Titan America Q4 2024 Earnings Call Transcript

There are 9 speakers on the call.

Operator

Greetings, and welcome to the Titan America Fourth Quarter and Full Year Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr.

Operator

Daniel Scott, Investor Relations. Thank you. You may begin.

Speaker 1

Thank you, operator, and good morning to everyone on the line. Thank you for joining us for Titan America's fourth quarter and full year twenty twenty four conference call. I'm joined by Bill Sarkalis, Chief Executive Officer of Titan America and Larry Wilt, Chief Financial Officer. Before we begin, I would like to remind you that we released Titan America's fourth quarter and full year 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.

Speaker 1

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 or by the use of the future tense. You should not place undue reliance on forward looking statements.

Speaker 1

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.

Speaker 2

Thank you, Dan. Good morning, and thank you all for joining us today for Titan America's first earnings call as a public company. I'm particularly excited to be speaking with you following the successful completion of our initial public offering in February. This milestone represents a transformative moment in our company's journey, providing us with additional resources to pursue our strategic growth initiatives, while continuing to create value for all our stakeholders. We are grateful for the confidence investors have shown in our business model and growth strategy, and we look forward to delivering on our commitments as we embark on this new chapter as a public company.

Speaker 2

For those who may be newer to our story, I'd like to highlight what makes Titan America a compelling investment opportunity. As shown on Slide four, we have nine key investment highlights that differentiate us in the marketplace, but I would focus on four main takeaways. First, we have a uniquely vertically integrated business model that provides us with strategic flexibility and multiple channels to reach end users. Second, we have built a hard to replicate comprehensive logistics network with strategically placed facilities and terminals that provide us with significant competitive advantages in terms of reliability of supply and cost efficiency. Third, we have already installed or are investing in capacity to meet the high demand in the years ahead and capture market growth.

Speaker 2

And finally, we are led by an experienced management team with a proven track record of outperforming the market. Looking at Slide five, you can see our geographic footprint along the East Coast of our country. The areas we serve include three out of the 11 U. S. Economic mega regions, which are powerhouses of growth, productivity and innovation.

Speaker 2

The three mega regions in our served markets represent between 2025% of the population, the GDP and the consumption of construction materials in our country. We operate in two business segments, Florida and Mid Atlantic. Turning to Slide six, we have demonstrated a consistent track record of outperforming the broader market. From 2013 to 2024, our cement sales volumes grew at a compounded average annual growth rate of 7%, significantly outpacing The U. S.

Speaker 2

Market growth rate of approximately 2%. This outperformance reflects the effectiveness of our business model, our strategic positioning and our ability to capture growing demand across our regions. Slide seven illustrates why we are bullish on the trends driving a powerful multi year growth phase in our country. We see four key drivers. First, the IIJA Infrastructure Investment Program, which is expected to generate demand of approximately 50,000,000 short tons of cement over the next five years.

Speaker 2

Second, the manufacturing re shoring initiatives, bringing significant investment to our regions. Third, the housing deficit estimated at 3,400,000 homes nationally with nearly 900,000 units in our regions. And fourth, emerging themes such as resilient urbanization, new construction technologies and digital transformation that are creating new opportunities in the construction materials sector. On Slide eight, you can see how our vertically integrated business model provides strategic flexibility. Our upstream products like cement, cementitious materials and aggregates feed into our downstream product lines like ready mix concrete and concrete block, while we also place all our products directly to end markets.

Speaker 2

This integration allows us to optimize our product mix and channels to market based on local market conditions, maximizing both top line growth and profitability. Slide nine highlights our hard to replicate comprehensive logistics network. We have bookended each of our business units on one side with mega production hub for our upstream products and on the other side with a mega C terminal that can import all our upstream products. Those hubs are strategically placed on railway lines, which is the fastest and lowest cost way to move our products. Over the years, we have invested in this network that connects our mega hubs, our product terminals and warehouses and our downstream production units and reaches all the way down to our customers.

