What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-27 compared with 2022-03-16 · 210 added, 435 removed, 150 unchanged (81% of the section changed)

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In addition, see “Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information”, as well as “Risk Factors” in Item 1A of this Annual Report.

Hillman is 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 Group, Inc.

and its wholly-owned subsidiaries (collectively, “Hillman Group”), had net sales of approximately $1,426.0 million in 2021.

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, Mexico, Latin America, and the Caribbean.

Product lines include thousands of small parts such as fasteners and related hardware items;

threaded rod and metal shapes;

keys, key duplication systems, and accessories;

builder's hardware;

personal protective equipment, such as gloves and eye-wear;

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.

On July 14, 2021, privately held HMAN Group Holdings Inc.

("Old Hillman"), and Landcadia Holdings III, Inc.

(“Landcadia” and after the Business Combination described herein, “New Hillman”), a special purpose acquisition company ("SPAC") consummated the previously announced business combination (the “Closing”) pursuant to the terms of the Agreement and Plan of Merger, dated as of January 24, 2021 (as amended on March 12, 2021, the "Merger Agreement”).

Unless the context indicates otherwise, the discussion of the Company and it's financial condition and results of operations is with respect to New Hillman following the closing date and Old Hillman prior to the closing date.

See Note 1 - Basis of Presentation of the Notes to Consolidated Financial Statements for additional information.

In connection with the Closing, the Company entered into a new credit agreement (the “Term Credit Agreement”), which provided for a new funded term loan facility of $835.0 million and a delayed draw term loan facility of $200.0 million (of which $16.0 million was drawn).

The Company also entered into an amendment to their existing asset-based revolving credit agreement, extending the maturity and conformed certain provisions to the Term Credit Agreement.

The proceeds of the funded term loans under the Term Credit Agreement and revolving credit loans under the ABL Credit Agreement were used, together with other available cash, to (1) refinance in full all outstanding term loans and to terminate all outstanding commitments under the credit agreement, dated as of May 31, 2018, (2) refinance outstanding revolving credit loans, and (3) redeem in full senior notes due July 15, 2022 (the “6.375% Senior Notes”).

Additionally, we fully redeemed the 11.6% Junior Subordinated

In connection with the refinancing we incurred a loss of $8.1 million and paid $38.7 million in financing fees, of which $21.0 million was recorded as a financing activity.

See Note 9 - Long-Term Debt of the Notes to Consolidated Financial Statements for additional information.

On April 16, 2021, the Company completed the acquisition of Oz Post International, LLC ("OZCO"), a leading manufacturer of superior quality hardware that offers structural fasteners and connectors used for decks, fences and other outdoor structures, for a total purchase price of $38.9 million.

The Company entered into an amendment ("OZCO Amendment") to the term loan credit agreement dated May 31, 2018 (the "2018 Term Loan"), which provided $35.0 million of incremental term loan funds to be used to finance the acquisition.

Refer to Note 6 - Acquisitions of the Notes to Consolidated Financial Statements for additional information.

On November 22, 2021, the Company provided notice to the holders of its outstanding warrants (the “Warrants”) to purchase shares of the Company’s common stock, par value $0.0001 per share, that all such Warrants will be redeemed in accordance with the terms of such Warrants and the Warrant Agreement (the “Redemption”).

As of December 25, 2021, the Company exercised and redeemed all of its warrants.

The Company issued 6.4 million shares of common stock in connection with the Redemption.

Refer to Note 8 - Warrants of the Notes to Consolidated Financial Statements for additional information.

Current Economic Conditions

Executive Overview and Trends in our Business

For 2022, we saw our net sales increase by over 4% and our business gain momentum when compared to 2021.

We attribute our success for the year to our ability to quickly adapt and execute in any environment.

Our philosophy of taking care of our customers by delivering best-in-class customer service continues to drive strong results and growth.

From a macroeconomic perspective, we believe discretionary consumer spending has been under pressure as gas and groceries have become a larger percentage of the average American paycheck due to inflation.

Interest rates have increased resulting in a decrease in existing home sales and the postponement of large remodeling projects.

These challenges and economic concerns about a potential recession resulted in unit sales volumes to decline slightly across our core business segments.

From a microeconomic perspective, shipping costs, commodities, and labor have become more expensive since the beginning of 2021.

Lead times from Asia (the time it takes to order a product and arrive at one of our distribution centers in the North America) doubled in early 2022 from what lead times were in a normal environment, and have only recently come down from those highs.

In light of these dynamics, we have implemented prices increases covering our costs and we have invested into our inventory to ensure fill rates with our customers remain high.

As we look forward, we expect to see the investments we have made into our customer relationships pay off with new business wins.

Further, we believe we will benefit when lower costs flow through our income statement during the second half of the year, as some shipping costs and commodity prices have decreased from 2022 highs.

We also expect to see our inventory continue to come down, which would result in an improvement in working capital and cash flows during 2023.

Impact of Global Economic Conditions on our Results of Operation

Our business is impacted by general economic conditions in the North American and international markets, particularly the U.S.

and Canadian retail markets including hardware stores, home centers, mass merchants, and other retailers.

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China, and has since spread to a number of other countries, including the United States and Canada.

In March 2020, the World Health Organization characterized COVID-19 as a pandemic.

In 2020, the pandemic had a significant impact on our business, driving high demand for personal protective equipment, including face masks, disposable gloves, sanitizing wipes, and disinfecting sprays.

During 2020, at the request of our customers, we began to sell certain categories of protective and cleaning equipment that are not a part of our core product offerings, including wipes, sprays, masks and bulk boxes of disposable gloves.

High demand and limited supply of these products available for retail sale drove prices and cost up in 2020.

In 2021, demand for certain protective product categories softened.

As vaccines were rolled out, supply returned to a more normal level.

In the third quarter of 2021, we evaluated our customers' needs and the market conditions and ultimately decided to exit certain protective product categories.

In connection with the exit of these product lines, we recorded an inventory valuation charge of $32.0 million including the write off of inventory along with costs for donation and disposal of the remaining inventory on hand.

It is possible that the COVID-19 pandemic could further impact our business, the operations of our suppliers and vendors, and the operations of our customers, especially in light of the emergence of new variants which would cause a recurrence of high levels of infection and hospitalization.

If we need to close any of our facilities or a critical number of our employees become too ill to work, our distribution network could be materially adversely affected in a rapid manner.

Similarly, if our customers experience adverse business consequences due to COVID-19, demand for our products could also be materially adversely affected in a rapid manner.

The Company continues to experience customer demand both during the year ended December 25, 2021 and during the subsequent period.

Our teams continue to monitor demand disruption and there can be no assurance as to the level of demand that will prevail through the remainder of fiscal 2022.

A large portion of our customers continue to operate and sell our products, with some customers reducing operations or restricting some access to portions of the retail space.

The magnitude of the financial impact on our quarterly and annual results is dependent on the duration of the COVID-19 pandemic and how quickly the U.S.

and Canada economies resume normal operations.

An extended period of global supply chain, workforce availability, and economic disruption could materially affect the Company's business, the results of operations, financial condition, access to sources of liquidity, and the carrying value of goodwill and intangible assets.

While a triggering event did not occur during the year ended December 25, 2021, a prolonged COVID-19 pandemic could negatively impact net sales growth, change key assumptions and other global and regional macroeconomic factors that could result in future impairment charges for goodwill, indefinite-lived intangible assets and definite lived intangible assets.

The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot predict the extent to which our business, results of operations, financial condition, or liquidity will ultimately be impacted.

Changes in current economic conditions, including inflationary pressures in the cost of inventory, transportation, and employee compensation, foreign currency volatility, and the growing 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 significant variety of our products for resale from multiple vendors located 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.

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This puts pressure on our suppliers to increase prices to us.

dollar increased in

value relative to the CNY by approximately by 1.7% in 2019, decreased by 6.5% in 2020, and decreased by 2.6% in 2021.

dollar decreased in value relative to the Taiwan dollar by approximately 0.2% in 2019, decreased by 7.9% in 2020, and decreased by 1.4% in 2021.

dollar increased in value relative to the CNY by approximately by 8.3% in 2022, decreased by 2.6% in 2021, and decreased by 6.5% in 2020.

dollar increased in value relative to the Taiwan dollar by approximately 10.8% in 2022, decreased by 1.4% in 2021, and decreased by 7.9% in 2020.

20 | December 31, 2022 Form 10-K

In addition, the negotiated purchase price of our products may be dependent upon market fluctuations in the cost of raw materials such as 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 used in the manufacturing of our products.

