Good morning. My name is Felicia Crabtree, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's Second Quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there’ll be a question-and-answer period. It is now my pleasure to introduce you to Chris Forrey, Vice President, Finance, Investor Relations, Boise Cascade. Mr. Forrey, you may now begin your conference.

Thank you, Felicia, and good morning, everyone. I'd like to welcome you to Boise Cascade's second quarter 2024 earnings call and business update. Joining me on today's call are Nate Jorgensen, our CEO; Kelly Hibbs, our CFO and Treasurer; Troy Little, Head of our Wood Products Operations; and Jeff Strom, Head of our Building Materials Distribution operations. Turning to Slide two. This call will contain forward-looking statements. Please review the warning statements in our press release on the presentation slides and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that 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, Chris. Good morning, everyone. Thank you for joining us for our earnings call today. I'm on Slide number three. Total U.S. housing starts decreased 7%, driven by lower multifamily starts as single-family housing starts increased 7% compared to the prior year quarter. Our consolidated second quarter sales of $1.8 billion were down 1% from the second quarter of 2023. Our net income was $112.3 million or $2.84 per share compared to net income of $146.3 million or $3.67 per share in the year-ago quarter. Both of our businesses delivered strong financial results during the quarter while operating in a somewhat tepid demand environment, influenced by elevated mortgage rates and economic uncertainties. In addition, spending on our organic growth projects progressed as expected, and we continue to demonstrate that our returning capital to our shareholders is an important part of our capital deployment strategy. I want to thank our associates across the company who continue to deliver superior value to our customers and vendor partners as we navigate uncertainties posed by the current demand environment. Kelly will now walk through our segment financial results, give some insights on the third quarter and then provide an update on our capital allocation in more detail, after which I'll provide an outlook before we take your questions. Kelly?

Thank you, Nate, and good morning, everyone. Wood Products sales in the second quarter, including sales to our distribution segment, were $489.8 million compared to $530.3 million in the second quarter of 2023. Wood Products reported segment EBITDA of $95.1 million, down from EBITDA of $127 million reported in the year-ago quarter. The decrease in segment EBITDA was due primarily to lower EWP sales prices as well as higher wood fiber and conversion costs. These decreases were offset partially by higher EWP sales volumes. BMD sales in the quarter were $1.7 billion, up 1% from the second quarter of 2023. BMD reported segment EBITDA of $97.1 million in the second quarter compared to segment EBITDA of $105.9 million in the prior year quarter. BMD was able to deliver flat gross margin dollars in a challenging environment. As it relates to costs, selling and distribution expenses increased by $10.9 million, mainly due to the BROSCO acquisition while general and administrative expenses decreased by $2 million. Turning to Slide five. On a year-over-year and sequential basis, second quarter volumes for LVL were up 8% and 6%, respectively, and I-joists volumes over the same comparative periods were up by 5% and 16%. Our EWP volumes continue to be supported by the resilience in single-family starts. Sequential pricing for I-joists and LVL was down 3% and 2%, respectively, due to continued pricing pressure in the market. Turning to Slide six. Our second quarter plywood sales volumes were 383 million feet compared to 440 million feet in the second quarter of 2023. As expected and consistent with our strategy, plywood volumes decreased during the current quarter as we shifted a higher proportion of our internally produced veneer into EWP production given improved demand for EWP. The $362 per 1,000 average plywood net sales price in the second quarter was down 1% year-over-year and 4% sequentially. Plywood pricing weakened steadily as we progressed through the second quarter with our June average price realizations around $340 per 1,000. Moving to Slide seven and eight. BMD second quarter sales were $1.7 billion, up 1% from the second quarter of 2023, driven by sales volume increases of 2%, offset partially by sales price decreases of 1%. Excluding the impact of the BROSCO acquisition, BMD sales would have decreased 2% from the second quarter of 2023. By product line, commodity sales decreased 6%, general line product sales increased 8%, and sales of EWP decreased less than 1%. Gross margin dollars were flat when compared with the same quarter last year as lower margin dollars on commodity and EWP products were offset by higher margin dollars generated on general line growth. BMD's gross margin percentage was 14.8%, down 20 basis points year-over-year and sequentially. BMD's EBITDA margin was 5.9% for the quarter, down from the 6.5% reported in the year-ago quarter, but up 30 basis points sequentially. We are pleased with BMD's performance in the second quarter given the market landscape. We benefited from our continued growth in general line products where sales of those products represented 42% of our sales mix in the second quarter, the highest in our history. In commodities, our team's performance was outstanding in the quarter with continued weakness in lumber markets and panel markets that drifted significantly lower as the quarter progressed.

