Summit Materials, Inc. Reports Third Quarter 2018 Results
November 6, 2018
– Net Revenue Growth of 8.8% in Three Month Period Ended September
29, 2018, Supported By Organic Volume Improvements
– Completed Two Materials-Based Bolt-on Acquisitions For Total
Invested Capital of $72 million Since August 2018
– Reduced Midpoint of Adjusted EBITDA Guidance Range For The
Full-Year 2018 By 14%
DENVER–(BUSINESS WIRE)–Summit Materials, Inc. (NYSE: SUM, “Summit” or the “Company”), a leading
vertically integrated construction materials company, today announced
results for the third quarter 2018.
For the three months ended September 29, 2018, the Company reported net
income attributable to Summit Inc. of $71.3 million or $0.64 per basic
share, compared to net income attributable to Summit Inc. of $81.3
million or $0.74 per basic share in the comparable prior year
period. Summit reported adjusted diluted net income of $61.9 million or
$0.54 per adjusted diluted share as compared to adjusted diluted net
income of $54.0 million or $0.48 per adjusted diluted share in the prior
year period.
Summit’s net revenue increased 11.6% in the first nine months of 2018 as
compared to the same period in 2017, primarily due to acquisitions. Tom
Hill, CEO of Summit Materials, stated, “We experienced significant
inclement weather in the third quarter, as well as continued
inflationary cost pressures in our businesses beyond our expectations.
While we achieved organic volume and price increases in our aggregates
and products during the third quarter, our net income declined and our
Adjusted EBITDA remained flat in the third quarter of 2018 as compared
to the third quarter of 2017, reflecting lower contributions from our
cement segment and Houston operations together with inflation in our
variable costs. We had expected normal weather going into the third
quarter; instead, weather patterns continued to have a significant
negative impact on most of our operating geographies.”
Organic sales volumes in Summit’s cement segment were impacted by a
combination of high precipitation levels, together with competitive
pressures along the Mississippi River corridor. Further, Summit’s
Houston operations were affected by a wetter than normal third quarter,
as rainfall in many parts of Texas reached all-time record levels in
September. Summit’s average selling prices on both materials and
products gained traction through the third quarter, which partially
offset these higher raw materials, freight, labor and fuel costs. As the
inflationary cost increases have exceeded Summit’s price increases, and
the persistent weather conditions impacted operations, Summit reduced
2018 guidance for Adjusted EBITDA to $400 million to $410 million.
“Underlying demand conditions in most of our markets are healthy and are
expected to remain so into 2019,” continued Hill. In Summit’s public
markets, state transportation funding measures in Texas, coupled with
steady increases in federal subsidies, are contributing to increased
lettings activity. Single family housing starts and permits remain well
below peak levels in Summit’s major markets.
Since August 2018, Summit has completed two aggregates-based
acquisitions for total invested capital of $72 million. During 2018 to
date, Summit has completed 13 acquisitions for total invested capital of
$300 million. Across these 13 transactions, Summit has added more than
400 million tons of aggregates reserves to its portfolio.
“While our guidance for Adjusted EBITDA has been reduced, we continue to
generate significant free cash flow from operations that is helping to
support the overall growth of our business,” stated Brian Harris, CFO of
Summit Materials. The Company expects its net leverage ratio to
approximate current levels at year end, based on the midpoint of the
revised guidance. Summit plans to reduce its leverage during 2019
through a disciplined capital allocation program, reducing its capital
expenditures and implementing an increasingly selective acquisition
strategy.
Third Quarter 2018 | Results by Line of Business
Aggregates Business: Aggregates net revenues increased by 21.0%
to $109.6 million in the third quarter 2018, when compared to the prior
year period. Aggregates adjusted cash gross profit margin declined to
69.2% in the third quarter, compared to 73.0% in the prior year period,
due to higher variable costs. Organic aggregates sales volumes increased
3.9% in the third quarter 2018, when compared to the prior-year
period. Organic growth in aggregates sales volumes was due to higher
volumes in the West Region, which more than offset a decline in organic
aggregates sales volumes in the East Region. Organic average selling
prices on aggregates increased 1.5% in the third quarter 2018 due to
improvements in prices within both the West and East segments during the
period.
