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Landcadia Holdings III, Inc.
001-39609
(Commission File Number)
| Delaware | 85-2096734 | |||||||||||||||||||
| (State or other jurisdiction of incorporation or organization) | ( Identification No.) | |||||||||||||||||||
| 1280 Kemper Meadow Drive | 45240 | |||||||||||||||||||
| Cincinnati | , | Ohio | ||||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||||||||
1510 West Loop South, Houston, Texas 77027
(Address of principal executive offices, including zip code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
(513) 851-4900
| Title of | Trading Symbol(s) | Name of | ||||||||
| HLMN | The Nasdaq Stock Market LLC | |||||||||
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| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☐ | |||||||||||||||||
| Emerging growth company | ☐ | |||||||||||||||||||
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As of ☒
LANDCADIA HOLDINGS III, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2020
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | ||||||||||
| Item 1. | ||||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||||
| Item 2. | ||||||||||
| Item 3. | ||||||||||
| Item 4. | ||||||||||
| Item 1. | ||||||||||
| Item 1A. | ||||||||||
| Item 2. | Unregistered Sales of Equity Securities, | |||||||||
| Item 3. | ||||||||||
| Item 4. | ||||||||||
| Item 5. | ||||||||||
| Item 6. | ||||||||||
Balance Sheets
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | $ | - | $ | - | ||||
| Total current assets | - | - | ||||||
| Deferred offering costs | 377,200 | - | ||||||
| Total Assets | $ | 377,200 | $ | - | ||||
| LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts Payable | $ | 215,450 | $ | - | ||||
| Notes payable, affiliates | 161,750 | |||||||
| Total current liabilities | 377,200 | - | ||||||
| Total Liabilities | $ | 377,200 | $ | - | ||||
| Commitments | - | - | ||||||
| Stockholder's Equity: | ||||||||
| Preferred stock, $0.0001 par value, 1,000,000 authorized, no shares issued or outstanding | $ | - | $ | - | ||||
| Common stock | ||||||||
| Class A common stock, $0.0001 par value, 380,000,000 shares authorized, no shares issued and outstanding | - | - | ||||||
| Class B common stock, $0.0001 par value 20,000,000 shares authorized, 14,375,000 and 6,943,125 issued and outstanding, respectively (1) | 1,438 | 694 | ||||||
| Additional paid-in capital | 632 | 306 | ||||||
| Retained earnings | - | - | ||||||
| Note receivable, affiliates | (2,070 | ) | (1,000 | ) | ||||
| Total Stockholder's equity | - | - | ||||||
| Total liabilities and stockholder's equity | $ | 377,200 | $ | - | ||||
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 39,262 | $ | 31,081 | |||||||
| Accounts receivable, net of allowances of $2,312 ($2,405 - 2022) | 129,709 | 86,985 | |||||||||
| Inventories, net | 397,077 | 489,326 | |||||||||
| Other current assets | 29,778 | 24,227 | |||||||||
| Total current assets | 595,826 | 631,619 | |||||||||
| Property and equipment, net of accumulated depreciation of $362,422 ($333,452 - 2022) | 200,121 | 190,258 | |||||||||
| Goodwill | 824,305 | 823,812 | |||||||||
| Other intangibles, net of accumulated amortization of $461,240 ($414,275 - 2022) | 688,451 | 734,460 | |||||||||
| Operating lease right of use assets | 88,578 | 66,955 | |||||||||
| Other assets | 14,633 | 23,586 | |||||||||
| Total assets | $ | 2,411,914 | $ | 2,470,690 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 159,332 | $ | 131,751 | |||||||
| Current portion of debt and financing lease liabilities | 10,697 | 10,570 | |||||||||
| Current portion of operating lease liabilities | 13,814 | 12,285 | |||||||||
| Accrued expenses: | |||||||||||
| Salaries and wages | 9,188 | 15,709 | |||||||||
| Pricing allowances | 10,917 | 9,246 | |||||||||
| Income and other taxes | 5,786 | 5,300 | |||||||||
| Interest | 352 | 697 | |||||||||
| Other accrued liabilities | 23,390 | 29,854 | |||||||||
| Total current liabilities | 233,476 | 215,412 | |||||||||
| Long-term debt | 780,043 | 884,636 | |||||||||
| Deferred tax liabilities | 142,103 | 140,091 | |||||||||
| Operating lease liabilities | 81,795 | 61,356 | |||||||||
| Other non-current liabilities | 14,897 | 12,456 | |||||||||
| Total liabilities | $ | 1,252,314 | $ | 1,313,951 | |||||||
| Commitments and contingencies (Note 6) | |||||||||||
| Stockholders' equity: | |||||||||||
| Common stock, $0.0001 par, 500,000,000 shares authorized, 194,827,369 issued and outstanding at September 30, 2023 and 194,548,411 issued and outstanding at December 31, 2022 | 20 | 20 | |||||||||
| Additional paid-in capital | 1,415,059 | 1,404,360 | |||||||||
| Accumulated deficit | (226,147) | (226,617) | |||||||||
| Accumulated other comprehensive loss | (29,332) | (21,024) | |||||||||
| Total stockholders' equity | 1,159,600 | 1,156,739 | |||||||||
| Total liabilities and stockholders' equity | $ | 2,411,914 | $ | 2,470,690 | |||||||
Statements of Operations
(Unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| General and administrative expenses | - | - | - | - | ||||||||||||
| Net Income | $ | - | $ | - | $ | - | $ | - | ||||||||
| Basic and diluted earnings per share: | ||||||||||||||||
| Net Income per share | $ | - | $ | - | $ | - | $ | - | ||||||||
| Basic and diluted weighted average number of shares outstanding (1) | 8,706,791 | 6,037,500 | 6,937,041 | 6,037,500 | ||||||||||||
| 1 | September 30, |  | |||||||
| Thirteen Weeks Ended September 30, 2023 | Thirteen Weeks Ended September 24, 2022 | Thirty-nine Weeks Ended September 30, 2023 | Thirty-nine Weeks Ended September 24, 2022 | ||||||||||||||||||||
| Net sales | $ | 398,943 | $ | 378,538 | $ | 1,128,669 | $ | 1,135,665 | |||||||||||||||
| Cost of sales (exclusive of depreciation and amortization shown separately below) | 222,644 | 214,802 | 643,652 | 648,221 | |||||||||||||||||||
| Selling, warehouse, general and administrative expenses | 113,359 | 133,246 | 335,876 | 366,013 | |||||||||||||||||||
| Depreciation | 14,434 | 14,312 | 44,939 | 41,738 | |||||||||||||||||||
| Amortization | 15,583 | 15,557 | 46,733 | 46,644 | |||||||||||||||||||
| Other (income) expense, net | (1,819) | 1,070 | 841 | (3,124) | |||||||||||||||||||
| Income (loss) from operations | 34,742 | (449) | 56,628 | 36,173 | |||||||||||||||||||
| Interest expense, net | 16,728 | 14,696 | 52,880 | 38,857 | |||||||||||||||||||
| Income (loss) before income taxes | 18,014 | (15,145) | 3,748 | (2,684) | |||||||||||||||||||
| Income tax expense (benefit) | 12,957 | (5,679) | 3,278 | (147) | |||||||||||||||||||
| Net income (loss) | $ | 5,057 | $ | (9,466) | $ | 470 | $ | (2,537) | |||||||||||||||
| Basic income (loss) per share | $ | 0.03 | $ | (0.05) | $ | 0.00 | $ | (0.01) | |||||||||||||||
| Weighted average basic shares outstanding | 194,794 | 194,370 | 194,662 | 194,171 | |||||||||||||||||||
| Diluted income (loss) per share | $ | 0.03 | $ | (0.05) | $ | 0.00 | $ | (0.01) | |||||||||||||||
| Weighted average diluted shares outstanding | 196,575 | 194,370 | 195,832 | 194,171 | |||||||||||||||||||
| Net income (loss) from above | $ | 5,057 | $ | (9,466) | $ | 470 | $ | (2,537) | |||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (2,994) | (7,834) | 1,851 | (8,745) | |||||||||||||||||||
| Hedging activity | (4,257) | 3,811 | (10,159) | 15,333 | |||||||||||||||||||
| Total other comprehensive (loss) income | (7,251) | (4,023) | (8,308) | 6,588 | |||||||||||||||||||
| Comprehensive (loss) income | $ | (2,194) | $ | (13,489) | $ | (7,838) | $ | 4,051 | |||||||||||||||
Statements of CHANGES IN STOCKHOLDERS’ EQUITY
Class B Common Stock | Additional Paid-in | Retained | Note receivable, | |||||||||||||||||||||
| Shares (1) | Amount | Capital | Earnings | affiliates | Total | |||||||||||||||||||
| Balance, December 31, 2019 | 6,943,125 | $ | 694 | $ | 306 | $ | - | $ | (1,000 | ) | $ | - | ||||||||||||
| Net income | - | - | - | - | - | - | ||||||||||||||||||
| Balance, June 30, 2020 (unaudited) | 6,943,125 | 694 | 306 | - | (1,000 | ) | - | |||||||||||||||||
| Class B shares issued | 7,431,875 | 744 | 326 | - | (1,070 | ) | ||||||||||||||||||
| Net income | - | - | - | - | - | - | ||||||||||||||||||
| Balance, September 30, 2020 (unaudited) | 14,375,000 | $ | 1,438 | $ | 632 | $ | - | $ | (2,070 | ) | $ | - | ||||||||||||
| Class B Common Stock | Additional Paid-in | Retained | Note receivable, | |||||||||||||||||||||
| Shares (1) | Amount | Capital | Earnings | affiliates | Total | |||||||||||||||||||
| Balance, December 31, 2018 | 6,943,125 | $ | 694 | $ | 306 | $ | - | $ | (1,000 | ) | $ | - | ||||||||||||
| Net income | - | - | - | - | - | - | ||||||||||||||||||
| Balance, June 30, 2019 (unaudited) | 6,943,125 | 694 | 306 | - | (1,000 | ) | - | |||||||||||||||||
| Net income | - | - | - | - | - | - | ||||||||||||||||||
| Balance, September 30, 2019 (unaudited) | 6,943,125 | $ | 694 | $ | 306 | $ | - | $ | (1,000 | ) | $ | - | ||||||||||||
| 2 | September 30 | | |||||||
| Thirty-nine Weeks Ended September 30, 2023 | Thirty-nine Weeks Ended September 24, 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | 470 | $ | (2,537) | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 91,672 | 88,382 | |||||||||
| Deferred income taxes | 1,835 | 5,670 | |||||||||
| Deferred financing and original issue discount amortization | 3,993 | 2,251 | |||||||||
| Stock-based compensation expense | 9,111 | 10,789 | |||||||||
| Change in fair value of contingent consideration | 2,614 | (2,926) | |||||||||
| Changes in operating items: | |||||||||||
| Accounts receivable, net | (42,883) | (19,482) | |||||||||
| Inventories, net | 92,833 | (6,004) | |||||||||
| Other assets | (5,697) | (5,549) | |||||||||
| Accounts payable | 27,220 | (34,648) | |||||||||
| Other accrued liabilities | (9,691) | 27,286 | |||||||||
| Net cash provided by operating activities | 171,477 | 63,232 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisition of business, net of cash received | (300) | (2,500) | |||||||||
| Capital expenditures | (52,145) | (46,431) | |||||||||
| Other investing activities | (318) | — | |||||||||
| Net cash used for investing activities | (52,763) | (48,931) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repayments of senior term loans | (86,383) | (6,384) | |||||||||
| Borrowings on revolving credit loans | 172,000 | 161,000 | |||||||||
| Repayments of revolving credit loans | (197,000) | (154,000) | |||||||||
| Principal payments under finance lease obligations | (1,687) | (998) | |||||||||
| Proceeds from exercise of stock options | 1,600 | 1,885 | |||||||||
| Payments of contingent consideration | (1,175) | (115) | |||||||||
| Other financing activities | 883 | 1,809 | |||||||||
| Cash payments related to hedging activities | — | (1,421) | |||||||||
| Net cash (used for) provided by financing activities | (111,762) | 1,776 | |||||||||
| Effect of exchange rate changes on cash | 1,229 | (1,454) | |||||||||
| Net increase in cash and cash equivalents | 8,181 | 14,623 | |||||||||
| Cash and cash equivalents at beginning of period | 31,081 | 14,605 | |||||||||
| Cash and cash equivalents at end of period | $ | 39,262 | $ | 29,228 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Interest paid | $ | 43,843 | $ | 30,597 | |||||||
| Income taxes paid | 3,999 | 2,550 | |||||||||
in the Preparation of Financial Statements: collects concurrent with revenue-producing activities are excluded from revenue. certain actuarial assumptions. The Company 3 | September 30 2023 Form 10-Q HILLMAN SOLUTIONS CORP. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Nine months ended September 30, 2020 2019 Cash flows from operating activities: Net income $ - $ - Adjustments to reconcile net income to net cash provided by operating activities - - Net cash provided by (used in) operating activities - - Cash flows from investing activities: Net cash provided by (used in) investing activities - - Cash flows from financing activities: Net cash provided by (used in) financing activities - - Net increase (decrease) in cash and cash equivalents - - Cash and cash equivalents at beginning of period - - Cash and cash equivalents at end of period $ - $ - �� Non-cash financing activities: Stock issuance $ - $ - (dollars in thousands)Common Stock Shares Amount Additional Paid-in-Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Thirty-nine weeks ended September 30, 2023 Balance at December 31, 2022 194,548 $ 20 $ 1,404,360 $ (226,617) $ (21,024) $ 1,156,739 Net Income (Loss) — — — (9,132) — (9,132) Stock option activity, stock awards and employee stock purchase plan — — 2,708 — — 2,708 Hedging activity — — — — (5,142) (5,142) Change in cumulative foreign currency translation adjustment — — — — 959 959 Balance at April 1, 2023 194,548 $ 20 $ 1,407,068 $ (235,749) $ (25,207) $ 1,146,132 Net Income (Loss) — — — 4,545 — 4,545 Stock option activity, stock awards and employee stock purchase plan 159 — 4,012 — — 4,012 Hedging activity — — — — (760) (760) Change in cumulative foreign currency translation adjustment — — — — 3,886 3,886 Balance at July 1, 2023 194,707 $ 20 $ 1,411,080 $ (231,204) $ (22,081) $ 1,157,815 Net Income (Loss) — — — 5,057 — 5,057 Stock option activity, stock awards and employee stock purchase plan 120 — 3,979 — — 3,979 Hedging activity — — — — (4,257) (4,257) Change in cumulative foreign currency translation adjustment — — — — (2,994) (2,994) Balance at September 30, 2023 194,827 $ 20 $ 1,415,059 $ (226,147) $ (29,332) $ 1,159,600 Thirty-nine weeks ended September 24, 2022 Balance at December 25, 2021 193,995 $ 20 $ 1,387,410 $ (210,181) $ (27,154) $ 1,150,095 Net Income (Loss) — — — (1,887) — (1,887) Stock option activity, stock awards and employee stock purchase plan 53 — 6,018 — — 6,018 Hedging activity — — — — 8,413 8,413 Change in cumulative foreign currency translation adjustment — — — — 3,735 3,735 Balance at March 26, 2022 194,048 $ 20 $ 1,393,428 $ (212,068) $ (15,006) $ 1,166,374 Net Income (Loss) — — — 8,816 — 8,816 Stock option activity, stock awards and employee stock purchase plan 223 — 3,435 — — 3,435 Hedging Activity — — — — 3,109 3,109 Change in cumulative foreign currency translation adjustment — — — — (4,646) (4,646) Balance at June 25, 2022 194,271 $ 20 $ 1,396,863 $ (203,252) $ (16,543) $ 1,177,088 Net Income (Loss) — — — (9,466) — (9,466) Stock option activity, stock awards and employee stock purchase plan 124 — 3,221 — — 3,221 Hedging activity — — — — 3,811 3,811 Change in cumulative foreign currency translation adjustment — — — — (7,834) (7,834) Balance at September 24, 2022 194,395 $ 20 $ 1,400,084 $ (212,718) $ (20,566) $ 1,166,820 The accompanying notesNotes are an integral part of these financial statements.Landcadia Holdings III, Inc.1.Nature of Business and Subsequent Event4 | September 30 2023 Form 10-Q BusinessLandcadia Holdings III, Inc., (the “Company,” “we,” “us” or “our”), was formed as Automalyst LLC, a Delaware limited liability company on March 13, 2018 and converted into a Delaware corporation on August 24, 2020.1. BASIS OF PRESENTATIONThe Company has not had any significant operations to date. The Company was formed to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company has not yet identified a Business Combination for these purposes. There is no assurance that the Company’s plans to consummate a Business Combination will be successful or successful within the target business acquisition period.All activity through September 30, 2020 relates to the Company’s formation and initial public offering of units (the “Public Offering”), which is described below.SponsorsThe Company’s sponsors are TJF, LLC (“TJF”) and Jefferies Financial Group Inc. (“JFG” and together with TJF, the “Sponsors”). TJF is wholly owned by Tilman J. Fertitta, the Company’s Co-Chairman and Chief Executive Officer.Subsequent EventThe Company intends to finance its Business Combination in part with proceeds from its $500,000,000 Public Offering and a $12,000,000 private placement (the “Private Placement”) of private placement warrants (the “Sponsor Warrants”), see Notes 4 and 5. The registration statement for the Public Offering was declared effective by the U.S. Securities and Exchange Commission (“SEC”) on October 8, 2020. The Company consummated the Public Offering of 50,000,000 units (the “Units”) at $10.00 per Unit on October 14, 2020, generating gross proceeds of $500,000,000. Simultaneously with the closing of the Public Offering, the Company consummated the Private Placement of an aggregate of 8,000,000 Sponsor Warrants at a price of $1.50 per Sponsor Warrant, generating proceeds of $12,000,000. Upon the closing of the Public Offering and Private Placement on October 14, 2020, $500,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Public Offering and the Private Placement was placed in a U.S.