Thank you, Cherie. Good morning, everyone, and thank you for joining us.

I am Michael Koehler, Vice President of Investor Relations and Treasury. Joining me on today's call are Doug Cahill, our Chairman, President and Chief Executive Officer; Rocky Kraft, our Chief Financial Officer; and Jon Michael Adinolfi, our Chief Operating Officer.

Before we begin, I would like to remind our audience that certain statements made on today's call may be considered forward-looking and are subject to the Safe-Harbor provisions of applicable securities laws. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions and other factors, many of which are beyond the company's control and may cause actual results to differ materially from those projected in such statements.

Some of the factors that could influence our results are contained in our periodic and annual reports filed with the SEC. For more information regarding these risks and uncertainties, please see Slide 2 on our earnings call slide presentation, which is available on our website ir.hillmangroup.com.

In addition on today's call, we will refer to certain non-GAAP financial measures. Information regarding our use of and reconciliations of these measures to our GAAP results are available in our earnings call slide presentation.

With that, it's my pleasure to turn the call over to our Chairman, President and CEO, Doug Cahill. Doug?

Thanks, Michael and good morning, everyone. I will kick off today's call going through some of the highlights of our strong third quarter.

Our results were healthy as we grew both our top and bottom line versus year-ago quarter. I will then give an update on our full year guidance, highlight Hillman's competitive mode, and provide some additional color on the quarter, before I turn it over to Rocky.

Our team did a great job during the quarter, and I'm proud of them for successfully navigating this environment. Our results demonstrate the resilient and consistency of our business and we're in line with our expectations heading into the quarter.

Net sales in the third quarter of 2020 increased 5.4% to $398.9 million from the year ago quarter, driven by a 4% increase in total volumes, which included new business wins, plus a 2% lift from price offset a bit by FX headwinds in our Canadian business. Hardware and protective solutions led the way as HS sales grew by 8% and PS sales grew by a robust 14% over Q3 of 2022.

Driving the increase in HS was a launch of rope and chain accessories at one of our top five customers, marking another meaningful new business win for Hillman. This win was the direct result of taking care of our customers during the challenging logistics and supply chain environment over the past few years.

This is a new category for Hillman and our service team did an amazing job resetting over 2,000 stores flawlessly. Driving the increase in PS was an increase in our national promotional off-shelf activity and another one of our top five customers.

When we say promotional off-shelf, this means we load in product and display quarter pallets near the entrance, near the checkout, and on end caps. These offerings have been very successful and many times they're planned 10 to 12 months in advance with our retail partners.

Together, new business wins and increased promotional off-shelf drove healthy growth during the quarter, which more than offset lighter volumes in other categories. For the year-to-date period, our net sales were down less than 1%, demonstrating the resilience of the business during our otherwise soft market throughout the year.

Third-party data showed that foot traffic at home improvement centers declined 8% year-to-date, compared to the year-ago period. Our results illustrate that demand for our small ticket items that, are essential for repair and maintenance projects is consistent and resilient in most any market environment.

Turning to our bottom line for the quarter, adjusted EBITDA increased to $66.8 million, up 13.3% over the year ago quarter, which produced a 110 basis point improvement and adjusted EBITDA margin to 16.7%. Driving this increase was lower cost of goods sold as our margins began to return to historical averages.

Remember, we spent most of '21 and '22 chasing inflation-related costs with price increases. We caught costs with our price increase in the fall of 2022, and the benefits are finally flowing through our income statement now.

And similar to last quarter, we did a nice job controlling costs and driving operational efficiencies. Turning to free cash flow it came in ahead of our expectations, totaling $41.3 million for the quarter and $119.3 million for the year-to-date period.

This is an improvement over the $31 million in the year ago quarter and $16.8 million for the year-to-date period last year. We used our free cash flow to pay down over $40 million in debt during the quarter and have reduced our net debt to adjusted EBITDA leverage ratio to 3.7 times.

