Welcome to Martin Marietta's First Quarter 2024 Earnings 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. Jacklyn Rooker, Martin Marietta's Director of Investor Relations. Jacklyn, you may begin.

Good morning, and thank you for joining Martin Marietta's First Quarter 2024 Earnings Call. With me today are Ward Nye, Chair and Chief Executive Officer; and Jim Nickolas, Executive 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 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 first quarter operating performance and our recently completed transactions as well as market trends. Jim Nickolas will then review our financial results and capital allocation, after which Ward will provide some brief concluding remarks. 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.

Thank you, Jacklyn, and welcome, everyone, and thank you for joining today's teleconference. Martin Marietta's continued growth and results demonstrate our industry-leading performance and disciplined adherence to and execution of our proven strategic operating analysis and review plan. With the nadir, that is always the industry's first quarter concluded in the 2024 construction season meaningfully underway, we remain confident that steady product demand supporting favorable commercial dynamics, continued adherence to our value-over-volume strategy, ongoing operational excellence undertakings, and portfolio optimizing transactions will position Martin Marietta for continued outperformance in 2024 and beyond. As detailed in today's earnings release, we raised our full-year 2024 adjusted EBITDA guidance to a range of $2.30 billion to $2.44 billion, or $2.37 billion at the midpoint. This increase reflects the benefits that will be realized from the recently acquired Blue Water operations as well as strong realization of this year's pricing actions. As is customary, we'll revisit our guidance again at midyear. Consistent with our SOAR 2025 initiatives, we've executed $4.5 billion of portfolio-enhancing transactions this year, reducing cyclical downstream exposure while redeploying the proceeds to expand our aggregates footprint and improve our ability to generate consistently higher margins. More specifically, on January 12, we completed the acquisition of Albert Frei & Sons, a leading aggregates producer in Colorado, strengthening our aggregates platform in the high-growth Denver metropolitan area. And on April 5, we acquired 20 aggregate operations from Blue Water Industries, providing us a new growth platform in Tennessee and Florida. These two pure-play aggregates transactions are expected to add approximately 17 million tons of annual shipments and generate approximately $180 million of annualized EBITDA, more than offsetting the EBITDA from the February 9 divestiture of the company's South Texas Cement and related concrete business. These transactions are all reflected in our revised adjusted EBITDA guidance as of their respective closing dates. Turning now to the company's first quarter operating performance. Aggregates pricing fundamentals remain attractive, increasing 12.2%, or 12.7% on an organic mix adjusted basis, underscoring the advantages of our value-over-volume commercial strategy, and our sales team's unwavering commitment to receiving appropriate commercial consideration for our valuable and long-lived reserves. Aggregate shipments declined 12.3% due largely to the well-chronicled cold weather impacting the start to the year in our East and Southwest divisions, and softening demand in warehouse, office, and retail construction, partially offset by more favorable weather and relative strength in our Central and West divisions. Aggregates product line gross profit per ton increased 14%, and gross margin expanded by 90 basis points, notwithstanding the shipment decline. Looking ahead, we remain enthusiastic about Martin Marietta's attractive market fundamentals and long-term secular trends across our three primary end uses: Public Works, nonresidential, and residential construction. More specifically, we believe these markets in Martin Marietta's chosen geographies will drive aggregates-intensive growth and favorable pricing trends for the foreseeable future. We expect robust multiyear demand in public infrastructure, U.S.-based manufacturing, energy projects, and data center construction will partially offset near-term softness in warehouse, light nonresidential, and residential end markets. That said, we fully expect the housing recovery, particularly in single family, once affordability challenges subside, as demand in our key markets remains robust. Infrastructure activity is expected to continue to grow in 2024 as early Infrastructure Investment and Jobs Act or IIJA projects advance to the major construction phase. Notably, according to the annual market outlook provided by the American Road and Transportation Builders Association or ARPA, public highway, pavement, and street construction, the largest market sector, is expected to increase 16% to $126 billion in 2024 as compared with $109 billion in 2023, as record state Department of Transportation or DOT budgets match federal funds and provide additional investments. The value of state and local government highway, bridge, and tunnel contract awards, a leading indicator for our future product demand, grew 11% to $116 billion for the 12-month period ending February 29, 2024. This generational investment in our nation's infrastructure, supported by federal, state, and local actions, provides state DOTs with certainty to advance projects in their backlogs, driving sustained multiyear demand in this aggregate-intensive, often countercyclical market. Shifting to the heavy nonresidential market, manufacturing projects continue to be supported by steady demand from ongoing reshoring of critical product supply chains. Construction spending for domestic manufacturing continues to trend positively, with the February seasonally adjusted annual rate of spending for 2024 at $223 billion, a 32% increase from the February 2023 value of $169 billion. Equally, we expect the long-term secular trends towards cloud-based services and artificial intelligence will drive renewed growth in data center construction, which had moderated from a post-COVID peak. As an example, in March, Google announced a new $1 billion data center in Kansas City to help drive its artificial intelligence efforts, which requires nearly 800,000 tons of aggregates from our uniquely positioned underground operations. Looking at the light nonresidential market, we expect 2024 demand will be challenged given higher for longer interest rates, high office vacancy rates, and the natural construction lag from the last two years of single-family residential declines. As for the residential market, despite near-term uncertainty around mortgage rates, we're encouraged by positive trends in single-family housing starts, a leading indicator of aggregates demand, which were 1 million units in March 2024, a nearly 21% increase from a year ago. Notably, single-family housing starts have been at or above 1 million units since November 2023, indicative of a recovery from the 2023 trough. Given the well-publicized structural housing deficit in our company's key metropolitan areas, we expect Martin Marietta to benefit disproportionately from new home construction once interest rates moderate and monthly mortgage payments become more affordable. I'll now turn the call over to Jim to discuss our first quarter financial results. Jim?

