Good morning. My name is Valerie, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's First Quarter 2020 Conference Call. [Operator Instructions]. Before we begin, I remind you that this call may contain forward-looking statements about the company's future business prospects and anticipated financial performance. These statements are not guarantees of future performance, and the company undertakes no duty to update them. Although these statements reflect management's expectations today, they are subject to a number of business risks and uncertainties. Actual results may differ materially from those expressed or implied in this call. For a discussion of the factors that may actual results to differ from results anticipated, please refer to Boise Cascade's recent filings with the SEC. It is now my pleasure to introduce to you Wayne Rancourt, Executive Vice President, CFO and Treasurer, Boise Cascade. Mr. Rancourt, you may begin your conference.

Thank you, Valerie. Good morning, everyone. I would like to welcome you to Boise Cascade's first quarter 2020 earnings call and business update. Joining me on today's call are Nate Jorgensen, our CEO; Mike Brown, Head of our Wood Products Operations; and Nick Stokes, Head of our Building Materials Distribution Operations. Turning to Slide 2, I would point out the information regarding our forward-looking statements. The appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income to segment EBITDA. I will now turn the call over to Nate.

Thanks, Wayne. Good morning, everyone. Thank you for joining us on our earnings call today. On slide number 3, our first quarter sales of $1.2 billion were up 12% from first quarter 2019. Our net income was $12.2 million or $0.31 per share compared to net income of $11.4 million or $0.29 per share in the year ago quarter. Reported net income for first quarter 2020 includes $15 million of pre-tax accelerated depreciation and $1.7 million of other curtailment related costs, or $0.32 per share after tax due to the permanent curtailment of our I-joist production at Roxboro, North Carolina facility. Our operating performance in both businesses was strong demonstrating the strength of our integrated business model. Our Wood Products manufacturing business reported segment income of $3.8 million in the first quarter compared to $11.6 million in the year ago quarter. The first quarter of 2020 results include the Roxboro previously mentioned charges. Our Building Materials Distribution business reported segment income of $29.3 million on quarterly sales of $1 billion for the first quarter compared to $17.5 million of segment income on quarterly sales of $908 million in the comparative year quarter. Wayne will walk through the financial results in more detail, then I'll come back to provide an update ongoing business -- ongoing response to COVID-19 impact on our businesses and our outlook before we take your questions. Wayne?

Thank you, Nate. I'm on Slide 4. Wood Products sales in the first quarter, including sales to our distribution segment, were $320 million flat with first quarter 2019. As Nate mentioned, Wood Products reported segment income of $3.8 million in the first quarter, compared to $11.6 million in the prior year quarter. A decrease in segment income was due primarily to accelerated depreciation of $15 million and other closure related cost of $1.7 million at our Roxboro facility as Nate mentioned. Reported EBITDA for the business was $33.4 million, up from EBITDA of $25.4 million reported in the year ago quarter. Higher EWP volumes and lower manufacturing costs contributed to the improved EBITDA performance compared with first quarter 2019. Lower plywood pricing was a drag on first quarter 2020 comparative performance. BMD's sales in the quarter were $1 billion, up 16% from first quarter 2019. Sales volumes were up 17% while sales prices declined 1%. The business reported segment income of $29.3 million or EBITDA of $34.6 million in the first quarter. This compares to a segment income of $17.5 million and EBITDA of $22.6 million in the prior year quarter. The increase in segment income was driven primarily by a gross margin increase of $24.6 million resulting from improved gross margins on commodity products and higher sales of general line products in EWP compared with first quarter 2019. This improvement was offset partially by a $12.2 million increase in selling and distribution expenses. The amount for unallocated corporate cost and other items impacting our reported EBITDA can be found in the tables of our earnings release. The net of those items was negative $8.4 million in the first quarter of 2020 compared with negative $7.3 million in the first quarter of 2019. Turning to Slide 5, our first quarter…