I would like to provide an update to our 2023 full year guidance. As a result of our performance for the first three quarters of the year, coupled with the expectations for the overall market, we are providing the following updates to our full year '23 guide.

We are narrowing our net sales guidance within our original range to between 1.455 billion to $1.485 billion, which sets a new midpoint at $1.47 billion. We are narrowing our adjusted EBITDA guide within our original range to between $215 million to $220 million, which sets our new midpoint at $217.5 million.

And we're increasing our free cash flow guidance to, between $135 million to $155 million, which sets our new midpoint at $145 million, $10 million above our original guide. As we've talked about, our results for the first nine months have been strong, despite slow foot traffic at our retailers.

We made the decision to narrow our guidance within our original range, but below the midpoint. This was mainly due to the market volumes being a tick softer than we planned for the year and sales being light over the past month illustrated by the industry reported foot traffic being down 13% in October versus down 8% in the first nine months of the year.

I'll now take a moment to share what makes us the indispensable strategic partner to our retail customers that allows us to perform well across multiple economic environments. We are one of the largest providers of hardware product solutions in North America.

We offer an extensive range of products that cater to the needs of the pickup truck pro and the DIYer. The vast majority of our products are used for repair, remodel, and maintenance projects.

Because of the predictable nature of our end markets, we are seeing consistent demand for our products in both up and down economic cycles since our founding in 1964. Said differently, we don't see the highs nor the lows of the market like many companies in our sector.

Importantly, we help our customers overcome labor, complexity, and supply chain challenges in the critical, highly profitable, and traffic generating product categories we offer. Our competitive moat, which provides our customers with value add, they don't get from other companies, consists of three main components.

One, we have 1,100 sales and service folks that are in the stores with our customers on a regular basis providing top-notch customer service at the shelf. Two, we ship directly to the store of our retail customers, meaning our products typically do not flow, through our customer's distribution center, saving them time, money, and corresponding inventory adjustments or investments.

A great example of this advantage has been happening live over the past week or so. As one of our top five customers experienced a cybersecurity event, we are one of only a handful of suppliers, who could still ship, because of our direct store delivery model and the fact that our service teams are in the store and write the orders.

I'm happy to report their back up and running, which is really good for everybody. We get the right products to the right place at the right time at scale.

We source over 112,000 SKUs and distribute them to over 40,000 individual locations and three, approximately 90% of our revenue comes from brands that we own and control. And this allows us to anticipate and meet the evolving needs of our customers and end users.

These are the reasons why we're embedded with our customers and why they view us as a partner critical to the success of their business. In fact, during the quarter we're thrilled to have been named Vendor of the Year by two of our customers.

Tractor Supply, which is one of our top five customers, and Mid-States Hardware, a great farm, ranch and home retail co-op that serves the Central and Northwest states, as well as Canada. We take great pride in being recognized by our customers and let's face it, it's the Hillman team and the stores that at the end of the day, are the ones that win these awards for us.

With that, let's move on to our balance sheet. At Hillman, we've always believed nothing happens until you sell something, and we always try to put our customers first.

During '21 and '22, we put our money where our mouths are, when we invested heavily into inventory to ensure we kept product in our DCs and on the shelves of our customers during a challenging supply chain environment. The strategic move, working closely with our long-term supply partners, separated us from our competition and allowed us to gain market share then, now, and we believe in the future.

At the peak during the summer of '22, we carried about $180 million more inventory than normal. Since that peak, our supply chain has normalized and inventories have been reduced by $178 million, including $92 million this year.

And we think we'll take another $5 million to $10 million, before the end of the year, to put us near our normalized inventory run rate. With our inventory reduction, we have seen a meaningful cash flow benefit and subsequent reduction in our net leverage ratio, which we expect to continue throughout the year.

