Q1 2024 Simpson Manufacturing Co Inc Earnings Call
Operator: Greetings. Welcome to the Simpson Manufacturing Company first quarter 2024 Erdnest Coffee.
Greetings and welcome to the Simpson manufacturing company first quarter 2024 earnings Conference call. At this time, all participants are in a listen only mode.
Operator: At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal... If anyone should require operator assistance during the conference, please press star zero on your telephone key. Please note this conference is being recorded. I'll now turn the conference over to Kim Orlando of Adobe Investor Relations. You may begin.
You didn't ask this session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero telephone keypad.
Please note. This conference is being recorded I'll now turn the conference over to you know Kim Orlando of Arris Investor Relations you may begin.
Kimberly Orlando: Good afternoon, ladies and gentlemen, and welcome to Simpson manufacturing Companys first quarter 2024 earnings conference call.
Kimberly Orlando: 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. The actual future results may vary materially from those expressed or implied by the forward-looking statement. 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.
Kimberly Orlando: Any statements made on this call that are not statements of historical facts are forward looking statements.
Kimberly Orlando: Such statements are based on certain estimates and expectations and are subject to a number of threats and uncertainty.
Kimberly Orlando: Actual future results may vary materially from those expressed or implied by the forward looking statements.
Kimberly Orlando: I 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.
Kimberly Orlando: 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 GAAP 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.
Kimberly Orlando: 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.
Kimberly Orlando: On this call. We will also refer to non-GAAP measures such as adjusted EBIDTA, which is reconciled to the most comparable GAAP measure of net income in the company's earnings press release.
Kimberly Orlando: Please note that the earnings press release was issued today at approximately 415 P M Eastern time.
Kimberly Orlando: 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 Mike Olosky, Simpson's President and Chief Executive Officer. Thanks, Kim.
Kimberly Orlando: The earnings press release is available on the Investor Relations page of the company's web site at IR Dot since then F. G dotcom.
Kimberly Orlando: Today's call is being webcast and a replay will also be available on the Investor Relations page of the company's website.
Kimberly Orlando: Now I would like to turn the conference over to Michael Laski, Simpsons', President and Chief Executive Officer.
Michael L. Olosky: Thanks, Kim. Good afternoon, everyone, and thank you for joining today's call. With me today is Brian Magstadt, 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.
Michael L. Olosky: Thanks, Kim good afternoon, everyone and thank you for joining today's call with me today is Brian Maxed out our Chief Financial Officer.
Michael L. Olosky: Our remarks today, we will provide an overview of our first quarter performance and updates on our end markets and capital allocation priorities.
Brian J. Magstadt: Brian will then talk you through our first quarter financials and fiscal 'twenty 'twenty four outlook in greater detail.
Brian J. Magstadt: 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.
Michael L. Olosky: 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.
Brian J. Magstadt: Our team continues executing our strategy and maintaining our relentless customer focus which led to various new customer wins and awards during the quarter.
Brian J. Magstadt: Our first quarter net sales totaled $536 million modest decline year over year.
Brian J. Magstadt: Looking at our regions in greater detail.
Michael L. Olosky: North American volumes for quarter one were up approximately 8% year over year in a relatively flat US housing market. However, 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.
Brian J. Magstadt: North American volumes for quarter, one were up approximately 8% year over year, and a relatively flat U S housing market.
Brian J. Magstadt: 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.
Brian J. Magstadt: The significant variability in starts we saw last year created a wider disparity in buying discounts than we've seen historically.
Brian J. Magstadt: 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.
Michael L. Olosky: 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 had 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 market, turning the gears up. 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.
Brian J. Magstadt: 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 market.
Brian J. Magstadt: Turning to Europe.
Brian J. Magstadt: Our first quarter net sales of $119 $9 million were as anticipated declining three 4% or four 3% on a local currency basis year over year.
Brian J. Magstadt: 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.
Michael L. Olosky: While the market in Europe remains pressured due to macroeconomic challenges and lower overall construction activity, our teams continued their solution selling approach with our broad product line, resulting in new applications and customer wins. While reduced from the 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.
Brian J. Magstadt: While reduced from prior year quarter, our European gross margins remained elevated compared to historical levels, given our ongoing focus on pricing discipline and cost management.
Brian J. Magstadt: 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.
Brian J. Magstadt: The growing use of wood construction and increasingly stringent environmental regulations that drive new applications.
Brian J. Magstadt: 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.
Michael L. Olosky: 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.
Brian J. Magstadt: The year over year decline, our operating margin to 18, 1%, primarily reflecting 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.
Brian J. Magstadt: Over a year.
Brian J. Magstadt: I'll now turn to an update on new business wins within our five end use markets, which further underscores the investments we are making to drive sustainable long term growth above the market.
Brian J. Magstadt: 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.
Michael L. Olosky: Beginning with the residential market, we benefited from share gains during the first quarter through the conversion of lumber dealers in both the US and Canada by recapturing business from competing solutions due to our relentless customer service, specification, and builder program. 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 fasteners into the regional plan.
Brian J. Magstadt: Further we conducted various job site training exercises and demonstrations for a division of a large national homebuilder on a program, which led to the specification of structural fasteners into their regional plans.
Michael L. Olosky: 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 professional lumber dealers, which led to significant conversions for our connectors, fasteners, and anchor products. In the commercial market, sales of our cold form 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.
Brian J. Magstadt: In addition, we formed a new partnership agreement with a large independent co op, serving more than 12000 retail hardware stores home centers and pro lumber dealers.
Brian J. Magstadt: Which led to significant conversions for our connectors fasteners and anchor products.
Brian J. Magstadt: In the commercial market sales of our cold foam steel products were a bright spot in the quarter with double digit year over year sales growth.
Brian J. Magstadt: We continue to educate and partner with the commercial building industry to provide innovative solutions.
Brian J. Magstadt: In the OEM market, we gained new customers during the quarter, including manufacturers of modular buildings mellow buildings shuts off site construction and material handling.
Michael L. Olosky: In the OEM market, we gained new customers during the quarter, including manufacturers of modular buildings, metal buildings, sheds, offsite 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 cards 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.
Brian J. Magstadt: The OEM market is one of the areas, we're providing additional focus on to accelerate growth.
Brian J. Magstadt: Within the National retail space, we added structural fastener cards nearer connectors with one of our largest home center customers and are continuing to test other off shelf opportunities with additional home center locations.
Michael L. Olosky: 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 line. Our national retail sales teams remain focused on merchandising and education efforts with our customers and 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 the 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-term agricultural and commercial applications.
Brian J. Magstadt: This has led to increased sales growth for our customers.
Brian J. Magstadt: Our merchandising and marketing efforts also continue to drive growth in our outdoor accents product line.
Brian J. Magstadt: Our national retail sales teams remained focused on merchandising and education efforts with our customers sales staff as we head into the build season.
