Summit Materials Inc (SUM) 2017 Q2 法說會逐字稿

Greetings, and welcome to Summit Materials Second Quarter 2017 Earnings Conference Call. (Operator Instructions) And as a reminder, this conference is being recorded.

I would now like to turn the conference over to Noel Ryan, Vice President of Investor Relations. Thank you. Please go ahead.

Good morning, and welcome to Summit Materials Second Quarter 2017 Results Conference Call. Leading today's call are Summit's CEO, Tom Hill; and CFO, Brian Harris.

We issued a press release before the market opened this morning detailing our second quarter results. We also published an updated supplemental workbook highlighting key financial and operating data, which can be found in the Investors section of our website at summit-materials.com. This call will be accompanied by our second quarter investor presentation, which is available in the Investors section of our website in PDF format.

I would like to remind you that management's commentaries and responses to questions on today's call may include forward-looking statements, which by their nature are uncertain and outside of Summit Materials' control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ in a material way. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of Summit Materials' latest annual report on Form 10-K filed with the SEC.

Additionally, you can find reconciliations of the historical non-GAAP financial measures discussed in today's call in this morning's press release.

Today's call will begin with remarks from Tom Hill, who will provide an update on our business and market conditions in the second quarter, followed by a financial review and outlook from Brian Harris. At the conclusion of these remarks, we will open the line for questions.

With that, I'll turn the call over to Tom.

Thank you, Noel, and welcome to today's call. As outlined in the release issued earlier today, our results in the first half of the year were exceptionally strong. Our continued focus on operational excellence coupled with strong underlying fundamentals within our key regional markets resulted in another quarterly performance that underscores the competitive advantages of our vertically integrated, materials-based model.

Turning to Slides 4, 5 and 6 of the deck. Overall organic volume growth has exceeded our expectations coming into the year. Demand in our markets has continued to improve as organic volumes of aggregates, cement, ready-mix concrete and asphalt all increased on a year-to-year basis. Adjusted EBITDA increased 17.9% year-on-year in the second quarter with approximately 1/3 of that growth coming from organic improvements. Adjusted cash gross profit and adjusted EBITDA margins both increased on a year-to-year basis consistent with the long-term trend. Between May and the end of July, we completed 4 bolt-on acquisitions for a combined investment of $130 million. On a year-to-date basis, we have invested $309 million across 10 acquisitions. Given a combination of strong organic growth evidenced during the first half of 2017, together with partial year EBITDA contributions from recent acquisition, we've raised our fiscal year 2017 EBITDA guidance for the second time this year, signaling continued confidence in the trajectory of our business.

Further, we've raised our projected full year acquired EBITDA target from a range of $40 million to $60 million to a range of $50 million to $70 million, given what remains in an active pipeline of potential targets, including more than 20 transactions currently under review. By year-end, depending on the pace of additional acquisitions, we anticipate net leverage will be between 3 and 3.5x.

As shown on Slide 7, organic volumes rebounded from prior year levels across all lines of business in the second quarter. In our Cement segment, organic volumes increased 7.1% year-on-year due to strengthening demand in our northern Mississippi River markets. Organic aggregate volumes increased 6.1% year-on-year as strength in the West Region more than offset weather-related softness in the East Region.

In our ready-mix concrete business, organic volumes increased 9.2% year-on-year given improved ready-mix demand in Houston, Utah and Nevada, all 3 of which are strong and improving residential markets.

Finally, within our asphalt line of business, organic volume growth increased 3.6% year-on-year, given a pickup in activity in several East Region markets, together with an ongoing recovery in Austin paving volumes.

Turning to a discussion of materials' ASPs. Organic average selling prices on cement increased by 3% year-on-year in the second quarter, consistent with our expectations. However, organic average selling prices on aggregates declined 1.7% in the second quarter, due mainly to sales mix. Excluding the impact of product and geographic mix, organic aggregates prices increased more than 3% on a year-on-year basis in the second quarter.

Turning to Slides 8 and 9. Cement remains a prominent growth engine in the Summit Materials' portfolio. Cement segment adjusted EBITDA grew 16.5% year-on-year in the second quarter, while EBITDA margin grew 480 basis points. Our 2 world-class cement production facilities serving the Mississippi River corridor, together with our 11 distribution terminals that span from New Orleans to Minneapolis, continue to benefit from strong underlying demand, particularly, in the northern markets. Based on projections from the Portland Cement Association, we estimate that the Mississippi River corridor could be short, domestically source cement beginning next year with incremental supplies of cement likely to be imported from offshore markets. Currently, both of our cement plants are running at capacity. We currently sell 80% of the cement we produce in Minnesota, Missouri and Iowa. The PCA anticipates each of these states will experience a rate of cement demand growth in the low to mid-single digits over the next several years, creating a situation where new sources of supply will need to be identified to satisfy customer requirements. We believe U.S. cement imports, which currently supply 15% of U.S. demand, will need to increase over the next 24 months to satisfy demand, which is projected to grow at 3.5% in 2018, 5% in 2019 and 7.7% in 2020, according to the PCA.

