Hello. Thank you for standing by and welcome to the First Quarter of 2022 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Aaron Howald, Vice President of Investor Relations and Business Development. Please go ahead.

Thank you operator. Good morning, everyone, and thank you for joining LP Building Solutions today to discuss our results for the first quarter of 2022 and our updated outlook for the second quarter and the full year. My name is Aaron Howald and I'm LP's Vice President of Investor Relations and Business Development. I'm joined this morning by Brad Southern, LP's Chief Executive Officer, and Alan Haughie, LP's Chief Financial Officer. During this morning's conference call and webcast, we will refer to an accompanying presentation that is available on LP's IR webpage, which is www.investor.lpcorp.com. Our 8-K filing is also available there along with our earnings press release and other materials. We expect to file our 10-Q in a few days. Slides 2 and 3 of the earnings presentation provide notices and detail regarding non-GAAP financial metrics and forward-looking statements. The appendix of the presentation also contains some necessary reconciliations that are further supplemented by this morning's 8-K. Rather than reading those statements, I incorporate them by reference. And with that I'll turn the call over to Brad.

Thanks Aaron. Good morning, everyone and welcome to LP's earnings call for the first quarter of 2022. The year is off to a very strong start for LP with record quarterly net sales of $1.34 billion and EBITDA of $636 million. LP's ongoing share repurchases have reduced the share count by now that the resulting quarterly adjusted diluted earnings per share of $5.08 was a record. I'll begin our segment review by recognizing and thanking our Siding Solutions business team for operating during Q1 with no recordable injuries. Financially, Siding Solutions set another quarterly sales record of $330 million in Q1. This represents a year-over-year revenue growth rate of 17% and is a combined effect of 12 percentage points of price including mix effect, which we will get to in a moment and 4% volume growth. Sales volume exceeded 420 million square feet with an average selling price of $784 per 1,000 square feet. Siding EBITDA margin was 25% in the quarter, despite raw material inflation, freight cost increases and simultaneous capacity expansion projects. Accelerated growth in siding has been remarkable. So let me put these results in a long-term context. In Q1 of 2019, much earlier in LP strategic transformation, SmartSide strand generated $187 million in net sales on 284 million feet of volume at an average sales price of $659 per thousand square feet. Past three years has seen compound annual growth rates of 14% for volume and 6% for price, resulting in 21% compound annual revenue growth. EBITDA for the Siding segment has doubled in three years, which is a CAGR of 25%. A significant component of this growth is a shift in product mix to higher value-added siding products. As you can see on slide 7 of the presentation, ExpertFinish, Smooth, Corners, Shakes and BuilderSeries all…

Thanks Brad, and thank you all for joining us this morning. As Brad said, the first quarter was exceptionally strong. The story fundamentally is that the things LP can drive and control namely 17% siding growth and 55% structural solutions mix more than offset the negative impacts of raw material and freight inflation. And the OSB price climb during the quarter generated significant cash, which we continue to return to shareholders. But before discussing the Siding and OSB segments in more detail, I'll give a brief overview of total company performance. Despite my love for round numbers, I must point out that the $1.3 billion of revenue is actually $11 million higher than the same $1.3 billion we reported in the second quarter of last year making this technically a record quarter for sales. EBITDA of $636 million was an increase of $174 million over last year of which $130 million was the result of higher OSB prices. We generated operating cash flow of $425 million and spent $92 million of it on CapEx. Less obvious is that our record adjusted earnings per share of $5.08 in would have been nearly $1 lower, but for LP's significant share repurchases, which have reduced the share count by more than 20% over the last 12 months. The waterfall on Page 8 details the quarter for Siding. The selling price increase of 12% added $30 million in both revenue and EBITDA. Volume increased by 4% to 421 million square feet. Given that we were already operating basically at full capacity this time last year, this record performance was only made possible by impressive system-wide operations including logistics. Naturally having just started up Houlton shipped minimal volume in the first quarter, but it did start on time and it is ramping up quickly. Investments…

Thank you. Our first question comes from John Babcock with of America. You may proceed with your question.