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 energy 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 are also exposed to risk of unfavorable changes in Canadian dollar exchange rate versus the U.S.

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 are also exposed to risk of unfavorable changes in the Canadian dollar exchange rate versus the U.S.

Our sales in Canada are denominated in Canadian dollars while a majority of the products are sourced in U.S.

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We have a practice of hedging some of our Canadian subsidiary's purchases denominated in U.S.

dollar decreased in value relative to the Canadian dollar by approximately 4.1% in 2019, decreased by 1.9% in 2020, and decreased by 0.2% in 2021.

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 institute price increases and seek price concessions, as appropriate, is dependent on competitive market conditions.

We import large quantities of products which are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements and bilateral actions.

dollar increased in value relative to the Canadian dollar by approximately 5.7% in 2022, decreased by 0.2% in 2021, and decreased by 1.9% in 2020.

We import products which are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements and bilateral actions.

tariffs on steel and aluminum and other imported goods has increased our product costs and required us to increase prices on the affected products.

Product Revenues

The following is revenue based on products for our significant product categories and operating segments:

Hardware and Protective Solutions Robotics and Digital Solutions Canada Total Revenue

Year Ended December 25, 2021

Fastening and hardware $ 740,088 $ — $ 149,165 $ 889,253

Personal protective 284,886 — 397 285,283

Keys and key accessories — 190,697 1,826 192,523

Engraving — 58,555 77 58,632

Resharp — 276 — 276

Consolidated $ 1,024,974 $ 249,528 $ 151,465 $ 1,425,967

Year Ended December 26, 2020

Fastening and hardware $ 706,865 $ — $ 131,493 $ 838,358

Personal protective 317,527 — 239 317,766

Keys and key accessories — 157,828 2,878 160,706

Engraving — 51,423 6 51,429

Resharp — 36 — 36

Consolidated $ 1,024,392 $ 209,287 $ 134,616 $ 1,368,295

Year Ended December 28, 2019

Fastening and hardware $ 607,247 $ — $ 121,242 $ 728,489

Personal protective 245,769 — — 245,769

Keys and key accessories — 185,451 4,009 189,460

Engraving — 50,613 9 50,622

Resharp — 22 — 22

Consolidated $ 853,016 $ 236,086 $ 125,260 $ 1,214,362

Financial Summary and Other Key Metrics

• Net sales for the year ended December 31, 2022 were $1,486.3 million compared to net sales of $1,426.0 million for the year ended December 25, 2021, an increase of approximately $60.4 million or 4.2%.

• Net loss improved to $16.4 million, or $(0.08) per diluted share, compared to a net loss of $38.3 million, or $(0.28) per diluted share for the year ended December 25, 2021.

• Adjusted EBITDA (1) totaled $210.2 million versus $207.4 million in the year ended December 25, 2021.

• The improvement in our consolidated income from operations in 2022 was driven primarily by $153.3 million in price increases, offset by an increased cost of goods sold driven by inflation, variable selling expenses, variable compensation, travel and entertainment expense, litigation expense, and increased labor and transportation costs.

(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 to Adjusted EBITDA.

21 | December 31, 2022 Form 10-K

52/53 Week Comparison

Fiscal 2022 consisted of 53 weeks or 256 shipping days compared to 52 weeks or 253 shipping days in fiscal 2021, which should be taken into account when comparing each period.

Shipping days are defined as non-holiday week days, Monday through Friday of each week of the fiscal year.

Results of Operations

The following table shows the results of operations for the years ended December 25, 2021 and December 26, 2020.

December 25, 2021 Year Ended

December 26, 2020

The following table shows the results of operations for the years ended December 31, 2022, December 25, 2021 and December 26, 2020.

Year Ended December 31, 2022 Year Ended December 25, 2021 Year Ended December 26, 2020

(dollars in thousands) Amount % of

Net Sales Amount % of

Net sales $ 1,486,328 100.0% $ 1,425,967 100.0% $ 1,368,295 100.0%

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Interest expense, net 54,560 3.7% 68,779 4.8% 99,103 7.2%

Refinancing charges 8,070 0.6 % — — %

Refinancing costs — —% 8,070 0.6% — —%

Gain on change in fair value of warrant liability — —% (14,734) (1.0)% — —%

Mark-to-market adjustment of interest rate swap (1,685) (0.1) % 601 — %

Loss before income taxes (50,116) (3.5) % (33,938) (2.5) %

Income tax benefit (11,784) (0.8) % (9,439) (0.7) %

Net loss $ (38,332) (2.7) % $ (24,499) (1.8) %

Adjusted EBITDA (1)

$ 207,418 14.5 % $ 221,215 16.2 %

(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.

Year Ended December 25, 2021 vs December 26, 2020

Net sales for the year ended December 25, 2021 were $1,426.0 million compared to net sales of $1,368.3 million for the year ended December 26, 2020, an increase of approximately $57.7 million.

Fastening and hardware sales increased $33.2 million driven by strong retail demand and price increases in the second half of 2021 in response to inflationary pressures in the market related to the cost of products, inbound and outbound transportation costs, and personnel costs.

Key and engraving sales increased $40.0 million and sales in Canada increased by $16.8 million primarily due to improved retail foot traffic and access to key and engraving machines as compared to 2020 due to COVID-19.

These increases were partially offset by sales of personal protective equipment, which decreased by $32.6 million due to lower demand for COVID-19 protective and cleaning materials in 2021.

Cost of Sales

Our Cost of Sales ("COS") is exclusive of depreciation and amortization expense.

COS was $859.6 million, or 60.3% of net sales, for the year ended December 25, 2021, an increase of $77.7 million compared to $781.8 million, or 57.1% of net sales, for the year ended December 26, 2020.

Cost of sales as a percentage of net sales was 320 bps higher than the prior year primarily due to an inventory valuation adjustment in our Hardware and Protective Solutions segment of $32.0 million related to strategic review of our COVID-19 related product offerings.

In the third quarter of 2021, we evaluated our customers' needs and the market conditions and ultimately decided to exit certain protective product categories related to COVID-19, including cleaning wipes, disinfecting sprays, face masks, and certain disposable gloves.

The remaining increase was primarily due to inflation in commodities and transportation.

Selling, general, and administrative ("SG&A") expenses were $437.9 million in the year ended December 25, 2021, an increase of $39.4 million compared to $398.5 million in the year ended December 26, 2020.

The following changes in underlying trends impacted the change in SG&A expenses:

• Selling expense was $161.1 million in the year ended December 25, 2021, an increase of $11.5 million compared to $149.6 million for the year ended December 26, 2020.

The increase in selling expense was primarily due to variable selling expenses, variable compensation, and travel and entertainment expense in the year ended December 25, 2021.

• Warehouse and delivery expenses were $172.9 million for the year ended December 25, 2021, an increase of $13.9 million compared to warehouse and delivery expenses of $159.0 million for the year ended December 26, 2020.

The additional expense was primarily driven by higher sales volume and inflation in labor and shipping costs.

• General and administrative (“G&A”) expenses were $103.9 million in the year ended December 25, 2021, an increase of $14.1 million compared to $89.8 million in the year ended December 26, 2020.

In the year ended December 25, 2021 we incurred increased stock based compensation of $10.1 million in connection with modification of awards associated with the Merger (see Note 13 - Stock Based Compensation of the Notes to Consolidated Financial Statements for additional information).

We also incurred an additional $6.2 million of legal and consulting expense associated with the merger with Landcadia along with increased legal fees associated with our litigation with KeyMe (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information).

These increases were partially offset by decreased variable compensation.

Depreciation expense of $59.4 million in the year ended December 25, 2021, was lower than the $67.4 million in the year ended December 26, 2020.

The decrease was due to certain assets becoming fully depreciated.

Amortization expense of $61.3 million in the year ended December 25, 2021, was comparable to $59.5 million in the year ended December 26, 2020.

The increase was primarily due to the acquisition of Ozco in the current year.

Other income of $2.8 million for the year ended December 25, 2021 decreased $2.5 million compared to $5.3 million in the year ended December 26, 2020.

In the year ended December 25, 2021 other income consisted primarily of a $1.8 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob, (see Note 16 - Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information).

We also recorded exchange rate gains of $0.9 million in the year ended December 25, 2021.

In the year ended December 26, 2020, other income consisted primarily of a $3.5 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob.

Additionally we received $1.8 million in cash from the Canadian government as part of the Canada Emergency Wage Subsidy program for relief during the second quarter shutdown in Canada during the COVID-19 pandemic.

