Louisiana-Pacific Corporation

Good day and thank you for standing by. Welcome to the Q4 2024 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 you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Aaron Holwalt, Vice President of Investor Relations. Please go ahead.

Thank you, operator and good

morning, everyone. Thank you for joining us to discuss LP's results for the fourth quarter of 2024, as well as our full year results and our outlook for Q1 and 2025. Hosting the call with me this morning are Brad Southern, LP's Chief Executive Officer, and Alan Hockey, LP's Chief Financial Officer. After prepared remarks, we will take a round of questions. During this morning's call, we will refer to a presentation that has been posted to LP's IR webpage, which is .lpcorp.com. Our AK filing, earnings press release, and other materials are also available there. Today's discussion contains forward-looking statements and non-GAAP financial metrics as described on slides two and three of the earnings presentation. The appendix also contains reconciliations that are further supplemented by this morning's AK filing. Rather than reading those materials, I will incorporate them by reference. And with that, over to

Brad. Thanks, Aaron, and thank you again for joining us today. Q4 was a strong finish to a record year for siting that featured growth, share gains, and margin expansion. In 2024, siting set records for net sales and EBITDA overall as well as multiple records for expert finish. In OSB, we saw slightly higher market prices than in 2023, but more importantly, the business executed our strategy effectively, grew structural solutions, increased operating efficiency, and managed capacity with agility and discipline. Page five of the presentation shows financial highlights for the fourth quarter and full year. In Q4, we saw the expected seasonal slowdown as winter weather brought the building season to a close. Compared to the prior year, siting sales grew by 9% in the quarter. For LP as a whole, the net effect of siting growth, a decline in OSB prices, and an increase in OSB sales volumes resulted in $681 million in sales, $125 million in EBITDA, and $105 million in operating cash flow. After investing $61 million in sustaining maintenance and growth capital, LP returned $42 million to shareholders through dividends and share repurchases. For the full year, siting sales grew by 17% to $1.56 billion. Thanks to siting growth, slightly higher OSB prices, and the margin expansion driven by increased capacity utilization and operating efficiency, we achieved $2.9 billion in sales, and $688 million in EBITDA. These represent increases of 14 and 44% respectively. This nearly doubled earnings per share to $5.88. LP used the $605 million in operating cash flow to continue executing our capital allocation strategy by investing $183 million in CapEx and returning $286 million to shareholders via dividends and share repurchases. Most importantly, we accomplished this safely, ending the year with 0.67 total incident rate. This is considered a world-class TIR, but it's not good enough for LP. We will never stop working to improve our safety performance to ensure no one gets injured while working at LP. As we look forward to 2025, the market is not radically different to what it was a year ago. On our call this time last year, we said that we expected 2024 to be a flat year for housing and a soft year for R&R, but we expected both businesses to outperform both markets. This is exactly what happened. In 2024, total U.S. housing starts were down 4% for the year and 6% in the fourth quarter. LP is over-indexed to single-family housing, which fared better, especially in the first half of the year. Single-family starts were up 7% for the full year, but down 5% in the fourth quarter. It's hard to be precise about the repair and remodeling market, but we estimate that total U.S. R&R expenditures were down low to mid-single digits. Against this backdrop, siding revenue grew by 9% in Q4 and 17% for the full year. We saw the resumption of normal seasonal demand patterns in siding, as well as broad-based growth in all product categories and in all geographies we serve. This growth is driven by new product innovation, our demand creation efforts, LP's superior product offerings, and by our amazing teams that make it all happen. Volume growth enabled margin expansion for siding as we more fully utilized our new capacity at LP's Holton, Sagola, and Bass facilities. As a result of this growth, siding achieved our long-term EBITDA margin target of 25% for the full year, despite a soft market. In OSB, despite housing starts below long-term average demand, the business achieved EBITDA above our long-term cycle average thanks to efficient cost control and disciplined capacity management. The consensus expectation for housing starts in 2025 is looking like another flat year, with perhaps a modest remount in R&R spending. Accordingly, in OSB, LP is planning for another year of operational excellence, cost control, and strategic execution. In siding, the focus is on share gains and volume growth. We are seeing encouraging evidence of that growth so far in 2025 with a healthy siding order file that we will detail in our guidance discussion. Accordingly, we are increasing our investments in new product innovation, demand creation, and capacity expansion to meet our customers' needs. 2024 was a relatively light year for capital investments. The recent conversions of our Sagola and Holton Mills and the opening of our pre-finishing facility in Bath gave us room to grow in siding. As demand continues to increase, we want to ensure that we do not outgrow our siding capacity. That means that 2025 and 2026 will see significantly increased investments in capacity expansion starting later this year. The next projects will include a second manufacturing line at LP Holton, starting the next siding expansion project after that, and increasing capacity at our existing expert finish pre-finishing facilities, with a significant portion of this work happening in parallel. At our historic volume growth rate of about 7 percent per year and our much higher growth rate for expert finish pre-finish siding, these projects should be completed in time to keep siding capacity utilization within efficient bounds. We would much rather be a little early than late with new capacity, and so we are starting now to preserve our ability to grow, rather than risking an extended period of allocation like we saw during COVID. As Alan will detail in a few minutes, we expect the siding business to generate over $400 million in EBITDA this year, reinforcing our confidence that siding can comfortably fund its own growth. The LP team is fully committed to executing our growth strategy, and I'm confident that we will continue to innovate new products, gain market share, operate safely, and increase the scale and efficiency of our manufacturing network. With that, I will turn the call over to Alan to detail these investments, the financial results, and our 2025 outlook, after which we will take your questions.

