Summit Materials, Inc.

Good morning, my name is Brent and I will be your conference operator today at this time, I would like to welcome everyone to the summit materials Q1 2022 earning results conference call. At this time, all lines have been placed on mute to prevent any background noise after the speakers presentation, there will be a question and answer session. If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star 1. Thank you. I would now like to turn the call over to Carly Anderson. Thank you. You may begin.

Hello and welcome to Summit Materials' first quarter 2022 results conference call. Yesterday afternoon, we issued a press release detailing our financial and operating results. Today's call is accompanied by an investor presentation and a supplemental workbook highlighting key financial and operating data. All of these materials can be found on our Investor Relations 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, which is filed with the SEC. You can find reconciliations of historical non-GAAP financial measures discussed in today's call on a press release. Ann Noonan, our CEO, will begin today's discussion with a business update. Brian Harris, our CFO, will briefly review financial performance. Ann will return to provide some closing remarks, and then we will open the line for questions. Please limit your asks to one to two questions, 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.

Thanks, Carly, and good morning, everyone. Our plan for today is to keep our prepared remarks rather brief, as later this month we'll be hosting an investor day to update you on our Elevate Summit strategy, our accomplishments to date, and our perspective on the path ahead. I'd like to begin with safety, where we made solid progress across multiple safety metrics in the first quarter. Our recordable incident rate was down more than 50% year on year, and we did not incur a single lost time incident in the first quarter. We've increased our use of proactive measures such as expanding participation in risk assessment reviews to maximize safety engagement throughout the business. Sleep preventable incidents remain an important area of continuous improvement as we strive for a safer summit both at our facilities and in the communities we serve. And to help us accelerate our progress, we've added a new Senior Vice President of Safety Performance, Brad Okuniewski. Under Brad's leadership and in collaboration with all Summit team members, we expect to make continued improvements to safeguard the health and well-being of all 5,500 Summit employees. Before turning to our quarterly performance, I wanted to frame up our view on how we see things today. First, we continue to believe it's a tremendous time to be in our industry and a better time to be at Summit. The industry, as well as our local Summit markets, are benefiting from strong underlying dynamics. that have the potential to accelerate price and volume growth over a multi-year time period. Second, as we progress through our Elevate Summit strategy, we are optimizing the portfolio and building a stronger, more consistent summit material. And finally, the current cost environment, while challenging, is accelerating our transformation and sharpening our collective focus on commercial and operational excellence. Bottom line is that we're confident that with disciplined strategic execution, We'll make further progress towards our Horizon One financial objectives and deliver sustainable growth for Summit shareholders. Now moving to slide four, where you'll see that our first quarter performance was consistent with the expectations we laid out in February. If you recall from our Q4 conference call, we said that we anticipated year-on-year declines in Q1 due to comparisons with a prior year period that were roughly double the contribution of our typical first quarter. Notably, we benefited from unseasonably dry and wild weather in Utah and the Mississippi River opening early to barge traffic. As we return to more normal conditions this year, our first quarter adjusted EBITDA as a percentage of our full year total normalized towards our historical average of roughly 4%. Unpacking Q1 further, you'll see that our performance was fueled by strong pricing gains across all lines of business. led by double digit growth in asphalt and cement, and consistent with our general view that the constructive demand environment should support continued pricing momentum. In fact, price increases were communicated across all markets and lines of business, effective between January 1st and April 1st, depending on seasonality. Therefore, we would expect to fully realize those impacts in the second quarter. On the volume side, growth versus the prior year was primarily impacted by the comparison factors I mentioned earlier, as well as divestitures. Bottom line is that in the first quarter, we were able to sustain momentum that we built in 2021, while at the same time providing a solid foundation to build on as we head into prime construction season. Moving to slide five for high-level view on each of our reporting segments. West segment net revenue was up year-on-year on a combination of price and volume growth. As for adjusted EBITDA, the year-on-year decline was due to product and geographic mix divestitures as well as higher subcontractor costs relative to the year-ago period. Despite strong pricing growth in our East segment, net revenue declined on lower volume as wet weather in the Midwest caused a slow start to the season and pushed some work into Q2. Those lower volumes together with product mix and divestiture impact led to the decline in adjusted EBITDA, albeit in a seasonally low quarter for the segment. First quarter cement volume growth was positive, up 0.3%, and price was up more than 10% in the period. We resumed operations after our normal annual winter maintenance shutdown slightly later than expected, resulting in some elevated repair and maintenance costs that impacted adjusted EBITDA. Let's turn to slide six for our Elevate Summit scorecard. There you'll see we continue to maintain net leverage below our Elevate Summit target of three times net debt to EBITDA. At 2.8 times, our leverage improved year-on-year by 0.4 times, and our balance sheet remains in a very healthy position to pursue high return opportunities such as margin agreed of M&A and share buybacks. Each of our three elevated summit metrics did, however, moderate sequentially in Q1 as we lacked a very strong prior year period and took proactive steps to prepare for the prime construction season. The reality was that we exited Q4 with low inventory levels, and the right move for the health of our business was to take on some higher costs to adequately prepare for our highest demand quarters. As we have previously told you, our progress would not necessarily be linear quarter to quarter, but over time with improved execution and more consistent operating performance, we will continue to progress towards each of our Elevate Summit targets. Now on slide seven, you see the four strategic priorities that are core to our Elevate Summit strategy. Market leadership, asset light, sustainability and innovation. Our focus on market leadership within rural and ex-urban markets continues to benefit from migration patterns and megatrends impacting our end markets. As new and prospective homeowners look for more affordable space, they are moving into Summit's geographic footprint. In 2021, Population growth in our top 20 MSAs grew on average at nine times the national average, and projections are for those de-urbanization trends to continue, which should benefit our footprint over the long run. Furthermore, as data centers, distribution facilities, and green energy projects spring up in America's heartland, where Summit has strong market-leading positions, we stand ready to capitalize on our ex-urban and rural footprint. And in Q1, we completed our ninth divestiture, closing in on our Horizon One target of 10 to 12 divestitures. Of the nine completed, eight were primarily downstream assets, and many resulted in long-term supply agreements, ensuring strong aggregates pull through. This exemplifies our asset-light operating model and is at the forefront of how we're reshaping the portfolio. On slide eight, you see how our portfolio optimization has progressed. we continue to divest non-core businesses that do not meet or have no clear path to reach margin and return targets and find better owners for these businesses. The divestiture we completed in Q1 generated roughly $48 million, and to date, our Horizon One divestitures have yielded more than $175 million in proceeds, putting us on pace to exceed our $200 million target. Because we are currently in the process of advancing additionally no-regret portfolio moves, We have reclassified an operating unit in our east segment as held for sale, and we expect to close on the transaction in the second quarter. And as is customary, we will report on the transaction and, if necessary, adjust our guidance accordingly after we close. On our sustainability agenda, so far 2022 has been an active and noteworthy year for Summit Materials. To start, we adjusted our short-term incentive plans company-wide to include ESG-related objectives. which ensures full company alignment and emphasizes the collective importance we place on sustainability. And then in April, we released our sustainability roadmap with the ambitious and what we believe are achievable 2030 and 2050 goals that you see on slide nine. Achieving each of these goals will enhance our social impact, improve our land use practices, and reduce and ultimately eliminate our carbon emissions. For each of these three focus areas, we are taking meaningful steps towards each of our goals. For example, we recently announced the full conversion of our Davenport cement plant to Portland limestone cement. With the full conversion, Davenport, which produces approximately 1.1 million tons of cement annually, will reduce its carbon emissions per ton by up to 10% compared to traditional Portland cement. Meanwhile, we are working hard to fully convert our Hannibal, Missouri plant to PLC this summer. Together, the conversion of our plants is expected to unlock additional capacity, help decisively reduce our carbon footprint, and have a positive impact on our business and the environment. Overall, our revamped incentive plan, our sustainability report, the commitments contained within it, and the actions we're taking demonstrate that we are committed to being transparent and aggressive in our pursuit of both near and long-term strategies to become the most socially responsible integrated construction materials solution provider. On slide 10, I'm pleased to report we have bolstered our team and innovation talent with the addition of a Chief Strategy and Growth Officer, Kaken Ghilani. Kaken joins us from DuPont, where he previously served as Vice President of Strategy, Growth, and Ventures of their water and protection business. With over 25 years of experience leading corporate strategy and marketing functions, Kakan brings a valuable background in corporate development, market-backed innovation and branding, business development, as well as growth strategy development and implementation. Under his leadership, we expect Summit to develop a robust marketing strategy and initiative to support our business plans and overall strategic objectives. We are privileged to have Kakan join our Summit family. and in collaboration with our leadership team, we look forward to further expanding our growth strategy while accelerating Summit's innovation roadmap. Wrapping up on slide 11, where we remain in horizon one of our Elevate Summit strategy. We've achieved our leverage goal and we are within striking distance of our divestiture proceeds target. We continue to optimize the portfolio and free up capital to support sustainable growth. Our unwavering focus is squarely on strategic execution, controlling what we can control, and making further progress towards our Horizon 1 financial objectives of 23% to 25% EBITDA margins and 9% ROIC, which are well within our sights. With that, let me pass it to Brian for a financial review.