These gains were partially offset by exchange rate losses of $0.7 million.

Interest expense, net, of $68.8 million for the year ended December 25, 2021 decreased $30.3 million, compared to $99.1 million for the year ended December 26, 2020.

This decrease was primarily due to the refinancing activities in the third quarter of 2021 leading to lower outstanding debt balances in the year ended December 25, 2021 (see Note 9 - Long-Term Debt of the Notes to Consolidated Financial Statements for additional information).

Results of Operations

The following table shows the results of operations for the years ended December 26, 2020 and December 28, 2019.

December 26, 2020 Year Ended

December 28, 2019

(dollars in thousands) Amount % of

Total Amount % of

Net sales $ 1,368,295 100.0 % $ 1,214,362 100.0 %

Cost of sales (exclusive of depreciation and amortization shown separately below) 781,815 57.1 % 693,881 57.1 %

Selling, general and administrative expenses 398,472 29.1 % 382,131 31.5 %

Depreciation 67,423 4.9 % 65,658 5.4 %

Amortization 59,492 4.3 % 58,910 4.9 %

Management fees to related party 577 — % 562 — %

Other (income) expense, net (5,250) (0.4) % 5,525 0.5 %

Income from operations 65,766 4.8 % 7,695 0.6 %

Interest expense, net 99,103 7.2 % 113,843 9.4 %

Mark-to-market adjustment of interest rate swap 601 — % 2,608 0.2 %

Loss (income) on mark-to-market adjustment of interest rate swap — —% (1,685) (0.1)% 601 —%

Loss before income taxes (14,667) (1.0)% (50,116) (3.5)% (33,938) (2.5)%

Income tax benefit (9,439) (0.7) % (23,277) (1.9) %

Income tax expense (benefit) 1,769 0.1% (11,784) (0.8)% (9,439) (0.7)%

Net loss $ (16,436) (1.1)% $ (38,332) (2.7)% $ (24,499) (1.8)%

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(1) Adjusted EBITDA is a non-GAAP financial measure.

Year Ended December 26, 2020 vs Year Ended December 28, 2019

Net sales for the year ended December 26, 2020 were $1,368.3 million, compared to net sales of $1,214.4 million for the year ended December 28, 2019.

Sales of personal protective equipment increased by $71.8 million due to high demand for gloves and face masks.

Fastening and hardware sales increased $99.6 million driven by strong sales with big box retailers and traditional hardware stores.

Finally, sales in Canada increased by $9.4 million primarily due to strong retail demand for our products partially offset by in store shopping restrictions during the second quarter which lead to lower demand during that period.

These increases were offset by a decrease of $27.6 million in key sales in the United States.

Key sales were negatively impacted by restricted access to key duplicating kiosks and retail key duplication services as a result of COVID-19.

As the economy began to reopen, our service team worked closely with our customers to restore access to key machines.

Cost of Sales

Our COS is exclusive of depreciation and amortization expense.

Our cost of sales was $781.8 million, or 57.1% of net sales, for the year ended December 26, 2020, an increase of $87.9 million compared to $693.9 million, or 57.1% of net sales, for the year ended December 28, 2019.

Cost of goods sold as a percentage of net sales was consistent with the prior year primarily as a result of the following offsetting factors:

• Sourcing savings initiatives that we achieved in 2020, and

• 2020 included a higher mix of construction fastener products and personal protective equipment.

Selling, general, and administrative ("SG&A") expenses were $398.5 million in the year ended December 26, 2020 an increase of $16.3 million compared to $382.1 million in the year ended December 28, 2019.

The following changes in underlying trends impacted the change in SG&A expenses:

• Selling expense was $149.6 million in the year ended December 26, 2020, a decrease of $7.2 million compared to $156.8 million for the year ended December 28, 2019.

The decrease in selling expense was primarily due to lower marketing and travel and entertainment expense in the year ended December 26, 2020.

Additionally, we had lower compensation cost as a result of the restructuring in our U.S.

operations that began in the fourth quarter of 2019.

• Warehouse and delivery expenses were $159.0 million for the year ended December 26, 2020, an increase of $16.7 million compared to warehouse and delivery expenses of $142.3 million for the year ended December 28, 2019.

The additional expense was primarily due to higher variable compensation and freight expenses related to increased sales.

The remaining increase was due to increased labor driven by premium pay offered to warehouse workers during the COVID-19 outbreak along with additional supplies and personal protective equipment for our facilities.

• G&A expenses were $89.8 million in the year ended December 26, 2020 an increase of $6.8 million compared to $83.0 million in the year ended December 28, 2019.

The increase was primarily due to increased legal fees associated with our ongoing litigation with KeyMe (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information).

Additionally, we incurred increased incentive compensation expense in the year ended December 26, 2020.

Depreciation expense was $67.4 million in the year ended December 26, 2020 compared to $65.7 million in the year ended December 28, 2019.

The increase was primarily driven by our investment in key duplication machines and merchandising racks.

Amortization expense was $59.5 million in the year ended December 26, 2020 compared to $58.9 million in the year ended December 28, 2019.

Other income was $5.3 million for the year ended December 26, 2020, as compared to a loss of $5.5 million in the year ended December 28, 2019.

In the year ended December 26, 2020 other income consisted primarily of a $3.5 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob, (see Note 16 - Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information).

These gains were partially offset by exchange rate losses of $0.7 million.

In the year ended December 28, 2019, other expense consisted of an impairment charge of $7.0 million related to the loss on the disposal of our FastKey self-service key duplicating kiosks.

This loss was offset by a gain on the sale of machinery and equipment of $0.4 million (see Note 17 - Restructuring of the Notes to Consolidated Financial Statements for additional information), and exchange rate gains of $0.7 million.

Interest expense, net, was $99.1 million for the year ended December 26, 2020, a decrease of $14.7 million, compared to $113.8 million for the year ended December 28, 2019.

This decrease was primarily due to lower interest rates combined with lower outstanding debt balances in the year ended December 26, 2020.

Results of Operations – Operating Segments

The following table provides supplemental information of our sales and profitability by operating segment (in thousands):

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 to Adjusted EBITDA.

Net Sales by Product Line

2021 2021 vs.

2022 % of Net Sales 2021 % of Net Sales $ Change % Change 2020 % of Net Sales $ Change % Change

Fastening and Hardware $ 989,559 66.6 % $ 889,253 62.4 % 100,306 11.3 % $ 838,358 61.3 % 50,895 6.1 %

Personal Protective 243,481 16.4 % 285,283 20.0 % (41,802) (14.7) % 317,766 23.2 % (32,483) (10.2) %

Keys and key accessories 196,977 13.3 % 192,523 13.5 % 4,454 2.3 % 160,706 11.7 % 31,817 19.8 %

Engraving and Resharp 56,311 3.8 % 58,908 4.1 % (2,597) (4.4) % 51,465 3.8 % 7,443 14.5 %

Consolidated $ 1,486,328 $ 1,425,967 $ 60,361 $ 1,368,295 $ 57,672

See Note 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements for a reconciliation of net sales by product line to net sales by operating segment.

22 | December 31, 2022 Form 10-K

Net Sales by Segment

2021 2021 vs.

Year Ended December 31, 2022 % of Net Sales Year Ended December 25, 2021 % of Net Sales $ Change % Change Year Ended December 26, 2020 % of Net Sales $ Change % Change

Hardware and Protective Solutions $ 1,076,813 72.4 % $ 1,024,974 71.9 % $ 51,839 5.1 % $ 1,024,392 74.9 % $ 582 0.1 %

December 25, 2021 Year Ended

December 26, 2020 Year Ended

December 28, 2019

Robotics and Digital Solutions 249,897 16.8 % 249,528 17.5 % 369 0.1 % 209,287 15.3 % 40,241 19.2 %

Canada 159,618 10.7 % 151,465 10.6 % 8,153 5.4 % 134,616 9.8 % 16,849 12.5 %

Consolidated $ 1,486,328 $ 1,425,967 $ 60,361 $ 1,368,295 $ 57,672

Hardware and Protective Solutions revenues consist primarily of the delivery of fasteners, anchors, specialty fastening products, and personal protective equipment such as gloves and eye-wear as well as in-store merchandising services for the related product category.

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 improvement in total net sales during 2022 was driven primarily by $153.3 million of price increases, partially offset by lower demand for COVID-19 protective and cleaning products and lower volume overall.

Net sales for the year ended December 31, 2022 were $5.8 million per shipping day, compared $5.6 million per shipping day for the year ended December 25, 2021, an increase of approximately $0.2 million per shipping day.

