Summit Materials, Inc. (NYSE:SUM) Q4 2023 Earnings Call Transcript

Summit Materials, Inc. (NYSE:SUM) Q4 2023 Earnings Call Transcript February 15, 2024

Summit Materials, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Summit Materials’ Fourth Quarter of 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the call over to Andy Larkin, Vice President of Investor Relations. Andy, you may begin your conference.

Andy Larkin: Hello and welcome to the Summit Materials’ fourth quarter and full year 2023 results conference call. Yesterday afternoon, we issued a press release detailing our financial and operating results. Today’s call is accompanied by an investor presentation and supplemental workbook, highlighting key financial and operating data. All of these materials can be found on our Investor Relations website. Management’s commentary and responses to questions on today’s call may include forward-looking statements, which by their nature are uncertain and outside of Summit Materials’ control. Although these forward-looking statements are based on management’s current expectations and beliefs, actual results may differ in a material way.

For a discussion of some of the factors that could cause actual results to differ, please see the risk factors section of Summit Materials’ latest Annual Report on Form 10-K and Quarterly Report on Form 10-Q as updated from time to time in our subsequent filings with the SEC. You can find reconciliations of historical non-GAAP financial measures discussed in today’s call in our press release. Today, Anne Noonan, Summit’s CEO, will begin with high-level commentary. Scott Anderson, our Chief Financial Officer, will then review our financial performance. Anne will return to close our prepared remarks with a more detailed discussion on our outlook for 2024. After that, we will open the line for questions. At respect for other analysts and the time we have allotted, please limit yourself to one question and then return to the queue, so we can accommodate as many analysts as possible in the time we have available.

With that, let me turn the call over to Anne.

Anne Noonan: Thanks, Andy, and welcome to everyone joining the call today. Summit stands at a very exciting and pivotal point in our Company’s history. Our team achieved record financial performance in 2023, accelerated our Elevate Summit strategy across all dimensions, and is embarking on integrating the Argos USA assets into the Summit family. Scott and I will take you through specifics here shortly, but we have a lot to be proud of, not the least of which is our emphasis on safety. The combined enterprise has a shared commitment to being an industry-leader in safety. We are investing in people, processes, and tools and as a result, we are putting the health and well-being of our employees and our communities at the forefront of everything we do.

I want to turn to slide four, to highlight three areas of tremendous progress, starting first with how we’ve effectively undertaken a materials-led portfolio transformation. Since the beginning of 2023, we’ve entered into the high-growth Phoenix market, completed bolt-on Aggregates acquisitions in targeted geographies, continued to optimize the portfolio via non-core divestitures, and completed the transformational Argos USA combination. As a result, our business is now materials-dominant, with roughly $8 out of every $10 EBITDA coming from either aggregates or cement. And if you recall, only 63% of our adjusted EBITDA came from material lines of business when we initially launched Elevate Summit. This intentional shift towards high-margin upstream businesses has given us significant scale in our industry.

As the fourth largest Cement and the sixth largest Aggregates producer in the US, we can leverage our collective spend to achieve scale synergies, tap into deeper talent pools, and amongst other things, deploy best practice knowledge sharing across the whole of our enterprise. Second, thanks to excellent and widespread commercial execution, solid contributions from every reporting segment, and a growing focus on operational excellence, we were able to grow Summit’s adjusted EBITDA margins by 160 basis points in 2023. Our team has adeptly navigated inflationary pressures and dynamic demand conditions to improve the quality of our earnings and put us on solid footing to deliver continued margin expansion in the year ahead. And lastly, with an organizational focus on portfolio optimization and a well-equipped balance sheet, we can continue our aggressive pursuit of Aggregates-oriented M&A.

We have a robust and promising deal pipeline as we endeavor to build an even more materials-led higher-growth business. This isn’t just talk. A week ago, we completed a strategically attractive bolt-on acquisition in our new Phoenix platform, a proprietary Aggregate-centric deal that builds our reserve base, extends our presence among a major growth corridor, and we expect will become immediately accretive to our margin profile. It’s a deal that checks all the boxes and provides a template for our future M&A ambitions. Furthermore, in Q4, we completed two divestitures of sub-scale, mostly downstream assets in non-strategic markets. These transactions executed at attractive multiples generated $75 million in proceeds, fortifying an already strong balance sheet and providing additional dry powder for future Agg’s opportunities.

