Good morning, ladies and gentlemen, and welcome to Martin Marietta's First Quarter 2021 Earnings Conference Call. All participants are now on a listen-mode. A question and answer session will follow the company’s prepared remarks. As a reminder, today's call is being recorded and will be available for replay on the company's website.

I will now turn the call over to your host, Ms. Suzanne Osberg, Martin Marietta's Vice President of Investor Relations. Suzanne, you may begin..

Good morning and thank you for joining Martin Marietta's first quarter 2021 earnings call. With me today are Ward Nye, Chairman and Chief Executive Officer; and Jim Nickolas, Senior Vice President and Chief Financial Officer. As a reminder, today's discussion may include forward-looking statements.

As defined by United States Securities Laws in connection with future events, future operating results or financial performance. Like other businesses, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially.

Except as legally required, we undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future developments or otherwise.

Please refer to the legal disclaimers contained in today's earnings release and other filings with the Securities and Exchange Commission, which are available on both our own and the SEC websites.

We've made available during this webcast and on the Investor Relations section of our website, Q1 2021 supplemental information that summarizes our financial results and trends. In addition, any non-GAAP measures disclosed today are defined and reconciled to the most directly comparable GAAP measure in our earnings release and SEC filings.

Ward Nye will begin today's earnings call with a discussion of our first quarter operating performance and market trends as well as our recently completed acquisition of Tillar Corporation. Jim Nickolas will then review our financial results after which Ward will provide some brief concluding remarks. A question-and-answer session will follow.

I'll now turn the call over to Ward..

Thank you, Suzanne. And thank you all for joining today's teleconference. As evidenced by our first quarter results and successful targeted growth initiatives, it's clear that Martin Marietta is off to an impressive start in 2021.

Thanks to the company's differentiated business model and proven strategic operating analysis and review plan, what we refer to as SOAR, we remain well positioned for continued success. As we look to the remainder of 2021 and beyond, we expect to build on a track record of strong financial, operational, integrated and safety performance.

Supported by our team's steadfast commitment to safe and efficient operations, price discipline and operational excellence, we established first quarter records for revenues, profits and safety. Both building materials and magnesia specialties benefited from strengthening product demand.

Specifically, consolidated products and services revenues increased 3% to $922 million, consolidated gross profit increased 23% to $175 million. Adjusted EBITDA increased of 37% to $204 million and diluted earnings per share grew over 2.5 times to $1.04.

We also achieved the best first quarter safety performance in Martin Marietta's history with company-wide lost time and total injury incident rates exceeding or trending at world class levels. At the same time, we are thoughtfully executing on our SOAR growth priorities to enhance our geographic footprint and grow our business.

As announced in this morning's release, we successfully completed the acquisition of Tiller Corporation the leading aggregates and hot mix asphalt supplier in the Minneapolis St. Paul region and welcomed more than 200 talented employees to the Martin Marietta team.

Tiller provides an upstream materials platform in one of the largest and fastest-growing metropolitan areas in the Midwest and expands and complements the product offerings of our existing operations in surrounding markets.

Tillers cultural fit, attracted margins and value over volume operating philosophy directly aligned with our central division operations. We expect a seamless and successful integration. Now let's turn to the company's first quarter operating performance.

The Building Materials business saw strengthening product demand from single-family housing growth, infrastructure investment and notable heavy industrial projects of scale in our key geographies.

Our aggregates, Cement and ready mixed concrete business in Texas, our largest revenue-generating state experienced temporary disruptions from February's historic winter ice storm and sub freezing temperatures.

Additionally, our aggregates and downstream operations in Colorado, our second largest state by revenues, faced a challenging comparison as our results in the same period last year, benefited from unseasonably favorable weather conditions in the Rocky mountains.

Overall, aggregate shipments declined 3%, in line with our expectations, given return to typical first quarter seasonality factors and the largely non-COVID-19 impacted prior year quarter.

Notably, East Group aggregate shipments increased as the Carolinas, Georgia, Florida and Maryland, benefited from strong residential and heavy industrial nonresidential activity. This growth offset lower shipments in the Midwest from more seasonal construction activity and reduced wind energy projects.

While underlying product demand remains robust, unfavorable winter weather conditions in both Texas and Colorado and a softer energy sector market resulted in an 8% decline in West group shipments. Aggregates average selling price increased 3.4% or 2.5% on a mix adjusted basis.

These pricing gains supported by our locally driven pricing strategy, highlight contractor confidence and underlying construction activity in the attractive markets that we serve.

East Group pricing increased 4% with both East and Central divisions contributing solid growth geographic mix from a lower percentage of higher-priced long-haul shipments limited to West Group's pricing gain to 2%.

Our cement business delivered strong first quarter operating performance and shipment growth despite the disruptions from February's historic high storm, I'm extremely grateful to our teams, their actions to proactively winterize and take our plants offline, allowed us to quickly return to normal production capacity post storm.

To that effect, our cement operations established an all-time record from monthly shipments in March, demonstrating the robust demand and construction activity throughout the Texas triangle. Mix adjusted pricing grew 2% during the quarter. Annual cement prices went into effect April 1 and have garnered widespread support in both North and South Texas.

