Simpson Manufacturing Company, Inc.

Greetings. Welcome to Simpson Manufacturing Company Incorporated second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A 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. Please note this conference is being recorded. I will now turn the conference over to Kim Orlando with Aldo Investor Relations. Thank you. You may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's second quarter 2021 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 ir.simpsommfg.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, Simpsons 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 key second quarter performance drivers and initiatives. Brian will then walk you through our financials and updated full year 2021 business outlook in greater detail. We experienced strong business momentum in the second quarter. generating net sales of $410.3 million, which grew 18% over the prior quarter and 25.8% over the prior year period. Sales growth was primarily driven by the implementation of two product price increases during the quarter, along with marginal increases in sales volume. Throughout the quarter, we were very pleased to be able to continue meeting the needs of our customers by providing them with our trusted product solutions, typically within 48 hours or less. This is despite the current environment marked by the increasing prevalence of global supply chain constraints, limited steel availability, and a tight labor market. The recent price increases we implemented drove significantly higher gross margins for the second quarter, which increased to 47.9% from 46.7% in the prior quarter and 45.9% in the year-ago period. As a result, our income from operations improved to $101.7 million and led to strong earnings per diluted share of $1.66. Looking at our sales results in more detail, the majority of the increase we experienced both sequentially and over the prior year period was a result of two price increases that became effective during the second quarter. These price increases were in direct response to rising material costs. Effective April 5th, we implemented price increases ranging from 5% to 12%, depending on the product mix, for certain of our wood connectors, fasteners, and concrete products in the U.S. On June 16th, a second price increase ranging from 6% to 12%, primarily on our wood connector products in the U.S., also went into effect. As the price of steel continued to rise throughout the second quarter, we announced a third price increase in June in the range of 7% to 15% across a variety of our product lines in the U.S., which will become effective for most customers in mid-August. Consistent with our historical business practice, our customers received at least a 60-day advance notification for price increases, along with a clause that reduces significant pre-buying. This enables us to manage our inventory levels in this challenging market. Importantly, while we expect these price increases will support our gross margin levels throughout the remainder of fiscal 2021, our gross margins in the first half of 2021 reflect an average cost of steel sourced prior to or earlier into the surging steel market, together with steel purchased more recently at significantly higher prices. These higher prices are in the range of more than double those earlier costs. We are continuing to acquire higher priced raw materials, which we currently anticipate will result in gross margin compression beginning in late fiscal 2021 and into fiscal 2022. Brian will discuss this impact in more detail during his remarks. Turning back to our sales performance, we experienced mixed trends in the various forms of distribution channel we served, including our home center channel and other distribution channels to contractors and lumber yards. While our momentum with home centers continued, Our sales reflected a high teens percentage decline in this channel year over year, given a challenging comparison with lapping the return of Lowe's as a home center customer in the second quarter of 2020. As a reminder, the home center channel includes both our home centers as well as co-op customers and is where we see much of our repair and remodel and DIY business. Last year we experienced elevated volume levels as we began our load-in and shipped our connector products into Lowe's stores. We expect to experience a similar trend next quarter as we lap the elevated volumes from our mechanical anchor and fastener load-ins at Lowe's in the third quarter of 2020. Offsetting the decline in the home center channel was double digit growth in our other distribution channels during the quarter. This was due to the aforementioned sales price increases and ongoing strength in demand for our products, which benefited from upward trends in U.S. housing starts. As we generally experience a multi-month lag in demand from the time of housing starts, the second quarter reflected strength in the housing starts during the first quarter of 2021, which grew by nearly 9% year over year. Finally, in Europe, Our second quarter sales improved over the prior year on a local currency basis, given strengthening demand compared to the prior year where we experienced government mandated COVID-19 related closures, which resulted in lower sales volumes. Sales in Europe were also supported by our ability to continue meeting our customer needs due to our solid inventory management practices amid broader supply chain shortages. I'll now turn to a high-level discussion on our key growth initiatives, which we first introduced earlier this year during our Virtual Analyst Investor Day event on March 23rd. Our growth initiatives focus on the following five markets, which I'll name in no particular order of priority. OEM, which is Original Equipment Manufacturers, Repair, Remodel, and Do It Yourself, Mass Timber, concrete, and structural steel. Importantly, we currently have existing products, test results, distribution and manufacturing capabilities in place for all five of our growth initiatives. In these markets, we are focused on organic growth opportunities through expansion into new markets within our core competencies of wood and concrete products, as well as inorganic growth opportunities through licensing, purchased IP, and traditional M&A. In order to appropriately grow in the first three markets, that would be the OEM, DIY, R&R, and mass timber, we aspire to be a leader in the engineered load-rated construction fastening solutions, given each of these markets have a broader product opportunity within fastening solutions. In addition, We're striving to be a stronger leader in building technology by continuing to provide innovative tools and solutions that both help our customers with design and options management, while simultaneously enabling them to select and specify the right Simpson solution for the job. We expect technology advancements will drive enhanced growth in all of our key growth initiatives, as well as across all of Simpson in general. Today, each of our growth initiatives are in a different stage of development. We are confident in our ability to execute them based on our strong business model, which emphasizes engineering expertise, deep rooted relationships with our top builders, engineers, contractors, code officials, and our distributors, along with our ongoing commitment to testing, research, and innovation. We believe these initiatives will continue to position Simpson for above market growth and will keep you apprised of any significant updates as they arise. Finally, I'd like to take a brief moment to touch on our capital allocation strategy. As our business continues to generate strong cash flow, we remain focused on appropriately balancing our growth and stockholder return priorities. We will prioritize investing in our growth initiatives in areas such as engineering, talented market and sales personnel, and testing capabilities. M&A also remains a high key area of focus in order to expand our product lines and develop complete solutions for the markets in which we operate, as well as potential M&A opportunities in areas of direct alignment or support on our key growth initiatives. To assist with these efforts, we're looking to other avenues such as venture capital expertise to help identify potential strategic acquisitions or investments, including innovative technologies of interest in the building space. In regard to stockholder returns, during the quarter, our board of directors approved a change to our capital return thresholds to 50% of Simpson's free cash flow. as compared to our previous threshold of 50% of our cash flow from operations. This change was made to better align our capital return thresholds with our growth initiative strategies and investments. We remain committed to returning value to our stockholders in the form of opportunistic share repurchases and dividends moving forward. In summary, we are very pleased with our strong second quarter financial and operational performance. Looking ahead to the second half of the year, we expect to build on the continuing momentum we are experiencing, including strong housing starts. We look forward to continuing to provide our customers with Simpson's industry-leading solutions, supported by our longstanding relationships, technical and field support, strong inventory position, and consistent product availability. Thank you for your time and attention. Now I'd like to turn the call over to Brian, who will discuss our second quarter financial results and 2021 outlook in greater detail.