Thanks, Ward, and good morning, everyone. As Ward mentioned and indicated in our earnings release, we raised our full-year 2024 adjusted EBITDA guidance to $2.37 billion at the midpoint and our full-year 2024 aggregates gross profit guidance to $1.75 billion at the midpoint. The updated guidance for Aggregates gross profit includes a $30 million nonrecurring noncash purchase accounting impact expected in the second quarter, the fair market value write-up of inventory related to the Blue Water acquisition. The Building Materials business generated revenues of $1.2 billion, a decrease of 8%, and gross profit of $248 million, a decrease of 10%. The vast majority of the decline in both metrics is due to the effect of our divestiture of our South Texas cement and ready-mix business. A much smaller portion of the decline was due to shipments impacted by tougher weather this quarter compared to the prior year's unseasonably favorable weather conditions. Despite the lower shipment volumes, Aggregates gross profit increased modestly to $239 million, and gross margin increased 90 basis points to 27%. These results reflect our team's focus on what we can control, specifically the efficacy of our commercial discipline and flexible cost structure, which drives higher profits without the benefit of growing volumes. Turning to our Texas cement and targeted downstream businesses. Our Cement and Concrete revenues decreased 22% to $265 million and gross profit decreased 47% to $31 million, driven primarily by the divestiture of our South Texas cement plant and its related concrete operations and secondarily by wet weather in Texas. Additionally, the new finish mill at our Midlothian cement plant in North Texas, which will add approximately 450,000 tons of incremental high-margin annual production capacity, is still on track to be operational in the third quarter of 2024. Consistent with typical seasonal trends in relevant geographies, the asphalt and paving business posted a $22 million gross loss as our Minnesota-based asphalt facilities are inactive during the first quarter due to winter operational shutdowns, and our Colorado-based operations experienced unfavorable winter conditions. Magnesia Specialties achieved an all-time quarterly gross profit record of $29 million despite a 3% decrease in revenues to $81 million, as strong pricing, improved maintenance cost control, and energy tailwinds more than offset continued headwinds in metal mining end markets. Our long-standing disciplined capital allocation priorities remain focused on responsibly growing our business through value-enhancing acquisitions, prudent organic capital investment, and the consistent return of capital to shareholders, all while maintaining our investment-grade credit rating profile. In the first quarter, we invested $200 million of capital into our business. We also returned to shareholders almost $200 million during the quarter, with $150 million of that used to repurchase over 255,000 shares at an average price of $586.85. Since our repurchase authorization announcement in February 2015, we have returned a total of $2.8 billion to shareholders through both dividends and share repurchases. Our net debt-to-EBITDA ratio was 0.8x as of March 31. Assuming no further M&A activity, we expect net leverage to be 1.4x by year-end, below our targeted range of 2.0 to 2.5x, providing a strong balance sheet to capitalize on a robust acquisition pipeline. With that, I will turn the call back over to Ward.

