Summit Materials Inc (SUM) 2015 Q1 法說會逐字稿

Good day and welcome to the Summit Materials first-quarter 2015 earnings conference call. Today's conference is being recorded.

At this time I would like to turn the conference over [Rodney Nacia]. Please go ahead, sir.

Good morning. We would like to thank you for joining us today for Summit Materials first-quarter 2015 earnings conference call. Today's conference call is hosted by Tom Hill, Chief Executive Officer, and Brian Harris, Chief Financial Officer.

This morning we distributed a press release detailing our first-quarter financial results which can be found in the investors section of the Company's website at summit-materials.com. We expect to file our 10-Q after this call.

Before we begin I would like to remind you that management's remarks and answers to your questions on today's call may include forward-looking statements which by their nature are uncertain and outside of Summit Material's control. Although these forward-looking statements are based on management's current expectations and beliefs actual results may differ materially.

For a discussion of some of the factors that could cause actual results to differ please see the risk factors section of Summit's prospectus dated March 11, 2015 filed with the SEC in connection with this IPO. In addition we will refer to certain non-GAAP measures on this call.

With that I will now turn the call over to Tom.

Thank you, Rodney. And welcome to our first-quarter 2015 earnings conference call.

I will begin with a review of our Company and our operating highlights. Brian will them provide additional details on our operating and financial results. After our review we will open the line for questions.

We had a very strong start in 2015 in which we delivered improved first-quarter growth and profitability throughout our business. We capitalized on recovering demand in our markets and we achieved organic price gains across all of our lines of business including a 5% price increase in our core aggregates business. More notably we increased our US aggregates prices by 8% on a pro forma basis driven by our disciplined focus on price optimization and our strong positions in new and existing markets.

During the first quarter we grew our net revenue by 29% to $175 million compared to the prior-year quarter. Our organic growth of 5% was further enhanced by the favorable impact of our acquisitive growth strategies. We grew our adjusted EBITDA in all of our regions reflecting organic improvement and the accretive benefits of our strategic platform and bolt-on additions.

During the quarter we also successfully completed our IPO which marked an exciting milestone for our Company and builds on our progress towards a leading position in the US construction materials industry. Since our formation our experienced leadership team has worked hard to develop significant scale via value-adding acquisitions.

We believe our business model and operating strategy are unique amongst top US construction materials companies. We have a diverse and scalable vertically integrated business with a top three position in each of our markets which positions us to add a tremendous amount of value as we expand organically and through acquisitions.

Our materials-based businesses, namely aggregates and cement, drive the strategic direction of our growth. We have strong positions in both of these well structured industries and an established downstream presence in ready-mixed concrete, asphalt and paving and related services to further enhance our market position and capture additional margin in each phase of this vertical chain. We believe that continued growth in our revenue and profitability is a direct result of this strategy which allows us to achieve greater volume stability, access a larger acquisition pool and generate industry-leading EBITDA dollars per ton of aggregates.

Now I'd like to turn to our operating highlights. In the first quarter net revenue grew 29%, or $39 million to $175 million with $20 million of the increase from materials, $28 million from additional product revenue and a partial offset from lower services revenue. We achieved significant volume growth across our aggregate, cement and ready-mixed concrete businesses driven by organic growth and acquisitions.

Our average selling prices increased organically across all of our businesses as we continue to benefit from our market leading positions and pricing initiatives implemented during 2014. Price optimization has and continues to be a critical focus of our attention and our market dynamics continue to support a rather resilient pricing environment across our businesses.

During the quarter we increased our adjusted EBITDA by $10 million with improvement across all of our regions led by the west. This improvement largely reflected our successful efforts to grow our materials and products revenues and enhance margins in our paving and other services.

Specifically in the West Region we grew our adjusted EBITDA by $10 million primarily driven by a higher mix of net revenue from aggregates, organic volume growth and the impact of 2014 acquisitions in the Houston and Midland Odessa Texas markets and our own mainland assets in Vancouver.

In the Central Region our adjusted EBITDA was up $1 million with higher volumes and prices in aggregates and cement and higher prices in asphalt which more than offset lower asphalt volumes and a $3 million increase in repair and maintenance expense at our cement plant. In the East Region we improved our adjusted EBITDA by $1 million largely driven by higher aggregate volumes.

Approximately 43% of our total adjusted EBITDA growth was organic and 57% contributed by acquisitions. Our ability to effectively integrate companies, leverage our vertically integrated model and manage our cost puts us in great position to further improve our profitability as we continue to grow our business.

During the quarter we experienced improvements in demand across our end markets. For the quarter our private construction end markets accounted for 69% of our net revenue and public infrastructure was 31%.

Let me now touch on Texas where our overall business momentum to start the year has been positive. We were especially pleased with a significant increase in Texas aggregates prices which increased 16% on a pro forma basis in the first quarter. Aside from weather-related challenges we are encouraged by the state's sustained commitment to infrastructure investments including Proposition 1 passed last November which provides for $1.7 billion of 2015 for the Texas highway program.

