Q2 2020 Summit Materials Inc Earnings Call
Earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session.
To ask your question during the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded and if you need any further assistance. Please press star zero.
Now I'd like to hand, the conference over to Karli Anderson, Vice President Investor Relations. Thank you. Please go ahead.
Welcome to somewhat material second quarter 2020 results conference call.
We issued a press release yesterday detailing our financial and operating result, it's called the company by our second quarter 2020, Investor presentation at an updated supplemental work, but highlighting key financial and operating data all of which are posted to the investor section of our web site.
Management commentary and responses to questions on today's call May include forward looking statements, which by their nature uncertain and outside of summit materials control. Although these forward looking statements are based on management's current expectations and beliefs actual results may vary and it's immaterial way.
Especially if some of the factors that could cause actual results to differ please see the risk factor section absorbent materials annual report on form 10-K ended our quarterly report on form 10-Q for the first quarter of 2020, each of which is filed with the FCC.
You can find reconciliations of the historical non-GAAP financial measures discussed in today's call at our press release.
Today's call will begin with the business update from Tom Hill, and Brian Harris to provide a financial review and Tom will provide concluding remarks, well then open the lines for questions. Please limit your questions to one question and one follow up and then returned to the Q. So we can accommodate as many analysts as possible and the time we have available.
In compliance with seven safety and discussing protocols. Our management team members are dialing in for today's call from their home office said like the leads an audio or background noise may occur during their prepared remarks into Q1 day session.
With that I'll turn the call over to Tom.
Good morning, everyone and thank you for joining our call.
I will begin on slide three of the presentation, then executive summary.
Safety is always our first priority.
Called at Night Gene has presented new challenges somewhat employees have certainly risen to the occasion, we continue to be vigilant in purchasing safety and distancing protocols. So our employees families and communities can be safe and healthy.
We have you called it 19 safety as an integral part of our safety programs, everyone, including visitors customers vendors and subcontractors is required to comply with these safety standards, whether it involves implementing paperless ticketing and our scale houses driving hours to deliver hand sanitizer.
Colleagues or donating our stock of and 95 Master healthcare workers, our team has proven to be creative and thoughtful and developing solutions to these extraordinary new working conditions and we thank them for their commitment.
Construction continues to be designated an essential service in the markets, we serve and we had been working with stakeholders to enhance operations under these new working conditions in the 23 stage and the province of British Columbia.
To summarize at a high level demand has been very strong and our largest markets, such as Texas, and Utah and study in Kansas and Missouri.
He said the offset weaker demand we've experienced in some of our smaller markets, such as Kentucky, Nevada, and North Carolina and also on our cement business, particularly in their southern markets.
As we told you last quarter. Some its costs are mostly variable in nature, when we have seen better execution and reduction in transportation Gionee and hydrocarbons. This is reflected in our Q2, adjusted EBITDA margin, which expanded 250 basis points to 27.9% the high.
It's been in nearly three years.
Our executive summary continues on slide four we set second quarter records for net revenue.
Operating income net income in adjusted EBITDA.
Demand for ready mix and aggregates was resilient and our west region in particular benefited from more favorable weather conditions than a year ago.
The trend thus far in July appears to be more of the same.
Two weeks ago, we completed an acquisition of a pure play aggregates business and we will tell you more about that in a moment.
While demand for our products and services has not yet been materially impacted by cold at night team and most of our markets the future impact your construction activity is less clear.
State revenues May decrease as the economy slows and ultimately some infrastructure projects, maybe delayed or deferred.
No public infrastructure enjoy bipartisan support and many of the states, where we operate our in reasonably good financial conditions. Today, we still do not have a passage of a new transportation bill or a continuing resolution.
Looking forward to the rest of 2020, we just don't have a clear enough picture to reinstate adjusted EBITDA guidance at this time.
However, we are maintaining our 2020 capital expenditure guidance of 145 to 160 million.
Well the future is uncertain. We continue to believe summit is in the most favorable strategic and financial position in the company's history. This value proposition has only improved in the last quarter.
First summit is made up of entrepreneurial locally operated companies run by managers with extensive ties to the communities they serve.
Have the freedom to make real time decisions to respond to fluctuations in demand.
For example, where we have seen pockets a weaker demand in our smaller market operating company leaders have in some cases offered relocations to employees to give them the opportunity to temporarily assist the operating companies in higher growth markets.
Other situations operating companies are sharing resources across organizations or functions.
These economies of scale, our particularly beneficial in times of uncertainty and are reflected in our margin expansion.
Second entering this crisis, our end markets, where structurally sound and not oversupplied as of June 2020 every summit residential market had below average inventory in some cases less than two months versus the national average of nearly five months.
As we mentioned last quarter, our 2020 public construction book of business is already funded in some states into 2021.
The nature of work that we do as repair and replace which tends to be required even in times of financial stress.
