Martin Marietta Materials, Inc.

Welcome to Martin Marietta's fourth quarter and full year 2023 earnings conference call. All participants are now in a listen-only mode. A question and answer session will follow the company's prepared remarks. As a reminder, today's call is being recorded and will be available for replay on the company's website. I will now turn the call over to your host, Ms. Jacqueline Rooker. Martin Marietta's Director of Investor Relations. Jacqueline, you may begin.

Good morning, and thank you for joining Martin Marietta's fourth quarter and full year 2023 earnings call. With me today are Ward and I, Chairman and Chief Executive Officer, and Jim Nicholas, Executive Vice President and Chief Financial Officer. Today's discussion may include forward-looking statements, as defined by the United States securities laws in connection with future events, future operating results, or financial performance. Like other businesses, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially. We undertake no obligation, except as legally required, to publicly update or revise any forward-looking statements, whether resulting from new information future developments, or otherwise. Please refer to the legal disclaimers contained in today's earnings release and other public filings, which are available on both our own and the Securities and Exchange Commission's websites. We have made available during this webcast and on the Investors section of our website supplemental information that summarizes our financial results and trends. As a reminder, All financial and operating results discussed today are for continuing operations. In addition, non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in the appendix to the supplemental information, as well as our filings with the SEC and are also available on our website. Board and I will begin today's earnings call. with the discussion of our 2023 financial highlights and operating performance. Jim Nicholas will then review our financial results and capital allocation in more detail, after which Ward will conclude with end market trends and our 2024 outlook. A question and answer session will follow. Please limit your Q&A participation to one question. I will now turn the call over to Ward.

Jackman, thank you. Good morning and thank you so much for joining today's teleconference. I'm pleased to report 2023 was the safest and most profitable year in Martin Marietta's history. We delivered both record financial performance eclipsing $2.1 billion in adjusted EBITDA and also world class safety results, achieving a world class total injury incident rate for the third year in a row and a world class lost time incident rate for the seventh consecutive year. This year was also highlighted by several portfolio-enhancing transactions, significantly strengthening both the durability of our business and our balance sheet, and which, cumulatively, positions us well to continue delivering sustainable growth. Our 2023 achievements were accomplished despite a macroeconomic environment encumbered by restrictive monetary policy, a housing slowdown, and heightened geopolitical tensions. that our team was able to successfully overcome these challenges further underscores the continued success of our strategic operating analysis and review or SOAR plan, the vitality of our purposefully curated geographic footprint, our team's steadfast execution of our proven value over volume commercial strategy, and the resiliency and earnings power of our aggregates-led business. Subsequent to year end, on January 12th, we closed the acquisition of Albert Fry & Sons, a leading aggregates producer in Colorado, expanding our aggregates platform in the high-growth Denver metropolitan area. More recently, on February 11, 2024, we entered into a definitive agreement to acquire the Alabama, South Carolina, South Florida, Tennessee, and Virginia aggregates operations of Blue Water Industries, a closely held pure play aggregates producer with a portfolio of 20 active operations in attractive southeast markets including Nashville, Knoxville, and Miami. Consistent with our SOAR plan, upon closing of the Blue Water Industries acquisition, which is expected to occur later this year, subject to regulatory approvals and customary closing conditions, these two pure play aggregates transactions will not only add approximately one billion tons of high quality reserves in specific SOAR targeted markets, but also enhance the product mix of our portfolio. Assuming these transactions had closed on January 1, 2024, we would have expected these two acquisitions to generate approximately $180 million of adjusted EBITDA in 2024, more than offsetting the adjusted EBITDA divested in the February 9, 2024 sale of the company's South Texas cement and related concrete business. As we turn the page to 2024, favorable commercial dynamics underpinned by our value over volume pricing strategy and giving effect to the recently closed Colorado acquisition and Texas divestiture, we expect to deliver consolidated adjusted EBITDA of $2.24 billion at the midpoint. However, assuming these transactions and the recently announced Blue Water Industries acquisition had all been completed as of January 1, 2024, We would have expected the new portfolio to generate adjusted EBITDA of $2.37 billion in 2024 at the midpoint. Before discussing our full year 2023 results, I'll highlight a few notable takeaways from our record fourth quarter. Aggregates pricing increased 15%, driving product line gross profit of $328.6 million, a year-over-year increase of 36.8%, and gross profit per ton of $7.04, a year-over-year increase of 39.8%, both fourth quarter records. While aggregate shipments decreased 2.1%, these financial results clearly demonstrate the success of our sales team's commitment to receiving appropriate commercial consideration for our valuable and long-lived reserves, the primary and disproportionate organic earnings growth driver of our business. Turning now to our full year 2023 results, as previously noted, we established new financial records in each of the following year-over-year metrics. Consolidated total revenues of $6.8 billion, a 10% increase. Consolidated gross profit of $2 billion, a 42.1% increase. Earnings per diluted share from continuing operations of $19.32, a 41% increase. adjusted EBITDA of $2.1 billion, a 33% increase, and aggregate gross profit per ton of $6.93, a 46.4% increase. Moreover, we successfully implemented mid-year price increases across the majority of our markets as we endeavor to pass through persistently high-cost inflation. Shifting now to our full-year 2023 operating performance, beginning with aggregates. Aggregate shipments declined 4.3%, the combined result of our value over volume strategy and softer demand in certain Midwest and Southwest markets, partially offset by continued strength in key Southeast markets. Aggregates pricing increased 18.9% or 17.2% on a mix-adjusted basis as pricing fundamentals remain attractive. Texas cement shipments decreased 3.4% to 4 million tons. Pricing increased 22% or 21.6% on a mix-adjusted basis, driven by favorable supply-demand dynamics in the Dallas-Fort Worth metroplex. Turning to our targeted downstream businesses, ready-mix concrete shipments decreased 12.1% But that reduction was largely driven by the April 2022 divestiture of the company's Colorado and Central Texas concrete businesses. Pricing increased to robust 20.4%. Asphalt shipments increased 3.5%, and pricing increased 6.7%. Before providing in-market trends and our 2024 outlook, Jim will now discuss our full-year financial results. Jim? Thank you, Ward, and good morning, everyone.

As Ward mentioned, we completed the sale of our South Texas cement plant and related concrete operations last week on February 9th. While these businesses were classified as held for sale on the balance sheet as of December 31st, revenues and profits from these operations through the divestiture date are included in the earnings from continuing operations. Accordingly, the revenues and profits from these assets are included in both 2023's reported earnings from continuing operations and in our 2024 earnings guidance through the February 9th close date. The revenues and profits from the Colorado assets acquired on January 12th, 2024 also are included in our forward earnings guidance. Lastly, the Blue Water Industries transaction is not yet closed and remains subject to customary closing conditions and regulatory review. Accordingly, the contributions from the pending acquisition are not included in our 2024 earnings guidance. That said, we will provide updated earnings guidance after closing the Blue Water transaction, which is expected to occur later this year. The building materials business posted full-year 2023 revenues of $6.5 billion, an increase of 10.3%, and gross profit of $1.9 billion, a notable 43.7% increase year over year, both new records. The aggregates business achieved all-time record revenues in 2023, growing 10.9% to $4.3 billion. Gross profit increased 40.1% to $1.4 billion, and gross margin increased 660 basis points to 32%. Again, both all-time records. solid pricing growth more than offset lower shipments, further demonstrating how the disciplined execution of our value over volume commercial strategy yields higher profits and higher margins, even without the benefit of growing volumes. Our Texas cement business extended its track record of outstanding performance and once again delivered record top and bottom line results. Revenues increased 17% to $725.5 million, and gross profit increased 64.6% to $333.6 million, driven primarily by favorable supply-demand dynamics in the Dallas-Fort Worth Metroplex and energy cost tailwinds. As a reminder, the new finished mill at a Midlothian, Texas plant in North Texas is expected to be fully operational in the third quarter of 2024, adding approximately 450,000 tons of incremental high-margin annual production capacity. Turning to our targeted downstream businesses, Our concrete revenues increased 5.9% to $1 billion, and gross profit increased 44.2% to $102 million, driven primarily by pricing gains and megaproject contributions, which more than offset higher upstream raw material and delivery costs. Asphalt and paving revenues increased 12.6% to $887.1 million. Gross profit increased 34.7%, to $109 million, the result of strong demand and lower bitumen costs. Magnesia Specialty's full-year revenues increased 3.8% to $315.4 million, while its gross profit increased 6.9% to $97.1 million. Strong pricing and energy cost tailwinds more than offset weaker demand in certain magnesia end markets, including TPO roofing and cobalt mining. We continue to balance our longstanding disciplined capital allocation priorities to responsibly grow our business. In 2023, we invested $650 million of capital into our business and returned $324 million to shareholders through both an increased dividend and share repurchases. Since our repurchase authorization announcement in February of 2015, we have returned a total of $2.6 billion to shareholders through both dividends and share repurchases. Our net debt to EBITDA ratio was 1.4 times as of December 31st. Assuming the Albert Fry & Sons and Blue Water Industries acquisitions and South Texas Cement and Related Concrete Operations divestiture were effective as of January 1st, 2024, after giving effect to the impacts of these transactions, our net debt to EBITDA ratio would have been 1.85 times, just below our targeted range of 2 to 2.5 times, which would provide ample dry powder to take advantage of additional value-enhancing acquisitions. With that, I will turn the call back to Ward to discuss end market trends.

Jim, thanks so much. We're enthusiastic about Martin Marietta's prospects in 2024 and beyond. We anticipate healthy demand in public and heavy non-residential construction will largely offset softness in the residential sector and expected moderation in light non-residential construction. However, anticipated decreases in mortgage rates should provide tailwinds in residential demand and an uptick in single-family home construction as evidenced by recent starts data. As you've heard us say for years, in this business, where you are matters, and Martin Marietta is uniquely positioned to capitalize on these long-term secular trends. Infrastructure activity is expected to remain resilient, as funds from the Infrastructure Investment and Jobs Act, or IIJA, along with record State Department of Transportation, or DOT, budgets as well as voter-approved state and local transportation-related ballot initiatives, coalesce to spur years of steady investment and demand. The value of state and local government highway, bridge, and tunnel contract awards, a leading indicator for our future product demand, grew 8% to $113 billion in 2023. According to the American Road and Transportation Builders Association, or ARPA, Texas, Colorado, California, Georgia, and Florida, key Martin Marietta states, are among some of the largest growing markets based on contract awards. Importantly, our investment in our nation's infrastructure continues to maintain broad bipartisan support. During the November 2023 election, voters approved 88% of transportation related state and local ballot initiatives, representing approximately $7 billion of additional infrastructure funding. We expect this enhanced level of federal, state, and local infrastructure investment will yield steady, multi-year demand in this important, aggregates-intensive, often counter-cyclical end market. Moving to non-residential and starting with heavy industrial, strong demand for large manufacturing and heavy side energy projects is expected to counterbalance ongoing moderation in warehouse and data center construction from its COVID peak. Construction spending for manufacturing in the United States continues to trend positively with the December seasonally adjusted annual rate of spending for 2023 at $214 billion, a 61% increase from the December 2022 value of $133 billion. Manufacturing projects continue to be supported by health demand from the ongoing reshoring of critical product supply chains, including semiconductors and electric vehicle battery manufacturing. As an example, in the fourth quarter of 2023, Toyota announced an $8 billion expansion to their battery manufacturing campus in North Carolina, bringing their total investment to approximately $14 billion. This incremental investment solidifies North Carolina as Toyota's central hub for lithium-ion battery production in North America with this campus having over 7 million square feet. Importantly, our quarries are well positioned to supply the aggregates needs for this type of multi-year project. Shifting to light non-residential, while demand remained resilient through 2023 despite higher interest rates, high office vacancy rates and tighter commercial lending additions, we expect 2024 demand in this segment to moderate as it generally follows single-family residential development with a lag. Given the structural housing deficit and favorable population trends in key Marietta markets, we fully expect the affordability-driven single-family residential slowdown will recover as interest rates decline further and monthly mortgage payments become relatively more affordable. Although there's still near-term uncertainty, we're encouraged by recent trends in single-family housing starts, a leading indicator of aggregate demand, which were 1 million units in December an increase of 16% from a year ago. Looking ahead, we expect 2024 to be another record year for Martin Marietta. As previously mentioned, we anticipate flat aggregate shipments as infrastructure and large-scale non-residential projects should largely offset softness in the residential and light non-residential sectors. With steady product demand supporting favorable commercial dynamics and the disciplined execution of our value over volume strategy, we expect double-digit aggregates price and growth to overcome inflationary pressures and lead to expanded gross margins and unit profitability growth. Combined with contributions from our cement, downstream, and magnesia specialties businesses, and contributions from our recently acquired Colorado assets, We're confident in our expectations for consolidated adjusted EBITDA of $2.24 billion at the midpoint. To conclude, we're extremely proud of our record-setting performance in 2023. We demonstrated our ability to successfully navigate another challenging macroeconomic environment and deliver superior returns for shareholders. As we begin the new year, our teams remain committed to employee health and safety, commercial and operational excellence, sustainable business practices, and the execution of our SOAR 2025 initiatives as we build the safest, best performing, and most durable aggregates led public company. We look forward to continuing our strong momentum and driving responsible and profitable growth in 2024 and beyond. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session.

Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your first question is from Trey Grooms from Stevens. Please ask your question.

Yeah, good morning, Ward and Jim. You guys have been quite busy and first wanted to congratulate you and the team on the recent acquisition announcement. They look like great assets and a great fit for you guys.

Great, thank you very much.

It was a busy weekend, I'll tell you that. Yeah, I bet it was. On that note, Jim, and you touched on it, but could you help us with a bit more detail on how to bridge the guide for the full year, maybe help us understand and quantify what is included, what is not included as we look at the guide for 24?

Yeah, sure, happy to do that. So we've closed now on two transactions, the acquisition of Alphry. That is in, and you can think about that maybe as, between 40 and 45 million of EBITDA coming from that business. And then we've also closed the divestiture of our south Texas cement and ready mix business. And you can think about that as around 170 of EBITDA that was divested. So those are coming out of what you would have seen probably from the 2023 view. The blue water acquisition, call it 135 or so million of EBITDA that is not, that'd be a full year run rate view, that is not included in our guide. We will, of course, include that. When that closes, we'll update our guidance for that additional EBITDA at that point, but hopefully that provides the necessary ins and outs for you to make that work.

Yep, that's super helpful. Got it. And one more, if I could. I'm located not too far from some of your locations, and it's no secret January weather was tough, particularly here in the south where we aren't used to snow and ice or sub-freezing temps for long periods of time. Can you help us on maybe how to think about that in one cue and anything else to note that maybe we should be aware of as we think about this first quarter?

Trey, thanks a lot. I mean, that's a really good question because, as you recall, last year in Q1, weather was actually disproportionately good. And I think when people saw Q1 numbers, they thought, wow, that's really something. And you know what I've long said. the first quarter can largely be made or broken by the last two weeks in March. But if you do have really challenging weather in January and February, it can put you back a little bit. So to that end, you should expect a different cadence. I'm going to turn to Jim and ask him to give you some more detail on what that cadence likely to look like this year. So Jim, back to you for a moment on that, please.

Yeah. So Q1 2023, as Ward mentioned, was unseasonably good. That year, Q1 represented 15% of our gross profits. I'm speaking on a consolidated basis, so it's not product by product, but on a consolidated basis, 15% of gross profits were earned in Q1. Again, it's a lower profit quarter, so small changes can have big percentage impacts. And then pointing out, as you did, the weather this year is worse in Q1. I'm now going to guess around 11.5% of our gross profits would occur in Q1 of this year. So that's about a 350 basis point drop. I would say with Q2, three and four would each be about a little bit more than one percentage points increasing versus what they were last year. Again, that's percentages of total yearly profits. Does that help?

Yes, sir. I got it. That's super helpful. Thank you and good luck. Great. Thanks so much.

Just one bit more color on that. So obviously January was a really challenging month for customers and everyone else, as you would imagine. February, as we've seen good weather come through, the business has done what we would have thought. So I think that's important to note as a footnote to what Jim just took you through. But Troy, thanks for the question. Thank you.

Thank you. Your next question is from Stanley Elliott from Stifel. Please ask your question.

Good morning, Ward, Jim. Congratulations on another successful year. Ward, maybe a good time to get an update on how you guys are thinking about SOAR 2025. I mean, you've effectively doubled the market cap since that came out in 2020, 2021. Any comments on, I guess, the execution thus far? Maybe how are you thinking about recent future and future portfolio moves and maybe tie that back into your commercial efforts?

Stanley, thanks for the question. You're right. I mean, we've been Really disciplined, very thoughtful in each of our SOAR five-year increments. So if you go back in time and remember, the first one came out in 2010, and that was through 15. Then in 15, we did SOAR 2020. And most recently, again, very cleverly, SOAR 2025. And we've been able in each of those to effectively double our market cap. And we're almost there now. And obviously, we still have some track ahead of us in SOAR 2025. I would say a couple of things. One, the commercial execution that you've seen us focused on is something that we will continue to be focused on. I think you see it in what we've given relative to our guide this year. Again, we're looking at ASP increases at 11% at the midpoint. And again, I think it's important to state, Stanley, that does not contemplate mid-years. That's the same type of conversation we had in 2023 as well. And you'll recall that we came back and actually had mid-years in more than half of our market. So again, we'll come back and revisit that at half year and see where that is. The other thing that I think is important to keep in mind is you've seen what I think is a lot of very productive, very appropriate M&A. I think it's totally consistent with what we've said to the market. We are an aggregates-led business. And part of what I'm moved by, if we look at simply what's occurred so far this year, two large transactions with assets coming into the organization. Obviously, Blue Water still has some time to go through the Hartscott process, but we'll close on that transaction. Between Blue Water and what we've done with Alfry and Sons, those are two pure play aggregates businesses. And what I'm particularly moved by as well, if we look at our pipeline, that's what our pipeline looks like too. I do believe our company is positioned from a quality growth perspective and very compelling. And it's an overused term, but I almost think unique position as well. So will commercial discipline be a piece of it? You bet. Will operational excellence be a piece of it? And we think it will continue to be, particularly as we bring these businesses into our fold. But again, our ability to do shareholder value-increasing transactions, we think here in the near term, medium term, and long term is a fundamental differentiator for our business. And if we think about what value creation looks like for Martin Marietta and its shareholders, we think those are the key drivers. But Stanley, I hope that's helpful in response to your question.

It sure does. Thanks so much, and best of luck. Thank you, Brent.

Thank you. Your next question is from Anthony Pettinari from City. Please ask your question.

Good morning.

Good morning.

You know, the gross profit per ton guidance of 840, I think, implies cost per ton up maybe mid-single digit year over year, if I got that right. And I'm just wondering if you could bridge that between maybe some of your different cost inputs. and any kind of assumptions around cost categories and maybe energy for the balance of the year.

I'm happy to. I'll ask Jim to go through and give you a bucket-by-bucket view. But overall, you're entirely right. If we're just looking at general inflation, it's going to be in the mid to high single digits range. That can obviously move around a little bit, but there are some components of our business that are seeing higher pieces of inflation. I think it's important to say that labor is actually not one of those. Those numbers continue to be in a very comfortable place, both for our workforce and for our company. But let Jim take you through some of the puts and takes and some of the other inputs.

Yeah, you're right. It's about 7% inflation on the COGS, on the agri-business, COGS per ton. So here are the items that are above 7% or north of 7%. Oil and lubricants were expecting to be up quite a bit. Explosives still remain high. the parts and equipment for the plant, also about that zip code. So those are the areas that are pushing it above seven. Areas that are pushing it below seven are, as Ward mentioned, labor, which is our biggest cost component, and also diesel and electricity net gas. Those are not expected to be headwinds in 2024. So those are the large buckets, I would say, that are deviating from the seven percent. Some are more than seven. Others are well below the 7, but on a blended basis, that's where we're ending up.

Got it, got it. And the assumption for diesel is just current prices?

There's a smidge of a headwind for diesel, not much, off of current spot prices.

So we hope we've been a bit punitive to ourselves. We'll see how that plays out, Anthony.

No, that's very helpful. I'll turn it over. Thanks so much.

Thank you. Your next question is from Angel Casillo from Morgan Stanley. Please ask your question.

Hi, good morning, and thanks for taking my question. Just was curious on the recent acquisitions. I was wondering if you could help us quantify a little bit more or give us a little bit more color as to kind of upside opportunity on the pricing side as you look at those assets and those regions in terms of bringing those more kind of to the value over volume strategy.

Well, look, if we look at the overall businesses, looking at the fry business in Colorado, they were doing somewhere between 3.5 and 4 million tons of stone per annum. But Denver's a very attractive marketplace. We'll have to see how that plays out, but you can go back over time and get a good sense of commercially at least how we've approached those markets. As you can imagine, the barriers to some degree of entry in hard rock can be quite high in a number of markets. So we feel very good about our team in Colorado. They're very cost-conscious. They're very commercially focused. And we think the marketplace in Denver will continue to be very attractive for an extended period of time. Keep in mind, if we go back, let's call it 13 years, we had no significant business at all in Colorado. We look up and down the front range today. We're the clear leader in aggregates up and down the I-25 corridor. Remember, that's where 80-plus percent of the population in Colorado lives, and again, the biggest piece of it being in Denver. And now between the Wallstrom Quarry, which we picked up, and our Spec Ag Quarry, a very attractive position in that marketplace. If we go and look at Blue Water, obviously that transaction has not closed. We're going through the Hart-Scott process soon. and we're hoping to have that done half-year-ish, heavy on the ish, by the way. It could clearly push into the second half of the year. If we look at the overall tonnage, that's going to be around 13 million tons of stone. But importantly, if you look at the markets in which it gives us a nice footprint, these are markets that we've long talked about wanting to have a natural position in. So suddenly we find ourselves in Nashville. Suddenly we find ourselves in Knoxville. Now we find ourselves in a much more significant way in South Florida and around Miami. So if you go back and take a look at the slide presentation that we gave to the analysts and investors in February of 2021, we talked about a series of markets that we wanted to enter. We talked about Northern California, Southern California, Arizona, in and around Austin, Texas. We talked about Middle Tennessee. We talked about South Florida. And we talked about Northern Virginia. We are literally in a place now that we're putting checks in most of those boxes. So again, if you take a look at the overall pricing at these facilities relative to our corporate average, it's modestly below a corporate average. So again, I'm hoping I'm giving you something directionally that you can work with. But that gives you a sense of the markets. It gives you a sense of the overall volume. I do think we will operationally bring increased efficiencies to these markets. And we're thrilled to, number one, have already brought the Thrive team into the Martin Marietta fold, and we look forward to bringing the Blue Water team into our organization as well. So hopefully, Angela, that responds to your question.

That's very helpful. Thank you.

You bet.

Thank you. Your next question is from Jerry Revich from Goldman Sachs. Please ask your question.

Yes, honey, good morning, everyone.

Good morning, Jerry.

I'm wondering if we just take a step back. Historically, in a flat and demand environment, the industry has realized four points of price or less, and obviously we're putting up much better performance here, and the price-cost spread widening. As you think about what the industry learned over the course of the hyperinflation period, I guess, do you think the fear of inflation stays with the industry beyond this year? Or, you know, could we return to slower pricing cadence in 25 towards that historical rate? I know it's super early, but I feel like the industry got burned with inflation surprising to the upside. I'm wondering, does that change the mindset for obviously you folks and others in your markets?

