Greetings, and welcome to the Simpson Manufacturing Co. Fourth Quarter 2022 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kim Orlando with ADDO Investor Relations. Thank you, Kim. You may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's fourth quarter and full year 2022 earnings conference call. Any statements made on this call that are not statements of historical fact are forward-looking statements. Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties. Actual future results may vary materially from those expressed or implied by the forward-looking statements. We encourage you to read the risks described in the company's public filings and reports, which are available on the SEC's or the company's corporate website. Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of forward-looking statements that we may make here today, whether as a result of new information, future events or otherwise. Please note that the company's earnings press release was issued today at approximately 04:15 PM Eastern Time. Earnings press release is available on the Investor Relations page of the company's website at ir.simpsonmfg.com. Today's call is being webcast and a replay will also be available on the Investor Relations page of the company's website. Now, I would like to turn the conference over to Mike Olosky, Simpson's President and Chief Executive Officer.

Thanks, Kim. Good afternoon, everyone, and thank you for joining today's call. With me today is Brian Magstadt, our Chief Financial Officer. 2022 marked a year of strong financial and operational performance for Simpson despite a challenging operating environment. I'd like to thank our team for their dedication towards our mission of building safer, stronger structures and their commitment to executing on our growth strategy. I'd also like to acknowledge Karen Colonias for her immense contributions to Simpson during her time as CEO and throughout her 38-year tenure with the company, including laying the foundation for this next chapter of growth. I assumed the role of Simpson's Chief Executive Officer at the start of the year, and I am humbled and excited to lead the team as we continue to focus on our company ambitions. I worked closely alongside the Simpson management team as we put together these ambitions, which we unveiled in the spring of 2021, and remain committed to achieving these goals. As a reminder, our ambitions are to: first, strengthen our values-based culture; second, be the partner of choice; third, be an innovation leader in the markets we operate; fourth, continue above-market growth relative to U.S. housing starts; and fifth, continue expanding our operating income margin and return on invested capital within the top quartile of our proxy peer group. Almost two years in, we are making solid advancements. We remain dedicated to being the partner of choice by maintaining our focus on customer service, which included a 97% product fulfillment rate in North America in 2022. This helped us earn business with new customers in several of our market segments. Our commitment to providing innovative solutions included the rollout of many new products, and in line with the ambition number four, I am pleased to report that we grew our North American volumes above U.S. housing starts in 2022. Our progress has been fueled by our key ambitions and has been made possible by our strong business model, which is built on five key foundational elements: first, our longstanding reputation, relationships, and engagement with building code committees, engineers, and architects to improve construction practices and streamline Simpson solutions; second, our commitment to innovation, exceptional service, and education for engineers, builders, and contractors; third, our rapid delivery standards on a very broad product line across multiple channels with delivery to our distribution partners or job sites in typically 24 to 48 hours; fourth, our extensive product engineering and testing capabilities at our state-of-the-art labs; and fifth, our increasingly diverse portfolio of solutions and products resulting in a one-stop shop for our customers. I'll now turn to an overview of our financial results, key growth initiatives, and capital allocation priorities. Brian will then walk you through our Q4 financials and fiscal 2023 business outlook in greater detail. For the full year of 2022, Simpson generated net sales of $2.1 billion and earnings of $7.76 per diluted share. Our sales results reflect new customer wins, the impact of product price increases implemented throughout 2021 to offset rising material costs, and a $212.6 million contribution from ETANCO Group. We are pleased to have delivered these results, which reflect strong execution despite ongoing macroeconomic uncertainty, inflationary pressures, and political unrest in Europe. In the fourth quarter of 2022, net sales totaled $475.6 million, an increase of 13.6% over the prior year. In North America, our net sales of $368.1 million decreased 1.4% year-over-year. And as a reminder, during the fourth quarter, we fully lapped the impact of our product price increases implemented throughout 2021. In addition, volume in North America was down compared to the prior year quarter due to ongoing macroeconomic challenges. Looking at our distribution channels in greater detail, volume for our contractor distributor and dealer distributor customers was down primarily due to moderating housing starts, which was partially offset by a slight year-over-year improvement in volumes from our home center channel. This includes both our home center and co-op customers, and is where we see much of our repair, remodel, and DIY business. Turning to Europe, fourth quarter sales totaled $103.7 million, which included a $64.9 million contribution from ETANCO and a negative impact of the strengthening U.S. dollar. The balance of our European operations experienced higher selling prices, partially offset by lower volumes resulting from the uncertain macroeconomic climate. Returning to ETANCO, we are pleased with