Summit Materials, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Summit Materials First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. If required any further assistance, please press star 0. Thank you. I'll now turn the conference over to Collie Anderson. Please go ahead.

Welcome to Summit Materials' first quarter 2021 results conference call. We issued a press release yesterday afternoon detailing our financial and operating results. This call is accompanied by our investor presentation and an updated supplemental workbook highlighting key financial and operating data, all of which are posted on the investors section of our website. Management's commentary and responses to questions on today's call may include forward-looking statements, which by their nature are uncertain and outside of Summit 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, 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 Noonan. 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 asks to one question 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 Ann.

Good morning, everyone, and thank you for joining our first quarter 2021 earnings call. We'll begin on slide four of the presentation with an overview of our first quarter performance. Before I brief you on our operating and financial results, 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. Our highest priority is that all of our approximately 6,000 employees uphold the highest standards for safety and return home safely after every workday. Our focus continues to be on driving a zero incident safety culture. I am pleased to report that many of our operating companies have achieved zero reportable incidents year to date. Safety is a core value and at Summit we are committed to a journey of improving our performance every minute of every day to ensure that we keep our employees and the communities that we serve safe. Enhanced safety and distancing protocols are still in place throughout the company in response to COVID-19. Ours is an essential business and we take that responsibility seriously. A few of our offices remain closed and continue to have remote workers subject to local guidelines. However, we expect to complete the transition to in-person working for the entire employee base over the next few months, provided that local health conditions continue to improve. I'll turn now to our financial and operating results. After a strong finish to 2020, Summit has accelerated into 2021 with record first quarter results. Migration activity continues to favor our rural and exurban markets, and most of the state departments of transportation that we serve are on solid financial footing. We are in full implementation mode on our Elevate Summit strategy, and we are seeing early signs of success. We remain focused on sustainable growth with investments in greenfields and end markets that are underpinned by strong growth fundamentals. We delivered record Q1 results for net revenue and adjusted EBITDA. Our Q1 adjusted cash gross profit margin expanded to 20.4% from 14.6% in the year-ago quarter, an expansion of over $31 million in dollar terms, an impressive outcome for which is typically our lowest volume quarter of the year when annual price increases have not yet taken effect. Volume growth was robust throughout the quarter, with aggregate volumes of 20.7%, cement volumes of 13.7%, ready mix volumes of 7.6%, and asphalt of 15.9%. Though there were only two weeks left in the quarter when we announced our Elevate Summit strategy, we hit the ground running with several initiatives out of the gate. We completed one strategic divestiture in the quarter and began work on several more. Our EBITDA margin and ROIC improved on a trailing 12-month basis, and our leverage remained flat versus last quarter. On slide five, we've highlighted our performance at the segment level. Our West segment is the largest contributor to our financial results. It reported record net revenue of 27% and adjusted EBITDA of 81% in the first quarter on continued strength in the Texas and Utah residential markets. all of which drove higher aggregates and ready mix demand. Market conditions in British Columbia are still improving. Our east segment reported higher aggregates and asphalt demand. We set records for net revenue, which was up 3%, and had record adjusted EBITDA, which was up 23%, driven by ready mix demand, partially offset by fewer wind farm projects when compared to Q1 2020. We also had a change of product mix in Kansas, where we sold more base material than a year ago as contractors got an early start to the construction season. This mixed impact negatively affected the average aggregate selling price for both the segment and Summit as a whole, but contributed to significant bottom line growth in the quarter. In adjusted EBITDA dollar terms, the East segments reported 11.7 million of adjusted EBITDA, an increase of 23% over the year-ago quarter. The cement business continues to report increasing demand, with volume up 13.7% in Q1 and revenue up 7.2%. Cement's trailing 12-month adjusted cash gross profit margin is at 40.8%. Our Green America recycling facility is currently ramping back up to full production. The project to expand the Green America facility is also well underway. Turning to slide six. Seven weeks ago, we presented our Elevate Summit strategy. We are seeing encouraging signs of early success, but understand that the road ahead will require continuous execution, discipline, and creativity to deliver better returns and sustained long-term organic growth. We have created centers of excellence to focus on four critical capabilities across our lines of business. operational excellence for aggregates, construction and asphalt, and ready mix lines of business, and commercial excellence across the entire Summit enterprise. We are standardizing in areas like