Simpson Manufacturing Company, Inc.

Greetings, and welcome to the Simpson Manufacturing Company's fourth quarter and full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the full presentation. If anyone should require operator assistance during the conference, 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 Attaway Investor Relations. Thank you. You may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's fourth quarter and full year 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 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, and thank you for joining us today. I'll begin with a summary of our full year 2020 results before turning to a discussion on our key fourth quarter performance drivers and initiatives. Brian will then walk you through our financial and fiscal 2021 business outlook in greater detail. I am extremely proud of our strong financial and operational performance in 2020. which we delivered in a highly challenging operating environment amidst the COVID-19 pandemic. Our net sales improved 11.6% over 2019 to $1.28 billion, the highest in the company's history, driven by strong sales volume. As a result, we generated record earnings of $4.27 per diluted share of 43.3% over 2019. These results would not have been possible without the hard work and dedication of all our Simpson employees. Their 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. On behalf of the entire Simpson management team, we applaud them for their tremendous efforts. The health, safety, and well-being of all our employees remains our number one priority. and we will strive for continuous improvement to ensure Simpson remains a safe and rewarding place to work. Our record 2020 results were further supported by our commitment to position Simpson for long-term, sustainable, and increasingly profitable growth. In October of 2017, we unveiled a three-year 2020 plan with aggressive targets to maximize our operating efficiencies, and drive long-term shareholder value. Since then, we've made significant progress against our goals, some of which we updated in July of 2019 to reflect changes in the macroeconomic landscape. While we elected to withdraw these financial targets in April of 2020 due to the significant level of uncertainty surrounding COVID-19, We continued to execute based on the same underlying principles, focusing on operating efficiencies and cost savings to guide us through the COVID-19 pandemic. At the same time, we did experience certain tailwinds in our business as a result of the COVID-19 related macroeconomic conditions. Mainly, we had favorable steel prices, temporary reduction in travel and related operating expenses, and an increase in repair and remodel activity. Due to the culmination of these factors, we were able to meet or exceed nearly all of our ambitious 2020 plan objectives. We are very proud of these accomplishments, and I'd like to spend a few minutes discussing those with you. Our first 2020 plan objective was a continued focus on organic growth. Our goal was to achieve a compounded annual growth rate in net sales of approximately 8% from 2016 through 2020. As of the year end of 2020, we well exceeded this target, achieving a compounded annual growth rate over 10% relative to our 2016 baseline. Milestones that help support this goal included price increase for the majority of our U.S. wood connector products, in the third quarter of 2018, the signing of one of our largest U.S. home building companies onto our builder program, resulting in 23 of the top 25 U.S. builders now engaged on our program, strong repair and remodel trends associated with the COVID-19 pandemic, and the return of Lowe's as a home center customer in mid-2020. Our second objective involves rationalizing our cost structure to improve company-wide profitability. We aimed to reduce our total operating expense as a percent of net sales from 31.3% in 2016 to a range of 26 to 27% by the end of 2020. We tackled this through a combination of zero-based budgeting, lowering our indirect procurement costs, and other cost reduction measures we took in both Europe and in our country's business. In addition, specifically in 2020, we experienced solid cost savings from our expense management practices, as well as one-time benefits from the reduced travel and trade show costs as a result of the COVID-19 restrictions. These factors combined with strong top-line growth enabled us to exceed our operating expense target. For the full year of 2020, we recorded operating expenses as a percent of net sales of 25.6%, representing 570 basis points of improvement compared to 2016. Our next plan was to improve our operating income margin to a range of 16 to 17% by the end of 2020. We exceeded this target as our gross margin significantly benefited from lower material costs and limited spending on operating expenses due to the COVID-19 restrictions. We reported an operating income margin of 19.9% for 2020, a 350 basis point improvement compared to 16.4% in 2016. At the consolidated level, our gross margin improvement was supported by enhanced gross margins in our concrete business, another 2020 plan goal. Following the unveiling of the 2020 plan, we implemented a new concrete strategy in late 2017 by narrowing our concentration to six distinct product categories. By focusing on these higher margin products, to increase profitability, we exceeded our goal of improving our global concrete gross margin from 34.7% in 2016 to 42% in 2020. Our final profitability goal was to improve our operating income margin in Europe. We've made substantial progress in Europe over the past few years, including rolling out our fastener lines in the Nordic region and in France, The consolidation of our European management team create efficiencies, as well as significant cost-cutting initiatives. As a result, we achieved an operating income margin of 7%, excluding our SAP costs of approximately 2.5 million in 2020. While this is lower than our original target range of 8% to 9%, we are pleased with the results, which reflect approximately 350 basis points of improvement versus the 2016 numbers. Our third objective focused on improving our working capital management and overall balance sheet discipline. Since the onset of the 2020 plan, we've made headway on this front primarily through inventory reduction and the implementation of lean principles throughout our operation. We've completed a three-phase skew reduction program eliminating upwards of 12,000 non-moving or slow-moving items, and converted our customers over to replacement products. In addition, we carried out rapid improvement events at many of our U.S. production facilities, resulting in efficiency enhancements as well as improved management of inventory and purchasing practices. As we move forward, we remain committed to driving continuous cost management and improved efficiencies through our lean initiatives. However, consistent with our strategy, it is critical that we balance our inventory purchases with our liquidity needs in order to maintain our commitment to product