Hillman Solutions Corp.: Form 10-Q for the period ended Sep 27, 2025

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 28, 2024.

FORWARD-LOOKING STATEMENTS

This 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 our and our customers’, suppliers’ and other business partners’ 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 tariffs, 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) seasonality; (6) large customer concentration; (7) the ability to recruit and retain qualified employees; (8) the outcome of any legal proceedings that may be instituted against the Company; (9) adverse changes in currency exchange rates; or (10) 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 20, 2025. 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.

GENERAL

Hillman 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, Hillman Solutions Corp. and its wholly-owned subsidiaries (collectively, “Hillman Group”), which had net sales of $424.9 million in the thirteen weeks ended September 27, 2025 and $1,187.1 million in the thirty-nine weeks ended September 27, 2025. Hillman sells its products to hardware stores, home improvement centers, mass merchants, pet supply stores, and other retail outlets principally in the United States, Canada, and Mexico. Product lines include thousands of small hardware parts such as fasteners and related items; threaded rod and metal shapes; keys and accessories; builder's hardware; personal protective equipment, such as gloves and eyewear; rope and chain; 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 DEVELOPMENTS

Tariff Environment

In 2025, the U.S. government announced tariffs on imports from countries from which we import products and components. Subsequent to the initial announcements, there have been changes to the effective dates and amounts, and as a result, we are unable to fully quantify the impact that tariffs, when ultimately enacted, will have on our results of operations given the dynamic tariff environment.

We estimate we source approximately 33% of our products from China, 33% from suppliers based in North America, and 33% from all other countries. Based on the current facts and tariff environment as of the date of this filing, tariffs have resulted in an increase in our net working capital and cost of sales. We have raised our prices to offset the tariff costs that are expected to further increase our cost of sales, although these price increases could impact future demand for our products. We continue to analyze the impact of these actions and what, if any, steps, including pricing actions, we may take to mitigate the impact of the tariffs. Consistent with our normal course of business, we will continue exploring alternative suppliers in other countries to source quality products that provide the best value for our customers.

Segment Realignment

In the second quarter of 2025, the Company realigned its Hardware and Protective Solutions segment to include the sales of accessories, which are now managed by the Hardware and Protective Solutions leadership team. Previously, accessories were included under the Robotics and Digital Solutions segment leadership team. See Note 16 - Segment Reporting of the Notes to Condensed Consolidated Financial Statements for additional information.

Share Repurchases

On July 31, 2025, the Board of Directors of the Company authorized a share repurchase program of up to $100,000 (the “Repurchase Program”) of the Company's common stock.

IMPACT OF GLOBAL ECONOMIC CONDITIONS ON OUR RESULTS OF OPERATIONS

Our business is impacted by general economic conditions in the North American markets, particularly the U.S. and Canadian retail markets, including hardware stores, home improvement 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, tariffs, 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, particularly those located in China and Taiwan, because we purchase a majority of our products for resale from multiple vendors located in these countries. 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 declined in value relative to the CNY by approximately 2.3% in the thirty-nine weeks ended September 27, 2025, increased by 2.8% in 2024, and increased by 2.9% in 2023. The U.S. dollar declined in value relative to the Taiwan dollar by approximately 6.9% in the thirty-nine weeks ended September 27, 2025, increased by 7.1% in 2024, and declined by 0.4% in 2023.

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's purchases denominated in U.S. dollars. The U.S. dollar declined in value relative to the Canadian dollar by approximately 3.3% in the thirty-nine weeks ended September 27, 2025, increased by 9.0% in 2024, and declined by 2.4% in 2023.

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 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 or maintain 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 historical 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. Current uncertainties about increases in tariffs of imported products from countries may have an adverse effect on our results. (see Recent Developments - Tariff Environment of Item 2 - Management’s Discussion and Analysis above and Risk Factors of Part II - Other Information for additional information).

