Our last question comes from the line of Brian McNamara with Canaccord Genuity.

Just another one on M&A for me. So you guys weren't kidding with 2 deals done pretty quickly after Investor Day. It sounds like both were relatively opportunistic. So I'm curious, how does the current deal environment look and how are conversations with potential targets going? Does having those 2 deals in the bag by mid-April make a third one more likely this year?

Brian, yes, great question. So 2 things. One is we are really excited by opening up our M&A pipeline now that we've expanded beyond just the retail business that we love into serving the Pro. That was one of the key points at Investor Day. That has definitely opened up the view and certainly opened up the pipeline for potential opportunities for acquisitions.

So on the pipeline side, we do see some good deal activity. To your point, having 2 done early in the year, we feel really good about those 2. And I would say there's a high probability we'll see another this year. I can't predict anything at this point, but we certainly have some good opportunities in the pipeline that we're excited about.

And this concludes the Q&A portion of today's call. I would like to turn the call back to Mr. Adinolfi for some closing comments.

Thanks again, everyone, for joining us this morning. We look forward to continuing to update on our progress in the near-term future. With that, we're going to continue to focusing on taking care of our customers and moving the markets forward. Thanks for all you do, and have a great day.

Thank you, and you may now disconnect.

Good morning, everyone. Welcome to Hillman's first ever Investor Day. I'm Michael Koehlor, Vice President of Investor Relations and Treasury. Thank you for joining us on the webcast, and a special thank you to those who traveled here to our customer support center in Cincinnati. We appreciate you taking the time to join us and your continued interest and engagement you show in Hillman.

Please make note of the forward-looking statements and our presentation of non-GAAP financial metric disclosures on Slide 2.

Today is about giving you a clear view of where we are, where we're going and how we plan to create long-term value for our shareholders. Over the course of the day, you'll hear from members of our executive leadership team about 4 key topics. First, you'll hear about Hillman Strong. We will talk about our vision, our strategy and the strength of this business. Second, you'll hear about owning and expanding the core, diving into how we win and grow our core business. Third, you will hear about how we plan to leverage our core competencies to win the Pro. And finally, you'll hear about how all of these work together to drive our compelling long-term financial framework.

Our goal today is to provide transparency into our strategy, demonstrate the durability of our model and our right to win the Pro, and show how we are positioned to grow this business in the years ahead.

With that, I'll turn it over to our President and CEO, Jon Michael Adinolfi. JMA, let's get started.

Well, good morning, everyone, and thank you for joining us. We're excited to have you here today to talk about our vision and our strategy. As Michael said, we've got a good solid morning for you here. We're really excited about where Hillman is today and where Hillman is going to be going in the next 5 years. And to share this strategy, we're excited to present that to everyone here today.

So I'm Jon Michael Ladenoffi. I go by JMA. I've been in the industry for about 25 years, and I'm proud to say I've been with Hillman for about 7 years.

So we're going to start and just talk a little bit about how we're a category leader. For some of you who know the story, you know how we take care of our customer. You know how we're actually #1 in many of the categories we serve. But if you're new to the story, it's important for you to understand that we focus on taking care of the customer.

Since this company started over 62 years ago, we have focused on putting the customer first. When Max Hillman started the business, he focused on fasteners, putting the customer first and moving the business forward. We're proud to say over the last over 60 years, we've been able to do that by amassing close to $1.6 billion in revenue and driving EBITDA margins of 17.7%.

What you'll hear today that's a bit different is the fact that we have a much larger TAM than we've talked about in the past. We focused our business on the retail side of our opportunities. We love our retail customers; we're going to continue to grow with them. Today, we're going to talk about the Pro and how we're going to continue to expand our TAM. In the past, we talked about a TAM of roughly $6.5 billion. I'll talk to you about it turning into almost $18 billion with our opportunities around retail, Pro distribution and industrial MRO.

Our customers and their end users are very important to understand. We look at our business, it's 70% DIY and 30% Pro. So this is not us going into an area that we haven't been before, and we're going to share with you just how much progress we've made in the area of Pro and how we're going to continue to expand that as we go forward.

And the strong financial performance should give you confidence that we're going to be able to continue to move this business forward. We've expanded our gross margins by over 600 basis points. We've improved net EBITDA by 300 basis points. And we've reduced our leverage down over 2x. That should give you confidence that we're going to continue to move this business forward and that we have the team in the field to be able to do just that.

So let's talk a little bit about that progress. We have improved EBITDA by close to $70 million over the last 5 years, in a challenging market. Again, I already mentioned about the leverage improvement, but we've driven down net debt over $250 million. That should give you the confidence that this business can perform in good times and bad. And that's really what we're about to talk about here today, is about the opportunities we have to move forward.

If you think about our profit and our improvement over that period of time, I think it's important to break down the different pieces. We're proud to say that we've doubled the net income CAGR compared to our peers over the last 5 years. At the same time, we've improved our EBITDA margins by over 150 basis points over our peers. And then we've driven this business to a nice profitable point to where we can grow off of as we go forward.

The big question here, I think, for all of you and for us is: how do we continue to improve this business? It's going to be through growth. And we think that's why there's tremendous opportunity with this company, as you look that we trade to over a 50% discount to our peer set.

What we're going to talk about here today between myself and the rest of the leadership team is about how we're going to actually do just that. We're going to show you how we're going to grow the business, we're going to continue to expand and move forward.

To start there, we got to talk about the platform and the business. It's important to understand that we have 3 businesses that we focus on. The fastening and hardware business, close to 70% of our portfolio. It's where the company started, and we've continued to grow. It's the vast majority of our over 111,000 SKUs that we serve our customers with excellence day in and day out. But it's everything from common nuts and bolts to engineered fasteners that you -- those of you in person are going to be able to see later here today. We're proud of this portfolio; we're going to continue to build it. And we have the products to serve not only the DIY but also the Pro.

Turning to protective solutions, another important part of our category. It is the gloves, the protective gear that you need to do whether it's a DIY project or a Pro project. And we'll talk about some of the advancements we have in that business as well.

And then RDS, our robotic digital solutions. It's our key business. Scott is going to come up and talk to you about some of the exciting technology advances we have in that area. These 3 businesses are the platform that we're going to continue to build off of as we move forward.

And then our end markets. As I mentioned, the Pro is an important part of our equation as we move forward. We want to continue to serve the DIY, but it's important that we'll break out here what we call Retail Pro, Pro Distribution, Industrial MRO. James Daly, our SVP of Pro; Chris Martin, our EVP of C&I. And I will come up and talk to you about those 3 businesses and explain to you how we're going to continue to advance those markets.

And then the geography. We focus on North America and we're proud of that market. We believe we have a tremendous opportunity and a lot of runway for us to go after in those markets where we are today.

So next, we'll turn to the blueprint. And this is something I'm really excited about. It's something that we've developed over the course of the last year as a team. We didn't just create it for Investor Day. But I'm proud to say this is not only what we're doing and sharing with you at Investor Day, but it's what we're doing and how we're running the business.

We developed this in 2025 and we rolled it out in 2026. And the simple blueprint here, that we'll go into greater detail throughout the presentation, about how we own the core. We're going to focus on taking care of our customers, which we've been doing for over 60 years. We're going to show you and explain to you how we're going to grow that core through category expansion, both organic and inorganic. And then winning the Pro. It's where we are today with the Pro and how we extend that and grow it into the channels where we have permission to play and where we are today. And we're going to show you how we're going to do just that.

The key here is the ROIC focus. It's the way we've been running the business for a while, but we've now expanded the way we look at ROIC. It's not just me and Rocky talking about projects and initiatives. It's how the leadership team looks at growth. Any growth capital, M&A, all goes through the lens of ROIC. And that's why we're confident that we're going to maintain the strong profitability, the improvement in the balance sheet and we're going to grow this business as we move forward.

So now I'll talk to the value creation catalysts. So for us, it's very important. We have a very resilient business. For many of you who have been following the story for a long period of time, we do well in tough times. We're able to take care of our customers. We are resilient. It's what -- part is what makes Hillman such a great company. In tough times, this business does well. But what we have also is that resilience to grow when there's opportunities. And that's what we're going to explain to you here today. Our teams are focused on moving the business forward, and I'm excited about the path that we're going to share with you.

We have a large untapped TAM. As I'll break down in the next couple of slides, you'll see that we have opportunity to grow in each of our markets. Integrated operations. I'm excited, we're going to -- Bob Davis is going to walk you through our operations and what we've been working on for many years to continue to strengthen our operations and get better and stronger and service our customers better each and every day.

In 2025, we had one of the best, if not the best service year that we've ever had in our company's history, in a pretty challenging time. That should give you confidence, it gives us confidence, that we're ready to move this business forward and grow.

And a solid balance sheet. As I mentioned, we're in the range of our target leverage. Rocky will go into much greater detail later. But that's an important thing. We have a solid balance sheet that we're going to continue to maintain and grow as we go forward, meaning we're going to continue to invest in this business and we have the ability to do so.

And then a highly experienced team. We got Rocky will be up here. Many of the members of the leadership team are here going to be presenting, but they're also going to be out here for Q&A and doing product demos, different things. You that are in person are going to be able to interact with them firsthand to see that this leadership team is deep and strong.

And that's what's going to give you the confidence that we're going to be able to grow this business and move it forward. We're excited to share that we have a path to grow this business to $2.5 billion over the next 5 years. That solid path and trajectory, as I outlined earlier, is because we've proven that we can run this business well. And these are the buckets that we're going to focus on as we go forward.

We will talk in the future and update you on core growth. That's the day-to-day of how we run the business. It's things like market growth, it's customer footprint changes, it's category management, it's price. It's how we run the business. We'll update you on that on a quarterly basis as we go forward, but that is how we actually run the core.

New business wins. The way we run the business day in and day out, you're going to be excited to see here today that we're going to increase our focus on new business wins. In the past, we've said we're be 2-plus percent. We're going to increase that to 4-plus percent over the next 5 years. And that's going to be largely driven by our focus on Pro and some of the great momentum we have in that business.

And then M&A. While it's always been part of our history, we've done well over 20 deals. It's a part of how we believe we can augment and continue to grow our business. And Michael will walk you through great detail on what we're doing there and some of the exciting activity that we have in place.

When we drive all these activities and deliver it, you're going to see that we're going to be a $2.5 billion-plus company. And we're really excited about the momentum we have. And today, we're going to walk through and share with you where we're going.

So the 5-year financial objectives. On the previous page, I showed you that walk, that's averaging between 8% and 12% over the 5-year period. Rocky will go into more detail on how we actually get to that revenue CAGR, but we're excited we have a path, and we're going to continue to grow.

Low double-digit EBITDA, we're going to continue to grow profitably. We are going to maintain our net leverage at 2.5 and below. If we do any deals that move us above 2.5, we'll have a path to get back to it. We're going to maintain that balance sheet discipline that we've put in place in the last several years.

And newer for our story is we're going to focus on our ROIC. Rocky will walk you through the calculation in more detail, but our team is driven and incented to drive profitable growth, and ROIC is going to be our measure.

So this is the team that you'll see that's going to execute. Very proud of this leadership team. We have years of industry experience, but we also bring experience from other parts of the world. It's very important that as you think about Hillman's evolution, we're continuing to grow through challenging times and good times. You've got to continue to build your business and bring in talent that can move you forward.

This is a leadership team that's doing just that. I'm excited to share them with you today, and you'll be able to hear from the leaders firsthand on what they're doing to move the business forward. And I'm proud of this team that's on the field, and we look forward to winning in the next 5 years. And we're going to demonstrate the performance that we can deliver.

So now many of you are probably thinking about, well, JMA, we've heard you talk about retail, we've heard you talk about all the great growth and partners that you have. How are you thinking about that $18 billion TAM? Well, here it is.

We spent quite a bit of time in 2025, into 2026, really breaking down our business, thinking about our core, how we take care of our customers, how we actually grow them. But it was important to break down first and say, where do you play today and what are the channels you serve? We identified 3 areas that are very important for us.

Retail. We love our retail business; we're focused on. This is not a shift away from retail. This is supporting our retail partners, continuing to support them on what they do today. They service DIY as well as Pro. James will walk you through how we're going to grow with them as they continue to shift and focus on the Pro.

Pro distribution. Chris will come and talk to you about specialty distribution, and one of the businesses we have today, one of our solid businesses where we actually focus on the Pro day in and day out and how we're going to grow that and what it means to play and win in that area. I'll also talk about LBM, which is in part of our Pro distribution space.

And then industrial MRO. Some may say, "Well, we didn't even know you were in that space." It's actually that we've been in that business for over 100 years. Our pollen industrial business in Canada that we acquired has actually been in that business for over 100 years servicing the industrial maintenance and repair professionals. That's another area where we have a common theme and what we can do. So we have leverage across these areas. We have great products. And in many cases, we have the products necessary to serve the Pro. It's about giving them the products the way they want, and we'll explain what that means as we go through the presentation.

So with that, I think it's important to really look at where is the retail position and how do we grow into the Pro presence. This is how we break down the markets. So there's $6.5 billion that we have in retail, and we're going to grow with our retail partners. We're going to talk about that as we go throughout the day. I will thread back to this page numerous times throughout the presentation to make sure you understand that we have a 20% share there with opportunity to grow. And Brett is going to go into great detail what we're going to do there.

Pro distribution. Again, we have a small share, $200 million business, 3% share in a massive market. No, this is not to say we're going to be able to go capture all that share, but we are going to make meaningful traction in our organic as well as inorganically in this space.

And then industrial MRO, another area that we serve today and believe that we can serve in a greater way tomorrow. That will be organical, we will grow there. And also inorganically we have opportunities to grow. So this is how you should be thinking about the landscape that Hillman is going to be operating in and why we are going to have permission to grow. So we're excited about sharing this in more detail as we go throughout the presentation here today.

So as we get ready to shift, I want you to get ready for Brett Hillman, who's going to come up here. He's our EVP of Sales. Brett is going to walk you through how we own the core and how we expand it. We're really excited about the opportunities we have to share with you here today. So with that, I would like to welcome Brett up to the stage. Brett?

All right. Well, thank you, JMA, and good morning, everyone. I'm Brett Hillman. I lead our retail sales business. I've been with Hillman for 21 years, spending 18 of those on the sales side and in front of customers. Selling at Hillman is literally in my blood, and I couldn't be more excited to share our retail growth strategy with all of you today.

Let's start with how we win the core. First, let's define the core. The core are the existing categories that we sell into our existing customers today. This strong foundation has been built over 62 years, product by product, customer by customer and has provided us a differentiated solution that allows us to win.

We are truly in a league of our own. Said differently, there's nobody quite like us. Our scale, from our product breadth to our direct-to-store distribution, to the people in the stores serving our customers every single day, we are the only true comprehensive solution in hardware.

That moat starts with deep relationships with all of our customers, big and small. Our customers want to buy from Hillman. More importantly, they want to buy more from Hillman, because we offer a solution that manages their complexity while also growing their retail sales.

Now let's talk about where we play. As you can see here, we span across a lot of categories. This extensive portfolio, as JMA mentioned, started with core fasteners 62 years ago. And it's evolved over time through a combination of M&A and new category launches. Our strategy has always been to enter new categories that we believe we can leverage that moat that you heard of so many times to be #1.

We've developed categories like builders hardware because our customers asked us. We've developed categories like power screws or smart keys because we knew that's where the market was going. We've also acquired in the categories, like rope and chain and gloves, because we believe that our value proposition gives us the right to win, all while maintaining 90% brand ownership.

All right. Why we win. These 6 core competencies are incredibly important. And in combination, we believe we have a distinct advantage versus the competition.

Let's start with our product breadth. We manage over 111,000 SKUs, selling into 29,000 retail locations, with an average store carrying over 8,000 of our products. This breadth of product, especially in categories like fasteners, is critical for our retailer to win and to be able to provide that one-stop solution to meet the needs of their customers. The age-old slogan from our retailers, "If we don't have it, you don't need it" still exists today. Now not everywhere, but it is a real thing. And they count on Hillman to deliver that comprehensive solution.

Next is innovation. We'll talk more about this in just a few minutes, but we invest heavily in new product development as the consumer continues to pursue better-performing products, especially the Pro, who's always looking to save on time and battery life for their tools. Our customers consistently ask us what's new and count on us to bring those innovative solutions.

Category management. Because of our extensive product breadth and consistently bringing new products to the market, our customers heavily rely on us to manage those categories and drive their core. We partner every day with our customers in retail across all channels, from big box to local hardware store, to create customized and localized solutions, maximizing that customer experience. We base these decisions on data, whether it's point-of-sale data, shipment data or consumer insights to know where the market is going.

Field sales team. Also known as the secret sauce, you've heard that, our 1,200 sales and service folks provide the ultimate differentiation from the competition. These folks are directly responsible for driving growth at the shelf in every retail location. They maintain our displays. They manage the inventory. They write orders. They do [ PK ] sessions. They train associates. They sell new products.

Most importantly, they own the relationship for maybe the hardware store owner, the store manager or even the associate in the aisle. They are an invaluable asset to our retailers.

The last 2: direct-to-store distribution and dual faucet global sourcing, look, we have a very unique operating model that allows us to do all that other stuff. But I don't want to steal Bob Davis' thunder, so I'll let him talk with all of you about those capabilities.

In summary, all these superior capabilities provide us an overall value that nobody else can offer, grounded in customer relationships that go back decades. We are a strategic partner. We're the one-stop shop. We manage their complexity. We innovate. We deliver operationally every day. And we prioritize those customer relationships, from the senior executives at our largest customers down to the associate in a store. This is why we win. We put our customers first.

And those relationships are diverse. Let me tell you what that means. We are entrenched with our retailers across dozens of categories, leveraging our portfolio and our field team. Said differently, we're very sticky in our customers across all retail channels.

Example, both of our big box customers, in addition to our largest hardware chain customer, we are on average of 7 different departments. There are an average of 19 merchant buyers that we call on, managing thousands of SKUs every day. There's a little risk of lost business with only 1 category at a single customer representing more than 4% of our total revenue. But most importantly, this stickiness gives us a right to win new business, and we have significant runway with every one of our customers.

Now let's talk about how we grow the core organically outside of the footprints that we serve today, through category expansion and new product innovation. Our strategy to expand categories will come in 2 forms. First, we're going to leverage existing categories and the moat and gain incremental shelf space, both with existing customers as well as new prospects. We call this new business. And this is part of our DNA as a sales-driven organization.

Second, we're going to expand new categories to drive meaningful growth over the long haul. These categories are selected based on where we believe the moat can make the biggest difference and where we believe we can be #1. In some cases, like I said earlier, our customers will push us into a category like builders hardware, which we built and launched back in 2011. In other cases, we enter a category because that's where the market trends are going, like with the Pro where we launched structural screws, which is replacing commodity-type products like lag screws and carriage bolts. Again, we're leaning on both fronts because we have the broadest range of core competencies in our space that allows us to win.

Some recent examples. Displacing a competitor in the hinge category, one of our big box customers. Partnering with a big box customer to create an innovative tool rig solution to meet the needs of the Pro, displacing a long-standing competitor in the rope and chain category at our largest hardware chain customer. And continually launching new products that help us maximize our performance on the shelf so our retailers can win.

This innovation I talked about is critical. As the saying goes, innovate or die. We focus on the consumer, not where they'll be tomorrow, but where they'll be 3 to 5 years. Our goal is always to elevate our premium brands to ensure we stay one step ahead of the competition.

The latest example is Power Pro 4.0. This is our fourth-generation Power Pro screw. Head and shoulders above any other screw out there. The development took 3 years. While Power Pro 3.0 was a great screw, we felt obligated to raise the bar and create something that both the DIY and the Pro could benefit from. This has been a great win since we launched in 2024 and continues to help us win the Pro. All of you here in Cincinnati are going to see this innovation come to life later today in our product demos.

So where does all this category opportunity take us in expansion? Well, simple. We partner with our retailers. There happens to be a ton of runway with the customers and the channels that we serve today, both in categories that we already sell today as well as categories that we could potentially build and/or buy someday in the future. We could nearly double our share by expanding our footprint and leveraging the moat. This will be our North Star for growth in retail over the next 3 to 5 years.

Thanks, everyone. I appreciate your time. Now I'm going to hand over to Scott Moore, our President of RDS.

Good morning, everyone. Thanks, Brett. My name is Scott Moore. I'm the Divisional President of Robotics and Digital Solutions, what we call RDS. I want to thank you all for being here today. Super excited to talk to you about the business, not only how we're going to own the core, but how we're going to leverage our reputation and our investments to grow the core.

I have a deep history with this business. I was one of the early founders back in 2011, serving as the CTO essentially through the 2018 acquisition by Hillman in 2018. I went on to serve as the CTO for Hillman in 2022. And then in 2024, I was asked to return to lead the business, which I was super excited about because not only do I love the people, I love the products and I love what we have to offer our customers.

You heard JMA talk about how we take care of our customers. You just heard Brett talk about how we define our core. Let me tell you about how we own the core at RDS.

We've built our reputation on 4 things: quality products, convenience for our customer, competitive pricing and 100% money back guarantee. That's why we've cut over 300 million keys on many key machines. Our customers have come to know and trust our brand over the last 15 years.

So let's take a look at the business. Today we have a very healthy and profitable organization that's generating $220 million revenue -- sorry, net sales for last year. We did that with over 30,000 machines in very high retail foot traffic locations. As you can see, MinuteKey is our flagship, 45% of our revenues. We're going to talk more about the MinuteKey machine in a minute.

Second is our manual key business at 32% of revenues. This is roughly 9,000 machines out there that our store associate operated. They cut 150 different types of keys. It's a direct-to-store inventory model, serviced by our sales folks who are in these stores on a regular basis. This is a very consistent, very profitable business that we still consider a big piece of our core.

Pet tag engraving is third, 18% of revenues. We have roughly 7,000 of these machines. We're in the top 3 pet brick-and-mortar retailers out there today. Rounding out the mix is our Resharp machines; we have roughly 1,000 of those. And then we do some third-party servicing for others.

Regardless of what machine we're talking about in our fleet, they all have one thing in common, and that's unmatched quality. 100% assembled in the U.S.A., in our Tempe facility. We design, we engineer, we manufacture, we refurb there. We take great pride in what we do.

We have unmatched accuracy on our machines. We cut keys to plus or minus 2 thou. We have excellent uptime, very high reliability and very low customer return rates.

Helping us drive that is our technology behind the scenes. We do advanced remote management, predictive maintenance and a lot of data analytics.

We designed our systems around one principle. And that's we like to think of kiosks like Mars Rovers. We build these things, you send them into space and you can never touch them again. So we do everything we can remotely. We even design them to be self-healing. So if they lose power, they lose cell connectivity, they can heal themselves. They can continue to talk to the mother ship, serve our customer. That's what's helped us, along with our 250 people out in the field, to maintain 99% uptime.

Today we troubleshoot over 90% of our problems without a customer or a store even knowing. We track every single touch of every single screen, on every single machine 24/7. We generate 4.5 million events per day, and we use that data to improve our customer experience and to improve our reliability.

So let's talk about the newest version of our Mars Rover. This one is opening up 4 new growth opportunities for us. The first is auto keys, not only the traditional keys, but also transponders and smartphones. We have over 1,200 auto keys in our catalog today, and we're constantly growing our coverage on a monthly basis. We also are offering a DIY dongle for our customers to do the programming themselves if they wish. It's about the size of this clicker here. You can use this thing paired with a smartphone, program it to your car. Exciting option for DIY.

Next is endless aisle. This has really been fantastic for us. This gives our customer access to our entire catalog of keys regardless of where they are. So for example, if we don't have a key at the kiosk available to them, we can scan, we can cut and ship it to them directly from Tempe within 24 hours. So if you happen to be a Cincinnati Bingles fan or Ohio State fan living elsewhere in the U.S., we can get you that key sent to you in 24 hours. And although we still have 1,000 of these things to put out, we're already doing 18,000 orders per month of endless aisle. it's a big success for the old home and office key.

RFID is our #3 capability here. We've got 90% coverage of this market. It's a pretty cool piece of engineering. You simply scan your RFID, [ file back ] the machine. We dispense it fully programmed and packaged. You'll get an opportunity to see it firsthand over here at lunchtime when we do a demo.

Last but not least, our content management system, we can deploy ads to the kiosks, not only for our own services, but for others, for paid advertising.

Now comes the exciting part. We talked about the auto keys. This new platform we get to leverage into this new TAM for us. It's a $250 million market, which we have less than 10% today. We are confident we can take to 30%. And let me tell you why.

First, we've been in the auto business for a long time. We have a retail program with one of our largest partners, and we've been doing it for over 10 years. The catalyst here is we get to take that knowledge and experience of a retail program and combine it with the convenience of our kiosk in 5,000 new locations to drive this business.

The second reason we're confident is this market is terribly underserved and we know there's a huge need. Think about locksmiths, think about dealerships. Right? These are painful experiences and very expensive.

I have my own personal experience from several years ago. My daughter turned 16. I gave her my used SUV. Unfortunately, I only have one key for it. Well, come Saturday morning, about 3 minutes later, she's panicking, she's late for a soccer game and she can't find a key. She blocked me in to the garage, so mom gets to take her to the game. Dad has to stay behind and look for a key.

