Louisiana-Pacific Corp Q3 FY2023 Earnings Call

Good day. And welcome to the Q3 2023 Louisiana-Pacific Corporation Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Aaron Howald, Vice President of Investor Relations and Business Development. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thank you for joining us to discuss LP's results for the third quarter of 2023 as well as our updated full year outlook. My name is Aaron, and I am LP's Vice President of Investor Relations and Business Development. With me this morning are Brad Southern, LP's Chief Executive Officer; and Alan Haughie, LP's Chief Financial Officer. During this morning's call, we will refer to a presentation that is available on LP's IR web page, which is investor.lpcorp.com. Our 8-K filing is also available there along with our earnings press release and other materials detailing LP's strategy and sustainable business model. Today's discussion will contain forward-looking statements and non-GAAP financial metrics as described on Slides 2 and 3 of the earnings presentation. The Appendix of the presentation also contains reconciliations that are further supplemented by this morning's 8-K. I will incorporate that content here in my reference rather than reading the slides. And with that, I'll turn the call over to Brad.

Thanks, Aaron, and thank you all for joining us to discuss LP's Q3 results and our full year outlook. The third quarter was our strongest of the year by far for both Siding and OSB. It was also a quarter in which LP's teams achieved key milestones for growth and sustainability, one of which we will recognize while continuing focus on building a stronger and more inclusive culture. Page 5 of the presentation shows financial highlights for the quarter. LP generated $728 million in net sales in the quarter, which was 15% lower than Q3 last year, as higher OSB prices and improved sell-through and inventory normalization in Siding led to a higher overall EBITDA margin than last year with the result that LP earned $190 million in EBITDA, only 5% less in Q3 of last year. As a result, LP exceeded the high end of our guidance range despite OSB prices falling in September. The $190 million in EBITDA translated very cleanly to $187 million in operating cash flow and LP ended the quarter with $160 million in cash on hand after returning $17 million to shareholders via dividends and investing $49 million in growth and sustaining capital. We repaid our revolving credit facility and ended the quarter with over $700 million in liquidity. Page 7 of the presentation shows Siding growth relative to the housing market on a trailing 12 month basis. Remember the quarter on record for Siding volume and revenue as we remained on a managed order file until early December of last year. Despite this very difficult comp on a trailing 12 month basis, SmartSide sales volume beat single family housing starts by 10 percentage points. Starts were down 16% but Siding volume was down only 6% and Siding prices were up 8%. As you can see in the pie chart to the right, ExpertFinish was stable at 8% of volume in the quarter. In the first half of 2023, Siding sales were dampened by inventory destocking after we finally transitioned from a managed order file late last year. Q3 saw the normalization of sell-through rates and inventory levels. As expected and despite a market that is facing increasing affordability challenges, higher interest rates, and elevated economic uncertainty, the third quarter saw sequentially higher volumes and average selling prices in the Siding business compared to Q2. As a result, we believe that the order patterns and channel inventory levels we are experiencing now are consistent with normal seasonal patterns with minimal lingering headwinds from destocking. This was not the first time that the Siding business has been on a managed order file, and the inventory digestion period before the resumption of a normal order cadence takes time. I am proud of the perseverance and dedication that Siding sales and operations teams demonstrated as we work through this process. Before I hand the call over to Alan, I want to mention a few additional accomplishments in the quarter. Last month, we officially opened our newest prefinishing facility in Bath, New York. This brings enhanced scale, efficiency, and geographic expansion to ExpertFinish. I want to officially welcome the Bath team to LP. Bath is the third new facility for the Siding business in the past two years after the conversions of Holton and Sagola. I am proud of the safe and efficient execution of all our recent capacity additions in siding and confident that we are well positioned to resume growth in the diverse markets we serve. In the third quarter, LP published our third sustainability report as well as environmental product declarations for the Structural Solutions portfolio of value-added OSB products. Structural solutions products like TechShield Radiant Barrier, WeatherLogic sheathing with integrated air and water barrier, and Legacy flooring all sequester more carbon than is emitted during their manufacturing and lifecycle. Our customers and shareholders are confident that LP's suite of engineered wood products combined with our responsible and sustainable management of forest resources means that LP can deliver best-in-class OSB and siding products while also having a positive impact on the environment. This is most notable in Siding where competing products are made predominantly of cement or vinyl. When it comes to durable products with great curb appeal and a positive impact for builders, contractors, homeowners, and the environment, it is very hard to beat LP's portfolio of sustainable and carbon-negative engineered wood building solutions. Lastly, before I turn the call over to Alan, I'm happy to say that LP was named by our local newspaper as the top workplace in Middle Tennessee and by a national publication as one of America's Greatest Workplaces, building a safe and inclusive culture where all of our team members feel welcome and encouraged to shine.

