Summit Materials, Inc.

Thank you for standing by. My name is to welcome everyone to the Summit Materials second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, Press star one again. Thank you. I would now like to turn the call over to Andy Larkin, VP of Investor Relations. Please go ahead.

Hello and welcome to the Summit Materials second quarter 2024 results conference call. Yesterday, 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, the quarterly report on Form 10-Q as updated from time to time, and 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. Today, I'm pleased to be joined by Summit Materials CEO Ann Noonan and CFO Scott Anderson. Ann will begin our discussion by touching on key takeaways from the quarter and then outline our go-forward view on the business. Scott will follow with a detailed review of our financial performance. Afterwards, we will open the line for questions. Out of respect for the 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 Anne.

Thank you, Andy, and thank you to everyone joining us on today's call. Summit Materials and our 7,500 employees successfully navigated dynamic market conditions to accelerate our strategic agenda and deliver strong financial performance in the second quarter. Among and central to our progress has been a cohesive focus on safety. For 2024, we are tracking ahead of target on nearly all of our safety metrics. And while our goal of 100% zero harm remains aspirational, we believe our combined organization is capable of and is tracking towards setting the safety standards in our industry. Before touching on our 2024 outlook, I want to briefly cover the key takeaways from our second quarter on slide four. From a strategic perspective, we are advancing all areas within our control. I'd highlight three in particular. First is the promulgation of commercial and operational excellence principles across our network, including the Argos USA assets. Value pricing, upskilling our sales team, and the implementation of core operating principles are foundational to improving the quality of business, and critically, these initiatives can forge ahead regardless of the environment. are the integration-related activities that are generating synergies today and providing the runway for sustained synergy creation and value capture moving forward. And third is our ongoing efforts on both the buy and sell side to strengthen our footprint in furtherance of our Elevate Summit financial targets. In the second quarter, we completed a bolt-on aggregates acquisition in our recently entered Florida market and shed a non-core asset in our south region. In all three of these strategic areas, we took action and ownership of our controllables, and as a result, delivered solid financial results again this quarter. In addition to substantially growing adjusted EBITDA dollars, we estimate that on a pro forma basis, we were able to expand adjusted EBITDA margins in the second quarter and on a year-to-date basis by more than 200 basis points. Continued margin progress towards our North Star aggregates and cement targets were the primary catalysts for this year-to-date growth. demonstrating the power of our materials-dominant portfolio. We are driving sustainable growth by leveraging our national scale, enhanced geographic reach, and leading positions in high-growth markets. This renewed materials-oriented portfolio, combined with attractive and favorable geographic exposures, are creating more economically resilient summit materials, one built for today's environment and tomorrow's opportunities. On integration, our Argos USA game plan is on track. having delivered 17.5 million in synergies through mid-year, well on our way towards our 40 million full-year target. Clearly, our momentum is building. We are putting points on the board, and we are increasingly confident that we are taking all the right steps to improve the quality of the assets, improve our commercial positions, and by extension, improve the profitability and growth profile of the Argos USA business. These strategic and financial advancements, together with a focused team, and a fortified balance sheet enables us to confidently reaffirm our full year 2024 adjusted EBITDA guidance range of $970 million at the low end and $1 billion, $10 million at the high end. Concurrently, 2024 adjusted EBITDA margins should land at the upper end or above our 23% to 24% expectations this year. Slide five provides our updated perspective on 2024. And what you'll see is that many of our outlook components are virtually intact from where they were exiting the first quarter. On pricing, with our mid-year expectations incorporated, we are calling for double-digit aggregates and mid-single-digit organic pricing growth in cement for 2024. I'll detail Argos USA synergies in a moment, but we are reiterating our goal of at least $40 million this year. And from a portfolio perspective, we anticipate building an even more resilient portfolio as we pursue ags-oriented bolt-ons in targeted geographies while continuing to optimize our existing asset base. Now what has adjusted in our guide is an updated perspective on volumes due to two factors. Scott will cover the specific Q2 weather impacts in Houston, but more broadly, wet conditions, severe weather events, and constrained barge traffic along the Mississippi River has disrupted our ability to produce, sell, and service key markets. Fortunately, when conditions cooperate, we are seeing activity pick up substantially. That is to say, We are cautiously optimistic that some or most of the lost volumes in markets like Houston can be recovered if we get a solid stretch of working days. In addition to weather, we are now reflecting an updated view on demand in geographies that are skewed towards commercial activity. If you recall, we had left open the possibility that with second half rate relief would come a second half recovery in private and market demand. While we think that situation is still on the table, we now think it's more likely a 2025 scenario. given a higher for longer interest rate environment and a notable lack of urgency to activate commercial jobs in some of our key markets like Salt Lake City and Phoenix. That said, we are encouraged by our customer conversations that indicate activity should pick up when financing conditions improve. Simply put, demand in select markets is being pushed out. Outside these markets, we are seeing volumes perform in line or better than anticipated. Take Georgia and the Carolinas, where we've been able to capitalize on large-scale manufacturing and green energy projects, as well as residential resiliency, to drive both volume and pricing growth this year. Our long-term view hasn't changed