Simpson Manufacturing Co., Inc. (SSD) Q4 2017 Earnings Report, Transcript and Summary

Greetings and welcome to the Simpson Manufacturing Company Fourth Quarter and Full Year 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kim Orlando, Addo Investor Relations. Thank you. You may begin.

Good afternoon, ladies and gentlemen and welcome to Simpson Manufacturing Company’s fourth quarter and full year 2017 earnings conference call. On this call, the company may discuss forward-looking statements such as future plans and events. Forward-looking statements, like any prediction of future events, are subject to factors, which may vary and actual results may differ materially from these statements. Some of these factors and cautionary statements are discussed in the company’s public filings and reports, which are available on the SEC’s or the company’s corporate website. Please note that the company’s earnings press release was issued today at approximately 4:15 p.m. Eastern Time. The earnings press release is available on the company’s website, at www.simpsonmfg.com. Today’s call is being webcast and a replay will also be available on the company’s website. Now, I would like to turn the conference over to Karen Colonias, Simpson’s President and Chief Executive Officer.

Thanks, Kim and good afternoon everyone. 2017 was a highly productive year for our company as we laid the foundation to position Simpson for long-term sustainable and increasingly profitable growth. Consolidated full year net sales of $977 million were up 14% from $860.7 million in 2016 primarily due to increases in both sales volumes and average unit prices in North America and Europe coupled with contributions from our recently acquired businesses. On our last conference call, we unveiled our 2020 plan in order to maximize operating efficiencies and drive long-term shareholder value. As you may recall, our 2020 plan is centered on three key operational objectives, which included focus on organic growth, rationalizing our cost structure to improve companywide profitability and improving working capital management and overall balance sheet discipline. We believe these objectives will substantially enhance our return of invested capital as well as provide additional capital to return to our shareholders. Further, these objectives reflect our dedication to do what is right for our people, customers, shareholders and community. Our Founder, Barclay Simpson instilled these values into our corporate culture over 60 years ago and we will continue to operate under these principles as we grow and execute on our stated goals in the 2020 plan. Now, turning to our key objectives. We remain on track to achieve an organic compound annual growth rate of approximately 8% for our consolidated net sales through 2020 from our reported 2016 net sales of $861 million. Our target net sales compounded annual growth rate assumes four primary contributing factors beginning with growth in the U.S. housing starts, which we believe are a leading indicator for approximately 60% of our business. We continue to expect U.S. housing starts will improve at an annual mid-single-digit rate over the next few years. In addition, industry sources cite that the repair/remodel market also remains solid with expected annual growth rate in the mid-single-digit range. The second contributing factor will be the $30 million annualized revenue opportunity for our mechanical anchor product line in the Home Depot. In 2017, we rolled this out into 285 Home Depot locations across the U.S. and we anticipate these products will be set in approximately 500 additional stores throughout 2018. We anticipate the completed rollout into all 1,900 stores will be accomplished by 2020. Third, our top line growth expectations assume increased market share and profitability in Europe. And fourth, market share gains in both our trust and concrete product offerings. In 2018, we estimate steady top line growth in Europe will continue to be driven by improved economic conditions and our focus on the complete product offering of connectors and fasteners in the Nordic and Western European markets. In the concrete space, we remain on track to grow our current 10% share over $1.3 billion addressable market to approximately 14% by 2020. While we are prioritizing organic growth supported by strategic capital investment, I would like to reiterate that we will continue to evaluate attractive acquisition targets that will help grow and improve our company. However, we will not be pursuing further acquisitions in the concrete repair space. Despite our industry leading margin profile, we are intently focused on rationalizing our cost structure to drive profitability. That said, operational improvements will not jeopardize the basic fundamentals of our business that enable us to achieve such strong margins. We maintain a trusted brand reputation to our proprietary testing capabilities, deep industry relationships and involvement with code officials to improve construction practices. We also pride ourselves on being able to provide reliability for our customers to deliver products in typically 24 hours or less. To that end we continued to expect an improvement in total operating expenses as a percentage of net sales to a range of 26% to 27% by 2020 from 31.8% in 2016. To help gauge progress towards our goal, we feel confident in our ability to achieve total operating expenses as a percent of net sales in the mid-29% range by the end of 2018. For the full year 2017, operating expenses as a percent of net sales were 31.4%, down 40 basis points compared to 31.8% in 2016. Severance charges of $4.8 million in the fourth quarter of 2017 negatively impacted total operating expenses as a percent of net sales by about 50 basis points. We have made positive strides towards our target during the fourth quarter by reducing total operating expense dollars by $2 million in Europe and by $3 million in the concrete space. In Europe we are reiterating our 2020 operating income margin target. We have reduced our headcount in the fourth quarter primarily in our wood connector locations in Europe to right size these businesses as well as reduced other administrative expenses. We also strategically increased our sales force to support growth in the Nordic region and in Western Europe to ensure we are in the best position to improve our market share in fasteners as we introduced new product line. In concrete we are reiterating our 2020 gross profit margin target. The fourth quarter expense reductions were primarily from no longer spending to expand our repair lines of business with the exception of bridge and marine repair products. We also reduced headcount and other professional service fees. Our narrowed concentration on fixed distinct product categories in the concrete space enables us to focus on higher margin products to drive profitability. In North America by the end