Good day, everyone, and welcome to Eagle Materials' Third Quarter Fiscal 2025 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.

Good morning. Welcome to Eagle Materials' conference call for our third quarter of fiscal year 2025. This is Michael Haack. Joining me today are Craig Kesler, our Chief Financial Officer; and Alex Haddock, Senior 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 the call. For further information, please refer to this disclosure, which is also included at the end of our press release. Thank you for joining us today to discuss our FY '25 third quarter results. In the third quarter, once again, the operational performance and strategic focus of our team enabled us to deliver positive results and execute on several strategic priorities. This morning, I'd like to start off with some color on several of those strategic initiatives across Eagle Materials. These initiatives demonstrate our approach to investing for the long term to ensure we remain a low-cost producer throughout economic cycles. Let me highlight three areas of particular importance. These are just a few examples of the many things we do to strengthen our core business. First, our primary focus at Eagle is safety. In this regard, I'm happy to report that we ended the calendar year with our lowest total recordable incident rate or TRIR since we began tracking this lagging indicator. While this is an achievement, we don't plan on stopping there. We continue to build out our company-wide safety culture, standardized safety policies and procedures and ensure we tackle all the necessary protocols for keeping our people safe. We will continue our focus on putting engineering controls in place through the use of leading indicators to continue our journey towards zero. Second, we continue to make meaningful progress on our sustainability initiatives. In our cement business, we have completed investments that are getting us closer to our goal of 100% construction-grade blended cement for our manufactured product. These projects, like our Mountain Cement expansion and modernization, reduce our CO2 intensity while lowering our overall manufacturing costs. We are also making headway on completing our water treatment facility, our Republic Paperboard which should reduce water usage at the plant by 50% and increase the use of recycled water. The third strategic initiative is our recent acquisition of Bullskin Stone and Lime and its alignment with our overall growth strategy. Bullskin was a rare opportunity to acquire a pure-play aggregate asset that fits nicely within our current heavy materials footprint. This combination provides strategic advantages for us including our ability to serve our regional customers. The acquisition also expands our present and presence in Western Pennsylvania, a market with solid growth fundamentals and healthy DOT spending levels. Acquisitions such as Bullskin fit squarely in our broader growth strategy. We will continue to seek growth investments that strengthen our footprint and meet our strategic and financial criteria as Bullskin does. The acquisition closed in early January, and integration is well underway. I'm excited to welcome the Bullskin employees to Eagle. Now let me give some details on our operating performance this past quarter and our views on business conditions more broadly. We generated near-record third quarter revenue despite cement volumes being down 7% because of record rainfall in some areas. In key markets, rainfall reached 250% of historical averages. Our people and our plants executed impressively amidst these challenging conditions. As discussed last quarter, we undertook major maintenance at both our Tulsa and Texas Lehigh cement plants. The work plan was completed timely at both locations. The increased maintenance costs, which did affect us this past quarter, were smart investments for the long term, ensuring increased reliability of both plants and enabled us to get back to a normal maintenance cycle. We also continue to realign our customer portfolio at both our Denver and Kansas City concrete and aggregate sites and feel we can position those businesses well for the future. With regards to pricing, we have price increase letters out for the majority of our cement markets in our wallboard operations for the first half of 2025. Despite these tougher operating environments, the demand fundamentals for our products remain solid. In cement, federal infrastructure dollars through the IIJA program are just starting to flow through and private nonresidential manufacturing projects should tilt cement consumption higher. Regarding wallboard demand, we're focused on the widely discussed change in the outlook for interest rates and mortgage rates over the next 12 to 24 months. The path to lower rates and the knock-on effects of increased home buying demand is cloudier today than it was just a quarter ago. Single-family housing, the most important end market for our wallboard businesses, will continue to benefit from the drastic need for more housing in the United States. The affordability challenges facing today's potential homebuyers are being made worse by the lack of homes and thus, we feel the underlying demand for residential construction will be positive for wallboard consumption. Regardless of the short-term demand picture, we continue to generate a significant amount of free cash flow and to focus on how we best invest our cash over cycles. Over the last five years, Eagle Materials has put over $3 billion of capital to work on a combination of high growth, high return projects and capital returns through share buybacks. These investments include strategic organic investments to improve the reliability of our plants, including an upgrade to our Republic paper mill, as well as replacing or repairing critical equipment across our footprint to keep our plants in like-new condition. Investments in raw material reserves to ensure we have multi-decades of material close to our plants. This is a strategic operational initiative that results in a competitive advantage for Eagle. We also made several strategic inorganic investments to strengthen our low-cost position, including the acquisition of Kosmos Cement, several cement terminals, and multiple aggregate sites. We've made those organic and inorganic investments while maintaining a healthy leverage profile and reducing our outstanding shares by 30% through our share repurchase program. Our commitment to executing similar high-return initiatives through the cycle remains firm as it has for many years. Now let me turn it over to Craig to go through our financial results.

Thank you, Michael. Third quarter revenue was $558 million, a slight downtick from the prior year. The decline was driven by lower cement and concrete and aggregate sales volume partially offset by higher wallboard and paperboard sales volume and pricing. Third quarter earnings per share was $3.56. The quarterly EPS reflects lower earnings, offset by a 3% reduction in fully diluted shares due to our share buyback program. As we highlighted in the press release, we had a non-routine expense item during the quarter. It was $1.3 million of costs associated with business development and transaction-related activities. 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 declined 4%, primarily because of lower cement sales volume, partially offset by cement sales price increases we implemented earlier this year. Our third quarter cement sales volume was significantly affected by the exceptionally wet weather in our Midwest and Great Plains markets during November. Operating earnings were down 20% primarily because of the lower cement sales volume in addition to higher maintenance costs. As we previewed last quarter, we had major maintenance projects at two of our cement plants during the third quarter, which increased maintenance costs by approximately $8 million. The work of both plants has been completed, improving the plants' long-term reliability. As Michael mentioned, we have cement price increases announced in nearly all of our markets for the first part of calendar '25. Moving to the Light Materials sector on the next slide. Revenue in this sector increased 6%, reflecting higher wallboard and recycled paperboard sales volume and prices. Wallboard sales volume was up 2% and recycled paperboard sales volume increased 7%. In terms of prices, wallboard increased 4% and recycled paperboard 12%. Operating earnings in the sector were also up 18% to $97 million driven by the higher wallboard and recycled paperboard sales volume and higher wallboard and paperboard sales prices. Looking now at our cash flow. We continue to generate healthy cash flow and allocate capital in line with our strategic priorities and rigorous financial return criteria. During the first nine months of the year, operating cash flow was $486 million. Capital spending increased to $147 million, primarily because of the modernization and expansion project at our Laramie, Wyoming cement plant. We also acquired a small aggregates business for $25 million last quarter, the acquired operation is complementary to our existing aggregates business in Kentucky. And finally, we repurchased nearly 800,000 shares of our common stock for $201 million in addition to paying our quarterly dividends returning a total of $226 million to shareholders during the first nine months of the year. We have approximately 5.1 million shares remaining under our current repurchase authorization. And finally, a look at our capital structure, which continues to provide us significant financial flexibility. At December 31, 2024, our net debt-to-cap ratio was 40% and our net debt-to-EBITDA leverage ratio was 1.2x. We ended the quarter with $31 million of cash on hand, bringing total committed liquidity at the end of the quarter to approximately $686 million. And we have no meaningful near-term debt maturities. As Michael mentioned, subsequent to quarter-end, we completed the previously announced acquisition of Bullskin Stone and Lime which we funded through a combination of cash on hand and borrowings under our bank credit facility. Thank you for attending today's call. We'll now move to the question-and-answer session. Dave?

Our first question comes from Trey Grooms with Stephens.

First off, could we discuss the acquisitions? The Bullskin aggregate in Pennsylvania and the other tuck-in acquisition. Can you provide more details on how it fits into the geography? Are there other opportunities in that market, or is this more of a one-off in Pennsylvania? Looking at the bigger picture, aggregates have historically been a smaller part of the overall Eagle asset portfolio, but you've been more active in aggregates M&A recently. Is aggregates an area where you could deploy more capital in a significant way compared to the past? How should we understand your approach to this?

Yes, Trey, I'll answer that for you. When we look at the aggregate assets that we acquired here recently. One is the tuck-in, as you said, and it's in a market that we already have a large quarry for our cement manufacturing. The one we procured actually was right down the road from that gives us just a little bit more flexibility and secures a couple of different things. Let's us participate in the aggregate market there locally, and it also gives us a secondary supply to our cement plant if it was ever needed. We have plenty of reserves at our existing quarry, but just fit several strategic criteria for us. Up in Pennsylvania, the Bullskin asset, it's not as common to find just a pure-play aggregates resource. We're very excited to have that team join the Eagle team. As we build out our network of facilities, this one fits very well. We provide cement up into that market. And so it's right in line with our growth strategy to have that network and secure that network to make it stronger over time. To your second question of aggregates and deploying capital to aggregates, we've always been a fan of aggregates. We consider that the heavy side of the business. Our strategy has continuously been to grow the heavy side of the business, primarily. And we see aggregates as a great fit into that and if good quality assets that meet our return criteria come available at the right price, we are interested in those assets.

Got it. That's helpful. I guess, second one, maybe switching gears a little bit on to wallboard. So wallboard volume held in better than we would have expected. And obviously, the rate environment is now more certain, which you mentioned. But any kind of directional expectations maybe that you could give us for the overall kind of wallboard demand as we sit here today? Is it fair to think wallboard volume kind of remains steady, kind of continues to bump along in this range in the medium term until maybe we see some more significant changes on the rate front? Or is there a more significant move expected? Any high-level thoughts there would be helpful.

Trey, I believe you made a very good point. Over the past four years, wallboard demand has fluctuated by about 1% annually. We’ve experienced a rather slow housing market, and wallboard usage mirrors that trend. We expect to finish 2024 with around 27.3 billion square feet of wallboard demand, a figure that has remained steady. Historically, in previous cycles, we’ve seen consumption exceed 30 billion square feet in the U.S., so we are currently at a low level. As Michael mentioned, there are affordability concerns, and interest rates factor into that. However, there is also a solid underlying demand due to healthy employment and wages in the U.S., along with a decade of limited construction activity that has left inventory at very low levels. As affordability improves, we anticipate an increase in consumption and overall housing activity. We just need to see improvements in affordability first.

And the next question comes from Brent Thielman with D.A. Davidson.

Michael or Craig, I know you previously talked about a price increase in wallboard slated for November, you're going to delay that to the first part of 2025. I mean, any update there? Are you still kind of taking the temperature of the market right now? I'm just going to be curious, any comments around that.

Yes, Brent, we've got a price increase that we announced for here early February. So shortly after this call, frankly. So we try not to speculate on exact realization and whatnot, but we do have a price increase in the market, and we're going to move forward with that.

Got it. And then I guess, Craig, in cement, I mean, obviously, a pinch here on volume, which are related to the weather. I just was wondering about any other extraordinary costs to flush out when we look at the margin in that segment from a year-on-year perspective. I don't know if there's extra maintenance costs or anything else like that in there?

Yes, Brent, certainly, and we talked about it last quarter and highlighted it here. We had two maintenance projects at our facility, one of the facilities down in Texas and then in Tulsa, Oklahoma that were very large non-typical maintenance programs related to 50-year-old pieces of equipment and the replacement of those. So that was an $8 million headwind in this quarter. So yes, I would say this quarter had a unique cost impact from those programs. As Michael mentioned, really about improving the long-term reliability of both of those facilities, and the team did a good job with those projects.

Got it. Just last one. I know we're only a month in, not a lot gets done this time of the year anyway, but it doesn't seem like some of these weather conditions have abated from what I can see in the news. Just wondering if you can talk a little bit about that in the current quarter and how we ought to be approaching that as we sit here today.

Yes. Look, I've always said it's tough to draw a trend during January and frankly, even February as most of the country is going through winter. This January is no different than that. Certainly, lots of weather activity across the entirety of the U.S. So yes, January always has those types of issues, and this year will be no different.

And the next question comes from Anthony Pettinari with Citigroup.

This is Asher Sohnen on for Anthony. Just on the cement side, can you provide some color maybe on early realization you might be seeing on the January hikes? And then have you had any initial conversations around midyear or just the sense that customers might be bracing for it?

It might be a bit early to discuss a second round of cement price increases. As Michael mentioned, we have price increases in most of our markets during the early part of 2025, not just January but extending into the spring as well. Additionally, with the weather we've experienced in early January, we'll provide an update on what we achieve as we move into the fourth quarter and go through those results. However, the increases are somewhat irregular throughout the spring.

Got it. If I exclude the higher maintenance costs for the quarter, it appears that cement margins remained about the same compared to last year, which is positive considering the volume challenges. So, how should we view the margin potential for cement in the upcoming quarters with no additional maintenance issues and possibly improving weather?

Yes, we're feeling positive as we approach spring, considering the construction and bidding activity we've observed. Although we are experiencing a decline in volume by about 4% to 5% for the nine months, this drop has been largely influenced by weather conditions throughout 2024. Furthermore, the slow rollout of infrastructure spending from the IIJA has been notable. There is reason for optimism, not just for 2025, but also for 2026 and 2027, as improved volumes are likely to positively impact our margins. Additionally, some of the maintenance challenges we've faced this year are not expected to recur next year.

The next question comes from Jerry Revich with Goldman Sachs.

Michael, Craig, the key question that folks have is really given the outstanding wallboard margin performance and continuing soft resi data points, people are asking what's different about the wallboard pricing and margins in this cycle compared to, call it, the 2015 time frame where we saw pricing give back during a similar mid-cycle pause, I would love your thoughts on that and the level of comfort on the sustainability of the current margin structure in an uneven resi environment, if you don't mind?

Yes, that's a good question, Jerry. We've discussed this extensively. The industry has changed significantly, particularly on the demand side. As I mentioned earlier, homebuilding in the U.S. has been stagnant for quite some time, resulting in consistently low wallboard consumption. On the other hand, the issue with synthetic gypsum as a raw material dates back to 2015, which is hard to believe is now ten years ago. With coal plant closures, much of the synthetic gypsum inventory has been depleted. This has led to a notable change in the cost structure, as this raw material has become harder to acquire and is further away, increasing maintenance and transportation costs. However, Eagle and American Gypsum are in a unique position where we have reliable access to our raw materials. Since about half of the industry depends on synthetic gypsum as their main raw material, the shift away from it will significantly affect their cost structure. Our margins are strong due to strategic decisions made in the past, giving us a structural advantage that not everyone else has.

And Craig, on that note, given the high-cost position for some of the competitor base, any strategic opportunities emerging for you folks on the wallboard side of business? Or is our capital deployment focus here still strictly on the heavy side?

As Michael has always said, we continue to look at ways to put our free cash flow and our balance sheet to work. And take advantage of the position that we have across our wallboard network. So we continue to look at those opportunities with our facilities that are in the western part of the country that sit on decades' worth of raw materials and gypsum. Those are things that we continue to explore, how do we improve those facilities and take advantage of the cost position that we do have.

And can we shift gears and talk about cement. So your shipments in the quarter, I thought were pretty good given the maintenance, normally, your shipments are down 20% sequentially, you were down just 17% sequentially. As we think about the cadence of demand into calendar '25, it feels like you still have a tough comparison for volumes in the first quarter, but quite the easy one, applying normal seasonality in the second quarter and just would love to get your views on how that normal seasonality math stacks up versus your expectations for volumes in terms of tough comp in the March quarter and then very easy comp looks like in June.

