All right. Good morning, everyone. Welcome to Hillman's first ever Investor Day. I'm Michael Koehler, Vice President of Investor Relations and Treasury. Thank you for joining us on the webcast and a special thank you to those who traveled here to our customer support center in Cincinnati. We appreciate you taking the time to join us and your continued interest and engagement you show in Hillman. Please make note of the forward-looking statements and our presentation of non-GAAP financial metric disclosures on Slide 2 . Today is about giving you a clear view of where we are, where we're going, and how we plan to create long-term value for our shareholders. Over the course of the day, you'll hear from members of our executive leadership team about four key topics. First, you'll hear about Hillman Strong.
We will talk about our vision, our strategy, and the strength of this business. Second, you'll hear about owning and expanding the core, diving into how we win and grow our core business. Third, you'll hear about how we plan to leverage our core competencies to win the Pro. Finally, you'll hear about how all of these work together to drive our compelling long-term financial framework. Our goal today is to provide transparency into our strategy, demonstrate the durability of our model and our right to win the Pro, and show how we are positioned to grow this business in the years ahead. With that, I'll turn it over to our President and CEO, Jon Michael Adinolfi. JMA, let's get started.
Well, good morning, everyone, and thank you for joining us. We're excited to have you here today to talk about our vision and our strategy. As Michael said, we've got a good solid morning for you here. We're really excited about where Hillman is today and where Hillman is gonna be going in the next five years. To share this strategy, we're excited to present that to everyone here today. I'm Jon Michael Adinolfi. I go by JMA. Been in the industry for about 25 years, and I'm proud to say I've been with Hillman for about seven years. We're gonna start and just talk a little bit about how we're a category leader. For some of you know this story, you know how we take care of our customer. You know how we're actually number one in many of the categories we serve.
If you're new to this story, it's important for you to understand that we focus on taking care of the customer. Since this company started over 62 years ago, we have focused on putting the customer first. When Max Hillman started the business, he focused on fasteners, putting the customer first and moving the business forward. We're proud to say over the last over 60 years, we've been able to do that by amassing close to $1.6 billion in revenue and driving EBIT margins to 17.7%. What you'll hear today that's a bit different is the fact that we have a much larger team than we've talked about in the past. We focused our business on the retail side of our opportunities. We love our retail customers. We're gonna continue to grow with them.
Today, we're gonna talk about the Pro and how we're gonna continue to expand our TAM. In the past, we talked about a TAM of roughly $6.5 billion. I'll talk to you about it turning into almost $18 billion with our opportunities around retail, Pro distribution, and industrial MRO. Our customers and their end users are very important to understand. We look at our business; it's 70% DIY and 30% Pro. This is not us going into an area that we haven't been before, and we're gonna share with you just how much progress we've made in the area of Pro and how we're gonna continue to expand that as we go forward. The strong financial performance should give you confidence that we're gonna be able to continue to move this business forward.
We've expanded our gross margins by over 600 basis points. We've improved net EBITDA by 300 basis points, and we've re-reduced our leverage down over two times. That should give you confidence that we're gonna continue to move this business forward, and that we have the team on the field to be able to do just that. Let's talk a little bit about that progress. We've improved EBITDA by close to $70 million over the last five years in a challenging market. Again, I already mentioned about the leverage improvement, but we've driven down net debt over $250 million. That should give you the confidence that this business can perform in good times and bad. That's really what we're about to talk about here today is about the opportunities we have to move forward.
If you think about our profit and our improvement over that period of time, I think it's important to break down the different pieces. We're proud to say that we've doubled the net income CAGR compared to our peers over the last five years. At the same time, we've improved our EBITDA margins by over 150 basis points over our peers. Then we've driven this business to a nice, profitable point to where we can grow off of as we go forward. The big question here, I think for all of you and for us, is how do we continue to improve this business? It's gonna be through growth. We think that's why there's tremendous opportunity with this company. As you look that we trade to over a 50% discount to our peer set.
What we're gonna talk about here today with, between myself and the rest of the leadership team, is about how we're gonna actually do just that. We're gonna show you how we're gonna grow the business. We're gonna continue to expand and move forward. To start there, we got to talk about the platform and the business. It's important to understand we have three businesses that we focus on. The fastening and hardware business, close to 70% of our portfolio. It's where the company started, and we've continued to grow. It's the vast majority of our over 111,000 SKUs that we serve our customers with excellence day in and day out. It's everything from common nuts and bolts to engineered fasteners that those of you in person are gonna be able to see later here today. We're proud of this portfolio.
We're gonna continue to build it, and we have the products to serve not only the DIY, but also the Pro. Turning to Protective Solutions, another important part of our category, it is the gloves, the protective gear that you need to do, whether it's a DIY project or a Pro project. We'll talk about some of the advancements we have in that business as well. RDS, our Robotics and Digital Solutions. It's our key business. Scott's gonna come up and talk to you about some of the exciting technology advancements we have in that area. These three businesses are the platform that we're gonna continue to build off of as we move forward. Our end markets. As I mentioned, the Pro is an important part of our equation as we move forward.
We wanna continue to serve the DIYer, but it's important that we'll break out here what we call retail pro distribution, industrial MRO. James Daly, our SVP of Pro, Chris Martin, our EVP of C&I, and I will come up and talk to you about those three businesses and explain to you how we're gonna continue to advance those markets. Then the geography. You know, we focus on North America, and we're proud of that market. We believe we have a tremendous opportunity and a lot of runways for us to go after in those markets where we are today. Next, we'll turn to the blueprint, and this is something I'm really excited about. It's something that we developed over the course of the last year as a team.
We didn't just create it for Investor Day, but I'm proud to say this is not only what we're doing and sharing with you in Investor Day, but it's what we're doing and how we're running the business. We developed this in 2025, and we rolled it out in 2026. The simple blueprint here that will go into greater detail throughout the presentation is about how we own the core. We're gonna focus on taking care of our customers, which we've been doing for over 60 years. We're gonna show you and explain to you how we're gonna grow that core through category expansion, both organic and inorganic, and then winning the pro.
It's where that we are today with the Pro and how we extend that and grow it into the channels where we have permission to play and where we are today, and we're gonna show you how we're gonna do just that. The key here is the ROIC focus. It's the way we've been running the business for a while, but we've now expanded the way we look at ROIC. It's not just me and Rocky talking about projects and initiatives. It's how the leadership team looks at growth. Any growth capital, M&A, all goes through the lens of ROIC. That's why we're confident that we're gonna maintain the strong profitability, the improvement in the balance sheet, and we're gonna grow this business as we move forward. Now we'll talk to the value creation catalysts. For us, it's very important. We have a very resilient business.
For many of you who've been following the story for a long period of time, we do well in tough times. We're able to take care of our customers. We are resilient. It's what part is what makes Hillman such a great company. In tough times, this business does well, but what we have also is that resilience to grow when there's opportunities, and that's what we're gonna explain to you here today. Our teams are focused on moving the business forward, and I'm excited about the path that we're gonna share with you. We have a large untapped TAM. As I'll break down in the next couple of slides, you'll see that we have the opportunity to grow in each of our markets. Integrated operations. I'm excited.
Bob Davis is gonna walk you through our operations and then what we've been working on for many years to continue to strengthen our operations and get better and stronger and service our customers better each and every day. In 2025, we had one of the best, if not the best, service year that we've ever had in our company's history in a pretty challenging time. That should give you confidence. It gives us confidence that we're ready to move this business forward and grow. A solid balance sheet. As I mentioned, we're in the range of our target leverage. Rocky will go into much greater detail later, but that's an important thing.
We have a solid balance sheet that we're gonna continue to maintain and grow as we go forward, meaning we're gonna continue to invest in this business, and we have the ability to do so. Then a highly experienced team. We got Rocky will be up here. Many of the members of the leadership team are here are gonna be presenting, but they're also gonna be out here for Q&A and doing product demos, different things. You that are in person are gonna be able to interact with them firsthand to see that this leadership team is deep and strong. That's what's gonna give you the confidence that we're gonna be able to grow this business and move it forward. We're excited to share that we have a path to grow this business to $2.5 billion over the next five years.
That solid path and trajectory, as I outlined earlier, is because we've proven that we can run this business well, and these are the buckets that we're gonna focus on as we go forward. We will talk in the future and update you on core growth. That's the day-to-day of how we run the business. It's things like market growth. It's customer footprint changes. It's category management. It's price. It's how we run the business. We'll update you on that on a quarterly basis as we go forward, but that is how we actually run the core. New business wins. The way we run the business day in and day out, you're gonna be excited to see here today that we're gonna increase our focus on new business wins. In the past, we've said we're gonna be 2%+.
We're gonna increase that to 4%+ over the next five years, and that's gonna be largely driven by our focus on pro and some of the great momentum we have in that business. M&A. While it's always been part of our history, we've done well over 20 deals. It's a part of how we believe we can augment and continue to grow our business, and Michael will walk you through great detail on what we're doing there and some of the exciting activity that we have in place. When we drive all these activities and deliver it, you're gonna see that we're gonna be a $2.5 billion+ company. We're really excited about the momentum we have, and today we're gonna walk through and share with you where we're going. The five-year financial objectives. On the previous page, I showed you that walk.
That's averaging between 8%-12% over the five-year period. Rocky will go into more detail on how we actually get to that revenue CAGR, but we're excited we have a path and we're gonna continue to grow. Low double-digit EBITDA, we're gonna continue to grow profitably. We are gonna maintain our net leverage at 2.5 and below. If we do any deals that move us above 2.5, we'll have a path to get back to it. We're gonna maintain that balance sheet discipline that we've put in place in the last several years. Newer for our story is we're gonna focus on our ROIC. Rocky will walk you through the calculation in more detail, but our team is driven and incented to drive profitable growth, and ROIC is gonna be our measure. This is the team that you'll see that's gonna execute.
Very proud of this leadership team. We have years of industry experience, but we also bring experience from other parts of the world. It's very important that as you think about Hillman's evolution, we continue to grow through challenging times and good times. You've got to continue to build your business and bring in talent that can move you forward. This is the leadership team that's doing just that.
I'm excited to share them with you today, and you'll be able to hear from the leaders firsthand on what they're doing to move the business forward. I'm proud of this team that's on the field, and we look forward to winning in the next five years, and we're gonna demonstrate the performance that we can deliver. Now many of you are probably thinking about, well, JMA, we've heard you talk about retail. We've heard you talk about all the great growth and partners that you have. How are you thinking about that $18 billion TAM? Well, here it is. We spent quite a bit of time in 2025 into 2026 really breaking down our business, thinking about our core, how we take care of our customers, how we actually grow them.
It was important to break down first and say, "Where do you play today, and what are the channels you serve?" We identified three areas that are very important for us. Retail. We love our retail business. We're focused on. This is not a shift away from retail. This is supporting our retail partners, continuing to support them and what they do today. They service DIY as well as Pro. James will walk you through how we're gonna grow with them as they continue to shift and focus on the Pro. Pro distribution. Chris will come and talk to you about specialty distribution and one of the businesses we have today, one of our solid businesses where we actually focus on the Pro day in and day out, and how we're gonna grow that and what it means to play and win in that area.
I'll also talk about LBM, which is in part of our pro distribution space. Industrial MRO. Some may say, "Well, we didn't even know you were in that space." It's actually that we've been in that business for over 100 years. Our Paulin Industrial business in Canada that we acquired has actually been in that business for over 100 years, servicing the industrial maintenance and repair professionals. That's another area where we have a common theme in what we can do. We have leverage across these areas. We have great products, and in many cases, we have the products necessary to serve the pro. It's about giving them the products the way they want, and we'll explain what that means as we go through the presentation.
With that, I think it's important to really look at where's the retail position and how do we grow into the pro presence. This is how we break down the markets. There's $6.5 billion that we have in retail, and we're gonna grow with our retail partners. We're gonna talk about that as we go throughout the day. I will thread back to this page numerous times throughout the presentation to make sure you understand that we have a 20% share there with opportunity to grow. Brett's gonna go into great detail what we're gonna do there. Pro distribution, again, we have small share, $200 million business, 3% share in a massive market.
No, this is not to say we're gonna be able to go capture all that share, but we were gonna make meaningful traction in our organic as well as inorganically in this space. Industrial MRO, another area that we serve today and believe that we can serve in a greater way tomorrow. That'll be organic. We will grow there, and also inorganically, we have opportunities to grow. This is how you should be thinking about the landscape that Hillman is gonna be operating in and why we are gonna have permission to grow. We're excited about sharing this in more detail as we go throughout the presentation here today. As we get ready to shift, I want you to get ready for Brett Hillman. He's gonna come up here. He's our EVP of Sales.
