Louisiana-Pacific Corporation

Good day and thank you for standing by. Welcome to the Q3 2024 Louisiana Pacific Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Aaron Howald, Vice President, Investor of Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining us to discuss LP's results for the third quarter of 2024, as well as our updated outlook for the fourth quarter and full year. Hosting the call with me this morning are Brad Southern, LP's Chief Executive Officer, and Alan Hockey, LP's Chief Financial Officer. After prepared remarks, we will take one round of questions. During this morning's call, we will refer to a presentation that has been posted to LP's IR webpage, which is investor.lpcorp.com. Our 8-K filing, earnings press release, and other materials are also available there. As always, I will caution you that today's discussion may contain forward-looking statements and non-GAAP financial metrics, as described on slides two and three of the earnings presentation. The appendix of the presentation also contains reconciliations that are further supplemented by this morning's 8-K filing. Rather than reading those statements, I will incorporate them by reference. And with that, I will turn the call over to Brad.

Thanks, Aaron, and thank you all again for joining us today. LP's teams continue to execute our strategy effectively in the third quarter. As a result, siting net sales grew by 22%, well above the underlying markets we serve. Siting set new records for sales in EBITDA, helped by ongoing improvements in expert finish margins. Our OSB business operated safely and efficiently with strong price realization to make the most of a sequentially softer price environment. Page five of the presentation shows LP's high-level financial results for the quarter. LP generated $722 million in net sales, with 22% siding growth almost completely offsetting the $88 million impact of lower commodity OSB prices. Siding's EBITDA of $123 million was a record. Expert finish saw another record quarter for both revenue and margin, with margin expansion driven by higher volumes and efficiency improvements at our dedicated pre-finishing facilities. $153 million of EBITDA translated cleanly into $184 million of operating cash flow. We invested this cash in our future growth with $44 million in capital expenditures in the quarter before returning $91 million to shareholders through dividends and share repurchases, leaving LP with nearly $900 million of liquidity and a very strong balance sheet. Let me turn briefly to the market and what we are seeing in the channel. The new home construction market is slowing somewhat with the combined effects of the recent rebound in mortgage rates and the approach of colder weather. Housing starts have leveled at about 1.4 million in recent months, which is also the current consensus for next year, but the single-family mix remains higher than average. In the new construction market, LP is over-indexed to single-family starts so it was encouraging to see the run rate for single-family starts back above one million in the September census report. Repair and remodeling spend is still a few percentage points lower than last year, but the outlook for R&R has improved. The recently published leading indicator of remodeling activity published by the Harvard Joint Center for Housing Studies suggests that R&R spending has bottomed and projects a return to positive year-over-year growth in 2025. Given that about a third of LP SmartSide siding goes for R&R applications, this is a positive development. We believe inventories in the channel are within normal seasonal ranges. OSB inventory is somewhat leaner, which may be contributing to recent strength in commodity prices. Siding inventory is similar in absolute volume to this time last year, but lower in days of sales and consistent with normal seasonal patterns. We have announced a price increase for next year in siting, and that will be a factor as we manage year-end shipments to position ourselves and the channel for a strong start to 2025. Looking forward, interest rates and affordability remain the dominant macroeconomic factors to watch, but housing under supply and the aging housing stock must ultimately be resolved. We believe that LP is uniquely well positioned to address these needs, and as a result, we are confident that we will continue to grow siting and structural solutions in 2025 and beyond. Our results demonstrate that LP's strategy is working and reinforce our confidence to invest in future growth, which Alan will speak to in a moment. Before I turn the call over to him, I'll highlight two additional accomplishments from the quarter. First, LP published environmental product declarations for the entire SmartSide trim and siting product portfolio. These EPDs, validated by ASTM and International, confirm that SmartSide, Expert Finish, and Builder Series products are carbon negative, meaning they store more carbon than is emitted throughout their lifecycle. This is made possible by our sustainable use of renewable fiber resources, as well as our innovative and efficient manufacturing processes. And I want to thank the LP teams that support this, especially Forestry, Operations, and our sustainability team. Last and most importantly, LP was notified in August that we had earned the 2023 Safest Company Award from APA, the Engineered Wood Association. This is the 12th time in the 16-year history of the award program that LP has won the Safest Company designation. Five of our mills also won individual safety recognitions. I want to thank and congratulate every LP team member for this recognition. and challenge us all to keep building upon LP's high performance safety culture. Safety is a core value for all of us at LP, and while we are pleased with the honor, we won't rest on our laurels. And with that, I will turn the call over to Alan for more detail on our results and guidance before we take a round of questions.