Yes. Sitting here today, you'd expect to see pretty normal seasonality. The March quarter is always a difficult quarter, just given that two-thirds of it is January and February, which are particularly the hardest winter months and January certainly proved that out here this year. But yes, as you get into June and get into September, that's when the construction season really starts to kick off and sitting here today, have optimism around the beginning of the construction season, so ready to get there.

And the next question comes from Adam Thalhimer with Thompson Davis.

On cement prices, were there any push-through in January? Or are those more for April?

It's a combination across our plants across our networks. Some markets are in January. Some markets are going in April and some in between. So it's kind of across the board depending upon the market that you're in.

Okay. And then Craig, for Bullskin, how much should we add for aggregates tonnage? And is their pricing kind of similar to your corporate average?

Good question, Adam. From a pricing perspective, I can say it's consistent with the average across our markets. As for volume, we've had ownership for less than a month, so we'll provide a better update on volumes as we have more time with the business.

Okay. And then lastly, on the paperboard price, the average pricing jumped up quite a bit in Q3. I'm curious, was that mechanical and that will reverse? Or is that kind of the new norm over $600?

No, that is mechanical dealing with the price adjustments in the supply agreements within that business. So that price improvement is a function of OCC prices earlier in the year, having been higher OCC prices here in October, November, and December actually came down. And so as we go into the March quarter, you'll see that pricing probably dip back below $600 a ton. Again, it's not a market change. It's just a function of the pricing mechanisms in the long-term contracts.

And the next question comes from Phil Ng with Jefferies.

There's been a lot of headlines with funding being paused, whether it's for IIJA or IRA since Trump has been back in office. Appreciating this is a super fluid situation. What's the Eagle House view? And what this all means? Have you seen any noticeable positive activity projects? And then separately, if there are any tariffs potentially being implemented on cement, how do you think that actually impacts your business clear or bad?

Yes, Phil, on your first question, look, a change in administration always has some speed bumps and bumps in the road as they're going through that transition, this is certainly no different, a lot of noise here in recently. But as it relates to the things that matter to Eagle, we don't think there's much of an issue there. Again, a lot of noise, but things that mattered Eagle or we would expect to see infrastructure continue and other construction activity continue. In terms of tariffs on cement imports, TBD, of course, but it would certainly impact the cost of imported product into the U.S., not necessarily a dramatic impact to us directly. But indirectly, it would cause the marginal supply to be a higher cost ton.

Super. But it doesn't sound like you've seen any pause in projects on the public side thus far? I mean, I know there's not a lot getting done in the winter months of the year, but you haven't seen much activity slow down on that front.

No, no.

Okay. Super. And then on the wallboard side of things, once again, the quarter was pretty impressive. Demand was pretty resilient. And the way do you kind of characterize this environment, muted growth, but pretty steady. Is that what you're seeing on the order front as well because some of the distributors out there have talked about demand softening in single-family as well as commercial, but I think the way you've kind of messaged seems pretty steady, but I just want to make sure we're being thoughtful about this.

Yes. Again, even though wallboard is an indoor sport, it's always hard to generate a lot of trend activity, whether it's orders, shipments in January. But we haven't seen any dramatic swings one way or the other within the wallboard business.

And the next question comes from Jonathan Bettenhausen with Truist Securities.

I'm on for Keith this morning. On wallboard, it looks like the wallboard volumes outperformed the industry manufacturer shipment number once again. What are the main drivers of that? Is this more of like a regional focus? Or are there some share gains going on? Just any color here would be helpful.

No. Look, I would say right on the margin. I think the industry was down 1.5% or so, and we're up slightly. So very close to being in line with that. Our share hasn't changed much in the last five years. There are certainly regional activities that we benefit from, just given our footprint in the southern part of the country where construction activity is generally more robust. So I think it's more of that.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Haack for any closing remarks.

Thank you, Dave. Next quarter marks the end of our fiscal year, and we look forward to reflecting on the year we had while also laying out our strategic priorities for the year ahead. Until then, and as always, we will focus on excellent operational execution and capitalizing on opportunities for our businesses. Thanks to everyone who joined the call today.

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