Long story short, I looked all weekend for this thing along with the family, and we never found it. Come Monday morning, I have to go to work. We had to tow that thing to the dealership. I contact the dealership, they say, "Oh, it's going to be probably Thursday before we can get it to you. We've got to order -- special order this thing. We got to look up the din. We got to program it, cut it," et cetera. They were right. Thursday, I go pick it up. Guess what the bill was? Over $1,100. Guys, the blue book on this car was $2,400, right? Tell me I was a happy customer.

Bottom line, there is a huge need for this. And we have an excellent solution. You can do a car key at our kiosk in less than 5 minutes. Up to 60% dealership savings and over 91% of our customers have said they would use us again or refer us to others.

So let's talk about how we see the financials moving forward. We have spent the last 3 years investing significant capital, as many of you know, in this platform. We are now shifting our focus to driving excellent returns and free cash flow. Our goal is to generate steady, predictable revenue growth with a gross margin and EBITDA margin that you see here on this page.

We're going to continue to leverage our [ 3-5 ] technology for the home and office market with these newer offerings. But where we're going is auto. And we're going to do for auto keys what we've done for home office keys. And I'm confident we can do that because we've done it with home office keys in the same way, right? Quality product, convenience, great pricing and 100% money back guarantee.

With that, thank you again. We'll hand it over to Bob Davis.

Good morning. First, let me thank all of you for joining us today and learning more about Hillman and our global supply chain. I'm Bob Davis. I'm the Executive Vice President of Global Supply Chain. Some of you may know me as your Uber driver from last night. I appreciate the 5 stars that you guys gave me for getting back to the hotel safe.

And just a little bit about me, I'm a veteran of the U.S. Navy. I spent 12 years at Target Corporation, 16 years at Home Depot, all in supply chain. And I'm on my fifth year here at Hillman and loving it here.

So I know Jon Michael spoke a little bit about our margin expansion today. Those margin gains are directly tied to our structural supply chain actions here at Hillman. And we built these over the years rather than just temporary market forces.

Hillman owns this core. We're going to spend some time talking about that this morning. We've constructed a structural moat here at Hillman that is a direct driver of the bottom line. The moat really begins with our integrated supply chain. So let's jump into it.

Basically what this tells you is we own it from end to end. We own it from the sourcing piece of it that we work directly with the factories all across the globe. We own it from planning and procurement, the ocean transit, customs clearance, dray to our DCs and the final mile delivery from our distribution centers to our customers. We own the whole process from end to end.

You're going to see down at the bottom, it talks a little bit about dual faucet, I'm going to get into that a little bit more on the next slide, and really enjoy talking about that because that's really where we win out there.

The end-to-end logistics, when we look at this, we own this through our in-house team when I say that we own it. So we contract directly with our ocean carriers. We don't use a brokerage service for that. We contract directly with our dray agents. We contract directly with our LTL and our small package providers. We have an entire logistics team that does that for us.

We also have our own booking team that handles our bookings across the globe located in Vietnam. Then on the customs and trade side, we've got 2 licensed custom brokers on staff. And we needed them this year, that's for sure. When you look at that, they keep us compliant, within the current volatile changes in customs that we've seen over the past 12 months.

Finally, looking at our optimized distribution network, what that really means is having the DCs in the right location. We don't do this by accident. It's about keeping our DCs close to our customers so that we can take advantage of that final-mile delivery. As everyone knows in distribution, freight is the most expensive piece of it. So any way that we can reduce that, that gives us an advantage over the competition.

So let's talk a little bit about dual faucet. What this really means to us is, years ago in sourcing, all the focus was on FOB costing. How much does it actually cost to buy the product at [indiscernible]? Today that's not what's important. Today what's important is what is the landed cost of the product with tariffs, with duties, with freight costs. All these things are important to us. So we look at it in its entirety. And that's how we solve for it.

So when you look at the dual faucet, basically it's pretty simple. I've got a faucet on over here in one country of origin with a particular vendor or I may have multi-sources within that country that I've got to faucet on. Over here in another country, I've got that faucet as a trickle. In other words, I've already qualified the supplier there. If something happens that impacts capacity, it could be a geopolitical event, it could be a tariff, it could be some other cause, I can simply change the plumbing. I can turn the faucet on here and I can dial down the faucet over here.

To give you a real-world example of that, that occurred this past year with everything going on with tariffs, we are a pretty large seller of umbrellas. If you've ever been out in one of our major retailers and a thunderstorm broke loose, you're going to find a box of our umbrellas right there by the front door, because it's very convenient to pick that up and be able to make it out to your car.

Well, we produced all of our umbrellas out of China. When Liberation Day occurred, tariffs came in, and within about 4 days, they shot up to about 100% in China. Well, that impacted our cost on umbrellas. We were easily able to shut down that tap, open up a tap in India where there's a major manufacturer there, and be able to take advantage of that reduced landed cost and be able to do that quickly.

What happened next? Tariffs went up in India, tariffs came down in China. We were able to shift again right back to China just by changing where we were cutting the POs to, again, to take advantage of that landed cost. Then tariffs came back down in India. And due to their FOB cost, we were able to shift back again. That gives us a unique advantage of having what we call our dual faucet strategy. And we've worked very hard on that. So we've done that all over Southeast Asia with our partners there.

And one of the things that you can see when you look at the graphs up here from 2018 to 2025, and this is really talking more about the dependency that maybe exists from a China perspective, we went from 49% of our products sourced out of China to 32% of our products sourced out of China.

What's even more important is if you look over to year ending this year, our capabilities, and I'm going to reiterate this, but our capabilities is we could reduce our sourcing impact coming out of China down to 10%. What I want to stress though is that is a capability. It's not a mandate. We're not going to box ourselves into a corner, right? Wherever we can provide a quality product at the most competitive price, to give Hillman and our customers a competitive advantage, that's where we're going to source from. So again, not a mandate. We have that capability, but I can easily move that volume across.

All that's really coming through the partnerships that we've developed over the years with our suppliers. Jon Michael mentioned earlier in his presentation about the long-term partnerships we have with suppliers. Some of our suppliers we've been doing business with for over 60 years. That's very important to us because when we went down this road and said this is going to be very important to us to be able to have this dual faucet strategy, it's very difficult to bring new suppliers on board. You got to teach them about your product, you got to qualify them as a supplier. Several audits that these suppliers have to go through to meet the requirements of our customers.

Then it's about the product. The product has to be qualified. Does it meet our specifications consistently from a quality perspective? Can they meet our packaging requirements? Can they ship on time?

So in doing that, the easiest way to do that is you take partners that you got long relationships with. You work with them to open factories in other countries. Over the past 1.5 years, we've been successful in working with long-term suppliers and opened factory -- over 45 factories in other Southeast Asian countries. It gives us that quick ability to ship.

What that means for us is they already know our product. They already know our business. They already know our packaging. We already know them as far as being able to qualify them. We can bring them up quickly. We'll be opening another 8 factories this year in those partnerships with those suppliers.

When you have to go out and do that with a brand-new supplier, what happens to you is you have to go through that long, lengthy process of getting them on board. And more importantly, what happens to you is your first PO that you cut with a brand-new supplier, your lead time from PO to ship date is going to be roughly 150 days. That's what the average is.

Our partners that we work with day-to-day, they can, from a PO to ship date, 45 days. So you think of that gap, that's a lot of inventory that I have to carry, which is not good for our cash flow, right? So by keeping these suppliers close to us, working with them, we improve our lead time, which means I have to hold less inventory, which that's a benefit to our cash flow.

Okay. Let's talk a little bit about our network design. We have 24 distribution centers across North America. In those 24 distribution centers, 97% of our customers, we can reach in 2 days. 85%, we can reach in 1 day. Again, this isn't by accident. We can turn an order in 24 hours from the time we get the order to the time we ship the order, we can turn that order for them in 24 hours. And we do that at a 98% fill rate.

I know Brett earlier mentioned stickiness. That gives you stickiness with the customer, where a competitor may come in and offer them something else, it's hard to give up a 98% fill rate and that consistency of receiving their orders to keep the product on their shelf.

We're constantly optimizing our network. If you take a recent expansion that we just did in Bakersfield, we added 100,000 square feet to it. The reason we did that wasn't really due to capacity in Bakersfield. If we had opportunity for product that we had located in Dallas, that we could move that product closer to our customer by put it in Bakersfield. That's significant savings to us from a freight cost perspective. Again, freight cost is that #1 priority that we look at when we're looking at our distribution network. So that enabled to reduce our cost again by doing that and improved our service levels for that customer.

We've done these same things in other DCs as far as expansions. We've applied the same logic in Kansas City, recent optimization that we did in Jacksonville. Again, I'm just going to remind you, nothing is more expensive in distribution than freight. So we keep a very close eye on that. And by doing that, that makes us the most efficient supplier in the aisle for our customers.

So let's talk a little bit about building a smarter and faster supply chain. I know it was dark this morning when you came in. And I was hoping it would be a little bit lighter, because you would have noticed off to the right of the interstate, there's a large construction site going on over there. That was a former, and we say this with a lot of love, but a former Zombie Mall that we had here in Cincinnati that's been vacant, really an eyesore for the community.

We work close with the local community and a national builder. They acquired that site. And what you're going to see going up there is a 715,000 square foot distribution site. We call it our DC of the Future. And so that's going up now. The construction is in process and we'll see that building up early next year.

Now that will be a consolidation opportunity for us for multiple facilities that we have in the marketplace. This facility will be fully automated and it will be a multipurpose facility. When you think of this, it's going to be our flagship. Basically we'll be deploying state-of-the-art systems there. It will include goods to person. It will include auto-pallet retrieval and storage, autonomous vehicles, top-tier transportation management system. While all that will live here physically, it will benefit the entire network. We invest in our DCs based on what the needs of our customers are.

So the investment in automation and robotics in the facility is a very attractive upgrade for us. That automation will drive efficiencies for the business. That's how they pay for themselves. And you'll have the opportunity today to actually walk one of our facilities, which is the Carillon, for those of you that are joining the tours.

And my hats off to the Hillman family, because 25 years ago, they built a facility that was state-of-the-art at that time and that launched their business forward, which is why we're doing the same thing today. The only problem is it's 25 years old. The automation is antiquated. You can't keep up with it anymore. And it's time to evolve and move into the future. But I think you'll be quite impressed with the facility when you have a chance to walk it today.

The biggest win is we get to consolidate multiple aging facilities into this one. It's going to be a modern hub, to be located right here in Cincinnati, which is where the majority of our volume ships out of to a lot of our current customers. And Cincinnati has been our home for over 60 years. It gives us an advantage as well since we're consolidating multiple facilities into this that I don't have to go out and rehire employees. We're only 2 miles down the road from where we'll be moving them from. So all of that expense goes away. We get to gain the experience that's valuable to us here. So that's a big win for us.

This facility will be a true omnichannel facility. We can service the Pro out of it. We can service retail out of it. We can service e-commerce out of it. We can do it all out of this facility. So we're very excited about this facility coming online.

Okay. That's where we're going to bring it all together. So everything I've talked about today, the integrated operations, the dual faucet sourcing, the automation at Cincinnati, it all culminates in Hillman being ready to take care of our customers. The smarter, faster supply chain, the DC of the Future is going to give us skill our scale and more efficiency.

And the result of that, you can see right here. If you look at 2025, 49% gross margin, that's up 600 basis points. And 100% free cash flow conversion, that's our average from '22 to '25. These results speak to the power of our integrated approach.

At Hillman, our global supply chain operation gives us a structural advantage over our competition. We don't just hope for stability. We engineered it. Our supply chain is a profit engine and it is the reason we're set to continue to outperform in the market.

I'm going to turn it over to our next presenter now, Aaron Parker. So thank you very much, and I'll be around for Q&A later.

Thanks, Bob. Good morning. I'm Aaron Parker, and I serve as the Chief People Officer. Now don't worry, this isn't a training session. No icebreakers or personality assessments today. I'm here to talk about our talent and culture that gives us a competitive advantage.

Prior to Hillman, I held HR leadership roles in the banking and retail industries. I'm entering my sixth year at Hillman. And from my experience, what sets Hillman apart is that we recognize our greatest impact starts with the people in the field who directly serve our customers.

So far today, you have heard about our strategic blueprint to own the core and expand categories. Delivering on this strategy starts with a strong foundation, one rooted in service. And as we have shifted and became a public company in 2021, we've also streamlined our organization and improved SG&A discipline.

Recently, we refreshed our vision, mission and values to reflect who we are, where we're going and what we expect of our employees. JMA mentioned earlier how we are a resilient company. In fact, one of our core values is resilience. It's truly a part of our DNA. Whether navigating the pandemic and, most recently, tariffs in 2025, we have shown time after time our business is ready for whatever comes our way. As we focus on strategic growth and building for the future, we have intentionally invested in bringing in talent into our field sales, business development and Pro leadership teams with a focus on growing now and into the future.

Now the power of our company starts with our people. Brett shared earlier the ways we win. It starts with our 1,200 field sales and service team members. Our focus on safety and retention continues to outperform industry benchmarks with lower incident rates and higher average tenure, which all helps to fuel our strong EBITDA margin performance. We truly believe our people make the difference in giving us the ability to successfully execute our blueprint strategy.

Now as we enter year 5 of being publicly traded, we are excited to share we are being recognized as a USA Today top workplace. Only 100 organizations with 2,500-plus employees will be recognized with this award. Last year, 83% of our employees chose to share their experience at Hillman through our survey, which I see as a strong indicator of the engagement and commitment across our workforce. This recognition strengthens our employer brand and helps us further attract and retain high-quality talent. Ultimately, this recognition validates that our culture is a competitive advantage.

Next, I will turn it over to JMA and Michael Koehler for Q&A.

Thanks, Aaron. We'll open it up for Q&A for about 15 minutes or so. Just some housekeeping. Andrew, I see you've already got your hand up. So please raise your hand. I'll bring you the microphone. And we ask that you limit your question to one question and a follow-up. And let's keep our questions on topic with the speakers we've got up here.

Andrew Carter, Stifel. Curious on the RDS. I really appreciate the presentation and the granularity there. But in terms of, number one, you said kind of steady growth from here. That was kind of something that I believe used to be a double-digit grower. I want to confirm what you're thinking about that business. And obviously, it's a great business, the placement you have, the technology. As far as keeping it within Hillman, do you think that you have the necessary resources for R&D to keep up from tech, also potential for capital, whatever to really get everything you need out of this business to really fully realize its potential?

Thanks, Andrew. Thank you for that question. I think the first part was where do you see it going in terms of growth? Yes, I think that's going to be in line, obviously, with what you're going to see here for the overall business. We're going to be in step with that. I don't want to give exact numbers. But I'm going to be happy with it, let's put it that way.

Second of all, in terms of being under Hillman and having access to all the resources, certainly. We are -- we have already made, as I suggested, a significant investment in this platform. We're where we need to be to leverage it. And I think we have a bright future in terms of everything R&D, everything Tempe, everything we need to do. So I'm super excited about where we're going.

Scott, good answer to the question, Andrew. I appreciate the interest there. I mean one of the things I'll turn to is Scott talked a lot about 3.5. We're really excited about the technology. I think you know how my approach is. We're going to tell you about it as it continues to exceed expectations. We're pleased with how we performed in 2025. We're excited because we're going to improve on that even in 2026.

I'll say firsthand, Brett and I were just actually out in the field with our 3.5, I'll call it, team with -- where our West Coast Blitz is, just a few weeks ago. And to see the action and the power of the Hillman, I'll say, what machine, what we can do, that's bringing all of our people in the field together with our product teams and seeing the action out there and getting excitement, it just gives you an example of where and how that fits with the portfolio and how we're going to be able to build on it.

So Andrew, I think there's some really good opportunities. A lot of that was driven around automotive. And we're going to continue to lean into it. So we think we got some exciting days ahead. We really believe in the technology and the path forward.

Brett, I was wondering if you could talk about the similarities or differences between you guys getting into different categories 15 years ago within the hardware aisle and expanding into the Pro channel. Is this something that's going to be more driven by organic like you did in, say, builders hardware or more of a broken chain situation where you've got to buy more access to that customer base?

I'll start and I'll let Brett add on to it. So it is a mix of the 2, Reuben. And you're going to hear a lot more about Pro here in the next section where we're going to go pretty deep on how we break it down.

On retail, I mean, Brett's team has done a great job. I'll let him expand on it. But for us, we really believe that this is one where we've got the products. And a matter of fact, I'll start out my presentation talking a little bit about what we have in the core, the moat we have today and how we're going to expand that and take care of the Pro. So be patient on that part of the answer. But Brett, anything you want to add a little bit...

I would agree. I would say it depends on the category. It depends on whether it's retail or whether it's Pro. I think the larger the category, the more likely we'll have to buy our way into that. And there's going to be some, call it, bolt-on categories that we'll build, different than maybe what it was 15 years ago when we got in the builders hardware. But the good news is our customers are encouraging us to explore those opportunities.

Okay. I'm going to change my follow-up then since I think I got ahead of myself. So Bob, I was going to be disappointed if you didn't say dual faucet today. Can you walk through I guess, how that's -- how the competition has reacted, if you have insight, meaning are the others also pivoting like you are? Or how big of a differentiator is it for you that you're able to kind of move with your suppliers to other countries?

Well, I would assume the competition is doing similar things. It's hard for me to know that because, unfortunately, they don't share a lot of that information with us. I do feel comfortable that we've been out in front and leading in this area. And the reason that I can say that is because as we're on boots on the ground, I'll be leaving again for Asia at the end of this month, that's what we're hearing from the factories there. So I do feel like that we got to jump on this to be able to get out in front of it.

And this wasn't something that we took on immediately when tariffs were announced. We started this road 2 years ago. I've always been a firm believer that you have to be multi-sourced because you just never know what's going to happen in the marketplace. The expansion and pushing that across to other countries of origin have been a benefit for our suppliers as well as because it gives them the opportunity to grow as well. So they've been very anxious to meet us there because you got to think about it, the alternative to that is when somebody imposes 150% tariff on you, you're out of business. So it's been very good for us.

Lee Jagoda, CJS. I guess one for Scott, one for Bob. For Scott, just on the 3.5 rollout, in particular with the auto key FOBs, can you give us some real-world examples on how you plan to market it to the consumer to drive adoption other than just having the picture on the side of the machine?

Sure. Great question. So we've been doing market blitzes to raise awareness. Because for years, we did not offer auto keys on the machine, right? So we have been attacking this by market as we get density of our machine conversions. And that's one of the things that JMA alluded to. It's been going extremely well.

We've done Dallas. We've done L.A. We've done in Florida. We're now moving to North Carolina and others. So we're taking it market by market, but we also have a large digital campaign as well: e-mail marketing, influencers, the whole nine, that are driving awareness in the market, and we're seeing results.

And then for Bob, obviously, the DC of the Future is pretty exciting with all the automation and robotics. What kind of opportunity is there in those areas with your legacy DCs? Or is it just a build strategy and then consolidate from there?

Actually, we do look at all of our DCs as far as what opportunity we can bring to improve our efficiency. So we talk about the DC of the Future, but Jacksonville as an example, we use robotics in our Jacksonville DC. We have more automation there.

So we are automating in other facilities based on the need to serve the customer. So it's not just a one big bang. The big bang is just because of the sheer volume that we do out of this marketplace. But we look at all of our DCs for opportunities to improve our efficiency.

Sam Darkatsh, Raymond James. By the way, thank you for all this. I know it's a lot of work that goes on behind the scenes. This is terrific.

I think this question is for Brett. So you mentioned some of the categories that you're not in yet at retail: electrical, plumbing, sealants, adhesives, there may have been a couple of others. It's exciting. First off, what's the TAM of those? Are they included within the $6.5 billion or are they incremental to that?

Second part of that would be, we've heard about some of these categories for a while being opportunities. Does this imply that the ability to get into them organically is challenged? Or which of them maybe in particular might make sense to go organically?

I'll start, Sam, and then I'll let Brett add on to it. So the electrical and plumbing, as you see it there, those are not included in the TAM that we have. So Sam, those are ones that we think are still attractive categories for us. We've been talking about that since we went public. We believe that those are -- those would be acquisition opportunities. So those would be ones where, as Brett talked about on that page, he framed up that some of this is category expansion organically, some of it could be inorganic, those would be inorganic opportunities for us.

So to your point, that is consistent with our thesis. We've not changed our positioning there. And we'll look for opportunities when they arise. We look at deals. Candidly, we looked at one not that long ago that could have gotten us into the plumbing side. It wasn't the right fit for us. So we still maintain that discipline, looking through ROIC lens and making sure that we're doing deals that are right for Hillman.

Sometimes the best deals are the ones you don't do. We've looked at several of those in the last couple of years, and we feel like when the right deal comes up, we'll go for it. So I think that's really how you want to think about those areas.

We like -- when we did our market study, and we spent quite a bit of time and effort on really identifying what makes sense for Hillman. Adhesives is something that came up higher on the radar. We think that as you think about everything fastening, we're very proud of our DNA in fastening and what we do, it is at the core, and it's something that really connects the entire business, no pun intended.

We think the fastening, as the evolution of fasteners and building materials go, we are looking at opportunities in the adhesive area. That's something that we think is very interesting to us. Especially as the advancements in construction and those materials move forward, we think we have to be looking at them. So that would be, again, acquisition oriented. We're not going to go -- we have looked at some opportunities, and Chris and his team have explored some opportunities for us to do maybe some partnerships. But I think that would be acquisition, joint venture if we went down that road.

I mean they're sizable. So as you know, some of the big players in the space, we think there's an opportunity, especially in the Pro side of our business where we can expand it, especially with the brand Power Pro because as you'll hear me talk a little bit later about it, Power Pro is a brand that started with fastening. We think it can extend beyond that. That would be an what we can do there. So more to come on what that would look like in the future.

I mean not much to add. I mean categories like plumbing and electrical, high SKU count, low line value, complex, difficult to manage. That's why it's attractive. But we're going to enter in the categories that we can be #1, and that one is most likely going to be a build.

Yes, Brian McNamara, Canaccord here. I want to -- I guess, can you expound upon doubling your kind of contribution of new business wins from 2% to 4%? What gives you confidence in that? And I love the fact that there's not one housing-related slide in your deck today because it's something easy to kind of blame. So it's great to see that. But what gives you confidence on that? Maybe Brett can kind of speak on like some of the sales cycles of some of these new business wins that you expect.

I'll start [indiscernible] because that's one where, Brian, to that point, it's an excellent question, and you're welcome for not putting the housing slides in there. I mean we really feel about the resilience of this business, we use it sometimes as through bad times. We think our resilience in the positive areas. I mean Brett's team is doing a great job of going out there winning new business, taking care of our customers. That's why we have confidence of moving that 2% to 4%.

A lot of that growth will be on the Pro side, and we'll talk about that in more detail shortly. But Brett, why don't you give us some examples of some of the things you guys are doing on winning new business, even some of the BD things.

Yes. I mean we recently launched a business development team, folks that are completely focused, dedicated on going out and driving our top initiatives and selling the most important things, working with our sales teams, our customers. And we need that 2% to obviously get to 4%. A lot of it is going to be the Pro.

But we do believe that we have opportunities to lean into even bigger ways and categories with our customers that are out there. And this business development team, we have focused -- folks that are focused on new channels, getting into things like convenience and grocery and areas that we're just not in today. And then obviously, partnering with our existing channel customers and looking at those category opportunities. Or when we launch new products and we displace a competitor, having that business development team has been a great asset.

Add about -- even give a little feel for national sales meeting and what you guys kind of gotten revved up on.

Yes. So we had our traditional hardware national sales meeting in Denver, Colorado a few weeks ago, and this is when we had all 275 people that call in the hardware store channel, in one room. And we were able to not only share where we want to go with the business, but also what our plans are for '26, what are those new products, what are the areas that we really want them to focus on and sell into the hardware store channel.

And we spent 2 days. We trained on them. We had business development there to help train them, things like Power Pro and how we really want to go after the LBM yards that we've been calling on for 40 years and really expanding our moat in some of these other areas. And it was a great 2 days. I think, JMA, you would agree with that. The team was really fired up. And they look at this business development team as now a new resource that they have to break down walls, whether it be internally, candidly, or externally, so that they can go out there and do what they do best, which is sell.

It was so powerful. I mean Brett's being modest. I mean that's what gives me confidence, is see that team revved up and fired up, starting on Friday, going Friday, Saturday, Sunday and talking about all the great stuff we're doing. I mean it was really, really amazing. So Brett and team did a great job. That's an example of what gives us confidence we're going to go out there and crush it in '26 and beyond.

If I squeeze a quick one in for Scott on RDS. I know you guys have had your techs in the stores servicing other kiosks. I'm just curious what learnings you've gotten there. And anything to make of that, any opportunities there, good or bad?

Yes. That's a great question. What we have learned is basically how good we are. I mean I hate to be that, but it's true. We have learned, as I had mentioned, our exceptional uptime, our engineering, all the things that have gone on behind the scenes to make our fleet as reliable and as efficient as we can, we now have opportunities in front of us because of our excellent servicing and what they've seen with our fleet, there's opportunities there for us to do more of that business.

They're asking us, and I've quite frankly said, when we're ready, because we don't want to overdo it in that area. Our uptime is what matters. And to the extent that we can service others, great, but only when it makes most sense for us. But we've learned a lot. We really have.

It's Jamie Simonson from Jefferies. I guess my first question is probably for Bob, on the dual faucet side of things. How quickly are you able to sort of shift the supply chain from one country to another? And then on sort of looking at that decision, is it really just pure looking at the total landed cost and going with the cheaper one? Or is there any other factors that would go into that decision?