Turning to Slide 10. Despite a year-on-year decline in organic ASPs in the second quarter in our aggregates business, you can see that aggregates adjusted cash gross profit margin increased 500 basis points in the period, given strength in volumes. Cement margin cash -- capture was equally strong, up 520 basis points to 57.4%.

The next several slides present our latest market outlooks for Summit's top 3 states by net revenue.

Beginning with Texas, we're seeing strong demand across both public and private markets. On the public side, we see several large projects on deck, including the $1.3 billion construction of a dam in northeast Texas near our RK Hall platform, the first dam construction in Texas in 30 years.

In Houston, we have the $1 billion widening of the Sam Houston Tollway, which will consist of the construction of a new bridge span across the Houston Ship Channel. Construction is expected to begin here in late 2017. On the private side, we are seeing an acute housing shortage in the Permian Basin. In Houston, housing has continued to improve in the west, south and southwest sides of the city as reflected by strong year-on-year organic growth in ready-mix volumes during the second quarter. Our homebuilding customers remain optimistic on the second half outlook for residential demand in Houston. On the commercial side, we're seeing a lot of activities throughout the state with a new FedEx distribution center near completion, new Amazon distribution centers, broad-based construction of educational facilities and continued build-out of retail strip malls. Given this backdrop, we continue to view Texas as an exciting early-cycle market for us, as evidenced by our recent acquisitions of Hanna's Bend and Great Southern Ready Mix.

In Kansas, the state legislature recently agreed to roll back the tax breaks that had weakened the state's finances over the past 5 years. The budget for fiscal year 2018, which commenced July 1, 2017, should then be more balanced than in the recent past. The effect on state-level fundings through KDOT should improve over time, most likely toward mid-calendar of 2018. On the private side, residential is growing at a steady pace due to reduced inventory and improved demand. Commercial activity remains strong, especially in Wichita, similar to what we've seen over the last 2 years.

Moving into Utah, which remains our fastest-growing market. The pace of activity in Utah continues to accelerate, driving strong organic volume and price growth for aggregates in ready-mix. Positive demographic trends have contributed to an acute housing shortage and the need for a scalable public infrastructure. Low unemployment and increased business formation has contributed to meaningful net migration into the state, resulting in a significant increase in new housing starts.

Aside from a strong private market, the state has shown a willingness to invest in roads and infrastructure to support their booming population as evidenced by the recent passage of a $1 billion general obligation bond, entirely dedicated to accelerating highway projects around Utah.

Salt Lake City is currently investing $2.2 billion in a major airport expansion in addition to $650 million in a new correctional facility, both of which will be completed by 2020. As one of the largest heavy-side materials' players in Utah, Summit looks forward to participating in the state's growth.

Turning to Slide 16. Since our last quarterly call in May, we've completed 4 additional acquisitions for a combined total of $130 million.

Glasscock is a vertically integrated aggregates and ready-mix business serving the Piedmont region of the Carolinas. Texas-based Great Southern is an independent ready-mix business serving Houston. Ready-Mix Concrete in Somerset is a pure-play ready-mix producer serving the south-central Kentucky region. Northwest Ready Mix is in aggregates and ready-mix concrete business that allows for further expansion in the intermountain region outside of Steamboat Springs, Colorado, building on our January 2017 acquisition of Everist Materials. Together, all 4 of these transactions allow for increased offtake from our existing aggregates facilities into newly-acquired downstream businesses. With Glasscock in northwest, we're acquiring additional quality aggregate reserves in these key regions. We anticipate that our overall mix of EBITDA source for materials, which includes aggregates and cement, will increase several hundred basis points this year, up from 61% at year-end 2016.

Looking ahead, our acquisition pipeline remains very active with more than 20 additional transactions currently in various stages of diligence. While most of the immediate opportunities ahead of us are bolt-on investments, we're also evaluating several larger materials-based transactions that provide an attractive foothold in new markets. We look forward to providing you with additional updates on our progress in the months ahead.