-based trust account maintained by Continental Stock Transfer & Trust Company, acting as trustee (the “Trust Account”). The Company granted the underwriters a 45-day option from the date of the prospectus, October 8, 2020, to purchase additional units. If the over-allotment is exercised in full, proceeds from the Public Offering and Private Placement will be $575,000,000 and $13,500,000, respectively.We have evaluated subsequent events and transactions that occurred after the balance sheet date up to the date the financial statements were issued. The Company did not identify any subsequent events that would have required adjustment to or disclosure in the financial statements, other than those included herein.Trust AccountThe proceeds held in the Trust Account can only be invested in permitted United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations.The Company’s second amended and restated certificate of incorporation (the “Charter”) provides that, other than the withdrawal of interest to pay tax obligations (less up to $100,000 interest to pay dissolution expenses), none of the funds held in the Trust Account will be released until the earliest of: (i) the completion of the Business Combination; (ii) the redemption of any shares of Class A common stock included in the Units sold in the Public Offering (“Public Shares”) properly submitted in connection with a stockholder vote to amend the Charter to modify the substance or timing of the Company’s obligation to redeem 100% of the Public Shares if the Company does not complete the Business Combination within 24 months from the closing of the Public Offering (October 14, 2022) or to provide for redemption in connection with a Business Combination; or (iii) the redemption of the Public Shares if the Company is unable to complete the Business Combination within 24 months from the closing of the Public Offering, subject to applicable law.Initial Business CombinationThe Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering and private placement of the Sponsor Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one initial Business Combination having an aggregate fair market value of at least 80% of the value of the assets held in the Trust Account (excluding deferred underwriting commissions and taxes payable on the interest earned on the Trust Account) at the time of the Company’s signing a definitive agreement in connection with an initial Business Combination. The Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to registered as an investment company under the Investment Company Act.The Sponsors and the Company’s officers and directors have entered into a letter agreement with the Company, pursuant to which they have agreed to (i) waive their redemption rights with respect to their Class B shares (“Founder Shares”)| and Public Shares in connection with the completion of the Business Combination, (ii) waive their redemption rights with respect to their Founder Shares and Public Shares in connection with a stockholder vote to approve an amendment to the Charter to modify the substance or timing of the Company’s obligation to redeem 100% of the Public Shares if the Company does not complete a Business Combination within 24 months from the closing of the Public Offering or to provide for redemption in connection with a Business Combination and (iii) waive their rights to liquidating distributions from the Trust Account with respect to their Founder Shares if the Company fails to complete a Business Combination within 24 months from the closing of the Public Offering, although they will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares they hold if the Company fails to complete a Business Combination within the prescribed time frame; and (iv) vote any Founder Shares held by them and any Public Shares purchased during or after the Public Offering (including in open market and privately-negotiated transactions) in favor of the Business Combination.The Company, after signing a definitive agreement for the Business Combination, will either (i) seek stockholder approval of the Business Combination at a meeting called for such purpose in connection with which stockholders may seek to redeem their shares, regardless of whether they vote for or against the Business Combination, for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the Business Combination, including interest earned on the Trust Account and not previously released to the Company to pay its taxes, or (ii) provide stockholders with the opportunity to sell their shares to the Company by means of a tender offer for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to commencement of the tender offer, including interest earned on the Trust Account and not previously released to the Company to pay its taxes. The decision as to whether the Company will seek stockholder approval of the Business Combination or will allow stockholders to sell their shares in a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder approval. If the Company seeks stockholder approval, it will complete the Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor of the Business Combination. However, in no event will the Company redeem the Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001. In such case, the Company would not proceed with the redemption of the Public Shares and the related Business Combination, and instead may search for an alternate Business Combination.Notwithstanding the foregoing redemption rights, if the Company seeks stockholder approval of the Business Combination and it does not conduct redemptions in connection with the Business Combination pursuant to the tender offer rules, the Charter provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the shares sold in the Public Offering, without the Company’s prior consent.The Company will have 24 months from the closing of the Public Offering to complete the Business Combination. If the Company does not complete the Business Combination within this period of time, it shall (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem the Public Shares for a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to the Company to pay its taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and its board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims to creditors and the requirements of other applicable law. The Sponsors and the Company’s officers and directors have entered into a letter agreement with the Company, pursuant to which they have waived their rights to liquidating distributions from the Trust Account with respect to any Founder Shares held by them if the Company fails to complete its Business Combination within 24 months of the closing of the Public Offering; however, if the Sponsors, officers and directors acquire Public Shares in or after the Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares the Company does not complete the Business Combination within the required time period. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per Unit in the Public Offering.Pursuant to the letter agreement referenced above, the Sponsors, officers and directors agreed that, if the Company submits the Business Combination to the Company’s public stockholders for a vote, such parties will vote their Founder Shares and any Public Shares in favor of the Business Combination.Fiscal Year EndThe Company has a December 31 fiscal year-end.2.Summary of Significant Accounting PoliciesBasis of PresentationOur accompanying condensed financial statements include the consolidated accounts of the Hillman Solutions Corp. and its wholly-owned subsidiaries (collectively “Hillman” or the “Company”). The accompanying unaudited financial statements include the condensed consolidated accounts of the Company for the thirteen and thirty-nine weeks ended September 30, 2023. Unless the context requires otherwise, references to "Hillman," "we," "us," "our," or "our Company" refer to Hillman Solutions Corp. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been preparedeliminated.The accompanying unaudited Condensed Consolidated Financial Statements present information in conformityaccordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and applicable rules of America (“GAAP”)Regulation S-X. Accordingly, they do not include all information or footnotes required by U.S. generally accepted accounting principles for complete financial statements. Operating results for the thirteen and pursuantthirty-nine weeks ended September 30, 2023 do not necessarily indicate the results that may be expected for the full year. For further information, refer to the rulesConsolidated Financial Statements for the year ended December 31, 2022 and regulationsnotes thereto included in the Form 10-K filed on February 27, 2023 with the Securities and Exchange Commission (“SEC”).Nature of Operations:The Company is comprised of three separate operating business segments: (1) Hardware and Protective Solutions, (2) Robotics and Digital Solutions, and (3) Canada.In the first quarter of 2023, the Company realigned its Canada segment to include the Canada-based Protective Solutions and MinuteKey businesses, which are now operating under the Canada segment leadership team. Previously, the results of the Canada-based Protective Solutions business were reported in the Hardware and Protective Solutions segment and the Canada-based MinuteKey business was reported in the Robotics and Digital Solutions segment and were operating under those respective segment leadership teams. See Note 16 - Segment Reporting for additional information.Hillman provides and, on a limited basis, produces products such as fasteners and related hardware items; threaded rod and metal shapes; keys, key duplication systems, and accessories; personal protective equipment such as gloves and eyewear; builder's hardware; and identification items, such as tags and letters, numbers, and signs, to retail outlets, primarily hardware stores, home centers and mass merchants, pet supply stores, grocery stores, and drug stores. The Canada segment also produces fasteners, stampings, fittings, and processes threaded parts for automotive suppliers, industrial Original Equipment Manufacturers (“OEMs”), and industrial distributors.Reclassifications:Certain amounts in the prior year Condensed Consolidated Financial Statements and in the Notes to the Condensed Consolidated Financial Statements were reclassified to conform to the current year’s presentation. This had no impact on the prior periods’ statement of financial position, net income (loss), cash flows, or stockholder’s equity.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe significant accounting policies should be read in conjunction with the significant accounting policies included in the Form 10-K filed onFebruary 27, 2023with the SEC.Use of EstimatesThe preparation of these financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the datedates of the financial statements and the reported amounts of revenuerevenues and expenses duringfor the reporting period.periods. Actual results couldmay differ from these estimates.5 | September 30 2023 Form 10-Q Revenue Recognition:Revenue is recognized when control of goods or services is transferred to our customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those estimates.Emerging Growthgoods or services. Sales and other taxes the CompanyThe Company is an “emerging growth company,” as definedoffers a variety of sales incentives to its customers primarily in Section 2(a)the form of discounts and rebates. Discounts are recognized in the Condensed Consolidated Financial Statements at the date of the Securities Act of 1933 (as amended,related sale. Rebates are based on the “Securities Act”), as modified byrevenue to date and the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicablecontractual rebate percentage to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404be paid. A portion of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.Further, section 102(b)(1)cost of the JOBS Act exempts emerging growth companies from beingrebate is allocated to each underlying sales transaction. Discounts and rebates are included in the determination of net sales.The Company also establishes reserves for customer returns and allowances. The reserve is established based on historical rates of returns and allowances. The reserve is adjusted quarterly based on actual experience. Returns and allowances are included in the determination of net sales.The following tables display our disaggregated revenue by product category. Certain amounts in the prior year presentation between segments were reclassified to conform to the current year’s presentation.Thirteen weeks ended September 30, 2023 Hardware and Protective Solutions Robotics and Digital Solutions Canada Total Revenue Fastening and Hardware $ 228,515 $ — $ 35,497 $ 264,012 Personal Protective 67,038 — 1,933 68,971 Keys and Key Accessories — 50,408 2,477 52,885 Engraving and Resharp — 13,060 15 13,075 Total Revenue $ 295,553 $ 63,468 $ 39,922 $ 398,943 Thirteen weeks ended September 24, 2022 Hardware and Protective Solutions Robotics and Digital Solutions Canada Total Revenue Fastening and Hardware $ 211,064 $ — $ 39,356 $ 250,420 Personal Protective 59,052 — 2,263 61,315 Keys and Key Accessories — 50,445 2,422 52,867 Engraving and Resharp — 13,928 8 13,936 Total Revenue $ 270,116 $ 64,373 $ 44,049 $ 378,538 Thirty-nine weeks ended September 30, 2023 Hardware and Protective Solutions Robotics and Digital Solutions Canada Total Revenue Fastening and Hardware $ 658,629 $ — $ 111,462 $ 770,091 Personal Protective 159,569 — 5,474 165,043 Keys and Key Accessories — 147,976 6,510 154,486 Engraving and Resharp — 39,014 35 39,049 Total Revenue $ 818,198 $ 186,990 $ 123,481 $ 1,128,669 6 | September 30 2023 Form 10-Q Thirty-nine weeks ended September 24, 2022 Hardware and Protective Solutions Robotics and Digital Solutions Canada Total Revenue Fastening and Hardware $ 626,174 $ — $ 121,078 $ 747,252 Personal Protective 186,757 — 6,778 193,535 Keys and Key Accessories — 146,750 5,778 152,528 Engraving and Resharp — 42,316 34 42,350 Total Revenue $ 812,931 $ 189,066 $ 133,668 $ 1,135,665 The following tables disaggregate our revenue by geographic location. Certain amounts in the prior year presentation between segments were reclassified to conform to the current year’s presentation.Thirteen weeks ended September 30, 2023 Hardware and Protective Solutions Robotics and Digital Solutions Canada Total Revenue United States $ 292,580 $ 63,468 $ — $ 356,048 Canada — — 39,922 39,922 Mexico 2,973 — — 2,973 Consolidated $ 295,553 $ 63,468 $ 39,922 $ 398,943 Thirteen weeks ended September 24, 2022 Hardware and Protective Solutions Robotics and Digital Solutions Canada Total Revenue United States $ 265,649 $ 64,373 $ — $ 330,022 Canada — — 44,049 44,049 Mexico 4,467 — — 4,467 Consolidated $ 270,116 $ 64,373 $ 44,049 $ 378,538 Thirty-nine weeks ended September 30, 2023 Hardware and Protective Solutions Robotics and Digital Solutions Canada Total Revenue United States $ 809,250 $ 186,990 $ — $ 996,240 Canada — — 123,481 123,481 Mexico 8,948 — — 8,948 Consolidated $ 818,198 $ 186,990 $ 123,481 $ 1,128,669 Thirty-nine weeks ended September 24, 2022 Hardware and Protective Solutions Robotics and Digital Solutions Canada Total Revenue United States $ 801,539 $ 189,066 $ — $ 990,605 Canada — — 133,668 133,668 Mexico 11,392 — — 11,392 Consolidated $ 812,931 $ 189,066 $ 133,668 $ 1,135,665 The Company's revenue by geography is allocated based on the location of its sales operations.Hardware and Protective Solutions revenues consist primarily of the delivery of fasteners, anchors, specialty fastening products, and personal protective equipment such as gloves and eyewear, as well as in-store merchandising services for the related product category.7 | September 30 2023 Form 10-Q Robotics and Digital Solutions revenues consist primarily of sales of keys and identification tags through self-service key duplication and engraving kiosks. It also includes our associate-assisted key duplication systems and key accessories.Canada revenues consist primarily of the delivery to Canadian customers of fasteners and related hardware items, threaded rod, keys, key duplicating systems, accessories, personal protective equipment, and identification items as well as in-store merchandising services for the related product category.The Company’s performance obligations under its arrangements with customers are providing products, in-store merchandising services, and access to key duplicating and engraving equipment. Generally, the price of the merchandising services and the access to the key duplicating and engraving equipment is included in the price of the related products. Control of products is transferred at the point in time when the customer accepts the goods, which occurs upon delivery of the products. Judgment is required in determining the time at which to comply with new or revised financial accounting standards until private companies (thatrecognize revenue for the in-store services and the access to key duplicating and engraving equipment. Revenue is those that have not hadrecognized for in-store service and access to key duplicating and engraving equipment as the related products are delivered, which approximates a Securities Act registration statement declared effective ortime-based recognition pattern. Therefore, the entire amount of consideration related to the sale of products, in-store merchandising services, and access to key duplicating and engraving equipment is recognized upon the delivery of the products.The costs to obtain a contract are insignificant, and generally contract terms do not haveextend beyond one year. Therefore, these costs are expensed as incurred. Freight and shipping costs and the cost of our in-store merchandising services teams are recognized in selling, warehouse, general, and administrative expense when control over products is transferred to the customer.The Company used the practical expedient regarding the existence of a class of securities registered under the Exchange Act)significant financing component as payments are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt outdue in less than one year after delivery of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.Cash and Cash EquivalentsThe Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of September 30,products.3. RECENT ACCOUNTING PRONOUNCEMENTSIn March 2020, and December 31, 2019.Deferred Offering CostsThe Company complies with the requirements of the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification (“Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2024. As of September 30, 2023, the Company does not have any receivables, hedging relationships, lease agreements, or debt agreements that reference LIBOR or another reference rate expected to be discontinued. On June 30, 2023, we amended and restated our term loan and interest rate swap agreements. As a result of those amendments, our floating rate debt no longer references a LIBOR based benchmark rate.In January 2021, the FASB ASC”issued ASU 2021-01, Reference Rate Reform to expand the scope of ASU 2020-04 by allowing an entity to apply the optional expedients, by stating that a change to the interest rate used for margining, discounting or contract price alignment for a derivative is not considered to be a change to the critical terms of the hedging relationship that requires designation. The entity may apply the contract modification relief provided in ASU 2020-04 and continue to account for the derivative in the same manner that existed prior to the changes resulting from reference rate reform or the discounting transition. As of September 30, 2023, the Company does not have any receivables, hedging relationships, lease agreements, or debt agreements that reference LIBOR or another reference rate expected to be discontinued. On June 30, 2023, we amended and restated our term loan and interest rate swap agreements. As a result of those amendments, our floating rate debt no longer references a LIBOR based benchmark rate.In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50) to enhance the transparency of supplier finance programs. The amendments in this update apply to all entities that use supplier finance programs in connection with the purchase of goods and services. Supplier finance programs include reverse factoring, payables finance, or structured payables arrangements that allow a buyer to offer its suppliers the option for access to payment in advance of an invoice due date. The amendments in this update require that a buyer in a supplier finance program disclose sufficient information about the program including the program’s nature and activity during the period, changes from period to period, and potential magnitude as well as disclosure of the qualitative and quantitative information about its supplier finance programs. The amendments in this update are effective for fiscal years beginning after December 15, 2022 and should be applied retrospectively8 | September 30 2023 Form 10-Q to each period in which a balance sheet is presented. The amendment on roll forward information is effective for fiscal years beginning after December 15, 2023, which should be applied prospectively. The Company has evaluated the impact provided by the new standard and does not expect it to have a material impact on its financial statements.4. ACQUISITIONSOn March 7, 2022, the Company completed its acquisition of the Irvine, California-based Monkey Hook, LLC ("Monkey Hook") 340-10-S99-1for a total purchase price of $2,800, which included $300 in hold-back that remained payable to the seller as of December 31, 2022. During the first quarter of 2023, the hold-back of $300 was paid to satisfy the full purchase price. Monkey Hook products are designed to hang artwork on drywall where no stud is present. Monkey Hook sells its products throughout North America and SEC Staff Accounting Bulletin Topic 5A-“Expenses of Offering”its financial results reside in the Company's Hardware and Protective Solutions reportable segment.5. GOODWILL AND OTHER INTANGIBLE ASSETSGoodwill amounts by reportable segment are summarized as follows:Goodwill at Acquisitions Dispositions Other (1)Goodwill at December 31, 2022 September 30, 2023 Hardware and Protective Solutions $ 574,744 $ — $ — $ 443 $ 575,187 Robotics and Digital Solutions 220,936 — — — 220,936 Canada 28,132 — — 50 28,182 Total $ 823,812 $ — $ — $ 493 $ 824,305 (1)The "Other" change to goodwill relates to adjustments resulting from fluctuations in foreign currency exchange rates for the Canada and Mexico reporting units. Deferred offering costs were $377,200Other intangibles, net, as of September 30, 2020,2023 and December 31, 2022 consist of the following: Estimated
