Louisiana-Pacific Corporation (LPX) Earnings Call Transcript & Summary

Thanks for joining us this morning, everybody, for LP Building Solutions Investor Day. As you know, there's no webcast component of this event. That's a bit of a tell. It means no earth-shattering announcements. This is more of an opportunity too good to pass up, where we're all here, you're all here. We haven't done this in a while, so let's get together and have a conversation. That's the intent of today. The slides that we're going to be presenting are already loaded to our Investor Relations website, and the recording will be posted sometime end of this week, beginning of next week, pretty soon, and it will be there for a while. This will be our updated investor deck. I'm going to briefly go through the run of show, and then turn it over to the exec team to go for the rest of the presentation. So we've got the normal forward-looking statement warnings and non-GAAP financial metrics and things like that. So I'll just kind of dispense with that. What we're going to do is a brief strategy review for all of the sections of the business. So you get to hear from me fairly frequently, you don't get to hear from the executive team as often, and that's what today is about. So Brad is going to review the overall corporate strategy. We've got the General Manager for the Siding business here, Jason Ringblom, he'll walk us through that. We're going to talk about OSB strategy as well. Brad is going to do that section. Frederick Price is here, who runs our South American business, and he's going to talk about the progress that they have made down there. Then we'll go to Alan for capital allocation, and then we'll be happy to take your questions. After that, we're going to be talking a lot about the innovative products that we have. So of course, they're in our booth, come and see them. We'll show you all the new products that we're excited about and happy to talk further there, and then we can catch up after the fact, of course. So with no further ado, thank you again for joining us. I'll turn the day over to Brad.

Thanks, Aaron. And again, I'd like to extend a welcome as well for the -- I appreciate you guys showing up for our little presentation here. I thought I'd just start with an overview of our corporate strategy and talk about how we think about creating value in this company. And really, our strategy is -- it's a growth strategy and it's focused on growing the size of the company and growing the value of the company. And within that growth, we prioritize specialty products over commodity. The legacy of our company were -- one time was the largest producer of commodity OSB in the world. And as we've moved into this phase of our life as a company, the strategy has been to shift that mix from commodity OSB to more specialty products, including especially OSB components. With -- our portfolio of products is focused on high-margin products, margin -- products that we can create demand for. And as a result of that, this idea of being a growth company, we have, over the past 5 years, divested or shut down components of the business where we didn't feel like we had the capability to generate stable and high margins. So we divested our EWP business about 3 years ago, and we shut down our hardboard business over a 2-year period and getting completely out of that business about 4 years ago. So we've really shifted our -- the components of our business, and I'll speak specifically about our portfolio here in a second. And in all that, we want to be good stewards of capital with -- as a big component of our strategy. So obviously, our focus from a capital standpoint is to invest in our specialty products. We do that primarily through capacity expansion, but it's other -- sometimes it's not all capital. And then we are -- have been aggressive buyers of our shares as a means to return cash to our shareholders. And I'll just say when you think about our strategy, we're really optimistic that we can continue to grow the company. We have built muscle around how to do that, and we'll talk about for the next hour or so about how we do that from an innovation standpoint. But we're also fortunate to be in markets that are -- we feel like have a good long-term outlook for growth as well, and I'll speak more of that as we go through the presentation. And so -- the next slide here shows our management team. You'll meet everybody here, except the couple that I'll speak to that aren't here. Nicole is here, but she won't be presenting. She's our General Counsel, and also is our executive sponsor for the sustainability work that we are doing as a company. And then Jimmy Mason is the General Manager for OSB. We had planned for Jimmy to be here, but he is in an Executive Education course this week. And so we had to prioritize where we wanted his time to be spent, we felt like it was important for him to continue his education. So he's doing that. So I'll be covering the OSB part of the presentation. And then Mike Blosser isn't here, but he runs our Manufacturing Services group. If you look at this -- these pictures, me, Jason, Frederick, Jimmy, Mike, long-term LP employees, all with 20-plus years' time with LP, and then Alan and Nicole have come along since we've launched this new strategy, both from outside the industry. So we have a really nice executive team that's composed of some legacy LP folks and then a couple of really dynamic leaders from outside the industry that really challenged our thinking at times. And really I'm pleased with the composition of the team right now, and this team is focused on creating value. So let me speak a little bit about -- a little bit more about our strategy and the components of it. So when we started the process of creating the current -- the strategy we're currently operating under, which is about 5 years old now -- about 6 years old now, we were challenged by our Board to set some goal, some measurable way of knowing are we executing the strategy. So what we picked is our benchmark. We put a stack in the ground that we wanted to be a top quartile TSR company against the defined peer set, which is primarily the peer set that's in our proxy, but we did add some non-proxy peers that would make that more challenging to -- and more direct competitors in some of the products that we delve in. So that's the overarching strategic target that we have, from a financial standpoint, to be a top quartile TSR company. The levers we have to generate returns like that is to grow the company. So obviously, that's a big focus for us, as I've mentioned. But also, we felt like changing the mix of our earnings potential away from a volatile commodity base that is our heritage, the commodity OSB business and more to a specialty-type products where we can create demand, be very innovative as far as generating new products and have a basic price list type items that do not ebb and flow with the commodity cycle. Feeling that, that -- if our growth was focused there, lower the volatility of our earnings through this emphasis on specialty products, that would help our TSR returns. And then finally, we felt like it was important to complement that strategy, that growth strategy and mix change strategy with the complementary capital allocation strategy. And so we've been executing to that through our dividend and our share repurchase program to the point where we've made sizable investments in share repurchase that is really -- that we feel like been accretive to our stock price and made us very competitive against our peer set on total TSR. So in summary, we're focused on growth. We're focused on growth that is specialty in nature, not commodity in nature. We're focused on shifting the mix of our earnings from a commodity earnings stream to more of a specialty product stream that's more valuable and then having a complementary capital allocation strategy that our shareholders like. So that's kind of in a nutshell at a corporate level, how we think about strategy. In our portfolio of products or businesses, we are segmented in 3 segments today, 2 North America segments and then LP South America, and I'll speak to that here in a second. But in North America, we have our OSB segment, and we have our Siding segment. In OSB, we're the worldwide -- well, the worldwide leader in specialty OSB production and sales. We're the second largest producer of OSB overall behind West Fraser. In Siding, we have one of the widest portfolios of product offerings from anybody that's in the Siding business. The brand name for that product is SmartSide. And over the past 5 years, in particular, though this is a 25-year story, we've really built scale in our Siding business to where it is a meaningful part of who we are as a company. And it's been interesting is that Siding business has become at times from a revenue and earnings standpoint bigger than our heritage OSB business. How that has reshaped certainly the way we operate internally as far as how we prioritize capital allocation, how we prioritize where we put our best people, but also from the landscape that we interact in the marketplace. And now that we have had this scale in Siding, it's been interesting, say, post COVID to see how bringing the whole portfolio of products that we make at LP from commodity OSB, though it's not quite as important to the point I'm about to make, but certainly our specialty OSB, which we call Structural Solutions and our SmartSide product offering to the channel of distribution and more importantly, to the builder. We have scale that is somewhat unique in the breadth of offering we have when we're negotiating deals with large builders. And we've really seen that become an advantage for us in the marketplace. And as Mark and I were talking about this just a minute ago is the channel and builders consolidate. They're also looking at narrowing down the number of vendors they have to work with, scale matters, the ability to address a national market with big builders is important. And so we're really seeing this kind of complementary synergy between our Structural Solutions portfolio and our Siding portfolio work out to be a competitive advantage in the marketplace and an advantage that our primary competitor in Siding and our primary competitor in the Structural Solutions product offering can't match. So very excited about how that plays out over this planning cycle for us. In South America, basically make the same product mix of commodity OSB, Structural Solutions and Siding, but we're doing that under the umbrella of 1 business unit that Frederick runs. We have 2 facilities -- he'll go through this, but 2 facilities in Chile, one in Brazil, but we sell in essentially all South American countries. So we have a really good footprint there. And then we use South America as our primary means of exporting OSB into Asia and Europe. So Frederick really runs the export business for us out of the business in South America. So let me talk a little bit about our capital stewardship in detail. Look, as I've mentioned several times here, we take this very serious, and I just wanted to emphasize the way we prioritize capital allocation. So first of all, we're going to spend the money it takes to maintain our facilities. So we know how to do that. It can be variable. So in hard economic times, we can -- we do have the ability to pull back on that to a certain extent. But always, we want to make sure that we maintain our facilities and really in world-class condition. Second priority is to grow our Siding capability and capacity and to grow our Structural Solutions capability and capacity. And that is primarily done through capital spend, though it's not that intensive anymore in Structural Solutions. It could be very intensive in Siding when we do these mill conversions, where we convert OSB mills over to Siding. And that's been -- if you've been following us the last 5 or 6 years, that's been a big use of capital for us. But also investments in sales and marketing also complement that capacity expansion. And so now that we're past the COVID demand period and back in the mode of having to generate demand for our products, we will see increased investment on the marketing and sales side to support the capacity expansions we've done in the past. And then, as I mentioned, we take very seriously returning cash to shareholders. Our primary vehicle to do that is through our dividend. But we also have been very, very active buying shares back. In fact, over the past 3 years or so, 3 or 4 years, we've bought half of our shares back as a company and cut our share count in half. And that obviously has had a meaningful impact on our TSR. And then with all that, we've maintained a very healthy balance sheet with a lot of flexibility around that to utilize when needed. It's been -- we -- during some hard down OSB periods or at the beginning of COVID, we've taken opportunity to stretch our credit lines a little bit and pull on them. But overall, have a very healthy balance sheet and a lot of flexibility on how we manage the company around our capital spend. So as we think about our strategy, the other thing I want to emphasize is how sustainable we feel the strategy is. And I won't talk to specific -- I hope we have the credibility for you to believe it's sustainable and that we know how to operate our facilities. But in the other 2 areas, one is just environmental sustainability. We do use wood in our process, and the wood we use is trees that are cut down. So for the whole -- basically, the time I've been with LP over close to 25 years, we have always managed that endeavor in a sustainable way. But about 20 years ago, we went out and got third-party certification of that. So 100% of the fiber we harvest in Canada, the U.S. and in South America is certified by a third party for sustainability. So we are good stewards of that resource and I'm a forester by education. And it is interesting now that in places where we have been making Siding or OSB for 50 -- 40 years, we're now in the process of harvesting forest for the second time, where we 25 years ago, in Michigan, we cut down in an Aspen Forest, and we're back in that same forest now after it has regenerated and grown and cutting it again. So that -- so -- and we plan 25 years from now to be back into that forest harvesting it again. So it's something I'm proud of as a company. We have been somewhat pioneers on the third-party certification. We're one of the founding members of SFI, one of the agencies that does that certification. And I am also, out of the 5 CEOs we've had, I'm the second Forrester to be CEO of the company. So it's something that's kind of ingrained in how we think about our corporate responsibility to the environment. And the second area that we're proud of is the fact that our process uses a lot of thermal energy. So we're heating out equipment to press OSB and to press Siding into the product that it is. The predominant source of fuel for that thermal energy generation is biomass that is part of the process of manufacturing as we bring these trees in, convert most of the fiber into the product, whether -- or byproducts out of that, that are not used in the board. So we burn those to generate the energy, to generate the heat that we use in our process. So really, the only kind of outside -- there is some supplemental energy use for our thermal need. But basically, we're buying electricity is the one thing so far that we haven't been able to do in-house, though Frederick has a very interesting project now at our mill in Lautaro, Chile, where we've installed solar panels to even do that part of it. So if you -- so when you think about our product offering, the sustainable way that we go about stewarding the forest and our use of biomass as a primary energy source for our product, we have now third-party certification that our SmartSide line of product is carbon negative, which means that product is sequestering more carbon when it's installed than it emitted when it was manufactured. And no other competitor is close to that when you think about a fiber cement process or a vinyl Siding process being much more challenging from an environmental standpoint. So our manufacturing process is sustainable and really sets us up well over the next planning cycle to continue to benefit from that. And I promise you we'll continue to be good stewards of it as well. The second reason, I believe our strategy is sustainable is because, as I mentioned earlier, we're in a great market. Demographically, we're in a position now where that the -- we got a big cohort of people moving into those key homebuying years, and the market has set up really well for continued strength in building. There will be cycles, it will vary quarter-to-quarter, but you can't, in my view, just can't overcome demographics. And this current wave of home-owning cohort being a big number is really going to be helpful for us as the underlying source of demand for our products. Secondly, it's important point to make is that as we get migration internal to the U.S. from the West Coast, the Northeast into the South, that sets us up very well for Siding. Our strong lap Siding markets are from basically the smile in the Southern states. And so as we have relocation in the U.S. into Texas, in the South Central region, those are really, really good Siding markets that we're positioned well to take advantage of as well. And then the third point to make on the outlook is the idea that we are underbuilt as a country for housing. So this slide here shows housing starts versus an average, and you can see since really the great recession of 2008, we have been underbuilt significantly in U.S. on single-family housing and the economists vary on the number. We think it's around 3 million homes that are under -- we' undersupplied. That's about 2 years of new housing starts, which is actually including multifamily. And so there's a 2-year need for housing on top of the 1.5 million-or-so units that are getting built every year. And so you take the demographic trend of generation hitting, home owning years, you take the fact that we're underbuilt. You take the fact that, that build is going to happen in places that really provide us a chance to be successful from a Siding standpoint in particular. We really feel good about the long-term outlooks for New Construction. We feel good about our portfolio of products that can satisfy that and really feel like that's going to end up being a headwind overall today. So the issue today is not, in my opinion, demand for housing, but the constraints are affordability and the labor that it takes to build a home. And so I think that will continue to be more of the constraint than underlying demand, but I also believe as an industry, we're going to figure that out. And with any kind of interest rate relief, I could really see demand being very positive as that transpires. Then in Repair and Remodel, that's been a key initiative for us. Our focus for us in the Siding business as we've launched ExpertFinish, which is our product that we compete for residing projects. And as the country is underbuilt, that means folks have stayed in their houses longer. And this chart here on the right shows the number of houses by age, and it's -- they're getting older. And for Repair and Remodel reside projects that usually happens somewhere between 20 and 30 to 35-year area of homeowner age -- home age. And so that is going to be growing as well. And so once again, we're well positioned to take advantage of that underlying tailwind. And then particularly in this Repair and Remodel, we have a lot of upside around share gain that could -- on top of the growth of demand that's going to happen as these homes continue to age. So we are very bullish about the market that we're playing in, very bullish about our ability to innovate around the products that we need to have to be successful. We're bullish about our current portfolio of products and the strength we bring with our kind of across OSB and Siding to be a supplier of choice to builders and contractors across North America. Yes. So with that, I'll set Jason up to tell you exactly how we're going to be successful in the Siding business. It sounds easy to me, but we'll see how Jason lays that out for you all. But again, thanks for joining us, and I'll be back up here in a second to cover the OSB business by my friend Jason Ringblom.

