Good day, and welcome to Martin Marietta's First Quarter 2023 Earnings Conference Call. As a reminder, today's call is being recorded and will be available for replay on the Company's website. I will now turn the call over to your host, Ms. Jennifer Park, Martin Marietta's Vice President of Investor Relations. Jennifer, you may begin.

Thank you. It's my pleasure to welcome you to our first quarter 2023 earnings call. Joining me today are Ward Nye, Chairman and Chief Executive Officer; and Jim Nickolas, Senior Vice President and Chief Financial Officer. Today's discussion may include forward-looking statements as defined by United States securities laws in connection with future events, future operating results or financial performance. Like other businesses, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially. We undertake no obligation, except as legally required, to publicly update or revise any forward-looking statements, whether resulting from new information, future developments or otherwise. Please refer to legal disclaimers contained in today's earnings release and other public filings, which are available on both our and the Securities and Exchange Commission's website. We have made available during this webcast and on the Investors section of our website supplemental information that summarizes our financial results and trends. As a reminder, all financial and operating results discussed today are for continuing operations. In addition, non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in the appendix to the supplemental information as well as our filings with the SEC and are also available on our website. Ward Nye will begin today's earnings call with a discussion of our operating performance. Jim Nickolas will then review our financial results and capital allocation, after which Ward will conclude with market trends and our outlook for 2023. A question-and-answer session will follow. I will now turn the call over to Ward.

Thank you, Jenny. Welcome, everyone, and thank you for joining today's teleconference. I'm pleased to report that this year is off to a very strong start for Martin Marietta with first quarter records by nearly every measure. Given our focus on operating safely and responsibly, we're especially pleased that total and lost time incident rates were down 21% and 50%, respectively, in the first quarter. The exceptional quarterly performance is a testament to our team's focus on commercial and operational excellence and the resiliency of our differentiated business model that separates us from others in our industry. We continue to adhere to a value-over-volume approach, focusing on an aggregates-led product strategy and carefully expanding and honing our service footprint, which today is national in scope. In brief, the results we've reported over the recent past, including the first quarter results announced today, are a tribute to our team's disciplined execution of our strategic plan and gives us confidence that we will deliver 2023 adjusted EBITDA of $1.9 billion, consistent with the high end of our previously announced guidance range. As is common practice, we will revisit our guidance more formally at midyear. As for the first quarter, our product demand remained robust. We experienced a modest decline in aggregate shipments as historically wet weather in California was partially offset by a mild winter in the Southeast. However, aggregates pricing momentum continued to build with a 12.8% sequential increase driven by the carryover effects of our 2022 inflation management actions and by broad acceptance of our January 1, 2023, increases, which were pulled forward from April 1 in the vast majority of our markets. These combined shipments and pricing results demonstrate the relative price and elasticity of aggregate demand where customer service and availability of quality materials tend to be of greater importance than product cost. Our intentional approach to capacity expansion investments at key facilities across our footprint has positioned us well to better serve our customers during this period of high product demand across many of our locations, including markets in the Southeast and Texas. Now let's turn to our financial results. We established a number of first quarter records for Martin Marietta, including consolidated total revenues of $1.35 billion, a 10% increase; consolidated gross profit of $303 million, a 94% increase; diluted earnings per share from continuing operations of $2.16, a 454% increase; adjusted EBITDA of $324 million, a 64% increase; and $5.70 aggregates gross profit per ton, a 134% increase. These results demonstrate the advantages of our value over volume commercial strategy, which was paramount to offsetting continued albeit moderating inflationary pressures. That said, the April OPEC+ production cuts were broadly unexpected and are likely to put upward pressure on fuel expenses throughout the remainder of the year, which tends to flow through to other cost categories. As such, our teams are actively advising customers of midyear price increases, which we anticipate will be more widely accepted and larger in scope and magnitude than we were initially considering a few months ago. Longer term, Martin Marietta is well positioned to benefit from what is expected to be an increasingly favorable and extended pricing cycle. Let's now turn to our first quarter operating performance beginning with aggregates. We experienced solid aggregates demand across our geographic footprint with total aggregate shipments decreasing only 300,000 tons despite an approximately 1 million-ton shipment decline in weather-impacted California. Aggregates pricing fundamentals remain attractive, with pricing increasing 22.6% or 19.6% on a mix-adjusted basis. The Texas cement market continues to experience robust demand and tight supply amid near sold-out conditions, particularly in the Dallas/Fort Worth area. Yet largely due to wet and cold weather to start the year, first quarter shipments declined 6.8%. Importantly, we delivered pricing growth of 32.2%, more than offsetting the effect of lower weather-impacted shipments. We fully expect that favorable Texas cement commercial dynamics will continue for the foreseeable future and accordingly, have announced a $10 per ton price increase effective July 1. Shifting to our targeted downstream businesses, ready mixed concrete shipments decreased 37.1% and pricing increased 20.2%. As a reminder, our first quarter 2023 ready mixed concrete results exclude the Colorado and Central Texas operations that were divested nearly 13 months ago on April 1, 2022, impacting the comparability to the prior year quarter. Asphalt shipments decreased 25.1%, driven primarily by wet weather in California and Arizona. Pricing improved 9.9% following the increase in raw material costs, principally liquid asphalt or bitumen. Before discussing our outlook for the remainder of 2023, I'll turn the call over to Jim to conclude our first quarter discussion with a review of the company's financial results. Jim?