Thanks, Wayne. I'm on Slide number 12, our first priority during the crisis continues to be the health and safety of our associates and those with whom we do business. It is important that we continue to support community efforts and conduct our business appropriately based upon the guidance from the CDC among others. In anticipation of weaker business conditions over the next several quarters, we reduced our capital spending plans, adjusted manufacturing production levels, and implemented a number of actions to preserve cash and reduce expenses. We have further actions identified, which we will implement as we move deeper into the quarter if it becomes apparent the demand environment and economic outlook is unlikely to reverse in a reasonable timeframe. We have the experience of the last financial crisis to lean on and planning our COVID-19 response. However, we believe the early actions at the federal level to respond with a fiscal and monetary stimulus is likely to mitigate the depth of the economic damage and shorten the path to recovery. We are already seeing actions to thoughtfully reopen portions of the economies in states where the curve of infections has flattened, which provides us hope that we will see a return to normal activity in a much shorter period and following the 2009 financial crisis. I’m on Slide number 13, the blue-chip consensus for U.S. housing starts was last published at an expectation of 1.16 million for 2020. We would expect the consensus to fall between 1 million and 1.1 million housing starts over the next several weeks, but the second half of the year is very hard to predict. The new start rate and progress completion rate for single family, new construction has slowed considerably as we as moved through April. Many builders have scaled back their…

[Operator Instructions]. Our first question comes from Brian Maguire of Goldman Sachs. Your line is open.

I appreciate the comments on the 2Q outlook there and I guess it sounds like things obviously decelerated a lot towards the end of 1Q and into April that down 13% in BMD. I just wanted to clarify if it was quarter-over-quarter or year-over-year, how you were talking about that. And then, have you seen any week-over-week improvement as we've gotten into early May here, any signs of green shoots or activity resuming or are we sort of still trying to find a bottom on some of these numbers?

Brian, this is Wayne. The 13% is the comparison of the daily sales rate in March with the daily sales rate in April. So part of that 13% is going to be price deflation. And some of it will be volume declines, I would tell you in our case the pace slowed at the end of March and into the first part of April. And as we've seen some reopening, particularly in the states that shut down construction as non-essential. Those that have changed that designation, we're seeing a pickup in sales activity. And I think the general feel is that people are pretty positive with the states taking the reopening. And I think part of what we're seeing in May -- and the volumes in May have been pretty good, first week. I think part of what we're seeing is more comfort at the dealer level, and trying to rebuild inventory. So I would tell you, from the anecdotal stuff I see, I think there is a fear of missing out if the pace accelerates, people don't want to be caught short. And I think they're less concerned at these price levels with getting caught with inventory that would get marked down in the future. So I think part of what you're seeing is an improvement in field activity and part of what you're seeing is a little more comfort on restocking the supply chain.

And you incited some other cash actions you might be able to take if things do worsen, and hopefully you don’t have to see that. But is there anything -- any more specific you can provide on what sort of other options you’ve got?

Yes, I mean, it's the same laundry list that we put together in 2009. And again, I would hope that we don't have to take these but the ones that have been implemented already are what I would describe as somewhat easy to do, to reduce capital spending, try not to fill open positions, salary freeze, et cetera. The other suspects that would be on the list if this got a lot worse and if we found ourselves in something that looked like 2009 and '10, obviously we can reduce compensation at the senior management level. That already happens automatically because there's a considerable amount of our pay that’s variable. But we can look at base pay reductions, reductions in director fees, salary cuts more broadly, we would probably eliminate more positions. One of the things I think you'll see us doing in the short-term is trying to protect salary positions, particularly in talent areas or geographic locations where it's really hard to refill positions. We're likely to try to protect those salary positions over the next several months while we see how this plays out. But obviously, that would be on the table. Speaking personally, I would probably try to maintain the base dividend, but I would be very surprised to see us pay any supplemental dividends, to do share repurchases in that kind of a downside environment. And I don't know that we would necessarily be active on the debt retirement side, but we would certainly try to maintain as much liquidity on the balance sheet as possible.