Looking forward to the third quarter, our EWP order intake has slowed in conjunction with recent declines in builder sentiment, weakening single-family starts and permits data, and ongoing affordability constraints for homebuyers. Assuming we don't see an acceleration of single-family starts from recent levels, we expect mid- to high single-digit sequential volume declines in EWP. On EWP pricing, we currently expect low single-digit sequential price declines in the third quarter. For plywood, we expect our lines to be comparable to the second quarter. However, market conditions have remained weak with July price realizations approximately 10% below second quarter average. With regards to BMD, our daily sales pace through July is approximately 5% below second quarter daily sales averages. The number of sales days in the third quarter will be consistent with the second quarter at 64 days. I'm now on Slide 10. We had capital expenditures of $74 million in the six months ended June 2024, with $37 million of spending in both Wood Products and BMD. Our capital spending range for 2024 remains at $250 million to $270 million with the pace of spending expected to accelerate as we move through the back half of the year. In Wood Products, the significant modernization of our Oakdale facility will occur in stages between fourth quarter 2024 and second quarter 2025 and plans are in place to mitigate the potential impact on our EWP production in the Southeast region as we take project-related downtime at that facility. In BMD, we're excited to have recently broken ground on our new distribution facility in Hondo, Texas, and we expect to be operational in late 2025. Speaking to shareholder returns, we paid $19 million in regular dividends in the first half of 2024, and our year-to-date July share repurchase activity was nearly 768,000 shares for approximately $100 million. Today, we have approximately 1.2 million shares still available for repurchase under our share repurchase program. Also, our Board of Directors recently approved two additional dividend payments for our common shareholders, a $0.21 per share quarterly dividend, which represents a 5% increase, and also a $5 per share special dividend. Shareholders of record as of September 3 will receive payment of these dividends on September 16. In summary, our balance sheet remains very strong, and we are committed to our balanced approach to capital allocation that includes ongoing investment in our existing asset base, organic growth projects and returns to our shareholders. We also have the flexibility to execute M&A if opportunities surface that align with our strategy. I will turn it back over to Nate to discuss our business outlook. Current industry forecasts for 2024 U.S. housing starts are slightly below actual housing starts of $1.42 million in 2023 as reported by the U.S. Census Bureau. Home affordability remains a challenge for many consumers due to the cost of housing combined with elevated mortgage rates. However, with low unemployment, and an undersupplied existing housing stock available for sale and favorable demographic trends, new residential construction is expected to remain an important source of supply for homebuyers. Multi-family starts have declined sharply from historic levels seen in recent years due to increased capital costs for developers, combined with elevated supply. Regarding home improvement spending, the age of U.S. housing stock and elevated levels of homeowner equity will continue to provide a favorable backdrop for repair and remodel spending. However, while home improvement spending is expected to remain healthy compared to history, renovation spending has softened due to consumer uncertainty, labor availability, higher borrowing costs, and building material inflation. Although near-term market demand expectations have moderated, our longer-term view on housing fundamentals remains favorable, supported by demographic trends and underbuilt housing stock. That constructed long-term view, in tandem with our outstanding balance sheet, affords us the ability to maintain a clear focus on our strategy and the execution of our growth initiatives that position the company for continued success in the future. Thank you for joining us today and your continued support and interest in Boise Cascade. We welcome any questions at this time. Felicia, would you please open the phone lines?

Thank you. Good morning, everyone. I want to start on the performance in the general line segment within BMD. It seems like you are outperforming the market there, even with all the noise and some of the shifts that we're seeing in housing, broadly. Can you just talk about what is driving some of that? Any of the dynamics that you're seeing across the various products that you're pulling through that segment? And how do you think about the ability to continue to outperform that as you execute on your own initiatives?

