Boise Cascade, L.L.C.

Good morning. My name is Grace, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascades' third quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. It is now my pleasure to introduce you to Chris Forey, Vice President, Finance and Investor Relations, Boise Cascade. Mr. Forey, you may begin your conference.

Thank you, Grace, and good morning, everyone. I would like to welcome you to Boise Cascade third quarter 2024 earnings call and business update. Joining me on today's call are Nate Jorgensen, our CEO, Kelly Hibbs, our CFO and treasurer, Troy Little, head of our wood products operations, and Jeff Strum, head of our building material distribution operations. Turning to slide two, this call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides, and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that the appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income to segment EBITDA. I will now turn the call over to Nate.

Thanks, Chris. Good morning, everyone. Thank you for joining us for our earnings call today. I'm on slide number three. Total U.S. housing starts and single-family housing starts decreased 3% and 1% respectively compared to the prior year quarter. Our consolidated third quarter sales of $1.7 billion were down 7% from third quarter 2023. Our net income was $91 million or $2.33 per share compared to net income of $143.1 million or $3.58 per share in the year-over-quarter. Both of our businesses performed well and delivered good financial results in a demand environment that continues to be constrained by home affordability challenges and economic uncertainties. I want to thank our associates across the company who continue to deliver superior value to our customer and vendor partners no matter the demand environment. In addition, we continue to deploy capital through our organic growth projects and additional returns of capital to our shareholders. Kelly will now walk through our segment financial results, give some insight on fourth quarter and then provide an update on our capital allocation in more detail, after which I'll provide an outlook before we take your questions. Kelly?

Thank you, Nate. Good morning, everyone. Wood product sales in the third quarter, including sales to our distribution segment, were $453.9 million, down 12% compared to third quarter 2023. Wood product segment EBITDA was $77.4 million compared to EBITDA of $122.9 million reported in the year-ago quarter. The decrease in segment EBITDA was due primarily to lower EWP and plywood sales prices, as well as higher conversion costs. Lower iJoyce sales volumes also contributed to the decrease in segment EBITDA. BMV sales in the quarter were $1.6 billion, down 6% from third quarter 2023. BMV reported segment EBITDA of $87.7 million in the third quarter, compared to segment EBITDA of $104.9 million in the prior year quarter. BMD gross margin dollars decreased $7.7 million from third quarter 2023. Selling and distribution expenses increased by $10 million compared to the prior year quarter, mainly due to the Brasco acquisitions. Turning to slide five, on a year-over-year and sequential basis, third quarter volumes for LVO were flat and down 2% respectively, and iJoyce volumes over the same comparative periods were down 8% and 10%. Ijoice sales volumes were influenced by multiple factors, including the level of housing starts, competition from other wood-based products, and an increasing proportion of concrete floor applications that limit wood floor opportunity. Sequential pricing for both LVL and Ijoice was down 2% due to continued pricing pressure in the market. Turning to slide six, our third quarter plywood sales volume was 391 million feet flat with the year-ago quarter. The $333 per thousand average plywood net sales price in the third quarter was down 13% year over year and 8% sequentially. We experienced lower plywood pricing in July at approximately $320 per thousand before rebounding at the end of the quarter with our September average price realizations around $350 per thousand. Moving to slide seven and eight. B&B's year-over-year third quarter sales decline of 6% was driven by sales price decreases as sales volumes were flat. Excluding the impact of the Brasco acquisition, B&B sales would have decreased 9% from third quarter 2023. By product line, commodity sales decreased 12%, general line product sales increased 4%, and sales of EWP decreased 14%. As mentioned earlier, gross margin dollar decreased $7.7 million in third quarter compared to the same quarter last year. As expected, lower margins on commodities and EWT were the principal drivers of the decline in margin dollars. However, BMD's gross margin percentage was 15.7%, up 50 basis points year over year. This increase is reflective of both BMD's ongoing growth in general line sales, which represented 44% of our sales mix in the third quarter, as well as year over year margin improvement in that category. BMD's EBITDA margin, was 5.6% for the quarter, down from the 6.3% reported in the year-ago quarter, and down 30 basis points sequentially. We are pleased with B&B's performance in the third quarter, given the market landscape. I'm now on slide nine. Looking forward to the fourth quarter, October EWP and plywood volumes were resilient, as they were comparable to our third quarter monthly averages. However, we expect seasonally lower volumes as we proceed through the quarter. On EWP pricing, we currently expect low single-digit to potential price declines in the fourth quarter. On plugwood pricing, October realizations were approximately 5% above third quarter averages, but we'd expect seasonal price erosion as the quarter progresses. With regards to BMD sales expectations, seasonal factors and two fewer sales days in Q4 when compared to Q3 will be headwinds for us. Our daily sales pace through October is approximately 1% below third quarter daily sales averages and is expected to erode further in November and December. And now on slide 10. We had capital expenditures of $136 million in the nine months ended September 2024, with $62 million of spending in wood products and $73 million of spending in BMD. Some equipment delays related to our previously disclosed multi-year projects in the Southeast US reduced our full year 2024 capital spending range. However, we anticipate these projects will still be completed on schedule and our spending pace in the fourth quarter will accelerate meaningfully as expected. Looking forward to 2025, we expect our capital spending to be between $200 and $220 million. Speaking to shareholder returns, we paid $220 million in combined regular and special dividends during the nine months ended September 30, 2024. Our board of directors also recently approved a 21 cent per share quarterly dividend on our common stock. Shareholders of record as of December 2nd will see payment of this dividend on December 18th. During the third quarter, we also funded approximately 70 million of common stock repurchases. Through October, our year-to-date total share repurchases are approximately 165 million or nearly 1.3 million shares. In addition, our board of directors recently authorized the repurchase of an additional 1.4 million shares under our common stock repurchase program. Today, we have approximately 2 million shares available for repurchase under our share repurchase program. In summary, our capital deployment strategy continues with ongoing investments in our existing asset base, organic growth projects, and returns to our shareholders. We also have the flexibility to execute M&A if opportunities surface that align with our strategies. I will now turn it back over to Nate to discuss our business outlook.