Cement Business: Cement segment net revenues declined 7.2%
to $94.0 million in the third quarter 2018, when compared to the
prior-year period. Cement adjusted cash gross profit margin increased
slightly to 50.7% in the third quarter, compared to 50.6% in the
prior-year period, as productivity gains were mostly offset by a
reduction in average selling price, coupled with higher freight, storage
and demurrage costs related to weather-affected cement
inventories. Organic sales volume of cement declined 6.4% in the third
quarter, when compared to the prior year period, due to high levels of
precipitation that continued to disrupt project work during the period,
as well as increased competition. Organic average selling prices on
cement decreased 1.0% in the third quarter, when compared to the prior
year period, as competitive pressures continued in our markets.
Products Business: Net revenues increased 12.6% to $315.3 million
in the third quarter 2018, when compared to the prior year period.
Products adjusted cash gross profit margin declined to 22.5% in the
third quarter, versus 26.1% in the prior year period, as the increases
in labor, raw materials and transportation costs exceeded increases in
our average sales prices. Organic sales volumes of ready-mix concrete
increased 3.2% in the third quarter, while organic average selling
prices increased 2.3% as compared to the prior year period. Organic
sales volumes of asphalt increased 3.2% in the third quarter, while
organic average selling prices increased 3.6%, over the same period in
2017.
Third Quarter 2018 | Results By Reporting
Segment
Net revenue increased by 8.8% to $625.0 million in the third quarter
2018, versus $574.4 million in the prior year period. The improvement in
net revenue was primarily attributable to both organic and
acquisition-related contributions in the East and West segments, offset
by a decline in the Cement segment. The Company reported operating
income of $108.2 million in the third quarter 2018, compared to $113.9
million in the prior year period. Adjusted EBITDA was $172.0 million in
the third quarter 2018, compared to $172.7 million in the prior year
period.
West Segment: The West Segment reported operating income of
$48.2 million in the third quarter 2018, compared to $57.5 million in
the prior year period. Adjusted EBITDA decreased to $73.9 million in the
third quarter 2018, compared to $76.6 million in the prior year
period. The quarterly declines in West Segment operating income and
Adjusted EBITDA were primarily attributable to increased labor and
hydrocarbon costs, partially offset by increases in average selling
prices on aggregates and ready-mix concrete. Aggregates revenue in the
third quarter increased 19.0% over the prior year as a result of
contributions from acquisitions, a 10.0% increase in organic volumes and
a 2.0% increase in organic average sales prices. Ready-mix concrete
revenue in the third quarter 2018 increased 26.1% over the prior year
period, as a result of contributions from acquisitions, along with a
7.6% increase in organic volumes and a 2.8% increase in organic average
sales prices. Asphalt revenue also increased by 2.5% in the third
quarter, resulting from a 4.9% increase in volumes, offset by a 1.0%
decrease in average sales price.
East Segment: The East Segment reported operating income of
$38.0 million in the third quarter 2018, compared to $36.9 million in
the prior year period. Adjusted EBITDA increased to $58.3 million in the
third quarter 2018, compared to $56.4 million in the prior year
period. The quarterly improvement in East Segment operating income and
Adjusted EBITDA were mainly attributable to increases in net revenue
from our acquisition program, increases in average selling prices of
aggregates, ready-mix concrete and asphalt, partially offset by
increased labor and hydrocarbon costs, as well as decreases in ready-mix
volumes. Aggregates revenue increased 20.1%, primarily due to increases
resulting from our acquisition program as well as increases in average
sales prices as organic sales volumes were flat. Ready-mix concrete
revenue decreased 1.1% as a result of lower sales volumes, partially
offset by an increase in organic average sales prices. Asphalt revenue
increased 18.8% primarily as a result of acquisition related volumes and
increased average sales prices, partially offset by a decrease in
organic sales volumes.
Cement Segment: The Cement Segment reported operating income of
$33.5 million in the third quarter 2018, compared to $35.1 million in
the prior year period. Adjusted EBITDA declined to $44.3 million in the
third quarter 2018, compared to $46.9 million in the prior year
period. The Company experienced slightly lower organic average selling
prices as well as declines in organic sales volumes during the three
month period ended September 29, 2018 due to high levels of
precipitation in the Company’s Mississippi River markets and
price-driven competitive pressures.
Acquisitions and Divestitures
As of November 6, 2018, the Company has completed 13 acquisitions in
2018, including two transactions that have closed since the Company’s
last quarterly update on August 1, 2018. Total investment across the 13
acquisitions completed in 2018 was approximately $300 million, including
approximately $72 million for the two bolt-on acquisitions completed
since the last update.
Walker Sand & Gravel (Idaho). Walker Sand & Gravel is an
aggregates business that expands the Company’s market position and
reserve base in Idaho. Summit closed on the acquisition in October.