Finally, we believe summit then the most favorable financial position in its history with over 580 million of available liquidity at quarter end.
On a pro forma basis net of the multi source is acquisition, which closed in early July available liquidity was approximately 490 million.
Turning to slide five for highlights of our second quarter and early indication of our Q3.
A combination of strong demand in good weather, particularly in our West region drove record Q2, net revenue of 575.2 million up 4.1% from a year ago.
Adjusted EBITDA increased 14.1% to 160.2 million, which was also a record.
We reported pricing growth in ready mix asphalt in cement aggregate prices were down slightly but that doesn't really tell the whole story, we lapped a very difficult comp in aggregates, which reported an 8% increase in average selling price last year, reflecting levy repair work in Missouri, while we are continuing.
Thing with flood repair work in Missouri, the nature of the current repairs calls for a product with a much lower selling price yet it still has very attractive margins.
This is one contributing factor to why our aggregates margin expanded by 250 basis points to 63.9% and the second quarter.
While the third quarter has just begun I'll make a few comments about what we're seeing in the first three weeks of the quarter.
First of all residential demand in our markets is nearly as active as it was prior to coal that 19, Las Vegas, which is a relatively small market for summit generating only 2% of our 2019 revenue is the only market, where we have seen a sustained negative impact from high unemployment.
Nonresidential activity has been fueled by wind farm and distribution center work, particularly in the Midwest.
This is partially offset by delays and deferrals of some airport and retail projects.
Summit does not participate in a much more volatile high rise office construction.
Cement demand varies widely across the Mississippi River system. For example, customers are facing tariff and supply chain uncertainty and agricultural communities in the north while volatility in the oil and gas market is affecting cement demand in the south.
We believe it is likely that cement volumes in the second half of 2020 will be lower than the same period in 2019.
And finally public activity is resilient in Texas, Kansas, Utah, Virginia, and Colorado Transportation budgets are however, constrain in Kentucky, North Carolina, and in the province of British Columbia.
Now I'll turn our focus to the cement segment on slide six our second quarter adjusted EBITDA for cement was flat relative to a year ago. So adjusted cash gross margin expanded by 500 basis points to 50.8%.
Whether in shipping conditions were normal relative to a year ago.
As we indicated in our first quarter 10-Q, an explosion occurred at our Green America recycling facility in April no. One was seriously hurt but repairs are expected to continue until the fourth quarter. We estimated the impact was approximately 3.8 million of adjusted EBITDA in the second quarter.
We expect that there will be an impact of similar magnitude in the third quarter.
Nice increases took effect on June one as planned so they are not entirely reflected in the Q2 average selling price.
We continue to monitor cement demand conditions on a daily basis and adjust production to meet that demand.
Cement volume was down approximately 6.3% in Q2, reflecting slower growth in certain markets.
We currently expect cement volume in the second half of 2020 to be lower than volume levels reported in the second half with 2019.
On slide seven we provided an update of the current market conditions in our top states.
Some at the end use markets are 38% public 31% residential and 31% nonresidential geographically our markets are working well for US right now we serve customers an ex urban and rural areas, where public highway work is essential and demand for housing wind farm and distribution centers.
<unk> has been strong through the first half of the year.
Fuel taxes and sales taxes are coming in flat to slightly lower than the same period, a year ago, but at this time, we cannot estimate the impact if any to public transportation funding since each state approaches funding decisions differently.
In Texas are public highway work is booked through 2020 and into Twentytwenty, one most of which is in our north Texas operation.
Texstar continues to award jobs, and our backlog has not been interrupted the Texas State Comptroller recently announced that the state highway funds will receive its full out occasion of prop seven funding of 2.5 billion for fiscal year 2021 from a private construction standpoint Usten resident.
Actual activity continues to grow with new residential permits up 7.6% in may.
At our Midland Odessa operation in the Permian Basin, which represented only 2% of summits net revenue in 2019 bidding for residential and nonresidential projects has slowed.
In Kansas Governor Kelly's office unveiled her plan for dealing with the estimated over 1 billion state budget shortfall anticipated at the end of fiscal year 2021.
Fortunately the plan does not impact the state Highway fund despite the recent dip in travel traffic counts have rebounded quickly and over the last 12 months fuel tax revenues remained flat year over year through may.
Total state tax revenue for May 2020 came in 28 million higher than the consensus estimate.
Mostly driven by higher sales tax upon reopening.
On residential activity is steady with wind farm and warehouse projects continuing to progress.
Our Utah operation is having a terrific year.
The state continues to experience population growth.
Salt Lake City has the second lowest unemployment in the country.
And it continues to attract new resident.
It's housing inventory was only 1.5 months in June and our non residential end market had backlog through fall 2020.
While Missouri's Department of Transportation initially estimated the decline in tax revenue of up to 30% fuel consumption was down only 4.7% in may versus the prior year.
