Q4 2024 Simpson Manufacturing Co Inc Earnings Call

Simpson: Raymond Rimmel, Ed White, Joe Nowitski, Rick Doby, Petty Officer Russell, and then, of course, we have especially tourist associated personalities whose start my boy, has been Bob Marley. The park is called T數 S World,

Speaker Change: Greetings and welcome to the Simpsons Manufacturing Company fourth quarter and full year 2024 earnings conference call.

At this time, all participants are in a listen-only mode.

Speaker Change: A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to introduce Kim Orlando. Thank you, you may begin.

and their families. Thank you. Thank you.

Speaker Change: Good afternoon ladies and gentlemen and welcome to Simpson Manufacturing Company's fourth quarter and full year 2024 earnings conference call. Any statements made on this call that are not statements of historical fact are forward-looking statements.

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 statement.

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.

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.

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, Simpsons President and Chief Executive Officer.

Michael Olosky: Thanks, Kim. Good afternoon, everyone, and thank you for joining today's call.

Michael Olosky: With me today is Matt Dunn, our new Chief Financial Officer, effective at the start of this year.

Michael Olosky: As many of you know, Matt has been with Simpson since last summer as our SVP of Finance and worked very closely with Brian Magstadt, our former CFO, to ensure a smooth transition. We're excited to have Matt on board, with Brian remaining on as an executive advisor through June.

Michael Olosky: Today, my remarks will provide an overview of our 2024 performance, highlights from our key end markets, and updates to our core company financial ambitions.

Michael Olosky: Matt will then walk you through our fourth quarter financials and fiscal 2025 outlook in greater detail.

Michael Olosky: Before we jump in, I'd like to take a moment to express our heartfelt sympathy to those that were impacted by the California wildfires last month. The Simpson team and their families are safe, and the fires did not impact our facilities or consolidated results.

Michael Olosky: in line with one of our core values to give back. We donated to the American Red Cross.

Michael Olosky: We have a long history in California and our thoughts remain with our customers, our team, their families, and friends in the affected communities.

Michael Olosky: Now turning to our results. Our full year 2024 net sales were $2.23 billion, reflecting modest growth over 2023 levels in a year where housing markets in both the US and Europe remain challenged.

Michael Olosky: On a trailing 12-month basis, I'm pleased that our buying growth in North America exceeded U.S. housing starts by approximately 600 basis points, in line with our ambition to continue growing above the market.

Michael Olosky: Net sales in North America totaled $1.74 billion versus $1.72 billion in 2023 on higher sales volumes. This included approximately $12 million from our 2024 acquisitions.

Michael Olosky: Our North American volume performance was broad-based in 2024 with sales to all end markets demonstrating above-market growth.

Michael Olosky: The national retail market saw mid-single-digit increases display the challenging repair and renovation market.

Michael Olosky: Contributing to the above-market performance was our increased shelf space and enhanced share gains within our innovative high-quality fastness solutions.

Michael Olosky: In the component manufacturing market, volumes improved in the high single-digit range versus last year.

Michael Olosky: Our enhanced suite of digital and equipment solutions contributed to increasing trust plate and connector sales.

Michael Olosky: In the commercial market, we delivered modest volume growth over 2023, despite the significant downturn in the commercial market led by our cold-formed steel product line and the launch of several innovative new solutions.

Michael Olosky: In residential, buying performance was down modestly. We are growing the market size and taking shares through product line expansions, off-selling of fasteners and anchors, and new customer conversions.

Michael Olosky: And finally, in OEM, we deliver high single-digit volume growth year-over-year reflecting share gains as our solutions for mass timber construction gain momentum.

Michael Olosky: However, OEM still remains a relatively small contributor to our overall revenues.

Michael Olosky: Turning to Europe, our 2024 net sales of $479.2 million were relatively flat compared to the prior year, and decreased by about a percent on a local currency basis.

Michael Olosky: On a volume basis, our European business also outperformed the local market, driven by new applications and customer wins. Our tactical façade connection products continue to drive solid growth.

Michael Olosky: Through the execution of significant defensive synergies this past year, we have made strides towards right-sizing our European footprint following the 2022 Franco Acquisition.

