Q1 2024 Louisiana-Pacific Corp Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the Louisiana-Pacific Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 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, LP's Vice President of Investor Relations and Business Development.
Good day and thank you for standing by welcome to the Q1 'twenty 'twenty four Louisiana Pacific Corporation Earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session. Please press star one one on your telephone.
Operator: And wait for your name to be announced to withdraw your question. Please press star one one again please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Eric Wold.
Aaron Howald: He's vice president of Investor Relations and business development.
Aaron Howald: Thank you, Operator, and good morning, everyone. Thank you for joining us to discuss ELPI's results for the first quarter of 2024, as well as our updated outlook. 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. After prepared remarks, we will take one round of questions. During this morning's call, we will refer to a presentation that has been posted on LP's investor relations web page, which is investor.lpcorp.com.
Aaron Howald: Thank you operator, and good morning, everyone. Thank you for joining us to discuss Lp's results for the first quarter of 2024 as well as our updated outlook my.
Eric: My name is Eric and I, Mlp's, Vice President of Investor Relations and business development.
Aaron Howald: With me. This morning are Brad Southern Lp's, Chief Executive Officer, and Allen Hockey Lp's, Chief Financial Officer. After prepared remarks, we will take one round of questions.
Aaron Howald: Our 8K filing, earnings press release, and other materials are also available there. Today's discussion contains forward-looking statements and non-GAAP financial metrics, as described 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 file. I will incorporate those materials by reference rather than reading them. And with that, I'll turn the call over to Brad.
Aaron Howald: During this mornings call we will refer to a presentation that has been posted to your Lp's IR webpage, which is investor Dot LP Corp. Dot Com, our 8-K filing earnings press release and other materials are also available. There. Today's discussion contains forward looking statements and non-GAAP financial metrics as described on slide two and three of the earnings presentation.
Brad: Appendix of the presentation also contains reconciliations that are further supplemented by this morning's 8-K filing.
Brad: Well incorporate those materials by reference rather than reading them.
Aaron Howald: And with that I'll turn the call over to Brad.
William Bradley Southern: Thanks, Aaron, and good morning, and thank you for joining us to discuss LP's results for the first quarter and our ongoing growth, innovation, and efficient capital allocation. LP Siding and OSB Businesses got off to a strong start in 2024 by launching new products, gaining share in new construction, and repair and remodeling, and growing strategic partnerships with our customers, all of which contributed to outstanding results in the first quarter. I'm confident that both businesses are poised to build on these gains in the second quarter and beyond. In the first quarter, LP generated $724 million in sales, a 24% increase over last year.
Brad: Thanks, Sarah and good morning, and thank you for joining us to discuss Lp's results for the first quarter and our ongoing growth innovation and efficient capital allocation.
William Bradley Southern: Siding and OSB businesses got off to a strong start in 2024 by launching new products, gaining share in new construction and repair and remodeling and growing strategic partnerships with our customers.
William Bradley Southern: All of which contributed to outstanding results in the first quarter I'm confident that both businesses are poised to build on this guidance in the second quarter and beyond.
William Bradley Southern: In the first quarter <unk> generated $724 million in sales, a 24% increase over last year.
William Bradley Southern: LP earned $182 million and adjusted EBITDA $116 million more than in Q1 of 2023. Leverage from growth and siding and the combined effect of higher prices and record operating efficiency in OSB drove improved margins. With the completion of capacity investments in Holton, Sagola, and Bath, our strong balance sheet has allowed us to resume share repurchase, consistent with our capital allocation strategy. Alan will discuss our results in greater detail in a moment, but first, I'll provide the operational and strategic highlights for the quarter across our business. In the OSV business, commodity prices were meaningfully higher than last year, contributing $62 million in EBIT dollars. This is, of course, outside our control.
William Bradley Southern: LP earned $192 million and adjusted EBITDA of $116 million more than in Q1 of 2023.
William Bradley Southern: Leverage from growth in siding in the combined effect of higher prices and record operating efficiency in our West Bay drove improved margins.
William Bradley Southern: With the completion of capacity investments in Houlton, So go and Bath, our strong balance sheet has allowed us to resume share repurchases consistent with our capital allocation strategy.
William Bradley Southern: Alan will discuss our results in greater detail in a moment, but first I will provide the operational and strategic highlights for the quarter across our businesses.
William Bradley Southern: In the OSB business commodity prices were meaningfully higher than last year contributing $62 million in EBITDA. This is of course outside of our control. However, I am proud to say that the OSB team made the most of the strong demand environment by operating efficiently and safely while delivering a strong mix of value added.
William Bradley Southern: However, I am proud to say that the OSB team made the most of this strong demand environment by operating efficiently and safely while delivering a strong mix of value-added structural solutions products. For example, the OSB business achieved a record for operating efficiency in the first quarter, which helped boost sales by about 150 million square feet compared to last year. More than 75% of this incremental volume was structural solutions. More importantly, the OSB business delivered these results safely with a total recordable incident rate under 0.3.
William Bradley Southern: Structural solutions products.
William Bradley Southern: For example, the RSP business achieved a record for operating efficiency in the first quarter, which helped boost sales by about 115 billion square feet compared to last year.
William Bradley Southern: More than 75% of this incremental volume with structural solutions.
William Bradley Southern: More importantly, the OSB business delivered these results safely with a total recordable incident rate under 0.3.
William Bradley Southern: I also want to take the opportunity to thank the teams at our Pace Valley British Columbia and Manilwaukee Quebec Mills for leading the way with outstanding safety, efficiency, and cost control. Siding revenue grew by 9% in the first quarter, which was the compound effect of 5% higher net selling prices and 4% higher volume. Prices were higher due to rapid utilization of our annual price increase, plus mixed uplift primarily from expert finish.
William Bradley Southern: Also want to take the opportunity to thank the teams at our pace Valley, British Columbia, and manual work at Quebec Mills for leading the way with outstanding safety efficiency and cost control.
William Bradley Southern: So adding revenue grew by 9% in the first quarter, which was the compound effect of 5% higher net selling prices and 4% higher volume.
William Bradley Southern: Prices were higher due to rapid realization of our annual price increase plus mix uplift primarily from expert finish.
William Bradley Southern: Higher capacity utilization from increased sales volume helps siding achieve a 25% EBITDA margin in the. As a result, the siding business exceeded the high end of our guidance ranges for growth and market. The chart on the left of page 6 shows normalized growth in siding volume, and siding net sales using the total U.S. housing starts with 2010 as the common base. The 2024 estimate for siding reflects the midpoint of LP's updated full-year guidance, which Alan will get to in a moment.
William Bradley Southern: Higher capacity utilization from increased sales volume help, citing achieved a 25% EBITDA margin in the quarter as.
William Bradley Southern: As a result, our siding business exceeded the high end of our guidance ranges for growth and margin.
William Bradley Southern: The chart on the left of page six shows normalized growth in siding volume. So I think net sales and total U S housing starts for 2010 as the common baseline.
William Bradley Southern: The 2024 estimate for siding reflects the midpoint of Lp's updated full year guidance, which al will get to in a moment.
William Bradley Southern: As you can see, the siding business is back on a historic growth trajectory after the de-stocking cycle that normally follows the end of a managed order file. In fact, the midpoint of our full-year guidance represents sales volumes above 2021's level and net revenue above 2022's all-time high. By contrast, housing stocks reached $1.6 million in 2021 and, if the current consensus is accurate, will have fallen by about 9% to $1.45 million in 2024.
William Bradley Southern: As you can see the siding businesses backed with historic growth trajectory. After the Destocking cycle that normally follows the end of our managed order file.
William Bradley Southern: In fact, the midpoint of our full year guidance represent sales volumes above 2020, once level and net revenue above 2020, twos all time high by.
William Bradley Southern: By contrast housing starts reached $1 6 million in 2021 and at the current consensus is accurate, we will have fallen by about 9% to $1 $45 million in 2024.
William Bradley Southern: Nearly 30% cumulative siding revenue growth over a period in which the underlying market contracted clearly demonstrates pricing power and share gains in the market we serve. The chart on the right shows expert finish as a percentage of overall siding volume. Starting from zero in 2019, Expert Finish has grown to 9% of volume and nearly 14% of revenue in Q1 of this year.
William Bradley Southern: Nearly 30% cumulative siding revenue growth over a period in which the underlying market contracted clearly demonstrates the pricing power and share gains in the market we serve.
William Bradley Southern: The chart on the right shows expert finish as a percentage of overall siding volume and revenue sorry.
William Bradley Southern: Starting from zero in 2019 expert finishes ground at 9% of volume and nearly 14% of revenue in Q1 of this year.
William Bradley Southern: If you were able to join us at the International Builders Show in Las Vegas, you saw our newly launched Brushed Smooth Trim and Siding, Pebble Stucco Panels, Nickel Gap, and many other new products, all of which should add to the ongoing price-mix uplift of Expert Finish and help drive growth in new residential construction and R&R. Our siting business is clearly back to our normal growth footing, and LP is leveraging the power of our specialized portfolio to drive additional growth and share gain.
William Bradley Southern: If you were able to join us at the international builders show in Las Vegas, you saw our newly launched brush smooth trim and siding.
William Bradley Southern: Stucco panels nickel gap and many other new products, all of which should add to the ongoing price mix up layouts of expert finish and helped drive growth in new residential construction and R&R.
William Bradley Southern: Our siding business is clearly back to a normal growth footing and LP is leveraging the power of our specialized portfolio to drive additional growth and share gains.
William Bradley Southern: For example, we recently announced a strategic partnership with Lenore, one of America's leading and most respected home builders. Through this partnership, LLP will provide Lenore with a uniquely broad array of sustainable siding, structural solutions, and OSB products. We also expanded our partnership with The Home Depot, extending the availability of SmartSide Trim to Home Depot stores nationwide. These partnerships enhance our strategic customers' ability to build high-quality and beautiful homes for homeowners and make SmartSide available for more R&R contracts.
William Bradley Southern: For example, we recently announced a strategic partnership with one or one of America's leading and most respected homebuilders through this partnership <unk> will provide <unk> with a uniquely broad array of sustainable, citing structural solutions and OSB products.
William Bradley Southern: We also expanded our partnership with the home depot, extending the availability of smart side train them to home depot stores nationwide.
William Bradley Southern: These partnerships enhance our strategic customers ability to build high quality and beautiful homes for homeowners and make smart side available for more R&R contractors.
William Bradley Southern: This, in turn, leads to continued growth, share gains, and innovation in site analysts. I should mention that the impacts of the Lenore partnership, newly launched products, and siding, and the meaningful increase in OSB prices late in the first quarter had a relatively modest impact on our Q1 results. These factors will largely be felt in the second quarter and beyond, with continued growth driving additional leverage in size. Accordingly, while macroeconomic uncertainty remains, we are increasing our guidance for growth and margins in the second quarter and full year. With that, I will turn to Alan for more detail on the quarter and our updated outlook before we take your questions.
William Bradley Southern: This in turn leads to continued growth share gains and innovation in siding and OSB.
Alan: I should mention that the impacts of the law and our partnership newly launched products in siding and the meaningful increase in OSB prices late in the first quarter had a relatively modest impact on our Q1 results.
