Summit Materials, Inc. (SUM) Earnings Call Transcript & Summary

Hello, and welcome to the Summit Materials Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the conference over to Andy Larkin, Vice President of Investor Relations. Please go ahead.

Hello and welcome to the Summit Materials Conference Call to discuss our combination with Argos USA, the U.S. operation of Cementos Argos. Earlier this morning, we issued a press release along with an investor presentation to accompany today's discussion. All of these materials can be found on our Investor Relations website. As a reminder, management's commentary and responses to questions on today's call may include forward-looking statements, which, by their nature, are uncertain and outside of Summit Materials' control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ in a material way. For discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of Summit Materials' latest annual report on Form 10-K, which is filed with the SEC. Today, I'm pleased to be joined by Anne Noonan, Summit CEO; and Scott Anderson, our Chief Financial Officer. Anne and Scott will provide an overview of the transaction, its strategic rationale and will highlight financial benefits before opening the line for questions. Out of respect for other analysts and the time we have allotted, please limit yourself to one question and then return to the queue so we can accommodate as many analysts as possible in the time we have available. I'll now turn the call over to Anne.

Thanks, Andy, and good morning to everyone joining us today. As you saw in this morning's press release, we are excited to announce our definitive agreement to combine with Argos USA to create a materials-led enterprise with national scale. We lay out for you on Slide 4, 3 compelling reasons why we believe our 2 great companies are better together. First, as we execute and look to accelerate our Elevate Summit strategy this transaction forms a materials-led North American leader with more than $4 billion in revenue. We will have significantly enhanced scale with pro forma EBITDA expected to be approximately $1 billion, inclusive of synergies. And if you recall, as part of Elevate Summit, we are targeting at least 75% of our EBITDA generated from high-margin materials businesses. With this combination, we will achieve and surpass that target, enhance the quality of earnings and create a stronger platform for profitable growth. Second, the transaction extends our cement leadership position. After closing, Summit will have 6 strategically located cement plants, be the largest U.S.-domiciled cement producer and create the fourth largest cement platform in the United States. Our improved geographic diversification will reduce the seasonality of our cement business and enhance our ability to meet customer demand for cement in a capacity-constrained domestic market. And finally, together, we will deliver more innovative and sustainable solutions to our customers and leverage operational excellence to drive improvements across the business. We combined 2 talent-rich organizations with deep market and industry expertise to seize on opportunities and deliver greater value creation. In short, we believe the combination is a transformative milestone on our Elevate Summit journey with a clear and compelling strategic rationale and as you'll see on Slide 5, attractive financial benefits to Summit and our shareholders. As we unlock the full potential of this powerful combination, we expect to create substantial value through significant synergy generation. We are targeting annual synergies of at least $100 million with substantial realization within 2 years of closing. The transaction consideration of $3.2 billion reflects a pre-synergized enterprise value to EBITDA multiple of approximately 10x based on full year 2023 estimated EBITDA for Argos USA. This is less than 8x on a post-synergies basis and reflects the price discipline you've come to expect from Summit Materials leadership team and Board. We have an intense focus on investment returns, and we expect return on invested capital from the transaction to exceed its weighted average cost of capital by year 3. The transaction is expected to be 15% to 25% accretive to free cash flow per share and will fuel double-digit EBITDA growth. At closing and before synergies, we expect leverage to be at or below 3x pro forma EBITDA with significant combined free cash flow driving deleveraging. I've outlined at a high level the significant financial and strategic benefits. Let me now take a step back and discuss the details of the combination on Slide 6. Through this transaction, we will be combining Argos USA with Summit. Argos USA is the U.S. operation of Cementos Argos, which is a producer and distributor of cement and concrete, which also has operations in Colombia and the Caribbean and Central America. Under the terms of the agreement, Cementos Argos will receive approximately $1.2 billion in cash, subject to closing adjustments and approximately 54.7 million shares of Summit stock. This equates to a roughly 40-60 split between cash and stock. Following the closing of the transaction, Summit shareholders will own approximately 69% of the combined company and Cementos Argos will own approximately 31%. Cementos Argos is committed to being a long-term shareholder of Summit and is excited about the opportunities ahead. Our work in partnership with our Chairman, Howard Lance and the entire 11-member board to lead the combined enterprise. Of the 11 seats, 8 will be filled by Summit appointed representatives and Cementos Argos will fill 3 seats. Moving to Slide 7. And for those unfamiliar with Argos USA, the company is among the largest cement producers by total installed capacity in the markets it serves, which includes the Southeast, Mid-Atlantic and Texas, some of the fastest-growing regions of the U.S. The majority of that 85% of Argos' U.S.A. adjusted EBITDA is generated from its leading cement platform. It has 4 integrated cement plants, 2 grinding facilities and total installed cement grinding capacity of 9.6 million tons per year. The remaining approximately 15% of Argos USA's EBITDA is generated from vertically integrated ready-mix operations across several market-leading platforms. Importantly, 77% of the cement consumed in the ready-mix is self-supplied ensuring strong pull-through