Good day, everyone, and welcome to Eagle Materials Second Quarter of Fiscal 2025 Earnings Conference Call. This call is being recorded. At this time, I'd like to turn the floor over to Eagle's President and Chief Executive Officer, Mr. Michael Haack. Mr. Haack, please go ahead.

Thank you, Jamie. Good morning. Welcome to Eagle Materials conference call for our second quarter of fiscal year 2025. This is Michael Haack. Joining me today are Craig Kesler, our Chief Financial Officer; and Alex Haddock, Senior Vice President of Investor Relations, Strategy and Corporate Development. There will be a slide presentation made in connection with this call. To access it, please go to eaglematerials.com and click on the link to the webcast. While you're accessing the slides, please note that the first slide covers our cautionary disclosure regarding forward-looking statements made during this call. These statements are subject to risks and uncertainties that could cause results to differ from those discussed during the call. For further information, please refer to this disclosure, which is also included at the end of our press release. Let me start my comments by highlighting a very important meeting conducted a few weeks ago at Eagle Materials, that being our Annual Health, Safety and Environment Conference or what we term HSE. Each year, I have the pleasure of spending two days with approximately 90 leaders in our organizations across the U.S. to discuss health, safety and environmental items facing Eagle Materials. We get to share best practices across the organization, discuss how we strengthen our safety culture and how we make a difference in our operations for all employees. We always prefer to look at leading indicators to eliminate items before they happen, but it's also a time to reflect on the progress we have made in our lagging indicators. This progress is highlighted in our sustained below-industry average TRIR rate for safety. Our enhanced sustainability report we released last year showing our continued progress in reduced CO2 emissions per ton of cementitious product and highlights investments in projects that not only financially return…

Thank you, Michael. Second quarter revenue was a record $624 million, a slight uptick from the prior year. The increase was driven by higher cement sales prices and higher wallboard sales prices and sales volume, partially offset by lower cement sales volume. Second quarter earnings per share was $4.26 even with the prior year. The quarterly EPS reflects lower earnings, offset by 5% reduction in fully diluted shares due to our share buyback program. As we highlighted in the press release, we had two non-routine expense items during the quarter. First, $1.6 million of costs associated with selling acquired inventory after its markup to fair value as a part of acquisition accounting plus related business development costs. And second, a litigation loss of $700,000. Turning now to our segment performance highlighted on the next slide. In our Heavy Materials sector, which includes our cement and concrete and aggregates segments, revenue declined 2%, primarily because of lower cement sales volume, partially offset by cement sales price increases we implemented earlier this year. Operating earnings were down 9%, primarily because of the lower cement sales volume in addition to higher maintenance costs. Moving to the Light Materials sector on the next slide. Revenue in the sector increased 5%, reflecting higher wallboard and recycled paperboard sales volume and a 1% increase in wallboard sales prices. Operating earnings in the sector were also up 5% to $98 million, driven by the higher wallboard and recycled paperboard sales volume and higher wallboard sales prices. Looking now at our cash flow. We continue to generate strong cash flow and allocate capital in a disciplined way in line with our strategic priorities and rigorous financial return criteria. During the second quarter, operating cash flow increased 35% to $233 million, reflecting strong working capital management. Capital spending increased to $66 million. As Michael mentioned, during the quarter, we began construction on our modernization and expansion project at our Laramie, Wyoming cement plant. This construction project accounted for approximately $27 million of the total capital spending this quarter. We also acquired a small aggregates business for $25 million. The acquired operation is complementary to our existing aggregates business in Kentucky. And finally, we repurchased 253,000 shares of our common stock for $61 million in addition to paying our quarterly dividend, returning a total of $69 million to shareholders during the quarter. We have approximately 5.3 million shares remaining under our current repurchase authorization. Finally, a look at our capital structure, which continues to give us significant financial flexibility. At September 30, our net debt-to-cap ratio was 41% and our net debt-to-EBITDA leverage ratio was 1.2 times. We ended the quarter with $94 million of cash on hand, total committed liquidity at the end of the quarter was approximately $679 million and we have no meaningful near-term debt maturities, giving us substantial financial flexibility. Thank you all for attending today's call. Jamie will now move to the question-and-answer session.

[Operator Instructions] Our first question today comes from Trey Grooms from Stephens. Please go ahead with your question.

Hi, good morning, everyone. So obviously, weather impacted cement and aggregates in the September quarter. So first off, was there any negative impact from the hurricane earlier this month on either the wallboard or the heavy business? And then how has volume been trending over the last, I don't know, two or three weeks maybe or so since the weather has been cooperating, particularly in the heavy business?