Brett is gonna walk you through how we own the core and how we expand it. We're really excited about the opportunities we have to share with you there today. With that, I would like to welcome Brett up to the stage. Brett?
All right. Well, thank you, J.M.A., and good morning, everyone. I'm Brett Hillman, I lead our retail sales business. I've been with Hillman for 21 years, spending 18 of those on the sales side and in front of customers. Selling at Hillman is literally in my blood, and I couldn't be more excited to share our retail growth strategy with all of you today. Let's start with how we win the core. First, let's define the core. The core are the existing categories that we sell into our existing customers today.
This strong foundation has been built over 62 years, product by product, customer by customer, and has provided us a differentiated solution that allows us to win. We are truly in a league of our own. Said differently, there's nobody quite like us. Our scale, from our product breadth to our direct-to-store distribution, to the people in the stores serving our customers every single day, we are the only true comprehensive solution in hardware. That moat starts with deep relationships with all of our customers, big and small. Our customers want to buy from Hillman. More importantly, they wanna buy more from Hillman because we offer a solution that manages their complexity while also growing their retail sales. Now let's talk about where we play. As you can see here, we span across a lot of categories.
This extensive portfolio, as JMA mentioned, started with core fasteners 62 years ago, and it's evolved over time through a combination of M&A and new category launches. Our strategy has always been to enter new categories that we believe we can leverage that moat that you've heard of so many times to be number one. We develop categories like Builders Hardware because our customers asked us. We develop categories like power screws or SmartKey because we knew that's where the market was going. We've also acquired into categories like Rope and Chain and gloves because we believe that our value proposition gives us the right to win, all while maintaining 90% brand ownership. All right. Why we win. These six core competencies are incredibly important. In combination, we believe we have a distinct advantage versus the competition. Let's start with our product breadth.
We manage over 111,000 SKUs, selling into 29,000 retail locations with an average store carrying over 8,000 of our products.
This breadth of product, especially in categories like fasteners, is critical for our retailer to win and to be able to provide that one-stop solution to meet the needs of their customers. The age-old slogan from our retailers, "If we don't have it, you don't need it," still exists today. Now, not everywhere, but it is a real thing, and they count on Hillman to deliver that comprehensive solution. Next is innovation. We'll talk more about this in just a few minutes, but we invest heavily in new product development as the consumer continues to pursue better-performing products, especially the pro, who's always looking to save on time and battery life for their tools. Our customers consistently ask us what's new and count on us to bring those innovative solutions. Category management.
Because our extensive product breadth and consistently bringing new products to the market, our customers heavily rely on us to manage those categories and drive their core. We partner every day with our customers in retail across all channels, from big box to local hardware store, to create customized and localized solutions, maximizing that customer experience. We base these decisions on data, whether it's point-of-sale data, shipment data, or consumer insights to know where the market's going. Field sales team, also known as the secret sauce, you've heard that. Our 1,200 sales and service folks provide the ultimate differentiation from the competition. These folks are directly responsible for driving growth at the shelf in every retail location. They maintain our displays. They manage the inventory. They write orders. They do PK sessions. They train associates. They sell new products.
Most importantly, they own the relationship from maybe the hardware store owner, the store manager, or even the associate in the aisle. They are an invaluable asset to our retailers. The last two, direct-to-store distribution and dual faucet global sourcing. Look, we have a very unique operating model that allows us to do all that other stuff, but I don't want to steal Bob Davis's thunder, so I'll let him talk with all of you about those capabilities. In summary, all these superior capabilities provide us an overall value that nobody else can offer, grounded in customer relationships that go back decades. We are a strategic partner. We're the one-stop-shop. We manage their complexity. We innovate. We deliver operationally every day, and we prioritize those customer relationships from the senior executives at our largest customers down to the associate in a store. This is why we win.
We put our customers first. Those relationships are diverse. Let me tell you what that means. We are entrenched with our retailers across dozens of categories, leveraging our portfolio and our field team. Said differently, we're very sticky and our customers across all retail channels. Example, both of our big box customers, in addition to our largest hardware chain customer, we earn on average of seven different departments. There are an average of 19 merchant buyers that we call on managing thousands of SKUs every day. There's a little risk of lost business with only one category at a single customer representing more than 4% of our total revenue. Most importantly, this stickiness gives us a right to win new business, and we have significant runway with every one of our customers.
Now let's talk about how we grow the core organically outside of the footprints that we serve today through category expansion and new product innovation. Our strategy to expand categories will come in two forms. First, we're gonna leverage existing categories in the moat and gain incremental shelf space, both with existing customers as well as new prospects. We call this new business, and this is part of our DNA as a sales-driven organization. Second, we're gonna expand new categories to drive meaningful growth over the long haul. These categories are selected based on where we believe the moat can make the biggest difference and where we believe we can be number one. In some cases, like I said earlier, our customers will push us into a category like Builders Hardware, which we built and launched back in 2011.
In other cases, we enter a category because that's where the market trends are going. Like with a pro, where we launch Structural Screws, which is replacing commodity-type products like lag screws and carriage bolts. Again, we're leaning in on both fronts because we have the broadest range of core competencies in our space that allows us to win. Some recent examples. Displacing a competitor in the hinge category at one of our big box customers. Partnering with a big box customer to create an innovative Tool Rig solution to meet the needs of the pro. Displacing a long-standing competitor in the Rope and Chain category at our largest hardware chain customer and continually launching new products that help us maximize our performance on the shelf so our retailers can win. This innovation I talked about, it's critical. As the saying goes, innovate or die.
We focus on the consumer, not where they'll be tomorrow, but where they'll be three to five years. Our goal is always to elevate our premium brands to ensure we stay one step ahead of the competition. The latest example is Power Pro 4.0. This is our fourth generation Power Pro screw, head and shoulders above any other screw out there. The development took three years.
While Power Pro 3.0 was a great screw, we felt obligated to raise the bar and create something that both the DIY and the pro could benefit from. This has been a great win since we launched in 2024, and continues to help us win the pro. All of you here in Cincinnati are gonna see this innovation come to life later today in our product demos. Where does all this category opportunity take us in expansion? Well, simple. We partner with our retailers. There happens to be a ton of runway with the customers and the channels that we serve today, both in categories that we already sell today, as well as categories that we could potentially build and/or buy someday in the future. We could nearly double our share by expanding our footprints and leveraging the moat.
This will be our North Star for growth in retail over the next three to five years. Thanks, everyone. I appreciate your time. Now I'm gonna hand it over to Scott Moore, our President of RDS.
Good morning, everyone. Thanks, Brett. My name is Scott Moore. I'm the Divisional President of Robotics and Digital Solutions, what we call RDS. I wanna thank you all for being here today. Super excited to talk to you about the business, not only how we're gonna own the core, but how we're gonna leverage our reputation and our investments to grow the core. I have a deep history with this business. I was one of the early founders back in 2011, serving as the CTO essentially through the 2018 acquisition by Hillman in 2018. Went on to serve as the CTO for Hillman in 2022.
In 2024, I was asked to return to lead the business, which I was super excited about because not only do I love the people, I love the products, and I love what we have to offer our customers. You hear JMA talk about how we take care of our customers. You just heard Brett talk about how we define our core. Let me tell you about how we own the core at RDS. We've built our reputation on four things. Quality product, convenience for our customer, competitive pricing, and a 100% money-back guarantee. That's why we've cut over 300 million keys on Mini Key machines. Our customers have come to know and trust our brand over the last 15 years. Let's take a look at the business.
Today, we have a very healthy and profitable organization that's generating $220 million net sales for last year. We did that with over 3,000 machines in very high retail foot traffic locations. As you can see, Minute Key is our flagship, 45% of our revenues. We're gonna talk more about the Minute Key machine in a minute. Second is our manual key business at 32% of revenues. This is roughly 9,000 machines out there that are store associate operated. They cut 150 different types of keys. It's a direct-to-store inventory model. Serviced by our sales folks who are in these stores on a regular basis. This is a very consistent, very profitable business that we still consider a big piece of our core. Pet tag engraving is third, at 18% of revenues.
We have roughly 7,000 of these machines. We're in the top 3 big brick-and-mortar retailers out there today. Rounding out the mix is our Resharp machines. We have roughly 1,000 of those, and then we do some third-party servicing for others. Regardless of what machine we're talking about in our fleet, they all have one thing in common, and that's unmatched quality. 100% assembled in the USA in our Tempe facility. We design, we engineer, we manufacture, we refurb there. We take great pride in what we do. We have unmatched accuracy on our machines. We cut keys to ±2 thou. We have excellent uptime, very high reliability, and very low customer return rates. Helping us drive that is our technology behind the scenes. We do advanced remote management, predictive maintenance, and a lot of data analytics.
We designed our systems around one principle, and that's why we like to think of kiosks like Mars rovers. We build these things, you send them into space, and you can never touch them again. We do everything we can remotely. We even design them to be self-healing. If they lose power, they lose cell connectivity, they can heal themselves. They can continue to talk to the mothership, serve our customer. That's what's helped us, along with our 250 people out in the field, to maintain 99% uptime. Today, we troubleshoot over 90% of our problems without a customer or a store even knowing. We track every single touch of every single screen on every single machine 24/7. We generate 4.5 million events per day, and we use that data to improve our customer experience and to improve our reliability.
Let's talk about the newest version of our MinuteKey 3.5. This one is opening up four new growth opportunities for us. The first is auto keys, not only the traditional keys, but also transponders and smartphones. We have over 1,200 auto keys in our catalog today, and we're constantly growing our coverage on a monthly basis. We also are offering a DIY dongle for our customers to do the programming themselves if they wish. It's about the size of this clicker here. You can use this thing paired with a smartphone to program it to your car. Exciting option for DIY. Next is Endless Aisle. This has really been fantastic for us. This gives our customer access to our entire catalog of keys regardless of where they are.
For example, if we don't have a key at the kiosk available to them, we can scan, we can cut and ship it to them directly from Tempe within 24 hours. If you happen to be a Cincinnati Bengals fan or Ohio State fan living elsewhere in the U.S., we can get you that key sent to you in 24 hours. Although we still have 1,000 of these things to put out, we're already doing 18,000 orders per month of Endless Aisle. It's a big success for the old home and office key. RFID is our number three capability here. We've got 90% coverage of this market. It's a pretty cool piece of engineering. You simply scan your RFID fob at the machine. We dispense it fully programmed and packaged.
You'll get an opportunity to see it firsthand over here. At lunchtime we do a demo. Last but not least, our content management system. We can deploy ads to the kiosks, not only for our own services, but for others, sort of paid advertising. Now comes the exciting part. We talked about the auto keys. This new platform we get to leverage into this new TAM for us. It's a $250 million market, which we have less than 10% today. We are confident we can take it to 30%. Let me tell you why. First, we've been in the auto business for a long time. We have a retail program with one of our largest partners, and we've been doing it for over 10 years.
The catalyst here is we get to take that knowledge and experience of the retail program and combine it with the convenience of our kiosk in 5,000 new locations to drive this business. The second reason we're confident is this market is terribly underserved, and we know there's a huge need. Think about locksmiths. Think about dealerships. Right? These are painful experiences and very expensive. I have my own personal experience from several years ago. My daughter turned 16. I gave her my used SUV. Unfortunately, I only had one key for it. Well, come Saturday morning, about three minutes later, she's panicking. She's late for a soccer game. She can't find the key. She blocked me in to the garage, so mom gets to take her to the game. Dad has to stay behind and look for a key.
Long story short, I looked all weekend for this thing along with the family, and we never found it. Come Monday morning, I have to go to work. We had to tow that thing to the dealership. I contact the dealership. They say, "Oh, it's gonna be probably Thursday before we can get it to you. We've got to order a special order this thing. We gotta look up the VIN. We gotta program it, cut it, et cetera." They were right. Thursday, I go pick it up. Guess what the bill was? Over $1,100. Guys, the Blue Book on this car was $2,400. Right? Tell me I was a happy customer. Bottom line, there is a huge need for this, and we have an excellent solution. You can do a car key at our kiosk in less than five minutes.
