Simpson Manufacturing Company, Inc.

Greetings. Welcome to the Simpson Manufacturing Company's fourth 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 your host, Kim Orlando, with Addo Investor Relations. Thank you. You may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's fourth quarter and full year 2021 earnings conference call. Any statements made on this call that are not statements of historical fact 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 report, 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 may 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, Simpson's 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 2021 results before turning to a discussion of our fourth quarter performance drivers, key growth initiatives, and capital allocation priorities. Brian will then walk you through our financials and fiscal 2022 business outlook in greater detail. I'm extremely pleased with our financial and operational performance in 2021. In a year burdened by a challenging macroeconomic landscape due to ongoing supply chain constraints, increasing steel costs and availability, as well as a tight labor market, we continue to deliver on the key elements of our business model to ensure we met the needs of our customers by providing them with our trusted products and solutions. We experienced solid business momentum with sales growth supported by the implementation of four price increases throughout the year to help offset our rising material costs. As a result, we generated strong full-year net sales of $1.57 billion and earnings of $6.12 per diluted share. In addition, in March of 2021, we unveiled new five-year company ambitions for Simpson, along with strategic growth initiatives which we believe will promote continued growth in our business and create incremental value for all key Simpson stakeholders. Our performance would not have been possible without our valued employees. I'd like to thank all of them for their hard work and dedication as they strive to achieve our five-year ambitions, as well as their commitment to operating in a safe environment. Turning to the fourth quarter, net sales of $418.6 million were once again very strong and increased 42.4% over the prior year period. Sales growth was primarily driven by the implementation of four price increases in April, June, August, and October of 2021. These price increases ranged from mid-single digits to mid-teens, depending on the product mix, of our wood connectors, fasteners, and concrete products in the US market. Our sales were further supported by mild winter weather conditions and higher sales volumes throughout our various distribution channels. Specifically, sales volumes in our home center channel began to normalize in the fourth quarter as we lapped the difficult year-over-year comparison with the return of Lowe's as a home center customer in 2020, which drove high volumes associated with our product load-in. As a reminder, the home center channels include both our home center and co-op customers, and is where we see much of our repair and remodel and DIY business. We also experienced solid volume growth in our other distribution channels to contractors and lumber yards. Our consolidated Net sales in Europe for the fourth quarter decreased slightly year over year, primarily due to foreign currency translation. We experienced another quarter of strong gross margins supported by our product price increases. Our consolidated gross margin increased 530 basis points to 47.4% compared to 42.1% in the year-ago period. As a result, we grew our income from operations to $97.1 million, resulting in strong fourth quarter earnings per diluted share of $1.61. After building a strong foundation for our company through the execution of our 2020 plan, which was comprised of aggressive three-year financial targets to help maximize operating efficiencies, We unveiled new five-year company ambitions for Simpson last March, which are as follows. Strengthen our values-based culture. Be the partner of choice. Be an innovative leader in the markets we operate in. Continue our above-market growth relative to U.S. housing starts. Expand our operating income margin to remain within the top quartile of our proxy peers. and expand our return on invested capital to remain within the top quartile of our proxy peers. We also announced five key markets which we believe will help us achieve ambition number four, continuing our track record of above market growth relative U.S. housing starts through a combination of organic and inorganic opportunities. We are focused on growing in the OEM R&R and DIY, as well as mass timber markets, where we are striving to be a leader in engineered, low-graded construction fastening solutions, given that each of these markets have a broader product opportunity within fastening solutions. We're also focused on building out our presence in our concrete construction, as well as structural steel. That's a new market for Simpson. And finally, we're working to become a leader in building technology space, which hits upon all of our key growth initiatives. Today, each of our key growth initiatives remains in different phases of implementation. While we have existing products, testing results, distribution and manufacturing capabilities in place for all of these initiatives, we have been taking advantage of 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. It'll be a multi-year endeavor to ensure we have all the proper testing, validation, and product lines in place. We are pleased with our progress in 2021, notably our efforts to expand our sales and marketing functions to promote our products to different end users and distribution channels. Recent developments in our growth initiatives include the acquisition of a product line, J-EDGE, which will promote expansion in our structural steel business. For mass timber, we are securing additional business opportunities. For example, a shipping warehouse that will utilize our fastener products. And in concrete, we formed a strategic alliance with Structural Technologies, a design and installation company that will utilize Simpson's products. We will continue to provide updates on our progress in future quarters. Today, I'm very pleased to note we remain on track to achieve our company ambitions and strategic growth initiatives by 2025. In late December, we announced another growth driver for Simpson, the acquisition of a Tonko Group, a leading designer, manufacturer, and distributor of fixing and fastening solutions for the building construction market throughout Europe for approximately $818 million. Etanco's business model and core product offering align perfectly with Simpson and will support continued growth in our European business, including expansion into geographies, sales channels, and commercial building offerings. Last week, we announced the securities purchase agreement was signed, We expect this acquisition to close on April 1st, 2022, and our integration activities are already underway. For additional details regarding the Otanko acquisition, I encourage you to read the press release and supplemental presentation that we issued on December 29th, 2021, as well as listen to the conference call we held on Tuesday, January 4th, 2022, all of which are available on the investor relations page of our company website. Turning now to capital allocation. Our strong earnings and effective working capital management has enabled us to continue generating strong cash flows to fuel our growth and stockholder return priorities. In 2021, we returned 61% of free cash flow to stockholders to the payment of $41.6 million in dividends and the repurchase of $24.1 million of common stock, well exceeding our capital return target of 50% of free cash flow. We plan to reevaluate our 50% target once the Etanco acquisition is closed. Our capital allocation priorities in 2022 will focus on organic growth, returning value to stockholders in the form of quarterly dividends, debt repayment, to maintain our conservative leverage profile, and selectively repurchasing our shares. In regard to growth, we remain dual-focused on both organic growth and M&A opportunities. To facilitate growth organically, we are investing in areas such as engineering, marketing, sales personnel, and testing capabilities across all areas of our business. As originally noted on our Analyst and Investor Day last year, We also plan to invest in facility expansions to support our growth. In regard to M&A, we are most broadly focused on product line expansion in order to develop complete solution for the markets in which we operate. This may also include opportunities in areas that support our key growth initiatives, so we will stay hyper-focused on integrating Etanco. Before I conclude, I'd like to take a moment to congratulate Mike Olofsky, our Chief Operating Officer, on his recent promotion to President and COO of the company. I will continue to serve as CEO of Simpson. Mike has been a true asset to Simpson since joining the company in late 2020 in helping to shape our growth strategies. His responsibilities remain the same as he continues to lead our market segment initiatives to expand our product portfolio and brand presence globally. In summary, we are very pleased with our strong 2021 results, both financially and operationally. Aside from headwinds that may result from tightening labor and supply chain conditions, we believe underlying demand should remain strong in the first half of 2022, supported by strong U.S. housing starts, which increased 15% year over year in 2021. I'd like to recognize all the Simpson StrongTie employees for their commitment to health, safety, and outstanding customer service to ensure we provide our customers with the highest quality solution set to build safer, stronger structures. I'd also like to thank our customers, suppliers, and stockholders for your continued support of Simpson. Now I'd like to turn the call over to Brian. We'll discuss our fourth quarter financial results and 2022 outlook in greater detail.