Thanks, Brad. As usual, slides seven and eight of the presentation show third quarter year-over-year variances in net sales and EBITDA, for the siding and OSB businesses. Both are fairly straightforward, with the exception of some timing wrinkles in siding that I'll spend a bit more time on before I move on to our updated guidance for the full year. Turning to slide seven, siding net sales increased year-over-year by $75 million, or 22%, for revenue of $420 million on 460 million square feet of volume, both sequentially above second quarter levels. This year-over-year growth is the result of 6% higher average selling prices and 15% volume growth. Roughly half of the 6% price improvement was the result of annual list price increases, with the other half due to favorable mix. Export finish comprised 9% of volume in the quarter, contributing significantly to this positive price mix. The incremental volume generated EBITDA at a 44% contribution margin, that is, $24 million of EBITDA from volume divided by $54 million of revenue from increased volume. When we include price, the contribution to EBITDA on incremental revenue was 61%. You can find that by adding $22 million of price to both the numerator and denominator in the previous calculation. And this healthy conversion is exactly what we should expect from the business as it continues to grow into recently added primed capacity at Segola, Halton, and Expert Finish capacity at Bath. Investments in sales and marketing, mostly boots on the ground with the sales team, totaled $6 million more than prior year and are helping LP's siding business continue to grow despite flat housing and lower year-over-year repair and remodel expenditures. and raw material and freight costs were roughly in line with last year. In the other column, the far right, the first and simplest item is a $5 million EBITDA benefit from the non-recurrence of last year's press rebuild at Dawson Creek. The remaining $8 million benefit is the net of a handful of smaller puts and takes, but one item does bear mentioning as it will impact the fourth quarter. A maintenance project in our Halton Mill that was planned for September was pushed into October because of delays in equipment delivery caused by the East Coast port strike. The project is currently underway, and it will require about four weeks of downtime. The total cost and production impact in the second half of the year is unchanged, but the delay pulled production forward into the third quarter and pushed costs into the fourth. The delayed costs and inventory absorption effect of extra production boosted third quarter EBITDA by a bit over $5 million and added probably a point to the EBITDA margin. Now, I mention this only because all else equal, one could reasonably assume that this pull forward might create a corresponding reduction in our fourth quarter EBITDA outlook. Happily, this is not the case, as I will detail in a moment when I get to our updated guidance. On slide eight, I'm sure you'll all be relieved to note that the OSB waterfall is far simpler, so I won't belabor it. Commodity prices were lower, reducing year-over-year sales in EBITDA by $88 million. Variances from higher volumes, incremental margins, structural solutions, raw material, and labor inflation were all immaterial by comparison. But the story this chart doesn't tell very well is that the combined impacts of OEE, cost control, and strong price realization allowed the OSB business to outperform the small increase in our algorithmic guidance implied by modestly higher random length prices late in the quarter. Slide nine shows a similarly straightforward quarter of cash flow. This $184 million of operating cash flow includes $44 million of working capital inflows, mostly from accounts receivable. And $73 million of share repurchases brought shares outstanding to almost exactly $70 million as of the 1st of November. We also made a locally funded $17 million investment in a non-consolidated joint venture in South America. This venture, already well established, specializes in offsite construction of modular social housing. And this should help stimulate and sustain demand for LP's products, address chronic undersupply of housing in the region, and support the ongoing shift in South American building practices from bricks and cement to more sustainable and seismically robust engineered wood. So slide 10 shows our updated guidance. Ongoing growth and margin expansion in siding are expected to more than offset the timing issue I mentioned earlier. So we now expect fourth quarter siding revenue growth of between 9% and 10%, for sales of about $365 million, and this would bring full-year sales growth to about 17% and revenue to about $1.55 billion. Siding's fourth quarter EBITDA should be between $70 and $80 million. This would deliver full-year EBITDA in the $390 to $400 million range for a margin of about 25%, which is our long-term target. In other words, continued strength in the siding order file has allowed us to increase the full-year growth and margin expectations for siding by about a point each compared to last quarter's full-year guidance. In OSB, random lengths prices have climbed a bit in the fourth quarter, but we expect the typical seasonal downtime to impact volumes, and incorporating these factors and using our normal approach for OSB, assuming prices stay flat at current levels, we would expect OSB EBITDA in the fourth quarter in the $15 to $25 million range. Adding this all up, and as usual, netting off South America's EBITDA with unallocated corporate costs, we now believe that LP's full-year 2024 EBITDA will be between $655 and $675 million, an increase of about $65 million compared to the midpoint of our guidance from August, and $30 million of this is coming from signing. CapEx for the year should come in around $200 million, and as Brad said, Growth and share gains give us continued confidence to invest in new siding capacity. As a result, while we won't yet offer revenue or EBITDA guidance for 2025, we do expect capex for the next two years to be meaningfully higher than this year's as we launch the next siding expansion project. We'll share more specifics on this project in coming quarters. For now, though, I can say that we expect total capex investments next year to be between $350 and $375 million, including $100 to $125 million dedicated to the next siding mill, most of which should land in the third and fourth quarters. In summary, it was another strong quarter for LP. We executed our strategy safely, and we're well positioned to see continued growth and margin expansion in 2025 and beyond. And with that, we'll be happy to take a round of questions.