Brian J. Magstadt: And finally in the component manufacturer market, we are committed to ongoing investment in 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 <unk>.
Brian J. Magstadt: Long span agricultural and commercial applications.
Brian J. Magstadt: These customer wins are in direct alignment with our core company ambitions that we continue to pursue including strengthening our values based culture being.
Brian J. Magstadt: Being the business partner of choice straw.
Brian J. Magstadt: Striving to be an innovative leader in the markets we operate.
Brian J. Magstadt: Continuing above market growth relative to the U S housing starts.
Michael L. Olosky: 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.
Returning to the top quartile of our proxy peers for operating income margin.
Brian J. Magstadt: And returning to the top quartile of our proxy peers for return on invested capital.
Brian J. Magstadt: These ambition stemmed 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.
Brian J. Magstadt: 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.
Brian J. Magstadt: Next I'll turn to a discussion on our capital allocation priorities.
Brian J. Magstadt: We maintain a balanced approach through our focus on both growth opportunities and stockholder returns.
Brian J. Magstadt: In Q1, we generated cash from operations of $8 $6 million, which helped finance $28 $5 million and capital expenditures and $11.4 million of quarterly cash dividends.
Brian J. Magstadt: We also paid down $5 $6 million against our term loan, which we incurred to finance the acquisition of Taco.
Michael L. Olosky: Next, I'll turn to a discussion on our capital allocation priority. 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 in quarterly cash dividends. We also paid down $5.6 million against our term loan, which we incurred to finance the acquisition of Atonco.
Brian J. Magstadt: As previously discussed we continue evaluating a number of tuck in M&A opportunities to help us accelerate our growth initiatives.
Brian J. Magstadt: Concurrent with this strategy, we are making significant investments in people engineering equipment and other capabilities to drive organic growth in the business.
Brian J. Magstadt: We are also expanding our facilities for increased capacity and improving overall efficiencies.
Brian J. Magstadt: We believe these investments are important to provide high levels of service and customer support for an expected housing market recovering 2025, leading to mid single digit growth in U S housing starts.
Michael L. Olosky: As previously discussed, we continue evaluating a number of tuck-in M&A opportunities to help us accelerate our growth initiative. 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 efficiency. 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 US housing starts.
Brian J. Magstadt: For 'twenty 'twenty four we expect low single digit growth in U S housing starts with European housing starts below prior year.
Yeah.
Brian J. Magstadt: In summary, I'm pleased with our execution to date in 'twenty 'twenty four is we laid the groundwork necessary to ensure our continued outperformance versus the market longer term.
Brian J. Magstadt: We believe the strategic investments, we are making 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.
Michael L. Olosky: For 2024, we expect low single-digit growth in US housing starts with European housing starts below the 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 over the 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 and North American sales volume above the market by approximately 250 basis points over the mid to long term while also returning to 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. Thanks, Mike. And good afternoon, everyone.
Brian J. Magstadt: With that I'd like to turn the call over to Brian who will discuss the first quarter financial results in greater detail.
Brian J. Magstadt: Thanks, Mike and good afternoon, everyone. Thank you for joining us to discuss our first quarter financial results today before I begin I'd like to mention that unless otherwise stated all financial measures discussed in my prepared remarks refer to the first quarter of 2024.
Brian J. Magstadt: And all comparisons will be year over year comparisons versus the first quarter of 2023.
Brian J. Magstadt: Beginning with our first quarter results.
Brian J. Magstadt: Our consolidated net sales decreased <unk>, 7% to $536 million.
Brian J. Magstadt: Within the North America segment, net sales increased 1% to $406 $7 million, primarily due to the higher sales volumes of 8% as Mike mentioned, which were partially offset by the timing of volume discount applied as well as price decreases implemented during 2023.
Brian J. Magstadt: Thank you for joining us to discuss our first quarter financial results today. Before I begin, I'd like to mention that, unless otherwise stated, all financial measures discussed in my prepared remarks refer to the first quarter of 2024, and all comparisons will be year over year comparisons versus the first quarter of 2023.
Brian J. Magstadt: As you May recall estimated allowances for volume discounts are deducted from revenues and our estimated or expected volumes.
Brian J. Magstadt: Such volume discounts impacted our first quarter net sales more than anticipated.
Brian J. Magstadt: In North America, what product volume was up eight 3%.
Brian J. Magstadt: And concrete product volume was up five 7%.
Brian J. Magstadt: In Europe net sales decreased three 4% to $119 $9 million.
Brian J. Magstadt: Now beginning with our first quarter results. Our consolidated net sales decreased 0.7% to $530.6 million. Within the North America segment, net sales increased 0.1% to $406.7 million, primarily due to higher sales volumes of 8%, as Mike mentioned, which were partially offset by the timing of volume discounts applied, as well as price decreases implemented during 2023. As you may recall, estimated allowances for volume discounts are deducted from revenues and are estimated for expected volume. As such, volume discounts impacted our first quarter net sales more than anticipated. In North America, wood product volume was up 8.3%, and concrete product volume was up 5.7%.
Primarily due to lower sales volumes parse.
Brian J. Magstadt: Partially offset by the positive effect of $2 $2 million from foreign currency translation.
Brian J. Magstadt: Consolidated gross profit decreased three 3% to $244 $6 million, resulting in a gross margin of 46, 1% compared to 47, 3%.
Brian J. Magstadt: On a segment basis, our gross margin in North America decreased to 49, 3% compared to 56%, primarily due to higher warehouse and freight costs, partially offset by lower material costs, all as a percentage of net sales.
Brian J. Magstadt: Our gross margin in Europe decreased to 36, 5% from 37, 5% also primarily due to higher warehouse and freight costs.
Brian J. Magstadt: In Europe, net sales decreased 3.4% to $119.9 million, primarily due to lower sales volumes, partially offset by the positive effect of $2.2 million in foreign currency translation. Consolidated gross profit decreased 3.3% to $244.6 million, resulting in a gross margin of 46.1% compared to 47.3%. On a segment basis, our gross margin in North America decreased to 49.3% compared to 50.6%, primarily due to higher warehouse and freight costs, partially offset by lower material costs, all as a percentage of net sales.
Brian J. Magstadt: As a percentage of net sales.
Brian J. Magstadt: From a product perspective, our first quarter gross margin on wood products was 46% compared to 47%.
Brian J. Magstadt: And was 47% for concrete products in both periods.
Brian J. Magstadt: Now turning to our first quarter costs and operating expenses total operating expenses were $146.6 million, an increase of $13 $5 million or approximately 10, 1%, primarily due to increased personnel costs, including adding head count to drive our growth.
Brian J. Magstadt: Professional fees and software licenses.
Brian J. Magstadt: In addition, we increased our spend to improve our internal processes and enhance our systems. It's.