Well, definitely the -- good question. But definitely the landed cost is where our focus is because that's how we provide a competitive advantage for the business. As far as how quickly we can shift, it's a matter of we make that change and the next PO can go to the next vendor.

And when you look at the scope of what we have set up in that, and I'll just give you an example. Last October, we had our vendor conference in Ho Chi Minh City in Vietnam. We had over 200 suppliers in attendance at that conference from 11 different countries. Those are all suppliers that we do business with and have the ability to move spend back and forth with.

So it's very fast for us. It's simply a matter of we put it into our table and the next PO that goes out goes to the vendor with the most competitive cost.

Perfect. And then maybe just switching gears slightly to the RDS side. I'm curious, obviously, the automotive example that you gave is pretty clear in terms of the high cost of going with the dealership. I guess, over time, as you guys grow penetration on that business, is there any risk that the dealerships might come down in price? Or are you not really worried about that?

I personally don't worry about that. I think that's not a big piece of their business. And I think they take advantage of the consumer because of it, but that's my opinion.

Yes, I think we're where we need to be there, and I'm not worried at all about that. There's a big market for us to address, and we're going after it.

You have Elizabeth Langan from Barclays. I had a question for Bob. So specifically, you touched on your ability to kind of move suppliers very quickly. Just in light of recent events, could you talk a little bit about where your rest of world exposure is just generally outside of China?

Exposure, that's a tough question. I didn't bring my crystal ball with me again today, so I don't know what's coming tomorrow.

We are constantly monitoring what's going on with tariffs. We all know what the Supreme Court decision was. That's still unsettled as far as how that's going to work. We know that immediately 122s were imposed, which could go up another 5%. But so far, that's been globally so it hadn't individually picked out any particular country.

I think the thing that we'll be focused on most looking into the future is where the new 301 tariffs focus at. That's where they'll be able to pinpoint tariffs on any particular country, on any particular product. And that will lead us to shift based on where that guides us to.

Let's have one more question, and then we'll go to break.

All right. We'll wrap it up. We'll have about a 15-minute break. So it's about 9:40 right now. So we'll be back here at 5 to the hour. Thanks.

[Break]

All right. Thank you, everyone. We're going to get started with the next section. Everybody ready? I know I do.

All right. We're going to get started with Win the Pro. So thank you, everybody, for rejoining the presentation here today. We're excited to walk you through this section and really unpack what winning the Pro means.

Hopefully, out of the last section, you understood a bit more about owning the core, and you heard from Brett about how we're going to continue to expand our business through category expansions. You heard from Bob, and talked about operations. You heard from Scott, talked about our RDS business. And Aaron wrapped up the people portion, which is very important for us. It's one of our core values, our people first.

And I think when you bring all that together, the idea that you want to take away from there is we have a solid core business, and we're ready to grow. And that's how I want to really start off where we are today. We've built this $1.6 billion company by taking care of our customers. You heard me say that, you're going to hear me continue to say. It's that important for us to make sure that, that's the foundation.

And as we move into the Pro markets, it's really important for us to understand a few things. Because when I talk about the Pro internally, we get our teams excited. Brett shared about the national sales meeting where we talked about Power Pro for hours with our teams, and they rotated through. And when you show them the power of the product, and no pun intended there, it's really important that they understand that they have that Pro product that they can build off of.

We focused our Pro businesses on Pro products, but we've really done it from a retail lens in most cases. And what you're going to see, and for those who are in person, you got these Power Pro screws and fasteners and a sample in your package, it's really important because what you're going to hear us talk about is the planned and the unplanned purchase.

So you think about the unplanned purchase, that is when somebody comes into a location, could be a retailer, could be an LBM yard and they pick up something because they got to finish up a job or a product. They're buying a -- it's a Pro product, that's this Power Pro screw that you all here in person see, but it's merchandise for a retail application. It's not for [indiscernible] hear us talk about different terms, but that is important for us when you [ think about ] the Pro and the opportunity, it's about having the right products and the infrastructure to deliver to them. And I want you to start with that foundation. I hope you felt that and saw that from our original presentation.

So as we move into it here, unlocking that Pro and really building off of that foundation is very important. So with our core secure, that's why we believe Hillman is ready to capitalize on this opportunity. What you're going to hear over this section is from the leaders of the business about how we're going to grow the Pro opportunity.

So as we expand, let's start with where we play and where we'll grow. I already framed up the fact that we have a large, strong, solid retail business.

We're not going to waver there. We're going to continue to build on that solid foundation. Part of that retail business is serving the Pro. That is very important for us to understand. So we're already in that market today, again, with the retail packages, the fasteners I just explained and shared with you is how we get there. But as we move forward, it's really about the untapped opportunity that we're exploring and we'll exploit in the Pro distribution side. And that's where we'll start to give you some insight as to how we're breaking down the market in the business.

And to this section, we'll really focus in on that retail Pro, Pro distribution and then industrial MRO about how we're going to continue to take share. So we have the products today. We have the infrastructure and the team to go drive it. Now it's about powering those resources and going after that growth. So enlarging our core markets is about how we actually take that center of the core, the $6.5 billion market that I shared earlier, and we expand it by looking at the categories where we can expand and grow outside into the Pro.

You take builders' hardware, it's an example that Brett shared earlier. Pros are buying builder hardware product today. They're not buying them from us because we focus on retail packaging. That's an opportunity for us to explore and give that Pro the product they need in the future. Pro distribution is -- you're going to hear us talk a little bit more about how going through Pro distribution going purely to Pros the way they want to be served is important and different. And we'll unpack and share with you exactly how we're going to go after and do that. But that $9.5 billion market as you expand away from the center is not a different market that we're not in today.

We're already serving that Pro. We're going to do it in a more meaningful way, and we'll explain to you how we're going to do it -- and then industrial MRO. And while it's a smaller market share opportunity, it is a big piece of our business and an area where we believe the focus on fastening and as I shared in the Q&A, adhesives in some of those different areas, that's where we can actually bring all these pieces together and give our end users what they need through our partners, whether it's in retail, pro distribution or industrial MRO.

So with that, I'll move over to market framing. So this is where I'll go a little bit deeper. There's a lot on this slide. I understand. But the big takeaway here is you understand that there's the markets that we serve, retail, pro distribution, industrial MRO. It's the customers we're going to support in those areas, they are going to continue to service the end users. This is not about a new strategy of us going direct to customer. We are going to continue to focus on the concept of a master distributor, which we already have that model in our industrial MRO, but that's really how we operate in our retail business as well. We want to bring our customers all the products they need to serve their end users.

And that's where I turned to the end users. So you think about retail, we've got DIY customers. You know that. You understand that today. Many of us in this room are DIY customers of those channels buying our products. But we also have the small, medium remodelers, the homebuilders that are on the small side, they are buying from Pro, Pro-oriented products in retail today.

Some -- many of those Pros are also buying through Pro distribution, but we're not getting them the products they need because we've not focused on those -- and we're going to explain to you how we're going to do that. So this is a shift in focus from a Pro product perspective, but it's not a shift in focus on taking care of our customers and ultimately the end users that they serve. So as we really break this down, you're going to see some of the retail partners that we serve there today, how they're going after the Pro.

You can see examples of Pro distribution partners that some that we do business with today and some that we will do business with in the future. And that's really what we want to understand here today is that we are going to continue to take the products we have today and sell them more of those products to the customers that we're already serving. Now back to the overall market share. So as we connect these 2 pieces, so we have the markets that we frame the 3 that we have, retail, Pro distribution, industrial MRO.

And then we have the share in each of those areas. The 20% share that we have in the core, again, Pro products will help us continue to expand and grow there. Brett gave you numerous examples of how we're going to grow. We got to support the DIY and the Pro because retail will continue to expand in those areas, and we believe we have a right to continue to grow there. The real exciting opportunity that we're going to focus on in this section is going to be Pro distribution. We have a relatively small piece of the portfolio, and that's where we're going to show you how we're going to unpack that and break it down into the different pieces. And that to me is what's most exciting about the opportunity that's in front of us.

So I'll turn here to what you're probably all asking is, okay, what does this business really look like that you say you're serving the Pro? So you know we're a $1.6 billion company, about $1.1 billion is our DIY business and over $400 million of it is in Pro today. And that's made up of the 3 buckets. So our retail Pro is over $215 million. We have our Pro distribution piece over $200 million that we have there and then another $35 million industrial MRO.

So we're already servicing those customers today and ultimately, those end users through that channel. So what you should be excited about is this is not where Hillman is going to uncharted territories. We're there today. We have -- and that's really what you're going to hear us is we've been putting investments in, in '25 into '26 to be able to go after these opportunities. You saw the team.

I know I flashed it very quickly earlier in the presentation. Shortly, you're going to hear from James Daley and Chris Martin. Both are now have Pro responsibilities on our leadership team. Those roles did not exist a year ago. That is our commitment. So it's not just those 2 individuals, the teams that they have that they're focused on and taking care of the Pro. And that's why we know we're going to be -- we're confident, and that's why we know we're going to be successful in these areas because we're already starting to see the flywheel turn.

So we're already servicing these markets today. This is about us building on it. We're going to go into greater detail about those pieces of how we actually do that in the splits in a moment. But it's really about you take away from this page is we are making and creating the products necessary to serve these channels. I'm really excited about what Chris and Tim and some of our product teams are going to share with you and some of you on the demo, taking the example, the Power Pro product that we have today.

We're designing and engineering those products in our facilities. We have great engineers up in Canada and in the U.S. here working together to innovate screws and fasteners. So we're not just taking things off the shelf and throw them into this channel. We're driving innovative products that we're selling through our channels today that we're going to sell more of in the future.

So this extension in where we are, I hope you can see not only the confidence, but the passion I have behind this because this is an area that is not being served the way they need to be served today, and I know that the Hillman team can go capitalize on that. So moving forward, we'll turn into what do these buckets really look like. So first, scaling with our retail partners.

We said earlier how our retail partners are continuing to grow in Pro. Many of you cover them and spend time on them today. They are going not only in their core 4 walls of the big retailers there today, they're acquiring businesses in this space. They are asking for true partners to continue to move forward with them. That's what we're doing. So we're supporting them today in their Pro initiatives, and we're going to even support them more greatly in the future. James is going to go really deep on this.

I'll just touch the surface. Then specialty distribution. We don't talk about it publicly in great detail, but we have, for example, our ST fastener business down in Texas, where we design, develop and manufacture innovative hardware products and fasteners for the metal roofing metal siding industry. Chris will go really deep on what it takes to win there. We're already in this space here today with great products, and we lead our categories in that area. and we'll build on it. Then I'll talk to you a little bit about LBM. And this is not us about selling building materials into the LBM channel. This is about selling fasteners and our other hardware products toward the LBM channel.

We already do $100 million of business there today. Our men and women out in the field that we love that go drive our business are out there servicing the showroom. We don't spend the time on the yard and the planned purchase, and that's what's going to change in the future. We're putting resources to go after it. So that gives you a road map of where we're going, and now we'll go into more detail about where we -- how we're going to capitalize on it.

So though you might be asking, okay, you have the competencies to win in retail. Brent did a great job of framing this up earlier. But how does it translate to Pro? We'll break this down in each of the sections. But what's really important here is the foundation we have, as I started out this section and what we've accomplished and what we put in place from our global sourcing and our operations team to our sales team, to our product teams are out there servicing and developing the products and getting to our customers. We're going to build on that. We're going to use those competencies like our product breadth, things like innovation, our ability to category manage and give them the product they need, drive sales, distribution and operations.

But the idea is we're going to cross that over and we're going to actually make it make sense inside of each of the channels because they do operate differently. We're not going to just take a retail playbook and think we're going to go win with the Pro. This is about tailoring the resources and making sure that we capitalize on the capability we have today.

I want to bring up the point here also is that we have businesses that have been serving the Pro for decades. I mentioned Poland up in Canada, over 100 years servicing the Pro. We've been doing the same thing here in the Hillman business for over 60 years. That's where some of our first sales started was in the LBM channels. So this is not us about starting out in an area where we haven't been before. That's why we're excited about it because we gained traction. Our customers in those channels are excited. We want to bring them more products and more services and capability. So as we move into the next chapter here, I wanted to really focus on Power Pro. Really passionate about this brand, and it is a brand that's been built over 20 years.

Our teams have designed and innovative products. You all have samples here, those here in the room of PowerPro fasteners. Their industry's best. You're going to see this in action on the product demo tours. And it's not just one fastener or one idea. Our team has been really leaning into this category and developing innovative products that we can actually bring to the market to be able to give pros and DIYers alike what they need and the great performance. Just last month, we were at IVS, so the International Builder Show, we're proud to show off Power Pro. It's the second time we've ever been there. This is something we leaned into. We got to interact with customers, with end users and different people, show them the comprehensive scale and breadth of that category.

It's not just one set of screws. We've got structural screws. And as you -- if you went through the demo, you can see all the different parts of a structure where our fasteners come into play. And that's what's really exciting about this brand that we've grown from what it started at 0 to $100 million. We've really only leaned into it in the last 3 or 4 years.

And what I'm really excited in the last year, we grew this at 9% because of the product marketing teams really driving this brand. We're going to continue to power it with our focus on the Pro, and we have the positioning to do it. So that's our overview of where we are and how -- hopefully, you can take away from this section how we have the capability, the foundation we're taking care of the customers today and how we're going to translate that and grow with the Pro in different.

So with that, I'd like to welcome up to the stage, James Daly, our SVP of Pro, and he's going to walk you through the residential Pro and how he's going to expand in those areas. Thank you.

Thanks, Jamie. Good afternoon. Let's talk a little Pro, okay? We've been talking about it all day a little bit here and there. We're going to get into some more detail. We're pretty excited about the Pro, as you can hear from John Michael and the team. And then Chris Martin will get up and talk a little bit about specialty, and then we'll do some Q&A.

So we'll start with James Daly, Senior Vice President of Pro. I bring extensive experience in the fastening and hardware industry channels, 7 years with AC Supply, 6 years with Home Depot, a couple of years with Mohawk Industries. I joined Hillman in 2021, best decision ever made. Fantastic. I've been here since 2021. I've managed several areas of the business, business development, sales, product category, all focused on driving sales, expanding margins. But throughout my career, I've had an interest in the Pro, either through the retail channel or through distribution. I've always had to take retail programs and then tailor them to the Pro, so it's a dual sourcing or dual sales channel.

The Pro has been part of what we do since the beginning. And now we're really leaning in. We're going to really focus on that Pro, and I am excited to leverage all of that experience to lead us into the Pro channel. So let's begin. Let's take a look at the Pro landscape with our retail partners. Today, we already do $215 million in Hillman retail Pro revenue, serving Pro customers through our retail partners. We support in-store unplanned Pro purchases through our Pro product assortments on retail shelves, capturing that ever important last mile purchase.

That is an important part for the Pro because they cannot finish the job unless we are there in stock on shelf with the Pro materials they need to finish that job, okay? And this service has made our retail Pro business very strong and very respected. So we own the shelf. We're there to support our Pro partners as they need that last mile run. Now we will take those learnings and those capabilities to start to expand them. The opportunity at retail continues to grow.

Our customers are adding dedicated Pro divisions to better serve medium to large-sized Pros, fulfilling purchases through flatbed and bulk distribution centers. Increasingly, they're also delivering direct to the job site, completing that circle. This creates significant opportunity for Hillman to expand our share of wallet, support our retail partners and grow rapidly into the expanding Pro market. Hillman is a trusted partner to the largest retailers in home improvement with more than 60 years of leadership in fastening and hardware categories. We built this business by supporting retail channel and partnering closely with our customers.

Now we are extending those capabilities into the residential Pro channel, continuing to support our valued partners while unlocking new sales potential for Hillman. To unlock here is what's key, okay? Because we have the last -- now we're unlocking new opportunities and new ways to get at that existing Pro customer. We have won 17 Vendor of the Year awards from our retail partners over the last several years.

Our track record, we aim to continue as we expand into Pro. Our dedicated residential Pro sales team works daily to drive results for Hillman and our customers. With strong positioning across primary categories at key retailers, this extension is a natural evolution for us to continue to grow this company, okay? This is not that different than what we do today. We're just expanding these capabilities, okay? Our retail partners trust Hillman to expand Pro with them because of our product depth, sourcing capabilities, credibility and our service mindset.

We see 4 main advantages that position us to win in the Pro market. First and most importantly, product is always king. You have to have the products. We already have nearly all the products contractors need. Historically, these were packaged for retail shelves, as John Michael mentioned. Now we are reconfiguring pack sizes and piece counts with our engineering and sourcing teams to align with how Pro customers buy at competitive price points.

Second, I'm sorry, we also bring brands. For example, Power Pro has been in the market for over 20 years. Contractors know and trust it. It started in the Pro space, okay? We already have a full line of professional-grade products from trim screws and structural screws in our portfolio for the professional customers. We will continue to expand that product category and that brand.

Second, sourcing. As Bob Davis shared earlier, we bring in thousands of containers annually, moving freight at competitive rates, and negotiating directly with our factories. Our sourcing offices across Southeast Asia, combined with some of the most experienced teams in the industry, provide scale and cost advantages. As John mentioned, he'll be in Asia next month, hand-to-hand combat, making sure we're getting the best prices, the best qualities with some of the best factories that are out there.

Our dual faucet strategy allows us to react quickly to changing market conditions, ensuring product flows through our distribution centers that Pro customers get what they need when they need it. There's no option to not be in stock when a Pro customer needs an item, okay? We are the job completers. We are the hardware department. So we will be there for them.

Once product lands, we move them efficiently through our national network of 24 DCs shipping directly to our customers, flatbed and their bulk DCs, ensuring consistent supply, competitive pricing and job lot quantities that Pros require.

Third, most near and dear to my heart is our sales team. Our sales team for the Pro averages more than 20 years of industry experience, retail Pro, residential Pro construction experience over 20 years and they call directly on Pro merchants and field selling teams in the market teams are selling to the end users. We are supporting the folks that are selling to those end users. Think about everything we're covering here, they have a big basket of stuff that they can do and leverage to go sell to those customers. We are also supported by over 4,000 employees, more than 1,000 service, logistics and operations, ensuring that when a Pro calls and picks up the phone, somebody at Hillman is here to answer the phone.

If they can't get a hold of somebody, they can call me directly. Our Pro sales team adapts quickly to customer needs and resolve issues as they arrive by combining deep product knowledge with a world-class operations model, and they deliver a seamless solution-based approach that supports all of our Pro customers' needs.

Finally, our financial strength. Hillman's strong balance sheet positions us to scale effectively as we grow in the Pro channel, providing the resources to capture opportunities and drive incremental growth. The opportunity here is clear. We have the products, operational infrastructure and the trusted brands that Pros know backed by an experienced sales team, and well positioned -- we are well positioned to capture the market and accelerate our growth in this space.

I will give one example. how this works. One example of how we're entering the Pro market is with a complete bulk product offering. This approach simplifies procurement for Pro distribution and increases fastener attach rate. As a reminder, attach rate is how often a customer buys a secondary item with a primary item, think drywall screws and drywall. It's a very important part of our business. Our bulk products are configured to Pro expectations and volumes, okay, those volumes that support wholesale pricing.

A simple brown box with a practical piece count can drive attach rates upward, driving more revenue and value for us and our customers and our distributors. Currently, the average Pro attach rate is a fraction of what it is in store. By ensuring fasteners become a well-adapted planned purchase, we can grow sales, gain market share from local suppliers and unlock long-term stable growth.

As I conclude my section, several key points stand out to me. First, our large retail customers have already moved and they will continue to move into this Pro space. We are uniquely positioned to support them. Second, we have the products that Pros want, the supply chain to support the business and a dedicated Pro sales team ready to drive incremental sales for both Hillman and our customers. And then third, significant growth opportunities already exist within the channel, such as bulk offering, which can increase attach rates in Pro and Pro distribution. Overall, Hillman is well positioned to capture Pro market share and drive meaningful growth. We are locked in, we are ready to go. Thank you very much for your time today.

I'll hand it over to Chris Martin to talk about specialty Pro distribution.

Thanks, James. I'm Chris Martin. I lead Hillman's Specialty distribution and industrial MRO business. Before I joined Hillman, I spent time at HD Supply, Beacon Roofing Supply, Stanley Black & Decker and Kurd Dr. Pepper. I was primarily focused on supply chain, distribution, acquisition integration and professional contractor markets. Our team at Hillman serves professional contractors, specialty distributors and industrial customers with fastening and supply solutions used in various applications.

So an example of this is our ST fastening business, which John Michael mentioned earlier. It's a $100 million specialty fastener platform, and it supports demanding applications like metal roofing and other building systems. What's important to understand is that in the professional fastener market, there's 2 different product needs. First, our high-volume construction fasteners. These are products used in large quantities for applications like drywall, framing and the building envelope.

Second, our specialized fasteners that are engineered for specific materials, coatings, environments or performance requirements like metal roofing screws. Hillman's advantage is that our platform supports both. For construction fasteners, customers value availability, price and sourcing scale. For specialty fasteners, customers value engineering expertise, product breadth and application knowledge. What connects both segments is Hillman's ability to manage tens of thousands of SKUs, source globally at scale and deliver reliably through our distribution network. Those are the same core capabilities that made Hillman the category leader in retail, and they translate directly into the professional market.

So as we expand further into professional distribution, the dynamic becomes even more important. So distributors who are serving contractors, they need a partner who's going to reliably supply both those high-volume construction fasteners and a wide range of specialized products. So for construction fasteners, priority is simple. It's availability and cost competitiveness. Contractors can't afford any job site delays, so distributors need confidence that those core products are always going to be available. Hillman's global sourcing scale and logistics network are going to allow us to deliver that availability consistently.

At the same time, contractors require thousands of specialized fasteners designed for specific materials, environments and installation requirements. So managing that breadth of SKUs can be extremely difficult for distributors to handle internally. This is where Hillman becomes such an important partner. We bring global sourcing scale, extensive product breadth, reliable distribution infrastructure and trusted contractor brands. So these capabilities allow Hillman to support both bulk volume construction fasteners and of course, the highly specialized long-tail products within that same platform.

Importantly, many of our large retail partners have invested in or acquired professional distribution businesses that are serving contractors directly. This creates a natural opportunity for Hillman to grow alongside them as they expand their business further into the Pro channel. So the strategy James described earlier around expanding with Pro customers translates quite naturally into these distribution channels. The bottom line is we're not building a new operating model. We're just extending the capabilities that Hillman's been developing for decades.

So I want to demonstrate this with a real example from our ST Fastening business. So in a market like metal roofing, the fastener is a critical component of the whole building system. So for a given job, a contractor is going to need thousands of color matched fasteners for a single installation. Fastener has to provide structural strength, maintain a watertight seal, withstand decades of environmental exposure and match the aesthetic color of the roofing panel itself. If the contractor runs short of that correct fastener during installation, the project just stops. So their crews are idle, their schedule slip and the cost of downtime quickly exceeds the cost of the fasteners themselves.

So in these markets, availability and reliability are in essence, the product. The person who has the product is the one who gets the order. So through our ST fastening operation in Tyler, Texas, Hillman finishes these fasteners that are designed specifically for this application. We support thousands of specialized SKUs. We can color match virtually any roofing panel, and we deliver these fasteners in job-specific quantities aligned to the contractor installation requirements typically in less than a few days.

Today, this specialty fastener platform is a $100 million business for us, and it continues to grow as the adoption of metal roofing and other specialty building systems expand. More importantly, this illustrates the broader point. When Hillman combines its product engineering, global sourcing, manufacturing capabilities and reliable distribution, we can serve these highly specialized markets that many competitors simply can't. These types of product-led specialty solutions represent a meaningful and growing component of Hillman's Pro strategy.

Importantly, the capabilities that allow us to win in these specialized applications are the same capabilities that allow Hillman to expand more broadly in the Pro market. Our ability to manage a complex assortment, source globally at scale and deliver with extremely high service levels creates a platform that's very, very difficult to replicate. We believe that platform positions Helman extremely well to capture additional share with our contractors and professional customers over time.

So with that, I'm going to turn it over to John Michael to discuss our lumber and building materials Pro strategy and how we plan to leverage these capabilities across that channel.

Thanks, Chris. All right. So now we'll turn into the LBM business. So we're excited about this area because it's one we play there today. I think, hopefully, you've taken away from a couple of these different areas. I shared with you the Power Pro example about the great brand that we have. But I think it's really important to understand that we have a solid foundation in base here. What I'm going to share with you over the next handful of slides is a couple of key.

One is that we're in this channel, but even more importantly, we're in a portion of the channel, and I'll explain that in more detail. We focus on the showroom today, and we believe we have an opportunity to expand the yard. And I think that's what's exciting. What we heard from James and Chris is we have unique capabilities in each part of this business that give us permission to play and that we also gives us permission to win, and that's why we're winning in these categories.

The retail Pro and the Resi Pro piece of it, the opportunity we have there, that natural extension, those ideas and capabilities, plus what Chris outlined really give us the ability to win in all of these channels. So as we break it down and we think through where we're going, I'm going to walk you through what a location could look like. Now many of these locations in the LBM channel look different. This is obviously just an illustration to give you an idea.

