JELD-WEN Holding, Inc.

in investor relations. Please go ahead, sir.

Thank you, and good morning. We issued our third quarter 2024 earnings release last night and posted a slide presentation to the investor relations portion of our website, which can be found at investors.jeldwin.com. We will be referencing this presentation during our call. Today, I'm joined by Bill Christensen, Chief Executive Officer, and Samantha Stoddard, Chief Financial Officer. Before I turn it over to Bill, I would like to remind everyone that during this call, we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q filed with the SEC. GELDWIN does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results. Additionally, during today's call, we will discuss non-GAAP measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their most directly comparable financial measures calculated under GAAP can be found in our earnings release and in the appendix of our earnings presentation. With that, I would like to now turn the call over to Bill.

Thank you, James, and thank you to everyone joining the call today. As we continue our transformation journey, I want to start by recognizing the hard work and commitment of our team during these challenging times. We've made progress in several key areas, positioning ourselves to navigate the tough ongoing market conditions. That said, the softer demand environment did impact our results this quarter, which came in below our expectations. However, we remain confident in our ability to align our costs with the current market while laying the groundwork for future growth. Today, I will first provide an overview of the quarter. Samantha will then walk you through the quarterly performance before I return to discuss the actions we are taking to adapt to current market conditions and how we're thinking about the future. I'll begin with our third quarter highlights on slide four. Third quarter sales and EBITDA came in below our expectations largely due to continued challenges from softer volume and mix across both North America and Europe. While the positive impact of our ongoing productivity projects helped mitigate some of these pressures, they were not enough to fully offset the headwinds we experienced. However, we remain encouraged by the progress of these initiatives, which continue to position us for stronger performance as market conditions stabilize. Despite our team's hard work, we encountered several challenges during the quarter. First, while our volume remained in line with the overall market, the mix was impacted in North America more than anticipated. Consumers continue to trade down and delay large-scale remodeling projects that typically involve windows and doors. Additionally, although housing starts have remained resilient the sharp decline in multifamily and higher-end home construction has significantly affected our VPI and La Cantina businesses, which thrive in these markets. Second, we faced quality and delivery challenges across several of our manufacturing units. These issues prevented us from capitalizing on select growth pockets and is an area of continued focus as we know it directly impacts our financial performance. Additionally, we lost the stock business of a Midwest retailer who opted to source windows from China despite our longstanding partnership. This decision represents a near-term challenge, but it has also sparked a renewed focus on customer acquisition to offset this impact. Finally, We've reached a volume inflection point at several facilities where demand is now below the capacity of two shifts, resulting in increased overtime and lower than expected productivity running at one shift. We did, however, take actions to reduce full plant shifts in markets with decreased demand in the third quarter. In response to these challenges, we accelerated several cost reduction initiatives to improve efficiency and adapt to current market conditions. First, we completed actions to right size our SG&A spending, fast tracking programs to reduce costs in response to the weaker product mix. Second, we are actively addressing the quality issues that limited our ability to capitalize on select market opportunities. In particular, we've made significant progress improving quality in our door skin production which has shown marked improvement over the last quarter. However, we recognize that more work is needed to ensure that we are meeting customer expectations and reducing waste across all of our businesses. Additionally, to address our growth initiatives, we established win rooms to organize and track new customer acquisition efforts, which are already showing positive results. Lastly, We continue to streamline our operations through footprint consolidation. During the quarter, we announced the closure of our Wadoe, Alabama and Log Store Denmark facility and initiated strategic moves to optimize UK production by transitioning more manufacturing into our highly efficient Penrith facility. These efforts will enhance our capacity and cost structure, ensuring we are well positioned for long-term profitability as the market improves. I'll now turn it over to Samantha to discuss the financial results in more detail.

