Q4 2023 Louisiana-Pacific Corp Earnings Call
Operator: Listen Only Mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Aaron Howald, Vice President, Investor Relations and Business Development. Please go ahead.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again please.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Aaron Howald, Vice President Investor Relations and business development. Please go ahead.
Aaron Howald: Thank you, Operator, and good morning, everyone. Thank you for joining us to discuss LP's results for the fourth quarter and full year of 2023. My name is Aaron Howald, and I am LP's Vice President of Investor Relations and Business Development. With me this morning are Brad Southern, LP's Chief Executive Officer, and Alan Haughie, LP's Chief Financial Officer. During this morning's call, we will refer to a presentation that has been posted to LP's IR web page, which is investor.lpcorp.com. Our 8K filing, press release, and other materials detailing LP's strategy and sustainable business model are also available there. As usual, today's discussion will contain forward-looking statements and non-GAAP financial metrics, as detailed on slides two and three of the earnings presentation. The appendix of the presentation also contains reconciliations that are further supplemented by this morning's AK filing. Rather than reading those materials, I incorporate them herein by reference.
Aaron Howald: Thank you operator, and good morning, everyone. Thank you for joining us to discuss Lp's results for the fourth quarter and full year of 2023 my.
Aaron Howald: My name is Eric and I am Lp's, Vice President of Investor Relations and business development with me. This morning are Brad Southern Lp's, Chief Executive Officer, and Allen Hockey Lp's, Chief Financial Officer.
Aaron Howald: During this mornings call we will refer to a presentation that has been posted to Lp's IR webpage, which is Investor LP Corp. Dot Com, our 8-K filing press release and other materials detailing op strategy and sustainable business model are also available there.
As usual today's discussion will contain forward looking statements and non-GAAP financial metrics as detailed on slides two and three of the earnings presentation. The appendix of the presentation. Also contains reconciliations that are further supplemented by this morning's 8-K filing rather than reading those materials I incorporate them herein by reference and with that I.
Aaron Howald: And with that, I will turn the call over to Brad. Thanks, Aaron, and thank you all for joining us to discuss LP's results for the fourth quarter and the full year of 2025. 2023 ended much better than it began for LP and the markets we serve. In the fourth quarter, siding achieved its highest EBITDA margin of the year.
Aaron Howald: I'll turn the call over to Brian.
Brian: Thanks, Aaron and thank you all for joining us to discuss Lp's results for the fourth quarter and the full year of 2023.
Brian: 2023 ended much better than it began for LP and the markets we serve.
Brian: In the fourth quarter, citing achieved its highest EBITDA margin of the year and.
Brad Southern: I'm pleased to share that siding is back on a growth footing, having returned to normal inventory and order flows after a de-stocking cycle in the first half of last year. We are well-positioned to gain share in R&R and with HomeBuilder. Commodity prices fell early in Q4, but rebounded later in the quarter. These factors, along with strong price realization and efficient operation, contribute to an EBITDA or so meaningfully above or guided right. Page 5 of the presentation summarizes some of our results for the quarter and year. LP generated $658 million in sales and $129 million in EBITDA in Q4, bringing the full year totals to $2.6 billion and $478 million, respectively. This translated into $0.71 of earnings per share in Q4 and $3.22 for the full year.
Brian: I'm pleased to share that <unk> is back on a growth footing, having returned to normal inventory and order flows FY destocking cycle in the first half of last year.
Brian: We are well positioned to gain share on R&R and with homebuilders.
Brian: Commodity OSB prices fell early in Q4, but rebounded later in the quarter.
Brian: These factors along with strong price realization and efficient operations contribute to an EBIT dollar so meaningfully above our guided range.
Brian: Page five of the presentation summarizes some of our results for the quarter and year LP generated $658 million in sales and $129 million of EBITDA in Q4, bringing the full year totaled $2 6 billion and $478 million respectively. This.
Brian: Translated into 71 of earnings per share in Q4, and $3 22 for the full year.
Brad Southern: With all your comparisons being negative, largely due to normalized OSB pricing, LPACE businesses demonstrate exceptional management of the elements within our control. 2023 was a year of heavy investment in capacity to enable growth in siding and structural solutions. LP invested $300 million in capital in 2023, with the largest projects being the conversion of our mill in Sagola, Michigan, to SmartSide from OSB and the construction of our newest expert finish facility in Bath, New York. These projects were completed safely and efficiently, and both facilities are fully operational.
Brian: The full year comparisons are negative largely data normalized OSB prices, but help pace businesses demonstrated exceptional management of the elements within our control.
Brian: 2023, it was a year of heavy investment in capacity to enable growth in siding and structural solutions.
Brian: We invested $300 million in capital in 2023 for the largest projects being the conversion of our meals to Golan, Michigan to smart side from OSB and the construction of our newest export finished facility in Bath New York. These.
Brian: These projects were completed safely and efficiently and both facilities are fully up and running.
Brad Southern: LP also completed the strategic acquisition of a mill in Wawa, Ontario, which expands our portfolio of future siting conversions. Alan will offer more details on capital allocation, but I will summarize by saying that even after another year of significant investment in smart site and expert finish capacity, the Wawa acquisition, and $69 million return to shareholders via dividends, LP ended 2023 with $222 million in cash on hand and over $770 million in liquidity. Like the LFP results, the new residential construction markets we serve saw a meaningful recovery in the second half of 2023 after starting the year notably weaker. Affordability challenges persist, but interest rates have fallen over 100 basis points from their peak in Q4, contributing to improved optimism about single-family housing starts.
Brian: <unk> also completed the strategic acquisition of EMEA on Wawa, Ontario, which expands our portfolio with future Saudi and conversions.
Brian: Alan will offer more details on capital allocation, but I'll summarize by saying that even after another year of significant investment in smart side in export finished capacity, but wawa acquisition and $69 million returned to shareholders via dividends LP ended 2023 with 222 million.
Brian: And cash on hand, and over $770 million in liquidity.
Alan: <unk> results the new residential construction markets, we serve saw a meaningful recovery in the second half of 2023 after starting the year, notably weaker.
Alan: Affordability challenges persist, but interest rates have fallen over 100 basis points from their peak in Q4 contributing to improved optimism about single family housing starts.
Brad Southern: The repair and remodeling sector remains softer than new construction, but lower rates and better affordability may encourage more sales of existing homes or offer homeowners the interest rate clarity needed to take on larger home improvement projects. The current consensus for total housing starts is about flat for last year at a bit below $1.4 million, but many forecasters expect a higher single-family mix.
Alan: The repair and remodeling sector remains softer than new construction, but lower rates and better affordability may encourage more sales of existing homes or offer homeowners to interest rate clarity needed to take on larger home improvement projects.
Alan: The current consensus for total housing starts it's about flat to last year at a bit below $1 4 million, but many forecasters expect a higher single family mix compared.
Brad Southern: Compared to the consensus a year ago, we are cautiously optimistic that this improving outlook will translate into a stronger market for LP in 2024. Regardless of the near-term market, I'm very confident LP's strategy positions us well with a strong portfolio of products and a long-run way for profitable growth. The durability, beauty, and performance of LP's products solve problems for builders, contractors, and homeowners.
Brian: Compared to the consensus a year ago, we are cautiously optimistic that this improving outlook will translate into a stronger market for LP in 2024.
Regardless of the near term market I'm, very confident LP strategy positions us well with a strong portfolio of products and a long runway for profitable growth.
Brian: The durability beauty and performance of Lp's products solve problems for builders contractors and homeowners.
Brad Southern: We are investing in new capacity and new process technology. This improves our productivity, accelerates product innovation, and enhances our margins. We operate our capacity with discipline and agility, whatever the market brings. And we are prudent stewards of our capital, investing strategically in growth and innovation while returning cash to shareholders. None of this would happen without the dedication of L.P. Our operations teams delivered significantly better efficiency and safety performance in 2023, ending the year with a world-class total incident rate of 0.5. A single injury is too many, but I am incredibly proud of our operations team for this performance. We will never stop working to ensure a safe work environment for everyone at LPE.
We are investing in new capacity and new process technologies.
This improves our productivity accelerate product innovation and enhance our margins.
Brian: Operator capacity with discipline and agility whatever the market brings.
Brian: We are prudent stewards of our capital investing strategically in growth and innovation, while returning cash to shareholders.
Brian: None of this happens without the dedication of Lp's paper, our operations teams delivered significantly better efficiency and safety performance in 2023.
Brian: In the year with a world class total incident rate of 0.5 the.
Brian: A single injury is too many but I am incredibly proud of our operations team for this performance.
Brian: We will never stop working to ensure a safe work environment for everyone at LP.
Brad Southern: I also want to acknowledge and thank LP's sales and marketing teams for navigating the difficult process of transitioning off a managed order. As a result of our highly talented teams and the great culture we've built, LP was recognized in 2023 by Newsweek Nationally and in Nashville by our local paper, The Tennessean, as a great place to work. Thank you to every LP team member for your contributions in 2023. And with that, Alan will share more details about LPEI's financial performance in the quarter, as well as our outlook for Q1 in 2024. Thanks, Brad.
Brian: Also want to acknowledge and thank lp's sales and marketing teams for navigating the difficult process of transitioning off of managed order file.
