Summit Materials, Inc.

earnings call. All lines being placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on their telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Andy Larkin, Vice President of Investor Relations. You may begin.

Hello and welcome to the Summit of Materials third 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 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 of 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 Summit Materials' 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, an investor presentation, and supplemental workbook. With me today are Summit Materials CEO, Ann Noonan, and Summit CFO, Scott Anderson. Ann will discuss high-level highlights from the quarter and then provide our view on the business moving forward. Scott will follow with a detailed review over financial performance. Afterwards, we will open the line for questions. Out of respect for our analysts and the time we have allotted, please limit yourself to one question, and then we'll 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 Ann Noonan.

Thank you, Andy, and welcome to everyone joining today's call. As you saw in our press release, our third quarter demonstrated tremendous resiliency in the face of very difficult operating conditions. I'm incredibly proud of our collective efforts to act with agility, manage what we could, and deliver strategic progress and strong financial results. In Q3, we set an Elevate Era record for both quarterly adjusted EBITDA margin at 28.3% and training 12-month EBITDA margin at 24.3%, a strong endorsement of our high-quality execution and unwavering strategic focus. And true to our values, we executed the quarter with a safety at all costs mindset. When faced with imminent and dangerous storms, we prioritized the safety of our people, closing operations, securing equipment, and providing the resources necessary to ensure the health and wellbeing of our employees. I'll detail the impact from severe weather events in a moment, But what's most important is that through all of the hurricanes and tropical storms, we had zero safety incidents at any of our affected facilities. Turning now to slide four, let me provide the highlights from the quarter both strategically and financially. First, our strategic progress is on track. We continue to move through integration activities with a sharp focus on strengthening our cement platform. For example, planning for our Green America recycling expansion is underway at the Legacy Argos USA plants. We are establishing critical supplier relationships and advancing our capital planning efforts so that we can begin our installation during the 2025 winter shutdown at our Roberta, Alabama cement plant. A disciplined portfolio optimization approach also remains an important component of our Elevate playbook. Guided by market leadership and asset-light principles, we are taking action to strengthen leading market positions in targeted geographies while unlocking value through divesting non-strategic assets. Through Q3, we have completed four such dispositions, while adding two bolt-ons to amplify our market position in Phoenix, as well as add to our overall ags portfolio. With substantial liquidity and robustness, we will pursue accretive ags-oriented acquisitions to fuel greater growth and returns. Financially, we are taking decisive actions across the enterprise to drive sustainable margin growth. Our value pricing strategy continues to deliver results with double-digit pricing gains in aggregates and mid-single-digit organic pricing gains in cement expected for 2024. We are also identifying and attacking the most meaningful operational excellence opportunities across our footprint with an intense focus on ag's productivity initiatives. And finally, our team is adjusting our discretionary spend to align with the current volume environment, something every good business should do. As for factors outside our control, this quarter again, we contended with unprecedented and severe weather that translated into lower volumes and higher costs. Despite this, and inclusive of dilutive impacts from the Argos USA transaction, we were able to grow adjusted EBITDA margins in Q3 on a year-to-date basis and on a training 12-month basis. This speaks to our relentless focus on commercial and operational execution, and underscores a more durable portfolio that we believe is being undervalued in equity markets. We will hold closely to our Elevate Summit strategy and firmly believe our sound execution will be recognized and eventually rewarded by the investor community. On slide five, we present our Elevate Summit scorecard, which highlights our financial progress. As I mentioned, LTM adjusted EBITDA margin of 24.3% is a summit record for any 12-month timeframe since the launch of Elevate in 2021. This is our thesis playing out. Focus the portfolio on margin accretive ags and cement platforms, concentrate on geographies with market-leading positions, and consistently improve the commercial and operational capabilities of the enterprise. This is our formula, which in turn jumpstarts our cash flywheel and unlocks resources to reinvest in further growth and value creation. Net leverage at 2.2 times is down from 2.5 times last quarter, and well below target, providing sufficient optionality to pursue our highest return capital allocation priorities. ROIC at 8.9% will move concurrently with the improvements implemented at our Legacy Argos USA cement plants, as there is considerable daylight between Legacy Summit and Legacy Argos cement ROIC levels. This represents a cleared light path to close in on our ROIC minimum target. Across all financial measures, our actions and strategic priorities are driving the targeted and desired financial outcomes for our business. Now, from the macro to the micro. Slide six estimates the impact of specific weather events in Q3. Between hurricanes Beryl, Debbie, and Elaine, we incurred volume headwinds and elevated costs most prominently in Houston, western and northern Florida, the Carolinas, and to a lesser extent, Georgia and Virginia. As you can see, the most consequential event was Debbie, where the quarry that feeds our Harleyville cement plant near Charleston flooded as Debbie dumped significant rainfall over the area. Our teams quickly stood up mitigation measures, blunting the worst of it. But wet feedstock, inaccessible primary equipment, and customer-related ramifications resulted in approximately 120,000 tons of lost volume and $12 million of lost EBITDA. In isolation, Debbie would weigh on any quarter, But when combined with the overall precipitation across our footprint, it rose to a historic headwind for us and for the industry. In our footprint, precipitation days increased in 85% of our MSAs, and precipitation days were up 20% year on year. Precipitation totals were up 65% versus Q3 23, underlying the severity of third quarter storms. All in, we estimate the three discrete weather events cited. amounted to approximately $15 million in foregone EBITDA for the third quarter. Notably, this does not include the impact from Hurricane Milton, which we estimate will affect our fourth quarter by roughly $5 million. We'll work to make up as much as we can, but as always, that will depend on getting a good stretch of weather to close the year. Cumulatively, for 2024, our business has more than $20 million of weather-related EBITDA headwinds this year. and yet we are still positioned to grow EBITDA dollars and margins for 2024, a testament to our stronger portfolio and a collective focus to drive positive growth from areas within our control. Having fully incorporated these weather events, our updated 2024 outlook is on slide seven. The adjusted EBITDA range is being adjusted to 970 million at the low end and 1 billion at the top end. If achieved, the 985 million midpoint represents roughly 7% annual EBITDA growth on a pro forma basis, which compares favorably to the peer group and underlines both the momentum we have in the business and the growth opportunities unique to Summit. This outlook recast volume expectations for 2024. We now project organic volumes for aggregates to be done mid-single digits this year, implying fourth quarter ag volumes to be relatively flat the prior year. Cement volume expectations have been reduced to approximately 8.6 million tons this year, which translates to down roughly 250,000 tons in our river market and down 200,000 tons in legacy Argos markets. Of course, our fourth quarter outlook assumes normal weather conditions, knowing that the longevity of the construction season is the biggest swing factor for Q4 performance. Importantly, when given dry days in markets like Houston, we've been able to partially recoup storm-related impacts, a trend we are hopeful will continue as we close the year. Offsetting this more restrained volume environment is visibility to asset sale opportunities and potential adjustments to incentive compensation. On pricing, we are reaffirming our outlook calling for double-digit ag pricing in 2024 and mid-single-digit organic cement pricing with average selling price exiting the year in the mid-150s. And we are reiterating our previous cost outlook with mid-single-digit cost inflation this year and GMA expenses at or below $330 million. On CapEx, we have recalibrated our capital spent to maintain our 10% of net revenue commitment. As such, we expect our CapEx for this year will approximate $400 million at the midpoint. In summary, volumes are softer than anticipated, price is pacing with expectation, self-help is stronger than originally contemplated, and as a result, we are well positioned for top-tier 2024 growth and margins of at least 24%. When achieved, this would mean we will fully recover Argos' solution in the first year of integration, a fantastic achievement for our team. While we keep our sights firmly focused on 2024 execution, we are well into our planning cycle for 2025. On slide eight, we provide our high-level framework for next year, but as customary, we will refine and adjust as we move into 2025 with more detailed guidance presented in February. In summary, we think that 2025 is setting growth and margins for summits. First, we see enduring pricing growth across our upstream businesses. As ag pricing normalizes, I think we can and will do better than the 3% to 5% long-run historical average next year. For cement, while regional demand conditions will be considered, we have harmonized cement's go-to-market approach with January 1st pricing plan for all markets. This initial pricing alongside opportunistic mid-years means the pricing will remain a reliable lever for profitable growth in 2025. On demand, the picture is much more fluid. On one hand, the public end market appears poised to sustain elevated activity in 2025. For our top states, our DOT budgets are at historic levels and growing. Our leddings are outpacing the national average, and importantly, nearly half of IIJA formula funding has yet to be obligated. Pairing that with our advantage positions in geographies like North Texas, Utah, and Salt Lake counties, as well as Kansas and Missouri, We view public infrastructure as a source of steady, reliable activity heading into 2025. We view private ed markets, on the other hand, as more choppy, locally dispersed, and subject to reevaluation as we move into and through 2025. Mark Columbia, North Florida, and Kansas City are showing promising signs for next year. While activity in other geographies with significant commercial exposure, like Salt Lake City and Phoenix, is starting to pick back up, they remain somewhat subdued. On balance and consistent with our typical budgeting approach, we won't lean into volume growth prematurely. We need better visibility into our project pipeline and the key construction season before making definitive forecasts. That said, our current perspective suggests a more back half weighted volume profile for 2025, largely influenced by the hesitancy we're witnessing in the private end markets. From a self-help perspective, our full funnel of opportunities includes Argos USA synergies, operational excellence initiatives already taking flight across the footprint, and an evergreen process for portfolio optimization. These three areas provide unique and powerful margin enhancement opportunities for our business. And finally, with nearly $740 million in cash on hand and a capable balance sheet, we view growth-enabled CapEx and Ags-led bolt-ons as the accretive pathway to drive organic and inorganic growth next year. These four elements are the 2025 building blocks. We believe these elements, alongside high-quality execution, will push us into the Horizon 2 adjusted EBITDA margin range of 25% to 27%. In closing, our playbook is working, our team is executing, and we are poised to make further intros into our Elevate Summit financial commitments as we close 2024 and enter 2025. With that, let me invite Scott to walk you through our financial results in more detail.