Q2 2019 Earnings Call

August 6, 2019

Good day, ladies and gentlemen, and welcome to the second quarter 2019, Louisiana Pacific Corporation Earnings Conference call. At this time all participants are in listen only mode. Later, we'll conduct a question and answer session and instructions will follow at that time, we ask that you. Please limit yourself to one question and one follow up if anyone should require operator assistance. Please press Star then zero on your Touchtone telephone.

As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Mike Kinney Treasury Director Investor Relations Mr., Kenny you may begin.

Thank you Sarah and good morning, everybody. Thank you for joining our conference call today to discuss LPL financial results for the second quarter of 2019.

Mike Kinney: Thank you, Sarah. Good morning, everybody. Thank you for joining our conference call today to discuss LP's financial results for Q2 2019. I'm Mike Kinney, Director at LP Investor Relations and Treasurer. I am joined today by Brad Southern, LP's Chief Executive Officer, and Alan Haughie, LP Chief Financial Officer. As we've done in the past, we've opened up this call to the public and are doing a webcast. The webcast can be accessed at www.lpcorp.com. Additionally, to help with the discussion, we have provided a presentation with supplemental information that should be reviewed in conjunction with the earnings release. I will be referencing these slides in my comments this morning. Also, we have filed our 10-Q and 8-K this morning with some supplemental information.

And Mike Kinney, Director and LP Investor Relations and Treasurer.

I'm joined today by Brad Southern Ltds, Chief Executive Officer, and Alan Hockey LP, Chief Financial Officer.

As we've done in the past we've opened up this call to the public and are doing a webcast webcast can be accessed at www Dot LP Corp dotcom.

Additionally to help with the discussion we have provided a presentation with supplemental information that should be reviewed in conjunction with the earnings release.

I will be referencing these slides in my comments this morning.

Also we have filed our 10-Q and 8-K this morning with some supplemental information.

I do want to remind all participants on the call about the forward looking statements comment on slide two of the presentation.

Mike Kinney: I do want to remind all participants on the call about the forward-looking statements comment on slide 2 of the presentation. Please also be aware of the discussion of our use of non-GAAP financial information included on slide 3 of the presentation. The appendix attached to the presentation has some of the necessary reconciliations that have been supplemented by the Form 8-K filing we made this morning. Rather than reading these 2 statements, I incorporate them with this as a reference. Let me turn the call over to Brad.

Please also be aware of the discussion of our use of non-GAAP financial information included on slide three of the presentation.

The appendix attached to the presentation has some of the necessary reconciliation that had been supplemented by the form 8-K filing we made this morning.

Rather than reading these two statements I incorporate them with this as reference.

Now, let me turn the call over to Brad.

Brad Southern: Thanks, Mike. Thank you all for joining us this morning. I'll begin today's call with a few highlights on the Q2, an update on our growth and efficiency initiatives, all in the context of the current market environment, and then turn the call over to Alan for a more detailed look at our results. Before I do any of that, I want to take a moment to recognize Mike Kinney. Mike has decided to retire from LP effective the end of September. Mike joined us in 1985. He was a key member in the move of the financial function from Portland to Nashville. For the past 10 years, Mike led business development and investor relations. He has played a key role in multiple acquisitions and divestitures and participated in countless analyst and investor meetings.

Thanks, Mike and thank you all for joining us this morning.

I'll begin today's call with a few highlights from the second quarter and update on our growth and efficiency initiatives. All in the context of the current market environment, and then turn the call over to Alan for a more detailed look at our results.

Before I do any of that I want to take a moment to recognize my puny.

Well I guess decided to retire from L.P. effect at the end of September .

Mike joined US in 1995, he was a key member in the move of the financial function from Portland and Nashville.

The past 10 years, Mike lead business development and Investor Relations.

He has played a key role in multiple acquisitions and divestitures and participated in countless analyst and Investor meeting.

Brad Southern: He added responsibility for treasury last year, and most recently, effectively served as the interim CFO during the search period. We appreciate Mike's service and many contributions to LP's success over the years and wish him much future happiness. I would also like to acknowledge, in addition to the LP team, in June, Nick Grasberger joined our board of directors. He's the chairman and CEO of Harsco Corporation, a global market leader providing environmental solutions for industrial waste streams and innovative technologies for the rail and energy sectors. Nick's financial expertise and executive leadership experience make him a valuable addition to our board. He brings a compelling record as a successful CEO and CFO. We look forward to his strategic insight as we continue to execute our transformation to a leading building solutions company. We welcome Nick to the LP team.

He added responsibility for Treasury last year, and most recently effectively serve as interim CFO during the <unk> period.

We appreciate Mike's service and many contributions to L.P. success over the years and wish him much future happens.

I would also like to acknowledge in addition to the LP team in June Nick Grasberger joined our board of directors, who use the chairman and CEO of Harsco Corporation, a global market leader, providing environmental solutions for industrial waste streams and innovative technologies for the rail and energy sectors.

Nix financial expertise and executive leadership experience make him a valuable addition to our board.

He brings a compelling record as a successful CEO and CFO , we look forward to his strategic insights as we continue to execute our transformation into a leading building solutions company, we welcome to the LP team.

Now, we'll move to our second quarter performance highlights of which are shown on slide five.

Brad Southern: Now we'll move to our Q2 performance, highlights of which are shown on slide 5. This is the most difficult economic climate we've encountered in the 2 years since I became LP's CEO. Compared to 2018, total housing starts were down 3% in the Q2, with single-family starts down 6%. Record-setting rainfall through the first half of the year, especially in the South, was cited as a constraint across our builder and supply chain customers. The continuing shortage of skilled labor has exacerbated this situation, preventing builders from making up for the delay. In this market, even growing SmartSide Strand proved to be a challenge, which I'll address in a moment. This challenging market environment makes the transformation underway at LP all the more important. I'm going to take this opportunity to highlight 3 areas where our focus on shareholder value is driving improved results.

This is the most difficult economic climate Weve encountered in the two years since I became LPC, yes.

Compared to 28 team total housing starts were down 3% in the second quarter with single family starts down 6%.

Record setting rainfall for the first half of the year, especially in the South was cited as a constraint across our builder and supply chain customers.

The continuum shortage of skilled labor has exacerbated the situation preventing builders from making up for the delay.

And this market, even growing smartside strand proved to be a challenge, which I'll address in a moment.

This challenging market environment makes a transformation underway at LP all the more important.

We want to take this opportunity to highlight three areas for our focus on shareholder value is driving improved results.

Brad Southern: We are creating value through our operating discipline, our growth agenda, and our people. I'll start with the operating discipline within our OSB business. Today, we run our mills to meet customer demand, producing only for active orders. As a result, our North American OSB sales volumes were down 13% year-over-year, even though per the APA, overall OSB industry production fell by just 2%. During the first six months of the year, we took sporadic downtime across our entire OSB network in order to match OSB output to customer demand. We did this while maintaining excellent cost control and positive OSB EBITDA through the first six months. I would not describe this operating scenario as optimal.

We are creating value through our operating discipline, our growth agenda and our people.

I'll start with the operating discipline with Anoro with Spi business.

Today, we run our mills to meet customer demand producing only for active orders as a result, our north American whiskeys sales volumes were down 13% year over year, even though per the EPA overall wispy industry production fell by just 2%.

During the first six months of the year, we took sporadic downtime across our entire with speed network in order to match always be output to customer demand.

We did this while maintaining excellent cost control and positive oesophageal EBITDA through the first six months, but I would not describe this operating scenario is optimal.

Brad Southern: Therefore, in June, and following a thorough review by the OSB team, we decided to remove all commodity OSB production from our siding mills for the remainder of the year, and we decided to indefinitely curtail production at our Peace Valley facility in British Columbia. While regrettable for the dedicated Peace Valley workforce, this decision allows a more systematic management of downtime and improves the efficiency of our remaining network of mills, while reducing fixed operating costs by roughly $2 million per month from September onward. All things considered, this was a rapid and agile response to market conditions and a new approach for LP. As the year progresses, we will continue matching commodity OSB production to demand at our mills, taking downtime, even curtailments, as needed. Which brings me to the second highlight, our growth agenda.

Therefore in June and following a thorough review by the hour speed team, we decided to remove all commodity LSP production from our siding mills for the remainder of the year and we decided to indefinitely curtail production at our Peace Valley facility in British Columbia.

While regrettable for the dedicated Peace Valley workforce. This decision allows a more systematic management of downtime and improves the efficiency of our remaining network of mills, while reducing fixed operating costs by roughly $2 million per month from September October .

All things considered this was a rapid and agile response to market conditions and a new approach for LP.

As the year progresses, we will continue matching commodity wispy production to demand at our mills, taking downtime due to curtailments as needed.

Which brings me to the second highlight our growth agenda.

Brad Southern: During our last call, I discussed the organization of our branded, value-added OSB products into a family of Structural Solutions designed to solve common construction problems by improving the strength and integrity of the home. In Q2, Structural Solutions accounted for 42% of total OSB volume sold, compared to 38% a year ago, moving us closer to our long-term goal of 50%. In June, we acquired Prefinished Staining Products, Incorporated, or PSPI, located in Green Bay, Wisconsin. PSPI has been offering prefinished LP SmartSide Trim & Siding for several years. We believe the prefinished siding market will continue to grow significantly, and acquiring PSPI provides us with the facilities, capability, and expertise to enter this market. PSPI will operate as part of LP Siding business and has been renamed LP Green Bay.

During our last call I discussed the organization of our branded value added wispy products into a family of structural solutions designed to solve common construction problems by improving the strength and integrity of the home.

In the second quarter structural solutions accounted for 42% of total lowest speed volumes sold compared to 38% a year ago, moving us closer to our long term goal of 50%.

In June we acquired pre finished staining products incorporated or PSPI located in Green Bay, Wisconsin.

PSPI has been offering pre finished LP smartside trim and siding for several years.

We believe the Prefunding, Saudi market will continue to grow significantly and acquiring PSPI provides us with facilities capability and expertise to enter this market.

PSPI will operate as part of LP siding business and has been renamed LP Green Bay.