Thank you, Ward, and good morning to everyone. The Building Materials business posted first quarter revenues of $1.27 billion, a 10.1% increase over last year's comparable period, and a first quarter gross profit record of $276 million, a 99.4% increase. Aggregates gross profit improved 131.7% relative to the prior year, resulting in a first quarter record of $238 million. Aggregate gross margin improved 1,250 basis points to 26.1% as strong pricing growth more than offset modestly lower shipments and continued inflationary pressure impacting most cost categories. Aggregates gross margin also benefited from geographic shipment mix, which reflected a larger contribution from the higher-margin Southeast markets. Geographic mix is expected to normalize over the balance of the year. Our Texas cement business delivered record first quarter top and bottom line results, continuing its recent track record of exceptional performance. Revenues increased 21.9% to $169 million, while gross profit increased 75.4% to $47 million. Importantly, execution of our disciplined commercial strategy drove gross margin expansion of 860 basis points to 28% as pricing gains and normalization of natural gas expenses more than offset lower operating leverage and higher raw materials and maintenance costs. As we shared previously, our Midlothian, Texas plant has several initiatives underway to increase production capacity. The largest of those is the installation of a new finish mill that we expect to complete in the third quarter of 2024. The new finish mill will provide 450,000 tons of incremental high-margin annual production capacity in today's nearly sold out marketplace. At both our Midlothian and Hunter Texas plants, the process of converting our construction cement customers from type 1 and type 2 cement to a less carbon-intensive Portland-limestone cement, also known as type 1L, is substantially complete. We expect those efforts to provide additional capacity of 5% this year as compared to 2022. Our ready mixed concrete revenue declined 24.4% to $220 million and gross profit declined 48.9% to $11 million driven primarily by the divestiture of our Colorado and Central Texas operations last April, impacting prior year comparability. Our asphalt and paving revenues increased 2.1% to $58 million as increased pricing offset weather-impacted shipments in California and Arizona. Consistent with its typical seasonality, this business posted a $20.5 million gross loss as the Minnesota operations are inactive during the first quarter given that market's late spring start to the construction season. Ideally, most asphalt installations occur when both ground and air temperatures are between 50 and 90 degrees Fahrenheit. Magnesia Specialties generated record first quarter revenues of $83 million, an 8.4% increase. Despite top line growth, gross profit declined 2.7% to $25 million due to higher supplies and contract services expenses, resulting in a 330 basis point decline and gross margin to 30%. We remain focused on the disciplined execution of our strategic plan, which emphasizes responsible growth through acquisitions, reinvestment in our business operations, and the consistent return of capital to shareholders. During the quarter, we returned $117 million to shareholders through both dividend payments and share repurchases. We repurchased nearly 204,000 shares of common stock at an average price of approximately $368 per share in the first quarter. Since our repurchase authorization announcement in February 2015, we have returned a total of $2.4 billion to shareholders through a combination of meaningful and sustainable dividends as well as share repurchases. Our net debt-to-EBITDA ratio continued its downward trend and ended the quarter at 2.4x, within our targeted range of 2 to 2.5x. With that, I will turn the call back to Ward.

