Welcome to Martin Marietta's Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants are now in a listen-only mode. A question-and-answer session will follow the company's prepared remarks. 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. Jacklyn Rooker, Martin Marietta's Director of Investor Relations. Jacqueline, you may begin.

Good morning and thank you for joining Martin Marietta's fourth quarter and full year 2023 earnings call. With me today are Ward Nye, Chairman and Chief Executive Officer; and Jim Nicholas, Executive Vice President and Chief Financial Officer. Today's discussion may include forward-looking statements as defined by the 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 the legal disclaimers contained in today's earnings release and other public filings, which are available on both our own 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 and I will begin today's earnings call with a discussion of our 2023 financial highlights and operating performance. Jim Nickolas will then review our financial results and capital allocation in more detail. After which, Ward will conclude with end market trends and our 2024 outlook. A question-and-answer session will follow. Please limit your Q&A participation to one question. I will now turn the call over to Ward.

Jacklyn, thank you. Good morning and thank you so much for joining today's teleconference. I'm pleased to report 2023 was the safest and most profitable year in Martin Marietta's history. We delivered both record financial performance, eclipsing $2.1 billion in adjusted EBITDA and also world-class safety results, achieving a world-class total injury incident rate for the third year in a row and a world-class lost-time incident rate for the seventh consecutive year. This year was also highlighted by several portfolio enhancing transactions significantly strengthening both the durability of our business and our balance sheet, and which cumulatively positions us well to continue delivering sustainable growth. Our 2023 achievements were accomplished despite a macroeconomic environment encumbered by restrictive monetary policy, a housing slowdown, and heightened geopolitical tensions. That our team was able to successfully overcome these challenges further underscores the continued success of our strategic operating analysis and review or SOAR plan, the vitality of our purposely curated geographic footprint, our team's steadfast execution of our proven value over volume commercial strategy, and the resiliency and earnings power of our aggregates-led business. Subsequent to year-end, on January 12th, we closed the acquisition of Albert Frei & Sons, a leading aggregates producer in Colorado, expanding our aggregates platform in the high-growth Denver metropolitan area. More recently, on February 11, 2024, we entered into a definitive agreement to acquire the Alabama, South Carolina, South Florida, Tennessee, and Virginia aggregates operations of Blue Water Industries, a closely held pure-play aggregates producer with a portfolio of 20 active operations and attractive Southeast markets, including Nashville, Knoxville, and Miami. Consistent with our SOAR plan upon closing of the Blue Water Industries acquisition, which is expected to occur later this year, subject to regulatory approvals and customary closing conditions, these two pure-play aggregates transactions will not only add approximately 1 billion tons of high-quality reserves in specific SOAR-targeted markets but also enhance the product mix of our portfolio. Assuming these transactions had closed on January 1, 2024, we would have expected these two acquisitions to generate approximately $180 million of adjusted EBITDA in 2024, more than offsetting the adjusted EBITDA divested in the February 9, 2024 sale of the company's South Texas Cement and related concrete business. As we turn the page to 2024, favorable commercial dynamics underpinned by our value over volume pricing strategy, and giving effect to the recently closed Colorado acquisition and Texas divestiture, we expect to deliver consolidated adjusted EBITDA of $2.24 billion at the midpoint. However, assuming these transactions and the recently announced Bluewater Industries acquisition had all been completed as of January 1, 2024, we would have expected the new portfolio to generate adjusted EBITDA of $2.37 billion in 2024 at the midpoint. Before discussing our full year 2023 results, I'll highlight a few notable takeaways from our record fourth quarter. Aggregates pricing increased 15%, driving product line gross profit of $328.6 million, a year-over-year increase of 36.8% and gross profit per ton of $7.04, a year-over-year increase of 39.8%, both fourth quarter records. While aggregate shipments decreased 2.1%, these financial results clearly demonstrate the success of our sales team's commitment to receiving appropriate commercial consideration for our valuable and long-lived reserves. The primary and disproportionate organic earnings growth driver of our business. Turning now to our full year 2023 results. As previously noted, we established new financial records in each of the following year-over-year metrics. Consolidated total revenues of $6.8 billion, a 10% increase. Consolidated gross profit of $2 billion, a 42.1% increase. Earnings per diluted share from continuing operations of $19.32, a 41% increase. Adjusted EBITDA of $2.1 billion, a 33% increase, and aggregates gross profit per ton of $6.93, a 46.4% increase. Moreover, we successfully implemented midyear price increases across the majority of our markets as we endeavor to pass through persistently high cost inflation. Shifting now to our full year 2023 operating performance beginning with aggregates. Aggregate shipments declined 4.3%, the combined result of our value over volume strategy and softer demand in certain Midwest and Southwest markets, partially offset by continued strength in key Southeast markets. Aggregates pricing increased to 18.9% or 17.2% on a mix-adjusted basis as pricing fundamentals remain attractive. Texas Cement shipments decreased 3.4% to 4 million tonnes. Pricing increased 22% or 21.6% on a mix-adjusted basis, driven by favorable supply/demand dynamics in the Dallas-Fort Worth Metroplex. Turning to our targeted downstream businesses. Ready-mixed concrete shipments decreased 12.1%, but that reduction was largely driven by the April 2022 divestiture of the company's Colorado and Central Texas concrete businesses. Pricing increased a robust 20.4%. Asphalt shipments increased 3.5% and pricing increased 6.7%. Before providing end market trends and our 2024 outlook, Jim will now discuss our full year financial results. Jim?

