Simpson Manufacturing Co., Inc. Aktie

Thank you so much, everybody. My name is Sam Reid, lead homebuilding, building products and distributor analyst here at Wells Fargo. I'm joined here by the Simpson Manufacturing team, Mike Olosky, on the CEO side; and Matt Dunn, on the CFO side. We're very happy for these gentlemen to join us today.

We're going to start off probably with a quick slide presentation, and then we're going to dive into fireside Q&A. And then I'll leave an opportunity at the end for anybody in the audience who wants to ask questions.

So anyway, gentlemen, how about let's get started, and I believe we can kick off with the slides.

Super. Sam, thanks for having us. So I'm going to do a -- Matt and I are going to do a 30,000-foot, kind of high-level company overview, handful of slides. So let me start with the big picture. So Simpson Strong-Tie, we are a leading provider of structural solutions to the building and construction industry. Our products are typically less than 1% of the bill of material, but critical to the structural integrity of the building that they go into. We believe we've got the broadest and deepest product line. We've got the broadest and deepest product line in the industry, making us really a one-stop shop for structural solutions.

So we've got 6 different product lines up there, but at a high level, really, we're talking about 3 main product lines. The first one is connectors. So these are highly engineered, thoroughly tested stamped steel components that connect pieces of wood. Our founder developed this industry 70 years ago, and we believe we've got a leading position in this share -- this space with approximately 75% market share.

The second major product line for us is fasteners. It's roughly a $500 million business. These are patented, highly engineered, again, thoroughly tested products. We've got roughly 180 patents on our products. We've got 8 code reports covering 30 different product lines. These products have -- they're differentiated. They perform better than the others in the peer, and that's our fastener product line.

And then the next are mechanical anchors and adhesive anchors. So these are typically very large fasteners, very large screws, heavy-duty products that connect wood to concrete would be a good example. So think of wall panelists being built, you got to attach that to the concrete and our mechanical anchors will be a good way to do that. But the red thread in that whole thing are structural solutions that result in safer, stronger structures.

So we go to market with 5 market-facing sales teams in North America and North America business is roughly 75% of the total business. So our first market segment is the residential segment, and we think roughly 50% of the total business is linked to U.S. housing starts. So this will be single-family and multifamily homes. Also kind of targeting that residential space is our component manufacturing business. So this is predominantly selling to component people that make truss systems, wall panels and roof systems. So the component manufacturing is a good business opportunity for us and one of our best opportunities going forward. Both of those market segments directly linked to single-family and multifamily.

The next one is commercial manufacturing, so commercial construction. So this would be really an extension of our current products into primarily stick-built commercial applications. So think retail space, think hotels, think gas stations, think dorm rooms. So really an extension of our Wood Connection business into the commercial construction space. And then national retail is a further extension of that product line really into the DIY space and the pros that you hear about with Home Depot and Lowe's. Similar product line, we're selling fasteners and connectors and anchors into that national retail space.

And then the OEM space for us is relatively new one of our faster-growing segments. These are areas where we tend to go direct to the customers, and it's things that are built in a factory. That could be a tiny shed, that could be tiny homes, that could be packaging, that could be kitting systems for racking systems that go into big warehouses. But it's a relatively small business for us today, been fast growing, things that are built in a factory. So 3 major product lines, broadest, deepest product line in the industry, 5 major market segments.

But the piece that I think really differentiates us is our Strong business model. So we take that very broad and deep product line, and we work a lot with building code officials. And we talk with them how to build -- write code that results in safer, stronger structures. And we have all kinds of perfect examples of that in Florida. If you look at neighborhoods that are built to the newer codes when the last hurricane went through and you compare those newer neighborhoods built to the newer codes to the older neighborhoods, most of those newer neighborhoods came through in great shape, a little bit of landscaping damage, while neighborhoods built to the older codes had significant structural damage. So lots of examples of how those codes really make a big impact.

But we also do continuing education credits for the building code officials. We're training them on a regular basis. We're walking job sites with them. We're doing a lot to make sure that the homes are constructed in the right way to meet the codes. Then we take that solution set and our knowledge of the building codes to architects and engineers and talk to them how to design single-family, multifamily construction to meet those building codes. We also talk with them about how to use our solutions to have these great indoor/outdoor areas or these big 3, 4 car garages where in hurricane areas or seismic areas, the structural integrity of those buildings are kind of complicated and you need pretty complex structural solutions to make sure those buildings meet the codes.

But that work that we do with the building code officials and that work that we do with the engineers and architects means that when the blueprints come out for that particular building, our names are -- our products are all over. We are very much a specified business, and that creates a lot of demand for our product.

Next, we work with the builders, and we -- I believe we're working with -- we're pretty much on every start would be my bet. But we're working a lot with the very large builders, especially the national builders, and we have rebate programs with them where we pay them a rebate and they make sure that our products, specifically our connectors are used in their housing starts. And we have agreements with roughly 250 builders representing roughly 50% of the housing starts where they're telling the supply chain, hey, we only want Simpson connectors. So what that does is that pulls through that demand that's created by the building codes and the specs.

And by the way, we're doing a lot of other work with those builders for value engineering and other things to help them with the challenges. We have a good relationship with them as well. But that pulls that demand through. So then we work with the -- our channel partners in the middle, the contractor distributors, the pro dealers, the lumber yards. They know that we're creating demand. They know we're pulling the demand through. They don't have to carry that big broad product line because we have fantastic service and delivery to them. If they place an order in the morning, the vast majority of the time, we ship it out that afternoon, they get it the next day. And we believe we can reach roughly 95% of our ship to locations within 1 day.

And then over the top of that business model, we layer a lot of digital services and solutions that just make it easier for our customers to figure out which product they need, how to engineer it, all the data, maybe design a custom-fabrication of a part for a unique connection and in some cases, even use our digital solutions to run part of their businesses. But that creates a very, very sticky business model that makes us a leader in structural solutions. And that has really helped us develop the business over time.

Yes. And I'll hit this slide really quickly. This is just our progress in the last 5 years. So starting in 2020, ending in 2025, you can kind of see on the bottom there, basically the same level of housing starts in 2020 as it was in 2025, just under 1.4 million housing starts. In that time period, Simpson added roughly $1 billion in revenue to the top line and a couple of hundred million dollars roughly of operating income of that $1 billion top line. We're up a little over $0.5 billion of pricing, some of that early in the time period, but also about $60 million of that in 2025.

We did acquire a business in Europe called ETANCO, which basically tripled the size of our European business in 2022. And then we had about $200 million of volume or share gains. So this is something we like to aspire to, which is continue to outperform the market on a volume basis. We've averaged about 300 basis points a year over the last 10 years versus the market. And that kind of got us to where we are today.

So we'll stop there, and I'll let Sam take it away from here.

Absolutely, guys. No, really helpful context. Let's dive in and talk a little macro here for a second. You guys sit in the thick of things servicing the homebuilders. Would just love your perspective on what you're seeing on the ground at a very high level. And then any perspective you might have on forward start expectations?

Yes. Good question. So as you know, Sam, super mixed environment. And it looks like 5 years in a row, we came into the year thinking it was going to be at least flat, hopefully, with a single-digit growth. I think our budgeting and planning assumptions as part of our guidance at the beginning of the year was roughly a flat to slightly up market.

With an incredibly diverse customer base, we use local market forecasters. Zonda is our partner of choice because they can give us really granular level of detail to help us better understand the market. We're also interacting with all the major forecasts on the major builders. Add all that up, it looks like this year is probably going to be 5 years in a row of a declining market. We think it's going to be based off the forecast we're getting a low single-digit down.

It's a mixed story. So Midwest, Northeast tend to do a little bit better. West Coast, Florida tend to do a little worse. I would say the Southeast, a little less worse. So maybe starting to bottom out. We also see some pockets where multifamily is starting to pick up. The multifamily project backlog in Southern California, which is an important area for us, a lot of content there. We've seen that project backlog build, and we've heard that from a lot of our customers. We have not seen that flow through yet. So we're a little bit optimistic here.

So in the meantime, Sam, the story for us is really focused on the things we can control, and that's trying to drive volume by making the market bigger, getting more content on houses, new products, new applications, trying to find pockets of growth and leverage those pockets going forward.

Absolutely. A lot of head fakes over the last few years for sure. You have a lot of visibility into the space, just given that you service both the production builders and the custom homebuilders. Maybe just talk through kind of some of the differences you're seeing across those 2 builder cohorts.

Yes. So if you separate the 2, and just fun fact, the median number of homes -- the medium home size builder, homebuilder produces 6 homes a year. So you think single-family homes is, call it, 1 million. So you've got the larger production ones driving 40%, 50% of the market, and you have a huge, huge tail, big tail. So the production guys and the large publicly traded builders have been able to use their balance sheet and a little bit their P&L to help subsidize loans. There's mixed stories there. You have lots of examples of the bigger builders offering loans in the 4-ish percent range and really not seeing an increase in traffic. So their view is it's more of a consumer sentiment, consumer confidence story.

You have the smaller builders that are probably, on average, building bigger homes because there you get in the custom areas. They've got a little bit of a different story, but just trying to aggregate that across so many different markets, also kind of complicated. But the fact that the smaller builders that don't have the P&L and don't have the balance sheet to subsidize just created some challenges for them. So a lot of the ones that were maybe doing the smaller homes that were a little bit more price sensitive, they've either stepped out or instead of building 3 or 4, maybe doing 1 or maybe even moving more into the home improvement area. So again, kind of a mixed story across the board.

Absolutely. And when you think about those smaller builders that might be having a tough time in this environment, kind of walk through the role you play in terms of making their jobs easier.

We do a lot of work trying to help our builders build safer, stronger structures more efficiently. So we have all kinds of training programs on how to use the right product for the right application. We've got programs that can help them lower installed cost. There's a lot of work we're doing there. We are working with their engineers and explaining how our products can help them build better structures. We're also working on the digital solutions to help them do their jobs easier.

Matt, do you want to talk maybe a little bit about our digital solutions?

Yes, sure. We've got digital solutions in the component manufacturing space, which I'm sure you'll ask some questions on later maybe. But -- and then we've also got a number of digital tools that we have that really help our customers select the right products. So we have, like, a fastener selector tool out of the thousands of fasteners, what's the right fasteners you can use in the right application. We've got tools that help our customers with estimating. So we provide software and in some cases, sell software to lumber yards to help them make better, more accurate, more timely estimates, which is a key part of what they do in the lumber yard.

We've got other tools that kind of help them design -- builders design and manage options on a home in a simpler way rather than having huge, exploding CAD files. So just a number of ways where we try to make it easier for them to find the right product, be efficient in the work that they do and then ultimately try to make our business model sticky.

One of the phenomenons we've seen in homebuilding over the last few years is this concept of decontenting, and it's an area where some product manufacturers have struggled. Some have done quite well in terms of navigating through it. Just maybe walk through how you approach builder decontenting, how you perhaps are less vulnerable to it? I just love your perspective on that.

Yes. So if you're in a hurricane-prone area, are you going to want less structural connections on your house?

Absolutely...

Probably not. So the reality is there's a code, and there are a lot of people that build code plus just to make sure that the house is even stronger in those areas. So I wouldn't say never. But for the most part, a lot of our products are dictated either by a design where you've got big openings and there's some structural challenges associated with that or the building code as a whole. That being said, we do, do a lot of work doing value engineering with our customers, trying to figure out how to set it up and construct it the most efficient way, how to use the right products, how to use products that are faster to install.

And one example of that is our acquisition strategy has been kind of a tuck-in story. We acquired a company about 2 years ago called EasyFrame. And EasyFrame is a saw system that enables lumber yards to provide cut packages to builders. So everybody is trying to solve the affordability area. Everybody is trying to get more efficient. There's some labor pockets issues out there. So anything you can do to speed things up is a good thing. So our EasyFrame saw can take that -- say we do an estimate for a house, can take that design of the wall panel. We can send that file to the EasyFrame saw and it will optimize the cutting of the timber to minimize waste, and then it will also print directions on that timber to facilitate faster assembly of it.

So instead of doing all of that on the job site, that cut package comes delivered, it's dropped down in that particular area of the house. People that are used to these systems and they know how to do it, we believe they can save roughly 1 day a week. So a nice 20% savings. That can kind of help speed things up. And instead of taking more content out to have a less safe house, there are other things that we're doing to really try to address the affordability story.

Absolutely. And you play in a lot of different categories, and we're going to talk through some of those categories in a little bit. What I wanted to drill down on was your TAM. Just roughly give me a sense as to kind of how large the market is and then perhaps talk through some of the competitive dynamics within that market.

Yes, I can take that one. I mean we kind of have 3 different TAMs based on the 3 product segments that Mike talked about. The first would be connectors. And if you take like the big picture TAM of connectors, it's roughly $3.5 billion. And that kind of breaks down into 3 kind of submarkets. The first would be, I'd say, traditional connectors, which is the category that our founder invented 70 years ago this year. These are stamped steel products that are part of the structural integrity of the home. That market is about $1.5 billion. And I would estimate we're 80-ish share, maybe 80-plus share of that market.

The second biggest submarket in that connector TAM would be component manufacturing or truss plates, which is also roughly about $1.5 billion market. There's some larger players in there. We're probably #3 in that space today, and we're less than a 10% share, although we know the customers in that space because we interact with them and sell them connectors, fasteners and anchors already. And then the remaining piece of that TAM in connectors would be primarily lateral systems, so sheer walls, kind of big prefab walls that go into structures, particularly around big openings, garages, things like that. That market segment, call it, roughly $0.5 billion.

The second TAM would be fasteners. So big picture, the fastener market is probably $6 billion. If you kind of segment that into kind of more premium load-rated structural kind of often specified fasteners. That's probably half the market at the upper end. And then you have the other half of the market that's a little bit more kind of homeowner/less structural, more commodity-type fasteners. We play in the top space. We've got about a $0.5 billion business in fasteners. So kind of roughly probably at 20% of the upper half of the share, maybe at 10% if you look at the whole TAM.

And then on -- and there's more competitors in that space. You have some other players that are in the fastener space. And then on anchors, again, we're probably in that 10%, 15% share range. We compete in 2 main categories, which would be mechanical anchors, so kind of threaded rods that anchor things to concrete and then adhesive anchors, kind of 2-part epoxies and things that are -- you drill a hole and put the adhesive in there to anchor something in. So certainly more share development opportunities in anchors, fasteners and component manufacturing and then obviously, a large share in the connector space.

And then when I think about what I hear from some of my production builders, they are very cost sensitive. Just talk through how those conversations work with some of your larger builder customers and how you get paid for lack of a better term.

Yes. Really, it's a value story. So we come back to what I talked about in the very beginning, we're less than 1% of the bill of material critical is structural integrity. We provide, we believe, fantastic service and support. We do a lot of value engineering. We're doing things like the EasyFrame saw to try to drive down cost. So we're really just trying to have a long-term partner approach to them and make sure that they know how we're helping them red tag jobs, train their framers and do all kinds of the small things that help add value to our overall product lines . So the affordability story is a challenge. So the pricing discussion around that is not easy, but we're sticking to the value story.

And talk through your role in off-site construction. It's become quite topical. Obviously, a lot of investors are interested in it just in terms of, hey, what could it do to revolutionize homebuilding? So just talk through your role in off-site.

Yes. I think we're on the fifth iteration of this, Sam, maybe sixth, seventh, somewhere in there. So the industry has tried multiple versions of this. And the whole idea is instead of building everything on a job site, can you build in a factory? If you build in a factory, can you be more efficient on it? And over the last 2 decades, there's been multiple versions that have tried that haven't quite panned out yet. We are doing some work with a start-up where we're working on multi-trade wall panels. So we think that could be a little bit of a unique twist on it.

The pitch here for the most part is a cycle time reduction because there's some critical mass challenges. You can't put factories everywhere. So part of the thing we like about the start-up that we're working with, called [ Tectum ] is that they leverage pro dealers' current wall panel manufacturing, and they're trying to embed multi-trade panels into it. And we've seen some nice stories where we can really reduce cycle time.

I think that's still some development work. We're running some pilot with some different customers. We're feeling good about the pilot. Again, some work to do to get that critical mass to really drive the cost down currently, definitely a cycle time reduction, and we're working with the builders to figure out the best way to help them out.

And then you obviously have a lateral system business where you are for lack of a better term, solving for natural disasters, whether it be wind, earthquakes, et cetera. Maybe just talk through some of the technologies that you've introduced to the category and the role you play in sort of making homes more safer.

Yes. Okay. So first of all, we have some pretty large, accredited labs that can do not only individual component system but full system testing. As an example, in our Northern California lab, we have the ability to construct basically a 2-story wall system and shake it 100 different ways from Sunday and see how that whole system performs. And then we can also do testing on individual components. And so that gives us a couple of different insights. It gives us the ability to how does that individual product perform in that particular unique application, but also helps us kind of think through how does that work in the whole system.

For mass timber, which is a new construction method using big, large wood cassettes, we ran a program in Southern California. I cannot remember the name in the university. We constructed, I believe, was a 10-story building, all mass timber. So basically a 10-story wood construction building of these big wood cassettes. We put all kinds of different connectors in there. We put all kinds of different sensors and cameras to just help us get a feel for it, shook that 100 different ways from Sunday, got all kinds of data on it. And all of that data on a component level and on a system level just helps us really provide what I truly believe is the industry's most trusted set of structural solutions.

And that's just not for the connectors, that's the fasteners, anchors and lateral systems. In the lateral system technology in general, so if you have a very skinny part of a structure, followed by a very large opening, if that incurs a seismic event or a wind event, where there's some lateral side-to-side movement, that's a pretty challenging structural situation. So our latest products that we're launching in the Strong-Wall space have even higher loads. We think they're even easier to install. There are some things that we can do to help our customers install them faster.

And again, we expect the load ratings to go up. So it's one of hundreds and hundreds of examples of where we're doing deep engineering work to help our customers understand the structural part related to the building codes and how to meet things that not only meet those codes but exceed those codes and keep people safe in the house.

Absolutely. And I feel like we're touching on this a little bit, but just talk through your commercial end market exposure in a bit more detail. We've talked a lot about resi, but I know you play in multiple different end markets. So let's talk a little bit about your commercial and where you play there.

Sure. For us, commercial, our commercial business is predominantly stick-frame commercial, so things built with wood. So this would be kind of lower rise, retail, hotels, dorms, restaurants, those types of things. So typically, the products that are used in those are the same products that are used in the residential space. They just have a different end market, go through different channels. We also have some products in the commercial space that are different than that, where you often find our anchors in a commercial building.

So this is where they've got a foundation, a concrete slab, something needs to be anchored to it, whether it be racks in a warehouse that get anchored into concrete or something gets pre-embedded in the concrete when it's poured to be able to anchor to it later. So lots of anchors. We have different types of fasteners that can work on cold-formed steel. So cold-formed steel would be kind of steel studs that are used to build a building. There's different types of connectors that can be used in that.

Similar products to what we use in resi space, but different application. And then we've got a couple of other unique items in commercial that we're excited about. One is an acquisition we did, I guess, 18 months or so ago called QuickFrames. QuickFrame is basically a prefabricated bolted solution for when you have to put something on the roof of a commercial building. So think like an HVAC unit that goes on the roof. Today, if you're not using a QuickFrame, you've got someone cutting a hole in the roof, you're doing some welding to create some support. QuickFrames makes it much easier and much more flexible to create that opening and then support that.

So we don't have a ton of exposure to -- we not much at all to data centers, occasional fastener, anchors maybe. We believe QuickFrames has the potential to make that easier, maybe even potentially when data centers are running MEP kind of corridors through the middle of the building that need structural reinforcement. So it's a fairly recent acquisition, but one we're pretty excited about.

I preempted the D word question. So -- but no, glad you did. Let's maybe talk through some of your recent capital investments. I know you've opened up a few facilities over the last few years. Would just love to hear kind of what those facilities do and maybe talk through how they make your business more efficient.

Sure. Yes. So we were in a period of a couple of years of pretty heavy CapEx. We had 2 pretty significant expansions going on. One was in Gallatin, Tennessee, which is a fastener facility, and then we expanded our facility in Columbus, Ohio.

I'll talk Columbus first. Columbus, Ohio is kind of our main manufacturing and distribution hub for what we would consider kind of the Midwest and the Northeast United States. So a lot of the national retail home centers. And basically, we were out of space there. We were using outside warehouses around Columbus. We had the opportunity to acquire the property next to us and basically sort of doubled the size of our facility, got all of our warehouses back under one roof, and we have future runway to add additional production equipment as volume dictates. So for me, that's a little bit longer of a story. There's definitely a savings of getting back into kind of one space from an efficiency and synergy standpoint as well as getting out of some of those leases, but certainly gives us room to run over the next decade plus.

Gallatin is a little bit different of the story. We had a factory in Gallatin, Tennessee, which is suburban Nashville that made fasteners. That facility was out of space. We weren't able to do a lot of -- all the steps of the process that we wanted to do in that space. We had to leverage some third-party vendors. So we greenfielded a site across town in Gallatin, which opened late last fall, officially opened in January. In that facility, we make fasteners. So it's the only fastener plant in the United States where we make fasteners. The rest of our fasteners come from Taiwan, which is pretty much the fastener capital of the world.

Previous to this facility, we made about 1/3 of the fasteners we sell in Gallatin and imported about 2/3 from Taiwan. That mix is going to shift more 50-50 U.S. versus Taiwan. This facility also gives us the opportunity to do all the steps of the process of making a fastener. So not only forming the fastener from the wire, but heat treating it and coating it, which is a process we used to have to send out. We're able to do that inside, so kind of vertically integrated there. And then also gives us the opportunity to improve lead times, particularly in some segments where you need a little bit quicker lead time on I think mass timber jobs you're making some pretty heavy-duty custom type fasteners.

We used to buy those from Taiwan, which had a 9-, 10-, 11-month lead time and being able to make them in Gallatin is more like a 5- or 6-month lead time, which gives us the opportunity to quote more jobs than we were before because of lead times. So again, I think expansion, room to grow over time. We talked about in our Q1 release, a little bit of start-up pain on heat treating and coating, which is kind of the first time we've done that in-house, but we'll work through that. And ultimately, we think this has a long way of growth for supporting fastener business in the U.S.

Maybe sticking on the theme of growth. You've added some categories to your mix over the last few years. Let's maybe talk through some areas where you think you could see some growth in the future or perhaps some holes in the portfolio that you'd like to fill?

Good question. So when -- first of all, we are in a very specialized, very decentralized industry. So the way we run the business is by market and product playbook. So the 5 market segments that we talked about, we've got very specific plans on customers we want to go after, products we want to develop, merchandising changes we want to make, packaging changes, just everything specific to that market segment. We also have it on the product side. So there's an interaction of how those 2 relate.

So when we add all that up, we're always looking for tuck-in opportunities. We're always looking to how we can extend and our product lines. If you take a look at where it kind of lines up to some of the bigger opportunities, we think the component manufacturing story is a good story for us. Current customers, they know us. We've got a good product there -- a good solution there from a software perspective that we're making a lot better. So we think there's some opportunity there from an innovation perspective, just ramping up our innovation machine, getting better at running out these products that help us extend our product lines, there's some work there.

Sam, to give you a very specific example, when we look at some pockets of areas where we think we could get some good growth, and there's a little bit of a tailwind. We think all things backyard is a good story because people don't need to move and switch mortgages. They don't need to maybe do a huge project and tap into home equity loan at a high interest rate. And we've got solutions that help people build decks and pergolas and fences, and we continue to add to that product line. So we've just recently launched some product that will help people build a pergola in one day. It's kind of big chunky black hardware.

We've got some other products where if you've got a walkout deck, which is common in the Midwest and you look up and you typically see that it's kind of stamped steel. Now we paint it black, we get a nice little premium for it. It looks a little bit better on it. We can broaden out that product line. And just -- I use a baseball analogy. Lots of singles and doubles to kind of extend things out and make sure that we've got a broad product line for all those markets where it makes financial sense.

Another example is moving into maybe a little bit of a side market for us, which is around post-frame. Pole barns, same thing, big connections in there. We have some products for that space. We think there are some other things we can do to make those buildings safer, stronger and more efficient. So we're looking at some new connections in that area, and it's just lots of singles and doubles, Sam, trying to help us grow the business.

Honestly, it sounds like a lot of cool potential products. So really quickly...

We can help you build, Sam. We can definitely help...

Absolutely. No, I don't want to give up my low rate mortgage, so you might have to...

At least a deck.

Absolutely. Quickly, if anybody in the audience has questions, I've got 1 or 2 more, but I wanted to at least give anyone the option. If not, we've got -- all right. We'll switch back over to the other side of the pond. You do have a business in Europe. Would just love the state of the union of the European business. And walk us through what you do there.

Yes. So we have roughly a $0.5 billion business in Europe. We had a legacy Simpson business that was about EUR 150 million going back a number of years. In 2022, we acquired a business called ETANCO, which basically tripled the size of the business to get us to that EUR 450 million business or so. The ETANCO business skews a little bit more commercial. So commercial and fasteners is kind of the wheelhouse for them. Our legacy business is a little bit more residential.

We've been focused on getting our footprint right over the last couple of years. The market in Europe has been a bit of a challenge probably since a couple of months after we acquired ETANCO when Russia invaded Ukraine, some things changed in the European economy. Starting to see the European outlook for housing and commercial starts to be a little bit better in '26, may actually be a little bit better than the U.S., which has not been the case for quite some time. We're focused on getting the profitability up. So we believe we need to be at a 15% operating income in the midterm in Europe.

Last year, we were in the mid-8s. If you take out kind of the onetime restructuring costs, we were pretty much right at 10% last year. So seeing progress there and hopefully seeing some green shoots in the market, which gives us a little bit more opportunity to invest. But I think as far as that goes, get to the 15%, we need a little bit of market growth tailwind, but a lot of it is within our control to get a good chunk of the way there ourselves.

We've got a minute left. Matt, one quick question on capital allocation. Would just love your perspective on where we stand there and any sort of objectives you're really trying to target.

Sure. As I mentioned earlier, we've come through a pretty heavy CapEx cycle. So we're getting that back into kind of more normal CapEx range, which is about $80 million a year compared to close to double that for the last couple of years. We've got a little bit of debt remaining from the ETANCO acquisition, pretty low leverage, kind of chunking that down, but that leaves opportunity for M&A, of which there's not a lot of significant size opportunities in our space, more of the tuck-in variety that Mike talked about. So ultimately, it leaves cash to return to shareholders.

So we've been ramping up our share buyback a little bit over the last couple of years. We started last year with a $100 million authorization and end up buying $120 million. We started this year with $150 million authorization, which is still the case, but we bought back $50 million in the first quarter. And so kind of making sure we maintain our optionality on M&A if one of the few that makes sense comes along. But other than that, returning cash to shareholders.

Gentlemen, I think we are right at time. Thank you so much.

All right. Thank you.

Thank you very much. Appreciate it.

Greetings. Welcome to Simpson Manufacturing Company's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Kim Orlando, Investor Relations. Thank you. You may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's First Quarter 2026 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.simsonmfg.com. Today's call is being webcast, and a replay will also be available on the Investor Relations page of the company's website.

Now I would like to turn the conference over to Mike Olosky, Simpson's President and Chief Executive Officer.

Thanks, Kim. Good afternoon, everyone, and welcome to today's call. With me is Matt Dunn, our Chief Financial Officer. As we begin, I'd like to step back and briefly anchor our performance this quarter and the broader ambitions that guide how we build and grow Simpson. Across the organization, we remain focused on being the partner of choice for our customers, an innovation leader in the markets we serve and strengthening our values-based culture, all while delivering strong financial performance. We are making meaningful progress on these ambitions despite continued market challenges.

A defining hallmark of our values-based culture is a depth of experience and long-term commitment across our organization. As we celebrate our 70th year as a company, that continuity matters. It reflects a culture that has allowed us to perform, adapt and grow through many different construction cycles. Throughout the year, we'll be highlighting employees whose long-term dedication and impact reflect the values and culture that have defined Simpson for 7 decades. I'd like to take a moment to recognize a few members of our team.

First is Cheryl Wyatt, Plant Director for our Southeast operations. She is celebrating 42 years with Simpson. Cheryl started her career in our customer service organization, gaining first-hand insight into our customers and how we support them. She advanced through several manufacturing and operation roles and today leads our highest volume and most cost-effective manufacturing facility. I'd also like to recognize Cindy Chandler. Cindy started our career with Simpson in Texas and has spent 41 years with the company. She currently leads our business in the United Kingdom, where she made meaningful profitability improvements. Over her career, she has consistently led teams through complex change from reshaping our U.S. national accounts approach in launching operations in Chile, and most recently, successfully strengthening our customer relationships across the U.K.

Finally, I'd like to recognize our brothers Hanaro and John Sid from our Southwest operations. With 48 and 42 years of service, respectively. Hanaro and John bring a combined 90 years of experience spanning production planning, leadership and quoting. They are a great example of the deep operational knowledge and customer focus that underscore what makes us unique. These are just a few examples of the people behind the results and we're grateful for the experience, leadership and commitment they bring to work every day.

Now turning to our financial results. We delivered net sales of $588 million, up 9.1% from the prior year quarter. As outlined in our investor presentation, net sales growth was primarily driven by our 2025 pricing actions, which contributed approximately 6% and foreign exchange of approximately 3%. These gains were partially offset by an approximate 1% decline in volume as a result of softer housing start activity during the quarter. In North America, net sales were $461.9 million, up 9.8% from the prior year quarter, including a $31 million benefit from pricing actions.

As we look across our North American business, performance remains mixed by market segment and varies by geography, consistent with broader construction trends. However, we continue to see areas of resilience and growth of our strategy, business model and customer relationships position us well. The component manufacturer business delivered a strong quarter with volumes up double digits, driven primarily by new customer wins. This business continues to represent 1 of our most attractive long-term growth opportunities. Even amid broader residential housing softness, customer engagement remains solid, particularly around productivity-enhancing solutions. Trust manufacturers remain focused on labor efficiency, throughput and operational visibility resulting in increased demand for our solutions across software, plates, equipment and design services. We are making great progress in expanding and enhancing our offerings with value-added functionality. We are also improving our ability to respond quickly with new software features as customers' needs evolve.

Adoption of our solutions continue in advance, strengthening our role as a strategic partner to our component manufacturing customers. The OEM business delivered another strong quarter with double-digit volume growth. This segment remains an area of relative strength and strategic importance, supported by long-term trends towards prefabrication and off-site construction methods, including engineered wood systems and mass timber. While project timing can vary, customer engagement remains high, and our pipeline of opportunities continues to build. Our ability to pare our innovative products with deep engineering expertise, testing capabilities and field support remains a key differentiator.

As customers pursue increasingly complex performance-driven projects, we believe our OEM segment is well positioned to grow faster than the broader construction market over time. Our residential business volume increased modestly year-over-year, supported by continued cross-selling of connectors, fasteners and anchoring solutions. While builders are focused on cost control, cycle time reduction and lowering inventory levels, we renewed builder agreements, launched new products and increased our service offerings to support both our builders and our LBM partners. These initiatives, combined with high service level across the industry's broadest and deepest product line have enabled us to perform relatively well in a market pressured by soft housing starts.

In our commercial business, first quarter volumes were down slightly year-over-year, reflecting mixed construction activity by segment and geography. Demand for cold-formed steel and anchoring systems remains relatively resilient. Customers continue to value our technical expertise, project coordination, broad portfolio of code compliant solutions and reliable product availability on large complex projects. particularly where early engagement helps to reduce risk and improve execution. While overall activity remains uneven, our differentiated capabilities position us well for continued share gains.

Our national retail business experienced low single-digit decline in shipments, while point-of-sale volumes declined in the mid-single digits versus the prior year. The retail environment remains competitive and reflective of broader housing and repair and renovation trends with customers remaining value focused and selective in discretionary spending. Our teams remain focused on disciplined execution, strong in-store support and close collaboration with retail partners to optimize merchandising. We continue to make progress through pay optimization initiatives, targeted product innovation and the expansion of decorative hardware via our outdoor access offerings.

While near-term volumes remain pressured, our emphasis on service, reliability and in-market execution continues to strengthen retail relationships and support long-term growth opportunities. In summary, while near-term market conditions remain difficult, our diversified portfolio, strong customer relationships and focus on engineering and value-added solutions resulted in solid performance across the North American business. In Europe, first quarter net sales totaled $121 million, up 6.3% year-over-year, driven by foreign currency translation. On a local currency basis, net sales were down 5.4% with a decline in volumes, partly offset by price increases. The market has been off to a slow start this year, but we continue to expect flat to low single-digit market growth over the next couple of years.

Even in this environment, we've had several meaningful customer wins, including multiple mass timber projects. We also made progress in improving profitability in select countries and continue to optimize our footprint to support long-term performance. While our raw material positions remain strong, we are seeing input cost headwinds that have required us to pass through surcharges and price increases. Taken together these dynamics reinforce our confidence in our ability to continue improving profitability in Europe. Our consolidated gross margin declined 130 basis points year-over-year to 45.2% and driven by higher material, factoring tooling and labor costs as a percentage of net sales, including start-up costs from the ongoing ramp of our Gallatin facility that opened late last year.