Brad Southern: The PSPI acquisition is a significant step toward our goal of launching a national LP SmartSide branded prefinished siding solution at next year's International Builders' Show. You will recall at the beginning of this year, we added two new products to our growing portfolio, Smooth SmartSide Strand and LP WeatherLogic Air & Water Barrier Sheathing. In June, we started production of our third launch of the year, LP Elements Performance Fencing, a significant innovation in the fencing industry. Using SmartSide Strand technology, we now offer the first and only engineered wood fencing product. Commercial shipments began in July, and we are committed to making LP Elements Fencing a game changer for the installers and homeowners. Which bring me to perhaps the most important aspect of our growth strategy, SmartSide Strand. It is rare to achieve a consistent double-digit growth in the building industry.

The PSP acquisition is significant step toward our goal of launching a national LP Smartside branded pre finished citing solution at next year's international builder show.

You will recall at the beginning of this year, we added two new products to our growing portfolio of smooths, Smartside strand, and LP, whether logic air and water barrier sheathing.

In June we started production of our third launch of the year LP elements performance sensing a significant innovation in the fencing industry.

Using smart side.

Strand technology, we now offer the first and only engineered wood fits in product.

Commercial shipments began in July and we are committed to making LP elements fencing, a game changer for the installers in homeowners.

Which brings me to perhaps the most important aspect of our growth strategy Smartside stranded.

It is rare to achieve a consistent double digit growth in the building industry.

Brad Southern: Since it was launched in 1997, LP SmartSide Trim & Siding has been one of the industry's biggest success stories in both home building and repair and remodel. I was therefore disappointed by the 3% revenue growth we posted this quarter. Having been in this business for most of my career, I know all too well that a growth curve can be lumpy. At the outset of the year, we projected annual growth of 12% to 14% for SmartSide Strand, guiding to the lower end of the range on the expectation of flat housing. Housing hasn't been flat. Single-family housing starts fell by 3% in Q1, yet we posted a healthy 13% growth, helped by our customers pre-buying ahead of our March price increase.

Since was launched in 1997 LP Smartside Tremont siding has been one of the industry's biggest success stories of both homebuilding and repair and remodel, which therefore disappointed by the 3% revenue growth we posted this quarter.

Having been in this business for most of my career I know all too well that a growth curve can be lumpy.

At the outset of the year, we projected annual growth of 12% to 14% for Smartside strand guiding to the lower end of the range of the range on the expectation of flat housing.

But housing Hasnt been flat single family housing starts fell by 3% in the first quarter, we posted a healthy 13% growth helped by our customers pre buy ahead of our market price increase.

Brad Southern: This was followed by a 6% drop in single-family housing in Q2, which softened pull-through demand from builders and contractors and ultimately slowed our growth. We believe that about 40% of SmartSide revenue is tied to single-family housing. While imperfect as a market indicator for SmartSide, single-family starts provides a useful guide to underlying demand over the long term. The chart comparing our growth to single-family housing starts on a trailing 12-month basis is shown on slide 6. By this measure, single-family housing starts have fallen by 3%, while SmartSide has grown by 10%. In other words, over the last 12 months, we have grown 13 points faster than the closest underlying market indicator, which is quite remarkable. However, with permits also falling off recently, we are expecting year-over-year housing activity to be only marginally better in the second half.

This was followed by a 6% drop in single family housing in the second quarter, which softened pull through demand from builders and contractors and ultimately slowed our growth.

We believe that about 40% of Smartside revenues tied to single family housing.

While at all in perfect as a market indicator for Smartside single family starts provides a useful guide to underlying demand over the long term.

The chart comparing our growth to single family housing starts on a trailing 12 month basis as shown on slide six.

By this measure single family housing starts to fall and by 3% plus more insight has grown by 10%.

In other words over the last 12 months, we have grown 13 points faster than the closest underlying market indicator, which is quite remarkable.

However, with permits also falling off recently, we are expecting year over year housing activity to be only marginally better in the second half we are seeing some resilience in the repair and remodel markets, which are outperforming new construction and we remain more bullish on that sector as increasing home values and overall home equity continue to drive and that investment in remodeling, which will continue to benefit our siding business.

Brad Southern: We are seeing some resilience in the repair and remodel markets, which are outperforming new construction. We remain more bullish on that sector as increasing home values and overall home equity continue to drive investment in remodeling, which will continue to benefit our siding business. Our growth expectations for the second half of the year, therefore, remain unchanged, namely 12% revenue growth on the assumption of flat housing. With 8% growth in the first six months, we are lowering our full year growth expectations for SmartSide Strand to 10%. With the likelihood of a slower housing market for the foreseeable future, we're also lowering our long-term growth target from 12% to 14% to 10% to 12%.

Our growth expectations for the second half of the year, therefore remain unchanged, namely 12% revenue growth on the assumption of flat housing.

So with 8% growth in the first six months, we are lowering our full year growth expectations for Smartside strand to 10%.

With the likelihood of a slower housing market for the foreseeable future. We are also lowering our long term growth target from 12% to 14% to 10% to 12%.

Our side and growth strategy remains unchanged and includes strategically targeting key customers and channels with an expanded product portfolio, such as refinished, it smooths side and accelerating growth in the less cyclical repair and remodel SEC.

Brad Southern: Our siding growth strategy remains unchanged and includes strategically targeting key customers and channels with an expanded product portfolio, such as pre-finished and smooth siding, and accelerating growth in the less cyclical repair and remodel segment. We have a talented, high-performing team executing our siding sales and marketing strategy, and I have every confidence they will continue to outperform the market. Which brings me to the third highlight, our people. I am immensely proud of the dedication and commitment shown by everyone at LP to drive our strategic agenda forward. Thanks to their efforts, this quarter, we have added a further $9 million in overall equipment effectiveness and supply chain improvements, bringing our total for the first 6 months to $17 million. In Q1, we reported an OEE improvement of almost 5 points over 2018, and have achieved similar improvement through Q2.

We have a talented high performing team executing our siding sales and marketing strategy and I have every confidence they will continue to outperform the market.

Which brings me to the third highlight our people.

I'm immensely proud of the dedication and commitment shown by everyone and LP to drive our strategic agenda forward.

Thanks to their efforts this quarter, we have added a further $9 million in overall equipment effectiveness and supply chain improvements, bringing our total for the first six months to $17 million.

In the first quarter, we reported an OE improvement of almost five points over 2018 and have achieved similar improvement through the second quarter.

Oh ie as our measure of manufacturing efficiency and this improvement was again the largest single contributor for the $9 million of operational efficiencies generated this quarter.

Brad Southern: OEE is our measure of manufacturing efficiency, and this improvement was again, the largest single contributor to the $9 million of operational efficiencies generated this quarter. This leaves me more confident than ever that we will meet or beat our 2021 efficiency improvement goal of $75 million. Our teams achieve this by having the courage to challenge previously accepted norms, and by striving to make LP a better company, a better performer, and a better place to work. Perhaps most important of all, we are acting like owners by doing everything in our power to execute in a challenging market. Given the downtime we took at both OSB and Siding mills during Q2, costs were universally well contained, not only in operations, but also in our corporate functions.

This leads me more confident than ever that we will meet our four beat our 2021 efficient see improvement goal of $75 million.

Our teams achieved this by having the courage to challenge previously accepted norms by striving to make LP, a better company a better performer in a better place to work.

And perhaps most important of all we are acting like owners are doing everything in our power to execute in a challenging market.

Given the downtime we took at both SP in siding mills during the second quarter costs were universally welcomed.

Contain not only in operations, but also in our corporate functions.

When combined with the growth of Smartside stranded structural solutions. We are ahead of target delivering $44 million or 2021 goal of $165 million EBITDA improved.

Brad Southern: When combined with the growth of SmartSide Strand and Structural Solutions, we are ahead of target, delivering $44 million toward our 2021 goal of a $165 million EBITDA improvement. This progress comes amid a challenging economic environment, which saw a third consecutive quarter of declining housing starts and OSB prices falling by almost 50% year-over-year. Despite the market, here at LP, we will remain focused on executing our strategy and driving shareholder value through our operating discipline, our growth agenda, and our people. On that note, I'll turn the call over to Alan for a detailed review of our Q2 results. Alan?

This progress comes amid a challenging economic environment, which saw a third consecutive quarter of declining housing starts and obviously prices falling by almost 50% year over year.

But despite the market here at LP, we will remain focused on executing our strategy and driving shareholder value through our operating discipline, our growth agenda and our people.

And on that note I'll turn the call over to Alan for a detailed review of our second quarter results.

Alan Haughie: Thanks, Brett. In addition to reviewing the consolidated results for the quarter, I'll be providing high-level revenue and EBITDA bridges between this year and last year for the Siding and OSB segments, and briefly updating you on the progress of our capital allocation plan. Throughout my prepared remarks, I'll be referencing specific pages of our earnings presentation, which has been posted on our investor relations website. Moving to slide 8 for a review of Q2, starting with the consolidated income statement. Net sales fell year-over-year by $223 million. A drop in North American OSB prices of 44% from Q2 2018 was the cause of $166 million of the decline. North American OSB volume reductions of 13% account for most of the remainder.

Thanks, Brett.

In addition to reviewing the consolidated results for the quarter I'll be providing high level revenue and EBITDA bridges between this year and last year for the siding and always be segments.

And briefly updating you on the progress of our capital allocation plan.

Throughout my prepared remarks, I'll be referencing specific pages of our earnings presentation.

Which has been posted on our Investor Relations website.

Moving to slide eight for review of the second quarter, starting with the consolidated income statement.

Net sales fell year over year by $223 million drop in North American SB prices of 44% from the second quarter of 2018 was the cause of $166 million of the decline.

North American SB volume reductions of 30%.

Account for most of the remainder.

The primary reasons for the volume decline come market related downtime on the conversion of our Dawson Creek mill from LSB deciding production.

Alan Haughie: The primary reasons for the volume decline are market-related downtime and the conversion of our Dawson Creek mill from OSB to siding production. However, the generally soft market impacted the entirety of our portfolio. Even SmartSide Strand volumes were flat year-over-year. Therefore, our growth of 3% for SmartSide Strand all came from pricing. Yet, despite its low growth, $200 million of SmartSide Strand revenue set a new quarterly record. Gross profit fell by $183 million, $166 million of which is, of course, the OSB price. The remainder of the drop reflects the impact of generally lower volumes, offset by productivity and efficiency improvements. Selling and administrative costs of $58 million increased by $8 million over the prior year.

However, the generally soft market impacted the entirety of our portfolio.

Stephen Smartside strand volumes were flat year over year.

Therefore, our growth of 3% for Smartside strengthened all came from pricing.

