Titan America SA (TTAM) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining us. I am Chloe, your conference call operator. Welcome to Titan America's Second Quarter 2026 Conference Call. [Operator Instructions] The conference is being recorded. I would now like to turn the call over to Michael Bennett, Vice President of Investor Relations.

Thank you, and good afternoon to everyone on the line. Thank you for joining us for Titan America's Second Quarter 2026 Conference Call. I am joined by Bill Zarkalis, President and Chief Executive Officer; and Larry Wilt, Chief Financial Officer. Before we begin, I would like to remind you that earlier this afternoon, we released Titan America's second quarter 2026 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 issued today as well as the risks and uncertainties described in our SEC filings. I would now like to turn the call over to Bill. Please go ahead.

Thank you, Michael. Good afternoon, and thanks for joining Titan America's Second Quarter 2026 Financial Results Call. I would like to begin on Slide 4 by highlighting a few key messages. Earlier today, we announced our second quarter 2026 financial results. Titan America delivered a solid performance despite continued headwinds in residential with second quarter revenue increasing by 9.6% compared to the same period last year and adjusted EBITDA at 1.3% higher. Our Mid-Atlantic region delivered strong year-over-year growth in both revenue and adjusted EBITDA during the second quarter. We capitalized on robust project activity in the region, particularly from private nonresidential and public infrastructure investments to drive significant volume growth compared to the prior year. Higher ready-mix concrete pricing contributed positively to results. In the second quarter, our Florida segment delivered solid results on robust demand from infrastructure and private nonresidential construction markets. Residential construction activity remains subdued with project delays and softer cement demand impacting the region, while pricing across several product lines was relatively softer year-over-year. Scheduled extended maintenance shutdowns at both our cement and aggregates operations at our Pennsuco plant resulted in longer outages than in the prior year, negatively impacting Florida's second quarter results. Also, as foreshadowed in our previous results call, in the second quarter, our Florida business was impacted by substantial delays in our cement imports due to disruptions in overseas ports and shipping. We believe these disruptions were temporary in nature, and we expect the logistics conditions to normalize, as we move through the second half of the year. Let's now turn to Slide 5 to update you on Keystone. During the second quarter, we completed the acquisition of the Keystone Cement Company. This acquisition marks an important milestone in the execution of our long-term growth strategy. Since closing, our integration team has been on site, working closely together with Keystone's experienced and highly knowledgeable colleagues to ensure a smooth and effective integration. The Keystone acquisition expands our geographic reach in the markets of Pennsylvania, Ohio, Delaware and Maryland. Combined with our existing asset base, Keystone strengthens our vertically integrated footprint in this attractive region, enhancing our ability to serve customers, capture operational run rate synergies and capitalize on the strong long-term secular growth trends supporting these markets. Looking ahead, we are targeting annual run rate synergies from the Keystone acquisition of at least $30 million by 2029. We believe the targeted synergies will substantially improve the operating margins of the acquired assets. We expect synergy realization to build over the 3-year period rather than phase in evenly with the largest contribution coming in year 3, as our operational, commercial and logistics initiatives take full effect. Keystone brings together an exceptional team, a strong brand and a respected reputation built over its century-long history. We are excited about the opportunities ahead and look forward to sharing more about our expectations for this asset. Let's move now to Slide 6 to briefly discuss data centers, one of the growth levers in our Mid-Atlantic markets. Virginia is the world's data center capital with an estimated 30% share in the global hyperscale market. Titan America is capitalizing on the data center investment growth and participating in more than 50% of the data centers currently under construction in our serviceable market area. In 2026, Titan America participates in 77 data centers out of 148 currently under construction in Virginia. It is estimated that an additional 250 data centers are currently in the preconstruction phase in the state. Titan America is partnering with leading contractors, operators and hyperscalers to value engineer solutions and create additional products and services to meet their evolving demands. The investments in data centers act as a multiplier for the demand of construction materials as they usually lead to substantial follow-on investments in power generation, infrastructure and commercial construction. Turning now to Slide 7 to discuss an investment which enhances [ Titan American's] (sic) [Titan America's] position in the growing market for supplemental cementitious materials. Titan America's subsidiary, Separation Technologies, or ST, entered into an agreement to develop a first-of its-kind fly ash recycling plant at the Brunner Island Steam Electric Station in Pennsylvania. With this new plant, we are recovering fly ash directly from landfills, which we view as a reliable source of supply for years to come, solving the challenges associated with the retirement of coal-fired power plants. The newly announced plants will bolt on the Separation Technologies existing fly ash beneficiation facility and we have an annual capacity to handle 600,000 tons of landfill material. It is slated to produce and sell approximately 400,000 tons of concrete grade fly ash per year, complementing the product mix of our newly acquired Keystone plant and creating a one-stop shop of fly ash, cement and aggregates for our customers in Pennsylvania and Ohio. We expect to invest approximately $30 million in this plant, which is already under construction and we expect it to be fully operational in the third quarter of next year. ST is a recognized leader in fly ash beneficiation with over 30 million tons of fly ash sold under the ProAsh brand since 1995. ProAsh is Titan America's highly quality low-carbon fly ash that allows for better control of concrete mixtures, greater reliability, improved consistency and superior predictable in-place concrete properties. This initiative represents a compelling opportunity for Titan America, as it aligns with our long-term growth strategy. I will now turn it over to Larry, who will provide a breakdown of our second quarter financial results and business segment performance. Larry?