Brian: As a result of our highly talented teams and a great culture. We've built LP was recognized in 2023 by Newsweek nationally and in Nashville by our local paper the Turner sand as a great place to work. Thank you to every LP team member for your contributions in 2023.
Brian: And with that Al will share more details about <unk> financial performance in the quarter as well as our outlook for Q1 2024.
al: Thanks, Brad I'll briefly review the results for the siding and OSB businesses for the fourth quarter and full year, and then offer guidance for EBITDA and capital expenditures.
Alan J. M. Haughie: I'll briefly review the results for the siding and the OSB businesses for the fourth quarter and full year and then offer guidance for EBITDA and capital expenditure. Slide 6 shows siding's quarterly results. Jumping 12 months back in time, the fourth quarter of 2020 was the last quarter in which siding was on a managed order file. And as such, it represents rather a difficult complex.
al: Slide six shows sidings quarterly results.
al: Jumping 12 months back in time, the fourth quarter of 2022 was the last quarter in which <unk> was on a managed order file and as such it represents rather a difficult comp.
Alan J. M. Haughie: The biggest difference in the year-over-year waterfall is therefore the 15% drop in volume, a corresponding $55 million drop in revenue, and a $26 million drop in EBITDA. However, on the plus side, Bath and Segola are now fully up and running, resulting in lower conversion and ramp-up. This, combined with continued improvements in raw material costs, produced a $13 million EBITDA tailwind. Net of $6 million in inventory, absorption, and other stuff, the siding business finished the quarter with $72 million of EBITDA. The EBITDA margin of 22% was the highest of the year, which reinforces our confidence in Siding's long-term 25% EBITDA margin target. Now, I won't belabor the four-year waterfall on slide seven, given that we've discussed the most important elements in prior quarters.
al: The biggest difference in the year via waterfall is therefore, the 15% drop in volume a corresponding $55 million drop in revenue and a $26 million drop in EBITDA on.
al: On the plus side bathrooms to Golar and are fully up and running resulting in lower conversion and ramp up costs. This combined with continued improvements in raw material costs produced a $13 million EBITDA tailwind.
al: Net of $6 million in inventory absorption and other stuff the siding business finished the quarter with $72 million of EBITDA.
al: The EBITDA margin of 22% was the highest of the year.
Brian: Which reinforces our confidence in sidings long term, 25% EBITDA margin target.
Brian: Sure.
Brian: No I won't belabor the full year waterfall on slide seven given that we have discussed the most important elements in prior quarters.
Alan J. M. Haughie: However, it is perhaps useful to recap that the transition from a managed order file made for a difficult year with respect to volume, particularly in the first six months, while the in venture is normalized. Nonetheless, the four-year EBITDA of $269 million represents a robust EBITDA margin of 20%, particularly so in light of the carrying costs of new capacity, capacity which, I would like to stress, provides a long runway for growth with meaningfully lower future capex, at least until customer demand necessitates further investment. Friday covers the fourth quarter for OSB.
Brian: However, it is perhaps useful to recap that the transition from a managed order file made for a difficult year with respect to volume, particularly in the first six months while inventories normalized.
Brian: Nonetheless, the full year EBITDA of $269 million represents a robust EBITDA margin of 20%, particularly so in light of the carrying cost of new capacity capacity, which I would like to stress provides a long runway for growth with meaningfully lower future capex at least until customer demand necessitates further.
Brian: <unk>.
Brian: Slide eight covers our fourth quarter OSB.
Alan J. M. Haughie: While prices fell steeply during the shoulders of the third and fourth quarters, they subsequently recovered and ended the year higher than the prior year, adding about $17 million to year-over-year EBITDA. Volumes were lower in part because of the Segola conversion, but this was partially offset by a significant improvement in operating efficiency. Structural solutions accounted for 52% of OSB volume in the quarter, with value-added products producing $20 million of incremental EBITDA on $39 million of incremental revenue.
Brian: While prices fell steeply joined the shoulders of the third and fourth quarters.
Brian: Subsequently recovered and ended the year higher than the prior year, adding about $17 million to year over year EBITDA.
Brian: Volumes were lower in part because of the singular conversion.
Brian: But this was partially offset by a significant improvement in operating efficiency.
Brian: Structural solutions accounted for 52% of OSB volume in the quarter with.
Brian: With value added products, producing $20 million of incremental EBITDA on $39 million of incremental revenue.
Brian: Lower raw material mill, and SG&A costs added a $30 million tailwind, resulting in a very respectable $59 million of EBITDA in the quarter.
Alan J. M. Haughie: Lower raw material, mill, and SG&A costs added a $30 million tailwind, resulting in a very respectable $59 million of EBITDA in the quarter. OSB's full-year results on slide 9 are dominated by price normalization, but other than that, the year can be summarized as one of lower volume, partially offset by higher OEE, lower raw material costs, and lower overhead costs given the transfer of Segola to the Taken as a whole, despite volatility quarter to quarter, 2023 was slightly better than the historical cycle average for the OSB business, which shows the power of LP's OSB strategy, including improved efficiency in operations, disciplined capacity management, and the value generated by the consistent incremental uplift from the Structural Solutions portfolio. Other than the acquisition of Wawa, cash flows for the quarter and year were straightforward, as shown on slide 10.
Brian: Osp's full year results on slide nine are dominated by price normalization, but other than that the year can be summarized as one of the lower volume, partially offset by higher or.
Brian: Lower raw material costs, and lower overhead costs, given the transfer of <unk> to the siding business.
Brian: Taken as a whole despite volatility quarter to quarter 2023 was slightly better than the historical cycle average for the OSP business.
Brian: Which shows the power of Lp's OSB strategy.
Brian: Improved efficiency in operations disciplined capacity management and the value generated by the consistent incremental uplift from the structural solutions portfolio.
Brian: Other than the acquisition of Wawa cash flows for the quarter and the year was straightforward as shown on slide 10 for the year LP and $478 million of EBITDA paid $65 million in cash taxes, and built $93 million of working capital, resulting in $316 million of operating cash flow.
Alan J. M. Haughie: For the year, LP earned $478 million of EBITDA, paid $65 million in cash taxes, and built $93 million of working capital, resulting in $316 million of operating cash flow. After investing $300 million in CapEx, paying $80 million to acquire the Wawa mill, and returning $69 million to shareholders via dividends, the net outflow of $161 million left us with $222 million in cash. Now, before I transition to guidance, let me anticipate and answer one question. LP's capital allocation strategy is unchanged.
Brian: After investing $300 million in capex paying $80 million to acquire the wawa mill and retaining $69 million to shareholders via dividends.
Brian: The net outflow of $161 million.
Brian: Left us with $222 million in cash.
Speaker Change: Now before I transition to guidance, let me anticipate and answer one question.
Speaker Change: <unk> capital allocation strategy is unchanged, we will earn cash investing in growth and return cash to shareholders via dividends and share repurchases in that order.
Brian: LP did not repurchase any shares in 2023, but our motivation to do so is undiminished and we retain a $200 million authorization from the board.
Brian: We will resume share repurchases when our cash flows and cash balances warrant.
Alan J. M. Haughie: We will earn cash, invest in growth, and return cash to shareholders via dividends and share repurchases in that order. L.P. did not repurchase any shares in 2023, but our motivation to do so is undiminished, and we retain a $200 million authorization from the board. We will resume share repurchases when our cash flows and cash balances warrant it. 2024 should be a year of growth and meaningfully lower CapEx. So, all else equal, Sherry purchases are very much back on the table.
Brian: 2024 should be a year of growth and meaningfully lower capex in siding.
Brian: So all else equal share repurchases are very much back on the table.
Brian: Which brings us to guidance on slide 11.
Brian: With the inventory destocking behind us and fighting back on a growth footing as well as more historically normal OSB prices.
Brian: We have improved visibility to offer our full year outlook for both businesses, if youll forgive some very obvious caveats.
Brian: In siding, we expect a year of resumed growth in a more normal seasonal order pattern consistent with what we saw in the fourth quarter and have seen so far in 2024.
Alan J. M. Haughie: Which brings us to guidance on slide 11. With the inventory de-stocking behind us and the company back on a growth footing, as well as more historically normal OSB prices, we have improved visibility to offer a full year outlook for both businesses, if you'll forgive some very obvious caveats. Inciting, we expect a year of resumed growth and a more normal seasonal order pattern, consistent with what we saw in the fourth quarter and have seen so far in 2024. Revenue growth is expected to outpace both the current flat consensus for total U.S. housing starts and the forecast for single-digit declines in repair and remodel.
Brian: Revenue growth is expected to outpace both the current flat consensus with total U S housing starts and the forecast for single single digit declines in repair and remodel.
Brian: We therefore expect revenue growth of about 8% to 10% for the full year from a combination of volume and price.
Brian: And this would result in siding revenue of let's say $1 $45 billion.
Brian: Approaching 2020 two's record level and.
Brian: And EBITDA margin of around 20% would result in full year EBITDA for siding of between 280 and $300 million.
Brian: With reduced investments in capacity, partially offset by discretionary increases in selling and marketing.
Brian: So what does this mean for the first quarter.
Brian: The expected return to more normal seasonal demand patterns means somewhat higher demand in the second and third quarters compared to the first and the fourth accordingly first quarter sales for siding are expected to be in the range of $340 million to $350 million with EBITDA between $65 million to $70 million, assuming an EBITDA margin.
