Louisiana-Pacific Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2023

Key Takeaways

  • LP reported Q1 sales of $584 million (down ~50% YoY due to lower OSB prices) and achieved $66 million in EBITDA with EPS of $0.34, coming in above prior guidance.
  • Despite OSB prices falling over 75% and single‐family starts down 29%, the OSB segment remained EBITDA positive by flexibly managing capacity and growing the higher-margin Structural Solutions mix.
  • The Siding business grew volume 7% and prices 13%, with SmartSide outpacing the market and Expert Finish volume up 26%, reflecting ongoing share gains and mix improvement.
  • LP invested $114 million in Q1, including converting the Seguela mill (+330 million sqft of siding capacity) and closed the $80 million Wawa OSB mill acquisition, which will add ~400 million sqft of future siding capacity.
  • For Q2, LP expects total EBITDA of at least $80 million, siding revenue down no more than 5% YoY, and OSB revenue up ~20% sequentially on improving prices and higher operating rates.
AI Generated. May Contain Errors.
Earnings Conference Call
Louisiana-Pacific Q1 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

Welcome to the First Quarter 2023 Louisiana Pacific Corporation's Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Aaron Howald.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining us to discuss LP's results for the Q1 of 2023 and our outlook for the Q2. As the operator said, my name is Aaron Howald, and I am LP's Vice President of Investor Relations and Business Development. I'm joined this morning by Brad Southern, LP's Chief Executive Officer and Alan Hockey, LP's Chief Financial Officer. During this morning's conference call and webcast, we will refer to an accompanying presentation that is available on LP's IR webpage, which is investor.

Speaker 1

Lpcorp.com. Our 8 ks filing is also available there along with our earnings press release and other materials. Today's discussion will contain forward looking statements and non GAAP financial metrics as described on Slides 23 of the earnings presentation. Rather than reading those statements, I incorporate them herein by reference. The appendix of the presentation also contains reconciliations that are further supplemented by this morning's 8 ks filing.

Speaker 1

And with that, I'll turn the call over to Brad. Thanks, Aaron, and thank you all for joining us to discuss LP's results for the Q1 of 2023. Q1 demonstrated the value of our strategy in a challenging operating environment and in an uncertain housing market. Compared to the Q1 of last year, Single family housing starts fell by almost 30% and commodity OSB prices fell by more than 75%. Despite this decline, we maintained flat siding sales and generated positive EBITDA in our OSB segment, outperforming the underlying market.

Speaker 1

We are currently seeing encouraging signs of strength in housing, including improving commodity prices, and I am confident that LP's businesses will continue to outperform the market. Page 5 of the presentation shows highlights for the quarter. In sum, a much softer housing market drove OSB prices is far below last year's levels with the obvious impact on sales, EBITDA and cash flow. Inflation appears to be easing somewhat, the cost for resins, walls and freight remained elevated pressuring margins. LP's businesses responded by outperforming the market, and we continue to invest in our growth.

Speaker 1

$584,000,000 in sales was about half of the amount from Q1 of last year, with the vast majority of this difference the result of lower OSV prices. EBITDA of $66,000,000 and earnings per share of $0.34 were much lower than last year, again due to difficult comp from last year's very high OSB prices. However, our results were above our previous guidance due to disciplined and efficient operations in OSB and flat Siding revenue. LP invested $114,000,000 in CapEx in Q1, mostly for the conversion of Segola to Saudi. Alan will discuss cash flow in more detail in a moment, but LP ended the quarter with $126,000,000 in cash and just under $700,000,000 in liquidity.

Speaker 1

Safety and OEE were key highlights for the quarter. Safety and efficiency can never be taken for granted, especially in the difficult operating climate of a soft market. This makes our safety and OEE performance in the quarter truly remarkable. Both businesses saw a 2 percentage point increase in OEE and both businesses had a single recordable injury in the quarter. Our goal, of course, is 0 injuries, and 2 injuries in the quarter is too too many.

Speaker 1

While we work to continuously improve mill safety, it is nice to pause and recognize exceptional performance. In the Siding business, our Dawson Creek and Tomahawk Mills each achieved 1,000,000 entry free work hours. And in OSB, the 1st quarter was the best will reflect results for the segment in more than 4 years. We obviously prefer the cash flow to higher OSB prices generated in the Q1 of last year, but it is gratifying to see the value generated by our OSB strategy even in a weaker market. Structural Solutions averaged 46% of OSB volume in Q1, but exited the quarter well above 50% where it has remained.

