Simpson Manufacturing Co., Inc. (SSD) CEO Jamie Dimon on Q2 2020 Results – Earnings Call Transcript

Simpson Manufacturing Co., Inc. (NYSE:SSD) Q2 2020 Results Conference Call July 27, 2020 5:00 PM ET

Company Participants

Kim Orlando – Addo IR

Karen Colonias – President and CEO

Brian Magstadt – CFO and Treasurer

Conference Call Participants

Daniel Moore – CJS Securities

Tim Wojs – Baird

Steve Chercover – D.A. Davidson

Julio Romero – Sidoti & Company

Operator

Greetings and welcome to Simpson Manufacturing Co. Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

I would now like to turn the conference over to your host, Kim Orlando with Addo Investor Relations. Thank you. You may begin.

Kim Orlando

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company’s second 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 pm 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.

Karen Colonias

Thanks, Kim. Good afternoon, everyone.

I’m pleased to discuss our results with you today. I’ll begin with a high level summary of our second quarter financial results. And we’ll then turn to a more detailed discussion on our key performance drivers along with the actions we’ve been taking in response to the COVID-19 pandemic.

We executed a strong second quarter with sales of $326.1 million, improving 7% year-over-year, and 15% quarter-over-quarter on higher volume, despite the significant level of macroeconomic challenges, resulting from COVID-19.

We maintained a strong gross profit margin of 45.9% due to a combination of sales mix and lower material costs on improved overhead absorption. This, when coupled with our effective expense management, resulted in a 35% year-over-year increase in our income from operations to $72.2 million and strong earnings of $1.22 per diluted share.

Our sales volume improved primarily due to the return of a home center customer during the quarter, which recently in significantly higher demand associated with the initial product rollout into those stores. I’ll give more details on this new customer relationship momentarily.

In addition, we saw improved sales in the repair and remodel market, which were stronger than anticipated, as a result of a shift in consumer behavior toward home renovation, which we believe stems from the COVID-19 pandemic, and associated shelter-in-place orders. Partially offsetting this strength were volume declines specific to Europe, following government shutdowns in the United Kingdom and France in late March, affecting our operations there. These facilities are now back up and running at near full capacity.

I’d like to take this time to thank all our Simpson employees for their dedication and commitment through their extraordinary challenging time. As the health, safety and wellbeing of our employees is our number one priority, we’ve been extremely diligent in our efforts to ensure Simpson remains a safe place to work. We’ve been enacting rigorous safety protocol in all of our facilities, including improved sanitation measures, mandatory social distancing, temperature screening, staggered shifts schedules and remote working, when possible. These actions, in addition to being deemed an essential business, have enabled us to continue operating our business with minimal disruptions during the pandemic. Importantly, we have not experienced any supply chain disruptions related to COVID-19 and have been able to continue meeting our customer needs.

I’d now like to discuss the key driver of our performance during the second quarter. As some of you may recall, we had a prior relationship with Lowe’s back in 2011, and we are delighted to have the opportunity to once again supply their customers with our industry-leading mechanical anchor, connector and fastener product solutions.

During the second quarter, we shipped our connector products to Lowe’s and expect to ship selections of both our mechanical anchor and fastener products in the current quarter. Please note that this sell-through into the Lowe’s stores required for initial inventory stocking in Q2 and Q3 will not be indicative of volume trends moving forward. In addition, we anticipate some of our mechanical anchors and fastener products will be phased out of the Home Depot throughout the remainder of the year. These products were in some, but not all, Home Depot locations.

Next, I’ll turn to an update on our SAP implementation, which has continued to progress on track, despite travel interruptions related to COVID-19. We have transitioned our rollout and training efforts to a virtual format for the time being, which has been working out quite well. As of the end of the first quarter of 2020, all of our U.S.-based sales organizations have been transitioned over to SAP. And as of today, we still anticipate a company-wide completion goal near the end of 2021. However, we will continue to monitor and update our timeline, should COVID-19 continue to impact international travel for an extended period of time.