Our overall progress is more evident when considering our Elevate Summit scorecard on slide five. For Summit standalone at 2.1 times net debt to EBITDA, we’ve effectively employed a disciplined a growth-oriented approach to capital allocation. And critically, on a pro-forma basis, our net leverage remains well below the 3 times target, which gives our balance sheet ample flexibility for further portfolio enhancing acquisitions and to fully fund organic growth opportunities. For ROIC, at 10.4%, we established a new high watermark, adding 10 basis points sequentially and a 130 basis points in 2023 by taking a total portfolio approach, one that scrutinizes every asset against our return and margin criteria. And if there isn’t a clearly achievable path towards reaching Elevate financial hurdles, then we’ve demonstrated a proficiency at finding better owners for these assets.

Adjusted EBITDA margin for 2023 was 23.7%, an all-time Summit record, and a 160 basis points higher than the year-ago period. Scott will walk you through the mechanics, but short, we have strong profitability performance across the portfolio despite challenging cost dynamics and the slowdown in residential demand. All the credit goes to the teams across our footprint who stayed focused, executed with incredible agility, and delivered admirably on each one of our 2023 financial and strategic commitments. Before, I hand it to Scott, I do want to extend our gratitude to our shareholders who voted earlier this year to overwhelmingly approve the Argos transaction. While we believe the merits of the deal stand on their own, having a resounding endorsement from our shareholders is a vote of confidence as we begin our integration.

We do not take your support for granted and we continuously aim to earn your trust each and every day. With that, I’ll turn it over to Scott to walk you through the financials, and then I’ll come back to discuss our 2024 outlook. Scott?

Scott Anderson: Thanks, Anne. I’ll pick up on slide seven, where you see a record-breaking financial performance for both the fourth quarter and the full year. In Q4, net revenue increased 19.8% driven by a combination of ongoing pricing momentum across each line of business, acquisition benefits, and accommodating weather in parts of our footprint. Fourth quarter adjusted cash gross profit and adjusted EBITDA increased 15.9% and 14.5% respectively, primarily reflecting the compounding impact of year-to-date pricing, volume growth in most lines of business, and less severe cost inflation. For the full year, Summit set all-time records up and down the P&L, as inflation-justified pricing, together with commercial excellent execution, were the primary thrust for net revenue growth of 9.9% and adjusted EBITDA growth of 17.6%.

Additionally, we’ve witnessed our operational excellence program start to bear fruit, although we believe there is significant runway on this organizational imperative. Unpacking fourth quarter line of business volumes on slide eight, which show improving year-on-year trends relative to Q3 in each line of business. While we do see demand conditions beginning to improve, mild and dry weather in key markets extended our construction season and was partially responsible for the sequential improvement in volumes. Specifically, Utah and Texas, areas of particular portfolio strength, had exceptionally dry weather that allowed for more activity into December. Also of note, Q4 was a particularly difficult comparison for us in that business. If you recall, in Q4 of ’22, we imported roughly 23% of our volumes.

This year, we reduced our Q4 imports by more than 40%, which has a negative impact on volumes. But as you’ll see, it has favorable mix benefits for Cement’s margin profile. On the full year, organic volumes by line of business tracked with our end-market expectations. Namely, the residential air pocket and sluggish demand in light non-res impacted our Ready-Mix most acutely, followed by Cement and Aggregates. Asphalt on the other hand increased 10.1% organically as our primary asphalt markets in North Texas and the Intermountain West experienced double-digit volume growth on a full year basis and benefited from robust ongoing public infrastructure investments. Turning to pricing trends on slide nine, there are two things I’d like to highlight.