Yes, despite the slow growth two and $2 million of Smartside strand revenue set a new quarterly record.

Gross profit fell by $193 million, a $166 million of which is of course, the LSB price.

The remainder of the drop reflects the impact of generally low volumes offset by productivity and efficiency improvements.

Selling and administrative costs to $58 million increased by $8 million over the prior year.

The largest single driver of the increase is our continuing investment in sales and marketing consistent with our growth strategy.

Alan Haughie: The largest single driver of the increase is our continuing investment in sales and marketing, consistent with our growth strategy. There is also some temporary cost duplication due to our infrastructure alignment. Other charges and credits of $3 million includes $4 million of income due to a reduction in warranty reserves and $1 million of insurance recoveries. These were partly offset by $2 million of severance charges, including $1 million due to the indefinite curtailment of production at our Peace Valley mill in British Columbia. Non-operating income and expense of $4 million includes net interest charges of $2 million, plus various other non-operating items. With a tax provision of $3 million, we produced $15 million of income from continuing operations.

There is also some temporary cost duplication due to our infrastructure alignment.

Well the charges and credits of $3 million includes $4 million of income due to a reduction in warranty reserves and $1 million of insurance recoveries.

These were partly offset by $2 million of severance charges, including $1 million due to the indefinite containment of production at our Peace Valley Mill.

In British Columbia.

Non operating income and expense of $4 million includes net interest charges of $2 million plus various other non operating items.

So with a tax provision of $3 million, we produce 15 $15 million of income from continuing operations.

As a reminder.

Alan Haughie: As a reminder, when we executed the $400 million accelerated share repurchase on 21 February, our bankers delivered 80% of the number of shares this $400 million would have bought at that time. That is, about 12 million shares. The remaining shares will be delivered, subject to an adjustment for the final number repurchased, no later than the end of Q3. The 124 million of weighted average shares used to calculate the Q2 earnings per share on a diluted basis, fully reflects the 12 million shares delivered so far. Therefore, we are reporting $0.14 per diluted share, compared to $1.11 per diluted share in Q2 2018. After removing the warranty income and the severance charges, and then normalizing the tax rate, our non-GAAP earnings per share is $0.11.

When we executed the $400 million accelerated share repurchase on February the 21st our bank has delivered 80% of the number of shares this $400 million would've bought at that time.

That is about 12 million shares.

The remaining shares will be delivered subject to an adjustment for the final number we purchased no later than the end of the third quarter.

So the 124 million of weighted average shares used to calculate the second quarter earnings per share on a diluted basis fully reflects the 12 million shares delivered so far.

Therefore, we are reporting 14 cents per diluted share compared to 111 cents per diluted share in the second quarter of 2018.

After removing the willing to income and the severance charges and then normalizing the tax rate on non-GAAP earnings per share was 11 cents.

I won't discuss the year to date numbers in any great debt other than to observe that our second quarter results is almost a replica of our first quarter results.

Alan Haughie: I won't discuss the year-to-date numbers in any great depth, other than to observe that our Q2 result is almost a replica of our Q1 result. When we remove the Q1 gain on the consolidation of Entekra, our non-GAAP earnings per share for the first six months is $0.23, basically twice that of the Q1. In other words, the fundamentals of the business have been stable over the last two quarters. Naturally, the year-over-year comparison for the Q2 is worse, it is being compared with a period in 2018, during which OSB prices hit their most recent peak. Which brings me to a key theme we explored when announcing our capital allocation plan back in February. That is, the financial strength of our portfolio.

And when we remove the first quarter gain on the consolidation of Integra on non-GAAP earnings per share for the first six months is 23 cents basically twice that of the first quarter.

In other words, the fundamentals of the business has been stable over the last two quarters.

Naturally via via comparison for the second quarter is worse than it is being compared to the period in 2018 during which always be prices hit them. Most recent peak.

Which brings me to a key theme, we explored when announcing our capital allocation plan back in February .

That is the financial strength of our portfolio.

Alan Haughie: The tables on slide 9 show revenue and EBITDA by segment for Q2 and year to date. I have already mentioned that non-GAAP income and earnings per share are basically the same in Q1 and Q2. This is hardly surprising, given that EBITDA is almost the same, $53 million in Q2 compared to $58 million in Q1, thereby producing $111 million for the first 6 months, as shown on the slide. There is a significant difference between the quarters that I wish to highlight. While revenue and EBITDA for OSB have fallen sequentially from Q1 to Q2, the opposite is true for Siding and for EWP, as it happens. SmartSide Strand sales in particular, was 7% higher in Q2 than in Q1.

The tables on slide nine show revenue and EBITDA by segment for the quarter and year to date.

I have already mentioned that non-GAAP income and earnings per share basically the same in the first and second quarters.

This is hardly surprising given that EBITDA is almost the same $53 million in the second quarter compared to $58 million in the first.

Thereby producing a $111 million for the first six months as shown on the slide.

So there is a significant difference between the quarters that I wish to highlight.

Our revenue and EBITDA I always be a fallen sequentially from the first to the second quarter. The opposite is true for siding.

And for a WP as it happens.

Smartside strand sales in particular was 7% higher in the second quarter than in the first.

Alan Haughie: Now, this includes the benefit of the March price increase and normal seasonal demand patterns. The fact remains that quarter-over-quarter, both volume and price increased for SmartSide Strand, while the opposite is true for OSB. As a result, Siding accounted for 87%, sorry, of total company EBITDA in Q2, compared to 73% in Q1. In other words, over a period of falling OSB volumes and prices, we bore the temporary inefficiency of increasing our Siding capacity at Dawson, increasing our investment in selling and marketing, and carrying duplicate corporate costs as we realign our infrastructure, all of which is discretionary. Because our portfolio demonstrably produces healthy EBITDA earnings and operating cash flow, even in periods of low OSB prices and slow housing, we can afford to relentlessly pursue our transformation agenda, and in turn, seed further growth.

Now this includes the benefit of the March price increase and normal seasonal demand patterns, but the fact remains that quarter over quarter, both volume and price increased for smart sites trend, while the opposite is true FFO SP as a result, citing accounted for 80%, 87% sorry for the total company EBITDA in the second quarter compared to 73% in the first quarter.

In other words over a period of falling I was be volumes and prices, we bowled a temporary inefficiency of increasing our siding capacity at Dawson, increasing our investments in selling and marketing and caring duplicative cost as we realign our infrastructure.

All of which is discretionary.

And because our portfolio demonstrably produces healthy EBITDA earnings and operating cash flow even in periods of low LSB prices and slow housing.

We can afford to relentlessly pursue our transformation agenda and in turn seed further growth that is the strength of our portfolio.

Alan Haughie: Before discussing Siding and OSB further, I'll briefly cover the performance of EWP in South America. EWP's Q2 revenue of $107 million is $7 million lower than last year, due to $3 million of adverse pricing and $3 million of lower volumes on OSB and plywood. Increased joint venture income and OEE improvements largely offset the price impact, resulting in the Q2 EBITDA of $10 million being just $1 million lower than 2018. In South America, revenue was impacted by the weakening of the Chilean peso against the dollar, which largely offset local volume increases. The economic climate also drove prices and hence EBITDA lower.

Now before discussing citing and that must be further I'll briefly cover the performance of MWP in South America.

Feasibly piece second quarter revenue of $107 million is $7 million lower than last year due to $3 million of adverse pricing and $3 million of lower volumes on our SP in plywood.

However, increased joint venture income and improvements largely offset the price impact, resulting in the second quarter EBITDA of $10 million being just $1 million lower than 2018.

In South America revenue was impacted by the weakening of the Chilean peso against the dollar, which largely offset local volume increases.

The economic climate also drove prices and hence EBITDA lower.

Alan Haughie: As a reminder, we now allocate a significant portion, about 75%, in fact, of our hitherto unallocated SG&A costs to the businesses to further drive line management accountability. We reconcile the quarterly detail for 2018 in an 8-K filed with the SEC in February. Slide 10 shows the Q2 revenue and EBITDA for Siding. The bars in the waterfall represent the year-over-year EBITDA impacts, and where relevant, the corresponding revenue changes are shown in orange text below the EBITDA bars. We have grouped the growth in SmartSide Strand, the marketing investment that supports future growth, and the efficiency savings together under the heading Transformation Impact, in order to monitor and report our progress in this in future quarters. It is these same numbers that were summarized earlier on slide 6.

As a reminder, we now allocate a significant portion about 75% in fact of our hit the two unallocated SGN a costs to the businesses to further drive line management accountability.

We reconcile the quarterly detail for 2018, and an 8-K filed with the SEC in February .

Slide 10 shows the second quarter revenue and EBITDA for siding.

The bars in the waterfall represent a year over year, EBITDA impacts and where relevant the corresponding revenue changes are shown in orange text below the EBITDA Abbas.

We have group to the growth in Smartside strand, the marketing investment that supports future growth and the efficiency savings together under the heading.

Transformation impact.

In order to monitor and report our progress in this in future quarters. It is the same numbers that was summarized area on slide six.

As a reminder, during the second quarter of 2018, our Dawson Creek mill in British Columbia was producing that must be whereas this year. It is ramping up production as a newly converted siding mill.

Alan Haughie: As a reminder, during Q2 2018, our Dawson Creek mill in British Columbia was producing OSB, whereas this year it is ramping up production as a newly converted Siding mill. Although the costs of the ramp-up are actually on budget this quarter, we are nonetheless bearing $6 million of unrecovered labor and overhead costs compared to 2018, which is an improvement on the $9 million incurred in Q1. In addition to the volume lost as a result of the Dawson conversion, Siding revenue and EBITDA both suffered due to lower OSB prices and the decision to take some OSB-related downtime. Together, these factors cost Siding $6 million of EBITDA year-over-year. Despite these headwinds and weaker CanExel and fiber performance, the Siding EBITDA margin is actually a respectable 19%, close to our long-term target of 20%.

Although the cost of the ramp up are actually on budget. This quarter, we are nonetheless, bang $6 million of Unrecovered labor and overhead costs compared to 2018.

Which is an improvement on the $9 million incurred in the first quarter.

In addition to the volume lost as a result of the dozen conversion siding revenue and EBITDA, both suffered due to low LSB prices and the decision to take some LSB related downtime.

Together these factors cost, citing $6 million of EBITDA year over year.