Thank you, Bill, and good afternoon, everyone. Starting on Slide 8, let me share an overview of our second quarter 2026 financial highlights. Our second quarter results reflect the resilience of our platform with strength in the Mid-Atlantic more than offsetting headwinds in Florida, which absorbed the impacts of an extended scheduled maintenance outage at our Pennsuco cement and aggregate plant, as well as the temporary import logistics challenges resulting from port disruptions in the Mediterranean. Despite the challenges, we were pleased to deliver year-over-year growth in revenue, adjusted EBITDA and operating cash flow in Q2 at the consolidated level. As indicated on the left-hand side of the slide, in the second quarter, we delivered revenue of $471 million, an increase of 9.6% compared to $429 million in the second quarter of 2025, of which Keystone contributed $20 million. Adjusted EBITDA for the quarter was $101 million compared to $99 million in the prior year quarter, an increase of 1.3%. Our second quarter adjusted EBITDA margin was 21.4% compared to 23.2% in the second quarter of 2025, a decrease of approximately 180 basis points, reflecting the costs associated with the extended Pennsuco outage. On a year-to-date basis, our adjusted EBITDA margin was 21.1% compared to 21.8% in the first half of 2025. Net income for the quarter was $43 million compared to $51 million in the prior year quarter with earnings per share of $0.23 compared to $0.28 in the second quarter of 2025. Approximately $0.03 of that $0.05 decline was attributable to the Keystone-related items, including transaction costs and a onetime tax charge associated with the post-acquisition reorganization of the Keystone entities. As shown on the right-hand side of the slide, operating cash flow for the first half of 2026 was $137 million compared to $108 million in H1 2025, reflecting working capital discipline and lower tax payments. For the same period, free cash flow was $50 million compared to $26 million in the prior year, driven by improvements in operating cash flow and a modest increase in CapEx investments. And finally, after accounting for the impacts of the Keystone acquisition, our leverage ratio at the end of Q2 was 1.37x trailing 12 months adjusted EBITDA, up from 0.64x at the beginning of the year. Even with that increase, we remain at a low absolute level of leverage with strong financial flexibility. Turning to Slide 9. Let me walk you through our Q2 sales volume performance by product line. Our sales volume performance reflects the strong commercial execution in a challenging market. Cement volumes, including external sales and internal consumption, increased 10% year-over-year. This includes Keystone's initial contribution and the benefits of continued demand for heavy building materials in infrastructure and private nonresidential construction applications. On a like-for-like basis, excluding Keystone, our cement volumes were roughly flat, held back by the impact of import supply chain disruptions in the quarter. Total aggregate volumes were lower by 1.3% in the quarter when compared to Q2 2025. Growth in external aggregate sales volumes was offset by a decline in internal consumption in Florida, attributable in part to the temporary effects of the scheduled maintenance activities at Pennsuco. Total fly ash volumes were up approximately 12% on a low base compared to the prior year quarter, while ready-mix concrete volumes increased 2.6% year-over-year, with Mid-Atlantic generating strong growth in nonresidential applications, while Florida volumes were impacted by project delays. Concrete block volumes increased 8.3% compared to the second quarter of 2025, driven by strong alignment with top regional players. Turning to Slide 10. External pricing was varied, primarily reflecting both geographic and product mix. We maintained strong pricing discipline in a challenging environment, demonstrating the value of our differentiated product portfolio. On a year-over-year basis, cement pricing declined 1.5% with like-for-like improvements in the Mid-Atlantic, offset by softness in Florida. The decline in aggregate pricing resulted from diverse dynamics and product mix demand across regional markets in Florida. Fly ash pricing was flat year-over-year, while ready-mix concrete pricing increased 4.4% when compared to Q2 2025, driven partly by focused participation in high-growth, high-value market segments. Concrete block pricing declined 2.6% year-over-year, reflecting channel and customer mix. Turning to Slides 11 and 12, let me walk you through our second quarter business segment