Texas is also considering legislation that would further increase highway spending by $2 billion to $3 billion. We expect the tailwinds of increased construction activity in our markets to continue to drive volume growth.

In addition to improving demand, we are executing on our commitment to further expand our business through strategic acquisitions. After the quarter closed in April we announced our definitive agreement with Lafarge North America to acquire their Davenport, Iowa assets which include a 1.2 million short ton cement plant along with seven well located distribution terminals along the Mississippi River system from Minneapolis down to New Orleans.

The addition of these Davenport assets will roughly double our cement capacity to 2.5 million short tons and firmly situate our Company as a leading cement player in the central US. These high-quality assets are an excellent fit with our materials-based growth strategy and a continuation of Summit's proven track record of sourcing value-added acquisitions.

The combination of the Davenport acquisition and our Continental Cement plant creates a highly strategic and complementary multi-plant cement business to meet improving demand at an exceptional time during the cyclical upswing in US cement demand. The market outlook for these assets has improved as Iowa recently passed a $0.10 per gallon increase in the state gas tax which is expected to increase highway funding by over $200 million annually. This planned expansion of these 100% cement assets will significantly enhance our EBITDA contribution for materials and we expect this transaction to be immediately accretive to our earnings as we integrate the Davenport assets into our combined cement plant form and realize synergies.

We have a solid track record of sourcing, executing and integrating acquisitions and this transaction is positioned to hit on all of our growth objectives. Progress on this acquisition remains on track which we continue to expect to close in the third quarter of 2015. Beyond this transaction we have a strong pipeline of targets across our businesses to broaden our footprint while also remaining focused on growing volumes, pricing and profits in our existing markets.

With that I'd like to turn it over to Brian who will take us through our financial performance.

Thank you, Tom. We are pleased with our progress during the first quarter in which we grew our overall revenue across our core businesses, improved our profitability and strengthened our balance sheet metrics.

Beginning with a discussion on revenue by lines of business. In our materials businesses which includes aggregates and cement net revenue for materials increased 68% to $50 million compared to the prior-year quarter. In our aggregates operations, volumes grew 67% driven by 13% organic volume growth and the remainder attributable to acquisitions.

On an organic basis we achieved a 5% increase in our average selling prices of aggregates largely as a result of successful 2014 pricing initiatives cycling into the current activity across most of our markets. The reported average price of aggregates declined 1% largely as a result of our acquisition activity in lower priced markets. Specifically our recently acquired mainland operations in Vancouver have lower prices compared to the Company average due to their product mix.

On a regional basis, in the West Region aggregate volumes increased 110% mainly driven by acquisitions with prices up 2%. In the Central Region aggregate volumes increased 16% driven by a stronger demand and prices were also up 2%. In the East Region aggregates volumes increased 39% due to a 2014 acquisition.

In our cement operations which are entirely in our Central Region volumes increased 39% driven by strong market demand. Amid improving utilization rates at our Hannibal cement plant we realized price gains of 11% reflecting favorable market dynamics.

In our products businesses which includes ready-mixed concrete and asphalt net revenue increased 40% to $99 million compared to the prior-year quarter. Ready-mixed concrete volumes increased 52% with organic volumes up 13% and the remainder attributable to acquisitions in the West Region. Ready-mixed concrete prices increased 9% largely benefiting from the pass-through of higher industry cement prices.

On a regional basis in the West ready-mixed volumes improved 53% mainly from acquisitions and improved demand with prices up 10%. In the Central Region ready-mixed concrete volumes increased 46% due to 2014 acquisitions with favorable price improvement of 6%. Asphalt pricing grew 18% due to a shift in product mix which included a lower percentage of base materials while challenging weather conditions primarily in Texas resulted in a 31% reduction in volumes relating to work which remains in our backlog.

Moving to our financial results in the first-quarter 2015 we increased our EBITDA by $10 million to a deficit of $5 million compared to the prior-year quarter. As a percentage of net revenue, our adjusted EBITDA margin improved by approximately 860 basis points largely as a result of our ability to increase prices organically across product lines, the accretive contribution from our acquisitions and our active cost management.

We are pleased with this progress which demonstrates the improvement in our markets and also the benefits of our strategy and focus on continuous improvement. Gross profit expanded 59% to $36 million compared to the prior-year quarter and as a percentage of net revenue gross margin improved 390 basis points to 20.4% compared to 16.5%. This was primarily attributable to a higher mix of net revenue for materials and products as a result of acquisitions completed in 2014.

Combined, materials and products represent 82% of our total gross profit compared to 70% a year ago. Gross margins in our materials line of business improved 580 basis points to 20.2% and gross margins in our products line of business improved by 300 basis points to 19.2%.

