Simpson Manufacturing Co., Inc. ($SSD)

Thank you so much, everybody. Sam Reid, I'm homebuilding, building products and distributor analyst here at Wells Fargo. I'm joined here by the Simpson Manufacturing team. Mike Olosky, on the CEO side; and Matt Dunn, on the CFO side. We're very happy for these gentlemen to join us today. We're going to start off probably with a quick slide presentation, and then we're going to dive into fireside Q&A, and then I'll leave an opportunity at the end for anybody in the audience who wants to ask questions. So anyway, gentlemen how about let's get started and I believe we can kick off with the slides.

Super. Sam, thanks for having us. So I'm going to do a -- Matt and I are going to do a 30,000-foot kind of high-level company overview, handful of slides. So let me start with the picture. So Simpson Strong-Tie, we are a leading provider of structural solutions to the building and construction industry. Our products are typically less than 1% of the bile material but critical to the structural integrity of the building that they go into. We believe we've got the broadest, deepest product line. We've got the broadest and deepest product line in the industry, making us really a one-stop shop for structural solutions. So we got 6 different product lines up there. But at a high level, really, we're talking about 3 main product lines. The first one is connectors. So these are highly engineered, thoroughly tested stamped steel components the connect pieces of wood. Our founder developed this industry 7 years ago, and we believe we've got a leading position in the this space with approximately 75% market share. The second major product line for us is fasteners. It's roughly a $500 million business. These are patented, highly engineered, again, thoroughly tested products. We've got roughly 180 patents on our products. We've got 8 code reports covering 30 different product lines. These products have -- they're differentiated. They perform better than the others in the peer and that's our fastener product line. And then the next are mechanical anchors and adhesive anchors. So these are typically very large fasteners, very large crews, heavy-duty products that connect wood to concrete would be a good example. So think wall panels being built, you got to attach that to the concrete and our mechanical anchors will be a good way to do that. But the red thread on that whole thing are structural solutions that result in safer, stronger structures. So we go to market with 5 market-facing sales teams in North America and North America business is roughly 75% of the total business. So first market segment is the residential segment, and we think roughly 50% of the total business is linked to U.S. housing starts. So this would be single-family and multifamily homes. Also kind of targeting that residential is our component manufacturing business. So this is predominantly selling to component -- people that make truss systems, wall panels and roof systems. So the component manufacturing is a good business for -- opportunity for us and of our best opportunities going forward. Both of those market segments directly linked to single-family and multifamily. The next one is commercial manufacturing, so commercial construction. So this would be really an extension of our current products and to primarily stick built commercial applications. So I think retail space, think hotels, think gas stations, think dorm rooms. So really an extension of our wood Connection business into the commercial construction space. And then national retail is a further extension of that product line really into the DIY space and the pros that you hear about with Home Depot and Lowe's. Similar product line, we're selling fasteners and connectors and anchors into that national resale space. And then the OEM space for us is a relatively new, one of our faster-growing segments. These are areas where we tend to go direct to the customers and it's things that are built in a factory. That could be a tiny shed, that could be tiny homes, that could be packaging, that could be kitting systems for racking systems that go into big warehouses. But it's a relatively small business for us today, have been fast growing, things that are built in a factory. So 3 major product lines, broadest deepest product line in the industry, 5 major market segments. But the piece that I think really differentiates us is our Strong business model. So we take that very broad and deep product line, and we work a lot with building code officials and we talk with them how to build right code, the results in safer, stronger structures. And we have all kinds of perfect examples of that in Florida. If you look at neighborhoods that are built to the newer codes when the last hurricane went through, you compared those newer neighborhoods built in the newer codes or to the older neighborhoods, most of those newer neighborhoods came through in great shape, a little bit of landscaping damage, while neighborhoods built to the older codes had significant structural damage. So lots of examples of how those codes really make a big impact. But we also do continuing education credits for the building code officials. We're training them on a regular basis. We're walking job sites with them. We're doing a lot to make sure that the homes are constructing the right way to meet the codes. Then we take that solution set and our knowledge of the building codes to architects and engineers and talk to them how to design single-family, multifamily construction to meet those building codes. We also talk with them about how to use our solutions to have these great indoor/outdoor areas or these big 3, 4 car garages, where in the hurricane areas or seismic areas, the structural integrity of those buildings are kind of complicated in any pretty complex structural solutions to make those buildings meet the codes. But that work, that work that we do with the building code officials and that work that we do with the engineers and architects means that when the blue prints come out for that particular building, our names are -- our products are all over. We are very much a specified business, and that creates a lot of demand for our product. Next, we work with the builders, and we -- I believe we're working to -- we're pretty much on every start would be my bet, but we're working a lot with the very large builders, especially the national builders, and we have rebate programs with them where we pay them a rebate and they make sure that our products, specifically our connectors are used in their housing starts. And we have agreements with roughly 250 builders, representing roughly 50% of the housing starts where they're telling the supply chain, hey, we only want Simpson connectors. So what that does is that pulls through that demand that's created by the building codes and the specs. And by the way, we're doing a lot of other work with those builders for value engineering and other things to help them with the challenges. We have a good relationship with them as well. But that pulls that demand through. So then we work with the -- our channel partners in the middle, the contractor distributors, the pro dealers, the lumber yards. They know that we're creating demand. They know we're pulling the demand through. They don't have to carry that big broad product line because we have fantastic service and delivery to them. If they place an order in the morning, the vast majority of the time, we ship it out that afternoon, they get it the next day. And we believe we can reach roughly 95% of our ship to locations within 1 day. And then over the top of that business model, we layer a lot of digital services and solutions that just make it easier for our customers to figure out which product they need, how to engineer it, all the data, maybe design a custom fabrication, a part for a unique connection and in some cases, even use our digital solutions to run part of the business. But that creates a very, very sticky business model that makes us a leader in structural solutions. And that has really helped us develop the business over time.

Yes. I'll hit this slide really quickly. It's just our progress in the last 5 years. So starting in 2020, ending in 2025, you can kind of see on the bottom there. Basically the same level of housing starts in 2020 as it was in 2025, just under 1.4 million housing starts in that time period. Simpson added roughly $1 billion in revenue to the top line and a couple of hundred million dollars roughly of operating income of that $1 billion top line. We're up a little over $0.5 billion of pricing, some of that early in the time period, but also about $60 million of that in 2025. We did acquire a business in Europe called ETANCO, which basically tripled the size of our European business in 2022. And then we had about $200 million of volume or share gains. So this is something we like to aspire to, which is continue to outperform the market on a volume basis. We've averaged about 300 basis moisture to over the last 10 years versus the market. And that kind of got us to where we are today. So we'll stop there, and I'll let Sam take it away from here.

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

Yes. Good question. So as you know, Sam, super mixed environment. And it looks like 5 years in a row, we came into the year thinking it was going to be at least flat, hopefully, with double-digit growth. I think our budgeting and planning assumptions as part of our guidance at the beginning of the year was roughly a flat to slightly up market. With an incredibly diverse customer base, we use a local market forecasters. Zonda is our partner of choice because they can give us really great level of detail to help us better understand the market. We're also interacting with all the major forecasts on the major builders. Add all that up, it looks like this year is probably going to be 5 years in a row of a declining market. We think it's going to be based off the forecast we're getting low single-digit down. It's a mixed story. So Midwest, Northeast tend to do a little bit better. West Coast, Florida tend to do a little worse. I would say the Southeast a little less worse. So maybe starting to bottom out. We also see some pockets where multifamily starting pick up. The multifamily project backlog in Southern California, which is an important area for us, a lot of content there. We've seen that project backlog build, and we've heard that from a lot of our customers. We have not seen that flow through yet. So we're a little bit optimistic here. So in the meantime, Sam, the story for us is really focused on the things we can control. And that's trying to drive volume by making the market bigger, getting more content on houses, new products, new applications, trying to find pockets of growth and leverage those pockets going forward.

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

Yes. So if you separate the 2 and just fun fact, the median number of homes -- the medium home size builder, homebuilder produces 6 homes a year. So you think single-family homes is, call it [ 1 million ]. So you've got the larger production ones driving 40%, 50% of the market, and you have a huge, huge tail, big deal. So the production guys and the large publicly traded builders have been able to use their balance sheet and a little bit their P&L to help subsidize loans. There's mixed stories there. You have lots of examples of the bigger builders offering loans in the 4-ish percent range and really not seeing an increase in traffic. So their view is it's more of a consumer sentiment, consumer confidence story. You have the smaller builders that are probably, on average, building bigger homes because there you get into the custom areas. They've got a little bit of a different story, but just trying to aggregate that across many different markets also kind of complicated. But the fact that the smaller builders that don't have the P&L and don't have the balance sheet to subsidize this created some challenges for them. So a lot of the ones that were maybe doing the smaller homes that were a little bit more price sensitive. They've either stepped out or instead of building 3 or 4, maybe doing 1 or maybe even moving more of the home improvement area. So again, kind of a mixed story across the board.

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

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

Yes, sure. We've got digital solutions in the component manufacturing space, which I'm sure you'll ask some questions on later maybe. But then we've also got a number of digital tools that we have that really help our customers select the right products. So we have like a fastener tool out of the thousands of fasteners, what's the right fastening you can use in the right application. We've got tools that help our customers with estimating. So we provide software. And in some cases, sell software to lumber yards to help them make better, more accurate, more timely estimates, which is a key part of what they do in the lumber yard. We've got other tools that kind of help them to design -- builders design and manage options on a home in a simpler way rather than having huge, exploding CAD files. So just a number of ways where we're trying to make it easier for them to find the right product, be efficient in the work they do and then ultimately try to make our business model sticky.

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

Yes. So if you're in a hurricane prone area, are you going to want less structural connections on your house? Probably not. So the reality is that there's a code and there are a lot of people that build code plus just to make sure that the house is even stronger in those areas. So I wouldn't say never. But for the most part, a lot of our products are dictated either by a design, where you've got big openings and there's some structural challenges associated with that or the building code as a whole. That being said, we do, do a lot of work doing value engineering with our customers, trying to figure out how to set it up and construct it the most efficient way, how to use the right products, how to use products that are faster install. And one example of that is our acquisition strategy has been kind of a tuck-in story. We acquired a company about 2 years ago called EasyFrame. And EasyFrame is a soft system that enables lumber yards to provide cut packages to builders. So everybody is trying to sell affordability area. Everybody just trying to get more efficient. There are some labor pockets issues out there. So anything you can do to speed things up as a good thing. So our EasyFrame saw -- can take that, say we do an estimate for a house, can take that design of the wall panel, we can send that file to the EasyFrame saw, and it will optimize the cutting of the timber to minimize waste and then it will also print directions on that timber to facilitate faster assembly of it. So instead of doing all of that on the job site, that cut package comes delivered its drop down in that particular area of the house. People that are used to these systems and they know how to do it. We believe they can save roughly 1 day a week. So a nice 20% savings that can kind of help speed things up. And instead of taking more content out to have a less safe house, there are other things that we're doing to really try to address the affordability story.

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

Yes, I can take that one. I mean we kind of have 3 different TAMs based on the 3 audit segments that Mike talked about. The first would be connectors. And if you take like the big picture TAM of connectors, it's roughly $3.5 billion. And that kind of breaks down into 3 kind of submarkets. The first would be, I would say, traditional connectors, which is the category that our founder invented 70 years ago this year. These are stamp steel products that are part of the structural integrity of the home. That market is about $1.5 billion. And I would estimate we're $80 a share and maybe 80-plus share of that market. The second biggest submarket in that connector TAM would be component manufacturing or trust plates, which is also roughly about $1.5 billion market. There's some large payers in there. We're probably #3 in that space today, and we're less than a 10% share, although we know the customers in that space because we interact with them and sell them connectors, fasteners and anchors already. And then the remaining piece of that TAM in connectors would be primarily lateral system shear walls kind of big prefab walls that go into structures, particularly around big openings, garages, things like that. That market segment is, call it, roughly $0.5 billion. The second TAM would be fasteners. So big picture, the fastener market is probably $6 billion. If you kind of segment that into kind of more premium, load rated structural kind of often specified fasteners. That's probably half the market at the upper end and then you have the other half of the market that's a little bit more kind of homeowner less structural, more commodity-type fasteners. We play in the top space. We've got about a $0.5 billion business in fasteners. So kind of roughly probably at 20% of the upper half of the year, maybe at 10% if you look at the whole TAM. And then on -- and there's more competitors in that space. You have some other players that are in the fastener space. And then on anchors, again, we're probably in that 10%, 15% share range. We compete in 2 main categories, which would be mechanical anchors, so kind of threaded rods that anchor things to concrete and then adhesive anchors, kind of 2-part epoxies and things that are -- you drill a hole and put the adhesive in there to anchor something in. So certainly, more share development opportunities in anchors, fasteners and component manufacturing and then obviously, a large share in the connector space.

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

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

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

Yes. I think on the fifth iteration of this, Sam, maybe 6, 7, somewhere in there. So the industry tried multiple versions of this. And the whole idea is instead of building everything on a job site, can you build in a factor, if you build it, in fact, can you be more efficient on it. And over the last 2 decades, there's been multiple versions that have tried that hasn't quite panned out yet. We are doing some work with a startup where we're working on multi-trade wall panels. So we think that could be a little bit of a unique twist on it. The pitch here for the most part is a cycle time reduction because of some critical mass challenges. You can't put factories everywhere. So part of the thing we like about the start-up that we're working with called Tech time, is that they leverage pro dealers current wall panel manufacturing, and they're trying to embed multi-trade panels into it. And we've seen some nice stories where we can really reduce cycle time. I think there's still some development work. We're running some pilot with some different customers. We're feeling good about the pilot. Again, some work to do to get that critical mass to really drive the cost down. Currently, definitely a cycle time reduction and we're working with the builders to figure out the best way to help them out.

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

Yes. Okay. So first of all, we have some pretty large accredited labs that can do not only individual component system but full system testing. As an example, in our Northern California lab, we have the ability to construct basically a 2-story wall system and shake it a 100 different ways from Sunday and see how that whole system performs. And then we can also do test and individual components. And so that gives us a couple of different insights. It gives us the ability to how does that individual product perform in that particular unique location, but it also helps us kind of think through how does that work in the whole system. For mass timber, which is a new construction method using big large wood cassettes, we rent program in Southern California. I cannot remember the name of the University. We constructed, I believe it was a 10-story building. All mass timber, so basically a 10-story wood construction building of these big wood cassettes, we put all kinds of different connectors in there. We put all kinds of different sensors and cameras to just help us get a feel for it, shook that a 100 different ways from Sunday, got all kinds of data on it. And all of that data on a component level and on a system level, just helps us really provide what I truly believe is the industry's most trusted set of structural solutions, and that's just not for the connectors. That's the fasteners and anchors and lateral systems. In the lateral system technology in general, so if you have a very skinny part of a structure, followed by a very large opening, if that incurs a seismic event or winter, there some lateral seismic movement, that's a pretty challenging structural situation. So our latest products that we're launching in the Strong-Wall space have even higher lows. We think they're even easier to install. There are some things that we can do to help our customers install them faster. And again, we expect a little revenue to go up. So it's one of hundreds and hundreds of examples of where we're doing deep engineering work to help our customers understand the structural part related to the building codes and how to meet things that not only meet those codes, but exceed those codes that keep people safe in the house.

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

Sure. For us, commercial -- our commercial business is predominantly stick frame commercial, so things built with wood. So this would be kind of lower rise, retail, hotels, dorms, restaurants, those types of things. So typically, the products that are used, and those are the same products that are used in the residential space. They just have a different end market, go through different channels. We also have some products in the commercial space that are different than that where you often find our anchors in a commercial building. So this is where they've got a foundation of concrete slabs, something needs to be anchored to it, whether it be racks in a house to get anchored into concrete or something gets pre-embedded in the concrete when it's bored to be able to anchor to it later. So lots of anchors. We have different types of fasteners that can work on cold form steel. So cold form steel would be kind of steel studs that are used to build a building. There's different types of connectors that can be used in that similar products to what we use in resi space with a different application. And then we've got a couple of other unique items in commercial that we're excited about. One is an acquisition we did I guess, 18 months or so ago called QuickFrames. QuickFrame is basically a prefabricated bolted solution for when you have -- it's something on the roof of a commercial building. So I think like an HVAC of roof. Today, if you're not using a quick frame, you've got someone cutting a hole in the roof, you're doing some welding, you create some support. QuickFrames make up easier and much more flexible to create that opening and then support that. So we don't have a ton of exposure to -- we're not much at all to data centers. You need occasional fastener anchors maybe. We believe QuickFrames has the shelter to make that easier, maybe even potentially when data centers are running MEP kind of corridors through the middle of the building that needs structural reinforcement. So it's a fairly recent acquisition, but one we're pretty excited about.

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

Sure. Yes. So we were in a period of a couple of years of pretty heavy CapEx. We had 2 pretty significant expansions going on in a in Tennessee which is a fastener facility, and then we expanded our facility in Columbus, Ohio. I'll talk Columbus first. Columbus, Ohio is kind of our main manufacturing and distribution hub for what we would consider kind of the Midwest and the Northeast United States. A lot of the national retail home centers. And basically, we were out of space there. We are using outside warehouses around Columbus. We had the opportunity to acquire the property next to us and basically sort of doubled the size of our facility, got all of our warehouses back under one roof. And we have future runway to add additional production equipment as volume dictates. So for me, that's a little bit longer of a story. There's definitely a savings of getting back into kind of one space from an efficiency and synergy standpoint as well as getting out of some of those leases. But certainly gives us for to run over the next decade plus. Gallatin is a little bit different of a story. We had a factory in Gallatin, Tennessee, which is suburban Nashville that made fasteners. That facility was out of space. We weren't able to do a lot of -- all the steps of the process that we wanted to do in that space. We added leverage from third-party vendors. So we greenfielded a site across town in Gallatin, which opened late last fall, officially opened in January. In that facility, we make fasteners. So it's the only fastener plant in the United States where we make fasteners. The rest of our fasteners come from Taiwan, which is pretty much the fastener capital of the world. Previous to this facility, we made about the 3 from Taiwan. That mix is going to shift more 50-50 U.S. versus Taiwan. This facility also gives us the opportunity to do all the steps of the process of making a fastener. So not only forming the fastener from the wire but heat treating it and coding it, which is a process we use to have to send out a we were able to do that inside, so kind of vertically integrated there. And then also gives us the opportunity to improve lead times, particularly in some segments where you need a little bit quicker lead time on, I think, mass timber jobs. You're making some pretty heavy du-custom-type fasteners. We used to buy those from Taiwan, which had a 9, 10, 11 months lead time and being able to make them in Gallatin is more like a 5- or 6-month lead time, gives us the opportunity to quote more jobs than we were before because of lead times. So again, I think expansion room to grow over time. We talked about in our Q1 release, a little bit of start-up pain on heat treating and coating, which is kind of the first time we've done that in-house, but we'll work through that. And ultimately, we think this has a long way of growth for supporting fastener business in the U.S.

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

Good question. So when -- first of all, we are in a very specialized, very decentralized industry. So the way we run the business is by market and product sort of 5 market segments that we talked about. We've got very specific plans on customers that we want to go after products we want to develop, merchandising changes you want to make, packaging changes, just everything specific to that market segment. We also have it on the product side. So there's an interaction of how those 2 relate. So when we add all that up, we're always looking for tuck-in opportunities. We're all always looking to how we can extend in our product lines. If you take a look at where the kind of lines up to some of the bigger opportunities, we think the component manufacturing story is a good story for us. Current customers, they know us. We've got a good product -- a good solution there from a software perspective that we're making a lot better. So we think there's some opportunity there. From an innovation perspective, just ramping up our innovation machine, getting better running out these products that help us extend the product lines that there's some work there. Sam, to give you a very specific example. When we look at some pockets of areas where we think we could get some quick growth and there's a little bit of a tailwind, we think all things backyard is a good story. Because people don't need to move and switch mortgages. They don't need to maybe do a huge project and tap into a home equity loan at a high interest rate. And we've got solutions that help people build decks and pergolas and fences, and we continue to add to that product line. So we've just recently launched some product will help people build a per 1 day. It's kind of a big black hardware. We've got some other products where if you've got a walkout deck, which is a comment in Midwest, Midwestern when you look up and you typically see that kind of stamp steel. Now we paying a black. We get a nice little premium for it. It looks a little bit better on it. We can broaden out that product line. And just -- I use a baseball analogy, lots of singles and doubles to kind of extend things out and make sure that we've got a broad product line for all those markets where it makes financial sense. Another example is moving into maybe a little bit of a side market for us, which is around post frame. [ Pole Barnes ], same thing, big connections in there. We have some products for that space. We think there are some other things we can do to make those buildings safer, stronger and more efficient. We're looking at some new connections in that area, and it's just lots of singles and up saying, trying to help us grow.

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

We can help you build, Sam.

Absolutely. No -- I don't want to give it my low rate mortgage, so you might have to at least a deck. Absolutely. Quickly, if anybody in the audience has questions, I've got 1 or 2 more, but I wanted to at least give anyone the option. If not, we've got just -- all right. We'll switch back over to the other side of ton. You do have a business in Europe, which is love the state of the union of the European business. And walk us to do there.

Yes. So we have roughly a $0.5 billion business in Europe. We had a legacy SIM business. So it was about EUR 150 million going back a number of years. In 2022, we acquired a business called ETANCO, which basically tripled the size of the business to get us to that EUR 450 million business or so. The ETANCO business skews a little bit more commercial. So commercial and fasteners is kind of the wheelhouse for them. Our legacy business is a little bit more residential. We've been focused on getting our footprint right over the last couple of years. The market in Europe has been a bit of a challenge, probably since a couple of months after we acquired ETANCO when Russia invaded Ukraine, some things changed in the European economy. Starting to see the European outlook for housing and commercial starts to be a little bit better in '26. It may actually be a little bit better than the U.S., which has not been the case for quite some time. We're focused on getting the profitability up. So we believe we need to be in a 15% operating income in the midterm in Europe. Last year, we were in the mid-8s. If you take out kind of the onetime restructuring cost, we are pretty much right at 10% last year. So seen progress there and hopefully seeing some green shoots in the market, which gives us a little bit more opportunity to invest. But I think as far as that goes, get into the 15%. We had a little bit of market growth tailwind, but a lot of it's within our control to get a good chunk of the way there ourselves.

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

Sure. As I mentioned earlier, we've come through a pretty heavy CapEx cycle. So we're getting that back into kind of normal CapEx range, which is about $80 million a year compared to close to double that for the last couple of years. We've got a little bit of debt remaining from the ETANCO acquisition, pretty low leverage, going to be chunking that down, but that leaves opportunity for M&A, of which there's not a lot of significant size opportunities in our space, more of the tuck-in variety that Mike talked about. So ultimately leaves cash to return to shareholders. So we've been ramping up our share buyback a little bit over the last couple of years. We started last year with a $100 million authorization end up buying $120 million. We started this year with $150 million authorization, which is still the case, but we bought back $50 million in the first quarter. And so kind of making sure we maintain our optionality on M&A, if one of the few that make sense comes on. But other than that, returning cash to shareholders.

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

All right. Thank you.

Thank you very much. Appreciate it.