Ladies and gentlemen, thank you for standing by. And welcome to the Cornerstone Building Brands Third Quarter 2021 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Tina Beskid, Vice President of Finance and Investor Relations. Thank you. Please go ahead.

Thank you. Good morning. And thank you for your interest in Cornerstone Building Brands. Our prepared remarks include comments from Jim Metcalf, Executive Chairman; Rose Lee, President and Chief Executive Officer; and Jeff Lee, Executive Vice President and Chief Financial Officer, and were recorded in advance of the call. Unfortunately, Rose is not feeling well and is not with us this morning, so Jim and Jeff will take your questions at the end of the prepared remarks. Please be reminded that comments regarding the company’s results and projections may include forward-looking statements that are subject to risks and uncertainties. These risks are described in detail in the company’s SEC filings, earnings release, and our investor presentation. The company’s actual results may differ materially from the anticipated performance or results expressed or implied by these forward-looking statements. Throughout this presentation, management may also refer to pro forma financial results. Such pro forma results give effect to the completed acquisitions and divestitures as if such transactions were consummated prior to the period presented. Finally, management will refer to certain non-GAAP financial measures. You will find a reconciliation of these non-GAAP financial measures and other related information in the earnings release and investor presentation located in the Investors section of our website. Please note, we will be referencing our investor presentation throughout today’s call. Today’s call is copyrighted by Cornerstone Building Brands. We prohibit any use, recording or transmission of any portion of the call without our expressed advanced written consent. With that, I would like to turn the call over to Jim.

Thank you, Tina. Good morning and thank you for joining us. Before we review our results for the quarter, I’d like to welcome Rose Lee to our call. Rose joined us as President and Chief Executive Officer and has an impressive broad-based career with extensive experience in building materials. Her deep knowledge of the industry and proven leadership make her the right person to execute our long-term strategy. Rose and I are aligned on our strategy to deliver long-term profitable growth and value creation for our stakeholders. As Executive Chairman, I look forward to working with Rose, our leadership team, and the Board in our continuing commitment to driving returns for our shareholders. Now let’s turn to the third quarter results on slide three. The third quarter was another strong quarter for Cornerstone Building Brands, as we navigated the headwinds from rising commodity costs, freight challenges, and labor disruptions. In response to this dynamic inflationary environment, our team’s disciplined price actions drove record sales for the second consecutive quarter. Pro forma net sales grew approximately 20% over the prior year and were up 15% compared to a strong 2019. These results represent our third consecutive quarter of year-over-year double-digit net sales growth. Third quarter pro forma adjusted EBITDA of $182 million increased 4% and 8% over 2020 and 2019, respectively. Raw material and labor shortages persist, driving up the cost to serve our customers and delaying shipments. We are navigating these challenges and remain focused on our service value proposition, solidifying our customers’ position as a partner of choice. In the quarter, we completed the divestitures of the insulated metal panels and roll-up door businesses, as well as the acquisition of Cascade Windows. These strategic actions resulted in a more focused business portfolio, strengthened our residential market position, improved our financial flexibility, and fueled value creation. As a result, we reduced our net debt leverage ratio to 3.7 times, approximately 1.25 turns better than the third quarter of last year. We remain disciplined on balancing our capital deployment and advancement towards our goal of 2 times to 2.5 times. As I wrap up my comments, I want to thank the Cornerstone Building Brands team for their many different backgrounds and experiences serving our customers every day. It continues to be a privilege to serve this company and its shareholders, and I’m grateful to have the opportunity to work with such talented people. I’m so proud of the tremendous accomplishments we are making as a company. Now, I’d like to turn the call over to Rose.