Our public book of business has proven resilient, thus far in 2020 with a backlog roughly in line with 2019.
We continue to participate and flood repairs they'll be activity is on a smaller scale and requires lower.
Price product than what we supplied in 2019.
Private construction remains strong in this area with steady residential construction activity combined with wind farm and warehouse work.
Finally in Kentucky, the smallest of our top five states in terms of revenue. The state legislature continues to grapple with budget shortfalls, resulting from fiscal issues that preceded the cobot nineteeneight outbreak.
However, recent comments from Governor Bashir suggests that the budget issues may be less severe than originally estimated the shortfall of only 59 million instead of the original projection of 161 million.
While Kentucky cancel bidding activity in May and June the state resumed limited activity in July.
Private spending which is a small part of our Kentucky business is steady.
On slide eight we provided an outlook by end market. The future outlook is bit of a mixed bag as it is difficult to predict the impact of future stimulus.
Employment trends and federal funding.
And the residential end markets. The National Association of Homebuilders Index returned to pre pandemic levels in July.
Mortgage rates are at all time lows and local reports in Houston in Salt Lake City, our two largest residential markets suggests that buyer traffic and pricing is robust.
However, unemployment remained stubbornly high which could impact housing markets in the longer term.
In the non residential and Mark we note that may architectural billings are still significantly lower than a year ago.
And several airport expansions have been delayed or deferred by contrast, our core non residential business, which includes low rise construction that follows residential development remained steady in addition demand for wind farms distribution centers and data centers, which we also serve remains strong.
Finally, turning to the public end market, it's difficult to make a prediction pending a decision on federal funding both of the current proposals the house Investec and the Senate Environmental and public works America's Transportation Infrastructure Act would present, an increase over current fast tech funding.
Level and would be a positive catalyst for our sector.
There was also the possibility of a short term stimulus flowing to the state departments of transportation.
Absent a successful outcome to increase funding our base case scenario call Us historic trends, which is a continuing resolution to extend the current fast act beyond its expiration date of September Thirtyth 2020.
Turning to slide nine I'd like to summarize our recent acquisition of multi source is sand and gravel we closed subsequent to quarter end on July 10.
This transaction was several years into making and as a strategic acquisition of a pure play 100% aggregates business at an attractive multiples.
Combined with our existing Ellington operation and Usten. This acquisition creates the leading aggregate supplier in Houston with a total of 14 plants. The combined entity will have strategic positioning in the north and west of Houston, which are the fastest growing segments of that.
Metro area.
Including the business update on slide 10, we continue to make progress on our Greenfield strategy. We have completed five aggregates greenfields to date with another five aggregates greenfields under development.
So we deferred some spending 2021, we continue to estimate that we will generate 45 million of adjusted EBITDA on an annualized basis by 2024.
We expect to spend 50 to 60 million on Greenfields in 2020, and another 35 to 45 million in 2021.
With that I'll turn the call over to Brian for a discussion of our financial results right.
Thank you tell for sure.
Turning to slide 12.
I'll start with a summary of summits capital structure.
Today, we are reporting most favorable second quarter financial position in company history with over 580 million in available liquidity at the end of Q2.
On a pro forma basis net of the multi sources acquisition, which closed in early July.
Available liquidity was approximately 419 million.
We've reduced our leverage by more than one turned in a year.
Our leverage ratio is now 3.5 times net debt to adjusted EBITDA, which is a substantial improvement from 4.7 times a year ago.
We reported 60.2 million of free cash flow at the end of the second quarter as we benefited from higher net income and a continued focus on working capital management.
On slide 13, we've highlighted Twentytwenty capital expenditure guidance of 145 to 160 million, which includes 50 to 60 million for Greenfields.
We've also updated our current considerations for Capex, we elected to defer approximately 10 million to future periods, which does not change our estimated twentytwenty for adjusted EBITDA contribution from Greenfields. We also deferred 20 to 35 million of discretionary projects to future.
Sure periods.
We currently expect to spend approximately 45 million of Capex in the third quarter and approximately 10 million in the fourth quarter.
That's the bottom of the slide we've provided a chart depicting the seasonal variability in our cash and liquidity for the past 12 quarters.
On slide 14, you'll see the net revenue bridge, comparing Q2, 2022 Q2 2019.
Revenue increased 4% to a record 575.2 million.
Performance was led by a west region, which contributed an incremental 25.7 million on higher aggregates and asphalt volumes, particularly in Utah as well as high average sales prices in ready mix and asphalt.
Our east region contributed an incremental 5.8 million of net revenue driven by higher aggregates and ready mix volumes in Kansas.
Turning to slide 15, we've provided a Q2 adjusted EBITDA bridge.
We set a Q2 record with adjusted EBITDA of 160.2 million, an increase of 14% from a year ago.
The improvement was driven by strong performance from our West region.
