Greetings, and welcome to the Simpson Manufacturing Co., Inc., First Quarter 2025 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] It is now my pleasure to introduce your host, Kim Orlando with Investor Relations. Thank you, Kim. You may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's first quarter 2025 earnings conference call. Any statements made on this call that are not statements of historical facts 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. On this call, we will also refer to non-GAAP measures such as adjusted EBITDA, which is reconciled to the most comparable GAAP measure of net income in the Company's earnings press release. Please note that the earnings press release was issued today at approximately 4:15 p.m. Eastern Time. The earnings press release is available on the Investor Relations page of the Company's website at ir.simpsonmfg.com. Today's call is being webcast, and a replay will also be available on the Investor Relations page of the Company's website. Now, I would like to turn the conference over to Michael Olosky, Simpson's President and Chief Executive Officer.

Thanks, Kim. Good afternoon, everyone, and thank you for joining today's call. With me today is Matt Dunn, our Chief Financial Officer. Today, my remarks will provide an overview of our first quarter performance and highlights from our end-markets. Matt will then walk you through our financials and fiscal 2025 outlook in greater detail. Now turning to our results. Our net sales of $538.9 million reflected modest growth over the prior year in a highly uncertain macroeconomic environment in both the U.S. and Europe. Over the past 12 months, I'm pleased to report that our volume performance in North America, once again, exceeded U.S. housing starts by approximately 420 basis points. Net sales in North America totaled $420.7 million, up 3.4% from $406.7 million last year. Results included a contribution of roughly $9 million from our 2024 acquisitions and a favorable comparison to prior-year net sales, which were negatively affected by the timing of volume discount estimates. Collectively, these items more than offset a modest decline in our volumes. Absent these factors, North American sales were relatively flat year-over-year. As a reminder, software services and equipment are not included in our volume calculations. Our North American volume results were mixed in the first quarter, though sales to all end-markets continue to demonstrate above market growth on a trailing 12-month basis. In the component manufacturing market, volumes declined slightly versus last year. We saw solid results from our acquisition of Calculated Structure Designs and made progress aligning operations and sales to prepare for the scalability of our broadened digital solutions offering. We continue to execute our digital solutions roadmaps to satisfy key component manufacturing customers and leverage our equipment offering to reach opportunities in this market. This has resulted in the conversion of several small to mid-sized trust manufacturing customers in…

Good afternoon, everyone. Thank you for joining us on our earnings call today. Before I begin, I'd like to mention that, unless otherwise stated, all financial measures discussed in my prepared remarks refer to the first quarter of 2025, and all comparisons will be year-over-year comparisons versus the first quarter of 2024. Now, turning to our results. Our consolidated net sales increased 1.6% year-over-year to $538.9 million. Within the North America segment, net sales increased 3.4% to $420.7 million, which includes approximately $1.5 million in negative foreign currency translation. In Europe, net sales declined 5.1% to $113.9 million, primarily due to the unfavorable effect of approximately $4 million in foreign currency translation. Globally, Wood Construction product sales were up 1.7%, and Concrete Construction product sales were down 1.3%. Consolidated gross profit increased 3.1% to $252 million, resulting in a gross margin of 46.8% compared to 46.1%. On a segment basis, our gross margin in North America was 50%, marginally higher than the 49.3% reported in the prior year, due primarily to the timing of volume discounts adversely affecting net sales and gross profit in the prior year. Without the benefit from the absence of these discounts, gross margins would have been flat. Our gross margin in Europe decreased to 35.2% from 36.5%, primarily due to higher factory and overhead as well as labor and warehouse costs, which were partly offset by lower material costs, all as a percentage of net sales. From a product perspective, our first quarter gross margin was relatively flat at 46% for Wood products and was 49.5% for Concrete products compared to 46.5%. Now turning to expenses. Total Q1 operating expenses were $149.7 million, an increase of 2.1%, primarily due to higher personnel costs and variable compensation. As a percentage of net sales, Q1 2025 operating…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Good afternoon, Mike and Matt. Thanks for taking the questions as always. Maybe just start with the outlook, I think, obviously, the guidance is unchanged. How is all the tariff noise and related impact to consumer confidence impacted, I guess, either the range or your outlook in general for US housing starts? I know you mentioned unchanged a couple of times. Is it just more a function of maybe the visibility has changed a bit or relative likelihood of kind of the top, bottom end of the range? Just how are you thinking about housing relative to maybe 60 days ago?