Thirteen weeks ended September 27, 2025 vs the Thirteen weeks ended September 28, 2024

FINANCIAL SUMMARY AND OTHER KEY METRICS

• Net sales for the thirteen weeks ended September 27, 2025 were $424.9 million compared to net sales of $393.3 million for the thirteen weeks ended September 28, 2024, an increase of approximately $31.6 million or 8.0%.
• Net income for the thirteen weeks ended September 27, 2025 was $23.2 million, or $0.12 per diluted share, compared to net income of $7.4 million, or $0.04 per diluted share for the thirteen weeks ended September 28, 2024.
• Adjusted EBITDA(1) totaled $88.0 million versus $64.8 million in the thirteen weeks ended September 27, 2025 and in the thirteen weeks ended September 28, 2024, respectively.

RESULTS OF OPERATIONS

The 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 27, 2025 and the thirteen weeks ended September 28, 2024.

(dollars in thousands)

(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 Segment

The increase in total net sales during the third quarter of 2025 was primarily driven by the factors described below:

Hardware and Protective Solutions' net sales increased by $29.8 million in the thirteen weeks ended September 27, 2025 due to the following:

• Hardware net sales increased by $20.9 million primarily due to price increases of $28.6 million offset by $7.6 million in reduced volume.
• Protective equipment net sales increased by $9.0 million primarily due to $8.7 million in additional sales related to the Intex acquisition. Additionally, sales were impacted by price increases of $6.5 million partially offset by $6.3 million in reduced volume.

Robotics and Digital Solutions' net sales in the thirteen weeks ended September 27, 2025 increased by $1.9 million primarily due to $4.6 million in price increases partially offset by lower volumes.

Canada net sales were comparable to prior year quarter.

Cost of Sales (excluding depreciation and amortization)

The following table summarizes cost of sales by segment:

Hardware and Protective Solutions' cost of sales as a percentage of net sales decreased primarily due to the timing of price increases driven by higher tariff costs. During the quarter, we began taking pricing actions with our customers as we are paying the additional tariff costs in 2025. We expect higher tariff expense to be included in our cost of sales in the fourth quarter of 2025 as we sell through the inventory purchased prior to the new tariffs.

Robotics and Digital Solutions' cost of sales as a percentage of net sales decreased due to price increases and sales mix.

Canada cost of sales as a percentage of net sales decreased primarily due to decreased product and shipping costs.

Selling, Warehouse, and General and Administrative Expenses

The following table summarizes selling, warehouse, and general and administrative expense ("SG&A") by segment:

Hardware and Protective Solutions' SG&A increased due to the following:

• Selling expense increased $5.5 million due to increased compensation costs.
• Warehouse expense increased $1.0 million primarily due to increased labor costs along with increased rent and maintenance.
• General and administrative expense (“G&A”) decreased $0.9 million due to a write off of $7.5 million of accounts receivable, net, due to True Value declaring bankruptcy in 2024 partially offset by increased variable compensation costs and legal fees.

Robotics and Digital Solutions' SG&A increased due to the following:

• Selling expense increased $1.2 million primarily due to increased variable selling expenses due to the shift from full-service keys to self-service keys, which have a higher variable selling cost.
• Warehouse expense increased $0.4 million due to inflation in labor and shipping costs.
• G&A expense was comparable to prior year.

Canada SG&A decreased due to the following:

• G&A expense increased by $1.0 million primarily due to severance expense recorded in connection with corporate restructuring activities in the third quarter of 2025.
• Selling expense decreased by $0.2 million primarily due to lower severance costs associated with sales restructuring activities in the prior year.
• Warehouse expense was comparable to prior year.

Other Operating Expenses

Depreciation expense increased $2.2 million due to capital spend on merchandising racks.

Amortization expense in the thirteen weeks ended September 27, 2025 was comparable to prior year quarter.

In the thirteen weeks ended September 27, 2025, other income (expense) consisted primarily of exchange rate losses of $0.2 million and a $0.1 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). In addition, we recorded income related to certain rebates received of $0.3 million.