performance. Starting with the Mid-Atlantic on Slide 11, our team delivered strong financial results through focused participation in infrastructure and nonresidential construction activity, which more than compensated for continued softness in residential demand. Mid-Atlantic external revenue was $214 million in the second quarter, an increase of 27% compared to $168 million in the second quarter of 2025. The increase was driven by approximately $20 million of revenue from Keystone, double-digit growth in ready-mix concrete revenues and strength in our legacy cement operations. Ready-mix concrete was a primary organic revenue growth driver with strong data center and commercial construction demand, higher unit selling prices and the benefit of new portable plant capacity supporting increased participation in high-value applications. Adjusted EBITDA for the segment was $53 million compared to $41 million in the prior year quarter, an increase of 30%, reflecting the benefits of favorable project mix, improved pricing and cost discipline, which together more than offset higher raw material and energy costs and the impacts of import disruptions. Segment adjusted EBITDA margin improved to 24.7% from 24.1% in the prior year quarter. On a year-to-date basis, Mid-Atlantic external revenue was $359 million, an increase of 16.7% compared to $308 million in the prior year period, and segment adjusted EBITDA was $65 million compared to $52 million in Q2 2025, an increase of 27% Segment adjusted EBITDA margin improved to 18.2% from 16.7% in the first half of 2025. Turning to Florida on Slide 12, our quarterly results reflect the impact of temporary headwinds from the extended Pennsuco outage and import disruptions I mentioned earlier. Florida's external revenue was $257 million in the second quarter, a decrease of 1.6% compared to $261 million in the second quarter of 2025 as lower ready-mix concrete volumes and lower aggregates and concrete block pricing was partially offset by higher concrete block volumes and external aggregate volumes. Adjusted EBITDA for the Florida segment was $51 million compared to $62 million in the prior year quarter with adjusted EBITDA margin of 19.7% in the second quarter compared to 23.8% in the second quarter of 2025. That decline was driven primarily by the Pennsuco cement and aggregate outages and import supply chain disruptions and the added cost of temporarily sourcing cement and aggregates from third parties during the period. Aggregated together, we estimate the total impact of the short-term headwinds had an adverse direct impact of approximately $7 million in the second quarter. On a year-to-date basis, Florida's external revenue was $510 million compared to $514 million in the prior year period, and segment adjusted EBITDA was $123 million compared to $133 million in the prior year period. Adjusted EBITDA margin was 24.2% compared to 25.9% in the first half of 2025. Now turning to our balance sheet and cash flows on Slide 13. As of June 30, 2026, we had $36 million of cash and cash equivalents and a total debt of $574 million for a total net debt position of $538 million. That represents a leverage ratio of 1.37x trailing 12 months adjusted EBITDA compared to 0.64x at the beginning of the year. With respect to Keystone, the acquisition was funded with a combination of cash on hand and a new term loan issued in April 2026 with a maturity date of February 2031. Our balance sheet, combined with strong cash generation and disciplined capital allocation provides strategic flexibility to support growth and invest in operating efficiencies, while maintaining our commitment to returning capital to shareholders and navigate evolving market conditions. Slide 14 shows our capital expenditure profile for the first half of 2026. Net capital expenditures were approximately $87 million for the first half of 2026 and remain focused on our previously communicated strategic objectives. increasing our domestic cement and aggregates capacity, improving the efficiency of our logistics network and further enhancing our strong positions in select downstream channels to market. As the Keystone integration progresses, we expect to make further CapEx investments to deliver operational, commercial and logistics synergies as we incorporate the Keystone assets into our Mid-Atlantic network. With respect to shareholder returns, earlier today, our Board of Directors approved a new issue premium distribution of $0.04 per share payable on October 9th, 2026, to shareholders of record as of October 1st, 2026. With that, I'll turn it back to Bill for his closing remarks.