Speaker 2

As a result, we have the unique capability to offer our customers reliability of supply from multiple channels and sourcing options. This network also gives us the built in optionality and strategic flexibility

Speaker 3

to choose to serve our customers from the sourcing point and the channel with the lowest total cost after considering both product and logistics. With that overview, I'll now turn the call over to Larry to provide more detail on our financial results and segment performance. Larry? Thank you, Bill, and good morning, everyone. I'm pleased to report that 2024 was a record year for Titan Amerif.

Speaker 3

As shown on Slide 11, we achieved full year revenue of $1,630,000,000 representing growth of 2.7% compared to 2023. At the same time, our adjusted EBITDA grew by 12.8% to $370,400,000 significantly outpacing our revenue growth. This translated into net income of $166,100,000 up 7% year over year and earnings per share of $0.95 per share compared to $0.89 in 2023. Our adjusted EBITDA margin expanded to 22.7 an improvement of two ten basis points compared to 20.6% in 2023. This margin expansion is a result of the positive price momentum in our markets combined with the effectiveness of our operational excellence and cost primarily due to adverse weather conditions across our regions.

Speaker 3

Revenue for the quarter was $300,000,000 compared to $399,100,000 in Q4 twenty twenty three and adjusted EBITDA was $83,500,000 compared to $87,200,000 in the prior year quarter. Despite these challenges, we maintain strong profitability with an adjusted EBITDA margin of 21.4% for the quarter. Moving to Slide 12, let me dive into our volume performance across product lines. For the full year 2024, despite operating in a U. S.

Speaker 3

Market where consumption of cement declined by nearly 6%, our cement volumes decreased by 3.3%. Our performance was primarily affected by inclement weather in our markets and continued softness in the residential sector, which was partially mitigated by stronger demand from infrastructure and commercial construction. We saw stronger performance in our other product lines with aggregate volumes increasing by 7.4% and fly ash volumes growing by 4.9%. Ready mix concrete volumes grew by 1.7% and block volumes showed growth of 7.3% supported by contractor remodeling activity and increased volume through the retail channels. The fourth quarter saw more pronounced volume challenges in some areas with cement volumes down 7.4% compared to Q4 twenty twenty three, reflecting the impact of hurricane activity and significant rainfall in our markets.

Speaker 3

Aggregate volumes however showed strong growth of 28.6% in the quarter, while ready mix volumes remained relatively stable with 0.8% growth. Concrete block volumes decreased 6.6% in the quarter. As shown on Slide 13, we maintained pricing momentum across all product lines for the full year 2024. Cement pricing increased by 2.2% for the full year despite volume challenges. Aggregates and fly ash pricing showed the strongest growth at 8.510.5% respectively, while ready mix concrete pricing improved by 5.1% and concrete block pricing increased by 1.7%.

Speaker 3

This pricing strength reflects our market positions and focus on value added products, services and solutions. Turning to our segment performance on Slide fourteen and fifteen, our Florida segment generated $997,600,000 in revenue for the full year, an increase of 2.8% compared to 2023. More importantly, segment adjusted EBITDA in Florida grew by 12.9% to $249,700,000 For the fourth quarter, we saw a 2.3% revenue decline compared to Q4 twenty twenty three and segment adjusted EBITDA of $52,700,000 as compared to $61,500,000 in the prior year quarter. Our Florida segment continues to benefit from attractive market fundamentals, including ongoing population growth, business migration and infrastructure investment, all of which continue to drive construction demand. These factors have enabled us to maintain pricing momentum while capturing select volume growth opportunities, including for example, participation in moving Florida forward infrastructure projects scheduled for 2025, such as the Golden Glades Interchange in Miami, the Southwest Tenth Street connector in Broward County, the Orlando and Jacksonville Airport expansions and the A2 reservoir project in Palm Beach County.