Thanks, Brad. As Brad said, the fourth quarter brought the year to a strong finish, and as I'll explore in a few minutes, the first quarter of 2025 also seems to be shaping up well. Page seven shows the fourth quarter waterfall for siding. 2024 largely exhibited normal seasonal demand patterns, with a sequential drop in volumes in the fourth quarter as building activity faded. Single-family starts were down not just seasonally, but also by five points year over year. Despite this, siding volumes grew by 3%, beating single-family starts by eight points. Higher selling prices added another six points of revenue growth, with roughly half coming from list price increases and half from mix. And we largely reinvested these earnings in selling and marketing and in mill staffing, with the expectation that 2025 demand will require higher production. For the full year on page eight, siding revenue grew by 17 points, outgrowing the underlying markets, as Brad said. This growth added $230 million in revenue, $79 million of it from prices, and $151 million from volume. And it added $143 million in EBITDA, being the flow through of $79 million in price, with $64 million coming from volume. Increased investments in demand creation and mill staffing, partially offset by a $60 million benefit from raw material price deflation, brought 2024 to a close with a 25% EBITDA margin, 500 basis points higher than last year, 2023. We sold just over 1.7 billion square feet of siding in 2024, which is about 75% of our nameplate capacity. So we have a healthy runway of capacity to grow into while we execute new expansion projects. For OSB on page nine, the lower prices in the fourth quarter cost the segment about $18 million in both revenue and EBITDA. However, by effectively managing what we can control, the business recovered most of the revenue impact and half of the EBITDA impact of these lower prices through the combined effects of higher volumes, improved OEE, and efficient raw material utilization. Page 10 shows the full year for OSB. On average, prices were slightly higher year over year, but the $35 million in pricing benefit was overshadowed somewhat by the $106 million in revenue and $55 million in EBITDA from higher commodity and structural solutions volumes. Helped, of course, by a three percentage point improvement in OEE, which in essence means that when we ran, we did so more efficiently. Raw material deflation, labor inflation, and a hodgepodge of other small items left the year at just under $1.2 billion in net sales and $298 million in EBITDA. So the fourth quarter was a bit below our declared cycle average quarterly EBITDA of $60 million, but the year ended well above that level. Page 11 shows cash flows for the quarter and full year. Both are pretty straightforward, with EBITDA translating cleanly to operating cash flow, helped by a slight decrease in working capital and a normal cash tax rate. We invested to maintain and expand our manufacturing capabilities and returned most of the excess to shareholders, paying $74 million in dividends and $212 million in the year to repurchase shares at a volume weighted average price below $90. LP ended 2024 with $340 million in cash, zero net debt, and almost $900 million in total liquidity. As of February the 14th, LP has paid an additional $51 million to repurchase roughly half a million more shares. And this leaves 69.7 million shares outstanding and $187 million remaining under the pre-existing share repurchase authorization. Now, LP's guidance for the first quarter and full year of 2025 is on page 12. For Siding, the order file continues to be healthy and to be clear, consistent with a typical seasonal rebound early in the year. Now, while there was minimal price lag in January, price realization now fully reflects the annual list price increases. Accordingly, we expect sales growth in the first quarter between 9% and 11% for revenue in the $390 to $400 million range. EBITDA should land between 95 and $105 million for an EBITDA margin of about 25%. For the full year, although we currently expect flat housing starts, we nonetheless anticipate revenue growth of seven to nine points, bringing revenue to between $1.65 billion and $1.7 billion. EBITDA should be between $415 and $425 million for an EBITDA margin, again, of around 25%. For OSB, assuming random length prices are flat to last Friday's published levels, we would expect first quarter EBITDA to land between 35 and $45 million. And for future quarters, we offer no estimate of OSB prices and merely revert to cycle average as a reasonable approach to modeling the longer term EBITDA potential of the OSB business. I should note that while we're using the same algorithm to estimate cycle average EBITDA, the inclusion of 2024 data does increase that cycle average EBITDA slightly from $60 to $65 per thousand square feet, which is reflected in the outlook for the second through the fourth quarters. And finally, for the avoidance of doubt, we have insufficient clarity about them to incorporate any tariff impacts in our guidance. The first quarter and full year guidance therefore assumes the current state continues. Now, if siding growth proceeds on this trajectory, we will need new press capacity sometime in the next two to three years, and we'll need additional pre-finishing capacity somewhat sooner. The chart on page 13 shows this schedule of capacity additions that will be necessary to meet demand under these scenarios. As a result, 2025 will be a year of significant investment. We expect to spend about $200 million in growth capital, largely in the second half of 2025. And 2026 will also most likely be a year of heavy investment with two expansion projects in parallel, as Brad mentioned. We'll have more specifics on timing, total project costs, and expected returns in coming quarters. Sustaining maintenance is also increasing in 2025 with some green end modernization projects and OSB designed to improve efficiency, yield, and most importantly, safety. So in conclusion, 2024 was a strong year. We executed our growth strategies and that execution generated over $600 million in operating cashflow, which we invested to maintain and enhance our manufacturing capabilities, generate more demand for our products, and to develop and reward our people. And we returned the rest to shareholders, consistent with our capital allocation strategy. We believe we have a strategy that works, a record of solid execution and a robust balance sheet, all of which gives us confidence that we're very well positioned to make the most of what the housing and repairing of modern markets have to offer, and to invest further in more product innovation, growth, capacity expansion, and shareholder returns. And with that, I'll open the call for Q&A. Operator?