The only thing I can speak to is Martin Marietta, of course, and I would say several things. One, obviously, inflation has moved significantly over the last couple of years, and we took the actions that were smart and prudent to protect our company as that went up. Secondly, at least here at our company, we recognize that having these long-lived reserves is significant. We're sitting here today at current extraction rates with reserves in excess of 70 years. Something that I think we talk about inside our company is these reserves are worth more tomorrow than they are today. In some geographies, it's very difficult to replicate or replace the reserves. And I think as we think long term, and that's how we tend to think about this business. If we go back to one of the questions that was earlier, They were asking about SOAR and the fact that we look at our business in five-year increments. But the simple fact is, Jerry, we think about our business in terms of decades, not years, not five years, but really decades. And as we look at it through that lens, we recognize that we have the product that is absolutely essential in every form of heavy side development. You don't need asphalt in every piece of it. You don't need concrete in every piece of it. But you need the aggregates in absolutely every piece of it. So from our perspective, as we look at what aggregate sells for on a per ton basis, and then we consider, one, its vitality to a product or to a project, and its overall cost relative to the project, we think we're actually adding more to an individual project then we're costing a project. That's how we think about what we're doing. So if we go back to the notion of will commercial excellence continue to be a driver for our organization and I think make our pricing look fundamentally different going forward than it did, say, a decade ago? Yeah, I think it probably will. Do I think operationally we will continue to bring great value to the organization by making our businesses better faster, safer, more efficient, etc. Yeah, I think we will. But I also think that what you should expect from us, and this ties to a degree to it as well, Jerry, is we will continue to be a very responsible, very visionary acquirer of attractive businesses and attractive geographies. And I think if you take those building blocks that I've taken you through, it gives you a good sense of of how to think about our business overall from a commercial perspective.

Really appreciate the color. And then, you know, you folks have been super busy over a Super Bowl weekend. And, you know, I'm wondering if you look at the M&A pipeline today, now that we're wrapping up the last deal, hopefully that's announced soon, the M&A pipeline from here, Ward, what's the range of outcomes in terms of how much more capital we can deploy? over the balance of 24? You predicted 24 was going to be a really active M&A year, and I'm just wondering how much is left for there to do based on what's in the pipeline?

Jerry, that's a great question. So here's the way that I would encourage you to think about it. Let's assume that Fry is closed, which it is, and let's assume that Bluewater was closed. We'd be leveraged at about 1.85 times. So keep in mind, through a cycle, we'd like to be leveraged two to two and a half times. So we're still, despite that degree... of acquisitive activity. We're still below where we would typically like to be. So my point is this. When we've seen attractive transactions before, we haven't done it a lot, but we've gone over three times. We've delivered actually very quickly and easily when we've done that. I continue to believe that there will be more transactional activity this year. I would be disappointed if there's not. You're right on our Q3 call back in November. I said at that time I thought 2024 would be a pretty busy year. Obviously, we're quite a month and a half into it. It's been a really busy year already. But, Jerry, the fact is that I think there's going to be more. I'd be disappointed if there wasn't. And you should expect it to be more pure stone type transactions, Jerry.

Super. Thank you.

Thank you. Thank you.

Your next question is from Philip Ng from Jefferies. Please ask your question.

Hey, guys. Congrats on a really strong quarter. If I take your guidance, Jim, I think you're calling for flattish volumes for the full year. Not too dissimilar to what you told us back on the 3Q call, but I believe your guide now includes AFS, so that would imply maybe volumes are a little softer, but everything that you mentioned sounded pretty constructive, so I just want to make sure One, we're not overthinking about this. And when you look out to the back half, and you kind of talked about rates coming down, that could be a good guy for housing. Could volumes kind of inflect in the back half and go into 2025? Is there a good way to think about the trajectory for us?

Phil, thanks for your question. A couple of things that I would say. Number one, you're right. I mean, if we're looking at bringing in five, and let's call it three and a half million tons, One thing that happened in our sale of the Hunter cement plant is we were actually doing some stone production there as well that was going into the cement production. So in fairness, that was probably about 2 million tons. So really if you start taking a look at what went the other way in the Hunter transaction, what's going this other way near term in Frye, keep in mind that you've got a fairly seasonally impacted business in Colorado as well. Again, I think it leads you back to that relatively flat-ish. So I wouldn't strain too hard on what those numbers look like because there's just enough movement on the surface of it that it could put you in a much more comfortable place. Yeah, it really does look and feel flat. To your point, though, I do believe if we see interest rate reductions and we see a steady, albeit somewhat slow, recovery in housing... and then what's likely to be degrees of light non-res that comes behind that in the second half of the year. I'm not sure how much it's going to push volumes up in half two. I think it certainly could push volumes up in half two. I think what it's really doing is it's setting up 2025 to be even a more productive year. Obviously, on the infrastructure side, we think it's going to be pretty constructive all by itself. I mean, if you think about the fact that we're looking at what's happened on highway contract awards and you're looking at basic in LTM from December 2019 through 2023 that's got almost an 11% CAGR involved in it. And then we're looking at our top 10 states and DOT budgets themselves that are up on average 10%. And here's some percentages to keep in mind. Texas, which had a really heady budget, is up 24%. Florida, which has been at record levels, is up 9%. North Carolina, our home court, is up 11%. Minnesota, when we bought the business there from Tiller several years ago, we said that was a really attractive DOT. It's up about 38%. So again, as we're looking at public, we think that that's going to be pretty compelling. Even as we sit and move to non-res, if we're looking at manufacturing, the reshoring that we mentioned in our opening comments is pretty significant. We continue to see more activity in that space. I also called out what we're seeing consistently in energy. We've got a new battery plant in Kokomo, Indiana. There's a new one coming into Bowling Green, Kentucky. But what I've been a bit surprised by, and I think this may be more geographic intensive as well or sensitive, is even in the areas that have had degrees of slowing, warehouses and data centers. I mean, we've got four data centers under construction right now in eastern Nebraska and western Iowa, and there's a new one that looks like it's coming online in Covington, Georgia. So, again, if we look across our geographic footprint and recognize that we've been very selective in the where, do I think there's a prospect that you could see some upside in the second half of the year in volumes? Yeah, I do. I think that cadence that Jim spoke to earlier is important to keep in mind because clearly we're not going to have a Q1 this year that looked like Q1 last year. But again, I think Q2, Q3, and Q4 can be attractive, recognizing a pretty heady Q4 we just had this year, too. So again, Phil, I hope that's helpful and constructive on the volumes and what the end uses look like.

Appreciate the great color, Ford.

You bet.

Thank you. Your next question is from Tyler Brown from Raymond James.

Please ask your question.

Tyler, you with us?

Yes, you there? Sorry.

Yes, sir. We hear you. Hi, Tyler.

All right. Good deal. Yeah, good deal. Good deal. Hey, Jim, I'm curious about the CapEx guide. So it was a little bit higher than maybe we had expected just considering the South Texas sale. Just curious what all is in that capex number. Was there a sizable Midlothian spend in there, maybe outsized land acquisition? It just seems like 9.5% capex to sales feels a bit higher than normal, just particularly considering flattish volume.

Yeah, that's a good question. Our range is between 8% to 10%. Typically, 9% is the most common as the midpoint. But we do have a couple of large projects in there, and you're right, the Finish Mill 7 is among those. That's one of the larger spends in 2024 as you wrap up that project. Another one is our Beckman plant in San Antonio is getting a significant upgrade there as well. So those are the two largest items that are helping to push that up to a little bit more than normal, but still well within the range of what I think is typical for us.

Hey, Tyler, let me add this too because Jim nailed it. He's exactly right. The other thing that we're seeing, though, on occasion – and we've seen it more in the last few months, is real estate purchases tends to be highly opportunistic. And when the right real estate shows up, you don't always know when it's going to parachute in. And we have to have the ability to be pretty agile around that. So we're looking at some real estate purchases as well that we think will be important in the near, medium, and again, long-term for Martin Marietta. But broadly, very much in that range that Jim spoke to. But those are some of the moving parts, both above the water and under the water.

That is very helpful. Thank you, guys. Thank you.

Your next question is from Catherine Thompson from Thompson Research Group. Please ask your question.

Hi. Thank you for taking my question today. A lot of focus on all the great M&A and divestiture activities since November. Certainly a busy holiday season through Super Bowl. But one of the changes also too is just in the cadence and the type of flavor of capital expenditure capex as you divest some cement and take on more aggregate focused assets. Could you walk through what this does for free cash cadence and also how we should think about capital expenditure given the change in mix? And then thoughts on capital allocation going forward given recent activity. Thank you.

I'm going to start with capital allocation, then come back to Jim, and he can just talk you through more degrees of CapEx and how things can move around. If you think about the capital allocation, Catherine, one of the more elegant things about our company is that stays pretty consistent. Our view is our best first dollar spent is on the right transaction. And again, I think our teams are good at that. I think they're good at identifying the deals. I think they're good at going through the contracting process. I think they're good at the integration process. I think they're good at the synergy realization process. So the right transactions will be number one on capital allocation. Number two, and Jim will take you through more specifics, will be reinvesting in the business. As you know, if you're in the business of crushing stone, you're in the business of destroying iron. So the fact is we'll stay probably in those ranges that Jim spoke about a few minutes ago, but he'll go into more detail. And then lastly is returning of cash to shareholders through two things, a meaningful and a sustainable dividend, and we say both of those words very intentionally, and share buybacks at the right time. So the capital allocation priorities simply do not change Now, more to your question on how does this portfolio evolution that we've seen change the way that we look at CapEx for that average, Jim?

Yeah, so I would expect it to go either be very constant with historical levels or maybe a little bit higher as we look to replant many of our agris plants to keep them efficient and highly automated. So as far as cadence for the year, I would expect it to be similar to last year and the year before. Q1 and Q4 are a little bit heavier on the CapEx. Q2 and Q3 are a little bit lighter. But, of course, the things that can throw that out of whack on occasion would be the occasional opportunistic generational land purchase. That would be something that could, of course, throw those percentages and historical patterns out of kilter. But hopefully that answers the question, Katie.

And, Catherine, let me add one more note to that as well, because keep in mind, When we're doing replants or otherwise, we're doing those because the income rates of return on those projects is so compelling, we almost would feel silly if we didn't do them. At the same time, part of what's so compelling about an aggregates business is we have the capacity if we need to, and we did it in COVID and we've done it before, to pull back on that CapEx lever if we ever need to. We don't see a need to do that. We think we can do it very constructively. We think we can do it in a very value-additive way. But again, I think as you just step back from our industry, compare it to others, and you look at the degrees of agility that we can bring to something like CapEx in a heavy industry is decidedly different, and we think it's advantaged Martin Marietta. So again, we hope that's responsive to your question. Jim's got one more point.

One more point, kind of an overall cash flow perspective. Catherine. So our operating cash flows grew tremendously this year. I'm comparing year over year now. Our CapEx did grow, but our cash conversion ratio improved in 23 over 22 meaningfully. So we're very mindful of our cash flow. We think it's good and getting better. Even with slightly higher CapEx in 2024, we think that trend will continue.

Okay, great. And just one quick clarification on guidance on interest expense that you released today. It seemed a little light, but just wanted to hopefully can give a little bit of clarification on your interest expense guidance. Thank you.

Sure. Yeah, it's actually net interest expense. So it's gross interest expense of call it 160, interest income of call it So net interest expense of about $60 million at the midpoint.

Great. Thank you very much.

Thank you, Katherine.

Thank you. Your next question is from Timna Tanners from Wolf Research. Please ask your question.

Hey, good morning. I wanted to follow up a little bit on the benefits you're seeing from IIJA and any color you can provide on the cadence that you're seeing there and your visibility. We all follow the ARPA awards data, and it's been quite strong, but kind of leveled off over the last several months. So just wondering if you can provide some more color on what you're seeing there.

Thank you for the question. Number one, we are starting to see that begin to pull through. And what I would say, obviously, when you're looking at what you and I know is a $1.2 trillion bipartisan law, That's a big amount of money. That's $110 billion to roads. It's $66 billion for railroad maintenance. It's $42 billion for port and airport infrastructure. But what's important is to start drilling down and seeing what's going on in many respects on a state-by-state or at times MSA-by-MSA basis. So if we look at where NCDOT is, for example, their budget's up 11%. They're obviously going to see nice federal money flowing through as well. What we're basically seeing is they're increasing infrastructure funding here by $7 billion over the next decade. So, again, that starts to give you a good sense of how that money is flowing through. Texas, they're looking for FY24 to be another record year of lettings. That's going to be at about almost $14 billion. By the way, that's up about 15% year over year. Their unified transportation plan for FY24 is expected to exceed $100 billion. Again, that's an 8% increase. So, again, the federal funds that are flowing through are a big part of that. I'm particularly moved by what we've seen happen in Florida because, again, the recent Florida 24 budget increased to $17 billion. Again, that's an all-time high over what had been an all-time high last year. But, again... As we think about what Florida is able to do because of what they're seeing from IHAA, you've got the Moving Florida Forward initiative that was announced in late Q3 that's going to bring $4 billion from general revenue surplus into transportation in that state. And even as we look at what's going on in California, their recently passed FY24 budget includes $20.5 billion for Caltrans, And that's still a 5% year-over-year increase from FY23. So if we're looking at where the states are, what they're doing with their budgets, how they're taking these funds that are also coming from the federal government, it's a pretty compelling story as we sit back and look at it. Jim's got a few things he wants to add as well, Tim.

Yeah, our volumes were down 2% for the quarter, but I'll point out our infrastructure volumes were actually up 6%. So we think we're seeing it coming through, those infrastructure volumes.

Okay, that's helpful. Thanks. Just one follow-up on all the M&A discussion. You've highlighted an appetite for bolt-ons, but obviously you also highlighted that you have spare bandwidth or capacity, if you will, in your debt leverage. So I'm just wondering, for the right deal, are you willing to kind of tap the capital markets, or is it still just kind of a priority for bolt-ons as you look ahead? Thanks.

For the right transactions, we would certainly do that, Tim. And again, we've demonstrated the capacity, if we've done the right transactions, to bring down leverage very, very quickly in the organization. So we'll just have to look at them on a transaction-by-transaction basis. But the short answer is a lot of these, if they came along, you're only going to see them once. And it, again, can be very opportunistic. And sitting at 1.85 times levered today, even having done all that we will have done this year, taking into account fry and blue water. We've got a lot of dry powder right now.

Got it. Okay, thanks again.

Thank you, Tim. Thank you. Your next question is from Michael Dudas from Vertical Research. Please ask your question.

Good morning, Jacqueline, Jim. Good morning.

So following on the acquisition opportunities, just two thoughts. One, as you're going through your plan to SOAR 25 and maybe beyond, is there a percentage or a mix of aggregates that you're targeting for the contribution for the whole company? And given that you've divested South Texas in a very efficient and cooperative manner with the purchaser, are there opportunities on the sell side that, again, as you move to that mixed target or where you want to be that could emerge over the next six to 12 months?

Mike, thanks for the question. I mean, number one, if we look at where we're going to be after the transactions that we've done, our 2024 pro forma gross profit mix would be at 77% aggregates. I mean, should you expect that number to continue to grow? The answer is yes, you should. But I would say this too. I think this is so important to state. The cement operation that we have in Midlothian, Texas is a fantastic cement business. It's a long way from the Gulf of Mexico. We have our Southwest headquarters in Dallas. We're the largest aggregates producer in Dallas. We're the largest cement producer in Dallas. That business has, just from my perspective, eye-watering margins. We like the businesses that we have very much. And if we've got the ability, desire, and capacity to to go and grow our aggregates business, which we do, and take that number that I just gave you, that 77%, and push that to 80%, and then beyond that, frankly, you should expect us to do that. If we go back through the way that we've long described ourselves, we've said we're aggregates-led, with strategic cement, with targeted downstream. I mean, those are, again, very well-conceived, well-thought-out adjectives before each one of those businesses. And What you're seeing us do this year is totally consistent with an aggregates-led business and building a business that can outperform through cycles. And we think that's so vital to what we're doing. And that's part of what's so important about also this value over volume philosophy that we're bringing to our business. So yes, sir, you should expect to see that aggregates number continue to go up. And again, that's very consistent with the pipeline that we're looking at today.

Thank you, Ward.

Thank you. Your next question is from Keith Hughes from Truist. Please ask your question.

Keith, are you there?

Can you hear me now? Now we hear you, Keith. Yes, sir.

Okay. Sorry about that.

So a question on cement and the remaining cement business for 24. What kind of price volume expectations do you have in the gut?

I'll give you some of that, Keith. It's getting increasingly challenging for us to give too much granularity around that cement business because that's the only cement business we have. I'm torn between I want to make sure I'm transparent, giving you everything that you need. I also don't want to put ourselves at a remarkable competitive disadvantage. So I'll give you an overall sense. Give me what you can. I'll give you what I can with that prelude. So look, we obviously kept the larger of the two cement businesses. Look, from a volume perspective, it's going to be modestly over 2 million tons. From a pricing perspective, we're looking at an increase in North Texas of around $15 per ton. That increase, if I were you, I'd be modeling that more in an April timeframe as opposed to a January timeframe. Obviously, you saw very attractive margins in that business last year. And what I would suggest to you is our aim would be on a full year basis to maintain the types of margins in that business that you saw in the overall cement business last year in Texas. So, Keith, I hope that gives you broadly what you need.

That's fine. Thank you very much.

You bet. Thank you. Your next question is from Garrick Schmoys from Loop Capital. Please ask your question.

Oh, hi. Thanks. I wanted to just follow-up on aggregates pricing. The outlook is in line with how you framed it coming out of the 3Q call, and we appreciate your value over volume strategy, but there was a competitor last week that spoke to both trying to take share this year and pricing maybe a little bit more closely to inflation or the rate of deflation that they were seeing I'm wondering if maybe you're seeing a change in the conversations at all with aggregates pricing going into this year. Are those becoming maybe a little bit more difficult? Maybe I'm overthinking it, but just thought I'd ask the question on how those discussions have been going.

Okay, Eric, it's a fair question. The conversations have actually been pretty constructive with our customers. And keep in mind, several things happened. Number one, location is going to matter a lot. Number two, relationship is going to matter a lot. Number three, I think the swing factor in some places may be what degrees of mid-years look like. Again, the only place right now that we've already got stated mid-years are in California where we've told people basically we're coming out of the gate in 2024 with $2 a ton up and then we're going to do another $2 a ton at mid-year. You know, Keep in mind, too, that most of our customers are not the owner. They tend to be a general, a first-tier sub, second-tier sub, third-tier sub, etc. And they tend to be cost-plus themselves. And if we're looking at being 10% of the cost of a road, 2% of the cost of a home, and somewhere between those two numbers on a non-res project, the price of the stone usually isn't why a project goes or why a contractor gets the job. But at the same time, replacing that stone, once it goes out of our gate... can be pretty challenging. So look, do I think we'll see years and years of price performance like we saw in 2023? No, I don't think that's going to be the norm. Do I think we're trending more toward what I think the norm will be for Martin Marietta this year? Yeah, I think we probably are. And to me, that feels like an appropriate place for us to be given the economy, given the difficulties that you can have in replacing some of these reserves in some of these key markets. Remember, we have some urban quarries in locations that trying to find opportunities to come back behind quarries if they're depleted would be hugely challenging. And building new quarries will put you farther away from the city centers and take degrees of efficiency away. Again, I hope that gives you, number one, a philosophy on how we approach it. Number two, what our dialogue looks like with our customers. And number three, how I think it's going to play out, at least from Martin Marietta, over a period of years.

No, that's helpful. Just wanted to follow up just quickly just on cement margins, recognizing the decreasing importance in size in that segment. With the finishing mill coming on later this year, is there any chalkiness or inefficiencies that we should be aware of?

No, I don't think so. To the extent, I mean, we're going to be very disciplined about bringing that online. It won't be disruptive to price. We think we'll be able to bring it online gradually in terms of operational approach as well as marketplace impact. It'll be very disruptive. and we think it won't be very disruptive at all. So we're not looking for any kind of noticeable effect from an external view on this point. And margins should be enhanced when those come online. So we think it's really going to fit. The market is sold out, by and large, and we think it will fit nicely with the growing demand there.

Understood. Thanks again, and congrats on the quarter. Thanks so much, Gary.

Thank you. Your next question is from David McGregor from Longbow Research. Please ask your question.

Hey, good morning. This is Joe Nolan on for David. Hi, Joe. I just had one quick question on the aggregates volumes guidance you provided up or down 2%. Just within that, what would be the primary drivers that you're monitoring to drive the high-end or low-end And just within that, can you talk about how the value over volume strategy might play into that?

Yeah, happy to. I mean, here's a good way to think of it. This is not a bad laboratory to give it some thought. So if we look in Q2, volume is down 2%. So last year, we were at 47.7%. The year just ended 46.6%. If we're really looking at that and saying, what were your swing markets or what were your swing factors? Value over volume was probably modestly over a million tons of that. So again, if we think, we actually had a better return for shareholders, we kept those reserves in the ground or we kept them in stockpiles, we'll sell them another day, we'll sell them for higher. That was your primary driver. There was some degrees, as is well chronicled, of market softening in degrees of residential and non-res. But the biggest piece of that was value over volume. So if we're looking at what swing factors can be, as Jim pointed out, in the quarter we saw infrastructure volumes up 6%. That wasn't a surprise, but really it was a nice affirmation of what's happening. So if we continue to see public growth sensibly, if we see RES start to do what, you know, we're not predicting it, but you can certainly see that RES could have a nice recovery beginning in half two, we think that's important. And again, as we're looking at these mega projects, if we're looking at non-res projects of size and of scale, depending on how some of those play out, it doesn't take a lot of those. I mean, it could take one or two of those to really change the trajectory of degrees of volume. And obviously, we're still having significant conversations on a number of large non-res projects in the Gulf of Mexico. And if some of those go, I think those are your swing factors, Joe, as you think about volume. So I hope that helped.

That's very helpful detail. Thanks. I'll pass it on. You bet. Take care.

Thank you. Your next question is from Adam Fallheimer from Thompson Davis. Please ask your question.

Hey, good morning, guys. Great quarter, great outlook.

Thank you so much, Adam. Good to hear your voice.

What have you got? Ward, you talked about data center weakness in Q4. That surprised me. What are you seeing going forward there?

I'm not sure it was so much. I was talking more broadly about what some of the writers have said. I think what I was saying is in our world, it hasn't been – as down as people would have thought. Now, keep in mind, it was against a really tough comp. So that's more of it than anything else. But if you just look at general trade publications, they're going to say, look, in warehousing and data center, you're going to start to see some moderation simply because the comps are so high. I guess my point was, not all markets are going to be equal. And I think when we start looking at the southeastern, southwestern, and interestingly, these midwestern markets where there's a lot of data center activity, which is why I was calling out in particular part of what's happening in Nebraska and Iowa, because those have been actually really resilient markets in that particular space, Adam. So it wasn't that I was really calling out high degrees of weakness. It was more comps are tough, and the overall commentary around that is a little bit softer than in some other areas. But, again, I think we're holding up better than most. Okay.

And then clients ask me this, so I'll just ask you. Are we still early in you guys seeing the benefit from IIJA?

Yeah. Look, I think if we're talking about that in innings, I mean, we're in the very early innings of that. I mean, I think it's a practical matter. 2024 is really the first year that we're going to start to see significant stone go out the gates on IHA. So here's the way I would think of it, Adam. 24 on that is going to be better than 23. 25 is likely to be better than 24. And I think 26 could be better than 25. So in baseball parlance, we're not anywhere near the seventh inning stretch. I mean, we're in a very healthy spot right now, and it's likely to be that way for a number of years.

Great answer. Thanks, Ward. Good deal. Thank you, Adam.

Thank you.

There are no further questions at this time. I will now hand the call back to Ward for the closing remarks.

Again, thank you so much for joining today's earnings conference call. Martin Marietta's impressive 2023 results underscore the durability and resiliency of our aggregates-led business in unparalleled markets and the efficacy of our value-over-volume market approach. This solid foundation, together with our unyielding commitment to enterprise excellence through the execution of our strategic priorities, gives us confidence in our ability to continue delivering industry-leading safety, financial, and operational performance. With our attractive underlying fundamentals, proven strategic priorities, and best-in-class teams, we're excited about our prospects for continued sustainable growth and value creation for our shareholders for the foreseeable future. We look forward to sharing our first quarter 2024 results in the spring. As always, we're available for any follow-up questions. Thank you again for your time and continued support of Martin Marietta.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect. you Thank you. Thank you. Welcome to Martin Marietta's fourth quarter and full year 2023 earnings conference call. All participants are now in a listen-only mode. A question and answer session will follow the company's prepared remarks. As a reminder, today's call is being recorded and will be available for replay on the company's website. I will now turn the call over to your host, Ms. Jacqueline Rooker. Martin Marietta is Director of Investor Relations. Jacqueline, you may begin.

