Michael Hoffman: Okay. So all year we’re at $45 million and then the 2Q and 3Q are even higher and 4Q maybe actually may be below $45 million just to get it to balance.
Rocky Kraft: Again I’ll just restate what I said, Michael that we expect all year every quarter to be at or above historic levels.
Michael Hoffman: Okay. And then, so your customer is having real foot traffic issues. What are you doing differently to keep your business on pace despite their foot traffic?
Doug Cahill: Yes, I think if you think about Depot and Lowe’s clearly foot traffic issues we’re not seeing that as much in the farm and fleet and these little hardware stores. And I say little when you have 12,000 of them and they represent 27% of your business, they just refused to partake [Technical Difficulty] really well. And then get the servers and M&A [Technical Difficulty] had some strong double-digit kind of move this past year. And so those three areas are not being as impacted by foot traffic. And I think Depot and Lowe’s are both certainly hoping that with the spring and kind of midyear that turns around but it’s been tough for three years.
Michael Hoffman: Okay. And if I could squeeze one more. What’s your M&A pipeline look like?
Doug Cahill: One of the great thing — we got lucky let’s face it. We wanted to buy Koch a couple of years ago and just didn’t feel like it was the right time with what we had to do on inventory. And we spent time with the owners and told them we genuinely wanted to buy it and this is when we thought we could. And they waited for us. Ironically, they also ended up buying stock in Hillman during that time. And I just think that we got to know them. They got to know us. We were very honest about when we wanted to buy. And for two brothers who run a company and build a company honestly, we’re a great fit for them. We’ve already integrated the team. We just had 31 people in Minnesota this week. They love what’s happening. And they know, the two brothers know that they can retire and this will be very well taken care of.
So we’ve got half a dozen of those Michael and again not all will come together but the fact that the private equity guys stopped sharpening their year was because there was no debt market has really helped us.
Michael Hoffman: Got it. Thank you.
Operator: Thank you. Please standby for our next question. Our next question comes from the line of Reuben Garner with Benchmark. Your line is open.
Reuben Garner: Thanks. Good morning, everybody.
Doug Cahill: Hey, Reuben.
Reuben Garner: So hardware has been fairly resilient for you guys. You talked about the issues with Walmart at RDS. Can you talk about protective solutions? Maybe what’s changed in the last couple of quarters and kind of what’s embedded in your outlook in that category for 2024?
Rocky Kraft: Reuben, yeah. I mean, we look at the back half of 2023 really proud of what that team has done the last couple of years. We’ve I’ll say rebuilt that business a bit. We’ve focused on remixing our 12 mix. We’ve been introducing new products and we’ve rebalanced it. We’ve got some nice off-shelf opportunities incremental shelf space, which we’ve been able to maximize. And that led to a really good back half of the year. We feel good about where the business is positioned in 2024 and we’re excited about that team’s got on their plate are the new growth opportunities that Doug referenced earlier. So we feel really good about our go forward in that category we can continue to grow.
Doug Cahill: I think the other thing Ruben is we’ve got like a DIGs line that really is a great positioning for the female and the gardening side. And now our retail partner wants us to expand that name into other products because it’s really starting to take hold. So we’ve got some interesting things there. We also are introducing a higher end, if you will tool bag that a lot of the pros want. And it’s the first time and the price points up there pretty high, but the quality is fantastic. So we’re trying to think differently in that work gear and knee pads because the pro, the more we interview them and get to know them, they don’t like buying four or five of these a year. They like buying one and bragging about the fact that it will last three years. And historically, these retailers don’t want to hit that price point. They now know they can hit that price point, if they have the right goods.
Rocky Kraft: Yes, I think Ruben, the only thing I would add just — if people are modeling it, we think PS will look a lot like the overall guide for the year probably, without the price pressure.
Reuben Garner: Got it. And then it’s been a little while since M&A has been part of the story, can you kind of maybe remind us of — are there other areas like rope and chain that are left from a bolt-on perspective in the hardware aisle? Or are you starting to get to the point where you’ve got to go outside of hardware to try to grow the business?
Doug Cahill: You know, I would say there’s probably an equal amount inside hardware. I would say that ZIP Code like Koch. And then obviously, we always are looking and thinking through plumbing and electrical, which we would consider more than just around the corner. That we would consider that outside. But we’re looking at both. And again, nothing crazy, but when you think about buying something at call it six times pre-synergy, and then you add what we’re able to do with the business not just from a cost standpoint but what we — with our relationship, with our service capability, the top line in that business is not going to look anything like it has historically.