Thank you. At this time, we will conduct the question and answer session. Each participant will be allowed one question and a follow-up question. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Susan McClary of Goldman Sachs. Your line is now open.

Thank you. Good morning, everyone. Thanks for taking the questions.

Good morning.

Good morning. And maybe starting on, you know, Alan's comments on CapEx, I guess, can you talk a little bit about what you're seeing in the business and how you're thinking about the demand that will come through over the next several years and that has driven the decision to perhaps invest in the next wave of capacity additions in siting?

Sure. So we obviously are very pleased with the growth we've seen this year in SmartSide, the recovery from a disappointing year last year. And as we project forward and at any reasonable growth rate, we're now getting to a point where we are really looking at that next wave of capacity that we're going to need. We do try to stay ahead of production, so we don't mind bringing on capacity a little bit early in order to minimize the chances of going on any kind of allocation. So that is, given the growth this year, that's resulted in us stepping up the planning for our next significant capacity expansion, as Alan or I mentioned in the call, I guess both of us did. We are looking at that investment next year, beginning that investment next year. And that would get us up and running, you know, either late 2026 or in 2027, depending on the timing and how the year plays out next year as far as siting growth.

Okay, that's helpful. And then maybe just thinking about price for 2025, you mentioned that you saw half of the lift this quarter coming from mix versus on a like-for-like basis. But as you think about putting pricing through for next year, can you just talk a little bit about the range that's expected and how you're managing the inventories heading into that increase?

Sure. So, you know, we're back to kind of the historical normal price increase environment that we were experiencing pre-COVID. So we're out currently with a gross price increase, depending on SKU and region, of 4% to 5%. We believe we'll net around 3%, at least a good way to plan for next year. That excludes any kind of mixed change next year. The price increase is effective January 1, and we will be limiting sales in December so that we don't get We have to try to minimize pull forward as a result of the price increase and set ourselves and our distribution base up for a really good Q1 as far as sales go. So that's the current plan and we're executing to it. And as I mentioned, we are out with that price increase. So it is in the market now.

Okay. That's helpful, caller. Thank you. Good luck with everything.

Thank you. You're welcome.

Thank you. Our next question comes from the line of Michael Roxland of Trua Securities. Your line is now open.

Yeah, thank you, Brad Allen and Aaron, for taking my questions, and congrats on a very strong quarter. First question I have is, a smart site has continued to gain share. What has been the competitive response from Farber Cement and Final? Have you seen increasing price pressures as they try to retain or win back some share and And what has been LP's response?

Well, look, we're competing in a very competitive environment. That's always been the case. My 25 years of working around the smart side business. And so I would say the competitive situation is normal. And so when we're negotiating deals with big builders, obviously there's a counterparty that's trying to hold on to business. Um, and so that, you know, that typically, um, the kind of, um, w from a pricing standpoint that is managed through backend rebates for most of the customers. But I would say right now it's still kind of normal as far as it's what we have to do in order to secure this business. Cause I think primarily what's beginning to be realized in the market more and more is just the value proposition of the product. Um, you know, it, it is superior to the, to the substrates that you've mentioned there. And that is as much of the reason we're waning as any pricing concessions.

