Simpson Manufacturing Company, Inc.

Greetings and welcome to the Spencer Manufacturing Co. Second Quarter 2020 Earnings Conference Call. At this time, all participants are on the list and on the mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Kim Rolando, with Adderall Investor Relations. Thank you. You may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's second quarter 2020 earnings conference call. Any statements made on this call that are not based on historical facts are forward-looking statements. Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties. Actual future results may vary materially from those expressed or implied by the forward-looking statements. We encourage you to read the risks described in the company's public filing and reports, which are available on the SEC's or the company's corporate website. Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that we make here today, whether as a result of new information, future events, or otherwise. Please note that the company's earnings press release was issued today at approximately 4.15 p.m. Eastern Time. The earnings press release is available on the Investor Relations page of the company's website at SimpsonMFG.com. Today's call is being webcast and a replay will also be available on the Investor Relations page of the company's website. Now I would like to turn the conference over to Karen Colonius, Simpson's President and Chief Executive Officer.

Thanks, Kim, and good afternoon, everyone. I'm pleased to discuss our results with you today. I'll begin with a high-level summary of our second quarter financial results, and we'll then turn to a more detailed discussion on our key performance drivers, along with the actions we've been taking in response to the COVID-19 pandemic. We executed a strong second quarter with sales of $326.1 million, improving 7% year over year, and 15% quarter over quarter on higher volume, despite the significant levels of macroeconomic challenges resulting from COVID-19. We maintained a strong gross profit margin of 45.9% due to a combination of sales mix and lower material costs on improved overhead absorption. This, when coupled with our effective expense management, resulted in a 35% year-over-year increase in our income from operations to $72.2 million and strong earnings of $1.22 per diluted share. Our sales volume improved primarily due to the return of a home center customer during the quarter, which resulted in significantly higher demand associated with the initial product rollout into those stores. I'll give more details on this new customer relationship momentarily. In addition, we saw improved sales in the repair and remodel market, which were stronger than anticipated as a result of a shift in consumer behavior toward home renovation, which we believe stems from the COVID-19 pandemic and associated shelter-in-place orders. Partially offsetting its strengths were volume declines specific to Europe following government shutdowns in the United Kingdom and France in late March, These facilities are now backed up and running at near full capacity. I'd like to take this time to thank all of our Simpson employees for their dedication and commitment through their extraordinary challenging times. As the health, safety, and well-being of our employees is our number one priority, we've been extremely diligent in our efforts to ensure Simpson remains a safe place to work. We've been enacting rigorous safety protocol in all of our facilities, including improved sanitation measures, mandatory social distancing, temperature screening, staggered shift schedules, and remote working when possible. These actions, in addition to being deemed an essential business, have enabled us to continue operating our business with minimal disruptions during the pandemic. Importantly, we have not experienced any supply chain disruptions related to COVID-19 and have been able to continue meeting our customer needs. I'd now like to discuss a key driver of our performance during the second quarter. As some of you may recall, we had a prior relationship with Lowe's back in 2011, and we are delighted to have the opportunity to once again supply their customers with our industry-leading mechanical anchor, Connector and Fastener Product Solutions. During the second quarter, we shipped our connector products into Lowe's and expect to ship selections of both our mechanical anchor and fastener products in the current quarter. Please note that the sell-through into the Lowe's storage required for initial inventory stocking in Q2 and Q3 will not be indicative of volume trends moving forward. In addition, we anticipate some of our mechanical anchor and faster products will be phased out of the Home Depot throughout the remainder of the year. These products were in some but not all Home Depot locations. Next, I'll turn to an update on our SAP implementation, which has continued to progress on track despite travel interruptions related to COVID-19. We have transitioned our rollout and training efforts to a virtual format for the time being, which has been working out quite well. As of the end of the first quarter of 2020, all of our U.S.-based sales organizations have been transitioned over to SAP. And as of today, we still anticipate a company-wide completion goal near the end of 2021. We will continue to monitor and update our timeline should COVID-19 continue to impact international travel for an extended period of time. As many of you are aware, we withdrew our financial targets associated with our 2020 plan back in April, given the uncertainty surrounding the impact of COVID-19 on our operations, customers, and suppliers. That said, we've made significant progress from when the plan was first publicly announced through the implementation of strategic changes to our business to ensure the long-term sustainability and profitability of our operations. By investing in adjacent products and markets, we've achieved enhanced diversification in our product and service offerings, leading our business to be far less reliant on U.S. housing starts than it has been historically. We also took significant steps to rationalize our cost structure in addition to reducing discretionary expense in the current environment in order to operate more efficiently. The outcome of these efforts is directly evident by our 280 basis point improvement in our total operating expenses as the percent of sales for the second quarter of 2020 compared to the second quarter of 2019. In summary, we were very pleased with our second quarter financial performance despite the highly volatile and unpredictable environment that has continued into the third quarter. So far, in the first few weeks of July, our net sales have increased approximately 10% compared to July of 2019. Looking ahead, we believe the solid demand trends we experienced in the second quarter of 2020 from the addition of Lowe's and improved repair and remodel market will continue, offsetting expected weakness in housing construction. Brian will provide additional details regarding our reinstated financial outlook for the full year of 2020 shortly. We look forward to continuing to execute our model with an emphasis on enhancing our operational efficiencies and cost savings Thank you for joining us. and a healthy balance sheet and solved liquidity positions. Thank you again to our employees for their commitment to health, safety and best-in-class customer service. I'll now like to turn the call over to Brian to discuss our second quarter financial results and the outlook in greater detail.