Summit Materials, Inc.

Hello and welcome to the Summit Materials third quarter 2023 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 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 discussion of some of the factors that could cause actual results to differ, please see the risk factor section of Seminole Materials' latest annual report on Form 10-K, as updated from time to time in our subsequent filings with the SEC. You can find reconciliations of historical non-GAAP financial measures discussed in today's call in our press release. Today, I am pleased to be joined by Anne Noonan, Summit CEO, and Scott Anderson, our Chief Financial Officer. Anne will begin with opening commentary. Scott will then review our financial performance. And then Anne will conclude our prepared remarks with our view on the path forward. After that, we will open the line for questions. Out of respect for other analysts and the time we have allotted, please limit yourself to one question and then return to the queue so we can accommodate as many analysts as possible in the time we have available. I'll now turn the call over to Anne.

Thanks, Andy, and thanks to everyone joining today's call. We've certainly been very diligent in progressing multiple work streams since our last call in August. Alongside all of our undertakings, our Summit family hasn't lost sight of our top obligation to create and foster a safe working environment for our employees and our communities. Each of us has a duty and commitment to put safety first in service of the common good. And although our journey is ongoing, we are taking steps each day to build a zero-harm culture and a safer Summit materials. This quarter, before Scott takes you through the financials, I'd like to provide some high-level commentary on our third quarter financial performance, our 2023 outlook, as well as provide a progress report on other relevant topics this quarter. First, we continue to execute our Elevate Summit strategy, making significant progress against our financial priorities. In the third quarter, we generated record levels of net revenue, cash gross profit, and adjusted EBITDA. Furthermore, leverage remains near all-time lows, ROIC at all-time highs, and this quarter we set an Elevate Summit high-water mark for our trailing 12-month EBITDA margin at 24%. Critical to our overall margin trajectory is the contribution from our materials lines of business. As expected, aggregates margins stepped up materially this quarter. Adjusted cash growth profit margins increased 570 basis points year-on-year in Q3, and is now positive on a year-to-date basis. Likewise, cement EBITDA margins were up 260 basis points in Q3 to 41.5%. In both businesses, we are moving towards our North Star objectives, with aggregates 170 basis points closer to its cash gross profit margin North Star objective of 60%, and cement 250 basis points closer to its North Star EBITDA margin objective of 40%. In a moment, Scott will unpack the drivers for you, but essentially, commercial and operational execution is fueling greater profitability, an important component of our value creation model. Second, regarding our 2023 outlook, today we are increasing the low end of our full year 2023 EBITDA range to $560 million, thereby upgrading the midpoint of our guide to $565 million. This puts us on track to deliver mid-teens EBITDA growth year-on-year. and EBITDA margins up between 23.5% and 24% in 2023. Our confidence to increase our forecast yet again is underpinned by our year-to-date performance and the collective execution of our summit teams. Third, we continue to pursue a complete retirement of our TRA liability and collapse our up-sea structure, which when completed will significantly reduce corporate complexity and streamline our organizational structure. This may take some time to fully complete, but consistent with the Blackstone portion of the agreement, we intend to follow a disciplined approach that is value-creative for our shareholders. Lastly, we remain on track to close the Argos transaction before the end of the first quarter of 2024. From a process standpoint, we have filed our preliminary proxy, cleared HSR review, and are positioned to file our definitive proxy later this month. At that point, we'll announce the date of our shareholder vote. With bridge financing in place, we have the flexibility to opportunistically undertake financing when markets are most advantageous for us to do so. In the interim, we are developing detailed integration plans, designing a talent-rich, highly effective organization, and positioning the enterprise to immediately start to deliver on our synergy commitments upon close. When complete, the combination will accelerate our materials-led strategy, enhance our scale and reach in cement, and bolster our cash flow generation to fuel further aggregates-oriented organic and inorganic growth opportunities. Now, before turning the floor to Scott, I'd like to recognize and thank my Summit colleagues across our footprint who have remained laser-focused on their 2023 commitments. Thanks to them, we are on course to achieve record financial results this year. They have a lot to be proud of, and I applaud them on their efforts and diligence this year. With that, I'll turn it over to Scott to walk you through the quarter.

Thanks, Anne. Turning to slide six, I'll pick up where Ann left off by adding specifics to our Elevate Summit scorecard. For leverage, we remain at 2.3 times, flat versus prior quarter, and well below our longstanding commitment to be below three times. This is especially impressive considering we used $122.9 million of cash to acquire, among others, all of Blackstone's rights and interest in the TRA, where approximately 80% of the total TRA liability at a substantial discount to its carrying value. For ROIC, we again saw progress, up 20 basis points sequentially to 10.3%, and moving further ahead of our 10% minimum. And, as Ann mentioned, our last 12-month EBITDA margin is up to 24%, driven not only by a notable acceleration in aggregates margin, but by margin growth across all lines of business in Q3. 24% represents an elevated summit record and positions us to deliver on our stated goal of 23.5% to 24% for the full year. Adding color to that margin picture, on slide 7, you'll see our Q3 financial highlights. Net revenue increased 8.2% driven by ongoing pricing momentum across each of our lines of business, fueled by mid-year price increases in aggregates and cement, as well as pass-through pricing for our downstream businesses. Our commercial teams are effectively pricing to what our local markets will bear. Pricing growth in combination with sound operational execution drove adjusted cash gross profit and adjusted EBITDA growth of 15.5% and 12.8% respectively in the quarter. This came despite volumes that have been negatively impacted by the residential air pocket and unfavorable weather conditions in certain markets. Segment performance on slide 8 shows each business segment grew both EBITDA dollars and the EBITDA margin in the quarter. Our West segment registered strong pricing growth across all lines of business and continues to benefit from public infrastructure demand in our two largest asphalt markets, North Texas and the Intermountain West. The third quarter was the first full quarter of our newly entered Phoenix market, and so far the business has been operating better than we originally anticipated. The East segment, which is nearly a pure play aggregates business, grew EBITDA 13.5% in the quarter and is up 17.8% in 2023 as greater greenfield contributions together with strong pricing and operational improvements is generating solid, sustainable growth. Cement achieved positive top line growth in the quarter despite lower volumes. as wet conditions in northern markets, particularly Minnesota and Iowa, combined with reduced import volume led to lower volumes relative to Q3 2022. That said, mid-year price execution remained strong as average selling price increased to 155.79, up nearly $6.70 per ton from Q2, reflecting solid price realization and driven by healthy supply-demand dynamics along our river markets. Overall, third quarter adjusted EBITDA increased 8.1%, and EBITDA margin improved 260 basis points year-on-year. Moving now to pricing on slide 9. And I'd start by simply reiterating our general view that demand conditions and persistent cost inflation have supported a constructive pricing environment in 2023. And, as Ann will talk about, we expect those conditions to carry into 2024. Third quarter average selling price for ags increased 14.4% year-over-year and 4.6% sequentially, primarily reflecting the mid-single-digit mid-year price increases implemented across our footprint. We saw solid traction throughout with strongest gains in Houston, Missouri, northern Kansas, and Utah. In cement, our $10 per ton price increase effective July 1st saw nearly 70% realization. with the strongest reflection in our northern cement markets along the river, as expected. For our upstream businesses, given progress so far this year, we are very confident that pricing trends will endure and will achieve at least low teens pricing growth in ags and mid-teens growth in cement on a full year basis. Downstream, high cement input costs continue to feed higher ready mix pricing. And the demand environment for asphalt together with higher liquid asphalt cost has and will continue to drive pricing growth moving forward. On the volume side, slide 10 bridges from organic to reported by line of business. Aggregates volumes are tracking towards our full year expectations with year-to-date growth in Kansas and Virginia more than offset by lower volumes in our more residentially exposed markets, specifically Salt Lake City and Houston, as well as British Columbia. As mentioned, cement volumes in the quarter were negatively impacted by a combination of wet weather in our northern markets and reduced import volume. In fact, lower imports accounted for roughly half of the overall volume decrease in the quarter. Ready Mix volumes continue to be impacted by challenging residential and light non-residential conditions, although as comparisons ease in Q4, we would expect volumes to begin to stabilize. Furthermore, As we add the high-growth, all-season Phoenix market to the portfolio, reported ready mix volumes should continue to grow as we close the year. Finally, on asphalt, we saw public demand continue to drive positive organic volume growth with especially good performance in the Intermountain West and British Columbia. Adjusted gross profit margin is shown on slide 11, clearly demonstrating improved profitability across the portfolio on both a quarter-to-date and year-to-date basis. Each line of business is extending a positive price-cost relationship and effectively countering cost inflation that has not materially relented. If you recall, we had previously discussed cost inflation moderating in the second half and generally fall in that mid-single-digit range. Thus far, through October, we have not seen that occur, so we have factored in recalibrated cost expectations into our Q4 outlook. One especially notable area is for our cement business, where higher costs to fuel our kilns and low river levels along the Mississippi have increased the cost to serve our customers. Thankfully, our experienced Continental Cement team is proactively working with our customers and was able to fully meet our customer commitments in the third quarter. I'll round out my commentary on slide 12 by briefly noting adjusted deleted net income increased 15.7% in the quarter and is up more than 31% in 2023, primarily reflecting strong execution and overall operating performance during the year that more than offset the higher interest expense. And finally, as of Q3, for the purposes of calculating adjusted diluted earnings per share, please use a share count of 120.2 million, which includes 118.9 million Class A shares and 1.3 million LP units. With that, I'll turn it back to Ann for our latest outlook.