Summit Materials, Inc. Reports Fourth Quarter and Full Year 2018 Results

Summit Materials, Inc. Reports Fourth Quarter and Full Year 2018 Results

– Net Revenue Growth of 9.0% in Year Ended December 29, 2018, Supported By Acquisitions

– Announced 2019 Adjusted EBITDA Guidance Range For The Full-Year 2019 at $430 - $470 million

Summit Materials, Inc. (NYSE: SUM, “Summit” or the “Company”), a leading vertically integrated construction materials company, today announced results for the fourth quarter and full year 2018.

For the three months ended December 29, 2018, the Company reported net loss attributable to Summit Inc. of $(19.2) million, or $(0.17) per basic share, compared to net income attributable to Summit Inc. of $43.0 million, or $0.39 per basic share in the comparable prior year period. Summit reported adjusted diluted net loss of $(18.6) million, or $(0.16) per adjusted diluted share as compared to adjusted diluted net income of $52.1 million, or $0.46 per adjusted diluted share in the prior year period.

For the year ended December 29, 2018, the Company reported net income attributable to Summit Inc. of $33.9 million, or $0.30 per basic share, compared to net income attributable to Summit Inc. of $121.8 million, or $1.12 per basic share in the comparable prior year period. Summit reported adjusted diluted net income of $17.4 million, or $0.15 per adjusted diluted share as compared to adjusted diluted net income of $104.9 million, or $0.93 per adjusted diluted share in the prior year period.

Summit's net revenue increased 1.0% in the fourth quarter of 2018 compared to the comparable 2017 period, while net income and Adjusted EBITDA decreased in 2018 as compared to 2017, as a result of the increases in our input costs which exceeded its revenue gains. Summit's net revenue increased 9.0% in the year ended December 29, 2018 as compared to 2017, primarily due to acquisitions, offset by decreases caused by less favorable weather conditions in 2018. Net income and Adjusted EBITDA for the full year 2018 were also lower than in 2017 due to the same factors that impacted our quarterly results. Tom Hill, CEO of Summit Materials, stated “although we continued to face input cost headwinds in the fourth quarter, we were very pleased to see our organic average sales prices for aggregates increased by 6.5% in the fourth quarter as compared to a year ago. We have also announced our cement price increases for 2019 which will go into effect in the next few months. We continue to believe end market fundamentals remain intact for the construction industry, as well as cement specifically, going into 2019.” Summit noted that according to the USGS, aggregates pricing has increased in 70 of the last 75 years, with average price growth in the low single digits. Further the PCA has reported that cement consumption is still below long-term trend lines, which we believe suggests room for demand expansion in 2019. Hill commented, “we believe these long term industry trends support our expectation for improved average sales prices in 2019.”

Summit also announced its 2019 Adjusted EBITDA guidance, as well as guidance regarding capital expenditures. Hill continued “as we enter 2019, we're pleased to announce Adjusted EBITDA guidance of approximately $430 million to $470 million for 2019.”

“Underlying demand conditions in most of our markets remain favorable 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.

During 2018, Summit completed 13 acquisitions for total invested capital of $300 million. Across these 13 transactions, Summit added more than 400 million tons of aggregates reserves to its portfolio.

Brian Harris, CFO of Summit Materials, stated “our 2019 Adjusted EBITDA guidance reflects an increase from our 2018 results, and we also expect to reduce the level of capital expenditures to approximately $160 million to $175 million, which we believe is more reflective of levels to be incurred in future years.” Summit expects to remain disciplined and selective on future acquisitions. As such, Summit expects to generate increased levels of cash flow from operations less capital expenditures in 2019 as compared to 2018, which we expect will allow us to reduce our leverage ratio by the end of 2019.

Full-Year 2018 | Results by Line of Business

Aggregates Business: Aggregates net revenues increased by 19.3% to $373.8 million during 2018, when compared to the prior year period. Aggregates adjusted cash gross profit margin declined to 59.4% in 2018, compared to 65.3% in 2017 due to higher variable costs. Organic aggregates sales volumes decreased 0.1% in 2018, as compared to 2017. Summit had growth in organic aggregates sales volumes in the West Region, which were more than offset by a decline in organic aggregates sales volumes in the East Region. Organic average selling prices on aggregates increased 3.3% in 2018 due to improvements in prices within both the West and East segments during the year.