Speaker 1

Structural Solutions contributes incremental margin regardless of commodity prices. In terms of capacity, Rather than oversupply soft market, we took market downtime, managing our capacity flexibly. And despite the market related downtime, as previously mentioned, we improved operational efficiency performance in OSB. As a result of this relentless focus on execution, The OSB segment stayed EBITDA positive despite the lowest prices we have seen since before COVID. I am very proud of the OSB team for resolve and teamwork demonstrated by their Q1 performance.

Speaker 1

On Slide 6, you can see an update on Siding product mix and growth relative to the market. On a trailing 12 month basis, single family starts in the U. S. Were down 18%, The siding volume grew by 7% and prices were higher by 13% driven by list price increases and improving mix. The pie charts on the right reinforce the improvements in mix within the quarter.

Speaker 1

While SmartSide volume fell by 9 Expert finish volume grew by 26%. I should point out just for avoidance of doubt that while these two charts are on different time frames, With one being trailing 12 months and the other being Q1, the results were broadly the same over a variety of timescales. Any way you look at it, the story is basically the same. SmartSide is growing faster than the underlying market and within that, the mix of expert finish and other higher value add products is growing faster still. To illustrate this, Slide 7 shows normalized growth of volume and revenue for SmartSide Strand Siding relative to single family housing starts over a longer period of time.

Speaker 1

As you can see, LP SmartSide is consistently growing well above the underlying housing market, so we're taking share, expanding addressable geographies and market categories, introducing new products and increasing our focus on the less volatile R and R market segment. The reason for this is clear. LP SmartSide is the best siding product available. It looks great, has a durability to support a 50 year warranty, is easy to install, is carbon negative and is available primed or pre finished at a price point that delivers value to installers and homeowners. As a result, we believe we have a long runway for growth ahead of us in Siding.

Speaker 1

To meet this demand, LP will continue to invest in capacity. Slide 8 of the presentation provides an update for our capacity plan for siding. I am happy to announce that LP's former OSB mill in Seguela, Michigan pressed its first Board of SmartSide in March. Tagalog's conversion adds 330,000,000 square feet of siding capacity, bringing total siding capacity to about 2,300,000,000 square feet and reducing total OSB capacity to about 4,000,000,000 square feet. Speaking of investing in Saudi capacity, you may have seen our recent press release announcing that LP reached a definitive agreement to acquire the Wawa OSB Mill from ForEx.

Speaker 1

I'm happy to announce that the transaction was approved last week and closed yesterday. This investment contributes to our signing strategy by adding to our conversion options and increasing our runway for future growth. Wawa is ideally located with access to labor, logistics and ample sustainable Aspen Fiber, and we are thrilled to engage with our new employees, The local community and First Nations there as we begin planning for the project to convert Wawa to manufacture SmartSide. When converted, Wawa will become LP's largest single line siding mill, adding roughly 400,000,000 square feet of capacity bringing total siding capacity to about 2,700,000,000 square feet. We will provide more details as the project evolves And with the purchase price of $80,000,000 our estimates of conversion costs and the lower execution risk associated with the existing facility, We believe this project will generate a higher return than the previously announced expansion of our Holton Main facility, which is why Wawa will jump the line ahead of Holton Line 2.

Speaker 1

We still plan to expand Holton after the Wawa conversion as customer demand continues to grow. Converting Wawa and expanding Holton would bring total siding press capacity to 3,000,000,000 square feet. And the remaining conversion and expansion options we have already discussed could eventually bring total siding capacity to about 5,000,000,000 square feet, more than double our current size. And this is just press capacity. We continue to invest in growth of expert finish or prefinished siding with our newest facility in Bethany work coming online in Q3 of this year.

Speaker 1

We are investing in our for Siding and Structural Solutions, and we are confident that both have a long runway for future growth. While we are seeing encouraging signs as housing starts so far this year have been above full year consensus. The healthy market is not out of the woods quite yet. Single family starts were down nearly 30 in Q1 with inflation and mortgage rates impacting affordability, and Q2 is looking roughly the same. However, the encouraging signs of housing are beginning to be reflected in our order files.

