Louisiana-Pacific Corp Q3 FY2024 Earnings Call

Good day, and thank you for standing by. Welcome to the Q3 2024 Louisiana-Pacific Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a Q&A session. Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Aaron Howald, Vice President, Investor Relations. Please go ahead.

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

Thanks, Aaron, and thank you all again for joining us today. LP's teams continue to execute our strategy effectively in the third quarter. As a result, Siding net sales grew by 22%, well above the underlying markets we serve. Siding set new records for sales and EBITDA, helped by ongoing improvements in export finished margins. Our OSB business operated safely and efficiently with strong price realization to make the most of a sequentially softer price environment. Page 5 of the presentation shows LP's high-level financial results for the quarter. LP generated $722 million in net sales with 22% Siding growth almost completely offsetting the $88 million impact of lower commodity OSB prices. Siding's EBITDA of $123 million was a record. ExpertFinish saw another record quarter for both revenue and margin with margin expansion driven by higher volumes and efficiency improvements at our dedicated pre-finishing facilities. $153 million of EBITDA translated cleanly into $184 million of operating cash flow. We invested this cash in our future growth with $44 million in capital expenditures in the quarter before returning $91 million to shareholders through dividends and share repurchases, leaving LP with nearly $900 million of liquidity and a very strong balance sheet. Let me turn briefly to the market and what we are seeing in the channel. The new home construction market is slowing somewhat with the combined effects of the recent rebound in mortgage rates and the approach of colder weather. Housing starts have leveled at about 1.4 million in recent months, which is also the current consensus for next year. But the single-family mix remains higher than average. In the new construction market, LP is over-indexed to single-family starts. So it was encouraging to see the run rate for single-family starts back above 1 million in the September census report. Repair and remodeling spend is still a few percentage points lower than last year, but the outlook for R&R has improved. The recently published leading indicator of remodeling activity published by the Harvard Joint Center for Housing Studies suggests that R&R spending has bottomed and projects a return to positive year-over-year growth in 2025. Given that about a third of LP SmartSide siding goes for R&R applications, this is a positive development. We believe inventories in the channel are within normal seasonal ranges. OSB inventory is somewhat leaner, which may be contributing to recent strength in commodity prices. Siding inventory is similar in absolute volume at this time last year but lower in days of sales and consistent with normal seasonal patterns. We have announced a price increase for next year in Siding, and that will be a factor as we manage year-end shipments to position ourselves and the channel for a strong start to 2025. Looking forward, interest rates and affordability remain the dominant macroeconomic factors to watch. But housing undersupply and the aging housing stock must ultimately be resolved. We believe that LP is uniquely well positioned to address these needs. And as a result, we are confident that we will continue to grow Siding and Structural Solutions in 2025 and beyond. Our results demonstrate that LP's strategy is working and reinforce our confidence to invest in future growth, which Alan will speak to in a moment. Before I turn the call over to him, I'll highlight two additional accomplishments from the quarter. First, LP published environmental product declarations for the entire SmartSide Trim and Siding product portfolio. This is validated by our team at International confirming that SmartSide, ExpertFinish, and BuilderSeries products are carbon negative, meaning they store more carbon than is emitted throughout their lifecycle. This is made possible by our sustainable use of renewable fiber resources as well as our innovative and efficient manufacturing processes. And I want to thank the LP teams that support this, especially forestry operations and our sustainability team. Last and most importantly, LP was notified in August that we had earned the 2023 Safest Company Award from APA to Engineered Wood Association. This is the 12th time in the 16-year history of the award program that LP has won the safest company designation. Five of our mills also won individual safety recognitions. I want to thank and congratulate every LP team member for this recognition and challenge all to keep building upon LP's high-performance safety culture. Safety is a core value for all of us at LP. And while we are pleased with the honor, we won't rest on our laurels. And with that, I will turn the call over to Alan for more detail on our results and guidance before we take a round of questions.

