Good day. And thank you for standing by. Welcome to the Third Quarter Louisiana Pacific Corporation Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Aaron Howald, Vice President Investor Relations and Business Development. Please go ahead.

Thank you, operator. Good morning, everyone. And thank you for joining us to discuss LP's results for the third quarter of 2022 as well as our updated outlook for the fourth quarter and full year. As the operator said, my name is Aaron Howald, and I'm LP's Vice President of Investor Relations and Business Development. I'm joined this morning by Brad Southern, LP's Chief Executive Officer; and Alan Haughie, LP's Chief Financial Officer. During this morning's conference call and webcast we will refer to an accompanying presentation that is available on LP’s IR webpage, which is investor.lpcorp.com. Our 8-K filing is also available there along with our earnings press release and various other materials. Statements regarding non-GAAP financial metrics and forward-looking statements are available on Slides 2 and 3 of the earnings presentation. And the appendix also contains reconciliations that are further supplemented by this morning's 8-K filing. Rather than reading those statements, I incorporate them here and by reference. And with that, I will turn the call over to Brad.

Thanks, Aaron. Good morning everyone. And thank you for joining us to discuss LP’s results for the third quarter in our full year outlook. As you all know, the third quarter saw a significant slowdown in single-family housing starts, which no doubt contributed to the normalization of OSB prices. This is a challenge for commodity OSB results, but also provides an opportunity to demonstrate the value of LP’s transformation against the backdrop of a slowdown in new residential construction. LP’s strategic focus on the repair and remodel market segment and higher value-added specialty products, drove continued growth. In fact, the Siding segment generated more revenue than the OSB segment in Q3. And within OSB, the majority of the revenue came from the more specialized Structural Solutions portfolio. Our discipline capital allocation strategy continues to prioritize and support investment in the capacity necessary to enable future growth. Pages 5 and 6 of the presentation show some high level results for the quarter. LP earned $200 million in EBITDA in the quarter, and received about another $200 million in net proceeds from the EWP sale. In Q3, we invested $86 million in capital projects to drive future growth and returned $341 million to shareholders, the bulk of which was spent to repurchase 5.6 million shares. LP ended the quarter with a very strong balance sheet, including $482 million in cash, and over a $1 billion in available liquidity. Page 7 shows more detail on Siding solutions growth. Recall, only about 40% of Siding volume goes into the single-family new construction with a growing majority dedicated to RNR, shares and other DIY applications. Through Q3, single-family starts failed by about 5% on a trailing 12-month basis. In contrast, Siding solutions volume grew by 6% and price increase by 13% over the past 12…

Thanks Brad. As we've said, the third quarter of 2022 set new records for Siding. Despite general economic headwinds and slowing single-family housing starts, LP continues to grow Siding and Structural Solutions, and that growth continues to offset the impacts of raw material and wage inflation. The waterfall on Slide 9 provides a summary of revenue and EBITDA compared to the third quarter of last year for Siding. Revenue grew year-over-year by $82 million or 27% to $394 million, prices were 16% higher due to the combined effective two list price increases in the past three quarters in addition to the mix of lift from ExpertFinish. These higher prices added $51 million of revenue and EBITDA. Volumes were 9% higher as a result of the Houlton mill's ongoing ramp-up, as well as continued improvement in overall equipment effectiveness or OEE, which rose 2 points over last year. Volume growth contributed $31 million of revenue and $12 million of EBITDA. Inflation produced $32 million of direct cost headwinds, of which $23 million was in raw materials and $7 million in freight. And the final $14 million of cost increases largely relates to sustaining maintenance of the mills together with increased prices for MRO materials. But in summary, growth and price, which we believe are permanent more than offset inflation, which we hope is not, the result was a rather healthy $90 million in EBITDA, a 23% margin. Slide 10 shows the waterfall for the OSB business. Now, the growth story is broadly consistent with that of siding with increases in Structural Solutions volume offsetting raw material and wage inflation. But this similarity is overshadowed by the drop in commodity OSB prices, which reduced the over-year-revenue and EBITDA by $252 million. The final $20 million EBITDA headwind on the waterfall reflects increased…

Thank you. [Operator Instructions] And our first question comes from Susan Maklari from Goldman Sachs. Your line is open. Please go ahead.