I'm super proud of our entire global supply chain team, for being able to surge inventories up and then back down while maintaining healthy fill rates during it all. With 100,000 plus SKUs, it's actually one of the finest examples of total teamwork, I've witnessed in my entire career.

Now turning to pricing and cost. The peak cost inflation in our business was approximately $225 million.

We passed on these higher costs to our customers via multiple price increases. These costs peaked at approximately $120 million for transportation and shipping, which includes inbound transportation of ocean containers, $80 million for commodities, and $25 million for labor.

Over the past several quarters, we've seen ocean container costs come down from the historical highs of 2022, while other inbound costs have remained elevated. Having priced for these more expensive transportation and shipping costs last year, we're now starting to see our gross margin return to our historical rate of 44% to 45%, with lower cost of goods sold flowing through our income statement.

We expect these margins to expand again in fourth quarter of this year to above 45%. Commodities such as raw materials should be a tailwind for us in the second half of 2024.

Typically, cost-related to raw materials can take between nine and 12 months to flow through our income statement. That consists of 150-day lead time to source the material, make the product, and ship it to our distribution centers.

From there, our inventory turns in about four to six months. As we're all familiar, many of these higher costs do not appear to be going away.

In fact, many of the costs continue to increase like labor and transportation costs within the United States. That said, we'll focus on what we can control, something we know our customers are doing as well.

Hillman's in-store service team and direct store delivery model continue to be on trend helping our customers minimize these two pressure points, labor and logistics. Now turning to our markets, before I turn it to Rocky, even though interest rate increases have definitely slowed existing home sales, we remain optimistic about the customers and end markets we serve as well as the trends for the future of our business for two meaningful reasons.

Number one, home equity values continue to be healthy. Home values are near all-time highs, and the average homeowner in the U.S.

has nearly 200,000 of untapped equity. Home equity loan activity has held firm since the beginning of the year and is keeping pace with the pre-pandemic levels.

Remodeling, renovation or home repairs are the leading reason homeowners tap equity in their home. And number two is the state of the existing homes in the U.S.

The average owner-occupied home is over 40 years old. The older the house, the more repair and maintenance projects are necessary.

Additionally, there are over 2 million more homes entering their primary modeling age than there were during the Great Recession. These are homes between 25 and 39 years old, and the number of homes in this category is expected to increase over the next several years as the U.S.

Housing stock continues to age. Next year, Hillman will proudly celebrate our 60th anniversary.

Our service organization will turn 28 years old and the average tenure of our top five customers will be 25 years. Taking care of our customers first has driven our success over a very long period.

Our focus today and commitment going forward is to defend our moat, profitably execute our growth strategy, and stay disciplined. We believe this sets Hillman up for continued long-term success.

With that, let me turn it to Rocky.

Thanks, Doug. Net sales in the third quarter of 2023 grew by $399 million, an increase of 5.4% versus the prior year quarter.

As Doug mentioned, we narrowed our full year net sales guidance within our original range below the midpoint. To unpack that a bit, we maintain our belief that, our full year net sales results will benefit 2% from price that will roll from 2022, and new business wins offset last year's COVID-related sales.

The midpoint of our revised net sales guidance assumes unit volumes for the year decline about 3%, compared to our original estimate of down 1%, as we extrapolate current volume trends in the Q4. Now, let me provide some more detail on our top line by business.

Hardware solutions is our biggest business and makes up over 50% of our overall revenue. For the quarter, net sales increased 8% to $229 million versus last year.

This breaks out to just under 2% of price plus 4% new business wins and 2% increase in our market volumes, compared to the softer year ago quarter. Robotics and Digital Solutions, or RDS, makes up about 16% of our overall revenue.

During the quarter, RDS net sales were down 1% to $63.5 million, driven by lighter foot traffic, continued softness and discretionary spending on things like pet tags and accessories, and a decrease in existing home sales, which is a key driver of key duplication. The exception was a 9.5% increase in sales at our minuteKey self-service machines.