Our 2025 price increases, which we now expect will contribute approximately $130 million in annualized net sales helped offset these costs, including those attributable to tariffs. Gross margin was also negatively affected by product mix, partially offset by our productivity initiatives. Our operating margin was 19.5%, up 50 basis points year-over-year, which included onetime costs of $2.3 million related to our strategic cost savings initiatives. Adjusted EBITDA totaled $139.4 million, a 14.1% increase year-over-year. As outlined in our last call, our financial actions remain: one, driving above-market volume growth relative to U.S. housing starts; two, maintaining an operating income margin at or above 20%; and three, consistently driving EPS growth ahead of net sales growth.

In summary, our first quarter results reflect disciplined pricing and cost management, reinforced by strong execution and an unwavering focus on supporting our customers. As we look ahead, we expect conditions in both the U.S. and Europe to remain challenging, and we do not anticipate sustaining the same level of revenue growth through the remainder of the year. As for our outlook on the markets, we now believe 2026 housing starts in the United States will be down low single digits compared to 2025. And in Europe, we expect flat to modest growth in the market for 2026. Looking ahead, our culture, customer focus, innovation and financial discipline positions us well to execute and maintain a strong competitive position.

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

Good afternoon, everyone. Thanks for joining us on our earnings call today. As we celebrate our 70th year as a company, I'd like to echo Mike's comments and extend our gratitude to our many long-standing employees who have made sense in the company it is today. .

I'd also like to mention that unless otherwise stated, all financial measures discussed in my prepared remarks refer to the first quarter of 2026, and all comparisons will be year-over-year comparisons versus the first quarter of 2025. Now turning to our results. Consolidated net sales grew 9.1% to $588 million. In the North America segment, net sales rose 9.8% to $461.9 million. Europe delivered a 6.3% increase in net sales to $121 million driven by $13.2 million in favorable foreign currency translation and price increases, which were partially offset by lower sales volumes, partly from adverse weather conditions across the region. Globally, wood construction product sales were up 8.3% and concrete construction product sales were up 14.7% as a larger percentage of these products are imported and included in tariff-driven price increases.

Consolidated gross profit increased 6.1% to $265.9 million, resulting in a gross margin of 45.2%, down 130 basis points. In North America, gross margin was 47.8%, below the 49.8% reported in the prior year, reflecting the impact from tariffs and higher factory overhead and labor costs as a percentage of net sales. along with some unfavorable product mix in the quarter. As Mike noted, start-up costs in our Gallison facility represented an approximate 100 basis point headwind to our first quarter gross margin which we expect to moderate as we progress through the year. In Europe, gross margin increased to 36.3% from 35.2% driven by higher pricing and lower material costs partly offset by higher factory and tooling costs as a percentage of net sales.

From a product perspective, our gross margin was relatively flat at approximately 46% for Wood Products. For concrete products, gross margin was 40.2% compared to 49.5% a year ago, with the decrease due to tariffs, partly offset by recent pricing actions. Now turning to expenses. As a percentage of net sales, first quarter operating expenses were 25.6%, an improvement from 27.5% last year. SG&A head count was down approximately 9.1% year-over-year which reduced personnel-related costs. In total, operating expenses increased 1.7% to $150.7 million, driven primarily by $4.2 million of foreign currency translation and onetime cost in Q1 2026 of $2.3 million related to our strategic cost savings initiatives. These increases were largely offset by lower professional fees and variable incentive compensation.

To further detail our SG&A, our research and development and engineering expenses decreased by 6.1% to $18.6 million on lower personnel costs due to less head count and footprint optimization. Selling expenses were relatively flat to $54.5 million as a result of our strategic cost savings initiatives. On a segment basis, selling expenses in North America were down 3.3% and in Europe, they were up 11.9%, primarily due to FX. General and administrative expenses increased by 4.5% to $77.6 million due to onetime costs of $2.3 million related to our strategic cost savings initiatives. As a result, our consolidated income from operations totaled $114.6 million an increase of 12% from $102.3 million. Our consolidated operating income margin was 19.5%, up from 19.0% last year.

In North America, income from operations increased by 12.8% to $118.3 million due to higher net sales on reduced operating expenses. Our operating income margin in North America was 25.6% compared to 24.9% last year. In Europe, income from operations decreased 23.8% to $7.1 million due to lower volumes. Our operating income margin in Europe was 5.9% compared to 8.2% last year. Our effective tax rate was 24.1%, approximately 140 basis points below the prior year period. Accordingly, net income totaled $88.2 million or $2.13 per fully diluted share compared to $77.9 million or $1.85 per fully diluted share. Adjusted EBITDA was $139.4 million, an increase of 14.1%, resulting in a margin of 23.7%.

Now turning to our balance sheet and liquidity. As of March 31, 2026, we had $74.2 million drawn on the revolver, resulting in $525.8 million of remaining availability. Our debt balance was $370.5 million, down $3.8 million from December 31, 2025, and cash and cash equivalents totaled $341 million, resulting in a net debt position of $29.5 million. Our inventory position as of March 31, 2026, was $549 million, which was down $45.2 million compared to December 31, 2025. The pounds of inventory on hand in North America were down double digits with a nearly double-digit increase in cost per pound, driven primarily by raw materials. We generated cash flow from operations of $35.9 million for the first quarter. Our capital allocation strategy remains focused on both supporting growth and delivering returns to our stockholders.

In Q1, we invested $17.7 million in the capital expenditures, returned $12 million in dividends to our stockholders and repurchased $50 million of our common stock. As announced in October, the Board authorized a new share repurchase program for 2026, permitting the repurchase of up to $150 million of our shares through year-end 2026. This authorization underscores our confidence in the long-term prospects of the business and our ongoing commitment to returning capital to shareholders.

Next, I'll turn to our 2026 financial outlook. Based on business trends and conditions as of today, April 27, 2026, our guidance for the full year ending December 31, 2026, is as follows. We continue to expect our consolidated operating margin to be in the range of 19.5% to 20.5%. Additional key assumptions include: our outlook for U.S. housing starts to be down in the low single-digit range. a lower overall gross margin based on imposed tariffs and increased depreciation costs, a higher realization of the annualized contribution from our 2025 price increases, an expected $3 million to $5 million of footprint optimization costs in Europe and a projected $10 million to $12 million benefit on the sale of vacant land in the back half of 2026.

Our effective tax rate is estimated to be in the range of 25% to 26%, including both federal and state income tax rates based on current tax laws. And finally, our capital expenditures outlook is expected to be in the range of $75 million to $85 million. In summary, we delivered solid results in the first quarter with growth in net sales, EBITDA and operating margin despite a housing market that remains challenged. Pricing actions are contributing as expected and are projected to add roughly $130 million in annualized net sales, helping offset some tariff-related cost pressures. Overall, while we were pleased with our Q1 results, we do not expect this level of revenue growth to carry through the remainder of the year, given our tempered outlook for the housing market in 2026 and the timing of 2025 price increases.

We remain focused on disciplined capital deployment and our commitment to return at least 35% of free cash flow to shareholders. With that, I will now turn the call over to the operator to begin the Q&A session.

[Operator Instructions] Our first question is from Daniel Moore with CJS Securities.

I appreciate all the color. Congrats on the quarter. I guess we'll start with the modest change in expectations around housing starts for the year, certainly not a surprise. And I realize we're talking weeks, not months, but just talk about the sort of the cadence of demand and volumes in North America that we've seen since the start of the war in Iran and spike in oil prices. Just wondering if -- what sort of impact you're seeing in real time and how do you kind of see that playing out as we look through the remainder of Q2.

Dan, thanks for the question. So we started coming into this year, think of the market was going to be roughly flat. And as you know, the census data is a little bit delayed. But when we look at the market, Dan, we're doing 2 things. We're getting basically feedback from 6, 7 different firms, on how the year is going to play out, consensus from those 6 or 7 firms is kind of low single-digit number. And then we're certainly cross-checking that with a lot of our customers. and what we hear from the customers and the spring has been a bit of a soft selling season, which kind of confirms that low single-digit market growth rate expected for the year.

Very helpful. In terms of pricing, Q4 about a 5%, 6% benefit, again, 6% benefit this quarter. Have you taken or contemplated any additional price increases given continued inflationary pressures? And how should we think about the impact of pricing in Q2 as well as back half of the year? I know you mentioned kind of $130 million all-in -- just any comments on cadence is certainly helpful.

Yes, Dan. So when we look at pricing going forward, in Europe, we are seeing rising inputs in a lot of different areas. We have started doing the surcharges and done some price increases there, which we mentioned in our prepared remarks. We're certainly experiencing some rising costs across other parts of our business in North America. We are working really hard to take costs out and try to drive productivity with the expectation that we maintain our gross margin for a longer period of time.

Yes. And Dan, this is Matt, just to answer your specific question. We haven't taken any additional price increases in North America beyond the 2 that we announced last year. And again, as we look forward, we're seeing those cost increases, whether it be fuel or potentially steel, but haven't contemplated or announced anything. And again, we're just really focused on maintaining and kind of preserving our gross margins. So potentially have to look at that if things change. But right now, nothing in the works.

Okay. And taking a step back from the macro good color and detail about increased penetration, particularly in some of those newer end markets, trust, some of the outdoor decorative, just if you want to sort of dig in and give a little bit more color in terms of how things are progressing from a share gain perspective and how you -- what you've what your expectations are for sort of outpacing the housing starts for the year from a volume perspective, assuming it does come in, in that low single-digit range.

Yes. And again, Dan, let me start with the market just 1 more time. So again, delay in the census data. So we're not exactly sure how the first part of the year has played out. We're going to get, I think the first round of data in another couple of weeks. So I'll give us a little bit of a better feel. We do believe we are slightly ahead of the market based on off of a trailing 12 months. And when we look at driving above-market growth that comes back to those market playbooks that we have are almost 5 market segments, we also have product playbooks all around trying to drive innovation, drive new customer gains, get additional shelf space and get more content on the houses.

When we look at some things we're particularly excited about, again, the component manufacturing business growing double digit. Again, new customer wins there. We're very happy with how the trust business is developing. The producer tool has been out in the market for a while. It is cloud-based. We've already been able to do multiple releases to respond quickly to to some customer needs and questions around it. We're still feeling pretty confident about our director and new design tool that's going to be rolled out later this year. We're actively using AI to help us develop new software and do quality assurance in the trust space. So we're feeling pretty good about that, and we're getting it again, good feedback from our customers.

And then in the OEM segment, we've been talking about mass timber for a while, these mass timber jobs just keep getting bigger and bigger, and they want to broad set of solutions from us that we're able to offer and the Gallatin facility is going to help us respond quicker. And we've done some other things to help us do really these high-strength heavy-duty connector packages for some of these big mass timber buildings out of our Riverside facility and we're happy with the progress we've made there. So again, we're feeling good about it. And at the end of the day, we want to make sure that we're driving above-market growth at that 20% operating income level.

Great to hear. Last one, just a housekeeping I think you said timing around the gain on sale of land, H2, has that been pushed out at all? Just trying to get a sense from a modeling perspective.

Yes, Dan, this is Matt. It's definitely going to be in the back half. included in our guidance for the year. And that really -- we didn't specify a quarter when we gave guidance 3 months ago, but we've got more visibility now that it's going to be in the back half. TBD, whether it's Q3 or Q4, we'll try to refine that once we get closer.

Our next question is from Trey Grooms with Stephens.

Congrats on the quarter, not showing -- so thanks for the color on your -- Yes, you bet. So thanks for the color on the outlook you gave on housing, makes a lot of sense. But how are you thinking about some of the other end markets? And sorry if I missed this, but are you still expecting demand for commercial to be kind of flattish? And then as you kind of look into retail or R&R for that to be kind of flat to up a little bit? Or any changes there?

Yes. When we look at our end markets, we're looking at basically a -- we're looking at several firms that help us get the U.S. housing starts number. That's the low single-digit range. When we look at the market numbers for the national retail business or repair and renovation. When we look at that particular area, we're thinking basically flattish to maybe up 1-ish percent in that range. In the commercial area, we're looking at starts, and we have a firm that helps us with that. There, we're thinking low single digit range. And then our OEM business, we really just kind of benchmark that versus the IPX and that we expect to be low single digits.

Yes. Okay. Got it. So no real change there. So -- and then maybe looking at geographically, I know you guys have seen some mix headwinds, I guess, geographically, some mix headwinds from some underperformance in California and Florida, I guess, over the last few years. It sounds like some of the commentary we're hearing from out there in the market from homebuilders, et cetera, it sounds like Florida might be recovering somewhat. Anyway, any details maybe you guys could give us on what you're seeing geographically and maybe some of this mix headwind, if you will, kind of starting to subside if Florida is starting to pick up?

Yes, Trey. Good question. So if we talk about just market specific, the stay level data on starts is there's a lot of variability depending upon the sources you look at. But if you just look big picture, Florida and California, they are down significantly from their peak housing starts about 3-ish years ago. When we look at our business in California, a lot of engineering into it, especially from a seismic perspective, we continue to talk with customers that are saying they've got a strong backlog. A lot of projects are about ready to get kicked off in that area but we have not yet started to realize that in our sales revenue. In Florida, from what we've seen really no significant change for us at this point, and it's still a little soft.

Okay. All right. Sounds great. And maybe a housekeeping to some degree, maybe Matt, on the inventories, down pretty significantly in the quarter despite some -- you had some good sales improvement, actually step down sequentially. And I understand that you guys usually build some inventory in the 1Q and then kind of work it down. in seasonally stronger quarters. Any color you could give us on kind of how we should be thinking about that, given it's kind of lower level as we're kind of entering the building season, how we should be thinking about that seasonal trend?

Sure, Trey. I mean, we're doing a lot of work to drive productivity on raw finished goods and work-in-process inventory. And so that's playing out a little bit. When you look at our inventory drop in dollars. It shows up in pounds even more broadly as you think about -- the cost of things is more expensive, so it doesn't quite show up in the dollars to the level it shows up in the pounds. We were down quite significantly on pounds. I would say the bulk of that drop though is really on the raw material side. So think of steel and steel coils. And so as we're working through the inventory there. As you know, we tend to buy kind of in lumpier chunks when the market meets our needs and kind of a sweet spot for where we want to be. So it's going to be a little bit lumpy on the raw material steel and those prices are starting to move a little bit as we look forward.

So I would expect that we'll probably bump back up a little bit on raw materials throughout the course of the year. But at the same time, we're working on productivity on the finished goods and the work in process, so maybe somewhat a little bit offset but hopefully not get quite back to the -- certainly not back to the peak we were on pounds on dollars. It's a little bit tougher to say because the price per pound has gone up. But I think where we kind of started 2026 would be sort of like a high watermark and it would probably stay below that.

Our next question is from Kurt Yinger with D.A. Davidson.

Great. Just wanted to go back to pricing -- can you just talk a little bit about kind of the difference between the new $130 million versus the $100 million previously? Is that, I guess, just an updated view on what you'll capture -- or does that encapsulate maybe some of these surcharges and whatnot you've discussed in Europe?

Yes, Kurt, this is Matt. We -- previous guidance was about $100 million annualized. And if you recall from our previous quarterly release, we realized about $60 million of that in 2025, which would have implied additional $40 million in we're upping the annualized number to $130 million. So that would imply $70 million in 2026 incremental. And it's a combination of some of the pricing we've enacted in Europe, particularly related to the surcharges, but also some price increases and then a little bit of product mix in North America, which is driving more pricing. So if you think about the products that had higher price increases, that's primarily fasteners and anchors. They're continuing to grow a little bit faster than the connector business, which provides some additional dollars when you just look at the pricing impact. It doesn't necessarily drive better gross margin or better op income. But when you look at pricing quantification on dollars realized on pricing, it just benefit there. So it's really a combination of those 2 things that's kind of up to that $130 million number.

Okay. that makes a whole lot of sense. I appreciate that. And just on the cost side, I mean, it doesn't sound like the change in 232 tariffs is really having any impact on you guys, but I would appreciate it if you could just touch on that as well as on the freight side with the self-distribution angle, how is transportation and freight costs, I guess, shared among you guys and customers? Is that a situation similar to Europe where there are surcharges but those are just passed along. Can you talk a little bit about that?

Yes, you're right. On the 232 tariffs, the announcements that came out, I think, early April don't really have much of an impact for us. The tariffs that we were paying are pretty much staying the same. If you think about the fuel rates and things that are impacting surcharges there. I mean we're seeing it some from our suppliers, passing along surcharges, changing rates, weekly sometimes. A lot of our shipments, travel, prepaid freight. So we have not put any surcharges in place. So from time to time, we have to adjust the amount of a purchase that is able to travel with prepaid for free. So meaning sometimes you have to up the minimum purchase. I don't believe we've done any of that yet, but that's some of the things that we're considering, but we are seeing an impact in our 2026 outlook from increased fuel costs. and we haven't acted on passing any of that through, but we're kind of actively monitoring it and kind of see what -- where it takes out, what level it goes to and then evaluate the best way to, again, try to make sure that we're preserving our gross margin.

Okay. Got it. And then just on the volume side, I mean, a really good quarter for the North American residential business, it seems. Is there anything to call out there that might have been a transitory boost? And maybe looking at the full year, I mean it sounds like you kind of trimmed the expectations for housing starts. But if we look at the comps, the first half is very difficult, gets easier in the back half. Just given the positive performance here in Q1 I guess is there any reason to believe that wouldn't be sustainable just as comps get a little bit easier?

So Kurt, we're very pleased with the development of our residential business team has made. We continue to leverage the business model. And with that shift, we made about 3 years ago of going from a product-focused sales team to a market-focused sales team that's enabled us to really cross-sell the complete product line. And we've continued to develop our warehouse network so that we're closer to customers, and we can make sure that we get to a very, very, very large percentage of our customers, they place an order today in the morning, we ship it in the afternoon, they get it the next day. And I think all that added up, Kurt, just continue to get more content on houses and pick up more shelf space with our lumber yards and pro dealer customers.

Yes. Kurt, I think as you look at your comments around back half comps and things, certainly, our volume comps get a little bit easier in the back half when you compare it to what we did in the last half of last year, but also including a little bit of expectation that the market is potentially going to be a little softer as you go throughout 2026 as we kind of updated our guidance. I mean part of the challenge now is we find a little bit blind on what is the market doing because there's been delays in reporting and even going back to actuals, think they're still subject to revision from the Census Bureau later this week when they published the February, March starts number. So we believe we're outperforming the market a little bit on volume. We certainly expect to continue to do that. But what that market is going to look like quarter-on-quarter that we're comparing to, is a little bit up in the air as we kind of got to see where we shake out here in the first quarter and we get the numbers to see where we were. And then the outlook for the year has gotten a little bit worse from our perspective kind of backed up by most of the market forecasters out there, they're saying it's going to be a little bit softer in '26.

Okay. That makes sense. And just lastly on the national retail side. The weakness there, it seemed like over '25, there were some points where sell-in didn't not necessarily match sell-through. But POS has kind of turned now. Do you think that's just a function of the overall project environment in a lot of the categories that you're serving or more so maybe a skew to customers going with a more value-sensitive approach in terms of products. I guess any thoughts on kind of the performance there early this year?

I wouldn't say that we're seeing a shift in the value performance story. So Kurt, if somebody is coming into 1 of the national retail customers, especially a pro, I mean they know exactly what products they're looking for. So I wouldn't necessarily say that. I think we've had some time over the last probably 6 months where point-of-sale data and our sales into the national retailers was a little bit disconnected. It's kind of flipped and going the opposite way in the first quarter. But we continue to work with them to help them develop the business by merchandising activities. We continue to push our outdoor living solutions product line, which has had pretty good growth over several years now. We're working hard with the pro dealer that grow desks with our national retail customers, we provided some estimating services, and we're doing other things to help them really cross-sell the full product line.

We think over time, that will all play out in the short term. We do occasionally see some inventory shifts with those guys, and that's been reflected in the numbers in the last 6 months or so.

Yes. And I think, Kurt, this is Matt. I think just to cap it off. I think it's good to see that trend reverse a little bit in terms of sell-in versus sellout. We've seen several quarters in a row where our POS units were quite a bit better than our sell-in. So 1 quarter doesn't make a trend, but good to kind of stop that trend and then we'll kind of see where it goes from here.

Our next question is from Tim Wojs with Baird.

Nice job on the results and the inventory number. So I guess maybe just my first question, just if I remember right, you guys were expecting about $30 million of annualized cost savings from some of the SG&A actions you took last year. What was the -- I guess, what was the realization in the first quarter? I don't know if you -- I don't know if I missed that.

Yes. Yes. So if you remember, Tim, the $30 million was about 2/3 SG&A and 1/3 in COGS. So that was kind of how we framed up the $30 million net. And then we said in the last quarter that we affected $10 million to $15 million on an annualized basis below last year's SG&A spend actuals. In the first quarter, SG&A was actually up $1 million, but you got to peel it back a little bit. There's 2 big drivers there. One, exchange rate was a $4.2 million hurt on that. So that's the translation of European expenses back to dollars. And we also had about $2 million of onetime related costs to our cost savings initiatives that were in the first quarter. So -- and if you take those 2 kind of at face value and say we are up on we were down about $5 million net-net. And I think an important point is what we mentioned in the script on headcount, our SG&A head count is down about 9% when you look year-over-year.

So I would say the realization in the first quarter, if you kind of adjust for FX and the onetime cost is in the call it, $3 million, $4 million, $5 million range. And if you kind of project that across the course of the year, you can kind of get pretty close to that number, we said would be the net number we expect to be down by the end of the year versus last year's actuals.

Okay. Okay. Great. No, that's really helpful. And then on the component manufacturing business, just I think last quarter might have been up low single digits and now it's up double digits. Is that just kind of a lumpiness that can be kind of inherent in that business? Or was there a pretty significant amount of adds in the component business specifically?

Yes, it is a little lumpy, Tim, as you know, because it takes a bit of effort to convert a customer. So we continue to add customers, and we've added a couple of the last months of 2025 that are now starting to build in 2026.

Okay. And then is there any way to just on that business? Just kind of give us a kind of a ballpark figure to maybe how big it is today?

No. We have not -- we've not commented on the size of the component manufacturing business or the different market segments.

Other than we said publicly that the market size and kind of our rough share position. So I know you've heard that before, so then you can kind of ballpark you somewhere.

Our final question is from Andrew Carter with [indiscernible].

Just wanted to ask in terms of the residential volume performance, up slightly. I know you're taking your guidance down to low single digits. But I think based on the sources you have, customer conversations, I would assume that your guidance is you would assume -- be assuming that there was a pretty deep decline in the first quarter that improves throughout the year. Is that fair or anything on any of my assumptions there fold?

Yes. I mean I don't know if I'd say deep decline. I think when the numbers come out, I think we'll -- we expect to see that the market was down in the first quarter from a housing start standpoint. And then I think keep in mind, the back half of last year was the worst part of last year compared to the front half of last year, which actually I think had slight growth when you look at the front half from a market standpoint. So the comps are a little bit different, though, I think it would be -- if you're doing the math on how do you get to down low single digits for the market, the front half has a tougher set of comps. So I think potentially, the front half could look worse and then the back half could look a little bit better, but probably more a function of what you're comparing to than a change in the starts rate.

Got you. And then kind of wanted to kind of build on that component manufacturer question, trust, the kind of reacceleration you had in the quarter. You mentioned customer wins. I mean how often do those occur? Are those -- do you get those like a shot at that annually I mean is that double-digit run rate something you can carry through the year just because you have the customers. Is there any kind of unlocks you get as you roll out the rest of the software program later in the year? Just any thoughts on that cadence?

Yes. I think -- so if you step back and you look at those customers, we've been working with them for a long time in a variety of other businesses, especially all the larger pro dealers, I mean they know us very well. But a lot of the smaller to midsized guys, we've known these customers for a long time. They know the Simpson service and the approach that we take to working with customers. And we've also been talking with them over the last 12 to 18 months about the development we're making with the software. We've been giving regular updates to it. We've been showing some demos and just letting people see how it develops. And I think you kind of add all that up, that is what has helped us continue to grow as -- they want to work with a long-term partner that operates like Simpson. We do our level best to take great care of the customer. We believe that our plans to have a cloud-based solution that is very customer friendly and contracting terms that are a little bit more customer friendly. It's going to create some additional opportunities for us. And they see the investment that we've made in this space really over the last couple of years, And i think that's open some doors, and that's made some people realize that we would be the partner of choice going forward for them.

Final question, kind of Europe. I think you said something about low single digits over the next 2 years. Correct me if I'm wrong, I thought that was kind of the expectation -- for this year, it obviously started out down 5% organic this quarter. I guess that would be the market where you see -- you might see incremental weakness from energy prices, et cetera, but it's also 2/3 commercial. It's a longer cycle. So any update on that market? Or could you -- do you see further risk of that declining? Just any help there.

Yes. When we look at the composite index that we built based on the countries we operate in and the mix, as you said, between residential and commercial. And we use, again, experts that pull those forecasts in to help us get the numbers. Our thoughts going in were flat to low single digits. And the fact that they had a tough first couple of months because of weather really hasn't changed that. I think there is some optimism in the market. in Europe, to be quite honest, 0% to 2% or 3%, we be better than we've had in the last 3 or 4 years and certainly better than what we've had in the U.S. in the last 4 years. So we're hoping that plays out. In the meantime, we're focusing on the things that we can control, and that's just trying to pick up new applications, shop space, more content on jobs.

With no further questions, that will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Greetings, and welcome to the Simpson Manufacturing Company Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kim Orlando, Investor Relations. Thank you, Kim. You may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's Fourth Quarter and Full Year 2025 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.

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 Mike Olosky, Simpson's President and Chief Executive Officer.

Thanks, Kim. Good afternoon, everyone, and thank you for joining today's call. I'm joined by Matt Dunn, our Chief Financial Officer. This afternoon, I'll begin with an overview of our 2025 performance, a review of trends across our end markets and an update on our strategic priorities. Matt will follow with a deeper dive into our financial results in our fiscal 2026 outlook.

Before we start, I want to highlight that for the second consecutive year, we achieved a total recordable incident rate of less than 1.0, our best result in company history. We also saw a meaningful reduction in lost time injuries and a decrease in incident severity. We are extremely proud of our employees for keeping safety at the forefront of everything we do. Their commitment demonstrates the values that define Simpson above all that everybody matters.

Now turning to our results. I'm pleased to report full year 2025 net sales of $2.3 billion, up [ 12.5% ] from 2024 in a challenging market. As outlined in our investor presentation, approximately 3% of this growth came from pricing, 1% from acquisitions and 1% from foreign exchange. These gains were partially offset by approximately 1% decline in volume due to weaker housing starts.

Historically, our volume metrics focused on North American unit sales measured in [ pounds ] shipped, which did not capture the growing contributions from our more premium offerings, including software, services and equipment. We believe this revenue bridge provides a more complete view of our consolidated business.

In North America, full year net sales were $1.8 billion, up 4.5% from prior year, including approximate $60 million benefit from pricing actions. North American volumes were down year-over-year, pressured by lower housing starts at more challenging regional mix with the most pronounced declines in the Southern and Western United States, where our content per unit is typically higher due to stronger building [ codes ]. Even with these headwinds, our focus on innovation, customer service and operational excellence continue to drive solid performance.

We continue to win business in soft markets, demonstrating the resilience of our portfolio and the value we deliver to our customers. As we look at full year results across North American end markets, performance was mixed by market segment, but we saw encouraging developments across several parts of the business. The OEM business delivered a strong year with volume up double digits. We saw particularly strong growth with off-site construction manufacturers and [ mass timber ] projects where our products and support [ Mylar ] great fit for complex applications with high performance requirements.

We succeed by combining innovative products that need demand requirements and improve ease of installation with deep technical and field support throughout the project life cycle. Although OEM remains a smaller part of our portfolio today, we believe we are growing well above market and see substantial runway for continued expansion. The component manufacturing business continues to grow with volumes up in the low single digits, driven by new customer acquisitions and expanded capabilities, including software.

We continue to convert new customers to our software and [ trust plate ] solutions with growth supported by our design services and our broader solution set. As a reminder, seas producer, our cloud-based trust production management software announced last quarter represents an important milestone in our digital road map, extending our capabilities beyond design into production planning and daily operations.

In addition, our Monet DeSauw cquisition continues to perform well in a challenging market, strengthening our equipment offering, and deepening customer relationships. Together, these capabilities position us well to capitalize on what we view as 1 of our most attractive long-term growth opportunities. In our commercial business, 2025 volumes were essentially flat year-over-year in a commercial market that was down mid-single digits.

We saw strong growth in cold-formed steel [ and acre ] products supported by our takeoff service that streamlines design and procurement for customers. We are also seeing increased adoption of our third-generation anchoring theses, which deliver reliable performance across a wide range of applications and conditions backed by our testing, code evaluation and engineering expertise.

Our residential business volume declined modestly, reflecting continued challenging market conditions, particularly in the West and the South. We continue to expand our digital solutions with [ LBM ] and builder customers, partnering with them to improve efficiency across estimating design of project workflows, further reinforcing our value proposition to our customers. We also saw steady growth in our multifamily business, supported by increased quoting activity. In single-family, we strengthened our competitive position by securing multiyear renewals and new national contracts with key builders.

These wins highlight the strength of our supply chain network, proximity to customers and the value of our digital and technical capabilities. With programs now in place with 25 of the top 30 U.S. national builders, we are well positioned as the residential market [ recovers ].

Our national retail business saw a mid-single-digit decline in shipments versus 2024, while point-of-sale volume performance declined in the low single digits. This was driven in part by regional differences and a difficult comparison to new product listings and expand the retail space we secured in late 2024. Throughout the year, we focused on bay expansion programs with our largest retail partners. We also expanded our decorative hardware portfolio with the launch of the outdoor [ accent stage ] system now testing in select markets.

Our emphasis on customer service, disciplined execution, merchandising support and end market testing continues to strengthen our retail partnerships and positions us well for ongoing growth.

In Europe, full year net sales totaled $499.6 million, up 4.3% year-over-year, which was up slightly on a local currency basis. Mines outperformed the market and were slightly higher compared to 2024. Our consolidated gross margin was relatively flat year-over-year at 45.9%. As previously discussed, our 2025 price increases, which we expect will contribute at least $100 million in annualized net sales helped to offset increased costs, including those attributed to tariffs. Our 2025 operating margin was 19.6%, up 30 basis points year-over-year, which included approximately $13.1 million in strategic cost savings initiatives and footprint optimization costs.

Our 2025 operating margin also included a $12.9 million gain from the sale of our Gallatin, Tennessee facility. Adjusted EBITDA totaled $544.3 million, a 3.3% increase year-over-year. Next, I'd like to detail the progress we made on our financial ambitions in 2025, which will guide our strategy throughout 2026.

First, continuing above-market volume growth relative to U.S. housing starts, since roughly half of our business remains tied to U.S. housing starts. This continues to be the most accurate benchmark for evaluating our value performance. While the government shutdown delayed the release of official housing [ DARTs ] data from the Census Bureau, we will resume this comparison once it becomes available.

That said, we continue to monitor starts estimates from multiple sources. Based on those benchmarks, we believe our consolidated volumes of down 1% in 2025, slightly outperformed an expected average market decline in the single digits. Second, maintaining an operating income margin at or above 20%, we made good progress in 2025 despite the down market, adding 30 basis points to our operating income margin narrowing the gap to our 20% target, even with housing starts being down approximately 500 basis points versus our initial market forecast.

And third, as a growth-focused company with industry-leading margins, we believe we can consistently drive EPS growth ahead of net sales growth. In 2025, EPS growth outpaced revenue by 390 basis points, highlighting the leverage in our model and the durability of our margin profile.

In summary, 2025 was a year of strong execution despite continued softness in U.S. and European housing markets. We maintained an exceptional 98% product delivery fill rate and customer satisfaction remains high. contributing to 8 major awards recognizing our service and product innovation. We made progress by launching new products, bringing new manufacturing capabilities online, expanding our warehouse footprint and strengthening our digital capabilities.

Combined with our pricing actions, cost savings initiatives and new business wins, we believe we are well positioned for continued success. Looking ahead to 2026, we believe we can continue above-market volume growth relative to U.S. housing starts, which we expect will be relatively flat year-over-year with continued challenging regional mix segments.

In Europe, we expect slight growth in the market in 2026. I'd also like to highlight that 2026 marks a special milestone for Simpson Strong-Tie, we celebrate 70 years of growth and innovation. Since our founding in 1956 by [ Mark Simpson ], our company has been defined by a spirit of problem solving, integrity and unwavering commitment to building safer, stronger structures. What began with a single [ joist hanger ] has grown into a global portfolio of trusted solutions backed by advanced technology, rigorous testing and a team dedicated to excellence. We're proud to honor the legacy that brought us here while continuing to build our future together with our employees, customers and partners as we break new ground for the next generation.

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

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 fourth quarter of 2025 and all comparisons will be year-over-year comparisons versus the fourth quarter of 2024. Now turning to our results. Our consolidated net sales increased 4.2% year-over-year to $539.3 million.

Within the North America segment, net sales increased 3% to $416.9 million. In Europe, net sales increased 9.1% and to $117.9 million, primarily due to the positive effect of approximately $9.1 million in foreign currency translation and a modest improvement in sales volumes and pricing. Globally, Wood Construction products sales were up 2.1%, and concrete construction product sales were up 15.3% as a larger percentage of these products are imported and included in tariff-driven price increases. Consolidated gross profit increased 3.4% to [ $235.1 million ], resulting in a gross margin of 43.6%, down 30 basis points from the fourth quarter of 2024.

