Hello and welcome to the Owens Corning Q4 Full Year 2022 Earnings Call. My name is Alex and I'll be coordinating the call today. [Operator Instructions] I'll now hand over to your host, Amber Wohlfarth, to begin. Please go ahead.

Thank you and good morning, everyone. Thank you for taking the time to join us for today's conference call and review of our business results for the fourth quarter and full year 2022. Joining us today are Brian Chambers, Owens Corning's Chair and Chief Executive Officer; and Ken Parks, our Chief Financial Officer. Following our presentation this morning, we will open this 1-hour call to your questions. In order to accommodate as many call participants as possible, please limit yourselves to one question only. Earlier this morning, we issued a news release and filed a 10-K that detailed our financial results for the fourth quarter and full year 2022. For the purposes of our discussion today, we have prepared presentation slides that summarize our performance and results and we'll refer to these slides during this call. You can access the earnings press release, Form 10-K and the presentation slides at our website, owenscorning.com. Refer to the Investors link under the Corporate section of our home page. A transcript and recording of this call and the supporting slides will be available on our website for future reference. Please reference Slide 2 before we begin, where we offer a couple of reminders. First, today's remarks will include forward-looking statements based on our current forecasts and estimates of future events. These statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. We undertake no obligation to update these statements beyond what is required under applicable securities laws. Please refer to the cautionary statements and the risk factors identified in our SEC filings for a more detailed explanation of the inherent risks and uncertainties affecting such forward-looking statements. Second, the presentation slides and today's remarks contain non-GAAP financial measures. Explanations and reconciliations of non-GAAP to GAAP measures may be found in the text and financial tables of our earnings press release and presentation, both of which are available on owenscorning.com. Adjusted EBIT is our primary measure of period-over-period comparisons and we believe it is a meaningful measure for investors to compare our results. Consistent with our historical practice, we have excluded certain items that we believe are not representative of our ongoing operations when calculating adjusted EBIT and adjusted earnings. We adjust our effective tax rate to remove the effect of quarter-to-quarter fluctuations which have the potential to be significant in arriving at adjusted earnings and adjusted earnings per share. We also use free cash flow and free cash flow conversion of adjusted earnings as measures helpful to investors to evaluate the company's ability to generate cash and utilize that cash to pursue opportunities that enhance shareholder value. The tables in today's news release and the Form 10-K include more detailed financial information. For those of you following along with our slide presentation, we will begin on Slide 4. And now opening remarks from our Chair and CEO, Brian Chambers. Brian?

Thanks, Amber. Good morning, everyone and thank you for joining us. During our call this morning, I'll start with an overview of our results for the fourth quarter and full year and provide an update on how we are positioning the company for continued success in 2023 and beyond. Ken will then provide details on our fourth quarter and full year 2022 performance and I'll come back to discuss what we're seeing in our markets and our outlook for the first quarter. Owens Corning delivered outstanding results in 2022, achieving record financial performance across all our businesses and consistently outperforming the markets we serve. As the year unfolded, many of our end markets began to reset as the marketplace adjusted to a changing macroeconomic environment that included the war in Europe, significant inflation, labor challenges and ongoing supply chain disruptions. Our global team demonstrated resolve and resourcefulness in the face of these challenges to deliver great financial results driven by our strong customer partnerships, unique product and process innovation and outstanding manufacturing capabilities. In doing so, we continue to strengthen the earnings power of our company and advance our enterprise strategy in support of our mission to build a sustainable future through material innovation. Moving to our results. I'll begin, as always, with safety. Our commitment to safety remains a critical component to our success and we continue to deliver world-class safety performance in 2022. During the fourth quarter, we achieved a recordable incident rate of 0.41, our best quarter of safety performance in nearly a decade. This lowered our full year 2022 RIR to 0.65 with 1/2 of our global sites operating injury-free throughout the year. Financially, in the fourth quarter, we delivered revenue of $2.3 billion, a 7% increase over fourth quarter 2021. Adjusted EBIT of $333 million…