Thanks, Bill. Now, looking at slide 6, our third quarter revenues were $935 million, down 13% from the prior year. This decrease was driven by a reduction in our core revenues due mostly to the expected market-driven volume declines in both North America and Europe, combined with a larger-than-expected mixed shift from higher-priced to lower-priced products in North America, as customers focus on affordability. Our adjusted EBITDA was $82 million in the third quarter, down $24 million year-over-year, leading to an adjusted EBITDA margin of 8.7%. During the third quarter, Free cash flow was a use of cash of $6 million, which included $44 million of capital investments. As a result of our lower EBITDA and use of cash to invest in our transformation, our net debt leverage ratio is at 3.1 times, which is above our target range. As you see on slide seven, our third quarter revenue decline was driven by lower volume mix of 13% with about 45% of the decline due to the mix shift from higher average selling price products into lower priced products. I'll provide additional comments about our North America and Europe market trends shortly. On slide eight, you can see that our third quarter adjusted EBITDA decreased by $24 million year over year. Despite significant volume mix and cost headwinds, we generated solid profit contributions from stable pricing and strong year-over-year productivity improvements. The cost pressures were higher than anticipated, primarily driven by labor and material inflation in glass and other commodities, and were the main contributors to negative price costs. Unfortunately, this price-cost dynamic is expected to continue throughout the remainder of the year. While our productivity gains were robust, they were slightly below our expectations due to inefficiencies from lower volumes. In addition to these productivity improvements, we also benefited from significantly lower SG&A costs, partially driven by the actions we took during the quarter. Importantly, we are exceeding our targeted cost savings for the year. We previously communicated our annual cost savings to be $100 million and now expect it to be approximately $115 million. Moving to our segment results on slide nine. In the third quarter, Our North America segment generated $678 million in revenue, which was a decline of 14% from prior year. This was driven by a reduction in core revenues of 14% due to lower volume mix. More of the decline was driven by mix rather than volume, as consumers currently prefer more affordable products. We also exited some high-priced products that had dilutive margins. North America's adjusted EBITDA decreased to $75 million from $100 million year over year. This decline was due to the lower volume mix I just referenced, as well as negative price cost in the quarter, only partially offset by improved productivity and lower SG&A. In Europe, we generated $257 million in revenue and $16 million in adjusted EBITDA in the third quarter. Core revenues decreased by 12% year over year, driven by lower volume mix of 12%, almost exclusively attributed to volume. Adjusted EBITDA declined by $8 million, leading to margins of 6.3%. The decremental impact from lower volumes and negative price cost was partially mitigated by solid productivity improvements. Now, turning to the market outlook on slide 10, We do not see much change to our market outlook for the year relative to the second quarter earnings call, although the market continues to trend toward the weaker end due to persistent macroeconomic headwinds. Despite the Fed lowering interest rates recently, we continue to see the North American market declining by low double digits as interest rates and especially mortgage rates remain elevated. Consumer confidence weakens and affordability remains an ongoing concern. We still that new single family home construction will be higher by low single digits, whereas the outlook for repair and remodel activity remains challenging as existing home sales remain at decade low levels. We expect repair and remodel activity to be down by mid to high single digits, trending towards the high single digit range. Furthermore, though our multifamily exposure is relatively small, the pace of market declines is very significant. We continue to expect the combined multifamily and Canadian market to be down more than 25% year over year. The European market remains under continued pressure and is also trending toward the weaker end of our guidance due to the ongoing macroeconomic and geopolitical challenges. Overall, we continue to anticipate volumes in the region to be down by low double digits. I'll now turn it back to Bill to talk about our transformational journey.