of first quarter of 2018, we should have moved all of our manufacturing operations for truss plates into our wood connector plants to maximize efficiency and plant utilization. When we are out of that facility we expect to reduce our cost of sales by approximately $2 million annually as a result of the reduced costs in our manufacturing footprint and reduced freight time to move truss plates to our end customers. Beyond these stated cost reduction efforts, we recently hired a leading management consultant to perform an independent, in depth analysis of our operations and identify additional opportunities to enhance our operation efficiencies. While it is still too early in the process to quantify any additional opportunities for savings we will be transparent in the coming quarters to the results amount to actionable insight. We look forward to benefiting from this consultants broad expertise. We continued to invest approximate $8 million in R&D expenses per year towards software development to support the evolving needs of both builder and truss component manufacturers. I would like to reiterate that over 40% of our wood connector business is tied to customers who require software and we view our software offering as critical to preserving and growing our core business. Through our acquisition of CG Visions a year ago we gained additional expertise and resources to better support the ongoing development of integrated software component solutions primarily for builders and lumber dealers to complete projects as efficiently and cost effectively as possible. This in turn also helps facilitate getting our products specified on their plans. Our development strategy has been supported to high levels of builder involvement to address pain points with competing offerings. Last month, we presented at the NAHB International Builders’ Show in Orlando, Florida, in which we showcased our software solutions and we are very encouraged by the positive feedback we received. In regard to our truss software, our strategy is focused on converting medium-sized component manufacturers, while continuing to support the smaller component manufacturers we have already converted. Our proprietary cloud-based solutions that we have been actively investing in allows customers to choose, which modules they would like and the ability to tailor them to their specific needs making it a highly attractive alternative to existing solutions in the market. We continue to make positive strides on the SAP implementation project, which remains on schedule and on budget. From 2016 through 2019, we estimate a total of $30 million to $34 million of spending including amounts capitalized. Since the project began, we have capitalized $11.6 million and expensed $3.3 million. In 2018, we estimate roughly $7 million to $8 million will be expensed including the amortization of capitalized SAP costs. We look forward to further enhancing overall productivity once the SAP implementation is completed as it will provide improved inventory management, purchasing and business analytics. The third major component of our 2020 plan involves improving our working capital management and overall balance sheet discipline through inventory reduction and tighter management of our payables and receivables. As a result of these efforts, we continue to believe we can double our inventory turn rate from 2 times in 2016 to 4 times by 2020. In 2018, we will phase out slow or nonmoving SKUs over a transition time as we work to convert customers over to new replacement products. We are being very methodical in our approach to right-size our inventory to ensure ample product availability for delivery to customers in typically 24 hours or less. We estimate we have room for further inventory reductions allowing to approximately 30% of our raw materials and finished goods over the next 3 years without impacting our day-to-day production and shipping procedures. To support our internal effort, we are also working with a separate external consultant who specializes in lean principles to assist in identifying incremental improvements to our inventory management. Through execution on the 2020 plan, we are confident we can achieve a return on invested capital target within the range of 17% to 18% by 2020. This improvement from our 10.5% ROIC in 2016 will be supported by various operating expense reductions we have discussed, tax reform and improved inventory turn rate and share repurchase activity. On the topic of share repurchases, we are confident our continued execution against the 2020 plan will drive improved operational performance in our business. As such, we received 677,500 shares of our common stock during the quarter pursuant to a $50 million accelerated share repurchase program. These shares represent 80% of the initial value with the balance of the shares to be delivered in the first quarter of 2018. We generated an estimated $120.9 million in cash flow from operations in 2017 and remain committed to returning 50% of our cash flow from operations to the stockholders. In 2017, we paid out $37 million in quarterly cash dividends and committed $70 million for share repurchase. As of December 31, 2017, we had $151.5 million remaining for repurchases under our extended $275 million authorization through December 31, 2018. We will consider the benefits we are receiving as a result of tax reform as further funds for share repurchases. In summary, 2017 was a highly productive year for Simpson as we laid the foundation for not only improved operational excellence and long-term sustainable growth, but also enhanced our corporate governance policies. Key highlights from this year which incorporate shareholder feedback include Board declassification and the elimination of cumulative voting, the adoption of proxy access, the election of new independent Director, Michael Bless and finally the commencement of the 2020 plan to enhance shareholder value. In regard to the 2020 plan, I would like to reiterate that assuming no major changes in market conditions, if at any point we are not on track to meet our 2020 financial targets we will take more aggressive action as it relates to our strategic initiatives. At Simpson, we started for excellence and we remain committed to our employees and their families, our shareholders, our customers and the community at large. Our mission to improve the performance and integrity of structures to our tested solutions is something all of us at Simpson are very passionate about. Our commitment to operational excellence takes that mission a step further and we are very excited to update you on the positive developments we anticipate in the coming quarters. We look forward to a successful 2018 and demonstrating the increased earnings power that we believe exists in our business. I would now like to turn the call over to Brian who will discuss our fourth quarter financial results in detail.