purchasing, technology, and asset utilization, and developing the tools required to optimize return on invested capital across all of our assets. Standardization will drive best-in-class practices across the business and improve consistency of results and agility of decision-making while optimizing our overall cost structure and productivity results. As a reminder, we have four key strategic priorities. First, enhancing our market leadership. We want to continue to be number one or number two in ex-servant and rural markets. These are the markets where we shine by leveraging the strength of our local operating companies and brands, and more people are migrating to them each week. These population shifts will require the construction of new homes, schools, and roads. We are optimizing the portfolio through selective divestitures to provide the flexibility to expand into key targeted markets. where Summit will be best positioned to deliver on our targeted metrics of greater than 30% EBITDA and greater than 10% ROIC. Market leadership fosters value pricing and is a key driver of long-term margin growth. In Q1, we completed the divestiture of the glass aggregates business, which was not strategically core to our portfolio. This divestiture generated $33 million in cash proceeds and a total gain on disposition of $15.7 million. Summit's portfolio optimization team includes a combination of on-the-ground knowledge and relationships through our regional teams, as well as excellent transaction and deal sourcing expertise from our corporate development team. The tight integration of corporate development with Summit's regional leadership will continue to drive growth in our strategically targeted markets. We will allocate capital intentionally and strategically in alignment with our Elevate Summit goals. We are also deploying capital more efficiently with an asset-light approach. Shortly after quarter-end, we successfully divested an asset-intensive business where we were not the rightful owner. As part of the transaction, the counterparty committed to a long-term aggregate supply contract with Summit, thus strengthening an existing customer relationship while reducing capital deployed and complexity of our business. This divestiture met the criteria that we spoke of on March 16th when we rolled out our asset-light approach. It was an isolated downstream asset in a low-growth market where we were not number one or two. It competed with different competitors in the downstream versus the upstream. The business did not have the capability under our ownership near or medium term to meet our financial goals of greater than 30% EBITDA and greater than 10% ROIC. And finally, we had the opportunity to pull through our aggregates with a long-term supply contract. We have committed to lead on social responsibility, not only because it is the right thing to do, but it also has significant importance to all of our stakeholders. We started the process to establish our CO2 baseline and other measurements to understand the key drivers behind our social and human impact, land use, and emissions performance. We're standardizing reporting across the company and we'll use that data to develop a roadmap to become the most socially responsible integrated construction material service provider. We are expanding our Green America recycling facility and expect to have it completed this year. Our valued customers tell us that they face increased challenges and opportunities with regards to ESG. With our commitment to ESG, there is an opportunity to bring value to our customers and the communities we serve through delivery of innovative solutions to meet increasingly stringent building codes and demands for lower emissions products and services, while enhancing the overall quality and financial performance of our business. Finally, our fourth strategic priority is a commitment to invest in innovation. We are beginning to assign resources to the function and developing an inventory of projects and products that we already sell or have been working towards with industry and university partnerships. For example, our BuildX Lightweight Aggregates business is benefiting from the demand for greener, more innovative solutions because our product, Haydite, reduces energy, labor, and transportation costs. Innovation will help Summit to be less reliant on one line of business or one geography and drive us towards greater than 30% EBITDA margins in the long term. On slide 7, you'll see a graphic that we introduced during our Elevate Summit Investor Day. that summarizes our strategic execution plan and deliverables over three horizons. We are currently in horizon one, which is detailed at the bottom of slide seven. We've completed our portfolio review and are in the process of divesting underperforming and non-core businesses while focusing on key drivers of value creation. We are looking at ways that we can do more with less capital intensity, standardizing processes across the company to improve agility and our underlying cost structure, and cultivating a culture of excellence to drive sustainable profitable growth across our portfolio. We are establishing specific goals for social responsibility and starting to recruit talent and invest in resources to develop a compelling innovation strategic roadmap. We expect these Horizon 1 efforts to drive us towards an adjusted EBITDA margin of 23% to 26% and ROIC of approximately 9% and less than three times leverage. When we presented the strategy on March 16th, we told you that Summit's long-term financial goals will be pursued through a multi-horizon implementation of the strategy and that we would report regular progress along the way. Following through on that pledge, we have an update on slide eight. As I said at our investor day, we are playing the long game. I want to take the opportunity to level set