HLMN Q3 2026 earnings call transcript, November 3, 2026

Good morning and welcome to the third quarter 2026 results presentation for HLMN Solutions Corp. My name is Grace, 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 earning release and presentation were issued yesterday, and the 10-Q was issued this morning. These are the 10-Q. Documents and replay of today's presentation can be accessed on HLMN's Investor Relations website at ir.hillmangroup.com. I would now like to turn the call over to Michael Kaler with HLMN. Thank you, Operator. Good morning, everyone, and thank you for joining us for HLMN's third quarter 2026 results presentation. I am Michael Kaler, Vice President of Corporate Development, Investor Relations, and Treasury.

Joining me on today's call are HLMN's President and Chief Executive Officer, John Michael Adonaldi, 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... ...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 two 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-doubt... ...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 discussing our strong quarterly results and providing an update on our guidance. Thereafter, he will discuss the market, the traction we are seeing with our initiatives, and our performance by business.

Rocky will then 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, John Michael Adonaldi. JMA?

Thanks, Michael. Good morning, everyone, and thank you for joining us. The third quarter was another strong quarter for HLMN. Highlighted by our record top-line and record bottom-line results, driven by 8% net sales growth, plus we completed the acquisition of Cambridge. Cambridge serves as a long-tail master distributor of fasteners. for industrial distribution customers. As the long-tail distributor, Cambridge provides its customers a wide assortment of hard-to-find and low-turnover products from a convenient single source. In total, Cambridge stocks over 44,000 SKUs and can ship orders the same day. Similarly, HLMN serves as a long-tail master distributor of fasteners for our retail customers. Together, we are now one of the largest long-tail distributors of fasteners to retail, pro, and industrial. When you combine having all the products our customers need supported by our industry-leading sales and service team, you can see how the HLMN mode continues to widen. We closed the Cambridge acquisition ahead of schedule and are pleased to report that the business is performing ahead of our expectations so far. We believe we purchased one of the best businesses. in the space, and Cambridge is a great fit for our long-term strategic growth plans. During our investor day in March of this year, we highlighted M&A as a crucial part of our blueprint for strategic growth. This plan also includes fortifying growing our retail, pro, and industrial channels. Looking forward, we remain confident that we can grow net sales between 8 and 12 percent per year, and by 2030, we expect

If you look below the app this prove that it works with three graders an hour, so what There we go. to reach 2.5 billion in net sales. During the third quarter, net sales increased 8% to 457 million. We're especially proud of these results given the challenging macro environment that is impacting the DIY and the residential pro portions of our business. Our top line results were a record for Hellman, marking the highest quarter of net sales in our 62 year history. Additionally, the 8% growth during the quarter is in line with our long-term growth targets. Adjusted EBITDA for the quarter increased 2% to a record 90.2 million, surpassing our previous high of 88 million during the third quarter of 2025. And free cash flow during the quarter totaled a very healthy 51.1 million compared to just 9.1 million in the year-ago quarter. RDS had a great quarter. Net sales growth. Accelerated 19% versus the year-ago quarter. Driven by performance of Minikey 3.5. The RDS field service team has done a great job executing the retrofits and installing these machines across the country. Well done, team. Since we began rolling out this enhanced technology platform to our top two customers, we've seen healthy growth in our overall Minikey business. The economics per upgraded 3.5. machine are meaningful and improved over the previous generation. Minikey 3.5 continues to prove itself as a platform for both top and bottom line growth for helmets. Today, we have approximately 4,800 Minikey 3.5 machines in the field, bringing the total number of installs to over 1,700 this year. We'll finalize the deployment of these machines at our top two customers during the fourth quarter.

We expect RDS will see another strong period of growth during Q4. This momentum will carry into 2027 and beyond as we continue to strengthen our strategic partnerships with our top customers. For the third quarter of 2026, our 8% net sales growth was driven by approximately 5 points of growth from new business wins, 5 points of growth from M&A, partially offset by 2 points headwind in core performance. As a reminder, core performance represents a combination of market volume, customer footprint expansion, category management, FX, product mix, and price. We think of our core performance to be similar to our customer's same-store comparable sales metrics. Of the nearly 5 points of new business wins, about 3.5 points were driven by new wins in retail, highlighted by the sizable, builder's hardware. expansion at one of our top customers. And nearly one and a half points were driven by new business wins in the Pro Channel, where we continue to make progress. HLMN generated over $460 million of net sales with the Pro last year. Using this existing foothold with our Pro base, our renewed strategies to gain share are working. Whether it's new lumberyards, our retail partners shipping HLMN products directly to their Pro customers, or growth in our commercial and industrial businesses, it all contributes to Pro growth for HLMN. We are taking share in the Pro channel. Our Pro business is and will continue to outgrow the market.

