Summit Materials, Inc. Reports Third Quarter 2020 Results

Summit Materials, Inc. (NYSE: SUM, “Summit,” "Summit Inc." or the “Company”), a leading vertically integrated construction materials company, today announced results for the third quarter of 2020.

For the three months ended September 26, 2020, the Company reported net income attributable to Summit Inc. of $90.7 million, or $0.79 per basic share, compared to net income attributable to Summit Inc. of $55.8 million, or $0.50 per basic share in the comparable prior year period. Summit reported adjusted diluted net income of $63.9 million, or $0.55 per adjusted diluted share as compared to adjusted diluted net income of $58.2 million, or $0.50 per adjusted diluted share in the prior year period.

Summit's net revenue decreased 3.1% in the third quarter of 2020 to $645.2 million, compared to $665.8 million in the third quarter of 2019, on lower east segment and cement revenue relative to a year ago. Net revenue increased $38.5 million to $1,562.9 million in the nine months ended September 26, 2020, primarily resulting from organic growth in aggregates and ready-mix concrete. The Company reported operating income of $100.6 million in the third quarter 2020, compared to $130.9 million in the prior year period, as the third quarter 2020 included $10.6 million of CEO transition and related stock compensation adjustments.

Operating income increased by $5.3 million in the first nine months of 2020 as compared to the first nine months of 2019, primarily as net revenue gains exceeded increases in costs of revenue and general and administrative expenses. Summit's operating margin percentage for the three and nine months ended September 26, 2020 decreased to 15.6% from 19.7%, and increased to 10.2% from 10.1%, respectively, from the comparable period a year ago, due to the factors noted above.

Net income attributable to Summit Inc., which included the reversal of an unrecognized tax benefit, increased 62.7% in the third quarter to $90.7 million as compared to $55.8 million. Net income attributable to Summit Inc. was $102.8 million for the nine months ended September 26, 2020. Adjusted EBITDA decreased 8.1% in the third quarter to $177.7 million as compared to $193.3 million in 2019, and for the first nine months of 2020 Adjusted EBITDA increased 4.1% to $354.4 million.

For the three months ended September 26, 2020, sales volumes increased 3.1% in aggregates, and decreased 1.0% in ready-mix concrete, 6.4% in asphalt and 11.3% in cement relative to the same period last year. Average selling prices in the third quarter of 2020 decreased 2.2% in aggregates, and increased 0.5% in cement, 4.6% in ready-mix concrete and were flat in asphalt relative to the prior year period. We had organic price growth across all lines of business during the third quarter of 2020.

Anne Noonan, CEO of Summit Materials, commented, "Our West segment performance was the highlight of the quarter, delivering 16.5% growth in Adjusted EBITDA in Q3, as migration trends favor certain US central and western suburban and exurban markets that we serve. Company-wide, our adjusted cash gross profit margin has held steady. We are focused on consistent organic growth with investment in greenfields and Summit end markets that are underpinned by strong growth fundamentals. Sustainable organic growth serves as a foundation to support strategic acquisitions, such as Multisources of Texas, and Valley Gravel of British Columbia, which we completed in the third quarter while keeping our leverage ratio steady at 3.5x. Most importantly, we continue to vigilantly practice safety and distancing protocols in response to the COVID-19 outbreak."

As of September 26, 2020, the Company had $288.8 million in cash and $1.9 billion in debt outstanding. The Company's $345 million revolving credit facility has $329 million available after letters of credit. For the nine months ended September 26, 2020, cash flow provided by operations was $218.0 million while cash paid for capital equipment was $140.0 million. Brian Harris, CFO of Summit Materials added, "During Q3, we strengthened our balance sheet by redeeming all of the outstanding $650 million 6.125% notes due 2023, which was our nearest term maturity, with proceeds from our issuance of $700 million of 5.250% notes due 2029. Summit reported over $617 million in available liquidity at quarter end."

Given the uncertainties relating to COVID-19, Summit is not providing Adjusted EBITDA guidance at this time. Noonan continued, "We continue to believe that it is prudent to forego providing guidance pending better visibility into the ultimate resumption of normal business conditions."