Michael Olosky: On a consolidated basis, our 2024 gross margin declined to 46% from 47.1% in 2023, driven by higher input and labor costs and investments in our footprint to provide even better service to our customers.

Michael Olosky: product and customer mix has and will continue to be a gross margin headwind going forward.

Michael Olosky: Our resultant operating margin declined by approximately 220 basis points in 19.3% versus last year, reflecting investments ahead of anticipated market growth that did not materialize in 2024.

Michael Olosky: Consolidated adjusted EBIT at a total of $520.1 million in 2024, a decline of 6.2% year-over-year, resulting in an adjusted EBIT margin of 23.3%.

Michael Olosky: In the first half of 2024, we continued investing in our people, engineering, equipment, and digital solutions to better support our customers' needs in anticipation of sustained market growth.

Michael Olosky: In the second half of 2024, we slowed the rate of investments as the housing market outlook softened.

Michael Olosky: We recognize our investments have not been commiserate with volume growth now in year three of a down market.

Michael Olosky: As such, we will continue to closely monitor the market in 2025 and will control costs accordingly to preserve our margins while simultaneously ensuring we retain our workforce of highly skilled labor.

Michael Olosky: Next, I'd like to highlight some adjustments we've made to our core company financial ambitions.

Michael Olosky: Strengthening our values-based culture, being the business partner of choice, and striving to be an innovative leader in the markets we operate all remain central to who we are as a company.

Michael Olosky: As it pertains to our three financial ambitions, we are dedicated to continuing above-market growth relative to U.S. housing starts, maintaining an operating income margin at or above 20%, and driving EPS growth ahead of net revenue growth.

Michael Olosky: As we've stated previously, we believe our business is capable of achieving a 20% operating income margin in a growing market environment. For 2025, we expect U.S. housing stocks will improve in the low single-digit range from 2024 levels, with growth weighted towards the second half of the year.

Michael Olosky: In addition, we expect European housing starts will remain relatively consistent with 2024 levels, with more meaningful growth delayed further into 2026 and beyond.

Michael Olosky: As a long-term oriented growth company with strong margins, we believe we can drive EPS growth ahead of net revenue growth. We remain committed to returning at least 35% of our free cash flow to our shareholders.

Michael Olosky: In light of these new financial ambitions, we see ROIC being relatively flat in the near-to-mid-term and above our weighted average cost of capital.

Michael Olosky: Despite market headwinds, we firmly believe we are entering into the next phase of Simpson's growth from a position of strength.

Michael Olosky: Since 2020, we have added approximately $1 billion in revenue and $200 million in operating profit.

Michael Olosky: We realigned our sales team buy-in market, significantly reduced two-step distribution, and made significant investments in our field sales and engineering teams.

We made significant footprint investments in both production and warehouses.

Michael Olosky: Our investment in Tennessee enables us to resource and fast-earn anchor production. Additional warehouse capabilities enhance next-day delivery for our North American customers.

Michael Olosky: This, along with significant investments in digital solutions, have further strengthened our business model, thus driving hardware sales and creating value for our customers, making us the partner of choice.

Michael Olosky: Additionally, we strengthened our senior leadership team through a combination of internal development and external experts.

Michael Olosky: The result is we are now in an even stronger market leadership position in connectors, with significant gains in both asbestos and anchors.

Michael Olosky: Before I conclude, I would like to touch on one corporate development with the appointment of Angela Duret as an Independent Non-Employee Director for the company effective January 1st, 2025.

Michael Olosky: We are pleased to welcome Angela to our board and look forward to benefiting from her wealth expertise through her extensive experience in financial leadership roles at leading manufacturing companies.

Michael Olosky: In summary, we are pleased with our continued above-market growth in a declining housing service market. We continue to believe in the mid to long-term prospects of the housing market and are well positioned to take advantage of that growth when it does occur. We feel confident about our ability to continue outperforming U.S. housing service.

Michael Olosky: With that, I'd like to turn the call over to Matt, who will discuss our financial results and outlook in greater detail.

