Eagle Materials Inc. (NYSE:EXP) Q2 2023 Earnings Conference Call October 26, 2022 8:30 AM ET Company Participants Michael Haack - President & Chief Executive Officer Craig Kesler - Chief Financial Officer Conference Call Participants Trey Grooms - Stephens Brent Thielman - D.A. Davidson Asher Sohnen - Citigroup Jerry Revich - Goldman Sachs Stanley Elliott - Stifel Adam Thalhimer - Thompson Davis Operator Good day, everyone, and welcome to Eagle Materials Second Quarter of Fiscal 2023 Earnings Conference Cal ...

[PART I. FINANCIAL INFORMATION (unaudited)](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION%20%28unaudited%29) This section presents the unaudited financial information, including consolidated statements, notes, and management's discussion and analysis [Item 1. Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including statements of earnings, comprehensive earnings, balance sheets, cash flows, and stockholders' equity, along with detailed notes explaining accounting policies, acquisitions, debt, and segment performance for the periods ended September 30, 2022 [Consolidated Statements of Earnings](index=3&type=section&id=Consolidated%20Statements%20of%20Earnings) This statement details the company's revenues, gross profit, net earnings, and earnings per share for the specified periods Consolidated Statements of Earnings (Unaudited, thousands, except per share data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Revenue | $605,068 | $509,694 | $1,166,455 | $985,464 | | Gross Profit | $194,239 | $155,341 | $345,105 | $281,852 | | Net Earnings | $138,995 | $102,125 | $244,000 | $197,452 | | Basic EPS | $3.74 | $2.48 | $6.50 | $4.74 | | Diluted EPS | $3.72 | $2.46 | $6.46 | $4.70 | | Cash Dividends Per Share | $0.25 | $0.25 | $0.50 | $0.25 | [Consolidated Statements of Comprehensive Earnings](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Earnings) This statement presents net earnings and other comprehensive income components, such as actuarial changes in defined benefit plans Consolidated Statements of Comprehensive Earnings (Unaudited, thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Earnings | $138,995 | $102,125 | $244,000 | $197,452 | | Net Actuarial Change in Defined Benefit Plans | | | | | | Amortization of Net Actuarial Loss | $30 | $36 | $60 | $72 | | Tax Expense | ($6) | ($9) | ($13) | ($18) | | Comprehensive Earnings | $139,019 | $102,152 | $244,047 | $197,506 | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific reporting dates Consolidated Balance Sheets (Unaudited, thousands) | Asset/Liability/Equity | September 30, 2022 | March 31, 2022 | | :----------------------------------- | :----------------- | :------------- | | **ASSETS** | | | | Cash and Cash Equivalents | $84,140 | $19,416 | | Total Current Assets | $552,874 | $442,727 | | Property, Plant, and Equipment, net | $1,655,616 | $1,616,539 | | Goodwill and Intangible Assets, net | $469,491 | $387,898 | | Total Assets | $2,809,149 | $2,579,652 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total Current Liabilities | $223,321 | $207,551 | | Long-term Debt | $1,126,398 | $938,265 | | Total Liabilities | $1,652,445 | $1,446,096 | | Total Stockholders' Equity | $1,156,704 | $1,133,556 | | Total Liabilities and Stockholders' Equity | $2,809,149 | $2,579,652 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes cash inflows and outflows from operating, investing, and financing activities over the reporting periods Consolidated Statements of Cash Flows (Unaudited, thousands) | Cash Flow Activity | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :----------------------------------------------------------------------------------- | :---------------------------- | :---------------------------- | | Net Cash Provided by Operating Activities | $300,445 | $261,462 | | Net Cash Used in Investing Activities | ($201,700) | ($26,777) | | Net Cash Used in Financing Activities | ($34,021) | ($457,991) | | NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | $64,724 | ($223,306) | | CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | $19,416 | $268,520 | | CASH AND CASH EQUIVALENTS AT END OF PERIOD | $84,140 | $45,214 | [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) This statement details changes in stockholders' equity, including net earnings, stock repurchases, and dividends Consolidated Statements of Stockholders' Equity (Unaudited, thousands) | Metric | Balance at March 31, 2022 | Balance at September 30, 2022 | | :------------------------------------ | :------------------------ | :---------------------------- | | Total Stockholders' Equity | $1,133,556 | $1,156,704 | | Net Earnings | $244,000 (Six Months) | $138,995 (Three Months) | | Purchase and Retirement of Common Stock | ($109,612) (Six Months) | ($100,786) (Three Months) | | Dividends to Shareholders | ($19,149) (Six Months) | ($9,471) (Three Months) | [Notes to Unaudited Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies, significant transactions, and financial statement line items [Basis of Presentation](index=8&type=section&id=%28A%29%20BASIS%20OF%20PRESENTATION) This note outlines the preparation principles for the unaudited consolidated financial statements, including GAAP compliance and management estimates - The Unaudited Consolidated Financial Statements are prepared by the Company, without audit, pursuant to SEC rules and regulations[17](index=17&type=chunk) - Certain information and footnote disclosures normally included in GAAP financial statements have been condensed or omitted[18](index=18&type=chunk) - Management makes estimates and assumptions that affect reported amounts; actual results could differ from these estimates[19](index=19&type=chunk) - No recent accounting pronouncements are expected to materially affect the Company[20](index=20&type=chunk) [Supplemental Cash Flow Information](index=8&type=section&id=%28B%29%20SUPPLEMENTAL%20CASH%20FLOW%20INFORMATION) This note provides additional details on cash payments for interest, income taxes, and operating leases Cash Payments (dollars in thousands) | Cash Payments | For the Six Months Ended September 30, 2022 | For the Six Months Ended September 30, 2021 | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | | Interest | $12,940 | $10,634 | | Income Taxes | $61,592 | $54,581 | | Operating Cash Flows Used for Operating Leases | $4,248 | $3,987 | [Acquisitions](index=9&type=section&id=%28C%29%20ACQUISITIONS) This note details the ConAgg and Terminal acquisitions, including their purchase prices and preliminary fair value allocations - The ConAgg Acquisition was completed on April 22, 2022, for approximately **$120.2 million**, funded through borrowings under the revolving credit facility, with operations included in the Concrete and Aggregates business[23](index=23&type=chunk) ConAgg Acquisition Purchase Price Allocation (Fair Value in thousands) | Item | Fair Value | | :----------------------------- | :--------- | | Working Capital | $10,780 | | Property, Plant, and Equipment | $39,489 | | Intangible Assets | $30,750 | | Goodwill | $39,135 | | Total Estimated Purchase Price | $120,154 | - The Terminal Acquisition was completed on September 16, 2022, for approximately **$39.5 million**, funded through borrowings under the revolving credit facility, with operations included in the Cement business[27](index=27&type=chunk) Terminal Acquisition Preliminary Purchase Price Allocation (Estimated Fair Value in thousands as of Sep 30, 2022) | Item | Estimated Fair Value | | :----------------------------- | :------------------- | | Working Capital | $1,116 | | Property, Plant, and Equipment | $23,301 | | Intangible Assets | $5,050 | | Goodwill | $9,978 | | Total Estimated Purchase Price | $39,445 | [Revenue Recognition](index=10&type=section&id=%28D%29%20REVENUE) This note describes the company's policies for recognizing revenue from product sales and long-term supply agreements - Revenue is primarily earned from the sale of cement, concrete, aggregates, gypsum wallboard, and recycled paperboard, mostly to third-party contractors and suppliers[30](index=30&type=chunk) - Revenue from long-term supply agreements is recognized upon transfer of control, generally at shipment, with market-based pricing subject to contractual adjustments[31](index=31&type=chunk) - Rebates and incentives offered to customers are treated as variable consideration and adjusted using the most likely amount method[32](index=32&type=chunk) [Accounts and Notes Receivable](index=11&type=section&id=%28E%29%20ACCOUNTS%20AND%20NOTES%20RECEIVABLE) This note provides details on accounts and notes receivable, including the allowance for doubtful accounts and collateral - Accounts Receivable are net of an allowance for doubtful accounts of **$6.8 million** at September 30, 2022, and **$6.7 million** at March 31, 2022, with no significant credit risk concentration[36](index=36&type=chunk) - Notes Receivable totaled approximately **$8.5 million** at September 30, 2022, bearing interest at LIBOR plus 3% (approx. 