Speaker 3

Our Mid Atlantic segment as shown on Slide 15 delivered $634,900,000 in revenue for the full year, up 2.5% from 2023. This segment's adjusted EBITDA growth of 14% to $134,800,000 For the fourth quarter, while revenue declined by 2.6%, segment adjusted EBITDA increased 17.2% compared to Q4 twenty twenty three, reflecting our operational efficiencies and adjustments related to restoration liabilities. Our Mid Atlantic segment, primarily serving Virginia, the Carolinas and the Metro New York market continues to benefit from above average population growth and a resilient construction market. This includes infrastructure development, coastal resiliency projects, the Virginia Data Center Alley, the largest data center market in the world, as well as investments across North Carolina from the Charlotte Metro Area to the Research Triangle. We're participating in major projects, including the Winston Salem I74 Beltway, Raleigh I40 expansion, the Newark International Airport expansion and an offshore wind farm project in Virginia Beach.

Speaker 3

Moving to Slide 16, we continue to execute our capital expenditure program in 2024, investing approximately $137,300,000 across our business. Key initiatives included the execution of the D. M. Connor aggregate acquisition, securing critical mineral reserves for kiln feed and novel cementitious materials. We also increased our mining capacity with the commissioning of a third drag line at Pensuco near Miami and commenced the strategic expansion of the Roanoke quarry.

Speaker 3

In addition, we enhanced our ready mix concrete and concrete block positions ahead of expected market growth. Our capital expenditures were well balanced across our regions with approximately $78,000,000 invested in Florida and $60,900,000 in the Mid Atlantic. This investment profile aligns with our strategic priorities and positions us for continued growth. Slide 17 provides a bridge of free cash flow and net debt movement during 2024. Our adjusted EBITDA of $370,400,000 was partially offset by changes in operating assets and liabilities of $44,000,000 and income tax payments of $68,000,000 Capital expenditures of $137,000,000 represented our continued investment in growth initiatives, while we also returned a total of $137,000,000 to shareholders through dividends and returns of capital.

Speaker 3

These activities resulted in a net increase in our debt position of $61,000,000 for the year. Slide 18 illustrates our debt and liquidity profile. We ended 2024 with total debt of $460,200,000 and net debt of $448,100,000 Our net debt to adjusted EBITDA ratio stood at 1.2 times providing us with significant financial flexibility. After returning $137,000,000 to shareholders during 2024, we maintained a strong balance sheet. Our debt maturity profile is well structured with minimal payments due over the next two years and the bulk of our maturities in 2027 and beyond.

Speaker 3

Looking at Slide 19, I'd like to emphasize our balanced approach to capital allocation. We're focused on three priorities. First, investing in organic growth and greenfield opportunities to enhance market leading positions. Second, pursuing strategic M and A opportunities that build upon our existing positions and expand into synergistic adjacencies. And third, providing returns to shareholders through regular dividends and potentially other avenues as our business continues to grow.

Speaker 3

Our robust balance sheet enables us to pursue these priorities while maintaining financial flexibility. We're committed to disciplined capital allocation that maximizes returns on investment and enhances shareholder value. Our Board of Directors has recommended for approval at the Annual General Shareholders Meeting a quarterly shareholder return of $0.04 per share per quarter through the first quarter of twenty twenty six. With that, let me turn it back to Bill for some thoughts on market conditions, our initial 2025 guidance and some closing thoughts ahead of your questions. Bill?

Speaker 2

Thank you, Larry. Let's now please turn to Slide 20. We are operating in a dynamic market environment, where several important trends are shaping construction activity across our regions. We are seeing accelerating momentum from the Infrastructure Investment and Jobs Act. Projects that were in the planning and design phases are now moving into construction, creating increased demand for our products.

Speaker 2

In Florida and the Mid Atlantic, numerous transportation projects, water management initiatives, investments in energy and coastal resilience projects are underway or scheduled to begin in 2025. In the residential sector, we are experiencing a mixed environment. While single family construction has shown some signs of stabilization and there are some pockets of growth, the housing market continues to face challenges from elevated mortgage rates and affordability concerns. The residential construction sector is currently in its third year of relative softness. Previously, many industry participants expected the turnaround in the second half of twenty twenty five, driven by interest rate reductions, but the uncertainty around mortgage rates continues to extend the waiting period for homebuyers and the higher for longer interest rate environment has affected buyer sentiment.