As many of you are aware, we withdrew our financial targets associated with our 2020 plan, back in April, given the uncertainties surrounding the impact of COVID-19 on our operations, customers and suppliers. That said, we’ve made significant progress from when the plan was first publicly announced to the implementation of strategic changes to our business to ensure the long-term sustainability and profitability of our operation.

By investing in adjacent products and markets, we’ve achieved enhanced diversification in our product and service offerings, leading our business to be far less reliant on U.S. housing starts than it has been historically. We also took significant steps to rationalize our cost structure, in addition to reducing discretionary expense in the current environment, in order to operate more efficiently. The outcome of these efforts is directly evidenced by our 280 basis-point improvement in our total operating expenses as a percent of sales for the second quarter of 2020, compared to the second quarter of 2019.

In summary, we were very-pleased with our second quarter financial performance, despite the highly volatile and unpredictable environment that has continued into the third quarter. So far, in the first few weeks of July, our net sales have increased approximately 10% compared to July of 2019.

Looking ahead, we believe the solid demand trends we experienced in the second quarter of 2020 from the addition of Lowe’s and improved repair and remodel markets will continue offsetting expected weakness in housing construction. Brian will provide additional details regarding our reinstated financial outlook for the full year of 2020 shortly.

We look forward to continue to execute our model with an emphasis on enhancing our operational efficiencies and cost savings, which will serve us well through this pandemic and in the long term. I continue to believe our business is very well-positioned, given our strong brand reputation and loyal customer base, which has been built over 64 years, our deep-rooted industry relationships, our many, many talented employees, and our superior customer service standards, industry-leading high quality trusted products, a high level financial flexibility and a healthy balance sheet and solid liquidity position.

Thank you again to our employees for their commitment to health, safety and best-in-class customer service. I’d now like to turn the call over to Brian to discuss our second quarter financial results and the outlook in greater detail. Brian?

Brian Magstadt

Thank you, Karen, and good afternoon, everyone. I’m pleased to discuss our second 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 second quarter of 2020, and all comparisons will be year-over-year comparisons versus the second quarter of 2019.

Now, turning to our results. As Karen highlighted, our consolidated sales were strong, increasing 7% to $326.1 million. Within the North America segment, sales increased 10.7% to $286.8 million, due primarily to the return of Lowe’s and the corresponding higher sales volume necessary to support the rollout of our products into their stores.

In Europe, sales decreased 14.4% to $37.4 million, mainly due to government mandated COVID-19-related closures, which resulted in lower sales volume. Europe sales were further negatively impacted by $1.2 million from foreign currency translation, resulting from Europe currencies weakening against the United States dollar. In local currency, Europe net sales still declined on the whole.

Wood construction products represented 86% of total sales compared to 84%. And concrete construction products represented 14% of total sales compared to 16%.

Gross profit increased by 11.6% to $149.8 million, resulting in a gross margin of 45.9%. Gross margin increased by 190 basis points, primarily due to improved material costs, which were partially offset by higher warehouse and shipping costs. On a segment basis, our gross margin in North America improved to 47.4%, compared to 45.1% while in Europe, our gross margin decreased to 35.1% compared to 37%.

From a product perspective, our second quarter gross margin on wood products was 46.2% compared to 43.4% in the prior year quarter and was 40.7% for concrete products compared to 44% in the prior year quarter.

Now, turning to our second quarter costs and operating expenses. Research and development and engineering expenses increased 10.3% to $12.2 million, primarily due to increases in cash profit sharing expense and personnel costs. Selling expenses decreased 6.5% to $26.8 million due to declines in travel, fuel and entertainment expense, professional fees and promotional expenses, which were partly offset by increases in cash profit sharing, stock-based compensation and personnel costs. On a segment basis, selling expenses in North America were down 4.3%; and in Europe, they decreased 13.3%.

General and administrative expenses decreased 8.1% to $38.6 million, primarily due to declines in professional and consulting fees, and travel and entertainment expenses, which were partly offset by increases in cash profit sharing, stock-based compensation, computer hardware and software expenses, and depreciation and amortization. On a segment level, general and administrative expenses in North America decreased 7.9%; in Europe, G&A decreased by 13.6%.