With that, I'll turn the call over to Brian.

Thank you, Tom, and good morning to everyone. As Tom indicated, Summit reported strong second quarter results, driven by broad-based organic volume growth across all lines of business. As we look to the second half of the year, our focus remains on striking the optimal balance between organic price and volume growth in the markets we serve, while continuing to maintain a disciplined approach towards expense management throughout the organization. Given a combination of price, volume and cost optimization, Summit is well positioned to drive continued organic growth over time.

Let's begin on Slide 18. Consolidated net revenue increased by 15.9% year-on-year to $478.4 million in the second quarter 2017, with the following segment split: In our West Region, net revenue increased 19.6% on a year-on-year basis to $249.8 million due to growth in both organic and acquisition-related net revenue; in our East Region, net revenue increased 16.3% on a year-on-year basis to $144.3 million, bolstered mainly by growth in acquired net revenue; and finally, in our Cement segment, net revenue increased by 5.8% on a year-on-year basis to $84.2 million, supported by positive organic growth in average selling prices and volume.

Turning to Slide 19. Adjusted EBITDA margins continued to increase on a year-on-year basis in the second quarter, up more than 450 basis points since the second quarter of 2015. Our Cement segment has been a significant contributor to our track record of continued margin expansion, given a combination of organic volume and price growth when compared to the prior year period. We anticipate organic growth in average selling prices for materials, coupled with continued efficiency gains, to be the primary longer-term drivers of margin expansion.

Turning to Slide 20. Incremental adjusted cash gross profit margins increased across our materials lines of business during the second quarter. On an LTM basis, through the second quarter 2017, which accounts for seasonality, incremental margins within our cement business increased to 63%, while incremental margins within the aggregates business remains strong in the mid-70% range.

As indicated on Slide 21, Summit continues to generate strong cash flows from operating activities which, excluding net capital expenditures, has translated into significant year-on-year growth in free cash generation. On an LTM basis, through the second quarter 2017, free cash flow has increased by more than $100 million when compared to the prior period. As our business becomes increasingly cash generative, we expect to be able to self-fund a larger proportion of the acquisitions and organic investments.

As illustrated on Slide 22, net leverage declined to 3.7x in the second quarter, down from 4.5x in the prior year period. Cash and available liquidity increased due to the proceeds from our recently completed $300 million, 5.125% senior notes offering in May of 2017. We anticipate a decline in net leverage to between 3 to 3.5x by year-end 2017. Including both availability on our undrawn revolver and cash on hand, our total liquidity stood at $572 million at the end of the second quarter.

Looking ahead, we are well positioned to fund transactions currently in the acquisition pipeline together with the capital requirements of our business.

As indicated on Slide 23, we have increased our full year 2017 adjusted EBITDA guidance for the second time this year, up from a range of $430 million to $445 million to a range of $440 million to $455 million, which implies year-on-year growth of 15% to 19% versus our full year 2016 further adjusted EBITDA of $382 million. By way of reminder, our full year adjusted EBITDA guidance only includes transactions that have been announced. As we complete additional acquisitions throughout the year, we will update our full year guidance. However, for modeling purposes, we advise analysts to refrain from including potential acquisition-related EBITDA in their estimates.

For the full year 2017, we are reiterating our gross capital expenditure guidance of $140 million to $160 million. Total gross capital expenditure in the first half of 2017 was $110 million, consistent with our typical pace of capital expenditure.

For modeling purposes, including the impact of all 10 completed acquisitions on a year-to-date basis, SG&A is running in a quarterly range of $60 million to $62 million, while DD&A is running in a quarterly range of $45 million to $47 million.

Interest expense, including a full quarter impact from the completed $300 million bond offering, is running in a range of approximately $28 million to $29 million per quarter. All analysts should also model for approximately $2 million per quarter of transaction-related expenses, an amount which can vary depending on the volume of potential acquisitions under review.

With regard to cash taxes, we expect paying $2 million to $4 million in state and local cash taxes and no federal income tax for the full year 2017, given existing net operating loss carryforwards.

During the second quarter 2017, we took a $1.5 million noncash tax receivable charge. This estimate was based on our current estimate of 2017 taxable income that we expect to generate. We believe that $1.5 million of TRA expense has become probable and are able to estimate the amount that will be payable to LP unit holders in future years. Please note that TRA expense is nonoperating and is excluded from our calculation of adjusted EBITDA. At this juncture, we estimate the earliest cash distributions under the TRA will commence in 2020.