Brian J. Magstadt: Our gross margin in Europe decreased to 36.5% from 37.5%, primarily due to higher warehouse and freight costs as a percentage of net sales. From a product perspective, our first quarter gross margin on wood products was 46% compared to 47%, and it was 47% for concrete products in both periods.
As Mike touched on many of these costs are growth oriented investments to engineer and deliver new products increase services to fuel takeoff and designs and continue the development of digital solutions, which enable our customers and specify errors.
Brian J. Magstadt: To select Simpson products as a percentage of net sales total operating expenses were 27, 6% compared to 24, 9%.
Brian J. Magstadt: Now turning to our first quarter costs and operating expenses. Total operating expenses were $146.6 million, an increase of $13.5 million, or approximately 10.1%. Primarily due to increased personnel costs, including added headcount to drive our growth, hire professional fees, and software licenses. In addition, we increased our IT spend to improve our internal processes and enhance our system.
Brian J. Magstadt: To further detail our SG&A investments are first quarter research and development and engineering expenses increased five 6% to $21 $9 million.
Brian J. Magstadt: Primarily due to the higher personnel costs noted above.
Brian J. Magstadt: Selling expenses increased 12% to $54 $5 million primarily due.
Brian J. Magstadt: Also to the higher personnel costs as.
Brian J. Magstadt: As Mike touched on, many of these costs are growth-oriented investments to engineer and deliver new products, increase services to fuel takeoff and design, and continue the development of digital solutions which enable our customers and specifiers to select Simpson products. As a percentage of net sales, total operating expenses were 27.6% compared to 24.9%. To further detail our SG&A investments, our first quarter research and development and engineering expenses increased 5.6% to $21.9 million, primarily due to the higher personnel cost noted above.
Brian J. Magstadt: As well as increases in travel costs and advertising promotion and trade shows.
Brian J. Magstadt: On a segment basis selling expenses in North America were up 17, 3%.
Brian J. Magstadt: And in Europe, they were down two 4%.
Brian J. Magstadt: General and administrative expenses increased 10, 2% to $72 million primarily due.
Brian J. Magstadt: Two higher software licensing and I T spend as well as personnel costs, both as noted above.
Brian J. Magstadt: As a result, our consolidated income from operations totaled $96 $1 million.
Brian J. Magstadt: Decline of 18, 8% from $118 $4 million.
Brian J. Magstadt: Our consolidated operating income margin was 18, 1% down from 22, 1%.
Brian J. Magstadt: Selling expenses increased 12% to $54.5 million, primarily due to higher personal costs, as well as increases in travel costs for advertising, promotion, and trade shows. On a segment basis, selling expenses in North America were up 17.3%, and in Europe, they were down 2.4%.
Brian J. Magstadt: In North America income from operations decreased 13, 5% to $98 $9 million, primarily due to increased personnel costs travel related advertising and trade show costs.
Brian J. Magstadt: Four licenses and a T related spend.
Brian J. Magstadt: Coupled with lower gross profit.
Brian J. Magstadt: In Europe income from operations was $8 $3 million compared to $13 $5 million due to lower gross profit and higher personnel costs.
Brian J. Magstadt: General and administrative expenses increased 10.2% to $70.2 million primarily due to higher software licensing and IT spend as well as personnel costs, both as noted above. As a result, our consolidated income from operations totaled $96.1 million, a decline of 18.8% from $118.4 million. Our consolidated operating income margin was 18.1%, down from 22.1%. In North America, income from operations decreased 13.5% to $98.9 million, primarily due to increased personnel costs, travel-related advertising and trade show costs, software licenses, and IT-related spend, coupled with lower gross profit. In Europe, income from operations was $8.3 million compared to $13.5 million due to lower gross profit and higher personnel costs. Our effective tax rate was 23.4%, approximately 170 basis points lower than the prior year period.
Brian J. Magstadt: Our effective tax rate was 23, 4% approximately 170 basis points lower than the prior year period.
Brian J. Magstadt: Accordingly, net income totaled $75 $4 million or $1.77 per fully diluted share compared to $88 million or $2.05 per fully diluted share.
We continue to make significant levels of growth investment in the business, which has and is expected to result in higher than expected depreciation.
Brian J. Magstadt: As Mike noted we are now disclosing adjusted EBITDA, a non-GAAP financial measure to provide additional insight into our operating performance in light of the stock.
Brian J. Magstadt: This will also provide a better approximation of our cash flows compared to operating income.
Brian J. Magstadt: For the first quarter, adjusted EBITDA of $117 $3 million declined 14%.
Brian J. Magstadt: Adjusted EBITDA as reconciled to the most comparable GAAP measure of net income and our earnings press release.
Brian J. Magstadt: Now turning to our balance sheet and cash flow.
Brian J. Magstadt: Our balance sheet remains healthy with cash and cash equivalents totaling $369 $1 million at March 31st 2024 down $67 million from our balance at December 31, 2023.
Brian J. Magstadt: Accordingly, net income totaled $75.4 million, or $1.77 per fully diluted share, compared to $88 million, or $2.05 per fully diluted share. We continue to make significant levels of growth investments in the business, which has and is expected to result in higher than expected depreciation. As Mike noted, we are now disclosing Adjusted EBITDA, a non-GAAP financial measure to provide additional insight into our operating performance in light of the stack. This will also provide a better approximation of our cash flows compared to operating income. For the first quarter, adjusted EBITDA of $117.3 million declined 14%. Adjusted EBITDA is reconciled to the most comparable gap measure of net income in our earnings press release.
Brian J. Magstadt: Due to changes in working capital.
Brian J. Magstadt: And up $116 $6 million from our balance at March 31, 2023.
Brian J. Magstadt: Our debt balance was approximately $476 million net of capitalized finance costs in.
Brian J. Magstadt: And our net debt position was $106 $8 million.
Brian J. Magstadt: We have $375 million remaining available for borrowing on our primary line of credit.
Brian J. Magstadt: Our inventory position as of March 31, 2024 was $555.7 million.
Brian J. Magstadt: Which was down $4 $2 million compared to our balance as of December 31, 2023, a slightly higher pounds.
Brian J. Magstadt: Effective inventory management remains a core element of our strategy and competitive advantage to ensure on time delivery.
Brian J. Magstadt: Now turning to our balance sheet and cash flow. Our balance sheet remained healthy, with cash and cash equivalents totaling $369.1 million at March 31, 2024, down $60.7 million from our balance at December 31, 2023. Due to changes in working capital, and up $116.6 million from our balance at March 31, 2023. Our debt balance was approximately $476 million net of capitalized finance costs, and their net debt position was $106.89. We have $375 million remaining available for borrowing on our primary line of credit.
Brian J. Magstadt: <unk> service to our customers.