Thanks, Brad. Slide 7 of the presentation shows the third quarter year-over-year revenue and EBITDA waterfall for Siding. The third quarter of last year was a high watermark for both Siding volume and revenue and admittedly, presents a difficult comp this year. However, as predicted, volumes and prices improved sequentially over the second quarter of this year by 6% and 2% respectively. On a year-over-year basis, prices were up 3 percentage points. The combined impact of last January's list price increase and favorable product mix added $10 million of revenue and EBITDA. Volume was down 16% with ExpertFinish holding its ground better than primed. I'm going to take a moment now to recap the ramp-up and conversion cost trend this year. The business carried embedded ramp-up costs of $16 million in the first quarter of this year, $10 million in the second quarter, and now $8 million this quarter, including $1 million for the recently opened Bath prefinishing facility. This $8 million is $3 million higher than the $5 million we incurred in the third quarter of last year, and it is this $3 million increase that shows up on the waterfall. Now I mentioned this detail to emphasize the thing that our current EBITDA margins are carrying the burden or weight, if you will, of these costs. Moreover, the recently opened Bath facility will add about $4 million of incremental costs in the fourth quarter as it begins ramping up. So despite generating a respectable 21% EBITDA margin in the third quarter, adding back the embedded $8 million I just referenced together with $5 million for the Dawson press rebuild, as shown in the last column of the waterfall, would produce an underlying EBITDA margin of about 24%. This margin was, of course, helped by the slowing of inflationary pressures on freight and raw materials, which delivered a $9 million EBITDA tailwind. Slide 8 tells the third quarter story for OSB, where price gains and cost controls more than offset volume resulting in a small year-over-year increase in EBITDA despite the revenue decline. An OSB price drop late in the quarter notwithstanding higher prices added $28 million of revenue and EBITDA compared to last year. However, despite higher net price, the overall demand environment was softer than last year with open market volumes, particularly weak. And so the volume reduction in the quarter reflects not only the removal of the Sagola and Bath from the OSB fleet but also market curtailments in response to the softer demand. As with siding, raw material deflation provided a small tailwind, but the star of the show was cost control, which contributed $11 million of EBITDA. In other words, despite significantly lower volumes, the OSB business ran very efficiently as demonstrated not only by the dollars but by the 4 percentage point improvement in operating efficiency or OEE. As Brad has already mentioned, it was a clean cash flow, as shown on Slide 9, with $190 million of EBITDA producing $187 million of operating cash flow. We spent $49 million in growth and maintenance capital, returned $17 million to shareholders via the quarterly dividend, and repaid the $30 million draw on our revolver. As a result, cash balance increased by $90 million in the quarter to end September at $160 million. Cash has continued to increase subsequently and currently stands at a little over $200 million. Finally, let me discuss our updated full year outlook on Slide 10. With respect to CapEx, having already spent $236 million so far in 2023, the fourth quarter will likely look a lot like the third quarter for capital spending. The bulk of the near-term growth and conversion capital is behind us, with Sagola and Bath now up and running, so the fourth quarter spend will mostly be on sustaining maintenance. Siding revenue for the third quarter largely met our internal expectations, so we are reiterating the guidance we provided on our second quarter call that we expect a full year Siding revenue decline of about 10%, which implies a fourth quarter revenue decline of about 16%. For OSB, we will continue to offer algorithmic revenue guidance based on the assumption that OSB prices remain at the levels published by Random Lengths last Friday. Under this price model and accounting for market downtime, we would expect OSB revenue to be down 30% sequentially from the quarter. Under these assumptions, including the start-up costs of the Bath prefinished facility I referenced earlier and some maintenance expenses in both businesses, we would expect total company fourth quarter EBITDA to be between $60 million and $80 million. Now before we take your questions, please allow me to anticipate one. We're not yet in a position to offer revenue or EBITDA guidance for 2024, but our capital allocation strategy remains unchanged as will the flexibility with which we deploy capital to invest in capacity. If the housing and repair and remodel markets are basically flat next year, as most forecasts have currently anticipated, then Sagola and Bath provide LP's Siding business with sufficient capacity to press and prefinish enough SmartSide to meet demand. And when might we start converting the recently acquired Wawa facility for Siding? Well, the answer, as established on prior calls, is when the market demands it. We don't know exactly when that will be, but we have sufficient capacity, liquidity, and, most importantly, flexibility to be responsive to demand when that time comes. And in the meantime, our capital allocation strategy remains to earn cash, invest in our growth as needed, and return a significant amount of the remainder to shareholders.

