Greeting, and welcome to the Summit Materials Second Quarter 2016 Earnings Conference call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rodney Nacia of ICR. Thank you, sir, you may begin. .

Good morning, and welcome to Summit Materials' second quarter earnings call. Today, we're joined by Tom Hill, Chief Executive Officer; and Brian Harris, Chief Financial Officer.

We issued a press release this morning detailing our second quarter 2016 results and published an updated supplemental workbook, highlighting key financial and operating data, which can be found in the Investor Relations section of our website at summit-materials.com.

This call will be accompanied by second quarter presentation slides, which are available by accessing the live webcast in the Investors section of our website.

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 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 annual report on Form 10-K filed with the SEC on February 22, 2016.

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

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

Good morning, and thank you for attending our second quarter 2016 earnings call. I will begin with a summary of our business, followed by a review of our operating highlights for the quarter. Brian will then review our key second quarter financial metrics, followed by a question-and-answer session..

Turning to Slide 4. The strength of our growth strategy was evident during the second quarter. We improved our existing businesses despite the wet weather by executing on our internal performance initiatives, including aggregates pricing up 7%.

In addition, our proven ability to source, complete and integrate acquisitions, contributed to our improved performance..

Organic volume in the second quarter was impacted by rain especially in Texas, lower aggregates volume in Vancouver with the completion of several large sand projects in 2015 and some competitive pressure in Austin, Texas. We expect all 3 of these factors to improve in the second half of the year. Overall, underlying U.S.

demand is increasing across all 3 of our end markets, residential, nonresidential and publicly funded infrastructure. We cannot control the timing or the pace of this recovery, but private residential and nonresidential starts remain well below peak levels, and infrastructure end markets are poised to benefit from expanding federal and state funding.

Some states and municipalities, such as Texas, are already seeing a steady pickup in highway activity. As such, we believe we are still in the early stages of this construction cycle, and with our unique acquisition strategy, we will benefit from scalable national operations and local entrepreneurial leadership..

Turning to Slide 5. In July, we provided a preliminary outlook of our Q2 financial expectations in connection with the secondary offering. Q2 results were in line with or better than our expected ranges to deliver a very solid quarter..

Revenue increased 25% due to volume and price increasing among most of our lines of business. We continue to focus on our profit improvement strategies, which have contributed to expanded margins. This momentum helped us increase adjusted EBITDA by 47% and generate incremental margins of 44%..

Our adjusted EBITDA margin improved 400 basis points to 28%. Gross margin was a key factor in this improvement with a 360 basis points expansion to 39%. The larger proportion of activity from materials, coupled with effective cost management, contributed to this quarter's strong incremental margins..

Our adjusted EPS was $0.46, an increase of $0.19 from the prior-year quarter, reflecting a combination of accretive acquisitions and organic momentum..

So far this year, we have spent $92 million in capital expenditures on plant upgrades and rolling stock. We remain committed to investing in our business for the long term..

Boxley in Southern Virginia, AMC in the Carolinas and Sierra in Las Vegas. These 3 deals have, thus far, exceeded expectations and have allowed us to easily exceed our $30 million target of acquired EBITDA in just the first 4 months of 2016. The immediate impact of Boxley and AMC is notable in our East segment performance.

Sierra was purchased in April and provides us the opportunity to pursue additional value-added, bolt-on acquisitions in Nevada..

In May, we added a strategic bolt-on in Missouri consisting of 7 quarries. These quarries are a strategic fit to our existing operations and add scale and reserves in a consolidated market. We remain committed to expanding our business through acquisitions in a disciplined manner.

Our deal pipeline remains healthy, and we're confident about our ability to grow and add value, both organically and through value-added, bolt-on and platform acquisitions..

Slide 7 provides an update on our 2015 and 2016 acquisitions. Our Lewis & Lewis and LeGrand Johnson acquisitions had been fully integrated into our West operations and have resulted in significant margin expansion post integration..

One year ago, we completed the acquisition of the Davenport cement assets, our largest deal. These assets have integrated seamlessly with our Continental Cement business.

The combination has created a unique manufacturing position with the 2 most northern cement plants on the Mississippi River and a distribution network from Minneapolis to New Orleans. We have achieved significant volume and price improvements since the acquisition and expect this to continue..