The takeaway from this is focus on there is the front or the showroom. That's where anyone can walk in. Typically, you have a Pro comes in, they may be working on a takeoff or design for a remodeling project or a build. But when they walk in, they see actually some retail merchandise. It could be all different types, depending on the outlet, it's going to vary. In many of those installations, the $100 million business we have today, it could be 4, 6, 8, 12 feet of merchandise product that we have in there. Our people and we leverage the category management, the products we have to optimize that space to be able to capture that unplanned purchase.

So I want to make that point clear. That unplanned purchase is where we actually win today. We're going to continue to win. That's part of our model. That's what extends. So I think that's an important point for you to take away. The exciting thing is, as you can see here, not only depicted in size and scale, but a lot of the activity from some of these lumber building material locations is activity out from the yard. It is that planned purchase where somebody is putting together a job, the value that those locations create and the value that they deliver for their customers is they can package the job and give them the building materials, the fasteners and everything to go extend the project and complete it.

So what we're doing in the front is we make sure that those Pro packs, that merchandise solution that I shared earlier, we outfit in the front. Brett's team and the traditional folks that service those locations, they do a great job taking care of that showroom, making sure that, that product show.

And then we have some of our people with their own focus have said, "Hey, we're going to go win some of those opportunities in the yard and get some of that planned purchase -- but that's not an area that we focus because we typically focused on the actual showroom itself. So when you think through what does it take to take care of the yard and to actually deliver the products necessary for that Pro, I thought it was important to think about all the things that we do on the left here in the showroom, think about product, innovation, category management, the things that we do well at Hillman that we invest in each and every day, they translate to the showroom.

That's probably not a surprise for anybody in the audience or listening in. That's what we do today. But they do correlate, and I think they connect to what we're doing in the yard and the loading area. To be able to operate there, you got to make sure you have job lot quantities. We've touched on that numerous times through the presentation. Some of that is different pack size, some of it is different packaging. We have that capability. We introduce thousands of SKUs each year. This is about how we run the business. Some of you may ask, is that a heavy lift for Hillman? This is what we do each and every day.

So by focusing on it, by having James' team, our LDM team focused on those areas, we're now going to work with the product teams to be able to add those job lot quantities, make sure we have building code-compliant products, making sure we have the application specific. It's part of the reason Chris walked up here, what did he talk about? Having the fasteners for the application of attaching that metal roof. That is about having the Pro quantities for the projects that these LDM yards perform. It's also about having LBM specialists. We've been adding some resources, brought someone in to actually focus on LBM.

And that's something that, that team is building some momentum. We'll be adding those resources as we scale this area. The just-in-time delivery, I think, and I hope you see that not only do we have a world-class operations team, Bob and his team are upgrading that and making sure we have the capabilities for not only today but also tomorrow. And that high-quality competitive cost. We all know to be able to win in the channel, you got to give them the quality they want at the cost that's competitive. And we can do that. We're doing it today, and that's where we really see the opportunity.

So to me, this page really summarizes and really encapsulates why we're going to win in this section in this area. And then there are some of the examples of some of the partners that we're going to go out there. We sell some of these folks today. This is not, again, all new call cycles. This is about bringing and extending the products we have today into those channels and building on it. And that's why we're really excited about where we're going because it is really thinking about the convenience buys in the showroom, unplanned purchase. It is the opportunity for the orders and the volume from the yard, that planned purchase.

It's about changing the mindset and empowering our people to go after those different opportunities. It is going to take some time. That's why this is going to be a build for us. But we're already doing it today in some locations where we have some, I'll say, really aggressive and capable salespeople. We're already doing it where we serve them and bring them what they need. So we've got to be able to make sure that we add those products expand the quantities and the pack sizes and then power that team to go forward. So that's why we know we can be successful in this area.

What gives me the high confidence that we're going to go take share here in that $9.5 billion market and those over 3,000 locations that we're already calling on today. So this is about focus and making sure you don't let your core slip. That's very important to us. That will be one of my points when we close and then capitalize on this opportunity in this market. So that's a little bit about where we're going and why we're excited. So we think about LDM coming together, the simple message is we have the capabilities. We have the people in the stores today. We're going to add the resources necessary in the pack sizes, and we're going to go focus on this and do what we do, we take care of the customer. This is another example where we're going to be able to do just that.

So with that, I want to take it and get it ready here to bring Michael up here. He's going to talk to you a little bit about our M&A opportunities and how we're going to continue to augment this growth strategy. With that, I'll introduce Michael Koehler, our VP of Investor Relations and M&A.

Thanks, Jamie. As you know, I'm Michael Koehler and run Investor Relations, Treasury, and I also co-lead the M&A team. I spent the last 15 years doing Investor Relations and capital markets consulting, having worked with over 35 public companies. I sit at a busy street corner and have my fingers close to the pulse of what's happening in the markets.

Today, I'll walk through our M&A strategy, how it acts as a powerful accelerator for our growth and why it's an important part of our long-term strategy to expand the core and win the Pro. Our M&A expertise is rooted in over 6 decades of execution. Throughout our history, Hillman has built value by compounding accretive growth, both organically and via acquisition. The focus has always been prioritizing returns over purely buying growth at any cost. We've expanded categories and acquired capabilities at disciplined multiples, ensuring near-term accretion with a long-term strategic fit.

Our M&A track record is built on around 30 successfully integrated transactions. We provide the scale and the platform that can turn a small or specialty business into a category leader. In many cases, we are the buyer of choice because we're a strategic buyer that has the market access, customer relationships, a 1,200-member field sales team and supply chain leverage. Our history of successful integration gives us the confidence to expand across channels that we have discussed today.

We categorize our targets into 3 different areas: expand categories, Pro distribution and industrial MRO, like you've heard today. We prioritize targets that are a logical fit for Hillman, ones that our sales team can grow, ones where our category management can add value, ones where our global supply chain can lower costs and targets that are a good cultural fit, those that align with Hillman's core values. In retail, the objectives are driving sales and category management. We want to expand the core by acquiring fastener-related categories or categories in adjacent aisles.

As Brett mentioned earlier, near neighbor categories like plumbing, electrical and even protection and safety gear are high on our radar. In Pro distribution, we target distributors with strong customer relationships where we can leverage our global sourcing network and national distribution capabilities. Today, we're underrepresented in the Pro, and there's a lot of white space for us to grow, as you've heard.

Examples of Pro distribution product categories include collated fasteners and adhesives, where we have minimal to no presence today. You've heard the team today talk about how we can grow organically with our customers in Pro distribution and LDM. But M&A can help win that Pro by acquiring the specialty -- by acquiring into the specialty Pro distribution space, which has many unique product niches that make M&A particularly attractive. Industrial MRO, the focus here is centered on the master distributor model.

Our value proposition is built on scale and long-tail SKU complexity, something Hillman has done very well for a long time. Gaining meaningful traction in industrial will be M&A driven. Across the vast number of end markets in the industrial space, we're looking for master distributors with long-tail complexity and high-spec SKU requirements. Here, we can achieve synergies with our enhanced scale and dependable global sourcing network.

As I mentioned, in addition to hardware and fastening, we are currently seeking opportunities to acquire new adjacent categories like adhesives, door hardware and plumbing. We believe these categories make a lot of sense for us from a strategic and product offering standpoint. We can add tremendous value and synergies, applying our core competencies to distributors and/or suppliers in this space.

More broadly, our primary focus remains on a number of high-margin key product categories. We maintain a robust pipeline representing healthy growth opportunities. Today, our pipeline consists of several candidates within our typical deal range.

Well, what does that mean? Well, in 2024, we paid in the mid-$30 million range for both Cook and Intex, and we have the ability to flex up several times over that for the right deal, if necessary. Staying in this range allows us to avoid bidding wars over larger assets, maintain attractive EBITDA multiples and keep our leverage in check. We've got the financial guardrails in place, and we've proven to be patient to keep for the right -- we've proven to be patient for the right deals.

Taking a bit of a step back, our M&A strategy exists within a balanced capital allocation plan that you will hear Rocky talk more about in a few minutes. We're able to invest in the business to capture organic growth, both in retail and in the Pro. We can buy back stock under our share repurchase program and execute our M&A strategy. We can do all 3 at the same time.

While our growth is not dependent on M&A, it is a key part of our strategy to grow share within our expanded $18 billion target market. We're confident this will accelerate our earnings growth and deliver high-quality returns for our shareholders. Let me give you an example. We acquired Cook Ropenhain in January of 2024, and it's a great one that showcases our M&A capabilities. We identified this company and patiently waited for over 3 years for this deal to come to us at the right multiple open chain are heavy complex products. So this category was perfect adjacency to our existing hardware categories and at the time, our recently launched Ropen chain accessory line. Upon the closing, we got to work to integrate Cook and the results were transformative.

Within a short period, we leveraged the combined strength of Hillman and Cook into a new win resulting in 20% top line growth for Cook via a nationwide rollout at just one major retailer. And we are confident that there are more wins to come in this category. With our foundation in Ropen chain established, we now have the ability to drive additional benefits in this space from an M&A standpoint.

Today, we source 100% of products sold in this category from overseas. Currently, there are additional M&A targets in this vertical that can allow us to expand into the industrial MRO channel and in-source production, which can give us supply chain flexibility as well as potentially capture additional margin in this category. Coke has been a great acquisition for us, and we believe we can replicate that model going forward. The playbook is simple: identify a category that we want to expand in, successfully acquire an attractive player in the space and leverage Hillman's core competencies to drive profitable top and bottom line growth.

So this concludes the M&A session, and we'll now open it up for Q&A. We'll have Rodney run the mic, and we'll ask the speakers to come up.

Andrew Carter, Stifel. So a question on the kind of Pro going into this. Do you believe that you can accomplish kind of the ambitions you've laid out here with the current capabilities in hand? Or do you need to take another step change in the sales force? Obviously, M&A out there would give you a thing. But just anything incremental to that like to kind of contextualize resources in hand versus incremental investments you might need to turbocharge this?

So I'll start. So Andrew, thank you for the question. So we believe we've got the, I'll say, investments in place for us to build the, I'll say, long-term objectives that we framed there. Rocky will go into more details about how we break out the pieces. So Andrew, that was part of my putting James in the role hiring his team up at the end of 2025 to be able to get that framework on the retail Pro.

Chris' team has already got a team in place. I think LDM is an area where we've got resources in place and Brett's team. So we feel like we have the feet on the street to be able to drive that incremental growth. And we'll throttle those investments and add to it, we hope to, as we gain more traction there. So Andrew, we think we have it baked in. This is not about us coming out and changing our financial, I'll say, objective because of these initiatives. We feel like we are absorbing them, and that's what we're driving inside of our guide today.

So I don't know if anything you guys want to add?

Yes. I mean I think the only thing I would add is the team that we're bringing on is very experienced, deep relationships, and they have hit the ground running. As Jamie mentioned, in '25, we were hired, and they are in market, in field today with customers trying to drive sales. So really proud of the team we assembled. It's a good experienced team.

Reuben Garner with Benchmark. So, just a follow-up on that. How does it work, the $100 million in LBM business you have today? Is that entirely through a dedicated sales force? You mentioned hiring LBM specialists. Like long term, is this a distinct separate sale process from the retail customer?

So we have actually our field sales team that actually is out in the field that runs in one organization. They actually call on different hardware stores and lumber yards today. So Reuben, those are the folks that are actually calling on them today. The LBM specialists that we're putting on Brett's team, we brought in 2 professionals that are fully dedicated to LBM. We haven't done that before. They're the leadership. And now we're evaluating the strategy to go infill the resources necessary to go after the yard opportunity that we framed up. So that will be an evolution of where we're going and how we see it going as we move forward here.

Lee Jagoda, CJS. So going back, I guess, way back to Slide 61, I guess, there was a whole bunch of logos around potential Pro opportunities. And there was 5 of them where they're owned by your current customer base. How much of the growth that we're projecting through 2030 is going to come from growth within the existing channel where the customers are saying to you, if you had more different form factor, different ways that we can buy this, we want to do more with you versus you having to go out and displace somebody less willingly?

Yes. That's a great question. So '25 is all about -- '26 is all about laying the foundation with the folks that we talked about in my presentation, okay? And then as we build with those customers, we build those capabilities, we expand into the folks that are in the box here. As you know, these folks were acquired by these large retail Pros. It is certainly on our road map. We're very excited about it. We're going to build this stable foundation and then build upon that with expansion. And when I talk about unlocking sales potential, this screen certainly would represent that. Does that answer your question?

Yes. Is there a way to quantify some of that? So in the framework of if it's a point or 2 a year of Pro growth on average from now through 2030, how much of that growth comes from existing relationships versus going out and beating the street where you're not?

Sure. I mean I would think at least 1 point, 1.5 points would come from existing relationships and then potentially another 0.5 point from these folks as we expand. But the key here is the capability, the product, that sales team is all the current capabilities that we have. So we don't need to add incremental to do that. It's just as we pace ourselves here.

And Lee, it's going to be a mix. I mean it's a great question. I mean I think it's going to be -- we already got some great trajectory and momentum with some of these Pro customers today. They get into that channel. We want to make sure we have the service model that they need. That's why we think we have the capabilities to do it. So it's going to be an evolution, and we'll certainly update you on that journey.

Sam Darkatsh, Raymond James. I know how to ask this question, but what are the current service gaps that the Pro customers are seeing in their planned categories. I think steel and wire products, prime stores, they are getting serviced right now. So where are the service gaps that you feel you're really being differentiated?

So I'm going to give you a small example to give you an idea. So we had a -- and I won't go into the name of the customer, but we are on a West Coast walk a month ago with Brett and I were out there. We went to one of our customers, great retail partner that we have today that's in there supplying the Pro. They are selling product out the back, and we have one of our top sales people in that store, great guy, great walk.

We asked them about some of the products we sell at the back, and he's like, I don't even know that you guys can do bulk packaging and quantity. That's the kind of opportunity that we have out there, Sam. He's buying today from a local supplier, and he's like, I'll let you guys quote the entire mix. So to me, I think, Sam, it's about going out there and unlocking where there's either opportunity because they don't know that we have the capability or there's an unmet need.

You're right, we have viable competitors in the space. This isn't going to be where people are going to be knocking down our door saying, take my orders. But to me, awareness is huge. I'll give you another example, we were at a show with a large partner not that long ago in the last couple of weeks, totally different individual. They didn't know that we did what we did in B2B.

And that person came out and said, "Hey, we'd like you to quote our entire mix and show us pictures of the warehouse that they stock all their P grade product. The didn't even know we did bulk quantity. So I'm not saying it's going to be easy, Sam, but a lot of it is awareness. We never focused on those areas before. That's not what we put in our retail catalog. So our salespeople don't even aware of some of the capabilities we have. So it's going to be building awareness and putting programs in place, and that's what James, Brett and their teams are doing today.

I've got a follow-up. So are you currently servicing the unplanned category with your existing retail sales team? And if so, I'm guessing the new team -- the nascent, but new team will maybe do both unplanned and planned, which might either free up that retail space or maybe allow for a little more leverage?

Yes. Very good question. So Brett's organization today, which he has all just to break this down. So we have our retail sales organization. Brett's got several different teams that he focus on his traditional team, which was the national sales meeting we just mentioned, those folks are calling on LBM locations, hardware stores and the like across the nation. So we believe that it will be adding more resources within that pool and then augmenting them with LBM specialists. We're not really prepared to walk through the detailed strategy of what that's going to be because we got competitors listening to this. But that is how we're thinking about framing this up, Sam, is it going to be leveraging our core resources and then adding resources where we think there's growth opportunities. So hopefully, that answers enough of your question to get a sense of where we're going.

Kind of following up a little bit there. Can you help me on the LBM side? How does the Pro purchase, particularly on the fasteners in the -- right now at an LPM? Are they currently getting that product in the back at an LPM? Are they getting it somewhere else? Or how does it generally work today for that Pro?

Yes. I mean in many of the markets, the yard is supplied by, if you will, what the needs are and the demands are in the marketplace. So that Pro today that's buying those full quantities, contractor lot sizes, they're actually specifying, hey, here's my build. They're working with that professional in that location and saying, "Hey, you need XYZ quantity of type whatever fastener. So there is a spec component to it, meaning there's a specific need of a size fastener for that application, and that's driven by what's going on in that market.

Each market is different. That's why we have people in each market. So today, that is being driven by the contractors' needs. Some of that's driven by the lumber yard and what they're specified. Some of it can be driven by the designs and the plans. And that's part of what our teams are out there working on is giving them availability if they've got a -- they need an inch quarter drywall screw as an example, that we have that product in the quantity that they want to purchase it.

So we're working with them, and we'll be working with them to supply them in the quantities they purchase. That is part of the curve. That's why this isn't going to be overnight, if you win $50 million of business, we will build this over time by meeting the needs of that customer, similar to what Sam asked is this is about making it aware that they have -- we have the products and the capability and then be able to fulfill their needs and what they're actually delivering for the Pro.

And just a quick follow-up. That's helpful. How about the gross margin for that type of business for a planned bulk purchase like an LBM or something, I'm assuming that industry generally has a lower gross margin than your normal business. Is that directionally the right way to think about it?

Directionally, and I'd ask you to save some time here for Rocky. He'll walk you through a way to think about that. So I'll save that for the financial section next good question.

[indiscernible] with Baird here. Kind of following up on the previous question. As you are leaning into these specified structural applications in the Pro, how should we think about the changes in terms of like the sales approach, required expertise, the risk liability profile of the business, maybe some of the hurdles you foresee and maybe the competitive landscape as well? Just any additional commentary.

Yes. I mean I'll give you a couple of nuggets. So I think I'm going to go back to the sales name we talked about earlier. I think actually educating on how to sell into that channel is a really important element. That's why we have 2 people specializing it today, and we'll continue to add research. So I think the sales cycle is a little bit different. The way that we actually sell is different. And then we are spending a lot more time with Chris Patterson, who's here and his team as far as building going after application-specific products. It's a lot of what we displayed at IBS show, and we've gotten great feedback in by having structural screws for a needed application.

We've had to build out that product range. That's what we've been working on. So I think that's part of the product equation. We're working on the sales equation, which I shared that we drove at the national sales meeting. So those would be areas that we have to be able to be successful in. And we're putting feet on the street now. So we'll update you on that progress as we go forward.

But sales, product, I'm very comfortable with where we are from a delivery perspective. We have a world-class operations team. So I feel like that's in check and aligned. So I think this is going to be about building the capability and adding the resources that are focused on that type of sales because it is different than what we do today.

When you're selling into the showroom, it's a different sales cycle and a different process than the yard, and we're going to have to build some momentum there. What again gives me confidence in this is we have some really talented territory managers in the field that are doing this today that sell pallets of our product out the back because they have a relationship. We're going to now empower that team and really open up the opportunity, and that's why we're excited and confident it's going to work.

Just a real quick question on the TAM is big in the Pro distribution side. Your share is really small. Can you talk a little bit more about the competitive set out there? Is this a super fragmented market? Are there big players that you're competing against? And when you compete, -- do you think -- is your advantage that you've got this wonderful product that's been created on the retail side with a great brand, and therefore, you have a better brand opportunity? Is it a pricing advantage that you might have? Maybe just talk about that.

You gave me a lot of good nuggets here. So I'll try and hit those the way I think about it. So it is a very fragmented market, and there are some very capable competitors. I mean PrimeSource's name is brought up. We respect those guys. They have a good business model. There are a lot of regions as we go out there where there are small regional players that are driving and delivering bulk contractor grade quality fasteners. That is an area for us.

And then it's where we have partnerships where we have already the fastener set in the front of the store. That's part of the extension of natural. And that was not a made-up story. I'm not going to go into the name. I was blown away, Brett and I were blown away. This is one of our best guess, hardware locations we go to the store was amazing. We just got into the conversation with Pro. He's like, I didn't even know you guys have the quantities. I went to lunch with us, meaning this wasn't like he never seen us before. He loves our sales guy there. I'm not saying that's every location in America or North America, but that gives me the confidence that there's connectivity when you take care of the customer, that will only give you other opportunities. So that's fragmented, yes, and opportunities that we need to lean into.

Now let's not underestimate the fact you got to have the pack sizes, you got to have the demand, you got to be able to bring it in. I'm really confident with the guys sitting in the back of the room and his team that are out there. We have a world-class sourcing organization and great manufacturing partners that we're able to build and line that up. It's going to take some time. It's why we're not coming out here and saying, hey, there's an incremental 10% growth in this category.

So I really think it's about making sure we have the right product making sure we have the right sales strategy and then putting the right resources to it. And you got to give us a little bit of time to get the traction, but there's opportunity there. And that's -- hopefully, that gives you a little bit more. I know that was somewhat redundant to the last question, but that's really how we think about it, and that's why we believe it works.

And when you get the sales team fired up and you give them something to go sell and then you give them the training so they have the confidence is super important. For me, I believe in this story and this vision. That's why I can get up here in front and talk about it. It's the same idea that's in front of a customer. You go out there and you give them the product and they have the company behind them to back it up, they can go out there and execute. And that's what's really exciting about it. That's why we love our sales force and what they do. We got to go give them the ammunition to fire the gun.

Just, I guess, on the back of that question. So on the large format stuff, -- is the market today rational in general? How big a differentiator is a quality brand in large format versus pack size in the front of the store, both to your buyer and then to their customer?

Yes. A couple of things there. So will we expand our category into some of the more bulk products that may be more price sensitive? We are going to evaluate that over time. Michael mentioned COLA. James has talked about COLA before. We're going to evaluate that. This is not about trying to be everything to everybody. We're not going to go out there and say, "Hey, our business is growing $0.12 penny nails out there in the marketplace. That's a commodity type item.

Where you see the difference is as we've seen the evolution, and I'm going to get geek out for a second, but fasters, you go from lag bolts, which is a big part of our business today, to construction fasteners by driving innovation, lag bolts have declined over time. because people are using structural screws to complete their applications. By us focusing our product development there, that's where we think we can win. And that's where the Pro brand that you referenced where it means something.

It's exciting to see when you can give people a good Power Pro product, and I'm shamelessly plugging that again because when you get people's hand and they see the use case of it, they go drive it. That's what put -- that brand really grew out 10-plus years ago when we launched Power Pro 1 because it's a great fastener, multipurpose P-grade prep fastener that everybody can use. Once you got in their hands, people started, "Hey, I need Power Pro. That's what they thought of. So it's going to take time. This is an evolution, not a revolution. But that's, I think, where there is a space for branded product, Lee, and I think there's an opportunity for us to grow. And there's a massive market for us to go take share.

Thanks, everyone. That will conclude our Q&A session for W the Pro and M&A. We'll take a 10-minute break. We want to stay on time here. So let's do 10 minutes, and then we'll turn it over to Rocky for the financial section.

[Break]

We've got almost everybody back. Take a second to let some people wander in.

All right. We're good to go. Welcome back. Obviously, the part that you've all been waiting for, the financial piece. It is interesting. Somebody said this to me earlier, I think Sam, and he said, everybody always does the financial piece last at their Investor Day. And so we had to do the same thing.

So again, I'm glad to finally be up here. Thank you for not asking me any questions until now, which is good. I'm going to start by giving you a little bit of my background.

I think everyone in the room knows me pretty well. Rocky Kraft, I'm the CFO here at Hillman. I've been here for 8 years. I started my career actually at PwC. I was an auditor. I was there 18 years, 6 years as an audit partner. After that went to a company called Omnicare. Some of you in the room probably invested in Omnicare, $6 billion public company here in Cincinnati. I was there as the CFO for 5 years. We sold the business to CVS. I went to CVS for 2 years and actually ran the Omnicare business. And then people like Doug Cahill convinced me to come to Hillman, and I've been here for 8 years, having a great time.

So I'm going to talk about our financial framework as we think about the future. I would characterize it, and JMA used this earlier as kind of an evolution, not a revolution. A couple of clear takeaways that I want you to have from my part of the presentation. First, you heard Brett talk about the core retail business. We heard Bob talk about operations. Scott talk about RDS, Aaron talk about our people. We're running this business really well, and we're going to continue to run it well. Next, you heard James, Chris and JMA talk about the Pro. The Pro opportunity outside of the retail box is a big deal.

And what you're going to hear me talk about is it's going to change our historic algorithm. We're going to add 2-plus percent, we believe, a year of new business from the Pro outside of retail. Finally, you heard stretch, as we affectionately call them, talk about M&A. What's different with M&A today? M&A is going to become part of the algorithm. It's not just an adder. We're convinced and convicted to do M&A.

And finally, you're going to hear me talk a lot about ROIC. We're going to use it in all of our financial decisions going forward. All right. So I'm going to start and I'm going to close with our financial framework that we're committed to. You heard this earlier from JMA, 8% to 12% revenue growth that includes M&A.

I'm going to break this down in a couple of slides in a little more detail. Revenue growth, along with us running the business well, will allow us to leverage our fixed cost and deliver low double-digit adjusted EBITDA growth. Our target, 100% free cash flow conversion compared to adjusted net income. To be clear, that's consistent with what we've done since the IPO. And we intend to maintain our net leverage at our current target at or below 2.5x.

Before I get more into the future, I'm going to talk a little bit about the past. So since '21, when we became public, we're really proud of our performance. We've increased annual adjusted EBITDA by almost $70 million. Since 2022, we've added $0.15 per share to our adjusted annual EPS. And from the peak in 2022, we reduced leverage by 2 full turns. I think we all know in a really tough economic environment for our business.