Speaker 2

Despite these near term challenges, the significant housing deficit in our markets estimated at nearly 900,000 home units and the strong household formation trends represent substantial pent up demand that we expect will drive strong growth. The non residential sector has remained strong, particularly in data centers, manufacturing facilities, the energy sector and logistics centers. The reshoring of manufacturing and the continued expansion of e commerce are driving demand for industrial construction across our markets. The first quarter of twenty twenty five has experienced unusually severe winter conditions across our operating regions, including heavy rainfall in Florida and the coldest temperatures recorded in the Mid Atlantic in over a decade that have temporarily affected construction activity. While this may impact our near term results, we don't expect it to affect the underlying demand fundamentals in our markets in 2025.

Speaker 2

However, we may see our results weighted towards the second half of the year. Our guidance for 2025 as outlined on Slide 21, anticipates mid single digit revenue growth compared to 2024 with modest improvement in our adjusted EBITDA margins. This outlook reflects our confidence in our pricing momentum, operational efficiencies and the ongoing benefits of our strategic investments. We remain focused on executing our growth blueprint in 2025 and beyond. In conclusion, 2024 was a record year for Titan America.

Speaker 2

We're proud of our strong financial performance, which reflects the effectiveness of our unique business model and the dedication of our team. As we look to 2025 and beyond, we are excited about the growth opportunities ahead. The markets where we operate are the beneficiaries of significant tailwinds, including infrastructure investments, manufacturing, reshoring, housing demand and emerging trends in resilient urbanization and construction technology. We continue to innovate and expand our product offerings, particularly focusing on meeting the evolving needs of our customers for sustainable, high performance products, services and solutions. Our investments in new technologies and digital transformation are yielding tangible results in terms of operational efficiency, cost reduction and enhanced customer service.

Speaker 2

The successful completion of our IPO marked an important milestone in our journey, providing us with additional resources to execute our growth strategy, while maintaining our commitment to unlocking significant value for all our stakeholders in the quarters and years ahead. Before we open the call for questions, I want to express my gratitude to our employees for their hard work and dedication, which have been instrumental in our success. I also want to thank our customers and partners for their continued trust and collaboration. And finally, I want to thank our shareholders for their support as we embark on this new chapter as a public company. We look forward to an enduring partnership with you.

Speaker 2

With that, I'll turn the call over to the operator to begin the Q and A session. Thank you.

Operator

Thank you. Our first question comes from the line of Anthony Pettinari with Citi. Please proceed with your question.

Speaker 3

Good morning.

Speaker 4

Bill, Larry Good morning, Tony. Hey, Looking at your full year outlook, can you give any finer point on price versus volume assumptions baked into the revenue guidance? And then is it possible to say how the revenue guide and margin expansion guide might break out directionally between Florida and Mid Atlantic? Do you expect one to grow faster than the other? If so, what would drive that?

Speaker 4

Just any kind of additional color you can give?

Speaker 3

Yes. Anthony, I think we feel positive. Let me start with the second one. We feel positive about the second part of your question for sure. The impact on the Mid Atlantic versus Florida, we see growth in both regions supported by the things that that we were describing during our prepared remarks.

Speaker 3

When you talk about price and volume, we have a balanced view on that as we come through 2024 into 2025. Q1 weather impacts aside, we feel good about where we are in terms of price and volume on a balanced basis.

Speaker 2

Overall, Tony, we see a positive price momentum continuing in 2025 and our revenue our top line is going to be impacted positively by the continued investment in infrastructure. We see the projects materializing. We have many projects starting in 2025, both in infrastructure and also commercial, with residential being a bit softer. So price momentum plus growth coming mainly from infrastructure and commercial are the key components.

Speaker 4

Got it, got it. That's very helpful. And then second question, big picture, can you remind us how tariffs might impact your business or not impact your business? And in terms of cement tariffs that may be planned, maybe it changes every day, but what's kind of the latest view on timing of tariffs and magnitude on cement coming in from Europe?