Thanks, Jim. We like Martin Marietta's prospects in 2023 and beyond as we begin this year with great promise. We continue to experience healthy customer backlogs and are encouraged by a number of factors that support near, medium and long-term demand for our products across the infrastructure and heavy nonresidential construction sectors. As indicated in our supplemental materials, historic legislation including the Infrastructure Investment and Jobs Act or IIJA, Inflation Reduction Act and CHIPS Act are expected to provide funding certainty for large infrastructure, manufacturing and energy projects through the current period of macroeconomic uncertainty. As such, we expect the related product demand for these key end-use segments to be largely insulated. We'll start with infrastructure, which accounted for 32% of first quarter aggregate shipments. The value of state and local government highway, bridge and tunnel contract awards, a leading indicator for our future product demand, is meaningfully higher year-over-year with growth of 16% to a record $104 billion for the 12-month period ending March 31, 2023. Importantly, state Departments of Transportation, or DOTs, in key Martin Marietta states are well positioned from a readiness and resource perspective to utilize the full allocation of federal dollars received from the IIJA in fiscal year 2023. Also, late last year, the President signed the fiscal year 2023 spending package, which included the Cornyn - Padilla Amendment, allowing states and local municipalities to allocate unused COVID-19 relief dollars for infrastructure projects. This amendment alone is estimated to provide an additional $40 billion of available infrastructure funding to Martin Marietta's top 10 states. We expect this step change in public sector investment stemming from a number of historic legislative actions to drive sustained multiyear demand for our products in this important, often countercyclical end market. Moving now to nonresidential construction, this quarter's largest end-use representing 38% of our aggregate shipments. Heavy industrial projects led by energy, onshore manufacturing, and data centers continue to drive demand in the segment, accounting for the majority of total nonresidential shipments. The large project pipeline remains robust. As an example, estimated aggregates requirements for key Gulf Coast petrochemical projects have increased by over 33% since our last earnings report. The aggregates intensity of these Gulf Coast projects is immense. And importantly, we have the production capacity and the long-haul logistics capabilities to supply specification products to these significant projects in a timely manner. In addition to large petrochemical facilities, electric vehicle and related battery plants, semiconductor and other critical domestic manufacturing projects will be supported by enhanced federal investment from the Inflation Reduction Act and CHIPS Act, resulting in an extended cycle within the aggregate-intensive heavy nonresidential sector. With respect to the light nonresidential end market, we've yet to experience any notable weakness in this segment as shipments due in-process projects continue. With that said, new projects may have more difficulty accessing capital if commercial lending conditions meaningfully tighten. As such, we expect a slowdown in product shipments to the light nonresidential sector later this year. Residential shipments accounted for 25% of total aggregate shipments this quarter, reflecting a modest 2.6% decline from the prior year, as resilient multifamily construction, partially offset the single-family affordability air pocket. Importantly, recent public homebuilder sentiment has been notably upbeat with respect to single-family housing, and we have observed recent positive data indicative of a near-term bottoming in certain of our markets. Longer term, the structural housing deficit resulting from a decade of underbuilding is expected to drive a base level of demand for single-family homes across key Martin Marietta geographies for the foreseeable future. To conclude, our record-setting first quarter performance provides excellent momentum going into the balance of the year. As a result, we're confident in our ability to achieve the high end of our previously announced 2023 financial guidance range and navigate the current macroeconomic backdrop. Taking a broader view, we believe that our financial results validate the secular durability of our proven aggregates-led business model as we continue along our path of building and maintaining the safest, most resilient, and best-performing aggregates-led public company. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.

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

It was an impressive quarter. Was there anything that particularly boosted aggregates margins in Q1? Also, how do you anticipate aggregates margins will perform as we progress into the middle of the year?

Yes. The main answer to the question is ASP growth. That carried a lot of the weight, and it was just obviously a phenomenal performance this year. So that really is the answer. And of course, that's going to carry through into the subsequent quarters as well. That sticks, as you know. So no real changes or unusual items on the cost side but ASP did the trick. Plus, as you know, we advanced pricing increases from April 1 into January 1 successfully this year, and that had a big impact as well.

Adam, one thing I'll add to that too to keep in mind, what we've said on pricing so far this year does not take into account the midyear price increases that we think we're going to have in place this year. You heard me speak to them in the prepared remarks, we think we see more midyears. And we think we see higher midyears coming in this year than we thought we saw even in February. And so I think there are a couple of different components as we think about the margins going forward.

Our next question comes from Kathryn Thompson with Thompson Research Group.

And I appreciate the color that you gave previously on pricing. And tagging into that and just a bigger picture question. When we look at big trends that are impacting the U.S. reshoring, nearshoring, population shift, increasing environmental focus, and then government support through IIJA, the Inflation Reduction Act, and the CHIPS Act. When you look at those four factors, how does Martin Marietta win in this? And what does that mean for pricing realistically in the mid- to long term?

Kathryn, thanks for your question. To your question, as we think about pricing and we think about markets, I think several things. One, Kathryn, what you said I agree with. I sum up much of what you said in these words, so I think we're looking at what can be a manufacturing renaissance in the United States. The fact is we, as a nation, have to get back to building things. And what we're going to see is a nice combination of public spending relative to infrastructure or I should say, investment. We're going to see a lot more manufacturing in the United States, whether it's CHIPS or otherwise. And we're already seeing a nice burgeoning growth in energy. So let's take those three things and then step back away from it and think about the where. And I think that's where Martin Marietta is going to be uniquely positioned to win, as you said, going through this because as we think about the position that we've built in the Eastern United States along the I-5, I-95, I-40 corridor; where we are in the central U.S. along the I-35 corridor in Texas, which remember that corridor in Texas all by itself has more people than the Commonwealth of Pennsylvania. If you look at the slowest — I mean, excuse me, the smallest mega region, but fastest growing up and down the I-25 corridor in Colorado, again, we have a very attractive position up and down I-25 where a lot of people are coming in. And now we have to position up and down the I-4 corridor in California as well. So I do think the commercial aspect of what we're doing now and the commercial aspect of what we're doing going forward will be very attractive. But I think the way that we have very intentionally built out this business in mega regions in the United States trading out of areas that were slower growth into areas that are faster growth and will be that way for the long term is going to make the difference. Similarly, keep in mind, we positioned ourselves in states that are in very good shape from a DOT perspective, and we think that matters a lot. So if we're looking at public spend, which we think it's likely to be the single biggest driver of our business over the next several years, keep in mind, one-third of the $110 billion in the IIJA that are going to roads and bridges, a full one-third of that is going to our top 10 states. So we talk about housing a lot of times just generally, and it's all about location. I would tell you this business, too, is about location. And that location will drive volumes and that location will also drive the pricing. So Kathryn, I hope that gives you a good snapshot of how we look at it.

The next question comes from Trey Grooms with Stephens.

So first, just as a point of clarity, you mentioned, Ward, that your guidance doesn't include maybe your increases, I know for sure, in aggregates. But is that also the case for the $10 cement price increase that you just talked about?

Yes, Trey, it is. So again, we've communicated with our customers in April that we're looking for a $10 per ton increase at half year. And again, that is not yet included in our guidance, which we're saying we're going to revisit more formally at half year.

Okay. Ward, I wanted to ask about your Tehachapi cement plant since the FTC recently put that deal to the sidelines. And just would love to get some color from you on maybe your expectations for that asset going forward.

Happy to respond to that. Thank you, Trey. Yes, it was interesting when the termination of that transaction with CalPortland was announced, we actually had a good bit of incoming, and that was not a surprise to us. So we've heard from a number of parties expressing interest in that asset as you saw from our release today. We've also transacted and sold the import cement business in California at Stockton. So again, consistent with our view of what is strategic cement, strategic cement for us is that wonderful cement business that you've heard about in Texas. We will continue to move forward with the process relative to Tehachapi. We feel confident that we will get very attractive value for that. And we feel confident we will transact on that this year. So that's the way we're looking at that right now, Trey.

The next question comes from Stanley Elliott with Stifel.

Congratulations on the strong start to the year. I guess, kind of sticking on the Texas cement market, it's certainly been a differentiator for you all. Maybe can you speak to some of the confidence or some of the conversations you're having around the second increase with pricing up, what, like 30% year-over-year? And then also kind of the health of the market and the ability to absorb the additional production on the PLC side. And then finally, maybe expectations around cost there?

Stanley, thank you so much for the question. So if we really think about what we're looking at from a volume perspective in that state, it's probably going to be around 4.2 million tons this year. Keep in mind, the need for cement in Texas is far greater than the ability to produce it domestically is in Texas today. So number one, you start with that market fundamental, and that's a very attractive place to be. As you know, the largest portion of our cement business is in North Texas. It's led by our Midlothian plant. So as we indicated for the quarter, volumes were down 6.8% overall, largely due to weather. But if we're looking at North Texas, they were down about 1.6%. So again, the biggest single piece of our business in Texas remains very robust. Relative to the pricing conversations that we're having with customers, they're aware of where we're going. They're aware of the cost inputs that we continue to see in portions of our business, particularly relative to supplies, materials, and those types of things. So as we're sitting here today, again, we've recognized the vast majority of the price increase that we put in place relative to January 1. We're anticipating success on the one that we're looking at on July 1 as well. And we think the overall position of the Texas market — and keeping in mind a lot of the infrastructure in that state is concrete, most of the roads in Texas are concrete roads and about half of our cement finds its way to infrastructure. So I think when you take the way that state is literally built and where our positions are in Central and North Texas: number one, we feel confident in the durability of the business; and number two, we feel confident in what we're going to be able to do concerning pricing.

The next question comes from Jerry Revich with Goldman Sachs.

I wanted to ask, aggregates gross margins on a like-for-like basis, you were essentially flat sequentially versus normal seasonality that where you'd be normally down 12 points. And I'm just wondering, as we consider building off of this margin run rate into 2Q, applying normal seasonality would suggest moderate gross margins in the low to mid-40s, that's excluding delivery revenues in the second quarter. So I just want to make sure we don't get up over our skis and run rating the performance here. Anything we should keep in mind relative to that normal seasonality that just mathematically suggest excluding delivery revenues you'd be in aggregates gross margins in the low to mid-40s in 2Q?

Jerry, thank you for the questions. So yes, let's be careful with the skis. So the short answer is we're going to see a very nice continued build in margins this year. But the normal build that you would see going from Q1 to Q2, that would be much larger than it is in most quarters. You won't see that same quantum leap this year. In large measure because, as you pointed out, Q1 was so attractive. So do we intend to see and expect to see margin expansion going into Q2 and for the balance of the year? The answer is we do. But I would seriously urge you, don't go leaning into that same degree of percentages that you would have seen in years past. And keep in mind, Jerry, in many respects, we're seeing an EBITDA in Q1 that would have looked like our EBITDA for a full year in 2010. So again, we've built the business very intentionally to be more durable through cycles and through quarters. But given this outstanding performance in Q1, I expect really attractive performance this year. But yes, let's not get too far ahead of ourselves on those percentages. Jim, anything you want to add to that in particular?