5.2%), maturing in fiscal 2025, and collateralized by borrower assets[37](index=37&type=chunk) [Inventories](index=11&type=section&id=%28F%29%20INVENTORIES) This note outlines the valuation method for inventories and provides a breakdown of their composition - Inventories are stated at the lower of average cost or net realizable value, including raw materials, finished products, and repair parts[38](index=38&type=chunk) Inventory Composition (thousands) | Inventory Type | September 30, 2022 | March 31, 2022 | | :-------------------------------- | :----------------- | :------------- | | Raw Materials and Materials-in-Progress | $72,610 | $81,308 | | Finished Cement | $26,671 | $38,769 | | Aggregates | $6,753 | $3,558 | | Gypsum Wallboard | $3,357 | $3,452 | | Paperboard | $5,371 | $7,462 | | Repair Parts and Supplies | $98,547 | $91,593 | | Fuel and Coal | $12,526 | $10,519 | | Total | $225,835 | $236,661 | [Accrued Expenses](index=11&type=section&id=%28G%29%20ACCURUED%20EXPENSES) This note details the composition of accrued expenses, including payroll, benefits, dividends, and taxes Accrued Expenses Composition (thousands) | Accrued Expense Type | September 30, 2022 | March 31, 2022 | | :------------------------------------ | :----------------- | :------------- | | Payroll and Incentive Compensation | $32,289 | $37,262 | | Benefits | $15,832 | $14,894 | | Dividends | $9,482 | $9,756 | | Interest | $7,167 | $5,052 | | Property Taxes | $10,399 | $6,514 | | Power and Fuel | $4,633 | $2,877 | | Freight | $2,485 | $1,172 | | Legal and Professional | $1,608 | $989 | | Sales and Use Tax | $2,291 | $1,509 | | Other | $5,329 | $6,729 | | Total | $91,515 | $86,754 | [Leases](index=12&type=section&id=%28H%29%20LEASES) This note describes the company's lease arrangements, including lease costs, liabilities, and key terms - The Company leases real estate, buildings, and equipment, with some leases containing rent escalations and extension options ranging from one to 20 years[41](index=41&type=chunk) Total Lease Cost (thousands) | Lease Cost Type | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Operating Lease Cost | $1,671 | $1,566 | $3,398 | $3,080 | | Short-term Lease Cost | $126 | $309 | $275 | $811 | | Total Lease Cost | $1,797 | $1,875 | $3,673 | $3,891 | Operating Lease Liabilities (thousands) | Item | September 30, 2022 | March 31, 2022 | | :--------------------------------- | :----------------- | :------------- | | Operating Lease Right-of-Use Assets | $22,126 | $23,856 | | Current Operating Lease Liabilities | $6,736 | $7,118 | | Noncurrent Operating Lease Liabilities | $26,736 | $29,212 | | Total Operating Lease Liabilities | $33,472 | $36,330 | - The weighted-average remaining lease term is **10.2 years**, with a weighted-average discount rate of **3.73%**[42](index=42&type=chunk) [Share-Based Employee Compensation](index=12&type=section&id=%28I%29%20SHARE-BASED%20EMPLOYEE%20COMPENSATION) This note details the company's equity award plans, including stock option and restricted stock activity and unrecognized compensation costs - The Company's Amended and Restated Incentive Plan allows for the issuance of equity awards, including stock options and restricted stock, to employees and Board members[43](index=43&type=chunk) Stock Option Activity (Six Months Ended September 30, 2022) | Metric | Number of Shares | Weighted-Average Exercise Price | | :--------------------------------------- | :--------------- | :------------------------------ | | Outstanding Options at March 31, 2022 | 456,849 | $83.81 | | Granted | 56,621 | $125.90 | | Exercised | (17,841) | $125.36 | | Cancelled | (3,178) | $109.15 | | Outstanding Options at September 30, 2022 | 492,451 | $89.09 | | Options Exercisable at September 30, 2022 | 301,348 | | | Weighted-Average Fair Value of Options Granted During the Year | | $48.36 | Nonvested Restricted Stock Activity (Three Months Ended September 30, 2022) | Metric | Number of Shares | Weighted-Average Grant Date Fair Value | | :--------------------------------------- | :--------------- | :------------------------------------- | | Nonvested Restricted Stock at March 31, 2022 | 258,779 | $85.34 | | Granted | 111,230 | $126.23 | | Vested | (55,467) | $127.05 | | Forfeited | (3,247) | $124.82 | | Nonvested Restricted Stock at September 30, 2022 | 311,295 | $98.31 | - At September 30, 2022, there was approximately **$4.8 million** of unrecognized compensation cost related to outstanding stock options, expected to be recognized over **2.4 years**, and **$23.7 million** from restricted stock, expected over **2.5 years**[48](index=48&type=chunk)[54](index=54&type=chunk) [Computation of Earnings Per Share](index=15&type=section&id=%28J%29%20COMPUTATION%20OF%20EARNINGS%20PER%20SHARE) This note provides the calculation of basic and diluted earnings per share, including the effect of dilutive securities Basic and Diluted Common Shares Outstanding | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Weighted-Average Shares of Common Stock Outstanding | 37,140,197 | 41,222,161 | 37,559,087 | 41,623,187 | | Effect of Dilutive Shares: | | | | | | Assumed Exercise of Outstanding Dilutive Options | 420,199 | 560,876 | 424,489 | 606,876 | | Less Shares Repurchased from Proceeds of Assumed Exercised Options | (310,956) | (365,887) | (311,373) | (395,516) | | Restricted Stock Units | 117,439 | 177,583 | 120,410 | 179,300 | | Weighted-Average Common Stock and Dilutive Securities Outstanding | 37,366,879 | 41,594,733 | 37,792,613 | 42,013,847 | | Shares Excluded Due to Anti-dilution Effects | 46,750 | 3,578 | 39,703 | 2,684 | [Pension and Employee Benefit Plans](index=15&type=section&id=%28K%29%20PENSION%20AND%20EMPLOYEE%20BENEFIT%20PLANS) This note describes the company's defined benefit and defined contribution plans and expected pension expenses - The Company sponsors fully funded single-employer defined benefit plans (frozen to new participants) and defined contribution plans, with expected pension expense for fiscal 2023 less than **$0.1 million**[57](index=57&type=chunk) [Income Taxes](index=16&type=section&id=%28L%29%20INCOME%20TAXES) This note details the effective tax rate and factors influencing it, such as state income taxes and depletion benefits - The effective tax rate for the six months ended September 30, 2022, was approximately **22%**, consistent with the prior year, primarily due to state income taxes partially offset by percentage depletion benefits[59](index=59&type=chunk) [Long-Term Debt](index=16&type=section&id=%28M%29%20LONG-TERM%20DEBT) This note outlines the composition of long-term debt, including credit facilities, senior unsecured notes, and compliance with covenants Long-term Debt Composition (thousands) | Debt Type | September 30, 2022 | March 31, 2022 | | :-------------------------------------- | :----------------- | :------------- | | Revolving Credit Facility | $200,000 | $200,000 | | 2.500% Senior Unsecured Notes Due 2031 | $750,000 | $750,000 | | Term Loan | $197,500 | — | | Total Debt | $1,147,500 | $950,000 | | Less: Current Portion of Long-term Debt | ($10,000) | — | | Less: Unamortized Discounts and Debt Issuance Costs | ($11,102) | ($11,735) | | Long-term Debt | $1,126,398 | $938,265 | - The Company has an unsecured **$750.0 million** revolving credit facility, amended on May 5, 2022, which includes a **$200.0 million** term loan facility and provides an option to increase revolving borrowing capacity by up to **$375.0 million**[61](index=61&type=chunk) - As of September 30, 2022, **$200.0 million** was outstanding under the Revolving Credit Facility, with **$543.6 million** of available borrowings, and the Company was in compliance with all financial covenants[67](index=67&type=chunk) - In July 2021, the Company repaid its **$665.0 million** term loan credit agreement and redeemed **$350.0 million** of 4.500% Senior Unsecured Notes, incurring an early termination premium of approximately **$8.4 million** and expensing **$6.1 million** in debt issuance costs[71](index=71&type=chunk) [Segment Information](index=18&type=section&id=%28N%29%20SEGMENT%20INFORMATION) This note provides financial data by business segment, including revenue, operating earnings, and joint venture performance - The business is organized into two sectors: Heavy