The 2016 additions of AMC, Boxley and Sierra have exceeded expectations and have allowed us to enter new high-growth markets. At Summit, in the last 18 months, we have acquired over $100 million of high-quality, materials-intensive EBITDA, which, after a full turn of realized synergies, would have been purchased for 7.4x projected 2016 EBITDA..

Turning to Slide 8. Approximately 40% of Summit's revenue is derived from the public highway markets. Many states have commenced initiatives to increase funding for highways. However, this is not consistent across the country.

Kansas has reduced funding for highways due to budget pressures, while a Kentucky program was delayed by the late passing of the 2-year highway bill. As a result, our asphalt volumes on both of these states will decline in 2016.

Kentucky asphalt volumes will return to more normal levels in 2017, and there is significant discussion in Kansas on how to fix their budget issues..

Offsetting this, we are seeing the impact of increased highway spending in both our North Texas and Utah markets..

In Texas, lending activity has increased significantly as a result of funding additions from Prop 1 passed in November 2014. We expect this activity level to continue with the impact of Prop 7 in 2017..

We are also optimistic that additional states will seek new revenue sources to fund highway programs. The impact of the 5-year Federal Highway Bill, or FAST Act, will also be more pronounced in 2017..

Now turning to Slide 9. We see significant long-term upside in U.S. private construction to supplement a sturdy base of infrastructure demand..

Residential and nonresidential construction approximated 60% of our revenue. On the residential side, annualized U.S. housing starts remain near $1.2 million year-to-date in 2016 and only modestly above 2015. This is well below more normalized levels of $1.5 million to $1.6 million.

With population growth and expanding job market, we believe housing starts will continue to show improvement for a number of years..

In Texas, the residential outlook is still positive despite low oil prices. The outlook for single-family residential permit growth remains at 9% in 2016. In Houston, residential demand has softened, but demand for entry-level homes in the West and Southwest part of the city where we operate is steady.

In Austin, despite competitive pressures impacting our results, the local economy remains strong. In Utah, single-family permits are up 7% over last year, and we see this gaining momentum. In nonresidential, we primarily participate in light commercial, such as hotels and retail centers, which historically lag residential development by 1 to 2 years.

In the Carolinas and Utah, health care expansion and education are leading job growth and indirectly benefiting other sectors. In Texas, highway construction is having a positive ripple effect on commercial activity, which essentially touches 2 of our key end markets..

In summary, our public and private construction markets continue to exhibit positive fundamentals, positioning us to capture incremental volume and price improvements while actively managing costs, enabling us to meet or exceed our 2016 goals..

Now I would like to turn the call over to Brian, who will take us through our second quarter financial metrics beginning on Slide 10. .

Thank you, Tom. We had success this quarter with strong growth in adjusted EBITDA and cash flow to end the quarter with ample flexibility to continue pursuing value-enhancing objectives. We reported an increase in adjusted EBITDA to $115 million and adjusted earnings per share of $0.46..

I will walk you through some of the details and drivers behind these numbers..

Looking at Slide 10. Q2 2016 prices increased across all lines of business. Aggregates prices increased 10% in the quarter, reflecting the benefit of successful price increases implemented over the past 18 months and acquisitions in higher-priced markets, such as Virginia and Wyoming..

In our combined cement operations, average cement prices increased 11% in the second quarter, mainly reflecting price increases put into effect in 2015. Additional cement price increases in several of our markets went into effect on April 1, 2016, and we have experienced early signs of positive traction..

You may also notice that we revised our methodology to calculate average cement price compared to the prior 3 quarters. In quarterly reports since the close of the Davenport acquisition, cement swaps and the other cement products were captured in our reported price, causing some distortion.

A revised cement price schedule is included in the supplemental workbook posted on our IR website for the prior 3 quarters..

Ready-mix concrete pricing increased organically, offset by some lower price markets from our West acquisitions. Asphalt pricing had favorable product and regional mix, with a partial offset from lower liquid asphalt input cost. This overall price momentum helped us achieve strong incremental gross margin of approximately 53% for the quarter..