Useful Life
(Years)September 30, 2023 December 31, 2022 Customer relationships 13 - 20 $ 964,171 $ 963,622 Trademarks - indefinite Indefinite 85,364 85,275 Trademarks - other 7 - 15 32,437 31,387 Technology and patents 5 - 12 67,719 68,451 Intangible assets, gross 1,149,691 1,148,735 Less: Accumulated amortization 461,240 414,275 Other intangibles, net $ 688,451 $ 734,460 The amortization expense for intangible assets, including the adjustments resulting from fluctuations in foreign currency exchange rates for the thirteen and thirty-nine weeks ended September 30, 2023 was $15,583 and $46,733. Amortization expense for the thirteen and thirty-nine weeks ended September 24, 2022 was $15,557 and $46,644.The Company tests goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter. Impairment is also tested when events or changes in circumstances indicate that the carrying values of the assets may be greater than their fair values. During the thirteen and thirty-nine weeks ended September 30, 2023 and the thirteen and thirty-nine weeks ended September 24, 2022, the Company did not identify any triggering events that would result in an impairment analysis outside of the annual assessment.9 | September 30 2023 Form 10-Q 6. COMMITMENTS AND CONTINGENCIESCybersecurity IncidentIn late May 2023, the Company experienced a ransomware attack (the “Cybersecurity Incident”) that affected certain of the IT systems and shipping operations. As part of the containment effort, the Company suspended affected systems and elected to temporarily suspend additional systems in an abundance of caution. The Company reactivated and restored operational systems over the course of the week following the Cybersecurity Incident. The Company has restored production and shipping at all our facilities and has restored our systems such that normal operating activities have resumed. In the thirty-nine weeks ended September 30, 2023, the Cybersecurity Incident related costs incurrednet of an expected insurance receivable totaled $1.0 million. There were no additional expenses recorded in the thirteen weeks ended September 30, 2023.The Company expects to incur ongoing costs related to this Cybersecurity Incident, as well as costs for legal,ongoing efforts to enhance data security in response to ongoing developments in the cybersecurity landscape. The Company is unable to estimate the ultimate direct and indirect financial impacts of this Cybersecurity Incident, though it is not expected to be material to our full year fiscal 2023 financial results.Insurance CoverageThe Company self-insures its general liability including product liability, automotive and workers' compensation losses up to $500 per occurrence. Catastrophic coverage has been purchased from third party insurers for occurrences up to $60,000. The two risk areas involving the most significant accounting estimates are workers' compensation and automotive liability. Actuarial valuations performed by the Company's outside risk insurance expert were used by the Company's management to form the basis for workers' compensation and automotive liability loss reserves. The actuary contemplated the Company's specific loss history, actual claims reported, and industry trends among statistical and other costsfactors to estimate the range of reserves required. Risk insurance reserves are comprised of specific reserves for individual claims and additional amounts expected for development of these claims, as well as for incurred in connection withbut not yet reported claims. The Company believes that the formation and preparationliability of the Public Offering. These costs were charged to capital upon the closing of the Public Offering.Accounts Payable and Accrued LiabilitiesAccounts payable and accrued liabilities are $215,450approximately $2,828 recorded for such risks is adequate as of September 30, 2020,2023.As of September 30, 2023, the Company has provided certain vendors and primarily consistinsurers letters of costs incurredcredit aggregating to $35,890 related to our product purchases and insurance coverage for product liability, workers’ compensation, and general liability.The Company self-insures group health claims up to an annual stop loss limit of $300 per participant. Historical group insurance loss experience forms the basis for the formationrecognition of group health insurance reserves. Provisions for losses expected under these programs are recorded based on an analysis of historical insurance claim data and preparation of the Public Offering with corresponding amounts charged to deferred offering costs.Earnings Per ShareEarnings per share is computed by dividing net income applicable to common stockholders by the weighted average number of common shares outstanding during the period, excluding shares of common stock subject to forfeiture by the Sponsors. In accordance with FASB ASC 260, “Earnings Per Share”, the Company did not have any dilutive warrants, securities or other contracts that could, potentially, be exercised or converted into common stock, as a result, diluted earnings per share is the same as basic earnings per share for the periods presented.Income Taxescomplies withbelieves that the accounting and reporting requirementsliability of FASB ASC, 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reportingapproximately $2,726 recorded for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.There were no unrecognized tax benefitssuch risks is adequate as of September 30, 2020. FASB 2023.Import DutiesThe Company imports large quantities of fastener products which are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements and bilateral actions. The Company could be subject to the assessment of additional duties and interest if it or its suppliers fail to comply with customs regulations or similar laws. The U.S. Department of Commerce (the "Department”) has received requests from petitioners to conduct administrative reviews of compliance with anti-dumping duty and countervailing duty laws for certain nail products sourced from Asian countries. The Company sourced products under review from vendors in China and Taiwan during the periods selected for review. The Company accrues for the duty expense once it is determined to be probable and the amount can be reasonably estimated.LitigationWe are involved in litigation arising in the normal course of business. In management’s opinion, any such litigation is not expected to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.7. RELATED PARTY TRANSACTIONS10 | September 30 2023 Form 10-Q Hillman, Jefferies Financial Group Inc., certain other financial sponsors, CCMP Investors and the Oak Hill Investors entered into the Amended and Restated Registration Rights Agreement (the “A&R Registration Rights Agreement”), pursuant to which, among other things, the parties to the A&R Registration Rights Agreement agreed not to effect any sale or distribution of any equity securities of Hillman held by any of them during the lock-up period described therein and were granted certain registration rights with respect to their respective shares of Hillman common stock, in each case, on the terms and subject to the conditions therein. Richard Zannino and Joe Scharfenberger, both partners at CCMP, were members of our Board at the time Hillman entered into the A&R Registration Rights Agreement. Mr. Zannino and Mr. Scharfenberger each resigned from the Hillman Board in May 2023 following CCMP's complete exit of its investment in Hillman during the second quarter of 2023. Another director, Teresa Gendron, was the CFO of Jefferies Financial Group until March 2023. Additionally, Oak Hill owned in excess of 5% of the Company’s outstanding securities at certain times in fiscal 2022.Sales to related parties, which are included in net sales, consist of the sale of excess inventory to Ollie's Bargain Outlet Holdings, Inc. ("Ollie's"). John Swygert, President and Chief Executive Officer of Ollie's, is a member of our Board of Directors. Sales to related parties were $519 and $1,167 for the thirteen and thirty-nine weeks ended September 30, 2023. Sales to related parties were $497 in the thirty-nine weeks ended September 24, 2022. There were no such sales made in the thirteen weeks ended September 24, 2022.8. INCOME TAXESASC 740 prescribesrequires companies to apply their estimated annual effective tax rate on a recognition thresholdyear-to-date basis in each interim period. These rates are derived, in part, from expected annual pre-tax income or loss. In the thirteen and a measurement attribute forthirty-nine weeks ended September 30, 2023, the financial statement recognition and measurement ofCompany applied an estimated annual effective tax positions taken orrate based on expected annual pre-tax income to be taken in a tax return. For those benefitsthe interim period pre-tax income to be recognized, a tax position must be more-likely-than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits ascalculate the income tax expense. No amounts were accrued forFor the payment of interestthirteen and penalties atthirty-nine weeks ended September 24, 2022, the Company applied an estimated annual effective tax rate based on expected annual pre-tax loss to the interim period pre-tax loss to calculate the income tax benefit.For the thirteen and thirty-nine weeks ended September 30, 2020.2023, the effective income tax rate was 71.9% and 87.5%, respectively. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception. There was norecorded an income tax provision for the periodthirteen and thirty-nine weeks ended September 30, 2020.2023 of $12,957 and $3,278, respectfully. The effective tax rate for the thirteen and thirty-nine weeks ended September 30, 2023 was the result of certain non-deductible expenses and state and foreign income taxes.
For the thirteen and thirty-nine weeks ended September 24, 2022, the effective income tax rate was 37.5% and 5.5%, respectively. The Company recorded an income tax benefit for the thirteen and thirty-nine weeks ended September 24, 2022 of $5,679 and $147, respectively. The effective tax rate for the thirteen and thirty-nine weeks ended September 24, 2022 was primarily the result of an estimated increase in GILTI from the Company's Canadian operations. Non-deductible stock compensation and state and foreign income taxes also contributed to an increase to the effective tax rate.9. LONG-TERM DEBTThe following table summarizes the Company’s debt:September 30, 2023 December 31, 2022 Revolving loans $ 47,000 $ 72,000 Senior Term loan, due 2028 753,980 840,363 Finance lease & other obligations 10,118 6,406 811,098 918,769 Unamortized discount on Senior Term loan (4,318) (5,012) Current portion of long-term debt and finance leases (10,697) (10,570) Deferred financing fees (16,040) (18,551) Total long-term debt, net $ 780,043 $ 884,636 As of December 31, 2019September 30, 2023, the ABL Revolver had an outstanding amount of $47,000 and outstanding letters of credit of $35,890. The Company was taxedhas $251,904 of available borrowings under the revolving credit facility as a limited liability company, therefore all tax implications were the responsibility of its member.Recent Accounting PronouncementsManagement does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.3.Stockholders’ Equity11 | September 30 2023 Form 10-Q of liquidity as of September 30, 2023 based on the customary asset-backed loan borrowing base and availability provisions.In August 2023, the Company made a $80.0 million dollar prepayment against the outstanding term loan balance without payment of a premium or penalty.Conversion of Debt from LIBOR Interest Rate to SOFR Interest RateThe Company's debt instruments are subject to interest rate adjustments that were initially based on the London Interbank Offered Rate ("LIBOR"). However, due to the discontinuation of LIBOR as a benchmark rate and the industry's transition to the Secured Overnight Financing Rate (SOFR), the Company has undertaken the necessary steps to convert its debt from LIBOR interest rate to SOFR interest rate. On March 13, 2018, JFG, through a subsidiary, purchased a 100%June 30, 2023, the Company amended the term loan credit agreement to change the benchmark rate from LIBOR to SOFR, and had previously amended the ABL revolver to do the same on July 29, 2022.The interest rate for the term loan is, at the discretion of the membership interestCompany, (i) term SOFR plus a margin varying from 2.50% to 2.75% per annum based on leverage, plus a credit spread adjustment varying between 0.11448% to 0.42826%, depending on the SOFR tenor selected; or (ii) an alternate base rate plus a margin varying from 1.50% to 1.75% per annum based on leverage.10. LEASESLesseeThe Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both 1) the right to obtain substantially all of the economic benefits from the use of the asset and 2) the right to direct the use of the asset. The Company leases certain distribution center locations, vehicles, forklifts, computer equipment, and its corporate headquarters with expiration dates through 2033. Certain lease arrangements include escalating rent payments and options to extend the lease term. Expected lease terms include these options to extend or terminate the lease when it is reasonably certain the Company will exercise the option. The Company's leasing arrangements do not contain material residual value guarantees, nor material restrictive covenants.The components of operating and finance lease costs for the thirteen and thirty-nine weeks ended September 30, 2023 and thirteen and thirty-nine weeks ended September 24, 2022 were as follows:Thirteen Weeks Ended
September 30, 2023Thirteen Weeks Ended
September 24, 2022Thirty-nine Weeks Ended
September 30, 2023Thirty-nine Weeks Ended
September 24, 2022Operating lease costs $ 5,011 $ 5,082 $ 16,055 $ 15,029 Short term lease costs 1,003 1,563 4,095 5,891 Variable lease costs 229 529 1,204 1,066 Finance lease costs: Amortization of right of use assets 714 485 1,808 1,082 Interest on lease liabilities 92 34 188 87 Rent expense is recognized on a straight-line basis over the expected lease term. Rent expense totaled $6,243 and $21,354 in the Company for $1,000. On August 24, 2020, TJF purchased a 51.7% membership interestthirteen and thirty-nine weeks ended September 30, 2023 and $7,174 and $21,986 in the thirteen and thirty-nine weeks ended September 24, 2022. Rent expense includes operating lease costs as well as expenses for non-lease components such as common area maintenance, real estate taxes, real estate insurance, variable costs related to our leased vehicles and also short-term rental expenses.The implicit rate is not determinable in most of the Company’s leases, as such management uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.The weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of September 30, 2023 and December 31, 2022:12 | September 30 2023 Form 10-Q September 30, 2023 December 31, 2022 Operating Leases Finance Leases Operating Leases Finance Leases Weighted average remaining lease term 6.58 3.02 6.13 2.65 Weighted average discount rate 7.06 % 5.25 % 7.22 % 2.99 % Supplemental balance sheet information related to the Company's finance leases was as follows as of September 30, 2023 and December 31, 2022:September 30, 2023 December 31, 2022 Finance lease assets, net, included in property plant and equipment $ 7,334 $ 4,540 Current portion of long-term debt 2,773 1,862 Long-term debt, less current portion 4,684 2,767 Total principal payable on finance leases $ 7,457 $ 4,629 Supplemental cash flow information related to the Company's operating leases was as follows for the thirty-nine weeks ended September 30, 2023 and thirty-nine weeks ended September 24, 2022:Thirty-nine Weeks Ended
September 30, 2023Thirty-nine Weeks Ended