Despite these headwinds and we could kind of excel in fiber performance assigning EBITDA margin is actually a respectable 19% close to our long term target 20%.

If we exclude the cost of the Dawson ramp up which is by definition temporary the EBITDA margin would have been closer to 22%.

Alan Haughie: If we exclude the cost of the Dawson ramp-up, which is, by definition, temporary, the EBITDA margin would have been closer to 22%. That is $52 million of EBITDA divided by $238 million of revenue. Slide 11 shows the year-to-date sales and EBITDA waterfall for Siding. The highlights are the $18 million of year-to-date transformation impact, and the $16 million headwind from OSB price and volume, and the heavy, but temporary, $15 million burden of the Dawson ramp-up. Looking forward, the removal of commodity OSB production from our Siding mills will lower Siding segment revenue and EBITDA in the second half by about $16 million and $4 million, respectively. The majority of the impact will be felt in Q3, given that Dawson Creek was undergoing conversion and therefore out of commission during Q4 2018.

That is $52 million of EBITDA divided by $238 million of revenue.

Slide 11 shows the year to date sales and EBITDA waterfall for citing the highlights are the $18 million of year to date transformation impact on the 60 million dollar headwind from those be price and volume and the heavy but temporary $50 million burden of the dose and ramp up.

Looking forward the removal of commodity LSB production from our siding Mills will lower siding segment revenue revenue and EBITDA in the second half by about $60 million and $4 million respectively.

The majority of the impact will be felt in the third quarter given the Dawson Creek was undergoing conversion and therefore out of commission during the fourth quarter of 2018.

And on the subject of the dose and ramp up having spent the first few months producing soffit, we have progressed to lap the more recently panel production.

Alan Haughie: On the subject of the Dawson ramp-up, having spent the first few months producing soffit, we have progressed to lap and more recently, panel production. The Q3 will therefore show a further reduction in uncovered costs, while the Q4 is actually expected to show a year-over-year benefit. Slide 12 shows the Q2 revenue and EBITDA waterfall for the OSB segment. Commodity OSB volumes fell by 17%, including the impact of 105 downtime days, 73 of them market related. For reference, this is 32 more down days, resulting in 6%. Let me say that again. This is 32 more down days, resulting in 6% less production than in the Q1, and 72 more than in the Q2 last year. As a result, this year's Q2 utilization rate was 84%, compared with 91% last year.

The third quarter will therefore show a further reduction in uncovered costs, while the fourth quarter is actually expected to show a year over year benefit.

Slide 12 shows the second quarter revenue and EBITDA waterfall for the LSB segment.

Commodity LSB follett volumes fell by 17%, including the impact of 100, and 105 downtime days 73 of them market related.

For reference this is 32 more down days, resulting in six Bennett said.

Let me say that again this is 32 more down days, resulting in 6% less production than in the first quarter and 72 more than in the second quarter last year.

As a result, this year's second quarter utilization rate was 84% compared with 91% last year.

Structural solutions pricing fell 38% compared to a 49% drop the commodity LSB prices.

Alan Haughie: Structural Solutions pricing fell 38% compared to a 49% drop for commodity OSB prices. The transformation impact call-out for OSB includes $3 million of EBITDA, due to increased volumes of Structural Solutions, as well as improvements in OEE and sourcing of a combined $4 million. Cost reductions and mill efficiency have been paramount, given the widespread downtime taken in the quarter, the result of which was an accumulation of operating and logistics efficiencies across the segment, totaling $8 million net of inflation. All of which leads to an EBITDA loss of $3 million. Slide 12 shows the year-to-date revenue and EBITDA waterfall for OSB. Highlights are OSB's $13 million of transformation impact and Structural Solutions volumes rising to 42% of total OSB volume compared to 38% for the first 6 months of 2018.

The transformation impact core FFO SB includes $3 million of EBITDA due to increased volumes of structural solutions as well as improvements in OE insourcing of a combined $4 million.

Cost reductions and mill efficiency have been Paramount given the widespread downtime taken in the quarter.

The result of which was an accumulation of operating and logistics efficiencies across the segment totaling $8 million net of inflation.

All of which leads to an EBITDA loss of $3 million.

Slide 12 shows the year to date revenue in EBITDA waterfall, FFO SB highlight saw Sps $13 million of transformation impact.

And structural solutions volumes rising to 42% of total always be volume compared to 38% for the first six months of 2018.

Alan Haughie: Of course, EBITDA for the first 6 months is small but positive. Looking forward, on 13 June, we announced the indefinite curtailment of OSB production hour at our mill in Peace Valley, British Columbia, with a stated capacity of 800 million square feet. We estimate the associated severance costs will be $4 million and other closure costs to be about $2 million. As previously noted, $1 million of this severance was charged in Q2. As Brad has already mentioned, this action will reduce monthly operating costs by at least $2 million per month from September onwards. Our Q2 year-to-date cash and year-to-date cash flows are summarized on slide 14. With minimal net working capital movements in the quarter, we converted our EBITDA of $53 million into operating cash flow of $54 million.

And of course EBITDA for the first six months is small but positive.

Looking forward on June 13th we announced the indefinite curtailment diverse be production out at our mill in Peace Valley British Columbia.

With a stated capacity of 800 million square feet.

We estimate the associated severance costs will be $4 million and of the closure costs to be about $2 million.

As previously noted $1 million of the severance was charged in the second quarter.

And as Brad has already mentioned.

This action will reduce monthly operating cost by at least $2 million per month from September onwards.

Our second quarter year to date cash and year to date cash flows are summarized on slide 14.

With minimal net working capital movements in the quarter, we converted our EBITDA of $53 million into operating cash flow of $54 million.

Year to date operating cash flow. However is flat normal seasonal working capital build from the first quarter, we'll continue to be released through the remainder of the year, though.

Alan Haughie: Year-to-date operating cash flow, however, is flat. Normal seasonal working capital builds from Q1 will continue to be released through the remainder of the year, though. When we introduced our capital plan in February, we guided to a range of operating cash flows for 2019 that was dependent on a variety of OSB prices. We are comfortably operating ahead of this guidance. We have our stated goal of generating $165 million of additional EBITDA from growth and efficiency in 2021. After adjusting for labor, inflation, and taxes, this $165 million should produce $100 million of incremental annual cash flow over 3 years. Our progress on this transformation in 2019 is and will continue to be reflected in improved cash flow.

When we introduced our capital plan in February we guided to a range of operating cash flows for 2019 that was dependent on a variety of SB prices.

We are contemplating consist of debt.

Comfortably operating ahead of this guidance.

We have our stated goal of generating $165 million of additional EBITDA from growth and efficiency and 2020 one.

After adjusting for labor inflation and taxes this $165 million should produce a $100 million of incremental annual cash flow over three years.

Our progress on this transformation in 2019 is and will continue to be reflected in improved cash flow.

Alan Haughie: For example, should the Random Lengths seven-sixteenths OSB price ultimately average $190 per thousand square feet for 2019, we believe that our cash from operations will comfortably exceed the $110 million we would have modeled for that price. We had a quiet quarter with respect to share buybacks, at least from the company's perspective. The $400 million accelerated share repurchase we executed in Q1 is still active and will be contractually complete no later than the end of Q3. We ended Q2 with $362 million in cash, resulting in net debt of 0. When including our recently upsized and redated $350 million revolver, we have over $700 million of liquidity.

For example.

Should the random lengths seven sixteens LSB price ultimately average average $190 per thousand square feet with 2019.

We believe that our cash from operations will comfortably exceed the $110 million, we would have models for that price.

We had a quiet quarter with respect to share buybacks at least from the company's perspective, the 400 million dollar accelerated share repurchase we executed in the first quarter is still active and will be contractually complete no later than the end of the third quarter.

So we ended the second quarter were $362 million in cash, resulting in net debt to zero.

And when including our recently Upsized and re day to $350 million revolver, we have over $700 million of liquidity.

Although weve not determined the precise mechanism yet we remain committed to paying the final $200 million of the $638 million share repurchases outlined in our capital plan in 2019.

Alan Haughie: Although we've not determined the precise mechanism yet, we remain committed to paying the final $200 million of the $638 million of share repurchases outlined in our capital plan in 2019. Before I turn the call over for Q&A, slide 15 provides some limited guidance for 2019 and beyond. The changes from prior guidance are the reduction in our SmartSide Strand growth rates for 2019 and beyond. We still expect double-digit growth, but closer to 10% in 2019, and then a 10% to 12% range beyond that, both predicated on slower housing. We're also tightening our capital spending to a range of $160 million to $170 million for the year. Lastly, I'd like to personally thank Mike for his assistance over the last 6 months.

Before I turn the Colo coal over for Q and eight slide 15 provides some limited guidance for 2019 and beyond.

The changes from prior guidance of the reduction in our smart sites trend growth rates for 2019 and beyond.

We still expect double digit growth closer to 10% in 2019, and then to 10% to 12% range beyond that.

Both predicated on slower housing.

We're also tightening our capital spending to a range of $160 million $270 million for the year.

And lastly, I would like to personally thank Mike for his assistance over the last six months and with that I'll open the call for Q and a.

Alan Haughie: With that, I'll open the call for Q&A. Operator?

Operator.

Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one on your guys from telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound team Jessica Please limit yourself to one question and one follow up question.

Operator: Thank you. Ladies and gentlemen, if you have a question at this time, please press star then 1 on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. We ask that you please limit yourself to one question and one follow-up question. Again, that is star then 1 if you would like to ask a question. Our first question comes from the line of George Staphos with Bank of America Merrill Lynch. Your line is now open.

Again that is star then one if you would like to ask the question.

Our first question comes from the line of your line Staphos with Bank of America Merrill Lynch. Your line is now open.

Thanks, Chuck on the line for George I guess, just want to start out congratulating Mike on his retirement and wish you the best and then.

John Babcock: It's actually John Babcock on the line for George. I guess just wanna start out congratulating Mike on his retirement and wish you the best. Just kind of with regards to my first question, I really want to start out on siding. I mean, I, you kind of already talked a little bit about, you know, what kind of drove the revision in 2019 and also the long-term outlook. I was wondering if you could give a little bit more color on kind of the longer term outlook and why you think, you know, the 10% to 12% makes more sense versus the 12% to 14%?

Just with regard to my first question.

I really want to start out on on siding I mean, I know you kind of already talked a little bit about what kind of drove the revision in 2019 and also the long term outlook, but I was wondering if you could give a little bit more color on on kind of the longer term outlook and why you think the 10% to 12% makes more sense versus the 12% to 14%.