Thanks. Good morning and thanks for taking my questions. I guess turning out, it would be great if you could just talk about the housing repair and robot markets and what you're seeing there? And then also, on that point, are you seeing any indications of a slowing in demand with rising rates, higher home prices and some of the other factors that exist out there in the marketplace?

Good question, John. And I would say for all three of the North American businesses, we're not seeing any let up in ordered activity. Order files are strong all the way across the three businesses. I would say generally speaking, more than generally -- specifically speaking inventories are still lean across the different distributor types that we have. There was a little I think a little buildup in Pro Retail and for OSB as the prices fell, but we're still across the board laying on inventories. And the outlook that we're hearing from our builder partners are still very positive, similar outlook for our distributor partners and our Pro Retail partner. So, I do believe, there's housing headwinds with mortgage rates and affordability, but it's certainly not impacting our order file today or our near-term outlook.

Got you. Thanks for that. And then just on the signing growth outlook, you raised obviously from greater than 15% to greater than 20%. You might have touched on this and maybe I missed it, but can you just talk about, what's driving that increase? And then also, how does that new growth outlook impact your plans for the next Siding project if at all?

Well, yes, I'll start with the last part of it. It doesn't impact the plans for the next siding project in Sagola, because we knew that as quickly as possible. And I would say also, the one after that which might have been the one you were referencing John, we're full steam ahead on the planning for the one after Sagola and then the one after that. So we still -- we are engaged in mill conversions just as quickly as we can do them and get parts ordered because of the growth that we're seeing. From an outlook standpoint, I mean it's really a pleasing to have such a good start-up in Houlton, so that we'll have that extra capacity to sell, beginning right now and certainly a growing volume availability as we get confident there making A-grade production throughout the year. With Sagola, a rather large mill -- it will be a large mill for our system coming on in Q1. We're expecting to see good volume growth next year as well, as a result of that conversion. And we're still on managing order file in our Siding business. It's been over a year since we've been on managed order file. I could see us and staying on managed order file the rest of this year. And then as we get into the Sagola production next year hopefully our capacity can catch demand a little bit and we can get a little bit ahead, so that our distributors can build some much-needed inventory. But the growth has been remarkably strong and resilient as we move through the last four quarters or so.

Okay. And then just last question before I turn it over. Just on South America could you just talk about how market conditions feel, done there relative to a quarter ago?

Yes. The market has remained strong. While LP South America pricing is not directly correlated with North America. There obviously is an impact as imported volume to South America moves in and out of the market. So we were -- we've seen good demand down there and pricing has been more resilient than we're planning for fortunately. So that resulted in a really good quarter. We are putting some capacity -- some capital into that into Chile to grow our capacity there with the full expectation that we'll be continuing to grow that volume over the next couple of years. So, despite all the kind of the political turmoil down there across South America the OSB market has been really resilient.

Okay. Great. Thanks for all the questions – all the answers. Appreciate it.

Our next question comes from Ketan Mamtora with BMO Capital Markets. You may proceed with your question.

Thank you and congrats on a strong quarter. Just very quickly on the -- you've seen a pretty strong growth on the innovative product side in the Siding business. I'm curious Brad how do you see kind of the innovative products as a percentage of your total portfolio in Siding as you look out over the next couple of years from the current 11%?

Yes. Look Ketan obviously a key to our continued growth is our ability to innovate around new products. We see tremendous upside with our expert finish portfolio of products. Obviously, the market is moving that way. And as we build capacity and have more substrate to sell, we'll be focused on expert finish as a growth platform for us. And then the other key driver for future growth is our BuilderSeries. That's a product that's been tailored for installation with large builders, national and regional builders does come with a price point that can be attractive there. And so those two will kind of be the workhorse innovative products that can drive incremental volume for us. But then we have a myriad of other ancillary products included – in trim pieces the whole smooth product offering that is also, maybe not as not have as much volume but are certainly key to us being able to be a preferred subsiding supplier into our contract and distributor base. So, it's a really important part of what we're doing. As you mentioned, we're at 11% right now as far as the innovative and we see that going into 20% to 30% as we continue to innovate and we continue to find success with these high -- potentially high-growth platforms like BuilderSeries and ExpertFinish.