Good morning, and thank you for joining Martin Marietta's fourth quarter and full year 2023 earnings call. With me today are Ward and I, Chairman and Chief Executive Officer, and Jim Nicholas, Executive Vice President and Chief Financial Officer. Today's discussion may include forward-looking statements, as defined by the United States securities laws in connection with future events, future operating results, or financial performance. Like other businesses, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially. We undertake no obligation, except as legally required, to publicly update or revise any forward-looking statements, whether resulting from new information future developments, or otherwise. Please refer to the legal disclaimers contained in today's earnings release and other public filings, which are available on both our own and the Securities and Exchange Commission's websites. We have made available during this webcast and on the Investors section of our website supplemental information that summarizes our financial results and trends. As a reminder, All financial and operating results discussed today are for continuing operations. In addition, non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in the appendix to the supplemental information, as well as our filings with the SEC and are also available on our website. Board and I will begin today's earnings call. with the discussion of our 2023 financial highlights and operating performance. Jim Nicholas will then review our financial results and capital allocation in more detail, after which Ward will conclude with end market trends and our 2024 outlook. A question and answer session will follow. Please limit your Q&A participation to one question. I will now turn the call over to Ward.

Jackman, thank you. Good morning and thank you so much for joining today's teleconference. I'm pleased to report 2023 was the safest and most profitable year in Martin Marietta's history. We delivered both record financial performance, eclipsing $2.1 billion in adjusted EBITDA and also world class safety results, achieving a world class total injury incident rate for the third year in a row and a world class lost time incident rate for the seventh consecutive year. This year was also highlighted by several portfolio enhancing transactions, significantly strengthening both the durability of our business and our balance sheet, and which, cumulatively, positions us well to continue delivering sustainable growth. Our 2023 achievements were accomplished despite a macroeconomic environment encumbered by restrictive monetary policy, a housing slowdown, and heightened geopolitical tensions. that our team was able to successfully overcome these challenges further underscores the continued success of our strategic operating analysis and review or SOAR plan, the vitality of our purposefully curated geographic footprint, our team's steadfast execution of our proven value over volume commercial strategy, and the resiliency and earnings power of our aggregates-led business. Subsequent to year end, on January 12th, we closed the acquisition of Albert Fry & Sons, a leading aggregates producer in Colorado, expanding our aggregates platform in the high-growth Denver metropolitan area. More recently, on February 11, 2024, we entered into a definitive agreement to acquire the Alabama, South Carolina, South Florida, Tennessee, and Virginia aggregates operations of Blue Water Industries, a closely held pure play aggregates producer with a portfolio of 20 active operations in attractive southeast markets including Nashville, Knoxville, and Miami. Consistent with our SOAR plan, upon closing of the Blue Water Industries acquisition, which is expected to occur later this year, subject to regulatory approvals and customary closing conditions, these two pure play aggregates transactions will not only add approximately one billion tons of high quality reserves in specific SOAR targeted markets, but also enhance the product mix of our portfolio. Assuming these transactions had closed on January 1, 2024, we would have expected these two acquisitions to generate approximately $180 million of adjusted EBITDA in 2024, more than offsetting the adjusted EBITDA divested in the February 9, 2024 sale of the company's South Texas cement and related concrete business. As we turn the page to 2024, favorable commercial dynamics underpinned by our value over volume pricing strategy and giving effect to the recently closed colorado acquisition and texas divestiture we expect to deliver consolidated adjusted evida of 2.24 billion dollars at the midpoint however assuming these transactions and the recently announced blue water industries acquisition had all been completed as of january 1 2024 We would have expected the new portfolio to generate adjusted EBITDA of $2.37 billion in 2024 at the midpoint. Before discussing our full year 2023 results, I'll highlight a few notable takeaways from our record fourth quarter. Aggregates pricing increased 15%, driving product line gross profit of $328.6 million, a year-over-year increase of 36.8%, and gross profit per ton of $7.04, a year-over-year increase of 39.8%, both fourth quarter records. While aggregate shipments decreased 2.1%, these financial results clearly demonstrate the success of our sales team's commitment to receiving appropriate commercial consideration for our valuable and long-lived reserves, the primary and disproportionate organic earnings growth driver of our business. Turning now to our full year 2023 results, as previously noted, we established new financial records in each of the following year-over-year metrics. Consolidated total revenues of $6.8 billion, a 10% increase. Consolidated gross profit of $2 billion, a 42.1% increase. Earnings per diluted share from continuing operations of $19.32, a 41% increase. adjusted EBITDA of $2.1 billion, a 33% increase, and aggregate gross profit per ton of $6.93, a 46.4% increase. Moreover, we successfully implemented mid-year price increases across the majority of our markets as we endeavor to pass through persistently high-cost inflation. Shifting now to our full-year 2023 operating performance, beginning with aggregates. Aggregate shipments declined 4.3%, the combined result of our value over volume strategy and softer demand in certain Midwest and Southwest markets, partially offset by continued strength in key Southeast markets. Aggregates pricing increased 18.9% or 17.2% on a mix-adjusted basis as pricing fundamentals remain attractive. Texas cement shipments decreased 3.4% to 4 million tons. Pricing increased 22% or 21.6% on a mix-adjusted basis, driven by favorable supply-demand dynamics in the Dallas-Fort Worth Metroplex. Turning to our targeted downstream businesses, ready-mix concrete shipments decreased 12.1% But that reduction was largely driven by the April 2022 divestiture of the company's Colorado and Central Texas concrete businesses. Pricing increased to robust 20.4%. Asphalt shipments increased 3.5%, and pricing increased 6.7%. Before providing in-market trends and our 2024 outlook, Jim will now discuss our full-year financial results. Jim?

Thank you, Ward, and good morning, everyone. As Ward mentioned, we completed the sale of our South Texas cement plant and related concrete operations last week on February 9th. While these businesses were classified as held for sale on the balance sheet as of December 31st, revenues and profits from these operations through the divestiture date are included in the earnings from continuing operations. Accordingly, the revenues and profits from these assets are included in both 2023's reported earnings from continuing operations and in our 2024 earnings guidance through the February 9th close date. The revenues and profits from the Colorado assets acquired on January 12th, 2024 also are included in our forward earnings guidance. Lastly, the Blue Water Industries transaction is not yet closed and remains subject to customary closing conditions and regulatory review. Accordingly, the contributions from the pending acquisition are not included in our 2024 earnings guidance. That said, we will provide updated earnings guidance after closing the Blue Water transaction, which is expected to occur later this year. The building materials business posted full-year 2023 revenues of $6.5 billion, an increase of 10.3%, and gross profit of $1.9 billion, a notable 43.7% increase year-over-year, both new records. The aggregates business achieved all-time record revenues in 2023, growing 10.9% to $4.3 billion. Gross profit increased 40.1% to $1.4 billion, and gross margin increased 660 basis points to 32%. Again, both all-time records. Solid pricing growth more than offset lower shipments, further demonstrating how the disciplined execution of our value over volume commercial strategy yields higher profits and higher margins, even without the benefit of growing volumes. Our Texas cement business extended its track record of outstanding performance and once again delivered record top and bottom line results. Revenues increased 17% to $725.5 million, and gross profit increased 64.6% to $333.6 million, driven primarily by favorable supply-demand dynamics in the Dallas-Fort Worth Metroplex and energy-cost tailwinds. As a reminder, the new finished mill at our Midlothian, Texas plant in North Texas is expected to be fully operational in the third quarter of 2024, adding approximately 450,000 tons of incremental high-margin annual production capacity. Turning to our targeted downstream businesses, Our concrete revenues increased 5.9% to $1 billion, and gross profit increased 44.2% to $102 million, driven primarily by pricing gains and megaproject contributions, which more than offset higher upstream raw material and delivery costs. Asphalt and paving revenues increased 12.6% to $887.1 million. Gross profit increased 34.7%, to $109 million, the result of strong demand and lower bitumen costs. Magnesia specialties' full-year revenues increased 3.8% to $315.4 million, while gross profit increased 6.9% to $97.1 million. Strong pricing and energy cost tailwinds more than offset weaker demand in certain magnesia end markets, including TPO roofing and cobalt mining. We continue to balance our longstanding disciplined capital allocation priorities to responsibly grow our business. In 2023, we invested $650 million of capital into our business and returned $324 million to shareholders through both an increased dividend and share repurchases. Since our repurchase authorization announcement in February of 2015, we have returned a total of $2.6 billion to shareholders through both dividends and share repurchases. Our net debt to EBITDA ratio was 1.4 times as of December 31st. Assuming the Albert Fry & Sons and Blue Water Industries acquisitions and South Texas Cement and Related Concrete Operations divestiture were effective as of January 1st, 2024, after giving effect to the impacts of these transactions, our net debt to EBITDA ratio would have been 1.85 times, just below our targeted range of 2 to 2.5 times, which would provide ample dry powder to take advantage of additional value-enhancing acquisitions. With that, I will turn the call back to Ward to discuss end market trends.

Jim, thanks so much. We're enthusiastic about Martin Marietta's prospects in 2024 and beyond. We anticipate healthy demand in public and heavy non-residential construction will largely offset softness in the residential sector and expected moderation in light non-residential construction. However, anticipated decreases in mortgage rates should provide tailwinds in residential demand and an uptick in single-family home construction as evidenced by recent starts data. As you've heard us say for years, in this business, where you are matters, and Martin Marietta is uniquely positioned to capitalize on these long-term secular trends. Infrastructure activity is expected to remain resilient, as funds from the Infrastructure Investment and Jobs Act, or IIJA, along with record State Department of Transportation, or DOT, budgets as well as voter-approved state and local transportation-related ballot initiatives, coalesce to spur years of steady investment and demand. The value of state and local government highway, bridge, and tunnel contract awards, a leading indicator for our future product demand, grew 8% to $113 billion in 2023. According to the American Road and Transportation Builders Association, or ARPA, Texas, Colorado, California, Georgia, and Florida, key Martin Marietta states, are among some of the largest growing markets based on contract awards. Importantly, our investment in our nation's infrastructure continues to maintain broad bipartisan support. During the November 2023 election, voters approved 88% of transportation related state and local ballot initiatives, representing approximately $7 billion of additional infrastructure funding. We expect this enhanced level of federal, state, and local infrastructure investment will yield steady, multi-year demand in this important, aggregates-intensive, often counter-cyclical end market. Moving to non-residential and starting with heavy industrial, strong demand for large manufacturing and heavy side energy projects is expected to counterbalance ongoing moderation in warehouse and data center construction from its COVID peak. Construction spending from manufacturing in the United States continues to trend positively with the December seasonally adjusted annual rate of spending for 2023 at $214 billion, a 61% increase from the December 2022 value of $133 billion. Manufacturing projects continue to be supported by health demand from the ongoing reshoring of critical product supply chains, including semiconductors and electric vehicle battery manufacturing. As an example, in the fourth quarter of 2023, Toyota announced an $8 billion expansion to their battery manufacturing campus in North Carolina, bringing their total investment to approximately $14 billion. This incremental investment solidifies North Carolina as Toyota's central hub for lithium-ion battery production in North America with this campus having over 7 million square feet. Importantly, our quarries are well positioned to supply the aggregates needs for this type of multi-year project. Shifting to light non-residential, while demand remained resilient through 2023 despite higher interest rates, high office vacancy rates and tighter commercial lending conditions, we expect 2024 demand in this segment to moderate as it generally follows single family residential development with a lag. Given the structural housing deficit and favorable population trends in key Marietta markets, we fully expect the affordability-driven single-family residential slowdown will recover as interest rates decline further and monthly mortgage payments become relatively more affordable. Although there's still near-term uncertainty, we're encouraged by recent trends in single-family housing starts, a leading indicator of aggregate demand, which were 1 million units in December an increase of 16% from a year ago. Looking ahead, we expect 2024 to be another record year for Martin Marietta. As previously mentioned, we anticipate flat aggregate shipments as infrastructure and large-scale non-residential projects should largely offset softness in the residential and light non-residential sectors. With steady product demand supporting favorable commercial dynamics and the disciplined execution of our value over volume strategy, we expect double-digit aggregates price and growth to overcome inflationary pressures and lead to expanded gross margins and unit profitability growth. Combined with contributions from our cement, downstream, and magnesia specialties businesses, and contributions from our recently acquired Colorado assets, we're confident in our expectations for consolidated adjusted EBITDA of 2.24 billion at the midpoint. To conclude, we're extremely proud of our record-setting performance in 2023. We demonstrated our ability to successfully navigate another challenging macroeconomic environment and deliver superior returns for shareholders. As we begin the new year, our teams remain committed to employee health and safety, commercial and operational excellence, sustainable business practices, and the execution of our SOAR 2025 initiatives as we build the safest, best performing, and most durable aggregates-led public company. We look forward to continuing our strong momentum and driving responsible and profitable growth in 2024 and beyond. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session.

Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your first question is from Trey Grooms from Stevens. Please ask your question.

Yeah, good morning, Ward and Jim. You guys have been quite busy and first wanted to congratulate you and the team on the recent acquisition announcement. They look like great assets and a great fit for you guys.

Great, thank you very much.

It was a busy weekend, I'll tell you that. Yeah, I bet it was. On that note, Jim, and you touched on it, but could you help us with a bit more detail on how to bridge the guide for the full year, maybe help us understand and quantify what is included, what is not included as we look at the guide for 24?

Yeah, sure, happy to do that. So we've closed now on two transactions, the acquisition of Alphry and that is in, and that you can think about that maybe as between 40 and 45 million of EBITDA coming from that business. And then we've also closed the divestiture of our south Texas cement and ready mix business. And you can think about that as around 170 of EBITDA that was divested. So those are coming out of what you would have seen probably from the 2023 view. The blue water acquisition call it 135 or so million of EBITDA that is not, that'd be a full year run rate view, that is not included in our guide. We will, of course, include that. When that closes, we'll update our guidance for that additional EBITDA at that point, but hopefully that provides the necessary ins and outs for you to make that work.

Yep, that's super helpful. Got it. And one more, if I could. You know, I'm located not too far from some of your locations, and, you know, it's no secret January weather was tough. particularly here in the south where we aren't used to snow and ice or sub-freezing temps for long periods of time. Can you help us on maybe how to think about that in one cue and anything else to note that maybe we should be aware of as we think about this first quarter?

Trey, thanks a lot. I mean, that's a really good question because, as you recall, last year in Q1, weather was actually disproportionately good. And I think when people saw Q1 numbers, they thought, wow, that's really something. And you know what I've long said. The first quarter can largely be made or broken by the last two weeks in March. But if you do have really challenging weather in January and February, it can put you back a little bit. So to that end, you should expect a different cadence. I'm going to turn to Jim and ask him to give you some more detail on what that cadence likely to look like this year. So Jim, back to you for a moment on that, please.

Yeah, so Q1 2023, as Ward mentioned, was unseasonably good. That year, Q1 represented 15% of our gross profits. I'm speaking on a consolidated basis, so it's not product by product, but on a consolidated basis, 15% of gross profits were earned in Q1. Again, it's a lower profit quarter, so small changes can have big percentage impacts. And then pointing out, as you did, whether this year is worse than Q1, I'm now going to guess around 11.5% of our gross profits would occur in Q1 of this year. So that's about a 350 basis point drop. I would say with Q2, Q3, and Q4 would each be about a little bit more than one percentage point increasing versus what they were last year. Again, that's percentages of total yearly profits. Does that help?

Yes, sir. I got it. That's super helpful. Thank you and good luck. Great. Thanks so much. Just a

One bit more color on that. So obviously January was a really challenging month for customers and everyone else, as you would imagine. February, as we've seen good weather come through, the business has done what we would have thought. So I think that's important to note as a footnote to what Jim just took you through. But Troy, thanks for the question. Thank you.

Thank you. Your next question is from Stanley Ellman from Steeple. Please ask your question.

Good morning, Ward, Jim. Congratulations on another successful year. Ward, maybe a good time to get an update on how you guys are thinking about SOAR 2025. You've effectively doubled the market cap since that came out in 2020-2021. Any comments on, I guess, the execution thus far? Maybe how are you thinking about recent future and future portfolio moves and maybe tie that back into your commercial efforts?

Stanley, thanks for the question. You're right. I mean, we've been Really disciplined, very thoughtful in each of our SOAR five-year increments. So if you go back in time and remember, the first one came out in 2010, and that was through 15. Then in 15, we did SOAR 2020. And most recently, again, very cleverly, SOAR 2025. And we've been able in each of those to effectively double our market cap. And we're almost there now. And obviously, we still have some track ahead of us in SOAR 2025. I would say a couple of things. One, the commercial execution that you've seen us focused on is something that we will continue to be focused on. I think you see it in what we've given relative to our guide this year. Again, we're looking at ASP increases at 11% at the midpoint. And again, I think it's important to state, Stanley, that does not contemplate mid-years. That's the same type of conversation we had in 2023 as well. And you'll recall that we came back and actually had mid-years in more than half of our market. So again, we'll come back and revisit that at half year and see where that is. The other thing that I think is important to keep in mind is you've seen what I think is a lot of very productive, very appropriate M&A. I think it's totally consistent with what we've said to the market. We are an aggregates-led business. And part of what I'm moved by, if we look at simply what's occurred so far this year, two large transactions with assets coming into the organization. Obviously, Blue Water still has some time to go through the hard Scott process, but we'll close on that transaction. Between Blue Water and what we've done with Alfry and Sons, those are two pure play aggregates businesses. And what I'm particularly moved by as well, if we look at our pipeline, that's what our pipeline looks like too. I do believe our company is positioned from a quality growth perspective and very compelling. And it's an overused term, but I almost think unique position as well. So will commercial discipline be a piece of it? You bet. Will operational excellence be a piece of it? And we think it will continue to be, particularly as we bring these businesses into our fold. But again, our ability to do shareholder value-increasing transactions, we think here in the near term, medium term, and long term is a fundamental differentiator for our business. And if we think about what value creation looks like for Martin Marietta and its shareholders, we think those are the key drivers. But Stanley, I hope that's helpful in response to your question.

It sure does. Thanks so much, and best of luck. Thank you, Brent.

Thank you. Your next question is from Anthony Pettinari from Citi. Please ask your question.

Good morning. Good morning. You know, the gross profit per ton guidance of 840, I think, implies cost per ton up maybe mid-single digit year over year, if I got that right. And I'm just wondering if you could bridge that between maybe some of your different cost inputs. and any kind of assumptions around cost categories and maybe energy for the balance of the year.

I'm happy to. I'll ask Jim to go through and give you a bucket-by-bucket view. But overall, you're entirely right. If we're just looking at general inflation, it's going to be in the mid to high single digits range. That can obviously move around a little bit, but there are some components of our business that are seeing higher pieces of inflation. I think it's important to say that labor is actually not one of those. Those numbers continue to be in a very comfortable place, both for our workforce and for our company. But let Jim take you through some of the puts and takes and some of the other inputs.

Yeah, you're right. It's about 7% inflation on the COGS, on the agri-business, COGS per ton. So here are the items that are above 7% or north of 7%. Oil and lubricants were expecting to be up quite a bit. Explosives still remain high. the parts and equipment for the plant, also about net zip code. So those are the areas that are pushing it above seven. Areas that are pushing it below seven are, as Ward mentioned, labor, which is our biggest cost component, and also diesel and electricity net gas. Those are not expected to be headwinds in 2024. So those are the large buckets, I would say, that are deviating from the 7 percent. Some are more than 7. Others are well below the 7. But on a blended basis, that's where we're ending up.

Got it, got it. And the assumption for diesel is just current prices?

There's a smidge of a headwind for diesel, not much, off of current spot prices.

So we hope we've been a bit punitive to ourselves. We'll see how that plays out, Anthony.

No, that's very helpful. I'll turn it over. Thanks so much.

Thank you. Your next question is from Angel Casillo from Morgan Stanley. Please ask your question.

Hi, good morning, and thanks for taking my question. Just was curious on the recent acquisitions. I was wondering if you could help us quantify a little bit more or give us a little bit more color as to kind of upside opportunity on the pricing side as you look at those assets and those regions in terms of bringing those more kind of to the value over volume strategy.

Well, look, if we look at the overall businesses, looking at the fry business in Colorado, they were doing somewhere between 3.5 and 4 million tons of stone per annum. But Denver's a very attractive marketplace. We'll have to see how that plays out, but you can go back over time and get a good sense of commercially at least how we've approached those markets. As you can imagine, the barriers to some degree of entry in hard rock can be quite high in a number of markets. So we feel very good about our team in Colorado. They're very cost conscious. They're very commercially focused. And we think the marketplace in Denver will continue to be very attractive for an extended period of time. Keep in mind, if we go back, let's call it 13 years, we had no significant business at all in Colorado. We look up and down the front range today We're the clear leader in aggregates up and down the I-25 corridor. Remember, that's where 80-plus percent of the population in Colorado lives, and again, the biggest piece of it being in Denver. And now between the Wallstrom Quarry, which we picked up, and our Spec Ag Quarry, a very attractive position in that marketplace. If we go and look at Bluewater, obviously that transaction has not closed. We're going through the Hart-Scott process soon. and we're hoping to have that done half-year-ish, heavy on the ish, by the way. It could clearly push into the second half of the year. If we look at the overall tonnage, that's going to be around 13 million tons of stone. But importantly, if you look at the markets in which it gives us a nice footprint, these are markets that we've long talked about wanting to have a natural position in. So suddenly we find ourselves in Nashville. Suddenly we find ourselves in Knoxville. Now we find ourselves in a much more significant way in South Florida and around Miami. So if you go back and take a look at the slide presentation that we gave to the analysts and investors in February of 2021, we talked about a series of markets that we wanted to enter. We talked about Northern California, Southern California, Arizona, in and around Austin, Texas. We talked about Middle Tennessee. We talked about South Florida. And we talked about Northern Virginia. We are literally in a place now that we're putting checks in most of those boxes. So again, if you take a look at the overall pricing at these facilities relative to our corporate average, it's modestly below a corporate average. So again, I'm hoping I'm giving you something directionally that you can work with. But that gives you a sense of the markets. It gives you a sense of the overall volume. I do think we will operationally bring increased efficiencies to these markets. And we're thrilled to, number one, have already brought the FRI team into the Martin Marietta fold, and we look forward to bringing the Blue Water team into our organization as well. So hopefully, Angela, that responds to your question.

That's very helpful. Thank you.

You bet.

Thank you. Your next question is from Jerry Revich from Goldman Sachs. Please ask your question.

Yes, honey, good morning, everyone. Good morning, Jerry. I'm wondering if we just take a step back. Historically, in a flat and demand environment, the industry has realized four points of price or less, and obviously we're putting up much better performance here, and the price-cost spread widening. As you think about what the industry learned over the course of the hyperinflation period, I guess, do you think the fear of inflation stays with the industry beyond this year? Or, you know, could we return to slower pricing cadence in 25 towards that historical rate? I know it's super early, but I feel like the industry got burned with inflation surprising to the upside. I'm wondering, does that change the mindset for obviously you folks and others in your markets?