September 24, 2022Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflow from operating leases $ 15,119 $ 14,497 Operating cash outflow from finance leases 170 84 Financing cash outflow from finance leases 1,687 998 As of September 30, 2023, our future minimum rental commitments are immaterial for lease agreements beginning after the current reporting period. Maturities of our lease liabilities for all operating and finance leases are as follows as of September 30, 2023:Operating Leases Finance Leases Less than one year $ 19,892 $ 3,099 1 to 2 years 19,198 2,515 2 to 3 years 18,519 1,627 3 to 4 years 17,051 548 4 to 5 years 15,252 311 After 5 years 28,902 8 Total future minimum rental commitments 118,814 8,108 Less - amounts representing interest (23,205) (651) Present value of lease liabilities $ 95,609 $ 7,457 LessorThe Company has certain arrangements for $1,070. Simultaneously,key duplication equipment under which we are the lessor. These leases meet the criteria for operating lease classification. Lease income associated with these leases is not material.13 | September 30 2023 Form 10-Q 11. EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOMECommon StockThe Hillman Solutions Corp. has one class of common stock.Accumulated Other Comprehensive Income (Loss)The following is detail of the changes in the Company's accumulated other comprehensive income (loss) from December 25, 2021 to September 30, 2023, including the effect of significant reclassifications out of accumulated other comprehensive income (loss) (net of tax):Accumulated Other Comprehensive Income (Loss) Balance at December 25, 2021 $ (27,154) Other comprehensive income before reclassifications 10,524 Amounts reclassified from other comprehensive income (4,394) Net current period other comprehensive income (1)6,130 Balance at December 31, 2022 (21,024) Other comprehensive income before reclassifications 3,121 Amounts reclassified from other comprehensive income (11,429) Net current period other comprehensive loss (2)(8,308) Balance at September 30, 2023 $ (29,332) 1.During the year ended December 31, 2022, the Company converted fromdeferred a limited liability companygain of $22,771, reclassified a gain of $4,394 net of tax of $4,631 into other comprehensive loss due to hedging activities. The amounts reclassified out of other comprehensive loss were recorded as interest expense. See Note 14 - Derivatives and Hedging for additional information on the interest rate swaps.2.During the thirty-nine weeks ended September 30, 2023, the Company deferred a corporationgain of $3,308, reclassified a gain of $11,429 net of tax of $2,038 into other comprehensive loss due to hedging activities. The amounts reclassified out of other comprehensive loss were recorded as interest expense. See Note 14 - Derivatives and its previously outstanding membership interests converted into shares of Class B common stock. Hedging for additional information on the interest rate swaps.12. STOCK-BASED COMPENSATION2014 Equity Incentive PlanThe total number of authorized shares of all classes of capital2014 Equity Incentive Plan may grant options, stock is 401,000,000, of which 380,000,000 shares are Class A shares at par value $0.0001 per share; 20,000,000 shares are Class B shares at par value $0.0001 per share (the “Founder Shares”);appreciation rights, restricted stock, and 1,000,000 shares are preferred stock at par value $0.0001 per share. The Sponsors heldother stock-based awards for up to an aggregate of 11,500,000 Class B14,523,510 shares based on the proportional interestof its common stock.The 2014 Equity Incentive Plan had stock compensation expense of $876 and $3,502 recognized in the Company. Further, onaccompanying Condensed Consolidated Statements of Comprehensive Income (Loss) for the thirteen and thirty-nine weeks ended September 16, 2020, we conducted a 1:1.2530, 2023, respectively, and $1,034 and $7,390 for the thirteen and thirty-nine weeks ended September 24, 2022, respectively.Stock OptionsThe fair value of stock splitoptions is determined at the grant date using the Black-Scholes option pricing model. The time-based stock option awards generally vest evenly over four years from the grant date and performance-based options vest based Company stock price hurdles.Restricted Stock14 | September 30 2023 Form 10-Q The Company granted restricted stock at the grant date fair value of the Founder Shares so that a total of 14,375,000 Founder Shares were issued and outstanding. As of September 16, 2020, JFG owned 6,943,125 Founder Shares and TJF owned 7,431,875 Founder Shares. An aggregate of 1,875,000 Founder Shares are subject to forfeiture to the extent the underwriters do not exercise their over-allotments option.underlying common stock securities. The financial statements reflect the changesrestrictions lapse in stock retroactively for all periods presented.Following these transactions, the Company had $2,070 of invested capital, or $0.0001 per share. For further informationone quarter increments on the Founder Shares, see Note 4.4.Public OfferingPublic UnitsIn the Public Offering, the Company sold 50,000,000 Units at a price of $10.00 per Unit (the “Public Units”). Each Unit consists of one shareeach of the Company’s Class A common stock, $0.0001 par value and one-third of one redeemable warrant (each whole warrant is a “Public Warrant”). Under the termsthree anniversaries of the warrant agreement, the Company has agreed to use its best efforts to file a new registration statement under the Securities Act no later than 15 business days followingaward date, and one quarter on the completion of the Business Combination covering the shares of Class A common stock issuable upon exerciserelocation of the Public Warrants,recipient to use its best efforts to cause such registration statement to become effective and to maintain a current prospectus relating to those shares of Class A common stock until the Public Warrants expireCincinnati area or are redeemed. If a registration statement covering the shares of Class A common stock issuable upon exercise of the Public Warrants is not effective by the 60th business day after the closing of the Business Combination, warrantholders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a "cashless basis" in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their Public Warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and,earlier in the event of a change in control. The associated expense is recognized over the service period.Restricted Stock UnitsThe Restricted Stock Units ("RSUs") granted to employees for service generally vest after three years, subject to continued employment.2021 Equity Incentive PlanEffective July 14, 2021, the Company so elects, it will not be required to file or maintain in effect a registration statement.Each Public Warrant entitlesestablished the holder to purchase one share2021 Equity Incentive Plan. Under the 2021 Equity Incentive Plan (the “2021 Plan”), the maximum number of Class A common stock at a price of $11.50 per share. Each Public Warrant will become exercisable on the later of 30 days after the completion of the Business Combination or 12 months from the closing of the Public Offering. However, if the Company does not complete the Business Combination on or prior to the 24-month period allotted to complete the Business Combination, the warrants will expire at the end of such period. If the Company is unable to deliver registered shares of Class A common stock to the holder upon exercise of Public Warrants issued in connection with the Units during the exercise period, there will be no net cash settlement of these Public Warrants and the Public Warrants will expire worthless, unless they may be exercised on a cashless basis in the circumstances described in the warrant agreement. Once the Public Warrants become exercisable, the Company may call the warrants for redemption: (i) in whole and not in part; (ii) at a price of $0.01 per warrant; (iii) upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and (iv) if, and only if, the reported closing price of the Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders.Underwriting CommissionsIn connection with the Public Offering, the Company paid an underwriting discount of $10,000,000 ($0.20 per Unit sold) to the underwriters on October 14, 2020, with an additional fee (“Deferred Discount”) of $17,500,000 ($0.35 per Unit sold) payable upon the Company’s completion of the Business Combination. The Deferred Discount will become payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes its Business Combination. See Note 5 for further information on underwriting commissions.5.Commitments and Related Party TransactionsOver-allotmentIn connection with the Public Offering, the Company granted the underwriters a 45-day option to purchase up to 7,500,000 additional Units to cover any over-allotment, at the initial public offering price less the underwriting discounts and commissions. If the over-allotment is exercised, the Company will increase the Public Units, Sponsor Warrants, underwriting commissions and Deferred Discount by the proportional amount of Units granted.Founder SharesThe Founder Shares are identical to the Public Shares except that the Founder Shares are subject to certain transfer restrictions and the holders of the Founder Shares will have the right to elect all of the Company’s directors prior to the Business Combination. The Founder Shares will automatically convert into shares of Class A common stock at the time of the Business Combination on a one-for-one basis, subject to adjustment pursuant to certain anti-dilution rights. The initial stockholders collectively own 20% of the Company’s issued and outstanding shares after the Public Offering. To the extent that the over-allotment option is not exercised in full, the Sponsors will forfeit their pro rata share of 1,875,000 Founder Shares.The initial stockholders have agreed not to transfer, assign or sell any of their Founder Shares until one year after the completion of the Business Combination, or earlier if, subsequent to the Business Combination, (i) the closing price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Business Combination or (ii) the date on which the Company completes a liquidation, merger, stock exchange or other similar transaction after the Business Combination that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property (the ‘‘Lock Up Period’’).The Founder Shares will automatically convert into sharesthat may be delivered in satisfaction of Class A common stock concurrently with or immediately followingawards under the consummation2021 Plan as of the Business Combination on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment. In the case that additionalEffective Date is (i) 7,150,814 shares, of Class A common stock or equity-linked securities are issued or deemed issued in connection with the Business Combination,plus (ii) the number of shares of Class Astock underlying awards under the 2014 Equity Incentive Plan that on or after the Effective Date expire or become unexercisable, or are forfeited, cancelled or otherwise terminated, in each case, without delivery of shares or cash therefore, and would have become available again for grant under the Prior Plan in accordance with its terms (not to exceed 14,523,510 shares of common stock issuable upon conversion of all Founder Shares will equal, in the aggregate, 20%aggregate).The 2021 Equity Incentive Plan had stock compensation expense of $2,103 and $5,335 recognized in the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss) for the thirteen and thirty-nine weeks ended September 30, 2023, respectively, and $1,358 and $3,143 for the thirteen and thirty-nine weeks ended September 24, 2022, respectively.Stock OptionsThe fair value of stock options is determined at the grant date using the Black-Scholes option pricing model. The time-based stock option awards generally vest evenly over four years from the grant date and performance-based options vest based on specified targets such as Company performance and Company stock price hurdles.Restricted Stock UnitsThe RSUs granted to employees for service generally vest after three years, subject to continued employment. The RSUs granted to non-employee directors generally vest in full on sooner of the first anniversary of the grant date or the Company's next annual meeting of stockholders.2021 Employee Stock Purchase PlanOur Employee Stock Purchase Plan ("ESPP") became effective on July 14, 2021, in which 1,140,754 shares of common stock were available for issuance under the ESPP. Under the ESPP, eligible employees are granted options to purchase shares of common stock at 85% of the fair market value at the time of exercise. Options to purchase shares are granted four times a year on the first payroll date in January, April, July, and October of each year and ending approximately three months later on the last business day in March, June, September or December. No employee may be granted an option under the Plan if, immediately after the option is granted, the employee would own stock possessing five percent or more of the total numbercombined voting power or value of all sharesclasses of Class A common stock outstanding after such conversion (after giving effectof the Company. The first option period began on January 1, 2022 and the first purchase was made in April of 2022.Compensation expense associated with ESPP purchase rights is recognized on a straight-line basis over the vesting period. As of the thirteen and thirty-nine weeks ended September 30, 2023, there was approximately $90 and $274, respectively, and as of thirteen and thirty-nine weeks ended September 24, 2022, there was approximately $93 and $256, respectively, of compensation expense related to any redemptions of shares of Class A common stock by public stockholders), including the totalESPP.13. EARNINGS PER SHAREBasic earnings per share is computed based on the weighted-average number of shares of Class A common stock issued, or deemed issued or issuable upon conversion or exerciseoutstanding during the period. Diluted earnings per share include the dilutive effect of any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummationstock options and restricted stock awards and units. The following is a reconciliation of the initial business combination, excluding any sharesbasic and diluted earnings per share ("EPS") computations for both the numerator and denominator (in thousands, except per share data):15 | September 30 2023 Form 10-Q Thirteen weeks ended September 30, 2023 Thirty-nine weeks ended September 30, 2023 Earnings
(Numerator)Shares
(Denominator)Per Share
AmountEarnings
(Numerator)Shares
(Denominator)Per Share
AmountNet income $ 5,057 194,794 $ 0.03 $ 470 194,662 $ 0.00 Dilutive effect of stock options and awards — 1,781 — — 1,170 — Net income per diluted common share $ 5,057 196,575 $ 0.03 $ 470 195,832 $ 0.00 Thirteen weeks ended September 24, 2022 Thirty-nine weeks ended September 24, 2022 Earnings
(Numerator)Shares
(Denominator)Per Share
AmountEarnings
(Numerator)Shares
(Denominator)Per Share
AmountNet loss $ (9,466) 194,370 (0.05) $ (2,537) 194,171 $ (0.01) Dilutive effect of stock options and awards — — — — — — Net loss per diluted common share $ (9,466) 194,370 (0.05) $ (2,537) 194,171 $ (0.01) Stock options and awards outstanding totaling 2,794 and 4,324 were excluded from the computation for the thirteen and thirty-nine weeks ended September 30, 2023 and 9,586 and 4,635 for the thirteen and thirty-nine weeks ended September 24, 2022, respectively, as they would have had an antidilutive effect under the treasury stock or equity-linked securities exercisablemethod.14. DERIVATIVES AND HEDGINGFASB ASC 815, Derivatives and Hedging ("ASC 815"), provides the disclosure requirements for or convertible into sharesderivatives and hedging activities with the intent to provide users of Class A common stock issued, orfinancial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company's objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments.The Company uses derivative financial instruments to be issued,manage its exposures to any seller(1) interest rate fluctuations on its floating rate senior term loan and (2) fluctuations in foreign currency exchange rates. The Company measures those instruments at fair value and recognizes changes in the Business Combination and any private placement-equivalent warrants issued to the Sponsors, officers or directors upon conversionfair value of working capital loans; provided that such conversion of Founder Shares will never occur on a less than one-for-one basis.Sponsor WarrantsIn conjunction with the Public Offering, the Sponsors purchased an aggregate of 8,000,000 Sponsor Warrants at a price of $1.50 per warrant ($12,000,000derivatives in earnings in the aggregate) inperiod of change, unless the Private Placement. A portion of the purchase price of the Sponsor Warrants was added to the proceeds from the Public Offering to be held in the Trust Account suchderivative qualifies as an effective hedge that at closing of the Public Offering, $500,000,000 was placed in the Trust Account.Each Sponsor Warrant entitles the holder to purchase one share of Class A common stock at $11.50 per share.The Sponsor Warrants (including the Class A common stock issuable upon exercise of the Sponsor Warrants) are not transferable, assignable or salable until 30 days after the completion of the Business Combination and they are non-redeemable so long as they are held by the initial purchasers of the Sponsor Warrants or their permitted transferees. If the Sponsor Warrants are held by someone other than the initial purchasers of the Sponsor Warrants or their permitted transferees, the Sponsor Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the warrants included in the Units sold in the Public Offering. Otherwise, the Sponsor Warrants have terms and provisions that are identical to those of the Public Warrants except that the Sponsor Warrants may be exercised on a cashless basis. If theoffsets certain exposures.The Company does not completeenter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes.Interest Rate Swap AgreementsOn July 9, 2021, the Business Combination, then the proceeds will be part of the liquidating distribution to the public stockholders and the Sponsor Warrants issued to the Sponsors will expire worthless.Registration RightsThe holders of the Founder Shares, Sponsor Warrants, shares of Class A common stock issuable upon conversion of the Founder Shares, Sponsor Warrants or working capital loans will be entitled to registration rights. These holders will be entitled to make up to three demands, excluding short form registration demands, that the Company register such securities for sale under the Securities Act. In addition, these holders will have ‘‘piggy-back’’ registration rights to include their securities in other registration statements filed by the Company. Notwithstanding the foregoing, JFG may not exercise its demand and “piggyback” registration rights after five (5) and seven (7) years; respectively after the effective date of the registration statement relating to the Public Offering and may not exercise its demand rights on more than one occasion. The Company will bear the expenses incurred in connection with the filing of any such registration statements.Underwriting CommissionsJefferies LLC is the underwriter of the Public Offering, and its indirect parent, JFG, beneficially owns 48.3% of the Founder Shares. Jefferies LLC received all of the underwriting discount that was due at the closing of the Public Offering, and will receive the additional Deferred Discount payable from the Trust Account upon completion of the Business Combination. See Note 4 for further information regarding underwriting commissions.Administrative Services AgreementThe Company entered into an administrative servicesinterest swap agreement in which we will pay Fertitta Entertainment, Inc., (an affiliate of TJF)("2021 Swap 1") for office space, secretarial and administrative services provided to members of our management team, in an amount not to exceed $20,000 per month commencing on the date of effectiveness of the Public Offering and ending on the earlier of the completion of a Business Combination or liquidation.Directors’ PaymentsWe expect to pay $100,000 to each of our independent directors at the closing of a Business Combination for services rendered as board members prior to the completion of a Business Combination.Sponsors’ Indemnification of the Trust AccountsThe Sponsors have agreed that they will be jointly and severally liable to the Company if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce thenotional amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share or (ii) the actual amount per public share held in the Trust Account as of the$144,000. The forward start date of the liquidation2021 Swap 1 was July 30, 2021 and the termination date is July 31, 2024. Originally, the 2021 Swap 1 had a determined pay fixed interest rate of 0.75%. As of June 30, 2023 the Company modified the terms of the Trust Account dueswaps to reductionsreplace the LIBOR-based reference rates with SOFR-based reference rates, in accordance with the