Alan: These factors were largely be felt in the second quarter and beyond with continued growth driving additional leverage in siding.
Alan: Accordingly, while macroeconomic uncertainty remains we are increasing our guidance for growth in March in the second quarter and full year.
Alan: With that I will turn to Allen for more detail on the quarter and our updated outlook before we take your questions.
Alan J. M. Haughie: Thank you. As Brad said, this was a strong quarter. Higher market prices for OSB drove significant cash generation, while the leverage from increased volumes in both OSB and siding delivered healthy incremental margins. EBITDA of $182 million generated $105 million of operating cash flow. And with the capacity investments in Houlton, Segola, and Bath behind us, LP returned $32 million of this cash flow to investors in the first quarter through dividends and resumed share repurchase.
Alan: Thank you Brad said this was a strong quarter.
Alan J. M. Haughie: Higher market prices for OSB drove significant cash generation.
Alan J. M. Haughie: Leverage from increased volumes in OSB and siding delivered healthy incremental margins.
Alan J. M. Haughie: EBIT of $182 million generated $105 million of operating cash flow.
Alan J. M. Haughie: And with the capacity investments in Houlton, so golar and back behind us.
Alan J. M. Haughie: We returned $32 million of this cash flow to investors in the first quarter through dividends and resumed share repurchases.
Alan J. M. Haughie: The waterfall on page 7 shows the year-over-year comparison for the siding business. Average selling prices were 5% higher than last year, adding $15 million of EBITDA. Roughly three points of the five points are the result of robust realization of the annual price increase, helped by our minimization of pre-buy late last year. Expert Finish and other recently launched products have also seen encouraging uptake, with the resulting positive mixed effects on price contributing the remaining two points of the five points. Cell volumes increased by 4% to 399 million square feet, which I should note is higher than any quarter of last year.
Alan J. M. Haughie: Okay.
Alan J. M. Haughie: The waterfall on page seven shows the year over year comparisons for the siding business average selling.
Alan J. M. Haughie: Selling prices were 5% higher than last year, adding $15 million of EBITDA.
Alan J. M. Haughie: Roughly three points of the five points are the result of robust realization of the annual price increase helped by a minimization of pre buy late last year.
Alan J. M. Haughie: Expert finished and other recently launched products are also seeing encouraging uptake with the resulting positive mix effects on price contributing the remaining two points of the fireplace.
Alan J. M. Haughie: <unk>.
Alan J. M. Haughie: Sales volumes increased by 4% to 399 million square feet, which I should note is higher than any quarter of last year.
Alan J. M. Haughie: The bulk of 4% volume growth came from residential construction and repair and remodel customers. Build-A-Series, which is driving share gains with America's largest homebuilders, and Expert Finish, our pre-finished siding designed for repair and remodel contractors, both delivered record quarters for volume and revenue. This volume growth added $15 million in revenue and $4 million in EBITDA. However, this is a slightly lower incremental EBITDA margin than we might expect from additional volume, largely due to record expo finish volume. As a reminder, expert finish margins are lower than primed margins. Well, they are for now.
Alan J. M. Haughie: Okay, 4% volume growth came from residential construction and repair and remodel customers.
Alan J. M. Haughie: Build a series.
Alan J. M. Haughie: Which is driving share gains with America's largest homebuilders and expert finish our prefinished siting design to repair and remodel contractors, both delivered record quarters for volume and revenue.
Alan J. M. Haughie: This volume growth at a $15 million in revenue and $4 million of EBITDA. Now this is slightly lower incremental EBITDA margin and we might expect from additional volume largely due to record expert finished volumes.
Alan J. M. Haughie: As a reminder, expert finished margins are lower than prime to margins, while they are for now.
Alan J. M. Haughie: While they may be lower, they are improving. The addition of the highly automated bath pre-finishing facility to LP's expert finish network, in addition to other efficiency gains in manufacturing, contributed to a meaningful improvement in the margin for expert finish compared to this time last year. And, of course, as we grow expert finish volumes, further improvements in utilization rates and manufacturing efficiency should continue this positive margin trend. As discussed on prior calls, we are continuing to invest in selling and marketing, incurring an incremental $2 million a year from which we believe we are already benefiting.
Alan J. M. Haughie: It may be lower they are improving the addition of the highly automated back pre finishing facility to Lp's expert finished network. In addition to other efficiency gains in manufacturing contributed to a meaningful improvement in the margin for expert finished compared to this time last year.
Alan J. M. Haughie: And of course, as we grow expert finished volumes further improvements in utilization rates and manufacturing efficiency should continue this positive margin trend.
Alan J. M. Haughie: As discussed on prior calls we are continuing to invest in selling and marketing incurring an incremental $2 million year over year from which we believe we are already benefiting.
Alan J. M. Haughie: This is more than offset by the $4 million benefit from the non-recurrence of last year's milk conversion. Freight costs and raw material prices continue to moderate from last year's levels, with NDI resin being the largest single component of a $10 million EBITDA tailwind from improving raw material prices. And while unit costs for paint may have risen, substantial efficiency gains from more automated painting processes at Bath reduced unit paint usage more than enough to offset them. The only red bar on the waterfall is the $7 million in increased malaria overhead.
Alan J. M. Haughie: This is more than offset by the $4 million benefit from the non recurrence of last year's mill conversion investments.
Alan J. M. Haughie: Freight costs and raw material prices continue to moderate from last year's levels with MDI resin being the largest single component of a $10 million EBITDA tailwind from improving raw material prices.
Alan J. M. Haughie: And while unit costs for paint may have risen substantial efficiency gains from more automated painting processes at Bath reduced unit paint usage more than enough to offset this.
Alan J. M. Haughie: The only red bar in the waterfall is a $7 million of increased malaria overhead.
Alan J. M. Haughie: This is simply the addition of Segola and Bath to the network, as neither were fully staffed or operational in the first quarter of last year. But with Segola and Baffnell fully up and running, as demand grows to fill that capacity, we should see those costs more than offset by the high incremental margin of additional volume. So the $90 million of EBITDA represents a margin of 25%. We've often compared the rising EBITDA margin over time to a rising sine wave with peaks at times of high capacity utilization and low investment and troughs at times of high investment and low utilization as that new capacity comes online.
Alan J. M. Haughie: This is simply the addition of <unk> to build out and back to the network is neither were fully staffed our operational in the first quarter of last year.
Alan J. M. Haughie: But with the Golar <unk> now fully up and running as demand grows to fill that capacity, we should see those costs more than offset by the high incremental margin of additional volume.
Alan J. M. Haughie: So the $19 million of EBITDA represents a margin of 25%.
Alan J. M. Haughie: We are often compared the siding EBITDA margin over time to a rising sine wave with peaks at times of high capacity utilization and low investment and troughs at times of high investment and low utilization as that new capacity comes online.
Alan J. M. Haughie: We believe that what we saw in the first quarter is entirely consistent with this principle, with the business rebounding from last year's trough and growing towards a new, higher peak, as we feel it has recently added. Shifting to OSB on page 8, the waterfall is once again dominated by price.
Alan J. M. Haughie: We believe that what we saw in the first quarter is entirely consistent with the principle that the business rebounding from last years trough and growing towards a new higher peak as we fill recently added capacity.
Alan J. M. Haughie: Okay.
Alan J. M. Haughie: Shifting to OSB on page eight the waterfall is once again dominated by price compared to last year average selling prices were 38% higher net adding $62 million of EBITDA.
Alan J. M. Haughie: Compared to last year, average selling prices were 38% higher, adding $62 million to EBITDA. I should point out that the commodity price gain of 51% is higher than the 25% increase in structural solutions prices, mainly because commodity prices start from a lower base. However, in general, OSB prices climbed significantly at the end of the first quarter and remained elevated through most of April until their recent pullback.
Alan J. M. Haughie: I should point out that the commodity price gain of 51% is higher than the 25% increase in structural solutions prices, mainly because commodity prices start from a lower base.
Alan J. M. Haughie: However in general OSB prices climbed significantly the end of the first quarter and remained elevated through most of April until a recent pullback.
Alan J. M. Haughie: Given the duration of our order files, higher prices at the end of the first quarter have been realized mostly in the second quarter. Sales volumes are also higher in OSB. A record quarter for OAE allowed production increases to meet stronger customer demand. And, as Brad said, more than 75% of the incremental OSB volume sold was in structural solutions, which accounted for 52% of total OSB sales volume, up six points from last year. If you'll indulge me, let me use the data in this chart to briefly demonstrate the value of structural solutions in a different way.
Alan J. M. Haughie: Given the duration of our order file is higher prices at the end of the first quarter have been realized mostly in the second quarter.
Alan J. M. Haughie: Sales volumes were also higher in OSB, a record quarter for aerie allow production increases to meet stronger customer demand and as Brad said more than 75% of the incremental OSB volumes sold what's in structural solutions, which accounted for 52% of total OSB sales volume up six points from last year.
Alan J. M. Haughie: Thank you will indulge me, let me use the data in this chart to briefly demonstrate the value of structural solutions in a different way using the price volume and EBITDA data on this chart to compare commodity to structural solutions youll see that the selling prices for the incremental structural solutions volume. If you do the math we're on average.
Alan J. M. Haughie: Using the price, volume, and EBITDA data on this chart to compare commodity to structural solutions, you'll see that the selling prices for the incremental structural solutions volume, if you do the math, were on average about $55 per thousand square foot higher, and structural solutions EBITDA per thousand square foot was about $25 higher than it was for commodity. Of course, this analysis is imperfect as it only shows the year-over-year incremental changes, not the entire population, but it does demonstrate the incremental margin uplift that structural solutions deliver, and therefore it reinforces our strategy of ongoing specialization.
Alan J. M. Haughie: About $55 per thousand square foot Hyatt and structural solutions EBITDA per square foot was about $25 higher than it was for commodity of course. This analysis is imperfect because it's only the year over year incremental changes not the entire population, but it does to directionally demonstrates the incremental margin up.
Alan J. M. Haughie: The structural solutions delivers and therefore, it reinforces our strategy of ongoing specialization.
Alan J. M. Haughie: As in the siding business, deflation in raw material prices contributed $7 million to EBITDA. For OSB, the other bucket is mostly the non-recurrence of last year's aggressive cost control efforts in the face of very weak demand and depressed prices at that time, including the deferral of most non-essential maintenance and capital work. And while this may have kept the business positive a year ago and demonstrated its impressive operational flexibility, we are now back on a more regular footing for operations, and as a result, we have resumed more normal maintenance spending.
Alan J. M. Haughie: As in the siding business deflation in raw material prices contributed $7 million of EBITDA.
Alan J. M. Haughie: For OSB. The other bucket is mostly the non recurrence of last year's aggressive cost control efforts in the face of very weak demand and depressed prices at that time, including the deferral of most nonessential maintenance and capital work.
Alan J. M. Haughie: While this may have kept the business EBITDA positive a year ago and demonstrated impressive operational flexibility. We are now back on a more regular footings operations. As a result, we have resumed more normal maintenance spending.