Up to 60% dealership savings and over 91% of our customers have said they would use us again or refer us to others. Let's talk about how we see the financials moving forward. We have spent the last three years investing significant capital, as many of you know, in this platform. We are now shifting our focus to driving excellent returns and free cash flow. Our goal is to generate steady, predictable revenue growth with a gross margin and EBITDA margin that you see here on this page. We're gonna continue to leverage our 3.5 technology for the home and office market with these newer offerings. Where we're going is auto, and we're gonna do for auto keys what we've done for home and office keys.
I'm confident we can do that because we've done it with home office keys in the same way, right? Quality product, convenience, great pricing, and a 100% money-back guarantee. With that, thank you again, and we'll hand it over to Bob Davis.
Thank you, sir.
Good morning. First, let me thank all of you for joining us today and learning more about Hillman and our global supply chain. I'm Bob Davis. I'm the Executive Vice President of Global Supply Chain. Some of you may know me as your Uber driver from last night. I appreciate the five stars that you guys gave me for getting you back to the hotel safe. Just a little bit about me. I'm a veteran of the U.S. Navy. I spent 12 years at Target Corporation, 16 years at Home Depot, all in supply chain, and I'm on my fifth year here at Hillman and loving it here. I know Jon Michael Adinolfi spoke a little bit about our margin expansion today.
You know, those margin gains are directly tied to our structural supply chain actions here at Hillman, and we built these over the years rather than just temporary market forces. Hillman owns its core. We're gonna spend some time talking about that this morning. We've constructed a structural moat here at Hillman that is a direct driver of the bottom line. The moat really begins with our integrated supply chain. So, let's jump into it. Basically, what this tells you is we own it from end to end. We own it from the sourcing piece of it that we work directly with the factories all across the globe. We own it from planning and procurement, the ocean transit, customs clearance, dray to our DCs, and the final mile delivery from our distribution centers to our customers. We own the whole process from end to end.
You're gonna see down at the bottom, it talks a little bit about dual faucet. I'm gonna get into that a little bit more on the next slide, and really enjoy talking about that because that's really where we win out there. The end-to-end logistics, when we look at this, we own this through our in-house team. When I say that we own it. We contract directly with our ocean carriers. We don't use a brokerage service for that. We contract directly with our freight agents. We contract directly with our LTL and our small package providers. We have an entire logistics team that does that for us. We also have our own booking team that handles our bookings across the globe, located in Vietnam.
On the customs and trade side, we've got two licensed customs brokers on staff, and we needed them this year, that's for sure. When you look at that, they keep us compliant, you know, within the current model changes in customs that we've seen over the past 12 months. Finally, looking at our optimized distribution network, what that really means is having the DCs in the right location. We don't do this by accident. It's about keeping our DCs close to our customers so that we can take advantage of that final mile delivery. As everyone knows, in distribution, freight is the most expensive piece of it. Any way that we can reduce that gives us an advantage over the competition. Let's talk a little bit about dual faucet.
What this really means to us is years ago in sourcing, all the focus was on FOB costing. How much does it actually cost to buy the product at origin? Today, that's not what's important. Today, what's important is what is the landed cost of the product. With tariffs, with duties, with freight costs, all these things are important to us. We look at it in its entirety, and that's how we solve for it. When you look at the dual faucet, you know, basically it's pretty simple. I've got a faucet on over here in one country of origin with a particular vendor, or I may have multi sources within that country that I've got a faucet on. Over here in another country, I've got that faucet as a trickle. In other words, I've already qualified the supplier there.
If something happens that impacts capacity, you know, it could be a geopolitical event, it could be a tariff, it could be, you know, some other cause. I can simply change the plumbing. I can turn the faucet on here, and I can dial down the faucet over here. To give you a real- world example of that occurred this past year with everything going on with tariffs, we are a pretty large seller of umbrellas. If you've ever been out in one of our major retailers and a thunderstorm broke loose, you're going to find a box of our umbrellas right there by the front door, you know, 'cause it's very convenient to pick that up and be able to make it out to your car. Well, we produced all of our umbrellas out of China.
When Liberation Day occurred, tariffs came in, and within about four days, they shot up to about 100% in China. Well, that impacted our cost on umbrellas. We were easily able to shut down that tap, open up a tap in India, where there's a major manufacturer there, and be able to take advantage of that reduced landed cost and be able to do that quickly. What happened next? Tariffs went up in India; tariffs came down in China. We were able to shift again right back to China just by changing where we were cutting the POs to, again, to take advantage of that landed cost. Tariffs came back down in India, and due to their FOB cost, we were able to shift back again.
That gives us a unique advantage of having what we call our dual faucet strategy, and we've worked very hard on that. We've done that all over Southeast Asia with our partners there. One of the things that you can see when you look at the graphs up here from 2018 to 2025, and this is really talking more about the dependency that may exist from a China perspective. We went from 49% of their product sourced out of China to 32% of our product sourced out of China. What's even more important is if you look over to year ending this year, our capabilities, and I'm going to reiterate this, but our capabilities is we could reduce our sourcing impact coming out of China down to 10%. What I want to stress, though, is that is a capability.
It's not a mandate. We're not going to box ourselves into a corner, right? Wherever we can provide a quality product at the most competitive price to give Hillman and our customers a competitive advantage, that's where we're going to source from. Again, not a mandate. We have that capability, but I can easily move that volume across. All that's really coming through the partnerships that we've developed over the years with our suppliers. Jon Michael mentioned earlier in his presentation, you know, about the long-term partnerships we have with suppliers. Some of our suppliers we've been doing business with for over 60 years. That's very important to us because when we went down this road and said, "This is going to be very important to us to be able to have this dual sourcing strategy," it's very difficult to bring new suppliers on board.
You got to teach them about your product. You got to qualify them as a supplier. You know, several audits that these suppliers have to go through to meet the requirements of our customers. It's about the product. The product has to be qualified. Does it meet our specifications consistently from a quality perspective? Can they meet our packaging requirements? Can they ship on time? In doing that, the easiest way to do that is you take partners that you get long relationships with. You work with them to open factories in other countries. Over the past year and a half, we've been successful in working with long-term suppliers and opened factory, over 45 factories in other Southeast Asian countries. That gives us that quick ability to shift.
What that means for us is they already know our product, they already know our business, they already know our packaging. We already know them as far as being able to qualify them. We can bring them up quickly. We'll be opening another eight factories this year in those partnerships with those suppliers. When you have to go out and do that with a brand- new supplier, what happens to you is you have to go through that long, lengthy process of getting them on board. More importantly, what happens to you is your first PO that you cut with a brand- new supplier, your lead time from PO to ship date is gonna be roughly 150 days. That's what the average is. Our partners that we work with day to day, they can, from a PO to ship date, 45 days.
You think of that gap. That's a lot of inventory that I have to carry, which is not good for our cash flow, right? By keeping these suppliers close to us, working with them, we improve our lead time, which means I have to hold less inventory, which that's a benefit to our cash flow. Okay, let's talk a little bit about our network design. We have 24 distribution centers across North America. In those 24 distribution centers, 97% of our customers we can reach in two days. 85% we can reach in one day. You know, again, this isn't by accident. We can turn an order in 24 hours. From the time we get the order to the time we ship the order, we can turn that order for them in 24 hours, and we do that at a 98% fill rate.
I know, Brett earlier mentioned stickiness. That gives you stickiness for the customer. Where a competitor may come in and offer them something else, it's hard to give up a 98% fill rate and that consistency of receiving their orders to keep the product on their shelf. We're constantly optimizing our network. You know, if you take a recent expansion that we just did in Bakersfield, we added 100,000 sq ft to it. The reason that we did that wasn't really due to capacity in Bakersfield. If we had opportunity for product that we had located in Dallas, that we could move that product closer to our customer by putting it in Bakersfield. That's significant savings to us from a freight cost perspective. Again, freight cost is that number one priority that we look at when we're looking at our distribution network.
That enabled to reduce our cost again by doing that and improved our service levels for that customer. We've done these same things in other DCs as far as expansions. We've applied the same logic in Kansas City, recent optimization that we did in Jacksonville. Again, I'm just gonna remind you, nothing's more expensive in distribution than freight. We keep a very close eye on that. By doing that makes us the most efficient supplier in the aisle for our customers. Let's talk a little bit about building a smarter and faster supply chain. I know it was dark this morning when you came in, and I was hoping it'd be a little bit lighter 'cause you would've noticed off to the right of the interstate, there's a large construction site going on over there.
We say this, you know, with a lot of love, but a former zombie mall that we had here in Cincinnati that had been vacant, really an eyesore for the community. We worked close with the local community and a national builder. They acquired that site, and what you're gonna see going up there is a 715,000 sq ft distribution site. We call it our DC of the future. That's going up now. The construction is in process, and we'll see that building up early next year. Now, that'll be a consolidation opportunity for us for multiple facilities that we have in the marketplace. This facility will be fully automated, and it'll be a multipurpose facility. When you think of this, it's gonna be our flagship. Basically, we'll be deploying state-of-the-art systems there.
It'll include goods-to-person. It'll include auto pallet retrieval and storage, autonomous vehicles, top-tier transportation management system. While all that will live here physically, it'll benefit the entire network. You know, we invest in our DCs based on what the needs of our customers are. The investment in automation and robotics in the facilities are very attractive upgrade for us. That automation will drive efficiencies for the business. That's how they pay for themselves. You'll have the opportunity today to actually walk one of our facilities, which is the Carillon for those of you that are joining the tours. My hat's off to the Hillman family 'cause 25 years ago, they built a facility that was state-of-the-art at that time, and that launched their business forward, which is why we're doing the same thing today. The only problem is it's 25 years old.
You know, the automation's antiquated. You can't keep up with it anymore, and it's time to evolve and move into the future. I think you'll be quite impressed with the facility when you have a chance to walk it today. The biggest win is we get to consolidate multiple aging facilities into this one. It's gonna be a modern hub. It'll be located right here in Cincinnati, which is where the majority of our volume ships out of to a lot of our current customers. Cincinnati's been our home for over 60 years. It gives us an advantage as well, since we're consolidating multiple facilities into this, that I don't have to go out and rehire employees. We're only two miles down the road from where we'll be moving them from. All of that expense goes away.
We get to gain the experience that's valuable to us here. That's a big win for us. This facility will be a true omnichannel facility. We can service the pro out of it. We can service retail out of it. We can service e-commerce out of it. We can do it all out of this facility. We're very excited about this facility coming online. Okay, this is where we're gonna bring it all together. Everything I've talked about today, the integrated operations, the dual faucet sourcing, the automation in Cincinnati, it all culminates in Hillman being ready to take care of our customers. The smarter, faster supply chain, the DC of the future, it's gonna give us scale or scale and more efficiency. The result of that you can see right here.
If you look at 2025, 49% gross margin, that's up 600 basis points. 100% free cash flow conversion, that's our average from 2022 to 2025. These results speak to the power of our integrated approach. At Hillman, our global supply chain operation gives us a structural advantage over our competition. We don't just hope for stability, we engineered it. Our supply chain is a profit engine.
It is the reason we're set to continue to outperform in the market. I'm gonna turn it over to our next presenter now, Aaron Parker. Thank you very much, and I'll be around for Q&A later.
Thanks, Bob. Good morning. I'm Aaron Parker, and I serve as the Chief People Officer. Now, don't worry, this isn't a training session. No icebreakers or personality assessments today. I'm here to talk about our talent and culture that gives us a competitive advantage. Prior to Hillman, I held HR leadership roles in the banking and retail industries. I'm entering my sixth year at Hillman, and from my experience, what sets Hillman apart is that we recognize our greatest impact starts with the people in the field who directly serve our customers. Far today, you have heard about our strategic blueprint to own the core and expand categories. Delivering on this strategy starts with a strong foundation, one rooted in service, and as we have shifted and became a public company in 2021, we've also streamlined our organization and improved SG&A discipline.
Recently, we refreshed our vision, mission, and values to reflect who we are, where we're going, and what we expect of our employees. JMA mentioned earlier how we are a resilient company. In fact, one of our core values is resilience. It's truly a part of our DNA. Whether navigating the pandemic and most recently, tariffs in 2025, we have shown time after time our business is ready for whatever comes our way. As we focus on strategic growth and building for the future, we have intentionally invested in bringing in talent into our field sales, business development, and Pro leadership teams with a focus on growing now and into the future. Now, the power of our company starts with our people. Brett shared earlier the ways we win. It starts with our 1,200 field sales and service team members.