on expectations. We believe these goals are clearly within our sights, but it may not be a linear upward trajectory each quarter due to the nature of our strategic priorities. A great example is the divestiture of assets that may cause fluctuations in results as we progress through portfolio optimization. While we can't promise a perfect steady line towards our goals, we can promise transparency and a relentless focus on execution. We are off to a good start. Our leverage ratio is 3.2 times, unchanged from what we reported in December and a major improvement from 3.8 times a year ago. Keeping our leverage ratio unchanged is also notable because our leverage ratio typically increases in the first calendar quarter of the year because it usually has the lowest EBITDA contribution. Based on business conditions today, we believe that achieving our Elevate Summit goal of less than three times leverage is within striking distance this year. Of course, we will balance our leverage ratio with other capital allocation priorities along the way, but achieving our less than three times goal is close. Return on invested capital for the trailing 12 months improved by 60 basis points to 8.6% from 8%. We've seen a cultural change at Summit with our regional leaders taking charge on this metric and challenging their teams to be more capital efficient, to be better positioned in a market by divesting or acquiring assets, and to pursue an asset-light approach where it makes sense. We expect that ROIC may fluctuate a bit as we go through this period of divesting assets, but we believe our strategy positions us well to drive towards a greater than 10% target. Adjusted EBITDA margin expanded 50 basis points to 23.2% in the trailing 12 months ended April 3rd, 2021, from 22.6% in calendar 2020. Our commercial teams drove results that more than offset the impact of lost production stemming from unfavorable weather conditions in late February. On slide nine, we've provided an update of the current end market conditions in our top five states by 2020 revenues. Summit's end-use markets are roughly 38% public, 31% residential, and 31% non-residential. Demand for U.S. housing is robust, with housing permits up 2.7% in March relative to February 2021 and up 30% year-over-year, likely reflecting a combination of strength today and COVID-related weakness a year ago. In Texas, TxDOT is projecting $9.6 billion in lettings in the current fiscal year, a substantial increase from last year. In addition, Texas is expected to receive over $1.9 billion from the recent stimulus, which reflects a combination of legislation passed in December 2020 and March 2021. Houston is still one of the country's most diverse and highest growth residential markets. and single-family home permits were up 18% in March year-over-year. Non-residential construction activity has been resilient in many of the suburban and ex-urban markets, and we are seeing signs of recovery in the Permian Basin area. By contrast, the Panhandle area may see fewer lettings later this year as TxDOT embarks upon some large projects in other parts of the state. Single-family permits in Salt Lake City were up 7.8% in March year-over-year, and inventories of new homes remain at historical lows with less than one month of inventory reported. UDOT is forecasting a modest revenue increase for the current fiscal year in addition to $263 million in expected stimulus. Utah is one of Summit's highest growth markets and is a great example of where our vertically integrated model is fully leveraged to deliver profitable organic growth and high returns on invested capital. In Kansas, KDOT is planning for $1.9 billion of spending in its current fiscal year budget, growing to $2.2 billion for fiscal 2022. Single-family permits are up 14% across the entire state in March, year over year. Kansas is an excellent market for Summit, where we are well-positioned to continue to leverage past and ongoing investments in our operating companies and greenfields to deliver sustainable organic growth. While Missouri's Department of Transportation initially estimated a decline in tax revenue of up to 30%, they have recently announced plans to deploy approximately $360 million worth of projects that had previously been deferred. Missouri is also expected to receive approximately $437 million of stimulus. Finally, in Virginia, the current budget reflects an increase of 16% over the prior year. Single-family permits are up 12% year-over-year in March, while the state is expected to receive $1.05 billion of stimulus. Wrapping up on slide 10, we are pursuing an aggregate greenfields development strategy focused on markets that are underpinned by strong growth fundamentals. Investment in these targeted growth markets is key to delivering sustainable organic growth. For example, we are expanding our presence in Georgia with an aggregates greenfield that will start up in mid-2021 in the Atlanta Exurbs. That location has favorable migration trends and job growth in a state with a strong DOT funding profile and major mobility program. We have another greenfield development well advanced in the Carolinas, which will expand our presence in one of the fastest growing markets in the country. the state DOT funding conditions are also rapidly improving in both North and South Carolina. It is estimated that Summit will generate $45 million of adjusted EBITDA on an annualized basis by 2024 from these projects once they are in full operation, with $18.7 million generated in 2020. Expected investment in Greenfields is $25 to $35 million in 2021, as part of cumulative capital spending of approximately $200 million on greenfields. These greenfield projects complement our existing business and provide another avenue for long-term sustainable growth. With that, I'll turn the call over to Brian for a discussion of our financial results.

Thank you, Anne. On slide 12, we've provided our net revenue bridge comparing Q1 2021 to Q1 2020. Summit's net revenue increased 56.1 million or 16.4% in the first quarter of 2021 to 398.5 million compared to 342.4 million in the first quarter of 2020 on higher aggregates, ready mix concrete, cement, asphalt and paving revenue relative to a year ago due to strong demand in most markets. Our West segment led the way. contributing an incremental 37.6 million organic debt revenue on higher aggregates and ready mix volumes, particularly in Utah and Texas. We also benefited from an incremental 12.7 million in revenue associated with acquisitions of operations in Texas and British Columbia that closed in the third quarter of last year. Our each segment's net revenue was up 3.1 million as we had higher volumes in Virginia, parts of Kansas, and Kentucky relative to a year ago. Our cement segment's net revenue was up 2.7 million in Q1 relative to the prior year quarter on stronger demand, particularly in the southern markets and the earlier opening of the river for northbound barge traffic. Turning to slide 13, We provided a Q1 adjusted EBITDA bridge. We ended the quarter at 41.7 million, up over 167% from a year ago. The biggest drivers of the increase were record organic West segment performance relative to a year ago, as well as higher returns from cement. Turning to slide 14, you'll see key gap financial metrics. We reported an operating loss of 25.1 million in the first quarter of 2021. an improvement of 39.9% compared to an operating loss of $41.7 million in the prior year period. Net revenue gains in all lines of business exceeded increases in cost of revenue and more than offset a $10 million increase in general and administrative expenses, which included $3.4 million in severance and related costs, as well as increased professional fees associated with optimizing organizational efficiencies. Reported first quarter 2021 net loss attributable to Summit, Inc. of $25 million or $0.19 per basic share was an improvement of 50% relative to a year ago when we reported a net loss of $45 million or $0.40 per basic share. This reflected substantially higher performance in our West segment relative to a year ago, together with a 15.7 million gain on sale of a business unit. Turning to slide 15, we presented several non-GAAP financial metrics where we compared Q1 2021 to Q1 2020, as well as the trailing 12-month comparison. Adjusted cash gross profit margin expanded by an impressive 580 basis points in the first quarter and expanded by 130 basis points on a trailing 12-month basis on a combination of higher volume and price improvements from aggregates, ready mix and asphalt in nearly all of our markets. Adjusted EBITDA margins expanded 590 basis points for the quarter, and on a trailing 12-month basis, we're at 23.2%, which is an increase of 50 basis points. Adjusted diluted net loss improved 31% in Q1 2021 to $38.9 million, or $0.33 per share, relative to Q1 2020. Turning to slide 16, we provided a comparison of our price and volume for the first quarter of 2021 versus Q1 2020. Organic average selling prices in the first quarter of 2021 were unchanged for aggregates and increased 0.4% in cement, 3.7% in ready-mix concrete, and 5.5% in asphalt. While most of Summit's geographies reported higher average selling prices for aggregates in the 2% to 6% range in the first quarter of 2021, higher volumes of base material in the product makes in our Kansas and North Texas markets resulted in a lower reported company-wide average selling price than the prior year period. By way of reminder, our annual price increases don't go into effect until the start of the season, which is typically April 1. Sales volumes in a traditionally low first quarter increased 20.7% in aggregates, 13.7% in cement, 7.6% in ready-mix concrete, and 15.9% in asphalt relative to the same period last year on strong demand in most of our markets as well as the impact of recent acquisitions. Turning to slide 17, we provided adjusted cash gross margin in the first quarter 2021 versus Q1 2020, as well as the trailing 12-month comparison in all lines of business. Aggregates margins expanded 370 basis points in the first quarter to 41.8%, reflecting stronger aggregate pricing in most of our geographies. On a trailing 12-month basis, the margin percentage declined by 140 basis points. However, actual gross margin dollars increased by 14.4 million. Our products margins expanded by 220 basis points for first quarter and 130 basis points for the trailing 12 months as we experienced sustained volume and pricing growth for our downstream businesses, particularly in Utah and Texas. Margins in our services business expanded significantly, moving from negative 8.3 in Q1 2020 to positive 9.5% in Q1 2021, reflecting an unceasingly strong level of activity. The trailing 12-month margin improved by 610 basis points, reflecting the underlying strength of our Texas markets. Cement margins expanded significantly in Q1 and 230 basis points for the trailing 12 months to 40.8% as higher volumes resulted in lower unit plant costs. Our Green America recycling facility continues to ramp up production following an explosion that occurred in April 2020. The river reopened to northbound traffic two weeks earlier than normal, which allowed shipping to northern customers and earlier movement of inventory. Materials and products comprise 91% of our trailing 12-month adjusted cash gross profit, a slight increase from 88% for full year 2020. We continue to expect the contribution from materials will be an increasing proportion of our EBITDA as we pursue our greenfield strategy, experience organic growth in our market, engage in M&A, and divest underperforming downstream assets. On slide 18, I'd like to highlight some modifications to our reporting structure for fixed production overhead and transaction costs, which resulted in changes to our guidance for G&A expenses. Beginning in the first quarter of 2021, we are reporting fixed overhead expenses related to production in cost of revenue. Previously, we reported fixed production overhead expenses as general and administrative costs. Transaction costs, which were previously included in operating income or loss, have been moved into G&A. We believe these reporting changes will foster greater transparency and comparability to our peers as we measure our performance. For quarterly modeling purposes for 2021, we estimate that G&A will now be in a range of 50 to 55 million. We estimate that interest expense should be in a range of 22 to 24 million and ddna should be 54 to 57 million for the purposes of calculating adjusted diluted earnings per share please use a share count of 118 million which includes 115.4 class a shares and 2.6 million lp units turning to slide 19 you'll see a summary of summit's capital structure Our Q1 2021 leverage ratio at 3.2 times was down by 0.6 times from Q1 2020, which is the lowest first quarter leverage ratio in Summit's history. Our leverage ratio typically increases in the first quarter as Q1 has the lowest EBITDA contribution of the year and relatively high capital expenditure. However, proceeds from the sale of a business unit combined with a strong financial performance allowed us to hold the leverage ratio constant. Our closing cash position was $359.7 million, which was an increase of over $150 million from Q1 2020. Moody's upgraded Summit Materials LLC corporate family rating to BA3 from B1, citing continued strengthening of Summit Materials credit profile following the steady improvement in operating performance, higher predictability in free cash flow, and robust operating fundamentals. Combined with our unblown revolver, Summit had over $650 million in available liquidity at the end of the first quarter. Our Elevate Summit goal is less than three times leverage, and we believe that is within our sights in 2021. And with that, I'll turn the call back over to Anne for her closing remarks. Thanks, Brian.

On slide 21, we've provided our outlook for this year, which is unchanged from the guidance we provided on our last earnings call. We expect to revisit this forecast as the year progresses. For 2021, we expect to generate adjusted EBITDA of 490 to 520 million, which at its midpoint assumes growth of 5% over 2020. We expect to spend 200 to 220 million on CapEx, of which 25 to 35 million will be related to greenfields. We continue to expect low to mid single-digit price increases for aggregates and cement and low single-digit volume increases in those lines of business. We expect asphalt pricing and volume to be relatively flat. While our first quarter performance was excellent, it's important to acknowledge that our Q1 adjusted EBITDA represents just 9% of the midpoint of our full year outlook. So we believe making adjustments at this stage would be premature. Concluding on slide 22, it is early days for the Elevate Summit strategy. We've listened and learned, and we are turning that feedback into action. We have a lot on our collective plates at the moment, but we as a management team believe this approach, market leadership, asset-light approach, social responsibility, and innovation will deliver better and more consistent results to our stakeholders over time. With that, I'd like to turn it over to the operator for questions. Operator.

At this time, I'd like to remind everyone In order to ask a question, press star and number one on your telephone keypad. Please limit your ask to one question and then return to the queue so we can accommodate as many analysts as possible in the time we have available. Your first question comes from Stanley Elliott with Seifel.