Thank you. Good morning everyone. My first question is looking at this Siding business, can you talk a little bit about channel inventories there and what you're seeing just in terms of overall order rates? We've heard from a lot of building product companies this last couple of weeks that things are obviously starting to moderate on the ground. So can you just help us understand better what you're seeing there and contrasting your growth relative to what's happening in the broader industry?

Susan, we're still on managed order file and as I mentioned in the prepared remarks, expect to stay on managed order file at least through Q1 of next year, and so right now our demand pulls are still strong. Channel inventories and Siding remain on the lean side of where we would like them to be at this for this time of year. And so from that standpoint and look it's hard when we're oversold or all managed order file, you're not sure how much more you could sell it if you had it. But currently the strength of the order file remains pretty stable. These additions to capacity particularly the Houlton is going to provide this incremental volume to sell over the next several quarters. And so the managed order file situation could change, but as of today it still very healthy order file.

Okay. That's helpful. And then following up, can we talk a little bit more about inflation and the supply chain and how you're thinking about those costs coming through over the next couple quarters? And the ability to sustain price as the macro and as housing does moderate to hold the margins that you've been seeing, especially in the Siding segment?

Yes, Susan, I you know, I feel good as Alan mentioned in his remarks, our Siding pricing historically for the last 20 years or so has been very sticky. Once we get it we've essentially never given it up especially on the price list sometimes to respond to competitive situations. We can work around with rebates to specific customers, but I mean, I feel good about the pricing that we've gotten this year. We are planning to go out January with another 3% to 5% list price increase announcement and to help offset some of the late – this year's later inflation that we were experiencing now. So I don't anticipate us using price to generate demand next year, that's typically not how this product goes to market. And I feel like our price to cost ratio is going to stay and kind of where it's at. It's always a matter of timing; inflation can get ahead of our ability to get the price increase through the channel et cetera, but so far we've been able to keep up with it and I anticipate being able to do that in the first part of next year as well.

Okay. Thanks for the color and good luck with everything.

Thank you.

Thank you for your question. [Operator Instructions] And the next question is from Sean Steuart with TD Securities. Your line is open. Please go ahead.

Hi, good morning everyone. It's actually [indiscernible] on the line filling in for Sean. Sticking with the price theme, just to follow-up on the realizations this quarter for Siding, I think they were up 5% relative to Q2. I know you implemented price height of 2% to 3% on July 1st. Can you comment on what factor mix played this quarter?

Actually, you broke up right at the last part of the – last sentence of your question.

No problem. Sorry about that, Brad. I'm just wondering if you can comment on to what extent mix played a role this quarter?

Yes. Mix can play a role, but most of that price increase was attributed to the major price increase. So maybe 1% mix, but the rest was all from right pricing.

Okay. And I know you commented on buybacks, the return activities slowing down a bit just in tandem with commodity markets slowing down. But can you just remind us how much you have left on your current program? I think it was $600 million authorization. How much is left right now, if anything and any share buyback activity in Q4 to date?

We have $200 million remaining on the authorization and there's no share buybacks to date this quarter.

Okay, wonderful. Thanks for the context. I appreciate it. I'll turn it over.

Thank you very much for your question. And our next question comes from George Staphos with Bank of America Securities. Please go ahead. Your line is open.

Thanks very much. Alan, Aaron and Brad good morning congratulations on the progress. I wanted to ask first question on the supply chain and costs; are you seeing any kind of – if you will green shoot in recovery and improvement especially on labor, especially on freight and then related and there no guarantees in life, we won't hold you to this, but is your expectation that if things go as planned we don't see a material drop off in demand in Siding. Sagola comes up to curve as you'd expect that you can maintain your current level of margin or maybe get to the 25% next year. How would you have us think about those two questions?