Well, good morning, everyone. As Brad mentioned, to kick things off, I just want to sincerely say thank you for taking time out of your day to day to really spend some time to hear about the LP growth story and also kind of where we're headed going forward. So just a quick introduction of myself, Jason Ringblom, I am the Executive Vice President of our Siding business. I've been with LP not quite 20-plus years, 19-plus. So the big anniversary will be middle of this year. But I am just beginning my third year as the leader of our specialty Siding business and feel very privileged to have that opportunity. Next slide, yes, we'll talk a little bit about the agenda I plan to cover this morning will be 15 to 20 minutes on Siding. I will start with a general overview of the addressable market for Siding and then we'll shift to an in-depth review of our strategy and what we aspire to do to deliver growth above the market in our Siding business. We will then review the competitive moat. So those barriers to entry that we've created over our 25 years of existence, talk a little bit about our competition and how our value proposition compares to other cladding alternatives in our space. And we'll talk innovation. More specifically, some of the things that we are doing to evolve our portfolio to open up new avenues for growth for our Siding business. And then to close, we'll talk capacity plans and margin expectations. So plenty to cover in a relatively short period of time, but looking forward to it. So over the last 25 years, we've built a $1.4 billion Siding business through share gains in the New Construction, Repair/Remodel, Shed and Manufactured Housing segments. The data that you're looking at -- or actually go back, the share -- yes, that one. So the data on this slide showing the addressable market does not include the Shed market. So for many of you that have followed us for a while, we enjoy a top share position in the Shed segment. But what we've done here is really isolated the view to look at New Construction and Repair/Remodel. Today, we estimate our share position to be about 10% of a $10 billion addressable market. If you look at some of the other competitors in our space, you can see in the cement category, James Hardie is roughly 20%, while vinyl and wood combined still actually make up roughly 50% of the addressable market. So this is really where we anticipate the majority of our share gains to come from really in the future as builders and end users look for more durable, longer-lasting solutions to support the investments in their homes. So the main takeaway here is that we are a business of scale. We are a business with a national footprint and one that's really well positioned to continue to take share from wood and vinyl as those markets retract going forward. So going to strategy. In plain and simple terms, our strategy is to grow sales and margin through share gains and the expansion of our addressable markets. If you look at the center of this slide, building our brand, innovating to meet the evolving needs of our customers and then expanding channel placement is really what we think about as the key enablers to our strategy. So this is where we are really investing heavily to drive greater awareness for the SmartSide brand ultimately get trial and then get that placement of products within the channel that we can build off of in markets where we need better placement. Specifically, the sales and marketing, we are deploying our team across the 4 market segments I mentioned earlier with the greatest opportunity for LP SmartSide being in the Repair/Remodel and New Construction market segments. When you look at Shed and MH, we are more saturated in those markets and focused on really adding adjacent products to the commitments that we enjoy with fabricators in that space. In Repair/Remodel and New Construction, we are in the process of deploying an incremental $15 million in SG&A spend in 2024 and do plan to carry this forward into the future as we embark on several initiatives to grow our footprint in several Eastern markets. The other thing I would say is what we've learned throughout our journey is that winning in New Construction is very important to getting channel placement. Once you have that channel placement, it enables growth in the Repair/Remodel segment, which is much more fragmented in nature. So that is really our strategy. And some of the Eastern markets in these 2 segments, the work we're doing there really play together nicely in a significant way. And then as Brad mentioned earlier, ultimately, our focus is to replicate the success that we've had in the central portion of the United States. So from the Midwest down through Texas, we've built a very loyal base of contractors that have become branded ambassadors of ours due to the experiences they've had installing our products. They love the fact that SmartSide is lighter, more durable, it installs faster than many of the alternatives. And because of this they're more likely to recommend our solution to builders and homeowners on projects. So this chart shows the sales and volume growth of our Siding business compared to housing starts dating back to 2011, essentially when the market started to rebound in a sustainable way. As you can see, we've delivered consistent growth above the housing market lift that we've realized over the period of time. If you look at 2024 in isolation, the estimated numbers that we've used in here are essentially the midpoint of the guidance that we shared with you a couple of weeks ago and compares that to consensus housing starts of 1.4 million, so essentially flat to last year. One other point I would note is that, although the volume is projected to be slightly below that of 2022, which was a record year for our Siding business, you will see that the revenue is much closer to that year, really showing that the pricing power that the specialized product can command in the diversified market segments that we play in, which is essentially split 1/3, 1/3, 1/3 between New Construction, Repair/Remodel and the Shed segment. So next slide, we'll talk about the Siding moat. At this point, you might be asking yourselves if Siding is so cool and amazing, why isn't there a bunch of competitors in your space and the engineered wood space. And we believe that's because we've done a lot of things right to complete -- to put a moat around our business. And I'll go through these really at a high level, but process being number one. It's a much more complicated process for those of you that have toured our facilities to produce a specialty product like SmartSide versus standard commodity OSB. And we have over 25 years of experience with a proprietary recipe and process. So it's something we're very proud of. Quality. We offer a 50-year industry-leading warranty with a tremendous amount of data and testing to back that up. And when you think about -- if you go back more than 25 years, our challenges with Inner-Seal that we dealt with in the '80s and '90s are not so far off in the recent -- or the distant past that our competition has forgotten about that. And it's definitely a painful example of how damaging a quality problem can be if you don't get the process right on the front end. Supply. This is a key area, and something -- an area that we've been very diligent about securing long-term exclusivity agreements with multiple providers of raw material inputs and machine centers. So if someone wanted to replicate what we're doing, it would definitely be challenging to find those suppliers and do it at a cost that's anywhere close to where we're positioned at today. Sales. Pretty self-explanatory. We have 200 strong that are out there representing our products and our brand every day. Probably no secret to this group, creating demand for specialty product is very different than trading commodity OSB. And that's something that our -- many of our competitors on the OSB side are not experienced. And obviously, Siding is a much more technical and detailed sales process. Market reach. We are an entrenched incumbent with a very broad product line and a national reach. So if someone wanted to enter our space as a regional competitor, it would be tough to make some headway just given our exposure there. And then lastly, I'll just say if anyone did overcome a number of these barriers I mentioned, their prize would be to compete against LP, who's a big player in this space. If they chose to do that, I think that would ultimately lend more credibility to the engineered wood space and with us being the largest portion of that pie today, I think it just makes it bigger. So that's moat. From here, I'll shift briefly to a high-level competitive analysis that really hones in on the factors that matter most to installers and homeowners. First, really looking at how SmartSide compares to fiber cement in our space. So many of you are familiar with both, but from a material cost to the contractor level, we're basically at parity, maybe plus or minus 5% depending on the market. When you look at installation, that's where there's a big benefit to SmartSide. Our product is much lighter, goes up quicker. So it's something we're very proud of. Durability as well, less breakage on the job site. But the area that I think will cement us even stronger in this space longer term, as what Brad mentioned around sustainability. When you look at fiber cement after coal, oil and gas, cement emits more CO2 than all other industries combined. So we think that will factor into buying decisions longer term as sustainability becomes more important. From a vinyl standpoint, vinyl is cheaper in both cost and appearance, not as durable as well. This is an area where we have made share gains over the past and with more and more homes coming up for remodel, looking out 5, 10 years, we think we're well positioned to continue to take share in this space. From a wood perspective, price point varies pretty significantly, whether we're talking about primed, spruce or cedar lap or cedar shakes very different from a price point standpoint. But the big advantage for SmartSide that we have against wood is that it's engineered, doesn't split, no knots, no warps. So -- and it's also a little bit more sustainable because we're not dependent on old growth for us to produce our product. And then finally, brick. Painted brick is becoming more popular, but it is a whole lot more expensive. So we are seeing a more recent trend in builders trading down to a lower price point to make sure that they can get to that entry-level home buyer. So in the New Construction segment, we believe that is a tailwind for us. So at this point, we now have a testimonial that we would like to share with you from an avid SmartSide user in the [ Midwest ]. He's installed SmartSide for many years, and we'll provide you with a 3-minute overview of some of his experiences using the product. [Presentation]