Thank you, Jim. Good morning, everyone. I’m very happy to join Cornerstone Building Brands, a company with deep customer relationships, strong brands, and operating scale. We are a company focused on partnering with our customers and creating value for our stakeholders. Jim, on behalf of our 20,000 colleagues, I want to thank you for your leadership over the past three years and I look forward to working with you in your role as Executive Chairman. Since joining the company two months ago, I have learned a great deal from visiting our sites, talking to our colleagues, customers, and shareholders. Turning to slide four, I would like to share with you my first views of our aspirations, core strengths, and levers for value creation. We will work diligently every day towards becoming a premier exterior building solutions company in North America in the eyes of our customers, employees, and all stakeholders. We have three core capabilities we will continue to strengthen as we pursue our aspiration. First, our multi-materials scale advantage manufacturing footprint enables us to service our customers efficiently and cost-effectively. Second, our in-depth channel partnerships enable us to meet the needs of our end customers through their preferred channel. Third, each of our brands delivers a differentiated value proposition that is matched to the very needs and preferences of our diversified customer segments. These three core capabilities are foundational to our competitive strengths, which enable resiliency in our business, provide meaningful differentiation from our competitors, and are integral to our continued growth and success. In order to maximize our core capabilities and create profitable growth, we will pull on three key value levers. First, we are implementing a comprehensive approach to increasing efficiencies and driving year-over-year sustainable improvements at our manufacturing sites. The Cornerstone production system is anchored by proven lean concepts that derive standard manufacturing processes across our sites, with safety being paramount, learning encouraged and supported, and continuous improvement and success of our employees promoted. Next is our expansive innovation engine. This value creation lever refers to revenue opportunities for new products, applications, business models, and partnerships. Our innovation will include digital technologies and tools that will strengthen our connection to our value chain partners and end customers. We will look to partner with companies that have novel solutions, technologies, and complementary capabilities. We will use agile methods to speed up innovation and time to market for our new solutions to act fast and learn. Finally, our ongoing portfolio optimization work will enable us to look for opportunities to accelerate our growth and innovation by bringing new businesses that are logical bolt-ons into the Cornerstone Building Brands family. In addition, we will continuously examine our portfolio as markets and our capabilities evolve and divest those businesses for which we are no longer suited. In this context, turning to slide five, I’m excited to share that Cornerstone Building Brands has entered into a definitive agreement to acquire Union Corrugating Company, headquartered in Fayetteville, North Carolina. UCC is a leading provider of metal roofing, roofing components, and accessories. The majority of the UCC business serves a $2 billion residential metalworking market, which expands our offerings in this attractive space. Metal roofing is a low-maintenance and environmentally sustainable solution that is experiencing growth in many regions. We expect the transaction to close during the fourth quarter and I look forward to welcoming UCC colleagues to the Cornerstone Building Brands family. Turning to slide six, our immediate priorities are focused on executing our core strategy of profitable growth, operational excellence, and disciplined capital deployment while driving towards becoming a purpose-driven premier exterior building solutions company. We are hyper-focused on improving our operations to mitigate as much as possible our current labor and supply chain challenges. We are investing in experienced leaders and subject matter experts in manufacturing and supply chain. We are creating lean work systems, manufacturing processes, and methods that will enable a step change in our productivity. Our automation efforts, which we have discussed on previous earnings calls, are an important dimension of our productivity gain. And of course, investment in our employees through training programs and kaizen events will enable us to sustain our gains and strengthen our culture of continuous improvement. Second, we are focused on accelerating our growth through market penetration, pursuing both acquisition and product innovation. We plan to augment our innovation pipeline with new products, applications, services, and business models. Finally, we are committed to maintaining financial discipline and expect to reduce our net debt leverage ratio by three quarters to one turn next year. Now I would like to turn the call over to Jeff.

