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.