Yes. So for all the reasons you heard from Kyle is really why from a strategy standpoint, we are focused on the Pro. We often say if we can get a contractor to try our product, it's very rare that they switch back to the alternative. So next slide, we'll focus on innovation. So this slide here really looks at the recent innovations that are allowing us to expand the addressable market for Siding. None of the products that are featured on this page actually existed 4 years ago. And some of them were actually launched as recently as the last couple of weeks. So a little bit of history. So if you look back several years, SmartSide was actually only offered in a cedar-grain pattern and only in primed. So we didn't offer a colored product. Today, we offer ExpertFinish in 16 colors, and we offer in smooth, pebbled stucco texture as well as the cedar grain. So this is very exciting for us because it was a gap in our portfolio that really didn't allow us to get material penetration into the Repair and Remodel segment. So now having ExpertFinish in our portfolio, coupled with a smooth solution, it's opening up new avenues for growth for us. The other thing I would say is we love our technology because it's inherently more flexible because engineered wood can be really molded into all kinds of different textures and then we can actually remanufacture it. If you come to some of our plants, we're actually turning pieces of trim into one piece corners to speed up the installation process and give the Pro more efficiencies. We're doing shakes as well out of strand panel. So there's a lot you can do from a remanufacturing standpoint. And as Aaron mentioned earlier, I would just encourage you to come by our booth sometime later today and take a look at our products and just get a feel for the broad range that we offer. So shifting gears to capacity, really looking back over the last 3 years for both primed and ExpertFinish. We have plenty of room to grow in this business. Really as utilization increases, you can expect an EBITDA margin on that volume of roughly 50%. We're well positioned today with capacity ahead of demand, both on primed and siding -- and ExpertFinish. From a primed perspective, we're positioned today with about 2.3 billion feet of capacity against, call it, 1.6-ish of demand. So we're well ahead there. And the same can be said on the ExpertFinish side, about 200 million feet of capacity and call it, 140 million, 150 million feet of demand. So a number of different facilities added in over the course of the last 1 to 2 years, but currently still in the process of ramping up our Sagola, Michigan facility, which is our most recent primed addition to the network that's going very well. And the same can be said for our Bath, New York site, which started up in October of last year and the ramp-up is going very well. But in both cases, our options for further expansion are plentiful, and we'll be prepared to respond when demand projections support doing so. Next slide here is an illustration that depicts how we expect our margins to move over time pretty straightforward. But as we grow, we expect our margins to trend upward due to simple economies of scale. We typically peak like we did in 2022 when capacity utilization is high before an investment in a new mill. The margin troughs occurred during periods of underutilization, while we're ramping up new plants like Sagola, I just mentioned a couple of minutes ago. So that's very much what we are experiencing at the moment in our Siding business. And then as we scale, we anticipate the amplitude of the sign wave to fall given that each new mill addition is smaller relative to the existing base of business. Last slide, I'll just say, I believe the future for our Siding business is really brighter than ever. For all the reasons I mentioned in my portion of the presentation. We have a history of growing the business above market. And we really expect that to continue as we execute our strategy and expand our portfolio through innovation. We talked about barriers to entry. And in our space, we think they're pretty significant. And because of that, we believe we are well positioned to capitalize on recent capacity investments. Margins are expected to expand as well as we fill out our network of plants and increase our scale. And then I'll say, you saw the addressable market side at 10% of a $10 billion market. We're nowhere near a point of saturation, and we believe we have plenty of options to expand capacity as we grow share. So for all these reasons, I'm hopeful that you are as convinced as I am that the opportunities are plentiful and that there's a great story for our Siding business going forward. And with that, I'll turn it over to Brad to get into OSB.