of high-margin cement product. The company's scale and operational flexibility is augmented by additional import capacity, a strategic footprint near ports along the East Coast as well as 10 inland rail terminals. In all, Argos USA's platform of high-quality assets and high-growth markets positions us to capitalize on robust demand drivers for construction materials across public infrastructure, residential and commercial end markets. On Slide 8, we demonstrate just how complementary the 2 companies' assets are. Our enterprise footprint shows how we are strengthening Summit's platform by reaching into new and growing geographies across the Southeast, Mid-Atlantic and Texas. Critically, by building on our presence in the Southeast, we gained valuable exposure to year-round construction markets, reducing the seasonality and by extension, the quarterly variability of our cement earnings. The combination also brings together an extensive network of logistical assets that will provide low-cost modalities, high-quality customer service and operational flexibility. Core to our value proposition is a rich and detailed plan around operational excellence. Scott will detail the many operational levers and cost opportunities in scope but we will rely on proven technologies and expertise to drive operational improvements across our business. Summit's Continental Cement business has a track record of improving profitability through targeted high-return investments and a sharp continuous improvement mindset. Since 2020, Summit cement EBITDA margin is up around 250 basis points to nearly 36.7% and we have a clear and credible path to reach our NorthStar objective of 40% EBITDA margin as part of our Elevate Summit plan. Recently, within cement, we have delivered margin improvement by tapping several self-help opportunities, including commercial execution, our Davenport storage dome, full conversion and production of Portland Limestone Cement and the ongoing expansion of our Green America Recycling business. We'll apply these learnings and successes to a much larger enterprise to fuel operational improvements, greater cement throughput and as a result, greater enterprise-wide profitability. Slide 9 demonstrates how Argos USA adds presence in high-growth states, many of which are currently underserved in the cement market. 77% of Argos USA's revenue comes from states growing above the national average, led by Texas and North Carolina. And we know that population growth is a primary predictor of future economic growth and construction activity across all 3 end markets. We also will benefit by reaching into all season markets. 70% of Argos USA revenue is generated in markets that have extended construction seasons, which will reduce variability in our EBITDA profile from quarter-to-quarter. Pairing an enhanced network of assets and favorable geographies, centered around the fastest-growing all-season MSAs, create the conditions to sustain profitable growth in both the near and long term. This combination's value proposition is informed in large part by our very constructive view on the U.S. cement market demonstrated on Slide 10, as both supply and demand conditions coalesce around attractive fundamentals in the near and long term. First, on the supply side. The U.S. market has long been and will remain a net importer, meaning our domestic consumption has consistently exceeded U.S. cement supply. For context, since 2001, the U.S. has consumed on average 100 million tons of cement annually but only has capacity to produce roughly 80 million tons domestically. While this imbalance has been filled by import tonnage, the shortage of domestically produced cement supports strong and ongoing price realization and favors produce which is of high-quality product, capable and durable supply chain and those that prioritize customer service. While the industry may see some capacity release moving forward from full conversion to PLC, supply of domestic cement is very likely to remain incredibly tight across the country and with most markets remain completely sold out. On the demand side, the outlook for cement signals sustainable multiyear growth as all 3 end markets are expected to experience robust and enduring market tailwinds. Let me quickly review the factors driving demand in our residential, commercial and public infrastructure end markets. As residential transitions out of its current air pocket, there is a need to accelerate to fill a chronic shortage of housing in the U.S. Industry groups estimate that the U.S. housing shortage is anywhere from 1.7 million at the low end to 7 million homes at the high end. Regardless, the point is we are woefully underbuilt in this country and need a persistent investment in housing to fill that unmet demand. For commercial construction, we are in the early innings of the resurgence of U.S. manufacturing. Nearly 90% of companies are considering reshoring with various regions, including the Southeast, now attracting new manufacturing capacity. Government support, including acts like the CHIPS Act, is encouraging this shift which also carries positive environmental and social governance implications due to a cleaner energy mix in the U.S. and reduced transportation emission. And for public infrastructure landmark legislation like the Bipartisan Infrastructure Bill provides historic levels of funding to rebuild America's public infrastructure. The $550 billion legislation is just starting to show up, but should provide multiyear demand for construction activity in our footprint. With Argos USA, we will have the scale and leadership position to capitalize on those demand tailwinds. On Slide 11, we show how we stack up in cement and aggregates. We will be the fourth largest U.S. cement producer with assets located in growing markets, and therefore, we'll be well positioned to grow and meet the needs in the marketplace. This complements our existing position in aggregates, where we are the sixth largest domestic producer and we'll continue to be selective and unapologetic about where we choose to operate in downstream businesses. We are committed to having leading positions in select markets and we'll manage the portfolio as we've always done to balance and maximize margin and ROIC. Let me now pass it to Scott, who will take you through in more detail the financial benefits of the combination.