Okay. And then just as my follow-up. As the Siding demand continues to remain strong and you mentioned your up-full team ahead with thinking about post Sagola capacity, is there any update in terms of -- you had laid out a few options in terms of capacity, is there any update for us in terms of what might make more sense at this point given how strong demand is?

No, Ketan, there's not. I mean we continue to work on it since we've talked about it on the last call. As I've mentioned before and I won't be repetitive unless I get a specific question around that, but we've got a myriad of options. Each of those options, have a different pros and cons, let's say, as far as capital intensity or regional location, ability of a particular press to make a certain product offering. And so, we're continuing to do engineering, we're continuing to secure long lead time items, but we're not -- we don't have to make that decision today. And because, as we see our customer base shifts or our product preferences shift, we want to wait a little bit just to make sure that that next decision fits the current situation of the business. So, we've got tons of options. We're working on it, but there's not a reason to make a decision today. So we want to continue to study the order file and order patterns before we make that call.

Got it. I’ll jump back into the queue. Good luck for the rest of the year.

Thank you, Ketan.

Thank you. Our next question comes from Susan Maklari with Goldman Sachs. You may proceed with your question.

Thank you. Good morning, everyone. My first question is on the Siding side thinking about the volumes there as when does ramp. Can you just talk to how you're thinking of the cadence of growth, especially as we think about some of the comps that you face over the upcoming quarters relative to the incremental ramp that will come through as this new facility fully comes online?

Yes Susan. Good morning. So the capacity of that line for Siding is about 220 million square feet. We plan and expect to be running at that rate by the end of the year. So there's a ramp-up curve that goes from basically zero in February to full capacity in December pretty linear in that ramp-up. And then, we would be at full capacity obviously for all of next year. So, that's how we're thinking about it. We're certainly planning on having and selling that volume it's much needed. So, I hope you find that answer helpful.

Yes. No, that's definitely helpful. That's good. Thank you. And then, my next question is, when we do a lot of our channel checks around the homebuilders, especially as it relates to EWP and even for OSB, it sounds like inventories are exceptionally lean on the ground. You've got a lot of producers, especially on the EWP side that I think are still on allocation there. And so, as you think about some of those bottlenecks that you're continuing to face on the transportation side. As those do potentially start to ease as we get into the spring and the summer and some of that volume starts to come through. How do we think about those different kinds of pushes and pulls as it relates to the supply and demand dynamics and what that might mean for pricing as we look to the back half of this year?

Hey, Susan, I'll tell you, I'm not going to give a specific price outlook, but just let me speak to the product flow, is I think the nature of your question. I believe – look, the OSB market and the EWP market are big markets, as you know, builders are very busy, very active, have a nice backlog for the rest of the year. And as the -- so as the logistics challenges free up, if they do, as we move through the year and they will, channel inventory is so lean, but I think a good bit of production could just go into the restocking, distribution and look, even the warehouses at our mills to get to some kind of normal service level before demand capacity would be out of kilter. And then, any kind of growth in housing, if other supply chain bottlenecks free up in the second half of the year, so the builders can even build at a higher pace. That would be even more of a pull on OSB and EWP volume. So, I really expect the market to remain from a capacity demand standpoint tight for the rest of the year. When we get to the winter, typically that has been a period of time where we see some inventory, restocking happening, particularly on the OSB side. Some of that is dependent on building slowing during that part of the year. I just really struggled to see us getting too much of an imbalanced situation until we get to November. That's just my personal outlook on the capacity demand ratio right now in the industry.

Yes. No, I appreciate that color. That’s very helpful. Thank you and good luck with everything.

Thank you, Susan.

Thank you. Our next question comes from Mark Weintraub with Seaport Research. Your may proceed with your question.

Sure. Thank you. Congrats on another phenomenal quarter. In a couple of mixed questions too. On the OSB side, that's a big move towards Structural Solutions. Can you share with us, what impact does that have on the business financially? Does it more reduce volatility, or does it more increase margins, or what type of color as you're increasing that percentage of the business to structural solutions can we see over time?

