Simpson Manufacturing Co., Inc. (SSD) Q3 2022 Earnings Report, Transcript and Summary

Greetings, and welcome to the Simpson Manufacturing Company Third Quarter 2022 Earnings Conference Call. [Operator Instructions] 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 third quarter 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 the forward-looking statements that we 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 4:15 p.m. Eastern Time. The earnings press release is available on the Investor Relations page of the company's website at ir.simpsonmfg.com. Today's call is being webcast, and a replay will also be available on the Investor Relations page of the company's website. Now I would like to turn the conference over to Karen Colonias, Simpson's Chief Executive Officer.

Thanks, Kim, and good afternoon, everyone, and thank you for your participation on today's call. I'm joined today by Brian Magstadt, our Chief Financial Officer. Before I begin, I want to comment on our announcement last month regarding Simpson's succession plan. After much consideration, I've decided to step down as the Chief Executive Officer at the end of this year, after 38 amazing years with the company. I'm thrilled that Mike Olosky, will be succeeding me as Simpson's CEO effective January 1, as a result of a strategic succession plan with our Board of Directors. Mike has been directly involved with helping lead Simpson through its next phase of growth since joining the company in 2020 and has done a tremendous job. It's been a great pleasure to work alongside him, and I'm confident that Simpson's employees, customers and stockholders will be in great hands. To assist with the transition of my responsibilities over to Mike, I will assume the role of Executive Adviser until my retirement on June 30, 2023, and will remain on the Board until the 2023 Annual Meeting of Stockholders. I'm honored to have led Simpson as its CEO over the past decade, and I'm extremely grateful for the opportunity to have helped strengthen our values-based culture and value proposition to our customers over the years. I'd also like to take a moment to recognize all of those who were impacted by Hurricane Ian last month, and to send our deepest condolences to those who have suffered personal losses from this tragic event. It is unfortunate events like these that have inspired Simpson's mission to provide solutions that help people design and build safer, stronger structures. As the affected communities recover and rebuild, we hope to be at the forefront to provide support at the local level as well as to identify product development opportunities to improve building performance. I'll detail more of our involvement in these areas later on in the call. While Hurricane Ian impacted certain of our operations in Florida during the third quarter, I'm pleased to report that none of our employees were injured in the storm and our facilities did not sustain any damage. I'll now turn to an overview of our third quarter financial results as well as an updating you on our capital allocation priorities and key growth initiatives. Brian will then walk you through our financials and update into fiscal 2022 business outlook in a greater detail. Solid operational execution against our strategic plan during the third quarter led to continued strong financial results despite the challenging macroeconomic background. Net sales of $553.7 million increased 39.6% year-over-year, primarily driven by product price increases that we implemented throughout 2021 to offset rising raw material costs as well, as our acquisition of ETANCO, which contributed $67.5 million to our top line. Volume in North America was up over the prior year quarter and was mixed across our distribution panels. Volume in our Home Center channel, which includes both our Home Center and co-op customers and is where we see much of our repair remodel and DIY business increased over the prior year quarter, which as you may recall, was impacted by a releveling of inventory by our customers. Volumes from our contractor distributor customers were down slightly as a result of softer housing starts, which was offset by improving volumes from our dealer distributors. Overall, volumes in Europe benefited from the addition of the ETANCO, which was offset by significantly lower volume in our other European operations, as well as product price increases in response to rising raw material costs resulting from uncertain macroeconomic climate, coupled with the negative effect from a strengthening U.S. dollar. In Europe, third quarter sales totaled $111.9 million, up 104.1% year-over-year. While the environment in Europe remains challenging, as of today, we still believe we are able to secure energy that we need to run our operations, although at a higher cost. Since acquiring ETANCO on April 1, the integration of its operations and employees has been progressing well and on track with our internal plan. To facilitate the process, we developed a project management office comprised of key executives from both Simpson and ETANCO. Also paramount to our success has been blending of the highly complementary corporate cultures of both companies. We believe we remain well positioned to capture meaningful benefits from our previous identified synergies in the years ahead subject to changing macroeconomic circumstances, which we expect will delay some of our synergy opportunities. Our consolidated gross margin for the third quarter was 44.2% compared to 49.9% in the prior year period. ETANCO contributed $19.4 million to our gross profit on its $67.5 million of sales, net of $2.9 million in purchase accounting adjustments, which reduced our third quarter gross margin by approximately 210 basis points. 