The increase was primarily driven by the factors described below:

Hardware and Protective Solutions increased $51.8 million due to the following:

• Hardware sales increased $94.4 million driven by $106.8 million in price increases in response to inflationary pressures in the market, partially offset by decreased volume driven by lower demand.

• Protective equipment sales decreased by $42.6 million due to lower demand for COVID-19 protective and cleaning products in 2022, partially offset by price increases of $9.7 million.

Robotics and Digital Solutions sales increased $0.4 million due to $17.1 million in price increases in response to inflationary pressures, offset by lower demand for auto key duplication and engraving sales.

Canada net sales increased $8.2 million primarily due to $19.8 million in price increases in response to inflationary pressures in the market partially offset by decreased volume driven by lower demand and a $6.0 million unfavorable impact of the exchange rate from Canadian dollars to U.S.

Cost of Sales (excluding depreciation and amortization)

The following table summarizes cost of sales by segment:

2021 2021 vs.

Year Ended December 31, 2022 % of Segment Net Sales Year Ended December 25, 2021 % of Segment Net Sales $ Change % Change Year Ended December 26, 2020 % of Segment Net Sales $ Change % Change

Hardware and Protective Solutions $ 676,026 62.8% $ 683,654 66.7% $ (7,628) (1.1)% $ 622,326 60.8% $ 61,328 9.9%

Segment Revenues $ 1,024,974 $ 1,024,392 $ 853,016

Segment (Loss) Income from Operations $ (17,185) $ 67,313 $ 14,204

Adjusted EBITDA (1)

$ 113,738 $ 153,765 $ 101,319

(1) Adjusted EBITDA is a non-GAAP financial measure.

Year Ended December 25, 2021 vs December 26, 2020

Hardware and Protective Solutions net sales for the year ended December 25, 2021 increased by $0.6 million from the prior year.

This increase was partially offset by sales of personal protective equipment, which decreased by $32.6 million due to lower demand for COVID-19 protective and cleaning equipment in 2021.

(Loss) Income from Operations

(Loss) Income from operations of our Hardware and Protective Solutions operating segment decreased by approximately $84.5 million in the year ended December 25, 2021 to a loss of $17.2 million from income of $67.3 million in the year ended December 26, 2020.

On flat sales, we experienced higher cost of sales and selling, general and administrative expenses as outlined below:

• Cost of sales increased by approximately $61.4 million in the year ended December 25, 2021 to $683.7 million as compared to $622.3 million in the year ended December 26, 2020.

Cost of sales as a percentage of net sales was 66.7% in the year ended December 25, 2021, an increase of 590 basis points from 60.8% in the year ended December 26, 2020.

In the third quarter of 2021, we recorded an inventory valuation adjustment in our Hardware and Protective Solutions segment of $32.0 million primarily related to strategic review of our COVID-19 related product offerings.

In the third quarter of 2021, after considering our customers' ongoing needs along with market demand, pricing, and more widespread product availability, we exited the market for certain products related to COVID-19 including cleaning wipes, disinfecting sprays, face masks, and certain disposable gloves.

The remaining increase in cost of sales as a percentage of net sales was primarily driven by the inflation in commodities and inbound transportation.

• Warehouse expense increased $12.2 million in the year ended December 25, 2021 compared to the year ended December 26, 2020.

The additional expense was primarily driven by inflation in labor and shipping costs.

• G&A expense increased $8.5 million in the year ended December 25, 2021 compared to the year ended December 26, 2020.

The additional expense was primarily due to increased legal and consulting expense associated with the merger with Landcadia along with increased stock compensation expense.

Year Ended December 26, 2020 vs December 28, 2019

Net sales for our Hardware and Protective Solutions operating segment increased by $171.4 million in the year ended December 26, 2020 primarily due to:

• Fastening and hardware sales increased $99.6 million due to strong demand from big box retailers and traditional hardware stores along with price increases initiated in the second quarter of 2019 to offset the impact of tariffs.

• Sales of personal protective equipment increased by $71.8 million due to high demand driven by COVID-19.

Income from Operations

Income from operations of our Hardware and Protective Solutio ns segment increased by approximately $53.1 million in the year ended December 26, 2020 to $67.3 million as compared to $14.2 million in the year ended December 28, 2019.

The increased sales noted above were partially offset by increased cost of sales and increased selling, general and administrative expenses as outlined below:

Cost of sales as a percentage of net sales was 60.8% in the year ended December 26, 2020, a decrease of 1.2 % from 62.0% in the year ended December 28, 2019.

The decrease in cost of sales as a percentage of net sales was primarily driven by $7.2 million for payments made to customers in the year ended December 28, 2019 associated with the new product line roll outs for construction fastener products and builders hardware combined with sourcing savings.

This was partially offset by a higher mix of construction fastener products and personal protective solutions.

Operating expenses increased $25.1 million in our Hardware and Protective Solutions segment primarily due to:

• Warehouse expense increased $17.7 million in the year ended December 26, 2020 compared to the year ended December 28, 2019.

The additional expense was primarily due to increased labor driven by premium pay offered to warehouse workers during the COVID-19 pandemic along with additional supplies and personal protective equipment for our facilities.

The remaining increase was primarily due to higher variable and incentive compensation expense related to increased sales.

• General and administrative (“G&A”) expenses increased $2.9 million in the year ended December 26, 2020.

The increase was primarily due to increased incentive compensation in the year ended December 26, 2020.

• Depreciation expense increased $2.3 million in the year ended December 26, 2020 due to our merchandising racks.

Robotics and Digital Solutions 74,479 29.8% 77,946 31.2% (3,467) (4.4)% 68,552 32.8% 9,394 13.7%

December 25, 2021 Year Ended

December 26, 2020 Year Ended

December 28, 2019

Canada 96,046 60.2% 97,957 64.7% (1,911) (2.0)% 90,937 67.6% 7,020 7.7%

Consolidated $ 846,551 $ 859,557 $ (13,006) $ 781,815 $ 77,742

Hardware and Protective Solutions cost of sales as a percentage of net sales decreased primarily due to an inventory valuation adjustment in our Hardware and Protective Solutions segment of $32.0 million in 2021 related to our COVID-19 related products, partially offset by increased cost of products, inbound transportation costs, and personnel costs in 2022.

Our 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.

23 | December 31, 2022 Form 10-K

Canada cost of sales as a percentage of net sales decreased due to a higher mix of retail sales along with improved margins in our industrial business based on the pricing actions described above.

Selling, Warehouse, and General and Administrative Expenses

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

2021 2021 vs.

Year Ended December 31, 2022 % of Segment Net Sales Year Ended December 25, 2021 % of Segment Net Sales $ Change % Change Year Ended December 26, 2020 % of Segment Net Sales $ Change % Change

Hardware and Protective Solutions $ 307,985 28.6 % $ 289,137 28.2 % $ 18,848 6.5 % $ 264,951 25.9 % $ 24,186 9.1 %

Robotics and Digital Solutions 129,596 51.9 % 104,486 41.9 % 25,110 24.0 % 90,430 43.2 % 14,056 15.5 %

Segment Revenues $ 249,528 $ 209,287 $ 236,086

Segment Income from Operations $ 23,558 $ 3,177 $ 3,385

Adjusted EBITDA (1) $ 83,082 $ 60,265 $ 70,966

(1) Adjusted EBITDA is a non-GAAP financial measure.

Year Ended December 25, 2021 vs December 26, 2020

Net sales for our Robotics and Digital Solutions operating segment increased $40.2 million in the year ended December 25, 2021 compared to the net sales for 2020 primarily due to an increase of $32.9 million in key sales.

Key and engraving sales were both negatively impacted by low retail foot traffic and limited access to key and engraving machines in 2020 due to COVID-19.

Income from Operations

Income from operations of our Robotics and Digital Solutions operating segment increased by approximately $20.4 million in the year ended December 25, 2021 to $23.6 million from $3.2 million in the year ended December 26, 2020.

The increased sales were offset by increased SG&A as outlined below:

• Selling expense increased $6.9 million in the year ended December 25, 2021 compared to the year ended December 26, 2020.

The increase was primarily due to higher sales commissions for kiosk sales and increased travel and compensation expense.

• General and administrative expense increased by $5.6 million primarily due to increased legal fees associated with our ongoing litigation with KeyMe, Inc.

(see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information) along with increased legal and consulting costs associated with the merger with Landcadia.

• Depreciation expense decreased by $5.7 million due to assets becoming fully depreciated.