These proof points, among many others, demonstrate HLMN's right to win in the Pro space. For 2026, we believe new business wins in Pro will generate about 1% of top-line growth for all of HLMN. This is about 16 million of new business wins. For 2027, we are confident new business wins in Pro will continue to accelerate. We expect this can generate 2% top-line growth for all of HLMN, which is over 33 million. Now to turn to guidance for the year. Given our year-to-date performance and expectations for the rest of the year, we are updating and narrowing down our net sales guidance. We now expect our full-year net sales to be between 1.66 billion. To 1.68 billion. This midpoint of 1.67 billion now represents nearly 8% growth versus 2025, which is just shy of our long-term growth targets. Our previous guidance assumed a modest sequential improvement in market volumes during the second half of the year. While volumes have improved, they were lower than anticipated. As a result, we are lowering the midpoint of our full-year net sales outlook. About a point and a half. We continue to believe in our full-year adjusted EBITDA will be approximately $285 million, marking an increase of 3.5% over last year. And we continue to believe our full-year free cash flow will be between $105 and $115 million. The midpoint of $110 million marks a meaningful increase over 2025 when cash flows were severely impacted by tariffs.

Speaking of, the net impact of tariffs during the quarter remained consistent with the first half of the year. That said, during the third quarter, we received modest net tariff-related refunds, which contributed to our adjusted EBITDA. The reason the net benefit was modest is that it was mostly offset by tariff-related adjustments from Section 232 steel tariffs. Our supply chain team continues to be a strength for HLMN. The strategy gives us flexibility to quickly react to changes in geopolitical and tariff landscape. Recently, I had the privilege of attending our annual supplier summit with our global supply chain team in Vietnam. It was great to be able to interact in person with well over 100 of our vendors. Our relationships with them continue to be very healthy, and they're excited about the M&A activity because they see new growth opportunities with HLMN. This annual event serves as an important part of the year. It's an important in-person touchpoint to strengthen relationships with our supplier partners, which is especially important given the environment. We view our supply chain and global logistics team as a critical advantage over the competition and one of the most important core competencies. Now let's turn to results by business for the quarter. Hardware and protective solutions is our biggest segment and is the foundation of HLMN. Our breath of practice. Product offerings, diversified supply chain, and world-class service is a moat that keeps widening, and it's the platform we're now extending to the pro.

HPS grew 5% in the third quarter. Driving this was an approximate 2% lift from new business wins, split equally between pro and retail, and a 5% benefit from M&A. These were partially offset by a 2% headwind in our core performance. RDS is our highest margin segment and had another great quarter, as I mentioned before. Net sales in RDS were up 19% versus the year ago quarter, and adjusted EBITDA increased by 13%. Robotics and Digital Solutions, or RDS, is our high margin, technology-enabled platform. We have over 31,000 kiosks in retail locations across North America, which are destinations that sell. A critical need for our customers. Adjusted gross margins and adjusted EBITDA margins at RDS were both healthy during the quarter, totaling 79% and 30% respectively. Turning to Canada, Canada was another standout during the third quarter, with net sales of 9%. That was driven by eight points of new business wins, the majority of which came from the pro channel, and one point of core performance growth. New wins included revenue generated from new product categories at an existing retail customer and the bulk faster program with one of our top customers in Canada. Our Canadian team continues to execute very well and has had a great year. We expect that momentum to continue through year end. In summary, Q3 was another quarter of proof points as we execute our blueprint for strategic growth.

We delivered record net sales and record adjusted EBITDA, strong cash flow, a Cambridge acquisition that closed early and is outperforming, and an RDS business with accelerating growth. I'm proud of our execution this quarter and how we continue to take care of our customers. We are excited about the opportunities that lie ahead, and I'm very confident HLMN is poised for a great 2027. With that, I'll now hand it over to Rocky to take you through the numbers.