Matt Dunn: Thanks, Mike, for the kind words and good afternoon, everyone. Thank you for joining us on our earnings call today.

Michael Olosky: I've enjoyed being part of the Simpson team for the past eight months, and I'm honored to now serve as the company's CFO.

Michael Olosky: Before I begin, I'd like to mention that unless otherwise stated, all financial measures discussed in my prepared remarks refer to the fourth quarter of 2024, and all comparisons will be year-over-year comparisons versus the fourth quarter of 2023. Now, turning to our results.

Our consolidated net sales increased 3.1% year-over-year to $517.4 million.

Michael Olosky: Within the North America segment, net sales increased by 4.4% to $404.8 million. In Europe, net sales declined by 1.5% to $108.1 million, primarily due to lower sales volumes.

Michael Olosky: Globally, wood construction product sales were up 3.6% and concrete construction product sales were up 0.4%.

Michael Olosky: Consolidated gross profit increased 3.3% to $227.7 million, resulting in a gross margin of 44% compared to 43.9%.

Michael Olosky: On a segment basis, our gross margin in North America was 47%, consistent with the prior year as lower material costs offset higher labor, factory, and warehouse costs as a percentage of net sales.

Michael Olosky: Our gross margin in Europe decreased to 32.3% from 34.2%, primarily due to higher labor, warehouse and freight costs, which were partially offset by lower material costs, all as a percentage of net sales.

Michael Olosky: From a product perspective, our fourth quarter gross margin on wood products was 43.4 percent compared to 44 percent and was 45.8 percent for concrete products compared to 42.8 percent.

Michael Olosky: Now turning to expenses. Total Q4 operating expenses were $150 million, an increase of 1.1%, primarily due to increased personnel and professional fees, which were partially offset by a reduction in variable incentive compensation.

Michael Olosky: For the full year of 2024, total operating expenses were $590.5 million, an increase of 4.7%, primarily due to increased personnel, computer software and hardware costs, and higher professional fees, which were partially offset by a reduction in variable incentive compensation.

Michael Olosky: As a percentage of net sales, total 2024 operating expenses were 26.5% compared to 25.5%. We have experienced increases in all of our major input costs over the past several years with the exception of steel.

Michael Olosky: As Mike alluded, we will continue to monitor the market in 2025 and incremental investments will be very limited until we see a more meaningful improvement in the housing market.

Michael Olosky: Further detail our fourth quarter SG&A, our research and development and engineering expenses increased 0.6% to $25.3 million, primarily due to an increase in personnel cost partially offset by lower incentive comp.

Michael Olosky: Selling expenses increased 3.6% to $54.4 million primarily due to higher personnel costs. On a segment basis, selling expenses in North America were up 5.4% and in Europe they were down modestly.

Michael Olosky: General and administrative expenses were essentially flat at $71 million as we grew our revenue and reduced our G&A as a percentage of sales.

Michael Olosky: As a result, our fourth quarter consolidated income from operations totaled $76.8 million, an increase of 7.4% from $71.6 million. Our consolidated operating income margin was 14.9% up from 14.3%.

Michael Olosky: In North America, income from operations increased 7% to $85.4 million, primarily due to higher growth profit, which was partially offset by increased personnel costs.

Michael Olosky: In Europe, income from operations decreased 75.2% to $0.8 million due to a lower growth profit.

Michael Olosky: As previously mentioned, we have been incurring costs this year to support the optimization of the European footprint, including the realization of defensive synergies from Etanco, which resulted in $2 million and $5.7 million in restructuring and severance charges in the fourth quarter and full year of 2024, respectively.

Michael Olosky: A 15% operating income margin in Europe remains our midterm goal.

Michael Olosky: As a reminder, our assumptions to achieve this target include improved economic conditions, the anticipated realization of our offensive synergies, and broader secular trends, including the growing use of wood construction and increasingly stringent environmental regulations that drive new applications.

Michael Olosky: Our fourth quarter effective tax rate was 27.5%, approximately 110 basis points higher than the prior year period.

Michael Olosky: Accordingly, net income total $55.4 million or $1.31 per fully diluted share compared to $54.8 million or $1.28 per fully diluted share.