Since 2020, minuteKey has grown at a 19% CAGR, as customers prefer the convenience and simplicity of these self-service kiosks. Additionally, the self-serve nature of the kiosk solved the labor issues many of our big box retailers face today.

For these reasons, we are excited about the future of our minuteKey platform. As we've talked about in previous calls, we are in the process of testing our new and improved minuteKey 3.5 self-service key machine.

These kiosks have smart auto and RFID 5 duplication capabilities, an enhanced key identification system, and a more robust guided user interface when compared to our 3.0 version. We currently have two minuteKey 3.5 machines that have been live for about six weeks in the Phoenix market and performance thus far is encouraging.

We remain on track for a soft launch during the first quarter of next year and plan to slowly and prudently roll out, these machines throughout 2024. Hillman Associates will be providing the VIP support for our retailers' customers, and this unique experience is a tremendous opportunity for both Hillman and our retail partners.

Our Canadian segment, which makes up about 10% of our overall revenue, was down 9%, compared to the prior year. This was driven by approximately a 6% decline in volumes and three points of FX headwinds during the quarter.

Lastly, Protective Solutions makes up just under 20% of our business. Protective had a nice quarter due to the promotional off-shelf activity Doug discussed earlier.

Revenues increased $8 million or 14%, compared to last year. Third quarter adjusted gross profit margin increased by 90 basis points to 44.2% versus the prior year quarter.

Sequentially, adjusted gross profit margin improved 120 basis points, which was ahead of the 100 basis point improvement we said we would see on our last earnings call. As Doug mentioned, we caught price in the fall of 2022 and are now starting to see margins return to normal.

Looking forward, we expect to see margins expand again during the fourth quarter in excess of our historical rate of 44% to 45% and hold into 2024. Adjusted SG&A as a percentage of sales decreased to 27.5% during the quarter from 27.6% from the year ago quarter.

The slight improvement was driven by realizing efficiencies in our operations and logistics and controlling costs where we were able. Adjusted EBITDA in the second quarter was $66.8 million, which grew 13.3% over $59 million in the year ago quarter.

Adjusted EBITDA was driven by the increase in net sales coupled with a higher gross margin when compared to last year. Now let me turn to our cash flow and balance sheet.

For the 39 weeks ended September 30, 2023, operating activities provided $171 million of cash, compared to $63 million in the year ago period. Capital expenditures were $52.1 million, compared to $46.4 million in the prior year period.

We continue to invest in our RDS MinuteKey 3.5 and Quick Tag 3.0 machines, important parts of our high margin long-term growth opportunities. Our customers are very excited about the new markets as game-changing technology will enable us to attack.

Now back to the balance sheet. Net inventories were $397.1 million, down $92.2 million from the end of 2022, and down $138 million from the prior year quarter.

We ended the third quarter of 2023 with $771.8 million of total net debt outstanding, a reduction of $115.9 million from the end of 2022. Free cash flow for the 39 weeks ended September 30, 2023 totaled $119.3 million, compared to $16.8 million in the prior year period.

This increase in free cash flow is primarily driven by the working capital benefit of converting our excess inventory into cash and controlling costs. Because of this, we are raising our free cash flow guidance.

We ended the third quarter of 2023 with approximately $291 million of liquidity, which consists of $252 million of available borrowing, under a revolving credit facility and $39 million cash and equivalents. Our net debt to trailing 12-month adjusted EBITDA ratio, at the end of the quarter was 3.7 times, compared to 4.2 times at the end of 2022, and a full turn better than our recent leverage P of 4.7 times at the end of the second quarter of 2022.

Looking forward, we still maintain our expectation that, we will end 2023 under 3.5 times leverage, assuming our results fall in the range offered in our revised guidance. As we think about 2024, if the market remains soft, our top line could look similar to 2023.