Good morning, everybody. Thank you all for taking the question. Quick question. Could you give us a little more color on the divestitures, I believe the glass aggregates in the downstream business? Curious what they would have in common if these were running below corporate average margins, if they were somewhat isolated. I know that market penetration has been a key focus on part of the Elevate strategy. And I'll hang up and listen. Thank you.

Hi, Stanley. Good morning, and thanks for your question. So the first investiture we did was the glass aggregates business, and that's an example of a business that was basically in a low-growth market, underperforming, and just a little bit more color on that. It was actually tied to a long-term supply agreement that limited our ability to really get the margins right. and ROIC to the point where we would meet our targets that we've set in place. And we weren't just the rightful owner. So it was much better in this case. It wasn't strategically poor either to sell the business, get 33 million in proceeds and 15.7 on the gain. The other business we really haven't talked about as part of our asset-light approach, but what it had in common were the things that I talked about. We divested after the end of the quarter. It was one where we looked at the downstream, said we're number four or five. It was one where we didn't see a near-term to medium-term path to get to the you know, 30% margins and over double-digit ROIC with that significant investment. And candidly, we have a customer where we could develop a win-win relationship with, have a long... Great.

Thank you.

Thanks, Stanley.

And your next question comes from Sonning with Jefferies.

Hey, guys. Congratulations. and a great start to the year. Your unchanged guidance, you know, implies organic volume declines for agaric, which seems pretty conservative just given how things are shaping up so far, but curious to get any color on bidding activity and any color on the stimulus money called out and perhaps anything on the deferred lighting work that you call out on Missouri as well.

Okay, just a couple of things. So on our guide,

We had a very clear for the midpoint low to mid single digit assumption on price for aggregates and cement and a low single digit assumption on volume. And we did keep asphalt volume and price flat because of such a strong year in 2020. Just a little bit of color on bidding activity. Texas is very, very strong for us and continues to be that. We did talk in our prepared comments about the fact that we're seeing a little we expect some decrease in the panhandle, but we're seeing a bigger backlog in the Permian. So overall, Texas is just very strong for us. As we look across all of our markets, Salt Lake City continues to be strong from a public funding perspective, $263 million in stimulus. Kansas, very strong budget, $1.9 billion this year, $2.2 next year. And then Missouri, $360 million has been put back into projects that was deferred and has now more stimulus of $437 million. So not at the levels that we've seen. I would say when we look at public spending across the board, we're saying it's normal course, but we're not seeing that stimulus money really be deferred. seeing widespread growth at this point in time. And I think that's going to take some time for that to actually work through as we see the volumes grow. But we're cautiously optimistic about where we sit today on our volumes.

OK. Thank you.

The next question comes from Catherine Thompson with Thompson Research.

Hi. Thank you for taking that question today. This really surrounds supply chain and a broader question. Broadly speaking, first, could you clarify how the Texas freeze impacted quarterly earnings and what, if any, challenges you are facing from a supply chain standpoint? And along with that, with cement, certain parts of the U.S. are seeing tight supply with markets such as Texas on allocation now. How does that look like for you as you're planning over the next several months? Thank you.

Thanks, Catherine. The Texas freeze, we had impact for about two weeks, and it was indeed impact because that's an all-year-round business for us. But the team did a phenomenal job in catching back up and ended up with a strong quarter delivering really strong earnings. So it just shows the robustness of that business. From a supply chain perspective, we have not seen any very significant impacts on our supply chain at this point in time. I will say that cement supply-demand dynamics have definitely tightened significantly. particularly in Q1. And we've seen in a few of our key markets, we are on allocation. We have very strong relationships with our suppliers. The teams in our regional presidents are doing a great job working through that. But cement overall nationally is definitely tight. But so far, we're able to manage it, but watching it very closely. And we are able to, in our strong markets, and this is why we play in the downstream in certain markets, we are able to pass that cement price along. And our team is very focused on price execution and working with our customers to drive it through the supply chain. Thank you. Thanks, guys.

The next question comes from Trey Grimes with Stevens.

Good morning, and thanks for taking my question. This is actually Noah Murkowsko on for Trey. So I wanted to ask, you know, the EBITDA margin in the quarter was really impressive. Can you give us any update on timing for when you think you can reach the high end of your Horizon 1 margin goal? I think it's 25%.

We haven't given specific timing to that at this point in time. I will say we're making very good progress and it will really depend on how we get the schedule. A lot of these horizons, when you look at our three horizons, let me step back for a minute, really will overlap a little bit. So we've said on that first horizon we're trying to get 23 to 26 percent as a range. The reason we've ranged it because it will depend on how many of the divestitures we get done in horizon one and how quickly we get those proceeds back in and reinvest it into the business. So we're moving, I would say, very fast. The team's doing a great job, but we're not sacrificing value generation for our shareholders in doing so. And, you know, continued focus on price will also obviously bring us heavily towards improving margins, as we've shown this quarter.

All right. Thanks. I'll leave it there. Thank you.

Our next question comes from Garrick Schimuth with Loop Capital.

great thank you um you've discussed the tight supply situation cement just curious if you could provide any thoughts on a potential second price increase later this year and then same in aggregates we've heard from several of your peers regarding targeted mid-year price increases any thoughts additional pricing and aggregates as well so let me um first of all address cement garrick so as you know we announced a price increase in q4 and that's just coming into play here in april

So we'll be able to record on that as the quarter proceeds here along the river and see how our price execution actually goes. Clearly in Q4, volumes were not as robust as they are in Q1. So the supply-demand tightness is something we're watching. But we also, as we've talked about many times before, In segments of our market, it's very important to understand the competitive dynamics. I would not rule out another price increase in cement. Our team's very focused on value pricing. Of course, working with our customers to make sure that they can drive it down the supply chain. So we'll continue to look at that and report out as we go. From an aggregate perspective, our first quarter numbers, as we said in our prepared remarks, were a little impacted by mix. I will say price increases in aggregates are just coming in again. Most of our price comes in in April. Our first quarter, as we reported, had double-digit volume growth year over year in most of our aggregate markets. And frankly, in most of our regions, we had 2% to 6% price increases. Because it's such a low-value quarter, we did see some base material that we sold in Kansas and North Texas bring down our overall pricing. But the thing that we were very encouraged by, obviously, is the increase in adjusted cash gross profit margins to 20.4%, expanding by 581 basis points. We will continue, though, to monitor market conditions and closely look at competitive dynamics, and we'll be very intentional and strategic with price increases as we proceed. Right now, we're sticking to our guidance of low to mid single-digit price, but we will report on that as the year progresses. Got it. Thanks for that.

Our next question comes from David McGregor with Longable Research.

Hi, this is Joe Nolan on for David. Congrats on a great quarter. I just wanted to ask about cost inflation, just how you're thinking about some of the different buckets there for the remaining year, and just when you think those might peak, and just any detail you can provide there. Thank you.

Thanks, Joe. Thanks for your question. It's obviously a hot topic these days on inflation. uh you know at this point we're not seeing anything that would exceed the levels that we had baked into our original guidance numbers um we're obviously watching it very closely in the in the strongest of the markets uh and we will be reactive if we see an opportunity to pass any inflationary increases on uh in price um we're seeing that obviously where we get cement price increases we are able to pass that on in ready mix when the demand in the market is strong. Other things that we baked into our guidance and our original assumptions were healthcare, which we saw about an 8% increase in. Labor, where we saw approximately 3% increase. We did make price increases in cement into our assumptions, and everything else was really running at about 3% broadly. We've obviously hedged our diesel, and right now in Q1, we're showing a little bit of favorability on the actual costs. compared to the prior year, and we're not really seeing anything else on the energy input prices that would be above the assumptions that we made in our original guidance. So, so far, fairly stable on inflation, but obviously something that we're watching very closely.

Okay, thanks. I'll pass it along.

Our next question comes from Anthony with Citi.

Good morning. Last quarter, I think you pointed to the potential non-repeat of wind farm work as a swing factor. Just wondering if you're seeing any trends in that end market and then just maybe circling back to full your guidance more broadly, are there any other swing factors that you kind of call out that might get you ultimately to the higher end or the lower end of the range?