Thanks, Rose, and good morning. Starting on slide eight, pro forma net sales for the third quarter were a record $1,428 million, 20% higher than pro forma prior year and our third consecutive quarter of double-digit sales growth. The growth was driven by favorable price actions across all segments in response to the rising commodity costs and other inflationary impacts. Demand for our products was strong during the quarter and we continue to experience a favorable pace of incoming orders across all our products. U.S. housing activity remained strong with third quarter housing starts averaging approximately 1.6 million units on a seasonally adjusted basis. In addition, repair and remodel spending remained positive, supported by rising home equity, low-interest rates, and an aging inventory. As a result, our near-term and long-term outlook for the residential markets remains positive and we are well positioned to capitalize on these market trends. Momentum in the non-residential construction demand continues to be favorable. The Architectural Billing Index reported that the pace of billings growth remained at the post-recessionary highs. Additionally, the September score of 56.6% was one of the highest reported this year. Our long-term outlook for the Commercial business is also favorable. The market for non-residential construction typically lags housing cycles by 18 to 24 months. Furthermore, non-residential construction is supported by private and public capital spending, interest rates, government funding, and consumer demands. Like many others in our industry, we have been impacted by constraints in raw materials and labor slowing the pace of recovery. As a result, volume for the quarter was essentially flat compared to the strong third quarter of 2020, which also had one additional fiscal day. We generated $182 million of pro forma adjusted EBITDA, which is 4% higher than the pro forma prior year, with all segments contributing favorable price and mix net of inflation. Across all our segments, we continue to incur increased commodity, freight, and labor costs. Production constraints for commodities such as PVC resin, steel, and aluminum have resulted in supply shortages and cost increases. In response, we raise prices across our portfolio. We expect price and mix to remain favorable, offsetting these continued cost impacts for the remainder of the year, and expect favorable benefits into 2022. We incurred manufacturing inefficiencies for various reasons, including disrupted plant production schedules due to labor shortages, supply constraints, and pandemic-related absenteeism. Nevertheless, we are taking steps to make our plants more competitive through our investments in automation, wages, and our employees' work environment. As Jim mentioned, we completed the insulated metal panels and roll-up door business divestitures and the acquisition of Cascade Windows. Portfolio optimization is an essential component of our growth strategy. We believe we have meaningful opportunities to lead within our key product categories, enhancing our position in large, deep markets. Overall, the third quarter was a strong quarter for us. I’m proud of our team’s outstanding job in successfully managing through the dynamic market environment and capitalizing on our strong market conditions. Now let’s look at our business segment results. Turning to slide nine, the Windows segment third quarter pro forma net sales were approximately 12% higher than pro forma prior year and pro forma adjusted EBITDA was $53 million, compared to $78 million in the same pro forma period. As mentioned, along with the positive market momentum, we are navigating the industry-wide labor challenges, which impacted a few key facilities and our delivery fleet. Our commitment to our customers is very important to us. As a result, we have incurred additional costs, such as overtime and premium freight to serve our customers and strengthen our long-tenured relationships across the channels we serve. In addition, we continue to make substantial investments in automation technologies to improve our production and logistical efficiency, enhancing our position as a cost-effective producer. Turning to slide 10, the Siding segment third quarter net sales were approximately 11% higher than the prior year, primarily driven by the favorable price index of 19%, which more than offset lower volumes due to raw material and labor constraints during the quarter. Adjusted EBITDA was $75 million, which is solid earnings generation given the strong prior year comparison. The Siding segment also faced manufacturing challenges from supplier allocations of PVC resin and COVID-19-related absenteeism. However, our team has remained focused on serving the customer while navigating these challenges. We continue to invest in the Siding segment. We intend to drive organic growth through product innovation and new product development in attractive adjacent product lines. Moving on to our Commercial segment on slide 11. Pro Forma net sales in the third quarter of 2021 were $450 million, approximately 45% higher than the same period last year, driven by disciplined price actions to mitigate rising steel costs. Order momentum remains strong for buildings and components. However, raw material shortages are constraining volumes in this business. We remain on allocation from our suppliers, limiting our output levels similar to the second quarter. Also, to meet the demands of our customers, we have purchased steel on the spot market, which carries a higher cost. The Commercial segment reported record pro forma adjusted EBITDA of $86 million, approximately 91% higher than the prior year, with margin expansion of 470 basis points. We have been effectively managing the impacts of rising steel costs. For the quarter, price and mix outweighed inflation by $49 million due to the rapid response by the team. We expect these positive dynamics and the impact of margins to continue in the near-term. We have taken actions to advance our strategy within the Commercial segment. As discussed, we completed the divestiture of the insulated metal panels and roll-up door businesses. Additionally, we have entered into a definitive agreement to purchase Union Corrugating Company. We have developed a broad multi-channel distribution platform, covering an extensive network of wholesale and specialty distributors, independent dealers, architects, builders, contractors, and big box retail relationships serving residential and low-rise non-residential construction markets. This platform will position us to further our growth in large deep markets maximizing our financial performance. Turning to slide 12. We are focused on investing in the core businesses through capital expenditures, organic growth initiatives, and inorganic opportunities, which we believe will deliver the highest returns for our shareholders. We anticipate the full year 2021 capital spend to be between $90 million and $110 million. Additionally, we are focused on positioning for growth with an emphasis on deleveraging our balance sheet. As a result of higher earnings and strategic actions, we have accelerated our net debt leverage reduction and finished the quarter at 3.7 times. We expect that our leverage ratio will be between 3.2 times and 3.5 times by the end of 2021. We have demonstrated our commitment to a balanced capital allocation strategy and expect to reduce our net debt leverage ratio by an additional three quarters to one turn next year. Turning to slide 13, I would like to make a few comments about our guidance. We expect net sales to be between $1,425 million and $1,475 million, an approximate 25% increase versus pro forma prior year at the midpoint from positive price and mix. We anticipate strong market momentum within the residential and Commercial end markets to remain. We expect adjusted EBITDA to be between $170 million and $185 million. The midpoint of our outlook implies an adjusted EBITDA margin of 12.2% and anticipates inflationary costs offset by price in dollars. Our third quarter performance demonstrates our commitment to serve our customers and remain disciplined in navigating unusual times. We believe that many of the actions taken in the third quarter position Cornerstone Building Brands for continued success for the remainder of 2021 and into 2022. And now I’d like to open up the call for questions.