We expect our Cement business will continue to benefit from favorable market trends supported by continued market type as in Texas and diversified customer backlogs. Turning to our targeted downstream businesses. Our ready-mix concrete operations established a first quarter record for shipments, which increased nearly 27% to 2 million cubic yards.

Large nonresidential projects and incremental volume from operations acquired late last year contributed to double-digit shipment growth in Texas, which more than offset weather-related shipment declines in Colorado. Concrete pricing declined 2%, reflecting geographic mix from a higher percentage of lower-priced Texas shipments.

Our Colorado asphalt and paving business lost production days from a return to more typical winter weather conditions versus the prior year period, resulting in reduced asphalt shipments. As well pricing, however, improved 8%. Colorado market fundamentals remained strong, supported by healthy bidding activity and overall customer optimism.

Looking ahead, we remain confident that Martin Marietta's attractive market fundamentals and accelerating long-term secular trends across our three primary end-use markets will drive sustainable construction led, aggregates intensive growth for the foreseeable future.

We are encouraged by the recent initial gold steps to advance much needed infrastructure investment and a general consensus for success or legislation to the fixing America's surface transportation, or Fast Act in the coming months.

With both congressional chambers working on their own reauthorization proposals, we're optimistic that a Fast Act replacement and increased funding levels will be passed before its expiration in September generating meaningful shipment benefits in 2022 and beyond. In the meantime, state and local infrastructure funding remains resilient.

Estimated fiscal 2021 lettings for our top five state departments of transportations or DOT’s, are currently above or near prior year levels.

Keep in mind, our top five states, Texas, Colorado, North Carolina, Georgia and Florida, are disproportionately important to our business, representing 71% of total revenues for our 2020 building materials business.

For reference, aggregate shipments to the infrastructure market accounted for 30% of first quarter shipments, well below our 10-year historical average of 43%.

The nonresidential construction continues to benefit from increased investment in aggregates intensive heavy industrial warehouses and data centers, broadly offsetting weakness in the more COVID-19 impacted like commercial and retail sectors.

Light nonresidential activity should benefit from the attractive drag along effects of strong single-family residential growth in the longer term, in some regions, we're now seeing early signs of that recovery. Aggregates shipments to the nonresidential market accounted for 37% of first quarter shipments.

Martin Marietta's leading southeastern and southwestern footprint positions our company to benefit from single-family housing growth given underbuilt conditions, favorable population and employment dynamics, land availability, mild climates and lower cost of living in these regions.

Importantly, single-family housing is 2 times to 3 times where aggregates intensive than multifamily construction given the ancillary nonresidential and infrastructure needs to build out new suburban communities. Aggregates to the residential market accounted for 27% of first quarter shipments.

I'll now turn the call over to Jim to discuss more specifically our first quarter financial results.

Jim?.

Thank you, Ward, and good morning to everyone. We achieved the highest first quarter adjusted EBITDA margin in Martin Marietta's history. Surpassing the previous record set in the first quarter of 2007. The Building Materials business established first quarter records for revenues and profitability.

Products and services revenues increased 3% and to $857 million, while gross profit increased 25% to $148 million. We continue to drive sustainable and best-in-class aggregates unit profitability growth through the combination of price discipline and operational excellence.

For the quarter, aggregates gross profit per ton shipped improved 34% to $3.28 and product gross margin expanded 490 basis points to 21.3% despite lower shipment volumes. In addition to pricing gains, lower contract services and internal freight costs contributed to these improvements. Our cement operations benefited from a 3% top line improvement.

However, extended kiln downtime, reduced production levels and nearly $7 million of incremental energy and other costs all directly due to February's Texas deep freeze, led to a 1,160 basis point degradation in product gross margins.

While these weather disruptions were headwinds to our first quarter results, our cement business is well positioned to benefit from growing demand and tight supply and remains on track to achieve its full year guidance.

Ready mixed concrete product gross margin improved 520 basis points to 8.3%, driven by double-digit shipment growth and lower delivery and raw material costs. Magnesia specialties continued to benefit from improving domestic steel production and global demand for magnesia chemical products, generating product revenues of $65 million, a 9% increase.

Higher shipment and production levels, combined with ongoing cost management, resulted in product gross margins of 43.5% and which matched the first quarter record established in the prior year. Now a look at our cash generation and capital allocation. The first quarter was a record for cash generation.

Operating cash flows of $192 million increased 80%, driven by earnings growth and a reduction in working capital. We continue to balance our disciplined capital allocation priorities to responsibly grow our business, while maintaining a healthy balance sheet and financial flexibility.

Our priorities remain focused on value enhancing acquisitions, prudent organic capital investment and the consistent return of capital to shareholders. All while maintaining our investment-grade credit rating profile.

We continue to prioritize high-returning capital projects, focused on growing sales and increasing efficiency to drive margin expansion. Full year capital expenditures are expected to range from $425 million to $475 million.

Additionally, since our repurchase authorization announcement in February 2015, we have returned nearly $1.9 billion to shareholders through a combination of meaningful and sustainable dividends as well as share repurchases. Our first quarter earnings and cash generation were both records.