On a segment basis, our gross margin in North America was 46.2%, below the 46.9% reported in the prior year, reflecting the impact from tariffs and higher factory overhead and labor costs which were partially offset by lower warehouse costs as a percentage of net sales. Our gross margin in Europe increased to 33.6% from 32.3% primarily due to lower material and freight costs, partly offset by higher factory and overhead, warehouse and labor costs as a percentage of net sales.

From a product perspective, our fourth quarter gross margin was 43.5% for Wood Products compared to 43.4% in the prior year period. For Concrete products, gross margin was 46% compared to 45.8% a year ago, with the improvement partly due to the recent pricing actions.

Now turning to expenses. While SG&A head count was down approximately 7% year-over-year, total Q4 operating expenses increased 8.2% to $161.8 million primarily driven by the timing of higher charitable donations in advance of tax deductibility changes for 2026, variable incentive compensation and personnel costs, including severance-related costs.

For the full year of 2025, total operating expenses were $627 million, an increase of 6.5%, primarily due to variable incentive costs, personnel costs, including severance-related costs, digital subscription costs and timing of charitable donations. As a percentage of net sales, total 2025 operating expenses were 26.9% compared to 26.4% last year. Our full year 2025 operating expenses included approximately $8 million in severance-related costs associated with our strategic cost savings initiatives, which we anticipate will deliver annualized cost savings of at least $30 million.

To further detail our fourth quarter SG&A, our research and development and engineering expenses decreased by 4.8% and to $21.1 million, primarily due to the previous reclassification of digital technology from R&D to G&A. Selling expenses increased by 6.3% to $56.1 million, primarily due to the higher variable compensation and commissions. On a segment basis, selling expenses in North America were up 5% and in Europe, they were up 10.4%, primarily due to FX.

General and administrative expenses increased by 13.5% to $84.7 million due to the timing of charitable donations, the aforementioned reclassification of digital technology from R&D severance-related costs and a negative foreign exchange effect as well as increases in variable compensation and software costs. As a result, our fourth quarter consolidated income from operations totaled $74.8 million, a decrease of 2.7% from $76.9 million. Our consolidated operating income margin was 13.9%, down from 14.9% last year.

In North America, Income from operations decreased 3.6% to $82.3 million due to higher operating expenses, which were partly offset by higher gross profit. Our fourth quarter operating income margin in North America was 19.7% compared to 21.1% last year. In Europe, income from operations increased 260% to $2.8 million due primarily to increased gross profit partly offset by increases in operating expenses due to the negative effect of approximately $2.9 million in foreign currency translation.

Income from operations included $4.7 million resulting from our footprint optimization and strategic cost saving efforts to enhance our profitability. Our fourth quarter operating income margin in Europe was 2.3% compared to 0.7% last year.

Our fourth quarter effective tax rate was 24.8%, approximately 270 basis points below the prior year period. Accordingly, net income totaled $56.2 million or $1.35 per fully diluted share compared to $55.5 million or $1.31 per fully diluted share. Adjusted EBITDA for the fourth quarter was $104.7 million, a decrease of 0.9%, resulting in a margin of 19.8%.

Now turning to our balance sheet and liquidity. Late in the quarter, we amended and restated our credit agreement, which includes $600 million revolving credit facility and a $300 million 5-year term loan. As of December 31, 2025, we had $74.2 million drawn on the revolver, resulting in $525.8 million of remaining availability. Our debt balance was approximately $374.2 million, down $16.9 million from December 31, 2024, and cash and cash equivalents totaled $384.1 million resulting in a net cash position of $9.9 million.

Our inventory position as of December 31, 2025, was $594.2 million, which was essentially flat compared to December 31, 2024, and includes an approximately $16 million increase from foreign currency translation. Pounds of inventory on hand in North America were down double digits with a nearly double-digit increase in cost per pound. We generated strong cash flow from operations of $155.6 million for the fourth quarter and $458.6 million for the full year of 2025.

With regard to capital allocation, our strategy remains duly focused on growth and shareholder returns. In 2025, we invested $161.5 million for capital expenditures, including our investments for facility upgrades and expansions. [ $47.6 million ] in dividends to our stockholders and $120 million in repurchases of our common stock. As previously announced in October, the Board authorized a new share repurchase program for 2026 to repurchase up to $150 million worth of our shares through the end of 2026. This reflects our confidence in the long-term prospects of the business and our commitment to returning capital to shareholders.

Next, I'll turn to our 2026 financial outlook. Based on business trends and conditions as of today, February 9, our guidance for the full year ending December 31, 2026, is as follows: we expect our consolidated operating margin to be in the range of 19.5% to 20.5%, additional key assumptions include a slightly lower overall gross margin based on imposed tariffs and increased depreciation costs and expected $3 million to $5 million of footprint optimization costs in Europe, and a projected $10 million to $12 million benefit on the sale of vacant land.

Our effective tax rate is estimated to be in the range of 25% to 26%, including both federal and state income tax rates based on current tax laws. And finally, our capital expenditures outlook is expected to be in the range of $75 million to $85 million.

In summary, we closed out a strong 2025 despite a challenging market environment. and we continue to execute with discipline across the business. Our pricing actions helped offset tariff-related cost pressures, supporting margin resilience even as we navigated higher input costs.

Cost savings initiatives implemented in the fall are beginning to take hold and will drive meaningful efficiencies as we move into 2026. As we look ahead, we remain committed to disciplined capital deployment, supported by our expanded share repurchase authorization and our plan to return at least 35% of free cash flow to shareholders.

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

[Operator Instructions] Thank you. Our first question comes from the line of Dan Moore with CGS Securities.

This is Will on for Dan. Can you talk about the upside and downside cases to your outlook for flat North American housing starts? And can you also add some more color to your expectations for Simpsons growth in that environment?

So Will, as you know, the last couple of years, housing market forecast has started pretty optimistically and ended flat to down. So our view just taking into account last year as an example, we were coming into 2025, think it was going to be up 2 to 3 percentage points. We think now based off the consensus is going to be down maybe 2 to 3 percentage points, so 400 to 500 -- 600 basis point swing.

As a result of that, we're really taking a conservative view on the market this year. So our assumptions are basically flattish. And we're going to be pretty careful about how we invest until we really see the market pick up significantly. If you look at how we've done versus the market, and [ this sees ] 2020 is kind of the anchor year because 2020 housing starts were roughly the same as 2025 we've outpaced the market from a volume perspective by roughly 300 basis points. That's not always going to be a straight line up. Well, some years maybe plus or minus a little bit 1 way or another, over the long haul, though we hope to consistently be that long-term average though.

Yes. Will, this is Matt. And if you look at kind of how that impacts our growth, as you asked on the second part of your question, we expect to continue to outperform the market at some level, consistent kind of what Mike was saying, historical average, knowing it's not always a perfect straight line at that historical average. We do have some carryover impact of the pricing that we took in 2025, partly through the year.

And in the middle of our guidance of 19.5% to 20.5% is that 20% mark that we want to be at. So we believe we can get to that 20% in a flattish market. And then if there's upside in the market that would provide upside and if the housing starts turn out to be down again, obviously, creates some risk that we would have to work through, but wanted to kind of capture that in our overall guidance.

That's very helpful. And just 1 more. In Europe, can you add some more color to the outlook for growth entering 2026? And what steps can you take to enhance growth should the overall market remain stagnant?

So first, we're very happy with the progress the European team has made over the last year. We've seen a meaningful improvement in margin. We believe they're also growing about the kind of European market, and it's a mix based off the countries and the segments that we're operating in. So they made some good progress.

The indications from a market perspective, let me just do, [ Mark ], for the European -- our European footprint is roughly low single digits for this year. So we are seeing a little bit of an uptick there. And the European strategy really is to focus on the markets that we're in, with the products and solutions that we're in and the customers we're currently serving to just basically expand share and continue to roll out new innovations across those markets.

And if we do that, we hope to continue to drive above-market growth in Europe as well. And as you know, well, the ambition there is we want to get the European business focused on profitability, and we are targeting 15% in the midterm. We do need a little bit of growth to get us there. So we're being cautious on our investments and over-indexing on profitability in Europe.

Our next question comes from the line of Trey Grooms with Stephens.

It's Trey Grooms with Stephens. So I wanted to maybe stick with the end market kind of outlook. You're kind of talking about flattish on the housing front, and sorry if I missed this, but maybe if you could dive into kind of any kind of expectations you have around the commercial side or maybe R&R here in the U.S.

Yes. So if you look at last year, let's start with that, the commercial business, and we use a provider [ Dodge ] to help us narrow the numbers. When we look at the commercial starts again, relative to our business, we think the market growth was down mid-single digits last year.

We're anticipating the market growth for the commercial business to be, I believe, right around flattish for the year, maybe up 1% or 2%, to be determined, as things develop. If you look at national retail, for 2025 National Retail, when we use Cleveland Research. So that is a big bucket that we're looking at that was up low single digits.

The market forecast for the national retail business and what I've heard from some of the big box retailers is flat to low single digit going forward. And again, our ambition is, overall, we want to grow the company faster than U.S. housing starts, but in each of those individual segments, we want our businesses to outperform those markets as well.

Yes. Got it. Okay. And then Matt, maybe if we could dive into your comment earlier on the gross margin outlook for '26, expecting maybe a slightly lower gross margin percent and you kind of went through some of the things there. But if you could maybe dive in a little deeper on the puts and takes. You mentioned we're going to see some kind of carryover pricing benefits? I know there's probably still some negative incremental impact from tariff costs rolling through those types of things, maybe you could help us kind of bridge into the gross margin expectation for slightly lower this year.

Sure. And we put a couple of extra slides this time, Trey, in our investor deck to kind of give a bridge or a waterfall on Q4 revenue and then total 25 revenue to kind of back up some of the numbers we're talking here. But let's talk price first. So the price increases that we took during 2025. One was effective late Q2, kind of middle of -- or early June, and then second was middle of October is when it went effective. I don't know it's quite a bit smaller than the first 1 on some of our tariff items.

But $100 million of annualized pricing, you'll see in those charts that I referenced that we've realized about $60 million of that during 2025. So an incremental flowing through essentially in the first half of 2026. From a tariff standpoint, we also have about $100 million of annualized tariff costs. And those map a little bit differently when you look at them across fiscal years because the tariffs didn't start until kind of partway through the year.

And then we also had inventory to cover us for a little bit at the beginning there. And now what you're seeing as we kind of exit Q4 into Q1 is that essentially all the products that are on its way out, our doors are fully tariffed. And so the dynamic of -- at the end of the day, on an annualized basis, about $100 million in pricing and $100 million in tariff-related cost increase, which creates some gross margin erosion in and of itself just being the same absolute dollars.

And then from a timing standpoint, a little bit more favorable in '25, a little bit less of that favorability in '26 because the mix between those 2 buckets shifts a little bit. So put that with a little bit of increased depreciation from our new facilities. Certainly, there were some cost offsets by getting into those new facilities. So that's not a huge driver necessarily. It's really a tariff story, but expecting that gross margin to be down a little bit in 2026, and that's assuming no more incremental tariffs and not planning any further price increases, but that's all included kind of in our overall guide of getting to that 20% as kind of the midpoint of our operating income guidance.

Yes. Got it. Okay. That was super helpful. Going through the detail. And I guess since -- I mean, the outlook for the EBIT margin kind of getting into that operating income margin kind of getting to that 20% range at your midpoint as you mentioned. It sounds like there's the SG&A like you're going to see some leverage there, I guess, kind of benefiting from some of the cost outs and some things like that. Is that the right way to kind of forecast or model in the SG&A?

Yes, absolutely. We've referenced the cost savings initiative work that we started earlier this year -- or sorry, in 2025, during late Q3, early Q4. We saw a little bit of savings from that in Q4, but it was more than offset by the cost of it from a severance and restructuring standpoint. We're expecting absolute operating expense dollars to be down in fiscal '2026. I don't know if we sized it, but in the $10 million to $15 million range in absolute versus the 2025 endpoint, so certainly going to get some leverage there as a percentage of net sales.

Got it. Yes, sorry, go ahead, Mike, sorry.

Yes. Remember that includes some FX impact that we are also seeing in.

Yes, that includes about a $5 million expected FX hurt in OpEx and $26 million. So even with that kind of down $10 million to $15 million, which if you think about it, we sized that $30 million cost savings from the cost savings initiatives that we took on. We got a little bit of savings in Q4. Majority of it is already kind of starting in 2026, a few offsets, exchange rates, certainly, as well as there are other inflationary costs that go up from a benefit standpoint things. But even with all of that, expecting total OpEx to be down $10 million to $15 million versus 2025 [indiscernible] dollars.

Our next question comes from the line of Tim Wojs with Baird.

I guess 1 of the things you haven't mentioned, Matt, is steel and it has kind of [ perked up ] here recently. So I guess, is that just something you're pretty comfortable with this year, just given kind of the inventory timing and those types of things? Or how -- I guess, how do we think about steel kind of in the gross margin bridge this year relative to what's in there.

Tim, let me start, remember, we're buying 150-plus different flavors. So there's not a direct correlation in some of the stuff that you see in the market and also use spot buys, so we're not on a contract that typically see some of the big swings you maybe see in the latest market data.

Yes. And Tim, I'd say we're comfortable kind of where we're at and what we're seeing in steel prices with kind of what we've included in the guide. As you know, we do these spot buys, and we tend to it at least a few months out ahead in terms of having steel coverage and inventory or at least sitting at the processors ready to go. So not expecting any impact on our gross margin based on what we know now. I mean, obviously, steel changed significantly. We'd have to revisit kind of the pricing equation. But what we're seeing now not expecting to have to do that in '26.

Okay. Okay. That's helpful. And then I guess as you guys think about the market in '26, I know you use kind of third-party forecast. But as you're starting to talk to your customers and how they're starting to prepare for 2026. Is that forecast kind of merging with their expectations as you've kind of gone through the last 3 to 4 months?

Yes, it is. But I would say, Tim, as you know, we have a very, very fragmented end customer base. So we're talking with a lot of the bigger builders. We're seeing their numbers. We do quote multifamily, and we do some takeoff work and some engineering work. And from a multifamily perspective, pretty much everywhere, but the south, we're seeing things are pretty busy. We're especially optimistic on the western part of the U.S. where we're seeing some of our partners and customers actually hire people and seeing them at pretty full workload. So that's good news.

But we add it all up. We don't really get significantly detailed forecasts across all of our markets from our customers. So we're just going with the assumption that we get from Zonda, who's our leading provider in there because they provide regional data. We're also working with another firm that can give us some local data, and we're just going to be conservative on the forecast until we see an extended pickup.

Okay. And then the fact that you called out the regional variance, is that just you guys stating the data point that you guys have more content in the South and the West. Is it just that as simple as that? Or is there an expectation that, that performance by region changes significantly versus kind of what we're seeing today?

No. So the driver behind that and if you look at 2 markets, in particular, Tim, the California and the Florida markets over the last couple of years have been down significantly. We believe we've got probably 10x the content in those houses that we would in something in the middle of the U.S. So in those markets, I appreciate significantly, that gives a pretty big headwind.

We have not really seen any change in that mix story yet at this point. and we're assuming that's not going to change in -- at least in the short term. And that's all part of how we're thinking about the market going forward with the assumption that's going to be roughly flat.

Yes. And I think to answer your question a little further, Tim, I mean we are not implying any difference in our share performance in those markets. It's more of the mix impact of those states being where we have more exposure based on the content per home.

Okay. Yes, I completely understand.

Our next question comes from the line of Kurt Yinger with D.A. Davidson.

Great. Appreciate the bridge in the presentation. I guess, by my math, it might imply North America volumes down maybe mid-single digits, 5% in Q4. I guess as you think about the shape of 2026 and a flat housing starts here, it seems like we still have a gap at least through the first half. Do you expect that Q4 performance is sort of indicative of how we should be thinking about the first half of the year and then some improvements in the back half? Any color there would be great.

Kurt, as you know, it's a little lumpy. So we try not to do a quarter-on-quarter comparison. We try to do that trailing 12-month story. And again, the census data is not available all the way through the end of the year, but everything we've heard from our customers and all the people that are doing the forecast, volume is going to be down housing start buying market now, just to be specific, going to be down probably 2% or 3% for the year-over-year best guess.

As you saw total company volume down roughly 1% for the year, U.S., a little bit lower than that. But all told, we continue to believe that we can drive good above-market volume growth. Not every year is going to be perfectly straight up. There are some puts and takes, but we tend to believe that we've got a good plan going forward to continue the long-term average.

Okay. Okay. I appreciate that. I guess if I would just think about kind of the trend in volume performance kind of through year-end, where we'll kind of start the year, is there anything that you're seeing or hearing that would suggest we see like any meaningful inflection in the near term or a little bit of softness kind of lingering to start 2026?

Yes. I would just say if you watch the weather forecast and weather news, I think from an overall market perspective, that probably didn't help it. But we're not -- it's too early in the year, Kurt, to comment on 1 way or another.

Okay. I appreciate that. Just on the $30 million cost reduction, did any of that sort of hit and prove beneficial in Q4? Or is that sort of all a tailwind as we think about kind of 2026 operating expenses?

Yes. Let's break down the $30 million a little bit, Kurt. So if you take that $30 million roughly 2/3 of it is in -- you would see the -- you will see the benefit in OpEx and roughly 1/3 of it, you'll see it in cost of goods behind some kind of nonmanufacturing choices that we made. We did see a little bit of help in Q4 because a lot of the actions that we took were kind of right at the start of Q4 or even late Q3, but that was offset by the onetime costs for the most part. So it's pretty neutral in terms of the P&L impact in Q4.

And then -- then we're going to get the incremental savings in 2026 above what we saw in Q4. And then obviously, we don't have the same amount of onetime costs or restructuring costs in '26, although we did call out a little bit that we're going to have due to some European footprint optimization. So I think the net-net of that is kind of what I was saying earlier, I think, to Trey's question of, we expect absolute OpEx to be down $15 million to $20 million versus where they were -- where they ended 2025, and that includes $5 million of exchange here things we're having to eat on other things that are going up in costs in terms of benefits and workforce and things. So expecting to see those flow through pretty regularly throughout '26 because the choices and the actions that we've taken are essentially already done. So we're starting to realize those benefits.

Got it. Okay. And lastly, at the outset of the call, you had kind of referenced software and services and that adding an element to the bridge. I guess can you maybe provide a little bit more color there and talk about any ways in which you're maybe incrementally monetizing those as we kind of look into 2026?

Yes, I'll take the first part and then Mike chime in if you want to. But as you know, Kurt, the way we used to report volumes on a pound ship basis, which is really only on things that can be measured in pounds and that was really only applicable for our North America business. So it didn't include things like equipment, where we've made acquisitions and investments and a big part of our go for go story in component manufacturing as well as software and services.

So feel like this is probably a more common way to report volume backing things out of revenue in terms of acquisitions and exchange rate and pricing. But as we head into 2026, we -- as you probably saw at our -- some of our events that we've had where we talked about some of the software development -- we are focused on the component manufacturing related software and bringing that to market in 2026, which we believe opens up the largest growth opportunity for us, which is in the hardware side of the component manufacturing, but requires the software to be there.

And then we also have a number of tools that we're working on in terms of like takeoff and services and software that we believe we can monetize. It's very early days. So I wouldn't have anything to call out there, Mike, anything to add?

Good summary, Matt, a very good summary. We do believe that there's opportunity for digital services and solutions to help our customers address the affordability story by just making it more productive and having a more accurate build materials. We've got a new pipeline tool that we released. It's in testing with some customers now. We have a pipeline auto takeoff tools that we're developing. We've rolled out estimating services in various parts of the business. So we think that there are some things that we can do to make a meaningful impact. The number is not big enough at this point, we do want to share it, but we do think that, that will be part of our longer-term growth story.

Thank you. There are no further questions at this time. With that, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

All right. Good afternoon, again, everyone, and thank you for joining us today. This is Dan Moore, Director of Research at CJS. Our final presentation of the afternoon is from Simpson Manufacturing.

And before we start, just a reminder, if we can help follow up on any of the companies you met with or heard from today, please do let us know. With that, it's my pleasure to introduce Mike Olosky, President and Chief Executive Officer of Simpson; as well as Matt Dunn, Chief Financial Officer.

We'll start with a brief 10-, 15-minute update and overview from management. Following that, I'll ask a series of questions. Feel free, as always, to submit any questions you might have through the portal, and we'll do our best to see that we can cover them.

With that, Mike, Matt, thank you very much again for taking the time to be with us today, and the floor is yours.

Dan, thank you very much for including us. I appreciate it. And this is Mike Olosky. I'm the CEO of Simpson Strong-Tie. And I'm going to start with a company overview and Dan, I'm going to do this at a 30,000-foot level, then we'll kind of drill down a little bit more of the details again, the next 5, 10 minutes.

So if you look at Simpson Strong-Tie, we are a leader in structural solutions for the building construction industry. Typically, our solutions are less than 1% of the bill of material.

So relatively small spend in the total construction cost, but our solutions are critical to the structural integrity of the building. If you look at our go-to-market approach in our North American business, we go to market with a broad product line. We believe we've got the broadest and deepest product line in the industry.

That starts with our wood connector product line. This is the industry that our founder developed approximately 70 years ago. He developed that product line, and that's developed into a fantastic franchise for us. That is our leading product line.

We also have a product line of component manufacturing systems. So these are truss plates and the software that supports that industry. We also sell into the commercial building industry, and we provide a broad range of fasteners and concrete connections to be able to do that.

So if you look at our product line, the main product lines are connectors, fasteners and anchors. We also provide a broad line of digital solutions that help our customers figure out how to identify and specify and select those correct products.

But it's the broadest and deepest product line in the industry. We take that product line into 5 main market segments. So the first one is the residential business. And we believe that the -- our total company, roughly 50% of the business is linked to U.S. housing starts. This is the largest part of our business. So this will be lumber yards, pro dealers and builders. We also sell into the commercial construction industry.

Predominantly, this would be stick-built houses. We do have some applications for steel construction, as you see in this slide. Here, we are selling also connectors, fasteners and anchors.

The major part of the commercial construction business that we're focusing on is -- would be things like strip malls, hotels, dorm rooms, again, areas where it's typically stick-built construction.

Our OEM business, these are things that are made in a factory. So these would be areas where it's wood to wood, wood to steel connection, wood to concrete connection. So very similar applications. Example of this would be post frame houses, tiny sheds, pole barns and again, areas that are typically manufactured in a production type environment.

National Retail would be other business. So this would be the typical big box retailers, again, selling fairly similar product line into that space.

And then the last segment will be component manufacturing. So the end market is residential housing, but these will be people that make truss systems, floor systems and wall panels.

If you take a look at -- I think what really differentiates Simpson it's really all about our business model. So again, we take the broadest and deepest product line of structural solutions into the industry, and we start by taking that broad and deep structural product line to building code officials.

And we help the building code officials write codes that result in safer, stronger structures. We've been doing this with the building code officials for decades. We also provide continuing education credit to the building code officials, and we've got a deep relationship with all the people involved in writing the codes.

We then take those building codes and all the engineering training documentation for our products to the engineering and the architecture community. We talk with them about how to use our solutions to meet those codes. We talk about how to use our solutions to create these big indoor/outdoor living spaces, big window areas, large garages and all the structural work that they need to do around that.

That results in our product being specified. So when you look at the blueprints for single-family, multifamily homes, commercial jobs, you're going to see the Simpson product line specified all over in the place on it.

That creates a demand for our products. We then take that product line to the -- really the end users, so that would be the builders themselves. And we work with the builders to get our products specified in their builder programs and where they tell the supply chain, for example, that they only want to use Simpson connectors on their homes and on their jobs.

And what that does is that pulls through those specifications through the supply chain into the builders. Then we go to all of the pro dealers, contractor distributors, lumber yards in between and explain to them how we are developing the market with building codes and with engineering specifications.

We talk with our lumber yards and pro dealers about how we're pulling that through with builder agreements because all those builders are contractually obligated to buy our connectors and then talk with those pro dealers and contractor distributors about how they don't need to carry a ton of inventory.

And we've got that broad -- big, broad, deep product line. They don't need to carry a lot of that inventory because if they place an order in the morning, we're going to ship it in the afternoon and they're going to get it the next day. We also do a lot of training with our pro dealers, helping them and their sales teams go out and identify these applications to make sure, again, we're getting as much content on the house as possible.

Then over the top of that business model, we layer a broad set of digital tools. So we have 50-plus digital tools that help all different types of customers identify, specify and engineer in the right product. In the cases of component manufacturing, we also have digital tools that can help them run their business. And that business model really has helped us make significant progress in a flat market.

And Matt, do you want to talk a little bit about this?

Sure. Thanks, Mike. Looking at our progress in what's been a flat market over the last, call it, 4 years, you can see there at the bottom, U.S. housing starts roughly at the same level in 2024, our most recently completed fiscal year as they were in 2020. But during that time frame, we roughly added $1 billion in revenue. You can see the big drivers there, $450 million of net pricing. This was as steel prices were significantly ramping up in '21 and '22.

We acquired ETANCO, which essentially tripled the size of our European business. And we did have about $200 million in incremental revenue from share gains. We tend to look at our performance in volume versus U.S. housing starts as a key metric, and that led to several hundred million dollars in net revenue growth from 2020 to '24. If you kind of look at the next slide, some of the things that we're proud of that drove that. You see it there on the slide we were just on, but on operating income, in addition to that $1 billion of revenue, we added about $180 million of operating income during that same 4-year period.

Looking at some of the things that drove that, we strengthened our market position in connectors and improved our share in fasteners and anchors. We're clearly the market share leader in connectors, but have significantly improved our share on those other categories over the last 4 years.

We did shift to a market-focused sales team. So we used to go to market very much product focused, and we shift that more to a market focus about 3 years ago, where kind of leveraging the strength of the connector business to kind of grow our business and cross-sell in the other categories.

We've made a lot of investments in talent, both internal potential promotion of strong internal candidates as well as a couple of key adds from the outside on our leadership team. We did transition away from direct sales in the last remaining part of our business that was 2-step distribution. That was in the Pacific Northwest. Other than that, we are already direct for 99% of the country. We've been growing the European business, adjusting the footprint. Certainly, the last few quarters that we've released earnings over the course of 2025.

We've had good progress in improving the operating income in Europe as well as we saw organic volume growth in Europe during Q3 for the first time that we announced on our last call.

So good progress there. And we've made a lot of footprint investments in our manufacturing and logistics, 2 facility expansions, one in Gallatin, Tennessee, that makes fasteners and expansion of our Columbus facility in Columbus, Ohio, where we make connectors for that region of the country as well as significant investments in software development.

And then on the logistics side, we've added some additional warehouses that were related to that transition from 2-step distribution to direct sales. So a lot of great progress from 2020 to 2024, and we're proud of that in what's been a pretty flat market across that time period.

Over to you, Dan.

Perfect. Appreciate the overview and update. I'll start with a couple of macro questions and then drill back down. But from a 20,000-foot perspective, housing starts for multiple years have been below trend. We've been in the structural housing deficit for years. It's -- what are the kind of missing components in the equation? Is it a shift in demand toward multifamily? Is it simply affordability? What are the keys to closing the gap from your perspective?

Yes. Good question, Dan. So yes, 4 years of a declining market. The market forecast for 2026 are flattish. And if you look at kind of the story, I think on one end, you have general consensus from everybody in the industry and all of the local politicians that, hey, we need more housing and there's a housing shortage.

But you also have a scenario where you definitely have an affordability issue. And that affordability issue can be partially helped by interest rates.

If you look at the big builders and how they've been talking about demand on their end, they are already offering interest rates in that 3% to 4% range. And when they go into that -- the low side of that range, it's not driving a lot more traffic.

So I think they would say interest rates is one component, but not the only component. The other one is just the fact that the prices themselves are high relative to people's income and then also the fact that there's some just general economic uncertainty. So at the end of the day, though, Dan, what we're doing is we're focusing on the things that we can control. We're not assuming that the market is going to take off.

So we've made some good investments in the business over the last couple of years in a flat to down market. If the market takes off, we're ready for it, but we're going to be conservative in our investment until we really see the market pick up. And in the meantime, again, focus on the things we can control, and that's making sure that we're taking great care of our customers.

We're developing new products. We're developing new applications. We continue to try to drive more content on house, make sure that we're delivering great service and doing everything we can to help our customers get more productive, which ultimately helps them address that affordability issue.

Really helpful, Mike. And following Q3, you gave a sort of a preview for thoughts on '26. And looking at housing being down maybe low single digits. You've been outpacing meaningfully over the last several years and still have that kind of goal of 300-plus basis points.

So talk about your ability and expectations of continuing to outpace by that level? And is that outlook a bit similar today as it did maybe 60 days ago?

Yes. So we want to -- I mean, at the end of the day, Dan, you look at our 3 financial ambitions. We want to drive above-market growth. We want to be at a 20% plus operating income, and we want to drive EPS ahead of revenue growth. And so as we think about that and in a relatively slow growth environment, we need to make sure that we're driving those growth opportunities internally.

So we've got playbooks by each of those market segments that I went through. We've got playbooks by each of those product lines that I went through. We've identified new product opportunities, new application areas, ways to get more content in the house, ways to help our customers win in the market.

And we think as a result of that, we hope that continues to drive that above-market growth. Now Dan, not every year is up. If you look at the last 10 years, a couple of years where we weren't driving above-market growth because different growth initiatives have different cycles.

And -- but when we add it all up over the long term, we do believe that we can continue to drive above-market growth, and we certainly want to beat that historical average. I think one thing to keep in mind is not all housing starts are equal, and that does have an impact in our ability to grow above the market.

Certainly, the fact that the market in the West where we -- there's a lot of seismic activity has been declining in the market in the South, Southeast, where there's a lot of hurricane activity, that market has been declining.

And as you know, Dan, content on a house that has codes associated with seismic activity or content on a house, I mean, Simpson content on a house that has to resist a hurricane, it could be 10x the amount of content we put on a house that has pretty simple codes in the middle of the U.S.

So the fact that the housing market in California and Florida has slowed significantly, has probably created a couple of hundred, 200 to 300 basis points headwind just from our ability to grow above the market, but those are things we think that we need to power through and we need to continue at the end of the day, drive above-market growth independent of some of these macro trends.

Understood. Maybe talk about some of the targeted growth markets. You pointed to them earlier overall and then specifically truss, it's been an area of increased focus for several years. What gives you more confidence now in your ability to accelerate penetration versus, say, where we were maybe 3 years ago?

Yes, Dan, this is Matt. As we mentioned earlier, we feel like we have growth opportunities in each of our 5 market segments and with each of our major product lines. So we kind of look at the matrix of those and have playbooks where we have goals and targets and strategies around winning in each of those kind of intersections.

Our business is built on lots of products, lots of SKUs, lots of applications, lots of customers. So it's not too focused on any one of those. To use a baseball analogy, like it's a lot of singles and doubles, right? There's not a lot of home runs out there for us, but that's how we like to build a business. When you roll it up, probably the 2 largest growth drivers over the next near midterm horizon are in trust and then ramping up our new product innovation. Trust is roughly $1.5 billion market. And so every share point is roughly $15 million.

We've said before, Simpson is less than a 10% share today. So we feel like there's pretty significant dollar opportunity there for us. Getting specific on Trust, component manufacturing has been one of our faster-growing segments for the last couple of years. We are continuing to win and gain new customers.

We have invested a lot over the last several years. We brought on new talent. We've invested in software that we're developing internally. We really feel like we have a better mix of people that not only know component manufacturing and trust design, but people that know how to develop top-level enterprise-wide software. And so we're pretty happy with the targets that we have internally, although we haven't said specifically externally what those targets are in trust.

But we talk about them internally all the time, and they're aggressive. And so when we talk to other people in the industry, customers, people that are building trust us today, maybe with a competitor's product, they want to have another option in the space. They want us to win. They work with us every day on the connector and fastener anchor business that we do with them.

And so they're pulling for us. And so we believe there's a right to win, and we're closer than we've ever been all the while we're continuing to add customers and grow share while we get ready for some of the bigger wins in the future.

Excellent. Appreciate it. Shifting gears over to Europe. You mentioned ETANCO. How do we think about kind of the growth outlook entering in '26? And what are the steps you can take to enhance growth should those markets remain stagnant over a longer period of time?

Yes. I'd say on Europe, we're pleased with how the business has developed throughout the course of 2025, at least what we've shared so far on our year-to-date earnings. It's been a challenging market, but they've done a good job of managing costs at the same time, growing slightly above the market is kind of the directive that we've given them on our European team there.

If you look at our last couple of quarters of European results, the operating margins have been probably 2 of the highest that maybe we've ever had. We actually saw organic growth in third quarter on a volume basis in Europe. So that was good to see as well.

The market forecast for Europe for '26 is actually a little bit more optimistic, again, talking from a market standpoint than it is in the U.S. So we've been in a situation where Europe had been growing slower than the U.S., at least the forecast for next year, when you kind of look at our business and where it lines up from a market perspective, there's actually a little bit of optimism that it might be up -- the market might be up a couple of points next year.

But really, for us, it's continuing to increase the profitability and maintaining or slightly growing share in Europe, while we wait for the market to get a little bit better and we get some tailwinds.