Volumes across all lines of business were augmented by strong acquisition activity, especially Davenport's impact on cement..

Slide 11 shows our year-to-date pricing and volume trends, which are largely similar to quarter to date, albeit the aggregates organic volume decline is significantly lower at just 3%, and ready-mix organic volumes are essentially flat..

On Slide 12, I'd like to walk through some of our first half organic volume movements. Year-to-date, our organic aggregates volume declines are primarily due to the Vancouver and Austin markets.

Volume in Vancouver was impacted by the completion of several large sand projects in 2015 which were not replaced in 2016, and the Austin market was challenged by competitive pressures..

Coupled with these factors, adverse weather also played a role. We believe, with a strong pipeline and positive market dynamics, volumes will improve in the second half of 2016..

We have realized strong organic growth in our cement volumes, and our legacy markets are performing well. Our future outlook remains positive for further growth in both volume and price..

Ready-mix concrete operations have remained consistent with last year. As Tom mentioned, our asphalt operations declined in Austin, Texas, Kansas and Kentucky. However, we believe volumes will return to more normal levels in 2017, when the state legislatures ease funding pressures..

Slide 13. A key, consistent feature of our financial performance has been our ability to expand margins. As the chart on the right shows, we delivered a 400-basis-point improvement in adjusted EBITDA margins in 2014 to 2015, and our LTM increase to a further 200 basis point underscores the continuing trend.

The pace of EBITDA margin growth significantly exceeds our revenue growth, and this leveraged P&L account is underpinned by increased average selling prices and our laser focus on lowering costs and improving productivity..

We are also focused on improving the diversity of our business, with acquisitions targeted to high-growth end markets, material focus and broad geographic mix. This combination has allowed Summit to realize an LTM Q2 adjusted EBITDA margin of 24%..

Moving to Slide 14. Total gross profit increased approximately 38%. As a percentage of net revenue, gross margin in the second quarter expanded to 39% compared to 35% in the prior year. Incremental margins were 59% and 53% from aggregates and the Cement segment, respectively, during the quarter.

The mix of our gross profit from higher-margin materials during the second quarter is due to our acquisition of the Davenport asset and recent aggregates-based acquisitions. Aggregates and cement gross margins were consistent with the prior-year quarter..

In products, we expanded gross margins by 100 basis points, reflecting positive price and cost-savings initiatives. Total adjusted EBITDA margin improved 400 basis points in Q2 2016, largely as a result of our ability to increase prices organically, integrate acquisitions and effectively manage our costs.

A larger proportion of higher-margin materials and product revenue assisted as well..

G&A increased to $76 million and 18% as a percentage of net revenue this quarter. $25 million of the increase related to stock-based compensation costs associated with an investment objective met by pre-IPO investors, which was achieved in July.

We recognized a cumulative catch-up expense from the IPO date through June 2016, and we'll continue to recognize expense on the options over the remainder of the 4-year vesting period. Excluding this charge, SG&A would have been $51 million and 12% as a percentage of net revenue..

Moving on to our balance sheet and liquidity on Slide 15. During the quarter, we funded 2 bolt-on transactions and continued to invest in our facility-enhancement initiatives and ended the second quarter with total net leverage of 4.5x..

At quarter end, we had total outstanding net debt of $1.6 billion, our cash balance was $9 million, and we had $195 million of availability on our revolving credit facility, which is net of $26 million of outstanding letters of credit and $14 million of outstanding borrowings..

The annualized interest expense on our long-term debt is approximately $87 million..

In Q2 2016, we spent $82 million on net CapEx for plant upgrades and rolling stock compared to $37 million in the prior year. The increase is related to facility modernization and expansion projects, which we are pleased to report are moving forward on schedule and on budget..

With the continuation of good results from our material-based strategy, along with ample liquidity on our balance sheet, we have the flexibility to pursue our strategy of acquiring attractively priced assets in well-structured markets with selective downstream exposure.

We intend to remain methodical and disciplined with our capital utilization, with the long-term objective of reducing our leverage multiple through earnings growth..

Looking ahead to the remainder of 2016 on Slide 16. We have narrowed our full year 2016 adjusted EBITDA outlook range from $350 million to $370 million to $360 million to $370 million. And by way of reminder, this range includes the successive period for acquisitions completed so far in 2016..

