My name is Sam Reid. I'm the home building and building product distribution analyst at Wells Fargo. I'm excited to be joined by a few members of the Simpson Manufacturing team, including Brian Magstadt, who's the CFO of Simpson, and Jeremy Gilstrap, who is Head of Innovation. So thank you so much, gentlemen, for coming. I believe they're coming from the West Coast, so it's always an honor for people to fly all the way out here to speak to us. For those of you who are less familiar, Simpson's a leading materials producer and engineering firm. They produce a variety of wood construction products that ultimately service a pretty healthy chunk of the new home supply in the U.S. So this is going to be webcast. There's going to be a lot of to learn and discuss here. We're going to be conducting this as a fireside.
The plan will be I'll probably ask questions for about 30 or so minutes, but towards the end I'll turn it over to the audience to kind of, you know, just if you guys have any questions, feel free to fire them our way. If you've got any, just keep them in the back of your mind.
With that, let's get started.
So, guys, look, Simpson is perhaps a name that I don't want to say flies under the radar, but is maybe a little bit less familiar to a lot of us that cover the space. So I would love to hear kind of where you fit in the supply chain, give us an overview of the business and maybe give us some perspective on kind of your relationships with some of the larger U.S. home builders.
Sure. So I'll start and Jeremy and I will tag team this. So we are, we manufacture, sell structural solutions, structural connectors for light frame wood, wood construction, wood concrete construction, many different applications started over 65 years ago. And today we believe we've got about a 75% market share in the U.S. for the connector market. So again, wood to wood connections via a multitude of products. We believe we're about 50% tied to U.S. housing starts from a global revenue perspective. So we have operations throughout the world, about 21% of revenues in Europe. The predominant amount of revenues are through our North America business. We are really focused on helping the industry create safer, stronger structures. And we do that with a number of means of going to market. So we start with the engineer to try to get spec'd onto the blueprints.
We work with them to actually have in the connections that they're engineering to the actual Simpson SKU on the plans and then we'll work with the large national builders. We have agreements with about 300 builders that do about 50% of the U.S. housing starts. Although we don't sell directly to the national builder, they're often speccing Simpson as the preferred connector for their trades. Then we'll work with the lumberyards, the folks that actually sell our product, who we sell our product to, to ensure they know what, what products should be in stock in their market, what builders are choosing Simpson Strong-Tie. We do a lot of work to support those lumberyards in making sure they've got the right product for their market.
So different wood species will require different applications throughout the U.S. So we spend a lot of time working with those lumber yards and others that are selling Simpson product. And then finally, maybe not finally, but another big element is we do a lot of work to support the contractor. The person who's actually in the field installing the product want to make sure they are trained to install the product correctly. It's got to meet a certain application to pass the building inspection process. So we spend a lot of time in the field working with the trades to ensure that they're inspecting the right product, they're installing it correctly, and then we come in ensure if there are any issues, our engineers in the field can support them.
Awesome. Well, let's maybe drill down on a few of your business lines, but I'd love to start with kind of the Wood Connector and Trusses business and you know, just talk through that in greater detail. You know, again, where you fit in the supply chain. You've already alluded to a little bit to this, but maybe in a bit more detail, the size of the addressable markets and again, kind of, you know, that relationship with the builders and perhaps some of the other end consumers there.
Sure. Jeremy, why don't you start a little bit on the product and then I'll follow up with kind of the end market. Yeah.
So if you look at the Wood Connector business and you talk about the Truss Connector business, the Truss Plate business, kind of two different animals. So I'll kind of break them up like that. So if you think of the Wood Connector business, and you look at the house, any type of wood construction, if.
You have two pieces of wood that.
Come together, we've got typically have a product that goes in between them that makes that connection stronger and safer so that it can meet certain types of building loads that the engineer has designed to. So there is just a wide variety of products that we offer thousands and thousands of different SKUs. We really try to come up with innovative products so that we're not price out there competing on price or competing on the quality of the products of service that we deliver with those products, and we're able to go and show value to our customers. You know, really focused on install costs. How do we make it quicker for them to put in, make sure that it meets all the load requirements? So that's the connector business. The Truss Plate business is different.
So if you look at a roof truss, again, when you got two roof truss members that come together, there's a plate, a structural plate that goes in between those two members. And so we manufacture those parts just like any connector. But unlike the regular connector business, that business is completely driven off of software. So in order to figure out what size of plate that you need, what size members that you need, you have to have software to be able to specify that. It's very complicated engineering that goes into that. So that business is very driven by software. And then that software also doesn't just help design the trusses, helps them manufacture those products. And so a different type of specification, simple little steel plate, but lots that goes into that market as well.
Well, awesome.
Give us a sense as to your SKU count, you know, if that is even something you guys track. Because I would imagine it's probably very broad, but I'd love to hear some more perspective on, you know, sort of, you know, how deep your product assortment goes.
I'd say in those parts of the business, about 15,000 SKUs. A lot of those are because one SKU will be designed or maybe sized for multiple applications. Think of lumber, different sizes, 2 in x 2 in, 2 in x 4 in, 2 in x 6 in, 8 in, 10 in, et cetera. We could have a connector hanger that will be multiple SKUs to meet the multiple lumber. But when we consider the various connectors, lateral products, fasteners, anchors, it's in the probably 15,000 range.
Gotcha. And then sticking to Wood Connectors and Trusses for a second, I'd love to hear kind of your perspective on the competitive backdrop. I believe you've got some very strong shares in those categories. But we'd just love to hear, you know, kind of your positioning within the category, how those shares have trended over time, and then, you know, any sort of notable competitors in the space.
Sure. So from the connector side, we believe we've got about a 75% market share in the U.S. on connectors. Those are sold through those lumberyards, those contractor distributors through the home centers, The Home Depot and Lowe's through co-ops like Do it Best, Ace, True Value. So about 75% share on the connector side, the Truss side. The primary competitor in that space is a company called MiTek. We believe they've got about 70%-75% share on that Truss Plate business. And Jeremy alluded to the software element in that, in that business they've got a software offering that has been in that market for a number of years. There's a division of ITW called Alpine that they're, we believe, the number two truss plate company. And then Simpson, we would be mid- single digit share in the Truss Plate side. Going back to the connector.
MiTek has got a line of connectors that we think is 15%-20% market share in that space. And we have, we believe we've grown that share over the last number of years as we've re-onboarded Lowe's as a customer during the pandemic. And we continue to work with those large national builders. Today we've got relationships with 26 of the top 30 to specify Simpson Strong-Tie as the primary connector line. So our goal obviously is to, to try to continue to grow that in a profitable manner.
I'd love to hear a little bit about, you know, kind of your, your R&D and how you use that to essentially, you know, kind of sustain those relationships with those builders, sustain that market share, you know, and stay competitive.
I happen to have with me. That's right, our main guy in that space. Yeah.
So, you know, when we, our mission as a company is build safer, stronger structures. So as you might imagine, we put a lot of investment into research and development to make sure that every product that we develop meets the loads that we publish, that we really think through all the different issues that can come up with that in the field and make sure that we're designing for it. So we spend a lot of hours building things and breaking them to see how they work and to make sure that it meets the criteria that we do. Once we get those products designed, we take them out to the field, we test them out, get feedback from the builder. Sometimes they're difficult to install. And so we're constantly evolving our products and making them better as we go about things.
And then one of the other aspects is as the industry evolves and starts using different types of practices, construction practices gives us opportunities to evolve those product offerings too and to continue to innovate in R&D in that space. So a lot of time we have multiple accredited test facilities. We have a full shake table out in our lab out in California where we can simulate any earthquake event that's ever been recorded, put a structure to the test, and see how it performs through a systems approach to make sure that we're meeting all the building code requirements.
On that test facility Jeremy referred to, we believe that's the only privately owned test facility of its kind in the U.S., we could put three-story wall structures on that shake table and run it through multiple earthquakes, as Jeremy noted, to see how our products perform versus maybe other products that we have or other applications. One of the really powerful tools is showing the engineers who are designing those structures that the product is performing in front of their eyes. The ability to do all that testing, that R&D in our own facility, we believe accelerates the amount of time we can get product from concept to introduction in the field.
Awesome. I'd love to hear some perspective on, you know, value engineering. What I mean by that is, you know, a lot of the builders over the last few years have really leaned into kind of value orienting their mix of homes, you know, to sustain margin, to stay competitive, you know, given supply chain pressures during the pandemic. What I'd love to hear from you guys is sort of how you help that value engineering process out and sort of any, you know, kind of notable examples of, you know, kind of how you're making the process more efficient, which in turn makes the builders more efficient.
Absolutely. We're often called to how can we deliver our products, you know, with less cost? And very often we're going into that exact conversation, Sam, that you mentioned, that value engineering that we're working on. And I could talk a little bit about it, but I think Jeremy would be a deep expert in this area. So. Value engineering. Yeah.
So we, I mean, we partner with builders quite often. They'll call us out to the job sites, say, hey, would you walk our job site, take a look at our construction methods? Is there anything that we can do to be more efficient? We want to help them be more efficient. And one of our goals is to help the industry build more homes, build more structures, and make sure we're doing it safe. So if we can find efficiency gains and opportunities, sometimes it comes in the form of just recommending alternate products that we've developed over time that maybe they just haven't brought into their portfolio. Or sometimes we see an opportunity to develop a new product that will meet their application.
So, you know, reducing the number of fasteners that they have to install saves some time from having to drive a nail or drive a screw in, looking for applications where we can even replace a connector with a screw that make it more, make it quicker, that can still provide the safety. We look for those applications as well. So we are heavily involved in the value engineering process and it's a great opportunity from an R&D standpoint to innovate and find these solutions that will help make the builders more cost effective.
We love trying to, if there's an issue out there, a problem, we want to solve it. That's part of the DNA of the company, is working with all those constituents to help deliver that, that better solution, as Jeremy noted.
Awesome.
Well, you know, you've already alluded to.
your digital initiatives, I'd love to kind of hear your perspective on, you know, kind of your investment in technology, you know, and digital just because, you know, it is very important in terms of driving efficiencies, you know, for your end consumer. So we'd just love to hear your perspective on kind of, you know, some of your key initiatives and maybe some of your future opportunities as well. There we go.
So, you know, we've been around for, since, you know, 1950s that we've been developing products. We typically go to market with catalogs, hand an engineer a catalog and say, hey, here's 300 pages with all of our products and we help them figure out how to find those products. Obviously the next generation of engineers that are coming up are used to using their phones, not using handheld catalogs. And so we have spent a lot of time over the last few years really digitizing our business and taking those products, making it really easy for anybody that wants to go online and to be able to ask a couple questions about what their application is. Here are the different solutions that we provide. And so that's one area just to get the products specified to make the engineers' jobs easier for them to be.
Able to do it.
But we've expanded that on. We talked about trusses and the truss software. That's a digital play for us. We have to have awesome software to be able to go after that market share. So we're investing a lot of time and energy in developing those tools to make them very user friendly for our customers and to help them enhance their businesses. We also are working with builders and saying, how can we help the builders create digital twins of the product that they want to build, manage all those options that they offer, that third car garage, that nook in the back of the house, bonus room that you have. All of those come with different framing conditions, change what the material take off, change the cost of the house.
Helping them get those plans made in the digital format so that they can be more efficient, do their takeoffs, of course, along the way, help them show where our products add value along that chain. We also work with lumberyards and developing software for them too to help them do takeoffs faster to be able to put bill of materials together for what their offering is. Lots of investment that we're making as a company to make sure that we're right along with the digital transformation that the industry is going through to help that industry, help our industry build more structures. How do we get more houses to meet the demands that are out there? That's one of our goals that we have.
You also play, you know, we've talked a lot about wood, but I want to touch on some of your other kind of end markets too. And one of those end markets is concrete. So I'd love to hear kind of, you know, size the business within your broader portfolio size your position within the broader market, and perhaps the TAM, just so we have a better sense as to kind of where you fit in that part of the universe.
You know, the TAM on the markets that we would call the commercial markets. But a lot of those concrete strengthening, repair, connection business, larger TAM than the residential market. We are a much smaller from a market share of that TAM perspective than that residential market, but with a variety of products and solutions. Mechanical anchors, chemical anchors, the carbon fiber to strengthen columns or parts of structures. Lots of opportunities for us to go out and deliver that same value add that we were talking about earlier from the wood side. So we recently, a couple years ago, partnered with an installer for the carbon fiber products, for example. So we will develop and deliver the carbon fiber solutions. Structural Technologies is that company that's our partner, and they're the installer.
We're working with them to make sure we're identifying all the jobs in the U.S. that can use that product. It's a little more ahead of its time in Europe for the use of carbon fiber, but again, going back to the concrete space, larger TAM than residential Simpson's, you know, a smaller, a small percentage of that larger TAM. Lots of opportunities for us in a variety of end markets. One of the things that we hadn't talked about, I just want to interject here a little bit is how we, excuse me, go to market from a customer perspective. So a number of years ago, we were primarily focused on our sales teams going forward, the connector team, the fastener team and the anchor team. A few years ago we pivoted to be market focused team versus product.
So a residential team, an OEM team, commercial, national, retail, and then component manufacturers. And by pivoting there, we really want to make sure we know exactly what those markets need and then the submarkets under each of those. So under the OEM market, for example, there could be a number of submarkets that our teams are going after and we're developing playbooks on how to go win share, how to be successful in each of those spaces. And then we're marrying that up with the product development team that works under Jeremy to then say, okay, what are the best solutions with the highest return for each of those markets? How do we win in those spaces? And when we look at concrete, they're going to be very specialized applications. Maybe it's a different engineering group that we need to go talk to.
We want to make sure we've got our industry experts trained up to be able to have those conversations around the specific needs for those subcategories. And then breaking it down a little bit from a product development perspective, obviously we've got a very wide ranging set of products at play amongst all five of those market categories. But to the extent that we need to develop new solutions, new products, maybe new software, they're filtering up through our product development team and our market focus team and we're working on the ones with the biggest opportunities. At the same time, we're looking for material to be able to help us accelerate how quickly we can bring those solutions to market. So obviously we want to get them out to those teams as quick as possible. We're going to work on developing those.
But if there is a tuck in acquisition of a product line or a software tool or what have you that helps us accelerate those strategic moves that we're looking to make will pursue the acquisition side of that as well. And whether it's a full company acquisition or maybe a patent or a product line, what have you, we're trying to marry those two together again so that we can help people build those safer, stronger structures quicker.
That's awesome, and I'm glad you interjected there. I want to talk through, you know, kind of your fulfillment and a few kind of parts to this question. You know, one sort of breakdown, your channel mix. You know, you've got a presence in distribution, you got a presence in retail. Would love just to kind of hear that mix in a bit more detail. And then also you know, talk to things, you know, talk to your, you know, delivery capabilities and your availability. I believe that's kind of a competitive advantage to your business, but would love to hear a little bit more about that.
No doubt about it.
Competitive advantage. We have a goal to get 98% of our orders out the door the day we receive that order. So our order order comes in today by what's our cutoff time? 5:00 P.M., say 5:00 P.M. It's out the door that night at the customer's location. The next day, we want to be within a day's transit time. In the entire U.S. we're not quite there, but very high percentage of that. So in the U.S. we've got four regions, and each of those regions has a main logistics distribution hub married with a significant amount of manufacturing capability.
Then we've got satellite warehouses for each of those main hubs, again throughout the U.S., so that we can get product. We have product in the field, whether customers want to come by and we'll call it, or we can get it on a truck again that day to that job site or to that customer's location tomorrow. We believe, again, significant competitive advantage means we carry a fair amount of inventory, but we do that on purpose because we know that our product, as small as it is in relation to, say, a single family home, less than 1% of a bill of material can just stop construction. You think about, you've got the foundation poured, you've got the labor that's there, you've got the lumber package that's there. If the connectors aren't there, nothing's happening.
And it's not like you can start working on the roof or the windows or what have you. So, us being a critical element of that build cycle, we don't take it lightly that we have an obligation to meet those very high service needs. So, very large distribution network in North America, we like to manufacture close to our customer. There are times where we get a product, we get an order that we may not have the product in inventory. So, we'll need to get that scheduled on some presses. Go get it made. And again, we want to get that. We want to delight those customers with a very high service level. And that's just one of the many elements that we do to achieve that.
Give us a sense of the breadth.
Depth of your manufacturing assortment. You know, like you mentioned, you know, you try to be kind of close to where the end consumer is. I'd love to hear kind of conceptually what that means, you know, in terms of number of facilities. You're just quantifying the size of that footprint.
Sure. Very, very large footprint again in North America. We've got a smaller but similar setup in Europe, but I'll just focus on North America. So three main connector manufacturing locations in the United States, so Northern California, McKinney, Texas and Columbus, Ohio. We've got a fastener production facility in Gallatin. So we buy a lot of fasteners and bring them in from Taiwan. But we make a pretty good amount of fasteners from raw wire to the finished good in our Gallatin, Tennessee facility. And then close to here in West Chicago, we have a chemical manufacturing facility. The mechanical anchors we actually import mostly from our facility that we have outside of Shanghai in Chongqing. So we get a lot of that product here in North America again so we can meet those very high service levels.
We buy domestic steel, great relations with our steel suppliers. We want to make sure we can take that master coil, get it split, and then run through our production automatic presses or other manufacturing processes so that we can turn those SKUs, those orders into finished goods in a rapid amount of time. Those three connector manufacturing facilities I mentioned, we have a lot of very high volume items that are the same that are manufactured in each of those three. We have other products so that maybe one of those locations will manufacture for the entire U.S. company. And then we'll what we call interbranch. Those will truck those out to each of our other sites and other warehouses.
So, a big network that our sales inventory operations planning team spends a lot of time with our demand forecasts, our current inventory, our current material on hand to make sure we're able to see those demand signals coming and have product in the right place when ready. So now with a very high SKU mix, there may be times, like I mentioned, that we've got to make that but a very high amount of inventory on hand to meet that high level of customer service.
Absolutely no conversation about building products would be complete without discussing pricing. So we'd love to hear one sort of where pricing has trended kind of more recently in your categories, but also kind of your positioning within the market. I believe you kind of price at a premium to some of your competitors, but curious kind of how those price gaps would hypothetically?
Sure. So on our connector line we're about, we believe about a 15% price premium over the competition and for a lot of the reasons we already talked about that enable Simpson to maintain that competitive advantage. Pricing typically on those connectors is moving when steel is moving. And what I mean by that is we're going to absorb steel cost movements in a narrow band in through our cost of sales. But if steel takes a jump and we believe that that jump is going to be sustained, we're looking at a price increase. So for example, in 2021, steel increased between 3 and 4 times its base at the beginning of the year. And we put through 4 price increases that year on an annualized basis would have been about $500 million in top line revenue. Now steel did come back down a little bit.
Last year in the first quarter we gave about $50 million of that back. About $450 million net due to that steel price increase in 2021. We're typically looking at again, if steel is going to make a major move that we would adjust prices accordingly. But unless that's the case, pricing is pretty stable.
Want to also just kind of get a better sense of end market. So you know, kind of mix of single family versus multifamily across your business and mix of commercial. And then kind of the corollary to that question would be, you know, kind of just give us some high level perspective on where those are trending. You know, we know multifamily has been a little bit more under pressure, single families held in better. But just kind of curious because you do have a very good perspective given all these end markets that you serve us.
So today about 50% of our total company revenue is tied to U.S. housing starts mostly single family, but some multifamily. And what I mean by that on the sum multifamily is there's a percentage of multifamily that's built with wood. So we're primarily in those wood multifamily starts. And to your point Sam, multifamily has been challenging as of recent time from a single family perspective. Jeremy had mentioned the building code and the requirements. Part of that is there's going to be more Simpson content in an area of a higher building code requirement such as the West Coast with earthquake seismic requirements or areas along the coast with hurricane high wind requirements. So we get more Simpson content into those starts versus say the middle of the country with less of a building code requirement from the markets.
When we're talking with our builder customers, our distribution partners, we're seeing about a low-single-digit growth rate in single-family housing starts this year. There is more optimism in subsequent years, maybe more mid- to high-single-digit percentage growth in the housing starts prognosis. A lot of those builders are making sure their suppliers are going to be ready when that does turn. And we talked already about our very high level commitment to service and we will be ready when that does happen. But those are the general trends that we're seeing from a housing starts perspective in the U.S.
Awesome.
Then let's maybe bifurcate the market between kind of new construction, repair and remodel because you do have a presence in R&R as well. So just would love to hear kind of your view on R&R. Everyone's trying to calibrate kind of where things are going to be trending, especially in the second half. But even beyond, so curious your perspective.
You know, it's interesting when we look at how much of our business is driven by new starts versus R&R. A lot of those jobs are the same type of products to our same customers. So we lose a bit of visibility because it's the same connectors, it's the same hold downs, it's the same products, but very much because those, those repair remodel starts need to meet the building code. Often when a significant repair remodel job is being done, the home needs to be brought up to current code requirements. So we definitely want to work with those contractors and those folks in that particular supply chain to ensure they're doing what needs to be done for that particular structure.
I'm not sure that I'm seeing today what the future prognosis is on the R&R market other than we've got product and we are there to supply them. We're working with them on their individual needs and how we can help them again build that safer, stronger structure.
Awesome. Well, got a few minutes left here. I'd love to turn the questions over to the audience. So if any of you have questions, feel free to raise your hand and.
We'll try to get to you.
Conference room around the leadership team.
Two or three things that you're having healthy debates around.
Really good question. We are talking a lot about how we're supporting those five end markets that I mentioned. So how do we prioritize what projects we're working on, what new products, solutions, technologies that go to the top of the list? We've got a ton of great ideas and we're really trying to spend, we're spending time really trying to prioritize how do we want to make those investments to fulfill those obligations? Where do we want to go from a technology perspective? Technology, as Jeremy mentioned, is something that this industry, the light frame construction industry, has been slow to adopt over years. So how do we make sure we're engaged with the right constituents, customers, specifiers to know what things that they're looking for, what problems are they running into that we can help resolve?
We may not have that solution today, but we want to make sure that that innovation engine that is cranking out a ton of products is helping us meet those particular needs. Jeremy, good.
Yeah, I'd say digital was the one I would point to. How do we help our industry be more efficient? How do we develop tools that help them along the journey? And so that's been; we've put a lot of effort into that. How do we digitize our business, make.
Sure, all our back- end systems are.
Supporting that as well. To make sure that we're operating as efficiently as we can has been a.
Big push for us.
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We do a little bit. So a couple two years ago, April 2022, we acquired a company called the Etanco Group, based in, headquartered in France, but operations throughout Europe. We have been very focused on integrating that business into our business. So Europe, I would say unless it's a product line that we can easily fit into our current business, we're not actively pursuing a significant amount of European M&A. We are mostly focused here in North America on the digital solutions. Some of the product lines again that help us go faster in those strategic initiatives. It's an interesting time right now. It seems like M&A opportunities were pretty quiet. We're getting the opportunity to, to investigate a few more now.
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Sure. Jeremy, you want to take that one?
Yeah.
So I mean, I'd say the market's pretty spread out. Hilti is a big player in the concrete anchor business, which is one of the big parts of the business we're chasing. They've got the largest share. DEWALT, ITW, there's a handful of other companies. We've made lots of progress in that. We've got great products for that space, and so we're making headway in that space. If you look at the concrete repair business, that's spread out over a handful of companies. We're making good progress with our partner, Structural Technologies, and how we're going after that part of the business as well. And we throw cold-formed steel products, a lot of those are tied to concrete type of constructions. And so we've got decent market share there. It's got some good competitive that's spread out pretty well across multiple competitors there as well.
The biggest part of our concrete business is the anchor business. I'd say Hilti is who drives that.
All right, everybody.
Well, we are at time right now, so thank you so much, gentlemen, for coming out here. Really appreciate it. Always exciting to learn about a new business, and it's been great to talk to you. So thank you so much, everyone.
To our next fireside.