Good day, and thank you for standing by. Welcome to the Q3 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 Q&A session. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Aaron Howald, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us to discuss LP's results for the third quarter of 2024 as well as our updated outlook for the fourth quarter and full year. Hosting the call with me this morning are Brad Southern, LP's Chief Executive Officer; and Alan Haughie, LP's Chief Financial Officer. After prepared remarks, we will take one 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 investor.lpcorp.com. Our 8-K filing, earnings press release and other materials are also available there. As always, I will caution you that today's discussion may contain forward-looking statements and non-GAAP financial metrics as described on slides 2 and 3 of the earnings presentation. The appendix of the presentation also contains reconciliations that are further supplemented by this morning's 8-K filing. Rather than reading those statements, I will incorporate them by reference. And with that, I will turn the call over to Brad.

Thanks, Aaron, and thank you all again for joining us today. LP's teams continue to execute our strategy effectively in the third quarter. As a result, Siding net sales grew by 22%, well above the underlying markets we serve. Siding set new records for sales and EBITDA, helped by ongoing improvements in export finished margins. Our OSB business operated safely and efficiently with strong price realization to make the most of a sequentially softer price environment. Page 5 of the presentation shows LP's high-level financial results for the quarter. LP generated $722 million in net sales with 22% Siding growth almost completely offsetting the $88 million impact of lower commodity OSB prices. Siding's EBITDA of $123 million was a record. ExpertFinish saw another record quarter for both revenue and margin with margin expansion driven by higher volumes and efficiency improvements at our dedicated pre-finishing facilities. $153 million of EBITDA translated cleanly into $184 million of operating cash flow. We invested this cash in our future growth with $44 million in capital expenditures in the quarter before returning $91 million to shareholders through dividends and share repurchases, leaving LP with nearly $900 million of liquidity and a very strong balance sheet. Let me turn briefly to the market and what we are seeing in the channel. The new home construction market is slowing somewhat with the combined effects of the recent rebound in mortgage rates and the approach of colder weather. Housing starts have leveled at about 1.4 million in recent months, which is also the current consensus for next year. But the single-family mix remains higher than average. In the new construction market, LP is over-indexed to single-family starts. So it was encouraging to see the run rate for single-family starts back above 1 million in the September census report.…

Thanks Brad. As usual, slides 7 and 8 of the presentation show third quarter year-over-year variances in net sales and EBITDA for the Siding and OSB businesses. Both are fairly straightforward but with the exception of some timing wrinkles in Siding that I'll spend a bit more time on before I move on to our updated guidance for the full year. Turning to slide 7. Siding net sales increased year-over-year by $75 million or 22% for revenue of $420 million on 460 million square feet of volume, both sequentially above second quarter levels. This year-over-year growth is a result of 6% higher average selling prices and 15% volume growth. Roughly half of the 6% price improvement was the result of annual list price increases with the other half due to favorable mix. ExpertFinish comprised 9% of volume in the quarter, contributing significantly to this positive price/mix. The incremental volume generated EBITDA at a 44% contribution margin that is $24 million of EBITDA from volume divided by $54 million of revenue from increased volume. When we include price, the contribution to EBITDA on incremental revenue was 61%. You can find that by adding $22 million of price to both the numerator and denominator in the previous calculation. And this healthy conversion is exactly what we should expect from the business, as it continues to grow into recently added prime capacity at Sagola, Houlton and ExpertFinish capacity at Bath. Investments in sales and marketing, mostly boots on the ground with the sales team, totaled $6 million more than prior year. And our helping LP Siding business continue to grow, despite flat housing and lower year-over-year repair and remodel expenditures. And raw material and freight costs were roughly in line with last year. In the other column at the far right, the first…

Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from the line of Susan Maklari of Goldman Sachs. Your line is now open.

Thank you. Good morning, everyone. Thanks for taking the questions.

Good morning, Susan.

Good morning, Susan.

Good morning. And maybe starting on Alan's comments on CapEx. I guess can you talk a little bit about what you're seeing in the business and how you're thinking about demand that will come through over the next several years that has driven the decision to perhaps invest in the next wave of capacity additions in Siding?