One, and what should be obvious, we are operating in a constructive and enduring commercial environment. Local demand, cost factors, and go-to-market execution has combined to drive exceptional pricing performance across our lines of business and across our markets. And second, despite a more challenging prior year comparison, our price realization remained resilient. Aggregates pricing increased nearly 15% in 2023 with above-average growth in Houston as well as Missouri markets, followed closely by gains in North Texas and the Intermountain West. Cement achieved 13.2% growth in 2023, reflecting favorable supply-demand conditions and better price realization in our Northern and in the Cement markets. The slight sequential moderation in Cement average sales price between Q3 and Q4 does reflect customer mix impacts.

Absent that impact, pricing would have been sequentially up by over $1 in Q4. Downstream pass-through pricing supported Ready-Mix pricing growth in 2023, with both Salt Lake City and Houston, our two primary Ready-Mix markets achieving solid pricing gains throughout the year. Crucially, Ready-Mix pricing was up 11.2% in 2023 despite volume headwinds, demonstrating our market leadership in attractive and advantaged Ready-Mix markets. Asphalt pricing increased 7.9% in the quarter and 15.6% in 2023, reflecting higher input costs, improved jobs selection, and strong demand pull-through. Slide 10 is a snapshot, adjusted cash gross profit margins. Here we were able to achieve margin expansion throughout the portfolio and effectively contend with elevated and persistent cost inflation.

On a full year basis and collectively, our variable cost basket increased approximately 9.5% with stiff cost headwinds from several cost categories, including Cement for our Ready-Mix operation, kiln fuels, other energy components, and supply chain-related cost buckets. That said, we did see the pace of cost inflation moderate in the fourth quarter, signaling a continued, even a prolonged normalization of our cost curve. Specific to Aggregates, we added roughly 90 basis points year-on-year in Q4 and 140 basis points in 2023. But it’s important to flag that we are still in the margin recovery phase as profitability levels for Aggs are below 2021 levels. That is to say, through productivity gains, ongoing commercial excellence implementation, and a greater contribution from higher-margin greenfields, we have the opportunity to add percentage points, not basis points, to our Aggregates margin profile in 2024.

On Cement, in the fourth quarter, rain in November provided some relief along the Mississippi River and that combined with reduced imports and pricing, helped to boost margin 100 basis points year-on-year. Stepping back, our legacy Summit Cement business continues to operate at a very high level with strong operational and commercial execution, leading to a 380 basis point improvement in cash gross profit margins in 2023. Our performance provides confidence and momentum as we look to apply our expertise in this proven Elevate playbook to generate Cement synergies in the coming years. Downstream, Q4 Ready-Mix margins effectively sustaining prior-year levels, while Asphalt margins moderated year-over-year as energy-related cost, including liquid Asphalt, escalated.

Despite this, and on a full-year basis, product margins grew 110 basis points. Closing out on slide 11, with an initial comment on adjusted diluted earnings per share, which increased $0.31 or 24% in 2023, as gross margin expansion more than offset increased G&A expenses and interest expense for the year. In terms of free cash flow, it took a sizable step-up in Q4 and by extension in 2023, as operating cash flow powered the step-up. Enhancing our free cash flow generation is a core component of the Argos transaction. This, alongside a manageable leverage profile, prompted the recent upgrade to BB+ from S&P Global, a move we felt was warranted but nonetheless appreciated. And finally, after further efforts to retire up-C structure and in combination with shares issued in relation to the Argos transaction, for the time being, please use a share count of 175 million moving forward.

This includes 174.3 million Class A shares and 763,000 LP Units. With that, I’ll turn it back to Anne for a discussion of our combined enterprise and a look ahead to 2024.

Anne Noonan: Thanks, Scott. Let’s start by clearly and quickly resetting what our new business looks like. On January 12th, we completed the Argos USA transaction and have since been diligently working towards bringing our teams together, from IT and operations, to procurement and sales. We’ve hit the ground running and accomplished a lot in just over a month. And while we’ll be in a position to share more details on our integration at next month’s Investor Day, we want to provide what the 2023 pro-forma portfolio looks like, on slide 13. As you can see, we remain well-diversified with a relatively even split between public, residential, and non-residential. Our geographic mix is enhanced and tilted towards higher growth states that are benefiting from substantial public and private investments, as well as positive migration trends.