Got it. Okay, thanks for that, Brad. And then just quickly on Segola, Holton, and some of the mills that you may have not been running full. Given that you do intend to add capacity, what's the outlook? One, where do those mills currently operate? And two, where do you expect them to operate next year that would warrant you to bring on or aim to bring on new capacity, call it a year and a half, two years from now? Thank you.

I'll take a whack at that. In Q3, our volume was $460 million on a nameplate capacity of 2.3. So that annualizes out to utilization in the high 70s to 80% range. Of course, with seasonality, Q2 and Q3 will tend to be a little bit heavier than Q1 and Q4. So if that pattern continues, You just sort of project that forward, and that gives us the confidence that we'll need capacity in the timeframe that Brad mentioned earlier. Segola and Holton and Bath are all running very well, but they exist within a system, and so their capacity utilization is a function of product mix and geographic demand patterns and lots of other factors, but we're very pleased with the ramp-up. Thank you.

Thank you. Our next question comes from the line of Sean Stewart of TD Cohen. Your line is now open.

Thanks. Good morning and congrats on a very good result. Brad, wondering if you can give some context on siting expansion options as you look ahead as we start to build CAPEX in 25 and 26 into our forecast, whether it's expansion at existing sites, Wawa, what you're thinking of in terms of the best option for adding supply?

Yeah, great question. So let me just remind the audience of the options that we have. We do have two remaining Aspen-based OSB mills, one in Quebec, one in British Columbia, that is a potential future, a potential conversion option for us. We do have the EIDL facility in Wawa, Ontario that we're studying in detail. And then we have options at existing siding mills to add press lines. And so all those are still on the table for this next wave of capacity. What will drive the decision will be, first of all, the feasibility of converting either of the two aspen-based mills in Canada. Those are large press setups. And in either case, Maniwaki or Peace Valley would be by far the biggest press existing in our siding operation. And so there is some technical things we would need to work out to make that a feasible conversion at this time. And then we have Wawa and adding a press line at an existing facility. I like both of those options. What will drive the decision there will be capital efficiency as it relates to those two. Wawa would essentially be a mill startup for us where adding a press line might be a little bit more capital less capital intensive. But then also weighing into that, we now run our siting portfolio as a network. And so when you look at that, at the way we distribute SKUs across our current platform, you look at their location, you look at where we're growing geographically with customers, that can swing us regionally into favoring capacity at a mill in Holton, Maine versus a mill in Ontario. versus a mill in Sagola, Michigan, versus a mill in Dawson Creek, British Columbia. And so all that, we're still in the preliminary phase of planning that out from a network optimization, capital efficiency. What we'll probably be doing soon is ordering some of the, or getting approval from our board to order some of the equipment that is kind of site agnostic. And then when we get into the middle part of next year, that's when we'll really have to be sharpening the pencils on location and making a commitment to wear. But at this point, that decision has not been made. But we got a ton of great options. That's the point. And we will make the decision based on net present values of the incremental capacity that we need.

That's great detail. Thanks for that. My second question, Brad, is a hypothetical one. Wondering if there are any internal views. If Trump wins the election and proceeds with a blanket tariff on imports, is there any internal view on, I guess, your exposure to Canadian panel imports of Canadian panels into the U.S.? Would the USMCA protect against that? Loaded question, but wondering if you have any internal views on that.

Look, let me just, the one thing that I think that we should be transparent about, I don't really have a view on impacting panel flow across the border, OSB or siting. We do get a significant portion of our MDI from a source in China. And while we have been working through the tariff issues and the economics around that as part of the, over the past, well, since Trump took office and Biden kept the tariffs in place, that's the only kind of cost risk that we would be facing. You know, there's never been any limitations on OSB or any tariff on OSB, you know, going across the border. I don't anticipate that becoming something that in the near term, but I mean, who knows? So we'll respond accordingly, but, you know, there's, I mean, there would be, Certainly an impact on OSB pricing if all of a sudden Canadian OSB couldn't blow into the U.S. And so there would be a lot of offsets of kind of understanding what the true impact of that would be. But we're not planning on that being an issue, you know, whoever wins the election. But keeping an eye on imported raw material from China could be impactful to the industry. And it would be impactful for us as it relates to MDI purchases.

Understood. That's all I have. Thanks very much.

You're welcome.