Materials (Cement, Concrete and Aggregates) and Light Materials (Gypsum Wallboard, Recycled Paperboard), with products essential in various construction projects[73](index=73&type=chunk)[74](index=74&type=chunk) Revenue by Segment (thousands) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :---------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Cement | $319,460 | $288,324 | $603,976 | $558,579 | | Concrete and Aggregates | $69,613 | $52,750 | $131,231 | $97,504 | | Gypsum Wallboard | $224,638 | $172,985 | $440,965 | $339,252 | | Paperboard | $53,673 | $47,798 | $107,746 | $91,065 | | Consolidated Revenue | $605,068 | $509,694 | $1,166,455 | $985,464 | Operating Earnings by Segment (thousands) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Cement | $98,779 | $88,750 | $161,127 | $151,297 | | Concrete and Aggregates | $7,276 | $7,539 | $13,008 | $12,883 | | Gypsum Wallboard | $89,761 | $66,331 | $173,829 | $129,584 | | Paperboard | $5,579 | $981 | $9,395 | $4,318 | | Earnings Before Interest and Income Taxes | $187,104 | $143,583 | $330,613 | $272,274 | Joint Venture Summarized Financial Information (Total Amount, thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Revenue | $50,259 | $53,852 | $102,889 | $99,234 | | Gross Margin | $15,977 | $17,776 | $28,003 | $34,609 | | Earnings Before Income Taxes | $14,312 | $16,519 | $24,508 | $32,459 | | Metric | September 30, 2022 | March 31, 2022 | | :------------------------- | :----------------- | :------------- | | Current Assets | $84,701 | $69,492 | | Noncurrent Assets | $114,764 | $112,926 | | Current Liabilities | $23,152 | $18,276 | [Interest Expense, Net](index=21&type=section&id=%28O%29%20INTEREST%20EXPENSE) This note details the components of net interest expense, including interest income, expense, and other related costs Interest Expense, Net Components (thousands) | Component | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Interest Income | ($70) | ($13) | ($82) | ($38) | | Interest Expense | $8,176 | $5,425 | $15,055 | $11,551 | | Other Expenses | $474 | $6,856 | $937 | $7,727 | | Interest Expense, net | $8,580 | $12,268 | $15,910 | $19,240 | - Other Expenses include amortization of debt issuance costs and Revolving Credit Facility costs[86](index=86&type=chunk) [Commitments and Contingencies](index=22&type=section&id=%28P%29%20COMMITMENTS%20AND%20CONTINGENCIES) This note describes the company's contingent liabilities, including letters of credit, performance bonds, and legal proceedings - The Company has contingent liabilities of approximately **$6.4 million** under outstanding letters of credit at September 30, 2022, related to workers' compensation and liability self-insurance[90](index=90&type=chunk) - The Company is contingently liable for **$26.8 million** in performance bonds for reclamation obligations and mining permits[92](index=92&type=chunk) - Management believes that indemnifications and legal proceedings will not have a material adverse effect on the consolidated financial position, results of operations, or cash flows[91](index=91&type=chunk)[195](index=195&type=chunk) [Fair Value of Financial Instruments](index=22&type=section&id=%28Q%29%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) This note provides information on the fair value of financial instruments, including long-term debt and short-term assets/liabilities - The fair value of the 2.500% Senior Unsecured Notes was **$550.2 million** at September 30, 2022[89](index=89&type=chunk) - The fair value of long-term debt is estimated based on current incremental borrowing rates for similar arrangements[93](index=93&type=chunk) - Carrying values of cash, receivables, payables, and the Revolving Credit Facility approximate their fair values due to short-term maturities[93](index=93&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, market conditions, and liquidity for the three and six months ended September 30, 2022, highlighting revenue growth, operational challenges, and strategic acquisitions. It details segment-specific results and discusses critical accounting policies, liquidity, and capital resources [Executive Summary](index=23&type=section&id=EXECUTIVE%20SUMMARY) This summary provides an overview of the company's business, recent acquisitions, and strategic positioning in the construction materials market - Eagle Materials is a leading U.S. manufacturer of heavy construction materials (Cement, Concrete and Aggregates) and light building materials (Gypsum Wallboard, Recycled Paperboard)[95](index=95&type=chunk)[96](index=96&type=chunk) - The Company completed the ConAgg Acquisition for approximately **$120.2 million** in April 2022, integrating it into the Concrete and Aggregates segment[99](index=99&type=chunk) - A cement distribution terminal was acquired in Nashville, Tennessee, for approximately **$39.5 million** in September 2022, included in the Cement business segment[100](index=100&type=chunk) [Market Conditions and Outlook](index=23&type=section&id=MARKET%20CONDITIONS%20AND%20OUTLOOK) This section discusses the current market environment, demand trends for key products, and the impact of external factors like inflation and interest rates - End markets remained resilient in the first half of fiscal 2023 despite external challenges like transportation disruptions, supply chain constraints, and increasing interest rates and inflation[101](index=101&type=chunk) - Demand for cement is expected to remain strong due to the Infrastructure Investment and Jobs Act, with the Cement business operating at high utilization levels[103](index=103&type=chunk) - Gypsum Wallboard shipments were up **6%**, with demand supported by home construction backlogs, though rising mortgage rates may adversely impact future residential construction[101](index=101&type=chunk)[104](index=104&type=chunk) - Energy and freight costs increased in fiscal 2022 and the first half of fiscal 2023, with further increases anticipated into fiscal 2024; the Company has forward purchase contracts for approximately **50%** of natural gas needs[106](index=106&type=chunk) [Results of Operations: Three Months Ended September 30, 2022 vs. 2021](index=25&type=section&id=THREE%20MONTHS%20ENDED%20SEPTEMBER%2030%2C%202022%2C%20COMPARED%20WITH%20THREE%20MONTHS%20ENDED%20SEPTEMBER%2030%2C%202021) This section analyzes the company's financial performance for the three-month period, focusing on revenue, gross profit, and net earnings changes Key Financial Highlights (Three Months Ended Sep 30, thousands, except per share data) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | | Revenue | $605,068 | $509,694 | 19% | | Gross Profit | $194,239 | $155,341 | 25% | | Net Earnings | $138,995 | $102,125 | 36% | | Diluted Earnings per Share | $3.72 | $2.46 | 51% | - Revenue increased by **$95.4 million (19%)**, with **$13.9 million** contributed by the ConAgg Acquisition; excluding the acquisition, revenue improved by **16%** due to higher gross sales prices and sales volume[110](index=110&type=chunk) - Gross Profit increased **25%** to **$194.2 million**, with the gross margin rising to **32%** due to higher gross sales prices, partially offset by increased operating costs[112](index=112&type=chunk) - Interest Expense, net, decreased by **30%** primarily due to the write-off of debt issue costs in the prior year, partially offset by higher interest rates and average outstanding balance under the Revolving Credit Facility[118](index=118&type=chunk) [Results of Operations: Six Months Ended September 30, 2022 vs. 2021](index=27&type=section&id=SIX%20MONTHS%20ENDED%20SEPTEMBER%2030%2C%202022%2C%20COMPARED%20WITH%20SIX%20MONTHS%20ENDED%20SEPTEMBER%2030%2C%202021) This section analyzes the company's financial performance for the six-month period, detailing changes in revenue, gross profit, and net earnings Key Financial Highlights (Six Months Ended Sep 30, thousands, except per share data) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | | Revenue | $1,166,455 | $985,464 | 18% | | Gross Profit | $345,105 | $281,852 | 22% | | Net Earnings | $244,000 | $197,452 | 24% | | Diluted Earnings per Share | $6.46 | $4.70 | 37% | - Revenue increased by **$181.0 million (18%)**, with **$24.9 million** from the ConAgg Acquisition; excluding the acquisition, revenue improved by **16%** due to higher gross sales prices and sales volume[124](index=124&type=chunk) - Gross Profit increased **22%** to **$345.1 million**, with the gross margin rising to **30%** due to higher gross sales prices, partially offset by increased operating costs[126](index=126&type=chunk) - Interest Expense, net, decreased by **17%** primarily due to the write-off of debt issue costs in the prior year, partially offset by higher interest rates and average outstanding balance under the Revolving Credit Facility[132](index=132&type=chunk) [Segment Results: Three and Six Months Ended September 30, 2022 vs. 2021](index=29&type=section&id=THREE%20AND%20SIX%20MONTHS%20ENDED%20SEPTEMBER%2030%2C%202022%20vs.