As a result, our debt-to-EBITDA ratio stood at 1.8 times as of March 31, slightly below our target leverage range of 2 times to 2.5 times. As Ward highlighted, our disciplined execution of SOAR 2025 is underway. Last week, we completed the Tiller acquisition.

We expect this acquisition to be immediately accretive to earnings and cash flow and contribute $170 million of revenues and $60 million of adjusted EBITDA in the remaining 8 months of 2021. We financed the transaction using a combination of cash on our balance sheet and drawing an accounts receivable credit facility.

Our full year 2021 guidance remains unchanged from the guidance provided in February and excludes the expected contribution of the Tiller acquisition. That said, we will revisit our 2021 guidance when we report our half year results. With that, I will turn the call back over to Ward..

Thanks, Jim. To conclude, we are extremely proud of our record first quarter results and industry-leading safety performance. Martin Marietta is well positioned to capitalize on emerging growth trends that are expected to support sustainable construction activity both in the near and long term.

As we SOAR to a sustainable future, we will continue to build on the foundation that has proven so successful, an aggregates led growth platform, an unwavering commitment to disciplined pricing, operational excellence and safety and solid execution of our proven strategy.

We're confident in Martin Marietta's outlook for the balance of 2021 and our ability to continue delivering sustainable growth and superior shareholder value creation in 2021 and beyond. If the operator will now provide the required instructions, we will turn our attention to addressing your questions..

[Operator Instructions] Our first question comes from the line of Kathryn Thompson of Thompson Research Group. Your question please..

Also, as you said in an earlier call today, this is TRG's 12 anniversary and Ward, if I recall, correctly, you guys would the very first moment marketing with and also the last before going into a global shutdown, but thank you over the years for your support..

I thank you and congratulations on team that you built at TRG..

So the question today is around guidance.

If you could just clarify and delineate the heritage guidance versus the additive that you outlined in today's release with Tillar help us understand why it wasn't raised and also leading into that, helping us better understand the current situation with cement in Texas given the shortages and how that also plays into your heritage guidance?.

Kathryn, again, congratulations to you and your team. I guess, a couple of things. One, the guidance that we've reaffirmed this morning is simply our heritage guidance.

So again, we've given you revenue and EBITDA numbers for Tiller which you would need to go and add, obviously, to the heritage guidance to get what the effective guidance would be today. So that math is there. It's very easy to do. And the other thing that we've not done is changed guidance for the year here based on Q1.

So remember, we're in an outdoor sport, and this has been January, February and March, and our view was changing it after those three months feels a bit premature to us. And again, I think we came out with guidance at the beginning of the year that was modestly ahead of where others have come out as well.

So I think we have seen some degrees of guidance change today. But I think in many respects, it's been an effort to more balance where we were when we came out at the beginning of the year. So that's where we are relative to heritage guidance, please to add to that, what we've given you with respect to Tiller.

As Jim said in his prepared remarks, we will come back at half year and revisit guidance. One of the things, obviously, I think we'll be revisiting will be what is happening with cement. As you know, Katherine, that's the second part of your question. We only have cement in Texas. And I'll draw several things to your attention.

Number one, if we're looking at our backlogs in cement, the backlog in cement year-over-year are actually up pretty considerably. We're seeing cement tons up 24%. So number one, that's a nice takeaway.

Number two, the results that we turned in for the first quarter were despite the fact that, that business was effectively shut down for 11 days in February when Texas up with some unseasonably cold weather. We incurred about $7 million of expenses in semi business tied directly to energy and other pure production costs.

We also had some inefficiencies that came from that. That ended up giving us effectively nearly a $14 million headwind, simply driven by that 11-day period. The other thing that I'll point out is, obviously, we do have a price increase that went into effect on April 1 that's at $8 a ton in that marketplace.

The other thing that we have done, recognizing that it's going to be tight in Texas this year on cement. We have put out a letter in the marketplace, and we've let our customers know that we're anticipating another $8 a ton price increase in September.

So again, as we come back and give you some very specific answers to your question on cement and then ticking and tying that back to the guidance question. These are all a number of the variables that we will take into account as we revisit guidance at half year..

Our next question comes from Trey Grooms with Stephens. Your line is open..

So Ward, during your recent Analyst Day, M&A was a major theme, and it's encouraging to see you announce an accretive acquisition this morning. So first off, can you talk about the deal rationale there? How growing your presence in the Minneapolis St.

Paul market plays into your footprint strategically? And any color about the outlook and the health of that market there?.

I'll happy to. You led off with the right thing about is, look, we see this. It's accretive to cash and earnings in year 1. That's a nice place to start when we're thinking Tiller. If we think about to the SOAR process, keep in mind, we've long said that we have a leading position in 90% of our markets.

Would that lead you to conclude that in 10% of the markets were not 1 or 2 this was 1 of the 10% of the markets. So again, we like the Minneapolis, St. Paul Marketplace. We wanted to be a leader in that marketplace. Through our SOAR process, we had identified Minneapolis, St. Paul as an MSA in which we wanted to grow.

