Titan America SA Q3 FY2025 Earnings Call

Greetings, and welcome to Titan America's Third Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Daniel Scott. Thank you, and you may proceed, Daniel.

Thank you, operator, and good afternoon to everyone on the line. Thank you for joining us for Titan America's Third Quarter 2025 Conference Call. I am joined by Bill Zarkalis, President and Chief Executive Officer of Titan America; and Larry Wilt, Chief Financial Officer. Before we begin, I would like to remind you that earlier this afternoon, we released Titan America's third quarter financial results, which are available on our website at ir.titanamerica.com, along with today's accompanying slide presentation. This call is being recorded, and a replay will be made available on our Investor Relations website. During the call, we will present both IFRS and non-IFRS financial measures. The most directly comparable IFRS measures and reconciliations for non-IFRS measures are available in today's press release and accompanying slides. Certain statements on today's call may be deemed to be forward-looking statements. Such statements can be identified by terms such as expect, believe, intend, anticipate and may, among others, or by the use of the future tense. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as the risks and uncertainties described in our SEC filings. I would now like to turn the call over to Bill. Please go ahead, Bill.

Thank you, Dan. Good afternoon, everyone, and thank you for joining us today for our third quarter 2025 financial results call. If you turn to Slide 4 in the presentation, I'd like to begin by highlighting our key messages for the quarter. We delivered solid performance in the third quarter, including 6% revenue growth with adjusted EBITDA and net income growing faster at 18% and 45%, respectively. Additionally, free cash flow reached $68 million in the quarter. These results reflect the strategic benefits of our vertically integrated business model and our ability to execute effectively in a challenging environment. Our Florida segment produced outstanding operating results, driven by our strong presence in the infrastructure and private nonresidential end markets as well as robust aggregates performance, where our recent investments in additional capacity enabled both volume growth and margin expansion. In the Mid-Atlantic region, we are pleased to report a return to growth in the quarter, supported by a release of project backlogs, improved pricing, and more favorable weather conditions. Pricing across our markets remained resilient on a like-for-like basis, moderated by mix impacts and residential softness. Operational efficiencies and cost management initiatives also contributed to margin expansion. We believe that our strategic investments in plant capacity and efficiency, logistics infrastructure, and digital capabilities position us to capitalize on the secular growth trends ahead. As we approach the end of the year and based on our results through the third quarter, we are updating our 2025 outlook. We now expect full year revenue growth in the 2 to 3 percentage range, and continue to expect modest improvement in adjusted EBITDA margins compared to 2024. Turning now to Slide 5. Let me provide some context on the market environment and the factors that we believe position us well for continued success. The markets we serve remain resilient, supported by robust investments in infrastructure and private nonresidential construction as well as ongoing manufacturing reshoring and reindustrialization trends across our key geographies. Most importantly, our order book remains strong across these segments. However, residential markets continue to be challenged by elevated mortgage rates and housing affordability with a rebound in single-family construction not expected before the second half of 2026. Let's turn now to Slide 6. Recently, we announced an important strategic milestone for our entry in the precast lintel market, which are the structural beams above doors and windows in every building. Titan America received certification for our own lintel designs, meeting the most rigorous structural resilience standards in our market. This achievement paves the way for Titan America to expand its precast solutions beyond concrete block, enhancing our vertical integration model, and accelerating growth through new adjacent channels. Leveraging our technology, product development, logistics, and downstream customer relationships, we believe Titan America is uniquely positioned to scale quickly in this new market while achieving attractive margins and quality of earnings. Currently, Titan America is in the engineering phase for site development and facility design for its first state-of-the-art lintel manufacturing plant. Now on Slide 7. We show a sample of key projects we are participating in our two business segments. These projects demonstrate both the breadth of our market reach and our technical capabilities in providing specialized solutions across diverse construction sectors. Let me describe two in more detail. In Virginia, QTS is expanding its data center presence with major developments in both Richmond and Manassas. In Richmond, QTS is building a 622-acre campus with phase construction expected to be completed in 2026 and 2027. The site could ultimately support up to 13 data centers and 280 megawatts of capacity. In Northern Virginia, its Manassas campus currently includes five data centers with room for four more and a total projected capacity of 280 megawatts. In Florida now, the state has embarked on one of the most significant environmental restoration efforts in its history, the Everglades Agricultural Area Reservoir. Using Titan America cement, the project is located south of Lake Okeechobee, and aims to capture, store and treat excess freshwater that would otherwise flow east and west and instead redirect it south into the Everglades. The system includes a massive 240,000-acre foot reservoir and a 6,500-acre stormwater treatment area, designed to remove nutrients before the water reaches the ecosystem. Managed by the U.S. Army Corps of Engineers and the South Florida Water Management District, the project is a cornerstone of the comprehensive Everglades restoration plan and is expected to improve water quality, restore natural flow patterns, and protect both the Everglades and Florida's coastal estuaries. Before I hand it over to Larry for a financial review, I want to recognize the outstanding performance of our team members across all our operations. Their dedication to operational excellence, safety, and customer service continues to drive our success, and I'm grateful for their contributions to these strong results. Larry will now provide a more detailed breakdown of our financial results and segment performance. Larry?