Jim, thanks so much. To conclude, we expect 2024 will be another year of significant achievement for Martin Marietta. We're well positioned to benefit from infrastructure tailwinds, providing steady product demand and favorable commercial dynamics across our coast-to-coast footprint. Over the past 30 years, since the public company, Martin Marietta has built a resilient and durable business. We'll continue to build on the foundation that has proven so successful, an aggregates-led platform with an unwavering commitment to safety, commercial and operational excellence, and the disciplined execution of our strategic priorities. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions. Thank you.

And your first question comes from Kathryn Thompson from Thompson Research Group.

You all have clearly been very busy with acquisitions and overall portfolio optimization. And I know it's early days, but maybe if you could talk about kind of the integration of AFS and BWI. How that's going so far, maybe where you see opportunities there? And then with that, relative to the information you've given us in the past, I think you might be adjusting your view of the demand environment just a little bit, but taking up the ASP and maybe even the standalone EBITDA guide a bit. First off, do I have that right? And maybe could you help us out with that?

You do have it right. And thanks for the questions. I'll try to address all three parts. So let's talk first about integration, and your question is a good one. We've closed on Frei and Blue Water. The transactions went well. From our perspective, our teams have done a lot and done it well. We typically close on a Friday, and we open up on Monday morning, and it's a Martin Marietta operation. It has our signs, it has our tickets, they're on our networks, and that's exactly what we've seen. So again, the blocking, the tackling, and the people integration is complete, and it's exactly where you would expect it to be based on our history. Now from a commercial excellence and operational excellence integration perspective, a couple of views on that. If we're looking at the commercial excellence, given the fact that we closed on Blue Water relatively quickly, we were able to announce midyear pricing in all of those markets effective July 15. We generally provide people with at least 90 days of notice to our customers. Therefore, the early closing of Blue Water worked to our advantage in that respect. Regarding operational excellence, several things are worth noting. We're looking for quick wins, suppliers, and spending more on favorable contracts that typically happens within the first 90 days without any incremental CapEx, and we're seeing that. Longer-term, we're looking at plant upgrades and fleet modernization, which typically takes some time and has a CapEx component. One thing relative to BWI in particular, keep in mind that was a carve-out, so no corporate SG&A came with that business. Therefore, it was already basically synergized from that perspective. So again, all of that has actually gone very nicely. The other piece of it that you mentioned, and you're right on, if we're looking overall at volume, remember we came out at the year thinking minus 2% to plus 2% with the midpoint at 0. We're seeing now because of interest rates being higher for longer, really a bit of a weather-impacted start to the year. If we look at the 5 million tons down in Q1, several things worth noting. First, there were three less shipping days in this quarter than there were last year. That's probably about two million tons by itself. Additionally, about one-third of that was slower private, about one-third was weather, and about one-third was value over volume. Therefore, when we're taking those components into account and looking at organic volume, we think we are probably closer to the lower end of that original guidance, let's call it down 2% to down 3%. What you're seeing in the new guidance takes the acquisitions effect into account. Hopefully, that gives you the bridge you wanted.

Yes. Ward, the one thing was just, again, there's a lot of moving pieces here. But just based on some of the information you've given us in the past about BWI in particular, it seems like maybe you're just in that kind of standalone EBITDA guide up a bit. Do I have that right?