Yes. Thanks, Trey. Fortunately, the hurricanes didn't impact our operations in terms of any of the equipment. But certainly, some of the heavy rainfall even in the Southeast did impact volumes, some of our Eastern markets, even really -- and that's the case for cement and wallboard to a certain degree. But -- and then in terms of post the quarter, October has been a little bit drier across certainly the middle of the country and I've been very happy with the volumes here in October.

Good, good. That's encouraging. And then, so on the wallboard pricing, it was up slightly year-over-year, down just a little bit sequentially. It seems like we can have these small fluctuations like this product mix, geographic mix, those types of things moving around. But you also pushed that November increase out. So are you seeing any real like-for-like pricing pressure or anything like that in wallboard? And I guess, what's the status there and maybe outlook for the near-term pricing there in wallboard maybe until demand gets a little bit better?

Yes, as we talked, yes, we did implement a price increase in March, which is really driving this year-over-year improvement in pricing. As you said, sequentially, I think pricing is down less than 1%. So you have product mix, you have regional changes, those type of things. Been very happy with the performance of that business, the resilience of pricing and what, for the last 24 months has been a pretty tepid housing environment. And so as we look forward, as we mentioned, it should be a more accommodative monetary policy, which should help continue to spur some single-family construction activity and that's generally the formula for future pricing.

Yes, got it. Just got a couple of questions about it, wanted to make sure that we were all on the same page there, but that's what I fully expected. So thank you for that, Craig. And I'll pass it on. Thank you.

Thanks, Trey.

Our next question comes from Brent Thielman from D.A. Davidson. Please go ahead with your question.

Hi, thanks, good morning. I just wanted to follow up on that, just the comment around the wallboard price increase most likely delayed into next year. Is it your sense some of that is also due to some of the disruptions from weather seen so far this year and I guess sort of continuing in some markets? Or is it just simply the fact the industry is awaiting little more momentum in new home construction into next spring?

Yes, Trey, look, there's -- I'm sorry, Brent, there's lots of factors that influence pricing and timing and magnitude. And so as we look at our wallboard business and pricing going forward, it is driven by single-family construction activity that's by far and away the largest driver of activity there. Interest rates have moved around over the last several months. So yes, clarity on the demand side. But again, over a broader time period, we think there's some structural reasons why pricing and therefore, our margin should remain higher. Just a matter of timing is the only question.

Okay. And then maybe just on taking all your opening comments around the cement side, we haven't seen the full effects of IIJA yet here. Could you talk around your -- qualitatively your backlogs and visibility across your cement platform? Has it been any worse than it was six months ago? Is it better? I mean, how does it look as you're heading into kind of calendar 2025? Any sort of comments there would be helpful just in terms of how that's evolved.

Yes. With -- looking at -- Brent, looking at our backlog, we really don't carry backlog as much on the cement side. We know projects and discussions with customers and stuff. Nothing has fundamentally changed there. We still have, as I mentioned in the opening comments, a lot of heavy industrial projects going on. We have the IIJA that should be hitting. Overall, we see a very positive demand picture across every market that we operate in. We were down a few percentage points, mostly affected by, as we said, weather and some delays in these projects, but these projects are going to go. So we think that over this next time horizon, be it six months, be it nine months with it, these projects are queued up to start off.

Yes, Brent, there's no doubt the 2024 construction season got off to a very slow start across much of the country. And then we've continued to face some of these weather headwinds even into the summer and fall. And it's a relative comparison from the prior year. I think if you point to the Portland Cement Association some other industry views, they continue to see growth not only next year, but in several years post that as these projects get going in earnest.

Got it. Appreciate that. Just last one on Texas Lehigh. Should the investments, I guess, the big outage and the investments you're making here, lack of a better word, sort of cover you here for a while, meaning we should kind of get back to your normal maintenance cycle after this quarter?

Yes. This is a project we've talked about for quite some time. The timing was always a little bit of question when equipment showed up and when contractors could be on site. But as Michael mentioned, that's been done here in October. And so, yes, this is a 50-year-old plant. This is a 50-year-old project. You're going to replace a clinker cooler once every 50 years. And so these are the investments that you make into a facility of that age and then reliability should significantly improve.

Got it. Okay. Thank you.

Our next question comes from Anthony Pettinari from Citigroup. Please go ahead with your question.

Hi, this is Asher Sohnen on for Anthony. Thanks for taking my questions. Is there a way to think about the magnitude of increased maintenance costs that you're expecting in the upcoming quarter? And then just generally, the cadence of cement margins over the balance of the year? And then stepping back kind of maybe what could the cement business margins kind of look like in the long-term?