Thanks, Brad. As usual, slides 7 and 8 of the presentation show third-quarter year-over-year variances in net sales and EBITDA for the Siding and OSB businesses. Both are fairly straightforward, but with the exception of some timing wrinkles in Siding that I'll spend a bit more time on before I move on to our updated guidance for the full year. Turning to slide 7. Siding net sales increased year-over-year by $75 million or 22% for revenue of $420 million on 460 million square feet of volume, both sequentially above second quarter levels. This year-over-year growth is a result of 6% higher average selling prices and 15% volume growth. Roughly half of the 6% price improvement was the result of annual list price increases with the other half due to favorable mix. ExpertFinish comprised 9% of volume in the quarter, contributing significantly to this positive price/mix. The incremental volume generated EBITDA at a 44% contribution margin that is $24 million of EBITDA from volume divided by $54 million of revenue from increased volume. When we include price, the contribution to EBITDA on incremental revenue was 61%. You can find that by adding $22 million of price to both the numerator and denominator in the previous calculation. And this healthy conversion is exactly what we should expect from the business as it continues to grow into recently added prime capacity at Sagola, Houlton, and ExpertFinish capacity at Bath. Investments in sales and marketing, mostly boots on the ground with the sales team, totaled $6 million more than prior year. And our helping LP Siding business continue to grow, despite flat housing and lower year-over-year repair and remodel expenditures. And raw material and freight costs were roughly in line with last year. In the other column at the far right, the first and simplest item is a $5 million EBITDA benefit from the non-recurrence of last year's press rebuild at Dawson Creek. The remaining $8 million benefit is the net of a handful of smaller puts and takes, but one item does bear mentioning, as it will impact the fourth quarter: a maintenance project in our Houlton mill that was planned for September was pushed into October because of the delays in equipment delivery caused by the East Coast port strike. The project is currently underway, and it will require about four weeks of downtime. The total cost and production impact in the second half of the year are unchanged, but the delay pulled production forward into the third quarter and pushed costs into the fourth. The delayed costs and inventory absorption effect of extra production boosted third-quarter EBITDA by a bit over $5 million and added probably a point to the EBITDA margin. Now I mentioned this only because all else equal, one could reasonably assume that this pull forward might create a corresponding reduction in our fourth-quarter EBITDA outlook. Happily, this is not the case as I will detail in a moment when I get to updated guidance. On Slide 8, I'm sure you'll all be relieved to note that the OSB waterfall is far simpler, so I won't belabor it. Commodity prices were lower, reducing year-over-year sales and EBITDA by $88 million. And variances from high volumes, incremental margin from Structural Solutions, raw material and labor inflation were all immaterial by comparison. But the story this chart doesn't tell very well is that the combined impacts of OEE, cost control, and strong price realization allowed the OSB business to outperform the small increase in our algorithmic guidance implied by modestly higher random lengths prices late in the quarter. Slide 9 shows a similarly straightforward quarter of cash flow. This $184 million of operating cash flow includes $44 million of working capital inflows mostly from accounts receivable, and $73 million of share repurchases brought shares outstanding to almost exactly 70 million as of the 1st of November. We also made a locally funded $17 million investment in a non-consolidated joint venture in South America. This venture, already well established, specializes in off-site construction of modular social housing. And this should help stimulate and sustain demand for LP's products, address the chronic undersupply of housing in the region, and support the ongoing shift in South American building practices from bricks and cement to more sustainable and seismically robust engineered wood. So Slide 10 shows our updated guidance. Ongoing growth and margin expansion in Siding are expected to more than offset the timing issue I mentioned earlier. So we now expect fourth-quarter Siding revenue growth of between 9% and 10% for sales of about $365 million. And this would bring full-year sales growth to about 17% and revenue to about $1.55 billion. Siding's fourth-quarter EBITDA should be between $70 million and $80 million. This would deliver full-year EBITDA in the $390 million to $400 million range for a margin of about 25%, which is our long-term target. In other words, continued strength in the Siding order file has allowed us to increase the full-year growth and margin expectations for Siding by about one point each compared to last quarter's full-year guidance. In OSB, random lengths have climbed a bit in the fourth quarter, but we expect typical seasonal downtime to impact volumes. And incorporating these factors and using our normal approach for OSB, assuming prices stay flat at current levels, we would expect OSB EBITDA in the fourth quarter in the $15 million to $25 million range. Adding this all up, but as usual, netting the South America's EBITDA with unallocated corporate costs, we now believe that LP's full-year 2024 EBITDA will be between $655 million and $675 million, an increase of about $65 million compared to the midpoint of our guidance from August and $30 million of this is coming from Siding. CapEx for the year should come in around $200 million. And as Brad said, growth in share gains give us continued confidence to invest in new Siding capacity. As a result, while we won't yet offer revenue or EBITDA guidance for 2025, we do expect CapEx the next two years to be meaningfully higher than this year's as we launch the next Siding expansion project. We'll share more specifics on this project in coming quarters. For now though, I can say that we expect total CapEx investments next year to be between $350 million and $375 million, including $100 million to $125 million dedicated to the next Siding mill, most of which should land in the third and fourth quarters. In summary, it was another strong quarter for LP. We executed our strategy safely, and we're well-positioned to see continued growth and margin expansion in 2025 and beyond. And with that, we'll be happy to take a round of questions.