We feel confident we will grow our EBITDA in that case and even in the down market, as we will benefit from lower cost to good sold. We look forward to giving our formal 2024 guidance when we report our full year 2023 results in February.

Looking further out, we believe our longer term growth algorithm remains intact. Historically, our business has seen organic growth of 6% a year and high single to low double-digit organic adjusted EBITDA growth all that before M&A.

Using hardware solutions is a proxy, which is our largest business. If you go back 20 years, 10 years, five years, four years, or three years, the top line CAGR is between 6.7% and 8.6% over those time periods.

Our longer-term view on the strength and resilience of this business is unchanged. With that, let me turn it back to Doug.

Thanks, Rocky. As we navigate this market, I want to thank the Hillman team for remaining steadfast in our top priority of taking care of our customers.

From the folks keeping products humming through our distribution centers to our warriors in the field managing the shelves in the store, to our customer care teams, I could not be more proud of your resilient and awesome commitment to our customers and Hillman. Looking ahead, I'm filled with optimism, about the future as our competitive moat and the determination of our team positions us to capitalize on opportunities on the horizon.

We will keep making this company more efficient, more agile, and more resourceful which we believe will allow us to grow profitably and win over the long-term. We have executed well during this market and believe that when the tide turns and the market picks up, great things are in store for us.

Hillman will celebrate its 60th anniversary next year, and we remain committed to continuing its fantastic legacy into the future. We're grateful for our customers, associates, shareholders, and partners and I want to reiterate our commitment to you all as trust is our most valuable asset.

We look forward to updating you on our progress along the way. And with that, we'll begin the Q&A portion of the call.

Cherie, can you please open the call up for questions?

Good morning, everyone. Thank you for taking the questions.

Hi Matt.

Good morning. Wanted to pick up on the comments that you made at the end there around 2024.

I think you mentioned that you could grow EBITDA if the top line was flatter. So I guess the question is more on the top line.

Here we are in November. What are you guys planning for around, I guess specifically R&R activity?

I know you mentioned obviously foot traffic is kind of decelerating a little bit here, but how are you guys seeing the early part of 2024 shaping up from an R&R market perspective?

Yes, I think, Matt, for us, we're kind of looking at '24 and saying let's plan on flat and even slightly down, so that we make sure that our costs are under control and that we can still grow our EBITDA in that world. I think our retailers, they've been through a year that hasn't been a tremendous amount of fun.

Their comps are obviously going to get easier, but I think they're seeing things for next year a couple percent down would be my guess. We've spent time with all of them.

But flat to down a couple - percent is kind of what we're thinking and what we're planning on seeing at this point. Again, it could change.

And - just never know about an 8% down foot traffic year-to-date and then on October it was down 12 or 13. So you don't know if that's a trend or that's just a blip.

That's the hard part of what we're trying to figure out in the market.

Got it. No, that's great color, appreciate that, Doug.

The second question, clearly good progress on the inventory reduction, and you lifted the free cash flow guide. And so, as you do get towards your year-end leverage target of below 3.5, wanted to get an update on your thoughts on re-engaging with the M&A market at some point.

Where do you need to be from a leverage perspective to do that? And how has the pipeline kind of come together?

Would you be looking at expanding within your existing categories or some of the stuff you spoke about back on the initial roadshow, around expanding into adjacent categories? What are some of the broader thoughts there?

Yes, I think the great news for us is, that there's really not been much of a debt market, or a private equity play out there. So entrepreneurs have definitely changed their tone in that, they don't have three people calling them saying I want to buy your business.

So good news for us is they're available. We're talking basically, Matt, right around the corner, go to the end of our aisle and go to the next one, and that's what we're looking at.

It's basically stuff that you would understand and say, okay, that makes sense. And we think that, these are going to be very accretive for us.

And so yes, I think at '24 you'll see us reengage in the discussions. And I will tell you as an entrepreneur, there's just no better place to put your business and go to Naples and feel good about it, because they know that our moat is different.