Thanks, Brian and good morning, everyone. As Brian commented, we delivered another solid quarter, resulting in a record year in 2022 with year-over-year revenue and earnings growth across the enterprise. Our disciplined commercial and operational execution continue to be fundamental in driving this performance. As we've talked about in prior calls, inflation continues to impact energy costs and most material input costs, along with transportation. Positive price offset these inflation headwinds in the quarter and in the year in all 3 businesses. Beginning on Slide 5, we can take a closer look at our results. We reported consolidated net sales of $2.3 billion for the fourth quarter, up 7% over 2021. Adjusted EBIT for the quarter was $333 million, up 2% from the same quarter in 2021. Adjusted earnings for the fourth quarter were $235 million or $2.49 per diluted share compared to $224 million or $2.20 per diluted share in the fourth quarter of 2021. For the full year 2022, consolidated net sales reached $9.8 billion, up 15% from 2021. And adjusted EBIT was $1.8 billion, up $347 million over the prior year. Our full year adjusted earnings were $1.3 billion or $12.88 per diluted share compared to $969 million or $9.29 per diluted share in 2021. Slide 6 shows the reconciliation between our full year adjusted and reported EBIT. For the year, adjusting items totaled approximately $39 million. We recognized a $130 million gain from acquiring the remaining 50% interest in an existing joint venture that produces high-quality wet-formed mat for roofing applications and $18 million of gains on the sale of precious metals. We recorded an impairment charge of $96 million on certain indefinite-lived intangible assets as well as $70 million of losses and execution costs related to acquisitions and divestitures. In addition, we recorded $21 million…

Thank you, Ken. Throughout 2022, our global teams demonstrated great commercial and operational flexibility to respond to changing market conditions and deliver strong financial results. As we move into 2023, we will continue to demonstrate our proven ability to quickly react and respond to shifting market conditions as we see the impacts of ongoing inflation, higher interest rates and continued geopolitical uncertainties leading to slower global economic growth and lower demand. Given this market environment, we expect volumes to decline in the first quarter versus prior year in many of our end markets and product categories as our customers continue to have a more cautious view on ordering given the uncertainty in the outlook. Pricing is expected to remain positive in the quarter as we continue to realize the benefits of carryover pricing from previously announced actions. Overall, we anticipate offsetting the impact of ongoing energy and material inflation. We also expect to continue to see modest currency headwinds in our Insulation and Composites businesses as well as an impact from our previously announced divestitures. Overall for the company, we expect to realize a moderate decline in net sales and adjusted EBIT margins of low to mid-teens. Now consistent with prior calls, I'll provide a more detailed business-specific outlook for the quarter. Starting with our Insulation business, we expect revenue to be up modestly versus prior year as continued price realization offsets lower demand and the ongoing impact of currency headwinds. In our technical and global insulation businesses, we expect continued price realization resulting from our previously announced increases to be more than offset by lower volumes primarily in global mineral wool and ongoing currency headwinds. In our North American residential business, we anticipate continued price realization on our previously announced increases with volumes relatively flat versus prior year as…

[Operator Instructions] Our first question for today comes from Michael Rehaut from JPMorgan.

I wanted to get a sense for the Insulation business. You mentioned for the outlook in the first quarter continued price realization. I'm curious if that's kind of the result of prior or earlier price increases from earlier in 2022. And if you could comment on the industry's announced price increase for December, January, how that's progressing. And secondly, I know I'm kind of working in a second one here but just on the topic of price, how should we think about capacity additions for the industry as we progress in 2023?