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 caught up with the price increases we enacted and also partly due to higher factory overhead and labor costs. Brian will further elaborate on the key drivers of our performance as well as our margin expectations for the remainder of the year. I'll now turn to our capital allocation priorities, which are primarily focused on organic growth opportunities while simultaneously returning value to our stockholders through quarterly dividends and selected and opportunistic repurchases of our stock. Our capital return target remains 35% of free cash flow, which will enable us the flexibility to repay the debt we incurred to finance the acquisition of ETANCO. While the integration of ETANCO remains our priority, we are also continuing to evaluate potential M&A opportunities that would align with our value propositions for the markets in which we operate especially in areas that support our key growth initiatives. In regard to organic growth, we are prioritizing facility expansions to ensure we have ample capacity to meet our customer needs as well as to improve our service, production efficiencies and safety in the workplace, while reducing our reliance on certain outsourced finished goods and component products. We are progressing forward with the expansion of our Ohio manufacturing and distribution facility and are continuing to review our footprint for other expansion opportunities to continue to deliver best-in-class customer service. Other key investments into the business will be in the areas of engineering, marketing, sales personnel and testing capabilities across the company to strengthen our business model differentiators and to remain the partner of choice. I'd now like to turn to a discussion on our five end-use markets: residential, commercial, OEM, national retail and Building Technology, which encompass our key growth initiatives. We made solid traction throughout the third quarter in a challenging economic environment. Beginning with the residential market. As I alluded to at the beginning, with adverse weather events like Hurricane Ian, we have been involved in efforts to increase awareness of the importance of building resilience including building beyond building code standards to achieve higher levels of structural integrity. We conducted extensive training, both in person and virtually to educate engineers, homeowners and communities about safe building practices and are involved with many local and regional disaster preparedness organizations as well as SEMA to assist with post-disaster building assessments. We are pleased to be in the position to assist with recovery efforts following Hurricane Ian to help those communities build back stronger. In the OEM space, we made more headway on our mass timber initiatives. Our strategy of training and educating engineers and contractors has resulted in more specifications on new jobs and has led us to broaden our mass timber product line to appeal to customers in both the United States and Europe. For instance, we were specified on mass timber jobs during the third quarter, including for a manufacturer in Austria as well as for the construction of a project near Seattle, Washington. Within national retail space, we've been focused on innovations to best service the R&R and DIY market segment and to be the partner of choice for our customers to elements such as e-commerce technology, associate training, displaying innovations and cross merchandising programs. We're continuing to invest in our retail sales team to expand and build relationships at all levels. In Building Technology, we've focused on creating solutions to help make our customers more efficient. We updated our online customer portal during the quarter to enable online ordering for configurable products versus traditional more time consuming from order methods. Further, we were pleased to have been selected by our regional building supply company in the Southeastern region of the United States, to provide their customers and sales associates with the ability to design decks, and fences using Simpson's full outdoor living solutions software platform where customers can obtain a complete bill of materials for the purchase at the local store. Lastly, our technology platform was adopted by a highly regarded regional builder during the quarter to help them automate workflows, options, automatic pricing management for broad changes and to transition away from inefficient paper processes. As we have mentioned in the past, we anticipate our structural steel initiative will take longer than the other initiatives as we continue to build the market. As part of our progress on this front, we held a customer demo day during the quarter at our Stockton facility centered on this particular initiatives. Through this educational event, we hosted various industry professionals ranging from design engineers to steel fabricators along with Simpson employees from around the country to educate them on our highly engineered and tested structural steel product solutions aimed at converting traditional well connections to bolted connections to improve productivity. In summary, we are extremely pleased with our strong third quarter financial results and continued execution on our strategic plan. Despite factors such as rising interest rates, inflation, labor and supply chain constraints that continue to impact the industry, I believe the company is well positioned to grow and thrive in the years ahead, given the strength of our people, culture and our values as well as our diversified portfolio of solutions for our customers. I am confident we can continue our above-market growth relative to U.S. housing starts in fiscal 2022 and that we can achieve our 2025 Company Ambition even when considering softer market forecast for housing. The integration of ETANCO is going well, and we remain focused on investing in our footprint to support future growth and adherence to our superior customer service standards. Now I'd like to turn the call over to Brian, who will discuss our third quarter financial results and our revised 2022 outlook in greater detail.