Certainly, as a reminder, to ask a question, please press star one one in your telephone and wait for your name to be announced. To withdraw your question, please press star one one again and please stand by while we compile our Q&A roster. One moment for our first question. Our first question will be coming from Michael Roxlin of Churis Securities. Your line is open, Michael.

Yeah, thank you, Brad, Alan, and Aaron for taking my questions. Congrats on a strong finish to the year. I'm wondering if you could comment. Obviously, sign demand is, as you noted, continuing to be strong. Could you comment on the Lennar pull-through and help us think about the cadence of that growth this year?

Yes, so I would say we have ramped into like full contract execution with Lennar. There was a ramp-up period after the deal was signed. We didn't get all the homes immediately, obviously. So we're running at full scale with them. And we're in the second year of that agreement. And I would say it's at or exceeded, at or have exceeded our expectations as far as volume pull-through.

Yeah, right. We just had this, I mean, at or exceeded, but you would say it's more the latter than the at, meaning that it's, you know, it's performed.

Yeah, it's performed as expected. Yes, sorry for any confusion. I mean, we were contracted for a certain amount of homes and we've gotten those homes. And I mean, a little extra here and there, but, you know, materially, it's within the bounds of the agreement.

Got

it, okay.

And just, you know, second question I have, you've given the weakness or what had been weakness in commodity OSB. Have you shifted any more of the production to structural solutions, which should be, which are more margin-increase? And are you handicapped in any way for making a large shift to structural solutions from commodity OSB, particularly as you look to build out, you know, build a series given, you know, tie-in across sell opportunities?

Yeah, we do have to invest to continue to grow structural solutions from a manufacturing standpoint. Those investments tend to be small, especially relative to a siding conversion, and fairly quick to execute. So there are times that we run into some constraints around product availability and structural solutions, but that's very rare. So, yeah, you're right, as commodity pricing flattens out or is below trend lines, we really enjoy that incremental margin we get from structural solutions. And our strategy is to continue to sell, have a strategy that pull those skews through distribution and capture that margin. That's been a key part of our strategy. I'm proud of where we were in 2024, and we have plans to grow on that in 2025. Yeah, thanks very

much. In one moment for our next question. Our next question comes from Ketan Memtora of BMO Capital Markets. Your line is open.

Good morning, and thanks for taking my question. Perhaps to start with on siding, can you talk about, you know, sort of the EBITDA and the margin level in siding for 2025? Clearly the expert finished business is growing quite nicely. We know that is, you know, that is a higher price point product should be margin enhancing. Can you talk about a couple of offsetting factors, you know, that may be keeping margins at the same level? Is it SG&A, is it anything else?