Thanks, Samantha. Despite the near-term headwinds, my three key focus areas continue to be people, performance, and strategy, with our current focus on people and performance. As you see on slide 12, we are driving a number of strategic initiatives around these pillars and we have increased our investments to improve our long-term performance. Our investment in culture centers on bringing our values to life with an initial focus on trust and transparency, as well as improving every day through numerous initiatives in place to balance growth and cost reduction. Through the third quarter, we completed a survey in part of our organization to monitor our progress. As a result of our leader alignment training, culture sprints, and the pulse survey tied to our company values, we have already observed statistically significant improvements across the board. By the end of the year, we will have launched further competency training and complete another cultural sprint and an additional full company cultural survey. As we've done before, I would also like to showcase a few more examples of our transformation in the next two slides. The first project I'd like to highlight on slide 13 is our focus on improving the special order process with our retail customers. In the past, when a customer needed to place a custom order, they would sit down with a store associate to review specifications using an outdated and cumbersome system. requiring numerous clicks and entries, which made it confusing and inefficient. This often led to store associates either calling us to manually input the order, leading to inefficiencies and errors, or switching to a competitor's product line that was easier to navigate, costing us valuable business. We have now upgraded the special order process, making it more user-friendly and offering enriched content to assist both professional builders and homeowners. These enhancements reduce friction and boost engagement with our products. Additionally, we're refreshing store displays and samples to give customers the chance to physically experience the product before purchasing. By the end of the first quarter next year, we expect to have over 300 stores updated with more to follow in the remainder of 2025. Our special order business is accretive and optimizing the customer journey will enhance both our sales and margins. The second project I'd like to highlight on page 14 is the transformation of our UK manufacturing operations. Our Penrith facility in Northern England is a standout location known for its high employee engagement and strong safety record. However, In the past, we were limited at this site due to historical customer contract restrictions on capacity. As we evaluated our footprint, we identified an opportunity to better utilize the Penrith facility through expansion. To achieve this, we renegotiated our long-term supply agreement, invested in additional capacity, and refocused our UK network to either manufacture door slabs or assemble door systems. As I've mentioned before, we have too many facilities producing too many of the same products. This is another example of how we are optimizing our footprint as part of our transformation. We expect to continue these efforts across both our North American and European operations. As we approach the end of the first full year in our transformation journey, we've implemented numerous changes that are driving value across the company. Referring to slide 15, you'll see the EBITDA improvements we anticipate for 2024. At the start of the year, we projected $50 million in carryover benefits from our 2023 initiatives and an additional $50 million from new actions taken in 2024. We also accelerated certain aspects of our transformation to achieve an additional $15 million in SG&A savings, bringing our total expected savings for the year to $115 million. This builds on the $100 million in savings we achieved in 2023. The market headwinds have also delayed some of our growth initiatives, and we have recalibrated our initiatives, pulling ahead select cost measures. However, there is still significant opportunity ahead. As we look forward, we'll stay focused on our core areas, accelerating our actions where we see the most potential without disrupting our business. We'll continue optimizing our network and automating processes to drive cost savings. We'll also be working closely with our customers to strengthen partnerships and outpace the market. I'd now like to discuss our 2024 guidance. As I mentioned at the beginning of the call, We have experienced a sharper than expected decline in the mix of our business when compared to our expectations. We do expect a mixed impact along with the loss of a large customer and ongoing quality issues to further affect our fourth quarter performance. As a result, we are revising our net revenue guidance for 2024 to a range of $3.7 billion to $3.75 billion. down from the previous estimate of $3.9 billion to $4.1 billion. This adjustment reflects a deeper core revenue decline now expected to be down 13% to 14% compared to our previous projection of down 5% to 9%. Consequently, we are also lowering our adjusted EBITDA guidance for the year to a range of $265 million to $280 million from the prior range of $340 million to $380 million. This reflects the impact of lower anticipated revenue with an estimated 30% decremental rate combined with lower base productivity and price cost that is expected to decline approximately 1% year over year. Despite these challenges, we continue to expect $115 million in cost savings this year, driven by roughly $50 million in carry-forward benefits from last year's initiatives, along with $65 million of new cost savings actions to be completed this year. On slide 18, you see our updated cash flow outlook for this year. Due to continued market softness, higher inventories and our lower guidance, we now anticipate that this year's operating cash flow will be approximately $125 million. This is after we incur an estimated $100 million of non-operating cash expenses to fund portions of our transformational journey to drive future earnings. With this update, we expect our cash flow deficit to be approximately $25 to $50 million for the full year 2024 after taking into account our commitment to continued capital investments. Turning to slide 19, we outline the year-over-year drivers behind our updated EBITDA guidance for 2024. Starting with last year's adjusted EBITDA of $380 million, we now anticipate a headwind of approximately $182 million from volume and mix split roughly evenly between the two. Additionally, we expect a $40 million headwind from price cost as costs have increased while pricing has remained relatively stable. Without the substantial actions we're taking in our transformation journey, These market-related pressures would likely have led us to guide toward a modest adjusted EBITDA of $158 million. However, as we've emphasized, our transformation is yielding results, driving approximately $115 million in cost savings this year and allowing us to set an EBITDA target of $273 million as our midpoint. These actions are helping us navigate a challenging market environment and positioning us for improvements when conditions normalize. Given the near term headwinds we are facing, we believe this is the right time to provide investors with initial guidance on the longer term financial benefits we expect our team to deliver. As shown on slide 20, We anticipate generating an additional $100 million in EBITDA from our transformation projects in 2025. This includes approximately $50 million from carryover benefits of projects completed in 2024, as well as further actions planned and sequenced for next year. We currently have more than 350 active projects. It's important to note that this benefit is independent of any potential market related improvements. While we currently expect the market to be slightly down in 2025, when the market does recover, we anticipate achieving incremental margins of approximately 25 to 30% from the additional volume. To continue driving these improvements in 2025, we expect CapEx to remain elevated with planned investments between $175 and $200 million. Additionally, we anticipate taking further footprint actions to right-size our network. To be clear, we expect 2025 to be another challenging year with a possibility of market improvements in the second half as interest rates decline and existing home sales likely increase. Therefore, we'll be optimistic to assume the full $100 million in improvements will flow through without some offsets. We know the $100 million improvement is not sufficient, and we are actively exploring additional opportunities to accelerate our transformation given the unprecedented sales decline. We will provide more detailed guidance for 2025 during our next call in February. Looking further ahead, we expect the annual $100 million in benefit to continue over the midterm based on the number of projects in our pipeline. We continue to focus on the significant self-help opportunities available to us. As demonstrated today and reflected in our financials, our transformation is delivering results. When the market rebounds, we will be well positioned to capitalize on improved conditions with a leaner, more efficient network. Let's turn to slide 21. Today is election day in the United States. Regardless of today's outcome, I do want to emphasize that we are well positioned for success no matter the result. One of the major topics during this election cycle has been tariffs, and some speculate that these tariffs could have a significant impact on our business. I want to clarify that we import only about 1% of our materials by cost from China, and most of these materials could easily be sourced from other regions without significant disruption to our operations. Looking back at 2024, It has undoubtedly been a challenging year for GELDWIN with significant headwinds. Despite these challenges, our team continues to make significant progress in our transformation, driving costs out of the business and positioning us for a solid future. I am confident that when we reflect on this period in the years to come, 2024 will be seen as a low point in both sales and margins, based on the volume mix decline experienced in the last 12 months. However, we are making the right decisions for the long term, and we are putting the right investments, systems, and people in place to achieve our goals. I remain optimistic about our future and am extremely proud of the team's hard work during this difficult period. I'm confident that our team will continue to execute effectively and I see many long-term opportunities for value creation ahead. Thank you for your continued interest. And with that, I'll now turn it over to James for the Q&A.

Thanks, Bill. Operator, we're now ready to begin Q&A.

At this time, if you'd like to ask a question, press star 1 on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star 1 again.