Thank you, Jason. So let me -- I'm going to talk about the OSB strategy in kind of 3 platforms that -- how we think about that business. So first of all, we've got an initiative to grow Structural Solutions. We've got some more detail on that coming up. And secondly, we need to be operational excellent -- operationally excellent. We do have to compete right now in the commodity market of OSB and the best way to compete in that market is to be the lowest cost producer. So I'll go into some detail about how we go about measuring and managing to that. And then finally, we want to be disciplined capital -- capacity managers. And I don't have another slide on that. So let me provide a little detail off of this slide. In the commodity business, there's 2 ways to think about how you run your operations. You can run to minimize cost, which means you can basically try to run all the volume that you can and as a business, get that -- move that volume into the market by managing inventories levels. That is a way to manage an OSB business. That is why some of the OSB businesses in North America are managed. We manage it differently. We manage the sales. So we produce when we have customers that need orders to be fulfilled. And so we have a pull model. And so when times are good, we're running our facilities wide open in order to meet demand. When the market is weaker and orders aren't there, we shut production down and take capacity out of the system for periods of time. Sometimes that means days or weeks of downtime. At other times, it means we're moving shifts or in the case of 3 or 4 years ago, we did shut down a facility for over a year in order to make sure that we had capacity and demand balanced. And so that is an everyday discussion at LP about how we're going to be operating our OSB system. And it's been, in my view, really a game changer in the way that we think about that business as far as why we exist as a company, but also, we've really developed muscle around our ability to bring our facilities up and down to meet demand in a really efficient way. So it really hasn't hurt us that much on the cost side either. So let me speak in detail now about -- well, I've mentioned this already, we're -- just as a reminder, we're the second largest manufacturer of OSB in the world. We are the largest manufacturer of value-added OSB. We call those value-add products -- the portfolio of Structural Solutions. So I'll probably go back and forth between those 2 words in this presentation, but that's really where we're focused on. Capital investment and growth is growing Structural Solutions. Our way of doing that is threefold. As Jason mentioned, on new product development and siding, we are very innovative in our OSB business as well. We have found over the years, if you -- commodity OSBs 4 by 8 sheet of wood glued together and it's a commodity. When you add an overlay, add a coating, cut, sand, almost any upgrade you do to that OSB panel, you can get paid for that upgrade. So the -- those kind of upgrades create margin. And while the pricing for the commodity foundation of the product can go up and down, but incremental margin potential for these value-add features that we add to these OSB panels can be significant and be very high return compared to the investment that's required in order to do that. So our ability to innovate around the technology that's provided by structural panels really provides us an opportunity to grow our Structural Solutions portfolio, and we're really focused on doing that. Our second advantage is commercialization. As Jason mentioned, too, we have 200 salespeople, mostly justified by our scale in our Siding business. But those salespeople also are taking our Structural Solutions portfolio to the market. And so it provides us an opportunity to sell that product very openly and aggressively in the marketplace, bring new products to market rather efficiently and have channel partners in particular, many times builder partners that will partner with us to test and bring those new product ideas to market. So the kind of the synergy that we have because of the scale of our sales force and the relationship, the deciding business provides us in the channel brings a lot of credibility to our strategy around Structural Solutions growth. And then from a value creation standpoint, I did want to speak a little bit about how we think about what we call success in our Structural Solutions strategy. Success is creating incremental margin dollars. Over the years, it could be tempting to push volume in Structural Solutions and a way to push volume in Structural Solutions is to lower the price and impacting the margin. And so we're very careful about setting up our sales incentives around margin realization in absolute terms versus trying to doing that with the volume initiatives because we don't want to negotiate away the incremental margin that we enjoy on our Structural Solutions portfolio. So we're kind of -- so in summary, we've got this kind of innovative engine that we're getting better at bringing new products to market. We've got a 200-person sales team that with great relationships to commercialize those products when we get them. And then we're very focused on making sure we manage that portfolio of products to create incremental margin for the company. Last year, over 51% of our OSB sales volume was in Structural Solutions, obviously, a high point for us. I would love at some time in my career for that to be 100%, probably never will be 100%, will make us a little bit of commodity, but that's certainly our focus is on growing that. And I think in the near term, a reasonable target for us to have is 60%, maybe a little higher than that as we continue to innovate. But again, we won't -- we don't push that if we feel like it's going to erode margin. And then the second pillar is our operational excellence. And let me just take a -- what I'm about to explain is how we manage this in both businesses though it is a higher priority for our OSB business, given the competitive nature of that business. And so we use a metric called OEE. It's a common metric in manufacturing. Basically, what we're doing is, we're taking 3 components: uptime, speed or speed of production and A-grade yield, and we create a composite metric that if all that -- if you have 0 downtime, 100% A-grade and was running your machine all through a period of time as fast as it could go at 100 miles an hour, then that would be 100% OEE. And so any loss of production in any of those areas is percentage down to our metric. When we initially launched this initiative, probably 10 years ago, we basically used our best mill as -- which was at the time in OSB with Sagola, Michigan as a benchmark on what is a speed that you should be able to run. And then measure all the other mills off of that benchmark. We've changed that recently to where we're now going through just whatever was the best hour of production that we had on a SKU in order to set the production capability metric and then obviously, uptime and downtime and A-grade yield as stand-alone. And so we've seen really good improvement over the last 5 to 6 years in OEE. We did have a hiccup if you'll see in 2022. But the improvement that we saw last year is so far continuing this year and really confident about our ability to drive that. And that does add -- obviously, it lowers our cost. And as I've mentioned, some will recall early in this endeavor. And when we first looked at this metric and got to understand it, we had an idle OSB mill in our OSB system. The inefficiency that we felt like we could gain back was basically the size of a mill. And that was obviously very inexpensive way to get incremental OSB production is getting good at this metric. So that's how we think about OEE. So from an OSB perspective, market facing, we're totally focused on growing Structural Solutions. We're growing that to create margin dollars, not generate volume. We're very focused on OEE as a means to be competitive across the portfolio, but particularly around the commodity that we're still manufacturer, and then we are going to continue to be well disciplined about the way we manage capacity to meet demand and provide our customers the product they need, but nothing extra. So with that, I'll turn the presentation over to Frederick, and he'll take us through the South America.