The impact of any future acquisitions will be incorporated when they occur..

We continue to expect growth capital expenditures to be between $150 million to $170 million in 2016. This number includes maintenance CapEx and several profit improvement projects, mainly in our aggregates facilities, to improve efficiency and increase capacity.

Over the long term, we expect our CapEx to be 6% to 7% of net revenue composed of 70% maintenance and 30% investment spend. We also expect to reduce our leverage ratio from 4.5x to approximately 4x by year end..

And with that review, I'd like to turn the call back to Tom for some closing remarks. .

Thank you, Brian. I would like to thank our almost 5,000 dedicated employees who contribute so much to Summit's ongoing success. We remain committed to providing a safe working environment for these employees and being good corporate citizens in the local communities that we serve..

We believe the construction markets we operate in are still in the early stages of the recovery, and this will create a significant tailwind going forward..

Our materials-based growth strategy, based on driving organic performance and a disciplined relationship-based acquisition program, has and will continue to drive superior performance..

We're now happy to take some of your questions.

Operator, can you please open the lines up to Q&A?.

[Operator Instructions] Our first question comes from the line of Jerry Revich with Goldman Sachs. .

Tom, can you talk about over what time frame do you expect your organic growth to be back in the green. Obviously, you got hit with some bad weather in the second quarter, and you mentioned, in some of the states, there is budget timing issues.

Can you just talk about, as you look across your footprint, when in aggregate do you expect overall company to return to organic volume growth across the business?.

Yes, Jerry. So much of it is dependent on weather. I've been doing this for a long time. When you have a really wet spring like this, it really depends how long the fall last. If we get an early winter, we might not catch up till next year.

But if we get a good, solid fall, certainly by the end of the year, we would hope to be back to good, solid organic volume numbers. .

Okay. And then, Tom, you spoke about in Austin, you expect less of a headwind from competitor pressures in the back half. Can you just talk about the changes that you've implemented? Because if I remember right, you only started seeing the headwind in the early part of this year, which suggests a year-over-year headwind in the back half.

So can you just flesh it out for us and talk about the changes you've made to mitigate the headwind?.

Yes, we've got a really first class new management team in place there. We've made significant progress there over the last 60 days, and we do expect results to improve in the second half of the year. Having said that, the year-on-year hit is probably a little worse than we expected a quarter ago.

It's probably in the $5 million to $10 million versus last year. But we do see that improving in the second half of the year. But like I said, we're very optimistic in that we have a really first class new management team in there. We have great assets.

We've have got 2 really well-positioned quarries, 4 asphalt plants, and we also have a liquid asphalt terminal that serves that market. So we have really good assets, a really fine management team, and we're going to make progress there over the next couple of quarters. .

Okay, great. And lastly, can you -- for the bigger acquisitions, can you talk about what's been stronger than expected? So the EBITDA contribution has been very good, and it sounds like based on the multiples that you spoke about implied on the 2016 [ph] numbers ahead of your initial plan as well.

Can you just talk about if it's been demand or margins or what exactly has been stronger than expected?.

It's been across the board, Jerry. It's volume, prices and margins. It's -- we, at Boxley, AMC, and Sierra, really have teamed up with some really good management teams and -- in good markets, and we're seeing the results of that.

The add-ons that we did in '15 to the Western region were just very classic bolt-on acquisitions, where we saw real value creation very quickly. And they integrated very seamlessly. So we're excited about all those deals. They're all performing extremely well and, I think, are real testament to our development team and our local management. .

Our next question comes from the line of Rob Hansen with Deutsche Bank. .

I just wanted to ask about the volumes again. I think you mentioned in your script that you expect to see a return to organic growth in the second half here.

Do you have a large backlog of business that we should see kind of an acceleration in organic growth here? What are your thoughts on the kind of type of level? Are we looking at single digits, high single digits? Some color there in terms of what you're thinking. .

We have solid backlogs pretty much across the company. We would hope -- and you have to look at it -- if you look at our aggregates business, for instance, if you take out the difficult comp in Vancouver and Austin, the rest of the business was -- grew at 5% through the first half of the year. We would see that continuing.