Thanks, Anne. Slide 12 shows the pro forma revenue, EBITDA and business mix for the combined company and puts into perspective the increased scale and material-oriented nature of the enterprise. We expect our shareholders to benefit from a stronger portfolio mix and enhanced geographic diversification that Anne just spoke about. What I'd like to spend time unpacking is our synergy expectations and specifically how this feeds into our financial profile and strategic vision moving forward. Starting first with our synergy expectations on Slide 13. Our target is for at least $100 million in annual operational synergies with significant delivery within the first 2 years of closing. The sources of our synergies have been well diligent and we entered into this combination with a high degree of confidence and visibility into synergy realization. Anne mentioned earlier, but it is worth repeating. We will apply our proven expertise in cement and ready mix to improve efficiencies and profitability over time. As you would expect, the composition is weighted towards cement efficiency and plant productivity opportunities that fall into 3 buckets. First, we have an aggressive plan to sharply improve the Overall Equipment Effectiveness or OEE of the cement plants through a combination of debottlenecking and targeted investments focused on process and quality improvements. Second, we will leverage our unique Green America Recycling capabilities to materially increase alternative fuel usage, bringing it more in line with Summit's industry-leading levels. And lastly, we will move swiftly to maximize PLC and limestone usage in the product mix, reducing our carbon load while adding to our margins. On the ready-mix side, Summit has strong top-tier margins and as a result, a wealth of knowledge to apply to the ready-mix business. Synergy generation in this area will coincide with ongoing fleet modernization investments, plant and network optimization and application of Summit's operational excellence initiatives. We see additional opportunities to leverage the enterprise's scale to centralize procurement and SG&A to drive greater standardization and efficiencies. We are most excited about the transaction because we expect it to drive accelerated profitable growth. This is not just about cost savings. We see very compelling additional growth and expansion opportunities associated with a larger platform. We expect potential additional upside from driving benefits like pricing and mix optimization and plant overhead opportunities. And finally, we anticipate the cost to achieve to be done primarily through high-return CapEx investments. We do, however, expect to maintain our CapEx at approximately 10% of net revenue in the near term. And think the CapEx target of 8% of net revenue is both reasonable and plausible in the long run. For the clear glide path on synergies established, we want to come back to the strategic fit on Slide 14. As Anne mentioned earlier, the combination with Argos USA accelerates our Elevate Summit strategy. Not only is the combination and excellent fit across geographies and businesses but Argos USA is also well aligned with Summit's culture and commitment to safety, sustainability and innovation. Our joint value creation will be grounded in executing against commercial and operational excellence opportunities, standardizing and simplifying where it generates the greatest returns and investing behind the growth and development of our people. Investing in talent will dovetail closely with our emerging innovation acumen. Anne will cover it in more detail, but this organization will be well positioned to lead on new processes and product innovation in the heavy material space. Moving to Slide 15. The transaction checks all the boxes on our Elevate Summit financial scorecard. With the structure of the deal and assuming a first half 2024 close, we expect pro forma net leverage to be at or below our 3x target. And today, we are reiterating our long-term commitment to be 3x or below supported by significant free cash flow generation. We will also maintain our strong ROIC profile. We expect this transaction to have a ROIC greater than its WACC within 3 years and our overall enterprise growth to be about 10% within 2 years of close. And finally, as we realize synergies and shift towards higher margin, higher growth portfolio mix, we would expect margin accretion over time. Clearly, we have enhanced our portfolio and extended our footprint. But what remains exactly the same as our commitment to our financial priorities. We continue to emphasize improving our quality of earnings, strictly managing our leverage and maintaining our intense focus on our return profile relative to our cost of capital. We've exhibited a clear track record of making progress against these targets in the past, and we will advance these priorities as we move ahead with Argos USA. Before turning it back to Anne, I think it's helpful to remind you where we've been and where we're going with the portfolio. At the time, we launched Elevate Summit, only 63% of our EBITDA was from aggregates and cement. Since then, we have transformed the portfolio, first by divesting a series of underperforming low growth and mostly downstream assets. In doing so, we generated more than $500 million in proceeds, delevered, repurchased shares and begin richening our overall portfolio mix. In the most recent quarter, our proportion of LTM EBITDA generated by aggregates and cement was up to 71%. This combination now reinforces our commitment to advancing our materials-led strategy. Pro forma for the transaction, we expect to increase the materials portion of EBITDA to 78% or 3 points above our Horizon 2 target. Despite the change, the portfolio will maintain a relatively balanced and diversified exposure across the 3 end markets, allowing us to capitalize on positive demand trends across each. Our Horizon 2 objective, if you recall, was to invest in priority, high-growth markets and improve our quality of earnings. And with this transformative deal, we are executing against that strategic imperative. I'll now turn the call back to Anne to walk through the sustainability and innovation benefits as well as provide some concluding remarks.