Michael Olosky: Adjusted EBITDA for the fourth quarter was $102 million, an increase of 9.9%.

Michael Olosky: Now turning to our balance sheet and cash flow, our balance sheet remained healthy with cash and cash equivalents totaling $239.4 million at December 31st, 2024.

Michael Olosky: down $100.1 million from our balance at September 30, 2024, due primarily to the pay down of $75 million of debt in December.

Michael Olosky: Our debt balance was approximately $388.1 million net of capitalized finance costs, and our net debt position was $145.7 million. We have $450 million remaining available for borrowing on our primary line of credit.

Michael Olosky: Our inventory position as of December 31st, 2024 was $593.2 million, which was up $9.8 million compared to our balance as of September 30th, 2024 on higher pounds.

Michael Olosky: We generated a strong cash flow from operations of $117.7 million in the fourth quarter and $339.8 million for the full year of 2024.

Michael Olosky: With regard to capital allocation, our strategy remains duly focused on both growth and shareholder returns.

Michael Olosky: In 2024, we invested $183 million for capital expenditures, including our investments for facility upgrades and expansions, $79 million for acquisitions, $46.5 million in dividends paid to our shareholders, and $100 million in repurchases of our common stock.

Michael Olosky: We also paid down $100.8 million in debt we incurred to finance the acquisition of Etonco.

Michael Olosky: In 2024, we repurchased a total of 559,179 shares common stock at an average price of $178.83 per share for a total of $100 million.

Michael Olosky: As previously announced in October, our board authorized the repurchase of up to $100 million of our common stock, expected January 1st through year-end 2025.

Michael Olosky: The investments in our facilities to expand our operations and manufacturing capacity are driven by our relentless customer focus and commitment to providing world-class service.

Michael Olosky: We are pleased with the progress made on the expansion of our facility in Columbus, Ohio, and our new fastener facility in Gallatin, Tennessee. Both projects remain on budget and are expected to open early in the second quarter and in the second half of 2025, respectively.

Michael Olosky: As we have shared, we will concurrently evaluate and pursue M&A opportunities that accelerate progress on our key growth initiatives and improve our operating efficiencies.

Next I'll turn to our 2025 Financial Outlook.

Michael Olosky: Based on business trends and conditions as of today, February 10th, our guidance for the full year ending December 31st, 2025 is as follows.

Michael Olosky: We expect our operating margin to be in the range of 18.5% to 20.5%.

Michael Olosky: While the midpoint of the range is below our stated ambition to maintain an operating margin at or greater than 20%, we are working hard to offset significant input cost increases over the past three years and will carefully evaluate avenues to preserve our profitability.

Additional key assumptions include

Michael Olosky: U.S. housing starts to be up low single digits from 2024 levels. If housing starts are up low single digits, we'd expect to trend toward the higher end of the range. If the market growth is flat or slightly down, we'd expect to be closer to the low end of the range.

Michael Olosky: Additionally, we are expecting a slightly lower overall gross margin based on the addition of new warehouses, as well as increases in labor, factory, and tooling as a percentage of net sales, and an ongoing mixed headwind from products and customers that have impacted our margins.

Michael Olosky: As we stated, we are working to balance our growth-focused investments while ensuring we deliver a strong operating income margin in the current challenging housing market.

Next.

Michael Olosky: interest expense on our term loan, which had borrowings of $388.1 million as of December 31st, 2024, expected to be approximately $6.3 million, including the benefit from interest rate and cross-currency swaps, mitigating substantially all of the volatility from changes in interest rates.

Michael Olosky: and just our cash and money markets is expected to offset this expense.

Michael Olosky: Our effective tax rate is estimated to be in the range of 25.5% to 26.5%, 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 $150 million to $170 million, which includes approximately $75 million for the completion of both the Columbus Facility Expansion and the new Gallatin Fastener Facility.

Michael Olosky: In closing, I'd echo Mike's comments while we face the challenging 2024 in the housing market with the third consecutive year of a decline in starts.