Thank you, Karen, and good afternoon, everyone. I'm pleased to discuss our third quarter financial results with you today. Before I begin, I'd like to congratulate Karen on our upcoming retirement as well as Mike on his well-deserved promotion to CEO. It's been a true honor to work alongside Karen for the past 16 years and learned from her vast level of knowledge and experience, having worn many different hats at Simpson. I wish you all the best in your retirement. Now turning to our third quarter results. Unless otherwise stated, all financial measures discussed in my prepared remarks today refer to the third quarter of 2022 and include the results of the acquisition of ETANCO on April 1, 2022, and all comparisons will be year-over-year comparisons versus the third quarter of 2021. Our third quarter consolidated net sales increased 39.6% to $553.7 million. Within the North America segment, net sales increased 29.3% to $437.8 million, primarily due to the price increases we implemented last year, along with higher sales volumes. In Europe, net sales increased 104.1% to $111.9 million, primarily from ETANCO, which contributed $67.5 million in net sales and, to a lesser extent, price increases intended to offset higher material costs abroad. Europe's volumes without ETANCO were down compared to the prior year quarter. In addition, Europe's sales were negatively affected by $7.9 million in foreign currency translation related to Europe's currencies weakening against the United States dollar. Wood Construction products represented 86% of our total third quarter sales, up slightly from 85%, and Concrete Construction products were 14% of total sales, down from 15%. Consolidated gross profit increased 23.5% to $244.5 million, which resulted in a gross margin of 44.2% compared to 49.9%. On a segment basis, our gross margin in North America decreased to 47.5% compared to 52.1%, primarily due to higher raw material, factory and overhead and labor costs, each as a percentage of net sales, which were partially offset by the product price increases we implemented in 2021. Our gross profit dollars in Europe totaled $35.2 million and included $19.4 million from ETANCO, which is net of a $2.9 million nonrecurring fair value adjustment for inventory costs as a result of purchase accounting. This adjustment was a significant factor as to why gross margins declined in Europe to 31.5% from 37.7%. From a product perspective, our third quarter gross margin on Wood products was 44.2% compared to 50.2% in the prior year quarter, and was 43.8% for Concrete products compared to 44.6% in the prior year quarter. Now turning to our third quarter costs and operating expenses. Total operating expenses were $119.9 million, an increase of $22.5 million or approximately 23.1%. Operating expenses included $15.7 million attributable to ETANCO and $1.9 million for integration costs also related to ETANCO. As a percentage of net sales, total operating expenses were 21.7%, an improvement of approximately 290 basis points compared to 24.6%. Our third quarter research and development and engineering expenses increased 17.3% to $17.1 million, primarily due to personnel costs. Selling expenses increased 21.3% to $42.5 million, primarily due to $5.6 million from ETANCO as well as personnel and travel-related expenses. On a segment basis, selling expenses in North America were up 10.1%, and in Europe, they were up 79.3%. General and administrative expenses increased 26.2% to $60.3 million, primarily due to $9.6 million from ETANCO, which includes $4.2 million in amortization of the acquired intangible assets as well as personnel, travel and professional fees for the company overall. As a result, our consolidated income from operations totaled $122.8 million, an increase of 22.1% from $100.6 million due to higher consolidated gross profit partly offset by higher operating expenses. In North America, income from operations increased 27% to $127.3 million, primarily due to higher gross profit given operating expenses were effectively flat. In Europe, income from operations decreased 18.2% to $6.1 million, which includes ETANCO's operating income of $1.8 million net of the $2.9 million nonrecurring fair value inventory adjustment I noted earlier, as well as the aforementioned $4.2 million of amortization expense on acquired intangible assets, and $1.9 million in integration costs for a total of $9 million. As we continue to integrate ETANCO into our European operations, we expect to incur additional costs in 2022 and 2023. Please note that the purchase accounting adjustments are preliminary and subject to change as we finalize our purchase accounting through the remainder of 2022. On a consolidated basis, our operating income margin was 22.2%, a decrease of approximately 320 basis points from 25.4%. I will discuss our updated operating margin outlook for the remainder of fiscal 2022 shortly. Our effective tax rate decreased to 25.3% from 26.1%. Accordingly, net income totaled $88.2 million or $2.06 per fully diluted share compared to $73.8 million or $1.70 per fully diluted share. Now turning to our balance sheet and cash flows. Our balance sheet remained healthy. At September 30, 2022, cash and cash equivalents totaled $309.3 million, up $63.1 million from our balance as of June 30. Our debt totaled approximately $677 million and $200 million remained available for borrowing on our primary line of credit as of September 30, 2022. Our inventory position at September 30 was $540 million, which was flat compared to our balance at June 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 third quarter, we generated cash flow from operations of approximately $120 million. As Karen highlighted earlier, our primary use of cash will remain centered on supporting the growth of our business while simultaneously repaying the debt we incurred to finance the acquisition of ETANCO and returning value to our stockholders through dividends and share repurchases. During the third quarter, we invested approximately $10 million for capital expenditures, paid $11 million in dividends to our stockholders and repurchased approximately 308,500 shares of our common stock at an average price of $91.67 per share for a total of $28 million. As of September 30, 2022, we had approximately $25 million available under our $100 million share repurchase authorization, which remains in effect through the end of 2022. Additionally, on October 21, our Board of Directors declared a quarterly cash dividend of $0.26 per share, which will be payable on January 26, 2023, to stockholders of record on January 5, 2023. Now I'd like to discuss our 2022 financial outlook, which includes the acquisition of ETANCO, three quarters of actual results and our latest expectations regarding demand trends, raw material input costs and operating expenses. Based on business trends and conditions as of today, October 24, our updated guidance for the full year ending December 31, 2022, is as follows. We now expect our operating income margin to be in the range of 20% to 21%, which is more in line with our recent historical average versus our previous estimate of 19% to 21%. The revised guidance is attributable to better visibility on material costs and expected results from ETANCO including approximately $16 million to $18 million in expected integration and transaction costs for the acquisition. Further, we continue to estimate the cumulative top line impact from product price increases we implemented throughout 2021 to be approximately $300 million in 2022 versus 2021. We also expect our cost of goods sold will continue to increase as a percentage of net sales as we work through our on-hand inventory through the balance of 2022. We expect interest expense on the outstanding $250 million revolving credit facility and term loans, which had initial borrowings of $450 million to be approximately $9.8 million including the benefit from interest rate and cross-currency swaps, mitigating substantially all the volatility from changes in interest rates. Our 2022 effective tax rate is now expected to be in the range of 25% to 26%, including both federal and state income taxes and assuming no tax law changes are enacted. Lastly, we now expect capital expenditures to be in the range of $55 million to $65 million compared to our previous estimate of $80 million to $90 million due to extended lead times. In summary, we are pleased with our strong financial results and operational performance during the quarter as we continued to integrate ETANCO and make strides in our key growth initiatives. Our long-term strategy remains intact, and we are dedicated to our strategic plan to be the partner of choice in the industry. With that, I'd like to turn the call over to the operator to begin the Q&A session.