General and administrative expenses were $67 million compared to $35 million in the prior-year quarter largely as a result of $28 million of non-recurring expenses associated with our IPO and related transactions. Excluding the impact of one-time items our G&A for the first quarter was $39 million representing 22% of net revenue and a 400 basis point improvement from the prior-year quarter.

Interest expense was $24 million compared to $19 million in the prior-year quarter. The increase mainly reflects a higher debt balance including a portion of which we subsequently paid down in April following our IPO. Our adjusted net loss per share attributable to Summit was an $0.08 deficit and excludes certain one-time items associated with our IPO and related transactions.

On a GAAP basis we reported a net loss per share of $0.38. We expect our corporate taxes to remain relatively immaterial going forward as a result of the utilization of NOLs in the short term and the benefits of the tax receivable agreement in the longer term. We do, however, expect to pay minimal income taxes approximating $1 million to $3 million annually.

Moving to our balance sheet and liquidity. At March 28, 2015 we had a cash balance of $315 million and total outstanding debt of $1.063 billion. In March we successfully completed our IPO raising net proceeds of $433 million.

In connection with the IPO we increased our revolving credit facility to $235 million and extended the maturity date to March 2020. Subsequent to the end of the quarter, as planned, we redeemed $288 million aggregate principal amount of our outstanding 10.5% senior notes at par plus a premium and accrued unpaid interest totaling $43 million.

On a pro forma basis as of the end of the first quarter including the redemption of these senior notes and associated payments our total debt outstanding was $774 million and we had total liquidity of $195 million including $5 million of cash and $190 million of availability on our undrawn revolving credit facility and our senior secured net leverage ratio would have been 2 times. The debt paydown results in $30 million annual interest saving which we expect to result in annualized interest expense of $57 million.

As we discussed on our Davenport assets acquisition update call a few weeks ago the $450 million cash portion of the transaction purchase price features a favorable financing structure for Summit which we expect to fund primarily by an expansion of our existing term debt facility together with new equity. Under the terms of the agreement, we have agreed to pay an initial purchase price of $370 million upon closing of the transaction which is expected to be in July 2015. The remaining purchase price of $80 million is due by December 31, 2015 which we intend to fund with a combination of debt and equity.

We are pleased with the terms of this transaction and we are excited to begin integrating these low-cost, efficient assets onto our platform as we look to continue enhancing our materials earnings exposure and overall profitability. We will remain disciplined with our capital allocation and we expect to target a net debt to EBITDA leverage ratio below 4.75 times at the end of 2015. Beyond this specific transaction we expect to delever over time as our EBITDA grows.

In regards to our outlook for the full-year 2015 we are encouraged by our operating momentum so far in 2015 and as we look forward to the balance of the year we expect our further adjusted EBITDA for the full-year 2015 to be in the range of $235 million to $255 million. This range includes up to $10 million of EBITDA from future acquisitions excluding Davenport.

As a reminder, Davenport produced adjusted EBITDA of $50 million for the full-year 2014. At this time our outlook does not yet include any contribution from our planned acquisition of the Davenport assets as the closing date is contingent upon the expected completion of the merger of its parent company Lafarge with Holcim which we cannot control but do, however, continue to expect to occur in the third-quarter 2015. We will look to provide an update on Davenport's expected impact in the future after we close that transaction.

For the full-year 2015, we expect to improve our organic pricing across all of our business lines. We also expect to achieve organic volume growth in our aggregates, cement and ready-mixed concrete businesses in addition to the incremental volumes from our 2014 acquisitions.

We are seeing demand improvement in our residential, non-residential and infrastructure end markets and also across all of our regions. Additionally with our strategic growth objectives in place coupled with our strong acquisition pipeline we are confident in our ability to meet our growth target.

We would expect to incur capital expenditures excluding asset sales of between $75 million and $85 million for the full-year 2015 which reflects our long-term expectation for CapEx to approximate 6% to 7% of net revenue. We expect to generate positive free cash flow for the full-year 2015 largely weighted towards the second half of the year. As we continue to grow we expect our cash flow to grow meaningfully and we will look to deploy our capital primarily on accretive growth opportunities.

With that I'd like to turn the call back to Tom for some closing remarks.

Thank you, Brian. In summary this is an extremely exciting time to be in the heavy construction materials business and we are energized by the continued success of our rapidly expanding Company.

During the first quarter we executed well across our key metrics and this progress builds on the success we have had since our founding in 2009. We have and continue to capitalize on the significant opportunities across our end markets and regions to scale our operations, acquire good businesses and deliver attractive returns to all of our shareholders.

As a result we have built a leading vertically integrated business in the US and we have a tremendous opportunity ahead of us for additional improvement driven by strong industry tailwinds. Our team has extensive experience growing, acquiring and integrating construction materials companies over many years and multiple cycles.