Okay. Mike, thanks. Just we'll talk a little bit about price realization. So overall, we expect to deliver another quarter of positive price/cost as we guided to. I think the majority of that is carryover on previously announced price actions through 2022. We did announce a December increase that is in the market. I would say we were seeing good realization on that increase as well but all of that pricing is coming through from those previously announced actions. From a capacity additions in the industry, I'd say the ones that were announced earlier and brought online in loosefill, those have been brought up online. We see continued strong demand in both loosefill and batts and rolls and continued good price realization there. So I think those increases have been absorbed into the market based on the demand and we've not seen really any impact on that. From a batts and rolls perspective, the one that was previously announced, I think, is not slated to even come up until we get into 2024. So for 2023, we wouldn't see any impact on any of those additional capacity increases. For our network, we have continued to work through our progression as we talked about last quarter. So we shut down the Santa Clara facility in Q4. We're in process then of upgrading our Nephi facility to expand, to make batts and rolls there. That's all on track. So those facilities, it came down -- Santa Clara came down as planned. Nephi is down and we're still planning for a start-up of that facility sometime in the second quarter.

Our next question comes from Stephen Kim of Evercore ISI.

Appreciate the color here. On the Composites business, you talked about weakening demand. Was curious if you could give us a little bit of a sense for how that weakness may have been different by product segment within Composites or regions. In particular, I'm wondering whether some of the higher value-add products that you've been moving more into, whether they saw a similar kind of a deterioration in their end markets or not. And then in a similar vein, I know the Insulation business has a very large technical business. So curious if you could comment a little bit about whether you're seeing the trends in the technical side, I'm thinking particularly your Pittsburgh Corning business. Is that holding up better than maybe some of the more commodity-oriented products?

Thanks, Stephen. Let me touch on the Composites question and then Brian will probably jump in a little bit on the Insulation question. On Composites, I will tell you that across the quarter, across all regions and effectively all products, we did see lower volumes in Composites. Now coming into the quarter, we anticipated that. What we really saw happen as we moved through the latter part of the quarter was we saw some of the North American volumes start to be a bit weaker as we moved into the last half of the quarter which is really what drove our performance versus our early outlook. So simple point: all regions, all products, including those higher value-added products that you're talking about, in general, saw lower volumes. North America decelerated a little bit towards the end of the fourth quarter. And as a result of that, where -- customers were looking and Brian mentioned this in his comments, customers looking at their inventory levels in a more uncertain market environment, they started to adjust their patterns of buying, again, specifically in North America. What we are really pleased about is the team actually, as that started to happen, started to actually take a look at where the production needed to be in order to keep inventory levels where we wanted them to be across the business. And that's part of the reason that you saw operating margins step down the way they did in the fourth quarter. Very simply put, lower volumes, reacting to that by making sure that we take proactive measures to curtail where we needed to curtail. And that will actually carry a bit into the first quarter because you heard us guide to maybe even a slightly lower operating margin level as we move into the…

Yes. Thanks, Ken. I think on the technical and global insulation business, Stephen, we continue to see good trends in our U.S. commercial business. I'd say we've got a very diversified product offering there. We're in data centers, airports, hospitals, a lot of different areas. So I'd say that the high-rise kind of office construction trends are showing a bit of weakness. But overall, for us, we like the category and we're seeing some good strength there. One area you mentioned, Pitt Corning, that we do see a strength and -- big strength and big pickup in quoting activity, is around our FOAMGLAS product line and specifically for LNG applications. So we've seen that pick up quite a bit over the last 6 months and that project is used extensively in these LNG terminals around the base tank and then all the piping. So we see that order -- or sorry, quote activity picking up and we think that's going to lead to an increase in orders as we go along. And that's -- these are multiyear projects but I think it is a good segment for us that can grow as we go forward.

Our next question comes from John Lovallo from UBS.

The first, really, it's focused on the divergence in the OC's roofing volume versus the industry. I know you mentioned that demand for the product remained very strong. I guess the question really is, how are inventory levels right now in the channel? And do you expect any destocking as we move forward?