Thank you. Our next question comes from the line of Stephen Ramsey of Thompson Research Group. Your line is now open.

Good morning. I had a couple questions on Builder Series, first one being the attach rates on that product have been very strong year to date. First, is this something that could have upside on these attach rates as you look into 2025? And then maybe just stepping back, is builder series a net benefit to mix for these attach rates?

Well, first of all, let me take it into 2025. Yes, we're expecting continued success with that as we build credibility with the big builder base and continue to work on becoming the the choice for builders, and those talks are ongoing. We're getting our share of wins in those talks. And so, yeah, I see builder series growth being a meaningful part of our growth story for next year. And then the second part of your question, I think, is on the attach rates. That does pull through trim and soffit and some panel sales into the builder channel and even into distribution. And those typically, at least for trim, are higher margin items for us. And so while I would say builder series is kind of margin neutral to us as part of our portfolio, the pull through on the other SKUs that are sold along with our lap siding, which is builder series, especially as it relates to trim, can be margin accretive to us.

Okay, that's helpful. And then on OSB structural shipments, those being lower than commodity shipments for the last two quarters, kind of what is driving this in the near term? And then how are you thinking that this dynamic shapes up in Q4 and heading into next year?

Yeah, I mean, we're still – we're really focused on growing our structural solutions as a percent of our portfolio. I mean, that can change – it does change quarter to quarter as – and frankly it's big builder business pools commodity OSP for one thing but also we do manage that around margins and so you know we're making we're in a situation now we're making sure that selling structural solutions is is margin accretive to us but when that's not then we could go back to you know to more commodity type sales so we're going to see the trend of structural solutions as part of our portfolio is going to continue to increase but quarter to quarter that their variations in And that can happen as the price and margin dynamics of our commodity OSB and structural solutions and the preference of some of these big builder deals that we do may weight commodity OSB greater than what we would like in the moment. But ultimately, we're focused on a strategy to grow that. And I'm sure we'll be successful there. But in reality, there can be swings as it relates to what our customers want at the time.

Makes sense. Thank you.

Thank you. Our next question comes from Matthew McKellar of RBC Capital Markets. Your line is now open.

Hi, good morning. Thanks for taking my questions. The Q4 signing revenue guidance implies you'd be down something like 13% quarter over quarter at the midpoint, I think, which would be unusually poor sequentially at the Q4 compared to what you've done historically. Is there anything you're seeing in the order file that suggests your recent pattern of sort of outperforming normal revenue seasonality should reverse?

No, I'm not sure there's anything unusual here, but if you look back over the last couple of years, you referenced normal. I'm not sure what normal is, and I think that's the challenge we face. If you look at the profile of revenue in 2023, that was definitely abnormal, and we were, as it were, coming out of the destocking and, generally speaking, bucking the seasonality trend. So what you're seeing reflected in Q4 right now and our Q4 guidance is a return to a more seasonally normal pattern, if we jump back four or five years, as well as, as Brad mentioned earlier in his response to one of the questions, as making sure that we effectively manage demand relative to the January 1st price increase. They're the principal factors that make this Q4 compared to Q3 look a little starker.

Okay. Thanks very much for that color. And, uh, last one for me, just, I mean, recognizing it's a somewhat smaller part of your business, how material do you expect to pick up in South American volumes to be with the investment in the modular housing business you've noted? And could you just provide a bit more color around why this was an attractive investment for LP?

Yeah, well, the South America strategy from day one has been a conversion strategy away from masonry type of construction. This investment kind of really is strategic for us in that this joint venture partner is a major manufacturer of modular housing and integrated all the way through to the sale of that and the real estate development. So it's a very strategic partner. They've been a large customer for us. So immediately there won't be a significant incremental volume because we have been supplying essentially supplying that product anyway. But as we look at continuing to grow the share of stick-built homes across South America, that's where we see the strategic fit. And so this is a long-term play. We'll be happy to speak to it quarter to quarter as we get further into it. But materially, it won't impact what we're doing this quarter or probably next year because, again, we've had that business secured for a pretty long time.

Okay, thanks very much. I'll turn it back.

Thank you. Our next question comes from Mark Weintraub of Seaport Research Partners. Your line is now open.

Thank you. Congrats on another very good quarter. So what I was hoping to get a little bit more color on is if we look at that 17% volume increase that you're projecting for siting year over year, Is it possible to give us a sense as to what it looks like in the categories R&R, single-family, sheds?