Year Ended December 26, 2020 vs December 28, 2019

Net sales for our Robotics and Digital Solutions operating segment decreased $26.8 million in the year ended December 26, 2020 as compared to net sales for 2019 primarily due to a decrease of $27.6 million in key sales.

Key sales were negatively impacted by reduced retail foot traffic and restricted access to key duplicating kiosks along with retail key duplication services as a result of COVID-19.

As the economy started to reopen, our service team worked closely with our customers to restore access to key duplicating kiosks.

Canada 43,412 27.2 % 44,252 29.2 % (840) (1.9) % 43,091 32.0 % 1,161 2.7 %

Consolidated $ 480,993 $ 437,875 $ 43,118 $ 398,472 $ 39,403

Hardware and Protective Solutions SG&A increased in 2022 due to the following:

• Selling expense increased by $11.1 million primarily due to variable selling expenses, variable compensation, and travel and entertainment expense in the year ended December 31, 2022.

• Warehouse expense increased $9.3 million due to inflation in labor and shipping costs.

• General and administrative (“G&A”) decreased by $1.6 million.

The decrease was primarily driven by reduced stock compensation expense and lower legal and consulting expenses associated with the Merger in the prior year, partially offset by increased variable compensation.

Robotics and Digital Solutions SG&A increased in 2022 due to the following:

• Selling expense increased by $4.5 million primarily due to variable selling expenses related to self-service key sales, variable compensation, and travel and entertainment expense in the year ended December 31, 2022.

• G&A increased by $20.8 million.

The increase was primarily related to $32.9 million of legal and consulting expense associated with our litigation with Hy-Ko (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information).

This was offset by decreased variable compensation.

Canada SG&A decreased in 2022 due to the following:

• Warehouse expense decreased by $2.6 million primarily due to lower variable costs driven by the lower sales volume described above.

• G&A increased by $1.9 million primarily due to increased variable compensation and stock compensation expense.

Other Operating Expenses

Depreciation expense decreased $1.6 million due to certain assets becoming fully depreciated.

Amortization expense was comparable to prior year.

The $0.9 million increase was primarily due to the acquisition of Monkey Hook in the current year.

In the year ended December 31, 2022, other income consisted primarily of a $1.1 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob, (see Note 16 - Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information).

In the year ended December 25, 2021, other income consisted primarily of a $1.8 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob.

We also recorded exchange rate gains of $0.9 million in the year ended December 25, 2021.

24 | December 31, 2022 Form 10-K

Income from Operations

Income from operations of our Robotics and Digital Solutions operating segment decreased by approximately $0.2 million for the year ended December 26, 2020 to $3.2 million as compared to $3.4 million in the year ended December 28, 2019.

The decrease in net sales was offset by decreased SG&A and other income as outlined below:

• Selling expense decreased $6.7 million in the year ended December 26, 2020 compared to the year ended December 28, 2019.

The decrease was primarily due to lower sales commissions for kiosk sales and reduced travel and compensation expense.

• Warehouse expense decreased $1.8 million in the year ended December 26, 2020 compared to the year ended December 28, 2019.

The decrease was primarily due to lower freight and shipping expenses driven by lower sales volume.

• General and administrative expense increased by $4.1 million primarily due to increased legal fees associated with our ongoing litigation with KeyMe, Inc.

(see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information).

• Other income increased by $10.4 million in the year ended December 26, 2020 compared to the year ended December 28, 2019.

Other income was $3.5 million in the year ended December 26, 2020 and was driven by revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob (see Note 16 - Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information).

In the year ended December 28, 2019 other expense was comprised primarily of an impairment charge of $7.7 million related to the loss on the disposal of our FastKey self-service key duplicating kiosks and related assets.

December 25, 2021 Year Ended

December 26, 2020 Year Ended

2021 2021 vs.

Year Ended December 31, 2022

December 25, 2021

Segment Revenues $ 151,465 $ 134,616 $ 125,260

Segment Income (Loss) from Operations $ 3,941 $ (4,724) $ (9,894)

Adjusted EBITDA (1)

$ 10,598 $ 7,185 $ 6,373

(1) Adjusted EBITDA is a non-GAAP financial measure.

Year Ended December 25, 2021 vs December 26, 2020

Net sales in our Canada operating segment increased by $16.8 million in the year ended December 25, 2021 primarily due to strong retail demand for our products.

Sales in 2020 were negatively impacted by low retail foot traffic due to COVID-19.

Income (Loss) from Operations

Driven by higher sales, income from operations of our Canada segment increased by $8.7 million in the year ended December 25, 2021 to income of $3.9 million as compared to a loss of $4.7 million in the year ended December 26, 2020.

Additionally, we had $0.5 million in restructuring costs in 2021 compared to $4.8 million in 2020, see Note 17 - Restructuring of the Notes to Consolidated Financial Statements for additional details.

Year Ended December 26, 2020 vs December 28, 2019

Net sales in our Canada operating segment increased by $9.4 million in the year ended December 26, 2020 primarily due to strong retail demand for our products partially offset by in store shopping restrictions in the second quarter which lead to lower demand during that period

Loss from Operations

Income from operations of our Canada segment increased by $5.2 million in the year ended December 26, 2020 to a loss of $4.7 million as compared to a loss of $9.9 million in the year ended December 28, 2019.

The increase in sales combined with lower COS as percentage of sales was partially offset by higher other expense in the year ended December 28, 2019.

• COS as a percentage of net sales decreased 1.5% from 69.1% in the year ended December 28, 2019 to 67.6% in the year ended December 26, 2020 primarily due to $4.3 million of inventory valuation adjustments taken in 2019 in our Canada segment driven by exiting certain lines of business and rationalizing stock keeping units (see Note 17 - Restructuring of the Notes to Consolidated Financial Statements for additional information).

• Other income and expense increased $0.7 million to income of $1.8 million in the current year compared with income of $1.1 million in the year ended December 28, 2019.

Other income for the year ended December 26, 2020 consisted primarily of $1.8 million in cash received from the Canadian government as a part of the Canada Emergency Wage Subsidy program for relief during the second quarter shutdown in Canada during the COVID-19 outbreak.

This was partially offset by exchange rate losses of $0.6 million.

Other income for the year ended December 28, 2019 included a gain on the sale of machinery and equipment of $0.4 million (see Note 17 - Restructuring of the Notes to Consolidated Financial Statements for additional information) and exchange rate gains of $0.7 million.

$ Change % Change Year Ended December 26, 2020 $ Change % Change

Hardware and Protective Solutions $ 20,884 $ (17,185) $ 38,069 221.5 % $ 67,313 $ (84,498) (125.5) %

Robotics and Digital Solutions 3,616 23,558 (19,942) (84.7) % 3,177 20,381 641.5 %

Canada 15,393 3,941 11,452 290.6 % (4,724) 8,665 183.4 %

Total segment income from operations $ 39,893 $ 10,314 $ 29,579 286.8 % $ 65,766 $ (55,452) (84.3) %

Income from operations in our Hardware and Protective Solutions segment increased $38.1 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 decreased by $19.9 million primarily due to the changes in sales, cost of sales, and SG&A expenses described above, along with a decrease of $0.8M in other income driven by the changes in revaluation of the contingent consideration described above.

Depreciation expense decreased by $1.4 million due to certain assets becoming fully depreciated.

Canada's income from operations increased by $11.5 million primarily due to the changes in sales, cost of sales, and SG&A expenses described above.

Canada also recorded exchange rate losses of $0.2 million in 2022 compared to gains of $0.9M in 2021.

Additionally, Canada's depreciation expense decreased $1.5M due to certain assets becoming fully depreciated.

Income (Loss) Before Income Taxes

Interest expense, net, decreased $14.2 million due to the refinancing activities in the third quarter of 2021 leading to lower outstanding debt balances in the year ended December 31, 2022.

As part of the refinancing activity in 2021, we incurred charges of $8.1 million (see Note 9 - Long-Term Debt of the Notes to Consolidated Financial Statements for additional information).

The mark-to-market adjustment on the warrants was eliminated with the redemption of the warrants in the fourth quarter of 2021.

The market-to-market adjustment on interest rate swaps was eliminated with the refinancing activity in 2021.

See Note 8 - Warrants and Note 16 - Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information on the warrants and swaps, respectively.

Income Taxes:

For the year ended December 31, 2022 and December 25, 2021 the effective income tax rate was (12.1)% and 23.5%, respectively.

The Company recorded an income tax provision for the year ended December 31, 2022 of $1.8 million, and an income tax benefit for the year ended December 25, 2021 of $11.8 million.