Sure. So we, obviously, are very pleased with the growth we've seen this year in SmartSide, the recovery from a disappointing year last year. And as we project forward and at any reasonable growth rate, we're now getting to a point where we are really looking at that next wave of capacity that we're going to need. We do try to stay ahead of production. So we don't mind bringing on capacity a little bit early in order to minimize the chances of going on any kind of allocation. So that is -- given the growth this year, that's resulted in us stepping up the planning for our next significant capacity expansion as Alan or I mentioned in the call, I guess both of us did, we are looking at that investment next year -- beginning that investment next year. And that would get us up and running either late 2026 or in 2027 depending on the timing and how the year plays out next year as far Siding growth.

Okay. That's helpful. And then maybe just thinking about price for 2025, you mentioned that you saw half of the lift this quarter coming from mix versus on a like-for-like basis. But as you think about putting pricing through for next year, can you just talk a little bit about the range that's expected and how you're managing the inventories heading into that increase?

Sure. So we're back to kind of the historical normal price increase environment that we were experiencing pre-COVID. So we're out currently with a gross price increase depending on SKU in region of 4% to 5%. And we believe we'll net around 3 is a good way to plan for next year. That excludes any kind of mix change next year. The price increase is effective January 1. And we will be limiting sales in December so that we don't get -- to try to minimize pull forward as a result of the price increase and set ourselves in our distribution base up for a really good Q1 as far as sales go. So that's the current plan, and we're executing to it. And as I mentioned, we are out with that price increase. So it is in the market now.

Okay. That's helpful color. Thank you. Good luck with everything.

Thank you. You're welcome.

Thank you. Our next question comes from the line of Michael Roxland of Truist Securities. Your line is now open.

Yes. Thank you, Brad, Alan and Aaron for taking my question. And congrats on a very strong quarter. First question I have is SmartSide has continued to gain share. What has been the competitive response from fiber cement final? Have you seen increasing price pressures? Are they trying to retain or win back some share? And what has been LP's response?

Well, look, we're competing in a very competitive environment. That's always been the case, my 25 years of working around the SmartSide business. And so I would say the competitive situation is normal. And so when we're negotiating deals with big builders, obviously, there's a counterparty that's trying to hold on the business. And so that typically the kind of from a pricing standpoint, that is managed through back-end rebate for most of the customers. But I would say right now, it's still kind of normal as far as what we have to do in order to secure this business. Because I think primarily what's beginning to be realized in the market more and more is just the value proposition of the product. It is superior to the substrates that you mentioned there. And that is as much of the reason we're winning is any pricing concessions.

Got it. Okay. Thanks for that Brad. And then just quickly on Sagola, Houlton and some of the mills that you may have not been running full, what's your -- given that you do intend to add capacity, what's the outlook -- I guess, one, where are those mills currently operate? And two, where do you expect them to operate next year that would warrant you to bring on or aim to bring on new capacity, call it, 1.5 years, two years from now? Thank you.

I'll take a whack at that. In Q3, our volume was $460 million on a nameplate capacity of 2.3. So that annualizes out the utilization in the high 70s to 80% range. Of course, with seasonality, Q2 and Q3 will tend to be a little bit heavier than Q1 and Q4. So if that pattern continues, you just sort of project that forward, and that gives us the confidence that we'll need capacity in timeframe that Brad mentioned earlier. Sagola and Houlton and Bath are all running very well. But they exist within a system. And so their capacity utilization is a function of product mix and geographic demand patterns and lots of other factors, but we're very pleased with the ramp-up.

Thank you.

Thank you. Our next question comes from the line of Sean Steuart of TD Cowen. Your line is now open.

Thanks. Good morning and congrats on a very good result. Brad, wondering if you can give some context on, Siding expansion options, as you look ahead as we start to build CapEx in 2025 and 2026 in your forecast, whether it's expansion at existing sites, Wawa, what you're thinking of in terms of the best option for adding supply?

