Louisiana-Pacific Corporation

Good day, and thank you for standing by. Welcome to LP's second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To remove yourself from the queue, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Aaron Howell, Vice President of Investor Relations and Business Development. You may begin.

Thank you, Operator, and good morning, everyone. Thank you for joining us to discuss LP's results for the second quarter of 2023 and our outlook for Q3 and the remainder of the year. My name is Aaron Howell, and I am LP's Vice President of Investor Relations and Business Development. Joining me this morning are Brad Southern, LP's Chief Executive Officer, and Alan Hockey, LP's Chief Financial Officer. During this morning's call, we will refer to an accompanying presentation that is available on LP's IR webpage, which is investor.lpcorp.com. Our 8-K filing is also available there, along with our earnings press release and other materials detailing LP's strategy and sustainable business model. Today's discussion will contain certain forward-looking statements and non-GAAP financial metrics, as described on slides two and three of the earnings presentation. I will incorporate those slides by reference rather than reading them. The appendix of the presentation also contains reconciliations that are further supplemented by this morning's 8-K filing. And with that, I will turn the call over to Brad. Thanks, Aaron. Good morning, and thank you all for joining us.

I'll briefly describe LP's results for the quarter before I turn my attention to the future and discuss LP's strategy of growth, innovation, and efficiency and how it positions us exceptionally well to benefit not only from the ongoing rebound and new construction, but also from the improvement in repair and remodeling that we expect will eventually follow. The second quarter ended with encouraging signs of an improving housing market. While single-family starts are down 21% for the first half of the year compared to 2022, May and June saw stronger-than-expected building activity. As housing stocks have rebounded, demand for LP's oriented strand board has followed, pushing prices meaningfully higher and improving LP's EBITDA and cash flow outlook. By contrast, the repair and remodeling market appears to be comparatively weak and softening, likely due, at least in part, to constrained home inventory and reduced home sales. Existing home sales, which in a typical year outnumber stocks by four or five to one, are down 23% for the first half of the year, and vacancy rates and active listing counts suggest that trend will persist. The shed market, where LP has a dominant share of exterior siding panels, closely follows existing home sales and has been similarly weaker so far in 2023. Against this backdrop, LP generated $611 million in net sales, $93 million in EBITDA, $88 million in operating cash flow, and $0.55 in adjusted diluted earnings per share. While our EBITDA performance exceeded guidance from the prior quarter, siting revenue was lower than expected, with sheds the softest component of the siting business in the quarter. Overall siting volume dropped 16% versus prior year quarter, roughly equal to the drop in single family starts for the quarter. Partially offsetting this, siding prices were 6% higher than prior year, with the result that net sales were 11% below prior year. On slide six, you can see that while single-family startups dropped 22% on a trailing 12-month basis, siding volume was flat and siding prices were up 11%. Comparing the first half of 2023 to the first half of 2019 before the pandemic, Siding revenue has grown at a compound annual rate of 14%. Over the same four-year period, single-family starts were essentially flat. The first half of this year is certainly softer compared to the COVID year when siding was on allocation, but siding growth consistently exceeds that of the underlying market. A bright spot for the quarter was expert-finished pre-finished siding, which saw flat volume in Q2 compared to prior year despite the general R&R slowdown. Our newest expert finished facility located in Bath, New York, will open in Q3, bringing increased automation and improved efficiency to LP's pre-finished siding production. To support ongoing product innovation, in the second quarter, LP opened our new Innovation Center at the Natural Resource Research Institute in collaboration with the University of Minnesota Duluth. The Innovation Center will accelerate our development of high-performance and sustainable building solutions. We're also happy to announce the introduction of two new additions to the siding product portfolio. The new products are brushed smooth expert finish lap and pebbled stucco panels. These new offerings retain smart size durability, efficiency of installation, and industry-leading sustainability, and will help us gain share in markets that prefer these aesthetic characteristics. For the OSB segment, the ongoing improvement in single-family new construction has led to increased demand for OSB, which has in turn led to higher prices. Given the two- to three-week OSB order file, the price increases in the last days of Q2 will mostly be reflected in Q3. But impressive operating efficiency and a sequentially higher structural solutions mix of 54% helped the OSB business contribute $37 million in EBITDA in Q2. Both businesses have done an impressive job so far this year operating efficiently despite lower capacity utilization as we manage our operating footprint with discipline. While the current market environment for repair and remodeling and siting may be softer than anticipated, our commitment to our strategy is unwavering. We will continue to grow through innovation, manage our capacity with discipline and efficiency, and preserve the strong balance sheet that lets us invest in our future. Our strategy is working. We will continue to invest in capacity to produce and deliver the best siding and structural solutions products in the industry. The acquisition of what will become our next siding mill in Wawa, Ontario is an example of this. We are pleased with the progress we have made integrating the Wawa team into LP's siding business. We are engaging with the local community and First Nations as we prepare to sustainably harvest the local aspen fiber. and we have begun the engineering work necessary to prepare Wawa to become a state-of-the-art siding mill so that we can meet growing customer demand. Our capital allocation strategy gives us the flexibility to adjust the timing of investments and growth to match customer demand, decoupled from the volatile cash flow generated from OSB price fluctuations. Before I turn the call over to Alan, I want to conclude by spending a moment talking about safety. which is a core value at LP. Our goal is zero injuries. While we will never be perfect, we work every day to continuously improve safety at LP. We were recently notified that LP won the 2022 Safest Company Award from APA, the Engineered Wood Association. This is the 11th time in 15 years that LP has earned this award. But safety is not about winning awards. It's about building a culture where we look out for ourselves and each other so we can all go home to our families safely every single day. I'm happy to say that LP's safety performance in Q2 has continued to build on our safety legacy. In the second quarter of 2023, LP's siding business had a single recordable injury. The rest of our North American employees, including the OSB business and all corporate functions, ended the quarter without a single recordable injury. That means LP team members in North America completed almost 2 million work hours with only one recordable injury. One is too many and we will learn from it and improve, but we are incredibly proud of this result. And I know that every employee shares my commitment to being the safest company in our industry. And with that, I will turn the call over to Alan for a more detailed review of the financial results before we take your questions.