Thank you, Karen and good afternoon everyone. Well, I am pleased to discuss our fourth quarter financial results with you today. Our consolidated net sales for the fourth quarter of 2017 were $231.7 million, up 16% compared to $200.2 million in the fourth quarter of 2016. Consolidated net sales in the fourth quarter included $8.3 million from our recent acquisitions of Gbo Fastening Systems and CG Visions. Within the North America segment, net sales increased 10% year-over-year to $190.9 million primarily due to increased sales volume and unit prices. In Europe net sales increased 52% to $38.4 million, largely as a result of acquired net sales as well as positive impacts from foreign currency translations. Wood construction products including connectors, truss plates, fastening systems, fasteners and shearwalls represented almost 84% of total net sales in the fourth quarter, down slightly from 85% in the fourth quarter of 2016. Concrete construction products including adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials represented 16% of total net sales in the fourth quarter compared to 15% in the prior year quarter. Our fourth quarter consolidated gross profit increased 8% to $102.7 million from $95 million in the fourth quarter of 2016 resulting in a consolidated gross profit margin of 44% compared to 47% in the prior year quarter. Despite this year-over-year decline due primarily to our recent acquisitions and increased material costs, there is still industry leading gross profit margin as a direct result of the high level of value added services we provide to our customers and our engineered and tested product solutions. On a per segment basis our gross profit margin in North America decreased to 47% from 49% in the prior year quarter due primarily to increased material costs which were partially offset by factory costs. In Europe our fourth quarter gross profit margin decreased to 34% from 37% in the year ago period, primarily due to the acquisition of Gbo Fastening Systems. For the full year of 2017, our consolidated gross profit margin was 46%, in line with our guidance range. From a product perspective, our fourth quarter gross profit margin on wood products was 44% compared to 48% in the prior year quarter and was 36% for concrete products compared to 32% in the prior year quarter. Now turning to our fourth quarter costs and operating expenses, consolidated research and development and engineering expenses for the quarter increased slightly by just 1% year-over-year to $12.6 million primarily due to increased personnel costs, which included $1 million of severance, offset by a decrease in consulting and professional fees. As Karen touched on earlier included in the research and development and engineering expense is approximately $8 million per year for the ongoing development of our software initiatives. Consolidated selling expenses for the quarter increased 20% year-over-year to $28.8 million, primarily due to the increased personnel costs including $2 million of severance in our recent acquisitions which contributed to $1.8 million of the increase. On a segment basis compared to the prior quarter selling expenses in North America increased by $1.3 million and increased by $3.3 million in Europe. General and administrative expenses in the fourth quarter increased 13% year-over-year to $36.7 million, primarily due to increased personnel costs which included $1.9 million of severance costs and our recent acquisitions which contributed to $3.7 million of the increase. Additionally we had increases in professional and consulting fees associated with the SAP readiness project, IT related costs to upgrade hardware systems and depreciation and amortization. These costs were partially offset by decreased cash profit sharing, stock based compensation and foreign exchange. On a segment level general and administrative expenses in North America segment increased by $5.8 million and in Europe G&A decreased by $0.7 million compared to the prior year quarter. As noted previously, we are focused on reducing our total operating expenses as a percentage of net sales. For the fourth quarter of 2017 total operating expenses as a percentage of net sales were approximately 34%, down 72 basis points from the prior year quarter. As expected, our operating expenses for the fourth