Titan America - Earnings Call - Q1 2025

Transcript

Operator (participant)

Greetings and welcome to Titan America Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Daniel Scott, in Investor Relations. Thank you, Mr. Scott. You may begin.

Daniel Scott (Head of Investor Relations)

Thank you, Operator, and good afternoon to everyone on the line. Thank you for joining us for Titan America's Q1 2025 conference call. I am joined by Bill Zarkalis, Chief Executive Officer of Titan America, and Larry Wilt, Chief Financial Officer. Before we begin, I would like to remind you that earlier this afternoon we released Titan America's Q1 financial results, which are available on our website at ir.titanamerica.com, along with today's accompanying slide presentation. This call is being recorded, and a replay will be made available on our investor relations website. During the call, we will present both IFRS and non-IFRS financial measures. The most directly comparable IFRS measures and reconciliations for non-IFRS measures are available in today's press release and accompanying slides. Certain statements on today's call may be deemed to be forward-looking statements.

Such statements can be identified by terms such as expect, believe, intend, anticipate, and may, among others, or by the use of the future tense. You should not place undue reliance on forward-looking statements. Actual results may differ materially from those 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 issue today, as well as the risks and uncertainties described in our SEC filings. I will now like to turn the call over to Bill. Please go ahead.

Bill Zarkalis (CEO)

Thank you, Dan. Good afternoon, everyone, and thank you for joining us today for our Q1 2025 financial results call. If you turn to slide four in the presentation, I'd like to begin by highlighting our key messages for the quarter. In the Q1, we delivered solid revenue, net income, and adjusted EBITDA despite adverse weather conditions across most of our operating regions. This performance demonstrates the resilience of our business model and our ability to execute effectively under challenging market conditions. Importantly, we've seen resilient pricing across our product lines, which helped offset weather-related softness in demand in affected regions. This pricing resiliency reflects both the continued strong underlying demand fundamentals in our key markets and the strength of our market position. Notably, pricing across all our product lines was up sequentially from the Q4 of 2024.

I want to draw your attention to our strategic investments in aggregate capacity, which are driving improved volumes, up 23.6% compared to the Q1 of 2024, along with improved margins. This significant growth validates our investment strategy, which we believe positions us well to capture additional value in 2025 and beyond. Finally, I'm pleased to note that we are reaffirming our full year 2025 outlook, reflecting our confidence in the underlying demand trends and our ability to execute our strategic initiatives throughout the remainder of the year. Moving to slide five, I'd like to take a moment to touch upon the puts and takes in our markets and why we believe we are well positioned to capitalize on the underlying strengths as near-term uncertainty abates.

Apart from the inclement weather affecting available workdays in the Q1 of this year, at the moment we are faced with a number of headwinds, including macroeconomic uncertainty, deteriorating business and consumer sentiment, as well as sluggish residential end markets where recovery has been delayed by persistently high mortgage rates and low housing affordability. Offsetting those challenges, which we believe are near-term hurdles, are the robust favorable secular trends that we do not want to lose sight of. This includes strong demand for infrastructure, commercial, and industrial projects, as evidenced by accelerating investments in highway construction, water supply and treatment, modernization and expansion of airport and seaport facilities, bridges, energy assets, and health centers. At the same time, data center demand remains strong, and the significant residential undersupply continues to grow, resulting in pent-up demand and resilient pricing for our products.

At Titan America, we believe we are well positioned to continue building upon our strong market position thanks to our value-added products, solutions, and services, combined with our unparalleled logistics network. At slides six and seven, you will see a number of examples of the exciting projects across infrastructure and commercial in which we are currently participating. I'd like to highlight two of these projects in particular. The first is with Amazon Web Services, or AWS. Titan is continuing our long-standing customer relationship with AWS, supplying multiple new data center projects in Virginia. Each facility is being built with the latest low-carbon concrete technologies, including our proprietary GreenCrete products, reinforcing our leadership position in sustainable construction. The data center market remains strong, driven by persistent demand for cloud infrastructure and AI-related growth. The second project is at the state-of-the-art Inova Alexandria Hospital in Northern Virginia.

We are proud to announce the start of construction of this healthcare facility, which will serve the growing needs of the region's expanding population and marks another milestone in our commitment to critical community infrastructure. In addition to our standard suite of products, this project features advanced ultra-high-strength and heavyweight concrete mixes developed using novel technologies to meet stringent specifications set by our customer. Before I hand it over to Larry, I'd like to formally welcome Jason Morin to the Titan America family. Jason joins us as the President of our Florida business unit. He brings a wealth of experience to the position, having previously been a key member of the leadership teams of Holcim, Summit Materials, and recently as CEO of Black Mountain Sand. Jason succeeds Randy Dunlap, who is transitioning to serve as Executive Director, Growth and Strategy, and will focus on strategic growth efforts across our company.