Finally, with regard to total equity interest outstanding, as of August 1, 2017, we had 106.9 million Class A shares outstanding and 4.6 million LP units held by investors, resulting in total equity interest outstanding of 111.5 million. In calculating the adjusted diluted earnings per share, this is the share count that should be used.

And with that, I'll turn the call over to Tom for his closing remarks.

Thanks, Brian. We've had a great first half of the year, highlighted by strong safety metrics, sustained margin expansion and a record quarterly profitability. None of this would be possible without the tireless dedication of our employees, all of whom are working together to position Summit as the leading integrated heavy-side materials company in North America. Currently, we are the only company in our industry completing multiple small- to medium-sized acquisitions each year, helping to consolidate an otherwise fragmented industry. Over time, this approach has allowed us to build leading regional platforms in early-cycle markets at attractive valuations. While labor-intensive, our proven approach continues to create value for our shareholders.

Entering the third quarter, organic cement volumes and prices have remained strong, while our key aggregates and product businesses continue to benefit from solid underlying market conditions. We have an active pipeline of potential acquisitions under review, some of which serve to build our presence in regional markets where we have an existing footprint. Others of which have the potential to meaningfully increase our materials exposure. We've upwardly revised our full year adjusted EBITDA guidance for the second time this year as we continue to source, close and integrate acquisitions at attractive multiples. We remain optimistic on prospects for the business as we transition into the second half of the year and look forward to meeting our investors in the coming weeks.

With that, I'd like to open the call for questions. Operator?

(Operator Instructions) Our first questions come from the line of Bob Wetenhall with RBC.

Tom, I was hoping you could take a minute and talk about what's going on with aggregates pricing. It looks like pricing declined year-over-year in relation to mix because of the sand business in Vancouver, and I wanted to know, first, if you think that's the right way to think about pricing. And then maybe you could step out of that and just talk about how like-for-like pricing trended in your other markets for aggregates.

Okay, Bob. From quarter to quarter, you're going to have pretty significant variations depending on mix. We sold 10 million or 11 million tons of -- I think, 11 million tons in the quarter, so a significant base job at a lower price can have a significant impact on that. I don't really see any change in the underlying fundamentals of the aggregate pricing dynamics. We still have good pricing power. It's the sand business in Vancouver that picked up pretty significantly in Q2. Austin had a number of significant base jobs. So really, Bob, it's the -- it's a continuation of what we've seen in the last few years, to be honest, in Kansas, Missouri, the Central part of the country have been consistent. So I really don't see any change in the underlying pricing dynamics in aggregates.

So it sounds positive, and then maybe you could just touch on, in your deck, you called out the fact that 1/3 of the EBITDA growth in the second quarter was organic as opposed to acquired. So I was hoping you could step through some of the things you're doing operationally to drive organic EBITDA growth. Is that really the tailwind from a favorable pricing environment in some of your product categories? Or is it really volume-driven operating leverage? Or are you just running the business better? Any color would help.

Yes, I think you have to remember that we probably owned our businesses for only an average of 2.5 years, 3 years. So there's still operational improvements to be had. We have a very decentralized model at Summit that allows our local managers to make decisions on a timely basis. We have made significant progress on driving down our aggregate costs and we have our own version of lean manufacturing that we have implemented around the group and we've [set] great success on that. Since the Davenport acquisition on our Cement side, we have a -- really put together a first-class management team at Cement, and we have had a very, very large improvement in the underlying production cost there. Our -- the reliability in our plants is up very significantly and we are very pleased with that. And I think we're seeing the benefits of this decentralized model, which keeps the decision-making local, makes it timely, and I think the model is proving itself in every quarter.

Got it. It's a very solid one. Quick last one for Brian. Given Tom's remarks about the M&A pipeline being really robust, in terms of the opportunity set, how high would you be willing to raise leverage for the right purchase? And are you committed at 3, 3.5x? Or will you exceed that if the right asset comes to market?

As we've always said in the past that for the right transaction, we would be comfortable at this stage of the cycle and allowing our leverage to spike up a little bit in the short-term, providing that we can see a pathway to bring that leverage back down quickly. That's what we did with Davenport and that's what we did with Boxley. We're driving down the leverage, you can see consistently. So short-term spike, comfortable at this stage in the cycle. Long-term goal is to continually drive [this lower].

Our next questions come from the line of Trey Grooms with Stephens.

Just real quick, I guess, following up on your mix commentary around the aggregates pricing, that kind of thing. I know that is part of business and it moves around from any given quarter to the next, but as you sit here and look at your backlog for the rest of the year, what is that pricing mix look like there that's kind of embedded there? Should we be expecting any more kind of fluctuations or impacts as we look through the back of the year on that -- back half of the year?