Again, I'm really proud, JMA is really proud. Doug is really proud. Our leadership team is really proud of what we've done in this environment. Again, before I get into the new stuff, let's just reiterate our 2026 guide. This is no different than what you heard a couple of weeks ago on our year-end call, $1.6 billion to $1.7 billion in revenue, up about 6 points at the midpoint or 6% at the midpoint. Adjusted EBITDA of $275 million to $285 million, up about 2% at the midpoint and $110 million of free cash flow at the midpoint.

Clearly, this is consistent with that target of about 100% free cash flow conversion compared to adjusted net income. All right. Fun stuff. This is the same slide you saw earlier from JMA. I'm going to unpack it a little bit. So as we think about revenue going forward, this is how we're going to talk about revenue. This is how we expect you to measure us whether we're hitting our targets on revenue. We're going to talk about and report core, new business and M&A.

So the first question is probably, all right, what is core? Think of this as comparable sales for Hillman. It's a combination of price, the market, product mix, all the stuff that we do every day in the stores. It's the thing that our 1,200 folks in the stores are doing every day. It's what Bob is doing every day. We expect core to grow every year. And quite frankly, if you think about our biggest customers, if you think about a Depot or you think about a Lowe's coming out and saying, in 2027, we expect X to Y, our numbers should probably look a lot like that.

The second piece is new business. What's different here? Pro outside of the retail box. So since we went public, we've generated about 2% new business wins each year on average. If you look over the last 5 years, 3 of those years, our hardware business was closer to 3%. So what's our commitment going forward? 4-plus percent. I think we already got a bit of a question about it earlier. I'm sure we'll have more questions about it going forward. But here's the simple math, 2% historic, 2-plus percent from Pro outside of the retail box, 2 plus 2 plus, 4 plus. That's our commitment to you.

Finally, M&A. Given where our balance sheet is, we're now making M&A part of the algorithm, not an adder. So what does that mean? We all know M&A is going to be lumpy, but the tuck-in bolt-on machine that Michael talked about is ready, and we're committed to it. Look, when you look at this algorithm, we know every year is going to be different. But the simple math is that we expect 8% to 12% revenue growth annually, which means by 2030, we're a $2.5 billion company, as we told you earlier, and we'll continue to tell you.

All right. I don't remember who asked, but somebody asked the question about the Pro. How are we thinking about the contribution from the Pro? And so we've laid it out on a slide. Remember, we expect that when we think about the Pro, we're talking about 20-pound boxes of deck screws and larger pallet size quantities, but they don't require the high touch that happens inside a retail box. So what does that mean? We think the EBITDA rate from that business is consistent with our current business today, but we get there in a very different way. We believe retail -- the gross margin will be lower than our existing business, our current business.

Again, we're selling bigger quantities, pallet sizes don't demand the same gross margin rate, but much lower SG&A. What do we mean by that? Again, Bob and team are shipping pallets, pallets into the back of a lumber yard, pallets into a distribution center, not detailed boxes on a retail shelf. The bottom line is as we think about the Pro, it's going to add revenue and profit dollars that we're not capturing today. All right. Next couple of slides, I'm going to talk about cash flow and capital allocation.

As we said earlier, free cash flow conversion, our target is that we expect to be 100% of adjusted net income. How do we define free cash flow? It's pretty simple in this business, guys. It's operating cash flow off the cash flow statement, less CapEx. Very simple calculation. Again, 100% of free cash flow conversion compared to adjusted net income. That's consistent with what we've done since we went public.

Going forward over the next several years, we do expect a relatively significant step down in the capital that we need in RDS as we finish the rollout of 3.5. All of this CapEx goes through our ROIC model. Now let me be clear. Maintenance CapEx at times is not going to meet those hurdles. At times, you just have to do things to keep the business running. But any growth capital goes through the ROIC model, and it's got to hit the hurdles. So since we've been talking so much about ROIC, we're now using all of our capital allocation decisions.

Let me talk about capital allocation. We've got our debt at our target levels, just below 2.5x as we sit today. So what are we going to do going forward? First, we're going to invest in the business through maintenance and growth CapEx. You obviously want us to do that, and we'll continue to do that. But that leaves us plenty of cash to do other things. As Michael talked about, we think a great use of capital is strategic M&A. We intend to do this. We also intend to buy back our shares to offset the dilution from employee stock plans, and we will be opportunistic around buying our stock.

Many of you know, we've been doing that for the last couple of quarters. We're probably even doing that today. Leverage is in a great spot. Don't see a need to come down dramatically from where we are. Over time, leverage will come down as there aren't other uses for capital at times. The one thing we will commit to, if we do M&A that takes the leverage up, we will give you strict time lines on how quickly we'll bring that leverage back down to target levels, which we believe are in the low 2s. Again, any capital allocation we do will go through our ROIC model. So someone asked me earlier, I think it was at a break. Where are you today? 2025, 13.7%, our calculation.

If you want to see our calculation of ROIC, it's in the appendix of the deck that's on our website that went out with the news release this morning. The only real adjustment that we make to that is goodwill and intangibles and related amortization from a private equity firm buying us over 10 years ago. We don't think this management team or you should judge us based on those numbers. So we exclude those. Otherwise, it's a NOPAT model, very consistent with what you'll see in other places.

We've talked about ROIC today just below 14%. Our goal over the next 3 to 5 years is to get that into the high teens, and we believe we're on a path to do that. All right. Before we go to Q&A, I'm going to wrap up the same way I started talking about our 5-year financial objectives. Same slide that you saw earlier from JMA. There's no tricks here where we tried to run one past you. So revenue growth, 8% to 12% a year. We're going to talk about core. We're going to talk about new business.

The Pro is going to take that new business number from a historic 2% number to 4% plus, and M&A is now part of the algorithm. We expect to leverage our fixed costs so that we can provide low double-digit adjusted EBITDA growth, and we will keep our leverage below 2.5x. If we have to take it up for a period of time, again, we're committed, and we will give you time frames to bring that down to our target leverage level. And finally, ROIC is going to drive all of our decisions. With that, I'm going to open it up to questions.

Rodney, we'll probably do 20 minutes of Q&A and then off the lunch.

All right. We'll begin the Q&A session. It looks like we have a few hands.

Brian McNamara, Canaccord. I'm curious, how does this algo look if we're at $4 million in existing home sales 5 years from now? In terms of the controllables versus the noncontrollables.

Yes. So here's the way to think about it. That algorithm has no tailwind from housing or from existing home sales or anything like that. And so we believe where you should measure us, when you think about the core, a logical question is, what's that number? I think in our minds, it's low single digits in a current environment. At some point in the next 3 to 5 years, I believe we believe there will be a turn in existing home sales, but we're not counting on it.

Great. And then just a quick follow-up on cash flow. You guys have -- you've done a lot in the business. You invested in inventories when supply chain issues and you've maintained those high fill rates. You had bankruptcies, you've had tariffs, you had higher leverage before you were public. That's all impacted your cash flow. So if you're looking at your cumulative cash flow over the last 7 years doesn't look that great. Should investors expect some kind of catch-up? Or how should we think about consistent cash flow generation moving forward in that lens?

Yes. Again, I think our expectation, what you should expect from us is 100% conversion or more of adjusted net income. It's a simple way to think about it. We think that's a great metric. It actually is what we've generated over the last several years, although it's been lumpy. The one thing I will tell everyone in the room, when you think about 2026, I think some of the sell-side analysts think that we're going to get money back from tariffs. When you think about $65 million of cash tied up in the balance sheet at year-end, unless tariffs change dramatically, that is not a windfall. And so as we think about 2026, no changes to tariffs, let's assume it should be a normal cash flow year, which, again, our midpoint is $110 million of free cash flow.

Reuben Garner, Benchmark. What's the price assumption in the new algorithm out to 2030?

Yes. So we're not going to give that number. We were pretty clear on the last call that one of the challenges that we have with price is with our customers. It can be very noncompetitive if we go out and say the amount of price that we have, and that allows a competitor, as an example, to go to a retail customer and ask for that same price.

What I would say about price is it's a lever we control. When you think about the last several years, the biggest challenge we've had in the business is predicting the true market. That's why if you have the core, let's assume like the last several years, the market is down 3% to 4%.

We believe you should judge us if we can mix the product work with our customers on their footprint, better mix and go get price to get us back above 0. And so we get to a couple of points in that environment. We believe that's really good performance. We get a tailwind of 2 or 3 market, you should be able to add a couple of points on to that. But again, not going to get into those details going forward.

Got it. And then one of the slides in the EBITDA progression mentioned favorable product mix. What exactly is the favorable EBITDA or favorable product mix that you're kind of embedding in the outlook?

I mean we've done quite a bit on the mix side of it. I mean part of it ties back to the operational piece that Bob shared earlier. I mean we've been able to drive cost out by moving product around and be able to improve that over time. Plus we've seen -- continue to see things like our specialty fastener business has actually done quite well. So those be subtle demand changes inside of the footprint has helped us maximize it and then cost...

Let me use another example real quick, Reuben. I think today, you all, hopefully, everybody can stick around and we'll go visit the Lowe's store with Brett. You're going to see the fastener set of the future at Lowe's. We've spent the last couple of years. We're going to spend the next year or 2, I'm looking at Brett, remixing the entire set at Lowe's in their fastener bay that's generated great results for us. We're not going to give you the exact numbers around that, but let's just be clear that the comp is much better than comparable stores when we reset these stores. That's an example of mix that adds to our growth.

And our customers as well. That's a win-win.

So you reiterated FY '26 guidance today. Obviously, the oil price spike over the past couple of weeks has been a big deal. There's more uncertainty on the geopolitical. Could you just kind of outline your exposures there and kind of any incremental steps? Do you have surcharges in your business? Anything else to just kind of give comfort around the macro headwinds?

Yes, you're right. The backdrop or, I'll say, the geopolitical landscape is challenging. We reiterate guidance because we navigate inflation and different challenges, and you've seen that in the last 5 years. We'll manage it and mix it with our vendors first and then obviously, with our customers where needed. As far as specific surcharges, that's not typically how our largest customers do business. So that would be price. Impact is going to be things that you all think about, right? It's going to be freight and distribution. We have a relatively small percentage of our core materials or products that are driven by oil. So that's a little bit less on the COGS side of it. But it is an impact for our overall business. We're not going to break out that detail and give it to specifically, but it is something we believe we can manage within our guidance.

The only thing I would add there is, remember, if inbound oil costs, freight costs are all included in inventory. And so typically, those are going to hit our P&L 4 to 6 to 7 months after we've actually incurred the cost. So a little bit of a drain quicker from a cash flow perspective, but we do have time to react to see if it's permanent and not transitory. And if it is, typically, we work with our customers to make sure that we maintain at least a cost for cost benefit from that.

Elizabeth Langan with Barclays. I just had a question just to clarify the general like growth algorithm. So obviously, M&A can be like a little bit lumpy, but if you're saying like low single digits for core growth and then around like 4% for new business wins, that leaves like 1 to 2 points for M&A on the average year? Is that the right way to think about it?

I think if you think about M&A, I think we're saying 8% to 12%. So using your math, 1 to 2 plus 4 or 6, a couple of points of M&A. When we think about M&A going forward, again, it will be lumpy. That said, we love what happened in 2024, a year where we could do 2 to 3 deals that are tuck-ins that we believe are very synergistic would be a perfect year for Hillman. What does that mean in general, probably somewhere between $50 million and $100 million of total revenue from that M&A. But that's kind of how we're thinking about it. Again, every year is going to be different depending on what comes to market, what we like, what the valuations are.

So I know you guys love midpoints. So if I'm thinking about the midpoint of the revenue guide, it looks like the EBITDA growth algo is a little bit lower than it historically would. So I guess the questions are, first and foremost, how much of that is just conservatism about the unknown? How much of that is the idea that the Pro doesn't really leverage the EBITDA? Because I would assume the M&A component should make that leverage greater.

So there's a lot of points. Let me unpack this, Lee. Let's start with the top line, 6.3%. So if you put that into our current algorithm, to be clear, there's no M&A in that 6.3% midpoint. So let me just say that again to be clear, there's no M&A contemplated in that 6.3% midpoint. If you sit today and you try to unpack that, it's probably half core, half new business as we think about this year. And you may say, well, Rocky, you just told me 4-plus percent.

Why is it 3%? Well, you just heard us guys. We just started on the Pro journey. So this year, probably not as big a contribution. But quite frankly, I think if you get 3 or 4 years out, probably a bigger contribution. Again, it's an average number. When you come to the bottom in EBITDA, there are a couple of things. First off, there's no M&A in that number. And so there is no leverage from M&A that could happen. Secondarily, as you'll recall, in 2025, we did have a windfall from the timing of tariffs that doesn't repeat. And so that kind of depresses a bit the growth in adjusted EBITDA in '26.

So I was actually referring to the growth algo of 2030. So that 10% to -- whatever, 12% to 14% that's implied there, like the 300 bps increase between revenue and EBITDA at the midpoint doesn't -- like if you look back to when you started this journey before the tariffs and all the stuff, the growth algorithm was more leverage than we're seeing now.

Correct. So I think the answer to that, Lee, is it's 1 year. And so if you think over a 5-year period, we would expect there is more leverage in the adjusted EBITDA than there is in '26. Got it. Again, every year is going to be different. There's a unique reason why we're not leveraging as much in '26, and it's because we had a bit of a windfall in '25.

I got 3 questions, but they're quick. So hopefully, I'm allowed. So 2030 gross margin. You said that Pro was dilutive to gross margin. We're just trying to get a sense of to what degree -- or I'm trying to get a sense of to what degree that means for 2030.

Yes. I mean that's a tough number to predict 5 years out. That's why we said we believe adjusted EBITDA is at least the same from the Pro, and it means that we can leverage it over the 5-year period. What happens in gross margin is a little tougher to predict 5 years out just because it depends how successful we are in Pro. So I'm not going to get into that number today.

Does the Pro gross margin start with a 3? Just trying to get a sense.

To be clear, it's not dramatically different.

That's what I was going to say I don't think it's a material difference. Not dramatically.

All right. That was question one. Question two, you mentioned 2.5% CapEx is maintenance. Are we going to be running at maintenance after '26? I'm just trying to get a -- because you're at $70-some-odd million of CapEx now, but you have a lot of RDS spend that's going to be ending at the end of this year, at least $3.5 billion end this year. So what's a reasonable $27 million to $30 million CapEx number versus that maintenance number?

The easy way that I would -- yes, is the short answer. The longer answer, I would think as we think about RDS, we'll probably cut the CapEx about in half at the maintenance level from where we've been the last several years, which is around $50 million. And so as you're modeling it, that's how I think about it.

Okay. And the last question, the return on capital metrics, excluding intangibles, especially when you know you're going to be going into an M&A period. For a distributor, I mean, everything is intangible.

To be clear, we're not excluding any intangibles from any acquisition we've done since the time that the only intangibles we're excluding are the intangibles that were created and the goodwill that was created when CCMP private equity bought Hillman. We believe measuring us based upon a private equity firm buying Hillman 11 years ago, doesn't make 12 years ago, doesn't make any sense in the math.

So you're adding -- I'm sorry, the weeds here. So if you were to make a deal tomorrow...

It will be included.

You would add the intangible to the ROIC?

It is just the private equity transaction that happened 12 years ago.

So for instance, I mean, Cook is in the numbers...

Jamie Simonson, Jefferies. Maybe I do have a question on margins, but maybe just sticking with the ROIC for a quick second. I do obviously appreciate the focus there. But if you will be growing more with M&A, I know sometimes just mathematically with -- to the goodwill point, there can be a risk, obviously, of that impacting ROIC. So I guess what gives you confidence? And what will be the drivers of that expansion over the next 5 years?

Yes, I'll start and then Rocky add on. I mean the way we're looking at deals, I mean, we're going to continue to look at bolt-on activity. I mean, candidly, we've got some things that are in our line of sight that we feel would not be a material impact because we're going to buy them the right way. So we are going to consider deals in that lens. So I can't go too deep into that, but we do understand that we have to make sure we manage that accordingly, and that's our plan to do so. So Rocky, any?

Yes. The only thing I would say, and I don't think it will surprise anyone. Clearly, the full first year of an acquisition, we will include in the ROIC calc. We'll probably give some numbers. If we buy a company in -- on December 1, that's not going to go into the full calculation because it would be completely distorted. But that following year, full year clearly will be included.

Okay. Perfect. All right. Maybe switching gears a bit for my follow-up here. So looking at the margin story, obviously, I get the point with the Pro and the leverage is going to offset similar margin rate. I guess since we will be having a lot of growth from the Pro, should we be thinking about incrementals being similar to what we've seen historically since the margin rate sort of cancels out? Or how should I think about that in the algo?

Yes. Again, just clarifying, as you think about adjusted EBITDA margin incremental, we still expect kind of like the retail business that it would be at 20-plus. If you go back up to the gross margin, I'll clarify because Jamie, you made a good point, Sam, it was a good question, but we're not talking about 10% degradation in gross margin from the Pro. We're talking a couple of hundred basis points, both at the gross margin line and then making it back up in SG&A. Great question.

Yes, really good. One for Michael. I didn't want to preempt it with your M&A conversation before as it relates to the algo. But I'm curious how you guys would characterize the current M&A environment. You did cook and INTEX in '24. Last year was the doldrums, I think more tariff driven, things like that. And I know typically, you guys have long courtship processes. So I'm curious how would you characterize that? And how does that play into obviously your algo longer term?

Yes. If you look at where we were during the doldrums, the pipeline was pretty empty. -- stepping into the M&A role with the pipeline that was empty like, all right, cool.

As I think of where the pipeline exists today, I'm very confident this will help us achieve the algorithm that we've laid out. You heard Jamie talk on the earnings call back in February that he thinks we can do 1 to 2 deals this year. I think we'll do 2 deals that we hopefully can announce here sooner than later. That gives us some runway to hopefully do a third deal in the latter half of the year. We're seeing some good deals, some interesting companies for sale that are both retail as well as Pro and industrial. So we feel good about the pipeline now, and it will be in lockstep with what you've heard today about our growth.

With that, we'll turn it back to JMA for closing comments.

Excellent. Well, thank you, everybody, for joining us today. I'm going to leave you with a handful of points. So we're excited about where we are. But I think the big thing that we hope you took away from today, whether you're new to the story or you've been around is that over the last 5 years, we made a solid business better. I think we've been able to articulate the fact that we've been able to improve our balance sheet, improve profitability and drive growth in a challenging market.

Now we know we have tons of opportunity. Hopefully, you can also see that the growth perspective and what we can do as we move forward is tremendous. I think if you think about the business we are today, I think something that's very important to me near and dear to my heart is you can't go and grow and do something else if you're not taking care of what you have today.

And hopefully, you saw from what the team is demonstrating what they've shown that we are taking care of our customers. We're taking care of our business. We've got a great leadership team that's doing it. And that gives us the confidence and the ability to continue to not only service the DIY and the Pro that we have today, but to grow them.

Third, the blueprint. It's not just something that we framed up for today because we needed a clever way to present this. This is really how we're building the business. Now any blueprint, you're going to make, you're going to make some changes to and tweaks over time. That's not to back off anything we said today. But this business is just like we've been resilient. It's one word that's very important to me. We're resilient in good times and in bad.

We're going to continue to adjust, but we have a blueprint that is a set of plans. We've got an execution path, and we've demonstrated that we can go execute in a challenging market that should give you confidence that we have a path to that $2.5 billion.

And then last but certainly not least, that we have the team in place. Now you met some of the folks today, but it's not just the leadership team here. We got 4,000 strong at Hillman. I'm super proud of this organization and how we've continued to do our best work when the times are tough and challenges are there. We're prepared for whenever this market changes.

And as we talked about today, today was not about framing up why the market has been bad and why we haven't performed. I know that comment came up earlier. This is about whatever the market conditions are, we're going to adjust. And to me, I think great companies have to be able to do just that. You've got to be able to put the team on the field, adjust to the environment, continue to make investments in your business, whether they're in footprint, and Bob walked you through some of that technology through AI, we got some exciting things that we're doing in that space and that we'll continue to build on.

You've got to make sure you've got the leadership team that's going to adapt and evolve because this market is going to continue to move very quickly. So if you take those 4 points, I'll then just flash forward here and just give you a little bit, hit the blueprint again. You should understand here today that we own the core and that we're going to continue to do that. And that's not an arrogant statement. That is a statement where we know we have to get up each and every day and take care of our customers and give them what they need to take care of the right users.

That's how this business started, and that's how this business will run as long as me and the leadership team are here. Expanding categories. We are never satisfied with me and where we are today. We need to work with our partners to find opportunities to grow, whether it's through organically, as Brett articulated, things like builder hardware starting from scratch to a $75 million business over time or it's through M&A, things like Cook that Michael walked you through. We're excited.

We have some more of those opportunities inside the 4 walls and outside the 4 walls that we will expand. And then win the Pro. I hope you see that this is not just a new idea and something that we're going to test out and we're going to do, we're doing it today. And that should be something that you should have confidence that we can go grow this at a faster rate because we're going to put the focus and we've got the we're putting in place to do just that.

And with the lens, I'll reinforce, it's already been covered quite a bit in the last section with that ROIC, we think that's really important to us and important to you as shareholders and people of interest in our company is that we're going to make sure we have that growth discipline in place.

And then to me, that's all great. But if you don't have a market that you can go grow and make a material difference, then what's it for. And anything worth doing is going to be hard and challenging. We know that's going to be hard and challenging. We love that about our business. But when we do what we say we're going to do, we're going to be able to go grow our share 9% today of that $18 billion TAM to what we believe to be 14% over that $2.5 billion. So that should be something for you to take away and saying there is a lot of opportunity and runway for this company.

And that's why as we evolve and as we share here, we want to give you an idea of how we're going to update you and report out on this business, we're going to continue to stay focused on this market that we've defined and our teams are focused on delivering growth against it.

And last but certainly not least, the value creation catalysts. I already covered this in great detail, but I'll leave you with we've got a resilient, solid company that's ready to go face the challenges in front of us. We've got a huge TAM that we're going to continue to go after, and we've got disciplined approaches to break it down and digest it. We've got a solid integrated operations team that's there to fulfill what we're going to do for the DIY as well as the Pro.

We got a solid balance sheet and discipline that Rocky took you through in great detail. And then we have the highly experienced team that's going to go get it done. So with that, we really thank you all for taking the time to spend with us here today to hear our story and more importantly, talk about where we're going and we're taking this company in the future. So with that, we'll say thank you for joining us. I'm going to hand it over to Michael for some housekeeping comments. I hope everybody has a great day.

It is almost 1:45 we have lunch in the kitchen where you guys came in. You know where the restrooms are, yourself for lunch, try ice cream for. In the same room at 12:15, we'll have 2:3012:40. And I hit on this earlier, but make sure you're on the bus with your luggage. If you -- those buses at the end of the 3 tours go to the airport. So if you're not planning to go to the airport after the tours, let one of us know, and we'll get you a ride back here to our customer support center. With that, thank you, and enjoy your lunch.

Good morning, and welcome to the Fourth Quarter and Full Year 2025 Results and 2026 Guidance Presentation for Hillman Solutions Corp. My name is Liz, and I will be your conference call operator today.

Before we begin, I'd like to remind our listeners that today's presentation is being recorded and simultaneously webcast. The company's earnings release and earnings presentation were issued this morning. These documents and a replay of today's presentation can be accessed on Hillman's Investor Relations website at ir.hilmangroup.com.

I would now like to turn the call over to Michael Koehler with Hellman.

Thank you, operator. Good morning, everyone, and thank you for being with us for our earnings call. I am Michael Koehler, Vice President of Investor Relations and Treasury. Joining me on today's call are Hillman's President and Chief Executive Officer; John Michael Adinolfi, or JMA as we call him, and our Chief Financial Officer, Rocky Cracks.

I would like to remind our audience that certain statements made today may be considered forward-looking and are subject to safe harbor provisions of applicable securities laws. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions and other factors, many of which are beyond the company's control and may cause actual results to differ materially from those projected in such statements. Some of the factors that could influence our results are contained in our periodic and annual reports filed with the SEC.

For more information regarding these risks and uncertainties, please see Slide 2 in our earnings call slide presentation, which is available on our website. In addition, on today's call, we will refer to certain non-GAAP financial measures. Information regarding our use of and reconciliations of these measures to our GAAP results are available in our earnings call slide presentation. JMA will begin today's call by providing some commentary on our full year 2025 results, briefly introduce our 2016 guidance and then discuss our performance for the year by business. Rocky will then provide a more detailed walk through our 2025 financial results and our 2016 guidance before turning the call back to Jay for some closing comments. Then we will open the call up for your questions.

It's now my pleasure to turn the call over to our President and CEO, John Michael Adinolfi. JMA

Thanks, Michael. Good morning, everyone, and thank you for joining us. Let me start by saying how proud I am that the Hillman team successfully navigated the impact of tariffs in the dynamic environment during 2025. The entire organization worked extremely hard taking care of our customers during the year, and our team rose to the occasion to put the best year in this company's 62-year history delivering record net sales and adjusted EBITDA.

For 2025, net sales increased 5.4% to $1.552 billion, and adjusted EBITDA increased 13.9% to $275.3 million versus 2024. We are pleased with our results for 2025 and remain focused on the growth opportunities that lie ahead. Looking to 2026, we estimate full year 2026 net sales will be between $1.6 billion and $1.7 billion, the midpoint of $1.65 billion represents top line growth of 6.3% compared to 2025. Additionally, we expect to generate between $275 million and $285 million of adjusted EBITDA for 2026. This midpoint of $280 million represents growth of 1.7% compared to 2025.