Thank you. I will stand here because I want to see the screen. Hello. My name is Frederick Price. I'm the General Manager of South America, 25 years in the company. Back in the year, '98, when LP took the decision to step in South America, we all choose Chile as a starting point because of the situation of Chile economics and because we had wood in Chile. And the economy was blooming in those times. It took us 2.5 years between environmental permits and erecting the mill, the first mill. We used that time to teach and convert builders into our favor. What we did is to teach over 5,000 carpenters and around 100 builders. We brought them to the state, we teach them about [ frames ] contraction, and we prepare them to the day our production start. That was at the end of 2001. Once we start producing OSB and with these pioneer builders, we start to convert the market. When I say convert the market is to change the culture of how you do things and building process. In Chile, the heritage was from Spain and the way of building was with bricks, very inefficiency, very slow and very expensive. And very bad for an earthquake country. Chile is a country that every 30-year collapse, and we need to start everything again. And the frame construction is a great solution for that, okay? This is how we start. As you can see, in North America, when you move from plywood to OSB, you just was talking about a product change. When we started in South America, we had to replace a mentality, a way of doing things and a culture. And the market situation in those times in South America was more or less 95% was concrete or masonry. And the wood contraction didn't exist, was a small, very high-end people that import houses from Canada and install it as a second house in the lakes and that kind of thing, but really nothing. So we started from this position. Next one. With that, we developed the argument and the argument was all in our favor. We were -- we could build cheaper, 35% cheaper square meter, and we proved that we could be faster, so turn around the capital faster, generating more profit for the builders. We were seismic-resistant and at low cost, and that was proved later in the big earthquake of Chile that is the second biggest earthquake in the world in the last 100 years. More architectural and good look houses options at low cost and better energy management, another more arguments. The market bought them all, and we started to win month-after-month contracts and our builders that were teach in the frame construction is starting to have a lot of homes to build. So everybody start to follow that. Next one. This is our EBITDA story. The first years, as you can see, was kind of flat. We had only 1 mill. And in 2008, we built the second one. And after that, that was the big financial crisis of the 2008, we started to grow. And in 2010, we had the big earthquake in Chile that destroyed 0.5 million homes, but not a single frame home. Nobody was killed or injury in our homes. And from there, you can see we jumped to the pandemic EBITDA. That also is kind of crazy. And then the next year, the following year, we have to pay the bills. So everything starts going -- South America today is not in a good shape. As you may know, Chile is not doing well. Argentina is kind of a mess. And all that is a cycle in South America. And this cycle is generated by the pandemic easy life that we create in South America. But anyway, the story of EBITDA is quite nice story. Our growth has been financed by our profit. We have never required big amounts from LP Corp. This is what we are today. We have 4 mills. 2 mills in 1 site in Panguipulli, what we call. The other in Chile, Lautaro mill. And in Brazil, we have more or less a capacity, a production capacity of 700,000 cubic meter. So -- and we sell it, I would say, 80% in South America. We have sales office all over the place. The last one is Mexico. We are opening. Mexico is already working, and we expect to sell a lot in Mexico. All this office has the job to convert the market because in all those countries, they don't use OSB. They don't use frame construction. So we need to convert. And we know we have the knowledge to do that, okay? Next one. This is today, Chile. So in 20 years, in a generation, we changed the market. Now we are the dominant material. 45% of the square meter are using OSB and frame construction, and we want to replicate this into the other country. The second country that is following this path is Argentina. This is LP South America to the future is addressing the same problems: conversion, housing shortage. If South America has in the year 2000, 20 million, today it must be 50 million. We have the support of LP Corp. for all the products that they develop, we replicate over there or we develop our own to the reality of South America. And we are hiring people. We are over 800 workers in LP South America, and we are prepared to add capacity as demand grows. So it's up to us how quickly we grow, but we think we have a great future in this. Next one. So we -- for our market has been very aggressive, very innovate. We have generated profit for the corporation. They laugh because we pay the expenses of Nashville. Our profit is enough to pay expenses of Nashville. We are growing. We think we run the company quite well. And we think we are adding value to everybody. So that's what South America is. Thank you.

We're nearly done. And as much as I like the sound of my own voice, I'm not going to talk for very long. The first of my discussion today is going to be the fact that I think LP offers a unique investment proposition. And I'm going to try and discuss that without offering any new data whatsoever. I'm just going to weave the existing data. I sometimes feel as though we're the best kept secret in the building industry, though. And I can think of no better way of discussing the value proposition then by talking about our capital allocation strategy because that strategy is -- it's the embodiment of our belief in our intrinsic value including our approach to M&A. And then I'm going to talk about the guidance. I'm not going to change the guidance, but I'm going to talk about it. And I'm going to sort of dance around the issue and it will be a dance of around some of the parts valuation because the guidance we issued 2 weeks ago does at least put, I think, a stake in the ground around how to think about or start thinking about the OSB business. And I'll touch on that. And I do want to stress something. There is -- although I'll dance around some of the parts valuation, there is a convergence between most of the sort of publicly available multiples you might use in constructing the sum of the parts valuation and our own intrinsic financial model. Now we're not unique, right? Every company has a financial model of some type. But -- which they put their strategic plans and the investments required to achieve them, you get a bunch of cash flows, then you have the present value of those cash flows, it's the intrinsic value. But more so than at any company at which I've worked, the financial model is the drumbeat to which LP marches because the financial model uses the language of value creation and the language of value creation is how we discuss the business on a daily basis across the company. We hold through the hierarchies, everybody accountable for delivering value and for thinking in terms of value creation when it comes to investments in selling and marketing or large capital investments. So to discuss capital allocation, I can think no better way of looking at the sources and uses of cash flow over the preceding 3 years. Thank you. You had it didn't you? I didn't need to give you that nod. Sorry. Your slide has changed quite a bit behind you, but you didn't know. Sorry, Andrew, I had to do it. So look, $4 billion -- $4.2 billion of cash generated over 3 years. In a cunning trick of psychology, the blue bar -- the blue slice is OSB EBITDA, which is, of course, where the funds for the share buybacks came. But our capital allocation manager, which many of you have heard, is generate the cash, invest in the business, return the excess cash to shareholders. And EWP as a business, of course, is included here as a source of funds because it was. But we sold the EWP business after we'd established the capital allocation mantra. And in many ways, I think, it proves the point that Brad made earlier that we invest in businesses or products that can add value and can be value accretive and get a very healthy return on investment. The EWP business couldn't do that. It didn't fit with our redefined strategy. It couldn't get an adequate return on its investment. It didn't speak the language that we speak. But I think I can say without fear of contradiction that at the end of 2020, when this 3-year period began, with a market capitalization of $4 billion, we were undervalued. I mean, I challenge you to find another business that produced 60% of its market cap over 3 years. We actually did it over 2 years, in '21 and '22. So let's move on to the guidance slide. Oh, no, let's not. I keep forgetting about this because it doesn't need a slide, right? So here's our M&A strategy. Number one, we're going to buy something that fits with what you've heard discussed today. Number two, we are not going to buy something for portfolios sake. And what that basically means when it comes to OSB and we get frequent visits from bankers offering as businesses for sale that might help us diversify away from OSB because of its volatility. Volatility is not our enemy. It created all of that cash that with which we bought back shares. We just need to know as we do, how to manage that business. The third point is -- what's the third point? Whatever we buy, if we've articulated our strategy clearly, we'll be all-in with whatever decision we make. And if we're doing our job properly, you'll be all-in too. We'll just go, "Yes, I get it." And the best example of that, of course, is the Wawa acquisition. Not only did it taken a potential future OSB mill out of circulation, thereby helping the OSB business, it also, of course, produced the next candidate for the Siding mill conversion. So it helped both businesses. That's the fundamental point about us being a unique investment proposition. Fourth, just for the completeness on the capital allocation discussion, we would consider taking on structural debt for the right acquisition. We don't have one in mind today, but we would consider it, but we don't consider taking on structural debt for share buybacks. That has to come from excess cash after it's been generated with a little bit of timing within any given year. Now the guidance slide, which is impossible to read, of course. So we've got a simplified version of the full year guidance, which I really hope doesn't have a typo in it because these things can hurt, can't they. So the 2 numbers to take away, of course, are, let's say, $300 million of EBITDA for Siding in 2024, and a new approach to describing OSB, call it, $200 million and change. One of the challenges in giving any kind of sort of projection for the OSB EBITDA is that to do so, we have to make a price prediction. We don't. We're incapable of making a price prediction. And we don't want to be held accountable for a price that we can't necessarily control. But what we also found particularly over the last couple of years, that as prices change, there were changes in unit costs, inflationary pressures. And I had hoped going into the post-COVID period that if inflationary costs, inflationary pressures push costs up we would also find that the floor price of OSB was at higher level, another rising sign wave, if you like. And that proved to be the case. So what we use now is this concept of an EBITDA spread, which takes the unit selling price minus the unit cost of production, $60 per 1,000 square feet on average over the last 5 to 7 years, multiply that by 4 billion feet of capacity at an 85% utilization, and you get $200 million and change of EBITDA. But bear in mind, I use that $60 number, which excludes the 2 years that produced all of the cash with which we bought back stock. So if you use $300 million for Siding and $220 million for OSB and you do take the set of market multiples and apply them, I think, you're implicitly undervaluing the company. I think the whole is greater than the sum of the parts. So it's funny. I've heard it said more than once that the existence of the OSB business in our portfolio is a drag on the Siding business getting its true valuation as true multiple, which -- a, okay, long may that be the case. So when these tsunamis of cash come in, then we'll buy back stock. But I think that's the point of our uniqueness. That's what makes LP unique. We have the Siding business and the OSB business under the same roof. So when we use that excess cash to buy back stock, we increase the value of the remainder. And the question is, what's the remainder? Well, you've heard what the remainder is. It's a growing Siding business with healthy margins and a huge addressable market. It's an OSB business that's increasingly moving towards specialty products. It's a South American business, which helps fund the corporate overhead. But again, there's implicit upside there because I think he's going to grow his business faster than I'm going to grow the corporate overhead.

