Hillman Solutions Corp. Common Stock 2026 Q2 Earnings Call

Good morning, everyone, thank you for joining us for Hillman's second quarter 2026 results presentation. I'm 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 J.M.A., 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 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 two 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. J.M.A. will begin today's call by discussing the recently announced agreement to acquire Kanebridge Corporation, a master distributor serving the industrial channel. He will then provide commentary on our quarterly results and guidance, followed by a discussion on our performance by business. Rocky will then walk through our financial results, balance sheet, and guidance before turning the call back over to J.M.A. for some closing comments. 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.

J.M.A.? Thanks, Michael. Good morning, everyone, and thank you for joining us.

The second quarter was a great quarter for Hillman, which I'll get to in a moment. Yesterday, after the market closed, we announced that we entered into a definitive agreement to acquire Kanebridge Corporation, a leading master distributor of fasteners in the industrial channel. Like Hillman, Kanebridge has a specialized business model with a moat built around SKU complexity and service. They provide a long tail of unique specialty fastener SKUs, and they have decades of product experience providing unique service to their long-term customers. This is a very exciting and strategic step in the evolution of Hillman. Let me tell you why Kanebridge is a great fit for Hillman. Kanebridge is a family-owned, privately held business that has over 50 years of expertise.

The Kanebridge moat is built on their long-standing customer relationships, proprietary digital ordering platform, FastNet, and their ability to stock unique specialty SKUs and ship them out in custom pack sizes on the same day. Let me outline some of the similarities between Kanebridge and Hillman. Today, Hillman serves as the long-tail specialty master fastener distributor for our customers. These are hard-to-find fasteners that the end user must have to do a project. This is where Hillman provides unparalleled value for our customers. Kanebridge does the same thing in the industrial channel. They serve as the long-tail master fastener distributor for their customers. These are hard-to-find fasteners required to do the job in a timely manner. Kanebridge stocks these fasteners and can meet the urgent demands of their customers by shipping out the same day. In March, we outlined the three channels we serve today: DIY, pro distribution, and industrial.

As you know, Hillman has a strong presence in DIY, which has been our focus for nearly 30 years. We also serve the pro distribution channel, which is nearly a $10 billion market opportunity. Today, we believe we have about 3% market share in this space and is a key focus of our organic growth efforts. Industrial is the third channel we serve. We love this channel because it touches so many parts of the economy, including factories of all sizes, infrastructure projects, and data centers. This is the channel Kanebridge is in, and this is why this acquisition presents such a strong opportunity for Hillman. This business is not tied to just one market. Many of these specialty fasteners are needed urgently. For example, machine repair or project completion. That is the Kanebridge model.

Today in Canada, we currently distribute fasteners to the industrial channel with our Pollen brand, and recently we entered into this channel in the U.S. with our acquisition of Campbell Chain. Altogether, our industrial business today is approximately $65 million. The acquisition of Kanebridge doubles the size of our industrial business and establishes a fastener distribution presence in the U.S., serving the same industrial channel. As I've explained, the Kanebridge playbook is very similar and what's been successful, and a big reason why we think this will be an outstanding fit for us. This acquisition gives us an immediate presence to serve and grow in the industrial channel, a channel that we've identified as a meaningful opportunity where we have minimal share today. This deal expands our industrial addressable market by 50%, increasing to $3 billion in total, of which we serve just 3%.

For the 12 months ending June 30, Kanebridge generated approximately $65 million in revenue and $30 million in adjusted EBITDA. These robust margins will be accretive to Hillman’s margin profile. Given Kanebridge’s light CapEx model, we expect very healthy free cash flow conversion. Because of Hillman’s scale, we expect to realize about $2 million of cost synergies, particularly in sourcing. Over time, this represents the opportunity for even more cost savings. Additionally, we expect to realize a material cash tax benefit of between $40 million and $45 million from this transaction. Given this tax benefit and the cost synergies, the $315 million purchase price represents a post-synergy multiple of 8.4x-8.6x. We are confident there is meaningful organic growth in cross-selling opportunities that will drive top-line growth and make this acquisition even more attractive. The transaction is expected to close around the start of the fourth quarter.

Assuming this deal closes in line with our expectations, Kanebridge should contribute approximately $15 million of net sales and roughly $5 million of adjusted EBITDA to Hillman’s overall 2026 results. The transaction is subject to regulatory approval and customary closing conditions. We can’t wait to welcome the Kanebridge team to Hillman. Interestingly, this acquisition takes Hillman back to its roots. During the late 1990s, Hillman distributed fasteners to industrial customers. It was around that time the company made the decision to divest their industrial fastener business in order to make a critical investment to expand their distribution network to serve their retail hardware customers on a national level. Looking back, we have grown to become the leading master distributor of fasteners at retail, and now that strategy has come full circle.

Accretive acquisitions like Kanebridge and the two deals we closed earlier during the second quarter, Campbell Chain & Fittings and Delaney Hardware, reflect the ongoing execution of our long-term strategic initiatives we shared in March of this year during our Investor Day, of which M&A is a meaningful part. Here, we outlined our blueprint, which consists of three catalysts for creating long-term shareholder value. One. Fortify and grow our core DIY business. Two. Win the Pro across industrial, specialty distribution, and LBM. Three. Compound our growth through accretive M&A. As we said at Investor Day, over the next five years, we believe we can grow this business between 8%-12% per year. By 2030, we expect to reach $2.5 billion in net sales. Let’s talk about our performance during the quarter. Net sales for the second quarter of 2026 increased 10% to $442 million.

This performance is right in line with our long-term growth targets we just discussed. For the quarter, adjusted EBITDA increased 2.5% to $77.1 million, compared to $75.2 million during the year-ago quarter. Free cash flow during the quarter totaled a very healthy $70.2 million. Driving the top-line 10% growth were two points of growth from core performance, 4.5 points of growth from new business wins, and about 3.5 points of growth from M&A. Of the 4.5 points of new business wins, we are really excited that approximately one point of growth came from our Win the Pro focus. This is a channel we didn’t focus on until this year.

Driving our pro growth during the quarter were a new fastener win with a regional LBM chain in the Pacific Northwest, becoming a preferred supplier of fasteners and cleaning products for a major pro customer, and our bulk fastener program in Canada that continues to grow well and will contribute to our new business revenue. These three recent proof points show that we have the right to win in the pro space. Looking to 2027, we plan to further scale our bulk and pro specific offerings. We plan to win the pro as we leverage our distribution capabilities, product breadth, and innovation with customer service to be a preferred supplier in this channel. Altogether, we believe that these new business wins will generate about 1% top-line growth for Hillman this year and are confident that will grow to at least 2% growth next year.