Well on supply chain yes, we are seeing freight trucking free up more than we've experienced all year and so that has certainly really improved availability of freight and also somewhat impacted cost. On the labor side, I mean, we're still fighting to maintain staffing at our operations group and to certain extent in sales, but I would say it's not – certainly not gotten any worse in the second half of the year. And then as far as overall cost because of the way that most of our big supply contracts are indexed to a base material, and most of those are in some way associated with oil and been seen directly. We're currently haven't seen any green shoots on cost reductions, but obviously we're watching oil closely. And if that, if it was to trend downward there could be some opportunities for some cost relief next year though, we're currently not seeing that. And then as far as margin for next year at the 25% rate with the Sagola ramp-up there will certainly be inefficiencies associated with that. We have not finalized our back or the cost, our raw material input costing for next year as far as our budget process, we have decided to initiate at the beginning of the year price increase. So I mean, I think we could – well depending on the ramp of Sagola and depending on no incremental cost increases around raw material and we make it get back to more around the 25% rate. But – and there's a lot of unknowns around that number again given the uncertainty about the Sagola ramp up and raw material in place. But I will say this, I feel good about what we're doing on the stuff we can control specifically around pricing. We've been demonstrating good price discipline and Siding and getting it where and when we can. So – and we'll continue to focus on that as far as protecting our margins.

Thanks Brad. Two other questions on Siding and I'll turn it over. So first of all, can you talk about the ability of the fiber basket around Houlton to take on that that second line? Maybe it's a non-event but if you could just give us a bit of parameters there. And then when you're done with Houlton, I want to say in your prepared remarks you said you're going to have along with the other pre-refinishing investments that you're making, you're going to have additional offering scale. If you could kind of go back through what the additional capabilities you'll have inside and when you're done with Houlton Line 2 and with the other pre-finishing operations that would be great? Thank you, guys.

Yes. Sean [ph], first of all one of the primary reasons that we're expanding in Houlton is because of the availability of the wood basket. They are very good. Over the years there has been some wood related manufacturing loss in the Maine area and the state of Maine. So the pulpwood wood basket up there is good. The Aspen wood basket, which we prefer is very good as well. And so that was one of the drivers to deciding to expand the production in Houlton. And then as far as the – just the reminder of the expansions that we're doing in the Siding business, so particularly as it relates to pre-finish we have a manufacturing facilities for pre-finish in Green Bay, which we are currently adding a coating lines in. We have a facility in St. Louis, a facility in North Carolina. We're building a large facility in Bath, New York, which will be expandable by adding pipelines within we mentioned a facility that we're just beginning to do the engineering on is in the state of Washington. Where I see opportunity for further growth past Washington as far as capacity is in the central part of the country west of St. Louis. And then I feel like with our facility in North Carolina and then the addition of Bath, New York will haves the east coast fairly well covered. So, certainly as we continue to grow Siding, a press capacity additions or expansions will be critical to the growth beyond a Houlton Line 2. And then the prefinished growth is a little easier because we're – once we get a basic infrastructure in place, and we'll be able just to add paint lines at the existing facilities in order to increase capacity. And in the big picture, those are relatively low capital items – those additional paint lines so that that capacity can be added pretty efficiently.

Thank you, Brad.

Thank you for your questions. [Operator Instructions] And our next question comes from Kurt Yinger with D.A. Davidson. Your line is open. Please go ahead.

Great, thanks and good morning everyone. Just wanted to start off on the outlook for OSB to be down 30% sequentially on sales with some of the noise around Sagola and the Clarke County mill could you, I guess, help us think about how much of that is price versus volume embedded in that?

So the Sagola capacity purchases there and the Sagola capacity is about a little over 400 annually. We shut it down now that's going to be, call it 100 per quarter, but less than that because we're mid quarter. So price is likely to be a larger component of that than volume. But there is some volume coming out as a combination of Sagola and typical quarter end maintenance outages that that are common this time of year.

Got it. Okay. Thanks for that, Alan. And then I guess a two-partner on Houlton as you think about getting the facility positioned for production in mid-to-late 2024 how much of the pacing of that work will kind of be dependent on the macro? And if you get to the point and everything's ready to go but the demand isn't there to justify a startup; how would you think about additional fixed costs associated with that mill and just expanding the capacity but not necessarily running it?