Yes, Sue, this is Kelly. I hope you're well. As you know, we are focused on increasing the general line's contribution to our sales mix, and we believe it is performing well. We have strong alignment with our suppliers and our dealers, where there is a demand for those products and services. There's nothing specific I want to highlight, but it remains a key focus for us. I'll let Jeff add a bit more detail.

Sue, it's Jeff. I'd just tell you on the general line. All the projects that we've done and the growth that we've done in adding our footprint has allowed us to go deeper and wider in that segment. The millwork piece continues to grow. And one other thing we did this year is we leaned in really hard during the winter buys and set ourselves up. And we knew this was going to be a distribution-friendly market. And so with everything in stock, we continue to grow and move those products right along.

Sue, it's Nate. I just wanted to add that our suppliers are expanding their product range. They are increasing their SKUs and options, which is excellent for us in terms of distribution support. This growth, along with the introduction of new products and services, is crucial for us to effectively operate on their behalf.

Okay. That's very helpful color. And then switching to EWP, as you add the incremental veneer capacity and that comes through and it allows you to grow the volumes in EWP, how are you thinking about that relative to the pricing dynamic for those products? And what's your ability to sort of manage those in the next couple of quarters?

Yes, it's Nate. Regarding our EWP footprint, it's crucial that we have the right capabilities, especially concerning our input materials, particularly veneer. Ensuring we have the right quantity, quality, and pricing for veneer has been a key focus for our organization. As we look to compete in the market moving forward, we will prioritize what the market demands and what our customers need. The balance of supply and demand will remain an essential aspect of our strategy. We are confident in the capabilities we are developing. If the housing market, particularly single-family homes, remains favorable over the next couple of years, we believe we are well-positioned to support our customers in that environment. We plan to continue enhancing our capabilities, and as mentioned by Kelly, some of this progress will start in Q3 and Q4 and extend into early next year, ensuring we are well-equipped in Oakdale and other locations.

Okay. And then just following up on that, Nate, really quickly. As the builders are positioning to add supply in the back half? They're still really busy on the spec side of things. What does that mean for EWP pricing as you think about the next couple of quarters?

Yes. For EWP, I would say that it's a crucial aspect of the builder's narrative regarding their goals. Specifically, they continue to focus on cycle times and finding ways to reduce complexity at the job site while enhancing speed and efficiency. Considering what EWP offers to builders, it is vital for them to make progress in reducing cycle times. We are optimistic about our position with EWP as we move through the remainder of this year. Additionally, we will maintain close communication with our builder partners to understand their experiences and ensure our products and services are aligned to support them as they navigate the second half of the year.

Yes. Okay. And I just want to squeeze one more in, which is on the capital allocation side of things. It's good to see you starting to get into those buybacks. You've done, I think, $100 million year-to-date through July, which is nice to see in there. Any thoughts on how you approach that last 1.2 million shares that are available on the authorization? I think it's 1.2 million. And overall, in terms of shareholder returns that versus the special dividend?

Thanks, Sue. This is Kelly. You have the correct data you presented. Let me elaborate on our priorities regarding capital allocation as we navigate the latter half of the year. Our focus will be on executing our capital program, as we have significant work ahead to meet our targets. Regarding shareholder returns, we recently announced a special dividend, and I anticipate that we will remain opportunistic in the market for share buybacks. While I don’t have specific plans on the amount at this moment, this will continue to be part of our strategy. Additionally, we have the ability to consider more acquisitions if the right opportunity arises. I’d like to mention that we just completed a small acquisition yesterday in Boise, Idaho, involving a small door and millwork operation. While it is a modest entity, it includes a facility and employees, providing us a good entry into the Boise market. We are pleased to have finalized this deal.

That's great to hear. Okay, thank you both for all the color. And good luck with everything.

Great, thanks. And good morning everyone. Just hoping to just start off on EWP, and I was hoping you could maybe just frame kind of the overall competitive backdrop you're seeing in the markets at this stage. And as you move into the back half of the year, what are you looking at that maybe gives you more optimism that perhaps we're near a bottom on pricing? Or conversely, that things could perhaps get a little bit more challenging here over the back half?