at all. We are bullish on all three end markets and feel we are playing in the right high-growth geographies with advantaged assets. But in the near term, and consistent with our typical managerial posture, we are taking a realistic yet prudent approach to expectation setting. which has proven especially astute in this environment. Our updated outlook now incorporates low single to mid single digit organic volume declines on aggregates and cement for 2024. Offsetting this revision is inclusion of our mid-year pricing expectations and an adjustment to our G&A expectations to $330 million for 2024. For pacing, The midpoint of today's guidance implies nearly $575 million in year-to-go adjusted EBITDA, where we would expect approximately 60% occurring in Q3 and 40% in Q4 using round numbers. In summary, we are able to confidently maintain our outlook due to three factors. One, we've built a 2024 profile that's guarded and not reliant on volumes. Two, we've included the traction from our mid-year pricing actions. And three, we are actioning discretionary spend contingencies this year. Net-net, our outlook is intact. We are demonstrating high-quality execution on our controllables, and we look forward to another year of strong growth and returns for our shareholders. Turning now to slide six, where we outline one of our unique growth levers, our Argos USA synergies. As you'll see, we achieved $17.5 million in first-half synergies. This is tracking almost exactly in line with how we mapped our progress earlier this year. Additionally, the composition of these synergies aligns neatly with how we expected things to unfold. We moved quickly and efficiently to consolidate procurement tools and redundancies across the organization, thereby realizing sizable scale savings early in our integration game plan. For cement, our three primary operational metrics, overall equipment effectiveness or OEE, alternative fuel replacement, and Portland limestone cement conversion are all tracking in line or ahead of targets this year. These, combined with successful winter turnarounds and capital improvement, provided the main thrust for synergy generation so far this year. Ready Mix Synergies, driven by delivery, excellence, and footprint consolidation, as well as unlocking growth through greater aggregates pulled through in Houston and the Carolinas, were positive contributors to our first half progress as well. On a whole, we are delivering on our commitments with both operational as well as commercial initiatives fully in flight and providing the expected momentum for ongoing synergy capture. Looking ahead, we have clear line of sight to at least $40 million in synergies, although we expect the composition of synergies to evolve over time. We anticipate that the cement synergy bucket will grow as capital improvement projects take hold, commercial initiatives unfold, and our one summit model is more fully implemented. The headline message we leave you with regarding synergies is that we are delivering on all value streams, and we have even greater confidence today that we are comfortably achieve our synergy target this year. and at least 130 million over our integration timeline. In addition to this synergy creation, the cash generation opportunity was core to our Argos USA investment thesis. On slide seven, we contextualize how we see that cash flow opportunity progressing as we move through integration. On the left, you see Summit Materials' cumulative five-year cash flow conversion, defined as free cash flow as a percentage of adjusted EBITDA. From 2019 to 2023, Roughly 32 cents on every EBITDA dollar was converted to free cash flow. Our new enterprise can and will do much better than that. Over time, we expect to convert greater than 40% of adjusted EBITDA into free cash flow. That will be driven by three factors. First is fueling greater cash from operations by having a more powerful portfolio. Due to its higher fixed cost nature, our cement facilities will churn out greater cash flow. For context, our legacy Summit Cement assets consistently converted adjusted EBITDA into cash at a rate that was at least 10 points higher than the rest of the Summit portfolio. As we work through the integration and exhibit our Cement leadership, we will emerge as a cash-generative machine. Moreover, leveraging our company's greater scale and scope will help drive working capital management improvement and, by extension, greater operating cash flow. Second is the reduction of capital intensity over time. You've heard Scott say, and I'd reiterate, that we believe the long-term target of CapEx as a percentage of net revenue will moderate to approximately 8% over time. Reduced maintenance CapEx on cement assets and better return opportunities overall will enhance our cash profile. When achieved, this lever alone would release more than $100 million of free cash flow annually. And the last notable component is a continued scrutiny on our assets to determine if they are more valuable in someone else's hand. Taken together and over time, these three factors drive a powerful flywheel. The business is positioned to drive even greater EBITDA growth, translate that growth into substantial cash flow, and deploy that cash to high return opportunities, including our top priority, dialing up organic and inorganic aggregates growth. Let me close out on slide eight with our quarterly Elevate Summit scorecard. This schedule is the clearest demonstration on how our strategic execution is translating into our financial performance. On net leverage, we remain a half turn below our three times target, providing sufficient optionality to strengthen the portfolio via price-disciplined and ags-led bolt-on opportunities. As anticipated, ROIC at 8.9% incorporates the Argos USA assets. But over time, as we enhance our margin profile and execute against our tried-and-true portfolio optimization playbook, we fully expect to restore our ROIC to greater than 10% within two years. And finally, with last 12 months reported EBITDA at 23.8%, our profitability profile is trending to meet our 2024 margin expectations, and we are taking solid steps towards our 30% Elevate Summit target. All of the credit for our achievements so far this year, and those still ahead of us, is due to the tireless efforts of our dedicated employees. We are privileged to have a combined workforce that is engaged and enthusiastic. They have moved quickly and safely to integrate our companies, align our cultures, and make substantial progress towards achieving all of our stakeholder commitments. I want to say thank you to all Summit employees for your hard work. You have a lot to be proud of. I'll now hand it to Scott to conclude our prepared remarks.