Aggregate Reserves (Georgia). Summit acquired property in the
greater Atlanta, Georgia area containing over 100 million tons of
permitted reserves and an active quarry which is currently leased to a
third party through mid 2021. Initially, Summit will receive royalty
payments through the end of the lease, at which time Summit will take
over quarry operations. Summit closed on the acquisition in October.
In the third quarter of 2018, the Company divested a non-core business
in the West segment, receiving $21.6 million in cash proceeds, and
recorded a gain of $12.1 million related to this transaction.
Liquidity and Capital Resources
As of September 29, 2018, the Company had cash on hand of $64.9 million
and borrowing capacity under its revolving credit facility of $219.6
million. The borrowing capacity on the revolving credit facility is
fully available to the Company within the terms and covenant
requirements of its credit agreement. As of September 29, 2018, the
Company had $1.8 billion in debt outstanding.
Financial Outlook
For the full-year 2018, the Company has reduced its Adjusted EBITDA
guidance from a range of $460 million to $480 million to a range of $400
million to $410 million, including acquisition-related contributions
from two transactions that closed since the Company’s last update in
August 2018. No additional potential acquisitions are included within
the Company’s full-year 2018 Adjusted EBITDA guidance. For the full-year
2018, the Company has revised its capital expenditure guidance to be in
the range of $225 million to $235 million.
Webcast and Conference Call Information
Summit Materials will conduct a conference call today at 11:00 a.m.
eastern time (9:00 a.m. mountain time) to review the Company’s third
quarter 2018 financial results. A webcast of the conference call and
accompanying presentation materials will be available in the Investors
section of Summit’s website at investors.summit-materials.com.
To listen to a live broadcast, go to the site at least 15 minutes prior
to the scheduled start time in order to register, download, and install
any necessary audio software.
To participate in the live teleconference:
| Domestic Live: | 1-877-407-0784 | ||||
| International Live: | 1-201-689-8560 | ||||
| Conference ID: | 57511368 |
To listen to a replay of the teleconference, which will be available
through December 6, 2018:
| Domestic Replay: | 1-844-512-2921 | ||||
| International Replay: | 1-412-317-6671 | ||||
| Conference ID: | 13684335 | ||||
About Summit Materials
Summit Materials is a leading vertically integrated materials-based
company that supplies aggregates, cement, ready-mix concrete and asphalt
in the United States and British Columbia, Canada. Summit is a
geographically diverse, materials-based business of scale that offers
customers a single-source provider of construction materials and related
downstream products in the public infrastructure, residential and
nonresidential, and end markets. Summit has a strong track record of
successful acquisitions since its founding and continues to pursue
growth opportunities in new and existing markets. For more information
about Summit Materials, please visit www.summit-materials.com.
Non-GAAP Financial Measures
The Securities and Exchange Commission (“SEC”) regulates the use of
“non-GAAP financial measures,” such as Adjusted Net Income (Loss),
Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted
Cash Gross Profit, Adjusted Cash Gross Profit Margin, Free Cash Flow,
Net Leverage and Net Debt which are derived on the basis of
methodologies other than in accordance with U.S. generally accepted
accounting principles (“U.S. GAAP”). We have provided these measures
because, among other things, we believe that they provide investors with
additional information to measure our performance, evaluate our ability
to service our debt and evaluate certain flexibility under our
restrictive covenants. Our Adjusted Net Income (Loss), Adjusted Diluted
EPS, Adjusted EBITDA, Further Adjusted EBITDA, Adjusted EBITDA Margin,
Adjusted Cash Gross Profit, Adjusted Cash Gross Profit Margin, Free Cash
Flow, Net Leverage and Net Debt may vary from the use of such terms by
others and should not be considered as alternatives to or more important
than net income (loss), operating income (loss), revenue or any other
performance measures derived in accordance with U.S. GAAP as measures of
operating performance or to cash flows as measures of liquidity. This
press release also includes certain unaudited financial information for
the last twelve months (“LTM”) ended September 29, 2018, which is
calculated as the nine months ended September 29, 2018 plus the actual
results for the year-ended December 30, 2017 less the actual results for
the nine months ended September 30, 2017. This presentation is not in
accordance with GAAP. However, we believe that this information is
useful to investors as we use LTM financial information to evaluate our
financial performance for ongoing planning purposes, including a
continuous assessment of our financial performance in comparison to
budgets and internal projections. In addition, we use such LTM financial
information to test compliance with covenants under our senior secured
credit facilities.