It's a good question and so obviously where we are today, it would be easy to delay the Houlton Line 2 capacity expansion as we had some outlook that was dire around Siding demand, which we currently don't have. And as we get closer to the gaining construction and all that stuff, it gets harder to push those back, especially when it comes to the purchases we made early. Let me back up a little bit from that answer to explain that because machinery and presses and the embossing plates are so tight, we are actively engaged in doing as much procurement as we can early in order to secure those – that material and necessarily manufacturing of that equipment. And so from a cost standpoint on the equipment, that gets harder and harder to lay, I mean, really beginning right now as we place those orders, where we could push is around the construction labor as far as erecting it. So it'll be something we can talk about as we go through next year, quarter-to-quarter. But obviously once we get Sagola up and going over the next couple quarters, it'll be all hands on deck getting Houlton Line 2 up, and because we're expecting to need that capacity. Okay. Seemed like two part questions though. I forgot the second part.

No, that's alright. I mean, I guess the last one is just you talked about the fiber basket, but outside of that were there any other kind of big factors that that chose you to go with the Houlton expansion versus some of the other kind of capacity alternatives that you talked about?

The biggest thing was timing. We felt like oh no that the – our ability to get that – get that mill up and running with the second line, given the infrastructure that is in place there with certainly was quicker than any of the OSB conversions we could have done. And order of magnitude faster than doing a Greenfield, and so that was really the driving factor. I'll add two others. First is the quality of the workforce at our Houlton facility is very high. This as evidence of that is how well Houlton Line 1 conversion is going. So we really have a lot of confidence about ability to execute both on the construction and the ramp-up phase of that project. And then thirdly, being in the Northeast again gives us a little more geographic diversity versus the central part of the country where we are really concentrated as far as manufacturing. And it also compliments our repair and remodel push which northeast, mid-Atlantic all down the east coast is a really good repair remodel market. And with us adding the prefinished capacity in Bath, New York and obviously that would be very efficient transportation between Houlton and Bath. So all those that and a few more criteria really, I mean in the context of our alternatives made Houlton apply to kind of a no-brainer for us.

Okay. Great. Well thanks for that Brad, and good luck here in Q4 guys.

Thank you.

Thank you so much for your question. [Operator Instructions] And our next person is Mark Weintraub with Seaport Global Securities. Your phone line is now open. Go ahead.

Thank you. Two lines of inquiry. First, on the Houlton expansion if I heard right, $400 million in capital, I think, Alan, you mentioned a 30% type return and also suggested that it was about 300 million square foot of incremental capacity. So, I guess the question was, so if I take the $400 million and kind of simplistically say, well 30% or so am I going to have $120 million plus of EBITDA increment? And then if I look at the average pricing you have in your Siding right now that would be really high margins, like 50% type margins. Now, of course, it could be this is a sweeter mix and so has higher average prices, or is it really low cost? I mean can you just help us out in kind of understanding how the economics work as you see it for the Houlton expansion? Thank you.

You kind of got it right Mark. So you are right about the very high margin of an independent siding mill given the progress we've made on pricing, and mix, and so on. Fundamentally, high level delivers about a 50% EBITDA margin in isolation as a mill. Now the business doesn't deliver 50% EBITDA margin right now because we obviously have a set of fixed costs, selling costs, and marketing costs, and so aren't necessarily included in that analysis. So, yes, the mill economically described it, right. And there is significant operating leverage we get from adding another mill into an already effective network. Yes.

Okay, great. Thank you. And then on the fourth quarter guidance, well maybe what might be – can you give us where your OSB prices average quarter-to-date and currently are relative to the third quarter?

Well, Mark this is Alan. The prices in the guide using the algorithmic approach that we've consistently stuck with the past several quarters. And why random links print from last Friday. I think the North Central was about 350 on 716 basis last Friday. So the guide assumes that for modeling purposes that that remains stable at that level.

And so is that roughly a $50 or $60 decline from what you would have averaged in the third quarter?

Yes, that is right. Again, pretty close Mark, your math is good.

Okay. And then if I'm down 30% in revenue, just want to make sure. So basically, am I expecting like a 10% or so decline from volumes or something else, because I'm down?

Yes, I think it was Kurt's question earlier about volume. I will just remind you that Sagola comes out this week. And then we may finally for the first time in about three years to have a little bit of breathing room at the end of the year to take some maintenance-related downtime around the holidays. And the combination of those effects would account for roughly the level of volume that you assumed.

Got it.

In terms of full quarter volume.

Both of which are incorporated loosely in our algorithmic guide.

Got it. Okay, thank you.