We had identified Tiller specifically as a target that we wanted to see if we could bring into Martin Marietta. And there are several reasons for that. Number one, if we look at Minneapolis, St. Paul, it's the 12th largest MSA in terms of aggregate consumption in the United States.

So one of the things that got my attention was when I saw that they're actually more aggregates consumed in Minneapolis, St. Paul, than there are in Charlotte, which was not something that I think is intuitive to a lot of people.

The other thing that's worth noting is Minnesota maintains the nation's fifth largest highway system, and they've got a budget of about $3.8 billion, and about 90% of that goes to highways purchasing roads. So we like the way that they invest in that place. The other thing that I would say is this is a leading upstream business. It's aggregates led.

It does have hot mix, but I want to be really clear here, Trey. It's not a laid out business. They're producing Blacktop that's basically being sold to contractors. So historically, Tiller has operated through a couple of subsidiaries, Barton Sanda Gravel, and that's literally their Sandy Gravel business and then a business called Commercial Asphalt.

So those two businesses really comprise what they have. It's about 15-plus sites in the twin cities area. They've got a 30-year average pot life at their different locations. And again, they have an EBITDA there that learns very, very nicely with what we have in the central division.

So back to SOAR, back to leading positions and in markets that we feel like are going to be attractive near-term and long term, that's what Tiller brings this organization. The other thing that I would say is, philosophically, the organizations are extraordinarily well aligned.

And as I indicated in my prepared remarks, we closed on that Friday, and we were absolutely thrilled to bring several hundred people from Tiller into the Martin Marietta organization track..

Our next question comes from Phil Ng of Jefferies. Your question please..

Congrats on a really strong quarter despite some challenging weather to start the year. I guess based on some back of envelope math, it looks like the full year aggregate guidance would imply some margin degradation, call it 30 basis points to 110 basis points on a year-over-year basis.

Can you expand on that? I don't know if we're simply over extrapolating 1Q and you guys are not changing your full years because it's just too early. But any color in terms of margins the rest of the year for aggregates would be really helpful..

Look, Phil, I would say it's really more the latter than the former. And that is -- don't be too linear just looking at what's out there. What I would say is we're not updating guidance right now simply because it's Q1. Obviously, we're very excited about what we saw in Q1.

We're really excited about the fact that places like North Carolina VOT are back. The other thing that we're seeing in Q1 that I think we'll continue to see through the year as price fell through very, very nicely. You saw that. The other thing that I think we know we saw in Q1 was very good cost performance.

I anticipate that we will continue to see good cost performance throughout the year. I think that's where you can have some degrees of give and take. The fact was diesel is likely to become an increasing headwind as we go through the year. Frankly, in Q1, it wasn't much of a headwind.

It wasn't much of a tailwind either, but if we look at some of the cost buckets in which we saw a nice outperformance year-over-year, freight, moving material from a producing location to a yard was actually nicely better year-over-year. Now if we see more sales going out of sales yards as the year goes on, obviously, that freight number would move.

So with revenue, a number of things have moved with that. What I'll tell you as well as contract services were down. In other words, there were some stripping and other components that were down. Repairs were down, and we think those are likely the types of things that we will be able to hold on to. And I think that's evidence of good capital spend.

Equally, we saw lower personnel costs. If you recall, last year, we did do some restructuring that was not necessarily COVID related, the timing of it just worked out very, very nicely. So what I would encourage you not to do is, again, take the guidance that we've not changed and then just assume everything continues in a linear fashion.

Again, that's why we want to come back at half year and address it. But again, I like the pricing dynamics that we're seeing in both aggregates and in cement. I think our teams have done an extraordinary job relative to costs. Again, if you're looking at gross profit per ton in the quarter, and you saw that going up at 34.5%.

And if you're looking cash gross profit per ton to growth, I mean, we were almost 23% on that from what I can tell that looks like best-in-class types of metrics. So again, we're -- we feel very good about where we sit right now. And to be clear, we feel good about the balance of the year..

Okay. Super helpful. It sounds like, all the good work you’ll doing on the cost front and the pricing is taking that’s really encouraging..

Our next question comes from Stanley Elliott of Stifel. Please go ahead..

You mentioned the strong Q1.

Any commentary you'd want to share with us around how April trended relative to expectations? And then along those lines, kind of commentary for pricing overall?.

I'll address more pricing than I will, April last year, Stan, as you recall, we actually did talk a little bit about the quarters ahead, and we were being encouraged to do that by the SEC and others because it was such an extraordinary period of time. And as you know, our view typically is to live very tightly within the quarters.

And we were doing that in large part because people were removing guidance last year. So I won't go into April, per se. I will say, clearly, there was nice momentum coming into Q1. Relative to pricing, but I would say is there are no surprises.

On the aggregates piece of it, it's working exactly the way that we would have anticipated and the way that we planned. You saw the breakdown between reported and mix adjusted, as we talked about the quarter, again, reported up 3.4%, mix adjusted at 2.5%. Again, that's very much within the guide that we've given.