But Brian just to maybe to add to that, as Wayne described, we have a number of different scenarios that we're looking at in terms of what it could potentially be in terms of business condition and the business environment as we move forward. So I think we've got kind of the right optics and the right metrics in front of us in terms of what that need look like. And as Wayne described, use some of the same cost reduction actions that we've done prior should we get to that spot. But I think as we kind of finished off April and heading into May, it's encouraging to see business levels slowly -- certainly stabilize and slowly responded. So, we feel good about our cost position as we sit today, I think we're prepared to do something different if required.

Okay, last one from me, for Wayne. Just a question on receivables. And if your customers are asking for extended payment terms. And just sort of -- just the overall level of potential for bad debt expense start creeping up if we start to see either collections take a backseat to other issues that some customers might be having in this environment?

As a general rule, we're very, very conservative on credit and through the last downturn we had minimal write-off. And I would expect the same to be true now because we've got the same credit team in place. We have had a number of customers that have reached out and asked about extensions and I think Nick and his team, the general response has been -- we will keep our promise to you in terms of having the inventory to back you up, [both trucks] and ready to service you. And our expectation is that you will continue your promise to us, which is to pay us on time and within terms. And so far, I think that has been received reasonably well. I would tell you, we started to see modest shifts in April, and I would expect this to accelerate if we continue to see the slowdown. We did see more activity out of warehouse and less customer direct shipments from manufacturers. And I think particularly in the -- on the commodity products, a lot of the mills have 10-day terms. And in a lot of cases, we allow for 30-day terms. So I'd expect us -- if the activity level slows down through the channel, I would expect more of the dealers to start relying on 2 steps instead of taking shipments direct. And we've got a number of our wholesale competitors that are very stressed from a balance sheet standpoint. And on some of their public comments, they're clearly ratcheting back personnel and inventories. And we saw in 2009 and '10 that by staying in stock and, in essence, having on the ground inventories and being able to short time frame and respond that we picked that business activity. And I think that that will probably cushion -- those 2 factors will probably help cushion some of the fall off. But as I mentioned, we're going to do that and support the customers that we're highly confident, are going to be around and can help make sure that we don't end up with significant bad debt losses. We are not going to chase business where people are being denied credit and other wholesalers where we don't think they're likely to make it through this if it turns out to get ugly.

Our next question comes from Mark Wilde of Bank of Montreal. Your line is open.

I'd like to just loop back and get a little more color, if it's possible, on just where you see kind of inventory in the channel. It sounded like you were suggesting that there had, maybe, been some inventory rebuilding in the channel in the last week or yes.

Nick, do you want to touch on what you guys are seeing real time?

Yes. Thanks, Wayne. As we've talked about, there's no metrics, but I would tell you that there's -- I have some pretty strong impressions this time just given conversations with customers and suppliers. And quite frankly, our own order intake, as Wayne articulates, we've seen a pretty big shift from people willing to take pretty significant positions in particularly commodity inventories, but really inventory to products across the system. And I think that's a function in what our customers are saying. It's a function that: a, they don't have a big appetite for market risk; and b, they're just very focused on their own working capital situation. So I would tell you, probably more so than any time that over the last many years, inventory levels across the system, I think, are relatively low. And again, I think you've seen a bit of price appreciation on the commodity side in the last 3 weeks in a couple of cases, kind of dramatic price increases over the last few weeks. And I think that's a function of demand starting to creep up a little bit as this thing opens up and a relatively lower level of supply and a reflection that inventories are low. And I think customers and everybody in the channel will continue to play it that way, which really plays into our hands in terms of the out of warehouse business. So that's the best I got there, Mark.

Yes, that's actually really helpful because I was noticing when random lengths came out last night. I mean, some of these increases that we've seen over the last 3, 4, 5 weeks are really quite dramatic in percentage terms, Nick?

Yes. Absolutely. And when we get that kind of price escalation, obviously, it provides a little tailwind for us on both the margin side and the sales side. So we're happy to see a little of that here and there.