Appreciate that. Kind of dovetail a question that we have from the audience with one of ours that we have that's a little bit more general. But the biggest macro trends that you're watching, let's start with kind of federal relaxation of regulations, proposals that you're hearing from the current administration.

What are you seeing or hearing that could have an impact as we look at '26 and beyond?

Good question. So Dan, I think anything that can help the affordability story will be good. And I personally think that, that's going to be more on a local level because one of the biggest drivers of the affordability challenge is the cost to develop a lot.

And how when our builders go out to develop new subdivisions, they push them out pretty far out. They got to run sewers, water, electrical, they got to build schools. They have restrictions on how many houses they can build on a lot size. All that really contributes to anywhere from $70,000 to $90,000 of cost just to develop a lot. So anything that the government officials can do to address that, I certainly think it's going to help.

The interest rate story, as we talked a little bit about, that will help. I think the multifamily space and small builders that can't afford to subsidize interest rates. I think that's good. I don't expect any changes on building codes.

There's a lot of examples of where hurricanes have come through Florida and neighborhoods that have been built to the higher codes have gone through those -- managed through those hurricanes with relatively little damage. Right next door, they have homes built with the older building code that had significant damage.

So I wouldn't expect anything in that area to really to have an impact. It's just trying to drive down that lot cost and anything again that can help us with the affordability story.

Understood, Mike. I think it's this week, you're cutting the ribbon on the new facility in Gallatin that you mentioned earlier in the presentation. Just remind us of how that new facility will impact capacity in what areas as well as your ability to source and produce product locally here in the U.S. that maybe you had to source from China or elsewhere previously?

Yes. We're cutting the ribbon actually tomorrow on our facility in Gallatin, Tennessee. We had a previous facility about 5 miles down the road in the same city that was smaller. It was out of space, kind of an older facility that we had acquired 20-plus years ago as part of an acquisition, weren't able to do all steps in the process of making fasteners, which is what we make here in Gallatin.

And the new facility opening really gives us the opportunity to do the entire process in-house, specifically around heat treating and coating of fasteners. So we used to make fasteners in our Gallatin facility and import some fasteners from Taiwan and then send them off to a different third party to do the heat treating and coating and then bring them back to our warehouse in Gallatin and then ship them out to our other warehouses in the country.

So pretty inefficient from a freight and handling standpoint. We've invested some CapEx in machinery as well to make that process more efficient inside of our facility. The attractive -- one of the other attractive things about Gallatin is it unlocks some opportunities on revenue that we were probably frozen out of before because of lead times. So our current fastener business today, prior to the opening of this facility, we made about 1/3 of the fasteners that we sell in the U.S. or in North America in our Gallatin facility, and we acquired about 2/3 of them from a third party in Taiwan.

That's going to shift a little bit more 50-50 as Gallatin is up and running. But importantly, on some key market segments, particularly the mass timber segment that requires some pretty heavy-duty fasteners for the construction of those buildings, the lead times are often -- we need those that fastener package in the next 3, 4 months. And when you're buying it from Taiwan, it's 6 months or so to get that in-house.

And so we're going to be able to do that -- make that product in our new Gallatin facility to be able to quote those jobs and win more jobs. And those individual mass timber jobs can be pretty significant. An individual job could be $0.5 million worth of fasteners. So it's pretty sizable, and this kind of gives us that unlock to lower the lead times and do it in-house. And it also gives us the capacity to grow into the future.

So the facility we're in today certainly has room to expand over time. So we're leaning in on the space. We were out of space in the previous site, but really gives us a long runway of ability to continue to grow our fastener business, which has been one of our better-performing product segments over the last few years.

And Dan, just to give a little bit more color on our fastener business. The U.S. part of that business is a couple of hundred million dollars and the gross margins are in line with the overall company gross margins. So it's pretty attractive for us. It's been one of our fastest-growing product lines. And we're really focused on that construction load-rated engineered specified type fastener applications.

We have roughly 180 patents, global patents on our product line. We've got a bunch of different code reports covering our products. It all leads to a pretty differentiated product line, and we're also developing application tools that can help increase the install speed of fasteners and increase the new applications for them and subfloors or docks or decks.

There are, we believe, still a lot of ways to help us further differentiate this product line and continue the good growth. And the new facility here is certainly going to help us do that.

Excellent. Talk a little bit, one of the 3 goals or initiatives that you mentioned was the 20% operating margin target. Talk about what drove the recent decision to target an additional $30 million of cost savings? And how do we think about kind of the cadence of that over the next to 4 quarters?

Yes. So Dan, that starts by us going back to those financial ambitions that you talked about. We have a very, very good business model. We have a very, very strong market position. We've got a very strong team that knows the industry and is committed to helping our customers. All of that needs to translate into good financials.

And in a slow to flat market, we think 20% operating income is the right level. And after talking about a 20% operating income for a couple of years, looking at '26, maybe being another slow year, we thought we needed to do some things to give us a better chance to reach that target.

Yes. And as you think about how that $30 million is going to play out, I mean, most of the activity that we did was kind of in September and October. So we're seeing a little bit of benefit of that in our 2025 Q4 results, and it's included in the guide.

But of that $30 million and then the full $30 million being achieved in 2026. So incremental, some portion of it, but a run rate $30 million. And really, we want to get to that 20% operating income even if the market continues to be flattish, right? We weren't in a position to continue to wait for the market to take off and felt like we needed to take some action.

We've made a lot of investments, as Mike said, over the last few years in what's been a down market, and that's paid dividends for us in terms of market outperformance and share growth.

We believe we can continue to maintain that, but we did feel the need to take some cost action to set ourselves up well for '26 to be able to achieve those ambitions. And we'll give formal guidance on that when we do our Q4 earnings release here next month.

Perfect. Looking at trends in steel prices, just talk about kind of level set or remind us where we've been from a COGS and inventory perspective over the last few quarters and both from a revenue and margin perspective, if prices hold where they are today, how should we think about that rolling through into '26?

Yes. So we're obviously tracking the steel prices. They have upticked a little bit over the last 4 to 6 months. And as a reminder, Dan, we buy 150-plus different flavors, size, thicknesses, coatings, types of steel. So we're buying some specialty stuff anyways. And we typically -- we buy on -- we have spot buys. And so in general, we're pretty happy with the way that we've been purchasing steel and the steel partners. We're not anticipating any significant additional increases in steel through 2026 at this point.

Yes. And we took a price increase earlier in 2025 on our connector business after not taking any price increases for 3-plus years or so, given that we expect steel to kind of remain at similar levels, although it's maybe uptick a little bit, but I don't foresee us needing to take a price related to that unless there's a significant change in steel prices, we should be in pretty good shape.

Excellent. Another question come in from folks participating. Just how are things tracking so far as it relates to software and ERP initiatives?

So Dan, is that implying all things trust? Or is that on the internal side?

It's more all things trust. I think what are you hearing so far from customers, what the feedback you're getting and main priorities you're focused on as it relates to that software to drive increased penetration in trust?

Got it. So the component manufacturing business for the last couple of years, Dan, has been one of our strongest growing market segments. We continue to pick up new customers. That's good. We've invested significantly in the business.

Matt's touched on that a couple of times already. When I look at -- when we look at the trust business, there's 3 areas we really need to develop. We need to make sure that we've got on the cloud design tool, and we've been developing that for a while. We hope to launch that sometime in the fall.

We've had our leading customers preview that. We're getting a lot of good feedback on it, and we're pretty excited about the progress that tool has made. We need to be able to do a director tool when that basically helps our customers manage the projects. That's also in progress. We're feeling pretty good about the development of that area.

Again, good feedback. And then recently, we launched the producer part of the suite. So you need to be able to provide a tool that helps them manufacture the trusses, the tool that helps them manage the projects and then a tool that helps them do the design work.

This producer tool, we launched late last year. We've got a couple of customers on it now, getting good feedback that's opening new doors for us. So we can -- there's a lot of work to do, but we believe we've got the right team in place with the right plan, making good progress, and we continue to get good pull from our customers.

Really helpful. Switching gears with a couple of minutes that we've got left. M&A, can you just talk about areas you're most focused on from a product or geographic perspective and remind us kind of key criteria of multiples, IRR, how you think about accretion, et cetera?

Yes, not really any significant M&A in the current pipeline. I mean we continue to evaluate tuck-in opportunities, I'd say, focused on North America. So focused on getting the operating income up in Europe with the ETANCO acquisition that we did a number of years ago.

So not looking to add any more acquisition pressure there. Generally, we look at acquisitions to deliver returns above our weighted average cost of capital and be at least accretive to our corporate average gross margins. Those are kind of the key criteria. But like I said, there's not going to be -- at least what we see today, there's not going to be significant large M&A, just more tuck-in variety going forward where it's filling out a portfolio product gap or something that has IP that we don't want to design around. We'd rather acquire something like that.

Yes. Dan, as you know, we're in a super specialized business. So there just aren't a lot of opportunities. And the fact that we feel like there's plenty of growth opportunities in our current markets with our current product lines has us focused on driving organic growth.

There is 0 effort to look at anything out there from a 2- or 3-step adjacency. We're just simply not interested in that because we're focused on the core business.

Got it. And maybe just talk about working capital and then you've had pretty significant CapEx in terms of the new facilities over the last year or 2. Kind of what's the outlook for '26 and beyond in terms of CapEx and how that translates to free cash flow?

And beyond the projects that we put in place, do you see others down the pike? Or should we get to kind of a more normalized level of CapEx over the next 2, 3 years?

Yes. We're coming off of a pretty high CapEx period here for the last 3 years, including 2025. That's going to normalize in 2026 because we're done with the expansion in Gallatin -- or sorry, the expansion in Columbus and the new facility in Gallatin from a CapEx standpoint. I'd anticipate that CapEx is going to return to kind of a more normal run rate level starting in '26, which is probably in the $75 million, $80 million range rather than the $160 million plus that we've been for the last couple of years.

We did just refinance our term loan and revolver in December. We didn't take on any more debt. We moved some from the term loan to the revolver. So hope to pay that down here as we go a little bit. Share repurchase remains a key priority. We did announce the $150 million repurchase approval for 2026, which I believe is the highest single year in the history of the company.

And so in terms of capital allocation priorities, continue to support organic growth, share repurchase. We do pay a dividend. CapEx will be less than it has been in the last few years, but still a significant use of that $75 million, $80 million, paying down some debt and then strategic M&A, if it arises. But I think based on where we are and kind of how we've performed generating cash, should have plenty to do the things we want to do from a capital allocation standpoint and still return cash to shareholders.

Very good. Well, I think you just answered my last 1 or 2 that I had there, all in one, Matt. So with a minute to go, I will say thank you very much for joining us. Remind folks that if there's anything we can do to follow up or help on Simpson or any of the other companies you heard from today, please let us know. And I'll turn it back over to you, Mike and Matt, for any closing remarks.

We appreciate this, Dan. And as I said earlier, we believe in the housing market in the mid- to long term. In the short term, we're going to be conservative in our investments. We're going to be focusing on driving above-market growth.

We want to get to that 20% operating income, and we want to make sure we're driving EPS growth ahead of revenue growth. And to do that, we're working on taking great care of our customers so that we're a partner of the choice, driving innovation and making sure we're taking great care of our team. That's the plan.

Fantastic. Thank you again. I look forward to seeing you tomorrow in Gallatin, and have a great afternoon.

All right. Thanks. We'll go ahead and get started. I'll try not to knock the microphone off in the floor this time. I'm Trey Grooms. I think I've met most of you guys and gals, but I cover building materials, building products for Stephens. Joining us today is Simpson Manufacturing's President and CEO, Mike Olosky and CFO, Matt Dunn. First off, I want to thank you guys for joining us, coming up here to Nashville. We appreciate having you. I got a long history with Simpson. It goes back a long, long time. But most recently, initiated coverage on Simpson last week. So happy to have you guys here. So thank you.

Thanks, Trey. We appreciate it.

And so Simpson, and I know we're going to go into some more details here shortly. I think Mike is going to go into a few details. But Simpson is the leading manufacturer of structural connectors as well as they manufacture truss plates and fastening systems and concrete construction products, anchors and things of that nature. So I think maybe to start, Mike, do you want to maybe give people kind of an overview of kind of what you're seeing in the world today and what Simpson is about?

Thank you, Trey. Appreciate the opportunity to be here. So let me just level set everybody with a 30,000-foot overview of Simpson. So we are a leading supplier of structural solutions into the building and construction industry. Typically, our products are less than 1% of the bill of materials, but critical to the structural integrity of the building. We go to market with 3 main product lines. The first one is the connector franchise that Trey talked about. That's what our founder started that business. These are engineered stamped steel components that connect wood, 3,000-plus SKUs. If you go into a house, you're going to see our stamp steel connecting all types of wood connections in the residential and commercial space.

Second main product line is fastening systems. So this is roughly a $500 million business for us. These are differentiated construction load products. We have about 180 global patents on them. We have delivering systems that help our customers use these products. We have specification and design tools that help them figure out which product to use in the right application. The third main product line are materials that enable concrete connections. So think large anchor bolts. So these would attach the frames to concrete -- to the concrete foundation. It would also be adhesives that are used to do that. And then we also have some of our connector product lines that are used to connect cold-formed steel and commercial buildings, okay?

Three main product lines, connectors, fasteners and anchors. We sell that into 5 market segments, the residential space. So we do believe roughly 50% of the business is linked to U.S. housing starts. So that is our biggest market in the North American business. Component manufacturing. So these are truss plates that are sold to people that make truss systems, floors and wall panels. So both of those linked to U.S. housing starts. Then we have a national retail business. So think big box retailers, all things, DIY, repair and renovation. We have a commercial business, and then we have an OEM business. In this OEM business, there are things that are made in the factory. So think tiny homes, sheds, and then other things that need wood-to-wood connections like creating systems.

And I think the most unique part about Simpson really is our business model. So we go to the industry with the broadest and deepest line of structural solutions, making us a one-stop shop for these products. We go to building code officials and we help them write codes that ensure houses will withstand hurricanes, seismic events, heavy snow loads. We provide continuing education and training to building code officials. And then we take that broad and deep product line to engineers and we talk to them about how do you meet those building codes and then also how do you design that big house with these big openings, big 3, 4 car garages, things that need a lot of structural connections in it. Between the building codes and the work that we do with engineers and architects that results in a lot of specifications for our products.

So if you look at prints, blueprints, our products are typically called out all over the place. That creates the demand for our products. And then we go to the opposite side, we go to the big builders. And we work with approximately 250 builders where they tell the supply chain, they only want to use Simpson Connectors. And so that pulls through the demand we've created with the building codes and with the specifications through the system. And then we go to the pro dealers, lumber yards, contractor, distributors, everybody in the middle and say we're creating demand for our products. We're pulling that demand through the channel with our builder agreements. You can make a lot of money off of our products.

And by the way, we're going to deliver great service, place an order today, ship it that afternoon, you're going to get it the next morning. So you don't have to carry a lot of those 10,000 SKUs to be able to provide all these unique structural connections. Then over the top of that, we layer a bunch of digital solutions that make it easy to figure out which product to specify, how to engineer it in, how many you need, how to do custom fabricated parts, all of which again creates a very, very sticky business model. And that's enabled us to drive good above-market growth for the last 10 years. Trey, over to you.

Yes. That was super helpful. Again, kind of just stepping back, when you think about the business, connectors, you guys have been there a long time. But could you talk about kind of what your market share is in maybe from a high level in your different product categories as well as where you see the most opportunity for advancements there?

Sure. If you've seen our investor deck, there's kind of a market size slide in there. It's got 3 big circles on it. The leftmost circle is structural connectors. So in there, there's sort of 3 submarkets. There's the traditional connector market, which is the category that our founder created and we've been in for 70 years. It's roughly $1.5 billion market, and we're probably 75%, 80% share of that market. Another big market in that space is truss plates, so part of the wood connectors. That's again, roughly $1.5 billion market. We're less than a 10% share in that space. It's a significant growth opportunity for us over the next we believe, 5 to 7 years. We've been making progress there. We've been growing share, but certainly one of the big growth opportunities for us.

Fasteners is the middle circle you see in that investor deck, roughly a $5 billion market. We play in the kind of high-end premium, load-rated structurally important fastener segment of the market. It's roughly a $500 million business for us. We've been growing disproportionately there. I think some of the changes we made in the company over the last couple of years of how we go to market have significantly enabled us to increase our penetration on fasteners to grow that business disproportionately and as well on anchors, a smaller business, but a couple of competitors there. We have a solid share, but have been growing that again disproportionately as we've kind of been able to leverage the strength of the franchise of the connector business over the last couple of years in order to grow those other businesses significantly.

And you mentioned digital. Can you go into a little bit more detail about what you're doing there on the digital front? And I know there's been -- you worked on some software rollouts that you guys see coming up, I think more specifically on the truss side. If you could talk about some of those initiatives, please?

Yes. Let me talk big picture digital and then Matt, you do the deep dive on the truss space. So again, 10,000 products. We're trying to be easy to do business with by helping our customers figure out which product to use for what particular application. And remember, we're in an industry that has traditionally not been a big user of digital tools. The industry also has some productivity challenges, leading to some affordability challenges. And we think digital solutions is one way to address that. So we've got 50-plus different web apps that are very, very specialized. So just kind of looking at the fastener version. We have a tool that helps engineers identify the correct fastener for the application, figure out what the load ratings are, figuring out how those load ratings can then help them with their engineering work, eventually, we believe, leading to specifications.

We've got a connector selector tool. Out of those 3,000 connectors, how do you figure out what the right product is for the varied application. We do a lot of custom fabricated connector applications. So we've got tools that can help our customers actually design that fabricated part online, visualize it to make sure that it's the part that they need and then kick that off and then we'll make those products typically and turn them around within 4 to 8 hours. We've got tools that will help our lumber yard customers and some of our builders create a more accurate bill of materials.

So typically, the way it works in a medium-sized -- lumber yards in general, a builder will come in with a 2D print and ask the lumber yard to quote it. That typically is a pretty manual, pretty labor-intensive process. We've got digital tools that will help create a faster, more accurate bill of materials, and we're working on AI tools to do that even faster. We've got tools that work with builders to help them manage the different options in their house in CAD systems that enable them to be able to be more efficient in how they design and ultimately build those houses. So a broad suite of these digital tools that we do believe drive productivity. And the component manufacturing is a very specific case of digital tools. Matt, why don't you talk about that?

I would just add to the tools Mike just described. I would say a lot of those are intended to be -- make our business model more sticky, but we are getting some revenue and commercializing some of those. We believe over the longer term, there's more opportunity to monetize some of those software solutions in and of themselves. And then you look at component manufacturing kind of as a unique situation itself. That market is pretty unique. It has a pretty unique business model that was created by the share leader in that space. Essentially, they provide software to truss manufacturers for free in exchange, those truss manufacturers buy truss plates at a premium. That's sort of the business model that's existed.

There's really 3 main components to software in that space. There's the design tools. So that's what's doing the engineering work to design the truss that's going to hold the load that's required as well as wall panels and floor trusses, so kind of those 3 components. The second major software component there is really a project management type software. So it enables the lumber yards to kind of manage which truss projects are they going to make when and where, if they have multiple sites, how do they manage that. And then the last piece is really the software that runs their operations. So it's running the saws that are cutting the wood. It's running the tables that are building the final product from a truss standpoint. We've been developing that software over the last couple of years in a significantly increased way. We've been investing quite a bit. We've been growing share in the space.

I think our software today works very well for kind of the small and medium-sized truss manufacturers. To go take some share against some of the larger players, our software needs to be a little bit better, and we've been developing that, and we expect that we'll have kind of all 3 of those main tools that I talked about roughly about a year from now, we will be in market and ready to go on those. One of them we launched this summer, CS Producer, CS Sense for cornerstone, which is our name of our software, but CS Producer was launched this summer. It's a cloud-based software for kind of running the truss plant from the equipment standpoint.

And we've gotten a lot of good feedback on that at the major industry show, which is the BCMC show, the Building Component Manufacturers Conference, was a couple of months ago. Lots of good feedback, and that's unlocked some doors for us to continue to pick up some share in the meantime as we kind of work on the final pieces of the software that should be ready here in the next 12 months.

So you've got a pretty small part of the market there in truss plates. With this rollout, I'm sure you guys have some internal, but is there any way for us to think about what the opportunity is from a market share standpoint over the long run? Any targets that we could...

Sure. We certainly have internal targets. We haven't talked about those publicly specifically, but $1.5 billion market, less than a 10% share, roughly every point of share is a $15 million opportunity. From that standpoint, it's not going to be like you flip a switch and you immediately go from x share to 3x share. Each one of these conversions needs to go well with that lumber yard and that component manufacturer. It's sort of like an ERP change for them. And so we have teams that are focused on making sure that, that conversion and that integration goes well for the customer. And some of the customers that we've had for a number of years, I think, have given us input on that and given us strong feedback for the most part, has gone very well. And so we're very focused on that. So I think what you're going to see over time is a pretty significant share opportunity, but it's not going to be a light switch type flip initially, but it doesn't take a whole lot of share gain to make meaningful impact on company revenue.

Yes. And Trey, the last couple of years, that has been our fastest-growing market segment.

Yes. Great. I'll pause to see if there's any questions from the audience. No? Okay.

Well, I've got a few more. So what -- or can you maybe walk us through Simpson's -- the way you guys approach pricing? I know historically, you've passed through increases in costs very successfully, done a good job at that. And over the last few years or during, I guess, even further back than that, 4, 5 years, you guys kept a lot of that upside from pricing. And how do you think about that going forward? I know there's a few more that you've announced in the market here even more recently in response to tariffs and whatnot. So anything you could give us on kind of how you're thinking about pricing, both in the near term and your longer-term kind of philosophy around it?

Yes. Good question. So remember, good highly differentiated products add a lot of value that are less than 1% of the bill of material, critical to the structural integrity of the building. And then we provide a ton of service, a lot of innovation around that, a lot of service around that, a lot of training programs. So for that less than 1% of the spend, we believe our customers are getting significant value for that. And so we believe that needs to result in a modest premium from a pricing perspective.

If you look historically at Simpson, historically, we've really only priced on major steel moves. If you go back to the COVID time, we finished 2020 at $1.25 billion in revenue. Steel prices went crazy. We passed on $500 million, $500 million on a $1.25 billion base, so a significant amount of pricing. We kept $450 million of that. Part of the reason why we believe we kept $450 million is we invested a lot of that pricing money back into the business to provide even better service to our customers, even more innovative products, and additional things to provide service to them. So we have proven that we're able to do pricing at a modest premium. The tariff story and the pricing lately, Matt, why don't you dive into that a little bit?

Yes. Mike referenced the $500 million. That was across a number of price increases in '21 and '22. And then the last time we actually changed price was giving back that $50 million in late 2022 to kind of get us down to the $450 million net. And we hadn't essentially touched price since late 2022 in either direction. Steel largely been in a pretty tight range during that time frame, but everything else, labor, freight, utilities, costs going up. And so we chose to take a price increase earlier this year on our entire -- essentially the majority of our entire U.S. product line. We were planning that. And then obviously, the tariff situation created a little bit of added dynamic in terms of imported items.

So we import all the anchor bolts that we sell from a factory that we own in China. So that's a pretty significant impact from Section 232 steel derivatives. And on the fastener side, we import about 2/3 of the fasteners that we sell today from Taiwan. We make the other 1/3 at a facility not too far from here in Gallatin, Tennessee. So we had to adjust some pricing on imported items as part of that price increase. And so we announced a price increase in April. It was effective early June. It was essentially a weighted average 8% across the U.S. product line, essentially a 5% price increase on most items and then imported items had higher price increases, some up to 15% or so depending on where they came from.

We had announced that. It went into effect June 2. Shortly after that, there were additional tariffs announced on imported items. So we followed up with a second price increase. We announced mid-August, effective mid-October. So we typically have 60 days notice, only on imported items. So that's fasteners and anchors for us. And so the situation there is we're taking roughly big numbers, about $100 million of pricing on an annualized basis with these increases. The tariff costs are about $100 million of cost increase. So we're not quite covering the margin impact certainly. On a dollar basis, we're pretty close.

I think we're optimistic, hopefully, someday that the tariff situation will get better, but it's proven stickier than maybe we thought it was a few months ago. Transparently, I don't think there's a lot of building products companies getting price increases through now. They're not all subject to tariffs, so that makes it unique for us a little bit. But feeling pretty good about how that's been passed through. I think the -- if you look longer term, the lesson here is it's pretty difficult to take pricing in an environment when housing starts are down and affordability is a big challenge for the builders.

So we're definitely talking to our customers and the builders that we work with, and we understand those affordability challenges. So we're working on ways to do value engineering and focus on total installed costs, help them be efficient in other ways to make sure that we can help them deliver on the affordability targets they have, while we maintain our gross margins. I think looking forward, when we get an environment, when the market is growing a little bit, I think that gives us opportunity to continue to deliver on great service and maintain our gross margins, but it certainly has been challenging to get pricing through in this environment.

Very good. Nick, do you have a question?

You all obviously cover a pretty broad swath of the building market. I'm curious where you sort of see the world today across commercial or residential or industrial and sort of where you think the trend line for those are headed into '26. I mean we've heard a lot of commentary this morning that flattish is kind of the new normal. But given that you all kind of see the world from a number of different angles, I was just curious to see where maybe you're a little bit more optimistic or a little bit more pessimistic.

Flattish is a good answer.

But I think if you look at residential as an example, I would kind of put it in a couple of different buckets. So if you took -- if you're a large builder, I mean, you've probably already been subsidizing interest rates, so a movement in interest rates is probably not going to drive a whole lot of incremental more demand. If you're a small or medium-sized builder, you haven't been subsidizing interest rates, I think if the interest rates come down a little bit, I think that opens up opportunities for you, maybe we see some more starts from there. And then I think on multifamily, those projects are typically pretty sensitive to interest rate. I mean they're typically borrowing money if they're starting a multifamily project.

So I think what we're seeing that gives us some optimism there is we actually get pretty good visibility on quoting of those jobs ahead of time from an engineering standpoint. I think maybe with the exception of the Southeast, we're seeing pretty good quote activity that's happening out there, which gives us confidence that there's a lot of multifamily projects that are kind of ready to go when the interest rates start to make the numbers pencil. That's probably the fastest way to solve a shortage of houses is multifamily and maybe the most economical. So I think optimistic a little more on multifamily.

Obviously, it's off a pretty big low last year. It's growing this year. I think single-family, there's a lot of things that need to happen. There's no silver bullet, but affordability is a challenge. Interest rates are a challenge. Regulations are in terms of developing new lots and things are quite expensive. So maybe a little less optimistic in the near term on that. Commercial has actually been okay, bouncing back a little bit, at least in the parts that we participate in, which is typically stick frame, commercial construction. So a mixed bag, but I think flattish is kind of what we're -- we haven't given formal guidance for '26 yet, but that's kind of what we're looking at in aggregate.

So when -- if you look at the 3 main markets, we use Zonda and then we cross-reference that with everybody. We cross-reference that with our customers. Flattish, probably the right way to say it. We use the Dodge Index when it comes to all things commercial, low single digits up in 2026 versus 2025 is how we're -- what we're hearing from them and how we're thinking about next year. Repair and renovation, I spend a lot of time with the big box retailers. They actually don't talk about market growth. They just talk about the size of the prize. We use Cleveland Research to give us an estimate there. That's also low single digits for next year.

I think on the optimistic side, the people that have been in this industry a long time say the more that this continues on, the harder it's going to bounce back. Collectively, we all believe that there's still a significant shortage of housing in North America, also in our European business as well. Collectively, we all believe the houses are old and without the turnover, that's slowing down repair and renovation. So collectively, we are all pretty optimistic about the midterm. We just don't know exactly when we switch from this short-term situation in the midterm. So in the -- from a Simpson perspective, control what you can control, provide great service and support to our customers, try to drive above-market growth at a good profitability level is what we're locked and loaded on.

One follow-up. I'm curious, one of the things we're seeing is the buzz around AI and the build-out of data center. Have you all seen or is that impacting business in any way or too soon to tell?

We had one in our last earnings release, and I was a little hesitant to put it in there because for us, a small percentage, probably $50,000, $60,000 in anchor bolt opportunities in a data center. But over a lot of data centers, it kind of adds up for us, but that's not going to be a major growth driver for us going forward.

Dan?

Regulations that impact the business, I mean, are they mostly state or federal or local -- it seems like it's a big factor in your products.

Short answer, yes. It's all of the above. There's national codes, there's state, local codes, city codes in certain areas. So all of those are something to consider. We do have teams that are engaged with all of them trying to, again, teach them how to build safer, stronger structures. And I think probably the best story around the impact of codes is the recent hurricanes that have gone through Florida.

I talk a lot with the bigger builders and the bigger builders say one issue with affordability is insurance. And they specifically call out how newer neighborhoods when hit with a hurricane have come through with relatively little damage, landscaping type stuff when they're right next to an older neighborhood that has had significant structural damage, but the insurance companies don't really differentiate between new or older homes. So there are clearly some examples of building codes making a big impact. How that drives our business, honestly, it's a slow road. We are not, when we look out the next 5 or 6 years, counting on a big change in building codes to drive a step change in revenue for us.

Yes. As I look at building codes, I don't think you see changes year-to-year. But if you look decade-to-decade, you often see the impact of increased building codes, like Mike referenced in Florida, you can see that going back over time. So we're actively educating code officials and helping them to create more use cases for our product that will help make structure safer and stronger, but it's not necessarily something that you see year-to-year big changes in.

This administration has been talking about rollback regulations to unlock building. You don't see that effect in your business though...

I'm not going to comment on that, to be totally honest. I mean I spent a lot of time with the builders and the dealers and how the administration is handling it. I let those guys deal with that. And so I wouldn't anticipate that being a headwind for us.

And then [indiscernible].

Yes. So we are definitely filing patents. When we see high-volume products running out of patents, we're tweaking and modifying them to provide some additional features and functionality that can be patented to make sure that we're protecting them. But the patent story really is one part of it. It kind of goes back to that business model that I talked about is, if you wanted to come in and try to go after Simpson, you'd have to get the engineers to specify stuff that's not readily available in the market, and they are personally signing and sealing those documentation that whatever competitive product that they have is going to meet the code and keep that structure safe and sound.

At the same time, then you need to get product into the supply chain. But the supply chain doesn't want to carry it if all the big builders are saying we're going to use Simpson and all of the specifications are coming out with Simpson on it. If you're a middle sized to larger builder and you say you want to switch, that drives a lot of increased cost because now all of the larger pro dealers and lumber yards are going to have to dual stock products. So you -- it's not only just going after the IP and having a duplicate product that we think probably wouldn't conform to our level, but you need to get the engineers, the lumber yards and the builders all in some geography at the same time to have a significant impacting us from a competitive situation.

That's really on connectors. And if you think about IP on fasteners, we have over 180 patents on our fasteners, right? So it's roughly $0.5 billion business for us. These are things that make our fasteners start faster, see better. We have patents around the installation tools that we have. So we have like collated fasteners that come on a strip that you can drive with a drill, standing up, you can shoot top plate screws, standing without being on a ladder, things like that. So we focus on the total installed cost for the end consumer, the end customer and kind of tell that value story around our fasteners. But we do have quite a few patents, and we are focused on continuing to innovate there and launch new products.

Has there been [indiscernible] in your connectors business in recent years?

No.

[indiscernible].

It really is a combination of all of the above. I contend that if some -- if our competitor came in a wholesale stuff, the -- our customers are going to spend more money in gas trying to find that product than they are saving a small amount of money on the particular connectors for the house. It's really the fact that you got specifications, you've got lumber yards carrying our stuff and you got builders saying they're only going to use our products, again, the connector product line and then the fasteners and anchors kind of ride along with it. All of that happening at the same time is what creates that moat. And again, very broad deep product line. We are a one-stop shop for something that is less than 1% of the bill of material. And it's just -- never say never, but it creates a pretty strong competitive advantage.

You guys had talked about on the cost side of things, switching gears, identifying some cost outs in this kind of continued kind of soft environment that we're in. One, can you talk about some of the levers you're pulling there on the cost-out side of things? And then also as we kind of look into this flattish environment for next year, we're just making that assumption, you guys have committed to that target of a 20% EBIT margin or operating income margin as a goal. Just some of the things, the puts and takes around achieving that goal in that type of environment as well as the cost out.

Yes. Let me start with the 20%, and then Matt can dive into the next level of detail. So as we discussed, we believe we've got a fantastic business model. We have an absolutely amazing brand. We have a very strong leadership position in the products that we have. I mean we're doing a lot of things right, and we're taking great care of our customers and great care of our teams. That needs to translate into good profitability. And we think 20% is a good profitability level that enables us to return money to shareholders and at the same time, to invest back in the business to drive that above-market growth. We were not there last year. Our guide this year is 19% to 20%. We need to make sure that we get back to 20%. Ideally, a little bit of growth helps us, but we are locked and loaded on making sure that we hit a 20% operating income.

Yes. In order to do that, and as you said, Trey, I mean, just sitting here today, assume a flat market next year. I think we have a pretty strong track record of doing a little bit better than the market from a volume standpoint. There definitely is a little bit of carryover from the pricing impact, but also the tariff cost impact continues to ramp up as that wasn't fully in the base for 2025, and so when you look at ability and confidence to deliver that 20% EBIT margin next year, we decided we needed to make some cost choices. So we've committed to take out at least $30 million of cost on an annualized basis in 2026.

I think that gives us the confidence that we can get to that 20% EBIT margin even if we get the flattish market. Again, we'll give formal guidance in our Q4 release in early February. But in terms of where do those costs come from, I think it was -- there's a couple of businesses, maybe innovation that we had invested in a number of years ago that just weren't delivering on what we expected and what we wanted. And so we've kind of chosen to deprioritize those a little bit, and that obviously has resource implications.

We haven't dialed back anything related to our efforts in component manufacturing, where we think that's a huge size of prize here in the near term and the software development and products that go with that. We also did a little bit of kind of spans and layers type work. I mean that's not a normal exercise for Simpson. We really haven't done reductions in force in any significant way, maybe other than once during the global financial crisis in the company history. So we have a strong culture. We have a lot of really long-tenured folks. And so it's tough choices, but I just felt like we needed to get in a little bit more leaner position to be able to make sure we could deliver on that EBIT margin next year if we're not going to get any tailwinds from the market.

Very good. I think you also had mentioned that CapEx might normalize a little bit next year. And also with the goal of kind of long term anyway, distributing somewhere in the neighborhood of 35%, so call it, 1/3 of the free cash flow back to shareholders. How should we think about cash flow priorities with the backdrop of CapEx kind of normalizing and how you balance the buyback versus other uses of capital?

Sure. I mean the company generates strong cash flows. I think we've been in a pretty heavy CapEx cycle in the last couple of years with 2 major facility expansions that are going to wrap up this year. One is a new greenfield site to make fasteners in Gallatin, Tennessee, replacing our existing facility that we sold in Q3. That was part of the gain in the actuals in Q3. And then we expanded our facility in Columbus, Ohio, which is our kind of main hub that serves the Midwest and the Northeast part of the country, which has actually been growing from a housing start standpoint in the last couple of years. All that's led to CapEx in the last 3 years roughly in the $150 million, $160 million range per year. We're going to go back, and we'll issue formal guidance here in a few months, but we're going to go back to the $75 million, $80 million range of CapEx from a year in, year out standpoint, excluding those footprint expansions.

So that obviously gives us -- it increases free cash flow and then also gives us more opportunity to return to shareholders. We announced a step-up in our buyback to close out 2025 in our Q3 release, as well as we kind of issued some numbers for our 2026 expected stock buyback of $150 million. I think that's the largest number in a single year the company has given guidance on before. So from a capital allocation standpoint, CapEx is going to normalize a bit. We still have some debt from the ETANCO acquisition, but we're in a pretty good spot from an interest rate standpoint. So chunking it down, but no need to pay it down immediately.

I think we want to remain opportunistic for M&A, although, frankly, there's not a lot of sizable opportunities out there that would make sense from a margin profile, product standpoint. We're evaluating things all the time, but we have a pretty strict filter on what would make sense going forward that would be of any significance. And that leaves a pretty good amount of cash to continue to invest in the organic growth opportunities, so funding product innovation and the things that we need to do there, but as well leaves plenty of opportunity for return to shareholders. And so definitely going to continue to be focused on returning at least 35% of our free cash flow to shareholders.

Yes. From an M&A perspective, again, we believe we've got a pretty good runway in front of us in terms of opportunities in our core markets and our core products. We believe we can continue to drive above-market growth by ramping up our innovation machine and continuing to gain share in those various market segments.

Go ahead, Dan.

Your tariff impacted businesses, are you guys considering shifting your production back to the U.S. or...

Yes. So we have 2 main tariff impacted business. One is anchor bolts where we own a factory in China. And even with the tariffs, it's still cheaper to make anchor bolts in China. They're significantly more expensive than they were, and that's why we had to pass on some pricing. I think if there were more tariffs, then we might consider looking at that, but it's hard to consider putting down CapEx, not knowing what the long-term future of tariffs looks like. On fasteners, I think we're going to make some tweaks, and we've already been planning to shift the mix of domestic versus international sourced a little bit. I think we said publicly before, we envision with this new facility opening it being more like 50-50 U.S. sourced and Taiwan sourced.

The main reasons for that were lead times on some particular fasteners that we need to be a little bit more agile to be able to quote some jobs, particularly in the mass timber construction space as well as there is a segment of the market that wants made in the U.S.A. fasteners, and that is a growing segment. I mean the reality is if you just -- if a fastener used to cost, I'm going to make a number up as an example, $2 to make in the U.S. and $0.75 to make it or to buy it from Taiwan. It's probably $1.75 to get it from Taiwan and $2 still to make it in the U.S. So it's still slightly cheaper to make a fastener-- or to acquire a fastener from Taiwan, but it's a lot closer than it was. And so, just watching that very closely to see where the tariff situation plays out. Hopefully, they go away or get negotiated down. If they go higher, then we may look at potentially in-sourcing that.

When I talk with our major steel suppliers, you still have such a heavy amount of subsidies going into the steel market that their view is the market price in Asia for steel-related components and raw materials is less than the cost to produce in the U.S. So from our view, the high-volume fasteners and anchors, unless, again, as Matt said, significant change from a tariff standpoint, we -- the high-volume products will probably always make sense to do over there.

Any last minute questions or anything that we didn't touch on that you guys want to highlight before we wrap up?

No, I think that the piece that we continue to talk a little bit about, and we touched on this a little bit are the digital solutions that I mentioned. If you look at the residential space, again, we're in an industry that has not had a lot of productivity and has an affordability issue. There aren't a lot of major players providing digital solutions that today.

The fact that we have all that technical knowledge and how to connect wood and all the engineering details around that gives us some interesting insight that enables us to do tools like create the bill of materials. We think there's some engineering capabilities we can bring around there, some services that we can potentially add. So not only are those helping us augment the business model today, as we discussed, but we do think that has a potential to -- potentially be a growth driver for us in the mid- to long term going forward.

Very good. Thank you, Mike. Thank you, Matt. I'm sorry, maybe...

Let me -- one quick one. On the European business, I mean, [indiscernible] that deal and there's a [indiscernible] in concrete products into the U.S. but maybe not so much the other way around. How do you see that business? How is Europe is -- I mean you don't -- there's a lot of [indiscernible] in Europe. So I don't know what the opportunity is. Just maybe talk about that.

Yes. So if you look at Europe as a whole, we do think it's a modestly attractive market. The last 3, 4 years of market growth have been a different story. When we pulled the trigger on ETANCO, which is predominantly a commercial business based in France, there were a couple of strategies behind that. One is just more critical mass to help us drive profitability of the overall European business, give us more tools for the toolbox to help us have a better position with our customers. We like the fact that they had their direct sales team. We thought that would give us some additional options. And then the majority of that business in France, and France is a quite profitable business for us.

What we obviously didn't see is 2 months after signing the deal, Russia invades Ukraine and then the market goes from growing 2% to 3% a year to being down -- residential probably down high single digits, but the combined commercial residential business down 2 to 3 percentage points. So we had basically a 400 to 600 basis point swing from a market perspective that we had to deal with the last 3 years. So -- as a result of that, the focus has been on driving profitability, less on investing to drive all the outfits of synergies. We do believe we can get that business to 15% in the midterm.

We will need a little bit of market growth, and the European business has been improving in the last couple of quarters. But it definitely is a unique market. There are some secular trends that we think will help us in the mid- to long term. The move from concrete construction to timber construction is helping us, albeit slow. Some of the facade systems that we got through ETANCO help with energy efficiency. That continues to develop. We think eventually that will move over here in the U.S. But in the meantime, we're focusing our European business at growing at or above market and getting us to that 15% operating income level.

[indiscernible].

We have it covered. I mean we've got 300-plus salespeople in the U.S. We've got, I want to say, 40-ish field engineers all over. We've got manufacturing and warehouse locations where we can cover approximately 95% of our ship to locations within 1 day, which is a key part of the service level. So we're feeling pretty good about the U.S. I think that when you use the U.S. -- when you look at the U.S. market, kind of going back to one of the original questions, we need more houses in Florida and California because we have a lot more content in seismic areas and a lot more content in hurricane areas. So we could use that industry to pick up. We do believe it will happen in Florida, and we do believe California kind of level out, but we're in a good position in the U.S.

All right. Well, thank you both so much, and thanks, everybody, for joining us. It's a wrap on this meeting. Thank you.

Great. Good morning. Thanks for joining us. I'm Tim Wojs. I cover building products here at Baird, and we're happy to have Simpson Manufacturing join us again at our Global Industrial Conference.

Simpson is the largest U.S. manufacturer of structural connectors and related products for residential and commercial applications. From the company, we have President and CEO, Mike Olosky, and we have CFO and Treasurer, Matt Dunn. We're going to start with a few prepared remarks from Mike, and then we will hop into Q&A. So I'll...

Okay. We take 5 minutes just to level set a little bit on Simpson Manufacturing. So we are a leading provider of structural solutions into the building and construction industry. Our products are typically less than 1% of the bill of material of the house, yet critical to the structural integrity of that particular structure. We go to market with 6 product lines, but our 3 main product lines are connectors. These are engineered stamped steel components that have been thoroughly tested, validated and developed over time. This is a market that our founder started a little bit less than 70 years ago, and we have a very strong position in that space.

Fasteners is another area for us, same thing, engineered construction grade code reports. We have roughly 180 patents on our fastener business and then anchors. These are large screws that embed things into concrete. So we're looking at connecting wood to wood, wood to steel, wood to concrete, all things structural connections.

We go to market in 5 end-use markets. So the residential business, that is our biggest business. We think out of the total company, roughly 50% of our revenue is linked to U.S. housing starts. Component manufacturing is the second one. So this also is going into the residential market. So think truss, walls and floor systems.

Third one is our commercial business. So again, typically stick frame construction, think strip malls, houses, hospitals, dorm rooms, retail. And then national retail, that would be our R&R business and then OEM. And this would be a small but fast-growing part of our business. This is typically where we're going after areas of structural connections but made in a factory, think tiny homes, think sheds, think manufactured housing, think structural crates where again, you're using wood to wood, wood to steel type connections.

And the piece that I think makes Simpson unique is really our business model. So a one-stop shop for structural solutions. We take what we believe is the broadest and deepest product line in the industry to building code officials to help them learn how to do building codes that create safer, stronger structures. We spend a lot of time educating building code officials and doing a lot of tests to help the building code officials write codes that will help withstand seismic and hurricane events as an example. And we take all of that technical know-how when we go to the engineers and architects, we train them on how to meet the codes. We also train them on how to use our solutions to build these beautiful big safe buildings that can withstand hurricanes and seismic type events, and that creates demand for our products. So we are specified through the engineers and architects, I would say, on almost every print.

Then you go to the builders, and we have agreements with builders. We have rebate programs with the builders where they tell the supply chain that they only want to use Simpson Connectors. So that pulls the demand through the channel. So we work with our channel partners and talk to them about how we're creating demand via building codes and specifications. We talk with our channel partners about how we're trying to pull that demand through the channel with the programs that we have for builders. And then we provide great service to these lumber yards, pro dealers, contractor, distributors, so they don't have to carry all 10,000 of our SKUs. Typically, they place an order in the morning, we ship in the afternoon, they get it the next day.

And then over the top of that, we continue to layer digital solutions and services just to make us easier to do business with, to find the right product, to make sure you engineer it in, to design custom products on the web, to check order status. We believe those digital solutions help strengthen that business model. And as a result of that, we made some pretty good progress over the last several years.

Yes. I think the market has been largely flat. This is 2020 to '24, roughly a little less than 1.4 million housing starts. And in that time period, we've added roughly $1 billion in top line and almost a couple of hundred million dollars in operating income. Significant pricing behind the steel cost increases that happened in '21 and '22, did make an acquisition in Europe, ETANCO, roughly $300 million add, which essentially tripled the size of our European business. And then we did grow roughly $200 million in share in the market. And that's really one of our key metrics is looking at how we perform on volume versus U.S. housing starts.

And a lot of things we're proud of here, certainly, the things we talked on the last slide, but I think just positioned well in the industry for when the housing market comes back a little bit, give a bit of tailwind, I think, will give us even better outlook. So...

Great. Okay. Well, thanks, guys. Thanks for that. If you have any questions, you can raise your hand or e-mail, I don't know which one is [email protected].

So maybe just start -- you mentioned just kind of the housing market, when things get better. Just as you look into next year, kind of what are you preliminarily hearing from builder customers about single-family demand next year, maybe multifamily demand? And I guess, how are you guys kind of planning for that type of environment into next year?

Yes. So we're hearing very much a mix story, as you can imagine. So we use Zonda for all of our forecasting tools because we can get a regional split and our business is very regional. So the Zonda housing starts number for next year is a little bit above flat, 0.4% is I think, what they're saying. And when we're talking with the bigger builders, their view cautiously optimistic. From a bigger builder perspective, they believe more in consumer confidence needs to ramp up before they see a significant improvement in sales because they're already subsidizing the rates. And a lot of the bigger builders, their customers are getting interest rates in the 4%.

Where we think that will help is in the smaller to medium-sized builders where maybe they don't have the balance sheet or the P&L to be able to subsidize the loans. We're a little bit more optimistic on that area. And then if you look at multifamily, we believe that's going to ramp up a little bit because, again, lower interest rates will be able to help that out. But add it all up after 4 years of a down market in the U.S., we're probably going to be slightly above flat-ish in that kind of range. That's what we're planning at this point from a market standpoint market standpoint, yes.

Market standpoint. Okay. And I guess when you look at one of the things that was kind of incremental coming out of the quarter was you've taken some actions internally. And one of your targets has been for the last few years, a 20% plus EBIT margin. So maybe if you could talk about the actions you're taking to kind of get there? And then second, why is 20% plus EBIT margin the right margin for Simpson...

Can you talk about the actions...

Sure. Yes. So we were above a 20% operating income for a couple of years. We were below it last year, and it's at the top end of our current guide for this year. Some of the actions that we took in late third quarter, early fourth quarter, expect to deliver about $30 million or more in annualized savings in 2026, really a combination of restructuring and reduction in force from a people standpoint as well as a couple of businesses that just weren't delivering on the returns that we expected and the levels we've been investing. So smaller businesses, innovation that we had launched maybe a few years ago, they were still investing heavily, starting to wind some of those businesses down and kind of reprioritize the resources.

But big picture from a people standpoint, in addition to winding down those businesses and the people that go with it, did some spans and layers work kind of looking at teams and making sure we were at management levels and everything were appropriately categorized there, ultimately to give us the ability to deliver a 20% operating income in 2026 even if we get that flattish market that we talked about.

Yes. So then to your point about why 20%, we've got a great brand, very good market position, I mean a very, very good business model, great team, all that needs to translate into very good financials. And so when we look at the overall industry, 20% is above average in our space. And we think that, that is a good level that enables us to invest back into the business to drive that above-market growth and then also deliver a good return to our shareholders.

Okay. I guess if you would see, at some point, volume pick up, would you -- in that case, would you get a good healthy 30%, 35% incremental to kind of drop down? Or would you manage it to that like low 20s type EBIT margin with -- kind of as you get back to like more normalized volume activity?

Yes. At this point, all about hitting the 20% to prove that we can do that. When we get back to a more normal market growth rate, 3%, 4%, 5%, and we continue to outperform the market, we certainly do believe we can expand our margins.

Okay. All right. And then I guess when you think about some of the structural advantages that you guys have, I guess, how does that kind of create -- like what -- when you look at the moat that you have, you clearly have a moat in connectors. How translatable is that to other parts of the business like fasteners or anchors or some of the truss and component software? I think that's a hurdle that people have kind of had historically.

So I think a good way to think about that is when you look 3, 4 years ago, we went from a product-focused sales team to a market-focused sales team. So before, we had people that just sold the connectors, people that just sold fasteners and anchors, the fastener and anchor business, smaller businesses, so smaller sales teams. And we didn't leverage the relationships and the know-how and all the know-how we had on the total building systems. So now just sticking with our residential business, we send somebody into the builders and we send somebody into the lumber yards that are representing our complete product profile.

So now they're leveraging the relationships they have, all the knowledge they have about that lumber yard and all the knowledge they have about those particular builders, and that helps us cross-sell. And so when you look back at the business, our fastener and our anchor business have been the fastest-growing parts of our business. We do make good margins on those. That helps us provide that complete solutions set to our customers. So I think that's a good example of how we can leverage that franchise connector business and help us grow other adjacent product lines.

And even in the fastener line, we're focused on delivery systems as well. So just making that total installed cost advantageous for whoever the end consumer is. So on our Quik Drive products, being able to stand up and drive deck screws or subfloor screws, things like that. We think that sort of makes us unique in that spot and kind of creates that value for the end user.

And have you been able to fold some of that into the end spec? So I think you said like 25 or 26 of the top 30 builders are in your builder program. Have you been able to put anchors? Have you been able to put fasteners into that program as well?

So the focus on the builder program is predominantly around our connector business, okay? But then from a specification standpoint, another example from a fastener perspective is we just came out with what we believe is really the only fully comprehensive tool to help engineers specify the correct fastener for the right application. So more and more, we are seeing fasteners and anchors called out on the blueprints, and we will continue to do that going forward.

Okay. Okay. Can you just talk a little bit about the -- like the software aspect of your business? Because it feels like there's multiple things on the software side that you're trying to do. And can you just kind of elaborate on what you're providing to customers?

Yes. If you look at all things digital, and let me start with an industry perspective. Most of our customers are really focused on getting one ERP system so they have a view into the inventory. So as an industry, I still believe there's a lot of opportunities for us to use digital tools to drive productivity and also to help address the affordability story. So from a Simpson perspective, we think these digital tools can help us do some of those things, address the productivity opportunities, but also just make us easier to do business with. So we have 50-plus digital tools that help our customers do a wide range of things. It could be selecting the right product for the right application. And when you have 10,000 SKUs going into a lot of different applications, that can be kind of a complex story.

We have tools that plug into CAD programs that help make builders more efficient or help engineers call out the particular product. We have tools that can help somebody design a deck or a pergola system. And then it creates all of the -- it creates the bill of materials and talks about all the specifications that, that deck or pergola need to make. And we think those digital tools just help us, again, make that business model stickier. We also believe on the -- on our portal, there are tools that can help somebody come in and create a custom connector. They can visualize it, helping improve the accuracy of that particular part for the end application. They can see things like order and delivery details. All of that makes it stickier.

On the component manufacturing end, that's a different story because the business model there as you develop software that helps them design the component, manufacture the component, manage all the projects associated with that, you give that software for free in exchange you charge an inflated price for the plates. So here, we've made significant progress in that area. We've got -- that's been one of our fastest-growing segments. We believe that's one of our best growth drivers. We've invested heavily in that area. And a lot of that know-how, we think can translate into other tools, as an example, takeoff tools that help a lumber yard better quote a builder. So a builder will come into a lumber yard, present a 2D drawing and they need to quote that particular project to the builder.

So there's a lot of manual work there. We have tools that can automate that work, and we have AI tools that can really automate it, like do it in less than 10 minutes so that the builder can spend -- I mean, the lumber yard can spend more time selling to the builder, more time out in the field, less time doing all these manual calculations to try to come up with an accurate bill of materials.

And maybe just from a -- just give us some perspective, like how sophisticated are your customers with software? Because it seems like there's a varying degree of -- I mean you still talk about guys going to lots and drawing like manual drawing specs, right?

Yes. Again, I would -- kind of going back to what I said earlier, we have a productivity challenge in our industry. We have a lot of people that are still new to the digital tools. So that's why we think there's an opportunity. There really aren't a lot of players that are bringing these tools into the residential space. If you step back and you look at construction tech, there's a lot of start-ups that are going after this space. We're looking at a couple of start-ups to help us partner in takeoff areas. We're looking at a start-up to help us in the development of multi-trade wall panels. So we think that's a good way to kind of get into these areas. So a lot of investment in construction tech and I think a lot of opportunity for the overall industry in general to move forward.

Okay. I guess on the truss business, that's something that has kind of been a part of Simpson for the last 10 or 12 years. But it's really changed over the last, call it, 4 or 5. I guess what has happened and what has really opened that market up for somebody like you to kind of enter in a much more meaningful way?

Yes. So a couple of things have happened. One, when we went through all the supply chain challenges from a COVID perspective, I think a lot of customers realized that they need to make sure they're partnering -- they're picking the right partner of choice going forward. So that opens some doors because there were a lot of supply chain challenges there. Second, a lot of these customers are buying from us anyways. They're buying a lot of our connectors, fasteners and anchors. We've had long-term relationships with us. They know and love the service from Simpson. They bought into that.

In parallel, we've invested significantly into the business. We've upgraded the team. We've got people in there that now not only know the component manufacturing space, but they know how to develop world-class enterprise-wide software. And putting those 2 pieces together is something that we needed to develop over the last couple of years. So add all that up, we are very excited about our road map for the component manufacturing software that continue again as one of our largest growth drivers the last couple of years, and we think that, that's a big opportunity going forward for us.

And you mentioned -- I mean, there's been stages of software development. So you mentioned on the call that CS producer got kind of introduced. But is that the piece that you needed to get some of these larger truss operations to kind of convert to Simpson?

I mean there's really 3 components to kind of truss software. There's the fully encapsulated design tool to do roof trusses, walls and floor panels. We have those kind of individual today, but one of the big pieces that we're working on is getting those all together in kind of one app, if you will. The other 2 are called director and producer. Director essentially is think of almost like a project management software. So if you're running a truss yard, how do I decide what I make when and where. And then producer is the actual software that runs the equipment that's manufacturing the trusses.

And so kind of those 3 pieces, we launched CS producer earlier this summer, good reviews, good feedback at BCMC. That's, I think, unlocked some opportunities for us to pick up some additional customers. Director will soon follow. And then ultimately, the design tool will be ready essentially around this time next year at BCMC is what we're targeting.

Okay. Okay. And then how are those customers set up from a, I guess -- like these are like ERP -- this is like basically an ERP system for like a truss operation -- so I guess if you look at some of the builder -- the bigger truss operations, do they have a sole-sourced operation today where they're using just kind of one software platform across all their truss operations? Or is there a bunch of piecemeal type software? And I'm just trying to think about how like hard it is to convert some of these larger customers?

So most of the pro dealers have built up their network, a combination of organic and inorganic, a lot of acquisitions. So then as you can imagine, that leads to kind of a fragmented footprint. And most of the time, truss software is on-prem. So that means that when they start looking at upgrading, there's a whole set of activities around that. Now whether they upgrade to our competitor or they upgrade to us, the fact that they're on-prem and eventually, we believe the industry is going to move to the cloud, I think, presents an opportunity for us.

The idea for us is the technology we have today, the software and the services we have today, very good fit for medium and small truss manufacturers. Some larger ones, also a good fit for. The fully integrated package that Matt is talking about, we believe, opens up an opportunity for more. We believe that would probably start in a pilot phase with some of these larger pro dealers to prove it out. So we're going to take a super measured approach because we want to make sure this is a fantastic experience, and we will ramp that up slowly over time.

Okay. Any questions from the audience?

I guess one of the things that you've talked a little bit about over the last, call it, 6 months is just you have a lot of content in places like Florida, in places like California relative to a place here. So I guess, could you just talk a little bit about the variance in that content and kind of what that does to your growth rate if something would slowdown in the South and not slowdown in other places?

Yes. So a house built in a seismic or hurricane area today probably has 10x the content of a house built in Chicago or Milwaukee where you are. And that's the reason why now when a hurricane goes through Florida, you look at some of the older neighborhoods versus the newer neighborhoods, the newer neighborhoods for the most part, withstand those hurricanes fairly well versus the older ones. So 10x is a pretty significant deal for us.

And if you look at just the basic census data, the West and the South, housing starts wise, although they drive a lot of starts, they are negative versus the Midwest and North, Northeast. If you look at California, last 2 years, California houses, they're going to build roughly 16,000 less over the last 2 years than they did in 2023. Look at Florida at that same time frame, roughly 30,000 houses. So our best estimate, California home, $3,000 to $4,000 of the content, Florida home $2,000 to $3,000 because there's some concrete construction there. So multiply that out by 45,000 houses over the course of 2 years. I mean, that's at least a couple of hundred basis points headwind.

And you're still -- but you've still been able to kind of grow...

Yes, we've been -- grown through that.

Despite that -- so you've seen some of that headwind already. You wouldn't necessarily say it's on -- it's as ahead of you.

It's not new, right?

Yes. Yes. We've been able to push through that for the last 2 years, exactly right. And just so we're clear, the visibility is not great because the channel partners to all of our different end markets are, for the most part, the same and the product lines are very similar as well. So when we try to get visibility on an actual residential development, hard for us to see that because it is going through our lumber yard partners through multiple different channels.

Yes. Okay. I mean as you think about -- I mean, the business was kind of started in California because of earthquakes, that's migrated to Florida. Do you see any sort of chunky opportunities for the building code to get more stringent? Or is this a local-by-local type of thing that just takes a long time to develop?

I mean building codes changed fairly slowly over time, right? I think if you look at -- even if you look at Florida, you don't necessarily see building code changes year-to-year. But if you look across the decade, you can see a significant difference, right? And so like when we see a hurricane go through a neighborhood that was built in the last 5 years compared to one 40 years ago, it's a totally different outcome in terms of the structural damage and things like that. So we continue to focus at the local level to kind of educate like we've done for 6 or 7 decades as a company to help people build safer, stronger structures.

I think some other things that aren't necessarily seismic or hurricane, but some of the trends in big open floor plans and big garages and cantilevered outdoor living spaces, things like that, that require a lot of structural connectors. I mean, office is focused on that as well, which is a bit more universal geographically.

Okay. Okay. Retail has been a nice growth driver for you over the last 5 years. Like how much opportunity is still left on the retail side. Maybe just talk a little bit about what you're doing to invest in that business from a rep perspective and a product perspective.

Yes. We're optimistic. So we're in a very good position with the 2 major national retail customers. They are all -- they're both less than a 10% story here. We think that there's opportunities to continue to expand our product lines. A specific example would be outdoor living solutions. So hardware that can do a deck or a pergola, decorative hardware, it's painted black. So it looks kind of meaty and chunky. We are looking now at some of the influencers that the national retail customers are using and talking about how can we better integrate into what they do.

And I've met with several of the influencers. I mean, a good example, a typical influencer crafts their project, puts up some video and then gets 100 e-mails on how do I do that? And they don't have instructions, they don't have design tools. They don't have a bill of materials. We think there's some opportunities for us to maybe put a little bit of a back-office engine to that, again, creating more specific designs, creating more opportunities to spec our content in so that ultimately, our end national retail customers get a bill of material that helps them drive their business as well.

Okay. Any questions?

So maybe just on pricing. I mean, it's been a pretty dynamic environment over the last few years with just a lot of material inflation and things. I think you put through kind of a -- like, I would say, kind of an inflation-based kind of price increase this year outside of tariffs. That's probably the first time I've seen Simpson do it without a direct kind of correlation with steel. So I know there's a lot of kind of cost inflation in the market and things. But is that a change in terms of how you guys are thinking about the pricing power or the pricing opportunity within the business? Or is it just that was required because we just don't have material inflation, but we have other ports of inflation?

I mean if you step back, we took roughly $500 million of pricing in '21 and '22 as steel prices were going almost 4x up in terms of price. It did come back down a little bit, and we gave back some pricing in late 2022. And then we hadn't touched any pricing in all of '23, all of '24. While steel had been largely flat, I mean, labor, freight, utilities, all those things have gone up pretty significantly. And we pride ourselves on customer service and being able to deliver that customer service for our customers. And so just really needed to take some actions on that pricing because we hadn't really touched the pricing button in 3 years.

Tariffs added some additional complications, which kind of came out around that same time. So the price increases that we took earlier this year were a combination of inflationary on kind of U.S. sourced goods and then inflationary plus tariff-related cost increases on fasteners and anchors that we import from Asia. So it's about $100 million cost headwind on an annualized basis from tariffs that we're seeing on the anchor bolts that we import from our factory in China as well as the fasteners that we import, although we make some domestically in Gallatin. And we've priced essentially $50 million on imported items. So we haven't covered the full tariff impact even on a dollar basis.

And then we said on the call a couple of weeks ago, in total, our pricing is about $100 million. That leaves about $50 million related to that inflationary pricing that we to see on an annualized basis. So in terms of is it a change in strategy, I think we're -- it's difficult in this environment with affordability of homes being a challenge, the volume starts being down. So we're absolutely focused on delivering the service that we need, but recognizing that there are definitely challenges there. So it's hard to say, is that going to be a change or more regular, but certainly, we're focused on maintaining the gross margins that we have and the service levels that our customers expect.

Okay. And I guess just your channel is kind of -- your channel is consolidating. You have -- I mean, you've seen Builders FirstSource get bigger. You've seen QXO enter the market, HD is buying a bunch of this stuff, your builders are getting bigger. I guess how does Simpson fare kind of in that environment? Like what do you -- what are kind of the positives and negatives of that consolidation for you guys?

So when bigger builders buy smaller builders, it just reinforces the fact that they're going to use Simpson connectors. When bigger pro dealers buy smaller lumber yards, if we don't have them already, generally reinforces them converting over the Simpson product line. So there are some positives from that perspective. The negatives of the larger customers are on larger rebate programs. Our pricing approach is they have a standard list price to be consistent from a pricing perspective in the market. And then we differentiate on the back end with volume discounts. So when those bigger guys are getting bigger, that does result in larger volume discounts. Yes.

Okay. Okay. I guess your CapEx is set to kind of step down here. And you've added a new facility in Gallatin, you've expanded Columbus. I guess maybe just talk a little bit about where your kind of fixed cost capacity is right now in terms of any sort of incremental CapEx you need to make there? And then I guess if you do start to see more cash flow, is there any kind of priority that you have in terms of how to allocate that?

Yes, we've been in a pretty heavy CapEx cycle for the last couple of years with those expansions that you mentioned. We're not giving formal guidance yet, but we expect that to come down to kind of more normal CapEx range, which is probably $75 million, $80 million if you kind of look back at where we've been and what these expansions have cost the last couple of years.

From a footprint standpoint, I think in terms of capacity, we're in a good spot. There's always optimizations to make things in places that are more affordable or closer to the customer, things like that. So we're always looking at those opportunities and continue to invest the CapEx within that range that we talked about on things like productivity. But in terms of capital allocation, we just upped our share buyback amounts for end of 2025 as well as a stepped-up number for 2026. So that continues to be a key focus for us to return cash to shareholders.

I think from a CapEx standpoint, it's going to come down. I think we have a little bit of debt, roughly $350 million from the ETANCO acquisition. So in a pretty good spot from an interest rate standpoint there, but definitely want to pay that down over time. And then M&A is still opportunistic for us, although there's not a lot of sizable targets out there that would be of interest for us. So very focused on the core. And I think that just leaves a lot of free cash flow to continue to fuel the organic business, but also to return to shareholders.

Great. We're out of time. So please join me in thanking the Simpson's team for being here.

Thank you.

Greetings, and welcome to the Simpson Manufacturing Co. Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to introduce your host, Kim Orlando of Investor Relations. Thank you. You may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Co.'s Third Quarter 2025 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. 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 Mike Olosky, Simpson's President and Chief Executive Officer.

Thanks, Kim. Good afternoon, everyone, and thank you for joining today's call. I'm joined by Matt Dunn, our Chief Financial Officer.

Today, I'll share highlights from our third quarter performance, key developments across our end markets and progress on our strategic initiatives. Matt will then walk through the financials and our updated fiscal 2025 outlook. We are pleased to report net sales of $623.5 million, a 6.2% increase year-over-year, primarily driven by our June 2nd price increase and a positive impact from foreign exchange. This growth reflects the ability of our business model to navigate a challenging macroeconomic environment even as residential housing markets in the U.S. and Europe remains soft.

In North America, net sales rose to $483.6 million, up 4.8% from the prior year. This includes an estimated $30 million contribution from our June price increase. North American volumes were modestly lower. This reflects broader market conditions, including significantly lower housing starts, both in the southern and western regions of the United States, where we have more content per unit as a result of stronger building codes.

As a reminder, our volume calculations exclude contributions from software, services and equipment. All comparative data versus U.S. housing starts was unavailable for Q3 and due to the government shutdown, we remain confident in our ability to outperform the market over the long term. Our focus on innovation, customer service and operational excellence continues to drive solid results.

Highlighting some developments from our key end markets, our volume performance was mixed, though we're seeing positive momentum across several key areas. The OEM business delivered high single-digit volume growth led by mass timber solutions and new product introductions. Direct sales to manufacturers of material handling and data center equipment also posted solid gains.

In the component manufacturer business, we achieved low single-digit volume growth supported by our new customer wins and expanded product offerings. We recently launched [ CS ] producer. It's our first cloud-based trust production management software. CS producer gives floor and roof truss manufacturers powerful ways to schedule and manage daily operations. It's also a major milestone in our software road map and received enthusiastic feedback at the Building Component Manufacturers Conference.

In our national retail business, volume was slightly down, while point-of-sale performance improved mid-single digits. We saw continued strength in Outdoor Accents, Fastener Solutions, e-commerce and Pro initiatives with our two largest retail partners. Expanded shelf space and new products introduced last year are contributing positively.

In the residential business, volumes declined slightly. However, we secured new business through dealer conversions and growth in outdoor living solutions. Multifamily demand remains a bright spot, especially in the northwest, northeast and Canada.

In the commercial business, volumes declined mid-single digits, reflecting an overall weak commercial market, but we saw growth in cold form steel connectors and adhesive anchor lines driven by strong field engagement and specification efforts.

I'm also proud to highlight that our commitment to customer service was recognized with two supplier awards from Do it Best and Southern Carlson during the third quarter.

In Europe, net sales reached $134.4 million, up 10.9% year-over-year or a solid 4.3% on a local currency basis. Growth was driven by increased volumes, resulting in performance that outpaced the market.

As we look ahead, we are undertaking proactive strategic cost savings initiatives to align our operations with evolving market demand and position the company for long-term success. This is in response to a downturn in the housing market that started in 2022. While these decisions are not easy, we are committed to supporting our team and ensuring we do not compromise on what we're known for, which is delivering best-in-class service to our customers.

These actions are designed to drive efficiencies, preserve profitability and unlock future growth opportunities in what's expected to be a continued soft market. As a result of these actions, we expect to generate annualized cost savings of at least $30 million with onetime charges of approximately $9 million to $12 million that will be realized in fiscal 2025. We remain committed to supporting our team in delivering exceptional customer service. Matt will provide further detail on the financial impact shortly.

Turning to consolidated gross margin, which was 46.4% and slightly below last year. This reflects higher input costs, including tariffs and labor costs. Our June price increase helped partially offset rising costs, and we've taken further pricing actions effective October 15, to address additional tariffs announced subsequent to our prior price increase.

These increases are expected to contribute approximately $100 million in annualized sales. We expect continued deceleration in our gross margins as the impact of tariffs flow through our inventory.

Third quarter operating margin was 22.6%, up 130 basis points year-over-year including a $12.9 million gain from the sale of our [ Gallaphyn, ] Tennessee facility and approximately $3 million in restructuring costs.

Adjusted EBITDA totaled $155.3 million, a 4.5% increase year-over-year.

Next, I'd like to highlight progress on our financial ambitions. First, continuing above-market volume growth relative to U.S. housing starts. We're updating our 2025 outlook for U.S. housing starts. We now expect them to decline mid-single digits compared to 2024. In Europe, housing starts in 2025 are expected to remain relatively consistent with 2024. We remain focused on growing above the market.

Second, maintaining an operating income margin at or above 20%. Considering the cost savings initiatives we are taking in a growing market, we remain confident in our ability to deliver 20-plus percent operating margins.

And third, as a growth-focused company with industry-leading margins, we believe we can consistently drive EPS growth ahead of net sales growth. Year-to-date EPS has increased approximately 510 basis points above revenue growth, demonstrating our ability to deliver shareholder value.

In summary, we delivered solid results in a challenging housing environment. Our pricing actions, cost savings initiatives and market share gains are positioning us for continued success. We're optimistic about the future and believe in our ability to drive growth, improve profitability and capitalize on a market recovery. Thank you to our incredible team for their dedication, resilience and relentless customer focus.

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

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 third quarter of 2025, and all comparisons will be year-over-year comparisons versus the third quarter of 2024.

Now turning to our results, our consolidated net sales increased 6.2% year-over-year to $623.5 million. Within the North America segment, net sales increased 4.8% to $483.6 million. In Europe, net sales increased 10.9% to $134.4 million due to increased sales volumes as well as the positive effect of approximately $8.1 million in foreign currency translation. Globally, wood construction products sales were up 5% and concrete construction product sales were up 12.8%.

Consolidated gross profit increased 5.2% to $289.3 million resulting in a gross margin of 46.4%, down 40 basis points from the third quarter of 2024. On a segment basis, our gross margin in North America was 49%, slightly lower than the 49.5% reported in the prior year due to factory and overhead as well as higher warehouse costs as a percentage of net sales. Our gross margin in Europe increased to 37.9% from 36.6%, primarily due to lower material costs as a percentage of net sales.

From a product perspective, our third quarter gross margin was 46.2% for wood products compared to 46.3% in the prior-year period. For concrete products, gross margin was 48% compared to 49.7% a year ago, with the reduction partly due to increased tariffs on imports.

Now turning to expenses, while SG&A head count is down over 4% year-over-year, total Q3 operating expenses increased 9% to $162.3 million, primarily driven by higher variable compensation on improved profitability, severance costs related to our strategic cost savings initiatives, foreign exchange and employee health care costs. As a percentage of net sales, Q3 operating expenses were 26% compared to 25.4% last year. Our third quarter operating expenses included approximately $3 million in severance-related costs associated with our strategic cost savings initiatives, which we anticipate will deliver annualized cost savings of at least $30 million.

To further detail our third quarter SG&A, our research and development and engineering expenses increased by 1.2% to $20.8 million. Selling expenses increased by 5.9% to $56.1 million, primarily due to higher variable compensation and commissions, personnel and severance costs related to our strategic cost savings initiatives, partially offset by a decrease in travel-related costs. On a segment basis, selling expenses in North America were up 6.8%, and in Europe, they were up 2.8%.

General and administrative expenses increased by 13.3% to $85.4 million due to increases in variable compensation, software costs, including development for our component manufacturing business as well as negative foreign exchange effect.

As a result, our third quarter consolidated income from operations totaled $140.7 million, an increase of 12.7% from $124.9 million. Our consolidated operating income margin was 22.6%, up from 21.3% last year. Income from operations included a $12.9 million gain on the sale of the existing [indiscernible], Tennessee facility.

In North America, income from operations increased 1.6% to $125.2 million, driven by an increase in gross profit, partly offset by higher variable incentive compensation, personnel costs, severance costs related to our strategic cost savings initiatives and software-related costs. Our third quarter operating income margin in North America was 25.9% compared to 26.7% last year.

In Europe, income from operations increased 27.6% to $16.1 million due to an increase in gross profit, partly offset by increases in operating expenses due to the negative effect of approximately $2.1 million in foreign currency translation. Our third quarter operating income margin in Europe was 12% compared to 10.4% last year.

Our third quarter effective tax rate was 25.3%, approximately 80 basis points below the prior-year period. Accordingly, net income totaled $107.4 million or $2.58 per fully diluted share, compared to $93.5 million or $2.21 per fully diluted share. Adjusted EBITDA for the third quarter was $155.3 million, an increase of 4.5%, resulting in a margin of 24.9%.

Now turning to our balance sheet and cash flow. Our balance sheet remained healthy with cash and cash equivalents totaling $297.3 million at September 30, 2025, up $106.9 million from June 30, 2025. Our debt balance was approximately $369.2 million, net of capitalized finance cost and our net debt position was $71.9 million. We have $450 million remaining available for borrowing on our primary line of credit.

Our inventory position as of September 30, 2025, was $591.9 million which was up $5.3 million compared to June 30, 2025, with lower pounds of inventory on hand.

Our disciplined approach to capital allocation keeps our investments aligned with evolving market conditions and focused on driving sustainable value. We generated strong cash flow from operations of $169.5 million for the third quarter, this enabled us to invest $35.9 million for capital expenditures, pay $12.1 million in dividends to our stockholders and paid down $5.6 million of our term loan.

In addition, we repurchased 158,865 shares common stock at an average price of $188.84 per share for a total of $30 million. On October 23, our Board amended our share repurchase program, authorizing an additional $20 million of our common stock for repurchases through year-end, resulting in $30 million remaining under our authorization. In addition, the Board authorized a new share repurchase program for 2026 to repurchase up to $150 million worth of our shares through year-end 2026. This reflects our confidence in the long-term prospects of the business and our commitment to returning capital to shareholders.

In regard to our investments, our new [indiscernible], Tennessee facility opened during the third quarter. As a reminder, this facility will play a critical role in helping to support growth and enhance operational efficiency across our fastener product lines.

Next, I'll turn to our 2025 financial outlook. Based on business trends and conditions as of today, October 27, we are updating our guidance for the full year ending December 31, 2025, as follows: we expect our operating margin to now be in the range of 19% to 20%. Additional key assumptions include: our expectation for U.S. housing starts to be down in the mid-single-digit range from 2024 levels, a slightly lower overall gross margin based on the addition of new facilities as well as the recently imposed tariffs, which we anticipate will be partly offset by the price increases that went into effect on June 2 and October 15. Our outlook also assumes nonrecurring severance costs from our strategic cost savings initiatives in North America and Europe of approximately $9 million to $12 million.

And finally, our margin guidance includes the benefit of $12.9 million from the gain on the sale of our existing [indiscernible], Tennessee property.

Next, interest expense on our term loan, which had borrowings of $369.2 million as of September 30, 2025, is expected to be approximately $5 million. The benefits from interest rate and cross-currency swaps and interest income on our cash and money markets are expected to substantially offset the expense. Our effective tax rate is estimated to be in the range of 25.5% to 26.5% including both federal and state income tax rates based on current loss. And finally, our capital expenditures outlook is expected to be in the range of $150 million to $160 million which includes approximately $75 million to $80 million for the completion of both the Columbus facility expansion and the recently opened [indiscernible] fastener facility.

In summary, despite a challenging market backdrop, we delivered solid third quarter results and continue to execute with discipline. Our pricing actions helped offset rising costs from tariffs, helping our margins remain resilient even as we navigate cost headwinds. While SG&A was elevated this quarter, the strategic cost savings initiatives we implemented in late September and early October will drive meaningful efficiencies and support future earnings growth. Gains on asset sales also contributed positively to operating income and EPS.

Looking ahead, we remain focused on disciplined capital deployment and returning value to stockholders through our expanded share repurchase authorization and our commitment to return at least 35% of our free cash flow.

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

[Operator Instructions] Our first question comes from the line of Dan Moore with CJS Securities.

Mike and Matt, let me start with 6% revenue growth in Q3, certainly very solid in light of the current housing environment. Obviously, it was mostly pricing strategic actions. Just give us a flavor for kind of the organic volume declines in North America and what did volume growth look like in Europe?

Sure. Dan, this is Matt. Let's break it down on a global basis first. So the 6.2% sales growth for the quarter, a little more than 5 points of that was from pricing, a little more than 1 point from foreign exchange, less than 0.5 point of help from acquisitions [indiscernible] acquired in 2024 that had not anniversaried yet. And then volume was down 1 point. So that's on a global basis.

If you look at volume on a North America basis in the quarter. Yes. I think...

Dan, Year-to-date volume growth is down 1.4 percent versus prior year. North America.

Got it. That's really helpful. Obviously, just sticking with kind of the macro housing demand proven to be more tepid this year than perhaps we hoped or expected when we started the year. The rental rates coming down, affordability remaining challenged you're taking some meaningful cost actions, and that will be my follow-up question. But do you see catalysts that could kind of stem the tide and give a trajectory next year? Do you foresee continued declines in the housing market, and that's why you're taking the actions. I know it's early to be crystal balling '26, but just kind of beyond the next -- where do you see things going?

Dan, when we look at this year, again, probably down mid-single digits. And I think that's a bit of a surprise for a lot of people. When we were coming into the year, we were thinking it was going to be up low single digits. And it does look like it's certainly decelerating in the second half of the year. We look at all of the various market forecasts, not getting specific to market. Most of them are coming in on the flat range. And when I talk with our customers, affordability is certainly an issue, but a lot of the bigger builders are already subsidizing mortgage rates. So a lot of people that are going to these big production builders are already getting a 4% loan.

So certainly, lower interest rates will help the small- to medium-sized builders that really can't subsidize things, the way the bigger builders are. But I guess we're focusing on the things within our scope of control. We're absolutely committed to being in that 20% operating income level, and that's why we had to make the really difficult decision to make the strategic cost savings initiatives and get our cost structure in line with what we think is going to be a little bit more of an extended slow market.

Yes, Dan, I would just add as Mike said, tough decisions looking at head toward a looks like it's going to be a flattish market next year. We took these actions to stay on track against our financial ambitions. We believe that they'll deliver at least $30 million of annualized cost savings in 2026, really through a combination of workforce reduction and portfolio management. And then as we mentioned on the call, we expect $9 million to $12 million of onetime costs during 2025, of which $3 million are already in the Q3 results, but the full of $9 to $12 million is included in our updated outlook for the year.

Really helpful. And then I was -- I think you just touched on it, but I was going to dig a little deeper into the targeted cost savings. Any kind of general breakdown between North America and Europe? And then it sounds like you've already incurred $3 million, the $9 million to $12 million is not incremental to that. But I assume the balance is likely going to be in Q4. Is that the right way to think about it from a modeling perspective?

Let's take the second part first. Yes, from a modeling perspective, you could assume that the [indiscernible] is going to come in Q4 and then the $3 million we already had in Q3 would get you to that [indiscernible] In terms of the breakdown, regionally, not not going to provide all that as you can assume, not all of it's done yet, certainly given some of that still to come in Q4.

Got it. Last one, and I'll jump back in queue. But entire $30 million cost savings earmarked for bottom line improvement or at least sort of bottom line maintenance and getting back to that 20% operating margin target? Is it the right way to think about it versus reinvesting back into the business?

Yes. We're not guiding -- yes, Dan, obviously, for 2026. But our assumption in the market is going to be flattish from everything we've heard and we are committed to making sure we get back to that 20% operating income level.

Our next question comes from the line of Tim Wojs with Baird.

Maybe just on that last point, Mike, is basically what's changing on the cost side, the expectation that the market is just going to stay slower? I mean if we look back a year ago when you guys had that question or 2 years ago, when you had that question, it was kind of like, hey, the market is going to get better and we'll lever those costs. Is it basically that, or is there something kind of worse happening in the market? I just kind of want to make sure I understand the drivers of the cost reductions.

Yes. Good question, Tim. It's very much in line with what you're hearing about the market. So the census data [indiscernible] through August, which is the last report we had basically said that housing starts were up 1%, which was a little inconsistent with some of the results we've seen in the industry. We've definitely seen things slow down in the second half. We've certainly heard that from our customers. I believe they're all feeling the same thing. You're probably hearing that from other clients as well. And then we think that, that's just going to carry over into a flat year next year.

Yes. I think we wanted to make sure we we could see our way to delivering our financial ambition on the operating margin side of 20%, even if the market is flattish or a little bit down next year. Again, not giving the formal guide yet, but just to take some cost choices to make sure we can get there next year. .

Okay. Okay. No, that's helpful. I guess on gross margins, -- when do you -- I guess, 2 questions on the trajectory. So when do you fully kind of expect the tariffs to kind of flow through the gross margin line? And then is there a noticeable impact in gross margins from turning on the [indiscernible] facility? Or are there other cost offsets?

Yes, I'll take the second part first, not a noticeable impact on turning on the [indiscernible] facility on gross margin, certainly in the short term or even the next year or so. I think some of that will depend on what happens with tariffs and what we do with sourcing and are we insourcing more maybe than we thought from the start. A lot of that depends on where we net out on tariffs.

In terms of gross margin impact of tariffs, if you look at our product segment breakdown on gross margin that we talked about, you can see the gross margin on concrete construction products is down quite a bit more than wood construction products. That's largely where the anchor business falls, which is subject to the most tariffs and some of our fastener business falls there as well.

I would say that from a gross margin standpoint, we continue to see erosion over the next quarter or so, a couple of quarters as the tariffs are fully rolled in, but you're seeing an impact in Q3, certainly. And so incrementally, a little bit more in Q4 and then maybe a little bit in Q1, but from that standpoint, then should be rolled in everywhere. But I would say -- if I had to pick a percentage on it now, I would say 80% rolled in already in what you see in the Q3 results.

Tim, remember, we're talking about [indiscernible]. We're also in-sourcing coding and heat treating processes. So it's not just moving production and adding additional co-forming equipment, ramping up kind of a full end-to-end process. So that's why it's going to take us a little bit of time to get that fully going.

Okay. Okay. No, that's helpful. And then I guess just to kind of put a finer point on the volume trajectory. So I think we were down a little bit in North America in Q2. I think we're down a little bit again in Q3. Is -- are you seeing things even out? Or would you expect your volume performance to get weaker in the first quarter and into early next year?

So if you just look at Q3, Tim, volume was down 2.7% versus prior quarter. And if you look year-to-date, as I mentioned, down 1.4% for the full year. So definitely trajectory-wise getting a little bit worse. Again, a lot of things can happen over the next couple of months. So let's see how the rest of the year plays out before we talk about 2026 too much. .

Okay. And you should still outperform the mid-single digits. That would be the expectation, right? .

I mean our ambition is to drive above-market growth. As you know, historically, we've been about 300 basis points about that. It's not always been a straight line over the last 9, 10 years. We've had a couple of years of volume growth was below the market, but we certainly want to grow above the market and ideally about that long-term average. .

Our next question comes from the line of Kurt Yinger with D.A. Davidson.

Great. Just wanted to follow up on the cost savings target. I apologize if I missed this, but is that $30 million expected to be kind of achieved on a run rate basis, I guess, in early 2026 there? And I guess as we think about the sources of savings, how would you kind of have us split that between the cost of goods and kind of the operating expense segments?

Yes, Kurt, the $30 million would be a realized number in 2026 kind of throughout the course of the year. We are going to see a little bit of savings in 2025, but it's more than offset by the severance costs. So from an incremental savings standpoint, net-net, the full $30 million should show up in 2026. So in terms of how that splits versus SG&A and COGS, I would say 90-plus percent of it is in SG&A. There's a little bit on the COGS side, but the bulk of it is SG&A.

Okay. Okay. That makes sense. And then I believe, Mike, you had mentioned kind of the residential market was down low single digit for you guys this quarter, which, in light of some of the pressures in Florida and California and other parts of your business that are maybe more exposed or higher content per start seems pretty good still. I guess, has that performance surprised you at all? Do you feel like you're actually potentially gaining some share there relative to the impacts of certain regions? How would you just kind of frame that for us?

So Kurt, just to be clear, the volume for the total North American business was down 2.7% for the year are residential -- for the core first quarter. The quarter -- for the residential business, it is down mid-single digits for the quarter. We do believe that -- and we see this with our customers, and we continue to pick up share at some of our [indiscernible] and pro dealers, we tend to -- we're still getting more shelf space that we think eventually leads to more positive sell-out. So we continue to feel good about our ability to grow above markets.

If you look at the digital mix, so the regional mix is a big deal for us. So the south and the west, when you look at the census data through August, they're down mid-single digits. If you look at the Midwest and Northeast [indiscernible] at the housing data -- census housing data, they're up double digits. And remember, housebuild seismic or a hurricane area can have [ 10x ], the content of a house built in the middle of the U.S. with a pretty standard building code. So that definitely has a mix. We don't have great visibility all the way to the end build, as you know, because we're going through a bunch of number of [indiscernible] pro dealers contract or distributor. So it's hard to say exactly how that's impacting us, but that's definitely a headwind.

Okay. Okay. Perfect. And then just thinking about the guide at a higher level, your starts assumption for the year ticked down a little bit. The outlook kind of now contemplates the onetime cost to achieve the targeted reductions, is there anything beyond the October price increase that's been better than expected? Or is it maybe kind of incremental on the positive side, just thinking about the operating margin guide moving up to the higher end?

Yes. I think we narrowed up the guide to a 100 basis point range from a 200 basis point range. We've included the onetime costs. I think the -- our volume development has been maybe better than what you hear if you listen to some of the market forecast, whether it's [indiscernible] or [ John Burns, ] if you look at our volume, year-to-date down -- or sorry, in the quarter, down 2.7%. I think there's a lot more numbers out there from the folks that are forecasting the market, although there hasn't been official census data published.

So I think holding steady on volume, doing what we can on the cost front. And then obviously, we had the onetime gain that was known. But certainly, just still sell needed to take these actions on cost savings to ensure we can get where we want to go in 2026.

Our next question comes from the line of Dan Moore with CJS Securities.

Yes. Just a quick follow-up, and I appreciate the color on the gains you're making in some of those targeted end markets that are key focus for growth and continuing to outpace, when you look to '26 and beyond, if not rank ordering, just kind of maybe would you call out 2 or 3 that you see a little bit more opportunity here in the near term that could help you to continue to outpace those end markets if we do remain a little bit softer? .

Yes, Dan, so we -- let me start with Europe because we're very pleased with the development that Europe's made over the last 2 quarters, profitability improving, we believe above market growth. So -- and we expect that growth there to continue. And Dan, we think growth -- literally, we have had plenty of opportunities to all 5 of our market segments. We've got very specific plans in each segment to try to gain share. When you kind of add all that up, there are a lot of singles and doubles, meaning a lot of small applications, digital self space, shelf space, new products that we're launching, small games with customers that we do think will add all up and help us continue to drive above-market growth. If you talk about the bigger ones, we continue to think all things component manufacturing is a good opportunity for us. That has been 1 of our strongest drivers in the last couple of years.

And then we think ramping up the new product innovation activities, we are making good progress there, and we expect to continue to make good progress on that going forward.

Very helpful. And then lastly, obviously, you've been aggressively returning cash to shareholders and very consistently. Just the language around 2026 share repurchases up to $150 million, absent meaningful M&A opportunities, is it -- we should sort of think of that as kind of a target just balancing especially given CapEx probably starts to wind down a little bit after some of these projects.

Yes. I think as we've talked before, we've been in a pretty heavy CapEx cycle with the 2 facility expansions in [indiscernible] and Columbus, and that's going to normalize quite a bit next year, and we'll issue that formal guidance in January, but definitely going to free up some capital and certainly want to be continuing to return cash to shareholders. So I would plan on barring unforeseen events or significant M&A or something like that, that's a good target number for 2026 on share repurchase.

I look forward to seeing down in [ McKinney ] in a couple of weeks.

Our next question comes from Tim Wojs with Baird.

I just had a couple of follow-ups. On pricing, can you -- how much of carryover pricing that you have next year? I think you mentioned $30 million you saw this quarter. I guess what would you expect in the fourth quarter? And how much carries into '26?

Yes. So big picture, Tim, tariff story, roughly $100 million. Price increases specific to tariffs, a little bit over $50 million. Both of those are on an annualized level. We also implemented our first price increase in roughly 4 years on our U.S.-made products, roughly a $50 million impact on an annualized level. .

Yes. And then just if you recall from Q2's release, Tim, we had a little bit of pricing in Q2 from the June price increase about $30 million in Q3. As we've said, based on volume, probably another $25 million or so in Q4. And then so that leaves you with probably about, doing the math in my head, $30 million, $35 million of carryover pricing in 2026.

Okay. Okay. Great. And then just on the fourth quarter, like the 100 basis points is still pretty wide for the year for the EBIT margin guide, and it is a seasonally weaker quarter. So just any -- would you put any finer point on that? Or just kind of how we're thinking about the fourth quarter because that could be up a couple hundred, down a couple of hundred basis points in that specific quarter. So just anything that could help us there?

I mean I think the biggest variable is volume, right? I think if you look at market forecasters on what fourth quarter is going to look like from a housing start standpoint, there's some pretty dire forecasts out there to get to the numbers that they're saying on an annual basis based on where we are year-to-date. So that's probably the single biggest variable.

And then from the cost savings initiative, just in terms of exactly how much we're able to execute on which timing in Q4, we have a little bit of a [indiscernible] there. But I think it really comes down to volume. I think the rest of it is largely locked in, but volume is a big enough variable in this case, given what's happening and what is already a pretty low volume seasonal quarter for us, which is Q4, typically.

Okay. And then just a last clarification. The $30 million of annualized savings, is that in addition to the severance costs? So it's not $10 million of severance and $20 million of savings, it's $30 million of actual savings.

Yes. At least $30 million of savings.

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

Well, great. Thanks, and good afternoon, everyone. I appreciate those joining here in person in Nashville, and those on the line as well. I'm Kurt Yinger, Building Products and Distribution Analyst here at D.A. Davidson.

I'd like to welcome from Simpson Manufacturing; President and CEO, Mike Olosky; as well as CFO and Treasurer, Matt Dunn.

So Mike is going to lead us off with a quick overview, and then we'll jump into some questions.

Great. Okay. We are going to start really, really high level, and I'll go through this relatively quick. But Simpson is the leading supplier of structural solutions into the building and construction industry. Typically, our materials are less than 1% of the bill of materials, but critical to the structural integrity of the building. We go to market and you see up here with what we believe is the broadest and deepest line of innovative solutions in the space. That includes connectors, fasteners and anchors. We developed the connector market. So these are highly engineered stamped steel products that connect wood. In that space, we believe we've got north of a 75% share.

In the product line, you also noticed that we talk about digital solutions. So we've got over 50 digital tools that our customers use to help them select, identify, specify and in some cases, run their business. Those digital solutions just make the business model associated with our hardware even more sticky.

When you look at the market segments that we serve with those product lines, the residential business is our biggest segment. So it's typical single-family, multifamily, we do believe roughly 50% of the total company business is linked to U.S. housing starts. In that same space is component manufacturing. So this is selling to truss yards. So also very closely linked to housing starts.

We do have a repair and renovation business, so national retail business selling to the typical big box retailers and also some of the co-ops. We have a small commercial business, and then we also have a small business that serves the OEM segment. So things that are built in a factory, think tiny homes, think sheds, think things that need wood to steel type connections, trailers would be another example. Fastening racking systems and industrial business would be another example in that space.

So I think the thing that makes us pretty unique is really our business model. So we take that very broad and very deep innovative product line of structural solutions to building code officials, and we are active with building code officials at all different levels. We talk with them about how to instill codes that help these structures withstand hurricanes, withstand seismic events. We also provide continuing education training to the building code officials. We've really grown up with them in the industry.

Then we take the building codes that we work with the officials to develop. We take that to the engineers and the architects. And we take that, again, big broad product line, and we talk with the engineers and architects about how to use our solutions to help them meet the codes and how to use our solutions to help them build these big beautiful houses with big openings, big indoor, outdoor living, tall ceilings in areas where, again, maybe they have high lows from seismic or wind events.

We believe that creates a lot of demand for our products, and that results in our products being specified all over the place. I would say anytime you're looking at a residential print, you're going to see a lot of Simpson content on those areas.

And then we -- on the opposite side, we work with the builders. So we have relationships with 26 out of the top 30 builders, approximately relationships and agreements with roughly 250 builders, where these agreements result in them telling the supply chain, they are only going to buy Simpson connectors. So what that does is that pulls through the specifications and the demand that we create with the building code officials and engineers, it pulls it through to the builders.

And then we go to the lumber yards, the contractor distributors and the dealers in between and say, hey, we're creating demand via codes. We're creating a demand via specifications. We're pulling that demand through because these guys are all going to be buying our connectors. You can make good money on our connectors, fasteners and anchors. We'll provide training and support. And by the way, you don't have to carry that big huge product line because if you place an order today, we're going to ship that afternoon, you're going to get to the next day. And we're doing same-day shipment roughly 75% of our profits.

Okay. As a result of that, how we develop the business model?

Yes. So we made good progress in what's been a flat market for what's going to be likely the fourth year in a row this year and maybe even slightly down, depending where we net out depending [ list 2 ]. But in 2020, we were about $1.25 billion in revenue as a company. And had about $250 million of operating income, really 3 big drivers of kind of where we ended -- getting to where we ended last year at a little over $2.2 billion.

We took about $450 million of net pricing really driven by the price of steel that was going up significantly during that time period. We acquired a business in Europe called ETANCO. We had a legacy Simpson business that was about $150 million. we essentially tripled the size of the business with ETANCO acquisition.

And then we grew share. You may have seen some charts before in investor deck to talk about our performance versus the market, which we view our volume development versus U.S. housing starts. Last 10-year average, we've averaged about 3% a year ahead of U.S. housing starts. It results in pretty significant share gains that got us to revenue of $2.2 billion, all the while housing starts roughly flat.

And so kind of what were some of the big outcomes of that, $1 billion more revenue. We believe our market share positions even further strengthened. One of the big drivers of that as we transition more to a market-focused sales go-to-market rather than product focused. So kind of leveraging our relationships with the large business connectors to get additional traction on fasteners and anchors with our customers.

That was a pretty significant success and then really have done a lot of things internally to really try to amp up the talent level, succession planning as we had significant growth. So really a pretty good story over the last 4 years.

Okay. Kurt? Over to you, Buddy.

All right. Let's start with the market. We got the starts numbers yesterday. We've seen some suppliers into production builders really ratchet down back half expectations over the last month, some coming out of Q2.

I guess, what have you seen and heard from your production builder customers as we work through Q3?

Yes. So if you would ask most of the people that we're talking to about how they see the market developing, if housing starts were actually up or down year-to-date, they'd all say, "Oh, down and way down." the reality is housing starts are up according to the consensus data, a little bit over 1% over prior year.

We do think that is kind of disconnected from what we're hearing from our customer base and what we're hearing from our peers. I would say we're not as negative as some of the -- our peers have said. We've heard numbers in the second half down as much as double digit for the next 5, 6 months. We don't think it's at bad.

We definitely believe the housing starts are going to finish the year negative. And we are seeing that in our volume development in the last couple of months. It has been a little soft. But again, not that double-digit number that we're hearing from some of our peers. But definitely, disconnect between 1.5% up versus what we're seeing across the industry.

Yes. And some of those markets that were big leaders through COVID, Texas, Florida, parts of the Southeast seem to be kind of the weakest now.

For you guys, the geographic location of a start is really impactful in terms of how much Simpson content is going into that. So maybe you could just start with kind of rule of thumb or general overview of content per home by region and then maybe some of the impacts you're seeing related to that geographic softness in the Southeast?

Yes. So it's -- I mean, again, a fragmented, complicated end market. So there's a lot of variation in how our products are used. We go through lumber yards and contractor distributors and pro dealers. So we don't get great visibility at the end. But in general, when we are -- when you look at a house, it's in a high load area. So seismic, California, high winds, I think Southeast hurricane areas, we'll have probably 10x the normal content we would have in house in the middle of the U.S.

So to be super clear, a couple of thousand square foot house in Florida, California, anywhere from $2,000 to $3,000 worth of content on it, get a lot of variabilities, a 2,000 square foot house in Michigan, Ohio, Chicago area, probably $200 to $300. So when you look at the housing starts data for the last year, plus or minus. I mean we've seen significant growth in housing starts in the Midwest and Northeast, where we tend to have less content on houses in the South and West, where we have a lot of content on it.

We've seen that go down double digit, 10%, I think, in the South and 15%, I think, in the West. But significant discrepancy that is creating a bit of a growth headwind for us because ideally, we like to see those households a lot of content growing faster than the other ones, but it's something that we believe is a short-term disruption that will get fixed in the mid- to long term.

Okay. And another theme has sort of been value engineering by the builders try to kind of help alleviate some of those affordability constraints. I mean connectors, fasteners, things that are really important to the structural integrity of the home, don't seem like an area where you're going to skimp out. But has that impacted you? Or what are you seeing with that?

I mean we're very cognizant of the affordability challenge, right? But the reality is there are codes and their specifications and we are all over that. And you need those -- you need our solutions to maintain the structural integrity of the building. So very well said, Kurt.

But that being said, we do help our builder customers and work through supply -- I mean they work through some of the cost challenges. We do value engineering, where our teams will work with their teams to try to figure out how can we maybe help them just build a safe -- a faster house or maybe take a little bit of content out or maybe have different products that have faster installation speeds.

We've got some other technologies where we can help them automate some of the process of building law. We've got some technologies that can help them develop a more accurate bill of material, resulting in less waste. So there are things that we're doing to address the affordability story. But I mean you need the metal in the house to meet the codes and the specifications.

Right. And I mean you just kind of alluded to some of the digital solutions part of the portfolio. Maybe you can talk about some of the specific offerings that are most impactful? And then also discuss the monetization aspect of that versus maybe just defensibility and making sure you're maintaining kind of the dominant share that you already have?

Yes, sure. So we have probably 50 different digital tools that we use across the company. Simple side would be helping customers select the right product for whatever application is, maybe designing a custom product that they need for a certain connection all the way to the other end of tools we're using with lumber yards to help them do takeoffs more efficiently and more effectively.

So I mean, typically, if you are a small and medium-sized builder, you take a plan into a lumber yard, you say, can you quote this for me? It takes them some time. It takes that salesperson off the floor, who is doing that quote. We have digital tools, we can load those in pretty much instantaneously or pretty quickly get a take off that is more accurate, which saves on waste and keeps that salesperson focused on selling on the floor.

We are leveraging -- we are selling that software to some customers today. I think longer term, we believe that there's value there for the lumber yard and for Simpson, such that the cost -- the benefit is greater than the cost for a lumber yard, and we're able to monetize that. So that's in the midterm plan for sure.

We also offer services, so we have a pretty sizable team in Vietnam that Simpson employees where we can do take off services for people. So if they are -- maybe they're not ready for a digital tool, but they don't have the time to do it. We offer takeoff services and that's certainly a piece of our revenue going forward. I think we have a pretty good opportunity to monetize it over time, but we're very early innings on that today. But in general, I think the industry on the whole has a need and an opportunity to bring some digital tools that drive productivity.

And it's interesting, you've got certain pro dealers who have invested really heavily brought some of those digital tools to market. You've got third-party suppliers. Like how do we think about Simpson fitting in within that ecosystem? And maybe the importance of someone like you for smaller lumber yards, you don't necessarily have the resources or capabilities to create something of their own to compete with some of these bigger players.

Sure. I think there certainly are other players that have gotten into the space, but I think there's plenty of room for multiple players that if you look at residential construction on the whole, the adoption of digital tools and technology is pretty far behind some other industries even if you look at commercial construction.

So I think there's room for multiple players. I think there's, like you said, examples where smaller lumber yards, medium-sized lumber yards, these tools make great sense versus hiring a person and kind of having them focused only on takeoffs. There are -- some of our customers have their own tools, and they're great customers, and we help support them and we compare notes on tools at times, but there's also other customers that may not want to use a competitor's tool.

And so I think Simpson's role in that being a little bit more agnostic from that standpoint. And then just our expertise on the structural side, it's easy for us to take what we know about the structure and what's required from a hardware standpoint and add in other things that we can add into the takeoff that whether it be sticks or windows or whatever the case might be, it's relatively easy for us to add into our tools that can be of value for the lumber yards.

And there are thousands of lumber yards, right? So if you are a start-up because there's really nobody of critical mass in this space, and you're going to go to thousands of lumber yards and try to teach people that have been doing it one way for a long time that are not necessarily tech savvy. That is a big ask.

So the question for us is, how can we leverage our relationships with all of these lumber yards? How can we leverage our team that's calling on them? And then partner with some business development people that we've developed that know how to sell services that know how to sell software that can do this efficiently. And that's the piece that we really need to work through to unlock the opportunity.

Got it. Okay. And maybe we'll switch gears to pricing. Obviously, an important component of kind of the growth over the last couple of years, especially during COVID. You implemented kind of an 8% weighted average increase in June. Some additional tariffs have kind of been implemented since you first announced that. So maybe just update us on where are we in terms of what you've announced to the market? How do you think about realization?

Yes, sure. As you said, we announced a price increase in early April. It was effective early June. Weighted average, it was 8%. Affected all or has included all of our SKUs in North America for the most part. Tariffs were announced prior to that. So a big portion of that was related to imported items, which for us is anchors and fasteners, which come from China and Taiwan.

After that price increase went into effect, there was an additional tariff announced on imported steel derivatives, which again impacts those anchors and fasteners. So we actually announced a second price increase on imported fasteners and anchors mid-August, effective mid-October. So we'll see a little bit of that in Q4 when that kicks in.

But tariffs are -- it's a meaningful item for us, right? It doesn't -- we're not in a position where it's as impactful maybe some of our competitors or others in our space, but it's a meaningful number for us because of our fastener and anchor business that we import and that we manufacture ourselves and anchor bolts in China.

So I'd say from a realization standpoint, Simpson has a pretty good track record of when we take a price increase, we stick to our guns. We don't do one-off negotiations and deals, that's a pretty slippery slope. And we believe that our products are high-quality products, heavily engineered, the valuation that we bring for our customers, we can earn a little premium for that, and we need to be able to maintain the levels of service that we want to provide for our customers to do that from time to time, we've got to take a price increase. It has been roughly 3 years since we took a price increase prior to that.

Right. And it's interesting, like historically, from a market position standpoint, from the stickiness of the product with the customers or everything like Simpson has been perceived as a company with very strong pricing power. But it's been sporadic, right, and mostly centered around addressing persistent steel inflation in the past. Going forward, let's put the tough demand environment at the moment aside.

Has the pricing philosophy or approach there do you expect that might change going forward? Or how do you think about pricing as kind of a lever of opportunity in the future?

I'd say, I mean what we are committed to is maintaining our gross margins, right? Whereas I think before, we would take big chunks of pricing when steel change, then the gross margin erode a little bit. And then steel price might change. We might go back to the -- have gone back to the pricing well.

We are very aware of the affordability challenges. I think the -- we're helping our customers, as Mike mentioned, some of the value engineering find other ways to take costs out. We're engaged in a couple of different venture type arrangements where we're working with firms on how to make the construction homes more efficient, quicker to help kind of offset some of that cost pressure.

Certainly, us taking pricing in a challenging macro environment, it's difficult. It's probably more difficult than when the housing market is really humming. So I think we're -- we want to -- we're committed to maintaining our gross margin. I think we got to see kind of where the market goes a little bit. But certainly, we want to maintain the high level of service and product innovation that we're known for and part of that is making sure we're maintaining our margins.

And the pricing discussion kind of culminates in the ambition to maintain an operating margin of at least 20%. We got a lot going on this year, tariffs, timing of price, Gallatin sale.

I mean if you were to step back, like what needs to happen to kind of sustainably get back to that 20% level I mean, beyond volume, are there any other big drivers we should be thinking about?

We have an absolutely fantastic brand. We've got a really, really strong business model. That needs to translate into good profitability. We define good profitability in this market at a 20% range. We're not where we want to be. We've got a couple of one-timers that are helping us. We got a couple of one-timers that are also presenting some headwind. We need to work through that, and we are locked and loaded on trying to get back to 20% in 2026 even if the market is not going to provide a lot of headwind.

Tailwind...

Tailwind, sorry. We do believe that as things eventually start to pick up, there will be some leverage on the SG&A. But right now, we are locked and loaded and making sure we get to a 20% operating income.

And getting back there or potentially even getting there this year, right? I mean 20% is still within the band of guidance for '25. It's in a tough demand environment, right? I mean I think we all hope it's sort of trough like, how do we think about the upside there as we envision a scenario of getting back to mid-cycle type demand? Leveraging some of the investments that you've made. What's kind of the bull case scenario as you look out the next couple of years?

Yes. I mean I think the bull case scenario is, and I hear this from a lot of builders, when the affordability story finally kind of gets figured out, and customer confidence gets improved significantly and things start to unlock. I think in general, everybody in the industry feels like we're going to get several years of 3%, 4%, 5% market growth.

And when we look at it internally, we've had a long history of driving growth. If you look at the last 10 years, roughly volume growth, roughly 300 basis points above housing starts, revenue growth certainly above that. We believe that we've got things in front of us that can help us continue that path.

Now not every year is going to be up. It's not a straight line up. Sometimes you're running a headwinds like we're seeing now with the mix and where the housing starts are going. But we do believe when we look at our algorithm and how it's going forward, eventually, we're going to get to a part where the housing shortage really starts to kick in and drive good growth. We believe we can continue to outperform the market the way we have. And then we believe once we get into that scenario, we'll have opportunities to translate that potentially into higher margins.

And I think in the meantime, we've been in a pretty intensive CapEx cycle with the footprint expansions that we've had going. I think that those wind down this year and more of our CapEx focus, albeit a lower absolute number is going to be focused on productivity and things that help drive more bottom line versus some of the capacity stuff that we've been doing.

Got it. And Mike, you in an earlier comment alluded to the business model. And one, sort of under the radar, but important tweak, over the last couple of years has been the path to market initiative, self-distribution. I mean that's very difficult to do, right? I mean a lot of very powerful brands are still very reliant on 2-step distribution.

So talk about why you made that decision? And what are the opportunities there as you kind of move past some of those distribution and warehouse investments over the next couple of years?

So it was really a legacy story. When we first started, I mean, decades ago, we relied on 2-step distribution, just to help us with shipment to a very diverse, fragmented customer base.

Over time, we realize that we want a technical sales team that is thinking service, service, service, all the time that can also sell the complete broad product line. So we had scenarios where 2-steppers were selling connectors. And to be quite honest, kind of easy to sell a connector. I don't say that always in front of my sales team and now i'm on tape saying it, so I'm sure they'll love that. But we need help selling the complete broad product line, and we didn't always get there from our 2-steppers.

So we started in Texas and eventually, over time, we realize that's a better business model for us. So although our 2-steppers are very good partners, and we still have some various business relationships with them. For the most part, we go direct to the lumber yards. And what we see when we do that is we have built better relationships with those lumber yards. We train them more in our products. We make -- so training them on our products is to make sure that we're carrying the right products on the shelf in the right assortment at the right inventory levels, let's cross sell all of our products.

So not just the relatively easy to sell connectors to sell the complete product line. Let's work with them on point-of-sale displays. I mean just 100 things that we can do to help that end lumber yard, pro dealer, contractor distributor that our 2-steppers weren't always willing to do. So typically, this is gross margin neutral. So obviously, the margin associated with the 2-stepper we take, but then we invest back into the business, more warehouses, more inside salespeople, some more salespeople. So net-net, it ends up being margin neutral, but we do see that, that has historically grown our sales channel.

And then on top of that, about 3 years ago, we switched from a product-focused sales team to a market-focused sales team. So a similar kind of scenario, our connector salespeople are going into lumber yard, but not always selling the other products because they didn't know them as well. So we wanted them to represent the complete product line.

So now we've got teams aligned with those 5 market segments that we show to sell the complete product line. And the challenge there is making sure that the salespeople that are used to selling one product line without the others, we train them up, give them the support and everything they need to feel comfortable selling that full bag of structural solutions we have to those different markets.

And one of those kind of 5 key markets is component manufacturers. And it's somewhat the inverse of the connector side in terms of market share versus your standard competitors.

I guess maybe in the last couple of years, we've seen some nice wins there in conversions. I guess what kind of additional improvements or what do you need to do from an execution standpoint to really have the right to win there and kind of aggressively capture that market share opportunity going forward?

Yes. We've been growing market share in that segment. It's been probably our fastest-growing market segment over the last few years. We're a small share player in that pretty large market. So it's a big opportunity for us. we've been focused pretty heavily on our internal software development, which will get us to the place where we have the tools that are needed to go pick up some of the larger customers in that space where our tools don't quite meet their needs.

Today, our tools are very effective for the small- and medium-sized truss yards. We have 1 top 10 truss manufacturer that has been a Simpson customer for several years and that has gone very well. And I think they recognize what we bring, and we certainly appreciate them their input into our tools as we're continuing to develop.

So we're focused on getting that software kind of to the finish line. I think we're closer than we've ever been. It's really a latter half of 2026 story when we feel like we're at near the place where we're ready to kind of go after some more of the bigger business there because our tools will be ready.

Yes. And we've made significant investments in that space. And so we've always had people that know the engineering, that know the truss market inside and out, that understand the connector components. So we always had the hardcore engineering piece to it, but the piece that we've really added to is enterprise-wide software. And how do we put all this on to the cloud and how do we develop the software more professional with better tools? And how do we improve the overall product line management of that space?

And that starts with the CTO that we brought in about 1.5 years ago that had experience doing this with [ Cari ]. He developed software solutions that they were able to monetize, but also sold hardware. So we're leveraging some of that experience, and we've got several new people on the team. So now we've got a really good mix of legacy Simpson people that understand the technical parts of the truss space, but also people that know how to develop enterprise-wide software.

And you still have a very good competitor there. I guess when you go into a component manufacturer and you make the pitch, what are the key differences or reasons why part of the value proposition that you think is really going to resonate to drive that?

We have a service mentality and culture like no other. And our main competitor in this space, 2 or 3 years ago, when there was some supply chain chaos running a little bit shorter raw materials, did some things in the market that customers still remember. And I mean, we are locked and loaded on service. We will do everything we can to take great care of our customers. And we see that in an equivalent of a Net Promoter Score that we do with our customers. We do that every year. We're north of 80. And if you know the NPS methodology, north of 80 is pretty darn good.

I mean Matt and I and our senior leadership team are always out in front of our customers. We're always getting good feedback. I mean we have a culture of taking great care of our customers, and they recognize that. And they want another player in that field to be able to help them out.

Got it. That makes sense. And we've seen some big consolidation moves in the dealer or kind of pro retailer space. Early kind of feedback or observations in terms of maybe how that's impacted your relationships with some of those customers or any kind of opportunities or risks that you're thinking looking further out as presumably, that trend continues?

Yes. I think we have great relationships with our customers. A lot of them have been part of this consolidation as they've grown by acquiring smaller lumber yards and pro dealers as it might be or even the case of builders, in some cases bigger builders acquiring smaller builders.

I mean, there's pros and cons, right? I think we have a great relationship. They know what we stand for. And oftentimes, if they acquire someone who is maybe stocking competitive product, they're pretty quick to move to a Simpson product.

I think on the con side, there certainly, as some of these folks get bigger, it gives more negotiating power and some of the ways that we interact with them. So there's a good balance there, but we referenced it in most of our earnings call that we think it's maybe a slight headwind just from a customer mix standpoint, as you think about net pricing and things like that.

But overall, I don't think it's something you're going to see on a quarter-to-quarter basis. I think it's just a very small sort of trajectory that's going. And we're not going to be able to stop it or change it, but I think embrace it and continue to have strong relationships with them.

Yes. Historically, we've been very much a branch-driven organization. So very local -- strong local general managers because the building and construction industry is local.

One of the things that we realized is the bigger pro dealers get bigger and the bigger builders keep getting bigger and everything is running in a national area. We've invested quite a bit in the national accounts team, and that national accounts team does a fantastic job. So here, we're working and interacting with the most senior people at those pro dealers and the builders. And then at the same time, we've got our branches taking very good care of them on a local level.

And I mean, simplistically, if you want to penetrate the pros and you don't have Simpson strong tag, you're kind of doing yourself a little bit of the service...

Kurt, let me get you one of those sales jobs.

Yes. That's right.

You'd be great out there.

Above-market growth, right? I mean you have the slide that shows the 10-year performance, 300 basis points on average per year. The last 3 years, 700 basis points on average.

Maybe what was different in the last 3 years? Is there anything about the current environment that makes that type of performance just much more difficult to attain? And what over the next 3 or 5 years is kind of an attainable goal for you guys?

So Simpsons had a long story of really, really strong growth, but it's not always been a straight line up. And if you look at the last 4 years, 3, 4 years, there have been some big things that have really kind of goose that number, which show in that 600, 700 basis point above market performance. And we talked about most of this.

The shift away from 2-steppers, a shift from a product-based team -- Kurt, the alarm likes going on. The shift from a product-based sales team to a market-based...

Bad timing. We'll go until the arm goes up.

Okay. So there's been some drivers that have really boost those numbers and that story has played out a little bit, and we've also clearly benefited from strong housing starts in the Southeast. That's been a deal. So now as we look forward, that slowed down a little bit. But as I said early on, we believe in our current markets, in our current products, we've got plenty of room to drive that above market growth.

We have not set specific targets on it externally, but I can tell you, me and the rest of the management team, that 300 basis points that we've grown historically, we want to continue to be at or above that going forward. And again, not always going to be a straight line up, and we need to power through that, but we're confident we can do it.

Okay. Any questions from the audience?

So how did your customer better respond...

Yes, I'd say generally, they followed. I mean, the amounts might be slightly different here or there, and especially on fasteners and anchors, not all of our competitive set has the exact same manufacturing footprint. Some are exclusively imported, some are like us with a mix of imported and domestically produced some have a little bit more domestically produced than we do. But generally, I would say, have followed.

Talk about the tariff approach, though, because I think that was pretty smart.

Yes. I mean the tariffs were announced, I think, first in February. We took a little bit more of a wait-and-see approach on tariff pricing. I think that allowed some things to settle in the market and some people to learn how customers are going to approach that.

We passed through the price increase that we announced in April and June, kind of all items with a price increase, a little bit more of a kind of cost increase we've seen kind of incremental prices on imported items. We chose not to pass through dollar for dollar our tariff impact. So we didn't fully pass it through because of that manufacturing footprint difference, I want to make sure we maintained a good spot in the market competitively and then had to take an additional price increase on tariffs here that we mentioned in August.

But I think in general, our fastener and anchor competitors are largely the same boat. They might have slightly different amounts, but for the most part, have raising the same boat.

[indiscernible]

So digital tools today, we are monetizing a little bit, but not a material amount. I do believe that very much contributes to the fact that we saw fastener stamp steel and screws for 50% gross margin. I mean you got to do a lot of things to be able to do that, and digital tools is clearly a part of it. I think the bigger question, as we talked about, is there the ability to further monetize that by helping drive productivity in the industry and we think so. We've got a lot to do still to make that happen, but we think so.

All right. Let's finish up on capital allocation. Matt, you kind of alluded to capital spending levels being elevated in the last couple of years, I mean, are we kind of at the end of that investment cycle, any other kind of larger opportunities that we should be aware of from an organic investment perspective going forward?

Yes, we're going to continue to support the organic growth of the business, product innovation, R&D. But in terms of large footprint expansion, we're kind of at the end of that cycle by the end of this year. So Columbus, Ohio, grand opening was in May. Gallatin kind of right down the road from where we are today, kind of in process of moving in a new facility, that CapEx is largely going to wrap up by the end of the year.

I think 2026 looks more like a normal kind of CapEx excluding these footprint expansions, which is probably in the $75 million range.

Okay. And still a little bit of debt, but generally, the balance sheet is in a really good spot. Once we kind of see those capital spending levels moderate, how do you think about capital returns to shareholders, kind of that 35% of free cash flow versus the M&A opportunities that may or may not be helpful?

Yes, sure. Definitely focused on continuing to return capital to shareholders. I think that 35% of free cash flow, the free cash flow number has been depressed a little bit because of the CapEx spending. So in terms of absolute more dollars will come back based on just the same 35% target because that free cash flow is going to go up because of the CapEx slowing down.

In terms of M&A, there's really not a lot of significant M&A opportunities in our space, continue to see maybe some small tuck-ins here there, products where there's IP that we want to own, and we can't work around or things that would improve our speed to market on a particular product. But nothing really significant on the M&A front to talk about it this.

And zero appetite to go into adjacent spaces. I mean we, again, believe in our markets, in our products, plenty of ideas to grow, at this point, we do not see any need to do any acquisitions in an adjacent space.

What about in Europe? In Europe?

Nothing in Europe. It would have to be at a -- nothing in Europe. I'd just leave it at that.

Last one, just because you mentioned some of the tuck-ins, EasyFrame is one of those. We saw 84 Lumber come out with their new precut and labeled kind of framing offering. Maybe just talk about that as an example for some of these tuck-ins and how it strengthens your relationships or allows you to do more with the existing customer set?

Yes. So this is a great example of us using software services and other tools to help our customers get better. So the ideal scenario is the customer creates a bill of material -- I mean the builder goes to a pro dealer, and I'm just going to keep it very generic before we talk about 84. But the builder goes in and says, hey, I've got a house I want you to quote. Basically create a takeoff or a bill of materials, Matt kind of talked a little bit about that.

We've got digital tools and we've got services that can help do that. ideally then that translates into a cut package that goes through this automated saw we have. So you've got a picture of this room, you've got designs for each one of these rooms. We can send that to the saw. It will cut the wood specific to that package. It will bundle it up. It will print directions on it. And it could either be assembled right there. If our pro dealer wants to do the wall assembly there or it could be shipped to the job site.

Numbers we hear when it shipped to the job site and people are familiar with how it works, kind of precut and saving some waste as well, it could be up to a 20% savings of time and cost. And so some of our customers are looking at that is how do they use that technology to deliver value-added services. So the whole vertical concept is they want to be able to deliver wall panels and/or cut packages and our technology facilitates that process.

All right. Awesome. Well, Mike, Matt, really appreciate you guys being here and thank you for your time.

Thank you.

Greetings, and welcome to the Simpson Manufacturing Co. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] A reminder, this conference is being recorded. It is now my pleasure to introduce you to 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 Second Quarter 2025 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.

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.simsonmfg.com.

Today's call is being webcast, and a replay will also be available on the Investor Relations page of the company's website. Now I would like to turn the conference over to Mike Olosky, Simpson's President and Chief Executive Officer.

Thanks, Kim. Good afternoon, everyone, and thank you for joining today's call. With me today is Matt Dunn, our Chief Financial Officer.

Today, my remarks will provide an overview of our second quarter performance and highlights from our key end markets. Matt will then walk you through our financials and our fiscal 2025 outlook in greater detail.

Now turning to our results. Our net sales of $631.1 million reflected growth over the prior year quarter in a challenging residential housing market in both the U.S. and Europe. While our second quarter volumes were relatively flat year-on-year, our North American volumes once again exceeded U.S. housing starts by approximately 240 basis points over the last 12 months.

In North America, net sales totaled $492.7 million, up 6.4% from $463 million last year. Our results included a contribution of roughly $9 million from our 2024 acquisitions. Additionally, we benefited from a partial month contribution from the price increases that went into effect on June 2. Collectively, these items offset our flat volumes. As a reminder, software services and equipment are not included in our volume calculations. Our North American volume results were mixed in the second quarter, though sales to all of our end markets continue to demonstrate at or above market growth on a trailing 12-month basis.

The OEM business had a strong quarter with volume up double digits over Q2 2024. We saw significant growth in solutions for mass timber and continued momentum in off-site construction, including post-frame, shed and modular manufacturers. In the commercial business, volumes improved mid-single digits year-over-year, driven by the continued strong performance of our adhesive and cold-formed steel product lines. Our takeoff services, which generate an accurate bill of material, continue to add value and build customer loyalty, helping us win additional cold-formed steel projects. In the component manufacturer business, we delivered mid-single-digit volume growth year-over-year. Our customer-centric digital solutions and expanded equipment offering contributed to the above-market performance.

In the second quarter, we expanded our customer base and launched key enhancements to our digital solutions portfolio, strengthening existing partnerships and delivering greater value to our customers. Our national retail business experienced relatively flat shipment growth, while point-of-sale performance improved with mid-single-digit gains. This was driven by new product listings and expanded retail space secured in late 2024. Growth was primarily fueled by our strong performance in our Outdoor Accents product line and anchoring products, increased e-commerce activity and pro growth initiatives within our 2 largest retail partners.

In the residential business, volumes declined slightly versus last year due to continued challenging market conditions. We remain focused on driving customer conversions and expanding product lines with a particular emphasis on delivering integrated equipment and software solutions tailored for pro suppliers and billers. Additionally, we're encouraged by the recent momentum in the multifamily market.

Finally, I'm proud to share that our dedication to relentless customer service resulted in several renewed partnership agreements with key builders and a supplier award announced in the second quarter from David Weekly Homes. Turning to Europe. Our net sales of $133.4 million increased 2.7% compared to the prior year, but decreased by $2.8 million on a local currency basis. Although volumes were down year-over-year, our European business continues to outperform local markets, driven by new application launches and recent customer wins. Consolidated gross margin was 46.7%, consistent with the prior year quarter despite higher input and labor costs.

As a reminder, on June 2, we implemented targeted price increases in North America in direct response to rising input costs, both material and nonmaterial as well as a portion related to recent trade policy actions. While our supply chain is primarily domestic, we do source certain components, including fasteners from countries affected by the newly imposed tariffs. These increases offset some, but not all of the incremental tariff-related costs as of the date of our price increase announcement, resulting in a modest negative impact to gross margin.

Looking ahead, the expansion of tariffs on steel and related metals announced in early June could prompt additional pricing actions, which we are currently evaluating. However, we believe that disciplined cost management, targeted pricing strategies and ongoing productivity initiatives position us to maintain our gross margins while continuing to make selective investments in enhanced customer service. Our second quarter operating margin was relatively flat with the prior year at 22.2%. Consolidated adjusted EBITDA totaled $159.9 million, an increase of 4.8% year-over-year.

Next, I'd like to touch on our 3 financial ambitions. First, continuing above-market growth relative to U.S. housing starts. For 2025, we are updating our assumption for U.S. housing starts to be down in the low single digits compared to 2024. In Europe, housing starts are expected to remain broadly in line with 2024 levels. We are focusing on continuing to grow above the market. Next, maintaining an operating income margin at or above 20%. In a favorable growing market environment, we are confident in our ability to sustain at least a 20% operating margin.

And finally, as a growth-focused company with industry-leading margins, we believe we can consistently drive EPS growth ahead of net sales growth, as evidenced by our year-to-date earnings per share increasing by approximately 260 basis points ahead of our revenue growth. In summary, we delivered a solid quarter with revenue growth on stable volumes that outpaced the broader market despite continued macro housing headwinds. Our solid operating margin and disciplined cost control underscore the resilience of our team and our business model. We continue to believe in the prospects of the housing market in the mid- to long term. In the short term, we remain focused on being the partner of choice and maintaining our margins in this dynamic operating environment.

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

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 second quarter of 2025, and all comparisons will be year-over-year comparisons versus the second quarter of 2024.

Now turning to our results. Our consolidated net sales increased 5.7% year-over-year to $631.1 million. Within the North America segment, net sales increased 6.4% to $492.7 million. In Europe, net sales increased 2.7% to $133.4 million, primarily due to the positive effect of approximately $7 million in foreign currency translation, which was partly offset by lower sales volume.

Globally, wood construction products sales were up 5% and concrete construction product sales were up 9.2%. Consolidated gross profit increased 5.7% to $294.5 million, resulting in a gross margin of 46.7%, in line with the second quarter of 2024. On a segment basis, our gross margin in North America was 49.7%, marginally lower than the 50% reported in the prior year due primarily to higher warehouse costs as a percentage of net sales. Our gross margin in Europe increased to 36.2% from 35.4%, primarily due to lower material costs. From a product perspective, our second quarter gross margin was 47.1% for wood products compared to 47.2% and was 45% for concrete products compared to 47.5%.

Now turning to expenses. Total Q2 operating expenses were $154.4 million, an increase of 6.5%, driven by higher personnel costs, primarily from our 2024 acquisitions as well as variable compensation and computer software and hardware costs. As of June 30, our headcount was down slightly from the start of the year. As a percentage of net sales, Q2 2025 operating expenses were 24.5% compared to 24.3% last year. We are focused on ensuring our spending results in above-market growth while targeting an operating income margin above 20% that is consistent with our long-term strategic objective.

Given the current outlook for housing starts and the recent price increases, in addition to the year-to-date headcount reductions mentioned above, we anticipate the cadence of SG&A investment will continue to moderate. To further detail our second quarter SG&A, our research and development and engineering expenses increased by 4.1% to $20.8 million. Selling expenses increased by 3.6% to $56.4 million, primarily due to higher travel-related costs. On a segment basis, selling expenses in North America were up 6.5% and in Europe, they were down 5.8%.

General and administrative expenses increased by 9.4% to $77.2 million, largely as a result of higher personnel costs, including increased variable compensation and computer hardware and software costs. As a result, our second quarter consolidated income from operations totaled $140.2 million, an increase of 6.1% from $132.2 million. Our consolidated operating income margin was 22.2%, generally consistent with last year at 22.1%. In North America, income from operations increased 2.7% to $135.7 million, driven by higher net sales.

In Europe, income from operations increased 29% to $15.7 million due to reduced operating expenses on higher gross margins, including a slight favorability from foreign exchange. This resulted in our highest second quarter operating income margin in more than a decade of 11.7% compared to 9.4% last year. Our midterm goal in Europe remains an operating income margin of 15%, predicated on improved market conditions. Our second quarter effective tax rate was 25.8%, approximately 50 basis points below the prior year period. Accordingly, net income totaled $103.5 million or $2.47 per fully diluted share compared to $97.8 million or $2.31 per fully diluted share.

Adjusted EBITDA for the second quarter was $159.6 million, an increase of 4.8%, resulting in a margin of 25.3%. Now turning to our balance sheet and cash flow. Our balance sheet remained healthy with cash and cash equivalents totaling $190.4 million at June 30, 2025, up $40.1 million from our balance at March 31, 2025, due to higher net income and lower inventory levels. Our debt balance was approximately $374.5 million, net of capitalized finance costs and our net debt position was $184.1 million. We have $450 million remaining available for borrowing on our primary line of credit.

Our inventory position as of June 30, 2025, was $586.6 million, which was down $32.2 million compared to our balance as of March 31, 2025, with lower pounds of inventory on hand. Our disciplined capital allocation strategy ensures that our investments are aligned with market dynamics and long-term value creation. We generated strong cash flow from operations of $124.7 million for the second quarter. This enabled us to invest $39.9 million for capital expenditures, including our investments for facility upgrades and expansions, pay $11.8 million in dividends to our stockholders and pay down $5.6 million of our term loan.

In addition, we repurchased 216,645 shares of common stock at an average price of $161.55 per share for a total of $35 million. As of June 30, $40 million remained available for repurchases through year-end 2025 under our $100 million authorization. Next, I'll turn to growth investments. We held the grand opening of our expanded Columbus, Ohio facility in May. The project finished on time and under budget. Our Gallatin, Tennessee facility is scheduled to open in the third quarter of 2025 and is expected to become fully operational by the end of this year. This facility will play a critical role in helping to support growth and enhance operational efficiency across our fastener product lines.

As a reminder, this new greenfield expansion will enable us to manufacture approximately 50% of our fastener products in-house. This shift to primarily domestic production will reduce our tariff exposure, improve responsiveness to customer demand and enable us to more effectively compete for larger projects with short lead times that we could not historically fulfill with imported fasteners. Additionally, we are continuing to integrate our 2024 acquisitions. At the same time, we are evaluating potential M&A opportunities in alignment with our strategic objectives. Next, I'll turn to our 2025 financial outlook. Based on business trends and conditions as of today, July 28, we are reaffirming our guidance for the full year ending December 31, 2025, as follows: we continue to expect our operating margin to be in the range of 18.5% to 20.5%.

Additional key assumptions include our revised expectation for U.S. housing starts to be down in the low single-digit range from 2024 levels. Additionally, we're expecting a slightly lower overall gross margin based on the recently imposed tariffs, which we anticipate will be partly offset by the price increases that went into effect on June 2 as well as the addition of new facilities as a percentage of net sales. Our margin guidance also includes a projected benefit of $12 million to $13 million from the sale of the original Gallatin, Tennessee property based on a contracted sales price of $19.1 million.

Next, interest expense on our term loan, which had borrowings of $374.5 million as of June 30, 2025, is expected to be approximately $2 million, including the benefit from interest rate and cross-currency swaps, mitigating substantially all of the volatility from changes in interest rates. Interest on our cash and money markets is expected to offset this expense. Our effective tax rate is estimated to be in the range of 25.5% to 26.5%, including both federal and state income tax rates based on current laws. And finally, we are reducing our capital expenditures outlook to be in the range of $140 million to $160 million, which includes approximately $70 million to $75 million for the completion of both the Columbus facility expansion and the new Gallatin Fastener facility.

In closing, we performed well in the first half of 2025. We are focused on achieving our financial ambitions through the balance of the year despite ongoing macroeconomic uncertainty, and we'll continue to monitor our investments to ensure that they are aligned with market conditions. We also remain committed to returning at least 35% of our free cash flow to stockholders, reinforcing our emphasis on balancing growth with maximizing stockholder returns. As always, we are focused on being the partner of choice by providing our customers with world-class service, support and innovation.

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

[Operator Instructions] Our first question comes from the line of Dan Moore with CJS Securities.

Maybe start, just make sure I heard correctly. I think you said a $9 million contribution in the quarter from acquisitions and then the balance of revenue growth predominantly price with volumes relatively flat. Is that the right way to kind of think about the buckets in the quarter?

Yes, Dan, this is Matt. The $9 million from acquisitions in the quarter is correct, which is acquisitions we acquired last year that we haven't quite anniversaried. There was a little bit of exchange rate help in the quarter as well from Europe, I think about $7 million. And then pricing was really the balance of it. Volume largely flat.

Perfect. And then margins, obviously, a solid quarter, generated op margins of -- a little over 22%, bringing the H1 margin to nearly 21%, yet we're kind of maintaining the full year outlook with 19.5% at the midpoint. I realize there's seasonality. Q4 is usually lighter, but it implies a bit of a step down. Just are you expecting -- you talked about maybe the gross margin headwind from tariffs, but is there anything else? And is there maybe a little bit of conservatism built in kind of an uncertain macro environment?

Actually, Dan, you said it perfectly well in that last statement, a lot of uncertainty. I mean when you look at the market, the forecast that we get from Zonda and the message we hear from our customers, second half is going to be a little bit tougher. There is a second round of -- or another round of tariffs that went in impact after we announced our price increase in April that we need to think through. And just a lot of unknowns, and we want to make sure that we're doing everything we can to hit our guidance.

Helpful. I appreciate it. And then this is more of a housekeeping question, but maybe just what drove the reclassification of expenses? And does it have -- is there any implication for the overall level of spend or investment going forward?

No, there was a change that we made as we brought on -- primarily as we brought on a new CTO mid last year and wanted to align kind of where the work was happening and where the leadership was. And so we moved some dollars from one bucket within SG&A to another, but essentially a left pocket, right pocket and no real change in the work being done or the spend, just more of a kind of a housekeeping thing, like you said.

Okay. And then maybe 1 or 2 quick ones on cash flow and capital allocation. You got a little bit of an inventory benefit in the quarter. How should we think about kind of working capital more generally for the balance of the year? And then you continue to buy back stock with the stock having pulled back a bit. I think you said $40 million left on the authorization. Is the -- do you foresee the potentially replenishing that? Or is that sort of $100 million, should we think about that as what you have left to work with for the balance of the year?

Yes, I'll take the last part there on the stock repurchase. We're sitting at $60 million through the front half of the year against our $100 million authorization from the Board. I think like in our outlook, there's a lot of uncertainty, but we remain focused on returning free cash flow to shareholders and being opportunistic when we have that opportunity. So I think the authorization for the year is clear, and we're always looking to do what we can there from the standpoint of being opportunistic. So nothing specific there yet, but more to come.

Helpful. And just kind of working capital as we think about the...

Working capital, I think seasonally, the higher volume quarters for us are Q2 and Q3, where we tend to work down inventory a bit. There's a lot of wildcards out there about steel pricing and inventory levels. So as you know, we tend to try to hedge steel prices through inventory more so than a specific hedging program. So we remain kind of vigilant and opportunistic in the market based on what we see from a steel standpoint and also knowing that the volume forecast is a bit variable. So I think not a whole lot different than where we've been from that standpoint. The cost of inventory certainly is going up on imported items from a tariff standpoint. So while the dollars may be going up a bit, the pounds are flat to down.