Thanks, Mark.

Thank you for your question Mark. And we're setting up for the next person. And our next person is Mike Roxland from Truist Securities. Your line is now open. Go ahead.

Thanks very much for taking the questions.

Yes.

Sorry about that. Just a quick question on the broader housing market, are you seeing – are there any pockets of strengths? So you know the housing market obviously is rolling over. Builders are – the cancellation rates are higher. Are there any markets that you've noted in terms of you've noted brand that your Siding is held up relatively well. Are there any markets that are particularly showing strength relative to the decline that we're seeing more broadly in the national market?

So within the market for single-family new construction, generally speaking, south is stronger than north. And we're seeing that in our polls in both OSB and Siding. Some of that may be weather-related as we get into the fall season, and we'll see as it plays through November and December how the south is impacted. But relatively speaking stronger in the south and the north.

Got you. Okay. And then just on the BuilderSeries, which tends to be one of the fastest growing components of Siding and just given the stress that many builders are facing, how has that product particularly fared? Is the demand still strong or have you seen some trading given just a slowdown in housing?

Demand is still really strong for that. Obviously we got to be careful about percentage growth when last year was zero. So it makes it for a very high percentage growth. But we're very pleased with that launch. And I do believe given some of the costing pressure, cost pressure and labor availability issues, the product was engineered to address both of those. And so it has put us in a position particularly with the larger builders to have a value proposition that's pretty attractive. And so, we have been very well pleased with the conversations that have led to orders and then the outlook for that product given, I mean, honestly, given this environment. So I mean obviously that will be – if housing is way down next year, that will provide a headwind to that product. But I will say from a market share standpoint, I feel like we've got an opportunity to increase significantly our market share with large national and regional builders.

Got it. And this one file question, on order files, I think, last quarter you mentioned signing on allocation. I think you reiterated that earlier. Again line of sight in terms of order files of four to six weeks in Siding, OSB, you are not seeing any order weakness, but you had line of sight the two to four weeks out. Any change in terms of the order books and your order files in both Siding and OSB?

Not really. But certainly not in OSB. I would call the market pretty balanced right now. And obviously that's shown up in the pricing report in the random length. And then in Siding it's a similar thing where we're allocating orders, so we're six to six plus weeks out on the order file so we're pretty much in the same place that we were last quarter, as far as the outlook for Siding and the strength of the order file.

Great. [Indiscernible]

I mean just obviously it is – yes, I'm just going to close. I mean, it can be – that's not as a simple answer as an OSB because the managed order file situation kind of controls the length of the order file, we're controlling that now. So it shouldn't be surprising that that kind of six weeks is where we've been since that time, we're managing the order file for whatever that's worth.

Makes sense. No, I appreciate the all the color Bard. And good luck for the balance of the year.

Thank you.

Thank you for your question, Mike. [Operator Instructions] And our next question is from John Tumazos of John Tumazos Very Independent Research LLC. Please go ahead, John.

Thank you for taking my question. A few months ago, I had the pleasure of putting SmartSide on my house, which I'm very pleased with. It cost me installed $11,000 per 1000 square feet versus your sales realization in the 800s. And I bought prefinished, so maybe it cost a few hundred dollars more than that. And the crew of six people worked about 22 hours, and they worked hard. They were good. And it struck me that there is other applications like the people that use lasers to measure before they install granite countertops or the TV ad for the floor mats in your car that are laser measured or the bathtub fixtures, things like that, that there is a lot of potential to improve the precision of installation of SmartSide through the implementation of technology. And if you improve the productivity of the installers by 10%, it might enable you to charge a $1,000 more for SmartSide, since what matters to the customer is the installed cost. Could you just talk a little bit about your efforts to train installers and improve productivity in that phase of the value added, which would enable you to charge more for the product?

