Simpson Manufacturing Company, Inc.

Greetings. Welcome to the Simpson Manufacturing Company first quarter 2024 earnings conference call. At this time, all participants are on 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'll now turn the conference over to Kim Orlando of Arrow Investor Relations. You may begin.

Good afternoon, ladies and gentlemen. and welcome to Simpson Manufacturing Company's first quarter 2024 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 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. On this call, we will also refer to non-GAAP measures, such as adjusted EBITDA, which is reconciled to the most comparable gap measure of net income in the company's earnings press release. Please note that the 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.cincinmfg.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 Mike Oloski, Simpson's President and Chief Executive Officer.

Thanks, Kim. Good afternoon, everyone, and thank you for joining today's call. With me today is Brian Magstad, our Chief Financial Officer. Our remarks today will provide an overview of our first quarter performance and updates on our end markets and capital allocation priorities. Brian will then talk you through our first quarter financials and fiscal 2024 outlook in greater detail. I am pleased with our first quarter performance and what continues to be a challenging market for new housing starts in both the U.S. and Europe. Our team continues executing our strategy and maintaining our relentless customer focus, which led to various new customer wins and awards during the quarter. Our first quarter net sales totaled $530.6 million, a modest decline year over year. Looking at our regions in greater detail, North American volumes for quarter one were up approximately 8% year-over-year in a relatively flat U.S. housing market. Our increased sales volumes were partly offset by the timing of volume discounts applied with price decreases we implemented in the prior year period, which led to North American net sales of $406.7 million versus $406.3 million in the prior year. The significant variability in starts we saw last year created a wider disparity in volume discounts than we've seen historically. To further break down our North American volume performance, we achieved double-digit growth year-over-year in both our component manufacturer and national retail markets as we have carryover benefit from previous new business wins. We also improved our volumes in the mid-single-digit range in both the residential and commercial markets with a modest improvement in the OEM markets. Turning to Europe, our first quarter net sales of $119.9 million were, as anticipated, declining 3.4% or 4.3% on a local currency basis year over year. While the market in Europe remains pressured due to macroeconomic challenges and lower overall construction activity, our teams continued our solution selling approach with our broad product line resulting in new applications and customer wins. While reduced from prior year quarter, our European gross margins remain elevated compared to historical levels given our ongoing focus on pricing discipline and cost management. Our strong commitment to customer service in Europe, coupled with our strategy to grow our share in the midst of an ongoing housing shortage, provides us with optimism that Simpson is well positioned to benefit from broader secular trends, including the growing use of wood construction and increasingly stringent environmental regulations that drive new applications. On a consolidated basis, our first quarter gross margin declined to 46.1% as anticipated, primarily reflecting higher fixed costs, which were partly offset by productivity improvements. The year-over-year decline in our operating margin to 18.1% primarily reflected additional costs incurred to pursue our growth opportunities in the areas of new products and market penetration. Beginning this quarter, we are now also disclosing consolidated adjusted EBITDA, which totaled $117.3 million for the quarter, a decline of 14% year-over-year. I'll now turn to an update on new business wins within our five end-use markets, which further underscore the investments we are making to drive sustainable long-term growth above the market. Beginning with the residential market, we benefited from share gains during the first quarter through the conversion of lumber dealers in both the U.S. and Canada, by recapturing business from competing solutions due to our relentless customer service, specification, and builder programs. Further, we conducted various job site training exercises and demonstrations for a division of a large national home builder honor program, which led to the specification of structural fashioners into their regional plans. In addition, we formed a new partnership agreement with a large independent co-op serving more than 12,000 retail hardware stores, home centers, and pro-lumber dealers, which led to significant conversions for our connectors, fasteners, and anchor products. In the commercial market, sales of our cold-formed steel products were a bright spot in the quarter with double-digit, year-over-year sales growth. We continue to educate and partner with the commercial building industry to provide innovative solutions. In the OEM market, we gained new customers during the quarter, including manufacturers of modular buildings, metal buildings, sheds, off-site construction, and material handling. The OEM market is one of the areas we're providing additional focus on to accelerate growth. Within the national retail space, we added structural fastener carts near our connectors with one of our largest home center customers and are continuing to test other off-shelf opportunities with additional home center locations. This has led to increased sales growth for our customers. Our merchandising and marketing efforts also continue to drive growth in our outdoor accents product lines. Our national retail sales teams remain focused on merchandising and education efforts with our customers, sales staff, as we head into the build season. And finally, in the component manufacturer market, we are committed to ongoing investment and growing our offering in this space with new product development, software improvements, equipment solutions, and improved manufacturing processes to increase capacity in order to better serve our customers. As an example, we recently released a new Trust Play product for long-span agriculture and commercial applications. These customer wins are in direct alignment with our core company ambitions that we continue to pursue, including strengthening our values-based culture, being the business partner of choice, striving to be an innovative leader in the markets we operate, continuing above-market growth relative to U.S. housing starts, returning to the top quartile of our proxy peers for operating income margin, and returning to the top quartile of our proxy peers for return on invested capital. These ambitions stem from our dedication to superior levels of customer service, as well as our high product availability and delivery standards to provide innovative and complete solutions for the markets we serve. Being the partner of choice for our customers was recognized during the first quarter following the receipt of multiple awards from several of our major customers. Next, I'll turn to a discussion on our capital allocation priorities. We maintain a balanced approach through our focus on both growth opportunities and stockholder returns. In Q1, we generated cash from operations of $8.6 million, which helped finance $28.5 million in capital expenditures and $11.4 million of quarterly cash dividends. We also paid down $5.6 million against our term loan, which we incurred to finance the acquisition of Etanco. As previously discussed, we continue evaluating a number of tuck-in M&A opportunities to help us accelerate our growth initiatives. Concurrent with this strategy, we are making significant investments in people, engineering, equipment, and other capabilities to drive organic growth in the business. We are also expanding our facilities for increased capacity and improving overall efficiencies. We believe these investments are important to provide high levels of service and customer support for an expected housing market recovery in 2025 leading to mid single-digit growth in U.S. housing starts. For 2024, we expect low single-digit growth in U.S. housing starts with European housing starts below prior year. In summary, I'm pleased with our execution to date in 2024 as we lay the groundwork necessary to ensure our continued outperformance versus the market longer term. We believe the strategic investments we are making in the business will help us accelerate our historical average performance for compounded annual growth in North American sales volume above the market of approximately 250 basis points over the mid to long term, while also returning to the top quartile profitability. With that, I'd like to turn the call over to Brian, who will discuss the first quarter financial results in greater detail.