Yes, John so the the.

Brad Southern: Yeah, John, the main driver for that lowering guidance long term for siding is our expectation that the housing recovery has slowed and will continue to be rather flat to slight increases, versus a little more aggressive housing recovery that we had forecasted over the past couple years. We're adjusting down primarily as a result of what we're seeing with the overall economy and specifically as it relates to the housing recovery.

The main driver for that lowering.

Guidance long term for siding is our expectation that.

The housing recovery has slowed and will continue to.

Be rather flat to slight increases versus.

A little more aggressive housing.

Recovery that we had forecasted over the past couple of years. So we're adjusting down primarily as a result of what we're seeing with.

The overall economy, and specifically as it relates to to the the housing recovery.

Okay. Thank you.

John Babcock: Okay. Thank you. Also, with regards to SmartSide volumes, it looks like they were relatively flat in Q2. Was that primarily driven by the overall weaker building season, or were there inventory or other factors that might have been impacting growth there?

And then also with regards to Smartside volume. So it looks like they were relatively flat in the second quarter was that primarily driven by the overall weaker building season and are where their inventory or other factors that might have been impacting growth there.

Brad Southern: Two things. Definitely there was a inventory build that we talked about on the last call, associated with the March 1st price increase. We, you know, we did have a really good shipment quarter in Q1 and built some inventory in the channel. As we got into Q2, and we saw the weakening in housing, do want to stress again, as I had in my comments, a very wet, especially early half of the quarter, we just did not see the pull-through out of our distributor base that would result in reordering in Q2. Just two points to conclude that answer.

The two things.

Definitely there was an inventory build.

As we talked about on the last call associated with the pre buy in front of our March 1st price increase. So we we did have a really good shipment quarter in Q1 and built some inventory in the channel and then as we got into Q2 and we saw the weakening in housing, but also do want to stress again as I had in my comments, a very wet, especially early half of the quarter.

We just did not see the pull through out of our distributor base that would result in re ordering in Q2.

So.

So just two points to conclude that that answer one is the pre the pre buy power the inventory build that did happen in Q1, and then the insufficient pull through in Q2 to two.

Brad Southern: One is the pre-buy or the inventory build that did happen in Q1, and then the insufficient pull-through in Q2 to result in reordering from our distribution customers back into LP.

The result in re ordering from our distribution customers back into LP.

Okay, and then just two other quick questions.

John Babcock: Okay. Just kind of two other quick questions. You know, first of all, just on siding again, you know, with the slower growth that you're seeing now, I mean, are you having any challenges in pushing through the price increases for, from earlier this year, or is that still progressing as planned?

Yeah first of all just on on site and again with the slower growth that you're seeing now I mean are you having any challenges in pushing through the price increases for from earlier this year or is that still progressing as planned.

Now that the price increases have been.

Brad Southern: No, the price increases have been progressing as planned. I would just kind of guide you to kind of how we ended up over the last couple or last year, in particular, with pricing. You know, we usually have been over the long term, averaging 2% to 4% recovery in pricing as we get to the end of the year, and I would guide within that range for this year as well.

Have been progressing as planned I would just kind of guide you too.

Kind of how we ended up over the last couple of ore last year, particularly the pricing we usually.

Ben over the over the long term, averaging 2% to 4% recovery in pricing as we get to the end of the year and I would I would guide within that range for this year as well.

Okay. Thanks for that and then just last question before I turn it over you talked about taking some market related downtime in OSB I was wondering if you could quantify that and also did you take any equivalent downtime in siding.

John Babcock: Okay. Thanks for that. Just last question before I turn it over. You talked about taking some market-related downtime in OSB. I was wondering if you could quantify that. Did you take any equivalent downtime in siding?

Right.

Mike Kinney: Hey, John, I think Alan said that we took in Q2, we had 105 days, and then compared to 70 in Q1, and that compared to last year, Q2 was 34 days. You know, the way we don't really look at it from a siding perspective in terms of down days, because we're making up the difference in OSB, although we did take some in OSB. I don't think we've really quantified that externally.

Hey, John I think Allen said that we took Q in Q2, we had a 105 days.

And then compared to 70 in Q1.

And that compared to last year Q2 was 34 days.

And you know the way, we don't really look at it from a siding perspective in terms of down days, because we're making up the difference in LSB. Although we did take some in the I don't think weve really quantified that externally.

Okay. Thank you I'll turn it over.

John Babcock: Okay. Thank you. I'll turn it over.

Thank you. Our next question comes from the line of Ketan Mamtora with BMO capital markets. Your line is now open.

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

Ketan Mamtora: Good morning. First of all, Mike, it's been real pleasure working with you, and good luck whatever comes next.

Hi, Good morning first of all Mike it's been a real pleasure working with you on a good luck on whatever comes next.

Mike Kinney: Thanks, Ketan.

Thanks, Ken.

Ketan Mamtora: Brad, just coming back to siding, do you think, in your view, the competitive dynamics in siding has changed at all? I'm more focused on medium term rather than just what's happening in 2019. I guess 2019, we appreciate the housing headwinds, but outside of that, do you think competitive dynamics have changed?

Just coming back to our siding.

Do you think in your view on the competitive dynamics in fighting has changed at all and I'm more focused on medium term rather than just what's happening in 2019, I guess 2019, we appreciate the housing headwinds but outside of that.

I do think competitive dynamics have changed.

Okay did I don't think can compare the competitive dynamics has changed significantly obviously.

Brad Southern: Ketan, I don't think competitive dynamics has changed significantly. I mean, obviously, from the fiber cement side of our competition, you know, we are aggressively pursuing the same end markets. you know, that kind of fight has been going on for several years. While tactics and strategies change a little bit, I haven't, you know, I don't see the dynamic changing a whole lot over the last six months, especially. Then I would say from a hard siding perspective, so fiber cement and composite wood, you know, we're both really focused on, you know, converting vinyl, the market share of vinyl siding over to more hard sidings.

<unk> fiber cement side Dubroc of competition you know we are aggressively pursuing the same end markets. So a year that that kind of fight has been going on for several years and I and while tactics and strategies change a little bit I haven't you know I don't I don't see that dynamic changing a whole lot over the last six months, especially.

And then I would say from a hard siding perspective, so fiber cement and composite wood, we're both really focused on converting vinyl the more the market share of vinyl siding over to more hard sidings and that's continues to be a focus for us and I don't really think the dynamics is changed there too much either so.

Brad Southern: That continues to be a focus for us, and I don't really think the dynamics has changed there too much either. You know, we're out there fighting every day for increased market share. We're doing that by upgrading distribution, by offering new products, by creating, you know, end user demand through our marketing programs, and, you know, that's been a fairly successful strategy for us in the past, and we're continuing on that, continuing to execute that strategy with, you know, a really nicely evolving product portfolio, with the addition of Smooth and with our foray into, you know, prefinished siding. I would say I wouldn't characterize this quarter as being a significant competitive issue. It's just really more of a market-related slowdown.

Where we're out there fighting every day for increased market share, we're doing that by upgrading distribution by offering new products by Korea, creating you know end user demand through our marketing programs and you know that's been.

Fairly successful strategy for us in the past and we're continuing on that.

Continuing to execute that strategy with you know really.

Nicely evolving product portfolio with the addition of smooth and with our our foray into pre finished siding. So I thought I would say I wouldn't characterize this quarter as being a significant competitive issue. It's just really more of a market related slowdown.

Okay. That's helpful color and then just as my follow up.

Ketan Mamtora: Got it. That's helpful color. Then just as my follow-up, Alan Haughie, if I look at the slide that you have on transformation and under this growth bucket, can you just help me understand, sort of at a high level, without getting into specifics, obviously, at this stage, but when you talk about this $90 million target in just growth, what are the key sort of buckets that you guys are thinking about? Is something like PSPI included in that? Is that how I should be thinking?

And then if I look at the slide that you have on transformation and under this growth buckets.

Can you just help me understand.

Sort of at a high level without getting into specifics obviously at this stage, but when you talk about this 19 million target in just growth.

One of the key sort of buckets that you guys are thinking about.

So it's certainly yes I included in that is that how I should be thinking.

Alan Haughie: Good question. You should include something like PSPI in that, yes. The major growth engine within this 2021 target is the growth of SmartSide Strand and associated products, things like fencing, and things like our foray into prefinishing. The second two components are growth in South America, the growth, of course, of Structural Solutions, what was formerly referred to as value-added OSB. Think of this as the significant value-added components of our portfolio growing over the next 3 years.

Good question. The you should include something like PSPI that yes, the the major growth engine.

Within this 2020 one target is the growth of smartside spend and associated products.

Things like fencing.

Things like our foray into pre finishing the second two components of growth in South America and then the growth of course, the structural solutions. What was formerly referred to as a value added LSB. So think of this as the.

The significant value added components of our portfolio growing over the next three years.

Understood that's very helpful I'll turn it over.

Mark Weintraub: Understood. That's very helpful. I'll turn it over.

Ketan Mamtora: Understood. That's very helpful. I'll turn it over.

So keeping the B a b look at you go back to that bridges that kind of builds into the.

Mike Kinney: Ketan, if you look at, you know, go back to the bridges, that kind of builds into the how you're looking at the growth and the efficiency.

Hi, you're looking at the growth in the efficiency.

Mark Weintraub: Gotcha. That's helpful, Mike. Thank you.

Ketan Mamtora: Gotcha. That's helpful, Mike. Thank you.

Gotcha Thats helpful. Mike. Thank you.

Thank you. Our next question comes from the line of Mark Connelly with Stephens, Inc. Your line is now open.

Operator: Thank you. Our next question comes from the line of Mark Connelly with Stephens Inc. Your line is now open.

Hey, Good morning, this is actually John rider on for Mike.

John Rider: Hey, good morning. This is actually John Rider on for Mark Connelly. Our first question is, so we're currently not hearing a lot about input cost inflation right now. We were just hoping you could give us an idea of what you're thinking about inflation for inputs in the second half.

<unk> first question is so we're currently not hearing a lot about input cost inflation right now.

And we are just hoping you could give us an idea of what you're thinking about inflate.

Inflation for inputs in the second half.

Yeah, Hi, this zone here.

