Louisiana-Pacific Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the second quarter 2020 Louisiana Pacific Corporation earnings conference call. At this time, all participant lines are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star, then 1 on your telephone keypad. Please be advised that today's conference may be recorded. If you require operator assistance, please press star, then 0. I'd now like to hand the conference over to your host today, Mr. Aaron Howald, Director of Investor Relations. Please go ahead, sir.

Thank you, Liz, and good morning, everyone. Thank you for joining us today to discuss Louisiana Pacific's financial results for the second quarter of 2020, as well as our near-term outlook. My name is Aaron Howald, and I am 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. We have provided a presentation with supplemental materials to which we will refer during this morning's comments. And finally, we have filed our 8K this morning with some additional information. The webcast 8K and supplemental materials can be accessed at our website, www.investor.lpcorp.com. I want to remind all participants on the call about forward-looking statements and the use of non-GAAP financial metrics during this morning's 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 8K filing we made this morning. Rather than reading those statements, I incorporate them herein by reference, and now I'll turn the call over to Brad.

Thanks, Aaron, and thank you all for joining us this morning. I spent the bulk of my time on the last quarterly call discussing the steps LP was taking in the face of a worsening COVID pandemic. We were preparing to weather significant uncertainty, but we were confident in our liquidity position This morning, I am pleased that my update will be more positive than many of us might have expected just three months ago. The effects of the pandemic are far from over, but so far, LP has fared better than the downside scenarios we modeled and discussed on the last call. As we know, the housing sector has shown remarkable resiliency. After bottoming out in mid-April, the market's LP serves recovered sharply and show no sign of slowing. Demand for our products rebounded quickly through May and June. OSB prices followed this pattern, falling sharply in April but climbing in May and ending June close to their Q1 highs. This was a transformative quarter despite the volatility. Siding achieved the second highest quarterly revenue in the segment's history and the lowest cost of production in three years. The OSB business also demonstrated excellent efficiency and cost control, delivering its best quarterly unit production costs since 2016 with a much richer mix of value-added products. I'll leave the details to Alan, but we finished the second quarter with $129 million operating cash flow, $97 million in EBITDA, and $0.43 of adjusted earnings per share. LP announced this morning that our board has approved a quarterly dividend of 14.5 cents per share. On the last call, the three elements of our COVID response that I discussed were safety, liquidity, and agility. Let me give you a brief update on each. First and most importantly, safety. I am pleased to report that very few LP employees have tested positive for COVID. Thankfully, all of them have either fully recovered or are recovering. and our operations were not significantly impacted in Q2 by cases at our facilities. We will continue to follow expert guidance and stay committed to keeping our employees, vendor partners, and customers safe. We are mindful of the human toll of this pandemic. Our hearts go out to those who have lost loved ones, and we want to thank all the first responders and frontline medical workers. As for liquidity, LPG generated $129 million of operating cash flow in Q2, and ended the quarter with $259 million of cash on hand. Given current prices and production rates, and assuming no sudden reversal of market conditions, we expect even better cash generation in Q3. A significant driver of LP's results for the quarter was the discipline and agility demonstrated by our leadership team's operations, capital management, and corporate functions. In mid-March, in response to rapidly slowing demand, We curtailed roughly one-third of April's production of OSB and siding. By the end of April, we were seeing signs of a demand recovery. As this trend accelerated, both segments added production back in May, and by June our facilities were near 100% capacity. Our improved OEE allowed us to adjust production levels and still achieve exceptionally low production costs. Housing is clearly a bright spot in our otherwise uncertain economy. After steep drops in April, housing starts in June were flat the last year. OSB demand, prices are strong, and repair and remodel activity is robust. We are also seeing shifts towards single-family homes, movement away from urban cores, and increased R&R spending. LP is well-positioned to capitalize on all these trends. Alan will share more specific modeling in a few minutes with details about how these trends are reflected I want to spend a few minutes talking about strategic transformation and execution in the siting segment. The business exited the fiber product line to focus on higher margin smart side strand, enhanced our retail strategy, and launched expert finish, our pre-finished product line. This work showed its value in Q2, helping the segment to grow in a volatile quarter. LP completed the strategic exit from fiber with a sale of the East River facility and the conversion of the Roaring River facility to expert finished production. This structural change positions the business focus exclusively on driving growth and innovation for the higher market and smart-size SRAM products. Over the past several quarters, our sales and marketing teams have worked to revitalize our relationships with our retail customers. As a result, LP products have more shelf space and higher brand awareness. For example, LP SmartSide is the number one siding brand on at least one major big box retailer's website. As on our spending at home centers jumped in Q2, sales of LP SmartSide through retail channels more than doubled, applying share capture as well as volume growth. This trend shows no sign of slowing so far in our Q3 order intake. Customer demand for recently launched Smooth SmartSide in expert finish has exceeded our expectations. The addition of these two products to our portfolio has enabled us to enhance our distribution in the Northeast. The customer response to Expert Finish has also been very encouraging. Expert Finish is well-positioned for both new construction and R&R, and it addresses labor constraints by saving the time and cost of painting after installation. This was a remarkable quarter for the siting segment. With a backdrop of pandemic-induced volatility, The segment delivered continued growth above underlying housing starts, exited lower-margin fiber products, demonstrated the value of significantly improved strategic partnerships with our largest customers, and drove growth with innovative new products. While Q2 was stronger than we initially expected and the near-term outlook is positive, many risks and uncertainties remain. COVID-19 cases are increasing. Many states are slowing or reversing their reopening plan, So far, no new work-from-home orders or declarations of non-essentiality have been issued that impacts LP's operations or customers, but that remains a possibility. COVID is likely to create more volatility in the remainder of 2020 and potentially beyond. That said, I'm enormously proud of the grit and resiliency that LP's employees have shown during this unprecedented time. Our teams demonstrated disciplined management of the things we can't control, as well as agility in the face of what we cannot predict. LP's results this quarter are a testament to the team's creativity, flexibility, and resolve. I want to thank every LP employee for their effort as we work through these extraordinary times. With that, I will turn to Alan for more details on our financial results. Thanks, Brad.