Alan J. M. Haughie: We therefore expect revenue growth of about 8-10% for the full year from a combination of volume and price. And this would result in siding revenue of, let's say, $1.45 billion, approaching 2022's record level. An EBITDA margin of around 20% would result in full-year EBITDA for siding of between $280 and $300 million, with reduced investments in capacity partially offset by discretionary increases in selling and marketing. So what does this mean for the first quarter?
Brian: Of about 20%.
Brian: Okay.
Brian: For OSB full year revenue guidance is impossible without the price prediction, which we won't even pretend to offer instead, we're going to introduce the concept of cycle average EBITDA spread.
Brian: This is the EBITDA that the OSB business earns per thousand square feet of volume on average over the cycle.
Alan J. M. Haughie: Well, the expected return to more normal seasonal demand patterns means somewhat higher demand in the second and third quarters compared to the first and fourth. Accordingly, first quarter sales for Siding are expected to be in the range of $340-$350 million, with EBITDA between $65-$70 million, assuming an EBITDA margin of about $25 million. For OSB, full-year revenue guidance is impossible without a price prediction, which we won't even pretend to offer.
Brian: This spread accounts for variations in both selling prices and the cost of production.
Brian: As demand and therefore commodity prices fluctuate in response, we adjust our capacity utilization our product mix, our maintenance costs and other factors.
Brian: And to illustrate how this distinction can be useful recall that in the third quarter of 2019, the OSB business achieved breakeven EBITDA.
Brian: And in the first quarter of 2023, we reported a small positive EBITDA.
Brian: We're very similar outcomes, but at very different nominal selling prices and cost of manufacture.
Alan J. M. Haughie: Instead, we're going to introduce the concept of cycle-average EBITDA spread. This is the EBITDA that the OSB business earns per thousand square feet of volume, on average, over the cycle. This spread accounts for variations in both selling prices and the cost of production.
Brian: Now historically lp's cycle average OSB spreads have been around $60 per thousand square feet of sales volume.
Brian: This is actually the trailing 10 year average for Lp's OSB business, excluding the outlying years of 2021 and 2022, when the spread was actually much higher.
Alan J. M. Haughie: As demand, and therefore commodity prices, fluctuate, in response, we adjust our capacity utilization, our product mix, our maintenance costs, and other factors. And to illustrate how this distinction can be useful, recall that in the third quarter of 2019, the OSB business achieved breakeven EBITDA. And in the first quarter of 2023, we reported a small positive EBITDA. These were very similar outcomes, but at very different nominal selling prices and cost of manufacturing. Now, historically, LP's cycle average OSB spreads have been around $60 per thousand square feet of sales volume. This is actually the trailing 10-year average for LP's OSB business, excluding the outlier years of 2021 and 2022, when the spread was actually much higher. Actual commodity price fluctuations result in an EBITDA range where the floor that we've demonstrated can be held above zero when prices are low, such as in the two examples I just cited, and then, with a very high ceiling, prices rise.
Brian: Actual commodity price fluctuations resulted in an EBITDA range with a flaw that we've demonstrated can be held above zero when prices are low such as in the two examples I just cited.
Brian: And it actually with a very high ceiling for.
Brian: When prices rise.
Brian: So if we take this concept and apply it to current conditions I would estimate the Lp's 4 billion square feet of capacity running at about 85% average utilization at $60 per thousand square feet should generate about $200 million in EBITDA on a cycle average basis and this is actually very close to the EBITDA.
Brian: We just generated in 2023.
Brian: To use this concept to construct the outlook for OSB, we will start with the first quarter and builds from there for the first quarter, we expect shipment volumes to be similar to fourth quarter levels at around 770 to 790 million square feet.
Brian: So far random lengths prices have averaged about $25 higher than the fourth quarter. We've just reported so under that volume assumption.
Brian: OSB price holds EBITDA in the first quarter should be around 65% to $75 million.
Brian: We're making no attempt to predict future OSB prices. So our full year outlook for OSB is the sum of the first quarter outlook I just gave followed.
Alan J. M. Haughie: So, if we take this concept and apply it to current conditions, I would estimate that LP's 4 billion square feet of capacity, running at about 85% average utilization at $60 per thousand square feet, should generate about $200 million in EBITDA on a cycle average. And this is actually very close to the EBITDA we just generated in 2023. To use this concept to construct the Outlook for OSB, we'll start with the first quarter and build from there. For the first quarter, we expect shipment volumes to be similar to fourth-quarter levels at around 770 to 790 million square feet. So far, random length prices have averaged about $25 higher than the fourth quarter we've just reported.
Brian: Followed by three quarters, a cycle average EBITDA.
Brian: Adding the two businesses together and assuming for simplicity the LP South Americas EBITDA covers corporate costs, we expect full year EBITDA of about $495 million to $525 million with the first quarter and the $130 million to $145 million range.
Brian: A quick word on sensitivities.
Brian: As we are already realizing the January price increase in siding, the most significant sensitivity in that business as volume.
Brian: Each increase or decrease in volume of 10 million square feet from this baseline would add or subtract about $4 million in EBITDA at typical incremental EBITDA margins.
Brian: For OSP sensitivities for incremental volume and price shown in the table are based on the same utilization and EBITDA assumptions used to construct our outlook and would of course compound.
Alan J. M. Haughie: So under that volume assumption, if the OSB price holds, EBITDA for the first quarter should be around $65 to $75 million. We're making no attempt to predict future OSB prices, so our full year outlook for OSB is the sum of the first quarter outlook I just gave, followed by three quarters of cycle average EBITDA. Adding the two businesses together and assuming for simplicity that LP South America's EBITDA covers corporate costs, we expect full-year EBITDA of about $495 to $525 million, with the first quarter in the $130 to $145 million range. A quick word on sensitivities.
Brian: With respect to capital spending LP and invested heavily in smart side, an expert finished capacity in 2022 and 2023.
Brian: As a result, we have a healthy runway of capacity ahead of US we will continue to invest in growth this year, albeit on a smaller and more targeted scale compared to recent years accordingly.
Brian: 24 should see capital investments roughly $100 million lower than 2023 with sustaining maintenance comprising roughly 75% of the total.
Brian: So in many ways 2024, as it returned to normal citing is growing again after something of a destocking hangover.
Brian: OSB prices are currently in a historically normal range, albeit on the high side of that range.
Brian: On Lp's capital investment in 2024 will be nearly $100 million lower than last year, because the scola Holton and back projects are complete.
Alan J. M. Haughie: As we are already realizing the January price increase in siding, the most significant sensitivity in that business is volume. Each increase or decrease in volume of 10 million square feet from this baseline would add or subtract about $4 million in EBITDA at typical incremental EBITDA margins. For OSB, sensitivities for incremental volume and price shown in the table are based on the same utilization and EBITDA assumptions used to construct our outlook and would, of course, compound. With respect to capital spending, LP invested heavily in smart side and expert finish capacity in 2022 and 2023.
Speaker Change: And with that we'll be happy to take your questions.
Speaker Change: Okay.
Speaker Change: Thank you Sir.
Speaker Change: A reminder to ask a question. Please press star one one on your telephone.
Speaker Change: Wait for your name to be announced.
Speaker Change: So with draw your question. Please press star one one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Keeton Montara from BMO.
Keeton Montara: Thank you good morning, Brad Island.
Keeton Montara: Thanks for all the details.
Keeton Montara: And then perhaps I'll start with when I think about the 'twenty 'twenty four siding EBITDA guidance.
Keeton Montara: Can you talk about sort of at a high level.
Keeton Montara: Key elements as the tank from 2023 through 2024, given that in 2023 volume was a big drag there was no probably inefficiency that you are working towards the inventory Destocking phase.
Alan J. M. Haughie: As a result, we have a healthy runway of capacity ahead of us. We will continue to invest in growth this year, albeit on a smaller and more targeted scale compared to recent years. Accordingly, 2024 should see capital investments roughly $100 million lower than 2023, with sustaining maintenance comprising roughly 75% of the total. So, in many ways, 2024 is a return to normal.
Keeton Montara: And then you also have a price increase for this year. So can you talk about just Bob CFO key element as we think about the bridge.
Bob: Sure. Thanks.
Bob: Thanks for the question.
Bob: I do want to stress that this is this is the most comprehensive guidance.
Bob: And my knowledge of the company has ever given.
Alan J. M. Haughie: Siding is growing again after something of a destocking hangover. OSB prices are currently in a historically normal range, albeit on the high side of that range. And LP's capital investment in 2024 will be nearly $100 million lower than last year because the Segola, Houlton, and Bath projects are complete.
Bob: One of the objectives, particularly around the 20% EBITDA margin for siding was to actually convey a sense of comfort.
Bob: If you think about the volume sensitivities.
Bob: The margin is obviously heavily impacted which can be heavily impacted by fluctuations in volume.
Bob: So we're confident that we're going to see volume increase in 2024.
Operator: And with that, we'll be happy to take your questions. Thank you. As a reminder, to ask a question, please press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Bob: Hence that our EBITDA margin will benefit from that the presence of that volume uplift.
Speaker Change: On the question of volume that we are.
Speaker Change: Expecting and anticipating increases in our expert finished production, which is itself right now as.
Ketan Mamtora: Please stand by while we compile the Q&A roster. Our first question comes from the line of Ketan Mamtora from BMO. Thank you. Good morning, Brad, Alan.