Just a reminder that, unfortunately, Rose is not feeling well and is not with us this morning. So Jeff and Jim will take your questions.

Hey. Good morning, Jeff and Jim, and hope Rose feels better soon.

Thank you, Lee.

Good morning.

So just starting with the UCC acquisition, can you give us any more color around EBITDA margins, purchase price, potential synergies? And then I know you referenced residential roofing in the remarks, but it’s going into Commercial segments. So any color you can share around that also?

Sure, Lee. Let me just make a couple comments. First, we’re really excited about the acquisition. Just to kind of step back, we’ve talked about these large deep markets we want to participate in. And the Commercial components market in general is about a $4 billion overall market where we have the number one position currently in the components business. This acquisition, as we said, gives us access to the high growth residential metal roofing, which is about a $2 billion market. But it also UCC is 25% Commercial as well. So it’s not all residential. It’s about 75% residential and 25% Commercial. What it also does is leverage the core competencies from the legacy NCI in our Commercial business by expanding our metal footprints and it allows some efficiencies and it gives us really complements our current manufacturing footprint with the addition of UCC. So we’re really excited about that and what I’ll do is turn it over to Jeff and he’ll go through some of the numbers.

Great. Good morning, Lee. So a couple of comments around the financials themselves, we reported a $250 million revenue topline for the business. We haven’t specifically gone out with some of the EBITDA margin. But let me give you a little bit of guidance around that. Our expectation right now, pre-synergies for that business is kind of the low-to-mid double-digit margin. We do anticipate that we’ll get about 30% to 50% of synergy benefits off of EBITDA from that acquisition as well. And we think about the purchase price on that, we haven’t disclosed that. And as we go forward into the fourth quarter and some of the performance we put together, all this information will become available. But if you think about our last couple of acquisitions that we’ve made with Cascade and Prime and going back to the recent bolt-on acquisitions, those would range anywhere between a mid single-digit to a high single-digit multiple on those businesses, and this would fall within that as well. So, hopefully, that gives you the details that you needed and you’re looking for.