Our focus on safety and retention continues to outperform industry benchmarks with lower incident rates and higher average tenure, which all helps to fuel our strong EBITDA margin performance. We truly believe our people make the difference in giving us the ability to successfully execute our blueprint strategy. Now, as we enter year five of being publicly traded, we are excited to share we are being recognized as a USA TODAY Top Workplaces. Only 100 organizations with 2,500+ employees will be recognized with this award. Last year, 83% of our employees chose to share their experience at Hillman through our survey, which I see as a strong indicator of the engagement and commitment across our workforce. This recognition strengthens our employer brand and helps us further attract and retain high-quality talent. Ultimately, this recognition validates that our culture is a competitive advantage.
Next, I will turn over to JMA and Michael Koehler for Q&A.
Thanks, Aaron. We'll open it up for Q&A for about 15 minutes or so. Just some housekeeping. Andrew, I see you've already got your hand up so, please raise your hand. I'll bring you the microphone, and we ask that you limit your question, one question and a follow-up. Let's keep our questions on topic with the speakers we've got up here.
Thank you very much. Andrew Carter, Stifel. Curious on the RDS. Really appreciate the presentation and the granularity there. In terms of, number one, you said kinda steady growth from here. That was kinda something that I believe used to be a double-digit grower. Wanna confirm what you're thinking about that business. Obviously, it's a great business with the placement you have, the technology. As far as, you know, keeping it within Hillman, do you think that you have the necessary resources for R&D to keep up with tech, also potential for, you know, capital, whatever, to really get everything you need out of this business to really fully realize its potential? Thanks.
Thanks, Andrew. Can you guys hear me? Good. Yeah, thank you for that question. I think the first part was where do you see it going in terms of growth? Yeah, I think that's gonna be in line, obviously, with what you're gonna see here for the overall business. We're gonna be in step with that. I don't wanna give exact numbers, but I'm gonna be happy with it. Let's put it that way. Second of all, in terms of being under Hillman and having access to all the resources, certainly. We have already made, as I suggested, a significant investment in this platform.
We're where we need to be to leverage it, and I think we have a bright future in terms of everything R&D, everything Tempe, everything we need to do. I'm super excited about where we're going.
Yeah, I mean, Scott, good answer to the question, Andrew. Appreciate the interest there. I mean, one of the things I'll turn to is Scott talked a lot about 3.5. We're really excited about the technology. I think you know how, you know, my approach is. We're gonna tell you about it as it continues to exceed expectations. We're pleased with how we performed in 2025. We're excited 'cause we're gonna improve on that even in 2026. I'll say firsthand, Brett and I were just actually out in the field with our, you know, our 3.5, I'll call it, team with one of our West Coast blitzes just a few weeks ago.
To see the action and the power of the Hillman, I'll say what machine or what we can do that's bringing all of our people in the field together with our product teams and seeing the action out there and getting excitement. It just gives you an example of where and how that fits with the portfolio and how we're gonna be able to build on it. Andrew, I think there's some really good opportunities. A lot of that was driven around automotive, and we're gonna continue to lean into it. I think we got some exciting days ahead. We really believe in the technology and the path forward.
I'm in the questions today. Brett, I was wondering if you could talk about the similarities or differences between you guys getting into different categories 15 years ago within the hardware aisle and expanding into the Pro channel. Is this something that's gonna be more driven by organic like you did in, say, Builders Hardware or more of a broken chain situation where you got to buy more access to that customer base?
Reuben, I'll start it. I'll let Brett add on to it. It is a mix of the two, Reuben, and you're gonna hear a lot more about Pro here in the next section, where we're gonna go pretty deep on how we break it down. You know, in retail, I mean, Brett's team has done a great job. I'll let him expand on it. You know, for us, we really believe that this is one where we've got the products. A matter of fact, I'll start out my presentation talking a little bit about what we have in the core, the moat we have today, and how we're gonna expand that and take care of the Pro. Be patient on that part of the answer. Brett, anything you want to add a little bit of what we're doing.
I would agree. I would say it depends on the category. It depends on whether it's retail or whether it's pro. I think the larger the category, the more likely we'll have to buy our way into that. There's gonna be some called bolt-on categories that we'll build. Different than maybe what it was 15 years ago when we got into Builders Hardware. The good news is our customers are encouraging us to explore those opportunities.
Okay, thanks. I'm gonna change my follow-up then, since I think I got ahead of myself. So Bob, I was gonna be disappointed if you didn't say dual faucet today. Can you walk through, I guess, how the competition has reacted, if you have insight, meaning are the others also pivoting like you are? Or how big of a differentiator is it for you that you're able to kind of move with your suppliers to other countries?
Well, I would assume the competition is doing similar things. It's hard for me to know that because, unfortunately, they don't share a lot of that information with us. I do feel comfortable that we've been out in front and leading in this area. The reason that I can say that is because as we're on boots on the ground, I'll be leaving again for Asia at the end of this month, that's what we're hearing from the factories there. I do feel like that we got a jump on this to be able to get out in front of it. This wasn't something that we took on immediately when tariffs were announced. We started this road two years ago.
I've always been a firm believer that you had to be multi-sourced, because you just never know what's gonna happen in the marketplace. The expansion and pushing that across to other countries of origin have been a benefit for our suppliers as well as because it gives them the opportunity to grow as well. They've been very anxious to meet us there because you got to think about it, you know, the alternative to that is when somebody imposes a 150% tariff on, you're out of business. It's been very good for us.
Hi, Lee Jagoda, CJS. I guess one for Scott, one for Bob. For Scott, just on the 3.5 rollout, in particular with the auto key fobs, can you give us some real-world examples on how you plan to market it to the consumer to drive adoption other than just, you know, having the picture on the side of the machine?
Sure. Great question. We've been doing market blitzes to raise awareness because for years, we did not offer auto keys on the machine, right? We have been attacking this by market as we get density of our machine conversions. That's one of the things that you know JMA alluded to. It's been going extremely well. We've done Dallas, we've done L.A., we've done some Florida. We're now moving to North Carolina and others. We're taking it market by market, but we also have a large digital campaign as well. You know, email marketing, influencers, the whole nine that are driving awareness in the market, and we're seeing results.
For Bob, obviously, the DC of the future is pretty exciting with all the automation and robotics. What kind of opportunity is there in those areas with your legacy DCs, or is it just a build strategy and then consolidate from there?
No, actually, we do look at all of our DCs as far as what opportunity we can bring to improve our efficiency. We talk about the DC of the future, but Jacksonville is an example. We use robotics in our Jacksonville DC. We have more automation there. We are automating in other facilities based on the need to serve the customer. It's not just a one big bang. The big bang is just because of the sheer volume that we do out of this marketplace. We look at all of our DCs for opportunities to improve our efficiency.
Sam Darkatsh, Raymond James. By the way, thank you for all this. I know it's a lot of work that goes on behind the scenes. This is terrific. I think this question is for Brett. So, you mentioned some of the categories that you're not in yet at retail: electrical, plumbing, sealants, adhesives. There may have been a couple others. It's exciting. First off, what's the TAM of those? Are they included within the $6.5 billion, or are they incremental to that? Second part of that would be, we've heard about some of these categories for a while being opportunities. Does this imply that the ability to get into them organically is challenged, or which of them maybe in particular might make sense to go organically?
Great question. I'll start, Sam, and then I'll let Brett add on to it. The electrical and plumbing, as you see it there, those are not included in the TAM that we have. Sam, those are ones that we think are still attractive categories for us. We've been talking about that since we went public. You know, we believe that those would be acquisition opportunities. Those would be ones where, as Brett talked about on that page, he framed up that some of this is category expansion organically, some of it could be inorganic. Those would be inorganic opportunities for us. To your point, that is consistent with our thesis. We've not changed our positioning there. We'll look for opportunities when they arise.
You know, we look at deals, candidly, we looked at one not that long ago that could have gotten us into the plumbing side. It wasn't the right fit for us, so we, you know, we still maintain that discipline, looking through ROIC lens and making sure that we're doing deals that are right for Hillman. Sometimes the best deals are the ones you don't do. We've looked at several of those in the last couple of years, and we feel like when the right deal comes up, we'll go for it. I think that's really how you'd wanna think about those areas. We like. You know, when we did our market study, and we spent quite a bit of time and effort on really identifying what makes sense for Hillman, adhesives is something that came up higher on the radar.
We think that as you think about everything fastening, we're very proud of our, you know, DNA in fastening, and what we do. It is at the core, and it's something that really connects the entire business, no pun intended. We think that fastening is the evolution of fasteners and building materials, you know. We are looking at opportunities in the adhesive area. That's something that we think is very interesting to us, especially as the advancements in construction and those materials move forward. We think we have to be looking at them. So, that would be, again, acquisition oriented. We have looked at some opportunities, and Chris and his team have explored some opportunities for us to do maybe some partnerships, but I think that would be acquisition, joint venture-ish if we went down that road.
What are the sizes and the channels? That was general.
I mean, they're sizable. As you know, some of the big players in this space, we think there's an opportunity, especially on the pro side of our business, where we can expand it, especially with the brand Power Pro, 'cause, you know, as you'll hear me talk a little bit later about it, Power Pro is a brand that started in fastening. We think it can extend beyond that. That would be an example of what we can do there. More to come on what that would look like in the future.
I mean, not much to add. I mean, categories like plumbing and electrical, high SKU count, low line value, complex, difficult to manage. That's why it's attractive, but, you know, we're gonna enter in the categories that we can be number one, and that one's most likely gonna be a build.
Right. Thanks.
Yeah. Brian McNamara, Canaccord Genuity here. Thanks, guys, for doing this today. Really helpful. I guess, can you expound upon doubling your kinda contribution of new business wins from 2%-4%? What gives you confidence in that? I love the fact that there's not one housing-related slide in your deck today because it's something easy to kinda blame. It's great to see that. What gives you confidence on that? Maybe Brett Hillman can kinda speak on, like, some of the sales cycles of some of these new business ones that you expect.
Yeah. I'll start it, and if you want, Brett, go through it because it. You know, that's one where, Brian, to that point, it's an excellent question, and you're welcome for us not putting the housing slides in there. I mean, we really feel about the resilience of this business. We use it sometimes as through bad times. We think our resilience in the positive areas. I mean, Brett's team has done a great job of going out there, winning new business, taking care of our customers. That's why we have confidence in moving that 2%-4%. A lot of that growth will be on the pro side, and we'll talk about that in more detail shortly. But Brett, why don't you give me some examples of some of the things you guys are doing on winning new business, even some of the BD things?
Yeah. I mean, we've, you know, recently launched a business development team. Folks that are completely focused, dedicated on going out and driving our top initiatives and selling the most important things, working with our sales teams, our customers, and, you know, we need that 2% to obviously get to 4%. A lot of it's gonna be the Pro. You know, we do believe that we have opportunities to lean into even, you know, bigger ways and categories with our customers that are out there. This business development team, we have folks that are focused on new channels, getting into things like convenience and grocery and areas that we're just not in today. Then obviously partnering with our existing channel customers and, you know, looking at those category opportunities or when we launch new products and we displace a competitor.
Having that business development team has been a great asset.
Even to give them a little feel for National Sales Meeting and what you guys kinda got very revved up.
Yeah. We had our traditional hardware national sales meeting in Denver, Colorado a few weeks ago, and this is when we had all 275 people that call in the hardware store channel in one room. We were able to not only share where we wanna go with the business but also what our plans are for 2026, what are those new products, what are the areas that we really want them to focus on and sell into the hardware store channel. We spent two days, we trained on them. We had business development there to help train them, things like Power Pro and how we really wanna go after the LBM yards that we've been calling on for 40 years and really expanding our moat in some of these other areas. It was a great two days.
I think, Jay, maybe you would agree with that. The team was really fired up, and they look at this business development team as now a new resource that they have to break down walls, whether it be internally, candidly, or externally, so that they can go out there and do what they do best, which is sell.
It was so powerful. I mean, Brett's being modest. I mean, it, that's what gives me confidence is that, seeing that team revved up and fired up, starting on Friday, going Friday, Saturday, Sunday, and talking about all the great stuff we're doing. I mean, it was really, really amazing. Brett and team did a great job. That's the example of what gives us confidence we're gonna go out there and crush it in 2026 and beyond.
Squeeze a quick one in for Scott on RDS. I know you guys have had your techs in the stores servicing other kiosks. I'm just curious what learnings you've gotten there and anything to make of that, any opportunities there, good or bad?