the team's 2022 financial performance, which was in line with our expectations. We continue with our integration efforts, which remain mostly on track, and we look forward to continuing to benefit from our shared learnings in the coming year. We believe we remain well-positioned to capture meaningful future gains from our previously identified synergies, however, the persistent macroeconomic climate in Europe will delay some of our offensive synergy opportunities. Despite macroeconomic headwinds, we are still confident our European business will continue to progress given how we now offer a broader solution set to our customers, along with the ongoing transition to wood construction and regulatory requirements that encourage new construction solutions. Our consolidated gross margin for the fourth quarter was 42.2% compared to 47.4% in the prior-year period. Compared to the prior-year quarter and before considering the addition of ETANCO, our gross margin declined as expected, as our average raw material costs increased and also partly due to higher factory, overhead, and labor costs. Brian will further elaborate on the key drivers of our margin performance as well as our margin expectations for the upcoming year. I'd now like to turn to a discussion on our end-use markets, which encompass our key growth initiatives. We made solid traction throughout the fourth quarter in a challenging economic environment. Beginning with our commercial market, we were awarded a structural steel opportunity for a healthcare center in which our products will provide a means for bolted attachment of glass facades and temporary guard railings. As we had mentioned in the past, we anticipate our structural steel initiatives will take longer to manifest compared to our other initiatives as we continue to build the market. As part of our progress on this front, we held three large-scale educational webinars during the quarter, which reached over 2,300 industry professionals to help increase awareness of our structural steel solutions among the specifying community. In the OEM market, one of our focus areas is mass timber. We are pleased to have been awarded a project in Connecticut for a four-storey mixed-use building for apartments and retail space. The building will feature cross-laminated timber walls and floors utilizing Simpson's Strong-Tie mass timber fasteners and connectors. Within the national retail space, as part of our commitment to continuous improvement, we worked to replace slow-moving SKUs with innovative new and existing products in stores, as well as make great strides in our e-commerce initiative. In building technology, we've made a couple of strategic investments focused on creating solutions to help our customers be more efficient. These investments are strong additions to our existing portfolio of technology solutions and reinforce our ambition to be the partner of choice by providing solution sets to our customers that help both reduce construction timelines and address skilled labor shortages. Now, turning to capital allocation. In 2022, we invested in the growth of our business, including $62.4 million in capital expenditures and returned 36.2% of our free cash flow to stockholders through the payment of $43.9 million in dividends and a repurchase of $78.6 million of common stock. In 2023, our capital allocation priorities will remain unchanged. We remain focused on organic growth opportunities, returning value to our stockholders via quarterly dividends and opportunistic share repurchases, and paying down the debt we incurred to finance the acquisition of ETANCO. In regard to organic growth, we are focused on key investments to strengthen our business model, including our growth initiatives and the integration of ETANCO. We are also continuing to evaluate expansion opportunities, such as our previously announced Ohio manufacturing and distribution facility, as well as equipment investments to drive productivity and maintain our best-in-class customer service. As it pertains to M&A, while the continued integration of ETANCO remains our priority, we remain open to potential M&A opportunities that would accelerate our key growth initiatives and strengthen our business model. In summary, we are pleased with our strong fourth quarter and full year financial and operational performance. Looking ahead to 2023, in North America, the combination of increasing interest rates, ongoing inflation, labor shortages, and macroeconomic uncertainty has resulted in softer market forecasts for housing. In addition, while we benefited from the impact of product price increases in fiscal 2022, based on current pricing conditions, we enacted a price decrease on the majority of our products in North America earlier this year. At the same time, we continue to operate in a higher cost environment, including factory, labor, and overhead expenses. As Brian will discuss in more detail, these factors, as well as ongoing integration costs for ETANCO, will continue to pressure our operating margins in the year ahead, though we are expecting our margins will be ahead of the pre-COVID run rate. Nevertheless, we are committed to ongoing expense management and executing the areas of business that we can control. While the operating environment will prove challenging, we continue to believe that Simpson remains well positioned for success given our ongoing focus on expansion into new markets, the majority of which is not directly tied to U.S. housing starts, along with our strong balance sheet, solid market position, and culture of Simpson colleagues who remain deeply passionate about our mission of providing solutions to help people design and build safer, stronger structures. We are confident in our ability to continue to achieve our company ambitions, including our goal to grow above-market relative to U.S. housing starts with profitability in the top quartile of our proxy peer group. Now, I'd like to turn the call over to Brian, who will discuss our fourth quarter financial results and 2023 outlook in greater detail.