Adjusted EBITDA, Adjusted EBITDA Margin, LTM financial information and
other non-GAAP measures have important limitations as analytical tools,
and you should not consider them in isolation or as substitutes for
analysis of our results as reported under U.S. GAAP. Some of the
limitations of Adjusted EBITDA are that these measures do not reflect:
(i) our cash expenditures or future requirements for capital
expenditures or contractual commitments; (ii) changes in, or cash
requirements for, our working capital needs; (iii) interest expense or
cash requirements necessary to service interest and principal payments
on our debt; and (iv) income tax payments we are required to make.
Because of these limitations, we rely primarily on our U.S. GAAP results
and use Adjusted EBITDA, Adjusted EBITDA Margin and other non-GAAP
measures on a supplemental basis.
Adjusted EBITDA, Further Adjusted EBITDA, Adjusted EBITDA Margin,
Adjusted Cash Gross Profit, Adjusted Cash Gross Profit Margin, Adjusted
Net Income (Loss), Adjusted Diluted EPS, Free Cash Flow, Net Leverage
and Net Debt reflect additional ways of viewing aspects of our business
that, when viewed with our GAAP results and the accompanying
reconciliations to U.S. GAAP financial measures included in the tables
attached to this press release, may provide a more complete
understanding of factors and trends affecting our business. We strongly
encourage investors to review our consolidated financial statements in
their entirety and not rely on any single financial
measure. Reconciliations of the non-GAAP measures used in this press
release are included in the attached tables. Because GAAP financial
measures on a forward-looking basis are not accessible, and reconciling
information is not available without unreasonable effort, we have not
provided reconciliations for forward-looking non-GAAP measures. For the
same reasons, we are unable to address the probable significance of the
unavailable information, which could be material to future results.
Cautionary Statement Regarding Forward-Looking
Statements
This press release includes “forward-looking statements” within the
meaning of the federal securities laws, which involve risks and
uncertainties. Forward-looking statements include all statements that do
not relate solely to historical or current facts, and you can identify
forward-looking statements because they contain words such as
“believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,”
“trends,” “plans,” “estimates,” “projects” or “anticipates” or similar
expressions that concern our strategy, plans, expectations or
intentions. All statements made relating to our estimated and projected
earnings, margins, costs, expenditures, cash flows, growth rates and
financial results are forward-looking statements. These forward-looking
statements are subject to risks, uncertainties and other factors that
may cause our actual results, performance or achievements to be
materially different from future results, performance or achievements
expressed or implied by such forward-looking statements. We derive many
of our forward-looking statements from our operating budgets and
forecasts, which are based upon many detailed assumptions. While we
believe that our assumptions are reasonable, it is very difficult to
predict the effect of known factors, and, of course, it is impossible to
anticipate all factors that could affect our actual results. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be
regarded as a representation by us or any other person that the results
or conditions described in such statements or our objectives and plans
will be realized. Important factors could affect our results and could
cause results to differ materially from those expressed in our
forward-looking statements, including but not limited to the factors
discussed in the section entitled “Risk Factors” in Summit Inc.’s Annual
Report on Form 10-K for the fiscal year ended December 30, 2017 (the
“Annual Report”) and Summit Inc.’s Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2018 each as filed with the Securities
and Exchange Commission (the “SEC”), any factors discussed in the
section entitled “Risk Factors” in any of our subsequently filed SEC
filings and the following:
-
our dependence on the construction industry and the strength of the
local economies in which we operate; - the cyclical nature of our business;
- risks related to weather and seasonality;
- risks associated with our capital-intensive business;
- competition within our local markets;
-
our ability to execute on our acquisition strategy, successfully
integrate acquisitions with our existing operations and retain key
employees of acquired businesses; -
our dependence on securing and permitting aggregate reserves in
strategically located areas; -
declines in public infrastructure construction and delays or
reductions in governmental funding, including the funding by
transportation authorities and other state agencies; -
environmental, health, safety and climate change laws or governmental
requirements or policies concerning zoning and land use; - conditions in the credit markets;
-
our ability to accurately estimate the overall risks, requirements or
costs when we bid on or negotiate contracts that are ultimately
awarded to us; -
material costs and losses as a result of claims that our products do
not meet regulatory requirements or contractual specifications; -
cancellation of a significant number of contracts or our
disqualification from bidding for new contracts; -
special hazards related to our operations that may cause personal
injury or property damage not covered by insurance; - our substantial current level of indebtedness;
- our dependence on senior management and other key personnel;
-
supply constraints or significant price fluctuations in electricity
and the petroleum-based resources that we use, including diesel and
liquid asphalt; - unexpected operational difficulties;
- interruptions in our information technology systems and infrastructure;
- potential labor disputes; and
-
rising prices for commodities, labor and other production and delivery
costs as a result of inflation or otherwise.