Yeah. Great question. So let me just remind the audience of the options that we have. We do have two remaining Aspen-based OSB mills, one in Quebec, one in British Columbia that is a potential -- future potential conversion option for us. We do have the idle facility in Wawa, Ontario that we're studying in detail. And then we have options at existing Siding mills to add press lines and so all of those are still on the table for this next wave of capacity. What will drive the decision be, first of all, the feasibility of converting one of the -- either of the two Aspen-based mills in Canada. Those are large press setups. And in either case, Milwaukee or Peace Valley would be by far the biggest press existing in our Siding operation. And so that -- there is some technical things we'd need to work out to make that a feasible conversion at this time. And then we have Wawa and -- adding a press line at our existing facility. I like both of those options. What will drive the decision there will be capital efficiency, as it relates to those two. Wawa essentially be a mill start-up for us where adding a press line might be a little bit more capital -- less capital intensive. But then also weighing into that, we now run our Siding portfolio as a network. And so when you look at that, the way we distribute SKUs across our current platform, you look at their location, you look at where we're growing geographically with customers, that can swing us regionally into favoring capacity at a mill in Houlton, Maine versus a mill in Ontario, versus a mill in Sagola, Michigan, versus a mill in Dawson Creek, British Columbia. And so all that, -- we're still in the preliminary phase of planning that out from a network optimization, capital efficiency. What we'll probably be doing soon is ordering some of the -- or getting approval from our Board to order some of the equipment that is kind of site-agnostic. And then when we get into the middle part of next year, that's when we really have to be sharpening the pencils on location and making a commitment to where. But at this point, that decision has not been made. But we got a ton of great options, that's the point. And we'll do -- we'll make decision based on net present values of the incremental capacity that we need.

That's great detail. Thanks for that. My second question, Brad, is a hypothetical one. Wondering if there are any internal views, if Trump wins the election and proceeds with a blanket tariff on imports, is there any internal view on, I guess, your exposure to Canadian panel or imports of Canadian panels into the US? Would the USMCA protect against that? Loaded question, but wondering if you have any internal views on that.

Look, let me just -- the one thing that I think that we should be transparent about. I don't really have a view on impacting panel flow across the border, OSB or siding. We do get a significant portion of our MDI from a source in China. And while we have been working through the tariff issues and the economics around that as part of -- over the past well, since Trump took office, and Biden kept the tariffs in place. That's the only kind of cost risk that we would be facing. There's never been any limitations on OSB or any tariff on OSB going across the border. I don't anticipate that becoming something that in the near-term, but I mean, who knows. So we'll respond accordingly. But I mean there would be certainly an impact on OSB pricing if all of a sudden Canadian OSB couldn't flow into the US. And so there would be a lot of offsets of kind of understanding what the true impact that would be. But I don't -- we're not planning on that being an issue whoever wins the election. But keeping an eye on imported raw material from China, it could be impactful to the industry, and it would be impactful for us as it relates to MDI purchases.

Understood. That’s all I have. Thanks very much.

Welcome.

Thank you. Our next question comes from the line of Steven Ramsey of Thompson Research Group. Your line is now open.

Good morning. I had a couple of questions on BuilderSeries, first one being the attach rate on that product have been very strong year-to-date. First, is this something that could have upside on these attach rates as you look into 2025? And then maybe just stepping back is BuilderSeries a net benefit to mix for these attach rates?

Well, first of all, let me take it into 2025, yes. We are expecting continued success with that as we build credibility with the big builder base. We continue to work on becoming the choice for builders, and those talks are ongoing. We're getting our share of wins in those talks. And so yeah, I see BuilderSeries growth being a meaningful part of our growth story for next year. And then the second part of your question, I think, is on the attach rates. That does pull-through trim and soffit and some panel sales into the builder channel and even into distribution. And those typically at least for trim are higher-margin items for us. And so while I would say BuilderSeries is margin neutral to us, as part of our portfolio, the pull-through on other SKUs that are sold along with are lap siding, which is BuilderSeries, especially as it relates to trim can be margin accretive to us. Q – Steven Ramsey: Okay. That's helpful. And then on OSB structural shipments, those being lower than commodity shipments for the last two quarters, kind of what is driving this in the near term? And then how are you thinking that this dynamic shapes up in Q4 and heading into next year?