Speaker 2

That's a good question at the top of the mind of everybody. You know better than anybody else, Tony, that exports is an important imports is an important part of the market as cement and aggregates, all the upstream construction materials are structurally short, right. So imports is an important part. So far, to the best of our knowledge, the tariffs are affecting specific countries and therefore it's very specific on impacts on certain states and also on certain importers that are related to these countries. So far, Titan America sources are not affected and we expect that they will not be affected.

Speaker 2

Even if there is a scenario where some of our sources are affected, we have multiple sources. So we feel confident that we're not going to have a direct impact. Now looking at the no con effects of the tariffs, one would expect that this will be positive because the market being structurally short, tariffs will affect availability and cost of imports and therefore one will seek knock on effects, especially on the pricing power of the industry. So overall, as far as we know so far, we see a rather positive effect.

Speaker 3

Okay. That's helpful. I'll turn it over.

Operator

Thank you. Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.

Speaker 5

Yes. Hi. Good morning, everyone.

Speaker 2

Hi, Jerry.

Speaker 6

Bill,

Speaker 5

Larry, can you just touch on your M and A pipeline at this point? What's the range of capital deployment that's feasible to deploy over the course of this year for you folks and any color on what type of acquisitions we're looking at at this point?

Speaker 3

Yes. Tony, it's sorry, Jerry, it's Larry. Obviously, when we look at our growth strategy, we focus on a couple of things. One obviously is building out the strong business that we have already, so doubling down on the capacity and the other investments we've described to you. We had a couple of examples I think in the slides there that we showed on the prepared remarks.

Speaker 3

On the M and A side, I think we look at that portfolio of opportunities, the adjacencies that we described and that's our focus for today, but we don't have anything to announce in terms of capital deployment today in that specific space.

Speaker 5

And then Bill, can I just ask a follow-up on the tariff conversation and potential for that to be a positive for you folks on your cement production and depending on where which countries are impacted? What's your inventory position for cement entering this year relative to the silo capacity? And can you just spend a minute to talk about where you folks have the ability to import cement from in terms of number of countries, where you folks have relationships just so we can get an appreciation for the flexibility that you folks have if we do get an adverse tariff ruling on a country that's supplying the bulk of your cement today?

Speaker 2

Thank you, Gerry. Yes, we have multiple sources that are related to group operations. So Greece is obviously one of the sources, but also we have import sources from Turkey and also Egypt. So we have three different countries within the European Union, but also outside the European Union. And this gives us the flexibility, and we don't believe that all these areas are going to be affected from any future tariffs.

Speaker 2

Now in relation to our inventory policy, we follow the policy as we've been operating all these years because we feel confident about our ability to import and serve our markets. So we are continuing on the policy, Stasi as it goes, we're not taking any specific measures in relation to that.

Speaker 5

Thank you.

Speaker 2

Thank you, Jeff.

Operator

Thank you. Our next question comes from the line of Philip Ng with Jefferies. Please proceed with your question.

Speaker 6

Hey, good morning guys. It's Jesse Burren on for Phil. Just to start on 2025 EBITDA on the margin guidance. Just wanted to kind of get your view on kind of the puts and takes. I know you kind of talked about pricing, but anything kind of internally that you guys are doing that you want to call out and then anything on the cost side that kind of really sticks out to you?

Speaker 3

Yes. I think on the cost side, just some obvious things. We have some puts and takes when you talk about energy costs, natural gas, I mean, it's obvious that natural gas is up. But on the other hand, diesel costs are down, right? These can balance each other out.

Speaker 3

We have some things that we do internally on alternative fuels that we have the capability of using within our facilities to mitigate some of that impact as well. Labor, of course, is always an input cost into the business that has some inflationary pressure, but we also then take some initiatives internally to make sure that we balance that out with some variable costs that we have the ability to flex through third party sources.

Speaker 2

And essentially, we continue applying our strategic flexibility because there are many pockets of growth in the economy with the infrastructure and also commercial activities. But also we see, for example, activities in renovation and remodeling. So we applying a flexible model not to improve our top line, where at the same time we're managing with our investments in logistics efficiency, kind

Speaker 6

of your domestic kind of your domestic margins that you want to call out for this year? Kind of any large variances that you kind of expect or do you kind of expect them to be pretty similar in 2025? Thanks.

