Good morning. My name is Valerie, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's First Quarter 2020 Conference Call. Before we begin, I want to remind you that this call may contain forward-looking statements about the company's future business prospects and financial performance. These statements are not guarantees of future outcomes, and the company does not have an obligation to update them. Although these statements reflect management's expectations today, they are subject to various business risks and uncertainties. Actual results may differ significantly from those expressed or implied in this call. For a discussion of factors that may lead to differences between actual results and anticipated outcomes, please refer to Boise Cascade's recent filings with the SEC. It is now my pleasure to introduce Wayne Rancourt, Executive Vice President, CFO, and Treasurer of Boise Cascade. Mr. Rancourt, you may begin your conference.

Thank you, Valerie. Good morning, everyone. I would like to welcome you to Boise Cascade's first quarter 2020 earnings call and business update. Joining me on today's call are Nate Jorgensen, our CEO; Mike Brown, Head of our Wood Products Operations; and Nick Stokes, Head of our Building Materials Distribution Operations. Turning to Slide 2, I would point out the information regarding our forward-looking statements. The appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income to segment EBITDA. I will now turn the call over to Nate.

Thanks, Wayne. Good morning, everyone. Thank you for joining us on our earnings call today. On slide number 3, our first quarter sales of $1.2 billion were up 12% from first quarter 2019. Our net income was $12.2 million or $0.31 per share compared to net income of $11.4 million or $0.29 per share in the year ago quarter. Reported net income for first quarter 2020 includes $15 million of pre-tax accelerated depreciation and $1.7 million of other curtailment related costs, or $0.32 per share after tax due to the permanent curtailment of our I-joist production at Roxboro, North Carolina facility. Our operating performance in both businesses was strong demonstrating the strength of our integrated business model. Our Wood Products manufacturing business reported segment income of $3.8 million in the first quarter compared to $11.6 million in the year ago quarter. The first quarter of 2020 results include the Roxboro previously mentioned charges. Our Building Materials Distribution business reported segment income of $29.3 million on quarterly sales of $1 billion for the first quarter compared to $17.5 million of segment income on quarterly sales of $908 million in the comparative year quarter. Wayne will walk through the financial results in more detail, then I'll come back to provide an update on our ongoing response to COVID-19 and its impact on our businesses and our outlook before we take your questions. Wayne?