In 2022, the Company's effective tax rate differed from the U.S.

federal statutory tax rate primarily due to Global Intangible Low-Taxed Income ("GILTI") from the Canadian subsidiary.

In addition, the effective tax rate differed from the U.S.

federal statutory tax rate for 2022 due to state and foreign income taxes and certain non-deductible expenses.

Year Ended December 25, 2021 vs Year Ended December 26, 2020

For a comparison of our results of operations for fiscal 2021 to fiscal 2020, see “ Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations " of our Form 10-K for fiscal 2021.

25 | December 31, 2022 Form 10-K

Non-GAAP Financial Measures

5 unchanged sentences

The following table presents a reconciliation of Net loss, the most directly comparable financial measures under GAAP, to Adjusted EBITDA for the periods presented:

(dollars in thousands) Year Ended

December 25, 2021 Year Ended

December 26, 2020

(dollars in thousands) Year Ended December 31, 2022 Year Ended

December 25, 2021

Year Ended December 26, 2020

Net loss $ (16,436) $ (38,332) $ (24,499)

Income tax benefit (11,784) (9,439) (23,277)

Income tax expense (benefit) 1,769 (11,784) (9,439)

Interest expense, net 54,560 61,237 86,774

17 unchanged sentences

Buy-back expense (6)

2,000 — 7,196

Asset impairment charges (7)

Refinancing costs (7)

4 unchanged sentences

(2) Restructuring includes restructuring costs associated with restructuring in our Canada segment announced in 2018, including facility consolidation, stock keeping unit rationalization, severance, sale of property and equipment, and charges relating to exiting certain lines of business.

Also included is restructuring in our United Stated business announced in 2019, including severance related to management realignment and the integration of sales and operating functions.

See Note 17 - Restructuring of the Notes to the Consolidated Financial Statements for additional information.

2 unchanged sentences

and Hy-Ko Products Company LLC (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information).

(4) Acquisition and integration expense includes professional fees, non-recurring bonuses, and other costs related to historical acquisitions, including the merger with Landcadia III.

26 | December 31, 2022 Form 10-K

(4) Acquisition and integration expense includes professional fees, non-recurring bonuses, and other costs related to historical acquisitions, including the merger with Landcadia III (see Note 3 - Merger Agreement of the Notes to Condensed Consolidated Financial Statements for additional information) and the secondary offering of shares in 2022.

(5) The warrant liabilities are marked to market each period end.

1 unchanged sentence

(6) Infrequent buy backs associated with new business wins.

(7) Asset impairment charges includes impairment losses for the disposal of FastKey self-service key duplicating kiosks and related assets.

(7) In connection with the merger, we refinanced our Term Credit Agreement and ABL Revolver.

2 unchanged sentences

We evaluated our customers' needs and the market conditions and ultimately decided to exit the following protective product categories related to COVID-19:

cleaning wipes, disinfecting sprays, face masks, and certain disposable gloves (see the Current Economic Conditions section of Management's discussion and analysis for additional information).

cleaning wipes, disinfecting sprays, face masks, and certain disposable gloves.

(9) Anti-dumping duties assessed related to the nail business for prior year purchases.

The following tables presents a reconciliation of segment operating income, the most directly comparable financial measures under GAAP, to segment Adjusted EBITDA for the periods presented (amounts in thousands):

The following tables present a reconciliation of segment operating income, the most directly comparable financial measures under GAAP, to segment Adjusted EBITDA for the periods presented (amounts in thousands):

Year Ended December 31, 2022 Hardware and Protective Solutions Robotics and Digital Solutions Canada Consolidated

Operating (loss) income $ (17,185) $ 23,558 $ 3,941 $ 10,314

Operating income $ 20,884 $ 3,616 $ 15,393 $ 39,893

Depreciation and amortization 72,266 43,185 4,559 120,010

Stock compensation expense 11,057 1,479 988 13,524

Management fees 232 38 — 270

Facility exits — — — —

Restructuring 2,342 275 — 2,617

1 unchanged sentence

Acquisition and integration expense 2,231 246 — 2,477

Buy-back expense 2,000 — — 2,000

Inventory revaluation charges 32,026 — — 32,026

Anti-dumping duties 3,995 — — 3,995

Change in fair value of contingent consideration — (1,128) — (1,128)

5 unchanged sentences

Management fees 232 38 — 270

Facility exits 3,894 — — 3,894

Restructuring 403 10 497 910

1 unchanged sentence

Acquisition and integration expense 9,869 1,254 — 11,123

Buy-back expense 2,000 — — 2,000

Inventory revaluation charges 32,026 — — 32,026

Asset impairment charges 3,995 — — 3,995

Change in fair value of contingent consideration — (1,806) — (1,806)

Corporate and intersegment adjustments 70 (70) — —

Adjusted EBITDA $ 113,738 $ 83,082 $ 10,598 $ 207,418

Year Ended December 28, 2019 Hardware and Protective Solutions Robotics and Digital Solutions Canada Consolidated

27 | December 31, 2022 Form 10-K

Year Ended December 26, 2020

Hardware and Protective Solutions Robotics and Digital Solutions Canada Consolidated

Operating (loss) income $ 67,313 $ 3,177 $ (4,724) $ 65,766

2 unchanged sentences

Management fees 502 75 — 577

Facility exits 3,894 — — 3,894

Restructuring 74 — 4,828 4,902

1 unchanged sentence

Acquisition and integration expense 8,284 1,548 — 9,832

Buy-back expense 7,196 — — 7,196

Asset impairment charges — 7,773 114 7,887

Corporate and intersegment adjustments 70 (70) — —

Change in fair value of contingent consideration — (3,515) — (3,515)

Adjusted EBITDA $ 153,765 $ 60,265 $ 7,185 $ 221,215

Year Ended December 25, 2021 vs December 26, 2020

In the year ended December 25, 2021, we recorded an income tax benefit of $11.8 million on a pre-tax loss of $50.1 million.

The effective income tax rate was 23.5% for the year ended December 25, 2021.

In the year ended December 26, 2020, we recorded income tax benefit of $9.4 million on a pre-tax loss of $33.9 million.

The effective income tax rate was 27.8% for the year ended December 26, 2020.

In 2021, the Company's effective tax rate differed from the federal statutory tax rate primarily due to the decrease in the fair value of the warrant liability.

In addition, the rate differed for 2021 due to state income taxes and certain non-deductible expenses.

In 2020, the Company's effective tax rate differed from the federal statutory tax rate primarily due to state and foreign income taxes.

Year Ended December 26, 2020 vs December 28, 2019

In the year ended December 26, 2020, we recorded an income tax benefit of $9.4 million on a pre-tax loss of $33.9 million.

The effective income tax rate was 27.8% for the year ended December 26, 2020.

In the year ended December 28, 2019, we recorded income tax benefit of $23.3 million on a pre-tax loss of $108.8 million.

The effective income tax rate was 21.4% for the year ended December 28, 2019.

On March 27, 2020, the CARES Act was signed into law by the President of the United States.

The CARES Act included, among other things, corporate income tax relief in the form of accelerated alternative minimum tax ("AMT") refunds, allowed employers to defer certain payroll tax payments throughout 2020, and provided favorable corporate interest deductions for the 2019 and 2020 periods.

During 2020, the Company received an accelerated AMT income tax refund of $1.1 million and was able to defer $7.1 million of payroll taxes.

The CARES Act interest modification provisions allowed for increased interest deductions.

In 2020, the Company's effective tax rate differed from the federal statutory tax rate primarily due to state and foreign income taxes.

In 2019, the Company's effective tax rate differed from the federal statutory tax rate primarily due to state and foreign income taxes.

The Company recorded $1.0 million in income tax expense attributable to state NOLs that are expected to expire prior to their utilization.

Liquidity and Capital Resources:

The statements of cash flows reflect the changes in cash and cash equivalents for the years ended December 25, 2021, December 26, 2020, and December 28, 2019 by classifying transactions into three major categories:

operating, investing, and financing activities.

Operating Activities

Net cash used by operating activities for the year ended December 25, 2021 was approximately $110.3 million.

Operating cash flows for the year ended December 25, 2021 were unfavorably impacted by increased inventory driven by inflation and higher on hand amounts to maintain service levels with extended lead times, and payments made for long term incentive programs and other variable compensation.

Net cash provided by operating activities for the year ended December 26, 2020 was approximately $92.1 million and was favorably impacted by the reduced net loss.