I do think it's possible this year that you might see some aggregate tightness in certain markets on certain sizes. It's hard to tell at this moment, but I certainly think that, that's possible. If we see some of that, I think we could see some very discrete price changes maybe on a size basis later in the year. All of that's relative to aggregates.

If we're speaking of cement, it's obviously a different circumstance. So keep in mind, this is not a nationwide cement business. This is a Texas Cement business. Cement is tight in Texas. We feel very good about the $8 increase that we put into effect on April 1. We expect all of that, for example, the stick in the North Texas market.

We think most of that is going to stick in the central market as well.

And again, as I think I indicated before, our intention -- stated intention, published intention by letters to our customers is another $8 a ton price increase on September 1 and to give you a sense of it, that's going to be the first midyear that we believe that market is going to see since 2014.

So I think that gives you a good sense of at least the degree of confidence that we have in pricing in that market standing. .

Our next question comes from Timna Tanners of Bank of America. Your line is open..

I wanted to ask a little bit more about costs, if I could. Obviously, diesel is the most transparent, but you've seen huge increases in materials such as steel that I know you use a lot of we're hearing tightness in labor and transportation and other.

So if you could address some of those challenges and any offsets that we could think about going forward, that would be great..

No, Timna, I appreciate the question. If we go through our business, we're not seeing significant hits from inflation as we look at it again. So if we think about the buckets that will be cost for us, our single biggest bucket is going to be personnel.

I mean the biggest thing that we're going to be able to flex there is what overtime hours look like in some markets because we largely have the teams in place that we need to put the material on the ground.

The other thing that on some occasions, can be a bit of a challenge in some circumstances be freight, as we indicated in the first quarter, freight was actually down because we're seeing less moved by rail. I mean, if that goes up later in the year, what I would suggest to you is that's probably going to be a relatively high-class problem.

So we're certainly not concerned about that. Again, we've got a good set of vendors. We have a good supply chain in place. Most of our supply chain is domestic. We think that very much cuts in our favor. So again, as we're looking at our overall cost profile, Timna so I'm very happy to report to you.

We don't see anything on the cost profile that we feel like is going to be anything in a particular moment. I'll turn it to Jim to see if he has anything he'd like to add to that..

Yes. No, the steel prices as a commodity market matter, obviously, are very elevated. We're not seeing it. We actually did a prebuy of mobile equipment from caterpillar earlier in the year. So we think we got ahead of any price increases that are coming our way.

And to the extent that steel prices are inflating, plant, equipment, et cetera, we'll probably see that next year, but we're not seeing it yet this year..

Our next question comes from Anthony Pettinari of Citi. Your line is open..

You pointed to lower contract services in the quarter as a driver of improved gross margin.

And I'm just wondering if you can provide any more detail on what drove that and how we should expect contract services maybe to come back or trend in 2Q or the remainder of the year?.

What I think the primary thing, overall contract services was, it was really cost aided by lower repairs, lower contract services by the rating in particular. So it's largely stripping costs, and we did not have as much stripping that we needed to do year-over-year.

So it largely gets those two things, but it repairs, M&R and grading would be the two that I would highlight for you..

Our next question comes from Jerry Revich of Goldman Sachs. Your question please..

Ward, can you talk about the M&A pipeline from here? Obviously, you outlined a broad range of geographic targets at the Analyst Day.

How are you -- how optimistic are you on potential additional capital deployment opportunities over the next couple of quarters? And if you could, can you just comment on if you're seeing people wanting to close quicker as a result of concerns about potentially higher capital gains taxes next year..

I guess several things. One, look, Tiller, if we were talking about Tiller 10 years ago, we would actually beginning a lot of details on Tiller because it would have been material to this company 10 years ago. It's not material today.

So Tiller, a very nice acquisition, but having done Tiller number one, it's important to state that, that doesn't do anything to draw down our firepower for the rest of the year. So let's start with that notion. So we've done one. It's completely consistent with SOAR, and we like it very much.

Number two, the pipeline of deals that we're looking at is a pretty robust pipeline right now. And I will share with you some of them are larger than tiller. Some of them are smaller than to so it's impossible to know exactly how any of those will go. I think our team has consistently had a very disciplined approach to M&A.

That's what you will continue to see us do. I do think we were very clear in outlining areas in which we wanted to grow during Analyst and Investor Day and making sure that we went to those markets where we did not have a leading position and seeing if we could find a way to a leading position in those markets what's important.

And again, that's completely consistent with what we did in Tiller. With respect to timing, I'm not necessarily seeing people wanting to get things closed necessarily faster. I think most of them are more focused on either generational changes within a company or they're focused with a different strategy that they may be looking toward.

Everybody is focused, as you would imagine, that's our week on value. And so the conversations around that are important. Equally are the synergies that we feel like we can pull out of transaction. So obviously, we're measuring those very carefully.

And I think if we go back over time and look at the value that we've been able to deliver, whether it was on TXI or River for the Rockies or what we did with Bluegrass or otherwise. I think our track record there is good, and it's certainly our hope to be busy on the M&A front for the rest of the year.

But what I would suggest to you in that respect is there's more to come..

Our next question comes from David McGregor of Longbow Research. Your question please. .

Congrats on the good quarter.