This experience led to our planned acquisition of Davenport which is a major step forward for our Company and further advances our long-term growth strategy on numerous fronts. Looking forward at the immense opportunity and potential of these Davenport assets as well as the favorable point in the cycle as domestic cement supply tightens we believe we have a solid platform to generate meaningful shareholder value.

And remember our Company is still in the early innings. Our ability to source exceptional opportunities on attractive terms, manage our costs and deploy capital effectively provides a constructive framework to continue enhancing our operations. Overall with our strategy in place our team is well-positioned to execute on our profitable growth objectives in 2015 and beyond.

We are now happy to take some of your questions. Operator can you please open the lines up to Q&A?

(Operator Instructions) Trey Grooms, Stephens.

Hey, good morning guys and congrats on a good quarter. First off on the guidance you just gave what adjustments are you making, what does that number exclude just so we are sure we're on the same page with any adjustments there?

And then also $235 million to $255 million, I believe you said that that included $10 million of future acquisitions but not Davenport. Is that -- how should we think about the timing and how to consider baking in I guess the timing of those acquisitions as we look for the balance of the year?

Well, first off it's correct Trey that those numbers include up to $10 million per acquisitions excluding Davenport. And the timing is as you know with acquisitions it's just unpredictable.

We certainly have a very busy pipeline and are very optimistic and confident of being able to complete several other acquisitions. But the timing is just unpredictable. And Brian, do you want to touch on the adjustments?

Yes, so for the first part of your question, Trey, what adjustments does it include we exclude transaction fees for acquisitions, stock compensation and IPO-related debt financing. They are really the only adjustments that we would exclude.

Okay, all right. That's helpful. And then if you think about that $235 million to $255 million in your guys' opinion that's a pretty tight range but how would you handicap some of the biggest swing factors in your mind as far as that range is concerned?

Well always the biggest factor is demand and we are very optimistic in all three of our end markets. We see that as a reasonable range for having the existing conditions continue through the rest of the year.

Okay. So that doesn't bake in any type of significant acceleration in any of your end markets? I know there's a lot of speculation around the Highway Bill and things of that nature but nothing unusual like that?

No, and I have been and remain fairly pessimistic on any significant increase on a federal Highway Bill. On the other hand states are taking it upon themselves as in Texas and Utah has a good program. So there is no -- there's no significant shift in the markets that we see.

Okay. And just one last question for me back on the M&A. The M&A pipeline I guess during the roadshow you guys had mentioned you had a number of LOIs out at the time.

Can you give us an update on any of that or how those are progressing? Are those in the $10 million of EBITDA that you're looking for there? Just any color around those if you could, thanks.

Yes, we continue -- so we have three LOIs that we're working towards closing on. We have a number of other transactions that are in various stages and so there really hasn't been much change from the roadshow. Obviously except for the Davenport transaction which is not in those numbers.

Sure. Thanks a lot, guys. I'll jump back in queue. Good work.

Kathryn Thompson, Thompson Research Group.

Hi, thanks for taking my questions today. First if you could just by segment could you give a little bit more color on the lower services revenue and what drove that in the quarter?

Yes, Kathryn, that was really related to paving work and it was primarily in our West Region in Texas specifically and it was really all weather-related. We don't see that as a loss of business but just primarily delayed business. It remains in our backlog and when the weather improves we will catch up pretty quickly on most of that work.

Okay. And that likely ties into the asphalt question for the quarter. You saw some weakness in the quarter.

The bulk of it in that business is in Kentucky and in Texas. What region was the primary driver for that asphalt weakness in the quarter?

It was in the West Region. Kentucky, the East Region it does have a large proportion of that type of work but it typically doesn't start until Q2 and Q3 so the shortfall was not there. It was in the West.

Yes and the weather was exceptionally poor in Austin and Northeast Texas where we do a pretty significant proportion of our asphalt and it seriously impacted our volumes there.

On the acquisition that you just announced, could you clarify a little bit more on the potential upside on a go-forward basis from the acquired distribution terminals? Because you have indicated in the past that you feel like these not that they are underutilized but there could certainly be better utilization of these distribution terminals. Could you discuss that thought and then also given what is the potential upside to these terminals from a revenue contribution standpoint?

I will take the first part of that question, Kathryn. I think that the terminal system does a couple of things for us. One, it gives us the ability to maximize the volume out of the two plants that we have which are both on the water.

So we can maximize both our volume and our price by distributing volume most efficiently through that channel. That's a very important part of the cement business.

Secondly, we have the ability to distribute via both domestic and imported volumes through those terminals. And Brian, do you want to give a little color on what that was historically?

So the other important part about the terminal network two points to make. And I think we talked about this on the last call was that we have a very large storage capacity that allows us to even out our demand throughout and our production throughout the course of the year.

It also has a throughput capacity of about 2.25 million tons which is significantly more than we are putting through that terminal network today. So there will be upside from the throughput volume capacity that the terminals have.

It's a great fit, Kathryn with our existing business and we couldn't be more excited about the potential to create value there.