Alan J. M. Haughie: The $90 million of EBITDA generated in the quarter, coincidentally the same as the siding business, represents an EBITDA margin of 29%. Slide 9 shows a substantially improved year-over-year cash flow. The operating cash flow this year is almost equal and opposite to this time last year, with an inflow of $105 million this year compared with an outflow of $119 million last year. And this boils down to two obvious factors, higher EBITDA and significantly lower working capital bills. And when it comes to using this improved operating cash flow, the completion of the Segola and Bath investments resulted in substantially lower capital expenditures this year.
Alan J. M. Haughie: The $19 million of EBITDA generated in the quarter Coincidentally the same as the siding business represents an EBITDA margin of 29%.
Alan J. M. Haughie: Slide nine shows substantially improved year over year cash flow the operating cash flow. This year is almost equal and opposite to this time last year with an inflow of $105 million this year compared with an outflow last year of $119 million and.
Alan J. M. Haughie: And this boils down to two obvious factors higher EBITDA and significantly less working capital buildup.
Alan J. M. Haughie: When it comes to uses of this improved operating cash flow the completion of the <unk> investments resulted in substantially lower capital investments this year.
Alan J. M. Haughie: So, consistent with our stated capital allocation strategy, and as Brad stated, we're generating cash, and have resumed share repurchases. Speaking of which... As of May 8, we've spent $50 million on share buybacks so far in 2024, including the $13 million spent in the first quarter. And LP's Board of Directors has approved an increase of $250 million to our remaining authorization, bringing the total authorization for share repurchases to $400 million as of today. And with roughly $800 million in liquidity, LP has more than enough dry powder to support future growth and shareholder return. Which brings me to our updated guidance on slide 10.
Alan J. M. Haughie: So consistent with our stated capital allocation strategy and as Brad stated, we're generating cash and have resumed share repurchases.
Alan J. M. Haughie: Speaking of which.
Alan J. M. Haughie: As of May the eighth we've spent $50 million in share buybacks to find 2024, including the $13 million spent in the first quarter.
Alan J. M. Haughie: On Lp's Board of Directors has approved an increase of $250 million to our remaining authorization, bringing the total authorization for share repurchases to $401 million as of today.
Alan J. M. Haughie: And we have roughly $800 million in liquidity LP has more than enough dry powder to support future growth and shareholder returns.
Alan J. M. Haughie: Which brings me to our updated guidance on slide 10.
Alan J. M. Haughie: Foreseeing, the strong first-quarter demand has continued into the second quarter and even accelerated. As a result, we now expect revenue in the second quarter to be in the range of $380 to $400 million, representing revenue growth of somewhere between 20 and 25%. I'm sure you'll remember, and we can scarcely forget, that the second quarter of last year represents the weakest comparable for the year and therefore magnifies the rebound.
Alan J. M. Haughie: <unk> the strong first quarter demand has continued into the second quarter and even accelerated.
Alan J. M. Haughie: As a result, we now expect revenue in the second quarter to be in the range of $380 million to $400 million.
Alan J. M. Haughie: Representing revenue growth of somewhere between 20 and 25%.
Alan J. M. Haughie: I'm sure you remember and we can scarcely forget that the second quarter of last year. It represents a weakest comparable for the year and therefore magnifies the rebound somewhat.
Alan J. M. Haughie: This incremental volume would sustain EBITDA margins in the order of 25%, resulting in EBITDA for the quarter of $95 to $105 million. Accordingly, we're raising our guidance for full-year revenue growth by 300 basis points to a range of 11 to 13% and increasing our full-year EBITDA expectations to the $340-$360 million range for an EBITDA margin of around 23%. For OSB, if we assume OSB prices remain at current levels, we would expect EBITDA in the range of $125 to $135 million in the second quarter.
Alan J. M. Haughie: This incremental volume with sustained EBITDA margins in the order of 25%, resulting in EBITDA for the quarter of $95 million to $125 million.
Alan J. M. Haughie: Accordingly, we are raising our guidance for full year revenue growth by 300 basis points to a range of 11% to 13% and increasing our full year EBITDA expectations to the $340 million to $360 million range for an EBITDA margin of around 23%.
Alan J. M. Haughie: For OSB, if we assume OSB prices remain at current levels, we would expect EBITDA in the range of $125 million to $135 million in the second quarter.
Alan J. M. Haughie: For the four-year guidance, we're modeling, but not predicting, cycle average for the second half of the year. As a result, our four-year EBITDA guide of $315 to $325 million is the sum of The First Quarter Actuals, The Second Quarter Guidance, and then the second half of cycle average as defined below. Basically, the same method we introduced last quarter, but with updated numbers, obviously. Assuming for simplicity that LPSA and corporate net are zero, this brings our full year EBITDA guidance to $655 million to $685 million, about $150 million higher than our previous full year outlook.
Alan J. M. Haughie: For the full year guidance, we're modeling, but not predicting cycle average for the second half of the year.
Alan J. M. Haughie: As a result, our full year EBITDA guide of $315 million to $325 million is the sum of the first quarter actuals and our second quarter guidance.
Alan J. M. Haughie: And then the second half of cycle average as defined on slide 10.
Alan J. M. Haughie: The same method, we introduced last quarter, but with updated numbers obviously.
Alan J. M. Haughie: Assuming for simplicity that LP essay and corporate net to zero. This brings our full year EBITDA guidance to $655 million to $685 million.
Alan J. M. Haughie: $150 million higher than our previous full year outlook.
Alan J. M. Haughie: So, in summary, it was a strong quarter and a strong start to the year that leaves both businesses exceptionally well-positioned to continue executing our strategy of growth, specialization, and transformation. And with that, we'll be happy to take your questions.
Alan J. M. Haughie: So in summary, it was a strong quarter and a strong start to the year that leaves both business is exceptionally well positioned to continue executing our strategy of growth specialization and transformation and with that we'll be happy to take your questions.
Operator: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for questions. Our first question comes from Kurt Yinger with D.A. Davidson. You may proceed.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.
Kurt Willem Yinger: Our first question comes from Kurt <unk> with <unk>.
Kurt Willem Yinger: Great, thanks, and good morning everyone. I just wanted to start off on siding.
Kurt Willem Yinger: Davidson you May proceed.
Kurt Willem Yinger: Great. Thanks, and good morning, everyone.
Kurt Willem Yinger: I just wanted to start off on on siding, I guess volume kind of the biggest lever on margin and we see kind of a sequential uplift Q2 versus Q1, what kind of constraints additional margin expansion versus what we just signed I guess as you look into the back half as well based on the implied guide.
Kurt Willem Yinger: I guess if volume's kind of the biggest lever on margins and we see kind of a sequential uplift in Q2 versus Q1, what kind of constrains additional margin expansion versus what we just saw? I guess, as you look into the back half as well, based on the implied guide, anything to keep in mind from a cost of production or maybe SG&A perspective that we didn't kind of fully realize in Q1?
Kurt Willem Yinger: Anything to keep in mind from a cost and production or maybe SG&A perspective that we.
Kurt Willem Yinger: We didn't kind of fully realize in Q1.
Alan J. M. Haughie: Yeah, hey, good morning. This is Alan speaking. Well, nothing really.
Kurt Willem Yinger: Yes, hi, good morning. This is Alex speaking well nothing nothing really there.
Alan J. M. Haughie: There are a few product introductions, you know. Brush Smooth and Never Gap Siding will be increasing the volumes of those, and they will be slightly inherently less efficient than the current primed production. So we are growing expert finish, and as we've said, the expert finish margins are themselves lower than primed. And to be honest, we like to give ourselves, we'll call it the operating room, room to swing for the fences and if that means... As an example, adding additional selling and marketing spend, which we may choose to do. With this kind of volume growth, possibly accelerating some of the preparation for the restart of Wawa, this 23% EBITDA margin guide gives us the room to do that and still, we believe, hit that commitment.
Alan: A few.
Alan J. M. Haughie: Product introductions brushed smooth siding being will be increasing the volumes of those dates will be slightly inherently.
Alan J. M. Haughie: The less efficient spend has been trying to current times production and we are acquiring expert finish and as rich said.
Alan J. M. Haughie: The expert finished margins up himself was lower than prior year.
Alan J. M. Haughie: And to be honest, we like to give ourselves well call. It the operating room to swing for the fences and if that means.
Alan J. M. Haughie: As an example, I think additional selling and marketing spend to <unk>.
Alan J. M. Haughie: Sure.
Alan J. M. Haughie: With this kind of volume growth, possibly accelerating some of the preparation for the restart of la.
Alan J. M. Haughie: This 23% EBIT margin guide it gives us the room to do that and still we believe setback commitment.
Kurt Willem Yinger: Okay, that makes sense. Thanks for that, Alan.
Alan J. M. Haughie: Sure.
Speaker Change: Got it okay that makes sense. Thanks for that Alan and then second just on the <unk> announcement was hoping you could talk a little bit more about what type of opportunities you see this opening up or citing specifically.
Speaker Change: We've kind of seen some testimonials around the business you do with them in the Midwest I believe you guys do well here in the mountain West as well I guess, how should we think about kind of what's incremental related to what you've announced.
Kurt Willem Yinger: Well.
Kurt Willem Yinger: There was a significant piece of incremental volume over what we've done from a siding perspective historically.
Kurt Willem Yinger: And then second, just on the Lennar announcement. I was hoping you could talk a little bit more about what type of opportunities you see this opening up for siding specifically. And, you know, we've kind of seen some testimonials around, you know, the business you do with them in the Midwest. I believe you guys will do well here in the Mountain West as well. I guess, how should we think about kind of what's incremental related to what you've announced?
Speaker Change: So basically what's happening card has worked well.
Kurt Willem Yinger: We were assigned new geographies that we.
Kurt Willem Yinger: Currently servicing with our siding portfolio.
Kurt Willem Yinger: And thats pretty much across the country, but obviously not every region every sub region almost converted but a significant amount of the volume wise.
William Bradley Southern: Well, there's a significant piece of incremental volume over what we've done with them from a siting perspective historically. And so basically, what's happening, Kurt, is we were assigned new geographies that we're currently servicing with our siting portfolio. And that pretty much across the country, but obviously not every sub-region was converted, but a significant amount of the volume was. So, you know, the opportunity for us is just to expand the geographic reach, particularly our new construction products into the field, into distribution, as Lenore becomes the main vehicle to drive demand for that Builder Series portfolio.
Speaker Change: So the opportunity for us is just.
William Bradley Southern: The geographic reach particularly.
William Bradley Southern: Our new construction.
William Bradley Southern: <unk> into the field into distributions.
William Bradley Southern: The main vehicle to drive demand for that builder series portfolio.
William Bradley Southern: So, you know, there's certainly a volume uplift that we're beginning to realize with the Lennar orders, but also as we experience the geographic expansion that this opportunity provides, and it'll provide for even more growth in the builder series as we pick up, you know, accompanying lumber dealers that have to carry the product in order to service Lennar. Got it.
William Bradley Southern: There is certainly volume up layoffs that were beginning to realize.
William Bradley Southern: Our orders, but also as we.
William Bradley Southern: <unk> experienced the geographic expansion that thinks this.
William Bradley Southern: This opportunity provides.
William Bradley Southern: I'll provide for even more growth a builder series as we pick up a company.
William Bradley Southern: <unk>.
William Bradley Southern: Dealers are dealers that are have to carry the product in order to surface Lamar.
