Louisiana-Pacific Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Louisiana Pacific Corporation fourth quarter and full year 2020 earnings results conference call. At this time, all participant lines 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 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 today, Aaron Howald, Director, Investor Relations. Thank you. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thank you for joining us today to discuss LP's results for the fourth quarter and full year of 2020, as well as our Q1 outlook. My name is Aaron Howald, and I'm LP's Director of Investor Relations. I'm joined today by Brad Southern, LP's Chief Executive Officer, and Alan Hockey, LP's Chief Financial Officer. We are hosting a simultaneous webcast in addition to this conference call, and we have uploaded a presentation to which we will refer during this morning's discussion. We also filed our 10-K this morning with some additional information. All of these materials are available on LP's investor relations website, www.investor.lpcorp.com. Slides two and three of the accompanying presentation provide notices and detail about forward-looking statements and the use of non-GAAP financial metrics. The appendix of the presentation also contains some necessary reconciliations that are further supplemented by this morning's 10-K filing. Rather than reading these statements, I will refer you to these supplemental materials. And now, I'll turn the call over to Brad.

Thanks, Aaron, and thank you all for joining us this morning to discuss LP's results for the fourth quarter and full year 2020. As you all know, the housing and repair and remodel markets that LP serves continue to show remarkable resiliency despite the ongoing COVID-19 pandemic, and demand for our products has remained very strong. Q4 was another record for SmartSide, as sales increased by 30% to $259 million, and Siding EBITDA nearly doubled year-over-year to $77 million. OSB prices remained exceptionally high throughout the quarter, resulting in $250 million in EBITDA for the OSB segment. All business segments continue to demonstrate outstanding cost control. As a result, LP ended 2020 with $2.8 billion in sales, $781 million in EBITDA, $660 million in operating cash flow, and $4.31 in earnings per share. It was a very strong ending to a uniquely challenging year that leaves LP well-positioned for continued growth. Two years ago, we introduced a strategic transformation plan for LP. That plan included a three-year target of $165 million in cumulative EBITDA improvements from growth, operating efficiency, and strategic sourcing. Today, I am proud to announce that we have exceeded this target a year ahead of schedule with $177 million in cumulative impact delivered in only two years. I want to stress that we measure these results using normalized OSB and raw material prices, so this achievement is not merely an artifact of unusually high OSP prices or favorable movements in the cost of logs or resins. Rather, it is the result of the incredible dedication, creativity, and great of ourselves, operations, logistics, and sourcing teams. Having achieved significantly greater efficiency, we will not only hold those gains but raise the bar as we continue to drive our growth and value creation strategy. Today, to build on our progress and to accelerate LP's transformation, I am pleased to announce a series of interconnected strategic initiatives. First, in order to supply growing demand, we are announcing a two-phase capacity expansion strategy for SmartSide. Phase one will be the conversion of our mill in Holton, Maine, from the production of laminated strand lumber and OSB to SmartSide. Holton is ideally located for SmartSide production because of its access to an ample and sustainable aspen wood basket and its proximity to the large and underpenetrated repair and remodel market along the east coast of the United States. Holton will add roughly 220 million square feet of SmartSide capacity with production beginning early in 2022. With Holton converting to SmartSide, we will cease LSL manufacturing there sometime this year. a change that has contributed to a broader re-evaluation of our product portfolio. Due to the loss of LSL from our EWP portfolio, coupled with our inability to consistently earn the cost of capital in EWP, we have decided to evaluate strategic options for our remaining engineered wood products business. Phase two of the SmartSide capacity expansion strategy will be the conversion of our OSB mill in Sagola, Michigan. Sagola is currently producing OSB and will continue to do so until it is converted to SmartSide manufacturing. Although the precise timing has yet to be determined, if demand for SmartSide continues to grow at historic rates, we will need to begin to work on the Segola conversion soon after siding production begins at Holton. This will require OSB production at Segola to cease sometime in mid to late 2023. These two new facilities will add roughly 520 million square feet of additional smart site capacity and remove roughly 670 million feet of OSP capacity. There is still a long runway for further siting growth after these conversions with several potential expansions of existing facilities as well as other