Both Jason and Randy will serve on Titan America's executive committee. We are very excited to welcome Jason and for Randy's upcoming vital contribution in his new role. Larry will now provide a more detailed breakdown of our financial results and segment performance. Larry.

Larry Wilt (CFO)

Thank you, Bill, and good afternoon, everyone. Moving to slide eight, let me share an overview of our Q1 financial results. Revenue was $392.4 million compared to $400.1 million in the Q1 of 2024. Despite this slight year-over-year decline in revenue, we delivered solid growth in profitability with net income of $33.4 million and an increase of 13% compared to the Q1 of 2024 and earnings per share of $0.19, up from $0.17 in the prior year quarter. Notably, adjusted EBITDA increased 11.7% to $79.8 million, and our adjusted EBITDA margin expanded to 20.3% compared to 17.9% in the Q1 of 2024. This margin expansion reflects the benefit of higher aggregate volumes, a timing difference for the planned maintenance outage at our Pennsuco cement plant, and resilient pricing for our products.

As we discussed on our Q4 2024 financial results call, the Q1 of 2025 was impacted by unusually adverse weather conditions, particularly in our Mid-Atlantic region, where we experienced some of the coldest temperatures in over a decade in January and unusually wet weather in February. These conditions temporarily affected construction activity across our operations. However, as conditions gradually started to improve in March, we saw demand recover, and our project order book remained strong. Turning to slide nine, let me walk you through our Q1 volume comparisons. Our cement volumes decreased 7% year-over-year, primarily due to weather-related disruptions I mentioned, coupled with the impacts of softer demand in the residential sector. However, we saw exceptional performance in our aggregates business, with volumes increasing 23.6% compared to the Q1 of 2024. This substantial growth was primarily driven by recent investments at our Pennsuco facility.

Ready-mix concrete volumes declined by 2.2% as strength in public and private non-residential demand was offset by softness in residential. Concrete block volumes were down 11.9%, reflecting the referenced ongoing trends in residential construction activity. Our fly ash volumes improved by 15.4% compared to the prior year period. On slide 10, we're encouraged by the resilient pricing across our product portfolio, which speaks to the strength of our market position and our differentiated value proposition in a period affected by softer demand. Cement, aggregates, and block prices were essentially flat, while ready-mix concrete prices improved by 2.3%. Specific to aggregates, the reported pricing reflects changes in our product mix resulting from the introduction of new capacity. Fly ash saw a significant increase of 28.8%, reflecting favorable geographic mix.

One important note that we show at the bottom of slide 10 is a sequential improvement quarter-over-quarter in pricing across all our product lines. Turning to slide 11, let me share some highlights for our Florida segment. The Florida market was characterized in the quarter by positive momentum in infrastructure and commercial, offset by continued softness in residential. The Florida region delivered $253.2 million in revenue for the Q1, a slight increase of 0.3% compared to the Q1 of 2024. However, we experienced strong segment-adjusted EBITDA growth, increasing 25.9% to $70.8 million from $56.2 million in the prior year quarter. This segment-adjusted EBITDA growth was driven by several factors, including improved aggregate volumes enabled by strategic investments at our Miami area quarry, the timing of our Pennsuco cement plant annual maintenance outage, and improved logistics costs.

The Pennsuco outage occurred in April this year versus mainly in March last year, so the impact of the outage will be reflected in our Q2 results. On slide 12, you'll see our results for the Mid-Atlantic segment. Much like Florida, demand was stronger in the commercial and infrastructure sectors while residential recovery remained delayed. As mentioned previously, the Mid-Atlantic segment was more affected by harsh winter weather conditions, with revenue totaling $139.2 million for the Q1 compared to $147.3 million in the prior year quarter. Segment-adjusted EBITDA was $10.9 million compared to $18.2 million in the prior year quarter. Now, turning to our balance sheet and cash flows on slides 13 through 15. As of 31 March 2025, we had $143.2 million in cash and cash equivalents and total debt of $462 million.

Our net debt position was $318.7 million, representing a ratio of 0.84x trailing 12 months adjusted EBITDA, down significantly from 1.21x at the end of 2024. This improvement in our leverage ratio reflects both the proceeds from our successful IPO in February and our improvement in adjusted EBITDA performance. For the quarter, cash flows provided by operations were $35.2 million, and net capital expenditures were $32.5 million, resulting in free cash flow of $2.7 million. Our capital expenditures for the quarter were mainly focused on our ongoing strategic initiatives to expand our capacity and improve our operational efficiencies across our network. Turning to slide 16, I'd like to remind everyone of our balanced approach to capital allocation. Importantly, our balance sheet is strong, providing us with significant financial flexibility to pursue growth opportunities that align with our long-term vision.