And finally, we expect to deliver free cash flow between $100 million and $120 million for 2026. The midpoint of $110 million reflects a 90% plus conversion of adjusted net income into free cash flow. The main contributor to our top line growth during 2026 will be the rollover from pricing that went into effect during 2025. Our sales team is focused on winning new business, and we are confident that new business wins during 2026 will outpace last year. As for the markets, we are yet to see any meaningful changes in the macro that could produce tailwinds for Hillman and therefore, do not expect any help from the market this year. Rocky will provide more details on our guidance shortly.

But for now, let's turn back to our financial highlights for 2025. Net sales for 2025 increased by 5.4% or $80 million over 2024, even during a challenging market. Driving the increase in net sales was 3-point contribution from Intex DIY, which we acquired in August of 2024 and a 2-point contribution from new business wins as we continue to steadily win new business and take market share. Price contributed 5.5 points of growth during the year, which covered the higher costs resulting from tariffs. Partially offsetting these were market volumes, which were down about 5% in 2025. Existing home sales remained soft and unchanged from the 30-year lows we saw during 2024 totaling $4.06 million. This figure is well below the average of 5 million existing home sales per year over the last 10 years. We believe this number of existing home sales is a headwind to home improvement projects, which impacts our sales.That said, during the year, we grew our top line to a record high. This is a testament to our resilient business model and the hard-working folks at Hillman and strong partnerships we have with our customers.

Turning to the bottom line. Our record adjusted EBITDA for 2025 increased by $33.6 million to $275.3 million, marking an increase of 13.9% over 2024. This puts our compounded annual growth rate for adjusted EBITDA since coming public at over 7%. The increase was driven by the timing of price increases and tariff costs hitting our income statement. For the most of the second half of the year, we had price increases in place, which lifted our top line. At the same time, we had pre-tariff and thus, lower priced goods flowing through our income statement. The results were record margins and outsized earnings.

This benefit peaked in the third quarter, moderated in the fourth and will be fully normalized in the first quarter of 2026. Another main contributor to our record profit for our global supply chain and operations team. We are running this business efficiently and effectively. We are taking care of our customers shipping orders on time and in full and delivering fill rates that are as high as I've seen in my 6-plus years with Hillman.

Now let's drill down by business segment. Hardware and Protective Solutions, or HPS and is our biggest business and delivered excellent results during 2025. HPS net sales increased 7.8% to $1.2 billion, while adjusted EBITDA increased by 26% to $196.3 million. Driving this strong performance was our outstanding sales and service teams, which successfully manage pricing for tariffs while executing new business wins in power screws and open chain to name a few. Leveraging our moat with our long-term retail partners drive consistent performance and growth regardless of macro market conditions.

Robotics and Digital Solutions, or RDS, returned to growth during 2025. Net sales increased 1.6% to $220.2 million when compared to last year. During 2025, we installed over 1,800 mini key 3.5 kiosks and we continue to be pleased with the performance of these new machines. We completed the rollout of 1 of our top customers before the end of 2025 and expect to complete the rollout with another top customer by the end of 2026. The rollout is tracking to our expectations, and we are pleased so far. The enhanced capabilities of these machines, including auto key duplication and endless aisle are driving comparable net sales increases versus older generation machines. As of today, we have nearly 3,500 mini key 3.5 machines in the field, and we feel really good about the business and how it's positioned for 2026. Adjusted gross margins and adjusted EBITDA margins were both near historical norms, totaling 73% and 30%, respectively.

Turning to Canada. Net sales in our Canadian business were down 6.6% compared to the prior year. New business wins were partially offset by another quarter of soft market volumes and FX was over a 2-point headwind. Adjusted EBITDA margins came in just shy of 10% in Canada for the year. This Hillman team executed very well during 2025, and I am proud of the team for their performance. Looking to 2026, we will continue to control the controllables. Our teams are performing at a high level, and we will continue to win with our customers and in the market.

The M&A pipeline is healthy, and we have several exciting bolt-on acquisition opportunities that we are working on. We continue to invest in taking great care of our customers and delivering increased value to our stakeholders. We are confident we will capitalize on the opportunities ahead of us as we expand our focus on the Pro. This will broaden our go-to-market channels, diversify our customer base and provide meaningful white space for growth. We have recently assembled an experienced team with deep Pro knowledge that is focused on growing our Pro business. We are confident we have the right to win and are excited about the opportunities in this channel. We look forward to providing you our detailed plans to win the Pro during our first Investor Day, which will be held next month on March 19. With that, I'll turn it over to Rocky to talk financials and guidance. Rocky?

Thanks, JMA. Let's start with our fourth quarter and year-end results before I get into our guidance for 2026. Fourth quarter 2025 net sales increased 4.5% to $365.1 million versus the prior year quarter. 2025 full year net sales totaled $1.552 billion. Fourth quarter adjusted gross profit margins were 47.6%, which stepped down sequentially as expected. Compared to last year, margins were down 10 basis points. For the full year 2025, adjusted gross profit margin increased 60 basis points to 48.7% from 48.1% during 2024. Adjusted SG&A as a percentage of sales for Q4 2025 increased to 31.8% from 31.5% during the year ago quarter. For the full year 2025, adjusted SG&A as a percentage of sales decreased to 31% from 31.6%. Adjusted EBITDA in the fourth quarter increased 2.3% to $57.5 million. Adjusted EBITDA for 2025 increased 13.9% to $275.3 million. Our adjusted EBITDA to net sales margin during the quarter was 15.8%, which compares to 16.1% a year ago. Adjusted EBITDA to net sales margin for the full year was 17.7% and which compares favorably to 16.4% a year ago.

Now turning to our cash flow and balance sheet. During 2025, operating activities generated $105 million versus $183 million in 2024. Impacting our operating cash flow, and therefore, free cash flow was about $65 million of tariff impact. Free cash flow for the year totaled $35.1 million, which included the $65 million of tariff impact versus $98.1 million in 2024. We ended the year with $665.8 million of net debt outstanding versus $674 million at the end of 2024, an improvement of $8 million.

Liquidity available totaled $306 million, consisting of $279 million of available borrowing under our revolving credit facility and $27 million of cash and equivalents. At the end of the year, our net debt to trailing 12-month adjusted EBITDA ratio was 2.4x, which improved from 2.8x at the end of 2024. Our strong balance sheet allows us to play offense. We can invest into organic growth opportunities, execute M&A and be opportunistic when it comes to using our balance sheet to add stockholder value.

Now let me turn to capital allocation. During 2025, we invested $70 million in the form of CapEx back into the business. This compares to $85 million in 2024. The decrease is a result of our mini key 3.5 investment slowing. During 2024, we had an accelerated capital spend to build and retrofit mani key 3.5 machines that were placed in the field during 2025. We continue to build and retrofit machines but the pace of capital spend is moderated. Additionally, during 2025, we invested $12.4 million to buy back 1.4 million shares of stock at an average price of $9.07 per share.

Let me now talk about our 2026 guidance. We anticipate full year net sales for 2026 to be between $1.6 billion and $1.7 billion with a midpoint of $1.65 billion. The midpoint of our guidance reflects an increase of 6.3% over 2025. Driving this increase will be a combination of new business wins and a mid-single-digit contribution from price. The high end of our guide assumes that market volumes are flat and the low end of our guidance assumes that market volumes stepped down from where they were in 2025.

There are a lot of variables that drive our top line performance but as we have seen over the last 20 years, we usually see mid-single-digit growth on our top line. We expect the same for 2026. Going forward, we will not provide explicit price and market volume performance on a quarterly basis. We will stay away from providing quarterly specifics on price for competitive reasons and in order to protect our customers.

For our bottom line, we expect full year 2026 adjusted EBITDA to total between $275 million and $285 million. The midpoint of $280 million represents an increase of 1.7% versus 2025. As we have talked about, we expect margins to normalize following robust results in '25, which will prove to be a difficult comp. The result is that we expect our 2026 net sales growth to outpace our 2026 adjusted EBITDA growth. We expect our full year adjusted gross margin to be between 46% and 47% for 2026. The step-down from last year is the result of tariff pricing and costs being fully realized in the P&L. This will result in margins being fully normalized starting in Q1 of 2026.

Lastly, free cash flow during 2026 is expected to come in between $100 million and $120 million, with a midpoint of $110 million, which reflects a 90-plus percent conversion of adjusted net income. We expect to invest between $70 million and $75 million of CapEx into our business in 2026, which is comparable to our 2025 spend. We continue to make necessary investments into the expansion of our mini key 3.5 fleet as well as invest in merchandising solutions across our customer base. For 2026, we expect to continue repurchasing stock under our stock repurchase program.

Our objective remains to offset any dilution caused by employee equity grants and opportunistically buy back stock. Excluding M&A, we expect we will end 2026 around 2.1x levered. This assumes that we fall near the midpoint of our guidance in that 2026 is a somewhat uneventful year, unlike 2025 when we had to deal with tariffs. During Q1 of 2026, we expect to use cash and our leverage will likely tick up as we build inventory to support our busy spring and summer seasons. This is typical for Hillman in the normal year.

Following Q1, we expect to generate free cash flow during each of the remaining quarters of 2026. Hillman is in a great position to build on the success we had in 2025, and we are confident we can achieve the targets we have laid out for you today. Our focus remains taking great care of our customers while growing the top and bottom lines of our business.

With that, let me turn it back to JMA.

Thanks, Rocky. We're optimistic about the year ahead and energized to keep pushing forward. We expect to grow share and achieve solid revenue and earnings gains throughout 2026. Our unwavering focus is on taking care of all of our stakeholders, customers, suppliers, team members and investors, and we will work diligently to deliver on that responsibility. We look forward to updating you during the year with our progress.

With that, we'll begin the Q&A portion of our call. Operator, please open the call for questions.

[Operator Instructions] Our first question comes from Lee Jagoda with CJS Securities.

Rocky, can we just -- I know you gave the full year gross margin expectations. Can you kind of walk through the cadence of the gross margins? And I guess, just given -- I would assume Q1 is going to be the low point but can you give us any sense for how low is low in Q1?

Yes. I think, Lee, as we said on the call, in our prepared remarks, we believe the year will be between 46% and 47%. And I think Q1 will be the low point of the year. There's a couple of things. First off, obviously, it's the lowest volume quarter that we have each year heading into the Q2 spring busy season. Secondarily, we actually have -- in the first quarter, we'll probably have the highest cost inventory flowing through the system that we've probably had in the history of Hillman just given the timing of where reciprocals were last year and the timing of flowing through.

So I would expect that we'll be slightly below that 46%, 47% in the first quarter. We should see it step up sequentially in Q2 and in the back half, I would expect we'll be at the high end of that range as we think about the second half of the year.

Got it. And then Rocky, I think you were talking pretty positively on new business wins and looking for them to be higher year-over-year in '26 versus '25. Can you talk to kind of what gives you the confidence there? How much of the new business wins anniversary on stuff that you've already started to load in, in '25. And then on the stuff that isn't anniversarying, what have you won already? And what should we be looking forward to?

Sure. I'm going to throw that over to JNM and let him comment. Thanks, Rocky. Yes, we're excited for several reasons. First off, we've got a solid set of initiatives this year. We have some nice wins that we're building off of in '25, that would cascade in the 26 to your point. I'm really fired it up because we have actually our national sales meeting this coming week Friday, Saturday, Sunday in Colorado. So we'll be in Denver with our sales folks get really fired up about the year. We've got some great new products. We got business development while it was a core function side of Hillman, we've actually grown and invested that.

We've got a business development team that's focused on a number of our brands where we got some exciting products and then the Pro. You heard us sprinkle a little bit of that into the presentation. But the real exciting thing is we're actually here this week in Orlando for the in a National Builder Show, we're actually broadcasting live from here. We got our booth. We have Power Pro. We got a lot of great Pro product that we're showing off. And our business is over $400 million of its Pro, and we're really fired up about the team that we have assembled that's driving it. So we got a lot of reasons to be confident that we're going to go win new business in a tough environment, and we look forward to talking more about that when we're together on March 19 for our Investor Day.

Our next question comes from Andrew Carter from Stifel.

To ask about the deterioration in sales in Protective Solutions. Correct me if I'm wrong, that is the business that can be subject to some channel load because it goes through the DCs. But anything else going on there besides just some near-term dynamics?

Andrew, thank you. Yes, I mean near-term dynamics, I think, is probably the right way to think about it. Yes, there's a little bit of a channel inventory balancing that we went through in the fourth quarter. That business actually has quite a few new products coming out in 2026. So we feel good about the trajectory as we move forward. We've also successfully integrated our INTECH DIY business, and that platform is performing pretty well in a tough market. So nothing else to really share .

Rocky, unless you had anything .

No. I mean, again, as we've said many times, that business is more subject to timing around when products launch when they come into the market and when -- like off-shelf activities are happening. And so I think that's what we saw in the fourth quarter. And we think as we -- as you go into '26, it should be growing like the rest of the business.

Second question to kind of think about RDS and kind of the machine rollout. You also have customer transition in that business. Could you quantify the headwind from that customer transition? Did that peak in Therefore, it slows during next year. Anything else to help with the modeling or how -- or to frame expectations on RDS?

Yes. The customer transition, Andrew, is -- will continue in Q1 and Q2, and then we'll anniversary that and that'll be behind us finally. So that would be 1 way to think about that as you're putting the numbers together for 2026. I think the big thing with that business is 3, 5 rollouts as we -- as I framed in my prepared comments, is actually doing well. Our RDS team and our field teams are doing a great job. We've actually been out in the field now that we've got scale in several markets, really focusing on driving the business, fine-tuning the technology, which we feel really good about. And we're confident that, that business will continue to grow after putting up a year of growth in '25, we'll build on that in 2026. So we're excited about where that business is moving to, and we look forward to reporting more as those results come in.

[Operator Instructions] Our next question comes from Stephen Volkmann with Jefferies.

Great I'm curious, I guess, it sounds like 26 were sort of transitioning to what we might consider sort of a more normal year from an operating perspective. So I'm trying to think about leverage when things do start to come back. So if those existing home sales come back that you talked about JMA, what's the right way to think about sort of the incremental EBITDA margin sort of based on where we're starting from here?

Yes. Steven, it's Rocky. I think the way to think about it is we would expect anything and everything that we do to be above fleet. The easy way to think about it is plus 20%. When you think about most of the business, obviously, RDS a little bit better than that, probably plus 30 when you think about incremental sales. But when we think about the business, that's what we're looking for as we grow.

Okay. And then any thoughts on sort of Canada as we model 2026? .

Yes. I think Canada is still under a fair amount of pressure. We actually have -- our sales team up there has really fired up about the new year. We've got some exciting things we're doing in Pro and other areas. So not a lot more detail to go into there. We think that economy, as we get through or into the spring season will be better. So we expect it to return to growth in 2026.

Our next question comes from David Manthey with Baird.

First off, on the sort of the long-term targets here, the 6% and 10% organic revenues and EBITDA growth, I guess I look over the past couple of years, the top line has been pretty consistent with that view. EBITDA has tracked a little bit below that. And I guess, philosophically, when we think about when you set those targets initially, I think RDS was expected to be a bigger contributor maybe to growth, but definitely to contribution margins. Can you just talk about that, the 6 and 10? And going forward, you're still feeling comfortable that those are the right targets for the company?

Dave, it's Rocky. I think you hit the nail on the head when you talk about -- we would have expected coming out of the IPO that RDS would have been a bigger growth driver. And because of that, you would have seen higher growth relative to EBITDA from an organic perspective. Again, 7%, if you look back since the IPO compounded growth in EBITDA in the business, which we feel pretty good about. I think what I would say is, in March, we are going to do our first Investor Day, I think you're going to hear us at Investor Day talk a lot about those longer-term targets. I don't think it's going to be a revolution. It will be an evolution of those targets. But I think we're going to give you the building pieces about how we think about the business how we think about it over the next 3 to 5 years. And I really don't want to steal the thunder, as you can imagine today from Investor Day. So I look forward to talking to everyone about that then.

Yes. Fair enough. And a minor point here but we're starting to hear whispers out in the market about chip shortages. And I don't know if that's the same type of chips that you guys are using in your machines but how are you situated relative to supply versus your growth goals in RDS and the mini 3.5 million?

Yes. I think we're in good shape, Dave. I think as you think about the wind down of having to do retrofits and new builds for 35, we're in good shape. As you think about once we've completed the entire fleet on to 3.5 by the end of 2026, then we're going to go into more maintenance mode around those. And I've not heard anything from our teams around chip issues, and I don't think we expect that, that will be a challenge going forward.

Our next question comes from Brian McNamara with Canaccord Genuity.

I just had a question on the guidance overall. I think it implies a bit of a step down. I think you had prior gave directional guidance of plus high single to plus low double digits, and I think you're at plus 6% at the midpoint. Just trying to figure out what drove the change there.

Yes. I think -- Brian, it's Rocky. I mean, obviously, the fourth quarter was a little softer than we expected. And we would tell you, even early in the year, what we saw in January and what we've seen because of weather in February has been a little softer than probably we would have anticipated. And so we're going to come out with a conservative guide given just what we've seen in the markets. It kind of puts you down a few points. We're not going to give exact guidance, but of a market, if you think about the midpoint which if you go back a few quarters ago, when we talked about directional guidance, we talked about a flat market. That was the hypothetical that we use to get to the high single or the low double digits. And so if you assume a few points down in market, that gets you down to kind of a mid-single digits kind of number at the midpoint.

Great. That's helpful. And then second, is there like a magic existing home sales number where it would meaningfully impact your business? We're at 4.1% right now, January is a rough month. anything where you like that number, our business starts to hum along a little bit better?

Brian, I don't know that there's a magic number but we do like in the mid-4s to 5% feels like the right better spot for us where you'll see some of that home improvement, whether you're putting houses on the market or you're looking to buy a house and you're making some modifications to it. So that's really where we'd like to be. So I don't know if there's really a sweet spot, if you will, but we'd like to see a bit of improvement from where we are today. Our repair and maintenance side of our business actually humming along pretty nicely. I'd just love to see a little bit more of that, get houses ready and also getting homes ready to be lived in, if you will, we'll see a little benefit from roto stay tuned but we're excited to capitalize that. That's why we're excited about the Pro side of our business as well.

Great. If I could just squeeze in 1 last 1 on M&A. It sounds like you guys are -- it sounds like you're a little more constructive on the M&A environment. I'm just curious how that environment looks relative to last year. I'm assuming a lot of talks were kind of paused because of tariffs and policy uncertainty. Is it just a function of maybe some targets coming back to the table? Is it new opportunities? Is there anything you could, any more color there would be helpful.

Yes, we are more excited now than we were last quarter or the quarter before that. So I think the -- we feel confident we'll do 1 to 2 deals in 2026. So we're excited about what we see in front of us. To answer your question where they're coming from, it is there's some opportunities that are coming back to the table that were put on pause. We're also seeing some new ones, and we see some activity and some definitely more M&A opportunities coming our way. So our M&A team is actually quite busy right now looking at a lot of deals, and we're excited about what's in front of us.

This concludes the Q&A portion of today's call. I'd like to turn the call back over to Mr. Ad Nolte for some closing comments.

Thank you, Liz. We look forward to hosting our first Annual Investor Day on March 19. So please keep an eye out for more information to date approaches. Thank you for joining us this morning, and I hope everybody has a great day. Take care.

Good morning, and welcome to the Third Quarter 2025 Results Presentation for Hillman Solutions Corp. My name is Tanya, and I'll be your conference call operator today.

Before we begin, I would like to remind our listeners that today's presentation is being recorded and simultaneously webcast. The company's earnings release, presentation and 10-Q were issued this morning. These documents and a replay of today's presentation can be accessed on Hillman's Investor Relations website at ir.hillmangroup.com.

I would now like to turn the call over to Michael Koehler with Hillman.

Thank you, Tanya. Good morning, everyone, and thank you for joining us for Hillman's Third Quarter 2025 Results Presentation. I'm Michael Koehler, Vice President of Investor Relations and Treasury. Joining me on today's call are Hillman's President and Chief Executive Officer, Jon Michael Adinolfi, or JMA as we call him; and our Chief Financial Officer, Rocky Kraft.

I would like to remind our audience that certain statements made today may be considered forward-looking and are subject to the safe harbor provisions of applicable securities laws. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions and other factors, many of which are beyond the company's control and may cause actual results to differ materially from those projected in such statements.

Some of the factors that could influence our results are contained in our periodic and annual reports filed with the SEC. For more information regarding these risks and uncertainties, please see Slide 2 in our earnings call slide presentation, which is available on our website.

In addition, on today's call, we will refer to certain non-GAAP financial measures. Information regarding our use of and reconciliations of these measures to our GAAP results are available in our earnings call slide presentation.

JMA will begin today's call by providing some commentary on our record third quarter results, briefly hit on our guidance and discuss our performance by business segment. Rocky will then give a more detailed walk through our financial results and guidance before turning the call back over to JMA for some closing comments. Then we will open up the call for your questions.

It's now my pleasure to turn the call over to our President and CEO, Jon Michael Adinolfi. JMA?

Thanks, Michael. Good morning, everyone, and thank you for joining us. The third quarter of 2025 was a record quarter for Hillman. We recognized the highest net sales and adjusted EBITDA of any quarter in our company's 61-year history.

Net sales for the quarter increased 8%. Adjusted EBITDA increased 36% and our leverage improved to 2.5x versus 2.7x a quarter ago.

These outstanding results were driven by our team's commitment to taking great care of our customers, successfully navigating the current tariff environment and operating efficiently across our global supply chain. I'm especially proud of this team because we accomplished these great results despite market volume headwinds and tariff volatility.

Our results for the year-to-date period have been strong. We are positioned well to build off this strength and expect to see continued growth for the remainder of 2025 and for 2026.

For the first time in a long time, we are encouraged with some of the leading macro indicators. For example, 30-year mortgages are down 50 basis points lower since last quarter. We are hopeful that lower rates, coupled with the elevated level of existing homes currently for sale will help drive existing home sales in the near future.

Based on our performance so far this year and our expectations for the rest of the year, we are reiterating our full year 2025 net sales guidance and increasing the midpoint of our full year 2025 adjusted EBITDA guidance.

We maintain our expectation that our full year 2025 net sales will be between $1.535 billion to $1.575 billion, with a midpoint of $1.555 billion. The low end of our net sales guidance represents 4% growth over 2024 and the high end of our guidance represents 7% growth over 2024.

As for our bottom line, we are increasing the low end of our guidance and now expect full year 2025 adjusted EBITDA to be between $270 million to $275 million with a midpoint of $272.5 million.

The low end of our 2025 adjusted EBITDA guidance represents 12.7% growth over 2024 and the high end of our guidance represents 14% growth over last year. These numbers are very consistent with our long-term algorithm and as we have said many times, we get there many different ways, but this business delivers in just about any environment.

Since our founding in 1964, Hillman has built a long and consistent track record. Over the decades, we have proven our ability to perform through every kind of economic cycle from periods of expansion to times of uncertainty.

The durability of our business model comes from the essential nature of our products. Our 112,000 SKUs are generally tied to everyday repair, maintenance and home improvement projects. These projects need to be done during good times and difficult times. As a result, we have delivered steady, resilient performance for more than 60 years.

Many would argue that the last 3 years have been a difficult market in our space with existing home sales hovering around $4 million annually. This is about 20% below the 10-year average of over 5 million single-family existing homes sold in the U.S.

How has Hillman performed during this time? Compared to where we were just 3 years ago, we have increased our trailing 12-month adjusted EBITDA at a 10% CAGR, totaling over $70 million, paid down over $240 million of debt while reducing our leverage over 2 full turns and successfully executed and integrated 2 acquisitions.

These outstanding results demonstrate the resilience of Hillman's model and the ability of this team to execute well in any environment.

You've heard us say that we are a good business when things are good and a surprisingly good business when things have been challenging. The last 3 years have proved this.

Hillman is a great company with a long track record of success. We have an experienced team that has been battle tested, great relations with our customers who are the best in the business at what they do and a world-class distribution network. We believe when the market turns, we will be positioned for outsized growth at both the top and bottom line.

Our growth and performance have been powered by our competitive moat and the long-term customer relationships that are unmatched in our space. The Hillman moat includes our secret sauce of 1,200 dedicated sales and service reps working directly in our customer stores, our best-in-class direct-to-store delivery capabilities, category management expertise and retail partnerships that are embedded and strategic. These make Hillman an indispensable partner to our customers.

To date, we have successfully managed the current tariff environment, which continues to evolve. Thanks to our team's hard work, we have fully covered the increased costs associated with higher tariffs.

We continue to execute our dual faucet strategy where we buy products from multiple suppliers in multiple countries. At the end of the quarter, we held our annual supplier conference in Vietnam.

Our sourcing team and I met with many of our top suppliers. This annual event serves as an important in-person touch point to strengthen relationships with our supplier partners, which is especially important given the environment.

Meeting face-to-face offers our long-term and new supplier partners a fresh view of Hillman's near-term objectives and how we can work together to achieve our long-term goals.

As we have seen throughout this year, changes in tariff policy can shift the market rapidly. The flexible supply chain we have built allows us to react to these changes so that we can always deliver high-quality products to our customers at the best value.

Managing tariffs has been a big effort for our team, but we have not lost focus on taking great care of our customers, winning new business and consistently striving to make our operations more efficient.