In the thirteen weeks ended September 28, 2024, other income (expense) consisted primarily of a $0.5 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob.

Income from Operations

Income from operations in our Hardware and Protective Solutions segment increased $21.3 million due to the changes in net sales, cost of sales, and SG&A expenses described above. These changes were partially offset by an increase in depreciation expense of $1.6 million due to capital spend on merchandising racks.

Income from operations in our Robotics and Digital Solutions segment decreased $1.3 million. The $1.3 million decrease is primarily due to the changes in net sales, cost of sales, and SG&A expenses described above, in addition to an increase in depreciation expense of $0.5 million due to capital spend on key duplication kiosks and machines. Additionally, we saw a decrease of $0.5 million in other income driven by the changes in revaluation of the contingent consideration described above.

Canada's income from operations decreased by $1.0 million primarily due to the changes in net sales, cost of sales and SG&A expenses described above. In addition, in the thirteen weeks ended September 27, 2025, Canada recorded exchange rate losses of $0.2 million and in the thirteen weeks ended September 28, 2024, Canada recorded exchange rate gains of $0.2 million.

Interest expense, net, decreased $0.4 million primarily due to a reduction in outstanding debt and a reduction in interest rate spreads driven by the debt repricing in the first quarter of 2025 (see Note 9 - Long-term Debt of the Notes to Condensed Consolidated Financial Statements for additional information).

Income Taxes

For the thirteen weeks ended September 27, 2025 and thirteen weeks ended September 28, 2024, the effective income tax rate was 25.7% and 37.0%, respectively. The Company recorded an income tax provision for the thirteen weeks ended September 27, 2025 of $8.0 million based on a pre-tax income of $31.2 million, and an income tax provision for the thirteen weeks ended September 28, 2024 of $4.4 million based on a pre-tax income of $11.8 million.

In 2025 and 2024, the effective tax rate differed from the U.S. federal statutory tax rate 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.

Thirty-nine weeks ended September 27, 2025 vs the Thirty-nine weeks ended September 28, 2024

FINANCIAL SUMMARY AND OTHER KEY METRICS

• Net sales for the thirty-nine weeks ended September 27, 2025 were $1,187.1 million compared to $1,123.0 million for the thirty-nine weeks ended September 28, 2024, an increase of approximately $64.1 million or 5.7%.
• Net income for the thirty-nine weeks ended September 27, 2025 was $38.7 million, or $0.19 per diluted share, compared to net income of $18.5 million, or $0.09 per diluted share for the thirty-nine weeks ended September 28, 2024.
• Adjusted EBITDA(1) totaled $217.8 million versus $185.5 million in the thirty-nine weeks ended September 27, 2025 and in the thirty-nine weeks ended September 28, 2024, respectively.

RESULTS OF OPERATIONS

The 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 27, 2025 and the thirty-nine weeks ended September 28, 2024.

(dollars in thousands)

(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 Segment

The increase in total net sales during the thirty-nine weeks ended September 27, 2025 was primarily driven by the factors described below:

Hardware and Protective Solutions' net sales increased by $69.1 million in the thirty-nine weeks ended September 27, 2025 due to the following:

• Hardware net sales increased by $22.8 million primarily driven by $28.7 million in price increases offset by decreased volume.
• Protective equipment net sales increased by $46.3 million primarily driven by $41.2 million of additional sales related to the Intex acquisition along with $5.8 million in price increases.

Robotics and Digital Solutions' net sales in the thirty-nine weeks ended September 27, 2025 increased by $4.0 million primarily driven by $11.2 million of increased prices offset by decreased volume of $7.2 million in key and engraving sales.

Canada net sales decreased by $9.1 million primarily due to volume decreases of $5.0 million and an unfavorable impact of the exchange rate from Canadian dollars to U.S. dollars of $2.7 million.