As a reminder, we remain focused on three key priorities. First, investing in organic growth opportunities, including capacity expansions and greenfield projects that enhance our market-leading positions. Second, pursuing strategic M&A opportunities that build upon and expand our existing positions or provide access to adjacent value chain opportunities, all while maintaining a healthy leverage profile. Third, providing returns to shareholders through our regular quarterly dividend. Subject to the approval of shareholders at tomorrow's annual general meeting, our board of directors has recommended a $0.04 per share distribution for Q1 and Q2 2025, a total of $0.08 per share. With that, I'll turn the call back to Bill for his closing remarks.

Bill Zarkalis (CEO)

Thank you, Larry. Before we move to the Q&A portion of our call, on slide 17, we are reaffirming our full year 2025 guidance of mid-single-digit revenue growth, with modest improvement in adjusted EBITDA margins compared to full year 2024, all assuming no severe economic downturn. While our Q1 was impacted by weather-related challenges, we believe that the underlying demand trends remain robust, and we expect pent-up demand to have a positive impact in the H2 of the year on both volumes and pricing. In closing, I want to thank everyone for joining us today for our Q1 financial results call. We are pleased with our solid start to 2025, particularly our ability to deliver improved profitability on top of challenging weather and macroeconomic conditions.

The strategic investments we made in our operations, particularly in aggregate capacity and logistics, are already yielding results, and we remain well-positioned to capitalize on the strong underlying demand trends in our markets. Looking ahead, we remain focused on executing our strategic initiatives to drive top-line growth, margin expansion, and strong returns on invested capital. We are confident in our ability to create substantial value for our shareholders in 2025 and beyond. With that, I'll turn the call over to the operator for the Q&A session. Operator.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from the line of Anthony Pettinari, Citigroup. Please go ahead.

Anthony Pettinari (Managing Director and Research Analyst)

Good evening. Bill, could you talk a little bit about quarter-to-date trends, April, May? I guess specifically, I'm curious if you saw an impact following the Liberation Day tariff announcements in terms of your order book? Did you see any pullback or disruption? How do you characterize trends quarter-to-date?

Bill Zarkalis (CEO)

Thanks, Tony. First, let me say that with weather improving in March, we saw the demand momentum picking up, and this continued into April. As far as impacts from tariffs, we did not see any specific impact. Keep in mind that the announcement about tariffs essentially came in early April, only to be rescinded practically on 9 April 2025, moving into the blanket and also allowing for a period of four months, if I am not mistaken, into July. The answer is no. We have not seen any specific impact from the tariffs announcement.

Anthony Pettinari (Managing Director and Research Analyst)

Got it. Got it. With the deferred maintenance at Pennsuco, is there an impact to margins in Q2? Is it possible to just kind of quantify if so?

Larry Wilt (CFO)

Yeah. Tony. Its Larry, good to hear you. The impact, as I described in the discussion, the prepared comments, last year's shutdown spanned a little bit of Q2 as well as Q1. The net impact we think will be roughly $8 million in that range to impact year-over-year.

Anthony Pettinari (Managing Director and Research Analyst)

Got it. Got it. That's very helpful. I'll turn it over.

Bill Zarkalis (CEO)

Thank you, Tony.

Operator (participant)

Thank you. Next question comes from the line of Jerry Revich with Goldman Sachs. Please go ahead.

Jerry Revich (Analyst)

Yes, hi. Good afternoon and good evening. Can I ask in terms of the—hey, Bill—in terms of the tariff timing and implementation, the 10% version of the tariffs, we're hearing there's a seaborne exemption that will essentially mean no tariffs until 27 May 2025. Is that consistent with what you're expecting? Can you just spend a minute, Bill, just talking about if tariffs are implemented at that date, just the flexibility that you folks have, and how do you feel your position in that environment if we do move in that direction?

Larry Wilt (CFO)

Yep. Sorry, it's Larry here, Jerry. I think on the tariffs front, Bill mentioned the general tariff of 10%. This applies to the product of cement for products that left the port headed to the US after April the 9th. We haven't seen any financial impact per se so far, but it'll come later in the H2, provided that the tariffs stay at the level where they currently are. At this point, it's capitalized in the inventory, if you will, through this part of April. That comes at a later point.