Speaker 3

I don't think we would relay anything that's different than what we've said in the past. We look at the cost of cement and delivery of cement as an integrated approach. So the cost of the materials and the cost of logistics to get it to where the customer is to best serve the customer and drive the highest margin, there's nothing different in that for us. So nothing special to call out there.

Speaker 6

Thanks. I'll turn it over.

Operator

Thank you. Our next question comes from the line of Brian Brophy with Stifel. Please proceed with your question.

Speaker 7

Thanks. Good morning, everybody. Just wondering if you could give us a little bit more color on how you're thinking about the outlook for this year by material? Any notable differences between how we should be thinking about cement price versus volume relative to ready mix? Thanks.

Speaker 2

Overall, we see positive pricing momentum as we mentioned also in the remarks. So we see it across the product lines. As you noticed on the 2024 results as well, the pricing momentum has gravitated from the upstream products also now to the downstream products as you saw it in our results in relation to concrete and block. So overall, we expect positive price momentum.

Speaker 7

Okay, thanks. And then can you touch on the DM Connor acquisition? What attracted you guys to that asset and how should we be thinking about contribution there in 2025?

Speaker 2

Other than acquiring another position in the aggregates business, the key strategic reason for this investment for us was that it secured mineral reserves that we can use twofold. One, it can become and it will be a strategic input into our kiln in Roanoke as raw material and equally important, if not more important, is a key raw material for noble cementitious materials, like calcined clay, which is the future of cementitious materials, but also a key component of one TCMAN. With this acquisition, we have strategically secured decades of reserves for the future needs of our company. So it is a very important acquisition strategically for us.

Speaker 7

Really appreciate. I'll pass it on.

Speaker 2

Thank you, Brent.

Operator

Thank you. Our next question comes from the line of Chad Dillard with Bernstein. Please proceed with your question.

Speaker 8

Good morning guys.

Speaker 2

Hi Chad. Hi Chad.

Speaker 8

So my first question is on 4Q and just how much of a shortfall was weather on volumes? And then I guess trying to think through just how that volume cadence evolves. Just trying to figure out whether in the first quarter, should we expect volumes be positive? And then how does that layer in as we go into the second half?

Speaker 2

The bad weather in the fourth quarter as you saw from the results affected consumption of construction materials because many job sites shut down. Of course, this created high pent up demand and backlogs. We ended 2024 with increased backlogs and we went into 2025 with increased backlogs. As I mentioned in my comments, however, we had unusually adverse weather in the first quarter of twenty twenty five. It was very severe, heavy rainfall in Florida in the first two months of this quarter in a season which is usually the dry season for Florida.

Speaker 2

And as far as the Mid Atlantic, we had the lowest temperatures in more than a decade. So this has affected overall the demand. The good element here is that whenever the weather improved and as we have built now even bigger backlogs, we see increased demand. So that's why we mentioned in our commentary that first quarter results will be affected by the weather, but we are confident about the demand overall and our performance in 2025, albeit is going to be weighted towards the second half of the year.

Speaker 4

Got it. Thanks. And secondly,

Speaker 8

the positive pricing momentum comment, just any way to kind of layer in how to think about pricing first half versus second half? And then just to round it out, just 2025 views on cash conversion and CapEx outlook?

Speaker 3

Look, I think on let me start with the second one. On cash conversion, we obviously go into 2025 with a growth agenda with investments we're going to make largely consistent with what we described as we went forward. Obviously, being prudent people will manage that effectively as we go forward into 2025 and make sure that the cash conversion remains at a good solid level consistent with what we have delivered before.

Operator

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Zarkallis for any final comments.

Speaker 2

Thank you, operator, and thank you all for your time today. We appreciate your interest in Titan America. We look forward to updating you on our progress on our next earnings call. Have a great day and thank you.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Earnings Conference Call
Titan America Q4 2024
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