You laid out your market mix earlier, just talking about infrastructure, nonres and res and the percentages that would correspond with each just wondering how that may vary from what you've got built into your guidance for 2021? And just if you could talk about how you see that mix migrating over the balance of the year that would be helpful..

Yes. No. Look, I think several things are pretty clear. I think infrastructure is going to become increasingly better. And I would say that because if we're looking at our top five states, which again, are going to be over 70% of our revenue. When we think about what that looks like.

I mean Texas FY 2021 letting levels of $1.5 billion from a tech top perspective is a 22% increase from where it was in 2020, and that's a very attractive number. Equally, if we look at NCDOT, their FY 2021 blending schedules are projected at $1.3 billion, and that's up from $670 million. So again, those are big movements.

And even , which you know David, has long had a very attractive infrastructure budget is indicating higher learnings this year and they're emphasizing projects that they feel like are ready to go. So if we come back to a couple of states that are also important to us, Georgia and Colorado, those states, we're seeing is relatively flat year-over-year.

But I think something that's worth keeping in mind is a lot of the COVID-19 economic relief that went to the dots are about to find their way into the system as well. So keep in mind, Colorado got $134 million in that process. And Georgia got $323 million in that process. So we think infrastructure is going to continue to get increasingly attractive.

And depending on what happens in D.C., it could really become increasingly attractive next year. I think the thing that will continue to be moved by is how solid the non-res market is. And you can see it in the percentages that we talked about in today's release, the market for industrial, logistics and data center facilities continues to flourish.

And clearly, that's benefiting from the critical role that these facilities play in supporting business operations, and we think we're incredibly well positioned to serve markets like Atlanta, DFW, Austin, San Antonio, Des Moines, Omaha, Indianapolis and others.

What's important there, though, David, is we're seeing what we thought we would see, but we're seeing it modestly earlier. And that is, if you recall, when we gave our guidance at the beginning of the year, our view was we thought we would start to see some green shoots in light non-res and have to.

I think the words we used where we thought we would start to see that inflect then we still do. But what's encouraging is we're seeing some of that in some markets even earlier than we would have thought.

So for example, if we're looking in Atlanta today, clearly, Atlanta is seeing a significant uptick in corporate relocations and expansions, which plays well into the light piece of it. Equally, Colorado is seeing good light commercial in office and retail, and that's starting to pick up now.

And that's an area that we knew would come because it's going to follow housing with a lag, we just thought the lag might be a little bit longer. And then importantly, as we're looking at residential today, we think Martin Marietta with the Southeast, Southwestern footprint.

Is particularly well positioned to benefit from what's happening with housing. So again, if we put housing in context, the 30-year average for single-family starts is $1 million. So if we consider that a 3 is a key threshold for what we think is normalized aggregates focused demand, where we think we're going to be for the next several years.

And that dimension is pretty exciting because we talked about at the Analyst Investor Day that there's a correlation between single-family starts and aggregates intensity with a 1 year lag, that's at about 99%.

And if you look at the March 2021 seasonally adjusted annual rate of housing in the United States for single family starts, it was at $1.2 million. And again, the last time we saw numbers like that, were back in 2007 and back in 2001. And by the way, we like the way the market was looking at both of those times.

So I think infrastructure is clearly getting better we think non-res and the heavy sign is attractive right now, but we think light is getting better. And we think housing, but in particular, single-family housing in Martin Marietta markets is really being held back only by availability today.

And again, when we're trying to rank problems, David, that's probably a high-class problem..

Next question comes from Garik Shmois of Loop Capital. Please go ahead..

Given some of the midyear price increase opportunities you cited, particularly in aggregates and given the inflationary environment that you're in, or just curious how we should think about the cadence of pricing that, yes, the rest of the year and I know we're not into 2022 yet, but should we anticipate a breakout in price growth potentially next year?.

Yes, Garik, just to be clear, when I was speaking to the aggregates piece of it, I think what I said was I thought we might see some discrete wins on a size by size basis, specific tight in some markets. And clearly, the cement commentary that I offered was different than that because we are already seeing tightness in a very large market in Texas.

But back to your commentary, what we've long said is pricing on a percentage tends to follow volume to a degree on a percentage with a bit of a lag. So Garik, if you're looking at the marketplace, and you're saying, look, I know you've got a markup going on in-house T&I on an infrastructure bill.

You've got a markup going on in Senate EPW on an infrastructure bill. It looks like something is going to happen. It looks like something is going to happen this year. It looks like whatever that something is, is likely to be the biggest something that we've seen in 15 years. I think that bodes well.

If we go back to the commentary that I was just offering to David, in his question relative to non-res and res, we think that's probably pretty healthy too.

So I think coming back to the proposition that you're offering, if the volume is going to be there, I do think it gives the opportunity for there to be pricing ahead of what we've seen over the last several years because keep in mind, that's been very much in a volume muted environment.

So the pricing that we just offered you through the course of this conversation is with aggregate volume is actually down 3% in the quarter. And by the way, we anticipated that. So I think the proposition that you've offered is right.

I think there's still more to watch and more to come, but I have a hard time thinking that what you posed isn't, where we would think about it, Garik..