Thank you. At this time, we will conduct the question-and-answer session. Our first question comes from the line of Susan Maklari of Goldman Sachs. Your line is now open.

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

Good morning, Susan.

Good morning, Susan.

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

We are very pleased with the growth we've experienced this year in SmartSide, recovering from a disappointing year last year. As we look ahead at any reasonable growth rate, we are approaching the need for additional capacity. We prefer to anticipate production needs and are willing to add capacity slightly ahead of demand to avoid restrictions. Given this year's growth, we are increasing our planning for the next significant capacity expansion. As both Alan and I mentioned in the call, we plan to begin that investment next year, which would allow us to be operational by late 2026 or in 2027, depending on the timing and how Siding growth unfolds next year.

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

Sure. We're returning to the historical normal price increase environment we experienced before COVID. Currently, we have a gross price increase of around 4% to 5% depending on the SKU and region, and we anticipate a net increase of about 3% as a good planning figure for next year. This doesn't take into account any mix changes next year. The price increase will take effect on January 1. We plan to limit sales in December to avoid pulling forward sales due to the price increase, which will help set us up for a strong first quarter in terms of sales. That's our current plan, and we're actively working on it. The price increase is already in the market.

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

Thank you. You're welcome.

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

Yes. Thank you, Brad, Alan and Aaron for taking my question. And congrats on a very strong quarter. First question I have is SmartSide has continued to gain share. What has been the competitive response from fiber cement final? Have you seen increasing price pressures? Are they trying to retain or win back some share? And what has been LP's response?

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

Thank you, Brad. I have a question regarding Sagola, Houlton, and some of the mills that may not be operating at full capacity. Since you plan to increase capacity, what is the current operating status of those mills? Additionally, what do you anticipate their operations will look like next year that justifies bringing on new capacity in the next 1.5 to 2 years? Thank you.

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

Thank you.

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

Thanks. Good morning and congrats on a very good result. Brad, wondering if you can give some context on, Siding expansion options, as you look ahead as we start to build CapEx in 2025 and 2026 in your forecast, whether it's expansion at existing sites, Wawa, what you're thinking of in terms of the best option for adding supply?

Great question. I want to remind everyone of the options we have available. We still have two Aspen-based OSB mills, one in Quebec and one in British Columbia, which could potentially be converted in the future. Additionally, we are examining the idle facility in Wawa, Ontario, and we have the possibility of adding press lines at our current Siding mills. All of these options are still under consideration for the upcoming capacity increase. The decision will hinge on the feasibility of converting one of the two Aspen-based mills in Canada, as those are substantial press configurations. In either scenario, the setups in Milwaukee or Peace Valley would represent the largest presses in our Siding operation. There are some technical challenges to address for a feasible conversion now. We also have Wawa and potential press line additions at our existing facilities, which I think could be great options. The key factors in making that decision will be capital efficiency. Starting up Wawa would essentially be like launching a new mill, while adding a press line may require slightly less capital. Moreover, we're now managing our Siding portfolio as a network. When considering this, we evaluate how we distribute SKUs across our current operations, their locations, and where we see growth opportunities with customers. This can influence our capacity decisions regionally between mills in Houlton, Maine, Ontario, Sagola, Michigan, and Dawson Creek, British Columbia. We're still in the early stages of planning for network optimization and capital efficiency. Soon, we expect to obtain Board approval to order some equipment that is versatile regarding location. By the middle of next year, we will need to focus on the specifics of location and commit to a decision. However, that choice hasn't been finalized yet, but we do have many strong options, which is the main point. We'll make the decision based on the net present values of the additional capacity we require.