By significantly increasing our presence in year-round Southeast markets, we reduce our seasonality and by extension, reduce the quarter-to-quarter fluctuation in earnings. And as you would expect, our profit mix is geared towards materials with Cement, making up approximately 43% of our cash gross profit, followed by Aggregates at 27% and Downstream at approximately 25%. As you move down to adjusted EBITDA, that materials mix approaches 80% of the overall business. Bottom line is that with this new portfolio, we’ve accelerated our materials-led strategy, are operating in growing and advantaged markets, and have end market diversification that helps provide through-cycle economic durability and resiliency. The Argos assets closed the year with very strong performance.

Aided by favorable weather, they outperformed our original expectations and achieved adjusted EBITDA of $343 million and an overall EBITDA margin of 20.1%. Relative to a purchase price of $3.2 billion, the headline multiple is very attractive at just over 9 times. We clearly have a strong platform for growth and even greater confidence that our post-synergy multiple will be nearly 7 times after we complete our integration plan. Of the $343 million, approximately 85% was generated from Cement, and the remaining 15% coming from Ready-Mix. Together, our pro forma 2023 EBITDA was $921 million and the combined adjusted EBITDA margin in 2023 was 22.2%. Given the shift in seasonality, the quarterly cadence for the new enterprise will be more balanced.

Using round numbers, roughly 10% of EBITDA should be generated in Q1, 30% to 35% in Q2 and Q3, and roughly 25% in Q4. I would say these are very likely to be imprecise, but nevertheless, our aim is to inform how to think about the composition of the upcoming year. Now, having reset in broad strokes our 2023 baseline, let’s look ahead. Our official 2024 EBITDA guide is $950 million at the low end to $1,010 million at the high end. Inclusive in this range are five core drivers. First, we expect to generate at least $30 million in operational synergies. We will go into more detail at Investor Day on where our synergies are coming from and the overall glide path. But for now, our current perspective nearly mirrors what was uncovered during diligence.

We anticipate the synergies from Ready-Mix and procurements come relatively quickly, as well as Cement synergies in the form of PLC optimization. Furthermore, these 2024 expectations align closely with our commitment to deliver at least 50% or $50 million of our total synergy target within the first 24 months. The second core driver is the persistence of pricing momentum across the portfolio. As you know, on January 1st, we implemented price increases across the Summit footprint and in every line of business. Overall, we are seeing very good traction in our markets. Our value pricing approach contemplates market-specific factors and demand conditions at the local level. As such, our Aggregates price increases are designed to be margin-accretive and did range from mid-single-digit to double-digits in some areas to start the year.

Importantly, today’s guide only incorporates what we have actioned to date and we certainly think there is a high probability that additional pricing actions are on the horizon, although it’s too early for us to provide those specifics. On Cement, our starting points vary between our river markets and the legacy Argos footprint. If you recall, January 1st pricing along the river was $15 per ton and that execution is proceeding reasonably well with Northern markets experiencing better traction than our Southern markets as you would expect. In the Southeast and mid-Atlantic, we are likely to encounter some near-term noise as we fully wrap our arms around existing customer contracts and better understand the upside opportunity from applying our value pricing and customer segmentation discipline.

What this means is, to varying degrees, we anticipate pricing growth in these markets to trail the rest of the portfolio, at least to start the year. That said, we have demonstrated sharp commercial execution along our river markets with consecutive years of double-digit pricing gains. We will move swiftly to apply the same standard of value pricing to the new Cement markets within our portfolio. We will take the first opportunity to work with our Southeast and mid-Atlantic customers to appropriately execute pricing adjustments to fully reflect the unique value we bring to the marketplace. The third component for outlook is on cost trends. We anticipate cost inflation to moderate across most of our cost categories in the year ahead. And while we’re confident the pace of inflation will slow, the downward pitch of that cost curve is difficult to project.