As we pull for our first question this morning, in anticipation of the following question, I'd like to take a moment to give a brief update on the Tawanda divestiture. At this time, we continue to work through both the court mandated divestiture process and related court proceedings. I will reiterate that we've taken every step the court has required of us, and it is our goal to reach a fair resolution to this process. To that end, we stand by our motion arguing that the divestiture of Tawanda is unwarranted, though we cannot guarantee our motion will be granted. As this remains an ongoing legal matter, I'm unable to provide further details in any of the Q&A today. Now, operator, do we have our first question ready?

Yes. Your first question comes from the line of John Lovallo with UBS.

Good morning, guys. Thanks for taking my questions. The first one here, hey, can you just give us a little bit more color on the quality issues that you talked about? I mean, have these been fully resolved at this point? And then were they one of the drivers of the loss of that Midwest customer? And then in terms of the Midwest customer, can you size it in terms of revenue and EBITDA?

Yeah, sure. So To answer your second question, it was not a result of quality issues, the loss of the Midwest customer, coming back to then where we are in quality. So this was focused in both doors and windows, specific areas. And as the market volume is tight and inventories are low, there are certain areas of opportunity. And we were not able to deliver on some of those given some plant issues that we have in different sites. So think about it like deferred maintenance topics and some of the capital improvements that we're making are catching up with the deferred maintenance that was required. So we're making progress. I gave an example on our door skins quality, which has been dramatically improved. But there's other areas, John, that we're still working through. And clearly, we have a pretty strong focus on getting the right process and the right equipment in a number of our sites to really better process high volume at the right quality for our customers. So that's part of the process that we're in to reinvigorate the asset base that we have. And we're paying the price in some of these areas because we just have an aged asset base And there's unplanned downtime, which has led to some of these quality issues. So if we think on the high level and kind of sizing the Midwest loss, I mean, Samantha can go on maybe to some more of the details, but we're talking 75 to 100 million roughly on a full year run rate.

Hi, John. Yeah, the quality issues did not impact the loss of that Midwest retailer at all. The 24 impact on sales is about 20 to 25 million approximately. Bill just talked about the full year impact. We're working very hard on mitigation plans, specifically targeting customers for the business that was lost by focusing on customer needs and then positioning ourselves to react quicker in any circumstance.

Understood. Thank you. The midpoint of the outlook seems to imply close to a 50% sequential decremental in the fourth quarter. You guys have talked about some of the challenges with capacity utilization and inequality issues and so forth, but when would you expect these decrementals to normalize?

It's a high level, John. We don't expect a significant change in the volume or mixed reality as we roll into the first part of next year. So we expect that we're going to continue on a low level, both in North America and in Europe. We've set up trigger points in our internal planning process to clearly define when do we reach I'd say a lower threshold on volume in sites where we need to shift either complete shifts out or we actually need to take more dramatic action like closing sites. And our expectation is that 25 will be a turning point from a volume standpoint. So I would expect that in the back half of 25, the leverage should improve as we start to see hopefully more tailwind on the volume. And we're also in parallel right-sizing our asset base for the future state and also investing and bringing some of the automation online that's in the pipeline has not yet been delivered, but will be delivered next year.

One other thing to note, you know, we do expect to be back in the 25 to 30% decremental margin in 2025. But just taking a look at Q4 and understanding kind of that year-over-year bridge, The volume mix is essentially about a 30% decremental. The factor is that we had quite significant other income in Q4 of 2023 in the neighborhood of $20 million. That did not repeat this year. So that's probably also adding to kind of that EBITDA bridge flow through you're seeing.

Great. Thank you, guys. All right. Thanks, John.

Your next question is from the line of Bill NG with Jefferies.

Hey, guys. Bill, curious, how did sales progress through the quarter and into October? And then from a mix standpoint, similar question, how does that progress through the year? And then, Sam, it's helpful that you gave color that fourth quarter. You got some noise with other income. Is there any nuance around margins being depressed because the channel has too much inventory in your curtailing production as well?

Okay, so Phil, you know, volume mix has continued to deteriorate. I say what we were anticipating is that the R&R market would be more stable as we looked into the end of the year, especially when we look at our doors business. And that actually hasn't materialized. And so R&R has continued to soften. And we, as you know, have a pretty big exposure there. And we're not expecting short-term improvements in that trajectory. So we're at that kind of high single-digit R&R deterioration. As we kind of look into where we're tracking in the month of October, we continue to be at that lower run rate. So no signals that things are going to change or improve dramatically, but nothing that would signal to us that it's going to get dramatically worse. And again, it's both volume and mix because we see continued discretionary spend pullbacks on any major door or window projects. The other thing that's important to just think through, even though it's a small share, our Canada and VPI business, which is our commercial windows business, it's a small part, but it's significant deterioration on a full year run rate. Think of it as 100 to 150 million. of top line headwind. And I think the last point, what's going to be relevant for your question is with the softness in R&R, I'd say inventories are stable for that softer environment. So we're not expecting any dramatic movements based on what we're seeing for a sell-in currently.