Speaker Change: As we as we grow that business not necessarily margin accretive.
Alan J. M. Haughie: Thanks for all the details. Alan, perhaps we'll start with, when I think about the 2024 siding EBITDA guidance, can you talk about, sort of, at a high level, what are the sort of key elements as we think from 2023 to 2024, given that in 2023 volume was a big drag, there was, you know, probably inefficiencies as you were working through the inventory de-stocking phase, and then you also have a price increase for this year. So can you talk about just sort of three or four key elements as we think about the bridge? Sure, Ketan, thanks for the question. You know, I do want to stress that this is, to my knowledge, the most comprehensive guidance that the company has ever given. One of the objectives, particularly around the 20% EBITDA margin for siding, was to actually convey a sense of comfort. If you think about the volume sensitivity...
Speaker Change: It's profitable, but not to the same degree as the rest of the business.
Speaker Change: A situation, which I have absolutely no doubt, we will improve as the year has progressed.
Speaker Change: We are also investing rather heavily.
Speaker Change: Selling and marketing certainly more heavily in 2024 that we did in 2023 and that's that's largely offsetting the benefits that we get from removal of the ramp up costs that you saw in <unk>.
Speaker Change: In 2023.
Speaker Change: And secondly, or thirdly, rather we are actually carrying still as you will note.
Speaker Change: And in essence, one extra mill network.
Speaker Change: Again this is a.
This is a decision that we're making in order to make sure that we have all of our mills, let's say.
Speaker Change: Hi, Giles the debt at <unk>.
Speaker Change: <unk> siding product as we move ourselves from 2024 to 2025 and continued future growth and there was of course.
Speaker Change: Some labor inflation and freight inflation that we're anticipating that's no by no means certain yet.
Alan J. M. Haughie: The margin is obviously heavily impacted, or would, can be heavily impacted by fluctuations in volume. And so, you know, we're confident that we're going to see a volume increase in 2024, and hence, that our rebar margin will benefit from that presence of that volume uplift. On the question of volume, though, we are expecting and anticipating increases in our expo finish production, which is, right now, as we grow that business, not necessarily margin-acquitted. It's profitable, but not to the same degree as the rest of the business, a situation which I have absolutely no doubt we will improve as the years progress.
Speaker Change: So there are factors.
Basically throw those all in the past.
Speaker Change: In this guidance that we're giving you.
Speaker Change: And so.
I was tempted to say at least 20% EBITDA margin, but occasionally when I've said at least.
Speaker Change: We've literally blow the number out of the water that they want to send any signal that I think blowing this number out to the waters is on the cards, but I think 20% given all of these investments, we're making and our confidence in the volume uplift is a very safe number.
Speaker Change: Understood.
Speaker Change: That's very helpful context, and one more on siding.
Speaker Change: Can you talk maybe perhaps in terms of how the business is.
Speaker Change: We're forming I know in the middle of the <unk> been through this pretty big Destocking fees that what are you seeing in sheds demand.
Alan J. M. Haughie: We are also investing rather heavily in selling and marketing, certainly more heavily in 2024 than we did in 2023. And that's largely offsetting the benefits that we get from the removal of the rampant costs that you saw in 2023. And secondly, or thirdly, rather, we are still, as you will note.
Speaker Change: Yes, so Keith and we had a good recovery and share demand second half of last year. So certainly Q4 was was okay to good.
Speaker Change: Right now in our order file is probably the weakest sector that we have.
Speaker Change: I think there was a little bit of inventory build in that shed serving channel in Q4, but it's okay, but right now it's the weaker weakest part of our order file, but we do not anticipate that carrying out throughout the year as just kind of what's happening right now as you are referencing I'm sure we'd certainly explore.
Alan J. M. Haughie: In essence, one extra mill in our network. Again, this is a decision that we're making in order to make sure that we have all of our mills, let's say, agile and adept at producing Saudi products as we move ourselves from 2024 into 2025 and continued future growth. And there is, of course, some labor inflation and freight inflation that we're anticipating. But it's by no means certain yet.
Speaker Change: <unk> kind of an overhang post COVID-19.
Speaker Change: Sure demand being very like first half of this year, we're seeing this year being more of a normal demand pool for that sector.
Speaker Change: But we did we did carry a little inventory.
Alan J. M. Haughie: So they're the factors. I've basically thrown those all in the pot, and they are in this guidance that we're giving you. And so I was tempted to say, you know, at least 20% of the EBITDA margin. But occasionally, when I've said at least, we've literally blown the number out of the water.
Speaker Change: Channel carried at low inventory across the year that we're working through right now.
No worries there just kind of the current situation in the market.
Speaker Change: Okay.
Speaker Change: Understood that's very helpful I'll jump back in the queue. Good luck.
Speaker Change: Thank you okay.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Alan J. M. Haughie: And I don't want to send any signal that I think blowing this number out of the water is on the cards, but I think 20%, given all of these investments we're making and our confidence in the volume uplift, is a very safe bet.
Speaker Change: Our next question comes from the line of Steven Ramsey from Thompson Research Group.
Steven Ramsey: Hi, Good morning, maybe just continue the siding sales and marketing spend topic curious where that spend it's focused by product set or customer type and can you talk to you how you're judging the success there the ROI that the timing between spin to sales.
Brad Southern: And one more on siding. You know, can you talk maybe perhaps back in terms of how the sheds business is performing? I know in the middle of the year, we went through this pretty big de-stocking phase there. What are you seeing in shed demand? Yeah, so Ketan, we had a good recovery in shed demand in the second half of last year. So certainly, Q4 was okay to good.
Steven Ramsey: Yes.
Steven Ramsey: The two areas of focus first of all from a sales resource standpoint is around new construction.
Steven Ramsey: The sales assets that are focused on that segment, along with the technical support that goes into ensuring a smooth transition of the incumbent siding product also smart side. So we are adding sales resources in support of that.
Brad Southern: Right now, in our order file, it's probably the weakest sector that we have. I think there was a little bit of inventory built in that shed serving channel in Q4, but it's okay.
Steven Ramsey: The push.
Steven Ramsey: And new construction and then on the marketing side. The focus there is primarily in repair and remodel.
Brad Southern: But right now, it's the weakest part of our order file, but we do not anticipate that continuing throughout the year. It's just kind of what's happening right now.
Steven Ramsey: That is a different sales process for our contractors are actually convincing a homeowner.
Steven Ramsey: So re side their house, and then to use our product and that requires a good bit.
Brad Southern: You know, as you are referencing, I'm sure we'd certainly experienced kind of an overhang post-COVID of shed demand being very much like the first half of this year. We're seeing this year being more of a normal demand pull for that sector. Again, but we did carry a little inventory. Well, the channel carried a little inventory across the year that we're working through right now. No, no worries there.
Steven Ramsey: Personalized are considered more consumer oriented marketing support.
Steven Ramsey: And so the <unk>.
Steven Ramsey: Not all of the increases is there, but certainly the majority of the marketing spend increase is focused on our growth of repair and remodel.
Speaker Change: Okay, that's perfect and then on the siding margin outlook, yes.
Speaker Change: 20% on slide 11.
Speaker Change: For both Q1, and the full year, but just doing midpoint to midpoint.
Ketan Mamtora: Just kind of the current situation in the market. Understandable. No, that's very helpful. I'll jump back in the queue.
Speaker Change: Looks like about 100 bps of improvement.
Steven Ramsey: Good luck. Thank you. One moment for our next question. Our next question comes from the line of Steven Ramsey from Thompson Research Group. Hi, good morning.
Speaker Change: Just curious how you think about the cadence through the year, how seasonality plays into that and volume uptake off of a higher base of production.
Brad Southern: Maybe to continue the topic of sales and marketing spend, curious where that spend is focused by product set or customer type, and can you talk about how you're judging the success there, the ROI, the timing between spend to sale? So the two areas of focus, first of all, from a sales resource standpoint, are around new construction and the sales assets that are focused on that segment, along with the technical support that goes into ensuring a smooth transition, you know, off the incumbent siding product onto the smart side. So we're adding sales resources in support of that push for new construction. And then on the marketing side, the focus there is primarily on repair and remodel. You know, that is a different sales process where contractors are actually convincing a homeowner to reside in their house and then to use our product. And that requires a good bit of personalized or consumer-oriented marketing support. And so not all of the increases are there, but certainly the majority of the marketing spend increase is focused on our growth in repair and remodeling. Okay, that's perfect.
Yes.
Speaker Change: Second and third quarters, obviously efficacy assessed plays out higher higher volumes.
Speaker Change: Year over year.
Speaker Change: First the first and fourth quarters, most likely so my anticipation is that if the margin peaks at all.
I'm not sure, but certainly I think.
Speaker Change: Second and third quarters will be healthy EBITDA margins.
Speaker Change: Yes.
Speaker Change: That's great. Thank you given the extra extra volume.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of George Staphos from Bank of America Securities Inc.
George Leon Staphos: Thanks, very much hi, everyone. Good morning, Erinn Allen Brad Thanks for the details.
George Leon Staphos: I had a question on siding margin as well and for the investment that you're making this year on on marketing and.
George Leon Staphos: And selling.
George Leon Staphos: Is there much of a lag between when you ultimately expect to get the volume and the investment that you need to support the volume growth that you're expecting.
Differently should we expect.