%20THREE%20AND%20SIX%20MONTHS%20ENDED%20SEPTEMBER%2030%2C%202021%20BY%20SEGMENT) This section provides a detailed breakdown of financial performance across the company's Heavy Materials and Light Materials segments [Heavy Materials - Cement](index=29&type=section&id=CEMENT) This subsection details the Cement segment's revenue, sales volume, average net sales price, and operating earnings performance Cement Segment Performance (Three Months Ended Sep 30) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change (%) | | :-------------------------------------- | :----------- | :----------- | :--------- | | Gross Revenue (incl. Intersegment & JV) | $319,460 | $288,324 | 11% | | Sales Volume (M Tons) | 2,145 | 2,198 | (2)% | | Average Net Sales Price, per ton | $132.50 | $117.78 | 12% | | Operating Earnings | $98,779 | $88,750 | 11% | Cement Segment Performance (Six Months Ended Sep 30) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change (%) | | :-------------------------------------- | :----------- | :----------- | :--------- | | Gross Revenue (incl. Intersegment & JV) | $603,976 | $558,579 | 8% | | Sales Volume (M Tons) | 4,138 | 4,234 | (2)% | | Average Net Sales Price, per ton | $130.24 | $117.09 | 11% | | Operating Earnings | $161,127 | $151,297 | 6% | - Cement Revenue increased **11%** (three months) and **8%** (six months) primarily due to higher gross sales prices, partially offset by a **2%** decrease in sales volume for both periods[137](index=137&type=chunk)[139](index=139&type=chunk) - Operating Earnings increased **11%** (three months) and **6%** (six months), driven by higher gross sales prices but partially offset by increased energy and maintenance costs[138](index=138&type=chunk)[140](index=140&type=chunk) [Heavy Materials - Concrete and Aggregates](index=30&type=section&id=CONCRETE%20AND%20AGGREGATES) This subsection analyzes the Concrete and Aggregates segment's revenue, sales volumes, pricing, and operating earnings, including acquisition impacts Concrete and Aggregates Segment Performance (Three Months Ended Sep 30) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | | Gross Revenue, as reported | $69,613 | $52,750 | 32% | | Sales Volume (M Cubic Yards Concrete) | 451 | 398 | 13% | | Sales Volume (M Tons Aggregate) | 912 | 481 | 90% | | Average Net Sales Price (Concrete - Per Cubic Yard) | $134.28 | $120.15 | 12% | | Average Net Sales Price (Aggregates - Per Ton) | $10.87 | $10.40 | 5% | | Operating Earnings | $7,276 | $7,539 | (3)% | Concrete and Aggregates Segment Performance (Six Months Ended Sep 30) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | | Gross Revenue, as reported | $131,231 | $97,504 | 35% | | Sales Volume (M Cubic Yards Concrete) | 857 | 746 | 15% | | Sales Volume (M Tons Aggregate) | 1,707 | 842 | 103% | | Average Net Sales Price (Concrete - Per Cubic Yard) | $131.65 | $119.23 | 10% | | Average Net Sales Price (Aggregates - Per Ton) | $11.05 | $10.20 | 8% | | Operating Earnings | $13,008 | $12,883 | 1% | - Revenue increased **32%** (three months) and **35%** (six months), significantly boosted by the ConAgg Acquisition, which contributed **$13.9 million** and **$24.9 million**, respectively[143](index=143&type=chunk)[145](index=145&type=chunk) - Operating Earnings decreased **3%** (three months) and increased **1%** (six months), impacted by increased operating costs (materials and delivery) partially offset by higher gross sales prices[144](index=144&type=chunk)[146](index=146&type=chunk) [Light Materials - Gypsum Wallboard](index=31&type=section&id=GYPSUM%20WALLBOARD) This subsection presents the Gypsum Wallboard segment's revenue, sales volume, average net sales price, and operating earnings performance Gypsum Wallboard Segment Performance (Three Months Ended Sep 30) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change (%) | | :------------------------------ | :----------- | :----------- | :--------- | | Gross Revenue, as reported | $224,638 | $172,985 | 30% | | Sales Volume (MMSF) | 783 | 736 | 6% | | Average Net Sales Price, per MSF | $233.70 | $190.93 | 22% | | Operating Earnings | $89,761 | $66,331 | 35% | Gypsum Wallboard Segment Performance (Six Months Ended Sep 30) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change (%) | | :------------------------------ | :----------- | :----------- | :--------- | | Gross Revenue, as reported | $440,965 | $339,252 | 30% | | Sales Volume (MMSF) | 1,581 | 1,499 | 5% | | Average Net Sales Price, per MSF | $226.07 | $183.73 | 23% | | Operating Earnings | $173,829 | $129,584 | 34% | - Revenue increased **30%** for both the three and six months ended September 30, 2022, driven by higher gross sales prices and sales volume[149](index=149&type=chunk)[151](index=151&type=chunk) - Operating Earnings increased **35%** (three months) and **34%** (six months), primarily due to higher gross sales prices and sales volume, partially offset by increased operating costs (freight, energy, and raw materials)[150](index=150&type=chunk)[152](index=152&type=chunk) [Light Materials - Recycled Paperboard](index=32&type=section&id=RECYCLED%20PAPERBOARD) This subsection details the Recycled Paperboard segment's revenue, sales volume, average net sales price, and operating earnings Recycled Paperboard Segment Performance (Three Months Ended Sep 30) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change (%) | | :-------------------------------------- | :----------- | :----------- | :--------- | | Gross Revenue (incl. intersegment) | $53,673 | $47,798 | 12% | | Sales Volume (M Tons) | 85 | 87 | (2)% | | Average Net Sales Price, per ton | $603.62 | $524.54 | 15% | | Operating Earnings | $5,579 | $981 | 469% | Recycled Paperboard Segment Performance (Six Months Ended Sep 30) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change (%) | | :-------------------------------------- | :----------- | :----------- | :--------- | | Gross Revenue (incl. intersegment) | $107,746 | $91,065 | 18% | | Sales Volume (M Tons) | 169 | 171 | (1)% | | Average Net Sales Price, per ton | $607.73 | $511.76 | 19% | | Operating Earnings | $9,395 | $4,318 | 118% | - Revenue increased **12%** (three months) and **18%** (six months) primarily due to higher gross sales prices from long-term sales agreements, despite a slight decrease in sales volume[155](index=155&type=chunk)[157](index=157&type=chunk) - Operating Earnings increased significantly by **469%** (three months) and **118%** (six months), driven by higher gross sales prices, partially offset by increased input costs (energy, chemicals, freight, and fiber)[156](index=156&type=chunk)[158](index=158&type=chunk) [Critical Accounting Policies and Estimates](index=33&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section highlights key accounting policies and estimates requiring significant management judgment, such as those for long-lived assets and business combinations - The Company's critical accounting policies requiring significant judgment include those related to long-lived assets, goodwill, and business combinations[161](index=161&type=chunk) - Management reviews the application of accounting policies and estimates with the Audit Committee and independent registered public accounting firm[161](index=161&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section assesses the company's ability to generate and manage cash, fund operations, and meet financial obligations, including debt and capital expenditures - The Company believes it has access to sufficient financial resources to fund its business, operations, contractual obligations, capital expenditures, and debt service for at least the next twelve months[163](index=163&type=chunk)[178](index=178&type=chunk) [Cash Flow](index=34&type=section&id=Cash%20Flow) This subsection analyzes the company's cash flows from operating, investing, and financing activities, and changes in cash and equivalents Summary of Cash Flows (Six Months Ended Sep 30, thousands) | Cash Flow Activity | Sep 30, 2022 | Sep 30, 2021 | | :----------------------------------------------- | :----------- | :----------- | | Net Cash Provided by Operating Activities | $300,445 | $261,462 | | Net Cash Used in Investing Activities | ($201,700) | ($26,777) | | Net Cash Used in Financing Activities | ($34,021) | ($457,991) | | Net Increase (Decrease) in Cash and Cash