Thank you, Nate. I'm on Slide 4. Wood Products sales in the first quarter, including sales to our distribution segment, were $320 million flat with first quarter 2019. As Nate mentioned, Wood Products reported segment income of $3.8 million in the first quarter, compared to $11.6 million in the prior year quarter. A decrease in segment income was due primarily to accelerated depreciation of $15 million and other closure related costs of $1.7 million at our Roxboro facility as Nate mentioned. Reported EBITDA for the business was $33.4 million, up from EBITDA of $25.4 million reported in the year ago quarter. Higher EWP volumes and lower manufacturing costs contributed to the improved EBITDA performance compared with first quarter 2019. Lower plywood pricing was a drag on first quarter 2020 comparative performance. BMD's sales in the quarter were $1 billion, up 16% from first quarter 2019. Sales volumes were up 17% while sales prices declined 1%. The business reported segment income of $29.3 million or EBITDA of $34.6 million in the first quarter. This compares to a segment income of $17.5 million and EBITDA of $22.6 million in the prior year quarter. The increase in segment income was driven primarily by a gross margin increase of $24.6 million resulting from improved gross margins on commodity products and higher sales of general line products in EWP compared with first quarter 2019. This improvement was offset partially by a $12.2 million increase in selling and distribution expenses. The amount for unallocated corporate costs and other items impacting our reported EBITDA can be found in the tables of our earnings release. The net of those items was negative $8.4 million in the first quarter of 2020 compared with negative $7.3 million in the first quarter of 2019. Turning to Slide 5, our first quarter sales volumes for our I-joist and LVL were up 14% and 8% respectively, compared with first quarter 2019. Housing start activity was quite strong at the beginning of the year as favorable weather combined with good economic factors created robust demand for new single-family residential construction. We didn't begin to see much of an impact of the COVID-19 induced slowdown in the pace of new single-family construction until the latter part of March. We adjusted our EWP mill operating schedules early in the second quarter to be in-tune with the changing demand situation and to avoid building excess inventories. Pricing in the first quarter for I-joist was up 1% and LVL pricing was down 2% compared with first quarter 2019. Turning to Slide 6, our first quarter plywood sales volume in Wood Products was 318 million feet, compared to 336 million feet in first quarter 2019. We were able to push a higher proportion of our veneer production into EWP in the first quarter given the solid demand fundamentals. The lower volume for plywood sales reflects the sale of the Moncure Plywood facility during first quarter 2019. The average plywood net sales price in the first quarter was $267, down 7% from first quarter 2019. Plywood pricing showed nice momentum throughout most of the first quarter, but orders began to weaken in March as distribution customers significantly slowed their buying and worked down inventory levels in response to the COVID-19 pandemic. Declines in demand led to weaker prices in April. Plywood pricing thus far in the second quarter is approximately 5% below our first quarter 2020 average. Moving to Slide 7, BMD's first quarter sales were $1 billion, up 16% from first quarter 2019, with volumes up 17% and pricing down 1%. By product area, BMD's commodity sales increased 11%, general line product sales increased 23%, and EWP sales increased 14%. The gross margin percentage for BMD in the first quarter was 12.6%, up 80 basis points from the 11.8% reported in the first quarter of 2019. Gross margin increase resulted from improved gross margins on commodity products and higher sales of general line products in EWP compared to the first quarter of 2019. As a reminder, our general line products in EWP that we serviced through our branches tend to have higher gross margins, but also higher associated sales and handling costs. BMD's EBITDA margin was 3.3% for the quarter, up from the 2.5% reported in the year ago quarter. Robust construction activity in the first few months of 2020, as evidenced by seasonally adjusted housing starts of around $1.6 million, drove sharp increases in commodity products pricing that peaked in mid-March. However, concerns and uncertainty about the impacts of COVID-19 since then have negatively impacted residential construction activity and building products demand resulting in curtailments of production across the industry and a sharp decline in commodity prices. Current composite panel lumber prices are approximately 15% below the peaks of mid-March 2020. We anticipate the commodity products pricing in the second quarter will remain at current low levels, which will be similar to the price levels experienced in the second quarter of 2019. Slide 8 shows the roller coaster ride of lumber pricing in the first four months of 2020. Most of the major lumber producers have adjusted operating rates in response to the demand situation, which should help stabilize pricing once end market consumption is more predictable and the supply chain becomes more comfortable establishing inventory positions. On Slide 9, one can see the same pricing pattern for the random length composite panel index. Again, there've been significant curtailments by many of the OSB and plywood producers in response to downstream supply chain behaviors. On Slide 10 we have set out the key elements of our working capital. Company net working capital, excluding cash, income tax items, and accrued interest increased by $91.5 million during the first quarter, representing a seasonal use of cash. The seasonal increase in accounts receivable and inventories was not fully offset by the increase in accounts payable. As is normally the case, we also used cash to pay out incentive compensation and customer rebate accruals during the quarter, reducing accrued liabilities. If business conditions remain meaningfully weaker for the balance of the second quarter, I would expect our working capital levels to fall by the end of June and result in additional cash generation. The statistical information filed as Exhibit 99.28 to our 8-K has the receivables, inventory, and accounts payable detail, broken down by segment for those interested. I'm now on Slide 11; we finished first quarter with $215 million of cash. Our total available liquidity at March 31 was approximately $560 million which reflects our past and availability under our committed bank line. We had $440 million of outstanding debt on March 31 with no maturities prior to 2024. We were originally targeting capital spending in the $85 million to $95 million this year, but we reduced the plan to between $50 million and $70 million in light of the expected lower cash flow from the businesses. The reduced spending level includes funds to complete the log utilization center improvement project at our plywood and veneer facility in Florien, Louisiana as well as BMD’s store shop expansion in Dallas, Texas. We expect our effective book tax rate to be between approximately 25% and 30% going forward with potential adjustments under the CAREs Act. I will turn it back over to Nate to discuss our COVID-19 business update as well as the outlook.