Kurt Willem Yinger: Got it. Okay. Well, that's great to hear. Appreciate the color, guys, and good luck here in Q2.
William Bradley Southern: Yeah.
Speaker Change: Got it okay, well, that's great to hear I appreciate the color guys and good luck here in Q2.
Speaker Change: Thanks Kurt.
Operator: One moment for questions. Our next question comes from Mark Weintraub with Seaport Research Partners. You may proceed. Thank you.
Speaker Change: Thank you.
Speaker Change: One moment for questions.
Operator: Our next question comes from Mark Weintraub with Seaport Research Partners you May proceed.
Mark Adam Weintraub: Obviously, a very good quarter. In fact, I think a lot better than you had originally anticipated. And so I'm sort of wanting to get a little bit more color if possible.
Mark Adam Weintraub: Thank you. First, congrats.
Mark Adam Weintraub: Thank you first congrats obviously very good quarter.
Mark Adam Weintraub: And in fact, I think a lot better than you had originally anticipated and so I'm sort of wanting to get a little bit more color if possible on the siding EBIT margin.
Mark Adam Weintraub: On the side EBITDA margin, I think you'd been guiding something below 20%, and you end up basically at 25%. What was different? What played out differently than you would expect?
Mark Adam Weintraub: I think you had been guiding something below 20% and you end up basically at 25% what was different what played out differently than you had expected.
Alan J. M. Haughie: I'll take this one. The answer is almost everything. Pricing was certainly better, in the sense that both in terms of mix and in terms of the impact that I mentioned in my prepared remarks with the effect of the pre-buy. But also, you know, we've spent the whole of last year talking about carrying the investment of Additional Mills through into 2024. And the benefits of that showed up in that when we had a minor uptick in volume, there was essentially no real change in labor to absorb that volume.
Speaker Change: Alex I'll take this one.
Alan J. M. Haughie: The answer is almost everything.
Speaker Change: Let me.
Alan J. M. Haughie: Pricing was certainly better.
Alan J. M. Haughie: In the sense that.
Alan J. M. Haughie: In terms of mix and in terms of the impact that I mentioned in my prepared remarks.
Alan J. M. Haughie: The effects of a pre buy.
Alan J. M. Haughie: But also.
Alan J. M. Haughie: The whole of last year talking about carrying the investment.
Alan J. M. Haughie: Additional mills.
Alan J. M. Haughie: Through into 2024 and the.
Alan J. M. Haughie: The benefits of that show that when we had a minor uptick in volume there was essentially no real change in labor.
Alan J. M. Haughie: To absorb that volume so we got.
Alan J. M. Haughie: So we got at least join Q1. We got additional revenue, what I'll call throughput, revenue minus material costs, because the label was already in place. And so that's not necessarily an easy thing to manage or predict. But fundamentally, that's one of the features that happened in Q1, which is one of the collateral benefits of doing all of that preparation for what we call, in quotes, the upswing through 2023. So it positioned us really well to make maximum use and maximum value out of the revenue. We also had better than expected raw material performance. So pricing, efficiency, raw materials, in other words, almost everything.
Alan J. M. Haughie: During Q1.
Alan J. M. Haughie: We got additional revenue what I'll call throughput revenue minus material cost because the label was already in place and so that's not necessarily an easy thing to manage or predict but fundamentally that's one of the features that happened in Q1, which is one of the collateral benefits of us doing.
Alan J. M. Haughie: All of that preparation for <unk>.
Alan J. M. Haughie: Colin Crooks upswing.
Alan J. M. Haughie: So through 2023 positions us really well to take to make maximum use.
Alan J. M. Haughie: Maximum value.
Alan J. M. Haughie: Out of the revenue we also had.
Alan J. M. Haughie: Better than expected raw material performance.
Alan J. M. Haughie: So pricing.
Alan J. M. Haughie: Efficiency.
Alan J. M. Haughie: With raw materials, so in other words almost everything.
Alan J. M. Haughie: And when we were on the call for... three months ago, this trend was just beginning to emerge, but it was not fully apparent at that time. But it was certainly emerging, which I think we tried to convey a degree of what's called
Alan J. M. Haughie: While we were on the call free.
Alan J. M. Haughie: Three months ago.
Alan J. M. Haughie: This was this trend was just beginning to emerge but it was not.
Alan J. M. Haughie: Fully account at that time, but it was certainly emerging which I think we tried to convey a degree of let's call it confidence in our numbers.
Alan J. M. Haughie: That obviously was ultimately very much justified.
Mark Adam Weintraub: Great. And obviously, the right way to go in terms of versus guidance, etc. Maybe just following up a little bit on Kurt's question. I mean, you are embedding what would be a relatively sharp decline in margins in the second half, and you alluded to some types of actions, kind of, I guess, prep work that might be entailed. Can you maybe give us a little bit more color on that? And is there also a relatively good chance that we end up with some of the upside surprises we saw in the first quarter as we think about the second half of the year? Sorry, let me go to the EBITDA margins for a second.
Alan J. M. Haughie: Great and obviously the right way to go in terms of versus guidance et cetera.
Mark Adam Weintraub: Maybe just following up a little bit on Curt's question.
Mark Adam Weintraub: You are in bedding at what would be.
Mark Adam Weintraub: Relatively sharp decline in margins in the second half and you alluded to.
Mark Adam Weintraub: Some types of actions kind of I guess prep work that might be entailed can you maybe give us a little bit more color on that and.
Mark Adam Weintraub: Or is there also a relatively good chance that we end up with some upside surprises we saw in the first quarter as we think about the second half of the year.
Mark Adam Weintraub: Sorry in EBITDA margins for <unk>.
Alan J. M. Haughie: The short answer is yes, but the longer answer is that the one I just gave to Kurt is fundamentally yes. It gives us the operating room to swing for the fences, and we're confident that we'll hit at least 23%. And that's fundamentally it, Mark, so the answer is yes.
Speaker Change: The short answer is yes.
Alan J. M. Haughie: The longer answer is that debt.
Alan J. M. Haughie: The one I just gave to cut.
Alan J. M. Haughie: Fundamentally yes, it gives us the operating room to swing for the fences and we're confident that we'll hit at least 23%.
Alan J. M. Haughie: And.
Alan J. M. Haughie: That's fundamentally a box.
Mark Adam Weintraub: Alright, I appreciate it. Thank you.
Mark Adam Weintraub: All right. I appreciate it. Thank you.
Speaker Change: Yes, alright.
Speaker Change: Alright I appreciate it thank you.
Speaker Change: Thank you.
Operator: One moment for questions. Our next question comes from Susan Maklari of Goldman Sachs. Please proceed.
Speaker Change: One moment for questions.
Susan Marie Maklari: Our next question comes from Susan Mcclary with Goldman Sachs. You May proceed.
Susan Marie Maklari: Thank you. Good morning, everyone.
Susan Marie Maklari: Thank you good morning, everyone.
Susan Marie Maklari: My first question is just on broader demand trends in siding. Can you talk a bit about how the quarter came together? And, you know, this relative strength that you're seeing into the spring feels like it's a bit in contrast to what we're hearing in some of the other larger ticket discretionary type product categories. I guess, can you talk a bit about how much you think is company specific and relative to some of the new products and the initiatives that you have versus the broader siding space? And how do you think about the sustainability of this as we go forward into the second half of the year?
Susan Marie Maklari: My first question is just on broader demand trends in siding can you talk a bit about how the quarter came together and this relative strength that you're seeing into the spring feels like it's a bit in contrast to what we're hearing and some of the other larger ticket discretionary type product categories. I guess can you talk a bit about how much do you think.
Susan Marie Maklari: <unk> is company specific and relative to some of the new products.
Susan Marie Maklari: Initiatives that you have versus the broader siding space and how do you think about the sustainability of this as we go forward into the back half of the year.
William Bradley Southern: Yes, Susan, great question. So we feel really good, certainly, given the guidance we've put in place for Q2, about the sustainability of this, you know, for the short term anyway. But let me tell you why I'm equally excited about the long-term sustainability of the growth. And look, I do want to caveat that in a first signing order file, we're back into a normal cadence of seasonality that's going to play into the, you know, the quarter over quarter type of comparisons.
Speaker Change: Yeah, Susan Great question, So we feel really good.
William Bradley Southern: Given the guidance we've put in place for Q2 about the sustainability of this for the short term anyway, but let me tell you well.
William Bradley Southern: Equally excited about the long term sustainability of the growth in look I didn't want to caveat that I believe in our for our siding order file we're back into a normal cadence of seasonality is going to be that's going to play into to the.
William Bradley Southern: But fundamentally, what's happened over the last 18 months or so is three things. One, new product development has been real, and we've launched products that our customers have been asking for. The type of products So Alan mentioned this, as far as pricing is concerned, that the success of those product launches from a demand standpoint has been resounding, and those new products open up new opportunities for demand that weren't there before. When you don't have a smooth, expert finish, and somebody wants something smooth, you're locked out of that market.
William Bradley Southern: Quarter over quarter type of comparisons, but fundamentally what's happened over the last 18 months or so or three things one new product development has been real.
William Bradley Southern: Launch products that.
William Bradley Southern: Our customers have been asking for the type of products. So the Alan mentioned this as far as the pricing deck.
William Bradley Southern: The success industrial product launches from a demand standpoint has been resounding and and so and those new products open up new opportunities for demand that wasn't there before you know when you don't have smooth expert finish and somebody walks move youre locked out of that market. So that is.
William Bradley Southern: Expanded our market.
William Bradley Southern: Just just further new product development unless.
William Bradley Southern: So that has expanded our market just through new product development. Keep in mind that in our world, expert finish and builder series are still relatively new to what we're doing from a demand standpoint. So having access to the big national builders with a builder series and then having a viable nationwide expert finish product offering creates demand opportunities that didn't exist in the business, say, three years ago. Second to that is the work we have done in repair and remodel to establish contractor and distribution relationships in support of the go-to-market strategy for expert finish.
William Bradley Southern: Keep in mind.
William Bradley Southern: At our world experts finish and builder series are still relatively new doctor.
William Bradley Southern: What we're doing from a demand standpoint, so having access to the big National builders with a builder series and then having a viable nationwide expert finish product offering.
William Bradley Southern: <unk> creates demand opportunities that didn't exist in the business say three years ago.
William Bradley Southern: That is the work we have done in repair and remodel.
William Bradley Southern: To establish contractor and distribution relationships and supportive.
William Bradley Southern: Go to market strategy for export finish.
William Bradley Southern: You know, repair and remodel has been a relatively new endeavor for us, and in that space, there are still one-step distribution regions where we are underpenetrated. And we built out that infrastructure to a large extent last year, and now we're able to leverage that, and there are still opportunities there. That's why we've done what we've done geographically, putting these expert finishing facilities on the market. And then, finally, we're just getting started with the big builder. You know, the Lenore deal certainly is a watershed moment for us.
William Bradley Southern: Repair and remodel August has been a relatively new endeavor for us and in that space. It's still are still.
William Bradley Southern: One step distribution regions, where we have been underpenetrated and we are.
William Bradley Southern: Built out that infrastructure to a large extent last year and now we're able to leverage that and there are still opportunities there.