I hope so.

So do I. I won't be here if no. It's an OSB business and a Siding business that can be bundled in a way that no other engineered wood producer can do. As Brad mentioned earlier, we can leverage the portfolio of products. It could also just be that we have specialty building products that's about to ride a wave created by the chronic underbuilt in housing. I think it's all of the above. And that's, I think, why the whole is greater than some of the parts, however, you do that some of the parts analysis. And so I think I adequately rushed through that. So I think it's time for Q&A. Do we have the mic?

Kathryn Thompson with Thompson Research Group. Just following up on Siding and your long-term goals from a margin standpoint, 25% is kind of that bogey, but you still say that 20% in the near term is conservative. Could you give any update or thoughts on the long-term goal for your Siding margins in particular?

Yes. I think I spoke to it in the presentation. We're challenged right now on the prime side because we have basically 2 more plants than we have demand. Same on the ExpertFinish side. We are going through a process of optimizing our network there to drive margin improvement. So short story is we see a clear path to the 25% mark that we've talked about for many years, just through better utilization and a number of different cost out margin improvement initiatives we're working on.

Sue Maklari from Goldman Sachs. Can you talk a little bit more about the increase in the sales and marketing spend this year in Siding? And how you make sure that as you're starting more of these programs that you're not taking away from the proven pricing strategy and the effectiveness that, that's had in the last couple of years.

Yes. So the increase in sales and marketing investment, I mentioned in the presentation, roughly $15 million in '24, is really getting us back to similar levels kind of pre-COVID because we backed off of sales and marketing SG&A for a period of about 2 years while we were on a managed order file. So we're getting back to that same relative percent of revenue in terms of spend. What we're doing differently is we're getting very laser-focused in 7 or 8 key markets, primarily from Southeast up through the Mid-Atlantic and up the Eastern Seaboard, where we are really looking to convert markets. So we're not doing general marketing to the homeowner or abroad community. We're really getting very entrenched in specific markets to make sure our investment gets the return we expect. And once we knock out those 8 or 10 markets, we'll move to the next set.

Kurt Yinger, D.A. Davidson. With the idea that a lot of the new construction business is price driven and if new construction begets placement, which benefits repair model, I mean, how do you think about potentially being even more price aggressive in that business? If it's 50% incrementals on volume and filling up those plants is what's going to drive margins, why not even more aggressive to try to drive that share?

Yes. Great question. You heard Brad and Alan talk about the enterprise solutions that we offer a builder in comparison to some of our competitors in our space. I mean there's a broad portfolio to leverage. So it's not just maybe, say, BuilderSeries lap that we need to get aggressive on. It's -- you can really look at the program in totality that we may be able to get more lucrative than what they're getting from multiple suppliers to get that initial established footprint in some markets where we haven't been in the past. So what you're articulating is what we're doing in specific markets with, I would say, builders within the top 20 that can get you material scale and get you a couple of key stocking dealers to build off of going forward.

So you talked a little bit about the environmental sustainability advantages of your siding product relative to some of the competition. And I think Berkshire like model-dated one of their homes last year in their investor meetings. Are you seeing any traction yet with buyers on that concept? What's it going to take for that to start delivering for you?

It's a good question. And that's why I said out over the next 5 to 7 years. I think that will factor in more to the decision-making process, not only at a homeowner level but probably at a dealer and a builder level. Today, if you're talking to a builder, someone in their procurement group typically, it's not at the top of the page in terms of criteria they're looking for in a program. But if you get a little bit deeper in the organization, the folks that are putting together the ESG or sustainability story for the company, it does become part of the conversation. So it's getting to the right audience to tell your story that's becoming more and more important. I don't want to mislead you that that's going to be our savior in the short term, but I think it definitely plays to our advantage looking out a little bit longer term.

Mike Roxland, Truist Securities. Just one quick follow-up. I think you mentioned this on earnings calls as well in terms of the cross-sell opportunities between OSB and on SmartSide. So where does that stand today in terms of either the book of business or in terms of revenues, let's say, where is it stand? And what are you ultimately trying to target as a percentage between -- or for that cross-sell between both businesses?

Yes. So I would say it's very targeted in nature. So we have a big builder and a pro dealer group with a number of different resources and they are collaborating together in these key markets that I mentioned where we are underpenetrated and saying we need to get 2 or 3 sizable builders that can get us established with SmartSide within the channel, more than we are today. So we are reviewing those execution plans on a biweekly basis. There are some markets where we've made significant progress. I can't speak to them specifically.

Correct.

But we're pleased with the traction we're getting and we're seeing it already in our BuilderSeries volume and the ancillary products that come with it. And a lot of times, you're getting as much or more volume of ancillary products than you are BuilderSeries lap on some of these dealers -- deals.

Jason, I'd just add interesting thing that I've learned in this past 12 months or so, we've been doing this is, you never know what is important to the builder you're talking to. It could be that the Structural Solutions is driving kind of the core relationship and Siding is secondary to their decision-making, and it can be the other way. So it's not by region or by builder, it's not a one -- if there's not one solution to it, you don't lead with BuilderSeries and then drag along flooring. And so we've really have to -- our salespeople really have to be in tuned to what is the builder really after with this relationship? And then what can we bundle with that so that it ends up being a win-win versus maybe us having to be ultra-competitive on pricing of -- I'll just say, of a flooring product without getting the benefit of selling some trim at a higher margin. So it's an interesting puzzle that we're piecing together and it is very unique by builder, by region.

Roshni Luthra from BMO Capital Markets. Earlier, you were talking about Structural Solutions being above 51% of volumes last year, but your target is to get to 60%, is there a time line that you can touch on maybe what kind of growth we should kind of be seeing on an annual basis there?

I certainly believe that we have a 5-year plan and 60% is certainly doable within that 5-year plan. A little bit hesitant to give closer guidance to that because of how I talked about the margin management there. So it's that -- internally, that is not a hard target for us because what we don't want to do is incentivize the feeling that we got to get to 55% this year come hell or high water. But given all the -- how we explain we think about Structural Solutions, 60% in 5 years is certainly doable for us.

Mark Weintraub, Seaport. So very much appreciate the outlining of the growth and why you have all this growth. I think one of the things that's been very exciting that you've talked about in the past too, are the economics as you materialize this growth as well as the mix improvement. So I didn't hear a lot of that explicitly yet today, can we review again as we grow the Siding business, what the economics look like? And also maybe talk through a little bit about as you improve mix, what the economics could prove on that part.

Let me just say from an operator perspective, so we've guided 20% margin for Siding. As Jason mentioned, we have 2 recent mill conversions that -- and look, we manage this with the system. So they're running today, but we've had to pull volume out of other, in some cases, for pretty efficient siding operations in order to build the skill set in the facility to make quality siding product when we needed. That certainly is a damper on margin. And then in our ExpertFinish -- look, our ExpertFinish program up to 2 years ago with skunkworks. We were -- we had to figure out, do we want to begin prefinish and we decided we did. We wanted to get into it rapidly, so we acquired a couple of small manufacturers of prefinish siding, one in Green Bay, one in St. Louis. The one in St. Louis was running when we acquired it and we've figured out how to do it and we figured out that we like it. And so now we're in the process of scaling that up. I mean like last year, it was the first time we had production off of what would be considered a new world-class prefinished line. And so as we build that -- as that growth allows us to scale up our current footprint, Siding infrastructure that we have already converted and continue to make investments like we have in Bath, New York and at Green Bay around prefinish, just the operational scale there is all going to drive margin improvement. And then the other part of that is, and with that margin improvement in siding prefinish, we get the mix improvement that margin can bring as well. So that's how -- just from an operating standpoint and a sales standpoint, that's why we're so optimistic about margin is that we've got a lot of underutilized assets and a lot of ability to -- it's not just underutilization in prefinish, there is the ability for further investment to really build scale in that business, which could be impactful.