And our first question will come from the line of Mark Weintraub with Seaport Research Partners.

The first question, if we think about the fourth quarter Siding margins, I guess, we're going to have Bath against us. But kind of order of magnitude, how should we think about it being relative to the third quarter?

Given that volumes in the fourth quarter, if we hit this forecast, are going to be lower than the third quarter, and the business has a high available margin, then even excluding the Bath costs, the EBITDA margin would have been a little lower than Q3. And then, of course, as we add on, as you point out, the Bath costs, that will lower the margin a little bit more. So the closest approximation to the Siding Q4 performance closest to approximation is probably Q2 of this year, similar in terms of most of the drivers.

And I believe that was at 18% to 19% EBITDA margins in Q2?

Yes, that was Q2. So closest to approximation. I'm not necessarily committing to that number but closest approximation, the shape of the quarter is very similar.

And then as we're thinking about next year, assuming you're not moving forward with Wawa and any start-up costs there, which I guess seems kind of unlikely. Can we add that $38 million of start-up costs with Sagola, press rebuilds, the Bath expansion, etc., when we bridge '24 versus '23, or would you suggest we think about it differently from that?

I'd suggest thinking about it slightly differently. So a proportion of those costs are permanently embedded; they're the fixed cost of having the facilities. Now, of course, that sets us up to be able to bring on incremental volume very efficiently, because the fixed cost infrastructure is largely already in place. So the real way to think about it is those embedded costs set us up to potentially have a high variable incremental margin on additional volume next year. That's the way to think about it. So they're there, but it means as volume comes on, those costs don't need to be added again because they're already embedded in our current run rate, and it's an investment. And I say this a lot, I know it's an investment in the future that allows us to immediately recognize the EBITDA from incremental volume when we get it.

But would none of that $38 million have been quasi-onetime? It should all be viewed as embedded or…

I am being a little cautious; some costs are embedded while others are one-time expenses. For example, during the ramp-up phase, we produce some subpar products that eventually get scrapped as we work towards operational efficiency. Therefore, some of these costs are indeed associated with start-up activities, but it's too soon for me to clearly distinguish them. You are correct that some of these represent inherent inefficiencies that won't recur. The remaining costs relate to fixed infrastructure.

And that will come from the line of Kurt Yinger with D.A. Davidson.

I guess as you've kind of wrapped up this inventory normalization in Q3, any thoughts on how much of a headwind that's going to ultimately pose to volumes this year? And how have incoming orders trended as you've gone from kind of Q3 to Q4 here?

Well, so for 2023, it's not the easiest thing to settle on a number for what the headwind was. But if you look at historical sales, if you look at some of the inventory reporting we're getting now from distribution, it can be as much as 100 million feet of volume that was sold last year and then moved out of the channel this year, which has caused the headwind that you've mentioned. As far as where we are today, we do have all customers back in order file routinely like on a normal cadence based on history. And so we feel good that across the board, across all different channels that we've worked through the inventory situation and we're seeing real consumer demand flowing back through to our order file.

And then I guess as you look at across some of the different products within SmartSide, ExpertFinish, the BuilderSeries, maybe some of the volume that was going into the shed manufacturers that was weaker earlier in the year. I guess, are there any parts of that that you're particularly excited about kind of growing next year, notwithstanding a big change in kind of the macro demand environment, or what do you see as kind of the biggest above-market growth drivers over the next 12 months?

Kurt, assuming that new home construction remains flat next year along with our spending, we are optimistic about our potential to increase market share in repair and remodel thanks to our ExpertFinish growth, the Bath, New York facility, and the Holton plant that is supplying products for the Eastern seaboard. This region is actively involved in siding repair and remodeling, where we currently have low market penetration. As we enhance our capability and capacity in this area, there is significant opportunity for market share growth. In terms of new construction, we continue to market our BuilderSeries portfolio, which offers a strong proposition for builders. Although we maintain a decent to good market share with smaller regional builders depending on the location, we are underrepresented among the larger national builders. We see substantial potential for BuilderSeries to compete effectively in this space and gain market share next year. In the shed category, we already have a strong market presence and aim to increase that slightly. However, I believe our most significant growth beyond overall market expansion in the next five years will primarily come from ExpertFinish in repair and remodel, along with larger builders.