Thank you, Mike, and good afternoon, everyone. I'm pleased to discuss our fourth quarter financial results with you today. Before I begin, I'd like to mention that unless otherwise stated, all financial measures discussed in my prepared remarks today refer to the fourth quarter of 2022 and all comparisons will be year-over-year comparisons versus the fourth quarter of 2021. Now, turning to our fourth quarter results. As Mike highlighted, our consolidated net sales increased 13.6% to $475.6 million. Within the North America segment, net sales decreased 1.4% to $368.1 million, primarily due to lower sales volumes, partly offset by prior year product price increases. In Europe, net sales increased 150.3% to $103.7 million, primarily from ETANCO, which contributed $64.9 million in net sales, along with product price increases, partly offset by lower volumes and the negative effect of approximately $5.6 million in foreign currency translation. Wood construction products represented 85% of our total fourth quarter sales, down slightly from 87%, and concrete construction products were 15% of total sales, up slightly from 13%. Consolidated gross profit increased 1.2% to $200.7 million due to ETANCO, and our gross margin was 42.2% compared to 47.4% last year. On a segment basis, our gross margin in North America decreased to 45% compared to 49.3%, primarily from higher raw material costs, factory overhead, and labor as a percentage of net sales, partly offset by prior year product price increases. Our gross profit dollars in Europe totaled $33.9 million and included $20.9 million from ETANCO, which is net of the $1.4 million fair value adjustments for inventory costs as a result of purchase accounting. From a product perspective, our fourth quarter gross margin on wood products was 41.9% compared to 47.5% in the prior year quarter, partly due to the addition of ETANCO and was 42.3% for concrete products compared to 42.7% in the prior-year quarter. Now turning to our fourth quarter costs and operating expenses. Total operating expenses were $119.3 million, an increase of $17.9 million or approximately 17.7%. Operating expenses included $18 million attributable to ETANCO and another $2.7 million for integration costs. As a percentage of net sales, total operating expenses were 25.1%, a slight increase of approximately 90 basis points compared to 24.2%. Our fourth quarter research and development and engineering expenses increased 15% to $18.5 million, primarily due to increased personnel costs and professional fees. Selling expenses increased 25% to $44.9 million, primarily due to $6.7 million from ETANCO as well as advertising, trade show, personnel, and travel-related expenses. On a segment basis, selling expenses in North America were up 9%, and in Europe, they were up 107.1%. General and administrative expenses increased 13.3% to $56 million, primarily due to $10.5 million from ETANCO, which includes $4.4 million in amortization of the acquired intangible assets, partly offset by lower North America operating expenses, including stock-based compensation and professional fees. As a result, our consolidated income from operations totaled $78.7 million, a decrease of 18.9% from $97.1 million due to higher operating expenses. In North America, income from operations decreased 16.6% to $85.6 million, primarily due to lower gross profit, partly offset by lower operating expenses, including cash profit sharing, sales commissions, and stock-based compensation. In Europe, income from operations was $0.8 million compared to a loss of $1.5 million, which includes ETANCO's operating income of $0.3 million, which is net of the aforementioned $1.4 million in inventory adjustments, $4.4 million of amortization expense on acquired intangible assets, and $2.7 million for integration costs for a total of $8.4 million. As we continue to integrate ETANCO into our European operations, we expect to incur additional costs in 2023. On a consolidated basis, our operating income margin was 16.6%, a decrease of approximately 660 basis points from 23.2%. I will discuss our operating margin outlook for fiscal 2023 shortly. Our effective tax rate increased to 26.3% from 25%. Accordingly, net income totaled $57.6 million or $1.35 