Thanks, Kelly. I'm on slide number 11. Current industry forecasts for U.S. housing starts are approximately $1.35 million for 2024 and at or modestly above $1.4 million for 2025. This compares to actual housing starts of $1.42 million in 2023 as reported by the U.S. Census Bureau. As of September 2024, single-family housing starts are outpacing 2023 levels by 10%, whereas multifamily starts have declined sharply from historic levels due to increased capital costs for developers and historic levels of multifamily unit completions in 2024. Home affordability remains a challenge for many consumers due to home prices and the cost of financing, with mortgage rate levels limiting the supply of existing housing stock available for sale. Large home builders are addressing affordability challenges by reducing home sizes and planned complexity, as well as offering mortgage rate buy-downs. New residential construction will continue to be an important source of housing supply moving forward. We expect 2025 to reflect modest growth in home improvement spending, as the age of U.S. housing stock and elevated levels of homeowner equity will continue to provide a favorable backdrop for repair and remodel spending. While near-term growth in demand may prove modest, The value proposition for two-step distribution, particularly our ability to deliver nationwide service across leading brands in the marketplace, is unmistakable, and we will continue to execute in support of our supplier and customer partners each and every day. As we look past the near-term uncertainties, we remain bullish on the medium- and longer-term view on housing fundamentals, which affords us the ability to maintain a clear focus on our strategy and the execution of our growth initiatives. Thank you for joining us today and your continued support and interest in Boise Cascade. We welcome any questions at this time. Grace, would you please open the phone lines?

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Michael Roxland with Truist Securities. Your line is now open.

Thank you, Nate, Kelly, Chris, for taking my questions and congrats on a very good quarter despite the backdrop.

Thank you, Mike.

First off on BMD, can you talk about the progression of sales in BMD during the quarter? It seems like, you know, September was a softer month across many paper and packaging materials, and I'm wondering if you just had, you know, stronger sales earlier in the quarter that may have faded in September.