Yes. No. Just Jerry, as you think about sort of Q1, Q2, Q3, Q4, our 3- or 5-year average would show a bigger bump in the line spike in Q2 and Q3. I think for 2023, you should view a higher Q1 and a lower Q2 and Q3 vis-à-vis percent of total profits for the year. So 100% of the profits over the four quarters, more in Q1 this year than is typical. But take a little bit out of Q2 and Q3 as a percent of total.

The next question comes from Anthony Pettinari with Citigroup.

This is Anthony. When considering the reasons behind what appears to be better than expected realization on your January hike, I think it could be due to a combination of a stronger backlog of demand, possibly higher anticipated inflation within the industry, or perhaps some customer rationalization. Regarding the pricing observed in the first quarter, which factors would you identify as the main driver or a combination of drivers? Additionally, could you note any differences between aggregates and cement?

Thank you for the question. I think there are a number of different drivers. I think, number one, clearly, inflation just moved very rapidly last year. And what we've proven in this business through cycle after cycle is this is a very durable business. If inflation spikes very, very quickly, we cannot keep up with the mediacy, but we will catch up with it. We will tend to pass it. And I think that's what you saw. So I think you saw a cumulative action of several different builds from price increases last year, number one; number two, we were very purposeful in moving a number of price increases from April 1 to January 1. That was impactful as well. Keep in mind, the one thing that we've called out that I do think is really important is we have not built midyears into what we're looking at right now. Although we do believe midyears are coming. So I think those are the primary drivers. I think, secondarily, is really where we've moved our business over time. So if we're looking at a very strong business in portions of the Southeast and Mid-Atlantic, a very strong business in Texas, and an emerging business in California, I think all of those help us as we think about the commercial aspects of what we're doing and the fact that aggregates constitute relatively small percentage of the overall cost of construction. And I think those factors coalesce together to put us in a position that we can expand margins in a business where you have a depleting natural resource. What we recognize is the stone in the ground is worth more tomorrow than it is today and mindful of how difficult that can be to replace. We want to make sure we're getting fair value for those products today.

The next question comes from Michael Feniger with Bank of America.

Ward, you talked about how pricing lagged inflation last year in the beginning. Now your pricing is well ahead of inflation. Just how do we think about that spread of price versus cost inflation into 2024? Can that spread be outsized in '24 as you edge the year with double-digit price increases, the mid-year price increases come through, and we start to see cost inflation start to roll over such as oil and diesel?

Michael, thank you for the question. Number one, if we're looking at overall cost inflation today, it's probably running, let's call it, 7%. So that's not a bad way to think of it. If we're looking at some of the big movers last year, obviously, energy was a really big mover last year, not as much on a quarter-over-quarter basis. So if we're looking at energy up, let's call it, high single digits — supplies and repairs are the ones that were actually up in — supplies low teens, repairs low 20s on a percentage basis. At the same time, if we look at what we're doing relative to pricing, we think at this point, we are likely to stay ahead of that. We think we are likely to see margin expansion. And it's certainly our aim to see that throughout '23 and into '24. Again, back to the notion that we're relatively small cost of the overall construction, and we have a product that, by its very nature, is depleting. And despite the fact that because of good planning, we have very long-lived reserves in our operations today. And I think that's important to call out. But nonetheless, I don't think prudent planning on our part should serve as something that would be a detriment on us utilizing our positions to make sure we're getting expanded margins through the cycle for the rest of this year and into next year.

The next question comes from Timna Tanners with Wolfe Research.

I have two high-level questions, if I could sneak them in. One is just given the nice beat in the first quarter EBITDA and the repeated confidence in mid-quarter midyear price hikes, why just steer to the high end of guidance? Is there something that's keeping you from changing the range? And then similarly on — when you think about cash use, really nice share buybacks. Does that have any commentary on the M&A opportunities that you're seeing or is it just a combination of ways to use cash?

Thank you for that. Relative to guidance, we just feel like January, February, and March is really early to change guidance. Obviously, you can tell from my tone, you can tell from our prepared remarks that we have a lot of confidence in the year. Obviously, as we've said, it doesn't take into account midyears. So our view is let's come back at midyear, let's revisit guidance. Then we can do it, I think, with much more precision then. So our view is we'll just come back and do it then. Relative to the buybacks, I guess several things. Number one, we obviously had some degrees of dilution just through compensation. We like to address that on an annual basis. Clearly, we've gone in more deeply than that. In many respects, Timna, frankly, because we thought buying Martin Marietta made a lot of sense to us, given where the share price was. So from the perspective of just general uses of cash, that made sense to us. It is not a reflection, let me be clear, on how we're looking at the M&A marketplace right now because what I can assure you is actually the dialogue that we have ongoing and the pipeline actually looks as good as I've ever seen it look. And I think there's some potential transactions that we can discuss later in the year that will largely be pure aggregates in nature, that will be attractive and that will be important. So one of the nice circumstances that we have is this business is cash generative, and we can look at multiple ways to return cash to shareholders and increase value. Share buybacks being one of them, a solid dividend that continues to go up is another way to do it, and then accretive acquisitions is a third. So that's how I would answer your questions very directly, Timna.

