Louisiana-Pacific Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 Louisiana Pacific Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker, Mr. Aaron Howald, Director of Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining us to discuss Louisiana Pacific's financial results for the first quarter of 2020 and a discussion of our outlook given the COVID-19 pandemic and economic disruptions. My name is Aaron Howald. I'm LP's Director of Investor Relations. I'm joined today by Brad Southern, LP's Chief Executive Officer, and Alan Hockey, Chief Financial Officer. As we have done in the past, we are hosting a simultaneous webcast in addition to this conference call. The webcast can be accessed at our website, www.investor.lpcorp.com. We have also provided a presentation with supplemental materials to which we will refer during this morning's comments. And finally, we have filed our AK this morning with some additional information. I want to remind all participants on the call about forward-looking statements and our use of non-GAAP financial information during the discussion. I will refer you to slides two and three of the accompanying presentation for more detail. The appendix attached to the presentation has some necessary reconciliations that have been supplemented by the form AK filing we made this morning. Rather than reading those, I incorporate them by reference. And now I'll turn the call over to Brad.

Thanks, Erin, and thank you all for joining us this morning. Normally, I would start an earnings call with a high-level overview of our financial results, followed by an update of our ongoing strategic transformation, and then turn the call over to Alan for more detail on the quarter. This is obviously not a normal quarter. We had a strong first quarter, but I will leave the details of our financial results to Alan. This morning, I'm going to spend my time updating you on LP's response to the ongoing COVID-19 pandemic, and its subsequent economic impacts, both generally and specific to housing and LP. I believe that LP is well positioned to address the challenges and eventual opportunities that COVID-19 presents. I want to share those details with you. Slide five of the earnings presentation summarizes these steps. Through early March, housing fundamentals were as robust as we have seen in years. Seasonally adjusted housing starts were above 1.5 million, Mortgage and unemployment rates were near historic lows, and consumer and builder confidence was high. But starting in mid-March, as COVID-19 concerns grew, we saw a slowdown in demand for new homes. This resulted in declining order volumes as our customers saw their demand drop and responded by lowering their inventory positions. LP took immediate steps to protect the health and safety of our employees, customers, and contractors while also adjusting operations and capital allocation to reinforce an already strong balance sheet. The safety of our employees is always our highest priority. Most of our facilities are in jurisdictions that have deemed housing to be essential. This has allowed those facilities to continue to operate, though in some cases that reduce schedules. In order to reduce transmission risk at our facilities, we instituted aggressive cleaning, employee screening, and social distancing procedures wherever possible. We've also limited access by visitors and contractors and adjusted our shipping and receiving processes to maintain distancing protocols. In Nashville, our corporate office has been under a local safer at home order since mid-March, with most employees working from home since March 13th. We have adjusted our PTO policies, increased access to online resources, and taken other steps to increase communication to minimize the negative impacts on our people. In addition to keeping our employees safe, we have done what we can to help our local communities respond to the crisis as well. Our mills have donated personal protective equipment such as masks, gloves, hazmat suits from our storerooms, and our supply teams have been creative in sourcing increased volumes of PPE for our mills, our employees, and our broader communities. I am gratified that productivity and morale have remained high as we adjusted to these new realities. More importantly, we are fortunate to have had very few confirmed cases of COVID-19 among LP employees, all of whom have recovered. These efforts have been coordinated by LP's pandemic response team. I am very grateful for their efforts and good work. As the situation evolves and we see signs of recovery, I will rely on that team to keep us informed of and aligned with the guidelines put in place by all relevant authorities. We have seen the material softening of demand as have many of our customers as COVID-19 fears have led to shutdowns, unemployment, and general uncertainty. LP took steps to ensure the health of our business by adjusting operations and reinforcing our already strong balance sheet. We ended Q1 with $488 million of cash on hand including $350 million from a revolving line of credit, which we drew in late March out of an abundance of caution. We amended our credit agreement to provide for an incremental $200 million should we need it. We have no principal payments on our long-term debt due before 2024. I am confident in our balance sheet. As sales have slowed, the siding and OSB segments are adjusting their operating levels to balance supply and demand and optimize working capital. As difficult as it is to reduce shifts and take market-related downtime, we are doing so as efficiently as possible while preserving the upside for the eventual recovery. Regrettably, this has resulted in layoffs for some of our mill employees. Thankfully, increased unemployment benefits and other government programs will ease the burden for them and their families. We hope to welcome them back as soon as customer demand warrants increased production. To further preserve cash, we have reduced our spending on capital projects and suspended share buybacks. We announced at the end of March that we were reducing our planned capital expenditures by 50% to $70 million. Given our Q1 spend of $25 million, this implies a run rate of roughly $15 million per quarter for the remainder of 2020. The remaining projects prioritize safety, environmental stewardship, and growth of smart site expert finish or recently launched pre-finished signing offer. In terms of our capital allocation strategy, our authorization to buy back $200 million worth of shares remains in effect, but we have no plans to buy back shares in 2020. We announced this morning that we are making our regular dividend payment of 14.5 cents. All of our planning has two important things in common. First is informed by extensive scenario analysis that Alan will detail in a moment. Second, our adjustments to our CapEx and operating plans are flexible by design. As the situation changes, this can be flexed up or down as future challenges or opportunities emerge and conditions warrant. And of course, the very best way to preserve cash is to generate more of it. Compared to Q1 of 2019, EBITDA and operating cash flow were better by $25 million and $45 million, respectively. No one knows the duration or ultimate effects of the pandemic on our industry or the pace or shape of eventual recovery. But LP's management of this crisis is not predicated on accurate predictions. Our liquidity, strong balance sheet, operational agility, and experienced leadership positions LP to weather the current crisis as it evolves, respond to developments as needed, and prepare to thrive in the inevitable recovery. I am proud of our employees who are rolling up their sleeves and responding to this crisis, and I am confident LP will emerge stronger than ever. LP will navigate the next phases of this pandemic with the same priorities and focus that got us here. The safety of our employees, the continued strength of our business, and the preservation and growth of shareholder value. Tennessee allowed its statewide stay-at-home order to expire at the end of April. and we are conducting this call from our offices after a seven-week absence. Hopefully the same will soon be true for everyone on the call. With that, I'll turn the call over to Alan for a more detailed review of our first quarter results and the actions we have taken in response to the COVID-19 pandemic.