Turning to slide 16, you'll see a key GAAP financial metrics net revenue increased 4% to the second quarter due to higher volume in aggregates ready mix and asphalt as well as high average selling prices were ready mix asphalt and cement.
Oh the increase in net revenue 23.8 million was from increased sales of products and 2 million from increased service revenue offset by decreased sales of materials of 3.2 million.
The resulting adjusted EBITDA margin of 27.9% reflects the underlying quality of earnings in aggregates business and the strength of our diversified product portfolio and our vertically integrated model.
Q2 operating income of 100.1 million increased by 19.6 million as compared to the second quarter of 29 team on higher revenue and was the primary driver of the 18 cents increase in basic earnings per share.
Second quarter Twentytwenty net income attributable systems Inc. increased by 20.7 million to 57.1 million.
Turning to slide 17, we've presented several non-GAAP financial metrics, where we compare Q2 twentytwenty to the prior year as well as year to date.
Adjusted cash gross profit margin expanded by 300 basis points in the second quarter, and 250 basis points year to date on expanding margins in aggregates and ready mix.
Adjusted EBITDA margins grew by 250 basis points in the second quarter to 27.9% and by 210 basis points year to date on higher net income.
Turning to slide 18.
We presented a comparison of our price and volume year to date.
Organic average selling prices increased 0.6% aggregates, 1.6% for cement, 5.6% and ready mix and 2.7% asphalt volumes increased by 5.5% aggregates, 7.9% for ready mixed concrete and 7.2% asked.
Fault cement volume contracted by 4.1%.
Turning to slide 19, our efforts to expand margins are reflected in adjusted cash gross margin expansion the quarter and year to date in all lines of business, except the first half of the year in cement.
Aggregates margins expanded by 250 basis points in the second quarter 300 basis points year to date on higher demand and price from Utah, Kansas and Missouri.
Our products business expanded by 310 basis points for second quarter, and 370 basis points year to date on a combination of volume and pricing strength, particularly in Utah in Texas.
Margins in our service business expanded 810 basis points in Q2, and 560 basis points year to date on pricing gains lower fuel and trucking costs in Kansas, and Texas as well as volume in the North, Texas and into mentioned west geographies.
Cement margins expanded 500 basis points in the second quarter on lower storage and distribution costs than a year ago year to date cement margins have contracted by 220 basis points as that segment experienced higher maintenance of winter storage costs early in the year together with the impact of the explosion.
At the Hannibal recycling facility.
Materials and products still comprise 88% of our adjusted cash gross profit and we continue to expect that the contribution from materials will be an increasing proportion of our EBITDA, especially in light of a greenfield strategy and pure play aggregates acquisitions like multi sources.
Proportionately modeling purposes for Twentytwenty, we estimate that interest expenses should be in a range of 26 to 28 million.
We anticipate paying minimal state and local cash taxes and know us federal income taxes.
In addition to minimal cash taxes, we do not expect to have any significant tier eight payments until 2025.
Finally, with regards to total equity interest set standing we had 114.1 million class a shares outstanding and 3.1 million LP units held by investors, resulting in total equity interest that spending of 117.2 million at June 27th Twentytwenty. This is the share count.
It should be used in calculating adjusted diluted earnings per share and with that I'll turn the call back to Tom for his closing remarks.
Thanks, Brian.
Conclude my prepared remarks on slide 21.
When we reported our 2019 year on results back in February I said that summit is set up for success in 2020, I cited our improved financial ratios margin expansion and greenfield opportunities.
Despite unprecedented circumstances, we are delivering on these promises.
Im confident that some it has the tools to succeed because we are positioned for stability today and gross when conditions return to normal.
First our financial results continue to improve the chart on the upper left side shows our trailing 12 months adjusted EBITDA, which has grown steadily for the last five quarters.
Our available Q2 liquidity, none of the multi sources acquisition is 490 million.
Most of our costs are variable and our entrepreneurial culture allows managers to flex cost to meet demand as evidenced by our expanding EBITDA margins that we are reporting today.
Second we are still position for growth, we are developing aggregates greenfields projects that will be accretive to adjusted EBITDA. We have acquired a 100% aggregates business and use them that gives us a leading position in one of the fastest growing metro areas in the country.
And finally, we are optimistic that Congress will pursue an infrastructure or transportation Bill, which would result in more aid flowing to states.
As we look forward to the second half of 2020, we'll be watching for progress in Washington on on new expanded or continuing resolution to fund highway work.
Or updates on housing inventory in our markets and for signs of growth and low rise nonresidential, which tends to follow residential activity by 12 to 18 months.
When I founded summit in 2009, I could not have imagined that growth and success. The company would achieve over the following 11 years and it has been an honor to serve as CEO throughout this remarkable period, serving this company alongside all of our talented team members has been the greatest privilege and the highlight of my professional career.