Okay, that's helpful. This is probably a very overly simplistic view, but if I take your back half of 2020 for implied guidance and whatever you deliver at 3Q and mirror that for next year, just take the back half run rate for this year, multiply that by two and maybe bake in a hundred million of costs out. Would that be like way off base? I know you're assuming perhaps some pickup in volumes in the back half 2025. And it'd be helpful to kind of help us think through the cadence three year outside of demand, maybe getting better in the back half, but how does the, the cost out savings and some of the headwinds you may have seen in the back half of 24 reverse. Does that 100 million incremental savings, is that more back half weighted, front half weighted, or pretty equally spread would be helpful?

You're talking 25, Phil, the 125?

So my first question is, can I take the back half 2024 EBITDA that you're guiding to and delivered and multiply that by two as a good framework for 25? and you got $100 million of incremental costs out coming through, right? Does that layer in pretty consistently through the year or even more heavy in the back half? Just kind of help us think through 2025 based on what you know today.

Got it. Okay, so I think that's a fair assumption. That's assuming that obviously the headwind that we currently have in the second half of the year and 4Q rolls forward for a full year. We're expecting... We're expecting neutral. We're expecting neutral to slightly down volumes in North America. We're definitely expecting down volumes in Europe. Our perception of Europe is close to, if not at the bottom. But you've got to think through that there's a longer gestation period to get our products built in to start. So we're kind of nine to 12 months away, even though starts may be turning in certain markets as rates come down. So we expect Europe in 25 to remain challenging. The upside that we see today currently is in the back half of 25 in North America. So we have growth initiatives going in that 100 million. Roughly 25% of that is attributed to growth initiatives, to tactical pricing, and 75% are cost-driven topics. So that's going to be the roll-through of the 100 million, and it's going to be evenly balanced throughout the year. As we've said, Phil, given today's reality on the top line, it's not enough for us. So we're looking at ways that we can accelerate opportunities to take costs out of the business, increase efficiency, but not disrupt the business. And I do see opportunities. And these are things that we're getting teed up. And I think just as a rule of thumb, your math high level works. with some potential upside from the market, the back half of the year. But we're controlling what we can't control. That means we're taking a hard look at our footprint, taking a hard look at cost initiatives, but also making sure that we have capacity positioned for a rebound, which has to occur. I mean, you know, the U.S. is underbuilt, and they need the units. And we think when rates start to settle... and the resale market starts to engage, that's going to start trickling through R and R. And then we get a broader take up of the new construction at medium and high end, which is really where we have the mix upside and where we've really suffered this year on the mixed downturn.

And sorry to sneak one in Bill, from a price cost standpoint on a full year basis, it's about 1%, but it got worse in the back half of 2024. So when we look at price costs for next year, Do you have initiatives in place from a pricing standpoint that it could be better than the back half run rate? Or how should we think about price cost for 25 at this point?

Yes, definitely. We need to tackle the cost headwind, Phil. Our aspiration and our modeling right now as we're thinking through it is price cost neutrality in 25. We've held price this year, but some of the costs have spun up. And we're going to need to countermeasure that next year. So that's going to be part of the transformation initiatives, but also making sure that we have the price-cost neutrality as we kind of look at a full year. So you should assume price-cost neutral in our model, which means we need to counteract the headwinds that we've seen come up in the third and fourth quarter.

Thank you. So just to give color, I mean, our goal is always to be price cost neutral or better. And although, yes, it has gotten worse in the second half, that was part of our outlook. And so that's tracking in line with what we expected. And going into next year, this is, you know, top of our minds as well.

Thank you. Appreciate that, guys. Thanks.

Your next question is from the line of Stephen Ramsey with Thompson Research.

Hi, good morning. Maybe to talk about capturing share and regaining the business that's lost through other customers. Can you talk about how this could play out realistically if this is something that, if successful, more likely to help first half the 25 or looking towards the second half?

Yeah, hey, thanks for the question, Stephen. So if you remember, if we look back and reflect on what we communicated in our Q1 earnings call, we said that there was tactical pruning that we were doing because there were certain projects that weren't meeting our expectations post-launch and there was other business that was not a good fit for us given the margin profile. And so that was about $100 million. That we signaled we'd be taking out. There's a small share loss as Samantha and I talked through with that Midwest customer. And so that's a couple hundred million up to a couple hundred million, which is pretty small in the grand scheme of things. But we've clearly said, okay, we need to tackle this in a very structured manner. So we've set up wind rooms. uh, which it may sound pretty simple, but what we're doing is we're bringing the organization together, both the windows organization and the doors organization to be able to make very quick decisions with the product teams, the operation teams, and of course the sales teams, uh, on opportunities in the market and being as agile as possible to react to some of the short term demand opportunities. We have a portfolio. We're running that portfolio with rigor through our transformation. process and we're staying very close to it and what we can't control the market volume, but we can't control our share. And that's what we're starting to pivot to making sure that we are focused and targeting a reload for some of the candidly windows business that we've communicated. We are going to be losing, but we see that as also an opportunity for us to get ourselves well positioned. So this is something that has a longer just station. So think about this as an H2 25 impact. By the time everything is set up and spec and ready to go, that's where we see some of the potential tailwind in our modeling as we look to 2025.