Trey, we're very optimistic given our backlog. However, it can be unpredictable and you can have quarter-to-quarter variations. We still see aggregates pricing overall for the year in the low to mid-single digits improvement. And I think the real thing to focus on here are the incrementals and the margins that we are seeing, which sort of take out the product mix and just show the over -- underlying profitability, and they are very strong. So we're very bullish and very optimistic about our aggregates line of business, both from pricing, costs and margins.

Yes, that was the next thing I was going to highlight is the fact that your incrementals were bucking the trend that you've been seeing from some of the folks out there and it seems like -- there's been some headwinds, obviously, from weather and diesel and some of these other things, but what is it -- is it just really some of the things you noted earlier about the overall business that's helping you guys out, specifically on your aggs operations that are kind of leaning to the nice incremental that you're putting up here? Or is it anything unique going on there that -- with you guys, because like I said, bucking the trend?

Yes, I was hoping to get through 1 call without mentioning weather, but -- you know, it's really -- I think a lot of it comes down to how we're performing on the cost side. We really have a, I think, a very good system now of taking cost out of our aggregate facilities, improving our overall productivity. And we're also seeing good pricing in a lot of our markets. So it's sort of a combination of all those things, Trey, which I think results in those, both cash gross margin and incrementals.

And then on the acquisition, EBITDA contribution for the year that you moved that up to a range of $50 million to $70 million. And I asked you this last quarter too, Tom, but just kind of -- now that you have moved it up, where are we into that for this year, kind of what's in the bag? I think last quarter, you said we are about halfway there to the original guidance, then you bumped it up. What would you say now?

I certainly think that the midpoint of that is what we expect. So I'm not sure how you define in the bag? But we're very confident of getting to the midpoint of that range. And we also have a shot at doing more. I mean, we're just very busy and I think we're very busy because of where we are in the cycle and I still think that we are, without a doubt, the buyer of choice because of the way we run our business and the way we look after people's companies. So we're optimistic at least to get to the midpoint.

Yes. And, I think, in the bag was probably a poor choice of words. Nothing is ever certain. I meant more like from the acquisitions you've already gotten closed, where you think we are in that range? So just to kind of get an idea, what's still left ahead that you may need to close on in order to kind of close the -- or to finish the gap there?

Hey, Trey, it's Noel. Real quick, so we've acquired or invested, on a year-to-date basis, $310 million or thereabouts and our typical multiple that we pay is about 7.5x. So on balance, that would imply maybe around $40 million of acquired EBITDA year-to-date. So theoretically, we could do another $20 million to $30 million between now and the second half of the year. Now obviously, not all of that $20 million to $30 million would be coming in this year's EBITDA. We get a partial year contribution from that. But hopefully that helps.

That is helpful, thanks for the color on that, Noel. And then last one for me, Houston for you guys sounds like it's back off to the races again. I mean, it sounds like one of your stronger markets and there's been some kind of mixed commentary out there on what folks are seeing in Houston. What's behind that for you guys? I mean, is it -- I know you touch a lot of res there in that market and you're specific to a certain part of Houston, but just any color around that and maybe also touch on West Texas. What's going on out there?

Sure. In Houston, we're definitely seeing an uptick on the residential side. We have been heavily weighted towards residential in our Houston ready-mix business and we are seeing a recovery there. Our customers, who consist of all the major homebuilders in Houston, are very optimistic for the second half of the year also. The acquisition that we just completed, Great Southern, not only brings some very well-located plants, a first-class management team, but they also bring a much bigger focus on the nonresidential side, which we think we can carry over to our existing plants. So we're quite excited about that. So we do see nonresidential also staying quite strong. And then finally, the highway market is picking up. It's -- the lettings have stayed consistent, but a few of the bigger projects are actually starting to take shipments, so we see that. We see it across the board. We see that, that market getting better. Our aggregate shipments are lagging a bit and we're hoping to see an increase there in the second half of the year, but it feels good. Our customers are very bullish in Houston and we look forward to a strong second half there.

Any comment on West Texas?

I'm sorry, Trey, I have got a short-term memory issue. It's very strong. We actually are seeing a significant uptick across all, both aggregates and ready-mix. Pricing is good. That business -- there's a real housing shortage in the Permian Basin, there's a bunch of large projects. That's going to be a very small in the scheme of things for us, but it's a very good market and we see that improving over the next few quarters.