respective swap agreements and market conventions. This modification resulted in a determined pay fixed interest rate of 0.74%. In accordance with ASC 815, the Company determined the 2021 Swap 1 constituted an effective cash flow hedge and therefore changes in fair value are recorded within other comprehensive income (loss) within the Company's Statement of Comprehensive Income (Loss) and the deferred gains or losses are reclassified out of other comprehensive income (loss) into interest expense in the valuesame period during which the hedged transactions affect earnings.On July 9, 2021, the Company entered into an interest swap agreement ("2021 Swap 2") for a notional amount of $216,000. The forward start date of the trust assets, in each case net2021 Swap 2 was July 30, 2021 and the termination date is July 31, 2024. Originally, the 2021 Swap 2 had a determined pay fixed interest rate of 0.76%. As of June 30, 2023 the Company modified the terms of the swaps to replace the LIBOR-based reference rates with SOFR-based reference rates, in16 | September 30 2023 Form 10-Q accordance with the respective swap agreements and market conventions. This modification resulted in a determined pay fixed interest which may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiverrate of any0.74%. In accordance with ASC 815, the Company determined the 2021 Swap 2 constituted an effective cash flow hedge and all rights to seek access totherefore changes in fair value are recorded within other comprehensive income (loss) within the Trust AccountCompany's Statement of Comprehensive Income (Loss) and except as to any claims under the Company’s indemnitydeferred gains or losses are reclassified out of the underwriters of the Public Offering against certain liabilities, including liabilities under the Securities Act. Moreover,other comprehensive income (loss) into interest expense in the event that an executed waiver is deemed to be unenforceable against a third party,same period during which the Sponsors will not be responsible to the extent of any liability for such third party claims.Sponsor LoansOn August 24, 2020 the Sponsors agreed to loan the Company up to an aggregate of $300,000 by the issuance of unsecured promissory notes to cover expenses related to the Public Offering. These loans will be payable without interest on the earlier of December 31, 2020 or the completion of the Public Offering. hedged transactions affect earnings.As of September 30, 2020,2023 and December 31, 2022 the Company had $161,750 in notes payable, affiliates related to deferred offering costs paid bydid not hold any derivative liabilities. The following table summarizes the Sponsors. As of October 16, 2020, these amounts were repaid in full.In addition, the Sponsors will not be prohibited from loaning the Company funds in order to finance transaction costs in connection with the Business Combination. Up to $1,000,000 of these loans may be convertible into warrants of the post-Business Combination entity at a price of $1.50 per warrant at the option of the lender. The warrants would be identical to the Sponsor Warrants. The terms of such loans have not been determined and no written agreements existCompany's derivative financial instruments:Asset Derivatives As ofSeptember 30, 2023As ofDecember 31, 2022Balance Sheet
LocationFair Value Fair Value Derivatives designated as hedging instruments: 2021 Swap 1 Other current/other non-current assets $ 5,451 $ 8,705 2021 Swap 2 Other current/other non-current assets 8,177 13,044 Total hedging instruments: $ 13,628 $ 21,749 Additional information with respect to such loans. No agreementthe fair value of derivative instruments is included in Note 15 - Fair Value Measurements.15. FAIR VALUE MEASUREMENTSThe Company uses the accounting guidance that applies to all assets and liabilities that are being measured and reported on a fair value basis. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions. The accounting guidance establishes a hierarchy which requires an entity to maximize the use of quoted market prices and minimize the use of unobservable inputs. An asset or liability's level is based on the lowest level of input that is significant to the fair value measurement.The following tables set forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis during the period, by level, within the fair value hierarchy:17 | September 30 2023 Form 10-Q As of September 30, 2023 Level 1 Level 2 Level 3 Total Trading securities $ 990 $ — $ — $ 990 Interest rate swaps — 13,628 — 13,628 Contingent consideration payable — — 12,502 12,502 As of December 31, 2022 Level 1 Level 2 Level 3 Total Trading securities $ 1,155 $ — $ — $ 1,155 Interest rate swaps — 21,749 — 21,749 Contingent consideration payable — — 11,063 11,063 Trading securities are valued using quoted prices on an active exchange. Trading securities represent assets held in a Rabbi Trust to fund deferred compensation liabilities and are included as Other assets on the accompanying Condensed Consolidated Balance Sheets.The Company utilizes interest rate swap contracts to manage our targeted mix of fixed and floating rate debt, and these contracts are valued using observable benchmark rates at commonly quoted intervals for the full term of the swap contracts. As of September 30, 2023 and December 31, 2022, the Company's interest rate swaps were recorded on the accompanying Condensed Consolidated Balance Sheets in accordance with ASC 815.The contingent consideration represents future potential earn-out payments related to the Resharp acquisition in fiscal 2019 and the Instafob acquisition in the first quarter of 2020. The estimated fair value of the contingent earn-outs was determined using a Monte Carlo analysis examining the frequency and mean value of the resulting earn-out payments. The resulting value captures the risk associated with the JFG or its affiliates willform of the payout structure. The risk neutral method is applied, resulting in a value that captures the risk associated with the form of the payout structure and the projection risk. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be entered into,materially different from the estimated value of the liability. The current and no fees for services will be paidnon-current portions of these obligations are reported separately on the Condensed Consolidated Balance Sheets as other accrued expense and other non-current liabilities, respectively. Subsequent changes in the fair value of the contingent consideration liabilities, as determined by using a simulation model of the Monte Carlo analysis that includes updated projections applicable to the JFG or its affiliates priorliability, are recorded within other income (expense) in the Condensed Consolidated Statements of Comprehensive Income (Loss).The table below provides a summary of the changes in fair value of the Company’s contingent considerations (Level 3) for Resharp and Instafob as of September 30, 2023.Resharp Instafob Other accrued expense Other non-current liabilities Other accrued expense Other non-current liabilities Total Fair value as of December 31, 2022 $ 271 $ 9,729 $ 922 $ 141 $ 11,063 Fair value of cash consideration paid (164) — (1,011) — (1,175) Change in fair value of contingent consideration 113 2,351 105 45 2,614 Fair value as of September 30, 2023 $ 220 $ 12,080 $ 16 $ 186 $ 12,502 Cash, accounts receivable, short-term borrowings and accounts payable are reflected in the Condensed Consolidated Balance Sheets at book value, which approximates fair value, due to the effective dateshort-term nature of these instruments. The carrying amounts of the Public Offering, unlesslong-term debt under the Financial Industry Regulatory Authority, Inc. determinesrevolving credit facility and term loan approximate the fair value at September 30, 2023 and December 31, 2022 as the interest rate is variable and approximates current market rates of debt based on observable market transactions with similar terms and comparable credit risk.Additional information with respect to the derivative instruments is included in Note 14 - Derivatives and Hedging.18 | September 30 2023 Form 10-Q 16. SEGMENT REPORTINGThe Company’s segment reporting structure uses the Company’s management reporting structure as the foundation for how the Company manages its business. The Company periodically evaluates its segment reporting structure in accordance with ASC 350-20-55 and has concluded that such payment wouldit has three reportable segments as of September 30, 2023: Hardware and Protective Solutions, Robotics and Digital Solutions, and Canada. The Company evaluates the performance of its segments based on revenue and income (loss) from operations, and does not be deemed underwriting compensationinclude segment assets nor non-operating income/expense items for management reporting purposes.In the first quarter of 2023, the Company realigned its Canada segment to include the Canada-based Protective Solutions and MinuteKey businesses, which are now operating under the Canada segment leadership team. Previously, the results of the Canada-based Protective Solutions business were reported in connection with the Public Offering. See Note 4Hardware and Protective Solutions segment and the Canada-based MinuteKey business was reported in the Robotics and Digital Solutions segment and were operating under those respective segment leadership teams.The table below presents revenues and income from operations for our reportable segments for the terms ofthirteen and thirty-nine weeks ended September 30, 2023 and thirteen and thirty-nine weeks ended September 24, 2022. Certain amounts in the warrants.prior year presentation between segments were reclassified to conform to the current year’s presentation.Thirteen Weeks Ended
September 30, 2023Thirteen Weeks Ended
September 24, 2022Thirty-nine Weeks Ended
September 30, 2023Thirty-nine Weeks Ended
September 24, 2022Revenues Hardware and Protective Solutions $ 295,553 $ 270,116 $ 818,198 $ 812,931 Robotics and Digital Solutions 63,468 64,373 186,990 189,066 Canada 39,922 44,049 123,481 133,668 Total revenues $ 398,943 $ 378,538 $ 1,128,669 $ 1,135,665 Segment Income from Operations Hardware and Protective Solutions $ 18,556 $ 7,259 $ 19,087 $ 15,391 Robotics and Digital Solutions 12,772 (14,052) 27,608 3,655 Canada 3,414 6,344 9,933 17,127 Total segment income from operations $ 34,742 $ (449) $ 56,628 $ 36,173 Landcadia Holdings III, Inc.19 | September 30 2023 Form 10-Q The following discussion provides information which the Company’s management believes is relevant to an assessment and understanding of the Company’s operations and financial condition. This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes in addition to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.FORWARD-LOOKING STATEMENTSThis quarterly report contains certain forward-looking statements, including, but not limited to, certain disclosures related to acquisitions, refinancing, capital expenditures, resolution of pending litigation, and realization of deferred tax assets, which are not historical facts and are subject to numerous assumptions, risks, and uncertainties. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements.All forward-looking statements are made in good faith by the Company and are intended to qualify for the safe harbor from liability established by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. You should not rely on these forward-looking statements as predictions of future events. Words such as "expect," "estimate," "project," "budget," "forecast," "anticipate," "intend," "plan," “target”, “goal”, "may," "will," "could," "should," "believes," "predicts," "potential," "continue," and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, the Company’s expectations with respect to future performance. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside the Company's control and are difficult to predict. Factors that may cause such differences include, but are not limited to: (1) unfavorable economic conditions that may affect operations, financial condition and cash flows including spending on home renovation or construction projects, inflation, recessions, instability in the financial markets or credit markets; (2) increased supply chain costs, including raw materials, sourcing, transportation and energy; (3) the highly competitive nature of the markets that we serve; (4) the ability to continue to innovate with new products and services; (5) direct and indirect costs associated with the May 2023 ransomware attack, and our receipt of expected insurance receivables associated with that Cybersecurity Incident; (6) seasonality; (7) large customer concentration; (8) the ability to recruit and retain qualified employees; (9) the outcome of any legal proceedings that may be instituted against the Company; (10) adverse changes in currency exchange rates; (11) the impact of COVID-19 on the Company’s business; or (12) regulatory changes and potential legislation that could adversely impact financial results. The foregoing list of factors is not exclusive, and readers should also refer to those risks that are included in the Company’s filings with the Securities and Exchange Commission (“SEC”), including the Annual Report on Form 10-K filed on February 27, 2023. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward looking statements.Except as required by applicable law, the Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements in this communication to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based.GENERALHillman Solutions Corp. and its wholly-owned subsidiaries (collectively, “Hillman” or “Company”) are one of the largest providers of hardware-related products and related merchandising services to retail markets in North America. Our principal business is operated through our wholly-owned subsidiary, The Hillman Solutions Corp. and its wholly-owned subsidiaries (collectively, “Hillman Group”), which had net sales of $398.9 million in the thirteen weeks ended September 30, 2023 and $1,128.7 million in the thirty-nine weeks ended September 30, 2023. Hillman Group sells its products to hardware stores, home centers, mass merchants, pet supply stores, and other retail outlets principally in the United States, Canada, and Mexico. Product lines include thousands of small parts such20 | September 30 2023 Form 10-Q as fasteners and related hardware items; threaded rod and metal shapes; keys and accessories; builder's hardware; personal protective equipment, such as gloves and eyewear; and identification items, such as tags and letters, numbers, and signs. We support product sales with services that include design and installation of merchandising systems, maintenance of appropriate in-store inventory levels, and break-fix for our robotics kiosks.RECENT DEVELOPMENTSIn late May 2023, we experienced a ransomware attack relating to certain systems on our network (the “Cybersecurity Incident”). We promptly initiated an investigation, engaged the services of cyber-security experts and outside advisors and worked with appropriate law enforcement authorities to contain, assess and remediate the Cybersecurity Incident. We are engaged in an ongoing process of assessing data accessed during the course of the Cybersecurity Incident and will notify applicable regulatory agencies and individuals as appropriate.The Cybersecurity Incident affected certain of our information technology systems, and as part of the containment effort, we suspended affected systems and elected to temporarily suspend additional systems in an abundance of caution. We reactivated and restored our operational systems over the course of the week following the Cybersecurity Incident.In the thirty-nine weeks ended September 30, 2023, the Cybersecurity Incident related costs net of an expected insurance receivable totaled $1.0 million. There were no additional expenses recorded in the thirteen weeks ended September 30, 2023. We are working diligently with our insurance carrier on claims to recover costs incurred.We expect to incur ongoing costs related to this Cybersecurity Incident, as well as costs for ongoing efforts to enhance data security in response to ongoing developments in the cybersecurity landscape. We are unable to estimate the ultimate direct and indirect financial impacts of this Cybersecurity Incident, though it is not expected to be material to our full year fiscal 2023 financial results.In the first quarter of 2023, the Company realigned its Canada segment to include the Canada-based Protective Solutions and MinuteKey businesses, which are now operating under the Canada segment leadership team. Previously, the results of the Canada-based Protective Solutions business were reported in the Hardware and Protective Solutions segment and the Canada-based MinuteKey business was reported in the Robotics and Digital Solutions segment and were operating under those respective segment leadership teams. Certain amounts in the prior year presentation between segments were reclassified to conform to the current year’s presentation.IMPACT OF GLOBAL ECONOMIC CONDITIONS ON OUR RESULTS OF OPERATIONSOur business is impacted by general economic conditions in the North American markets, particularly the U.S. and Canadian retail markets including hardware stores, home centers, mass merchants, and other retailers. Changes in current economic conditions, including inflationary pressures in the cost of inventory, transportation, and employee compensation, foreign currency volatility, housing market trends, and concerns of a potential recession, have impacted consumer discretionary income levels and spending. Consumer discretionary income levels and spending impact the purchasing trends of our products by our retail customers. Any adverse trends in discretionary income and consumer spending could have a material adverse effect on our business or operating results.We are exposed to the risk of unfavorable changes in foreign currency exchange rates for the U.S. dollar versus local currency of our suppliers located primarily in China and Taiwan. We purchase a majority of our products for resale from multiple vendors located in China and Taiwan. The purchase price of these products is routinely negotiated in U.S. dollar amounts rather than the local currency of the vendors and our suppliers' profit margins decrease when the U.S. dollar declines in value relative to the local currency. This puts pressure on our suppliers to increase prices to us. The U.S. dollar increased in value relative to the CNY by approximately 5.8% in the thirty-nine weeks ended September 30, 2023, increased by 8.3% in 2022, and declined by 2.6% during 2021. The U.S. dollar increased in value relative to the Taiwan dollar by approximately 4.9% in the thirty-nine weeks ended September 30, 2023, increased by 10.8% in 2022, and declined by 1.4% in 2021.We are also exposed to risk of unfavorable changes in the Canadian dollar exchange rate versus the U.S. dollar. Our sales in Canada are denominated in Canadian dollars, while a majority of the products are sourced in U.S. dollars. A weakening of the Canadian dollar versus the U.S. dollar results in lower sales in terms of U.S. dollars while the cost of sales remains unchanged. We have a practice of hedging some of our Canadian subsidiary's21 | September 30 2023 Form 10-Q purchases denominated in U.S. dollars. The U.S. dollar declined in value relative to the Canadian dollar by approximately 0.2% in the thirty-nine weeks ended September 30, 2023, increased by 5.7% in 2022, and declined by 0.2% in 2021.In addition, the negotiated purchase price of our products may be dependent upon market fluctuations in the cost of raw materials (i.e. steel, zinc, and nickel) used by our vendors in their manufacturing processes. The final purchase cost of our products may also be dependent upon inflation or deflation in the local economies of vendors in China and Taiwan that could impact the cost of labor and materials used in the manufacturing of our products. We identify the directional impact of changes in our product cost, but the quantification of each of these variable impacts cannot be measured as to the individual impact on our product cost with a sufficient level of precision. We may take pricing action, when warranted, in an attempt to offset a portion of product cost increases. The ability of our operating divisions to implement price increases and seek price concessions, as appropriate, is dependent on competitive market conditions.We import products which are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements and bilateral actions. The U.S. tariffs on steel and aluminum and other imported goods have increased our product costs and required us to increase prices on the affected products.Thirteen weeks ended September 30, 2023 vs the Thirteen weeks ended September 24, 2022FINANCIAL SUMMARY AND OTHER KEY METRICS•Net sales for the thirteen weeks ended September 30, 2023 were $398.9 million compared to net sales of $378.5 million for the thirteen weeks ended September 24, 2022, an increase of approximately $20.4 million or 5.4%.•Net income for the thirteen weeks ended September 30, 2023 was $5.1 million, or $0.03 per diluted share, compared to a net loss of $9.5 million, or $(0.05) per diluted share for the thirteen weeks ended September 24, 2022.•Adjusted EBITDA(1) totaled $66.8 million versus $59.0 million in the thirteen weeks ended September 30, 2023 and in the thirteen weeks ended September 24, 2022, respectively.RESULTS OF OPERATIONSThe following analysis of results of operations includes a brief discussion of the factors that affected our operating results and a comparative analysis of the thirteen weeks ended September 30, 2023 and the thirteen weeks ended September 24, 2022.22 | September 30 2023 Form 10-Q Thirteen Weeks Ended