Equivalents | $64,724 | ($223,306) | - Net Cash Provided by Operating Activities increased by **$38.9 million** to **$300.4 million**, primarily due to higher Net Earnings[165](index=165&type=chunk) - Net Cash Used in Investing Activities increased by **$174.9 million** to **$201.7 million**, mainly due to **$158.5 million** for the ConAgg and Terminal Acquisitions[170](index=170&type=chunk) - Net Cash Used In Financing Activities decreased by **$424.0 million** to **$34.0 million**, primarily due to higher net borrowings and lower amounts paid for early debt termination, debt issuance costs, and share repurchases[171](index=171&type=chunk) - The debt-to-capitalization ratio and net-debt-to-capitalization ratio were **49.7%** and **47.8%**, respectively, at September 30, 2022, up from **45.6%** and **45.1%** at March 31, 2022[172](index=172&type=chunk) [Debt Financing Activities](index=35&type=section&id=Debt%20Financing%20Activities) This subsection details the company's revolving credit facility, available borrowings, and compliance with debt covenants - The Revolving Credit Facility has a borrowing capacity of **$750.0 million**, with **$543.6 million** available borrowings at September 30, 2022, net of outstanding letters of credit[174](index=174&type=chunk) - The Company has no off-balance sheet debt or outstanding debt guarantees[174](index=174&type=chunk) - Future liquidity and capital requirements may vary based on market conditions in the construction industry, compliance with debt covenants, competition, and general economic factors[178](index=178&type=chunk) [Dividends](index=36&type=section&id=Dividends) This subsection provides information on dividends paid to stockholders and the company's dividend policy Dividends Paid to Stockholders (Six Months Ended Sep 30, thousands) | Metric | Sep 30, 2022 | Sep 30, 2021 | | :--------------- | :----------- | :----------- | | Dividends Paid | $19,149 | $10,547 | - The Company reinstated its quarterly dividend on May 19, 2021, with each payment subject to Board of Directors' review and approval[181](index=181&type=chunk) [Share Repurchases](index=36&type=section&id=Share%20Repurchases) This subsection details the company's share repurchase programs, including authorized amounts and shares purchased - On May 17, 2022, the Board authorized an additional **7.5 million** share repurchases, bringing the cumulative total to **55.9 million** shares since April 1994[182](index=182&type=chunk) - Through September 30, 2022, approximately **46.8 million** shares have been repurchased[182](index=182&type=chunk) Share Repurchase Activity (Year-to-Date September 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs | | :-------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | | Quarter 1 Totals | 884,000 | $124.00 | | | Quarter 2 Totals | 840,000 | $119.98 | | | Year-to-Date Totals | 1,724,000 | $122.04 | 9,098,992 | [Capital Expenditures](index=37&type=section&id=Capital%20Expenditures) This subsection outlines capital expenditures by category and provides projections for future investment Capital Expenditures by Category (thousands) | Category | 2022 (Six Months) | 2021 (Six Months) | | :------------------------------------ | :---------------- | :---------------- | | Land and Quarries | $10,157 | $1,378 | | Plants | $21,944 | $22,480 | | Buildings, Machinery, and Equipment | $11,148 | $2,919 | | Total Capital Expenditures | $43,249 | $26,777 | - Capital expenditures for fiscal 2023 are expected to range from **$110.0 million** to **$120.0 million**, allocated across both Heavy Materials and Light Materials sectors[187](index=187&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily related to fluctuations in interest rates on its variable-rate debt and commodity price changes for key inputs, and its strategies to manage these risks - The Company is exposed to market risks from interest rate fluctuations on its Revolving Credit Facility and Term Loan; a hypothetical **100 basis point** increase would raise annual interest expense by approximately **$4.0 million**[191](index=191&type=chunk) - The Company is subject to commodity risk from price changes in coal, coke, natural gas, and power, and attempts to limit exposure by entering into contracts or increasing the use of alternative fuels[192](index=192&type=chunk) - At present, the Company does not utilize derivative financial instruments[191](index=191&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, ensuring timely and accurate financial reporting - The Company has established a system of disclosure controls and procedures designed to ensure timely and accurate reporting of information required by the Securities Exchange Act of 1934[193](index=193&type=chunk) - Based on an evaluation, the CEO and CFO concluded that these disclosure controls and procedures were effective as of September 30, 2022[193](index=193&type=chunk) [PART II. OTHER INFORMATION](index=38&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section includes disclosures on legal proceedings, risk factors, equity sales, mine safety, and exhibits [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, but management believes the ultimate outcome of any currently pending legal proceeding will not have a material effect on its consolidated financial condition, results of operations, or liquidity - The Company may be involved in litigation or other legal proceedings related to worker safety, environmental matters, commercial contracts, and other business activities[195](index=195&type=chunk) - Management believes that the ultimate outcome of any currently pending legal proceeding will not have a material effect on the Company's consolidated financial condition, results of operations, or liquidity[195](index=195&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the comprehensive discussion of risk factors in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022, for factors that could impact its operations, financial condition, and liquidity - For information regarding factors that could impact the Company's results of operations, financial condition, and liquidity, refer to Part 1. Item 1A. Risk Factors in the Annual Report on Form 10-K for the fiscal year ended March 31, 2022[197](index=197&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The required disclosure for unregistered sales of equity securities and use of proceeds is incorporated by reference from the "Share Repurchases" section within Management's Discussion and Analysis of Financial Condition and Results of Operations - The disclosure required under this Item is included in the "Share Repurchases" section of "Management's Discussion and Analysis of Results of Operations and Financial Condition" in this Quarterly Report on Form 10-Q[198](index=198&type=chunk) [Item 4. Mine Safety Information](index=40&type=section&id=Item%204.%20Mine%20Safety%20Information) Information concerning mine safety violations and other regulatory matters is provided in Exhibit 95 to this Form 10-Q, as required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act - Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Form 10-Q[199](index=199&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including director compensation documents, certifications from the Chief Executive Officer and Chief Financial Officer, mine safety disclosures, and XBRL-related documents - Exhibits include Director Compensation Summary, Form of Director Restricted Stock Agreement, Form of Director Stock Option Agreement, CEO and CFO certifications, Mine Safety Disclosure, and Inline XBRL documents[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk) [Signatures](index=42&type=section&id=SIGNATURES) This section contains the official signatures of the company's principal executive, financial, and accounting officers, certifying the report on October 26, 2022 - The report is signed by Michael R. Haack (President and CEO), D. Craig Kesler (Executive Vice President – Finance and Administration and CFO), and William R. Devlin (Senior Vice President – Controller and Chief Accounting Officer) on October 26, 2022[210](index=210&type=chunk)

Eagle Materials Inc. (NYSE:EXP) Q1 2023 Earnings Conference Call July 28, 2022 8:30 AM ET Company Participants Michael Haack - President and CEO Craig Kesler - CFO Bob Stewart - EVP, Strategy, Corporate Development and Communications Conference Call Participants Trey Grooms - Stevens Brent Thielman - D.A. Davidson Jerry Revich - Goldman Sachs Operator Good day, everyone, and welcome to Eagle Materials Q1 2023 Earnings Conference Call. Please note, this even is being recorded. I would like to turn the confer ...