Total operating expenses were $77.7 million, a decrease of $3.4 million or approximately 4.2%. As a percentage of sales, total operating expenses were 23.8%, an improvement of 280 basis points compared to 26.6%. Stock-based compensation expense included adjustments to performance-based shares of $5.2 million in the second quarter of 2020.

Our strong gross margin and diligent management of costs and operating expenses help drive a 34.6% increase and consolidated income from operations to $72.2 million, compared to $53.7 million. In North America, income from operations increased 41% to $72.2 million due to the strength of our gross profit margin coupled with reduced operating expenses. In Europe, income from operations was $2.7 million compared to $4.7 million due to a combination of lower sales and slightly higher operating expenses. On a consolidated basis, our operating income margin of 22.1% increased by approximately 450 basis points.

The effective tax rate decreased to 25.8% from 26.4%, primarily due to a reduction in foreign losses subject to valuation allowances. Accordingly, net income totaled $53.5 million, or $1.22 per fully diluted share, compared to $39.6 million or $0.88 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 June 30th, cash and cash equivalents totaled $315.4 million, an increase of $13.7 million, compared to the balance at March 31st. Our inventory position of $265.4 million at June 30th increased $9.6 million from our balance at March 31st, in line with the seasonal increase in inventory we typically experienced in the summer and fall months, due to increased construction activity.

We continue to be highly selective in regard to inventory purchases, in line with our goal to improve our inventory balance, through careful management and purchasing practices. We generated strong cash flow from operations of $29.3 million for the second quarter of 2020, a decrease of $14.6 million, or 33.2%. During the second quarter, we used approximately $7.3 million for capital expenditures, which included a minimal amount for ongoing SAP implementation project.

In regard to stockholder returns, we paid $10.2 million in dividends to our stockholders during the second quarter. On July 13th, our Board of Directors declared a quarterly cash dividend of $0.23 per share, which will be payable on October 22nd to stockholders of record as of October 1st.

Before opening up the call for questions, I’d like to discuss our 2020 financial outlook. As indicated in our earnings press release issued today, we believe that we are now in a better position to provide a full-year outlook, primarily reflecting an additional quarter of actual results, as well as improved visibility on the progression of pandemic-related restrictions and the impact of those restrictions on our operations.

As such, based on business trends and conditions as of today, July 27th, we estimate our outlook for the full fiscal year ending December 31, 2020, to be as follows. Net sales are estimated to increase in the range of 1.5% to 4%, compared to the full year ended December 31, 2019. Gross margin is estimated to be in the range of approximately 43% to 45%. Operating expenses as a percentage of net sales are estimated to be in the range of approximately 27% to 29%. And the effective tax rate is estimated to be in the range of 24% to 26%, including both, federal and state income taxes.

Notwithstanding the improved visibility, it is important to note that the potential economic impact related to COVID-19 on our operations, raw material costs, consumers, suppliers and vendors, which we are unable to predict at this time, may have a material adverse impact on our 2020 financial outlook.

In summary, despite broader COVID-19-related challenges in the marketplace, we were very-pleased with our second quarter financial results and operating performance. We remain focused on executing our strategy to drive improved performance moving forward.

I’d like to again thank all of our employees across the globe who are dedicated to working safely and supporting our customers under these difficult circumstances. Our industry leadership position, geographic reach and diverse product offerings combined with our strong balance sheet and liquidity position gives us confidence in our ability to maintain our operations and support current and future demand trends. We look forward to updating you on our progress in the coming quarters.

Thank you for your time and attention today. At this time, I’d like to open the call up for questions. Operator?

Operator

Thank you.

Brian Magstadt

Sorry. Actually before we jump into questions, I’d like to correct the cash flow from operations figure I stated in my prepared remarks. The corrected figures noted in our earnings press release is as follows. For the second quarter of 2020 we generated strong cash flow from operations of $30 million for the second quarter of 2020, a decrease of $14 million or 31.2%. Now, I’d like to open it up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from line of Daniel Moore with CJS Securities. Please proceed with your question.

Daniel Moore

Karen, Brian, good afternoon.

Brian Magstadt

Hey, Dan.

Karen Colonias

How are you Dan?

Daniel Moore

I’m well. Congratulations on exceptional quarter and obviously in extraordinary environment. And remind me not to play poker with either of you anytime soon, side note. But, I wanted to talk about, I guess first off, North America, overall trends in the quarter. If we exclude the impact of Lowe’s, would revenue in North America still have experienced positive growth year-over-year in Q2?

Brian Magstadt

No, no, not quite.

Daniel Moore

Okay. That’s helpful in terms of order of magnitude. And then, is it possible to estimate how much of the revenue from Lowe’s reflects end-market demand versus pure inventory stocking?

Brian Magstadt

Most, Dan, is inventory stocking versus refill replenishment orders at this time or through the quarter.

Daniel Moore

Understood. And I was going to ask how many stores are initially stocked as of June 30th? But, maybe a better way is I think, Karen, you mentioned you benefited from connectors while Q3 will benefit from anchors and fasteners. Can you give us a little more color on the relative size of the opportunity across each of those categories? Just trying to get a sense for sell-in in Q3 relative to Q2, if it’s actually a larger potential opportunity or order of magnitude smaller?

Karen Colonias

Yes. It’s a great question, Dan. We set or Lowe’s set our product, our connector product in just a little over 1,700 locations. And in Q3, we’ll be doing similar locations with both, the fasteners and the mechanical anchors, although the set price will be substantially smaller.

Daniel Moore

Got it. Okay. It appears from a gross margin perspective that the sell-in appears to be margin accretive. Is that a fair assessment, or would you view it more neutral and the strength in the quarter was more mixed and favorable raw material costs?

Brian Magstadt

That was both. But, since it was primarily the connector line and that being part of the wood product category, had that higher mix benefit in the quarter. So, a bit of all those.

Daniel Moore

Got it. And I’ll ask one more and jump back. But, the guidance — I could ask several, but from a revenue perspective, implies flat to slightly lower revenue in the back half of the year. Given the rollout of Lowe’s and the clear momentum we have going into Q3, is there a reasonable we would expect revenue to be lower year-over-year? I recognize we’re still in the middle of the pandemic. And it’s just COVID-related conservatism or do you see the housing environment getting a little bit tougher, any thoughts there?

Brian Magstadt

Definitely a COVID environment for sure. Also, the latest figures from census bureau show housing starts to be lower than they were last year. So, I think, there were couple of those considerations that we utilized in that guide.

Daniel Moore

Okay. That’s it for me. I will jump back in queue with any follow-ups. Thank you.

Brian Magstadt

Thanks, Dan.

Karen Colonias

Thanks, Dan.

Operator

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

Tim Wojs

Maybe just on — if we could just maybe start on gross margins. Are there any kind of explicit headwinds to gross profit that you’re kind of considering in the second half? And I think, the guide implies kind of 40% to 45% gross profit margins in the second half. I think you’re closer to really 46% in the first half. So, I’m just trying to understand if there is anything sequentially that would drive such a material deceleration?

Karen Colonias

A little bit on volume-related, so overhead absorption definitely benefits from the higher volume. And potentially a little less material impact in the back half of the year.

Tim Wojs

Okay. And then, any color just — if you take your R&R business, just any color on kind of the areas of strength you saw? So, I don’t know if you want to talk about channels or maybe product SKUs and just — is that more concentrated and just something to your decking and outdoor categories, or are you actually seeing much higher activity in things like room expansions and build outs?

Karen Colonias

Well, Tim, as you know, it’s a little difficult for us to get that granular. But certainly, as you look at some of these home centers and the shelter-in-place, the people are working on a lot of projects. And so, I’m thinking there is decks and fences and garage organizations, our outdoor solutions product. But, a little tough to get too granular on is it room additions, because same things [ph] are used for room addition, because they use to build the deck.

Tim Wojs

Okay. I gave a shot. And then, I guess maybe just the last one I have is, what’s the best assessment you have of wholesale inventory levels today? And I guess, how would you characterize that relative to normal for your distributors? I’m just wondering if things are leaner than normal or if inventories heavy in your consideration?

Karen Colonias

Yes. I mean, we keep a close track, all of our sales people work very closely with all of our distributors. I’d say, we’re kind of in a normalized area of what they’re holding from an inventory standpoint, not an increase or decrease, just sort of normalized for this time of year.

Operator

Our next question comes from the line of Steve Chercover with D.A. Davidson.

Steve Chercover

My first question is on the growth in repair and remodel. And, do you think that it’s a temporary phenomenon, whereby folks who were sequestering a home did projects like decks and fences, or do you think it’s going to have legs as consumers invest in their homes, as opposed to going on vacations to Europe and Disneyland, et cetera?

Karen Colonias

Yes. That’s a good question. I think, certainly, again, as you look at some of the home center numbers that it is — the uptick, we’re seeing is people working on projects at their homes. I mean, we’re certainly focused and we’d like to have that portion of our market be larger and contribute more than, again, not being so tied to that us housing starts number. And you can see we’ve developed some products that are specific for that market, whether they are outdoor solutions or specific for those home builder projects and homeowner projects. So, it’s tough to say if that’s going to be a continuation, but certainly something that we’re focused on trying to get a bigger piece of.

Steve Chercover

Yes. I mean, just covering the wood product space, pressure treated lumber, I mean, couldn’t be had really for any price in the second quarter and entering the third quarter as well. So, it seems a lot of it was the honeydew projects that guys were saying, I’m home I got to do something. So, I just wonder if it’s going to persist. Do you have any views, I guess, into the trends, as we’re now almost complete in the month of July?

Karen Colonias

Well, we don’t have any view on the — what we potentially could triangulate into R&R versus the new home starts. It does make sense when you think about pressure treated material that you’re going to use for your substructure of your decks or your fences or any outdoor projects. So, certainly, a shortage of pressure treat would correlate with what we’re seeing on the connector sales on R&R space.

Steve Chercover

Well, maybe asking the same question different way. Let’s ignore Lowe’s because there’s a lot of noise as they put in their initial inventories. But, how are the volumes to Home Depot? Were they up substantially and do they remain up early into Q3?

Karen Colonias

Don’t know about into Q3, but I think we had some good sales through Home Depot in Q2.

Steve Chercover

Okay. Now switching gears, it doesn’t sound like you guys had any shortages or outages in Q3. So, what is your inventory level like for finished goods, but also for steel, because a lot of commodities are starting to move higher, have you laid in any surplus steel?

Karen Colonias

Yes. I think, as you look at the steel market, when automotive shut down that certainly had some impact with the steel manufacturers. As far as our situation, we are always looking to be sure that we can have the best steel and take advantage of any price availability as well as ensure that we have material needed as we go forward. So, I don’t think our steel levels are any higher or lower than you would typically have in a normalized year.

Brian Magstadt

Just for comparison purposes, we’re up a bit on raw material from June of 2019 and from year-end. So, when our 10-Q comes out, obviously, we’ll have more and more detail in that. But, raw materials as of June 30, 2020 were a little bit higher than the year ago period or the prior year-end.

Operator

Our next question comes from the line of Julio Romero with Sidoti & Company.

Julio Romero

Can you talk about maybe the sequential trend throughout the quarter? I know, last quarter on your 1Q call you mentioned sales were down sequentially from March to April and I guess now you’re calling out sales up to 10% year-over-year in July. So, I guess that kind of implies a pretty strong trajectory upward. Can you maybe just talk about that trajectory? I mean, was it kind of a steady trajectory throughout the quarter or did you see more of a step function throughout June?

Brian Magstadt

That was largely May and June. Like you said, as we noted, we had called out that April figure before, and those were the early pandemic shelter-in-place, a lot of uncertainty days. But, as we stocked — or as we sold in product in the Lowe’s for that initial stocking, that happened in the latter parts of the quarter versus April.

Julio Romero

Got it. I’m sorry. I should have asked that, like ex-Lowe’s in your other businesses, if you saw that kind of trajectory, kind of steady or more of a step function?

Brian Magstadt

I think, it was more steady. More steady.

Julio Romero

And maybe just follow-up on Steve’s question on lumber, I mean, maybe to ask that in a different way. Has that affected you at all? I mean, you’re not direct user of lumber. But, are still most maybe the downstream users of your product maybe trying to make up margin by trying to offset lumber price at all, or is that maybe not a concern at this point, everyone just wants to kind of — there’s so much demand out there that that wouldn’t be a concern?

Karen Colonias

Yes. We haven’t seen any issues from that standpoint on the lumber front.

Julio Romero

And you talked about having more clarity to your business, and I appreciate the guidance that you put out there. I mean, I guess, standing where we are today, what do you maybe view as your biggest risk to the business as of today?

Karen Colonias

Well, I’d still say that uncertainty with the COVID-19 and what the economic conditions will be. I mean, we certainly saw a pretty dramatic change in the economy when everybody was on shelter-in-place, is that going to happen again, will we still be considered essential businesses that we provide to hardware? All of those are unknown.

Julio Romero

Understood. Thanks for taking the questions. I appreciate it.

Karen Colonias

Thanks, Julio.

Operator

[Operator Instructions] You have follow-up question from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Daniel Moore

Thank you, again. In relation to the OpEx guide, guiding 27% to 29% of revenue for the year, given the strong cost control and ramping revenue, it was below 26% for the first half. So, it implies a pretty big ramp in H2. And maybe what expenses that you held might be coming back in, in the second half? Is there an incentive compensation component perhaps, or does the higher end just give you more legal room in case revenue much softer than anticipated?

Brian Magstadt

Dan, I think, it’s partly due to that — the revenue expectation through the balance of the year. Also, a large part of the quarter, we had a sales team working from home, so not a lot of travel, not a lot of fuel costs or the like. And thinking that if they’re out on the road, as they are today, throughout the balance of the year, there will be a little bit more there. But, I think it’s mostly due to because that revenue guide, and to get to even the 4% growth for the year would imply a relatively flat back half of the year. So, the relatively expense amount to that is what is framing that guidance on the OpEx.

Daniel Moore

Okay. So, nothing unusual or any part of G&A that you would call out in terms of an incentive comp maybe accrual or anything like that?

Brian Magstadt

No, not really. What we did as we noted in — we had an adjustment to stock-based comp in Q2. We had taken that down in Q1, the shares that are based on multiyear performance periods. If we continue to track, that would — that should not add anything significant in that category. So, it’s mostly just a current spend trajectory relative to more flattish revenue.

Daniel Moore

Got it. And this one is more of a curiosity question, I’ll sneak one more in. I’ve heard Lowe’s starting to advertise obviously into their Lowe’s for Pros campaign but naming Simpson content much more significantly and directly. Wondering is that a co-marketing campaign. Without getting too deep in the weeds, curious if that’s all Lowe’s spend or that’s a kind of a joint venture as far as that direct marketing concerned?

Karen Colonias

Yes. Dan, Lowe’s does their own marketing. So, we appreciate how they’re marketing, the fact that our product is in their location. I think, it goes to the fact that we spend a lot of time getting the product on specifications for new construction. That’s really the start to pull that product through the distributors and then out to the job site. So, I think it’s our strength and specifications is partially why that they’re — got that marketing program that they’re working on.

Operator

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

Tim Wojs

Hey. Just a couple of clarifying questions. Could you tell us what June sales were, just for frame of reference?

Brian Magstadt

No, we’re not going to provide that. It was — no, we don’t have that to break out.

Tim Wojs

And then, just I guess, more specifically on Lowe’s. Is there a way to just quantify the impact in the quarter, in Q2?

Brian Magstadt

As we think about it, we don’t necessarily comment on the individual customer unless they’re greater than 10%. Customer, we would say that sales into the home center channel, which we would classify as the big box retailers, Home Depot and Lowe’s, not including co-ops like True Value, would be expected to increase despite Home Depot pulling back on some product line. But, we’re not going to provide the individual customer amount for the Lowe’s.

Tim Wojs

Okay, fair enough. And then the $5.2 million on the long-term incentive comp, did you see that that is kind of a one-time adjustment that doesn’t build back in the second half? Is that what you’re trying — is what you meant to say?

Brian Magstadt

That’s right. We took — we adjusted down in Q1 and then brought that back in, in Q2. So, it is normal level.

Operator

There are no further questions left in the queue. So, this does conclude today’s Q&A and as well as today’s conference call. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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