Q2 2020 Louisiana-Pacific Corp Earnings Call

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Ladies and gentlemen, thank you tend to buy a couple of calls have been getting them, apparently again thinking standing by yourself cost will begin momentarily. Thank you.

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Yes.

Ladies and gentlemen, thank you for standing by and welcome to second quarter 2020, Louisiana Pacific Corporation Earnings Conference call.

At this time all participant lines are in listen only mode.

After the speakers presentation, there will be a question answer session.

Ask the question during the session you will need to press Star then one under telephone keypad.

Please be advised to today's conference maybe recorded.

If you acquire operator assistance. Please press Star then zero.

I'd now like to hand, the conference over to your hosts today Mr., Aaron how old director of Investor Relations. Please go ahead Sir.

Thank you Liz and good morning, everyone. Thank you for joining us today to discuss Louisiana Pacific financial results for the second quarter of 2020 as well as our near term outlook. My name is there a well I know piece director of Investor Relations I'm joined today by bread Southern No piece, Chief Executive Officer Hockey Chief Financial Officer.

As we have done in the past we're hosting a simultaneous webcast. In addition to this conference call. We have provided a presentation with supplemental materials, which we will refer during this morning's comments and finally, we have filed our 8-K. This morning with some additional information.

The webcast AK and supplemental materials can be accessed center website, www Dot Investor LP core Dot com.

I went to remind all participants on the call about forward looking statements and the use of non-GAAP financial metrics. During this morning's discussion.

I will refer you to slides two and three of the accompanying presentation for more detail.

Appendix attached to the presentation has some necessary reconciliations have been supplemented by the form 8-K filing we made this morning, rather than reading this statement I incorporate them here in by reference and now I'll turn the call over to Brett.

Thanks, Eric Thank you all for joining us this morning.

Since the bulk of my time last quarterly call discussing the steps LP was taking in the face a worsening kobin pandemic.

We were preparing to other significant uncertainty, but we were confident in our liquidity position.

This morning, I'm pleased to come up that will be more positive than many of us might have expected just three months ago.

The affects the pandemic.

Before from over so far Lps fared better than the downside scenarios, we modeled and discussed on the last call as we know the housing sector has shown remarkable resiliency.

For boarding bottoming out in mid April the market's LP serves recover sharply and showed no signs of slowing.

Demand for our products rebounded quickly through May and June.

Let's see prices fall this pattern falling sharply in April, but climbing in may and ending June close to their Q1 highs.

This was a transformative quarter. Despite the volatility sodding achieved the second highest quarterly revenue in the segments history and the lowest cost of production in three years.

Always be business also demonstrated excellent efficiency and cost control delivering its best quarterly unit production costs since 2016 with a much richer mix of value added products.

I'll leave the details to Alan we finished the second quarter with 129 billion operating cash flow.

On a 7 million EBITDA and 43 cents of adjusted earnings per share.

We announced this morning that our board has approved the quarterly dividend of 14.5 cents per share.

On the last call. The three elements of our code would respond to that I discussed or safety liquidity and agility. Let me give you a brief update on age.

First and most importantly safety I'm pleased to report that very few LP employees have tested positive for coated.

Thanks to all of them have either fully recovered or are recovering our operations were not significantly impacted in Q2 by cases of our facilities.

We will continue to follow expert guidance and stay committed to keeping our employees vendor partners and customers say.

We are mindful of the human toll at this endemic our Hearts go out to those have lost loved ones, we want to saying all the first responders frontline medical workers.

As for liquidity LP generated $129 billion operating cash flow in Q2 and ended the quarter with $259 billion of cash on hand.

Given current prices and production rates and assuming no sudden reversal market conditions, we expect even better cash generation Q3.

A significant driver Lps results for the quarter was a disciplined and agility demonstrated our leadership teams operations capital management corporate functions in mid March in response to rapidly slowing demand, we curtailed roughly one third of april's production about wispy inside.

The end of April we were seeing signs of the demand recovery as this trend accelerated both segments at a production back in May and by June our facilities were near 100% capacity.

Improved Oh, we allowed us to adjust production levels and still achieve exceptionally low production costs.

[noise] housing is clearly a bright spot in or otherwise uncertain economy. After state drops in April housing starts in June were flat with last year.

I was they demand and prices are strong and repair remodel activity is robust. We're also seeing shifts towards single family homes movement away from urban cores and increased our and our spending.

LP is well positioned to capitalize on all these trends.

Al will share more specific modeling in a few minutes details about how these trends reflected in our current expectations for Q3 and beyond.

I want to spend a few minutes talking about strategic transformation and execution in the siding segment.

The business exited the fiber product line to focus on higher margin Smartside strand.

Enhanced our retail strategy and launched expert finish our pre finished product line.

This work show this value in Q2, helping the segment to grow in a volatile quarter.

There will be completed the strategic exit from fiber with the sale of the east facility and the conversion of the Roaring River facility to expert finished production.

This structural change positions the business focus exclusively on driving growth and innovation the higher margin Smartside strand products.

Over the past several quarters, our sales and marketing teams.

Look to revitalize our relationships with our retail customers.

As a result LP products have more shelf space and higher brand awareness for example, LP smartside as a number one surged, citing brand on at least one major big box retailers website.

As one our spending at home centers jumped in Q2 sales or LP smartside through retail channels more than doubled climb share capture as well as volume growth.

This trend shows no signs of slowing so far in our Q3 order intake.

Customer demand for recently launched move Smartside, an expert finished has exceeded our expectations. The addition of these two products to our portfolio has enabled us to enhance our distribution in the northeast.

The customer response expert finished has also been very encouraging expert finish is well positioned for both new construction in Orange bar and addresses labor constraints by saving the time and cost of painting after installation.

This was remarkable quarter for the siding segment, the backdrop of pandemic induce volatility. The segment delivered continued growth above underlying housing starts exited lower margin fiber products demonstrated the value signet significantly improve strategic partnerships with our largest customers.

And drove growth innovative new products.

While Q2 is stronger than we initially expected in the near term outlook is positive many risks and uncertainties remain.

The 19 cases, or increasing meaning states are slowing or reversing the reopening plans. So far no new work from home orders or declarations of non essential gallery I've been issue that impacts Lps operations are customers, but that remains a possibility.

Cobot, it's likely to create more volatility in the remainder of 2020 could potentially beyond.

That said I'm enormously proud with the grid resiliency that Lps employees have shown during this unprecedented time.

Our teams demonstrated disciplined management of the things, we can't control as well as agility in the face of what we cannot predict.

Lps results. This quarter are testament to the teams creativity flexibility in resolved.

I want to think every LP employee for their effort as we work through these extraordinary times with that I will turn Alan for more details on our financial results.

Thanks, Brad.

Well the second quarter was interesting to put it mildly.

It was book ended April by one of the largest month over month decreases in housing starts in a decade.

Ending June by any larger increase.

Random lengths that must be priced as follows a similarly erratic patent pulling back from the Q1 highs in the first weeks of the quarter before covering most of that ground by the end.

Build a sentiment home sales and demand for our products whole slows suddenly and dramatically blossomed by mid April and then rebounded sharply this continued to climb since.

Concluded my comments on last quarter's call with a discussion develop these potential results based on a 20% drop in single family housing.

At 20% drop in Smartside volumes, and a 30% drop in LSB volumes with flat I always be prices.

Under this scenario, we were confident the LP could achieve low double digit EBITDA, although it did not constitute guidance. This seemed a very real if conservative scenario.

The actual decline in single family housing starts at 13% was a little better than our model number.

The demand for both Smartside and that must be proof much stronger in fact, smartside volume decline until they grew by 3% helped by a surge in demand from retailers, which more than offset a decline with distributors.

The LSB markets and sharply as housing stones, we go through the quarter with LPG OVH production down not stay at present, the just 16%.

Is that our peace Valley Mill, which was idled in the third quarter was 2019 represented roughly 16% of Lps LSB capacity in 2019.

And of course, our average LSB price for the quarter increased by 22%.

Ultimately net sales for the second quarter was 7% or $40 million lower than 2019, do not to softness in citing a speed, but entirely due to our eight WP segment into the strategic exits for fiber unexplained, both and a little more depth in a moment.

So in combination with exceptionally low cost of production and reduced SGN eight EBITDA for the quarter came in at $97 million still double digits, but only just.

Okay. So we've established at the second quarter was volatile slide seven of the presentation shows that our strategic transformation proved robust to that volatility for the trailing 12 months ended June associate Smartside strand revenue grew 7% compared to 3% growth in single family housing starts over the same trailing 12 month period.

The mall compared to the first quarter was this year single family housing starts were flat, but smartside stronz revenue grew by 8% quarter over quarter.

Combining growth efficiency and sourcing savings the EBITDA impact of transformation was $15 million in the second quarter and $28 million year to date.

So the avoidance of doubt we excluded from this measure favorable impacts of market driven raw material price decreases about $6 million in the quarter. So at $96 million of transformation benefits over the last 18 months. We still ahead of pace to achieve an EBITDA impact of $165 million by the end of 2021.

Slide eight shows the summary profit and loss accounts, while the second quarter sales fell year over year by 7% gross profit increased by 50% $217 million, the resulting gross margin for the quarter of 21% was eight points better than the second quarter 2019, five points due to always be pricing.

Three points due to improved product mix operation efficiency and cost controls.

Selling general and administrative expenses for the quarter was $8 million lower than prior year, largely due to lower supporting infrastructure costs.

The strategic exit from fiber to focus on Smartside strand impacted our results in a number of ways first the divestiture of Kinex sell generated $14 million in cash and a modest gain of $2 million.

As mentioned on the first quarter coal the historic results of the siding segment had been recast to exclude can excel.

Second we have converted our remaining five minute growing revert to X, but finished third customer acceptance of our spend based replacements for their fiber based equivalents has exceeded our expectations.

This has resulted in the decision to accelerate to the conversion to strength Cecil fiber production and fully dedicate vote on it river to expert finish as a result, we have written off $10 million of fiber inventory compared $4 million of five assets I think at $2 million and severance costs.

After interest in Texas net income of $33 million more than doubled year over year, resulting adjusted earnings per share was 43 cents and as a result of the share buybacks and 2019 that were 11 million fewer shares outstanding than in 2019, but even adjusting for this difference earnings per share was higher than the second quarter 220, 19 by more than.

Do you sense.

Slide nine shows revenue and EBITDA by segment on Slide 10 to 13 have waterfalls detailing the via changes for the second quarter and year to date, citing an MSP.

Second quarter sales, the signing of $220 million were $11 million lower than prior year $7 million of continued growth in smartside strand offset by lower fiber sales of $18 million driven by the accelerated strategic exit from fiber.