Yeah, so, yeah, good question, Mike. So I would say, you know, our activity was levels on a daily sales pace were actually fairly steady through the quarter. July, August, and September were There really wasn't a whole lot of deviation. Really just the only impact we saw was in September we just had two fewer sales days.

Perfect. Got it for that. What are you hearing right now from some of your major customers in BMD by product type, like commodity, general line, UWP, regarding demand and inventory levels?

Hey, this is Jeff. I would just say overall what we're hearing from our customers is truly the dealers are saying just proceed very cautiously. The commodity market, obviously, we've got some nice tailwinds in this past month. So there's a lot of direct activity there. We moved a fair amount of commodities into that market. But from here, going forward with the seasonality company, I think they're going to lean in hard on distribution. I think it'll be very much a distribution-friendly market.

Got you. One last question before turning it over. Just on EWP, given that up until recently, lumber prices have been at cyclical lows, have you seen a shift in a share shift to lumber from EWP that may be contributing to some of the volume weakness?

Hey, Mike, it's Nate. Yeah, I think a good question. I think in terms of how the builders look at what products and services they use on floor systems, they're pretty resilient and kind of stay kind of true, kind of independent of the pricing environment. So we haven't seen a lot of drift from iJoyce or EWP systems to dimensional lumber. It's been pretty steady and consistent, despite the fact, obviously, lumber prices have certainly come off. So that would be, I guess, our view going forward as well. And part of that, Mike, as we've talked in the past, that as builders are looking for, you know, their challenges are not only building material costs, but also cycle times. And so if they think about how do they take time out of the construction cycle, add simplicity to the cycle, EWPs are really an important part of that equation. So it remains pretty stable and we expect that going forward.

Thanks very much.

Thanks, Mike.

Thank you. Our next question comes from the line of Susan McClary with Goldman Sachs. Your line is now open.

Thank you. Good morning, everyone.

Morning, Sue.

My question is also on EWP and perhaps taking the other side of that, which is as lumber does seem to be inflating, especially over the last several weeks, and if that continues through next year, can you talk about what that could mean for EWP pricing, how you're thinking about that flowing through? And then I guess, can you also talk to the EWP margins, just given the pricing decline that you've been seeing sequentially?

Yeah, so this is Kelly. Good morning. I'll take that. And in terms of the first part of your question around lumber pricing and increasing and how could that potentially correlate EWP pricing, I don't have a model in front of me, but I don't think there's a lot of statistical correlation there. I think really EWP pricing will fundamentally be driven by demand and operating rates and particularly single family starts. So I wouldn't draw a correlation there. And then the second part of your question around, remind me what it was again, please.

Yeah, the EWP margins, as you saw that pricing decelerate on a sequential basis.

Yeah, so we don't speak to margin-specific EWP. I would just continue to have you focus on EBITDA margin and what products is in total because of how integrated we are. And, you know, we've seen, you know, a little bit of aggregation there. because of plywood pricing remaining fairly weak still, and some come off in EWP pricing as well. But we feel good about the business's operating posture and how they're operating and executing at a pretty high level.

Okay. All right. That's helpful, Kelly. And then thinking about the B&B business, some of your key partners there are doing a lot of work in terms of expanding their product offerings, getting, you know, perhaps a bit deeper vertically in their businesses. As you think about that strategy coming through, what does that mean for Boise? And I guess, you know, as part of that, when we think about general line being, I think it's about 44, 45% of your sales today. How do you see that helping you to get to perhaps, you know, a higher number? Could it become 50% over time or how will that all move through?