And when -- if you think -- maybe I don't know when it was 18 months ago, we talked about Houlton, too, being the next siding mill, very healthy economics, something like a 40% variable EBITDA margin for that mill. That's still true, but what we're operating, the situation we're operating in today is that we have all the fixed costs of one. And the business doesn't need the revenue yet. So what you're seeing, as Brad said, is -- for this year, we've forecasted a 20% -- guided to a 20% EBITDA margin. Carrying that extra mill, all the fixed costs of that extra mill, and you could cluster theoretically all of the volume into the rest of the network. So we're carrying them all with all its fixed costs. And as Brad said, we're rapidly ramping up ExpertFinish, and it is not efficient right now. So both of these 2 factors are the cost of which is actually embedded in our EBITDA margin today, which means that as and when that volume gets added, it's one of the reasons why we feel safe in projecting high variable margins because it's truly a variable margin that comes in. Fixed costs will not need to be added as we bring in a whole mill's worth of volume over whatever time period it takes for that to happen. So the economics are the same. It's just that we've got the sort of variable margin and the fixed cost, and we've done that with the fixed costs, sorry, to your perspective, that earlier in time and the variable margin sitting out here yet to be realized as and when the volume comes in. Because fundamentally, we're going to err on the side of being too early with the mill conversion not too late because that helps us with our market penetration, obviously.

Understood. And so presumably, that's largely because demand didn't play out last year the way you expected, and so everything has sort of been on hold. I guess what I was really also trying to get at though was, whether there's been a lot of inflation in building things and your prices haven't moved that much. And so does that change the economics -- obviously, things can change from where we are today as well. But as you would relook today at the economics to build versus the types at 40% EBITDA margin, say, are the returns meaningfully different? That's what I was trying to look up.

Great question. Look -- no, no, they're not. The time -- costs haven't risen significantly since the time that we laid those economics out, and we didn't assume any deflation. We in fact, assumed modest inflation when we described those economics to you. So I think we're safe from that perspective.

Yes. If I could add the reason we went to an EBITDA spread for OSB as a way to express that was to incorporate the uplift of cost of manufacturer along the way. And if you take that same approach and look at the Siding business, the EBITDA spread per thousand on the order of 3x. So the economics of converting from the commodity product to specialty product, you're going to go from -- well, if you take $60 per thousand as your basis in OSB, just look at the midpoint of the Siding guide for 2024, $300 million in EBITDA on 1.6-ish billion feet of volume. It's on the order of 3x the EBITDA per 1,000, and that incorporates the uplift of cost and demonstrates the pricing power. So that's what's driving fundamentally the economics of the mill conversion making the transformation work.

Alan, during the course of our capital allocation comedy act, I was struck by your comment about how we're not going to leverage the balance sheet in order to repurchase. That will come from good performance in the system, particularly in years in which we got OSB pricing. I guess this speaks to then system flexibility because we continue to talk about the benefits of converting commodity to specialty. But there are also certain times, we'd really like to have a lot of commodity. So in those, I'll call them, and I think I've mentioned this to Aaron, jubilee years. Is it possible then to leverage the capacity or the network that you're building to go back and make as much OSB as you can in those periods because that's where the real -- that's where the juice comes from.

Yes. The -- look, so I don't know, Jason, half of our Siding mills can make OSB today, capability-wise. So in some of the smaller mills, we removed the finishing capability there. So we can make OSB to say roughly half of the Siding business could make OSB. We are making some OSB in Siding now as a means to cover some of this fixed cost. But look, we have never, in 25 years, including COVID, said, the price OSB is x times 8 than what it used to be, so we're going to remove -- temporarily remove some siding capacity to take advantage of that. In fact, I don't think we ran any OSB in siding during COVID, it was all -- because we were still out on siding, too. And so the -- and really this is -- so yes, there is a short-term economic. I mean if you just optimize the P&L today, there are times when that would be the wise thing to do. But with the market -- sales and marketing investment that we make in siding, I mean, we're creating demand that is there. I mean, once we -- because we have a very high secure rate. If we can convert a contract or a builder, we tend to retain it and we don't want to do anything to jeopardize the ability for that customer to access siding for a short-term margin windfall on OSB production.

When MDI resin was in global shortage, that would have been the perfect opportunity for us to enact some short-term thinking. At that point, OSB prices were at an all-time high. The trajectory was upward and steep. We could have -- we were forced to reallocate that resin within our businesses. We could have sacrificed Siding growth in the short term so that we could make more commodity OSB and sell at very high prices. We in fact did exactly the opposite. Siding business grew in 2021 because we reallocated MDI out of the OSB business. And we made plenty of money in 2021 because all prices went up, including our Structural Solutions. So this -- operationally, could we revert to that kind of short-term thinking? Yes. Would it be beneficial? Probably not, and we've demonstrated and done the opposite.

And I don't think it's luck. You see, we have a strategy, which is grow specialty and grow siding. And we simply put our heads down and executed our strategy, and it had this amazing collateral benefit, I think, that always be around more slowly. If it had an impact on price, it wasn't to lower them.

Yes, that is a good point, though. Not always is adding incremental OSB to the market. It might be good that one day that you did it, but the next day that can be a dampening, too, on pricing. So it's not 100% guaranteed that it's -- even if you were uncaring about the near-term SmartSide volume.

It is a bit like a caged animal that looks like it's tamed, and it's not tamed. I don't think it control...

But look, I mean, it's hard not to say -- I can't say we don't talk about it with a $1,500 OSB price. But...

Brad, I think we all but said it. But I mean, if you think about a situation where, let's say, we did move from SmartSide to OSB to take advantage of the pricing windfall, which we won't. Think about if the contractors got win to that, that LP was basically sacrificing siding for OSB. I mean we would lose them and getting them back. Memories are long in this industry. And it just -- it wouldn't happen. It would not be pretty for our Siding business.

Okay. And I just have one more because we have to hear Fred speak as well. And Fred, I'm just curious as to how quickly you think that you'll be able to convert the Argentinian market since you already have a similar playbook for what you've done in Chile.

Okay. I would answer you slowly to enjoy your question. I think the culture, the knowledge, the professionals and the needs are there. What we are missing? A stable country that is becoming more and more in the last 20 years, surprisingly is better. And we need the banking system to accept, give credits to young people to build in frame. In Argentina, you cannot find 20 years loan to build a home. So that's kind of difficult. Now we bring to Argentina less cost, less time and all that is in the right direction. So I think we will win. We already are winning because despite the problems, we are selling a lot of OSB and specialty into Argentina through Brazil and through Chile. So it's a matter of time and some changes in the country, political changes.

Just because I don't want you guys to have to clarify something later this year. So what happens if OSB runs this year? You've got plenty of excess capacity right now in Siding. Are there scenarios where this year, I'm not talking $1,500 OSB. But if you have strength in OSB, do you have the flexibility and potentially the desire to take advantage versus that.

Yes, we don't -- it's not a decision you make on Monday and then Tuesday, you're selling OSB out of a mill. But what -- how we think about it is when we converted Sagola, we basically exited the North Central region for OSB production. It was our last North Central mill. And that's a market where we would like to play in or have a presence in. So if it was to be a really dynamic OSB market, we would -- we could shift up to run more OSB, probably mostly for the North Central region of the country. It would be not a spike in production, but it's just kind of a move as we add shifting to get that done. So I mean we're not -- it's only stupid about not doing that, but to be stubborn. But also, I don't think in the big picture, it would be a meaningful thing to try to model into this year.

We also have, in the past, sent from South America to North America. Because when that situation happened, normally the price is very high. So we make more money sent to North America than to sent it to China, for example. So we can switch markets, opportunistic market that we address from South America to North America. For a volume, we can do that.

And then maybe just to follow up with you, Frederick, is there a siding opportunity in South America? I think you're making a little bit. Is that something, which did really come up today. Is that something that can become meaningful?

Yes, we think as we convert South America, the siding will go up. We have -- we can devote 1 mill to siding and we are ready to do that. We don't have the demand today, but we think we're good there. And we can export because we do it at the same standards that you do it -- we do it here. So we can export siding also to the state if needed. I think it's more opportunistic in the OSB situation than the siding, but we could do it.

Matthew Bouley, Barclays. Alan, you mentioned kind of incentivizing the organization around value creation. I'm curious basically what exactly that means? What are you incentivizing your folks for, at what levels? And especially has any of that changed over the in terms of how you're incentivizing?