Thanks, Wayne. I'm on Slide number 12, our first priority during the crisis continues to be the health and safety of our associates and those with whom we do business. It is important that we continue to support community efforts and conduct our business appropriately based upon the guidance from the CDC among others. In anticipation of weaker business conditions over the next several quarters, we reduced our capital spending plans, adjusted manufacturing production levels, and implemented a number of actions to preserve cash and reduce expenses. We have further actions identified that we will implement as we move deeper into the quarter if it becomes apparent the demand environment and economic outlook is unlikely to reverse in a reasonable timeframe. We have the experience of the last financial crisis to lean on in planning our COVID-19 response. However, we believe the early actions at the federal level to respond with fiscal and monetary stimulus are likely to mitigate the depth of the economic damage and shorten the path to recovery. We are already seeing actions to thoughtfully reopen portions of the economies in states where the curve of infections has flattened, which provides us hope that we will see a return to normal activity in a much shorter period than following the 2009 financial crisis. I’m on Slide number 13, the blue-chip consensus for U.S. housing starts was last published at an expectation of 1.16 million for 2020. We would expect the consensus to fall between 1 million and 1.1 million housing starts over the next several weeks, but the second half of the year is very hard to predict. The new start rate and progress completion rate for single-family new construction has slowed considerably as we have moved through April. Many builders have scaled back their construction of spec homes. Order cancellation rates have increased for many builders, and safe distancing practices have extended construction timeframes. All those factors led to near-term consumption of the products we produce and distribute. The COVID-19 pandemic and the ripple effects negatively impacted BMD’s sales pace in April by approximately 13% per day as compared to March. Our sales volumes declined as residential construction activity slowed in markets constrained by shelter in place orders and in other markets as a result of builder construction pace adjustments, including heightened construction site safety measures. We also experienced revenue deflation from lower prices for commodity wood products during the month of April relative to the first quarter of 2020. We expect the COVID-19 pandemic impact to result in sequentially lower sales and earnings in the second quarter in both manufacturing and distribution as states slowly reopen their economies. Because we continue to be categorized as an essential business in the vast majority of jurisdictions, we are in an excellent position to respond quickly to support our customers should demand rebound more quickly than expected. BMD is maintaining high service levels with the on-ground in-market inventories and is helping our customers make effective use of their working capital dollars. With uncertainties in demand and difficulties in judging the appropriate operating rates, commodity wood products pricing could be volatile in the months ahead, we will react appropriately. We will continue to be guided by our values of safety, integrity, respect, and pursuit of excellence. We will successfully get to the other side of this crisis by centering on the health and safety of our associates and making sure we use our operating and financial strength to the benefit of our customers, suppliers, communities, and shareholders. Thank you for joining us today and for your continued support and interest in Boise Cascade. We would welcome any questions at this time. Valerie, would you please open the phone lines?

Our first question comes from Brian Maguire of Goldman Sachs. Your line is open.

I appreciate the comments on the 2Q outlook there and I guess it sounds like things obviously decelerated a lot towards the end of 1Q and into April, down 13% in BMD. I just wanted to clarify if it was quarter-over-quarter or year-over-year, how you were talking about that. And then, have you seen any week-over-week improvement as we've gotten into early May here, any signs of green shoots or activity resuming or are we sort of still trying to find a bottom on some of these numbers?

Brian, this is Wayne. The 13% refers to the comparison of the daily sales rate from March to April. This figure is influenced by both price declines and volume decreases. Our pace slowed toward the end of March and into early April. However, as some states that previously classified construction as non-essential begin to reopen, we're noticing an increase in sales activity. Overall, there seems to be a positive sentiment as states move toward reopening. In May, the initial week has shown decent volumes, and I think this is partly due to dealers feeling more secure about restocking their inventory. From what I gather anecdotally, there's a sense of urgency to not miss out if the pace picks up; people want to avoid being understocked. They are less worried about holding inventory at these price levels that might be discounted later. Therefore, we're observing both an uptick in field activity and greater confidence in replenishing the supply chain.

You mentioned some other cash actions you could take if the situation worsens, and we hope it doesn’t come to that. However, can you provide any more specific details on the other options you have?

Yes, I mean, it's the same laundry list that we put together in 2009. And again, I would hope that we don't have to take these, but the ones that have been implemented already are what I would describe as somewhat easy to do, to reduce capital spending, try not to fill open positions, salary freeze, et cetera. The other suspects that would be on the list if this got a lot worse and if we found ourselves in something that looked like 2009 and '10, obviously we can reduce compensation at the senior management level. That already happens automatically because there's a considerable amount of our pay that’s variable. But we can look at base pay reductions, reductions in director fees, salary cuts more broadly. We would probably eliminate more positions. One of the things I think you'll see us doing in the short-term is trying to protect salary positions, particularly in talent areas or geographic locations where it's really hard to refill positions. We're likely to try to protect those salary positions over the next several months while we see how this plays out. Personally, I would probably try to maintain the base dividend, but I would be very surprised to see us pay any supplemental dividends or do share repurchases in that kind of a downside environment. We would certainly try to maintain as much liquidity on the balance sheet as possible.