Yes. Thanks, John. What we saw in Q4, I would characterize as really kind of a continuation of what we saw in Q3 from a standpoint of distributors becoming much more selective on the products and brands they were buying based on local demand trends and more available product to them. So we saw these trends emerging in Q3. We talked about that. In Q4, we saw it much more acutely as I think all distributors were looking to rightsize their inventories. And outside of a couple of storm markets, particularly Florida, upper Midwest, we saw manufacturing shipment volumes down considerably in that area. So I think there is a big push from distributors to rightsize their inventories to what they're seeing in terms of local demand. And certainly, product availability is more available widespread than we were a few quarters ago. So I think that's impacted Q3, Q4. I would say just to characterize, though, the fourth quarter volumes, even though they stepped down considerably, if you look over the last 7, 8 years kind of average volumes in the fourth quarter, they were more in line with the average volume. So I think still good purchasing activity, just a pretty significant step-down from the last couple of years. And I would characterize that's what we're seeing in Q1. So we're guiding to a step-down in inventory or in manufacturer purchases in the market in Q1, again, as distributors keep rightsizing their inventory. I think the divergence is really the continued strong demand for our products based on our strength of our contractor network. So this is a key part of our strategy in our Roofing business. The team has been executing incredibly well for the last several years which is to focus on converting contractors and helping to build their business through our unique products, our brand, our commercial skills and capabilities and digital tools. And so I think we just continue to see that in terms of drawing great strength in our product. And so while we were seeing some markets getting softer and some of those step-down in purchases overall from a distributor standpoint, demand for our products remained strong through the quarter. And I think that was a bit of the disconnect and divergence that you talked about in Q4. And we think that strength for our products is going to continue here into Q1. And we think we're set up for a good year in Roofing.

Our next question comes from Joseph Ahlersmeyer from Deutsche Bank.

Congrats on the residential business results, guys.

Thank you.

My question is if you could just talk about the resilience in the volumes in North America. I think some might be surprised that -- with what starts have done since last summer that your 4Q volumes were flat and your 1Q volumes are expected to be flat. I guess my question really is, I know you tend to only talk a quarter ahead just based on visibility. But if you could just help us hypothetically think about, if we are seeing starts -- single-family starts bottoming in the first quarter, how might that shape up for the rest of the year for your North America resi volumes?

Yes. Joe, let me maybe talk a little bit about Q4, Q1 volumes because you're right, they've held up very strong. Demand for our products have been strong. And this is where we've seen, I think, starting last year, demand for our products being more driven on completion rates than on starts. So we saw that kind of emerge back half of 2021 coming into 2022 that even as starts grew, when you look at completion rates, they seem to top out at around 1.4 million units and really driven by what we believe are constraints in labor availability, material availability. And so while starts continued to grow, completion rates didn't and that has created a backlog and elongated the construction cycle. So in the back half of last year, even though we saw starts coming down, they were still above completion rates and therefore, still building the backlog. And I think what we've seen in Q4, that finally kind of evened out. We saw November, December starts kind of roughly in line with completion rates, about 1.4 million units. And that's what's driven great strength to finish the year in our residential business, great strength to start the year. Now, we do expect that starts continue to trend down and they start falling below those completion rates, that this backlog is going to get worked through. And I think regionally, I would say we're -- we would expect some of that to work through as early as the end of the first quarter. Some markets might be continuation into the second quarter. But clearly, if starts continue to come down below that 1.4 million rate, we think that's going to start to impact future demand. When we look at how much that's going to depend on, I think, where…

Our next question comes from Truman Patterson of Wolfe Research.

This is Trevor Allinson on for Truman. Can you talk about how you're thinking about roofing industry volumes and pricing for the full year 2023? Appreciating you're not giving full year '23 guidance but just looking at where housing starts are or existing home sales are, where we expect there to be some softness. But you're guiding shipments being down high single digits in 1Q and ARMA comps become progressively easier throughout the year. So just curious if you're thinking maybe 1Q represents the bottom on a year-over-year basis and maybe how you're thinking about industry volumes for the full year.