Alan Haughie: Yeah, this is Alan here. Yeah, we did see, similar to our competitors, a reduction in, you know, resin costs in the first half of the year. We've anticipating, let's say, a modest increase in resin costs through the remainder of the year. That was the principal input cost change year-over-year, worthy of note.

Yes, we did see similar to our competitors a reduction in resin costs in the first half of the year.

And we.

Anticipating as I say, a modest increase in resin costs through the remainder of the year, but that was that was the that was the principal input costs change year over year of worthy of note.

Okay again helpful. John Yes, so John if you look at how we're thinking about it is the from the RASM everything other than wood there'll be a slight benefit or like you said, Alan and then where we're seeing a little bit more of them from the wood perspective that that will be a little bit worse than what it was last year.

John Rider: Okay.

Mike Kinney: Yeah.

John Rider: helpful.

Mike Kinney: John, yeah. John, if you look, how we're thinking about it is the, everything other than wood, it'll be a slight benefit or, you know, like, as you said, Alan, and then where we're seeing a little bit more is from the wood perspective, that'll be a little bit worse than what it was last year.

Okay, great. Thank you.

John Rider: Okay, that's great. Thank you. Our second question just has to do with PSPI. We were just curious how it was running, if there was any additional plans to expand the business at all?

And then just.

Any additional plans to expand the business.

So the integration is going really well in that business. It's that plant is located a relatively close to our siding mills and Tomahawk, Wisconsin, So we've been able to.

Brad Southern: The integration is going really well in that business. That plant is located relatively close to our siding mill in Tomahawk, Wisconsin, so we've been able to, you know, use some of our supervisory folks from Tomahawk to assist in the integration. We've had some maintenance and engineering folks into the facility to do some upgrades and optimization of the operations. You know, we have been able to put a lot of volume into that, obviously, from our with our current distribution base. We are really pleased with the quality of the people that came along with that acquisition that are helping us really refine our ongoing strategy around prefinish, especially on the operation side.

Uh huh.

You use some some of our.

Supervisory.

Folks from.

From Tomahawk to assist in the integration, we've had some maintenance and engineering folks into the facility to do some upgrades and optimization of the operations and we have been able to put a lot of volume into that obviously from our.

With our current distribution base and then we are really really pleased with the quality of the people that came along with that acquisition.

That are helping us really refine our ongoing strategy around pre finish, especially on the operation side and so.

Brad Southern: Integration's going well, and We are currently evaluating other expansion options, particularly on the east part of the United States.

So the integration is going well and we do we are currently.

Brad Southern: Integration's going well, and We are currently evaluating other expansion options, particularly on the east part of the United States.

Look evaluating other expansion options, particularly on the part of the United States.

John Rider: Great, thanks. I'll turn it over.

Great. Thanks, I'll turn it over.

Thank you. Our next question comes from the line of Mark wine shrub with Seaport global.

Operator: Thank you. Our next question comes from the line of Mark Weintraub with Seaport Global. Your line is now open.

Your line is now open.

Mark Weintraub: Thank you. First, Mike, thanks for all the help over the years. Good luck.

Thank you first Mike Thanks for all the help over the years and good luck.

Mike Kinney: Thanks, Mark.

And.

Mark Weintraub: In terms of the second half of the year in siding, what type of visibility would you say you've got on that at this juncture? Can you give us a sense to what you saw in July and the first part of August?

In terms of the the second half of the year in siding <unk> what type of visibility would you say you've got on on that at this juncture and can you give us a sense as to what you saw in July and the first part of August .

Yeah. So yeah, you know, we're we're a good month into the second to the third quarter and I would say our order activity has returned to more normal levels.

Brad Southern: You know, we're a good month into Q3, and I would say our order activity has returned to more normal levels. I do think the product has begun to move. It really began moving late in Q2 through distribution, which, you know, resulted in the order file strengthening somewhat here at LP. You know, we feel a lot better about what we're seeing in Q3 than how we felt this time 3 months ago as we were looking at Q2.

I do think the product has begun to move.

Really began moving it late in the second quarter through distribution, which.

Resulted in order fall straight thing somewhat here here and LPU, So Uh huh.

We feel we feel a lot better about what we're seeing in Q3 and how we felt this time.

Three months ago, as we were looking to Q2.

And can you give us an update on how the.

Mark Weintraub: Can you give us an update on how the new introductions, the smooth product, as well as the push to repair, remodel, how that's been proceeding?

New introductions this the smooth product as well as the push to repair remodel how that's been proceeding.

Brad Southern: Yeah. Well, the smooth product intake was very good. We're currently shipping, I guess, the repurchases after the first initial introductory orders were placed, so that product's moving along well. On the repair and remodel, that was predicated really on us getting the smooth going, which we have. This foray into prefinish is really integral to that repair and remodel strategy. We feel like it's very important to have. We have learned that it is very important to have an LP-branded prefinish product, rather than just relying on our prefinish partners to supply that product.

Well. This this move product intake was very good where we are working on the currently shipping the the I guess the repurchases. After the first initial introductory orders were placed so that products moving along well.

On the on the pre owned the repair and remodel one that's was predicated really on us getting the smoothed go one which we have and then this this foray into pre finishes really integral to that repair and remodel strategy. We feel like it's very important to have a we have learned that is very important to have an L.P. branded pre finished product rather than just relying on our pre finished partners to supply that product.

Brad Southern: We want to have a, obviously, a national footprint with our brand, that we can service the large one-steppers and our two-step, national two-step distributors. Our move into prefinish is really intend to accelerate our penetration into repair and remodel.

We want to have.

Obviously, a national footprint with our brand and that so we can service the large one steppers and are the two step national two step distributors. So our move into pre finishers really intend to accelerate our penetration into repair and remodel.

Mark Weintraub: Great.

Great.

Yeah, I mean, I still it's a it's a it's a new channel for us.

Brad Southern: I mean, it's a, you know, it's a new channel for us, Mark, as you know, but I feel like the moves around the product was really important to us getting positioned where we could be successful there, as we learn how to market and sell into that channel as well.

Mark as you know, but I feel like the moves around the product was really important to us getting position or we could be successful there as we learn how to market and sell into that channel as well.

Thanks, and one last one if I could I'm given the.

Mark Weintraub: one, if I could. Given the lower housing outlook and hence the reduced longer term growth rate you're expecting in SmartSide Strand, what implications, if any, does that have on how you think about the timing and the conversion projects that you have under review?

Lower housing outlook and enhance that reduced longer term.

Growth rate you're expecting in <unk>.

Smart.

Strand, what what implications if any does that have on how you think about the timing and <unk>.

The conversion projects that that you have under review.

Sure. It certainly affects that the growth rate, we assume does impact the timing for the next mill conversion and I'll just remind the the on this call that has also predicated on the mix of that that growth.

Brad Southern: Sure. It certainly affects the, you know, the growth rate we assume does impact the timing for the next mill conversion. I'll just remind the on this call that it is also predicated on the mix of that growth. You know, our mills can either lean towards panel production or lap and trim production. We have to watch that closely. I mean, obviously, Mark, a slower long-term growth assumption does impact the timing. We're, you know, we're looking at probably from where we were a year ago, as with our higher expectations for housing growth, you know, we've probably, you know, bought ourselves another 6 months or so of the ability to evaluate what our best options are there.

Our our mills or can either lean towards panel production or lap and trim production.

And so we have to watch that closely.

And so but.

Obviously more of a slower a slower.

Long term growth assumption does impact the timing and so what we're looking at probably from where we were a year ago as with our higher expectations for housing growth we've probably.

Bought ourselves another six months or so of the ability to to evaluate what our best options are there, but we are currently we are actively evaluating our options around the next expansion, but the timing will be predicated on.

Brad Southern: We are currently, you know, we are actively evaluating our options around the next expansion, but the timing will be predicated on, you know, our assumptions around growth.

Assumptions around growth.

Mark Weintraub: Do you still expect, I think you had, at one point, suggested by the end of this year, you would tell us what the next move would be? Does that get pushed back potentially six months, or should we still expect it for the end of this year?

Do you still expect I think you had at one point suggests it by the end of this year you tell us what the next move would be does that get pushed back potentially six months or should we still expect that for the end of the year.

Yeah, great that's going to get pushed back six months I could expect us maybe solidifying a little bit around or options late this year and then ready to go public with it sometime next year.

Brad Southern: Yeah. That, yeah, great. That's going to get pushed back six months. I could expect us maybe solidifying a little bit around our options late this year, and then ready to go public with it, you know, sometime next year.

Okay. Thank you.

Mark Weintraub: Okay, thank you.

Brad Southern: Mm-hmm.

Thank you. Our next question comes from the line of Steve Chercover with D.A. Davidson.

Operator: Thank you. Our next question comes from the line of Steven Chercover with D.A. Davidson. Your line is now open.

Your line is now open.

Thanks, Good morning, everybody.

Steven Chercover: Thanks. Good morning, everybody.

Brad Southern: Morning, Steve.

Well actually.

Steven Chercover: First of all, I'm really glad you didn't blame the year-over-year decline in results on weather. That said, do you think it did have an impact on the uptake for OSB or particularly for siding?

So first of all I'm really glad you didn't blame the year over year decline in results on weather, but that said do you think it did have an impact on the uptake for LSB or particularly for siding.

Thank you for saying we didn't blame it on the weather is what we'd say that same thing to our sales people at our QB, our but certainly it did look that you know there is there is no are there was minimal excess labor or on the in the crop contract or community right. Now so when you lose a day to rein it in the past maybe that could be make a made up by adding shifting or adding some personnel that just isn't available right now and so I do believe and you know and we have some really really heavy rains.

Brad Southern: Thank you for saying we didn't blame it on the weather. That's what we say, the same thing to our salespeople at our QBR. Certainly, it did. Look, you know, there's no or minimal excess labor on the contractor community right now. When you lose a day to rain, in the past, maybe that could be made up by adding shifting or adding some personnel. That just isn't available right now. I do, and, you know, we had some really heavy rains, especially in the Southeast, that would shut down a job site. You know, wouldn't be possible to work through those rain showers. It had an impact. And I'll...

Especially in the South east that would should shut down a job site wouldn't wouldn't be possible to work through those rain showers.

So it had an impact in and out so some some of the evidence we have internally anecdotal is that as those regions of the country have dried out we starting to see some really good pulls out of distribution. So I certainly think that had an impact on both our wispy inside again any WP to certain extent, though we were kind of able to work through those.