Yeah. That’s all very helpful. Can we switch over to the Commercial margins in the quarter, and obviously, they were very strong and it looks like you’re benefiting from a widening spread in a rising steel environment? Can you talk about the sustainability of that and if there was anything atypical this quarter that may normalize next quarter?

One of the things we've addressed over the past year is the fact that the Commercial market tends to lag the residential market by 18 to 24 months. We've experienced a significant backlog, with our Commercial backlog rising nearly 50% compared to last year. The demand is robust, and that lag time is becoming evident now. Additionally, we've centralized our pricing to ensure we stay ahead of rising inflation, particularly due to the increasing steel costs, which have been unusual in recent years. We're excited about enhancing our profitability. However, our margins are currently at a statutory high. We believe this business could represent a mid-teens margin as we move forward, and we will consistently aim to improve it. By streamlining the organization, reducing costs, optimizing pricing, and refining our portfolio, we see this business as being much different than it was two years ago.

Very helpful.

Let me add a couple of comments to that as well. Looking at the quarter itself, we saw our volume increase by about 2% in tonnage within the Commercial segment. Reflecting on the history of this business, when we entered into COVID, we experienced a 20% drop in revenue that continued throughout 2020. Recovery began in 2021, and as expected with the recovery of residential markets and the trend toward suburban living, combined with our Commercial business primarily located in the suburbs, we anticipated recovery within 18 to 24 months. This aligns with what Jim mentioned about the increasing backlog. The rise in volume is very encouraging for our company. Additionally, regarding the history of our Commercial business, in 2019, on a pro forma basis, excluding the IMP and BBCI divestitures, our pro forma EBITDA margin was around 12%. We improved that to about 13% in 2020 due to actions taken to simplify the business, eliminate some organizational layers, and maintain strong pricing discipline. This combination resulted in a 100 basis point improvement from 2019 to 2020. Moving into 2022, we continue to see those benefits as volumes return, and the leverage from that volume alongside our pricing discipline is what is sustaining our margins. As we anticipate concluding this year, we expect to maintain mid-single-digit EBITDA margins, as Jim discussed for 2021, aiming for a double-digit margin in 2021, and we believe we can continue to push forward on this with the pricing discipline we have established as we enter 2022.

Got it. And if I could ask one more just on the Windows margins, is this the bottom for Windows margins? Obviously, it telegraphs the issues you’re seeing, but I guess, one is that the bottom, and two, if it is what does the slope of recovery look like getting back to where we were and then beyond that?

Yeah. Let me address that one as well. First quarter we had 11.5% EBITDA margins within our Window segment. Second quarter we were at 12.6% and as you see with this quarter we are at 8.6%. So a drop off inside the third quarter, a lot of that is due to the manufacturing efficiencies as we serve our customers with higher overtime, just the labor constraints that are in place, the shortage of labor, freight expenses and making sure we continue to hit as many customer expectations as we can. For the fourth quarter right now we are coming back to kind of more the first quarter and second quarter margin levels. So that 11%, 12% is what we expect. So there’s a lot of work to do inside that business. We’re not claiming that we’re at the point now that we think we’ve got all the history behind us, but we’re going to continue to make efforts. We’ve made a lot of investments in wages. We’ve increased significantly the wages within our facilities. We continue to enhance the workplace environment for our associates as well. We’ve put additional management in place over the top to make sure that we’ve got great supervision over those facilities as well. That combination, those investments that we’ve made, plus that combination of new management, we believe will continue the momentum into the fourth quarter and into 2022. And just add one more comment on that, we’re continuing to invest inside the manufacturing efficiency and processes within the organization, when it comes to lean manufacturing, kaizen events, and Six Sigma type of disciplines and practices within that business, which we do think as we move into 2022, we’re going to bear some of the fruits from that and start to increase the margins for that business.

Great. I will hop back in queue. Thanks very much.

Your next question is from the line of Kurt Yinger with D.A. Davidson.

Great. Thanks, and good morning, everyone.

Good morning.

