Hillman Solutions Corp. 2026 Third Quarter Results - HILLMAN SOLUTIONS CORP

Financial Performance:

• Q3 2026 net sales reached a record $457.5 million, an 8% year-over-year increase, marking the highest quarterly revenue in the company's 62-year history.
• Adjusted EBITDA hit a record $90.2 million, up 2% year-over-year, with an adjusted EBITDA margin of 19.7%.
• Net cash provided by operating activities was $69.9 million, and free cash flow totaled $51.1 million, a significant improvement from $9.1 million in the prior year.
• Gross margin was 50.8% for the quarter, down 90 basis points year-over-year but improving 370 basis points sequentially; full-year 2026 gross margin is expected to be approximately 48%.
• Net debt stood at $933 million post-acquisition; net debt to trailing 12-month adjusted EBITDA is 3.1x, expected to decrease to ~2.5x by end of 2027.
• Capital structure refinancing included a new $735 million Term Loan B ($200M add-on) and a $375 million ABL revolver, extending maturities to 2033 and 2030 respectively.
• Share buybacks totaled $5 million for 639,000 shares in the quarter.

Guidance and Future Outlook:

• Updated full-year 2026 net sales guidance to $1.66–$1.68 billion (midpoint $1.67 billion), representing ~8% growth, narrowing previous expectations due to lower-than-anticipated market volumes.
• Full-year 2026 Adjusted EBITDA guidance remains at approximately $285 million (up ~3.5%), and Free Cash Flow remains $105–$115 million (midpoint $110 million).
• Long-term growth target of 8–12% annually remains intact; 2027 growth is expected to align with these targets, driven by new business wins and M&A.
• 2027 growth drivers include ~3–4% from M&A anniversaries, ~4% from core performance (price/mix/volume), and ~4% from new business wins (2% from Pro, 2% from Retail).
• Management does not anticipate macroeconomic tailwinds in 2027 and assumes a flat or slightly headwind market environment.
• Capital expenditures for 2026 are guided at $70–$75 million; 2027 CapEx expected to increase slightly to fund distribution center consolidation in Cincinnati and Campbell Chain & Fittings facilities.
• Long-term goal is to reach $2.5 billion in net sales by 2030.

Business Segments and Product Lines:

• Hardware & Protective Solutions (HPS): Net sales grew 5%, driven by 2% new business wins (balanced between Pro and Retail) and 5% M&A, offset by a 2% core performance headwind.
• Robotics & Digital Solutions (RDS): Net sales surged 19%, with Adjusted EBITDA up 13%; growth driven by Minikey 3.5 machine rollouts.
• Minikey 3.5 Platform: ~4,800 machines deployed; total installs exceeded 1,700 this year; fully deployed with top two customers by Q4.
• Cambridge Acquisition: Closed ahead of schedule; performs ahead of expectations; contributes to long-tail fastener distribution for industrial customers (44,000+ SKUs).
• Canada: Net sales up 9%, driven by 8% new business wins (majority Pro channel) including new product categories and a bulk faster program.
• Personal Protective (PF): Experienced headwinds due to reduced promotional activity but expected to stabilize in Q4 and grow in 2027.
• Pro Channel: New business wins generated ~1.5% of total Hillman growth in Q3; projected to contribute ~2% to total top-line growth in 2027.

Market and Competitive Landscape:

• Hillman positions itself as a leader in long-tail fastener distribution across retail, pro, and industrial sectors, leveraging a widened competitive moat.
• Pro channel share gains are evident, with the business outgrowing the broader market through new lumber yards and retail partner direct shipments.
• Industrial and Canadian Pro markets showed strong momentum; Cambridge acquisition strengthens industrial long-tail capabilities.
• Market volume has stabilized rather than improved; Q3 was better than Q2, with Q4 expected to be slightly better than Q3.
• M&A environment remains active with a "filling up" pipeline; management notes a moderate softening in bid-ask spreads but believes high-quality businesses remain available at attractive prices.
• Tariffs continue to be a factor, but the dual-faucet supply chain strategy and global sourcing flexibility mitigate impact.

Risks and Challenges:

• Macro Environment: Challenging DIY and residential Pro market conditions create headwinds for core performance.
• Tariffs: Net impact remained consistent with H1; tariff refunds were partially offset by Section 232 steel tariff adjustments.
• Core Performance: Headwinds in core performance (market volume, currency, mix) partially offset growth from new business and M&A.
• Seasonality: HPS and overall margins are expected to be lower in Q1 and Q4 due to seasonality.
• M&A Execution: Future growth targets depend on successful integration and anniversary performance of acquired assets.

Management Commentary and Tone:

• Tone was highly confident and positive, emphasizing record top and bottom lines despite a difficult macro environment.
• CEO emphasized "proof points" of execution, specifically highlighting the successful integration of Cambridge and the acceleration of RDS.
• Management stressed the "Hillman mode" widening its competitive advantage through combined product breadth and service.
• Strong confidence expressed in the "blueprint for strategic growth," particularly regarding Pro channel expansion and M&A.
• Management highlighted the strength of the supply chain team and vendor relationships, evidenced by the recent supplier summit in Vietnam.

Analyst Questions and Answers:

• Cambridge Financials: Company declined to break out Cambridge's specific revenue/EBITDA, noting it performed well and is integrated into Pro/Industrial strategy.
• 2027 M&A Guidance: The 3-4% M&A growth contribution is based on the anniversary of 2026 deals, not new incremental acquisitions; management remains open to further accretive deals.
• RDS Growth Drivers: Growth driven by Minikey 3.5 expansion from home/office to automotive verticals with top two customers; margins expected to remain near 30% EBITDA.
• 2027 Growth Composition: Remaining growth beyond M&A and new business wins comes from core performance (pricing/market/mix), assuming no macro tailwinds.
• SG&A Dynamics: Slight increase in SG&A as a % of sales is due to revenue share expenses embedded in SG&A for RDS; underlying leverage is still present.
• Pro Channel Wins: New business wins in Pro are occurring outside of traditional retail channels, including commercial Pro and industrial opportunities.
• Pricing Power: Cambridge has a strong track record of pricing pass-through over the last 5-6 years, allowing them to manage inflation effectively.

Other Key Points:

• RDS margins (Adjusted Gross Margin 79%, Adjusted EBITDA Margin 30%) significantly outperform other segments.
• The Cambridge acquisition is strategically aligned as a "long-tail master distributor" for fasteners, complementing Hillman's retail focus.
• Management reaffirmed commitment to capital investments in new distribution centers and facilities despite the challenging macro backdrop.
• The company is on track to deliver roughly three times the 2025 free cash flow in 2026.
• Q4 expectations include a slight improvement in market conditions and continued contribution from the Cambridge acquisition.