Simpson Manufacturing Company, Inc.

Welcome to the Simpson Manufacturing Co. Inc. Third 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 that this conference is being recorded. I will now turn the conference over to Madeline Crane, Investor Relations. You may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's third 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.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, Madeline. Good afternoon, everyone, and thank you all for joining us today. I'd like to provide a high-level overview of our third quarter financial results and the associated performance drivers. I'll then wrap up by summarizing our key growth initiatives. Brian will then walk you through our financials and full year 2021 business outlook in greater detail. Our third quarter net sales of $396.7 million were once again very strong and increased 8.9% over the prior year period. Sales growth was primarily driven by product price increases to offset rising raw material costs. While the macroeconomic landscape remained challenged throughout the third quarter due to ongoing global supply chain constraints, limited steel availability, and a tight labor market, we continued to deliver on the key elements of our business model to ensure our customers' needs were met. This includes, but is not limited to, ensuring availability of our trusted product solutions, typically within 48 hours or less. To date, we have implemented four price increases in 2021. In early April, mid-June, mid-August, and our fourth price increase in mid-October. These price increases ranged from mid-single digits to mid-teens, depending on the product mix, for certain of our wood connectors, fasteners, and concrete products in the United States. Looking at our sales results in greater detail, although third quarter net sales benefited primarily from a full quarter of the first two price increases, our top line moderately declined by 3.3%, compared to the second quarter of 2021, predominantly due to decreases in sales volumes from our homesteader channel, which I'll discuss in more detail shortly. These price increases were primary contributor to another quarter of strong gross margins, which increased to 49.9% from 47.9% in the prior quarter, and 47.6% in the year-ago period. As a result, our income from operations improved to $100.6 million and led to strong earnings per diluted share of $1.70. As we highlighted on our last call, we currently anticipate significant gross margin compression beginning in fiscal 2022 as we continue to acquire higher-priced raw materials, thereby raising our average cost of steel on hand. Brian will discuss this impact in more detail during his remarks. Turning back to our sales performance, we experienced declining sales volume during the third quarter throughout the various forms of distribution channels we served, including our home center channel and other distribution channels to contractors and lumberyards. As a reminder, the home center channel includes both our home center and co-op customers, and is where we see much of our repair and remodel and DIY business. We experienced a slowdown in this channel during the third quarter, as we believe there may be a re-leveling of inventory for our customers. Additionally, our sales reflected an as-expected decline year over year related to the return of Lowe's as a home center customer. As you may recall, we experienced elevated volumes in both Q2 and Q3 of 2020 as we loaded in our products at the lowest locations, resulting in a difficult comp in both quarter two and quarter three of this year. We expect volume levels in the home center channel to become normalizing in the fourth quarter as demand increases and we pass the elevated volumes from last year's product roll-in into lows. Similar to the home center channel, we experienced modest volume decline in our other distribution channels to contractors and lumber yards during the quarter. We are confident this decline in volume is not due to a loss of customer or market share and attribute this primarily to customers adopting a more cautious stance in regard to their inventory levels given tightening labor and supply chain conditions and the potential impact on the building industry. With that said, U.S. housing starts continue to show promise, improving by 19.5% during the first nine months of 2021 versus comparable period last year. And finally, in Europe, our third quarter sales improved over the prior year on a local currency basis, primarily from strengthening demand compared to the prior year, where we experienced government mandated COVID-19 related closures, and to a lesser extent from price increases. Sales in Europe also improved from our ability to continue meeting our customers' needs due to our solid inventory management practices amid broader supply chain shortage. I'll now turn to a high-level discussion on our key growth initiatives, which we first unveiled in late March of this year. We are focused on growing in the OEM, repair-remodel, DIY, and mass timber markets, where we are striving to be a leader in engineered, load-rated construction fastening solutions, given that each of these markets have a broader product opportunity within the fastening solutions. We are also focused on building our presence in concrete construction, as well as structural steel, which is a new market for Simpson. While we are looking to grow our presence in each of these key growth areas, it's important to realize that we already have existing products, testing results, distribution, and manufacturing capacities in place for all five of these initiatives. To bolster our growth, we remain focused on organic opportunities through expansion into new markets within our core competencies of wood and concrete products. as well as inorganic opportunities through licensing, purchasing IP, and traditional M&A. While we are pleased that we are continuing to build out these product lines and inherit new customer wins to improve our market share, we recognize this will be a multi-year endeavor to ensure we have the proper testing, the validation of our product lines, and to ensure we provide our customers with the highest quality solution set to build safer, stronger structures. Currently, each of our key growth initiatives remains in different phases of implementation. However, we believe that these are the right areas to pursue to position Simpson for above-market growth based on our ability to execute given the core tenets of our business model. That includes our strong, long-standing relationship with top builders, engineers, contractors, code officials, and distributors, as well as our significant engineering expertise and our ongoing commitment to testing, research, and innovation. Finally, we are working to become a leader in building technology space, which hits upon all of our key growth initiatives. As we continue to develop innovative new tools and solutions for our customers, to help with design and options management, we'll also be able to easily specify the right Simpson solution for the job, helping to drive enhanced growth across our business. Our strong earnings and effective working capital management have enabled us to continue generating strong cash flow to fuel our growth and stockholder return priorities. In regard to growth, we are dual focused on both organic growth and M&A opportunities. To facilitate growth organically, we are investing in areas such as engineering, marketing, and sales personnel, as well as testing capabilities across all areas of our business, including the aforementioned five adjacencies where we are looking to expand. We may also invest in facility expansions to support our growth. In regards to M&A, we are more broadly focused on product line expansions in order to develop complete solutions for the markets in which we operate. This may also include opportunities in areas that support our key growth initiatives. In summary, despite broader market challenges, we are very pleased with our continued strong results both financially and operational for the third quarter. I want to say thank you to all our Simpson StrongTie employees for your commitment to health, safety, and outstanding customer service to successfully manage through the broader supply chain constraints and keep our customers up and running. Thank you for your time and attention. And now I'd like to turn the call over to Brian, who will discuss our third quarter financial results and our 2021 outlook in greater detail. Brian?