Thank you, Ward, and good morning everyone. As Ward mentioned, we completed the sale of our South Texas Cement plant and related concrete operations last week on February 9th. While these businesses were classified as held for sale on the balance sheet as of December 31st, revenues and profits from these operations through the divestiture date are included in the earnings from continuing operations. Accordingly, the revenues and profits from these assets are included in both 2023 as reported earnings from continuing operations and in our 2024 earnings guidance through the February 9th close date. The revenues and profits from the Colorado assets acquired on January 12th, 2024, also are included in our forward earnings guidance. Lastly, the Bluewater Industries transaction has not yet closed and remains subject to customary closing conditions and regulatory review. Accordingly, the contributions from the pending acquisitions are not included in our 2024 earnings guidance. That said, we will provide updated earnings guidance after closing the Bluewater transaction, which is expected to occur later this year. The Building Materials business posted full year 2023 revenues of $6.5 billion, an increase of 10.3% and gross profit of $1.9 billion, a notable 43.7% increase year-over-year, both new records. The aggregates business achieved all-time record revenues in 2023, growing 10.9% to $4.3 billion. Gross profit increased 40.1% to $1.4 billion, and gross margin increased 660 basis points to 32%. Again, both all-time records. Solid pricing growth more than offset lower shipments, further demonstrating how the disciplined execution of our value over volume commercial strategy yields higher profits and higher margins even without the benefit of growing volumes. Our Texas Cement business extended its track record of outstanding performance and once again delivered record top and bottom-line results. Revenues increased 17% to $725.5 million and gross profit increased 64.6% to $333.6 million, driven primarily by favorable supply/demand dynamics in the Dallas-Fort Worth Metroplex and energy cost tailwinds. As a reminder, the new finish mill at our Midlothian, Texas plant in North Texas is expected to be fully operational in the third quarter of 2024, adding approximately 450,000 tons of incremental high margin annual production capacity. Moving to our targeted downstream businesses. Our concrete revenues increased 5.9% to $1 billion and gross profit increased 44.2% to $102 million, driven primarily by pricing gains and mega project contributions, which more than offset higher upstream, raw material, and delivery costs. Asphalt and paving revenues increased 12.6% to $887.1 million. Gross profit increased 34.7% to $109 million. The result of strong demand and lower bitumen costs. Magnesia Specialties full year revenues increased 3.8% to $315.4 million, while gross profit increased 6.9% to $97.1 million. Strong pricing and energy cost tailwinds more than offset weaker demand in certain magnesia end markets, including TPO roofing and cobalt mining. We continue to balance our long-standing disciplined capital allocation priorities to responsibly grow our business. In 2023, we invested $650 million of capital into our business and returned $324 million to shareholders through both an increased dividend and share repurchases. Since our repurchase authorization announcement in February of 2015, we have returned a total of $2.6 billion to shareholders through both dividends and share repurchases. Our net debt to EBITDA ratio was 1.4 times as of December 31st, assuming the Albert Frei & Sons and Bluewater Industries acquisitions and South Texas Cement and related concrete operations divestiture were effective as of January 1st, 2024, after giving effect to the impacts of these transactions, our net debt to EBITDA ratio would have been 1.85 times, just below our targeted range of 2 times to 2.5 times, which would provide ample dry powder to take advantage of additional value-enhancing acquisitions. With that, I'll turn the call back to Ward to discuss end market trends.

Jim, thanks so much. We're enthusiastic about Martin Marietta's prospects in 2024 and beyond. We anticipate healthy demand in public and heavy non-residential construction will largely offset softness in the residential sector and expected moderation in light non-residential construction. However, anticipated decreases in mortgage rates should provide tailwinds in residential demand and an uptick in single-family home construction as evidenced by recent market data. As you've heard us say for years in this business, where you are matters and Martin Marietta is uniquely positioned to capitalize on these long-term secular trends. Infrastructure activity is expected to remain resilient as funds from the Infrastructure Investment and Jobs Act or IIJA, along with record State Department of Transportation or DOT budgets, as well as voter-approved state and local transportation-related ballot initiatives coalesce to years of steady investment and demand. The value of state and local government highway, bridge, and tunnel contract awards, a leading indicator for our future product demand, grew 8% to $113 billion in 2023. According to the American Road & Transportation Builders Association, Texas, Colorado, California, Georgia, and Florida, key Martin Marietta states, are among some of the largest growing markets based on contract awards. Importantly, our investment in our nation's infrastructure continues to maintain broad bipartisan support. During the November 2023 election, voters approved 88% of transportation-related state and local ballot initiatives, representing approximately $7 billion of additional infrastructure funding. We expect this enhanced level of federal, state, and local infrastructure investment will yield steady, multiyear demand in this important aggregates-intensive often countercyclical end market. Moving to non-residential and starting with heavy industrial, strong demand for large manufacturing and heavy side energy projects is expected to counterbalance ongoing moderation in warehouse and data center construction from its COVID peak. Construction spending from manufacturing in the United States continues to trend positively with the December seasonally adjusted annual rate of spending for 2023 at $214 billion, a 61% increase from the December 2022 value of $133 billion. Manufacturing projects continue to be supported by health demand from the ongoing reshoring of critical product supply chains, including semiconductors and electric vehicle battery manufacturing. As an example, in the fourth quarter of 2023, Toyota announced an $8 billion expansion to their battery manufacturing campus in North Carolina, bringing their total investment to approximately $14 billion. This incremental investment solidifies North Carolina as Toyota's central hub for lithium-ion battery production in North America with this campus having over 7 million square feet. Importantly, our quarries are well positioned to supply the aggregates needs for this type of multiyear project. Shifting to light non-residential, while demand remained resilient through 2023 despite higher interest rates, high office vacancy rates, and tighter commercial lending conditions, we expect 2024 demand in this segment to moderate as it generally follows single-family residential development with a lag. Given the structural housing deficit and favorable population trends in key Martin Marietta markets, we fully expect the affordability-driven single-family residential slowdown will recover as interest rates decline further and monthly mortgage payments become relatively more affordable. Although there's still near-term uncertainty, we're encouraged by recent trends in single-family housing starts, a leading indicator of aggregate demand, which were 1 million units in December, an increase of 16% from a year ago. Looking ahead, we expect 2024 to be another record year for Martin Marietta. As previously mentioned, we anticipate flat aggregate shipments as infrastructure and large-scale non-residential projects should largely offset softness in the residential and light non-residential sectors. With steady product demand supporting favorable commercial dynamics and the disciplined execution of our value over volume strategy, we expect double-digit aggregate pricing growth to overcome inflationary pressures and lead to expanded gross margins and unit profitability growth. Combined with contributions from our cement, downstream, and Magnesia Specialties businesses and contributions from our recently acquired Colorado assets, we are confident in our expectations for consolidated adjusted EBITDA of $2.24 billion at the midpoint. To conclude, we're extremely proud of our record-setting performance in 2023. We demonstrated our ability to successfully navigate another challenging macroeconomic environment and deliver superior returns for shareholders. As we begin the new year, our teams remain committed to employee health and safety, commercial and operational excellence, sustainable business practices, and the execution of our SOAR 2025 initiatives as we build the safest, best-performing, and most durable aggregates-led public company. We look forward to continuing our strong momentum in driving responsible and profitable growth in 2024 and beyond. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions. Thank you.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question is from Trey Grooms from Stephens. Please ask your question.

Yes, good morning Ward and Jim. You guys have been quite busy and first wanted to congratulate you and the team on the recent acquisition announcements, they look like great assets and a great fit for you guys.

Thank you very much. A busy weekend, I'll tell you that.

Yes, I bet it was. On that note, Jim, and you touched on it, but could you help us with a bit more detail on how to bridge the guide for the full year? Maybe help us understand and quantify what is included, what is not included as we look at the guide for 2024?

Yes, I'm happy to do that. We have now completed two transactions: the acquisition of Al Frei, which contributes between $40 million and $45 million of EBITDA, and the divestiture of our South Texas Cement and ready-mix business, which accounted for about $170 million of EBITDA that has been sold. These changes will affect what you might have expected from our 2023 outlook. The Bluewater acquisition is projected to add roughly $135 million of EBITDA, which represents a full-year run rate and is not currently reflected in our guidance. We will update our guidance to include this additional EBITDA once the deal closes. I hope this gives you the clarity needed to understand the adjustments.

Yes, that's helpful. Got it. And one more, if I could. I'm located not too far from some of your locations. And it's no secret, January weather was tough, particularly here in the South where we aren't used to snow and ice or sub-freezing temps for long periods of time. Can you help us on how to think about that in 1Q? And anything else to note that maybe we should be aware of as we think about this first quarter?

Trey, thanks a lot. I mean that's a really good question because as you recall, last year in Q1 weather was actually disproportionately good. And I think when people saw in Q1 numbers, they thought, wow, that's really something. And you know what I've long said, the first quarter can largely be made or broken by the last two weeks in March. But if you do have really challenging weather in January and February, it can put you back a little bit. So, to that end, you should expect a different cadence. I'm going to turn to Jim and ask him to give you some more detail on what that cadence is likely to look like this year. So, Jim back to you for a moment on that place.

Yes. So, Q1 2023, as Ward mentioned, was unseasonably good. That year, Q1 represented 15% of our gross profit. I'm speaking on a consolidated basis, so it's not a product-by-product. But on a consolidated basis, 15% of gross profits were earned in Q1. Again, it's a lower EBIT lower profit quarter. So, small changes can have big percentage impacts. And then pointing out, as you did, the weather this year is worse in Q1. I'm now going to guess around 11.5% of our gross profits that occurred in Q1 of this year. So, that's about a 350 basis point drop. I would say with Q2, Q3, and Q4 would each be about a little bit more than 1 percentage point increasing versus what they were last year. Again, that's percentages of total yearly profits. Does that help?

Yes, sir. I got it. That's super helpful. Thank you and good luck.

Thanks so much. Just one bit more color on that. So, obviously, January was a really challenging month for customers and everyone else as you would imagine. February, as we've seen good weather come through, the business has done what we would have thought. So, I think that's important to note as a footnote to what Jim just took you through. But Trey, thanks for the question.

Thank you. Your next question is from Stanley Elliott from Stifel. Please ask your question.

Good morning Ward, Jim. Congratulations on another successful year. Ward, maybe a good time to get an update on how you guys are thinking about SOAR 2025. I mean, you effectively doubled the market cap since that came out in 2020, 2021. Any comments on, I guess, the execution thus far, maybe how are you thinking about recent future and future portfolio moves and maybe tie that back into your commercial efforts?

Stanley, thanks for the question. You're right. I mean, we've been really disciplined, very thoughtful in each of our SOAR five-year increments. So, if you go back in time and remember the first one came out in 2010, and that was through 2015. Then in 2015, we did SOAR 2020, then most recently, again, very cleverly SOAR 2025. And we've been able in each of those to effectively double our market cap and we're almost there now. And obviously, we still had some track ahead of us in SOAR 2025. I would say a couple of things. One, the commercial execution that you've seen us focused on is something that we will continue to be focused on. I think you see it in what we've given relative to our guide this year. Again, we're looking at ASP increases at 11% at the midpoint. And again, I think it's important to say, Stanley, that does not contemplate mid-years. That's the same type of conversation we had in 2023 as well. And you'll recall that we came back and actually had mid-years in more than half of our markets. So, again, we'll come back and revisit that at half year and see where that is. The other thing that I think is important to keep in mind is you've seen what I think is a lot of very productive, very appropriate M&A. I think it's totally consistent with what we've sent to the market. We are an aggregates-led business. And part of what I moved by, if we look at simply what's occurred so far this year, two large transactions with assets coming into the organization, obviously, Bluewater still has some time to go through the Hart-Scott process. But we'll close on that transaction between Bluewater and what we've done without Frei & Sons, those are two pure-play aggregates businesses. And what I'm particularly moved by as well, if we look at our pipeline, that's what our pipeline looks like too. I do believe our company is positioned from a quality growth perspective and a very compelling and it's an overused term, but I almost think unique position as well. So, will commercial discipline be a piece of it? You bet. Will operational excellence be a piece of it? And we think it continues to be, particularly as we bring these businesses into our hold. But again, our ability to do shareholder value increasing transactions, we think here in the near-term, medium-term and long-term is a fundamental differentiator for our business. And if we think about what value creation looks like for Martin Marietta and its shareholders, we think those are the key drivers. But Stanley, I hope that's helpful in response to your question.

Sure does. Thanks so much and best of luck.

Thank you, Stanley.

Thank you. Your next question is from Anthony Pettinari from Citi. Please ask your question.

Good morning.

Good morning.

The gross profit per ton guidance of $840 million, I think, implies cost per ton up maybe mid-single-digit year-over-year. If I got that right. And I'm just wondering if you could bridge that between maybe some of your different cost inputs and any kind of assumptions around cost categories and maybe energy for the balance of the year?

So, happy to take. But I'll ask Jim to go through and give you a bucket-by-bucket view. But overall, you're entirely right. If we're just looking at general inflation, it's going to be in the mid to high single-digits range. That can obviously move around a little bit, but there are some components of our business that are seeing higher pieces of inflation. I think it's important to say that labor is actually not one of those. Those numbers continue to be in a very comfortable place, both for our workforce and for our company, but let Jim take you through some of the puts and takes on some of the other inputs.

Yes, you're correct. There's approximately 7% inflation on the cost of goods sold related to the aggregates business, specifically on a per ton basis. Some items are exceeding 7% inflation, including oil lubricants, which are rising significantly, and parts and equipment for the plants, which are also around that level. In contrast, the factors keeping inflation below 7% include labor, which is our largest cost factor, as well as diesel, electricity, and natural gas, which are not expected to pose challenges in 2024. Overall, there are significant variations around the 7% mark, with some elements exceeding it while others fall below. But on average, that’s where we stand.

Got it. And the assumption for diesel is just current prices.

There's a smidge of a headwind in for diesel, not much off of current spot prices.

So, we hope we've been a bit punitive to ourselves. We'll see how that plays out, Anthony.

No, that’s very helpful. I'll turn it over.

Thanks so much.

Thank you. Your next question is from Angel Castillo from Morgan Stanley. Please ask your question.

Hi, good morning and thanks for taking my question. Just was curious on the recent acquisitions. I was wondering if you could help us quantify a little bit more or give us a little bit more color as to kind of upside opportunity on the pricing side as you look at those assets in those regions in terms of bringing those more to the value over volume strategy?

If we review the overall businesses, the previous operations in Colorado were handling between 3.5 million and 4 million tons of stone annually. Denver represents a highly appealing market, and we'll observe how it develops. Historically, we have successfully approached these markets, although entering the hard rock sector can be challenging due to various barriers. We have confidence in our Colorado team, who are cost-aware and commercially driven. We believe the Denver market will remain attractive for an extended timeframe. Looking back about 13 years, we had minimal business in Colorado, but now we are clearly the leader in aggregates along the I-25 corridor, where more than 80% of Colorado's population resides, especially in Denver. Our acquisition of the Walstrom quarry and our Spec AGG quarry has established a strong position in that market. Regarding Bluewater, the deal has not yet been finalized as we are progressing through the Hart-Scott process, which we aim to complete by mid-year, although it could extend into the latter half of the year. The total tonnage involved is expected to be around 13 million tons of stone. Importantly, this acquisition provides us with a footprint in significant markets we've long desired to penetrate, including Nashville and Knoxville, as well as a more prominent presence in South Florida and around Miami. Reflecting on our presentation to analysts and investors in February 2021, we identified several markets we aimed to enter: Northern California, Southern California, Arizona, Austin, Middle Tennessee, South Florida, and Northern Virginia. We are now making progress in checking off most of those markets. When looking at the pricing at these facilities compared to our corporate average, it is slightly below that average. I hope this information is helpful and gives you insight into the market dynamics and overall volume. We anticipate enhancing operational efficiencies in these markets, and we are excited to have integrated the Frei team into Martin Marietta and look forward to adding the Bluewater team as well. I hope this addresses your question.

That’s very helpful. Thank you.

You bet.

Thank you. Your next question is from Jerry Revich from Goldman Sachs. Please ask your question.

Yes, hi, good morning everyone.

Good morning Jerry.

I'm curious about the historical context. In a stable demand environment, the industry has typically seen price increases of 4 points or less. Clearly, we are experiencing better results with the price/cost spread improving. Considering the lessons learned during the hyperinflation period, do you believe the industry's fear of inflation will persist beyond this year? Is it possible that we may revert to a slower pricing pace in 2025, aligning more with historical trends? I understand it's early to predict, but it seems the industry has faced challenges with inflation exceeding expectations. Does this shift the perspective for you and others in your markets?

Well, Jerry, I can only speak about Martin Marietta. There are several points I want to make. First, inflation has significantly increased over the last couple of years, and we took smart and prudent actions to protect our company during this rise. Secondly, within our company, we understand the importance of having long-lived reserves. Currently, we have reserves that exceed 70 years based on our extraction rates. We believe that these reserves have more value tomorrow than they do today, especially since in some areas it’s very challenging to replicate or replace them. We think long term about this business; our perspective is measured in decades rather than years or even five-year increments. As we reflect on our business, we recognize that we offer essential products for heavy-side development. While asphalt and concrete may not be required in every piece of a project, aggregates are absolutely necessary in all of them. From our viewpoint, when we consider how aggregates are priced per ton and assess their value and overall cost in relation to projects, we believe we're adding more value to each project than we may be costing it. Regarding commercial excellence, I do believe it will remain a driving force for our organization, making our pricing model look significantly different compared to a decade ago. Operationally, we will continue to enhance our capabilities by being better, faster, safer, and more efficient. Moreover, you can expect us to be responsible and visionary in acquiring attractive businesses in desirable locations. All these aspects provide a solid framework for understanding our business from a commercial standpoint.

Really appreciate the color. And then you folks have been super busy over the Super Bowl weekend. And I'm wondering if you look at the M&A pipeline today now that we're wrapping up the last deal, hopefully, that announced soon. The M&A pipeline from here, word, what's the range of outcomes in terms of how much more capital we can deploy over the balance of 2024? You predicted 2024 was going to be a really active M&A year, and I'm just wondering how much is left or there to do based on what's in the pipeline?

Jerry, that's a great question. So, here's the way that I would encourage you to think about it. Let's assume that Frei's closed, which it is, and let's assume the Bluewater was closed. We'd be leveraged at about 1.85 times. So, keep in mind, through a cycle, we like to be leveraged 2 times to 2.5 times. So, we're still, despite that degree of acquisitive activity, we're still below where we would typically like to be. So, my point is this, when we've seen attractive transactions before, we haven't done it a lot, but we've gone over 3 times. We've delevered actually very quickly and easily when we've done that. I continue to believe that there will be more transactional activity this year. I would be disappointed if there were not. You're right on our Q3 call back in November, I said at that time, I thought 2024 would be a pretty busy year. Obviously, we're about a month and a half into it. It's been a really busy year already. But Jerry, the fact is that I think there's going to be more, I'd be disappointed if there wasn't, and you should expect it to be more pure stone type transactions, Jerry.