Can you maybe give us a little bit of color on just how you manage so that when we get a big drop, the way we saw in March that you guys don't end up taking a big inventory hit on that?

I'll give you the secret sauce here. We before -- there's not a lot of voodoo-ism, for lack of a better way to say it. What we tried to do, Mark, and this is a plan that we've had for years and years and years, is we try to buy based on what we're going to sell in the short term. And when we get a little market movement, we may fudge that a little bit. No, and that we're going to sell more when the prices are escalating and when they're deescalating. And we've never had the strategy nor will we to go out and take big risks on the commodity inventory. Our commitment to our suppliers and our customers is to buy every day, in the market every day and keep the flow steady. Now certainly, when you get some pretty dramatic swings on those prices as we saw kind of in the month of March for part of the time in the month of March and April, and certainly, in 2018, we did, in fact, have reserves and some more cost-to-market adjustments. But it's just a function of the strategy that says like -- that we should be consistent all the time buying and selling. That's where we create value for both the supplier side, the customer side and the guys and gals that do that every day are making good decisions because they're really talking with the customers in the local markets. Those are decisions that are made at the location level in terms of the quantities. Obviously, we try to leverage our size and scale and scope when and where we can, but it's a focus on the customer and knowing what the customer is going to have for us in terms of order flow.

Okay. Last one for me. I just wondered, Nate, if you could talk a little bit from a kind of a capital allocation standpoint, I see that you're moving ahead with that Dallas door shop. And I know that kind of broadening the range of product out of some of your DCs has been kind of a priority for you guys. But I'd also like you to talk about that. And what the opportunities might be and kind of from an M&A standpoint over the next 12 to 18 months, whether you can kind of take advantage of the people in the market.

Yes, Mark, I think as we look at our strategy overall and specifically in regards to BMD, we've been pretty consistent about our desire to continue to grow that footprint, both from a product perspective, from a geography perspective as well as a category, including millwork and doors, as you mentioned. So I think as we kind of pressed up against kind of the COVID-19, we're, I think, even more encouraged around our strategy and our ability to continue to grow the marketplace. As Nick described, I think we have very strong support from our customers and suppliers in terms of growing our position, and that will continue to be a really important part of our path forward here, short term and long term. So in terms of the confidence and optimism we have around our distribution business, I think, again, as Nick, and, I think, Wayne described as well, our customers are going to be very dependent upon us in terms of warehouse support, and we're prepared for that, and we're looking either forward to that as well. As we move forward, we want to continue to grow that business. And as you described, over the next 12 to 18 months, we suspect there's going to be some perhaps meaningful opportunities, different opportunities that will emerge as maybe compared to even 3 to 6 months ago. And I think we're well prepared as an organization financially. I think we want to be measured, Mark, just given all the uncertainties that are in front of us, including when you look at the unemployment number from this morning, it's funny in terms of nearly 15% unemployment. So we'll be measured as we move forward. But I think in terms of our conviction and belief around growing our distribution platform and continue to invest in that platform for a range of products and services, including expansions where appropriate. We can see that's certainly part of our path forward.

Our next question comes from Reuben Garner of The Benchmark Company. Your line is open.

So maybe starting on the general line business. Very strong growth again in the quarter. I think you've had a string here of 3 or 4 quarters in a row with pretty impressive growth. I assume a little bit of that is still M&A, but the vast majority of it is volume growth and probably share gains. Can you just give us an update there? And can that continue to -- gone forward and help you may be offset some of the market declines just because it's a self-kind of initiative?

Yes. Reuben, this is Wayne. I'll let Nick follow-on if I mess this up. I think part of what you're seeing on the general line is we've got a couple of key products that are very important in that section, composite decking and siding being 2 that I would like to probably point to, and we continue to have very good results there. As you may recall, in the middle part of last year, we picked up a relationship with a key supplier in the siding arena and we've had very good growth in a number of our branches in that product category. So part of what you're seeing is a comparison in 1Q '20 that has those sales in that category growth compared to those sales not necessarily being in the base year. So I think some of the quarter-over-quarter growth numbers will slow down as we get into the back half of 2020, but certainly, that supplier relationship and that win in the siding category. And again, very good performance continuing on the composite decking arena. Those are 2 that I'd point to. And Nick, I don't know if you would add beyond that or correct what I said, but I would say that's 2 of the areas that I pay attention to.