I do think we'll see continuing pressure in Kansas and Kentucky. The Houston residential market is also a bit soft. But overall, we would hope by the end of the year to have returned to overall organic growth. .

Got it. That's really helpful. Just on the acquisitions in the quarter, if you have any numbers, like an LTM sales figure for the combined Sierra and Oldcastle assets. Any type of numbers that you could provide would be very helpful. .

We tend not to give specific numbers. The Oldcastle acquisition is quite small. It -- I think it is going to be very value-added. And -- but it's very small. Sierra, they had volumes of 400,000 tons of agg and about 300,000 cubic yards of ready-mix. .

Got it. Okay. And just the last question here.

Can you just talk a little bit about what you guys are -- what your folks are telling you from the field in terms of bidding activity? Are you starting to see some more longer, aggregate-intensive projects starting to show up with the increase in federal funding coming?.

We have not seen the impact of the FAST Act yet. I think we'll probably start seeing that towards the end of this year. We are seeing very strong activity in our North Texas highway markets. And in our Cement business, which runs from Minneapolis down to New Orleans, we are seeing really good solid mid-single-digit volume growth there.

So we would expect to start seeing FAST Act projects come out maybe in Q4 and have some impact in '17. .

Our next question comes from the line of Kathryn Thompson with Thompson Research Group. .

First on cement pricing. Nice job in the quarter, but wanted to find out better -- have a better clarity on this.

How much of the roughly 11% increase in the quarter was driven by adding Davenport to the mix versus pricing actions taken in the spring or was your product mix that may have skewed numbers?.

Yes, Kathryn. Because of the way those 2 businesses were integrated and product moving amongst a number of terminals, it's really hard to break out the Davenport versus the Hannibal impact. We would see a continuation of good, solid pricing in our cement sector.

But because we gave up one of our terminals in the deal to acquire Davenport, it just makes the -- we're just not able to break out the impact of Davenport. And I'll give you an example, pricing is good in a couple of the markets that we acquired with Davenport, and there's a couple of markets that are lower.

And we are supplying some of the traditional Davenport markets out of Hannibal and vice versa. So really it's difficult to separate them out, Kathryn. .

And there's not any type of product mix that would skew numbers, so this is really more of just pure pricing appreciation?.

There'll be some geographic mix in it, but it's basically just pure pricing. .

Okay, perfect.

And again, this may be challenging to parse out, particularly in Texas given the Austin dynamic, but do you have an estimation, at least with one portion of your business, say, aggregate, as to the volume impact from weather in the quarter?.

We -- I never believe I'm smart enough to quantify the impact of weather, except I know in the quarter it was negative. And it's just very difficult to do that, Kathryn.

And I think you'd get yourself in trouble when you do that because I've never asked anybody to take -- well, say, hey, what impact did good weather have? So I just think it -- we -- in a typical year, we'll make it back up in Q3 and Q4.

You worry about especially in our Northern locations if you get an early winter, but in general, it tends to even itself out. .

Okay. And maybe put differently, and this is just more across your national footprint. What end markets are you seeing the greatest growth? And really if you could frame it around in terms of your, it's not necessarily backlogs, but your -- the book of business that you see coming along. .

Yes. Our very strong markets are certainly Utah. We're seeing good growth in all 3 of our end users there. And our cement markets, really up and down the Mississippi, in total, are seeing good mid-single-digit growth. And then very excited about the new markets we've entered.

The Southern Virginia market, in the Boxley acquisition, Lynchburg and Roanoke are quite, quite strong with a good highway program, good res and good nonres growth. The Carolinas, we have the sand and gravel operations on the coast, and we have a hard rock quarry just south of Charlotte.

They are seeing really good double-digit growth in all of those markets. And then in Las Vegas. Our Sierra acquisition, that market, I think, we entered at the right time, and there is good growth. We don't really service the infrastructure market there. It's really more res and nonres, but both of those markets are very, very strong.

So we -- the markets that we're challenged in are Kansas, Kentucky and Houston residential. Kentucky has corrected itself. They were just late in passing their highway bill. Kansas is another, probably is a longer-term issue. They've -- I think they have rated the highway fund there to make up for some budget deficits.