Speaker 1

While channel inventories and siding remain elevated as is Typical in the months following the end of the managed order file, we are past the Q1 peak in inventory. The Siding order file has seen a notable uptick in recent weeks. In OSB, inventories are leaner as demand and prices have recently improved. The macroeconomic environment remains challenging and near term uncertainties remain in the housing and R and R markets we serve. We remain very confident in our strategy, our execution, our high performance carbon negative products and most importantly all of LP's people will help us continue to outperform the underlying housing market, gain share and expand the markets we serve.

Speaker 1

And with that, I'll turn the call over to Alan to discuss LP's results in more detail.

Speaker 2

Thanks, Brad. As outlined already, the U. S. Housing and the broader macroeconomic environment are significantly more challenging than at this time last year. But I'm happy to report that LP responded by focusing on the factors within our control.

Speaker 2

We exceeded all components of our Q1 guidance, while the market numbers dominating the quarter are the 29% drop in single family housing starts and a nearly 80% drop in North Central Random Lengths Prices for Commodity OSB. I'll refer to Slides 9 and 10 in the presentation to describe just how LP's Siding OSB segments navigated the quarter before moving on to discuss LP's liquidity and capital allocation, including a little more on Wawa. Slide 9 shows the Q1 year over year revenue and EBITDA comparison for Siding. Volume was down 9%, a spread of 20 points over the drop in single family starts. This is due to the combined effects of ongoing share gains, expanded addressable markets and the fact that the majority, about 60% for siding products served for the primary model market and shed applications.

Speaker 2

And while overall volumes may have declined, expert finished volumes did not, rather they increased by 26% year over year, which also helped the mix component of price. The $27,000,000 reduction in volume at roughly a 50% variable margin cost the segment $14,000,000 of EBITDA. Siding's average selling prices were 10% higher than the Q1 of last year. Roughly 6 points of the 10 point increase are from list price increases, namely the combined effect of this January's increase and last year's midyear increase, with the rest coming from a favorable mix and lower rebates. So as expected, higher prices helped offset the volume dropped and as it turned out, they completely offset it.

Speaker 2

This was also a quarter of heavy investment in future capacity. Mill conversion costs were up $6,000,000 year over year, but I need to dissect that statement. This year, we actually incurred $10,000,000 converting sigola to siding, but at the same time last year, we incurred $10,000,000 converting Haulpin to siding. So $110,000,000 conversion cost was basically replaced with another. All that shows up on the waterfall, therefore, is $6,000,000 of unabsorbed operating costs at Wharton, while we proceed with what is turning out to be a slow ramp up given current market conditions.

Speaker 2

So this means that the business is actually carrying $16,000,000 of embedded cost, That is $10,000,000 of Seguela conversion plus $6,000,000 of uncovered costs at Wharton, all in the interest of future growth. This cost is about 5 percentage points of EBITDA margin in the Q1. A second margin headwind came from raw material inflation. Compared to the Q1 of last year, inflation costs tied in $14,000,000 of EBITDA. Now inflation ramps up quickly during the Q2 of last year, While prices remain elevated, we do expect year over year comparisons to begin to ease going forward.

Speaker 2

So again, in a quarter of high inflation, much lower housing starts, lower volumes and the impact of converting and ramping up Segola, the Siding segment delivered $67,000,000 in EBITDA for a margin of 20%. And to demonstrate the long term potential of the segment, even All else equal, adding back either the $16,000,000 of mill ramp up and conversion costs or the $17,000,000 of inflationary impact, we build an EBITDA margin above 25%. The OSB waterfall on Slide 10 is inevitably dominated by price changes. This year the bar is red and given that prices have returned to earth and while the largest number on the bar by far is the $470,000,000 drop in revenue and EBITDA Due to these lower prices, it's also where I'll spend the least time. Rather than price, the story of the quarter is how well the team responded to this much to the environment by managing with efficiency and discipline and delivering positive EBITDA in this very challenging environment.

Speaker 2

The majority of LP's OSB is consumed in new residential construction and disproportionately by single family home construction. With single family starts down 29% in the quarter, LP's OSB volume was down proportionately. Production was lower year over year by nearly 300,000,000 square feet, which is about 30% of nameplate capacity, including $100,000,000 down due to the conversion of Segola from OSB to Siding. The remaining volume reduction of roughly 200,000,000 square feet resulted from LP's market curtailment, which To minimize the cost and freight impact on the OSB network, we concentrated in our highest cost and less remote deals. While commodity volume was essentially flat, structural solutions volume was down 154,000,000 square feet.