per fully diluted share, which is inclusive of $2.7 million of net interest expense. This compares to $69.8 million or $1.61 per fully diluted share. Now, turning to our balance sheet and cash flow. Our balance sheet remained healthy. At December 31, 2022, cash and cash equivalents totaled $300.7 million, down $8.5 million from our balance as of September 30. Our inventory position at December 31 was $556.8 million, which was up $16.8 million compared to our balance at September 30, 2022. We'll continue to focus on effective inventory management to ensure we retain our strong levels of customer service and on-time delivery standards, especially given the rapidly changing economic environment. During the fourth quarter, we generated cash flow from operations of approximately $137 million. As Mike highlighted earlier, our primary uses of cash will be utilized to support the growth of our business while simultaneously repaying the debt we incurred to finance the acquisition of ETANCO, as well as returning value to our stockholders through dividends and share repurchases. Given our solid balance sheet position, and in line with our capital allocation priorities, during the fourth quarter, we repaid $100 million worth of the $250 million drawn on our revolving credit facility. At year-end, our debt balance was approximately $577 million, and $300 million remained available for borrowing on our primary line of credit. During the fourth quarter, we invested approximately $20.8 million for capital expenditures, paid $11.1 million in dividends to our stockholders, and repurchased approximately 47,800 shares of our common stock at an average price of $84.95 per share for a total of $4.1 million. In 2022, we repurchased $78.6 million of our common stock under our $100 million share repurchase authorization, which expired at the end of 2022. Further, our Board of Directors authorized the repurchase of up to $100 million of our common stock, which went into effect at the start of the year through the end of December 2023. Additionally, on January 24, our Board of Directors declared a quarterly cash dividend of $0.26 per share, which will be payable on April 27, 2023, to stockholders of record on April 06, 2023. Next, I'd like to discuss our 2023 financial outlook. Based on business trends and conditions as of today, February 6, we are initiating guidance for the full year ending December 31, 2023, as follows. We expect our operating income margin to be in the range of 18% to 20%. Key assumptions include: some anticipated softness in our top-line given slowing housing starts in the U.S.; the aforementioned price decrease on the majority of our connector products in the U.S. to most of our customers; cost of goods sold, which reflect steel costs coming down moderately from our weighted average peak in Q3 2022; increased operating expenses, we believe, are needed to continue to position the company to make meaningful share gains in our markets and growth initiatives not associated with U.S. housing; and a slightly lower ETANCO operating margin profile than the rest of the company, including intangible amortization, as well as $6 million to $8 million in expected ETANCO integration costs. Next, we expect interest expense on the outstanding $150 million revolving credit facility and $433.1 million outstanding term loan to be approximately $9.7 million, including the benefit from interest rate and cross-currency swaps, mitigating substantially all the volatility from changes in interest rates. Our 2023 effective tax rate is expected to be in the range of 25% to 26%, including both federal and state income tax rates, and assuming no tax law changes are enacted. Lastly, we expect capital expenditures to be in the range of $90 million to $95 million, including approximately $22 million to $25 million to be utilized for the previously discussed Columbus, Ohio facility expansion. In summary, we were pleased with our strong finish to the year as we continue to integrate ETANCO and make progress on our key growth initiatives to position Simpson for long-term sustainable growth and to increase stockholder value. While 2023 will have its challenges, we remain dedicated to our long-term strategy and strategic plan.