Brad Southern: Some of the evidence we have internally, anecdotal, is that as those regions of the country have dried out, we're starting to see some really good pulls out of distribution. I certainly think that had an impact on both OSB and siding. EWP, to a certain extent, though, we were kind of able to work through those.

Great. Thanks, and then Capex I think is elevated at 160 to 117, presumably that's because the Dawson conversion.

Steven Chercover: Great, thanks. Then CapEx, I think, is elevated at $160 million to $170 million, presumably that's because of the Dawson conversion. Can you remind us, I guess, what a baseline maintenance spend would be? I'm sure that even, you know, in these conditions, you've got some pretty high return projects that are still compelling enough to proceed on.

Can you.

Remind us I guess, what a baseline maintenance spend would be and I'm sure that even.

You know in these conditions, you've got some pretty high return projects that are still compelling enough to proceed on.

Yes, Alan the I'd say the baseline maintenance is in the region of $80 million or so.

Alan Haughie: Yes, Alan here. I'd say that baseline maintenance is in the region of $80 million or so. I'd also like to clarify, I feel as though we've kind of lowered the guidance. $150 to 180 was the range. I've tightened that to $160 to 170. I think we'll come in at the low end of that tightened range. You're right, that if, let's say, if these OSB conditions persist, a further reduction in CapEx is plausible. Yeah.

But I'd also like to clarify I feel as though we've kinda lowered the guidance hundred 50 to 180 was the range of tightened that to 161 70, I think will come in at the low end of that tightened range.

But you're right that I've, if let's say if it's these LSB conditions persist.

A further reduction in Capex is foldable, yes.

Okay, and if I could sneak in one more or are there any adjacent product lines you'd like to pursue like.

Steven Chercover: Okay. If I could sneak in one more, are there any adjacent product lines you'd like to pursue, like, you know, cross-laminated timber or laminated beams? If so, would the engineered wood products division have earned its right to grow?

Oh, yes, sorry.

Cross laminated timber or laminated beams and if so would the engineered wood products Division has earned its right to grow.

Brad Southern: The engineered wood products division has not earned its right to grow. It's earned its right to continue to improve on existing operations and with existing products. When we talk about adjacencies, as far as M&A, we're really looking at two big categories. Steve, one is adjacencies in siding, particularly if it would be focused on accelerating our penetration to repair and remodel. Then in OSB, we have been very successful with our acquisition of the FlameBlock technology.

The engineered wood products Division has not earned its right to grow is earned its right to continue to improve on existing operations and with existing products. When we talk when we talk about adjacent sees.

As far as Im an M&A, we're really looking into.

Two big categories.

Ah stay one is adjacencies and inciting, particularly if that would be focused on accelerating our penetration to repair and remodel.

And then and then it always be Oh, we have been very successful with our acquisition of the plane bought technology, so opportunities to enhance the value of the structural solutions with the o. value add product offering and our west Bay through either coating laminating cutting grooving or doing something to our commodity substrate that allows us to to turn that into a a value add our speed product is something we'd be interested in as well but.

Brad Southern: Opportunities to enhance the Structural Solutions with the old value add product offering in OSB through either coding, laminating, cutting, grooving, or doing something to our commodity, you know, substrate that allows us to turn that into a value add OSB product is something we'd be interested in as well. In EWP, we're really focused on just continuing to turn that business around and having it earn the cost of capital on a consistent basis, based on, you know, the platform we're operating on right now.

And he WP, we're really really focused on just continuing to turn that business around and and having it on the cost of capital on a consistent basis based on the platform or Rob operating on right now.

Very good many thanks.

Steven Chercover: Very good. Many thanks.

Brad Southern: You're welcome.

You're welcome.

Thank you. Our next question comes from the line.

Operator: Thank you. Our next question comes from the line of Chip Dillon with Vertical Research. Your line is now open.

Dillon with vertical research your line is now open.

Yes, good morning, Brad Allen and Mike and Mike All the best to you. Thanks for all your help.

Mark Weintraub: Yes, and good morning, Brad, Alan, and Mike. Mike, all the best to you. Thanks for all your help.

Chip Dillon: Yes, and good morning, Brad, Alan, and Mike. Mike, all the best to you. Thanks for all your help.

Thanks, Jeff.

Brad Southern: Thanks, Chip.

Our first question is just to make sure I understand this.

Chip Dillon: First question is just to make sure I understand this. Since at least March, your cash flow statement shown the, you know, over $400 million for buybacks. Just to be fair, you've kind of shown the full impact of buying back roughly 15 million shares through the ASR on your cash flow statement, but you haven't been able to capture that in your, you know, when you show us what your diluted average shares are in the income statement. Somewhere in the next 3 months or so, we're gonna see, you know, 3 million shares more or less disappear. Is that the way to think about it without any incremental or significantly incremental cash?

You know since at least March.

Your cash flow statement shown the lean over 400 million.

For fruit for buybacks, but it just to be fair you have kind of shown the full impact of buying back roughly 15 million shares to the MSR on your cash flow statement, but you haven't been able to pick.

Capture that in your.

You know when you show us what your diluted average shares are in the income statement. So somewhere in the next three months or so we're going to see a 3 million shares more or less disappear or is that is that the way to think about it without any incremental or significantly incremental cash.

That's correct yeah. The it's the 3 million shares is of course, a I guess at this point in time, but.

Alan Haughie: That's correct, Chip. Yeah. The 3 million shares is, of course, a guess at this point in time, but, yes, yeah, the principle you just outlined is correct.

Yes, the principal used outlined is correct.

Got you and the lower the stock is the more shares go away and the higher the fewer shares go away if theres no cash true up right.

Chip Dillon: Gotcha. The lower the stock is, the more shares go away, and the higher, the fewer shares go away if there's no cash true up, right?

Well, yes, there will be no. They all intention is not to have a cash true, but two to two to make this cash set and then have the additional shares delivered to us in.

Alan Haughie: Well, yeah, there will be no, our intention is not to have a cash true up, but to make this cash certain and have the additional shares delivered to us, yeah.

Chip Dillon: Okay. You, I think if I just read, make sure I got this right, you're committed to another $200 million in buybacks from the time the ASR ends, which could be as late as, you know, the end of September through year-end?

Okay, and then and then you think if I just read make sure I got this right.

You are committed to another 200 million in buybacks from the time, they us or events, which could be as late as the end of September through year end.

Alan Haughie: Correct. Yep, that's right.

Correct, Yes, that's right okay, Okay, great, Okay and then.

Chip Dillon: Okay, great. Okay. Next question is, I know you were talking about tightening up the CapEx range for the year. Maybe I missed it, but did you address sort of directionally what you see CapEx doing next year? You know, thinking about all the moving pieces with the EBITDA and efficiency improvement programs and, you know, the perhaps, you know, the conversions, et cetera.

Our next question is I know you were talking about tightening tightening up the capex range for the year I don't maybe I missed it but did you address sort of Directionally, what you see capex doing next year.

You know thinking about all the moving pieces with the.

EBITDA in efficiency Pru improvement programs and you know that the perhaps you know the conversions et cetera.

We haven't addressed that yet.

Alan Haughie: We haven't addressed that yet, Chip. I'm gonna be cautious and just say that's probably a subject for the next earnings call right now.

Sure.

And that's probably a I'm going to be cautious and just didn't feel this subject for the next at the next earnings call.

Right now.

Okay and then the last one is and I should have looked at the balance sheet, but do you have any more of these.

Chip Dillon: Okay. The last one is, I should have looked at the balance sheet. Do you have any more of these, you know, timber sales from, you know, years ago that's still on your balance sheet, or are they all off now?

Timber sales from <unk>.

Years ago, that's still on your balance sheet or are they all off now.

Alan Haughie: They're all gone, Chip.

Uh huh.

Gotcha, Okay that makes life easy alright, thanks very much.

Chip Dillon: Gotcha. Okay, that makes life easy. All right. Thanks very much.

Thanks, Jason.

Brad Southern: Thanks, Chip.

Thank you. Our next question comes from the line of Paul Quinn with RBC capital markets. Your line is now open.

Operator: Thank you. Our next question comes from the line of Paul Quinn with RBC Capital Markets. Your line is now open.

Yeah. Thanks, very much good morning, guys and congratulations Mike.

Operator: Yeah, thanks very much. Morning, guys, and congratulations, Mike.

Paul Quinn: Yeah, thanks very much. Morning, guys, and congratulations, Mike.

Wonderful thanks.

Brad Southern: Morning, Paul. Thanks.

And maybe I'll just start on a you've got a major competitor in the siding business that does color at plants and a it looks like with the PSPI. That's color off Offsite just wondering what your strategy is with color and the whole pre finishing side and is that something that will be a major focus for LP going forward here.

Operator: Hey, maybe I'd just start on, you've got a major competitor in the siding business that does color at plants, and it looks like with PSPI, that's color off-site. Just wondering, you know, what your strategy is with color and the whole pre-finishing side, and is that something that will be a major focus for LP going forward here?

Paul Quinn: Hey, maybe I'd just start on, you've got a major competitor in the siding business that does color at plants, and it looks like with PSPI, that's color off-site. Just wondering, you know, what your strategy is with color and the whole pre-finishing side, and is that something that will be a major focus for LP going forward here?

Brad Southern: Yeah. Paul, let me just, as you know, our major competitor, generally speaking, is producing their product relatively close to market, you know, given their manufacturing technology, where we are fairly centralized into the central part of the US and Canada. You know, we tend to be a little farther, or not a little, but far, playing out further from the market, end-use markets than they are. In transporting pre-finished siding, long distances can be an issue around the finish, you know, quality.

Yes, So Paul let me just.

As you know our major competitor generally speaking is producing their product.

Relatively close to market.

Given given their manufacturing technology, where we are barely centralized into the central part of the U.S. and in Canada. So we tend to be a little farther or not a little bit.

The plane out further from the market the end use markets than they are so in transporting pre finished siding long distances can can be an issue around the finishing of quality and so we we would prefer to we're pursuing a strategy of having our pre finish operations closer to market. So that were first of all can tailor the offering to the local needs, but also we're shipping.

Brad Southern: We would prefer to, you know, we're pursuing a strategy of having our pre-finish operations closer to market, so that we, first of all, can tailor the offering to the local needs, but also we're shipping, you know, our primed pre-finish long ways, and then the final mile is a pre-finished product, you know, shipped closer to market. That's the primary driver of that strategy. You know, not knowing, you know, not speaking at all about the competitor, but we also feel like for us, it's a little more capital optimal to do that outside of our infrastructure.