The resulting siding segment EBITDA $51 million for the second close were $6 million higher than the prior year on the EBITDA margin has increased from 19 in hospice ends in 2019% to 23.2% in Twentytwenty.

The margin percentages with unaffected by the reclassification of kind of itself.

Lastly, the revenue for citing includes a 5 million dollar reserve for potential expert finished returns.

During the quarter, we discovered packaging issue that caused aesthetic damage to some pieces doing shipping and handling.

The reserve reflects our estimate of the full cost of pending returns in the placements of the impacted inventory.

We address the issue quickly and I'm proud of the west citing team is handling this I mean more gratified by the feedback from our customers who have shown understanding and support Swift response.

Second quarter sales I was be of $204 million with $5 million more than prior year due to 16% a lower volumes offset by 22% higher prices I.

Oh, ESP EBITDA of $46 million was $49 million higher than prior year, including $37 million of price increases.

The remaining $12 million of increased EBITDA is largely the result of the LSB leadership team's relentless drive operational efficiencies and cost control.

Second quarter sales for E.W.P. of $79 million with $28 million below prior year.

The decrease is attributable to three factors.

The second quarter of 29 team was a period of transition between major distributors, so increased volumes to build inventory, hence a difficult year over year comp second a government declaration that despite LSB manufacturing in Quebec remaining essential I joists manufacturing was deemed not to be assessing a joint venture in the province.

And third.

Demand for easily be products simply did not recover through the quarter as strongly as always be inciting resulting in price concessions.

Which brings us to cash flow on page 14.

We began the quarter with $488 million in cash, including one at the time it was a full draw on off into the $50 million revolving credit line.

EBITDA of $97 million and $34 million in cash from working capital decreases less $2 million, an interest payments resulted in $129 million of operating cash flow.

Additionally, the lions share of the working capital reduction came from citing inventory of finished goods in raw materials.

Capital spending was held to $50 million in line with reduced spending plan during the quarter. We also repaid the entire credit line of food and $50 million, a dividends of $70 million and generated $24 million.

Through the sale of can excel and make cashing in the corporate owned life insurance policy.

We ended the quarter with strong liquidity of over $800 million comprising cash of $259 million, an expanded undrawn $550 million line of credit.

With respect to capital allocation strategy remains the same.

We maintain our commitment to return to shareholders overtime at least 50% of the cash generated from operations after investments necessary to sustain our assets and execute our strategy more simply put we will return excess cash to shareholders. Once we've generated on the last call. We announced that we did not plans of buyback any shares and twentytwenty, but the benefits went.

He twentys cash generation gets the close so we'll get to reversing that decision.

Which brings us to our outlook for the third quarter and beyond office cortical we attempted to provide some indication of our second quarter results and delay any potential liquidity concerns given the market signals, we were receiving at that time.

As it always said once before in this call we promise double digit EBITDA and we did limited.

In many ways. The economies is uncertain now as it was three months ago, except this time as bullish as opposed to bearish and perhaps the question to ask is not how badly get but how long will estate is good.

So we will communicate how we're going to the business and monitoring trends and impacts.

Follow us be we currently see seen inventories in the channel a no let up and demand all our mills are running close to flat out except for the idled Peace Valley through July our utilization rate was above 90% with the unit cost of production comparable or better than in the second quarter.

During a necessary downtime for preventative maintenance, we expect reducing saw roughly 900 million square feet, mostly in the quarter. This will be roughly 8% less than in the third quarter 2019, largely due to the idling of peace Valley Midway through the quarter last year.

I've already mentioned that the order book for Smarts I spend is strong and all indications are that we will post revenue growth in the high single digits for Smartside into third quarter, partly offset of course by lower fiber sales.

Please note that manufacturing or customer disruptions caused by cove, it could still materially impact our third quarter results and we feel that it would be even more premature to offer COMETRIQ fourth quarter.

With respect to capital spending under more normal circumstances, we might resume some of the deferred projects, but given travel restrictions and other cobot related challenges, we got we could spend more than $50 million and the remainder of the compared to our current projection $30 million.

Given the extraordinary volatility the second quarter, and especially the daya early projections for coated the recovery in housing demand in that must be prices is remarkable.

While we cannot control prices I went to echo Brett and praised the agility and dedication of all LP employees, who worked so diligently to control costs is that produced and delivered our products.

So before you take your questions I want to end on a word of caution.

The market appears very strong, but given the volatility of the past five months, we remain cautious about the future impacts of cobot. We also need to bear in mind that several of hours be mills are in areas with rising koby case numbers, though curve. It is yet to cost production interruptions and our mills and we're working diligently to prevent this we cannot preclude the possibility.

That said, we will continue to do everything in our path to manage the fact is under control with the continued safety of Lps employees customers and vendors as a highest priority.

With that on the color.

Thank you ladies and gentlemen, like asked the question. Please press Star then one on your touched on telecom.

Again, if you like that the question. Please press Star then one.

One on the far first question.

Our first question comes from cable nets are out VML capital Your line open.

Hi, Thank you all good morning, Grad Allen, our congrats on a on a foot quarter.

Good morning skating first.

First question, maybe just starting on the siding business you said that business continues to remain strong.

You've given nothing up high single digits revenue growth, while Qt can you talk about kind of hollow July is trending relative to that.

Sort of outlook that you have is that it's hard in line that that number is it a little better any parts and color they have it'd be helpful.

It's in line with with the guidance that Alan gave and or so little stronger certainly you know weakness at all compared to what we've been talking about this morning.

Yes.

Got it and then.

If you can talk a little bit about.

How kind of some of the end markets trend has been within within that you'll read the versus our NR and again, our any regions that are in O'connor going back there and then what you were expecting.

Particularly given that you've seen arises rising pieces in the south.

Great question, Keith Let me just those segment first and then I'll then I'll do geography, so from a segment standpoint, as we've mentioned we had a really really strong retail holes also to those retail polls have continued.

Into Q3.

If you if youve not speaking of Q2, new geographic strength.

You could overlay a map of where there were the most restrictive.

Measures around construction were put in place. We obviously have suffered in those places in areas, where building was deemed essential and distribution was not limited from the fact that they had to shut down for.

Cost of local restrictions, we were able to maintain a good good product flow, particularly.

I would say after April everything kind of pause as flight March and April as people trying to figure things out but.

Geographically speaking, we were strong where.

Building was deemed essential arms able to continue to progress right now with most of the US open open back up we are seeing strengths really across all regions.

Kevin This is as far as I'm aware no no other than micro areas no.

No states are large regions being affected.

Directly by code.

You asked about repair and remodel versus single family, we've seen strengthened both.

And I would say that the.

Actually probably aren't our state a little bit stronger early in the quarter. So I think our and our contracts continue to try to solicit and execute job for like where they can do that I think thats also somewhat to attributable bar retail poles and so strong for us in fact, there are some are in our comp.

Tractors sourcing product there.

And then the final segment would like to comment I'll make it clear they want to clarify this because that was the question off at which you can or someone else.

Many last quarter about share segment, and I had said that that was surprisingly solve for us.

And literally like the next week after the earnings call really got strong again, we had those those customers come back into our order file with it.

The strong so.

Again after so whatever the date of our call.

Last quarter.

Now we've seen good two very good Kohl's insurance segment.

Got it that setting and for price and then.

One last question from my side before done at all or on the capital allocation side.

In our net leverages down to sort of only 0.3 times.

We've seen them pretty bake sales in oil prices.

Just talk about going on kind of how you are thinking about.

Particularly on the shandy bunch and the side.

Alan Dr. Martin mentioned earlier, our top how do you think about kind of having a tough preserving liquidity and kind of looking at chatty purchases.

Yes, certainly.

The as I think that looking at the but the trend is that we're seeing in the markets right now with overall market performance LSB prices.

It would look likely wouldn't it.

If we assume the continuing of the current trends through the ended the year that we will build sufficient cash or significant cash.

Through the third and fourth quarters should these trends continue that fall on that.

Sumption.

I think first quarter share buybacks would seem reasonable.

Reasonable assumption, so think of it as the sort of shoulders of the year, depending on the the rates of cash generation for the second half. The it will basically on a use this sort of simplistic formula to describe that for the first six months of the yet were sort of say plus 10 million so that calculation would imply.

A $10 million access right now so it really depends on the cash flow generation, we see in that in the second half day and as Brad said all indications are the third quarter cash flows will be bigger than second quarter cash flow. So were optimistic that would tend to the market is on the horizon.

Got it Thats, a handful I've done it though about locking in the back half of the year.

Thank you thanks Jude.

Thank you.

Next question comes down backpack of Bank of America. Your line is open.

Hey, good morning, Thanks for taking my questions starting out obviously, we've seen the dislocation supply and demand privacy and.

Given that I'd like to get a sense for how you've been able to match production with demand inside and then also if you could share how much of your siding sales are currently coming from smid product that would be helpful as well.

Okay, well matching.

The first question.

Just to clarify John with supply demand balance supply demand production balance for siding.

Correct.

That's right, yes, essentially just because I mean, we've seen that.

Production has had a hard time, keeping up with demand in always be and I want to get a sense for how well you've been able to keep that production matched with the demand and sign.

Got it growth yeah, I understand what what we've been stretch to keep up with the with the young with order fallen siding.

When we came came off of the downtime that we took in April or the order file strengthened quicker than we thought Fortunately we had some finished goods inventory that we had built in Q1 that we're able to pull on you'll probably see that I guess, you'll see that in the numbers.

We are running all all our siding mills at full production only owned siding running Novus b.

And our tend to keep up with order file, but it's the order files stretching out a little bit beyond our ability to produce right now we've had the Lincoln delivery schedules siding.

Okay, and Mike, let you gave up right any color on how much yourselves are coming from this product yet.

I don't have that in front of maybe just want to be single digit percentages still.

John It's still we're still getting placement for that product.

In new into a second year.

Okay. Thanks for that.

I also noticed that always being evaluated volumes were down a bit and maybe thats just because of end market exposure, but could you talk about the driver there and also how volumes for the value added products are trying to more recently.

Yes, certainly Pos, possibly as well as because.

Peacefully did manufacture some techshield. So we will increased a little bit of that when we made the decision to close peace Valley Idle Peace Valley. This time last year.

But the the baby is a high commodity prices right now do put a little bit at downward pressure on some of the commodity price products that the essentially web builder is off makes it making a tradeoff.

As by way of example life if I was piece.

$250.

As a square foot and Techshield sprayed on but then they they'll they'll happily biotech she'll, but when that price rises for commodity two or 350 that let a little less willing to pay that very high premium so does cause a little bit of a mix shift.