They know that we love our customers and our customers trust us. So, we're kind of a pure play that is a really nice way for people to say, I put my business in a good place.

There is that fear by that entrepreneur who's built their business of saying, I just don't trust the private equity guys. And so, we do have that going for us as well.

Great, Well, thank you, Doug, and good luck, everybody.

Thanks, Matt.

Hi, good morning.

Hi, Lee.

So I guess just again, focusing on that '24 commentary, Doug, can you talk to the new business wins you already have in hand in terms of the size of those for 2024 and how you would expect those to flow through the P&L over the quarters?

Yes, Lee, I think we, you know a while back we had said we had like $25 million, $27 million inked for '24. Nothing's changed there except we were able to speed up and get about $10 million of that into this year.

We'll be able to. And that was really as a result of the existing supplier literally disappointing the hell out of our customer and our customer saying can you guys speed this up.

So the $27 million is about $17 million right now. We continue to see progress with customers but again you know I would say, Rocky, traditionally we've been in that 2% to 3%.

Yes, we have. I mean, as you heard in my remarks, Lee, if we were up four this year and so far year-to-date in HS, so a little ahead of where we would have expected to be as we think about next year, and maybe a little back to the prior question, right?

We still would expect to be up 2% to 3% with new business wins in our business, but we're going to be muted as we think about what's going to happen with volumes with what we see today. Hopefully, we're wrong our retailers see a lot more traffic than we're seeing today, but if they don't, we're going to prepare for that.

And obviously as we think about next year, we're not going to have the normal price increase that we have [technical difficulty].

If you're a merchant, you're going to dangle new business for lower price. And I think you'll support us being there for them, but not doing anything silly on price.

So that's also part of our strategy if you think about where we are. The gross margin, we've worked so hard to get it back.

And so, we're going to probably be a little more cautious about going after something.

Sure. And then assuming you've gone through preliminary plans with customers for next year.

Can you talk about the level of promotional activity you expect in 2024 versus 2023? And to the extent you have guidance from them on when that might hit, that could just be helpful for modeling?

Yes, I think this year, as you know, was a bit more back-end loaded. And I would say as we sit right now, I was just there with them about six, seven days ago.

And, you know, they obviously have the comp they want to get. They'd like to see it more evenly distributed.

And I think you'll see the same kind of number. That'll be three years in a row where it's similar with maybe a tad of growth.

So, we're planning on the same number. I'd say it's probably going to be a little less lumpy than this year.

We did this year differently and I'd say it'd be more quarter-to-quarter-to-quarter next year, but the numbers should be similar. We don't have it inked everything, because we're working on one we've never done before.

And so, we don't have that one done, but we're in progress of working on that one.

And if I can just sneak one more in for clarification, the sort of the soft outlook of could be flat for next year, that's total business or just hardware?

Good question, Lee. We meant to say our total business and again, we just kind of start there, right?

What if?

Sure. All right, thanks very much.

Okay.

Hi, Ryan, we can't hear you.

I know Ryan was going to ask me about my golf game, so you want me to answer that, Seth? No, thank you.

Okay. We'll go to the next question.

Good morning. This is Madison Callinan on for Brian.

Thanks for taking your questions. First, could you provide any additional color on - like new business wins?

I know you mentioned rope and chain, but like any other product categories or specific retailers, just a little bit more color would be helpful? Thanks.

Yes, I think we've got three wins, one in rope and chain accessory, one in gloves, and one in deck screw area. And so the two of the three will be when we started them in the second half of the year, so you'll get the benefit of that as it goes into 2024.

The deck screw one will be a rollout. We've also, Jon maybe talk about, you know, kind of how we plug away with hardware, an example of what happens each year in stores plus new store openings, maybe talk about that for a second.

Absolutely, yes we're excited about 2024. We feel like we have quite a bit of growth opportunity in front of us in our traditional hardware channel where we serve you know close to 15,000 outlets.