Yes. Good question, Dan. So we're obviously talking with our customers, getting a lot of info from them, and then we're spending a lot of time with the people that are building market forecasts, and you still got a lot of different mixed views. I think consistently everybody believes first half is going to be a little bit softer than the second half, with the hopes that things pick up, and I think the big driver that we keep hearing from our customers is maybe the possibility of increased interest rate cuts. So when you add it all up, when we came into the year, we were thinking low-single-digits. We put in there now our estimates flat to low-single digits is kind of how we're thinking about it from a market perspective. Matt, do you want to talk about how that impacts our guidance?

Yes. So in terms of our guidance, Dan, we still feel comfortable with the outlook that we provided in Q1. Looking at the latest forecast outlook, flat to maybe slightly up, as we said from a market perspective, but we still feel we can be in that rang and obviously, the pricing impact that we announced gives us some flexibility that we didn't have visibility of where that was going to be when we gave guidance before. So still feel very confident in the range and the middle of the fairway, so to speak.

That's really helpful. And then I appreciate all the color on the price increases. I'm just wondering, what feedback you've gotten at this point, just given the general macro uncertainty, any more pushback than usual? I guess I'm thinking particularly from big box retailers, or you've always had been able to push through when needed. So just to see if there's any change there in terms of the tone of conversations with customers.

Yes. I mean, Dan, we tried very hard to have a fair price for our products. As you know, we're typically -- that's 1% of the billable material of the house. We like to think we add a lot of value in service and support through our engineering teams, our innovation teams, our sales teams out in the field, and everything we do to provide great service in the -- out in the field. So we're working hard to make sure that our customers understand the value that we bring, and we're doing our best to try to offset as much of these costs as we can, so that we've got a reasonable premium that allows us to invest back into the business to better support our customers.

And I would add, Dan, this is Matt. In terms of our price increase, as we mentioned, we've seen our cost inputs going up over the last couple of years and then obviously, with the recent tariff announcements, but I think just to be clear, we're not passing through the full dollar impact of the tariff because we recognize market conditions, the affordability challenges, some of our competitors in terms of where they source from. And so, I've been very thoughtful in where we've adjusted the prices and have not passed fully through the tariff impact. Obviously, we'll see where that all nets out after negotiations on tariffs with the governments that are involved. But just being very thoughtful of where we take those price increases, because we do need to offset the costs have gone up over the last several years, including the tariff impacts most recently.

It certainly makes sense. You mentioned a couple of things. You potentially freezing capital investments until housing improves. I assume that's a -- obviously post the Gallatin and Tennessee projects, or should say the Ohio and Tennessee projects, which are already underway. Any other kind of steps to mitigate potential tariffs or exposure that you're contemplating beyond the pricing that you described?

Yes. If you look at our single biggest investment, the Gallatin facility, so that certainly is going to help us strike a better balance of locally produced fasteners and eventually some anchors compared to where we are today. So there's some work that we're trying to do there. We're trying to accelerate some equipment that we put in that facility. We also had the option of maybe importing some products from Europe. But I think the thing that we want to do, Dan, is we're picking mid and long-term on this story as well as trying to balance the short-term costs because we don't want to make a bunch of changes and just have everything undue and then maybe the business case doesn't work out as well as we had hoped originally. So we're looking at all kinds of options and doing everything we can to manage both the short-term and the long-term.