Hey Sue, it's Nate. I'll start that and I'll have Jeff fill in here as well. I think in terms of your question on our vendor partners and how they're maybe approaching their business model going forward, clearly we are seeing a number of new products and SKUs coming into the mix. And so as we look at kind of the SKU intensity, it continues to grow, which is really, to me, really supportive of two-step distribution. Our customers downstream are looking for simplicity in terms of how they fulfill orders and as new products and services are introduced by our key partners, you know, we are an important part of that equation. So as we think about, you know, kind of the new products, new services, we think that puts, you know, kind of more responsibility on two-step distribution and we're looking forward to that. I think the other component to that is as both on the customers, maybe on the supplier side, You know, there is, I think, you know, measured optimism in terms of, you know, where the market is on the demand side. So I think they're going to be pretty measured in terms of their working capital footprint and that dependency on two-step distribution will be there as well. So as I look at it, too, a combination of of new products new SKUs along with the demand environment that's pretty pretty tepid really speaks really well to who we are and and I think the importance that we have with our supplier partners and customers obviously moving forward I think to your question on you know kind of the mix on 44 today and you know what's the upside for that I think as you continue to look at who we are and the investments that we continue to make we want to grow the overall franchise and BMD But general lines are really an important part of that, including our door and millwork segment. So we think that represents continued really good opportunity, both for our customers and our suppliers in growing that segment. And we want to continue to kind of grow that as we have here over the last couple of years.

Okay. That's very helpful, Collar. And then if I could just squeeze one more in, which is, you know, you've picked up the share buybacks really nicely this quarter. Can you talk a bit about how you're thinking about capital allocation and shareholder returns from here and just any thoughts on how that may come through over the next couple quarters?

Yes. This is Kelly again. So, yeah, I'd say the narrative and the script is very much the same. We got some big capital spending ahead of us, as you know, in terms of organic growth as well as some needed replacement in certain facilities across the southeast. Big spending ahead there that we're excited to continue to execute upon, and we're a little behind in some regards just because of timing in terms of equipment availability, but still very much staying the course there. And then beyond that, we have the flexibility to do M&A if something shows up that makes sense. And then as we've demonstrated, we've got the quarterly dividend as well as the two special components around either special dividends or share repurchases. We did do the special dividend in September, the $5 per share. We did buy some more shares here in the third quarter. Near term, not going to put a share number or a dollar value on it, but I expect we'll look to continue to be opportunistic as it relates to share repurchases.

Okay. All right. Thank you for all the color, guys, and good luck with everything.

Thank you, Sue.

Thank you. Our next question comes from the line of Kurt Yinger with DA Davidson.

Your line is now open. Kurt, your line is now open. One moment for our next question.

Our next question comes from the line of Jeffrey Stevenson with Loop Capital. Your line is now open.

Hey, thanks for taking my questions today. Good morning, Jeff. Good morning. I just wanted to follow up on Susan's question on general line sales. They continue to hold in well and partially offsetting some of the commodity pricing headwinds you're seeing. Is this really being driven by the product and geographic expansion you've had with key suppliers over the last several years, driving the relative outperformance of your general line category?

I'd say it's a combination of things, Jeff. It's some purposeful things we've done around our door and network strategy to not just do acquisitions there like we did with Brasco, but also do some startups like we've done in Dallas, Houston, Denver, Kansas City, and then the small Boise acquisition did recently. So some of that's very purposeful. And then in other regards, you know, we benefit from part of the question earlier around suppliers continuing to add SKUs and our ability to get those into the marketplace for them. So I'd say it's a combination of things, Jeff, driving that.

Okay. No, that's great to hear. And then I'm just wondering, you know, how you're approaching inventories in your distribution business over the next six months, given, you know, you continue to face what commodity and EWP pricing headwinds, while at the same time, you know, you'll likely see some improvement on the single family housing starts as we kind of move into next year's spring selling season. So I'm just wondering, you know, how you're balancing, you know, those two things.

Hey, Jeff, this is Jeff. I would tell you, it is, It is a balancing act is what it is right now. It is a distribution-friendly market. We know we need to be there to serve our customers. We want to have the right amount of inventory. But at the same time, you do have the seasonal slowdowns coming right now. So we're looking at the two. If we're going to err on one side, then we're going to err on the side of having inventory to serve our customers.