Speaker 2

Now this may be a reflection of increased price sensitivity among builders looking for ways to keep homes affordable for their customers. However, our price realization was very strong, in large part because Structural Solutions prices held up significantly better than commodity prices. So while commodity prices were down 76% year over year, Structural Solutions prices fell by only 58%. And so in this market, the OSB segment managed both capacity and cost with both discipline and focus to generate this positive $5,000,000 of EBITDA. Which brings me to cash flow and capital allocation.

Speaker 2

Referring now to Slide 11, LP began the quarter with $383,000,000 in cash and generated $66,000,000 of EBITDA. The Q1 of every year is typically one of working capital build and the $144,000,000 of outflow due to working capital breaks down roughly as follows: $45,000,000 of log inventory was gathered in preparation for spring breakup in Northern Mills, together with $25,000,000 of finished goods build across the network for a total of $80,000,000 of inventory build. We also paid about $60,000,000 in year end accruals, including $30,000,000 of customer rebates. All of this is typical 1st quarter activity. After paying $33,000,000 in taxes, we had an operating cash outflow of $119,000,000 The Q1's capital spend of $114,000,000 will most likely be our heaviest in 2023 due to the inclusion of the Segola conversion and the Bath, New York refinishing facility.

Speaker 2

The resulting drop in cash of $257,000,000 still left LP with $126,000,000 of cash at quarter end. The 2nd quarter is shaping up to be very different for capital allocation, so perhaps a preview is in order. As is typically the case, In the Q2, working capital should be a source of cash, largely due to inventory consumption. And CapEx should also be lower than the Q1 by about $20,000,000 And as Brad mentioned, LP recently announced the acquisition of the Wawa OSB facility from PROX for $80,000,000 This has been financed entirely using existing funds. So we're very excited about this acquisition, which significantly enhances our growth strategy and we're very happy to have the borrower employees join our team as we prepare it to be our next fighting goal.

Speaker 2

We also made the difficult decision to close Entekra. We're disappointed that the deteriorating housing environment in Northern California necessitated this action, and we regret the impact that the closure will have on the Entegra team. But ultimately, we determined that LP's capital is better invested in our core businesses. As a result, in the second quarter, we expect to report a non cash write down of the remaining Antecora assets of roughly $25,000,000 as we wind down the business over the course of the quarter. Which brings me to guidance on Slide 12.

Speaker 2

The housing market remains uncertain Despite green shoots as the spring building season ramps up, publicly traded homebuilders have referenced encouraging strength in their order patterns. However, with total staff down, this can only mean that smaller builders are seeing reduced demand. Mortgage applications remain quite sensitive to interest rates and stubbornly high prices present a continued challenge to affordability. As a result, we still lack sufficient clarity to offer full year guidance. Our best read of our current order files suggest that Siding's 2nd quarter revenue will be similar to that of the Q1.

Speaker 2

And this would mean volumes being down year over year, but substantially outperforming the anticipated drop in single family housing starts. Year over year price increases will again partially offset the volume drop such that second quarter revenue for Siding is expected to be no worse than 5% lower year over year. For OSB, prices have improved recently, such that if we assume prices hold flat at current levels, the OSB business would expect to see revenues of about 20% sequentially higher than the Q1. This assumes increased operating rates based on current demand. Under these assumptions, LP total EBITDA for the Q2 would be at least $80,000,000 So let me conclude with this.

Speaker 2

LP's strategy is to grow the specialty components of our business thereby reducing our dependence on cyclical housing in volatile commodity prices. With OSB prices where they were over the last 2 years, almost any strategy would have resulted in tremendous cash flow. Perhaps a better test of our strategy is a market more like the one we have now. The 30% drop in single family starts presents a true test of whether SmartSide can continue to outperform the market by taking share without simply relying on the rising tide of housing. It's also an opportunity to demonstrate that LP's OSB segment can breakeven at recent low prices by the combined effects of disciplined capacity management, efficient operations and maintaining a consistently positive incremental contribution from Structural Solutions.

Speaker 2

And lastly, it's a test of LP's capital allocation and business development strategies as well as our result to use our strong balance sheet to invest in these strategies when opportunities arise, not simply when we're flushed with cash. The Q1 of 2023 was the first such test and surely it won't be the last, They'll be responded by demonstrating our commitment to our strategy and the value it can deliver. And with that, we'll be happy to take your questions.

Operator

Thank you. Our first question comes from Mark Weintraub with Seaport Research Partners. You may proceed.