quarter were impacted by additional charges related to the ERP implementation as well as severance charges of $4.8 million or an after tax impact of $0.06 per fully diluted share. Our consolidated income from operations in the fourth quarter decreased 5% year-over-year to $24.7 million compared to $26.1 million in the fourth quarter of 2016. In North America, income from operations decreased 9% year-over-year to $22.1 million and in Europe loss from operations was $3 million compared to $3.3 million in the prior year period. On a consolidated basis, our operating income margin declined by approximately 240 basis points from the fourth quarter of 2016 due to reduced gross margins and the recent acquisitions which contributed approximately $3 million in operating losses for the fourth quarter including purchase accounting expenses such as intangible amortization. In addition, following the sale of Gbo Romania on October 31, 2017, we recorded a $654,000 loss during the fourth quarter. Together with Gbo Poland which was sold at the end of the third quarter these companies contributed $12.8 million in sales to Gbo Fastening Systems’ total 2017 net sales of $42.2 million. The enactment of the tax cuts and jobs act in December 2017 resulted in a provisional net charge of $2.2 million in the fourth quarter of 2017 or an impact of $0.05 per fully diluted share. The charge encompasses several elements including federal tax on accumulated overseas profits, eliminated tax credits, valuation allowances and the revaluation of deferred tax assets and liabilities. As a result our effective tax rate was 45% for the fourth quarter of 2017 compared to 33% in the prior year quarter. The net charge accounted for approximately 900 basis points of the increase in the effective tax rate. For the full year of 2017, our effective tax rate was 36% compared to 35% in 2016. Our consolidated net income for the fourth quarter was $13.1 million or $0.27 per fully diluted share compared to net income of $17.4 million or $0.36 per fully diluted share in the prior year quarter. Turning to our balance sheet and cash flow, at December 31, 2017, cash and cash equivalents totaled $168.5 million, a decrease of approximately $36 million from September 30 levels. Capital expenditures were approximately $12.3 million for the quarter and were primarily related to ongoing efforts to complete our Texas facility expansion as well as capitalize $3.3 million related to the ERP project. Additionally, we invested in manufacturing equipment and software. For the full year of 2017, our capital expenditures totaled $57.4 million, in line with our expectations. We remain debt free with only a small portion of capital leases amounting to approximately $3.7 million. On January 29, our Board of Directors declared a quarterly dividend of $0.21 per share for shareholders of record as of April 5, 2018, which will be payable on April 26, 2018. We also received 677,500 shares during the quarter pursuant to the $50 million accelerated share repurchase program at an average price of $59.04 per share, with additional shares to be received in Q1. The remaining amount authorized under our current repurchase program, which expires at the end of 2018 is $151.5 million. Given our belief and our ability to execute the 2020 plan, we will make share repurchases a priority. Before we turn it over to questions, I would like to discuss our full year 2018 outlook. We are initiating guidance as follows. We expect our consolidated gross profit margin to be in the range of 45% to 46%, the effective tax rate to be in the range of 26% to 27%, depreciation and amortization expense to be in the range of $39 million to $40 million of which $34 million to $35 million is pure depreciation and capital expenditures to be in the range of $30 million to $32 million including $9 million to $10 million related to maintenance. In summary, we made positive progress throughout 2017 as we strived to position Simpson not only for growth, but enhanced operating leverage and profitability. We are confident in our long-term value proposition and look forward to updating our shareholders as we continue to execute against our strategic initiatives and 2020 plan objectives. Thank you for your time and attention today. We would like to now open up the call for questions. Operator?