Yeah, thanks Ketan for the question. I'm sure that's a bit of a burning question. I do want to say, so I'm gonna be sort of trying to be a little thoughtful and careful in my response. This is the first time that we've guided to a 25% EBITDA margin for the siding business. So I do want to answer the question in reverse. That the volume leverage and the price flow through that you're used to seeing on our waterfalls and that you see in the Q4 and the 2024 four-year waterfalls, they're expected to continue. Let's say the pure volume conversion of revenue to EBITDA to about 40% and of course price flows to 100%. So we get that kind of blended volume and price flow through about 65%. But, so thank you for the question, but we're not harvesting. It's way too early in LP's growth trajectory for us to even consider that. So the costs that are included in this four-year guide, there's about $20 million of inflation. Now a third of that's labor, so that's certain. The remainder is, let's call it raw materials. And I will admit that's largely speculative. There is about 10 to $15 million closer to the high end of additional selling and marketing expense. And so yes, in order to generate future business as well as help secure this year's growth, we are continuing to invest and adding selling and marketing dollars. And I've said it before on sort of broad public calls and on individual discussions, we encourage this. We encourage discretionary selling and marketing investments in order to generate future growth. I will say that the push into repair and remodel does require, let's call it a higher level of marketing dollars per foot of business gained. Then again, further on the discretionary side, there's roughly $5 million of, let's call it engineering costs and staffing associated with the capacity expansions. And some additional mill staffing very much in the hope that the market or that market share gains give us further growth on top of the amount that we've guided to. So we are certainly, as always, building in the necessary discretionary spending that would help us overachieve. And there's about a one and a half to 2% point margin impact from all of that stuff that I just described. What's not included, we have not assumed any material price mix favorability. I would say it's too early to know whether or not that how expert finish will progress in the year. We're obviously optimistic, but it always feels a bit reckless to just basically take that as a given. Given the fact that 2025 as the housing market is going to be challenging. It's a flat market in housing and probably down in R&R. So this is definitely a market share gain year. And we can't always predict where and quite how and when those market share gains will occur. So

that's the answer. Thanks, Alan. That's very helpful and very detailed, so appreciate it. And then switching to kind of sliding capacity expansion on Houlton Line 2, can you share with us at this point kind of what kind of capacity expansion you are planning and what kind of total investments will be on Line 2?

Yeah, Keaton, that'll add about 300 million feet of volume. The Houlton expansion would be adding a parallel manufacturing line to the existing mill, so adding a forming line and a press. I don't think we've gotten into the details precisely of how expensive that's going to be. We haven't yet, no. But the returns are consistent with previous expansion projects that we've had. As we get closer to that and have more specifics about timing and things like that, we'll be able to share that.

Keaton, I would just say from a manufacturing standpoint, we'd be focusing that line on the lap and trim capacity versus panel.

Got it, that's very helpful. I'll jump back in the queue. Good luck in 25. Thank you, Keaton. Thanks, Keaton.

In one moment for our next question. Our next question will be coming from Susan McLaurie of Goldman Sachs. Your line is open, Susan.

Thank you, good morning. This is Charles Perron in for Susan today.

Yeah, voice has gone down a couple of octaves, Susan.

Yeah, no. Maybe first, I want to ask about the siting guide and the application for the volume outperformance versus the market. Where do you see the biggest opportunity for growth and outperformance across new construction, R&R, and maybe Shedd as we look into 2025?

Yeah, good question. We're really expecting volume growth across all product offerings this year. There is, when we compare to 2024, there probably is some recovery volume or percentage in Shedd. Shedd was rather weak, especially first half of last year. So, fortunately, that's back to normal. It's not a little strong right now. So that would be, if any one sector is kind of leading the good growth that's at Shedd at the moment, but we're expecting above margin growth across all sectors, retail, the builder, new construction, as well as repair and remodel. And we're also looking at it across all geographies. So we're off to a good start, and the visibility we have in the order files is really strength everywhere.

Gotcha, that's a good caller. And maybe can we talk about also the raw material and freight expectations for 2025? I think on siting, you alluded for $20 million inflation. What does it imply for price costs, and how would potential tariffs impact your siting cost structure as we think about the year ahead?

Well, I'll take the easy one first, and then we'll avoid the second one. The 20 million I referenced does include about, I don't know, $8 million or so of labor inflation. So that's, as it were, certain. That's already been given and gifted, as it were. And the rest is raw material. And there will be, we think we'll see increases in -over-way costs, mostly offset by reductions in MDI costs. So there is some potential for raw material inflation but I will admit that piece is broadly speculative. I can't point to anything in particular.

Most of our major raw material, other than wood, are indexed to various derivative products that go into it. So we have to do some kind of forecasting around benzene cost, oil cost, to do these analysis. So that's the analysis that we did that drove the assumptions around the price increases for raw materials, other than wood.

Got it, thank you guys.