Net cash provided by operating activities for the year ended December 28, 2019 was approximately $52.4 million and was unfavorably impacted by the lower net income, partially offset by improvements in working capital.

Investing Activities

Net cash used for investing activities was $90.5 million, $46.1 million, and $53.5 million for the years ended December 25, 2021, December 26, 2020 and December 28, 2019, respectively.

In the year ended December 25, 2021, we acquired Oz Post International, LLC ("OZCO") for approximately $38.9 million, (see Note 6 - Acquisitions of the Notes to Consolidated Financial Statements for additional information).

In the year ending December 26, 2020 we acquired Instafob for approximately $0.8 million.

In the year ended December 28, 2019 we acquired Resharp and West Coast Washers for approximately $6.1 million.

Finally, cash was used in all periods to invest in our investment in new key duplicating kiosks and machines and merchandising racks.

In 2019, we also received $10.4 million in cash proceeds from the sale of a building and machinery in Canada and a building in Georgia.

Financing Activities

Net cash provided by financing activities was $193.3 million for the year ended December 25, 2021.

We received cash of $455.2 million on the recapitalization of Landcadia, net of transaction costs and $363.3 million from the issuance of common stock to certain investors (the “PIPE Investors”).

In connection with the Merger, we refinanced all of our outstanding debt.

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

Year Ended December 31, 2022 Year Ended December 25, 2021 $ Change Year Ended December 26, 2020 $ Change

Net cash provided by (used for) by operating activities $ 119,011 $ (110,254) $ 229,265 $ 92,080 $ (202,334)

Net cash (used for) investing activities (72,822) (90,454) 17,632 (46,074) (44,380)

Net cash (used for) provided by financing activities (28,722) 193,329 (222,051) (45,104) 238,433

Net increase (decrease) in cash and cash equivalents 16,476 (6,915) 23,391 1,547 (8,462)

Operating Cash Flows:

Operating cash flows for the year ended December 31, 2022 were favorably impacted by reducing inventory as part of the company's ongoing strategic initiative to lower inventory on hand during 2022 following the build up of inventory in prior year due to inflation and recent supply chain challenges offset by reduced accounts payable resulting from lower inventory purchases.

Net cash provided by operating activities for the year ended December 25, 2021 was unfavorably impacted by increased inventory driven by inflation and higher on hand amounts to maintain service levels with extended lead times, and payments made for long term incentive programs and other variable compensation.

Investing Cash Flows:

Capital Expenditures:

Cash of $69.6 million, $51.6 million, and $45.3 million, used in the years ending December 31, 2022, December 25, 2021 and December 26, 2020, respectively, to invest in our investment in new key duplicating kiosks and machines, merchandising racks, and new distribution facilities in the HPS segment.

Acquisitions:

In the year ended December 31, 2022, we acquired Monkey Hook for approximately $2.5 million (see Note 6 - Acquisitions of the Notes to Consolidated Financial Statements for additional information).

In the year ending December 25, 2021, we acquired Oz Post International, LLC ("OZCO") for approximately $39.8 million.

28 | December 31, 2022 Form 10-K

Financing Cash Flows:

On July 14, 2021, we entered into a new credit agreement, which provided for a new funded term loan facility of $835.0 million and a delayed draw term loan facility of $200.0 million (of which $16.0 million was drawn).

Concurrently with the Term Credit Agreement, we also entered into an amendment to their existing asset-based revolving credit agreement (the “ABL Amendment”) and extended the maturity and conformed certain provisions to the Term Credit Agreement.

The proceeds were used, together with other available cash, to (1) refinance in full all outstanding term loans and to terminate all outstanding commitments under the credit agreement, dated as of May 31, 2018, (2) refinance outstanding revolving credit loans, and (3) redeem in full senior notes due July 15, 2022 (the “6.375% Senior Notes”), issued by the Borrower and as a result the 6.375% Senior Notes are redeemed, satisfied and discharged and no longer in effect.

Additionally, we fully redeemed the 11.6% Junior Subordinated Debentures.

In connection with the refinancing we incurred a loss of $8.1 million and paid $38.7 million in financing fees, of which $21.0 million was recorded as a financing activity.

The term loan matures on July 14, 2028.

The Company used $10.6 million of cash for principal payments on the senior term loans.

As of December 31, 2022, we have outstanding borrowings of $840.4 million on the term loan.

See Note 9 - Long-Term Debt of the Notes to Consolidated Financial Statements for additional information.

In the second quarter of 2021, we entered into an amendment ("OZCO Amendment") to the term loan credit agreement dated May 31, 2018, which provided $35.0 million of incremental term loan funds to be used to finance the acquisition, (see Note 6 - Acquisitions of the Notes to Consolidated Financial Statements for additional information).

In the year ended December 25, 2021 we used $8.0 million to make regularly scheduled payments under our old Term Credit agreement.

ABL Revolver:

On July 29, 2022, the Company amended the asset-based revolving credit agreement (the “ABL Revolver") to increase the aggregate commitments thereunder to $375.0 million and extended the maturity.

The stated maturity date of the revolving credit commitments under the ABL Credit Agreement is the earlier of (i) July 29, 2027;

or (ii) 91 days prior to the maturity date of our term loans.

Our revolver draws, net of repayments, provided cash of $21.0 million in the year ended December 31, 2022.

Finally, in the year ended December 25, 2021 the Company received $2.7 million on the exercise of stock options.

Net cash used for financing activities was $45.1 million for the year ended December 26, 2020.

The borrowings on revolving credit loans provided $99.0 million.

The Company used $140.0 million of cash for the repayment of revolving credit loans and $10.6 million for principal payments on the senior term loans.

In the year ended December 26, 2020 the Company received $7.3 million on the exercise of stock options.

Net cash used for financing activities was $7.1 million for the year ended December 28, 2019.

The borrowings on revolving credit loans provided $43.5 million.

The Company used $38.7 of cash for the repayment of revolving credit loans and $10.6 million for principal payments on the senior term loans.

On November 15, 2019, we amended the ABL Revolver agreement which provided an additional $100.0 million of revolving credit, bringing the total available to $250.0 million.

In connection with the amendment we paid $1.4 million in fees.

We used revolver draws to fund the litigation with Hy-Ko (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information).

Stock Option Exercises:

In the years ended December 31, 2022, December 25, 2021, and December 26, 2020, the Company received $2.6 million, $2.7 million, and $7.3 million, respectively, from the exercise of stock options.

2021 Refinancing activities

In connection with the Merger, we refinanced all of our outstanding debt.

In connection with the refinancing, we incurred a loss of $8.1 million and paid $38.7 million in financing fees, of which $21.0 million was recorded as a financing activity.

See Note 9 - Long-Term Debt of the Notes to Consolidated Financial Statements for additional information.

See Note 6 - Acquisitions of the Notes to Consolidated Financial Statements for additional information.

We believe that projected cash flows from operations and ABL Revolver availability will be sufficient to fund working capital and capital expenditure needs for the next 12 months.

As of December 31, 2022, the ABL Revolver had an outstanding amount of $72.0 million and outstanding letters of credit of $35.9 million, leaving $197.6 million of available borrowings as a source of liquidity.

Our material cash requirements for known contractual obligations include capital expenditures, debt, and lease obligations, each of which are discussed in more detail earlier in this section and in the footnotes to the consolidated financial statements.

We believe projected cash flows from operations and ABL Revolver availability will be sufficient to meet our liquidity and capital needs for these items in the short-term and also in the long-term beyond the next 12 months.

Our material cash requirements for known contractual obligations include, debt, and lease obligations, each of which are discussed in more detail earlier in this section and in the footnotes to the consolidated financial statements, along with capital expenditures.

We expect to spend between $65-$75 million for capital expenditures in 2023.

Our future investments will depend primarily on the builds of new key duplicating kiosks and machines, merchandising racks, facility relocations, and IT projects that we undertake and the timing of these expenditures.

We also have cash requirements for purchase orders and contracts for the purchase of inventory and other goods and services, which are based on current distribution needs and are fulfilled by our suppliers within the short term.

Our working capital (current assets minus current liabilities) position of $416.2 million as of December 31, 2022 represents an increase of $25.2 million from the December 25, 2021 level of $391.0 million.

The COVID-19 pandemic has not, as of the date of this report, had a materially negative impact on the Company's liquidity position.

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, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which, depending on future developments, could impact our capital resources and liquidity in the future.

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.

However, disruption and volatility in the global capital markets, could impact our capital resources and liquidity in the future.

Related Party Transactions:

The information required by this Item is set forth in the section entitled Related Party Transactions in the 2023 Proxy Statement and is hereby incorporated by reference into this Form 10-K.