Speaker Change: Selling general administration, the marketing to move more or less in tandem with the incremental volume and incremental margin. That's question number one question number two and I'll jump back in queue.
Alan J. M. Haughie: And then on the site margin outlook, you have a consistent 20% on slide 11 for both Q1 and the full year, but just going midpoint to midpoint, looks like about 100 bps of improvement. Just curious how you think about the cadence through the year, how seasonality plays into that, and volume uptake off of the higher base of product. Yeah, well, the second and third quarters are obviously going to see higher volumes year over year than the first and fourth quarters, most likely. So my anticipation is that if the margin peaks, it'll, well, I'm not sure, but certainly I think the second and third quarters will be healthy. That's great, thank you. Give them the extra volume.
Speaker Change: Can you talk to us recognizing it's very difficult to project anything in OSB, what would you be looking to in terms of structural.
Speaker Change: Solutions as a percentage of the overall mix when all said and done with 24. Thank you.
Speaker Change: George Let me elevate on these additional sales and marketing spend.
Speaker Change: Okay.
Speaker Change: The impact of that spend it's not instantaneous.
Speaker Change: It's an investment.
Speaker Change: In support of our Capex the Capex investment we've made over the last three or four years, we did consciously cut back on sales and marketing spend as we were ahead of Magnus order file.
Alan J. M. Haughie: Thank you. One moment for our next question. Our next question comes from the line of George Staphos from Bank of America Securities, Inc. Thanks very much. Hi, everyone. Good morning. Aaron, Alan, Brad, thanks for the details.
Speaker Change: <unk> wasn't.
Speaker Change: The immediate need for demand creation, and maybe demand that would have been created trouble satisfying.
Speaker Change: And so we're seeing this year it really is a return to the.
Speaker Change: More in line with our <unk>.
Speaker Change: Our COVID-19.
Speaker Change: <unk>.
Speaker Change: Right.
Speaker Change: <unk> added emphasis around the two segments that I've mentioned before where we have historically been underpenetrated and not had to have either to sales assets or the level of marketing spend that we anticipate to support our repair and remodel but our.
George Leon Staphos: I had a question on sliding margin as well as for the investment that you're making this year in marketing and selling. You know, is there much of a lag between when you ultimately expect to get the volume and the investment that you need to support the volume growth that you're expecting? said differently, should we expect, you know, the selling general administration, and marketing to move more or less in tandem with the incremental volume and incremental margin? That's question number one.
Speaker Change: From a marketing standpoint.
Speaker Change: You create.
Speaker Change: High level, you've quite impressed and create some brand equity.
In anticipation of that creating demand that you feel later on.
Speaker Change: And then on the sales side, yes. Some of these technical support staff that we add can have an immediate impact, but really that's more or less <unk>.
Brad Southern: Question number two, and I'll jump back in queue. Can you talk to us, recognizing it's very difficult to project anything in OSB, what would you be looking for in terms of structural solutions as a percentage of the overall mix when we're all said and done with 24? Thank you. George, let me only on these additional sales and marketing spend. The impact of that spend is not instantaneous. It's an investment in support of the CapEx investment we've made over the last three or four years. We did consciously cut back on sales and marketing spend as we were in a managed order file. Obviously, there wasn't an immediate need for demand creation, and any demand that would have been created, we would have had trouble satisfying.
Speaker Change: <unk> us with volume we have already converted.
Speaker Change: The more strategic sales investments take it takes a few months a few months to train and then a few months for them to start being effective out in the field. So I would say most of this incremental sales and marketing spend.
Speaker Change: Other than the technical sales support is going into demand creation that will fill.
Best case late this year, probably more into next year.
Speaker Change: Okay.
Speaker Change: But bottom line, there's there'll be a bias.
Speaker Change: In terms of incremental an overall EBITDA margin attention to the upside as the year progresses would be my takeaway both because of the seasonal pickup in volume and then even if we get into the fourth quarter. Some of that investment you've already made and so you should be getting the benefit of that later in the year.
Brad Southern: And so we're seeing this year really as a return to more in line with our prior COVID rates plus added emphasis around the two segments that I mentioned before, where we have historically been underpenetrated and not had to have either the sales assets or the level of marketing spend that we anticipate to support a repair and remodel. But I would consider, from a marketing standpoint, you create, I mean, at a high level, you create an impression; you create some brand equity in anticipation of that creating the, you know, demand that you feel later on. And then on the sales side, yeah, some of the technical support staff that we add can have an immediate impact, but really, that's more or less... helping us with volume we've already converted.
I'm not trying to be too precise, but just conceptually is that right or would you disagree with any of that.
Speaker Change: No I agree with that conceptually yes.
Speaker Change: And then.
Speaker Change: Im sorry the question.
Speaker Change: Okay.
Speaker Change: Most of that was a big question that you want to come back to the site in question, we certainly can but on the structural solutions.
Speaker Change: Sure.
Speaker Change: <unk> 55.
Speaker Change: 50% to 60% I think is a realistic goal for this year.
Speaker Change: Not to say, 55% yet.
Speaker Change: We do.
Speaker Change: Manage that for margin more so than for volume.
Brad Southern: For more strategic sales investments, it takes a few months to hire them, a few months to train them, and then a few months for them to start being effective out in the field. So I would say most of this incremental sales and marketing spend, maybe other than the technical sales support, is going into demand creation that will fill, at best case, late this year, probably more into next year. Okay, I've been a little bit, but bottom line, there'll be a bias. In terms of incremental and overall EBITDA margin, attention to the upside as the year progresses would be my takeaway, both because of the seasonal pickup Not trying to be too precise, but just conceptually, is that right, or would you disagree with that? Oh, I agree with that. Conceptually, yeah. Thanks, Ben. I'm sorry.
Speaker Change: Certainly our strategy is to get volume growth as well and so we will pick up.
Speaker Change: The.
Speaker Change: Our ability to push that volume is somewhat dependent on.
Speaker Change: Current price level, and our enthusiasm about margin management, but a realistic goal will probably be.
Speaker Change: 50, 354% and then upside goal might be 50, 556%.
Speaker Change: Okay.
Speaker Change: Thank you Brett.
Turn it over.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Susan Mcclary from Goldman Sachs.
Susan Marie Maklari: Thank you good morning, everyone.
Susan Marie Maklari: My first question is on.
Susan Marie Maklari: On siding you had mentioned on the last quarter call that you are limiting the amount of pre buy ahead of the January price increase I guess, one was that a success in Q given that how are you thinking about the order files as we're coming into this year and the channel inventories and what that could suggest for the volumes in that segment as we think about the next couple of quarters.
Brad Southern: I'll move to the OSP question. If you want to come back to the siding question, we certainly can, but on the structural solution... mid 55. I mean, between 50 and 60% is a realistic goal for this year. I'd love to see 55%.
Susan Marie Maklari: And we did limit.
Susan Marie Maklari: Volume basically the average purchases over the prior nine months for our customers.
Susan Marie Maklari: So we had essentially no minimal pre buy.
Susan Marie Maklari: Everybody in the December volume for January so I feel really good.
Brad Southern: You know, we do manage that for margin more so than for volume, but certainly, our strategy is to get volume growth as well. And so we'll have to pick some, you know, the Our ability to push that volume is somewhat dependent on, you know, the current price level and our enthusiasm about margin management, but a realistic goal would probably be, you know, 53, 54 percent, and then an upside goal may be 55, 56 percent. OK. Thank you, Brad.
Susan Marie Maklari: We carry that across Europe, and I feel good about the first six weeks activity and our order file and I feel there always is a soft seasonal inventory build at this time of year in siding.
Susan Marie Maklari: As people.
Susan Marie Maklari: People come back from the holidays in anticipation of the spring build especially now that we're also in the <unk>.
Pre finished business, but I would call seasonal bill right now in the channel normal.
The Covid normal.
Susan Marie Maklari: And so we feel good about our order file.
Susan Marie Maklari: Good about where inventories level inventory levels in the channel and our own inventories at the mill level.
George Leon Staphos: Thank you. Thank you. Thank you.
Speaker Change: Okay. That's helpful and then.
Susan Marie Maklari: One moment for our next question. Our next question comes from the line of Susan Maklari from Goldman Sachs. Thank you. Good morning, everyone. My first question is about sitting.
Speaker Change: Then.
Speaker Change: That's a higher level question as we think about the potential that rates will come down as we move through the year and that could drive some pickup in existing home sales. How are you thinking about what that could mean for the business.
Brad Southern: You had mentioned on the last quarterly call that you were limiting the amount of pre-buy ahead of the January price increase. I guess one question is, was that a success? And two, given that, how are you thinking about the order files as we come into this year and the channel inventories and what that could suggest for the volumes in that segment as we think about the next couple of quarters? We did limit the pre-buy volume to basically the average purchases over the prior nine months for our customers. So we had essentially none to minimal pre-buy, or pre-buy into December volume for January. So I feel really good about how we carried that across the year, and I feel good about the first six weeks of activity in our order file. And I feel there always is some seasonal inventory bill this time of year inciting, as people come back from the holidays, anticipation of the spring bill, especially now that we're also in the pre-finished business. But I would call a seasonal bill right now in the channel normal, pre-COVID normal.
Speaker Change: Any thoughts on the timing around that increase in turnover in housing relative to when it came through to the actual results.
Speaker Change: Susan I think interest rate reduction this year would have.