Okay great. Thank you for taking my questions today.

Rob Hansen, Deutsche Bank.

Thanks. I just wanted to ask about the Davenport acquisition.

I think originally you mentioned you were going to do $80 million of equity for the transaction and now I think you mentioned here that it was going to be a combination of equity and debt. So what's driving the difference there and how is that going to flex depending on what happens throughout the year?

So we're keeping our options open on it. At this point we will have the capacity to do either 100% equity or a portion of equity and debt depending on our debt capacity later in the year as we see the numbers unfold. So we're keeping -- staying flexible on that.

Okay. Then just one other question related to guidance, what level of diesel is embedded in your guidance? And if you could just remind us as a percentage of either input costs -- COGS or revenues, however you'd like to tell us what that is as a percentage?

Yes, so we expected to consume roughly 17.2 million gallons of diesel during 2015. We've consumed about 3.2 million in the first quarter. Obviously that is a low quarter and our volume of consumption increases significantly and in terms of the overall proportion of hydrocarbon input costs which are a combination of diesel gas, liquid asphalt and then other energy costs they represent about 20% of our variable costs.

20% of variable. Okay. And then on your one other question is just on the trends that you've seen in April so far if you have any kind of comments by end market there that would be very helpful.

We see a continuation. Obviously the weather has improved as it typically does in April but we see a continuation of very positive trends in Texas, in Utah, we've seen a pickup in our Kansas and Missouri companies. But as Brian mentioned in Kentucky it's too early to tell us we really just started opening up for business in April.

Okay, I appreciate it, guys. I will get back in queue.

Jerry Revich, Goldman Sachs.

Good morning, this is Brandon Jaffe on behalf of Jerry. Can you talk about how your material margins are tracking in your asphalt products? Are you maintaining pricing at these levels as liquid asphalt prices are coming down?

Well the thing to remember with liquid asphalt is that outside of Texas the liquid asphalt is a pass-through. So if the price comes down you give it back to the state, if the price goes up you get paid extra. So really outside of Texas it's a pass-through.

We would hope to get an advantage in Texas for some of the work that we bid last year at higher liquid asphalt prices. Our margins in Texas should improve due to that and we have really not seen prices change much on the asphalt side. In fact we've seen the opposite.

We've seen prices improved but a lot of that is impacted by product mix and the type of liquid that's specified in jobs. If you have a high-spec liquid asphalt your price can go up dramatically where your margin may not go up at all. So prices are very not the best metric for the asphalt business.

Thanks, and one more. Do you have additional pricing actions in place in your aggregates and concrete businesses for either April or July? Can you just give us a sense of how you expect the cadence of pricing to play out this year compared to what we saw in the first quarter?

Well as usual we have price increases either January 1 or April 1 in most of our businesses. They tend to build momentum as you have some jobs that are protected as you go through those dates. So your pricing momentum continues to build.

In cement we've had a good start to the year in holding the $6 to $8 that were either announced in January or April. And on the aggregate in ready-mixed and asphalt it's so local, every market is very different but so far we've had good luck on price increases and we'll see how it goes through the summer. We have no definite plans for further price increases.

Great, thank you.

Ted Grace, Susquehanna.

Hey gentlemen, good morning. Tom, could you just walk through pricing again?

If I got the numbers right up 5% in the core business, up 8% pro forma, it sounded like you said Texas was up 16%. I was wondering maybe if you could just step through the best markets, the lagging markets and maybe if we could go state-by-state just to get a sense for what the balance look like?

Well I will give you and we don't do pricing by state on either actual or guidance but I will give you a flavor for it. Obviously Texas is very strong. On a pro forma same-store basis our prices in Texas were up 16%.

That is strong in all of the four markets we participate in there in Houston and Austin Northeast Texas and in a Odessa-Midland. Utah has also been fairly strong.

The middle part of the country has been stable but also improving. And in -- we have a fairly significant price increase out in Vancouver and that went out April 1. We will see how that progresses.

Actually I think it went out March 1. Excuse me. And we will see how it is probably too early days to see how that is going to progress.

Okay, that's really helpful. The second thing I was hoping to ask is on the guidance the EBITDA of $235 million to $255 million, could you just comment about what the incremental rate or the flow-through rate assumption is just so we can get a sense for what the pull through rates were? And if you could maybe speak specifically to what the pros and cons were in the first quarter, that would be great.

Yes, Ted, it's Brian here. The incremental margins, the gross margins divide down into our materials at 40%, our products are in the low 20%s and our services are in the 10% to 13% range.

That's how we think about our gross margins. What was the second part of your question again?

I was just wondering if you could speak to the first quarter and what the flow-through rates look like on an underlying basis. You had the $28 million of one-time expense from the transactions. But could you maybe just bridge us on how those flow-through rates were by segment in the first quarter?