Michael Olosky: We were very pleased with our volume out performance versus the market in the U.S. and Europe.

Michael Olosky: While the investments we have made to support future growth in anticipation of an improved housing market resulted in lower than anticipated profitability, we will continue to be diligent with expense management and cautious on future investments.

Michael Olosky: We believe we are well positioned to take share and drive further outperformance when the housing market ultimately rebounds.

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

Michael Olosky: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue.

Speaker Change: And our first question comes from Daniel Moore with CJS Securities. Please proceed with your question.

Good afternoon, Mike, Matt, thanks for taking the questions.

Daniel Moore: Maybe start with just trying to triangulate the outlook. You gave good detail, but you mentioned you believe a load amidst a single-digit recovery in U.S. housing starts as possible, although the margin guide contemplates...

Daniel Moore: flat to down at the lower end. So does that reflect a softer start to the year and you know what are your expectations for starts in Q1 and H1 and maybe just talk about your ability to outpace the market if in fact we do up end up flat to down for the next couple of quarters.

Daniel Moore: Dan's my good question. So just a little bit of background. When we started to go into the budgeting season, we use a firm called Zonda because we can get a breakdown by region for different businesses.

Daniel Moore: and original number kind of coming into the fall was a 3.7% combined growth.

year-over-year total housing starts for 2025.

Daniel Moore: That number, the latest number came out 2.8, and our feeling is from an overall sentiment level that that's probably going to go down a little bit. We do think that the year is going to be second half weighted. I mean this is a really dynamic situation as you can imagine, things are changing a little bit every day, but everything we're hearing from our customers

Daniel Moore: It's going to be a stronger second half than first half, and our translation as we're assuming low single digit starts for the year, and we're going to watch it very closely, obviously.

Speaker Change: Very helpful. And then, again, I think you described it well, but just talk about the, you know, last quarter you stated you remain committed to an operating margin of at least 20 percent.

Speaker Change: So, in addition to maybe a slightly lower U.S. housing start growth, has your growth margin outlook changed, or is it simply just investments that you feel you need to continue to make for longer-term growth, you know, regardless of the kind of short-term demand environment?

Yeah, the end wasn't bad, I think.

at the time we...

Speaker Change: said that in the last quarter call, we were expecting, as Mike said, housing starts to be a little bit more favorable as a tailwind than they're currently looking like they're going to be on the overall year, and so that's probably the single biggest factor on the market. Obviously, other things are changing by the minute on tariffs and related things, so digesting that as it becomes news, but certainly plan to protect our margins and make moves necessary, as we alluded to, so I think

Speaker Change: There's a couple paths to get to that 20%. A lot of it just depends on what happens in the market from a sale-win standpoint, and then...

Speaker Change: what happens with tariffs and related pricing. I would say we are confident that we can continue to outpace the market as we have done for the last number of years, even at an accelerated pace in the last two to three years.

Speaker Change: Very helpful. One more and I'll jump back in queue, but just talk about your working capital and cash flow from operations expectations for 25 and looking out to 26, where do you see CapEx kind of leveling off once we get through the build-out in Columbus and Gallatin? Thank you.

Speaker Change: We'll start with CapEx first. So this year's guide, 150 or 170, about half of that is related to the completion of Gallatin in Columbus, which we've been talking for a number of quarters here. I think as we roll into 2026, we're not providing firm guidance there, but we do have a pretty sizable amount each year that's kind of like base CapEx based on

Speaker Change: safety, capacity, you know, additional warehouses, productivity improvement. So, you know, I think looking to make sure we're right sizing the investment with the growth that we're seeing and so, you know, finishing up those two projects that are completing this year and then we'll evaluate 2026 when we get there.

Speaker Change: Okay, thank you. And our next question comes from Tim Weiss with Baird. Please proceed with your question.

Hey, guys. Good afternoon.

Speaker Change: Hi Tim, Tim Weiss. We know all the right way to welcome. It's all right, I'm used to it. So, just on the guidance, I just want to make sure I understand it.

Speaker Change: At the midpoint, at 19.5% OM margin, what are you assuming for starts and your revenue growth?

Yeah, I think...

