Simpson Manufacturing Company, Inc.

Greetings and welcome to the Simpson Manufacturing Company Incorporated third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kim Orlando, from Addo Investor Relations. Thank you, Kim. You may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's third 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 filings 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 www.cinsonmfg.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 third quarter results, and we'll then turn to a more detailed discussion on our key performance drivers and initiatives. Brian will then walk you through our financials and updated business outlook in greater detail. We delivered strong third quarter results with our sales increasing 17.5% year over year to $364.3 million on significantly higher volume. Compared to the second quarter of 2020, our sales increased 11.7%. Further, we achieved a considerable improvement in our gross profit margin to 47.6% from 44.4% in the prior year quarter primarily related to lower materials and labor costs. The strength in our gross profit margin, combined with our efforts in expense management and reduced costs from travel and other restrictions as a result of the COVID-19, helped drive a 49.8% year-over-year increase in our income from operations to $91.3 million and strong earnings of $1.54, per diluted share. I'd like to sincerely thank all of our employees for their perseverance and support through these unprecedented times. At Simpson, we value our employees' health, safety, and well-being as our top priority and strive for continuous improvement to ensure our company remains a safe and rewarding place to work. Our diligence, including strict adherence to protocols to help minimize the spread of COVID-19, has enabled us to continue operating our business with minimal disruptions from the pandemic. In regard to the recent hurricanes and wildfires, we are incredibly thankful that none of our employees or locations in the affected areas were negatively impacted by these disasters. We are prepared to play a key role in the rebuilding efforts with our mission of helping people build safer, stronger structures. Getting back to our results, the substantial increase in sales volume we experienced in the third quarter was primarily related to ongoing momentum in the repair and remodel space, which includes both our home center and co-op customers. We continue to benefit from a shift in consumer behavior toward home renovations as people are spending more and more time in their homes and outdoor living spaces as a result of the COVID-19 pandemic. We estimate sales from the home center channel, where we see much of our repair and remodel business improved 125% over the prior year period. As disclosed on our previous call, we're extremely happy to have Lowe's return as a home center customer in the second quarter, during which time we began shipping our product into their location. We continue to make progress on our product rollout during the third quarter. as of the end of September, all Lowe's stores had been set with our industry-leading connectors as the exclusive supplier. In addition, both our mechanical anchor and fastener product solutions were set in 987 stores, among other competing manufacturers. By the end of October, we expect our product sets to be nearly completed in all 1,737 Lowe's stores. In addition, While the Home Depot continues to carry our connector line, most of our mechanical anchor and fastener products are being phased out of the Home Depot locations throughout the remainder of this year. As a reminder, our mechanical anchor and fastener products were in some but not all Home Depot locations. Our sales were further supported by strong U.S. housing starts in 2020. In the third quarter of 2020, housing starts grew 11.4%. versus the comparable period last year, and grew 29.9% versus the second quarter of 2020. Notably, in the west and south, where we provide a meaningful amount of content into homes, third quarter starts grew 7.6% and 14.1%, respectively, year over year. Turning now to Europe. we saw our sales recover nicely with our facilities now operating at full capacity following government shutdowns in the United Kingdom and France due to the COVID-19 in late March. While much of the improvement in Europe was related to the benefit of foreign currency translation, sales still improved both year-over-year and quarter-over-quarter on slightly higher volumes. As part of our strategy to continue to grow our market share in Europe, subsequent quarter-ends we acquired a small connector manufacturer based in the United Kingdom with a complimentary product line. The acquisition closed early in October, and the acquired company's operations will be absorbed into our existing business. Overall, we expect this acquisition to benefit our market position in the region moving forward. I'd now like to shift our focus to our software strategy. As previously discussed, we believe the investments we've made over the years in software have enhanced our technological capabilities to remain competitive in the wood construction space by providing our customers with complete end-to-end product and software solutions. We estimate over 40% of our core wood connector sales are to customers with software needs and believe this figure will increase over time. To further our expertise in this area, we completed the purchase of a small software application for builders during the third quarter of 2020. Similar to our acquisition of LotSpec in 2018, which was a suite of software applications designed to optimize efficiency and productivity for home builders, this application expands our software choices for builders to help minimize costs and best align with their business needs. By expanding our technology offerings to provide our customers with more tailored and innovative software solutions, we believe we will strengthen our value proposition. Next, I'll return to an update on our SAP implementation, which has continued to progress despite travel limitations related to the COVID-19. Some of the benefits we've enjoyed so far include better forecasting tool to aid with working capital management and particular inventory management. Earlier this year, we successfully transitioned all of our U.S.-based sales organizations over to SAP. Immediately following the third quarter, we also completed two more locations, including our UK branch, which is now live. That said, given the duration and severity of the pandemic remains highly fluid and uncertain, we are unable to accurately predict how COVID-19 will continue to impact international travel, on-site meetings, and training requirements to complete the rollout in our remaining locations. As such, we currently anticipate a company-wide completion goal in 2022 versus near the end of 2021, though we will continue to monitor and update our timeline should circumstances change. Now, I'd like to briefly touch on our capital allocation strategy. As business continues to generate strong cash flow, we remain focused on appropriately balancing our growth and stockholder return priorities while also paying down debt. While our focus for the majority of the year has been on cash preservation to ensure our working capital needs during the pandemic could be met in the near term, over the past seven months, we have been very grateful to be able to operate as a supplier to other essential businesses, with only minimal disruptions to the COVID-19. As such, we are continuing to support our growth strategy in identifying M&A opportunities that would complement our existing product offering, manufacturing footprint, or strengthen our software capabilities. We were also very pleased to declare our quarterly dividends as we have done consistently since 2004. Before I conclude, I'd like to extend a warm welcome to Mike Oleski, our new Chief Operating Officer. As previously announced, Mike will be joining Simpson at the end of November after spending over 22 years in numerous leadership positions at Hinkle, a global chemical and consumer goods company. We are excited to have Mike on board, and he will be instrumental in helping us uncover new ways to remain innovative and seek opportunities for future growth. Mike replaces our former COO, Ricardo Arevalo, who retired in February of 2020 after 20 years of service to Simpson Strong Ties. While the search to find the right candidate took longer than anticipated, I could not be more pleased with our choice. In summary, we executed an excellent third quarter with strong financial performance across the board despite broader macroeconomic challenges that continue to plague our economy. The durability of our business model has continued to support us through this challenging time as a result of key elements, including our strong brand recognition and trusted reputation in the industry, our industry-leading, high-quality, and tested product solutions, our superior customer service standards, our disciplined capital allocation strategy, a strong balance sheet and liquidity position, which enables financial flexibility, and most importantly, our passionate and dedicated employees. Looking ahead, we believe the solid demand trends we experienced in third quarter of 2020 will continue through the duration of the year, aside from the seasonality we typically experienced during the fourth quarter due to holiday-related closures and winter conditions. I'd like to thank our talented and valued employees for their dedication and commitment to health, safety, and best-in-class customer service. And now I'd like to turn the call over to Brian to discuss our third quarter financial results and outlook in greater detail.