Thanks, Scott. As you can see on Slide 17, in addition to enhancing our business mix, the transaction will position Summit to apply our unique fuel and emissions reduction technology across our broader platform. Both Summit and Argos USA share similar long-term ambitions to drive towards net 0 emissions and improved returns. We are well aligned in support of Summit's commitment to being the most socially responsible integrated construction materials solution provider. For example, Green America Recycling is a key growth driver and margin enhancer for Summit's Cement business. We believe expanding GAR to Argo's USA's 4 cement plants tripling the number of plants where we operate a recycling business that substitutes alternative fuels for fossil fuels, can improve EBITDA and lead to new business opportunities. Summit takes pride in being the first U.S. cement company to transition entirely to Portland Limestone Cement, and we see a path to transition all of Argos USA plants to PLC as well, which has both a cost benefit and emissions reduction impact. Both Summit and Argos USA share an innovative approach to sustainability, and we are excited to leverage Summit's experience as the first U.S. cement company to implement the FUELFLEX Pyrolyzer technology to drive fossil fuel replacement. We believe we can not only achieve a 55% fossil fuel replacement rate at our Davenport plant, we see a path to accelerate Argos USA's stated ambition to achieve 40% fossil fuel replacement by 2030. With a broader platform, we will collaborate to further explore new technologies under evaluation. Such as hydrogen plants, fly ash substitutes and grinding capability improvements through a combination of internal testing, industry initiatives, start-up pilots and university partnerships. Slide 18 looks at our joint commitment to grow through innovative and sustainable products. Argos USA is an industry leader in R&D. Their model blends deep and specialized scientific knowledge with practical customer-facing technical expertise. They currently operate R&D labs in the United States and also benefit from the partnership with a world-class Colombian innovation center. We expect to continue that partnership agreement as part of this combination. Argos USA's current innovation strategy includes the development and use of alternative cementitious materials, the full conversion to PLC Type 1L, evaluation of microalgae technologies to reduce emissions and the continuous development of a green products portfolio. Clinker substitution is a key theme in the industry. With production of cement migrating to an increased use of SCM such as fly ash and calculated play to reduce fossil fuel dependency and lower emissions. With an extensive pool of talent, resources and operational expertise, we see opportunities for this combination to drive innovation and lead the construction materials industry. Moving to transaction details on Slide 19, where I'll quickly highlight a few items. As I mentioned earlier, Cementos Argos will receive $1.2 billion in cash, subject to closing adjustments and approximately 54.7 million shares of Summit stock. We have committed financing in place for the cash consideration. Cementos Argos has also entered into a 24-month lockup period on sales of Summit shares and certain standstill provisions. This underscores the Cementos Argos commitment to being a long-term shareholder of Summit Materials and a partner in our shared growth. In terms of next steps, we currently expect the transaction to close in the first half of 2024, subject to customary closing conditions, including regulatory approvals and approval by Summit's shareholders. In closing, I would like you to walk away with the following 3 takeaways. First, this transaction builds on our Elevate Summit progress and accelerates our ability to reach and exceed our objectives. With Argos USA, we will create a materials-led enterprise with scale that advances our strategy and doubles down on our commitments to excellent sustainability and innovation. Second, as we extend our leadership in cement, we are confident that we are the right owners to drive value creation. And third, we are confident that the accretion, synergy opportunity and continued financial strength provides significant benefits for Summit shareholders. We believe these 3 strategic elements, together with the strength of financial profile can deliver industry-leading total shareholder return. We look forward to working towards the closing of the transaction and welcoming the Argos USA team and their expertise to the Summit family. Thank you all for joining today's call and for your interest in Summit. We will now open the line for your questions.