Super. Thank you.

Thank you.

Thank you. Your next question is from Philip Ng from Jefferies. Please ask your question.

Congratulations on a strong quarter. Based on your guidance, Jim, it seems you are forecasting stable volumes for the entire year. This appears similar to what you indicated during the third-quarter call, but now it includes AFS, suggesting volumes might be slightly weaker. However, what you mentioned, Ward, sounded promising. I want to ensure that we are not overanalyzing this. Looking ahead to the latter half of the year, you mentioned the potential for declining rates, which could positively impact housing. Is there a chance for volumes to increase in the second half and extend into 2025? How should we think about the future trajectory?

Thank you for your question, Phil. First of all, I acknowledge your point. If we consider the potential of bringing in Frei, which is around 3.5 million tons, it's worth noting that our sale of the Hunter cement plant included some stone production that contributed roughly 2 million tons to that output. Therefore, when analyzing the Hunter transaction alongside the incoming Frei, we must remember that our business in Colorado is also affected by seasonal variations. This leads me to a relatively stable outlook. I wouldn't focus too intently on specific number details since there are enough fluctuations that could make a more favorable situation possible. However, I believe if interest rates decrease and there is a gradual recovery in housing, followed by some growth in light commercial sectors in the latter half of the year, it could boost volumes then. It's also setting the stage for 2025 to be significantly productive. On the infrastructure front, we are optimistic. Looking at highway contract awards from December 2019 to 2023, there has been nearly an 11% compound annual growth rate. Our top ten states have seen their Department of Transportation budgets increase by about 10% on average. Notable examples include Texas with a 24% increase, Florida with a 9% uptick, North Carolina at 11%, and Minnesota with a remarkable 38% rise since our acquisition there years ago. So, we see a compelling landscape in public infrastructure. In non-residential activities, the reshoring trend we mentioned earlier is ongoing, and we're witnessing heightened activity in that sector. I also highlighted developments in the energy sector, including a new battery facility in Kokomo, Indiana, and another coming in Bowling Green, Kentucky. Interestingly, even in regions where there has been some downturn in warehouse and data center construction, we currently have four data centers being built in Eastern Nebraska and Western Iowa, with another anticipated in Covington, Georgia. When assessing our geographic operations selectively, I do see potential for volume growth in the second half of the year. It's essential to consider the cadence discussed by Jim, as we won't replicate the strong performance of Q1 from last year. However, Q2, Q3, and Q4 could prove to be promising, especially considering last year's robust Q4. I hope this information proves helpful regarding volumes and the behavior of end users.

Appreciate the great color, Ward.

You bet.

Thank you. Your next question is from Tyler Brown from Raymond James. Please ask your question.

Tyler, you with us?

Yes, you there? Sorry.

Yes, sir, we hear you. Hi Tyler.

Yes, good deal. Hey Jim, I'm curious about the CapEx guide. It was a bit higher than we expected, especially considering the South Texas sale. Can you explain what is included in that CapEx number? Was there significant spending, perhaps on land acquisition? It seems like a 9.5% CapEx to sales ratio is higher than normal, particularly given the flat volume.

Yes, good question. Our range is between 8% to 10%, typically, 9% is the most common at the midpoint. But we do have a couple of large projects in there. And you're right, the finished mill seven is among those that's one of the larger spends in 2024 as we wrap up that project. Another one is our Beckman plant in San Antonio is getting a significant upgrade there as well. So, the largest items that are helping to push that up to a little bit more than normal, but still well within the range of what I think is typical for us.

Hey Tyler, let me add this too because Jim nailed it. He's exactly right. The other thing that we're seeing though on occasion, and we've seen it more in the last few months, is real estate purchases tend to be highly opportunistic. And when the right real estate shows up, you don't always know when it's going to parachute in, and we have to have the ability to be pretty agile around that. So, we're looking at some real estate purchases as well that we think will be important in the near, medium, and again, long-term for Martin Marietta, but broadly very much in that range that Jim spoke to, but those are some of the moving parts, both above the water and under the water.

Yes. No, that is very helpful. Thank you guys.

Thank you. Your next question is from Kathryn Thompson from Thompson Research Group. Please ask your question.

Hi, thanks for taking my question today. A lot of focus on all the great M&A and divestiture activity since November, certainly a busy holiday season through Super Bowl. But one of the changes also too is just in the cadence and the type of flavor of capital expenditure, CapEx as you divest some cements and take on more aggregate-focused assets. Could you walk through what this does for free cash cadence and also how we should think about capital expenditure given the change in mix? And then thoughts on capital allocation going forward, given recent activity? Thank you.

So, I'm going to start with capital allocation, and then come back to Jim, and he can just talk you through more degrees of CapEx and how things can move around. If you think about the capital allocation, Kathryn, one of the more elegant things about our company is that stays pretty consistent. Our view is our best first dollar spent is on the right transaction. And again, I think our teams are good at that. I think they're good at identifying the deals. So, I think they're good at going through the contracting process. I think they're good at the integration process. I think they're good at the synergy realization process. So, the right transactions will be number one on capital allocation, number two, and Jim will take you through more specifics, we'll be reinvesting in the business. As you know, if you're in the business of crushing stone, you're in the business of destroying iron. So, the fact is we will stay probably in those ranges that Jim spoke about a few minutes ago, but he going to more detail. And then lastly, is returning of cash to shareholders through two things; a meaningful and sustainable dividend, and we say both of those words very intentionally and share buybacks at the right time. So, the capital allocation priorities simply do not change. Now, more to your question on how does this portfolio evolution that we've seen change the way that we look at CapEx for that over to Jim.

Yes. I expect it to remain consistent with historical levels or potentially rise slightly as we focus on replanting many of our aggregate plants to enhance efficiency and automation. In terms of cadence for the year, I anticipate it will resemble last year and the year before, with Q1 and Q4 seeing heavier capital expenditures, while Q2 and Q3 will be lighter. However, factors such as opportunistic land purchases could disrupt this pattern and affect the percentages. I hope that addresses your question, Kathy.

And Kathryn, let me add one more note to that as well because keep in mind, when we're doing replants or otherwise, we're doing those because the income rates of return on those projects are so compelling. We almost would feel silly if we didn't do them. At the same time, part of what's still compelling about an aggregates business is we have the capacity if we need to, and we did it in COVID, and we've done it before, to pull back on that CapEx lever. If we ever need to, we don't see a need to do that. We think we can do it very constructively. We think we can do it in a very value-additive way. But again, I think as you just step back from our industry compared to others, and you look at the degrees of agility that we can bring to something like CapEx in a heavy industry is decidedly different and we think it's an advantage for Martin Marietta. So, again, we hope that's responsive to your question. Jim's got one more point.

One more point kind of an overall cash perspective, Kathryn. So, our operating cash flow grew tremendously this year. I'm comparing year-over-year now. Our CapEx did grow, but our cash conversion ratio improved in 2023 over 2022 meaningfully. So, we're very mindful of our cash flow. We think it's good and getting better even with slightly higher CapEx in 2024. We think that trend will continue.

Okay, great. And very helpful. And just one quick clarification on guidance on interest expense, that you released today, seeing a little light, but just wanted to hopefully can give a little bit of clarification on your interest expense guidance? Thank you.

Sure. Yes. It's actually, it's net interest expense. So, it's gross interest expense of, call it, $160 million interest income of, call it, $100 million. So, net interest expense of about $60 million at the midpoint.

Great. Thank you very much.

Thank you, Kathryn.

Thank you. Your next question is from Timna Tanners from Wolfe Research. Please ask your question.

Hey, good morning. I wanted to follow-up a little bit on the benefits you're seeing from IIJA and any color you can provide on the cadence that you're seeing there and your visibility? We all follow the contract awards data, and it's been quite strong, but kind of leveled off over the last several months. So, just wondering if you can provide some more color on what you're seeing there.

Timna thank you for the question. Number one, we are starting to see that weekend to pull through. And what I would say, obviously, when you're looking at what you and I know, is a $1.2 trillion bipartisan law, that's the big amount of money. That's $110 billion to roads. It's $66 billion for railroad maintenance. It's $42 billion for port and airport infrastructure. But what's important is to start drilling down and seeing what's going on in many respects on a state-by-state or at times MSA-by-MSA basis. So, if we look at where NC DoT is, for example, their budgets up 11%. They're obviously going to see nice federal money flowing through as well. What we're basically seeing is they're increasing infrastructure funding here by $7 billion over the next decade. So, again, that starts to give you a good sense of how that money is flowing through. Texas, they're looking for FY 2024 to be another record year of lettings. That's going to be at about almost $14 billion by the way, that's up about 15% year-over-year. Their unified transportation plan for FY 2024 is expected to exceed $100 billion. Again, that's an 8% increase. So, again, the federal funds that are flowing through are a big part of that. I'm particularly moved by what we've seen happen in Florida because again, the recent Florida 2024 budget increased to $17 billion. Again, that's an all-time high, over what had been an all-time high last year. But again, as we think about what Florida is able to do because of what they're seeing from IIJA you've got the move in Florida Forward Initiative that was announced in late Q3, that's going to bring $4 billion from general revenue surplus into transportation in that state. And even as we look at what's going on in California, their recently passed FY 2024 budget includes $20.5 billion for CALTRANS and that's still a 5% year-over-year increase from FY 2023. So, if we're looking at where the states are, what they're doing with their budgets, how they're taking these funds that are also coming from the Federal government? It's a pretty compelling story, as we sit back and look at it. Jim's got a few things he wants to add as well, Timna.