And I am extremely proud of all that we have accomplished I believe that now is the right time for the company transition to its next leader and as we announced yesterday I will be stepping down from my role on September one 2020 at that time, and Noonan will be appointed President and Chief Executive Officer, I have great confidence.
And and the strength of our team and the great opportunities ahead.
Look forward to working closely with and over the next few months and for some its continued success for many years to come.
With that I'd like to turn it over to the operator for questions operator.
Ladies and gentlemen in order to ask a question you will need to press star one on your telephone as a reminder, please limit yourself to one question and one follow up please standby it will be compiled documentary roster.
Our first question is from the Kathryn Thompson with Thompson Research Group. Your line is open.
Hi, Thank you for taking my questions today and time.
Congratulations.
You can speak from a TRP, we haven't really enjoyed working with you.
Over a decade business, a private company as a public company.
Thanks.
So.
Diving into questions just first on the margin side could you give a little bit more color on puts and takes from a margin expansion Trina products and the materials segment.
And could you clarify differences by product and perhaps even by geography, and there can be some large pockets, where you either three or four buckets, but being able to understand what was the puts and takes that also.
What is really more onetime and what is.
More sustainable thank you.
Yeah, Catherine I'll deal with the overall margin picture and I'll, let Brian get into some of the.
Particulars.
Overall, we are just executing extremely well, especially on the aggregate side.
Our costs in our Throughputs and so on are extremely.
You know extremely good.
And we also have some some reduce costs certainly third party transportation hydrocarbons and DNA without with almost no travel going on all those have improved.
Brian do you want to touch on some of the product a specifics.
Yes, sure Tom and things concern for the question.
On the products as the combination of ready mix and asphalt together frankly, the margin profile of those two product groups is not very different but you know keen to variable costs, where the hydrocarbons.
Fuel, we're seeing fuel whether it be on wrote off road.
Oh gasoline prices are running at about.
10% to 15% below the cost that we incurred.
Last year as you know we hedge some of those costs. So.
We believe we buy the balance Spartan we're expecting.
That pace of.
[noise] cost improvement on the hydrocarbons appeal to continue.
Third party trucking is a big portion of our spend we typically spend about 170 580 million a year.
On third party trucking I think another contributing factor on the asphalt side would be in the in Texas, where we're able to take advantage of.
Lower liquid asphalt costs.
You know and May just be that we've been a little bit more efficient as a result of the quieter roads were not seeing as much idle time start stop.
Fuel consumption is more.
As being more efficient in the first half of the year.
And of course, the products big products markets for ready mix for Salt Lake.
And and Houston markets.
They both account for about a third each of our volumes and then the rest of the of the country accounts for the other third.
But they're all benefiting from those from those variable cost reductions and I think they'll continue there's really not many one time.
One off it was you asked about I don't think as many one offs. So.
So until the fuel prices you know recover I think we'll continue to see the benefits of those lower costs.
Okay. That's helpful.
In a follow up question is more than non riser to commercial end market and appreciated the color you can't in your prepared commentary that.
But feedback we've gotten from just on the construction value chain is just not surprisingly a shift away from certain types of projects and tidmore kind of tech related warehousing data centers.
And it seems to be.
Covering demand at least for some companies.
Knowing that you have more years, it's more low rise it to especially following.
Because really falling residential demand I guess two part what are you seeing any demand.
Increase from where that Tetra, then fine certain onrad.
And then two given the backdrop the presidential accomplish certainly its brighter what is that need for summit.
Over the next.
24 28 months.
Yeah. Thanks Catherine.
Our thanks.
We are.
By design in the right area in nonresidential we.
No we serve a low rise that follows.
Non ROE that follows residential that seems to be continuing.
Pre cobot levels.
I think if if whereas continues its strong serves here we might even see that broke off.
You know, but we also have.
Good backlogs and lots of activity.
In the data centers and the tech side and also in wind farms were in states in Kansas, and Missouri in North, Texas, and Oklahoma, where wind farms continue to be a bigger source of demand and I think most importantly, when we look at nonresidential we've just.
Don't service.
The large downtown office buildings, Thats really something we almost too to do nano.
I think the outlook for that is probably pretty pretty tough with the next few years.
I am.
I am shocked by the strength of residential.
You know both are used in Utah markets are.
Well basically on fire on the residential side I mean, we have our customers are incredibly optimistic for the rest of this year and into next.
Interest rates continue to being sub 3%.
And I think.
When you look out.
When you look at summit and you look at really positive residential outlook.
Look at the Monros area, where we're not exposed to the we to the weakest parts of that.
And we have pretty.
Pretty consistent.
Demand on the highway side, I mean, I I think it means you know a very positive outlook for summit here in the in the medium term and you know look the wildcard is you know this pandemic if that fires up really you know.
In the fall.
And we have to shutdown that so that's certainly a risk.
I, hopefully I don't see that happening, but I think you know.
Residential really.
The read about residential positive outlook really.