Just just modest but that isn't the fact that puts a little bit of drag on John I, just want to follow that by saying, it's not we there's no way at the emphasis on our part of our strategy. We stood still are supporting those products from a marketing standpoint, but as Allen's mentioning in these very volatile it must be pricing markets, sometimes Asia.

Thanks for builder do or contractors, just make sure they have enough commodity volume and inventory I mean that becomes a priority forum. So their order pattern can change a little bit and because of the volatility.

But we but from a long term perspective, we're still laser focused on increasing our value add percentages.

Okay. Thank you.

And then also on all as the I was wondering if you just really want to get your thoughts on what it would take the debt capacity added back.

In the industry, obviously like a decent that was curtailed earlier this year and market is still very uncertain and so they want to get your thoughts on what ultimately might cause that capacity that kind of come back.

Well then we have one mill idled in our system I will speak to how we will make the decision around that as we speak as was mentioned before.

We see it as a demand driven decision not a price driven decision.

If you look at for housing starts we believe housing starts ends up this year, it's going to be pretty much.

Level to last year when this.

Production was taken out because.

At that time demand capacity imbalances and so we don't see us we do not plan to bring peace valley up until we see.

1.35 to 1.4 or five housing starts on the horizon and and believe that Thats sustainable. So it's a it's a we are focused on evidence of underlying demand needing the capacity for peace Valley restart and we're not basing it on on a price outlook.

Understood. Thank you.

Bank here. Our next question comes from our plan of RBC capital markets. Your line is open.

Hey, this is actually markets on for Paul.

I am orchestration.

On Wednesday markets, they've been on quite a bit of our around here and I know you don't have a crystal ball, but what kind of sustainability do you see to the current rally.

Well you know, it's it's August on building a strong across the us.

We're running full out I would imagine the industry is pretty close to that.

And and as I think as long as demand for the product is flowing into into construction.

There is no rate really raising reason for there for there'll be a softening in it.

Thank you.

So we're pricing is today is.

On a record high so I think the direction is downward over time, just given where we're at but we're not seeing any weakness in our order files.

Two.

Lead us to expect.

Softening of demand anytime soon.

Anytime soon being in the nets in the next few months.

But typically when we get to Thanksgiving Thanksgiving to new years.

We see a softening and typically some some price abatements during that season, but.

It's not something that's on the immediate horizon at least in our order file.

All right that's helpful and.

And then maybe on the siding business has had a nice rebound versus your expectations in May and you did take a bit of downtime. There in Q2 have your customer it's been able to secure all the product they need army put another way is that supply chain adequately adequately stock right now.

You know the supply chain.

As we were taking downtime in April that supply chain also hold inventories down.

And in anticipation of softening of demand and so it has been tied in with our customers on sidings from an inventory their inventories standpoint, and then as we ramp the mills backup our ability to meet demand and.

And provide enough product for them to also be able to rebuild their inventories to more normal level has been a challenge swaps look.

It was to kittens question about a lengthening in our order in our delivery schedule as a result.

All right that makes sense and then the E.W.P. businesses face a few headwinds here what are you seeing in the market today and what are some of the opportunity instead of business over the next 12 to 18 months.

Actually our order file and they WP is really really strong too. So we're seeing that we.

Our saying a nice pickup of demand there.

And just as a reminder, though we use RSP and lumber and enter into making a by joy. So the.

Raw material cost inside choice manufacturing is really outweigh the near Austin is up to.

Right LPL, so I see I see it as a good outlook from a demand.

Scenario for.

Business in the near term, but there's going to be margin squeezes.

As a result of the raw material price increases that we've been saying.

And enjoying on the aerospace side.

All right. That's all I had best of luck in the quarter.

Okay. Thanks.

Thank you. Our next question for Mark currently David Your line is open.

Hey, Good morning, this is John right around from Mark.

First question Korea.

We had been hearing a lot about labor issues before cobot started in certainly is now probably a bit more of an issue for builders have you seen more interest coming through for and tech grow.

Have we Hecla is you notice on Northern California Bay area play from a market standpoint.

And.

While that was really hurt us in Q2.

As order file pretty much of that right as those those districts did close down.

We have saying we're seeing good.

Inquiries and and from a startup perspective, a good order file volumes for the next couple of quarters that.

Okay. Thanks.

Color and then second one here as the the rollout of Smartside to more geography gone as well as you had hoped and has totally changed what you're thinking about distribution at all.

Yeah. The audio was orbital little bit would you repeat the question here.

Yes, sorry about that.

As the rollout of Smartside, two more geographies gone as well as you had hoped.

And has changed the way you've spoken about distribution at all.

Okay Thats not it's not.

Change DARPA thinking about distribution, obviously, the emphasis can change quarter to quarter over six month period as for instance, retail demand the bank really get stronger. So we we have to be able to flex so.

Where furthers pull for our products, but I really like.

Ill stick so an exception here in the second but I really like.

Our distribution structure in retail.

Our access to the our and our market, which was really really facilitated and continues to be facilitated by our expert finished rollout and then we've had good.

Two step distribution into into new construction.

For a while though we did upgrade at last year, and then but what has been a key to a region. We have been weekend, which is the northeast is getting a smooth and pre finished product line launch. So those two launches smoothed last year. An expert finished this year has made us.

So much more attractive supplier into into northeast distribution, we've been able to bring on.

Some some higher quality.

Distribution in the northeast or real really really glad to say and I think as can be came to us can growing in that region. We've been historically weak.

Great. Thank you very much.

Thank you next question comes from Sean do it at TD Securities. Your line is open.

Thanks, Good morning couple of question.

On Peace Valley.

It sounds like the decision there is exclusively related to your new demand outlook or housing start out like.

With regards to potential restart is there any issue with fiber availability NBC that could affect that decision as well.

Yes.

There is.

Sure I mean that fiber availability and basically is an issue and for us admit piece. That's it's never been a supply constraint, but it has been a pricing constraints. So when we look at the competitive positioning of that mill. I mean, this is big relative to us or restart analysis that we would do we have to make sure that we can get the mark.

As we need to justify starting got up and getting a return on capital that's been something that we dealt with all the mills operating.

And it is it is a factor in.

And the restart decision, but right now I would not say fiber fiber costs alone would be.

A significant obstacle to a restart nor would supply of fiber via significant obstacle response, but it is a factor that we would consider as we.

Contemplate the potential margins of that mill during a store.

Okay. Thanks for that.

The second question is on asked DNA and it was that.

Positive trend.

Relative to tier sales base this quarter with.

Decline NFC in a percentage.

You touched on a few of the factors in the prepared comments I guess I'm just trying to gauge the sustainability of that progress and how much of it might have been related to.

Spending cuts around initial pandemic concerns that.

We could see a recurrence of that spend coming back any any guidance. He can give on yes genie side.

So good question, let me talk about it in three buckets.

We did some staff reduction.

Relative to a comfortable relative to covert and expectations around demand.

In order order velocity.

But also some rational things we did here at the National Office, where we're still predominantly working from home and so some of the support facilities for positions, we had Europe or just be under you lots at this point. We also had some open positions in these some.

New open positions. We also had some existing open positions would have been in prior quarters.

And we put of hiring freeze in place, if which is still in place and we'll be in place for awhile.

Probably at least into next budget season. So we've had some functional staff reduction as a result.

Obviously, our travel.

Expenses way down all kind of vessels reporting.

People cost is way down given kind of it so.

Second a bucket as we did too levered reduction enforced and ourselves.

Area again, we were looking at a time were sales people couldn't be in front of customers.

We do a lot of product knowledge type sales support which is very hands on.

Training at dealer and distributor locations, that's been very hard dramatic.

Having.

40, 20 or 40.

Contractors come in for hands on training.

Training session. We've moved a lot of that online, which is which was.

More efficient from it Manning situation.

I could see us on.

That that SGN, they will come back as things continue to get opened in especially given our sales volume and the fact that we're going to support.

Our customers with training and other things they knew from sales force.

Third area has been marketing and once again, we took a pretty pretty serious look at that span, especially in siding, but we've had large increases over the past were three years.

And I would say did a little bit of a reset understanding that the environment has changed there and where weve emphasized online support from our marketing and product knowledge.

Type of literature, obviously, we're not printing a part of.

Pieces to hand out of the folks. So it was an adjustment in our marketing span to fit to the time that I think will carry through the rest of this year.

Yes, Dan will come back and it will come back.

Those theatrically as we as we see and believe there is a return to it but I just like we just felt like given the environment. We were working in the restrictions we had on.

Face to face contact with customers, we needed to emphasize our online presence and that was just a much more efficient way access customers. Some of the stuff. We have been working on previously I won't say one more us another thats probably a lot longer answer you were looking for a living make one more point there oh.

All that.

Exclusive support we put around our expert finish launch any pre finish launch it requires a lot of samples people want to see the product when it touched product experienced product of close. So there has we have supported that launch robustly and we'll continue to do so just because we'd say such an off.

Trinity There and then the reality of that sales process is typically.

Contractor is in a home.

Trying to convince.

Person to put a par deciding on their house and we want that hard siding they'd be hours and that requires.

Higher level of marketing support than in most or other selectivity.

That's a tremendous detail thanks very much I appreciate it [laughter], probably pretty much sorry about that.

Yeah.

Thank you. Our next question comes from our plants out Seaport Global your line is okay.

Thank you.

When pricing and let's be moving to an unprecedented mannatech has hoping we may be could get a little bit of help and understanding impacts from mix.

And or potentially lag because if you if you look at the random lengths pricing for instance hits right now.

More than $200 per 1000 square feet higher than that second quarter average and even if we average in July it's like $180 north central hiring some of the other regions.

I'm sure there are reasons that one shouldn't just if we were to assume quite the state here you shouldn't just pencil in 180 and time to buy the.

The volume.

But maybe if you could just walk us through what are some of the biggest factors that would cause the price change to deviate from what we see in random lengths.

Let me let me state to two things are top of mind for me and then Alan Please please.

We do talk about this a lot. So first the first of all when we're talking about a rising over spin market.

Keep in mind that our contract volume which is.

Moving on the situations, 60% to 70% of our volume is it some type of contract situation.

Those contracts are priced prior.

Prior.

A week or two ago random lengths, so we're going to get a lag our contract volume as prices increase.

And then the other other noticeable thing for from our mix standpoint is sometimes random will have the adders especial flooring.

Or the flooring pricing.

Report reported foreign prices are rising as quickly as the commodity prices I think thats, primarily a reporting issue.

No for the for our open what market order file that's we try to offset those sites and saying for some reason.

And sometimes we'll have.