Cost of Sales (excluding depreciation and amortization)

The following table summarizes cost of sales by segment:

Hardware and Protective Solutions' cost of sales as a percentage of net sales decreased primarily due to the timing of price increases driven by higher tariff costs. During the quarter, we began taking pricing actions with our customers as we are paying the additional tariff costs in 2025. We expect higher tariff expense to be included in our cost of sales in the fourth quarter of 2025 as we sell through the inventory purchased prior to the new tariffs. These were partially offset by a higher mix of Protective Solutions sales which generally have higher costs than Hardware Solutions products.

Robotics and Digital Solutions' cost of sales as a percentage of net sales decreased primarily due to price increases and sales mix.

Canada cost of sales as a percentage of net sales was comparable to prior year.

Selling, Warehouse, and General and Administrative Expenses

The following table summarizes selling, warehouse, and general and administrative expense ("SG&A") by segment:

Hardware and Protective Solutions' SG&A increased due to the following:

• Selling expense increased by $5.7 million primarily due to increased compensation and benefit expense.
• Warehouse expense increased $2.0 million due to inflation in shipping costs along with rent and maintenance. Additionally, warehouse expense includes $0.6 million in costs incurred related to our Cincinnati, Ohio distribution center consolidation project.
• General and administrative (“G&A”) expense increased $0.6 million. The increase was primarily driven by increased compensation and benefit expenses along with an increased investment into information technology. These current year increases were partially offset by a prior year write off of $7.5 million of accounts receivable, net, due to True Value declaring bankruptcy in 2024.

Robotics and Digital Solutions' SG&A increased due to the following:

• Selling expense increased by $4.9 million primarily due to the shift from full-service keys to self-service keys, which have a higher variable selling cost.
• Warehouse expense increased $0.8 million due to inflation in labor and shipping costs.
• G&A expense decreased $1.1 million due to reduced compensation and benefit expense.

Canada SG&A decreased due to the following:

• Warehouse expense decreased $1.1 million primarily due to lower sales volumes along with improved operational efficiencies.
• Selling expense decreased by $0.9 million primarily due to lower severance costs associated with restructuring activities in the prior year.
• G&A expense was consistent with the prior year.

Other Operating Expenses

Depreciation expense increased $8.8 million due to capital spend on merchandising racks along with key duplication kiosks.

Amortization expense in the thirty-nine weeks ended September 27, 2025 was comparable to prior year.

In the thirty-nine weeks ended September 27, 2025, other income (expense) consisted primarily of a $0.5 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 addition, we recorded income related to certain rebates received of $0.6 million partially offset by exchange rate losses of $0.1 million in the thirty-nine weeks ended September 27, 2025.

Income from Operations

Income from operations in our Hardware and Protective Solutions segment increased $27.2 million due to the changes in net sales, cost of sales, and SG&A expenses described above. These impacts were partially offset by an increase in depreciation expense of $5.2 million due to capital spend on merchandising racks.

Income from operations in our Robotics and Digital Solutions segment decreased $3.0 million. The $3.0 million decrease is primarily due to the changes in net sales, cost of sales, and SG&A expenses described above, along with by an increase in depreciation expense of $3.6 million due to capital spend on key duplication kiosks. Additionally, there was an increase of $0.8 million in other expense driven by the changes in revaluation of the contingent consideration described above.

Canada's income from operations decreased by $1.7 million primarily due to the changes in net sales, cost of sales and SG&A expenses described above offset by exchange rate losses of $0.1 million in the thirty-nine weeks ended September 27, 2025 and exchange rate losses of $0.3 million in the thirty-nine weeks ended September 28, 2024.

Interest expense, net, decreased $1.3 million in the thirty-nine weeks ended September 27, 2025 primarily due to a reduction in outstanding debt and a reduction in interest rate spreads driven by the debt repricing in the first quarter of 2025 (see Note 9 - Long-term Debt of the Notes to Condensed Consolidated Financial Statements for additional information).