Two things. You mentioned both, but up markets more and improved and resilient margins. So what our -- so one of the goals of our Structural Solutions push is to move into products that have a more sustainable incremental margin. And the point there is, so that in a down OSB market, we have some margin resiliency around the structural solutions portfolio. It does, as the secondary effect, decreased volatility. But candidly, we don't have enough of our structural solutions today that is disconnected in any significant way from random lengths of commodity as a base pricing for that volatility to be impacted, as much as we'd like it to be. And so, it's more of a resilient margin play than it is a pricing volatility play. So there is some of that like the FlameBlock, for example, we do pricing off a price list. Some of the products that we have in our innovation pipeline, including this NovaCore product, we'll try to position it off of random. I mean, disconnected from random. But for our big flooring SKUs and for TechShield it's difficult to get that disconnection.

Okay. Thank you. And engineered wood products, really nice pickup in earnings there. Any update on your -- on what's going vis-à-vis the potential sale of the business and/or change in thought process?

No change in thought process. We are running a process and we are making progress on that process as we speak. So more to come on that Mark.

Okay. Super. I'll let myself to one more and then I'll get back in queue. But you talked about the SmartSide being carbon negative. Can you give us a sense as to -- is that differentiated from alternative products that go into Siding. And then also is the OSB product? Would that also be carbon-negative?

Yes. So Mark, we have a really good carbon story and it's more than a story it's reality when it comes to capturing carbon and nailing it up on the wall for a long time. In the case of Siding with the fifth year guarantee. In the case of OSB is there as long as the home is there. And so -- and being in this composite wood business, we are carbon capture business. And we are very -- from a carbon standpoint our manufacturing process is rather friendly to that because we used almost all the material 98-plus percent of material that comes into the facility in the form of wood. And obviously that is remarkably better than PVC siding or fiber cement. So from a carbon-friendly standpoint like most of the -- our competitors in the Wood Products business we've got a really good story to tell there. And we think ultimately that will provide us a good competitive advantage as well.

Super. Appreciate it.

Thank you. Your next question comes from Sean Steuart with TD Securities. You may proceed wit your question.

Thanks. Good morning, everyone. A couple of questions. With respect to input cost inflation you gave us general trends for OSB and Siding for overall year-over-year inflation. Can you give us a bit more granularity on how much of it was resin versus wood? And on resin specifically are there any issues securing supply right now? We're hearing that for other chemical inputs across the industry. I haven't heard anything with respect to resin but is security of supply a concern at all?

I'll start with the security of supply and file things are tight. I would say as we crossed into this quarter we have not had any supply input challenges that we could manage through. So we feel like availability is good right now. Of course, better than it's been in a while. Obviously, a hurricane in the Gulf can change that pretty quickly, but we haven't really had any supply chain issues as far as securing the material that we need. From an inflationary standpoint most of that inflation has happened with resin because it's an oil derivative and most of those materials that we see big increases in that we've reported is due to the relationship to hold the derivative and not driving that mostly through index pricing. So -- on the wood side, we haven't seen significant stumpage price increases in North America. But obviously from – to get the material into the facility, the haul distances, the fact that it's on truck, or primarily on trucks some rail, diesel fuel pricing has impacted that. But – and Alan, I don't know, if you want to add some more color to that.

Yeah. I mean, the primary source of the raw material increase is anything that is fundamentally oil-based. So our PMDI resin costs are 55% or so. Wax that we use in Siding is up 30%-odd. So it's almost anything that is fundamentally oil-based is driving up the cost. There are some modest increases in the cost of fiber. But really, the majority of it is oil based, and it impacts as I said both the overlays the papers, the waxes, the resins fundamentally oil.

That's useful detail. Thanks very much. Second question, I just wanted to follow up on the Structural Solutions element of the OSB business. And you touched on the margin economics. I'm just trying to get a sense that the 55% of the mix that you reached in Q1 is there a target the ceiling for that or the objective for that ratio? And how fast do you anticipate getting there? If you could remind us of those dynamics?