John, well, first of all, thank you for putting SmartSide on your house. I'm pleased to hear it went well. That is certainly a testament to the product and to your installer kind of in the direction that your question is focused. We do actively work with a set of contractors. We have various loyalty programs where we provide both online and in-person training in depth on about how to install our product because as John has mentioned, we want that experience to be really well for the homeowner, for them to see, the Siding put up efficiently, and it being beautiful and functional once it's installed. And so, the marketing spin that we have is and for most purposes directed at making sure that our contractor base is enabled to understand the product and install it efficiently. There is a lot of opportunity for product enhancement around this R&R Siding market related to labor efficiency. I mean, if you think about it, the whole concept of pre-finished is one of those where you are eliminating the secondary step of painting when it's on the wall. But the opportunity for us to do things as far as accessories related to improving that efficiency, like the three dimensional corners that we've launched over the last couple years, that save a big labor step, those kind of products really can provide the contractor with an efficiency that allows him to better utilize his labor, lower the cost of an install and then ultimately our objective is to increase the profitability of both us and the contractor as part of that sales process. So, you're dead-on. I mean, your observation of watching Siding being installed and the ideas around continued improvement, and product innovation and service innovation that improves the efficiency of that is certainly one of the most attractive features of the repair and remodel segment that we're playing in now. And we want to get really good at turning those value propositions into profit for our sales and the contractor base that supports our product.

If I could continue, do you think it's fair for your mill realization to be on the order of one-tenth of the installed cost of the customer? Do you think that the distributors – the demand for your product is so high that the distributors are getting or installers in an ordinate markup?

No, I don't believe. I think fair is a complex word, in business transactions. But I do believe – look, we have really good distributor partners that over the years we have actively upgraded to specialty, to more of a specialty focused network. And we are proud that our business model is centered around providing opportunities for profitability throughout the channel and with our contractor base. And ultimately to have that product delivered efficiently enough so that you decided to install it on your home given the price that you were quoted. But there is no – right now we don't feel compelled in any way be trying to take margin out of the channel as a means to improving our profitability. We want to improve our profitability by working on the cost that we can control directly and by managing pricing.

Thank you. And let me add the Hurricane Ian passed ten miles south of me two months after the job was done and everything held upgrade.

Thank you so much for your questions, John.

Great to hear that you guys are safe.

Thank you so much.

Good picture.

And we're setting up for our next question here. And our next question is from Paul Quinn with RBC Capital Markets. Go ahead, Paul, you are live.

Okay, thanks. Good morning guys. Just a question on Houlton. When you get Line 2 up if the demand is not there for signing, you can still run OSB, right?

Yes Paul, we'll have the ability with that. We've run OSB online, one at Houlton historically and then we also have the ability to run OSB at various other mills in our system. And so when it come – if there was a need to do that as far as not being able to ramp up into all that volume immediately and the OSB market could handle it, historically we've run OSB in our system pretty efficiently now. I mean the last time we've done that, it's probably three years ago. Certainly haven't run any since COVID, but we do maintain the ability to do that. And there was a previous question about fixed cost coverage and that's why we do that, is to be able to maintain machine productivity as we grow our Siding demand to meet the ultimate capacity that we have in place.

Great. Yes, I thought you had that flexibility. On the ExpertFinish you mentioned Brad you will double it by the end of 2024 and then double it again by the end of 2025. What are those two things in terms of the percentage of siding capacity that you will be able to do on ExpertFinish? Like doubling by the end of 2024, does that get you to 10% and then again, does it get to 20% of your capacity?

Yes, that would give us about 15% capacity over that period of time.

Okay. And then just lastly any update on Entekra?

Yes, so the Entekra update I'll give is that we continue to look to optimize the facility in Badesto, but Paul, given where we are right now with our capacity expansions in Siding and our Structural Solutions, we are no longer viewing that platform as a big opportunity for growth. Some of that also related to the near term outlook for housing. So we're going to continue to work on improving the profitability of the Entekra facility. But I feel like our capital allocation is better spent now given the returns, Alan has talked about, we're able to demonstrate by further investment into Siding in our OSB Structural Solutions in our OSB OEE program. So, we still have work to do to optimize Badesto, but we're not seeing that Entekra business model is providing the necessary returns for us to be very excited about it in the long term.

Okay. Fair enough. That's all I had. Thanks guys. Best of luck.

Thank you very much, Paul, for your question. I will now turn it back over to Aaron Howald for closing comments.

Okay, thank you operator. And thank you everyone for joining us to discuss LP's results for the third quarter of 2022. With no further questions we’ll bring the call to a close there. Stay safe and we'll look forward to speaking with you all again soon.

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