[Operator Instructions] Thank you. Our first question is from Daniel Moore with CJS Securities. Please proceed with your question.

Good afternoon, Karen and Brian. Thanks for taking the questions. Just quickly, wanted to, first off, echo Brian's comments and congratulate you, Karen, on an exceptional career at Simpson and wish you all the best. Your insights will definitely be missed on these calls. Maybe to start with North America -- of course. How much of the roughly 30% growth in North America? Can you give us any more specificity on revenue -- sorry, volume versus price? And just what kind of volume trends you're seeing through the quarter and into Q4?

Sure, Dan. So price, just a little bit less than $60 million. And volume was about 12% as we measure it in pounds ships. So just a little bit shy of 12% on volume and then just under $60 million in price.

And can you -- is it possible to drill down a little bit more, Brian, in terms of what true end market growth looks like versus you had an easy comp last year, obviously, with the inventory fill. So any thoughts or reflections there? And what were the trends as we sort of exited the quarter into Q4?

Call it kind of a mid-single-digit volume growth in the areas that were not associated with the retail. As you noted, that comp was due to Q3 last year being a couple of our large customers pre some inventory rebalancing and the like. Excluding that channel of the mid-single-digit volume growth rate for everything else in North America.

Got it. That's helpful. You reiterated or restated the $300 million benefit from price for the full year. I think we're just about there through Q3 if I remember your comments from last quarter. So are we -- have we lapped most of the benefit of pricing at this point and expect little incremental for Q4? Or are we maybe a little conservative?

No, I think there's a little incremental less than $10 million in Q4. A lot of the price increases we took last year were implemented mid-quarter. So we're almost lapping them now.

Got it. Maybe just one or two more, I'll jump back. ETANCO contributed about $68 million. How does that compare on a year-over-year basis and talk about their volume and pricing trends as well?

Let's see, for ETANCO, they were up about approximately 10% on -- from a -- due to price and volume offsetting that by, say, 3% to 4% approximately and not accounting for any kind of conversion that's in local currency there.

Got it. And then we have FX obviously?

Right.

Okay. And lastly, just a change in the CapEx guide. Is it really supply chain driven? Or is it at all reflective of any changes in the macro?