Okay, great. Now that makes sense. And if I missed this, I apologize. I got on late. But just the timeline for the Oakdale, Louisiana plant modernization, And, you know, are you expecting to largely offset the, you know, lost plant capacity at other facilities during that time period?

Yeah, Jeff, good morning. This is Troy Little. Yeah, the timing on the project is actually this week we'll start demolition on two dryers and then go through the fourth quarter at about a 50% capacity, be down during the first quarter. and then starting back up in the second quarter. In addition to that, we're also working on our log utilization center. So that work is well underway right now. That'll parallel that. And then we also have some activity going on at Thor's beyond just some pre-spending for the I-Line project next year. But in terms of your question around being prepared, yes, we accumulated veneers. We did have, you know, kind of some spending at the other facilities to make sure they were in order, and we don't expect any impact in terms of, you know, inventory available to our customers during this time. So, we're well prepared going into it.

Great to hear. Thank you.

Thank you, Jeff.

Thank you. Our next question comes from the line of Keaton Momtora from BMO Capital Markets. Your line is now open.

Good morning, and thanks for taking my question. Working. Perhaps just to start with, this is sort of, you know, as you think about Q4, both on EWP volumes and just, you know, sort of activity levels and in BMD, it sounds like October has held in quite well, but you are pointing to sort of seasonal, you know, slowdown in demand. How would you have us sort of think about, you know, that piece, given there are, you know, quite a bit of cross currents going on in the market? And sort of cyclically, are you seeing things, you know, stabilize, you know, getting better or taking a step down? What is the right way to think about it?

Yeah, those are... Those are all the right questions, good questions, Keaton. So yes, October held up well. I think 23 sales days, good strong month. Really happy with the results in October. Come November and December, certainly fewer sales days could be impacted by weather. And then just kind of the continued uncertainty and narrative around mortgage rates and other factors out there in the environment. So I would suspect You know, I think our EWP volumes will, you know, they will trend largely with single-family housing starts. And so we'd expect them to trend down like we saw last year, last year fourth quarter. And I think in BMD, you know, again, a nice sales pace, as I alluded to, in October. But we would expect to see that come off in November and December. And, again, there's fewer sales days. know we're getting a little bit of goodness right now from the margin profiles and relates to commodities um but again the the top line will be a big driver of of bmd's bottom line results in terms of how much margin dollars can we generate uh in the fourth quarter and then nate i think had a follow-on here keaton yeah keaton it's made just the other thing i would just add is um as he kind of described it's a pretty you know um

volatile marketplace just in terms of what's what's happening on a range of items both our industry and outside of it and i think what's most important for us is to make sure we've got capability to pivot quickly um and and so to respond to the marketplace whatever that might be and so as kelly described that you know october has been um pretty resilient in terms of what's happened and some of the supply decisions on commodities in terms of reduced supply has created a reasonable backdrop here short term so our commitment and promise both to our customers and suppliers is to be in a position to serve. And so we're in an environment where it's not overly predictable, but we're going to, again, be in a really good spot to make sure we can pivot appropriately.

Understood. That's helpful. And just a couple of quick ones. Curious how the Roscoe business is performing.

Roscoe business so far is It's been rock solid. It's everything we'd hoped to be and a little bit more. It has really performed well.

Got it. And then, you know, Kelly, maybe your operating rates in EWP in the third quarter?

Yeah, they were right around 80% in the third quarter. You know, volumes are pretty consistent-ish with the second quarter and our operating rates were right around 80%. Understood.

Very helpful. I'll jump back in the queue.

Thank you.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Our next question comes from the line of Kurt Yinger with DA Davidson. Your line is now live.

Great. Thank you. Can you hear me?

Yeah, you're good, Kurt. Go right ahead.

Okay. Sorry about that earlier. Just wanted to start off on EWP, clearly just one quarter, but in terms of the stability in year-over-year LVL volumes versus I-joist, would you mostly just chalk that up to kind of geographic mix and kind of slab stability?