September 30, 2023Thirteen Weeks Ended
September 24, 2022(dollars in thousands) Amount % of
Net SalesAmount % of
Net SalesNet sales $ 398,943 100.0 % $ 378,538 100.0 % Cost of sales (exclusive of depreciation and amortization shown separately below) 222,644 55.8 % 214,802 56.7 % Selling, warehouse, general and administrative expenses 113,359 28.4 % 133,246 35.2 % Depreciation 14,434 3.6 % 14,312 3.8 % Amortization 15,583 3.9 % 15,557 4.1 % Other (income) expense, net (1,819) (0.5) % 1,070 0.3 % Income (loss) from operations 34,742 8.7 % (449) (0.1) % Interest expense, net 16,728 4.2 % 14,696 3.9 % Income (loss) before income taxes 18,014 4.5 % (15,145) (4.0) % Income tax expense (benefit) 12,957 3.2 % (5,679) (1.5) % Net income (loss) $ 5,057 1.3 % $ (9,466) (2.5) % Adjusted EBITDA(1)$ 66,822 16.7 % $ 58,973 15.6 % (1)Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our definition and our use of Adjusted EBITDA, and for a reconciliation from net income to Adjusted EBITDA.Net Sales by SegmentThirteen weeks ended September 30, 2023 % of Net Sales Thirteen weeks ended September 24, 2022 % of Net Sales $ Change % Change Hardware and Protective Solutions $ 295,553 74.1 % $ 270,116 71.4 % $ 25,437 9.4 % Robotics and Digital Solutions 63,468 15.9 % 64,373 17.0 % (905) (1.4) % Canada 39,922 10.0 % 44,049 11.6 % (4,127) (9.4) % Consolidated $ 398,943 $ 378,538 $ 20,405 The increase in total net sales during the third quarter of 2023 was driven primarily driven by the factors described below:Hardware and Protective Solutions net sales increased by $25.4 million in the thirteen weeks ended September 30, 2023 due to the following:•Hardware net sales increased by $17.5 million driven by $13.8 million of volume increases driven by new business wins and promotions and $3.7 million in price increases in response to inflationary cost pressures in the market.•Protective equipment net sales increased by $8.0 million primarily due to $8.8 million in increased volume driven by timing of promotional and seasonal sales partially offset by $1.3 million of COVID-19 related sales in 2022 with no material comparable COVID-19 sales in 2023.Robotics and Digital Solutions net sales in the thirteen weeks ended September 30, 2023 decreased by $0.9 million primarily driven by decreased volume in full-service key and engraving sales.Canada net sales decreased by $4.1 million primarily due to volume decreases of $2.5 million along with an unfavorable impact of the exchange rate from Canadian dollars to U.S. dollars.Cost of Sales (excluding depreciation and amortization)23 | September 30 2023 Form 10-Q The following table summarizes cost of sales by segment:Thirteen weeks ended September 30, 2023 % of Segment Net Sales Thirteen weeks ended September 24, 2022 % of Segment Net Sales $ Change % Change Hardware and Protective Solutions $ 179,422 60.7 % $ 171,351 63.4 % $ 8,071 4.7 % Robotics and Digital Solutions 18,776 29.6 % 18,813 29.2 % (37) (0.2) % Canada 24,446 61.2 % 24,638 55.9 % (192) (0.8) % Consolidated $ 222,644 55.8 % $ 214,802 56.7 % $ 7,842 3.7 % Hardware and Protective Solutions cost of sales as a percentage of net sales decreased primarily due to decreased shipping and product costs.Robotics and Digital Solutions cost of sales as a percentage of net sales increased primarily due to increased product and shipping costs as well as a reduced volume of engraving sales.Canada cost of sales as a percentage of net sales increased primarily due to increased shipping and product costs.Selling, Warehouse, and General and Administrative ExpensesThe following table summarizes selling, warehouse, and general and administrative expense ("SG&A") by segment:Thirteen weeks ended September 30, 2023 % of Segment Net Sales Thirteen weeks ended September 24, 2022 % of Segment Net Sales $ Change % Change Hardware and Protective Solutions $ 78,551 26.6 % $ 73,290 27.1 % $ 5,261 7.2 % Robotics and Digital Solutions 23,797 37.5 % 48,678 75.6 % (24,881) (51.1) % Canada 11,011 27.6 % 11,278 25.6 % (267) (2.4) % Consolidated $ 113,359 28.4 % $ 133,246 35.2 % $ (19,887) (14.9) % Hardware and Protective Solutions SG&A increased due to the following:•Warehouse expense increased $3.8 million due to higher sales volumes, inflation, and additional costs associated with opening a new distribution center in the current year.•General and administrative (“G&A”) increased by $0.8 million. The increase was primarily driven by increased stock-based compensation expense.•Selling expense increased by $0.6 million primarily due to higher variable compensation and benefit expense in relation to the increased sales in the quarter.Robotics and Digital Solutions SG&A decreased due to the following:•Warehouse expense decreased by $0.2 million primarily due to the shift from full-service keys, which have a higher warehousing cost, to self-service keys.•G&A decreased by $25.1 million. The decrease was primarily related to reduced legal and consulting expense in 2023, as 2022 saw increased legal expense associated with the litigation with Hy-Ko Products Company LLC. This was partially offset by increased stock compensation expense.•Selling expense increased by $0.4 million primarily due to variable selling expenses related to self-service key sales.Canada SG&A decreased due to the following:•Warehouse expense decreased by $0.5 million primarily due to lower sales volumes along with improved operational efficiencies.•G&A was comparable to prior year quarter.•Selling expense increased by $0.2 million primarily due to increased variable selling expenses.Other Operating Expenses24 | September 30 2023 Form 10-Q Amortization and depreciation expense in the thirteen weeks ended September 30, 2023 was comparable to the prior year quarter.In the thirteen weeks ended September 30, 2023, other income (expense) consisted primarily of a $1.6 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob (see Note 15 - Fair Value Measurements of the Notes to Condensed Consolidated Financial Statements for additional information).In the thirteen weeks ended September 24, 2022, other income (expense) consisted primarily of a $0.7 million loss on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob. We also recorded exchange rate losses of $0.6 million in the thirteen weeks ended September 24, 2022.Income (Loss) from Operations Thirteen weeks ended September 30, 2023 Thirteen weeks ended September 24, 2022 $ Change % Change Hardware and Protective Solutions $ 18,556 $ 7,259 $ 11,297 155.6 % Robotics and Digital Solutions 12,772 (14,052) 26,824 190.9 % Canada 3,414 6,344 (2,930) (46.2) % Total segment income (loss) from operations $ 34,742 $ (449) $ 35,191 7837.6 % Income from operations in our Hardware and Protective Solutions segment increased $11.3 million due to the changes in sales, cost of sales, and SG&A expenses described above.Income from operations in our Robotics and Digital Solutions segment increased $26.8 million. The $26.8 million increase is primarily due to reduced legal and consulting expense in 2023, as 2022 saw increased legal expense associated with the litigation with Hy-Ko Products Company LLC along with a decrease in depreciation expense of $0.4 million due to certain assets becoming fully depreciated. This was partially offset by a decrease of $2.3 million in other expense driven by the changes in revaluation of the contingent consideration described above along with decreased sales.Canada's income from operations decreased by $2.9 million primarily due to the changes in sales and offsetting changes in cost of sales and SG&A expenses described above in addition to exchange rate losses of $0.4 million. In the thirteen weeks ended September 24, 2022 Canada recorded exchange rate gains of $0.2 million.Interest expense, net, increased $2.0 million due higher interest rates in the thirteen weeks ended September 30, 2023, partially offset by a reduction in outstanding debt.Income TaxesFor the thirteen weeks ended September 30, 2023 and thirteen weeks ended September 24, 2022, the effective income tax rate was 71.9% and 37.5%, respectively. The Company recorded an income tax provision for the thirteen weeks ended September 30, 2023 of $13.0 million based on a pre-tax income of $18.0 million, and an income tax benefit for the thirteen weeks ended September 24, 2022 of $5.7 million based on a pre-tax loss of $(15.1) million.In 2023, the effective tax rate differed from the U.S. federal statutory tax rate for 2023 due to state and foreign income taxes and certain non-deductible expenses. See Note 8 - Income Taxes of the Notes to Condensed Consolidated Financial Statements for additional information.In 2022, the effective rate differed from the federal statutory rate due to non-deductible stock compensation, an estimated increase in GILTI from the Company's Canadian operations, and state and foreign income taxes.Thirty-nine weeks ended September 30, 2023 vs the Thirty-nine weeks ended September 24, 2022FINANCIAL SUMMARY AND OTHER KEY METRICS25 | September 30 2023 Form 10-Q •Net sales for the thirty-nine weeks ended September 30, 2023 were $1,128.7 million compared to net sales of $1,135.7 million for the thirty-nine weeks ended September 24, 2022, a decrease of approximately $7.0 million or 0.6%.•Net income for the thirty-nine weeks ended September 30, 2023 was $0.5 million, or $0.00 per diluted share, compared to net loss of $2.5 million, or $(0.01) per diluted share for the thirty-nine weeks ended September 24, 2022.•Adjusted EBITDA(1) totaled $165.0 million versus $165.3 million in the thirty-nine weeks ended September 30, 2023 and thirty-nine weeks ended September 24, 2022, respectively.RESULTS OF OPERATIONSThe following analysis of results of operations includes a brief discussion of the factors that affected our operating results and a comparative analysis of the thirty-nine weeks ended September 30, 2023 and the thirty-nine weeks ended September 24, 2022. Thirty-nine weeks ended September 30, 2023 Thirty-nine weeks ended September 24, 2022 (dollars in thousands) Amount % of
Net SalesAmount % of
Net SalesNet sales $ 1,128,669 100.0 % $ 1,135,665 100 % Cost of sales (exclusive of depreciation and amortization shown separately below) 643,652 57.0 % 648,221 57.1 % Selling, warehouse, general and administrative expenses 335,876 29.8 % 366,013 32.2 % Depreciation 44,939 4.0 % 41,738 3.7 % Amortization 46,733 4.1 % 46,644 4.1 % Other expense (income), net 841 0.1 % (3,124) (0.3) % Income from operations 56,628 5.0 % 36,173 3.2 % Interest expense, net 52,880 4.7 % 38,857 3.4 % Income (loss) before income taxes 3,748 0.3 % (2,684) (0.2) % Income tax expense (benefit) 3,278 0.3 % (147) — % Net income (loss) $ 470 — % $ (2,537) (0.2) % Adjusted EBITDA(1)$ 164,990 14.6 % $ 165,260 14.6 % (1)Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our definition and our use of Adjusted EBITDA, and for a reconciliation from net (loss) income to Adjusted EBITDA.Net Sales by SegmentThirty-nine weeks ended September 30, 2023 % of Net Sales Thirty-nine weeks ended September 24, 2022 % of Net Sales $ Change % Change Hardware and Protective Solutions $ 818,198 72.5 % $ 812,931 71.6 % $ 5,267 0.6 % Robotics and Digital Solutions 186,990 16.6 % 189,066 16.6 % (2,076) (1.1) % Canada 123,481 10.9 % 133,668 11.8 % (10,187) (7.6) % Consolidated $ 1,128,669 $ 1,135,665 $ (6,996) The decline in total net sales during the thirty-nine weeks ended September 30, 2023 was driven primarily driven by the factors described below:26 | September 30 2023 Form 10-Q Hardware and Protective Solutions net sales increased by $5.3 million in thirty-nine weeks ended September 30, 2023 due to the following:•Hardware net sales increased by $32.5 million driven by $22.6 million in price increases in response to inflationary cost pressures in the market and $9.9 million in increased volume due to new business wins.•Protective equipment net sales decreased by $27.2 million primarily due to a $30.1 million decrease in volume driven in part by $16.8 million of COVID-19 related sales in 2022 with no material comparable COVID-19 sales in 2023, partially offset by $2.8 million in price increases.Robotics and Digital Solutions net sales in the thirty-nine weeks ended September 30, 2023 decreased by $2.1 million compared to the thirty-nine weeks ended September 24, 2022 primarily due to decreases in full-service key and engraving volume.Canada net sales decreased by $10.2 million primarily due to $6.1 million unfavorable impact of the exchange rate from Canadian dollars to U.S. dollars along with volume decreases of $3.2 million.Cost of Sales (excluding depreciation and amortization)The following table summarizes cost of sales by segment:Thirty-nine weeks ended September 30, 2023 % of Segment Net Sales Thirty-nine weeks ended September 24, 2022 % of Segment Net Sales $ Change % Change Hardware and Protective Solutions $ 511,743 62.5 % $ 514,008 63.2 % $ (2,265) (0.4) % Robotics and Digital Solutions 54,822 29.3 % 56,965 30.1 % (2,143) (3.8) % Canada 77,087 62.4 % 77,248 57.8 % (161) (0.2) % Consolidated $ 643,652 57.0 % $ 648,221 57.1 % $ (4,569) (0.7) % Hardware and Protective Solutions cost of sales as a percentage of net sales decreased primarily due to the impact of the price increases referenced above partially offset by higher shipping and product costs.Robotics and Digital Solutions cost of sales as a percentage of net sales decreased primarily due to a shift in product mix from full-service to self-service keys.Canada cost of sales as a percentage of net sales increased primarily due to increased shipping and product costs.Selling, Warehouse, and General and Administrative ExpensesThe following table summarizes selling, warehouse, and general and administrative expense ("SG&A") by segment:Thirty-nine weeks ended September 30, 2023 % of Segment Net Sales Thirty-nine weeks ended September 24, 2022 % of Segment Net Sales $ Change % Change Hardware and Protective Solutions $ 232,107 28.4 % $ 230,524 28.4 % $ 1,583 0.7 % Robotics and Digital Solutions 70,597 37.8 % 99,829 52.8 % (29,232) (29.3) % Canada 33,172 26.9 % 35,660 26.7 % (2,488) (7.0) % Consolidated $ 335,876 29.8 % $ 366,013 32.2 % $ (30,137) (8.2) % Hardware and Protective Solutions SG&A increased due to the following:•Warehouse expense increased $1.2 million due to higher sales volumes, inflation, and additional costs associated with opening a new distribution center in the current year.•General and administrative (“G&A”) increased by $0.5 million. The increase was primarily driven by increased stock-based compensation expense.Robotics and Digital Solutions SG&A decreased due to the following:•G&A decreased by $28.5 million. The decrease was primarily related to reduced legal and consulting expense in 2023 as 2022 saw $29.0 million in legal expense associated with the litigation with Hy-Ko Products Company LLC.27 | September 30 2023 Form 10-Q •Warehouse expense decreased by $2.1 million primarily due to the shift from full-service keys, which have a higher warehousing cost, to self-service keys.•Selling expense increased by $1.4 million primarily due to higher variable selling expenses related to self-service key sales and increased variable compensation.Canada SG&A decreased due to the following:•Warehouse expense decreased by $2.2 million primarily due to lower sales volume and improved operational efficiencies.