conversion opportunities. In addition to serving our growing customer demand, these conversions will also position the mills for years of growth and improved stability which will benefit Holton's and Sagola's employees, their families, and their broader communities. We are thrilled to welcome L.P. Holton to the Smart Size Family of Mills and look forward to converting Sagola soon after. Finally, since we idled our Peace Valley OSB mill in Fort St. John, British Columbia, we have kept the mill ready with the intention to reopen it when we were confident the sustainable market demand would be sufficient to absorb its capacity. The consensus for 2021 housing starts has climbed for the past several months and is now near 1.5 million. On a seasonally adjusted basis, December starts were 1.6 million and permits were 1.7 million, suggesting continued strength in new residential construction. At these levels of starts, with channel human towards extraordinarily thin, it is clear that our customers need additional volumes. Looking further into the future, long-term demographic data and a structural undersupply of housing suggest continued tailwinds for demand. As a result, we have begun the process to restart production of OSB at Peace Valley. Our goal is for Peace Valley to become a low-cost leader in the industry. Our flexible and disciplined operating strategy remains unchanged. Restarting Peace Valley increases our ability to meet intense customer demand and will add to our strategic options for balancing OSB supply and demand with discipline, agility, and efficiency. With its production of text shield and long links, P-Styler will also help us reach our goals for structural solutions as a percentage of total volume. Since we have been keeping the mill ready for an eventual restart, the cost for its own production shall not exceed $12 million. We have begun the necessary engineering, capital, and rehiring planning to support the restarts. The earliest expectation for a first press load is sometime in Q3, full production capacity about a year later. We will continue to monitor the housing outlook, OSP demand, and channel inventories to gauge proper timing for the restore. As I said previously, continued siding growth will require more frequent mill conversions. As a result, as Pace Valley resumes full production as a low-cost leader, It enables our phased capacity expansion plans for SmartSide while maintaining our current OSB market share. Slide 7 of the company presentation shows more detail on our phased and integrated capacity strategy. Blue and orange lines show LP's expected OSB and SmartSide capacity over time in millions of square feet. Hold to the shutdown is conversion to SmartSide. and its ramp up to full capacity are shown as A, C, and E on the graph. Peace Valley will begin production at point B sometime after Holton ceases making both LSL and OSB in preparation for conversion. Peace Valley should then reach full production a year later at point B. Sagola, Michigan will be the next siding mill after Holton. Sagola's conversion will add roughly 300 million square feet of smart site capacity and removed roughly 420 million square feet of OSB capacity. While the exact timing of Sogola's conversion to SmartSide is still to be determined, the graph illustrates initial SmartSide production in the second half of 2023, which is consistent with an annual demand growth rate of 11%. Timing for all these steps is based on the assumption that OSB demand and SmartSide growth continue and that the capital projects are completed on schedule. Should demand slow, which we do not currently anticipate, any or all of these steps can be delayed at minimal cost. There is little room to significantly accelerate the Holtner conversion or the Pace Valley Restore as both of these projects are already underway. The Segola conversion, on the other hand, could be brought forward somewhat should demand growth accelerate. The plan, once fully implemented, will increase total smart site capacity by roughly 520 million square feet or a little over 30%. The net effect of Holton and Segola's conversion and a Peace Valley restart will increase LP's OSB capacity by less than 100 million feet. More importantly, each of these initiatives will accelerate LP's ongoing transformation, grow our portfolio of smart-sized structural solutions, and improve our operational agility as we meet increasing customer demand. 2020 was a year of incredible hurdles that uniquely tested our ability to adapt and work together. However, I'm incredibly proud of how LP employees came together to not only survive, but thrive as a company. In the face of adversity, LP delivered strong results. As we turn our attention to a new year, we are focused on meeting customer demand for LP products. We are excited to share our plans to execute a multiple-year smart site capacity expansion project and Restart Peace Valley is part of our disciplined and agile approach to OSV operations. This acceleration of our growth and value creation strategy will build on LP's growing momentum as we transform into a building solutions leader. And with that, I'll turn the call over to Alan Hockey for more details on our financial results and an update on our capital allocation strategy.