Kurt, this is Troy Little. I'll begin and others can add their thoughts. Regarding the pressure we experienced in the second quarter, we noted a sequential decline in our pricing. We’re focusing on how to address this, as it seems to be a geographical issue. We will continue to assess the situation and anticipate that the pressure will remain as we transition into the third quarter, similar to what we saw in Q2. Therefore, we are currently projecting a sequential decline in the low to mid-single digits. The outcome will depend on the status of buyers who are currently hesitant due to elevated mortgage rates and housing affordability.

In terms of, I guess, the divergence between maybe markets that are softer versus stronger, is that primarily, I guess, just dictated by demand in those markets at this stage? Or maybe the presence of different competitors? How would you kind of frame that, Troy?

Yes. I mean, it's probably both, but it's the competitors, what they're doing. We're looking at that, responding accordingly. So that's probably the driver.

I would say this. On the commodity side, without a doubt, we're seeing it a bit slower. On the general line, it is very much steady as I would kind of describe it, and what the customers are saying to us, there is not one major area of product from what we're hearing where while we're overstocked on something that there's a commonality to it at all. And we talk to our customer base; there might be a pocket here or there on a certain product where they feel a little bit heavy. But overall, what everyone is telling us is, no, there's not going to be a major destocking, but people are going to buy to exactly what they need, and we're seeing that and feeling it. And without a doubt, that plays into a distribution-friendly market, and there's no doubt we're seeing it right now.

Got it. Okay, appreciate the color. Thank you.

Thank you so much. Good morning. Thanks for all the details. Two questions to start piggybacking off the last two questions. So Jeff, I noticed that working capital to sales, inventory to sales in BMD is up on a percentage basis versus a year ago and more broadly, Kelly, working capital is up from prior quarters. Now, some of that may just be natural pricing, right? You're seeing you have higher prices perhaps in inventory based on prior trends relative to what's happening in the market right now. But are there any areas where you need to manage maybe to the earlier question down a little bit? And how do you feel about managing against any inventory risk to the P&L? Relatedly, with demand being what it is and prices maybe being off in commodity into the third quarter, obviously, anything can change. How do you feel about BMD margins third quarter versus second quarter, at least directionally, if you can give us any thoughts there?

Yes. Absolutely, this is Kelly. I'll start by addressing those points. Regarding BMD's overall net working capital, you're right that it is up, and that's largely intentional. With BROSCO now included in our operations, which wasn't the case a year ago, and the launch of door shops in Kansas City and Denver, these factors are definitely contributing to that increase. When it comes to commodities, we currently don't see much downside risk. There's been some activity in lumber, but we'll have to wait and see. Overall, we are well positioned with our inventory in terms of days on hand and days on order. Putting it all together, we feel confident about our position, and as we enter the traditionally softer fourth quarter, we anticipate some working capital generation will occur, which aligns with our expectations.

I know it's hard to call, but given that things are as you anticipated, and you said that commodity is not a lot of downside risk from here, again, who knows. But given what we're seeing, given what you're seeing, then would a decent placeholder be to hold your BMD margins relatively consistently in 3Q versus 2Q, if you feel comfortable even commenting to that?

Yes, I can provide an answer. As I reflect on our current position, I believe it's reasonable to expect our gross margins in the third quarter will be similar to those in the second quarter. However, we must consider the potential for unexpected price changes, particularly in commodities. Regarding EBITDA margins, if our sales remain at a 5% decline compared to the average in the second quarter, we might see some limitations on our EBITDA margins, likely placing us in the mid-5s range rather than the high 5s, depending on how things unfold.

George, it's Nate. I just wanted to add that Kelly described our situation well. If you consider the environment we'll be in for the latter half of the year, which we've largely been experiencing for some time, our customers' reliance on our warehouse remains high. It's important for us to serve as a reliable support for both our customers and suppliers, ensuring that we have materials readily available regardless of market conditions. This is a key aspect of who we are in the distribution industry, and it will continue to be central to our strategy as we progress through the second half of the year.