Yes. I mean we're still -- we're really focused on growing our Structural Solutions as a percent of our portfolio. I mean that can change -- it does change quarter-to-quarter as -- and frankly, as big builder business pulls commodity OSB for one thing. But also, we do manage that around margins. And so we're making -- we're in a situation now where we're making sure that selling Structural Solutions is margin accretive to us. But when that's not, then we could go back to more commodity type sales. So we're going to see the trend of Structural Solutions as part of our portfolio is going to continue increase. But quarter-to-quarter, that -- variations, and that can happen as price and margin dynamics of our commodity OSB and Structural Solutions and the preference of some of these big builder deals that we do may pull -- may weight commodity OSB greater than what we would like in the moment. But ultimately, we're focused on a strategy to grow that. And I'm sure we'll be successful there. But in reality, there can be swings as it relates to what our customers want at the time. Q – Steven Ramsey: Makes sense. Thank you.

Thank you. Our next question comes from Matthew McKellar of RBC Capital Markets. Your line is now open. Q – Matthew McKellar: Hi. Good morning. Thanks for taking my questions. Q4 Siding revenue guidance implies you'd be down something like 13% quarter-over-quarter at the midpoint, I think, which would be unusually, I think, core sequentially into Q4 compared to what you've done historically. Is there anything you're seeing in the order file that suggests your recent pattern of sort of outperforming normal revenue seasonality should reverse?

No, I'm not sure there's anything unusual here. But if you look back over the last couple of years, you referenced normal. I'm not sure what normal is, and I think that's the challenge we face. If you look at the profile of revenue in 2023, that was definitely abnormal. And we were -- as it were coming out of the destocking and generally speaking, bucking the seasonality trend. So what you're seeing reflected in Q4 right now and our Q4 guidance is a return to a more seasonally normal pattern if we jump back four or five years as well as Brad mentioned earlier in his response to one of the questions as making sure that we effectively manage demand relative to the January 1 price increase. They are the principal factors that make this Q4 compared to Q3 look a little starker. Q – Matthew McKellar: Okay. Thanks very much for that color. And last one for me. Just I mean recognizing it's a somewhat smaller part of your business, how material do you expect to pick up in South American volumes to be with the investment in the modular housing business you've noted? And could you just provide a bit more color around why this was an attractive investment for LP?

Yes. Well, the South America strategy from day one has been a conversion strategy away from a scenario type of construction. This investment kind of really is strategic for us in that -- this joint venture partner is a major manufacturer modular housing and integrated all the way through to the sale of that and the real estate development. So it's a very strategic partner. They've been a large customer for us. So, immediately, there won't be a significant volume -- incremental volume because we have been supplying -- essentially supplying that product anyway. But as we look at continuing to grow the share of stick build homes across South America, that's where we see the strategic fit. And so this is a long-term play. We'll be happy to speak to it as -- quarter-to-quarter as we get further into it. But materially, it won't impact what we're doing this quarter or probably next year because, again, we've had that business secured for a pretty long time. Q – Matthew McKellar: Okay. Thanks very much. I'll turn it back.

Thank you. Our next question comes from Mark Weintraub of Seaport Research Partners. Your line is now open.

Thank you. Congrats on another very good quarter. So, what I was hoping to get a little bit more color on is if we look at that that 17% volume increase you're projecting for Siding year-over-year, is it possible to give us a sense as to what it looks like in the categories, R&R, single-family sheds?

Yes. So, let me just say directionally, the strength has been in new construction and R&R. That has driven essentially all of this growth above trend line. The retail business has been okay. So, let's just say about average, and then shed has been flat this year. And so the strength has certainly been in new construction and repair and remodel. And it's been around -- I mean, our prime business has been phenomenal. But the BuilderSeries and ExpertFinish, granted off a smaller base, those growth percents have been a significant upside to the year.

And then, Brad, how much -- is there a way that you can assess how much is a function of same-store sales growth versus your expanding distribution base?