Our next question comes from Adam Thalhimer of Thompson, Davis. Your line is open..

Ward, can you comment on the multiple you paid for Tiller or give us any kind of a sense for your net debt after closing the deal?.

What I'll do more of the latter than the former. And because, as I said, if Tiller had been 10 years ago, it would have been material, and we would talk about it. Obviously, this is a transaction we've done with the family, and we have nondisclosure obligations that we want to remain confident.

I mean, secure around -- I will turn it over to Jim because what you'll hear is despite the fact that we've done what would have been a very notable transaction a decade ago. We're still in a very attractive spot.

Jim?.

Yes, this really doesn't meaningfully change our debt-to-EBITDA leverage, Adam. We're still just south of our 2 times to 2.5 times target zone. So this really will not be much of an impact for our M&A pipeline and executing on that going forward. Our liquidity is great. Cash flow is good and improving.

And as we mentioned, this deal is accretive to earnings and cash flow in year 1..

Our next question comes from Josh Wilson of Raymond James. Please go ahead..

I wanted to come at the ag markets just 1 more time, and I appreciate 1Q is an unusual quarter. But if you could just quantify for us some of the good guys and bad guys there since you were up 500 basis points from basically flat dollars, just so we can get a sense of the size of which ones are sustainable and which aren't.

And maybe if you could quantify diesel fuel going forward as well. So we can have a flavor for that, that would be helpful..

Yes. Let me do this. Let me ask Jim to come back and address some of the very specific puts and takes on that, and I'll give you some broad commentary afterwards..

Okay. Yes. So Josh, the most sustainable the good guys, as you call it, for the quarter, was price. That's something that's our own front. That's $19 million of benefit this quarter. One of the bad guys was volume down 3%. That was about $5 million of profit impact. The rest are good guys. So internal freight expense improved by $6 million.

Again, that depends on end markets, it depends where that makes stay works at. It may grow again if we have higher sales to yards, contract services improved by $5 million, repairs expense improved by $3.5 million personal expense improved by $2 million.

Diesel expense improved by just under $1 million, so basically neutral, but almost across the board improved lower expenses for the quarter..

So Josh, if we think about -- with the background of that, what we're likely to see going forward, I would say several things. If you're looking for things that will be a headwind. I think the biggest single headwind the industry will likely face will be diesel fuel. So remember last year, energy was quite low.

But if we think about what we're seeing, we think pricing is going to continue to be very attractive for us. We think geographic mix is likely to be attractive for us this year because keep in mind, we had a record year last year with North Carolina really sitting on the bench. And North Carolina is not sitting on the bench at all anymore.

We equally believe that our aggregates business in Texas and our cement business in Texas is going to perform very, very well this year. We think Colorado is going to have a very attractive year. The only thing that's wrong in Colorado in '21 is that Colorado had a superb '20.

So keep in mind, they had a very wet '19 that deferred work from '19 into '20. And then they literally had the perfect storm in '20 with beautiful weather and a late winter setting in so I think Jim is giving you a good sense, of course, some of the good guys and bad guys are. I think there are a lot more good guys than bad guys.

So I think one more good guy, I want to make sure we call out because they really don't get the credit that they deserve is what we think is happening with respect to Magnesia Specialties as well. And again, this is a real differentiator for Martin Marietta, Q1 revenues of $65 million represents almost a 9% increase over the prior year.

And that's led by what Jim was referring to earlier, so it's a nice year research and steel industry. So if we're looking at domestic steel, that's rebounded now to 78% capacity keep in mind, when we were about half year last year, that was a 51% utilization.

So again, we're seeing even in that line of our business, a very nice recovery and we're seeing record Q1 gross profit in that business. But importantly, we're seeing record margin percentages in that business that correspond with what it was seeing a year ago in Q1.

So we feel like both on the Magnesia Specialties business and the materials business, we're at a very attractive place where there's going to be more of this goodness that goes forward, then we're going to get back..

Our next question comes from Michael Dudas of Vertical Research. Your line is open..

The -- thinking about the release -- the COVID release money that's starting to get out and probably be more factored in later this year.

Are you anticipating -- because there's some discretion from state governments on that? Or are you anticipating a portion or a good portion or a little portion of that falling into the '22 fiscal year budgets? And then when you think about layering in, let's open eventual fast back renewal and big successful infrastructure bill somehow.

Is that going to also influence like how you think about what the opportunity is going to be for '22, '23 and beyond, because that seems to be a lot of capital flowing into the markets that could be coming pretty tight at then?.

One, contractors have been hiring because they had the ability to hire during periods of time when labor was tighter in other places. So we believe contractors are going to be in a position to meet this amped up need in an appropriate and responsible ways.

Importantly, from a material supply perspective, what I can tell you is we have a business that would have the ability should we need to put about 250 million tons of material on the ground. And if you look at what we produced and sold last year, I'd say it was 180-some materials -- tons of materials.

So our ability to ramp up, if we needed to, is there. It's present. And what's important to state, and I think this goes back to the essence of your question, Mike, we would not have to put notable capital in to do it. We might have to run some longer hours to do it. But we could certainly do that without having to go deep to the well on CapEx.