[Operator Instructions] Your first question comes from the line of Keith Hughes of Truist.

First question on the synergies you highlighted specifically around some of the machinery enhancements. How much capital spending are you expecting to have to put out to get to $100 million of synergy?

I'll have then Scott address the actual cost of the synergies at this point.

Yes, Keith, just on the capital side, as I made the comment to -- it's actually not going to change our capital spend profile. We're still going to maintain Summit's historical level at that 10%. What you'll see is, in the past, our CapEx has been more of a 1/3 growth to 2/3 sustainable CapEx. As we go through these synergies, I expect that to shift a little bit heavier on the growth and profit improvement side, more like a 60-40 or 55-45 split. But keep in mind the overall, still maintaining that 10% threshold of revenue.

So you'll be taking some growth CapEx away from other areas and Summit and applying it to the Cementos Argos' business. Is that correct?

Well, actually, what you'll see is the cash flow that comes off of Argos, is actually very accretive to Summit's cash flow. So we believe that we will have the funds available. As a matter of fact, if you look at the CapEx, just EBITDA minus CapEx for the simple free cash flow, Summit's historical levels around low 50s percent of that cash flow as a percent of that EBITDA, where on the combination taken on Argos, they're near 70% of the cash flow. So we feel like the funds will be available to reinvest in the business.

Keith, I would just reinforce that our capital allocation priorities have not changed at all. We are still a materials-led company. We will continue to invest. We're very positive on aggregates. As you know, we have a very rich pipeline of M&A opportunities. A lot of profit improvement projects that we'll continue to put CapEx into. And this just accelerates our cement position over time and gets us to that 78% materials led portfolio that gives us the scale to continue to invest in the business with really powerful cash generation potential.