Our next question comes from the line of Tim Wojs with Baird.

Maybe just first, just a clarification. On the North America business, were volumes up in Q2? Or is that organic number predominantly price?

The volumes are pretty much flat on the quarter, Tim. The revenue number is driven by price, the carryover of the acquisitions, which generally don't have volume, if you think about equipment and software, which was 2 of the big acquisitions from last year. They don't factor in the volume calculation. And then the last piece is a little bit of exchange rate help coming from Europe.

Okay. But I guess in North America, I mean, I guess what I'm trying to get at is you only had a couple of weeks of price, I think, in the quarter. So I'm just trying to square the 5% with only a couple of weeks of price relative to your pricing increase in kind of flattish volumes. What -- it seems like there's something there that I'm missing.

Tim, if you look at year-to-date volumes in North America, we are down roughly 1% versus prior year...

Year-to-date basis.

Yes, year-to-date, down 1% versus prior year North American volumes.

Okay. So the price contribution was like mid-single digits in the quarter?

Yes, I think that's right. I mean the volume on the quarter, I think, is up slightly in North America because we were down a little bit in the first quarter. So maybe we're getting a point of volume in North America, getting a point from the acquisitions and then the balance is pretty much pricing in the quarter.

Okay. Okay. And the reason I'm clarifying is because I think the price realization actually accelerates or fully anniversaries into the back half of the year, right? So if we would assume kind of flattish volumes, you should actually get more pricing realization in the third and fourth quarter relative to Q2?

Yes, there was only essentially 3 weeks and change of the quarter where the price increase was in effect in Q2.

Okay. Okay. Got you. And then I guess when you're thinking about just kind of a more difficult housing kind of market, has your ability to take share changed at all, either positively or negatively? Or is it pretty similar to like when the market was growing 2 or 3 years ago? Do you guys have to do anything differently?

Yes. It's position doesn't change, Tim. I think when the market is growing like crazy, it's all about service and making sure that the job site is up and running. When the market slows down and there's a big emphasis on affordability, it's doing everything we can to help our customers be successful. It's value engineering. It's looking at lower installed cost. It's looking at things like our EstiFrame saw that helps develop cut packages. It's better software that can develop a more accurate bill of material and reduce waste.

So the overall business model, I don't think changes much. But what we emphasize in a fast-growing market versus a market where maybe you've got more time to -- and there's more emphasis on affordability, there is a different emphasis within the business model.

Okay. And then just on the headcount that you mentioned, was that -- is it lower because of normal attrition? Or did you guys do something maybe more structural with the organization?

Yes. Tim, we've been leveraging attrition to help us get to that point where we're below prior year.

Okay. It sounds like that will continue.

Yes. I mean we are committed to the guide, and we're committed to getting to 20% with a little bit of help from the market. And until things pick up, we need to be very cost disciplined, and that's one of the ways we're being cost disciplined.

Our next question comes from the line of Kurt Yinger with D.A. Davidson.

Just wanted to, I guess, stick with pricing to start. Maybe you could just confirm, is the 8% kind of weighted average increase in North America still the right way to think about kind of the back half as that's fully implemented for a quarter? And then secondly, you kind of referenced some of the incremental tariff headwinds relative to when you announced the price increases. I guess going forward, how do you kind of balance competitive dynamics? You alluded to affordability just a minute ago versus that end goal of making sure the business is positioned to maintain a 20% operating margin?

Yes. Yes, Kurt, you're right. The weighted average 8% is the right way to think about it. That was our the net of the kind of the published list price increases that went out in early April and were implemented in June. In terms of how we think about it going forward, I'll let Mike jump in here.

Yes. Kurt, when we look at it, I mean, we're focused on helping our customers win. We're focused on making sure that we're delivering great service and innovative solutions and our products are adding a lot of value associated with that. So we believe that's worth a modest premium. At the same time, we're doing everything we can to make sure that we can control costs. So in a slow to low-growth market, we can get close to that 20% operating income.

Got it. And when you think about, I guess, that modest premium, right, and ensuring you're not out of whack with that kind of traditional spread, I guess, from a competitive standpoint, like does it feel like -- or are you seeing increases out there that would allow you to make another move of a smaller magnitude or something like that?

I mean, Kurt, I would say, just stepping back, our connector business is largely sourced with U.S. steel, like the tariffs don't have a direct impact, although they impact steel prices. I think where we see bigger tariff impact is on imported items and fasteners and anchors, and we compete against a number of different competitors in those space, some of which are similar footprint to us and that some is domestically sourced and some is imported. Others are exclusively imported. So we're watching what's happening with various competitors in the space, where we're positioned in the market and trying to strike that balance.

So obviously, we're getting additional tariff costs from the tariffs that were announced June 4, the additional 25% on imports. We have not announced any pricing related to that, obviously, because our price increase was announced in April. So it's something we're watching very closely. I think ultimately, it just kind of depends where that all nets out and where we see competition and making sure that we're delivering what we need to deliver, but at the same time, focused on affordability challenges in the market and making sure that we continue to deliver good customer service.

Okay. Okay. That's great. And then could you maybe just talk about kind of order progression through the quarter? Anything visible to you guys in terms of maybe a little bit of prebuying ahead of the price increase. We saw May and June starts obviously sequentially weaker. Have you kind of seen that same type of progression on a year-over-year basis in your business? Can you just talk maybe a little bit more about that from a monthly perspective?

Yes. So Kurt, we did not see any substantial prebuying. And when we look at the market forecast for the second half of the year and how our second half is starting, it's very much in line with the market forecast. So things are definitely softer.

Okay. Perfect. And then just lastly, I think you mentioned customer expansion in the component manufacturer space. Can you maybe just provide a little bit more color there? And then I think you had also referenced maybe some improvements on the software side. So any detail there would be great.

Yes. So we continue, we believe, to make really good progress on the software perspective. We've got a couple of areas we're working on to improve the engineering part of our trust solutions. We are also working on tools that can help our customers manage their overall project list. We've got tools that we're working on to help them improve the -- basically the supply chain and the manufacturing of the trusses. And we're making good progress in that space. When we look at the solutions that we have today, it's a really good fit for a lot of customers. And as a result, we continue to pick up share and deliver the value proposition that we've been delivering to everybody else.

There are no further questions at this time. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

My name is Sam Reid. I'm the homebuilder, building products analyst here at Wells Fargo. I think some of you guys who have been in this room already, so you already know me. But for those that don't, that's my name. Obviously, I have a great gig here covering housing-related stuff, never a dull moment in the space.

With me here today is Matt Dunn, CFO of Simpson Manufacturing. Really excited to have these guys here. It's a great business, one that I don't officially cover, but one that I track tangentially because they do give a lot of really good perspective on the broader industry. Matt is going to have a few slides to kind of kick things off. You give you guys the lay of the land. Then we're going to jump into a little fireside. And then I'm going to flip the script over to you guys at the very end to see if anyone has any questions. So with that, Matt, feel free to get started.

Thanks, Sam. Yes, just a couple slides for folks that may not be familiar with Simpson. We're a leading provider of structural solutions to the building and construction industry. So think of the structural integral components that are important in construction connectors, fasteners, anchors. We focus on 5 key end markets in North America, residential construction, pretty self-explanatory, commercial construction, typically that's built with wood. So think hotels, restaurants, dorms, hospitals, things that are built with wood, OEMs, so think things built in a factory that need structural connectors or fasteners.

So think sheds, trailers, crates, tiny homes, things like that, national retail, pretty self-explanatory and then component manufacturing, so primarily trust, but also software that goes along with it. We have a broad portfolio of solutions, so wood connectors, truss plates, lateral systems, fastening systems, concrete connections, so both adhesives and mechanical anchors. And then steel connections, you have a cold-formed steel business that kind of replaces welded connections in some structural steel buildings.

Our business model. So we're an innovation leader. We've got over 500 patents worldwide. We've got multi-decade relationships with code officials -- we're helping to deliver our mission of helping people design and build safer, stronger structures. We're focused on customer service. We've got over 700 field sales reps around the country. We do tons of job site visits, long-standing relationships. We have contractual relationships with 26 of the top 30 builders where they exclusively use Simpson Connectors in all their new homes, some of which are here today. About 250 builders in total that -- which represents about half of the U.S. housing starts in our estimate, which exclusively use Simpson Connectors in their construction.

It's a pretty broad product portfolio, about 15,000 standard and custom products that we manufacture. So part of our value equation is providing great service and making it easy to deal with, and we carry the inventory. We generally get the products to our customers next day. And then in terms of industry outreach, we do a ton of training and education to code officials, engineers, designers, helping them build safer -- design and build safer, stronger structures, leveraging our products.

We've had a pretty good track record of accelerating above-market growth. So the metric we like to look at is our volume performance versus U.S. housing starts. So if you look across roughly the last 10 years, we've averaged about 300 basis points ahead of U.S. housing starts. And in the last couple of years, 600 to 700 basis points ahead. So focused on growing share in the market, whatever that market might be, and we look at it at an end market and a product basis. If you think of that as a matrix, we focus on each one of those and make sure that we're outperforming the market. But really want to do this outperformance and drive strong profitability. That's our -- those are our external ambitions.

And then lastly, just the Simpson value proposition. So like I said, our company was founded about 70 years ago. It's been a public company for a little over 30 years. Our founder, Barclay Simpson, kind of helped set up a pretty unique business model where we have long-standing relationships with code officials. We help them design codes using our products that make structures stronger and safer. Those products are then specified by engineers and designers. Oftentimes or almost all the time when you look at a set of plans, you're going to see the Simpson name and specific products called out.

Our -- we service suppliers and dealers by, like I said, giving them inventory on a very quick turn basis. They make good margins on our products, and we support them well. And then the end user of our products is the builders. And we talked about some of the relationships we have with builders, helping them to build homes efficiently that are going to stand up to tough conditions like seismic and hurricane activities as well. So pretty nice business we have and maybe not as widely known outside of the building and products industry, but certainly the Simpson name. If you talk to someone that's in the space or in construction or building, they definitely know the Simpson name. So I'll turn it to you, Sam.

Awesome. No. Thanks, Matt. Helpful overview. And look, I'm going to start with a macro question just because it's great we've got you here, and you probably have some of the best visibility on starts across the industry, just given your connectivity across all of the major homebuilders. So maybe talk through your macro views at a very high level, particularly single-family starts, what you're seeing out there, what might be a little bit different from the market perception? Would just love your perspective.

Sure. We obviously talk to a lot of our customers. We talk to a lot of the builders. We talk to a lot of the market prognosticators in terms of housing starts. Zonda is one of the key ones that we use. We also look at DOGE. We started this year expecting housing starts combined single multifamily to be up low single digits versus the prior year. We softened that guidance a little bit to flat to up in our Q1 earnings call. It's a bit of a mixed bag. I think multifamily kind of bouncing back off the bottom was down quite a bit last year.

We're seeing some pockets of strength, particularly in the West from a market standpoint and then Midwest and Northeast. I think Southeast on multifamily basis still probably declining a little bit versus prior year. And then on single-family, I think folks were a little optimistic that the back half was going to be quite a bit better than the front half. I think that's softening a little bit. You probably met with some of the builders here as well. We talk to them pretty frequently. But I think we're focused on outperforming the market. So even if we see housing starts that's flat to down, we feel like we're in a good spot to continue to outperform that and deliver on our guidance. But I think a couple of key factors.

I would love to see interest rates get down to something that starts with a 5. I think the latest guidance is probably going to end the year upper 6% based on something we've seen from different partners. And then just the uncertainty around tariffs and affordability certainly has an impact on home starts. So we'd love to get some certainty there and get to a place where we can start closing the gap of what we believe is a shortage of housing units in the U.S. that goes back a number of years, and that gap needs to start getting closed at some point.

So maybe talk through how you've geared the business to weather through cycle, particularly downturns and maybe some of the advantages that you have in a downturn scenario versus some of the peers.

Yes. We're customer service focused in a big way. And I think we proved our value to our partners during the supply chain crisis of kind of '21 and '22 when it's easy to say you've got great customer service when times are good, but when the supply chain is chaos and you're able to maintain your service levels. And the building industry is maybe not the best at having forecast and when they're going to need product. And so our ability to perform and deliver that product on a pretty consistent basis allowed us to gain quite a bit of market share, as you saw during that time period there.

And I think we've continued to grow our fastener and anchor business disproportionately faster than our connector business. Our connector business is a very strong business, and we're a pretty -- we're the share leader in that space. So it gets harder and harder to grow share that the bigger you get. But we've been leveraging that -- those relationships and those -- that business and the scale of that business to continue to outperform on fasteners and anchors and then have started to pick up share in the component manufacturing space as well. And again, some supply chain challenges from some competitors that made that door a little bit open for us a couple of years ago.

So maybe let's switch gears and talk a little bit about some of your individual product categories. So maybe let's start with the wood connector business. A lot of builders have talked a lot about value engineering their products and more efficiency. Would just love to hear kind of how your offerings sort of facilitate that. And then also maybe just talk through just kind of how this segment really supports your large homebuilding customers.

Sure. I mean the traditional connector segment is really the category that the Simpson invented 70 years ago. The way that our products play out today with builders and helping them to build amazing homes is you see a lot of homes these days with larger openings, right, big garages, indoor/outdoor spans, large windows. I mean those are the areas that need structural support and our connectors play a key role in that.

Historically, we've had even more content in homes that are built in high seismic or high wind regions. So making sure that those structures are as safe and as strong as possible. I think the codes used to be more geared toward allowing that structure to stand long enough that the occupants could get out in case of a hurricane or an earthquake. Today, you see them more focused on resiliency. So not only can the people get out, but can the structure stay and continue to exist. And so a lot of our products going into the design of those homes and making them resilient.

And you see it over time. You don't see code changes year-to-year making a big impact. When you look across decades, you see significant changes in how neighborhoods and homes perform that have been built to higher code standards in the last 5 years than, say, maybe a couple of decades ago. And Simpson plays a big part in educating those code officials, designing those products, making the ease of install better and then allowing our builders to build these great homes that have big openings and big garage openings and can stand up to the structural needs.

And there's been a lot of consolidation in the homebuilding space just in terms of the private -- or the publics, I should say, taking share from the private. How does that consolidation change your go-to-market approach with builders?

Yes. So the builders are the end users of our product. We don't sell directly to the builders. We sell to the lumber yards and pro dealers primarily. I think the consolidation on one hand is good because we have great relationships with a lot of the builders. It gives us additional visibility. It does create a little bit of a small headwind in that the way that we operate with builders is for exclusivity of using Simpson Connectors in their homes, we pay them a rebate on the end for every house that they close. And so more of those builders that are part of those contracts, then that creates a small headwind. But I think overall, it's been good for us. We have great relationships with all the top builders.

Awesome. And maybe let's switch gears and talk a little bit about your fastener business. So decking screws, connectors, a lot of different subcategories within that category. Maybe just walk through kind of the broader market, your addressable market, your market share, would just love an overview.

Sure. So we typically play in the premium kind of structurally low-rated fasteners, right? We're not playing in sort of the lower-end fastener business. We sell premium products that have great load ratings and have lots of engineering data behind them. We've got some great competitors in that space. The total addressable market globally is about $5 billion. We've got about a $500 million business in that space. So it's been a space that's been growing for us disproportionately. We've been innovating quite a bit, things like mass timber construction that have become even more popular, lots of opportunity for some pretty heavy-duty fasteners in that space and really have been able to provide a lot of innovation.

I think one of the things we're known for, we have a business called Quick Drive, which is a fastener driving system. But what's unique is that we have collated fasteners that come on a strip. Our fasteners are not the cheapest fasteners available, but we believe that the total installed cost is advantageous to some of the other options. So from an install standpoint, being able to install faster, safer while you're standing up, but also if you're a builder, making sure that if it's a subfloor, it's installed with screws, you're going to get a lot less callbacks for things like squeaky floors than if we're using nails, although nails might be cheaper. So just trying to create that total value proposition for the builder through the products that we create.

And then you've been investing in some new facilities. I believe you've got one in Ohio, one in Tennessee. So you're essentially kind of in growth mode in some ways. I would just love to hear kind of the role those facilities play in terms of building out your footprint, your relationships with your customers, just how they help you grow.

Sure. Two slightly different twists on those 2 facilities. The first one, Columbus, Ohio, the grand opening was May 1. So we just opened, we doubled the size of our facility there. So we service essentially the Midwest and Northeast. The main hub for that is in Columbus, Ohio, where we manufacture a lot of the products. It's also the main hub for our warehouse distribution for that portion of the country, which happens to service a disproportionate portion of national retail, given the number of stores that are in that part of the country. And so keeping our customer service levels high is critical to our business model.

And we were essentially out of space at our Columbus facility. We were leasing multiple warehouses in the same city. We were able to have an opportunity to expand our facility there, bring all the warehousing back into one place, which provides some efficiency and productivity and then paves the way for what should be the next decade of growth in terms of production capacity to be able to continue to service our customers at a high level and do it out of one site. If we hadn't taken the opportunity to expand when the property next door became available, we probably would end up having to move at some point, which would have been kind of a more costly endeavor.

Gallatin, Tennessee is a facility we have today where we make fasteners domestically. We're out of space in that facility as well. So we've greenfielded a fastener facility a few miles away in the same town. One of the unique things about fasteners for us is we make about 1/3 of our fasteners today in Gallatin and then we import about 2/3 from Taiwan. With the new facility, that mix is probably going to go more like 50-50 in terms of domestically made. But importantly, we're going to be able to do some things with fasteners that we weren't able to do in our current facility. So today, we can't heat treat and coat those in our current facility. We have to send that off to a third party.

We're going to be able to do all that in our new facility. As well, there are some aspects of the market that require some pretty robust fasteners, think like mass timber buildings and it takes a while to procure those fasteners if you're buying them from Taiwan and sometimes we weren't able to quote some jobs we wanted to quote because of lead times. We're going to make those fasteners now in our new Gallatin facility, which unlocks some additional revenue streams that we're going to be able to quote. So really excited about that facility. It's going to open in the third quarter, and we're already under contract to sell our old facility. So it's going to be a smooth transition there.

That's awesome. No conversation here would be complete without discussing tariffs. Would just love to hear kind of your exposure to tariffs, but also more the mitigation strategies that you're employing to diminish the effect on the P&L?

Sure. So our core connector business is U.S. produced with U.S. steel. So no direct tariff impact, although there's been some pricing from steel suppliers based on what's been happening more broadly in the steel market. Two other categories that are affected by tariffs for us. Anchor bolts, mechanical anchors, we manufacture at a Simpson facility in China. So lots of escalating tariffs there. And then we talked a little bit about fasteners. So the portion that we buy from Taiwan has been subject to tariffs.

I think even before the tariff conversation, we had started this Gallatin facility expansion. We were planning to produce more domestically. I think that gives us more flexibility depending on where the tariffs net out to maybe ramp that percentage up even a little bit more. There's a point there in the math equation where it makes sense to make all your fasteners domestically depending on where the tariffs are, but a little bit slow to lay down capital until you kind of see where that's all going to net out. But in terms of mitigation, just looking at sourcing opportunities, we did announce a price increase related to tariffs in April that went into effect in June.

And we did say we did not pass through dollar for dollar all the tariff cost increases. We're eating some of that because we believe that hopefully, some of it is going to be short term, and we don't want to be uncompetitive in the market. But ultimately, I think sourcing will be an opportunity, and that Gallatin facility is going to give us an unlock to potentially make some choices if we need to.

Awesome. Let's switch gears a little bit and talk about your channel mix, distribution. I think you got the presence in national retail. Would just love to kind of hear your individual channel exposures and perhaps maybe how your strategy differs channel by channel.

Sure. So we have a pretty good-sized national retail business. We don't disclose the exact percentage, but neither one of them is a 10% customer, otherwise, we'd have to disclose that. So it kind of gives you a little flavor but great relationship with both of the big national retailers and some of the smaller co-ops as well. Our connector business in those retail places are the dominant player in that space, exclusive connector business in there. And really, when they -- when you talk about those customers and the pro contractor that's coming in and they're going to buy a lumber package, they're looking for the connector package. And so we're a well-known brand in that space.

We've been able to gain some additional placements in fasteners and anchors in national retail, which has helped us to accelerate our business and create opportunities for kind of cross penetration across those categories. The lumber yard and pro dealer channel is some of our largest customers as well, ranging from the big names you've heard of down all the way to smaller lumber yards and pro dealers. We go direct to 98% of them. In the past, maybe a couple of decades ago, Simpson did have some 2-step distribution. One piece that moved from 2-step to direct a couple of years ago was kind of the last remaining piece. But our motto is we're going to make it -- we want to be their best partner, easy to do business with, right? So even during the supply chain crisis of '21 and '22, we are winning all kinds of supplier awards because we were able to keep our service levels high.

We carry the inventory. We make it easy for them to do business. We're responsive. If they've got a challenge, we'll get on it. And we've had instances where sales guys getting in a truck and driving a box of connectors to a job site because they need it there right now. The uniqueness of our product is we're generally less than 1% of the bill of material of the house, but we're critical to the structural and the components of the house. So you can't build -- you can't frame the house without the connector package on site. So we do a great job in making sure that's on site when they're ready.

And then maybe just talk through the receptivity of pricing by channel because I know it can definitely vary.

Sure. I mean I think we think long and hard before we take a price increase. As you said, we didn't pass through all the tariff increase. We did take some price increase on some other domestic SKUs that we hadn't priced in over 3 years. I think for us, it's -- we like to think about the total value that we bring to our customers and surround them with support and make their life easy. And to do that, we need to maintain a certain level of service. And to do that, we need to maintain our gross margins.

And so in this environment where affordability of homes is certainly a challenge, like it's definitely a challenge. But I think given our position of a relatively small portion of the bill of materials, but a pretty significant share of thought leadership in the space in terms of what we bring to our customers and to the builders. I like to think we punch a little bit above our weight for the company that's just providing the connector package in terms of how we're able to help them in other ways, value engineer solutions, design things that ultimately are more efficient using our products.

You're a product manufacturer, but in some ways, you're also an engineering firm, too. I mean you provide a suite of solutions to a lot of your customers. So just maybe talk through that engineering element and maybe how that distinguishes you from the competition.

Sure. I think it starts with the work that we do with code officials to educate them on what kind of products could be used to make safer -- structures stronger and safer, same thing with engineers and designers. So we have teams of people that are dedicated. We provide continuing education to engineers and code officials. We do custom design some products. If you've got a very unique situation, you need a connector for, we have fab shops in all of our sites and we generally do 48- to 72-hour turnaround on any custom product, which is pretty fast.

In terms of engineering services, we have a pretty sizable team in Vietnam that does a lot of engineering services. So some of our customers, we're able to help them do takeoffs and things more efficiently, quote business, do unique designs for them. So really, we try to also get involved if maybe we have a situation where there's a unique product need or something got maybe misinstalled and they need to fix it in an efficient way, we can maybe design some products that can help them solve that problem. So really a pretty strong contingent of engineers in the company, and that's really the root of where the company's backbone is, is in that engineering space.

Absolutely. And it segues quite nicely into my next question, which is some of your digital initiatives. You've got customer portal, you've got builder software tools. There's a lot of cool stuff going on out there on the digital side. We would just love to kind of hear a rundown of what you're doing right now and maybe a little preview in terms of what you might be looking to do in the future?

Sure. We have quite a few different software programs from helping people to select the right product out of our 10,000 SKU catalog digitally instead of using a catalog. We have software where they can go online and design a custom connector or piece and visualize it. If you've got a number of unique members coming together at unique angles, you need a custom piece, you can design it, visualize it, submit it through our portal, we'll make it, get it to you in 48 to 72 hours. We've got some software tools that we're using with lumber yards and with builders.

Pipeline is a software tool that we have that is focused on helping lumber yards do takeoffs more efficiently. So today, the takeoff process in a lumber yard can be pretty manual and calculators and Excel and leaves some room to be more accurate. And so we have software that we use with lumber yards and let them use. And in some cases, there's -- we're selling that software today. We don't disclose how much that is. But I think over time, we believe there's an opportunity to monetize some of these software solutions because they're providing great value to the lumber yards. We have software that we use with builders that allows them to manage the options on a home.

So if you've got a home and you're switching out a garage for a 3-car garage or an office or adding a den, that creates a lot of complexity in the CAD system. And we have some tools that minimize that and make it much easier for them to do that in a much more manageable way with some plug-ins that go to [indiscernible] and things like that.

And maybe talk to how that software might also drive sticky customer behavior.

Absolutely. Like I said before, we bring a lot more value to our customer than just providing the product, right? So we help them to find ways to engineer things and make it easier to design. If you're a lumber yard and you're doing takeoffs, we also provide takeoff services. So if you've got a team and you don't want them focused on being in the back doing estimates, like we will do those takeoff services for you with our Vietnam team and help you quote jobs and keep your sales team that's focused on selling out on the floor in the yard doing the selling.

So it just makes us easy to do business with. We're not monetizing all these today in certain cases. We think there's an opportunity potentially in the future, but it's all really part of the Simpson value equation that we bring to customers, which is we're going to help you be efficient. We're going to help you have product when you need it and help you get it on time, and there's lots of software tools we use to do that.

A lot of builders are talking more and more these days about off-site construction. Kind of talk through the role you play in the broader off-site construction industry.

Sure. So today, there's off-site construction of trusses, right? And we have a business there. We're investing quite a bit in our software to grow our business there. But at the same time, we're plugged into a couple of different -- with a couple of different builders and a couple of different entities that are doing some pretty cool work in the off-site construction. So I think panelization of walls of homes off-site, I've seen some case studies, and we've been part of some of them where you can take the framing of a house from a number of weeks down to a week, right?

And so that certainly addresses some of the things like labor shortage of framing labor, efficiency. And we want to make sure that Simpson is at the forefront on that and making sure that those things are designed in a way that they're still structurally sound and carry the loads they need to. And so we're plugged in a number of different areas, even through some venturing opportunities that we have with some different companies. So just trying to figure out where the construction industry is headed, we want to be there, and we want to help lead.

You play -- have a large presence in new construction, but you also play on the repair and remodel side, too. Maybe just contextualize sort of the role you play on repair and remodel.

Sure. I think most of the repair and remodel business that we have probably flows through our national retail accounts, but a pretty sizable business as we talked. And we also offer pergola systems that go into repair and remodel that make it pretty easy DIY pergola systems, all the fasteners that -- lots of different applications in repair and remodel and then structural connectors when you're getting into things like additions or -- business. And we support that in different ways through national retail primarily. But it's more on the consumer and maybe pro contractor side than the builder side where Simpson is known, but I think Simpson's equity with those folks is also very strong.

And I know I already asked you one macro question, but I'm going to throw one more in there and just ask it in the context of repair and remodel. A lot of different views in terms of how that category is tracking. Just curious from your vantage point, sort of what's the outlook on the repair and remodel side?

Yes. I think if you look at the key customers in that space, I think they've all kind of guided up low single digits. I think what we expect is that when interest rates come down a little bit, that generates not only new home sales, but also increased sales of existing homes, which tends to drive the repair and remodel market. So expect that to be an uptick when that -- when the interest rates rightsize a little bit. But I think in the meantime, I think the repair and remodel business is going to do maybe slightly better than new home starts in the short term.

And one other area where you play is commercial. Would just love to hear kind of the role you play on the commercial side.

Yes. So commercial for us is primarily things that are built with wood still. So I think smaller scale commercial, so hotels, restaurants, small office buildings, all the same products going into commercial, you're working with a different end customer. We also have a cold-formed steel -- structural steel business, right? So think bolted connections instead of welded connections in terms of structural steel.

It's an area that we've made a couple of acquisitions to kind of broaden our product portfolio. But certainly, it's an area that we're growing. We believe we're outperforming the market. We look at DOGE as a comparison benchmark, and our commercial business has been outperforming that index over the last few years as well.

Awesome. Let's maybe talk through some of the areas where you've expanded or specifically new categories. There's been some M&A, but there's also been, I just think, some organic product introductions, too, if I'm not mistaken. So maybe just walk through some of the growth initiatives there.

Sure. Organically, we launched a line a number of years ago called Outdoor Living. So think of it as structural pieces for decks, pergolas, but they're finished in a very nice matte black finish. So they also are visually very appealing. That line has been growing very well for us and is very -- performing very strong. We recently launched a line called [ Sage. ] You can find it in National Retail and in lumber yard. So it's a pergola system that 2 people can build in a couple of hours of pergola. You get the wood precut, everything else fits together, fasteners, brackets looks really good.

Organically as well, just trying to focus on total installed cost. So we talked a little bit about some of our fasteners and collated fasteners, making it easier to drive fasteners, whatever the use might be. On our core connector business, continuing to upgrade our -- through our innovation, small tweaks here and there, higher loads, easier to install, things like that. From an inorganic standpoint, we've made a couple of acquisitions over the last couple of years, a few in the equipment space. So we have a brand called EstiFrame, it's a saw that also marks the wood.

So you load a cut package in, it will optimize the wood, cut the wood and then print on every single piece, where the connectors go, where do the pieces attach, a little bit like a paint by numbers, if you will, for framing, which helps address some of the framing labor challenges that we have in the country as well as it can be a value-add service that lumber yards and others can sell that cut package as a service to their framers and have it ready to go. We invested in an equipment company last summer called Monet DeSauw. They're a large component manufacturing saw company. So as we get more into the component manufacturing space, need to have that all-in solution, Monet is a very respected brand in that space and so kind of rounded out our equipment offering for those big component saws.

That's awesome. We've got about 4 or so minutes left. I just want to do a quick poll in the room to see if anybody has any questions. I've got 2 or 3 more, but figured I'd turn the floor over to the audience if there's any interest.

All right. We can keep going. Let's maybe talk through the long-term outlook. Just remind us, do you have any long-term growth or, say, market share targets that you've articulated? And if not, just kind of more broad big picture, just so we kind of have some guardrails in terms of how to think about things longer term.

Sure. One of the slides we showed earlier talked about our market outperformance on our volume. That's one of the key metrics for us, right? So over the last 10 years, we've averaged about 300 basis points ahead of U.S. housing starts from a growth standpoint. We want to continue to outperform. We haven't publicly given a specific target. It's been higher than that in the last couple of years. We typically talk about trailing 12 months when we do our quarterly earnings updates. I think the trailing 12 months is 420 basis points ahead of U.S. housing starts.

So focused on outperforming the market there. We have -- of our financial ambitions we talk about externally, 3 are financial. One is continue to outperform the market that we just talked about from a volume standpoint. The second is we want to operate at or slightly above 20% operating income. So we've been above that. Last year, we were a little bit below that, aspire to get back to that. That's in our current guidance range. And then the third is to grow our earnings per share faster than our revenue growth. So making sure we're getting a little bit of leverage from operating expense and then continuing to return capital to shareholders via share repurchase.

Well, that's actually a nice segue into my next question, which is just talking through your capital allocation strategy in greater detail.

Sure. So focused on continuing to support the organic business. We believe we have a long runway of opportunity to continue to outperform the market and grow in the categories that we play today. So nothing significantly planned from an acquisition standpoint that's far outside of where we are today. From an M&A standpoint, I think a few tuck-in opportunities here and there, whether it's a product that maybe has some IP that we want to own or something that would get us to market faster, tuck-in variety, small cash flow, nothing significant.

We still have a term loan from our ETANCO acquisition. So we've been paying that down some, very low leverage, right, well less than 1x. We're really focused on returning cash to shareholders. We've been in a couple of year period of some pretty intense CapEx, as we talked about with the facility expansions, those 2 facilities in terms of the CapEx spend wrap up this year. We bought back $100 million of shares last year. We've got Board authorization to buy back $100 million of shares this year. We've already bet back $25 million in the first quarter. So I think as we get into it, just making sure that we're continuing to deliver more than 35% of our free cash flow back to shareholders in the form of a dividend that we do pay and share repurchase.

So we've got about 1.5 minutes left. Would love to hear just kind of your perspective on what do you think the market is missing? And what do you think is most compelling that the equity markets just don't fully credit you?

Sure. I think the business model that Simpson has is pretty unique. We talked a little bit about how we surround the market from code officials to engineers and designers, contracts with the builders and then service our customers in the middle of lumber yards and pro dealers. I think our stock tends to follow builders and other building materials company. I like to separate building materials and building products. I think we're a building products company. We're heavily engineered.

We've got lots of specifications and codes. And so I think the business model that we have, the share position that we have and then anybody in the industry that recognizes that's familiar with building products knows the Simpson name. I think it's one of the -- probably the top 5 or top 10 most recognized brands when you walk into a Lowe's or a Home Depot, and I think they would tell you that. And I think just for us, we've demonstrated a long track record of outperforming the market. We can't necessarily control what the housing market does, but we're focused on outperforming that market and maintaining a strong margin.

I think there's -- consensus says there's a shortage of housing units at some point that, that gap is going to need to get closed. We've been growing share even in a down market. And when we get a little bit of tailwind from the market, I expect to be in really great shape.

I think that's a good place to wrap up. Thank you so much for giving us the time, and thanks so much for listening. All right. Thanks, Matt. Awesome.

Appreciate it.