No. This is Nick again. I think you hit it on. And I think, Reuben, you touched on the third leg of that. If you think about the acquisitions we've made in the first quarter of '19, we didn't have our Birmingham operation in those numbers. And obviously, we do this year. So I think the sum of all those 3 things is how you should think about it.

That's very helpful. And it kind of ties into my next question a little bit as we've seen some R&R strength, particularly in the DIY channel. I guess, are you guys seeing benefits of that in your plywood business at all in the early part of Q2? And I know you took quite a bit of volume or capacity out in that space is -- how quickly can you bring it back on if maybe demand is not as bad as you initially anticipated?

Mike, do you want to take that one?

Yes, sure. This is Mike. Yes, you're right. If you look at the big boxes, the quite stunning, really the consistency and recently improvement in demand panel products. So I can't explain exactly why all that's happening other than perhaps people that are sheltering at home have many DIY projects that they're undertaking. So it's been very helpful for us in terms of maintaining the sales levels for our plywood products. And I hope it continues, may even increase as we get into the summer. The question around can we produce more, if necessary? So we stated earlier some weeks ago that we were producing our volumes, of course, which we have done, basically in line with what we put out, but we have the ability in a relatively short period of time to ramp up volume if required. And that would be either through the folks that are still working with us today. There's overtime opportunity. Or in certain locations, we have a callback list where we can go to those folks that were unfortunately laid off and call them back to work and usually, that can be done within, I'd say, a week or so, if necessary. So I don't see a huge problem if required, in terms of ramping up for volumes to meet the demand at this stage.

[Operator Instructions]. Our next question comes from George Staphos of Bank of America. Your line is open.

The first question that I had, I wanted to go back to the extent that you can comment on a question that I think Brian had teed up. So is there a way to quantify what that potential shock absorber, hopefully, you never need to get to it in this cycle, but what it might be able to look like what it might be able to buffer your results or cash flow by, if, in fact, we had to go to that next step. And it sounded like given trends coming out of April into May, that looks to be less likely, but I just wanted to confirm that.

Yes. I mean, we will see where we are on the run rate, particularly in distribution as we go through May. I think as a general rule, Mike can jump in here. We're running our Wood Products facilities basically 5 days a week, 24 hours a day. So as opposed to 24/7. So we'll obviously pay attention to operating rates and prices on what's going on in with products. But the key, I think, over the next several months is going to be what activity levels do we see through distribution. I would describe it to you this way in terms of the cost reductions. We are not concerned at all about balance sheet and liquidity and cash. So in terms of getting through this downturn, we don't foresee any issues from an affordability standpoint. What we're very focused on is kind of also pay attention to earnings levels. And we will make cuts when appropriate, if we think we are taking too much of an earnings decline because, obviously, we're paying attention to our ratios of debt to EBITDA. We want to make sure we continue to cash fund our CapEx interest and dividends. And again, we have a list. And I'll give you an example, and again, I'm not saying we will do this immediately. But if we were to suspend 401(k) match, for example, that annualizes out to about $12 million. Now would I prefer that we don't need to go to our employees and ask them to, in essence, give up $12 million worth of retirement benefits. I would prefer not to do that. But if this looked like 2009 -- in 2009, we eliminated our pension, and we suspended 401(k) contributions. And so again, that type of playbook could be relevant if we got into…

Wayne, that's great. Again, I didn't -- I purposely said it in an aggregate way. I didn't mean actually for it to get granular. I appreciate that candor, and you guys have done a great job positioning the balance sheet for things like we're experiencing right now. So I mean, it's unfortunate, but it's great that you've done that.