The Company is expanding its previously announced 2020 capital expenditure guidance to $175 million to $185 million, including $50 million to $60 million for greenfield projects. This is an increase from the Company's previous guidance of $145 million to $160 million.

Third Quarter 2020 | Results by Line of Business

Aggregates Business: Aggregates net revenues decreased by $1.1 million to $136.4 million in the third quarter 2020 when compared to the prior year period. Aggregates adjusted cash gross profit margin decreased to 64.2% in the third quarter 2020 as compared to 68.6% in the third quarter 2019 on differences in product mix. Aggregates sales volumes increased 3.1% in the third quarter 2020 when compared to the prior-year period on higher volumes in Texas, partially offset by lower volumes in Missouri, Kentucky, and British Columbia. Average selling prices for aggregates decreased 2.2% in the third quarter 2020. On a mix-adjusted basis, Summit estimates that aggregates prices have increased by approximately 2.1% year-to-date in 2020.

Cement Business: Cement segment net revenues decreased 14.3% to $84.9 million in the third quarter 2020, when compared to the prior-year period, on lower sales volume of cement. Cement adjusted cash gross profit margin decreased to 45.1% in the third quarter, compared to 46.0% in the prior year period, as lower volumes resulted in higher unit plant costs. In addition, our solid waste processing facility continued to undergo repairs related to an explosion that occurred in April 2020. The Adjusted EBITDA impact from the down time at the facility was approximately $4.3 million in the third quarter. Organic sales volume of cement decreased 11.3% in the third quarter and organic average selling prices increased 0.5% when compared to the prior year period.

Products Business: Products net revenues were $321.8 million in the third quarter 2020, compared to $324.7 million in the prior year period. Products adjusted cash gross profit margin increased to 25.4% in the third quarter, versus 24.4% in the prior year period. Our organic average sales price for ready-mix concrete increased 4.6% and organic sales volumes of ready-mix concrete decreased 1.0%, as higher volumes in residential construction markets were offset by flat to slightly lower volumes in other parts of Texas (Permian) and Kentucky. Our organic average sales price for asphalt was flat, while asphalt organic sales volumes decreased 6.4%, as lower volume in Kentucky was offset by higher volumes in North Texas and Kansas.

Third Quarter 2020 | Results By Reporting Segment

Net revenue decreased by 3.1% to $645.2 million in the third quarter 2020, versus $665.8 million in the prior year period. The reduction in net revenue was primarily attributable to lower volume of cement, asphalt, ready-mix concrete and aggregates, partially offset by higher cement and ready-mix concrete prices. Aggregates reported average selling prices declined 2.2% in the third quarter 2020 relative to the prior year, but on a product mix adjusted basis, year to date aggregates pricing has increased approximately 2.1%. The Company reported operating income of $100.6 million in the third quarter 2020, compared to $130.9 million in the prior year period.

Net income increased to $92.8 million in the third quarter of 2020, which included a $32.9 million reversal of an unrecognized tax benefit, compared to income of $58.2 million in the prior year period. Adjusted EBITDA decreased 8.1% to $177.7 million in the third quarter of 2020, compared to $193.3 million in the prior year period on lower revenue.

West Segment: The West Segment reported operating income of $72.3 million in the third quarter 2020, compared to $58.5 million in the prior year period. Adjusted EBITDA increased to $95.5 million in the third quarter 2020, compared to $81.9 million in the prior year period. Improvements in operating income reflected increased demand for aggregates and ready-mix concrete in Utah and Texas. Aggregates revenue in the third quarter increased 12.2% over the prior year period, while organic average sales prices increased 4.4%. Ready-mix concrete revenue in the third quarter 2020 increased 3.6% over the prior year period, as organic volumes decreased 0.3% and were offset as organic average sales prices increased 3.9%, reflecting favorable market conditions in Utah and Texas. Asphalt revenue increased by 1.4% in the third quarter 2020 over the prior year period. While asphalt volumes decreased 1.0%, particularly in British Columbia, organic sales prices increased 2.4%, particularly in parts of Texas. The Company completed the acquisition of Multisources of Houston, Texas and Valley Gravel of Abbotsford, British Columbia, in the third quarter, both of which are primarily aggregates businesses.