Yeah, sorry, Curtis, Nate. Yeah, I would say when you look at mix on iJoyce are probably more influenced by that than LVL headers as an example. So to your point, if there's a lot of slab on gray construction, it still represents an opportunity for LBO, and obviously not so, especially if it's only a single-story construction for slab-on-grade. So we view it as very much a geographic mixed statement, and that's, again, consistent with expectations.

Got it. And over the last two quarters now, I mean, one of your big customers has kind of talked about, you know, a shift maybe back towards I-Joyst versus – TAB, Mark McIntyre:" floor trusses i'm curious whether you know you're you're hearing that sentiment broadly and whether that's something at this stage that you think could be, you know, a relative driver of outperformance potentially next year relative to underlying single family starts demand.

Yeah, Curtis, Nate, again, I would say when it comes to competitive floor systems, open web plated floor trusses versus I-JOYST, and again, as I made a comment earlier, just in terms of how the builders are thinking about what success has to be for them, they're looking at cycle times, and they're looking at how do they create speed and simplicity on the job site, and I-JOYST, EWP represents that. as we think about the backdrop and competing against plated floor trusses, against engineered wood, we feel good about that environment, in part given what the builder's trying to get accomplished, which is how do they reduce cycle times.

Got it. Okay. Thanks for that, Nate. And then appreciate Troy kind of outlining the timeline with Oakdale. Kelly, is there any way to think about kind of temporary P&L impacts related to the downtime. Obviously, it doesn't sound like it's going to impact volumes, but any discrete cost headwinds we should kind of be aware of over the next couple quarters?

Yeah, nothing I'd probably have you build in specifically just yet, Kurt. I mean, our fourth quarter is typically we usually take some maintenance and downtime during that quarter anyway, so wouldn't expect to see a lot of year-over-year impact from that. We'll continue to assess as we move into 2025, and if we have anything meaningful to speak of, we'll share that. But at this point, I don't think we'd share anything meaningful. To Troy's point, the team in the southeast did a great job of making sure we have plenty of veneer to support EWP in that marketplace, because Oakdale is a very important veneer supplier, Alexandria, Louisiana, so we've done a good job of building inventory there. You know, might we have a little bit of volume impact on plywood into the first and second quarter? Yes, we will. But Oakdale, it's a big veneer supplier. It has much more meaningful impact to Alex EWP than it does to our plywood volumes.

Got it. Okay. That's great. And then finally, just on BMD gross margins, you know, we'll see what November and December bring on the commodity pricing front. But you know, is it fair to say that what you've seen in October, you know, would still be a little bit better than even what was a pretty strong Q3 gross margin performance?

Yeah, I mean, October was good. Again, the sales pace was good. The margin was solid, you know, a little bit of energy and commodities. And, you know, as you know, we'll see, you know, I think that's In my view, the energy and commodities has been much more supply-driven phenomenon than demand, so we'll see what happens here in November and December. Okay, perfect.

And then just last one, in terms of, you know, EWP kind of installed capacity, obviously a lot of runway for growth there. I'm curious how you're positioning going into next year, given some of the uncertainty around kind of labor in the facilities and the flexibility, you know, to...

ramp up or ramp down depending on kind of what ultimately materializes on the demand front yeah this is troy um i mean that that kind of speaks to our integrated model um and so in terms of keeping employees we've got the ability to shift veneer and or um you know some production time over to the plywood side um if we have any need to do that and so i i don't think we have a huge risk there. In terms of expansion, I mean, there's easing on the labor side a little bit. And so it's a matter of, you know, we always have turnover. But, you know, to the degree that we need to ramp up for that, that's, you know, we're prepared in advance relative to any additional shifts that we would add. So I think we're good.

Okay. Sounds good. Appreciate the color, guys. Thank you.

Thanks, Rick.

I'm showing no further questions at this time. This concludes the question and answer session, and I would now like to turn it back to Nate Jorgensen for closing remarks. Go ahead.

Great. Thanks, Grace. We appreciate everyone joining us this morning for our update, and thank you for continuing interest and support of Boise Cascade. Please be safe and be well.

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