Jerry Revich (Analyst)

Larry, sorry, just to clarify what we're hearing from other companies is as long as product arrives by 27 May 2025, there's no tariff impact. That gives you—that would give you, if that applies to your business, a longer window before you start accruing tariffs. Can I just get a clarification? Is that what you're seeing as well, or is your product category different?

Bill Zarkalis (CEO)

Exactly, Jerry. This is Bill. This is what we see. Everybody's in a wait-and-see mode because essentially things are going to become clearer after mid-July. This is where we are right now. So far, no impact, a wait-and-see mode. In the meantime, as we discussed last time, and I'm sure you remember, we're taking all the necessary steps to prepare for any kind of scenario. As we discussed, we have flexibility, we have options, and we prepare for any kind of scenario after July.

Jerry Revich (Analyst)

Good. Nice to see the aggregate volume ramp in Florida with the investments that you folks have made. The 26% tailwind that we saw in the quarter to volumes, is that the way we should be thinking about it in coming quarters? Did you get a full quarter of impact? What's the benefit in terms of unit profitability to you folks at the higher volumes, presumably, that's coming at accretive margins? Maybe, Larry, I could trouble you to expand on that, please.

Larry Wilt (CFO)

Yeah. Jerry, we don't break out margins by product line. We operate this vertically integrated model that we've shared so much about. It has a positive impact for sure relative to the average margins that we would have. Whether it's a full quarter that comes in, we don't say at this point exactly what the volumes will be across that same category next quarter. You have heard about the investments we've made and the capabilities that are there. You saw it in the Q4, some impact. The Q2, we expect positive contribution as well.

Jerry Revich (Analyst)

Thank you.

Bill Zarkalis (CEO)

Thank you, Jerry.

Operator (participant)

Thank you. Next question comes from the line of Philip Ng with Jefferies. Please go ahead.

Philip Ng (Analyst)

Hey, guys. Congrats on a strong quarter despite all this wet weather.

Bill Zarkalis (CEO)

Hi, Philip.

Philip Ng (Analyst)

Bill, can you give us an update on pricing? Really good to see the resiliency on pricing. I think last quarter, you guys were talking about a January $9 cement price increase in Florida and $8 in Mid-Atlantic for April. Any color on where that's kind of landing on the cement side, the traction? It was encouraging to see ready-mix prices go up sequentially. Any more color on how we should think about ready-mix prices?

Bill Zarkalis (CEO)

Yes, Philip. I mean, obviously, you saw the quarter-on-quarter from Q4 to Q1 improving price. Also, Larry mentioned clearly that although, albeit, aggregates appear to be at practically flat price, this is an issue of the new product mix we have with different products as we increase capacity at Pennsuco. Overall, what we saw, as you recall, our price increases in the Mid-Atlantic will take effect in the Q2. In relation to Florida, however, with the impact of the weather, as we discussed in the previous call, we had unusual precipitation in what is usually a dry season, which affected demand in Florida in January and in February. That, in conjunction and in combination with the softness and the delay in the recovery of the residential sector, meant that pricing in Florida remained soft, flat essentially in Q1.

However, the pricing power and the resiliency of our pricing is there, driven essentially by the favorable supply-demand balance, also by the fact that there is increasing demand both from infrastructure but also from private, non-residential, in commercial projects, in data centers, in health centers, in water supply and water treatment, in power and electricity and utilities overall. This is going to help us continue increasing our prices in the months to come.

Philip Ng (Analyst)

Okay. So we should assume you get some traction in Q2, or is it more of a back-half event for Florida?

Bill Zarkalis (CEO)

You're going to see some traction in the quarters to come.

Philip Ng (Analyst)

Okay. Super. A question for Larry. I appreciate EBITDA improvement is going to be more back-half weighted and just certainly very encouraging when Q2 was up. Given some of the timing of the maintenance with Pennsuco spilling over Q2, do you have the ability to grow EBITDA on a yearly basis in Q2, or actually, it's going to be down a little bit this year?

Larry Wilt (CFO)

Look, I think we'll report Q2 when Q2 comes. The headwind is $8 million, as I described before.

Philip Ng (Analyst)

Okay. Just one simple housekeeping question. If I look at your Mid-Atlantic results, your decremental were like 90%, give or take, if I did my math correctly. What's driving the outsized decremental in one Q for Mid-Atlantic? I know weather was an issue, but it still seems pretty outsized. Should we assume that decremental profile for Mid-Atlantic normalizes in the coming quarters?

Larry Wilt (CFO)

It'll become more normal. I think that would be our expectation. Certainly, the Q1 was difficult because of the weather impact primarily.