July 28, 2022 First Quarter Fiscal 2023 Earnings Release and Conference Call Forward-Looking Statements Forward-Looking Statements. This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when the Company is discussing its beliefs, estimates o ...

Financial Data and Key Metrics Changes - Revenue for fiscal year 2022 increased by 15% to a record $1.9 billion, with gross profit margin rising by 270 basis points to 27.9% [7][24] - Earnings per share (EPS) from continuing operations rose by 14% to a record $9.14, with fourth quarter EPS up by 22% [8][25] - Operating cash flow for fiscal 2022 was $517 million, down 20% from the prior year due to timing of working capital [30] Business Line Data and Key Metrics Changes - Heavy Materials sector revenue increased by 6%, driven by higher cement sales volume and pricing, with operating earnings up by 10% [26] - Light Materials sector revenue surged by 27%, with operating earnings increasing by 42% to $274 million, reflecting improved wallboard sales volume and prices [29] Market Data and Key Metrics Changes - Demand for housing continues to outpace supply, with steady order trends across major business lines despite rising interest rates [21][22] - Public infrastructure spending is supported by improving state and local government revenues, with federal infrastructure spending expected to boost cement demand [22] Company Strategy and Development Direction - The company emphasizes resilience through owning manufacturing facilities and controlling raw materials, which has proven effective during supply chain disruptions [11][12] - A commitment to sustainability is highlighted by the introduction of limestone cement, which reduces carbon intensity and enhances clinker manufacturing capacity [15] - The company plans to increase capital spending to $115 million to $125 million in fiscal 2023 to expand production of Portland Limestone Cement [33] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about fiscal 2023, expecting it to be another record year, supported by midyear price increases in wallboard, cement, and aggregates [23] - The company is closely monitoring inflationary pressures on energy and transportation costs, with multiple price increases planned to offset these pressures [39][75] Other Important Information - The company returned $620 million to shareholders through share repurchases and dividends, with an additional 7.5 million shares authorized for repurchase [17][32] - The acquisition of an aggregates-led business in Colorado for $120 million is expected to complement existing operations and provide sustainable growth [12][33] Q&A Session Summary Question: How are you thinking about raw material and energy-related costs? - Management noted that OCC prices have plateaued and natural gas needs are partially hedged, indicating a cautious but optimistic outlook on margins [36][37][39] Question: How is housing demand expected to evolve? - Despite rising interest rates, management believes housing demand remains strong due to reasonable affordability and a lack of inventory [41][42] Question: Can you discuss wallboard volume trends? - Management indicated that previous volume declines were due to supply chain issues, but improvements are expected as these issues resolve [45][46] Question: How do you view wallboard margins in a potential downturn? - Management expressed confidence in their position due to controlled raw material costs and a strong supply contract, suggesting resilience in margins [50][52] Question: What are your thoughts on capital allocation in a recession? - The company is positioned to manage cycles and continue growth, with a focus on strategic opportunities and returning cash to shareholders [58][60] Question: Any updates on cement capacity and pricing? - Management confirmed multiple price increases due to tight market conditions and indicated ongoing projects to enhance cement production capacity [68][75]

Part I [Business](index=3&type=section&id=Item%201.%20Business) Eagle Materials Inc. manufactures heavy and light construction materials, emphasizing low-cost production, decentralized operations, and profitable growth in key US markets [Overview](index=3&type=section&id=Overview) Eagle Materials Inc. manufactures essential construction materials, leveraging its integrated network, low-cost position, and strategic growth initiatives - The company's primary products are Portland Cement and Gypsum Wallboard, which are essential commodities for commercial, residential, and public construction[5](index=5&type=chunk) - Key competitive strengths include a broad geographic reach in high-growth U.S. markets, a low-cost producer position, production flexibility, and substantial raw material reserves (**25 to 50 years** for cement and wallboard facilities)[7](index=7&type=chunk) - The company's strategy focuses on being a low-cost producer, maintaining a decentralized operating structure, operating in diverse U.S. markets, and achieving growth through acquisitions and organic development[9](index=9&type=chunk) - Capital allocation priorities are: 1) growth opportunities, 2) investments to maintain low-cost positions, and 3) returning cash to shareholders. Over the past three years, the company invested nearly **$700 million** in acquisitions, **$260 million** in capex, and returned **$956 million** to shareholders[18](index=18&type=chunk) [Fiscal 2022 Events](index=5&type=section&id=Fiscal%202022%20Events) Fiscal 2022 saw record revenue and earnings, significant share repurchases, debt refinancing, and a post-year-end acquisition Fiscal 2022 Financial Highlights (vs. Fiscal 2021) | Metric | Fiscal 2022 | Change | |---|---|---| | Revenue | $1,861.5 million | +15% | | Net Earnings from Continuing Operations | $374.2 million | +12% | | Diluted EPS from Continuing Operations | $9.14 | +14% | | Gross Profit Margin | 27.9% | +270 bps | | Shares Repurchased | ~4.0 million | - | - In July 2021, the company refinanced its debt by issuing **$750.0 million** of **2.5% 10-year senior notes**, replacing existing **4.5% notes** and a term loan[22](index=22&type=chunk) - Subsequent to fiscal year-end, on April 22, 2022, the company acquired a readymix concrete and aggregates business in northern Colorado for approximately **$121.2 million**[24](index=24&type=chunk) [Human Capital](index=6&type=section&id=Human%20Capital) Eagle Materials employed approximately 2,200 people as of March 31, 2022, prioritizing employee health and safety, which resulted in a total recordable incident rate below industry averages - The company had approximately **2,200 employees** as of March 31, 2022, with about **700 hourly employees** represented by unions[25](index=25&type=chunk) - Management prioritizes employee health and safety, implementing initiatives that resulted in a total recordable incident rate (TRIR) below the industry average for all business segments in fiscal 2022[26](index=26&type=chunk)[27](index=27&type=chunk) [Industry Segment Information](index=6&type=section&id=Industry%20Segment%20Information) The company operates in two sectors: Heavy Materials (Cement, Concrete and Aggregates) serving infrastructure, and Light Materials (Gypsum Wallboard, Recycled Paperboard) serving residential construction - The business is organized into two sectors: Heavy Materials (Cement, Concrete and Aggregates) and Light Materials (Gypsum Wallboard, Recycled Paperboard)[28](index=28&type=chunk) [Heavy Materials](index=7&type=section&id=Heavy%20Materials) The Heavy Materials sector, comprising Cement and Concrete & Aggregates, supplies essential materials for infrastructure and construction, benefiting from strong demand [Cement](index=7&type=section&id=Cement) The Cement segment produces portland cement for public infrastructure, operating eight plants with substantial limestone reserves and facing significant environmental regulations - The company operates eight cement plants with a net annual clinker capacity of **6.7 million tons** and net annual grinding capacity of **8.15 million tons**[43](index=43&type=chunk)[45](index=45&type=chunk) Limestone Reserves and Resources (as of March 31, 2022) | Category | Tons (in millions) | |---|---| | Proven & Probable Reserves | 321.0 | | Measured & Indicated Resources (exclusive of reserves) | 679.2 | - Total net cement sales were **7.5 million short tons** in both fiscal 2022 and 2021[46](index=46&type=chunk) - The business faces environmental risks from regulations on Cement Kiln Dust (CKD), potential Greenhouse Gas (GHG) rules, and air quality standards for ozone, which could require significant capital outlays[64](index=64&type=chunk)[66](index=66&type=chunk)[68](index=68&type=chunk) [Concrete and