Well, Jerry, the only thing I can speak to is Martin Marietta, of course, and I would say several things. One, obviously, inflation has moved significantly over the last couple of years, and we took the actions that were smart and prudent to protect our company as that went up. Secondly, at least here at our company, we recognize that having these long-lived reserves is significant. We're sitting here today at current extraction rates with reserves in excess of 70 years. Something that I think we talk about inside our company is these reserves are worth more tomorrow than they are today. In some geographies, it's very difficult to replicate or replace the reserves. And I think as we think long term, and that's how we tend to think about this business. If we go back to one of the questions that was earlier, They were asking about SOAR and the fact that we look at our business in five-year increments. But the simple fact is, Jerry, we think about our business in terms of decades, not years, not five years, but really decades. And as we look at it through that lens, we recognize that we have the product that is absolutely essential in every form of heavy side development. You don't need asphalt in every piece of it. You don't need concrete in every piece of it. But you need the aggregates in absolutely every piece of it. So from our perspective, as we look at what aggregate sells for on a per ton basis, and then we consider, one, its vitality to a product or to a project, and its overall cost relative to the project, we think we're actually adding more to an individual project than we're costing a project. That's how we think about what we're doing. So if we go back to the notion of will commercial excellence continue to be a driver for our organization and I think make our pricing look fundamentally different going forward than it did say a decade ago. Yeah, I think it probably will. Do I think operationally we will continue to bring great value to the organization by making our businesses better faster, safer, more efficient, et cetera? Yeah, I think we will. But I also think that what you should expect from us, and this ties to a degree to it as well, Jerry, is we will continue to be a very responsible, very visionary acquirer of attractive businesses and attractive geographies. And I think if you take those building blocks that I've taken you through, it gives you a good sense of of how to think about our business overall from a commercial perspective.

Really appreciate the color. And then, you know, you folks have been super busy over Super Bowl weekend. And, you know, I'm wondering if you look at the M&A pipeline today, now that we're wrapping up the last deal, hopefully that's announced soon, the M&A pipeline from here, Ward, what's the range of outcomes in terms of how much more capital we can deploy over the balance of 24? You predicted 24 was going to be a really active M&A year, and I'm just wondering how much is left for there to do based on what's in the pipeline?

Jerry, that's a great question. So here's the way that I would encourage you to think about it. Let's assume that Fry is closed, which it is, and let's assume that Bluewater was closed. We'd be leveraged at about 1.85 times. So keep in mind, through a cycle, we'd like to be leveraged two to two and a half times. So we're still, despite that degree of of acquisitive activity. We're still below where we would typically like to be. So my point is this. When we've seen attractive transactions before, we haven't done it a lot, but we've gone over three times. We've delevered actually very quickly and easily when we've done that. I continue to believe that there will be more transactional activity this year. I would be disappointed if there's not. You're right on our Q3 call back in November. I said at that time I thought 2024 would be a pretty busy year. Obviously, we're quite a month and a half into it. It's been a really busy year already. But, Jerry, the fact is that I think there's going to be more. I'd be disappointed if there wasn't. And you should expect it to be more pure stone type transactions, Jerry.

Super. Thank you.

Thank you.

Thank you.

Your next question is from Phillip N. from Jefferies. Please ask your question.

Hey, guys. Congrats on a really strong quarter. If I take your guidance, Jim, I think you're calling for flattish volumes for the full year. Not too dissimilar to what you told us back on the 3Q call, but I believe your guide now includes AFS, so that would imply maybe volumes are a little softer, but everything that you mentioned sounded pretty constructive, so I just want to make sure One, we're not overthinking about this. And when you look out to the back half, and you kind of talked about rates coming down, that could be a good guy for housing. Could volumes kind of inflect in the back half and go into 2025? Is there a good way to think about the trajectory for us?

Phil, thanks for your question. A couple of things that I would say. Number one, you're right. I mean, if we're looking at bringing in FRIVE, and let's call it 3.5 million tons, One thing that happened in our sale of the Hunter cement plant is we were actually doing some stone production there as well that was going into the cement production. So in fairness, that was probably about 2 million tons. So really, if you start taking a look at what went the other way in the Hunter transaction, what's going this other way near term in Frye, keep in mind that you've got a fairly seasonally impacted business in Colorado as well. Again, I think it leads you back to that relatively flat-ish. So I wouldn't strain too hard on what those numbers look like because there's just enough movement on the surface of it that it could put you in a much more comfortable place. Yeah, it really does look and feel flat. To your point, though, I do believe if we see interest rate reductions and we see a steady, albeit somewhat slow, recovery in housing... and then what's likely to be degrees of light non-res that comes behind that in the second half of the year. I'm not sure how much it's going to push volumes up in half, too. I think it certainly could push volumes up in half, too. I think what it's really doing is it's setting up 2025 to be even a more productive year. Obviously, on the infrastructure side, we think it's going to be pretty constructive all by itself. I mean, if you think about the fact that we're looking at what's happened on highway contract awards and you're looking at basic in LTM from December 2019 through 2023 that's got almost an 11% CAGR involved in it. And then we're looking at our top 10 states and DOT budgets themselves that are up on average 10%. And here's some percentages to keep in mind. Texas, which had a really heady budget, is up 24%. Florida, which has been at record levels, is up 9%. North Carolina, our home court, is up 11%. Minnesota, when we bought the business there from Tiller several years ago, we said that was a really attractive DOT. It's up about 38%. So again, as we're looking at public, we think that that's going to be pretty compelling. Even as we sit and move to non-res, if we're looking at manufacturing, the reshoring that we mentioned in our opening comments is pretty significant. We continue to see more activity in that space. I also called out what we're seeing consistently in energy. We've got a new battery plant in Kokomo, Indiana. There's a new one coming into Bowling Green, Kentucky. But what I've been a bit surprised by, and I think this may be more geographic intensive as well or sensitive, is even in the areas that have had degrees of slowing, warehouses and data centers. I mean, we've got four data centers under construction right now in eastern Nebraska and western Iowa, and there's a new one that looks like it's coming online in Covington, Georgia. So, again, if we look across our geographic footprint and recognize that we've been very selective in the where, do I think there's a prospect that you could see some upside in the second half of the year in volumes? Yeah, I do. I think that cadence that Jim spoke to earlier is important to keep in mind because clearly we're not going to have a Q1 this year that looked like Q1 last year. But again, I think Q2, Q3, and Q4 can be attractive, recognizing a pretty heady Q4 we just had this year, too. So again, Phil, I hope that's helpful and constructive on the volumes and what the end uses look like.

Appreciate the great color, Ford.

You bet.

Thank you. Your next question is from Tyler Brown from Raymond James.

Please ask your question.

Tyler, you with us?

Yes, you there? Sorry.

Yes, sir. We hear you. Hi, Tyler.

All right. Good deal. Yeah, good deal. Good deal. Hey, Jim, I'm curious about the CapEx guide. So it was a little bit higher than maybe we had expected just considering the South Texas sale. Just curious what all is in that CapEx number. Was there a sizable Midlothian spend in there, maybe outsized land acquisition? It just seems like 9.5% CapEx to sales feels a bit higher than normal, just particularly considering flattish volume.

Yeah, that's a good question. Our range is between 8% to 10%. Typically, 9% is the most common at the midpoint. But we do have a couple of large projects in there, and you're right. The Finish Mill 7 is among those. That's one of the larger spends in 2024 as we wrap up that project. Another one is our Beckman plant in San Antonio is getting a significant upgrade there as well. So those are the two largest items that are helping to push that up to a little bit more than normal but still well within the range of what I think is typical for us.

Hey, Tyler, let me add this too because Jim nailed it. He's exactly right. The other thing that we're seeing, though, on occasion – and we've seen it more in the last few months, is real estate purchases tends to be highly opportunistic. And when the right real estate shows up, you don't always know when it's going to parachute in. And we have to have the ability to be pretty agile around that. So we're looking at some real estate purchases as well that we think will be important in the near, medium, and again, long-term Walmart Marriott. But broadly, very much in that range that Jim spoke to. But those are some of the moving parts, both above the water and under the water.

Yes, that is very helpful.

Thank you, guys. Thank you.

Your next question is from Catherine Thompson from Thompson Research Group. Please ask your question.

Hi. Thank you for taking my question today. A lot of focus on all the great M&A and divestiture activities since November. Certainly a busy holiday season through Super Bowl. But one of the changes also too is just in the cadence and the type of flavor of capital expenditure capex as you divest some cement and take on more aggregate focused assets. Could you walk through what this does for free cash cadence and also how we should think about capital expenditure given the change in mix? And then thoughts on capital allocation going forward given recent activity. Thank you.

I'm going to start with capital allocation, then come back to Jim, and he can just talk you through more degrees of CapEx and how things can move around. If you think about the capital allocation, Catherine, one of the more elegant things about our company is that stays pretty consistent. Our view is our best first dollar spent is on the right transaction. And again, I think our teams are good at that. I think they're good at identifying the deals. I think they're good at going through the contracting process. I think they're good at the integration process. I think they're good at the synergy realization process. So the right transactions will be number one on capital allocation. Number two, and Jim will take you through more specifics, will be reinvesting in the business. As you know, if you're in the business of crushing stone, you're in the business of destroying iron. So the fact is we'll stay probably in those ranges that Jim spoke about a few minutes ago, but he'll go into more detail. And then lastly is returning of cash to shareholders through two things, a meaningful and a sustainable dividend, and we say both of those words very intentionally, and share buybacks at the right time. So the capital allocation priorities simply do not change Now, more to your question on how does this portfolio evolution that we've seen change the way that we look at CapEx for that average, Jim?

Yeah, so I would expect it to go either be very constant with historical levels or maybe a little bit higher as we look to replant many of our agris plants to keep them efficient and highly automated. So as far as cadence for the year, I would expect it to be similar to last year and the year before, Q1 and Q4 a little bit heavier on the CapEx, Q2 and Q3 a little bit lighter. But of course, the things that can throw that out of whack on occasion would be the occasional opportunistic generational land purchase. That would be something that could, of course, throw those percentages and historical patterns out of kilter. But hopefully that answers the question, Katie.

And Catherine, let me add one more note to that as well, because keep in mind, When we're doing replants or otherwise, we're doing those because the inflow rates of return on those projects is so compelling, we almost would feel silly if we didn't do them. At the same time, part of what's so compelling about an aggregates business is we have the capacity if we need to, and we did it in COVID and we've done it before, to pull back on that CapEx lever if we ever need to. We don't see a need to do that. We think we can do it very constructively. We think we can do it in a very value-additive way. But again, I think as you just step back from our industry, compare it to others, and you look at the degrees of agility that we can bring to something like CapEx in a heavy industry is decidedly different, and we think it's advantaged Martin Marietta. So again, we hope that's responsive to your question. Jim's got one more point.

One more point, kind of an overall cash flow perspective, Catherine. So our operating cash flows grew tremendously this year. I'm comparing year over year now. Our CapEx did grow, but our cash conversion ratio improved in 23 over 22 meaningfully. So we're very mindful of our cash flow. We think it's good and getting better. Even with slightly higher CapEx in 2024, we think that trend will continue.

Okay, great, and very helpful. And just one quick clarification on guidance on interest expense that you released today. It seemed a little light, but just wanted to hopefully can give a little bit of clarification on your interest expense guidance. Thank you.

Sure, yeah, it's actually net interest expense. So it's gross interest expense of call it 160, interest income of call it, So net interest expense of about $60 million at the midpoint.

Great. Thank you very much. Thank you, Katherine.

Thank you. Your next question is from Timna Tanners from Wolf Research. Please ask your question.

Hey, good morning. I wanted to follow up a little bit on the benefits you're seeing from IIJA and any color you can provide on the cadence that you're seeing there and your visibility. We all follow the ARPA awards data, and it's been quite strong, but kind of leveled off over the last several months. So just wondering if you can provide some more color on what you're seeing there.