East Segment: The East Segment reported operating income of $29.3 million in the third quarter 2020, compared to $55.5 million in the prior year period as lower asphalt revenues due to the ongoing fiscal constraints in Kentucky more than offset strength in ready-mix concrete. Adjusted EBITDA decreased to $56.9 million in the third quarter 2020, compared to $76.8 million in the prior year period. Aggregates revenue decreased 7.2%, resulting in part from a 5.6% decrease in organic volumes, notably in Kentucky and also in Missouri, where the Company was involved in significant floor repair work a year ago and operations have since returned to normal run rates. Aggregates average selling prices decreased 2.2% on a difference in product mix from the year-ago quarter. Ready-mix concrete revenue increased 3.6% as organic average selling prices increased 6.8% due in part to wind farm work in Kansas. Asphalt revenue decreased 30.7% as organic volumes decreased 17.8% on a lower contribution from Kentucky, while organic average selling prices decreased 7.0%.

Cement Segment: The Cement Segment reported operating income of $24.0 million in the third quarter 2020, compared to $31.5 million in the prior year period. The segment reported organic sales volumes and organic average selling prices decreased 11.3% and increased 0.5%, respectively, during the third quarter 2020 as compared to the prior year period. Adjusted EBITDA decreased to $35.1 million in the third quarter 2020, compared to $42.7 million in the prior year period as lower volumes resulted in higher unit plant costs. In addition, our solid waste processing facility continued to undergo repairs related to an explosion that occurred in April 2020. The Adjusted EBITDA impact from the down time at the facility was approximately $4.3 million in the third quarter.

Liquidity and Capital Resources

As of September 26, 2020, the Company had cash on hand of $288.8 million and borrowing capacity under its $345 million revolving credit facility of $329 million. The borrowing capacity on the revolving credit facility is currently fully available to the Company within the terms and covenant requirements of its credit agreement. As of September 26, 2020, the Company had $1.9 billion in debt outstanding.

Financial Outlook

The Company is expanding its previously announced 2020 capital expenditure guidance to $175 million to $185 million, including $50 million to $60 million for greenfield projects. This is an increase from the Company's previous guidance of $145 million to $160 million.

Webcast and Conference Call Information

Summit Materials will conduct a conference call on Wednesday, October 28, 2020, at 11:00 a.m. eastern time (9:00 a.m. mountain time) to review the Company’s third quarter 2020 financial results, discuss recent events and conduct a question-and-answer session.

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 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 Net Income, 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 Net Income, 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 Net Income, 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 28, 2019 and Quarterly Report on Form 10-Q for the fiscal period ended March 28, 2020, each as filed with the SEC, and any factors discussed in the section entitled “Risk Factors” in any of our subsequently filed SEC filings.

• the impact of the COVID-19 pandemic, or any similar crisis, on our business;
• 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;
• our reliance on private investment in infrastructure, which may be adversely affected by periods of economic stagnation and recession;
• environmental, health, safety and climate change laws or governmental requirements or policies concerning zoning and land use;
• costs associated with pending and future litigation;
• rising prices for commodities, labor and other production and delivery inputs as a result of inflation or otherwise;
• 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;
• unexpected factors affecting self-insurance claims and reserve estimates;
• our substantial current level of indebtedness, including our exposure to variable interest rate risk;
• our dependence on senior management and other key personnel, and our ability to retain and attract qualified personnel;
• supply constraints or significant price fluctuations in the electricity and petroleum-based resources that we use, including diesel and liquid asphalt;
• climate change and climate change legislation or regulations;
• unexpected operational difficulties;
• interruptions in our information technology systems and infrastructure; including cybersecurity and data leakage risks; and
• potential labor disputes, strikes, other forms of work stoppage or other union activities.

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.