Yes. And again, no one will take it. We're just trying to be very, very thoughtful of preserving the franchise, preserving -- and frankly, for our suppliers and customers, sending a very strong message that if you're concerned about having a distribution partner that can get your products to market and pay you, if your product aligns with what we're trying to do, we are open for business and prepared to support our suppliers and help them continue to grow and take share.

Maybe, George, it's Nate. Maybe just to add on that. I think it's -- we see this as a momentum opportunity. Obviously, a very difficult climate. But we think we are well positioned as a company to meet this challenge. And including, I think, the experience and depth of our team in combination with our balance sheet. So as we think about the challenges, it's an opportunity to gain share, gain momentum and really accelerate coming out of this whenever that takes place. So that's part of our thinking in terms of making sure we've got kind of the correct spending levels that are in place today. And even if things turn south, then we're prepared to move forward. But we think things have stabilized and slightly improved. And we want to make sure we're in a position to provide great service to support, as Wayne described, both our customers and suppliers. And that's certainly part of our thinking as well.

No, understood, Nate. Understood. Again, thank you for the directional guidance on 2Q. That's helpful, given any of the Wood Product business, how much earnings can swing with pricing and demand. What have you baked into your outlook, if not just 2Q, but into the year from potential increases in imports from South America. I know in the last few quarters, when it's been brought up, it hasn't been a factor. But CMPC on its call today was talking about exporting a bit more Copec, Arauco has been talking about that, although they haven't reported their numbers yet. Are you seeing any change in the dynamic there? Is it pretty, pretty humdrum at the present time and relatedly on the supply side? It seems like some of your peers in EWP are having a little bit of difficulty running. Are you seeing that as an opportunity to either gain share and/or at some point, take pricing up in EWP, even though prices were flat to down this quarter.

Mike, do you want to touch on that?

Yes, sure. George, the South American issue, I guess I would say it's pretty much business as usual. We haven't seen either a great fall off or a great increase. I mean, I know you're tracking things like what's happening to the Brazilian real, which is at full-time record highs. And with the fact that our plywood pricing in the state has appreciated a little bit over the recent past. If they could produce more, I think they would try and ship more. But as you are well aware, they're having some very significant social issues with related to COVID-19 in Brazil at the moment. So if they can get it produced and get it on a boat, I think they will try and send some more of it. I don't think that's going to be from today to tomorrow, but it might happen over the next quarter or 2. You asked a question about EWP pricing. I think that would be a very competitive -- yes, both. Yes. I'll do the pricing one first. EWP price -- look, it's a tough market to raise pricing. I get it, but I just want to say, I think it would be a challenge at this point in time, given the situation as it relates to homebuilders and some of the additional costs that they're incurring as well as our dealer partners to go out and force a price increase at the moment, which is sort of related to your other comment and question around EWP supply from our competitors. I can't speak to all the challenges that they're facing. But as it relates to our situation, we have ample amount of veneer. So we're not really impacted by having to buy veneer on the outside market because we're not quite, mostly 100% self-sufficient. We have ample production capacity, and we have ample finished with inventory to service our current customers. And there may be some opportunities if one of our competitors sort of falls on their sword, but I haven't heard a lot of that of recent time, to be honest.

Okay. But I think it's fair to say that the new capacity that was coming has not had a meaningful impact in the marketplace that we have seen to date. And it's fortunate that, that facility has been slow ramping up because given the declines in demand, this would have been a bad time to have a lot of incremental supply show up in the market. And at least at this point, we haven't seen much if any impact in the market from that capacity.

George, the other thing -- sorry, George, it's Nate. I just maybe add one other thing. Just in terms of when you in these kind of moments where for a producer or whether it's EWP or other products, great distribution really matters at this point in time, given the -- so probably the more dependent side of out of the warehouse. And so as I think about our EWP franchise, and the integrated model that we have, obviously, with BMD and Wood Products, along with some of the independent distributors we have, I think we're in a really strong position to service and execute in the marketplace, maybe better and different than maybe some of the other EWP manufacturers are out there. So to your point on share, our ability to service and support the market, we feel really good about our distribution capabilities, certainly starting with BMD.