Yeah. So let me just say directionally, the strength has been in new construction and R&R. That has driven essentially all of this growth above trend line. The retail business has been okay. So let's just say about average. And then shed has been flat this year, and so the strength has certainly been in new construction and repair and remodel, and it's been around. I mean, our prime business has been phenomenal, but the builder series and expert finish, granted, off a smaller base, those growth percents have been a significant upside to the year.

And then, Brad, how much is there a way that you can assess how much is a function of

um same store sales growth versus your your expanding distribution uh base yeah so let me take that by segment so for new construction um look having having the big builder credibility that's come along with some of these deals that we've been able to you know to get to this year does bring around not necessarily not two-step distribution ads, but it does bring lumber yard ads in the geographic areas where we're gaining new business with the builder. And so that kind of new lumber yard distribution is incremental, and then that usually means an inventory build, a small inventory build, because these aren't two-steppers, but an inventory build, and then pull through, and then ancillary sales to the customer that we ink, but also if you've got placement at the lumber yard, you're getting sales to other builders and contractors that you just didn't have access to the product before. So that has been an important part of the story this year for new construction. And then repair and remodel, that securing contractor.

Okay, sorry.

And securing contractor loyalty is a big part of what we're doing with these incremental marketing and sales spans. But that also is accompanied by continued growth in our one-step distribution geographic channel exposure. And so that has been something that we, coming out of allocation, we've really been focused on. So while we're gaining market share ultimately with contractors and R&R and builders in new construction, there is the added benefit and somewhat necessary reality of adding distribution as we go along.

And as you think about maybe where you are in the life cycle of that process, is next year potentially going to also benefit significantly from this? Or maybe how should we be thinking about these two drivers, almost the single stores versus the expanded base?

For R&R, I would say we're still underexposed enough to where we will continue to add one-step distribution locations as expert finish becomes more available through our capacity expansion. That will be a significant part of our growth for the mark probably for the next several years as we as we grow that market share and because we still have pockets of geographical weakness where we don't have strong distribution there and then for new construct or for for the traditional channel to market to new construction I think that will be localized around regional winds with the big builder and then and then the necessary lumber yard ads that have to go to support those wins. So that might not be quite as significant as landing a Lennar has been this year to that, but there still is opportunities for further penetration within the channel in both those areas.

Super. Appreciate it. I'll leave it there. Thank you. Thanks.

Thank you. Our next question comes from Ketan Mamtora of BMO Capital Markets. Your line is now open.

Good morning and congrats on a very strong quarter, especially in siding. Maybe just sticking with the siding expansion, Brad, in the past you've also talked about the product categories within siding where you see growth would also be one of the factors in deciding where you expand capacity. Is that still one of the factors, or is that becoming less of a factor, given your size now?

That's a good point. That is a factor, and as you know, Keaton, some of the mills that we have converted, Dawson in particular, no, I'm sorry, Swine, the Swine mill and Segola mill are both have large presses that are conducive to panel production, where Holton was a smaller mill, more conducive to lap and trim and soffit production. And so when I speak of those opportunities around the press size and around the location, we will be looking at the SKU distribution, or profile, as we make the decisions. The more we are looking at lap and trim as where we need volume, the less appealing a larger press size may be to us, and the more that may swing us back to adding a press line, kind of a specialized press line at an existing facility. So it certainly is a factor, and just given all we've talked about in the last few calls, and this call in particular, the growth really is in lap and trim more so than in panel right now, which would kind of push us to a more specialized setup as far as the next mill conversion.

All right, that's very helpful. And then just one more on siding. Outside of seasonality, Brad, as you look at sort of demand factors or drivers, are you seeing kind of anything as you move through Q3 and October, if things are either starting to look a little bit better in terms of you know, order activity or kind of still the same and there's uncertainty? Or how would you characterize in terms of, you know, sort of activity?

I would say activity has been okay to good this late in the season. Of course, weather patterns have been warm across the country, so that's certainly helped. But Keaton, it feels like pre-COVID, like a pre-COVID solid year as far as how we've been, how our order file has stayed steady throughout the fall so far, and how we've been able to, from the visibility we have at inventories in the channel, see kind of like, as we mentioned, normal inventories. So, I mean, it's just been a really, really solid year across the board, and we're continuing to see, given the season that we're in, a nice order file. And I really don't see that being a ton of risk of that, given the price increase that we have announced now. So we feel good as we've reflected in our guidance about the rest of the year. And as we get closer to next year, we're feeling better and better about what we'll be able to execute to next year.