The flow-through rates, of course the first quarter is not always the best benchmark to take just due to the seasonality of the business. But the flow-through rates were positive in all three major product categories.

As we mentioned we saw 580 basis points improvement in our materials from Q1 of 2014. That was primarily in the aggregates line of business.

In our products we were up about 3% and that was primarily ready-mixed and a little bit of asphalt. Then the construction services and the total services were also ahead as well.

So we saw improvements across all of the product lines. A lot of it is to do with mix in the first quarter though.

Okay, and the last thing I will ask before I get back in line the first quarter I know you said it was strong and you've given us guidance. Can you just speak to how 1Q tracked to your internal plan?

I know you mentioned weather was an issue in some markets. And I will jump back in the queue. Thank you.

Overall Ted we're ahead of plan going into Q2. We have good backlogs and we're very optimistic about the rest of the year.

Okay, great. Well congratulations and we will talk to you soon.

Todd Vencil, Sterne Agee CRT.

Hey guys. Tom, when you think about the LOIs you've got out, the other deals that you're taking a look at and really what you're trying to pursue, are you intentionally moving the mix towards materials and away from products and services? And is the opportunity there to do that?

You know, we're not. We really do believe in the vertically integrated model. We believe that our businesses are all materials based, however, so we're not going to go out and do a products or services business on its own.

But certainly if there's an opportunity to add the downstream in our existing markets where we have strong materials that we'll do that. And certainly we see over time our business mix now shifting a bit towards materials with the Davenport acquisition.

But we are -- we continue to believe in the vertically integrated model that we can create value through that vertical. As long as you have that solid material space we look at opportunities both in materials or in all three of those materials, products and services.

Got it. And then switching gears on you, you talked a little bit about what Iowa was doing with regard to the gas tax.

You know these states are taking it on themselves. Have we really hit a point now where the states have begun to really pick up the baton and drive growth with the actions they take? Do you see that continuing to be the case for the market to have really shifted here or is this just a point in time?

I do think it is shifting. It is not universal by any means.

We're very positive on Texas, we're very positive on Utah. We have not seen the same in Kansas and Missouri. But you see states like Pennsylvania and Georgia, there's a majority of states that have taken it upon themselves that hey, maybe the federal government is not going to be here so we better do it ourselves.

But it's not universal and I do see the trend. The trend is there and I think that trend will hopefully pick up momentum over the next year or two as again I'm not particularly optimistic about a federal Highway Bill.

I think we will get a bill or we will get a continuation of the bill at the existing level, maybe a small increase but not where it needs to be which is a significant increase for five or six or seven years. I am hopeful but not overly confident that we'll get that.

Perfect, that's what I had. Thanks very much.

Stephen Kim, Barclays.

Thanks very much guys. Strong quarter. I wanted to just clarify one thing.

You had mentioned the $10 million EBITDA contribution from acquisitions you intend to culminate or close through the range of the year excluding Davenport. Was that $10 million EBITDA number a pro forma number or is that what you were likely to actually recognize on the income statement?

That was a reported number, Stephen. So that would be what we would recognize and it's up to $10 million.

Got it sure, right. Up to $10 million. That's great.

And then the second thing is about the acquired EBITDA margin this quarter. I guess by our calculations it was in the low 20% range which was significantly better than you did in the first quarter of last year. And I was just curious if there was -- if you could give us some sense of if that's a pretty decent guesstimate for what the stuff you're eyeballing here for the remainder of the year if that's a pretty good guesstimate for an adjusted EBITDA margin that we could apply on that?

You know I think that is a reasonable margin to apply. Obviously with something like Davenport it would not be a good number to apply. The EBITDA margin in Davenport would be significantly higher than that but for a general mix of businesses then yes, that would be a reasonable number to use.

Got it. That's great. Then you had talked a little bit about seasonality in terms of its effect on the margins.

Was curious if you could talk a little bit about if there was anything specific about seasonality that we should think about for this particular quarter which would make what we saw here not comparable? And particularly I guess I was wondering if you could talk about the mix of businesses if there was anything particularly in I guess specifically aggregates or asphalt that for which seasonality may have been distortive this quarter?

On the negative side the rain in Texas was an unusual seasonality impact and had a significant impact primarily because that's an area you expect the weather to be okay in the first quarter and it was not. So that certainly was a disproportionate impact.

Besides that on the seasonality basis I mean Utah and Kansas, Missouri, Kentucky were about not unusual. Vancouver actually had fairly decent weather which means I think it only rained half the time. But so outside of Texas there was really nothing, Brian, nothing that I can think of that was unusual.

No, there was a little bit of a shift I'd say between Q1 2014 and Q1 2015. So with the paving being down it consumed a smaller proportion of our gross revenue was driven from paving services and a higher proportion came from ags and ready-mixed as a result of that. That obviously supported the margins but I'm not sure if that was, it partly seasonality because we got a little bit more rain but other than that it was a fairly normal quarter.