Brian J. Magstadt: During the first quarter, we generated cash flow from operations of approximately $8 $6 million compared to $3 million.
Brian J. Magstadt: We invested $39 $4 million for capital expenditures, including our facility investments.
Brian J. Magstadt: Paid $11.4 million in dividends to our stockholders.
Brian J. Magstadt: Well, we did not repurchase shares of our common stock we expect to continue being opportunistic we.
Brian J. Magstadt: Also remain committed to our quarterly dividend.
Brian J. Magstadt: That's turning to our 2020 or financial outlook based on business trends and conditions as of today April 22nd our guidance for the full year ending December 31, 2024 is as follows.
Brian J. Magstadt: We expect our operating margin to be in the range of 20 to 21, 5%.
Brian J. Magstadt: Key assumptions continue to include expected moderate growth above the housing market.
Brian J. Magstadt: Our inventory position as of March 31, 2024 was $555.7 million, which was down $4.2 million compared to our balance as of December 31, 2023, a slightly higher pound. However, effective inventory management remains a core element of our strategy and competitive advantage to ensure on-time delivery and exceptional service to our customers. During the first quarter, we generated cash flow from operations of approximately $8.6 million compared to $3 million. We invested $39.4 million in capital expenditures, including our facility investment, and paid $11.4 million in dividends to our stockholders. We did not repurchase any shares of our common stock.
Brian J. Magstadt: A slightly lower overall gross margin based on the addition of new warehouses and modest increase in labor and factory and tooling as a percentage of net sales.
Brian J. Magstadt: Operating expenses at a level, we believe are necessary to position the company to make continued meaningful share gains in our markets and growth initiatives.
Brian J. Magstadt: And $4 million to $5 million and expected total costs to pursue synergies in Europe.
Brian J. Magstadt: Next interest expense on the outstanding revolving credit facility in term loans, which had borrowings of $75 million and $410.6 million.
Brian J. Magstadt: As of December 31, 2023, respectively.
Brian J. Magstadt: <unk> to be approximately $8 million, including the benefit from interest rate and cross currency swaps mitigating substantially all of the volatility from changes in interest rates.
Brian J. Magstadt: We expect to continue being opportunistic, but we also remain committed to our quarterly dividends. Next, turning to our 2020 financial outlook, based on business trends and conditions as of today, April 22, our guidance for the full year ending December 31, 2024 is as follows. We expect our operating margin to be in the range of 20 to 21.5%. Key assumptions continue to include expected moderate growth above the housing market. A slightly lower overall gross margin based on the addition of new warehouses and a modest increase in labor and factory and tooling as a percentage of net sale.
Brian J. Magstadt: Interest on our cash and money market is expected to offset this expense.
Brian J. Magstadt: Our effective tax rate.
Brian J. Magstadt: It is now estimated to be in the range of 24, 5% to 25, 5%, including both federal and state income tax rates based on current laws.
Brian J. Magstadt: And finally, we are updating our capital expenditures outlook to be approximately $185 million, which includes $105 million for the expansion of the Columbus, Ohio facility and the construction of the new fastener facility in Gallatin, Tennessee.
Brian J. Magstadt: This amount is down slightly from our prior outlook due to the timing of the 'twenty 'twenty four cash outlay on their real estate projects.
Brian J. Magstadt: Operating expenses at a level we believe is necessary to position the company to make continued, meaningful share gains in our markets and growth initiatives, and four to $5 million in expected total cost to pursue synergies in Europe. Next, interest expense on the outstanding revolving credit facility and term loans, which had borrowings of $75 million and $410.6 million, as of December 31st, 2023, respectively, is expected to be approximately $8 million, including the benefit from interest rate and cross currency swaps, mitigating substantially all of the volatility from changes in interest rates. Interest on our cash and money markets is expected to offset this expense. Our effective tax rate is now estimated to be in the range of 24.5% to 25.5%, including both federal and state income tax rates based on current laws.
Brian J. Magstadt: In summary, the first quarter marked a solid start to the year as we furthered our growth strategy and continued traction against our core ambitions.
Brian J. Magstadt: While the market remains challenged we were pleased with our continued strong performance enabled by our business model, our financial position remains strong with a solid balance sheet that supports ongoing investments in our growth initiatives.
Brian J. Magstadt: These investments enable us to grow above the market, especially in the fast growing market.
Brian J. Magstadt: That we are anticipating in the coming years.
Speaker Change: I'd like to thank the entire Simpson team for a job well done.
Speaker Change: With that I will now turn the call over to the operator to begin the Q&A session.
Speaker Change: Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the questions you.
Speaker Change: You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the <unk>.
Speaker Change: Starkey.
Speaker Change: And our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.
Brian J. Magstadt: And finally, we are updating our capital expenditures outlook to be approximately $185 million, which includes $105 million for the expansion of the Columbus, Ohio facility and the construction of the new fastener facility in Gallatin, Tennessee. This amount is down slightly from our prior outlook due to the timing of the 2024 cash outlay on the real estate project. In summary, the first quarter marked a solid start to the year as we furthered our growth strategy and continued traction against our core ambition.
Daniel Joseph Moore: Thank you good afternoon, Mike and Brian Thanks for the time and taking the questions.
Daniel Joseph Moore: Start with in North America volumes up very healthy that.
Daniel Joseph Moore: At 8% revenue closer to flat as you. Just described can you just give a little bit more detail regarding the timing of when volume discount estimates were applied.
Daniel Joseph Moore: That impacted this quarter and and more importantly, how much of a headwind do you expect that dynamic or pricing in general to be as we think about Q2 and the balance of the year.
Brian J. Magstadt: While the market remains challenged, we were pleased with our continued strong performance enabled by our business model. Our financial position remains strong, with a solid balance sheet that supports ongoing investments in our growth initiatives. These investments enable us to grow above the market, especially in the fast growing market that we are anticipating in the coming years. I'd like to thank the entire Simpson team for a job well done. With that, I will now turn the call over to the operator to begin the Q&A session.
Daniel Joseph Moore: Hi, Dan Nice to talk to you today, it's Brian So as noted in the remarks, there were some timing issues.
Brian J. Magstadt: Related to rebates, which which has impacted the net sales comparison with last year's Q1.
Just to reiterate we are we believe we are still projecting to be in the 20% to 21, 5% operating margin range for full year 2024.
Brian J. Magstadt: A few points that touch on there so.
Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is busy. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. And our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.
Brian J. Magstadt: There's a lot of variability in the housing start forecast.
Brian J. Magstadt: 2023.
Brian J. Magstadt: So total housing starts ultimately went down about 10%, but we saw.
Brian J. Magstadt: Larger production builders did better than that overall market.
Brian J. Magstadt: We estimate our rebate expense based on market data and large builder data, but it's still an estimate and the actual expenses based on submissions.