Speaker 3

Thank you. A couple of questions on Siding. One is, You talked about some positive indications order file wise, but it doesn't look like you're assuming much in the way of volume improvement from the Q1 to the Q2. First of all, is that a Am I right making that assumption? And maybe if you could provide a little bit more color on the thought process there, if that is indeed the case?

Speaker 1

Yes, Mark, you're right. And while we are seeing some strengthening in the order file, we are still working through elevated inventory levels within the channel. And so the revenue that our channel partners are seeing is not yet fully impacting our order file. And we believe it's going to take most of Q2 to work through that elevated inventory level within the channel.

Speaker 3

Okay. And then, you mentioned that there was about $10,000,000 in start up costs in the segment in the Q1. Is something along those lines or what's anticipated for the 2nd quarter. And really what I'm sort of trying to figure out is why the $80,000,000 guide, I realize it's $80,000,000 plus for the Q2. Given that we're going to be higher presumably in OSB, you talked about the 20% improvement in revenue.

Speaker 3

And I guess I would have thought that we get some well, again, maybe specifically what is there Also start up costs in Siding in the Q2?

Speaker 2

It's a great question, Mark. There are some start up costs in Siding in the 2nd quarter, but they are They will be lower than the Q1. And yes, to sort of offset the answer to the question, There is inevitably some conservatism built into the $80,000,000

Speaker 3

Okay, very good. I'll hand it over for now. Thanks so much.

Operator

Thank you. Our next question comes from Ketan Mamtora with BMO Capital Markets, you may proceed.

Speaker 4

Thank you. Brad or Alan, can you give some additional color on how the Shed business did in Q1?

Speaker 1

Sure, Ketan. I would say, the shed business is probably one of our Slower performing segments right now. There was I would say of all the segments that we played in during COVID, I do think there were some pull forward demand in shed. We have seen some more recent recovery there, But it's a mix of our portfolio. It's certainly underperforming at the moment the rest of the portfolio.

Speaker 4

Understood. And then switching to the VAMU conversion, Alan, is there any way to think about at a high level, how would you have us think about sort of the additional conversion costs that might be there for this for the conversion to siding?

Speaker 2

Yes, we're still working through obviously, we have only just acquired it yesterday. Obviously, we did some due diligence. So we're still working through what those numbers would be. But if you think about the fact that the return, the IRR of this Project is will be similar to the Holton II conversion and this will be slightly bigger. Then there's obviously going to be some sizable conversion CapEx.

Speaker 2

The moment we have those numbers nailed down, We'll be happy to share them just as we did with the Alton two numbers, but it will be sizable.

Speaker 4

Got it. Okay. And how are you thinking about the timing of the Vava Mill at this point?

Speaker 2

Currently thinking that it would be Q4 current model, just to give you a benchmark Q4 2026. Let's do it. That's right. I got a strange Aaron's pulling her face at me. I might as well share the room.

Speaker 1

It will be demand dependent. It will.

Speaker 2

Of course. That's our working model right now.

Speaker 4

Sorry, which year did you say, Alan?

Speaker 2

2026.

Speaker 4

2026. Okay, got it. I'll jump back in the queue. Thank you.

Operator

Thank you. Our next question comes from Paul Quinn with RBC. You may proceed.

Speaker 5

Yes, thanks very much guys. Just wondering what the state of Wawa is. I mean, I know the company was trying to convert it back from the telepoint. Is it On Chaney, OSB Mill at this point or is it close or how much work is entailed just to get it back to OSB Mill?

Speaker 1

Yes. Thanks, Paul. I'll take that. This is Aaron. It's going to be a substantial amount of work to get it to the point that it's a functioning OSB mill.

Speaker 1

The advantage for us is that the Current state of the construction project is kind of ideal for us to step in and redirect that conversion so that we can convert it efficiently to siding. So it's not currently producing OSB. It would be a while before it could if we plan to do so. But we've got a fair amount of work to do to kind of complete the project and completed as a siding mill.

Speaker 2

Okay. That's helpful. And then just

Speaker 5

over on expert finish, great to hear that it's up 26%. Just wondering what percentage of overall siding volume that represents now and what's your operating rate for the expert finish lines that you've got going right now?

Speaker 1

The operating rates for the lines are pretty low. Paul, we continue to, a, from an OED standpoint, we're learning how to produce Product, but also the capacity there is relatively inexpensive. So we're ramping into that. And certainly, when we have the bat In Q3, we're going to have plenty of capacity there. There has been times in our order file, especially last year, where we were constrained with the expert finish capacity.