Underpins, both our non rose and our rose.
And then we feel that the states were in our pretty well funded our three big Highway states are.
Kansas, Texas and Utah.
You know there they are in pretty good shape. So.
I think the next 12 to 24 month, Kathryn is should be positive or port for summit.
Great. Thank you so much and best of luck.
Okay. Thank you Catherine.
And again, ladies and gentlemen, please limit yourself to one question and one follow up.
Your next question is from Trey Grooms with Stephens, Inc. Your line is open.
Hey, good morning, everybody and.
First off I want to Echo what Kathryn It's said earlier and congratulate you Tom I wish you the best and whatever your next chapter brings and we really enjoyed working with you over the years.
Same try sure.
So I guess I wanted to touch first on a.
The cement price submit price increase was implemented in June.
Of course, it didn't really impact the quarter too much I guess, but.
How has that been received in how should we be thinking about cement pricing going into the back half.
I think that.
It's been very successful.
You know as with all price increases you don't get all of it.
But we've got a higher percentage than we have certainly in the last couple of years you know it will be there for seven for seven months. We hope were overall you know.
Okay, it's really hard to say, but it should be north of $2 over on an annual basis of an increase.
Okay, North the two bucks okay.
That's helpful. Thanks for that and then from a follow up I just wanted to dive in a little bit more on the multi source acquisition.
Maybe any more detail there or any color on.
How much EBITDA, that's bringing to to the table on its own.
And I know you mentioned.
Synergies any any color you can give us around synergies you're you're targeting there.
And then is I.
No. The focus has been more on de levering.
And this isn't a massive deal by any means but you know with with demand continuing to hold in much better than beard has your stance on M&A changed at all with this acquisition.
I'll give you just said overview of our overall.
We still have a few smaller bolt ons and the pipeline.
But but it's been.
As you can probably understand it's been very very quiet.
During this pandemic, it's very hard to run a process sort of the negotiated deal when you're you're not traveling so I would say.
You know, we've got got a couple of small ones out there.
I suspect when this gets.
Closer to the end.
Of the situation that we will see a.
I don't want to use or flood, but we'll see we'll see a lot of activity.
You know when when things.
Get a little bit more opened up and people are are traveling.
You know Multisource is itself, it's a deal that let's see I think this one had about a six year tail on it.
We were the long negotiation.
We have.
It's multiple.
Multiple sites that very well with our existing sites.
Brings.
Over 160 million tons of reserves.
We really now and use them have on 11 million ton business.
You know the leading aggregates player there a with a very useful.
Downstream.
Outlet in our ready mix business and we also by the way that we're ready mix personally business that we have in Houston is certainly one of the best ever run across they've been there for 60 70 years and have a great reputation.
We're not giving specific EBITDA.
Guidance.
It's a very attractive.
Multiple them you know with synergies that you know it's definitely.
You know and high single digits.
And overtime will be less than that.
You know synergies with multiple sand and gravel sites are you know that you can you can source out a different locations.
You know.
Get one location that gravel is really the up the scarce resource there. So if you hit Oh, you're hit hit a pocket of higher gravel content you can move volumes. There. It's it's it's tremendous logistic transportation synergies.
We are the leading sand and gravel player there, we I would see a very positive.
Pricing trend in that business as other.
Sources deplete.
It's sort of the classic aggregates play where you know you you have positive pricing outlook volume seems like that's going to hang in there with the rest was strong residential and Oh, our downstream certainly.
Complements our business they are quite a bit.
Okay. Thanks for taking my questions and congrats on the nice results good luck Tom.
Thanks for sure.
Your next question is from Anthony Pettinari with Citi. Your line is open.
Good morning, and congratulations to Tom for all of your accomplishments at summit.
Thanks.
You talked about expectations for year over year declines in the second half and cement and I was just wondering if you could give any more color about expectations for aggregates volumes in the second half directionally.
And any kind of additional color on how backlogs look right now.
Sure I mean, our aggregates backlogs are actually quite strong.
And well up over over last year.
We are aggregate demand as you know remains quite strong.
Through today.
And our we're very optimistic now we do have the comp last year, we had some incredible levy work in Missouri.
We still have some levy work, but it's not.
Much less materiality, so we're still optimistic about our Missouri operations have great backlogs.
So, but but overall I would be you know I would be with with better backlogs and strong demand.
In almost all our markets.
You know very optimistic about about volumes in the second half on the aggregate side.
Okay, that's very helpful.
And then just following up on private nonresidential and is it possible to quantify what percentage.
Of your businesses to end markets like retail and travel that are seeing some pressure versus that kind of core.
Sure.
And other categories that are holding up better and is there any big margin difference between the two in terms of the minority of projects that maybe you are seeing delays or cancellations to they have a higher.
Higher margin profile lower margin profile sort of average margin profile you look at.
Your broader business.
No we don't break our non res out.
You know between retail and so forth I mean and.
