Q2 2024 Simpson Manufacturing Co Inc Earnings Call

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Operator: Greetings and welcome to the Simpson Manufacturing Company second quarter 2024 earnings conference call. At this time, all participants are in listen only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kim Orlando, with Addo Investor Relief. Thank you, Kim. You may begin.

Speaker Change: Greetings and welcome to the Simpson Manufacturing Company second quarter 2024 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kim Orlando with Addo Investor Relations.

Kimberly Orlando: Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's second 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.

Speaker Change: Thank you, Kim. You may begin.

Kimberly Orlando: Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's second quarter 2024 earnings conference call. Any statements made on this call that are not statements of historical fact are forward-looking statements. This conference is being recorded. Thank you for joining us. Thank you.

Speaker Change: Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties.

Speaker Change: Actual future results may vary materially from those expressed or implied by the forward-looking statements.

Speaker Change: 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: 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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: Please note that the earnings press release was issued today at approximately 4.15 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 Michael Olosky, Simpson's President and Chief Executive Officer.

Speaker Change: The earnings press release is available on the investor relations page of the company's website at ir.simpsonmfg.com

Speaker Change: Today's call is being webcast and a replay will also be available on the investor relations page of the company's website.

Speaker Change: Now, I would like to turn the conference over to Michael Olosky, Simpson's 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. My remarks today will provide an overview of our second quarter performance and updates on our end markets and capital allocation priorities. Brian will then talk you through our second quarter financials and fiscal 2024 outlook in greater detail. Our second quarter net sales totaled $597 million, which was in line with the prior year quarter in housing markets that continue to be challenging in both the US and Europe.

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.

Speaker Change: My remarks today will provide an overview of our second quarter performance and updates on our end markets and capital allocation priorities.

Speaker Change: Brian will then talk you through our second quarter financials and fiscal 2024 outlook in greater detail.

Ryan: Our second quarter net sales totaled $597 million, which was in line with the prior year quarter in housing markets that continue to be challenging in both the U.S. and Europe .

Michael L. Olosky: Nevertheless, execution against our growth strategy to drive new customer wins has enabled us to continue outperforming a declining U.S. housing market by mid-single digits on a year-to-date basis. While we remain optimistic about the longer-term growth prospects of the U.S. housing market, our expectations for modest growth this year have been extended into 2025. I'll discuss our outlook in greater detail shortly, turning to trends in our end-use market. North American volumes for Q2 were relatively flat compared to last year, producing net sales of $463 million versus $465.5 million in the prior year.

Ryan: Nevertheless, execution against our growth strategy to drive new customer wins has enabled us to continue outperforming a declining U.S. housing market by mid-single digits on a year-to-day basis.

Ryan: While we remain optimistic in longer-term growth prospects of the U.S. housing market, our expectations for modest growth this year have been extended into 2025.

Ryan: I'll discuss our outlook in greater detail shortly.

Ryan: Turning to trends in our end-use markets.

Ryan: North American volumes for Q2 were relatively flat compared to last year, producing net sales of $463 million versus $465.5 million in the prior year.

Michael L. Olosky: To further break down our North American volume performance, we achieved mid-single-digit growth year-over-year in both our OEM and component manufacturer markets. We have continued to identify new use cases and deepen our relationships with OEMs, so it remains a relatively small contributor to our revenues. Simpson is continually improving its software offerings to component manufacturers and leveraging growth from prior new business wins. We also modestly improved our volumes in the commercial market while the residential market remained relatively flat as improvements in single-family homes were offset by double-digit declines in multifamily housing compared to the prior year quarter. The national retail market saw low single-digit declines due to a combination of weather, timing, and a challenging comp versus the second quarter of last year, which benefited from significant customer conversions turning to Europe.

Ryan: To further break down our North American volume performance, we achieved mid-single-digit growth year-over-year in both our OEM and component manufacturer markets.

Ryan: We have continued to identify new use cases and deepen our relationships with OEMs, so it remains a relatively small contributor to our revenues.

Ryan: Simpson is continually improving our software offerings to component manufacturers and leveraging growth from prior new business wins.

Ryan: We also modestly improved our volumes in the commercial market, while the residential market remained relatively flat, as improvements in single-family were offset by double-digit declines in multi-family housing compared to the prior year quarter.

Ryan: The national retail market saw low single-digit declines due to a combination of weather, timing, and a challenging comp versus the second quarter of last year, which benefited from significant customer conversions.

Michael L. Olosky: While the market in Europe remains under pressure due to weak economic growth and higher interest rates reducing overall construction activity, our second quarter net sales of $129.9 million increased by 1.6% or 2.5% on a local currency basis year over year. As anticipated, our business in Europe has also continued to outperform the local markets given our solutions-based selling approach that drives new customer wins and product applications. 2024 continues to represent a big year for defensive synergies stemming from the Atomco acquisition, as well as other moves we are making in Europe to optimize our footprint, which has resulted in further margin compression versus last year as we incur additional costs to support those synergies.

Ryan: Turning to Europe .

Ryan: While the market in Europe remains under pressure due to weak economic growth and higher interest rates reducing overall construction activity, our second quarter net sales of $129.9 million increased by 1.6% or 2.5% on a local currency basis year over year.

Ryan: As anticipated, our business in Europe has also continued to outperform the local markets given our solutions-based selling approach that drives new customer wins and product applications.

Ryan: 2024 continues to represent a big year for defensive synergies stemming from the Atomco acquisition as well as other moves we are making in Europe to optimize our footprint which has resulted in further margin compression versus last year as we incurred additional costs to support those synergies.

Michael L. Olosky: These restructuring costs primarily impact 2024 and are necessary to attain our 15% operating income margin target in Europe. As a reminder, this target is also based on the eventual realization of offensive synergies and broader secular trends, including the growing use of wood construction and increasingly stringent environmental regulations that drive new applications. On a consolidated basis, our second quarter gross margin declined to 46.7% from 48.1% in the second quarter of last year, due primarily to changes in product mix, increases in path to market costs to better support our customers, and higher factory overhead costs, all of which were partially offset by productivity improvements.

Ryan: These restructuring costs primarily impact 2024 and are necessary to attain our 15% operating income margin target in Europe .

Ryan: As a reminder, this target is also based on the eventual realization of offensive synergies and broader secular trends including the growing use of wood construction and increasingly stringent environmental regulations that drive new applications.

Ryan: On a consolidated basis, our second quarter gross margin declined to 46.7%, from 48.1% in the second quarter of last year, due primarily to changes in product mix.

Ryan: increases in path-to-market costs to better support our customers, and higher factory overhead costs, all of which were partially offset by productivity improvements.

Michael L. Olosky: Our strong gross margins have enabled us to make significant investments in our people, engineering, equipment, and other capabilities to provide even better support to our customers and drive organic growth in the business over the last couple of years. As it pertains to future SG&A investments, we will continue to monitor the market and control costs accordingly. While our result in operating margin declined by approximately 200 basis points to 22.1% versus last year, it remained approximately 400 basis points above the pre-COVID run rate. Consolidated adjusted EBITDA totaled $152.6 million for the quarter, a decline of 7.8% year over year.

Ryan: Our strong gross margins have enabled us to make significant investments in our people, engineering, equipment, and other capabilities to provide even better support to our customers and drive organic growth in the business over the last couple of years.

Ryan: As it pertains to future SG&A investments, we will continue to monitor the market and control costs accordingly.

Ryan: While our result in the operating margin declined by approximately 200 basis points to 22.1%, versus last year it remained approximately 400 basis points above the pre-COVID run rate.

Ryan: Consolidated adjusted EBITDA totaled $152.6 million for the quarter, a decline of 7.8% year over year.

Michael L. Olosky: Our core company ambitions continue to be the guiding principles that drive all of our initiatives forward, such as strengthening our values-based culture, being the business partner of choice, and striving to be an innovation leader in the markets we operate in. Continuing above market growth relative to US housing starts, and returning to the top quartile of our proxy peer groups for operating income margin, and, longer term, returning to the top quartile of our proxy peers for return on invested capital.

Speaker Change: Our core company ambitions continue to be the guiding principles that drive all of our initiatives forward, such as strengthening our values-based culture, being the business partner of choice,

Speaker Change: Striving to be an innovation leader in the markets we operate. Continuing above market growth relative to U.S. housing starts.

Speaker Change: returning to the top quartile of our proxy peer groups for operating income margin and longer term returning to the top quartile of our proxy peers for return on invested capital.

Michael L. Olosky: The primary element underscoring our ambitions is centered on providing exceptional customer service. This level of service is predicated on our high product availability and delivery standards to provide innovative and complete solutions for the markets we serve, as well as empowering our customers to become more efficient.