So I hope that helps..

Yes. That's what I was leading to. Certainly, the operating leverage is quite there.

Do you have a gut feel whether it's going to be reconciliation or fast back renewal or brand-new bipartisan opportunity?.

That's a great question. And the only thing I can tell us we can all that and we'll probably all be wrong in some respect. I think this is one that they're likely to find a bipartisan way to do. And I think if they do it's going to be a lot more highways, bridges and roads focused than some of the administration proposals that are out there.

I think if they can find a way to make it more infrastructure in the way you and I would define infrastructure. There's a way towards a bipartisan agreement. I think if it can't be more focused on that, then I think reconciliation and other methodology comes into play in a more significant way.

But again, as I'm looking at markups that are underway in both EPW and the Senate and T&I in the house right now, there's a reason that they're marking that up, and there's the reason that I think they want to have Mark Ups out by Memorial Day.

And I think there'll be more to come, but I think we'll find bipartisan agreement on this if I'm betting that..

Our next question comes from Paul Roger of Exane BNP Paribas. Your line is open..

Paul, are you there?.

Mr. Roger, please make sure your line isn't muted, and if you are not, speak the phone with your handset..

Yes. That was a scoop again. Apologies for that, guys. Apologies Congratulations on the start..

Thank you, Paul. Good to hear your voice..

Yes, likewise. So conscious will obviously come into the end of the call. Now I'll maybe take a slightly different track and ask about the green agenda. I mean, clearly, the environmental agendas going up in the U.S.

Can you speak a bit broadly about risks and opportunities that creates for you? And then maybe specifically, are you at all concerned that we could see an increase in the use of recycled aggregate at the expense of some higher margin product?.

Look, you're right, ESG is clearly taking up a new form of debate, both in the United States and as you're well aware, internationally. I would say several things. I do think there are opportunities for Martin Marietta as we go through that. Number one, I think resilient construction is going to be an important part of any dialogue relative to ESG.

And I think we can demonstrate that the types of constructions in which we will participate tend to meet that criteria, number one.

Number two, if we're looking at wind farms and wind generation of power, one of the things that we called out specifically last year, we were seeing -- I think it was in Q4 tonnage was down over 1 million tons just in our Midwest Division because we had seen that division not having as much tonnage go out to wind energy projects because some tax credits that historically had been in place had expired.

So we're seeing more tax credits going toward wind energy, and we believe that we will. We think the opportunities are there for that. I think another area of focus is likely to be relative to water and into infrastructure that's underground.

And I think people are particularly sensitive to degrees of water that communities are simply losing on a year in, year out basis, we think our products are going to be vitally important in that as well.

Now with respect to green and recycle and how that's going to work in different markets and the degree to which recycle concrete or otherwise could become more ubiquitous. I would offer several things. One, specifications are still going to be drawn up by, obviously, our friends at ASTM, the federal government in different state DOT’s.

Keep in mind, cross stone is an essential element in the manufacturer of ready mix concrete. It's essential in hub mix asphalt. At least in the recycled asphalt paving that we see. The primary component of recycle that's valuable to contractors and that, it's not so much the stone but rather the bitumen or the liquid asphalt that's in that.

So we think we'll continue to see that. But even most state DOT’s that are aggressive with what can be used on wrap or recycled asphalt saving, it's 25% or 30%. And so we don't think that's going to be a significant replacement for aggregates. And equally, while you can have certain degrees of crushed concrete that can serve as a commercial base.

In most instances, it will still not meet a clean stone specification for use in heavy highway airport or other work. The other thing to remember, Paul, and this is so important. And that is despite the fact that our company has seen a nice increase and a steady increase in pricing over time.

We're still selling aggregates on average for, let's call it, $14, $15 a ton.

It's very difficult to have even a green product that can substitute for aggregates, that's going to be a cost-effective product in that respect because even when people are utilizing recycled concrete, oftentimes, there's rebar in that concrete, which means the crushing process tends to be quite complicated. So you asked me what time it was.

I probably told you how to build a clock, but it's a great question, and it's complicated. It's something we've given a lot of thought to, but we have a lot of resilience around the view that this is an industry that is here for a long time..

That's great. I mean, I think there's a perception that sometimes U.S. companies like. So it's nice you've got a good story itself..

Well, Paul, thank you so much for that. The other thing that I would remind you, we put out our sustainability report literally last week that gives a good overview of exactly how Martin Marietta is approaching ESG issues. So thank you so much for your comment on that..

As I understand it, that's the end of our questions today. So what I'll do at this point is thank you all for joining today's earnings call. In short, we believe our company is superbly positioned to create substantial long-term shareholder value.

Supported by our differentiated business model and proven strategic operating analysis and review, Martin Marietta is poised to drive substantial growth in 2021 and beyond. We look forward to sharing our second quarter 2021 results in just a few months. As always, we're available for any follow-up questions.

Thank you for your time and your continued support of Martin Marietta please stay safe and stay healthy. Take care. Goodbye..

This concludes today's conference call. Thank you for participating. You may now disconnect..