Sure, Sean, we – in 2017, we set a target of 50% as part of our strategic plan. In November, we revised that with our Board to 75% of Structural Solutions. That's a three-year target from last year setting it with our Board. So we're full steam ahead on getting to 75%. And then when we get to 75% we'll raise it again. And it would be – I mean, it would be awesome for LP to be in a position where we're only running commodity OSB as basically between order changes at our facilities. And we're way out from that, but that certainly – is certainly what we're focused on achieving ultimately. We want to add back – I mean, OSB is a great substrate. Obviously, we all know very vulnerable to commodity price swings. But it's a good substrate to build value off. And as I've mentioned before on this call, when you add an overlay or sanded or beef up the resin in the case of flooring, you can get value there. So we're really looking on the incremental margin as a value enhancer for our business.

That's great details. Thanks very much, Brad. That's all I have.

Thank you. Our next question comes from Paul Quinn with RBC Capital Markets. You may proceed with your question.

Yeah. Thanks so much. Good morning, guys. I just want to start with Siding, just that Siding 17% growth is pretty impressive given the manager order file. Just wondering where you're seeing that growth on a regional basis, which areas are sort of growing fastest in which areas are growing a little bit slower?

Off the board, Paul, except for one exception, we've seen really good growth year-over-year. So it's not – there's not a regional component that's any significantly stronger than another. And for most of the channel, it's pretty evenly distributed. We did see a softening off of the super good volumes last year in our consumer retail – no concerns there. It's just that we had such tough comps compared to Q1 of last year. But the strength is across the order file, both geographically and channel-wise or segment-wise, Q1 is a good inventory build for shed and so that we saw that. So it's been really across the board. And off we had more volume to sell with this allocation issue I think it could be even stronger. Maybe we don't have enough volume to, see be able to find for the different strengths and weaknesses are. It's just that across the board, our customers are taking all that we can allocate to them.

Okay. And then, just on the whole Smart Side, it sounds like it's going well and the linear projection. I guess with that 220 million square foot capacity you expect to maybe produce just around 100 million square feet this year. Does that -- is it that that gets you the 20% growth in Siding in 2022, or is it that plus running your existing mills are as well?

There's, two things. Certainly the Houlton volume helps. And you're ballpark right on your estimate for what the volume will be this year. But we've done a really good job too, Paul of getting all we can out of our system. And that's come from -- because we're on allocation we can be a little more run optimal as far as the SKUs and the way we operate the facilities, the way we match what we produce to our ability to ship, truck and rail and to certain regions. And so we're optimizing our mill system to try to get just as much volume out incrementally as we can, even though we're kind of -- I mean we're running at capacity. I mean everything we have is running 24/7, except for scheduled maintenance or capital downtime. But our Siding Solutions team is doing a really good job, finding ways to get incremental volume out of the system through optimizing the order flow through the facilities. That's where we're seeing volume growth, other than of course what we want to get out of Houlton.

Okay. So obviously this growth in Siding is going extremely well. What competition areas are you running into in terms of other substrates? Is it vinyl in some markets? Is it fiber cement? Where is the competition for you?

Yeah. Both of those, I mean, looking in shed. And in DIY , wood shed plywood T1-11. We compete against every day, particularly in shed as I mentioned. And then, from a lab siding standpoint, its vinyl and fiber cement. And then on from trim, it's primarily actually a SolidStart, some PVC, some fiber cement but SolidStart a big part of the market that we compete against. So it depends a little bit on the product. But yeah it's plywood for the panels and then fiber cement in PVC for the -- or vinyl for the lap and trim.

Okay. And then just last question just on Sagola, what's the capacity of that? Can you remind us again?

Paul this is Aaron. It's about 420 for OSB. And as a siding it will be in the neighborhood of 300 to 320.

Okay.

That it would be good to have that one online. Yeah.

Definitely, wish you had it right now.

That's why I said.

Meet too.

Thank you. Our next question comes from Ketan Mamtora with BMO Capital Markets. You may proceed with your question.

Thank you. But can you give us a quick update on how Entekra is performing?