Incentivizing might have been a careless word. I mean, we hold people accountable for describing any and all initiatives in terms of economic value and the delivery of that. And what that fundamentally means is, as we're constructing be it our long-term strategic plans or our budgets, we construct all of those using the concept of, let's call it, an initial investment and an expected return. And so it allows an organization to both breathe a bit like the investment in selling and marketing that we're making in siding this year. The organization knows and believes that's the right thing and expect a return, not necessarily in 2024. That kind of thinking means that we limit short-term thinking and then we hold people accountable for achieving their long-term goals. And -- but the point being, whenever an initiative is brought to the team, be it to Jason's or Frederick's or Jimmy's teams or to the executive team, the language used is value creation. We call it the value at stake. What are you aiming for? What's the investment required? What's the economic return? And fundamentally, we don't do anything that doesn't have an economic return.

Let me just -- to add to that for -- so back to when I was talking about how we -- the benchmark we use to measure our strategy, which is TSR. When we -- 5 years ago, 7 years ago, when we did it the first time, we had this aspiration. And we took analyst consensus EBITDA forecast and said, if they're right, we won't hit that aspiration, there's a value gap that we identified. And so basically, what glide path are we on and what is our aspiration. Our aspiration was a lot higher than our glide path. So we created a value agenda and we've identified unique projects that would create value to close that gap. And so we have a value agenda that we -- and value at stake is the amount that is net present value of that initiative. And at the time we launched the initial strategy, I mean, what was it? Accelerate Siding growth, accelerate Structural Solutions growth, get out of hardboard. Those were the kind of projects that we had. There was about 6 of them. 80% of it was Siding growth, Structural Solutions growth in OEE and OSB. We did an update to our Board, the biggest strategy update we've done with our Board since that one this past October. And there must have been 15 value agenda items, where the organization now is -- the first time it was top down. Of course, it was all hanging fruit, too. But now we have across the organization, value initiatives that were communicated to our Board and articulated in the language of EVA, basically, as -- and now those managers are going to be held accountable for executing that. So there's been -- there has -- I don't -- I'm careful to use word cultural transformation. Everybody says they're doing that and we say it, too. But I mean, it was inspiring to see how entrenched that idea is to where the procurement organization or the logistics organization was coming in the Board and says, this is our plan to create value for this company. And so it is, build that momentum and then that discipline and then us rewarding successful completion of that, it does build momentum around the idea that we're forever in the process of doubling our share price. And so I don't know, just a little broader answer than probably your question was, but that is how we're trying to manage. A lot of work left to do. We're not there where we -- we've not completed that task and it never will be, but there is a cultural shift from a commodity heritage that rightfully we had as a company, which was we're a victim of OSB pricing. We'll make money in good times. We'll hold on for dear life in the bad times and, by the way, use our balance sheet during the bad times, not to run out of money and there's been a change in the way it feels, in my opinion, as a long-term LP employee.

It's a common insult, not that it's that common, but a big insult inside LP is the phrase, that's commodity thinking.

On the Structural Solutions side, is there a good way to think about going from 50% to 60%? How does that impact the $215 million to $225 million, right? I mean, presumably, the goal is more profit per unit. What does that look like on average, right? I mean it's very volatile, but how would you think about that? And then secondly, at least in my head, the old north star was moving Structural Solutions off of random, right? People didn't like volatility. That was the goal, that would be a net positive. But also you talked about a lot of the volatility is probably a net positive for you guys and to some extent, you want to lean into that. So is that a priority at all for the Structural Solutions portfolio? Or how do you think about that?

Let me answer the second question and then the guys can talk about them more. Man, Nirvana would be getting Structural Solutions on a price list. Let me be clear. Then it would be Siding. I mean, it would be a Siding profile. We have a few SKUs -- a few high-value SKUs, we're able to do that, but not a meaningful part of the mix. Most of our structural solutions is priced off of random. But it is something that we work toward. It is something that we -- I mean, when we have the FlameBlock, the occasional product where we can do that, we really emphasize that. But before the products like TechShield and flooring, where ultimately you are competing from a value prop against commodity OSB, it's very difficult to disconnect it. We can disconnect it maybe for a quarter pricing agreement or something like that, but it does -- it is going to adhere to that. So we are certainly aspired to that, but realistically, what we have to work on is maintaining that incremental margin and maximizing it.

Yes. I mean if you look at TechShield is the simplest example, that's priced as whatever the random length substrate is, plus a fixed upcharge. So the total price of TechShield has the same standard deviation as the substrate commodity price. But no matter what that commodity price is, that upcharge is a positive incremental margin. So it's very difficult to predict precisely what the impact will be on the cycle average EBITDA as we get to that 60% number. But if you look over time, if you look at the graph we showed that is the structural solutions mix and kind of a moving average of the EBITDA spread, they do both go up. So it should be an incremental positive, even if we never get full force from random lengths, we make more money on the Structural Solutions products than we do on the commodity products, no matter what the commodity prices are.

And just one more on capital allocation. Excess cash related to high OSB prices using that to buy back stock, it's kind of procyclical in terms of the buyback approach, right? And I think at least historically, it would say your stock would show that when OSB prices are lower, that's probably the time to be more aggressive. So I guess, how do you think about that aspect of balancing the excess cash generation with the buyback.

Great question. Never opportunistically. So yes, the -- you're right. But I think the disconnect between our market cap and what I think our true valuation should be is so large that it's dwarfed by the short-term fluctuations. And so I don't let those get in the way of disciplined capital management. So I've been tempted many times and every time I basically say no, stick to the plan. And the plan is when we have the cash, we buy the stock.

You could imagine a scenario where OSB generates $1 billion and we sit on that $1 billion for the perfect opportune time, our stock takes a dip. We buy $1 billion worth of shares, everything works out perfectly. And what will happen every single day between us hitting that cash balance and us executing that is, you will all ask us, what are you doing with that $1 billion of cash, why aren't you adding value to it? So that just reinforces the fact that it doesn't make sense to try to be opportunistic. The gap is big enough that it's more important to be disciplined and consistent.

Just buy.

Than to try to find that optimal perfect approach.

Can you talk a bit about the role of an increase in existing home sales to get some of the remodel activity going on the Siding side especially?

That would be very helpful for a couple -- lower interest rates, that would put housing -- additional housing on the market, I believe, would be additive to -- certainly be additive to repair and remodel in siding, and also lower interest rates. Those are big projects to reside a home. Typically, they're financed. And so I think that would be kind of a double kick to the siding part of repair and remodel. And we're anxiously anticipating rate reduction, but not holding our breath on that, but I certainly believe over the next 8 quarters or so, we'll be seeing some of that.

How do you think about the timing between the macro shifting to what actually coming through to the business to your demand?

Well, I would say that -- I think lower interest rates would put housing on the market exist immediately. I mean I think they would be very quick. Now the sales cycle will lead to the repair and remodel activity. But I mean I think demand is so pent up that if existing home became more affordable, we could see rather quick jump in repair and remodel, not as quick as we see existing home sales increase, but over a 6 -- probably 6 months to 24-month period, those that choose to reside as a result of that purchase are going to be in the market.

Just want to add to that. I think the macro trends are really important for us to pay attention to, of course. But I think in repair and remodel, there are a lot of markets where we are underpenetrated and are just bringing in ExpertFinish, the 16 different colors, the availability in smooth, which gets us access to the Eastern Seaboard, which we really are underpenetrated. So I do believe regardless of what kind of happens there with existing home sales, I think there's an opportunity for LP Siding to do well in that environment just given our position.

As you think about signing longer term and we get past the current supply-demand imbalance, is it the potential for you to use -- to make siding from Aspen -- Southern Yellow Pine [indiscernible] pine versus the focus solely on Aspen today?

Yes. So a great question. And if you look at our footprint today, it's really around where the Aspen trees are in the northern portion of North America. So we've obviously experimented with Southern Yellow Pine in the past at our Silsbee, Texas facility that did not go very well. And for many years, shied away from that. Now we do believe there's been enough advancements in our manufacturing process. Some of the key raw material inputs to get to -- get us to a point where we feel confident testing that again. We have done some tests and they are looking like it's a favorable option for us to continue down that path, both from possibly putting a mill in a Southern region, but also, "Hey, are there opportunities to increase alternative wood species in our Aspen plants to reduce our costs." So I mean all of that is in play, but we're not at a point in any way to say green light on a facility in the Southern region.

Well, everyone has been very courteous with the clock, 12:04.

Well, thanks for coming, everybody. Really appreciate you joining us today. If you have any follow-up questions, don't hesitate to reach out. And of course, don't take these pictures as evidenced for all these exciting products we're innovating. Come and see us at the booth. You can see the Nickel Gap and the Brushed Smooth and the corners Jason was talking about and all that and the durability of our product relative to the competition. Yes, throw a baseball. So far, we haven't had any torn rotator cups, let's keep it that way, and we'll see you at the booth. Thank you very much for your time.