Aggregates](index=15&type=section&id=Concrete%20and%20Aggregates) The Concrete and Aggregates segment produces readymix concrete and construction aggregates, with operations expanded by a recent **$121.2 million** acquisition in Colorado - As of March 31, 2022, the company operated **26 readymix concrete plants** with **213 trucks**[75](index=75&type=chunk) Aggregate Reserves and Resources (as of March 31, 2022) | Category | Tons (in millions) | |---|---| | Proven & Probable Reserves | 90.9 | | Measured & Indicated Resources (exclusive of reserves) | 20.8 | - Net aggregates sales were **1.5 million tons** in fiscal 2022, down from **2.0 million tons** in fiscal 2021, primarily due to project delays in Central Texas[80](index=80&type=chunk) - On April 22, 2022, the company acquired a concrete and aggregates business in northern Colorado for approximately **$121.2 million**, adding three concrete plants and two aggregate mining operations[74](index=74&type=chunk) [Light Materials](index=17&type=section&id=Light%20Materials) The Light Materials sector, comprising Gypsum Wallboard and Recycled Paperboard, serves residential and commercial markets, benefiting from vertical integration [Gypsum Wallboard](index=18&type=section&id=Gypsum%20Wallboard) The Gypsum Wallboard segment manufactures wallboard for residential construction, operating five plants with **3.875 billion square feet** annual capacity and significant gypsum reserves - The company operates five gypsum wallboard plants with a total approximate annual capacity of **3.875 billion square feet (MMSF)**[94](index=94&type=chunk) Gypsum Reserves and Resources (as of March 31, 2022) | Category | Tons (in millions) | |---|---| | Proven & Probable Reserves | 62.5 | | Measured & Indicated Resources (exclusive of reserves) | 141.9 | - Total Gypsum Wallboard sales were **2,944 MMSF** in fiscal 2022, an increase from **2,857 MMSF** in fiscal 2021[95](index=95&type=chunk) - Two customers accounted for approximately **30%** of the Gypsum Wallboard segment's sales during fiscal 2022[99](index=99&type=chunk) [Recycled Paperboard](index=22&type=section&id=Recycled%20Paperboard) The Recycled Paperboard segment operates a paper mill with **390,000 tons** annual capacity, producing gypsum liner from recycled paper, with **40%** internal consumption - The paper mill has an estimated annual capacity of **390,000 tons** and produces lighter-weight gypsum liner from **100% recycled fiber**[113](index=113&type=chunk)[114](index=114&type=chunk) - In fiscal 2022, approximately **40%** of the recycled paperboard sold was consumed internally by the company's Gypsum Wallboard operations[115](index=115&type=chunk) - The primary raw material is old corrugated containers (OCC), the price of which increased approximately **50%** during fiscal 2022[116](index=116&type=chunk)[118](index=118&type=chunk) [Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including cyclical industry demand, commodity pricing, public health emergencies, extensive environmental regulations, operational challenges, financial covenants, and cybersecurity threats - **COVID-19 Risk:** A pandemic could adversely affect business, operations, and financial conditions through supply chain disruptions, reduced demand, and market volatility[125](index=125&type=chunk)[127](index=127&type=chunk) - **Industry Risks:** The business is affected by the cyclical demand in the construction industry, seasonality, unfavorable weather, and commodity price fluctuations[129](index=129&type=chunk)[131](index=131&type=chunk)[137](index=137&type=chunk) - **Regulatory & Legal Risks:** Operations are subject to extensive and costly governmental regulations, particularly environmental laws concerning emissions (including GHGs), land use, and potential cleanup liabilities. Climate change legislation could disproportionately affect the capital-intensive cement business[139](index=139&type=chunk)[141](index=141&type=chunk)[145](index=145&type=chunk) - **Financial & Operational Risks:** The cement business is capital intensive and sensitive to volume changes. The company faces risks from rising costs of fuel, energy, and transportation, as well as potential equipment failures. Debt agreements contain restrictive covenants that limit flexibility[165](index=165&type=chunk)[170](index=170&type=chunk)[180](index=180&type=chunk) - **Cyber Risk:** A cyber-attack or data security breach could negatively affect business operations, leading to reputational harm, financial loss, and regulatory scrutiny[160](index=160&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) [Properties](index=36&type=section&id=Item%202.%20Properties) The company owns most of its operating facilities across the U.S., with no properties pledged as security for debts - The company's operating facilities are located across the U.S. and are all owned, except for the leased Dallas headquarters and certain terminals. No facilities are pledged as security for debts[207](index=207&type=chunk) [Legal Proceedings](index=37&type=section&id=Item%203.%20Legal%20Proceedings) Management believes no currently pending legal proceedings will materially affect the company's financial condition, results of operations, or liquidity - Management believes that no currently pending legal proceedings will have a material effect on the company's financial condition, results, or liquidity[210](index=210&type=chunk) [Mine Safety Disclosures](index=37&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety violation disclosures, as required by the Dodd-Frank Act, are included in Exhibit 95 of this Form 10-K - Mine safety violation disclosures required by Section 1503(a) of the Dodd-Frank Act are included in Exhibit 95 to this Form 10-K[212](index=212&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=38&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Eagle Materials' common stock trades on the NYSE under EXP, with the Board authorizing additional share repurchases and the company repurchasing **4.0 million shares** in fiscal 2022 - On May 17, 2022, the Board authorized the repurchase of an additional **7.5 million shares** of common stock[215](index=215&type=chunk) - During fiscal 2022, the company repurchased **3,982,657 shares** at an average price of **$148.08 per share**. No shares were repurchased in fiscal 2021[216](index=216&type=chunk) Share Repurchases for Quarter Ended March 31, 2022 | Period | Total Shares Purchased | Average Price Paid Per Share | |---|---|---| | Jan 2022 | 362,211 | $155.98 | | Feb 2022 | 418,000 | $142.16 | | Mar 2022 | 286,000 | $132.34 | | **Q4 Total** | **1,066,211** | **$144.22** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion analyzes fiscal 2022 performance, highlighting strong revenue growth driven by price and volume, a positive outlook supported by infrastructure spending, and strategic debt management [Market Conditions and Outlook](index=41&type=section&id=Market%20Conditions%20and%20Outlook) The company anticipates strong cement demand from infrastructure and robust gypsum wallboard demand from housing, despite expected increases in energy and freight costs - Cement demand is expected to be supported by the Infrastructure Investment and Jobs Act, with the PCA forecasting a slight increase in consumption for calendar 2022[235](index=235&type=chunk) - Gypsum Wallboard demand is expected to remain strong, driven by favorable demographics, an undersupply of homes, and a population shift to the suburbs, despite rising inflation and mortgage rates[236](index=236&type=chunk) - The company anticipates further increases in energy and freight costs throughout fiscal 2023 due to global supply disruptions and limited transportation capacity[238](index=238&type=chunk) [Results of Operations](index=42&type=section&id=Results%20of%20Operations) Fiscal 2022 revenue increased **15%** to **$1.86 billion**, with gross profit up **27%** and net earnings from continuing operations rising **12%**, driven by higher prices and volumes Consolidated Results of Operations (Fiscal Year Ended March 31) | (in thousands, except per share) | 2022 | 2021 | % Change | |---|---|---|---| | Revenue | $1,861,522 | $1,622,642 | 15% | | Gross Profit | $519,614 | $408,355 | 27% | | Net Earnings From Continuing Operations | $374,247 | $334,166 | 12% | | Diluted EPS from Continuing Operations | $9.14 | $7.99 | 14% | - Revenue increased by **$238.9 million (15%)**, primarily due to higher gross sales prices (**$211.2 million**) and sales volume (**$27.7 million**)[242](index=242&type=chunk) - Gross margin increased to **28%** from **25%** in fiscal 2021, mainly due to higher gross sales prices[245](index=245&type=chunk) - Interest expense decreased by **30%** to **$30.9 million**, primarily due to debt refinancing at a lower interest rate[251](index=251&type=chunk) [Results by Segment](index=45&type=section&id=Results%20by%20Segment) Heavy Materials saw Cement earnings rise **11%** while Concrete and Aggregates declined; Light Materials had Gypsum Wallboard earnings surge **56%**, offset by a **50%** drop in Recycled Paperboard earnings due to higher costs Cement Segment Performance (FY2022 vs FY2021) | Metric | FY2022 | FY2021 | % Change | |---|---|---|---| | Revenue (incl. JV) | $1,007.1M | $944.6M | +7% | | Sales Volume (M Tons) | 7.53 | 7.47 | +1% | | Avg. Net Sales Price/ton | $119.13 | $111.19 | +7% | | Operating Earnings | $259.6M | $234.0M | +11% | Concrete and Aggregates Segment Performance (FY2022 vs FY2021) | Metric | FY2022 | FY2021 | % Change | |---|---|---|---| | Revenue | $177.1M | $168.7M | +5% | | Operating Earnings | $18.5M | $19.1M | -3% | Gypsum Wallboard Segment Performance (FY2022 vs FY2021) | Metric | FY2022 | FY2021 | % Change | |---|---|---|---| | Revenue | $692.2M | $539.0M | +28% | | Sales Volume (MMSF) | 2,944 | 2,857 | +3% | | Avg. Net Sales Price/MSF | $190.76 | $149.62 | +27% | | Operating Earnings | $261.5M | $167.3M | +56% | Recycled Paperboard Segment Performance (FY2022 vs FY2021) | Metric | FY2022 | FY2021 | % Change | |---|---|---|---| | Revenue (incl. intersegment) | $194.1M | $163.5M | +19% | | Operating Earnings | $12.6M | $25.4M | -50% | [Critical Accounting Policies](index=49&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve significant judgment, including impairment testing of long-lived assets and goodwill, and the valuation of assets and liabilities in business combinations - Key critical accounting policies include impairment of long-lived assets, goodwill impairment testing, and accounting for business combinations[278](index=278&type=chunk) - Goodwill is assessed for impairment annually in Q4. For fiscal 2022, a qualitative assessment was performed on all reporting units, and it was determined that it was not more likely than not that an impairment existed[280](index=280&type=chunk)[363](index=363&type=chunk) - The total goodwill on the balance sheet as of March 31, 2022, was **$329.1 million**, allocated across the Cement, Concrete and Aggregates, Gypsum Wallboard, and Paperboard segments[286](index=286&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity, actively managing its capital structure through debt refinancing and credit facility amendments, with projected capital expenditures of **$115.0 million to $125.0 million** for fiscal 2023 - Net cash provided by operating activities was **$517.2 million** in FY2022, a decrease from **$643.1 million** in FY2021, mainly because FY2021 included a **$125.6 million** income tax refund[296](index=296&type=chunk) - Subsequent to year-end, on May 5, 2022, the company amended its credit facility to add a **$200 million term loan**, extend the maturity to May 2027, and switch from a LIBOR-based to a SOFR-based reference rate[307](index=307&type=chunk)[420](index=420&type=chunk) - The debt-to-capitalization ratio was **45.6%** at March 31, 2022, compared to **42.8%** at March 31, 2021[303](index=303&type=chunk) - Capital expenditures are expected to be between **$115.0 million** and **$125.0 million** in fiscal 2023[315](index=315&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=58&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate risk on variable-rate debt, where a **100 basis point** increase would raise annual interest expense by **$3.6 million**, and commodity price risk for key inputs - The company is exposed to interest rate risk on its variable-rate debt. A hypothetical **100 basis point** increase in rates would increase annual interest expense by **$3.6 million**[325](index=325&type=chunk) - The company is subject to commodity price risk for key inputs like coal, petroleum coke, natural gas, and power[326](index=326&type=chunk) [Financial Statements and Supplementary Data](index=59&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the consolidated financial statements for fiscal years 2020-2022, including an unqualified auditor's opinion from Ernst & Young LLP, and details on the Texas Lehigh Cement Company LP joint venture Consolidated Financial Summary (Fiscal Year 2022) | Metric | Amount (in thousands) | |---|---| | **Total Revenue** | $1,861,522 | | **Net Earnings** | $374,247 | | **Total Assets** | $2,579,652 | | **Total Liabilities** | $1,446,096 | | **Total Stockholders' Equity** | $1,133,556 | - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements, stating they are presented fairly in all material respects[487](index=487&type=chunk) - The auditor's report identified the existence of raw materials and materials-in-progress inventory as a critical audit matter due to the complex judgments involved in measuring stockpile volumes and converting them to tonnage[493](index=493&type=chunk)[494](index=494&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=114&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) No changes in or disagreements with accountants on accounting and financial disclosure were reported during the period - None reported[568](index=568&type=chunk) [Controls and Procedures](index=114&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2022, a conclusion affirmed by Ernst & Young LLP's unqualified opinion - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[569](index=569&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of March 31, 2022. This assessment was audited by Ernst & Young LLP, who also issued an unqualified opinion[571](index=571&type=chunk)[573](index=573&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=117&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the 2022 Proxy Statement, and the company has adopted a code of ethics, 'The Eagle Way' - Most information for this item is incorporated by reference from the 2022 EXP Proxy Statement[583](index=583&type=chunk) - The company has a code of ethics, 'The Eagle Way,' which is published on the corporate governance section of its website[584](index=584&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=117&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference from the 2022 Proxy Statement, detailing securities available for issuance under the 2013 Incentive Plan Equity Compensation Plan Information as of March 31, 2022 | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | |---|---|---|---| | Equity compensation plans approved by stockholders | 456,849 | $83.81 | 3,377,416 | Part IV [Exhibits, Financial Statement Schedules](index=119&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the Form 10-K, referencing financial statements and noting the omission of inapplicable schedules - This section contains the index to all exhibits filed with the Form 10-K, including governance documents, material contracts, and certifications[594](index=594&type=chunk) [Form 10-K Summary](index=125&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K summary is provided - None[615](index=615&type=chunk)

Eagle Materials Inc.'s (NYSE:EXP) Q3 2022 Earnings Conference Call January 27, 2022 8:30 AM ET Company Participants Michael Haack – President and CEO Craig Kesler – Chief Financial Officer Conference Call Participants Trey Grooms – Stephens Brent Thielman – D.A. Davidson Adrian Huerta – JP Morgan Anthony Pettinari – Citi Jerry Revich – Goldman Sachs Josh Wilson – Raymond James Philip Ng – Jefferies Operator Good day, everyone and welcome to Eagle Materials, Third Quarter of fiscal 2022, Earnings Conferenc ...

January 27, 2022 Third Quarter Fiscal 2022 Earnings Release and Conference Call Forward-Looking Statements Forward‐Looking Statements. This presentation contains forward‐looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward‐looking statements may be identified by the context of the statement and generally arise when the Company is discussing its beliefs, estimate ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended December 31, 2021 Commission File Number 1-12984 EAGLE MATERIALS INC. (Exact name of registrant as specified in its charter) Delaware (State of Incorporation) 75-2520779 (I.R.S. Employer Identification No.) 5960 Berkshire Lane, Suite 900, Dallas, Texas 75225 (Address of principal executive offices) (214) 432-2 ...

October 28, 2021 Second Quarter Fiscal 2022 Earnings Release and Conference Call Forward-Looking Statements Forward‐Looking Statements. This presentation contains forward‐looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward‐looking statements may be identified by the context of the statement and generally arise when the Company is discussing its beliefs, estimat ...