All subsequent written and oral forward-looking statements attributable
to us, or persons acting on our behalf, are expressly qualified in their
entirety by these cautionary statements. Any forward-looking statement
that we make herein speaks only as of the date of this press release. We
undertake no obligation to publicly update or revise any forward-looking
statement as a result of new information, future events or otherwise,
except as required by law.
| SUMMIT MATERIALS, INC. AND SUBSIDIARIES | ||||||||||||||||||||
|
Consolidated Statements of Operations |
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|
($ in thousands, except share and per share amounts) |
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| Three months ended | Nine months ended | |||||||||||||||||||
| September 29, | September 30, | September 29, | September 30, | |||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Product | $ | 512,822 | $ | 465,556 | $ | 1,229,596 | $ | 1,088,299 | ||||||||||||
| Service | 112,195 | 108,831 | 234,572 | 223,500 | ||||||||||||||||
| Net revenue | 625,017 | 574,387 | 1,464,168 | 1,311,799 | ||||||||||||||||
| Delivery and subcontract revenue | 69,644 | 59,794 | 145,804 | 130,752 | ||||||||||||||||
| Total revenue | 694,661 | 634,181 | 1,609,972 | 1,442,551 | ||||||||||||||||
| Cost of revenue (excluding items shown separately below): | ||||||||||||||||||||
| Product | 321,586 | 277,301 | 814,166 | 677,861 | ||||||||||||||||
| Service | 80,573 | 72,450 | 170,626 | 154,408 | ||||||||||||||||
| Net cost of revenue | 402,159 | 349,751 | 984,792 | 832,269 | ||||||||||||||||
| Delivery and subcontract cost | 69,644 | 59,794 | 145,804 | 130,752 | ||||||||||||||||
| Total cost of revenue | 471,803 | 409,545 | 1,130,596 | 963,021 | ||||||||||||||||
| General and administrative expenses | 59,457 | 59,175 | 190,975 | 175,729 | ||||||||||||||||
| Depreciation, depletion, amortization and accretion | 53,974 | 48,969 | 150,663 | 133,756 | ||||||||||||||||
| Transaction costs | 1,260 | 2,581 | 3,817 | 6,474 | ||||||||||||||||
| Operating income | 108,167 | 113,911 | 133,921 | 163,571 | ||||||||||||||||
| Interest expense | 28,889 | 28,921 | 86,616 | 79,876 | ||||||||||||||||
| Loss on debt financings | — | — | 149 | 190 | ||||||||||||||||
| Tax receivable agreement expense | — | 501,752 | — | 503,277 | ||||||||||||||||
| Gain on sale of business | (12,108 | ) | — | (12,108 | ) | — | ||||||||||||||
| Other income, net | (3,371 | ) | (2,716 | ) | (11,942 | ) | (3,963 | ) | ||||||||||||
| Income (loss) from operations before taxes | 94,757 | (414,046 | ) | 71,206 | (415,809 | ) | ||||||||||||||
| Income tax expense (benefit) | 20,765 | (498,333 | ) | 16,249 | (497,076 | ) | ||||||||||||||
| Net income | 73,992 | 84,287 | 54,957 | 81,267 | ||||||||||||||||
|
Net income (loss) attributable to noncontrolling interest in subsidiaries |
— | 59 | — | (27 | ) | |||||||||||||||
| Net income attributable to Summit Holdings (1) | 2,703 | 2,964 | 1,888 | 2,474 | ||||||||||||||||
| Net income attributable to Summit Inc. | $ | 71,289 | $ | 81,264 | $ | 53,069 | $ | 78,820 | ||||||||||||
| Income per share of Class A common stock: | ||||||||||||||||||||
| Basic | $ | 0.64 | $ | 0.74 | $ | 0.48 | $ | 0.73 | ||||||||||||
| Diluted | $ | 0.64 | $ | 0.73 | $ | 0.47 | $ | 0.72 | ||||||||||||
| Weighted average shares of Class A common stock: | ||||||||||||||||||||
| Basic | 111,641,344 | 109,545,111 | 111,288,211 | 108,219,132 | ||||||||||||||||
| Diluted | 111,940,067 | 110,824,468 | 112,472,724 | 108,848,680 | ||||||||||||||||
Contacts
Summit Materials, Inc.
Mr. Brian Harris
Executive Vice
President and Chief Financial Officer
brian.harris@summit-materials.com