Cement Business: Cement segment net revenues declined 7.6% to $280.8 million during 2018, when compared to 2017. Cement adjusted cash gross profit margin decreased to 44.3% in 2018, compared to 47.1% in 2017, as productivity gains and a 0.6% increase in average sales prices were offset by a higher freight, storage and demurrage costs related to weather-affected cement inventories. Organic sales volume of cement declined 8.6% in 2018, when compared to 2017, due to high levels of precipitation that disrupted project work during the year, as well as increased competition.

Products Business: Net revenues increased 13.2% to $967.5 million during 2018, when compared to 2017. Products adjusted cash gross profit margin declined to 21.1% in 2018, versus 24.6% in the 2017, 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 0.2% in 2018, while organic average selling prices increased 2.0% as compared to 2017. Organic sales volumes of asphalt decreased 0.4% in 2018, while organic average selling prices increased 2.4% during 2017.

Fourth Quarter 2018 | Results by Line of Business

Aggregates Business: Aggregates net revenues increased by 20.9% to $93.1 million in the fourth quarter 2018, when compared to the prior year period. Aggregates adjusted cash gross profit margin declined to 54.8% in the fourth quarter 2018, compared to 70.5% in the prior year period, due to higher variable costs. Organic aggregates sales volumes decreased 1.9% in the fourth quarter 2018, when compared to the prior-year period. Organic average selling prices on aggregates increased 6.5% in the fourth quarter 2018 due to improvements in prices within both the West and East segments during the period.

Cement Business: Cement segment net revenues declined 9.5% to $67.4 million in the fourth quarter 2018, when compared to the prior-year period. Cement adjusted cash gross profit margin decreased to 46.4% in the fourth quarter, compared to 49.9% in the prior-year period, as margins were impacted by the same factors noted above. Organic sales volume of cement declined 10.1% in the fourth quarter, when compared to the prior year period, due to high levels of precipitation and cold weather that disrupted project work during the quarter, as well as increased competition. Organic average selling prices on cement increased 0.1% in the fourth quarter, when compared to the prior year period.

Products Business: Net revenues increased 0.1% to $216.1 million in the fourth quarter 2018, when compared to the prior year period. Products adjusted cash gross profit margin declined to 21.6% in the fourth quarter, versus 23.7% 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 decreased 4.8% in the fourth quarter, while organic average selling prices decreased 0.7% as compared to the prior year period. Organic sales volumes of asphalt decreased 3.0% in the fourth quarter, while organic average selling prices increased 6.4%, over the same period in 2017.

Full-Year 2018 | Results By Reporting Segment

Net revenue increased by 9.0% to $1.9 billion in 2018, versus $1.8 billion in 2017. The improvement in net revenue was attributable to a small amount of organic growth and primarily acquisition-related contributions in the East and West segments, offset by a decline in the Cement segment. The Company reported operating income of $162.5 million in 2018, compared to $220.9 million in the prior year. Adjusted EBITDA was $406.3 million in 2018 compared to $435.8 million in 2017.

West Segment: The West Segment reported operating income of $92.1 million in 2018, compared to $130.3 million in 2017. Adjusted EBITDA decreased to $189.0 million in 2018, compared to $203.6 million in 2017. The decreases in West Segment operating income and Adjusted EBITDA were primarily attributable to increases in labor and liquid asphalt costs and low margin construction projects, partially offset by increases in average selling prices on aggregates and ready-mix concrete. Aggregates revenue in 2018 increased 14.2% over 2017 as a result of contributions from acquisitions, a 0.8% increase in organic volumes and a 4.2% increase organic average sales prices. Ready-mix concrete revenue in 2018 increased 23.5% over 2017, as a result of contributions from acquisitions, along with a 2.7% increase in organic volumes and a 2.4% increase in organic average sales prices. Asphalt revenue also increased by 0.1% in 2018, as contributions from our acquisitions exceeded a 0.4% decrease in volumes and a 1.4% decrease in average sales price.