Rocky? Thanks, JMA. Let's get to our results, then we will review our guidance. Net sales in the third quarter of 2026 totaled $457.5 million, an increase of 8% versus the prior year quarter. Third quarter adjusted gross margin was 50.8%, down 90 basis points compared to a year ago, but improving 370 basis points sequentially and consistent with our expectations. We expect our full year 2026 margins to be approximately 48%. Adjusted SG&A as a percentage of sales was 31.2% during the quarter, relatively consistent with a year ago. Adjusted EBITDA in the third quarter totaled $90.2 million, increasing 2.4% versus the year ago quarter. Adjusted EBITDA to net sales margin during the quarter. Total of 19.7% down 100 basis points from a year ago, but improving sequentially by 230 basis points. As you can imagine, our margin percentage performance over the past several quarters have been heavily influenced by the timing and magnitude of tariffs. Now turning to our cash flows. For the quarter, net cash generated by operating activities with $69.9 million and free cash flow increased. To a healthy $51.1 million which was in line with our expectations. From a liquidity perspective, we ended the third quarter of 2026 with $933 million of total net debt outstanding which increased due to the recent Cambridge acquisition. Assuming that we had benefited from the approximately $29 million of EBITDA that Cambridge has generated over the past 12 months, our net debt.

To trailing 12 months, adjusted EBITDA ratio would be 3.1 times. Assuming we do not do any other meaningful M&A, we should end 2027 at roughly two and a half times leverage, which is the high end of our long-term leverage target. That said, we continue to evaluate the market for creative acquisition opportunities. During the quarter, we closed a new $735 million term loan B. and put in place our new $375 million ABL revolver. Shortly thereafter, we executed an additional $200 million add-on to the term loan to finance the Cambridge acquisition. This activity extended our term loan B maturities to 2033 and our ABL maturities to 2031. Pricing on these was consistent with our prior facilities with the term loan B at SOFR plus 200 basis points and the ABL. ABL currently at SOFR plus 125. During the quarter, we deployed $5 million to buy back 639,000 shares at an average price of $7.75 per share. We continue to be in the market buying stock back. Now let's talk about our guidance. As JMA mentioned, we now anticipate 2026 net sales to be between $1.66 billion and $1.68 billion. With a midpoint of $1.67 billion. We continue to expect our full year 2026 adjusted EBITDA to be approximately $285 million. We continue to expect our full year 2026 free cash flow to be between $105 and $115 million with the same $110 million midpoint. And we continue to expect our full year 2026 capex to be in the 70 to 70.

$75 million range. Now, as we start to think about 2027, we expect growth to be in line with our long-term growth targets, which is between 8 to 12%. Driving this growth will be new business wins in both pro and retail, as well as M&A. We believe M&A will contribute between 3 and 4% of growth next year. Unfortunately, at this point, we are not anticipating the macro will be a tailwind next year. We expect our CapEx to increase slightly compared to what we will do this year, as we will continue to invest in organic growth opportunities in HPS and RDS, as well as our facilities and distribution network. Of note, we plan to continue investing into the consolidation of our new state-of-the-art distribution center in Cincinnati, which we plan to start to move into during 2027. Additionally, we will make planned capital investments into the facilities at Campbell Chain and Fittings, which we acquired in April of this year. Let me leave you with this. In 2026, we expect to deliver record net sales and adjusted EBITDA. We're on track for roughly three times the free cash flow of last year. We've closed three acquisitions. We refinanced our capital structure, pushing our maturities out to 2031 and 2033, and we did all of this. while absorbing a challenging tariff and macro environment. We are not slowing down. In 2027, we expect to meet our long-term growth expectations, powered by new business wins and retail and grow, as well as M&A. We're a bigger, stronger, more cash-generated HLMNN than a year ago, and we're just getting started. With that, I'll turn it back to JMA.

Thanks, Rocky. Before we open up for Q&A, I want to thank our associates across. Russ Hillman for their continued commitment and hard work. Your dedication and execution are what enable us to deliver for our customers every day. To our customers, partners, and stakeholders, thank you for your continued trust and partnership. We're proud of our execution this quarter and confident in the opportunities ahead. We remain focused on executing our plan, building on our momentum, and delivering long-term value for our shareholders.