William Bradley Southern: That's why we've done what we've done geographically, putting these export finish facilities in market and then finally, we're just getting started with the big builder.
William Bradley Southern: <unk> certainly is a watershed moment for us, but there's 20 dollar targets that we have.
William Bradley Southern: But there's, you know, 20 other targets that we have that we're actively working on, and we see opportunities to continue to gain market share in that space as well. So, you know, it certainly feels very sustainable. Now, just let me round off that answer by saying, and right now for this year, shed has really not been a driver of incremental volume growth. This year, and the way the inventory situation worked out last year.
William Bradley Southern: And we're actively working on.
William Bradley Southern: And we see opportunities to continue to gain market share in that in that space as well so.
William Bradley Southern: So.
William Bradley Southern: It certainly feels very sustainable.
William Bradley Southern: Now, let me round off that.
William Bradley Southern: Sure, Bob, saying and right now for this year sure has really not been a driver.
William Bradley Southern: Incremental volume growth.
William Bradley Southern: This year.
William Bradley Southern: Just kind of the way inventory situation worked out last year. So if we were expecting some pickup and Shannon certainly over where we were the first three or four months of this year throughout the year, which add a whole better fuel to our order file as well has been a weak spot.
William Bradley Southern: So if we, we're expecting some pickup and shed certainly over where we were the first three or four months of this year, the remainder of the year, which will add a little bit of fuel to our order file as well because that has been a weak spot. So, you know, we feel good about sustainability; there'll be, you know, rocks in the road as we get maybe to Q4, Q1 next year's people begin to manage inventory, you know, a little more aggressiveness as they approach year end. But, you know, we feel good about what we saw in Q1 being sustainable growth, not just any kind of one-off trend. Okay.
William Bradley Southern: So we feel good about the sustainability there will be.
William Bradley Southern: There'll be rocks in the road as we get maybe into Q4 Q1 next year as people begin to manage inventory.
William Bradley Southern: But a little more aggressiveness has approached year end, but we feel good about what we saw in Q1 being sustainable growth not just any kind of one off trend.
Susan Marie Maklari: Okay, that's great color. Thank you, Brad. And then just following up on citing the sales and marketing spend actually came in well below what we had anticipated. I guess, can you just talk about what drove that? And are you still expecting the 15 to $20 million in marketing for the full year?
Speaker Change: Okay. That's great color. Thank you Brad and then just following up on siding.
Susan Marie Maklari: Marketing spend actually came in well below what we had anticipated I guess can you just talk about what drove that and are you still expecting that 15% to $20 million and marketing for the full year.
William Bradley Southern: Yes, and look, those costs are ramped up, too. You just can't turn the spigot on immediately.
Susan Marie Maklari: Yes.
William Bradley Southern: That's those are those.
William Bradley Southern: So those costs are ramped up to.
William Bradley Southern: And then just cant turn the spigot on immediately so programs get built and executed as we get closer to the builder building season, and then as probably all companies did you cover face as we try to add salespeople.
William Bradley Southern: Easy to budget for that it's a little bit harder to find the talent onboard the talent.
William Bradley Southern: So programs get built and then executed, you know, as we get closer to the building season. And then, probably all companies that you cover face, as we try to add salespeople, it's easy to budget for that. It's a little bit harder to find the talent, onboard the talent, and start paying the salaries. So the sales organizational ads that we have in place have gone slower than we would have liked. And then from a marketing standpoint, you know, we're building up to the spend levels that we've talked about on prior calls. And that's essentially a sort of...
William Bradley Southern: You can start paying the salaries, so thats the sales.
William Bradley Southern: Organizational and so we have in place have gone slower than we would've liked and then from a marketing standpoint, we are building up to the spend levels that we've talked about on prior calls.
Alan J. M. Haughie: And that's essentially a sort of more detailed version of the answer I've tried to give around EBITDA margin in the second half. Hopefully, we will succeed in spending the selling and marketing dollars that we are planning to do so, which would have a bit of a margin drag compared to Q1 of this year, where so far we haven't spent as much as you might have expected.
William Bradley Southern: Essentially yes.
Alan J. M. Haughie: Detailed version of <unk>.
Alan J. M. Haughie: And so I've tried to give around the EBITDA margin in the second half hopefully, we will succeed and spending side.
Alan J. M. Haughie: The marketing dollars that we are planning to do so.
Alan J. M. Haughie: It's a bit of a margin drag compared to Q2 of this year.
Alan J. M. Haughie: So in Q1 of this year.
Alan J. M. Haughie: So far we haven't spent as much as you might have expected, although we would have liked.
Susan Marie Maklari: Okay, all right, that's a great color. Thank you both and good luck with everything.
Speaker Change: Okay, Alright, thats great color. Thank you both and good luck with everything.
Susan Marie Maklari: Thanks, Susan. Thank you. Thank you.
Speaker Change: Thanks, Susan Thanks, Ed.
Operator: Thank you. One moment for questions. Our next question comes from Ketan Mamtora with BMO. You may proceed.
Speaker Change: One moment for questions.
Ketan Mamtora: Our next question comes from <unk> <unk> with BMO you May proceed.
Ketan Mamtora: Thank you and congratulations on a strong quarter. Maybe the first question, can you talk a little bit about sort of how big Build-A-Series is today? I would imagine it to be fairly small, but where do you expect it to be over the next, let's say, three years? And similar for so, you know, for expert finish, how big do you expect that to be?
Ketan Mamtora: Thank you and congrats on a strong quarter.
Alan J. M. Haughie: Ketan, um... You're correct, Builder Series is smaller than Expert Finish, you know, on the order of a couple of percentage points of volume. How big we expect it to be remains to be seen, but there may be a hint of that in the earnings deck that Brad referred to earlier. Expert Finish started at zero in 2019, and it was 9% of revenue this quarter, 14% of volume, sorry. 9% of volume, 14% of revenue
Ketan Mamtora: Maybe maybe the first question can you talk a little bit about sort of how big is.
Alan J. M. Haughie: Today, I would imagine fairly small.
Ketan Mamtora: But when do you expect it to be over the next let's say three years.
Alan J. M. Haughie: And similar far stock for export finished how big do you expect that to be as well.
Alan J. M. Haughie: Okay.
Alan J. M. Haughie: You are correct builder series is smaller than expert finished.
Alan J. M. Haughie: On the order of a couple of percentage points volume.
Alan J. M. Haughie: We expect it to be remains to be seen but there may be a hint of that.
Alan J. M. Haughie: In the earnings deck that Brad referred to you earlier expert finished starting to zero in 2019 than it was in Europe. It was 9% of revenue this quarter, 14%, sorry, 9% volume 14% of revenue.
Alan J. M. Haughie: Builder Series is at a different price point, and so it won't have quite the same mix effect, but it is another example of new product development on the side of business that reaches new customers in new markets, and we fully expect the take-up for that to continue to grow.
Alan J. M. Haughie: Those are series is at a different price point and so it wont have quite the same mix effect, but it is another example of new product development in our siding business that reaches new customers in new markets and.
Alan J. M. Haughie: And we fully expect to take up for that to continue to grow.
Alan J. M. Haughie: Group, and you know the good thing about Builders Series, as we've mentioned before, it drags along a whole host of other highly profitable products as well, so it creates its own halo.
Alan J. M. Haughie: The good thing about both of these areas as we've mentioned it before it drags along a whole host of other.
Alan J. M. Haughie: Highly profitable products as well.
Alan J. M. Haughie: Create its own halo.
Ketan Mamtora: Yep, no, that makes sense. And then, Alan, you talked about sort of expert finish margins being below primed, you know, for now, at least. So as we look out, and this is not a next quarter or 2024 question, but as you think about the next two, three years, when do you think that relationship flips, you know, with expert finish margins?
Speaker Change: Yes that makes sense and then.
Ketan Mamtora: And then you talked about sort of export finished margins being below prime foreknowledge needs. So as we look out and this is Martin next quarter or 2024 question, but as you think about the next two three years when do you think that relationship flips.
Ketan Mamtora: With export finish margin.
Alan J. M. Haughie: You threw me a softball bat, so I'm going to say yes in the next two to three years, I hope. That's a reasonable, if rather bland, goal. But yeah, there is still work to be done, and we're still in the process of automating, and we have highly competent leadership in that group making great strides. I mean, the variable margin, as I said, which I'm not going to disclose at this point, but the variable margin that we earned on expert finish in this first quarter was significantly higher than in the first quarter of last year.
Ketan Mamtora: Yeah.
Alan: That's helpful. That's all I can say, yes in the next two to three years ago.
Alan J. M. Haughie: But that's a reasonable if.
Alan J. M. Haughie: That's why the blend.
Alan J. M. Haughie: But yes, there is still work to be done and we're still in the process of automating that we are a highly competent leadership in that group, making making great strides in the variable margin as I said Paul.
Alan J. M. Haughie: But I'm not going to disclose at this point with the variable margin that we earned on expert finish in this first quarter was significantly higher in the first quarter of last year and again sort of returned to one of the areas things we didn't bank on that when we gave our Q1 guidance. So that aspect of the business actually performed slightly better than our Q1.
Alan J. M. Haughie: And again, to sort of return to one of the earlier themes, we didn't bank on that when we gave our Q1 guidance, and so that aspect of the business actually performed slightly better in our Q1. We're making strides. As you can imagine, it will be a situation of two steps forward, one step back. So we don't necessarily take all of the improvements in Q1 and kind of... project them in perpetuity. So it is an ongoing process of learning how to do this, but I'm delighted with the progress we're making.
Alan J. M. Haughie: But masa performance than we expected so we.
Alan J. M. Haughie: We're making we're making strides but as you can imagine it will be a situation of two steps forward one step back. So we don't necessarily take all of these improvements in Q1 and kind of.
Alan J. M. Haughie: Injected in perpetuity. So it is it is an ongoing process of learning how to do this but I'm delighted with the progress we're making so far.
Ketan Mamtora: Got it. Okay, that's very helpful. Good luck. I'll jump back in the queue. Thank you.
Speaker Change: Got it okay. That's very helpful. Good luck I jump back into queue.
Operator: Thank you. One moment for questions. Our next question comes from Mike Roxland with True Securities. You may proceed.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for questions.
Michael Andrew Roxland: Thank you, Brad, Alan, and Aaron, for taking my questions. Congratulations on a solid... Thank you. Thanks, Mike. Just want to get a sense, you know, can you talk about the degree to which you produce OSB through siding, if any? Because I recall your investor day in February, you mentioned some optionality to increase production of OSB, you know, should market conditions warrant it. I think you mentioned 50% of your siding mills have that capability or ability to produce OSB. So given the run-up in OSB prices and the more modest, let's say the more modest ramp in siding capacity, I'm wondering if you took advantage of that capability.
Michael Andrew Roxland: Our next question comes from Mike <unk> with <unk> Securities You May proceed.
Speaker Change: Thank you, Brian Allan and Arab and taking my questions Congrats on a solid quarter.
Speaker Change: Thank you thanks, Mike.
Michael Andrew Roxland: Just wanted to get a sense.
Michael Andrew Roxland: Can you talk about the degree to which you produce OSB siding, if any because I recall at your Investor Day in February you mentioned, some optionality to increase production of always be.