Speaker 1

And while those can be tight now currently, we're okay as far as that Balance between capacity and sales at the moment, but we certainly need the Bath New York like to come on and we need to be running those lines better. And then as far as your question on mix of expert finish, it's about 9%.

Speaker 5

Okay, that's great. And just with respect to your builder series line, one of your competitors back in the market with their I was wondering if you noticed any drop in order file on that given also the weak single family bill.

Speaker 1

No, Paul. I would say not. We have not seen a drop in the order file that I would directly attribute to that. I will say the competitive environment for new deals has certainly stepped up the competitive nature there, Given that reintroduction, but not necessarily, as far as I know, translated into a loss of any volume we had secured previously.

Speaker 5

Okay, great. And the last one for me just on South America. Can we expect any change through the balance of 23 from that segment?

Speaker 1

Yes. I think it's pretty consistent with how it performed in Q1. I mean, there'll be some ups and downs as we go through the year. We're hoping to see some strengthening in the other underlying economy, especially in Chile throughout the year, But we're not ready to call that right now.

Operator

Great. That's all I had. Thanks guys.

Speaker 2

Best of luck. Thank you. Thanks Paul.

Operator

Thank you. Our next question comes from Susan Maklari with Goldman Sachs. You may proceed.

Speaker 6

Thank you. My first question is on Siding. You obviously are realizing some nice pricing there. You did mention that The channel still has some inventory that they'll work through in the Q2. How are you thinking about the dynamics though of price versus volume if those inventories do Stay elevated longer.

Speaker 6

Are you willing to take some of that down or what will be the plan there?

Speaker 1

Yes. We are not contemplating a price decline from a price list standpoint, Susan. We've never done that in the At least 20 years or so, I've been associated with the Siding business. I will talk that the way that plays out dynamically in the market is as we negotiate primarily builder or contractor deals, obviously, volume can be Sure. Sometimes it's back end rebates, especially with the larger builders and the large regional builders.

Speaker 1

And so as we as the environment gets more competitive, The kind of the negotiating power moves a little bit more into the end use customer rail. And so it can get manifested in our rebate strategy as far as securing new business. But there's no plan It all to lower list pricing across our signing portfolio.

Speaker 6

Okay. That's helpful. And then thinking about the CapEx guide that you've put out, suggests that perhaps In the Q2, you could see your cash from ops higher than your CapEx spend. Can you talk a little bit about how you're thinking about capital Any appetite to bring back the buybacks at this point and anything else we should be thinking about there?

Speaker 2

I don't think given that CapEx may be lower than our operating cash flow in Q2, but we will be paying $80,000,000 for Wawa. So there will be pretty heavy investment outflows in the second quarter. And so I don't just if I look at the cash patents that I think we'll see for the remainder of 2023, I'm more inclined should there be a modest upside in cash flow to use that for the operations. I don't based on trends I'm seeing today, I don't see share buybacks For the remainder of this year. I know, but I just hope I'm playing wrong.

Speaker 6

Okay. Thank you, Alan, and good luck with everything.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from George Staphos with Bank of America. You may proceed.

Speaker 7

Thanks, everyone. Good morning. Thanks for the details. Hey, Alan, Brad, can you talk a bit about lead times on press equipment and what you'd be needing to convert Huawei. I know on kind of traditional press equipment, at one point in time in the last year, I think lead time From what we're hearing, we're in the 18 month timeframe.

Speaker 7

I would imagine that has lessened in the last year or so. But if you put the order in today, when would you be able to start bolting the equipment down on the factory floor from what you could share with us?

Speaker 1

Well, just let me talk generally. I mean, there is a press in Wawa that we're planning to use. So there's a lot of initiatives on the press, which is meaningful to the timing of this project, George, to your point. And then, what we're one of the things that we're looking at now is we have been in the process of securing orders and materials still, fabrication time for the Holton Line 2 conversion.

Speaker 7

Sure.

Speaker 1

The work that we'll do this quarter is to understand how much of that can be transferred over to the Wawa mill conversion directly as far as the engineering goes. And so I would say that And I'm not at this moment, I'm not really concerned about timing any more than I would have been about Holt and Line 2 because of what we're having to do with Wawa. And I'll just a little bit of color there. The Holtamont II was a pretty Complex conversion for us because we kind of used all the easy space and the existing equipment other than the green on Holtin Line 1. So there was a complexity element there that was not there on Holtin Line Colton on 1 or even for Insegola for that matter.