We look forward to updating you on our progress in the near future. Operator, please open up the call for questions.

Thank you. At this time, we will conduct the question and answer session. To ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question with one follow-up.

And hop back in the queue. Please stand by while I compile the Q&A roster. Our first question comes from the line of Lee Yagoda with CJS Securities. Your line is live.

So that's what's really driving the growth. So getting the 3-5 machines in, seeing them ramp and continue to drive, that technology has been very, very impactful. We're excited about the progress we made in the quarter and equally as excited what we're doing Q4. Rocky will add some color. Yeah, I would say, Lee, just from an economic perspective, as we think about RDS, we're always targeting 30% EBITDA margin and everything we're doing kind of comes out at that rate. You can see it for the quarter, we were right at like $29.9 in that business. You know, we feel really good about where we are and that's how we're kind of pricing all of the new services we go forward. Okay. Thanks very much. Thanks, Lee. One moment for our next question. Our next question comes from the line of David Manthe with Baird.

Okay. Did I, I thought JMA said 200 basis points from new business wins in 27. Was that not correct? No, I think as you think about two, I think JMA was talking about the pro that we expect that to be two plus, you know, this year we're running at one plus and we've really just started, kicked off a lot of those. initiatives in the last six to nine months. And so as it continues to gain momentum, I think you look at two plus from the pro and then two plus from our normal retail business that, you know, we've done historically. I see. Okay. And then on pricing, container prices, tariffs, general inflation, I think we know how that mechanically works through the core Hillman model. Could you discuss how what's going on? Cambridge deals with those inflationary forces and sort of what's been their track record over the past five to six years? Yeah, very similar. They've actually done a great job of pricing their business accordingly based on market conditions. And that's actually one where we view as a positive for us. We believe that the combination of the Cambridge business, which, as I said, it's performed well, strong gross margins, great service, adding our global sourcing team logistics. We actually believe we'll be able to make them, one, better, and, two, they'll continue to factor that into their annualized price particular market. So, for example, we're going to deal with the market pressures that you mentioned there in that business as well.

So the price pass-through at Cambridge, more of just a product pricing exercise as opposed to a shelf price exercise. As you said, their experience over the past five, six years has been pretty good doing that, translating that to the market and keeping ahead of it. Yes, they have. They've done a really nice job being able to manage that over time. We've got a team, a great team that's in the business still operating it today. And we feel very confident not only have they done it, to your point, over the last, you know, I'll say five plus years and really over their entire history. They've been in business for over 50. You know, we feel like that will continue in 20, you know, in 2026 into 2027. So, yes, they've covered it and we'll continue to do so. All right. Thanks very much. Thanks. One moment for our next question. Our next question comes from the line of Andrew Carter at Stifle. Your line is live.

But, you know, from a market perspective, you know, if there is a bright spot here, you know, we've seen actually the market improve throughout the year or be less negative. That's what we continue to expect. You know, Q3 was better than Q2. We believe Q4 will be slightly better than Q3. So I'll let Rocky add on some color here for numbers. But I mean, that's how we're thinking about it. And while existing home sales have not improved, I agree, you know, they've stabilized. And, you know, we view that as a small, you know, positive, if you will, in where we are in the market. I don't know where they're going to go from here. But, you know, we feel pretty good about what we can see in Q4. Yeah, I guess, you know, what both of you, Andrew, you and JMA said, I'll just reiterate, I mean, as you think about the market, we anticipate that. We'll continue to be a headwind in the fourth quarter, although more like the third than in prior quarters, and maybe even a little better than that. You know, price becomes less of a tailwind in the fourth quarter as we continue to lap price in the third and fourth quarter that we took in the prior year. We do expect that we'll, you know, we'll grow new business as we have. So, you know, call it somewhere north of three and a half, up to 5% in that range. And then obviously in the fourth quarter, we will see more benefit from M&A than we have. Throughout the year, just given the fact that we'll own Cambridge for the entire period.