We continue to deliver orders on time and in full to our customers, which have been demonstrated by excellent fill rates, which have been above 95% this year.

Now let's turn to results for our quarter. Net sales in the third quarter of 2025 totaled $424.9 million, which increased 8% versus the third quarter of last year. Driving our robust top line was a 10-point increase from price, 2 points from Intex, which we acquired during August of 2024 and 2 points from new business wins. These were partially offset by a 6-point headwind from market volumes, which was consistent with our expectations.

For the quarter, adjusted EBITDA increased 36% to $88 million compared to $64.8 million last year. Adjusted EBITDA margins improved by 420 basis points to 20.7%.

Adjusted gross margin for the quarter totaled 51.7%. This marks a 350 basis point improvement from 48.2% during the third -- the year ago quarter and a 340 basis point improvement from 48.3% last quarter.

Driving our year-over-year sequential margin performance were both improved contributions from RDS and benefit from price cost timing.

Our biggest segment, Hardware and Protective Solutions or HPS, had a great quarter with 10% growth versus the comparable period. Adjusted EBITDA increased by 57.3% to $65.8 million. Our results were driven by contributions from Intex, new business wins and price cost, partially offset by a 5.5% decline in HPS market volume.

Net sales in Robotics and Digital Solutions, or RDS, were up 3.3% versus the year ago quarter. This is our third consecutive growth quarter for RDS and again illustrated the successful rollout of our Mini Key 3.5 strategy.

Adjusted gross margins and adjusted EBITDA margins were both near their historic norms, totaling 74.2% and 31.4%, respectively. As of today, we have over 3,000 Mini Key 3.5 machines in the field, an increase of over 800 during the last 3 months. We remain on track to finalize the rollout of these kiosks to our 2 largest customers by the end of 2026.

Turning to Canada. Net sales in our Canadian business were nearly flat, down just 0.2% compared to the prior year quarter. New business wins were partially offset by another quarter of soft market volumes and FX remained a headwind. We continue to expect that adjusted EBITDA margins will remain above 10% in Canada.

Overall, this was a great quarter. Hillman's disciplined operations, strong execution and healthy customer relationships position us to continue delivering consistent results in this or just about any environment.

With that, let me turn it over to Rocky to talk financials and guidance. Rocky?

Thanks, JMA. Let's get right to our results, then we'll review our guidance.

Net sales in the third quarter of 2025 totaled $424.9 million, an increase of 8% versus the prior year quarter. Our top line results were a record for Hillman, marking the highest net sales of any quarter in our 61-year history.

Third quarter adjusted gross margin increased by 350 basis points to 51.7% versus the prior year quarter and improved 340 basis points sequentially. Adjusted SG&A as a percentage of sales decreased to 31% during the quarter from 32% in the year ago quarter.

Adjusted EBITDA in the third quarter totaled $88 million, improving 36% versus the year ago quarter. This also marked the highest adjusted EBITDA of any quarter in our 61-year history.

Recall that last year, we revised our presentation of adjusted EBITDA to include a $7.8 million write-off of receivables from True Value during Q3. Even excluding the revision, adjusted EBITDA still increased over 21%.

Adjusted EBITDA to net sales margin during the quarter improved by 420 basis points to 20.7%. We saw price increases read through our income statement throughout the quarter, while tariffs began to burden our cost of goods sold toward the end of the quarter.

This price cost dynamic -- timing dynamic drove record results for Hillman and should begin to normalize next quarter.

Now let me spend a minute on cash flows. For the quarter, net cash provided by operating activities was $26.2 million and we generated $9.1 million of free cash flow. Impacting our free cash flow for the quarter was about $30 million of tariff-related costs. At the end of the third quarter, we had about $60 million of new tariffs in our inventory.

Turning to leverage and liquidity. We ended the third quarter of 2025 with $672 million of total net debt outstanding, which was [Technical Difficulty] by $3 million from the end of the second quarter.

Liquidity available totaled $277 million, consisting of $239 million of availability on our credit facility and $38 million of cash and cash equivalents.

At the quarter end, our net debt to trailing 12-month adjusted EBITDA ratio improved to 2.5x versus 2.7x a quarter ago and 2.8x at the end of 2024. We have now reached our long-term adjusted EBITDA to net leverage ratio target, which is at or below 2.5x.

We will continue to pay down debt while we evaluate M&A opportunities and use our improved financial strength to play offense.

As we announced last quarter, our Board approved a $100 million share repurchase program. This marks the first time Hillman has an active SRP in place since coming public in 2021.

During the third quarter of 2025, we deployed $3.2 million to buy back 326,000 shares at an average price of $9.72 per share. We continue to be in the market buying stock.

Our SRP activity during Q3 and since falls in line with our anticipated $20 million to $25 million annual spend buying back stock. Our objective here is to offset any dilution caused by employee equity grants and opportunistically buy stock should we feel there is a meaningful discount between the value of Hillman and where our stock is trading.

We believe these repurchases will be accretive to earnings per share, drive shareholder value and are an attractive place to deploy capital.

Now to our guidance. We are reiterating our top line guidance of $1.535 billion to $1.575 billion, with a midpoint of $1.555 billion, reflecting 5.6% growth over last year. For the full year, the growth at the midpoint of our guide is driven by about 6 points of price, 3 points from Intex and 2 points from new business wins, which are partially offset by a 6-point headwind from market volumes.

For the second half of the year, we anticipate about 11 points of price, 1 point from Intex and 2 points from new business wins, which are partially offset by a 7-point headwind from market volumes.

For the bottom line, we are increasing the low end of our adjusted EBITDA guidance by $5 million. This raises the midpoint as the top end remains unchanged. Our increased adjusted EBITDA guidance is now between $270 million and $275 million, with the midpoint of $272.5 million, reflecting 12.7% growth over last year and a $2.5 million increase from our previous guide. Our expectation remains that we will end the year around 2.4x leverage.

As we discussed, the price cost timing dynamic drove record results for Hillman during the third quarter. Now during the fourth quarter, we will see price increases fully reflected while tariffs burden our cost of goods sold. The result of this will be a step down in adjusted gross margin rate, which will look similar to our gross margins during the second quarter of this year.

Before I turn it back to JMA, I want to thank the whole team for delivering such a strong quarter with solid growth on both the top and bottom line. We are confident we can keep this momentum going through 2026 by staying disciplined and focused on our key priorities.

That said, with flat market volumes, we expect full year 2026 net sales to grow in the high single to low double digits. The increase will be driven by rollover price and new business wins.

However, the price cost timing dynamic we are benefiting from now presents a difficult margin comp next year. Further, we expect adjusted EBITDA to grow next year in the low to mid-single digit range, assuming no change to the current tariff environment.

We will give our detailed full year 2026 guidance during our Q4 earnings call next February. The numbers I just provided are directional as we are not predicting what market volumes will be next year at this time.

Hillman is in a great position to build on this success, continue growing with our customers and drive long-term value for our shareholders through the rest of this year and beyond.

JMA, back to you.

Thanks, Rocky. We are pleased with our results so far this year and are very excited about the future. We continue to work on ways to grow our business within our 4 walls of our existing customers and beyond.

Before we wrap up, I want to once again thank the entire Hillman team for an outstanding quarter. Your hard work and commitment continue to drive great results, strong growth, solid execution and momentum.

As we look ahead, we're confident in our ability to keep the momentum going. We're focused, disciplined and aligned around the correct priorities, growing with our customers, strengthening our partnerships and creating long-lasting value for our shareholders.

Hillman is in a great position and the opportunities in front of us are exciting. I'm incredibly proud of what this team has accomplished so far this year and even more excited about what's ahead.

With that, I'll turn it back to the operator for the Q&A portion of the call. Tanya, please open the call for questions.

[Operator Instructions] And our first question will come from Lee Jagoda of CJS Securities.

It's Pete Lucas for Lee. I guess starting out, have you seen any competitive opportunities or pressures as a result of other suppliers to your customers and their actions around willingness or ability to import product that could be changing the competitive landscape out there?

I mean, from what we're seeing right now, we actually have quite a few different business opportunities that we're quoting on. We're excited about our new business opportunities that will cascade into 2026.

So yes, we do see opportunities in the market where we've seen some competitors that have seen some challenges operating in this environment. So yes, we're excited about 2026 and what's ahead of us.

That's great. And in terms of -- what have you seen in terms of order patterns from your largest retail customers in the last month or 2 compared to sell-through?

They've been very consistent. We've got great relationship with our retail partners. They're running solid businesses right now. And I think all of us are excited about the next run that will be in front of us. So we haven't seen anything out of the ordinary.

Great. And then just last one for me. On the -- I know you touched on it and we'll hear more about '26 later, but on the last call, you did give us a preview in terms of what kind of growth you might expect to see in '26. Given today's results and the guidance, what, if anything, has changed for your '26 view?

This is Rocky. Pete, absolutely nothing. I mean, we reiterated the same view that we had before. If you assume -- and again, we're not yet predicting what we think the markets will do in 2026.

But if you assume those markets are flat, we believe the top line will be up high single to low double digits and that's primarily driven by rollover price and new business wins and that gives us a lot of confidence in that number.

And then when you think about how that reflects down the P&L into EBITDA, that read should be kind of low single to mid-single digits on the EBITDA line. And the reason that we don't leverage in '26 like we normally do in the business is because of the kind of windfall we have for a short period of time in 2025 around tariffs.

And our next question will be coming from Andrew Carter of Stifel.

I want to focus on the Hardware Solutions segment. Price was up 12.5%, volume down 33. Is that kind of a real-time elasticity number? Or were there any helpers to the volume? I think the new business wins were isolated to Protective Solutions.

It's -- I think hardware is about as real time as you get with your retailers in terms of sales. But are there any pockets where retailers can take a little extra inventory or whatever? So I'll stop there.

Yes, I would say, Andrew, the short answer is yes. I mean -- but it depends. I mean, listen, we sell to a lot of different customers, we sell a lot of different products. And so every product and every customer behaves a little differently.

If you think about the retail channel that we sell into, clearly, in a period of rising prices, a local hardware store is probably going to buy less inventory in the first turn of that until they see their price read through. When you think about folks, the big guys, we don't send a lot of product through their distribution centers, we go store direct.

And so because of that, the ability to take inventory out of the channel is muted, but that doesn't mean there is not an ability to say that our big customers couldn't at times take some inventory out of the channel in a period of increasing prices would be naive. They can.

That said, again, compared to someone who's living through a customer's distribution channel or through their DCs, obviously, there's a lot less impact on a business like ours because we're going store direct.

So that was a long-winded way for me to say, yes, as prices are rising, there's clearly an impact with our customers around price. As we look at POS, JMA, I mean, October felt okay and the third quarter felt okay. I would say better than it's felt for a while and there's some green shoots, but we're still cautiously optimistic.

When -- the one thing we would continue to believe, Andrew, is that we have positioned this business really well for when the market turns and we see housing return. I think when housing returns because of how well we're operating the business, we're positioned to take advantage of that.

Rocky framed it up well. I mean, you think about the repair and maintenance side of our business, very consistent. We see some good trends. And so we see some good things setting up for 2026 and beyond. We're not changing our outlook. But Andrew, we were pleased with how the business performed in Q3.

A second question I would ask about kind of the tariff number. If you said in the script, I apologize, the $150 million. Is that still a good number even with some favorable changes? And from here, if we get favorability here and there, how is that going to work in kind of the pricing with retailers as well as kind of the potential implications to your P&L?

Are there -- will you see favorability immediately? Will you have to wait, et cetera?

Yes, I think we've not come off that -- it's approximately $150 million of total tariff in the business, Andrew. It's interesting because even last week, we saw a 10% reduction in reciprocal as an example, out of China. That said, there were a lot of things that moved in the quarter. And so we're still around that same number.

To your second question around timing, to the extent there is a benefit or there are costs, it does take time to run through our inventory. And so we are delayed in whether we see the benefit or the, call it, the bad guy from the timing of tariffs.

Rocky, that's exactly right. So for us, we're running the business, we're always going to put the right products in front of our customers from the country of origin where it makes the most sense. We're going to have the highest quality and make sure that our supply chain stays robust.

So Andrew, no macro change with what you just mentioned. And candidly, there were a number of other changes, plus and minuses in tariffs over the past quarter. We don't spike those out separately.

And our next question will be coming from Reuben Garner of Benchmark.

So Rocky, those second half volume numbers, I think you said market down 7%. Are you -- do you think that the elevated price from the tariffs is driving that? Is it just broadly consumer activity?

Like I don't know if you can tell, but I know you didn't raise price necessarily on every product the same, but can you tell how much the price is having an impact on the actual demand in your space?

Yes. It is virtually impossible to figure out what's driving consumer impact, whether it's price increase or whether it's whatever other thing that's happening in the external environment. We do look at POS, we look at customer trends, but figuring out what is directly related is very difficult.

The 7% is the implied number at the midpoint of our guide. I think everyone will remember the implied number in our guide in the third quarter was down about 9% in volumes. We did a little better than that. And our commentary around that was what we told people. It is really hard to predict what's going to happen to market volumes.

We were confident that the amount of price that was going into the market that they wouldn't be down 2, it will be bigger than that. And we're relatively confident it would be less than 9% and we ended the third quarter kind of right in the middle of those numbers.

I think as we go into the fourth quarter, we're cautiously optimistic that market volumes may be a little better than the guide, but we were down 6% in the third quarter and you think about going into the fourth quarter, could be other macro factors like even think about Christmas spending and things like that, it's probably a good number and will be in the ballpark.

Got it. And then the sequential improvement in gross margin, you mentioned RDS. Can you talk to us about how much of that improvement was from RDS versus the price cost? And then I guess, what exactly is driving the pickup in the RDS profitability?

Yes, I mean, the largest percentage of the increase was driven by what happened with price cost. When you think about RDS, that number was up, it was up about, call it, 100 basis points in the quarter. The RDS pickup is really driven by the 3.5 rollout and what's happening there and the profitability of that business.

So we feel really good about RDS, the fact that we've grown it 3 quarters in a row and we continue to execute on our 3.5 strategy. But again, the biggest driver of margin improvement in the quarter was the price cost dynamic.

And as we said in the prepared remarks, we expect that to come back in the fourth quarter and we would expect the fourth quarter gross margins to look a lot like what we saw in the second quarter of this year.

And our next question will be coming from Matthew Bouley of Barclays.

You have Elaine Ku on for Matt. I wanted to touch on pricing a little bit. So you've kind of pointed to expectations of price cost neutrality in the face of tariffs. But sort of this quarter, we've seen a sense of price fatigue where some of your peers have kind of not seen that full anticipated price realization.

So just wondering, like are you experiencing any similar signs of a bit more elasticity or pushback on price than expected? Or is that price kind of coming through largely according to your expectations?

And just what has feedback been on just receptiveness of increases or negotiations, just anything around that?

Yes. It's Rocky. I'll answer the beginning of the conversation, then I'll let JMA comment on relationship with customers.

I think -- it's interesting because I would tell you, it kind of went as expected with lots of twists and turns because as you can imagine, the tariff regime has changed so many times. That said, we had always told everyone that we expected price even before tariffs to be flat during the current year, but a bit of a headwind in the front half.

That implied that we would take some price for inflation and we did take some price for inflation in certain channels on certain products where it was necessary.

So I think as you think about that, price, in my opinion and in the company's opinion, has played out about as expected. It hasn't been easy, but our customers have -- understand. They live in the same world we live in and so have been fair, I would say, relative to how price has rolled out. And JMA, do you want...

Yes, Rocky. I mean, that's exactly right. I mean the customer conversations have been challenging, but they've been balanced, right? They want the same thing that we want. We want to make sure they continue to flow the supply chain right.

They will need high levels of service. They want to make sure their customers are taken care of. And that's why we're doing things with our customers now. We're resetting more in this year and 2025 than we really have in record, if you will.

So we're going to continue to make investments in our business. We're going to continue to keep the product flowing because we really are still excited. I won't call when it's going to happen, but when it does, we believe the home improvement market is set up for a great run. So we're excited about where we are.

The conversations around price are certainly challenging, but our customers and we are aligned that we want to take care of the end user.

Great. And second to that, I guess, you had mentioned October felt okay and you're seeing some green shoots. So could you kind of elaborate more on what those green shoots are? And similar to Pete's question earlier, are you seeing any incremental new business wins just given today's market backdrop or opportunity there?

Yes. So I mean, on the market, October was slightly better than what we saw in Q3. I'm not going to go into any specifics on each retailer, if you will. But Elaine, we've seen some certain categories that are what we deem to be non-elastic, if you will, actually doing decently. So just given the complexity of this call, you can understand I won't go any deeper there.

We really think the setup as we move forward and kind of where Pete was going, we really feel like the new business wins that we have, we talked about [ ACE ], we talked about our chain win that we had there that's rolled out nicely in 2025 is just an example of things that we're doing.

Our teams have a number of big projects in motion right now. We're going to report them out as we realize them versus getting ahead and talking about what we want to win. But we have some exciting opportunities in the hopper and we'll have more to come in future quarters.

[Operator instructions] Our next question will come from David Manthey of Baird.

First off, thanks for the 2026 outlook. I guess, did you say that that revenue outlook of high single, low double on the top line is in a flattish market? Is that correct?

Yes. That is, Dave. What we keep trying to say and we're going to keep trying to say it is that assumes a flat market. At this point, sitting on November 4 to predict next year's market is tough. And so we'll let people make their own estimates. But in a flat market, that's the expectation we have.

Got it. And then, yes, it looks like EBITDA, it probably builds more cleanly from '24 than '25, but seems to be right based on what you told us. So thank you for giving us that framework at least.

In the quarter itself, could you just talk about -- I mean, there's a lot of variability relative to us, relative to the Street in the third quarter, the fourth quarter, but netting it all out, it looks like it pretty well hit the mark.

The high gross margin was expected in the third quarter. Could you talk about why SG&A was also so elevated in the third quarter?

Yes, Dave, the biggest impact, quite frankly, on the SG&A in the third quarter is the way our bonus accrual works. And so there was a pretty significant bonus accrual relative to the rest of the quarter.

And so I think if you took that out, you would see that number be pretty consistent with what we've seen in the other quarters of the year.

And so was that some sort of catch-up that you had to smooth it out relative to the first 3 quarters and then it will be normal in the fourth? Is that right?

That's correct.

Yes. Okay. And then when you think about the third quarter and the fourth quarter, again, given the wild variability relative to our own estimates to the Street, what for you came in differently than how you were thinking about things, if at all?

When you look at the third quarter and then sort of what you're guiding for the fourth, is there anything in there that you say, well, this is a little bit more, a little bit less than we were originally anticipating midyear?

Yes. I would say, Dave, as we look back on what we said last quarter, I think it was pretty consistent with our expectations in both the third and what we're seeing in the fourth quarter.

So I don't think there was anything really that surprised us. We expected the profitability. We expected the margin rate to increase about 300 basis points. It might have been a little bit better than that, but pretty much in line with our own expectations.

I think the team did a really good job of performing again in really tough -- a really tough environment when you think about what's happening macro with tariffs and those conversations with our customers.

I think the other thing that I think we're really proud of is we had 2% new business wins in the quarter in spite of all of the noise around tariffs. Again, great job when you think about what our sales team is doing and it really speaks volumes about how much our customers value and trust us when we're able to go out and win new business when we're asking for price at the same time.

Yes. And I think in addition to the sales team doing a great job, our operations team is world-class. We're very proud of what they've done. They've really run the business well. Q3 was an excellent quarter, very efficient. We had a lot of moving pieces and the team was able to execute.

So yes, there's a little bit higher cost, as Rocky mentioned. We did do things like labeling on the field. There was a lot of activity in Q3. So we feel like Q3 is set up and we also feel like, Dave, Q4 is on target with what we expected.

And our last question will be coming from Brian McNamara of Canaccord Genuity.

So Rocky, I just want to clarify the cadence. In May, I think your projection for market volumes and pricing was plus 17, minus 17. Then in August, it was plus 12, minus 9 for H2. And then now it's plus 11, minus 7. Is that correct?

I think that's -- I think those were quick the way you said that, Brian. But yes, I think it's correct. The only thing I would say when you say those numbers, again, back to the minus 17, that was when there was a $250 million tariff regime. And in that environment, we weren't changing any of our guidance.

Understood. Understood. I'm curious on the timing of when these price increases hit the shelves, understanding, obviously, it probably varies by retailers. As our work suggests it's kind of late August, early September?

Yes. I mean, you're spot on. I mean, if you think about traditional hardware, labels are put on throughout the back half of the year. So yes, you didn't see all that price really reading in till Q3, into Q4.

And then each of the other retailers, they maintain their own pricing and they drive the retail strategies that they see fit. So you've seen it cascade in throughout the quarter and we expected it to cascade in the fourth quarter as well.

Got it. And then has there been any pushback on these significant price increases either on the retailer level or the customers within the stores? And I'm curious your thoughts on -- I mean, lumber has been a pretty volatile commodity this year.

There's a lot been written in the quarter, obviously, about it was dropping in price. It was up year-to-date. I'm just curious, like how is the price of lumber and maybe other construction materials either directly or indirectly impacted your business?

Yes. I mean, just go back to here. I mean, customers have been balanced and reasonable. They understand this is a tax and we have to run a business.

So I won't say they've been easy, but they've also been fair. We have -- we do business with some of the best retailers in the world as you know and I think that's been reasonable.

As far as the impact of lumber, I think from my perspective, this is one man's opinion. I think what you see is we're still seeing the smaller projects are still going forward. People do the repair and the maintenance type activities because they have to take care of that good times are bad.

Brian, what we are seeing though is -- and I think this is consistent, I'm not going to quote the retailers, but the larger projects is where you're seeing some pushback. So where we would have had some drywall screws or some structural screws go along with the project and where lumber might be impacting that, that is where I would say that there has been less of the demand than we'd like to see.

And that's where we believe the interest rates as well as getting things settled down from a tariff perspective will help in '26 and again, why we're excited about the future. So yes, I think the input prices on bigger ticket items is a pressure point in my opinion.

Great. And then just if I could squeeze one last one on M&A. Obviously, a big part of your story historically, I'm assuming there's been a pause given tariffs and the like. When do you see that maybe starting to open up a little bit, just given we probably have a little more clarity on tariffs today than we have in acknowledging it changes daily with tweets?

Yes. Well, I won't comment on that aspect. But back to the M&A piece of it, Brian, we are seeing -- our team is actually getting more inbound now than we saw last quarter or the quarter before that.

So actually, we're starting to see some interesting activity. So I'd say the activity and the interest level is ticking up a bit. We're excited about continuing our strategy, which is to drive tuck-ins whether it's we focus on our core business or what we're doing to grow DIY and specifically also we're interested in the Pro. As you know, it's 25% of our business. We're going to look at deals that make sense in all those 3 areas.

So we're excited about what M&A will present for opportunities as we move forward.

And this concludes the Q&A portion of today's call. I would now like to turn the call back to Mr. Adinolfi for closing remarks.

Thanks again, everyone, for joining us this morning. We look forward to updating you on our progress soon. Thanks, and have a great day. Take care.

You may now disconnect.

Good morning, and welcome to the Second Quarter 2025 Results Presentation for Hillman Solutions Corp. My name is Towanda, and I will be your conference call operator today.

Before we begin, I would like to remind our listeners that today's presentation is being recorded and simultaneously webcast. The company's earnings release presentation and 10-Q were issued this morning. These documents and a replay of today's presentation can be accessed on the Hillman's Investor Relations website at ir.hillmangroup.com.

I would now like to turn the call over to Michael Koehler with Hillman.

Thank you, Towanda. Good morning, everyone, and thank you for joining us. I'm Michael Koehler, Vice President of Investor Relations and Treasury. Joining me on today's call are Hillman's President and Chief Executive Officer, Jon Michael Adinolfi, or JMA, as we call him; and Hillman's Chief Financial Officer, Rocky Kraft.

Before we get into today's call, I would like to remind our audience that certain statements made today may be considered forward-looking and are subject to the safe harbor provisions of applicable securities laws. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions and other factors, many of which are beyond the company's control and may cause actual results to differ materially from those projected in such statements. Some of those factors that could influence our results are contained in our periodic and annual reports filed with the SEC. For more information regarding these risks and uncertainties, please see Slide 2 in our earnings call slide presentation, which is available on our website, ir.hillmangroup.com.

In addition, on today's call, we will refer to certain non-GAAP financial measures. Information regarding our use of and reconciliations of these measures to our GAAP results are available in our earnings call slide presentation. JMA will begin today's call by providing some commentary on our strong second quarter results and then give an update on our guidance. Following JMA's comments, Rocky will give a more detailed walk through our financials and guidance before turning the call back over to JMA for some closing comments. Then we will open the call up for your questions.

It's now my pleasure to turn the call over to our President and CEO, Jon Michael Adinolfi. JMA?

Thanks, Michael. Good morning, everyone, and thank you for joining us. We executed well and took great care of our customers during the second quarter of 2025, driving strong results on both the top and bottom line. We are pleased with our results for the first half of the year and are positioned well for continued top and bottom line growth in the second half of the year.

Let me take a moment to provide an update on some topics we discussed last quarter. We told you that our business is well positioned to operate in any environment, and we delivered solid results during both quarters this year. We told you that we would cover tariff-related cost increases, and we have. We told you that the resilience of Hillman's business should prove volumes to be better than our guide and they were. We told you that we would optimize the country of origin where we source our products with our dual faucet strategy, and we have. The Hillman team did a fantastic job during the quarter.