Yes. So, let me take that by segment. So, for new construction, look, having the big builder credibility that's come along with some of these deals that we've been able to get to this year does bring around not necessarily -- well, not two-step distribution adds, but it does bring lumber yard adds in the geographic areas where we're getting new business with the builder. And so that kind of new -- that new lumber yard distribution is incremental. And then that usually means an inventory build -- small inventory build because these aren't two-steppers, but an inventory build and then pull through and then ancillary sales to the customer that we ink. But also if you've got placement at the lumber yard, you're getting sales to other builders and contractors that you just didn't -- didn't have access to the product before. So, that has been an important part of the story this year for new construction. And then repair and remodel, that -- securing contractor -- okay, sorry. Securing contractor loyalty is a big part of what we're doing with these incremental marketing and sales spend. But that also is accompanied by continued growth in our one-step distribution geographic channel exposure. And so that has been something that we -- coming out of allocation, we've really been focused on. So while we're gaining market share ultimately with contractors in R&R and builders and new construction, there is the added benefit and somewhat necessary reality of adding distribution as we go along.

And as you think about maybe where you are in the life cycle of that process, is next year potentially going to also benefit significantly from this? Or maybe how should we be thinking about these two drivers, almost the single stores versus the expanded base?

Yeah. For R&R, I would say we're still underexposed enough to where we will continue to add one-step distribution locations through -- as ExpertFinish it becomes more available through our capacity expansion. That will be a significant part of our growth for -- Mark, probably for the next several years as we grow that market share because we still have pockets of geographical weakness where we don't have strong distribution there. And then for new -- for the traditional channel to market to new construction, I think that will be localized around regional wins with the big builder and then the necessary lumber yard adds that have to go to support those wins. So that may not be quite as significant as landing in Lennar has been this year to that, but there still is opportunities for further penetration within the channel in both those areas.

Appreciate it. I'll leave it there. Thank you.

Thanks.

Thank you. Our next question comes from Ketan Mamtora of BMO Capital Markets. Your line is now open.

Good morning, and congrats on a very strong quarter, especially in Siding. Maybe just sticking with the Siding expansion. Brad, in the past, you've also talked about the product categories within Siding where you see growth would also be one of the factors in deciding where you expand capacity. Is that still one of the factors? Or is that becoming less of a factor given your size now?

That's -- it's a good point. That is a factor. And as some -- as you know, Ketan, some of the mills that we have converted, Dawson in particular -- no, I'm sorry, Swan, the Swan mill and Sagola mill are -- have large presses that are conducive to panel production, where Houlton was a smaller mill, more conducive to lap and trim and socket production. And so when I speak of those opportunities around the press size and around the location, we will be looking at the SKU distribution profile as we make the decisions. The more we are looking at lap and trim as where we need volume, the less appealing a larger press size may be to us and the more that may swing us back to adding a press line, kind of a specialized press line at an existing facility. So that is -- it certainly is a factor. And just given all we've talked about in the last few calls and this call, in particular, the growth really is in lap and trim more so than in panel right now, which would kind of push us to a more specialized setup as far as the next mill conversion.

Got it. That's very helpful. And then just one more on Siding. Outside of seasonality, Brad, as you look at sort of demand factors or drivers, are you seeing anything as you move through Q3 and October if things are either starting to look a little bit better in terms of order activity or kind of still the same and there's uncertainty? Or how would you characterize in terms of sort of activity?

I would say, activity has been good -- okay to good this late in the season. Of course, weather patterns have been warm across the country, so that certainly helped. But, Ketan, it feels like pre-COVID, like a pre-COVID solid year as far as how we've been -- how our order file has been -- stayed steady throughout the fall so far and how we've been able to -- from the visibility we have with inventories in the channel, like as we mentioned, normal inventories. So I mean, it's just been a really, really solid year across the board. And we're continuing to see, given season that we're in, a nice order file. And I don't really -- don't see that being a ton of risk of that given the price increase that we have announced now. So we feel good as we -- I mean, as we reflected in our guidance about the rest of the year. And as we get closer to next year, we're feeling better and better about what we'd be able to execute to next year.