Great. And then in the SG&A line can you give us some color for how you allocate SG&A to the various segments? For example does the aggregates or the ready-mixed business have a higher level of SG&A relative to the other segments or how do you think about the impact of mix across your segments affecting your SG&A line overall?

You know we really don't allocate a lot of cost to the segments or to the operating Company. Where there are costs that are specific to a business line or to a segment then we do but other than that we don't do a lot of allocating.

Great. Okay, that's helpful.

Lastly for me was just in the mainland, I know you had talked about the fact recent acquisition probably they hadn't moved maybe the pricing opportunity had fully explored and so you talked about a price increase on May 1. I guess my question is in your view that May 1 price increase if successful would that pretty much close the gap between where you think they should have been and where they were or is this going to be something that's going to take a little bit more time?

If I said May 1 I meant to say March 1 on the price increase and we just it's still early days on whether how much is going to hold. I know I think there's multiple years of catch-up there. It's a pretty well structured market and we believe there's continued opportunity there and also as we continue to do bolt-on acquisitions I do believe that there's even more upside there.

Perfect. Great, thanks very much, guys.

(Operator Instructions) Timna Tanners, Bank of America.

Hey, good morning. So you've been really thorough and I just want to say also thank you for the additional detail on prices and volume. We always appreciate more information the better.

So the only thing I wanted really is to clarify on the guidance, I'm a little bit I'm slow I think on understanding the additional $10 million for acquisitions you haven't done. But is it safe to assume that all of your guidance whether it be CapEx, SG&A, etc. all include that up to $10 million but not include Davenport?

That's correct, yes.

Okay super. The only other thing I want to understand is just on the tax rate guidance is that are you going to show book taxes on that at a statutory rate and then have it flow through on your cash flows or how should we expect to see that showing up in your statements?

You're going to see, on the statements you're going to see an effective tax rate for the C-corps which are outside of the partnership at the normal rate which would be 42%. We do expect there to be a benefit this year and so it will show up as a net tax benefit in 2015.

Okay, got it. Thank you for the clarification.

Adam Thalhimer, BB&T Capital Markets.

Hey, good morning guys. Congrats on a nice quarter. I wanted to ask about the cement prices.

It seems like you're getting good traction with the increases you announced earlier this year. I'm curious if that's your take as well and then what might be the potential for an increase later this year?

You know the price increases out of Continental were between 6% and 8% and they did vary between January 1 and April 1 depending on the geography. They appear to be holding.

We have not gotten a lot of pushback and I think they will hold. We haven't decided yet on a fall price increase so I think it's probably unlikely.

That has not been the pattern in the Midwest. But certainly we'll take it under consideration as the year develops. And if demand does continue to increase and there's pressure on supply there's a certainly the potential for a second price increase.

Okay. And then in terms of your capacity for additional deals how are you guys looking at that giving consideration to the Lafarge transaction, how much additional -- once that's done how much additional capacity do you have in your minds?

Well we still have a great pipeline and significant ability to do bolt-on and add-on acquisitions. On the balance sheet side, Brian, we need to obviously keep that in mind. So Brian?

I guess there's multiple aspects to that question, Adam. One is the debt capacity and the balance sheet capacity to handle them. We've indicated that will next day below our 4.75 times total debt multiple by the end of the year. Then there's the capacity to absorb and integrate.

There's no doubt that Davenport will be a big integration for us and we'll have a lot of work to do on that one. And so we'll look at our capacity to continue to integrate and manage those deals as they are presented to us and those deals come in all shapes and forms.

Some of them can be relatively straightforward bolt-on acquisitions that we can do quite quickly and seamlessly and others have more attached to them. So we have capacity to do more and it really just depends on the timing and size and shape of each deal.

Yes and one of the things that so attractive about the Davenport deal is it's really a combination of an add-on and a platform. So we do believe it's got some of the integration characteristics of an add-on but does open up additional new markets for us. So like I say we're pretty excited about that one.

Will Randow, Citi.

Hi, good morning and thanks for taking my question. Just to follow-up on M&A, so in terms of regional exposure are you trying to steer the business I guess to I'll call it a more diversified markets? And number two in terms of your Texas pro forma EBITDA exposure number one, what's the percentage basis I, guess number two is how is that trending?

We have a pretty good footprint right now from Vancouver British Columbia down to the coast of South Carolina. We always focus on the value-added bolt-on acquisitions as they tend to be lower risk, higher return.

But we are at any given time evaluating a number of additional geographies. So I wouldn't say that we are focusing in any one particular area but I would say that just in general we always focus on the bolt-on acquisitions. As far as Texas goes, Brian --

Yes, well we don't typically talk about the EBITDA for a specific state. But it does represent 34% of our total US sales are from Texas.

Yes and on Texas I mean we are very optimistic about Texas. The demand in Houston where we have primarily a residential business is still quite good. We're very optimistic there.