Speaker 1

So it kind of makes these two projects Somewhat similar as far as potential timing if we wanted to ramp them up as quickly as possible.

Speaker 7

And Aaron had mentioned, when the question come up and Alan was answering about, when you expect it to be starting up and it's going to be Demand specific, which in turn means you're going to be looking at certain metrics in terms of triggering when you'll go forward. If you were in our seat, what level of housing repair model would be kind of the go, no go or the go signal in terms of starting up the accelerating the conversion and going forward?

Speaker 1

Well, I would say just from an acceleration standpoint, I would say the earliest we could do that if we was kind of all out on it was having probably Board approval later this year from design standpoint and then at least a year from that point to get it converted And then operating from 0, since it's not making anything now unlike all our other mill conversions. So we're looking To balance 0.25 20.25 probably as the earliest, Maybe middle of 2025, perhaps Q2 of 2025, but more realistically 2026. And so from a market standpoint, if housing Got back to where it was 12 months ago. I could see us in a the quicker that happens, the more pressure it's going to be on us to convert that mill. But I was also saying the Segola mill is a significant conversion for us that we're just getting started on right now as far as selling it out.

Speaker 1

And as Alan mentioned in his remarks, we're still not going to utilize the Ultimate Line 1 yet. So we do have significant capacity coming online right now. So I'm not too concerned about us. I mean, other than a spike in new home construction after This kind of uncertain environment we're in today, I'm not too concerned about our ability to miss a window there in Wawa.

Speaker 7

Thanks, Brett. One last question for me on Siding. So you talked a little bit about, I guess, to some degree, some pickup in competitive activity, given one of your peers reintroduction of one of their product lines That's a little bit more, if you will, affordable. Specifically within your product categories, are you seeing more demand for builder series and more momentum there? How would your volumes have shaken out or how did they shake out in the Q1 between Filter Series and the other perhaps higher end products in siding?

Speaker 7

Thank you.

Speaker 1

Yes. George, that's a kind of complex question because we play in so many different segments. If I would just say within the lap siding category, builder series is out growing the non builder shares product. And I really attribute that I mean from a volume standpoint, obviously, it's off a smaller base, But also the strength right now in housing is we have the bigger national builders and the large regional builders, Which tend to be our well, it's not tend to be, which is the target of our builder series introduction. So as we see that continued strength in the with the big builder, that's going to tend to put a lot volume more into that category than to our traditional lap siding, 16 foot lap siding product.

Speaker 1

Now a whole different story on R and R and expert finish where it's mostly But certainly within that, built single family construction new construction category Lapsiding the strength is in Pillar Series.

Speaker 7

Thank you, Brett.

Operator

Thank you. Our next question comes from Michael Ruxan with Truist Securities. You may proceed.

Speaker 8

Thanks, Brad, Alan, Aaron. Congrats on a very good quarter.

Speaker 2

Thank you. Thank you. Thanks, Mike.

Speaker 8

Alan, just last quarter you provided some color on the EBITDA bridge by segment. I'm just wondering if you could do the same this quarter as it relates to the $80,000,000 least $80,000,000 in EBITDA that you are forecasting. Just help us frame how signing an OSB stack up in that guidance, please?

Speaker 2

Yes. I wanted just to sort of revisit Q1 from the principal reason that I broke the EBITDA down by segment was because The number was fundamentally so low that we guided to $35,000,000 I didn't want anyone to think that that was Siding's unique performance. So I wanted to call out the expectation at least at that point that we might have negative EBITDA in Siding sorry, slip of the tongue that we might have negative EBITDA in OSB, which turned out not to be the case. So with the $80,000,000 I will at least give you this, deciding performance is going to be similar ish. If you think about my answer to Mark Weintraub's question that opened the Q and A session, It's going to be similar to Q1.

Speaker 2

And as is normal, if you look at our Q1 results, you'll see that Corporate and South American EBITDA kind of broadly set off offset rather. So I think Without being drawn further, I think I've given you almost everything. You need to know the balance of that $80,000,000 without actually saying it's criminally. So That's correct again.

Speaker 8

We don't mind being you being very explicit, so.

Speaker 2

Call us again.

Speaker 8

That's helpful. Thank you. The second question, I just I want to get a sense of How you guys are thinking about the Segola ramp, particularly given that you slowed Holton last quarter. You mentioned you still want to work down inventories through the balance of the year. So how is that how are you thinking about ramping given the given those conditions?