A positive factor was in yesterday's elections, a lot of the no tax people lost, and I think we have a more moderate state Senate, which I think will be much more likely to fix the highway program there.

Houston residential, we're still seeing good, solid demand in the West and the Southwest of the business -- of our business, which is mostly entry-level housing. And highway market is still strong there, and we are still picking up some commercial work. So I think that gives us a good overall picture of our demand drivers in our markets. .

Our next question comes from the line of Trey Grooms with Stephens. .

One question that I have is on the organic volume expectations. And forgive me if you guys touched on this, I got knocked off for a second. But it does sound like you're expecting a rebound there in organic volume.

What did you guys see specifically, in July for organic volume, if you can give us any color on that?.

It's just a month. It actually rained quite a bit in Houston again after a couple of decent months there. So we really don't comment on forward-looking, but no great surprises.

Brian, any?.

No, I mean, Trey, I think I'll just kind of reiterate that point that if you exclude those 2, the headwinds in Vancouver caused by the tough comp year-on-year and the competitive situation in Austin, we've actually have seen year-to-date growth in our aggs of over 5%. So that's kind of the underlying fundamental in the rest of the business.

And I think that's what gives us reason to be optimistic for the balance of the year. .

Okay.

So I guess, it's fair to say when the sun's out that demand is good and positive?.

Yes, that's accurate. .

Okay. And then, so really strong performance that you guys have been putting up on the margins.

With the recent acquisitions and the pricing actions, how should we be thinking about incrementals as we look kind of into next year and just more bigger picture, longer-term thoughts around incremental margins?.

Maybe I'll comment on pricing, and then I'll let Brian comment on the incremental. We still remain optimistic on organic pricing in aggs and asphalts. Ready-mix, with the softness in Houston, will probably be in lower single digits, but we see the pricing dynamics continuing.

On the cement side, as demand starts to exceed domestic supply, we would be, again, very bullish going forward on cement pricing.

And Brian, do you want to comment on incrementals?.

Yes, sure. The incremental margins, obviously, from quarter to quarter, can fluctuate quite a bit. We saw that. I think, we were up in the 80s in Q1, primarily because we had a fairly low comparative in Q1 of 2015.

It's not unusual in our business to see several factors which can change that in any given quarter, stripping the mix of business, weather and so on. They're often amplified in a low-volume quarter as well. So you can get a little bit of distortion quarter to quarter. What we focus on is looking at those long-term trends in the margins.

And if you look at our LTM aggregates margin going back to Q1 of 2015, you see, at that point, we were about 54%. We're now at 60%, and we're seeing steady kind of 1% improvement quarter-on-quarter from those underlying cost improvements and price that Tom mentioned.

So we would expect to be able to maintain those levels during the second half of the year. Likewise, on our products, ready-mix and asphalt are trending slowly upwards as well. Over the last 18 months, we've gone from about 21% to about 25%, 26%. And again, we'd expect to be able to maintain those kinds of levels in the second half of the year. .

Our next question comes from the line of Paul Luther with Bank of America Merrill Lynch. .

First question.

Can we talk -- can you give a little bit more color on the EBITDA guidance range, lifting the bottom of the range, what gives you the confidence there, is that inclusion of the Missouri acquisitions that you made? I thought you said that was relatively small, and you said that there is a little bit more pressure in Austin than you had initially anticipated.

So wondering what's driving the confidence there to lift the bottom of the range?.

Yes, I mean, we -- certainly, the performance of the last 2 years' acquisitions has given us more confidence in hitting the top of our initial range. I think also that gaining momentum in the economy in Utah and also really strong Texas DOT lettings have really helped our business.

And then lastly, I would say, our -- the Cement business overall and the integration of the Davenport assets has certainly been going extremely well. So all those things just really gave us added confidence in narrowing the range to the top of the initial range. .

Great. That's really helpful. And then turning back to cement pricing, I think you said that this quarter's big cement price uplift was from prior increases, and you announced one for April.

Can you give us some color on the success so far on the April price increase and the outlook for cement prices for the remainder of the year?.