Brian J. Magstadt: For payment to us by the builders and those often come in after the end of the year.
Brian J. Magstadt: So going back to projecting those housing starts.
Daniel Joseph Moore: Thank you. Good afternoon, Mike. Good afternoon, Brian.
Brian J. Magstadt: As noted we saw a lot of variability of those projections throughout last year.
Michael L. Olosky: Thanks for the time and taking the questions. Let's start with North America volumes up very healthy at 8%. Revenue was closer to flat, as you just described. Can you just give a little bit more detail regarding the timing of when volume discount estimates were applied, kind of how that impacted this quarter, and more importantly, how much of a headwind do you expect that dynamic or pricing in general to be as we think about Q2 and the balance of the year?
Brian J. Magstadt: Primarily increasing through the year, so coupling that with the shift in starts.
Brian J. Magstadt: Two the bigger builders those increase the complexity and making estimates for rebates that will ultimately be paid after the period.
Brian J. Magstadt: So going forward, we also see increased rebates and other pricing impacts based on a couple of.
Brian J. Magstadt: Hi Dan. Nice to talk. Keep safe, Brian.
Brian J. Magstadt: Based on a couple of factors, so new incremental revenues at new customers.
Brian J. Magstadt: So, as noted in those comments, there were some timing issues related to rebates, which impacted the net sales comparison with last year's Q1. But just to reiterate, we believe we are still projecting to be in the 20% to 21.5% operating margin range for full year 2024. But a few points to touch on there.
Brian J. Magstadt: A new incremental revenues at existing customers, who are experiencing higher revenues.
Brian J. Magstadt: Even in the higher tier rebates so often.
Brian J. Magstadt: As customers buy more of the percentage.
Brian J. Magstadt: Rebated on those incremental revenues go up a little bit.
Brian J. Magstadt: Or are there could be a new product lines that those customers.
Brian J. Magstadt: So in general, there's a lot of variability in the housing start forecasts throughout 2023. And so total housing starts ultimately were down about 10%. But we saw, you know, larger production builders did better than that overall market. And we estimate our rebate expense based on market data and large builder data. But it's still an estimate.
Brian J. Magstadt: So increased volumes lead to increased rebates by customers jumping tiers.
Brian J. Magstadt: Rebates and competitive product buybacks associated with gaining new business.
Yeah.
Brian J. Magstadt: Other factors lastly, well a couple of other points terms and condition changes. So for example sales price.
Brian J. Magstadt: Decreases when customers pay their own right.
Brian J. Magstadt: And the actual expense is based on submission for payment to us by the builders, and those often come in after the end of the year. So going back to projecting those housing starts, As noted, we saw a lot of variability in those projections throughout last year, primarily increasing through the year. So coupling that with the shift in starts to bigger builders increases the complexity in making estimates for rebates that will ultimately be paid after the period.
Brian J. Magstadt: So that would be net neutral in gross profit, but within that are there.
Brian J. Magstadt: Net and net revenue sorry.
Brian J. Magstadt: Lastly product mix couple of case.
Brian J. Magstadt: Revenue increases so on a go forward basis.
Brian J. Magstadt: We believe the incremental revenues that we would expect would would lead to the increased rebates.
Brian J. Magstadt: So going forward, we also see increased rebates and other pricing impacts based on a couple of factors. So new incremental revenues and new customers. New incremental revenues at existing customers who are experiencing higher revenues are getting into higher tier rebates. So often, as customers buy more than the percentage rebated on those incremental revenues go up a little bit, Or, or they could be new product lines that those customers. So increased volumes lead to increased rebates by customers jumping tiers, rebates, and competitive product buybacks associated with gaining new business are a couple other factors.
Brian J. Magstadt: A lot of that that we saw in the first quarter is.
Brian J. Magstadt: The experience that we see.
Brian J. Magstadt: After the year concludes and after those all those parties. So we don't sell directly to builders, but we do remain out. So builders are based on a product that goes into each of their start. So our estimates are done in the period the actuals.
Brian J. Magstadt: That that somebody in afterwards are you know basically true up in that period.
Brian J. Magstadt: Lastly, well, a couple other points about terms and conditions. So, for example, the sales price decreases when customers pay their own freight. So that would be net neutral and gross profit, but it would impact net revenue, sorry. And then lastly, product mix complicates the net revenue increase. So, you know, on a go forward basis, we believe the incremental revenues that we would expect would lead to increased rebates. A lot of that that we saw in the first quarter is, you know, the experience that we see after the year concludes and after those parties.
Brian J. Magstadt: We saw better comparability in the quarter over quarter.
Brian J. Magstadt: Q1 over Q1.
Brian J. Magstadt: But.
Brian J. Magstadt: On a go forward basis, we believe it's.
Brian J. Magstadt: It would be primarily incremental revenues or.
Brian J. Magstadt: Or is it additional volumes there.
Brian J. Magstadt: And on the on the margin front you know obviously you didn't change your guidance.
Brian J. Magstadt: No margins a bit softer relative to our indoor Street expectations. I think you said in the prepared remarks, they were as expected.
Speaker Change: You know how would you describe Q1 results relative to your internal expectations and has your view changed at all regarding the likelihood of maybe the lower end or the higher end of the range. You know now that we've got 60 75 days further into the year.
Brian J. Magstadt: So we don't sell directly to builders, but we do remade out to builders based on the product that goes into each of their starts. So our estimates are done in the period, and the actuals that come in afterwards are, you know, basically true up in that period after. So we saw a bit of comparability in the quarter over quarter, Q1 over Q1. But on a go forward basis, we believe it would be primarily incremental revenues or additional volume.
Speaker Change: Dan It's Mike So we're still shooting for those three financial ambitions above market growth.
Speaker Change: Profitability in the top quartile of our proxy peer group with operating income and then ROIC in the top quartile of our proxy peer group.
Speaker Change: For the ROIC see we need to we need to return to get to that also that because of some of the investments we've made and we've got a plan behind that but the operating margin guidance that we gave we still believe we're on track for.
Michael L. Olosky: And on the margin front, you know, obviously didn't change your guidance, margins a bit softer relative to, you know, our indoor street expectations. But I think you said in the prepared remarks they were as expected. You know, how would you describe Q1 results relative to your internal expectations, and has your view changed at all regarding the likelihood of maybe the lower end of the higher end of the range, now that we've got 60, 75 days further into the year?
Speaker Change: And Dan I would add.
Speaker Change: That is where.
Speaker Change: A few weeks into it in the April though in the second quarter, we're seeing North America volumes above.
Speaker Change: The same periods last year.
Speaker Change: And that's also providing that that additional.
Speaker Change: And then some additional data into.
Speaker Change: Uh Huh, the total outlook for the year and it's only a few weeks into the quarter, but.