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

Let me clarify one thing that I think we should be open about. I don't really have an opinion on how panel flow across the border, OSB, or siding might be affected. A significant portion of our MDI comes from a supplier in China. We've been navigating the tariff situation since Trump took office, and Biden maintained those tariffs. That's the main cost risk we face. There have never been any restrictions on OSB or tariffs on OSB crossing the border, and I don't expect that to change in the near future, but anything is possible. We'll adapt as needed. However, if Canadian OSB suddenly couldn't come into the US, it would definitely influence OSB prices, and there would be numerous factors to consider to understand the true impact. We're not anticipating that to be a concern regardless of who wins the election. However, we are monitoring imported raw materials from China, as that could significantly affect the industry and our MDI purchases.

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

Welcome.

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

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

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

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

Yes. We are focused on increasing the share of Structural Solutions in our portfolio. This can fluctuate from quarter to quarter, especially as large builders opt for commodity OSB. We also manage this based on margins. Currently, we are ensuring that selling Structural Solutions contributes positively to our margins. If it doesn't, we might revert to more commodity sales. The trend of Structural Solutions in our portfolio will continue to rise, but there will be variations each quarter due to price and margin influences of commodity OSB and Structural Solutions, along with the preferences from our large builder customers, which might lead to a greater focus on commodity OSB than we would prefer at times. Nevertheless, we are committed to growing this segment and are confident in our strategy, although customer demands may lead to fluctuations in the short term.

Makes sense. Thank you.

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

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

I don't believe there's anything out of the ordinary here. Looking back over the past couple of years, you mentioned what is considered normal. I am uncertain about the definition of normal, which presents a challenge for us. The revenue profile in 2023 was certainly not typical. We were coming out of destocking while also defying seasonal trends. What you are observing in Q4 and our guidance for Q4 indicates a return to a more seasonally typical pattern that we experienced four or five years ago. Additionally, as Brad noted in response to a previous question, we aim to manage demand effectively in relation to the price increase on January 1. These are the main reasons why Q4 appears markedly different from Q3.

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

The South America strategy has focused on transitioning away from traditional construction methods. This investment is strategic for us because our joint venture partner is a significant manufacturer of modular housing, involved from production through to sales and real estate development. They have been a key customer for us. Therefore, we won't see an immediate increase in volume, as we've already been supplying that product. However, as we work to grow our share of stick-built homes in South America, we believe this partnership aligns well with our long-term goals. We'll provide updates each quarter as we progress, but it is not expected to materially impact our performance this quarter or likely next year, since we have maintained that business for quite some time.

Okay. Thanks very much. I'll turn it back.

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

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

The strength has primarily been in new construction and repair and remodel, which has driven most of this growth beyond the usual trend. The retail business has performed at an average level, while the shed category has remained flat this year. Overall, our prime business has been outstanding, and although the BuilderSeries and ExpertFinish come from a smaller base, their growth percentages have contributed significantly to the year's results.

And then, Brad, can you evaluate how much of the growth is due to same-store sales versus your expanding distribution base?

Let me break it down by segment. For new construction, our credibility with large builders has allowed us to secure significant deals this year, which leads to new lumber yard additions in the areas where we're expanding our business with builders. This new lumber yard distribution is an incremental gain. It typically results in a small inventory build, since these aren't two-step distribution models, followed by sales to the customers we've partnered with. Additionally, having our products available at the lumber yard opens up sales opportunities to other builders and contractors who previously didn't have access to our offerings. This has been a crucial element of our success in new construction this year. Regarding repair and remodel, building contractor loyalty is central to our strategy, supported by increased marketing and sales investments. We're also seeing continued growth in our one-step distribution channels. As we emerge from allocation, we've been focused on this growth. While we are gaining market share with contractors in repair and remodel as well as new construction, we also recognize the necessity of expanding our distribution network.