Okay. and just one small thing, I'll turn it over to others. You listed in the slides, some numbers on that, so your $1.7 billion revenue about $300 million to $330 million of EBITDA. What time frame are those numbers?

So the 300 -- I didn't hear your question. Is 2023 numbers for the EBITDA, the $300 million to $330 million.

Your next question comes from Anthony Pettinari of Citi.

Anne, the transaction increases your exposure to materials, which has been a goal but within materials, I was wondering if you could talk about sort of the relative attractiveness of cement versus aggregates and why this transaction is maybe more attractive or higher return than other options, maybe on the aggregate side. And then I think you referenced this in the previous question, but with the deal and elevated leverage, can you talk about your ability to pursue bolt-ons or greenfields or brownfields in aggs as well?

Yes. Let me give you a start on that. So we have a very favorable view on cement as an end market, and we referenced in our prepared comments really with very strong growth from public, residential and commercial. With this combination, we obviously increased our position in commercial and residential. And when we look out at the real driving factors that, even though residential has gone through an air pocket here in 2023, this country is woefully underbuilt in housing. If you look at the low end, it's 1.7 million homes, the high end at $7 million. And in the Southeast, we're very strong in migration trends. So we're very bullish on residential and believe the cement will play a key factor in that. On the commercial side, this drive towards onshoring of manufacturing and investment in energy verticals, we're starting just at the beginning of seeing that pipeline really increase. And that's being driven heavily by the CHIPS Act where there's $250 billion of investment. And an important factor about that funding is that projects have to be started by the end of 2026. So we know there's going to be a rich pipeline in the near to medium term for that semiconductor investment in R&D and manufacturing. And then if you look at the IRA Act, there, you've got investment in clean energy. And already, there's been announced 3 -- 13 EV and battery factories to date. So when we put all that together, we look at the supply portion of cement as well. And in my prepared comments, I talked about the fact that we're very basically a net importer here in the U.S. It's very capacity constrained. Demand dynamics are strong, so it should be very constructive to pricing moving forward. As you correctly pointed out, it accelerates our materials-led strategy, now having that richening of mix and increased exposure to higher growth markets reduces our seasonality. We're going to drop dollars to the bottom line in our synergies, and we're very confident in those and we really think that we'll be able to improve the margin and growth profile of the assets that we've bought, while they're good assets to date. We have a proven track record in cement, as Scott referenced and ready mix and driving margin accretion. And that's what gives us a lot of conviction on this deal to drive double-digit EBITDA growth over time, Anthony. So when you ask me about aggregates versus cement, to Scott's point, it's not an either or. It's a materials led strategy. We are absolutely delevering to the point that we can manage with the powerful cash flow that we have from this combination and the synergies and the conviction we have in our synergies, we have really structured this transaction to preserve our strong balance sheet and our financial flexibility to continue to pursue those bolt-on aggregates and our greenfields. So think about it as scale actually giving us better financial flexibility moving forward here and ability to accelerate growth and margin profile.

Your next question comes from the line of Kathie Thompson of Thompson Research Group.

This is actually Brian Biros on for Kathryn. Can you just touch on more of the why now? You've gone through kind of elevate here for 2, 3 years on divestitures, acquisitions, just why now? How do the deal come about to approach to kind of -- details on that would be helpful.

So I think our proxy will release a lot of this -- the details, I'll bore you with the gory details here. But we're at a point where our portfolio is well -- we've done a lot of the heavy lifting from a summit perspective around optimizing the portfolio and getting to that 71% materials-led, we have our leverage down well below 3x. We've got a much stronger foundation to build upon. We know the assets at Argos North America and have a high conviction in the potential of these high-quality assets and our ability to add to them and be accretive to the value by improving through our integration and synergy plans. So we met with our counterparts on the other side. We both looked at the strategic rationale. And frankly, realized that this was a great attractive deal for both our shareholders. If you look at these high-quality assets that we bought and the potential to improve acquiring them for approximately 10x pre-synergies and 8x full synergy shows that there's significant value accretion for our shareholders. And as Scott said, the free cash flow generation is very strong, allowing us to delever below that 3x which we remain absolutely committed to do.