Yeah. Thanks. That's a great question. What we have learned is basically how good we are. I mean, I hate to be that, but it's true. We have learned, as I had mentioned, our exceptional uptime, our engineering, all the things that have gone on behind the scenes to make our fleet as reliable and as efficient as we can. We now have opportunities in front of us, because of our excellent servicing and what they've seen with our fleet. There's opportunities there for us to do more of that business. They're asking us, and I've quite frankly said, when we're ready, because we don't want to overdo it in that area. You know, our uptime is what matters.
To the extent that we can service others, great, but, only when it makes most sense for us. We've learned a lot. We really have.
Hey, guys. Jamie Simonson from Jefferies. Thanks for this great morning so far. I guess my first question is probably for Bob, on the dual faucet side of things. You know, how quickly are you able to sort of shift, you know, the supply chain from one country to another? And then on sort of, you know, looking at that decision, is it really just pure looking at the total landed cost and going with the cheaper one, or is there any, you know, other factors that would go into that decision?
Well, definitely, you know, good question, but definitely the landed cost is where our focus is because that's how we provide a competitive advantage for the business. As far as how quickly we can shift, it's a matter of we make that change, and it's the next PO can go to the next vendor. You know, when you look at the scope of what we have set up in that, and I'll just give you an example. Last October, we had our vendor conference in Hồ Chí Minh City in Vietnam. We had over 200 suppliers in attendance at that conference from 11 different countries. Those are all suppliers that we do business with and have the ability to move spend back and forth with. It's very fast for us.
It's simply a matter of we put it into our table, and the next PO that goes out goes to the vendor with the most competitive cost.
Perfect. Maybe just switching gears slightly, to the RDS side. I'm curious, you know, obviously the automotive example, you know, that you gave is pretty clear in terms of the, you know, the high cost of going with the dealership. I guess over time, you know, as you guys grow penetration on that business, is there any risk that, you know, the dealerships might come down in price, or are you not really worried about that?
I personally don't worry about that. I think, that's not a big piece of their business, and I think they take advantage of the consumer because of it, but that's, you know, that's my opinion. Yeah, I think we're where we need to be there, and I'm not worried at all about that. There's a big market for us to address, and we're going after it.
Hi. You have Elizabeth Langan from Barclays. I had a question for Bob. Specifically, you touched on your ability to kind of move suppliers very quickly. Just in light of recent events, could you talk a little bit about where your rest of world exposure is, just generally as outside of China?
Oh, let's see. Exposure, that's a tough question. I didn't bring my crystal ball with me again today, so I don't know what's coming tomorrow. You know, we are constantly monitoring what's going on with tariffs. We all know what the Supreme Court decision was. You know, that's still unsettled as far as how that's gonna work. We know that immediately Section 122 were imposed, which could go up another 5%. So far that's been globally, so it hadn't individually picked out any particular country. I think the thing that we'll be focused on most looking into the future is where the new Section 301 tariffs focus at. That's where they'll be able to pinpoint tariffs on any particular country, on any particular product, and that will lead us to shift based on where that guides us to.
Thank you.
We've got time for one more question, and then we'll go to break. All right.
All right. Great.
We'll wrap it up. We'll have about a 15-minute break. It's about 9:40 right now, so we'll be back here at 9:55. Thanks. Yeah. Test. Test. Test. All right. Thank you everyone. We're gonna get started with the next section. Everybody ready? I know I do. All right, we're gonna get started with Win the Pro. Thank you everybody for rejoining the presentation here today. We're excited to walk you through this section and really unpack what winning the pro means. Hopefully out of the, you know, the last section, you understood a bit more about owning the core, and you heard from, you know, Brett about how we're gonna continue to expand our business through category expansions. You heard from Bob and talked about, you know, operations.
You heard from Scott, talked about our RDS business, and Aaron wrapped up the people portion, which is very important for us. It's one of our core values, our people first. I think when you bring all that together, the idea that you wanna take away from there is we have a solid core business, and we're ready to grow. That's how I wanna really start off where we are today. We've built this $1.6 billion company by taking care of our customers. You heard me say that. You're gonna hear me continue to say it. It's that important for us to make sure that that's the foundation. As we move into the pro markets, it's really important for us to understand a few things because when I talk about the pro internally, we get our teams excited.
Brett shared about the national sales meeting where we talked about Power Pro for hours with our teams, and they rotated through. When you show them the power of the product, and no pun intended there, it's really important that they understand that they have that pro product that they can build off of. We've focused our pro businesses on pro products, but we've really done it from a retail lens in most cases. What you're gonna hear us talk about is the planned and the unplanned purchase. You think about the unplanned purchase.
That is when somebody comes into a location, could be a retailer, could be an LBM yard, and they pick up something because they gotta finish up a job or a product. They're buying a pro product. That's this Power Pro screw that you all here in person see, but it's merchandised for a retail application. It's not for out the. Hear us talk about different terms, but that is important for us when you the pro and the opportunity, it's about having the right products and the infrastructure to deliver them. I want you to start with that foundation. I hope you felt that and saw that from our original presentation. As we move into it here, unlocking that pro and really building off of that foundation is very important.
With our core secure, that's why we believe Hillman is ready to capitalize on this opportunity. What you're gonna hear over this section is from the leaders of the business about how we're gonna grow the pro opportunity. As we expand, it's let's start with where we play and where we'll grow. I already framed up the fact that we have a large, strong, solid retail business. We're not gonna waver there. We're gonna continue to build on that solid foundation. Part of that retail business is serving the pro. That is very important for us to understand. We're already in that market today, again, with the retail packages, the fasteners I just explained and shared with you is how we get there.
As we move forward, it's really about the untapped opportunity that we're exploring and we'll exploit in the pro distribution side, and that's where we'll start to give you some insight as to how we're breaking down the market and the business. To this section, we'll really focus in on that retail pro distribution, and then industrial MRO about how we're gonna continue to take share. We have the products today. We have the infrastructure and the team to go drive it. Now it's about powering those resources and going after that growth. Enlarging our core markets is about how we actually take that center of the core, the $6.5 billion market that I shared earlier, and we expand it by looking at the categories where we can expand and grow outside into the pro. You take Builders Hardware.
It's an example that Brett shared earlier. Pros are buying Builders Hardware today. They're not buying them from us because we focused on retail packaging. That's an opportunity for us to explore and give that Pro the product they need in the future. Pro distribution is. You're gonna hear us talk a little bit more about how going through Pro distribution, going purely to Pros the way they wanna be served is important and different. You all, we'll unpack and share with you exactly how we're gonna go after and do that. That $9.5 billion market as you expand away from the center is not a different market that we're not in today. We're already serving that Pro. We're gonna do it in a more meaningful way, and we'll explain to you how we're gonna do it. Then industrial MRO.
While it's a smaller market share opportunity, it is a big piece of our business in an area where we believe they focus on fastening. As I shared during the Q&A, adhesives in some of those different areas, that's where we can actually bring all these pieces together and give our end users what they need through our partners, whether retail, pro distribution, or industrial MRO. With that, I'll move over to market framing. This is where I'll go a little bit deeper. There's a lot on this slide, I understand. The big, big takeaway here is you understand that there's the markets that we serve, retail, pro distribution, industrial MRO. It's the customers we're gonna support in those areas. They are gonna continue to service the end users. This is not about a new strategy of us going direct to customer.
We are gonna continue to focus on the concept of a master distributor, which we already have that model in our industrial MRO, but that's really how we operate in our retail business as well. We wanna bring our customers all the products they need to serve their end users, and that's where I turn to the end users. You think about retail. We've got DIY customers. You know that. You understand that today. Many of us in this room are DIY customers of those channels buying our products. We also have the small, medium remodelers, the home builders that are on the small side. They're buying pro-oriented products in retail today.
Many of those pros are also buying through pro distribution, but we're not getting them the products they need because we've not focused on those areas, and we're gonna explain to you how we're gonna do that. This is a shift in focus from a pro product perspective, but it's not a shift in focus in taking care of our customers and ultimately the end users that they serve. As we really break this down, you're gonna see some of the you know, retail partners that we serve there today, how they're going after the pro. You can see examples of pro distribution partners. There's some that we do business with today and some that we will do business with in the future.
That's really what you wanna understand here today, is that we are gonna continue to take the products we have today and sell them, more of those products to the customers that we're already serving. Now back to the overall market share. As we connect these two pieces, so we have the markets that we frame, the three that we have: retail, pro distribution, industrial MRO, and then we have the share in each of those areas. The 20% share that we have in the core, again, pro products will help us continue to expand and grow there. Brett gave you numerous examples of how we're gonna grow. We gotta support the DIY or the pro because retail will continue to expand in those areas, and we believe we have a right to continue to grow there.
The real exciting opportunity that we're gonna focus on in this section is gonna be pro distribution. We have a relatively small piece of the portfolio, and that's where we're gonna show you how we're gonna unpack that and break it down into the different pieces. That, to me, is what's most exciting about the opportunity that's in front of us. I'll turn here to what you're probably all asking is, "Okay, what does this business really look like that you say you're serving the pro?" You know we're a $1.6 billion company. About $1.1 billion is our DIY business, and over $400 million of it is in pro today, and that's made up of the three buckets. Our retail pro is over $215 million.
We have our pro distribution piece, over $200 million that we have there, and then another $35 million industrial MRO. We're already servicing those customers today and ultimately those end users through that channel. What you should be excited about is this is not where Hillman's going to uncharted territories. We're there today, and we have. That's really what you're gonna hear us is we've been putting investments in in 2025 into 2026 to be able to go after these opportunities. You saw the team. I know I flashed it very quickly earlier in the presentation. Shortly, you're gonna hear from James Daly and Chris Martin. Both are now have pro responsibilities on our leadership team. Those roles did not exist a year ago. That is our commitment.
It's not just those two individuals, the teams that they have that they're focused on in taking care of the pro, and that's why we know we're confident, and that's why we know we're gonna be successful in these areas, 'cause we're already starting to see the flywheel turn. We're already servicing these markets today. This is about us building on it. We're gonna go into greater detail about those pieces of how we actually do that in the splits in a moment. It's really about you taking away from this page is we are making and creating the products necessary to serve these channels. I'm really excited about what Chris and Tim and some of our product teams are gonna share with you, and some of you are on a demo taking the example, the Power Pro product we have today.
We're designing and engineering those products in our facilities. We have great engineers up in Canada and in the U.S. here working together to innovate screws and fasteners. We're not just taking things off the shelf and show 'em, throw 'em into this channel. We're driving innovative products that we're selling through our channels today that we're gonna sell more of over in the future. This extension in where we are, I hope you can see not only the confidence, but the passion I have behind this, because this is an area that is not being served the way they need to be served today, and I know that the Hillman team can go capitalize on that. Moving forward, we'll turn into what do these buckets really look like. First, scaling with our retail partners.
We said earlier how our retail partners are continuing to grow in Pro. Many of you cover them and spend time on them today. They are not only in their core four walls of the big retailers there today, but they're acquiring businesses in this space. They are asking for true partners to continue to move forward with them. That's what we're doing. We're supporting them today in their Pro initiatives, and we're gonna even support them more greatly in the future. James is gonna go really deep on this, so I'll just touch the surface. Specialty distribution. We don't talk about it publicly in great detail, but we have, for example, our ST Fastening Systems business down in Texas, where we design, develop, and manufacture innovative hardware products and fasteners for the metal roofing, metal siding industry.
Chris will go really deep on what it takes to win there, but we're already in this space here today with great products, and we lead our categories in that area as well, and we'll build on it. I'll talk to you a little bit about LBM. This is not about us selling building materials into the LBM channel. This is about selling fasteners and our other hardware products to the LBM channel. We already do $100 million of business there today. Our men and women out in the field that we love, they go drive our business, are out there servicing the showroom.
We don't spend the time on the yard in the planned purchase, and that's what's gonna change in the future. We're putting resources to go after it. That gives you a roadmap of where we're going, and now we'll go into more detail about how we're gonna capitalize on it. If I was you, I'd be asking, okay, you have the competencies to win in retail. Brett did a great job of framing this up earlier, but how does it translate to pro?
We'll break this down in each of the sections, but what's really important here is the foundation we have as I started out this section, and what we've accomplished and what we put in place from our global sourcing and our operations team to our sales team, to our product teams, are out there servicing and developing the products and getting them to our customers. We're gonna build on that. We're gonna use those competencies like our product breadth, things like innovation, our ability to category manage and give them the product they need, drive sales, distribution, and operations. The idea is we're gonna cross that over, and we're gonna actually make it make sense inside of each of the channels 'cause they do operate differently. We're not gonna just take our retail playbook and think we're gonna go win with the pro.