And that will come from the line of Michael Roxland with Truist Securities.

I just wanted to follow up on Kurt's question in terms of market share and how you intend to gain market share. It seems like one of your siding competitors is gaining share with homebuilders and continues to be very vocal about it. You also mentioned last quarter that you're a little underpenetrated with the large national builders you just mentioned that again, Brian, here. So I just want to understand your approach with the builders doing to gain share? And aside from market conditions and what have been destocking, is there anything constraining you from gaining more notable share with the builders?

No, there are no constraints other than our relative newness to that sales cycle. I will clarify that we have had good traction with our TRIM product line with national builders for some time, so we are familiar with selling to these large builders, and we have a strong market share in OSB as well. The relationships with these major public builders have been established primarily through our history of selling OSB products in that channel. However, the key for us is having a competitive product, which we currently have. We believe our product is not just competitive but superior. It's important to note that these deals involve a long sales cycle, and we've been working hard on them throughout this year, feeling optimistic about our progress. Looking ahead to next year, we see significant growth opportunities. From a siding perspective, we are starting from a very small base, and we are encouraged by the potential for substantial growth, although it will take time. The positive aspect of these deals is that they are typically for multiple years or at least one year, providing some certainty of supply once we secure them.

I have a quick follow-up regarding your competitors. I understand that one of them has announced a price increase for Siding in early January. Could this situation work to your advantage in trying to gain market share, considering they have been quite aggressive with their pricing to builders over the past 12 to 15 months?

I addressed that question more generally rather than focusing on just one competitor. Clearly, for these large programs, the total cost is crucial to their success. If a competitor's price is higher than ours, that gives us an advantage in securing deals, although these matters usually get resolved later on. Our main competitive edge lies in our value proposition, which includes product quality, aesthetics, and ease of installation. That's how we position ourselves. However, we also need to ensure our pricing is competitive. As I’ve mentioned several times during this call, we now have a product that allows us to be competitive on price while also offering all the benefits of SmartSide to builders.

And that will come from the line of Susan Maklari with Goldman Sachs.

My first question is last quarter you had mentioned that you saw a fairly substantial decline in shed demand during that, and that was part of what was going through that Siding segment. Is there anything that's changed or that is impacting the business as you think about the fourth quarter guide there?

No, the shed business has improved significantly from what we reported for what would have been the second quarter results. I believe we are returning to a more normal pattern. Overall demand in that channel has been slightly lower this year compared to how active it was last year. However, we are optimistic, as all those customers have returned to our order file, and we are observing increased orders for sheds. Typically, there tends to be a stronger demand for products as customers build inventory in preparation for spring sales. Therefore, late in the fourth quarter to early in the first quarter usually sees robust product orders in that segment. We anticipate a similar uptick in demand moving forward. While I would say we are returning to a normal state, I should note that compared to other channels, this normal level is likely still somewhat below the high demand we experienced in 2021 and 2022.

I have to add something for the general audience as well. The Q4 revenue guide for Siding does include the fact that we are limiting prebuy in advance of the January price increase, partly so that we don't have a repeat of last year where we limited our ability to reap the market. So the Q4 guide does include a limit on prebuy.

And then maybe turning to OSB for a minute. When you think about that segment, and sort of the more recent trends there, that you think they're a bit in contrast to what we are seeing from especially the large public builders and their tone as they think about 2024? Can you just comment a bit about the channel inventories in OSB, including perhaps some of your structural solution products in there? And how you're thinking about the potential for those volumes to move over the fourth quarter or maybe even into the early parts of 2024?

The inventory situation for OSB in the channel is currently normal to slightly lean, although that can change quickly. Unlike Siding, there hasn’t been a significant buildup of OSB inventory; it may occur temporarily, but our order file remains stable. We're not experiencing any extensions or reductions in order volume, and I'm confident about our inventory levels. I anticipate a seasonal demand pattern beginning around Thanksgiving and lasting into early January, which aligns with historical trends before COVID disrupted our seasonality. I wouldn't be surprised to see OSB demand decrease around Thanksgiving, as our channel partners tend to maintain lean inventory levels. Typically, we see a surge in demand once the holidays are over as people prepare for the spring building season. I expect both Siding and OSB to return to this normal seasonality this year, which we haven't observed in the last three winters. We're ready to adapt to changes in real demand, but I foresee a slowdown in building from mid-November to mid-January.