Bill Zarkalis (CEO)

Philip, usually in the Mid-Atlantic, the Q1 is a very small quarter. It is very sensitive to phenomena like the weather. I mean, we lost more than 1/3 of the working days due to the weather in the Mid-Atlantic in the Q1. In a small quarter like this, losing 30%+ working days had an impact. You cannot drive conclusions about the rest of the year from that.

Philip Ng (Analyst)

Okay. Thank you, guys. Really appreciate it.

Bill Zarkalis (CEO)

Thanks, Philip. All the best.

Operator (participant)

Thank you. Next question comes from the line of Chad Dillard with Bernstein. Please go ahead.

Chad Dillard (Senior Analyst)

Hi. Good evening, guys. You talked about mid-single-digit revenue growth for the balance of the year. How does that break down between price versus volume as we think about the H2? Can you confirm whether you have embedded any costs from tariffs into your guide?

Larry Wilt (CFO)

Yep. Look, on the first part of the question, we choose not to break down at this point what percentage comes from volume and what percentage would come from price, Chad. We are confident and comfortable with the forecast we provide of this low—sorry, mid-single-digit range of price increase. That's where we are on that one. The tariff, if you think about the tariffs, you can put them into a couple of buckets, Chad: primary, secondary, and tertiary. Right? If you think about primary tariffs, these are going to be things on the direct imports that we carry at tariff at that 10% rate. This would be something in the order of $8 million, we think, for the balance of the year. Yes, that would be in our forecast if we were to see that.

Chad Dillard (Senior Analyst)

Okay. That's super helpful. Just a question on aggregates. It seems like there's some sustainable strength there. Can you talk about how to think about that as we go through the balance of the year and as we look forward, as you're adding more capacity? How do you think about the mix of that business relative to the rest and just the potential upside from just better margins in that product?

Larry Wilt (CFO)

Certainly, better margins. I mean, if you put it in order, as we've said before, cement aggregates would be at the top of that block. It doesn't fall far behind. Obviously, ready-mix would be the fourth of those in terms of margin profile, as we've said before. In terms of percentages, the aggregate business has two contributions. The more we produce, the more we can consume internally. This helps our business overall. We also have some excess product then to sell. That sells into the open market, come in demand areas that are high in that geography and infrastructure and commercial projects where we can better participate. Strong performance there. It is a relatively smaller part of our business presently, as you know.

Chad Dillard (Senior Analyst)

Thank you.

Bill Zarkalis (CEO)

Thank you, Chad.

Operator (participant)

Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Brian Brophy with Stifel. Please go ahead.

Brian Brophy (Vice President and Analyst)

Thanks. Good evening, everybody. Bill, you talked about adoption of green energy, excuse me, green cement products from some of your tech customers and your comments. Can you talk about what you're seeing from an adoption standpoint from customers outside of tech and how we should be thinking about adoption from those customers over time? Thanks.

Bill Zarkalis (CEO)

We have said in the past, Brian, that adoption in the States is at a lower rate as compared to what we see, for example, in Europe, where it's driven mainly by the cost of carbon emissions. Here in the States, we see mainly adoption and pull from major customers like Microsoft and Amazon and companies overall who have a clear blueprint for net-zero emissions by 2050. This is the main pull come from customers like this. In major projects like we see in warehouses, in data centers, in health centers, in elements like this. Overall, we're happy with the demand that we see. As we have discussed, we are the first company in our country that went into 100% limestone cement, also with a 14.7% substitution. A major contribution in meeting the needs of our customers for high-performance and ultra-high-performance products with low carbon profile.

We continue now to develop new products like blended cements, 1T, with a reduced carbon profile of about 40%. This is the products we move to meet the needs of these customers that require ultra-high performance with low carbon profile. We are happy about what we see in terms of the rate of adoption. We intend to continue accelerating in these segments.

Brian Brophy (Vice President and Analyst)

Thanks. That's really helpful. Just one on CapEx. It looks like it was trending quite a bit below where we were thinking, at least in the Q1. Just kind of curious your latest thoughts on CapEx for the rest of the year. Thanks.

Larry Wilt (CFO)

Yep. You're right to observe that it was down perhaps some expectations, but it's still a strong CapEx profile that enables us to meet our growth targets. We expect it to grow as the year goes on. We just had some delays in the start of some of those capital projects that you would see. We'll give some updates as we go along quarter-by-quarter.

Brian Brophy (Vice President and Analyst)

Okay. Thanks. I'll pass it on.

Operator (participant)

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the floor over to Bill Zarkalis for closing comments.

Bill Zarkalis (CEO)

Thank you, Operator. Thank you all for your time today. We appreciate your interest in Titan America, and we look forward to updating you on our progress on our Q2 call. Enjoy the rest of your day. Thank you so much.

Operator (participant)

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