East Segment: The East Segment reported operating income of $59.6 million in 2018, compared to $67.7 million in 2017. Adjusted EBITDA decreased to $138.0 million in 2018, compared to $139.1 million in 2017. The decrease in East Segment operating income was mainly attributable to increases in net revenue from our acquisition program and 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 20.5%, primarily due to increases resulting from our acquisition program as well as an increase in organic average sales prices of 2.7%, offset by a decline in organic sales volumes of 0.9%. Ready-mix concrete revenue increased 4.9% as a result of our acquisition program, partially offset by a decline in organic sales volumes of 6.6%. Asphalt revenue increased 14.2% 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 $75.8 million in 2018, compared to $89.4 million in 2017. Adjusted EBITDA declined to $111.4 million in 2018, compared to $127.5 million in 2017. The Company experienced slightly higher organic average selling prices as well as declines in organic sales volumes during 2018 due to high levels of precipitation in the Company’s Mississippi River markets.

Fourth Quarter 2018 | Results By Reporting Segment

Net revenue increased by 1.0% to $445.1 million in the fourth quarter 2018, versus $440.6 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 $28.5 million in the fourth quarter 2018, compared to $57.3 million in the prior year period. Adjusted EBITDA was $93.4 million in the fourth quarter 2018, compared to $114.2 million in the prior year period.

West Segment: The West Segment reported operating income of $11.6 million in the fourth quarter 2018, compared to $30.2 million in the prior year period. Adjusted EBITDA decreased to $37.7 million in the third quarter 2018, compared to $50.7 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 fourth quarter increased 11.0% over the prior year as a result of contributions from acquisitions, a 0.9% decrease in organic volumes and a 5.4% increase in organic average sales prices. Ready-mix concrete revenue in the fourth quarter 2018 increased 10.0% over the prior year period, as a result of contributions from acquisitions, partially offset by a 1.4% and 1.9% decrease in organic volumes and organic average sales prices, respectively. Asphalt revenue decreased by 1.5% in the fourth quarter, resulting from a 6.6% decrease in volumes, partially offset by a 0.9% increase in average sales price.

East Segment: The East Segment reported operating income of $15.5 million in the fourth quarter 2018, compared to $21.2 million in the prior year period. Adjusted EBITDA decreased to $37.5 million in the third quarter 2018, compared to $39.6 million in the prior year period. The quarterly decline in East Segment operating income was primarily attributable to increases in costs of revenue and general and administrative expenses. The quarterly improvement in East Segment Adjusted EBITDA was 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 increased labor and hydrocarbon costs, as well as decreases in ready-mix volumes. Aggregates revenue increased 25.4%, primarily due to increases resulting from our acquisition program as well as a 7.5% increase in organic average sales prices, partially offset by a 3.0% decline in organic sales volumes. Ready-mix concrete revenue decreased 10.9% as a result of lower sales volumes, partially offset by an increase in organic average sales prices. Asphalt revenue increased 26.8% primarily as a result of a 3.0% and 17.0% increase in organic volumes and organic average sales prices, respectively.

Cement Segment: The Cement Segment reported operating income of $19.3 million in the fourth quarter 2018, compared to $25.8 million in the prior year period. Adjusted EBITDA declined to $28.8 million in the fourth quarter 2018, compared to $34.2 million in the prior year period. The Company experienced slightly higher organic average selling prices as well as declines in organic sales volumes during fourth quarter 2018 due to high levels of precipitation in the Company’s Mississippi River markets and price-driven competitive pressures.

Acquisitions and Divestitures

During 2018, the Company completed 13 acquisitions with a total investment of approximately $300 million.

Liquidity and Capital Resources

As of December 29, 2018, the Company had cash on hand of $128.5 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 December 29, 2018, the Company had $1.8 billion in debt outstanding.

Financial Outlook

For the full-year 2019, the Company estimates its Adjusted EBITDA to be in the range of $430 million to $470 million. For the full-year 2019, the Company estimates its capital expenditures to be in the range of $160 million to $175 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 fourth quarter and full year 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.

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.

Adjusted EBITDA, Adjusted EBITDA Margin, 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 and 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, including our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, which is expected to be filed on or about the date of this press release, and the following:

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.