Income Taxes

For the thirty-nine weeks ended September 27, 2025 and thirty-nine weeks ended September 28, 2024, the effective income tax rate was 27.4% and 32.8%, respectively. The Company recorded an income tax provision for the thirty-nine weeks ended September 27, 2025 of $14.6 million based on a pre-tax income of $53.3 million, and an income tax provision for the thirty-nine weeks ended September 28, 2024 of $9.0 million based on a pre-tax provision of $27.5 million.

In 2025 and 2024, the effective tax rate differed from the U.S. federal statutory tax rate 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).

NON-GAAP FINANCIAL MEASURES

Adjusted 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 as well as 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 income, the most directly comparable financial measure under GAAP, to Adjusted EBITDA for the periods presented:

(dollars in thousands)

(1) Includes consulting and other costs associated with severance related to our distribution center relocations and corporate restructuring activities.

(2) Litigation expense includes an accrual for the tentative settlement of a California wage-hour class action / Private Attorneys General Act (PAGA) claim.

(3) Transaction and integration expense includes professional fees and other costs related to the Koch Industries, Inc. and Intex DIY, Inc. acquisitions.

(4) In the first quarters of 2025 and 2024, we entered into a Repricing Amendment (2025 Repricing Amendment and 2024 Repricing Amendment) on our existing Senior Term Loan due July 14, 2028 (see Note 9 - Long-term Debt of the Notes to Condensed Consolidated Financial Statements for additional information).

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.

36 | September 27, 2025 Form 10-Q

LIQUIDITY AND CAPITAL RESOURCES

Our working capital position, which we define as current assets minus current liabilities, of $397.9 million as of September 27, 2025 represents an increase of $78.4 million from the December 28, 2024 level of $319.5 million driven by seasonality of the business and tariff costs. 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 and economic uncertainties driven by increases in tariffs could impact our capital resources and liquidity in the future. We do expect the current tariff environment to increase our costs of products we import, which will increase our working capital position and unfavorably impact our future cash flows (see Recent Developments - Tariff Environment of Item 2 - Management’s Discussion and Analysis and Risk Factors of Part II - Other Information for additional information).

The following table presents the key categories of our condensed consolidated statements of cash flows:

Operating Cash Flows:

Net cash provided by operating activities for the thirty-nine weeks ended September 27, 2025 was unfavorably impacted by increases in the costs of inventory due to the recently enacted tariffs. Increased accounts receivable also unfavorably impacted cash flows due to pricing actions we have taken with our customers in response to the tariff cost increases. Increased accounts payable driven by the tariff costs partially offset the inventory and receivables changes. Additionally, operating cash flow in the thirty-nine weeks ended September 27, 2025 was unfavorably impacted by increases in other assets due to our investment in cloud based information technology. Finally, net cash provided by operating activities was unfavorably impacted by a decrease in accrued incentive compensation related to the payout of 2024 incentive compensation.

Net cash provided by operating activities for the thirty-nine weeks ended September 28, 2024 was unfavorably impacted by increases in accounts receivable due to the seasonality of our business as well as accounts receivable generated by the Koch business post acquisition. Additionally, we saw increased accounts payable due to the timing of inventory purchases and payments.

Capital Expenditures:

Cash of $55.3 million and $64.2 million was used in the thirty-nine weeks ended September 27, 2025 and thirty-nine weeks ended September 28, 2024, respectively, to invest in new key duplicating kiosks and merchandising racks.

Financing Cash Flows:

Term Loan:

The Company used $6.4 million of cash for principal payments on the senior term loan. As of September 27, 2025, we have outstanding borrowings of $639.1 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 payments, net of draws, used cash of $13.0 million in the thirty-nine weeks ended September 27, 2025, primarily used to fund the additional tariff costs in the current year.

We drew approximately $77.0 million on our revolver, in the thirty-nine weeks ended September 28, 2024, primarily to fund seasonal inventory purchases along with the acquisitions of Koch and Intex. We were able to fully repay the draws during the thirty-nine weeks ended September 28, 2024 using cash generated from our operations. On a net basis, the activity on the revolver had no impact to our cash flows used for financing activities in the thirty-nine weeks ended September 28, 2024.