Thanks for that Nate. Last question for me in this round and piggybacking on I think Kurt's question earlier. So as you think about competition in EWP and recognizing this is open mic and all that, and you have your own commercial strategies. How much of the competition is coming from producers of similar engineered wood products? And how much, if you had to think about it maybe a quarter or two quarters ago, of the pressure is coming from open web trusses and things like that or substitution? Recognizing it's in many ways, it can be two sides of the same coin, how would you have us think about those things and what it means more importantly, really, into fourth quarter into 2025?

George, it's Nate. I'll take a shot at that and others can jump in. I think EWP, in terms of the competitive landscape, is largely around look-alike competitors in terms of producing I-joists and laminated veneer lumber. So that's, I think, kind of the starting point for the conversation. There's always questions potentially on plated floor trusses or dimensional lumber. But largely, our team has to navigate the local like competitors that are out there. And again, I mentioned earlier, I think EWP is well-positioned in support of the builders and what they need to get accomplished on cycle time. So again, we feel good about how that shows up relative to some of the other competitive alternatives that are out there.

Yes, thank you Nate, Kelly, Chris for taking my questions and congrats on a good quarter, despite the challenging environment. I just wanted to follow up quickly on George's question regarding the EBITDA margin. I guess the point around sales pace, and whatnot. But how do you think about how a higher quality mix should impact your EBITDA margin as well? Because for my understanding, 3Q is typically a higher quality mix quarter. So what type of benefit should that have that might be able to offset some of the slower sales pace you're seeing?

Yes, you're heading in the right direction there, Mike. That we would expect to see generally, the general line products do carry a higher gross margin. So to the extent that, that becomes a bigger part of your sales mix, that does provide you some opportunity. But I would recognize also that 42% was the biggest number we've had in terms of the sales mix for general line. We want to continue that to be in the 40s. But make no mistake, commodities will continue to be an important part of the sales mix as well as EWP.

Got you. And would it be fair to say that with the general line that the 42%, which is the highest on record for the company as you noted, is some that you think you can maintain in 3Q or look to maintain on a go-forward basis?

Yes, there are product categories within the general line that tend to be more seasonal, performing better in the second and third quarters, and then declining in the fourth and first quarters. However, I believe we can maintain a similar sales mix as we had in the second quarter into the third quarter.

Got it. And then just one last question regarding Nate's comment about warehouse sales. Given the increase in volatility in the backdrop, have you seen warehouse sales accelerate? I know they have represented around 70% to 75% of your mix, compared to historically around 65% to 70%. Have you observed an acceleration beyond that, particularly given how volatile the environment has become?

This is Jeff. We have absolutely seen the warehouse sales pick up, and especially with the uncertainty in the commodity and no real reward for taking a position, people want to rely on it. It's undeniable, and you can see clearly in the data that our warehouse sales are picking up.

Got you, Jeff. One quick follow-up. Are you now between 75% and 80% in terms of warehouse sales, compared to the 75% you mentioned a couple of quarters ago? Just a ballpark.

No, I don't think I would put us north of 75%, Mike. I think historically, it's probably more like 65% and now maybe we're pushing more like 70%.

Thank you. Good morning, everybody. So question, BMD margin question to start. More about the breakdown of margins today versus what they were 5, 6, 7 years ago. It seems like the gross margin has stabilized at a materially higher point as of EBITDA, but it looks like maybe the selling distribution costs are a little higher. Can you talk about why that is? Is that things like the higher mix of warehouse, the higher mix of general line, do those come with higher selling expenses? Is that something that we'd expect to kind of continue on a go-forward? Any other kind of mix or company-specific drivers for that?

Yes, Reuben, there are a couple of points to discuss. First, a significant factor in our recent year-over-year results is BROSCO. We added a substantial business with good margins, but it also brought along considerable selling and distribution expenses. Additionally, our growth across the system, including BROSCO and our operations in Dallas and Houston, requires more sales personnel and services. This is a natural progression as we expand our range of general line products, and it's a deliberate strategy. Jeff, do you have anything to add?

I would just say we bring in staff beforehand, particularly in the millwork areas, because you need people in place before starting sales production. So there's a timing factor involved as well.