Yes, it's a good question. I'll handle the last part of that first. As we've talked about for many quarters and years now, the cement industry has fundamentally changed over the last decade or more with some of the regulations that have been put in place that has really restricted new capacity from being added. It's been over a decade -- well over a decade since really the last greenfield cement plant was built in the U.S. and so you have some significant supply constraints in today's demand environment is materially below where we've been in prior peaks. And so as we think about this industry over a cycle and over several cycles, we think the margin profile and the resiliency of those margins should be much higher than what we've seen in prior cycles. And more specifically to our footprint, we've more than tripled our cement capacity over the last decade-plus. And so the quality of the assets that we operate today are in a much higher position. You think about the investment we're making at our Mountain Cement facility, again, that will lower the cost structure of that facility, make it more resilient. So we positioned the business very well. And in the industry at large, I think from just the supply and demand dynamics would favor a better margin business over the next -- over the cycle. And then as you think about just this next quarter, look, the -- between what Michael mentioned, the Texas Lehigh facility and then the Tulsa facility that we're also working on the kiln, that will have a $6 million to $8 million type of impact here in the third quarter, but -- and then those projects will be complete.

Okay, great. Thanks. That's really helpful. And then just a second one on cement. I mean it sounds like last quarter basically midyears were kind of taken off the table. So just looking forward to 2025 around the timing of potential cement hikes, is that -- do you think that's more of a January or in April, just kind of how those conversations are going so far?

Yes. As Michael mentioned, we put out price increases in most of our markets for early 2025 in January.

Great. Thank you. I'll turn it over.

And our next question comes from Jerry Revich from Goldman Sachs. Please go ahead with your question.

Yes, hi, good morning, everyone.

Morning, Jerry.

I just wanted to follow up on -- hi. On the disclosure about the slag capacity addition in Texas. Can you just take a step back for us and just update us on cement additive mix across your footprint? Where do we stand now? And as you look at other potential additives, anything else that we should be on the lookout from an Eagle standpoint over the next three to five years in terms of other cement additives that could make sense?

Yes, great question, Jerry. We announced the slag cement facility in early '24 or earlier this year. It's through our joint venture. It's down in the Port of Houston. We'll be receiving slag granules over by freight -- ocean freight. And that's similar to a business that we already operate and have operated for quite some time in the Chicago area. Slag is -- improves the durability of the concrete and will be very complementary to our cement business here in Texas. And we continue to explore those opportunities. We announced again several months ago a partnership with Terra CO2 as it relates to some alternative cementitious materials as well. That's a little more out in front of us in terms of the opportunity, whereas the slag cement facility in Texas is being commissioned here in October. But we continue to look to ways to grow our footprint and excited about that.

Yes, super. And then in terms of just the cadence of cement demand over the course of the quarter, can you just comment on what the year-over-year performance looked like by month just to give us a flavor? I know you mentioned weather was an issue. Can we just expand on how that played out?

Yes, Jerry, for example, so volumes were down, for the whole Group down 5%. In Texas, we had a hurricane in July. So market-to-market, you face different headwinds. Some of it's weather and some of it, as Michael mentioned, we've just seen projects get pushed out. Some of it is just a bureaucratic process to get money through the governmental system. In other cases, jobs get pushed for other reasons. But I would say, I wouldn't necessarily highlight a unique month because each market is very independent of each other. So -- but certainly and I think that's pretty much in line with what the Portland Cement Association has seen for calendar '24 as well as you think about a national average.

Got it. Super. And if we were just to apply normal seasonality to December volumes, I think that would yield December cement shipments that are down something like 10%, 11% year-over-year. Is that where we should be thinking about the cadence based on what you're seeing so far? Just trying to understand that mix, Craig, in terms of what's push-out versus weather.

Typically, look, especially for those Northern markets, this December quarter is dependent upon when winter shows up. We've seen years where winter doesn't show up till mid-December. And then there have been other years that by Thanksgiving, Chicago and Kansas City are -- winter has hit. So it's somewhat weather-dependent. As you think about the rest of the second half of our fiscal year, we also faced some pretty unique headwinds in the -- our fourth quarter last year, especially in the Midwest. So there is some adverse weather that was faced last year, assuming we don't face that, you should have a better result this year.

Appreciate the discussion. Thank you.

And our next question comes from Adam Thalhimer from Thompson Davis. Please go ahead with your question.

Hi, good morning, guys. Just a couple of quick ones that haven't been asked. The aggregates acquisition you did, can you give a little more color on that? Should we bake anything into volumes or is that more long-term positioning?