Perfect. And last for me, and I'll jump back in queue. But just given the strength of the balance sheet and the pullback in share price, obviously, you were active in Q1. Any changes in terms of the relative order of capital allocation? And how aggressively are you likely to be buying back stock versus maybe looking at M&A, and at least in the near term? Thanks again.

Yes, Dan, we were active in the first quarter. We bought back $25 million against our $100 million authorization for 2025, so $75 million left. So we continue to be desiring to return capital to shareholders via share repurchase. I think you'll see us kind of stay the course like we've been on the last two years. I don't know that we would jump into any significant opportunistic repurchase versus what we've already sort of announced as part of the authorization. So…

Perfect. I'll jump back with any follow-ups. Thanks again.

Thanks, Dan.

Thank you. Our next question comes from the line of Tim Wojs with Baird. Please proceed with your question.

Hey, guys. Good afternoon. Nice job. Maybe just for -- what is the annualized tariff impact that you guys have to absorb without any sort of mitigation?

Yes. So, Tim, when we look at the business, we import a relatively small percentage of the cost of goods from Asia. So we're not releasing the -- we are not releasing the exact number. When we look at the price increase that we talked about, it's a weighted average 8%. So that helps us basically manage all the cost increases we've seen over the last three-plus years in pretty much everything but steel. Now we see steel going up. And then that also helps us offset part of the tariff. So just to be clear, we are not passing through all of the tariff-related costs to our customers. But bigger -- big picture, it's a relatively small percentage of the goods that we sell today come from Europe -- come from Asia -- sorry, come from Asia.

Okay. Okay. Got you. That's helpful. And then I guess, just when you're thinking about the kind of price -- so just I want to make sure I kind of understand this. So all of the costs outside of tariffs were kind of included in the original guide, and now we kind of have pricing layered in. So obviously, you have tariffs, it sounds like it's not a big portion of the number. But all of the costs that you guys had incurred in terms of inflation and things like that, that was largely in the guidance range before, right?

Yes. I'd say you kind of have three factors maybe, Tim. You have that the costs were already in the guidance, the pricing was not. We've announced the pricing. The tariffs weren't in the guidance. We're offsetting part of that with the pricing and then we also, you know when we gave our original guidance, we gave the range and we sort of clarified high-end of the range based on low single-digit housing starts in the market, middle of the range would be flattish and then lower-end of the range would be if we saw a decline. I think, we -- sitting where we are today in terms of the housing starts, we -- first quarter a little bit soft in terms of the market. We believe there's upside in the back half and we can get to -- still get to low-single-digits of housing starts market environment, and we hear that from the customers that we talked to and various forecasters are all over the board a little bit. We still think it's possible. But we've softened that a little bit in terms of flat to slightly up US housing starts. But yes, that was all -- essentially everything was baked into the guide except for the pricing and the tariffs. So…

Okay. Okay. Got you. And then just that the gain that you have coming through with Gallatin, is that going to hit in a specific quarter? I just want to make sure that, if that's kind of running through the P&L that we get the modeling right on that.

Yes. It should hit in the third quarter, Tim.

Okay. Okay. Got you. All right. I'll hop back in queue. Thanks a lot, guys.

Thanks, Tim.

Thank you. Our next question comes from the line of Kurt Yinger with D.A. Davidson. Please proceed with your question.

Great. Thanks and good afternoon, everyone. I just wanted to start off on the demand side. I was hoping you could talk about kind of the seasonal progression of volumes, maybe moving into March, and what you've seen here in early April, as well as, how consistent that is with kind of what you would expect normally with seasonality, and maybe on a year-over-year basis as well.

Yes. Good question, Kurt. So as you know, pre-COVID, there was a fairly significant difference in seasonality between the second, third quarter, and the first and the fourth. During the COVID times, that kind of evened out a little bit, and now we're trending back towards that more traditional seasonality split. I think if we look at it this year and actually the second half of last year and into this year, we're still not seeing big trends one way or another. October last year was a pretty good month for us, November, December wasn't, January and February were not particularly good months. March was okay. On April, let's see on how that plays out. So we're not seeing any consistent pickup in the business yet. We do believe that's going to come going forward.