Thanks, Larry. Let me say that in conclusion, despite the short-term challenges that we faced from the disruption of our cement imports, and the extended maintenance outage at our Pennsuco plant, we delivered a solid performance in the second quarter with year-over-year growth in both revenue and adjusted EBITDA. Our teams executed well and the underlying fundamentals of our key markets remain attractive. Let's turn now to our 2026 outlook on Slide 15. Following the completion of our acquisition of Keystone Cement in the second quarter and given our current visibility into the balance of the year, we have updated our full year 2026 guidance. We now expect high single-digit revenue growth for the full year 2026 as compared to 2025. We also expect a modest decline in our adjusted EBITDA margin for the year, which reflects the lower starting contribution from Keystone. Our updated outlook reflects our confidence in our ability to capitalize on the underlying demand growth trends, more specifically in infrastructure and private nonresidential across our markets, the successful integration of Keystone and our ability to continue executing successfully on our strategic growth and cost productivity initiatives. Before we open the call for questions, I want to express once again my sincere gratitude to our Titan America team members. It is the hard work and continued dedication to safety, operational excellence, the success of our customers and the communities we operate in that makes our company great. With that, I'll turn the call over to the operator for the Q&A session. Operator?

[Operator Instructions] We'll take our first question from Anthony Pettinari with Citi.

Bill, can you talk a little bit more about cement pricing and you saw some softness in Florida, but you talked about like-for-like improvements in Mid-Atlantic. I'm just wondering what factors maybe caused the softness in Florida. And I wonder if you could talk a little bit also about price cost because it seems like we're seeing higher costs for fuel, electricity. Just wondering if you can give any additional color on pricing in the 2 regions.

We see pricing trends more robust in the Mid-Atlantic regions with growth we witnessed from the demand in commercial, nonresidential applications, data centers, infrastructure and the rest. In Florida, we have resilience price, broadly stable prices. We don't -- we were not successful so far in increasing the prices, but it's been resilient. The main headwind that we face is the softness in the residential sector. And especially for us in this second quarter of the year, as you heard from Larry and myself, we had scheduled extended shutdowns which, of course, led to some reduced production. But also, we had logistics disruption in Mediterranean ports, who led to -- which led to delays in arrival of shipments of imported cement, stock-outs, which led us to seek third-party supply in order to meet the customer needs. So overall, this quarter was challenged in Florida, especially. So it's not really lending itself for conclusions on pricing dynamics. What I can say for sure is that pricing dynamics remain stable. And we see more dynamic pricing in growing regions and especially growing applications and regions, especially in the Mid-Atlantic. Now in relation to price over cost, there have been inflationary pressures from fuel, energy and raw material costs overall. But we've been very successful in relation to the self-help, the operational excellence initiatives that we have applied. So broadly, as you can see, our margins in Mid-Atlantic improved. Our margins in Florida, when we look at the first half, which includes the maintenance shutdowns is slightly down, but this is taken into account both the extended shutdowns, also the disruptions in imported cement, which were costly, as you heard. So overall, we managed well price over cost and our margins.