We are primary.
Nonresidential business is low rise the the strip malls and so on that.
Follow.
Residential construction some of that is retail, but it's not the retail it's getting you know crush people are still going to Starbucks are still going to Wal marts are still going to the things that we service.
And then also we have the all the Amazon distribution centers and those things which are actually accelerating.
[music].
So I don't know if that answers your question answered, but that's no I'm I I think where in the right place at the right time on on on on our non rose.
Oh and juice.
No that's helpful I'll turn it over.
Okay. Thanks.
Your next question is from Phil Ng with Jefferies. Your line is open.
Good morning, everyone and in a it's in the pleasure working with you Tom Thanks for all the help.
I guess your business is showing yes. Your business is showing you know incredible resiliency, particularly the aggregate side the based on your backlogs and Lettings, how that's progressing how do you kind of see.
The public piece playing out in 2021.
Is there really isn't resiliency and some of your bigger states kind of enough to offset some of these weaker markets like into Kentucky without any federate and lastly is is if there is an air pocket is this more of a 2021 he that already see this kind of carrying out and being an overhang the out years.
I'm now on the public side, you know we have our asphalt backlogs for instance are pretty stable, but at a very high level and bidding activity continues to be very strong in Texas in Kansas and Utah.
We even got you know some what I would have to say less bad news out of Kentucky.
Where are they.
You know announce that.
They thought and let's see what were the numbers there. It was a they thought they were going to have a shortfall in the road from of 100 and.
Let's see I don't know was 160, I think Carly, it's and it's only like 59 million in the shortfall. So there's an extra 200 million.
Yeah that.
That that that should be turn into additional lettings and we will see than second half that will most likely be 2021 work in Kentucky.
We've we've had to make some hard decisions and Kentucky, We've got a really fine business there and.
In the Henkel business, but it's you know it's been wrong.
And.
Well, we've expanded into a little bit more private construction there we've taken a couple of jobs in Tennessee.
That we can reach so were we are.
Going to make the best of the VAT situation in Kentucky, but what elsewhere. We just can you know it just continues to be.
Business as usual and are in a major highway states.
And this is going to see a significant increase.
In 2020 over 29 team and I really believe that we're going to see a significant increase in activity on highways in Kansas 21 over twice.
Okay. So it sounds like 2021, I mean, obviously no guarantees it sounds like all your major states are holding up pretty well so sounds like.
And a good spot.
I guess my follow up would be on around pricing certainly noise in the quarter with some that levy work dynamic if you kind of strip that out.
In the back half are you still kind of on track to kind of hit that 4% price mix.
Target It did you had coming into year.
And as we look at 2021, how do you how you think about pricing momentum in your your major markets for aggregates.
You know the.
Pricing, it's been or mix adjusted basis, we were at 2.5%.
We would see some momentum there.
Whether we can get to the three an app for on a on a mix adjusted basis.
That does.
So I think we have a shot at it but that's that's we've got everything to play for there.
Yes.
What about the I like 2021, how you think about them, but thats spot pricing there.
I'm sorry.
Well I didn't hear that.
Your thoughts on broader pricing momentum as we kind of look out to 2021 for accurate.
Hi.
Yeah, and I'm very optimistic I'd be very optimistic in our biggest market is Houston.
Utah.
The economy in Utah continues to just be incredibly strong big influx of People's It's.
Oh really a very.
Positive outlook in our major market, so I can't see why.
We we shouldn't continue with strong.
Pricing.
Okay. Thanks, a lot really appreciate the color.
Okay. Thanks so.
Your next question is from the Stanley Elliott with Stifel. Your line is open.
Hey, good morning, everyone. Thank you all for taking the question.
Could you talk a little bit about how volumes.
Pick pick the pick a product what have you but.
Trended through the quarter on a monthly basis and then also just trying to get a sense. When you say July you are still trending in line is that really more inline with the full quarter or more in line with what's happened in June.
So our volumes actually so far are actually better than the prior year and better.
You know better them and then June.
So you know demand is quite strong that now that's not in cement cement.
You know tailed off in June and it continues at adding a slightly lower level than than the prior year, but in the other three products and Ags ready mix and asphalt it continues to be ill just very strong.
So.
My guess might take.
I'm, sorry, sorry, so you're basically saying that June was stronger than somebody other quarters in the month and the July was even stronger than June I'm, just trying to make sure that I'm hearing exactly what you guys are saying well we've got a couple of weeks. We're only this is what week three jumped up in July and that's you know continues.
To be stronger.
And you know Joe was a really good month outside of cement so that had some issues, especially in their southern markets that are really impacted by oil and gas and in fact.
Lot of both southern markets are in Louisiana always more impacted by all on oil and gas than than Houston.
You know just it's just a bigger percentage of that that economy.
Perfect I will leave it there and Tom Congratulations and best wishes to you.