Yeah. So Entekra we continue to see good order intake for the facility. We are making progress operationally in the facility as well, though it's not where we want it to be. So, I think the progress is slower. If there's progress being made, it is slower than we would like to see. We're learning as we go particularly -- I mean I'm kind of back to Paul's question on Siding, the mix we run through that facility has a significant impact on efficiency and cost. And so we're learning how to match that plant's capability to the reality of the market in the Northern California area. So, I would say it's okay Ketan, but it's slow progress towards a business that we would be ready to plow more capital into in order to grow it. We still got some more prove on the operations side.

Got it. Is there a way to kind of have some numbers around kind of what the revenues look like at this point Brad?

Well, so we're talking around $93 million for the last 12 months. For last 12 months is a trailing -- it's not kind of it is actually $93 million for the last 12 months and we're losing a little bit of money in it.

Understood. That’s helpful color. I'll turn it over. Good luck.

Thank you. Our next question comes from Mark Weintraub with Seaport Research. You may proceed with your question.

Thanks. Three quick follow-ups. So, just on Entekra, are we still expecting green light/red light sometime this year or not necessarily?

No, we would -- we are really focused on understanding our position in that business this year Mark and making a call on green light, red light, yellow light. That's totally focused on that.

Okay. And second on Sagola, should we use a similar type of linear and expect order of magnitude 150 million square feet? I realize it may start up a little bit later in the calendar about 150 million square feet for next year, or what would be a good ballpark?

Yes, I'd say that's a good ballpark assumption for now. And as we get to the next quarter or two, Mark if we need to refine that we will. But yes, I would agree that's a good number.

Super. And then lastly Alan I believe last quarter you talked about Siding generally kind of maybe 25% EBITDA margins this year. You obviously came through that in the first quarter despite some of the headwinds. Is that still a good number to use or might there be reasons for it to be better or worse?

At the moment, I would say there's definitely a tailwind behind that long-term margin guidance, but I think that's the most that I'm going to say at the moment.

Okay. And when you say that was in terms of thinking about this year?

No, it was in terms of what our long-term margin for this business at the Siding business may be.

Okay. Maybe I misunderstood what you had said last quarter. So that was sort of a directional for 2022 to 25%. Had you -- did I misinterpret?

No, it's still not unreasonable. Although I may have answered in the long-term. At the moment, those aren't dissimilar.

Okay, super. Thanks so much.

Thank you. Our next question comes from John Babcock, Bank of America. You may proceed with your question.

Hey. So, I just want to quickly touch on the Structural Solutions mix again. There was a pretty big jumped just from last quarter alone. And I was just wondering, so how much of this was driven by just the sheer lack of availability of other products. I was wondering if that might have contributed to the mix this quarter or if there are any other factors at play here. Also, I just wanted to generally get a sense for how we might think about this, this mix as the quarters go on. I would assume we might see some pullback from that 55% range, but I want to get any thoughts you could share there?

Yeah. Good question. So look at several factors that helped. One is in these tight availability markets, we have the ability to push Structural Solutions for -- into the market people are willing to take what they could get. We did restructure our contracts or modify our contract volume for this year, again to emphasize the structural solution product offering. And then also let's not forget that John that Peace Valley, it does have a really good capability around TechShield and that's a good product for the West Coast. So as we ramped into the Peace Valley ramp-up curve, we're able to ship go back into some markets on the West Coast where we have been strong in tech field in the past. Now look Peace Valley still makes a lot of commodity. So -- but certainly from an overall volume standpoint for Structural Solutions that didn't hurt. But it's really, it's our strategy. Our product offering is extremely strong, but it is valid to assume that in a tight market, we have some ability to distress the Structural Solutions portfolio and get that into the market maybe a little more easily than we can in a down market.

I might add that as Brad said the size of the increase year-over-year, obviously is coming on the back of last year's resin problems. But we shipped over $500 million square feet in Q1 that is a record in an absolute sense.

Yeah. Understood. Okay. That’s all I have. Thanks.

Well, seeing no further questions, we'll draw the call to a close there. Thank you everyone for joining us. This will conclude the first quarter earnings call for Louisiana-Pacific and we'll look forward to speaking with you again soon. Thank you, operator.

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