Yes, I mean, we -- in most -- it varied from market to market, but we announced anywhere from $8 to a $12 price increase effective April 1. We expect to realize $6 to $7 of that just because some jobs are protected, it didn't start till April 1.

But really, our -- the pricing environment in cement is quite good, and we expect it to improve going forward. .

Great. And then one last one, if I could.

Could you just give us some detail perhaps on tailwind that you got from lower energy and diesel costs in the quarter?.

Brian?.

Yes, the year-to-date savings on diesel are now at about $5.3 million. Of that, about $2.8 million of it was in Q2. So we're continuing to see some benefit there. Obviously, the longer the -- we go into the cycle of lower oil prices, the lower the year-on-year changes will be.

But we do protect a portion of our diesel requirements by buying forward anything between 50% to 70% of our volume expectations at the peak of the season, and we've done that. We've already bought some forward into 2017. So we should continue to see some gains year-over-year in the second half as well. .

Our next question comes from the line of Brent Thielman with D.A. Davidson. .

Tom, you talked about the competitive issues in Austin market before. And thinking about this from the context of your broader products portfolio, what might be unique about that situation? I'm assuming you don't see anything of similar magnitude arising elsewhere in the business. .

Yes, I mean -- having been doing this for 35-plus years, I mean, I've seen the movie before. It was a former owner, who's put up a couple of asphalt plants, certainly has disrupted the market, took a number of our management team with him. So we have replaced that team, augmented the team. We brought in some people from elsewhere in the company.

We have certainly stabilized the situation, and we see that improving as the year goes on. And in the end of the day, we have great assets and a great management team there. We're going to -- we've righted the ship, and we're going to make progress over the next few quarters. .

Okay. And then I know you had some pretty significant weather issues in the quarter. It seemed to me that, at least, it must of settled out by at least the end of the May.

I guess the question is, is the pace with which the projects are getting back up and going after sort of the weather issue is different than what you've seen in the past?.

Houston was pretty difficult. In Houston, we had tremendous floods. A couple of our sand and gravel pits were shut down for a month plus, and pretty disruptive to the marketplace. That was pretty unusual. I mean, that was, I think, a once in a lifetime event in Houston.

Besides that, it's just been -- we've had a fairly wet year in the Midwest, lots of storms. But the one in Houston has certainly impacted us for several months, not only in demand for our products, but has made production very difficult and more expensive. .

Okay.

And then I guess as far as the problems in the Houston market, is it potentially creating opportunities for you down the road?.

I'd still be very bullish on Houston. I think it's -- first off, it's a very big, very diversified economy, and we think it's a great place to do business. We do seek continued opportunities there for bolt-on acquisitions. And we love our position there.

We have the largest aggregate reserves that are closest to the market, and we have a management team there that's been there for a long time and has multigenerational customer contacts. We have a really unique niche there. And it's just a superb company.

So we -- there's going to -- there's definitely some softness as a result of lower oil prices, especially on the north side of town, which is not one of our biggest markets. And also on the high-end of the residential. We follow several forecasters in Houston. Metrostudy, I think, is forecasting single-family permit growth there in '17.

And also John Burns is another one that we follow, specifically on Houston. He would be for another small decline in '17 there. So somewhere probably in between is where it will actually be. But I think Houston is a great market, and we have a great position there. .

Okay. Just last if I could. Just based on where your leverage is today, where you have some issues in some of your larger states, you mentioned Kansas, Kentucky.

Are your priorities and parameters for acquisitions any different than they have been in the past?.

No, I mean, our hurdle rates are based on our cost of capital. And we're very disciplined in our acquisitions. And certainly, what markets we expand in, we do our forecast based on what we think are very realistic market expectations.

So we -- I like what we've done recently to balance our portfolio, entered some higher growth markets in Virginia, the Carolinas and Las Vegas. But bolt-on acquisitions are sort of our bread-and-butter, and we'll continue to do bolt-on acquisitions pretty much across our footprint. .

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

Could you guys talk a little bit more about the Missouri acquisition? I know you mentioned it was relatively small.

But are these more hard rock? Or are they more sand and gravel? And then also, does this present you with the opportunity to supply more material to your cement manufacturing, internally?.