Speaker Change: I think we would have a significant impact on housing.
Speaker Change: The kind of the short term with be more emotional perhaps than economic.
Speaker Change: The movement downward authentic would provide some home buyer confidence to move into the market.
Speaker Change: I do think that over a period of time it could free up some existing home how long to go on the market for homeowners that have been.
Speaker Change: Ill kind of hesitant.
Speaker Change: Interest rate environment two to.
Speaker Change: Make that move.
Speaker Change: Clearly translate into new home construction I mean, it wasn't at all but it's certainly.
Brad Southern: And so we feel good about pacing our order file, and we feel good about where inventory levels are now in the channel and our own inventories at the mill level. Okay, that's helpful. And then, perhaps a higher-level question, you know, as we think about the potential that rates will come down as we move through the year, and that could drive some pickup in existing home sales. How are you thinking about what that could mean for the business? And any thoughts on the timing around that increase in turnover in housing relative to when it could come through to the actual results? Susan, I think an interest rate reduction this year would have a...
Speaker Change: Housing that would be on the market. So I think for this year.
On new construction.
Speaker Change: The impact would be maybe a little more emotional or feel good then it is really the economics change again, but I think over the 2025 it could be a barrier.
Speaker Change: Powerful driver of demand and then secondly on the repair and remodel.
Speaker Change: Ah Re-siding project is a high dollar.
Speaker Change: Project debt.
Speaker Change: Highly likely to be financed.
Speaker Change: Out of savings. So I do think that interest rate reduction will have a more immediate impact on repair and remodel by just making those projects more affordable for a homeowner.
Speaker Change: No.
Speaker Change: We get that reduction I think it would.
Speaker Change: It would provide new construction is a tailwind it might be it will be more impactful 25, thanks for repair and remodel about the impact could be immediate for us.
Brad Southern: I think that kind of short term impact would be more emotional, perhaps, than economic. Just, you know, the movement downward, I think, would give some homebuyers confidence that it's time to move into the market. I do think that, over a period of time, it could free up some existing homes to go on the market for homeowners that have been kind of hesitant in this interest rate environment to make that move. That won't necessarily translate into new home construction. I mean, it wasn't at all, but it's certainly the type of housing that would be on the market.
Speaker Change: Okay. Thank you for the color it's helpful and good luck with everything.
Speaker Change: Thanks, Susan.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Matthew Mckellar from RBC capital markets.
Matthew Mckellar: Hi, good morning, Thanks for taking my questions.
Matthew Mckellar: Let me first just setting aside the price increases are you able to talk to how you would expect mix shifts from what I assume would be more expert finish and potentially more builders series product year over year to affect average selling price in siding in 2024.
Brad Southern: So I think for this year on new construction, the impact would be maybe a little more emotional or feel good than it is really, you know, the economics changing. But I think in 2025, it could be a very powerful driver of demand. And then secondly, on repair and remodel, you know, a resigning project is a high-dollar project that is highly likely to be financed instead of paid, you know, out of savings. And so I do think that interest rate reduction would have a more immediate impact on repair and remodel by just making those projects more affordable for a homeowner.
Yes so.
Matthew Mckellar: I think it's certainly our focus this year is around growing our builder series and our export finished brands.
Matthew Mckellar: Export finished repair and remodel builder series for the construction of builder series.
Matthew Mckellar: <unk> on the SKU, but typically that is a.
Matthew Mckellar: Price point item to certain extent, so that would be a damper on average price.
Susan Marie Maklari: So if we get that reduction, I think it would provide new construction of Telmia that maybe would be more impactful for 25. I think for repair and remodel, that impact could be immediate for us. Okay, thank you for the color, it's helpful, and good luck with everything.
Matthew Mckellar: <unk> increases not necessarily on margin, but on price and then for export finished that.
<unk> four.
Matthew Mckellar: A much higher pricing and so that would be that would be waiting our revenue up.
Matthew Mckellar: Thank you. One moment for our next question. Our next question comes from the line of Matthew McKellar from RBC Capital Markets. Hi, good morning.
Matthew Mckellar: Get more expert so.
Matthew Mckellar: I think it's probably more opportunity from a net net for the export finished to have a bigger impact, possibly that builder series would have negatively but we'll have to see how how about twice that as we go through the year. So maybe maybe the mix would be a slight positive upside for the year compared to 23.
Brad Southern: Thanks for taking my questions. First, just setting aside the price increase, are you able to talk about how the next shift from what I assume would be more expert finish and potentially more builders series products year over year to affect average selling price and siding in 2024? Yeah, so I think our focus this year is around growing our builder series and our expert finish brands, one for expert finish repair and remodel, and the builder series for new construction. The builder series, it depends on the SKU, but typically, you know, that is a price point item to a certain extent. So that would be a damper on average price, as that volume increases, not necessarily on margin, but on price. And then for export finish, that sells for a much higher price.
Hi.
Speaker Change: Okay. That's helpful. Thanks for that.
Speaker Change: Then next yes.
Speaker Change: The new home construction can you talk about what the tone is like from from your customers in that segment and with that do you view at this point and whether housing starts by regional builders should trend much differently than housing starts across the industry.
Speaker Change: Yeah. So I would say just given the exposure that we have to conferences and one on one on one conversations.
Speaker Change: Thanks.
Speaker Change: Maybe in the middle of last year I felt like there was soft I felt more pessimistic about this year from a builder standpoint, I think the mood there to strengthen.
Brad Southern: And so that would be weighting our revenue up if we could get more experts in it. So, I'm not. I think there's probably more opportunity from a net net for the expert finish to have a bigger impact positively than builder series would have negatively, but we'll have to see how that plays out as we go through the year. So maybe, maybe mixing would be a slight positive upside to the year compared to 23.
Speaker Change: Through Q4, and certainly the town right now is pretty solid and obviously the conversations around rate reduction.
Speaker Change: It has a positive impact on system that theyre on the mood.
Speaker Change: Yes.
Speaker Change: The large national builders that.
Speaker Change: We partner with are certainly optimistic about this year put infrastructure in place to sell through this year.
Brad Southern: Okay, that's helpful. Thanks for that. And then next, in new home construction, can you talk about what the tone is like from your customers in that segment? And with that, do you have a view at this point on whether housing starts by regional builders should trend much differently than housing starts across the industry? Yeah, so I would say, you know, just giving the exposure that we have to conferences and one-on-one conversation. I think that, um, you know, maybe in the middle of fall last year, I felt like there was some, I felt more pessimistic about this year from a builder standpoint.
Speaker Change: And our anticipated growth.
Speaker Change: I do.
Speaker Change: Surprised to hear.
Speaker Change: Our conference I would say that in Q4 or maybe it was in January.
Speaker Change: Anticipating some strengthening from the regional builders just because there is such a need for new home construction because the existing homes are on the market and they are I mean at the end of the day. There is only so much the national builders can do in the moment as I continued to grow.
Speaker Change: And also.
Brad Southern: I think the mood there will strengthen, uh, through Q4 and certainly the tone right now is pretty solid. You know, obviously, the conversations around rate reduction have a positive impact on sentiment there or on the mood. But the large national builders that we partner with are certainly optimistic about this year. You know, they've put the infrastructure in place to sell through this year, and they are anticipating growth. I was surprised to hear at a conference I was at, in Q4, or maybe it was in January, that the regional builders were anticipating some strengthening from the regional builders just because there is such a need for new home construction because the existing homes aren't on the market. And I mean, at the end of the day, there is only so much the national builders can do at the moment, you know, as they continue to grow.
Speaker Change: Post Covid there has been some pop song capability for the regional builders to get the permitting and get the infrastructure in place where they are.
Speaker Change: Might be not as efficient at that as a big builder, but they have been working on it. So overall I think we could see.
So.
Speaker Change: Recovery or some growth at the regional level.
Speaker Change: Honestly that placed our existing sweet spot inside and we've always had a really good presence there.
Speaker Change: When you couple that with continued growth.
Speaker Change: At the national builder level, we could get.
Speaker Change: We can really play out for a good year for us.
Speaker Change: New construction.
Speaker Change: Great. Thanks, very much that's all from me I'll turn it back.
Speaker Change: Hello.
Speaker Change: Thank you one moment for our next question.
Our next question comes from the line of Mark Weintraub from Seaport Research partners.
Mark Weintraub: Thank you.
Mark Weintraub: Alan I appreciate the qualitative drivers behind the siding margin.
Brad Southern: And also, you know, post-COVID, there has been some capability for the regional builders to get the permits, get the infrastructure in place, you know, where they're maybe not as efficient at that as the big builders, but they have been working on it. So, overall, I think we could see, you know, some recovery or some growth at the regional level. Honestly, that placed our existing sweet spot inside, and we've always had a really good presence there.
Mark Weintraub: Change is I was hoping maybe that we could get a little bit more color on how that translates.
Mark Weintraub: Into the quantitative 20%.
Which I guess is a little bit lower than my back of the envelope will come out.
Mark Weintraub: Obviously, there is lots of stuff.
Speaker Change: No I don't.
Matthew Mckellar: You know, coupled that with continued growth at the national builder level, we could really have a good year for us in new construction. Great. Thanks very much. That's all for me. I'll turn it back. For more information, visit www.fema.gov. Thank you.
Speaker Change: And so.
Speaker Change: Maybe if you maybe open ended.