We're still lags they are in flooring pricing relative to the commodity pricing that which chose backup or contract volume.

So there's these nuances relative to the why random I guess gather data in reports can impact us negatively on in a rising market. So at some.

It up.

It could cause it will definitely costs or rather a lag and realization in a rising market and you know more quickly we have or we've reported that in almost every rising market I've been a part of since I've been on these calls as we don't we don't we just don't get it all as quickly as reported random.

And that.

Right.

And how far are your order files I guess in conversations I've had with some other folks I've got a sense that they are.

They are so far out that maybe the lags would be longer then and then normal which I'm not sure is a negative here by the way because it started just the way it in going up here that means you're still going to get all of that pricing. We see now just it'll show up may be in.

Middle of August instead of right now but.

How long are your order files.

Currently.

Before we really work hard and stay disciplined to a two to three week order file we tried.

It's tempting, sometimes especially in pricing like this to go longer but we just we want to have a.

We want to be selling volume into the market every week.

We have stuck to two to three week order file.

Through this and play and plans has continued to do that.

Okay, great and laughing.

Maybe putting on the spot if I can a little bit.

Given what we think given your comments that you don't see any reason for softening in that relatively near term next couple of months some significant.

Hi is there any reason that one would see that your your EBITDA in the quarter given higher volumes in siding, given what we've seen in pricing plus the more volume and now with the wouldn't be.

Comfortably double what we saw in.

The second quarter.

Yeah comfortably double I like that I can acceptance.

[laughter] yield the range that you all y'all mentally kind of pushes to is reasonable.

Given all the caveats that you introduced in your own question.

Okay. Thank you.

Thank you. Our next question comes from Steve Chercover and D.A. Davidson Your line is open.

Thanks, and good morning, Sean Stewart kind of Stupid My question on Peace Valley, but I didn't have a question on on the wood pricing.

I mean has any of the competing buyers of would let the market or in order to get the pricing down to a level that you're comfortable do you have to negotiate with the crown or the province in order to.

Permanently reduce the fiber cost.

Yes, that's based out of the wood cost just a quick question Steve.

Picking up so picking up on but so look it's a little.

Your your comments are yet factual that's it's a crown license is where we harvest, but just keep in mind that really from a crown perspective.

On the emphasis is on September.

Thats, where the value in those forestar us being up a user of pulpwood.

We can sometimes get I mean, it's kind of lost and rounding from from that standpoint, so theres not as much. So so while there is not as much.

[laughter] pressure to two.

Increase those prices from a province of standpoint is also not a lot opportunity to go into negotiate it down but you're right the only way to get relief there. So.

Modified agreements with the Crown.

Or talk to work at it on your deliver your delivery cost Drawling and make sure you're sourcing would closer to nil all of which had been strategy we've employed in peace Valley.

But the stumpage prices is controlled by the provincial governments in Canada, where we operate.

Well I should think that you know without wanting to provide you with would below fair market. They have a vested interest in.

For the community to have that mill running in the taxes associated with it. So we'll hopefully you get the market conditions that.

Yes allow it to units outside of just quick question I just want to make sure. They have been clear I don't want to I don't want to.

Leave the call without just staying at again. This is this really the issue with restarting Peace Valley is not an operating cost issue just to be cleared it is nor the nor the reason well.

So the reason for shutting it down, but obviously you look at worst your best margin margin issues for that plant for us is to its so remote from the markets that serve into western U.S.. So that really the issue that makes that plant uncompetitive or beliefs competitive in our system, which is why we shut it down was because of.

Just.

The cost to delivery to the West coast. So just just to clarify that.

Yeah, and I don't Theres anything you're going to be able to do to change that.

In our yes.

Yes.

Plate tectonics is slow so quick question on South America.

So they're doing better year over year, and that's despite Brazil to best Mcdonald's being a real cobot hotspot and I recognize that it's.

The operations aren't necessarily there, but it's a big market. So is that simply price or are there operating improvements you're also enjoying there are you accessing export markets, what's going on down there.

So low level of all three so there, but we did have a mill startup down there last year it will that were.

We'll go far long on so we've got some.

From a cost standpoint, some prior year comps that are favorable to us when you're looking at comparative numbers secondly.

We have a really good export business down there that has been resilient.

And as has been very helpful. As both the Chilean economy in the Brazilian economy has been.

I would say constrain the though not not to a standstill, but there has been headwinds.

Both economy as we've been able to too.

We continue to operate the males because were good export position and then finally.

And I will say later in the quarter, we did start saying our ability to.

Pricing on export volume as the price in the us.

Rose So we've got we've got some margin improvement is price related on export volume. This result of I'm, assuming on result of so those markets being less attractive to us manufacturers.

As the U.S. price recovered.

Terrific. Okay. Thanks for taking my call and that stay safe.

Thank you.

Thank you.

Question comes from our cloud at Bank of Montreal. Your line is okay.

Hi, Brad just a couple of follow ons lend on that.

And assist.

Is that to Brazilian mill.

Primarily domestic or is that still export I think at the.

Brazilian adoption Oh, let's be at that a little slower from a building codes standpoint than you guys would help or.

Yes.

Mark I don't have those numbers in front of maybe I will say, it's 40% to 60% export.

Depending on but its highs the highest more mill or still yes.

Okay, and then how is just allianz domestic demand in both Brazil, Chile with both countries have been hit pretty hard cycle, but.

Pretty good Nova in the second quarter domestic domestic demand was actually up.

In Chile is up like 11% in Chile.

Rather surprising under the circumstances, but it was.

They then and now pay assays actually selling in producing more siding product as well now significantly help.

That 40 in the area.

Okay. That's one of the is it possible get a little bit of an update just on the.

On the siding extensions initiatives in terms of like how volume is rolling and I am not only thinking of like the expert finished but also some of the other now like structural products are Trump products that use that.

You talked about rolling out.

Well I would say.

Expert finishes at or above expectations.

Approved for me note a few months then, but it's very well received in our customer base, our smoothed products is pretty much where we have.

Where we expected it to be in year, one we are adding skews to that so we have a panel offering now and smooth and other SKU additions that we've done there.

On the owns the aerospace side to Flameblock product has had really good continues to grow we are on the weather logic.

Whether laugh about whether rap.

Oh, just be we've ramped up production at our facility and Clarke County, Alabama, which is a why.

Bill Bill has a mill that we can make long legs on it in foot, which is a and step portfolio immensely. We are working on a roof product that will really shape rich.

Shape out that portfolio offering or whether resistant our speed and its critical form from a distribution standpoint have that product in our portfolio, so that would that up that.

Whether lots of because still kind of end launch mode. As we round out the portfolio and then finally, if you read the show over the last two years, you saw fencing product and we're in policy from a very small base. We are getting good on distributor acceptance of that product as well and we're seeing growth rates.

But.

From a percentage basis that are really really high but as we all know a percentage growth off of a base of zero can be is infinity and so we're seeing some of that right now, but I really am proud of the.

The way we have found distribution for that kind of non traditional product in our portfolio, it's taken us a little bit longer than we would like to it's beginning to pay off so I.

I would say.

Markets, a little bit all over the board, depending on where we almost on the launch phase with these products. Some some except to quicker like expert finish some tech longer like what fencing, but.

But up but.

Okay. So let me summarize about this smooth expert finish as a highlight one block as a highlight.

Smooth is where we wanted to be.

Work to do on fencing and work to do on on the weather logic My problem.

Okay, and what do you think right over the next year for years, we just think about things like expert finished.

Should we be able to see a discernible margin lift in the entire siding segment as that becomes a bigger and bigger piece of the bought.

Yes.

Whether expert finished as a very high margin products.

Okay, all right I'll turn it over Gettalent second half.

Thanks.

Yeah.

Thank you again, if you like asked the question. Please press Star then one our next question comes from Keating Mamtora of BMO capital. Your line is open.

Hi, Thank you.

Just one other question on target or what's the capacity I was just curious Brad how much additional room do you have at the Oneq 15, Alinsky mescaline fees you now have production capacity.

And you know what kind of capital investment that could take I'm, just trying to sort of on this time.

You know sort of investment of existing Mezz doing fees that you know modest capacity loss, that's kind of being non peace valley kind of how do you think about those tool.

What we did at all we did go to full shifting.

This last in Q2 and that will walk that was the only mill wasn't running full shifting some that's now.

That was an increase of capacity there and then.

The rest of the compatible so the two other opportunities one is OE, which we've talked about a bunch over the last couple of years and there's still room to go there that we might really really good progress is showing up in our numbers, but we still have two to four percentage points of opportunity in the near term on OE D.

And then after that it comes back or capital.

Capital program, where we have done.

Extensive press upgrades direct during this.

Two or three years of good ops, good Ron's no SP and now we're both in our upgrade opportunities as a driver refurbishing and our mills. So there's always going to be capital projects that are available.

Well.

Our work in the paper side of the business early MACRA recall creep.

I think OAS basis, certainly those fee industry and help in particular has an opportunity for freight to use of capital and also.

I will call Crazy because his hard work management to get that OE number.

But you know we should be seen you know.

Single digit increases in capacity on our capital program is robust and as it has been over the last few years and we have these opportunities and no Eaton.

Increased throughput.

And that's what we're both.

Keep in the cheapest capacity we have.

Actually that exist today, so getting more out of those assets is a key part of our plan of in improving our margins around our space.

Got it that's has and then on the fighting side right. When do you have to decide on.

On kind of the.

The next project that you may have made that evaluate our vaughan our other brownfield and coke and if there's any update at talk process around that.

Yes, so based on our current.

You have.

Siding growth and and as I mentioned also mixes us very.

Critical input to the timing.

For instance, we have a lot of panel capacity right now and the business because of the way, we configured Dawson and Swan So.

But but we want to make sure we have plenty laugh and trends for expert finished but depending on.

Beginning on the mix second influenced the needed.

So sorry timing, but given where we are today and the mix state.

Similar to where it is today, we would be looking we'd be willing to have new capacity operating by mid to late 2022.

Which means we would be seeking board approval around the middle of next year and identifying the location backing that final decision, which again will be somewhat mixed space and then getting approval and announcing that publicly middle middle next year I could say probably this coordinating over the next one.

Ami.

Got it and then Brad Pitt smell is better suited to producing more lap.

Between those two options that you mentioned Val d'or would be the better Latin mill.

Got it okay, that's very helpful identical but luck.

For the back half there.

Sorry.

Yes, well, it's just the reason as it has sixtym footprints, which is kind of valve and for our siding for Latin trail.

The reason algo would be optimal there.

Okay. That's helpful. Thank you very much.

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Thank you.