•G&A decreased by $0.2 million primarily due to decreased variable compensation.Other Operating ExpensesDepreciation expense in the thirty-nine weeks ended September 30, 2023 increased $3.2 million due to increased capital spend on key duplicating kiosks and machines, merchandising racks, and facility relocations.Amortization expense in the thirty-nine weeks ended September 30, 2023 was comparable to prior year.In the thirty-nine weeks ended September 30, 2023, other expense consisted primarily of a $2.6 million loss on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob (see Note 15 - Fair Value Measurements of the Notes to Condensed Consolidated Financial Statements for additional information). We received $0.6 million in benefits from the state and local governments associated with our new facilities in the thirty-nine weeks ended September 30, 2023. We also recorded exchange rate gains of $0.4 million in the thirty-nine weeks ended September 30, 2023.In the thirty-nine weeks ended September 24, 2022, other income consisted primarily of a $2.9 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob.Income from Operations Thirty-nine weeks ended September 30, 2023 Thirty-nine weeks ended September 24, 2022 $ Change % Change Hardware and Protective Solutions $ 19,087 $ 15,391 $ 3,696 24.0 % Robotics and Digital Solutions 27,608 3,655 23,953 655.3 % Canada 9,933 17,127 (7,194) (42.0) % Total segment income from operations $ 56,628 $ 36,173 $ 20,455 56.5 % Income from operations in our Hardware and Protective Solutions segment increased $3.7 million due to the changes in sales, cost of sales, and SG&A expenses described above.Income from operations in our Robotics and Digital Solutions segment increased by $24.0 million primarily due to the changes in sales, cost of sales, and SG&A expenses described above, offset by an increase of $5.5 million million in other income driven by the changes in revaluation of the contingent consideration described above.Canada's income from operations decreased by $7.2 million primarily due to the changes in sales, cost of sales, and SG&A expenses described above. Canada also recorded exchange rate losses of $0.4 million in the thirty-nine weeks ended September 30, 2023.Interest ExpenseInterest expense, net, increased $14.0 million due higher interest rates in the thirty-nine weeks ended September 30, 2023, partially offset by a reduction in outstanding debt.Income TaxesFor the thirty-nine weeks ended September 30, 2023 and thirty-nine weeks ended September 24, 2022, the effective income tax rate was 87.5% and 5.5%, respectively. The Company recorded an income tax provision for the thirty-nine weeks ended September 30, 2023 of $3,278 based on pre-tax income of $3,748, and an income tax benefit for the thirty-nine weeks ended September 24, 2022 of $(0.1) million based on a pre-tax loss of $(2.7) million.28 | September 30 2023 Form 10-Q In 2023, the Company's effective tax rate differed from the U.S. federal statutory tax rate for 2023 due to state and foreign income taxes and certain non-deductible expenses.In 2022, the effective rate differed from the federal statutory rate due to non-deductible stock compensation, an estimated increase in GILTI from the Company's Canadian operations, and state and foreign income taxes.NON-GAAP FINANCIAL MEASURESAdjusted EBITDA is a non-GAAP financial measure and is the primary basis used to measure the operational strength and performance of our businesses, as well as to assist in the evaluation of underlying trends in our businesses. This measure eliminates the significant level of noncash depreciation and amortization expense that results from the capital-intensive nature of our businesses and from intangible assets recognized in business combinations. It is also unaffected by our capital and tax structures, as our management excludes these results when evaluating our operating performance. Our management uses this financial measure to evaluate our consolidated operating performance and the operating performance of our operating segments and to allocate resources and capital to our operating segments. Additionally, we believe that Adjusted EBITDA is useful to investors because it is one of the bases for comparing our operating performance with that of other companies in our industries, although our measure of Adjusted EBITDA may not be directly comparable to similar measures used by other companies.The following table presents a reconciliation of Net (loss) income, the most directly comparable financial measure under GAAP, to Adjusted EBITDA for the periods presented:(dollars in thousands) Thirteen Weeks Ended
September 30, 2023Thirteen Weeks Ended
September 24, 2022Thirty-nine Weeks Ended
September 30, 2023Thirty-nine Weeks Ended
September 24, 2022Net income (loss) $ 5,057 $ (9,466) $ 470 $ (2,537) Income tax expense (benefit) 12,957 (5,679) 3,278 (147) Interest expense, net 16,728 14,696 52,880 38,857 Depreciation 14,434 14,312 44,939 41,738 Amortization 15,583 15,557 46,733 46,644 EBITDA $ 64,759 $ 29,420 $ 148,300 $ 124,555 Stock compensation expense 3,069 2,485 9,111 10,789 Restructuring and other(1)179 916 3,027 1,481 Litigation expense (2)79 25,255 339 28,968 Transaction and integration expense (3)289 178 1,599 2,393 Change in fair value of contingent consideration (1,553) 719 2,614 (2,926) Adjusted EBITDA $ 66,822 $ 58,973 $ 164,990 $ 165,260 (1)Includes consulting and other costs associated with severance related to our distribution center relocations and corporate restructuring activities. 2023 includes costs associated with the Cybersecurity Incident that occurred in May 2023, see Note 6 - Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements for additional information.(2)Litigation expense includes legal fees associated with our litigation with Hy-Ko Products Company LLC.(3)Transaction and integration expense includes professional fees and other costs related to the CCMP secondary offerings in 2022 and 2023.29 | September 30 2023 Form 10-Q The following tables presents a reconciliation of segment operating income, the most directly comparable financial measure under GAAP, to segment Adjusted EBITDA for the periods presented.Thirteen weeks ended September 30, 2023 Hardware and Protective Solutions Robotics and Digital Solutions Canada Consolidated Operating income $ 18,556 $ 12,772 $ 3,414 $ 34,742 Depreciation and amortization 19,149 9,674 1,194 30,017 Stock compensation expense 2,536 325 208 3,069 Restructuring and other 163 16 — 179 Litigation expense — 79 — 79 Transaction and integration expense 255 34 — 289 Change in fair value of contingent consideration — (1,553) — (1,553) Adjusted EBITDA $ 40,659 $ 21,347 $ 4,816 $ 66,822 Thirteen weeks ended September 24, 2022 Hardware and Protective Solutions Robotics and Digital Solutions Canada Consolidated Operating income (loss) $ 7,259 $ (14,052) $ 6,344 $ (449) Depreciation and amortization 18,440 10,214 1,215 29,869 Stock compensation expense 2,130 197 158 2,485 Restructuring and other 831 85 — 916 Litigation expense — 25,255 — 25,255 Transaction and integration expense 178 — — 178 Change in fair value of contingent consideration — 719 — 719 Adjusted EBITDA $ 28,838 $ 22,418 $ 7,717 $ 58,973 Thirty-nine weeks ended September 30, 2023 Hardware and Protective Solutions Robotics and Digital Solutions Canada Consolidated Operating income $ 19,087 $ 27,608 $ 9,933 $ 56,628 Depreciation and amortization 56,720 31,349 3,603 91,672 Stock compensation expense 7,606 935 570 9,111 Restructuring and other 2,548 368 111 3,027 Litigation expense — 339 — 339 Transaction and integration expense 1,424 175 — 1,599 Change in fair value of contingent consideration — 2,614 — 2,614 Adjusted EBITDA $ 87,385 $ 63,388 $ 14,217 $ 164,990 30 | September 30 2023 Form 10-Q Thirty-nine weeks ended September 24, 2022 Hardware and Protective Solutions Robotics and Digital Solutions Canada Consolidated Operating income $ 15,391 $ 3,655 $ 17,127 $ 36,173 Depreciation and amortization 53,159 31,542 3,681 88,382 Stock compensation expense 8,693 1,248 848 10,789 Restructuring and other 1,357 124 — 1,481 Litigation expense — 28,968 — 28,968 Transaction and integration expense 2,105 288 — 2,393 Change in fair value of contingent consideration — (2,926) — (2,926) Adjusted EBITDA $ 80,705 $ 62,899 $ 21,656 $ 165,260 LIQUIDITY AND CAPITAL RESOURCESOur working capital (current assets minus current liabilities) position of $362.4 million as of September 30, 2023 represents a decrease of $53.8 million from the December 31, 2022 level of $416.2 million. We expect to generate sufficient operating cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets, although there can be no assurance of our ability to do so. However, disruption and volatility in the global capital markets, could impact our capital resources and liquidity in the future.The following table presents the key categories of our consolidated statements of cash flows:Thirty-nine weeks ended September 30, 2023 Thirty-nine weeks ended September 24, 2022 $ Change Net cash provided by operating activities $ 171,477 $ 63,232 $ 108,245 Net cash used for investing activities (52,763) (48,931) (3,832) Net cash (used for) provided by financing activities (111,762) 1,776 (113,538) Net increase in cash and cash equivalents 8,181 14,623 (6,442) Operating Cash Flows:Net Cash provided by operating activities for the thirty-nine weeks ended September 30, 2023 was favorably impacted by reduced inventory as part of the company's ongoing strategic initiative to lower inventory on hand during 2023 following the build up of inventory in prior years due to recent supply chain challenges and inflation. Additionally we saw increased accounts payable due to the timing of purchases and payments.Net cash provided by operating activities for the thirty-nine weeks ended September 24, 2022 was unfavorably impacted by (1) reduced accounts payable resulting from lower purchases and (2) increased accounts receivable and inventory resulting from price increases and inflation.Investing Cash Flows:Capital Expenditures:Cash of $52.1 million and $46.4 million was used in the thirty-nine weeks ended September 30, 2023 and thirty-nine weeks ended September 24, 2022, respectively, to invest in: new engraving and key duplicating kiosks in the RDS segment, new merchandising racks, and leasehold improvements in new distribution facilities in the Hardware and Protective Solutions segment.Acquisitions:31 | September 30 2023 Form 10-Q During the thirty-nine weeks ended September 24, 2022 we acquired Monkey Hook for a total purchase price of $2.8 million, which included $0.3 million in hold-back that remained payable to the seller as of December 31, 2022. In the thirty-nine weeks ended September 30, 2023, hold-back of $0.3 million was paid to satisfy the full purchase price. See Note 4 - Acquisitions of the Notes to Condensed Consolidated Financial Statements for additional information.Financing Cash Flows:Term Loan:The Company used $86.4 million of cash for principal payments on the senior term loan. In August 2023, the Company made a $80.0 million dollar prepayment against the outstanding term loan balance without payment of a premium or penalty. As of September 30, 2023, we have outstanding borrowings of $754.0 million on the term loan. See Note 9 - Long-term Debt of the Notes to Condensed Consolidated Financial Statements for additional information.ABL Revolver:Our revolver repayments, net of draws, used cash of $25.0 million in the thirty-nine weeks ended September 30, 2023 as part of our plan to pay down debt. In the thirty-nine weeks ended September 24, 2022, revolver draws, net of repayments, provided $7.0 million of cash.Stock Option Exercises:In the thirty-nine weeks ended September 30, 2023 and thirty-nine weeks ended September 24, 2022 the Company received $1.6 million and $1.9 million from the exercise of stock options, respectively.OFF-BALANCE SHEET ARRANGEMENTSWe do not have any off-balance sheet arrangements, as defined in Item 2. Management’s303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).CRITICAL ACCOUNTING POLICIES AND ESTIMATESSignificant accounting policies and estimates are summarized in the Notes to the Condensed Consolidated Financial Statements. Some accounting policies require management to exercise significant judgment in selecting the appropriate assumptions for calculating financial estimates. Such judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, known trends in our industry, terms of existing contracts, and other information from outside sources, as appropriate. Management believes that these estimates and assumptions are reasonable based on the facts and circumstances as of September 30, 2023, however, actual results may differ from these estimates under different assumptions and circumstances.There have been no material changes to our critical accounting policies and estimates which are discussed in the “Critical Accounting Policies and Estimates” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations.The following discussion and analysisOperations” in Part II, Item 7 of the Company’s financial condition and results of operations of Landcadia Holdings III, Inc. (the “Company”) should be read in conjunction withAnnual Report on Form 10-K for the financial statements and the notes thereto contained elsewhere in this report (the “Quarterly Report”). Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.Special Note Regarding Forward-Looking StatementsThis Quarterly Report includes forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. For example, statements made relating to future business combinations, use of proceeds of past securities offerings, future loans and conversions of warrants are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Factors that might cause or contribute to such forward-looking statements include, but are not limited to, those set forth in the Risk Factors section of the Company’s final prospectus for its initial public offering of units (the “Public Offering”)year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission. The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this report.OverviewWe are a blank check company incorporated as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase reorganization or similar business combination with one or more businesses (“Business Combination”). We consummated the Public OfferingCommission on October 14, 2020 and are currently in the process of locating suitable targets for our Business Combination. We intend to use the cash proceeds from our public offering and the private placement of warrants described below as well as additional issuances, if any, of our capital stock, debt or a combination of cash, stock and debt to complete the Business Combination.The Company’s management team is led by Tilman Fertitta, our Co-Chairman and Chief Executive Officer, and Richard Handler, our Co-Chairman and President. Mr. Fertitta is the sole shareholder of TJF, LLC (“TJF”) and Mr. Handler is the Chief Executive Officer of Jefferies Financial Group Inc. (“JFG”), and its largest operating subsidiary, Jefferies Group LLC, a global investment banking firm. The Company’s sponsors are TJF and JFG (collectively, the “Sponsors”).On MarchFebruary 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law. The CARES Act includes several significant business tax provisions that, among other things, eliminates the taxable income limit for certain net operating losses (“NOL”) and allows businesses to carryback NOLs arising in 2018, 2019, and 2020 to the five prior years; suspends the excess business loss rules; accelerates refunds of previously generated corporate alternative minimum tax credits; adjusts business interest limitations under IRC section 163(j) from 30% to 50%; and addresses other technical corrections included in the Tax Cuts and Jobs Act tax provisions. The Company is still evaluating the impact, if any,2023.Recent Accounting PronouncementsSee “Note 3 - Recent Accounting Pronouncements” of the CARES Act on its financial position, results of operations and cash flows.Liquidity and Capital ResourcesOn October 14, 2020 we consummated a $500,000,000 public offering consisting of 50,000,000 units at a price of $10.00 per unit (“Unit”). Each Unit consists of one share of the Company’s Class A common stock, $0.0001 par value (the “Class A Common Stock”) and one-third of one redeemable warrant (each, a “Public Warrant”). Simultaneously, with the closing of the Public Offering, we consummated the $12,000,000 private placement (“Private Placement”) of an aggregate of 8,000,000 private placement warrants (“Sponsor Warrants”) at a price of $1.50 per warrant. Upon closing of the Public Offering and Private Placement on October 14, 2020, $500,000,000 in proceeds (including $17,500,000 of deferred underwriting commissions) from the public offering and private placement was placed in a U.S.-based trust account maintained by Continental Stock Transfer & Trust Company, acting as trustee. The remaining $12,000,000 held outside of trust was usedNotes to pay underwriting commissions of $10,000,000, loans to our Sponsors, and deferred offering and formation costs. The Company granted the underwriters a 45-day option from the date of the prospectus, October 8, 2020, to purchase additional units. If the over-allotment is exercised in full, proceeds from the Public Offering and Private Placement will be $575,000,000 and $13,500,000, respectively.Our working capital needs will be satisfied through the funds, held outside of the U.S.