We have a great business there. Our businesses in Austin and Northeast Texas primarily infrastructure and infrastructure market in Texas is very strong.

We have a pretty small business out in Odessa-Midland which services mostly private construction. And there business has stayed remarkably strong, although my guess is in the second half with the decline in the rig count and the oil price that we'll have to see some weakness there. But again it's a very small part of our business.

Thanks for that and I appreciate the color. In terms of future M&A, and this was asked earlier but a little different way of saying it, multiple wise it seems like multiples have drifted up a bit relative to the typical 8 times EBITDA you've historically paid. Do you think multiples have increased and put a little for lack of a better term pressure or do you think it's still a pretty good environment to I guess for lack of a better term stay the course?

I actually don't think that multiples have gone up. The multiple on Davenport for 100% cement materials business I think was with a very strong short-term outlook. I think that was a very reasonable multiple.

What we're seeing out there in the vertically integrated business is really a continuation of what we've seen in the last few years. So I don't think they have drifted up, and certainly the EBITDA has drifted up but I don't think the multiple has changed.

Thanks for that, guys, and congratulations on the progress.

Stanley Elliott, Stifel.

Thank you guys for squeezing me in. A quick question, a point of verification on the business line, I thought I heard you say organic up for the year and cement aggregate and ready-mixed. Did you say asphalt as well or is that because we're starting with 30% down that that's not going to be possible?

No, I think we will be up in all business lines.

Okay. And lastly as far as the US and Canadian governments kind of giving the thumbs-up on the Lafarge-Holcim merger that was really the only last hurdle that we would expect here in the US outside of them eventually signing the deal for the Davenport transaction to go through, is that correct?

No, I think the big step is Friday the Holcim shareholders vote whether to approve the merger and they need two-thirds majority. We have easily have no control on that.

I think people tend to be optimistic about that happening but we'll see. That's probably the last major hurdle that I'm aware of.

Perfect. Then one quick last one, can you talk about what sort of declines you're expecting in the Texas market, more so more Midland-Odessa I guess in the back half of the year as it relates to the $235 million to $255 million of EBITDA for the year?

Certainly we think Odessa-Midland will decline in the second half but again it's a very low-single-digit part of our business. And we see significant improvement in the Austin and Northeast Texas markets overall.

In Houston the housing start data and starts and permits and so forth have remained very strong. Forecasts for the year vary from up 10% to down 10% depending on who you look at. And so far it has stayed very strong and our forecast would have a fairly stable market there but we have gotten our prices up.

There was a $6 a yard price increase that went into effect April 1. That seems to be holding on the ready-mixed side.

A tremendous amount of infrastructure development going on in Houston. The Prop 1 will have another big impact on that. So we see that market even with the rate of growth slowing.

And I think you also have to remember that a year ago that market was growing too fast and delivery times were way out. It was very overheated.

So to some degree a slowing of that growth rate is actually quite healthy for that market. So we're very optimistic about Houston. Our management team is optimistic.

They say their customers are also optimistic. So I think the amount of homes on the market there is still below three months supply compared to around five for the US.

So the dynamics there despite the slowdown in oil are very positive. So we're optimistic.

Very good. What thank you very much and congratulations and best of luck.

Brent Thielman, DA Davidson.

Good morning. The EBITDA outlook, is that embedding organic pricing gains similar to what you posted in Q1 or are you expecting something higher or lower? That wasn't clear to me.

Yes, at this time we're not going to give specific volume and price guidance. But we're positive we think the market's going to be quite positive and we don't see any major changes in that. But we're just not prepared to give specific guidance on volume in prices at this time.

Okay. And then, Tom, it looked like margins in the services business improved quite a bit year over year.

I know you've had some challenging products in the East division in the past. Are those now behind you and this is more reflective of a normalized level of profitability for that business going forward?

Yes, I think so. Like I say a lot of it was to do with mix in the quarter. But the underlying trends are positive in the services businesses as well.

Okay, that's all I had. Good luck.

Robert Wetenhall, RBC Capital Markets.

It's actually Collin filling in for Rob. Just a question on aggregates volumes.

On an organic basis you guys saw pretty robust growth. Can you give us a little bit more color on where you saw strength in which end markets? And were there any large projects delivered in that quarter that we shouldn't expect to continue throughout the year?

Well first off the first quarter is not a great indicator of the full-year. Obviously trends but again it can be a lumpy quarter just because it's a small part of our overall volume.

There really were not any large projects. We certainly saw strength in Texas and in Utah. But pretty much across the board when I look down the list here we saw good volume growth across the board.

All right, great. Thank you. All my other questions were answered.

Ladies and gentlemen, that does conclude today's question-and-answer session. I will now turn the conference back over to Tom Hill for closing comments.

Thank you, operator, and thanks everybody once again for your interest in Summit Materials and for joining us today. We look forward to speaking with you again in the near future.

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation.