Summit Materials, Inc.

hello everyone and welcome to summit materials incorporated first quarter 2024 earnings call please note that this call is being recorded i'd now like to hand over to andy larkin please go ahead hello and welcome to the summit materials first quarter 2024 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 in response 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 factors section of Summit Matero's latest annual report on Form 10-K and quarterly report on Form 10-Q as updated from time to time in our subsequent filings with the SEC. You can find reconciliations of the historical non-GAAP financial measures discussed in today's call in our press release. I am pleased to be joined by Summit Matero CEO Ann Noon and CFO Scott Anderson, and we'll begin today's call with a business update. Scott will then review our financial performance before turning the call back to Ann to conclude our prepared remarks with an updated discussion on our 2024 outlook. Afterwards, we will open the line for questions. Out of respect to 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. With that, let me turn the call over to Ann.

Thank you, Andy, and thanks to everyone joining us on today's call. I'm incredibly proud and pleased to report that our 2024 year is off to a remarkable start with early progress across all dimensions, including safety. Safety is a core value for all Summit employees. From day one of our integration with Argos USA, we have efficiently transitioned towards a common set of metrics and goals enterprise-wide. We now have a shared language and governance system established so that we can effectively measure ourselves and work together towards our goal of a zero-harm culture while consistently delivering industry-leading safety performance. Along with safety, I want to turn to slide four to cover, at a high level, three areas of strong early progress this year. First is around solid execution when it comes to controlling what's within our control. Here, I'm specifically talking about pricing, integration execution, and ongoing operational improvements. Pricing is performing at or better than our initial forecast. On the Argos integration, Thanks to our day one readiness, a focused integration management office, and total organizational buy-in, our integration activities have proceeded exactly as designed, with synergy realization ahead of schedule. In fact, we now have line of sight to at least 40 million in synergies this year, up 10 million from our prior forecast. And lastly, on aggregates operational excellence, we are uncovering savings throughout the footprint as we continue to instill and foster and enhanced continuous improvement mindset through our network of quarries. These factors have provided the foundation and confidence to increase the lower end of our 2024 EBITDA guidance range. We now expect 2024 adjusted EBITDA to be within $970 million on the low end and $1 billion, $10 million at the upper end. From a portfolio perspective, we are organizing and optimizing around being materials-led market leaders in high growth areas. To that end, and thus far in 2024, we have completed three divestitures, shedding subscale and non-core assets that were not additive to our Elevate Summit financial goals, while concurrently engaging in long-term and strategic aggregate supply partnerships via our asset-light operating model. These divestiture proceeds, as well as our robust balance sheet, position us to pursue an aggregates-rich pipeline of bolt-on opportunities. Together, These portfolio optimization efforts are not new, but are extensions of what we've been doing since the launch of Elevate Summit to strengthen our business. Slide five lays out what we believe is a compelling case that Summit's portfolio is more durable and growth-oriented than ever before. Relative to our first quarter 2020 portfolio, we have become a much more materials-dominant enterprise, with approximately 77% of EBITDA generated from upstream business, That's up roughly 11 percentage points from four years ago. The second element I'd highlight is our reduced seasonality. Today we maintain a large position in Texas, a much stronger presence in the southeast, and a growing foothold in Phoenix. As a result, 63% of Q1 revenue is now derived from all season markets, versus just 35% prior to launching Elevate Summit. Critically, our efforts to reshape the portfolio over the prior four years have effectively placed Summit in nine of the top ten fastest-growing MSAs, significantly increased our exposure to year-round markets, and better distributes our earnings profile from quarter to quarter. Despite these objectives and foundational improvements to Summit's business, our solid execution has not been rewarded with a sustained increase to our trading multiple. Nonetheless, we remain confident in continued strong execution on our strategic and financial commitments to our stakeholders, recognizing that markets will, over time, come to appreciate the value of high quality and consistent financial performance. Turning to slide six, where we present first quarter financials and line of business performance, I'll let Scott provide the details, but we'll cover a couple notable takeaways. First, with Q1 adjusted EBITDA of 121.2 million, We now anticipate that roughly 12% of our annual EBITDA is achieved in 2024. That 12% figure is based on the midpoint of our updated guidance range and is more than double the historical baseline for Summit. If you recall, in February, we had thought first quarter adjusted EBITDA would approximate 98 million or approximately 10% of full year EBITDA. The better than anticipated results were driven predominantly by cement outperformance relative to prior expectations. a combination of faster flow-through of anticipated synergies, strong price realization, and demand holding up better than forecasted drove the first quarter above our expectations. The other takeaway from this page is that while organic aggregate shipments did decrease, our demonstrated commitment to commercial excellence and value pricing is evident in the 10.4% year-on-year organic pricing growth. It is also an acknowledgement that pricing remains the prominent and primary lever, to deliver earnings growth for our aggregates business, a trend we expect to persist as we move towards our mid-year pricing actions. Stepping back and grading ourselves against our Elevate Summit scorecard on slide seven, we are clearly ahead of pace in 2024. Net leverage is well below our Elevate Summit target at 2.5 times. This provides the capacity to take accretive portfolio actions to enhance our business and shareholder returns. As expected, ROIC at 9.3% moved below our long-run minimum, but we are confident that within two years we can restore ROIC above our 10% target. This will happen through achieving organic growth and employing our disciplined and focused portfolio optimization approach to the entirety of the asset base. And finally, with LTM EBITDA margin at 23.4%, we are benefiting from a step change in the Q1 margin profile. First quarter adjusted EBITDA margins increased 560 basis points year on year, catalyzed by margin expansion from both materials lines of business. Pricing and operational improvement helped drive aggregates cash gross margins expansion of 550 basis points, and cement segment adjusted EBITDA margins went from break-even a year ago to over 25%, as cement constitutes a larger portion of our Q1 business today, than when compared with the legacy summit profile. Overall, this strong momentum to start the year puts us firmly ahead of pace to comfortably achieve our full year 2024 EBITDA margin range of between 23 and 24%. When achieved, that would put us on the brink of entering into horizon two of our EBITDA margin commitments, a commendable accomplishment in year one of our integration. I want to conclude my opening remarks by thanking our summit teams, especially those undergoing large scale changes and integration activities. You have dedicated yourselves to our common vision of why there's plenty of work ahead of us. We are stronger today thanks in large part to your tireless work and sacrifice to bring our two great organizations together safely. Thank you and congratulations on a very strong start to our combination. With that, let me pass it to Scott to walk you through our detailed financial performance.

Thanks, Anne. I'll pick up on slide 9, covering off our total company performance in the first quarter. In Q1, net revenue increased to $773.2 million, including the partial quarter impact of the Argos USA assets. In the quarter, $378.5 million of revenue was recognized from the recent acquisitions. Pricing, as Ann mentioned, across all lines of business also contributed to our net revenue growth in Q1. Adjusted cash growth profit margin increased 340 basis points year-on-year, reflecting positive pricing as well as product and geographic mix benefits and came despite lower organic volumes in most businesses and cost inflation that remains elevated in several cost categories. Similarly, adjusted EBITDA margins inflected higher, up 560 basis points in Q1, driven in large part by gross margin flow-through and enhanced by better G&A leverage in the quarter. As a percentage of net revenue, G&A decreased 240 basis points this quarter relative to the comparable year-ago period. Adjusted diluted loss per share improved 14 cents relative to Q1-23, despite higher interest expense driven by better operating performance. Before moving on, there are three items I would like to note. First, transaction costs associated with the Argos combination amounted to $61.3 million in the period and, as is customary, are not included in the adjusted results. Second, having completed the opening balance sheets for our combination, we have adjusted our full year expectations for DDNA. We now expect DDNA to approximate $385 million in 2024. And third, A share count of $175 million is an appropriate figure to use moving forward. And prior to the close of the quarter, 100% of previously outstanding LP units that were not held by Summit, Inc. were exchanged, effectively eliminating our up-sea structure and helping to streamline our corporate structure. Turning next to line of business performance. Aggregates volumes in the quarter were negatively impacted by adverse weather conditions across much of the country, especially in January and early into February. This, alongside generally subdued residential activity, pushed aggregate volumes 8.3% lower on an organic basis. Organic aggregates pricing, on the other hand, remains persistently strong, increasing 10.4% year on year, powered in part by wraparound 2023 pricing, as well as fresh price increases broadly implemented on January 1st. Notably, the 7.4% sequential acceleration in average selling price from Q4 of 23 is an important indicator that our value pricing approach is working and yielding solid in-market traction. By market, pricing growth was strongest in Kansas and Missouri, followed closely by double-digit growth in British Columbia, Houston, and the Carolinas. This pricing dynamic combined with moderating cost headwinds, mixed favorability, and operational improvements to drive adjusted cash growth profit margins up 550 basis points. Per unit profitability for our aggregates business increased $1.06 year on year, continuing a positive trend from 2023. This growth came despite a cost environment for aggregates that remains challenging, but remember, We were expecting a gradual reduction in cost headwinds over time, and that's still our expectation for 2024. Margin-wise, this is a fast start to the year and reinforces our perspective that we are looking to put percentage points on the board this year as we aim to reach 60% adjusted cash growth profit margin for aggregates over the long run. Turning to cement performance on slide 11. Organic volumes held up rather well, despite weather disruptions, with strong volume performance most notably out of our mid-Atlantic platform. For pricing, you are seeing play out what we discussed on our February call. Specifically, river market pricing effective January 1st, especially inland geographies, is powering organic pricing gains. Reported growth, while up low single digit, does reflect a different pricing cadence in the legacy Argos markets that Ann will cover off in a moment. The material gains in our business is best seen at the margin line, with cement segment adjusted EBITDA margins registering 25.7% in the period. Historically, our business would be very pleased with any non-negative cement segment EBITDA margins in the first quarter. This meaningful step-up reflects not only the pricing gains, but our new footprint and operational improvements. Foundationally, with our expanded footprint into the southeast, we extend our seasons. Once winter kicks in and locks close on the Mississippi River, that effectively shuts down the season in those markets. Without those constraints in Texas, the Mid-Atlantic, and Southeast, it frankly makes for a more profitable Q1. The other factor influencing profitability were the operational improvements across our network. Yes, we are still early in our integration journey, but plant performance has already exceeded our expectations, due in large part to effective winter turnarounds. I'm proud to report that all plants that have come out of their annual turnaround have done so on time or faster than scheduled and are operating at higher rates since emerging from their planned downtime. And importantly, all turnarounds were done without a single safety incident. On the investment front, our capex spend is already paying dividends. For example, investments in the raw meal at Newberry facility in Florida are enhancing reliability, increasing throughput, and helping to drive higher operational equipment effectiveness, or OEE, a primary value driver of our synergies. Moreover, we are seeing exceptionally strong cohesion between our plants, our people, and the technical experts within our cement teams. This seamless integration of talent is critical to knowledge sharing, troubleshooting, and facilitating performance improvements throughout our cement network. Moving forward, all the core ingredients for continued margin expansion are in place, positive pricing momentum, an energy cost basket that remains favorable, and the operational and commercial synergies that we believe are firmly within our control. Closing with our downstream businesses on slide 12. Ready Mix volumes remain negatively impacted by residential and light non-residential trends that show signs of improving but are still down overall. Reported growth primarily reflects acquisitions in Phoenix and the integration of Argos Ready Mix in our east and west segments. On the back of infrastructure growth, organic asphalt volumes grew 9.4%, with strong performance in our two heaviest asphalt markets, North Texas and the Intermountain West. ReadyMix and asphalt pricing grew 12.5% and 7%, respectively, in the period, and collectively, adjusted cash growth profit margins were stable year-on-year, despite dilutive impacts from the acquired portfolio and softness in private end markets. As ReadyMix integration activity is well underway in key markets like Houston and Florida, we expect to have momentum to sustainably grow downstream margins over time. Unlike others, we are unapologetic, yet selective about where we participate in downstream business. And when we can have leading positions in growth markets, we have proven we can deliver top-tier downstream profitability. With that, let me turn it back to Ann to close our prepared remarks.

Thanks, Scott. Slide 14 succinctly summarizes how we see things today. And you'll notice our view is largely consistent with how we saw things in February. Specifically, we still see demand conditions accommodating margin growth. What I mean by that is our 2024 margin outlook is not overly reliant on volumes. Why that's especially prudent this year is because private end markets remain quite variable. Take residential, for example. Already this year, we've witnessed healthy, seasonally adjusted trends in January and February. followed by plateauing and retrenching in March. Similarly, since non-residential is highly project and time independent, we will be appropriately measured regarding the trajectory of non-residential at this point in the year. We're finding that commercial work seems to be sensitive to the higher for longer interest rate environment. As a result, the commercial project pipeline and backlogs remain promising, but the start timelines for some of these projects could get pushed out this year. Public, by contrast, is the one end market where we have considerable conviction on both the direction and magnitude of that end market's volume outlook. We are encouraged by trends in our markets, including the recent win of the multi-year $2.8 billion I-70 project that expands the interstate from St. Louis to Kansas City. This project will be accretive to pricing and benefit both our aggregates and cement businesses in 2024 and beyond. The primary point is strong backlogs are underpinning mid single digit or better public market volume growth in 2024. In total and on balance, our vantage point on demand is consistent with where it was three months ago. Public tailwinds mostly or more than offset by variability in private end markets. The swing factor on volumes will be on private demand recovery. And at this point, we are cautiously optimistic that interest rate relief in the back half will spur greater activity. But for now, we aren't prepared to lean into that scenario. Switching gears to pricing, as we approach the mid-year pricing window, we do so with a strong track record of commercial execution and reflecting the value our construction materials bring to their respective marketplaces. On aggregates, while our plans vary by locality and by product type, mid-year price increases will be across our markets and can be expected to range between low single digit to 7% at the high end. As we effectively shift towards a dynamic, more frequent pricing model on aggregates, our sales teams are able to better leverage tools and processes to incorporate real-time cost information, demand conditions, and more adequately reflect the increased value that our reserves have in our markets. And while we simplify the external discussion surrounding pricing, the reality is we are constantly looking for instances to value price. In fact, we recently recognized conditions in certain East Coast markets, that were suitable for an April price increase. And we swiftly moved on that intelligence, and we're realizing relatively strong market receptivity. These anecdotal trends give us increased confidence that the pricing environment remains healthy, and we look forward to solid traction for our mid-year pricing actions. On cement, we are maintaining our outlook that organic pricing should be up mid-single digit in 2024. As always, you should expect us to take a market-by-market approach to pricing, as the demand environment and competitive sets will differ by region. For example, and as you'll recall, we priced our river market at $15 per ton in January, while the Mid-Atlantic and Southeast markets were more restrained around January 1st pricing. More recently, we issued pricing letters across most Mid-Atlantic and Southeast markets that go into effect April 1st. And consistent with our river, we anticipate realization to vary from marginal to 70% in certain markets. Contract timing, mix, and market dynamics will always influence the average sales price that we realize in any one quarter. Furthermore, we have select price increases expected to take place on June 1st. This tiered and surgical approach to pricing reflects, in our opinion, the positive yet rational nature of cement markets. As import costs have come down, there have been minor impacts to some of our markets. That said, we are adeptly navigating these dynamics. operating in largely supply-constrained environments, and believe that the cement pricing story will remain positive in both the near and long term. And remember, our market-based pricing decisions will coincide with our ongoing commercial synergy initiatives that include, among other things, working with customers to reset underpriced contracts to more market-competitive rates. In both aggregates and cement, we will take the opportunity to see how forthcoming price realization plays out prior to incorporating these further pricing actions into our formal 2024 guidance. Regardless of what traction looks like, we know that pricing will be the most positive lever available to us to offset sticky cost inflation and create sustainable, profitable growth for our business. In combination with our commercial efforts, we expect our 2024 margins will benefit from operational improvements already underway across our network. Synergies in ready mix and cement, as Scott discussed, are flowing through quicker than originally modeled, and represent just the tip of the iceberg on our integration plan. Now, having been at the wheel for more than three months, we're in a position to confidently call up our Synergy target to at least 40 million in 2024. This increase reflects three factors. First, and knock on wood, we have not uncovered any material negative surprises, a testament to our rigorous diligence process, as well as the transparency and strong partnership with the Argos team. Second, the increase reflects a quicker implementation and adoption of the Synergy playbook, And third, we have greater confidence and visibility to synergies revealed once we took ownership of the business earlier this year, namely greater aggregates pulled through opportunities and commercial synergies. Our self-help margin levers extend beyond the Argos combination. In fact, operational excellence within our aggregates line of business is a key value creation imperative on our path towards our 60% adjusted cash gross profit North Star target. This year, our OpEx team is pursuing aggressive productivity targets, recruiting talent and building towards a best in class operations organization and conducting more onsite continuous improvement events than ever before. Together, we expect these actions will lift our 2024 aggregates margins by percentage points and set us on our course towards greater per unit as well as overall profitability for our aggregates line of business. In summary, Our 2024 outlook has improved versus our February perspective. Demand while variable is coming in as expected. Price remains the primary driver of organic top and bottom line growth. And we are uniquely positioned to deliver margin enhancement this year through meaningful synergy realization and through ongoing operational improvements across the enterprise. These three factors fuel our increased adjusted EBITDA guide to $990 million at the midpoint and a reiteration that we anticipate adjusted EBITDA margin between 23% and 24% this year. In closing, the four near-term priorities on slide 15 will chart Summit's course this year. Safely integrate and deliver on our synergy commitments, accelerate profitable growth from aggregates both organically and inorganically, and effectively manage the balance sheet and cash flow to strengthen the portfolio and deliver superior returns for our shareholders. Thus far, we are adhering closely to these priorities and have a very strong first quarter to show for it with greater success ahead in 2024. With that, I'll ask the operator to provide the required Q&A instructions, and then Scott and I would be happy to take your questions.

Hello, everyone. We are now opening the floor for question and answer session. If you'd like to ask a question, please press star and number one on your telephone keypad. Our first question comes from Stanley Elliott from Spifle. Your line is now open.

Good morning, everybody. Congratulations on the nice start to the year. Thanks, Stanley. I'm curious if you guys could talk a little bit more about the demand outlook, you know, through the balance of the year, how you think all of this will come together. And at one point, you had some commentary around interest rates, and that may be being a bit of a boost. I thought I heard that in the back half the year. Just any sort of color on demand piece, I think, would be helpful. And then also, I guess, kind of how that leads into building out into next year. Thanks.

Thanks for the question, Stanley. So, yeah, let's kind of talk about demand across the board. I'll kind of hit our end markets is probably the best way to do this. Overall, I will say there was a comment is that our volumes that are baked into the guide are rather guarded. And I'll explain why. So as we go into residential, think about our residential volumes in the guide as being flat to down. And the reason for that is as we went into Q1 and residential, we had a lot of weather, particularly in Texas and Florida, which are heavy residential markets for us. And so there could be some recovery in that, but we're not baking that into our guide right now. If I step back then and look at kind of the national, forecast on single family permits and starts, the forecast would say it's going up across on a national basis across the board. But as we've talked before, Stanley, it is really market by market as we look at our residential segment. And if I look at Houston, consistent with what we said last quarter, Houston continues to normalize, fortified by larger builders that can absorb interest rate shocks, great macro indicators. and, you know, inventories that are around 3.8 months. So supply is still very low there. Salt Lake City is slower to come back, as we predicted last quarter. I would say there, though, inventories are only at 2.3 months, but we're seeing some leading indicators that are strong where our large builders are at building developments. We also see our asphalt backlogs as being three times what they were a year ago going into residential. So there's pent-up demand in Salt Lake City, but I do think interest rates, to your point, need to come down a bit for that to pop completely. So we're rather guarded in volume recovery there. And then our other big market that I would say is Phoenix. With the Diamondback acquisition, we've been really putting on a lot more residential projects, which we're very positive about. And again, inventories are quite low there. Our permits are running above the national average there. But we're more in multifamily there, which will take a little longer to come in. Overall, I'm residential, though. very bullish on it. If interest rates soften at all, you will see a pop in our volumes. There's absolutely no doubt. But in the guidance, we have kept it rather guarded at this point. Let's talk about non-residential. So there, I would say, think about flat to down. And the things I would point to you there, we're very encouraged in 24 by the number of heavy non-residential projects, particularly the publicly funded ones. So the energy verticals, your semiconductors, and a big pickup in data centers. So we're quoting a lot on those projects. We have a very rich and nicely diverse pipeline in that area. The area that we're looking at more carefully, though, is more the privately funded commercial, and I point you to two areas specifically in our footprint. So Salt Lake City is one of our, you know, what I'd say is big box private commercial markets. There we're seeing some projects pushed to the second half. In mainland in British Columbia, we've had two large projects pushed into 2025, and that's purely a function of interest rates higher for longer. Overall, though, we're very bullish on this segment. As we've said before, we're uniquely positioned with our materials-led portfolio, which are both aggregates and cement-intensive, and we're in the right geographies with plenty of land and space to support these projects. Public, the story's the same as I told you before. There we've got really high growth, The IIJA dollars are flowing with over $28 billion into our top eight states since fiscal 2022. We're above the national average on contract highway and paving wards, running at 21%, which is 11 percentage points above the national average in our top eight states. Our states are really, really strong from a DOT perspective, 16% up year over year, which is 12% above the national average. And more importantly, our backlogs are strong. So there we're saying... You know, in Texas and in our Colorado region, we're seeing really strong performance. And so we'd say made single-digit plus, and I'd say that's kind of conservative. So overall, if I step back from, you know, what we talked about, you're absolutely correct. Interest rates would boost us. We're pushed to the back half of our volumes. But we're not relying on that or stepping into that right now. I think next year we are woefully underbuilt in this country. Those private end markets have to pop at some point. So I would remain cautiously optimistic that next year we'd have a very strong year in those end markets.

Perfect, Dan. Thanks so much. Best of luck. Thanks, Stanley.

Question comes from Trey Grims from Stephens. Your line is now open.

Hey, good morning, everybody, and congrats on the great results in the margins in the quarter. So my first, sure, my question is, well, I have several, but I'm just going to hit on the pricing and cement. You know, you had the January increases in your legacy markets, and, you know, you clearly got some traction there. And you mentioned that you're out with some increases announced for April, I think, mid-Atlantic and southeast, if I heard it right. Could you maybe give us any color on, I know it's a little early, but any color on how those are coming along here a month or so into them and just maybe how the reception's been there?

Great, folks. You know, cement pricing, clearly, as you're correct, Trey, we went with very strong pricing on our legacy summit business, as is traditional with us. In the January price increase, we went out with $15 a ton. And we had, you know, as typical, mixed receptivity on the lower part of our river and the upper part. So in the lower part of the river, which is more import exposed, small part of our revenue, but there it was marginal price realization. On the upper part, in our more northern markets, we had very strong over 70% realization. Now, if you really drill into our pricing and what you saw actually realized in our Q1 from our legacy summit business, it was actually flat sequentially. And that's not atypical for us because it's our lowest volume because all our plants are down. So it's a lower volume quarter. On top of that, you had a mix effect because Our northern markets had our higher pricing and, of course, less volume. You hardly have any volume coming from that. And then the other factor I'd point to, the reason you're not seeing that big January price increase from the Legacy Summit in Q1 is because our larger contract customers come in to play more in Q2 and Q3. So we're very confident that pricing is going to roll through, and we've had strong execution on the Legacy Summit into Q2 and Q3. There were also some selective price increases on the Legacy Argos side, but as we talked last quarter, they were less than we would have gone out with. That being said, the team have really stepped back. To your point, Trey, they've looked at April price increases. They've gone out at about $4 to $6 a ton. Very surgical and selective customer market by market, and we're seeing some nice realization on that. So we're very optimistic at this point in time on that pricing sticking as we go throughout the year. That's not built fully into our guide at this point. We also have June 1st and July 1st price increases that we're at as we go through the rest of the year. I will say if I step back on cement pricing overall, I describe it as a little bit of a messy year because we're trying to get our arms around customer market and really up the pricing. Moving forward, what you can expect on our cement price increasing is that you will see our value pricing, our commercial excellence, people, process, and tools applied over those 6 million tons, which will have a very positive effect on pricing in cement moving forward. In 2024, as I said in my prepared comments, we're saying, look, factor in mid-single digits, but understand we have not factored into that the April and mid-year price increases that were out there really executing very well on that. We're very confident in our ability to do that because if we look at the markets overall, they're still largely supply constrained, and customers recognize the value that we bring in these cement investments that we're bringing to the market. So overall positive on cement pricing as we move throughout the year. And think about the mid-single digits as a floor to pricing trade.

Yep, got it. And just for a little bit of clarity on that comment a minute ago, on the June and July increases that you said are out there in some select markets, are those more kind of legacy markets or are those more your kind of newer markets gained with Argos?

Yeah, so good question, Trey. So the legacy are mainly what we're talking about there on the June market. So some of these larger contracts you've heard us talk about that were underpriced relative to market are rolling off contracts, so we're actively working on those as we go through the first 12 to 18 months of our ownership, basically, of the Argos assets. As is traditional with the Summit business, we will be opportunistic in going for mid-year price increases. And, you know, all... Indications we have right now is that second half would be where demand would pick up in cement, and that's where we would be very opportunistic in going on across the entire Legacy Summit and Legacy Argos business for July price increases.

Got it. That's all great color. Thanks, Anne.

Thanks, Trey.

Question comes from Anthony Petinari from Citi. Your line is now open.

Good morning. Just following up on Trey's question on cement pricing, you talked about some markets where imports have had an impact, and you talked about the southern part of the river. Just wondering if there's any more color you can give there in terms of the acquired Argos markets, and to what extent imports had an impact in the quarter?

Sure. So overall, we said this last year and going into this year, that import pricing in general is down. The other factor that I would say is that our footprint overall, both Summit and Legacy Argos, is quite lowly import exposed. Where our exposure exists, Anthony, is in Louisiana, so the Gulf. It's in Houston. and to a much lesser extent in Florida. So we're not heavily import exposed as a business, which is the beauty of this combination. Where we are, our team has done a superb job of navigating those conditions, employing value pricing, really delivering and focusing on our quality of the product that we bring. And frankly, you know, customers there, the larger customers, value the fact that when supply-demand dynamics get tight, Summit is the domestic producer in those markets, and we will continue to have high-quality products. So we've not seen a very large impact, but you see it in the range that we give you on cement pricing, particularly I spoke about it in the Legacy Summit business, for marginal price realization in Louisiana. But to put that in perspective, on the Legacy Summit business, that's about 5% of our revenue. The vast majority of our business is in the northern markets. So not a major impact for us.

Oh, okay. Okay, that's very helpful. And as you look at kind of freight rates and shipping times, I mean, any view in terms of whether that import pressure is increasing or lessening or kind of consistent with what you thought just kind of going forward?

Yeah, I think it's pretty much consistent. It's behaving exactly as we thought. Frankly, we're definitely not seeing it increasing. And as I point out in my comments to Trey, in the second half, we see really volumes being much tighter on cement, and especially if interest rates pop, you know, that import impact will be much less. So there might be some, you know, as we come into the year, we said some people had some import volumes they brought in, some of the producers, and that's kind of being used out. Think about it as that being, you know, basically run down here in Q1 and in the first half, but I don't see it as being a major impact on our, particularly on Summit's 2024 results.

Okay, that's very helpful. I'll turn it over.

Our next question comes from Gary Schmoys from Blue Capital Markets. Your line is now open.

Oh, hi. Thanks for having me on. I just wanted to ask, just stepping back, how you're thinking about the full-year guidance. You know, you took up the low end after a very strong one-QE of a couple things. in the works here with with better synergies um you know maybe there's some some additional pricing that's not baked in your guidance um and then you know historically 1q has been about 10 of your full year not perfect but you know that's been the historical run rate so just curious as to you know how you're thinking about the guide this year you know perhaps why you didn't take the upper end of the range higher um and is there anything holding you back from from potentially having a more bullish outlook than you offered up today.

Thanks for the question, Garrick. So let's kind of get grounded on the numbers a little bit first. I think that would be helpful. So we last, when we reported last, we put our first quarter guidance at about 98 million of EBITDA. We see the beat on that at about, say, 22 million of EBITDA. We added to your point 10 million of synergies in there. And, you know, as you look at that number, We've been very active on the portfolio optimization end, so take a negative $10 million net on EBITDA of divestitures and acquisitions. So that leaves us with about $12 million we didn't make into the guide. Well, you might call that conservative. It's really very consistent with what we've always done. Our planning stance has always been for the first quarter, our lowest quarter in the year, not to get out ahead of our skis. This team has consistently... under-promised and over-delivered, and we're not going to go away from that stance. So call it conservatism. You know, what we factor in that conservatism is around, you know, it's a big year of integration. While it's going phenomenally well, and I'm extremely proud of our team and how they're executing, things happen on integrations. I don't see anything. I have not seen any negative surprises, but there's always that potential. The other thing I'd say is, you know, costs, we expect them to basically moderate off, but we're not seeing that yet. And we pointed out some variability in the markets that we haven't leaned into, even though we feel we're cautiously optimistic they'll be good. So that will give you some context around how we put the guide together. Let me kind of then move to where we really see 2024 from our perspective and how our team is acting against 2024. I see this guide as not only achievable but beatable. I also would point to the fact that, like I said last quarter, think about skewing up and to the right. And what drives that to your point, Garrett, is we have not put in our mid-year price increases. And we have very constructive pricing environments in both cement and aggregates. So that's a definite upside. And then the other point we talked about is this variability on private end markets in particular. We feel we're cautiously optimistic that interest rates will soften. And that would give us, we have a very low volume guide in here. And so any pop in volume at all is going to push us up and to the right. Bottom line is we view ourselves as a billion-plus EBITDA business, and we have a lot of confidence in delivering tremendous growth on both profit and margin expansion to our shareholders in 2024. That makes sense.

Thanks for all that. I'll pass it on. Thanks, Garrett.

Our next question comes from Adam Palmer from Thompson. Your line is now open.

Hey, good morning, guys. Great quarter. Garrett just asked the only question that mattered, so I've got to go down the list here. What's your G&A outlook for the rest of the year?

Scott, you want to take that one? Sure, Adam.

You know, we had a good start on G&A. That was part of our synergy plan, to really take out some cost on the G&A side. You will see it build some in the rest of the course of the year. We are building out capabilities on the operational excellence side. And so there's some cost there. So you are going to see that come up some. But overall, you know, that 8% and we're working on that pathway to 7% of revenue. So we'll continue to take advantage of the scale that we're getting on part of this transaction. But certainly off to a good start. We're seeing the effects early on here of some of the decisions we've made. Okay. Sounds good. Thanks.

Our next question comes from Katherine Thompson from Thompson Research Group. Your line is now open.

Hi. Thank you for taking my question today. This is a bigger picture question on the cement business. And really, it's around managing costs over the near and long term. In other words, not just necessarily 2024. A couple different factors. have news of current administration further regulating and shutting down coal-fired plants, which is going to impact access to fly ash in the eastern part of the U.S. Alongside that, just the parabolic demand for utility needs to meet growing AI demands. This all impacts the cost structure overall for cement production. How does Summit approach managing these costs, including initiatives that you already have underway and those that you may undertake going forward? Thank you.

Thanks for the question, Catherine. So, you know, what I'd say at a high level, and thanks for kind of asking a broader question here from that perspective. As you know, we have been very forward-facing on ESG, and we view all of our actions on ESG as being very value-accretive. And a lot of the programs that we're putting in place and why we're very confident getting bigger in cement is because we are leaders in this area. We're leaders in PLC. We're leaders in alternative fuel. We're totally committed to our carbon emissions reduction. What I would say to you is the U.S. is a very different environment on regulation than is Europe. So the U.S. tends to be much more predictable, works alongside industry to get to our carbon reduction targets. And we feel we're extremely well planned for that. Specific to your question on fly ash, we have been, I will give you an example, in our west region, we have very actively been replacing fly ash with a natural positive. And we have a number of our innovation efforts around replacing fly ash over time, and so we feel we're very well planned and supported on that, and we have a number of initiatives in that regard that will not increase our costs over time. We are actively doing it today in our west region, so I'd point that to you. Now, can that increase over time? Potentially, yes, but I also believe that cement is a very valuable end product, and given that you have to invest in cement plants, our customers realize that, and I would have no doubt that we could pass that cost along and continue to expand our margins in cement. If I understood your question, which I may not have on utilities and AI, I think it's more a demand picture for us, not a cost picture. From a data center perspective, these are very cement intensive, and we believe that our footprint and our materials-led strategy will allow us to continue to grow in that area, and we see that as actually providing more volume and more pricing leverage in the future.

Thanks very much.

Our next question comes from Phil Nang from Jefferies. Your line is now open.

Congrats on a really strong quarter, particularly on the margin side of things, both cement and agarics. But my question is on agarics. Strong margins in a seasonally slower quarter and yet some wet weather. a big part of that was the improvement or actually relatively slattish type costs per ton. Scott, perhaps, what were the key drivers there and how do you kind of think about maintaining a pretty contained cost front through the year? And can you kind of build off of the margins you kind of delivered in one queue on the aggregate side? Once again, pretty impressive here.

Yeah, Phil, glad you picked up on the cost. That is a focus for us. And right out of the gate this year, we said operational excellence. You know, we've been going through site by site doing these continuous improvement projects. We dropped $15 million to the bottom line last year. We're going to double down our efforts this year. We're building out those capabilities. We're very focused. What we call is an STVC, subtotal variable cost, which is our unit cost per ton of aggregates produced. So you're going to see throughout the year we're going to be very focused on Just the efficiencies, and it's site by site. When you've got 230 quarries, there's a lot of sites to cover. But we're making good progress there. We're putting more resources to it. So you're going to see continued progress on the cost side, and that's how we're countering that inflation. And then you picked up on the margins. Certainly price is coming through, but with price and the cost relationship here, we're really going to see that margin this year, expansions. So that's what we're excited about. As you saw, 51% cash gross profit margins is our LTM. We're back in the 50s. We ended last year at 49.9. So we're moving in that direction toward that 60% North Star, and we're going after it.

Scott, any more color on the cost per ton guidance for this year for ags and how that kind of plays out this year, quarter by quarter?

Well, I'll tell you this, Phil. We're going to try to hold our costs flat per ton. So we're going to try to offset that inflation. That's our goal. And so you'll see us working towards that endeavor throughout the year. Now, I will tell you, costs are not moderating as fast. And you guys haven't asked me about the cost inflation outlook, but it's more the same. We keep saying It's going to moderate, but it's been very gradual on that moderation. We came off of a 9.5% inflation cost factor last year, and we're not coming down fast. We still are convicted it will moderate, but it's definitely probably going to be more the back half. So we do have some energy tailwind, but other than that, we're still facing some inflationary pressures. Appreciate the call.

Our next question comes from Brent Thielman from DA Davidson. Your line is now open.

Hey, thanks. Appreciate it. Just wanted to level set back on aggregates. Is it the current view that you could still see a little pressure on volume, I guess organic, into the second quarter just as some of these kind of private sector headwinds linger for longer and then maybe you get some flattening out? In the second half, I guess, relative to last year, I'm just trying to think about what is sort of embedded for the aggregates demand outlook, kind of sequencing.

Yeah, I think, Brent, you're right on there. So, you know, if I look at our full year on aggregates right now, we're kind of think about us as down in the guide low single digits. We could see a way to flatten. But what's in the guide is basically that, and that's, you know, we had a very rough Q1 with respect to weather and some of our aggregates intense businesses, and April was a bit wet. So I would say Q2 because we could still see some pressure on the volumes. Second half, though, you'll see some recovery on aggregates. No doubt our team has that built in. And that's driven really by our biggest part of our year is in Q2 and Q3. You know, Q3 is our absolutely biggest quarter of the year, and we're more in all-season business moving forward. So Definitely some second half improvement. And that's, you know, we haven't a lot built in there, though I will reinforce that to you, you know, in my comments to Stanley earlier. We do have some upside on volume that could potentially happen for two reasons. One, if we catch up on some of this Q1 weather, that would help. But secondly, if we get any kind of relief on volume uptick in the private end markets with any kind of interest rate softening at all, we would see some volume pick up. But what's baked into our guide is pretty conservative right now.

Yep. Makes sense. Okay. Appreciate it. Thank you.

Thanks, Brent. Our next question comes from David McGregor from Longbow Research. Your line is now open.

Yes. Good morning, everyone, and thanks for taking the question. Anne, I wanted to go back to your comments around commercial opportunities, commercial synergies, and I realize that's something you couldn't really get your arms around until you'd closed the transaction and were able to sort of pull everybody together. Can you talk a little further about kind of your learnings there and why you're feeling more confident? If there's any way to size that opportunity just on a Canada basis, that would be helpful. And obviously, it's going to be big for 2025, but how significant could it be to 2024 in terms of its contribution and maybe what you've got in the guide?

Yeah, so David, you know, one of the things when we brought the synergies up to 40 million, the primary reason for that was, you know, our plants came up really fast and really well. And OEE was running above by about 5%. In addition to that, the ready mix synergies are coming in. But to your point, we also got really confident because we saw specifically some ags pull through synergies that we hadn't anticipated in the original number. And specifically in Houston, just to give you an anecdotal point here, Houston used to have 40% of Pulsar. It's now 69%. So that's significant, something we hadn't identified. The other commercial synergies I'd point you to, and there's a multitude of these in our pipeline, but I'd point to cement, you know, the pricing that we've talked about there. We didn't have our arms around that at the beginning. And if you recall on Investor Day, we brought that number up, that synergy number up. And the reason for that was we said, look, we've got all these underpriced. We've got three buckets. one of contracts that were done as part of the vestures that are below market. We had larger customers that have more leverage on Argos as a standalone unit. Those two buckets alone were below market by about $10 a ton. And so think about those at about 15% of our volume. So we said, hey, those cement synergies are going to be $20 to $25 million. About half of those, so about $10 to $12 million, is coming from increased commercial synergies. So that's a big chunk of it. And as I referenced in my comment to Trey about these April, June, July increases, we're going after those right now. We're pretty confident in our ability to deliver on the pricing. There's a load of other commercial synergies. You know, if you were to think about procurement, we're getting a lot of those as well. The teams are identifying this pipeline every day. So I get more and more encouraged. And, you know, Scott, maybe you want to talk a little bit about the cadence of the synergies, you know, that $40 million and $24 to give David a little bit more.

Yeah, David, when you think about that pace of the $40 million, Ann mentioned we're getting really good traction, but while we're getting good traction on the synergies, I will say more weighted towards that back half, the second half of the year. It's just going to take some time for these synergies to really drive through to the results. I wouldn't expect half of them in June. In the second quarter results, we will give you an update on the synergies, but I would expect less than half in the first year. Then building. as we move out through the year.

Yeah, we're seeing also the combined footprint, David, you know, this exposure of adding our ags business with cement and ready mix. We're seeing some real customer interest in where we play now and the portfolio that we have. And we'll give more color on that as we proceed throughout the year.

Great. Good colors. Thanks, and congrats on all the progress.

Thanks, David.

Our next question comes from Jerry Ravish from Goldman Sachs. Your line is now open.

Yes, hi. Good morning, everyone, and congratulations on the strong quarter. I want to ask on the Argos cement business, really phenomenal margins in the quarter of 35%. Even your standalone business last year was 38%, and 35% in the seasonally weakest quarter is really jumped out at me. I'm wondering, could you just talk about how you expect the sequential margin cadence to play out in Cementos Argos from here, just the cement part of the business, and were there any moving pieces that surprised you in the outstanding first quarter margin performance for the acquired cement business?

Yeah, Jerry, let me start. When you talk about the margins, we are focused on the EBITDA margins. We've got a North Star target on the cement of 45%. So we feel like we're just getting started on that journey. When we added the Argos assets, it did dilute us. They were closer to that 35% where we were up there, like you had mentioned, more than 38% to 39%, well on our way to that 40%. So, you know, out of the gate, it's really about these operating markets get these plants to operating performance. We're investing in them. We're working on the cost side of the business. If we can take cost out of these plants, you know, Ann's already talked about the pricing and the momentum we have there. So that'll continue. And cement margins, we think there's a lot of opportunity as we will build in our processes into these new Argos plants and on our way to that 45%.

Super. And Scott, can I ask a follow-up from an accounting standpoint with the higher synergy numbers and the better performance out of the gate? It sounds like some of the balance sheet numbers related to the acquisition moved around. It sounds like depreciation moved up, goodwill moved down. I'm wondering, can you just expand on that because that's a good indicator for how the performance is tracking?

Yeah, I will tell you on the purchase accounting side, Jerry, we just You know, it's very standard. You know, you go through in an acquisition like this, you've got to revalue everything. So once they did their appraisals, we got all the outside appraisals and the values put in, it did move from where their book values were. You know, it did move up. These plants were more valuable than what they had on the books. And so anytime you reset that value, you reset your depreciation figures. So that's driving the increase in the DDNA that you saw from the 330 to 380 figures. And it's just a, it's pretty standard. And then the goodwill at $700 million, pretty expected with the basis synergies we have. We feel pretty good about that as well.

Super. Thank you.

I'd now like to hand back over to Ann as we don't have any questions right now. Thank you.

Great. Thank you. We appreciate everyone's time and attention on today's call. Our impressive results in our upgraded 2024 outlook underscore that Summit Materials is operating at a very high level with strong coordination and strategic focus across our businesses. I would reiterate that conditions exist for a strong margin and EBITDA growth this year. Commercial excellence and value pricing being the primary growth driver. But cost moderation and material cost savings via synergies and operational improvements will also contribute positively to our 2024 growth plans. And when you consider our capacity to add ag-oriented targets to our portfolio, we have plenty of optimism around 2024. We are positioned and confident we can deliver superior value creation for all Summit stakeholders, and we hope you share our optimism for the year ahead. Thank you for your continued support of Summit materials, and we hope you have a great day.

Thank you so much for attending today's conference call. We hope you have a wonderful day. Stay safe.