Speaker Change: If you pick the midpoint of the range, that pretty much represents a flat market, in my opinion, and then, you know, obviously our continued outperformance. We don't give specific guidance on revenue, but you can kind of look at where we've been over a longer range of history in terms of outperformance versus the market, so, you know.

Speaker Change: I would say up a couple points versus the market for sure.

Speaker Change: Okay, okay. So the midpoint would kind of be flattish market, you outperform a little bit, and then you get very, very slight leverage on the operating margin line. Okay. And then, I guess, tariffs?

Speaker Change: I guess, where is the threshold for where you guys would kind of think about needing to take price for any sort of tariff or...

Speaker Change: just, I guess, general inflationary, you know, kind of, you know, drivers. Because it does sound like, based on your prepared comments, that outside of steel, you guys are actually seeing a fair amount of inflation.

Speaker Change: and you do have some, it sounds like some mixed headwinds kind of happening in the business too. So I guess what's the threshold when you guys are thinking about, you know, pricing increases at this point?

Speaker Change: Tim, let me give you a little bit of background. So obviously, all things tariffs, especially today, is a pretty fluid situation.

Speaker Change: As a reminder, for a little context, we purchase 150 plus variations of steel, and that steel is made specifically for us.

Speaker Change: So it's not a direct correlation to some of the indices you see. And for the most part, Tim, all of the connectors that we produce in the U.S. are with U.S. made steel.

Speaker Change: So we have seen some steel producers over the last four to six weeks announce a couple of price increases based off of what happened today. We are expecting additional price increases coming.

Speaker Change: And from a Simpson perspective, from a pricing view, Tim, last time we had a price increase was 2022.

Speaker Change: We had a price decrease in January of 2023. And really, since then, we've seen significant inflation in all of our production and transportation costs.

Speaker Change: except for the steel raw material side and obviously the tariff story changes that so we're kind of looking at it in two buckets

Speaker Change: there's the tariff bucket and there's all the other cost buckets so if the tariffs remain we believe we'll have to preserve to preserve our margins and high level of service we're going to need to pass some of that on.

Speaker Change: We're also looking at the other cost buckets, doing everything we can to drive those down. Again, if we're not able to offset some of those cost increases we see everywhere else.

Speaker Change: We may need to take action to preserve our margins and level of service again from that year. So that's the way we're thinking about the tariff bucket and all the other cost buckets. Yeah, Tim, this is Matt. I would just add, you know, obviously up until today, the previous tariffs that have been announced were related to imports from China, Canada, and Mexico. Canada and Mexico being put on pause.

Speaker Change: From a China standpoint, we import a relatively low number of our products.

Speaker Change: Cost of goods from China, so less than a $10 million tariff impact there.

the new one today on tariffs on non-U.S. steel.

Speaker Change: you know, waiting to see what that drives in the market, but obviously would

Speaker Change: you know, a steel box go up from the domestic suppliers would have to price to recover that. And then the third bucket that's sort of out there is related to some of the anti-dumping tariffs and related lawsuits that I believe have a

Speaker Change: Okay, okay, that's all really helpful, thanks. And then on the, I guess, share gains, you know, historically I think you've done 200 to 300 basis points above starts. It's gotten better over the last, you know, it's improved a lot over the last couple years. I guess as you walk into 2025,

Speaker Change: What is the visibility to those share gains relative to maybe your history or the past few years? Does it feel more like the past few years or does it feel more like the 250 basis points?

Speaker Change: Good question, and as you know Tim, we're not guiding specifically on revenue.

Last eight years, 300 basis points.

Speaker Change: above housing starts, last three years about 700 basis points above U.S. housing starts. And we're talking volume in pounds.

Speaker Change: and last year it was about 600 basis points. So with things like that and the driver behind that, Tim, has really been the investment in the business.

Speaker Change: Despite a down market, we've used that as an opportunity to make the market bigger through new products, new applications, and we've used that opportunity to take share. So when we're going forward, we are certainly...

