Good day, and thank you for standing by. Welcome to the First Quarter 2023 Louisiana-Pacific Corporation Earnings Conference Call. [Operator Instructions]. Please be advised that, today's conference is being recorded. I would now like to turn the conference over to your speaker today, Aaron Howald.

Thank you, operator. Good morning, everyone and thank you for joining us to discuss LP's results for the first quarter of 2023 and outlook for the second quarter. As the operator said, my name is Aaron Howald, and I am LP's Vice President of Investor Relations and Business Development. I am 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 other materials. Today's discussion will contain forward-looking statements and non-GAAP financial metrics, as described on Slide 2 and Slide 3 of the earnings presentation. Rather than reading these statements, I incorporate them herein by reference. The appendix of the presentation also contains reconciliations that are further supplemented by this morning's 8-K filing. And with that, I will turn the call over to Brad.

Thanks, Aaron. Thank you all for joining us for LP's results for the first quarter of 2023. Q1 demonstrated the value of our strategy in a challenging operating environment and an uncertain housing market. Compared in the first quarter of last year, Single-Family housing starts fell by almost 30% and commodity OSB prices fell by more than 75%. Despite this decline, we maintained flat, siding sales and generated positive EBITDA in our OSB segment outperforming the underlying markets. We are currently seeing encouraging signs of strength in housing, including improving commodity prices, and I am confident that LP's businesses will continue to outperform the market. Page 5 of the presentation shows highlights for the quarter. In sum, a much softer healthy market drove OSB prices far below last year's levels. With the obvious impact on sales EBITDA and cash flow. Inflation appears to be easing somewhat. The cost for resins laws and freight remained elevated pressuring margins. LPs businesses responded by outperforming the market, and we continue to invest in our growth. $584 million in sales was about half of the amount from Q1 of last year with a vast majority of this difference, the result of lower OSB prices, EBITDA of $66 million, and earnings per share of $0.34 were much lower than last year, again due to the difficult comp from last year's very high OSB prices. However, our results were above our previous guidance due to discipline and efficient operations and OSB and flat siding revenue. LP invested $114 million in CapEx in Q1, mostly for the conversion of Sagola to Siding. Alan will discuss cash flow in more detail in a moment, but LP ended the quarter with $126 million in cash and just under $700 million in liquidity. Siding and OEE were key highlights for…

Thanks, Brad. As outlined already, the U.S. housing and the broader macroeconomic environments are significantly more challenging than at this time last year. But I'm happy to report that, LP responded by focusing on the factors within our control. We exceeded all components of our first quarter guidance, while the market numbers dominating the quarter of a 29% drop in Single-Family housing starts and a nearly 80% drop in North Central randomized prices for commodity OSB. I'll refer to Slides 9 and 10 in the presentation to describe just how LP Siding and OSP segment navigated the quarter before moving on to discuss LP's liquidity and capital allocation including a little more on wild well. Slide 9 shows the first quarter year-over-year revenue and EBITDA comparison for Siding. Volume was down 9%, a spread of 20 points over the drop in Single-Family starts and this is due to the combined effects of ongoing share gains, expanded addressable markets, and the fact that the majority, about 60% of Siding products served with the primary model market and shared applications. And while overall volumes may have declined, ExpertFinish volumes did not, rather they increased by 26% year-over-year which also helped the mix component of price. The $27 million reduction in volume, at roughly a 50% variable margin cost the segment $14 million of EBITDA. Siding's average selling prices were 10% higher than the first quarter of last year, roughly 6 points of the 10-point increase are from list price increases, namely the combined effect of this January's increase and last year's mid-year increase, with the rest coming from a favorable mix and lower rebates. So as expected, higher prices helped to offset the volume drop, and as it turned out they completely offset it. This was also a quarter of heavy investments…

[Operator Instructions] Our first question comes from Mark Weintraub with Seaport Research Partners. You may proceed.