But Brian, just to maybe add to that, as Wayne described, we have a number of different scenarios that we're looking at in terms of what it could potentially be in terms of business conditions and the business environment as we move forward. So I think we've got the right optics and the right metrics in front of us in terms of what that needs to look like. And as Wayne described, we can use some of the same cost reduction actions that we've done in prior years if needed. However, as we finished off April and headed into May, it's encouraging to see business levels slowly stabilize and respond positively. So we feel good about our cost position as we sit today; I think we're prepared to do something different if required.

I have one last question for Wayne regarding receivables. Are your customers requesting extended payment terms? I'm also interested in the potential for bad debt expense to rise if we see collections lag due to other issues some customers may be facing in this environment.

As a general rule, we are very conservative with credit, and during the last downturn, we had minimal write-offs. I expect that to remain true now since we have the same credit team in place. Several customers have reached out requesting extensions, and I believe Nick and his team have generally responded by assuring customers that we will uphold our commitment to have the inventory available for them, including both trucks and support. We anticipate that our customers will keep their promise to pay us on time and within agreed terms. So far, this has been received reasonably well. We began observing modest shifts in April, which I expect to increase if the slowdown continues. There has been more activity from warehouses and fewer direct shipments from manufacturers. Particularly with commodity products, many mills have 10-day terms, while we often allow for 30-day terms. If activity slows down through the channel, I expect that more dealers will begin to depend on two-step distribution instead of taking shipments directly. Several of our wholesale competitors are currently facing significant balance sheet stress. Their public comments indicate they are reducing personnel and inventory. As we saw in 2009 and 2010, maintaining stock and having on-the-ground inventories allowed us to respond quickly and capture business activity. This approach will likely help cushion any decline. We will continue to support customers we are confident will remain viable, helping to prevent significant bad debt losses. We will not pursue business from customers being denied credit or from wholesalers we believe may not survive if conditions worsen.

Our next question comes from Mark Wilde of Bank of Montreal. Your line is open.

I'd like to just loop back and get a little more color on just where you see kind of inventory in the channel. It sounded like you were suggesting that there had been some inventory rebuilding in the channel in the last week or so.

Nick, do you want to touch on what you guys are seeing in real-time?

Yes. Thanks, Wayne. As we've talked about, there are no metrics, but I would tell you that I have some pretty strong impressions this time just given conversations with customers and suppliers. And frankly, our own order intake. As Wayne articulates, we've seen a pretty big shift from people willing to take pretty significant positions in particularly commodity inventories, but really inventory to products across the system. I think that's a function of what our customers are saying and a function that they don't have a big appetite for market risk; and they are very focused on their own working capital situation. So I would tell you, probably more so than at any time in the last many years, inventory levels across the system are relatively low. We've seen a bit of price appreciation on the commodity side in the last 3 weeks, and in a couple of cases, dramatic price increases. I think that's a function of demand starting to creep up a little bit as this thing opens up and a relatively lower level of supply, which reflects that inventories are low. Customers and everybody in the channel will continue to play it that way, which plays into our hands in terms of the out-of-warehouse business.

Yes, that's actually really helpful because I was noticing when random lengths came out last night. I mean, some of these increases that we've seen over the last 3, 4, 5 weeks are really quite dramatic in percentage terms, Nick?

Yes. Absolutely. When we get that kind of price escalation, it obviously provides a little tailwind for us on both the margin side and the sales side. We're happy to see a little of that here and there.

Can you maybe give us a little bit of color on just how you manage so that when we get a big drop, the way we saw in March, that you guys don't end up taking a big inventory hit on that?

