Good day, everyone and welcome to Eagle Materials First Quarter of Fiscal 2024 Earnings Conference Call. This call is being recorded. At this time, I would like to turn the call over to Eagle's President and Chief Executive Officer, Mr. Michael Haack. Mr. Haack, please go ahead, sir.

Thank you. Good morning. Welcome to Eagle Materials conference call for our first quarter of fiscal year 2024. This is Michael Haack. Joining me today are Craig Kesler, our Chief Financial Officer; and Alex Haddock, Vice President of Investor Relations, Strategy and Corporate Development. There will be a slide presentation made in connection with this call. To access it, please go to eaglematerials.com and click on the link to the webcast. While you're accessing the slides, please note that the first slide covers our cautionary disclosure regarding forward-looking statements made during this call. These statements are subject to risks and uncertainties that could cause results to differ from those discussed during this call. For further information, please refer to this disclosure which is also included at the end of our press release. Let me start by saying how pleased I am to discuss another record quarter and a strong start to our fiscal year 2024. This quarter, we generated record revenue and net earnings, expanded gross margin by 240 basis points, increased adjusted EPS by 26% and returned $83 million to shareholders through share repurchases and dividends. Our performance in the current economic environment, where questions about the U.S. economy have dominated headlines for several quarters, demonstrates how our low-cost producer position benefits us across a variety of market conditions. You've heard me say many times that the ability to maintain our low-cost producer position ultimately relies on the industry-leading execution by our people. Therefore, I want to thank all of the Eagle employees for their time and dedication that went into achieving the results we have had not only this quarter but over the past years, you make a difference. Safety is a fundamental part of the Eagle culture. I could best summarize our safety culture as one where Eagle employees care for and watch out for each other. We have been successful in minimizing safety issues using our near-miss reporting system that identifies leading indicators to address safety issues before they happen. I'm happy to report that Eagle continues to set the benchmark in industry safety maintaining a total reportable incident rate well below the industry average. Now let me turn to more specifics on our performance this past quarter, starting with the heavy side. Both our Cement and Concrete and Aggregates businesses performed well, growing revenue by 15% on a combined basis versus the prior year first quarter. Our Cement business continues to benefit from robust demand that is outpacing industry supply and every plant in Eagle's network remains in a near sold-out position. It should be noted that our Western cement network did experience very wet weather over this fiscal quarter which led to a slower start to the construction season in these states. As a reminder, wet weather means that the timing of a project is delayed or interrupted; it does not generally imply demand destruction. The supply-demand dynamics have proved favorable for our cement business as we realized a 15% year-over-year price increase. As we mentioned on our last call, we have announced a July 1 price increase in about half of our cement markets. We continue to monitor market conditions over the coming quarters to determine if or when we implement additional price increases. During the first quarter of fiscal 2024, our joint venture operation in Texas Lehigh was negatively affected by an extended outage that addressed ongoing equipment issues at this facility over the past year. The extended outage resulted in increased maintenance costs and reduced production. Equipment reliability improved in July but additional work will need to be completed during our planned maintenance outage in fiscal 2025 which will again increase the outage timeline at the joint venture facility. Growing both our Cement and Aggregates businesses is a strategic priority for Eagle. As previously announced, we completed the purchase of our Cement import terminal in Northern California, strengthening our competitive position in this market. Environmental stewardship is another priority at Eagle Materials to help minimize our CO2 footprint. We are exploring the increased use of alternative fuels at our cement plants. We are laser-focused on transitioning our construction-grade cement production to Portland Limestone Cement or PLC. PLC reduces the carbon intensity of our cement footprint and makes our clinker production go further supporting our near-sold out position across our network. We are targeting converting 100% of our manufactured construction-grade cement to PLC or blended cement by 2025. I'm extremely proud to say that this quarter, we passed the 50% mark for PLC within our cement plant network. Now let me turn to the performance last quarter on the light side. Over this past year, the rapid rise in interest rates led many to believe housing demand would drop dramatically along with wallboard demand. However, wallboard sales volume and pricing have remained resilient due to several factors. First, let's look at the demand side. Our plants are located in the Sunbelt, which is the largest, most stable residential construction region in the U.S. and continues to be strong. Inventory of existing homes for sale is at near all-time lows, resulting in increased demand for new home construction. This has been reflected in an uptick in single-family permits recently. As for the supply side, the reduction of synthetic gypsum supply from the retirement of U.S. coal-fired power plants and the cost of accessing natural gypsum by importing it from abroad is having a significant effect on the industry by increasing the cost curve and capping effective supply for East Coast wallboard producers. Looking at the cost structure of Eagle and our low-cost producer position, we are advantaged in several aspects. Eagle owns or controls many decades of reserves in close proximity to all of our wallboard plants, which means we can cost-effectively access our raw material. The one plant that we utilized synthetic gypsum has many decades contract for material supply. Our main costs, OCC, freight, and energy came down sequentially, providing a tailwind. Now, let me turn to some thoughts on the balance of the year, starting on the heavy side. Demand fundamentals are in place to provide multi-year visibility in cement and concrete and aggregates. We expect demand for both businesses to remain steady driven by infrastructure spending and heavy industrial and manufacturing construction activity. Infrastructure awards are reaching multi-decade highs and our cement business is poised to benefit from the federal overlay to robust state and local government spending. The states Eagle operates in are well ahead of the national average on growth in infrastructure contract awards proving that geography matters. Non-residential spending is benefiting from elevated levels of activity as well, sustained by unprecedented spending on manufacturing projects. On the wallboard side of the business, we stated in the past that the near-term outlook is more unclear than on the heavy side, but in some respects, that is still true. That being said, a few things have become clear over the past quarter and the first half of calendar year 2023. First is that supply chain-driven backlogs in homebuilding construction continued to support activity. This is evidenced by the fact that multifamily units under construction in June had an all-time record, and total units under construction is just 28,000 short of an all-time record. The second factor that's becoming clear is the effect of housing supply shortages on new home building. The lack of existing inventory to support home buyer demand means new home construction is needed to prop up overall inventory levels. While the outlook here is still difficult to predict, we have increasing confidence in the supply-demand scenario for wallboard over the mid and long term. In summary, I am most encouraged about this year ahead because of Eagle's proven track record where it matters. First, we know how to manage through economic cycles. Our current results show that we can execute when and where it counts across dynamic market conditions. Second, our business generates impressive cash flows, and we are responsible stewards of that cash. Our focus has been and always will be on how to sustain the cash flow generation capability of our businesses and making the best use of that cash flow. Our capital allocation policies have been and will continue to be centralized around growing our core business. This includes investing in our plants to keep them in like-new condition, growing through acquisitions when they meet our strategic and financial goals, or returning cash to shareholders through stock purchases or dividends. With that, I'll turn it over to Craig for the financial review of our quarter.

Thank you, Michael. As mentioned, first quarter revenue was a record $602 million, an increase of 7% from the prior year. Excluding the recently acquired Cement terminal in Northern California, revenue was up 6%. The increase reflects higher wallboard and cement sales prices. The strong performance in both cement and wallboard contributed to record EPS during the quarter. First quarter earnings per share was $3.40, a 24% increase from the prior year. The increase was driven by improved earnings and a 7% reduction in fully diluted shares due to our buyback program. Excluding the non-routine items highlighted in the earnings release, first quarter adjusted EPS was up 26% to $3.55. Turning now to segment performance, highlighted on the next slide. In our Heavy Materials sector, which includes our Cement and Concrete and Aggregates segments, revenue increased 15%, driven by the increase in cement sales prices implemented earlier this year and the contribution from the recently acquired terminal in Northern California. Operating earnings were up 19%, primarily because of increased cement prices which were partially offset by higher maintenance costs during the quarter. The increase in maintenance costs was due to our decision to pull forward maintenance programs at two of our cement facilities. And as Michael mentioned, we also took an extended maintenance outage at our joint venture in Texas, which increased maintenance cost and reduced production. Given the strong demand backdrop, we implemented a second round of cement price increases in early July in approximately half of our markets. Within the Concrete and Aggregates segment, revenue increased 9% and operating earnings improved 23% on higher pricing and higher aggregate sales volume. The prior year also included approximately $1.2 million of costs associated with the step-up in inventory values related to the acquisition of the Aggregates business in Northern Colorado. Moving to the Light Materials sector on the next slide. Revenue decreased 2%, reflecting lower wallboard sales volume, partially offset by higher wallboard sales prices. Operating earnings in the sector increased 12% to $98 million, reflecting higher net sales prices and lower input costs for recycled fiber, freight, and energy. Looking now at our cash flow. We continue to generate very strong cash flow and allocate capital in a disciplined way. In the first quarter, operating cash flow increased 12% to $140 million reflecting improved earnings and working capital management and capital spending increased to $36 million. During the quarter, we completed the acquisition of a cement import terminal in Stockton, California, with a purchase price of $55 million. We also repurchased 484,000 shares of our common stock for $74 million and paid our quarterly dividend, returning $83 million to shareholders. We have 7.3 million shares remaining under our current repurchase authorization. Finally, a look at our capital structure, which continues to give us significant financial flexibility. At June 30, our net debt-to-cap ratio was 47% and our net debt-to-EBITDA leverage ratio remained at 1.4x. We ended the quarter with $53 million of cash on hand. Total committed liquidity at the end of the quarter was approximately $573 million and we have no meaningful near-term debt maturities. Thank you for attending today's call. We'll now move to the question-and-answer session. Betsy, I'll turn it over to you.

We will now begin the question-and-answer session. The first question today comes from Trey Grooms with Stephens.

First, I wanted to touch on wallboard. So volume has held in there especially well, especially in this quarter, I mean, down 4%. Is there still some benefit from the backlog of maybe unfinished homes? Or what's kind of driving that outperformance in the quarter? And then maybe if you could kind of touch on how that wallboard volume might have progressed through the quarter? I mean, was it fairly kind of stable at the quarter average? Or did you see it waver from that at all? And then, Michael understanding it's murky, given the uptick or maybe at least the bottoming, we've seen in starts and the optimism we're hearing from the homebuilders and given that lag there between a start and when wallboard goes into the process. What are you thinking on kind of the timing as far as maybe a rebound we may see in wallboard volume?

Yes, Trey. Those are good questions. As we mentioned last quarter and continuing into this one, sales volume has remained strong, largely due to a backlog of activity as the home construction cycle has lengthened. Additionally, our geographic position in the southern half of the U.S., particularly in the Sunbelt region, puts us in one of the strongest markets. We're also seeing significant order growth from homebuilders, which leads to increased wallboard consumption shortly thereafter. This suggests resilience in the near term, along with a positive outlook based on homebuilders' improving order intake, which sets the stage for a favorable wallboard market.

Yes. Okay, understood. And that I guess just as switching gears here to cement, just so we can get some understanding around the maintenance costs you pointed out, Craig. On wholly owned, you saw the costs were up there. And I think you talked about two plants there seeing more maintenance. Is there any way to quantify this? And is that going to continue kind of as we go into the next quarter? Or is that behind us?

No, this is the quarter when we handle most of our maintenance across the network. Therefore, it's included in this period. Sometimes those maintenance outages occur between quarters, specifically in March or April, but this year, everything fell into the April and May timeframe, ensuring that these costs don’t carry into subsequent quarters. It’s essential to maintain these assets and keep them operating at full capacity, as Michael has emphasized, so we can function at optimal levels during the construction season.

The next question comes from Brent Thielman with D.A. Davidson.

Just a question again on the JV, just to what degree we should be thinking about this impact in the future quarters. I think you mentioned you needed to do some more work in fiscal 2025. I guess my question is, is the ramp in that facility back up? Is there any reason to think that asset can't produce at levels it historically has until you can get more of this work done next fiscal year?

Thank you for the question. I'll provide some insight into our operations at Texas Lehigh. Over the past year, we faced challenges with equipment reliability at Texas Lehigh. We typically have the opportunity to conduct maintenance in our Killam areas and other manufacturing sites once a year, and we don't schedule outages on an ad hoc basis. When we performed our annual outage this past year, we identified several equipment issues that needed attention. During this year's outage, we anticipated addressing those issues, but it took longer than expected. Additionally, we've been planning for our next outage and have identified a few necessary improvements that will require extending that outage. While I can't provide a specific duration for the extended outage until we've completed all engineering work, I'm pleased to report that, following the outage, it took some time to fully optimize the new system. The first half of July was challenging, but in the second half, we've been meeting our production expectations for that facility. We're confident in our plans for the upcoming outage and where we currently stand with production for this year.

Okay, that's really helpful. Maybe just on wallboard, if I compare kind of your reported price to the fourth quarter, I guess any sort of thoughts on the mix impacts or other variables to kind of consider? Is it apples-to-apples and just reflective of overall market pricing? Any color there would be helpful.

Yes, Brent, our price is down about 1%, a couple of dollars. Overall, it has been a very resilient wallboard pricing environment for us this past quarter.

Okay. And then Craig or Michael, I guess, just lastly on paperboard, I was thinking lower nat gas. So CC prices might be a bigger tailwind to the business or margins and that maybe you saw in the quarter? Anything else to consider as you think about the profitability of that business line kind of looking forward?

Yes. Profitability was up significantly year-over-year. And as you said, a lot of that was a contribution from lower OCC prices and lower energy. As you know, we adjust the price that we charge underneath those long-term supply agreements based on the input costs of raw materials and energy. And so that pricing will adjust quarterly but we are happy with how that facility is operating and we've got some nice tailwinds on the energy side.

The next question comes from Anthony Pettinari with Citigroup.

This is Asher Sohnen for Anthony. You mentioned that wet weather has delayed demand but not eliminated it. How should we consider the timing of those delayed shipments? Are they mostly being pushed to the next quarter, or will they be distributed over the next few quarters?

Yes. And we're really talking about a lot of the Mountain region. Colorado, the month of June was either the wettest or second wettest month on record depending upon what you read. But yes, those jobs just get pushed. And it's hard to say is that in the next quarter is over a couple of quarters but that market continues to be very robust.

Great. Switching gears, I believe you mentioned last quarter that cost inflation might be moderating in 2024. Can you provide an estimate of the expected cost inflation for 2024 regarding both cement and wallboard, and how it compares to what you experienced last fiscal year?

Yes. On the wallboard side, with the decrease in OCC and natural gas prices, we noted a sequential benefit from these input costs. Additionally, freight costs also decreased both sequentially and year-over-year, leading to some reduction in expenses within the wallboard business. Regarding cement, as we mentioned, for our fiscal '24, energy prices were mainly locked in during the late fall and winter period, resulting in less inflation. We experienced a slight increase this quarter, but it was not comparable to what we encountered in fiscal '23. Looking ahead to fiscal '25, it's reasonable to consider potential deflation in energy prices, with input costs for pet coke and other fuels possibly decreasing.

The next question comes from Jerry Revich with Goldman Sachs.

This is Jatin Khanna on behalf of Jerry Revich. Can you update us on your M&A pipeline? And at what point would you consider accelerating the buyback given your cash generation and leverage profile?

Great question. Again, that's what really matters at Eagle is we generate a significant amount of cash. The balance sheet is in a very good position, so how do we continue to allocate that capital in a disciplined way? The M&A pipeline remains robust. There are lots of opportunities. We do have very strict criteria around the financial return and strategic criteria for those investments. We've been able to, over the last couple of years, find investments that have met those requirements and they've been very good return projects for us. Most recently, the import terminal in Northern California. So we continue to look for those opportunities but we also know that we passed on a number of investments that didn't meet our hurdle rates. And so then we turn and give that cash back to shareholders. We generally do that through our share repurchase program, and we've been very active in our share repurchase program over the last several years.

The next question comes from Stanley Elliott with Stifel.

Michael, in the prepared remarks, you talked more about shifting some of the fuel sources to more of an alternate fuel source. Is that going to be a larger capital increase? Or is that kind of normal maintenance sort of capital? And then kind of along those lines, what would the expectations be in terms of the energy cost when we come out on the other side of all that?

No, it's a great question. We've been examining this for a long time. We currently operate several of our plants using alternative fuels. What we're doing is looking to add a few more alternative fuels to our system and adjusting our practices to enhance their usage. Our approach to alternative fuels considers CO2 reduction, but we also recognize that these fuels can be financially advantageous, serving as a hedge against coal and coke when needed. These investments are not substantial; they are minor investments we've been developing over the past year, and we will continue to optimize the use of alternative fuels where it makes sense for us.

Stanley, I'll follow up on that comment. Just we talked about it last quarter with capital spending. You saw it up at about $36 million this quarter. So we are anticipating capital spending up this year in the range of $145 million to $165 million. Some of that is these alternative fuel investments. And then we continue to invest in the facilities around PLC and some of the investments there. As Michael pointed out in his opening remarks, we made significant progress this quarter to be over 50% PLC, and we'll make some more investments so that as we exit this year, we can continue to increase that.

That's very interesting. With these investments not being significantly larger over an extended period, it should likely provide help from the cash flow perspective, even beyond that. That was just the question. Secondly, the cement price and the cement markets in general have responded well to the second round of increases. It's difficult to determine if we're truly experiencing a paradigm shift in how pricing is brought to market. However, with demand effectively sold out and strong demand drivers emerging, how do you view the industry's evolution toward a second round increase as we move forward?

Stanley, it's a good question. And we don't like to speculate too much on pricing. But you pointed out, demand continues to be strong with federal highway build funding just starting to really benefit the business. It's really not quite even impacting the business. So that gives you a lot of confidence around multi-year visibility of this strong demand environment, as we said, around even the residential, you're starting to see some pickup in housing starts and the housing orders at the homebuilder level. So all of that points to a good strong demand environment. And that's against the backdrop of very limited supply response, whether that's because of alternative products, diminishing availability or just the inability to add meaningful new capacity, utilization rates should remain high for longer. And that's generally the formula for pricing. The exact cadence, we can't predict, but it would tell you a good pricing environment for quite a while.

The next question comes from Adam Thalhimer with Thompson, Davis.

I am curious about the cement volumes, which saw their first growth in 5 or 6 quarters. What do you think drove that growth and what is the outlook?

Look, as we just said, the outlook for demand continues to be robust in the cement market with infrastructure spending improving. I mentioned residential. But even on these large manufacturing industrial facilities that continue to be a meaningful part of the demand environment. And as we've said the last couple of quarters, we're sold out. So some of those down quarters were simply either unusual weather events or just very difficult year-over-year comps because of inventory levels that existed a couple of years ago that simply just aren't there today. So I think you're kind of in this range for demand. PLC will give us some upside opportunity there. And then obviously, the new import terminal that we purchased in Northern California gives us some inorganic growth opportunities but this isn't a surprise to us.

Great. And then on the wallboard side, you just talked about the pickup in starts and permits which we've seen as well. June was the first down volume quarter. How long do you think the air pocket lasts for you guys?

Demand remains strong. I wouldn't necessarily call it an air pocket, more like a lull. Our location in the southern U.S. contributes to this, and we are seeing resilience in our situation. With the improvement in orders, we are positioned for a better wallboard market in the future. We had a unique opportunity. Some of that growth is from acquisitions. We started operating our quarry in Kentucky and are now selling construction-grade aggregates, which previously only supplied our cement plant in the area. Even if we look at same-store sales, they were up 18%, and the team has really capitalized on this opportunity.

The next question comes from Phil Ng with Jefferies.

This is actually Collin on for Phil. I just wanted to start on the cement business. You definitely made it clear that you're sold out, so volume growth might be a little bit difficult. But can you just talk about the additional volume opportunities from PLC and that new import terminal, kind of what the new MAX Cement shipment capacity could look like after you have both of those things fully ramped and sort of the timing of getting there?

Yes. PLC is one opportunity, kind of a mid-single-digit type of growth opportunity over the next year or two. As you've seen, we've made significant progress this year in improving and expanding the production of PLC. That will continue into '24 as well as we make some of these investments that are necessary. And then on the import terminal, we've owned it for just a couple of months. Customers have been very happy as we've moved into that business and it's fit very, very well, and very strategic with our Northern Nevada cement manufacturing footprint. A little too early to give a whole lot of guidance on those volumes quite yet, but we've been very, very happy with the performance to date.

Great. That's helpful color. And then just on the July cement price increase. Can you just remind us the magnitude that you put the pricing letters out for? And maybe talk about how implementation is going to, I think it was for early July?

Yes. It was another double-digit increase. And as we said, it's about half of our markets. And not surprisingly, as you think and we talked a little bit about it today, some of our Western markets experienced a very unusual late winter, early spring snow and rain. That has continued in some of those markets. So just pushed the start of the construction season back a little bit. So those are the markets that generally didn't see the second round and again, not surprising there. But look, conditions remain sold out and happy with how the pricing is progressing.

Great. And my last question is just on wallboard pricing. I know you talked about minimal slippage from quarter-to-quarter but any comment on how pricing trended within the quarter, maybe where you exited versus the average and just how you're thinking about pricing for the rest of the year?

Yes. The exit price is pretty close to the quarterly average, and we'll continue to monitor that but we don't have any pricing actions for the rest of the year at this point.

The next question comes from Jonathan with Truist.

I am on for Keith Hughes this morning. I was wondering if you wouldn't mind going into a little bit more detail geographically about where exactly you see maybe the best infrastructure demand in the Eagle heavy markets?

Jonathan, I would tell you, it's pretty broad-based across our footprint. I don't know that I'd highlight one area or the other that's much stronger. They're all doing very well. And I would say our markets, in general, are outpacing the national average.

Great. And then in these states now that have been kind of quicker to pick up some of the spending, you're kind of expecting to see more demand growth as the infrastructure build funding continues to be realized, right? I'm reading that correctly?

Yes. That's right.

Thank you. Thank you, Betsy. Thank you for joining us today and we look forward to talking to you in the fall.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.