Stock Option Exercises:

In the thirty-nine weeks ended September 27, 2025 and thirty-nine weeks ended September 28, 2024 the Company received $1.2 million and $8.9 million from the exercise of stock options, respectively.

Share Repurchases:

In the thirteen and thirty-nine weeks ended September 27, 2025 the Company paid $3.2 million related to share repurchases.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Significant 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 27, 2025, 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” in Part II, Item 7 of the Annual Report on Form 10-K for the year ended December 28, 2024, as filed with the Securities and Exchange Commission on February 20, 2025.

Recent Accounting Pronouncements

See “Note 3 - Recent Accounting Pronouncements” of the Notes to Condensed Consolidated Financial Statements.

INTEREST RATE EXPOSURE

We 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 27, 2025, after consideration of our SOFR floor rate and interest 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 $3.3 million.

FOREIGN CURRENCY EXCHANGE

We are exposed to foreign exchange rate changes of the Canadian and Mexican currencies as they impact the $131.6 million tangible and intangible net asset value of our Canadian and Mexican subsidiaries as of September 27, 2025. The foreign subsidiaries' net tangible assets were $79.3 million and the net intangible assets were $52.3 million as of September 27, 2025.

We utilize foreign exchange forward contracts to manage the exposure to currency fluctuations in the Canadian dollar versus the U.S. Dollar. See Note 14 - Derivatives and Hedging of the Condensed Notes to the accompanying Condensed Consolidated Financial Statements.

COMMODITY PRICE RISK

Our 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 customers, and continuing to scale its distribution networks.

DISCLOSURE CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of September 27, 2025, in ensuring that material information required to be disclosed in reports that we file or submit under the Exchange 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 REPORTING

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the thirteen weeks ended September 27, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

You should carefully consider the following risk, as well as the information contained in this report and in our 2024 Annual Report on Form 10-K, including the information under “Risk Factors” in Item 1A of Part I thereof, and the Consolidated Financial Statements and the related Notes to Consolidated Financial Statements and schedules thereto. However, the risks set forth below are not the only risks that we face, and we face other risks which have not yet been identified or which are not yet otherwise predictable. If any of the following risks or the risks contained in our 2024 Annual Report on Form 10-K, including the information under “Risk Factors” in Item 1A of Part I, occur or are otherwise realized, our business, financial condition, and results of operations could be materially adversely affected. Except as set forth below, there have been no material changes to the risks from those disclosed in our Form 10-K filed on February 20, 2025 with the Securities and Exchange Commission (“SEC”).

Tariffs and other import measures imposed by the United States, or by other countries in response to such actions or threatened actions by the United States, may adversely affect our business, operations, and financial results.

We currently import a majority of our products and rely on foreign sources to meet our supply demands at prices that support our current operating margins. Substantially all of our import operations are subject to customs requirements, tariffs, and quotas set by governments through mutual agreements or unilateral actions.

In 2025, the U.S. government announced tariffs on imports from countries from which we import products and components. Subsequent to the initial announcements, there have been changes to the effective dates and amounts, and as a result, we are unable to fully quantify the impact that tariffs, when ultimately enacted, will have on our results of operations given the dynamic tariff environment.

We estimate we source approximately 33% of our products from China, 33% from suppliers based in North America, and 33% from all other countries. Based on the current facts and tariff environment as of the date of this filing, we expect the tariffs to drive an increase in our net working capital and cost of sales. We have raised our prices to offset the tariff costs that are expected to increase our cost of sales, although these price increases could impact future demand for our products. We continue to analyze the impact of these actions and what, if any, steps, including pricing actions, we may take to mitigate the impact of the tariffs. Consistent with our normal course of business, we will continue exploring alternative suppliers in other countries to source quality products that provide the best value for our customers.