Speaker Change: The primary element underscoring our ambitions is centered on providing exceptional customer service.

Speaker Change: This level of service is predicated on our high product availability and delivery standards to provide innovative and complete solutions for the markets we serve, as well as empowering our customers to become more efficient.

Michael L. Olosky: As proof points of our endeavors, I'd like to now spend some time highlighting some of the new business wins within our five end-use markets during the quarter, which stem from the investments we've been making to drive sustainable long-term growth above the market. Beginning with the residential market, we continue to benefit from large share gains resulting from partnership agreements and large lumberyard conversions from last year, which helped mitigate some of the challenging market conditions.

Speaker Change: As proof points to our endeavors, I'd like to now spend some time highlighting some of the new business wins within our five end-use markets during the quarter, which stem from the investments we've been making to drive sustainable, long-term growth above the market.

Speaker Change: Beginning with the residential market, we continue to benefit from large share gains resulting from partnership agreements and large lumberyard conversions from last year which helped mitigate some of the challenging market conditions.

Michael L. Olosky: Our focused efforts to expand our fastener, anchor, and outdoor accent lines with our existing lumber dealer partners resulted in multiple customer conversions throughout the quarter, with our pro supply business up double digits. We've displaced competition and added displays, end caps, and additional shelf space in many locations across North America. Furthermore, our longstanding relationship with National Lumber Yards and relentless customer focus enabled us to spread awareness of our innovative fasting solutions to several key builder divisions via job site demos and training.

Speaker Change: Our focused efforts to expand our fastener, anchor, and outdoor accent lines with our existing lumber dealer partners resulted in multiple customer conversions throughout the quarter with our pro supply business being up double digits.

Speaker Change: We've displaced competition and added displays, end caps, and additional shelf space in many locations across North America.

Speaker Change: Further, our long-standing relationship with National Lumber Yards and relentless customer focus enabled us to spread awareness of our innovative fasting solutions to several key builder divisions via job site demos and trainings.

Michael L. Olosky: In the commercial market, we continue to educate and partner with industry players to provide innovative solutions, including the use of our fasteners, anchors, and cold form steel products on a charter school in Southern California, a hospital in the U.S. Southeast, and a tilt-up warehouse project also in the South. By leveraging our manufacturing facility in Galveston, Tennessee, we were also able to supply fasteners for a large export container shed project at a terminal in Canada.

Speaker Change: In the commercial market, we continue to educate and partner with industry players to provide innovative solutions, including the use of our fasteners, anchors, and cold-formed steel products on a charter school in Southern California, a hospital in the U.S. Southeast, and a tilt-up warehouse project also in the Southeast.

Speaker Change: By leveraging our manufacturing facility in Galveston, Tennessee, we were also able to supply fasteners for a large export container shed project on a terminal in Canada.

Michael L. Olosky: In the OEM market, our dedicated sales team and innovative, high-quality products led to a fastener conversion of a prominent post-frame manufacturer, resulting in noteworthy success for future post-frame connection efforts. We also continued growth in mass timber, providing connector solutions on a large museum project in the southeast. We continue to believe there are opportunities to further develop this market segment. Within the national retail space, our team has been highly focused on home center merchandising efforts, including securing additional displays in many stores to generate incremental sales, and facilitate expanded product rollouts during the busier building season. These efforts have led to solid traction with our outdoor accents line, fastener products, and e-commerce sales, in particular.

Speaker Change: In the OEM market, our dedicated sales team and innovative, high-quality products led to a fastener conversion of a prominent post-frame manufacturer, resulting in noteworthy success for future post-frame connection efforts.

Speaker Change: We also continued growth in mass timber, providing connector solutions on a large museum project in the southeast.

Speaker Change: We continue to believe there are opportunities to further develop this market segment.

Speaker Change: Within the national retail space, our team has been highly focused on home center merchandising efforts, including securing additional displays in many stores, generate incremental sales, and facilitate expanded product rollouts during the busier building season.

Speaker Change: These efforts have led to solid traction with our outdoor accents line, fastener products, and e-commerce sales in particular.

Michael L. Olosky: And finally, in the component manufacturer market, our teams made progress on our long-term digital solutions roadmap to appeal to larger key component manufacturer customers. We continue to see this market as a significant opportunity and a good fit for our business model. Next, I'll turn to our discussion of our capital allocation strategy, which continues to prioritize both growth and stockholder returns.

Speaker Change: And finally, in the component manufacturer market, our teams made progress on our long-term digital solutions roadmap to appeal to larger, key component manufacturer customers.

Speaker Change: We continue to see this market as a significant opportunity and a good fit for our business model.

Speaker Change: Next, I'll turn to our discussion on capital allocation strategy, which continues to prioritize both growth and stockholder returns.

Michael L. Olosky: In the second quarter, we generated cash from operations of $119 million, which helped finance $79.6 million in capital expenditures, including $16.8 million for an acquisition. $50 million in share repurchases and $22.9 million in dividends. The M&A pipeline remains active as we continue to evaluate tuck-in opportunities within our core competencies that would help us accelerate traction on our growth initiatives. In June, we completed the acquisition of Calculated Structured Designs, or CSD for short. DSD is a software development company providing solutions for the engineered wood, engineering, design, and building industries in North America, Australia, and the UK.

Speaker Change: In the second quarter, we generated cash from operations of $119 million, which helped finance $79.6 million in capital expenditures,

Speaker Change: $16.8 million for an acquisition, $50 million in share repurchases, and $22.9 million of dividends.

Speaker Change: The M&A Pipeline remains active as we continue to evaluate tuck-in opportunities within our core competencies that would help us accelerate traction on our growth initiatives.

Speaker Change: In June , we completed the acquisition of Calculated Structured Designs, or CSD for short.

Speaker Change: DSD is a software development company providing solutions for the engineered wood, engineering, design and building industries in North America, Australia and the UK.

Michael L. Olosky: Opportunities such as DSD help us drive our digital solutions platform forward by increasing hardware sales and maximizing overall efficiencies for our customers. In addition to the aforementioned investments we are making in our people, engineering, equipment, and other capabilities, work is continuing on the expansion of our Columbus, Ohio facility and the new construction of our fastener facility in Gallatin, Tennessee. These investments are on track to become fully operational in 2025 and help ensure Simpson remains well positioned to service our valued customers given the expected housing market recovery. For 2024, we expect US housing starts to be flat to slightly down, and European housing starts to be below the prior year.

Speaker Change: Opportunities such as CSD help us drive our digital solutions platform forward by increasing hardware sales and maximizing overall efficiencies for our customers.

Speaker Change: In addition to the aforementioned investments we are making in our people, engineering, equipment, and other capabilities, work is continued on the expansion of our Columbus, Ohio facility and the new construction of our fastener facility in Gallatin, Tennessee.

Speaker Change: These investments are on track to become fully operational in 2025 and help ensure Simpson remains well positioned to service our valued customers given the expected housing market recovery.

Speaker Change: For 2024, we expect U.S. housing starts to be flat to slightly down and European housing starts to be below prior year.

Michael L. Olosky: Whereas in 2025, we continue to expect mid single-digit growth and US housing starts. While the market in Europe appears to have bottomed, we believe meaningful market growth there will be pushed out further into 2026 and beyond. Before I conclude, I'd like to highlight a few important corporate developments that transpired during the quarter. First, we announced the retirement of Roger Denkel as our Executive Vice President, North American Sales of Simpson Strong Tag Company after three decades of service to the company. Roger will continue in his role through the year 2024, after which he will remain employed as an executive advisor until his official retirement on June 30, 2025. We wish Roger all of the best in his retirement.

Speaker Change: Whereas in 2025, we continue to expect mid-single-digit growth in U.S. housing starts.

Speaker Change: While the market in Europe appears to have bottomed, we believe meaningful market growth there will be pushed out further into 2026 and beyond.

Michael L. Olosky: Second, we are excited to announce the hiring of Udit Mehta as our new Chief Technology Officer, who will be reporting directly to me and overseeing our technology infrastructure and customer-facing digital offerings as we seek to drive innovation, efficiency, and further software development at Simpson. Next, as part of our dedication to be the partner of choice for our suppliers, employees, and customers, as well as our commitment to give back and support the communities in which we live and work, we have been developing workforce development programs to help address the steel trades labor gap in the construction industry, in partnership with many of our industry partners.

Speaker Change: Before I conclude, I'd like to highlight a few important corporate developments that transpired during the quarter.

Speaker Change: First, we announce the retirement of Roger Denkel as our Executive Vice President, North American Sales of Simpson Strong Tag Company after three decades of service to the company.