Thank you. We will now begin the question-and-answer session. Thank you. Our first question comes from Daniel Moore with CJS. Please go ahead with your question.

Thank you. Good afternoon, Mike. Good afternoon, Brian. Thanks for all the color and taking questions.

Hi, Dan.

Hello, Dan.

Thank you. I'll begin with North America. Can you discuss the volume trends during the quarter, including the sequential changes observed so far in Q1 and provide some insight into the price decline you implemented in North America earlier in January?

Total volume in North America decreased by about 7%. As we examine how the quarter concluded, pricing offset this decline by approximately 5%. Looking at January, compared to January of 2023 and 2022, there's a slight combination of price impact and volume reduction, with North America down around 10%. I don't have the specific breakdown of volume versus price at this time, but the price decrease we implemented was in the mid-single digit percentage range annually, totaling about $30 million.

I appreciate that information. Could you discuss your expectations for gross margin and operating income margin, including the projections for the year, specifically for Q1 and any anticipated gains that are included in the fiscal '22 to '23 guidance of 18% to 20%?

Yes, we are definitely seeing improvements in the operating margin as we look at the latter half of the year. In the first quarter, we are still dealing with the higher price of steel that we believe peaked in the third quarter of last year, which may have a minor impact. However, as we progress through the year, we will experience the usual seasonality seen in the first and fourth quarters. I expect our gross margins to perform better, similar to our typical experience in the second and third quarters. Regarding the operating margin guidance of 18% to 20%, we will refine that as the year progresses. We also anticipate some expenses related to the ETANCO integration, which we estimate to be between $6 million to $8 million, to bring us closer to that 18% to 20% target. Overall, we expect to see a sequential improvement in operating margin as we move forward through the year.

Switching to Europe, the organic revenue, excluding ETANCO, was only down about 6% compared to a more significant decline last quarter. Can you discuss what you're observing in the commercial construction markets in Europe as a whole, as well as in specific regions that are important for ETANCO, such as Italy and France?

Yes. So, Dan, it's Mike. Similar to what we see in the U.S., it's very much a mixed market. So, we still believe that some of the macro trends around regulatory requirements related to thermal efficiency gains are going to be a nice tailwind for us going forward. But right now, we are seeing a little bit more headwind in the Nordic area. We are seeing definitely more headwind in Eastern Europe. In our Western European business, so Germany and France, where we've got a nice sized business, is doing okay. And by that, I mean, really less negative. The market forecast for Europe are flattish this year, so we are optimistic that things are going to start to pick up.

Very helpful. Okay. And I think that's it for me. I'll jump back with any follow-ups. Thank you.

Thanks, Dan.

Thank you. And our next question is from Kurt Yinger with D.A. Davidson. Please proceed with your question.

Great. Thanks, and good afternoon, everyone.

Hi, Kurt.

You mentioned a price decrease on the connector side. Can you elaborate on the pricing trends for fasteners? Additionally, what gives you confidence that you won't need to further reduce prices on the connector side considering the slowdown in steel?

Yes. As you know, the steel price once more than tripled, then dropped to half, and has started to rise again. We are closely monitoring this because we believe our products warrant a premium, and it's important to pay attention to that premium. Looking ahead, we are actively observing the market while also focusing heavily on innovation, service, and generating for our demand partners. We are keeping a close eye on the entire situation as we move forward.

Okay. That makes sense. Please proceed.

There has been no price change regarding that.

Okay, great. And then, Brian, in terms of the operating margin outlook, you kind of alluded to the expectation for some softening in U.S. housing starts. Is there any way to kind of ballpark what the underlying assumption is there?

Well, we still aim to grow above the housing market as we mentioned in our prepared remarks for 2022. However, considering the forecasts for a likely turbulent 2023 in terms of housing, I won't provide revenue guidance, but we do expect some fluctuations affecting this year's top-line results for housing-related business.