So, we’ll provide more color as we move through the year. Fourth, we anticipate our operational excellence initiatives to really take hold in 2024. We spent 2023 getting our feet under us, building talent and capabilities so that we can drop serious savings to the bottom line this year. These productivity gains together with a positive price-cost relationship is expected to drive strong Aggregates margin expansion in 2024. And finally, we believe, on the whole, underlying demand will improve as we move through the year. In this dynamic environment, however, demand trends can and will vary by end market and by geographic market. With that in mind, we have characterized our view on the three end markets beginning on slide 15, with our residential outlook.

Our long-run view hasn’t changed and like others, we believe there is a compelling case to support persistent and substantial investment in US housing. Since the 1980s, the US has consistently reduced the supply of housing relative to household formation. From 1960 to 1980, on average and as a nation, we produced more than 20 housing starts per 1000 households. That figure stepped down to 15 starts between 1980 and 2000. And over the last 23 years, we have produced roughly 11 housing starts per 1000 US households. Our supply is clearly constrained. Our existing inventory is certainly aging and demand does not appear to be lighting up. Taken together, these factors point to a severe shortfall of US housing supply. Experts can debate if that shortage is 3 million or 7 million units.

But at the end of the day, in order to address that gap, we need a renewed commitment to rebuild our housing system in the U.S. If the long-term residential trajectory is up and to the right, the short-term picture is more clouded. On one hand, months of supply is well below a healthy equilibrium of 5 to 6 months. Consumer and home builder sentiments have sequentially improved, permitting declines are moderating, and construction costs are coming down. On the other hand, affordability remains historically poor and remains a significant overhang nationwide and in most of our major residential MSAs. On balance, indicators are signaling reduced uncertainty and we appear to be on a path to recovery and then growth. But that path may look different from market to market.

For example, it’s Houston’s unique economic factors, favorable zoning rules, and a higher proportion of large-scale builders, create the conditions for a more swift recovery. Salt Lake and Phoenix, by contrast, are facing stiffer affordability headwinds. So while we’re cautiously optimistic, we are factoring in a slower recovery. In summary, until we see mortgage rate relief, we are maintaining a modest outlook regarding residential in 2024. Judging by recent history, and the fact that nearly 90% of homeowners are locked in at interest rates under 6%, we think if rates trend towards 5%, that should unlock demand for greater activity overall. But until we get there, our planning stance is for flattish residential performance this year. For non-residential on slide 16, the headline message is that trends we experienced in 2023 should carry into 2024.

That means heavy growth moderated by, and maybe more than offset, by sluggish light non-res activity. This is where our specific footprint and project pipeline really matters. And for us, we are playing in markets that are benefiting from chips and IRA investment. In fact, nearly 60% of the announced investment is occurring in top Summit states. Timely investments in Arizona to build out that new platform should really pay dividends in the years ahead. A semiconductor investment is concentrated in the Sunbelt, and we are also seeing data centers come into focus in Phoenix. In Kansas, our green energy project pipeline remains robust with five energy projects currently in the pipeline. Similarly, in the Carolinas and Georgia, ongoing investments in alternative energy infrastructure is benefiting our footprint in the Southeast.

Elsewhere, a lot has been made of overbuilt warehousing in the country, but for us, it’s not a major component of any of our platforms. It may, however, have an indirect impact, whereby it may increase competition for other end uses. And lastly, the outlook for light non-res is for it to remain dormant in 2024. Between tighter credit standards and recent residential trends, it would be premature to expect activity to recover in verticals like retail, office, and lodging. So, as to not undersell its impact, light non-res has historically made up roughly half of our commercial business. So, this represents a not insignificant headwind, particularly in our Ready-Mix and Cement markets. So, overall, the demand outlook is mixed for non-res with flat organic volumes likely representing the high-end of our current expectations.

And then for the public end market, we will consistently come back to our three leading indicators to provide a comprehensive view on infrastructure activity. Slide 17 profiles are top 8 state DOT budgets, which show varying degrees of strength, but are up collectively 16%, which is above the national average. Importantly, our public exposure is not even amongst our states, and is disproportionately weighted towards areas with heavier Asphalt operations. This notably includes Texas, which comprised more than 40% of our Asphalt volume in 2023 and is witnessing a strong step up in DOT funding in 2024. The second indicator is highway and paving awards for our top states. As of December, on a training 12-month basis, highway and paving awards have increased 14% versus the comparable year-ago period, more than twice the rate of growth for all other states.

And then we look at backlogs, as these are the truest indicator of upcoming activity and our backlog activity is either maintaining very healthy levels, like in Asphalt or is up substantially like in Aggregates and Ready-Mix. So, with indicators all flashing green, we think it’s fair to expect mid-single-digit or better growth in public volumes for 2024. Summing it up, I think we start this year with a guarded optimism around demand conditions, with much depending on Fed moves and the path of interest rates. And rather than prognosticating on future rates, we are comfortable taking a measured stance and setting organic volume expectation around flat for 2024, which fully incorporates a slow year-to-date weather-impacted start to our year. At the end of the day, we feel very positive about the year ahead, controlling what we can, achieving a comfortable gap between price and cost, and delivering strong EBITDA growth for 2024.

Turning now to capital allocation on Slide 18, you’ll see in our guide, we’ve called for between $430 million to $470 million in CapEx. This aligns with our commitment to keep CapEx as a percentage of net revenue at approximately 10% in the near term before stepping the proportion down over time. Much of the CapEx investment is designed to assist in the winter turnarounds of our Cement plants and to carry forward our Ready-Mix fleet modernization initiative. These specific investments are targeted to either improve profitability or avoid unplanned downtime. In both cases, it is high return spend that is necessary to more profitably run the legacy Argos assets. You’ll see that at 10% of net revenue, we are actually reducing capital intensity.

Together with improved enterprise profitability, this should help drive a 15% or more increase to free cash flow per share in 2024. This is central to our overall value creation thesis as greater cash flow conversion and generation will increase our optionality to reinvest in growth CapEx and aggressively pursue accretive Aggs-oriented M&A, all while effectively managing our leverage. Summit is a growth Company with a compelling set of opportunities in front of us and our capital allocation priorities underscore that growth objective. I’ll close by reiterating our near-term priorities on slide 19. In the midst of a large-scale integration, it can be easy to lose sight of what the goals are. But we, as an organization are committed to safely integrating our two companies, accelerating Aggregates growth, delivering on our synergy commitments, and using our enhanced free cash flow profile to further optimize the portfolio and strengthen an already fortified balance sheet.

These priorities guide our actions and decisions and only fuel the four Elevate Summit priorities of market leadership, asset life, sustainability, and innovation. As we collectively execute and create a stronger Summit, we are confident we can deliver industry-leading value for our employees, our stakeholders, and Summit shareholders. With that, I’ll ask the operator to open the line for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] And we’ll pause for just a moment to compile the Q&A roster. Thank you. Your first question comes from the line of Stanley Elliott from Stifel. Your line is open.

Stanley Elliott: Good morning, everyone. Thank you for the question and congratulations on the deal, very exciting.

Anne Noonan: Thanks, Stanley.

Stanley Elliott: Scott, you mentioned adding points to the margin profile, potentially on the Aggregates side. Could you help us with kind of the puts and takes as to how we might get to the high-end of it versus kind of what you mentioned possibly on the more of a basis point sort of a buildup?

Anne Noonan: Yes. So, from a point of view of where we started here, as you saw, we’ve had progress in the last two quarters on Aggregates margin expansion, and that has been driven largely by pricing and some Op-Excellence wins as we’ve gone through. We ended the year on a trailing 12-month cash-adjusted gross profit margin of about 49% to bump in that 50%. We’ve set a target there of 60%. We’ve been playing a bit of catch-up in Aggs with cost inflation, etc. But the two key drivers are, pricing has been very strong, as we’ve seen right throughout 2023, and we’ll continue that value pricing mentality as we go into 2024, and we think it’s a very constructive environment for Aggregates moving forward. And that’s driven by, as you know, Stanley, a core tenet of our Elevate strategy is to be market leadership, number one or number two in all of our local markets.

Supply-demand dynamics are very strong. There is persistent cost inflation. And our January price increases are out there very strong. And what you have in the guide right now is only one price increase. It doesn’t have the mid-years. But the other part that I point you to, which is a difference and an acceleration from 2024, which will push us — or 2023, which will push us to the high end is the Op-Excellence. So, as you know, we made progress last year. We actually dropped $15 million to the bottom line from our continuous improvements events in Aggs. And this year we expect to double our amount of continuous improvement events. We brought on Marshall Moore as our Chief Operations Officer, and we’ll add more resources. And so, that’s what will push us to the higher end of that Aggs profile.

So, we expect to increase our Aggs expansion in 2024.

Stanley Elliott: Great. Thanks so much.

Operator: Your next question comes from the line of Garik Shmois from Loop Capital Research. Your line is open.

Garik Shmois: Oh, great. Thank you. I’m wondering if you could speak to the operational synergies that you called out $30 million. How much of that has been secured here shortly after closing the Argos deal? And maybe if you could provide some color on how you expect that pacing to occur throughout the balance of the year.

Anne Noonan: Okay. So, let me start this at a high level. So, the $30 million, we’re very confident in our ability to deliver that. If you recall, in our proxy, we had actually $20 million for the first year in the proxy. So, we’ve got nothing but validation of our operational synergies. We’ve had our teams together working very closely on workshops. And so, if you think about the actual amount of synergies, what will come in first from a pacing perspective is really the scale synergies, which will be from SG&A and procurement. The next synergies you can expect to roll in are Ready-Mix. We’re very encouraged by a lot of the opportunity we have in Ready-Mix. We have the ongoing fleet modernization program that Argos had started and we’ll complete, and that’ll improve margin expansion on Ready-Mix.

And then the teams are actively putting together enhancements to delivery, improving the footprint, bringing in technology like Load and Go. That’s all moving very quickly in Ready-Mix. And we can move quickly in Ready-Mix. Cement, our key focus for 2024, and we’re very confident in this, is the ability to improve the operational equipment efficiency, and that’ll reduce costs, increase our productivity, and most importantly, allow us to have more domestically produced cement from the legacy Argos assets versus relying on imports, which will expand our margins. So, all in, we’re very confident around that $30 million. And Scott, maybe you want to talk to pacing on how that might occur throughout the year?

Scott Anderson: Yes. So, Garik, when you think of pacing or phasing throughout the year, we don’t necessarily provide quarterly guidance on that. But what I would say, it’s going to really mirror the operational activities of the year. And obviously, we need a little time to ramp up here in the beginning. But as Anne mentioned, the teams are very engaged right now, and we’re seeing progress. So — but I see it kind of aligning with the EBITDA performance of the business throughout the year.

Anne Noonan: The other thing I would add, just, you asked specific, Garik, to operational synergies. But one of the things that I’ve been extremely encouraged by is, immediately after close, we had workshops with all of our commercial folks. And they have really been digging into the details and coming up with value pricing opportunities, procurement opportunities. But additionally, some Aggs pull-through opportunities will represent additional upside. We’ll update you more on that in our Investor Day. But I would say, all in all, that $30 million is pretty secure, and we’re very confident to having some upside as we move through the integration period.

Operator: Sir, does that complete your question?

Garik Shmois: Yes, it does. Thank you.

Operator: Thank you. Your next question comes from Phil Ng from Jefferies. Your line is open.

Phil Ng: Hey, guys. Congrats on the solid quarter. Free cash flow is certainly very impressive. I guess my first question is really around the magnitude and timing of the Cement price increase you anticipate to see in the Southeast Atlantic, mid-Atlantic region in terms of the magnitude of what’s been announced. How long do you kind of think it’ll take to kind of work through some of these contracts and brought your value pricing and any more color around imports? I know Red Sea and Panama Canal, has that been a Good Guy in terms of tightening up the market as well?