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Critical Accounting Policies and Estimates:

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The following section describes our critical accounting policies.

Revenue Recognition:

Revenue is recognized when control of goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.

We offer a variety of sales incentives to its customers primarily in the form of discounts and rebates.

Discounts are recognized in the Consolidated Financial Statements at the date of the related sale.

Rebates are based on the revenue to date and the contractual rebate percentage to be paid.

A portion of the cost of the rebate is allocated to each underlying sales transaction.

Discounts and rebate are included in the determination of net sales.

We also establish 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.

Discounts and allowances are included in the determination of net sales.

Our 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 recognize revenue for the in-store services and the access to key duplicating and engraving equipment.

Revenue is recognized for in-store service and access to key duplicating and engraving equipment as the related products are delivered, which approximates a time-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 extend 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, general, and administrative expense when control over products is transferred to the customer.

We used the practical expedient regarding the existence of a significant financing component as payments are due in less than one year after delivery of the products.

See Note 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements for information on disaggregated revenue by product category.

Inventory Realization:

Inventories consisting predominantly of finished goods are valued at the lower of cost or net realizable value, cost being determined principally on the standard cost method.

Inventories consisting predominantly of finished goods are valued at the lower of cost or net realizable value, cost being determined principally on the standard cost method, which approximates the first-in-first-out “FIFO” method.

The historical usage rate is the primary factor used in assessing the net realizable value of excess and obsolete inventory.

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In 2022, 2021, and 2020, with the assistance of an independent third-party specialist, management assessed the value of our reporting units based on a discounted cash flow model and multiple of earnings.

Assumptions critical to our fair value estimates under the discounted cash flow model include the discount rate and projected revenue growth.

Assumptions critical to our fair value estimates under the discounted cash flow model include the projected net sales and earnings growth rates and the discount rates.

The results of the quantitative assessments in 2022, 2021, and 2020 indicated that the fair value of each reporting unit was in excess of its carrying value.

In our annual review of goodwill for impairment in the fourth quarter of 2021, the fair value of each reporting unit was substantially in excess of its carrying value, with the exception of our Protective Solutions reporting unit, which exceeded its carrying value by approximately 5%, and our Fastening and Hardware Solutions reporting unit, which exceeded its carrying value by approximately 23%.

Significant assumptions used in the determination of the estimated fair values of the reporting units are the net sales and earnings growth rates and the discount rate.

The net sales and earnings growth rates are dependent on overall market growth rates, the competitive environment, inflation and our ability to pass price increase along to our customers, relative currency exchange rates, and business activities that impact market share.

Significant assumptions used in the determination of the estimated fair values of the reporting units are the projected net sales and earnings growth rates and the discount rate.

The projected net sales and earnings growth rates are dependent on overall market growth rates, the competitive environment, inflation and our ability to pass price increase along to our customers, relative currency exchange rates, and business activities that impact market share.

As a result, the growth rate could be adversely impacted by a sustained deceleration in category growth, devaluation of the U.S.

Dollar against other currencies or an increased competitive environment.

Dollar against other currencies, an increased competitive environment, or an economic recession.

The discount rate, which is consistent with a weighted average cost of capital that is likely to be expected by a market participant, is based upon industry required rates of return, including consideration of both debt and equity components of the capital structure.

Our discount rate may be impacted in the future by adverse changes in the macroeconomic environment and volatility in the equity and debt markets.

While management can and has implemented strategies to address these events, changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that would trigger future impairment charges of the Protective Solutions reporting unit’s goodwill.

As of December 25, 2021, the carrying value of the Protective Solutions reporting unit’s goodwill was $128.8 million and Fastening and Hardware’s goodwill was $424.1 million.

Intangible Assets:

We evaluate our indefinite-lived intangible assets (primarily trademarks and trade names) for impairment annually or more frequently if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived intangible asset is below its carrying amount.

With the assistance of an independent third-party specialist, management assessed the fair value of our indefinite-lived intangible assets based on a relief from royalties, excess earnings, and lost profits discounted cash flow model.

Assumptions critical to our fair value estimates under the discounted cash flow model include the discount rate, projected average revenue growth and projected long-term growth rates in the determination of terminal values.

An impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date.

No impairment charges related to indefinite-lived intangible assets were recorded in 2021, 2020, or 2019 as a result of the quantitative annual impairment test.

Income Taxes:

Deferred income taxes are computed using the asset and liability method.

Under this method, deferred income taxes are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities, based on enacted tax laws and statutory tax rates applicable to the periods in which the temporary differences are expected to reverse.

Valuation allowances are provided for tax benefits where it is more likely than not that certain tax benefits will not be realized.

Adjustments to valuation allowances are recorded for changes in utilization of the tax related item.

For additional information, see Note 7 - Income Taxes, of the Notes to Consolidated Financial Statements.

In accordance with guidance regarding the accounting for uncertainty in income taxes, we recognize a tax position if, based solely on its technical merits, it is more likely than not to be sustained upon examination by the relevant taxing authority.

If a tax position does not meet the more likely than not recognition threshold, we do not recognize the benefit of that position in our financial statements.

A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to be recognized in the financial statements.

Interest and penalties related to income taxes are included in (benefit) provision for income taxes.

Business Combinations:

As we enter into business combinations, we perform acquisition accounting requirements including the following:

• Identifying the acquirer

• Determining the acquisition date

• Recognizing and measuring the identifiable assets acquired and the liabilities assumed, and

• Recognizing and measuring goodwill or a gain from a bargain purchase

We complete valuation procedures and record the resulting fair value of the acquired assets and assumed liabilities based upon the valuation of the business enterprise and the tangible and intangible assets acquired.

Enterprise value allocation methodology requires management to make assumptions and apply judgment to estimate the fair value of assets acquired and liabilities assumed.

If estimates or assumptions used to complete the enterprise valuation and estimates of the fair value of the acquired assets and assumed liabilities significantly differed from assumptions made, the resulting difference could materially affect the fair value of net assets.

The calculation of the fair value of the tangible assets, including property, plant and equipment, utilizes the cost approach, which computes the cost to replace the asset, less accrued depreciation resulting from physical deterioration, functional obsolescence and external obsolescence.

The calculation of the fair value of the identified intangible assets are determined using cash flow models following the income approach or a discounted market-based methodology approach.

Significant inputs include estimated revenue growth rates, gross margins, operating expenses, and estimated attrition, royalty and discount rates.

Goodwill is recorded as the difference in the fair value of the acquired assets and assumed liabilities and the purchase price.

Each period, we estimate the fair value of liabilities for contingent consideration by applying a Monte Carlo analysis examining the frequency and mean value of the resulting payments.

The resulting value captures the risk associated with the form 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 assumptions utilized in the calculation based on financial performance milestones include projected revenue and/or EBITDA amounts, volatility and discount rates.

For potential payments related to product development milestones, we estimated the fair value based on the probability of achievement of such milestones.

Any changes in fair value are recorded as other income (expense) in the Consolidated Statement of Comprehensive Income or Loss.

We performed sensitivity analyses for the Hardware Solutions and Protective Solutions reporting units during our annual impairment testing, utilizing reasonably possible changes in the assumptions for the discount rate, shorter-term revenue growth rates and earnings growth rates to demonstrate the potential impacts to the estimated fair values.

While our fourth quarter 2022, impairment test determined the fair value of the Hardware Solutions reporting unit exceeded its carrying value, the excess of the fair value over the carrying value of the reporting unit was approximately 4% of the carrying value.

An increase, in isolation, to the discount rate of 30 basis points, a decrease of 50 basis points in the projected revenue growth assumption, or a decrease of 40 basis points in the projected earnings growth, could each result in the fair value of the reporting unit being less than its carrying value.

Similarly, as of our fourth quarter 2022 impairment test, the fair value of the Protective Solutions reporting unit exceeded its carrying value by approximately 6% of the carrying value.

An increase, in isolation, to the discount

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rate of 40 basis points, a decrease of 70 basis points in the projected net sales growth assumption, or a decrease of 90 basis points in the projected earnings growth, would each result in the fair value of the reporting unit being less than its carrying value.

In our annual review of goodwill for impairment in the fourth quarter of 2022, the fair value of all of the other reporting units was substantially in excess of its carrying value.

As of December 31, 2022, the carrying value of the Protective Solutions reporting unit’s goodwill was $128.8 million and Hardware Solutions reporting unit's goodwill was $436.9 million.

Recent Accounting Pronouncements:

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis