Well, great. Thanks, and good afternoon, everyone. I appreciate those joining here in person in Nashville, and those on the line as well. I'm Kurt Yinger, building products and distribution analyst here at D.A. Davidson. I'd like to welcome from Simpson Manufacturing, President and CEO Mike Olosky, as well as CFO and Treasurer Matt Dunn. So Mike's going to lead us off with a quick overview, and then we'll jump into some questions.
Great. Okay. We are going to start really, really high level, and I'll go through this relatively quick. But Simpson is the leading supplier of structural solutions into the building and construction industry. Typically, our materials are less than 1% of the bill of materials, but critical to the structural integrity of the building. We go to market, and you see up here with what we believe is the broadest and deepest line of innovative solutions in the space. That includes connectors, fasteners, and anchors.
We develop the connector market. So these are highly engineered stamped steel products that connect wood. In that space, we believe we've got north of a 75% share. In the product line, you also notice that we talk about digital solutions. So we've got over 50 digital tools that our customers use to help them select, identify, specify, and in some cases, run their business.
Those digital solutions just make the business model associated with our hardware even more sticky. When you look at the market segments that we serve with those product lines, the residential business is our biggest segment. So it's typical single-family, multifamily. We do believe roughly 50% of the total company business is linked to U.S. housing starts. In that same space is component manufacturing.
So this is selling to truss yards, so also very closely linked to housing starts. We do have a repair and renovation business, so national retail business is selling to the typical big box retailers and also some of the co-ops. We have a small commercial business, and then we also have a small business that serves the OEM segment. So think things that are built in a factory, think tiny homes, think sheds, think things that need wood-to-steel type connections. Trailers would be another example. Fastening racking systems in industrial business would be another example in that space.
So I think the thing that makes us pretty unique is really our business model. So we take that very broad and very deep innovative product line of structural solutions to building code officials, and we are active with building code officials at all different levels. We talk with them about how to instill codes that help these structures withstand hurricanes, withstand seismic events. We also provide continuing education training to the building code officials. We've really grown up with them in the industry. Okay. Then we take the building codes that we work with the officials to develop.
We take that to the engineers and the architects, and we take that, again, big broad product line, and we talk with the engineers and architects about how to use our solutions to help them meet the codes and how to use our solutions to help them build these big, beautiful houses with big openings, big indoor-outdoor living, tall ceilings in areas where, again, maybe they have high loads from seismic or wind events. Okay. We believe that creates a lot of demand for our products, and that results in our products being specified all over the place. I would say anytime you're looking at a residential print, you're going to see a lot of Simpson content on those areas.
Okay, and then we, on the opposite side, we work with the builders. So we have relationships with 26 out of the top 30 builders, approximately relationships and agreements with roughly 250 builders, where these agreements result in them telling the supply chain they are only going to buy Simpson connectors. So what that does is that pulls through the specifications and the demand that we create with the building code officials and engineers.
It pulls it through to the builders. And then we go to the lumber yards, the contractor distributors, and the dealers in between and say, "Hey, we're creating demand via codes. We're creating demand via specifications. We're pulling that demand through because these guys are all going to be buying our connectors. You can make good money on our connectors, fasteners, and anchors. We'll provide training and support.
And by the way, you don't have to carry that big, huge product line because if you place an order today, we're going to ship that afternoon. You're going to get it the next day." And we're doing same-day shipment, roughly 75% of our product. Okay. As a result of that, how have we developed the business?
Yeah. So we've made good progress in what's been a flat market for what's going to be likely the fourth year in a row this year and maybe even slightly down, depending on where we net out, depending on who you listen to. But in 2020, we were about $1.25 billion in revenue as a company and had about $250 million of operating income. Really three big drivers of kind of where we ended up getting to where we ended last year at a little over $2.2 billion.
We took about $450 million of net pricing, really driven by the price of steel that was going up significantly during that time period. We acquired a business in Europe called ETANCO. We had a legacy Simpson business that was about $150 million. We essentially tripled the size of the business with the Etanco acquisition. And then we grew share.
You may have seen some charts before in investor deck to talk about our performance versus the market, which we view our volume development versus U.S. housing starts. Last 10-year average, we've averaged about 3% a year ahead of U.S. housing starts. That results in pretty significant share gains that got us to revenue of $2.2 billion, all the while housing starts roughly flat.
Next slide. And so kind of what were some of the big outcomes of that? $1 billion more revenue. We believe our market share positions even further strengthened. One of the big drivers of that is we transitioned more to a market-focused sales, go-to-market rather than product-focused. So kind of leveraging our relationships with the large business connectors to get additional traction on fasteners and anchors with our customers. That was a pretty significant success.
And then really have done a lot of things internally to really try to amp up the talent level, succession planning as we've had significant growth. So really a pretty good story over the last four years. Okay. Kurt. Perfect. Over to you, buddy.
All right. Let's start with the market. We got the starts numbers yesterday. We've seen some suppliers into production builders really ratchet down back half expectations over the last month, some coming out of Q2. I guess, what have you seen and heard from your production builder customers as we've worked through Q3?
Yeah. So if you would ask most of the people that we're talking to about how they see the market developing, if housing starts were actually up or down year- to- date, they'd all say, "Oh, down and way down." The reality is housing starts are up, according to the consensus data, a little bit over 1% over prior year. We do think that is kind of disconnected from what we're hearing from our customer base and what we're hearing from our peers.
I would say we're not as negative as some of our peers have said. We've heard numbers the second half down as much as double-digit for the next five, six months. We don't think it's that bad. We definitely believe that housing starts are going to finish the year negative. And we are seeing that in our volume development the last couple of months. It has been a little soft, but again, not that double-digit number that we're hearing from some of our peers, but definitely disconnect between 1.5% up versus what we're seeing across the industry.
Yeah. And some of those markets that were big leaders through COVID, Texas, Florida, parts of the Southeast seem to be kind of the weakest now. For you guys, the geographic location of a start is really impactful in terms of how much Simpson content is going into that. So maybe you could just start with kind of rule of thumb or general overview of content per home by region, and then maybe some of the impacts you're seeing related to that geographic softness in the Southeast.
Yeah. Yeah. So I mean, again, fragmented, complicated end market. So there's a lot of variation in how our products are used. We go through lumber yards and contractor distributors and pro dealers. So we don't get great visibility at the end. But in general, when you look at a house that's in a high load area, so seismic, California, high winds, think Southeast hurricane areas, we'll have probably 10x the normal content we would have in a house in the middle of the U.S. So to be super clear, a couple thousand square feet house in Florida, California, anywhere from $2,000-$3,000 with the content on it. Again, a lot of variabilities. A 2,000 sq ft house in Michigan, Ohio, Chicago area, probably $2,000-$300.
So when you look at the housing starts data for the last year, plus or minus, I mean, we've seen significant growth in housing starts in the Midwest and Northeast, where we tend to have less content on houses, and in the South and West, where we have a lot of content on it. We've seen that go down double-digit, 10%, I think, in the South and 15%, I think, in the West. But significant discrepancy, that is creating a bit of a growth headwind for us because ideally, we like to see those houses with a lot of content growing faster than the other ones. But it's something that we believe is a short-term disruption that'll get fixed in the mid to long term.
Okay. And another theme has sort of been value engineering by the builders try to kind of help alleviate some of those affordability constraints. I mean, connectors, fasteners, things that are really important to the structural integrity of the home don't seem like an area where you're going to skimp out. But has that impacted you, or what are you seeing with that?
Yeah. I mean, we're very cognizant of the affordability challenge, right? But the reality is there are codes and there are specifications, and we are all over that. And you need our solutions to maintain the structural integrity of the building. Still very well said, Kurt. That being said, we do help our builder customers work through supply.
I mean, work through some of the cost challenges. We do do value engineering where our teams will work with their teams to try to figure out how can we maybe help them just build a faster house or maybe take a little bit of content out or maybe have different products that have faster installation speeds. But we've got some other technologies where we can help them automate some of the process of building wall.
We've got some technologies that can help them develop a more accurate bill of material resulting in less waste. So there are things that we're doing to address the affordability story. But I mean, you need the metal in the house to meet the codes and the specifications.
Right. And I mean, you just kind of alluded to some of the digital solutions part of the portfolio. Maybe you can talk about some of the specific offerings that are most impactful and then also discuss the monetization aspect of that versus maybe just defensibility and making sure you're maintaining kind of the dominant share that you already have.
Yeah. Yeah, sure. So we have probably 50 different digital tools that we use across the company. Simpson side would be helping customers select the right product for whatever the application is, maybe designing a custom product that they need for a certain connection, all the way to the other end of tools we're using with lumber yards to help them do takeoffs more efficiently and more effectively.
So I mean, typically, if you are a small and medium-sized builder, you take a plan into a lumber yard. You say, "Can you quote this for me?" It takes them some time. It takes that salesperson off the floor who's doing that quote. We have digital tools where you can load those in pretty much instantaneously or pretty quickly get a takeoff that is more accurate, which saves on waste and keeps that salesperson focused on selling on the floor.
We are leveraging that software to some customers today. I think longer term, we believe that there's value there for the lumber yard and for Simpson such that the cost, the benefit is greater than the cost for the lumber yard, and we're able to monetize that. So that's in the midterm plan for sure. We also offer services. So we have a pretty sizable team in Vietnam that Simpson employs where we can do takeoff services for people.
So if they aren't, maybe they aren't ready for a digital tool, but they don't have the time to do it, we offer takeoff services. And that's certainly a piece of our revenue going forward. I think we have a pretty good opportunity to monetize it over time, but we're very early innings on that today. But in general, I think the industry on the whole has a need and an opportunity to bring some digital tools that drive productivity.
It's interesting. You've got certain pro dealers who have invested really heavily, brought some of those digital tools to market. You've got third-party suppliers. How do we think about Simpson fitting in within that ecosystem? And maybe the importance of someone like you for smaller lumber yards who don't necessarily have the resources or capabilities to create something of their own to compete with some of these bigger players.
Yeah. Sure. I think there certainly are other players that have gotten into the space, but I think there's plenty of room for multiple players. If you look at residential construction on the whole, the adoption of digital tools and technology is pretty far behind some other industries, even if you look at commercial construction.
So I think there's room for multiple players. I think there's, like you said, examples where smaller lumber yards, medium-sized lumber yards, these tools make great sense versus hiring a person and kind of having them focused only on takeoffs. There are some of our customers have their own tools, and they're great customers, and we help support them, and we compare notes on tools at times. But there's also other customers that may not want to use a competitor's tool.
And so I think Simpson's role in that being a little bit more agnostic from that standpoint. And then just our expertise on the structural side, it's easy for us to take what we know about the structure and what's required from a hardware standpoint and add in other things that we can add into the takeoff, whether it be sticks or windows or doors, whatever the case might be. That's relatively easy for us to add into our tools that can be of value for the lumber yards.
And there are thousands of lumber yards, right? So if you are a startup, because there's really nobody of critical mass in this space, and you're going to go to thousands of lumber yards and try to teach people that have been doing it one way for a long time that are not necessarily tech-savvy, that is a big ask. So the question for us is, how can we leverage our relationships with all of these lumber yards?
How can we leverage our team that's calling on them and then partner with some business development people that we've developed that know how to sell services, that know how to sell software, that can do this efficiently? That's the piece that we really need to work through to unlock the opportunity.
Got it. Okay. And maybe we'll switch gears to pricing. Obviously, an important component of kind of the growth over the last couple of years, especially during COVID, you implemented kind of an 8% weighted average increase in June. Some additional tariffs have kind of been implemented since you first announced that. So maybe just update us. Where are we in terms of what you've announced to the market? How do you think about realization?
Yeah, sure. As you said, we announced a price increase in early April. It was effective early June. Weighted average, it was 8%. It affected all or included all of our SKUs in North America for the most part. Tariffs were announced prior to that. So a big portion of that was related to imported items, which for us is anchors and fasteners, which come from China and Taiwan.
After that price increase went into effect, there was an additional tariff announced on imported steel derivatives, which again impacts those anchors and fasteners. So we actually announced a second price increase on imported fasteners and anchors mid-August, effective mid-October. So we'll see a little bit of that in Q4 when that kicks in. But tariffs, it's a meaningful item for us, right?
We're not in a position where it's as impactful as maybe some of our competitors or others in our space, but it's a meaningful number for us because of our fastener and anchor business that we import and that we manufacture ourselves, anchor bolts in China. So I'd say from a realization standpoint, Simpson has a pretty good track record of when we take a price increase, we stick to our guns.
We don't do one-off negotiations and deals. That's a pretty slippery slope. And we believe that our products are high-quality products, heavily engineered. The value equation that we bring for our customers, we can earn a little premium for that. And we need to be able to maintain the level of service that we want to provide for our customers. To do that, from time to time, we've got to take a price increase. It had been roughly three years since we took a price increase prior to that.
Right, and it's interesting, historically, from a market position standpoint, from the stickiness of the product with the customers and everything, Simpson has been perceived as a company with very strong pricing power. But it's been sporadic, right, and mostly centered around addressing persistent steel inflation in the past. Going forward, let's put the tough demand environment at the moment aside. Has the pricing philosophy or approach there, do you expect that might change going forward, or how do you think about pricing as kind of a lever of opportunity in the future?
I'd say, I mean, what we are committed to is maintaining our gross margins, right? Whereas I think before we would take big chunks of pricing when steel changed, then the gross margin rode a little bit, and then steel price might change. We might go back to the pricing well. We are very aware of the affordability challenges. I think we're helping our customers, as Mike mentioned, some of the value engineering, find other ways to take cost out.
We're engaged in a couple of different venture-type arrangements where we're working with firms on how to make the construction of homes more efficient, quicker to help kind of offset some of that cost pressure. Certainly, us taking pricing in a challenging macro environment, it's difficult. It's probably more difficult than when the housing market is really humming.
So I think we're committed to maintaining our gross margin. I think we got to see kind of where the market goes a little bit. But certainly, we want to maintain the high level of service and product innovation that we're known for. And part of that is making sure we're maintaining our margins.
Right. Okay. And the pricing discussion kind of culminates in the ambition to maintain an operating margin of at least 20%. Got a lot going on this year: tariffs, timing of pricing, Gallatin sale. I mean, if you were to step back, what needs to happen to kind of sustainably get back to that 20% level? I mean, beyond volume, are there any other big drivers we should be thinking about?
We have an absolutely fantastic brand. We've got a really, really strong business model that needs to translate into good profitability. Okay? We define good profitability in this market at a 20% range. We're not where we want to be. We've got a couple of one-timers that are helping us. We've got a couple of one-timers that are also presenting some headwind. We need to work through that and we are locked and loaded on trying to get back to 20% in 2026, even if the market is not going to provide a lot of headwind for us. We do think.
Not a lot of tailwind.
Tailwind, sorry. We do believe that as things eventually start to pick up, there will be some leverage on the SG&A. But right now, we are locked and loaded on making sure we get to a 20% operating income.
Getting back there or potentially even getting there this year, right? I mean, 20% is still within the band of guidance for 2025. It's in a tough demand environment, right? I mean, I think we all hope it's sort of trough-like. How do we think about the upside there as we envision a scenario of getting back to mid-cycle type demand, leveraging some of the investments that you've made? What's kind of the bull case scenario as you look out the next couple of years?
Yeah. I mean, I think the bull case scenario is, and I hear this from a lot of builders, when the affordability story finally kind of gets figured out and customer confidence improves significantly and things start to unlock, I think in general, everybody in the industry feels like we're going to get several years of 3%, 4%, 5% market growth, and when we look at it internally, we've had a long history of driving growth.
If you look at the last 10 years, roughly volume growth up roughly 300 basis points above housing starts, revenue growth certainly above that. We believe that we've got things in front of us that can help us continue that path. Now, not every year is going to be up. It's not a straight line up.
Sometimes you're running into headwinds like we're seeing now with the mix and where the housing starts are going. But we do believe when we look at our algorithm and how it's going forward, eventually we're going to get to a part where the housing shortage really starts to kick in and drive growth. We believe we can continue to outperform the market the way we have. And then we believe once we get into that scenario, we'll have opportunities to translate that potentially into higher margins.
I think in the meantime, we've been in a pretty intensive CapEx cycle with the footprint expansions that we've had going. I think that those wind down this year, and more of our CapEx focus, albeit a lower absolute number, is going to be focused on productivity and things that help drive more bottom line versus some of the capacity stuff that we've been doing.
Got it. And Mike, you, in an earlier comment, alluded to the business model. And one sort of under the radar but important tweak over the last couple of years has been the Path to Market initiative, self-distribution. I mean, that's very difficult to do, right? I mean, a lot of very powerful brands are still very reliant on two-step distribution. So talk about why you made that decision and what are the opportunities there as you kind of move past some of those distribution and warehouse investments over the next couple of years?
So it was really a legacy story. When we first started, I mean, decades ago, we relied on two-step distribution just to help us with shipment to a very diverse, fragmented customer base. Over time, we realized that we want a technical sales team that is thinking service, service, service all the time that can also sell the complete broad product line.
So we had scenarios where two-steppers were selling connectors. And to be quite honest, kind of easy to sell a connector. I don't say that always in front of my sales team, and now I'm on tape saying it, so I'm sure they'll love that. But we need help selling the complete broad product line. And we didn't always get that from our two-steppers. So we started in Texas, and eventually, over time, we realized that's a better business model for us.
Although our two-steppers are very good partners and we still have some various business relationships with them, for the most part, we go direct to the lumber yards. What we see when we do that is we have built better relationships with those lumber yards. We train them more in our products. Training them in our products, let's make sure that we're carrying the right products on the shelf in the right assortment at the right inventory levels.
Let's cross-sell all of our products. Not just the relatively easy-to-sell connectors, let's sell the complete product line. Let's work with them on point-of-sale displays. I mean, just a hundred things that we can do to help that end lumber yard, pro-dealer, contractor, distributor that our two-steppers weren't always willing to do. Typically, this is gross margin neutral.
So obviously, the margin associated with the two-stepper we take, but then we invest back into the business, more warehouses, more inside salespeople, some more salespeople. So net-net, it ends up being margin neutral, but we do see that that has historically grown our sales channel. And then on top of that, about three years ago, we switched from a product-focused sales team to a market-focused sales team.
So similar kind of scenario, our connector salespeople are going into lumber yard, but not always selling the other products because they didn't know them as well. So we wanted them to represent the complete product line. So now we've got teams aligned with those five market segments that we show that sell the complete product line. The challenge there is making sure that the salespeople that are used to selling one product line without being at the others, we train them up, give them the support and everything they need to feel comfortable selling that full bag of structural solutions we have to those different markets.
One of those kind of five key markets is component manufacturers. It's somewhat the inverse of the connector side in terms of market share versus your standard competitors. I guess maybe in the last couple of years, we've seen some nice wins there and conversions. I guess what kind of additional improvements or what do you need to do from an execution standpoint to really have the right to win there and kind of aggressively capture that market share opportunity going forward?
Yeah, we've been growing market share in that segment. It's been probably our fastest-growing market segment over the last few years. We're a small share player in that pretty large market, so it's a big opportunity for us. We've been focused pretty heavily on our internal software development, which will get us to the place where we have the tools that are needed to go pick up some of the larger customers in that space where our tools maybe don't quite meet their needs.
Today, our tools are very effective for the small and medium-sized truss yards. We have one top-10 truss manufacturer that has been a Simpson customer for several years, and that has gone very well, and I think they recognize what we bring, and we certainly appreciate their input into our tools as we're continuing to develop. So we're focused on getting that software kind of to the finish line. I think we're closer than we've ever been. It's really a latter half of 2026 story when we feel like we're ready to kind of go after some more of the bigger business there because our tools will be ready.
Yeah. And we've made significant investments in that space. And so we've always had people that know the engineering, that know the truss market inside and out, that understand the connector components. We always had that hardcore engineering piece to it, but the piece that we've really added to is enterprise-wide software. And how do we put all this onto the cloud? And how do we develop the software more professionally with better tools? And how do we improve the overall product line management of that space? And that starts with the CTO that we brought in about a year and a half ago that had experience doing this with Carrier. He developed software solutions that they were able to monetize, but also sold hardware. So we're leveraging some of that experience, and we've got several new people on the team.
So now we've got a really good mix of legacy Simpson people that understand the technical parts of the truss space, but also people that know how to develop enterprise-wide software.
You still have a very good competitor there. I guess when you go into a component manufacturer and you make the pitch, what are the key differences or reasons why or part of the value proposition that you think is really going to resonate to drive that?
We have a service mentality and culture like no other, and our main competitor in this space, two or three years ago, when there was some supply chain chaos, running a little bit short of raw materials, did some things in the market that customers still remember. I mean, we are locked and loaded on service. We will do everything we can to take great care of our customers, and we see that in an equivalent of a Net Promoter Score that we do with our customers. We do that every year. We're north of 80, and if you know the NPS methodology, north of 80 is pretty darn good. I mean, Matt and I and our senior leadership team are always out in front of our customers. We're always getting good feedback.
I mean, we have a culture of taking great care of our customers, and they recognize that, and they want another player in that field to be able to help them out.
Got it. That makes sense. And we've seen some big consolidation moves in the dealer or kind of pro-retailer space. Early kind of feedback or observations in terms of maybe how that's impacted your relationships with some of those customers or any kind of opportunities or risks that you're thinking looking further out as presumably that trend continues?
Yeah, I think we have great relationships with our customers. A lot of them have been part of this consolidation as they've grown by acquiring smaller lumber yards and pro-dealers as it might be, or even in the case of builders, in some cases, bigger builders acquiring smaller builders. I mean, there's pros and cons, right? I think we have a great relationship. They know what we stand for, and oftentimes, if they acquire someone who is maybe stocking competitive product, they're pretty quick to move to a Simpson product. I think on the con side, certainly as some of these folks get bigger, it gives more negotiating power and some of the ways that we interact with them, so there's a good balance there.
But we referenced it in most of our earnings call that we think it's maybe a slight headwind just from a customer mix standpoint as you think about net pricing and things like that. But overall, I don't think it's something you're going to see on a quarter-to-quarter basis. I think it's just a very small sort of trajectory that's going. And we're not going to be able to stop it or change it, but I think embrace it and continue to have strong relationships with them.
Yeah. Historically, we've been very much a branch-driven organization, so very local, strong local general managers because the building and construction industry is local. One of the things that we realize is the bigger pro-dealers get bigger, and the bigger builders keep getting bigger, and everything's running in a national area. We've invested quite a bit in a national accounts team, and that national accounts team does a fantastic job, so here, we're working and interacting with the most senior people at those pro-dealers and the builders, and then at the same time, we've got our branches taking very good care of them on a local level.
Yeah. And I mean, simplistically, if you want to penetrate the pros and you don't have Simpson's strong tie, you're kind of doing yourself a little bit of a disservice.
I'm sure you're in one of those sales jobs.
Yeah.
That's right. Kurt, can you be great on the industry accounts team?
Above market growth, right? I mean, you have the slide that shows the 10-year performance, 300 basis points on average per year, the last three years, 700 basis points on average. Maybe what was different in the last three years? Is there anything about the current environment that makes that type of performance just much more difficult to attain, and what over the next three or five years is kind of an attainable goal for you guys?
So Simpson's had a long story of really, really strong growth. But it's not always been a straight line up. And if you look at the last four years, three, four years, there have been some big things that have really kind of goosed that number, which is showing that 600-700 basis point above market performance. And we've talked about most of this, the shift away from two-steppers, a shift from a product-based team. Alarm light's going on. The shift from a product-based sales team to a market-based.
That's bad timing. Wow. We'll go until the alarm goes off.
Okay. So there's been some drivers that have really goosed those numbers. And that story has played out a little bit. And we've also clearly benefited from strong housing starts in the Southeast. That's been a deal. So now, as we look forward, that's slowed down a little bit. But as I said early on, we believe in our current markets, in our current products, we got plenty of room to drive that above market growth.
We have not set specific targets on it externally, but I can tell you, me and the rest of the management team, that 300 basis points that we've grown historically, we want to continue to be at or above that going forward. And again, not always going to be a straight line up. And we need to power through that, but we're confident we can do it.
Okay. Any questions from the audience?
How did your competitors respond when you raised prices?
Yeah, I'd say generally they followed. I mean, the amounts might be slightly different here or there, and especially on fasteners and anchors. Not all of our competitive set has the exact same manufacturing footprint. Some are exclusively imported. Some are like us with a mix of imported and domestically produced. Some have a little bit more domestically produced than we do, but generally, I would say have followed.
Talk about the tariff approach, though, because I think that was pretty smart.
Yeah. I mean, the tariffs were announced, I think, first in February. We took a little bit more of a wait-and-see approach on tariff pricing. I think that allowed some things to settle in the market and some people to learn how customers are going to approach that. We passed through the price increase that we announced in April, in June, kind of all items with a price increase, a little bit more of a kind of cost increase we've seen, kind of incremental prices on imported items.