The next question comes from David McGregor with Longbow Research.

This is really turning. I guess just if I could just build up to Timna's questions for a second, and then I had a principal question. But what is your capital allocation is the longer term because clearly, we're heading into a period — this isn't just 2023. You're heading into a multiyear period of expanding free cash flow. And so the question from a capital allocation standpoint is, is the principal use of that cash at this point to grow by acquisition? Or is there an opportunity to go in, extend your reserve life, and expand organically? And just more of a longer-term view on how you put all of these returns to work. And then if I just give you my question now, I really want to just parse out the ASP growth. Obviously, an awfully strong performance, but how much of this is related to just volume growth in the East versus volume declines in the West this quarter? And as you talked about the timing of implementing pricing in January 1 this year versus April 1 last year, it would be great just if you could bridge those points to the reported number. It would be a big help.

Happy to do what I can, David. Thank you very much. Let's talk first about capital allocation. As we think about capital allocation, to your point, we've not changed our priorities. So our best use of capital is doing the right transaction in the right place. One of the things that we find so remarkable about this business, as we've gone out to look in geographies where we would have an interest and looked in areas in which we believe we could also buy businesses, here's what I'll tell you: we've found there were what we think are 200 million tons a year of businesses on a per annum basis that we could acquire. So think of it in these terms, David, that's another Martin Marietta that's out there. So if we're looking at modestly over 210 million tons of production or sales last year, there are businesses out there that are modestly bigger than that, that we think would be attractive to us in the geographies that we said we want to grow. Number one; number two, if we think about the quarter that you just saw, and again, you're looking at something the same way that I do. And that is, we think we're entering a series of years here that will be very attractive, here's the way I would encourage you to think about the volume. I'm just going to talk a little bit about what was weather affected in the first quarter. And as we look at weather effects in the first quarter, what I would tell you is, overall, if we're looking in the East, where actually the weather was relatively normal and dry, volumes there were up about 570,000 tons. If we look in the Southwest, again, our largest market by revenue, profitability and otherwise, actually, they had almost two times the rain that we saw in the prior year quarter. Similarly, if we look at Central — and keep in mind, Central is never going to be a big contributor in Q1 with the possible exception of aggregate line because people tend to put that on their fields in the winter, they can do if it's cold, they can't do if it's wet, and Central had the wettest Q1 since 2010. And then the West had record rains. So East was up about 570,000. California was down almost 1 million tons, as I said in my prepared remarks. And the Southwest was down about 320,000. So were there — were there degrees of movement there? Absolutely. Did it really swing the quarter dramatically? Not so much. But I think that does give you a sense of what was happening underlying weather and otherwise in the quarter. So I hope that helps you build that bridge.

The next question comes from Rohit Seth with Seaport Research.

Volumes seem to be holding up better than expected. Can you discuss your expectations for volumes by market? And maybe comment on what you're seeing today with shipments to the highway projects and what you're seeing with the ramp-up?

I won't go so much into what we're seeing right now on volume in specific markets because we'll talk more about that in the quarter to come, but here's what I would say. If I go through and really think about our leading states — and I'll do it this way. If I talk about infrastructure first, TxDOT learnings are expected to exceed $11.2 billion this year. I mean that's an enormous amount. And if we're looking even into next year, it's $11.7 billion. If we're looking in Colorado, which is an important state for us, the recently passed $5.3 billion 10-year infrastructure bill we think is going to have great tailwinds to it. Here in North Carolina, part of what we've seen here, one, North Carolina has shifted sales tax revenue to the highway fund. So that's going to be an additional 2% this year, 4% in '24, 6% in '25. And in large measure, we're seeing infrastructure increases by $7 billion in North Carolina over the next decade. Obviously, North Carolina is hugely important to us. In Georgia, despite the fact that they had suspended the gas tax proportions of last year, we're seeing $1.1 billion of surplus funds coming back into that. In Florida, record DOT spending, they've got a budget of $13 billion. Again, that's an all-time record. And in California, Governor Newsom has proposed an FY '24 budget of $20.7 billion. That's a 5.6% year-over-year increase. So that's on the federal side. Frankly, not taking into account what can come from Cornyn-Padilla and other things. If we're looking at nonres, and that's something that I think is just so important right now because as we look at those different markets in which we participate right now, Samsung and Texas, the Texas Instruments facility. Golden Pass, CPChem are all big projects. Equally, if we go to Colorado, High Point Logistics park near Aurora is something that's important. But in North Carolina, what we're seeing is Wolfspeed, Microsoft, Toyota, just a host of large industrial projects as well as port development in Georgia. We're seeing Rivian coming into social circle. We're seeing the Hyundai plant in Savannah. So I think to your point, Rohit, if we're looking across volume, and saying, public, we believe, is growing into the second half. We think the second half is where that's really going to show off. We think nonres, as you heard in my commentary, 38% of our shipments, the heavy side of that is good. It looks like it's going to stay good. What we're seeing on those petrochemical projects in South Texas and Louisiana is extraordinary right now. And here's the other piece of it that I think is interesting. I think for us, housing is probably at its peak right now. As we're thinking about housing, housing started slowing down last year. We're probably seeing the effects of that now. We were still 25% of our volume. And we think in the second half of this year, multifamily is going to start to be joined by single-family with more activity. So again, as we think about the way the volume build is likely to go over the next few quarters, we think that's likely to be how it is. I still think this tends to be more of a second half year story than a first half year story. But Rohit, I hope that gives you the color that you were looking at largely on a state-by-state basis.