Your next question comes from the line of Trey Grooms of Stephens.

Congrats. So I guess, Anne, could you talk about the geographic market that these Argos cement plants are operating in. And clearly, they look like pretty strong demand markets right now, but if you can maybe dive into that a little bit deeper and then kind of what the pricing trends have been in these markets recently?

Yes. So thanks for the question, Trey. So really, this increases our exposure along the Southeast, Mid-Atlantic and strengthens our position in Texas, Trey. And they all have those fundamentals high-growth potential from all of our underlying end markets. So we're very confident in the population growth in those markets. The other thing I'd say is that when you look at the cost position, the extensive network of logistics that we're combining with in this powerful transaction, actually, we have -- we're really acquiring assets with a very strong cost position. Now you layer on to that, very significant hard synergies that we've identified and said that will even improve the cost position. So we're operating off a very strong position of strength in the assets that we're acquiring. Additionally, when you look at some of the import -- more import markets, it is exactly the type of assets we've talked about as part of our Elevate strategy. First of all, we're able to pull through the cement. So we vertically integrated in high-growth MSAs with leading positions. We've said that's where we want to operate. And this actually also improves, as we said in our prepared comments, it reduces the seasonality of our earnings. So we really like the growth potential, the demand, and we have significant cost position and pricing power in all of these markets that we've gone into.

Your next question comes from the line of Brent Thielman of D.A. Davidson.

Congrats, Anne and Scott. Just a quick question. Any of the assets on the cement side, are there permits or advanced plans to expand capacity? Or is that something you look to pursue sort of early on just considering the supply-demand dynamics in the market?

Yes, Brent, I'll answer that. Really, the capacity, not so much on the permit side, where we will get some capacity as we talked about the PLC expansion, and we do have opportunity, just like we've done in our existing Continental Cement plants, the full adoption of PLC does expand your capacity and the Argos plants, we're looking forward to sharing that technology and extending that across all of their plants for full adoption of PLC. There'll be some capacity there. Other than that...

The other area I'd add is that we have proven in our cement business to bring our OEE up to 85%, which is best in the industry, and we would plan to go into these cement plants, invest in high-return capital projects to bring up the uptime in these plants. As you know, in the U.S., these capacity-constrained plans, everyone's working on plant uptime and trying to increase that. So that would give us some additional capacity as well.

And sorry, where is their PLC adoption today among the assets?

We would, as part of this plan, we plan to do full PLC adoption across all 4 cement plants. The other area we'll be working on is actually increasing our alternative fuels replacement, which is not really a capacity play, but it's a cost and margin enhancement play. And we have the opportunity to basically take what we've done in our Hannibal facility which takes both hazardous and nonhazardous waste. And what we're planning to do in our Davenport facility, going from into nonhazardous waste decreasing our fossil fuels by over 50%. We have the opportunity now to bring that alternative fuel technology across 6 sites and be able to reduce fossil fuels by up to 40% to 50% across the entire enterprise. So it gives us more opportunity with scale to really drive that carbon emissions reduction and margin accretion.

Your next question comes from the line of Garik Shmois of Loop Capital.

I had a question on the import assets. I was curious how much of Argos' cement volumes does imports represent and given the domestic market is sold out, just wondering how you're thinking about balancing incremental import volume to supply the growing demand in the regions versus just the broader margin opportunities considering imports or thought of as a considerably lower margin product versus domestic production.

So basically, it's a small portion of what our total capacity will be as the import volumes. Think about it in terms of about 500,000 to 600,000 tons. What it provides us some flexibility, and we'll have an ongoing supply agreement on this. So we have opportunity to have a market competitive price on imports. But think about it more, Garik, the way we've always managed imports being very judicious because to your point, the margins are going to be dilutive. It's usually the right decision to do it from a dollar EBITDA growth perspective but we will always prioritize doing domestically produced cement. So we would balance having the domestically produced demand, improving our OEE, like Scott said, putting in PLC capacity to really serve the U.S. market. That's always going to be the most accretive to our margins over time.