No, it has nothing -- we basically supply almost all of our material already to our Cement business from our on-site limestone and clay reserves. So this was very much a fill-in between -- we have a wonderful company in Columbia, Missouri. Then a couple of years after we acquired them, we acquired the Norris businesses in Northwest Missouri.

And these assets fit right in between those 2, as you can tell on the map in our presentation. So it really was just a classic bolt-on acquisition that -- and fit very well geographically. It'll help us service our customers better, and it started out very well for the first couple of months or 1.5 months that we owned them.

So just like I said, just a classic bolt-on acquisition. .

Then as far as, like, the cement pricing, I know it's not terribly common. But in the past, there have been some opportunities or some chances to push a second half increase.

That's not something that we should be anticipating when we look out to the rest of this year?.

No, it's pretty difficult to do that in the Northern climates because the season -- the Mississippi River as far as barge traffic shuts down halfway through the fourth quarter. So it's not -- a price increase in September/October is unusual in the Northern climates just because the season is almost over. .

And then as far as from the leverage perspective, with target getting down to 4x, you've already completed over $30 million of EBITDA contribution.

Should we think that acquisitions -- that maybe we're done for the year, I guess, in terms of acquisitions, even though potentially there are some larger assets coming onto the market? Or how should we think about that, balancing acquisitions versus paying down or moving the leverage down?.

Yes, our deal flow is still very strong, and I'd be disappointed if there weren't some additional smaller deals that close between now and the end of the year. I think, even with that, our leverage will still get back down towards the 4x.

On the bigger deals out there, that's really not -- unless we can add tremendous value, that's not really our strong suit. And we -- as you know, there's a couple of large cement assets out there. I'd be surprised if we're in the running for those. .

Our next question comes from the line of Scott Schrier with Citi. .

I wanted to ask the question, more bigger picture, as you've had tremendous success in your EBITDA margin trajectory, does it change at all how you look at your materials-based vertical integration strategy to the extent that maybe look at some deals and you're more hesitant because you're trying to protect this strong margin that you've built?.

Yes, I -- we're still great believers in the vertical model. I think that we certainly performed extremely well in the downstream, and I like our product mix where it is now. It may go up or it may go down as far as the percentage of materials. But what we really want to do is create value for our shareholders.

And if the EBITDA margin, because we've vertically integrated a little bit, goes down a point or 2, that -- it's really all about value creation. I'm very pleased with our -- both our gross margin and our EBITDA. We made tremendous progress on those.

And I think something that people tend to miss is the fact that we've only owned the businesses that have joined with us for an average of something around 2 years. So there is still tremendous internal opportunity for performance improvement.

And we bring, I think, a really solid toolkit to these businesses, and I think we've got a lot of runway on our businesses to drive value. .

Great. And further on the downstream, I noticed you had a really good quarter in services, particularly from a margin and operating leverage perspective.

Was there anything in there that helped serve as a catalyst? And if not, can we expect this kind of growth going forward in the services business?.

I would say a continuation of that. I mean, we've had very good performance in North Texas and in Utah in our services business. And we would see that continuing.

Brian, anything else that jumps out on the services side?.

No, I mean, it's one of those parts of our business that generates about 5% of our EBITDA comes from our services. We have a number of attractive product mix in those markets that Tom mentioned, in the North Texas and Utah markets, right now, which are helping support that margin. But it obviously kind of fluctuates from quarter-to-quarter.

But we're quite pleased with the margins we're generating in that business right now. .

Okay. And lastly, on the CapEx for the projects that you discussed that you're taking on.

As you make acquisitions, have you been identifying more value-enhancing projects that might lead to more of a sustained level of increased CapEx maybe into 2017?.

There's a couple of projects out there that we're evaluating right now. We'll see. I would doubt that we'll be at the elevated levels that we are this year.

But we -- we haven't completed our analysis, but this year was a pretty exceptional year with a number of large aggregate-oriented capital projects, all very attractive and, so far, all going extremely well. .

We have reached the end of the question-and-answer session. Mr. Hill, I would now like to turn the floor back over to you for closing comments. .

Okay. Thank you for your time and your interest in Summit Materials, and I really look forward to updating you on our next quarterly call. Thank you. .

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day..