Our next question comes from Steve Chercover of D.A. Davidson. George Staphos of Bank of America

So a couple of my questions have been asked but let me just try to get a couple in here. So amazingly, both the lumber composite and the panel composite appear poised to exceed the Q2 '19 average prices. And according to the charts and most recent random likes. So presumably, the real hit for you guys is on volumes and cost absorption. So can you just help us understand how the diminished might -- sorry, diminished volumes might impact your decremental margins?

Sure. I'll take a shot. And again, Mike or Nick can chime in. I think part of the challenge in 2Q is going to be potentially prices in combination with volume. But to your point, if we end up flat on 2019 prices, I think the biggest decremental hit in Wood will be running 5 days a week instead of 7. And as I said, we have been reluctant to take a lot of salary cost out with a view that with the states reopening, we really want to see if we're going to go back to the full operating schedule later in the year, but that remains to be seen. So I think as typically, I would have said that the decremental margins in Wood would, on an EBITDA basis, would be in the 20% to 25% range. I suspect in the short-term here, it will be more than that. And we would have -- get back to a number that's closer to that if we start -- instead of running facilities, 5 out of 7 days, if we came to a conclusion that this was going to go on for an extended period of time, we might identify one or more higher-cost facilities and take them dark and pull out more fixed costs. I think on the distribution side, this is somewhat similar story. On the way out, we typically talk about a 4% or 4.5% incremental EBITDA margin on revenues. I suspect that decremental margins will be slightly worse than that as we lose volume. If you look at some of the things that Nick and his team have put in place as we've been growing the business pre-COVID , and I think about what our cost structure looked like, pick a number the last time, we…

This might sound like a goofy follow-on, but what are the logistics of going from 7 days to 5 days? I mean because do you have shifts that go 7 days on and 2 days off? Or how does that work?

Mike, do you want to...

Yes, please yes. I'm back on. I got cut off, but I'm back. Okay. Yes. So the simple way of explaining it is, generally, I'll use the plywood mill as an example, Steve. So we run a 4-shift operation, which means that there are 8 hours in the shift. And each shift, there are 3 shifts in a day, and we have 1 additional shift that sort of substitutes on a rolling basis. So when we go from 7 days a week to 5 days a week, we simply reorganized those deck chairs. And clearly, you end up needing less people, but you can -- you effectively reduce the number of people you have, but you still end up with a rolling configuration, I think, in most cases, not all. So it's just -- and in some locations where we have a union representing our employees, there's a sort of a hierarchy or a bumping list as it's called. And essentially, it works on tenure. So those that were -- that came on last are the first to go off unless somebody that's more senior or tenured wishes to opt out. So it does take a little bit of time, but as we indicated weeks and weeks ago now, we've effectively moved all our facilities from that 7-day operation to 5, and not all our mills run 24/7. As we -- as this market situation, not taking the EWP side. We have capacity that we haven't been using recently because we obviously haven't got anywhere near the 1.4 million or 1.5 million housing staff. Is that enough, Steve?

Yes. No, that's helpful. And then finally, when it comes to your operating posture, are we at a point now where cash generation or contribution takes precedence over generating an appropriate return on capital?

Well, again, let's get back to the preserving the balance sheet versus preserving the P&L and preserving the forward franchise. So at this point, we remain very return-on-capital-focused, but I would tell you, we maintain return-on-capital-focus over 3 to 5 years, not 90 days. So part of what you're going to see in terms of maintaining the franchise and investing for growth, including, by the way, payroll cost, inventory holding positions, et cetera. We think over 3 to 5 years, our shareholders will get paid if we can continue to grow this franchise and take share. And that may mean sub-optimizing the P&L if you're measuring on a 90- or 120-day period. And so if you said, my return on capital focus, absolutely. Are we focused from a capital allocation on trying to generate compound returns for shareholders? You bet, but we're doing that with a view over 3 to 5 years, not -- let's make sure we reported $2 million or $3 million better number in the second quarter than we otherwise would. We're very much trying to figure out that balance point that says, "How do we take advantage of our financial position, service in the market, et cetera." And while it may involve some incremental near-term costs, we think as strange as it sounds, we have an opportunity to step on the accelerator and create rewards for our shareholders that will show up 3 years from now, 5 years from now. And we could be more draconian and show better results for 2020, but we don't think we would get as much leverage and gain into '21, '22 and '23. And as if we stay focused, everybody had down work and really, really focused on customers and suppliers and, frankly, taking care of our people. We think the commitment to our people and commitment to customers and suppliers will pay our shareholders from a return standpoint? No pun intended, great dividends in the next 3 to 5 years if we do this right over the next 6 to 9 months.