This is about tailoring the resources and making sure that we capitalize on the capability we have today. I wanna bring up the point here also is that we have businesses that have been serving the pro for decades. I mentioned Paulin up in Canada, over 100 years servicing the pro. We've been doing the same thing here in the Hillman business for over 60 years. That's where some of our first sales started, was in the LBM channels. This is not us about starting out in an area where we haven't been before. That's why we're excited about it 'cause we gained traction. Our customers in those channels are excited we wanna bring them more products and more services and more capability. As we move into the next chapter here, I wanted to really focus on Power Pro.
Really passionate about this brand, and it is a brand that's been built over 20 years. Our teams has designed and innovative products. You all have samples here, those of you in the room, of Power Pro fasteners. They're industry's best. You're gonna see this in action on the product demo tours. It's not just one fastener or one idea. Our team's been really leaning into this category and developing innovative products that we can actually bring to the market to be able to give pros and DIYers alike what they need in a, the great performance. Just last month, we were at IBS, so the International Builders' Show. We're proud to show off Power Pro. It's the second time we've ever been there. This is something we leaned into.
We got to interact with customers, with end users, and different people, show them the comprehensive scale and breadth of that category. It's not just one set of screws. We've got Structural Screws. As you, if you went through the demo, you could see all the different parts of a structure where our fasteners come into play. That's what's really exciting about this brand, that we've grown from what it started at 0 to $100 million, we've really only leaned into in the last three or four years. What I'm really excited, in the last year, we grew this at 9% because of the product marketing teams really driving this brand. We're gonna continue to power it with our focus on the Pro, and we have the positioning to do it.
That's our overview of where we are and how, hopefully, you can take away from this section how we have the capability, the foundation, we're taking care of the customers today, and how we're gonna translate that and grow with the Pro in the different areas. With that, I'd like to welcome up to the stage James Daly, our SVP of Pro, and he's gonna walk you through the residential Pro and how he's gonna expand in those areas. Thank you.
Thanks, Jamie. Good afternoon. Let's talk a little Pro. Okay. We've been talking about it all day a little bit here and there. We're gonna get into some more detail. Okay. We're pretty excited about the Pro, as you can hear from Jon Michael Adinolfi and the team.
Chris Martin will get up and talk a little bit about specialty, and then we'll do some Q&A. We'll start with James Daly, Senior Vice President of Pro. I bring extensive experience in the fastening and hardware industry channels. Seven years with ABC Supply, six years with Home Depot, a couple years with Mohawk Industries. I joined Hillman in 2021. Best decision I ever made. Fantastic. I've been here since 2021. I've managed several areas of the business development, sales, product category, all focused on driving sales, expanding margins. Throughout my career, I've had an interest in the pro, either through the retail channel or through distribution. I've always had to take retail programs and then tailor them to the pro, so it's a dual sourcing or a dual sales channel.
The Pro has been part of what we do since the beginning, and now we're really leaning in, and we're gonna really focus on that Pro, and I am excited to leverage all that experience to lead us into the Pro channel. Let's begin. Let's take a look at the Pro landscape with our retail partners. Today, we already do $215 million in Hillman retail Pro revenue, serving Pro customers through our retail partners. We support in-store unplanned Pro purchases through our Pro product assortments on retail shelves, capturing that ever-important last mile purchase. That is an important part for the Pro because they cannot finish the job unless we are there in stock, on shelf, with the Pro materials they need to finish that job. Okay? This service has made our retail Pro business very strong and very respected.
We own the shelf. We're there to support our pro partners as they need that last mile run. Now we will take those learnings and those capabilities and start to expand them. The opportunity at retail continues to grow. Our customers are adding dedicated pro divisions to better serve medium to large-sized pros, fulfilling purchases through flatbed and bulk distribution centers.
Increasingly, they're also delivering direct to the job site, okay, completing that circle. This creates significant opportunity for Hillman to expand our share of wallet, support our retail partners, and grow rapidly into the expanding pro market. Okay. Hillman is a trusted partner to the largest retailers in home improvement. With more than 60 years of leadership in fastening and hardware categories. We built this business by supporting retail channel and partnering closely with our customers. Now, we are extending those capabilities into the residential pro channel, continuing to support our valued partners while unlocking new sales potential for Hillman. The unlock here is what's key, okay, 'cause we have the last mile. Now we're unlocking new opportunities and new ways to get at that existing pro customer. We have won 17 Vendor of the Year awards from our retail partners over the last several years.
Our track record, we aim to continue as we expand into pro. Our dedicated residential pro sales team works daily to drive results for Hillman and our customers. With strong positioning across primary categories at key retailers, this extension is a natural evolution for us to continue to grow this company, okay. This is not that different than what we do today. We're just expanding these capabilities, okay. Our retail partners trust Hillman to expand pro with them because of our product depth, sourcing capabilities, credibility, and our service mindset. We see four main advantages that position us to win in the pro market. First, and most importantly, product is always king. You have to have the products. We already have nearly all the products contractors need. Historically, these were packaged for retail shelves, as Jon Michael mentioned.
Now we are reconfiguring pack sizes and piece counts with our engineering and sourcing teams to align with how pro customers buy at competitive price points. We also bring brands. For example, Power Pro has been in the market for over 20 years. Contractors know and trust it. It started in the pro space, okay. We already have a full line of professional-grade products from trim screws to structural screws in our portfolio for the professional customers. We will continue to expand that product category and that brand. Okay, second, sourcing. As Bob Davis shared earlier, we bring in thousands of containers annually, moving freight at competitive rates, and negotiating directly with our factories. Our sourcing offices across Southeast Asia, combined with some of the most experienced teams in the industry, provide scale and cost advantages.
As Bob mentioned, he'll be in Asia next month, hand-to-hand combat, making sure we're getting them both the best prices, the best qualities with some of the best factories that are out there. Our dual faucet strategy allows us to react quickly to changing market conditions, ensuring product flows through our distribution centers that pro customers get what they need when they need it. There's no option to not be in stock when a pro customer needs an item. Okay, we are the job completers. We are the hardware department, so we will be there for them. Once product lands, we move them efficiently through our national network of 24 DCs, shipping directly to our customers, flatbed, and their bulk DCs. Okay. Ensuring consistent supply, competitive pricing, and job lot quantities that pros require. Third, most near and dear to my heart, is our sales team.
Our sales team for the Pro averages more than 20 years of industry experience. Retail Pro, residential Pro, construction experience over 20 years. They call directly on Pro merchants and field selling teams. In-market teams are selling to the end users, okay. We are supporting the folks that are selling to those end users. Think about everything we're covering here. They have a big basket of stuff that they could do and leverage to go sell to those customers. We are also supported by over 4,000 employees, more than 1,000 in service, logistics, and operations, ensuring that when the Pro calls and picks up the phone, somebody at Hillman is here to answer the phone, okay. If they can't get a hold of somebody, they can call me directly.
Our pro sales team adapts quickly to customer needs and resolves issues as they arrive by combining deep product knowledge with a world-class operations model, and they deliver a seamless solution-based approach that supports all of our pro customers' needs. Finally, our financial strength. Hillman's strong balance sheet positions us to scale effectively as we grow in the pro channel, providing the resources to capture opportunities and drive incremental growth. The opportunity here is clear. We have the products, operational infrastructure, and the trusted brands that pros know. Backed by an experienced sales team and well-positioned, we are well-positioned to capture the market and accelerate our growth in this space. One example of how we're entering the pro market is with a complete bulk product offering. This approach simplifies procurement for pro distribution and increases fastener attach rate.
As a reminder, attach rate is how often a customer buys a secondary item with a primary item. Think drywall screws and drywall. It's a very important part of our business.
Our bulk products are configured to pro expectations and volumes, okay, those volumes that support wholesale pricing. A simple brown box with a practical piece count can drive attach rates upward, driving more revenue and value for us and our customers and our distributors. Currently, the average pro attach rate is a fraction of what it is in store. By ensuring fasteners become a well-adapted planned purchase, we can grow sales, gain market share from local suppliers, and unlock long-term stable growth. You know, as I conclude my section, several key points stand out to me. First, our large retail customers have already moved, and they will continue to move into this pro space. We are uniquely positioned to support them.
Second, we have the products that pros want, the supply chain to support the business, and a dedicated pro sales team ready to drive incremental sales for both Hillman and our customers. Third, significant growth opportunities already exist within the channel, such as bulk offering, which can increase attach rates in pro and pro distribution. Overall, Hillman is well-positioned to capture pro market share and drive meaningful growth. We are locked in, and we are ready to go. Thank you very much for your time today. I'll hand it over to Chris Martin to talk about specialty pro distribution.
Thanks, James. I'm Chris Martin. I lead Hillman Specialty Distribution and Industrial MRO Business. Before I joined Hillman, I spent time at HD Supply, Beacon Roofing Supply, Stanley Black & Decker, and Keurig Dr Pepper.
I was primarily focused on supply chain distribution, acquisition integration, and professional contractor markets. Our team at Hillman serves professional contractors, specialty distributors, and industrial customers with fastening and supply solutions used in various applications. An example of this is our ST fastening business, which Jon Michael mentioned earlier. It's a $100 million specialty fastener platform, and it supports demanding applications like metal roofing and other building systems. What's important to understand is that in the professional fastener market, there's two different product needs. First, are high volume construction fasteners. These are products used in large quantities for applications like drywall, framing, and the building envelope. Second are specialized fasteners that are engineered for specific materials, coatings, environments, or performance requirements like metal roofing screws. Hillman's advantage is that our platform supports both. For construction fasteners, customers value availability, price, and sourcing scale.
For specialty fasteners, customers value engineering expertise, product breadth, and application knowledge. What connects both segments is Hillman's ability to manage tens of thousands of SKUs, source globally at scale, and deliver reliably through our distribution network. Those are the same core capabilities that made Hillman the category leader in retail, and they translate directly into the professional market. As we expand further into professional distribution, the dynamic becomes even more important. Distributors who are serving contractors, they need a partner who's gonna reliably supply both those high- volume construction fasteners and a wide range of specialized products. For construction fasteners, priority is simple. It's availability and cost competitiveness. Contractors can't afford any job site delays, so distributors need confidence that those core products are always gonna be available.
Hillman's global sourcing scale and logistics network are gonna allow us to deliver that availability consistently. At the same time, contractors require thousands of specialized fasteners designed for specific materials, environments, and installation requirements. Managing that breadth of SKUs can be extremely difficult for distributors to handle internally. This is where Hillman becomes such an important partner. We bring global sourcing scale, extensive product breadth, reliable distribution infrastructure, and trusted contractor brands. These capabilities allow Hillman to support both bulk volume construction fasteners and of course, the highly specialized long-tail products within that same platform. Importantly, many of our large retail partners have invested in or acquired professional distribution businesses that are serving contractors directly. This creates a natural opportunity for Hillman to grow alongside them as they expand their business further into the Pro channel.
The strategy James described earlier around expanding with pro customers translates quite naturally into these distribution channels. The bottom line is we're not building a new operating model. We're just extending the capabilities that Hillman's been developing for decades. I wanna demonstrate this with a real example from our ST fastening business. In a market like metal roofing, the fastener is a critical component of the whole building system. For a given job, a contractor is gonna need thousands of color-matched fasteners for a single installation. The fastener has to provide structural strength, maintain a watertight seal, withstand decades of environmental exposure, and match the aesthetic color of the roofing panel itself. If the contractor runs short of that correct fastener during installation, the project just stops.
Their crews are idle, their schedules slip, and the cost of downtime quickly exceeds the cost of the fasteners themselves. In these markets, availability and reliability are, in essence, the product. The person who has the product is the one who gets the order. Through our ST Fastening Systems operation in Tyler, Texas, Hillman finishes these fasteners that are designed specifically for this application. We support thousands of specialized SKUs, we can color-match virtually any roofing panel, and we deliver these fasteners in job-specific quantities aligned to the contractor installation requirements, typically in less than a few days. Today, this specialty fastener platform is a $100 million business for us, and it continues to grow as the adoption of metal roofing and other specialty building systems expand. More importantly, this illustrates the broader point.
When Hillman combines its product engineering, global sourcing, manufacturing capabilities, and reliable distribution, we can serve these highly specialized markets that many competitors simply can't. These types of product-led specialty solutions represent a meaningful and growing component of Hillman's pro strategy. Importantly, the capabilities that allow us to win in these specialized applications are the same capabilities that allow Hillman to expand more broadly in the pro market. Our ability to manage a complex assortment, source globally at scale, and deliver with extremely high service levels creates a platform that's very, very difficult to replicate. We believe that platform positions Hillman extremely well to capture additional share with our contractors and professional customers over time. With that, I'm gonna turn it over to Jon Michael to discuss our lumber and building materials pro strategy and how we plan to leverage these capabilities across that channel.