We have tremendous amount of opportunity. We've got a number of wins that Doug referenced there that are starting to, we're starting to feel in the back half of this year, which will help us next year.

A chain of stores in Florida, we've got some in the Midwest, we've got actually a pretty good sized target in the Northeast. So, we're excited about 2024 and the opportunities in the hardware chain.

And that'll be across all categories in many of those stores. So it really helps the entire common business.

Madison, we also have, and that's not in the number we gave you, but we also have the new Quick Tag 3 pet engraving machine that's going into one of our major customers with every new remodel, and there's 400 or 500 of those going in. We have the new 3.5 MinuteKey, which is to take what is office and home self-serve and now provide the consumer an opportunity to do Smart Fob and Transponder and RFID, and that will be growth opportunities.

I think that last one, the 3. 5 MinuteKey, is really going to be second half of '24 because we want to make sure the consumer experience is really good in that regard and we're taking care of the back end.

The retailer is essentially not doing the work. We're doing it for them.

[technical difficulty] And the retail is excited. Retail is really excited, because they're used to 399 key, and now we're going to do an $80 FOB for them.

So that should be also growth for us next year. But we want to be very cautious how we do that, because we don't want the consumer to get excited and then not be able to come through with the service on the backside.

Great. Thanks so much.

And then just secondly, if you could expand upon like how you're maintaining or gaining market share even as the market flows kind of based off of, you know, your commitment to retailers during the supply chain challenges where you have strong fill rates? Thanks.

Yes, for us, I mean, we're capitalizing, to your point, on the performance that Hillman's delivered over the last several years. And that's really some of the wins that we see in hardware.

And I mean, I'd have to really go back to Rope and Chain that Doug mentioned earlier. That's a perfect example where we expand into a category where we were before.

We actually successfully launched it early and we continue to build some momentum. We expect to take that, I'll say category strength to other customers.

So, we're going to continue to build on the momentum we have and the categories that we serve today and continue to expand into categories where we're not. So, we're really excited about 2024 in that area.

Great, thanks so much, guys.

Sure.

Hi. Good morning.

Thanks for taking my questions.

Hi, how you doing, Brian?

Very good. Very good.

I guess, well, back on the 24, when you think about the inventory benefit that's in '23 guidance, how much is that? And then when you look at '24, how much of a headwind is that and how do you overcome it?

Yes, Brian, I don't think we think it's necessarily a headwind for '24, and the reason is we're placing POs today from a commodity perspective that are below where they were, call it, 90 days ago. And so, if you go back and listen to the remarks, we talked about how that benefit in the P&L will flow through the back half of next year, but we'll feel that benefit, we believe, next year in a lower price of our inventory.

So, the way to think about it is in '23, we've seen some reduction in the value of the inventory, because of containers. We've also right-sized our inventory, and there'll be a minor benefit, as we think, about 2024 from those commodities coming down that we believe offsets any headwind that, we would have from putting you know inventory back in the system for growth.

So, you know as we think about next year, we think working capital is probably a neutral type item for us, and we'll grow our free cash flow with our EBITDA growth.

Okay, that's helpful. And then for the margin benefits, for EBITDA, when you think about flat revenues or down revenues in '24, how much margin benefit do you just get from kind of the lower inventory costs rolling through?

Is that 50 basis points, 100 basis points? Can you give some color on that?

Yes, we're not going to quantify that at this point, Brian, because we're still working on what our plan will be for next year and what we'll give as guidance. The only thing I would tell you is, as we think about this year's kind of full year EBITDA rate, we would expect next year to be at or above that number.

Okay, and then last, just on the 3.5 MinuteKey rollout. So that sounds like it's a second half of '24.

How many units ultimately do you think goes into that and are those all replacing current units?

So, the great news about that is you think about the retailer. They hate it when all of a sudden you've got all this stuff coming in and going out and all these new, you know, I want more floor space.