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

For R&R, I believe we are still not fully represented in the market, which means we will keep adding distribution locations as ExpertFinish becomes more available with our capacity expansion. This will play a crucial role in our growth for Mark, likely over the next several years, as we increase our market share, particularly in areas where we currently lack strong distribution. For the traditional route to market for new construction, I see this being centered around regional successes with major builders and the necessary additions of lumber yards to support those successes. While this may not be as impactful as our partnership with Lennar has been this year, there are still opportunities to deepen our presence in both areas.

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

That's a good point. That is a factor. As you know, Ketan, some of the mills we have converted, especially Swan and Sagola, have large presses that are suitable for panel production, whereas Houlton was a smaller mill better suited for lap and trim and socket production. When I mention the opportunities regarding press size and location, we will consider the SKU distribution profile in our decision-making process. If we are focusing on lap and trim for volume, a larger press might be less attractive, and we may lean towards adding a specialized press line at an existing facility. This is certainly a factor. Given our discussions in the past few calls, particularly this call, the growth is primarily in lap and trim rather than in panel right now, which likely indicates a need for a more specialized setup for the next mill conversion.

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

I would say activity has been good to okay this late in the season. Weather patterns have been warm across the country, which certainly helped. It feels reminiscent of a pre-COVID solid year regarding how our order file has remained steady throughout the fall and how we have visibility into normal inventories in the channel. Overall, it's been a really solid year, and we're continuing to see a nice order file given the current season. I don’t see significant risks due to the price increase we have announced. We feel confident about our guidance for the rest of the year, and as we look ahead to next year, we're increasingly optimistic about what we can achieve.

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

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

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

The outlook for single-family or new construction starts next year appears flat, but we do not intend to remain flat. The momentum we have built this year, along with our capacity and no allocation issues, makes us increasingly optimistic about next year. While there are various potential challenges, such as political and tariff risks, we believe our product's value proposition remains strong. Our growing credibility with contractors and builders is contributing to this. We are aiming for growth rates similar to the pre-COVID levels of 8% to 10%, which we believe we can achieve. We are not providing specific guidance for next year yet, but this historical trend is encouraging. We will address more details in the next call, but I feel positive about our trajectory. However, we will need to thoroughly assess the potential headwinds in the coming months as we prepare our guidance for next year.

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

Affordability does play a role in the popularity of vinyl siding. Ultimately, this is primarily a matter of cost. Contractors and builders often select vinyl siding, especially with the introduction of our prefinished siding, ExpertFinish, which simplifies the construction process by removing the need for painting. This can make homes more affordable. Additionally, the labor savings achieved by using SmartSide compared to other materials is significant. As builders and contractors become familiar with the product, they recognize these advantages. This enhances the value proposition I mentioned earlier and gives us confidence that we can build on the growth we've experienced over the past year in the upcoming year.

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

Yes, I'll address this in relation to Q3. In Q3, we reported $123 million, which included approximately $5 million intended for one-time costs and inventory adjustments. We had planned a reduction in Q4 that we unintentionally executed in Q3 instead. So, if we adjust $123 million by subtracting $5 million, we're left with $118 million. I will then add that $5 million to our Q4 midpoint guidance, bringing it to $80 million, which leaves us needing to explain about $38 million. Around $30 million of this difference is attributed to lower volume from Q3 to Q4. The remaining $8 million to $10 million can be attributed to one-time maintenance costs and mill downtime necessary for Q4 maintenance. This also accounts for the difference between Q4 EBITDA and Q1 EBITDA; although the revenue levels are similar, Q1's EBITDA was higher since we weren't experiencing downtime or depleting inventory like we will be doing in Q4, leading to decreased absorption on inventory combined with necessary downtime.

Got it. Okay. Appreciate the color.

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

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

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