And that will come from the line of Ketan Mamtora with BMO.

Alan, just one quick clarification to what you just said. So should I read this as you guys are already out in the market with the January price increase on Siding?

We have informed the channel that a price increase will be implemented. Those details will be customized by region and channel, and specific communications will be sent out over the next few weeks. The price increase will take effect on January 1. As Alan mentioned, we are approaching implementation differently this year. In the past, we allowed our channel partners to purchase up to 110% of their typical purchases from the previous six months. This year, we will limit purchases to 100% of their prior purchase history in order to reduce the chances of prebuys positively affecting Q4 and negatively impacting Q1. This approach also enables us to realize the pricing benefits more quickly on that volume. So, yes, the increase will be announced for January 1. Additionally, we are managing the prebuy situation by restricting purchases before the price increase.

And then just one quick follow-up on OSB. What was your kind of operating rate in Q3? And whether it's fair to assume that those curtailments that you all took outside of Sagola continue into Q4?

So we were running about 80% of capacity or ran about 80% capacity in Q3. And in Q4, we're planning for that or a little lower, I would say probably with more downside than upside. As the way I responded to Sue's question, if we really see a demand slowdown in the latter half of the quarter, we'll plan to take more capacity out as we balance our capacity to demand. But that's how we're planning to operate during the quarter and we will make sure that we satisfy our customers' needs but not get out of balance to that demand that we're feeling in our order file.

And that will come from the line of Sean Steuart with TD Securities.

Question on input costs. Can you give us a sense of variance versus Q3 for fiber and resin that's embedded in the Q4 guidance, and any context on trends you're seeing headed into 2024 on that front?

Well, generally speaking, trends are favorable as we head into Q4 and 2024. But we're cautious forecasters, so we generally don't bake in any sort of further improvements, meaning we assume that input costs are going to hold roughly at current levels as we forecast from Q3 to Q4. So if they improve, there's a tailwind there.

And just one question on modeling. The Siding price realizations this quarter improved a little bit sequentially, which is encouraging. How much of that is just a mix issue as the inventory bubble progressed through the quarter, or is there anything more to it than that in seeing that modest improvement sequentially?

Yes, it mostly involves a mix. The distribution business is strong, particularly with good pricing, and ExpertFinish is performing well. There was no price increase from Q2 to Q3, so we are seeing a continuation of that favorable mix during this period.

And that will come from the line of George Staphos with Bank of America.

I wanted to discuss siding. You mentioned that you are removing the option for customers to purchase in advance of your price increase coming in January. Are there other changes in your commercial or distribution strategies that you can share that would support progress into next year? Additionally, relating to what another analyst mentioned, your peers are also indicating growth. You aim to increase market share with large builders. You have the BuildersSeries product. How do you plan to achieve your desired 25% margin, considering that this product might typically have a lower margin while you are trying to expand your share? I understand that selling value will be essential, but I would like to hear more of your thoughts on that. What changes are you making to your commercial strategy, and how do you plan to reach your target margin in light of your goals with builders?

Let me start with our commercial strategy. During COVID, we were on allocation for over two years, which led us to significantly reduce our marketing spending since we were sold out. Going forward, we will concentrate more on resources that help us optimize our order files rather than solely focusing on growth and market share. As we prepare our budgets for next year, we plan to allocate more resources toward creating demand and adopting a growth-oriented mindset. This will support our BuilderSeries and repair and remodel products. Given the current market conditions, with a housing market that is flat to slightly growing, we need to be more aggressive in gaining market share. Regarding margins, your understanding of lab siding sold to large builders is generally accurate. However, I want to emphasize that the BuilderSeries has been engineered to maintain competitiveness, meaning that while we may accept lower margins to secure volume, we also have measures to offset this. For instance, in repair and remodel, we focus on value selling with our ExpertFinish strategy, which can significantly enhance our market share and margins. On the manufacturing side, we have large, efficient mills, such as those in Sagola and Bath, which operate at lower costs compared to our average. As we enhance these larger pressing and prefinishing facilities, we see opportunities for cost reductions that will positively impact our margins. We continuously analyze pricing, margins, cost reductions, and operational efficiency, and we've become more sophisticated in managing pricing by channel and customer. I am confident in our ability to manage margins effectively, and while we usually have a mix of lower and higher margin products, we still have ample opportunities in our portfolio to improve margins, especially as we enhance our operating efficiency.