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Daniel Moore of CJS Securities. Please proceed with your question.

Thank you. Good afternoon, Karen. Good afternoon, Brian. So let’s start with maybe gross margin, talk a little bit about obviously some of its acquisition, but on North America more specifically rising input costs, do – would you expect to start the year perhaps in Q1 a little below that 45%, 46% guide and improve as the year goes on, just talk about the kind of how you see margins playing out over the year and I have a quick follow-up?

Sure. Hi Dan, good afternoon. I would say in a similar fashion to – in prior years Q1 and Q4 typically are going to be the lower gross margin quarters compared to Q2 and Q3. But as it relates to the full year the raw material input costs as you noted is what’s driving where we are projecting to be in 2018. So similar seasonality trend and but on an annual basis looking at that 45% to 46% range for the full year.

I guess that in other way do you have price increases going on in Q1 or at some point in the near future?

Yes. Hi Dan, this is Karen. So as we have mentioned in the past that certainly there is a lot of volatility right now with the steel industry and what we are seeing on steel prices, currently, there seems to be uptrend in those steel prices. And as we have said in the past, this does become something that we potentially have to pass on to our customers we certainly will take that action when necessary, but keeping in mind that it takes about some of our customers have a 60 to 90 day lead time on any price changes. So today, we do not have a price increase in place, but we certainly are monitoring what’s going on with the steel prices.

Got it. Very helpful. To give a lot of good color as it relates to guide for 2018, can you talk a little bit about SG&A, I think if I heard some of those comments correctly, it sounds like SAP-related expense will go up particularly with amortization by several million, but just overall directionally, how should we think about SG&A for full year ‘18?

Yes, we have done a – we have worked very hard with our groups across all our business segments and certainly all of our business areas to really take a look at our costs. And then as we stated, we have positioned our SG&A absolute dollars to be less than they were in 2017 even after taking into account the increased in the SAP cost. We are really looking at all projects that we are working on to be sure that they are returning profitable investments to the company. And we believe that those SG&A reductions that we have put in place along with what we are seeing from top line growth will put us in that mid 29% range from SG&A as a percent of sales.

Got it. Very helpful. And last question Brian, I heard two different numbers for severance, I heard $1.9 million I think and then another of like $4.8 million, just help me understand what the total severance and any other kind of discrete one-time items in the quarter?

So, the quarter $4.8 million was the severance and operating expenses. There was a little bit more in cost for sales, maybe about $0.5 million, but that was the fourth quarter severance. And I think that’s really the only item of note on a one-time basis.

Got it. Very helpful. Thank you.

Thanks, Dan.

Our next question comes from Tim Lange of Robert W. Baird. Please proceed with your question.

Hey, everybody. Good evening or good afternoon.

Hi, Tim.

Hi, Tim.

Maybe just going looking at the D&A expense that you expect for the year, I think it’s up maybe $5 million, $6 million on a year-over-year basis, what’s the – from a segmentation perspective, how much of that falls in cost of goods sold and how much of that will be in SG&A?

Tim, it’s Brian, hi. So, we are estimating there is probably $4 million related to software whether it’s a combination of SAP which will be put into use and will begin advertising that and then the truss software that we have been developing that will be showing some increase there. I think the rest of it is mixed around throughout the rest of the organization, majority of though which is in factory in cost of sales, but those with the SAP and the truss were bit of a step function in those depreciation numbers.

Okay. And then the loss from the acquisitions in the quarter, I think was $3 million and I think it had been – I think that’s double or triple what it was for most of the year, so what happened in the fourth quarter, I mean, is there severance in there or some losses to kind of keep in mind?

No, I think it’s more around the European acquisition for significant amount of December, the operation shutdown around the holidays and the like, but of course fixed costs are still there. So, I think that’s largely attributable to that number.

Okay. So, it’s mostly seasonal, okay. And then the 29.5% of sales as a percentage for OpEx as a percentage of sales, that’s for the full year right not ending the full year that’s for the – that’s not in the Q4 ‘18, that’s for that the full year ‘18?

That’s correct, full year 2018.

Okay, great.

I know that, well go ahead.

Sorry, no, go ahead.

I was going to say you said 29.5 or saying mid-29, so just I know that maybe splitting area.

Yes, I know, fair enough, okay. And then as we think about – as we think about the fourth quarter just on the sales line, I mean was anything – was there any sort of pull forward or anything like that, I mean I thought that the sales performance was stronger particularly in America that maybe we would have anticipated given the comparison, so any sort of just added color on what drove the sales increase in North America will be great?

Yes. I think Tim, if we remember back to fourth quarter last year we had some pretty heavy rains in December. So certainly, we had the weather being very helpful in the fourth quarter not only on the West Coast where we are really inundated with rains, but more of a late winter to the Eastern Seaboard also. So just able for contractors to still build found – get their foundations and then start building.