Thank you, Bill, and good afternoon, everyone. Moving to Slide 8. Let me share an overview of our third quarter 2025 financial highlights. We delivered strong financial results in the third quarter with revenue of $437 million, up 6% compared to $411 million in the third quarter of 2024. This revenue growth was driven primarily by higher volumes across our aggregates, cement and ready-mix businesses, supported by favorable weather conditions compared to the prior year quarter. Adjusted EBITDA of $117 million increased 18% compared to $99 million in the third quarter of 2024. Importantly, our adjusted EBITDA margin expanded to 26.7%, up 250 basis points from the prior year quarter. This margin expansion reflects the positive operating leverage in our business model, combined with cost management, operational efficiencies, and price gains in selected products and geographies. Overall, our third quarter performance was driven by strong execution across our business and the benefits of our strategic capacity investments. We delivered robust volume growth in aggregates, cement, fly ash, and ready-mix concrete with our aggregates performance driven by the continued ramp-up of our expanded Pennsuco capacity. While residential end markets remain soft, robust demand from infrastructure and private nonresidential construction supported our revenue and margin growth. Turning to Slide 9. Let me walk you through our third quarter 2025 volume performance by product line. Overall, our results reflect the strong year-over-year performance in the quarter across our integrated platform. Total cement volume increased 2.6%, ready-mix concrete volumes grew 4.1%, and total fly ash volumes increased 23.7% year-over-year. Our total aggregates volumes increased 11.9% year-over-year, benefiting from our strategic investments in Florida production capacity. Concrete block volumes declined by 0.7%, reflecting the ongoing softness in the residential market, though we continue to see better demand from the repair and remodel sector through the retail channels. On Slide 10, our pricing trends reflect the competitive nature of our markets while demonstrating our ability to maintain value in a dynamic environment. For the third quarter, cement pricing remained resilient on a like-for-like basis, impacted primarily by unfavorable product and geography mix. Aggregates pricing increased 3.3% per ton, while ready-mix pricing improved 1.1% per cubic yard. Fly ash pricing decreased 2.6% per ton on geographic mix, and concrete block pricing declined 1.7% per unit, impacted by the softness in the single-family residential market. Our pricing performance demonstrates our disciplined approach in a challenging environment and the value we believe we provide as a long-term supplier of choice in our markets. Turning to our segment performance on Slides 11 and 12. In our Florida segment, we delivered strong performance with revenue growth of 4.3% to $263 million in the third quarter compared to $252 million in the prior year quarter. Segment adjusted EBITDA increased 16.2% to $81 million compared to $70 million in the third quarter of 2024. For the nine months ended September 30, 2025, Florida segment revenue was $777 million, up 2% from the prior year period with segment adjusted EBITDA of $214 million, up 8.7% compared to $197 million in the prior year period, with segment adjusted EBITDA margin improving to 27.5% from 25.8% in the prior year period. Our Florida segment performance was driven by the benefits of our strategic capacity investments, particularly the expanded aggregate production at Pennsuco, which generated significant volume growth and strong operating leverage. The margin expansion we achieved reflects improved cost management at our cement operations and the benefits of our vertically integrated business model. The Florida market continues to benefit from strong underlying fundamentals with population growth and business migration driving long-term construction demand. While single-family residential construction remains challenged by affordability concerns, we continue to see solid demand from commercial development, industrial projects, and infrastructure modernization across the state. On Slide 12, let me discuss our Mid-Atlantic segment performance. For the third quarter, revenue grew 9.4% to $174 million compared to $159 million in the prior year quarter, while segment adjusted EBITDA was $37 million, up 10.6% from $33 million in Q3 2024. Year-to-date, the Mid-Atlantic segment revenue was $481 million, flat compared to the prior year period, while segment adjusted EBITDA was $88 million compared to $101 million in the nine months ended September 30, 2024, with segment adjusted EBITDA margin of 18.3% compared to 20.9% in the year-ago period. The improved Mid-Atlantic performance during the third quarter reflects higher volumes across cement, fly ash, and ready-mix concrete, given solid underlying demand from infrastructure and private nonresidential construction projects and improved weather conditions compared to the hurricane disrupted prior year quarter. Despite the year-to-date headwinds, the Mid-Atlantic market fundamentals remain positive. The region continues to benefit from above-average population growth, particularly in the Carolinas and Greater Washington, D.C. metro area. Data center construction in Virginia remains robust, with the state representing the largest hyperscale data center market in the world. Infrastructure investment across the region, including highway modernization, bridge replacements, and airport expansions continues to drive steady demand for our products. Now turning to our balance sheet and cash flows on Slides 13 through 15. As of September 30, 2025, we had $196 million of cash and cash equivalents and total debt of $464 million. Our net debt position was $269 million, representing a ratio of 0.71x trailing 12-month adjusted EBITDA, an improvement from 0.89x at the end of the second quarter and 1.21x at the end of 2024. This strong leverage profile provides us with significant capacity to pursue strategic growth opportunities while maintaining our disciplined approach to capital allocation. Our next meaningful debt maturity is in July 2027, providing us with excellent financial stability. For the nine months ended September 30, 2025, cash flows provided by operating activities was $214.8 million, net capital expenditures were $120.4 million, resulting in free cash flow of $94.4 million for the first nine months of the year. Our capital spending year-to-date is focused on strategic capacity expansions, investments to ensure reliability and efficiency, and digital transformation initiatives that enhance customer experience. Through Q3 2025, our CapEx investments have focused on several key areas: investments to expand capacity at our domestic cement plants in line with our previously communicated strategic plan; investments in vertical integration through ready-mix concrete and concrete block facilities that meet customer needs and represent a channel to market for our upstream construction materials, including cement and aggregates; expanded access to limestone reserves at our Roanoke cement plant and additional dragline investments in Florida, driving reliability and operational excellence. Looking ahead, we expect full year 2025 capital expenditures to be generally consistent with our year-to-date investment pace. This level of investment supports our growth initiatives and commitment to returning capital to shareholders through our regular share premium distribution program while maintaining our strong cash generation profile. On Slide 16, I'll remind you of our capital allocation approach. We remain focused on three key priorities. First, continuing to invest in organic growth opportunities, including capacity expansions and greenfield projects that enhance our market-leading positions. Our investments are focused on enhancing aggregate production capacity to accelerate sales growth, vertically integrated investments in ready-mix concrete and concrete block facilities that support upstream volumes and returns and investments in high-performance, low-carbon product capabilities that we believe position us well for the future. Second, pursuing strategic M&A opportunities that either build upon or expand our existing positions or provide access to adjacent value chain opportunities, all while maintaining a healthy net leverage profile. And third, providing returns to shareholders through our regular quarterly share premium distributions. To that point, our Board of Directors on October 29 approved a distribution of $0.04 per share payable on December 29 to shareholders of record as of December 17. With that, I'll turn it back to Bill for his closing comments.

Thank you very much, Larry. Let's go to Slide 17. And let me say first that our third quarter results demonstrate the strength of our vertically integrated business model and our team's ability to execute effectively in a dynamic market environment. The strategic investments we made in expanded aggregate capacity, improved plant reliability, enhanced logistics infrastructure, and digital capabilities are delivering tangible results in the form of volume growth, margin expansion, and strong cash generation. Before we move to the Q&A portion of our call, I want to address our outlook for the remainder of 2025. As shown on the slide, we are updating our full year 2025 revenue growth guidance. We now expect 2025 revenue growth to be in the range of 2% to 3% when compared to the prior year. We continue to expect modest improvement in adjusted EBITDA margins compared to full year 2024. This adjustment to our revenue growth rate reflects our year-to-date results with first half weather impacts and delays in residential demand recovery more than offsetting our strong Q3 results and outlook into the balance of the year. Looking ahead, we have announced price increases that will be effective January 1, 2026, across all our product lines in both our Florida and Mid-Atlantic regions. While we are not yet in a position to provide guidance for 2026, directionally, we expect improved conditions across our key markets. However, still at this time, it remains a question whether the single-family housing market will reach an inflection point within 2026. We look forward to providing more details on our 2026 outlook when we report fourth quarter and full year 2025 results. I must say that we remain excited about the opportunities in front of us. The markets we serve are beneficiaries of powerful long-term trends, including infrastructure modernization, urbanization and population growth in the Sun Belt, expansion of data centers and advanced manufacturing facilities and ongoing investment in climate resiliency and sustainable infrastructure. Our strategic positioning along the Eastern Seaboard, combined with our comprehensive product portfolio and logistics capabilities, we believe, position us well to capitalize on these secular growth drivers. We look forward to building on this momentum in the fourth quarter and into 2026. With that, I'll turn the call over to the operator for the Q&A session.

The first question comes from Anthony Pettinari from Citigroup.

This is Ashish on for Anthony. I think you talked about the release of some project backlogs in the Mid-Atlantic. So can you just talk about what project backlogs look like today across your footprint more broadly? And then anecdotally, is there still some kind of uncertainty weighing preventing some projects from getting released still? Or is that kind of largely lifted?

Yes, it's Ash, it's Larry. Look, I think on the project backlog, if you think back to what we described in Q2 and what we described in the first half of the year, what we've said is that the second half of the year was expected to be better, given what we thought would be better comparables. And that's, in fact, what happened in the third quarter for 2024. Your question was specifically about Mid-Atlantic. This really is the realization of some of those things that we were describing. So without getting into specifics of individual projects, you heard the general comments about some of the data centers coming through from some of those portable plant investments we made, some of the major infrastructure projects, whether it's some of the things we featured in some of the slides that you saw on the screen for roadways, bridges, that sort of activity as well as some airport type work that we're doing also in the Mid-Atlantic region. So, this is what we describe when we describe the release of backlogs.

Got it. And then switching gears, are you guys able to walk through maybe the cadence of cement and aggregates volumes through the quarter? And then just sort of remind us what weather conditions may look like in 4Q compared to 3Q?

Yes, if by cadence you are referring to the cyclicality of the business, it is clear that it is more cyclical in the Mid-Atlantic compared to Florida, even though both regions have their own seasonal factors, like the rainy season in Florida during the summer and cold weather and occasional storms in the Mid-Atlantic. In terms of quarterly importance for profitability and revenue, we typically rank them as third quarter, second quarter, fourth quarter, and first quarter due to the weather effects particularly in the Mid-Atlantic. Regarding how many days were affected last year, it's challenging to quantify, but we can identify weather-related events. For example, last year's fourth quarter had several hurricanes, with Milton being significant for Florida during that quarter, and in the Mid-Atlantic, Helene and Bonnie made notable impacts. This was a key factor in the increase we observed in the Mid-Atlantic in the third quarter that wasn't seen in Florida. We anticipate a strong improvement in Florida's fourth quarter this year based on the impacts from last year.

The next question comes from Philip Ng from Jefferies.

Strong quarter. The margins were impressive, good operating leverage. How much of that is just cost deflation, or it's really driven by some of the operational excellence and just pricing and all that good stuff you guys are working on to drive profitability?

Okay. I mean, just in general terms on cost inflation, Phil, cost inflation-deflation, I think there's some offsetting things that go on there, right? If you think about what makes up our cost, labor, energy, fuel, etc., some of those things have pluses and minuses, including tariffs, right, that come through and impact the year-over-year looks. So when you see the improvement, what you see is the work that we do to mitigate those impacts. So you see the cost improvements coming through that way.

Got it. Okay. That's helpful. And then on your full year guidance, you trimmed the full year outlook from a top-line perspective, certainly tougher first half weather and housing. Any perspective on how that momentum has looked in the fourth quarter? I know conditions were a little easier from a weather standpoint. So any color on that momentum going into the fourth quarter? And then the full year EBITDA guidance, I think, was a margin commentary given the strong operational improvement on the margin side. Was the margins enough to offset that, so your EBITDA dollar impact is largely unchanged? Or actually that's going to be impacted as well, just given the tougher first half?

Yes. I think a couple of parts perhaps to that question. So first part of it is how is the fourth quarter going, I think is what you're getting at. So October is all we know about, right? We know about what's on the order books, what we expect to happen. But what has happened has been October, a good month in October in terms of revenue growth, double-digit revenue growth overall, stronger in Florida than in Mid-Atlantic as we would see it for the month of October. Now coming to the second part of the question, at least in the Mid-Atlantic, this is where it gets more challenging for us because of weather and the holidays can have some big impacts and be disproportionately affected one year to the other. So we're cautious, I think, in that sense, but I think we give you a sensible look at what we think the revenue growth would look like given what we know right now. On the margin side, again, given the impacts of some of the volume impact that can be particularly in the Mid-Atlantic in the fourth quarter, that margin will be less certainly than it was either year-to-date or in the third quarter itself on average for the company.

The next question comes from Chad Dillard from Bernstein.

So I was hoping if you can give more color on the product ramp for the precast lintel. So when is the plant going to be operational? How are you thinking about the growth outlook for the product line over the next, like, three years? How big could this business be? And then just how to think about the profitability contribution?

Yes, we have approved 40 different designs of products, marking a major milestone for us. We are now in the engineering phase and expect our first state-of-the-art plant to be operational by the end of 2026 or early 2027. We anticipate a rapid scale-up due to our technology, available locations, complementary products, and established channels to market. This addition will enhance our vertically-integrated portfolio and product mix strategy, as the lintels will complement our concrete block, stucco, and masonry products. We will continue to serve the same customer base, which will help drive sales for both our new and existing products. Overall, we project significant improvements in revenue and profitability when considering the synergies and complementary nature of these new offerings. Our long-term perspective starts in 2027 and extends into subsequent years.

That's helpful. And then second question, just on tariffs. Could you quantify the impact in the third quarter? And what are you embedding as we go into 4Q?

Yes. I think what we would see year-to-date through the third quarter, probably in the order of $6 million, give or take, and when you look for the full year, something in the $7.5 million, $8 million is what we would expect coming through on the P&L side for this year. And obviously, the tariffs, as you know, have gone from 0 to 10 to 15 during the course of the year. So the run rate gets a little stronger as we go in, although the seasonal impact comes down, right, because the demand is lower in the fourth quarter.

Chad, if I may add to what Larry mentioned earlier, I want to look at the cost challenges this year from a different perspective. We experienced cost pressures from natural gas, labor, and tariffs. Importantly, we were able to not only manage these impacts but also improve our margins thanks to our operational excellence and cost reduction efforts, particularly through digitalization and investments in logistics, leading to an overall enhancement of our cost structure. This represents a success in mitigating cost challenges while also improving our margins through our own initiatives.

The next question comes from Sherif El-Sabbahy from Bank of America.

So looking at incremental margins, they were quite strong in the third quarter. And based on your guidance, it looks to be similar in the fourth quarter. What should we think about as a normalized flow-through going forward in 2026 and beyond given that we'll be lapping some of these spin-off items?

Yes. Look, it's Larry again. Sorry, I don't think I implied that it would be the similar flow-through coming into Q4. Q4 is always going to have a slightly different profile of margin relative to Q3, which is obviously the strongest quarter. It moderates coming into the fourth quarter. Now, we do expect, as we said in the guidance, to have uplifted year-over-year margin improvement. And you can see that in the commentary that we made.

And just how should we think about flow-through on a normalized basis just as a framework going forward?

You need to clarify that for me.

What do you mean flow-through, Sherif?

In terms of just incremental margins on an annual basis.

