Summit Materials, Inc.

Ladies and gentlemen, my name is Simon, and I will be your conference operator today. At this time, I would like to welcome everyone to the summit materials, third quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. We ask that you please limit your questions to one question and one brief follow-up. Thank you. Ms. Anderson, you may begin your conference. Ms.

Welcome to Summit Materials' third quarter 2020 results conference call. We issued a press release yesterday afternoon detailing our financial and operating results. This call is accompanied by our third quarter 2020 investor presentation and an updated supplemental workbook highlighting key financial and operating data, all of which are posted on the investor section of our website. Management commentary and responses to questions on today's call may include forward-looking statements, which by their nature are uncertain and outside of subject materials control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ in a material way. For a discussion of some of the factors that could cause actual results to differ, please see the risk factors section of Summit Materials' latest annual report on Form 10-K, as supplemented in our quarterly report on Form 10-Q for the first quarter of 2020, each of which is filed with the SEC. You can find reconciliations of the historical non-GAAP financial measures discussed in today's call in our press release. Today's call will begin with a business update from our CEO, Ann Nunes. Then our CFO, Brian Harris, will provide a financial review, and Ann will provide concluding remarks. We will then open the line for questions. Please limit your questions to one question and one follow-up, and then return to the queue so we can accommodate as many analysts as possible in the time we have available. With that, I'll turn the call over to Anna.

Good morning, everyone, and thank you for joining our third quarter earnings call. Before we begin talking about operating a financial result consistent with our normal practices at Summit, I would like to start by providing an update on safety. Safety is the single most important core value driving the daily actions of all Summit employees. Enhanced safety and distancing protocols are still in place throughout the organization in response to COVID-19. These measures are vital to our operations as Summit is engaged in essential construction activity throughout all of its markets. As we see cases rise nationally, Summit has redoubled its efforts to ensure that we are vigilantly following best practices for the health and safety of our customers, community stakeholders, and our over 6,000 dedicated employees. We thank all of our employees for the commitment to a zero-incident safety culture. This focus is evidenced by our year-to-date safety metrics, which have improved in nearly every performance indicator for the first nine months of 2020. We'll begin on slide three of the presentation with an overview of our third quarter. The headline is that Americans are moving in large numbers to southern and western suburbs and exurbs. Many of the highest growth markets are markets where some have participated, with leading assets and strong operating companies. This migration requires new single-family homes and ultimately will require new roads, schools, distribution centres and medical centres. All of this new construction will create demand for the aggregates and cement that we supply directly to customers. It will also drive demand for the aggregates that will pull through already mixed concrete, asphalt and paving operations, where we capture margin at every stage of the value chain. This migration scenario drove performance in Q3, particularly in our West segment, which posted record net revenue and adjusted EBITDA. Residential construction growth drove higher consumption of aggregates and ready mix. In our high growth markets, such as Houston and Salt Lake City, single family permits increased by double digits year over year in August. We recently closed on two acquisitions that will expand our materials-based positions in important west segment markets. We acquired multi-sources located in Houston, Texas in July, and in August we acquired Valley Gravel, located near Vancouver, British Columbia. Both transactions have good strategic rationale, as they are pure-play aggregates businesses that bolster our presence and scale in attractive markets and increase existing reserves by more than 175 million tons. The East segment delivered mixed results. We reported higher aggregates volume in Kansas and Virginia. Missouri returned to more normalized run rates after last year's levy repair work, and Kentucky completed less road repair work due to the fiscal challenges in that state. Net revenue and adjusted EBITDA were both lower than a year ago, but if you exclude the one-time event of levy work from a 100-year flood in Missouri, each segment aggregates volumes of price were higher year over year. The cement segment is reporting favorable demand trends in residential construction, though several of its southern markets on the Mississippi River have been a bit slower to recover in light of COVID outbreaks and the recent weakness in oil pricing. Lower demand in these markets led to lower net revenue and adjusted EBITDA relative to a year ago, despite achieving a price increase on June 1, 2020. Year-to-date, the cement business continues to deliver strong free cash flow conversion despite challenging conditions. Our profitable Green America recycling facility operated on a limited basis in Q3 due to an explosion earlier in the year, which impacted adjusted EBITDA by $4.3 million. We look forward to Green America resuming normal operations sometime in the fourth quarter. Turning to slide four, we've provided more details on our financial results for Q3 2020 relative to Q3 2019, as well as some ARRI Q4 indicators. Net revenue was down 3.1% as record West segment revenue was offset by lower cement and East segment revenue. Reported net income attributable to Summit Incorporated was up 63% on the reversal of an unrecognized tax benefit and adjusted diluted net income was up 10%. Our adjusted EBITDA of $177.7 million was down 8% on a tough comp relative to the prior year period. However, quarterly cash from operations was up 6% and free cash flow was up 5%. Summit continues to prioritize cash flow and working capital management throughout the organization. That focus on cash helped us keep our leverage ratio steady at 3.5 times in the third quarter, even though Summit acquired two companies during the period. Looking at the IRB results from the month of October and the possible read-through for the fourth quarter 2020, residential demand is strong, particularly in Texas, Utah, and the central U.S. Non-residential activities being fueled by wind farms and distribution centers. However, airport and retail projects have been delayed or deferred with uncertainty around when those projects will resume. Public activity remains resilient in Texas, Kansas, Utah, and Virginia. However, the fiscal situation in Kentucky, the Carolinas, and British Columbia is still challenging. While the budgetary conditions in those locations unfortunately hasn't changed, there is optimism that we may see improvement in 2021. Our executive summary continues on slide five with year-to-date results. Despite uncertain economic conditions, Summit's year-to-date 2020 performance is in line with 2019. This is an accomplishment that our company can take pride in, as we have maintained business continuity throughout the pandemic and served our customers safely and without interruption. We also believe the year-to-date results provide a more fulsome picture, since our year-ago results included one time very profitable levy work from a 100-year flood. Net revenue is up 2.5% year-to-date 2020 versus prior year. Net income is up substantially. An adjusted cash gross profit margin expanded by 120 basis points as we achieved volume growth in aggregates, ready mix, and asphalt. We also reported price growth in cement, ready mix, and asphalt. Adjusted EBITDA is up 4% relative to the first nine months of 2019. Pricing trends are favorable year to date, resulting in margin expansion in many parts of the business. On a mixed adjusted basis, aggregates pricing is up 2.1%. Ready mix pricing is up 5.2% and asphalt up 1.2%. Adjusted cash gross profit margin for products expanded 240 basis points to 23.8%. And for services, the margin expanded 510 basis points to 29.2%. On slide six, we provided an update of the current market conditions in our top five states by revenue. Summit's end-use markets are roughly 38% public, 31% residential, and 31% non-residential. The good news is that with the exception of Kentucky, which represents only 7% of our revenue, we have not seen major disruptions in tax collections reported from most of the states that we serve. However, each state approaches funding decisions differently, so we've done our best to highlight the latest data points. In Texas, TxDOT is awarding jobs and the backlog has not been interrupted. They expect to receive their full Prop 7 allocation in fiscal year 2021. Our public highway work is booked into 2021, most of which is served by our North Texas operation. Houston is one of the country's most diverse and highest growth residential markets, and single family home permits were up 13.9% in August year over year. Non-residential construction activity has been resilient in many of the suburban and ex-urban markets. In Kansas, July through September tax collections were 5.1% higher than expected, and KDOT has several 2021 projects planned. Non-residential projects such as wind farms, warehouses, and distribution centers are typically left and completed in the same calendar year. Residential activity has been steady. For the third quarter, our Utah operation delivered record results as the state attracts new residents with the second lowest unemployment rate in the country. Single family permits in Salt Lake City were up 10% in August year over year. It is a strong in-migration market and had very low new home inventory levels in September. While Missouri's Department of Transportation initially estimated a decline in tax revenue of up to 30%, its activity has been steady for now, though the longer-term impact is less clear. As with Kansas, most non-residential projects are left uncompleted in the same calendar year. So our visibility into 2021 is limited at this time. Residential activity is steady. Finally, in Kentucky, the smallest of our top five states in terms of revenue, the state legislature continues to struggle with budget shortfalls resulting from fiscal issues that preceded the COVID-19 outbreak. While the Kentucky Transportation Cabinet has acknowledged that budgetary impacts to its road fund are less severe than originally estimated, they are proceeding cautiously and lettings have not rebounded to normal levels yet. On slide seven, we provided an outlook by end market. The residential end market is experiencing accelerated demand. The National Association of Home Builders reports that the supply of single-family homes for sale is the lowest in three decades. Home builder sentiment is at all-time highs, and mortgage rates are near all-time lows. Thus, we believe that conditions are ripe for a period of expansion, particularly for suburban and exurban homes in affordable markets such as those served by Summit. The non-residential market has less near-term visibility, but we are long-term bullish. The architectural buildings index suggests that new project developments have stalled. We've seen several airport expansion projects be delayed or deferred. By contrast, we've still been busy with wind farm and distribution center projects. And given the strength in residential, we believe a corresponding period of growth in non-residential construction shouldn't be far behind. With regards to public infrastructure, we now have more certainty about the FAST Act. A continuing resolution to fund highways through 2021 was passed at 2020 funding levels. Each state is evaluating its own budget needs. The funding sources and revenue impacts vary by state. The outcome of the general election may also influence infrastructure spending. Both the House and Senate infrastructure bills would increase federal funding significantly over current levels. Concluding the business update on slide eight, we continue to pursue our aggregate greenfield investment strategy to drive future sustainable organic growth. Five aggregate greenfield investments have been completed to date, with another five aggregate greenfield investments under development. It is estimated that Summit will generate $45 million of adjusted EBITDA on a nine-year-life basis by 2024 from these projects once they are all in full operation. Expected investment in Greenfields is $50 to $60 million in each of 2020 and 2021. With that, I'll turn the call over to Brian for a discussion of financial results.