Our next question comes from the line of Stanley Elliott with Stifel.

When I'm thinking about kind of the available capacity that you guys have, you called out 5 72 in liquidity. Is there -- with the deal pipeline as robust as it is right now, is there any way to think about how quickly you would like to put this to work in kind of a best-case scenario? Or is this something that will kind of extend beyond into 2019?

We have a very disciplined acquisition strategy and program. But I would see more of the same again. I mean, we came out of the box saying we would do $30 million of acquisition -- of acquired EBITDA at 7.5x. We're going to beat that. We beat it the last couple of years, we're going to beat it this year. And we see that continuing into the near future. There is a number of larger transactions out in the marketplace that we certainly look at and we see if there is a way that we can create enough value to pay a higher price because those auctions tend to be at a higher price, we'll see. We haven't found 1 yet this year, but you never know.

And for these higher-priced deals, would you be able to kind of fund it out of cash flows or in debt? Or would you be looking to go to the equity markets?

All depends -- obviously, depends on the deal. There's a few -- there's a couple of very large deals out there that we would have to go to the capital markets for. But I think that's doubtful for us to be successful, but we'll see. Davenport acquisition we did a couple of years ago was an example of one where we sort of hung around the hoop and we're successful in an auction atmosphere. So you never know, and we keep trying.

I think that's fair. Anything on the cost horizon that would kind of -- incrementals have been nice, anything on the cost horizon that would cause that to imbalance to kind of creep up and maybe the incrementals wouldn't be as good? Or is it you're still looking at a fairly stable cost environment on a go-forward basis?

No, it's been pretty stable. I mean, obviously, hydrocarbons are always a concern. They've been pretty stable. Our labor costs have really not spiked at all. We are finding labor to be very tight in the intermountain west, especially in Utah, but we still haven't seen a labor cost spike there. Wouldn't surprise me if we did see that going forward, but we haven't seen it as yet. Brian, anything you see on the cost side?

We manage the costs pretty tightly. We've got a forward program for buying diesel that's been able to contain the year-on-year change on diesel prices -- coal prices, actually, have been down a little bit this year. And so that plus continued emphasis on lean productivity improvements is what's allowing us to contain our costs pretty effectively.

Our next questions come from the line of Garik Shmois with Longbow Securities.

First, if I recall, coming out of the first quarter, you have a low to mid-single-digit aggregates of volume growth and given the strength year-to-date, I'm just wondering if you're still expecting that kind of performance for the full year or is there potential upside?

Garik, you blanked out there in the first sentence, if you could repeat it?

Yes, sorry. As we're coming out of the first quarter, you had anticipated low to mid-single-digit aggregates of volume growth. I'm just wondering given the strength year-to-date, if that's still a good figure to assume or is there potential upside?

I think we would still stick to the assumption of low to mid-single digits. We're very happy with our Q2 volumes, but I would still stick to low to mid, Garik.

Okay. We've been hearing a lot over the last couple of days just around highway project delays, lumpiness on project timing, transition from smaller projects to larger projects, just from the high-level, can you just speak to what you're seeing on the highway side in your markets? And if any of these challenges are kind of translating over to the markets that you serve?

We don't really see that, Garik. There was a bit of delays in Houston on some projects, but I guess, our business mix is much more geared towards the small- to medium-sized paving jobs. We're very -- we don't really do much high-rise ready-mix work. We're basically residential, small nonres. So we really don't have what I would call big project exposure. And I think that's a real strength in our business, not to have that big project exposure. So I guess, the simple answer is we're not seeing that.

My last question is just more on modeling and fine-tuning. Just to be clear, could you break out the guidance raise today for a stronger EBITDA? Just to be clear, was that entirely due to acquisitions? Or is it stronger organic? Just wanted to see kind of what the proportion is between the 2?

Garik, it's all acquisition related.

Our next questions come from the line of Scott Schrier with Citigroup.

I want to talk about cement. So cement volumes were particularly strong and is that due -- and I also mean strong ex the acquisition component. Is that due to underlying demand? Or are you taking any share there? And looking at your deck, are you focusing now more on the northern part of the river due to maybe some competition downstream?

The answer on that last question is, no. We look at all the markets and we are just as focused on New Orleans as we are on Minneapolis. I don't think we are taking much share, I think it's just basically good strong markets and there may be some regional variation in there. But overall, we're just in some markets that are performing quite well.

Got it. And then on your comments that your cement plants are now both running at capacity. So should we think about any incremental volumes really coming from purchased cement? And if that's the case, would we start to see some margin pressure going forward?