Michael L. Olosky: Dan, it's Mike. So we're still shooting for those three financial ambitions related to market growth. We've got profitability in the top quartile of our proxy peer group, with operating income and then ROIC in the top quartile of our proxy peer group. And for ROIC, we need to return to get to that level because of some of the investments we've made. We've got a plan behind that, but the operating margin guidance that we gave, we still believe we're on track.
Speaker Change: The reason why we did not change our earnings our operating income guidance, we do still felt comfortable that.
Speaker Change: Our.
Speaker Change: Or in that range.
Speaker Change: So still it's still near the middle.
Speaker Change: Very helpful. Maybe last one and I'll jump back out just sort of.
Speaker Change: Grasping on one of the comments in the press release and the prepared remarks that.
Speaker Change: The investments that you're making right now.
Michael L. Olosky: And Dan, I would add that as we're, you know, a few weeks into April now into the second quarter, we're seeing North American volumes above the same period last year, and that's also providing that additional some additional data into the total album for the year. Again, it's only a few weeks into the quarter, but the reason why we did not change our operating income guide is that we do still feel comfortable that, you know, we're in that range and still near the middle.
Speaker Change: You hope that that's the.
Speaker Change: That should actually help accelerate you know our average historical performance relative to North American housing starts, which was 250 basis point range. So is the expectation that you hope to either 2025 or beyond accelerate that spread beyond the $2 50, just making sure I'm reading that right and.
Speaker Change: Any additional color you might want to provide would be very helpful and appreciate it again.
Michael L. Olosky: Very helpful. Maybe the last one; we'll jump back out. Just sort of picking up on one of the comments in the press release in the prepared remarks that the investments that you are making right now, you hope that they should help accelerate our average historical performance relative to North American housing starts, which was in the 250 basis point range. So is the expectation that you hope to either 2025 or beyond accelerate that spread beyond the 250? Just making sure I'm reading that right, and any additional color you might want to provide would be very helpful, and
Speaker Change: Yes, so Dan we are as you stated last eight years 250 basis points above market was our trend. The last two years is about 800 basis points above market. We want to try to continue to expand our performance versus U S housing starts and we believe we're on track to do that.
Dan: And we're assuming now that housing starts for the year is going to be low single digits, which is up a little bit.
Dan: Where we were thinking we were gonna be budget time, and we along with a lot of our customers and our peers in the market believe that sooner or later that housing shortage issue is going to kick in or we're going to get mid single digit growth in all the investments, we're making are going to help us provide great service on that market picks up.
Michael L. Olosky: Yes, so Dan, as you stated, for the last eight years, 250 basis points above market was our trend. The last two years, it was about 800 basis points above market.
Michael L. Olosky: We want to try to continue to expand our performance versus U.S. housing starts, and we believe we're on track to do that. And we're assuming now that housing starts for the year are going to be low single digits, which is up a little bit from where we were thinking we were going to be at budget time. And we, along with a lot of our customers and our peers in the market, believe that sooner or later the housing shortage issue is going to kick in, or we're going to get mid-single digit growth. And all the investments we're making are going to help us provide great service when that market picks up, hopefully driving even more growth above market.
Dan: Hopefully driving even more growth above market.
Dan: Yeah.
Speaker Change: Very helpful I'll jump back when he follow ups. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Tim Weiss with Baird. Please proceed with your question.
Timothy Ronald Wojs: Hey, Hey, guys good afternoon.
Timothy Ronald Wojs:
Timothy Ronald Wojs: Maybe just to start on the on the rebate question.
Timothy Ronald Wojs: Brian is there a way to you know kind of quantify what the deviation was relative to your expectations this quarter.
Timothy Ronald Wojs: It was.
Timothy Ronald Wojs: It was.
Daniel Joseph Moore: Very helpful. Jump back with any follow-ups. Thank you.
Timothy Ronald Wojs: The $6 million.
Okay. Okay.
Timothy Ronald Wojs: Okay.
Timothy Ronald Wojs: And then I guess you know obviously, there's you know kind of you know mix and rebates and those types of things kind of kind of happening but.
Operator: Thank you. Our next question comes from the line of Tim Weiss with Baird. Please proceed with your question.
Timothy Ronald Wojs: Hey, hey, guys. Good afternoon. Um, maybe just to start on the rebate question. Brian, is there a way to, you know, kind of quantify what the deviation was relative to your expectations this quarter?
Timothy Ronald Wojs: Has there been any sort of like underlying structural change in the pricing environment in your mind or is this all just kind of the.
Timothy Ronald Wojs: The puts and takes to volume growth in certain customers and certain product lines.
Brian J. Magstadt: It was; it was about 6 million.
Timothy Ronald Wojs: And then I guess, you know, obviously, there's, you know, kind of mix and rebates and those types of things kind of happening. But has there been any sort of underlying structural change in the pricing environment, in your mind? Or is this all just kind of the puts and takes to, you know, volume growth in certain customers and certain product lines?
Timothy Ronald Wojs: No. So Tim it's Mike No I don't think there's anything is fundamentally changed I mean, when we are going after new pieces of business.
Mike: Contracts, sometimes call for a rebate upfront, sometimes they call for buybacks, sometimes they call for different tier levels.
Mike: I think Brian definitely pointed out that a lot of the Gulfport was based off of incremental business.
So we do not believe anything is fundamentally changed from a pricing perspective.
Michael L. Olosky: No. So Tim, it's Mike.
Speaker Change: Okay. Okay got.
Michael L. Olosky: I don't think there's anything that's fundamentally changed. I mean, when we are going after new pieces of business, you know, the contracts sometimes call for a rebate up front, sometimes they call for buybacks, sometimes they call for different tier levels. I think Brian definitely pointed out that a lot of the go forward was based on incremental business. So we do not believe anything has fundamentally changed from a pricing perspective.
Speaker Change: And then I guess from a you know I guess from as you guys think about you know kind of pricing in general ships. The 2023 decreases I think we're effective about this time last year. So are we kind of swinging back declined and then on a go forward basis is basically just kind of you know.
Speaker Change: Mix and then you know any sort of you know kind of volume considerations.
Speaker Change: Yeah, so a little bit of mix and.
Timothy Ronald Wojs: Okay, good. And then I guess, as you guys think about, you know, kind of pricing in general, the 2023 decreases, I think they were effective about this time last year. So are we kind of through that decline? And then on a go forward basis, it's basically just kind of mix and then, you know, any sort of, you know, kind of volume considerations.
The volume inflows.
Speaker Change: Implications on tiers I did mentioned, yeah, we haven't we had a little bit of pricing adjustments throughout last year, but the bulk of what we were talking about before was in the first quarter.
Speaker Change: Of 2020 three but.
Yeah.
Speaker Change: There they were.
Speaker Change: Yeah, a little bit here and there.
Brian J. Magstadt: Okay, so a little bit of mix and, you know, the volume, implications on tiers I did mention, and we had a little bit of pricing adjustments throughout last year. But the bulk of what we were talking about before was in the first quarter of 2023, but there, there were a little bit here and there, in the balance of last year, surveyed in the last three quarters of the year.
Speaker Change: And the balance of last year.
Speaker Change: And the philosophy question here.
Okay, maybe if I say it a different way the gap between volume and revenue growth going forward. This should be on a kind of peak the peak out and that should should kind of narrow as you go through the year.
Speaker Change: Yes, yes, okay. Okay Gotcha, and then just the last one on on margins. So you.
Timothy Ronald Wojs: Okay, maybe if I said it another way, the gap between volume and revenue growth going forward, this should be kind of the peak gap, and that should kind of narrow as you go through the year. Yes, yes. Okay. Okay, gotcha.
Speaker Change: So you're you're at kind of 18% or so in the first quarter and the guidance is 22 to 'twenty, one and a half of the year.
Speaker Change: It's been a while since we've seen I guess normal seasonality. So how would you think the margin cadence should trying to track through the year. How are you kind of expecting it to track through the year to get to that that that guided range.
Timothy Ronald Wojs: And then just the last one on margins. So, you know, you're, you're at kind of 18% or so in the first quarter, and the guide is is 20 to 21 and a half for the year. It's been a while since we've seen, I guess, normal seasonality. So how would you think the margin cadence should try to track through the year? How are you kind of expecting it to track through the year to get to that, that kind of
Speaker Change: Okay. So if we're thinking kind of the middle core.
Speaker Change: Quarters.
Speaker Change: The typical this year higher margin quarters due to seasonality I Wouldnt say they are.
Speaker Change:
Speaker Change: So maybe down a little bit from last year.
Brian J. Magstadt: Okay, so if we're thinking kind of in the middle, I would say that the quarters, you know, the typical higher-margin quarters due to seasonality, I would say they are, Now, maybe down a little bit from last year, but definitely higher than in Q1, of course. So Now, based on our operating margin guide in, you know, the midpoint of the guide being down from where 2023 was, so that each of the quarters would be down just a little bit from the prior year comparable quarters. And let me just say, yeah. Okay, okay.
Speaker Change: But.
Speaker Change: Definitely higher than in Q1 of course.
Speaker Change: So no.
Speaker Change: Based on our App or our operating margin guide.
Speaker Change: And the midpoint of the guide being down from where 23 was.
Speaker Change:
Speaker Change: Each of the quarters or would be down just a little bit from the prior year comparable quarters.
Speaker Change: Yeah, Let me just yep.
Speaker Change: Okay, Okay very good.
Timothy Ronald Wojs: Okay, okay, very good. Thanks for the time. Good luck with the rest of the year.
Speaker Change: Good luck on the rest of the year.
Speaker Change: Yeah.
Speaker Change: Thank you Sir Thanks, Tim.
Speaker Change: Yeah.
Operator: Thank you. Our next question comes from the line of Kurt Yinger with DA Davidson. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Kurt can do it.
Kurt: Please proceed with your question.
Kurt: Great. Thanks, and good afternoon, everyone.
Kurt Willem Yinger: Great, thanks, and good afternoon everyone. Is there a way to perhaps size the impact from some of the kind of inefficiencies related to the new warehouse facilities, and I guess, as we move through the remainder of the year, should some of that gross margin pressure subside, or is that more of a 2025 type event with perhaps some better volume leverage on some of those additional fixed costs?
Kurt: Is there a way to perhaps size the impact from some of the kind of inefficiencies related to the new warehouse facilities and I guess as we move through the remainder of the year I'm sure. Some of that gross margin pressure subside or is that more about 2025 type of event with perhaps some better volume leverage on some.
Kurt: Those additional fixed costs.
Kurt: Yeah, So Kurt when will you open up those new warehouses that enables us to provide service to those end customers direct thus the ability to move away from the two step distribution.
Michael L. Olosky: Yeah, so Kurt, when we open up those new warehouses, that enables us to provide service to those end customers directly, thus the ability to move away from the two-step distribution. So, there's a bit of a sales price increase associated with that because we are going direct, but there's some additional costs, not only in the warehouse to run it, but also sales, inside sales, some SG&A pieces to it. So, that's kind of how we think about it on an overall level. Brian, on a more detailed level?
Kurt: So there is a bit of a a sales price increase associated with that because we are going direct but there are some additional costs not only in the warehouse to run up but also sales inside sales some SG&A.
Kurt: Pieces to it so that's kind of how we think about it at an overall level, Brian at a more detailed level. So a lot of the costs that were associated with getting those operations up there.
Brian J. Magstadt: So, a lot of the costs that were associated with getting those operations up and running, the few that we opened up last year, mostly at 2023 expense. So, because we're looking at this year and next year, you know, to Mike's point, part of one of our One of the reasons we really think that's one of the benefits of doing that is that we can see more of the Simpson strong product getting pulled through, in addition to connectors, and we definitely see a lift over time with that.
Kurt: Running a few that we we opened up last year, mostly in 2023 expense so.
Kurt: As we're looking at.
Kurt: This year and next year to Mikes point part of one of our.
Kurt: One of the reasons, we really think that's.
Kurt: What we've experienced the benefits of doing that is that we can see more of a more of a simpson strong tie probably getting pulled through it.
Kurt: In addition to our connectors and we definitely see a lift over time with that but that being said I would say that oh.
Brian J. Magstadt: But you know, that being said, I would say that any setup costs, primarily in 2023, we're going to get incrementally a little bit more from each of those. It's a big step function. I think we'll, I don't know that they call it a big step function, but nice incremental revenue and margin gains are what we would expect over the next coming years.
Kurt: And he set up costs, primarily at 2023.
Speaker Change: No I'm not.
Speaker Change: We're gonna get incrementally a little bit more from each of those it would be a big step function.
Speaker Change: Uh huh.
Speaker Change: I think well I don't I don't know that I'd call. It a big step function, but nice incremental.
Speaker Change: Revenue and margin gains is what we would expect over the next several years.
Kurt Willem Yinger: Got it. And correct me if I'm wrong.
Speaker Change: Yeah.
Speaker Change: Got it and correct me, if I'm wrong, but you know in terms of I guess gross margins being down a touch in 24 versus 23 was there something beyond kind of those additional warehouse costs factored in there or was that the primary driver of that.
Kurt Willem Yinger: But, you know, in terms of gross margins being down a touch in 24 versus 23, was there something beyond kind of those additional warehouse costs factored in there? Or was that the primary driver of a bit of that compression?
Speaker Change: A bit of that compression.
