Ladies and gentlemen, thank you for standing by, and welcome to the JELD-WEN Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions]. I will now hand today's call over to James Armstrong, Vice President, 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.jeld-wen.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. JELD-WEN 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 4. 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 LaCantina businesses, which thrive in these markets. Second, we faced quality…

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 mix shift from higher price to lower price 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 3.1x, which is above our target range. As you see on Slide 7, 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 price products. I'll provide additional comments about our North America and Europe market trends shortly. On Slide 8, 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 cost. Unfortunately, this price cost dynamic is expected to continue throughout the remainder of the year. While our productivity and gains were robust, they were slightly below our expectations due to inefficiencies from lower volumes. In addition to these productivity…

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…

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

[Operator Instructions].

As we poll 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 Towanda 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 Towanda 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.

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 on 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 haven't 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 million 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 million 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. And then the midpoint of the outlook seems to imply close to a 50% sequential decremental in the fourth quarter. I mean, you guys have talked about some of the challenges with the capacity utilization and the quality issues and so forth, but when would you expect these decrementals to normalize?

So high level, John, we don't expect a significant change in the volume or mix 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, 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 are seeing.

Great, thank you guys.

All right. Thanks John.

Your next question is from the line of Phil Ng with Jefferies.

Hey guys. Bill, curious, how did sales progress through the quarter and into October? And then from a mixed 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 the noise with other income. Is there any nuance around margins being depressed, because the channel has too much inventory and your curtailing production as well?

Okay. So, volume mix has continued to deteriorate. I'd 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. I think 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 million 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 2024 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 $100 million of costs out, would that be like way off base? I know you are assuming perhaps some pickup in volumes in the back half of 2025, and it'd be helpful to kind of to help us think through the cadence through here, outside of demand, maybe getting better in the back half. But how does 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 or front half weighted or pretty equally spread? It would be helpful.

You're talking ‘25 Phil, the $125 million?

So my first question is, can I take the back half 2024 EBITDA that you are guiding to and deliver it 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 is it 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 mean, 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 neutral to slightly down volumes in North America. We're definitely expecting down volumes in Europe. Our perception is 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&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 mix 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-cost 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 2025 at this point?

Yes. 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 2025. 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.

Yeah. I mean, Phil, 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 top of our minds as well.

Okay. Thank you. I appreciate the color, guys.

Thanks.

Your next question is from the line of Steven 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 of 2025 or looking towards the second half?

Yeah. Hey, thanks for the question Steven. 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 win rooms, 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, 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 we can't control the market volume, but we can 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 gestation. So think about this as an H2 ‘25 impact. By the time everything is set up and spec'd 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, 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 mix 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 or project related business. And when that happens, we'll automatically get a mix uptick, but we are 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 questions Steven.

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

Thank you. Good morning, everyone.

Morning, Susan.

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 are continuing to stay on track with the quality and the metrics you are 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, and thanks for the question Susan. So, we have 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 re-sequencing 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 shift down. One of the initiatives that I talked about in my prepared remarks was really driving retail improvement for JELD-WIN. 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 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 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, 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 color. 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, its 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, etc. 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 our view to drive that, and 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 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 Bouley 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 five to nine. You're holding the end markets about the same. I know you said they are kind of drifting to the low end. So it seems like there's a little bit more that the delta really is just a very significant change in the mix portion of it. And I heard you just say it, 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 is it the case that mix really is a several hundred basis point headwind, and kind of how do you think about that at least anniversaring 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 North America. That's not just the retail channel. That does include some retail program push out, 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. Existing home sales are at their lowest level that we've seen in over a decade, and we're unfortunately experiencing that mix impact. Then you have the loss of the Midwest retail customer, which we talked about. Let's call it $20 million, $25 million. Europe continued market softness, another $20 million, $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 are saying that they are 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. It 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 U.S. 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, etc. 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. And 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, etc.

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

All right. Thanks man.

Thanks.

Your next question is from a line of Jeff Stevenson with Loop Capital.

Hey, this is Zack Pacheco on for Jeff today. Thanks for taking my question.

Hey Zack.

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 some 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 are taking the lower-end product. And we've said, 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. 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 3x. 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 Wolfe 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. There's 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. 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 footprint, that takes some capital to really get it into the right position.

Okay, I got you. That make sense. And then DPI and multifamily talks 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 are 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 permitting multifamily projects is a very arduous process. So let's take that out of the equation and just assume that the start's going up today. You should expect our product anywhere 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, its 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 question. I just want to go back to the mix dynamics for a minute. I think 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 address 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 on just smaller footage of homes and new construction, meaning fewer windows and doors per home? And when you make the comment about volume being flat to down a little in ’25, is that inclusive of that continued mix 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 product 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 priced products that are going into these production homes. So I do expect, as I said, you know that 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 would be too early right now to call the volume quantity versus the mix shift. I would say its 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 are 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. 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 are only talking to pretty normal incrementals on the way up if you are saying 25% to 30% volume incrementals. 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.

Yes. 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. 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 to also make the tough decisions. I'll remind you on the Auraline 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 going to 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.