Speaker Change: But you can add to the conversation at this point, otherwise I have kind of more pointed questions too.
Speaker Change: I am not sure, which one I prefer.
Mark Weintraub: One moment for our next question. Our next question comes from the line of Mark Weintraub from Seaport Research Partners. Thank you.
Speaker Change: Let me, let me give you a couple of big numbers that.
Speaker Change: In this.
Alan J. M. Haughie: Alan, I appreciate the qualitative drivers behind the citing margin changes. I was hoping maybe that we could get a little bit more color on how that translates into the quantitative 20%, which I guess is a little bit lower than my back of the envelope calculation would come out, but obviously, there's lots of stuff. You guys know I don't. And so maybe if you, maybe open-ended. What you can add to the conversation at this point? Otherwise, I have kind of more pointed questions too. I'm not sure which one I prefer.
Speaker Change: And I'm going to give you ranges so high level, selling and marketing investment is $15 million to $20 million year over year in the middle of our vessel. The mill investment vessel is $15 million to $20 million reversing.
Speaker Change: We are adding other elements of SG&A.
Speaker Change: Around.
Speaker Change: Development of new products and the rest of the sort of infrastructure the siding business in the region of say $10 million.
Sure.
Speaker Change: And we're anticipating inflation, which can change of course.
Speaker Change: For the labor part.
Alan J. M. Haughie: Let me give you a couple of big numbers that are in this, and I'm going to give you ranges. So, at a high level, the selling and marketing investment is $15 to $20 million per year, and the mill investment reversal is $15 to $20 million. We are adding other elements of SG&A around, you know, the development of new products and the rest of the sort of infrastructure in the signing business of a new region of, say, $10 million. And we're anticipating inflation, which can change, of course, except for the labor part of maybe $20 million or so. So there are some big-ticket items that are sort of more discreet. They are, in some instances, manageable, such as the selling and marketing investment. And that's probably about as much detail as I'm willing to give. That's super helpful.
Speaker Change: Maybe $20 million or so so there is some big ticket items that that that sort of more discrete.
Speaker Change: They are in some instances manageable such as the selling and marketing investment on that.
Speaker Change: That's probably about as much details I'm willing to give.
Speaker Change: That's super helpful. Maybe two.
Speaker Change: Is it one shouldnt use like the 50%.
Speaker Change: On incremental margins, which is sort of what your pans out on the anything new about them beyond <unk>.
Speaker Change: <unk> chart you provide.
Speaker Change: For the increase in volume that you.
Speaker Change: Embedded in the guide.
Alan J. M. Haughie: Maybe two, is it that one shouldn't use like the 50% on incremental margins, which is sort of what you pence out on anything new above and beyond, you know, on the sensitivities chart you provide for the increase in volume that you've embedded in the guide, or is it... Well, given those big ticket items I've called out, if you use the incremental margins... Right. It should all work.
Speaker Change: Is there any way.
Speaker Change: Well.
Speaker Change: Given those big ticket items I'd call that if you use the.
Speaker Change: The incremental margins.
Speaker Change: It should all work.
Speaker Change: Going further in giving you forward, okay based on and something we're not going to be particularly forthcoming yet because there is a relationship between the two on how volume and price breakdown within that revenue guide.
Alan J. M. Haughie: There's a risk of going further and giving your all forward. Okay. It's based on, and something we're not going to be particularly forthcoming yet on, because there is a relationship between the two, on how volume and price break down within that revenue guide. It's simply too early in the year for us to give a reasonable call on that.
Speaker Change: It's simply too early in the year for us to give it.
A reasonable call on that but if you make the volume and price assumptions and use the sensitive accordingly, you should get something in there.
Speaker Change: Yes, So I guess that was the last question, which I had and maybe sort of embedded in your answers to the first one was and then as your pricing would that be discrete and if we're getting 2% additional pricing that should be incremental to the EBITDA.
Alan J. M. Haughie: But if you make your volume and price assumptions and use the sensitives accordingly, you should get something in there. Well, OK. Yeah, and so I guess that was the last question which I had, and maybe you sort of embedded it in your answers to the first one was, and then if pricing would be discreet? And if we're getting 2% additional pricing, should that be incremental to the EBITDA? Or did you just say that's sort of embedded in the incremental margin analysis? No, no, it's not embedded in the incremental margin.
Speaker Change: Did you just say that sort of embedded in the incremental margin analysis.
Speaker Change: And that's not embedded in the incremental margin.
Speaker Change: The incremental margin discussion is always purely volume.
Speaker Change: Preexisting mix, so yes pricing is incremental.
Speaker Change: Revenue and EBITDA.
All right Super Thank you.
Speaker Change: Thank you one moment far next question.
Speaker Change: Our next question comes from the line of Sean Stewart from TD Securities.
Alan J. M. Haughie: The incremental margin discussion is always purely volume, a pre-existing mix. The Revenue Initiative. All right, good.
Sean Steuart: Thanks, Good morning.
Sean Steuart: Question on the OSB cycle average.
Sean Steuart: So gaming, which which seems to make sense, but youre talking about an 85% operating rate assumption that underlies that.
Mark Weintraub: Thank you. Thank you. One moment for the next question. Our next question comes from the line of Sean Steuart from TD Security. Thanks. Good morning.
Sean Steuart: Question on the OSB cycle average you're giving, which seems to make sense, but you're talking about an 85% operating rate assumption that underlies that. Which isn't great, and I guess what I'm wondering is if you can speak to the shape of... the cost curve in your OSB portfolio and thoughts on potential asset closures above and beyond siting conversions over the long run. There's a possibility on that front for the, Well, I'll do the shape of the coughs curve. It's pretty flat, and Sean, you know, obviously, we have some, you know, some hills that are. Our costs are lower, and that's how we rationalize capacity when we do take the down time. Probably unmeasurable at the four billion foot level.
Sean Steuart: Great and I guess, what I'm wondering is if you can speak to the shape of the cost curve in your OSB portfolio.
Sean Steuart: And thoughts on potential asset closures above and beyond signing conversions over the long run the possibility on that front for the company.
Sean Steuart: Okay.
Speaker Change: Well I'll do the.
Speaker Change: Shape of the cost curve.
Speaker Change: It's pretty flat.
Sean you, obviously, we have some some mills that are.
Speaker Change: Power costs and lower cost.
Speaker Change: And that's how we rationalized.
Speaker Change: Capacity, when we do take the downtime but.
Speaker Change: It probably.
Probably and measurable, but the $4 billion book level, we had a shift back to kind of walk me or something like that.
Brad Southern: We had to shift back to Manilowki or something like that from a cost standpoint. So pretty flat cost curve. And then, obviously, we've learned how to move that capacity or the production up and down pretty efficiently so that the cost of downtime isn't great either. So, yeah, a flat cost curve for us and relatively flat for the industry, at least when we do the analysis. You know, earlier in my career, I was in the paper business, where the cost curves could be pretty steep, and that's certainly not the case in OSB at the University of Louisiana. Sir, go ahead.
Speaker Change: On a cost standpoint so.
Speaker Change: Pretty flat cost curve and then obviously we've learned have too.
Speaker Change: Sure.
Speaker Change: The capacity or the production up and down pretty efficiently.
Speaker Change: The cost of.
Speaker Change: Tom is it right either.
Speaker Change: So, yes, black horse car for us.
Speaker Change: Relatively flat flat for the industry at least when we do the analysis.
Speaker Change: Earlier in my career I was in the paper business, where the cost curve could be pretty steady for that certainly not the case in OSB.
Speaker Change: But you would say utilization.
Speaker Change: Sorry go ahead.
Brad Southern: For utilization, the 85% is the trail and tenure actual average utilization. So it's very consistent with historical. Thanks for that. Second question on the growth capex of 50-60 million in 2024. Can you give us an idea of where that's being focused? Is it on a few specific projects, or a broad array of projects across several assets? Any detail on that?
Speaker Change: For utilization in the 85% is very is the trailing 10 year actual average utilization.
Speaker Change: Consistent with historical.
Speaker Change: Okay.
Thanks for that.
Speaker Change: Second question on the growth Capex of $50 million to $60 million in 2024 can you give us some idea of where thats being focused is it a.
Speaker Change: A few specific projects abroad array of projects across several assets.
Speaker Change: Detail on that front.
Brad Southern: It's a bunch of small projects. There's no major project that I can really call out. Okay, thank you for that detail.
Speaker Change: So akshay, it's everything and everywhere.
Speaker Change: The biggest single item is investment in.
Speaker Change: And structural solutions.
Speaker Change: Enhancements.
Speaker Change: The value added OSB, but.
Sean Steuart: But, and again, 90% of, sorry, 80% of that... and other strategic projects are basically... understood. Okay, thanks very much. That's all I have.
Speaker Change: It's.
Speaker Change: A bunch of small projects, there's no major project, whether that can really call out.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: But.
Speaker Change: 90% of 80% of that.
Speaker Change: Strategic projects basically in siding.
Speaker Change: Got it.
Speaker Change: Understood. Okay. Thanks, very much that's all I have.
Kurt Jinger: Thank you. One moment for our next question. Our next question comes from the line of Kurt Jinger from DA Davidson. Thanks and good morning, everyone.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Our next question comes from the line of Kurt Yinger from D. A Davidson.
Kurt Yinger: Alright, thanks, and good morning, everyone.