Thanks, Chris. All right, now we'll turn into the LBM business. We're excited about this area because it's one we play there today. I think hopefully you've taken away from a couple of these different areas. I shared with you the Power Pro example about the great brand that we have. I think it's really important to understand that we have a solid foundation and base here. What I'm gonna share with you over the next handful of slides is a couple of key takeaways. One is that we're in this channel, but even more importantly, we're in a portion of the channel. I'll explain that in more detail. We focus on the showroom today, and we believe we have an opportunity to expand to the yard. I think that's what's exciting.
What we heard from James and Chris is we have unique capabilities in each part of this business that give us permission to play, and that we also gives us permission to win, and that's why we're winning in these categories. The, you know, the retail pro and the res, you know, the resi pro piece of it, the opportunity we have there, that natural extension, those ideas and capabilities, plus what Chris outlined, really give us the ability to win in all of these channels. As we break it down and we think through where we're going, I, you know, I'm gonna walk you through what a location could look like. Now, many of these locations in the LBM channel look different. This is obviously just an illustration to give you an idea. The takeaway from this is focus on there's the front or the showroom.
That's where anyone can walk in. Typically, you have a pro who comes in. They may be working on a takeoff or a design for a remodeling project or a build, but when they walk in, they see actually some retail merchandising. Could be all different types depending on the outlet. It's gonna vary. In many of those installations, the $100 million business we have today, it could be 4, 6, 8, 12 feet of merchandised product that we have in there. Our people, we leverage the category management, the products we have to optimize that space to be able to capture that unplanned purchase. I wanna make that point clear. That unplanned purchase is where we actually win today. We're gonna continue to win. That's part of our model. That's what extends. I think that's an important point for you to take away.
The exciting thing is, as you can see here, not only depicted in size and scale, but a lot of the activity from some of these lumber building material locations is activity out from the yard. It is that planned purchase where somebody's putting together a job. The value that those locations create and the value that they deliver for their customers is they can package the job and give them the building materials, the fasteners and everything to go extend the project and complete it. What we're doing on in the front is we make sure that those pro packs, that merchandise solution that I shared earlier, we outfit in the front. Brett's team and the traditional, you know, folks that service those locations, they do a great job taking care of that showroom, making sure that that product's showable.
We have some of our people with their own focus have said, "Hey, we're gonna go win some of those opportunities in the yard and get some of that planned purchase." That's not an area that we focus because we've typically focused on the actual showroom itself. When you think through what does it take to take care of the yard and to actually deliver the products necessary for that pro? I thought it was important to think about all the things that we do on the left here in the showroom. Think about product, innovation, category management, the things that we do well at Hillman that we invest in each and every day, they translate to the showroom. That's probably not a surprise for anybody in the audience or listening in. That's what we do today.
They do correlate, and I think they connect to what we're doing in the yard and the loading area. To be able to operate there, you gotta make sure you have job lot quantities. We've touched on that numerous times through the presentation. Some of that is different pack size, some of it's different packaging. We have that capability. We introduce thousands of SKUs each year. This is about how we run the business. Some of you may ask, "Is that a heavy lift for Hillman?" This is what we do each and every day. By focusing on it, by having James' team, our LBM team focused on those areas, we're now gonna work with the product teams to be able to add those job lot quantities, make sure we have building code compliant products, making sure we have the application specifics.
Part of the reason Chris walked up here, what did he talk about? Having the fasteners for the application of attaching that metal roof. That is about having the pro quantities for the projects that these LBM yards perform. It's also about having LBM specialists. We've been adding some resources, brought somebody in to actually focus on LBM, and that's something that team is building some momentum. We'll be adding those resources as we scale this area. The just-in-time delivery, I think, and I hope you see that we're not only do we have a world-class operations team, Bob and his team are upgrading that and making sure we have the capabilities for not only today but also tomorrow. That high quality competitive cost.
We all know to be able to win in the channel, you got to give them the quality they want at the cost that's competitive, and we can do that. We're doing it today, and that's where we really see the opportunity. To me, this page really summarizes and really encapsulates why we're gonna win in this section, in this area. Then there are some of the examples of some of the partners that we're gonna go out there. We sell some of these folks today. This is not, again, all new call cycles. This is about bringing, extending the products we have today into those channels and building on it. That's why we're really excited about where we're going because it is really thinking about the convenience buys in the showroom, unplanned purchase.
It is the opportunity for the orders and the volume from the yard, that planned purchase. It's about changing the mindset and empowering our people to go after those different opportunities. It is gonna take some time. That's why this is gonna be a build for us. We're already doing it today in some locations where we have some, I'll say, really aggressive and capable salespeople. We're already doing it, where we serve them and bring them what they need. We've got to be able to make sure that we add those products, expand the quantities and the pack sizes, and empower that team to go forward. That's why we know we can be successful in this area.
What gives me the high confidence that we're gonna go take share here, that $9.5 billion market, and those over 3,000 locations that we're already calling on today. This is about focus and making sure you don't let your core slip. That's very important to us. That'll be one of my points when we close, and then capitalize on this opportunity in this market. That's a little bit about where we're going and why we're excited. We think about LBM coming together, the simple message is we have the capabilities. We have the people in the stores today. We're gonna add the resources necessary and the pack sizes, and we're gonna go focus on this business and do what we do. We take care of the customer. This is another example where we're gonna be able to do just that.
With that, I wanna take it and get ready here to bring Michael up here. He's gonna talk to you a little bit about our M&A opportunities and how we're gonna continue to augment this growth strategy. With that, I'll introduce Michael Koehler, our VP of Investor Relations and M&A. Here we go.
Thanks, JMA. As you know, I'm Michael Koehler and run Investor Relations, Treasury, and I also co-lead the M&A team. I spent the last 15 years doing investor relations and capital markets consulting, having worked with over 35 public companies. I sit at a busy street corner and have my fingers close to the pulse of what's happening in the markets.
Today, I'll walk through our M&A strategy, how it acts as a powerful accelerator for our growth, and why it's an important part of our long-term strategy to expand the core and win the pro. Our M&A expertise is rooted in over six decades of execution. Throughout our history, Hillman has built value by compounding accretive growth, both organically and via acquisition. The focus has always been prioritizing returns over purely buying growth at any cost. We've expanded categories and acquired capabilities at disciplined multiples, ensuring near-term accretion with a long-term strategic fit. Our M&A track record is built on around 30 successfully integrated transactions. We provide the scale and the platform that can turn a small or specialty business into a category leader.
In many cases, we are the buyer of choice because we're a strategic buyer that has the market access, customer relationships, a 1,200-member field sales team, and supply chain leverage. Our history of successful integration gives us the confidence to expand across channels that we have discussed today. We categorize our targets into three different areas, expand categories, pro distribution, and industrial MRO, like you've heard today. We prioritize targets that are a logical fit for Hillman, ones that our sales team can grow, ones where our category management can add value, ones where our global supply chain can lower costs and targets that are a good cultural fit, those that align with Hillman's core values. In retail, the objectives are driving sales and category management. We want to expand the core by acquiring fastener-related categories or categories in adjacent aisles.
As Brett mentioned earlier, near neighbor categories like plumbing, electrical, and even protection and safety gear are high on our radar. In Pro distribution, we target distributors with strong customer relationships, where we can leverage our global sourcing network and national distribution capabilities. Today, we're underrepresented in the Pro, and there's a lot of white space for us to grow, as you've heard. Examples of Pro distribution product categories include collated fasteners and adhesives, where we have minimal to no presence today. You've heard the team today talk about how we can grow organically with our customers in Pro distribution and LBM. M&A can help win that Pro by acquiring into the specialty Pro distribution space, which has many unique product niches that make M&A particularly attractive. Industrial MRO, the focus here is centered on the master distributor model.
Our value proposition is built on scale and long-tail SKU complexity, something Hillman has done very well for a long time. Gaining meaningful traction in industrial will be M&A-driven. Across the vast number of end markets in the industrial space, we're looking for master distributors with long-tail complexity and high-spec SKU requirements. Here, we can achieve synergies with our enhanced scale and dependable global sourcing network. As I mentioned, in addition to hardware and fastening, we are currently seeking opportunities to acquire new adjacent categories like adhesives, door hardware, and plumbing. We believe these categories make a lot of sense for us from a strategic and product offering standpoint. We can add tremendous value and synergies, applying our core competencies to distributors and/or suppliers in this space. More broadly, our primary focus remains on a number of high-margin key product categories. We maintain a robust pipeline representing healthy growth opportunities.
Today, our pipeline consists of several candidates within our typical deal range. Well, what does that mean? Well, in 2024, we paid in the mid-$30 million range for both Koch and Intex, and we have the ability to flex up several times over that for the right deal if necessary. Staying in this range allows us to avoid bidding wars over larger assets, maintain attractive EBITDA multiples, and keep our leverage in check. We've got the financial guardrails in place, and we've proven to be patient for the right deals. Taking a bit of a step back, our M&A strategy exists within a balanced capital allocation plan that you will hear Rocky talk more about in a few minutes.
We're able to invest in the business to capture organic growth, both in retail and in the pro. We can buy back stock under our share repurchase program and execute our M&A strategy. We can do all three at the same time. While our growth is not dependent on M&A, it is a key part of our strategy to grow share within our expanded $18 billion target market. We're confident this will accelerate our earnings growth and deliver high-quality returns for our shareholders. Let me give you an example. We acquired Koch Rope and Chain in January of 2024, and it's a great one that showcases our M&A capabilities. We identified this company and patiently waited for over three years for this deal to come to us at the right multiple. Rope and Chain are heavy, complex products, so this category was perfect.
It's perfect adjacency to our existing hardware categories and at the time, our recently launched Rope and Chain accessory line. Upon the closing, we got to work to integrate Koch, and the results were transformative. Within a short period, we leveraged the combined strength of Hillman and Koch into a new win, resulting in 20% top-line growth for Koch via a nationwide rollout at just one major retailer. We are confident that there are more wins to come in this category. With our foundation in Rope and Chain established, we now have the ability to drive additional benefits in this space from an M&A standpoint. Today, we source 100% of products sold in this category from overseas.
Currently, there are additional M&A targets in this vertical that can allow us to expand into the industrial MRO channel and in-source production, which can give us supply chain flexibility as well as potentially capture additional margin in this category. Koch's been a great acquisition for us, and we believe we can replicate that model going forward. The playbook is simple. Identify a category that we want to expand in, successfully acquire an attractive player in the space, and leverage Hillman's core competencies to drive profitable top and bottom line growth. This concludes the M&A session, and we'll now open it up for Q&A. We'll have Rodney run the mic, and we'll ask the speakers to come up.
As a reminder, please remember to state your name and firm when you ask a question. One question, one follow-up.
Andrew Carter, Stifel. Question on the kinda Pro going into this. Do you believe that you can accomplish kinda the ambitions you've laid out here with the current capabilities in hand, or do you need to take another step change in the sales force? Obviously, M&A out there would give you a thing, but just anything incremental to that, like, to kinda contextualize resources in hand versus incremental investments you might need to turbocharge this. Thanks.
I'll start. Andrew, thank you for the question. You know, we believe we've got the, I'll say, investments in place for us to build the, I'll say, long-term objectives that we framed there. Rocky will go into more details about how we're breaking down the pieces. Andrew, that was part of why putting James in the role and hiring his team up at the end of 2025 to be able to get that framework on the retail pro. You know, Chris' team has already got, you know, a team in place. I think LBM is an area where we've got resources in place, in Brett's team. We feel like we have the the feet on the street to be able to drive that incremental growth, and we'll throttle those investments, and add to it.
We hope to, as we gain more traction there. Andrew, we think we have it baked in. This is not about us coming out and changing our financial, you know, I'll say, objective because of these initiatives. We feel like we are absorbing them, and that's what we're driving inside of our guide today. I don't know if anything you guys wanna add.
Yeah, I mean, I think the only thing I would add is the team that we're bringing on is very experienced, deep relationships, and they are hitting the ground running. You know, as JMA mentioned, in 2025, we were hired, and they are in market, in field today with customers trying to drive sales. Really proud of the team we assembled. It's a good experienced team.