Im showing no further questions at the time I'd like turn the call back loaded with a hockey for any closing remarks.

Okay. Thank you everyone. This concludes the second quarter earnings call for Louisiana Pacific stay Safe and we'll look forward to speaking you again sometime in November to discuss our Q3 results.

Thanks, everyone.

Ladies and gentlemen, just that concludes today's conference. Thank you participating may have great.

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Ladies and gentlemen, thank you for standing by welcome the second quarter 2020, Louisiana Pacific Corporation Earnings Conference call.

At this time all participant lines are in listen only mode.

After the speakers presentation, there will be a question answer session.

To ask a question during this session you'll need to press Star then one under telephone keypad.

Please be advised today's conference maybe recorded.

If you require operator assistance. Please press Star then zero.

I'd now like any other conference over to your house today, Mr., Aaron <unk> director of Investor Relations. Please go ahead Sir.

Thank you it and good morning, everyone. Thank you for joining us today to discuss Louisiana Pacific financial results for the second quarter of 2020 as well as our near term outlook. My name is there a well I know piece director of Investor Relations I'm joined today by bread, Southern Oh piece, Chief Executive Officer Hockey Chief Financial Officer.

As we have done in the past we are pushing a simultaneous webcast. In addition to this conference call.

We have provided a presentation with supplemental materials, which we will refer during this morning's comments and finally, we have filed our 8-K. This morning with some additional information.

The web cast a supplemental materials can be access at our website Www Dot Investor LP Corp Dot com.

I want to remind all participants on the call about forward looking statements and the use of non-GAAP financial metrics. During this morning's discussion.

I will refer you to slides two and three of the accompanying presentation for more detail.

Appendix attached to the presentation has necessary reconciliations have been supplemented by the form 8-K filing we made this morning, rather than reading the statements.

Corporate them here in my reference and now I'll turn the call over to Brian.

Thanks, Eric Thank you all for joining us this morning.

That's the bulk of my time of the last quarterly call discussing the steps LP was taking the face a worsening cobot pandemic.

We were preparing to other significant uncertainty, but we were confident in our liquidity position.

This morning, I'm pleased to my up that will be more positive than many of us might have expected just three months ago.

Yeah, that's the pandemic.

Or promote <unk>, so far Lps fared better than the downside scenarios, we modeled and discussed on the last call as we know the housing sector has shown remarkable resiliency.

Your body bottoming out in mid April markets LP serves recovered sharply and showed no signs of slowing.

The man for our products rebounded quickly free magazine shape.

I see prices fall this pattern falling sharply in April but climbing in may in engine close to their Q1 highs.

This was a transformative quarter despite the volatility.

So I think achieved the second highest quarterly revenue in the segments history, the lowest cost of production in three years.

Yeah, let's be business also demonstrated excellent efficiency and cost control delivering its best quarterly unit production costs since 2016 with a much richer mix of value added products.

I'll leave the details to Alan we finished the second quarter with 129 million operating cash flow.

97 million EBITDA and 43 cents adjusted earnings per share.

Pete announced this morning, but our board has approved a quarterly dividend of 14.5 cents per share.

On the last call. The three elements of our Cobot response that I discussed or safety liquidity and agility, Let me give you a brief update on age.

First and most importantly safety I'm pleased to report that very few LP employees have tested positive for coated.

Thanks to all the on the bigger, but we recovered or are recovering our operations were not significantly impacted in Q2 back cases at our facilities.

We will continue to follow expert guidance and stay committed to keeping our employees vendor partners and customers safe.

We are mindful of the human told this pandemic our hearts go out to those have lost loved ones. We want to thank all the first responders to frontline medical workers.

As for liquidity LP generated $129 billion operating cash flow in Q2 and ended the quarter with $259 billion cash on.

Given current prices up production rates and assuming no sudden reversal market conditions, we expect even better cash generation Q3.

A significant driver Lps results for the quarter was a disciplined and agility demonstrated our leadership teams operations capital management corporate functions in mid March in response to rapidly slowing demand, we curtailed roughly one third of april's production of our stay inside.

The end of April we were seeing signs of the demand recovery as this trends accelerated both segments at a production back in May and Biogen, our facilities were near 100% capacity.

Improved we allowed us to adjust production levels and still achieve exceptionally low production costs.

Housing is clearly a bright spot in or otherwise uncertain economy.

After Steve drops in April housing starts engine were flat with last year I.

I was paid demand and prices are strong and repair remodel activity is robust.

We're also seeing shifts towards single family homes movement away from urban cores and increase our and our spending.

LP is well positioned to capitalize on all these trends.

Al will share more specific modeling a few minutes details about how these trends reflected in our current expectations for Q3 and beyond.

I want to spend a few minutes talking about strategic transformation and execution in the siding segment.

The business exited the fiber product line to focus on higher margin Smartside strand.

Enhanced our retail strategy and launched expert finish our pre finished product line.

This work show this value in Q2, helping to segment to grow in a volatile.

No you completed the strategic exit from fiber with the sale of the east from facility and the conversion of a remember facility to expert finished production.

This structural change positions the business focus exclusively on driving growth and innovation with the higher margin Smartside strand products.

Over the past several quarters, our sales and marketing teams have worked to revitalize our relationships with our retail customers.

As a result LP products have more shelf space and higher brand awareness for example, LP Smartside as a number one search siding brand on at least one major big box retailers website.

As our spending at home centers jump in Q2 sales or LP smartside for retail channels more than doubled applies share capture as well as volume growth.

This trend shows no signs of slowing so far in our Q3 order intake.

Customer demand for recently launched Smoothes Smartside, an expert finish has exceeded our expectations. The addition of these two products to our portfolio has enabled us to enhance our distribution in the northeast.

The customer response expert finished has also been very encouraging export finishes well positioned for both new construction and oren or.

That addresses labor constraints by saving the time and cost a painting after installation.

This was remarkable quarter for the siding segment.

Backdrop of pandemic and there is volatility segment deliberate continued growth above underlying housing starts exited lower margin fiber products demonstrated the value of signet significantly improved strategic partnerships with our largest customers.

And drove growth innovative new products.

While Q2 is stronger than we initially expected in the near term outlook is positive many risks and uncertainties remain.

And I think cases are increasing many states are slowing or reversing the reopening plans.

So far no new work from home orders or declarations of non essential reality I've been issue the impacts Lps operations were customers, but that remains a possibility.

Oh, it is likely to create more volatility in the remainder of 2020 could potentially beyond.

That said I'm enormously proud with the grid resiliency that Lps employees have shown during this unprecedented time.

Our teams demonstrated disciplined management of the things, we can't control as well as agility in the face of what we cannot predict.

These results this quarter are testament to the teams creativity flexibility unresolved.

I want to think every LP employee for their effort as we work through these extraordinary times with that I will turn.

Alan for more details on our financial results.

Thanks, Brad.

Well the second quarter was interesting to put it mildly.

It was book ended April by one of the largest month over month decreases in housing starts in a decade.

And in June by an even larger increase.

Random lengths always be prices holiday similarly erratic.

Pulling back from that Q1 highs in the first weeks of the quarter before covering most of that ground by the end.

Bill the sentiment home sales and demand for our products false was suddenly and dramatically bottomed by mid April and then rebounded sharply this continued to climb sense.

Included in my comments on last quarter's call with a discussion about these potential results based on a 20% drop in single family housing.

At 20% drop in Smartside volumes, and a 30% drop in LSB volumes were flat LSB prices.

Under this scenario, we were confident the LP could achieve low double digit EBITDA, although it did not constitute guidance. This seemed a very real if conservative scenario.

The actual decline in single family housing starts of 13% was a little better than our modeled number.

The demand for both Smartside and that must be food much stronger in fact, smartside volume certain declined with total grew by 3% helped by a surge in demand from retailers, which more than offset the decline with distributors.

The LSB market 10 sharply as housing starts are go through the quarter with LPG, albeit production down not space sent the just 16%.

After that our peace Valley Mill, which was idled in the third quarter was 2019 represented roughly 16% of Lps LSB capacity in 2019.

And of course, our average LSB price for the quarter increased by 22%.

Ultimately net sales for the second quarter was 7% or $40 million lower than 2019, do you not to softness in siding always be was entirely due to our AWB segment into the strategic exits for fiber unexplained both in a little more depth in a moment.

So in combination with exceptionally low cost of production and reduced SGN eight EBITDA for quarter came in at $97 million still double digits, but only just.

Okay. So we've established at the second quarter was volatile slide seven of the presentation shows that our strategic transformation crude robust to that volatility for the trailing 12 months ended June associate Smartside Strawn revenue grew 7% compared to 3% growth in single family housing starts over the same trailing 12 month period.

First of all compared to the first quarter. This year single family housing starts were flat, but smartside striant revenue grew by 8% quarter over quarter.

Combining growth efficiency and so some savings the EBITDA impact transformation was $15 million in the second quarter and $28 million yet to date.

For the voice of doubt we excluded from this measure favorable impacts of market driven raw material price decreases about $6 million in the quarter.

So at $96 million or transformation benefits over the last 18 months, we still ahead of pace to achieve an EBITDA impact of $165 million by the end of 2021.

Slide eight shows the summary profit and loss accounts, while the second quarter sales fell year over year by 7% gross profit increased by 51 cents $217 million, the resulting in gross margin for the quarter, 21% was eight point specified in the second quarter 2019, five points due to always be pricing three.

Points due to improved product mix operation efficiency and cost controls.

Selling general and administrative expenses for the quarter were $8 million lower than prior year, largely due to lower supporting infrastructure costs.

The strategic exit from fiber to focus on Smartside strand impacted our results in a number of ways first the divestiture of kind of cell generated $14 million in cash and a modest gain of $2 million.

As mentioned on the first quarter coal the historic results of the siding segment has been recast to exclude kind of excel.

Second we have converted remaining five minute rowing limits or X, but finished third customer acceptance of our strand based replacements for that fiber based equivalents has exceeded our expectations.

This has resulted in a decision to accelerate to the conversion distress Cecil fiber production and fully dedicated Florida River expert finish as a result, we've written off $10 million of fiber inventory in PADD $4 million of five assets, I think a $2 million and severance costs.

After interest in Texas net income was $33 million more than doubled year over year, resulting adjusted earnings per share was 43 cents as a result of the share buybacks and 2019 that were 11 million fewer shares outstanding than in 2019, but even adjusting for this difference earnings per share was higher than the second quarter was 29 team by multi.

Thank you sense.

Slide nine shows revenue and EBITDA by segment and slides tend to 13 of waterfalls detailing the via changes for the second quarter and year to date deciding speed.