Got it. That's very helpful. Good luck. And I'll jump back in the queue.

Thank you. Our question comes from Kurt Yinger of D.A. Davidson. Your line is now open.

Great. Thanks, and good morning, everyone. Without trying to pin you down on 2025 guidance, I'm curious with kind of the visibility you have on the BuilderSeries and big builder side, some of expanded stocking positions you've discussed. How does that play into your thoughts around a goal or potential level of kind of market outperformance as we look into next year within the Siding business?

Well, if you look at the outlook for single-family or for new construction starts next year, it's flat. We're not planning to be flat. And so I think the -- the momentum that we've generated this year, having capacity and being off allocation, we're feeling better and better about next year. I mean, there's all kind of -- I mean, we've got political risk. We've got tariff risk. I mean, there's all kind of potential headwinds, but we feel like the value proposition for our product is very strong as we continue to get exposure in the field with contractors and builders, that credibility around the product offering is beginning -- growing as well. And so I feel like kind of pre-COVID growth rates that we enjoy, the 8% to 10% is certainly something we should be able to execute to. I mean, not guiding for next year, but that would be the kind of historical pattern we've had. And we'll get more specific about it on the next call, but I feel good about that. But we'll have to take a good solid look at the headwinds that we see over the next two or three months as we made that call for how we guide next year.

Right, right. No, I appreciate that. And the comment on value prop kind of ties into my next question. Clearly, we haven't seen it at all yet. But with the affordability challenges and efforts by builders to kind of take cost out, does that change the dynamic for premium materials like your own and conversion from maybe less expensive substrates than we've seen historically? Just curious, if you have any high-level thoughts around that in the current backdrop.

Yes. Affordability, I think, does play a little bit to the strength of vinyl siding. And ultimately, this is purely a cost play. Vinyl siding is the product that a contractor, builders would choose. But when you have things like our prefinished siding now, which ExpertFinish is going into new construction, so you eliminate a painting step in new construction, that can be -- that can help the affordability of a home. And then as the labor savings that is realized from -- and well, primarily the labor savings that is realized by using SmartSide versus all other substrates can be -- is real. And as builders and contractors experience the product, they realize that. And that's what strengthens the value proposition that I spoke to earlier that makes us confident that this penetration that we've been enjoying the past 12 months is something that we can grow off of next year.

Right. Okay. That makes sense. And just to squeeze one more in. Alan, in terms of Q3 to Q4 Siding EBITDA, could you maybe just level set on kind of the onetime maintenance or project impact kind of embedded within that?

Yes. Yes. I'll do it with reference to Q3, though. I'm going to -- I sort of put a set up in my prepared remarks. If you take the $123 million from Q3, there was about $5 million in there that we had intended to onetime costs and inventory. The reduction that we intended to do in Q4, and we did in Q3. We did the opposite in Q3. So let's sort of shift $5 million between those 2, right? So I'm going to take 123, knock off 5 from Q3 and get 118. I'm going to take that 5 and add it on to the midpoint of our range for Q4, which would be $75 million plus $5 million, so $80 million, leaves us about $38 million to explain. About $30 million of that would be the impact of the lower volume in -- from Q3 to Q4. And the balance, call it, $8 million to $10 million is the onetime -- think of it as the onetime maintenance costs and mill downtime that we -- as a matter of necessity, we have to take to perform the necessary maintenance in Q4. And that's the principal difference also that you didn't ask between the Q4 EBITDA and the Q1 EBITDA, very similar revenue levels, but at lower EBITDA because in Q1 of this year, we were not taking that downtime and building inventory. And in Q4, we're taking that necessary downtime and depleting inventory. So you get that sort of both double whammy from negative absorption on inventory, as well as the necessary downtime.

Got it. Okay. Appreciate the color.

Thank you. I'm showing no further questions at this time. So I would like to turn it back to management for closing remarks.

Okay. Operator, thank you very much, and thank you, everyone, for joining us. With no further questions, we'll bring the call to a close. Everyone, stay safe. And we'll look forward to speaking to you again next quarter.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.