I mean it sounds like the pipeline is pretty strong. Just on the heavy side, is there any risk from the tightened credit conditions on heavy projects being delayed?

It's hard to imagine on the heavy side that's going to be an issue. It's interesting to me. Keep in mind, about 55% of our nonres is heavy, about 45% of its light. If we're looking at what we're seeing on heavy, we're seeing energy sector volumes up pretty notably. LNG is up over 300%. Renewables were up 82%. Wind energy — we saw 300 permits pulled in Iowa for 2024. So again, if we're looking at these types of projects that I don't think tend to be uniquely finance-driven, I think we're in a pretty good place on that. I did call it out relative to certain portions of light that we think might slow down in the second half of the year. And frankly, it's been a little bit better so far than we would have thought that probably helps bridge to a degree what you're seeing relative to the overall goodness in the volumes in Q1.

The next question comes from Adrian Huerta with JPMorgan.

Given what we're seeing on cost inflation for aggregate volume around mid to high single digits and given what we have seen on pricing and even not including a second price increase, would you agree that gross profit per ton seems to be heading to north of $7 for this year?

Yes. I'll certainly tell you gross profit per ton has a very nice track record. And I know if you go to the supplemental slides and you take a look at Slide 5, it gives you a good sense of what that CAGR looks like over a 3-year, 5-year, and 10-year period. And frankly, my sense is that's going to look better in the future than it's looked in the past. So look, you're seeing where it's come from FY 2013 when it was just modestly over $2 a ton to what we're looking at relative to expectations this year, north of $6. I think our ability to grow that metric is frankly better than others. I think that's what you're likely to see from us. That's something that we're highly focused on. And look, I see where you're going with it. I'm not necessarily in a position to debate it with you. I think it's just a matter of what the time frame is going to look like, Adrian.

The next question comes from Dillon Cumming with Morgan Stanley.

I'm sorry to fixate on pricing again. But I think, Ward, you mentioned in your prepared remarks that some of your confidence in the midyear price increase was tied to the fact that oil had inflated pretty significantly post-OPEC cut. And again, unfair probably is given the volatility. But if you look at spot crude pricing, today, it's closer back to that point where it was in March. I think about freight rates, I think you're also down significantly year-over-year. When you take those two kinds of cost items, are you still, I guess, confident in your ability to get those midyear price increases given the kind of contemplated cost deflation there? Or do you feel like it's not as much tied to what you've seen more recently?

Yes, I am confident that we will see midyear price increases. Let me clarify that I’m not suggesting we will see them in every market or location. However, I believe these increases will occur more broadly than we anticipated back in February and will be larger than we expected then. You make a good point about certain energy components not moving as aggressively as they did last year. Yet, as I mentioned earlier, with our supplies up nearly 13% and repairs in some areas up 21.5%, we need to manage these inflation numbers effectively in our business. To navigate this, we will need to ensure we’re getting some support on the top line. It's also essential to remember that we constitute a very small portion of the total cost of construction, accounting for 10% of roadbuilding costs, 2% of homebuilding costs, and somewhere in between for our non-residential projects. Practically speaking, we believe this situation is sustainable. Furthermore, looking at our current attraction rate, we likely have about 70 years of reserves in Martin Marietta operations. Good planning should prevent us from being punitive to ourselves in our commercial activities. We have strong resilience in this regard and will provide more details in our call after Q2.

The next question comes from Phil Ng with Jefferies.

Congrats on a very strong quarter. Ward, it was really helpful kind of highlighting all the great funding you have on the infrastructure side, particularly in your states. So the fundings there, there's no denying that. I guess what I wanted to get better color on is timing of projects? In the past, there could be some movement, right, in supply chain, labor stuff. How is that lining up so far in terms of your expectations and how that's progressing? And then separately, on the heavy side, you sound very bullish on that front. In the past, I would have thought it was more 50-50. I appreciate it's a little more aggregates intensive versus the light stuff. How do you see that kind of — that mix shaping up in the coming years with all the funding you have, whether it's the CHIPS Act or the IRA Act?

