Louisiana-Pacific Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Louisiana Pacific Corporation Q3 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star then 0. I would now like to introduce today's conference call, Mr. Aaron Howald, Director of Investor Relations. You may begin.

Thank you, Kevin, and good morning, everyone. Thank you for joining us today to discuss LP's results for the third quarter of 2020, as well as our Q4 outlook. My name is Aaron Hoval, and I am LP's Director of Investor Relations. I'm joined today by Brad Southern and Alan Hockey, LP's Chief Executive Officer and Chief Financial Officer, respectively. As we've done in the past, we are hosting a simultaneous webcast in addition to this conference call. We have uploaded a presentation to which we will refer during this morning's comments. We also filed our 8K this morning with some additional information. All of these materials are available on our IR website, www.investor.lpcorp.com. I want to remind everyone on the call about forward-looking statements and the use of non-GAAP financial metrics during today's discussion. Slides two and three of the accompanying presentation provide more detail. The appendix of the presentation also has necessary reconciliations that are supplemented by this morning's Form 8K file. 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. We spoke with many of you a month ago at our Investor Day. This morning, I will focus mostly on what has changed since then, starting with the market, then moving to our transformations. The housing market has shown continued strength, and our transformation is ahead of pace. This was an all-time record quarter for SmartSide volume and revenue. Compared to Q3 of 2019, SmartSide revenue grew by 22%. with 19% higher volume and 3% higher prices. Cost of production was also a multi-year low, and of course, record OSB prices produced significant cash flows. As a result, and as I'm sure you saw in the 8K we released this morning, we finished the quarter comfortably ahead of our most recent guidance with $273 million in EBITDA and $1.56 in adjusted diluted earnings per share. There are more housing starts in the U.S. in Q3 than in any quarter since 2007, and the percentage of single-family starts was higher than in any other quarter since 2011, creating strong demand for our products. Mortgage rates are at historic lows, builder sentiment is at all-time highs, and the inventory of existing homes measured in months of supply is at an all-time low. All of these are strong leading indicators for continued strength in new construction, for which LP is well positioned. We're also seeing continued evidence of ongoing preference shift from multifamily to single family and away from cities to urban and rural areas. This is very positive for LP since building a single family home consumes on average about three times as much SmartSide and OSB as multifamily home. Since our investor day, OSB prices have stabilized with random links prices flat in intervening weeks. While OSB prices remain unusually high and they will surely normalize eventually, relative price stability is a sign that supply and demand may be approaching near-term equilibrium. We are confident that our transformation strategy of growing SmartSide and managing OSB with efficiency and agility will continue to drive long-term value. Slide 6 shows our progress toward our strategic transformation goals. Our target is $165 million of incremental EBITDA impact by 2021. We are well ahead of pace and our progress accelerated in Q3. We have achieved more EBITDA impact through three quarters of 2020 than we did in all of 2019. The SmartSide growth is the largest single contributing factor, closely followed by OEE gains in SmartSide and OSB, then strategic sourcing. As a result, with 137 million in cumulative benefits achieved, we're almost a year ahead of pace to hit our 2021 targets. These improvements are normalized for OSB prices. Our strategic transformation is driven by sustainable growth and efficiency improvements and is in no way inflated by current OSB prices. Given our results for the last two quarters, as well as the sustainable gains produced by our strategic transformation, we announced the resumption of share repurchases at Investor Day. Alan will give you a more detailed update of our capital allocation strategy in a few minutes. As you may have heard by now, MDI resin production in the U.S. has been constrained by the impacts of Hurricanes Laura and Delta on suppliers of precursor chemicals. LP is taking steps to secure alternate sources of supply and shift to different resin types where possible. Due to lack of supply, we have curtailed production of laminated strand lumber at our EWP facility in Holton, Maine, for four weeks. We are working with customers to minimize the impacts of this disruption. We do not currently anticipate production impacts to SmartSide or OSB. The situation is fluid, and I am proud of the agility with which our supply chain, operations, and logistics teams have managed through this disruption. The housing market continued in strong recovery, and OSB prices are high, but LP's performance was not merely the result of market uplifts. Our teams overcame and adapted to many challenges in the quarter and helped our customers do the same. Multiple hurricanes threaten our mills, our employees, communities, and the quarter. Our teams also help our customers work through the challenges of tightening truck and rail availability, shrinking inventories, and lead times increased by unprecedented demand. And of course, we're all still dealing with the ongoing COVID-19 pandemic. Some of our mills are located near COVID hotspots. We have seen a slight uptick in the number of employee cases, thankfully, all impacted employees have recovered or are recovering. Our teams continue to take necessary precautions to minimize the spread of COVID-19 and safeguard themselves and each other. We have yet to have any meal closures caused by COVID-19 outbreaks, and we will maintain these precautions for as long as necessary to keep our employees, vendors, and customers safe. Despite these challenges, we executed relentlessly on our strategies. Of course, high OSB prices generate lots of cash. With smart side growth 22%, ongoing growth in structural solutions, and an additional $10 million in efficiency gains in the quarter, all of which are sustainable, our results are driven by much more than high OSB prices. In fact, given our growth and efficiency improvements, even if OSB prices had been flat to last year, EBITDA would still be nearly double that of Q3 of last year, as a result of our growth and efficiency initiatives. While we celebrate record results in a very challenging year, I am inspired by the adaptability and determination of LP's employees and grateful that by working together, we achieved outstanding results while staying safe. And with that, I will turn the call over to Alan Hockey for more details on our results before we take your questions.