Speaker Change: Assuming that we are going to be over our long-term average and after that we need to see how the year develops

Speaker Change: We do have a pretty good salesforce tool, CRM tool from Salesforce TEM, so we do have some disability into it, and we are obviously tracking a lot of jobs, we're quoting.

Speaker Change: Visibility in the building construction industry is not great, but we do have some moderate amount of visibility in the shared rooms.

Speaker Change: Okay, great. I'll hop back into you. Thanks a lot for your time.

Speaker Change: and many more. I hope you enjoyed this video. If you did, please give it a thumbs up and subscribe to my channel. I'll see you next time.

Thank you.

Speaker Change: Thank you. And our next question comes from Kurt Yinger with DA Davidson. Please proceed.

Great, thanks and good afternoon everyone.

Kurt Yinger: The commentary around higher input costs the last couple of years and the higher factory tooling and warehouse costs absorbed this year, how much of that would you say is a function of some of the investments you've made in the warehouse operations?

Kurt Yinger: to kind of support the stronger growth that are maybe just a function of underabsorption versus, you know, more general inflationary pressures that you've kind of had to absorb. How would you kind of bucket that?

Kurt Yinger: I think the answer to that, Kurt, really is all of the above, as you mentioned.

Speaker Change: So there were some investments as we moved away from two-step distribution, mostly in the northwest, a little bit in the midwest-northeast. So there we needed to get some warehouses closer to our customer. Ideally, we want to do one-day shipping with all of our customers.

Speaker Change: Really driven by market. We've been off on again. We went into last year thinking it was going to be three-eighths percent market tailwind and it finished down four so that's a

Speaker Change: 6700 basis point swing from a from a just a tailwind from market perspective

Speaker Change: And then we see costs across the board going up. Freight, electricity in California, we've got a...

Speaker Change: New contract for electricity is hitting us, labor across the board is going up.

Speaker Change: And we're working really hard by automating where we can by driving productivity improvements where we can to offset that. And we are still working to do that as we speak, Curt. Yeah, I think, Curt, Mike mentioned it earlier, the last time we took a price increase was in 2022, and then we actually took a decrease in 2023.

Speaker Change: While steel has been consistent and maybe slightly down over that period, everything else has gone up and we've worked to be able to offset as much of that cost as we could through productivity, but we haven't been able to offset all of it, and I think that's why we're kind of outlooking

Speaker Change: Depending on what happens with tariffs and some of these other things, there's definitely cost pressure that we're going to have to address.

Speaker Change: If we were to think three to five years from now, how are you guys thinking about, I guess,

Speaker Change: continuing to reinvest pretty aggressively behind growth. Any thoughts around a timeline for when maybe those priorities shift at all?

Speaker Change: Kurt, so our view on this is we want to be a growth company with strong profitability.

We will continue to reinvest back in the business.

Kurt Yinger: As you've heard me say before, it is a people-intensive business. We need more salespeople out in the field digging up new applications. We need more engineers developing new products. We want more people developing digital solutions. And we think there's a lot of opportunity around there, that space.

Kurt Yinger: and that's part of the reason why again we've done so well versus the market the last couple of years because we've invested. So at this point strong profitability means at or above 20% with a little bit of tail and a little bit of market growth to help us grow into that and then continue to drive above market volume growth.

Kurt Yinger: Yeah, I think Kurt, just to add to that I think

You know, we believe the best.

Kurt Yinger: return on this for shareholders is to continue to live above, deliver above market growth with a very strong operating margin. If that outlook changes in terms of what we can, what we see going forward on growth or how we think we're going to perform, then obviously we might make some different choices on operating income.

Kurt Yinger: and SG&A Investments, but as long as we continue to grow and outpace the market, we think that's the best, you know, mid-long-term approach.

Okay, that makes sense. And then just last one...

Speaker Change: I think you had said that the Operating Margin Outlook kind of contemplates some gain on sale related to the old Gallatin site. Would you be able to size that for us?

Speaker Change: Yeah, I think we, in the earnings release, I think we showed the contract sales price. The gain should be somewhere in the 10 to 12 million range.

Okay, perfect. Thank you very much.

Speaker Change: Thank you. And that looks like that is the final question. And that also does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.

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