Got it. That's helpful. And then any specific thing that you'd call out within general line. I know you guys sell a number of products there. And I know that some of it is because of investments you've made to grow. Are you actually seeing kind of organic strength or weakness outside of your investments in any particular categories that you call out?

I would tell you, it's really been steady across the board. There are a few areas where we feel like we're picking up some share because we're really committed to making sure we have it on the ground where maybe last year, we didn't, and that's why I tell you we leaned hard into the winter buy and loaded it up. And there are certain areas there that I think we have grown some taking share. But across the board, I'd say it's pretty even.

Reuben, it's Nate. Maybe just another data point, is I think as we think about our general line vendors, all of our vendors, but in the general line, we've got there some terrific brands and terrific franchises that we have, again, the privilege to represent. So as you think about how they're positioned and in terms of who they are, what they're doing, including around innovation and new products, that's a great environment for us in BMD. So again, I would probably speak to not only the product but some of the brands that we represent as well.

Great. And I'm going to sneak one more big picture question and if I could. Any thoughts or color you could share on what you're seeing from a mix/size-of-home perspective? I know you guys are usually a pretty early read on some of the building plans that are out there. And I know volume has been pretty strong on the single-family front, but how much of a headwind do you think there is from the size of the home, people mixing down or builders mixing down sort of affordability reasons? How would you think about that on a go-forward basis?

Yes. No, I think you're right, Reuben, in terms of year-over-year, I think home sizes are off something like, I think, 5% and then builders obviously needing to respond to affordability concerns for homebuyers, so less amenities. And so that does make its way into if you have smaller structures, you have less consumption of wood. Where do we go forward from here? I guess I'm not sure I venture a guess yet. I think it will depend upon the economy and will depend on affordability and mortgage rates, but I wouldn't be brave enough to venture a guess where we might go from here.

Great, thanks. Good luck guys, going forward.

The next question comes from the line of George Staphos of Bank of America. George, please go ahead.

Thank you. Good morning. Thanks for all the details. Two questions to start piggybacking off the last two questions. So Jeff, I noticed that working capital to sales, inventory to sales in BMD is up on a percentage basis versus a year ago and more broadly, Kelly, working capital is up from prior quarters. Now some of that may just be natural pricing, right? You're seeing you have higher prices perhaps in inventory based on prior trends relative to what's happening in the market right now. But are there any areas where you need to manage maybe to the earlier question down a little bit? And how do you feel about managing against any inventory risk to the P&L?

Yes, George, this is Kelly. I'll start with that. Regarding BMD's overall net working capital, you're right, it has increased. This is largely intentional. With BROSCO now included, which wasn't the case a year ago, and the initiation of door shops in Kansas City and Denver, these factors are contributing to that intentional increase.

George, it's Nate. I'd like to add a quick comment. Kelly described it well. If you consider the environment we'll be navigating in the second half of this year, which we've largely been in for a while, our customers' reliance on our warehouse remains strong. It’s important to ensure that we serve as a safe haven for both our customers and suppliers, giving them confidence that we will have materials available to meet their needs, regardless of market conditions. This aligns with our identity in distribution and will continue to be a key component of our strategy as we proceed through the latter half of this year.

Thanks for that, Nate. Last question for me in this round and piggybacking on I think Kurt's question earlier. So as you think about competition in EWP and recognizing this is open mic and all that, and you have your own commercial strategies. How much of the competition is coming from producers of similar engineered wood products? And how much, if you had to think about it maybe a quarter or two quarters ago, of the pressure is coming from open web trusses and things like that or substitution?

George, it's Nate. I'll take a shot at that and others can jump in. I think EWP in terms of the competitive landscape is largely around look alike competitors in terms of producing I-joists and laminated veneer lumber. So that's, I think, kind of the starting point for the conversation. There's always questions potentially on plated floor trusses or dimensional lumber. But largely, our team has to really kind of navigate the local like competitors that are out there. As I mentioned earlier, EWP is well positioned in support of the builders and what they need to get accomplished on cycle time. Thank you for the questions. I appreciate your continued interest and support for Boise Cascade.

This does conclude today's conference call. You may now disconnect.