Reuben Garner with Benchmark. Thanks for taking the question. Just a follow-up on that. How does it work, the $100 million in LBM business you have today? Is that entirely through a dedicated sales force? You mentioned hiring LBM specialists, like, long term, is this a distinct, separate sales process from the retail customer?
You know, we have actually our field sales team that actually is out in the field that runs in one organization. They actually call on, you know, different hardware stores and lumber yards today. Reuben, those are the folks that are actually calling on them today. The LBM specialists that we're putting on Brett's team, we brought in, you know, two professionals that are fully dedicated to LBM. We haven't done that before. They're the leadership, and now we're evaluating the strategy to go infill the resources necessary to go after, you know, the yard opportunity that we framed up. That'll be an evolution of where we're going and how we see it going as we move forward here.
Lee Jagoda, CJS. Going back, I guess, way back to Slide 61, I guess, there was a whole bunch of logos around potential pro opportunities, and there was five of them where they're owned by your current customer base. How much of the growth that we're projecting through 2030 is gonna come from growth within the existing channel where the customers are saying to you, "If you had more different form factor, different ways that we can buy this, we wanna do more with you," versus you having to go out and displace somebody less willingly?
It's a great question. 2025 is all about or 2026 is all about laying the foundation with the folks that we talked about in my presentation, okay? As we build with those customers, we build those capabilities, we expand into the folks that are in the box here. As you know, you know, these folks were acquired by these large retail pros. It is certainly on our roadmap. We're very excited about it. We're gonna build this stable foundation and then build upon that with expansion. When I talk about unlocking sales potential, this screen certainly would represent that. Does that answer your question?
Yeah. I guess, is there a way to quantify some of that? Like, in the framework of if it's 1 or 2 points a year of Pro growth on average from now through 2030.
Yeah
How much of that growth comes from existing relationships versus going out and beating the street where you're not?
Sure. I mean, I would think at least a point, a point and a half would come from existing relationships and then potentially another half a point, you know, from these folks as we expand. The key here is the capability, the product. That sales team has all the current capabilities that we have. We don't need to add incremental to do that. It's just as we pace ourselves here.
Lee, it's gonna be a mix. I mean, it's a great question. I mean, I think it's gonna be. We already got some great trajectory and momentum with some of these Pro customers today. Then getting into that channel, we wanna make sure we have the service model that they need. You know, that's why we think we have the capabilities to do it. It's gonna be an evolution, and we'll certainly update you on that journey.
Great.
Oh.
Sam Darkatsh, Raymond James. Don't know how to ask this question, but what are the current service gaps that the pro customers are seeing in their planned categories? I think, you know, steel and wire products, PrimeSource, they are getting serviced right now. Where are the service gaps that you feel you're really being differentiated?
I'm gonna give you a small example to give you an idea. We had and I won't go into the name of the customer, but we were on a West Coast walk a month ago with. You know, Brett and I were out there. We went to one of our customers, great retail partner that we have today that's in there supplying the Pro. They're selling product out the back, and we have one of our top sales people in that store. Great guy, great walk. We asked him about some of the products we sell at the back, and he's like, "I didn't even know that you guys can do bulk packaging and quantity." That's the kind of opportunity we have out there, Sam.
He's buying today from a local supplier, and he's like, "I'll let you guys quote the entire mix." To me, I think, Sam, it's about going out there and unlocking where there's either opportunity because they don't know that we have the capability, or there's an unmet need. You're right, we have viable competitors in the space. This isn't gonna be where people are gonna be knocking down our door saying, "Take my orders." To me, awareness is huge. I'll give you another example. We were at a show with a large partner not that long ago, in the last couple of weeks. Totally different individual.
They didn't know that we did what we did in B2B, and that person came out and said, "Hey, we'd like you to quote our entire mix," and showed us pictures of the warehouse that they stock all their pro-grade product. They didn't even know we did bulk quantity. I'm not saying it's gonna be easy, Sam, but a lot of it's awareness. We never focused on those areas before. That's not what we put in our retail catalog, so our salespeople aren't even aware of some of the capabilities we have. It's gonna be building awareness and putting programs into place, and that's what James, Brett, and their teams are doing today.
I've got a follow-up.
Sure.
Thank you. Are you currently servicing the unplanned category with your existing retail sales team? If so, I'm guessing the new team or the nascent but new team will maybe do both unplanned and planned, which might either free up that retail space or maybe allow for a little more leverage.
Yeah, very good question. Brett's organization today, which he has all just to break this down, we have our retail sales organization. Brett's got several different teams that he focuses on. His traditional team, which was the national sales team we just mentioned, those folks are calling on LBM locations, hardware stores, and the like across the nation. We believe that it'll be adding more resources within that pool and then augmenting them with LBM specialists. We're not really prepared to walk through the detailed strategy of what that's gonna be because we got competitors listening to this, but that is how we're thinking about framing this up, Sam, is it's gonna be leveraging our core resources and then adding resources where we think there's growth opportunities. Hopefully that answers enough of your question to get a sense of where we're going.
Kind of following up a little bit there. Can you help me on the LBM side? How does the pro purchase, particularly on the fasteners in the, you know, right now at an LBM, are they currently getting that product in the back at an LBM? Are they getting it somewhere else? Or how does it generally work today for that pro?
Yeah. I mean, in many of the markets, the yard is supplied by, if you will, what the needs are and the demands are in the marketplace. That pro today that's buying those bulk quantities, contractor, you know, lot sizes, they're actually specifying, "Hey, here's my build." They're working with that professional in that location who's saying, "Hey, you need XYZ quantity of type whatever fastener." There is a spec component to it, meaning there's a specific need of a size fastener for that application, and that's driven by what's going on in that market. Each market's different. That's why we have people in each market. Today, that is being driven by the contractor's needs. Some of that's driven by the lumber yard and what they're specifying.
Some of it can be driven by the designs and the plans, and that's part of what our teams are out there working on, is giving them availability. If they've got a they need an inch and a quarter drywall screw, as an example, that we have that product in the quantity that they want to purchase it. So, we're working with them, and we'll be working with them to supply them in the quantities they purchase. That is part of the curve. That's why this isn't gonna be overnight. If you win $50 million of business, we'll build this over time by meeting the needs of that customer. Similar to what Sam asked is, this is about making it aware that we have the products and the capability, and then be able to fulfill their needs and what they're actually delivering for the pro.
Just a quick follow-up. That's helpful. Thank you.
You're welcome.
How about the gross margin for that type of business for a planned bulk purchase at, like, an LBM or something? I'm assuming that industry generally has a lower gross margin than your normal business. Is that directionally the right way to think about it?
Directionally, I'd ask you to save some time here for Rocky. He'll walk you through a way to think about that. I'll save that for the financial section. It's up next. Good question.
Hi. Anu Khan with Baird here. Kind of following up on the previous question. As you are leaning into these, you know, specified structural applications in the pro, kind of how should we think about the changes in terms of, like, the sales approach, required expertise, the risk, liability profile of the business, maybe some of the hurdles you foresee and maybe the competitive landscape as well? Just any additional commentary.
Yeah, I mean, I'll give you a couple of nuggets. I think I'm gonna go back to the sales meeting we talked about earlier. I think actually, you know, educating on how to sell into that channel is a really important element. That's why we have two people specialized in it today, and we'll continue to add resource. I think the sales cycle's a little bit different. The way that we actually sell is different. And then we are spending a lot more time with you know, Chris Paterson, who's here, and his team as far as building, going after application-specific products. It's a lot of what we displayed at IBS show, and we've gotten great feedback and by having Structural Screws for a needed application. We've had to build out that product range. That's what we've been working on.
I think that's part of the product equation. We're working on the sales equation, which I shared, you know, that we drove at the national sales meeting. Those would be areas that we have to be able to be successful in. We're putting feet on the street now, so we'll update you on that progress as we go forward. Sales, product, I'm very comfortable with where we are from a delivery perspective. We have a world-class operations team, so I feel like that's in check and aligned. I think this is gonna be about building the capability and adding the resources that are focused on that type of sale 'cause it is different than what we do today.
When you're selling to the showroom is a different sales cycle and a different process than the yard, and we're gonna have to build some momentum there. What, again, gives me confidence in this is we have some really talented territory managers on the field that are doing this today that sell pallets of our product out the back because they have a relationship. We're gonna now empower that team and really open up the opportunity, and that's why we're excited and confident it's gonna work.
Just a real quick question on the TAM is big in the pro distribution side. Your share is really small. Can you talk a little bit more about the competitive set out there. Is this a super fragmented market? Are there big players that you're competing against? When you compete, do you think is your advantage that you've got this wonderful product that's been created on the retail side with a great brand, and therefore you have a better brand opportunity? Is it a pricing advantage that you might have? Maybe just talk a little bit about that.
Yeah. You gave me a lot of good nuggets there, so I'll try and hit those the way I think about it. It is a very fragmented market, and there are some very capable competitors. I mean, PrimeSource's name has already been brought up. We respect those guys. They have a good business model. There are a lot of regions as we go out there, where there are small regional players that are driving and delivering bulk contractor grade quality fasteners. That is an area for us, and then it's where we have partnerships where we have already the fastener set in the front of the store. That's part of the extension in Nashville, and I. That was not a made-up story. I'm not gonna go into the name. I was blown away. Brett and I were blown away.
This is one of our best, I guess, Brett, you'd call it hardware locations. We go to the store. It's amazing. We just got into the conversation of Pro, and he's like, "I didn't even know you guys had the quantities." This guy went to lunch with us, meaning this wasn't like he'd never seen us before. He loves our sales guy there. I'm not saying that's every location in America or, you know, North America, but that to me gives me the confidence that there's connectivity. When you take care of the customer, they're willing to give you other opportunities. That's fragmented, yes, and opportunities that we need to lean into. Now, let's not underestimate the fact that you gotta have the pack sizes, you gotta have the demand, you gotta be able to bring it in.
I'm really confident the guy sitting in the back of the room and his team that are out there, we have a world-class sourcing organization and great manufacturing partners that we're able to build and line that up. It's gonna take some time. That's why we're not coming out here and saying, "Hey, there's an incremental 10% growth in this category." I really think it's about making sure we have the right product, making sure that we have the right sales strategy, and then putting the right resources to it. You gotta give us a little bit of time to get the traction, but there's opportunity there. That's. Hopefully, that gives you a little bit more. I know that was somewhat redundant to the last question, but that's really how we think about it, and that's why we believe it works.
When you can get the sales team fired up, and you give them something to go sell, and then you give them the training so they have the confidence, is super important. For me, I believe in this story and this vision. That's why I can get up here in front and talk about it. It's the same idea that's in front of a customer. You go out there and you give them the product, and they have the company behind them to back it up, they can go out there and execute. That's what's really exciting about it. That's why we love our sales force and what they do. We gotta go give them the ammunition to fire the gun.
Just on, I guess, on the back of that question. On the large format stuff, is the market today rational in general? How big a differentiator is a quality brand in large format versus pack size in the front of the store, both to your buyer and then to their customer?
Yeah, a couple of things there. You know, will we expand our category into some of the more bulk or, you know, bulk products that, you know, may be more price sensitive? We are gonna evaluate that over time. Michael mentioned collated, James has talked about collated before. We're gonna evaluate that. This is not about trying to be everything to everybody. We're not gonna go out there and say, "Hey, our business is growing 12 penny nails out there in the marketplace." That's a commodity type item. Where you see the difference is we've seen the evolution, and I'm gonna geek out for a second, but fasteners, you go from lag bolts, which is a big part of our business today, to construction fasteners by driving innovation. Lag bolts have declined over time because people are using structural screws to complete their applications.
By us focusing our product development there, that's where we think we can win, and that's where the Pro brand that you reference, where it means something. It's exciting to see when you can give people a good Power Pro product, and I'm shamelessly plugging that again because when you get it in people's hand and they see the use case of it, they go drive it. That's what that brand really grew out of, you know, 10+ years ago when we launched Power Pro ONE because it was a great fastener, multipurpose pro-grade fastener that everybody can use. Once you got it in their hands, people started, "Hey, I need Power Pro." That's what they thought of. It's gonna take time.
This is a, you know, evolution, not a revolution, but that's I think where there's a space for branded product line, and I think there's an opportunity for us to grow, and there's a massive market for us to go take share.
Thanks, everyone. That will conclude our Q&A session for Wynn, the Pro and M&A. We'll take a 10-minute break. We wanna stay on time here, so let's do 10 minutes, and then we'll turn it over to Rocky Kraft for the financial section.