Just supply chain, just continues to take a long time to source items. And that's a contributor there.

All right. So presumably, some of those maybe spill over into '23 of those projects?

No doubt, yes. And when we provide our 2023 guidance, we'll make sure to note that. We've had that happen in prior years. It's definitely a bigger impact this year rolling into next year.

Perfect. I'll jump back in queue with any follow-ups. Thank you, again.

Thanks Dan.

Thanks Dan.

Thank you. Our next question is from Tim Wojs with Baird. Please proceed with your question.

Hi everybody. Good afternoon, and I'll echo Dan's comments. Congrats Karen, and it's been good working with you. Maybe on the guidance the 20% to 21% EBIT margin, I'm getting that, that implies maybe 10% to 12% type margin in the fourth quarter? And I'm just trying to make sure that my math is kind of right. I know seasonally, it's maybe a little bit of a weaker quarter. And I'm just trying to make sure that I've got my math in a good spot.

Sure. So you're right. From a seasonality perspective, there's that impact and couple that with -- so a couple of things. Our expectations on top line volume would be flat to maybe slightly down. Mix that in with another quarter of ETANCO being slightly less than the -- prior to ETANCO, Simpson business, merging -- combining all that gets us to that guide. And obviously, we didn't take the high end of the guide up, but we brought the low end, that 100 basis points there based on those factors.

Okay. Okay. And then I guess on ETANCO, the $16 million to $18 million of integration costs now, I think it was $20 million to $25 million last quarter. I think you're through most of those onetime costs already. Is that right? And I guess, you flagged some integration costs in '23. I was just wondering if you could maybe size those.

There would be -- so a lot of the -- all the updated guide this year would be for continued integration work, if there are any type of restructuring costs, that would impact that number. And that's largely the driver of that number coming down, not having anything significant likely to hit in 2022. So again, when we provide outlook for next year, to the extent that we've got some more color there, we'll add that in as well.

Okay. And then I guess, what are you hearing from your builder customers in terms of their planning assumptions for next year around, I guess, maybe single-family, multifamily, maybe even kind of the remodeling kind of end markets? And I guess, like, what kind of levers can you pull if we were to see a pretty meaningful decline in single-family starts next year? I mean if revenue is down, say, 10% or more, how would SG&A or gross margins look in that type of scenario?

Yes. Tim, let me give you some input from the builder customers. Certainly, we're seeing single-family decrease like family is still quite strong. And as we've talked about, we've put content in both single-family and multifamily. And for multifamily, it's not so much a geographic location of that structure as it is in single family. So they are definitely seen -- I think we talked about in the second quarter, there were incentives that were being offered, maybe some buy-downs on mortgage rates that were being offered. I think they're kind of sort of through that phase. So clearly, they're seeing that same slowdown that we're seeing in the listed of the housing starts. We are seeing a little bit of a pickup on the repair remodel, the DIY type of business. And then I'll turn it back to Brian as far as some of those levers we could pull.

So as volumes, if we had to scale back volumes in the factory, we'd pull back on over time. We run a lot of overtime today, and that would take that there. We would look at how we're making investments within the factories to the extent that we're looking to gain greater efficiencies. We, of course, want to be the most efficient manufacturer product. We feel it's a competitive advantage to be able to get products to customers really quick. To the extent that we're seeing volumes pull back for an extended period of time, we might not need to add as much capacity CapEx equipment type items or the like. But those would be some of the main levers that we would look at. Of course, if volumes were down, overhead absorption is negatively impacted. That would probably be the primary difference that you would see running through cost of sales. Of course, we've talked about material and how it had gone up significantly. And the market has pulled back a little bit there. That just would take a little bit longer for material to flow through the P&L. But I would say the overhead absorption would be the biggest impact on margin there.

Okay. And I guess, what's your best guess on when most of the higher cost inventory kind of flow through the P&L at this point?

I think we're pretty close to being there.

Okay. That's good. Great. Well good luck on the rest of the year and thanks again, Karen.

Thanks Tim.

Thank you, Tim.

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

Great. Thank you. And good afternoon, everyone. Just starting with gross margin. You talked about the better visibility on cost and that being one of the drivers of the increased operating margin outlook. I guess I'm trying to understand whether you think you've perhaps just overestimated the impact that higher steel prices would ultimately have? Or B, that, that impact has just been deferred longer than you might have thought? Or as your performance over, I guess, the last two quarters, been pretty consistent with your expectations.