Okay, that's helpful. And then mix, you know, a headwind all of 2024. Do you think the mix is a positive driver in 2025 and if the first half has some benefit for easier comps or just with your second half improvement outlook, is it something that occurs later in the year? And then maybe one thing to get some color on here, that mixed benefit, is that discretionary spend rising or any other factors that could help mix in 2025?

Yeah, so I would say a safe assumption would be flat. there's been a general theme this year across all of the markets that we serve. It's either being completely pushed out from a project standpoint, or if transactions are happening, it's going to a lower price point. So clearly the mix down has been ongoing for a number of quarters. We don't expect that to change dramatically next year. Yes, we will have a better baseline given the comps, But what we need in order to drive a rich mix improvement is consumer confidence, specifically higher end consumers to dramatically improve and also project investors to have more conviction in cap rates and long term financing to start driving project related businesses again and or project related business. And when that happens, we'll automatically get a mix uptick, but we're not anticipating any of that next year because that's very hard to plan for. But when it does happen, there's going to be a significant upside for us based on the portfolio that we currently have.

Great. Thank you.

Thanks for the question, Steven.

Your next question is from the line of Susan McClary with Goldman Sachs.

Thank you. Good morning, everyone. My first question is thinking about the projects that you do have in the pipeline. You mentioned the ability to pull some of those ahead given what's going on in the business. What is your capacity to handle more projects? How are you aligning these teams to make sure that these things are going through and that you're continuing to stay on track with the

quality and the metrics you're looking for and how much more can you get in or how much more can you pull ahead given the deterioration in the underlying environment yes thanks for the question susan so we have uh completed more than 500 projects as of the end of 3q and those are obviously spread all across the organization in different areas and that's what's been driving the improvements that you can see in the cost structure we have just over 350 what we would call live projects that are actually in or close to execution. What we're doing now is we are resequencing those based on opportunities and challenges that we currently see. We had a robust package of growth initiatives which clearly we are having to recalibrate given the market headwind and the mix shifts down. One of the initiatives that I talked about in my prepared remarks was really driving retail improvement for Jeldwin. And that retail environment is in tough shape right now. So a lot of those projects and the refreshes in stores are getting pushed into the first half of next year. So that's We're seeing shifts on the growth side. We're accelerating cost initiatives. And one of the areas where we see a lot of opportunity is really dialing in on the right long-term footprint for our organization. And we're doing two things, and we've said this pretty consistently. We need fewer sites with better investment levels to drive a long-term operating efficiency and performance. So we finished... At the end of 2023, by reducing six sites, we'll take five sites off and additional shift reductions this year. That's coming off a baseline number of 90 sites at the end of 22, and we're at 79 today, which is still too many. And we're really focusing on how we can create the optimal future state. by investing in automation and process improvements, which will then drive a lot of the cost efficiencies that we see in the model. So we're working on positioning that as a key lever for next year, which would then be incremental benefit over and above the 100 million that we currently have line of sight on, which is kind of 50 rolling and 50 new. And our organization, you know, it's a challenging time. with the market headwind and with all of the challenges that we're facing, really trying to get ourselves focused on a lot of the improvements. We've been doing a great job of knocking these down, but clearly given the deterioration on the top line, it's not enough. And so we do have to amp things up as we look into 2025, and that's what we're working on. So there's a robust pipeline of projects We're going through and sequencing, but clearly the key levers for us are going to be footprint, automation, and efficiency across our network.

Okay, that's great, Collar. Thank you, Bill. And then can you talk a bit about channel inventories and how those are positioned today, your ability to kind of get those in line with where you'd like them to be heading into next year? And I guess as part of that, too, the loss of retail revenue, how much of that is the impact to volume versus mix? Is it skewed more one versus the other?

Yeah, so I would say the inventory is, we've been saying this for a while, it's low, but it's stable. It's kind of balanced to the pull in the channel, which is for our products, unfortunately, very thin. There's a lot of discretionary spend that goes into larger size patio doors, windows, et cetera. So it's fairly tight. but balanced given the market reality. And we don't think that's going to change dramatically as we roll into the first quarter, especially given the year end that most of our retail customers have that's in the new year. And then the volume mix, I'd say it's probably 50-50, roughly, that's driving. And what we need, Susan, is we need the resale market to get reinvigorated and that's going to create a pull through the retail channel for our products and others and we need consumer confidence to be better and we need interest rates to be lower in order in our view to drive that and that's that's going to be the unlock for us and right now We think that that will happen in 25, but later in 25, given, you know, the state of affairs and where rates are and where consumer sentiment is.

Yeah. Okay. Thank you for all the color, Bill, and good luck with everything. Thank you.

Thank you, Susan.

Your next question is from the line of Matthew Bowley with Barclays.

Good morning, everyone. Thank you for taking the questions. Good morning. Good morning. Yeah, I wanted to touch on that last point, actually. So reducing the revenue guide to core down 13 to 14 versus prior down 5 to 9. You're holding the end markets about the same. I know you said they're kind of drifting to the low end. So it seems like the delta really is just a very significant change in the mix portion of it. And I heard you just say it's kind of 50-50 volume mix. So I just really wanted to unpack that because that's a really significant move in MIX that I don't know if we've kind of seen to that degree with you guys historically. So I guess what are some of the specifics and, you know, is it the case that MIX really is a several hundred basis point headwind and kind of, you know, how do you think about that at least anniversarying and flattening out at some point in 2025? Thank you. Hi, Matt.