Oh, Thanks Stanley.
Your next question is from Sheldon Clark with Deutsche Bank. Your line is open.
Hey, Thanks for the question.
Could you just give us a more clarity on what's the biggest concern for you guys in terms of providing guidance.
Towards end of July now, which you mentioned in pretty strong he's got to Q under your belt and have some pretty good visibility into backlog and pricing. So could you just give us some more clarity around your thought process here and what's really.
Driving the hesitation as it relates to providing back half guidance.
Yeah, I think its and I'll, let Brian speak up on this also but to me it's just strictly.
You know the pandemic.
And you know what potential impact it could have it has a surge and you know things shutdown. That's just a wildcard that I have no experience in and it has made us hesitant to give guidance. If we were giving guidance it would probably be wider than you would like.
So that's really hit I think if the.
I would be very optimistic for the year if.
The pandemic doesn't get any worse I don't know, Brian what's what's your view there.
Yeah, that's right Tom obviously, the kinds of Pandemics hanging over everything, but you know if you recall shoveling the beginning of the year, We said do it kinda three big wild cards for us cement pricing weather.
Unless the work where our big Wild cards.
And although we've said that we've had some good continuing repair type work, we havent had that big Levy job.
We got last year, we haven't had a repeat of that we've talked about the cement pricing.
We expect to be there.
On weather so far has been generally good in the center in the western half of the country, but it's been.
Quite poor in on the east coast to particularly around the the Carolina area and just keep in mind that Q3 is by far and away the biggest quarter of the year for us if you will recall.
The weather impacted we had in this in the third quarter and 2018.
Completely derailed us. So we're not you know we're not have the woods on whether yet what coming into.
Some of the biggest parch it from a volume standpoint, and understood element of uncertainty there, but cobot hanging over everything is the main reason for hesitation at this point.
Okay. So it sounds like it the biggest risk would be around state shutdowns.
As a result of like some of these cobot restrictions that fair correct.
Yes.
Okay, and then so I guess just kind of continuing the same topic.
At this and they'd healthy backlog, obviously, you've got some out longer term projects, but is there any way to just provide some quantitative contacts on what type of visibility. This gives you know ignoring.
Any risk of the construction shut down.
Is there any way to just kind of frame up what how much.
His ability you have in terms of duration and maybe what percentage of businesses potentially at risk just from a macro perspective over the next several months.
The <unk>.
Yeah.
The backlog that has the highest percentage of annual sales is asphalt paving and you know thats well in excess of two thirds of your of your next 12 months you have in backlog.
And like I say, we are asphalt backlogs are pretty steady from last year at very high levels.
You know that represent more than.
Two thirds of our of our annual volume.
You know aggregates and ready mix, our AR or much less.
Backlog business, I'm, especially ready mix ready mix Oh, we have already mix backlogs are down a little bit, but thats just because a couple of wind farms that we have supplied early in the year have run run off and but we still have lots of activity in the wind farm.
When prime area. So it's really you know the asphalt paving public side, where we have really good visibility on we have really good backlogs.
Okay. That's helpful. Appreciate the time.
Okay.
Our last question comes from Derrick issuance with loop capital. Your line is open.
Thanks, and congratulations on your retirement best of luck.
Wanted to ask just on the summit outlook and some of the comments you made with respect to we guess in some of the southern markets just wanted to be clear.
Just a little more time is this mainly a function of.
Some of the energy and market slowing or are you seeing any I guess early signs of cobot related shutdown activity just given some of the southern markets are starting to see spikes in cases.
Yeah, I think the southern markets had Louisiana had on initial out for a outbreak and I think that's certainly.
Started the softer demand and then the collapse in oil and gas markets you know how to another impact actually I think in Louisiana. It's getting you know the virus is getting a little better you know look TCAM came out yesterday with a with a 4%.
Drop in National.
Cement demand will probably be a bit more than that I'm, just because of those week southern markets.
We're pretty optimistic on you know Saint Louis North.
Actually for cement demand and.
Hopefully that will offset some of the weakness in in the southern markets.
Okay, and I guess my follow up question along those lines.
You talked about securing your north of $2 per tonne you cement pricing.
Last month.
Do you see any risk of potential oversupplied southern markets, finding their way up north and disrupting perhaps some of the pricing gains that you recently secured.
I don't think so I think that Uh huh.
The.
You know industries, we sort of balanced are pretty high.
Utilization people have been.
More patient this year and.
I'm pretty optimistic that or you know the market won't be oversupplied.
Okay. Thank you for that and again best of luck.
All right characters.
Ladies and gentlemen, we ever reached or other time for questions and answers I will now turn it back over to Tom Hill for any closing remarks.
Thank you operator, and thanks, everybody for joining us today.
This concludes our call everybody stay safe and have a good day.
Ladies and gentlemen, this concludes todays conference call. Thank you for your participation and you may now disconnect.
[music].