I would say that deferral of that would be part of that. Coming into the year, we were expecting greater volumes than what we've been seeing, and that would have used that up quicker. But that and the volumes being slightly less is also contributing to -- than what we would have initially planned. Also contributes to how overhead absorbed is absorbed and the like. That being said, with slightly lower volumes. It's some of those levers that we talked about. So the prior question was around reduction of overtime and the like. So those are all different impacts to how we see the guide in the current quarter and -- or for the year.

Got it. Okay. That makes sense. And just going back to ETANCO, sort of a 2-parter. Is there much seasonality with that business? And then second, as you think of the roughly $70 million of sales this quarter, is that a reasonable run rate for Q4 and early 2023? Or do you feel like you have that visibility there?

A little bit of seasonality there, the Q4 would be a little lighter than what we just experienced. Not much, though from a revenue perspective.

Right. Perfect. And then, I guess, lastly, kind of a bigger picture question around the 2025 objectives. Looking back, I think the outlook kind of assumed operating margins would pull back to the mid-teens and then get back into the high teens toward the latter years or, I guess, the middle part of the decade. I mean, given the pricing that you've pushed through and what the business has done this year kind of absent a material demand shock, do you think that outlook looks fairly conservative at this stage? Or do you feel like with the investments you're still trying to make on kind of the SG&A side with some of these different targeted growth areas, that's still a reasonable framework?

Well, let me just give a general on that, Kurt. We are still very aggressively tracking and working to get to our 2025 ambitions. And as you mentioned, the first one of the first ones was above market growth compared to housing starts. I think you see that we've been able to do that at this point, and that's really a function of our five additional markets that we're really focused on that we talked about. None of those which are associated with housing starts. So we're very confident in the people that we've put in place to go after those market spaces. And I think I'll turn it over to Brian, but that's one of the areas and why we feel very confident what we're going to be able to do as far as that above-market growth.

And a follow-up on that, when we put the that commentary out back in early 2021, that was prior to all the price increases and that leverages on SG&A spend. So although gross margin, call it mid-40s percent on a longer-term basis with the operating expenses being a lower percent of revenue, that would lead us to think that, that operating margin wouldn't necessarily be mid-teens, but it'd be higher teens, assuming no changes in price, either up or down. So it does reset that just a bit there because of the top line contribution relative to the operating expenses.

Right. Okay. That makes sense. Well, great. Thanks again. And Karen and Mike, congrats to you both, and good luck here in Q4, everyone.

Great. Thank you, Kurt.

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

Thanks. Hi, good afternoon, Karen, Brian, and Mike. I guess, starting on ETANCO, how are you guys thinking about these labor strikes in France? Does that impact ETANCO at all? And how does that change the way you're thinking about the integration of runway, synergy targets, et cetera?

Yes. I mean we, at this point have not delivered - strikes in France have not affected our French legacy operation or our ETANCO operation. So we're in pretty good shape on that front. And I don't believe we've heard of any impacts on that for the rest of our business either.

I think just the general uncertainty in Europe that you're seeing there would contribute to a bit of the -- us pushing out when we achieve all those operating margins -- operating income synergies that we talked about, but still feel they're there to be captured.

Okay. Got it. And certainly reassuring at least on the first part of that. Thinking about the repair, remodel side of the business, just what are you guys hearing from the big boxes in regards to the sentiment towards '23? Do they seem to be looking to maybe change how much inventory they're carrying at all? Just any insight you may have on that front.

Well, we haven't really seen sort of a change in the inventory. I mean, traditionally, as you know, Julio, when housing starts tend to go down a little bit, repair remodel tends to go up. We, at this point, are not seeing any really change in inventory status from those customers. So I think there's -- might be a little bit too early at this point to see how that's going to project.

Understood. And on the CapEx front, you mentioned some delays from equipment deliveries. Does that change how you're planning for 2023 CapEx at all? And secondly, any update on the Ohio facility expansion and how that's progressing?

I'll answer the second part first. No real significant movement from last quarter on Ohio. A lot -- a majority of the spend in that was going to be next year anyway. So from the first part of your question, we would look at where we can add either capacity or efficiency improvements within our operations, within our facilities, and we'll continue to evaluate those especially given some of those are key to being able to scale up in our growth initiative areas. So we want to make sure that we're continuing to look at those as we go forward, but it just may accelerate or having a larger CapEx spend next year versus where we thought it would have been three months ago is likely what we're looking at now.

Understood. Thanks for taking the questions. And I'll echo everyone else's comments, Karen, Mike, congratulations again.

Thanks Julio.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.