Yes. Thanks for the question, Trevor. When I look at just the demand drivers of our Roofing business, a little over 80% is repair and remodeling demand, a little less than 20% into new construction. So when we think about the big demand drivers, a small portion is going to be driven by new construction starts. So based on my previous conversation, we have seen a slowdown in housing over the last 12 months. Moving forward into 2023, we would expect that could impact lower roofing volumes and that's more impactful in certain markets that are more heavily new construction. In terms of repair and remodeling, we still see good fundamental drivers of the remodeling business. People are still investing in their homes. When we look at our contractor backlogs, it's regionally variable. But overall, we're still seeing good contractor backlogs and demand for remodeling efforts. So we think that's going to stay pretty steady. It could take a step back but still pretty steady. The -- always the bigger uncertainty is around storm demand and storm volumes. On average, that's about 30% of demand in a given year. And so that's something that we're really not going to get a feel for until we get more into Q2 in terms of how that could evolve in terms of demand for the full year. So, I think to start the year, as I said, I think we're seeing distributors pretty cautious in their buying. We're probably expecting the first quarter volume purchases more in line with historical averages than what we've seen in the last couple of years. But I think a lot of this is going to be a little bit -- we need to wait and see as we get further into the season into Q2 how these remodeling investments continue to play out, how new construction plays out and then ultimately, what kind of storm demand we see going forward. I think the last thing I'd say, we do -- when we look at storm markets like in Florida, I think the repair work is going as we would expect. We're seeing good demand still in Florida. We think it probably takes most of the year to get that completed. We're still seeing good demand strength in the Upper Midwest, Minnesota. Now it's a tough market to roof in here in February but we think that picks back up in the spring. And then some storms out West, particularly in California, has generated a lot of quote activity. And so I think the storm pockets, we're going to continue to see good demand at the start of the year. And then we'll see how the rest of the year plays out around renovation and other storm events as we go forward. But again, we still expect to have a good, strong, healthy roofing market in 2023 overall.

Our next question comes from Mike Dahl of RBC Capital Markets.

I had a follow-up on the composite pricing dynamic. You mentioned you still have some tailwinds from the contract pricing but you now expect that to be offset by lower spot. Given the pieces between kind of your mix of contract versus spot, can you just help us then size what that -- what you're seeing on spot prices and then how we should be thinking about that as your contracts roll through the year?

Yes. Thanks, Mike. Great question. So a little more color on Composites pricing. As mentioned, to be very clear, in the first quarter of 2023, like in each of the quarters of 2022, we're anticipating pricing for Composites overall to be positive. The carryover of either existing contracts that are multiyear in nature and/or new contracts that were negotiated, we're seeing positive -- neutral or positive pricing on all those contracts. We mentioned that in the last quarter call that we were kind of working through the contract renegotiations for those that were up for renewal and we were seeing kind of good pricing discussions on those contracts. So we expect contract pricing to be positive in the first quarter of 2023. Now you did also hear us say that we see some pressure on spot pricing. That, we don't expect to fully offset the favorability from contract pricing but it will kind of bring the contract pricing number down a little bit. If you remember in 2022, we kind of started out with strong contract pricing as we came through the negotiations at the end of 2021 into 2022. And then with the strength of the markets that we were operating in, especially in the first half, we saw some really good uplift from spot pricing. So as the markets start to soften up a little bit and/or reset in certain places, we are anticipating not just in the first quarter but probably as we move through the year a little bit more pressure at spot pricing adjust. I'll also tell you very specifically that where we're seeing most of that spot pricing reset is in our Asian markets. We're not necessarily seeing significant pressure on, first of all, contract pricing as well as spot pricing in North America and Europe. But it really is an Asian kind of move. And a lot of that are driven by the fact that the Chinese economy and the big China producers there, the Chinese economy hasn't fully reopened yet. So we see some of that product moving into other markets, more specifically India. And that's where we're seeing some of the spot pricing pressure, both in China and India.