Yes. Our volumes decreased by 2% for the quarter, but I want to highlight that our infrastructure volumes increased by 6%. Therefore, we believe this growth is reflected in our infrastructure volumes.

Okay, that's helpful. Thanks. And just one follow-up on the M&A discussion. You've mentioned an interest in smaller acquisitions, but you've also pointed out that you have additional capacity in your debt leverage. So, I'm curious if you would consider accessing the capital markets for the right deal, or if your priority remains focused on smaller acquisitions as you move forward. Thanks.

For the right transaction, we would certainly do that, Timna. And again, we've demonstrated the capacity if we've done the right transactions to bring down leverage very, very quickly in the organization. So, we'll just have to look at them on a transaction-by-transaction basis. But the short answer is a lot of these, if they came along, you're only going to see them once. And it again can be very opportunistic and sitting at 1.85 times levered today, even having done all that we will have done this year taking into account Frei and Bluewater. We've got a lot of dry powder right now.

Got it. Okay. Thanks again.

Thank you, Timna.

Thank you. Your next question is from Michael Dudas from Vertical Research. Please ask your question.

Hey, good morning. This is Joe Nolan on for David.

Hi Joe.

I just had one quick question on the aggregates volumes guidance, you provided up or down 2%. Just with that, what would be the primary drivers that you're monitoring to drive the high end or low end? And just within that, can you talk about how the value over volume strategy might play into that?

Sure, happy to explain. A good way to think about it is by looking at Q2, where we saw a 2% decrease in volume. Last year, we were at 47.7%, and the recently completed year was at 46.6%. Upon examining this, one of the key factors was the value over volume strategy, which contributed modestly over 1 million tons. By focusing on value, we ensured better returns for shareholders by keeping reserves in the ground or in stockpiles for future sales at higher prices. This was the main reason for the volume shift, along with some market softening in both residential and non-residential sectors, but value over volume was the significant factor. Additionally, as Jim mentioned, infrastructure volumes increased by 6% in the quarter, which was expected and confirmed positive trends. If public sector growth continues and if residential markets begin to improve, which we're not predicting definitively, there's potential for a rebound in the second half of the year. This is critical because, with major projects in mind, even a couple of large non-residential projects can significantly influence volume trends. We are actively discussing several large non-residential projects in the Gulf of Mexico, and the outcomes of those conversations could serve as key factors influencing our volume expectations. I hope that clarifies things.

That’s very helpful detail. Thanks. I'll pass it on.

You bet. Take care.

Thank you. Your next question is from Adam Thalhimer from Thompson Davis. Please ask your question.

Hey, good morning guys. Great quarter, great outlook.

Thank you so much Adam. Good to hear your voice.

Ward, you talked about data center weakness in Q4. That surprised me. What are you seeing going forward there?

I'm not sure it was so much about our specific situation, but rather what some writers have mentioned. What I meant to convey is that in our industry, things haven't been as down as many expected, though we did face tough comparisons. Looking at the general trade publications, they indicate that in warehousing and data centers, we can expect some moderation due to high benchmarks from prior periods. My main point is that not all markets will perform the same. Specifically, when we assess the Southeastern, Southwestern, and interestingly, certain Midwestern markets where data center activity is notable, we see that areas like Nebraska and Iowa have shown remarkable resilience. I wasn't pointing out significant weaknesses, but rather emphasizing that the tough comparisons and broader commentary reflected a bit of softness compared to other regions. Nonetheless, I believe we are performing better than many.

Okay. And then clients ask me this, I'll just ask you, are we still early and you guys seeing the benefit from IIJA?

I believe we are still in the very early stages of this process. Practically speaking, 2024 will be the first year we see significant progress from the IIJA. Looking ahead, I expect 2024 will show improvements over 2023, and 2025 could surpass 2024, with 2026 potentially being even better than 2025. So, in terms of progress, we are far from the midpoint; we are in a strong position right now, and this trend is likely to continue for several years.

Great answer. Thanks Ward.

Thank you, Adam.

Thank you. There are no further questions at this time. I will now hand the call back to Ward for the closing remarks.

Again, thank you so much for joining today's earnings conference call. Martin Marietta's impressive 2023 results underscore the durability and resiliency of our aggregate-led business in unparalleled markets and the efficacy of our value over volume market approach. This solid foundation together with our unyielding commitment to enterprise excellence through the execution of our strategic priorities gives us confidence in our ability to continue delivering industry-leading safe, financial and operational performance. With our attractive underlying fundamentals, proven strategic priorities, and best-in-class teams, we're excited about our prospects for continued sustainable growth and value creation for our shareholders for the foreseeable future. We look forward to sharing our first quarter 2024 results in the spring. As always, we're available for any follow-up questions. Thank you again for your time and continued support of Martin Marietta.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.