Okay. If I remember correctly you had a very wet Q1 last year, especially in California?

We did, yes. We have a sort of a continuation of that December rains and certainly the California State – California area we were pretty significantly impacted by those heavy rains throughout all of Q1.

Okay, great. Well, good luck on to the [indiscernible] team.

Thanks.

Thanks Tim.

Our next question comes from Steve Chercover of D.A. Davidson. Please proceed with your question.

Thanks. Good afternoon, everyone.

Hi, Steve.

Hi, Steve.

So, I guess, I don’t know if you can name the consultant, but the consultant team on after you announced the 2020 initiative, is that correct?

Yes. So the 2020 plan was a – put together with the Simpson management team and in certain engagement of the Board, there was no outside consulting help as we looked at putting those targets and actually the areas that we were really focused on. That was really input from a lot of the conversations that we had with our shareholders on additional information to get some ideas about success. And then part of that was to also look to hire an outside consultant and give us sort of an outside view of potentially what other areas that we might be able to improve.

So just to understand the internal review and targets are basically just that, their targets you believe are attainable and these outside folks will help you actually establish the roadmap to get to your targets?

No, what I would say is the internal targets that we feel are very aggressive that we put in place. We already have many steps that we are working on. Again, we mentioned some of those in the fourth quarter, the restructuring of our strategy in Europe and the severances associated with that. The restructuring of our strategy in the concrete space focusing on really six market areas and certainly the severance is associated with that model. We are looking for the outside consultant to see is there more that we can do in other areas that we didn’t really look at. So we have a clear plan in place on how to accomplish these very aggressive goals that we put into the 2020 target – 2020 plan, but we want to take an advantage of the expertise of that outside consultant to tell us is there more that can be done in different areas that we may not have reviewed.

And then you have mentioned Karen that if you fall behind on your – the benchmarks that you have established, then you will take measures to I guess accelerate or offset any shortfall, could you give us an example?

Sure, I mean I think as we put the metrics in place we certainly have things that we can track on a quarterly basis, some of them more on an annualized basis if we talk about our inventory turns, we have got some aggressive goals for some profitable operating income in Europe. And I think we have had two pretty significant strategy changes in both Europe and in our concrete space and as we look from quarter-to-quarter how those things are tracking there may be more aggressive things that we have to do, whether that’s looking at different product lines, looking at different strategies within those business elements.

Okay. And then U.S. housing I think you – Brian said was 60% of that the driver of your overall business, what would happen, is there anything you could adjust if in fact housing good shock to the system and we have had water for a little while?

Yes. I think certainly as we look at housing starts as we mentioned that’s a significant driver in these metrics as we look at our compound annual growth rate, we are looking at housing starts being in mid single-digits just as they have been for the past 3 years. Part of our assumptions in this plan is those will continue and certainly we will be aggressively pursuing that. With U.S. housing starts being about 60% of our business you can imagine there would be a significant impact if there was a significant downturn in that space. We keep track of that very carefully, obviously talking to not only our distributors and our builders and our large builders, but also some the industry experts are really looking at this housing space. So we feel very comfortable based on what’s going on in the past 3 years and we have the projections appear to be going into the next few years for the housing market.

Okay. And last question for me, I am just wondering whether you will be a bit more opportunistic on the re-poll going forward now you have done the first 677,000 shares of about $50 million?

Yes. Steve, it’s Brian, we would continue to look at those repurchases. There are some limitations around how much we can buy on a daily basis and the like. And as we have noted the accelerated share repurchase program is ongoing will wrap up sometime this quarter and we will continue to look at those opportunities around deploying that capital back to shareholders.

Very good, okay. Thank you.

Thanks.

Thanks Steve.

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

Hey, good afternoon. Thank you for taking my question.

Hello.

Hello, can you hear me?

Yes. Okay.

Yes. Hi, good afternoon. Thank you for taking my question.

Sure.

So just on your software offering, how do you see the current competitive landscape regarding software and trust and maybe if you could talk about the current and expected progress of market penetration within the small and midsize targeted segment?