Yes, I think that we've imported 1 load of cement from Turkey, about 44,000 tons this year. We've purchased 125,000 tons from other domestic sources, and I think those numbers will grow next year and we see the margins and purchase demand probably half of what the margins are in the manufactured cement. So, yes, I mean, as we grow from here, we'll see increased EBITDA, but the incremental should decline.

Got it. And then one more, on the comment about the upward revision to acquire EBITDA to that $50 million to $70 million, is that on a go-forward basis? Or is that just for 2017?

It's just for 2017.

Got it, okay. So then as we -- longer-term, you're still focused on the $40 million to $60 million number?

Yes, Scott, we'll reset each year and give you guys guidance probably on our February year-end call.

The next questions come from Adam Thalhimer with Thompson, Davis.

There's been some chatter about a fall cement price increase on these Q2 earnings calls. Is there any chance of that along the river? And then do you have any early thoughts on cement pricing in 2018?

I would say on the river, we will not get a fall price increase. It's actually so much of our business is geared towards the northern part of the Mississippi. And there, the season ends in November, so a fall price increase just doesn't make any sense. So with that and -- we really haven't seen any rumblings or initial thoughts on next year. We don't sell cement in Houston, but there is a -- what is that I can't remember, it's a $5 price increase on cement that's been announced for October 1, whether that holds or not, we'll see. But again, we're just a purchaser there, not a supplier.

Okay, then just a quick question on what's embedded in your margin expectations for the back half. Cement margins have been running higher year-over-year. Products margins were little lower year-over-year. Is that trend continue in the back half?

Yes, I think we'll probably, Adam, probably see pretty much more of the same. The product margins actually are very stable if you look at what we delivered in the quarter. The asphalt margins, and we look more at the margin than we do at the price because of the fluctuation on the liquid purchases. They're very stable. They're tracking almost exactly in line with the last 12 months' trend and we would expect the products margins to remain stable for the balance of the year. And typically, we are coming into our biggest quarter of the year. So you might see a slight uptick in Q3, but the long-term trends are very much intact.

Our next questions come from the line of Kathryn Thompson with Thompson Research.

This year, as we head into the back half of the year and we certainly saw in Q2, there are couple of markets that give you a little bit less worry including Vancouver and the Austin markets. When we look at volume flow in the quarter, could you help us better understand how much is -- more specifically, what were volumes in those 2 markets, but also stepping back and broadly looking at our volume performance, particularly, in the Southeast that was impacted more heavily by rains versus other markets that were less affected?

Sure. Volumes were up very significantly in both Vancouver and Austin. We don't give the details by market. Certainly, the Southeast was impacted by weather and the middle part of the country was good solid volume, so I don't -- I mean, in broad terms, the East was a little down and the West was much better.

Okay, I was looking for a little bit more detail, but that's okay, I can follow up on that one. When you look at the acquired assets for -- you acquired since May, can you give a little bit more color in terms of relative portability versus legacy Summit assets? And also what are the synergy opportunities for these 4 assets, but also when you look broadly at the 10 that you acquired year-to-date?

Okay. All 4 deals are bolt-ons, obviously, to existing operations. I think I mentioned 1 on Great Southern, which not only brings some well-located plants, it gets us into the northeast part of Houston. It also has a brand-new plant in the northwest part of Houston, but it brings a really first-class management team that has a completely different emphasis. We are very homebuilder-focused, they are very nonres focused. So we believe there will be very significant synergies as we take our residential focus into their market and we take their nonresidential focus into our markets. And it's, I think -- that's -- I think we see some very significant synergy there. We also see sourcing on that deal as we become an even larger cement purchaser in that area. Northwest -- and also with Great Southern, as with all 4 of these, we will be supplying our aggregates into these downstream bolt-on acquisitions. And there is good solid synergy there. Ready-Mix of Somerset is a diversification of our Kentucky business, away from the asphalt and paving Kentucky DOT or KYTC, as it's known in Kentucky. They will be buying aggregate from our existing -- or will be supplying aggregate to those plants. That's the main synergy there. Northwest is the same and is an extension of the Everist business that we bought earlier. We think there's very good synergies there. There's some immediate fixed overhead purchasing aggregate supply. And then in South Carolina, it's a great add-on to our existing sand-and-gravel businesses in the Piedmont, and I think that we should have some production synergies there also. So overall, typical of what we do with these businesses, there's immediate synergies on costs. The longer-term synergies, which we've mentioned a few times on this call, that take a little bit longer to implement, are lean manufacturing on the aggregate side, the overall synergies of just being part of a larger group. So we're very pleased with our deals so far and even with these deals, which are more product-oriented, we're still seeing that our materials percentage is up a few hundred basis points versus the 61% that we had in 2016. So this is what we do, this is what we do really well, being able to do 10, 15 deals in a year to source them, to cut a deal, to get them closed and to integrate them and to realize these synergies, and I think is what we do better than anyone.