Thanks. And just wanted to ask, your trailing 12 gross margin hardware protective is 43.1%. I just want to kind of confirm, is that a kind of a good all-in number that's a run rate for the tariffs? And of course, you have one month in Cambridge in there, and then I think you have $60 million of revenue from Delaney and Campbell, which I would assume. Is gross margin dilutive? Correct me if I'm wrong. But just all in that 43.1 for that business, is that a good run rate? Plus, of course, Cambridge, as it gets fully anniversary, will be accretive. Yeah, I think if we think about it, that's a good number when you put all the numbers together. We're at a good baseline, we believe, around the gross margin. The only thing I would say is you have to remember that there is seasonality in our business, so we'll see lower gross and EBITDA margins in the first and fourth. And in the second and third, when we have higher volumes, we will see higher rates in those quarters. That would be the only caveat I would give to the numbers that you articulated, Andrew. Final question. On RDS, kind of the performance you have this year is you broke out the new business wins, which would be the minute key three and a half. I guess as you sit there and think about run rating, both the new business wins you have as a fully anniversary next year, plus the pricing that you put into place that you called out.

Kind of what would that say for RDS growth next year? And I'm assuming you put all that together, you will be above kind of that four to six or the kind of company long-term rate that you put for RDS next year. Of course, that's all organic. Thanks. Yeah, I think what we would say there as you think about next year, the third quarter was a little bit of outsized growth. As we think about 2027 in RDS, it would be our expectation that it would definitely be above fleet. And then likely that. But it would be double digits as we think about just the continued rollout of 3-5 and the year-over-year roll of 3-5 and the benefits. Thanks, Preston. Oh, sorry. You know, just to tack on to that, I mean, that goes back to the, you know, our organic growth being plus 3%, you know, for the quarter. Really important proof point for us. RDS obviously drove a good piece to that. But we're really, you know, excited about not only RDS, but also the HS business. We've had a good solid quarter. I think it just gives you an idea of what we're. expecting and what we've continued to drive in, you know, Q4 and into 27. Thanks. Pass it on. Thanks, Andrew. Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our next question.

Our next question comes from the line of Matthew Boulay at Barclays. Your line is now open.

Yeah, Matt. Very fair. PF had a challenging Q3 in our business there. We certainly continue to see that business a little bit less promo activity out in the marketplace. Certainly impact us in Q3. We do actually see that starting to improve. And we expect that to improve in Q4. And we have some really solid growth plans into 2027. So we're excited about getting that business back to flat and then growing it off that base. So yeah, tough quarter, but we're excited about where we're going in Q4 and beyond. Cool. Thanks, guys. Good luck. Thanks, Matt. One moment for our next question. Our next question comes from the line of Brian.

Great. And then just a quick follow-up on the M&A environment. Obviously, the macro picture has probably not gotten better in the last three months since we last spoke. I'm curious what that means for bid-ask spreads and just market activity. Thanks, man. Yeah, we continue to see a blind fill. We have an opportunity, so there are deals in the marketplace. Yeah, I think your question is a good one as far as the bid and the ask. I mean, expectations are still... I'll say moderate right now, so there's still good, high-quality businesses that we think we can buy at attractive prices, but there has definitely been a little bit of, I'll say, softening in my expectations. So, pipelines filling up, there is still activity there, and we're excited about the three deals we did in 2026, and we want to make the right next move, and if it comes up, we'll keep you posted on what it is. Great. I'll pass it on. Best of luck, guys. Thanks, Brian. Thanks, Brian. Thank you. This now concludes the Q&A portion of today's call. I would like to turn the call back over to Mr. Andonofi for closing comments.

Yeah, thank you very much. Well, I appreciate everybody joining today. I want to leave you with three elements to remember HLMN by. So, first, organic growth, solid in the quarter. We expect that to continue. Really proud of what our team's been able to do there and what we'll continue to drive. Q4 and beyond. M&A solid acquisitions in 2026, and we expect those to continue to deliver accretion in 27. And then the strategic blueprint proof points, which we touched on a number of points during the call in the Q&A. But excited about new business, and I'm even more excited about what we're going to do in 2027. Traction with the pro. We've got many different, I'll say, irons in the fire, and traction is starting to read. And then the industrial momentum. So, with that, I want to thank everybody for joining us. We look forward to updating you soon. Have a great day. Thank you.