Our next question comes from Phil Ng from Jefferies.

With demand expected to soften through the year, how do you plan on managing your production and just costs, particularly in your fixed cost-intensive businesses in Insulation and Composites? And then you guys did an awesome job last year staying ahead of cost on the price side of things. Help us think through that. Should we expect that to be neutral? And do you have the levers in place to kind of deliver that mid-teen margin in those 2 businesses? You kind of gave us a framework in terms of the downside scenario at your Investor Day.

Yes. Phil, thanks. I think on the demand -- well, maybe Ken and I will tag team this. But on the demand versus production, I think we are going to continue to be very proactive in terms of how we balance that out, particularly in Roofing and Insulation. And I think the work we have done in terms of our network optimization work, we believe we've got a better cost structure as we manage that. We've got more flexible assets as we manage that. But that is always going to be our challenge in front of us to try to be in front of that. We talked a little bit about that in Composites, where we were trying to be proactive in Q4 as we saw demand soften because we're very conscious on maintaining great working capital and great cash flow. So we want to continue to balance that as we go through the year. But again, I think we've made structural improvements to our costs in our operating facilities that are going to give us a more flexible network and a more cost-effective network as we manage those curtailments going forward. In terms of price and going forward and price/cost, you're right. I mean, we've been able to manage it. I think our commercial teams did fantastic work throughout 2022 to be in front of these inflation trends in terms of getting price of anticipated inflation. We start the year with a positive price/cost outlook and that's something we're going to continue to manage in terms of price. Now in some categories and some businesses, we've gotten price in excess of expected inflation. So we're going to see some inflation trends catch up to us but that's still maintaining a balanced view of price over cost. And we're going to manage that. I think the other piece that we continue to push heavily on is productivity. And our focus there from a manufacturing productivity that gives us also the capability to offset inflation is something that remains important and will become more and more important as we go forward. But I think if you roll all that up, we still feel very confident and comfortable in our mid-teens guides through the cycle in our Insulation and our Composites business. We think the commercial strategies we've put in place have given us access to a more profitable product offering. And we think the operational improvements we've made in these businesses, we feel very comfortable with that guide.

Yes. I think Brian covered everything on that question. The only tiny thing I would add is just think about what we're all seeing in the inflation environment which is softer markets, not just ours but across the globe and softer markets -- and by the way, resolution of a lot of the supply chain issues that we all were dealing with as we came out of COVID. And those 2 kind of moves give us some pretty good feeling that we're going to see a better inflationary environment as we move through the year. We're still expecting inflation but we expect it to be significantly less. You guys see the numbers. You can see the numbers in the 10-K but I'll just kind of -- at an overall level, we saw about $1 billion of inflation across all 3 of our businesses last year. And rounded off, it's probably about 1/4 of that number is tied to energy and asphalt-related costs. And what we see as we're looking at those trends just, based upon the true market conditions right now, is we should see some relief there which also helps in that price/cost mix.

Our final question for today comes from Adam Baumgarten of Zelman & Associates.

Just on Roofing, to -- given the inflation you're seeing pick back up, are you expecting the need to raise price further to offset some of that asphalt and other inflation?

Adam, as we sit today, we're still seeing positive price/cost mix to start the year. So we'll continue to watch the inflation trends as we go forward and we'll make adjustments as needed. But I think we've got a very good track record of being able to manage price relative to inflationary environments or deflationary environments. So we'll continue to manage that closely and make those decisions as we see the year play out.

That concludes the Q&A session for today. So I'll hand back to Brian Chambers for any further remarks.

Okay. Thanks, Alex and thanks, everyone, for your time today and your questions. We really appreciate your interest in Owens Corning and look forward to speaking with you all again during our first quarter call. Hope you all have a great day.

Thank you all for joining today's call. You may now disconnect your lines.