Brian J. Magstadt: Kurt, we have a big defensive synergy year in Europe. So we've had some additional costs associated with that that are at the gross margin line. Part of it also to Kurt is one of the reasons why we're using an adjusted EBITDA number and our external filings, as well as internally, as we're making a lot of investments in new facilities and not necessarily the real estate part of the facility, but a lot of the equipment that goes into those facilities, new machinery, racking, everything that's associated with that, that's got a call five to seven year life. Those have got accelerated depreciation in the first couple of years of their lives.
Speaker Change: So.
Speaker Change: Kurt we have a big defensive synergy you're in Europe.
Kurt: So we've had some additional costs associated with that that's just the gross margin line.
Kurt: Part of that also to Curt is one of the reasons why we're using an adjusted EBITDA number.
Kurt: And our external filings as.
Kurt: As well as internally is we're making a lot of investments and new facilities and not necessarily the real estate part of the facility, but a lot of the equipment that goes into those facilities.
Kurt: Our new machinery racking.
Kurt: Everything that's associated with that that's got a call. It five to seven year life of those who've got accelerated depreciation.
Kurt: On the first couple of years of of their of their lives and part of the reason why that adjusted EBITDA number is now display is to show.
Brian J. Magstadt: And part of the reason why that adjusted EBITDA number is now displayed is to show kind of a net of that, and it adjusted even though only being down 14-ish percent, I think is reflective of that implication. Part of the other element, too, a little bit, is increased freight. Going from truckloads to less than truckloads or smaller parcels because of those path to market changes is impacting that too. But again, we believe that that gets made up for and then some in the long run, in the midterm, and in the long run.
Kurt: Oh.
Kurt: Kind of a net of that and.
Kurt:
Kurt: Adjusted EBITDA only being down about 14%.
Kurt: I think is reflective of.
Kurt: Of that implication.
Kurt: The other.
Kurt: Element too.
Kurt: Little bit as increased freight.
Kurt:
Kurt: Going from truckloads to lessen truckloads or smaller parcels because of that path to market changes.
Kurt: Impacting that too, but again, we believe that.
Kurt: It gets made up for it and then some.
Uh huh.
Kurt: In the long run.
Kurt: In the midterm.
Kurt: Yeah.
Kurt Willem Yinger: That's helpful. And then, just on, I guess, the strength and kind of national retail sales this quarter, Mike, and I think in your prepared remarks, you talked about, or you referenced some, some customer wins. I saw in January that there was some expanded partnership with Orgel, maybe that kind of plays into that a little bit. But can you just give us a little bit more color around, you know, what you're executing on within that customer subset?
Kurt: Okay.
Kurt: That's helpful and then.
Kurt: Just on I guess, the strength, then and kind of a national retail this quarter, Mike I think in the prepared remarks, you talked about or you referenced on some customer wins.
Kurt: I saw in January it looked like there was some expanded partnership with with Oracle and maybe that kind of plays into that a little bit but can you just give us a little bit more color around you know what you're executing on within that customer subset and you know if we think about repair and remodel generally being kind of flat this year.
Kurt Willem Yinger: And, you know, if we think about repair and remodel generally being kind of flat this year, do you think you can kind of replicate that type of double-digit growth over the balance of 2024? Just given some of these changes?
Kurt: Or do you think you can kind of replicate that type of double digit growth over the balance of 2024, just just given some of these changes.
Michael L. Olosky: Good question, Kurt. So let me give you a little bit of background. So in 2023, our national retail business was up low single digits in volume, flattish, and revenue for the whole of 2023. In the fourth quarter, we were down in the low single digits in volume, and revenue was down mid single digits for the fourth quarter.
Kurt: Good question, Chris So let me give you a little bit of back backgrounds. So in 2023, our national retail business was up low single digits in volume flattish in revenue.
Kurt: For the whole of 2023 fourth quarter we.
Chris: We were down in the low single digits volume our revenue was down mid single digits for the fourth quarter. The business has significantly picked up from there. So here, we see double digits for volume as we've mentioned in the prepared remarks and revenue was up in the low single digits, you know, partly because of some of the reasons that.
Michael L. Olosky: The business has significantly picked up from there. So here we see double digits for volume, as we've mentioned in prepared remarks, and revenue was up in the low single digits, partly because of some of the reasons that Brian had mentioned. From a market perspective, Kurt, we came into the year thinking that the national retail market was going to be flattish, according to the firm that we follow.
Chris: That Brian had mentioned.
Chris: From a from a market perspective, Curt we came into the year thinking that.
Chris: National retail market was going to be flattish. According to the into the the affirm that we follow our latest estimates from that firm or that the market is going to grow roughly 5%.
Michael L. Olosky: So a lot of things are going on. And Kurt, we've invested in salespeople over the last couple of years in this segment. So now we're in those stores a lot more frequently. We're helping them with merchandising. We're training them. We're getting end caps. So we just have a lot more presence in that segment as well, which is helping us a lot.
Chris: So we're feeling pretty excited about the tailwind associated with that market. We think we've got a lot of things that are going on really well, we're doing a lot of merchandising efforts off shelf merchandising efforts.
Chris: We continue to see really good sell through of our products.
Kurt Willem Yinger: And if I could just sneak one more in, in terms of that strength, I guess with some of those national retail customers, the growth in volume and sales, pretty evenly split between the two big home center guys and then the mix of other customers at this stage, or would one be, I guess, the primary driver of the strength that you saw in the corridor?
Chris: Especially our fastener products, we're pretty excited about that and then we're working hard to increase the attachment rate of our fasteners tour connectors.
Chris: Doing several things with our customers to help that as well and then we're also seeing a nice bump in <unk> and the e-commerce area as well so a lot of things going on and Curt we've invested in salespeople.
Chris: Over the last couple of years in this segment. So now we're in those stores a lot more frequently we're helping them with merchandising we're training them on we're getting end caps. So we just have a lot more presence in that segment as well, which is helping us a lot.
Got it and if I could just sneak one more in in terms of that strain I guess with some of those national retail customers. It is you know the growth in volume and sales.
Michael L. Olosky: Yeah, Kurt, we really, as you know, don't comment on individual customers. I mean, we have a lot of positive things going on with all of our customers in that sector. Fair enough. All right. Thanks, guys.
Chris: Pretty evenly split among kind of the two big home Center guys and then.
Chris: The mix of other customers at this stage or would one be I guess the primary driver.
Kurt Willem Yinger: Fair enough. All right. Thanks, guys. I appreciate it.
Chris: The strength that you saw in the quarter.
Operator: Thank you. We have reached the end of the question and answer session. Also, this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Yeah, we really as you know don't comment on individual customers I mean, we got a lot of positive things going on with all of our customers in that segment.
Speaker Change: Fair enough alright, thanks, guys I appreciate it.
Speaker Change: Thanks Kurt.
Speaker Change: Thank you and we have reached the end of the question and answer session. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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