Speaker 1

Just generally speaking, when we're in the process of ramping a mill like Segola or like Holton last year, we do We like to push the volume there to give the machinery and the crews the opportunity to learn how to make siding. So we'll be as we go through this year, the tendency is for us is going to be it's going to want to match Their capability of putting orders in there, and then which is what we're doing now as the goal is coming up, We're back and all hit back off a little bit on Holton as a priority, given the need to balance production. But so that is kind of a color on how we think about Segolah. I will say other than that, we would probably we would kind of spread, if we have to take production related downtime, We spread that across the system, generally speaking, and some of that is due to the fact that these mills have special type of SKU Capability, some plants can or cannot make certain SKUs. So that will tend to spread the downtime around a little bit.

Speaker 1

So I mean but directly to your question, we will prioritize volume in the Civil this year to ramp that mill up.

Speaker 8

Got it. Thanks very much and good luck in 2Q.

Speaker 1

Thank you. Thanks Mike.

Operator

Thank you. Our next question comes from Sean Steuart with TD Securities. You may proceed.

Speaker 9

Thank you. Good morning, everyone. Just one question And appreciating you've just rolled out your 2023 CapEx budget, but

Speaker 5

that number is a

Speaker 9

little bit more conservative than we were forecasting, which I guess makes Given the resequencing of signing growth initiatives, would it be fair to say as you look into 2024 that You would expect CapEx to ramp up a little bit as you get into, I guess, Wawa spend to convert that asset and start to think about the next stage after that. Is that a fair assumption as we look ahead to 2024?

Speaker 2

Let me take a hint from Aaron. Obviously market dependent, but it's a Pete, the whole dog can learn new tricks. But it is One of the things we tried to convey with the broad range of capital guidance that I gave last quarter, which was broader and larger than the numbers that are in our press release right now. Yes, there's a huge amount of capital flexibility. And I hope quite frankly that yes, we see increased capital spending in 2024 compared to our current projection for 2023 and kind of full scope.

Speaker 9

Understood. Rest of my questions have been answered. Thanks very much guys.

Speaker 1

Thank

Operator

you. Our next question comes from Mark Weintraub with Seaport Research Partners. You may proceed.

Speaker 3

Thank you. Not wanting to get too much into the weeds, but sort of interesting, I would have thought that Wawa might have serviced similar markets to Halton. And maybe just some color kind of geographic product mix of how you imagine the Wawa Project proceeding relative to what you were thinking about Halton second line and what implications Might we want to be thinking through as to how the second line at Holton would progress if indeed that were the case?

Speaker 1

So the two advantages Wawa has over the plan that we had for Holton II, one is press size the size of the press, The capability of the project will be a lot greater as I think was in the prepared Yes, to be one of our larger what will be our largest one line siding mill. So that volume really helps You'll make the decision about that as

Speaker 5

the next mill over Holton.

Speaker 1

But then also the central location and the wood basket For Huawei, it also provides a second advantage. And so when we so And that I want to say that but more so than anything, it was just the assumed financial return on the 2 projects swayed us to putting Wawa in front of Holton. I mean, certainly believe Holton will be the next conversion after Wawa is up and running. The advantage for Fulton is that access to the Eastern seaboard where we're under penetrated, but obviously we've got a lot of capacity on Fulton 1 for the near term satisfaction of that demand. So but Mark, to answer your question, it's just The production size, the capability or the capacity of the facility in Wawa and the quality of the wood basket there in the central location Got it.

Speaker 1

From an overall freight standpoint.

Speaker 3

Fair point. So basically, it can service a broader geography than Holton is one point. And then I guess, so in terms of the like panel or lap focus, is there a bias for the Wawa facility like there for Halpin.

Speaker 1

No. Lalal will be very flexible across both potentially for both panel and lap. And so we're not we haven't made the decision on which of those products to emphasize as far as the finishing capability of the facility, but it provides flexibility there.

Speaker 3

Super. Thanks so much.

Operator

Thank you. And this concludes the Q and A session. I'd now like to turn the call back over to Aaron Howald for any closing remarks.

Speaker 1

Okay. Thanks, Josh. With no further questions, we'll bring the Q1 earnings call for Healthy Building Solutions to close. I look forward to catching up with you all soon. Thank you very much.

Speaker 1

Thank you. Thank you.

Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

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