Reuben Garner: Great. Congrats on the strong close to last year and good luck this year guys.
Doug Cahill: Thanks.
Rocky Kraft: Thanks, Reuben
Operator: Thank you. Please standby for our next question. Our next question comes from the line of Brian McNamara with Canaccord. Your line is open.
Q – Brian McNamara: Good morning, guys. Thanks for taking the questions. On pricing Doug, I know you have foreshadowed this for some time, but price minus 1% in 2024 is probably a little bit better than I would have expected. As we’ve heard, some of your retail customers particularly the home centers haven’t been shy to ask for price back. What could it make that minus 1% materially better or worse, as the year goes on? Or is that a pretty good place to lock in?
Doug Cahill: Yeah, Brian I think it’s a little — so here’s the way to think about it, that 1% is a little bigger than 1% as you think about the timing for those decreases. And let’s just use, an example. Let’s say something goes into effect in June. It may be impacting our 2024 as such, but it then rolls into 2025, in the first half. So the 1% is accurate but it’s a little bigger than that. The answer to your question is, how things roll.
Rocky Kraft: The only thing I would add Brian, this is Rocky is, when you think about costs, we’ve seen a nice benefit on containers and we’ve talked about that. But virtually, every other category that we look at, there’s inflation I mean and we’re all seeing it. I mean labor isn’t getting cheaper. Once you get product — we get product into the United States, it’s not getting cheaper. And while we did see a bit last year and continue to see a bit of commodity benefit as you know, as we sit today we’ve seen the cost of steel in Taiwan and China go up pretty dramatically. Now that typically happens during the Chinese New Year, and we’ll see what happens after Chinese New Year. But as you know, as we think about our business and think about the future there’s a lot of prices, in a lot of different direction that helps us to explain, why our prices need to be what they need to be so we get a fair profit.
Q – Brian McNamara: That’s fair. I guess with what with Home Depot expecting another year of customers taking on smaller projects deferring larger product projects does this materially impact your ability to plan and guide the business?
Doug Cahill: I don’t think so. I think we play in the pickup truck and the DIYer the thing we’re looking for is people to get off cruise ships in and out of concert halls so they get back into the backyard. And I mean that probably — the DIYer or the pickup truck pros about where they’ve been the DIYer Brian is the one that’s off. And we’re hoping that we’ll see that start to pick up and normalize a little bit. I don’t know how they’re going to do what they want to do when you look at the price of airline tickets right now. So that’s the part we’d like to see improved.
Brian McNamara: Got it. And I’ll just squeeze in one last one a quick one. After a really nice year of free cash flow generation last year. How should investors think about sustainable cash flow generation in the business given the last few years haven’t been particularly normal?
Rocky Kraft: Yeah I think I said in my prepared remarks Brian. We think this is $130 million to $140 million of free cash flow kind of normal benefit. If you look over the last two years, we did $172 million last year. We’re guiding to about $110 million this year. If you average those out that’s just north of that price $140 million $142 million. And so that’s what we think is kind of a normal generation in the business should be. We’ll grow that cash flow over time as we grow EBITDA. The one challenge that we will have as we think about the future a bit is around taxes because we’re not a full cash taxpayer in the US today we will be eventually. And then the flip side is we expect to continue to pay down debt and as we do we’ll obviously bring that interest line down as well.
So you know $130 million to $140 million feels like a good number. We’ve guided to $110 million this year and obviously we would be disappointed if we don’t do better than that as we go through the year.
Brian McNamara: Got it. Thanks a lot guys. Best of luck.
Rocky Kraft: Thanks, Brian.
Doug Cahill: Thanks, Brian.
Operator: Thank you. Ladies and gentlemen that concludes the Q&A portion of today’s call. I would now like to turn the call back over to Mr. Cahill for closing remarks.
Doug Cahill: Thank you. Thanks everyone for joining us this morning. Again, we’re lucky to have the customers we do. We’ve got great vendor partners and importantly — most importantly this team at Hillman continues to do things for us each and every day, particularly, in the store for our customers that that allows us to grow and allows us to continue to be find ways to do more. So we look forward to updating you again in the near future and thank you for joining us this morning.
Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.