Brad Southern: I was just curious, you know, how important the Builders Series itself is to your objectives to grow in the new residential construction segment? And I guess, along those lines, you know, what has been kind of the primary feedback from production builders with that product to date? And what do you think is most important in terms of really hitting a tipping point and better penetrating that specific customer set going forward? Yeah, so the Builder Series is very important to our growth objectives for our segment and for the company. You know, it provides a competitive alternative for, you know, the big builder in new construction, of course. The reception upon use has been very good.
Kurt Yinger: I was just curious how important is builder series itself to your objectives to grow and the new residential construction segment and I guess, along those lines what has been kind of the primary feedback from production builders with that product to date and what do you think is most important in terms.
Kurt Yinger: I'm really hitting a tipping point and Ben you're penetrating that specific customer set going forward.
Speaker Change: Yes so.
Speaker Change: The builder series is very important.
Two our growth objectives.
Speaker Change: For our segment for the company it.
Speaker Change: It is.
Speaker Change: It's a competitive alternative for.
Speaker Change: The big Big builder and new construction of course.
Speaker Change: The.
Speaker Change: The reception upon use has been very good at it.
Brad Southern: It is a very workable product and certainly easier to install than the competitive product that they were going up against, so the reception has been good. You know, the key is trial and getting the product. There's an incumbent product that we're having to compete against. So that, and that is a long sales process. These aren't something that is, a decision is not made weekly on which siding a builder's gonna use.
Speaker Change: As a very workable product and certainly Asia installed competitive.
Speaker Change: Product.
Speaker Change: Going up against so the reception has been good.
Speaker Change: The key is trial.
Speaker Change: Youre getting the product there is an incumbent products.
Speaker Change: We're having to compete against.
Speaker Change: And so that and that is a long sales process. These arent something that is tracking the decision is not made weekly while exciting are builders wanting to use.
Brad Southern: And so, you know, it's a long sales process, and I'll tell you, we have a great value proposition with Builder Series standalone, but as we couple that with Structural Solutions and even our Commodity OSB, which is, you know, also a valuable part of the Home Builders package, we bring heft to the sales process around these big builders that, you know, incorporates all the products we make in North America. And we're finding traction with that, as we couple siding with the Structural Solutions portfolio and, as I mentioned, even with Commodity OSB. You know, we are a meaningful supplier, and have been a meaningful supplier to the Big Builder for a long time in our OSB business, and so bringing a siding solution to that relationship is finding to be very helpful. The relationship that we've built through our OSB business is helpful in the sales process for siding.
Speaker Change: It's a long sales process.
Speaker Change: I will tell you we.
Speaker Change: Have a great value proposition with builder series Standalone, but as we couple that with structural solutions that even our commodity OSB, which is also a valuable part of the homebuilding pack.
Speaker Change: Package.
Speaker Change: We bring our half two the sales process around these big builders that incorporates all of the products, we make in North America, and we are finding traction with that as we couple of siding with structural solutions portfolio and as I mentioned, even with commodity OSB.
Speaker Change: We are a meaningful supplier had been a meaningful supplier to the big buildup of all time and.
Speaker Change: In our OSB.
Speaker Change: Business and so bringing.
Speaker Change: Our siding solution to that relationship we're finding to be.
Speaker Change: Sure.
Speaker Change: Very helpful.
Speaker Change: You ship that we have built through our OSB business is helpful. In the sales process for siding.
Brad Southern: So, you know, we're getting started. I feel good about the progress we've made since we launched Builder Series. I have a tremendous amount of confidence in the product. I have a lot of confidence that once we get the trial, once we get some usage and conversion, the product's going to be sticky because the installer is going to love the product, as we've experienced across our portfolio for 25 years. And, you know, we're very under-penetrated at the national builder level, so all that volume is incremental to us, and as those builders continue to grow and gain market share.
Speaker Change: So we're getting started.
Speaker Change: I feel good about the progress we've made since we launched builder series.
A tremendous amount of confidence in the product I have a lot of confidence that once we get the trial once we get some usage of conversion.
Speaker Change: <unk> the products can be sticky because the installers kona load the product as we've experienced across our portfolio for 25 years.
Speaker Change: And we're very underpenetrated at the national builder level. So all of that volume is incremental to us.
Speaker Change: This dose.
Speaker Change: Builders continue to grow and gain market share. It just provides us a real.
Brad Southern: This provides us with a real, large opportunity to continue this growth story that we've been working on for the past 15 years inside, and I appreciate the color there, Brad. And then just for my second one, I mean, bigger picture on siding margins, it sounds like the increase in investment in sales and marketing in SG&A this year is kind of getting back to normal as opposed to kind of a one-off step up. Note that there's a pretty large gap still between 20% and call it the mid-20s target for the segment. I'm just kind of curious if you could talk about, you know, the timeline for getting back to those targeted siding EBITDA margins and whether that's possible prior to another conversion coming up to the extent that demand warrants it. Yeah, a good question.
Speaker Change: A large opportunity.
Speaker Change: Continue this growth story that we've been working on for the past 15 years in siding.
Understood.
Speaker Change: I appreciate the color there, Brian and then just for my second one I mean.
Picture on siding margins it sounds like the.
Speaker Change: The increase in investment sales and marketing and SG&A. This year is kind of getting back to normal as opposed to kind of a one off step up.
Speaker Change: No.
Speaker Change: Pretty large gap still between 20% and call it the mid <unk> target for the segment.
Speaker Change: I'm just kind of curious if you could talk about the timeline for getting back to those targeted siding EBITDA margins and weather.
Speaker Change: As possible prior to another conversion coming up.
Speaker Change: To the extent that demand one site.
Speaker Change: Yeah. Good question, yes, it's eminently possible before another mill comes up because the fundamental.
Brad Southern: Yeah, it's eminently possible before another milk comes up because the fundamental. The biggest drag on the EBITDA margin right now is the fact that we're running with one extra million in the network, and so the margins will become healthier as we successfully fill that mil with new, high-priced products. It is possible that we could enjoy good movement toward 25% as we fill the capacity we have. The significant amount of our capacity additions are behind us and now in operation. So we are carrying that fixed cost, and we're carrying it because we're very confident that the volume needed by those mills to run profitably is very much in our future.
Speaker Change: Drag on EBITDA margin right now is the fact that we're running with one extra mill and the network, which and so.
Speaker Change: The.
Speaker Change: The margins will become healthier as that as we successfully fill that bill.
Speaker Change: With new high priced product so.
Speaker Change: Yes.
Speaker Change: It is it is it is possible that we could that we can enjoy.
Speaker Change: Good movement towards 25% as we saw as we fill them.
Speaker Change: Do we have as we've said.
Speaker Change: A significant amount of our capacity additions are behind us and now in operation. So we are carrying that fixed costs and we're carrying it because we're very confident that the volume needed by those mills to run profitably is it's very much in our future.
Brad Southern: Got it. And just one quick follow-up. I mean, sequentially, citing EBITDA margins that look kind of down in Q1 versus, you know, Q4, it looks like volume could be flat, maybe a little bit better.
Speaker Change: Got it and just one quick follow up I mean sequentially siding EBITDA margins look kind of down in Q1 versus Q4, it looks like volume to be flat, maybe a little bit better youll have the price increase I mean is that all just kind of the increase in selling and marketing.
Alan J. M. Haughie: You'll have the price increase. I mean, is that all just kind of the increase in selling and marketing that's... You know, weighing it down, Q1 versus Q4, or anything else to call out there? That's it. Labor inflation with January 1st pricing. Wage increases and so on, things like that. Nothing other than what you might call normal economics.
Speaker Change: Weighing it down Q1 versus Q4 or anything else cost there.
Speaker Change: Okay.
Speaker Change: Okay, and if labor inflation with January 1st pricing.
Wage increases and some things like that nothing nothing other than what you might call normal normal economics.
Alan J. M. Haughie: Thanks, Alan. Thank you. At this time, I would now like to turn the conference back over to Aaron Howald for closing remarks. Okay, thank you, operator. If there are no more questions, we'll end there. But before I do, let me briefly remind everyone that LP will be hosting an Investor Day in Las Vegas at the International Builder Show two weeks from today, on the 28th of February, starting at 10 o'clock in the morning local time. The event will be in-person only, with no simultaneous webcast, but we will record it and post the recording to the IR webpage pretty soon thereafter. So if you're interested in attending, check the IR webpage for details or reach out and contact me. And with that, we'll close the call. Thank you, everyone, and we hope to see you in Vegas. This concludes today's conference call. Thank you for participating. You may now disconnect. [Guitar Solo by Chris Merrill]
Speaker Change: Got it thanks al.
Speaker Change: Thank you.
Speaker Change: At this time I would now like to turn the conference back over to Aaron Howald for closing remarks.
Aaron Howald: Okay. Thank you operator with no more questions, we will end there, but before I do let me.
Aaron Howald: Briefly remind everyone that LP will be hosting an investor day in Las Vegas at the International builders show in two weeks from today on the 28 to February starting at 10 o'clock in the morning local time.
It'll be in person only with no simultaneous webcast, but we will record it and post the recording to the IR webpage pretty soon thereafter.
Aaron Howald: If you're interested in attending check the IR web page for details our reach out contact me.
Speaker Change: And with that we'll close the call. Thank you everyone and we hope to see you in Vegas.
This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
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