I'll give you the secret sauce here. We do not engage in a lot of voodoo-ism, for lack of a better way to say it. What we try to do, Mark, and this is a plan that we've had for years, is try to buy based on what we're going to sell in the short term. When we get a little market movement, we may fudge that a little bit, in that we're going to sell more when the prices are escalating and when they're deescalating. We have never had the strategy, nor will we to go out and take big risks on the commodity inventory. Our commitment to our suppliers and our customers is to buy every day in the market and keep the flow steady. Certainly, when you get some pretty dramatic swings on those prices as we saw kind of in the month of March and for part of April, and certainly in 2018, we did have reserves and some more cost-to-market adjustments. It's just a function of the strategy that says we should be consistent all the time in buying and selling. That's where we create value for both the supplier side and the customer side. The decisions being made every day are based on local market conversations.

Okay. Last one for me. I just wondered, Nate, if you could talk a little bit from a capital allocation standpoint. I see that you're moving ahead with that Dallas door shop. Broadening the range of products out of some of your DCs has been a priority for you guys. But I'd also like you to talk about that. What the opportunities might be from an M&A standpoint over the next 12 to 18 months, whether you can take advantage of the people in the market?

Yes, Mark. I think as we look at our strategy overall and specifically regarding BMD, we've been pretty consistent about our desire to continue to grow that footprint, both from a product perspective, geography perspective, as well as a category, including millwork and doors, as you mentioned. As we kind of pressed up against COVID-19, I think we're even more encouraged around our strategy and our ability to continue to grow the marketplace. As Nick described, I think we have very strong support from our customers and suppliers in terms of growing our position, and that will continue to be an important part of our path forward. In terms of the confidence and optimism we have around our distribution business, as Nick and Wayne described, our customers are going to be very dependent upon us in terms of warehouse support, and we're prepared for that and looking forward to that as well. Over the next 12 to 18 months, we suspect there will be some meaningful opportunities that may emerge compared to even 3 to 6 months ago. I think we're well prepared as an organization financially. We want to be measured, just given all the uncertainties in front of us, including when you look at the unemployment number from this morning, it's nearly 15% unemployment. So we'll be measured as we move forward, but in terms of our conviction and belief around growing our distribution platform, including expansions where appropriate, we can see that certainly as part of our path forward.

Our next question comes from Reuben Garner of The Benchmark Company. Your line is open.

So maybe starting on the general line business. Very strong growth again in the quarter. I think you've had a string here of 3 or 4 quarters in a row with pretty impressive growth. I assume a little bit of that is still M&A, but the vast majority of it is volume growth and probably share gains. Can you just give us an update there? And can that continue to help you maybe offset some of the market declines just because it's a self-initiated initiative?

Yes, Reuben, this is Wayne. I'll let Nick follow-on if I mess this up. I think part of what you're seeing on the general line is we've got a couple of key products that are very important in that section, composite decking and siding being two that I would like to point to, and we continue to have very good results there. As you may recall, in the middle part of last year, we picked up a relationship with a key supplier in the siding arena, and we've had good growth in a number of our branches in that product category. Part of what you're seeing is a comparison in 1Q '20 that has those sales in that category growth compared to those sales not necessarily being in the base year. Some of the quarter-over-quarter growth numbers will slow down as we get into the back half of 2020, but certainly, that supplier relationship and that win in the siding category. Again, very good performance in the composite decking arena. Those are two that I'd point to. Nick, I don't know if you would add beyond that or correct what I said, but I would say that's two of the areas that I pay attention to.

No. This is Nick again. I think you hit it on the head. And I think, Reuben, you touched on the third leg of that. If you think about the acquisitions we've made in the first quarter of '19, we didn't have our Birmingham operation in those numbers. Obviously, we do this year. So I think the sum of all those three things is how you should think about it.

That's very helpful and connects to my next question. We've noticed some strength in the R&R segment, especially in the DIY channel. Are you seeing any positive impact from that in your plywood business in the early part of Q2? I understand you've reduced some capacity in that area; how quickly can you ramp it back up if demand turns out to be better than your initial expectations?

Yes, sure. This is Mike. Yes, you're right. If you look at the big boxes, there's quite stunning improvement in demand for panel products. I can't explain exactly why all that's happening other than perhaps people that are sheltering at home have many DIY projects that they're undertaking. It's been very helpful for us in maintaining the sales levels for our plywood products. I hope it continues and may even increase as we get into the summer. The question around can we produce more, if necessary? We stated earlier some weeks ago that we were producing our volumes basically in line with what we put out, but we have the ability in a relatively short period of time to ramp up volume if required. That could be either through the folks that are still working with us today or callbacks from those laid off, which usually can be done within, I'd say, a week or so if necessary. I don't see a huge problem if required in terms of ramping up for volumes to meet the demand at this stage.