Yes. And then a year-over-year perspective, Kurt. Last year Q1, our volume was up, I believe, 8%. This year, Q1 volume is down slightly. So we definitely had a tough comparison period from a volume standpoint a year ago. And as you know, last year, the rest of the year got a little bit softer both in the market and obviously on our volume. But to be pretty close to flat on volume in this Q1 compared to Q1 a year ago with what Mike described, which is -- what January and February were a little soft, there definitely was some kind of weird weather and things in terms of snow in Southeast and not being a leap year, one less shipping day, all those things. But overall, a pretty solid volume quarter against a pretty tough comparison, and then as Mike said, seasonally, generally, Q1 is maybe a little bit lower than kind of the core two quarters, Q2, Q3.

Right. Okay. That's helpful. And then just going back to gross margin…

Kurt, usually it's 22, 28, 28, 22 is typically.

Percentage of our year.

Yes, if you look at the year.

Right. Okay. That's helpful. Going back to gross margin, in Q2, obviously, you only get pricing benefits for part of the quarter. Typically, we see some seasonal uplift, which is beneficial there as well. I guess as we get into the back half and think about some of these additional costs, and inventory starting to roll through, I guess, how would you have us think about kind of the trajectory of gross margins, Q3 to Q4, and maybe even kind of a jumping off point into early next year, all considered.

Yes. There's lots of moving parts. Obviously, Kurt, you're right, the pricing will kick in June. So we'll get a little bit of a slight bump for one month in Q2 to offset some of the costs that are already coming in. We're already receiving containers of tariff goods or tariff burden goods already in April, so that the costs are starting to roll in. I think we get a little bit of leverage, if you will, from a volume standpoint in those higher volume quarters, Q2 and Q3. But I think overall for the year, we're expecting our gross margin to be essentially flat, right? We're trying to maintain our gross margin. So while we're taking -- while some of the costs were baked in terms of the things that have gone up over the last few years, we're not pricing on dollar-for-dollar on tariffs. So I think our goal would be to keep our gross margin relatively flat versus year ago for the whole year. We had a weird comparison in Q1. Obviously, we talked about some of the timing of volume discounts that were negatively impacted Q1 year ago. That's why the gross margin shows a more favorable in Q1 this year than it really would be on an adjusted basis. So…

Okay. And maybe just a point of clarification to make sure I understand it right. When you're talking about not fully offsetting the additional tariff increases, that conversation would also kind of incorporate the other cost inflation the last couple of years, right? If we were just to kind of isolate that weighted average 8% increase, that itself would offset the tariffs? Or am I maybe misunderstanding that?

Yes. So we've got a tariff impact, Kurt. We have impact from increasing costs that we've seen over the last three years. We've got productivity that we're trying to drive. We've got additional investments into the business in terms of the factories you talked about, but also additional warehouses to provide even better support to our customers. Add all that up, the target, as Matt said, is to keep gross margins flat, and ultimately, the target here is to be that 20% operating income driving solid above US housing starts volume growth.

Okay. All right. Just last one, you talked about some small and medium-sized kind of conversions in the component manufacturer space. I think you alluded to some expanded shelf space in the national retail side. Any way you can kind of roughly maybe size those opportunities as we look out over the next kind of 12 to 18 months?

Well, that, at the end of the day, is what helping us drive that 420 basis points above US housing starts, Kurt. And you've -- I think you've heard me say this before, it's typically a lot of singles and doubles using a baseball analogy, and that's what's been able to drive that above-market growth.

Okay. Thank you very much.

Thanks, Kurt.

Thanks, Kurt.

Thank you. And we have reached the end of the question-and-answer session. And this also concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.