And you did allude how you not only acquire, but you improve the profitability of the assets acquired. Is there a rough ballpark way how we can think about cost-savings, either on percentage on a dollar basis that you're able to yield from an average acquisition? Or maybe for -- using these 4 is a good example.

Yes, Kathryn, it's Brian here. We've consistently been able to acquire around this average multiple of about 7.5x. That's still a range that we're comfortable with, and as Noel mentioned earlier, it's about the run rate that we've seen for the deals that we've completed this year. And then, again, pretty consistently, since we've been doing this, we've been able to get 1 turn to 1.5 turn of multiple improvement out of those deals in the first 12 to 18 months post acquisition. And again, that's the kind of run rate that we target, that's the source of improvement that we expect to get and we've been pretty consistent in delivering that so far.

One final thing, Kathryn, would be, we do look at multiple cash-on-cash return metrics to measure EVA. And one that we might look at, for example, would be EBIT divided by total investment. Over time, our project returns have to exceed our cost of capital for them to be considered. And so going back historically, we typically looked at achieving 10% to 15% cash-on-cash returns on completed acquisitions.

The next questions come from the line of Brent Thielman with D.A. Davidson.

Tom, when you look at the -- take a step back and look at the first half performance, where have you been most surprised in terms of this kind of rebound in organic volume growth of all your markets, maybe versus where -- what you were thinking when you started the year?

I think, first off would be cement has certainly exceeded our expectations. I think the -- although we haven't seen it in aggregates yet, but on ready-mix in Houston, the fundamentals in Houston are certainly better than what we thought. The 2 areas we had difficulties in last year, Vancouver and Austin, have really bounced back very strongly, way ahead of where we thought we would be. So those would be the areas that -- and they are probably most happy -- pleasantly surprised, I guess, would be the right way to look at it.

And then in terms of the outlook, aside from more deals you probably will do, but is the momentum you're seeing in those areas, what could potentially drive some additional upside? In other words, are you building in much into the outlook for a rebound in those specific areas?

Well, as we said, we're looking at low to mid-single digit volume increases say in aggs. If we get mid- to high, there'll be some upside. But certainly, at this point, we're sticking to the low to mid-forecast, and hopefully, we are surprised.

Okay. And just on cement, is there any concern or risk that some of the problems that the Illinois market could spill into your kind of traditional territories, just sort of by, I'm thinking more specifically some of that capacity into that market spilling into where you typically address?

We haven't seen it, but certainly if the Illinois State issues continue to get worse and worse and they discontinue their highway program, that does have some potential to spill into our markets. But we haven't seen it yet.

Our next questions come from the line of Nishu Sood with Deutsche Bank.

So I wanted to ask first about the acquisition pipeline. The deal size has been pretty consistent so far this year and I think stretching back in the last year as well. As you look at the 20 deals that you have in the -- or 20-plus deals you have in the pipeline, how does the average deal size of what's in the pipeline compare to the kind of run rate you've been at?

It's probably a little higher. There's a couple of larger deals in there. They are probably the lower-likelihood deals. But basically, it's not going to change dramatically unless one of these larger auction deals falls into our lap. But again, as I've said before, it's probably unlikely. So it's pretty much a continuation of what we've seen in the past with maybe a few more of the larger public auction deals.

Got it, got it, okay. And then switching to cement, where we are in terms of capacity utilization, obviously, in the markets that you serve. In volumes coming in better than expected, it certainly looked very good. What's your kind of updated thoughts on the pricing cycle, typically at this stage, you begin to think about acceleration in pricing. Is that -- you think that's on the horizon for the pricing cycle for '18? Or do you think that's still another 2-plus years out?

I -- well, first off, I think that this year's pricing is a bit of a disappointment. And so we would expect to see some improved pricing going into '18. We believe the river is basically on domestic supplies. Cement is basically going to be sold out next year. So that should be the backdrop for some improvement in the rate of pricing increase.

That ends our question-and-answer session. I'd like to turn the floor back to Tom Hill for closing comments.

Thank you, operator, and thanks, everybody, for joining us. That concludes our call. We look forward to talking to you next quarter. Cheers.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.