Our next question comes from George Staphos of Bank of America. Your line is open.

The first question that I had, I wanted to go back to the extent that you can comment on a question that I think Brian had teed up. Is there a way to quantify what that potential shock absorber, hopefully, you never need to get to it in this cycle, but what it might be able to buffer your results or cash flow by, if, in fact, we had to go to that next step? And it sounded like given trends coming out of April into May, that looks to be less likely, but I just wanted to confirm that.

Yes, we will assess our run rate, especially in distribution, as we progress through May. Generally speaking, Mike can elaborate on this. Our Wood Products facilities are currently operating five days a week, twenty-four hours a day, rather than continuously. We will closely monitor operating rates and product prices. Over the next few months, the key factor will be activity levels in distribution. Regarding cost reductions, we are not worried about our balance sheet liquidity and cash, so we don't expect any affordability issues during this downturn. However, we are attentive to our earnings levels. We will implement cuts when necessary to avoid significant earnings declines, as we want to maintain our debt to EBITDA ratios and continue funding our capital expenditures, interest, and dividends. For instance, we could consider suspending our 401(k) match, which annualizes to about $12 million. While I would prefer not to take such measures, if the situation mirrored that of 2009 when we eliminated our pension and suspended 401(k) contributions, we would need to consider similar strategies. Our goal would be to maintain as much liquidity as possible on the balance sheet. If you were to say scale the expense reductions, it could be anywhere from 0 to $20 million to $25 million on an annualized basis, depending on how bad the situation becomes. We've got a list that would build to a meaningful number if we got into that scenario.

Wayne, that's great. I mentioned it in general terms intentionally and didn't mean to delve into specifics. I appreciate your honesty, and you all have done an excellent job preparing the balance sheet for situations like what we are currently facing. It's unfortunate, but it's commendable that you have taken those steps.

Yes. We are being very careful about maintaining the integrity of our brand and clearly communicating to our suppliers and customers that if you are looking for a distribution partner capable of bringing your products to market and fulfilling your payment needs, we are ready to do business and are committed to supporting our suppliers as they grow and capture market share.

Maybe, George, it's Nate. To add on that, we see this as a momentum opportunity. Obviously, a very difficult climate, but we think we are well positioned as a company to meet this challenge, including the experience and depth of our team in combination with our balance sheet. So as we think about the challenges, it's an opportunity to gain share, gain momentum and really accelerate coming out of this whenever that takes place. That’s part of our thinking in ensuring we've got the correct spending levels in place today, and even if things turn south, then we're prepared to move forward. We think things have stabilized and slightly improved. We want to ensure we're in a position to provide great service to support our customers and suppliers.

No, understood, Nate. Understood. Again, thank you for the directional guidance on 2Q. That's helpful, given any of the Wood Product business, how much earnings can swing with pricing and demand. What have you baked into your outlook, if not just 2Q, but into the year from potential increases in imports from South America? I know in the last few quarters when it's been brought up, it hasn't been a factor. But CMPC on its call today was talking about exporting a bit more Copec; Arauco has been talking about that, although they haven't reported their numbers yet. Are you seeing any change in the dynamic there? Is it pretty humdrum at the present time? Relatedly, on the supply side, it seems like some of your peers in EWP are having a little bit of difficulty running. Are you seeing that as an opportunity to either gain share and/or at some point take pricing up in EWP, even though prices were flat to down this quarter?

Yes, George, the situation in South America is largely steady. We haven't observed any significant decrease or increase. I understand you are monitoring the Brazilian real, which is currently at record highs. Given that our plywood prices in the United States have risen slightly recently, if they could produce more, they would likely try to ship additional quantities. However, as you know, they are currently facing serious social issues due to COVID-19 in Brazil. If they can produce and transport it, they will likely attempt to send more, but I don't expect that to happen immediately; it may take a quarter or two. You inquired about EWP pricing. I expect it to be quite competitive. Regarding the pricing situation, it's challenging to raise prices at present. I recognize the difficulty, but I believe it would be tough right now, considering the circumstances affecting homebuilders and the extra costs they are dealing with, along with our dealer partners, making it hard to implement a price increase at this time. I can't speak to all the challenges that they're facing. However, we have ample veneer. So we're not really impacted by having to buy veneer on the outside market because we're mostly, 100% self-sufficient. We have ample production capacity, and we have ample finished inventory to service our current customers. There may be some opportunities if one of our competitors falls on their sword, but I haven't heard a lot of that recently, to be honest.