Yeah, and there's no assumptions in, nothing that we've talked about as far as the cost assumes any tariffs are placed on raw material flows.

And one moment for our next question. Our next question will be coming from Sean Stewart of TD Cohen, Sean, your line is open.

Thanks, good morning everyone. Couple of questions. One who revisit tariff exposure. Can you give us a sense of your approach in engaging with customers on OSB and siding if and when tariffs materialize? Is the intention to try and pass it on in complete or to fully offset the tariff in terms of pricing? And Brad, I'm just wondering if you can speak to, I guess your perspective on demand elasticity, intention in the market, the ability to pass those tariffs on and how much of a supply response might be needed for both OSB and siding.

Well, for OSB, it's a trade of commodity. So, there's not a direct way to pass cost onto the customer in OSB other than at the trading floors. And that'd be, I mean, you know how that works. So, the price of OSB will be the price of OSB in the cost structure, a cost structure change to the industry that's due to tariffs will reset the cost curve and price will be where price will be. You know, it's hard to know what the impact will be on siding with the information that we have today. As you know, we do have two siding mills in Canada. We have the ability to move volume around in our network. And there's some things we can do on the supply chain to optimize the supply chain if tariffs were to change the dynamics there. And so, we certainly have done scenario planning around what we would do and how we would go about doing it. But we haven't gotten to a situation yet where we've really put a number on it because of the lack of clarity. And we've had minimal, you know, I mean, obviously customers are aware that the industry would be significantly impacted across the board by particularly Canadian tariffs. But we haven't gotten into any level of discussion around how that would get manifested from a siding perspective.

Thanks for that, Brad. And I wanted to revisit the 2025 siding sales growth targets that you've provided, the 7 to 9% sales growth. And maybe I'm paraphrasing, you're telling me if I'm right and if there's any nuance to it. But 7 to 9% reflects market share gains in still a very difficult housing environment. In a more normalized scenario where we potentially get a bit of an uplift in housing, is 10% annual sales growth a feasible number for you guys when you're thinking about longer term growth, whether it's Hultin II or expansion beyond that? Is that the premise of the longer term sales growth potential for that segment?

John, I would, yeah. So certainly single family housing recovery along with broader, which would, I mean, to get a little more detail, which would probably drive increased R&R spend if we got existing home sales as a part of that. Well, let me back up even more. If interest rates were lower and the housing market took off across the board, we would see increases in single family construction, we would see increases in R&R spend, and that would provide a really nice tailwind that we haven't had since the COVID tailwind, which is the tailwind of all tailwinds. And that would certainly push the real-time addressable market for us up and allow us to grow at a higher growth rate than what we're seeing in a year where we were kind of expecting the market to be flat. I mean, also, inciting probably gives you a little more pricing opportunity, which means that the revenue, you get maybe another point on the revenue as a result of that. So, yeah, if your question is, would a recovering and stronger housing market and R&R market allow us to go above 7% to 9% growth, yeah, it would, and both help in volume and pricing, I believe.

And just to add a point about capacity investments, our biggest fear in Nashville is that we would, is being late to that party, so we've got to make sure that we have the capacity because we are convinced that it is going to happen at some point, and we need to be ready.

Understood, that's all I have for now, thanks very much. Welcome, thanks, John.

And one moment for our next question. Our next question will be coming from Stephen Ramsey of Thompson Research Group, your line is open, Stephen.

Hi, good morning. Maybe to start with the order file, inciting, be encouraging. If I recall, this is what you guys were seeing a year ago, early in 2024. I'm curious what the makeup of the order file now is compared to a year ago, and if it's telling you anything different compared to a year ago when you think about the portfolio between SmartSide, Builder Series, and Expert Finish.

I would say the only material difference in the order file strength this quarter versus year ago was we have seen stronger shed pulls this year than we had last year in the first quarter. Other than that, the other single family, big builder, retail, and R&R are consistent with what we were seeing Q1 of last year. And the same thing's true geographically if that's of interest.

Okay, that's helpful. Secondly, bath margins. This has been on a positive trajectory over the last year or two. Is there an assumption that it stays on that kind of trajectory in 2025? Or maybe another way to ask it, is it less of a margin headwind in 2025 than it was last year, even as it's increasing?

We basically assumed in our guide and our budgeting that we may kind of make slower progress in 2025. It's still improving, but we're adding capacity at a rate that we'll drag on that a little. But it's improving, definitely, but not quite by the same amount as in 2024. That's our modeling assumption anyway.

Great, thank you.

One moment for our next question. Our next question will be coming from Mark Weintraub of Seaport Research Partners. Your line is open, Mark.