Got it. Got it. That's very helpful. And then just one follow-up. The Pennsuco outage and the supply chain issues and the import issues, has that -- is that a headwind in July or 3Q? Or have those issues basically been resolved? And then maybe just an add-on. I mean, there have been discussions around tariffs on imported Canadian cement. Is that at all impactful to the Mid-Atlantic market or maybe not really?

I think, Anthony, it's Larry. Taking the last one, we'll see how that plays out. I don't think we have clear line of sight to exactly how the tariffs applied to the Canadian product coming into the Northeast U.S. will affect our markets quite yet. So we'll take a wait and see on that one. On the maintenance outage in Florida, in particular, there were 2 things going on. One had to do with the cement outage and the other was aggregate. So combined 2, it was a scheduled outage. It happened to be by its complexity, a longer duration than one that would typically be there. That's behind us from Q2. When you look forward, as you know, each of the outages have a second semester element to it, much shorter in duration, typically a week, give or take. That's still ahead of us, but that's normal in that case, nothing different than the normal activities in that case. So when you look at the impacts combined, I think we said it in the prepared comments, $7 million overall in these direct impacts is what we see. We didn't call out per se some of the energy headwinds in Florida, but energy headwinds in Florida were more significant than were in Mid-Atlantic, partly because of the way we consume diesel fuel in the aggregates facility there and has a heavier impact there than it would in the Mid-Atlantic for us.

We'll move next to Phil Ng with Jefferies.

Just a few cleanup questions, Larry. On the $7 million impact on the scheduled maintenance outage piece, that looks like it's largely behind you in 3Q. Any lingering impact we should be mindful of on the imports from the Mediterranean dynamic that's going to hit in 3Q?

Yes. Look, I think it depends on activities in different geographies, Phil. So we don't currently have any visibility to something that's more disruptive than what's in our past as we see it today, that's not going to be a disruption going forward. Sea freight rates are higher. As you know, spot rates are higher. I think we've talked about this in the first quarter call that we had. So there could be some sea freight rate issues that come into the second half of the year but a bit higher than they were a year ago.

In relation to the shutdown, Phil, the first part of the question, it was a scheduled shutdown. So there's no lingering effects into the second half.

And then, Larry, I think your import for cement prices in the last quarter, you mentioned there is some hedge dynamic, where your prices don't really move. So I mean, which I think you're alluding to on freight sea rates. Does that pick up a bit in the back half, too, in terms of your import costs?

Yes. We had -- well, import costs were contracted for the year. So roughly, it's slightly higher, not so meaningful higher than a year ago Phil on the cement itself. On the sea freight rates, what we saw in the last call was that we had contracted through really the second -- first half of the year. As we enter into the second half of the year, we've covered some of those with existing contracts, but there are still some that are exposed that we will contract later in the year as the year progresses.

Okay. Super. And then your guidance, you mentioned that margins were going to be down a little bit on a year-over-year basis. Larry, any chance to give us a little more color in terms of the magnitude? We're talking about 150 basis points, 50 basis points in terms of contraction. Any more color would be helpful.

Phil, in relation to that, this is Bill. You can say it's going to be between 25 basis points to 50 basis points essentially. The impact of the Keystone integration at the starting, let's say, margins of the facility.