No, it certainly contributed to the business on the aggregates side with volume. In terms of the quarter, it's a little over 100,000 tons that came from that business. Longer-term, we -- it will fit very nicely with the existing business. I think in the quarter, revenue from that business was about $1.7 million. So it didn't close until the middle of the quarter. And so we should see a better benefit as we go forward.

Great. And then the $6 million to $8 million impact from Texas and Tulsa, was that an all-in number for Q3, Craig?

Yes, just incremental relative to those two projects.

Got you. Okay. Great. Thank you.

And our next question comes from Phil Ng from Jefferies. Please go ahead with your question.

Hi, good morning, guys. It's Jesse Barone on for Phil. Just two quick ones for me. First, could you give us kind of just an update on the cost structure for both the cement and wallboard business? Specifically on the energy side, kind of what you're hedged out? And then I have a quick follow-up.

Yes. So on the cost structure within wallboard, again, for us, we're very fortunate that we either own or control our gypsum sources. So that's not a significant cost component for us and we have good surety around that. So the other large pieces are paper, which again is sourced generally internally and then natural gas. And in terms of kind of the hedge position across all of Eagle for natural gas, we're right around 50% for the year and that's of about today's levels. So feel good about where we are from that perspective. They haven't seen a lot of volatility in natural gas prices recently. On the cement side, the larger components for costs are maintenance and energy. And in the energy side of things, it's a portion of that is fuels, which as we've talked about, we generally have at least one to two-year contracts for those prices. So they're relatively stable throughout the year. And then you do have electricity costs, which are subject to market fluctuations.

Got it. Thanks. And then just last follow-up, just anything more that you can give on kind of the impact from the KC and Denver issues that you had in the quarter? Thanks.

I'm sorry, you broke up on the -- that second part of that question.

Just anything more that you can give on kind of the Denver and KC issues that you guys called out in the quarter?

Yes. So, yes, on the Denver issue, basically, what we had is we had an acquisition in that market. So this is a newer business with us. We were probably a little overweighted in one sector. So we -- when that sector went down, we had to pivot and move to other sectors. And there are more residential and some other consumers of aggregates. So we're in process of doing that now. We're setting up that business to be a little bit more diverse than the previous owners had it. In the Kansas City situation, that's pretty much resolved. And now we're just refocusing that business on the non-union work in that market and we'll be working to right-size that business and get that business back up and running with more volume here as we speak.

Thanks. I'll turn it over.

And we have an additional question from Tyler Brown from Raymond James. Please go ahead with your question.

Hi, good morning, guys.

Hi, Tyler.

Hi, Craig, just can you just talk a little bit more about the wallboard unit costs and maybe specifically about OCC? I know OCC kind of rose early in the year and it's kind of rolled back over. But can you just talk about how big paper is of that wallboard cost structure? And just any comments, is OCC a headwind right now? Or will it be a building headwind? And then maybe in a couple of quarters, it actually becomes a tailwind again or just any color there?

Yes. As I mentioned, paper is the largest component of our cost structure and it fluctuates in terms of where OCC pricing is. It's a market-based price and not too dissimilar to natural gas or something along those lines. I mean, you're right, OCC has been elevated. It's for really the first half of this year. And so we've talked about that. It does take a little bit of time to flow through into the wallboard business. I will tell you here in October, OCC prices were down. Again, the market was down. Now that benefit takes a little bit of time to also flow through the business. But yes, I would say it's relatively elevated, but it hasn't changed a whole lot over the last several months.

Okay. Okay. No, that's helpful. And then just my last one here, just any update on CapEx for '25? And I know '26 is still a ways away, but with Laramie, I mean, should we think about CapEx being north of $300 million again in '26, just maybe for a placeholder?

Yes, that's not a bad place to be. So we had previously given some guidance. It was north of $300 million for FY25. Just based on timing and flowing of payments, my guess is that number is somewhere between $280 million to $310 million for fiscal '25. Obviously, that increase from the prior year is associated with the investment we're making in Laramie for that modernization project. So a good place to start is something -- and that is a multi-year construction project that will continue through fiscal '26. And so a good place to start is a pretty similar number. We can refine that as we get down the road, but that's not a bad place to start.

Okay, cool. Thank you.

And in showing no additional questions at this time, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to Michael Haack for any closing remarks.

Thank you, Jamie. Thanks to everyone who joined us on the call today. This past quarter continued to highlight the strength of our operational execution and our ability to capitalize on opportunities for our businesses. It was great to showcase our operational initiatives on today's call and at our annual HSE Conference. Thank you again to every Eagle employee for their contribution to our success. We look forward to discussing our results again with everyone next quarter.

Ladies and gentlemen, that concludes today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.