Our primed pretty finish long ways and then the final a final mile is a pre finished product.

Ship closer to market that's the primary.

That's the primary driver of that strategy.

You know not knowing.

Im not speaking at all about the competitor, but we also feel like for US. It's a it's a little more capital optimal but to do that outside of our of our infrastructure, but.

Brad Southern: You know, we'll play that out as we continue to make these investments and see, you know, the kind of returns that we can generate off of these end market pre-finishers.

We'll we'll play that out as we continued to make these investments and see the kind of returns that we can generate off of these end market pre finishers.

Brad Southern: You know, we'll play that out as we continue to make these investments and see, you know, the kind of returns that we can generate off of these end market pre-finishers.

Okay. So that makes sense given the distance of all said as that therefore mean that you will likely have at some 0.8 to 10 regional pre finishers close to the market.

Operator: That makes sense, given the distance involved. Does that therefore mean that you'll likely have, at some point, 8 to 10 regional pre-finishers close to the markets?

Paul Quinn: That makes sense, given the distance involved. Does that therefore mean that you'll likely have, at some point, 8 to 10 regional pre-finishers close to the markets?

No I would say I want to divide that into the country in half when you go from eastern Us.

Brad Southern: Let me, I want to divide that into the country in half. When you go from the Eastern US, where, you know, the population centers are closer together, also, that housing stock is older, where there's a more mature repair and pre-finished repair and remodel market, which is the Eastern US, I could see us having, I don't know if it would take that many, Paul, but several pre-finishers regionally in the East. On the west side, where pre-finished repair and remodel isn't quite as popular yet, I see us working with our independent pre-finish base to align around that for the foreseeable future.

For the population centers are closer together also the housing stock is older or where there is a more mature.

Repair and reprise finished repair and remodel remark, we're not a market, which is the eastern U.S. and I could see us having.

I don't know if it would take that many paul but but several pre finishers regionally in the east on the west side, where we are.

Pre finished repair and remodel isn't quite as popular yet we I see us working with our independent pre finished base.

To align around that for the foreseeable future.

Okay. Then just just on all this be.

Operator: Okay. Just on OSB, you know, we've seen, you know, weak pricing throughout the year based off the slowdown in housing. You know, when the announcements of curtailments to your mill, as well as an Norbord mill was announced, we saw a blip up in pricing. That's since come off. Now we're starting to see the shuts. Do you expect a sort of mild recovery in OSB prices for the balance of the year?

Paul Quinn: Okay. Just on OSB, you know, we've seen, you know, weak pricing throughout the year based off the slowdown in housing. You know, when the announcements of curtailments to your mill, as well as an Norbord mill was announced, we saw a blip up in pricing. That's since come off. Now we're starting to see the shuts. Do you expect a sort of mild recovery in OSB prices for the balance of the year?

We we've seen them weak pricing throughout the year based off the slowdown in housing.

The announcements of curtailments your mill as well as in our Board Mill was announced we saw a blip up in pricing.

That since come off.

A but now we're starting to see that shuts do you expect to sort of mild recovery and must be prices for the balance of the year.

Paul.

Brad Southern: Paul, I'm not very good, as you well know, forecasting OSB pricing. I'll say this, you know, we shut our mill down Wednesday of last week, have a little bit of TechShield blanks on the ground that we're going to continue to convert. We're done from a press standpoint, producing product at Peace Valley. You know, I think a competitor's mill, they're running a few more weeks, if I recall their announcement. Anyway, you know, I think we'll see a pickup in demand as we move through August, September, and October, as folks do take advantage of what normally is a, you know, the drier fall weather to either finish up some houses or get some housing started.

Not very good as you well know forecasting always be pricing, but I'll say this we shut our mill down Wednesday of last week I have a little bit of a tax shield blanks on the ground that we're going to continue to convert but the sense, but we're done from a price standpoint, producing product a piece.

You know thing.

Competitor's mill they run in a few more weeks, if our recall their announcement, but anyway.

You know and I do.

I think we'll see a pickup in demand as we as we move through August September and October is this as folks do take advantage of what normally is the dryer fall weather to either finish up some houses or get some housing started so I could see demand being stronger in Q3 is let's say than it was in the first half, which which wood.

Brad Southern: I could see, you know, demand being stronger in Q3, let's say, than it was in the first half, which, you know, would favorably impact the demand capacity ratio. You know, how that plays out in the channel and, you know, around pricing, it's really hard to predict. I'll answer your question by saying I could see the demand capacity ratio getting a little bit better in Q3 as the shutdowns are concluded and housing picks up a little bit as people try to, you know, take advantage of what typically is good weather through October.

Favorably impacted the demand capacity ratio, but how that plays out in the channel and and you know in around pricing and it's really hard to predict but I do I'll answer your question by saying that I could see the demand capacity ratio getting a little bit better in Q3 as we as the the shutdowns are concluded and in housing picks up a little bit as people try to.

Take advantage of what typically is good weather through October .

That's fair enough and then maybe just lastly, if you could just remind us where you're at with your Integra JV and my understanding is the the first plants.

Operator: That's fair enough. Maybe just lastly, if you could just remind us where you're at with your Entekra JV. My understanding is the first plant's being built right now. Just wondering what that, what the progress is and what the order file looks like.

Paul Quinn: That's fair enough. Maybe just lastly, if you could just remind us where you're at with your Entekra JV. My understanding is the first plant's being built right now. Just wondering what that, what the progress is and what the order file looks like.

Being built right now just wonder what that what the progress is and what the order file looks like.

Yes, well the order file for our our current plan, which is the pipeline is really strong.

Brad Southern: Well, the order file for our, you know, our current plant, which is the pilot plant, is really strong. The, you know, demand has not been an issue to date. We are in the process of installing the manufacturing equipment there currently. It's a little bit of a complex facility, but to think of it as having three lines for external wall, to manufacture external walls. We'll have the first line up and going as we move into Q4, so late Q3 or early Q4. You know, we'll start that ramp up Q4 and Q1 of next year.

And so the demand has not been an issue to date, we are in the process of installing the manufacturing equipment. They are currently and we looked at and there's going theres going to end up being through its a.

A little bit of a complex facility, but think of it as having three lines for external wall to two manufacturer external walls will have the first line up and going as we move into Q4. So late Q3 early Q4, and we'll start that ramp up Q4, and Q1 of next of next year.

Brad Southern: If the past holds, you know, it won't be a problem getting orders, it will be more constrained by our ability to ramp that manufacturing up.

And if the past holds.

Brad Southern: If the past holds, you know, it won't be a problem getting orders, it will be more constrained by our ability to ramp that manufacturing up.

No it won't be a problem getting orders, we will be more constrained by our ability to ramp that manufacturing up.

And.

Operator: More to come.

Paul Quinn: More to come.

Well, we'll keep updating you on that as we get a little closer to reality, but that's that's how it's looking right now.

Brad Southern: We'll keep updating you on that as we get a little closer to reality, but that's how it's looking right now.

Okay, Great Thats, all I had thanks, guys best of luck.

Operator: Okay, great. That's all I had. Thanks, guys. Best of luck.

Paul Quinn: Okay, great. That's all I had. Thanks, guys. Best of luck.

Brad Southern: Well...

Thank you we do have follow up.

Operator: Thank you. We do have a follow-up question from the line of Ketan Mamtora with BMO Capital Markets. Your line is now open.

Line of Keith mentor with BMO capital markets. Your line is now open.

Ketan Mamtora: Thank you. Brad, just one more on the siding side. Can you talk a little bit about how the outdoor shed business is doing, and what kind of market share you have there, and what kind of room you have to further grow that business?

Okay. Thank you.

Just one more on on the siding side.

How the.

Al Gore shed business is doing and what kind of market share you have Dan and more kind of.

Well that business.

Keith and I would say that from a market share standpoint is probably our highest market share of any of the channels that we play in are in markets that we play in just to our past success, there and the product is really perfect for that shed environment, they're there, but with that said there are still a lot of opportunity for growth I would say our market share. It's obviously, there's not a lot of great statistics on shifted manufacturing, but I would it's less than 50% certainly.

Brad Southern: Ketan, I would say that, from a market share standpoint, it's probably our highest market share of any of the channels that we play in or in markets that we play in, our past success there, and the product is really perfect for that shed environment. With that said, there's still a lot of opportunity for growth. I would say our market share, you know, obviously, there's not a lot of great statistics on shed manufacturing, but it's less than 50%. Certainly, you know, well into the double digits, but less than 50%. It gives us. We're really focused on that opportunity 'cause like I said, you know, the product's great for it.

Well into the double digits, but less than 50%. So it gives us and so we're really focused on.

That that opportunity as cost like I said.

The products great for it.

Brad Southern: you know, it tends to be a good margin business for us. We have a real focus on continuing to grow in that channel. Good, you know, good progress so far since we initiated that about, you know, almost 10 years ago now, but there's still a lot of room for improvement. Anybody that drives around, at least the part of the country I'm from in the Southeast, we still see a lot of plywood sheds that need to be converted over to SmartSide, so we're working on that.

It tends to be good margin business for us and so we have a real focus on continuing to grow in that channel. So.

Good good progress so far since we initiated that about you know almost 10 years ago now, but there's still a lot of room for improvement if anybody that drives around at least the part of the country around from in the southeast we still see a lot of plywood shares that need to be converted over to smartside. So we're working on that.

Got it Thats I haven't done it over good luck in the back half of the year.

Ketan Mamtora: Got it. That's very helpful. I'll turn it over. Good luck in the back half of the year.

Thank you Casey.

Brad Southern: Thank you, Ketan.

Thank you and this concludes today's question and answer session I would now like to turn the call back to Mike any for any further remarks.

Mike Kinney: Thank you.

Operator: Thank you. This concludes today's question and answer session. I would now like to turn the call back to Mike Kinney for any further remarks.

Thank you Sarah and I think that was our last question. So.

Mike Kinney: Thank you, Sarah, and I think that was our last question. If you have any questions, feel free to give Becky or I a call. We'll be available anytime. Thank you.

If you have any questions feel free to give back here I have Paul will be available on any time. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude todays program you may all disconnect.

Operator: Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.

Everyone have a great day.

Q2 2019 Earnings Call

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