Yeah, the mix that we're seeing is really unprecedented. So this is not something that we've experienced in the past. And I think you saw that in Q3 in particular. In Q4, I would say it's a little more volume than mix, but Q3 was absolutely more mix than volume. So that's the roughly 50-50 Bill's talking about. When you kind of unpack the sales guidance revision, It's really looking at approximately 70 million, 40% is the softer R&R in North America. That's not just the retail channel. That does include some retail program pushouts, but it's across all the channels that we play in. Then you have the other portion being the lower sales mix. And that's the piece that we're seeing kind of in this unprecedented market. you know, existing home sales are at their lowest level that we've seen in over a decade. And we're unfortunately experiencing that mixed impact. Then you have the loss of the Midwest retail customer, which we talked about, let's call it 20, 25 million. Europe's continued market softness, another 20, 25 million. And then some of the multifamily headwinds essentially picking up another 15 million. And that really is the breakdown when you think about that sales revision in the guidance.

Okay, thank you for that, Samantha. Yeah, really helpful there. And then secondly, so the Midwest customer, you're saying that they're going with, I guess, imported windows, if I heard you correctly, something sourced internationally. And I'm just curious because I think the windows category is not typically something where we've at least historically seen a large presence of imports. So I'm wondering if that actually kind of goes with the prior question with, hey, if folks are mixing down, maybe lower priced imports makes more sense if this is just kind of a cyclical phenomenon, or if you're hearing of anything where maybe some of these imported window competitors are actually, for lack of a better term, kind of cracking the code and figuring out how to bring that in to the US. So I'm just curious, how do you think about that kind of competitive dynamic with imported windows? Thank you.

Yeah, sure, Matt. So I would say it's counterintuitive given the current environment that we're facing with tariffs, with supply chains, et cetera. We are not seeing a significant increase in import windows from Asia. So I would call this a unique choice to try something different. And I don't want to speak for our customers. We obviously are reacting to a decision and making sure that we can reload the capacity for people that are requiring windows to be made in North America. So this is not, in our view, a trend. It's rather a one-off. You know, candidly, we'll see how this plays out given the election today and some of the potential supply chain implications longer term based on tariffs, et cetera.

Got it. Well, thanks, Bill. Good luck, guys.

All right.

Thanks, Bill. Thanks. Your next question is from the line of Jeff Stevenson with Loop Capital.

Hey, this is Zach Pacheco on for Jeff today. Thanks for taking my question. Maybe just one more on the mix. Just curious how much of a factor you guys think the outside production builder growth we've seen this year is, or is it, again, just a general slowdown in the mid to high-end product?

Yeah, that's a major driver as the major production builders are building a lot of lower-end homes because those are the people that are looking to get into this market. Clearly, they're taking the lower-end product. And we've said, you know, that's a big mix down on our doors business. And we are underrepresented on windows in that sector. And therefore it's a hit for us. And it's a significant hit.

Makes sense. And then quickly on capital allocation in the last quarter, you guys bought back a bunch of opportunistically bought back shares to offset dilution. Given, is that more on the back burner now, given other strategic investments, or how are you guys thinking about that moving forward?

Yes, I would say definitely on the back burner. I think our leverage ratio is above three times. We have a lot of work to do to improve our EBITDA, which will then reset the ratio in the appropriate corridor. But right now we're investing in ourselves through a significant capital outlay, as we described today. And that's going to be the main focus as we go forward. We're never ruling anything out, but clearly that is not an area of focus short term.

Understood. Thanks.

All right. Thanks, Zach.

Your next question is from the line of Trevor Allison with Wolf Research.

Good morning. Thank you for taking my questions. First one, following up on the 2025 CapEx, you've talked about potentially seeing a volume rebound in North America in the back half of next year. If you don't see that volume rebound, would you expect to pull back on any of that 2025 CapEx spending to conserve some cash? Or in your mind, is that pretty locked in? And then I guess taking the other side of that, If volumes come back earlier, say the first half of next year, would you expect to pull forward some more projects, maybe some growth projects, and that CapEx number go up a little bit?

Yeah, so we have ample opportunity to improve our foundation, and there's still a lot of work that needs to be done. So I don't think we're going to pull back unless there's a very dramatic market adjustment. very long lead times on some of these capital projects that we have in place to the tune of 18 months. So a lot of it's in flight. We're also releasing additional capital. You know, if things get way better, that's a great problem to have. I don't necessarily know if our organization can handle much more than what we're doing today because we've effectively doubled our outlay on CapEx and we're still getting used to that higher cadence. So I would suggest that's probably unlikely. But we do expect to continue at this rate, just given the opportunity that we see, especially, you know, footprint, that takes some capital to really get it into the right position.