-based trust account maintained by Continental Stock Transfer & Trust Company, acting as trustee (the “Trust Account”), from the public offering. Interest on funds held in the Trust Account may be used to pay income taxes and franchise taxes, if any. Our Sponsors may, but are not obligated to, loan us funds as may be required in connection with the Business Combination. Up to $1,500,000 of these loans may be converted into warrants of the post business combination entity at a price of $1.50 per warrant at the option of the lender and would be identical to the sponsor warrants.Results of OperationsWe have neither engaged in any significant business operations nor generated any revenues to date. All activities to date relate to the Company’s formation and its initial public offering and search for a suitable Business Combination. We generate non-operating income in the form of interest income on cash, cash equivalents, and marketable securities held in the Trust Account. We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses as we locate a suitable Business Combination.Critical Accounting PoliciesThe preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited financial statements and accompanying notes. Actual results could differ from those estimates. The Company has identified the following as its critical accounting policies:Loss per Common ShareBasic loss per common share is computed by dividing net income applicable to common stockholders by the weighted average number of common shares outstanding during the period. All shares of Class B common stock are assumed to convert to shares of Class A common stock on a one-for-one basis. Consistent with FASB ASC 480, shares of Class A common stock subject to possible redemption, as well as their pro rata share of undistributed trust earnings consistent with the two-class method, have been excluded from the calculation of loss per common share for the three and nine months ended September 30, 2020. Such shares, if redeemed, only participate in their pro rata share of trust earnings. Diluted loss per share includes the incremental number of shares of common stock to be issued in connection with the conversion of Class B common stock or to settle warrants, as calculated using the treasury stock method. For the three and nine months ending September 30, 2020 and 2019, the Company did not have any dilutive warrants, securities or other contracts that could, potentially, be exercised or converted into common stock. As a result, diluted loss per common share is the same as basic loss per common share for all periods presented. For the three and nine months ended September 30, 2020, the Company reported no income or loss available to common shareholders.Recent Accounting PronouncementsManagement does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.Off-Balance Sheet ArrangementsWe did not have any off-balance sheet arrangements as of September 30, 2020.Contractual ObligationsAs of September 30, 2020, we did not have any long-term debt, capital or operating lease obligations.The Company entered into an administrative services agreement in which we will pay Fertitta Entertainment, Inc., (an affiliate of TJF) for office space, secretarial and administrative services provided to members of our management team, in an amount not to exceed $20,000 per month commencing on the date of effectiveness of the Public Offering and ending on the earlier of the completion of a Business Combination or liquidation.32 | September 30 2023 Form 10-Q INTEREST RATE EXPOSUREWe are exposed to the impact of interest rate changes as borrowings under the Senior Facilities bear interest at variable interest rates. It is our policy to enter into interest rate swaps only to the extent considered necessary to meet our objectives.Based on our exposure to variable rate borrowings at September 30, 2023, after consideration of our SOFR floor rate and Qualitative Disclosures About Market Risk.Asinterest rate swap agreements, a one percent (1%) change in the weighted average interest rate for a period of one year would change the annual interest expense by approximately $4.4 million.FOREIGN CURRENCY EXCHANGEWe are exposed to foreign exchange rate changes of the Canadian and Mexican currencies as they impact the $151.2 million tangible and intangible net asset value of our Canadian and Mexican subsidiaries as of September 30, 2020, we2023. The foreign subsidiaries net tangible assets were not subject$93.6 million and the net intangible assets were $57.6 million as of September 30, 2023.We utilize foreign exchange forward contracts to any market or interest rate risk.We have not engagedmanage the exposure to currency fluctuations in any hedging activities since our inception. We do not expect to engage in any hedging activities with respectthe Canadian dollar versus the U.S. Dollar. See Note 14 - Derivatives and Hedging of the Condensed Notes to the marketaccompanying Condensed Consolidated Financial Statements.COMMODITY PRICE RISKOur transportation costs are exposed to fluctuations in the price of fuel and some of our products contain commodity-priced materials. The Company regularly monitors commodity trends and works to mitigate any material exposure to commodity price risk by having alternative sourcing plans in place, limiting supplier concentrations, passing commodity-related inflation to which we are exposed.customers, and continuing to scale its distribution networks.Item 4. Controls and Procedures.Evaluation of Disclosure Controls and ProceduresDisclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submittedITEM 4 - CONTROLS AND PROCEDURES. DISCLOSURE CONTROLS AND PROCEDURESWe carried out an evaluation, under the Securities Exchange Actsupervision and with the participation of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer (who serves as our principal executive officer) and Chief Financial Officer (who serves as our principal financial and accounting officer), to allow timely decisions regarding required disclosure.As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as of September 30, 2020.defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon theirthat evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as definedwere effective, as of September 30, 2023, in Rules 13a-15(e) and 15d-15(e)ensuring that material information required to be disclosed in reports that we file or submit under the Exchange Act)Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTINGThere were effective.Changes in Internal Control over Financial ReportingThere was no changechanges in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter endingthirteen weeks ended September 30, 20202023 that hashave materially affected, or is reasonableare reasonably likely to materially affect, our internal control over financial reporting.33 | September 30 2023 Form 10-Q PART II - OTHER INFORMATION ITEM 1. – LEGAL PROCEEDINGS The Information required by this Item 1. Legal ProceedingsNone.Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in the Risk Factors section of the final prospectus for our Public Offering filed with the SEC on October 13, 2020 (the “Prospectus”). Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.As of the date of this Quarterly Report, thereITEM 1A – RISK FACTORSThere have been no material changes to the risk factorsrisks from those disclosed in the Prospectus, except as discussed below. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filingsForm 10-K filed on February 27, 2023 with the SEC.The securities inSecurities and Exchange Commission (“SEC”).ITEM 2. – UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIESNot applicable.ITEM 3. – DEFAULTS UPON SENIOR SECURITIESNot applicable.ITEM 4. – MINE SAFETY DISCLOSURESNot applicable.ITEM 5. – OTHER INFORMATIONSegment RealignmentIn the first quarter of 2023, the Company realigned its Canada segment to include the Canada-based Protective Solutions and MinuteKey businesses, which we investare now operating under the funds heldCanada segment leadership team. Previously, the results of the Canada-based Protective Solutions business were reported in the Trust Account could bearHardware and Protective Solutions segment and the Canada-based MinuteKey business was reported in the Robotics and Digital Solutions segment and were operating under those respective segment leadership teams.If the aforementioned changes in segments were in effect for the years ended December 31, 2022, December 25, 2021, and December 26, 2020, revenues for our Hardware and Protective Solutions segment would have been lower by $8.1 million, $7.4 million and $8.0 million, respectively and revenues for our Robotics and Digital Solutions segment would have been lower by $4.3 million, $3.0 million and $2.0 million for the years ended December 31, 2022, December 25, 2021, and December 26, 2020, respectively. Revenues for our Canada segment would have been34 | September 30 2023 Form 10-Q higher by $12.3 million $10.4 million and $10.0 million for the years ended December 31, 2022, December 25, 2021, and December 26, 2020, respectively. In addition, the change to segment income (loss) from operations did not have a negative ratematerial impact on the financial statements as of interest,December 31, 2022, December 25, 2021, and December 26, 2020. The table below presents the results as if the segment changes had been in effect for the noted periods.Year ended December 31, 2022 Year ended December 25, 2021 Year ended December 26, 2020 Revenues Hardware and Protective Solutions $ 1,068,734 $ 1,017,594 $ 1,016,412 Robotics and Digital Solutions 245,633 246,494 207,276 Canada 171,961 161,879 144,607 Total revenues $ 1,486,328 $ 1,425,967 $ 1,368,295 Segment Income from Operations Hardware and Protective Solutions $ 20,742 $ (14,650) $ 64,998 Robotics and Digital Solutions 3,541 21,761 5,264 Canada 15,610 3,203 (4,496) Total segment income from operations $ 39,893 $ 10,314 $ 65,766 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.On November 2, 2023, the Board of Directors of the Company adopted the Hillman Solutions Corp. Executive Severance Plan (the "Severance Plan"). The primary purpose of the Severance Plan is to standardize and clarify the severance arrangements of our executive officers (other than Mr. Scott Ride) and the related terms and conditions.Each of our named executive officers (as disclosed in the Company’s Proxy Statement for the Annual Meeting of Stockholders held on May 31, 2023), other than Mr. Scott Ride, participate in the Plan.As a condition to participating in the Severance Plan, each of our executive officers (other than Mr. Ride) agreed to terminate their employment agreements, if any, with the Company effective November 2, 2023.Executives covered by the Severance Plan will generally be eligible to receive severance benefits in the event of a termination by the Company without Cause or by the Executive for Good Reason. Good Reason is a defined term under the Severance Plan and generally includes a material reduction in the Executive's duties or responsibilities, the requirement that the Executive relocate his or her principal place of business more than 50 miles from the location of the principal place of business from which could reduce the valueExecutive worked, or any reduction in the Executive’s annual base salary not part of a general base salary reduction of all similarly situated persons. Cause is a defined term under the Plan and generally includes the Executive's commission of a felony, the Executive's commission of any fraud, embezzlement, or material misconduct, the Executive's abuse of drugs or alcohol, the Executive's willful and material violation of any Company policy, the Executive's willful failure to perform his or her duties or comply with the Company's directives, or the Executive's breach of any material provisions of an employment agreement, restrictive covenant, or other agreement with the Company.Change in Control is also a defined term under the Plan and generally includes the acquisition of more than 50% of the voting power of the Company; a change in the composition of a majority of the Board of Directors of the Company; a reorganization, merger, consolidation, sale or other disposition of all or substantially all of the assets heldof the Company that results in trust such thatchange in more than 50% of the per-share redemption amount received by public stockholders may be less than $10.00 per share.The proceeds heldvoting power of the Company or a change in the Trust Account are investedcomposition of a majority of the Board of Directors.Under the Severance Plan, in the event of a termination by the Company without Cause or by the Executive for Good Reason prior to a Change in Control or more than 24 months following a Change in Control, the severance benefits for the a participating Executive shall generally consist of the following:•Lump sum payment of the Executive's earned but unpaid bonus for a performance period ending prior to the Executive's termination (if any);•Continuation of the Executive's base salary for a period specified in the applicable Executive's participation notice, which is (i) eighteen months in the case of Mr. Cahill; and (ii) twelve months in the case of all other participating Executives.35 | September 30 2023 Form 10-Q •In the case of Mr. Cahill only, an amount equal to 150% of his performance based bonus at target achievement level, payable over eighteen months in U.S. government treasury obligationsequal installments on the Company's regular payroll dates.•Payment by the Company of COBRA medical, dental and/or vision insurance premiums, based on the Executive’s benefits plan elections in effect at the time of termination for a period specified in the applicable Executive's participation notice, which is (i) eighteen months in the case of Mr. Cahill; and (ii) twelve months in the case of all other participating Executives.•Payment of the Executive's performance based bonus for the year in which the termination occurred, pro-rated for the Executive's service up to and including the date of termination and based on actual performance for the year, payable concurrently with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7bonus payments to other employees under the Investmentbonus plan.Under the Severance Plan, in the event of a termination by the Company Act, which invest onlywithout Cause or by the Executive for Good Reason within the 24 months following a Change in direct U.S. government treasury obligations. While short-term U.S. government treasury obligations currently yield a positive rate of interest, they have briefly yielded negative interest rates in recent years. Central banks in Europe and Japan pursued interest rates below zero in recent years, andControl, the Open Market Committeeseverance benefits for the Executive shall generally consist of the Federal Reserve has not ruled outfollowing:•Lump sum payment of the possibility that it mayExecutive's earned but unpaid bonus for a performance period ending prior to the Executive's termination (if any);•Continuation of the Executive's base salary for a period specified in the future adopt similar policiesapplicable Executive's participation notice, which is (i) twenty-four months in the United States. case of Mr. Cahill; and (ii) twelve months in the case of all other participating Executives.•In the event that we are unablecase of Mr. Cahill only, an amount equal to complete our initial business combination or make certain amendments to our Amended and Restated Certificate200% of Incorporation, our public stockholders are entitled to receive their pro-rata share of the proceeds heldhis performance based bonus at target achievement level, payable over twenty-four months in the Trust Account, plus any interest income not released to us, net of taxes payable. Negative interest rates could have an impactequal installments on the per-share redemptionCompany's regular payroll dates.•In the case of all participating Executives other than Mr. Cahill, an amount that may be received by public stockholders.Item 2. Unregistered Sales of Equity Securities and Use of ProceedsUnregistered Sales of Equity SecuritiesOn March 13, 2018, JFG, through a subsidiary, purchased aequal to 100% of the membership interestExecutive's performance based bonus at target achievement level, payable over twelve months in equal installments on the Company's regular payroll dates.•Payment by the Company for $1,000. On August 24, 2020, TJF purchased a 51.7% membership interest in the Company for $1,070. Simultaneously we converted the Company from a limited liability company to a corporation and its previously outstanding membership interests converted into shares of Class B common stock. The total number of authorized shares of all classes of capital stock is 401,000,000, of which 380,000,000 shares are Class A shares at par value $0.0001 per share; 20,000,000 shares are Class B shares at par value $0.0001 per share (the “Founder Shares”); and 1,000,000 shares are preferred stock at par value $0.0001 per share. The Sponsors hold an aggregate of 11,500,000 Class B sharesCOBRA medical, dental and/or vision insurance premiums, based on the proportional interestExecutive’s benefits plan elections in effect at the time of termination for a period specified in the Company. Further, on September 16, 2020, we conducted a 1:1.25 stock splitapplicable Executive's participation notice, which is (i) twenty-four months in the case of Mr. Cahill; and (ii) twelve months in the case of all other participating Executives.•Payment of the Founder Shares so that a totalExecutive's performance based bonus for the year in which the termination occurred, pro-rated for the Executive's service up to and including the date of 14,375,000 Founder Shares were issuedtermination and outstanding. As of September 16, 2020, JFG owns 6,943,125 Founder Shares and TJF owns 7,431,875 Founder Shares. An aggregate of 1,875,000 Founder Shares are subjectbased on actual performance for the year, payable concurrently with bonus payments to forfeitureother employees under the bonus plan.The foregoing summary is qualified in its entirety by reference to the extent the underwriters do not exercise their over-allotments option.Simultaneously with the closing of the Public Offering, the Sponsors purchased an aggregate of 8,000,000 Sponsor Warrants at a price of $1.50 per Sponsor Warrant for an aggregate purchase price of $12,000,000 in the Private Placement. These securities were issued in connection with our incorporation pursuantSeverance Plan filed as Exhibit 10.1 to the exemption from registration contained in Section 4(a)(2) of the Securities Act. Each of our Sponsors is an accredited investor for purposes of Rule 501 of Regulation D.Use of ProceedsOn October 14 , 2020, we consummated the Public Offering of 50,000,000 Units. Each Unit consists of one share of Class A Common Stock and one-third of one Public Warrant, each whole Public Warrant entitling the holder thereof to purchase one share of Class A Common Stock for $11.50 per share, subject to adjustment. The Units were sold at a price of $10.00 per Unit, generating gross proceeds to us of $500,000,000. Jefferies LLC served as the sole book-running manager of the Public Offering. The securities sold in the Public Offering were registered under the Securities Act on a registration statementthis Quarterly Report on Form S-1 (File No. 333-248856). The SEC declared the registration statement effective on October 8, 2020.Following the closing of the Public Offering10-Q and the Private Placement, $500,000,000 was placed in the Trust Account, comprised of $490,000,000 of the proceeds from the Public Offering (which amount includes $17,500,000 of the underwriters’ deferred discount) and $10,000,000 of the proceeds of the Private Placement and paid $10,000,000 in underwriting discounts. There has been no material change in the planned use of proceeds from the public offering as described in the Prospectus.Item 3. Defaults Upon Senior SecuritiesNone.Item 4. Mine Safety DisclosuresNone.On November 13, 2020, the Company entered into an amended and restated warrant agreement with Continental Stock Transfer & Trust Company, which amended and restated the warrant agreement entered into in connection with the Public Offering to conform the description of the warrants to the Prospectus.Exhibit No. Description3.136 | September 30 2023 Form 10-QSecond Amended and Restated Certificate of Incorporation. (2)3.2ITEM 6. – EXHIBITS4.1a)Exhibits, including those incorporated by reference. 101.INS*Indicates management contract or any compensatory plan, contract or arrangement.XBRL Instance Document37 | September 30 2023 Form 10-Q 101.SCHXBRL Taxonomy Extension Schema Document101.CALXBRL Taxonomy Extension Calculation Linkbase Document101.DEFXBRL Taxonomy Extension Definition Linkbase Document101.LABXBRL Taxonomy Extension Label Linkbase Document101.PREXBRL Taxonomy Extension Presentation Linkbase Document* Filed herewith.** Furnished.(1) Previously filed as an exhibit to our Registration Statement on Form S-1 filed with the SEC on October 2, 2020 and incorporated by reference herein.(2) Previously filed as an exhibit to our Current Report on Form 8-K filed with the SEC on October 14, 2020 and incorporated by reference herein.SIGNATURESPursuant to the requirements of the Securities Exchange Act, of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.THE HILLMAN SOLUTIONS CORP.LANDCADIA HOLDINGS III, INC.By:/s/ Tilman J. Fertitta /s/ Robert O. Kraft Name: Tilman J. Fertitta/s/ Anne S. McCallaRobert O. Kraft Title: Chief Executive Officer (principal executive officer)Anne S. McCallaBy: /s/ Richard H. LiemName: Richard H. LiemTitle: Vice President and Chief Financial Officer (principal financial officer and principal accounting officer)Controller (Principal Financial Officer} (Chief Accounting Officer) DATE: November 8, 2023 Dated: November 13, 202038 | September 30 2023 Form 10-Q