I just wanted to start off on the M&A appetite. I mean, you’ve done a commendable job deleveraging the balance sheet. But there’s a lot going on in terms of integrating deals, divestitures, and just the core business trying to manage through the supply chain challenges and maybe better leverage the demand backdrop. So I was hoping you could just talk a bit more about why M&A still seems like a big focus at this stage and how we should think about your appetite or pipeline looking into 2022?

Let me make a few remarks before handing it over to Jeff. We are continuously assessing our portfolio and aim to implement actions that lead to a more streamlined and focused collection of assets. At the same time, we are also concentrating on growth and value creation. We have mentioned our deep market strategies, with the UCC acquisition being a prime example of our integration efforts. Our integration track record over the past three years and with this year’s acquisitions has been exceptionally strong, backed by a dedicated team. We are also evaluating a balanced mix of residential, commercial, and repair and remodel opportunities. We maintain financial discipline and ensure that we do not overpay for any acquisitions. Additionally, it is crucial for us to pursue organic growth, not just M&A. As we've mentioned, this includes launching new products, such as expanding our patio door offerings in the Windows sector and broadening our Siding portfolio. Our capital deployment priorities are clear; our top goal is to achieve a leverage ratio of 2 to 2.5 times, and we have made substantial progress on that front in recent years. Following that, we prioritize investments in M&A. As Jeff pointed out, a significant part of our capital expenditures is directed towards automation in our Windows plants, while we also invest in organic growth opportunities or expanding our product lines in high-growth, deep markets where we can establish a leading position.

And Kurt, just to add on a couple of comments on that as well, we can’t control when great businesses come to market, and in this case, UCC was a business that we felt was very strategic for us. It gives us that deep market and the opportunity for us to grow inside those markets. We’ve got a nice right to win inside that business with our competencies around manufacturing of metals, the channels that we support on both sides, the Commercial and residential sides, and so it’s just a really good fit for us as an organization. And I’d like to go back to kind of the comment around the leverage ratio. We’ve been very successful in the leverage ratio, taking it from the end of 2019 5.3 times down to 4.9 times in 2020, and then we committed to a three-quarters to one turn reduction in 2021, and we’ve exceeded those expectations commitments that we made in light of M&A activity and divesting activity. It’s very much on our minds. It’s very much a priority for us to continue down that path of deleveraging the company and we’re committed to another three-quarters to one turn reduction by the end of 2022, which puts us back in our target of that 2 times to 2.5 times. So we feel like we’ve got to continue down the path of exercising on all fronts with a very balanced approach when it comes to investing, so we can get the growth, investing inside of our CapEx and other things, so we can get the benefits on the margin side and continue to work on the leverage, and so we’re trying to exercise all of those at the same time.

Got it. Okay. That’s helpful. And I guess just a clarification point on the leverage target. Does that include, I guess, what’s assumed for the UCC deal in terms of this year's 3.2 to 3.5 and then three quarters to one turn reduction for next year?

Yeah. Kurt, I’ll take that question as well. So the guidance that we put in place does not include UCC from either the sales, gross margins, EBITDA, or the net leverage ratio, that we don’t know when it’s going to close. We’re anticipating right now at sometime in the fourth quarter. So we don’t know if that’s going to be late in the fourth quarter or early in the fourth quarter, anticipating a close in the fourth quarter. But as we think about 2022 leverage ratio and that three-quarters to one turn reduction, we do anticipate that it will be included inside that guidance. As you think about the EBITDA that comes on, plus the purchase price for this business, it will put us in a position where it has a very small impact on the leverage ratio, just with the combination and the way that we’re buying that business.

Got it. Okay. That’s good to hear. And then just looking across the business, I mean, there’s a lot going on in the supply chain, raw materials and labor. As you look forward, I was hoping you could maybe walk us through your expectations around which pressure points might be alleviated over the next one to two quarters versus what areas you think will kind of be persistent into 2022? Kind of mainly, as it relates to how that’s going to impact your own production volumes?