Yeah, Anthony, so thanks for the question. So wind farm work, obviously we did call that out last quarter as saying that, you know, if you look on a 2020 basis, we actually had a number of wind farm projects that are a nice price mix, frankly, for the businesses. And Q1, this is where some of the pricing was negatively impacted because we had one wind farm this quarter, but prior year we had more than that. So we're watching that. And as we said, this type of work is a little bumpy. And it's basically we bid and we win the job in the year and we construct. So we continue to look at that. Longer term, we see this as nice work and a very good use of our aggregates and our business moving forward. And it will thrive. more demand for alternative energy. On a full-year guidance perspective, we've talked to what our assumptions are within the midpoint of the guidance. If we look at the low end, we would say that would be driven as we typically would look at our low end by decreased pricing or lower pricing and volume and maybe some minor weather impacts. On the higher end, though, to specifically address your question, we would have there an assumption of having prices maybe across all of our lines of business. and also single to mid-digit volume growth across all of the lines of business. So they'd be kind of swing factors as we kind of think about the range of guidance. But as the year proceeds here and we get past our lowest quarter, that's how we give you guys that number.

Okay. That's very helpful.

We'll turn it over.

Capital markets.

Good morning. Thanks for taking my questions.

And I want to follow up on kind of the divestiture plan. And so you went out publicly to the market, to investors, with some of the high-level details. That's two months ago. My question is, you know, since that time, you know, how have the discussions

I guess I'm thinking more from the standpoint of, have you started to receive more inbound inquiries into some of your assets? And to the extent that you've had additional discussions, whether it's proactive or reverse inquiry, has any of that changed your view on number of assets, proceeds? specifics around which assets might ultimately fall in the bucket of divestitures.

Mike, thanks for your question. So you're absolutely correct. We did come out with 10 to 12 assets and I think quoted a number over 200 million in proceeds was our best estimate at that time. As we discussed, we completed one in Q1 and we have another one, several that are actually completed at this point and some that are in process and some that we're just starting. With respect to your question around inbounds, we actually have received a lot more inbounds because we announced that. I would say, though, that it hasn't really changed our view. But in saying that, I think I was very clear in our March 16th meeting that as we get past this first horizon one where we've identified this set of 10 to 12 assets, that are really no-regret moves for us to divest. We will continually look at our portfolio and optimize it. And an asset that may seem perfectly good in the portfolio today may not belong in our long-term future portfolio. So I believe strong businesses constantly assess their portfolio to see how they can increase value for the shareholders and their overall stakeholder base. So we will continue to update you as we look at that and as we change and make firm decisions around divestitures, or acquisitions. Okay, great. Thanks.

And our next question comes from Jerry Ruvich with Goldman.

And congratulations. I'm wondering if you can touch on the volume cadence in the business over the course of the quarter. You know, optically, you were coming off of pretty tough comps for your aggregates business, and it seems like the comps do get easier on a three-year stack basis in the second quarter. So I'm wondering if you just comment on the flow of demand over the course of the quarter, and, you know, if you're willing to touch on how April looked, just to help us understand the cadence. Thanks.

Well, our volume cadence, we were strong at the end of 2020, and that continued right into Q1. Obviously, our comps were somewhat different as we cut into Q1 of 2021 because we had COVID impact last year. But we also had very robust demand here in 2021 in Q1, and we did hit record volumes as we went into that. So we're actually very positive about the level of fundamental growth that we're getting from in-migration and from our public spend. So I wouldn't say there's really a cadence beyond that. As we go into Q2, clearly a much bigger comp for us on volume. and the level of public spending, residential continuing strong. We see that our demand, we have nothing to say that demand will not continue. As I said, in non-res, Wind farms provide a little bit of bumpiness to our numbers at times. That may be the only thing I would say from a volume cadence perspective that might have impact. But overall, I would expect that unless something drastic would happen with respect to public funding, which is steady right now, and we would call funding, we should be in a pretty good shape in Q2. But you're correct, Jerry, in pointing out that it is a tougher comp for us.

Thank you.

This concludes our question and answer session. I will now turn the call back over to Ann Neumann for closing remarks.

Thank you, Operator, and thank you all for joining us.

I'd like to leave you with three messages. First, Summit is in the right place at the right time. Megatrends are coalescing in Summit's key markets. and all require some form of aggregates, ready mix concrete, cement, asphalt, and or paving, and a combination thereof. Second, we are seeing signs of early success towards our Elevate Summit goals. It may not be a linear upward trajectory every quarter due to the nature of our strategic priorities, but we will be transparent and relentlessly focused on execution. And finally, we are creating a culture of excellence across the business for Summit, to standardize and simplify, and also to lead in social responsibility and innovation that will drive long-term sustainable growth that is not dependent on any one market or geography. That concludes our call. Thank you and have a good day.