However, I think it's fair to say that the new capacity that was coming has not had a meaningful impact in the marketplace that we have seen to date. It's fortunate that that facility has been slow ramping up because given the declines in demand, this would have been a bad time to have a lot of incremental supply show up in the market. At this point, we haven't seen much if any impact in the market from that capacity.

George, it's Nate. I want to mention one more thing. When it comes to being a producer, whether through EWP or other products, having great distribution is very important right now. Our integrated model, which includes BMD and Wood Products alongside some independent distributors, positions us strongly to serve the market uniquely compared to other EWP manufacturers. We feel confident about our ability to support and service the market, particularly starting with BMD.

Our next question comes from Steve Chercover of D.A. Davidson. Your line is open.

So a couple of my questions have been asked but let me just try to get a couple in here. So amazingly, both the lumber composite and the panel composite appear poised to exceed the Q2 '19 average prices. According to the charts and most recent random lengths. Presumably, the real hit for you guys is on volumes and cost absorption. Can you just help us understand how the diminished volumes might impact your decremental margins?

Sure. I'll take a shot. Mike or Nick can chime in. Part of the challenge in Q2 is going to be potentially prices in combination with volume. But to your point, if we end up flat on 2019 prices, I think the biggest decremental hit in Wood will be running 5 days a week instead of 7. We've been reluctant to take a lot of salary cost out with a view that with the states reopening, we really want to see if we're going to go back to the full operating schedule later in the year, but that remains to be seen. Typically, I would have said that the decremental margins in Wood on an EBITDA basis would be in the 20% to 25% range. I suspect in the short-term here, it will be more than that. We would get back to a number closer to that if we start running facilities 5 out of 7 days. If we came to a conclusion that this was going to go on for an extended period of time, we might identify one or more higher-cost facilities and take them dark and pull out more fixed costs. On the distribution side, it's a somewhat similar story. On the way out, we typically talk about a 4% or 4.5% incremental EBITDA margin on revenues. I suspect that decremental margins will be slightly worse than that as we lose volume. If you look at some of the things Nick and his team have put in place as we've been growing the business pre-COVID, I think about what our cost structure looked like, pick a number the last time, we were at $3 billion in revenues; we had fewer geographic locations and fewer branch managers, et cetera. If we see a 25% or 30% drop-off in revenues in BMD, we would need to make structural changes in fixed cost to get back from where we were from a fixed cost basis to $3 billion of revenues on the way up. So in terms of guiding on the way down, I would think of a number north of 4.5% in terms of the decremental margins in BMD. I think it will be a little harder to look at an incremental drop of $100 million of revenues because likely, the commodity pricing variation and the margin impact on remaining sales, if you went from $1.1 billion down to $1 billion in revenues, I'm not sure looking at the decremental margins on $100 million is going to be indicative versus do we lose 40 basis points on margins on the whole book? I fully expect margin compression in the second quarter in BMD if we lose volumes in April and May and into June. In Wood, I think you'll see a pretty steep drop-off in EBITDA if we're running down 25% or 30% on volumes; that will have a meaningful impact on EBITDA generation in Wood in the near term.

This might sound like a goofy follow-on, but what are the logistics of going from 7 days to 5 days? I mean because do you have shifts that go 7 days on and 2 days off? Or how does that work?

Mike, do you want to...?

Yes, please. I'm back on. A simple way of explaining it is, generally, I'll use the plywood mill as an example, Steve. We run a 4-shift operation, which means there are 8 hours in the shift. There are 3 shifts in a day, and we have one additional shift that substitutes on a rolling basis. When we go from 7 days a week to 5 days a week, we simply reorganize those deck chairs. You need fewer people, but you can still have a rolling configuration. In some locations where we have a union representing our employees, there's a sort of hierarchy or a bumping list based on tenure. Those that came on last are the first to go off unless someone more senior wishes to opt out. It does take a little bit of time, but as we indicated weeks ago, we've effectively moved all our facilities from that 7-day operation to 5, and not all our mills run 24/7. As this market situation evolves, we have capacity that we haven't been using recently because we haven't gotten close to the 1.4 million or 1.5 million housing starts. Is that enough, Steve?