Michael Andrew Roxland: Should market conditions warrant I think you mentioned, 50% of your siding mills had that capability or ability to produce OSB. So given the run up in OSB prices.
Michael Andrew Roxland: And the more minus let's say a more modest ramp in society capacity I'm wondering if you took advantage of that capability.
William Bradley Southern: Yeah, let me speak to that strategically. So, as you know, over a multi-year period, we've converted OSB mills to siding. In the larger OSB mills that we've converted, we intend to retain the ability to produce OSB. And the reason for that is that when a new siding mill comes online in our network, we don't typically have the immediate demand to fill the facility up.
Speaker Change: Yes, let me speak to that.
William Bradley Southern: Strategically so so as you know over multi year period, we've converted OSB mills siding and the larger OSB mills that we've converted.
William Bradley Southern: Tend to retain the ability to to produce OSB.
William Bradley Southern: And the reason for that is.
William Bradley Southern: When a new siding mill comes online in our network.
William Bradley Southern: Typically you have the immediate demand to fill the facility.
William Bradley Southern: And so while we may not maintain the ability to make OSB in the current mill we're converting, we do maintain it in our system. And so we retain that as a mechanism to basically cover, you know, the semi-fixed cost of a facility where we have staffed up for siding production so that we have the plant and the network capability to take advantage of what happened in Q1 and what we foresee happening in Q2.
William Bradley Southern: And so while we're not we may not.
William Bradley Southern: And, you know, we are able to fill the idle time with OSB production. So it is done primarily as a cost optimization, say, in our siding business, so we don't have idle assets or idle labor costs, you know, waiting on the order file for siding to improve. And I will just ease any concerns there.
William Bradley Southern: While maintaining the ability to make OSB currently we're converting we do maintain it in our system and so we retain that as a mechanism to basically cover.
William Bradley Southern: The semi fixed cost in our facility.
William Bradley Southern: Where we have staffed up for siding production so that we have.
William Bradley Southern: And the network capability to take advantage of what's happening Q1, and what we foresee happening in Q2.
William Bradley Southern: And we're able to fill idle time.
William Bradley Southern: With our speed production. So it is done primarily as a cost.
William Bradley Southern: <unk>.
William Bradley Southern: Optimization say in our siding business. So we don't have idle assets or idle labor cost waiting on the order file for siding to improve and just.
William Bradley Southern: Just.
William Bradley Southern: Any concerns there.
William Bradley Southern: And just let me go a little bit more detail on how that's handled internally. We transfer that OSB production to our OSB segment at standard cost. And so the revenue for that OSB is recognized in our OSB business. But obviously, and there, and the OSB segment cost is at the standard cost manufacturing side. So we want to try to keep the segment revenue clean by product, not by location of manufacturing. So we are making OSB; we did make OSB in our siding network in the first quarter.
William Bradley Southern: This will go a little bit more detail on how that's handled internally, we transfer that OSB production to our OSP.
William Bradley Southern: OSB segment at standard cost and so the revenue for that OSP is recognized in our OSB business, but obviously.
William Bradley Southern: The OSB segment cost is it standard cost of manufacturing siding.
William Bradley Southern: So we want to try to cover trying to keep the revenue. This segment revenue claimed by product.
William Bradley Southern: Location of manufacturing.
William Bradley Southern: And so in the first.
William Bradley Southern: So we are making we did make OSB in our siding network in the first quarter.
William Bradley Southern: You know, it's in the big picture, it's a minimal amount, you know, this is from memory, but most of that production goes into the north central region, where we don't currently have OSB assigned capacity. So it's, we're selling into a market where we would not normally be present if we were relying only on our OSB network. And it is not opportunistic based on OSB pricing; it is opportunistic based on capacity availability in our siding network that works so that, you know, we can cover the semi-variable or semi-fixed cost, as I mentioned earlier, and, you know, and keep the labor force active, doing something constructive.
William Bradley Southern: And the Big picture, it's a minimal amount.
William Bradley Southern: Keith.
William Bradley Southern: This is from memory, but most all of that production goes into the North Central region, where we don't have currently have OSB.
William Bradley Southern: Assigned capacity, so if we're selling into a market, where we would not normally be present if we.
William Bradley Southern: We're relying only over OSP network.
William Bradley Southern: And it is not opportunistic based on OSB pricing. It is opportunistic based on capacity availability and our siding network that works. So that we can cover the semi variable or semi fixed cost is as I mentioned earlier.
William Bradley Southern: And keep the labor force active.
William Bradley Southern: So happy to take a follow-up question, Mike, if that didn't cover the nature of your question, but just wanted to provide a kind of a little bit of detail around how we do that strategically.
William Bradley Southern: Doing something constructively so.
Mike: Happy to take a follow up question market that maybe cover.
William Bradley Southern: The nature of your question, but just wanted to provide a kind of a little bit of a detail around while we do that strategically.
Michael Andrew Roxland: No, it's extremely helpful, Brad. Thank you. Just one question, if you could follow up on that. So the way it's booked is by using the cost structure of deciding those things, but you're capturing the revenue. The revenue is reported within the OSB but using the cost structure out of the site, segment. The revenue and any market gain over standard cost is recognized in OSB, and then, certainly, like we get a, you know, the reason we do it is that there is a cost.
Mike: No that's extremely helpful. Brian Thank you.
Michael Andrew Roxland: Just one client one question I wanted to follow up on that so the way. Its book these guys using the cost structure of the siding mills captured in revenue.
Michael Andrew Roxland: The revenue is.
Michael Andrew Roxland: Revenue reported with knee OSB, but using the cost structure all deciding.
Michael Andrew Roxland: Segment.
Michael Andrew Roxland: Exactly.
Michael Andrew Roxland: The revenue.
Michael Andrew Roxland: And any margin gains over standard cost is recognized and OSP and then and then Bob.
Mike: Certainly Mike we get.
Michael Andrew Roxland: Reason, we do it is there is a cost.
William Bradley Southern: Reduction, or whatever, cost offset that happens in our siding business that provides, you know, it helps to even down margin in our siding business because, you know, we're getting that cost transfer at standard, which is helpful. So it's a cost [inaudible]
Michael Andrew Roxland: Reduction or whatever.
William Bradley Southern: To offset that happens in our siding business that provides.
William Bradley Southern: The EBITDA margin in our siding business, because we're getting that.
William Bradley Southern: Cost transfer its standard.
Speaker Change: And that is helpful. So it has a cost.
William Bradley Southern: Optima.
William Bradley Southern: Optimization of cost.
William Bradley Southern: Health and are citing our EBITDA margin help in siding and then depending on the pricing of OSB Amit can be significant.
William Bradley Southern: OSB EBITDA.
Alan J. M. Haughie: I also think that by virtue of doing this, you know, we don't have to reconfigure our The Siding Network and the staffing as much as we would otherwise do, and we can, you know, the idea of the siding business is it's a growth business. When we hire people at the mills, the idea is that, you know, you come and work at a siding mill, and the shift pattern never goes down, and we continue to recruit people, and we like to try and stick to that, and then we can gain experience, crews, capable of doing exactly what we just described happened in Q1, which is adding additional siding volume and not needing to add shifts because shifts are trained.
William Bradley Southern: I think that by virtue of doing this we are.
Alan J. M. Haughie: We don't have to reconfigure.
Alan J. M. Haughie: The siting network staffing as much as we would otherwise do and.
Alan J. M. Haughie: And we came into the idea of the siding business and this is a growth business for <unk>.
Alan J. M. Haughie: The people at the Mills. The idea was that you kind of look at a siding mill and the shift if it goes down.
Alan J. M. Haughie: Continuing to recruit people and we'd like to try and stick to that and then we can gain experienced.
Alan J. M. Haughie: Crews capable of.
Alan J. M. Haughie: Doing exactly what we just described happened in Q1, which is.
Alan J. M. Haughie: Adding additional siding volume and not needing to add shifts because of the shifts are trained and capable and they can pump out volume.
Alan J. M. Haughie: When it comes out.
Alan J. M. Haughie: It's got a great set of collateral benefit to the.
Alan J. M. Haughie: The future efficiency of the siding business because it sets itself up for that success.
William Bradley Southern: Yeah, I just think that's a great point. And just to add a little detail, So when we spend on these mill conversions that we've experienced recently, and the cost associated with that, there's a great deal of training that goes into those transitions, because, you know, look, when you're manufacturing OSB, that is not an aesthetic. There's not an aesthetic, quality parameter within the realm of reason for OSB. It's highly, it's a big part of the cause of downgrade in a siding mill.
Alan J. M. Haughie: Yes.
William Bradley Southern: That's a great point and just to add a little detail. So we spent on these mill conversions.
William Bradley Southern: We've experienced recently and the costs associated with that there's a great deal of trainings that goes into the.
William Bradley Southern: Those transitions to Cogs.
William Bradley Southern: When you're manufacturing our space, but it is not an aesthetic theres not an aesthetic.
William Bradley Southern: Quality parameters within the realm of reason for OSB is highly is a big part of cost of downgrade and a siding mill so the training.
William Bradley Southern: So the training that happens in those facilities is, you know, a major investment. So we're making a major investment in the workforce. And so, you know, just to be simplistic about it, what we don't want to do is convert a mill and then not have the siding, immediate siding volume to run the mill and have to lay the, you know, do a shift with the staff reduction to meet that demand. And so OSB helps us, you know, retain some consistency and operations at these facilities after we make these sizable investments and conversions. And, you know, invest today and I will, and when we meet.
William Bradley Southern: What happens in those facilities.
William Bradley Southern: No.
William Bradley Southern: As a major investment so we're making a.
William Bradley Southern: A major investment in the workforce.
William Bradley Southern: Simplistic about it but we don't want to do is convert a mill and then not have the siding immediate citing volume to run the mill and have to wait.
William Bradley Southern: Stuart shifts the staff reductions to meet that demand so OSB helps us.
William Bradley Southern: <unk> and <unk>.
William Bradley Southern: Consistency in operations at these facilities after we make SaaS for investments in conversions.
William Bradley Southern: And, you know, on Invest Today and when we're meeting with investors and EVIs, personally, we'll talk about why we think the whole is greater than the sum of the parts if you use some of the parts analysis. This is one of the reasons that each business has; there's a symbiotic benefit, and being able to do this, it's one of the reasons why the whole business pops.
William Bradley Southern: Our Investor day.
William Bradley Southern: And what when meeting with investors and you guys personally we'll talk about why we think the whole is greater than the sum of the parts. If you use some of the parts analysis. This is one of the reasons that the.
William Bradley Southern: Each business has.
William Bradley Southern: The weekend does that somebody else may benefit.
William Bradley Southern: And being able to do that Thats one of the reasons why.
Michael Andrew Roxland: It's great. One last question, and I'll turn it over to you. Do you recall, then, how much of either revenue or EBITDA came from running the siding mills on OSB to accomplish that? And would it be fair to say that as you progress through the duration of this year, the contributions of the siding mills should decrease as you run more siding product itself? Yeah.
William Bradley Southern: Some of the parts.
Speaker Change: Thats great color, one last question and I'll turn it over.