Thank you. First, Alan, just one point of clarification. So when you were talking on the siding margin bridge, you mentioned price mix, slattish. Was that just mixed? Are we still building at like 3% on the margin? Price from list price adjustments?

Oh, yes, yes, yes. What I meant was that this year we enjoyed something closer to six. I don't model that additional mixed benefit. So yeah, the underlying price increases exactly that, yes.

Gotcha, so we do get that, let's say 45 million or something. Yep, yep. And then second, so you spoke on siding how you've been driving the market share gain through innovation and demand creation efforts. And last year we had Lennar, H-Home Depot. You had the smooth side introduction, although maybe that spills into this year more. Maybe can you talk a little bit more about, more specifically what some of the items that are gonna help drive it this year will be that are perhaps new and different?

Well, we would invite anybody to come by our booth in Las Vegas next week and take a look at the new products that we've launched and talked about, but also some new things that we have on board. Things around coloring for our pre-finish, some really interesting product expansion there. Obviously, to your point, having the full portfolio of smooth in market all of this year, including January, is a nice add compared to last year at this time. So innovation has been a key to all the growth that we've gotten, particularly after we've gotten come off allocation. Some of that work was done before COVID, but the Builder Series and next per finish growth, as we've talked about, Mark, has been phenomenal. So certainly innovation will continue to play a big part in our growth story because that increases our addressable market with customers that we have, the easiest customer to sell. And then as far as expanding customers, we are continuing to make inroads around builders, both large, medium-sized, and small. And then on the R&R side, that's a contractor play. And the number is how many loyal contractors do you have pushing and installing your product? And that's a big part of the marketing spend increase that Alan talked about is in support of that initiative. That's just a steady, constant execution play that will never end. I mean, there is a lot of siding contractors in North America, and we are selling to a rather small percentage of them. And so the opportunity there is huge, and it's just an annual localized execution that we're encouraged by the progress that we've made. I'm encouraged about what we've learned about how to do that. And that's given us a lot of confidence that we'll be able to continue to grow as we gain that expertise, round out the portfolio of products, in the case of repairing a model, continue to strengthen distribution, and create a recognizable brand that's beautiful and works well and customers want and contractors want to install.

Thank you, Brad. And then just lastly, I know you've had efforts underway to try to get a better sense of where customer inventories are. So two parts. One, where are you in that process? Do you feel that you now do have a much better sense of where customer inventories and siding tend to be, or are, and where are they currently?

Yeah, so we'll never have perfect visibility, but we have way better visibility than we've ever had. And over the last couple of years, it's gotten a lot better. And we are normal for where we would expect to be here in the middle of February, which is a little on the high side because coming into the year, distributors tend to want to build some inventory in anticipation of the spring selling season. And so there's more in the channel now than there was 30 days ago, but normal, given where we are in relationship to the home building season and the busy season for our and our contractors being able to get back outside and get to work. So we're pleased with where inventories are. I'm very pleased with the way we were able to manage that with the cooperation of our distribution based through the price increase and across to your end as well. Thanks so much. Yep.

And one moment for our next question. Our next question will be coming from Matthew McCullar of RBC Capital Markets. Your line is open, Matthew.

Good morning. Thanks for taking my questions. Just looking at your siding capacity slide, am I correct in thinking this implies you'll start investing in another siding line essentially as you complete the expansion at Holden? And with that, I recognize there are lots of moving parts here, but how would you think about what the trough for siding margins looks like as you work through this next capacity cycle?

I'll talk a little bit about the execution. Eric can join in. He's part of that team. Alan can speculate on margin with a double execution. So I've been part of siding for 20 years or so, 25 years. It's the first time if we end up doing it, which we certainly believe it's gonna be required, we'll be running two parallel expansion projects, not completely overlapped. We're gonna start Holden first, but then move into the second one after that. And it's gonna be pretty intense. We are staffing, as Alan talked about, up our engineering group in anticipation of that. A lot of that work will be executed from with contract engineers, but we are increasing our in-house capability as well. And it's pretty exciting to be in a position now, given our scale, where 10% growth leads to us being a kind of a continual expansion mode versus more of a batch process that we've had in the past. So that provides good continuity on expertise, good continuity with vendors that are a big part of those expansions. So yeah, we'll be starting Holden and talking specifically about that soon. And then shortly after that, we'll have a decision made on where the second or the next capacity expansion goes. As we mentioned in the prepared comments, we have a lot of options, and we're narrowing those options today. And I'll just, you know, future tariff situation will have an impact on that decision, obviously, because we have opportunities in both, or options in both Canada and in the US. All right,

thank you, Brad. And the risk of going out on a limb. I think we're more likely to be having, when we're in the throes of this sort of parallel expansion, having a conversation, not this similar to this one about margins, but I think it'll be closer to why the hell aren't margins rising as opposed to why are they falling? It's more likely that you might see us absorbing, again, additional, the benefits of additional growth with the headwind that comes from margin expansion. So I would like to believe that our scale has reached a point where that sort of rising sine wave has a higher minimum than before.