Our next question comes from John Babcock of Bank of America. Your line is open.

I just want to relay a question actually from George here. So overall, our experience in the past with our business has been that it is challenging for our producers. Some of this is driven by overcapacity. And so why is this the good business for Boise to build-out in BMD? And then generally, I mean, is it that the supply side gives you attractive procurement of doors? Or is it something else?

So on the BMD franchise, like the door shop in Texas, we have a very good relationship with Therma-Tru in a number of other branches. And so this is really extending the franchise we have with Therma-Tru in like the Atlanta geography. We're taking that same business model and taking it to Texas. And again, it's a very good relationship with Therma-Tru. We have the capital available. We think the Texas marketplace is likely to be a great opportunity for us over the next 3 to 5 years. And by the way, we think relative to competitive dynamics, we will have a very good offering in market this year. And we'll be able to capture share this year and into '21 that if we delay, that market share capture may be more difficult to achieve if we were to delay this until 2022. We think this actually creates an environment for us. And that's true in a handful of geographies where we think we've got fill in opportunities. We think we have an opportunity to take advantage of the fact that we can afford to keep inventories on the ground and keep people in place and high service levels. We think we can continue to fill out BMD's map. And again, there is going to be a share trade-off. If you said, does the market really need the incremental capacity? Maybe not, but we think we're playing from a position to strengthen. And again, we don't think we're going to have a negative impact on margins necessarily from doing that because we think our balance sheet is going to give us a real advantage with suppliers and customers.

John, this is Nick. One point of clarification here, and maybe I miss hearing you a bit. We are not going to manufacture door components. We're not going to manufacture slabs or frames or anything like that. What we do in our existing facilities and what we intend to do in Dallas is take those components and assemble light manufacturer, but more assemble finished door units. And to Wayne's point, it's an augmentation of our product mix that our current customers are buying in the Dallas situation, we anticipate taking share. And it really adds to the product mix and the service capabilities in terms of the things that we can do from a scale standpoint to service our customers. But just for clarity, we are not manufacturing door components. We are assembling components into pre-hung units that we take to the lumber yard.

I'm showing no further questions at this time. I'd like to turn the call back over to Nate Jorgensen for any closing remarks.

Great. Thank you, Valerie. Before we wrap up, I want to express my appreciation to our associates for their continuing efforts to work safely, to take care of each other and their communities and to service our customers. The rapid negative impacts of the pandemic situation have required responsive thoughtful actions and a focus on personal and community safety, like we've never seen before. Our associates have absolutely risen to the occasion. I'm tremendously appreciative and proud of all that they are doing. I'd also like to recognize the incredible efforts of the medical professionals, first-responders and others working tirelessly to go safely to the other side of this outbreak. There are untold number of people showing up every day and putting others first, including those helping on food security and housing issues driven by the crisis. This is the time that calls for unity and compassion. There are signs that the economies in many states are slowly beginning to recover as COVID-19 shelter-in-place orders are relaxed. It is a good time to take -- it is going to take time and will need to be done thoughtfully. In the weeks and months ahead, stay safe, be well and help others when you have the chance, we will get through this together. Have a good weekend, everyone. And thank you.

Thank you. Ladies and gentlemen, this does conclude today's conference. You may all disconnect. Have a great day.