No, we are. If you look at the overall EBITDA midpoint, it's now $2.37 billion. That's 11% over where we were last year. So take into account that we're going to give you a year's worth of Blue Water in only nine months. That’s one way to think of it. Importantly, we're also seeing improvement in the Heritage business as well. We're getting a multiple benefit there. We're seeing the benefit of Blue Water, and we think there's more to come. Importantly, we're also seeing improvement in the Heritage business, which you can see. We've raised the aggregate pricing to 12% at the midpoint. That's going to include some degree of midyear adjustments this year. Keep in mind some difficulty arises when looking at pricing that was at Frei and Blue Water, as their pricing was below Heritage Martin Marietta pricing. The pricing changes you are witnessing are despite the headwind created by the new businesses that we brought in.

Yes. Very helpful color, Ward. Very encouraging, and good luck for the rest of the year.

And we'll be taking the next question again from Kathryn Thompson from Thompson Research Group.

Just a cleanup question from your prior answer, which was very helpful around guidance. Just a clarification, how much of the pricing guidance takes into account midyear pricing actions? And also any other factors that we should take into account given a change in mix from acquired and the opportunities for pricing with those acquisitions? And then finally, if I could just do one follow-on with Magnesia Specialties. While a small portion of EBITDA contribution, you had a very good quarter, what can we read through from a broader macro perspective on this business segment's outperformance?

Thank you, Kathryn. Regarding the pricing guide that we've given for the rest of the year, the direct answer: It includes some midyear pricing actions, but doesn't encompass everything we believe we're going to see. Specifically, now that we've bought Blue Water, we've already indicated to those customers they're going to get midyears. We had indicated that customers in California would receive midyears, which we've worked on. There have been some specific midyears incorporated into the numbers, which reflect two factors: some direct midyears and the realization of the beginning year increases that we implemented. However, we still expect more midyears to arise in the summertime when we report, so be prepared for updates. Regarding Mag Specialties, several points are worth mentioning. One, chemical markets globally remain very difficult. However, Mag had its best quarter ever. Though steel utilization is around 72%, it tells us the business is performing well. One read-through may be the recovery of TPO roofing. As we observe manufacturing trends across the United States, particularly in data centers and battery plants, we should see demand for TPO roofing increase. Therefore, watch these products as they transition into larger industrial uses. So if you're looking for a read-through, Kathryn, that’s not a bad one.

Very helpful. And best of luck.

Ward, can you talk a little bit about what you're seeing from an end market perspective? You mentioned about some building into volume as we move through the year. I apologize if some of this was covered on others. I've had some technical difficulties as well. But I would love to hear some color on what's happening across the end market.

Stanley, thank you for the question. Happy to do so. Let's start with infrastructure, which is our single largest end use and one that we think is going to grow significantly. We expect that to rise mid-single to high single digits this year for several reasons. First, there’s the bipartisan infrastructure law that’s coming in meaningfully this year and into 2025. Our top 10 states have healthy DOT budgets up around 10% year-over-year. Last year, those budgets were also strong. If we look at the last 12 months, highway, bridge, and tunnel awards were up 12%, totaling $116 billion versus $104 billion during the prior period. Also noteworthy was the transportation funding initiatives from last year, which amounted to about $7 billion approved, and those will impact the marketplace this year. Thus, we think infrastructure looks attractive. As for non-residential, our view remains unchanged; we expect a decline of mid-single digits, perhaps a bit more. Roughly 55% of our non-res is heavy non-res and about 45% is light non-res, a balance we appreciate. Specifically, we see demand for heavy-side energy and domestic manufacturing remaining resilient, which is offsetting softening in distribution and warehousing. We're seeing encouraging green shoots in AI and data centers, such as Google building a facility in Kansas City, requiring approximately 800,000 tons; we're noticing similar trends across the Midwest. We remain a disproportionate beneficiary of these trends due to our locations and capabilities. Unfortunately, light non-res is facing near-term challenges due to high interest rates and high office vacancy rates. Regarding residential markets, we project low single-digit declines but remain optimistic as we witness positive trends in single-family housing starts.

Great color, Ward, and best of luck.

With the portfolio moves, it looks like you'll raise your aggregates mix from high 60s to high 70s in terms of gross profit. Is there a kind of long-term target percentage that you envision there, understanding you'll continue to grow aggregates organically and through acquisitions? I'm just wondering if you could talk about the role you see Mag and the remaining cement assets playing in the broader portfolio?

Several things to note here. We are an aggregates-led company, and we’ve always indicated that’s what you should expect from us. The moves we have made are consistent with that. So yes, we expect to see aggregates numbers increase, largely due to our purchases of relatively aggregates-pure businesses. Additionally, regarding the other two businesses you mentioned, we’ve previously stated the critical nature of strategic cement. Strategic cement is where we lead in aggregates, where the market is naturally vertically integrated, and where we have a downstream business that significantly utilizes our cement, making it difficult to substitute. Therefore, our Midlothian operation represents that. This year in Q3, we expect an additional 450,000 tons in annual capacity from that location, and we continue to invest there as we appreciate that market. On the other hand, our Magnesia Specialties business, which we have around $100 million invested in, is also performing well and could exceed that in annual profits. Thus, our upstream businesses are essential contributors to our revenues and profits. So, yes, expect that aggregates percentage to increase.

Good morning, everyone. This is Jatin Khanna on behalf of Jerry Revich. From a portfolio standpoint, what has driven significant deal opportunities for you? Is there further asset refinement in the industry? What's the range of additional M&A that's feasible based on your pipeline?

Several factors drive our considerations. We assess markets where we want to grow, focusing on those where we can achieve growth. Our balance sheet conditions allow us to grow responsibly and prudently. The businesses we've acquired produce about 238 million tons of aggregates annually. There exists another company similar to Martin Marietta that we believe could be a future acquisition target. While I can't specify a linear timeline for this, I strongly believe we are uniquely positioned to accomplish this better than any other publicly-held company in the United States. Our team excels in identifying potential businesses and managing the contracting phases, and we've shown incredible success during integration of the businesses we’ve previously acquired. We prioritize M&A as our key capital allocation strategy, along with responsible organic investments and returning capital to shareholders through dividends and share repurchases.

And Ward, just to build off that last comment, it sounds like nothing is really changing there in terms of the capital allocation priorities. But as M&A perhaps or the opportunities to do things at attractive multiples as you have done in the last several quarters here, just curious how you think about the valuation evolution regarding pipeline opportunities? Additionally, some of your peers have discussed their capacity for greenfield development in shorter time frames, around four years. Can you share your perspective on that?

When we evaluate transactions, we emphasize synergies to enhance safety, efficiency, and product delivery. This ability enables us to transform what may seem like a high multiple into a more attractive one. Our approach to growth will continue in this manner. Regarding land use and planning, we excel at identifying properties and involved processes like zoning and permitting. However, expect most of our growth strategy to focus on adjacent properties rather than lengthy greenfield timelines. Generally, a greenfield setup may take closer to 7 to 10 years, which is distinct from the immediate profitability realized through an acquisition. Presently, our reserve assessments indicate 70 years of capacity at our current extraction rates, reducing the urgency to establish greenfield locations. We also remain prudent regarding opportunistic land purchases in our CapEx assessments.

I was hoping if you could speak to what you're seeing on the cost side. Obviously, you had good margin performance in aggregates in the quarter despite the weaker volumes, just wondering if you could speak to any updated cost assumptions if anything has changed since the beginning of the year?

Garik, Jim here. I think I indicated at the last quarter's call about 7% COGS per ton inflation. I believe that’s still accurate for the full year. This inflation rate will be higher in the first half of the year and lower in the latter half, but a blended average of 7% remains applicable. Some diesel tailwinds in Q1 will fade as the year progresses, but overall I believe 7% stays consistent.

I just want to go back to the organic unit expectation for the year. I'm surprised at some of your comments, given that usually this weather gets pushed or shortfall manifests earlier. With the highway money coming in, is the non-res offset that significant? Please elaborate on that.