Okay. All right. Fair enough. And then, in terms of ETANCO, is backlog something you track and/or is kind of significant there? And if so, what type of visibility does that give you into 2023 for that business?

Kurt, so ETANCO's business model is very similar to Simpson, and we try to get orders out the same day or next day to the majority of our customers. So, we are ongoing working with the contractors and all the people that are installing the facades and the water grouping systems just to get a general sense of how the business is developing, but we're not getting really longer-term orders and we don't really have an open order book or backlog for that business.

Got it. So, even though the commercial side is kind of a longer, I guess, construction process, you don't necessarily have kind of the visibility at the front end?

Not in a way where you could put a KPI around it. No. I mean, we're getting a general sense because we're talking with those guys quite a bit, but not in a hardcore KPI to track. No.

Okay. Makes sense. And then, my last one, just on EstiFrame. I know it wasn't a big deal, but can you maybe talk a bit about that business and how you're thinking about leveraging that with dealers and component manufacturers?

Yes. They are essentially a combination of a saw and a printer. It's a relatively compact system that can be taken to job sites or to component manufacturers. The key point, Kurt, is that it cuts lumber to the precise length and then prints instructions directly on the lumber. The idea behind EstiFrame is that it enhances the efficiency of construction sites, allowing for quicker work with less reliance on skilled labor, as it simplifies the process. Additionally, it ensures that our products are used correctly by providing clear instructions on where to place connectors, fasteners, or anchors.

Okay. All right. Well, appreciate the color and good luck here in Q1, guys.

Thanks.

Our next question is from Julio Romero with Sidoti & Company. Please proceed with your question.

Thanks. Hey, good afternoon, Mike and Brian.

Hey, Julio.

Could you discuss what you're observing regarding demand in North America? There seems to be some cautious optimism related to new housing in January, particularly due to the decline in mortgage rates. Are you noticing any shifts in sentiment from your customers?

Julio, we attended the Builders' Show last week, and overall, we found that customer sentiment in January was more positive compared to the fourth quarter, although the situation remains mixed. Customers in the West are facing significant challenges, while those in Florida are experiencing either stagnant or slight positive growth. We feel optimistic about certain areas, particularly multifamily, and some customers involved in build-to-rent are also seeing strong results. Overall, the mixed picture leans towards less negativity and modest growth, which is an improvement from what we observed and heard in the fourth quarter.

Okay. That's very helpful. And on the cost side, just talk through how costs other than steel are trending in terms of other materials, freight, labor, et cetera?

Moderating maybe a little bit, but it's still pretty challenging from those particular categories. Labor still continues to be a challenge. The availability of things like freight are getting better. I think costs have potentially softened there a little bit.

Yes, the story is a little bit earlier, and, Julio, we have ongoing productivity improvement plans where we're working hard to try to offset those inflationary pressures as much as we can.

Very helpful. Thanks very much for taking the questions.

You're welcome.

Thank you. And our next question is from Daniel Moore with CJS. Please proceed with your question.

Thank you again. Thanks for the CapEx guide. What are your expectations for working capital and free cash flow this year, especially after a really strong cash flow quarter in Q4 as you start to sort of unwind a little bit of that inventory?

Yes, we expect free cash flow to be somewhat lower due to the additional capital expenditure we are considering. We do not anticipate any significant changes in other working capital items that would notably impact inventory turnover, days sales outstanding, or days payable outstanding. Besides the increased capital expenditure, the other components of free cash flow should generally align with the typical cyclical nature and operations of the business. There is nothing unusual to report.

Okay. And maybe the last one. Similar to last quarter, you said you wouldn't be opposed to M&A opportunities should they arise. Are you seeing more or less or sort of no change in terms of the opportunity set in this environment?

No real change at this point. Again, we're in a very specialized business. So, these are pretty unique assets that we'd be considering and there's been really no major change.

All right. Appreciate it again.

As there are no further questions at this time, this will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.