Thank you. Couple of questions on Siding. One is, you talked about some positive indications order file-wise, but it doesn't look like you're assuming much in the way of volume improvement from the first quarter to the second quarter. First of all, is that -- am I right making that assumption? And maybe if you could provide a little bit more color on the thought process there, if that is indeed the case.

Yes, Mark, you're right. And while we are seeing some strengthening in the order file, we are still working through elevated inventory levels within the channel. And so, the revenue that our channel partners are seeing is not yet fully impacting our order file. And we believe it's going to take most of Q2 to work through that elevated inventory level within the channel.

Okay. And then you mentioned that there was about $10 million in start-up costs in the segment in the first quarter. Is something along those lines? Or what's anticipated for the second quarter? Really what I'm sort of trying to figure out is why the $80 million guide, and I realize it's $80 million plus for the second quarter, given that we're going to be higher presumably in OSB, you talked about the 20% improvement in revenue. And I guess I would have thought that we get some -- well, again, maybe specifically what -- is there also start-up costs in Siding in the second quarter?

It's a great question, Mark. There are some start-up costs in Siding in the second quarter, but they are -- they will be lower than the first quarter. And yes, to sort of offset, to answer the question, there is inevitably some conservatism built into the $80 million.

Our next question comes from Ketan Mamtora with BMO Capital Markets. You may proceed.

Thank you. Brad or Alan, can you give some additional color on how the shed business did in Q1?

Sure, Ketan. I would say the shed business is probably one of our slower-performing segments right now. There was, I would say, of all the segments that we've played in during COVID, I do think there was some pull forward demand in shed. We have seen some more recent recovery there. But as a mix of our portfolio, it's certainly underperforming at the moment, the rest of that portfolio.

Understood. And then switching to the Wawa conversion. Alan, is there any way to think about, at a high level, how would you have us think about the additional conversion cost that might be there for this -- for the conversion to Siding?

Yes. We're still working through -- obviously, we have only just acquired it yesterday. Obviously, we did some due diligence. So, we're still working through what those numbers would be. But if you think about the fact that the return, the IRR of this project is -- will be similar to the Houlton two conversion, and this will be slightly bigger, then there's obviously going to be some sizable conversion CapEx. The moment we have those numbers nailed down, we'll be happy to share them just as we did with the Houlton two numbers, but it will be sizable.

Got it. Okay. And how are you thinking about the timing of the Wawa mill at this point?

Totally thinking that it would be Q4. At current model, just to give you a benchmark, Q4 2026. I got a strange -- Aaron is pulling a face at me...

I might as well share the room.

It will be demand dependent...

It will, of course, but that's our working model right now.

Sorry, which year did you say, Alan?

2026.

2026. Okay. Got it.

Our next question comes from Paul Quinn with RBC. You may proceed.

Thanks, so much, guys. Just wondering what the state of Wawa is. I mean I know the company was trying to convert it back from the power plant. Is it functioning OSB mill at this point or is it closed? Or how much work is entailed to get it back to an OSB mill?

Yes. I'll take that. This is Aaron. It's going to be a substantial amount of work to get it to the point that it's a functioning OSB mill. The advantage for us is that the current state of the construction project is kind of ideal for us to step in and redirect that conversion so that we can convert it efficiently to Siding. So, it's not currently producing OSB. It would be a while before it could if we plan to do so. But we've got a fair amount of work to do to kind of complete the project and complete it as a Siding mill.

Okay. That's helpful. And then just over on ExpertFinish, great to hear that it's up 26%. Just wondering what percentage of overall Siding volume that represents now? And what's the operating rate for the ExpertFinish lines that you've got going right now?

The operating rates for the lines are pretty low. While we continue to -- a, from an OEE standpoint, we're learning how to produce that product. But also, the capacity there is relatively inexpensive. So, we're ramping into that. And certainly, when we have the Bath mill on in Q3, we're going to have plenty of capacity there. There has been times in our order file, especially last year, where we were constrained with ExpertFinish capacity. And while those can be tight now currently, we're okay as far as that balance between capacity and sales at the moment. But we certainly need the Bath, New York, line to come on and we need to be running those lines better. And then as far as your question on mix of ExpertFinish, it's about 9%.

Okay. That's great. And just with respect to your BuilderSeries line, one of your competitors back in the market with their son planks, just wondering if you noticed any drop-in order file on that, given also the weak Single-Family build.

No, I would say not. We have not seen a drop in the order file, but I would directly attribute to that. I will say the competitive environment for new deals has certainly stepped up, the competitive nature there, given that reintroduction, but not necessarily, as far as I know, translated into a loss of any volume we had secured previously.

Okay. Great. And the last one for me. Just on South America. Can we expect any change through the balance of '23 from that segment?

Yes. I think it's, I think, pretty consistent with how it performed in Q1. I mean there'll be some ups and downs as we go through the year, and we're hoping to see some strengthening in the other underlying economy, especially in Chile throughout the year, but we're not ready to call that right now.

Our next question comes from Susan Maklari with Goldman Sachs. You may proceed.

Thank you. My first question is on Siding. You obviously are realizing some nice pricing there. You did mention that the channel still has some inventory that they'll work through in the second quarter. How are you thinking about the dynamics of price versus volume if those inventories do stay elevated longer? Are you willing to take some of that down? Or what will be the plan there?

Yes. We are not contemplating a price decline from a price list standpoint, Susan. We've never done that in the at least 20 years or so I've been associated with the Siding business. I will talk that -- the way that plays out dynamically in the market is as we negotiate primarily builder or contractor deals. Obviously, volume can be secured sometimes with back-end rebates, especially with the larger builders and the large regional builders. And so, as we -- as the environment gets more competitive, the kind of the negotiating power moves a little bit more into the end-use customer realm, and so it can get manifested in our rebate strategy as far as securing new business. But there's no plan at all to lower list pricing across our Siding portfolio.

Okay. That's helpful. And then thinking about the CapEx guide that you've put out, it suggests that perhaps in the second quarter, you could see your cash from ops higher than your CapEx spend. Can you talk a little bit about how you're thinking about capital allocation? Any appetite to bring back the buybacks at this point? And anything else we should be thinking about there?

I don't think -- given that CapEx may be lower than our operating cash flow in Q2, but we will be paying $80 million for Wawa. So, there will be pretty heavy investment outflows in the second quarter. And so, I don't -- just if I look at the cash patterns that I think we'll see for the remainder of 2023, I'm more inclined should there be a modest upside in cash flow to use that for the operations. I don't -- based on trends I'm seeing today, I don't see share buybacks for the remainder of this year. But I just hope I'm plain wrong.

Our next question comes from George Staphos with Bank of America. You may proceed.

Hi, Alan, good morning, thanks for the detail. Alan, Brad, can you talk a bit about lead times on press equipment and what you'd be needing to convert Wawa? I know on kind of traditional press equipment, at one point in time in the last year, I think lead times from order hearing, we're in the 18-month time frame. I would imagine that has lessened in the last year or so. But if you put the order in today, when would you be able to start bolting the equipment down on the factory floor from what you could share with us?

Well, just let me talk generally. I mean there is a press in Wawa that we're planning to use. So that it's not an issue called leave time from the press, which is meaningful to the timing of this project, George, to your point. And then what we're -- one of the things that we're looking at now is we have been in the process of securing orders and material steel fabrication time for the Houlton line two conversion. The work that we'll do this quarter is to understand how much of that can be transferred over to the Wawa mill conversion directly as far as the engineering goes. And so, I would say that -- and I'm not -- at this moment, I'm not really concerned about timing any more than I would have been about Houlton line two because of what we have to do in Wawa. And I'll just -- a little bit of color there. The Houlton line two was a pretty complex conversion for us because we kind of used all the easy space and the existing equipment other than the [indiscernible] on Houlton line 1. So, there was a complexity element there that was not there on Houlton line 1 or even for -- in Sagola for that matter. So, it kind of makes these two projects somewhat similar as far as potential timing if we wanted to ramp them up as quickly as possible.

And Aaron had mentioned when the question come up and Alan was answering about when you expect it to be starting up and it's going to be demand specific, which in turn means you're going to be looking at certain metrics in terms of triggering when you'll go forward. If you were in our seat, what level of housing or repair model would be kind of the go, no-go or the go signal in terms of starting up the -- accelerating the conversion and going forward?

Well, I would say just from an acceleration standpoint, I would say the earliest we could do that, if it was kind of all out on it, was having probably Board approval later this year from a design standpoint, and then at least a year from that point to get it converted and then operating from zero. It's just not making anything now unlike all our other mill conversions. So, we're looking -- to Alan's point, '25 -- 2025, probably at the earliest, maybe middle of 2025, perhaps Q2 of 2025, but more realistically, 2026. And so, from a market standpoint, if housing got back to where it was 12 months ago, I could see us in -- the quicker that happens, the more pressure it's going to be on us to convert that mill. But I want to say the Sagola mill is a significant conversion for us that we're just getting started on right now as far as selling it out. And as Alan mentioned in his remarks, we're still not going to utilize Houlton line 1 yet. So, we do have significant capacity coming online right now. So, I'm not too concerned about us -- I mean other than a spike in new home construction after this kind of uncertain environment we're in today, I'm not too concerned about our ability to miss a window there in Wawa.

One last question for me on Siding. So, you talked a little bit about, I guess, to some degree, some pickup in competitive activity given one of your peers' reintroduction of one of their product lines, that's a little bit more, if you will, affordable. Specifically, within your product categories, are you seeing more demand for BuilderSeries and more momentum there? How would your volumes have shaken out or how did they shake out in the first quarter between BuilderSeries and the other, perhaps, higher end products in Siding? Thank you.

Yes. George, that's a kind of complex question because we play in so many different segments. But if I would say within the lap Siding category, BuilderSeries is outgrowing the non-BuilderSeries product. And I really attribute that -- I mean from a volume standpoint, obviously, it's of a smaller base, but also the strength right now in housing is with the bigger national builders and the large regional builders, which tend to be -- or which is not tend to be, which is a target of our BuilderSeries formal introduction. So, as we see that continued strength in the -- with the big builder, that's going to tend to put lap volume more into that category than into the -- into our traditional lap Siding -- 16-foot lap Siding product. Now a whole different story on R&R and ExpertFinish, where it's mostly 16 foot. But certainly, within that, build Single-Family new construction category, flat Siding show in BuilderSeries.

Our next question comes from Michael Roxland with Truist Securities. You may proceed.

Congrats on a very good quarter. Alan, just last quarter, you provided some color on the EBITDA bridge by segment. I'm just wondering if you could do the same this quarter as it relates to the $80 million -- at least $80 million in EBITDA that you are forecasting. Just help us frame how Siding and OSB stack up in that guidance, please?

Yes. One -- just to sort of revisit Q1 from this, the principal reason that I broke the EBITDA down by segment was because the number was fundamentally so low as we guided to $35 million. I didn't want anyone to think that, was Siding's unique performance. So, I wanted to call out the expectation, at least at that point that we might have negative EBITDA in Siding -- sorry, that we might have negative EBITDA in OSB, which turned out not to be the case. So, with the $80 million, I'll at least give you that the Siding performance is going to be similar-ish, if you think about my answer to Mark Weintraub's question that opened the Q&A session. It's going to be similar-ish to Q1. And as is normal, if you look at our Q1 results, you'll see that corporate and South American EBITDA kind of [indiscernible] offset rather. So, I think without being drawn further. I think I've given you almost everything. You need $80 million without actually saying it explicitly. So, I'm trapped again, but...

We don't mind being -- you being very explicit. So...

[indiscernible]

This is -- the second question, just wanted to get a sense of how you guys are thinking about the Sagola ramp, particularly given that you slowed Houlton last quarter. You mentioned you still want to work down inventories through the balance of the year. So how is that -- how are you thinking about ramping given the -- given those conditions?

Just generally speaking, when we're in the process of ramping a mill like Sagola or like Houlton last year, we do like to push the volume there to give the machinery and the crews the opportunity to learn how to make Siding. So, we'll be -- as we go through this year, the tendency is -- for us is going to be -- it's going to want to match their capability by putting orders in there. And then -- which is what we're doing now. As Sagola is coming up, we're backing off -- just back off a little bit on Houlton as a priority, given the need to balance production. But -- so that is kind of a color on how we think about Sagola. I will say, other than that, we would probably -- we would kind of spread -- if we have to take production-related downtime, we spread that across the system, generally speaking, and some of that is due to the fact that these mills have special type of SKU capability. So, some plants can or cannot make certain SKUs. So that will tend to spread the downtime around a little bit. So, I mean -- but directly to your question, we will prioritize volume into Sagola this year to ramp that mill up.

Our next question comes from Sean Steuart with TD Securities. You may proceed.

Thank you, good morning, everyone. Just one question, and appreciating you just rolled out your 2023 CapEx budget, but that number is a little bit more conservative than we were forecasting, which I guess makes sense given the resequencing of Siding growth initiatives. Would it be fair to say, as you look into 2024, that you would expect CapEx to ramp up a little bit as you get into, I guess, Wawa spend to convert that asset and start to think about the next stage after that. Is that a fair assumption as we look out to 2024?

Let me take a hint from Aaron. It's obviously market dependent. But I'll dunk and learn new tricks. But it is -- one of the things we tried to convey with a broad range of capital guidance that I gave last quarter, which was broader and larger than the numbers that are in our press release right now, yes, there's a huge amount of capital flexibility. And I hope, quite frankly, that yes, we see increased capital spending in 2024 compared to our current projection for 2023 entirely plausible.

Our next question comes from Mark Weintraub with Seaport Research Partners. You may proceed.

Thank you. Not wanting to get too much into the weeds, but sort of interesting. I would have thought that Wawa might have serviced similar markets to Houlton. Maybe just some color, kind of geographic product mix of how you imagine the Wawa project proceeding relative to what you were thinking about Houlton second line? And what implications might we want to be thinking through as to how the second line at Houlton would progress if indeed that were the case?

So, the two advantages Wawa has over or -- I mean the plan that we had for Houlton 2. One is the size of the press and the capability of the project will be a lot greater as I think what was in the prepared comments to be one of our larger -- will be our largest one-line Siding mill. So that volume really helps make the decision about that as the next mill over Houlton. But then also the central location and the wood basket for Wawa is, it also provides a second advantage. And so, when we -- so -- and that, I want to say that -- but more so than anything, it was just the assumed financial return on the two projects swayed us to putting Wawa in front of Houlton. We certainly believe Houlton will be the next conversion after Wawa is up and running. The advantage for Houlton is that access to the Eastern Seaboard, where we're underpenetrated. But obviously, we've got a lot of capacity on Houlton 1 for the near-term satisfaction of that demand. So -- but Mark, to answer your question, it's the production size, the capability or the capacity of the facility in Wawa and the quality of the wood basket there, and the central location helps on the front from an overall freight standpoint.

So basically, it can service a broader geography than Houlton is one point. And then also, I guess -- so in terms of the like panel or lap focus, is there a bias for the Wawa facility like there was for Houlton?

No, Wawa will be very flexible across both -- potentially for both panel and lap. And so, we're not -- we haven't made the decision on which of those products to emphasize as far as the finishing capability of the facility, but it provides flexibility there.

And this concludes the Q&A session. I'd now like to turn the call back over to Aaron Howald for any closing remarks.

Okay. Thanks, Josh. With no further questions, we'll bring the first quarter earnings call for LP Building Solutions to close. We look forward to catching up with you all soon. Thank you very much.

Thank you.

Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.