availability standards and an exceptional customer service experience. The final element of our 2020 plan was focused on maximizing shareholder value with the goal of improving our return on invested capital from 10.5% in 2016 to a range of 15 to 16% by the end of 2020. Through our solid operational execution, combined with the enactment of the US Tax Cuts and Jobs Act of 2017, which lowered our effective income tax rate beginning in 2018, We surpassed this target, ending 2020 with a return on investment capital of 20%. Beyond this, we continued to return capital to our shareholders in the form of dividends and share buybacks. In 2020, we returned $116.2 million to our stockholders through the payments of $40 million in dividends and $76.2 million in share repurchases. Since the onset of the 2020 plan, we have returned over 83% of our cash generated by operations to our shareholders, far exceeding our target of 50%. I am extremely proud of all that we've accomplished in these past three years. And by executing on the 2020 plan, we achieved solid organic growth, we've rationalized our cost structure to improve company-wide profitability, and we've improved our working capital management and balance sheet position, in turn creating value for all key Simpson stakeholders. I'd like to once again thank all of our employees for their dedication and hard work to meet these extraordinary achievements. Now let's turn to some brief information on our fourth quarter results and operating initiatives. Our fourth quarter consolidated net sales grew 12% year-over-year to $293.9 million on significantly higher volume. Gross margin increased to 42.1% from 41.9% in the prior year quarter, primarily related to strength in Europe, where we experienced lower material and warehouse costs. Our solid gross margin combined with effective expense management and reduced costs from travel and other restrictions as a result of the COVID-19 drove a 7.8% year-over-year increase in our income from operations to $39.5 million and earnings of 68 cents per diluted share. The increase in sales volume we experienced in the fourth quarter was primarily related to ongoing momentum in the home center distribution channel, which includes both our home centers and co-op customers. We are continuing to experience a shift in consumer behavior toward home renovations as a result of the pandemic. Sales from home center distribution channels where we see much of our repair and remodel business improved over the prior year period. Growth was supported by our product rollout of our connectors, mechanical anchors, and fastener product solutions into all 1,737 Lowe's stores, which we completed during the fourth quarter. As a reminder, Lowe's returned to Simpson as a home center customer beginning in the second quarter of 2020. Our sales were further supported by solid U.S. housing starts. As we generally experience a multiple month lag in the demand from the time of the start, in the fourth quarter, we benefited from strong third quarter 2020 housing starts, which grew over 11% year over year. In addition, while we typically see lower seasonal sales in the fourth quarter related to holiday closures and winter conditions, in 2020, the fourth quarter, we experienced a very mild winter. This enabled construction activity to continue late into the year, further bolstering our net sales. Turning now to Europe. Sales continued to recover nicely following government-ordered shutdowns to our operations in the United Kingdom and France due to COVID-19 in late March. Sales were assisted by strong demand trends and our ability to meet our customer needs through our solid inventory management practices. We believe ourselves benefited in Europe during the fourth quarter as many of our competitors experienced supply chain issues. During this time, we were able to offer customers the important products they required to keep up with demand and to maintain job sites on schedule. I'd also like to note that while the United Kingdom has reimplemented shutdowns due to the most recent COVID-19 surge, We have been deemed an essential business, and all of our major production and distribution facilities have remained open and operational, with remote work being promoted where possible, such as in our corporate offices. In regards to our SAP implementation, the rollout continued to progress despite travel limitations related to COVID-19. In the fourth quarter, we completed the SAP rollout at our UK branch and the Allison, Tennessee locations, both of which are now live. Most recently, we have successfully transitioned all of our Canadian-based sales organizations over to SAP, thus completing the full SAP rollout in North America, a very important milestone. This year, we will continue working on the SAP transition in our European locations and the rest of the world, And we currently anticipate a company-wide completion in 2022. And we will continue to monitor and update our timeline should circumstances change. And I'd like to briefly touch on our capital allocation structure. We are very grateful to be able to operate as a supplier to other essential businesses, only minimal disruptions due to the pandemic. As our business continues to generate strong cash flow, we remain focused on appropriately balancing our growth and stockholder return priorities. We are also very pleased to be in a position to pay off our line of credit borrowing in full, as well as declare our quarterly dividend as we have done consistently since 2004. While the challenges of the COVID-19 pandemic continue to impact our broader economy, Exiting 2020, we feel confident in the bright future that we believe lies ahead for Simpson. With another quarter of strong year-over-year growth in housing starts, which were up over 11% in the fourth quarter of 2020, we believe housing will continue to be a key element of the economic recovery in the coming years ahead, and we are well positioned to capitalize on this environment. At the same time, we continue to pursue our strategy of diversification positioning our business to be less vulnerable to U.S. housing markets through key investments and adjacent products and markets. And we also remain focused on growth, including M&A opportunities that would complement our existing product offering, manufacturing footprint, or strengthening our software capabilities. Our success in achieving the 2020 plan targets has created a very strong foundation for Simpson. successfully positioning our company for long-term, sustainable, and increasingly profitable growth. But now we are ready for our next chapter. Today, I'm pleased to announce that on Tuesday, March 23rd, we plan to host a virtual Analyst and Investor Day to provide more insight and details surrounding the elements of our business strategy in 2021 and beyond. Additional information about this event will be released in the coming days. Thank you very much for your time and attention. Now I'd like to turn the call over to Brian, who will discuss our fourth quarter financial results and 2021 outlook in greater detail.