Louisiana-Pacific Corporation

Good day, and thank you for standing by. Welcome to the fourth quarter and full year 2021 Louisiana Pacific Corporation Earnings Conference 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 this session, you will need to press Start 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press Start and 0. I would now like to hand the conference over to your host today, Aaron Howald, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Michelle, and good morning, everyone. Thank you for joining LP Building Solutions today to discuss our results for the fourth quarter and full year of 2021, as well as our outlook for Q1 and the full year. My name is Aaron Howald, and I am LP's Vice President of Investor Relations and Business Development. I'm joined this morning by Brad Southern, LP's Chief Executive Officer, and Alan Hockey, LP's Chief Financial Officer. During this morning's conference call and webcast, we will refer to an accompanying presentation available on LP's IR webpage, which is www.investor.lpcorp.com, where you will also find our earnings press release, 8K, and other materials. Slides two and three of the presentation provide notices in detail regarding forward-looking statements and non-GAAP financial metrics. Rather than reading those statements, I incorporate them herein by reference. The appendix of the presentation also contains some necessary reconciliations that are further supplemented by this morning's 8K filing. And with that, I turn the call over to Brad.

Thanks, Aaron. Good morning, everyone, and thank you for joining us to discuss LP's financial results for the fourth quarter and full year 2021. Q4 was a strong finish to a record year for LP Building Solutions. Customer demand for SmartSide and structural solutions persisted throughout the quarter with no sign of typical holiday slowdown. With U.S. housing permits in December reaching a seasonal run rate of 1.9 million, demand shows no sign of slowing. I'll therefore begin with an update on our substantial investments in capacity. For siding, progress continues on the Holton, Maine conversion project with production expected to begin next month. We rebuilt the press in our Swan Valley Manitoba mill in October and were rewarded in January with an all-time monthly production record. LP also announced plans to build our fourth and to date largest expert finish facility at a site in Bath, New York. In OSB, production at Peace Valley was 10% ahead of the ramp-up plan established following its restart in July, providing much-needed structural panels to our West Coast customers. I want to thank our engineering, operations, and local mill teams for the ongoing success of these projects. In Q4, we significantly ramped up the rate of capital investment, spending a total of $121 million. For context, total CapEx in 2021 was $254 million, roughly half of which was for strategic growth. So, almost half of the year's spend occurred in Q4. The rate of CapEx spend for Q4 was not a one-time outlier. In 2022, LP will aggressively increase our investments and capacity with plans to spend over $400 million in CapEx to drive growth and innovation. Along with the soon-to-be-completed Holton conversion, later this year we will start the Segola, Michigan conversion with siding production expected in Q1 of 2023. In a few minutes, Alan will give you a preview of our long-term capacity strategy for SmartSide and ExpertFinish. This will be the first year in which we have worked on two parallel site and capacity addition projects, but it won't be the last. We are currently narrowing the list of candidates for capacity expansion projects to follow SOGOA, and we have begun the process of securing long lead time items necessary for these projects. In the OSB segment, While we are not increasing volume, we will invest in the specialized equipment and process technologies necessary to accelerate the shift from commodity OSB to value-added structural solutions like TechShield, FlameBlock, WeatherLogic, and Legacy Flooring. And we will continue to invest in demand generation through sales and marketing and customer training as we gain, share, and expand addressable markets. Slide 5 highlights LP's financial results for the fourth quarter. In Q4, LP generated $1 billion in net sales and over $300 million in EBITDA. This was 7% lower than prior year due to investments in growth, raw material inflation, and slightly lower OSB prices. This resulted in $200 million of operating cash flow and adjusted earnings per share of $2.24. LP returned almost $330 million to shareholders in Q4, mostly through share repurchases. This completed the $1 billion authorization for share repurchases, leaving $500 million in remaining authorizations. Alan will provide more detail about our capital allocation strategy and execution in a few minutes, but I should point out that the adjusted earnings per share I just mentioned is higher than last year despite lower net income due to a much lower share count. Before I summarize the full-year financial results, slide 6 shows more detail about siding growth relative to the underlying housing market, as well as the growth of the highest value-added products in the siding portfolio. On a trailing 12-month basis, single-family starts in the United States increased by 13% from $991,000 to $1.1 million. Siding solutions revenue grew at double this rate, increasing 27% in 2021. In November, Siding Solutions broke another record by surpassing $1 billion in annual revenue before ending the year at almost $1.2 billion. For context, $1 billion is close to the revenue that LP's much larger OSB business would generate at pre-COVID cycle average prices. This achievement marks a significant milestone in our strategic transformation. Siding revenue growth is a compounded result of 16% volume growth and a 9% increase in prices. The price increase includes the positive mix effect of growth in expert finish, shakes, corners, and other innovative siding products. As you can see in the pie charts at the right, while total volume grew by 16%, the volume within this innovative subset of the siding portfolio nearly doubled. reaching 10% of total volume in 2021. This 10% of volume delivered 14% of the segment's revenue for the year, helping Siding grow at twice the rate of the underlying market. As I said a few minutes ago, we intend to double down on our investments in capacity, equipment, innovation, and sales and marketing to continue to grow SmartSide. Slide 7 shows LP's extraordinary results for the full year. In 2021, all business segments set records for sales and EBITDA, which totaled $4.6 billion and $2 billion, respectively. The resulting adjusted earnings per share was almost $14. After substantial investments in capacity, innovation, and sales and marketing, LP returned nearly all of the $1.5 billion in operating cash flow to investors through share buybacks and dividends. While demand for new construction and repair and remodeling projects is projected to continue for some time, 2022 will surely bring new challenges. We have seen some hopeful signs of moderation, but inflation continues to exert upward pressure on prices for raw materials freight. Global supply chain disruptions continue to threaten availability of some raw materials. But I have never been more confident in the creativity and dedication of our team and the sustainable business model we are building. I will close by stressing that our success is built by our people. The work for talent is real, and LP aspires to be recognized as a safe, welcoming, and rewarding place to work for anyone and everyone who has the talent and desire to join our team. At LP, we are growing and transforming by investing in all our assets, including our most important one, LP's 4,800 employees. And so to say thank you for an unforgettable year and a job well done, LP has substantially increased retention bonuses, retirement plan matches, and discretionary profit-sharing contributions for employees. And with that, I will turn the call over to Alan to discuss Q4 and full-year results for the siting and OSB segments and to update you all on LP's capital allocation strategy.