I am proud of how we work together to navigate this dynamic environment while not losing sight of our long-term goals. Based on our performance so far this year, the excellent job this team has done, we are raising the midpoint of both of our full year 2025 net sales and our full year 2025 adjusted EBITDA guidance. We now expect our full year 2025 net sales to be between $1.535 billion to $1.575 billion, with a midpoint of $1.555 billion.

The low end of our net sales guidance represents 4% growth over 2024, and the high end of our guidance represents 7% growth over 2024. As for our bottom line, we now expect our full year 2025 adjusted EBITDA to be between $265 million to $275 million with a midpoint of $270 million.

The low end of our 2025 adjusted EBITDA guidance represents 10% growth over 2024 and the high end of our guidance represents 14% growth over last year.

Let me spend 1 minute on how we're thinking about 2026 based on what we know today. We expect full year 2026 net sales to grow in the high single to low double digits and adjusted EBITDA to grow in the low to mid-single digits, both in an environment where we are assuming market volumes are flat. Rollover price in our typical new business wins will drive our top line in 2026. Considering the tariff comp next year, we will remain focused on managing margins, operating efficiently and controlling costs. Rocky will share more details on our guidance and outlook for the remainder of the year in a bit.

Hillman has a long track record of performing through all kinds of economic environment since we were founded over 60 years ago. Historically, our consistent growth and solid performance has been driven by our competitive moat, steady demand for our products tied to everyday repair and maintenance projects and great long-term relationships with our customers.

Hillman's value-added moat, which consists of over 1,200 sales and service reps in our customer stores, direct-to-store delivery capability, category management and deeply integrated retail partnerships unlike any company in our space. Today, we are successfully managing the current tariff environment while not losing sight of taking great care of our customers, winning new business and consistently striving to make our operations more efficient. We continue to deliver orders on time and in full to our customers, which has been demonstrated by our excellent fill rates for the first half of the year.

From a supply chain and operations standpoint, we continue to execute our dual faucet strategy. We've made progress reducing our exposure to suppliers based in China, where we are confident that we can end 2025 with the ability to source approximately 20% of our products from China. This compares to 2018 when we sourced nearly 50% of our products from China.

The dual faucet strategy is the concept of buying product not only for multiple suppliers, which has always been our strategy, but from multiple suppliers in multiple countries. We know tariffs can change the market quickly. We are prepared for this and have built a flexible supply chain that allows us to deliver quality products at the best overall value for our customers. We are confidently navigating the tariff situation and executing our plan to set Hillman up for long-term success with our customers and long-term growth.

Now let's turn our results to our results for the second quarter. Net sales in the second quarter of 2025 totaled $402.8 million, which increased 6.2% versus the second quarter of last year. Driving our top line growth was a 4-point increase from Intex, which we acquired in 2024, 2 points from new business wins and 2 points from price. These were partially offset by a 2-point headwind for market volumes.

For the quarter, adjusted EBITDA increased 10.1% to $75.2 million compared to $68.4 million last year. Adjusted EBITDA margins improved by 70 basis points to 18.7%.

Adjusted gross margins for the quarter totaled 48.3% and which were down slightly from 48.7% during the year-ago quarter, but improved sequentially from 46.9% for the first quarter of 2025. Driving our sequential margin performance for the quarter was improved margins in RDS and a modest amount of tariff-related price.

Our biggest segment, Hardware and Protective Solutions, or HPS, had a great quarter with 8.7% growth versus the comparable period. Adjusted EBITDA increased by 14.7% to $51.5 million. Our results were driven by contributions from Intex's acquisition, new business wins and price, offset by just 1% decline in HPS market volume.

Net sales in Robotics and Digital Solutions, or RDS, were up 2.3% versus the year ago quarter. This is our second consecutive quarter of growth for RDS, which confirms our MinuteKey 3.5 strategy is working. Adjusted gross margins and adjusted EBITDA margins both improved sequentially, totaling 73.1% and 32%, respectively.

As of today, we have over 2,200 MinuteKey 3.5 machines in the field. We remain on track to finalize the rollout of these kiosks to our 2 largest customers by the end of 2026.

Now turning to Canada. Net sales in our Canadian business were down 5.6% compared to the prior year quarter. Sales volumes and adjusted EBITDA improved sequentially as we moved from winter into the spring selling season. Market volumes improved but remained soft and FX headwinds weighed on our Canada's results.

For the second half of the year, we expect Canada to return to top line growth. And for the full year, we continue to expect that adjusted EBITDA margins will remain above 10% in Canada. Overall, Hillman is in a great position with our customers, and we'll continue to successfully execute in this environment.

With that, let me turn it over to Rocky to talk financials and guidance. Rocky?

Thanks, JMA. Let me dive right into our results, and then I'll get to our guidance. Net sales in the second quarter of 2025 totaled $402.8 million, an increase of 6.2% versus the prior year quarter. Second quarter adjusted gross margins decreased by 40 basis points to 48.3% versus the prior year quarter, but improved 140 basis points sequentially.

The Intex acquisition we made in August of 2024 has gross margins below our fleet. This drove the step down in margins versus last year. Additionally, we saw a modest amount of tariff-related price during the quarter, which helped our margins improve sequentially while entering into our busier spring selling season where we leverage more of our fixed costs.

Adjusted SG&A as a percentage of sales decreased to 29.7% during the quarter from 30.7% from the year ago quarter. Adjusted EBITDA in the second quarter totaled $75.2 million, improving 10% versus the year ago quarter. Our adjusted EBITDA to net sales margin during the quarter improved by 70 basis points to 18.7% from a year ago.

Let me now turn to cash flows. For the quarter, net cash provided by operating activities was $48.7 million, and we generated $31.2 million of free cash flow even with a $32.5 million cash headwind from tariffs.

Turning to leverage and liquidity. We ended the second quarter of 2025 with $674.7 million of total net debt outstanding, which decreased by $29 million from the end of the first quarter. Liquidity available totaled $246.9 million, consisting of $212.7 million of availability on our credit facility and $34.2 million of cash and equivalents.

At quarter end, our net debt to trailing 12-month adjusted EBITDA ratio improved to 2.7x versus 2.9x a quarter ago and 2.8x at the end of 2024. We maintain that our long-term adjusted EBITDA to net debt leverage ratio target remains at or below 2.5x. This will give us the flexibility to grow via M&A and use our improved financial strength to play offense.

Last week, our Board approved a $100 million share repurchase program. This is the first time Hillman has had an SRP in place since coming public in 2021. We are comfortable with our leverage ratio and feel it prudent to have an active plan in place. We intend to buy stock back to offset dilution resulting from employee stock awards. Doing so will have a minimal impact on our leverage. We will also seek to buy stock back when we believe there is a disconnect between the value of our company and the value of where the stock is trading. We anticipate deploying between $20 million and $25 million annually depending on the market. We believe these repurchases will be accretive to earnings per share, drive shareholder value and will be an attractive place to invest capital.

Similar to the SRP, our Board also approved a shelf registration statement. Similar to the SRP, we felt it good public company governance to have a shelf on file. To be clear, we do not intend to use the shelf to raise capital of any kind in the foreseeable future. We are simply putting the mechanism in place now.

Now let me turn to our guidance. While Hillman's business is generally resilient because of the demand for our products used for repair and maintenance projects around the home, we are not immune to declining foot traffic at our retail partners and a consumer watching their spending. Our top and bottom line guide contemplate a volume decline, which we believe is a prudent outlook for the year, considering existing home sales are projected to remain flat. On our last call, we told you that our guidance was conservative and our volumes will be better than our guide. So far, that has proven to be the case.

Now we have more clarity on how tariffs will impact our business, and there's less uncertainty around our expectations for the year. As such, we have increased the low end of our net sales guidance by $40 million. This raises the midpoint as the top end remains unchanged. Our updated net sales guidance is now between $1.535 billion to $1.575 billion, with a midpoint of $1.555 billion, reflecting 5.6% growth over last year and a $20 million increase from our previous guide.

We are also increasing the low end of our adjusted EBITDA guidance by $10 million. This raises the midpoint as the top end remains unchanged. Our updated adjusted EBITDA guidance is now between $265 million and $275 million, with a midpoint of $270 million, reflecting 11.7% growth over last year and a $5 million increase from our previous guide. In addition, we calculate the annualized run rate for tariffs to be approximately $150 million. The team has done a great job working with our customers to get price. We are confident we will end the year around 2.4x leverage, assuming we hit the midpoint of our guidance even after deploying some cash to execute a modest share repurchase.

Before I turn it back to JMA, I wanted to thank the Hillman team who has worked extremely hard to deliver such a strong quarter with healthy growth on both the top and bottom line. As we look ahead, we are confident in our ability to carry this momentum forward with disciplined execution and a focus on our strategic priorities. We are well positioned to build on this foundation and expect to see sustained growth throughout the remainder of the year while we focus on growing with our customers and driving shareholder value.

JMA, back to you.

Thanks, Rocky. As Rocky said, the team has done a great job this year. I am confident Hillman is positioned for long-term success and long-term growth. To our 1,200-plus frontline sales and service folks, our operations team, product team and all the support functions across the organization, I am so proud of how the entire Hillman team continues to execute and win.

I'd also like to extend my appreciation to our customers, vendors, partners and shareholders for their ongoing trust and support. We're proud of the growth we delivered this quarter and remain confident in our ability to execute and build on the momentum throughout the year and beyond.

With that, I'll turn it back to Towanda for the Q&A portion of our call. Towanda, please open the call for questions.

[Operator Instructions] Our first question comes from the line of Lee Jagoda with CJS Securities.

So just 2 questions. One kind of bigger picture and one more numbers related. Just on the bigger picture stuff, in the recent past, you've talked about focusing a little more on the pro channel. And I'd love to understand how your competitive advantages in the retail channel would translate to the pro channel and kind of give you the right to win? And any examples of recent success would be great.

Lee, thanks. I'll take that one. So from the pro perspective, today, 25% plus of our business is pro related. So to me, especially in areas like fasteners, we have the permission to play. We have the products. We've got brands like Power Pro. For instance, where we just launched a full range of structural products. We've got a full range of products in a number of different areas in fastening. And today, those pros are using our products. We have focused on supporting our customers where they support the Pro. As our customers continue to expand and we have other opportunities in channels like LVM, our customers are serving the pro. We're going to continue to lead in there. So we're very excited about the, I'll say, the opportunity as we go forward. At this point, we've got success in the fact that, that area continues to grow for us. I won't go into great detail on this call, but we'll have some future updates where we'll talk about some of the things we're doing in Pro and how we'll continue to lean in. So thanks for the question.

Sure. And then Rocky, just 1 for you on numbers. Now that we have that clarity on the tariff impact, I know last quarter, you were able to give us some guidance in terms of the cadence for EBITDA and how price rolls in versus when costs hit the P&L. Can you give us an update on what the back half cadence should look like?

Yes, Lee. I mean, as you know, it depends on the product. But given what we have from an inventory perspective, we'll start feeling the cost from tariffs late in the third quarter. That said, every product tends to be different, and there are a lot of moving parts as you think about it. But that means that we'll have a -- we believe we'll have a very strong third quarter because most of the price, if not all, will be in place. We'll begin to feel the tariff cost. And then as we go into the fourth quarter, we should see tariff cost and price both fully in the run rate.

The only other thing I would say, as you heard in our prepared remarks, the cash hit us right away. So it was a cash strain in the second quarter. It will be a little bit of a cash negative in the third quarter, but we still feel really good about where we're taking the business and really, really happy with how the team has done working with our customers to, in some cases, move products, in other cases, get price where we need to cover and we feel like we're in really good shape for the rest of the year.

Our next question comes from the line of William Carter with Stifel.

Question I have for next year around the guidance. You said rollover pricing and new business wins against a flat market. Does that assume -- is that clarity, does that assume just new business wins you did this year? Or does that assume you go back to steady state next year? And on that note, business wins have kind of cooled this year. Do you have confidence that you're able to fully accelerate and get back to that level of growth next year?

Well, there are 2 things I would say there. This is Rocky. First off, we still expect that we'll be at or above -- slightly above our 2% new business wins, which we've done for many years in a row. As we look to 2026, yes, we have pretty good clarity around that. If you assume we do our 2% to 3%. And again, to be clear, we're not giving a guide that we think the markets are flat in '26. What we're saying is if you assume the markets are flat, and if you think about our implied guide in the back half, it would suggest that volumes are down 9% in the back half. It would assume that that's down 6% for the full year in 2025. And that gets us to some really interesting levels. That level of being down this year, quite frankly, if you take COVID out, it will be the worst market year we've seen in Hillman since 2008 or 2009.

So again, we think we're being prudent because we are putting a lot of price in market. Everybody is putting a lot of price to market. And clearly, there will be some impact on volumes. But I think while not a guy, assuming markets are flat next year, I think it's prudent at this point in time. I mean it's the beginning of August.

Second question, you did say, correct me if I'm wrong, annualized impact is now $150 million regarding tariffs. I guess as you think about that impact, and we've had a lot of fluidity, things change, I guess, we had some certainty at the end of July. Do you have kind of full visibility into that number, all the nuances, I know steel went from $25 to $50, but that's on the components. Do you have full visibility into that? And is there any fluidity or risk in your pricing, i.e., things could change, somebody saying, "Hey, let's wait 6 weeks, et cetera? Just I'll stop there.

Yes. Again, this is Rocky. I mean as you can imagine, the $150 million is a very round number. There's a ton of fluidity in that. And there's a lot of reasons, not only what the administration might do, but there's also fluidity around what volumes do in the back half, and that clearly impacts that number. And so as we think about it, we've covered our net tariff exposure, we're confident that anything that happens going forward, particularly as you start thinking about how it rolls through our inventory, will most likely not impact '25 as much as it will 2026. But I have to tell you, our customers have been great. And we have spent a lot of time making sure that we work with our customers to get the right amount of tariff price. They understand that we're just covering the tariff prices as if it were a tax.

We're not trying to maintain our margins and they understand that. And I think that's a positive. So far, everything we've done with our customers has been executed very well. We thank our customers. And as we think about the future, if there is fluidity, to your point, and it changes which it's likely to, we will be changing what our pricing is with our customers, either up or down.

Our next question comes from the line of Michael Francis with William Blair.

Nice quarter. I wanted to go back to the back half cadence question that Lee asked. And more pointedly, I think last time you mentioned you're expecting about 300 basis points of gross margin, give back from tariff prices. Is that still accurate? And is there anything you can kind of do to level set us on how we should think about gross margins in 3Q and 4Q?

Yes. I'd like to not get into specifics around gross margin. What I would tell you is the 300 basis point degradation was in the face of $250 million of tariff price. And so we've said that we believe that number has come down to $150 million. So it's a safe assumption that, that impact has come down relative to how we think about the future.

I think as you think about the -- I would go more to kind of the rest of the year. And as we think about our EBITDA margin for the full year, I think you can probably safely assume we'll be up about 100 basis points year-over-year is probably a safe way to think about it. Now again, to remind everyone, there's a little bit of a tariff windfall in that because of the timing of pricing. But again, we've been paying those tariffs now for 45 to 90 days depending on the tariff. And so it is a cash drain to the company. And so rightfully so that, that price has been put in place.

And then I know it doesn't seem like demand has deteriorated much, if at all. And you talked about volumes implied in the back half of 9%. So I just wanted to see what you're seeing on R&R. And if that 9% number is just sort of a conservative approach to the market or if there's some deterioration happening right now that you're seeing?

Yes. Right now, we feel that is the right guide. So that's why we're sticking with a minus 9%. We do feel like there will be some pressure in the back half of the year. But overall, we were actually pleased with what we did in Q2. As we came out and we called our sales number and actually hit it and exceeded it, so we feel good about where we're positioned. Until price is fully right into the marketplace, it's hard to really change that view. We'll give you an update when we come back and deliver our Q3 earnings. But we feel good about where we are right now. We feel like we're being prudent, as Rocky said earlier in his prepared remarks.

Our next question comes from the line of Matthew Bouley with Barclays.

I wanted to ask around elasticity. Just very helpful color there around the volumes down 9% in the second half. I think in Q2 here, you had price up 2% and volume down 2%. But thinking about that 2026 up high singles to low doubles on price, I guess, I just wanted to double check on the assumption that you're not expecting to have sort of an offsetting volume impact in 2026, sort of, I guess, mirroring price. So just kind of, I guess, expand on that and sort of help us understand the conviction around kind of minimizing that elasticity.

Yes, Matt, I think we would start by telling you that when you think about repair and maintenance, if somebody needs to fix something, and we spend a lot of time talking about this on the last quarterly call, they're going to fix it. And so there's not a lot of elasticity in price for a lot of our products. Clearly, we're not going to say there's no elasticity. And so that's one of the reasons that we've guided for the market to be down in the back half.

As we think about next year, again, I want to be clear that a flat market was not our guidance. Our guidance for what we said our comments because it's not really guidance, just directionally around 2026 that was that in the situation where the market is flat. Now again, if you start to compound what our markets have done over the last several years, you have to go back many years to find levels where we would be going into 2026, if you assume that our markets are down 9% in the back half. And so I would say we have -- do we have a lot of conviction that the markets will be flat right now? It's August, whatever, third, fourth, fifth. So your guess is as good as ours. Do we expect that markets will be down say something like mid-single digits? I think we have a lot of conviction that, that will not be the case that these markets will be around flat next year. Are they up a couple? Are they down a couple? Hard telling and will depend upon a lot of factors that are really hard to predict when you're in the first week of August.

Okay. Got it. No, that's super helpful. Secondly, on the margin side, I guess, a 2-parter. One is, if you could just clarify that short period where the tariffs on China were at 145%. I'm just curious if there's any kind of small temporary impact from that. So if you could just clarify that. But then Secondly, if I do the back of the envelope on 2026, it seems like you're suggesting maybe the EBITDA margin down about 100 basis points next year. So if you could just kind of speak to, is that simply the price and cost, the math around how that impacts the rate? Or is there anything else that's kind of impacting that EBITDA margin in 2026?

Let me try to do that in 2 pieces. So first, on your first question, I think we paid the $145 million. And honestly, I'm looking at my team right now for about 2 weeks, so it's not material to anything that we would be disclosing you're talking about. As you think about the rate, the ballpark -- you're in the ballpark around what we think about rate for next year. Again, during the third quarter of this year, there will be a bit of timing around a windfall around tariffs. That said, we will hang on to full price as we think about going into the fourth quarter and into next year, pending the fluidity that we answered in an earlier question.

And so again, happy to lap that, I'll call it, slight period of windfall in tariffs is what's driving the lack of leverage between the top line and the EBITDA rate. But again, the one thing I would say, and JMA, you may want to comment here, but we're running this business, I think, better than we ever have, and I've been here for 7 or 8 years. And so as the numbers move around, we're highly confident that we can do the right things to create the right type of profitability in this business in any environment.

Rocky is right. I mean we've set up the global supply chain, which [indiscernible] our prepared remarks. And I think you guys have seen what we've done over the last several quarters and actually a couple of years where we built more resiliency in their supply chain. We've improved our cost position. And now we actually have multiple countries of origin to be able to diversify our supply base. So we feel like our input costs are in good shape. We're running our business from a freight perspective, pleased with where we are there. Obviously, everybody is dealing with some level of inflation, which we're managing, and we're going to continue to manage the business as we go forward. So we do feel like we're positioned well to deal with the back half and into 2026.

Our next question comes from the line of Brian McNamara with Canaccord.

Strong results. So first on pricing. We haven't seen much pricing on the shelf based on our work. And I'm curious when you would expect that to hit the shelves on the retailer level, understanding that obviously each retailer will do things differently.

And then secondly, or Rocky maybe. I know in May, you called out for H2 pricing of plus 17%, offset by similar volume decline. And I think you mentioned in one of the answers to the question is that H2 guide calls for a 9% volume decline, but I don't think I heard what's built in for H2 pricing component.

Yes. Maybe let me go first, Jamie. Maybe you cannot answer the question about retailers.

Thank you for answering my questions.

Yes, the guide would assume that in the second half, we have about 6.5% total price in the business.

Okay. And then Jon, do you want to -- as you guys do quite a bit of work, we appreciate your focus on our company and the work that you do at the shelf. I mean there's price has been going into the marketplace at different times. So we're watching it like you are. Really to Rocky's point, it's not my place to be commenting on what our retailers will do in the back half of the year. So I think we'll have to stay posted for what we see.

Yes. Brian, just to clarify, when I said 6.5% price, that's full year price, not the second half.

Understood. Okay. And then secondly, look, the existing home sales appear to be hopefully bumping along the bottom here on 4 million units. Where does that number need to go for you to see a material impact on your business and market volumes overall?

It's a great question. We feel like we believe getting back to a $5 million number is where we would like to see in the future. We don't have it perfectly correlated to what that growth would be if that's your follow-on question. But we feel like a $4.5 million, $5 million -- 5 million unit number is more in line with where we'd expect the business to be and see some of our categories that have been negatively impacted by the decline in existing home sales improved. So that's what we're hoping for as we go forward.

But also in our guide, we know where the business is today, and we feel confident with it running at $4 million-ish from what we've talked about in 2025.

Our next question comes from the line of David Manthey with Baird.

First question is on the change in tariff expectations. So you went to a $37.5 million per quarter run rate assumption and you were at 25 million previously. So in the second half, that would be like $50 million upside. I think you said you raised the guidance by $40 million. Is that just reflective of the tariffs kind of rolling in through the third quarter?

Yes. The only thing I would say about the math that you just did, Dave, is remember, it's not going to -- the tariff cost isn't going to hit us until late in the third quarter. It's going to begin hitting us. So I think your run rate numbers are right. But again, it's just a period of time where we have price and not tariff cost. It's not like a whole quarter or a big period of time. I'm not sure if that answers your question. But again, remember that tariff cost isn't going to start hitting us until well into the third quarter.

I assume it was a timing issue. And then to the previous question on shelf prices, and you talked about prices to your customers. Is there a disconnect between those things? Are you able to go and raise price to the retailer and then they don't change shelf price for a time? Or are those more in lockstep? And then I guess if all goes well, based on the timing you just discussed, do you expect to be ahead of tariffs in the third quarter, meaning you over-earned, I think you kind of implied that? But then you'll hit sort of price cost neutrality as the tariffs fully flow in and the price changes fully flow in. But by the time you get to the fourth quarter of '25, those will be matched up as well as you can based on what you know currently about tariff pricing?

Yes. So Dave, the last question that you asked there. That is accurate. That's the way to look at the benefit in Q3 and then we're at parity, if you will, or alignment in Q4. So that's the right way to think about it. As far as pricing in retailers, I mean, each retailer is going to be different depending on their accounting and how they operate. So in fairness, I don't think it's my place to comment on how and when you'll see that -- the pricing at the shelf. But we partner with our customers.

They are fair and balanced and not easy conversations for any of the companies or our sales teams they're having the conversations with our customers. but we're aligned with them, and we're working with them to either deal with price or mitigate cost through country of org changes. So that's how we're running the business. So that's about as far as I can go.

Our next question comes from the line of Reuben Garner with Benchmark.

Congrats on the strong results and outlook. I guess, let's see, I had some technical difficulties to start if I repeat any questions. But on -- so the pricing and volume outlook for the back half, is it right to assume that the pricing is probably more like in the low teens within the hardware section, and that's where you're implying you're going to see most of the -- excuse me, Hardware and Protective section, and that's where you're going to see most of the declines in volume or what you're implying? And then can you tell us when the pricing actually went into place and what you've seen from a volume standpoint since then?

Yes. Let me take the first part, and I'll let JMA take the second part, Reuben. Yes, I mean, there is more pricing in HPS than there would be, and as an example, RDS or Canada, and that reason is because there are more tariff direct impact on those businesses. And then I'll start, JMA, but the pricing, some is in place. Some is going in place, some went in place last week. Some went in place as we speak. But basically, every customer, every product is different. And so we deal with it on a case-by-case basis. But as we sit today, we're confident that we have our tariff exposure covered.

Got it. And then I know you've been working on mitigation efforts. Can you give any update or details there, still on track to get it down -- at least get China down to 20%. What kind of markets are you taking it to? And what are the tariff implications in those markets based on what you know today? I know it's fluid, but...

Yes, it's fluid. I'll give you a couple of nuggets, Reuben. From our perspective, we feel like we're in very good shape with our movement of product out of China and our dual faucet strategy. So we do still have -- we have confidence that we have the ability to be approximately 20% out of China by year-end. We are moving into, pick a name of the country, I mean, these are not in volume order, but places like Thailand, Vietnam, India or a few that would benefit from the moves that we're making right now. Our product and our operations teams are doing a great job, sourcing team doing a great job working with those suppliers.

We've had opportunities that we've been developing over the last several years that now we're going to start moving volume to. We have other new opportunities that we'll be moving to. It is fluid. Like you said, as things settle down and we see where the best place for us to have the most competitive product for our customers and the best value and the right quality is what will end up making a determination of where will round out.

So we will have a lot to update you and everyone else on in future quarters. But it is fluid, and I'm actually really proud of what the team is doing in the partnership with our customers to make sure that we can take care of our customers and ultimately our end users. So a lot of moving pieces.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Mr. Adinolfi Note for closing remarks.

Thank you, everyone, for joining us this morning. We look forward to updating you on our progress soon. Hope everybody has a great day. Take care. Operator, you may now disconnect.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.