Brad, just quickly on distribution. Any change in terms of the way you're going to approach '24 versus '23 or pretty much the same approach? And from my vantage point, maybe simplistically, maybe a little bit more of a one step versus two step?

George, you know we've talked about, we have set up DCs in some major metropolitan areas to provide more of a direct model; that is largely driven by the focus on the builder. The other customers benefit off that as well. So I would say that is not new for '24; it was new for '23, but we will continue to focus on optimizing that and pushing volume through that more direct path. And we're only doing that to be more efficient in delivering more efficient from a cost standpoint and responsiveness, delivering product into strategic customers that need that level of service and honestly some cost advantage. But as we look into 2024, no major changes in the way we're going to market other than continued growth in that more direct selling model.

And that will come from the line of Paul Quinn with RBC Capital Markets.

It seems that the key factors for a successful Siding operation are the engagement with major builders and the implementation of ExpertFinish. Regarding the big builders, can you provide insights on the BuildersSeries? Is there a difference in regional penetration, such as greater successes in the South compared to the Northeast? Additionally, is the manufacturing of that product conducted at all of your siding mills or just a select few?

On the manufacturing side, we are currently sourcing from our 24-foot press mills in Dawson Creek, British Columbia. Sagola has that capability and is closer to the market, which will benefit our cost margins. We have converted our most recent presses, which are 24 feet in length, while the BuilderSeries is 12 feet. Our historically normal SKU has been 16 feet. Regarding penetration with big national builders, it's important to go where they are, particularly in the smile of the country, where many housing starts are occurring. We have historically seen good penetration in Texas and Colorado due to SmartSide's history there. We're focusing on increasing penetration in the South Central, Southeast, and Atlantic seaboard regions to gain market share. Additionally, we have been strong in the central part of the country with our 16-foot product offering to larger builders, which presents further opportunities for incremental business. However, the biggest potential for volume growth lies in the South Central, Southeast, and Mid-Atlantic regions.

Regarding ExpertFinish or R&R, how should we consider the margin improvement associated with increased volume from that? Do you anticipate this to be a gradual and consistent increase through 2024 into 2025?

Yes, it's probably more slow and steady than big bang, other than to say and the finishing line we've put in to Bath, which we put a similar line into our existing facility in Green Bay. And we are seeing economies of scale that are exceeding expectations. And so as we ramp those up, there will be somewhat of a step change in margin. I think by the time you run it through all the Siding that we sell in the quarter, it might be a little bit harder to see, but it's coming. And as we learn how to do this at scale, and we just see a lot of opportunity for incremental margin above the decent margins we're enjoying today.

South America showed some weakness in the quarter. What can we anticipate moving forward?

South America is currently a solid business economically across the continent. However, there is significant political and economic unrest at the moment. We are gaining where possible, and there are no concerns regarding market share. The chaotic economies in the region are slightly affecting our volumes. Pricing remains challenging in all the countries, and we have implemented substantial capacity reductions across our operations there. We are working hard to maintain our position in South America while anticipating a shift in the economic landscape. Over the 25 years we've been operating there, we've noticed this cyclicality; economies can become unbalanced, and that is certainly the case now. We remain optimistic about the long term but expect next year to be similar to this year regarding earnings potential as we navigate the economic challenges affecting all the markets in which we operate.

Can I add one other thing, with the risk of opening a can of worms. We did transfer Entekra's assets to South America, and the cost of transferring and packing, shipping, and everything is noncapitalizable. You're interested, and therefore the cost of doing so is reflected in the EBITDA, that's $2 million to $3 million in Q3 that was quote I use the traditional freight that a lot of but we left it in their EBITDA because the corporation is always equipped about as a whole. So there's no reason not to include an EBITDA. So that made a tough environment appear slightly worse than it really is.

That concludes today's question-and-answer session. I would now like to turn the call back over to Mr. Aaron Howald for any closing remarks.

Okay. Thank you, operator. With no further questions, we'll end the call there. Thank you for joining LP for our third quarter earnings call. Stay safe, and we look forward to connecting again soon. Thanks, everyone.

Thank you all for participating. This concludes today's program. You may now disconnect.