The overall private offset is what we’re more focused on. We believe the heavy side of non-residential will remain attractive, along with continued public momentum throughout the year, leading into next year. However, the softness we see will mainly stem from light non-residential and residential sectors. Single-family residential projects are roughly two to three times more aggregates-intensive than multifamily. Considering interest rates remain elevated and that we have to manage our value-over-volume philosophy, we expect this context to conclude with the organic overall volume for aggregates.

Appreciating Texas Cement being a little smaller now due to the divestiture. While it began wet, how is the April Texas demand increase performing? Are you ramping up grinding capacity from Midlothian? Have you secured some of that business? Any potential pricing risks in the back half?

Several factors: if we're looking at the ASP, it was up by about 8.7% on a mix-adjusted basis. We're optimistic as our pricing environment is strong in North Texas. We have not foregone a possible price increase in September. Our internal customer remains significant, and we treat our own business as other customers. Overall, asphalt and ready-mix were positively impacted by favorable conditions in competing regions despite challenges.

Ward, what inning or quarter would you describe your progress on the legacy Heidelberg assets, particularly the California business, especially regarding the pricing optimization strategy? Also, can we infer similar timelines for implementing plans for AFS and BWI?

Thank you for the question. I still believe we’re in early innings in California. That business has an average selling price below our corporate average, which is rare for California. We aim to grow our aggregates in that state, and we believe this growth will yield increased profitability. As for the Frei and Blue Water businesses, they are already below our average pricing and are in home markets for us. They're likely to run in parallel, slightly ahead of California's pace.

I want to come back to your comment on data centers. Relative to other heavy residential and non-residential markets, it seems a little more cautious. Is that due to power siting issues or is it just demand requires sorting? I want clarification on your position as a significant vendor at an early stage.

Several points to consider: a Wall Street Journal piece highlighted the proliferation of data centers, identifying various obstacles to their establishment, such as land availability and energy access. We view this positively, especially due to our central U.S. operations. Currently, we have four data centers under construction in Eastern Nebraska and Western Iowa. This aligns with the expected long-term demands associated with e-commerce, cloud, and AI, positioning us well.

Ward, can you comment on the value-over-volume strategy? Why does that strategy persist, and can you provide insights on the challenges associated?

I believe our products have been undervalued for a considerable time. Heavy side development projects rely heavily on our products, which constitute 10% of the road construction cost and 2% of residential construction. We undertake a challenging process to ensure quality and safety, and obtaining adequate compensation for our products is crucial. The recent quarter illustrates the significance of the value-over-volume strategy, with ASPs increasing 12% although volumes fell 12%. I'd like to emphasize that pricing stability will ultimately support volume rebound.

Ward, congratulations on the progress with portfolio management; very impressive.

David, thank you so much. You've observed our efforts for a considerable time and can see the advancements. The first quarter's weather impact affected price realizations. We experience variability across MSAs due to this weather. However, we do not foresee undue pressure on ASP in Q2, as prices are historically adjusted during the year.

I wanted to ask about data center commentary regarding the 800,000 tons. Is that normal for a data center, or is it given the particular Google project? How does this compare to warehouses? Is the caution in your assessment a result of that?

That’s a good question, Timna. The 800,000 tons is standard, particularly for large commercial projects in this space. That's fairly consistent when compared to large warehouse builds. These include the foundational, structural concrete, and tilt-up walls characteristic of such projects. Given our largest underground aggregate operations in the center of the U.S., we're in a prime position to meet customer demands in proximity to these projects, which is advantageous. Thank you all for joining today's earnings conference call. In summary, we believe our commitment to world-class safety, commercial and operational excellence, and sustainable business practices position us to provide compelling results for the foreseeable future. Thanks to our best-in-class teams, a differentiated business model, a well-defined strategic plan, and unrivaled growth opportunities, Martin Marietta is well-equipped to drive sustainable growth and superior shareholder value as we build and maintain the world's safest, best-performing, and most durable aggregates-led public company. We look forward to sharing our second quarter 2024 results in the summer. As always, we're available for any follow-up questions. Thank you again for your time and continued support of Martin Marietta.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.