Great, thanks very much for all that color. Excellent for me, just sticking with your capacity plans, and thinking to the investment in Green Bay. Aside from the incremental capacity shown on the slide, how should we think about other improvements to help to drive through your investments, in particular, thinking about potential automation opportunities and risk and cost savings?

Let me start on the prefinish, as you mentioned. It's just remarkable how fast that technology is advancing. And we started out basically doing prefinish skunk work. So there was a lot of opportunity for us to increase investment and get better throughput and automation, and we're certainly doing that in expert finish. And a little bit for us, it's been somewhat, the delay maybe has been good, because the technology's advanced so much that we've really been able to see significant efficiency gains as we've added capacity. So I think there's way more to come on the expert finish side as we continue to scale that business. We are still relatively small in the big picture of prefinish manufacturing, and every increment of capacity that we add will be significantly more efficient than our average efficiency gain. That's a little bit, there's not quite that opportunity on the press side of the business, though we do have active projects around automation of our finishing operation, which tends to be more highly labor intensive, and in cases from a safety standpoint, more hands-on. That technology is advancing as well, particularly in the packaging area. And so we see opportunities there. I think those margins will be more, maybe less obvious to see at any one period of time, just part of the overall continuous improvement effort. And then I'll just close that by saying, one of the most exciting things though is this second line after Holton could give us an opportunity to, really the first time for us to be designing almost an entire mill footprint for siding production versus an OSB production line that gets converted. Holton line two will have some of that element in it, but the one after that will most probably be almost like a green field, even if it's at a current location of an existing siding mill. And so the opportunity for us to design specifically the entire footprint of the mill for siding production versus forcing it in on an existing OSB mill is going to be more capital intensive, but the opportunity and the efficiencies that we could design in will be pretty interesting. So more to come as we learn about that, but I do see that as an opportunity for another step change in margin, at least at that facility when it comes online as full production.

Thanks very much. I'll turn it back.

And one moment for our next question. Our next question will be coming from Kurt Jinger of DA Davidson. Your line is open Kurt.

Great, thanks and good morning everyone. I just wanted to circle back on Lennar and I'm curious as that business has ramped and you've executed against the agreement, if there's been any surprises or big learnings that you can kind of take and look at to leverage as you continue to pursue other larger builders in the space?

Well, I'd say not really any surprises. It's been executed as planned, more or less as a normal course of business. I mean, I guess the learning, I mean, this is not a learning that surprised us, but what we've been good at with Lennar is making sure that their contractor base is trained up, technically able to install our siding the first time they do it in a very efficient and beautiful way. And so, with the technical support that's gone in to this conversion, let's call it that for them, has been significant on our part. And we understand now that a key part of the selling process with a builder is to win the procurement battle for that business, but then it quickly becomes an execution play around educating the installer base and making sure that we have local distribution in place to serve every one of their developments. And there were cases where that was not true with some of the business that we garnered from Lennar and other builders that we've won in. So, it is an execution game once you get the agreement, and of course, Lennar was a big one for us. So, the learning's there, certainly will translate well into how we approach future opportunities in that area.

Is it fair to think that, I mean, given how important kind of the contractor training or technical details of installation would be that as you grow in scale and you convert some of these bigger builders, the next conversion is a little bit easier because that contractor base is just naturally more aware of installation and whatnot?

Yeah, no doubt. The wider we cast our net in both R&R and new construction, and by the way, there's installers that do both, depending on where the strength of the market is locally, every contractor we get, we have the opportunity to train up as a contractor that now knows how to install our product, and we believe and have evidence that they become advocates for our product because of the ease of installation. And so, there's a stickiness there. And then that also translate into, this has been historic for us, but as we grow the business, both R&R and new construction, and open up new distribution, the channel makes money off our product. And so, that creates some loyalty. I mean, they're gonna sell what the contractor wants, but it does strengthen our overall effort beyond just the framework of that one deal in the case of the builder or that one contractor that you convert on the R&R side. So, I mean, I mentioned building scale for expert finish, but we're also building scale with distribution and the contractor base is probably more valuable than the scale we build on the operations side.

Okay, all right, appreciate the color, thank you.