Okay, I got you. That makes sense. And then VPI and multifamily talked about being down 25% plus for the year. Clearly, multifamily starts have been soft for a while now here. So can you just remind us, the lag between a multifamily start and when that impacts your revenue. And then if you think that for your business specifically, you're kind of nearing a bottom for that end market, if there's a little bit further to go here before you get there.

Thanks. Right. So, you know, permitting, permitting multifamily projects is a very arduous process. So let's take that out of the equation and just assume that the starts going up today, you should expect our product anywhere in the, in the range of six to nine months. because we're putting windows into the structure, and they want to button that up so they can finish out the interior. But of course, we need the permitting to kick back on, and that has a lag. So from a start, meaning there's concrete being poured, it's six to nine months. But to get to that start, there's a longer period of time depending on where you are. We have made investments, and this is one of our growth initiatives, is to hire additional salespeople and bear the cost, but to start building a more robust portfolio of projects in the markets that we don't serve with customers from other regions that are building in white spots for us. So we are building a nice portfolio of projects, and we expect we're going to start harvesting those as we look into the back half of next year. but it's a moderate uptake, especially on multifamily, just because we haven't seen a turn yet.

Okay.

Got you.

Appreciate the color. Good luck moving forward. Thank you.

Thank you. Your next question is from the line of Mike Dahl with RBC Capital Markets.

Hi. Thanks for taking my questions. I just want to go back to the mixed dynamics for a minute. I heard you say that when you look at the revision, 70% of the volume revision is kind of retail and R&R, and the other is lower mix. I know you kind of addressed the production builder dynamic, but maybe I missed it. Can you just specify kind of when you look at this year, how much of a headwind would you peg from just smaller footage of homes and new construction, meaning fewer windows and doors per home. And, you know, when you make the comment about volume being plated down a little in 25, is that inclusive of that continued mixed dynamic potentially carrying over, or is that more of a pure volume dynamic?

Yeah. So, just to clarify, I said 70 million or approximately 40%. of the guidance revision is around the softer R&R. So that's some retail, and then again, we talked about some of that higher end products in the traditional channel. You were mentioning kind of the mix dynamic with production builders. It's not as much fewer as it is lower end. So it's not necessarily the quantity, but the lower price products that are going into these production homes. So I do expect, as I said, we haven't had clear signals that H1 of next year is going to be dramatically different, but we do expect kind of the back half to pick up a little bit. So that's kind of, I would say, the phasing right now, our view of that mix dynamic.

Okay. But to be clear, if it's like, if your comment is kind of flat to down on volume next year, is that flat to down on combined volume mix next year?

Yeah, I would say flat to down on volume mix next year. I think it'd be too early right now to call, you know, the volume quantity versus the mix shift. I would say it's, you know, volume mix combined.

Okay. And then the other question I had, I guess I'm struggling a little bit with this concept of kind of the transformation journey being, and by that I mean, like, if I look at your bridge, it basically implies that if it were not for these cost reductions, I know you're quoting it in EBITDA terms, but it basically suggests your business wouldn't have been profitable this year. And so while I appreciate that getting from kind of a net loss in EPS terms to where you are today still reflects some cost out, you know, how much of that is really kind of truly transformational versus just the right sizing of the business which is kind of normal when you've seen this much sales degradation and you're only talking to pretty normal incrementals on the way up if you're saying 25 to 30 percent volume incremental so if this stuff was really kind of more structural I guess I would have thought the potential is that you see much better than historical norms on some of those incrementals if and when volumes do come back.

Yeah, so I guess from a macro level, I would say this is a combination of process rigor and ownership within our organization, but also giving us visibility on where and how do we want to invest. So prioritizing initiatives. You know, if you think way back in our history, I don't think we were doing a very good job of tackling some of the foundational challenges that we had. And so this process, this transformation process, yes, there is a mix of some, what many would term as daily business activities in there, but there's also a fairly sizable piece of how are we allocating capital, what's the return on those projects, and creating the rigor in the organization that To also make the tough decisions, I'll remind you on the oral line exit this year, if we're not delivering and hitting our hurdles, we're going to have to make the tough decisions. And we're doing that because now we're tracking and we have a very strong visibility in our organization of these work streams. The decremental challenge that we have is that we're now starting to get down below two shifts to one shift and we have capacity utilization challenges across our network. And we've said from the very beginning, we have too many sites and we need fewer sites. We have to over invest in those fewer sites to get them up to the level that we feel appropriate to deliver great quality products on time safely to our customers. And that's the main lift and that's the transformation that we're driving. So I'd say the low hanging and the fruit on the ground has been picked up in a very tough market headwind. And we're now working on, all right, the long-term view and how do we really get to that future state of footprint that's gonna drive growth given what has become a very volatile market in North America and a very soft demand environment in Europe. So hopefully that answers the question on a broader base.

Yeah, I appreciate that. Thanks, Bill.

You're welcome. Thanks for the question.

Thank you. At this time, I will hand the call back over to Mr. Armstrong for any closing remarks.

Yes. Thank you for joining our call today. If you have any follow-up questions, please reach out, and I'd be happy to answer them for you. This ends our call, and have a great day.

This concludes today's call. Thank you for joining. You may now disconnect your lines.