Thank you for the question. Number one, we are starting to see that begin to pull through. And what I would say, obviously, when you're looking at what you and I know is a $1.2 trillion bipartisan law, That's a big amount of money. That's $110 billion to roads. It's $66 billion for railroad maintenance. It's $42 billion for port and airport infrastructure. But what's important is to start drilling down and seeing what's going on in many respects on a state-by-state or at times MSA-by-MSA basis. So if we look at where NCDOT is, for example, their budget's up 11%. They're obviously going to see nice federal money flowing through as well. What we're basically seeing is they're increasing infrastructure funding here by $7 billion over the next decade. So again, that starts to give you a good sense of how that money is flowing through. Texas, they're looking for FY24 to be another record year of lettings. That's going to be at about almost $14 billion. By the way, that's up about 15% year over year. Their unified transportation plan for FY24 is expected to exceed $100 billion. Again, that's an 8% increase. So, again, the federal funds that are flowing through are a big part of that. I'm particularly moved by what we've seen happen in Florida because, again, the recent Florida 24 budget increased to $17 billion. Again, that's an all-time high over what had been an all-time high last year. But, again... As we think about what Florida is able to do because of what they're seeing from IJA, you've got the Moving Florida Forward initiative that was announced in late Q3 that's going to bring $4 billion from general revenue surplus into transportation in that state. And even as we look at what's going on in California, their recently passed FY24 budget includes $20.5 billion for Caltrans, And that's still a 5% year-over-year increase from FY23. So if we're looking at where the states are, what they're doing with their budgets, how they're taking these funds that are also coming from the federal government, it's a pretty compelling story as we sit back and look at it. Jim's got a few things he wants to add as well, Tim.

Yeah, our volumes were down 2% for the quarter, but I'll point out our infrastructure volumes were actually up 6%. So we think we're seeing it coming through, those infrastructure volumes.

Okay, that's helpful. Thanks. Just one follow-up on all the M&A discussion. You've highlighted an appetite for bolt-ons, but obviously you also highlighted that you have spare bandwidth or capacity, if you will, in your debt leverage. So I'm just wondering, for the right deal, are you willing to kind of tap the capital markets, or is it still just kind of a priority for bolt-ons as you look ahead? Thanks.

For the right transactions, we would certainly do that, Tim. And again, we've demonstrated the capacity if we've done the right transactions to bring down leverage very, very quickly in the organization. So we'll just have to look at them on a transaction-by-transaction basis. But the short answer is a lot of these, if they came along, you're only going to see them once. And it, again, can be very opportunistic. And sitting at 1.85 times levered today, even having done all that we will have done this year, taking into account fry and blue water. We've got a lot of dry powder right now.

Got it. Okay, thanks again. Thank you, Tim.

Thank you. Your next question is from Michael Dudas from Vertical Research. Please ask your question.

Good morning, Jacqueline, Jim. Good morning.

So following on the acquisition opportunities, just two thoughts. One, as you're going through your plan to SOAR 25 and maybe beyond, is there a percentage or a mix of aggregates that you're targeting for the contribution for the whole company? And given that you divested South Texas in a very efficient and cooperative manner with the purchaser, are there opportunities on the sell side that, again, as you move to that mixed target or where you want to be that could emerge over the next six to 12 months?

Mike, thanks for the question. I mean, number one, if we look at where we're going to be after the transactions that we've done, our 2024 pro forma gross profit mix would be at 77% aggregates. I mean, should you expect that number to continue to grow? The answer is yes, you should. But I would say this, too. I think this is so important to state. The cement operation that we have in Midlothian, Texas is a fantastic cement business. It's a long way from the Gulf of Mexico. We have our Southwest headquarters in Dallas. We're the largest aggregates producer in Dallas. We're the largest cement producer in Dallas. That business has, just from my perspective, eye-watering margins. We like the businesses that we have very much. And if we've got the ability, desire, and capacity to to go and grow our aggregates business, which we do, and take that number that I just gave you, that 77%, and push that to 80%, and then beyond that, frankly, you should expect us to do that. If we go back through the way that we've long described ourselves, we've said we're aggregates-led, with strategic cement, with targeted downstream. I mean, those are, again, very well-conceived, well-thought-out adjectives before each one of those businesses. And What you're seeing us do this year is totally consistent with an aggregates-led business and building a business that can outperform through cycles. And we think that's so vital to what we're doing. And that's part of what's so important about also this value over volume philosophy that we're bringing to our business. So yes, sir, you should expect to see that aggregates number continue to go up. And again, that's very consistent with the pipeline that we're looking at today.

Thank you, Ward.

Thank you. Your next question is from Keith Hughes from Truist. Please ask your question.

Keith, are you there?

Can you hear me now? Now we hear you, Keith. Yes, sir.

Okay. Sorry about that.

So a question on cement and the remaining cement business for 24. What kind of price, volume, expectations do you have in the guy?

I'll give you some of that, Keith. It's getting increasingly challenging for us to give too much granularity around that cement business because that's the only cement business we have. So I'm torn between I want to make sure I'm transparent, giving you everything that you need. I also don't want to put ourselves at a remarkable competitive disadvantage. So I'll give you an overall sense. I'll give you what I can with that prelude. So look, we obviously kept the larger of the two cement businesses. Look, from a volume perspective, it's going to be modestly over 2 million tons. From a pricing perspective, we're looking at an increase in North Texas of around $15 per ton. That increase, if I were you, I'd be modeling that more in an April timeframe as opposed to a January timeframe. Obviously, you saw very attractive margins in that business last year. And what I would suggest to you is our aim would be on a full year basis to maintain the types of margins in that business that you saw in the overall cement business last year in Texas. So Keith, I hope that gives you broadly what you need.

That's fine. Thank you very much.

You bet.

Thank you. Your next question is from Garrick Schmoys from Loop Capital. Please ask your question.

Oh, hi. Thanks. follow up on aggregates pricing, you know, the outlook, you know, is in line with how you framed it coming out of the 3Q call. But, you know, and we appreciate your value over volume strategy. But there was a competitor last week that spoke to both trying to take share this year and pricing maybe a little bit more closely to inflation or, you know, the rate of deflation that they were seeing. I'm wondering if maybe you're seeing a change in the conversations at all with aggregates pricing going into this year. Are those becoming maybe a little bit more difficult? Maybe I'm overthinking it, but just thought I'd ask the question on how those discussions have been going.

No, Garrick, it's a fair question. The conversations have actually been pretty constructive with our customers. And keep in mind, several things happened. Number one, location is going to matter a lot. Number two, relationship is going to matter a lot. Number three, I think the swing factor in some places may be what degrees of mid-years look like. Again, the only place right now that we've already got stated mid-years are in California where we've told people basically we're coming out of the gate in 2024 with $2 a ton up and then we're going to do another $2 a ton at mid-year. Keep in mind, too, that most of our customers are not the owner. They tend to be a general, a first-tier sub, second-tier sub, third-tier sub, etc. And they tend to be cost-plus themselves. And if we're looking at being 10% of the cost of a road, 2% of the cost of a home, and somewhere between those two numbers on a non-res project, the price of the stone usually isn't why a project goes or why a contractor gets the job. But at the same time, replacing that stone, once it goes out of our gate, can be pretty challenging. So look, do I think we'll see years and years of price performance like we saw in 2023? No, I don't think that's going to be the norm. Do I think we're trending more toward what I think the norm will be for Martin Marietta this year? Yeah, I think we probably are. And to me, that feels like an appropriate place for us to be given the economy, given the difficulties that you can have in replacing some of these reserves in some of these key markets. Remember, we have some urban quarries in locations that trying to find opportunities to come back behind quarries if they're depleted would be hugely challenging. And building new quarries will put you farther away from the city centers and take degrees of efficiency away. Again, I hope that gives you, number one, a philosophy on how we approach it. Number two, what our dialogue looks like with our customers. And number three, how I think it's going to play out, at least from Martin Marietta, over a period of years.

No, that's helpful. Just wanted to follow up just quickly just on cement margins, recognizing the decreasing importance in size in that segment. With the finishing mill coming on later this year, is there any chalkiness or inefficiencies that we should be aware of?

No, I don't think so. To the extent – I mean, we're going to be very disciplined about bringing that online. It won't be disruptive to price. We think we'll be able to bring it online gradually in terms of operational approach as well as marketplace impact. It'll be very – and we think it won't be very disruptive at all. So we're not looking for any kind of noticeable effect from an external view on this point. And margins should be enhanced when those come online. So we think it's really going to fit. The market is sold out by and large, and we think it will fit nicely with the growing demand there.

Understood. Thanks again, and congrats on the quarter. Thanks so much, Gary.

Thank you. Your next question is from David McGregor from Longbow Research. Please ask your question.

Hey, good morning. This is Joe Nolan on for David. Hi, Joe. I just had one quick question on the aggregates volumes guidance you provided up or down 2%. Just within that, what would be the primary drivers that you're monitoring to drive the high-end or low-end And just within that, can you talk about how the value over volume strategy might play into that?

Yeah, happy to. I mean, here's a good way to think of it. This is not a bad laboratory to give it some thought. So if we look in Q2, volume is down 2%. So last year, we were at 47.7%. The year just ended 46.6%. If we're really looking at that and saying, what were your swing markets or what were your swing factors? Value over volume was probably modestly over a million tons of that. So again, if we think, we actually had a better return for shareholders, we kept those reserves in the ground or we kept them in stockpiles, we'll sell them another day, we'll sell them for hire. That was your primary driver. There was some degrees, as is well chronicled, of market softening in degrees of residential and non-res. But the biggest piece of that was value over volume. So if we're looking at what swing factors can be, as Jim pointed out, in the quarter we saw infrastructure volumes up 6%. That wasn't a surprise, but really it was a nice affirmation of what's happening. So if we continue to see public growth sensibly, if we see RES start to do what, we're not predicting it, but you can certainly see that RES could have a nice recovery beginning in half two, we think that's important. And again, as we're looking at these mega projects, if we're looking at non-res projects of size and of scale, depending on how some of those play out, it doesn't take a lot of those. I mean, it could take one or two of those to really change the trajectory of degrees of volume. And obviously, we're still having significant conversations on a number of large non-res projects in the Gulf of Mexico. And if some of those go, I think those are your swing factors, Joe, as you think about volume. So I hope that helped.

That's very helpful detail. Thanks. I'll pass it on. You bet. Take care.

Thank you. Your next question is from Adam Fallheimer from Thompson Davis. Please ask your question.

Hey, good morning, guys. Great quarter, great outlook.

Thank you so much, Adam. Good to hear your voice.

What have you got? Ward, you talked about data center weakness in Q4. That surprised me. What are you seeing going forward there?

I'm not sure it was so much. I was talking more broadly about what some of the writers have said. I think what I was saying is in our world, it hasn't been – as down as people would have thought. Now, keep in mind, it was against a really tough comp. So that's more open than anything else. But if you just look at general trade publications, they're going to say, look, in warehousing and data center, you're going to start to see some moderation simply because the comps are so high. I guess my point was, not all markets are going to be equal. And I think when we start looking at the southeastern, southwestern, and interestingly, these midwestern markets where there's a lot of data center activity, which is why I was calling out in particular part of what's happening in Nebraska and Iowa, because those have been actually really resilient markets in that particular space, Adam. So it wasn't that I was really calling out high degrees of weakness. It was more comps are tough, and the overall commentary around that is a little bit softer than in some other areas. But, again, I think we're holding up better than most. Okay.

And then clients ask me this, so I'll just ask you. Are we still early in you guys seeing the benefit from IIJA?

Yeah. Look, I think if we're talking about that in innings, I mean, we're in the very early innings of that. I mean, I think it's a practical matter. 2024 is really the first year that we're going to start to see significant stone go out the gates on IHA. So here's the way I would think of it, Adam. 24 on that is going to be better than 23. 25 is likely to be better than 24. And I think 26 could be better than 25. So in baseball parlance, we're not anywhere near the seventh inning stretch. I mean, we're in a very healthy spot right now, and it's likely to be that way for a number of years.

Great answer. Thanks, Ward. Good deal.

Thank you, Adam. Thank you.

There are no further questions at this time. I will now hand the call back to Ward for the closing remarks.

Again, thank you so much for joining today's earnings conference call. Martin Marietta's impressive 2023 results underscore the durability and resiliency of our aggregates-led business in unparalleled markets and the efficacy of our value-over-volume market approach. This solid foundation, together with our unyielding commitment to enterprise excellence through the execution of our strategic priorities, gives us confidence in our ability to continue delivering industry-leading safety, financial, and operational performance. With our attractive underlying fundamentals, proven strategic priorities, and best-in-class teams, we're excited about our prospects for continued sustainable growth and value creation for our shareholders for the foreseeable future. We look forward to sharing our first quarter 2024 results in the spring. As always, we're available for any follow-up questions. Thank you again for your time and continued support of Martin Marietta.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.