Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company’s third quarter 2020 earnings conference call. Any statements made on this call that are not based on 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 SEC or the company’s corporate website. Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that we make here today, whether as a result of new information, future events or otherwise.

Please note that the company’s earnings press release was issued today at approximately 4:15 P.M. Eastern Time.

The earnings press release is available on the Investor Relations page of the company’s website at simpsonmfg.com. Today’s call is being webcast and a replay will also be available on the Investor Relations page of the company’s website.

Now, I would like to turn the conference over to Karen Colonias, Simpson’s President and Chief Executive Officer.

Thanks, Kim and good afternoon, everyone. I’m pleased to discuss our results with you today.

I’ll begin with a high level summary of our third quarter results. And we’ll then turn to a more detailed discussion on our key performance drivers and initiatives.

Brian will then walk you through our financials and updated business outlook in greater detail. We delivered strong third quarter results, with our sales increasing 17.5% year-over-year to $364.3 million on significantly higher volume.

Compared to the second quarter of 2020, our sales increased 11.7%. Further, we achieved a considerable improvement in our gross profit margin to 47.6% from 44.4% in the prior year quarter, primarily related to lower material and labor costs.

To strengthen our gross profit margin, combined with our efforts in expense management and reduce costs from travel and other restrictions, as a result of the COVID-19 help drive a 49.8% year-over-year increase in our income from operations to $91.3 million and strong earnings of $1.54 per diluted share. I'd like to sincerely thank all of our employees for their perseverance and support through these unprecedented times.

At Simpson we value our employee’s health, safety, and well being as our top priority and strive for continuous improvement to ensure our company remains a safe and rewarding place to work. Our diligence, including strict adherence to protocols to help minimize the spread of COVID-19, has enabled us to continue operating our business with minimal disruptions from the pandemic.

In regards to the recent hurricanes and wildfires, we are incredibly thankful that none of our employees or locations in the affected areas were negatively impacted by these disasters. We are prepared to play a key role in the rebuilding efforts with our mission of helping people build safer, stronger structures.

Getting back to our results, the substantial increase in sales volume we experienced in the third quarter was primarily related to ongoing momentum in the repair and remodel space, which includes both our home center and co-op customers. We continue to benefit from a shift in consumer behavior toward home renovations, as people are spending more and more time in their homes and outdoor living spaces as a result of the COVID-19 pandemic.

We estimate sales from the home center channel, where we see much of our repair and remodel business improved 125% over the prior year period. As disclosed on our previous call, we're extremely happy to have Lowe’s return as a home center customer in the second quarter, during which time we began shipping our products into their location.

We continued to make progress on our product rollout during the third quarter. As of the end of September, all Lowe’s stores had been set with our industry leading connectors as the exclusive supplier.

In addition, both our mechanical anchor and fastener product solutions were set in 987 stores among other competing manufacturers. By the end of October, we expect our product set to be nearly completed in all 1,737 Lowe's stores.

In addition, while the Home Depot continues to carry our connector line, most of our mechanical anchor and fastener products are being phased out of the Home Depot locations throughout the remainder of this year. As a reminder, our mechanical anchor and fastener products were in some, but not all Home Depot location.

Our sales are further supported by strong U.S. housing starts in 2020.

In the third quarter of 2020, housing starts grew 11.4% versus the comparable period last year and grew 29.9% versus the second quarter of 2020. Notably in the west and south where we provide a meaningful amount of content into homes, third quarter 7.6% and 14.1%, respectively year-over-year.

Turning now to Europe, we saw our sales recovered nicely with our facilities now operating at full capacity following government shutdowns in the United Kingdom and France, due to the Covid-19 in late March. While much of the improvement in Europe was related to the benefit of foreign currency translation, sales still improved both year-over-year and quarter-over-quarter on slightly higher volume.

As part of our strategy to continue to grow our market share in Europe, subsequent to quarter-end, we acquired a small connector manufacturer base in the United Kingdom with a complementary product line. The acquisition closed early in October, and the acquired company's operations will be absorbed into our existing business.

Overall, we expect this acquisition to benefit our market position in the region moving forward. I'd now like to shift our focus to our software strategy.

As previously discussed, we believe the investments we've made over the years in software have enhanced our technological capabilities to remain competitive in the wood construction space by providing our customers with complete end-to-end product and software solutions. We estimate over 40% of our core wood connector sales are to customers with software needs, and believe this figure will increase over time.

To further our expertise in this area, we completed the purchase of a small software application for builders during the third quarter of 2020. Similar to our acquisition of LotSpec in 2018, which was a suite of software applications, designed to optimize efficiency and productivity for home builders.

This application expands our software choices for builders to help minimize costs and best align with their business needs. By expanding our technology offering to provide our customers with more tailored and innovative software solutions, we believe we will strengthen our value proposition.

Next, I'll turn to an update on our SAP implementation, which has continued to progress despite travel interruptions related to COVID-19. Some of the benefits we've enjoyed so far include better forecasting tool to aid with working capital management, and particular inventory management.

Earlier this year, we successfully transitioned all of our U.S. based sales organizations over to SAP.

Immediately following the third quarter, we also completed two more locations, including our UK branch which is now live. That said, given the duration and severity of the pandemic remains highly fluid and uncertain, we are unable to accurately predict how COVID-19 will continue to impact international travel on site meetings and training requirements to complete the rollout in our remaining location.

As such we currently anticipate a company-wide completion goal in 2022 versus near the end of 2021. Though, we will continue to monitor and update our timeline should circumstances change.

Now I'd like to briefly touch on our capital allocation strategy. As business continues to generate strong cash flow, we remain focused on appropriately balancing our growth and stockholder return priorities, while also paying down debt.

Well, our focus for the majority of the year has been on cash preservation to ensure our working capital needs during the pandemic could be met in the near term. Over the past seven months, we have been very grateful to be able to operate as a supplier to other essential businesses with only minimal disruptions to the COVID-19.

As such, we're continuing to support our growth strategy in identifying M&A opportunities that would complement our existing product offering, manufacturing footprint, or strengthen our software capabilities. We were also very pleased to declare our quarterly dividends as we have done consistently since 2004.

Before I conclude, I'd like to extend a warm welcome to Mike Olosky, our new Chief Operating Officer. As previously announced, Mike will be joining Simpson at the end of November, after spending over 22 years in numerous leadership positions at Henkel, a global chemical and consumer goods company.

We are excited to have Mike on board and he will be instrumental in helping us uncover new ways to remain innovative and seek opportunities for future growth. Mike replaces our former COO, Ricardo Arevalo, who retired in February of 2020, after 20 years of service to Simpson Strong-Tie.

While the search to find the right candidate took longer than anticipated, I could not be more pleased with our choice. In summary, we executed an excellent third quarter with strong financial performance across the board despite broader macroeconomic challenges that continue to plague our economy.

The durability of our business model has continued to support us through this challenging time as a result of key elements, including our strong brand recognition and trusted reputation in the industry, our industry leading high quality and tested product solution, our superior customer service standards, our disciplined capital allocation strategy, a strong balance sheet and liquidity position which enables financial flexibility, and most importantly, our passionate and dedicated employees. Looking ahead, we believe the solid demand trends we experienced in third quarter of 2020 will continue through the duration of the year aside from the seasonality we typically experienced during the fourth quarter, due to holiday related closures and winter conditions.

I'd like to thank our talented and valued employees for their dedication and commitment to health, safety, and best-in-class customer service. I now like to turn the call over to Brian to discuss our third quarter financial results and outlook in greater detail.

Brian?

Thank you, Karen and good afternoon everyone. I'm pleased to discuss our third quarter financial results with you today.

Before I begin, I'd like to mention that unless otherwise stated, all financial measures discussed in my prepared remarks today refer to the third quarter of 2020. And all comparisons will be year-over-year comparisons versus the third quarter of 2019.

Now turning to our results. As Karen highlighted, our consolidated sales are strong, increasing 17.5% to $364.3 million.

Within the North America segment, sales increased 19.4% to $316.9 million, primarily due to the return of a home center customer in increased repair and remodel activity, as well as from other sales distributor channels, which experienced increased new housing starts and repair and remodel activity. In Europe, sales increased 6% to $44.8 million, primarily due to higher sales volumes.

Europe's sales benefited by approximately $2.1 million of positive foreign currency translations resulting from some Europe currencies, strengthening against the United States dollar. In local currencies, Europe net sales still increased.

Wood construction products represented 85% of total sales, compared to 84%, and concrete construction products represented 15% of total sales, compared to 16%. Gross profit increased by 25.9% to $173.2 million, which resulted in a strong gross margin of 47.6%.

Gross margin increased by 320 basis points, primarily due to lower material and to a lesser extent reduced labor costs, which were partially offset by higher warehouse and shipping costs. As we continue to purchase steel to support heightened demand levels, we would expect our consolidated gross margin to normalize back down to a more appropriate run rate, which I will discuss in greater detail in our outlook shortly.

On a segment basis, our gross margin in North America improved to 48.9%, compared to 45.6%. While in Europe, our gross margin decreased to 37.9%, compared to 38.4%.

From a product perspective, our third quarter gross margin on wood products was 48%, compared to 44.4% in the prior year quarter and was 42.1% for concrete products, compared to 41.6% in the prior year quarter. Now, turning to our third quarter costs and operating expenses.

Our strong third quarter performance and improved expectations for the full-year 2020 resulted in higher performance based compensation within our total operating expenses. Research and development and engineering expenses increased 2.6% to $12.3 million, primarily due to cash profit sharing and personnel costs, partly offset by lower capitalized software development costs.

Selling expenses increased 6.2% to $29.4 million, due to increases in cash profit sharing, sales commissions, personnel costs, and stock based compensation, which were partially offset by lower travel, fuel and entertainment expenses, and advertising expense. On a segment basis, selling expenses in North America were up 7.3%, and in Europe, they increased to 1%.

General and administrative expenses increased 8.7% to $40.3 million, primarily due to increases in cash profit sharing, stock-based compensation, depreciation and amortization, and insurance, partly offset by lower travel associated expenses. On a segment level, general and administrative expenses in North America increased 5.6%.

In Europe, G&A slightly decreased. Total operating expenses were $82 million, an increase of $5.3 million, or approximately 6.9%.

As a percentage of sales, total operating expenses were 22.5%, an improvement of 220 basis points, compared to 24.7%. Our solid top line performance combined with our strong gross margin, and diligent management of costs and operating expenses help drive a 49.8% increase in consolidated income from operations to $91.3 million, compared to $61 million.

In North America, income from operations increased 53.7% to $87.4 million due to our strong sales and the strength of our gross profit margin. In Europe, income from operations increased 12.8% to $6.1 million, primarily due to increased gross profit.

On a consolidated basis, our operating income margin of 25.1% increased by approximately 540 basis points. Our effective tax rate remained flat at 26.2%.

Accordingly, net income totaled $67.1 million or $1.54 per fully diluted share, compared to $43.7 million, or $0.97 per fully diluted share. Now, turning to our balance sheet and cash flow.

Our balance sheet remained healthy with ample liquidity to operate our day-to-day operations. At September 30, cash and cash equivalents totaled $311.5 million, a slight decrease of 4 million, compared to the balance at June 30, after paying down $75 million on a revolving credit facility during the quarter.

As a reminder, we drew down $150 million on a revolving line of credit during the first quarter of 2020, as a precautionary measure, in order to preserve financial flexibility, given the uncertainty of the length and impact of the Covid-19 pandemic. As of September 30, approximately $225 million remained available for borrowing.

Our inventory position of $260.1 million at September 30, slightly decreased by $5.3 million from our balance at June 30, as we strive to maintain inventory levels to service the increased construction activity we typically see in the summer and fall months. Along with the unprecedented demand, we've experienced through the pandemic.

We continue to be focused on improving our inventory balance through diligent management and purchasing practices to ensure maximum efficiency, while maintaining our high levels of customer service and on time delivery standards. We generated strong cash flow from operations of $86.8 million for the third quarter of 2020, a decrease of $8.9 million or 9.3%.

During the third quarter, we used approximately $6.8 million for capital expenditures, which included a minimal amount for our ongoing SAP implementation project. In regards to stockholder returns, we paid $10 million in dividends during the third quarter, And on October 23, our board of directors declared a quarterly cash dividend of $0.23 per share, which will be payable on January 28, 2021 to stockholders of record as of January 7, 2021.

Before we turn the call over to questions, I'd like to discuss our 2020 financial outlook. As a reminder, on our second quarter earnings call in late July, we reinstated our fiscal 2020 outlook based on improved visibility on the progression of pandemic related restrictions, and the impact of those restrictions on our operations.

Today, we are updating our outlook to reflect an additional quarter of strong financial results, as well as the business trends and conditions as of today, October 26. As such, our current outlook for the full fiscal year ending December 31, 2020 is as follows: Net sales are estimated to increase in the range of 9% to 10%, compared to the full-year ended December 31, 2019.

Gross margin is estimated to be in the range of approximately . Operating expenses as a percentage of net sales are estimated to be in the range of 25% to 26.5%.

And the effective tax rate is estimated to be in the range of 24.5% to 26%, including both federal and state income taxes. I would like to note that there continues to be a high level of macroeconomic uncertainty resulting from the COVID-19 pandemic.

The potential economic impact related to COVID-19 on our operations, raw material costs, consumers, suppliers, and vendors may have a material adverse impact on our 2020 financial outlook should conditions materially change from the current environment. I would expect gross margins and operating margins to pull back as we exit 2020 as we anticipate costs directly related to customer engagement, and investments in growth to increase.

In closing, despite the ongoing macroeconomic challenges in the marketplace, stemming from the pandemic, we were thrilled with our third quarter financial results and operating performance. I'd like to once again thank all of our employees who are dedicated to working safely and supporting our customers, whether remotely or onsite during these unprecedented times.

We believe our industry leading position, geographic reach, and diverse product offerings, combined with our strong balance sheet and liquidity position give us confidence in our ability to continue executing against our strategic, operational, and financial initiatives. Thank you for your time and attention today.

At this time, I'd like to open the call up for questions. Operator?

Thank you, Karen and Brian. Good afternoon and thanks for taking the questions as always.

Maybe for starters, is it possible to quantify the revenue impact of the inventory sell at Lowe's during the quarter? How much do we expect is less and you know, kind of the full-year 2020 impact so we kind of think about that as we start to think about modeling 2021?

Sure Dan. The sell end for – in the Lowe’s in Q3 was – we did a little bit in Q2 on fasteners and anchors, but that was more of those product lines which is, you know are smaller sets than the connector line.

And then just Karen noted there was a little bit sets in those lines done in Q3. Combined for the quarter, the home center customers, Lowe's and Home Depot were up 125%, compared to last year.

So, as we're still getting a good idea of what the re-sell or the sell-in will be going forward, compared to the initial load-in of those sets during Q2 and Q3, we'll be able to provide a little more information there, but – just a little later, but just from that compatibility perspective, those home center customers were up at 125%.

125 in Q3, correct?

Right.

Okay. And, you know, I guess just, what are magnitudes?

More than half of that kind of, you know, view it as a load in or is that, you know way too high a thought process?

For Q3, no. It was not that extensive.

Again, as I mentioned, the load in on the fasteners and anchors for those are smaller sets.

Okay.

One thing I should mention would be the, as we look at revenue growth for the company or for North America, for both of those, without Lowe's, the company during the quarter and North America for the quarter would have both exceeded Q3 of 2019.

You would have been up year-over-year is what you're saying, without Lowe's, correct?

Correct.

Okay, okay. Either of the two small tuck-in acquisitions contribute any revenue to the quarter and/or meaningful revenue on an annualized basis?

No. We did those actually.

Well, one, the software application, no real meaningful revenue there. It's, again, just a software application to be able to use with our builder customers.

And then the, small European acquisition was actually done at the very beginning of October. We would expect about a $3 million to $3.5 million annual revenue from that particular acquisition.

But, but that had zero impact in Q3.

Got it. Okay.

And maybe just elaborate, Brian, on your final comments prior to – in the prepared remarks. I think you said as we think expect gross margin and operating margins to pull back as we exit 2020, is it mix?

Is it specific discrete investment? What is it that you know, obviously, you've got some difficult comps, but what is it specifically that would cause margins to pull back and magnitude?

Yeah. Sure, no, 2020 obviously being a very interesting year with travel restrictions.

Being able to do some of the customer engagement efforts that we do large meetings, us attending trade shows and the like, I think those we’re expecting to ramp up next year. And don't have the magnitude on that for you yet.

And then also, as we think about growth initiatives and the like, we'll be taking the balance of the fourth quarter to come up with our business plan and then be able to share that, but there may be some – there will likely be some of that as well, as we look to grow in other areas.

Got it. Okay.

So, all of those more on OpEx as opposed to gross margin commentary, at least it would appear.

Correct. Although there may be a little bit in the gross margin area there as well.

Okay, and last one, and I'll jump back in queue, the applied Q4 guide given the full-year revenue outlook, but maybe just talk about revenue trends thus far in October, what you're seeing terms of cadence, you know, what does that look like as far as growth on a year-over-year basis, and your expectations for Q4 more generally?

Sure. So for the guide for the year would imply about a 3% Q4 growth over Q4 of last year, and we're about on pace with that so far in October.

Okay. I'll jump back with any follow ups.

Thank you.

Thanks.

Guys, nice job on Q3.

Thanks, Tim.

Maybe just kind of dovetailing on the on the last question. You know, if I kind of go through, could you just maybe elaborate how trend kind of paced through the quarter because it's, if I recall, revenue is up, maybe 10% through kind of the early part of July, you obviously did, you know call it 17%, 18% here, which should imply that things accelerated through the quarter.

So, just want to make sure that that 3% number is a year-over-year number, you know, like comparison to last year in October, so I just want to make sure we have the same number?

Sure.

And what would be driving that.

Okay. Yeah Tim.

That 3% is Q4 2020 versus Q4 2019 in order to hit both the midpoint of that revenue growth guide for the annual period. So, if we're taking the year-to-date number and then growing Q4 by about 3%, we would hit that net revenue guide.

And so far in October, it's right on that number. So, yes, you noted that Q3 when we were commenting about the quarter during the Q2 earnings release at those early July days were a little bit different, compared to what we're seeing for October.

I think it's just seasonality. There may be a little bit of that.

Oh, Karen, do you have any other thoughts there?

Yeah. I think, as you mentioned, we're tracking pretty well – to what we did, the fourth quarter we always have winter conditions, we always have, some of our customers actually closed down for some of the holidays, whether it's the Thanksgiving or Christmas time.

And you know, as we've always said, our fourth quarter and first quarter are typically are weaker, compared to second and third. So, I think we're just sort of seeing a, what we would consider more of a normalized fourth quarter.

Okay. Okay.

I mean, are still up double digits in most of your regions, and you're still seeing some pretty good R&R activity, right. So, I'm just trying to understand what might have driven that type of, I guess, deceleration versus the last couple of months?

Yeah, you're right Tim. I mean, if you look at the start numbers, but if you remember, what we've always said is, we tend to trail that start number anywhere from two months to four months, and that really puts us right in that winter type of season.

So, we're still seeing nice numbers from the R&R standpoint, but again, we've already got places where we've got snow on the ground. So, it's just really a function of the seasonality from both the winter and what we see from those holidays.

Okay, okay. And I guess as you look at your distributors, how would you kind of characterize their inventory versus normal ?

We're not seeing any increases or decreases. We're seeing our distributors pretty much normal type of ordering pattern.

Okay. Okay.

And then I guess on the home center side of things that the 125% number that you quoted is there any way to think about what POS was in your home center channel, just to maybe reconcile what sell-in versus sell-out looks like?

Well we do get those POS numbers, but it's a little bit early, especially as we look at the Lowe’s coming on as the new customer. So, it’d probably be something that we would have a little bit better idea as the year ends.

Okay. Okay.

And then the last one I have is just on pricing, as you think about 2021, you've seen decent demand here, you know sports activities picking up, you know we have seen a little bit of an uptick in steel, how would you think about pricing expectations for next year?

Yeah, we mentioned this in the past, you're correct; we are seeing a little bit of an increase in steel pricing. And if we think there's some stability and consistency in that, then we would take a look at where we might need to do a price increase.

At this point, we do not estimate doing a price increase throughout the rest of this year. But as we noted, you know, material is a key element in our cost of goods sold, and we continue to track that.

Okay, sounds good. Thanks, guys.

Good luck on the rest of the year.

Thank you, Tim.

Thanks, Tim.

Thanks. Good afternoon, everyone.

So, forgive me if I was multitasking and I missed it, but obviously, you know, you did exceed your expectations in Q3 from what you were predicting at the end of July, and that goes to not just sales, but also margin. So, don't think I'm being critical, but, you know, were you just too conservative, like, what – were you surprised?

And did the margins just flow from the operating leverage?

Well, part of that, Steve, I think is, there's – the continued strength in that repair and remodel business that we're continuing to see. We know that that’s definitely been a trend this year, as people have been improving their homes and backyards, and outdoor living spaces and indoor living spaces, but it was, you know, to the extent.

And then just going back three months, just the amount of uncertainty that we're experiencing, whether it be another wave of COVID-related restrictions, or what have you. So, I think that was part of it.

And then as we have been busier with more products running through, the factories running through, the steel that we have on hand, better factory utilization, and continuing to on the OpEx, or I guess even a little bit on the cost of sales, you know, the reduced travel and other expenses that we would have, normally as people are out more, that's sales people per se, because we've got sales people out on the road visiting customers, but trade show attendance and other meeting attendance we've just been leading virtually many of us have been working virtually remotely from – from not at our offices. So, but I would call it the volume on the – through that home center, and you know, repair remodel type of products that have continued to be very strong.

Okay, and I know it's early days, you'll articulate your 2021 objectives in due course, but, you know, as you listen to the homebuilders, and you know, get feedback, even if it's from virtual meetings from your customers, it sure seems like, you know, suburban low density living might actually be a long-term beneficiary from COVID, you know, kind of snatching victory from what we thought was increased urbanization. And presumably, that would be very good for you.

So, any comments on that front? I mean, are you starting to see that maybe the tide is turning in terms of high density back towards low density living?

Yes. Steve when you obviously look at the housing starts, you see an increase in single family starts and a decrease in multifamily.

So, we've clearly seen it from those numbers. We've also, as we mentioned in the last quarter, hearing from some of the larger builders that they are seeing some of their first time homeowners, being those people who are moving from the city out to the suburban area because they want more space.

So, a couple indicators there that would that would tell you that single family homes again. And as we mentioned, we put our product in both single family and multi-family, but on a per unit basis we’ll typically put more content in single family.

So, I think just the shift you see in the start would indicate that that is what we're seeing that that moved from urban high density out to suburban.

Alright, well presumably that bodes well for you. And then finally, fastener company, I mean, if it's $3 million worth of sales, should we think of this almost just you know, taking out a competitor?

I can't imagine there's a lot of accretion.

Yeah, I say, connector – yeah, it's a connector company, not a fastener company. So, we'll gain some market share there, and also be able to run that production through our facilities.

So, a little bit help on absorption.

Got it. All right.

Best wishes just for the rest of the year. Thank you.

Thanks Steve.

Thanks Steve.

Hey, good afternoon. Hope you all are well?

Thanks Julio. You too.

I guess if I could ask about the European business, you know, you did see operating margins improve despite gross margins down year-over-year, which is excellent, but maybe just talk about what's working well there, and do you see that strength kind of continuing into Q4?

Yeah, as we mentioned, you know, Europe had a little bit tougher return from their first wave of COVID-19. Unlike the U.S., where housing and construction materials were considered essential, that was not the case in Europe.

So, not only was our UK and France facility closed down, many of our distributors were closed down. So, the picking up or the picking up of the business took a little bit longer than we saw in the U.S.

I think in the third quarter, they were doing a nice job of kind of getting back to a more normalized rate for them. We've done a really nice job; the management team there's done a great job and is continuing to work on reduced OpEx helping that bottom line.

And certainly, as we mentioned, we had a little bit of a strategy change to get our sales force focused on those customers of ours that are looking to sell our entire breadth of line. So, the connectors, the fasteners, and the anchors, and they're doing a good job of executing on that strategy.

On the negative side, it looks like and we're certainly hearing news reports as a potential second wave of COVID-19 in Europe. We've already seen some countries that have put some restrictions, not as steep as they were in earlier in the year, but we don't quite know what will happen as far as those operations, but we're certainly seeing an uptick of COVID-19 in those in those regions.

Got it. And I believe I asked this last quarter, but any update on the effects of lumber?

Have you seen any issues at all related to your customers and tightness or the cost of lumber on your customers and how that affects Simpson?

Well, from a standpoint of affecting us directly, obviously, we have a wood wall product that we make, but that's not what I would call stick, you know, . So, we haven't been impacted by our supply needed for that particular product.

From our customer standpoint, obviously, if wood prices are going up, or availability is reduced, that creates some slowdown. And I've certainly heard issues of housing prices going up.

The latest I've heard is that that pricing on lumber is kind of coming back down again. So that will certainly help as far as the cost of the house, but I haven't heard concern as far as shortage more of just the price being pushed up and pushed on to the consumers.

So, again, I think in this back half year, we're seeing those prices drop down a little bit. And that will help as far as the portability issues from the housing standpoint.

Got it. Maybe last one for me is, you know, would you expect cash flow to be up year-over-year in the fourth quarter?

I don’t think so. I think that – yes, our general expectation right now.

Is that would be the case.

Great. Thanks very much.

Thanks, Julio.

Thanks, Julio.

Sorry, , thank you, again. Just pulling on the string a little more, sorry to be redundant, you're targeting 25% to 26.5% OpEx this year now as a percentage of revenue, given the initiatives and some of the expense normalizations is within that range and regional thought process for as we think about 2021 or are you kind of signaling that OpEx as a percentage of revenue is likely to rise next year as well?

Okay. Yeah, go ahead, Brian.

We can both chime in on this one.

I’d say they’re expected to likely rise in 2021.

Got it? That's helpful.

And then one more capital allocation priorities shifting the focus back to M&A a little bit obviously, if you said this, and I missed it, I apologize, do you still plan to stick to the goal of returning at least 50% of cash flow to shareholders that you had previously? How does that sort of factor in on a go forward basis, given where we are now with the pandemic?

Sure. One thing that we definitely want to do is, is get the remaining balance on the line paid down.

We'd like to get that done by the end of the year. And then, as we take a look at the other cash – returning cash to shareholders in addition to the dividend, we’d evaluate, share repurchases, but as we're thinking about it, today, get that line paid down, and then, you know, evaluate from there.

We're still evaluating the 50% of cash flow from operations return to shareholders. On a go forward basis beyond 2021 or beyond 2020, certainly would like to put that to use in acquisitions that help us fulfill our company's strategy, and other internal investments that help us make us more efficient, more profitable, help us serve our customers even better.

But so that's where we're at today as far as that particular goal.

Okay, and is there a range or sweet spot of acquisition size that you generally would be targeting?

You know, I think, certainly a large acquisition is just as complicated as the smallest position. We're really looking Dan, for something that's in the building material space, we've talked about this, we'd be very interested in manufacturing and extending our manufacturing capabilities and market share in the fastener space.

You saw we did a couple of small bolt-ons, those are pretty easy to incorporate and to negotiate. So, I don't think we have a sort of a set price.

We're more looking to what fits our strategy and why is Simpson the natural owner of whatever the company might be. What is it that we can do?

And why would we be that right – why would it be the right acquisition target for us?

Okay. More to come, obviously.

Thank you for comments. And again, congrats on a, obviously really strong quarter and operating leverage.

Great. Thanks Dan.

Thanks Dan.

Thank you.