Anne Noonan: Yes. Let me kind of step back on Cement pricing. So, as we said in our prepared comments, Phil, if I just take legacy Summit business, we went out at $15 a ton, relatively strong price execution as the team has done the last two years, demonstrated double-digit price increase. And we won’t hold out for — if demands and customers allow, we will have a mid-year price increase as we’ve done the last two years. So, we’re really solid and secure in our value pricing principles and in our customer segmentation on legacy Summit. As I said in my prepared comments, a little bit of a different game when it comes to legacy Argos. There we have longer-term contracts, which will — some of those will be rolling off as we go through ’24 and the teams are working through that.

And we’re working with our customers to expect value pricing principles to come in on that. We also have larger customers than you would have. And if you remember, if you go back to how Summit started this journey on customer segmentation, basically becoming less reliant on power buyers, you can expect that same kind of discipline as we look through and work with our customers, customer by customer to optimize our customer mix. So, that’s going to take a little bit of time. There is some immediate impact that January price increases on the legacy Argos side weren’t as robust as on the Summit side. Now, remember, Summit had a lot of heavy high barge costs. So, that really supported a very high price increase as we went in. We’ve had strong secure of that, but we do believe there is upside on pricing in the legacy Argos just base business.

There’s some catch-up pricing to be done. So, think about it in terms of large contracts rolling off, customer segmentation, and catch-up pricing on the January. At the end of the day, do I think we’d be double-digit every year like we were in ’22 and ’23, but high single-digits is probably a good estimate for our Cement business.

Phil Ng: Any color on the import dynamic?

Anne Noonan: Yes. So imports, one of the nice things that exist, as you know, the existing Summit business, legacy Summit business, really only has 5% to 10% in Louisiana, which is where imports come in. The Argos business similarly, if you look at the mid-Atlantic and Southeast, if you look at total imports into the US, only 5% to 10% actually come into those markets. So, we’re not heavy import exposed overall. So, I would say we’re much more focused on margin expansion on the Argos business, on profitability expansion, and that’s around the pricing we just discussed, but also landing the operational synergies in our Cement. And we are very confident of strong EBITDA growth in our Cement business in 2024 for those two reasons.

Phil Ng: Okay. Super. Thank you, Anne. We really appreciate it.

Anne Noonan: Thanks, Phil.

Operator: Your next question comes from the line of Adam Thalhimer from Thompson Davis. Your line is open.

Adam Thalhimer: Hey, good morning, guys. Hey, Anne, at a high level, can you talk about the relationship with Argos and how you expect that to trend over the next few years? And then, is Argos under a standstill provision, or could they actually buy Summit shares in the open market?

Anne Noonan: Yes. So, on the latter part, Argos has a two-year standstill. And the relationship is, we have three new board members, own 31%, they’re 31% shareholders of our Company. But most importantly, the relationship is very strong. We’re very united on the strategy of the Company. This deal wouldn’t have come together, frankly, without that. This is something which, as we’ve integrated the two teams, I’ve been extremely encouraged to see. I’ve been personally out to every one of the Cement plants. At this point, I still have to get out to all the Ready-Mix, a little more of a challenge. But our teams are all out there. The teams are integrating extremely well. And, on a people side, I would say the enthusiasm, engagement, and creativity that’s coming out of those teams is very encouraging.

On the business side, validation of the synergies has been — we’ve gotten no surprises, only upside from the commercial side. So, I expect this to be a very long-term and sustainable relationship. And, Argos got in here because they want to participate in the U.S. and the growth. So, this is a long-term partnership that you can expect, Adam.

Adam Thalhimer: Great. Thank you, Anne.

Operator: Your next question comes from the line of Anthony Pettinari from Citigroup. Your line is open.

Anthony Pettinari: Hi. Good morning.

Anne Noonan: Good morning.

Anthony Pettinari: If I look at the 2023 performance versus what you had forecast in the proxy, it seems like Argos did much better in 2023 than you expected. And I was wondering why that was. And then maybe a related question, the ’24 guide at the mid-point maybe looks just a touch below what was discussed or maybe implied in the proxy. And I’m wondering if there was anything driving that.

Anne Noonan: Okay, I’ll talk the latter part of that, the 2024 guide, and then I’ll have Scott actually maybe address the 2023. Would that be okay?

Scott Anderson: Sure.