Second quarter sales society of $220 million were $11 million load and prior year $7 million of continued growth in smartside strand offset by lower fiber sales of $18 million driven by the accelerated strategic exits were fiber.

The resulting siding segment EBITDA $51 million for the second close were $6 million higher than the prior year. The EBITDA margin has increased from 19 in the hospice ends in 2019, 23.2% in Twentytwenty.

The margin percentages with unaffected by the Reclassifications kind of so.

Lastly, the revenue for siding includes a 5 million dollar reserve for potential expert finished returns.

During the quarter, we just go to packaging issue that caused aesthetic damage to some pieces joint shipping and handling.

The reserve reflects our estimate of the full cost of pending returns in their placements of the impacted inventory.

We address the issue quickly and I'm proud who asked siding team has handling this.

Mold gratified by the feedback from our customers, who have shown understanding and support Swift response.

Second quarter sales I must be of $204 million were $5 million mode and prior year due to 16% the level of volumes offset by 22% tire prices.

Oh SP EBITDA of $46 million was $49 billion higher than prior year, including $37 million price increases.

The remaining $12 million of increased EBITDA is likely result of the LSB leadership team's relentless drive operational efficiencies and cost control.

Second quarter sales for easily VP of $79 million with $28 million below prior year.

The decrease is attributable to three factors.

The second quarter 2019 was a period of transition between major distributors, so increased volumes to build inventory, hence the difficult year over year comp second a government declaration that despite LSB manufacturing in Quebec remaining essential I joists manufacturing was deemed not to beat those hedging I joint venture in the province.

Good demand for easily be products simply did not recover through the quarter as strongly as I must be inciting resulting in price concessions.

Which brings us to cash flow on page 14.

We began the courts with $488 million in cash, including one at the time as a full draw on off into the $50 million revolving credit line.

EBITDA of $97 million and $34 million in cash from working capital decreases less $2 million, an interest payments resulted in $129 million operating cash flow.

Predictably Lions share of the working capital reduction came from citing inventory of finished goods and raw materials.

Capital spending was held to $50 million in line with reduced spending plan during the quarter. We also repaid the entire credit line offended $50 million, a dividends of $17 million and generates $24 million.

Through the sale of can excel and make cashing in the corporate owned life insurance policy.

We ended the quarter with strong liquidity of over $800 million comprising cash of $259 million an expanded.

Undrawn $550 million line of credit.

With respect to capital allocation.

Strategy remains the same.

We maintain our commitment to return to shareholders overtime at least 50% of the cash generated from operations after investments necessary to sustain our assets in executing our strategy will simply put will return excess cash to shareholders. Once we've generated.

On the last call, we announced that we did not plans the buyback any shares and twentytwenty, but the better Twentytwenty is cash generation gets.

To close it will get to reversing that decision.

Which brings us to our outlook for the third quarter and beyond.

First quarter call, we attempted to provide some indication of our second quarter results and delay any potential liquidity concerns given the market signals, we were receiving at that time.

As I've already said once before in this call we promised double digit EBITDA and we did limited.

In many ways. The economies is uncertain now as it was three months ago, except this time as bullish as bearish and perhaps the question to ask is not how bad will get but how long will stay there is good.

So we will communicate how we're going to the business and monitoring trends and impacts.

So I wouldnt be we totally see seen inventories in the channel a no let up in demand all our mills are running close to flat out except for the idled Peace Valley through July our utilization rate was above 90%, we the unit cost of production comfortable better than in the second quarter.

During a necessary downtime for preventative maintenance, we expect to produce and saw roughly 900 million square feet. If I was being the courts and this will be roughly 8% of less than in the third quarter 2019, largely due to the idling of peace Valley Midway through the quarter last year.

I've already mentioned that the order book this month I spend is strong and all indications are that we will post revenue growth in the high single digits for Smartside in the third quarter, partly offset of course by lower fiber sales.

Please note that manufacturing or customer disruptions caused by cobot could still materially impact our third quarter results, we feel that it would be even more premature to off a commentary.

Quarter.

With respect to capital spending under normal circumstances, we might was even some of the deferred projects, but given travel restrictions and other cobot related challenges, we got we could spend more than $50 million and the remainder of the compared to our current projections of $30 million.

Given the extraordinary volatility the second quarter, and especially the diet early projections for coated the recovery in housing demand and obviously prices is remarkable.

We kind of control prices I want to Echo, Brad and praised the agility and dedication of all LP employees, who worked so diligently to control cost as they produced and delivered out products.

So before you take your questions I want to end on a word of caution.

The market appears very strong given the volatility of the past five months, we remain cautious about the future impacts of cobot. We also please bear in mind that several of us be mills are in areas with rising Koby case numbers, though covet is yet to cost production interruptions at our mills and we're working diligently to prevent this we cannot preclude the possibility.

That said, we will continue to do everything up how to manage the fact is under control. The continued safety of Lps employees customers and vendors as a highest priority.

With that on the call over.

Thank you, ladies and gentlemen, like to ask the question. Please press Star then one on you touched on telephone.

Again, if you like Duck. The question. Please press Star then one.

One moment Barclays question.

Our first question comes from cadence Mamtora BMO capital your line open.

Thank you good morning, Brad Alan Onrad somehow on a slick water.

Good morning, Kate and close.

First question, maybe just starting on the siding business.

That business continues to remain strong.

You've given nothing up high single digits revenue growth book, you will see any talk about kind of how July is trending relative to that.

Sort of outlook that you have is that are in line, but that number is it a little better any austin color David to be helpful.

It's in line with a with the guidance that Alan gave and or so little stronger certainly no weakness at all compared to what we've been talking about this morning.

Got it and then.

If you can talk a little bit about.

How kind of some of the end markets and have been within within that sort of newer as the versus our NR and if any regions that are kind of going back.

Then what you were expecting.

Particularly given that you've seen arises ryzen pieces in the south.

Great question, Keith Let me just those segments first and then I'll then I'll do geography, so from a segment standpoint, as we've mentioned we had a really really strong retail holes also to those retail flows have continued.

Into Q3.

If you've not speaking of Q2, the geographic strength.

Could overlay a map.

Are there were.

Most restrictive.

Measures around construction were put in place. We obviously have suffered in those places in areas, where building was deemed essential and distribution was not limited from the fact that they had to shut down for.

Cost of local restrictions, we were able to maintain a good good product flow, particularly.

So after April everything kind of pause.

Late March and April was people trying to figure things out but.

Geographically speaking, we were strong where.

Building was being essential insightful to continue to progress right now with most of the US open open back up we are seeing strength really across all regions.

And with.

As far as I'm aware no no other than micro areas no.

No states are larger agents being affected.

Directly by code.

You asked about repair and remodel versus single family, we've seen strengthened both.

And I would say that.

Actually probably arent offset a little bit stronger early in the quarter. Thanks.

And our contracts continue to try to solicit and execute jobs, where they can they can do that I think thats also somewhat attributable bought retail polls have been so strong for us. It back there are some are in our contract for sourcing product Bayer.

Then the final segment would like to comment on lag because I do want to clarify this because I was a question off.

Someone else.

Last night last quarter about shed segment and I had said that that was surprisingly saw for us.

And literally like the next week after the earnings call really got strong again, we had those those customers come back into our order file.

Pretty strong so.

Again, after or whatever to date of our call.

Last quarter.

Now we've seen good two very good holes in the segment.

Got it that's already had for bride and then.

One last question from my side, but to fight on it'll or on the capital allocation side.

Our next leverages down through sort of only 0.3 times.

Anthony Bake sergeant or if the price as.

Talk about going on kind of how you are thinking about.

Particularly on the Shandy bunch as a side.

[music].

Hi, then Dr. Martin mentioned earlier, our top how do you think about kind of having.

Talk preserving liquidity.

And kind of looking at chatty purchases.

Yes, certainly.

The things that looking at the the trends that we're seeing in the markets right now with.

Overall market performance LSB prices.

It would look likely wouldn't that.

If we assume the continuing of the current trends through the end of the yet that we will build sufficient cash significant cash.

Through the fourth quarters should these trends continue that full.

Assumption.

I think first quota share buybacks would seem reasonable.

Reasonable assumption, so think of as this sort of shoulders of the depending on the device of cash generation for the second enough.

Basically.

Our use this sort of simplistic formula to describe that for the first six months of the yet were sort of say plus 10 million. So.

That calculation would imply a $10 million excess right now so it really depends on the cash flow generation, we see in that and the second half day and as Brad said all indications are the third quarter cash flows will be bigger than second quarter cash flow. So we're optimistic that would tend to the market is on the horizon.

All right. That's how you had flies done at the oil, but lack in the back half of the.

Thank you thanks.

Thank you.

Thanks, Don Backpack of Bank of America. Your line is open.

Hey, good morning, and thanks for taking my questions starting out obviously, we've seen the dislocations Klein demand privacy and.

Given that I'd like to get a sense for how while you've been able to match production with demand inside and then also if you could share how much of your site in sales are currently coming from products that would be helpful as well.

Okay, well matching okay. The first question just to clarify John was the supply demand balance supply demand production balance for siding. So correct.

That's right, yes, essentially just because I mean, we've seen that.

Production has had a hard time, keeping up with demand in the and I want to get a sense for how while you've been able to keep that production matched with the demand and sign.

Yes, I understand what we've been stretch to keep up with the with the along with order fallen siding.

When we came off of the downtime that we took in April or the waterfall strengthened quicker than we fall. Fortunately we had solid finished goods inventory that we had built in Q1 that we're able to Paul on you'll probably see that I guess, you'll see that in the numbers, but we are running all all our siding mills.

Full production only own side any running Novus b.

And our tend to keep up with or but it's the order files stretching out a little bit beyond our ability to produce right now we've had the links and delivery schedules siding.

Okay, and Mike might you gave up but any color on how much your sales are coming from the Smith product yet.

Okay.

Had died in front of maybe just want to be single digit percentages still.

John It's still we're still getting placement for that product.

Indeed into its second year.

Okay. Thanks for that.

I also noticed that Oh is being evaluated volumes were down a bit and maybe thats just because of end market exposure, but can you talk about the drivers there and also how volumes for the value added products I'm trying to more recently.

Yes, certainly Pos positive the drop is because.

Peace Valley did manufacture some techshield. So we will increased a little bit of that when we made the decision to close peace Valley Idle Peace Valley. This time last year.

But the the family the high commodity prices right now do put a little bit a downward pressure on some of the commodity products.

Actually what build is off legacy, making a trade off.

As by way of example life if I was piece.

$250.

Thousand square foot and Techshield speed on but then they sell happily by techshield, but when that price rises for commodity two or 350, that's a little less willing to pay that very high premium so does cause a little bit of a mix shift.

Just just modest but that is the fact that it's a little bit of drag them, but John I, just want to follow that by saying that spot.

There's no way at the emphasis on our part of our strategy. We stood still are supporting those products from a marketing standpoint, but as Allen's mentioning and these very volatile pricing markets, sometimes the easiest thing good for builder or contractors, just make sure they have enough commodity volume and inventory I mean that becomes a priority forum so there or.

Our pattern can change a little bit and because of the volatility.

But we but from a long term perspective, we're still laser focused on increasing our value add percentages.

Okay. Thank you.

And then also on the I was wondering if you just really want to get your thoughts on what it would take the debt capacity added back in the industry, obviously like a decent that was curtailed earlier this year and market is still very uncertain. So I want to get your thoughts on what ultimately might cause that capacity that kind of come back.

Well then we have one mill idled in our system I will speak to how we will make the decision around that as we speak as was mentioned before.

We see it as a demand driven decision not a price driven decision.

If you look at for housing starts we believe housing source and up this year, it's going to be pretty much.

Level to last year when this.

Production was taken out because at that time demand capacity imbalances.

And so we don't see us we do not plan to bring peace valley up until we see.

1.35 to 1.45 housing starts on the horizon and believe that Thats sustainable. So it's a bit. So we are focused on evidence of underlying demand meeting the capacity for peace Valley restart and we're not basing it on.

A price outlook.

Thank you.

Thank you. Our next question comes from Paul plan of RBC capital markets. Your line is open.

Hey, this is actually markets on for Paul.

Hi markets.

On Wednesday markets, they've been on quite a bit are around here and I know you don't have a crystal ball, but what kind of sustainability of you see to the current rally.

Well you know it's it's August.

Building a strong across the us.

We're running full out I would imagine the industry is pretty close to that.

And and as I think as long as demand for the product is flowing into into construction.

Theres no really raising reason for their there'll be a softening in it.

Thank you.

So where pricing is today is.

On a record highs.

I think the direction is downward over time.

Given where we're at but we're not seeing any weakness in our order files.

Two.

Lead us to expect.

Softening of demand anytime soon.

Any time soon being in the next in the next few months.

But will typically when we get to Thanksgiving Thanksgiving to new years.

We see a softening and typically some some price abatement during that season, but.

It's not something it's on the immediate horizon at least in our order file.

All right Thats helpful.

And then maybe on the siding business, that's had a nice rebound versus your expectations in May and you did take a bit of downtime. There in Q2 have your customer has been able to secure all the product they need army put another way is that supply chain adequately adequately stock right now.

You know the supply chain.

As we were taking downtime in April.

Supply chain also hold inventories down.

In anticipation of softening of demand and so it has been tied in with our customers on sidings from an inventory their inventory standpoint, and then as we ramp the mills backup our ability to meet demand and.

And provide enough product for them to also be able to rebuild their inventories to more normal level has been a challenge and that's why slug.

It was to kittens question about lengthening in our order in our delivery schedule as a result.

All right that makes sense and then the GWP businesses faced a few headwinds here what are you seeing in the market today and what are some of the opportunity instead of business over the next 12 to 18 months.

Actually our order file and they WP is really really strong too. So we're seeing that we.

Our seeing a nice pickup up demand there.

And just as a reminder, though we use.

Spacey and lumber and enter into making it by choice so the.

Raw material cost inside choice manufacturing is really outweigh the near cost as fast as up to.

For LPL, so I'd say.

A good outlook from a demand.

Scenario for.

That business in the near term, but there is going to be margin squeezes.

As result of the raw material price increases that we've been saying.

And in joining on the aerospace side.

All right. That's all I had best of luck in the quarter.

Okay. Thanks.

Thank you our next question from Mark calling it David Your line is open.

Hey, Good morning. This is John rider on for Mark.

Question for you.

We had been hearing a lot about labor issues. The four cobot started in certainly is now probably a bit more of an issue for builders have you seen more interest coming through for and tech grow.

Right and as you notice of northern California by area play from a market standpoint.

And.

While that was really hurt us in Q2.

As order file pretty much about right as those those districts did close down.

Weve, saying, we're seeing good.

Inquiries and and from a startup perspective of good order file volumes for the next couple quarters that.

Okay. Thanks, good color and then second one here has the the rollout of Smartside to more geographies gone as well as you had hoped and has cobot changed what you're thinking about distribution at all.

Hey.

The audio was.

A little bit would you repeat the quick question again.

Yes, sorry about that.

As the rollout of Smartside, two more geographies gone as well as you had hoped.

And has changed the way you've spoken about distribution at all.

Okay, Thats not does not change.

Chain store.

Distribution obviously.

Assist can change quarter to quarter over six month period as for instance, retail demand the bank really gets stronger so we have to be able to flex so.

We're furthers pull for our products, but I really like.

I will speak to an exception here in the second but I really like.

Our distribution structure in retail.

Our access to the or in our market, which was really really facilitated and.

Just a big Silke.

Our expert finished rollout and then we've had good.

Two step distribution into into new construction.

For a while.

Although we did upgrade it last year and then but what has been a key to a region. We have been weekend, which is the northeast is getting the smooth and pre finished product line launch. So those two launches smooth last year. An expert finished this year has made us a bunch more track.

To a supplier into the northeast distribution, we've been able to bring on.

Some some higher quality.

Distribution in the northeast or real really really glad to say on I think as can be key to us growing in that region, we've been historically weak.

Great. Thank you very much.

Thank you. Our next question comes as Sean Good at TD Securities. Your line is open.

Thanks, Good morning couple of question.

On Peace Valley.

It sounds like the decision there is exclusively related to your demand outlook or housing start out like.

With regards to potentially start is there any issue with fiber availability in BC that could affect that decision as well.

Yes.

There is.

Sure I mean that fiber availability of bases in issue and for us that piece, it's never been a supply constraint, but it has been a pricing constraints. So when we look at the competitive positioning of that mill I mean, this big relative to us or restart analysis, we would do we have to make sure that we can get the March.

As we need to justify sorting got up and getting a return on capital that's been something that we dealt with all the mills operating.

And it is it is a factor in.

And the restart decision, but right now I would not say fiber fiber costs alone would be.

A significant obstacle or restart norwood supply fiber be significant obstacles, but it is a factor that we would consider as we.

Contemplate.

Potential margins of that mill during this forward.

Okay. Thanks for that.

Second question is on SGN, a there was that.

Positive trend.

Relative to to your sales pace this quarter with.

Decline and SDN a percentage.

You touched on a few of the factors in the prepared comments I guess I'm just trying to gauge the sustainability of that progress and how much of it might have been related to.

Spending cuts around initial pandemic concerns that.

We could see a recurrence at that spend coming back any any guidance you can give on BSG any side.

So good question, let me talk about it in three buckets.

We did some staff reduction.

Relative to a comfortable relative to covert and expectations around demand.

In order order velocity.

But also some rational things we did here at the National Office, where we're still predominantly working from home and so some of the support facility.

Additionally, we had.

Just to be underutilized at this point, we also had some open positions in these some.

Open positions. We also had some existing open positions would have been in prior quarters.

And we put a hiring fremont in place.

Which is still in place and we'll be in place for a while I'm probably at least into next budget season. So we've had some functional staff reduction as a result, obviously our travel.

<unk> expense is way down all kind of that supporting.

People cost is way down given kind of it.

Second bucket as we did do a reduction in force on ourselves.

Area again, we were looking at a time were sales people couldn't be in front of customers.

We do a lot of product knowledge type sales support which is very hands on.

On training at dealer and distributor locations, that's been very hard romantic.

Having.

40, 20 or 40.

Contractors come in for has often.

Training session, we've moved a lot of that online.

Which was.

More efficient permit manning situation.

I could see us.

That SGN they will come back as things continue to get open and especially given our sales volume and the fact that we're going to support.

Our customers with training and other things they knew from a sales force.

Third area has been marketing and once again, we took a pretty pretty serious look at that span, especially in siding well we've had large increases over the past two or three years and I will say did a little bit of are reset understanding that the environment has changed there and where weve emphasized.

Online support from our marketing and product knowledge.

Type of literature, obviously, we're not planning a part of.

Pieces to hand out that the folks. So it was an adjustment in our marketing span to fit to the time that I think will carry through rest of this year.

Thats been will come back and it will come back.

Enthusiastically as we as we see and believe there is a return to it but I just like we just felt like given the environment. We were working in the restrictions we had on.

Face to face contact with customers, we need to emphasize our online presence and that was just a much more efficient way access customers. Some of the stuff we have been working on previously.

So one more us another thats, probably a lot longer answer you were looking for somebody might one more point there.

All that.

Exclusive support we put around our expert finish launch any pre finish launch.

A lot of samples people want to see the product when it touched product experienced product of close. So there has we have supported that launch robustly and we'll continue to do so just because we say such an opportunity there and then the reality of that sales process is typically.

A contractor is in a home.

Trying to convince.

Person to put a hard siding on warehouse and we want them hard siding they'd be hours and that requires.

Higher level of marketing support than in most or other selectivity.

That's a tremendous detail thanks very much I appreciate it.

Probably too much sorry about that.

Yes.

Thank you. Our next question comes from Mark Weintraub Seaport Global your line is okay.

Thank you.

When pricing and let's be moving to an unprecedented mannatech, that's helping we may be could get a little bit of help and understanding impacts from mix.

And or potentially lags because if you if you look at the random lengths pricing for instance, that's right now.

More than $200 per 1000 square feet higher than second quarter average and even if we average in July it's like a $180 north central higher in some of the other region.

I'm sure there are reasons that one shouldn't just if we're to assume quite the state here you shouldn't just pencil in 180 and time that by the.

The volume.

But maybe if you could just walk us through what are some of the biggest factors that would cause the price change to deviate from what we see in random lengths.

Let me, let me speak to two things are top of mind for May and Alan Please please.

We do talk about this a lot. So first the first of all when we're talking about a rising over Spain market.

Keep in mind that our contract volume, which is so depending on the situations, 60% to 70% of our volumes in some type of contract situation.

But those contracts are priced prior.

Prior a week or two ago random lengths, so we're going to get a lag our contract volumes prices increase.

And then the other other noticeable thing from our mix standpoint, as sometimes random will have the adders especial flooring.

Or the flooring pricing.

Report reported foreign prices are rising as quickly as the commodity prices I think thats, primarily a reporting issue.

For our open what market order file that's we try to offset those things and sake summaries.

And so Tom will have.

We're still lags there in flooring pricing relative to the commodity pricing that which chose backup or contract volume.

So there's these new offices relative to the why random I guess gathers or David and reports that can impact us negatively on in a rising market. So in some.

It.

Yes.

It could cause it will definitely calls or a lag and realization in a rising market and you know mark.

We have are we reported that in almost every rising market I've been a part of since I've been on these calls as we don't we don't we just don't get it all as quickly as a random.

I think.

Right.

And how far are your order files I guess in conversations I've had with some other folks that I've gotten a sense that they are.

They are so far out that maybe the lags would be longer then and then normal which I'm not sure is a negative here by the way because it started just the way it's been going up you if that means you're still going to get all of the pricing. We see now just it'll show up maybe and.

Middle of August instead of right now but.

How long are your order file currently.

Where we really work hard and stay disciplined to a two to three week order file we try.

It's tempting, sometimes especially in pricing like this to go longer but we just we want to have a.

We will be selling volume into the market every week.

So we have stopped two to three week order file.

Through this implant and plans continue to do that.

Okay, Great and Latin.

Maybe putting you on the spot if I can a little bit.

Given what we see and given your comment that you don't see any reason for softening in that relatively near term next couple of months of significance.

Is there any reason that one would see that your your EBITDA in the quarter, given higher volumes and signing given what we've seen in pricing plus the more volume and now its be wouldn't be.

Comfortably double what we saw in.

Second quarter.

Comfortably double I like that I can et cetera.

[laughter] yield the range that you all y'all mentally trying to push us to is reasonable.

Given all the caveats that you introduced in your own question.

Okay. Thank you.

Thank you.

Question comes from Steve Chercover da Davidson Your line is open.

Thanks, and good morning, Sean Stewart kind of Scoop My question on Peace Valley, but I did have a question on on the wood pricing.

I mean has any of the competing buyers of would let the market or in order to get the pricing down to a level that you're comfortable do you have to negotiate with the crown or the province.

It or to.

Permanently reduce the fiber cost.

Yes, Hey family would cost us the quick question Steve.

Picking up so picking up on but so look it's a little your your comments are yet factual. That's it's a crown license as where we harvest, but just keep in mind that really from a crown perspective.

The emphasis is on saw timber.

Thats for the value those forestar us being a user of pulpwood.

We can sometimes get I mean, it's kind of lost and rounding from from that standpoint, so theres not as much. So so while there is not as much.

Pressure to too.

Increase those prices from a province of standpoint, it's also not a lot opportunity to go into negotiated down, but you're right. The only way to get relief there. So.

What about agreements with the crown.

Or talk to work at it on your deliver your delivery cost drawing on and make sure you're sourcing were closer to mill all of which had been strategy we've employed in peace Valley.

But stumpage price is controlled by the provincial governments in Canada, where we operate.

Well I should think that without wanting to provide you with would below fair market. They have a vested interest in it.

For the community to have that mill running.

Taxes associated with it so hopefully you get the market conditions that.

Yes allow it to really outside of just quick question I just want to make sure that may be clear I don't want to.

I don't want to.

The call without just saying that again this is really.

The issue with resort and Peace Valley is not an operating cost issue just declared it is nor the nor the reason well.

No the reason for shutting it down, but obviously you look at worst your best margin margin issues for that plant for us to its so remote from the markets that serve into western U.S.. So that really the issue that makes that plant uncompetitive or believes competitive and our system, which is why we shut it down was because of.

Just.

The cost to delivery to the West coast. So just just to clarify that.

Yeah, and I doubt, if there's anything youre going to be able to do to change that.

Exactly.

Yes.

Yes.

Plate tectonics is slow so quick question on so.

So they are doing better year over year, and that's despite Brazil, the best might elds being a real cobot hotspot and I recognize that.

The operations aren't necessarily there, but it's a big market. So is that simply price or are there operating improvements you're also enjoying there are you accessing export markets, what's going on down there.

So low level of all three so but we did have a mill startup down there last year. It were that were.

Were far long on so we've got some.

From a cost standpoint, some prior year comps that are favorable to us when youre looking at comparative numbers secondly.

We have a really good export business down there that has been resilient.

And as has been very helpful. As both the Chilean economy and the Brazilian economy has been.

I would say constrained that though not not so lots of standstill. There has been at wins both economy as we've been able to.

We.

Continue to operate the males because were good export position and then finally.

And I will say later in the quarter, we did start saying our ability to.

Pricing on export volume as the price in the us.

Rose So we've got we've got some margin improvement as price related on export volume as result of I'm, assuming on result of.

Those markets being less attractive to us manufacturers.

As the us price for covered.

Terrific. Okay. Thanks for taking my call and that stay safe.

Thank you.

Thank you.

Question comes from Mark Wilde, Our bank of Montreal. Your line is okay.

Hi, Brad just a couple of follow ons lend on that.

Assist.

Is that.

Brazilian mill.

Primarily domestic or is that still point I think that the.

Brazilian adoption of Oh, let's be at that a little slower from a building code standpoint than you guys would help or.

Yes.

Mark I don't have those numbers in front of me, but I will say, it's 40% to 60% export depending on but its highs the highest more mill or still yes.

Okay, and then I was just allianz domestic demand in both Brazil and Chile.

Both countries have been hit pretty hard by cobot.

Pretty good and the second quarter domestic domestic demand was actually up.

In Chile is up by 11% in Chile.

Rather surprising under the circumstances that was.

Then I will pay assays actually selling them using more siding product as well in that significantly helped.

That probably in the area.

Okay, and then just one other is it possible get a little bit of an update just on the on the siding extensions initiatives in terms of like how volume is rolling up Im not only thinking of like the expert finished but also some of the other now like structural products are trim products that use at.

You talked about rolling out.

Well I would say.

Expert finishes at or above expectations.

For the for.

A few months then, but it's very well received in our customer base.

Smoothed products is pretty much where we have.

Where we expected it to be at your one we are adding skus to that so we have a panel offering now and smooth and other SKU additions that we've done there.

On the owns the aerospace side. The Flameblock product has had really good continues to grow we are on the weather logic.

Whether laugh about whether rap.

I'll just be we've ramped up production at our facility and Clarke County, Alabama, which is a why.

Bill Bill as a mill that we can make long legs on it in foot, which is a and stat portfolio immensely. We are working on a roof product that will really shape reach.

Shape out that portfolio offering or whether resistant SP and it's critical for from a distribution standpoint, the had that product in our portfolio, so that would that out that.

Well the logic is still kind of in launch mode. As we round out the portfolio and then finally, if you read the show the last two years you saw our fencing product and we're in policy from a very small base. We are getting good on distributor of acceptance of that product as well and we're seeing growth rates.

Like.

From a percentage basis that are really really high but as we all know a percentage growth off of a base of zero can be is infinity. So we're seeing some of that right now, but I really am proud of the.

The way, we have found distribution for that kind of non traditional product in our portfolio taken us a little bit longer than we have like those beginning to pay off so.

I would say.

No markets, a little bit all over the board, depending on where we almost on the launch phase with these products. Some saw excepted quicker like expert finish some take longer like what financing but.

But up but.

Okay. So let me summarize above is smooth expert finishes a highlight one block is a highlight.

Smoothness, where we want to be.

Work to do on fencing and work to do on on the weather logic product.

Okay and would you think right over the next year for years, we just think about things like expert finish.

Should we be able to see a discernible margin lift in the entire.

Lighting segment as that becomes a bigger and bigger piece of the bought.

Yes.

Other expert finished as a very high more from product.

Okay, Alright ill turn it over Gettalent second half.

Thank you.

Thank you again, if you like to ask the question. Please press Star then one our next question comes from Keating Mamtora of BMO capital. Your line is open.

Hi, Thank you.

Just one other question on target or has the capacity I was just curious Brad how much additional room do you have at the on existing LSD mescaline fees, you now have production capacity.

What kind of capital investment that would take I'm, just trying to solve and this time.

Some of investment of existing Mezz doing fees.

Modest capacity was thats kind of being non peace valley kind of how do you think about those Joel.

What we did at all we did go to full shifting.

This last in Q2 and that will walk that was the only mill wasn't running full shifting so thats now.

That was an increase of capacity there and then.

The rest of the compatible so the two other opportunities one is OE, which we've talked about bunch over the last couple of years and there's still room to go there that we might really really good progress in showing up in our numbers, but we still have two to four percentage points of opportunity in the near term OE.

And then after that it back or capital.

Capital program, where we have done.

Extensive.

Chris upgrades.

During this.

So were three years of good ops good runs.

And now we're both in our upgrade opportunities as the dryer refurbishing and our mills. So there's always want to be capital projects that are available.

Well.

When those working in the paper side of the business early micro recovery.

Yes, certainly those fee industry and in particular has an opportunity for freight to use of capital and also.

I will call Crazy because his hard work management to get that OE number up but we should be seeing no.

Single digit increases in capacity.

On our capital program is robust.

Then over the last few years, and we had these opportunities and pizza.

Increase throughput.

And that's what we're both.

Keith and the cheapest capacity, we have capacity that exist today, so getting more out of those assets is a key part of our plan of improving our margins around that.

Got it Thats has done then on the fighting site dried when do you have to decide.

I'm kind of the.

The next project that you may have that advised our vaughan our other brownfield and go on various any update that talk process on on that.

Yes, so based on our current.

You have.

Citing growth and as I mentioned also mixes us Barry.

Critical input to the timing.

For instance, we have a lot of panel capacity right now in the business because of the way, we can figure dos and its wants so.

But but we want to make sure we have plenty lap and transfer expert finished but depending on.

Turning on the mix second influenced the needed.

Sorry, timing, but given where we are today.

Mix say.

Similar to where it is today, we would be looking we'd be willing to have new capacity operating by mid to late 2022.

Which means we would be seeking board approval around the middle of next year and identifying the location backing that final decision, which again will be somewhat mixed space and then getting approval and announcing that publicly middle middle next year, I could say, probably vis coordinating with the next one but kind of.

Amit.

Got it and then the committed is best suited to producing more lap.

Between those two options that you mentioned belt or would be the better Latin.

Got it okay, that's very helpful identical but luck.

In the back off the or.

Right.

Well, it's just the recent as it has a 60 foot press, which is kind of Dol Dan for for siding for Latin Trail. Thus the reason algo would be optimal there.

Okay. That's a has but thank you very much.

Okay.

Thank you.

Im showing no further questions at the time, let's turn the call back loaded with the hockey for any closing remarks.

Okay. Thank you everyone. This concludes the second quarter earnings call for Louisiana Pacific stay Safe and we'll look forward to speaking you again sometime in November to discuss our Q3 results.

Thanks, everyone.

Ladies and gentlemen does that concludes today's conference. Thank you participating may have great.