Sure. Thank you so much for that, Phil. So I'd say several things. Historically, what you've had is about a 50-50 split between light and heavy on nonres. Historically, that is where we would have resided. You're exactly right. The last couple of years have trended more toward that 55-45 break, and that's what we continue to see. I think it's likely to stay that way for a while in large measure. Because, frankly, Phil, the heavy projects are getting heavier. And what I mean by that is they're so aggregates-intensive. And now given the degree of manufacturing that's going to be coming with the CHIPS Act and with the IRA and otherwise, I think we're just going to see more of that, and I think that's going to drive heavy. And heavy, literally, is just that. It's heavy. To your question on infrastructure, I get it. Look, I still think it's a half 2 issue. I'm still taken by the fact that when I look at our top 10 states, and I look at an overall average of their budgets up year-over-year, 11%. But then when I look at Florida up 38%, North Carolina up 11%, South Carolina up 28%, these are states that for us from an infrastructure perspective really can move the needle. And keep in mind, even a state like Iowa, is up 10%, and Iowa's a state where we've got a very attractive position. So a number of these states have not had the historic spend and invest that we're going to see going forward. I do think, again, it's a second half loaded issue. I don't think logistics are the issue going into this year than they have been in years past. Rail is functioning much better. Trucking is functioning much better. Contractors have hired more over the last 18 months than they were able to previously. So we think from a labor perspective, we're in a good space. We think from a DOT and best perspective, we're in a good place. And we think, again, from a logistics perspective, we're really very advantaged today. And again, I think our ability, for example, to get into some of the petrochemical projects in South Texas, utilizing BN, UP, and Kansas City Southern for shipping places us in a position that's really unparalleled today in an area that is likely to see just immense work. And again, even on the public side, keep in mind, if we're looking at highway contract awards over the last three years, those were growing at a CAGR of around 5.2%. If we look at where they are on an LTM at the end of March, it's up 16.2%. So again, almost three times what we've seen historically. So I think by any measure, if we look at infrastructure and we look at heavy nonres and then back to that break that you identified between them, I really am pretty enthusiastic about the way that looks from Martin Marietta right now.

The next question comes from Michael Dudas with Vertical Research Partners.

Ward, just any thoughts on the performance of Magnesia Specialties? Any indications on maybe general economy you're seeing in that business? Any potential for upside this year and how the business looks moving forward given some of the — we think some of the positive demand trends that we're seeing tangentially for the rest of your construction world.

Thank you for the question on Magnesia Specialties. So several things: one, it's a very good business; two, I think it's an important differentiator for us; three, record quarterly revenues, again, the RAMP revenues were up 8.4%. The biggest single issues we had there, we saw higher contract services. We had a little bit more kiln downtime. And frankly, steel was running a little bit lower. It's now running at about, let's call it, 74% year-to-date; it's been at about 70.1%. So based on some recent history, that's a little bit lower. The other thing that's different in that business, and we're in the process of remedying that. They have longer-term contracts with customers than we would typically see in aggregate; that's taken a little bit more time to move those up as we have with aggregates pricing. So the short answer is, it's always ironic when we look at Magnesia Specialties, and we feel like they didn't have the quarter that you would like to have seen. We're still looking at margins with the 3 in front of it. My guess is as we go through time, we will see that business start moving margins back up to something that looks a lot closer to a 4 instead. So Michael, I hope that's responsive.

The last question comes from Garik Shmois with Loop Capital.

Congrats, of course, on the quarter. I wanted to ask on non-res one more time. Just on the light non-res side, it sounds like it's holding in better than expected thus far. I'm curious if you're seeing any change though in the bidding environment? I know you've indicated that you might expect a slowdown later this year, but have there been any recent signs whether in bidding or backlog, that that's going to be the case.

Number one, thank you for the question, Garik. Not so much really. It's really more anticipating where we think that's going to go. Maybe a very modest slowing. But again, those projects tend to move relatively quickly. The heavy non-res, you can see coming a long way away. You know that's coming. The light non-res, not as much. So if I told you we had good data on it, I'd be leaning in a little bit more than I should. But I think conversationally, what we're seeing in the world of banking and otherwise, it's just making us look at that with a little bit higher degree of caution. But again, overall, if we think about non-res and what's happening on the heavy side of it, it really does serve as a very powerful counterbalance. Again, thank you so much for joining today's earnings conference call. Martin Marietta's track record of success through various business cycles proves the resiliency and durability of our aggregates-led business model. We continue to strive for the safest operations and remain focused on executing our strategic plan while continuing to drive sustainable growth and value creation for all of our stakeholders in 2023 and beyond. We look forward to sharing our second quarter 2023 results with you in the summer. As always, we're available for any follow-up questions. Again, thank you for your time and continued support of Martin Marietta. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.