Yes. No, that's helpful. And then finally, when it comes to your operating posture, are we at a point now where cash generation or contribution takes precedence over generating an appropriate return on capital?

Let’s refocus on maintaining the balance sheet while also prioritizing the profitability of our franchise. Currently, we are very much focused on return on capital, but we take a long-term view of 3 to 5 years rather than just the next 90 days. To sustain our franchise and invest for growth—including expenses like payroll and inventory—we believe our shareholders will benefit over the long term as we expand our market share. This approach might result in less than optimal short-term profitability if assessed over a brief period. We are committed to generating compound returns for our shareholders with a long-term perspective, rather than merely aiming for slightly better quarterly figures. We are working to find the right balance to capitalize on our financial situation, which may entail some additional immediate expenses. Our goal is to move forward quickly to create significant rewards for our shareholders in the coming 3 to 5 years. While we could adopt a more conservative approach to improve short-term numbers, we believe that would limit our potential for gains in subsequent years. By staying focused on our customers, suppliers, and our employees, we believe that our dedication will yield substantial rewards for our shareholders over the next few years if we execute correctly in the near term.

Our next question comes from John Babcock of Bank of America. Your line is open.

I just want to relay a question actually from George here. Overall, our experience in the past with our business has been that it is challenging for our producers. Some of this is driven by overcapacity. So why is this the good business for Boise to build out in BMD? Is it that the supply side gives you attractive procurement of doors? Or is it something else?

On the BMD franchise, like the door shop in Texas, we have a very good relationship with Therma-Tru in a number of other branches. This is really extending the franchise we have with Therma-Tru in the Atlanta geography. We're taking that same business model and taking it to Texas. It's a very good relationship with Therma-Tru. We have the capital available. We think the Texas marketplace is likely to be a great opportunity for us over the next 3 to 5 years. We believe relative to competitive dynamics, we will have a very good offering in market this year. We'll be able to capture share this year and into 2021 that if we delay, that market share capture may be more difficult to achieve if we were to delay this until 2022. This creates an environment for us, and that's true in a handful of geographies where we think we've got fill-in opportunities. We think we have the opportunity to take advantage of the fact that we can afford to keep inventories on the ground and high service levels. We can continue to fill out BMD's map, and there is going to be a share trade-off, but we think we are playing from a position to strengthen. We don't believe we're going to have a negative impact on margins necessarily from doing that because we believe our balance sheet will give us a real advantage with suppliers and customers.

John, this is Nick. One point of clarification here, and maybe I misheard you a bit. We are not going to manufacture door components. We are not going to manufacture slabs or frames or anything like that. What we do in our existing facilities and intend to do in Dallas is to take those components and assemble light manufacturing, but more assembling finished door units. To Wayne's point, it's an augmentation of our product mix that our current customers are buying in the Dallas situation, and we anticipate taking share. This really adds to the product mix and the service capabilities in terms of the things we can do from a scale standpoint to service our customers. Just for clarification, we are not manufacturing door components. We are assembling components into pre-hung units that we take to the lumber yard.

I'm showing no further questions at this time. I'd like to turn the call back over to Nate Jorgensen for any closing remarks.

Great. Thank you, Valerie. Before we wrap up, I want to express my appreciation to our associates for their continuing efforts to work safely, to take care of each other and their communities and to service our customers. The rapid negative impacts of the pandemic situation have required responsive thoughtful actions and a focus on personal and community safety like we've never seen before. Our associates have absolutely risen to the occasion. I'm tremendously appreciative and proud of all that they are doing. I’d also like to recognize the incredible efforts of the medical professionals, first responders, and others working tirelessly to help us get safely to the other side of this outbreak. There are untold numbers of people showing up every day and putting others first, including those helping with food security and housing issues driven by the crisis. This is a time that calls for unity and compassion. There are signs that the economies in many states are slowly beginning to recover as COVID-19 shelter-in-place orders are relaxed. It is a good time to take action thoughtfully. It is going to take time and will need to be done thoughtfully. In the weeks and months ahead, stay safe, be well, and help others when you have the chance. We will get through this together. Have a good weekend, everyone, and thank you.

Thank you. Ladies and gentlemen, this does conclude today's conference. You may all disconnect. Have a great day.