Speaker Change: Roger will continue in his role through year 2024, after which he will remain employed as an Executive Advisor until his official retirement on June 30, 2025.

Speaker Change: We wish Roger all of the best in his retirement.

Speaker Change: Second, we are excited to announce the hiring of Udit Mehta as our new Chief Technology Officer who will be reporting directly to me and overseeing our technology infrastructure and customer facing digital offerings as we seek to drive innovation, efficiency and further software development at Simpson.

Speaker Change: Next, as part of our dedication to be the partner of choice for our suppliers, employees, and customers, as well as our commitment to give back and support the communities in which we live and work.

Speaker Change: We have been developing workforce development programs to help address the steel trades labor gap in the construction industry in partnership with many of our industry partners.

Michael L. Olosky: Additionally, based on the results of our annual customer satisfaction survey in April, we received overall positive feedback in the areas of customer service, field support, online ordering, product availability, delivery, and more. These survey results are a direct reflection of our dedicated employees, unique business model, and our continued investments to provide superior customer service. And lastly, in mid June, we published our fiscal 2023 corporate social responsibility report, highlighting our commitment to social responsibility and environmentally sustainable business practices to our employees and stakeholders at Simpson. For those that wish to view it, the report can be accessed on our website under the ESG tab.

Speaker Change: Additionally, based on the results of our annual customer satisfaction survey in April , we received overall positive feedback in the areas of customer service, field support, online ordering, product availability, delivery, and more.

Speaker Change: The survey results are a direct reflection of our dedicated employees, unique business model, and our continued investments to provide superior customer service.

Speaker Change: And lastly, in mid-June, we published our Fiscal 2023 Corporate Social Responsibility Report, highlighting our commitment to social responsibility and environmentally sustainable business practices to our employees and stakeholders at Simpson.

Speaker Change: For those that wish to view it, the report can be accessed on our website under the ESG tab.

Michael L. Olosky: In summary, we remain optimistic in our ability to continue our outperformance versus the broader market despite persistent macroeconomic challenges. Execution of a growth strategy has resulted in various new customer wins and significant improvements to our overall offering as we strive to remain a supplier of choice. 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 volumes of approximately 250 basis points above the market over the mid to longer term while also returning to top quartile profitability. With that, I'd like to turn the call over to Brian, who will discuss our second quarter financial results in greater detail. Thanks, Mike, and good afternoon, everyone.

Speaker Change: In summary, we remain optimistic in our ability to continue our outperformance versus the broader market despite persistent macroeconomic challenges.

Speaker Change: Execution against a growth strategy has resulted in various new customer wins and significant improvements to our overall offering as we strive to remain supplier of choice.

Speaker Change: 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 volumes of approximately 250 basis points above the market over the mid to longer term while also returning to the top quartile profitability.

Speaker Change: With that, I'd like to turn the call over to Brian who will discuss our second quarter financial results in greater detail.

Brian J. Magstadt: Thank you for joining us on our second quarter earnings call today. Before I begin, I'd like to mention that, unless otherwise stated, all financial measures discussed in my prepared remarks refer to the second quarter of 2024, and all comparisons will be year-over-year comparisons versus the second quarter of 2023. Now, turning to our second quarter results.

Brian J. Magstadt: Thanks, Mike, and good afternoon, everyone. Thank you for joining us on our second quarter earnings call today.

Brian J. Magstadt: Before I begin, I'd like to mention that unless otherwise stated, all financial measures discussed in my prepared remarks refer to the second quarter of 2024, and all comparisons will be year-over-year comparisons versus the second quarter of 2023.

Brian J. Magstadt: Our consolidated net sales remained relatively consistent at $597 million. Within the North America segment, net sales modestly declined by 0.5% to $463 million, on relatively flat sales volume and pricing. In North America, wood construction product sales were down 1.6%, and concrete, construction product sales were up 6.3%.

Brian J. Magstadt: Now, turning to our second quarter results.

Brian J. Magstadt: Our consolidated net sales remained relatively consistent at $597 million. Within the North America segment, net sales modestly declined by 0.5% to $463 million.

Brian J. Magstadt: on relatively flat sales volume and pricing.

Brian J. Magstadt: In North America, wood construction product sales were down 1.6%.

Brian J. Magstadt: and Concrete, construction product sales were up 6.3%.

Brian J. Magstadt: In Europe, net sales increased 1.6% to $129.9 million, primarily due to modestly higher sales volumes, particularly offset by the negative effect of $0.7 million in foreign currency translation. Consolidated gross profit decreased 3.1% to $278.5 million, resulting in a gross margin of 46.7%, compared to 48.1%. This gross margin is approximately 70 basis points above our historical average Q2 gross margin since 2018. On a segment basis, our gross margin in North America decreased to 50% compared to 51.2%, primarily due to changes in product mix in addition to higher warehouse and freight costs as a percentage of net sales, which were partially offset by productivity improvement.

Brian J. Magstadt: In Europe , net sales increased 1.6% to $129.9 million, primarily due to modestly higher sales volumes, particularly offset

Brian J. Magstadt: by the negative effect of $0.7 million in foreign currency translation.

Brian J. Magstadt: Consolidated gross profit decreased 3.1% to $278.5 million, resulting in a gross margin of 46.7%.

Brian J. Magstadt: compared to 48.1%. This gross margin is approximately 70 basis points above our historical average Q2 gross margin since 2018.

Brian J. Magstadt: On a segment basis, our gross margin in North America decreased to 50% compared to 51.2%, primarily due to changes in product mix in addition to higher warehouse and freight costs as a percentage of net sales, which were partially offset by productivity improvements.

Unknown Attendee: Our gross margin in Europe decreased to 35.4% from 37.4%, also primarily due to higher labor, factory, overhead, warehouse, and freight costs as a percentage in themselves. From a product perspective, our second quarter gross margin on wood products was 46.5% compared to 48.4%, and was 47.5% for concrete products compared to 45.9%.

Brian J. Magstadt: Our gross margin in Europe decreased to 35.4% from 37.4%, also primarily due to higher labor, factory, overhead, warehouse, and freight costs as a percentage of net sales. From a product perspective, our second-quarter gross margin on wood products was 46.5% compared to 48.4% and was 47.5% for concrete products compared to 45.9%.

Brian J. Magstadt: Our gross margin in Europe decreased to 35.4% from 37.4%, also primarily due to higher labor, factory, overhead, warehouse, and freight costs as a percentage of net sales.

Brian J. Magstadt: From a product perspective, our second quarter gross margin on wood products was 46.5% compared to 48.4% and was 47.5% for concrete products compared to 45.9%.

Michael Olosky: Now, turning to our second quarter costs and operating expenses. Total operating expenses were $145 million, an increase of $4.3 million or 3%, primarily due to increased personal costs, including added headcount to drive our growth and higher professional fees. As a percentage in that sales, total operating expenses were 24.3% compared to 23.6%. To further detail our SG and A investments, our second quarter research and development and engineering expenses increased 5.4% to $22.7 million. Primarily due to the higher personal cost noted above. Delany expenses increased end-point 9% to $55.9 million, primarily due also to the higher personal cost.

Brian J. Magstadt: Now, turning to our second quarter costs and operating expenses. Total operating expenses were $145 million, an increase of $4.3 million or 3% primarily due to increased personnel costs, including added headcount to drive our growth and higher professional fees, as a percentage of that sales. Total operating expenses were 24.3% compared to 23.6%. To further detail our SG&A investments, our second quarter research and development and engineering expenses increased 5.4% to $22.7 million, primarily due to the higher personnel costs noted above. Selling expenses increased 10.9% to $55.9 million, primarily due to higher personnel costs.

Brian J. Magstadt: Now turning to our second quarter costs and operating expenses.

Brian J. Magstadt: Total operating expenses were $145 million, an increase of $4.3 million or 3%, primarily due to increased personnel costs, including added headcount to drive our growth, and higher professional fees.

Brian J. Magstadt: As a percentage of net sales, total operating expenses were 24.3% compared to 23.6%.

Brian J. Magstadt: To further detail our SG&A investments, our second quarter research and development and engineering expenses increased 5.4% to $22.7 million, primarily due to the higher personnel costs noted above.

Brian J. Magstadt: Selling expenses increased 10.9% to $55.9 million, primarily due also to the higher personnel costs.

Brian J. Magstadt: On a segment basis, selling expenses in North America were up 12.2%, and in Europe, they were up 6.7%. General and administrative expenses decreased 3.5% to $66.4 million, primarily due to lower variable compensation costs, partially offset by higher personnel costs. As a result, our consolidated income from operations totaled $132.2 million, a decline of 8.9% from $145 million. Our consolidated operating income margin was 22.1%, down from 24.3%. In North America, income from operations decreased 7.9% to $132.1 million, primarily due to increased personal costs and professional fees, coupled with lower gross profit.

Michael Olosky: On a segment basis, selling expenses in North America were up 12.2%, and in Europe they were up 6.7%. General and administrative expenses decreased 3.5% to 66.4 million. Primarily due to lower variable compensation costs, partially offset by higher personal cost. As a result, our consolidated income from operations totals $132.2 million. A decline of 8.9% from $145 million. Our consolidated operating income margin was 22.1%, down from 24.3%. In North America, income from operations decreased 7.9% to $132.1 million. Primarily due to increased personal cost and professional fees, coupled with lower gross profit. In Europe, income from operations was $11.2 million compared to $14 million due to lower gross profit in higher personal cost.

Brian J. Magstadt: On a segment basis, selling expenses in North America were up 12.2% and in Europe they were up 6.7%.

Brian J. Magstadt: General and administrative expenses decreased 3.5% to $66.4 million primarily due to lower variable compensation costs partially offset by higher personnel costs.

Brian J. Magstadt: As a result, our consolidated income from operations totaled $132.2 million, a decline of 8.9% from $145 million.

Brian J. Magstadt: Our consolidated operating income margin was 22.1% down from 24.3%.

Brian J. Magstadt: In North America, income from operations decreased 7.9% to $132.1 million, primarily due to increased personnel costs and professional fees, coupled with lower gross profit.

Brian J. Magstadt: In Europe, income from operations was $11.2 million compared to $14 million due to lower gross profit and higher personnel costs. Our effective tax rate was 26.3%, approximately 40 basis points higher than the prior year period. Accordingly, net income totaled $97.8 million or $2.31 per fully diluted share compared to $107.2 million or $2.50 per fully diluted share. For the second quarter, adjusted EBITDA of $152.6 million declined 7.8%.

Brian J. Magstadt: In Europe , income from operations was $11.2 million compared to $14 million due to lower gross profit and higher personnel costs.

Michael Olosky: Our effective tax rate was 26.3%. Approximately 40 basis points higher than the prior year period. Accordingly, net income totaled $97.8 million, or $2.31 per fully diluted share, compared to $107.2 million, or $2.50 per fully diluted share. For the second quarter, adjusted EBITDA of $152.6 million declined 7.8%.

Brian J. Magstadt: Our effective tax rate was 26.3%, approximately 40 basis points higher than the prior year period.

Brian J. Magstadt: Accordingly, net income totaled $97.8 million or $2.31 per fully diluted share compared to $107.2 million or $2.50 per fully diluted share.

Brian J. Magstadt: For the second quarter, Adjusted EBITDA of $152.6 million declined 7.8%.

Michael Olosky: Now turning to our balance sheet and cash flow. Our balance sheet remained healthy with cash and cash equivalents, totaling $354.9 million at June 30th, 2024, down $14.3 million from our balance at March 31st, 2024. 2 primarily to share repurchases of $50 million, capital expenditures, acquisitions, as well as changes in working capital. Our debt balance was approximately $470.7 million, net of capitalized finance costs, and our net debt position was $115.8 million. We have $381 million remaining available for borrowing on our primary line of credit. Our inventory position, as of June 30, 2024, was $533.6 million, which was down $22.1 million compared to our balance at March 31, 2024, on slightly lower pounds.

Brian J. Magstadt: Now turning to our balance sheet and cash flow. Our balance sheet remained healthy with cash and cash equivalents totaling $354.9 million at June 30, 2024, down $14.3 million from our balance at March 31, 2024, due primarily to share repurchases of $50 million. Capital expenditures, acquisitions, as well as changes in working capital. Our debt balance was approximately $470.7 million, net of capitalized finance costs. And our net debt position was $115.8 million. We have $381 million remaining available for borrowing on our primary line of credit.

Brian J. Magstadt: Now turning to our balance sheet and cash flow. Our balance sheet remained healthy with cash and cash equivalents totaling $354.9 million at June 30th, 2024, down $14.3 million from our balance at March 31st, 2024.

Brian J. Magstadt: due primarily to share repurchases of $50 million.

Brian J. Magstadt: Capital Expenditures

Brian J. Magstadt: acquisitions

Brian J. Magstadt: as well as changes in working capital.

Brian J. Magstadt: Our debt balance was approximately $470.7 million net of capitalized finance costs.

Brian J. Magstadt: And our net debt position was $115.8 million.

Brian J. Magstadt: We have $381 million remaining available for borrowing on our primary line of credit.

Brian J. Magstadt: Our inventory position as of June 30, 2024 was $533.6 million, which was down $22.1 million compared to our balance at March 31, 2024 on slightly lower volumes. 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 second quarter, we generated cash flow from operations of approximately $119 million compared to $7.9 million. We invested $79.6 million in capital expenditures, including our Facility Investment made an acquisition, and paid $22.9 million in dividends to our stockholders.

Brian J. Magstadt: Our inventory position as of June 30th, 2024 was $533.6 million, which was down $22.1 million compared to our balance at March 31st, 2024 on slightly lower pounds.

Michael Olosky: Secretary of 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 second quarter, we generated cash flow from operations of approximately $119 million, compared to $7.9 million. We invested $79.6 million for capital expenditures, including our facility investments, made in acquisition, and paid $22.9 million in dividend to stockholders. As noted previously, we also repurchased $50 million in our common stock with 283,273 shares in the open market at an average price of $176.51 per share. As of June 30, approximately $50 million remaining available on our $100 million share repurchase authorization.

Brian J. Magstadt: Effective inventory management remains a core element of our strategy and competitive advantage to ensure on-time delivery and exceptional service to our customers.

Brian J. Magstadt: During the second quarter, we generated cash flow from operations of approximately $119 million compared to $7.9 million.

Brian J. Magstadt: We invested $79.6 million for capital expenditures, including our...

Brian J. Magstadt: Facility Investments.

Brian J. Magstadt: made an acquisition and paid $22.9 million in dividends to our stockholders.

Brian J. Magstadt: As noted previously, we also repurchased $50 million of our common stock with 283,273 shares in the open market at an average price of $176.51 per share. As of June 30th, approximately $50 million remained available under our $100 million share repurchase authorization.

Brian J. Magstadt: As noted previously, we also repurchased $50 million in our common stock with 283,273 shares in the open market at an average price of $176.51 per share.

Brian J. Magstadt: As of June 30th, approximately $50 million remained available on our $100 million share repurchase authorization.

Michael Olosky: Next, turning to our 2024 financial outlook. Based on business trends and conditions as of today, July 22, our guidance for the full year ending December 31, 2024, is as follows. We now expect our operating margin to be in the range of 20 to 21%. EU assumptions continue to include expected moderate volume growth on relatively flat US housing starts in stable pricing. They slightly lower overall gross margin based on the addition of new warehouses and modest increase in labor and factory and tooling as a percentage in that sales. $4 million to $5 million in expected total cost to pursue defensive synergies in Europe, as well as other acquisition opportunities.

Brian J. Magstadt: Next, turning to our 2024 financial outlook. Based on business trends and conditions as of today, July 22nd, our guidance for the full year ending December 31st, 2024, is as follows. We now expect our operating margin to be in the range of 20 to 21 percent. Key assumptions continue to include expected moderate volume growth on relatively flat U.S. housing starts and stable pricing. 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 sales.

Brian J. Magstadt: Next, turning to our 2024 financial outlook.

Brian J. Magstadt: Based on business trends and conditions as of today, July 22nd, our guidance for the full year ending December 31st, 2024 is as follows.

Brian J. Magstadt: We now expect our operating margin to be in the range of 20 to 21 percent. Key assumptions continue to include expected moderate volume growth on relatively flat U.S. housing starts and stable pricing.

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: $4 million to $5 million in expected total costs to pursue defensive synergies in Europe, as well as other acquisition opportunities and 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. In the current challenging housing market, we are appropriately balancing our ability to control costs in the business with our growth-focused investments to ensure we can deliver a strong operating income margin within the top quartile of our proxy peers, in line with our core company ambition.

Brian J. Magstadt: $4 million to $5 million in expected total costs to pursue defensive synergies in Europe as well as other acquisition opportunities. Thank you for your time. Thank you. Thank you.

Michael Olosky: And an 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. In the current challenging housing market, we are appropriately balancing our ability to control costs in the business. With our growth-focused investments to ensure we can deliver a strong operating income margin within the top core tell of our proxy peers. In line with our core company ambition.

Brian J. Magstadt: and 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.

Speaker Change: In the current challenging housing market, we are appropriately balancing our ability to control costs in the business with our growth-focused investments to ensure we can deliver a strong operating income margin.

Speaker Change: within the top quartile of our proxy peers in line with our core company ambition.

Michael Olosky: Next, the annual interest expense on the outstanding revolving credit facility in term loans, which had borrowings of $75 million in $410.6 million as of December 31, 2023, respectively, is expected to be approximately $8 million, including a benefit from interest rate in 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 the expense. Our effective tax rate is estimated to continue to be in the range of 24 and a half percent to 25 and a half percent, including both federal and state income tax rates based on current tax laws.

Brian J. Magstadt: Next, Annual Interest Expense on the outstanding and Revolving Credit Facility in Term Loans, which had borrowings of $75 million and $410.6 million as of December 31, 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 estimated to continue to be in the range of 24.5% to 25.5%, including both federal and state income tax rates based on current tax laws.

Speaker Change: Next, annual interest expense on the Outstanding and Revolving Credit Facility in Term Loans.

Speaker Change: 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

Speaker Change: mitigating substantially all of the volatility from changes in interest rates.

Speaker Change: Interest on our cash and money markets is expected to offset this expense.

Speaker Change: Our effective tax rate is estimated to continue to be in the range of 24.5% to 25.5%, including both federal and state income tax rates based on current tax laws.

Michael Olosky: And finally, our capital expenditures are estimated to be in the range of $180 million to $190 million, which includes $90 million, $100 million for the Columbus facility expansion and the new Gallatin facility construction, with the remaining spend carrying over into 2025. In summary, we have made tremendous strides in recent years to grow our share and enhance our performance throughout market cycles with our core company ambitions as our guide stones. Our overall financial position remains strong or the solid balance sheet that supports ongoing investments in our growth that position us capitalize on the eventual resurgence in residential housing.

Brian J. Magstadt: And finally, our capital expenditures are estimated to be in the range of $180 million to $190 million, which includes $90 million to $100 million for the Columbus Facility Expansion and the new Gallatin Facility construction, with the remaining spend carrying over into 2025. In summary, we have made tremendous strides in recent years to grow our share and enhance our performance throughout market cycles with our core company ambitions as our guidestones. Our overall financial position remains strong, with a solid balance sheet that supports ongoing investments in our growth that position us to capitalize on the eventual resurgence in residential housing.

Speaker Change: And finally, our capital expenditures are estimated to be in the range of $180 million to $190 million.

Speaker Change: which includes $90 million to $100 million for the Columbus Facility Expansion and the new Gallatin Facility construction with the remaining spend carrying over into 2025.

Speaker Change: In summary, we have made tremendous strides in recent years to grow our share and enhance our performance throughout market cycles with our core company ambitions as our guidestones.

Speaker Change: Our overall financial position remains strong with a solid balance sheet that supports ongoing investments in our growth that position us to capitalize on the eventual resurgence in residential housing.

Michael Olosky: I'd like to thank the entire since in team for their hard work and execution.

Brian J. Magstadt: I'd like to thank the entire Simpson team for their hard work and execution. With that, I will now turn the call over to the operator to begin the Q&A session. Thank you.

Speaker Change: I'd like to thank the entire Simpson team for their hard work and execution.

Unknown Attendee: With that, I will now turn the call over to the operator to begin the Q&A session. Thank you. We'll now 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 column will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants, these in speaker equipment may be necessary to pick up your hands set before pressing the star keys. One moment, please, while we pull for questions. Thank you.

Speaker Change: With that, I will now turn the call over to the operator to begin the Q&A session.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. 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 keys.

Speaker Change: Thank you. We will now be conducting a question and answer session.

Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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 keys. One moment please while we poll for questions.

Operator: One moment, please, while we poll for questions. Thank you. Our first question is from Daniel Moore with CJS Securities. Please proceed with your question.

Daniel Moore: Our first question is from Daniel Moore with CJS Securities. Please proceed with your question. Thank you. Mike Brian, thanks for the color and taking questions.

Speaker Change: Thank you. Our first question is from Daniel Moore with CJS Securities. Please proceed with your question.

Daniel Joseph Moore: Thank you, Mike, and Brian, thanks for the color and taking the questions. To start with, I missed the commentary around national retail accounts. Can you just repeat that? And how much of an impact, if any, was inventory management or destocking on that channel? Is that a headwind, either in the quarter or on a go forward basis for the next quarter or two, three?

Speaker Change: Thank you, Mike, Brian . Thanks for the color and taking the questions. Start with, I missed the commentary around national retail accounts. Can you just repeat that?

Daniel Moore: Start with, I missed the commentary around national retail accounts. Can you just repeat that, and how much of an impact, if at all, was inventory management or destocking that channel? Is that a headwind here in the quarter, or on a go forward basis, the next quarter or two, three?

Daniel Joseph Moore: How much of an impact, if at all, was inventory management or destocking that channel? Is that a headwind either in the quarter or on a go-forward basis for the next quarter or two for you?

Michael L. Olosky: Good question, Dan.

Michael Olosky: So we continue to be really pleased with the work that our national retail team is doing. Quarter to date, volume was down 3.3%. Really, the biggest driver in that was cons. Last quarter we picked up a whole bunch of business with some of our customers, and we were loading in the shelves last year. We picked up a couple of little bit more challenging. You're the date of volume for national retail's up about 3%. We continue to be quite pleased with our Outdoor Actions growth there. So that's the black card where that's used on Dex and Pertilus.

Michael L. Olosky: We're really pleased with the work that our national retail team is doing. Quarter to date volume was down 3.3%; really, the biggest driver in that was comps. Last quarter we had picked up a whole bunch of business with some of our customers, and we were loading the shelves last year, so that made the comp a little bit more challenging.

Speaker Change: That's a good question, Dan.

Speaker Change: So we continue to be really pleased with the work that our national retail team is doing.

Speaker Change: Quarter to date, volume was down 3.3%. Really the biggest driver in that was...

Speaker Change: Last quarter, we had picked up a whole bunch of business with some of our customers and we were loading in the shelves last year, so that made the comp a little bit more challenging. Year-to-date volume for national retail is up about 3%.

Michael L. Olosky: Year to date volume for national retail is up about 3%. We continue to be quite pleased with our outdoor accents growth there. So that's the black hardware that's used on decks and pergolas. We're also quite pleased with our growth of our fastener business in that segment as well.

Speaker Change: We continue to be quite pleased with our outdoor accents growth there. So that's the black hardware that's used on decks and pergolas. We're also quite pleased with our growth of our fastener business in that segment as well.

Michael Olosky: We're also quite pleased with our growth of our past and business in that segment as well. You know, the largest of players and everything they're doing, or there's still some work to go in that regard. Still some work to go, so we need to have the truck to all panels and the floor panels all fully integrated into one seamless solution. And we're working on that, but we are not there yet. And then we also need production management capabilities to be able to run their manufacturing facilities. We have some solutions in that space, but we have a little bit more development to go there as well.

Daniel Joseph Moore: Very helpful, appreciate that. And then you talked about, you obviously appreciate the color updated view around US housing starts, where you see them coming in for the year, and you continue to outpace by, you know, close to mid single digits above that to the 250 basis point target. Is it your expectation to continue to outpace by at least kind of low to mid single digits as we look to the balance of the year? I think you said moderate volume growth was sort of your expectation. I just want to make sure that I heard that correctly.

Speaker Change: Very helpful, appreciate that.

Speaker Change: You talked about, obviously appreciate the color, updated view around U.S. housing starts, where you see them coming in for the year. You continue to outpace by close to mid-single digits above that 250 basis point target.

Speaker Change: Is it your expectation to continue to outpace by at least kind of low to mid single digits as we look to the balance of the year? I think you said moderate volume growth.

Speaker Change: This is sort of your expectation. Just want to

Michael L. Olosky: Yes, so as you know, Dan, in the last eight years, we've outgrown the market by about 250 basis points. Clearly, the market is not helping us a whole lot recently, so if you look at U.S. housing starts, they're down six out of the last eight quarters. We had a really big swing from Q1 to Q2 of this year. Q1 was up a couple percent, and Q2 was down

Speaker Change: that correctly.

Speaker Change: Yes, so as you know, Dan, the last eight years we've outgrown the market by about 250 basis points. Clearly the market has not helped us a whole lot recently. So if you look at U.S. housing starts, it's down six out of the last eight quarters.

Dan: We had a really big swing from Q1 to Q2 of this year. Q1 was up a couple percent, Q2 down 7% and

Michael L. Olosky: And if that kind of holds true at that forecasted level, Dan, the market will be down now basically down to flat-ish for three out of the last four years. And we'll finish the year with housing starts kind of somewhat similar to what we had in 2020. And then just to put that a little bit into context, if we finish this year with housing starts similar to what we had in 2020, back in 2020, we had a $1.25 billion business with about a $250 million operating profit.

Dan: If that kind of holds true at that forecasted level, Dan, the market will be down now basically down to flat-ish for three out of the last four years.

Dan: And we'll finish the year with housing starts kind of somewhat similar to what we had in 2020. And then just to put that a little bit into context, if we finish this year with housing starts similar to what we had in 2020, back in 2020, we had a $1.25 billion business with about a $250 million operating profit.

Michael L. Olosky: With that same market size, 1.4-ish million housing starts, we would have added a billion to it, so that 2.25 billion range, and we would add an additional 200 million in operating profit, basically with the same size market. So we're pleased at how we've developed things over the last four years, but clearly that's been a headwind, and we want to continue to outgrow the market, and our target is to do that by at least 250 basis points going forward.

Speaker Change: With that same market size, 1.4-ish million housing starts, we will have added a billion onto it, so that 2.25 billion range. And we will add an additional $200 million in operating profit, basically with the same size.

Speaker Change: So we're pleased at how we've developed things over the last four years, but clearly that's been a headwind and we want to continue to outgrow the market. And our target is to do that at least 250 basis points going forward.

Daniel Joseph Moore: And then from the outset of this year, you've sort of described 24 as being an investment year in terms of personnel and service capacity so that you can sustain that, you know, outperformance on a going forward basis. Looking to 25, if housing does reaccelerate, you know, toward the mid single-digit growth, as you expect, and you continue to outpace, how do we think about SG&A growth from the elevated base in 24? In other words, how do we think about the kind of potential operating income margin uplift in that type of environment?

Speaker Change: Really helpful. And then from the outset of this year you've sort of described 24 as being an investment year in terms of personnel, service, capacity.

Speaker Change: so that you can sustain that outperformance on a go-forward basis.

Speaker Change: Looking to 25, if housing does re-accelerate, you know, toward the mid-single-digit growth as you expect, and you continue to outpace, how do we think about SG&A growth from the elevated base in 24?

Speaker Change: In other words, you know, how do we think about kind of potential...

Michael L. Olosky: So, Dan, over the last couple of years, because we've had strong gross margins, we've really been reinvesting back into the business. So warehouse to provide better service and be closer to our customers, SG&A in terms of software, engineers, salespeople, a lot of investment into the digital tools.

Speaker Change: Margin Uplift and that type of thing.

Speaker Change: So again, over the last couple of years, because we've had strong gross margins, we've really been reinvesting back into the business. So, warehouses provide better service and be closer to our customers.

Dan: SG&A in terms of software, engineers, salespeople.

Michael L. Olosky: So we believe we've got a lot of that foundation set going forward. We do think there are a lot of additional growth opportunities to invest in in the future, but as long as we see the short-term housing market kind of stay in this flattish range, we think we can dial back costs a little bit and be even more cost-conscious than we have been in the past. Yeah. So, Dan, it's Brian.

Dan: a lot of investment into the digital tool. So we believe we've got a lot of that foundation set going forward. We do think there are a lot of additional growth opportunities to invest in.

Dan: In the future, but as long as we see the short term housing market kind of be in this flattish range, we think we can dial back costs a little bit and be even more cost conscious than we have been.

Brian J. Magstadt: So as we think about going into next year and as we are evaluating those opportunities, as Mike noted, to continue our above-market growth in outpatient services, we're going to be looking at a lot of different things. We're going to be looking at a lot of different things. We're looking at what it's going to take to develop those products, those solutions, have people in the field supporting our customers, whether it's field salespeople, engineers, and, of course, the many things that go along with bringing those products out.

Brian J. Magstadt: It's Brian . So as we think about going into next year and as we are evaluating those opportunities, as Mike noted, to continue our above market growth, outpace,

Speaker Change: We're looking at what it's going to take to develop those products, those solutions, have people in the field supporting our customers, whether it's field salespeople, engineers, and of course, there are many things that go along with bringing those products.

Brian J. Magstadt: We do want, as Mike noted, we're very closely monitoring our end markets and making decisions on what we're spending and hiring for on a go forward basis. So although we're not yet prepared to come out with what our 2025 Operating Margin Guidance would be. And we do have a company ambition to be in that top quartile of operating margin. And we're not quite there, but that's part of what is guiding how we make decisions on the programs and other items that we're funding and making those investments in.

Speaker Change: We do, as Mike noted, we're very closely monitoring our end markets and making decisions on what we're

Mike: spending and hiring for on a go-forward basis. So although we're not yet prepared to come out with what

Mike: Our 2025 operating margin guidance would be, and we do have a

Mike: and the company ambition to be in that top quartile of operating margin. We're not quite there, but that's part of what is guiding how we make decisions on...

Mike: The programs and other items that we're funding and making those investments in.

Daniel Joseph Moore: That's really helpful last one. I'll jump out, but you mentioned in terms of capital allocation that M&A opportunities are looking mostly at tuck-in, similar in that $10-$20 million plus range, just kind of in terms of the size of deals. That's one. And then two, we bought back $50 million worth of stock in the quarter, shares looking to open a little bit below the $176 average buyback price, likely to continue to be an opportunistic at a similar or even higher rate. You're welcome, Dan.

Speaker Change: That's really helpful. Last one, I'll jump out, but you mentioned, in terms of capital allocation, you mentioned M&A opportunities.

Speaker Change: You know, you're looking mostly at tuck-ins similar in that 10, 20 million plus range, just kind of in terms of size of deals, that's one.

Speaker Change: And then two, we bought back $50 million worth of stock in the quarter. You know, shares looking to open a little bit below the $176 average buyback price.

Speaker Change: are you likely to continue to be an opportunistic at a similar or even

Speaker Change: you know, perhaps higher rate in terms of buybacks.

Brian J. Magstadt: You're welcome, Dan. So from a capital allocation perspective, as we noted, we've got some big investments we're making in our business to support our manufacturing and distribution footprint. Now that being said, we did complete a transaction in the quarter. We're evaluating other opportunities that would be considered the tuck-in type acquisitions that you mentioned. We won't comment on the size of those, but it would definitely help us. accelerate our ambitions and go after some of those key markets. From a share repurchase perspective, we'll continue to look to be opportunistic, but with the capital allocation plans that we've got laid out, we're balancing all of those various uses of capital.

Speaker Change: as we look forward. Thanks again for all the.

Speaker Change: [inaudible]

Speaker Change: Some of the big investments we're making.

Speaker Change: in our business to support our...

Speaker Change: are manufacturing and distribution footprint. Now that being said, we did complete a transaction in the quarter. We're evaluating other opportunities that would be.

Speaker Change: consider the tuck-in type acquisitions that you mentioned.

Speaker Change: I won't comment on size of those, but it's...

Speaker Change: It would definitely help us.

Speaker Change: Accelerate our

Speaker Change: strategic

Speaker Change: ambitions and going after some of those key markets.

Speaker Change: From a share repurchase perspective, we'll continue to look to be opportunistic, but with the capital allocation plans that we've got laid out, we're balancing all of those various uses of capital.

Daniel Joseph Moore: Very helpful; in fact, many follow-ups.

Operator: Thanks, Dan. Thanks, John. Thank you. Our next question is from Tim Weiss with Baird. Please proceed with your question.

Speaker Change: Very helpful. Many follow-ups. Thank you.

Dan: Thanks, Dan. Thanks, Aaron.

Speaker Change: Thank you. Our next question is from Tim Weiss with Baird. Please proceed with your question.

Timothy Ronald Wojs: Hey, everybody. Good afternoon.

Operator: Hey, maybe just to start. So if your guidance before was for low single-digit kind of growth this year and now you're kind of guiding flat to down, I guess what's kind of changed in the market for Simpson's business? Is it just, or in the market in general, is it just, is it weaker multifamily, or is the, is the single family market also maybe not as strong as you thought?

Speaker Change: Hey, everybody. Good afternoon.

Speaker Change: Again, welcome. Hey, maybe just to start. So if...

Tim Weiss: If your guidance before was low single digit, kind of start to screw up this year.

Tim Weiss: And now you're kind of guiding flat to down. I guess what's kind of changed in the market for Simpson's business, is it just, or in the market in general, is it just, is it weaker multifamily, or is the single family market also maybe not as strong as you thought?

Michael L. Olosky: Yeah, Tim, when we came into 2024, we thought the market was going to be flat ish from all of the indications we had from our customers and the market analysts. But when we got into the first quarter, we saw 2% market growth in housing starts for the first quarter, and we heard from our customers that things are going to be a little bit more optimistic. And then April was a good month, then the second quarter came in, and we started to see things really slow down.

Tim Weiss: So Tim, when we came into 2024, we thought the market was going to be flat-ish from all of the indications we had from our customers and the market analysts.

Tim Weiss: When we got into first quarter, we saw a 2% market growth in housing starts for the first quarter. We heard from our customers things are going to be a little bit more optimistic. And then April was a pretty slow...

Michael L. Olosky: April had an initial indication of being pretty good, but then it really slowed down. And so based on that, and everything we're hearing from our market, and the fact that housing starts are down 7%, that's why we think best guess flattish, which we still think is above what we're hearing from some of the market forecasters. But we do think things are going to pick up a little bit in the second half. And that's what's driving our mission.

Tim Weiss: Then April , then the second quarter came in, we started to see things really slow down. April had an initial indication of being pretty good, and then it really slowed down.

Tim Weiss: And so based off of that and everything we're hearing from our market and the fact that the housing starts are down 7%, that's why we think best guess, flat-ish, which we still think is above what we're hearing from some of the market forecasters, but we do think things are going to pick up a little bit in the second half.

Timothy Ronald Wojs: Okay, okay, that's helpful. And then mix was, was, there were a bunch of mix issues that kind of created some headwinds last quarter for sales. Um, especially in North America, but it doesn't seem like like much of that has kind of impacted this quarter. Does that kind of suggest some of the things that happened in the first quarter kind of went away? Or is that still kind of a lingering feeling? Yeah, no. Tim, it's Brian.

Tim Weiss: And that's what's driving our guidance.

Speaker Change: Okay, okay, that's helpful. And then mix was, was, there's a bunch of mix issues that kind of created some headwinds last quarter to sales.

Speaker Change: Especially in North America, but it doesn't seem like much of that has kind of impacted this quarter. Does that kind of suggest some of the things that happened in the first quarter kind of went away? Or is that still kind of a lingering kind of concern?

Brian J. Magstadt: No. No issue there in the second quarter. We were, you know, looking at, you know, volumes that were Flattish, as we called out, and as you see, the net sales, Similarly, so those first quarter items that you noted did not repeat. Okay, and then, just another question just on the investments. I mean, it sounds like you guys are pretty active in terms of how you're thinking about, you know, kind of making incremental investments relative to sales. I guess what one of the biggest levers you could pull if the top line did kind of come in below your expectations over the last, you know, over the next, say 18 to.

Speaker Change: Yeah, no, Tim, it's Brian . No...

Brian J. Magstadt: No issue there in the second quarter, we were...

Brian J. Magstadt: You know looking at

Brian J. Magstadt: you know volumes that were

Brian J. Magstadt: Flattish, as we called out, and as you see the net sales...

Brian J. Magstadt: and similar. So...

Brian J. Magstadt: Those first quarter items that you noted did not repeat.

Speaker Change: Okay, okay. And then just another question just on the investments. I mean, it sounds like you guys are pretty active in kind of how you're thinking about

Speaker Change: You know kind of making incremental investments relative to sales I guess what one of the biggest levers you could pull if the top line did kind of come in below your Expectations over the last you know over the next say 18 to 24 months

Timothy Ronald Wojs: Tim, let's say we assume that the housing market is going to pick up because of the shortage that we all know. So if that's the case, we would really be focusing in on things like T&E, travel, making sure any hires are critical to the current role and directly impact revenue in the short term. We've had a hard time finding people, both in our manufacturing facilities and our sales teams and our engineering teams.

Speaker Change: Yeah, yeah, the, the, so.

Speaker Change: Tim, let's say we're assuming that the housing market is going to pick up because of the shortage that we all know.

Speaker Change: So, if that's the case, we would really be focusing in on things like T&E, travel, making sure any hires are critical to the current role and directly impact revenue in the short term.

Speaker Change: You know, we've had a hard time finding people both in our manufacturing facilities

Timothy Ronald Wojs: We want to make sure we keep the teams in place, and so when the market picks up, we're ready to take advantage of it. So that means anything in the short term in revenue comes in a little bit lower than we were hoping. It would be expense control, consulting, marketing, travel, that type of stuff.

Speaker Change: And our sales teams and our engineering teams, we want to make sure we keep the teams in place. And so when the market picks up, we're ready to take advantage of it. So that means anything in the short term of revenue comes in a little bit lower than we were hoping. It would be expense control, consulting, marketing, travel, that type of stuff.

Timothy Ronald Wojs: Okay, okay, gotcha. And then I'm going to sneak one more in. So Brian, you said gross margins, I think, as a percentage of sales, are supposed to be down a little bit this year. Does that bake in any sort of benefit in the back half of the year from potentially low raw materials?

Brian J. Magstadt: Okay, okay, gotcha. And then I'm going to sneak one more in. So Brian , you said gross margins, I think it's a percentage of sales, are supposed to be down a little bit this year. Does that bake in any sort of benefit in the back half of the year from potentially lower raw materials?

Brian J. Magstadt: Not necessarily; it's...

Brian J. Magstadt: Um, not necessarily. It's, you know, pre-

Brian J. Magstadt: It may get a little bit of help there offset by some of the higher costs that we're seeing in the factory. I'm sorry, in the warehouse, we're seeing freight costs increase. So there are different puts and takes on the gross margin line, feeling good about our inventory position and material to carry us through, just to meet our forecasted production and demand expectations, but I guess some of the headwinds would be in, So mostly on the freight and logistics.

Speaker Change: And maybe a little bit of health there, offset by some of the higher costs that we're seeing in the factory, I'm sorry, in the warehouse, we're seeing freight increased costs.

Speaker Change: So there are different puts and takes on the gross margin line, feeling good about our inventory position and material to carry us through to meet our forecasted

Speaker Change: Production and Demand Expectations, but I guess some of the headwinds would be in

Speaker Change: So mostly on the freight and logistics.

Speaker Change: categories within gross margin.

Timothy Ronald Wojs: [inaudible] Yeah, no, I understand. Okay, good. Thanks for the time, guys.

Speaker Change: within pillows.

Speaker Change: Yeah, no, I understand. Okay. Okay, good. Thanks for the time, guys. Talk to you soon.

Operator: Thank you. Our next question is from Kurt Yinger with D.A. Davidson. Please proceed with your question.

Speaker Change: Thank you. Our next question is from Kurt Yinger with D.A. Davidson. Please proceed with your question.

Kurt Willem Yinger: Great, thanks, and good afternoon, everyone. Thank you.

Kurt Willem Yinger: Great, thanks and good afternoon, everyone.

Operator: In terms of, I guess, the gross margin on a year over year basis, I mean, how significant of a headwind would you kind of consider the new warehouses as part of the path to market initiative? And this is as we look into 25 and think about the Columbus expansion going live and Gallatin at some point as well. How would you have us, I guess, at this stage, think about kind of the cost implications of that, whether it be on the COGS line or operating expenses? And just, you know, some initial thoughts on how that might impact.

Kurt Willem Yinger: and Kurt.

Kurt Willem Yinger: In terms of, I guess, the gross margin on a year-over-year basis, I mean, how significant of a headwind would you kind of consider

Speaker Change: you know, the new warehouses as part of the path to market initiative. And this is we look into 25 and think about the Columbus expansion going live and Gallatin at some point as well.

Kurt Willem Yinger: How would you have us, I guess at this stage, think about kind of the cost implications of that, whether it be on the COGS line or operating expenses, and just, you know,

Brian J. Magstadt: So as we're thinking about the new satellite warehouses that we've put in place. And Kurt, I think, as you know, we've done select regional satellite warehouses throughout our operations. We really feel that is a competitive advantage for us. It gets us closer to our customers, and really helps us deliver on that value proposition of very high customer service by getting the product to a customer's location or to a job site.

Kurt Willem Yinger: some initial thoughts on how that might impact margins.

Kurt Willem Yinger: So as we're thinking about the new satellite warehouses that...

Kurt Willem Yinger: that we've put in place, and Kurt, I think as you know, we've done select.

Kurt Willem Yinger: It's regional satellite warehouses throughout our operations.

Kurt Willem Yinger: We really feel that is a competitive advantage for us. It gets us closer to our customers, really helps us deliver on that value proposition of

Kurt Willem Yinger: of very high customer service from a getting product to a customer's location or to a job site.

Brian J. Magstadt: As we look at the warehousing costs, the freight costs relative to the prior year from a dollar perspective, they are up a little bit as we look forward, and we feel we've pretty much fully absorbed those, although we would expect to continue to drive additional revenues through those locations because we feel that that customer service really does help us differentiate. Part two of your question would be on the additional expansion in Ohio.

Speaker Change: As we look at the warehousing costs, the freight costs relative to prior year from a dollar perspective, they are up a little bit. As we look at...

Speaker Change: going forward and we feel we've pretty much fully absorbed those although we would expect to continue to drive

Speaker Change: additional revenues through those locations because we feel that that customer service really does help us differentiate. Part two on your question would be on the additional expansion in Ohio.

Brian J. Magstadt: I'll get to Gallatin in a moment, but with that one, we feel that for us to continue our above-market growth, that facility needs to be bigger because a lot of the growth that we have seen has been east of the Mississippi, and for us to be really effective in producing and then distributing out of that hub operation there for the Midwest and Northeast, I believe that will help us continue to grow. It'll come online mid to late next year.

Speaker Change: I'll get to Gallatin in a moment, but with that one...

Speaker Change: We feel that...

Speaker Change: For us to continue our above market growth, that facility needs to be bigger because

Speaker Change: A lot of the growth that we have seen has been east of the Mississippi, and for us to be really effective in producing and then distributing out of that hub operation there for the Midwest and Northeast.

Speaker Change: We believe that will help us continue to grow. It will come online.

Speaker Change: but mid to late next year, so I wouldn't expect a huge dollar impact.

Brian J. Magstadt: So I wouldn't expect a huge dollar impact in that regard. From Gallatin, the new fastener production, that's more late 25, early 26. Yeah, there'll be additional depreciation associated with those facilities, especially as we're ramping up, getting Gallatin fully converted over from our current site and then adding in the additional activities that we'll do at that location as we vertically integrate some of our processes there. So, potentially a little bit of a headwind for a year or so, but I wouldn't, I wouldn't expect it to be, a significant driver of reduced gross margin. It's going to take us a little bit of time to fully absorb all the operations, but we still really feel really comfortable with the additional opportunities both of those facilities bring.

Speaker Change: in that regard.

Speaker Change: From a Gallatin, the new fastener production that's more late 25, early 26.

Speaker Change: Yeah, there'll be additional depreciation associated with those.

Speaker Change: Those facilities, especially as we're ramping up, getting Gallatin fully converted over from our current site and then adding in the additional

Speaker Change: activities that we'll do at that location as we vertically integrate some of our processes there. So, potentially a little bit of a headwind for

Speaker Change: But I wouldn't expect it to be a significant driver of reduced gross margins.

Speaker Change: If anything, it's going to take us a little bit of time to fully absorb all the operations, but we still really feel really comfortable.

Speaker Change: with the additional opportunities both of those facilities bring.

Kurt Willem Yinger: Got it. Okay, thanks for that, Brian.

Kurt Willem Yinger: And then can we just talk a little bit more about the calculated structure design acquisition? I mean, how might that integrate with some of the existing software offerings? And is that something that you'll kind of go to market with on a standalone basis or wrap into what you're already offering? Any color there?

Speaker Change: Got it. Okay. Thanks for that Brian and then

Speaker Change: Can you maybe just talk a little bit more about the Calculated Structure Design Acquisition? I mean, how might that integrate with some of the existing kind of software offerings? And is that something that you'll kind of go to market with on a standalone basis or wrap into what you're already offering? Any color there?

Michael L. Olosky: Yeah. So Kurt, for us to offer a comprehensive solution for the component manufacturing industry, we need to have software that designs trusses, wall panels, and engineered wood products. So basically, the truss, the wall, and the floor. And the largest truss manufacturers, the component manufacturers, typically make all three of those products. So if we don't offer that complete solution, we're not able to go after those customers. So the CSD component, which is something we've been licensing and using anyways, now we kind of vertically integrate that.

Speaker Change: So Kurt, for us to offer a comprehensive solution for the component manufacturing industry, we need to have software that designs trusses, wall panels, and engineered wood products. So basically the truss...

Speaker Change: The wall and the floor and the largest trust manufacturers, the component manufacturers Typically make all three of those products. So if we don't offer have that complete solution We're not able to to go after those customers

Speaker Change: So the CSD component, which is something we've been licensing and using anyways

Michael L. Olosky: They are the EWP solution. And now that we own them, we'll be able to fully integrate that into one seamless way to design trusses, walls, and floors to be able to go after some of the bigger component manufacturers out there.

Speaker Change: Now we kind of vertically integrate that. They are the EWP solution. And so now that we own them, we'll be able to fully integrate that into one seamless way to design trusses, walls, and floors to be able to go after some of the bigger component manufacturers out there.

Kurt Willem Yinger: Got it. Okay. And that kind of dovetails in my last question, which is, I guess, just from a software offering perspective. I mean, do you feel like you're at that complete state where you can service, you know, the largest of players and everything they're doing, or is there still some work to go in that regard?

Speaker Change: Okay, and that kind of dovetails in my last question, which is, I guess, just from a software offering perspective, I mean, do you feel like you're at that complete state to where you can service?

Speaker Change: you know, the largest of players and everything they're doing, or is there still some work to go in that regard?

Michael L. Olosky: There is still some work to go. So we need to have the truss, the wall panels, and the floor panels all fully integrated into one seamless solution.

Speaker Change: Still some work to go, so we need to have the truss, the wall panels, and the floor panels all fully integrated into one seamless solution.

Michael L. Olosky: And we are working on that, but we are not there yet. And then they also need production management capabilities to be able to run their manufacturing facilities. We have some solutions in that space, but we have a little bit more development to go there as well. So we believe we're making good progress with the people who are a good fit for our software. We continue to emphasize the whole business model and surface aspect with those customers, so that's helping us quite a bit. But we still have a little bit of work to do to be able to go after the very largest component manufacturers.

Speaker Change: and we are working on that, but we are not there yet.

Speaker Change: And then we also need production management capabilities.

Speaker Change: to be able to run their manufacturing facilities.

Speaker Change: Some solutions in that space, but we have a little bit more development to go there as well.

Michael Olosky: So we believe we're making good progress with the people that are a good fit for our software. We continue to emphasize the whole business model and surface aspect with those customers, so that's helping us quite a bit.

Speaker Change: We believe we're making good progress with the people that are a good fit for our software. We continue to emphasize the whole business model and surface aspect with those customers, so that's helping us quite a bit. But we still have a little bit of work to do to be able to go after the very largest component manufacturers.

Michael Olosky: But we still have a little bit of work to do to be able to go after the very largest component manufacturers.

Michael L. Olosky: Got it. Makes sense. Thanks for that, Mike, and good luck here in Q3, guys.

Daniel Moore: Got it. Makes sense.

Daniel Moore: Thanks for that, Mike, and good luck here in Q3, guys. Thanks, Kurt.

Speaker Change: Got it. Makes sense. Thanks for that, Mike, and good luck here in Q3, guys.

Michael L. Olosky: You know, if I could real quick, Mike, Kim was asking earlier about our flat to down guide on single family and multi-family housing. One thing I did want to add is July, what we're seeing from a billings perspective in July month to date versus last year, we are up mid single digits company-wide in North America up low double digits from a revenue perspective in July. So like Q2, the Q3 quarters starting off are relatively strong compared to July last year. Tim, if you're still listening, I wanted to make sure I covered that as well.

Daniel Moore: It looked like good, real quick, Mike.

Michael Olosky: Kim was asked in earlier about our, our flat the down guy on single family welfare family housing. One thing I did want to add is our July, what was seen from the buildings in July, month to date versus last year. We are up in single digits company-wide in North America, low double digits from a revenue perspective in July. So like you, too, that's the Q3 quarter starting off. So relatively strong compared to July last year. So 10 of you're still listening.

Kirk: Thanks, Kurt.

Speaker Change: If I could real quick, Mike, Tim was asking earlier about our flat-to-down guide on single-family and multi-family housing. One thing I did want to add is...

Speaker Change: are July . What we're seeing from a billings in July month-to-day versus last year, we are up.

Speaker Change: Kind of mid-single digits company-wide in North America up low double digits from a revenue perspective in July . So like Q2, that's the Q3 quarter starting off.

Speaker Change: They're relatively strong compared to July last year. So Tim, if you're still listening, I wanted to make sure I covered that as well.

Michael Olosky: I want to make sure I covered that as well.

Unknown Attendee: Thank you. There are no further questions at this time.

Operator: Thank you. There are no further questions at this time. This does conclude our Q&A session and our call, a few. You may disconnect your lines at this time. Thank you for your participation.

Unknown Attendee: This does conclude our Q&A session and our call.

Speaker Change: Thank you. There are no further questions at this time. This does conclude our Q&A session and our call.

Unknown Attendee: If you. Anyway, this connector lines at this time.

Speaker Change: A few of them.

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Speaker Change: You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: and I'm going to be talking about the the the the the the the the the the the the the the