Yeah. Just a couple comments, we’re in tight supply, to talk about raw materials, we are in tight supply as we talk on steel, PVC, resin, and aluminum. Those are really the three big categories. Steel costs are at historic highs. And with the macro data that we see, we don’t see any immediate change in steel costs. PVC supply is slowly getting better, though. We’re working very closely with our suppliers to manage demand and I think that’s one of the advantages of Cornerstone having a very large procurement team that works very closely with them. We’re also seeing some progress on labor. As you know, the U.S. Windows has the biggest labor opportunity, I’ll say, and since the second quarter, we’ve increased our headcount about 10%. So we’re starting to see some slow progress there and that’s really because of the actions that Jeff alluded to a few minutes ago. There’s not a silver bullet on this. It’s really a local ground game that we’re working with our selected plants to get labor. So we’re starting to see some progress there. On the Commercial side, it’s not as much a labor issue, it’s more raw materials as well as Siding. So if you look at those labor, we have actions in place. We’re slowly making progress. But it’s a long part as we get into next year.

And just going back to slide eight and looking at the walk, the EBITDA walk on the quarter itself, obviously, the big area of opportunity is manufacturing productivity. That’s where we’re really putting a lot of focus on, right? That’s where the investments gone. I’ll put some numbers around broad levels. We put $50 million plus in wages into the 2021 year to increase our wages as a company for our hourly workforce. That was specifically to make sure we retain the best employees inside the industry and attract the best employees. So we got a lot of investments in that area, but it’s really attacking that manufacturing productivity area and I think we’ve got some great actions in place. It won’t recover completely as we go through 2022. It’s going to take us some time with all the demand that’s on the company and expected demand inside in 2022, with the carryover backlog and the continuation of favorable economics, we expect this is going to be a little bit more difficult to claw our way through that. But we would expect to see sequential improvement inside our manufacturing productivity as we move forward.

Got it. Okay. That’s helpful. And just last one for me on the sales outlook, 25% pro forma growth, any color in terms of what’s assumed within that between volumes and price next?

Yes. Consider Q3 as a strong indicator for Q4, especially given the high comparisons to the previous year. With current supply constraints, we are maximizing our manufacturing productivity and capacity as much as possible. However, the limitations we face are more related to labor capacity than machine capacity. When we analyze Q4 in relation to Q3, we anticipate they will be quite similar. Therefore, the volumes will likely remain flat compared to the exceptionally high figures from last year in Q4, and we expect to continue seeing significant pricing increases in Q4 to counter the commodity inflation we have dealt with.

Okay. All right. Well, appreciate all the color and good luck here in Q4.

Thank you.

Your next question is from the line of Julio Romero with Sidoti & Company.

Hey, Jim, Hey, Jeff. Hey, Tina. Good morning.

Good morning.

Good morning.

Starting on the Windows side, what are your lead times for Windows right now and how does that compare to, say, lead times at this time last year, or the beginning of the year, or however you want to talk about that? And maybe when do you see that delta start to narrow?

Sure. Right now our lead times are about 3 to 4 times our ideal lead times. The key really is consistency. So even with longer lead times, we’re very focused on being consistent in communicating with our customers of what that lead time will be, and then the customers can plan accordingly. As I’ve mentioned, the backlog, if you look at historical levels across all segments in Windows, the backlog is up about 85% year-on-year. It gets back to what Jeff was just talking about on the Windows side; it’s not our installed capacity, we have enough installed capacity to meet demand, demand continues to be very strong and it really gets down to that labor factor that we just talked about. And starting, as I said, we have improved in the third quarter about 10% on our Windows business. So we’re really focused on lead times, lead times can vary by geographic area. But again, that’s something that is first and foremost on our Windows team to get those down. But also being consistent is the most important thing for our customers at this point.

And just add...

Got it.

Just add a few comments on that as well. We are expecting that lead times will improve as we get into 2022, in particular as the supply chain constraints. There’s just been a crazy amount of constraints coming into this year with the storm in the first quarter of this year inside of Texas, etc., and continued pressures across the Board. So as those move through, as those improve, as we get the wages, and the turnover within the manufacturing sites more in line with what we’ve historically had, we should expect to see those lead times improve. And we already are starting to feel like some of those constraints are starting to lighten up as we move into the back half of the third quarter and into the fourth quarter.