We chose not to pass through dollar-for-dollar our tariff impact. So we didn't fully pass it through because of that manufacturing footprint difference. We want to make sure we maintained a good spot in the market competitively and then had to take an additional price increase on tariffs here that we mentioned in August. But I think in general, our fastener and anchor competitors are largely in the same boat. They might have slightly different amounts, but for the most part, everybody's in the same boat.
What are the digital tools?
So digital tools today, we are monetizing a little bit, but not a material amount. I do believe that very much contributes to the fact that we sold fasteners, stamped steel, and screws for 50% gross margin. I mean, you got to do a lot of things to be able to do that, and digital tools is clearly a part of it. I think the bigger question, as we talked about, is there the ability to further monetize that by helping drive productivity in the industry? And we think so. We've got a lot to do still to make that happen, but we think so.
All right. Let's finish up on capital allocation. Matt, you kind of alluded to capital spending levels being elevated the last couple of years. I mean, are we kind of at the end of that investment cycle? Any other kind of larger opportunities that we should be aware of from an organic investment perspective going forward?
Yeah, we're going to continue to support the organic growth of business, product innovation, R&D, but in terms of large footprint expansion, we're kind of at the end of that cycle by the end of this year. So Columbus, Ohio, grand opening was in May. Gallatin, kind of right down the road from where we are today, kind of in process of moving into a new facility. That CapEx is largely going to wrap up by the end of the year. I think 2026 looks more like a normal kind of CapEx, excluding these footprint expansions, which is probably in the $75 million range.
Okay. And still a little bit of debt, but generally, the balance sheet is in a really good spot. Once we kind of see those capital spending levels moderate, how do you think about capital returns to shareholders, kind of that 35% of free cash flow versus the M&A opportunities that may or may not be out there?
Yeah, sure. Definitely focus on continuing to return capital to shareholders. I think that 35% of free cash flow, the free cash flow number has been depressed a little bit because of the CapEx spending. So in terms of absolute, more dollars will come back based on just the same 35% target because that free cash flow is going to go up because of the CapEx slowing down.
In terms of M&A, there's really not a lot of significant M&A opportunities in our space. Continue to see maybe some small tuck-ins here or there, products where there's IP that we want to own or we can't work around or things that would improve our speed to market on a particular product, but nothing really significant on the M&A front to talk about at this time.
Zero appetite to go into adjacent spaces. I mean, we, again, believe in our markets, in our products. Plenty of ideas to grow. At this point, we do not see any need to do any acquisition in adjacent space.
What about in Europe?
In Europe? Yeah. Nothing in Europe. I just leave it at that.
Last one, just because you mentioned some of the tuck-ins, EasyFrame is one of those. We saw 84 Lumber come out with their new pre-cut and labeled kind of framing offering. Maybe just talk about that as an example for some of these tuck-ins and how it strengthens your relationships or allows you to do more with the existing customer side.
Yeah. So this is a great example of us using software services and other tools to help our customers get better. So the ideal scenario is a customer creates a bill of materials. I mean, the builder goes to a pro-dealer, and now I'm just going to keep it very generic before we talk about 84. But the builder goes in and says, "Hey, I've got a house. I want you to," quote, basically create a takeoff or a bill of materials. Matt kind of talked a little bit about that. We've got digital tools, and we've got services that can help do that. Ideally, then that translates into a cut package that goes through this automated saw we have. So you've got a picture of this room. You've got designs for each one of these rooms. We can send that to the saw.
It'll cut the wood specific to that package. It'll bundle it up. It'll print directions on it. And it could either be assembled right there if our pro-dealer wants to do the wall assembly there, or it could be shipped to the job site. Numbers we hear when it's shipped to the job site and people are familiar with how it works, kind of pre-cut and saving some waste as well, it could be up to a 20% savings of time and cost. And so some of our customers are looking at that as how do they use that technology to deliver value-added services. So the whole vertical concept is they want to be able to deliver wall panels and/or cut packages. And our technology facilitates that process.
All right. Awesome. Well, Mike, Matt, really appreciate you guys being here. Thank you for the time.
Thank you.
All right. Thanks.
All right. Thanks.