One moment for our next question. And our next question will be coming from George Daffo, the Bank of America Securities. Your line is open, George. Thanks

very much, everyone, good morning. Thanks for the details. You know, given the success with SmartSide, it doesn't sound like you need to make any changes, but does it come a time in the horizon where the marketing advertising maybe needs to change or change it because of the scale and the acceptance of the product, recognizing it's right now much more of a technical sale you're working on the installer, and that's been working just fine, but does national advertising or something like that ever come into play in the next two to three years?

Yeah, I would say, George, for the next two to three years, what's been working for us and what we're increasing our investment in is having boots on the ground on our sales force, so having folks actively selling our product every day and supporting that for the technical sales discussion, which I won't repeat. And then, you know, from an R&R standpoint where we've had success is really more on focused local markets, where we've gone into areas and where we do consumer advertising, but at a local level and a local basis using local media and then we're doing that in places where we have distribution, we have contractors that are on board, and then we follow that groundwork, and so let's say that foundation with focused local marketing, we're seeing really, really good results. And so I'm, you know, the markets change. Over the years, my opinions have changed, but I do think that this is more of a local selling, that there's more value, more return on local selling, local brand awareness than there is on national programs. That's my personal view, but, and it can be changed with evidence otherwise. We could accelerate growth with more of a national branding opportunity, but I like what we're doing locally, and it's really been something that we've seen the results of as we executed that.

And it's working, and at the same time, you have to stage it with your ability to produce and meet the demand, so, no, I mean, that all makes sense. Exactly. You know, yeah, exactly. And I'm sorry, Alan, did you have a comment there?

Nope, Rodney,

I was not

agreeing with you.

Yeah, sounds good. In terms of the next line, what are the lead times such that, you know, if you're gonna be producing around 2029, you need to actually start to have the orders in place to the equipment dealers, and what kind of inflation, maybe, or maybe not, are you seeing in terms of press capacity versus what we've seen in the past per 1,000 square feet?

Yeah, so let me just kind of give a comment of where we're at, and then Aaron can comment kind of on what we're seeing as far as down the road. But we've started securing pieces and parts of what we need to do for both Holtz and Line 1, actually for equipment or orders that we could find, that we could place that are location agnostic, that has begun. We've gotten preliminary approval, we've got approval from the board for Holtz but preliminary approval from the board to start the pre-buys, let's call it. Securing factory time and fabrication time or steel, and in some cases beginning the fabrication of the equipment. So that has started. The inflationary impact has been significant over the past couple of mill conversions, Holtz and Segova and now this one. We're not seeing increases in inflationary issues there other than, I would say, more normal, but compared to what it cost to do these projects pre-COVID, it's significantly more expensive. And then I think Aaron can speak more to the specifics of where we are on the two projects and what we're seeing.

Yeah, inflation is certainly a factor but the nature of the projects are also changing. So Segova and Holtz were conversions of existing plants. The Holtz and Line 2 is an expansion, so we're not converting a press, we're actually adding a press. So the nature of the products also, the nature of the projects themselves can drive some changes in the total cost. Fortunately, the other thing that's inflating is the siding price. So the cost of the projects go up but the returns stay very healthy because we've got pricing power for the specialized product that we're producing at those mills. In terms of timing, as Brad said, some of the items are longer lead time and site agnostic and so it makes sense to secure that capacity now because there's not a huge amount of production capacity for some of these specialized pieces of equipment. And we're pretty confident that if we continue to grow with the historical volume CAGR that we've seen over the past several years that we'll have capacity ready in time that we minimize the risk of another extended period of a managed order file.

Understood. My two last questions and I'll turn it over. I wouldn't expect it would be a factor, so I didn't really call it out, but with Shedd growing a little bit more quickly this year, is that any kind of impact on the margin trend? Maybe take a few basis points off of margin because of mix. And then in terms of maintenance, can you remind me, are there any specific cadence factors we should be considering as we're modeling out the quarters? Thank you very much.

On the Shedd, it would be, tends to be lower than average price, but not lower than average margin. So it's not a margin here, but we'd see a pricing hit. And then as

always Q4 will be the heaviest in terms of maintenance projects and spending,

George. We've got a few projects this year that are maybe a little larger than normal, but they're in the OSB business, not the siding business. So you won't see large maintenance projects being a source of perturbation in the siding margin this year. Yeah, knock on wood. Knock on wood.

Thanks very much. Good luck on the quarter. Knock on wood, please. Yeah, I got to set up.

Thank you. And I'm now showing no further questions. I would now like to turn the conference back to Aaron for closing remarks.

Okay, thank you everyone for joining us. With no further questions, we'll end the call there. Stay safe and come and see us next week in Vegas and see some of the new products that we were talking about driving our growth in 2025.

And this concludes today's conference call. Thank you for participating. You may now disconnect.