Got it. That’s helpful. And then, I guess, the 10% increase in headcount in the Windows should definitely help pretty immediately. But, Jeff, I think you mentioned earlier that you expect the fourth quarter segment margins for Windows to kind of look closer to what they did in the first half and that’s obviously very encouraging. But I’m wondering if you had any overarching challenges in the third quarter that you can kind of be more granular on that would only stay in the third quarter, right? Was it overtime? Was it inefficiencies or freight? And I guess, what gives you the confidence that it doesn’t fit, the margins do improve in the fourth quarter?

Yeah. Just looking at our Windows business in the third quarter, so we did get price over inflation, we had a slight increase in volumes and so both of those are positive. What drove the inefficiencies or the lower margins inside the third quarter really resulted from the manufacturing inefficiencies that took place. Specifically, the wage in particular, or excuse me, the hourly workforce is what drives it; the labor constraints that we’re seeing. Just to put it in perspective, if you got a line that requires 15, 16 people or even 30 people to run and you end up with 25 or you end up with 30 people showing up, you can still run the line. It’s not like you can’t run the line with a couple of short people or a few less people. But it does put a lot more pressure on the throughput of those lines. And so that’s what we’re experiencing is, you expect a full line to show up on Monday morning and you end up with short staff, and you continue to run through those. And so the inefficiencies that come with that, the overtime that comes with that, the freight expenses, we’re doing less than load shipments to satisfy customer demands and get as much product to our customers as we can combined, which is the overall freight expenses right now with truck drivers, I’m sure you’ve heard this across the industries, that shortage of truck drivers and those types of things are driving higher expenses as we’re looking to ship our products. So those are the two big ones: the labor constraints and the freight within the quarter.

To build on Jeff's comments about our different approach, we have implemented a very focused plan where we engaged subject matter experts to look at continuous improvement. This is not just a general issue with Windows; we are aware of the specific opportunities for improvement. We have recruited talent from the outside, not only for manufacturing leadership but also for continuous improvement. We are conducting kaizen events at our plants. As Jeff mentioned, we have allocated an additional $50 million in wages. It's also important to ensure that break rooms and restrooms are well maintained, creating a welcoming environment for new employees. This is a collective effort with a concentrated strategy, which is a shift from previous methods that aimed to quickly boost margins. This initiative is among our top priorities, and we understand the challenges we face and have the necessary experts involved.

Understood. And then just last one for me would be, you talked about a lot of investing into automation, as well as expanding product lines, a lot of organic opportunities. The CapEx guide of $90 million to $110 million looks on the surface at least a relatively low. If you can just talk about opportunities, maybe going beyond 2021, right? What does CapEx look like in the outer years?

The CapEx guidance of $90 million to $110 million is not based on preference but on our current capacity to acquire equipment from manufacturers due to supply chain disruptions. The projects remain unchanged, and we see numerous opportunities within automation and ways to streamline our existing lines. We have placed orders in the third and fourth quarters to keep progressing our business. Regarding 2022 and beyond, we've consistently set a revenue growth target of 2% to 2.5%, which we believe is appropriate for our operations. It's important to note that about 1% of our capital expenditure is for maintenance, ensuring that everything remains in good condition. The remaining 1% to 1.5% is directed towards cost reduction and growth opportunities. We aim to increase our investments as we identify more opportunities to utilize our capital effectively and achieve strong returns.

Great. Thanks very much for taking the questions.

There are no further questions. Are there any closing remarks?

Yes. Thank you, everyone, for joining our third quarter call. As we indicated, it was a strong quarter and we are very excited about our outlook. Look forward to your continued interest and have a great day.

This concludes the Cornerstone Building Brands third quarter 2021 financial results conference call. Thank you for your participation. You may now disconnect.