Michael Andrew Roxland: Do you recall then just when you look at your own.
Michael Andrew Roxland: <unk> segment, how much of either revenue or EBITDA came from.
Michael Andrew Roxland: Running the siding mills on OSB to accomplish that and would it be fair to say that as you progress through the duration of this year the contribution to sign those should lessen as you one more exciting product itself.
Alan J. M. Haughie: Yeah, Mike, I would say that the amount of the year over year volume increase in the OSB business enabled by OSB production in the siding mills was pretty minimal; it was between a quarter and a third of the year over year increase. And so, you know, it has a positive impact, but not a dramatic one. It, you know, I guess I would characterize the siding impact the same way it helps us be ready for the upside.
Michael Andrew Roxland: Yeah.
Speaker Change: Yes, Mike I would say that the amount of the year over year volume increase in the OSB business enabled by OSB production in our siding mills.
Alan J. M. Haughie: Minimal it was between a quarter and a third at the year over year increase.
Alan J. M. Haughie: So.
Alan J. M. Haughie: It has a positive impact, but not a dramatic one.
Alan J. M. Haughie: <unk>.
Alan J. M. Haughie: I guess I would characterize the siding impact the same way it helps us to be ready for the upside but but.
Alan J. M. Haughie: But, But It's not a huge amount of volume, and mostly the increase in the OSB business was enabled by the combination of very strong OEE operating efficiency, as well as a fair amount of overtime in those facilities. So the bulk of the...
Alan J. M. Haughie: It's not a huge amount of volume.
Alan J. M. Haughie: And mostly the increase in the OSB business was enabled by the combination of.
Alan J. M. Haughie: Very strong OE and operating efficiency.
Alan J. M. Haughie: As well as a fair amount of overtime in those facilities. So the bulk of the uplift came from OSB.
Alan J. M. Haughie: And obviously, that's where the benefit of crews as well.
William Bradley Southern: Michael, let me just add one level of detail to answer your question. We do tend to contract that volume out of siding, just because we want to know there's a market there. So typically, once we've done that for the year, that volume is pretty consistent quarter to quarter. Now, if we get into a situation where, you know, site demand requires full production, we can do some things in our OSB business to cover that contract volume.
Speaker Change: Let me just add one level of detail.
William Bradley Southern: The answer to your question, we do tend to contract that volume out of siding, just because we want to know there are some market. There. So typically once we've done that for the year that volume is pretty consistent quarter to quarter now if we get into a situation where.
William Bradley Southern: Citing demand requires full production, we can do some thanks for OSB business to cover that contract volume.
William Bradley Southern: But it should be expected that we would run some OSB in our siting system the rest of this year, then we get to next year, and we look at that volume and say, what do we need? But typically, we do contract that volume. Just to make sure we have a home for it and we're not having to put all that volume on the open market.
William Bradley Southern: But it is true that should be expected that we would run some OSB in our siding system. The rest of this year when we get to next year and we look at that volume and say why do we need but typically we do a contract that volume.
William Bradley Southern: To make sure we have.
William Bradley Southern: A home for it.
William Bradley Southern: Not having to put all of that volume on the open market.
Michael Andrew Roxland: God, extremely helpful. Thank you for all the coloring and good luck in 2Q.
Speaker Change: Got extremely helpful. Thank you for all the color and good luck in <unk>.
Speaker Change: Thank you thanks, Mike.
Operator: Thank you. One moment for questions. Our next question comes from Stephen Ramsey with TRG. You may proceed.
Speaker Change: Thank you one moment for questions.
Stephen Ramsey: Our next question comes from Steven Ramsey with DRG you May proceed.
Brian Byros: Hey, good morning. This is actually Brian Byros, Dr. Stephen. Thank you for taking my questions. First one on siding, any commentary on the channel inventory there, you know, the product smart side, expert finish, builder series. Is it healthy for this time of year and for the raised outlook, or is this kind of maybe a tailwind to help 2-H?
Operator: Hey, Good morning, this is actually Brian Biros on for Steven Thanks for taking my questions.
Brian Byros: First one on siding.
Brian Byros: Commentary on the channel inventory there.
Brian Byros: <unk> Smart side expert finished builder series is it helped me for this time of year for the rate outlook or is this kind of maybe a tailwind to help to H.
William Bradley Southern: I would say the inventories, like, it's hard to remember what normal was, you know, after COVID and then coming off of the order file, but even with my memory cells not being what they used to be, we are back to a more normal seasonal pattern on inventories. And so I would characterize today's inventory levels as normal, but normal being a little high because distribution has certainly brought in products like expert finish in anticipation of a strong summer season.
Brian Byros: Our.
William Bradley Southern: Inventories.
William Bradley Southern: It's hard to remember what normal was after Covid I mean coming off the order file.
William Bradley Southern: But.
William Bradley Southern: Even with my.
William Bradley Southern: Okay.
William Bradley Southern: Memory sales not being what I used to be.
William Bradley Southern: We are we are back to a normal more normal seasonal pattern on inventories and so all our characterize today's inventory levels as normal, but normal being a little high because there.
William Bradley Southern: Distribution has certainly.
William Bradley Southern: Brought in products like export finish in anticipation of a strong summer.
William Bradley Southern: So typically, historically, distribution builds inventory beginning February through April and May, and then that inventory is worked down till the October time frame. But we feel really good that the product's moving through. There's no strange inventory build anywhere in the channel. But I just want to be transparent about that means probably a little higher levels than it will be in November, but healthy for the level of demand that we're experiencing in our order file. So we do not have concerns about any inventory build in the channel affecting, I mean, certainly next quarter, you know, which we've got.
William Bradley Southern: Season, so typically historically distribution builds inventory beginning February through April may and then that inventory is worked down.
William Bradley Southern: October timeframe.
William Bradley Southern: But we feel really good that the products moving through there is no.
William Bradley Southern: Strange order order inventory.
William Bradley Southern: Inventory build anywhere in the channel, but I just wanted to be transparent about that means a probably a little higher level and it will be in November but healthy for the level of demand that we're experiencing in our waterfall. So we do not we do not have concerns about any inventory build in the channel affecting certainly next quarter.
William Bradley Southern: <unk>.
William Bradley Southern: We guided to.
Brian Byros: Okay, understood. And then maybe secondly, on the setting margins of I think it's 23% now versus 20% prior, you're really a major jump sales guide going. 1.45 to, I think 1.5 now. As you've repeatedly stated before, volumes obviously have a major impact on margin. I guess how much of that margin raise here is volume and mix helping the sales or anything else as a kind of initiative? that are efficiencies at the plants and things like that. Thank you. You know, volume is a huge problem.
Speaker Change: Okay understood and then maybe secondly on the siding margins.
Brian Byros: 33% now versus 20% prior you really a major jump sales guide down from.
Brian Byros: 145 to I think one five now.
Brian Byros: Repeatedly stated before volumes, obviously had a major impact on margin.
Brian Byros: How much of that margin raise here is volume and mix, helping the sales or anything else of the kind of initiatives.
Brian Byros: And our efficiencies at the plants and things like that thank you.
William Bradley Southern: Volume is a huge, production volume is a huge, huge driver of these margins, let's be clear. And so, you know, as we continue to, you know, kind of at least outperform our expectations around sales volume and lever that into incremental production at our facilities, there's tremendous, you know, that's very beneficial to our margins. And then, as Alan mentioned, we've, you know, given the health of the order file, you know, our sales, our price increase that we implemented in January went through really quickly and has held very strongly, you know, very, you know, has some stickiness to it. So we're confident there.
Brian Byros: But volume is a huge.
William Bradley Southern: Production volume is a huge driver to these margins let's be clear.
William Bradley Southern: So as we continue to.
William Bradley Southern: Kind of in place to outperform our expectations around sales volume and lever that into incremental production in our facilities there is tremendous.
William Bradley Southern: That's very beneficial to our margins and then as Alan mentioned.
William Bradley Southern: Given the health of the order file.
William Bradley Southern: Sales or price increase that we have.
William Bradley Southern: Implemented January went through really quickly and has held very strong.
William Bradley Southern: You'll have some stickiness to it so we're confident there and then somewhat unexpectedly the level of RASM MTI a price fall.
William Bradley Southern: And then, you know, somewhat unexpectedly, the level of the resin MDI price fall has been active as well. So, but look. Any kind of long-term view of margin for this business is going to be primarily driven by our ability to get price, our ability to approve mix, and our ability to run these facilities, you know, full or close to full. And just keep in mind, you know, like with Segola, every time when we have Segola's up and fully running and functional and optimized out, that is big exciting news.
William Bradley Southern: <unk> has been active as well so but look.
William Bradley Southern: Any kind of long term view of margin.
William Bradley Southern: This business is going to be primarily driven by our ability to get price our ability to improve mix and our ability to run these facilities.
William Bradley Southern: Full or close to full and just keep in mind with <unk>.
William Bradley Southern: Go up.
William Bradley Southern: When we add when <unk> goes up and fully running and functional and optimized out.
William Bradley Southern: So these sodding mills that we add to our system lower our average cost because of the scale they provide. Similar things are happening in bath on an expert finish. And so, you know, we were in a growth phase that happened for a while, where the incremental growth can still come with incremental margins because of the efficiency that's inherent in these large mill conversions and ultimately inherent in us filling up the system.
William Bradley Southern: Exciting meal. So these these siding mills that we add to our system lower our average cost because of the scale that provide similar things happening in bath on expert finish.
William Bradley Southern: So.
William Bradley Southern: We're in a we're in a growth phase and have been for a while where are the incremental growth comps can still come with incremental margins because of the efficiency.
William Bradley Southern: Inherent in these large mill conversions and then ultimately inherent in us filling up the system.
Speaker Change: Thank you.
Operator: One moment for questions. Our next question comes from Sean Steuart with T.D. Cowan.
Speaker Change: One moment for questions.
Sean Steuart: Our next question comes from Sean Stewart with TD Cowen You May proceed.
Sean Steuart: Thanks. Good morning, everyone. A couple of easy ones for you. With sliding momentum, clearly, very much on track. Any updated thoughts on WAWA in terms of timing and capital costs to move that project forward?
Sean Steuart: Thanks, Good morning, everyone, a couple of easy ones for you.
Sean Steuart: With exciting momentum clearly.
Sean Steuart: It's very much on track yet any updated thoughts on wawa in terms of timing and capital costs to move that project forward.
William Bradley Southern: Yeah, thanks, Sean. The update is that we continue to evaluate our expectations for demand growth on a weekly basis. It's never a perfect process of timing new capacity additions to perfectly match demand, but it is something we evaluate very, very frequently and consistently. I think really the only thing concrete we can give you is that, certainly, our expectation is earlier than it was six months ago. And the more we see uptake of the volume and the faster we fill Segola and the faster we fill Saas, the sooner we're going to want more capacity, probably with no impact on CapEx this year.
Speaker Change: Yeah, Thanks, Sean that the update is that.
William Bradley Southern: We continue on a weekly basis to evaluate our expectations for demand growth.
William Bradley Southern: Never a perfect process of timing new capacity additions to perfectly match demand, but it's something we evaluate.
William Bradley Southern: Very very frequently and consistently.
William Bradley Southern: I think really the only thing concrete we can give you is that certainly.