Sure I think to talk about our software initiatives, it’s more than just the trust offering or as we mentioned we acquired CG Visions, because they give us an opportunity to be tied closer to some of the large builders where we can look at options management, which is a pain point for them and take off which is also a pain point. So when we think of software, we really think of it as the elements that can help us make the building industry more efficient and obviously tie them closer to us personally. As we mentioned probably about 40% of our connector sales are some form our customers are using software some form, whether it be a truss software or whether it will be a takeoff software is becoming increasingly important in the construction industry to have that offering that makes those lumberyards, builders, component manufacturers more efficient. On the trust part specifically, we were at the building component manufacturing conference which was held in late sometime in October that’s really where you can showcase your truss software. Our latest release was very well received. The feature set allows us to go after some of those midsize customers and still focus on the customers we have converted. We want to still have complete support there with those customers that have been converted and we will focus this year on those midsize customers. Our sales people have identified the targets and those are the ones that they are currently and aggressively going after.

Very helpful, just shifting over to Europe just hoping for some color on how we should think about the cadence of our margin improvement there given the 45% to 46%, consolidated gross margin for fiscal ‘18 just how should we think about gross margin for Europe and up margin improvement in your overall?

Well, as Karen noted in our comments we have taken some costs out of Europe looking to improve profitability there as we right-size that operation and like necessarily have a – anything else to comment on really the costs that we removed and looking to have that operating margin as an improvement over 2017. So, the gross margin in Europe is partially impacted by the acquisition over there. So, it’s got a lower gross margin and when we have added in $40 million in 2017, $42 million in 2017 at a lower gross margin that’s where you are seeing that impact there for the year and a bit for the quarter as well. So, we are working on integration efforts to improve the profits of that acquisition. As we have mentioned prior calls, we bought it and then we sold off a piece of that business and we sold that smaller piece for nearly what we bought the entire things work. So we have got some work to do there with that acquisition, but we feel there is some good opportunities and then the cross-selling opportunities within Europe, the fasteners into Central Europe and vice-versa, the connectors up into that Nordic region, where Gunnebo is located. So, does that answer your question, Julio?

Yes, it does. Thank you. And just lastly, do you still see concrete gross margins at that 38% to 39% target for 2018?

Yes. I think as you look at some of the things that’s in the strategy that we changed late in fourth quarter, we are still pushing very heavily to help those gross margins in that concrete space. As we said some things that will help us there is volumes number one and that’s why we focused on these six market areas. The other reason we focused on these six market areas is they happen to be an area that has higher gross margin on these concrete products. So, we are certainly working on executing our plan and really executing some improvement in that gross margin space.

Got it. That’s all I have. Thanks very much.

Thank you.

Thank you.

Our next question is a follow-up from Daniel Moore of CJS Securities. Please proceed with your question.

Thank you again. Maybe just drilling down and just talk about Europe but more specifically on the Gunnebo acquisition, just talk a little bit about what ultimate margin profile can look like and in terms of timeframe what’s the path of profitability and to get those margin? Thank you.

So, Gunnebo specifically, Dan or if the combination of all of Europe?

We are really kind of drilling down on Gunnebo, because I know that there – Brian gave some color regarding what some of the factors seasonality that drove the loss in the quarter, but it was just more looking at that business specifically?

Yes. So as you know Gunnebo, we have a manufacturing facility in Sweden. We have been able to push their utilization up a little bit by having them make some of the products that we use to buyout. So we will be looking at means of increasing that vector utilization. The other thing we have done is the products that we are releasing into Western Europe. We have a portfolio that is a consistent product portfolio for both France and the UK and Denmark and Germany and all of our locations. So we are really looking to push additional volume in specific sizes through the Gunnebo manufacturing facility and then into that Western European location. So, we have a couple of things not only from the sales perspective, but things we can do to increase that vector utilization and then certainly looking at anything where we might be able to do just a little bit more aggressive pricing program then they may have done in the past in some specific regions. So, it’s really a combination of multiple things that we are looking at on the Gunnebo side.

Got it. And then the corollary to that was timeframe, but unless you want to get tied into that?

Yes, I mean, we are only year two into our integration at large parts of our year one was divesting of the Poland and Romania part of that business. The strategy of what we are doing with the Swedish part of the Gunnebo business has not changed. We are introducing those products into Western Europe in the first quarter of this year, which is exactly on track as our plan was. So I think it’s a little bit things are progressing nicely, but again we are just in year two of this integration plan.

Got it. Appreciate the color.

Great. Thanks, Dan.

Ladies and gentlemen, we have reached the end of our question-and-answer session. This will conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.