We're not asking them to do anything. And what we'll do is, for the most part, is retrofit our existing 3.0 MinuteKey with new brains and a new capability.

But it's not something that the retailer will even feel. So for the most part it's that.

And Jon has a number for next year on machines?

Yes, we're going to be north of 500.

Yes, and I think the reason, Brian, I'm saying second half, it's not that we won't be doing it in the first half. I just want to be real careful, because when the consumer, you know, gets excited about and decides to spend that kind of money at a kiosk, I think you have to make sure that the backside of that is a really good experience with five stars.

That's why I'm being a little cautious as to when it'll kick in. But they'll be machines.

They'll be over 50 by the end of the year or 45. And then they'll be rolling out starting first quarter.

But it's going to take us time to make sure that experience is great. Now again, it will cut home and office just like it did.

And then additionally, you'll have these other options that will be new.

Okay. Great.

Thank you so much for taking the questions.

Sure.

Hi, good morning guys. Actually it's Steve Volkmann here.

Hope you're all doing well?

Hi, how you doing?

Doing fine. Thank you.

Most of my questions have been answered. So maybe Doug, I should ask you about your golf game.

I'll tell you what, I always hate it when I peek in the fall and I'm peeking right now. My driver is ridiculous.

So that's an update, but I wish it was spring right now.

All right. On that note, I actually do have a couple quick ones.

Can we talk, Rocky, just a little bit about the cadence of margins in 2024? And I'm thinking specifically about sort of the various price cost dynamics.

Is there some kind of pass-through of the lower transportation costs at some point or do margins kind of grow a little bit or flat to a little bit each quarter? How do we think about that sort of flow through?

Yes. Again, Steve, not going to give full guidance, but I think we would be naive to think we're not going to give some price back to some retailers next year.

And so, I think you are going to see us do that. We are going to feel the benefit flowing through from the lower cost of goods sold.

So as we exit the fourth quarter, we've said we'll be above that 45% percent kind of historical rate, and we would expect to maintain that for most of next year.

Okay, great. And then, is it too early to sort of think about what the mature, MinuteKey 3.5 economics are?

I mean, how much do you think one of those generates in terms of revenue and margin when it's kind of at its run rate?

So it is right now because, you know, the big question is we're going to need and want – and the retailers definitely have agreed once we get the right number of machines, they need to start talking to the consumer about what's available. Now, Steve, there'll be a big auto key on top of that machine that used to just be an office key.

And so we'll be doing all we can. And we've got over 2 million emails of current MinuteKey customers that obviously will be targeting, not in a nuisance way, but in a great way of saving them money.

So I would - I'll be honest. I don't know yet.

All I know is that the software and the brains that the team have put together are working, and the backend, meaning the programming of that, are working on our two machines. So we're 2 for 2.

But it's a little early, at least for me, because we just don't know how many consumers are going to be comfortable with that. So for example, on a transponder key where there's a key that you have to plug into the car to have it start, meaning you can't keep it in your pocket, we're going to be able to copy that at the machine and we'll send that to your house.

That is pretty slick, but we don't know yet if the consumer is going to get all that, and it's our job to make sure, one, they do know they can, and two, we make sure that it's 5 stars when they're done. So I think it's a bit early, but we're excited.

And the retailer is super excited, because they don't have to lift a finger. We're doing the work, and we should be bringing them a market that, from the Smart Fob side, they have zero share today.

So it could be good for both. They're definitely supportive of it.

Okay. I appreciate it.

Thanks.

Yes, thank you.

Hi, Ryan. Ryan, you there?

We're still not able to hear you.

Thanks Cherie. And Ryan, we'll catch up with you, no worries.

Thanks everyone for joining us this morning. I'd like to thank our customers, our vendors, suppliers, and importantly, our hardworking team for the contribution to the quarter.

And we look forward to updating you again in the near future. Thanks for joining us this morning.