Got it. That's very helpful. Good luck and I'll jump back in the queue.

Thank you. Our next question comes from Kurt Yinger of DA Davidson. Your line is now open.

Great. Thanks and good morning everyone. You know, without trying to pin you down on 2025 guidance, I'm curious with kind of the visibility you have on the builder series and big builder side, some of the expanded stocking positions you've discussed. How does that play into your thoughts around a goal or potential level of market outperformance as we look into next year with the inciting business?

Well, if you look at the outlook for new construction starts next year, it's flat. We're not planning to be flat. And so I think the momentum that we've generated this year, having the capacity and being off allocation, we're feeling better and better about next year. I mean, there's all kind of, I mean, we've got political risk, we've got tariff risk. I mean, there's all kind of potential headwinds, but we feel like the value proposition for our product is very strong as we continue to get exposure in the field with contractors and builders, that credibility around the product offering is beginning, is growing as well. And so, you know, I feel like kind of pre-COVID growth rates, you know, that we enjoy, you know, the 8% to 10% is certainly something we should be able to execute too. I mean, I'm not guiding for next year, but that would be the kind of, you know, historical pattern we've had. And we'll get more specific about it on the next call, but I feel good about that. But we'll have to take a solid look at the headwinds that we see over the next two or three months as we make that call for how we guide next year.

Right, right. No, I appreciate that. The comment on value proposition kind of ties into my next question. I mean, clearly we haven't seen it at all yet, but with the affordability challenges and efforts by builders to kind of take cost out, does that change the dynamic for premium materials like your own and conversion from maybe less expensive substrates than we've seen historically? Just curious if you have any high level thoughts around that in the current backdrop.

Yeah, the affordability, I think, does play a little bit to the strength of vinyl siding. Ultimately, this is purely a cost play. Vinyl siding is the product that a contractor builder should choose. But when you have things like our pre-finished siding now, which expert finish is going into new construction, so you eliminate the painting step in new construction, that can help the affordability of a home. the labor savings that is realized from, well, primarily the labor savings that is realized by using SmartSide versus all other substrates is real, and as builders and contractors experience the product, they realize that, and that's what strengthens the value proposition that I spoke to earlier and makes us confident that You know, this penetration that we've been enjoying the past 12 months is something that we can grow off of next year. Right.

Okay. That makes sense. And just to squeeze one more in, Alan, in terms of Q3 to Q4 siting EBITDA, could you maybe just level set on kind of the one-time maintenance or project impacts kind of embedded within that?

Yeah. Yeah. I'll do it. I'll do it with reference to Q3, though. I'm going to sort of put a setup in my prepared remarks. If you take the $123 million from Q3, there was about $5 million in there that we had intended to, you know, one-time costs and inventory reduction that we intended to do in Q4, and we did in Q3. We did the opposite in Q3. So let's sort of shift $5 million between those two, right? So I'm going to take $123, knock off $5, from Q3 and get 118. I'm going to take that five and add it on to the midpoint of our range for Q4, which would be 75 plus five, so $80 million. Leaves us about $38 million to explain. About $30 million of that would be the impact of the lower volume from Q3 to Q4. And the balance, call it $8 to $10 million, is the one-time Think of it as the one-time maintenance costs and mill downtime that we, as a matter of necessity, we have to take to perform the necessary maintenance in Q4. And that's the principal difference also, even though you didn't ask, between the Q4 EBITDA and the Q1 EBITDA. Very similar revenue levels, but a lower EBITDA, because in Q1 of this year, we were not taking that downtime and building inventory. And in Q4, we're taking that necessary downtime and depleting inventory. So you get that sort of double whammy from negative absorption on inventory as well as the necessary downtime. Got it.

Okay. That's perfect.

Appreciate the color. Sorry. Spoke over you.

Thank you. I'm showing no further questions at this time. So I would like to turn it back to management for closing remarks.

Okay, operator, thank you very much, and thank you everyone for joining us. With no further questions, we'll bring the call to a close. Everyone stay safe, and we'll look forward to speaking to you again next quarter.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.