I think we said modest year-over-year margin growth. You can put that in the 30 basis point range, something like this.

Sherif, on the qualitative approach here, when we talk about normalized margins, right, we are operating the last three years in a softness in the residential markets, right? And overall, on average across the U.S., the residential part of the industry represents roughly one-third, right? So one of the three wheels of this industry is operating under recessionary conditions, very soft, as you know, right? So right now, our margins are being compressed by the fact that the residential wheel is not operating as it is expected. As we've said many times, we have the infrastructure, and we have the private nonresidential markets being strong and the support underpin the demand. Once residential kicks in gear as well, one should expect that price momentum, both in the heavy construction upstream materials, but also in the downstream materials is going to resume just like we had in '21 and '22. So I think when you ask about normalized, we have to expect some substantial margin expansion, but this is going to be contingent on the rebound of the residential sector.

The next question comes from Wesley Brooks from HSBC.

Good quarter. So a couple of questions from me. First, I just want to come back to the segment margins and particularly on Florida, you called that aggregates expansion plan. I just wanted to get a sense of how much further there is to go on that, both in terms of the expansion and kind of how far you are through it, but also in terms of the additional margin benefits you could get from that?

Let me address your question regarding the aggregates expansion. You will see it develop gradually. We have increased our capacity in aggregates through our investments, particularly in Pennsuco. We have successfully introduced this product into the market, boosting our sales volume and market share. The next increase will also be gradual and may depend on an acquisition. For organic growth, we anticipate the next incremental margin will come around 2027. As previously mentioned, part of our strategy includes a significant project to enhance our reserves in Pennsuco by 125 million tons, which involves improving our ability to beneficiate the reserves we currently have. This is our plan and what we can expect moving forward.

Okay. So we are at a certain point for now and will wait a couple of years to see an improvement in our margin.

Unless there is an inorganic initiative.

Yes. Okay. And then my other question, you mentioned the price increases that you've sent letters. I don't know if you'd be willing to give us some indication of the level that you guys are asking for. And also, at the beginning of this year, obviously, there was a delay in getting those price increases through. I don't know if you have any insights on what some of your competitors are doing and if there's a risk to getting those through at the beginning of January.

We have announced price increases for cement across all of our operational areas, setting it at $12 per ton effective January 1. For ready-mix concrete, the increase is between $10 and $12 per cubic yard, and for aggregates, it's $3 per ton. Fly ash is priced at about $6 per metric ton, and for common block, we have set the price at $0.08 per block. The success of these price increases will largely depend on the ongoing trends in demand related to infrastructure and private nonresidential projects, which should help sustain the momentum and resilience of our prices. A significant factor will be the rebound in the residential sector, which could contribute to more momentum. However, it's currently challenging to make any predictions.

Great. Yes. I mean those are impressive starting points even if you get close to that. So yes.

Thanks, Wesley.

The next question comes from Brian Brophy from Stifel.

Just one big picture one from us. It's been about a year since you guys first talked about some of the green cement targets to the Street and some of the adoption expectations there. Just curious how you're seeing adoption unfold relative to some of those initial expectations.

We are moving forward with our plan and are proud of the progress we have made. As mentioned in our previous call, we have qualified 1T cement with various cementitious materials for different applications through the Department of Transportation. Currently, we are at an annualized production level of approximately 3% to 5% from 1P. We are incorporating these products as we have previously, as we were the first to fully transition to 1L cement. We are using these types of cement in our high-performance concrete products and are testing them for various high-performance applications in the market. The adoption is taking place at the end-use level through our downstream products as we experiment with these new innovations, enabling us to produce ultra-high-performance products with distinct capabilities and properties. Some of the concrete and other downstream products we create with this green cement are being well-received in the market. Overall, we are making good progress according to our plan.

Thank you very much. At this time, there are no further questions. I'd like to turn the floor back over to the CFO, Mr. Larry Wilt. Thank you, Larry.

Okay. Thank you very much, and thank you for your time today. We appreciate the interest in Titan America, and look forward to updating you during our call for the fourth quarter. And have a great rest of your day. Thank you very much.

Thank you. Ladies and gentlemen, that does conclude today's call. Thank you very much for joining us, and you may now disconnect your lines.