William Bradley Southern: Our expectation is earlier than it was six months ago.
William Bradley Southern: And the more ec's uptake of the volume and the faster we also ola.
William Bradley Southern: Faster we felt that.
William Bradley Southern: The sooner, we're going to want more capacity.
William Bradley Southern: Probably with no, there will be no impact on CapEx this year, you know, just.
William Bradley Southern: Probably with no there's really no impact on Capex this year.
William Bradley Southern: Guidance is staying the same so there'll be no nothing.
William Bradley Southern: Significant from a capex perspective this year.
Sean Steuart: Um, second question is just on OSB industry capacity growth; there's still a lot on deck for the next two to three years, and Brad, I'd be interested in any updated thoughts you have on the likelihood that all these projects come to fruition and constraints on bringing that supply into the market at the pace that's been suggested by all these announcements. Capital constraints, labor constraints, other issues along those lines. Yeah, I'll just say that
William Bradley Southern: Understood.
William Bradley Southern: Second question is just on OSB industry capacity growth there is still a lot on deck. The next two to three years.
Sean Steuart: But I'd be interested in any updated thoughts you have on that.
Sean Steuart: The likelihood that all of these projects come to fruition.
Sean Steuart: And constraints on bringing that supply into the market.
Sean Steuart: At the pace. It has been suggested by all these announcements.
Sean Steuart: Capital constraints labor constraints other issues along those lines yes.
William Bradley Southern: Yeah, I'll just say that, in our own experience, too, it takes longer than planned initially when you talk about the complexity now of getting the permits, and some of the social issues related to mill locations.
Sean Steuart: I'll just say that.
William Bradley Southern: And our own experience to it takes longer than.
William Bradley Southern: Planned initially when.
William Bradley Southern: When you talk about.
William Bradley Southern: The complexity now gaining but permitting.
William Bradley Southern: Some of the social issues related to mill to mill locations.
William Bradley Southern: So, I mean, and then secondly, the market has to be there, you would think for some of, for all of this to go forward as planned. So we're keeping an eye on it. You know, we can't control, obviously, what our competitors do with capacity expansion, but I do kind of take the long view on some of these more once they're on the board and don't have a lot of momentum behind them yet.
William Bradley Southern: So.
William Bradley Southern: Yes.
William Bradley Southern: And then secondly, the market has to be there one would think for somewhat for all of these to go forward as planned.
William Bradley Southern: We're keeping an eye on it we can't control obviously.
William Bradley Southern: But what our competitors do with capacity expansion, but I do kind of take the long view on some of these more.
William Bradley Southern: Once that are on the board and not have a lot of momentum behind them yet.
William Bradley Southern: But.
William Bradley Southern: But a.
William Bradley Southern: Couple coming online that's going to have some volume in the market later this year and.
William Bradley Southern: But.
William Bradley Southern: We feel good about the rest of the year in our OSB business, we will manage our capacity to meet our customers demand in a most efficient way we can.
William Bradley Southern: But, but, um, but you know, a couple coming online is going to have some volume in the market later this year. And, but you know, we feel good about the rest of the year and our OSB business, and we'll manage, you know, our capacity to meet our customers' demand in the most efficient way we can. You know, I just don't want to speculate too much about what our competitors are going to do because, you know, I don't know for one thing. But I will say, so far, it's taken longer than initially announced and planned by all the folks that have tried to bring capacity online.
William Bradley Southern: I, just don't want to speculate too much about what our competitors monitor.
William Bradley Southern: I don't know for one thing but.
William Bradley Southern: I will say so far it's been it's taken longer than initially and helps them and planned on but all of the folks that are.
William Bradley Southern: Tried to bring capacity online.
Sean Steuart: That's all I have. Thanks very much, guys. Thanks, Sean. Thank you. One moment for questions. Our next question comes from Matthew McKellar with RBC Capital Markets.
William Bradley Southern: Okay.
Speaker Change: Yes understood.
Matthew McKellar: Thats all I have thanks very much guys.
Matthew McKellar: Okay. Thanks, Sean.
Operator: Thank you. One moment for questions. Our next question comes from Matthew McKellar with RBC Capital Markets. He may proceed. Hi, thanks. Good morning. Can you provide any color on
Matthew McKellar: Thank you one moment for questions.
Matthew McKellar: No, I would say both of those were in our thinking when we originally gave guidance back last quarter. And so we haven't really added because of those two things that I mentioned in my script. We haven't added demand because of that.
Matthew McKellar: Our next question comes from Matthew Mckellar with RBC capital markets. You May proceed.
Matthew McKellar: Hi, Thanks, and good morning.
Matthew McKellar: Could you provide any color on how much of a bump to your siding sales guidance for the year.
Matthew McKellar: Attribute specifically to the partnership with Lenovo, you announced last month and maybe the expansion Chairman home Depot, you noted versus a broader outlook for stronger sales across the business.
Matthew McKellar: No.
Matthew McKellar: I would say.
Matthew McKellar: Both of those were in our thinking when we originally gave guidance back last quarter.
Matthew McKellar: So we haven't really added cause of those two.
Matthew McKellar: Thanks, So I mentioned in my script, we haven't added demand because of that.
William Bradley Southern: It's just what we're responding to the overall strength of our waterfowl, you know, up until last Friday, the last time we got a report. And, and that, you know, that demand that we're feeling is across, you know, basically all sectors with, you know, with a little bit of not so much in the shed, as I mentioned earlier, business across the board, orders from distribution, that is, you know, creating the optimism that we have about, you know, the outlook for presiding, but we did not, we did not up it just to be specific, that the guidance increase was And we, you know, we had some visibility into that when we guided last quarter.
Matthew McKellar: Just what we're responding to is the overall strength in our order file.
William Bradley Southern: Up until last Friday.
William Bradley Southern: We got a report and and that that and saw that demand that we're feeling is across.
William Bradley Southern: Basically all sectors.
William Bradley Southern: Little bit of.
William Bradley Southern: Not so much in share as I mentioned earlier business across the board.
William Bradley Southern: Orders from distribution that is creating the optimism that we have about.
William Bradley Southern: The outlook for FERC precisely, but we did not we did not opex just to be specific.
William Bradley Southern: Guidance increase was not cause for example in our deal oversaw the home depot deal. Those deals are long time coming and we have some visibility into that when we guided last quarter.
William Bradley Southern: Yeah.
Speaker Change: Thanks very helpful. The rest of my questions have been asked I will turn it back. Thank you.
Speaker Change: Okay. Thanks, Matt.
Operator: Thank you. One moment for questions. Our next question comes from George Staphos with Bank of America. You may proceed.
Speaker Change: Thank you one moment for questions.
Operator: Our next question comes from George Staphos with Bank of America, You May proceed.
George Leon Staphos: Hi, this is actually Lucas Hudson on for George Staphos. He is currently traveling.
Operator: Hi, This is actually Lucas Hudson on for George Staphos is currently traveling.
Lucas Hudson: Congratulations on the quarter guys and thank you for the details. If you guys could just walk me through the site trends and how they vary between pro contractor and do it yourself, along with home center and distributors.
Lucas Hudson: Congrats on the quarter guys and thank you for the details if you guys could just.
Lucas Hudson: Welcome to the <unk> trends and how they vary between pro contractor and do it yourself along with.
Speaker Change: Home Center and distributors please.
Operator: That was a little bit hard to understand the question, but let me say it back to you. The different routes and markets, what differences are we seeing from a demand standpoint across those different routes to market? Is that the question? Yeah.
Lucas Hudson: Okay.
Speaker Change: It was a little bit hard to understand the question, but let me say it back to you.
Speaker Change: The different.
Speaker Change: Out to market differ.
Operator: Differences are we seeing from a demand standpoint across those different routes to market was that the question. Yeah. Just the overall demand trends between our pro contractor do it yourself home center and distributors. Please.
Lucas Hudson: Yeah, just the overall demand trends between a pro-contractor, do-it-yourself, home center, and distributor. Okay, so home center demand for the new products that we have put in place, particularly things like trim. Very good.
Lucas Hudson: Okay. So home center demand for the new products that we have put in place, particularly things like town.
William Bradley Southern: Panel business. Not a driver of incremental volume, but a strong basis for volume, which, by the way, most of our home center volumes, to be clear, are panel. So, that's kind of reflective of what we're seeing in shed. For new construction, where we have where we have had market access, it is strong, where we are where we are opening new regions as a result of the deals we've discussed, it's high percentage growth off of a low base.
Lucas Hudson: Very good panel business.
William Bradley Southern: Not a driver to incremental volume, but a strong basis for volume.
William Bradley Southern: Which by the way most of our home center volumes to be clear is panel. So that's kind of reflective of what we're saying it's shared.
William Bradley Southern: For new construction.
William Bradley Southern: Where we have where we had market access it is strong.
William Bradley Southern: Where we are opening new regions as a result.
William Bradley Southern: All of the deals we've discussed.
William Bradley Southern: It's high percentage growth off of a low base. So a lot of opportunity there and then for repair and remodel.
William Bradley Southern: So there is a lot of opportunity there. And then for repair and remodeling, I feel really good about that. But that is kind of like one of these compounding incremental opportunities for as we add contractors and we add access to the market through one step distribution, that kind of builds upon itself as far as compounding growth is concerned. So that certainly, as represented in the export finish numbers, is a key driver of the incremental volumes that we're seeing.
William Bradley Southern: Really good about that but that is I don't know.
William Bradley Southern: One of these compounding incremental.
William Bradley Southern: Opportunities, where as we add.
William Bradley Southern: Contractors, and we add access to markets that one step distribution or that kind of builds upon itself as far as the compounding growth.
William Bradley Southern: So that certainly is PREPA.
William Bradley Southern: Representative export finished numbers are key driver to the incremental volumes that we're seeing in so let's take a step back and say good new construction growth both the distribution and end user area good growth in repair and remodel at the contractor and distribution level there as well.
William Bradley Southern: So let's take a step back and say, good new construction, growth, both at the distribution and end user areas, good growth in repair and remodel at the contractor and distribution level there as well. And then for the home centers, kind of steady as it goes, but not with new, new products, which are really moving well, but through through the, you know, the consumer retail channel.
William Bradley Southern: And then for the home centers kind of steady as it goes but not with new products, which are really moving well.
William Bradley Southern: Through the <unk>.
William Bradley Southern: Through the the consumer retail channel.
Lucas Hudson: Okay, thanks for the color. That's all I have, so thank you and good luck in Q2. Thank you.
Speaker Change: Okay. Thanks, Thanks for the color.
Lucas Hudson: That's all I have thank you and good luck in Q2.
Speaker Change: Thank you. Thank you. Thank you.
Lucas Hudson: Thank you I would now like to turn the call back over to Aaron <unk> for any closing remarks.
Unknown Executive: Okay, thank you, everyone.
Speaker Change: Okay. Thank you everyone that concludes our prepared remarks on a round of questions and answers. So we'll bring the call to a close there. Thank you for joining us to discuss Q1 results and our updated outlook for.
Unknown Executive: For Q1 and for the full year 2024 stay safe and we'll look forward to connecting again Sir.
Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
Operator: Okay.
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Operator: Ian.
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